ACTIVE PROFIT LTD v. NISSHO IWAI HONG KONG CORPORATION LTD AND OTHERS

HCMP 1403/2005, HCMP 1410/2005 AND CACV 320/2003

HCMP 1403/2005 and HCMP 1410/2005

in the high court of the

hong kong special administrative region

court of appeal

MISCELLANEOUS PROCEEDINGS NOS. 1403 of 2005

and 1410 of 2005

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CACV 320/2003

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 320 of 2003

(on appeal from HCCL NO. 47 of 1998)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  These were three summonses for leave to appeal out of time in respect of various costs orders which have been made which will be explained below.  Prior to the commencement of the hearing the parties requested that all the applications be heard by both judges although the majority of them had been set down to be heard by myself as a single judge.  Since, the parties submitted that it would save time, that application was acceded to.  At the conclusion of the hearing this court gave leave to appeal in respect of all the orders which were the subject of the applications.

Background

2.  The applications arise in this way.  In this action judgment was given in the court below on 30 June 2003.  The judgment was in favour of the plaintiff against all the defendants.  Apart from declaring that various sums were held by the 1^st and 2^nd defendants on trust for the plaintiff and ordering damages to be assessed against the 3^rd defendant and tracing remedies against the 3^rd and 4^th defendants as well as declarations that the 3^rd and 4^th defendants were liable to account for profits and/or make good all losses, there were orders against all defendants for disclosure of a wide range of matters on affidavit or affirmation, as well as discovery, and there was provision for the plaintiff to elect for an order for an account of profits or an enquiry as to damages conducted at the plaintiff’s option.  The judgment and order of the court below was set aside by the judgment of this court which was handed down on 23 February 2005.  This court made an order nisi that the costs in this court and below should be in favour of the defendants. 

3.  However, prior to the judgment in this court, the plaintiff had wasted no time in pursuing all available remedies not only under the judgment of the Court of First Instance but extending those remedies in order to enable it to use documents obtained on discovery for the purposes of other proceedings.  In September 2003 it obtained such an order from the judge below and it successfully resisted the defendants’ applications for a stay of the judgment pending appeal.  In October 2003, despite the fact that the plaintiff had not by then elected as between an account of profits and an assessment of damages, it made an application for interim payment.  As it transpired, by agreement $7.5 million was paid into court.  In June 2004 the plaintiff elected for an account of profits and it then applied for further interim payments by the defendants.  The judge below ordered a sum totalling in excess of $17 million to be paid into court in addition to the $7.5 million which had already been paid in. 

4.  It might also be mentioned that there was an application to a single judge of this court for a stay of execution of the judgment pending appeal.  That was ultimately heard on 13 February 2004.  There were two hearings for directions before another judge of this court.  The first one for an extension of time to file a reply affirmation and the second one for altering the date fixed for the hearing.  It appeared that the plaintiff was in some difficulty because the counsel who had appeared at trial could not appear at the date fixed for hearing the application.  It seems that the reason why the application had to be heard promptly was that at that time the plaintiff had taken out committal proceedings for contempt and the defendants wished the stay application to be heard prior to the hearing of the committal proceedings.  In the circumstances the judge naturally did not accede to the plaintiff’s request for a delay of the stay application.  We were told that the committal proceedings never came to a hearing.

5.  When the order of this court in respect of costs came to be argued on 15 June 2005 the defendants sought reversal of the various costs orders which were the subject of the present applications.  These have been categorised by the plaintiff itself in an affirmation of Chan Chun Wai, Albert filed on 28 July 2005 as being orders in relation to the proceedings for the plaintiff’s application for interim payment, the enforcement or execution of the judgment of the court below and the defendants’ application for a stay of execution pending appeal.  Objection was taken by the plaintiff that such orders were not part of the appeal to this court and therefore the court had no jurisdiction to entertain any application for variation of those orders for costs.  That was a jurisdictional point.  Naturally, those orders which came after the judgment below could not have been made part of the appeal to this court because the notice of appeal was in respect of the judgment in the action and the events which took place subsequent thereto could not have been anticipated in the notice of appeal.

6.  On the other hand, as a matter of common sense and logic, costs incurred in enforcing a judgment which is subsequently set aside and in pursuing remedies granted by such a judgment must naturally be to the party that has successfully had the judgment set aside and incurred costs as a result of it.  This has manifested itself in the apothegm that a party pursues an inquiry as to damages or an account of profits at its own risk in respect of costs.  One place where such statement appears is in the speech of Lord Parker in A.G. Spalding and Bros. v A.W. Gamage Ltd [1915] 32 RPC 273 at 287 lines 20 to 23. 

7.  The dictum, that a party pursues remedies under a judgment at its own risk as to costs, is a reflection of the fact that not only is the plaintiff at risk if it does not succeed in obtaining more on, for example, an inquiry as to damages than a defendant is willing to offer or pay into court but also, if the judgment upon which that the particular remedy is obtained is set aside, the party that pursues the remedy will inevitably have to pay the costs.  That would, naturally, go without saying.  But if authority is required for such a proposition it can be found in many cases but usually as an aside.  One such case is J. Lucas (Batteries) Ltd and another v Gaedor Ltd and others [1978] RPC 389.  That was a case in which a stay of an inquiry was sought in a patent action where the plaintiff had been successful at trial in respect of one out of four patents.  The other three patents had been held to be invalid.  The judge granted a stay pending appeal, at least partly because of the expense involved in conducting such an inquiry.  The matter went to the Court of Appeal.  In the course of giving judgment on the application to the Court of Appeal for removal of the stay pending appeal Sir David Cairns said at page 392 line 22:

“It is obvious that in most patent cases the plaintiffs will have no objection to a stay pending appeal, because in such cases the inquiry, if it takes place at all, is usually a fairly complex and expensive one, and if the plaintiff loses the appeal he will inevitably have to pay the costs of the inquiry if it goes on.”

