WILLIAM ALLAN v. MESSRS NG & CO. (a firm) AND ANOTHER

CACV 13/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 13 OF 2011

(ON APPEAL FROM HCA NO 10844 OF 1994)

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BETWEEN

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JUDGMENT ON COSTS

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Hon Kwan JA:

1.  On 6 March 2012, we gave judgment dismissing the appeal of the 1^st defendant on liability and the appeal of the 1^st and 2^nd defendants against the award of exemplary damages and indemnity costs. We allowed the appeal of the defendants on the quantum of exemplary damages and on interest. Taking into account that the defendants have not been wholly successful, we made an order nisi that there be no order as to the costs of this appeal and that the plaintiff’s own costs be taxed in accordance with the Legal Aid Regulations.

2.  On 13 March 2012, the defendants filed a summons for variation of the costs order nisi. They seek an order that the plaintiff should pay them 80% of the costs of the appeal, since they are successful on the quantum of exemplary damages, which, they contended, was the “main event” of this appeal. Further, as the quantum of exemplary damages was reduced on appeal from $2.14 million to $400,000 with an additional $100 as nominal compensatory damages, they seek an order that the costs of this action brought in the Court of First Instance should be taxed on a District Court scale.

3.  The plaintiff filed a summons on 15 March 2012 also for variation of the costs order nisi. He seeks an order that the defendants should pay him 70% of the costs of this appeal, on the basis that the defendants had only abandoned their appeal against the findings of fact one month before the hearing of the appeal and that he was “substantially successful” in resisting the appeals of both defendants.

4.  We directed both applications be dealt with on the basis of written submissions.

Abandonment of grounds of appeal against findings of fact

5.  The Notice of Appeal was filed on 20 January 2011 and the first five (out of 13) grounds of appeal challenged findings of fact made by the trial judge. On 31 January 2011, the defendants issued a Supplementary Notice of Additional Grounds of Appeal of 8 pages setting out a further 17 grounds to challenge factual findings. The appeal was scheduled to be heard on five days commencing on 20 February 2012.

6.  On 19 January 2012, the defendants amended the Notice of Appeal and the Supplementary Notice of Additional Grounds of Appeal. The effect of the amendments was to remove all the many challenges to the findings of fact. As a result of the defendants abandoning the grounds of appeal against the findings of fact, the hearing time of the appeal was shortened from five days to two days and the appeal was heard on 21 and 22 February 2012.

7.  Mr Smith, SC submitted that as costs were incurred by the plaintiff for work done over a year in considering and preparing for the appeal on the basis that those numerous grounds of appeal were pursued, at the very least, the plaintiff should have the costs thrown away by reason of the defendants having abandoned those grounds.

8.  Mr McCoy, SC pointed out that on 12 January 2012, before the plaintiff’s solicitors had delivered their briefs for the appeal to leading and junior counsel on 16 January, they wrote to the defendants’ solicitors asking the defendants to confirm by 13 January if they would rely on and argue each and every ground of appeal, as the plaintiff would not wish time and costs to be unduly wasted on preparation to resist any arguments which would not be pursued at the appeal. On 16 January 2012, the defendants’ solicitors gave a substantive reply stating that the grounds of appeal relating to challenges to findings of fact would not be pursued. In view of these letters, Mr McCoy argued that costs have not been thrown away because of the defendants’ abandonment of the appeal on facts. Further, in the Respondent’s Notice filed on 8 April 2011, the plaintiff sought to affirm the judgment on additional grounds raising disputes against the findings of fact in two respects, which were not pursued at the hearing of the appeal without prior notice to the defendants. If the plaintiff were correct in asserting that costs have been thrown away by the defendants’ abandonment of the appeal on facts, likewise costs have been thrown away in the abandonment of those matters raised in the Respondent’s Notice.

9.  Mr Smith’s reply is that the Respondent’s Notice is not in the nature of a cross-appeal and it would not have been served if the defendants had not appealed the judge’s findings of fact. It was clear that the Respondent’s Notice had become redundant after the defendants abandoned their appeal on fact. I think this is borne out by the skeleton submissions served by the parties in the appeal. Mr McCoy did not deal with the Respondent’s Notice in his submissions dated 6 February 2012, nor did Mr Smith in the skeleton submissions he served on 14 February.

