PHONEYORK CO LTD v. CHESSON INTERNATIONAL (HOLDINGS) LTD AND ANOTHER

HCA 2192/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2192 OF 2007

____________

____________________

D E C I S I O N

____________________

1. On 28 May 2012, this Court delivered Judgment (“Judgment”) dismissing the plaintiff’s claim against the defendant and also the third party’s counterclaim against the defendant (see para. 104 of the Judgment). Further, this Court made an order nisi that: (1) the plaintiff do pay to the defendant the costs of and occasioned by the plaintiff’s claim, with certificate for two counsel for the trial, to be taxed if not agreed; and (2) the third party do pay to the defendant the costs of and occasioned by the third party’s defence and counterclaim, to be taxed if not agreed (see para. 105 of the Judgment).

2. By a Summons dated 7 June 2012, the plaintiff applied to vary the cost order nisi. The cost order the plaintiff sought is that the third party do pay: (a) the defendant the costs of and occasioned by the plaintiff’s claim in this action, with certificate for two counsel for the trial, to be taxed if not agreed; and (b) to the plaintiff the costs of and occasioned by the plaintiff’s claim in this action, with certificate for two counsel for the trial, to be taxed if not agreed. In short, it is the plaintiff’s case that the third party should bear the costs of both the plaintiff and the defendant. By way of written submissions and at the hearing on 18 June 2012, the plaintiff also sought that the costs be taxed on an indemnity basis.

3. By its solicitors’ letter dated 12 June 2012, the defendant informed this court that it adopted a neutral stance to the plaintiff’s application. Accordingly, the defendant neither attended the hearing nor made any submissions.

Whether the plaintiff’s costs to be paid by the third party

4. The plaintiff relied on two grounds. First, relying on section 52A(1) of the High Court Ordinance and the authority of Edginton v Clark [1963] 3 WLR 72, the plaintiff contended that this court has jurisdiction to order the third party to pay the costs of the plaintiff, even though the plaintiff’s claim in the original action was only against the defendant and not the third party. Second, the plaintiff contended that the third party has caused this litigation and thus should bear the costs.

5. On the question of jurisdiction, the third party did not challenge the plaintiff’s contention. Nor did the third party suggest that this court has no jurisdiction to order the third party to pay the plaintiff’s costs if the circumstances warranted such an order. Having considered section 52A(1) (and if necessary also section 52A(2)) of the High Court Ordinance and Edginton v Clark [1963] 3 WLR 72 (per Upjohn LJ at pp. 726-727), I agree with the plaintiff that this court has jurisdiction to order the third party to bear the plaintiff’s costs if the circumstances warrant such an order.

6. The key issue in dispute between the plaintiff and the third party is whether this court should exercise its discretion to order the third party to pay not only the defendant’s costs but also the plaintiff’s costs of this action. The applicable test is whether the third party has caused this litigation. See: Edginton v Clark [1963] 3 WLR 72 (per Upjohn LJ at p. 729) (approving or following Hornby v Cardwell (1881) 8 QBD 329).

7. Having considered the submissions made on behalf of the plaintiff and those advanced on behalf of the third party, I agree with the plaintiff that the third party has caused this litigation. My reasons are as follows.

8. As stated in the Judgment, the dispute in this action concerns the sale and purchase of a building in Kwun Tong. The key disputes included: (1) whether the Preliminary Sale and Purchase Agreement pre-signed by the plaintiff and subsequently signed by the defendant on 2 October 2007 (“SPA”) was intended to be a legally binding contract; and (2) whether the cheque in the sum of HK$7.9 million issued by the defendant (“the Cheque”) was simply to show sincerity on the part of the defendant and was not intended to be presented by the plaintiff until the defendant had a chance to meet the plaintiff to discuss the price.

9. According to the defendant, upon Mr. Kai of the defendant expressing a strong desire to meet the plaintiff so as to persuade the plaintiff to reduce the price, the third party as agent of the plaintiff represented to the defendant as follows: (1) the plaintiff would only be prepared to meet Mr Kai of the defendant face-to-face upon Mr. Kai signing the SPA and issuing the Cheque; (2) the SPA and the Cheque would be shown to the plaintiff only for the purpose of demonstrating Mr Kai’s sincerity; (3) the SPA would not be treated as effective, and the Cheque would not be presented (“the Sincerity Representation”) (see para. 18 of the Judgment).

10. In my Judgment, I found that the defendant’s case on the Sincerity Representation is inherently probable (see para. 57 to 70 of the Judgment). I found as a fact that: (1) the third party did make the Sincerity Representation before Mr Kai signed the SPA; (2) the defendant did rely on the Sincerity Representation when Mr Kai signed the SPA and issued the Cheque; (3) the SPA as signed by Mr Kai was not intended to be legally binding, and that the Cheque was not intended to be passed to the plaintiff for presentation until Mr Kai had a chance to meet the plaintiff to discuss the price; and (4) the third party was well aware of the aforesaid matters (see para. 86 of the Judgment). Importantly, I stated in paragraph 94 of the Judgment as follows:

“In the present case, it is regrettable that the third party did not fully or properly perform its role as an agent. As noted above, Mr Kai gave his name card and two books on Chinese calligraphy to the third party on 30 September 2007 with a request that the same be passed to the plaintiff. Yet, the third party did not do so until 2 October 2007 when the SPA and the Cheque were also passed to the plaintiff. The third party also did not reveal the existence of the Explanatory Memorandum to the plaintiff, nor did the third party conveyed Mr Kai’s wishes to meet with the plaintiff before the Cheque should be delivered to the plaintiff. On the evidence available, the only reasonable inference to be drawn is that the third party had not handled the situation properly, which lead to the opposing perceptions of the situation on the part of the plaintiff and the defendant.”

