SHENZHEN FUTAIHONG PRECISION INDUSTRY CO., LTD AND OTHERS v. BYD COMPANY LTD AND OTHERS

HCA 2114/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2114 OF 2007

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DECISION ON COSTS

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Amendment Application – Paragraphs 1 and 2 of Foxconn Parties’ Summons dated 30 September 2015

1.  By a Judgment handed down on 18 July 2016, this court granted leave to the Plaintiffs (by original action) (“Foxconn Parties”) to amend their Re-Amended Statement of Claim (“RASoC”) to the full extent proposed.

2.  The application was opposed by the Defendants (by original action) (“BYD Parties”).

3.  In their written submissions on costs dated 1 August 2016, Foxconn Parties, relying on the well established principles in Lessy SAR v Pacific Star Development Ltd [1996] 2 HKLR 1 at 2B-C, submit that

(1)    costs of and occasioned by their amendments should be to BYD Parties in any event;

(2)    costs of the substantive argument on leave to amend, including the hearing before this court on 14 April 2016, should be to Foxconn Parties, the successful party in obtaining leave to amend, with certificate for two counsel.

4.  Foxconn Parties further submit that the court should not readily depart from the general rule that costs should follow the event. Otherwise, it will encourage unnecessary arguments which will itself increase legal costs: Pony HK World Ltd v Vand Petro-Chemicals (BVI) Co Ltd unrep, FACV 4/2013, 18 March 2014, Court of Final Appeal, at [4]. 

5.  BYD Parties, on the other hand, submit that their costs of and occasioned by the amendments shall be borne by Foxconn Parties save that BYD Parties shall pay 50% of Foxconn Parties’ costs of the hearing on 14 April 2016.

6.  BYD Parties submit under the post-CJR regime, the principle that “costs to follow the event” is no longer the prescribed usual order, but is instead just an option in interlocutory proceedings. In this regard, RHC Order 62 r 3(2A) provides:

“(2A) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.”

7.  RHC Order 62 r 5(1) sets out the circumstances which the Court should take into account in exercising its discretion on costs including, inter alia the “conduct of the parties” and “whether a party has succeeded on part of his case, even if he has not been wholly successful”.  RHC Order 62 r 5(2) further provides that “conduct of the parties” includes:

(a)    whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b)    the manner in which a party has pursued or defended his case or a particular allegation or issue.

8.  In essence, BYD Parties submit that they ought not be ordered to pay the entirety of Foxconn Parties’ costs of the 14 April hearing since:

(1)   it was not unreasonable for BYD Parties to contest the Amendment Application and to raise the issues it did for the court’s consideration;

(2)   the court did find in favour of BYD Parties in relation to Stage 1 of the test ie BYD Parties have an arguable limitation defence in relation to the new allegations raised in the proposed amendments.

9.  The difference between the parties boils down to whether BYD Parties should pay for all or only part of the costs of the substantive argument.

10.  As far as reasonableness of the parties’ conduct is concerned, while BYD Parties have put forward a number of reasons why their opposition to the Amendment Application should not be regarded as unreasonable, that does not in itself mean Foxconn Parties’ conduct in making the Amendment Application was unreasonable. After all, the application was meritorious and they have managed to persuade the court to grant it to the full extent.

11.  Concerning the point that BYD Parties succeeded in relation to Stage 1 of the test, that is akin to saying that the time and hence costs spent by Foxconn Parties in relation to that issue should not be borne by BYD Parties.

12.  As the Court of Final Appeal said in CIR v HIT Finance[2008] HKEC 1078 at [7], the discretion of the court to deprive a successful party of the whole or part of his costs because he had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed “exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event.  It is to be approached with due circumspection so as not to undermine the utility of that general rule.”

13.  In Swiss Singapore Overseas Enterprises Pte Ltd v China Citic Bank Corp Ltd, Xiamen Branch, unrep, CACV 197/2013, 29 August 2014,  Kwan JA said at [19]:

“...The matters to be taken into account under [RHC Order 62 rule 5] are not to be applied mechanically. We do not think the court should simply reduce costs with regard to the number of issues raised and lost and the time taken by those unsuccessful issues. There is clearly a discretionary element in making a proportional reduction.” (emphasis added)

14.  Having refreshed its memory of the submissions made in relation to Stage 1 of the test, this court is of the view Foxconn Parties could reasonably have chosen to concede, or at least not contest, Stage 1. If Foxconn Parties had taken that course, the Amendment Application would still have succeeded and not insignificant time and costs could have been saved.

15.  Looking at the matter in the round and exercising its discretion to make a proportional reduction, this court takes the view that BYD Parties should only be required to bear 80% of the costs of the substantive argument and shall so order:

“(1) Subject to (2) below, costs of and occasioned by paragraphs 1 and 2 of Foxconn Parties’ summons dated 30 September 2015 be to BYD Parties.

(2) 80% of the costs of the substantive argument on paragraphs 1 and 2 of Foxconn Parties’ said summons, including the 14 April 2016 hearing, be to Foxconn Parties.

