In Ng v Dung,(1) the High Court reiterated the general principles which govern its power to order a non-party to pay the costs of another party to court proceedings. The court's power is statutory but the general principles that govern the exercise of its discretion arise out of case law. The case law demonstrates that the court's discretion to make an order for costs against a non-party is wide. The interests of justice are paramount. While an order for costs against a non-party is often described as 'exceptional', in this context this usually means no more than outside the ordinary run of cases where (for example) parties pursue or defend claims for their own benefit and at their own expense (including a risk as to liability for costs). In this case, the court declined to make a costs order against the non-parties – namely, three adult children of the main defendant, who was their elderly mother. She had unsuccessfully defended her late husband's brother's claims to ownership of two properties and her three adult children had actively assisted the defence in allegedly fabricating stories to defeat the claims.
The power of the High Court to make an order for costs against a non-party is set out in Section 52A(2) of the High Court Ordinance (Cap 4). The general principles that govern the exercise of the court's discretion are not controversial and are aimed at achieving the interests of justice.
An application for a non-party costs order usually follows a two-stage process. First, the court considers whether the non-party should be joined (a first-stage hearing or enquiry). This is not a difficult threshold to meet – usually, joinder will be refused only if it is plainly an abuse of process. Second, once joined the non-party respondent is given an opportunity to oppose the application (a second-stage hearing or enquiry).
The main protagonists in Ng were the plaintiff and his late brother's estate and elderly surviving widow. The plaintiff appears to have paid his brother for two properties – however, title was not formally transferred to him. On the brother's death, there followed an acrimonious dispute between the plaintiff and the main defendant (the mother) concerning ownership of the properties. According to the judgment in the main action, the three adult children had actively assisted their mother in resisting the plaintiff's claims. The role of the three adult children was described as being more than mere witnesses for the defence and as having contributed to a united family front that used fabricated stories to resist the plaintiff's claims.(2) At the trial in the main action, the plaintiff was successful and was found to be the rightful owner of the properties. As the losing party in the action, the main defendant (the mother) and the deceased's estate were jointly and severally liable to pay the plaintiff's costs.
Given that the court found that the adult children had played an equally vigorous role as their mother in the defence of the action, it ordered that they be joined as parties for the purpose of deciding whether to make a non-party costs order against them. The court on its own initiative decided that there were grounds for making a non-party costs order and ordered that the adult children be given an opportunity to show cause why a non-party costs order should not be made against them.
There followed a second stage hearing as to whether to make a non-party costs order.
The grounds of opposition raised by the adult children focused on the following arguments:
- they had not been the real parties but merely factual witnesses;
- the litigation had been funded by the main defendant and the deceased's estate;
- the litigation had been controlled by the main defendant; and
- they had had no personal interest in the outcome of the litigation.
The adult children also raised procedural objections – namely, that they had not been warned about the possibility of a non-party costs order being made against them and that they had been joined as non-parties without a proper opportunity to be heard (namely, a first-stage hearing).
After hearing full argument on behalf of the plaintiff and the adult children, the court declined to make a non-party costs order.
While deciding the case on its own facts, the court noted that the adult children had acted out of loyalty to their mother (the main defendant), who was described as "a strong-willed and domineering person".(3) That loyalty was misplaced to the extent that it had caused them to help fabricate stories to assist the defence. The court's decision on costs describes the adult children as having (in effect) taken a path of least resistance by aiding their mother's defence – that was a mistake but not one that (in the circumstances) justified making a non-party costs order in the interests of justice.
The court addressed each of the particular grounds put forward to oppose the grant of a non-party costs order.
First, the adult children were not the real defendant – that was the mother.
Second, while the adult children appear to have provided some financial support to their mother in defending the claim, this was not (on the facts) pivotal in determining their role. The mother had been in control of the defence.
Third, while the adult children had assisted their mother in defending the claim, it was she (as the main defendant) who had had ultimate and sole control of the defence and who had all along insisted on defending the action.
Fourth, while it was true that the adult children did not have a vested interest in the properties, one or more of them appear to have occupied one of the properties and it was not correct to state that they would not have benefited had the defence succeeded. However, this in itself did not justify a non-party costs order against them.
As for the procedural objections to the grant of a non-party costs order, these do not appear to have featured significantly in the court's deliberations. The court considered that the adult children had suffered some prejudice in not being warned by the plaintiff about the possibility of them being potentially liable for a non-party costs order before assisting the defence – however, had the adult children been warned, the court considered that it was a moot point whether they would still have assisted the main defendant given what they regarded as their filial obligation. As for the lack of a first-stage hearing, the court did not consider that this had prejudiced the adult children. They had been joined as non-parties by the court (and not on an application by the plaintiff) following the court's findings in the main judgment and they had had ample opportunity to oppose the grant of a non-party costs order at the second stage (and had succeeded in doing so).
The court also appears to have made no order with respect to costs of the joinder or the second-stage hearing. This reflects the fact that the joinder (at the first stage) was initiated by the court (and not the plaintiff) and although the adult children had successfully resisted a costs order being made against them, they had assisted in the apparent falsity of the defence.
On a fair reading of the court's decision, the extenuating circumstances of the main defendant's parental relationship with the adult children appears to have been crucial.
The court found that it was the main defendant (the mother) who had had sole control of the defence and everything else in the court's deliberations appears to have been of secondary importance. While the facts of the case are unusual, non-party costs orders are usually directed at those who control or finance litigation for their financial gain without formally being a party.
While non-party costs orders are not common in Hong Kong, they are receiving more attention and this should be of general interest to the likes of (for example) some commercial litigation funders in insolvency proceedings, company directors and insurers.(4)
As a practical point, a party intending to apply for a non-party costs order should give written notice to the non-party in good time. The earlier this is done the better from an applicant's point of view. For example, a party could serve a written warning of its intention to seek a non-party costs order soon after receiving the other party's witness statements.
Finally, it is worth noting that, in this case, the court does not appear to have been impressed by certain aspects of the defence. As a general point, the courts have various procedural tools and sanctions to deal with parties or third parties that advance a false case in legal proceedings.
(4) See Hong Kong Civil Procedure 2019 (the 'White Book'), Volume 1, Order 62/6A/1-18 and Volume 2, E1/52/1-7. Third-party funding for litigation in Hong Kong is generally prohibited. That said, case law developments in England and Wales regarding non-party costs orders are generally of persuasive value.
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