DALLAH ALBARAKA (IRELAND) LTD v. SYMPHONY GEMS N.V. AND OTHERS

HCA 2555/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2555 OF 2003

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JUDGMENT ON COSTS

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Introduction

1. On 9 November 2004 this court handed down its judgment upon renewed applications made by the plaintiff against the 6^th and 7^th defendants herein for leave to serve out of the jurisdiction, Mareva relief, and pleading amendment.  These applications were dismissed.

2. At the same hearing this court also formally discharged a variety of orders earlier obtained by the plaintiff against the 6^th and 7^th defendants, with regard to which discharge, in face of the defendants’ application to set such orders aside, the plaintiff had elected to make no objection.

3. The judgment of the court upon these matters speaks for itself.

4. As to the costs variously arising, at the conclusion of the substantive hearing Mr Scott SC, counsel for the 6^th and 7^th defendants, noted that his instructions were to make application for costs orders upon an higher scale than party and party.  The necessity for a further hearing was reflected in paragraph 6 of the Order dated 9 November 2004 (dealing with the discharge of the existing Orders) and in paragraph 4 of the Order of the like date (dealing with the dismissal of the plaintiff’s renewed applications).

5. Accordingly, this is the judgment of the court consequent upon these further submissions as to costs.  Given the detailed skeleton arguments which helpfully were presented, this secondary hearing was able to be dealt with in short compass.

6. In broad terms there are two sets of costs requiring consideration: first, the costs of the applications by the 6^th and 7^th defendants to set aside those orders which, on 2 November 2004, the plaintiff conceded should be set aside; and second, the costs of the renewed applications for fresh leave to serve out of the jurisdiction, for renewed Mareva relief, and for leave to file the draft re-re-amended Statement of Claim, which applications were mounted de novo by the plaintiff at the hearing on 3^rd and 4^th November 2004.

7. As to the first category, the ‘conceded orders’, the judgment (at paragraph 72) observes that there can be no argument but that the costs of the applications to set aside those orders must be to the 6^th and 7^th defendants, and that the only matter in controversy was as to the scale of those costs.

8. The orders in this category are the Order of Pang J dated 9 July 2003 granting leave to the plaintiff to serve the 6^th and 7^th defendants out of the jurisdiction, the Default Judgment entered on 5 February 2004, together with the Charging Order Nisi and the Stop Notice ancillary thereto, and the worldwide Mareva injunction issued by the Order of Lugar-Mawson J dated 20 August 2004.

The argument

9. On behalf of the 6^th and 7^th defendants, Mr Scott SC argued that consequent upon the plaintiff’s concession, which came at the eleventh hour, that the applications to set aside these orders should attract an order for indemnity costs.  He submitted that the court has a general discretion to award indemnity costs where it was considered necessary, and that, as was pointed out by the Court of Appeal in Choy Yee Chun v. Bond Star Development Ltd [1997] HKLRD 1327, wherein the court reviewed the cases and summarized the law on the point, the judicial discretion to order taxation on an indemnity basis was not to be fettered or circumscribed beyond the requirement that such taxation on this basis must be “appropriate”.

10. In the event, he submitted, the plaintiff had abused the process of the court in the course of these proceedings, and thus in the circumstances it was “appropriate” for indemnity costs to be thus awarded.  In this connection Mr Scott advanced a detailed analysis in his written skeleton argument, reviewing the evolution of this case, in particular in terms of the development of purported claim in conspiracy, and focusing in particular upon material non-disclosure to the judges seized with the ex parte applications.  He stressed the manner in which the deposed case against his clients had, as he neatly put it, “grown in the telling”, with earlier conjecture subsequently assuming the character of factual assertion upon which argument thereafter was founded.

11. At the end of the day, said Mr Scott, it was clear that his clients never should have been brought before this court, and thus never should have been subject to the jurisdiction of worldwide Mareva relief — and this notwithstanding that the plaintiff and its advisors had been placed on notice by his clients, in affirmation evidence sworn to set aside the grant of Order 11 leave, as to the non-disclosure which had occurred.  Nevertheless, he said, it was not until the afternoon of 2 November 2004 that the plaintiff’s solicitors had conceded that the proceedings to-date were without jurisdiction, and that the various orders then made against the 6^th and 7^th defendants should be set aside; this had occurred only after a period of some five months in which huge costs had been incurred by his clients which in the event were unnecessary and wasted, and with his clients having been subjected to the draconian relief which it now was accepted should not have been granted.

12. In addition, a like order for costs was sought in terms of the renewed applications made by the plaintiff consequent upon the abandonment of the earlier orders, albeit Mr Scott recognised in this regard that the case for indemnity costs could not be pitched as high.

