JACALYN E.S. BENNETT & CO v. KASHO SAMNONG LTD AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT ON COSTS

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Background

1. On 24 December 1996, I handed down a judgment on an appeal from the Master. The plaintiff had applied for judgment under Order 14. The Master had given "summary judgment for the plaintiff against the first defendant for an account to be taken of what is due to the plaintiff in respect of unused material not returned to the plaintiff", and had ordered the first defendant to make an interim payment of US$750,000. He also granted summary judgment against the second defendant for damages to be assessed, and ordered an interim payment here of US$75,000. I granted both defendants unconditional leave to defend. and set aside the Master's orders. At that time, at the request of the parties. I reserved costs. The question of costs has now been argued, and this is my judgment on this issue.

2. There are three matters for my decision -

• the costs before the Master;

• the costs of the appeal; and

• the costs of dealing with the question of costs.

The Costs before the Master

3. On 7 February 1996, when he gave judgment to the plaintiff, the Master ordered that the "Costs of the Plaintiff's application be to the Plaintiff with a certificate for Counsel". After argument, he ordered, on 21 May 1996. that the costs to the plaintiff be on a party and party basis "save that the costs from 7 September 1995 up to and including the hearing on 7 February 1996 be on an indemnity basis, and the costs of and incidental to the hearing on 21 May 1996 be on an indemnity basis with a certificate for Counsel".

4. Two questions arise here -

• Should the plaintiff keep its costs in the light of my findings on appeal?

• If so, should it keep the special costs order?

Should the Costs Order Stay?

5. Where it is the case that a defendant on appeal succeeds on the basis of a case that it has advanced after the Master's order, the usual order on appeal would leave the costs order below undisturbed.

6. It is not the case in relation to the second defendant that the appeal succeeded on the basis of a case advanced after the Master's order. It might be said that the fact that the plaintiff proved itself, by its own evidence adduced after the Master's order, to be unreliable in assessing the merits of its sown case was factor, but, essentially, the second defendant succeeded because it had satisfied me that the defences raised before the Master were fit for trial. It cannot be said, however, in my view, that this is a case where the Order 14 application should not have been made.

7. In my judgment, the appropriate order below so far it concerns the application against the second defendant is that costs be in the cause, and I so order.

8. It is also not the case that the first defendant succeeded on appeal solely on the basis of a case advanced after the Master's order. The first issue raised by Mr Scott and the first issue dealt with in my judgment was whether or not the plaintiff had pleaded a case on which it could succeed. I found that it had not. I found that "far from the difference between the contentions of the [parties] as to the scope of the first defendant's duty to account not raising an issue fit for trial, the pleaded allegations of the plaintiff do not raise the case it now seeks to make out at all". The contentions of the defendants on the basis of their pleaded case were fairly and squarely before the Master. The deficiencies in the plaintiff's case were also before the Master.

9. It is so, of course, that I also found, on evidence some of which was adduced by the defendants after the Master's order, that, assuming the plaintiff had pleaded the duty to account on which it relied, that there was an issue fit for trial on whether the plaintiff was due anything at all, but the finding on the plaintiff's pleaded case was self-standign, and the first defendant would have succeeded on this alone.

10. Mr Kat argues that the argument that the plaintiff had not properly pleaded its case was not raised before the Master. This does not surprise me because it appears that the plaintiff did not then. and did not when the appeal started before me. understand. or at least state clearly, what its case was. It was only in exchanges during the appeal that it emerged that the plaintiff was not saying that the defendants owed just the ordinary duty of an agent to account for property received from. or on behalf of its principal, but a duty to account for property received by other people, although how this special duty arose was not stated then, and has not been pleaded since. It is this confusion that gave rise to the Master's order that "an account to be taken of what is due to the plaintiff", without stating how one was to assess what was due to the plaintiff. So, if the problem was not crisply before the Master, and not specifically argued by the defendants. that is the fault of the plaintiff. If the plaintiff. had stated clearly, as it should have done, that it was relying on some special, unpleaded duty to account, both the Master and the defendants would have been alerted to the deficiency, and it is unlikely, in my view, that the plaintiff would have succeeded.

