XCELOM LTD AND ANOTHER v. BGI-HONGKONG CO LTD AND ANOTHER

HCA 3089/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3089 OF 2015

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DECISION ON COSTS

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Introduction

1.  My Decision (“Decision”) on the plaintiffs’ application for an injunction was handed down on 22 September 2016.  The relevant facts and my reasons were contained in the Decision which I incorporate by reference.

2.  I made the following order nisi (“Order Nisi”) on costs in §41 of the Decision:

“I make an order nisi under Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A, that the defendants’ costs be taxed (if not agreed) and paid by the plaintiffs to the defendants, with certificate for 2 counsel”.

3.  By a summons issued on 6 October 2016, the plaintiffs applied for a variation of the Order Nisi as follows:

“The costs of the application be costs in the cause to be taxed if not agreed, with certificate for 2 counsel”.

4.  By a summons issued on 12 October 2016, the defendants applied for a variation of the Order Nisi such that:

“the Defendants’ costs with a certificate for 2 counsel shall be paid by the Plaintiffs forthwith to be taxed if not agreed.”

The variation sought by the defendants was described inaccurately in §4 of the “Plaintiffs’ submissions on costs”[1] as seeking costs payable “forthwith in any event” which is a contradiction in terms.  The plaintiffs went on in §4 to state that:

“Ps have no objection in principle to the suggested variation in the event that the court is not minded to grant the variation sought by Ps. Nothing more need be said about Ds’ cross‑summons.”

5.  On 25 November 2016, Au‑Yeung J directed that the two summons “are to be disposed of … [by] Deputy High Court Judge K Kwok SC on the papers without the need for attendance”.

Variation sought by the plaintiffs

6.  The plaintiffs cited two Court of Appeal judgments, King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785 and TKI v New Happy Ltd [1995] 1 HKC 551 at 555B‑C to contend in §§12‑13 of their written submission that:

“12. Turning to the present case, the court dismissed the injunction on the footing that there had been inordinate delay and that no irreparable harm was shown by Ps, in other words, on the balance of convenience: see [30, 38, 39] of the Decision. The parties agreed that there was a serious issue to be tried on the merits. There is no suggestion of any improper conduct on the part of Ps. Nor can it be said that the application was totally baseless.

13. For these reasons it is respectfully submitted that there is no warrant for an adverse costs order against Ps and that the correct costs order should be costs in the cause (or, at the most, Ds’ costs in the cause).”

7.  King Fung Vacuum was a judgment of the Court of Appeal cited by me in §26 of the Decision and applied by me on the effect of delay on the allegation of irreparable damage.  The Court of Appeal set aside the injunction granted by the judge[2] which meant that the order on costs made by the Judge went with it.  Thus, what the learned Vice‑President said in §27 was, strictly speaking, obiter.  That paragraph read as follows:

“27. The final matter is the matter of costs. The judge made an immediate order as to costs and there was an application to set that aside. By reason of the judgment which I have already given, that order, of course, has gone. But I will say this as to the question of costs. The traditional order on interlocutory injunctions has been that the successful party in any application for an interlocutory injunction would have his costs in the cause. Following the American Cyanamid decision, the practice has frequently been to make both parties costs, costs in the cause. There is no justification if one applies American Cyanamid principles for giving the successful party his costs in any event, or worse still an immediate order as to costs, unless of course, that party has acted improperly or is in some way to be penalised. It could be, for example, that if a plaintiff seeks an interlocutory injunction and the application is totally baseless and does not even establish, for example, that there is a matter fit to be tried, that the court would then consider that such an order might be made. But those would be very special circumstances. Normally an order of either costs in the cause, or perhaps the successful party’s costs in the cause would be appropriate,” (emphasis added)

In any event, it is clear from the passage highlighted that an unsuccessful party may be penalised on costs in very special circumstances.

8.  All that the plaintiffs said about TKI was in §27 of their written submissions:

“By the same token, in TKI v New Happy Ltd, the Court of Appeal described a costs order in favour of the successful applicant in any event as ‘plainly wrong’.”

9.  The phrase “plainly wrong” appeared only once in the TKI judgment.  The passage appeared on p 555 between B & C as follows:

“So far as the costs is concerned, no good reasons were drawn to our attention that would justify what was conceded to be an unusual order, and on which we are satisfied was plainly wrong. The appropriate order in the particular circumstances in our view is that the costs before the judge and of the summons should be costs in the cause.”

10.  Read in context, it is clear that what was “plainly wrong” was fact sensitive and in “the particular circumstances”.  TKI did not lay down any principle.

The modern approach to costs of interlocutory applications

11.  There is no necessary correlation between success in an interlocutory application and success at trial.  A successful plaintiff at trial may have no basis for wasting time and costs by making a thoroughly unmeritorious interlocutory application.  A successful defendant at trial may have no basis for wasting time and costs in putting up frivolous grounds for resisting a proper interlocutory application.  There is no reason why the costs of an interlocutory application should invariably be made to follow the event at trial.  There is also no reason why payment of the costs of an interlocutory application should invariably wait until after trial.  There may be no trial and this is not surprising in IP cases. 

