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12 June 2018
The recent landmark judgment of the Court of Final Appeal in Designing Hong Kong Ltd v Town Planning Board(1) confirms that in deciding whether it is fair and just to grant a protective costs order in public interest litigation, the courts should be apprised of an applicant's financial position. In the case of a corporate applicant, it is proper to inquire not only into the assets belonging to the company, but also other sources of funding to which it has access. Depending on the circumstances, these could include the financial resources of the directors, shareholders or other supporters of the company. In this case, the Court of Final Appeal dismissed the applicant's appeal of the lower courts' refusal to grant a protective costs order in its favour. Although perhaps of limited comfort to the applicant, the case is the first in Hong Kong in which the courts have extensively set out the relevant legal principles in this regard.
The applicant was a non-profit company limited by guarantee. One of its objectives was to promote environmental sustainability. In Hong Kong one significant environmental issue is the protection of the harbour and waterfront. The company objected to the Town Planning Board's refusal to amend a zoning plan for a prized area of the waterfront and, therefore, applied for and obtained permission for a judicial review of the board's decision.
As part of its application, the company sought a protective costs order to protect it from (among other things) liability to pay any of the board's legal costs or to cap those costs at HK$10,000. That application was dismissed by a judge and the Court of Appeal, in what is thought to be the first example of the courts in Hong Kong examining in detail the relevant legal principles for making a protective costs order.
Protective costs orders are designed to protect an applicant in public interest litigation from exposure to pay the other side's costs (or, at least, to limit potential liability). Protective costs orders can take a number of different forms and are exceptional. In part, given the availability of legal aid in Hong Kong (relative to many other jurisdictions), protective costs orders have not featured prominently. In genuine public interest litigation in Hong Kong, the courts have sometimes made no order as to costs with respect to an unsuccessful application for judicial review.
The company applied for and obtained permission from the Appeal Committee to appeal to the Court of Final Appeal. Several related issues arose for determination by the Court of Final Appeal. It was undisputed that the company's application for judicial review raised issues of general public importance and that it had no private interest in the outcome of the substantive case.
In short, the key issue for determination concerned one aspect of the court's discretion – namely, the financial resources of an applicant seeking a protective costs order, particularly when the applicant is a company.
The principal figures behind the company appear to have been unwilling to give details of their financial worth because they understandably did not want to countenance contributing to the costs of litigation in which it was accepted that they had no financial stake (and which they had commenced solely for reasons of public interest). The company appears to have been of the view that a protective costs order could be made without regard to the financial resources of its backers.
The lead judgment of the court was handed down by the chief justice, which is to be expected in a matter raising such important legal principles.(2) It serves as a useful summary of the traditional costs regime in Hong Kong (and the general 'loser pays' principle). The judgment is also a useful summary of the legal principles underpinning the grant of a protective costs order.(3)
The judgment confirms that an applicant for a protective costs order must disclose details of its financial resources before the court can arrive at a decision as to whether it would be fair and just to grant such an order – and, importantly, if an order is not granted, whether it would be reasonable for the applicant to discontinue the legal proceedings. Therefore, in this case, it was not enough that the legal proceedings in which a protective costs order was sought were in the public interest and that the applicant had no private interest in the outcome of the case.
A key passage in the lead judgment reads as follows:
It is contended that the court should not look at all to the financial resources or ability of shareholders, directors or other persons who may support the company or who may in the past have supported the company. Such persons are not to be regarded as being synonymous with the company. We were reminded that a company is to be seen as having a separate legal personality from its shareholders. This contention overstates the position. Some flexibility and realism need to be applied to the position of shareholders, directors, guarantors and other supporters of a company. In some situations it may be entirely appropriate to look closely at the financial ability and resources of such persons, in other situations perhaps not. There is no fixed approach one way or the other.(4)
Indeed, an emphasis on "common sense", "flexibility" and the court's discretion to do what is "fair and just" are hallmarks of the judgment.(5)
As a result, the court appears to have had little difficulty in dismissing the applicant's appeal.
The judgment provides an interesting review of the public interest litigation landscape in Hong Kong, particularly with regard to legal costs. There is no institutional commercial litigation funding market in Hong Kong (as yet) and this is not the sort of case for which such funding would be available. The applicant (and its backers) did not have the benefit of legal aid, nor any guarantee at the conclusion of the substantive judicial review proceedings that there would be no order as to costs – hence, the application for a protective costs order was entirely understandable.
Interestingly, the Court of Final Appeal gave permission for leave to appeal with respect to a second principal issue – namely, at what stage should an application for a protective costs order be made in proceedings for judicial review. However, as sometimes happens in final appeals, this particular issue does not appear to have been fully addressed by the parties and was therefore not decided. That said, the working assumption appears to be that the appropriate stage at which to determine an application for a protective costs order in judicial review proceedings is generally when permission to proceed is sought.
One easily overlooked feature of this case is the assurance that it represents for access to justice in Hong Kong. While the application may have been unsuccessful, in the best traditions of the legal profession, the applicant's lawyers acted pro bono – thereby limiting the board's exposure to legal costs should it lose the case (the board being funded by the public purse). Further, the Court of Final Appeal made a provisional order that there be no order as to costs with respect to the company's appeal and the hope must be that the Department of Justice (on behalf of the board) does not seek to disturb this.(6)
In a similar vein, the shorter judgment of the local non-permanent judge (agreeing to the dismissal of the appeal) makes the point that the wider availability of legal aid in Hong Kong (a relative concept) should not necessarily mean that protective costs orders are more difficult to obtain.(7)
Overall, the outcome of the case is unsurprising and provides welcome jurisprudence in this important area. Somewhat unusually for contentious proceedings (and objectively considered), all of the stakeholders involved in the case appear to have come out of it rather well.
Finally, the judgment is an affirmation (if one was needed) of the crucial role of the Court of Final Appeal in Hong Kong some 21 years after reunification.
For further information on this topic please contact Warren Ganesh or David Smyth at RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(2) The judgment is fully reasoned and well written. A non-permanent judge of the court (perhaps known for his more progressive inclination) also gave a shorter judgment, agreeing that the appeal should be dismissed, but extolling the virtues of protective costs orders as a matter of access to justice in the right cases and in the local circumstances of Hong Kong.
(6) The Court of Appeal also ordered that there be no order as to costs. An interesting question arises as to the progress of the underlying substantive proceedings in the apparent absence of funding options.
(7) Supra note 1, at Paragraph 63. Adding a further touch of class, the non-permanent judge states (at Paragraph 64): "Even if this decision is not one which NGOs, for example, would particularly welcome, it is, properly understood, not a decision of which anyone resorting to public interest litigation need be fearful". One overseas non-permanent judge also presided over the case (together with the chief justice and two permanent judges of the Court of Final Appeal).
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