RICHFINE DEVELOPMENT LTD v. HUGH RUPERT RIVINGTON

HCCL 18/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 18 OF 2006

(transferred from HCA 3157 of 2001)

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JUDGMENT UPON APPLICATION
FOR VARIATION OF COSTS' ORDER NISI
AND UPON DEFENDANT'S APPLICATION
FOR STAY OF EXECUTION

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The applications

1. On 3 July 2008 this court handed down judgment in this action, an insurance claim by the plaintiff jewellery business against a Lloyd's underwriting syndicate consequent upon the insurer declining to pay a claim by the plaintiff arising from a robbery at the plaintiff’s office premises on 28 March 2000.

2. This judgment speaks for itself. 

3. In the event, upon its claim under the policy the plaintiff was awarded the sum of HK$4,738,051.00.

4. In addition, the court made an order nisi that the costs of this action be paid by the defendant to the plaintiff, such costs to be taxed if not agreed.

5. As the result of this judgment, three applications now are before the court:

(i)  by summons dated 21 July 2008 the defendant insurer seeks, first, a variation in the costs order nisi and second, an order for a stay of execution on the judgment until final determination of the plaintiff’s appeal or until further order:

(ii)  by summons dated 14 August 2008, the plaintiff also seeks a variation of the order nisi as to costs, seeking therein a variation to provide that the costs of the action as thus ordered be with a certificate for two counsel.

6. I take in turn the applications as to costs and thereafter – and perhaps more problematically – the application for a stay of execution.

Variation of the costs’ order nisi

(a) Plaintiff’s application

7. As was made clear during the hearing, the plaintiff’s summons seeking a certificate for two counsel did not require great reflection; in fact, upon the application formally being moved by Mr Chan, the court did not ask Mr McLeish to respond.

8. The niceties of taxation have long since passed me by, but in and in so far as any such certificate is needed, I do not grant it.

9. This case admittedly was tedious in its accumulation of detail, but in its general nature not difficult conceptually, and I see no reason why, when the unsuccessful defendant was represented by one junior counsel, Mr McLeish, that the successful plaintiff should be recompensed for the employment of two able junior counsel, the assistance to the court thus rendered notwithstanding.

10. Accordingly, the plaintiff’s summons dated 14 August 2008 to vary the order nisi is dismissed with costs to the defendant, such costs to be taxed if not agreed.

(b) Defendant’s application

11. As to the defendant’s application, the focus of Mr McLeish revolved around the costs of his expert witness, Mr Simon Blade, counsel maintaining that in the circumstances it was unfair and wrong in principle to saddle the unsuccessful defendant with such costs in light of the sequence of events as had enured in terms of the adducing of expert evidence by the plaintiff; indeed, counsel sought not just the disallowance of an order for costs against his client but, in its stead, a positive order for costs in favour of the unsuccessful defendant.

12. In this context it is fair to say that when the court was reminded in detail of what had occurred in terms of the background to the leading of such expert evidence, both at the interlocutory stage and at trial, the strength of Mr McLeish’s argument became immediately apparent.

13. In fact, upon being referred back to an interlocutory order of this court, the present application in substance was no more than to ask the court to revert to, and expressly to make, a decision regarding a reserved costs’ order dated 26 July 2007, which reservation I confess I had overlooked in making the costs’ order nisi at the end of the trial.

14. This particular order was made after interlocutory argument had taken place about whether the plaintiff was to be given leave to call a second (and hitherto) unanticipated expert, Mr Bernard Ng, on the issue, inter alia, of the plaintiff’s records’ methodology, when prior to this there had been no mention whatever by the plaintiff of such a report, notwithstanding the defendant’s complaints about the insufficiency of the plaintiff’s discovery in this regard, and the fact that the report of the plaintiff’s then-existing expert, one Mr Simon Chiu (whom in the event was not called) having dealt solely with the issue of quantum.

15. The point here was that with the advent of Mr Ng’s report, the defendant’s expert, Mr Blade, was required to read and to analyse this new work, and thereafter to write a supplementary report; for reasons which now are less than clear, this court then elected to make a reserved costs’ order on 26 July 2007 after granting leave to the plaintiff to adduce Mr Ng’s report – I can only surmise that it then was thought that this issue would wait until trial in order to see if the defendant’s vigorous complaints had validity, and that any argument of the defendant as to costs (which would have been that the plaintiff was seeking a resisted indulgence, and must pay for the privilege, and the resultant inconvenience) would be as good after trial as at the time of the plaintiff’s application.

