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CACV 466/2018
[2019] HKCA 604
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 466OF 2018
(ON APPEAL FROM HCA 3291/2003)
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BETWEEN
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WADDINGTON LIMITED
(Suing on behalf of itself
and all other shareholders in
PLAYMATES HOLDINGS LIMITED
(except the 1st and 2nd Defendants) PLAYMATES INTERNATIONAL LIMITED and PROFIT POINT LIMITED)
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Plaintiff |
| and |
CHAN CHUN HOO THOMAS
(陳俊豪) |
1st Defendant |
TGC INVESTMENTS LIMITED
(formerly known as
CHANSAM INVESTMENTS LIMITED) |
2nd Defendant |
PLAYMATES HOLDINGS LIMITED (彩星集團有限公司)
(formerly known as PLAYMATES INTERACTIVE ENTERTAINMENT LIMITED)
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3rd Defendant |
| PLAYMATES INTERNATIONAL LIMITED |
4th Defendant |
| PROFIT POINT LIMITED |
5th Defendant |
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| Before: |
Hon Lam VP and Barma JA in Court |
| Dates of Hearing: |
3 and 24 May 2019 |
| Date of Judgment: |
29 May 2019 |
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JUDGMENT
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Hon Lam VP (giving the Judgment of the Court):
The indemnities and dispute arising from them
1. Pursuant to leave granted by this Court, the Plaintiff brought an appeal against the order of Chow J [“the Judge”] of 21 March 2018 in a multiple derivative action concerning the indemnity for the costs of the Plaintiff by the 5th Defendant (The company for whose benefit the action was brought). The multiple derivative action was tried before Recorder P Fung SC [“the Recorder”]. By a judgment handed down on 18 December 2013, the Recorder held that the derivative claims were established and entered judgment against the 1st Defendant in favour of the 5th Defendant. The 1st Defendant appealed against that judgment and the appeal was dismissed by the Court of Appeal on 20 May 2016. His application to the Court of Appeal for leave to appeal to the Court of Final Appeal was unsuccessful. On 14 February 2017, the Appeal Committee dismissed his renewed application for leave.
2. In respect of the costs of the Plaintiff incurred in the Court of First Instance, the Recorder made the following provisions in an order of 10 March 2014:
(1) the 1st Defendant do pay to the Plaintiff the costs of this action to be taxed on a common fund basis, if not agreed;
(2) the 5th Defendant do indemnify the Plaintiff in respect of any costs incurred by the Plaintiff which it will not have been able to recover from the 1st Defendant [“the First Instance Indemnity”]; and
(3) the parties have liberty to apply to a Judge of the Court of First Instance for further directions in respect of the working out of the order, if necessary.
3. In respect of the costs of the Plaintiff incurred in the Court of Appeal, the Recorder granted an order on 26 November 2014 that the 5th Defendant do indemnify the Plaintiff in relation to the costs of the appeal [“the CA Indemnity”].
4. There was no indication in these orders of the Recorder as to how the First Instance Indemnity and the CA Indemnity would actually be implemented. Subsequently, disputes arose between the Plaintiff and the 5th Defendant as to these indemnities[1]. By then, the Plaintiff had already received part of his costs based on the costs orders (and taxation of such costs pursuant to those orders) against the 1st Defendant.
5. Submissions on these disputes were heard by the Judge. In a nutshell, the 5th Defendant contended that the Plaintiff’s costs should be taxed on a “party and party” basis, or alternatively “common fund” basis. On the other hand, the Plaintiff contended that as the indemnities were not costs orders there should not be any taxation. Further, the indemnities should be taken as full indemnity in respect of all the costs incurred by the Plaintiff.
The decision of Chow J of 21 March 2018
6. In the judgment of 21 March 2018, the Judge held that the indemnities were granted as part of the exercise of the court’s jurisdiction over costs under section 52A (1) of the High Court Ordinance though equitable principles would continue to govern the exercise of such jurisdiction.
7. The Judge referred to his earlier judgment of 12 June 2015 (in the context of an application by the 5th Defendant for leave to appeal against the CA Indemnity and other orders made by the Recorder) on the discussion of the nature of the jurisdiction for indemnity to be granted by the court over the costs of a minority shareholder in a derivative action.
