MANOVA INTERNATIONAL LTD v. GIGA TECHNOLOGY CO LTD AND ANOTHER

HCA 733/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. 733 OF 2009

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REASONS  FOR  DECISION

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1.  The receiving party failed to beat the sanctioned payment under Order 62A.  I have to consider whether to impose the sanctions pursuant to Order 62A, rule 19(3) and/or disallow costs of taxation under general principles. 

Background

2.  This claim was in breach of copyright.  The substantive steps taken by the Plaintiffs were engaging agents in investigations, issuing a cease and desist letter with a draft undertaking not to infringe the copyright and agreement to pay damages and costs, issuing a writ, drafting and considering pleadings and a small amount of correspondence.  After being served with the writ (in March 2009), the Defendants had repeatedly asked the Plaintiff for proof of ownership. Such was not provided until close of pleadings when the Plaintiff served voluntary particulars. That was on 1 June 2009, 2 ½ months after the writ was issued. 

3.  In the course of negotiation, the Plaintiff’s solicitors sent a letter dated 26 June 2009 (“the June letter”) to the Defendant stating that the “estimated amount of legal costs and disbursements” incurred to date was $120,000. 

4.  About a month after proof of ownership was provided, the action was settled by consent summons on 7 July 2009 (“the Consent Summons”).  No damages were sought from the Defendants.  Costs were to the Plaintiff to be taxed, hence this taxation.

5.  Taxation commenced in November 2009 when the Plaintiff filed a bill for $272,464 (excluding the costs of Taxation).

6.  Four weeks after the bill was filed the Defendants made its 1^st sanctioned payment for $85,932 and filed the list of objections.

7.  On 11 December 2009, the Defendants made the 2^nd sanctioned payment, topping up the amount to $127,000, all inclusive.

8.  Three weeks later, on 2 January 2010, the Plaintiff proposed to settle the costs at $165,788 exclusive of interest.

9.  The bill was taxed at an oral hearing.  The receiving party failed to beat the 2^nd sanctioned payment.

10.  The questions to be answered are:

(i)    Whether the sanctions under Order 62A, rule 19 should apply.

(ii)  Whether I should disallow all costs of taxation.

Whether the Sanctions under Order 62A, Rule 19 Should Apply

11.  The paying party seeks indemnity costs and disallowance of the receiving party’s costs of taxation. 

12. The receiving party invites me not to impose those sanctions on the ground that it had demonstrated an intention to settle without taxation by proposing to receive a sum of $165,788.  Moreover, it did not expect that I would reduce the hourly rate of the handling solicitor from $4,000 to $3,200.  But for that substantial reduction, the sanctioned payment would have been beaten.  Finally, the de minimis rule should apply in its favour.  This is because adding taxed costs (about $110,000),  taxing fees and interest would give an amount of about $125,000, which is just about $2,000 below the 2^nd sanctioned payment. 

13. In my view, demonstration of an intention to settle is not sufficient to avoid the sanctions under Order 62A, especially since the sum which the receiving party has offered to receive in settlement was much higher than the taxed costs.  Moreover, reduction in hourly rate is one of the risks in taxation that a receiving party always faces.   The reduction in the present case came about when after hearing submissions, I found that this action was at the lower end of complexity.  From taxing similar bills of the Plaintiff’s solicitors in the past, I found that a lot of the court documents filed in this case were quite standard.   There was no strong evidence to show that the damages claimed should fall outside the jurisdiction of the District Court. The ample time given to consider the 2^nd sanctioned payment and the difference of $2,000 between it and the taxed costs do not justify the application of the de minimis principle to this case. 

14. Accordingly, pursuant to Order 62A, rule 19(3), the paying party is entitled to costs on indemnity basis from after the date the 2^nd sanctioned payment was made (i.e. from 12 December 2009).  This will also mean that, in principle, the receiving party will have the costs for items C1-3 in the bill for preparing the bill and considering the list of objections. 

15. However that is not the end of the matter.  There is need to consider whether even items C1-3 ought to be disallowed as well when one considers the conduct of the receiving party under Order 62, rule 5(c).

Whether I should disallow all costs of taxation

16. In deciding this question, I have to consider 3 matters:

(a)    Failure to settle at an earlier stage.

(b)   Failure to seek summary assessment under the Consent Summons; and

(c)    Inflation of costs.

(a) Failure to Settle at an Earlier Stage

17. As in many intellectual property cases, a plaintiff is not obliged to readily accept an infinger’s promise not to infringe in future.  Equally, a defendant is not obliged to succumb to a plaintiff’s demands for an injunction against breach of copyright, damages and costs but to ask for proof of the plaintiff’s rights. 

18. In the present case, the correspondence revealed the Defendants as being very keen to settle, subject to the Plaintiff proving its copyright ownership.  Had it been provided earlier, it might mean that a lot of the pleadings was unnecessary and the Defendants would not have to bear some of the costs.

