TA TUNG CHINA & ARTS LTD. v. FONTANA RESTAURANT LTD. AND OTHERS

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 74
(Civil)

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J U D G M E N T

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Mortimer, V.-P.:

1. This is an appeal against the order of Findlay J in which he dismissed the plaintiff's summons. I will deal with the history.

The background

2. The action concerns the sale of chinaware. The plaintiff sells chinaware. In July or August 1990 the plaintiff made two agreements to sell chinaware to the 3rd defendant, Mr Sun Kai Wah, who said he represented a big company called "Fontana Restaurant" with many branches. Indeed, the parties had previous dealings. However, he neither took delivery nor made payment. In due course action was taken by the plaintiff to recover the price.

3. Inquiries led the plaintiff first to the Fontana Restaurant. The action was brought against the 1st defendant. When the 1st defendant denied responsibility, action was brought against the 2nd defendant, another Fontana Restaurant. When the 2nd defendant denied liability, proceedings were taken against Mr Sun, the 3rd defendant. It appears he is director of both. The two Fontana Restaurants denied that they were contracting parties. The 3rd defendant was sued for breach of warranty of authority. By his defence, he admitted liability and offered to pay on the basis that the two other defendants, D1 and D2, had nothing to do with the transaction and had been wrongly sued.

Events following the admission of liability by the 3rd defendant

4. In about November 1992, the plaintiff released the goods and accepted payment including interest. No steps were taken in relation to other defendants, or indeed about the action. The last step that had been taken by the plaintiff was a summons for directions as long ago as 17 September 1992.

5. In about August 1994, Mr Sun wanted to place further orders but the plaintiff declined to do business as they still had an unfinished case. Something was said between Mr Sun and the plaintiff as to why they should not leave matters as they were and get on with their business. It appears that business was resumed.

The revival of the action

6. In August 1997, however, solicitors, who were then acting for all three defendants wrote to the plaintiff, saying they wanted the action to proceed. The basis was that they - the 1st and 2nd defendants - wanted their costs. Indeed, a witness statement was provided by the defendants' solicitors to the plaintiff asking for a witness statement from the plaintiff. Obviously their intention was to go to trial. However, the plaintiff, recognising that the issues on liability were by then academic, considered its position. The plaintiff's position is simply that it wants the costs of the action out of the defendants in one way or another - either that the 1st and 2nd defendants should pay the plaintiff's costs, or the 3rd defendant should pay all the costs.

The order of Yeung J

7. In order to achieve that an application was made to Yeung J. The intention of the plaintiff was that orders for directions should be made so that a judge could determine the question of liability for costs. After a hearing in which no agreement was forthcoming from the defendants, Yeung J made an order in the terms of the summons. The order required the issue to go to a chambers hearing before a judge for direction on the costs liability of the respective parties and for other directions as the judge deemed fit. There were directions also for the parties to file affirmations in support and for notices if cross-examination was required. There was no appeal against that order which was made on 22 November 1997. No order was asked for or made for the disposal of the action.

The hearing before Findlay J

8. That summons came for hearing before Findlay J. On 11 March 1998 he heard the parties and in the course of the hearing, having raised the question, as indeed the defendants had, as to whether these proceedings on costs alone were misconceived because there was no order or suggestion as to how the action was to be disposed of before the issues on costs had been made. Findlay J considered this matter. He dismissed the summons. He determined that it was not appropriate to deal with the costs of the litigation between the parties without some determination of the proceedings.

9. The plaintiff applied to Findlay J during the hearing to allow it to discontinue the action against the defendants under O21 r3 but he refused having regard to the history of the action and the dealings between the parties.

10. This appeal is brought against Findlay J's dismissal of the summons.

The appeal

11. It is recognised by Mr Robert Tang SC who appears for the plaintiff that the course suggested is unusual. He has described it as "a third course" which, he submits, is in the circumstances of this case not only sensible and practical but would lead to a saving of costs.

12. There is no doubt that there are two ways in which a party can have the matter of costs determined if the liability issues in the action have become academic. First, he may apply for leave to discontinue the action and ask for the costs to be determined. In those circumstances, although it would not be impossible for the plaintiff to ask for an order for the payment of the costs by the party against whom he is discontinuing, it undoubtedly would be most unusual. For my part, I have never come across such a case.

13. The second way in which this issue can be resolved is for the parties to go to trial and to have the costs dealt with after trial. Of course, the issues on such a trial would be extremely limited.

14. Mr Tang submits that the third way is to make an order such as was made by Yeung J and have the costs liability resolved without having the action disposed of.

15. For my part, I think that is impossible. It puts the cart before the horse for at the end of the costs issue, the action is still alive if the parties have not agreed otherwise. The action still must be disposed of. On those grounds, if no other, it is my opinion that this appeal must be dismissed. The order which Yeung J was persuaded to make was one which it was not open to him to make. He had no jurisdiction to make it. For my part, it was misconceived.