8. In that earlier judgment, the Judge came to that conclusion after considering submissions advanced by Mr Yu SC (also appearing for the Plaintiff on that occasion) and the submissions of counsel (not Mr Chan SC) for the 5th Defendant. After citing the judgment of Litton NPJ in Financial Secretary v Wong (2003) 6 HKCFAR 476 at [103] to [110], the Judge said at [25] to [26] of the judgment of 12 June 2015 (reported as [2015] 3 HKLRD 474):
“25. The above judgment of Litton NPJ would tend to suggest that the equitable jurisdiction of the court to order the costs of a trustee, mortgagee, or other person to be paid out of a particular estate or fund should now be regarded as being statutorily based. If that be the right view to take, it would be difficult to see why the court’s jurisdiction to make an indemnity costs order in favour of a minority shareholder in a derivative action should stand on a different footing.
26. While the matter is not free from doubt, on the basis of the existing authorities, I consider the better view to be that the court’s jurisdiction to make an indemnity costs order in favour of a minority shareholder in a derivative action should, strictly speaking, be regarded as being based on section 52A(1) of the High Court Ordinance, but equitable principles would continue to govern the exercise of such jurisdiction by the court. I do not, however, need to come to a final conclusion on this issue for the purpose of the present application. All that I need to be satisfied is that the proposed appeal has a “reasonable prospect of success” as explained by the Court of Appeal in SMSE v KL. This threshold can, in my view, plainly be satisfied in relation to the proposition that the court’s jurisdiction to make an indemnity costs order in such a situation is based on section 52A(1) of the High Court Ordinance.”
9. In the judgment of 21 March 2018, the Judge adhered to the same view that he had earlier come to.
10. The “equitable principle” that the Judge alluded to was discussed in Wallersteiner v Moir (No 2) [1975] QB 373. In that case, members of the English Court of Appeal drew an analogy between a minority shareholder bringing a derivative action and a trustee, agent or next friend engaged in litigation for the benefit of a trust, principal or an infant. The principle was put in these terms by Buckley LJ at p.403:
“ … It seems to me that in a minority shareholder’s action, properly and reasonably brought and prosecuted, it would normally be right that the company should be ordered to pay the plaintiff's costs so far as he does not recover them from any other party. In all the instances mentioned the right of the party seeking indemnity to be indemnified must depend on whether he has acted reasonably in bringing or defending the action, as the case may be …”
11. The Court of Appeal also referred to the rationale for similar indemnity for trustees as expounded by Lindley LJ in Re Beddoe [1898] 1 Ch 547 though it was recognized that the right of the minority shareholder to an indemnity vis-à-vis the company, unlike those of a trustee or agent, could not stem from an implied contract. Buckley LJ referred to the exercise of judicial discretion as the basis of the indemnity:
“ It is true that this right of a trustee, as well as that of an agent, has been treated as founded in contract. It would, I think, be difficult to imply a contract of indemnity between a company and one of its members. Nevertheless, where a shareholder has in good faith and on reasonable grounds sued as plaintiff in a minority shareholder’s action, the benefit of which, if successful, will accrue to the company and only indirectly to the plaintiff as a member of the company, and which it would have been reasonable for an independent board of directors to bring in the company's name, it would, I think, clearly be a proper exercise of judicial discretion to order the company to pay the plaintiff's costs.”
12. Scarman LJ explained the right to indemnity as follows:
“ The indemnity is a right distinct from the right of a successful litigant to his costs at the discretion of the trial judge; it is a right which springs from a combination of factors - the interest of the company and its shareholders, the relationship between the shareholder and the company, and the court’s sanction (a better word would be ‘permission’) for the action to be brought at the company’s expense.”
13. In the judgment of 21 March 2018, the Judge held that the indemnities should be regarded as a form of costs order made under Section 52A(1)[2]. In any event, even if not a costs order subject to inter partes taxation, the Plaintiff is not entitled to a “full indemnity” subject to taxation on solicitor and own client basis under section 68(1) of the Legal Practitioners Ordinance. The analogy with a trustee, the Judge held, was not exact as the Plaintiff had a personal interest in the outcome of the action and he did not owe duties to the company[3].
14. The Judge held that the costs of the Plaintiff were subject to the court’s scrutiny. He further held that such costs should be taxed on the common fund basis. He did not regard an order for such taxation to be impermissible as the indemnities had not provided for the scale of assessment and the court’s jurisdiction had not been exhausted[4].
15. For those...
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