Who Should Bear the Costs?: Hong Kong Court Clarifies Discretion on Costs of Non-Party Discovery Applications

(A) Introduction

In Aeneas Capital Ltd and others v. Cheung Wing Tsz, HCA 655/2021, date of judgment: 29 August 2025 [1], the Court addressed the issue of costs in relation to an application for discovery against a non-party taken out by Cheung Wing Tsz (“Cheung”).

This case provides useful guidance on the Court’s approach on its discretion in awarding costs in relation to non-party discovery applications.

(B) Facts
 
The Plaintiffs (by Original Action) and Defendants (by Counterclaim) (the “Defendants”, and “D1”, “D2”, “D3” and “D4” respectively) alleged that Cheung opened a securities account with Futu Securities International (Hong Kong) Limited under her name (the “Futu Account”) and that D1 was authorized to manage Cheung’s funds on her behalf. [2]
 
On the other hand, Cheung alleged that the Futu Account was opened without her genuine authorization because the Defendants conspired against her and misused a phone number (the “Designated Phone Number”) and an email not belonging to her to open the Futu Account. [3]
 
On 16 April 2024, Cheung took out a specific discovery against the Defendants, seeking communications records (emails and SMS messages) linked to certain phone numbers and email accounts. [4]
 
The Defendants responded, by way of affirmation, that the requested documents were no longer in their possession, custody, or power. In particular, the Designated Phone Number was tied to a prepaid SIM card (the “Prepaid SIM Card”) which was assigned to a mobile phone provided by D1’s operations team to him for trading activities in relation to the Futu Account. [5]
 
Given the said affirmation, Cheung did not pursue the specific discovery against the Defendants further. [6] Instead, on 3 June 2025, Cheung issued a non-party discovery summons under Section 42(1) of the High Court Ordinance (Cap. 4) and Order 24 rule 7A(2) of the Rules of the High Court (Cap. 4A) (“RHC”) (the “Non-Party Discovery Summons”) against Ling Maximilian Shui Hung (“Ling”). [7] Ling was a director of D1 until 30 November 2024 and police investigations showed that he was the registered owner of the Designated Phone Number. [8] 

 
Ling responded, by way of affirmation, that although he was the registered user of the Prepaid SIM Card, he handed it over to D1’s operations team and had no further involvement. He also confirmed that the service of the Prepaid SIM card had been disconnected. [9] 
 
The Non-Party Discovery Summons was substantively resolved, leaving only the issue of costs to be determined. [10]
 
(C) Decision
 
First Issue: Whether Ling should be entitled to his costs of and incidental to the Non-Party Discovery Summons
 
The Court reaffirmed the principle under Order 62 rule 3(12) of RHC that non-party should generally be entitled to costs of the non-party discovery application and that such costs are normally taxed/assessed on an indemnity basis. The Court retains discretion to depart from this principle. The burden was on Cheung to justify any departure from the usual costs order. [11]
 
The Court declined to follow Jowers v Kinney [2019] 5 HKLRD 686, which held that a “pre-application request” must be made before taking out a non-party discovery application. The Court viewed that the presence of a pre-application request may be a relevant factor in the exercise of discretion on costs, but it is not an absolute requirement for making the non-party discovery application. [12]
 
In this case, the Court found no justification to depart from the usual costs order and held that Ling should be entitled to his costs of and incidental to the Non-Party Discovery Summons. [13]
 
Second Issue: Whether Ling’s costs should be borne by the Defendants or Cheung or both
 
The Court noted that Order 62 rule 3(12) of RHC only provides for Ling’s entitlement to costs, but does not specify who should be responsible for such costs. This leaves the Court with broad discretion. [14]
 
The Court found that Cheung was reasonable to take out the Non-Party Discovery Summons without a pre-application request because the police investigations indicated Ling’s involvement as the registered owner of the Designated Phone Number and he was a former director of D1.
 