16. This of course is true, but the problem has arisen since this element slipped this court’s mind when it came to considering the costs of this action.  Hence Mr McLeish’s historical survey and residual complaint, considerably aided by the chronology attached to his skeleton argument, which stirred admittedly vague memories of the difficulties that had arisen in terms of the calling by the plaintiff of relevant expert evidence.

17. For his part, Mr Charles Chan, who attended at this hearing on behalf of the plaintiff but who did not appear below, tried valiantly to defray the force of Mr McLeish’s logic, but to no avail.

18. This then left the issue of quantum of such costs.  In the event, Mr McLeish adopted a ‘broad brush’ approach, noting at the same time that the difficulties caused to the plaintiff at trial by the non-appearance of the plaintiff’s initial expert, Mr Simon Chiu – whom in the event had to be subpoenaed, but in fact was not called – had contributed to some period of delay in the course of the hearing; whilst counsel fairly acknowledged that such delay did not amount to as much as a half-day hearing, he suggested that a convenient, and not unjust manner of dealing with this element of costs would be to deprive the plaintiff of, and to award to the defendant the costs equivalent to, the costs attributable to a half-day hearing.

19. I agree.  The court tries wherever possible to simplify the onerous task of the taxing master, and this suggested formulation strikes me as obviating a multitude of difficulties in terms of estimating the actual amount of time lost with regard to Mr Chiu’s non-appearance, and also of estimating with any degree of accuracy the time validly spent by Mr Blade in preparing a supplementary report in response to that of the ‘new’ expert, namely Mr Bernard Ng.

20. Nor do I consider – although Mr McLeish did not, I think, emphasise this element in his submission – that in the circumstances of this case that in fairness the plaintiff should be awarded any costs attributable to the expert report of Mr Simon Chiu, which in the event was abandoned co-terminus with Mr Chiu’s non-appearance (paradoxically Mr Acton-Bond, counsel for the plaintiff at trial, informed the court that, after interviewing the subpoenaed Mr Chiu, this witness was not to be called because apparently he had “no memory of” this case).

21. Accordingly, I accede to this element of the defendant’s summons, and accordingly vary the existing costs’ order nisi in the terms following:

  Save and except (i) that the defendant is to have the costs of the interlocutory hearing of 26 July 2007 (which costs were reserved to the trial judge), such costs to be taxed if not agreed; and (ii) that the defendant is to have such wasted costs as are attributable to a half-day of the trial hearing (not being the first day thereof), such costs to be taxed if not agreed; and (iii) that there is to be no order as to the costs of and occasioned by the preparation of the report of Mr Simon Chiu, and (iv) that the case be not certified as fit for two counsel and (v) subject to such existing interlocutory costs’ orders as have been perfected:

the costs of and occasioned by the plaintiff’s action against the defendant are to be paid by the defendant to the plaintiff, such costs to be taxed if not agreed.

22. I hope that the foregoing revised costs’ formulation takes care of all relevant permutations, and does not cause unnecessary complication upon taxation; as the revised order now stands, in my view it is consonant with the broad justice of the situation as to costs in light of the outcome of this action.

Stay of execution

23. With this application, Mr McLeish had two aspects of concern which he maintained could, and should, be met with an appropriate order for a stay of execution of the judgment “until the final determination of this appeal or until further order”:

first, that there be a stay of execution of payment by the defendant underwriter to the plaintiff of the judgment sum of HK$4,738,051.00, together with accrued interest, which at paragraph 209(ii) of the judgment of this court was ordered to be paid upon this principal sum at the rate of 1% over Hong Kong dollar prime rate from time to time prevailing from the date of the issuance of the writ until the date of judgment herein; and

second, that the sum of HK$1.5 million, which had been paid into court by the plaintiff upon the defendant’s application for security for costs, be not released to the plaintiff pending determination of the defendant’s appeal.

24. In his skeleton argument Mr McLeish reminded the court of the relevant principles for ordering a stay of execution, as set out in the judgment of Ma J (as he then was) in Star Play Development Ltd v. Bess Fashion Management Co Ltd, unrep., HCA 4726 of 2001, judgment dated 28 May 2002.)

25. In the event, Mr McLeish put his application for a stay of execution upon two bases: first, that the proposed appeal has a strong likelihood of success, and certainly is at least arguable; and second, that absent a stay of execution the defendant’s appeal would be rendered nugatory because there existed an appreciable risk that the plaintiff would not be able to repay the judgment sum, nor to pay any substantial part of the defendant’s first instance costs if the appeal were to be successful.