10.  I am inclined to agree with Mr Smith. Costs have been saved in that the plaintiff’s counsel did not have to consider the numerous grounds of appeal on facts after the defendants abandoned them on 16 January, but insofar as work was done earlier by the plaintiff’s legal advisers in considering and advising on what would appear to be an extensive and vigorous challenge on the findings of fact, I see no reason why the costs attributable to such work and thrown away should not be paid by the defendants to the plaintiff.

Who was substantially successful in the appeal?

11.  Mr McCoy submitted the starting point is that costs should follow the event; that is the basic rule in Order 62 rule 3(2) of the Rules of the High Court. The court should therefore identify the successful party in this appeal, as who was the successful party will provide a sufficient answer to what was the event in respect of costs under Order 62 rule 3(2) (Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340 at 1390A to B, cited with approval in Oriental Daily Publisher Ltd v Ming Pao Holdings Ltd (No 2) [2011] 3 HKLRD 425 at para 9).

12.  Mr Smith did not have any quarrel with the above. The contention here is which party should be regarded as substantially successful in the appeal so that he should be awarded a substantial part of the costs, as it is recognised by each that each has not been entirely successful.

13.  Mr McCoy claimed the defendants were substantially successful. He submitted that both the 1^st and 2^nd defendants appealed on quantum and won. Only the 1^st defendant appealed on liability and failed. The time spent on argument on the 1^st defendant’s liability was only around one hour, whereas the time spent on quantum took up most of the time in the two-day appeal. Furthermore, this court substituted the original award of more than $6.04 million (exemplary damages of $2.14 million plus interest of $3.9 million up to December 2011) with exemplary damages of $400,000 and nominal compensatory damages of $100, thereby reducing the total amount payable by the defendants by 93.3%. As Tang V-P said in Oriental Daily Publisher Ltd at para 11, “sometimes the critical event may be the size of the award”.

14.  Mr McCoy stated that as in Oriental Daily Publisher, the main event in this appeal was the appeal on quantum as opposed to liability. The only argument in relation to liability was narrowly confined to the liability of the 1^st defendant, whether the firm was vicariously liable for breach of the duty of confidence of the 2^nd defendant. Mr McCoy cited to us examples of cases where the appellant succeeded on quantum but failed on liability and was given a substantial part of the costs of the appeal of 50 to 60%. As in Oriental Daily Publisher, “looking at the matter with common sense, the defendants had to come to court to have the damages reduced. In that, they have succeeded to a significant degree.” (at para 34) He submitted that since the main event of this appeal was quantum, which had occupied most of the hearing, and as the defendants had succeeded in the appeal on quantum, it is appropriate they should be awarded 80% of the costs of the appeal.

15.  Mr Smith disagreed with the above analysis. Firstly, it is not correct to say that the 1^st defendant’s argument on liability was limited to the question whether it was vicariously liable for breach of the duty of confidence of the 2^nd defendant. It also extended to the question whether exemplary damages could be awarded on the basis of vicarious liability (see paras 42 to 48 of our judgment reported at [2012] 2 HKLRD 160). He said both these issues generated a considerable amount of work by counsel in preparing for the appeal, as would be apparent from the sheer volume of case law relied on for these issues. I think that must be right. These issues taken by Mr McCoy on appeal, which were held against him, certainly added to the complexity of the case. I would also agree with Mr Smith that unlike Oriental Daily Publisher (at para 15), this is not a case in which the amount of costs, in terms of counsel’s fees, would have been more or less the same had the appeal been confined to the issue of the measure of exemplary damages, on which the defendants succeeded.

16.  Next, Mr Smith submitted that other issues were raised in the appeal on quantum apart from the measure of exemplary damages. The defendants had queried the correctness of awarding exemplary damages for an equitable wrong (paras 38 to 41 of our judgment), they argued exemplary damages should not be awarded at all against both defendants because of the rule of a single award laid down in Broome v Cassell & Co [1972] AC 1027 (paras 49 and 50 of our judgment), they contended that the judge should have denied or reduced relief for the equitable wrong on account of the plaintiff’s conduct and laches (paras 67 and 68 of our judgment), they also argued that the judge was wrong to award indemnity costs. The defendants failed on all of the above issues.