Further, the Court explained that the focus should not be solely on which party ultimately “wins” the non-party discovery application. Although Cheung’s ultimate goal of obtaining the documents was not achieved, the Non-Party Discovery Summons was justified. As such, the Court ordered that Ling’s costs be initially shared equally by Cheung and the Defendants, but such costs shall be treated as part of their respective costs of this action. The respective costs of Cheung and the Defendants in relation to the Non-Party Discovery Summons should be costs in the cause. [15]
 
Third Issue: Whether Ling’s costs should be borne by Cheung on an indemnity basis
 
The Defendants submitted that Ling’s costs should be borne by Cheung on an indemnity basis on the ground that the Non-Party Discovery Summons was totally without merits. [16]
 
The Court rejected the said argument and found that the Defendants’ submissions for indemnity costs was totally without merits. The Court reminded practitioners to exercise their good common sense in deciding whether pursuing indemnity costs is justified, based on the seriousness of the case and the merits of the application.  [17]
 
(D) Key Takeaways
 
In conclusion, this case underscores the Court’s broad discretion in awarding costs in non-party discovery applications. Under Order 62 rule 3(12) of the RHC, non-parties are generally entitled to costs of non-party discovery applications, taxed/ assessed on an indemnity basis. However, the Court may depart from this general principle based on all relevant circumstances. 
 
Further, a pre-application request is not necessary for non-party discovery applications, though it may be a relevant factor in costs decision. The Court will consider the reasonableness and merit of such application, even if the applicant does not ultimately obtain the documents sought.

Fixed-Term Employment and Wrongful Dismissal: Key Court’s Guidance on Employment Contract Drafting and Interpretation

(A) Introduction

In Chung Hoi Yin Aggie v The General of The Salvation Army, HCLA 16/2023, date of judgment: 21 August 2025, [1] the Hong Kong Court of First Instance (the “Court”) addresses an appeal concerning the construction and termination of an employment contract. The Court held that the Labour Tribunal erred in law in its interpretation of the contractual terms, particularly in holding that certain service quality standards formed part of the employment contract and in treating the termination as a wrongful dismissal.

This case sets an significant precedent on the proper approach to contractual construction, the nature of fixed-term employment, and the circumstances under which termination constitutes wrongful dismissal entitling an employee to compensation.

(B) Facts

The Claimant had been employed by the General of The Salvation Army (the “Defendant”) as a registered contract social worker since 2005. [2]

On 30 March 2020, she accepted an employment contract (the “Employment Contract”) for a fixed term from 1 April 2020 to 31 March 2021. The Employment Contract contained references to the “合約僱員手冊 (2013 年5 月1日修訂）(Handbook)” and “Service Quality Standards 5 (the “SQS 5”)”. [3] The Employment Contract was renewed six times after the initial expiry, with each renewal clearly indicating a fixed-term period. [4] The last renewal ended on 30 September 2022. The Defendant notified the Claimant that there would be no further renewal, despite her being on sick leave at that time. [5]

The Labour Tribunal found that the SQS 5 formed part of the Employment Contract and that the termination was a wrongful dismissal, awarding wages in lieu of notice and compensation under Section 32P of the Employment Ordinance, Cap. 57 (the “Ordinance”). [6]

Subsequently, the Court grant leave for the Defendant to appeal on the following grounds: [7]

(1) Ground 1: Deputy Presiding Officer Ms Chan Pui Shan (the “Learned Officer”) erred in law in holding that SQS 5 formed part of the Employment Contract, which should have been construed as no more than guidelines for the human resources department of the Defendant to follow;

(2) Ground 2: the Learned Officer erred in law in construing that Clause 5 of SQS 5 conferred a contractual right on the Claimant to receive 28 days’ notice or payment in lieu, given that the employment under the Employment Contract was a fixed-term employment;

(3) Ground 3: the Learned Officer erred in law in holding that the Claimant was dismissed upon the expiry of the fixed-term employment;

(4) Ground 4: for compensation upon dismissal under Section 32P of the Ordinance, the Learned Officer erred in law in failing to investigate whether the Claimant was dismissed within or outside her statutory entitlement of sick leave allowance as provided by Section 33(4B) of the Ordinance and/or in failing to adjourn the issue of compensation under Section 32P until the determination of the Claimant’s employee compensation claim which would determine her statutory entitlement of sick leave allowance; and

(5) Ground 5: the Learned Officer should have found that there were proper grounds for the dismissal, if the termination was a dismissal.

