NAM KWONG MEDICINES & HEALTH PRODUCTS CO. LTD. v. CHINA INSURANCE CO. LTD.

HCCL 27/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 27 OF 1999

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JUDGMENT ON COSTS

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Introduction

1. On 28 June 2002 judgment was handed down in this action dismissing the plaintiff's action against the defendant. The court further made a costs order nisi that the defendant was to have the costs of the action, to be taxed if not agreed.

2. The plaintiff wished to be heard on the question of costs, hence this hearing. As was the position at trial, Mr Graham again appeared for the plaintiff. In essence, his submission covered three broad areas. I deal briefly with each.

Unsuccessful Issue

3. There were three main issues in the trial, of which non-disclosure/misrepresentation was one. In fact, by closing submissions misrepresentation had fallen away, although Mr Sussex SC, who appeared for the defendant underwriter then as now, continued strongly to press the non-disclosure argument.

4. This particular argument ultimately was unsuccessful. Out of the three issues which were put forward as grounds for avoiding liability under the policy in question, it was the only one upon which the defendant failed to get home, the reasons for such failure being set out in the Judgment.

5. Mr Graham submits that with regard to this separate identifiable issue, not only should the defendant not recover costs referable to trying that issue, but, to the contrary, the plaintiff should recover such portion of costs. So that on the assumption, for example, that this issue took up 30% of the time at trial, the defendant should have 30% of the trial costs to set-off against the balance of costs due to the successful defendant, which would result in the defendant recovering but one third of the overall trial costs. I reject this argument, which in my view would produce a costs order which manifestly failed to reflect reality.

6. In the alternative, the submission was that even if the plaintiff did not recover its costs attributable to this issue, then at the least the defendant also should not be able to recover those costs.

7. I am not persuaded by this argument either. On the basis of the principles laid down by Nourse LJ in In re Elgindata (No.2) [1992] 1 WLR 1207, at 1214 - a case which counsel both agree provides the relevant text for arguments of this nature - I do not think that the non-disclosure element of the case was one which should not have been pursued, nor that its ventilation at trial, in the words of Nourse LJ, "caused a significant increase in the length or cost of the proceedings". In fact, as matters stood a projected 15 day trial was reduced to 8 hearing days, and the non-disclosure argument was merely an issue explored in normal course with the witnesses on both sides.

8. Whilst I accept that there exists a discretion on the part of a trial judge to disallow costs in part which are referable to an issue that has failed and has taken up a substantial part of a trial, in my judgment this is not such situation, and I decline to exercise such discretion. This was an unusual and far from a straightforward case, in particular from the perspective of the defendant underwriter, and as might have been anticipated counsel on both sides conducted their respective cases with expedition, economy and a good deal of common sense. In the circumstances, therefore, Mr Graham has not succeeded in persuading me that there should be any departure from the general rule that costs follow the event. I further venture to suggest, as a matter of general approach to the issue of trial costs, that the occasions which justify the 'filleting' of costs according to success or failure upon any specific issue arising for decision within the composite whole are likely to be relatively few and far between, and in all probability will be plainly recognizable as meriting such treatment. However this, as I have said, is not one of those instances.

Wasted Costs

9. Mr Graham's complaint here is that two particular issues which had been raised by the defendant throughout were abandoned either on the eve of trial or at the trial itself, and that accordingly the plaintiff should be permitted to recover the costs referable to these matters.

10. The first of these is the allegation as to the plaintiff's lack of insurable interest, which was alive at the outset of the trial but ultimately was not pursued by Mr Sussex. I do not consider that this objection is well-founded. At the beginning of the case Mr Sussex made it clear that he was not relinquishing the point until he was satisfied that it would not run, and in fact this is what occurred. His submission at this costs' hearing was that he was entitled to wait and see if the plaintiff's evidence established the insurable interest asserted, not least because it had not been dealt with on the face of the witness statements, and in any event there had been some suggestion that part of the cargo at least had been paid for by Nam Kwong's intended purchaser, Beihei Guangxi, and that it was not until Mr Lao of Nam Kwong had clarified the position in the witness box that he felt able to surrender the point. I accept this, and dismiss the costs objection/application based on insurable interest.

11. Mr Graham's second complaint under this head has more substance. This focused upon the defendant's allegation as to the plaintiff's failure to avert or minimize its loss, a plea which was extant (at paragraph 6) within the defendant's pleadings until deleted in the Re-Re-Re Amended Points of Defence just before trial. In broad terms, this aspect of the defendant's case had been put on the basis that the missing cargo appeared to have been sighted in Indonesia in October 1998 and in Zhangjigang, China in December 1998, and it was contended that the plaintiff had failed to take all reasonable steps to retrieve the cargo and/or the sale proceeds and had failed to mitigate any loss allegedly suffered, the defendant here relying on the terms of clause 16 of the ICC(A) which places a duty upon an Assured "to take such measures as may be reasonable for the purpose of averting or minimizing such loss".