19. However, having considered the submission of the Plaintiff, I am of the view that this was not a clear case of the Plaintiff acting maliciously (as opposed to being cautious).  As Mr. Kong for the Plaintiff submitted, “Two of the main purposes of the Action for the Plaintiff are to restrain the Defendants from future infringement and disclosure of the Defendants’ infringing activities with sanction to breach.  Mere undertaking does not afford security to the Plaintiff in view of the investigation findings.  To the Plaintiff, the Defendants were unreliable and injunction orders/ undertakings to the Court were required.”  I am unable to say that the steps taken after issuing of the writ were out of spite in the present case and hence will not hold against the receiving party on this issue.

(b) Failure to Seek Summary Assessment under the Consent Summons

20. Admittedly, neither party sought summary assessment of costs.  Mr. Kong for the receiving party explained that it was because seeking summary assessment might hinder a settlement and increase costs.  In addition, summary assessment usually took place after a hearing but not in the case of a consent summons.

21. I respectfully differ from Mr. Kong’s views.  It is common knowledge that summary assessment saves rather than increases costs.  (Just by way of comparison: no costs will be allowed for drafting a statement of costs and it takes the Court about 15 minutes to do a summary assessment.  In this case, however, a legal executive was said to have spent 8 hours reviewing the files, drafting the bill and preparing the Notice of Commencement of Taxation and the total taxation time was about 4 hours.  Taxation was completed 7 months after the Consent Summons.)  Where parties have agreed on all terms, there is nothing to prevent them from leaving a single issue of costs for the Court to decide.  In the present case, however, I will not hold against the receiving party on this issue.   The consent summons was entered into without any hearing being fixed.  Practice Directions 14.3 does not specifically require parties to consider summary assessment in such circumstances although the first 3 underlying objectives in Order 1A, rule 1 would have made this a natural consideration. 

22. I would only add this.  In the past 9 months since the Civil Justice Reform took effect, many bills put before Masters for taxation (usually on paper) were for costs pursuant to interlocutory applications.  Since the concept of summary assessment is well-established, it is time for more use to be made of it even for a consent summons – to reduce costs, avoid taxing fees and save the Court’s time.  If a paying party wants more time to pay after the summary assessment, that can also be dealt with by the judge or master endorsing the consent summons.  In an appropriate case in future, it may be that costs of taxation may be disallowed where summary assessment was clearly appropriate.

(c) Inflation of Costs

23. There is nothing on the face of the evidence to show a breach of the indemnity principle. The considerations in this case are purely on the basis of party-and-party taxation.

24. A claim for over $270,000 for costs appeared to be staggering to the Defendants who had all along indicated a willingness to settle and the case was settled at an early stage with no complications.  

25. What is more striking is that in between the June letter and the filing of the bill of costs, the amount of costs escalated from $120,000 to $270,000. Mr. Kong explained that $120,000 was an estimated amount of what the client would settle for.  Unfortunately the June letter would have led a reasonable reader to think that it was an amount of costs incurred by the Plaintiff up till then.  The natural question to ask is: what was the justification for more than doubling the costs in 5 months’ time when the substantive steps were only the taking out of the Consent Summons and some correspondence?  In my view, there was none.  It gave an impression of inflation of the costs, and of charging an amount entirely disportionate to the work done.  It made settlement even more difficult and required the paying party to incur more costs (in the present case $20,000 costs of taxation were claimed) to test how genuine the bill was.

26. I find what the receiving party to have done in this case to be unreasonable and the costs claimed were disproportionate to the work involved.  Had they claimed the amount of $120,000 or thereabouts, with reasonable adjustments for work done after June, the taxation might have been easily disposed of.  I therefore disallow even items C1-3 under Section C of the bill.

27. I have considered whether to award costs of preparing the list of objections to the paying party but decided against it.  The fact was that their 1^st sanctioned payment remained beaten.  It is just to leave each party to bear its/his own costs in relation to the list of objections.

Interests

28. The receiving party has not shown why the interest sanctions under Order 62A, rule 19 should not apply.  Accordingly, I disallow interest on their costs from 25 December 2009 under rule 19(2) to the date of this Decision (both dates inclusive).  I also award interest on the paying party’s costs from 12 December 2009 to the date of payment.  As the receiving party’s conduct was not of the worst kind, interest to the paying party at 3% above judgment rate will be a sufficient penalty.

Conclusion

29. The receiving party should not be penalized for not settling at an earlier stage or for failing to seek summary assessment of costs.  However, it has failed to beat the 2^nd sanctioned payment and there is nothing to exempt them from the consequences imposed by Order 62A, rule 19(3).  Additionally, for acting unreasonably and claiming disproportionate costs thereby necessitating a taxation, the receiving party should be deprived of all costs of taxation incurred even before the 2^nd sanctioned payment was made and some of the interest. 

30. I order as follows: -

(i)    All costs of taxation under section C of the bill are disallowed.

(ii)  Interest on taxed costs of the receiving party from 25 December 2009 to 26 February 2010 (both dates inclusive) are disallowed.

(iii)    Each party will bear its/his own costs in relation to the list of objections.

(iv)    The receiving party shall also bear the costs of the paying party on indemnity basis from 12 December 2009 with interest thereon at 3% above judgment rate  to the date of payment.

(v)  A statement of costs shall be filed and served by the paying party by 5 March 2010.  Grounds of objection shall be filed and served by the receiving party by 12 March 2010. 

(vi)    There will be summary assessment of the paying party’s costs on the papers without a hearing on 15 March 2010.