OTC INTERNATIONAL AG v. PERFECT RECOVERY LTD AND ANOTHER

HCCL 11/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 11 OF 2007

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DECISION  UPON  APPLICATION
TO  VARY  COSTS  ORDER  NISI

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The application

1. The court is seized with an application on behalf of the plaintiff, by summons dated 26 June 2008, that the order nisi as to costs made against the plaintiff by this court in its Judgment dated 19 June 2008 be varied either to an order that there be no order as to costs, or to such other costs’ order as the court should see fit to make as between the plaintiff and the 1^st defendant.

2. Consequent upon the hearing of this application on 17 September 2008, a subsidiary argument arose and was sought to be developed by the plaintiff, upon which the court agreed to accept further brief written submissions, and thus stood down the plaintiff’s application pending receipt of the same; such written submissions duly were received from both plaintiff and 1^st defendant two days later on 19 September 2008.

3. This, then, is the decision upon the plaintiff’s application to vary the earlier order nisi as to costs.

The procedural background

4. The writ in this action was issued by the plaintiff on 1 June 2007, and was followed by Points of Claim dated 28 June 2007.

5. On 17 July 2007 the 1^st defendant took out a summons seeking a stay of this action on the basis of forum non conveniens (‘fnc’).

6. Directions were made as to the filing of evidence, and thereafter on 22 January 2008 the 1^st defendant formally moved its application for a fnc stay.

7. However, the application was not concluded at that hearing because of a perception that aspects of German law were relevant to the argument, and as matters then stood no such evidence had been adduced.

8. Hence, the application was adjourned to allow such further evidence to be filed, and the adjourned hearing resumed on 10 June 2008.

9. On 19 June 2008 this court rendered its judgment upon this fnc application, and found in favour of the 1^st defendant.

10. The order of the court was that all further proceedings by the plaintiff against the 1^st defendant in this action were to be stayed in favour of proceedings to be issued either in the Regional Court of Coburg or the Regional Court of Munich (to the jurisdiction of either of which courts the 1^st defendant had undertaken to submit).

11. This substantive judgment (of some 20 pages) speaks for itself, and I will not repeat the matters variously rehearsed therein.

12. As to costs, this court observed (at paragraph 74) that it could see no reason why in the circumstances that costs should not follow the event, and thus made an order nisi that the costs of and occasioned by this application be paid by the plaintiff to the 1^st defendant, such costs to be taxed if not agreed.

13. It is this order nisi which the plaintiff now seeks to vary.

The argument

14. The court had the advantage of being assisted in this argument by the same counsel who had appeared on the hearing of the fnc application: for the 1^st defendant, Mr Roger Beresford, and for the plaintiff, Mr Jose Maurellet.

15. Mr Maurellet, whose application to vary the order nisi this was, filed helpful skeleton submissions dated 12 September 2008.

16. The thrust of his argument, as adumbrated in those submissions, was to re-stress that which the plaintiff viewed as the unfortunate (and unfair) background to the commencement of this litigation in Hong Kong wherein, in effect, the 1^st defendant’s solicitors at the time had indicated that they had instructions to accept service of proceedings by the plaintiff in Hong Kong, only apparently to reverse their stance, and after issuance of the plaintiff’s action – as now had been stayed, pursuant to order of this court – and to make application that the action as mounted in Hong Kong should be transferred to Germany; indeed, said Mr Maurellet, the history of events showed that during pre-action correspondence the 1^st defendant’s solicitors even had maintained that the plaintiff was a debtor of the 1^st defendant, and themselves had asked if the solicitors for the plaintiff were instructed to accept service in Hong Kong, which rubbed salt into the wound, as it were, when, upon the plaintiff’s acceptance of the gauntlet as thus thrown down, and the following day having issued its writ, the 1^st defendant opted for a volte face, and subsequently made its application for a stay of these proceedings.

17. In these circumstances, counsel maintained, it would be “grossly unjust” for the plaintiff to have to suffer any costs consequences of that application, given the context and history which led to the plaintiff commencing proceedings in Hong Kong as of right, and, indeed, after having been “actively encouraged” so to do.

18. Accordingly, said Mr Maurellet, the court should award the plaintiff its costs against the 1^st defendant, alternatively there should be no order as to costs – which latter order already would mean that the plaintiff would be out of pocket as the result of the 1^st defendant’s “incitation” to litigate in Hong Kong.

