GREAT QUALITY CORPORATION LTD v. EMERY AIR FREIGHT CORPORATION

HCCL 67/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 67 OF 1997

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DECISION ON COSTS

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The point at issue

1.  This case focuses upon the debate as to the correct costs’ order to make in a situation wherein both the claim and the counterclaim are struck out for want of prosecution.

The applications underpinning the costs’ argument

2.  On 9 December 2008 this court was scheduled to hear cross strike-out applications: a summons dated 13 May 2008 issued by the defendant, which sought to strike out the plaintiff’s claims for want of prosecution and/or abuse of process, which in turn was followed, on 24 September 2008, by a like application on the part of the plaintiff, which sought to strike out the defendant’s counterclaim on the same grounds.

3.  These cross-applications were due to be heard by this court on 9 December 2008, but immediately prior to the commencement of that hearing the substantive applications were settled on the basis that, by consent, both summonses should succeed, and that the claim and the counterclaim were to be dismissed for want of prosecution.

4.  So far, so good.

5.  The difficulty, if difficulty it be, arose when it came to the issue of the costs of the claim and the counterclaim, upon which collateral issue the parties had been unable to agree.

6.  Hence, after announcing their consent to the settlement of the respective strike-out applications, counsel for each of the parties, for the plaintiff Mr YL Cheung, and for the defendant, Mr Alexander Stock, proceeded to address the court upon the outstanding matter of costs.

The submissions as advanced at the hearing

7.  For his part Mr Cheung made very brief reference to the history of this case, and submitted that in all the circumstances there should be no order as to costs on the claim and no order as to costs on the counterclaim; the matter was so old, he said, and the question of taxation more than usually difficult and time-consuming, not least given the problem of assessment of costs regarding proceedings in another jurisdiction.  Moreover, there now had been a consensual dismissal of the action and the counterclaim, there had been no trial on the merits, and thus it would be difficult for the court to reach a fair order other than ‘no order as to costs’.

8.  On behalf of the defendant, Mr Stock firmly disagreed.

9.  His case was that, whilst admittedly the claim and counterclaim had been dismissed consensually, nevertheless there was no reason why the court should not follow that which he submitted was the usual order in such circumstances, namely that the defendant should be given the costs of the plaintiff’s claim, and that the plaintiff be awarded the costs of the defendant’s counterclaim: in this regard Mr Stock referred to relevant commentary in the White Book.

The order as immediately made (but not engrossed)

10.  In the circumstance whereby the substantive strike out argument had been compromised, the court perhaps did not accord counsel sufficient time to develop their arguments on the consequential costs’ position; in particular, Mr Stock was keen to expand on his submission, and, I think with some justification, he felt that he was unable to do his argument justice in the short time permitted.

11.  Suffice to say that at that time the court instinctively felt that the appropriate costs’ order to make in such circumstances as had arisen was ‘no order as to costs’, and accordingly this was the order as pronounced from the Bench prior to the early termination of the hearing.

Second thoughts

12.  Shortly after the hearing had concluded, the court reviewed that which had occurred, and took the view that the decision as to costs had been dealt with rather too peremptorily, and that, notwithstanding the decision as earlier promulgated, there remained the possibility that the costs’ order in this case required greater reflection.

13.  Accordingly, my clerk was instructed to write to the parties, and to express my concerns in this regard; by letter dated 9 December, dispatched that morning, the parties were informed that the court wished to revisit the costs’ issue, and requested that the parties produce short written submissions in support of their respective positions on costs. 

14.  With the benefit of hindsight the court should have insisted on this course being adopted in any event upon settlement of the substantive argument, rather than counsel attempting immediately to argue the issue in detail when the court was ‘cold’, as it were; clearly had the substantive applications been argued out and not settled, the court would have been able to have reached more informed view as to costs in the course of reaching any decision upon the mutual strike-outs.

15.  In any event, the error was mine, and the parties now have produced short written arguments which the court has had the opportunity to consider in detail.

The costs’ submissions revisited

16.  Upon reading the arguments as now placed before me by each side, I have concluded that, contrary to my initial instinct, a simple and across the board ‘no order as to costs’ order does not adequately do justice to the situation as has arisen in this case.

17.  For the plaintiff, in his written submission of 9 December 2008, Mr YL Cheung naturally ought to reinforce the order as was originally made.

18.  He made the point that since 2007 the plaintiff’s solicitors have been inviting the defendant, upon a ‘without prejudice’ basis, to discontinue both the claim and counterclaim with no order as to costs, given the delay which both parties had permitted to elapse.

19.  This offer was rejected, and Mr Cheung further complains that the defendant’s solicitors, Messrs Clyde & Co, never had disclosed the identity of the present defendant, UPS, until after September 2007, at which stage it was sought to substitute UPS as the defendant to the plaintiff’s claim.

20.  He maintained that the defendant’s representatives were only informed minutes before the substantive strike out hearing that they would not oppose the plaintiff’s own strike out summons should the defendant be successful on its own strike out application, hence the consent order on the two summonses.  He says that the defendant should have acceded to the plaintiff’s proposal of withdrawal of both claim and counterclaim in or around September 1997, so that there would have been no need to incur further costs which had accrued since that date, including the substitution of UPS and the present strike-out applications.

