EMINENT INVESTMENTS (ASIA PACIFIC) LTD v. DIO CORPORATION

HCA 1292/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1292 OF 2011

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RULING ON COSTS

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1.  These are my brief reasons for my ruling on this argument on costs. Since it is given immediately upon conclusion of the argument, I have not had the chance of typing it up, and therefore I apologise for any infelicity of expression. It would be transcribed in due course and given to the parties if they so wish.

2.  I do not need to repeat what I had said in my judgment in this case dated 23 September 2016.  The plaintiff’s claim is dismissed, and the defendant’s counterclaim is dismissed. 

3.  The defendant today seeks all costs of the action, and the plaintiff, on the other hand, initially asked me to depart from the normal order as to costs by making no order as to costs.  At the hearing, Mr Suen submitted as an alternative that I should deprive the defendant of 50 per cent of its costs.

4.  The defendant relies on the usual rule as to exercise of the court’s discretion on costs, namely that costs should follow the event, and since the defendant was wholly successful in this action (because it did not have to write a cheque at the end of the day), it should have all its costs.

5.  In relation to certain defences such as misrepresentation and repudiatory breach, which the defendant had been unsuccessful on, Mr Sussex SC cited the judgment of Godfrey VP in the well-known case of ADS v Wheelock Marden, and also the judgment of Lord Sterndale in Ritter v Godfrey [1920] 2 KB 47 to the effect that in terms of exercise of the court’s discretion as to costs, a defendant stands in a special position as distinct from a plaintiff, because in Mr Sussex’s words, “The defendant is not in a position of an aggressor, whereas the plaintiff is in the position of an aggressor.”

6.  In relation to the particular rules or relevant factors as to discretion to be applied when one seeks to deprive a successful defendant as to costs, Mr Sussex pinpointed the three categories of relevant considerations set out by Atkin LJ in his judgment in Ritter v Godfrey, at page 60 of the judgment, a case which, since the implementation of the Civil Justice Reform (“CJR”), had been applied by the Hong Kong Court of Appeal in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679.  And Mr Sussex argued that, of the three relevant factors mentioned by Atkin LJ in Ritter v Godfrey, none of them are applicable in this case. 

7.  For the plaintiff, Mr Suen says that after the CJR, the court should be more liberal in departing from the usual order as to costs.  The courts should be more ready to make an issue-based order as to costs in depriving a successful party of all or part of his costs, and there is no need for a party to have acted improperly or unreasonably before he can be deprived of his costs.

8.  As to the case of Ritter v Godfrey, Mr Suen argued, first of all, that it is inapplicable, because the defendant in this case cannot be said to be wholly successful; and secondly, even if Ritter v Godfrey can be said to be applicable in principle, it can be read coherently with the jurisprudence post‑CJR in Hong Kong, such that even on Ritter v Godfrey, the defendant can properly be deprived of his costs.

9.  Upon considering the parties’ submissions, both written and oral, in great detail, what was at the time available, I have come to the following conclusions. 

10.  First, I have decided that Ritter v Godfrey, even though it is a judgment delivered in 1919, remains good law in Hong Kong after the CJR.  The Hong Kong Court of Appeal had referred to Ritter v Godfrey in the Hung Fung decision, which is binding on me. 

11.  Secondly, I reject Mr Suen’s argument that the defendant is not wholly successful in this case.  I accept Mr Sussex’s argument that the test for whether or not a party is successful in an action (quoting an extract from Cook on Costs, which in turn quoted from Ward LJ in Day v Day [2006] EWCA Civ 415) is “who has to write the cheque at the end of the case”.  I am of the view that since the defendant did not have to write a cheque at the end of the day, the defendant was wholly successful in the action.  In relation to the other point that the defendant had not succeeded in its counterclaim, I accept Mr Sussex’s argument that the counterclaim is simply a logical consequence of its misrepresentation defence, and that there is no prospect that there could be a self-standing counterclaim had the plaintiff not commenced this action. 

12.  Mr Suen argued that there is no evidence as to any particular frame of mind or state of mind as to whether or not the defendant would have commenced a separate action had the plaintiff not commenced its own action, but in my judgment, argument on costs must not depend on niceties of arguments of this nature.  Otherwise for the purpose of deciding costs, one has to have a separate trial as to the subjective state of mind as to whether or not a particular party would have run a particular point or counterclaim had the other side not sued.  And that certainly could not have been consistent with the current judicial mindset of resolving matters of costs in a proportionate manner.  And I believe that I can draw the conclusion, based on the materials available to me, that it had not been intended that the counterclaim should be a self-standing claim had the plaintiff not sued. 

13.  Having decided that Ritter v Godfrey remains good law, it remains for me to consider whether and how any of the three relevant factors in Ritter v Godfrey is to be applied in this case.  I should start off by mentioning that there is, at first sight, an intrinsic unease caused by the fact that post-CJR, the emphasis by the court is on a more liberal exercise of discretion in terms of departing from the usual costs order, but that did not seem to me to sit easily with the rather rigid three-fold classification as to the kind of relevant factors that the court should take into account in deciding whether to depart from the usual order (as laid down in Ritter v Godfrey).  Ritter v Godfrey is a case decided in 1919, when judgments were written in a different style, when the entire judicial philosophy as to costs was quite different.  However, for better or for worse, the Court of Appeal had decided to adopt Ritter v Godfrey, and it would have been more helpful for the Court of Appeal to address how the rather rigid compartmentalisation in Ritter v Godfrey is to be squared with the more liberal philosophy currently in place post-CJR. 

