CHAN LAI YING AND OTHERS v. LEE LIM AND ANOTHER

HCA 1413 / 2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1413 OF 2005

----------------------

----------------------

----------------------------------------------------------------------------

DECISION  ON  APPLICATION  TO

VARY COSTS  ORDER  NISI

---------------------------------------------------------------------------

A.  Introduction

1.  On 3 December 2008, I handed down judgment (“the Judgment”) in favour of the 1^stPlaintiff in the sum of HK$7,6000,000.00 with interest, and in favour of some of the 1^st Defendant’s counterclaim for various sums expressed in RMB and HK dollar currency^[1].   The trial of the action lasted for 13 days.

2.  The net effect of the judgment is that the 1^st Defendant is liable to pay the 1^st Plaintiff after setting off the judgment sum awarded to the 1^st Plaintiff against the sums awarded to the 1^st Defendant’s partially successful counterclaim.

3.  Given the partial success of the 1^stDefendant’s counterclaim, as between the 1^stPlaintiff and the 1^stDefendant, I further made a costs order nisi that 2/3 of the 1^st Plaintiff’s costs in this action be paid by the 1^st Defendant to be taxed if not agreed^[2].

4.  By its Summons dated 17 December 2008, the 1^st Defendant applies to vary the costs order nisi to the extent that only 1/3 of the 1^st Plaintiff’s costs in this action be paid by the 1^st Defendant, to be taxed if not agreed.

5.  The 1^stPlaintiff opposes the application and supports the original costs order nisi.

6.  On 24 February 2009, I directed that this application be disposed of by written submissions.  The parties have since respectively filed their written submissions.

B.  The 1^st Defendant’s grounds for varying the costs order nisi

7.  The 1^stDefendant in her counsel’s written submissions raises 3 grounds to support the application to vary the costs order nisi.  They are as follows:

(1)  The Substantial Payment-in Ground:  it is submitted by the 1^st Defendant that the overall benefit obtained by the 1^st Plaintiff in the Judgment (including the judgment sum, interest and costs) did not outweigh the benefit that she would have received had she accepted the payment-in made by the 1^stDefendant on 1 September 2008.

(2)  The Unmeritorious defence on issues 1, 5 and 7 Ground:  it is submitted that the 1^stDefendant was successful completely on liability and quantum in Issues 1, 5 and 7 (as defined in the Judgment) of her counterclaim at trial, and the 1^st Plaintiff ought not to have wasted time to fight these 3 issues as it was unreasonable for her to pursue a defence to these counterclaims.

(3)  P1’s Conduct Ground:  It is submitted that certain of the 1^st Plaintiff’s conducts before and during the proceedings justify a further reduction of costs.

8.  I will elaborate the 1^stDefendant’s arguments under these grounds when I deal with each of them below.

C.  Discussion

C1.  The Substantial Payment-in-Ground

9.  By 1 September 2008, the Defendants had made a number of payment-ins totaling in the sum of HK$5.1million. 

10.  By 16 October 2008, the total accrued interest on the payment-in sums was HK$378,662.00.

11.  It is the 1^st Defendant’s calculation that, after netting off the 1^st Plaintiff’s judgment sum against the 1^st Defendant’s judgment sum (awarded under her counterclaim), and adopting the exchange rate for RMB as at 3 December 2008, the 1^st Plaintiff net judgment sum (“P1’s Net Judgment Sum”) awarded is HK$6,243,925.33.

12.  By way of payment out of the payment-in sums together with another cheque payment, the 1^stDefendant has paid the 1^stPlaintiff P1’s Net Judgment Sum. 

13.  This calculation for P1’s Net Judgment Sum has been approved and confirmed by Deputy Judge A To on 6 March 2009, apparently agreeing with the 1^st Defendant’s contention that the proper RMB exchange rate that should be adopted for the purpose of calculating the judgment sums should be as at 3 December 2008 instead of that at May 2005 as contended by the 1st Plaintiff^[3].