16. So far as the suggestion that the third way would have saved costs and be a sensible way of dealing with the issues, I do not think costs would have been saved. All that was necessary was an application for suitable directions for the trial. With the limited issues it would be for the judge who heard the case to ensure that the parties did not stray beyond those issues. For those reasons, I would dismiss this appeal.

Godfrey, J.A.:

17. I agree.

18. Where a plaintiff seeks to recover costs against a defendant in an action in which the substantive issues have been determined in one way or another before the trial, the only way which the plaintiff can recover his costs (if the defendant refuses to pay them) is to bring the action to trial for the purpose of doing so. The issues at the trial will be limited and no additional expense should be incurred by adopting that course rather than the course adopted by Yeung, J., on the application of the plaintiffs, in his order of 26 November 1997.

19. This view of the matter is in my opinion supported by Burgess v. Hills (1858) 26 Beav. 244, a decision of Sir John Romilly, M.R. In that case, the defendant innocently used the plaintiff's trademark. On being served with proceedings, the defendant removed the offending labels and gave an undertaking not to sell any more of the goods bearing the labels. But he refused to pay the plaintiff's costs. At the hearing of the matter, it was held that the defendant must pay the whole costs of the action.

20. The history of that case is instructive although the facts are different from those in the present case. The defendant in Burgess v. Hills was served with the proceedings on 2 July 1854. The defendant accepted that the plaintiff's complaint was justified but on 9 July 1854 the plaintiff obtained an injunction, offering to stop the proceedings on payment by the defendant of his costs, stated to be ￡50. The defendant considered this unjust. He proposed that the injunction should be continued, each party bearing its own costs. On the next day, the plaintiff proposed that the injunction should stay, but with the defendant paying the plaintiff's costs to date. That was declined. On 27 September 1854, the plaintiff offered to discontinue on payment by the defendant of taxed costs, an offer which the defendant declined. He offered instead "to let the proceedings stand as they were", if the plaintiff paid the defendant's costs. It was impossible for the parties to agree and the action was brought on for hearing on notice of motion for judgment. The defendant's counsel submitted that, as the only question remaining was the costs of the action, the plaintiff might have had the point decided without moving for judgment. He referred to Sivell v. Abraham, 8 Beav. 598 in which Lord Langdale held :

"that when the demand of the Plaintiff is submitted to, and the only question between the parties is as to the costs of the suit, the cause ought not to be proceeded in, but an application ought to be made to the Court to prevent the expense of further proceedings."

This is a submission similar to that made to us by Mr. Robert Tang, S.C. in the present case. But the Master of the Rolls said this :

"It is said, that after the Defendant's submission, the Plaintiffs should have applied to the Court to compel him to pay the costs; but it is clear, that the Plaintiffs had no means of doing so. If they had given notice of motion, and the Defendant had resisted it, the simple result would have been, that the Court would have refused the motion with costs.

They had, therefore, no means of getting the costs, except by proceeding to a hearing. All the cases cited shew, that up to the time when notice was given, the Plaintiffs were entitled to their costs, which being refused by the Defendant, it became necessary for the Plaintiffs to incur the further expense of bringing the cause to a hearing to obtain them."

21. In my view, this demonstrates that there is no such "third way" as was here contended for by Mr. Robert Tang, S.C.. Indeed, ours is an a fortiori case, since in fact the defendants against whom the plaintiff seeks an order for costs have never submitted to the plaintiff's claim and continue to resist it. In a passage I believe relevant to our case, the Master of the Rolls added this :-

"This idle litigation is much to be regretted, some mistake of the rights of the parties, and possibly some little temper, has made it necessary to bring the cause to the hearing.

I have no power to do anything but adjudicate on the rights of the parties, but if the Defendant had offered the Plaintiffs all they were entitled to, and after that the Plaintiffs had proceeded in the suit, I most certainly should not have given the Plaintiffs a penny of the costs incurred after that period, indeed I should have endeavoured to make them pay them. The Defendant ought to have offered the Plaintiffs the costs they had incurred, but instead of doing so, he has refused to pay them."

22. I have some sympathy with the plaintiff here in seeking to find a way of escaping the expense of further proceedings, but, as it seems to me, what is now proposed not only would not do that; it would confuse matters and would be no less expensive than proceeding to a trial at which the only substantive issue for determination would be the issue as to costs.

23. For these reasons, in addition to those given by my Lord, the Vice-President, I, too, would dismiss this appeal.

Rogers, J.A.:

24. I agree.

25. I consider that there is no alternative but to resolve the Action. The short circuit which has been attempted to be adopted will not suffice. It is, of course, to be regretted that the pursuit of costs by the parties is only likely to increase those costs overall, but that is the inevitable result.

Mortimer, V.-P.:

26. The order is that the appeal shall be dismissed with costs to the respondents in any event.