(C) Decision

The Court allowed the Defendant’s appeal and dismissed the Claimant’s claim with costs of the appeal (including the costs of the application for leave to appeal) to the Defendant on the following grounds:

Ground 1 and Ground 2

The Court reaffirmed the general legal principles of contractual construction, emphasizing that such construction is a unitary exercise starting with the ordinary and natural meaning of the words and considering the purpose, context and factual matrix known to the parties, the quality of the drafting and the commercial common sense. The Court must ascertain the parties’ intention objectively. The relevant factors are “aptness” and commercial sense. [8] The Court further added that the same legal principles should apply to construction of an employment contract. [9]

The Court found that SQS 5 did not form part of the Employment Contract and was only non-binding guidelines for the Defendant. The Court further found that the Employment Contract was a fixed-term contract. [10]

Ground 3

The Court held that expiry of a fixed-term contract does not constitute dismissal. As such, there was no no wrongful dismissal, and the Claimant was not entitled to compensation under Section 32P of the Ordinance (i.e. compensation for wrongful dismissal). [11]

Ground 4

The Court rejected this ground because the directions given by the Learned Officer on 11 April 2023 and the supplemental witness statements were solely for investigating whether the medical leave was statutory. [12]

Ground 5

The Court rejected this ground because the Court found that Ground 5 was more a ground on the Learned Officer’s factual finding of whether there were valid grounds for the dismissal (if it were a dismissal) and hence the Learned Officer’s finding was not wrong as to constitute any error of law. [13]

(D) Key Takeaways

In conclusion, this case provides helpful guidance on the drafting and interpretation of employment contracts:

(1) Employment contracts should be interpreted objectively, based on the meaning of the words, the purpose of the agreement, the context known to the parties, the quality of the drafting, and commercial common sense. 

(2) Reference to staff handbooks or service quality standards are generally not incorporated as contractual obligations unless expressly stated. 

(3) Expiry of a fixed-term employment contract is not a wrongful “dismissal” and does not entitle the employee to notice or compensation for wrongful dismissal unless otherwise agreed.

(4) Employers should carefully draft fixed-term contracts to avoid ambiguity regarding renewal and termination, in particular, clearly specifying renewal procedures, duration, and termination conditions.   

Hong Kong Court Prevents Unrecognized Foreign Insolvency from Resisting Charging Orders

(A) Introduction

In Lead Good Group Ltd v Creditland Group Ltd and others, HCCT 2/2024, date of judgment: 15 August 2025, [1] the Court dismissed the appeal of Royue Limited (“Royue”) against the Charging Order absolute (“CO”) made by Master Matthew Leung over Royue’s beneficial interest in approximately 43.29% of the shares of Zhenro Properties Group Ltd (“Zhenro”), in favor of Lead Good Group Limited (“Lead Good”). 

This case provides helpful guidance on the Hong Kong Courts' approach to enforcement in the context of unrecognized foreign insolvency proceedings. It clarifies that, in the absence of recognition, foreign insolvency proceedings generally do not serve as a bar to charging orders. It also reaffirms the principle of “first past the post”, allowing the creditor who enforces first to obtain priority, unless exceptional circumstances or “sharp conduct” are established. 