26. For my part I make no comment whatever as to the ‘strong likelihood of success’ argument as propounded by counsel, and I will leave that to the view of the appellate court; however, I think it fair to say, certainly in terms of oral argument, that Mr McLeish substantially founded his application upon the supposition that, should the judgment sum be paid over to the plaintiff, and should the money now in court be released, that the defendant would be out of pocket should the proposed appeal be successful, because it would be unable to recover such monies from the plaintiff.

27. I say ‘proposed appeal’ because as matters stood at the time of argument upon this application a draft only of a Notice of Appeal was before the court, and Mr McLeish informed the court that the final draft was waiting to be signed off on by leading counsel, whom I gather is to be Mr Coleman QC.  In the event, the court secured an understanding on the part of counsel on behalf of his client that the duly engrossed Notice of Appeal would be filed within 7 days, or very shortly thereafter upon Mr Coleman’s return to Hong Kong, and I assume that now this has been done.

28. The application for the stay was backed by affidavit evidence from Mr Dewhurst on behalf of the applicant/defendant, and by Mr Chiang Keng Fai, part-owner of the plaintiff/applicant.

29. I have carefully considered this evidence.  Mr Dewhurst propounds the thesis that the plaintiff is a small family company with a paid up capital of HK$2, and that property hitherto owned by that company has been sold at a loss overall of some HK$2.4 million.

30. He observes that the plaintiff obviously has a volume of trading stock, albeit some of which must be on a consignment basis, and that the most recent Directors’ Report and Financial Statements disclosed by the plaintiff in these proceedings (presumably at the security for costs stage) relate to the financial year ending 31 March 2005, and show that upon that date the plaintiff carried forward an accumulated loss of HK$8.037 million.  Moreover, Mr Dewhurst recalls that at the security for costs application Mr Chiang Keng Fai stated in his evidence upon that application that he had paid the money currently in court as security for costs, namely HK$1.5 million, out of his own pocket.

31. Mr Dewhurst exhibits the plaintiff’s financial statements for the years ending 31 March 1997 to 2005, which demonstrate, he says, the plaintiff’s year end liabilities and accumulated losses, and which show, he asserted, that in effect the plaintiff traded whilst insolvent during that period.  He further states that the plaintiff’s financial statements for the year ending 31 March 2005 indicate that the amount due to the plaintiff’s directors totalled HK$6.745 million, and given Mr Chiang’s evidence that he personally had funded the monies now standing in court, it was highly likely that the directors would use any payment by the defendant in satisfaction of the judgment debt, and any sum paid out of court, to repay outstanding directors’ loans.

32. For the plaintiff, once again evidence has been put in by Mr Chiang Keng Fai.  In his affirmation, Mr Chiang stresses that the plaintiff jewellery business has been in operation for more than 16 years, has established considerable reputation and goodwill, and always has been active in trading and in generating profits.

33. For his part Mr Chiang produced a copy of the plaintiff’s financial statements for the years 2006 to 2007, and commented that despite the significant financial set-back of the robbery on 28 March 2000, nonetheless the plaintiff has survived and has continued in active trading and in generating profits, and that there has been a “steady improvement” in the financial position of the plaintiff over the years: thus, in the table he sets out (at para 7 of his affirmation) Mr Chiang demonstrates that whilst in the year 2000 there was a loss of HK$6.224 million, in the ensuing years there has been an annual profit, ranging from HK$2.151 million in 2001 to HK$946,891 in 2007, and he comments, not unfairly, that had it not been for the defendant’s “wrongful failure” to honour the insurance policy the subject of the litigated claim, the plaintiff’s financial position would have been much improved.  Moreover, he states that since the claim was not paid, the plaintiff has been deprived of the use of the lump sum representing the financial loss due to the robbery, which monies otherwise may well have been used for operational expansion, and that the defendant’s consistent refusal to honour the policy unnecessarily had saddled the plaintiff with significant legal costs in order to pursue its claim, an aspect which also was not assisted by the defendant’s application for security for costs, which had had the knock-on effect of further tying up the plaintiff’s funds, and putting yet further pressure upon the plaintiff’s cash flow.

