24 May 2019

Non-party costs order: a revisit of Hong Kong court’s approach

This article is written by Rachel Yu.

Pursuant to section 52A(2) of the High Court Ordinance, the court has the power to award costs against a person who is not a party to the proceedings where it is in the interest of justice to do so. The court can join non-parties to the proceedings either on its own motion or upon application by the parties and has a wide discretion to determine “by whom and to what extent” costs of the proceeding are to be paid.

In the recent judgment of Ng Yuk Pui Kelly v Dung Wai Man and others [2019] HKCFI 1157, the Hong Kong Court of First Instance revisited the court’s approach in deciding whether to order a non-party to pay costs of the proceedings.

Background

This case concerns a family dispute over the beneficial ownership of two properties in Central. The plaintiff, Mr Ng Yuk Pui Kelly, is the younger brother of late Mr Ng Bing Kuen (“Kuen”) whereas the defendant, Dung, is the lawful wife of Kuen and the registered owner of the properties.

In September 1985, Kuen sold the properties to the plaintiff for HK$1 million and in view of their close relationship and the mental condition of the defendant, they did not effect any transfer of legal title to the plaintiff. The plaintiff eventually commenced proceedings against the defendant for a declaration that the properties belong to him. In a judgment early this year, the Honourable Mr Justice Louis Chan adjudged that the plaintiff should succeed in his claim. In his judgment, the judge criticised the credibility of the three children of the defendant who acted as witnesses for their mother. Specifically, the judge considered that the children had fabricated stories with a view to explain away matters that operate to the plaintiff’s advantage. For example, they came up with an explanation that the HK$1 million paid by the plaintiff to Kuen was a distribution of profits derived from businesses they ran jointly, which was readily overturned by unchallenged tax documents showing that the business had no profit to share at the material time.

Accordingly, the judge ordered that the three children of the defendant be joined as defendants in the action for the purpose of costs only.

A two-stage approach

In considering whether a costs order should be made against a non-party, the court takes a two-stage approach:

In the first stage, the court considers whether it is appropriate to join the non-party for the purpose of costs only. The threshold is relatively low. The court should refuse joinder only when it is plain and obvious that the application amounts to an abuse of process on the ground of delay or other misconduct on the part of the applicant, or when the application is seen to be manifestly and fundamentally misconceived.

In the second stage, the court considers whether it is in the interest of justice to make a costs order against a non-party taking into account all relevant factors. Each case would of course turn on its own facts but the recent decision in Kelly v Dung on costs provide some guidance on the relevant factors, which include but are not limited to:

  • the source of funding of the litigation;
  • the person in ultimate control of the proceedings;
  • the non-party’s personal interest in the successful outcome of the proceedings; and
  • the prejudice suffered by the non-party in a lack of warning about the possibility of a non-party costs order at the earliest opportunity.

In this case, the court at the end considered it not in the interest of justice to make a costs order against the three children of the defendant based on the facts of the case. However, the court has in other cases ordered non-parties to bear the costs of proceedings. For example, in Big Island Construction (HK) Limited v Wu Yi Development Company Limited and another [2018] HKCFI 899, the company director relentlessly pursued a false claim through the plaintiff, which is an impecunious company, all the way up to the Court of Final Appeal. Despite a delay and a lack of warning from the applicant in applying for a costs order against the company director, the court in the interest of justice ordered the company director to be personally liable for the costs of the proceedings as he was indeed the real party to the litigation.

Conclusion

The decision in Kelly v Dung undoubtedly serves as a reminder that the court has the power to join a non-party as a defendant for the purpose of costs on its own motion. From a practitioner’s perspective, it is also important to remind the client to serve a costs warning on a non-party who is considered to be the driving force of a case in good time, in order to preempt an argument that he is prejudiced by a lack of warning.

Leaving aside the issues surrounding maintenance and champerty which warrant a separate discussion, people who assist parties in litigation proceedings, especially those who may be seen to control the proceedings or may stand to benefit from the outcome of the proceedings, should be cautious about their personal liability for costs.

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