17.  The defendants succeeded in reducing the measure of exemplary damages and on the question of interest on exemplary damages. Mr Smith has two points to make about this. Firstly, he contended that the undertakings given to the Court of Appeal (para 72 of our judgment) would have the practical effect of restoring to the plaintiff a significant part of the benefit in money terms afforded by the judgment below, notwithstanding the reduction of exemplary damages from $2.14 million to $400,000. Secondly, he submitted that although the defendants were successful on those issues, those issues did not occupy the major part of appeal. Rather, the issues on which the defendants failed had taken up the major part. Hence, the defendants should be treated as having largely failed and the plaintiff should be treated as having largely succeeded and the order as to costs should reflect this by awarding to the plaintiff 70% of the costs.

18.  I think Mr Smith’s submission here is too ambitious. The defendants have raised quite a number of issues and failed, but I do not think overall the plaintiff can be regarded as the substantially successful party in this appeal. I do not think the plaintiff has derived a degree of victory in the quantum of damages as a result of the defendants’ undertakings to this court. I would agree with Mr McCoy that the defendants ought to be treated as the substantially successful party on appeal. The various issues they raised unsuccessfully had added significantly to the complexity of the case and, consequently, costs, and for that a substantial reduction should be made to the costs to which they would otherwise be entitled. I would award 40% of the costs of this appeal to the defendants.  

Costs on the District Court scale

19.  Mr McCoy seeks an order that the costs of this action in the court below should be taxed on the District Court instead of the High Court scale, pursuant to the powers of this court under section 52D(1)(b) of the High Court Ordinance, Cap 4. The test as adopted in Oriental Daily Publisher (at para 30) is that stated by Seagroatt J in Lai Ki v B+B Construction Co Ltd [2003] 3 HKLRD 192 at 199, para 21:

“The position in relation to a claim in the High Court settled or adjudicated upon in a sum which is within the District Court jurisdiction is as follows:

(1)  The usual order will mean that costs will be on the District Court scale unless the High Court is, in the exercise of its discretion, persuaded that there was a reasonable prospect of obtaining an award in excess of the District Court jurisdiction. …”

20.  In Oriental Daily Publisher, the Court of Appeal accepted the defendants’ submission that when the plaintiffs issued the writ claiming damages for defamation, they had no reasonable prospect of recovering a sum in excess of the District Court’s jurisdiction of $1 million. The award of general damages of the 2^nd plaintiff of $1.5 million was reduced by a majority of the Court of Appeal to $150,000 and by the dissenting member to $500,000. So the court ordered that the plaintiffs’ costs below should be taxed on the District Court scale.

21.  In the present case, as the total amount of compensatory and exemplary damages awarded to the plaintiff on appeal is $400,100, Mr McCoy submitted that the plaintiff should have brought this action in the District Court. The writ was not amended to add a claim for exemplary damages until December 2004. In any event, when the plaintiff issued the writ, he had no reasonable prospect of recovering a sum in excess of the District Court’s jurisdiction. Mr McCoy sought to buttress his argument by the observations of Tang V-P in Oriental Daily Publisher at para 32, in which the Vice President left open for future determination whether, having regard to the objectives of Order 1A rule 1 of the Rules of the High Court in promoting a sense of reasonable proportion and ensuring fairness, the court should adopt a more stringent test against a plaintiff who has overestimated (though reasonably so) his claim.

22.  Mr Smith submitted there are a number of reasons why costs below should not be ordered to be taxed on the District Court scale.

