LINKS INTERNATIOINAL RELOCATIONS LTD t/a LINKS RELOCATIONS v. SWIFT CHRISTOPHER LEE

DCCJ817/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 817 OF 2012

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DECISION

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1. On 22 October 2013, I gave judgment in this action in favour of the plaintiff for the sum of HK$27,780. I also made an order nisi that costs be to the plaintiff with certificate for counsel. The defendant applied to vary the costs order nisi.

2. Whilst I am impressed by the diligence of counsel on both sides, I have considerable misgivings about the way this application has been handled. There are very well established authorities to guide the court on the issue of costs and in general it should be dealt with expeditiously after the trial by following those well established principles.  I have seen directions which reflect such practice given by courts after trial.  For example, in Re Rontex International Holdings Limited, HCMP 1869/2008, a case much more complicated and with a much higher stake than this one, the trial judge gave direction that “Within three working days of this judgment being handed down each party shall submit to the court their written submissions as to the appropriate costs orders on this petition.  Such written submissions should not exceed three pages from each party.”  What I received from the parties exceeded many times of three pages.  Over the span of six weeks, each side filed extensive submissions, dozens of authorities, and even affidavits deposing to the conduct of the parties during the course of the whole case.

The defendant’s stance

3. The defendant started by trying to file a summons to apply to vary the costs order nisi.  As a result of some hiccups, it was not filed strictly within 14 days of the judgment.  I am prepared to ignore this technical breach of the time frame.  However, the summons is still highly unsatisfactory.  It asks for “the costs order nisi be varied” without specifying how.  In PCCW-HKT Telephone Ltd v Telecommunications Authority unrep, CACV 274/2003, Ma CJHC (as he then was) said in paras 5 and 11:-

“5. This letter was treated by PCCW as an application made under RHC O 42, r 5B(6) to vary the costs order nisi.

11.   … As mentioned above, this was done by way of letter.  This was wrong.  Applications to court should be made by way of a summons or motion, and not by the informal way that was chosen in the present case.  The reason for this requirement is to enable the other side and the Court to understand exactly the nature and extent of what is being asked for. Otherwise, there is a danger that it becomes unclear just what is being sought from the Court, thereby allowing parties to ask for relief in a haphazard manner.  The present case provides a good example.  On the TA’s part, an application that the costs order nisi be changed to one of no order as to costs developed into an application that while this was the primary order sought, the alternative relief was one of partial costs in favour of both sides.  On PCCW’s part, a late application was made in its written submissions for a certificate for 2 counsel (which, as it turned out, was unnecessary).”

4. This unsatisfactory aspect of the summons was further aggravated by the defendant’s written submissions.  At various places in the defendant’s submissions, he asks “the Honourable Court should apportion the costs between the parties” (para 11 of submissions on 12 November), without specifying how the apportionment is to be made.  In para 29 of the same submissions, under the heading “PRAYER”, the defendant asks “the Honourable Court should order that the costs of this matter be paid in their entirety by the P to D”.  This was reiterated in the concluding paragraph of defendant’s supplementary submissions dated 19 November 2013.  In para 14 of the supplemental submissions, the defendant also asks in the alternative that the plaintiff’s costs be assessed “at no more than the Small Claims Tribunal scale/rate”.  Further, in para 28 of the defendant’s submissions and para 13 of the supplemental submissions, the defendant asks the court “not to proceed to making the Costs Order absolute”. 

5. Further, the possibility that my judgment would be overruled by the Court of Appeal was mentioned numerous times in the defendant’s submissions and invoked to support the proposition that I should not proceed to make the costs order absolute.  At one point it was contended that my decision on the point of lien was contrary to all established authorities and that leading counsel has now been engaged to advise on it (see defendant’s solicitors’ letter dated 7 November 2013).  This is rather unsatisfactory.  Except the learned judges in the Court of Final Appeal, every judge is aware that his judgment could be overturned by an appeal court.  To constantly remind him of such possibility in an attempt to influence his decision on the case before him borders on the line of an advocate’s etiquette.  It appears to me to be against established principles and practice that a trial judge should not proceed to make absolute a costs order nisi merely because of the possibility of an appeal.