13. For the plaintiff Mr Bunting SC strongly defended his client’s conduct of the action.  He submitted that an order for indemnity costs is exceptional, awarded only where there has been sufficiently reprehensible conduct of a gravity to warrant such an order, and he reviewed the cases in which the courts have characterized the typical behaviour normally leading to indemnity costs: see OTB v. Coopers & Lybrand [1991] 1 HKLR 177 per Godfrey J at 183B-C, Sun Foo Kee v. Pak Lik [1996] 3 HKC 570, per Godfrey JA at 576B-C, and Choy Yee Chun, op cit, per Stock J.

14. Mr Bunting submitted that “mere non-disclosure” did not of itself automatically found an order for indemnity costs — citing Keith JA in New Asia Energy Ltd v. Concord Oil (Hong Kong) Ltd [2000] 2 HKC 681 at 690H-691F — and noted that that which had occurred in this case could more properly be characterized as instances of ‘insufficient disclosure’, and that in any event it had not been suggested that such non-disclosure was in any way intentional.  He suggested that in terms of the history of the case that each side had overlooked the importance of the Belgian proceedings, and that in a piece of international commercial litigation such as this, involving multiple defendants and proceedings in three different countries, that it was “not entirely unforeseeable” that all relevant matters might not be brought to the court’s attention.

15. In addition, Mr Bunting observed that the plaintiff’s fresh applications for Order 11 leave and for Mareva relief, whilst ultimately unsuccessful, neither were frivolous nor were plainly without merit, and remained part and parcel of hard adversarial litigation.  As such therefore, whilst his clients had failed in these renewed applications, and of course should bear the costs, such costs should be ordered to be upon the usual party and party scale.

Decision

16. This has been an unsatisfactory case.  Consequent upon this argument, I have taken the opportunity to remind myself of the evidence, of the manner in which these proceedings progressed, and of the observations of this court made in the judgment handed down on 9 November 2004.

17. The sequence of events paints an unattractive picture.  The inescapable procedural fact is that the ex parte order subjecting these two defendants to the exercise of this court’s jurisdiction, in place since 9 July 2003, and the order from which all others flowed, including the worldwide Mareva of 20 August 2004, summarily was abandoned on 2 November 2004, together with all subsequent orders, in face of the defendants’ full written submissions which were served several days prior to the commencement of their applications to set aside/discharge these orders.

18. In this connection Mr Lane, the solicitor in charge of this litigation on behalf of the plaintiff, has confirmed the position.  He has sworn a 13^th affidavit, dated 11 December 2004, in which he deposes (at paragraph 7) that upon receipt of Mr Scott’s written submissions that it “became clear” that the prospect of success on the ‘necessary and proper party’ argument were “virtually nil” — in fact, he actually says “not virtually nil”, but I am assuming that in context the negative is included in error — and that as such “the remaining arguments on jurisdiction would necessarily be futile”; accordingly, he says that the decision to withdraw was made after detailed consideration with client and upon the advice of leading counsel “that there was no prospect of success”.

19. In light of this evidence, it is not easy to understand why, in essentially unchanged circumstances, in the renewed application for Order 11 relief reliance nevertheless was still placed upon subrule (c), the ‘necessary and proper party’ head, although this submission thereafter was allied with a fresh argument under subhead (f); in the event, both such arguments were rejected for the reasons adumbrated in the substantive judgment.

20. Against the backdrop of the concession that the jurisdictional basis of the case to-date, together with the orders subsequently engrafted thereon, could not be defended, the evidential shortcomings within the material placed before the ex parte judges is a matter of particular significance and, in my view, is difficult to justify.

21. Notwithstanding Mr Bunting’s soothing words, I am unimpressed by his characterization of “insufficient disclosure”.  Passing reference to proceedings in Belgium simply will not do when the action on foot in Belgium then mirrored the cause of action under the guarantee initially pleaded in Hong Kong, and constituted a highly material issue to have placed before the ex parte judge whom, in considering the application for leave to serve out, was called upon to exercise a discretion involving forum conveniens considerations.  In this connection this court has earlier commented (at paragraph 33 of its judgment) that it is difficult to understand why such economy of reference should have been necessary, and I repeat the earlier observations made about the serious nature of the exercise of Order 11 jurisdiction : this constituted the genesis of the orders that were to follow.