14.  Given Deputy Judge A To’s ruling, I am prepared to adopt in this decision P’s Net Judgment Sum as correct.

15.  Ms Yiu (counsel for the 1^stDefendant) now contends that the benefit obtained by the 1^st Plaintiff under P1’s Net Judgment Sum together with the 2/3 costs awarded (under the costs order nisi) to her would be less than the benefit she would have had received had she accepted the payment in on 1 September 2008.  As such (the 1^st Defendant further submits), the Court should take this into account to vary the costs order nisi.   

16.  Ms Yiu’s arguments run as follows:

(1)  The ultimate judgment sum obtained by the 1^st Plaintiff is HK$6,243,925.33 (i.e., P1’s Net Judgment Sum).  However, the Judgment only awarded the 1^st Plaintiff 2/3 of her costs in the entire action.  If one takes this into account and assumes that the pre-trial action’s cost is HK$2,000,000.00 and the costs of the trial of the 1^stPlaintiff is HK$800,000.00, then the ultimate benefit obtained by the 1^st Plaintiff is:

HK$6,243,925.33+HK$1,866,480.00(66.66%xHK$2.8million)– HK$933,240.00 (33.33% x HK$2.8million) = HK$7,177,165.33

(2)  However, if one assumes that the legal costs incurred by the 1^st Plaintiff from July 2005 to September 2005 is HK$2millon, this means that the total amount that the 1^st Plaintiff would have obtained had she accepted the payment-in is:

HK$5.1million + HK$378,662.00 (the interest) + HK$2million    = HK$7,478,622.00

(3)  In the premises, the 1^stPlaintiff is effectively and overall worse off by not accepting the payment-in.

17.  With respect, I do not accept Ms Yiu’s above submissions as a valid ground to vary the costs order nisi.

18.  The payment-in mechanism is well established under O.22 of the Rules of High Court.  The rules therein are intended to provide a clear, easy to follow regime with a reasonable degree of certainty to enable a defendant to protect his costs position by making sufficient payment-in.  The basic proposition is that if the payment-in sum (even inclusive of interest) is higher than the final judgment sum the plaintiff is eventually awarded with, the defendant is entitled to his costs for the prescribed period after making the payment in.  See generally: Hong Kong Civil Procedure 2009, paras 22/0/2, 22/1/1, 22/1/10, 22/1/12, 22/1/18, 22/2/1, 22/3/3, 22/3/6.

19.  In deciding whether the payment-in sum has “beaten” P1’s Net Judgment Sum, I see nothing in the rules that allow or permit the Court to take into consideration of various assumptions on the respective costs positions of the plaintiff as now contended by the 1^stDefendant.  The 1^st Defendant’s proposition, if accepted, would result in great uncertainty in the payment-in regime, as the result would depend on various assumptions on how much costs have actually been incurred pre and post payment-in.  This, in my view, is neither intended nor permitted by the rules.

20.  I therefore reject this submission.

21.  In the circumstances, it is clear that the payment-in sum (even inclusive of the interest) does not beat P1’s Net Judgment Sum, and thus there is no basis to vary the costs order nisi.

22.  There is however a further twist in Ms Yiu’s submission on this ground.  She apparently is aware that the 1^st Defendant does not come properly within the rules under O. 22, and seeks to get around it by relying on the proportionality principle under the Civil Justice Reform regime.

23.  I do not think Ms Yiu is right in this regard as well for two reasons:

(1)  The payment-in was made under O.22 of the Rules of High Court before the implementation of the new rules under Civil Justice Reform.  Therefore, it is the old rules that apply but not the new regime^[4].

(2)  In any event, under the new O. 22 implemented under Civil Justice Reform, there provides an elaborate procedures and mechanism for the defendant to make various sanctioned payments or offers to protect the costs position.  The 1^st Defendant has not followed any of these procedures, and thus these rules could not assist her. Further, I also see nothing in the new O. 22 to permit or allow the 1^stDefendant’s present submissions on the principle of proportionality by reference to various assumptions of the costs positions of the plaintiff.

