SUNG FOO KEE LTD. v. PAK LIK CO. (A FIRM)

IN THE COURT OF APPEAL

1996, No. 68
(Civil)

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J U D G M E N T

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Godfrey, J.A. : The following is the judgment of the court.

Introduction

1. On 4 October 1996 this court dismissed the defendant's appeal against an order of Waung J. made on 15 March 1996 striking out the defendant's amended defence and counterclaim in the action and ordering that judgment be entered for the plaintiff against the defendant for the sum of $14,221,719. We were then addressed by counsel as to the costs of the action and of the appeal. At the conclusion of the argument, we said we would reserve our judgment on the matter of costs and would hand down that judgment in writing in due course; this we now do.

The costs below

2. The defendant accepted that it could not resist an order that the plaintiff's costs (save where there was previously in existence some other specific order as to costs) should be paid by the defendant to the plaintiff. The dispute the judge had to resolve was a dispute as to the basis on which those costs were to be taxed. The plaintiff wanted its costs to be taxed on the indemnity basis, or at least on the common fund basis; the defendant opposed this, seeking a taxation of the plaintiff's costs as between party and party. The judge, in a judgment delivered on 19 September 1996, ordered that the costs of the plaintiff be taxed on the common fund basis, with a direction to the taxing master to exercise his discretion under order 62 rule 32(2); the effect of such a direction would be to enable the taxing master (a) to award costs in relation to items not mentioned in the appropriate scale of costs and (b) to award costs of an amount higher than that prescribed by that scale (see American Express v. Johnson [1984] HKLR 372 and In re Irish Shipping Ltd. [1985] HKLR 437, esp. at p.447).

Was the judge right?

3. In his judgment on the substantive issues given on 15 March 1996, the judge had been highly critical of the defendant's conduct of the litigation. At one point he described it as "disgraceful"; at another "an abuse of the process of the court"; at yet another "contemptuous" and "contumelious". He found the defendant guilty of deliberate breaches of orders of the court. He found the defendant "desperate ..... to scrape up any defence". He described one of its proposed defences as "hocus pocus". He found that "the manner [in] which the defendant deployed the legal process to prevent the plaintiff obtaining its just payment in the action must be considered odious, even by the low standards of the defendant". He said "the court must do its best to ensure that the court's procedure is not abused to the detriment of the parties."

4. In his judgment as to costs given on 19 September 1996 he said that a careful reading of his earlier judgment would clearly show that in his view the defendant's repeated non-compliance with orders of the court was deliberate and contumelious. He said that the defendant had built up "a monster case" from the oppressive discovery which the defendant had managed to extract (albeit voluntarily) from the plaintiff. He said that the whole behaviour of the defendant as revealed on the material before him showed conduct which was oppressive and an affront to the court. He said that he had no doubt that "the most generous scale of costs" should be awarded to the plaintiff.

5. We pause there. Each member of this court considers this case to be one of the worst cases of its kind he has seen. No member of this court would have hesitated for a moment before directing the plaintiff's costs to be taxed on the footing of an indemnity; "the most generous scale of costs", to use the judge's words, which it would have been open to the judge to award. At this point, however, the case seems to have taken a number of wrong turnings.

6. The judge did not, to our considerable surprise, make such an order. Instead, as we have said, he ordered that the plaintiff's costs be taxed on the common fund basis (with the direction we have mentioned above); a generous scale of costs, but not "the most generous scale of costs" to which the judge had himself referred. The judge said "the special and unusual features of this case although amounting to an affront to the court are just barely not such as to call for the penal sanction of a full indemnity costs order."

7. This court would be very reluctant to interfere with the exercise of his discretion by a judge who for some good reason thought it appropriate to order a taxation of costs to proceed on one basis rather than another, even if it would itself have taken a view different from that of the judge : see Lakhan v. Wu Wing Tat [1987] HKC 54, where the plaintiff, who had succeeded in the action, failed in her appeal (with leave) against the decision of the judge to award her costs on a party and party basis rather than on the common fund basis for which the plaintiff had asked.

8. Nevertheless, in the present case, we would have expected that, in the face of the defendant's appeal to this court on the substantive issues, the plaintiff might have been advised to cross-appeal in order to obtain "the full indemnity costs order" which the judge had refused to make, on the grounds that this case was as strong a case as could be imagined for such an order, and that no sensible or indeed any reason had been given by the judge for refusing to make it. Yet, again to our considerable surprise, the plaintiff gave the defendant no notice of any such cross-appeal (it attempted to do so, much too late, at the hearing before us on 19 October 1996, an attempt which we rejected). To our even more considerable surprise, it was the defendant who appealed against the judge's order, asking instead for an order that the plaintiff's costs be taxed on a party and party basis.

Should we interfere with the order for costs below?

9. We regard the defendant as lucky to have escaped an order that the costs of the plaintiff which it has to pay should be taxed on the indemnity basis. We will certainly not interfere with the judge's order so as to reduce the plaintiff's entitlement to party and party costs only. And in the absence of any appeal by the plaintiff against the judge's order as to the basis of the taxation of its costs, we cannot interfere with his order so as to provide for the plaintiff's costs to be taxed on the indemnity basis instead of on the common fund basis, although the former is the order we would ourselves undoubtedly have made.

10. However, since we have indicated that we think the judge was wrong not to make such an order, we propose, in fairness to the judge, and for the guidance of the profession, to explain why.

