BONDS GROUP CO LTD v. KWAN DANIEL AND OTHERS

HCA 1861/2017

[2023] HKCFI 1396

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1861 OF 2017

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DECISION ON COSTS

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1.  On 12 December 2022, I handed down a judgment after the trial of the action ([2022] HKCFI 3674)  and made a costs order nisi that the defendants do have 60% of the costs of the action to be taxed on a party and party basis if not agreed, with certificate for two counsel, save that the costs of the expert evidence (including the costs of engaging the defendants’ expert, the defendants’ expert reports, and the time spent at trial with the experts)  be excluded from the defendants’ costs. The reasons for departure from the starting point that costs should follow the event are set out in §§96-104 of the Judgment.

2.  By summons dated 23 December 2022, the defendants seek to vary the costs order nisi on the grounds that the plaintiff failed to obtain a judgment better than the defendants’ sanctioned payment made on 14 February 2019. Pursuant to RHC Order 22 r.23(3)  and (4), the Court may order that the defendants have their costs on an indemnity basis after the last date on which the plaintiff could have accepted the payment without requiring leave of the Court (in this case, 14 March 2019)  and interest on such costs at a rate not exceeding 10% above the judgment rate.

3.  RHC Order 22 r. 23(5)  provides that the Court shall make the order in rules 23(2)  to (4)  unless it considers it unjust to do so. There is no dispute that the burden is on the party declining the sanctioned payment (in this case, the plaintiff)  to show why it would be unjust (see e.g. Salleh Abu Baker v Anway Ltd [2022] HKCFI 2055 at §8).

4.  Having regard to my findings in the Judgment and the fact that the plaintiff did not accept the sanctioned payment, the defendants propose that the costs order nisi be varied as follows:

(1)  The defendants do have 60% of their costs of the action (excluding the costs of the expert evidence)  to be taxed on a party and party basis up to and including 14 March 2019 if not agreed, with certificate for two counsel; and

(2)  The defendants do have their costs of the action (excluding the costs of the expert evidence)  to be taxed on an indemnity basis from 15 March 2019 up to 12 December 2022 (the date of the Judgment)  if not agreed, with certificate for two counsel, plus interest thereon at 6% from 15 March 2019 up to 12 December 2022.

5.  Mr Jonathan Ng, counsel for the plaintiff (who did not appear at the trial), does not dispute the costs proposed by the defendants in respect of the period up to and including 14 March 2019, which are the same as those in the costs order nisi. However, he submits that for the subsequent period, the defendants should have only 60% of the costs of the action, excluding the costs of the expert evidence, to be taxed on an indemnity basis if not agreed, with certificate for two counsel, plus interest thereon at 5% per annum.

6.  Mr Jiang Zixin, counsel for the defendants (who also did not appear at the trial), submitted that the question before the Court is how the established principles in Re Elgindata (No. 2) [1992] 1 WLR 1207, which were applied by the Court in determining and apportioning costs in the costs order nisi, interact with the principles and objectives of sanctioned offers and payments.

7.  He accepted that whilst the Court’s discretion remains unfettered, the following approach would strike the correct balance between the two principles and objectives:

(1)  The starting point is that if a plaintiff fails to do better than the defendant’s sanctioned payment, the costs consequences under the rule are prima facie applicable, even if the defendant loses the action and substantial damages are awarded to the plaintiff. A fortiori, the same consequences are prima facie applicable where, as in the present case, “the defendants were for practical purposes the successful party in this action” (§98 of the Judgment).

(2)  Whilst the court is entitled to take into account all the circumstances of the case in considering whether it is unjust to make the orders under the rule, for a circumstance to be considered relevant, it ought to: (a)  “relate... to the reasonableness or otherwise of the [plaintiff’s] non-acceptance of the sanctioned [payment]”; or (b)  “suggest ... that, while the continuation of the proceedings is primarily due to the non-acceptance of the sanctioned [payment], costs are incurred or increased thereafter due to any unreasonable conduct of the [defendant]” (Arnold Robert Limited v Glorious Motors Limited [2019] HKCFI 91 at §12 per Recorder S. Wong SC; see also, Qvist Henrik v Clatronic Far East Ltd [2020] 1 HKLRD 703 at §19; Wah Lun International Development Ltd v Lau Chiu Shing [2021] HKCFI 1976 at §10(7)).