23.  Firstly, he contended that breach of confidence is an equitable wrong and as such a claim for breach of confidence does not fall within the jurisdiction of the District Court. Section 32(1) of the District Court Ordinance, Cap 336 provides that the District Court has jurisdiction to “hear and determine any action founded on contract, quasi-contract or tort” where the amount of the claim does not exceed $1 million. Section 37 of the Ordinance governs equity jurisdiction. Section 37(1) provides that subject to the maximum limits in subsection (2), the District Court has jurisdiction to hear and determine the following proceedings –

“(a) proceedings relating to or for the administration of the estate of a deceased person;

(b) proceedings for the execution of a trust or for the declaration that a trust subsists or proceedings under section 3 of the Variation of Trusts Ordinance (Cap 253);

(c) proceedings for the foreclosure or redemption of a mortgage or for enforcing a charge or lien;

(d) proceedings for the specific performance, or for the rectification, rescission or delivery up or cancellation of an agreement for the sale, purchase or lease of property;

(e) proceedings for the maintenance or advancement of an infant;

(f) proceedings for the dissolution or winding up of a partnership, whether or not the existence of the partnership is in dispute;

(g) proceedings for relief against fraud or mistake.”

24.  Mr Smith submitted that a claim for breach of confidence does not come within section 32 or section 37(1)(a) to (g) and is not within the jurisdiction of the District Court.

25.  Mr McCoy submitted to the contrary. When the plaintiff started this action, it would appear from his amended statement of claim that he grounded his claim for breach of confidence on the basis of there being a retainer between him and the defendants. The juridical basis of breach of confidence, as explained in Clerk & Lindsell on Torts, 19^th ed, para 28-03, is that “where the obligation arises (either expressly or impliedly) in a contractual relationship, the breach of confidence may be categorized as a breach of contract.” Hence, when the action was commenced, the District Court would have jurisdiction over the action by virtue of section 32(1) of the District Court Ordinance. It was only at trial that the judge found as a fact there was no retainer, and from that point on the plaintiff had to pray in aid the residual equitable principles to continue its action in breach of confidence.

26.  I agree with Mr McCoy. I would reject Mr Smith’s argument on lack of jurisdiction. 

27.  Next, Mr Smith pointed out that when the writ in this action was issued in 1994, the jurisdiction of the District Court was $600,000 and the limit was raised to $1 million as from 1 December 2003. He submitted that the plaintiff had a reasonable prospect of recovering compensatory damages above the limit of the jurisdiction of the District Court, and presumably would have done so but for the fact that the claim for compensatory damages was ultimately advanced under the rubric of exemplary damages. As we have noted in our judgment (para 22), the plaintiff’s counsel at trial would appear to be asking the court to make a “combined award of compensatory and exemplary damages”, whilst no or no proper evidence was adduced before the court of any of the compensatory elements of the plaintiff’s claim, notwithstanding that the plaintiff could have done so at least for some parts of his loss (para 62 of our judgment). It was on account of that that we awarded the nominal sum of $100 as compensatory damages. Mr Smith submitted that if one aggregates the exemplary damages awarded by this court with those compensatory elements of the claim which the plaintiff could have proved but for the way in which his trial was conducted, he had a reasonable prospect of recovering damages in excess of the limit of the jurisdiction of the District Court.

28.  I accept the above submissions of Mr Smith. That being the case, it is not necessary to consider his other submission that this action should be brought in the High Court rather than the District Court as it involved allegations of impropriety against a solicitor.

29.  For the above reasons, I would decline to order that the costs below be taxed on the District Court scale.

Costs of these applications

30.  The defendants have succeeded substantially in their application to vary the costs order nisi, although the proportion of the costs on appeal awarded to them is 40% not 80% as sought, whereas the plaintiff has failed in his application to vary the costs order nisi. The only area in which the defendants have failed completely is the attempt to vary the costs below by taxation on the District Court scale. I think it would be appropriate to award the defendants 70% of the costs of both applications.

Orders

31.  I would set aside the costs order nisi on 6 March 2012 and make the following orders on costs in lieu:

(1)  the plaintiff’s costs attributable to work done in respect of the grounds of appeal abandoned by the defendants by the amendment of the Notice of Appeal and the Supplementary Notice of Additional Grounds of Appeal on 19 January 2012 be paid to the plaintiff by the defendants;

(2)  save as provided in (1) hereof, the plaintiff is to pay the defendants 40% of the costs of this appeal;

(3)  the plaintiff is to pay the defendants 70% of their costs of both applications to vary the costs order nisi; and

(4)  the plaintiff’s own costs are to be taxed in accordance with the Legal Aid Regulations.

Hon Fok JA:

32.  I agree with Kwan JA.

Hon Lam J:

33.  I agree with the judgment of Kwan JA.