SIMPLY POWER LTD v. BILLY CHUA AND OTHERS

HCA 2452/2013

[2023] HKCFI 1685

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2452 OF 2013

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(by Original Action)

_________________

(by Counterclaim)

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___________________________

DECISION ON COSTS

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Introduction

1.  On 14 April 2023, this court handed down a Judgment after trial.

2.  The outcome of the trial is this.

3.  As between the Plaintiff and the 1^st Defendant, the 4^th Defendant and the 5^th Defendant (collectively “Midland Parties”):

(i)  All of the Plaintiff’s claims, including the claim of Fraudulent Misrepresentation, against Midland Parties were dismissed.

(ii)  Judgment was entered in favour of the 4^th Defendant against the Plaintiff in the sum of HK$6,030,000 by reason of the Plaintiff’s failure to complete the sale and purchase transaction under clause 13 of the PASP.

4.  As between the 3^rd Defendant and the Midland Parties, the 3^rd Defendant’s Counterclaim against them is wholly dismissed.

5.  As between the Plaintiff and the 3^rd Defendant:

(i)  Judgment was entered in favour of the Plaintiff against the 3^rd Defendant in the sum of HK$120.6 million, being the return of the 20% Deposits forfeited by the 3^rd Defendant in the transaction.

(ii)  Judgment was entered in favour of the 3^rd Defendant against the Plaintiff for nominal damages for breach of the FASP by reason of its failure to complete the sale and purchase transaction.

(iii)  The Plaintiff’s claim of Fraudulent Misrepresentation against the 3^rd Defendant, allegedly made by the Midland Parties with the 3^rd Defendant’s authority, consent etc, was dismissed.

Between the Plaintiff and the Midland Parties

6.  The position is straightforward.

7.  The Midland Parties are completely successful in resisting the Plaintiff’s claims against them and the 4^th Defendant succeeds in its Counterclaim against it. In these circumstances,

(i)  Costs of the Midland Parties in the Action be borne by the Plaintiff to be taxed if not agreed and paid forthwith, Certificate for 2 Counsel.

(ii)  Costs of and incidental to the 4^th Defendant’s Counterclaim be borne by the Plaintiff to be taxed if not agreed and paid forthwith, Certificate for 2 Counsel.

8.  While Mr Lui SC proposes that costs of and incidental to the Forfeiture Issue be carved out for separate consideration as to whether they should be borne by the Plaintiff or the 3^rd Defendant, this court does not find it necessary to do so.

9.  As far as the Midland Parties are concerned, the Forfeiture Issue is just one of the numerous issues raised by the parties in this Action. Further and importantly, the Forfeiture Issue is admittedly an issue between the Plaintiff and the 3^rd Defendant only. It is difficult to see what costs in relation to the Forfeiture Issue have reasonably been incurred by the Midland Parties in relation to an issue which does not concern them. In any event, such costs can be sorted out by the Taxing Master, if the Taxing Master finds it necessary to do so.

10.  This court will no doubt have to do the best it can to apportion costs as between the Plaintiff and the 3^rd Defendant of the Action, taking into account the Plaintiff’s success in the Forfeiture Issue and its failure in relation to all the other issues pertaining to its failed claim in Fraudulent Misrepresentation. But the reality is that the Midland Parties are the successful party vis-a-vis the Plaintiff and should be entitled to costs which follow the event.

11.  As far as certificate for counsel is concerned, this court has taken on board all the parties’ submissions as to whether certificate for 2 or 3 counsel is appropriate in the circumstances of this case. All parties have engaged 3 Counsel and the Plaintiff as well as the Midland Parties have suggested certificate for 3 counsel. But that is not conclusive. As a matter of principle, awarding costs for 3 counsel is “exceptional”. It is not justified even if there is “a good deal of work” and “the issues were not simple”: Competition Commission v W Hing Construction Co Ltd (No. 2) [2022] 3 HKLRD 84 at [78].

12.  The present case is no doubt complex in terms of evidence but not really in terms of law. The amount of the sums involved was substantial but not that substantial. The allegation raised by the Plaintiff ie fraud is serious in nature but not uncommon. In short, this court does not find this case to be so exceptional as to justify a certificate for 3 counsel. Hence, all parties are only allowed certificate for 2 counsel.

Between the 3^rd Defendant and the Midland Parties

13.  The position is equally straightforward.

14.  The Midland Parties are completely successful in resisting the 3^rd Defendant’s Counterclaim against them. In these circumstances, costs of and incidental to the 3^rd Defendant’s Counterclaim against the Midland Parties be borne by the 3^rd Defendant, to be taxed if not agreed and paid forthwith, Certificate for 2 Counsel.

15.  In its Reply Submissions, the 3^rd Defendant argues that it should not be liable for the Midland Parties’ costs (whether in respect of the Deposits Claim or its own Counterclaim for breach of duty) as the Midland Parties were only dragged into the present dispute by reason of the Plaintiff’s failed Fraudulent Misrepresentation Claim. Further, the 3^rd Defendant’s Counterclaim against the Midland Parties for breach of duty was reasonably raised and was wholly necessitated by the Plaintiff’s Fraudulent Misrepresentation Claim. Had the Plaintiff’s Fraudulent Misrepresentation Claim succeeded, the Midland Parties would most likely have been liable for breach of its duty of care and skill.

