MIDLAND BUSINESS MANAGEMENT LTD AND ANOTHER v. LO MAN KUI

HCA 1599/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1599 OF 2010

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BETWEEN

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JUDGMENT ON COSTS

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1.  In my judgment delivered on 20 December 2010, I made a costs order nisi that the Plaintiffs shall pay the Defendant’s costs of the summons in any event. The Defendant made an application for variation. There are three aspects for which variations are sought. They are summarized by counsel for the Defendant in his written submissions as follows,

(a)   That the order for costs should expressly provided that the costs ordered against the Plaintiffs should include all reserved costs, in particular, the costs of the application and hearing on 5 November 2010;

(b)   That there should be certificate for two Counsel;

(c)   That the costs should be taxed payable forthwith.

2.  The Plaintiffs did not wish to make any submission regarding (a) and (b). For the reasons put forward by counsel for the Defendant in his skeleton, I consider the proposed variations to be justified and I order accordingly.

3.  The Plaintiffs objected to variation (c) and the skeleton submissions of Miss Tam SC (who were instructed by the Plaintiffs together with Mr Wong in place of the original team of counsel to argue on the question of costs) focused on it.

4.  Mr Yan SC relied on Kickers International SA v Paul Kettle Agencies Ltd [1990] FSR 436 and Naf Naf SA v Dickens (London) Ltd [1993] FSR 424. He submitted that applying the criteria set out in those cases (and applied in subsequent cases), this court should order costs to be paid by the Plaintiffs to the Defendant to be taxed and payable forthwith on the following grounds,

(a)   The amount of costs incurred by the Defendant under the summons is sufficiently substantial to justify a separate taxation;

(b)   It is not unfair to order immediate payment as it would not have serious effect on the Plaintiffs’ cash flow and there is little chance of eventual set off given that the dismissal of the summons is likely to be the end of the matter. In any event, the Defendant has the means to repay;

(c)   Given the amount of costs, if there is no immediate taxation, the Defendant would suffer prejudice if he is kept out of his money until trial which may not occur;

(d)   There is a real possibility that there will not be any trial in the light of this court’s finding that the Plaintiffs do not have any good prospect of success and the deficiency in the other cause of action based on procurement of breach of contracts.

5.  Miss Tam submitted that generally the court’s approach to costs of interlocutory proceedings is to award costs ‘in any event’ because the court’s view formed in the interlocutory proceedings is a provisional one without the benefit of seeing the witnesses tested in cross-examination. She contended that the burden is on the successful party to demonstrate that there are sufficient factors to justify a departure. Whilst counsel did not dispute the factors set out in Kickers and Naf are relevant, she urged the court to take into account of all circumstances in the exercise of its discretion on costs. In the present case, counsel submitted that there is insufficient ground to justify a departure from the usual order because,

(a)   The Plaintiffs did not appeal against the substantive judgment for practical consideration: the appeal is likely to be academic in view of the short remaining lifespan of the relevant covenants;

(b)   The court’s decision on the merits were based on the evidence before the court and the Plaintiffs intended to shore up their case to support the validity of the covenants by way of additional evidence and amendments to the Statement of Claim;

(c)   The Plaintiffs would also put forward amendments to meet the objections to the claim based on procuring breach of contracts;

(d)   The Plaintiffs have the intention to bring the claims to trial for recovering damages. The refusal of interlocutory injunction is not determinative of the action;

(e)   The contents of the affirmations used by the parties focusing on the merits of the claims would be repeated in witness statements to be filed for the trial. Thus the costs of the injunction are neither severable nor self-contained from the rest of the action, as such should be left for taxation until the end of the trial;

(f)   There is no suggestion that by keeping him out of his money (in terms of costs awarded in his favour), the Defendant will suffer cash flow problem;

(g)   The Plaintiffs do have concern as regards the means of the Defendant in meeting any award of damages or costs against him and it would be unfair to require the Plaintiffs to pay him immediately with the risk of such sum not being recoverable eventually.

6.  In his Reply Submissions on Costs, Mr Yan reiterated that the principles in Kickers and Naf are applicable. Apart from reminding this court what were said in his earlier submissions, counsel pinpointed the fact that on Miss Tam’s own submissions, the Plaintiffs’ case had to be substantially revamped before it could be viable for trial. Thus, if the action proceeds to trial, it would be litigated on a quite different basis from what was before the court in the failed interlocutory application. Counsel also asked the court to take into account of the fact that even up to now there has not been any application for leave to amend by the Plaintiffs.

7.  In my judgment, what emerges from Kickers and Naf is neatly summarized by Hoffmann J (as he then was) at p.429 of Naf,

“I indicated in a judgment in [Kickers] the matters which ought to be taken into consideration in deciding whether or not to make an order for immediate taxation and as I remember them, what they were concerned with was, first of all, the extent to which the proceedings are from a taxation point of view severable and self-contained from the rest of the action, secondly the justice of making such an order having regard to the effect on the cash flow of the respective parties, and the third matter to be taken into account was whether the amount at stake on the taxation was sufficient to justify putting the parties to the expense of having a separate taxation for it rather than bringing it in on the final taxation.”