General principles on costs after CJR

6. I believe these principles are uncontroversial. I respectfully adopt the following passage by Saunders J in Chan Mei Yiu, Paddy And Another v Secretary for Justice And Others HCAL 16/2007, 9 December 2010 (cited and adopted again by his Lordship in Kwok Chin Wing v 21 Holdings Ltd [2011] 3 HKC 542, at para 19):-

“The principles to be applied

3. Mr Grossman, for the Respondents, acknowledges that costs are in the discretion of the court and argues, relying upon the well-known passage from Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214A-C, per Nourse LJ, that there is a general rule arising from a matter of accepted practice and case law that costs should follow the event, even if the successful party has raised issues or made allegations on which he fails, (ie, principle (iii) referred to by Nourse LJ).

4. Mr Grossman then reminds me that those principles have been adopted by the Hong Kong Court of Appeal in La Chemise Lacoste SA v Crocodile Garments Ltd [2000] 4 HKC 317. Finally, he acknowledges that the following civil justice reform, the terms of O 62 R 3(2A), are now in permissive rather than mandatory terms, enabling the court in the exercise of its discretion to order costs to follow the event or make such an order as it sees fit.

5. However, I accept Mr McCoy’s submission that the proper approach to costs, having regard to the changes brought about by civil justice reform, is that the proposition that costs follow the event is not a general rule, but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case. When regard is had to the provisions of O 62 R 5(1):

“The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances take into account –

(aa) the underlying objectives set out in Order 1A, rule 1;

(e) the conduct of all parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful,”

it becomes abundantly apparent that the dictum of Lord Lloyd of Berwick in Bolton MBC v Enc Sec (Practice Note) [1995] 1 WLR 1176 at 1178 more properly reflects the approach to costs:

“As in all questions to do with costs, the fundamental rule is that there are no rules. Costs are always in the discretion of the court, and a practice, however, widespread and long standing, must never be allowed to harden into a rule.”

6. The proper context in which Nourse LJ’s statement in Elgindata, should now be viewed, and the effect of the changes consequent upon civil justice reform, is demonstrated by the following passages from the decision of Lord Woolf MR in AEI Ltd v Photographic Performance Ltd [1999] 1 WLR 1507:

“I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs. From 26 April 1999 the ‘follow the event principle’ will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new Rules are reflecting a change of practice which has already started. It is now clear that too robust and application of the ‘follow the event principle’ encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your efforts to do so.” (1522H-1523B)

The ‘well-established practice’ on which Nourse LJ based his third principle is, as I have already indicated, less generally followed than has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which it has failed.” (1523H)

7. Relying upon that decision, and two other decisions, Stoczina Gdanska SA v Latvian Shipping Co, Times Law Reports, 25 May 2001, and Summit Property Ltd v Pitmans [2001] EWCA Civ 2020 at §§ 16-17, Mr McCoy formulates the following propositions:

(1) It is no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party on a particular issue on which he (the first party) has failed;

(2) The Court may make different orders for costs in relation to discrete issues - and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in that event, may make an order for costs against the party who has been generally successful in the litigation;

(3) It may be appropriate, in a suitably exceptional case, to make an order which not only deprives the successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party’s costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably; and

(4) The above propositions give effect to the particular purpose of encouraging litigants to be selective as to the points they took, thus decreasing the costs of litigation.

I am satisfied that the authorities, and the new Rules justify those propositions, which I apply.”

Evidence concerning conduct of the case

7. The defendant filed an affidavit to depose to allegedly unfair and unreasonable conduct of the plaintiff during the course of this action.  He deposed to some correspondence and conversations amongst the defendant (who was acting in person at that time), his wife, the plaintiff’s and the plaintiff’s solicitors’ representatives.  This prompted the plaintiff to file three affirmations to rebuke him.  Although according to the approach explained by Saunders J, I could adopt a more flexible approach to the issue of costs, I still could hardly see the need, nor the desirability, for the trial judge to launch into a forensic examination of contested factual issues relating to the conduct of the parties in the course of the action.  