19. For his part, Mr Beresford effectively suggested that this argument was nonsense, and maintained that very clearly this was a case in which costs should follow the event.

20. He rehearsed the general principle that costs should follow the event (see In re Elgindata Ltd (No 2), [1992] 1 WLR 1207, at 1213H-1214C, per Nourse LJ; HK Civil Procedure 2008, para 62/3/3), which ‘event’ in the instant case had been decided in favour of his client, the 1^st defendant, which had succeeded in convincing the court to exercise its discretion in the circumstances prevailing and to accede to its stay application in favour of the German courts.

21. Mr Beresford also pointed out that the discretion to deprive a successful party of all or part of its costs is a matter “to be approached with due circumspection so as not to undermine the utility of that general rule”, to quote Bokhary PJ in Commissioner of Inland Revenue v. HIT Finance Ltd, FACV 8, 9, 16 and 17 of 2007, Determination dated 26 June 2008, and that the onus is on the party seeking to displace the general rule to prove the circumstances justifying some other order: see Mariner International Hotels Ltd v. Atlas Ltd (2007) 10 HKCFAR 246, at 251A, per Bokhary PJ.

22. In the present application, Mr Beresford submitted, the plaintiff had lost on all the issues before the court, and the 1^st defendant had done nothing to occasion unnecessary litigation and expense, and so there were no “special circumstances” warranting departure from the general rule.

23. As to the suggestion that the plaintiff had been led to believe that the defendant would consent to litigate in Hong Kong, it was true that the parties had corresponded about service of proceedings, but not about forum, and the fact remained that when the defendant had issued its summons for a stay on the basis of forum non conveniens, the plaintiff pointedly had made no offer to consent to any such stay on condition, for example, that its costs were paid to date in Hong Kong; to the contrary, said Mr Beresford, the “overwhelming inference” was that the plaintiff desired to proceed in Hong Kong in order to seek a better rate of recovery than would have been forthcoming in the insolvency process on which in Germany the majority of creditors had to rely, and indeed the plaintiff had litigated the issue of the stay to the fullest degree, contesting the application to the end, and had raised issues which were unnecessary or irrelevant.

24. As was made clear by the court to Mr Maurellet during the hearing of the application to vary the order nisi, on the basis of the argument as was then ventilated in the skeleton submissions, at that stage the court was not attracted by the plaintiff’s submissions.

25. However, in the course of this hearing Mr Maurellet began to develop an argument founded on the basis that, when the application first had been heard, the defendant applicant had failed to file sufficient evidence of German law in order to support its case in terms of the compellability or otherwise of Mr Pfaff to give evidence in Germany.

26. It was as a result of putting forward this alternative submission that the hearing to variation of the costs’ order nisi itself was adjourned in order for the parties to file brief written submissions on the point, submissions which were received shortly thereafter.

27. At bottom, Mr Maurellet’s point was that whilst issues of jurisdiction of the German courts and that of the governing law had been addressed in the original tranche of evidence of German law adduced by the 1^st defendant, that of the issue of ‘compellability’ in Germany pointedly had not; this, he said, was a “crucial aspect” of German law not canvassed prior to the original hearing date of 22 January 2008, and a specific matter upon which the court had relied in coming to the conclusion to permit the stay of proceedings (vide paragraphs 60-61 of its Judgment on the application): As a result the application had had to be adjourned largely in order for the 1^st defendant to file evidence upon this element, as well as that of the structure of the German courts. 

28. The bull point, Mr Maurellet submitted in his supplemental written submission, was that these were matters upon which the 1^st defendant needed to rely in order to get home on its application, and he ventured to suggest that the plaintiff may well have succeeded if no further evidence of this nature had been adduced, as the burden had lain on the applicant to show that Pfaff was compellable in Germany: hence, in these circumstances, wherein an adjournment had been required in order for this evidence to be put in, the plaintiff alternatively would invite the court to vary the order nisi so that the costs of the 2^nd day of the hearing should be to the plaintiff.

29. In his own supplemental written submission, Mr Beresford sought to rehearse the sequence of events consequent upon the stay application made by his client.

