HO LAI CHUEN CADIA t/a RESOLUTION SOFTWARE CONSULTANTS v. XEROX (HONG KONG) LTD.

CACV 299/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 299 OF 2002

(ON APPEAL FROM HCA NO. 6454 OF 1997)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment of Deputy High Court Judge Cheung given on 19 April 2002 whereby he varied the effect of a costs order nisi and ordered that the defendant should pay the plaintiff his costs of the action including the counterclaim limited to 85% thereof. On this appeal the plaintiff contended that there should have been no reduction in the costs which were awarded. At the conclusion of the hearing of this appeal judgment was reserved.

Background

2. In December 2001, the judge below had heard an action brought by the plaintiff in respect of a contract for the supply and installation of a computer software system and related products. The claim included a claim in respect of service charges and maintenance. By the time of trial, the plaintiff's total claim came to nearly US$2 million plus interest. Amongst other heads of damage was a claim for loss caused by the fact that the defendant had prevented the plaintiff from carrying out the contract. The plaintiff also claimed in respect of service charges for the installation and implementation of phases I and II of the contracted project and also in respect of maintenance charges for the 1st year as well as the 2nd to 6th years on the basis of what was said to have been the contractual period.

3. The trial of the action lasted three weeks. It is clear from the judgment that the defendant exhausted all conceivable lines of defence, many of which the deputy judge considered lacked any degree of merit. At the conclusion of a lengthy judgment, which was handed down on 16 January 2002, the deputy judge made the usual order that the losing party, in this case the defendant, should pay the successful party, namely the plaintiff, the costs of the action, as well as the counterclaim, to be taxed if not agreed. It was in those circumstances that the matter came before the deputy judge, on 15 April 2002, on an application by the defendant to vary the costs order.

4. On that application, it appears that the deputy judge was particularly taken by the decision of the Court of Appeal in England in Charm Maritime Incorporation v Elbourne Mitchell, 22 July 1997. The kernel of the deputy judge's reasons for reducing the amount of costs which the plaintiff was entitled to recover was contained in paragraphs 16, 17 and 22 of his decision. The deputy judge was highly critical of the evidence which had been presented by the plaintiff in respect of the claims for service and maintenance charges. He referred to the fact that evidence had emerged "here and there" at the trial to support a claim for damages. This was evidently an allusion to the fact that the deputy judge had elicited further information after re-examination of the plaintiff's first witness. In paragraph 22, the deputy judge said:

"Bearing all the above in mind as well as all other relevant circumstances, I am of the view that the order nisi as to costs should be varied to reflect that the Plaintiff only managed to succeed in a relatively insignificant manner his claims for damages relating to maintenance and service, and that the most unsatisfactory evidence (both in terms of amount and quality) that the Plaintiff put in to prove these two claims must have to some extent affected or clouded the judgement of the Defendant in evaluating their worth for the purpose of determining the appropriate amount of payment in."

5. It may be observed that the claim in respect of the service charges was maintained throughout as being US$422,400. As a result of answers given by the plaintiff's witnesses it emerged that, in the relevant period, the plaintiff had revenue or income of HK$1.2 to $1.3 million. Had the contract with the defendant continued, the plaintiff would have been unable to earn that income. The judge also seems to have been disposed to take an approximate percentage based on the contractual sum to calculate the profit margin which the plaintiff would have enjoyed. In those circumstances, the judge awarded a sum of US$50,000 in relation to the service part of the contract. In relation to the maintenance part of the contract the plaintiff had claimed not only maintenance for the first year but also for the 2nd to 6th years. It would appear that the deputy judge had little difficulty in holding that, under the contract, there was only a viable claim in respect of maintenance for the first year. The deputy judge considered that there were similar considerations which applied to this claim as applied to the previous claim and awarded a sum of US$40,000 in respect of the profit on the maintenance for the first year, no doubt on the footing that the first year's maintenance was likely to be less onerous than in subsequent years.