16.  This court disagrees.

17.  The Midland Parties might have been dragged into the present Action by the Plaintiff but the 3^rd Defendant had to exercise its own judgment as to whether it had a viable claim against the Midland Parties for breach of duty etc. Even if the Plaintiff’s claim for Fraudulent Misrepresentation had succeeded against the Midland Parties, that did not necessarily mean the 3^rd Defendant would have been automatically liable for the same - the Plaintiff still had to make good its case that the Fraudulent Misrepresentation had been made by the Midland Parties with the 3^rd Defendant’s authority, consent etc.

18.  Ultimately, the 3^rd Defendant had asserted a Counterclaim against the Midland Parties which failed. Costs should follow the event as between the two.

Between the Plaintiff and the 3^rd Defendant

19.  In this Action, the Plaintiff’s claims against the 3^rd Defendant are two-fold.

20.  First, the Plaintiff claims it has been induced by the Fraudulent Misrepresentation made by the Midland Parties, with the authority, consent etc of the 3^rd Defendant, in entering into the PASP and FASP. As a result, it is entitled to rescind the FASP and claims damages from the 3^rd Defendant. This Fraudulent Misrepresentation Claim entails the determination of all the Core Issues identified in the Judgment but one ie the Forfeiture Issue.

21.  Second, the Plaintiff claims the 3^rd Defendant is not entitled to forfeit the 20% Deposits of HK$120.6 million as they constitute penalty.

22.  On the other hand, the 3^rd Defendant counterclaims against the Plaintiff for breaches of the FASP by reason of its admitted failure to complete the sale and purchase transaction.

23.  In the end,

(i)  The Plaintiff completely fails in its Fraudulent Misrepresentation Claim against the Midland Parties and the 3^rd Defendant.

(ii)  The Plaintiff succeeds in recovering the 20% Deposits, not on the ground of penalty, but on the ground that the 20% Deposits cannot be justified and must be returned.

(iii)  The 3^rd Defendant succeeds in establishing the Plaintiff’s breach of the FASP but, since it has suffered no loss as a result, was only awarded nominal damages.

24.  There is no doubt in this court’s assessment that the bulk of the parties’ preparation for the trial and the trial itself were preoccupied with the issues associated with the claim for Fraudulent Misrepresentation. The Forfeiture Issue involved very little factual evidence from 3^rd Defendant, which is mostly uncontroversial, and some expert evidence which is not lengthy or particularly complicated. But for the Plaintiff’s pursuit of that claim, the Midland Parties need not have been joined as Defendants, most of the Core Issues would have been avoided and thus the trial would have been much shortened. The Plaintiff’s unmeritorious claim for Fraudulent Misrepresentation has caused a significant increase in the length and costs of the proceedings.

25.  The principles governing the award of costs are not in dispute. They are set out in Re Elgindata (No. 2) [1992] 1 WLR 1207 at 1214A-C and helpfully summarised by Yuen JA in Wang Din Shin v Nina Kung alias Nina T. H. Wang unrep, CACV 460/2002 and CACV 67/2003, 19 April 2005 at [39] as follows:

“(i) Costs are in the discretion of the court [Order 62 r.2(4) RHC];

(ii) They should follow the event, except where it appears to the court that in the circumstances of the case some other order should be made [Order 62 rule 3(2) RHC];

(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 part of his costs;

(iv) Where the successful party raises issues or makes allegations ‘improperly or unreasonably’ [in Hong Kong, ‘improperly or unnecessarily’], 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 [Order 62 rule 7(1) RHC]”. (emphasis added)

26.  Further, the relevant provisions of RHC O 62 r 5 provide:

“5 (1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in Order 1A, rule 1;

…

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful;

…

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes –

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.”

27.  Applying the above principles, the Plaintiff submits it is the overall winner of the Action vis-a-vis the 3^rd Defendant. Its reasons are set out in 3 short paragraphs as follows:

“11. This is not an exceptional case. In our respectful submission, costs should follow the event. There is only one claim: that of return of the deposit. The Plaintiff raised 2 issues but the misrepresentation issue is not a distinct or discrete issue. It is an alternative issue in the context of a demand for return of deposit. Test it this way, if the 3^rd Defendant were to return the deposit as demanded, would there still be a trial of the misrepresentation issue?

12. The 3^rd Defendant cannot conceivably contend the misrepresentation issue was ‘improperly or unreasonably’ raised as emphasized by the cases cited above. One needs only to look at the 2 brochures to see that the misrepresentation issue was not unreasonably raised. In any event, the 3^rd Defendant bears the burden in convincing the Court why the normal rule should be departed from.

13. It is equally important not to lose sight of the fact that the evidence relating to the making of the provisional agreements in the context of the inspection of the building and the evidence relating to the subsequent exchanges are also relevant to the factual matrix in the interpretation of the forfeiture clause and are necessary in any event.”