30. He noted that the principal issue which had concerned the court at the initial hearing on the application on 22 January 2008 had been the position of the 2^nd defendant, which had not joined the 1^st defendant’s application for a stay, and at that time had been represented only by a ‘watching brief’ by its solicitor and not by counsel, and at which hearing it had been contended strongly on behalf of the plaintiff that, if a stay were to be granted in favour of the 1^st defendant, the plaintiff would be compelled to litigate the like issue in two jurisdictions, and within that context the court had raised the question of the jurisdiction of a German court to bind the 2^nd defendant in any judgment of such court.

31. However, said Mr Beresford, this particular concern had dissipated when counsel for the 2^nd defendant, Mr William Wong, had appeared at the adjourned hearing of the substantive application, and had made it clear to the court that the case as launched by the plaintiff against the 2^nd defendant was entirely discrete from that as mounted against the 1^st defendant, and that the 2^nd defendant would not be contesting the plaintiff’s claim against the 1^st defendant (vide Judgment, paragraph 41).  Accordingly, counsel submitted, this had confirmed the 1^st defendant’s original contention that, whilst the potential liability of the 2^nd defendant indeed was conditional upon liability being established against the 1^st defendant, the 2^nd defendant could and would have no role in that process.

32. Mr Beresford further pointed out that a specific ‘connecting factor’ relied upon by the plaintiff in the 1st affidavit of Mr Fairbairn leading the stay application had been Mr Pfaff’s residence in prison in Germany, and that the plaintiff’s response merely had been to play down the evidential significance of Mr Pfaff, and to suggest that he might not be a witness at all (see plaintiff’s skeleton submissions, at para 63.)

33. Accordingly, the plaintiff’s reliance upon this aspect was both belated and clearly self-serving, he suggested; most of the court’s questions as to German law as had been raised at the time of the first hearing of the application had been directed to a consideration of German procedures, and only one of several questions raised was directed to the resolution of doubt as to the ‘compellability’ of a prisoner in Germany.  Moreover, Mr Beresford argued, the court’s conclusion (at paragraph 61 of its judgment) that Mr Pfaff “obviously” is not compellable in Hong Kong represents a finding of common sense, not a finding of German law.

34. Nor, he continued, had the plaintiff contended at the first hearing that the 1^st defendant had failed to discharge the burden of proof upon it by reason of not proving that Mr Pfaff was compellable in Germany; indeed, in the event Mr Pfaff’s compellability had not been disputed (see judgment, paragraph 60), and thus there was and is no burden to prove what has not disputed.

35. At the end of the day, counsel submitted, the 1^st defendant had not done anything to occasion an unnecessary second hearing which should be compensatable in costs to the plaintiff; at the end of the first hearing, the court had given directions which it had regarded as necessary for the resolution of the application, and by analogy with a summons for directions, the costs of that hearing should be costs in the application.

Decision

36. This has been a somewhat convoluted application, which seems to have taken a good deal of time and effort, perhaps more than had been envisaged.

37. I have been assisted by the helpful and cogent submissions made by counsel on both sides, and have taken some time to re-evaluate the case and the competing arguments, and whether in the circumstances the initial order nisi should be varied.

38. As the Commercial Court frequently has observed, costs are not an exact science, and often appear to depend as much upon the state of the judicial stomach as upon any purely cerebral evaluation, although I do not dismiss the probability that there may be some tenuous connection.

39. After further reflection, however, I have come to the conclusion that the entire German law exercise was not productive, and did not assist the court to make its decision upon the substantive application.

40. Accordingly, upon reconsidering the particular circumstances of this case, I have concluded that there should be a variation of the original order nisi as to costs in the terms following:

           Save that there is to be no order as to costs incurred by the plaintiff or the 1^st defendant in the obtaining and filing of expert evidence as to German law,

          And save that there is to be no order as to the costs of and occasioned by the plaintiff’s application, pursuant to its summons dated 26 June 2008, to vary the order nisi as to costs (including the hearing on 17 September and the supplemental written submissions of 19 September),

          The costs of and occasioned by the 1^st defendant’s application for stay pursuant to its summons dated 17 July 2007 (including the hearings on 22 January 2008 and 10 June 2008) are to be paid by the plaintiff to the 1^st defendant, such costs to be taxed if not agreed.

41. I so order. 

42. This revision to the costs’ order nisi strikes me as far from perfect, but in the circumstances probably is more consistent with the broad justice of this case.

43. I should be grateful if the 1^st defendant, which has carriage of the order upon this final determination of its application for a stay of proceedings, now formally would engross the order of the court, including the foregoing variation to the original ordernisi as contained in the Judgment dated 19 June 2008.