REGENT NATIONAL ENTERPRISES LTD v. GOLDLION PROPERTIES LTD AND OTHERS

FACV No. 10 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 10 OF 2008 (CIVIL)

(ON APPEAL FROM CACV NO. 23 OF 2007)

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JUDGMENT ON COSTS AND DEPOSIT

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Mr Justice Bokhary PJ:

1.  This is the Court’s judgment on costs and the treatment of the purchaser’s deposit.  It is to be read together with the judgment which the Court handed down on 25 June 2009.  By that judgment, it was held that the vendor (who is the appellant) had effectively invoked the force majeure clause contained in the sale and purchase agreement.  Accordingly the vendor’s appeal was allowed so as to :

(i) set aside the Court of Appeal’s judgment;

(ii) restore the trial judge’s order dismissing the Originating Summons taken out by the purchaser (who is the 1st respondent) and its nominees (who are the 2nd to 4th respondents) for specific performance;

(iii) make an order nisi awarding the vendor its costs here and below against the purchaser and its nominees; and

(iv) call for written submissions on the return of the purchaser’s deposit of $70 million (which is being stakeheld by Messrs Paul, Hastings, Janofsky & Walker, as the successor to Messrs Koo & Partners, in an interest-hearing account).

2.  No order, whether in respect of costs or otherwise, was made by this Court in that judgment in relation to the intervener. 

Rival stances as to costs

3.  As between the vendor and the purchaser and its nominees, the rival stances on costs are as follows.  By the written submissions of Mr Godfrey Lam SC on their behalf, the purchaser and its nominees seek :

(i) an order that they pay only 60% of the vendor’s costs here and below; and

(ii) clarification that the costs below do not include the costs of matters on which the trial judge specifically ruled that there be no order as costs.

The written submissions of Mr Jonathan Sumption QC and Mr Ramesh Sujanani for the vendor contain no opposition to that clarification.  We confirm that the costs below do not include the costs of matters on which the trial judge specifically ruled that there be no order as costs. 

4.  As to Mr Lam’s submission that the vendor should be deprived of 40% of its costs here and below, Mr Sumption and Mr Sujanani submit that the vendor should not be deprived of any, alternatively any more than 10%, of those costs.

Purchase costs

5.  Where it is invoked, the force majeure clause obliges the vendor to “return all deposits and other monies paid by the purchaser in connection with the purchase of the property, together with all interests accrued thereon and the actual costs incurred by the purchaser in connection with the purchase”.  The purchaser also seeks a direction that the vendor do within 7 days of such direction pay the purchaser the sum of $3,201,856.77 or such other sum as may be determined by the Court as the actual costs incurred in connection with the purchase together with interest thereon at the rate of prime plus 1% per annum from 26 November 2003 (being 3 business days after 21 November 2003).  Mr Sumption and Mr Sujanani have not disputed this entitlement.

Costs

6.  On behalf of the purchaser and its nominees, Mr Lam submits that the vendor should be deprived of some of its costs because its arguments on the Waygood petition and the British Virgin Islands (“BVI”) injunction failed here and in both courts below.  Those were, Mr Lam says, matters which had added significantly to the complexity of the proceedings and the time which they took.  Mr Lam’s submissions on costs continued along the following lines :-

(1) The vendor relied on the Waygood petition, the BVI application and the BVI injunction as matters falling within the force majeure clause.  It succeeded only on the BVI application.  The Waygood petition was rejected as a ground.  In particular, the trial judge held that on the vendor’s own evidence the petition did not cause the liquidator to form the requisite opinion for the purpose of the force majeure clause.  Reliance on the BVI injunction also failed, for various reasons including the vendor’s failure to establish that it knew of the injunction prior to the time for completion.

(2) In the Court of Appeal, the vendor filed a lengthy respondent's notice raising ten additional or alternative grounds for upholding the trial judge's judgment, relying on the BVI injunction, the Waygood petition, frustration, and other points of construction.  The purchaser and its nominees had to file a separate skeleton argument in the Court of Appeal to deal with these matters.  Except for paragraph 9 of the notice, each of these grounds has failed in the result.

(3) Those failed grounds gave rise to costs in respect of additional and separate issues.  In the respondent’s notice, the vendor sought an order that the purchaser and its nominees pay the vendor its costs occasioned by that notice.  There is no warrant for such an order.  On the contrary, the vendor should be ordered to pay the purchaser and its nominees their costs occasioned by the respondent’s notice.  As a broad approach, there should instead be reduction of the costs to be awarded to the vendor.

(4) After its failure at trial and in the Court of Appeal on the BVI injunction, the vendor – filing a supplemental case for the purpose – sought to re-open the concurrent findings below that it had not been established that the liquidator knew of the BVI injunction before noon on 21 November 2003.  That attempt was wholly unjustified and without basis.  It was roundly rejected by this Court. It was a distinct and discrete issue that took up significant additional time both in preparation and at the hearing.

(5) A subsidiary matter is the Waygood petition.  Although it was conceded in this Court that the Waygood petition was not an independent ground for rescission, the vendor sought to argue both in its printed case and orally that, viewed in the light of the BVI application, the Waygood petition was a matter within the force majeure clause, an argument that did not eventually find favour with this Court.