(B) Facts

Royue was incorporated in the British Virgin Islands (“BVI”) on 28 June 2017. Lead Good obtained an arbitral award against Royue on 8 December 2023 (“Award”). On 11 January 2024, leave was granted in Hong Kong for Lead Good to enforce the Award against Creditland Group Limited, Royue and 正荣集团有限公司.

Subsequently, on 29 May 2024, Lead Good applied for a Charging Order nisi over Royue’s shares in Zhenro, which was granted on 23 July 2024. On 9 December 2024, Master Leung maade the CO.  

Royue appealed against the CO on 23 December 2024 and sought to adduce additional evidence, including a winding-up order against Royue granted by the BVI court on 14 April 2025.

Further, Royue attempted to apply for recognition of the BVI insolvency in Hong Kong. However, it was opposed by its creditors, including Lead Good. No application for recognition has been made in Hong Kong.

(C) Issues

The  Court considered the following issues:[2]

(1) Whether foreign insolvency proceedings against Royue, which have not been recognised in Hong Kong, may be relied upon to resist Lead Good’s application for a charging order absolute.

(2) Whether there is “undue prejudice” to other creditors of Royue if Lead Good obtains a charging order absolute.

(3) If the Court is to consider that unrecognised foreign liquidation would tilt the balance in favour of Royue’s case, whether there are exceptional circumstances that would justify the Court in making the order absolute nonetheless.

(D) Decision

The Court reaffirmed its discretion to grant a charging order, taking into account all relevant circumstances, including the potential prejudice to other creditors.[3]

The Court also dismissed Royue’s appeal with costs to Lead Good on the following grounds:

(1) Issue 1: The Court followed the principles established in 2 English authorities namely, British Arab Commercial Bank plc v Algosaibi and Bros Co [2011] 2 CLC 736 (“British Arab Commercial Bank”) and OOO Nevskoe v UAB Baltijos [2023] BCC 689, which indicated that, in cases of unrecognized foreign insolvency, the Court should generally prioritize the enforcement of judgments and the rights of the judgment creditor. The absence of recognition of Royue’s BVI insolvency in Hong Kong means the Court cannot consider the foreign insolvency as a basis to reject the application for making a charging order absolute.

(2) Issue 2: The Court followed the analysis in British Arab Commercial Bank. Undue prejudice and sharp conduct by the judgment creditor must be demonstrated to justify withholding the Court from make a charging order absolute. The concept of “undue prejudice” does not automatically arise merely because the charging order grants priority to one creditor. Further, the threshold for establishing sharp conduct is high. Lead Good’s actions, including enforcing the CO and acting swiftly to obtain priority, did not amount to sharp conduct. 

(3) Issue 3: This issue did not arise because of the Court’s view on Issue 1.

(E) Key Takeaways

In conclusion, this case clarifies the limits of using foreign insolvency proceedings as a shield in Hong Kong enforcement proceedings. Unrecognised foreign insolvency proceedings generally do not prevent Hong Kong Courts from granting charging orders. In the absence of recognition, the principle of “first past the post” applies, which means that the creditor who enforces first is likely to gain priority, unless there are exceptional circumstances or “sharp conduct”. Further,  “sharp conduct” is a high threshold. Mere enforcement actions or swift pursuit of judgment do not constitute sharp conduct.

 

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[1] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=171426&currpage=T

[2]  Lead Good Group Ltd v Creditland Group Ltd and others, §2

[3]  Ibid, §10-12

Significant Enforcement Milestone: The Exchange’s First Disciplinary Action Against Two Former Directors for Non-Cooperation in SFC and Exchange Investigations

(A) Introduction

In a landmark move, the Stock Exchange of Hong Kong Limited (the “Exchange”) took disciplinary action against two former directors of TOMO Holdings Limited (“TOMO”), marking the first-ever enforcement action for failure to cooperate in investigations conducted by the Securities and Futures Commission (the “SFC”) and the Exchange.[1][2]

 
This action highlights the strengthened strategic collaboration between the SFC and the Exchange in enhancing investigative efficiency and enforcement effectiveness, leveraging the Exchange’s disciplinary powers under the Listing Rules to ensure fair regulatory outcomes.