28.  At para 5 of its main Costs Submissions, the Plaintiff invites this court to make the following order on costs:

“(a) Vis-à-vis Midland Parties, the Plaintiff shall be entitled to be indemnified by the 3^rd Defendant for such costs that are to be paid to Midland Parties by the Plaintiff.

(b) Vis-à-vis the 3^rd Defendant, the Plaintiff shall be entitled to costs of the action, (i) save and except for: the portions of the action between the Plaintiff and Midland Parties and (ii) including any costs reserved, to be taxed on a party and party basis with certificate for 3 counsel in relation to the pre-trial review and the trial.” (emphasis added)

29.  On the other hand, at para 2 of its main Costs Submissions, the 3^rd Defendant invites this court to make the following order on costs ie the Plaintiff should be liable for 75% of the 3^rd Defendant’s costs (in respect of the Fraudulent Misrepresentation Claim); whereas the 3^rd Defendant shall be liable for 25% of the Plaintiff’s costs (in relation to the Deposits Claim).

30.  This court disagrees with the Plaintiff.

31.  First, there is absolutely no justification to order the 3^rd Defendant to indemnify the Plaintiff for such costs that are to be paid by the Plaintiff to the Midland Parties. The only argument put forward by the Plaintiff is at para 17 of its Submissions ie the ultimate goal of the Plaintiff in instigating this Action was essentially to recover the 20% Deposits forfeited by the 3^rd Defendant. Had the 3^rd Defendant not forfeited them unjustifiably in the first place, the Plaintiff would not have needed to commence an action against the Midland Parties to seek damages in the sum of HK$120.6 million.

32.  In this court’s view, whether or not the Plaintiff should have commenced this Action against the Midland Parties depends ultimately on whether it had a viable claim against them. This court has already held it did not and that is that. If the 3^rd Defendant had unjustifiably forfeited the 20% Deposits, the course to take is to commence this Action against the 3^rd Defendant only. As the 3^rd Defendant puts it in strong terms in its Reply Submissions, “[t]he Plaintiff’s suggestion that the 3^rd Defendant should indemnify the Plaintiff in respect of its liability for the Midland Parties’ costs is absurd. The existence of a dispute between the Plaintiff and the 3^rd Defendant in respect of the size of the Deposits cannot possibly justify the Plaintiff’s invention of the Fraudulent Misrepresentation Claim against the Midland Parties.”

33.  Second, costs of the PTR have already been dealt with at the hearing of the PTR. There is no justification to revisit it.

34.  Third, the Plaintiff cannot be described as the overall winner of the Action vis-a-vis the 3^rd Defendant.

35.  The truth is, as submitted by the 3^rd Defendant in its Reply Submissions, the claim for Fraudulent Misrepresentation is a separate and distinct claim raising a large number of distinct issues separate from the Forfeiture Issue. The Plaintiff could well have claimed for the return of the 20% Deposits simply on the basis of the principles laid down by the Court of Final Appeal in Polyset. The Plaintiff has chosen to make a claim for Fraudulent Misrepresentation and failed.

36.  This court further agrees with the 3^rd Defendant that it is unreal for the Plaintiff to suggest that its claim for Fraudulent Misrepresentation against the Midland Parties and 3^rd Defendant was properly raised. In this regard, those parts of the Judgment on the Purpose and Communication Issue and the Representation and Fraud Issue are self-explanatory.

37.  Since the claim for Fraudulent Misrepresentation has caused a significant increase in the length and costs of the proceedings, it is entirely proper to deprive the Plaintiff part of his costs of the Action. Further, since this court is of the view that the Plaintiff has improperly and unnecessarily asserted the claim for Fraudulent Misrepresentation, it is also proper to order it to bear part of the 3^rd Defendant’s costs.

38.  Looking at the matter from another angle, the 3^rd Defendant has referred this court to the following observation of Lord Woolf MR in Phonographic Performance Ltd v AEI Rediffusion Music Ltd [1999] 1 WLR 1507 at 1522H-1523A:

“The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this, the new Rules are reflecting a change of practice which has already started. It is now clear that too robust an application of the ‘follow the event principle’ encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so.” (emphasis added)

39.  Further, as Kwan JA (as she then was) put it in Zhuhai International Container Terminals (Jiuzhou) Limited v Lo Tong Hoi & Anr unrep, CACV 181/2011, 31 July 2012 at [33], depriving a successful party part of its costs if it has unsuccessfully raised an allegation which has caused a significant increase in the length or costs of the proceedings is fully justified as “[t]here is incentive to conduct litigation in a responsible way and be selective as to the issues raised.”

40.  For the above reasons, and doing the best as this court is able to apportion costs between the Plaintiff and the 3^rd Defendant, this court hereby orders:

(i)  25% of the Plaintiff’s costs of the Action be borne by the 3^rd Defendant, to be taxed if not agreed and paid forthwith, certificate for 2 counsel.

(ii)  75% of the 3^rd Defendant’s costs of the Action be borne by the Plaintiff, to be taxed if not agreed and paid forthwith, certificate for 2 counsel.