Why an order for indemnity costs should have been made

11. The whole point of an award of costs is to afford an indemnity to the party incurring them : see Gundry v. Salisbury [1910] 1 KB 645. But to protect the paying party those costs have to be taxed. Since April 1986, the judge, in England and Wales, has had power to direct such a taxation to proceed either on the standard basis, or on the indemnity basis. On a taxation of costs on the standard basis there is to be allowed a reasonable amount in respect of all costs reasonably incurred and any doubts as to whether the costs were reasonably incurred or were reasonable in amount are to be resolved in favour of the paying party (this is equivalent to the common fund basis here). On a taxation on the indemnity basis all costs are to be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the taxing master may have as to whether the costs were reasonably received or were reasonable in amount are to be resolved in favour of the receiving party : see Order 62 r.12(1) and (2) of the Rules of the Supreme Court there applicable.

12. In Bowen-Jones v. Bowen-Jones [1986] 3 All ER 163, the judge, Knox J, referring to the reforms instituted in April 1986, declined to review the basis on which orders for taxation should be made in favour of successful litigants. He said:

"It seems to me there have been a rationalization of the different bases of taxation rather than a complete re-statement of the rules in such a way as to place the matter entirely as large as to how costs should, in general, be dealt with between a successful and unsuccessful litigant."

13. But, whatever be the way in which "cases should, in general, be dealt with between a successful and unsuccessful litigant" (which here, in Hong Kong, will normally be by an award of costs to be taxed as between party and party) there will always be cases outside the general rule.

14. Here, as in England and Wales, the judge has a discretion, in a case which does fall outside the general rule, to direct the taxation of the receiving party's costs on the basis which he considers to be appropriate to that case. This is not a discretion limited by indications in previous cases, such as, e.g., the observations of Godfrey, J. in Overseas Trust Bank Ltd. v. Coopers & Lybrand [1991] 1 HKLR 177 (in which he declined to order the successful party's costs to be taxed on the indemnity basis), as to the sort of special or unusual feature (there does have to be some special or unusual feature) which could justify an award of indemnity costs. Although the examples given in the judgment of Godfrey, J. at pp.182J to 183C may be of assistance in other cases in which indemnity costs are claimed, his judgment does not purport to be and is not to be taken as determinative of the sort of case in which indemnity costs may be ordered.

15. In Disney v. Plummer, 16 November 1987, in the Court of Appeal (England and Wales), unreported, it was submitted that indemnity costs would only be appropriate where there had been deception or underhand conduct. Kerr, LJ in his judgment said:

"I entirely reject that submission. On the contrary, I wholeheartedly agree with the course which the judge took in relation to this ill-advised and, if I may say so, stupidly conducted piece of litigation. It is the sort of robust attitude which should be taken to pieces of litigation of this kind. The defendants still suffer, even when they win. But they should at any rate have been given such assistance as can be provided by the rules. I do not accept, as counsel submitted, that indemnity costs are only appropriate if there is some deception or underhand conduct on the part of the losing party, but not if the litigation is merely fought bitterly or even unreasonably. In the latter type of cases judges can still exercise their discretion under RSC Ord 62, r3(4)."

16. Eastham, J. in his judgment said :

"The judge having listened to the various submissions which are summarised, clearly took the view that this was one of the cases in which he could, and should, make a robust order so as to discourage other plaintiffs from pursuing litigation in the way in which this litigation has been pursued on behalf of this particular plaintiff. In my judgment he had ample material on which he could find that it was appropriate to order costs on the indemnity basis and indeed, after the defendants had been exposed to the very serious consequences of this bitterly conducted litigation, they would have felt a sense of considerable injustice if their costs had been whittled away down to the costs on a standard basis."

17. In Macmillan Inc. v. Bishopgate Investment Trust Ltd, 10 December 1993, unreported, Millett, J., in the Chancery Division, said :

"The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win. Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be 'appropriate'."

18. In Munkenbeck & Marshall v. McAlpine (1995) 44 Const. LR 30, Hollis, J. (with whom Russell, LJ agreed) said that he entirely agreed with that passage in the judgment of Millett, J. and said (at p.33) :

"In my view it is a pity that various courts have attempted to define in exactly what circumstances indemnity costs may be ordered. It is a matter in each case of the judge exercising his discretion to order costs on an indemnity basis when appropriate to the facts before him."

19. We endorse all these observations of Kerr LJ, Eastham J, Millett J and Hollis, J.

20. We are of course aware that it has not , or not yet, been thought fit to effect in Hong Kong the "rationalisation" to which Knox J. referred in Bowen-Jones v. Bowen-Jones (above). But this makes no difference. Our rules do now expressly provide for the taxation of costs on an indemnity basis and when they consider it appropriate judges should not be slow to make orders for the receiving party's costs to be taxed on that basis. We venture to suggest that if the attention of the judge here had been drawn to the English authorities to which we have referred he would have had no hesitation in ordering the costs of the plaintiff to be taxed on the indemnity basis rather than the common fund basis (which, in fact, as we have said, corresponds to the "standard" basis in which costs are otherwise now taxed in England and Wales). But, as we have explained, we cannot in this case interfere with the costs order in fact made below.

The costs of the appeal

21. The defendant's appeal was utterly devoid of any legal or other merit. We had no hesitation in dismissing it; and we now have no hesitation in ordering the defendant to pay the plaintiff's costs of the appeal to be taxed on the indemnity basis.

The result

22. We dismiss the appeal of the defendant against the order for costs made below and we order that the plaintiff's costs of the appeal be taxed on the indemnity basis and paid by the defendant to the plaintiff.