DEFOND ELECTRICAL INDUSTRIES LTD v. PARTMINER WORLDWIDE INC.

HCA 760/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 760 OF 2010

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REASONS FOR DECISION

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1.  This is an application by the plaintiff to vary a costs order nisi that I made on 2 March 2011. I dismissed the application with costs and certificate for counsel. I give my reasons now.

The substantive application and the costs order nisi

2.  The defendant is a company domiciled in Colorado, USA.  The plaintiff applied ex parte on 21 June 2010 for leave to serve a concurrent writ of summons on the defendant in USA.  Master Ho granted the application.

3.  The defendant applied on 27 September 2010 to set aside Master Ho’s order on the ground of material non-disclosure in the ex parte application and/or for a declaration that this court has no jurisdiction over the matter in dispute.  The defendant further sought a stay of the action on either or both of these grounds.

4.  On 2 March 2010, I decided that this court has jurisdiction over the matter in dispute and dismissed the defendant’s application for the declaration.  I however found that the plaintiff had committed a grave breach of the duty of full and frank disclosure in making the ex parte application.  Nevertheless, I did not set aside Master Ho’s order.  The reason being that the plaintiff could apply for the same order again as I have held that this court has jurisdiction over the dispute.  But I made a costs order nisi requiring the plaintiff to pay the costs of the application with certificate for counsel.  My reason for making the order is the plaintiff’s breach of the duty of full and frank disclosure.

The first ground for variation

5.  The plaintiff’s first argument is that the defendant made two grounds in the substantive application.  Hence, the plaintiff submitted that there were in effect two separate and distinct applications. One was based on the question of jurisdiction and the other based on material non-disclosure.  Since the applications were separate and distinct and the defendant succeeded only in one but lost the other, the plaintiff therefore argued that it should have the costs from the defendant for the one that it had succeeded in and pay costs to the defendant for the one it lost.

6.  I disagree with this submission.  I think it is proper for the defendant to have relied on the two grounds alternatively and cumulatively. There is no reason to treat the application as two separate and distinct ones. There is therefore no basis to make two costs orders for the two issues advanced.  There should only be one costs order. 

7.  Since the Master’s order was not set aside and the action not stayed, the costs should have followed the event and plaintiff should have been awarded the costs of the application.  What caused the making of a costs order adverse to the plaintiff was the material non-disclosure that it had committed when applying ex parte before the Master.  Hence, the plaintiff’s first ground fails.

The second ground for variation

8.  In the second ground, the plaintiff argued for apportionment of costs on the basis of the third and fourth principles of In re Eligindata (No.2) [1992] 1 WLR 1207:

“(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 costs 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 of him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs …”

9.  The plaintiff also argued that the two issues raised by the defendant were separate and distinct.  Furthermore, a lot of time and effort had been devoted to the jurisdictional challenge which the defendant lost.  The time spent on material non-disclosure was small.  The court should therefore apply the Elgindata principles and apportion the costs for the two issues.

10.  I do not agree.  In an application for discharge of an ex parte injunction, the time spent on arguing the facts and merits often outweighs substantially the time spent on arguing material non-disclosure.  However, if material non-disclosure is proven, the injunction will usually be discharged with costs.  If there should be merits that would justify the granting of the injunction, there may be a re-grant, but merits would usually not affect the costs order that accompanies the discharge for material non-disclosure.

11.  The situation here is analogues to the discharge of an ex parte injunction.  Since the plaintiff had committed material non-disclosure, it should be ordered to pay the costs of the application. 

12.  I do not rule out the possibility that there may be extreme cases where the Elgindata principles should apply despite the presence of material non-disclosure.  But this is not one of those.  I also emphasis that apportionment of costs in a case like this will downplay the importance of the requirement of full and frank disclosure in ex parte applications. 

Other arguments

13.  The plaintiff also reminded me that this is a case of application for leave to serve a concurrent writ out of the jurisdiction and it is not the practice to issue an inter partes summons to invite the defendant to argue it out.  But I do not see this as a ground that can water down the importance of full and frank disclosure of all material facts and matters in ex parte applications.  In ex parte applications, the court relies wholly on the applicant to inform it of all material facts and matters.  The court must be assured that the reliance is not misplaced.  Hence, the serious consequence to follow upon infringement.

14.  The plaintiff finally submitted that the non-disclosure was committed as an error of judgment and not deliberate.  It thus seeks no order as to costs for the jurisdictional issue as a fallback position.  However, if the deficiency was committed deliberately, I would have ordered costs to be taxed at a higher scale.  I do not accept this submission either.

15.  At the end of the hearing, I dismissed the plaintiff’s application with costs and certificate for counsel.  These costs will be assessed summarily together with the costs of the substantive application.