GUANGZHOU GREEN-ENHAN BIO-ENGINEERING CO LTD AND ANOTHER v. SUN YAT SEN UNIVERSITY AND OTHERS

HCA 4651/2002
HCA 2802/2003
HCMP 74/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4651 OF 2002, 2802 OF 2003 and

MISCELLANEOUS PROCEEDINGS NO. 74 OF 2004

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(The Consolidated Action)

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RULING  ON  COSTS

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1.  In my judgment of 8 April 2005, I made a costs order nisi that the 1^st and 2^nd Defendant pay ¼ of the Plaintiffs’ costs with certificate for three counsel and there be no order as to costs between the 3^rd Defendant and the Plaintiffs.  The Defendants applied to vary that costs order and I heard submissions from the parties.

2.  There is no application in respect of the second part of the order, viz as between the 3^rd Defendant and the Plaintiffs.  That order has therefore become absolute.

3.  As regards the first part of the order, the Defendants submitted that instead of the 1^st and 2^nd Defendants paying the costs of the Plaintiffs, the correct order should be that the Plaintiffs shall pay ¼ of the costs of the 1^st and 2^nd Defendant on an indemnity basis.  In the alternative, the Defendants submitted that there shall be no order as to costs.

4.  The Defendants reminded this court as to previous costs orders made in favour of the Plaintiff during the course of trial.  Those orders shall stand notwithstanding the order for costs of the action.

(a)	On 22 July 2004, I ordered the Defendants to pay the Plaintiffs’ costs arising out of several interlocutory applications made by the Defendants in the course of trial and fixed the same at $510,000 pursuant to Order 62 Rule 9(4)(b).  I was told that that sum had been paid.
(b)	On 12 July 2004, I ordered the Defendants to pay the Plaintiffs’ costs of the afternoon of 9 July and the morning of 12 July in any event regarding another interlocutory application.
(c)	On 21 August 2004, I ordered the Defendants to pay the Plaintiffs’ costs in any event regarding the exclusion of expert evidence on PRC law.
(d)	On 16 September 2004, I ordered the Defendants to pay the Plaintiffs’ costs in any event regarding the application for leave to amend the Defence.
(e)	On 23 September 2004, I ordered the Defendants to pay the Plaintiffs’ costs in any event regarding the application to adduce additional evidence from Tong Siu Kun.

5.  I ordered certain evidence be expunged from the record on 28 October 2004.  The costs regarding the submissions on that have not been dealt with by any order made in the course of trial.  They form part of the costs of the trial and I bear this in mind in the overall decision on the costs of the action.

Costs of the interlocutory hearings

6.  Parties also asked this court to deal with the costs reserved regarding the interlocutory hearings before me between 14 and 16 January 2004 and the hearing before Stone J on 29 August 2003.

7.  Stone J in fact made a costs order on 29 August 2003.  Ms Tam submitted that the Plaintiffs proceeded unreasonably in moving for interlocutory injunction before Stone J on Summons Day.  That point should have been canvassed before Stone J.  If Stone J took the view that the Plaintiffs’ conduct of the summons were so unreasonable that they should be penalized in term of costs, His Lordship would have made a costs order reflecting the same.  The order of His Lordship was that the costs of 29 August 2003 be in the cause of the Plaintiffs’ summons of 27 August 2003.  There was no appeal against that order.  I have no jurisdiction to disturb that order.

8.  As regards the interlocutory hearings between 14 and 16 January 2004, the matter was resolved by the Plaintiffs accepting speedy trial as opposed to pushing ahead for interlocutory injunctions.  That course was adopted against the background that it was quite apparent that the hearing for interlocutory injunctions could not have been completed within the time available and due to the state of the court’s diary, it would be quite some time before the parties could come back to court to continue with the application.   On 16 January 2004, I reserved the costs of the application for interlocutory injunction with certificate for two counsel.

9.  Ms Tam relied on Kickers International v Paul Kettle [1990] FSR 436 to argue that since the Plaintiffs did not proceed with the application, they should bear the costs of the application for interlocutory injunction.  In that case, the plaintiff did not proceed with the application in view of the evidence of the defendant.  As mentioned, the reason for the Plaintiffs abandoning the application for interlocutory injunction in January 2004 was very different.

10.  Ms Tam argued that given the delay in lodging the application, the Plaintiffs’ application for interlocutory injunction was doomed to fail and the Defendants should have the costs.  On the other hand, Mr Liao SC referred to matters which account for the lapse of time between discovery of the wrongful acts of the Defendants and the issue of the summons for interlocutory injunction.

