WISECAL LTD v. CONWELL INTERNATIONAL LTD AND ANOTHER

HCA 841/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 841 OF 2008

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1.  I gave judgment in this action on 23 July 2010. I dismissed the plaintiff’s claim against the 1^st defendant (“Conwell”). I gave judgment to Conwell on its counterclaim against the plaintiff and made an order that the plaintiff do withdraw its application to the Land Registry for registration of the preliminary agreement in the Land Register of the property. I also granted a declaration to Conwell that the preliminary agreement has no legal effect on Conwell and that it is not binding on Conwell. The preliminary agreement is the agreement which I have mentioned in my judgment is the one at pages 490 and 491 of Bundle B.

2.  On the plaintiff’s alternative claim against the 2^nd defendant (“Francis”) for damages for breach of warranty of authority, I gave judgment to the plaintiff against Francis for damages for breach of warranty of authority in the sum of HK$1,100,000 with interest on the said sum at 1% above the best lending rate of HSBC from issue of the writ on 14 May 2008 until judgment and thereafter at judgment rate until payment.

3.  I also made an order nisi for costs as follows :

(1) that the plaintiff do pay Conwell its costs of the action and its counterclaim;

(2) that Francis do pay the plaintiff its costs of the action.

4. There are two applications before me to vary the costs order nisi. The first is the plaintiff’s application by summons dated 30 July 2010 and the second is Francis’ application by summons dated 5 August 2010.

5. As regards the plaintiff’s summons, the plaintiff in effect asks for a Sanderson Order ordering Francis to pay Conwell’s costs of the action and its counterclaim.

6. Mr Lin, for Francis, submitted that even though the plaintiff may have been justified to commence the action against both defendants the plaintiff was, however, not justified to maintain the action against Conwell after the exchange of witness statements in March 2009. Mr Lin submitted that Francis should not be liable for Conwell’s costs after the exchange of witness statements and seeks a variation of the costs order nisi to that extent.

7. The question I think that must be considered is whether it was reasonable for the plaintiff to commence and maintain the action against both defendants.

8. Mr Lam, for the plaintiff, has referred me to the witness statements in particular, paragraphs 17 and 18 of Francis where his evidence, according to the witness statement, was to the effect that he had informed Jenny that he would arrange to sign the preliminary agreement on the following day after the telephone call and he also exhibited a copy of the preliminary agreement. So there is no question that according to his witness statement, he was, as he had told Jenny, going to sign the preliminary agreement on the following day i.e. the day after the telephone conversation. But as transpired at trial he did not maintain that. As I found at paragraph 92 of my judgment I recited what he said in evidence at trial,namely, that in the New Year phone call it was not formally mentioned that he would sign any agreement.

9. The correspondence that Mr Lam has referred me to also made a claim that Conwell and Francis were both maintaining the stance that neither was to blame for the situation, Francis reiterating that he had been authorised to sign the preliminary agreement and Conwell denying that Francis had ever been authorised to sign the preliminary agreement. Faced with that situation it was perfectly reasonable for the plaintiff to commence the action.

10. Even though witness statements had been served I do not think that any reasonably competent counsel or solicitor could have responsibly advised the plaintiff not to pursue the action against both defendants to trial without knowing how the evidence would pan out at trial.

11. In my judgment, it was reasonable for the plaintiff both to sue both defendants and to maintain the action against both of them until judgment.

12. As to whether or not it is appropriate to make a Sanderson order or a Bullock order, the matter is ultimately in the Court’s discretion. As I have said in Hoie Sook Fong & Anor v Ismail Halima & Anor [2009] 1 HKC 326 at page 338 :

“ 67. A Bullock order is inappropriate where a plaintiff is alleging perfectly independent causes of action against two defendants where the breaches of duty alleged are in no way connected the one with the other. But where the causes of action relied on against the defendants rested on precisely the same complaint, it would be going too far to say that the causes of action are in no way unconnected (62/3/9 Hong Kong Civil Procedure 2009; Sanfield Building Contractors Ltd v Li Kai Cheong [2003] 3 HKLRD 48).”

13. As I said in that case, it seemed to me that the claim of the plaintiffs against the 1^st defendant there and the alternative claim against the 2^nd defendant were founded on the same complaint. The same applies here because the claim of the plaintiff against Conwell and the alternative claim of the plaintiff against Francis are founded on the same complaint namely, Conwell’s failure to complete the sale of the property in accordance with the preliminary agreement. It seems to me that it will be going too far to say that the causes of action are in no way unconnected and in the exercise of my discretion it seems to me that it would be appropriate to make a Bullock order. I would vary the order nisi to reflect that.

14. Dealing with the other summons namely, Francis’ summons for a variation of the costs order nisi, the variation sought is that there be an order that at least half, or such other portion as the Court shall deem just, of the costs of the action be paid by Conwell to be taxed if not agreed.

