HOYDEN HOLDINGS LTD v. CMB WING LUNG INSURANCE CO LTD

DCCJ 1729/2021

[2022] HKDC 651

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1729 OF 2021

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DECISION

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THE APPLICATION

1.  By Decision dated 20 April 2022 (“the Decision”), this Court dismissed the plaintiff’s Order 14A application and its action herein. I also made a costs order nisi that the plaintiff shall bear the defendant’s costs of the action (including the costs of the Summons with all costs reserved), with certificate for counsel (“the Costs Order Nisi”).

2.  Pursuant to paragraph 44 of the Decision, the defendant applied to vary the Costs Order Nisi in that the defendant’s costs shall be taxed on an indemnity basis.

3.  I will adopt herein the nomenclature used in the Decision.

THE LEGAL PRINCIPLES

4.  The general rules as to when the court may order costs on an indemnity basis are trite.

5.  In Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) and Others [1991] 1 HKLR 177, Godfrey J (as his Lordship then was) explained that:

“ […] In order to justify a taxation on the indemnity basis, the successful party has to show, either that the case is one of a type already recognised in the practice of the court as warranting a taxation on that basis (such as, for example, the contempt cases to which I have already referred) or that there is some feature in the case even more special or unusual than one which would justify a taxation on the common fund basis. A case in which the successful party has demonstrated that the proceedings were initiated or prosecuted by the unsuccessful party in a manner which constitutes that party’s proceedings an abuse of the process of the court might well be a candidate for an award of taxation of costs on an indemnity basis. A taxation of the successful party’s costs on an indemnity basis could properly be ordered, in my opinion, where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for taxation of the successful party’s costs on an indemnity basis.” (at 182G – 183C)

6.  In Choy Yee Chun (The representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd [1997] HKLRD 1327, Stock J (as his Lordship then was), having referred to the Judgment quoted above, stated:

“It has since been held that, though there must still be shown special and unusual features, even the circumstances particularised by Godfrey J. are not to be taken as exhaustive of the conditions in which it might be appropriate to make such an award, and that the power to award taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. (See Macmillan Inc. v. Bishopsgate Investment Trust Ltd., 10 December 1993 (unreported) cited in Sung Foo Kee Ltd. v. Pak Lik Co. [1996] 3 HKC 570).

In Sung Foo Kee Ltd a litigant had been repeatedly in contempt of court orders and the trial judge had found that the defendant had deployed defences which he termed “hocus pocus” and had used the legal process to prevent the plaintiff obtaining its just payment. The Court of Appeal said that it would have awarded costs on an indemnity basis. It remarked (at page 575) that the circumstances in which an indemnity award might properly be made were not restricted to circumstances such as those described by Godfrey J. in Overseas Trust Bank (supra). At p.575B - E of Sung Foo Kee Ltd. (supra), Godfrey J.A. said -

‘Here, as in England and Wales, the judge has a discretion, in a case which does fall outside the general rule, to direct the taxation of the receiving party’s costs on the basis which he considers to be appropriate to that case. This is not a discretion limited by indications in previous cases, such as, eg the observations of Godfrey J in Overseas Trust Bank Ltd v Coopers & Lybrand [1991] 1 HKLR 177 (in which he declined to order the successful party’s costs to be taxed on the indemnity basis), as to the sort of special or unusual feature (there does have to be some special or unusual feature) which could justify an award of indemnity costs. Although the examples given in the judgment of Godfrey J at 182J‑183C may be of assistance in other cases in which indemnity costs are claimed, his judgment does not purport to be and is not to be taken as determinative of the sort of case in which indemnity costs may be ordered.’

The Court of Appeal endorsed the view of the English courts that :

‘The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win. Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be ‘appropriate’.’ (see Macmillan Inc. v. Bishopsgate Investment Trust Ltd. supra)

Further at p.576 -

‘… it is a pity that various courts have attempted to define in exactly what circumstances indemnity costs may be ordered.’ (see Munkenbeck & Marshall v. McAlpine (1995) 44 Con LR 30 per Hollis J, at page 33)

The Court of Appeal in Sung Foo Kee Ltd at page 576F added :

‘… Our rules do now expressly provide for the taxation of costs on an indemnity basis and when they consider it appropriate judges should not be slow to make orders for the receiving party’s costs to be taxed on that basis.’ ”

(at 1334G – 1335G)

7.  In Cheung Wei Man Vivien and Chan Kim Thiam v Centaline Property Agency Ltd & Others (HCA 286/2000, unreported, 15 December 2006), Lam J (as Lam PJ then was) had the following to say:

“It is also useful to remind ourselves what Simon Brown LJ said in Liam v MGN Ltd (No.2) [2002] 1 WLR 2810 at Paras.11 and 12 in considering whether the conduct of a losing party is so unreasonable so as to warrant an award of indemnity costs. In particular, at Para.12, His Lordship observed,

‘I for my part understand the court there to have been deciding no more than that conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight.’ ”

8.  It has also been held that whilst the pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: Wates Construction Limited v HGP Greentree Allchurch Evans Limited 105 CLR 47 at 55.