12. A Notice to Admit Facts had been served on the defendant on 23 March 2001, said Mr Graham, which had required an admission that the plaintiff had taken such measures as were compliant with clause 16, but regrettably this had met with no response, and thereafter the entire allegation had been jettisoned at the eleventh hour. In the circumstances, he submitted, the plaintiff should have all the legal costs incurred referable to this plea.

13. Mr Sussex accepted that as to this allegation his client indeed should bear any relevant costs incurred as from the date of the Notice to Admit, but no further. In my view he was correct to make this concession, and the only further question thereby arising for decision is whether the abandonment of this positive allegation should attract an award of costs against the defendant for the period when it remained on the face of the pleading prior to the Notice to Admit.

14. As a matter of principle this question requires a determination of the legitimacy of this plea from the outset, and in this regard Mr Sussex drew attention to the existence in the papers of a sales invoice from Kong Hoo, dated 29 November 1998, referable to a cargo of palm oil shipped to China, which cargo in terms of quantity varied by 2 barrels only from the missing shipment. Accordingly, he said, it was not fair to assert that the plea in question had been made without reasonable basis. He noted, moreover, that it was open to a defendant underwriter in the circumstances such as this, wherein it was completely in the dark as to what in fact had taken place, to take every point legitimately open to it to take, a fortiori when the point in question related to provisions of the ICC(A) in terms of a duty imposed on the assured.

15. I am inclined to agree. Subject to the concession made, I do not consider that the defendant in this case should have to pay to the plaintiff all costs referable to this allegation, albeit ultimately not pursued. A measure of protection is, of course, afforded to the opposing party by means of a Notice to Admit, and with the benefit of hindsight this Notice could perhaps have been issued earlier. Accordingly, subject to the concession as to the relevant costs occasioned by the plaintiff in the post-Notice period, I do not accede to the plaintiff's application for costs in this regard, although equally I do not consider it appropriate for the defendant itself to recover any costs referable to this plea. Accordingly, the situation is thus: save that as from 23 March 2001 the plaintiff is to have those legal costs incurred as were referable to the plea that the plaintiff failed to avert or minimize its losses, such costs to be taxed if not agreed, there is to be no order as to the costs of and occasioned by such plea.

Other matters

16. The other matters raised by Mr Graham are relatively minor, and, it seems to me, can safely be disposed of under a 'general housekeeping' head.

17. As was recognized, interlocutory costs orders hitherto made in favour both of plaintiff and defendant are unaffected and continue to stand. However, what apparently is causing difficulties are what are said to be unresolved costs items. With the aid of a Schedule Mr Graham sought to point out 6 interlocutory items which he said thus far had not attracted orders for costs, but for which such orders ought to be made in favour of the plaintiff, and some 7 other items for which no orders had been made but for which he submitted that the defendant should not recover its costs.

18. Argument in this area is concerned as much with detail as broad principle, and regrettably papers were unavailable to facilitate investigation of the specific items with which the plaintiff was here concerned. I remain to be convinced that in those instances requiring costs orders such orders in fact have not been made, and in my view what is here necessary is for the respective solicitors to consult their records in an effort to agree what has or has not occurred. Absent agreement thereon, no doubt reference can be made to the court records, and if it transpires that indeed there are particular interlocutory matters for which costs provision for some reason has been omitted, and thus argument is required, such specific matter(s) can be dealt with by the solicitors at a short 9.30 appointment. For the present, however, I am in no position to take this aspect further, and it seems not unreasonable to observe that these minor matters profitably could have been discussed prior to this costs hearing.

Costs of the Order nisi hearing

19. In so far as a further 9.30 appointment be required, argument as to the costs of this hearing can be dealt with at that time. In any event I am told by leading counsel that material I have not thus far seen exists relevant to these particular costs. Alternatively, if no further argument arises apart from the question of the costs of this hearing, I am content to deal with this in correspondence upon the basis of such papers as are placed before me.

Summary

20. Subject to further minor matters, if any, requiring clarification, the plaintiff's application to vary the costs order nisi thus succeeds only in terms of the legal costs wasted by abandonment by the defendant of the plea that the plaintiff failed to avert or minimize its losses, which costs are to be dealt with in the manner outlined at paragraph 15 above. The costs order as drawn no doubt will reflect this fact. In so far as may be necessary, there is to be liberty to apply.