GOLDEN TONN INDUSTRIAL LTD v. HONG KONG CYBERPORT (ANCILLARY DEVELOPMENT) LTD

HCMP 299/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 299 OF 2015

(ON AN INTENDED APPEAL FROM HCA NO 362 OF 2011)

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REASONS FOR DECISION

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Hon Barma JA (giving the Reasons for Decision of the Court):

1.  This was an application for leave to appeal by Golden Tonn Industrial Limited (“the plaintiff”) against the decision of Deputy Judge Le Pichon dated 27 August 2014, dismissing the plaintiff’s appeal against an order of Master Ho dated 24 April 2014. Leave to appeal having been refused by the Deputy Judge on 28 January 2015, the plaintiff sought leave to appeal from this court by its summons dated 5 February 2015. Lam VP having directed that the matter should be dealt with by way of oral hearing, the application came before us on 17 March 2015. At the conclusion of the hearing, we dismissed the application with costs to the defendant, Hong Kong Cyberport (Ancillary Development) Limited. We indicated that we would in due course hand down the reasons for our decision, and make a gross sum assessment of the defendant’s costs. This we now do.

2.  The plaintiff was the purchaser of two adjoining flats in a residential development in Cyberport.  The defendant was the vendor.  The plaintiff brought an action against the defendant seeking damages for alleged misrepresentation which the plaintiff claimed had led it to agree to buy the flats from the defendant.  In the course of the proceedings, a dispute arose as to discovery and the defendant sought to have certain documents which the plaintiff had included in its list of documents expunged from the plaintiff’s list.  That application (which the parties have referred to as the “expunction application”) was eventually fixed to be heard on 20 and 21 March 2013.  On 8 March 2013, the defendant gave notice of the making of a sanctioned payment in respect of the whole of the plaintiff’s claim, pursuant to RHC Order 22.  On 21 March 2013, the expunction application was adjourned part heard until 28 March 2013, and costs were reserved. However, on 26 March 2013, before the resumed hearing took place, the plaintiff accepted the sanctioned payment.  The expunction application did not proceed further, and was never determined.

3.  The parties were in agreement that on accepting the sanctioned payment, the plaintiff was also entitled to the general costs of the action from the defendant.  However, they were not able to agree as to the position in relation to the reserved costs of the expunction application (which seem likely to be substantial, as it had been argued by counsel on both sides for two days), and two further costs orders made in the proceedings (on 19 September 2012 and 17 January 2013) under which costs had similarly been reserved.  The plaintiff thereupon took out a summons dated 7 June 2013, seeking orders that all such reserved costs be paid to the plaintiff.  On 24 April 2014, Master Ho dismissed the application, ruling that there should be no order as to costs in respect of all three orders under which costs had been reserved.  The plaintiff then appealed unsuccessfully to the Deputy Judge.

4.  The Deputy Judge was of the view that the scheme of RHC Order 22, so far as costs are concerned, was that rules 20(1) and 22(1) and (5) did not contemplate that a party who accepts a sanctioned offer could thereafter ask the court to “revisit the merits of each set of reserved costs”, but that the scheme contemplated “finality upon acceptance save as to incidental matters mentioned in rule 22(5)” (see paragraph 32 of the Decision).  It appears that she was of the view that the only alternatives in respect of the costs of the proceedings were that they should be awarded to the party accepting the sanctioned payment or offer (which she described as the “prima facie rule” or that some other order should be made because the court thought it appropriate (which she described as the “otherwise proviso”) (see paragraph 17 of the Decision).  She considered that this approach was necessary in order to provide some certainty as to costs, without which the incentive for parties to settle their differences by invoking the sanctioned payment or sanctioned offer regime might be very much reduced (see paragraph 31 of the Decision).

5.  Mr Man, appearing for the plaintiff, contends that it is at least reasonably arguable that the Deputy Judge erred in principle in her approach.  He suggests that the correct approach is as follows:

(1) Order 22 rule 20(1) deals with the general costs of the action.  As regards such costs, the normal order is that the party accepting the sanctioned payment or offer will be entitled to such costs up to the date of acceptance of the payment or offer.  However, in an appropriate case, the court may order otherwise by making some other order.

(2) Reserved costs do not form part of the general costs of the action.  They are not recoverable on a taxation by the party to whom costs of an action have been awarded.  See British Natural Premium Provident Association v Bywater [1897] 2 Ch 531 at 532-533 and How v Earl of Winterton (No. 4) (1904) 91 LT 763.

(3) However, reserved costs (and any other outstanding questions as to costs) may be dealt with by the court notwithstanding acceptance of the sanctioned payment or offer and consequent stay of the proceedings under Order 22 rule 22(1) because of Order 22 rule 22(5)(b).

6.  Mr Man submits that Order 22 rule 22(5)(b) clearly gives the court jurisdiction to deal with outstanding reserved costs, and that in dealing with them, there is no reason to adopt any presumption that there should be no order as to costs. He suggests that in emphasising the need for certainty as to costs, the Deputy Judge misapplied the approach commended by Poon J in Etratech Asia-Pacific Limited v Leader Printed Circuit Boards Limited [2013] 2 HKLRD 1184, by transposing it to a situation for which it was not intended.

7.  We are of the view that Mr Man’s submissions are well arguable.  For our part, we are of the view that there is considerable force in the submission that reserved costs do not fall within the purview of Order 22 rule 20(1) at all, but fall to be dealt with under Order 22 rule 22(5)(b), and that in considering them under that provision, there should be no presumption either way as to their recoverability.