11.  At the interlocutory stage, the court has a number of options in dealing with costs, including but not limiting to the following.

(a) costs in favour of one party either payable in any event or in an appropriate case, payable forthwith;

(b) costs of one party be costs in the cause;

(c) costs of both parties be costs in the cause;

(d) costs reserved.

These options give the court some flexibility in dealing with costs of interlocutory application to meet the justice of the case.  If an application is so devoid of merit that the court considers that it should not have been made at all, the court could exercise its discretion by an order under option (a).  On the other hand, if the court is of the view that even if the application fails, the justice of the case demands that the question of costs be decided by reference to the ultimate merits of the case, the court may go for options (b), (c) or (d).

12.  In the present case, the application for interlocutory injunction was not proceeded with in circumstances mentioned above.  That was not due to the fault on the part of any party and the court had not adjudicated on the merits of the application.  It is against such background that this court ordered costs reserved notwithstanding no interlocutory injunction was granted pursuant to the Plaintiffs’ summons.

13.  Given that background, in determining the costs of an interlocutory application after trial, I think this court is, as submitted by Mr Liao, entitled to take into account that the Plaintiffs ultimately succeeded in obtaining permanent injunction.  The necessary implication from the ultimate result is that but for the waiting time in having the case tried and judgment given by the court, the Defendants would not have been allowed to carry on the activities restrained during the interim period.  One advantage of ordering costs reserved at the interlocutory stage is that the court will not face with the uncertainty as to the right and wrong between the parties when it decides on the question of costs.

14.  However, I agree with Ms Tam that there are cases where the court could properly exercise its discretion in awarding costs of an interlocutory application against the Plaintiffs even if the Plaintiffs succeeded at the trial.  But I do not think there is any rule of law or practice to the effect that the Defendants must get the costs of the application for interlocutory injunction if the Plaintiffs were not successful in getting the injunction at interlocutory stage.  There could be many reasons why an application for interlocutory injunction fails and it would not be right to generalize.  How the discretion on costs should be exercised must depend on the circumstances of each case.  An important factor is the reasonableness of the Plaintiffs in taking out the application for interlocutory injunction.

15.  In the present case, I am of the view that the Plaintiffs did not act unreasonably in making the application for interlocutory injunction in August 2003 and the Plaintiffs’ application was not doomed to fail for the following reasons,

(a)	I do not think the Plaintiffs’ delay in making application for interlocutory injunction in the present case was so serious that this factor alone defeats the application for interlocutory injunction in limine.  The relevant time lapse is between December 2002 and August 2003.  Although negotiation broke down in September 2002, the Plaintiffs only discovered sale of infringing articles by the Defendants in late November 2002.  There cannot be any suggestion that the Defendants were lulled into a false sense of security during that period because the Writ in High Court Action No.4651 of 2002 was issued on 12 December 2002 and served soon thereafter.  From then on, the Plaintiffs had engaged the Defendants on various fronts and tried to stop infringing activities by means other than interlocutory injunction.  The Plaintiffs retained SGS to test the products of the 1st Defendant.  Based on the reports of 27 December 2002 and 17 January 2003, the Plaintiffs lodged complaints with the Department of Justice and Department of Health.  The Plaintiffs commenced actions in mainland China suing the 1st Defendant on 25 January and 3 March 2003.  Private investigators were engaged by the Plaintiffs to locate the factories producing for the 1st Defendant.  A factory was located in April 2003 and a complaint was filed by the Plaintiffs with AIC in Guangzhou leading to a successful raid on 21 April 2003.  The Plaintiffs successfully resisted a challenge by the 1st Defendant to the decision of the AIC in May 2003.  Upon learning that the 1st Defendant was still able to obtain products from other factories, the Plaintiffs instructed lawyers to apply for interlocutory injunction in Hong Kong.  Given the complexity of the case, I do not think there is any unreasonable delay on the part of the Plaintiffs.  In the context of the present circumstances, I do not consider it fatal to the application for interlocutory injunction that the Plaintiffs did not issue summons for interlocutory injunction in parallel with other steps taken to stop the infringing activities of the 1st Defendant.
(b)	Due to the limited duration of the restrictive covenants under the Distribution Agreements, the Plaintiffs were justified in seeking interim relief lest that the trial might not come on prior to the expiry of the covenants.  It was only in the course of the hearing in January 2004 that parties agreed upon directions for speedy trial.
(c)	Given my conclusions in my judgment of 8 April 2005, there must be serious questions to be tried.  As regards the balance of convenience, whilst the 1st Defendant had been selling the products for quite some time and the Plaintiffs had decided prior to August 2003 to use the name Lingzhimaster in place of ENHANVOL, I do not consider such factors tilting the balance so much in favour of the Defendants that the application for interlocutory injunction must fail.  After all, the 1st Defendant continued with such sales with full knowledge of the objection from the Plaintiffs and, for reasons set out in Paragraph 303 of my judgment of 8 April 2005, the Plaintiffs still had a legitimate ground to seek an injunction, even on an interlocutory basis, on the Defendants’ use of the name ENHANVOL.
(d)	The application had a real prospect of success if sufficient time were available for Mr Liao to expand and develop his argument based on the Distributor Agreement and the judgment of the Intermediate Court given on 1 January 2004.