GROUNDS OF APPLICATION

9.  The defendant’s solicitors had drawn this Court’s attention to the correspondences exchanged between the parties (i) prior to the commencement of this action; and (ii) before the plaintiff took out the summons for the Order 14A application (“the Order 14A Summons”), and submitted that:

“(a) P, while having ample opportunity to clarify the true legal merits of the validity of the Surety Bond, did not bother to do so even though D had already explained the exact reasons why the Hong Kong Housing Society line of authorities should be distinguished – P said it was a waste of time and costs;

(b) P unreasonably commenced this action and took out the Order 14A Application regardless of the plain wordings of the Null and Void Clause of the Surety Bond, the merits of P’s claims and the costs implications even though the same had been specifically explained and drawn to P’s attention;

(c) P, while having the opportunity to narrow down the differences between the parties, took a high-handed approach and refused to provide D with the requested particulars and basis of the Order 14A Application before P actually took out the application;

(d) P’s arguments have all been rejected by this Court, including some that were fallacious or simply not agreeable, suggesting that P’s claims and the O.14A Application were meritless and should not have been pursued; and

(e) This Court vindicated D’s arguments including but not limited to the validity of the Surety Bond which D had explained to P from the outset before this action was commenced.”[1]

DISCUSSION

10.  The question is whether an order of indemnity costs should be made against the plaintiff on the basis that it should not have brought this action in the light of the explanation given by the defendant’s solicitors to the plaintiff’s solicitors by letter dated 19 January 2021 that the Hong Kong Housing Society line of authorities is distinguishable from the facts herein.

11.  In my view, the answer must be “No”.

12.  It is true that the plaintiff’s solicitors did refer to the Hong Kong Housing Society case in their letter dated 13 January 2021 in support of their argument that the Surety Bond was still valid despite the issuance of the Certificate for Practical Completion. It is also a fact that the defendant’s solicitors gave their view in rather strong terms on 19 January 2021 as to why the Hong Kong Housing Society case was distinguishable, and that that view was subsequently accepted by this Court in the Decision. However, I do not think that is adequate for the purpose of this application, because the inapplicability of Hong Kong Housing Society was not the end of the plaintiff’s case. The plaintiff did put forward other arguments in support of its interpretation of the Surety Bond in the Order 14A application.

13.  Although I had rejected all those arguments raised by the plaintiff, I do not think those arguments were “hopeless”. Neither do I think the plaintiff can be said to have been unreasonable to a high degree in commencing this action. The plaintiff was merely wrong in its interpretation of the Surety Bond.

14.  The defendant’s complaint about the plaintiff’s failure to give “particulars and basis of the Order 14A application” before the Order 14A Summons was taken out, in my view, cannot assist its application herein either, because I do not think it can be disputed that the Order 14A procedure had indeed been useful in bringing this action to the end quickly in a costs-saving way. Furthermore, given the main (if not the sole) issue herein is the interpretation of the Null and Void Clause in the Surety Bond, I do not accept the defendant’s argument that such an issue could have been narrowed down further if the plaintiff did provide the “particulars and basis” of the Order 14A application as requested. In any event, in the circumstances of the present case, I do not think the plaintiff was unreasonable to a high degree in failing to communicating with the defendant further before taking out the Order 14A Summons.

ORDER

15.  By reasons of the aforesaid, I dismiss the defendant’s application, and hereby order that the Costs Order Nisi be made absolute.

COSTS

16.  I make a costs order nisi that the defendant shall bear the plaintiff’s costs of this application, with certificate for counsel. My preliminary view is that the plaintiff’s engagement of counsel who argued the Order 14A application on its behalf is justified because the defendant’s arguments in support of the present variation of costs order nisi application are based on the merits of the Order 14A application.

17.  The above order nisi shall become absolute in the absence of application to vary within 14 days.

18.  The plaintiff’s costs shall be summarily assessed in lieu of taxation. Unless any application for variation of the aforesaid costs order nisi is made within time, the plaintiff shall lodge and serve its statement of costs within 7 days after the expiry of the said 14-day period. The defendant shall lodge and serve its statement of objection within 7 days thereafter. Summary assessment of the plaintiff’s costs will be conducted on paper (no matter whether any statement of objection is lodged by the defendant within time) thereafter.

19.  The costs assessed shall be payable by the defendant within 14 days after assessment.