14.  Be that as it may, on the specific facts of this case, it is not necessary for me to engage in a rather deep or detailed discussion as to how the three relevant factors in Ritter v Godfrey is to fit in with the more liberal discretion post-CJR, because of the three factors mentioned in Ritter v Godfrey, in my judgment, only one is potentially applicable on the facts of this case, and that is to say, factor number (2.), namely that the defendant “has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense”, and I need only focus on this factor for the purpose of my judgment. 

15.  The question is whether or not the defendant in this case has done something connected with the institution or the conduct of the suit, calculated to occasion unnecessary expense. 

16.  Now, it may be said that if certain matters were raised, certain arguments were run, certain issues were pleaded, which were, at the end of the day, rejected, then the expense incurred must therefore have been unnecessary.  However, there is the qualifying words “calculated to occasion”, and I asked for some assistance as to the meaning of this concept of “calculated to occasion” unnecessary expense.  Mr Sussex reminded me that the dictionary definition of “calculated to” means intended to, or in circumstances where someone is aware of the consequences. 

17.  In my judgment, the qualifying words “calculated to” do not mean that one had to deliberately do something with a motivation that costs be wasted.  In litigation, one rarely goes about doing something with the motivation of inflicting unnecessary costs, and also, for the purpose of intention, one has to adopt an objective test.  Therefore if one knows that his act would carry certain consequences, it suffice for the purpose of “intention”.

18.  In deciding whether or not the defendant’s conduct was “calculated to”, in the sense that the defendant was aware that the consequences of running the defences would be to occasion unnecessary litigation or expense, it calls for an assessment of the merits of the defences which had failed. 

19.  Now, I pause here to observe that for the court to find that the conduct of the suit was “calculated to occasion unnecessary litigation and expense”, there is no need for the circumstances to amount to something so culpable as to justify criticism of the way in which the legal advisors had conducted the case.  Because, after all, legal advisors and counsel are very accustomed to running weak cases to the best of their ability, and therefore it is not the test that the court can only deprive a successful defendant as to costs if, for example, it is of the view that the legal advisors should be criticised in the way that they had conducted the case.  Far from it: it is very often the duty of legal advisors to make the best out of what is, on the face of it, a very weak case, as long as it is not entirely doomed to fail.

20.  Looking at my judgment, it would be readily apparent that the defences run by the defendant, which I had rejected, were inherently very weak defences.  Mr Sussex made a lot out of the fact that I devoted a good deal of space on the way in which he cross-examined the plaintiff’s witnesses on the weak point in their evidence.  But that is to overlook the fact that before paragraph 90 of my judgment, I had spent a good deal of time and space in terms of the misrepresentation defence, analysing the intrinsic weaknesses in the defendant’s own evidence, and I devoted some part of my judgment after paragraph 90 to deal with Mr Sussex’s cross-examination in order to show that I had not lost sight of what the defendant might have thought to be a high point of his case, but that does not detract from the fact that, looked at in the round and objectively, the defendant’s failed defences are inherently weak ones, with extremely little contemporaneous evidential support.

21.  In my judgment, to run defences of such nature amounts to conduct which is calculated to occasion unnecessary expenses, within the wording of the second relevant factor of Atkin LJ’s judgment in Ritter v Godfrey.

22.  I am comforted in my reading of Ritter v Godfrey by the fact that this seem to be in harmony with the way in which the Court of Appeal, post-CJR, had considered the question of deprivation of a successful party of its costs.

23.  I observe that this way of looking at Ritter v Godfrey brings the law as to depriving a successful defendant as to costs very close to, or even indistinguishable from, the post-CJR sentiment about more liberally depriving a successful party as to costs.  In particular, in the case of Pfeiffer v Cheung Hay Kit CACV 245/2013, 29 October 2014, referred to me by Mr Suen, at paragraph 20, Kwan JA (who incidentally gave the judgment in Hung Fung, which adopted Ritter v Godfrey, and therefore who must be assumed not to have forgotten about her endorsement of Ritter v Godfrey in that case) said:

“ Although the general rule that costs will follow the event still plays a significant part, it is but a starting point from which the court is more ready to depart, mindful that too robust an application of the general rule encourages litigants to increase the costs of litigation since it discourages them from being selective as to the points they take. And it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed.” (emphases added)

In her Ladyship’s reasons for judgment, there did not seem to have been any conscious distinction between the position of plaintiff or defendants.  She referred to “litigants” in general, and the point that “too robust an application of the general rule” might discourage litigants “from being selective as to the points they take.”

24.  Having come to the conclusion that the discretion to depart from the usual rule on costs is engaged on the facts of this case, because the facts of this case fell within consideration number (2.), and I decide to exercise my discretion to deprive the defendant as to costs, the question then becomes how much. 

25.  Mr Suen, first of all, asked me to deprive the defendant of 100 per cent of its costs.  At the hearing, he modified it to 50 per cent.  In the exercise of my discretion, having taken into account the view formed by the court on the witnesses, the time taken in court, and as to the overlap of certain witnesses’ testimony with other issues, I have decided to deprive the defendant of 25 per cent of its costs of the action, and therefore I order that the defendant is to have 75 per cent of its costs of the action, and that includes the counterclaim, to be taxed if not agreed, and I give certificate for two counsel because I believe that this is a case which justifies attendance of two counsel. 

26.  In my judgment, this costs argument cannot be viewed in the same way as considering who is the successful party in an action, and therefore it cannot be said that simply because the defendant managed to get a cheque from the plaintiff in terms of costs, it is therefore the successful party.  The reality of the matter is that both parties have to come to court because they cannot agree on the principle in relation to awarding costs, and therefore in the exercise of my discretion, I believe the fairest order to make for the costs of today is no order as to costs.