22. Prominent amongst the subsequent orders was, of course, the worldwide Mareva relief.  As the substantive judgment makes clear, this court has taken a dim view of the manner in which the plaintiff’s case developed within the affidavit evidence, with prior conjecture subsequently being treated as fact, and of the ‘glossing’ and ‘narrative elision’ that took place in the attempt to raise a case in conspiracy against the 6^th and 7^th defendants.  In my judgment the plaintiff and its advisors strained to make a serious case in conspiracy absent any hard evidence to underpin that which were, and are, serious and inflammatory accusations; as was earlier observed (at paragraph 56 of the judgment) there was little of substance on which the plaintiff could hang its hat, even factoring in the forensic difficulty of establishing a case in fraud, and the treatment of, and reliance upon, the ‘Gembel Tokyo’ element of the case serves to illustrate the problem that arises when, as regrettably has been permitted to occur in this case, the proper evidential line is crossed.

23. After reviewing the history of these proceedings, I have concluded that, in these particular circumstances, an order for indemnity costs indeed is “appropriate”, and it seems to me not greatly to matter whether the basis for the imposition thereof be characterised as that of ‘oppression’ or, as Mr Scott would have it, of ‘abuse of process’.  Perhaps in this case either label is appropriate.

24. The short and ineluctable point is that these defendants never should have been subject to this jurisdiction, nor should they have been subjected to the orders visited upon them at the hands of the plaintiff, and this on the basis of prejudicial evidence which possessed clear and regrettable defects.  Nor do I accept the plaintiff’s submission that in considering the case for indemnity costs the eleventh hour abandonment of its position does not come into the equation and cannot be supportive of the defendants’ argument; to the contrary, it seems to me that the abandonment serves to emphasize the plaintiff’s recognition that the orders hitherto obtained against the 6^th and 7^th defendants manifestly were unsustainable, and thus that these defendants never should have been in the position in which they found themselves as the result of the plaintiff’s actions in this litigation.

25. In my judgment in circumstances such as these the court should not shrink from imposing an order for indemnity costs.  Such an order will take into account not only the treatment meted out to these defendants in this litigation, but should also express the disapproval of the court towards the plaintiff’s conduct; legitimate process is not to be abused for adversarial gain.

26. Given this conclusion, the only other question arising is whether an order for indemnity costs should be extended to cover the renewed applications by the plaintiff for leave to serve out, for Mareva relief, and for leave to re-re-amend, such applications being renewed consequent upon the concession that the existing orders could not stand.

27. As to this, Mr Scott maintained his argument, although he recognised that some form of line could be drawn between the costs of the conceded as against those of the renewed applications.  For his part Mr Bunting characterized the renewed applications simply as part and parcel of the usual litigation process; there was a winner and a loser, but in this context, he said, there was, and should be, no basis for an enhanced order as to costs.

28. I was initially attracted to this latter approach, but on reflection I do not adhere to this view.  The renewed applications, by which the court was asked not only to extend its jurisdiction over these defendants, but thereafter, and pursuant thereto, to re-grant Mareva relief, in substantial part placed reliance upon the flawed evidential material used to obtain the earlier, and now abandoned, orders; during the course of argument reference was made to matters set out in the earlier affidavits.  True it is that fresh evidence had been produced — vide that of Mr Oomer, albeit this was dismissed as being deserving of little or no weight — but it strikes me that the two parts of this case cannot be so nicely separated, and I do not consider that the abandonment of the earlier orders in favour of fresh applications for like orders had the effect of insulating these renewed applications from what had gone before.

29. On reflection, therefore, I am disinclined to accept Mr Bunting’s submission that his renewed applications should be regarded merely as applications that had failed in normal course, and thus that a ‘normal’ party and party costs order should follow.  Although I accept that there was a degree of difference consequent upon the abandonment, and although I am unprepared to grant an order for indemnity costs in terms of the plaintiff’s fresh applications, in these particular circumstances I take the view that these renewed applications, each of which failed, and failed clearly, also merit an enhanced costs order, and should attract an order for costs to be taxed and paid upon a common fund basis.

Interim payment

30. In addition to argument as to the basis upon which the defendants’ costs are to be taxed, Mr Scott mounted a further application, by summons dated 9 December 2004, for an interim payment of costs pursuant to the provisions of Order 62, rule 9A, RHC.

31. This is a relatively new rule which enables the court, when ordering costs against a party who makes or resists an application, to order that party forthwith to pay to any other party to the application an amount which in the opinion of the court approximates the costs that would be allowed on taxation. The court may make such an order in circumstances in which the application or resistance to the application has been frivolous or vexatious, “or for any other reason that the Court in the circumstances of the case considers just”.

32. Unlike a gross sum order, an order for an interim payment is just that, and will be taken into account when the costs are taxed.  Mr Scott urged that an interim payment in this case was justified because the 6^th and 7^th defendants had incurred significant costs quite unnecessarily consequent upon the plaintiff’s conduct; in particular, he said, such costs were incurred in respect of a claim which, as was belatedly conceded, the court had no jurisdiction to hear, that the grounds for the challenge to the exercise of jurisdiction were made clear at the outset, and if the plaintiff had not waited some five months to concede the point, much of these costs would not have been incurred.