(3)  Where a defendant acted unreasonably in contesting a particular issue, causing significant time and effort to be wasted, this would fall within “unreasonable conduct” in (b)  above. Thus, in Tin Foo Investment Company Limited v Previgor Development Limited [2019]HKCFI 1106 at §§16(5)-(6), DHCJ B Man SC held that the defendants acted “unreasonably and improperly” in contesting liability and therefore should be deprived of part of their costs (even though the plaintiff failed to obtain a better result than the defendants’ sanctioned payment).

(4)  Given that the cost consequences under RHC Order 22 r.23 prima facie apply even if the party making the sanctioned offer or payment fails in the action entirely, the fact that that party fails only on some issues, provided the same were not unreasonably and improperly raised, should not normally be a reason to depart from the costs consequences under the rule.

(5)  Whilst it is unnecessary as a general rule to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs (see e.g. Zhuhai International Container Terminals (Jiuzhou)  Limited v Lo Tong Hoi (unreported)  CACV 181/2011, 31 July 2012, at §33), in the context of a sanctioned offer or payment, success or failure on the merits should be less readily taken into account in departing from the costs consequences under the rule.

8.  I agree in principle with Mr Jiang’s analysis, subject to the following observations.

9.  First, it should be emphasised that the two categories identified in §7(2)  above, whilst providing a useful guide, should not be read as if they form part of the rule or that the categories are closed. In considering whether it would be unjust to make the orders referred to in rule 23(2), (3)  and (4), paragraph (6)  expressly provides that the Court shall take into account all of the circumstances of the case. In any event, what may or may not be considered to be “unreasonable conduct” is necessarily fact sensitive.

10.  Second, since the Civil Justice Reform, the manner in which litigation is conducted is not solely a matter as between litigants themselves, but there is also a broader public interest to ensure that the Court’s limited resources are distributed fairly. The Court’s powers as to costs perform an important function to promote cost-effectiveness, proportionality and procedural economy in litigation. All of these concepts are expressly recognised by the underlying objectives in RHC Order 1A r.1 and apply throughout the litigation process.

11.  In considering what is “unjust” within the meaning of RHC Order 22 r.23(6), the Court is concerned not only with what may be just or unjust as between the parties inter se but also the broader public interest mentioned above. A party who has made a sanctioned offer or payment remains under the duty to assist the Court to achieve these underlying objectives. The Court’s discretion on costs to promote such objectives should not be restricted to situations where conduct is necessarily “unreasonable” or “improper”. It is ultimately a matter of degree, and each case turns on its own facts and circumstances.

12.  In my view, the defendants’ case at the trial that the LOI was not binding on the parties was particularly opportunistic and unmeritorious, especially when both parties had all along believed and proceeded on the basis that they were bound. On the other hand, I accept that the proper construction of Clause 10b raised difficult questions albeit, in the end, I found against the defendants on the issue (§66 of the Judgment).

13.  Having regards to the above, together with the other miscellaneous points raised by the parties in their written submissions and my reasons in the Judgment for the costs order nisi (which have not been otherwise challenged in this application), and adopting a necessarily broad brushed approach, I would exercise my discretion to vary the costs order nisi as follows:

(1)  The defendants do have 60% of their costs of the action to be taxed on a party and party basis up to and including 14 March 2019 if not agreed, with certificate for two counsel, save that the costs of the expert evidence (including the costs of engaging the defendants’ expert, the defendants’ expert reports, and the time spent at trial with the experts)  be excluded from the defendants’ costs;

(2)  The defendants do have 80% of their costs of the action to be taxed on an indemnity basis from 15 March 2019 up to and including 12 December 2022 if not agreed, with certificate for two counsel, save that the costs of the expert evidence (including the costs of engaging the defendants’ expert, the defendants’ expert reports, and the time spent at trial with the experts)  be excluded from the defendants’ costs;

(3)  The defendants do have interest on the costs mentioned at paragraph (2)  above at 6% p.a. from 15 March 2019 up to and including 12 December 2022.

(4)  There be no orders as to costs of this application.

14.  Last but not least, I thank both counsel for their assistance.