21.  Mr Cheung argued that the history of these proceedings clearly demonstrates that in fact there has been inordinate delay on the part of both parties, and that in a case of ‘corresponding default’, it is just and fair that the court should make no order as to costs.

22.  He continued that were the court now to vary its original order, as orally delivered, and to substitute an order along the lines of ‘costs of the claim to the defendant, and costs of the counterclaim to the plaintiff’, that this would in itself encourage further lengthy dispute and complicate the process of taxation.

23.  He says that soon after the delivery in the United States at the end of January 1995 of the goods the subject of this claim, and the commencement of US bankruptcy proceedings [with regard to one Eddie Haggar Limited, a Texan garment importer, which had instructed the defendant’s predecessor in title, Emery Air Freight Corporation, to deliver by airfreight from Hong Kong to the USA the consignment of goods in question to which the plaintiff, the named Shipper under the Airway bill, claims title, the defendant thereafter having exercised a lien over the goods to secure unpaid carriage costs], this event had caused a “prolonged and complicated scenario” involving US court proceedings and unfamiliar procedure, and involving an unknown quantity of work, which it would be extremely difficult fairly to subject to the taxation process.

24.  For the counterclaiming defendant, by letter dated 10 December 2008, Messrs Clyde & Co submit – as did Mr Stock at the hearing of the preceding day – that the usual order where a claim and counterclaim are dismissed is ‘costs of the claim to the defendant and costs of the counterclaim to the plaintiff’, citing in this regard Hong Kong Civil Procedure 2009 (at M/N 15/2/7), and the cases of James v Jackson [1910] 2 Ch 92, and a decision of the English Court of Appeal in Zimmer Orthopaedic v ZimmerManufacturing Co Ltd [1968] 1 WLR 1349, a leading case on the treatment of a counterclaim wherein a claim is dismissed for want of prosecution, where the order for costs as now sought by the defendant was made by the appellate court, varying the order made by the judge at first instance.

25.  It is also said by the defendants in this letter that an order in terms of ‘no order as to costs’ would be “unduly harsh” as such an order would fail to make any distinction between the division of responsibility and the differences in quantum of costs which respectively had been necessitated by the bringing of the claim and counterclaim, pointing out that whilst the plaintiff was claiming the sum of US$261,518.95, the defendant’s counterclaim was for but US$60,909.55, and that as the plaintiff had failed to proceed expeditiously with its far greater claim, it was correct that the plaintiff should be responsible for the costs attributable to the claim, and, likewise, the defendant should be responsible for the costs attributable to the counterclaim.

26.  The defendant further asserts that it was only named in these proceedings consequent upon compliance with a US Order after Eddie Hagga Ltd was placed into Chapter 11 bankruptcy, and that, in reviewing the history of this litigation, it is evident that the defendant had pressed the plaintiff to proceed with its claim, but to no avail.  Nor, it is submitted, has avoidance of costs associated with a taxation been accepted by a court as a reason for making an otherwise unfair costs’ order; in any event, the defendant says that this argument is based upon the false assumption that in substance the costs’ orders proposed by the plaintiff and the defendant are similar, save for the requirement of taxation, which clearly is not the case given the substantially differing level of costs associated with the claim and counterclaim, wherein the substantial bulk of the costs expended related to the claim, and relatively little to the counterclaim: the latter was “a straightforward issue”.

27.  Finally, by additional letter dated 11 December 2008, the defendant says that since the plaintiff had disclosed ‘without prejudice’ correspondence in the course of its written submission in support of the contention that since 2007 the solicitors for the plaintiff had been inviting the defendant to a ‘drop hands’ settlement with no order as to costs, it now saw fit to produce additional ‘wp’ correspondence to demonstrate that as early as November 1999 the defendant itself had sought to settle the matter on a ‘drop hands’ basis, which offer had been refused by the plaintiff, and that if this original offer had been accepted when made, the costs of defending the proceedings and the related applications thus could have been saved.

28.  Nor, it is said, was it correct to say that in this case there were an ‘unknown number of witnesses’ who had been involved in ‘an unknown quantity of work’; all the prospective witnesses in this case had filed witness statements in respect of the plaintiff’s claim, and by contrast the defendant’s counterclaim had consisted merely of a claim for freight and storage charges as had been expended, and was unaffected by the US bankruptcy proceedings and the retention of American lawyers, which was an entirely separate matter, and that a law costs draftsman easily could assess the time and costs involved in the preparation of statements for the Hong Kong action.

Decision

29.  As earlier indicated, with the benefit of hindsight I have formed the view that I was a little too hasty in coming to an immediate view on the costs’ aspect, and I have been much assisted by the subsequent written submissions.

30.  I regret that my earlier reaction has resulted in a small amount of additional costs, and after having also considered the material now placed before me, I have concluded that the order as to costs set out hereunder is the correct and appropriate order to make in the circumstances:

Save that there be no order as to the costs of and occasioned by the mutual applications to strike out the claim and the counterclaim respectively (such costs to include the hearing on 9 December 2008, and the preparation of the letters subsequent thereto containing further submissions as to costs), the costs of the plaintiff’s claim herein be to the defendant, such costs to be taxed if not agreed, and the costs of the defendant’s counterclaim be to the plaintiff, such costs to be taxed if not agreed.

31.  I so order.  I should be grateful if this revised (and now final) costs’ formulation is incorporated into the formal order which otherwise records the consensual dismissal of the cross strike-out applications.