ON YOUR MART CO LTD v. COSWAY (HK) LTD

HCA 1060/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1060 OF 2012

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DECISION ON COSTS
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1.  I have in the Judgment dated 28 July 2015 ordered the defendant to pay to the plaintiff the sum of $100 by way of nominal damages and made a costs order nisi that the costs of the action be paid by the defendant to the plaintiff, to be taxed if not agreed.

2.  The defendant applied by summons dated 7 August 2015 to vary the costs order nisi such that the costs of the action is to be paid by the plaintiff to the defendant, to be taxed if not agreed and the costs of the summons be to the defendant on an indemnity basis.

3.  The defendant contends that as the court only ordered the defendant to pay nominal damages to the plaintiff, it should be regarded as the successful party in the action, relying on the following principles:

(1) Where “a plaintiff is successful on the issue of liability but recovers nominal damages only, the normal order for costs is in the defendant’s favour” (Hong Kong Civil Procedure 2015, §62/3/4; Elpe International (Far East) Limited v Hewlett Packard Hong Kong Limited, CACV 58/1993, 30 June 1993, at §32, per Bokhary JA (as he then was)).

(2) More specifically, “[w]here plaintiffs in an action for breach of contract recover only nominal damages and do not established [sic] anything which is of the least value to them, they are not to be regarded as successful plaintiffs, and the court will normally treat the defendants as having succeeded and award the defendants the costs of the action, whether or not the defendants have at any stage made a payment into court of nominal damages” (Hong Kong Civil procedure 2015, §62/2/6; Anglo-Cyprian Agencies v Paphos Industries [1951] 1 All ER 873 at 874‑6; Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394 at 401F‑403C and 404D‑F).

4.  The plaintiff opposes the application and submits that as the defendant failed in all issues raised, the court should award the costs of the action to the plaintiff, relying on the principles propounded in Re Elgindata Ltd (No. 2) [1992] 1 WLR 1207 at 1214A‑D, per Nourse LJ, as follows:

“The principles are these. (i) Costs are in the discretion of the court. (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (iii) the general rule does not cease to apply simply because the successful party raises issues or make allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs. (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs. Of these principles the first, second and fourth are expressly recognised or provided for by rules 2(4), 3(3) and 10 respectively. The third depends on well established practice. Moreover, the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.”

5.  The above principles continue to apply after the Civil Justice Reform. The approach of the court was described by Kwan JA in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679, §§100‑102 in this way:

“100. Although the principles in Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214A‑C continue to apply after the Civil Justice Reform, the approach these days is to regard the proposition that costs should follow the event not as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case” (Chan Mei Yiu Paddy & Anor v Secretary for Justice & Ors, HCAL 16/2007, 9 December 2010, Saunders J, para. 5), the rationale being that a mechanistic adoption of cost follow the event principle may result in parties incurring unnecessary costs in civil litigation (Wong Kam Tong v The Incorporated owners of Yuen Long Tin Shing Court, HCMP 1454/2011, 6 December 2011, Court of Appeal, paras 10 to 13).

101. To deprive a wholly successful defendant of costs, the relevant considerations are as stated by Atkin LJ in Ritter v Godfrey [1920] 2 KB 47 at 60:

‘In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains.’

102. Atkin LJ further explained at 60 to 61 that by (1) is meant that the defendant ‘has so conducted himself as to lead the plaintiff reasonably to believe that he had a good cause of action against the defendant, and so induce him to bring the action.’  Such conduct may be unreasonable or improper, or conduct other than that which constitutes the alleged cause of action.  (2) and (3) may possibly overlap and would include improper conduct in or connected with the litigation calculated to defeat or delay justice.”

6.  The credibility of the witnesses and the conduct of the parties in regard to the case they allege and seek to prove is a relevant matter for a judge to take into account in dealing with costs, as he has seen and heard the witnesses and attended to the whole course of the proceedings and, therefore, is in the best position to decide whether one has behaved so badly in the matter as to justify that party be deprived of costs (Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, supra, at §104).

7.  The plaintiff submits that even in a case where the court order nominal damages to the plaintiff, it may order the costs of the action and the counterclaim to the plaintiff, relying on the following cases:

(1) To Wai Sing v To Hung Tai and others, HCMP 533/2011, 18 February 2014, where Anthony Chan J ordered vacant possession of the land and awarded nominal damages of $100 in favour of the plaintiff in respect of the defendant’s trespass to the land and made a costs order nisi in favour of the plaintiff.

(2) Tsun Fat Finance Co. Ltd v Commissioner of Police, HCA 7017/2000, 4 October 2012, where Deputy High Court Judge Fung (as he then was) found that the defendant was liable for conversion of the plaintiff’s goods and awarded nominal damages to the plaintiff upon its failure to prove the market value of the goods.  After considering the principles set out in McGregor on Damages, 16^th ed, 1997, §§427‑429 and Anglo‑Cyprian Agencies v Paphos Industries [1951] 1 All ER 873 at 874, which concerned with a claim for breach of contract, the learned Judge held that as the plaintiff’s claim was for conversion, in the absence of an offer of costs up to the stage of return of the goods, it was entitled to purge the conversion and, therefore, the costs of the action.