15. In effect Mr Lin is asking for an order that Conwell do pay 50% of the costs of the action to Francis. He does so despite not having served a contribution notice under Order 16, rule 8 of the Rules of the High Court. This provides that,

“ (1) Where in any action a defendant who has given notice of intention to defend—

(a) claims against such a person who is already a party to the action any contribution or indemnity; or

(b) claims against such a person any relief or remedy relating to or connected with the original subject-matter of the action and substantially the same as some relief or remedy claimed by the plaintiff;

then, subject to paragraph (2) the defendant may, without leave, issue and serve on that person a notice containing a statement of the nature and grounds of his claim or, as the case may be, of the question or issue required to be determined.”

16. As is set out in the marginal note 16/8/1 Hong Kong Civil Procedure 2010 :

“ Except where the two defendants are sued as tortfeasors liable in respect of the same damage, it is necessary for a defendant who claims against his co-defendant relief of any of the kinds mentioned in the rule to issue and serve upon him a third party notice under this rule and a summons for third party direction under r. 4.”

17. Francis is in effect asking for relief against Conwell, namely, a contribution of 50% of his costs of the action. If he intended to seek that he should have served a contribution notice which has not been done.

18. I do not think that it is appropriate to make any order against Conwell whereby Conwell is ordered to pay costs to Francis. The whole litigation has been on the basis that the plaintiff sues Conwell as the main defendant and against Francis as the alternative defendant on an alternative claim. There has never been any claim between Conwell against Francis or vice versa.

19. Mr Lin also submitted that Conwell having had facts found against Conwell in respect of the New Year phone call, much of the time at trial was spent in respect of that matter. However, one must not lose sight of what the issues in the action were. These are set out at paragraphs 25 to 28 of my judgment.

20. The main issue is whether Conwell had authorized Francis to enter into the preliminary agreement for and on behalf of Conwell. Conwell maintained all along, and succeeded, that they had never authorized Francis to enter into the preliminary agreement for or on behalf of Conwell. Francis maintained, and failed, in his assertion that he had been authorized by Jenny on behalf of Conwell to enter into the preliminary agreement for and on behalf of Conwell. As far as the main issue is concerned, there is no doubt who the winner is.

21. Apart from the main issue, there was also another issue namely, whether Conwell, through Jenny, subsequently confirmed or alternatively, ratified Francis’ authority to enter into the preliminary agreement as pleaded in the defence of Francis. On that other issue Conwell also succeeded.

22. I have considered all of counsel’s submissions including the principles set out in the well-known case of In Re Elgindata Ltd. (No. 2) [1992] 1 WLR 1207.

23. I have also borne in mind the provisions of Order 62, rule 3 and Order 62, rule 5.

24. Each case, of course, depends on its own facts.

25. The principles set out in In Re Elgindata Ltd at page 1214 in the judgment of Nourse L.J. are 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 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. 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.”

26. Mr Lin also relied on Summit Property Ltd v Pitmans (a firm) [2001] EWCA Civ 2020. In that case Longmore LJ said at paragraph 16 that it is no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party on a particular issue in which he (the first party) has failed. And he referred to the judgment of Chadwick LJ in Johnsey Estates (1990) Limited v Secretary of State for the Environment [2001] EWCA Civ 6535 where Chadwick LJ said :

“ The principles applicable in the present case may, I think be summarised as follows :

(i) costs cannot be recovered except under an order of the court;

(ii) the question whether to make any order as to costs – and, if so, what order – is a matter entrusted to the discretion of the trial judge;

(iii) the starting point for the exercise of discretion is that costs should follow the event; nevertheless,

(iv) the judge may make different orders for costs in relation to discrete issues – and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in that event, may make an order for costs against the party who has been generally successful in the litigation; and

(v) the judge may deprive a party of costs on an issue on which he has been successful if satisfied that the party has acted unreasonably in relation to that issue ..….”

27. Here, where Conwell has succeeded on the main issue and the other issue, it would, in my judgment, be unjust to deprive Conwell of its costs. It would also be inappropriate, in my view, to make any order for costs in favour of Francis against Conwell.

28. I do not think the provisions of section 52A(1) of the High Court Ordinance assists Francis. Mr Lin referred to this and relied on sub-section (1) saying that costs shall be in the discretion of the Court and the Court shall have full power to determine by whom and to what extent the costs are to be paid. But as the sub-section (1) itself says, these are subject to the provisions of rules of court and I have already referred to the fact that there has been no contribution notice served under Order 16, rule 8(1) of the Rules of the High Court.

29. So, I would dismiss the summons of Francis and I would vary the costs order nisi on the plaintiff’s application as follows by making the following orders instead of the order nisi of costs, namely,

(1) which will be the same as the order nisi, that the plaintiff do pay Conwell its costs of the action and its counterclaim; and

(2) that Francis do pay the plaintiff its costs of the action, such costs to include all costs incurred by reason of there being two defendants; and further all costs that the plaintiff has to pay Conwell under paragraph (1) of the costs order.

30. I also order that Francis do pay the plaintiff and Conwell their costs of this application including the costs reserved on 2 September 2010.