(B) Regulatory Framework for Investigations

SFC Investigations

Under Section 183(1) and Section 183(2) of the Securities and Futures Ordinance (the “SFO”), the SFC is entitled to request individuals under investigation to produce relevant records/documents, provide explanations, attend interviews, answer questions, and assist with investigations.

Failing to comply with such requests without reasonable excuse constitutes an offence under Section 184(1) of the SFO. The person is liable to (i) on conviction on indictment to a fine of $200,000 and to imprisonment for 1 year; or (ii) on summary conviction to a fine at level 5 and to imprisonment for 6 months.

Providing false or misleading information intentionally or recklessly during investigations is also an offence under Section 184(2) of the SFO. The person is liable to (i) on conviction on indictment to a fine of $1,000,000 and to imprisonment for 2 years; or (ii) on summary conviction to a fine at level 6 and to imprisonment for 6 months.

The Exchange Investigations

Under Rules 3.09C and 3.20 of the Listing Rules, directors of listed issuers are obliged to (i) cooperate in any investigation conducted by the Listing Division (the “Division”) and/or the Listing Committee (the “Committee”) or the SFC; (ii) promptly and openly answer any questions addressed to the directors; and (iii) provide up-to-date contact information to the Exchange for a period of three years from the date on which each director ceases to be a director, failing which any documents / notices sent by the Exchange or the SFC to the last known address on record shall be deemed to have been served on the director.

In addition, under Rules 2A.09 and 2A.10 of the Listing Rules, the Exchange may impose disciplinary sanctions against various parties involved with listed issuers, including directors, senior management, substantial shareholders, professional advisers, employees of advisers, guarantors and parties with undertakings or agreements with the Exchange. Possible sanctions include:

(1) Private reprimands, public criticism or censure;
(2) Public statements questioning an individual’s suitability for their role;
(3) Market denial or suspension of trading;
(4) Cancellation of listing;
(5) Bans on professionals or individuals from representing parties before the Exchange;
(6) Reporting breaches to regulators or authorities;
(7) Remedial or corrective orders;
(8) Any other actions deemed appropriate, including public disclosures.

(C) Facts of the Case

The SFC initiated an investigation into potential contraventions of the SFO involving TOMO and its connected parties and issued notices to Ms Ma Xiaoqiu (“Ms Ma”) , former executive director and chairlady of TOMO and Mr Jin Lailin (“Mr Jin”), former independent non-executive director of TOMO, requesting relevant information and documents under Section 183 of the SFO. Both failed to respond to the SFC’s notices. The SFC referred the matter to the Exchange for action under the Listing Rules.

Meanwhile, the Division was investigating whether Ms Ma and Mr Jin had discharged their duties and obligations under the Listing Rules. Neither responded to the above investigation either.

(D) The Committee’s Findings

The Committee found that:

(1) Ms Ma and Mr Jin breached the Listing Rules by failing to cooperation with the Division and the SFC in their respective investigations.

(2) Their failure to discharge their responsibilities under the Listing Rules was serious.

As a result, the Exchange publicly censured Ms Ma and Mr Jin, stating they are unsuitable to occupy positions as directors or within senior management of TOMO or any of its subsidiaries.

(E) Key Takeaways

This case represents the Exchange’s first enforcement action targeting ex-directors for non-cooperation in joint investigations with the SFC, indicating a shift towards stricter enforcement of directors’ responsibilities. It underscores that directors should cooperate with the SFC and the Exchange in their investigations, even after leaving their roles. It also serves as a stark reminder that non-cooperation with investigations will face strict sanctions, reinforcing the importance of transparency and accountability in maintaining market integrity. 

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[1] https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=25PR122#

[2] https://www.hkex.com.hk/News/Regulatory-Announcements/2025/250812news?sc_lang=en