SNE ENGINEERING CO LTD v. CHIM KEE MACHINERY CO LTD

CACV 101/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 101 OF 2016

(ON APPEAL FROM HCA NO 2025 OF 2012)

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D E C I S I O N

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Hon G Lam J (giving the decision of the Court):

1.  In paragraph 119 of our judgment handed down on 11 July 2017, we made a costs order nisi that SNE do pay Chim Kee 80% of the costs of the appeal and a costs order that SNE do pay Chim Kee the costs of the cross‑appeal, with a certificate for two counsel. By a summons dated 24 July 2017, Chim Kee seeks to vary the costs order nisi. By a further summons dated 26 July 2017, Chim Kee applies to amend the proposed costs order it seeks. There being no opposition to the amendment, we give leave to amend and deal with the application as amended on paper.

2.  Chim Kee essentially seeks a variation in two respects:

(1) that the costs of the appeal and of the cross‑appeal awarded to Chim Kee should include costs previously reserved, in particular the costs referred to in paragraph 5 of this court’s decision dated 15 May 2017;

(2) that the costs of the appeal and of the cross‑appeal, including any costs reserved, should from 9 June 2016 onwards be paid on an indemnity basis.

3.  Chim Kee’s application is supported by an affidavit of its solicitor.  We have also received written submissions of counsel on behalf of Chim Kee.  SNE has not taken any step in opposition to the application. 

4.  On the first point, the decision dated 15 May 2017 dealt with 5 summonses on paper, including an application for security for costs of the appeal, an application to strike out part of an affirmation, an application for leave to file an affirmation and applications to amend the security for costs summons and the strike out summons. 

5.  This court in its decision has actually dealt with the costs of and relating to the interlocutory applications in question: see paragraphs 2.22, 3, 4.1 and 4.3.  What was left over in paragraph 5 of that decision was the summary assessment of the costs ordered.  In these circumstances, it is in our view not open to Chim Kee to seek any variation now for an assessment of those costs on a higher scale. 

6.  As to the second point, we note that in our judgment dated 11 July 2017, the costs order in respect of the cross‑appeal was an order made on the basis of counsel’s agreement at the end of the hearing that costs should follow the event.  It was not made as an order nisi. There is no basis for us to reopen that costs order. 

7.  This leaves the question of the costs of the appeal.  Chim Kee accepts that the order nisi,ie SNE should pay 80% of the costs of the appeal on the party and party basis, should apply to the period of time up to 8 June 2016.  However, relying on two letters sent to SNE on 13 May 2016, Chim Kee contends that from 9 June 2016 onwards, it should have 100% of its costs and on the indemnity basis.  The first letter was expressed as a “sanctioned offer” whereas the second letter was sent as a Calderbank offer “without prejudice save as to costs”.  The offer in the letters was essentially the same, namely, that if SNE withdrew the appeal within the next 28 days, Chim Kee would withdraw its Respondent’s Notice (and thus its cross-appeal) with no order as to costs. 

8.  In the result, Chim Kee has clearly done better than its offer because while SNE succeeded on its appeal to set aside an award of $250,000 in favour of Chim Kee, Chim Kee succeeded in its cross‑appeal leading to an increase in the award in its favour for outstanding hire charges in the amount of $768,817.  Chim Kee has therefore improved upon the judgment sum below by a net sum of $518,817 as a result of the appeal and cross‑appeal.

9.  While it has been held that the regime of sanctioned offers in RHC O 22 does not extend to appeal proceedings (CEP Limited v Wuxi Jiacheng Solar Energy Technology Company Limited [2016] 1 HKLRD 960 at paras 51 to 64), there is nothing to prevent this court from taking account of Calderbank offers in the exercise of its discretion on costs: CEP Limited at paragraphs 65 to 67.  Indeed, in both CEP Limited (supra) and the subsequent case of Tin Lik v Deutche Bank AG (unrep, CACV 145/2016, 23 August 2017), this court took Calderbank offers into account and awarded costs on a common fund basis. 

10.  The following circumstances are also relevant.  In the present case, SNE was asked by this court at the hearing of its application for stay of execution to bring greater focus to its appeal, which at that time was based on 35 grounds for “an all‑encompassing appeal against almost every aspect of the Judge’s decision” (see para 36 of this court’s decision on the stay application dated 15 July 2016).  The supplementary notice of appeal that substantially trimmed down the grounds of appeal was only filed on 15 November 2016. 

11.  As can be seen from our judgment in the appeal, of the 13 grounds of appeal in the supplementary notice, only one succeeded and then only in relation to a relatively minor part of the case, resulting in the setting aside of an award of $250,000 to Chim Kee, which was in the event exceeded in amount by the result of Chim Kee’s successful cross‑appeal.

12.  There were, moreover, certain grounds which seemed to us to be plainly unarguable, such as the grounds relating to the conspiracy plea and to the judges’ rejection of the basis put forward by SNE for its claim for damages.  It cannot be said, however, that the main subject matter of the appeal concerning the lawfulness of the termination of the machinery hire agreement in the light of the provisions of the tripartite rental agreement was patently unarguable (as acknowledged by this court in granting a stay of execution on terms in its decision dated 15 July 2016). 

13.  Taking all the relevant circumstances into account, we would exercise our discretion to order that SNE do pay Chim Kee 100% of the costs of the appeal from 9 June 2016 onwards on the common fund basis, to be taxed if not agreed.  There will accordingly be an order to vary the costs order nisi to that extent.  The costs of the variation application will also be to Chim Kee on the common fund basis, to be taxed if not agreed.