16.  In the light of these, I think it would be fair to treat the costs of the application for interlocutory injunction in the same way as other costs of the action.  In other words, if I were required to make a separate order for costs regarding that application, I will order the same to be costs in the cause.

Costs of the action

17.  Coming then to the costs of the action, I should mention that Mr Liao fairly conceded that each party should bear its own costs pertaining to the preparation and filing of expert evidence.  The Defendants sought to recover such costs from the Plaintiffs.  I do not see any justification for suggesting that such costs were incurred solely due to the fault of the Plaintiffs.  The Defendants were advised by their own lawyers to obtain their expert evidence despite, as explained in my Reasons for Ruling of 16 September 2004, some of the issues in dispute were actually factual dispute that needed not be dealt with by way of expert evidence and as far as issues on the law of mainland China were concerned, the judgment of the Intermediate Court is the best evidence available.  The Defendants’ lawyers were in as good a position as the Plaintiffs’ lawyers in analyzing the admissibility and relevance of expert evidence.  I will order each party to bear his own costs regarding the preparation and filing of expert evidence.

Parties’ submissions

18.  Turning to the costs of the action in general, the Defendants’ submissions can be broadly summarized as follows.  It was said that most of the time was spent at the trial on the passing off and copyright claims.  The passing off claim was only successful on a basis which does not engage much of the time spent.  On the creation of the packaging designs and the coining of the names, the Plaintiffs’ evidence were disbelieved and findings were made that documents relied upon by the Plaintiffs were fabricated.  The costs on the passing off claim were escalated accordingly.  The Defendants contended that as far as the copyright claims are concerned, they should be entitled to costs on indemnity basis.

19.  The Defendants were also successful in resisting the registered trade mark claim and in establishing their counterclaim as to the invalidity of registration of the mark.  Although those claims basically turned on arguments by way of legal submissions, parties spent substantial efforts thereon in the preparation of the same.

20.  Regarding the late production of evidence and late discovery, the Defendants submitted that the costs implications arising from the same due to the fault of the Defendants have been dealt with by penalising the Defendants by the orders for costs already made against them.  The late disclosure by Chan Chin Hung was not the fault of the Defendants because he was an independent witness and he did not have any intention to conceal the truth.  It does not lie in the Plaintiffs’ mouth to say that they would not pursue the false claim had the documents been disclosed earlier because they persisted with their claims after the disclosure.

21.  On behalf of the Plaintiffs, Mr Liao contended that the costs order nisi should be affirmed.  He submitted that the costs of the various causes of action are intertwined and given substantial costs having been incurred at the pre-trial stage, it is incorrect to simply apportion costs based on what happened at the trial.  The accuracy of the Defendants’ estimation on time spent on different causes of action was challenged.  As a general rule, a successful party is entitled to his costs and he should not be asked to bear part of the costs because he failed to establish his case to its fullest extent.

22.  Mr Liao also reminded this court that the Plaintiffs succeeded in malicious falsehood and breach of agreement as well as establishing personal liability of the 2^nd Defendant.

23.  Mr Liao further submitted that the late production of documents by Chan Chin Hung did prolong the trial and there was no reason why such documents could not be obtained earlier had proper preparation been made by the Defendants and those advising them.

24.  Mr Liao fairly accepted that the costs order should reflect the court’s finding that the Plaintiffs had misled the court in terms of testimony and documents put forward as evidence.  He submitted that the costs order nisi has adequately reflected the same.