11. It was on this basis that I held that the defendant has established its case on the Sincerity Representation and that the defendant is not liable on the Cheque (see para. 96 of the Judgment).

12. Ms Mok SC submitted that looking at the overall picture, both the defendant and the plaintiff are the victims of the third party’s conduct. In view of the findings I made in my Judgment, I agree with Ms Mok SC. But for the failings on the part of the third party, the plaintiff would have known that the defendant did not intend the SPA to be a legally binding agreement and would also have known that the Cheque was not intended to be presented until Mr Kai of the defendant had a chance to meet the plaintiff.

13. In addition to the matters stated above, Ms Mok SC for the plaintiff also pointed out that the third party filed evidence (both at the stage of the plaintiff’s Order 14 application and for the trial) denying the making of the Sincerity Representation. Such a stance adopted by the third party clearly affected the plaintiff’s assessment of its entitlement against the defendant and had caused the commencement of this action by the plaintiff against the defendant. The plaintiff did not take part in the negotiation with the defendant prior to the signing of the SPA by the defendant on 2 October 2007. The plaintiff naturally relied on the third party (being its agent at the time) as to what happened during the negotiation with the defendant, including whether the Sincerity Representation had or had not been made.

14. The third party denied that it had caused this litigation. Relying on Linfield Ltd. v Toaho Design Architects Ltd. [2006] 2 HKC 604, the third party contended that the decision to sue the defendant was that of the plaintiff and thus it should bear the costs consequence. Mr. Cooney SC argued that if the plaintiff were to succeed on this application, it would have to be shown that the plaintiff is completely blameless in bringing this action against the defendant. Indeed, Mr Cooney SC went as far as to argue that there would have to be a deliberate fraud on the part of the third party before the plaintiff could succeed in its present application.

15. I do not agree with the submissions advanced on behalf of the third party as it is inconsistent with the approach adopted in Edginton v Clark (above). Nor do I think the decision in Linfield Ltd. v Toaho Design Architects Ltd. [2006] 2 HKC 604 assists the third party’s contention. The facts of that case is very different from the facts of the present case. More importantly, it was pointed out by the Court of Appeal in Linfield’s case (at para. 6 to 11 & 46) that the third party in that case had not committed any fault which caused the plaintiff there to sue the 4^th defendant. Although not expressed as such, the substance and rationale of the Court of Appeal’s approach in Linfield’s case is similar to the one adopted in Edginton v Clark (above). For the reasons set out above, I do not think the third party can maintain that it had not caused the plaintiff’s to commence this action against the defendant.

16. The third party also argued that the Sincerity Representation was not determinative of the plaintiff’s claim because it was the plaintiff’s case that the Cheque was as good as cash. Such an argument simply can withstand scrutiny. It is true that the plaintiff’s main argument at the Order 14 stage was that the Cheque was as good as cash. However, once the defendant was granted unconditional leave to defend, it became plain that the defence of misrepresentations (especially the Sincerity Representation) was the crux of the dispute.

17. I accept that the plaintiff would have to make its own independent assessment as to whether to bring an action against the defendant. However, given the conduct of the third party before the commencement of this action and given the stance it adopted throughout the trial (i.e. the Sincerity Representation was not made), it is clear that the third party’s stance was influential in the plaintiff’s decision to start this action against the defendant.

18. In the circumstances, I agree with the plaintiff and rule that (subject to the matter discussed in paragraphs 23 to 25 below) the third party should bear the plaintiff’s costs of and incidental to this action.

19. There are three other points raised by the third party which require consideration.

20. First, the third party disputed the plaintiff’s request for a certificate for two counsel. It was pointed out that when I made the cost order nisi and directed the third party to pay to the defendant the costs of and occasioned by the third party’s defence and counterclaim, I did not grant certificate for two counsel to the defendant (see para. 105(2) of the Judgment).

21. Factually and literally, the third party’s observation about the cost order nisi is correct. However, that part of the cost order nisi has to be read in its overall and proper context; in particular, that cost order nisi directed the plaintiff to pay to the defendant the costs of and occasioned by the plaintiff’s claim with certificate for two counsel for the trial (see para. 105(1) of the Judgment). In other words, I took the view that the defendant should get costs of the trial (insofar as it concerns the plaintiff’s claim against the defendant) with certificate for two counsel, although at that stage I provisionally ordered that such costs should be paid by the plaintiff. As far as the costs concerning the third party’s defence and counterclaim (i.e. para. 105(2) of the Judgment), I say no more since the defendant has not made any application to vary that part of the cost order nisi.