11. On the basis that an appeal succeeds on a case that was before the Master, the usual order would be that the costs below should be in the cause. But this is not the usual Order 14 case. The plaintiff knew the first defendant's case long before it launched its Order 14 application. It had been stated, clearly and unequivocally, in the defence filed nearly two years earlier. Having had a long time to consider the defence, the plaintiff filed an amended statement of claim in January 1996, but even with the advantage of seeing just what it was that the defendants had to say, the plaintiff still did not plead a case to meet what the defendants alleged. The plaintiff's pleaded case was inadequate, and it should never have made an application under Order 14 on the basis of that case. Quite apart from this, even if the plaintiff had pleaded a good case, it well knew that the defendants had an answer. On what basis could it be said that the plaintiff had good grounds for thinking that the defendants' answer was not fit for trial? The answer to that question is: No basis at all. The defendants' case before the Master was, presumably, found not to be credible; there seems no other basis on which it could have been said that it did not raise a case fit for trial. We now know that the reverse was the case; it was the plaintiff's case that was on its own admission. not capable of belief. In my view, the plaintiff took an unjustified gamble, and it should pay the price. That price is that it should pay the first defendant's costs below. I so order.

12. The Special Scale

13. On my findings thus far, whether or not the Master should have ordered costs on the special scale does not strictly arise, but I will deal with it.

14. Having succeeded on its application, one would expect an order that the plaintiff get its costs, but the order that they be on an indemnity basis is not usual. The reason for this order was the alleged effect of correspondence between the parties' solicitors in 1995. On 24 August 1995, the plaintiff's solicitors wrote to the defendant's solicitors saying that the plaintiff's current claim, including interest and costs, was about US$1.9 million, but the plaintiff would accept US$650,000 in full settlement of the principal sums and interest, plus costs on a party and party basis. The offer was said to be open for 14 days, after which it could be accepted only if the defendants agreed to pay interest and costs on an indemnity basis. They warned that, if the plaintiff recovered more, the plaintiff would ask for an order for indemnity costs. The defendants declined to accept this offer.

15. The plaintiff did recover more than US$650,000, but it should not have done. On 3 June 1996, the plaintiff admitted that it had made errors in its claim because its record keeping was deficient. It reduced its claim from US$1,144,852 to US$525,958.

16. Mr Kat tells me that this should make no difference; that I should deal with the matter as it appeared to the Master. I cannot accept this. I cannot accept that, where it appears that a party has obtained a special costs order by putting a false case - whether knowingly or negligently does not matter - to the Master, that party is entitled to retain the benefit of putting that admittedly false case before the court. That is offensive to sense and justice.

17. This is not a case of the Master accepting a plaintiff's case that by means of subsequent evidence filed by a defendant, is shown to be in doubt. and that doubt cannot be resolved except by trial. In this matter, the case put up by the plaintiff that enabled it to gain the special costs order is, beyond any doubt at all. wrong. If it had been necessary to deal with this. I would not have permitted this order to stand.

The Costs of the Appeal

18. On the basis of my findings on appeal. and in this judgment. there is ab - solutely no reason why the costs should not follow the event. The defendants are to have their costs of appeal.

The Costs of this Hearing

19. Again. I can see no reason why the costs should not follow the event. The defendants have succeeded. both on appeal. and on their contentions as to costs. The plaintiff will pay the costs of this matter since handing down my judgment on 24 December 1996.

To be Taxed and Paid Now?

20. Mr Scott asks that I make an order that the defendants be entitled to tax and recover their costs now, not in any event. He says this because the defendants believe that the plaintiff does not intend to pursue its action. I must say that it does not appear that the plaintiff is proceeding with much enthusiasm, but I do not think that there are the special circumstances existing in this case that would justify such an order. The defendants have the remedies of striking out for want of prosecution or seeking further security for costs. The costs are to be paid in any event.