12.  The CJR discourages unmeritorious interlocutory applications and introduces the requirement of leave for an interlocutory appeal from a judge to the Court of Appeal[3].

13.  In the written submissions of Ms Winnie Tam SC and Mr Benny Lo for the defendants, they submitted that “the modern and principled approach is that costs should reflect the merits of the application”[4].

14.  They cited, among others, the following authorities:

(1)   Bushbury Land Rover Ltd v Bushbury Ltd [1997] F.S.R. 709 at p 712 where Auld LJ said:

“In my judgment, that argument — and there were echoes of it this morning orally — ignores the clear distinction between entitlement to interlocutory relief and final judgment which underlies Lord Diplock’s identification in American Cyanamid Co. v Ethicon Ltd [1975] AC 396 of the criteria on which the court should exercise its discretion whether to grant the former. The fact that a plaintiff may succeed ultimately does not demonstrate that he should have been granted interlocutory relief when the merits of the matter were still unresolved, and the court was balancing convenience. Final judgment provides no hindsight, tipping the earlier balance one way or the other.

Mr Tritton’s second, and logically more respectable, justification for his submission was that a judge should not normally make an order in any event against an unsuccessful application for interlocutory relief unless, as Knox J. put it in Silicon Graphics Inc. v Indigo Graphic Systems (U.K.) Ltd [1994] F.S.R. 403, ‘there is a measure of unjustifiability in the application over and above the lack of success’.

In my view, there is no difference of substance in the respective formulation of Hoffmann J.[5] and Knox J.  They both express a simple enough (though imprecise) notion, namely that, where a judge on an interlocutory application considers, in applying the American Cyanamid test, that it falls so far short of satisfying the criteria for the grant of interlocutory relief that the plaintiff should never have sought it, he may, in his discretion, penalise him in costs.”

(2)   AXA China Region Insurance Co Ltd & another v Pacific Century Insurance Co. Ltd & others (unreported) HCA 9093/2000, 22 November 2001, where DHCJ To (at §§7‑8) adopted Hoffmann J’ rationale in in Kickers International SA and further held that there was no rule of law that interlocutory costs should be in the cause.

(3)   Golite International Ltd v Golden Power Industries Ltd (unreported) HCA 2262/2004; 18 March 2005, where Chu J held at §14 that “where it is plain that a plaintiff is not justified in bringing the application, he may be penalised in costs”.

(4)   Mendlowitz & Associates Inc v Winner International Group Ltd and another (unreported) HCA 574/2009; 14 May 2010, where Au J held at §§28 & 30 that:

“28. I do not think it is now right to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for its departure. The court is entitled to and should look at the merits of the injunction itself as at the time of the application to decide what should be the proper costs order for that application in all the circumstances, which do not necessarily depend on the outcome of the trial.”

“30. There is thus nothing wrong in principle for this court, in the exercise of its discretion, to look at the merits of the application for the Injunction on its own to decide what proper costs order should be made in all the circumstances, without ‘linking’ it to what may happen at the end of trial or to the action itself.”

(5)   Midland Business Management Ltd v Lo Man Kui [2011] 2 HKLRD 667 where Lam J held at §§9‑12 that:

“9. Under the Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings and if possible by way of summary assessment of costs. The objective is to discourage unnecessary and disproportionate interlocutory applications. It is recognized that the lack of immediacy of orders to pays costs ‘in the cause’ or ‘in any event’ weakens costs as a sanction against unwarranted applications or resistance, see paras 529 to 536 of the Final Report of the Chief Justice’s Working Party on Civil Justice Reform.

10. By reason of Order 62, rule 5(1)(aa), the court should take into account of the underlying objectives in Order 1A, rule 1 in the exercise of its discretion. The objectives in rule 1(a), (c) and (d) are particularly relevant in the present context. In my view, the approach recommended by the Working Party should be adopted in furtherance of these objectives. Unwarranted interlocutory applications should normally be sanctioned by an immediate costs order.

11. In so saying, I must not be taken as saying that an immediate costs order should be made against every unsuccessful party in interlocutory application. I can readily see that there are cases where such party may have a proper justification for making an interlocutory application even though he fails at the end of the day. There could also be cases where the court considers that it would be more appropriate to make an order ‘in any event’ or ‘in the cause’ or to reserve costs.

12.       However, what I do say is that after the Civil Justice Reform the court is more astute to the impact of costs on legal proceedings and order for immediate payment of costs will be made more readily as a discipline against unmeritorious interlocutory applications.”