24.  For these reasons, I reject the Substantial Payment-In Ground as a valid reason to vary the costs order nisi.

C2.  Unmeritorious defence on Issues 1, 5, and 7 Ground

25.  The 1^stDefendant accepts that costs are in the discretion of the Court, and they should usually follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. 

26.  The 1^stDefendant however submits that if the successful party is shown to have caused a significant increase in the length of the proceedings, then the Court is entitled to deprive him costs.As said by Nourse LJ in In Re Elgindata Ltd (No. 2) 1 WLR 1207 at 1214A-C:

“They do not in their entirety depend on the express recognition or provision of the rules. In part they depend on established practice or implication from the rules. 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 makes 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.”  (emphasis added)

27.  The 1^stDefendant submits that in defending (unsuccessfully) Issues 1, 5 and 7, the 1^st Plaintiff had unreasonably and significantly lengthened the proceedings, and the Court is justified to deprive her costs further to the extent of allowing only 1/3 of her costs in the action. 

28.  To deal with the 1^stDefendant’s submissions, I believe it is also important to note the following principles.

29.  First, notwithstanding those principles set out in Re Elgindata, supra, the Hong Kong Courts have emphasized again and again that (a) due and significant weight must be first given to the general principle that costs should follow the event and any departure from this normal rule should be approached with circumspection^[5], and (b) it is important not to decide costs according to a score sheet on how many issues had gone one way or the other^[6].

30.  Secondly, Nourse LJ accepted in In re Elgindata at 1215H that even if any deprivation of the successful party’s costs is to be made, it is the trial judge who was in the best position to assess and decide on the appropriate apportionment:

“In my judgment the only fair basis for deciding the part of their costs of which the petitioner [the successful party] should be deprived is to ask how much time and expense was taken up in dealing only the allegations on which they failed. I acknowledge the difficulties with which we are confronted in answering that question.  An apportionment made by us is bound to be even more rough and ready than one made by the judge. But we must do the best we can.”

31.  Finally, in Chan Lam v Shing Kei (urep., HCA 1260/2006, 16 June 2008), Recorder Fok interpreted (which I adopt) the meaning of “a significant increase in the length or costs of the proceedings”at para 16 as follows:

“As to these points, in my judgment, where principle (3) refers to a significant increase in the length or costs of the proceedings, this does not mean that a precise quantum of costs over a particular threshold must be ascertained. It seems to me that the phrase ‘a significant increase in the length or costs of the proceedings’ simply requires the court to be satisfied that the increase is one that can be estimated as a more than trifling proportion of the total costs.  As for the question of isolation of those costs of a successful cause of action, I do not consider that it is necessary for the court to be able to quantify this to any precise extent.  It suffices if the court can give an estimate of the proportion of these costs.”

32.  In granting the costs order nisi, I had taken into consideration the 1^st Plaintiff’s failure to oppose the various items of the 1^stDefendant’s successful counterclaim.   See: para 182 of the Judgment.

33.  Applying the principles set out above to the above consideration, I was and am still satisfied that depriving the 1^stPlaintiff 1/3 of her costs in the action (as in the costs order nisi) already fully and justly reflects the circumstances that she was unsuccessful in defending against part of the counterclaim (which included Issues 1, 3 and 7).  

34.  I am not persuaded by the 1^stDefendant’s submissions as to the estimated trial time wasted on these issues.  As I mentioned above, the apportionment is not to decide costs according to a score sheet on how many issues had gone one way or the other. 

35.  I therefore also reject the Unmeritorious defence on issues 1, 5 and 7 Ground as a valid basis to further vary the costs order nisi.

C3.  P1’s Conduct Ground

36.  Ms Yiu for the 1^stDefendant submits that the new O. 62 r 5 of the Rules of High Court prescribes that the conduct of the parties should be taken into account when the Court considers the issue of costs.

