SKYTEX INTERNATIONAL LTD v. EASTOP COMPUTER CONSULTANTS LTD

DCCJ 5928/2019

[2024] HKDC 1822

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5928 OF 2019

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BETWEEN

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DECISION

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1.  This is the plaintiff’s application for variation of the cost order nisi (the “Summons”).

2.  This case involves a contractual dispute and in my Judgment dated 7 August 2024 (the “Judgment”), I dismissed both the plaintiff’s claim and the defendant’s counterclaim but gave a costs order that:

“In the circumstances, given that the vast majority if not all of the court’s time was spent on the plaintiff’s claim and not on the defendant’s counterclaim, I would give an order nisi that the costs of the action be to the defendant to be taxed if not agreed, with certificate for one counsel granted.” (paragraph 128 of the Judgment).

3.  The plaintiff applied to vary the cost order to nisi to either having “no order as to costs”, or in the alternative, that the plaintiff bears 50% of the defendant’s costs.

4.  Mr. Martin Ho, counsel for the plaintiff advanced 4 reasons: namely, that:

a. The counterclaim should be treated “as a separate action” (Order 15 rule 2(2)) and that costs usually follows the event (Order 62 rule 3(2));

b. The counterclaim was pursued with vigour and did not rest on the plaintiff being successful in its claim;

c. The counterclaim was for a significant sum (HK$450,000 with the claim being at HK$715,130); and

d. Significant part of pleadings and submissions was spent dealing with the counterclaim.

5.  The defendant opposed the plaintiff’s application. Ms. Michelle L.Y. Wong, counsel for the defendant, submitted that Order 62 rule 3(2) goes on to state this “usual” rule holds “except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs”.

6.  Of course, there is no dispute on the trite principle that costs is a matter of discretion of the Court to reflect the overall justice of the case, and in exercising its discretion, the Court should take into account whenever appropriate the considerations set out in Order 62 rule 5. I need not recite all such considerations but these include the underlying objectives under Order 1A rule 1, the conduct and reasonableness of the parties etc.

7.  Both counsels have taken the court to the case of Medway Oil v Continental Contractors [1929] AC88. In that case, both the claim and counterclaim over a contractual dispute were dismissed with costs and Lord Blanesburgh of the House of Lords stated:

“It is that in determining for the purpose of taxation…whether a particular issue is an issue on the claim or counterclaim or on both claim and counterclaim, the Taxing Master is not to be…enslaved by the form of the pleadings. The question must be determined as one of substances and not of form…”

8.  In Wilson v Walters [1926] 1 KB 511, a case where, again, both parties failed on their respective claim and counterclaim, it was stated that:

“Whether…the costs…should be allowed in full to the successful party on the original claim, or should be apportioned as between the claim and counterclaim, depends on each case upon whether such costs were…occasioned solely by the claim or partly by the claim and partly by the counterclaim…Such costs are regarded as being occasioned solely by the claim…where (the counterclaim) is really a defence in disguise…or where both claim and counterclaim arise out of one transaction and in effect rise from the same issue.”

9.  Thus the crux of the argument on costs was whether the “substance” of the claim was entirely (or at least substantially) separate from the “substance” of the counterclaim, or whether the issues concerning both the claim and counterclaim were essentially intertwined and the counterclaim was simply riding on the supposed success of the defence.

10.  As stated in paragraphs 10, 15 and 16 of the Judgment, it is not in dispute that the defendant did not complete the contract and the plaintiff did not make further payments. The argument was whether the defendant’s refusal to complete was justifiable under the contract. The plaintiff claims for return of the deposit plus other damages, and the defendant counterclaims for the reminding balance of the payment under the contract.

11.  In essence, the plaintiff saw the contract as “all-inclusive” and blame the defendant for not able to sort out all the alleged defects of the system and to complete the system to its requirement.

12.  On the other hand, the defendant blamed the plaintiff for not having reasonable IT expertise and that so much time (being not all-inclusive so limited in number of “man-hours” of work) was wasted in helping the plaintiff with problems which were outside its responsibility under the contract.

13.  In short, the court was concerned with this question: “Whose fault was it?” The issues concerning this question must essentially be intertwined.

14.  In the end, the court found for the defendant: i.e. it was the fault of the plaintiff.

15.  Only then would the defendant’s counterclaim arose, which concerned the next question: “If it was reasonable for the defendant not to complete the contract, could the defendant still seek the remaining balance of payment?”

16.  As such, I agree with Ms. Wong that the defendant must be seen as the ultimate winner of the action, and that the counterclaim was merely riding on the supposed success of the defence.

17.  Although the court eventually found against any obligation for full payment under the circumstances (thus disallowing the counterclaim), it also found that “the vast majority if not all of the court’s time was spent on”, in essence, dealing with the first question (i.e. “Whose fault was it?”).

18.  This must be correct. The counterclaim merely concerned with interpretation of contractual terms and appropriate application of the law. There was no factual dispute: all had agreed that the contract was not completed. Indeed, out of the total 128 paragraphs in the Judgement, only 6 paragraphs (or roughly 5%) were spent dealing with the counterclaim.

19.  In reply to Mr. Ho’s first two submissions (his second submission is no more than just repeating that the counterclaim should be treated as a separate action), I find that the issues of the claim and counterclaim are largely intertwined in substance so the vast majority of the issues in dispute are common to both. Thus, the claim and counterclaim cannot be treated as separate actions as far as costs (and time spent in dealing with disputed issues) are concerned.

20.  Mr. Ho’s third submission is effectively asking the court to look at the “form” of the pleading, i.e. the counterclaim was asking for a significant sum and therefore, somehow, costs issues should arise out of this.

21.  I disagree. One should instead look at the “substance” and, as stated above, the counterclaim was largely intertwined with the claim.

22.  Of course, as stated above and in paragraph 128 of the Judgment, I also disagree with Mr. Ho’s fourth submission that “significant” time was spent on the counterclaim.

23.  However, I would agree that a little time was spent on legal arguments regarding the counterclaim. To be fair under the circumstances, I would order that:

a. The costs order nisi in the Judgment be varied that the plaintiff do bear 95% of the defendant’s costs of the action; and

b. There be no order as to costs for the Summons.