22. In view of the matters set out above and considering the matters in the round, I agree it would be appropriate to vary the cost order nisi to the effect as set out in paragraph 2 of the plaintiff’s Summons (see para. 2 above) and a certificate for two counsel is appropriate.

23. Second, the third party argued that the plaintiff should bear the costs of the Order 14 application. The third party contended that the decision to pursue the Order 14 application had nothing to do with the third party.

24. In this regard, I can see the force of the third party’s argument. The question of whether to take out and proceed with an Order 14 application is a procedural decision that the plaintiff had to make. Irrespective of the stance adopted by the third party and conveyed to the plaintiff, the plaintiff would have to assessed whether the defendant’s case could or could not survive an Order 14 application.

25. After this action was commenced on 18 October 2007, the plaintiff issued its Order 14 Summons on 8 November 2007. The Order 14 application was heard before Master S. Kwang on 17 March 2008 and the defendant was granted unconditional leave to defend. The plaintiff then appealed against Master S. Kwang’s decision. The appeal was heard before A. Cheung J (as he then was) on 28 July 2008, and was dismissed on 21 August 2008. Whilst it might arguably be a matter of judgment as to whether to proceed with the Order 14 application at the initial stage and thus it would not be fair to deprive the plaintiff of the costs of the Order 14 application, the appeal against Master S. Kwang’s decision stands on a different footing. As explained in the Judgment, this case is an unusual one. Given the unusual features of this case, I take the view that the plaintiff should not have appealed against the decision of Master S. Kwang. This position is also reflected in the cost order made by A Cheung J (as he then was) when he dismissed the plaintiff’s appeal. The decision to appeal was the plaintiff’s decision and the third party should not be made responsible for the appeal.

26. Third, the third party sought to stress that the plaintiff spent a lot of time arguing numerous law points regarding dishonoured cheque. As those points failed, the third party contended that it should not be made to pay for those parts of the costs. I do not agree. Viewed in the overall context, those law points did not take up much time. The key focuses of the trial are the factual issues. In any event, bearing in mind the nature of the disputes, one cannot say that no reasonable plaintiff would have run those law points. Whilst this court has the jurisdiction and discretion to apportion costs on an issue by issue basis, I do not think it is appropriate to exercise such power in the present case.

Whether costs on indemnity basis

27. The plaintiff also sought costs on an indemnity basis.

28. The principles governing the circumstances under which the court may award costs on indemnity basis are fairly settled. Put briefly, it has to be shown that the case has some “special or unusual feature” before an award of costs on an indemnity basis is appropriate. See: (a) Town Planning Board v Society for Protection of the Harbour Ltd. (No. 2) (2004) 7 HKCFAR 114 (at para. 15); (b) Hong Kong Civil Procedure 2012, Vol. 1, para. 62/App/12 (p. 1168).

29. The basis of the plaintiff’s argument is that the third party knowingly made the Sincerity Representation, and yet did not inform the plaintiff. At one stage, Ms Mok SC for the plaintiff argued that the third party’s conduct was fraudulent or reckless.

30. The third party, on the other hand, disagreed that such a feature was sufficient to constitute “special or usual feature” which merits an award of costs on indemnity basis. The third party stressed that there is no express finding of fraud against the third party in the Judgment.

31. Although I did initially find the plaintiff’s argument attractive and whilst this case may be close to one which may well attract costs on an indemnity basis, I at the end come to the conclusion that the matters relied on by the plaintiff are not sufficient to constitute “special or usual feature” which warrant an award of costs on an indemnity basis. In short, whilst I have no doubt that the third party was responsible for causing this litigation, I do not think its conduct, when viewed as a whole, was culpable to the extent of warranting an order of costs on an indemnity basis. I give the third party the benefit of doubt that it might not fully appreciate the serious implications or consequences of its failings. In the circumstances, I do not think it is appropriate to order costs against the defendant on an indemnity basis.

Conclusion

32. To conclude, I order that the cost order set out in paragraph 105(1) of the Judgment be varied to read as follows: “the third party do pay: (a) to the defendant the costs of and occasioned by the plaintiff’s claim in this action, with certificate for two counsel for the trial, to be taxed if not agreed; and (b) to the plaintiff the costs of and occasioned by the plaintiff’s claim in this action (save and except the costs of and occasioned by the plaintiff’s appeal against the Order of Master S Kwang dated 17 March 2008 which was heard before A Cheung J (as he then was) on 28 July 2008), with certificate for two counsel for the trial, to be taxed if not agreed”. (For the avoidance of doubt, I shall add that I make no variation to the cost order set out in paragraph 105(2) of the Judgment as no application has been made by the defendant. That part of the cost order shall therefore become absolute.)

33. As discussed and agreed at the end of this hearing, the costs of this application should follow the event. I therefore also order that the third party do pay to the plaintiff the costs of and occasioned by the plaintiff’s Summons dated 7 June 2012, with certificate for two counsel, to be taxed if not agreed.

34. Lastly, I thank counsel on both sides for their able assistance.