8. The principles on costs after the CJR are meant to encourage parties to save costs. For me to accept the defendant’s invitation to delve into a forensic examination of the parties’ conduct would go directly counter to the spirit of CJR. It would be acceptable if the affidavit merely deposed to uncontroversial facts that clearly have significant bearing on the issue of costs (such as any written offer made).  However, unfair or unreasonable conduct during the course of the action would in all likelihood have been sufficiently dealt with by the masters and judges in interlocutory applications.  It would be very rare that any such alleged conduct, even if established, would affect the trial judge’s decision on costs. Further, how am I going to resolve the differences in evidence between the plaintiff and the defendant?  Shall I convene a hearing and call all the deponents, and other people mentioned in the affirmations, like the defendant’s wife and the plaintiff’s employees, to attend court and be cross-examined?  This is simply impracticable.

9. Lest it be felt necessary, I should mention this.  No effort has been spared by the defendant to castigate the ‘unreasonable conduct’ of the plaintiff and its legal representatives in this case.  Yet, any reasonably competent litigation lawyer should by now be familiar with the rules that protect his client against any such unreasonable plaintiff introduced by the CJR in 2009.  These are the rules set out in Order 22 of the Rules of the District Court and the corresponding rules in the Rules of the High Court.  No satisfactory explanation has been proffered by the defendant as to why he had not availed himself of those rules, except the plea that I should consider the “overall justice of the case”.  In my view, the provisions under Order 22 are exactly designed to spare the court of the trouble to consider the “overall justice of the case” and to give certainty to the parties as regards their respective positions on costs following the outcome of a case.  In this case, not only had the defendant failed to avail himself of the Order 22 regime, there was not even any written offer ever made by him.  The defendant in his affidavit and submissions asked the court to consider certain oral offer of settlement made by him (which was not admitted by the plaintiff).  In my view it is idle for the court to investigate into such allegations and take them into consideration on the issue of costs.

9. I cite below a recent judgment by the learned Deputy High Court Judge Woo in Mega Yield International Holdings Ltd v Fonfair Co Ltd [2013] HKCFI 797, at para 28, which resonates with what I said above:-

“The defendant could well have protected itself from any exorbitant or excessive claim as well as from the costs of pursuing such exorbitant claim by making an adequate sanctioned payment into court. The defendant appears to be financially capable of paying a sum into court that can slightly exceed of the award I may make in favour of the plaintiff. That is the protection offered by the RHC. The present application is a second bite at the cherry, upon the failure to avail itself of the protection by way of the sanctioned payment. Nothing prevents the defendant from doing so, subject of course to the court being satisfied as to its justification. I am, however, not so satisfied.”

Awarding costs on Small Claims Scale?

10. The defendant laid heavy emphasis on the fact that I only awarded the plaintiff HK$27,780, a small fraction of the amount pleaded in the statement of claim.  Ordinarily I should seriously consider awarding costs only on the scale of the Small Claims Tribunal (“SCT”).  After seeing the defendant’s affidavit, I invited the parties to address me on several cases dealing with this issue (including Cheung Yu Tin Alvin v Ho Hon Ka [2006] 3 HKC 473, M Beraha & Co Ltd v Ng Wai Lun, CACV 256/2003 and Hoi Cheng Pan v Headstart Educational Group Ltd, DCCJ 4028/2006.)  However, what the defendant had not mentioned in his affidavit and submissions was that the plaintiff originally started the action in the SCT but because of the defendant’s counter-claim for delivery of the wines (valued at over HK$50,000), the case was transferred to the District Court.  The plaintiff had tried to review the Adjudicator’s decision to transfer but failed.