8.  In Kickers, Hoffmann J also referred to the possibility that there may be no trial. His Lordship also emphasized that his list of factors was not intended to be exhaustive, see p.439. Thus Miss Tam is correct in pointing out that the Kickers approach is not set in stone and the court must still exercise its discretion having regard to all relevant circumstances.

9.  Under the Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings and if possible by way of summary assessment of costs. The objective is to discourage unnecessary and disproportionate interlocutory applications. It is recognized that the lack of immediacy of orders to pays costs “in the cause” or “in any event” weakens costs as a sanction against unwarranted applications or resistance, see paras.529 to 536 of the Final Report of the Chief Justice’s Working Party on Civil Justice Reform.

10.  By reason of Order 62 Rule 5(1)(aa), the court should take into account of the underlying objectives in Order 1A rule 1 in the exercise of its discretion. The objectives in rule 1(a), (c) and (d) are particularly relevant in the present context. In my view, the approach recommended by the Working Party should be adopted in furtherance of these objectives. Unwarranted interlocutory applications should normally be sanctioned by an immediate costs order.

11.  In so saying, I must not be taken as saying that an immediate costs order should be made against every unsuccessful party in interlocutory application. I can readily see that there are cases where such party may have a proper justification for making an interlocutory application even though he fails at the end of the day. There could also be cases where the court considers that it would be more appropriate to make an order “in any event” or “in the cause” or to reserve costs.

12.  However, what I do say is that after the Civil Justice Reform the court is more astute to the impact of costs on legal proceedings and order for immediate payment of costs will be made more readily as a discipline against unmeritorious interlocutory applications.

13.  Coming back to the present case, bearing in mind the involvement of leading counsel at two hearings and the argument on costs, I agree with Mr Yan that the costs involved in respect of the summons are likely to be substantial. I shall come to the question of proportionality of a separate taxation when I consider what options are open to this court. What I note at this juncture is that if there is no order for immediate payment, the Defendant would be out of pocket for a substantial sum in the meantime. Even though he may be able to afford it in terms of cash flow, I agree with Mr Yan that it is still a prejudice suffered by him.

14.  Further, I do not accept Miss Tam’s submission that the costs of the injunction are neither severable nor self-contained from the rest of the action. Even though some of the materials deployed in the injunction application may be referred to again at the trial (e.g. the Statement of Claim), it does not follow that the costs of the injunction are not severable or self-contained for the purpose of applying the Kickers approach. Given my conclusion that there is no good prospect of success in the Plaintiffs’ claims advanced in the injunction application, and given Miss Tam agreed that in order to have a viable case the Plaintiffs’ claim needs to be revamped, I think Mr Yan is correct in his submission that if there were to be a trial it would be on some new bases which had not been advanced in the injunction application. Pleadings have to be amended and new evidence has to be filed.

15.  I also take note that the Plaintiffs have not yet filed any application for amendments. In any case I should decide on the costs of the summons basing on what have been placed before me.

16.  As a matter of fairness between the parties, on the evidence available, the Plaintiffs are clearly more resourceful than the Defendant in terms of cash flow. In view of the evidence as to the means of the Defendant and the apparent lack of progress in the prosecution of the action by the Plaintiffs, I do not think too much weight can be placed upon the Plaintiffs’ concern about the inability on their part to recover damages or costs from the Defendant if they succeed at the trial.   

17.  Balancing the interests of the parties and having regard to my conclusion as to the lack of merit in the Plaintiffs’ application for interlocutory injunction, and having regard to all the relevant circumstances of the case as discussed above, I reach the firm conclusion that it is appropriate in the present case to order the Plaintiffs to pay the Defendant’s costs of the summons forthwith.

18.  Once I reach this conclusion, there are three options. First, I can order immediate taxation of the Defendant’s costs of the summons. Second, I can do a summary assessment and order payment of such costs as assessed in lieu of taxation under Order 62 Rule 9A(a). Third, I can make an order under Order 62 Rule 9A(b) for provisional summary assessment. If the second or third option is adopted, one needs not be concerned about the proportionality of the costs of a separate taxation hearing as compared with the costs of the summons. Otherwise, this issue has to be addressed. Counsel did not address the court on all these options in their written submissions on costs.

19.  In the circumstances, I would direct that the Defendant shall lodge and serve submissions on these options within 7 days. A skeleton bill on the costs of the summons (including costs of the submissions on costs) should be included in such submissions. The Plaintiff shall lodge and serve submissions in response within 7 days thereafter. Then the Defendant shall have 7 days to reply.