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Hong Kong Law Alert - April 2018
Submitted by // K Bowers, Partner
13 April 2018

 

Waddington Ltd v Chan Chun Hoo Thomas and Others [2018] HKCU 914

Introduction

In Waddington Ltd v Chan Chun Hoo Thomas and Others [2018] HKCU 914, the Court of First Instance ("CFI") considered the Plaintiff's application for further disclosure by Reed Smith Richards Butler ("RSRB"), the 5th Defendant's solicitors. The Plaintiff's application was in support of its intended application for a non-party costs order (a costs order against an individual who is not a party to the proceedings) against the 5th defendant's funder. This was the Plaintiff's 3rd application for disclosure and on this occasion, the Plaintiff's application was refused because the Court found that the further disclosure would likely lead to more satellite litigation, which is not the purpose behind the Court's general discretion to make non-party costs orders.

Background

The applications for disclosure orders arose from the cost order in a multiple derivative action brought by the Plaintiff. The 1st Defendant was ordered to pay costs to the Plaintiff and the Court further ordered that the 5th Defendant should:

i) indemnify the Plaintiff in respect of its costs incurred, but not recoverable from the 1st Defendant;
ii) further indemnify the Plaintiff in respect of its costs incurred in respect of the appeal; and
iii) pay to the Plaintiff the costs of the interlocutory applications in relation to an interim payment to the Plaintiff.

Since the 5th Defendant had been voluntarily wound up at the start of the proceedings (and was only restored by the Plaintiff to pursue these proceedings against it), the purpose of the Plaintiff's applications for disclosure by RSRB was to obtain information for its intended application for a non-party costs order under s. 52(A)(2) of the High Court Ordinance (Cap. 4) ("HCO") against the 5th Defendant's funder.

Plaintiff's 1st and 2nd applications for disclosure by RSRB

During January 2017, the Plaintiff applied for an order that RSRB disclose information relating to the identity of the 5th Defendant's funder (the Plaintiff's 2nd application was to amend the 1st application). The Court confirmed its jurisdiction to make a non-party costs order against the funder of a party in an action under s. 52(A)(2) of the HCO. It also confirmed its ancillary jurisdiction to order the party being funded and/or the solicitors acting for that party to disclose the identity of the funder as well as information and documents relating to the funding arrangement. The Court noted that it will take the following factors into account when deciding whether to grant such a disclosure order:-

i) the strength of the application as it now appears unassisted by disclosure;
ii) the potential value to the fair determination of the application of the documents of which the claimant seeks disclosure, and whether they are likely to elucidate considerations highly probative of the exercise of the court's discretion, or threaten to drag the application into a side alley of satellite litigation with diminishing returns for the overall issue;
iii) whether on a summary assessment it is obvious that the documents for which disclosure is sought will be the subject of proper legal professional privilege; and
iv) whether the likely effect of any order the court might be minded to make will be proportionate and just in all the circumstances.

In resisting the application, counsel for RSRB submitted that the 5th Defendant had over HK$51m in assets, which would enable it to comply with the costs order in favour of the Plaintiff. The Court confirmed that the financial position of the party liable to pay costs is a relevant condition, but not a pre-condition to the exercise of power to award costs against a non-party. Further, the HK$51m was solely from the award granted in the multiple derivative action, so it was arguable that this amount should be preserved for the 5th Defendant and its shareholders, and not to be spent on legal costs.

The Court found that information relating to the identity of the funder of the 5th Defendant was of "critical importance to the Plaintiff's intended application", and that such information was not protected by any legal professional privilege. Further, the Court was of the view that RSRB would not incur disproportionate costs in order to comply with the disclosure order.

In the end, the Court granted the disclosure order, but limited the scope (thereby refusing parts of the 1st application and the 2nd application in its entirety), such that the only information to be disclosed was "no more than what is reasonably necessary" to enable the Plaintiff to pursue its intended application for a non-party costs order. In particular, the Plaintiff sought the disclosure of details of the funding arrangement and a breakdown of the costs incurred by the 5th Defendant. This was refused as the Court held that there was no basis to order such disclosure at this stage. The Court noted that a further application may be made by the Plaintiff for the disclosure of additional relevant information after the identity of the funder is provided.

Plaintiff's 3rd application for disclosure by RSRB

In compliance with the Court's order, RSRB subsequently disclosed to the Plaintiff that the 3rd Defendant was ultimately the 5th Defendant's funder. The 3rd Defendant funded the 5th Defendant through PIL Finance Ltd. and Belmont Ltd. by procuring the two entities to advance loans to the 5th Defendant. The Plaintiff, however, was dissatisfied with the information obtained as it wanted to identify "the real individuals, against whom an application for non-party costs should properly be made". This gave rise to the Plaintiff's 3rd application made during December 2017 for an order against RSRB to further disclose information regarding the funder.

The Court eventually refused the Plaintiff's application and held that the purpose of a non-party costs order is primarily for "costs recovery". Therefore, the source of the funds should generally not matter, as long as they are recovered. An application for disclosure is not designed to be used as a means to enable a party to gather evidence of, or pursue other claims against non-parties. The Court stated that if it allowed applications to be made for these collateral purposes, it could become the source of satellite litigation, which is contrary to the objectives of the Civil Justice Reform. The Court found no reason to justify the Plaintiff's attempt to go beyond the identity of the actual funder of the 5th Defendant. In any event, the Court noted that the individuals who control a company should not be personally liable for costs liabilities of the company.

Comment

This decision is a reminder to litigants that an application for disclosure of information in support of an application for a non-party costs order should only be sought to assist with the applicant's recovery of costs. The Court is likely to refuse an application for the disclosure of information if it is found that the information is being sought for collateral purposes (such as obtaining information in order to commence proceedings against another party). The scope of the disclosure order will also be confined to information that is considered to be crucial to the applicant, based on information available at the time the application is made.


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