(6)   Hengshi International Investments Ltd v Bayspring International Ltd and another (unreported) HCMP 1916/2015; 21 March 2016, where Au‑Yeung J held at §43 that:

“A costs order should be made against the unsuccessful defendant in an application for interlocutory injunction where (a) the outcome of the hearing might be so plain to the parties that the court should conclude that an order should be made against the defendant for wasting time and money in fighting the issue (whether or not the defendant eventually concedes (at §12), or (b) where the substantive merits were very plain and the court did not expect the case to go any further (at §§13‑14). Picnic at Ascot v Kalus Derigs [2001] FSR 2, Neuberger J (as he then was).”

15.  By §30 of the Decision, I held that the plaintiffs were guilty of inordinate delay in applying for an injunction and that this was clear evidence of lack of irreparable damage.  Absent irreparable damage, that was normally fatal against the plaintiffs’ application.  By §37 of the Decision, I concluded that I was not satisfied that the plaintiffs had made out any case of irreparable damage.  By §40 of the Decision, I dismissed the plaintiffs’ application.

16.  The plaintiffs knew or ought to have known before they applied for an interlocutory injunction that:

(1)   they were guilty of inordinate delay; and

(2)   they did not even have a case on irreparable damage.

Nevertheless, they launched their application and prosecuted it to the bitter end.

17.  The plaintiffs wasted the defendants’ costs and time and wasted the court’s time.  They should never have made their application.  An immediate costs order should be and was made against the plaintiffs.  There was no outcome to abide by.  The trial (which may never take place) would provide no hindsight justification for the plaintiffs’ application.

18.  The Order Nisi was correct and the plaintiffs’ summons should be dismissed with costs.

Variation sought by the defendants

19.  The Order Nisi ordered “the defendants’ costs be taxed (if not agreed) and paid by the plaintiffs to the defendants, with certificate for 2 counsel”.

20.  It neither said “forthwith” nor “in any event” nor “in the cause” nor “in the defendants’ cause”.

21.  The word “forthwith” is not necessary and the defendants are entitled to immediate taxation and payment of their costs.  That was what I intended under the Order Nisi.  There is ample authority for this.

22.  The learned editors of Hong Kong Civil Procedure 2017 state the law in §62/4/1 as follows:

“Where one party to a summons is awarded costs to be paid, he is entitled to have them taxed and paid at once, and this although the order does not refer to taxation. And where the order of the Court of Appeal on an interlocutory appeal was ‘the plaintiff shall pay to the defendants … their costs of this appeal and such costs to be taxed by a taxing master,’ this means that the successful party has a right to an immediate taxation and payment, although the action has not yet been tried. (Adam & Harvey Ltd v International Maritime Supplies Co. Ltd [1967] 1 WLR 445; [1967] 1 All ER 533; CA; see also Allied Collection Agencies v Wood [1981] 3 All ER 176).”

23.  In Adam & Harvey Ltd v International Maritime Supplies Co. Ltd [1967] 1 WLR 445, Harman LJ said at pp. 447‑448 that:

“Then there arose the question of costs. As far as I am concerned, I am quite clear what I intended to do. I said in the course of the interlocutory observations: ‘No immediate taxation.’ This was in reply to Mr Eastham. But, as he rightly points out, that does imply that if an order is made in this court for payment of costs, it does mean that the successful party has a right to an immediate taxation and payment. I have been under the impression that the court, when it meant to have that result, would say expressly: ‘Costs to be taxed and paid forthwith.’ But the Supreme Court Practice, 1967, shows that I was wrong about that. It is a thing often asked for (I have asked for it myself) and I have made the order in that form, notwithstanding that the application was interlocutory, that payment should be made at once if the successful party chose to tax the costs.”

24.  In Allied Collection Agencies v Wood [1981] 3 All ER 176, Neil J considered the authorities and concluded at p 181 between f & g that:

“I can therefore state my conclusion as follows. (1) Where on an interlocutory application the court intends that one party is to have the costs, the usual form of order is ‘costs in any event’. It is only in exceptional circumstances that the words ‘plaintiff’s costs’ or ‘defendant’s costs’ are used they are effective to entitle the party concerned to obtain an immediate taxation.”

25.  In making the Order Nisi, I intended that the defendants should be entitled to immediate taxation and payment of their costs.  They should not have been dragged by the plaintiffs’ into resisting a costly application.  The Order Nisi has the effect intended and the variation sought by the defendants is not necessary.

26.  However, as the plaintiffs have no objection, I will grant the variation sought by the defendants.

Disposition

27.  I order that:

(1)   The plaintiffs’ summons issued on 6 October 2016 be dismissed with costs to the defendants, to be taxed and paid forthwith, with certificate for two counsel.

(2)   The Order Nisi be varied such that the defendants’ costs with a certificate for two counsel shall be paid by the plaintiffs forthwith to be taxed if not agreed.

(3)   The defendants’ costs of the defendants’ summons issued on 12 October 2016 be to the defendants, to be taxed and paid forthwith, with certificate for two counsel.

28.  Sub‑para(3) of my Order is on the basis that the parties’ respective summonses for variation are so connected that costs should be to the defendants who succeeded on the applications.