37.  She further submits that the 1^stPlaintiff’s following conducts justify further reduction of her costs:

(1)  The 1^stPlaintiff had consistently ignored the 4 notices of payment-in made by the Defendants and not once did the Plaintiffs attempt to counter offer an appropriate sum for settlement.

(2)  Had the Plaintiffs accepted the payment-in offer (by 1 September 2008), significant time and costs would have been saved and the 1^st Plaintiff would have obtained financially more than her ultimate judgment.

(3)  The manner in which the 1^stPlaintiff defended Issues 1, 5 and 7 was unreasonable, as she attempted to run a defence when the case was not even part of the pleaded case.

38.  The trial was completed on 11 November 2008.  The costs order nisi was made on 3 December 2008 and the application to vary the same was taken out on 17 December 2008.  All the written submissions were made by middle of March 2009.   As such I am not fully satisfied that the new O 62 (which only came into effect on 2 April 2009) should apply to this determination.

39.  But even assuming that O. 62 r. 5 did apply as submitted by the 1^st Defendant, the arguments advanced are in fact the same as those contended (unsuccessfully) under the 1^st Defendant’s first two grounds to support her application to vary the costs order nisi.  

40.  In my judgment, what the 1^stDefendant has failed to succeed at the front door could and should not be allowed to come in through the back door.   In my view, these complained conducts of the 1^st Plaintiff do not in any way justify a further deprivation of her costs, having taken into account of:

(1)  The need to give due weight to the starting and general principle that costs should follow the event.

(2)  The fact the 1^stDefendant had sought to rely unsuccessfully on the payment-in mechanism under O. 22.

(3)  The fact that there is already a deprivation of 1/3 of the 1^st Plaintiff’s costs in the action after taking into consideration of the whole circumstances of the trial, and

(4)  The fact that all the purported complained conducts of the 1^st Plaintiff took place well before the promulgation and implementation of the new O. 62.

41.  In the premises, I also reject the P1’s Conduct Ground as a valid basis to vary the costs order nisi as sought by the 1^st Defendant.

D.  Conclusion

42.  For the above reasons, I dismiss the 1^stDefendant’s application to vary the costs order nisi.  I hereby further make absolute the costs order nisi.

43.  The 1^stDefendant having failed in her application, I also make an order nisi that costs of this application be to the 1^stPlaintiff to be taxed if not agreed.

[1]  See para177 of the Judgment.

[2]  See para182 of the Judgment.

[3]  Apparently, the 1^st Plaintiff disputed the 1^st Defendant’s calculation by adopting the exchange rate as at 3 December 2008.  According to the 1^st Plaintiff, the exchange rate that should have been adopted should be the one as at May 2005, and based on that, the net judgment sum in favour of the 1^st Plaintiff should be more than the P1’s Net Judgment Sum calculated by the 1^st Defendant.  As such, the 1^st Plaintiff was not satisfied that the judgment had been settled, and served a statutory demand on the 1^st Defendant.  On the 1^st Defendant application, Deputy Judge A To, having been satisfied that the 1^st Defendant had already paid and settled the net judgment award (inclusive of interest) under the Judgment, set aside the statutory demand on 6 March 2009 under HCSD 3/2009.

[4]  See the new O. 22 r 28 implemented on 2 April 2009 under Civil Justice Reform.

[5]  See:  CIR v HIT Finance Ltd (unrep., FACV Nos. 8 and 16/2007, Bohkary, Chan, Ribeiro PJJ, Litton and Hoffman NPJJ, 26 June 2008), para 7 per Bokhary PJ; Hebei Enterprises Ltd v. Livasiri & Co  (A firm) (unrep., FACV Nos 23 and 25/2007, Bokhary, Chan, Ribeiro PJJ, Nazareth & Sir Gerard Brennan NPJJ, 5 December 2008), para 17 per Chan PJ; Yiu Hon Lam v Chan Yu Chun (unrep., CACV 383/2007, Tang VP, Cheung JA and Lam J, 15 January 2009), paras 17-19.

[6]  Yiu Hon Lam v Chan Yu Chun, supra, para 23.