25.  Mr Liao also took the point that costs would not be awarded for written submissions unless specifically ordered.  He seems to suggest that the lengthy submissions in respect of the trade mark claim has no bearing on costs.  With respect, I cannot agree with that submission.  The true analysis should be that unless specifically ordered, the costs for written submissions are deemed to be included in the Brief.  Hence, costs were in fact incurred in relation to the trade mark claim even though there is no separate award for written submissions.

My analysis

26.  In my judgment, I should take into account the following factors in the exercise of my discretion.

(a)	The Plaintiffs succeeded in passing off, breach of agreements, malicious falsehood, rectification of registration of ENHANVOL whilst the Defendants succeeded in resisting the copyright claims (except an insignificant part of the claims relating to photograph) and the registered trade mark claims.
(b)	The starting point is costs generally follow event, viz. each side should be entitled to costs regarding the claims which they succeeded.
(c)	In the present case, the evidence of the claims are intertwined and there is force in Mr Liao’s submission that it would be too simplistic to decide costs by reference to what happened at the trial.
(d)	Yet it cannot be denied that a substantial portion of costs incurred at the trial, at least as far as the hearing of evidence is concerned, related to the question of package design and coining of the names.
(e)	Even though the general rule is that the court will not deprive a successful party of costs though he did not succeed to the fullest extent, it is quite obvious that the present case falls within an exception by reason of my findings regarding the package design and the coining of names and the manner in which the Plaintiffs ran their case on those issues at the trial.
(f)	Hence, even in the context of the passing off claim, I think there should be a substantial discount on costs awarded in favour of the Plaintiffs even though the Plaintiffs were successful.
(g)	Regarding the copyright claim, it should be apparent from what I said in Paragraph 213 of my judgment that I am not happy about how the case on copyright had been prepared on behalf of the Defendants.  Although the Defendants were penalized by costs orders mentioned above, I do not think such costs orders fully redressed the prejudice suffered by the Plaintiffs on account of costs.  I accept the submission of Mr Liao that the Defendants should have prepared their case with more diligence.  Even though Chan Chin Hung was an independent witness, Tong had been able to contact him and in fact got some drawings from him.  The extraction of documents from the MO and the explanation as to the genesis of the designs should have been fully set out in his witness statement.  As it happened, these details only came to light in the course of his testimony.  Further, those advising the Defendants should not be in a worse position than Mr Yan in probing Chan Chin Hung to see if there were other documents which could be relevant.  I agree with Mr Liao that the Defendants should bear responsibility for prolongation of the trial due to the manner in which new documents were put forward in the course of the trial.  I should also bear in mind that the Plaintiffs succeeded in respect of the copyright claim concerning a photograph.
(h)	Hence, although the Defendants were successful on the copyright claim, there should be a discount on costs payable to them.  The discount will not be as big as that for the Plaintiffs’ costs in the passing off claim.  I also reject the suggestion that costs should be awarded to the Defendants on indemnity basis.
(i)	The Plaintiffs should be entitled to costs on the breach of agreement claims whilst the Defendants should be entitled to costs on the registered trade mark claims.  It is difficult to be very precise, but even disregarding the costs of the expert evidence, I think the costs of the former should be more than the costs of the latter.
(j)	In addition, the Plaintiffs should be entitled to costs on the malicious falsehood claim and the rectification of ENHANVOL registration.  The costs on the latter claim should be relatively insignificant in the overall scale.
(k)	The Plaintiffs also succeeded against the 2nd Defendant although the costs incurred on account of that part of the claim is mainly attributable to legal arguments in written submissions that were covered by the Brief.

27.  As suggested by Mr Chan, I would take a bird’s eye view and adopt a global approach.  In my judgment, after taking into account the respective discounts for reasons already canvassed, the costs which the Plaintiff should get (viz. on passing off, breach of agreement, malicious falsehood, rectification of registration of ENHANVOL, the personal liability of the 2^nd Defendant) would roughly set off by the costs the Defendants could get on copyright and, registered trade mark claims.

28.  I will therefore vary my costs order nisi and substitute it with a costs order that subject to costs orders already made, each party shall bear his own costs in the action.  The Defendants were successful in the application to vary the costs order nisi.  However, the Defendants were unsuccessful regarding their attempt to get the costs of the interlocutory injunction application which was the focus of the argument at the hearing on 11 May 2005.  I will therefore make no order as to costs regarding the application for variation.

29.  For the avoidance of doubt, this costs order does not encompass costs to be incurred in the future with regard to proceedings pursuant to my final order dated 26 May 2005.