6. In my view, the deputy judge's approach in paragraph 22 of his judgment of 19 April 2002 was incorrect for two reasons. In the first place, if a plaintiff makes a claim which is disputed on liability as well as quantum and recovers, it is, generally, entitled to its costs, save insofar as it may be found at fault for having increased those costs unnecessarily. Mr Reyes SC, on behalf of the defendant, did not seek to suggest that there were any grounds which would give rise to a reduction of the costs ordered on that basis. In the second place, the deputy judge appears to have made his order on the basis that the plaintiff failed to adduce evidence which, in effect, related to mitigation. A plaintiff is entitled to claim the amount which it says it had lost as a result of a contract not being performed and any matter of mitigation of that amount is a matter of defence. It is clearly established in such cases as Roper v Johnson (1873) L.R. 8 C.P. 167, see especially 184, and Garnac Grain Co. v Faure and Fairclough [1968] AC 1130 at 1140 that mitigation is a question of fact. There was thus no basis put forward for depriving the plaintiff of part of his costs. Liability was disputed to the end. As noted above, the deputy judge appears to have based his assessment of the plaintiff's damages on a percentage of the contract price; he arrived at that percentage following argument. Any factors in mitigation of damage were for the defendant to plead and prove.

7. In closing, I would make reference to the decision in Charm Maritime Incorporation v Elbourne Mitchell, since the judge referred extensively to it. That decision can certainly be said to have been a case peculiar on its facts. The action ("the negligence action") was a claim against former solicitors for negligence. It was based on their failure to pursue a previous action ("the first action"), which resulted in its dismissal for want of prosecution. In the first place, it should be noted that before the trial of the negligence action, the defendants admitted negligence in the handling of the first action. What was then at issue were the chances of success which the plaintiff would have had in the first action and the resulting damages. The first instance judge in the negligence action had held that one aspect of the plaintiff's claim in the first action had had a 60% chance of success and another aspect had only had a 30% chance of success. What, in effect, the judge at first instance had decided was that the defendant in the negligence action had, effectively, been successful in what was the dispute between the parties, namely as to the amount to be awarded. As such, the judge at first instance had ordered, not only that the plaintiff should be deprived of its costs, but also that it should pay the defendant's costs. Evans L.J. drew attention to the normal rule that the losing party has to pay the successful party its costs. He pointed out that there were different considerations, on the one hand, as to whether a successful party should be deprived of all or part of its costs and, on the other hand, an order that it should pay the unsuccessful party all or part of its costs. In respect of the latter, he considered that it was wholly wrong in the circumstances of that case that that should happen. In relation to the refusal to order costs in favour of the plaintiff Evans L.J. said:

"But the Court can say to both parties, where the defendant has made a payment in but without admitting that that sum was due, 'you have each tried for a higher or a lower figure, and in practical terms neither of you has succeeded. You should each pay your own costs of the Court time that you have used'."

On that basis Evans L.J. upheld that part of the judgment in the court below.

8. In my view, this decision, which, as I have said, is peculiar on its own facts, may be rationalised on the basis that the issue, which remained between the parties in that case, was as to quantum. The plaintiff in that case had sought and argued for a far greater amount than was awarded and the defendant on the other hand had argued for a lesser sum. In that case the Court of Appeal came to the conclusion that neither party had been successful in their contentions and that the just order was that there should be no order as to costs. There is no doubt that what appears to have influenced the court was that the plaintiff's claim was for something in the order of over US$6 million whereas the amount recovered was US$841,070, and that was only very marginally above the value of the payment into court. In my view that decision does not lay down any principle of law; it is an example of an exercise of discretion on the special facts of that case.

9. In conclusion, therefore, I consider that this appeal should be allowed and that the order for costs below should be set aside and the plaintiff should be awarded the costs of the action, including the costs of the counterclaim. There should be an order nisi of costs in favour of the plaintiff on the appeal.

Hon Le Pichon JA:

10. I agree.

Hon Yuen JA:

11. I agree.