33. This application was supported by an affidavit sworn by Miss Alison Evans of Messrs Clifford Chance, the defendants’ Hong Kong solicitor, who produced a first draft of a bill of costs, which revealed disbursements of HK$1.107 million and solicitor’s profit costs of HK$2.325 million, although she emphasized that the amount thus claimed was “significantly less” than the actual fees incurred, and that this draft bill was to be reviewed to more accurately reflect the actual costs incurred prior to the commencement of taxation proceedings.  That which was actually sought in terms of an interim payment, stated Miss Evans, was the sum of HK$2.158 million, which was calculated on the basis of 90% of counsels’ fees and other disbursements and 50% of solicitor’s profit costs.

34. On behalf of the plaintiff Mr Bunting resisted this application.  He submitted that exceptional circumstances must be shown to justify such an order, and that this had not been done in this case.  There was, he said, no evidence of why the 6^th and 7^th defendants should require their costs prior to taxation, nor was there any evidence that the plaintiff would be unable to meet the costs bill when it became due; to the contrary, the plaintiff was a substantial financial institution.

35. In his latest affidavit sworn for the purpose of this application, Mr Lane also raised concerns about that which he perceived to be the difference between the legal costs negotiated with the defendants’ solicitors pursuant to the worldwide Mareva relief, which at the time were set at the sum of “in the vicinity of HK$2.1 million”, and those currently set out in the draft bill now exhibited by Alison Evans, which amount to some HK$3.432 million.  Mr Lane says that these fees are “exorbitant” and says that the plaintiff has “grave concerns” as to their accuracy, particularly as there appeared to be an element of overlap between the fees expended by these defendants in Hong Kong and those in the United Kingdom.

36. To this Mr Scott disavowed any element of overlap, and noted that since the original estimate of HK$2.1 million matters had moved on, and that additional costs had been incurred.

37. This court has no interest in becoming involved in bills of costs, or in any detailed examination thereof.  Suffice it to say that commercial litigation of this nature is expensive, and given that the plaintiff has put these defendants to the necessity of such expenditure in the regrettable manner which has occurred, it strikes me that the plaintiff is hardly in the position to cavil at what appears, in the circumstances of this case, to be a not unreasonable request, particularly since there may yet be a significant period which elapses prior to the completion of taxation — Mr Lane refers to “proper scrutiny in a thorough taxation of fees” — and the defendants obtaining an allocatur.  Accordingly, in this instance I perceive no difficulty in principle on this application : the only issue is, how much?

38. Following argument as to the amount of legal fees that were to be permitted in terms of the Mareva injunction, I note that this court set a figure of HK$2 million.  It seems to me that this is a not inappropriate figure to the be subject of an interim payment in this case, not least because of the enhanced bases of the costs orders as now have been made.

39. In this connection, I would add one further observation.  There can be no question in this case but that taxation of the 6^th and 7^th defendants’ costs should proceed without delay.  There has been no appeal against the orders of this court of 9 November 2004, and accordingly this action against them is dead.  Nevertheless, even expeditious taxations take time, and in the interim I see no reason whatever why the 6^th and 7^th defendants should not be placed in funds to the tune of HK$2 million.

Orders

40. Consequent upon the foregoing, the following are the further orders of the court :

(i)	Pursuant to paragraph 6 of the Order dated 9 November 2004, the costs of the summonses of the 6th and 7th defendants dated 3 June 2004 and 28 August 2004 (as itemized in paragraphs 1-5 of the Order dated 9 November 2004) be to the 6th and 7th defendants, to be taxed if not agreed, such costs to be taxed and paid by the plaintiff upon an indemnity basis;
(ii)	Pursuant to paragraph 4 of the Order dated 9 November 2004, the costs of the applications by the plaintiff (as itemized in paragraphs 1-3 of the said Order), be to the 6th and 7th defendants, to be taxed if not agreed, such costs to be taxed and paid by the plaintiff upon a common fund basis;
(iii)	Pursuant to the provisions of Order 62, rule A, that the plaintiff do pay to the 6th and 7th defendants an interim payment of costs in the sum of HK$2 million, such payment to be made in a manner to be agreed, alternatively such sum to be paid into court, within 14 days of the date hereof;
(iv)	There be an order nisi that the costs of the plaintiff’s application for an enhanced order as to costs, including the costs of the hearing at 9:30 a.m. on 13 December 2004, be paid by the plaintiff to the 6th and 7th defendants, such costs to be taxed and paid upon a common fund basis.