11. The defendant argued that the counter-claim was necessitated by the plaintiff’s unreasonable insistence on the lien over the wines.  It is alleged that the plaintiff was the author of the situation whereby the transfer to the District Court had become necessary.  However, I have ruled in my judgment that the plaintiff was entitled to a lien (see paras 18 to 21 thereof) and hence its insistence was not unreasonable.  I might find it necessary to consider if the plaintiff’s insistence on lien was unreasonable if the defendant had at any stage made a valid and unequivocal offer to the plaintiff to pay a sum he regarded as reasonable.  However, as I found in my judgment, no such offer had ever been made.  The defendant deposed that such finding of mine is wrong.  He did not refer to any documentary evidence to support his challenge of my finding.  He alleged that after a call-over hearing at the SCT, he discussed with Ms Elsa Law of the plaintiff’s solicitors and offered to the plaintiff that if it delivered back the wines to him, he would pay the plaintiff Crown Storage rates up to the date he requested re-delivery (presumably 10 March 2010, if I may help the defendant to be precise).  The plaintiff disputed this account.  There is no way I could resolve this factual dispute.  The defendant, a senior solicitor, has only himself to blame for not putting the offer in writing.  Moreover, even taking the defendant’s case to the highest, the offer was still equivocal and unreasonable.  As I explained in my judgment, “Crown Storage rates” is not a precisely defined term.  And what about the delivery charge?  And why only pay charges up to 10 March 2010, when the request made on that day was not coupled with any offer to pay any storage charges?  That the same offer was made by the defendant at mediation, as alleged by the defendant, did not take his case any further.

12. In any event, whoever was at fault, considering the peculiar nature of this case and the many legal issues involved, and seeing that the defendant himself saw fit to engage a rather experienced counsel to represent him at trial, I do not find it unreasonable or inappropriate for this particular case to be heard in the District Court.  And it is apparent that the plaintiff had not deliberately chosen to commence the action in the District Court in the hope of getting an exaggerated award.  I reject the submission that costs should be assessed at SCT scale.

The PTR judge’s “pronouncement”

13. The defendant further deposed in his affidavit that at a PTR before Deputy District Judge SP Yip (the PTR judge) on 25 July 2013, the PTR judge was reported (by the defendant’s then solicitors) to have “pronounced” that:-

“To the defendant, if the plaintiff fails to bid for compensation with quantum over and above HK$50,000.00, the plaintiff will have to pay costs to the defendant.  On the other hand, the defendant should not submit to the Court evidence on “settlement” issues, which were prejudicial to the fair trial of the case.”

14. The defendant chose to use the word “pronounced”.  (It was later found that the defendant’s then solicitors did not use such word or a word of similar import in his report to the defendant.)  I was puzzled by the nature of such pronouncement and asked the parties to clarify.  Mr Sheppard, the defendant’s counsel, replied that:-

“the pronouncement by HH SP Yip DJDC was not enshrined in an Order. However, the defendant respectfully submits and understands that it would be normal court practice for a trial judge to liaise with his predecessor(s) concerning such matters generally, especially following any relevant notations upon the Court file. This is made the more and necessary in the interests of justice in circumstances where the Judge, having made a ‘pronouncement’, thereafter ordered that there be redaction of evidence, to the considerable prejudice of the defendant, and in circumstances where the pronouncement as to costs was made at the same time, but in the interests of the defendant in its case as to costs against the plaintiff. The role of the Court is to facilitate the Underlying Objectives per O 1A, r 1, 2 and 4 RDC. Patently, taking due judicial heed of case management pronouncements and decisions is necessary to ensure that there is a sense of reasonable proportion and procedural economy in the continuity and conduct of proceedings and, above all, to ensure fairness between the parties thus to achieve the ends of justice in the Court’s consideration of such matters.”

15. I am afraid I do not fully understand this submission except that I was urged to duly heed, and as far as possible, make decision that would be consistent with the ‘pronouncement’ of the PTR judge.  As such, I find such submission to be devoid of merits.  How could a trial judge’s discretion on costs be fettered by the PTR judge who had neither heard the evidence nor considered the parties’ submissions?

16. The plaintiff’s answer to my request for clarification is much simpler: the PTR judge had never said what the defendant said he had.  Ms Elsa Law of the plaintiff’s solicitors and its counsel listened to the audio recording of the hearing and confirmed that the PTR judge had not said that.  I have checked the notes taken by the PTR judge on that date and did not find any such thing mentioned.  The plaintiff alleged that the defendant deliberately tried to mislead me.  I shall not delve into this question.  Suffice it for me to say that I find it inherently improbable for the PTR judge to have said that. In any event, I see no justification for the defendant to seek to fetter my discretion with a so-called “pronouncement” of the PTR judge.