(3) Both parties’ costs to be taxed if not agreed and paid forthwith, with certificate for two counsel for the 14 April 2016 hearing.”

Expert Directions Applications – Paragraphs 3 - 7 of Foxconn Parties’ Summons dated 30 September 2015 and BYD Parties’ Summons dated 29 March 2016(as amended)

16.  The applications for directions on expert evidence (“Expert Directions Applications”) were heard by this court over 2 days on 28 June and 5 July 2016 during which the court gave its oral rulings at various stages of the hearing immediately after the parties’ submissions.   

17.  In Foxconn Parties’ summons, expert evidence and directions were sought in relation to the following three subjects:

(1)   IT forensic analysis.

(2)   PRC laws.

(3)   Taiwanese laws.

18.  On the other hand, in BYD Parties’ summons, expert evidence and directions were sought in relation to the following six subjects:

(1)   Nature of confidential information in the mobile phone market.

(2)   Expansion of the mobile phone industry at the time of the relevant events.

(3)   IT forensic analysis.

(4)   PRC laws.

(5)   Taiwanese laws.

(6)   Quantification of loss and damage.

19.  It can be seen from the above that as far as subjects are concerned, the parties were ad idem on three. As far as the specific questions raised under each of the three agreed subjects, the parties had (as per this court’s direction dated 24 June 2016) helpfully set out their agreement / disagreement over the specific questions raised in each other’s summons. In summary, they were in agreement on the questions raised under IT forensic analysis and differed only over the precise formulation of some of the questions raised under PRC laws and Taiwanese laws. In the end, some time (but not much) was spent at the hearing to sort out the differences between them.

20.  As far as the three disputed subjects are concerned,  quantification of loss and damage fell away after Foxconn Parties indicated that they were contemplating a split trial and hence evidence on quantification of loss and damage was unnecessary. The other two subjects ie (i) nature of confidential information in the mobile phone market, and (ii) expansion of the mobile phone industry at the time of the relevant events, were hotly disputed and took up most of the 2-day hearing.

21.  After hearing the parties, this court granted leave to adduce expert evidence on the following question raised by BYD Parties:

“Whether, in 2007 or at any time before 2007, the alleged information defined in paragraph 11 of the Re-Amended Statement of Claim (“RASOC”) as being the “Confidential Information” and in particular, the information and documents referred to in Schedules 1 to 13 and the second column of Schedule 14 to the RASOC (the “Alleged Information”) (or any part thereof) was available in the public domain, or has been published or disclosed in the public domain, and if so which parts of the Alleged Information were of that nature.”

22.  The above question was the only one allowed by this court out of a total of 10 questions raised in the two subjects in paragraphs 2A and 2B of BYD Parties’ summons as amended.

23.  In these circumstances, and not surprisingly, Foxconn Parties submit that they were on the whole successful in opposing BYD Parties’ application and costs should follow the event. BYD Parties, on the other hand, submit that neither party have been wholly successful – in particular, their formulations of the questions on PRC laws and Taiwanese laws were largely adopted by the court. A fair order would be either no order as to costs or costs in the cause.

24.  The view of this court is as follows.

25.  Regarding Foxconn Parties’ application for expert directions, eventually there was a large measure of agreement by the parties and directions were given accordingly. It cannot fairly be said that either party was wholly or largely successful or unsuccessful. Obviously, if an agreement had come sooner rather than later, time and costs would have been saved. But that is water under the bridge. In the exercise of this court’s discretion on costs, the fairest order would be:

“ Costs of and occasioned by paragraphs 3 to 7 of Foxconn Parties’ summons dated 30 September 2015 be in the cause, with certificate for two counsel for the hearings on 28 June and 5 July 2016.”

26.  Regarding BYD Parties’ application for expert directions, to the extent that they raised the same three subjects as Foxconn Parties did, the application was redundant. If BYD Parties disagreed with Foxconn Parties concerning the precise formulation of the questions under those subjects (or the directions regarding exchange of expert reports and so on), the same could easily have been raised by way of submissions, which was what eventually happened.

27.  To the extent that BYD Parties’ application raised three additional subjects, the one on quantification of loss and damage fell away through no fault of either party. As for the other two (raising a total of 10 questions) which were hotly disputed, it is fair to say Foxconn Parties has been substantially successful in opposing them. This court cannot see any reason why costs should not follow the event.

28.  In the exercise of its discretion, this court hereby orders:

“ Costs of and occasioned by BYD Parties’ summons dated 29 March 2016, as amended, be to Foxconn Parties, to be taxed if not agreed and paid forthwith, with certificate for two counsel for the hearings on 28 June and 5 July 2016.”

29.  Given that part of the hearings on 28 June and 5 July 2016 was spent on paragraphs 3 to 7 of Foxconn Parties’ summons while (a larger) part of them was spent on BYD Parties’ summons, some apportionment is inevitable.  It is up to the parties to come to a sensible agreement on it or go to taxation, as the case may be.

30.  Liberty to apply.