GAIN GLOBAL CORPORATION LTD v. FONGS (a firm)

HCA 2964/2017

[2024] HKCFI 1769

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2964 OF 2017

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DECISION ON COSTS

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1.  In the Judgment of 25 March 2024 (“Judgment”), this court dismissed the entirety of the plaintiff’s claim, and made a costs order nisi in favour of the defendant (Judgment §§85 and 86)  (“Costs Order Nisi”).  By Summons dated 15 April 2024 (“Summons”), the defendant seeks to vary the Costs Order Nisi such that the defendant’s costs after 31 May 2021 shall be awarded on an indemnity basis.

2.  The defendant’s application is based on its Calderbank offer expressed to be on a “without prejudice save as to costs” basis to the plaintiff (the “Offer”)  set out in the letter from the defendant’s solicitors to the plaintiff’s solicitors dated 17 May 2021 (the “Letter”). In short, the defendant proposed a full and final settlement of the plaintiff’s claim with costs to the defendant in the sum of HK$1,050,000 (representing 50% of the total legal costs which the defendant had incurred up to that point in defending this action).  The defendant’s solicitors stated in the Letter that, should the plaintiff decline the Offer and pursue its claim to trial, the defendant would disclose the Letter to the court when making costs submissions and submit that it was entitled to have its costs assessed on an indemnity basis.  

3.  The plaintiff rejected the Offer by way of a letter from the plaintiff’s solicitors to the defendant’s solicitors dated 21 May 2021 with no counter-offer or explanation.

4.  Between 21 May 2021 and 18 September 2023, no new evidence or information which could impact the merits of the parties’ respective cases was exchanged between the parties.  The trial started on 18 September 2023.

5.  The court has a wide discretion as to costs and has full power to determine to what extent costs are to be paid.  The Rules of the High Court, Cap 4A (“RHC”)  provide that the court in exercising its discretion as to costs shall in appropriate circumstances take into account:

(1)  the underlying objectives in RHC Order 1A, rule 1: Order 62, rule 5(1)(aa);

(2)  any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the court may not take the offer into account if, at the time when it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under RHC Order 22 (the “Exclusionary Rule”): Order 62, rule 5(1)(d);

(3)  the conduct of all the parties (RHC Order 62, rule 5(1)(e)), which includes inter alia (i)  whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue, (ii)  the manner in which a party has pursued or defended his case or a particular allegation or issue, and (iii)  conduct before, as well as during, the proceedings: Order 62, rule 5(2); and

(4)  whether a party has succeeded on part of his case, even if he has not been wholly successful: Order 62, rule 5(1)(f).

6.  RHC Order 62, rule 28(3)  gives the court discretion to order or direct that costs shall be taxed on the indemnity basis in appropriate circumstances.

7.  It has been established that the failure to beat a reasonable settlement offer can attract an award of indemnity costs.  In Leung Lai Kwan v Lo Kai Wing [2015] 3 HKLRD 152 (§27)  (applied in Sam Sien San Albert v Sam Mo Yee [2019] HKCFI 1188 (§24)), the court held that a party in receipt of a reasonable offer who goes to trial having rejected that offer is always liable to a higher level of costs if he does not do better than the offer that has been rejected.

8.  Weight should be given to the fact that the action against the defendant had negative impact on its professional reputation and would cause anxiety to the handling solicitor.  It would be appropriate to order indemnity costs if a party failed to substantiate its complaints at trial and also failed to do better than the Calderbank offer made: Mission Marketing Ltd v Chan Yuet Foon [2021] HKCFI 360 (§38).

9.  As submitted by the defendant, the Exclusionary Rule does not apply in this case.  In circumstances where the defendant had a strong defence to liability and would not have expected to have any legal liability for the plaintiff’s costs, a sanctioned offer or payment under RHC Order 22 did not make sense due to the automatic costs consequences that would follow. Therefore, the defendant could not have made the Offer by way of a sanctioned offer or payment under RHC Order 22, and the court should take the Offer into account as a Calderbank offer when considering the costs issue pursuant to RHC Order 62, rule 5(1)(d).

10.  Pursuant to the Costs Order Nisi, the plaintiff is liable for the defendant’s costs of defending this action, including any costs reserved (Judgment §85).  To date, the defendant’s costs amount to approximately HK$4,710,000 (subject to taxation).  In comparison, under the Offer, the defendant proposed a full and final settlement of the plaintiff’s claim with costs to the defendant in the sum of HK$1,050,000 only (representing only 50% of the legal costs incurred up to the time of the Offer).  The plaintiff should have appreciated that if it pursued its case to trial and lost, its potential costs exposure would certainly be greater than HK$1,050,000 taking into consideration the significant costs of trial.  The defendant submits there is no doubt that the plaintiff failed to do “better”, and had indeed done significantly worse, than the Offer (both in terms of the percentage of the costs for which the plaintiff would be responsible or the final quantum in absolute terms).  The plaintiff ought reasonably to have accepted the Offer and/or at least engaged in meaningful settlement negotiations.  Hence, the plaintiff who went to trial having rejected the Offer and wholly lost, should be liable for costs after 31 May 2021 (ie the date of expiry of the Offer)  on a higher scale, namely the indemnity basis.

11.  In answer, the plaintiff submits that the Offer was not a genuine offer to settle the matter.  The concept of settlement must, by its nature, involve an element of give and take.  A so-called “settlement” which was all “take” and no “give” would be a contradiction in terms, citing AB v CD [2011] EWHC 602 at §22.

12.  I do not agree with the plaintiff’s contention.  The Offer included a “give” by the defendant in that the plaintiff was only required to pay a sum representing 50% of the total legal costs incurred by the defendant up to the time of the Offer.  Given the defendant’s belief in the strength of its defence, this represented a significant concession.  There is no basis to allege that the Offer was not genuine but merely tactical.

13.  The plaintiff further submits that no sensible comparison can be made between the Offer and the amount of costs eventually ordered under the Costs Order Nisi.  The “offered” costs and “updated” costs cover different periods of time, they are simply incomparable.  The plaintiff submits that the fallacy of the defendant’s argument lies in the fact that it would be a meaningless comparison between pre-trial costs and post-trial costs.

14.  Again, I do not agree with the plaintiff’s contention.  The sum of HK$1,050,000 was expressly stated to represent approximately 50% of the costs of the defendant incurred to date.  If the plaintiff disagreed with that assessment, it could have counter-offered to pay 50% of the defendant’s taxed costs instead, which the plaintiff never did.

15.  If the plaintiff had any reservations as to the amount of the defendant’s incurred costs up to the time of the Offer, or felt it did not have sufficient information to properly consider the Offer, the plaintiff should have requested a breakdown or further information, such as information on the hourly rates etc.

16.  For the reasons set out above, I would allow the defendant’s application and order as follows:

(1)  The Costs Order Nisi be varied such that: “The defendant’s costs of defending this action (including all costs reserved, if any)  up to 31 May 2021 be paid by the plaintiff on a party and party basis and thereafter on an indemnity basis, to be taxed if not agreed, with certificate for two counsel”; and

(2)  The costs of the Summons be paid by the plaintiff to the defendant forthwith, to be taxed on a party and party basis if not agreed.