Consequence of a lesser award

17. I now deal with the submission that costs should somehow be reduced or apportioned in light of the fact that the final award was much less than that claimed in the Statement of Claim and the plaintiff lost on the important issue of quantification of its claim.

18. As explained in the passage of Saunders J cited above, the more flexible approach on costs after the CJR encourages the parties to be economical and sensible in prosecuting their claims so as to contain the costs of litigation.  However, I do not think the authorities have gone so far as to suggest that whenever a winning party fails on a particular issue, he would have to bear the costs incurred on that issue. In my view, a winning party should, subject to the judge’s discretion, be ordered to bear costs on a failed issue only if it is an obviously bad point that significantly increased the length of the trial or incurred substantial unnecessary costs.  Litigation is an uncertain business.  Very often, it is not easy to tell whether a point would be accepted until after the court has carefully examined the evidence and heard full arguments over it.  Whilst economy of costs is an important consideration, the right to fully ventilate one’s case is also of very high value.  A balancing exercise has therefore to be struck and that is why the court is given the ultimate discretion on the issue of costs.  In the Kwok Chin Wing case itself the plaintiff won on one only out of three principal issues.  Yet Saunders J did not deprive the plaintiff of any part of his costs. 

19. In this case, the plaintiff was successful before me on the most important issue – the defendant’s liability to pay; and several related issues – such as the existence of the contract, the lien and the plaintiff’s duty to mitigate.  Primarily the case came to court because of the defendant’s denial of such liability.  Quantification is no doubt an important aspect of the case but not the most important one, particularly when the defendant maintained his denial of liability all along and had never made any valid offer of payment of any amount.  The plaintiff sought to rely on the published rates in its website.  I rejected it.  But I do not think it is so bad a point that should never have been raised at all.  I do not find that arguments in relation thereto have significantly lengthened the trial or incurred substantial additional costs.  I rule that the plaintiff would not be deprived of its costs because of this failed issue.

Plaintiff’s ‘sanctioned offer’

20. There is one more significant and undisputed fact that I should mention.  The defendant incessantly hammers the point that the final award was a mere HK$27,780 and the plaintiff amended its claim to plead unjust enrichment during the course of the trial.  At the final stage of the case and in the submissions on costs filed, it was repeatedly said that the case could have been settled long ago if the plaintiff had pleaded its case properly and be more circumspect in its claim.  I have already dealt with these arguments in my main judgment (see, in particular, para 16 thereof). After the trial, I was made aware of a sanctioned offer by the plaintiff made on 26 June 2013.  On that day, the plaintiff made a written offer to accept HK$50,000 in full and final settlement of the action with no order as to costs. This fact was not mentioned in the defendant’s affidavit or submissions.  As it turns out, it could be said that the plaintiff did better than this offer.  By 26 June 2013, in all likelihood the plaintiff’s costs would have exceeded HK$22,220 (50,000 – 27,780).  The defendant ignored this offer.  It is clear from this offer of the plaintiff that it was very keen to avoid the trial.

21. However, should I order that the adverse consequences of Order 22 rule 24 be visited on the defendant?  I am afraid I cannot.  The sanctioned offer of the plaintiff had not fully complied with the formalities required.  The importance of complying with the formalities required under Order 22 has been emphasized in a number of cases (see, eg, Lin Yanjin v Smart Billion Engineering Limited, HCPI 739/2009; Kwok Chin Wing v 21 Holdings Limited [2011] 3 HKC 542).  In any event, the plaintiff has not made an application under Order 42 Rule 5B(6) for such purpose and given the defendant sufficient opportunity to make submissions thereon.  I am therefore bound by the rule to make my order nisi absolute.  Despite I could not award a higher scale of costs to the plaintiff, this ‘sanctioned offer’ removes any doubt that I should exercise my discretion to award full costs to the plaintiff and make my order nisi absolute.

22. For avoidance of doubt, the costs reserved at the PTR and the SCT should also be to the plaintiff.

23. In relation to the costs incurred in the defendant’s application to vary my costs order nisi, for the reasons I stated above, I exercise my discretion to order that such costs be paid to the plaintiff on an indemnity basis.