8.  I do not think that To Wai Sing or Tsun Fat Finance Co. Ltd assists the plaintiff.  In both cases, the plaintiff’s claim was not founded on breach of contract and, more importantly, the claim was not just for damages but also to obtain the return of the plaintiff’s property.

9.  In the present case, there are two sets of costs, being the costs of the action and the costs of the counterclaim.  Neither party suggests that the court should deal with the costs of the action and of the counterclaim separately.  Accordingly, I shall deal with them together.

10.  I accept the defendant’s submission that it should be regarded as the successful party of the action.  However, it is clear from the Judgment that the defendant failed on all the issues it had raised on liability, which include:

(1) The allegations that the Supplements were not executed by OYM nor formed part of the Agreement and, therefore, did not have the effect of substituting the plaintiff as a party to the Agreement in place of OYM (§14 of the Defence).

(2) The unpleaded allegations raised in Ms Liang’s witness statement and in her oral evidence to the effect that the Supplements were not binding on the defendant as Mannix had no authority to enter into the Supplements on behalf of the defendant (see §31 of Judgment).  

(3) The Supplements were not supported by consideration and, therefore, were not binding on the defendant (§15 of the Defence).

(4) Upon proper construction of the Supplements, the defendant only committed to provide the plaintiff with 5,000 dockets per month covering bothSingle Product and Multiple Products (§16 of the Defence).

(5) Alternatively, clause 4 of the Supplements should be rectified by adding the words “(inclusive of both single‑product parcels and multiple-product parcels)” after the words “the minimum number per month is 5,000 dockets” as it was the common intention of the parties that the agreed 5,000 dockets should be inclusive of both Single Product and Multiple Products but the same was not reflected in clause 4 of the Supplements by an oversight common to the parties (§17 of the Defence).

(6) Further or alternatively, the obligations under clause 4 of the Supplements were varied by the 2009 Price Lists with effect from 1 May 2009 or that such obligations were waived by the plaintiff with effect from 1 May 2009 or 2 June 2009 and the plaintiff is estopped from holding the defendant liable for such obligation (§18 of the Defence).

(7) The defendant’s counterclaim for an order for rectification of clause 4 of the Supplements (§29 of Defence).

11.  In my view, the defendant had acted improperly and unreasonably in raising the above issues for the following reasons:

(1) The plaintiff’s claim for breach of contract was simple.  It was based on the express terms of the Agreement, the Supplements and the 2009 Price Lists, all of which were signed by Mannix on behalf of the defendant.  The defendant could have defended the claim by submitting — as it did at trial — that the plaintiff was not entitled to the amount claimed as it had failed to adduce any evidence on its own costs and expenses, which was necessary for the court to assess what damages it had suffered as a result of the defendant’s breach.

(2) Instead, the defendant chose to raise a number of positive defences to dispute its liability under the Agreement, the Supplements and the 2009 Price Lists.  These defences were based on the defendant’s factual allegations to the effect that these agreements were not binding or otherwise had been superseded or waived by the conduct of the parties. These allegations, viewed against the contemporaneous documents and the parties’ conduct in acting in accordance with the terms of these agreements, can only be regarded as disingenuous.

(3) As a result of these defences, the plaintiff was required to file extensive evidence to refute the allegations.  At trial, much time was taken by both parties to deal with the conflicting evidence and the legal submissions on these defences which could have been saved had it not been for these unsuccessful defences and allegations raised by the defendant.

12.  I also consider that it was the defendant’s conduct which brought about the litigation.  The defendant’s act in purporting to terminate the Agreement (as amended by the Supplements) on 9 February 2010 constituted a breach of contract, which provided that the parties were required to give 60 days’ written notice for terminating the Agreement.  As can be seen from the correspondence discussed in §§12 to 19 of the Judgment, other than denying the liability to provide a minimum quantity of parcels to the plaintiff for delivery, the defendant was unable to identify any basis to deny the plaintiff’s claim.

13.  On a rough and ready apportionment, taking into account the costs occasioned by the defendant’s counterclaim, I assess that the defendant should pay 70% of the costs of the action to the plaintiff.  In my view, this reflects the time and costs taken up by the issues which I consider to have been raised improperly and unreasonably by the defendant.  The plaintiff should pay 30% of the costs of the action to the defendant.  After setting off the costs the plaintiff is liable to pay to the defendant, the net result is that the defendant should pay 40% of the costs of the action to the plaintiff.

14.  Accordingly, the costs order nisi is varied to an order that the defendant should pay 40% of the costs of the action to the plaintiff, to be taxed if not agreed.  As both parties have been successful on some issues and unsuccessful on other issues in connection with the application, I make no order as to costs of the summons for variation of the costs order nisi.