Bridge LJ said at page 394 line 7:

“... and in particular Mr Aldous submits that the mere fact that the inquiry in question will be a long, complicated and expensive one cannot of itself amount to a special circumstance for the reason that the risk that the costs involved in the inquiry will be thrown away if the defendants’ appeal against the judgment leads to the making of an order for the inquiry is successful, is a risk which the plaintiff alone can and will bear, in that if the appeal is successful he will have to pay the whole costs of both sides, which would have been thrown away in the conduct of the inquiry.”

Buckley LJ concurred with Sir David Cairns’ judgment.

8.  Although in that case with the Court of Appeal upheld the first instance judge in granting a stay in the case of Strix Limited v Otter Controls Ltd [1995] RPC 675 Laddie J again referred to the fact that a plaintiff who insists on proceeding with an inquiry does so at the risk that if the judgment in his favour is overturned on appeal he will have to bear the costs of the inquiry which have been wasted by his insistence on pressing ahead with it.  In that case Laddie J refused the stay.  It is pertinent to note however that he fixed the date for the inquiry on the basis that it would not be heard until sometime after the estimated time of the Court of Appeal giving its judgment. 

9.  All these cases, have proceeded on the basis of the principle that a party that successfully appeals a judgment against it is entitled to costs which it has incurred following that judgment as a result of the party that was successful at first instance prosecuting the relief which it had been held to be entitled.  This is not to rule out the possibility that, in some instances, if the party has wasted costs, it may be penalised by being unable to recover those costs, but it seems to me that it is at least arguable that any order which gives the party that pursues an inquiry or other relief before an appeal has been heard its costs irrevocably might be said to be wrong in principle even though the opposing party might have some reason not to be entitled to its costs.

10.  Ms Tong, who appeared on behalf of the plaintiff, placed heavy reliance on the fact that there was delay in the defendants seeking leave to appeal and on the fact that she said that had her client been aware of the fact that it would have to pay the wasted costs in pursuing the accounts should it lose the appeal, it would not have pursued those accounts and other relief. 

11.  As to the delay it seems to me that the defendants would have only increased costs to have issued notices of appeal before the appeal in the action had been decided. 

12.  As to the point that the plaintiff would not have pursued the inquiries and other relief and incurred the costs associated therewith had it appreciated that it might have to bear the costs should it ultimately be unsuccessful in the action is no more than saying that the plaintiff was ignorant of the law or badly advised.  As part of the argument put forward it was said in the evidence that the plaintiff had spent in the region of $2.74 million in pursuing remedies under the judgment.  No details were given of this save that the court file includes the taxation of costs of the unsuccessful application by the defendants in this court for a stay of execution pending appeal.  It would appear that the application for a stay, heard in chambers by single judge, lasted no longer than one hour 35 minutes.  The plaintiff had put in a bill for taxation totalling $638,120.57.

13.  I cannot leave this judgment without commenting on the figures involved.  It might have been supposed that a reasonable amount of the total costs of such an application would be in the region of $150,000.  The brief fee for leading counsel had been $200,000 and in respect of junior counsel $60,000.  In addition junior counsel was paid nearly $10,000 for incidental work in connection with the application.  On top that is the fact that the fees of London counsel appear to have been allowed in a total sum exceeding $55,500 which was itemised as preparing the skeleton argument for use on the stay application.  Thus the total fees for counsel in respect of that appearance were well in excess of $300,000.  On top of that the plaintiff’s solicitors claimed for 4 persons from their firm, namely one partner 2 assistant solicitors and a legal trainee to attend the hearing.  One or at the most 2 would presumably have been ample.

14.  It appears to me to be extraordinary that leading and junior counsel, who together see fit to charge more than a quarter of a million dollars for an appearance lasting an hour and a half, can require the assistance of London counsel to draft the skeleton argument for use on a stay application.  Such an application should have been within the competence of a junior counsel.  Even given the importance of this action to the parties a fee of a competent senior junior counsel could be expected to be well under $100,000.  Having seen a number of applications for security of costs on appeal, some of which were heard at the same time as stay applications, I have seen a number of cases where the fees of leading counsel have been put at $50,000 for a similar application.  It seems to be the plaintiff’s position that because counsel was put to the inconvenience of actually having to read some papers, a brief fee which was double what in my view would be a heavy fee for the task was agreed. 

15.  It was said that London counsel had been engaged to draft the skeleton argument because he had been involved in advising on the case throughout.  Given the identity of the plaintiff’s leading counsel, who was the same at trial and on the hearing of the appeal, that in itself is somewhat surprising, but that still does not justify London counsel being employed to draft the skeleton argument.  Leading counsel had been engaged to argue the case against a stay of execution pending appeal.  That is a comparatively simple and short application.  Quite apart from the fact that it might be considered demeaning to suggest to a leading counsel that somebody else should draft the skeleton argument, the employment of counsel for such a purpose would appear to be a luxury; he was not an admitted counsel for the case and he constituted a third counsel. 

16.  All this would seem to lead to the conclusion that the figure of $2.74 million in legal fees indicates that the plaintiff was disposed to be unnecessarily generous in employing its lawyers, rather than conducting litigation on an economical footing.

Hon Lam J:

17.  I agree.