8.  Further, it seems to us that the importance of certainty as to costs mentioned by Poon J in Etratech, which led him to the view that a party making a sanctioned payment or offer who intended to ask the court to depart from the normal costs order provided for by Order 22 rule 20(1) should give notice of his intention to do so when making the sanctioned offer, would not be impaired by leaving reserved costs to be dealt with under Order 22 rule 22(5)(b).  The uncertainty that Poon J regarded as unsatisfactory and unfair to a party faced with a sanctioned payment or offer was the possibility that, without such notice being given, the party to whom the offer was made would have to decide whether or not to accept it without knowing if the offering party might seek to persuade the court to depart from the general rule as to costs.  Quite obviously, the incidence of costs would be a factor, often an important one, which would influence his decision as to whether or not to accept the sanctioned offer with which he is faced.  It is in that sense that there is a need for certainty and fairness, which would be promoted by the sensible procedure proposed by Poon J.  This does not apply to costs that have been reserved.  Such costs do not form part of the general costs of the action – they are the subject of a specific order reserving them for future consideration.  Both parties will be aware that their incidence has not been determined and is open for future determination.  If it is desired to have certainty in relation to them, there would not seem to be anything to prevent their disposition being the subject of the same or a separate sanctioned offer.

9.  We therefore think that there are, at least, good prospects of the plaintiff establishing that the construction of Order 22 rules 20(1) and 22(5) (b) adopted by the Deputy Judge was erroneous.

10.  However, this is not sufficient for the plaintiff’s purposes.  It is necessary for the plaintiff to go further, and demonstrate that it has reasonable prospects of establishing that the Deputy Judge failed to exercise her discretion as to the reserved costs which were the subject of the application, or that if she did so, she did so on an erroneous basis.  If the plaintiff can do this, it would be necessary for it to go on to establish that it is at least arguable thatthis court would go on to exercise its owndiscretion as to the reserved costs at stake in the plaintiff’s favour.

11.  It is at thesestages that we think the plaintiff fails.  The fact that the court has jurisdiction to deal with the outstanding reserved costs notwithstanding that the proceedings have otherwise come to an end does not mean that the court is bound to embark upon the exercise of determining the application in respect of which costs were reserved simply for the purpose of allocating them to one party or the other.  The position is, in our view, as stated in Brawley v Marczynski (No. 1) [2003] 1 WLR 813, at paragraphs 18 to 23 in the judgment of Longmore LJ, and Mr Man did not dispute the applicability of that approach.  Where the court can readily see which side would have won, the court may award them to that party.  But in other cases, where the outcome is not obvious (as Mr Man acknowledged to be the case here), the court has a discretion as to how far it will go in deciding to whom the reserved costs should be awarded, having regard to all the circumstances of the case.  Where there is no good reason to make some other order, the court will ordinarily make no order as to goods.  It is clear that the Deputy Judge took the view that it was unrealistic to expect a court which had no previous involvement in the matter to come to a view on which party would ultimately have prevailed without, in effect, hearing the whole of the argument (see paragraph 27 of the Decision).  It seems to us that this was, particularly in the light of Mr Man’s acknowledgment), clearly correct.  It was therefore well within the scope of the Judge’s discretion to decide that, in the particular circumstances of this case, it would not be appropriate to embark on an attempt to determine which way the reserved costs would have gone, and we think that this is, in effect, what she did.

12.  But even if this were not (or arguably was not) the case, and it might fall to us to exercise our own discretion as to the disposition of the reserved costs, we do not think that it would be reasonably arguable that any other order than no order as to costs should be made, for the reasons indicated in the previous paragraph.  We would add that this is particularly so where (as Mr Man very fairly acknowledged) the plaintiff had not taken the position that it would have succeeded when its application first came before Master Ho (when Mr Man did not appear), or before the Deputy Judge, before whom no material was placed as to the underlying application on the basis of which any attempt could be made to hazard an opinion as to its likely outcome.  Nor was any such material available before us today, and there would be no basis for seeking leave to adduce such evidence on the hearing of the substantive appeal, if leave to appeal were given.

13.  Mr Man suggested that the plaintiff should get its costs as it could be regarded as the overall victor in the proceedings, as it had had to bring the proceedings to obtain the sanctioned offer.  Alternatively, he said, it could be viewed as a situation in which the defendant had failed to get the order that it had applied for by the expunction application.  We do not think that the fact that the defendant made the sanctioned offer should be regarded as a general throwing in of the towel, including in relation to the expunction application.  While it was possible that that application would not be proceeded with further, it was just as possible that the plaintiff would not have accepted the offer, so that the application would have proceeded to a determination.  Equally, the plaintiff could have accepted the offer earlier, before the hearing of the expunction application commenced, or possibly later, after it had been argued to a conclusion.  We therefore do not think that an argument along these lines has any realistic prospect of succeeding.

14.  For all of the foregoing reasons, it therefore does not seem to us that, at the end of the day, it is reasonably arguable that the final outcome in relation to the reserved costs would have been any different.  Leave to appeal was therefore refused, with costs to the defendant.

15.  So far as those costs are concerned, having considered the statement of costs lodged by the defendant, to which Mr Man offered no objections,we assess the defendant’s costs of this application on a gross sum basis in the amount of HK$194,580.00, as claimed.