(6) By reason of the foregoing matters and on established principles (as seen in Re Elgindata Ltd (No.2) [1992] 1 WLR 1207 and Hebei Enterprises Ltd v. Livasiri & Co., FACV Nos 23 and 25 of 2007, 5 December 2008), the costs to be awarded to the vendor should be reduced.  And the vendor’s failure on these separate issues here and in both courts below may be fairly reflected by a reduction its costs entitlement by 40%.

7.  Mr Sumption and Mr Sujanani for the vendor begin their submissions on costs by pointing out that the trial in the Elgindata case had lasted 43 days, after which Warner J at first instance had found many of the petitioners’ complaints of unfair prejudicial conduct not to have been made out.  Next they point out that the trial in the Hebei Enterprises case had been set down for 19 days but lasted 102 days.  And then their submissions on costs continue along the following lines :-

(1) In the present case, the hearing before the trial judge took 6 days, out of which 1½ days were taken up by the leading counsel then appearing for the purchaser and its nominees in his cross-examination of the liquidator.  Both in the Court of Appeal and in this court, the hearing took 4 days.  This is to be contrasted with the time taken in the Elgindata case and the Hebei Enterprises case.

(2) The Waygood petition and the BVI injunction were not isolated or discrete issues but, on the contrary, were interwoven with the BVI application in light of the entire history of the matter, beginning with the issue of the letter dated 14 August 2003 by Messrs Siao, Wen & Leung and culminating in the sequence of events which occurred between 19 to 21 November 2003.

(3) It has not been shown by the purchaser and its nominees that the Waygood petition and the BVI injunction were either improperly raised or so divorced from the BVI application at the hearings here or in the courts below as to justify any cause for complaint and to depart from the rule that costs should generally follow the event.

(4) The Waygood petition and the BVI injunction did not occupy a material amount of hearing time and nor did the issues lead to the incurring of significant expense.

(5) Further, it has not been shown by the purchaser and its nominees that by raising these two issues, the vendor caused a significantincrease in the length or cost of the proceedings so that it ought to be deprived of part of its costs.

(6) The main issue at all the hearings was, and remained, the BVI application.  It was because of the BVI application that the liquidator decided to invoke the force majeure clause in the late evening of 20 November 2003.

(7) A matter of some significance is that on 12 February 2007 (after judgment had been handed down by the trial judge), the purchaser and its nominees did not see it fit to make any submissions to the trial judge to the effect that the vendor should be deprived of a portion of its costs at trial because it had not succeeded on the Waygood petition and the BVI injunction.

(8) Accordingly, the purchaser and its nominees have not established any basis for departing from the general rule that costs should follow the event.

(9) If, contrary to the primary submission above, it is decided by this Court that the Waygood petition and the BVI injunction were isolated or discrete issues and which added significantly to the length and costs of the proceedings, a fair result would be achieved if the vendor was awarded say 90% of its costs.  There is no justification for reducing the vendor’s costs entitlement by 40%, as suggested by the purchaser and its nominees.

(10) It is also to be noted that notwithstanding the matters referred to by Mr Justice Chan PJ at pp 8 and 9 of the judgment in the Hebei Enterprises case, the plaintiffs in that case were still awarded 75% of their costs.

8.  As was said by this Court in Mariner International Hotels Ltd v. Atlas Ltd (No.2) (2007) 10 HKCFAR 246 at p.251A, a party seeking to displace the rule that costs should follow the event naturally bears the burden of showing that the circumstances justify the exceptional course of such displacement.  It appears to us that the Waygood petition and the BVI application were discrete issues which added significantly to the length and costs of the proceedings and which should result in a reduction of the costs to be awarded to the side which, although ultimately successful, did not win on those issue.  Those costs should be reduced.  But to what extent? 

9.  From what we can see of the circumstances including those in the courts below, we think that the reduction should be less than the 40% reduction suggested by Mr Lam but more than the 10% reduction suggested by Mr Sumption and Mr Sujanani as an alternative to no reduction to all.  All things considered, we reduce the vendor’s entitlement to his costs here and below by 20%, and award it 80% of those costs.

Deposit

10.  Pursuant to a consent summons, it has been ordered that $34 million out of the purchaser’s deposit of $70 million stakeheld by Messrs Paul, Hastings, Janofsky & Walker continue, pending further order, to be so stakeheld as security for the vendor’s costs here and below.  Also pursuant to a consent summons, it has been ordered that in full and final settlement of the intervener’s costs (including any interest thereon) in these proceedings and as allowed by Deputy Judge Longley’s order dated 7 June 2007 and in HCA 1788 of 2006, $1.5 million be paid to the solicitors for the intervener out of that deposit.  Subject to the foregoing continuation and payment, the purchaser is entitled to the return of its deposit together with interest thereon.

Result

11.  In the result :-

(1) The purchaser and its nominees are ordered to pay the vendor 80% of its costs here and below.

(2) We confirm that the costs below do not include the costs of matters on which the trial judge specifically ruled that there be no order as to costs.

(3) Subject to the aforementioned orders made pursuant to the two consent summonses, it is ordered that the deposit with any interest accrued thereon in the account stakeheld by Messrs Paul, Hastings, Janofsky & Walker be released to the purchaser.