34. Mr Chiang says that whilst the successful plaintiff now should be paid its just desserts, having proved, in part at least, its claim to the satisfaction of the court, nevertheless “in order to show its sincerity”, and in order to emphasise that there is no intention on the part of the plaintiff to render nugatory the defendant’s appeal, the plaintiff’s directors have executed a deed of undertaking to the court that the plaintiff will not repay to the directors, and the directors will not demand repayment of, the directors’ loans currently outstanding until determination of the defendant’s appeal; in this regard a copy of this deed is exhibited.

35. This element was stressed by Mr Chan, on behalf of the plaintiff, whose strong submission was that there had not been demonstrated to be an appreciable risk that the plaintiff intended to render the appeal nugatory; to the contrary, he said, the plaintiff had bent over backwards to give the court its assurance of its bona fides by executing the deed which had been exhibited.

36. He further submitted that the plaintiff’s financial situation had to be viewed within the context of its approach to its liabilities over the past decade, and that instead of avoiding debts and liability simply by winding up its business, and thereafter starting again, the company had continued in business and had made profits upon an annual basis, notwithstanding that its financial situation had been rendered the more precarious by the defendant’s unjustified determination not to pay a bona fide claim consequent upon the robbery in March 2000.  Viewed in this light, said Mr Chan, it was most unlikely that the plaintiff suddenly would change this determined and long-standing approach, and thus abandon the goodwill which it had built up with its customers over the years.

37. In response Mr McLeish was unrelenting, pointing out that in the exhibited 2007 balance sheet of the plaintiff there was an entry indicating a significant amount of money, some HK$14 million stated to be due and owing to the plaintiff from a Macau affiliate of the plaintiff, and thus, he concluded, notwithstanding the undertaking of the directors not to seek repayment of the HK$13.4 million stated to be owing to them by the company, “the bird may already have flown”.

Decision on the stay of execution application

38. I have not found this an application fairly to decide.

39. I understand why the defendant makes it, but fundamentally I am unsympathetic.

40. The fact is that the plaintiff has soldiered on with its business over the past 8 years, notwithstanding (as has been found as a fact) that it was financially hit hard by a robbery which did take place, and that whatever the state of the overall balance sheet the uncontradicted fact is that the plaintiff continues to trade and to make annual operating profits of varying, and not insubstantial, amounts.

41. The history of this case has revealed, in stark profile, a defendant underwriter which had, and evidently has, an intention to take every available step to avoid paying up under this policy, and has forced this small business to enter into the realm of highly expensive litigation in order to obtain justice, and thus payment under the relevant policy.

42. Every conceivable point has been taken, culminating in the persecution (I use the word advisedly) at trial of Mr Chiang Keng Fai, who when in the witness box in effect was accused of being a perjurer and a fraudster by lodging an insurance claim for a robbery which never had occurred, notwithstanding the absence of any semblance of hard evidence which would have served to justify this stance.

43. As the judgment specifically comments, this issue of the bona fides of the robbery and thus of the consequent claim under the policy was a matter which never was pleaded in terms, and initially was approached under the guise of the plaintiff merely being ‘put to proof’ of the event giving rise to the claim, although, as the judgment records (at para 100 thereof) this initial stance ultimately transposed into a positive case being put to the witness as to the fact that the robbery had not occurred, notwithstanding the complete absence of hard evidence to support that which effectively was an unpleaded allegation of fraud which, as the judgment records, “now had blossomed into implicit allegations of perjury and attempt to pervert the course of justice”.

44. This focus upon the bona fides of the robbery claim took up by far the greater part of Mr Chiang’s cross-examination at trial, and indeed of the bulk of the viva voce factual evidence at trial, and was in the event dismissed by the court, which pointedly refused to draw inferences of fraud said to originate from alleged inconsistencies in the recollection by a witness of a traumatic event which had taken place fully some 8 years earlier.

45. In this regard Mr McLeish no doubt was acting under specific instructions to conduct the case in the manner that he did, but as recorded in the judgment (see, for example, paras 103-108) this court was in no doubt that this accusatory and personally diminishing exercise had no basis in fact, the court believing Mr Chiang’s account and firmly declining to accept the insurer’s invitation to brand him both a liar and a fraudster.

46. In fact, although the undoubted emphasis at trial was upon ‘breaking’ Mr Chiang’s account of what had occurred in March 2000, the history of events, beginning immediately after the robbery and the defendant’s investigation thereof, in my view presaged the underwriter’s obvious desire to identify any basis which would justify declining to satisfy the plaintiff’s claim for indemnification under the policy – it is even said that the risk under the policy never had incepted, a proposition which, on the evidence before the court, also was roundly rejected.

47. And yet, against this unattractive forensic backdrop, wherein the fiscal difficulties occasioned to the plaintiff by the defendant’s refusal to pay the claim obviously were exacerbated by the defendant’s application for security for costs – an application made to appear plausible to the court at the time on the basis of the limited knowledge then available to it – nevertheless the plaintiff has continued to make its way in the jewellery business, and has not simply shut up shop, as it may well have been tempted to do on a number of occasions, having lost in the robbery some HK$6 million worth of stock, in itself a significant setback for a small wholesale business such as this.  I bear in mind, also, that accounts as formally filed fulfil a number of purposes and frequently do not reveal the entire story, and I attach considerable weight to the fact that this plaintiff has soldiered on in its business, despite its obvious difficulties over the past 8 years.

48. Looked at in the round, therefore, and with the benefit of the perspective accorded to a tribunal which has been seized with this case from the outset, it is difficult not to arrive at the view that the plain purpose of the defendant not only is to attempt to deny the plaintiff the fruits of its litigation success, but constitutes yet a further manifestation of a settled mindset on the part of insurers determined to flex their financial muscle at the expense of its insured – albeit the costs of this stay application are no doubt but a drop in the bucket given the very considerable additional expense involved the forthcoming appeal, and the fact that the defendant/appellant now is said to be engaging leading counsel to conduct its case before the appellate court.

49. At the end of the day, therefore, in the exercise of my discretion, and having reviewed the history of events in this case, and in particular having carefully considered the evidence placed before the court upon this stay of execution application, I discern neither intention nor probability of action on the part of the plaintiff which would serve to render the defendant’s appeal nugatory, as now is alleged, and accordingly I have decided to dismiss this application, with costs to the plaintiff, such costs to be taxed if not agreed.

50. I so order.

Interim stay 

51. Whilst the normal practice of the Commercial Court is not to reserve judgment in post-judgment applications of this nature, the court wished carefully to reflect upon the argument before rendering its decision upon this application for a stay of execution.

52. Given that this was the case, pending judgment upon this stay application the court decided to grant to the plaintiff an interim stay of execution – both in terms of the judgment sum and in terms of the release of the monies currently standing in court as security for costs.

53. It is also clear that if, as now is the case, the court was to be against the defendant/appellant in this regard, that the probabilities are that Mr McLeish will be given instructions to proceed to the Court of Appeal in an endeavour to convince a Justice of Appeal that any decision to decline a stay of execution should be reversed; certainly he led me to the view that this was likely.

54. Accordingly, in order to obviate an unseemly rush to obtain an appointment before the appellate court prior to the release of the money currently standing in court as security for costs, I am minded to anticipate this procedural difficulty, and thus to grant a further interim stay, for a period of 10 working days only, commencing from the date of this judgment, in order for the defendant, if so advised, to obtain a hearing before a Justice of Appeal.

55. However, absent any extension of such further interim 10 day stay being obtained by the defendant from the Court of Appeal, I order that the monies standing in court, namely, the sum of HK$1.5 million together with such interest as has accrued thereon, be released to the plaintiff upon due application made to the Registrar after expiry of this additional interim period, and that thereafter, absent payment of the judgment sum, the plaintiff be at liberty to take whatever measures as it may be advised in order to levy execution of the judgment now standing in its favour consequent upon the judgment of this court dated 3 July 2008.

Costs

56. This leaves extant the issue of costs of the defendant’s summons dated 21 July 2008.

57. Upon this summons the position is as follows:

58. The defendant has succeeded in achieving a variation of the costs order nisi, but has failed in its bid to secure a stay of execution of the judgment debt and of the release of the monies standing in court.

59. Clearly the main thrust of this application was that of the stay of execution, and indeed the bulk of the hearing was taken up with this element.  True it is that Mr McLeish had to ‘warm up’ the court with some recitation of the procedural history in the context of the costs’ argument, but so compelling was the point he made that I quickly made it clear to Mr Chan, who had no direct knowledge of that which had occurred, having not appeared in this case until this application, that the court was wholly in favour of the defendant upon this aspect.

60. Doing the best that I can in the circumstances, therefore, I make the following costs order nisi as to the costs of the defendant’s summons dated 21 July 2008:

(i)  upon the application to vary the costs order nisi, the defendant is to have 20% of the costs of and occasioned by the application;

(ii)  upon the application for stay of execution, the plaintiff is to have 80% of the costs of and occasioned by the application, in each instance such costs to be taxed if not agreed.