MGA ENTERTAINMENT INC formerly known as ABC INTERNATIONAL TRADERS INC doing business as MGA ENTERTAINMENT v. TOYS & TRENDS (HONG KONG) LTD AND OTHERS

FACV No. 6 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 6 OF 2013 (CIVIL)

(ON APPEAL FROM CACV NO. 104 OF 2011)

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JUDGMENT ON COSTS

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Mr Justice Fok PJ :

1. By its Judgment dated 5 February 2014, the Court unanimously allowed the plaintiff’s appeal against the assessment on the inquiry into the loss sustained by the defendants as a result of the interlocutory injunction granted to the plaintiff.  In substitution for the Judge’s assessment of that loss in the amount of US$7,250,000, which a majority of the Court of Appeal upheld, this Court assessed that loss at US$450,000 with interest.

2. As directed by the Court, the parties have now filed submissions in writing on costs and the period for which interest should run.

3. The parties have agreed interest in the sum of US$271,567.50 and so the remaining dispute between the parties relates only to the question of costs.

4. This is the judgment of the Court as to those costs.

5. The plaintiff’s stance is that the defendants made a grossly exaggerated claim of US$7,245,044 at the inquiry into damages before the Judge and, on the footing that they should only have recovered US$450,000 plus what would at the time of the inquiry have been a relatively modest amount of interest, the plaintiff submits the real winner is the plaintiff so that the entirety of the costs of the inquiry as well as both appeals should be awarded in its favour.

6. The defendants for their part take a diametrically opposite position to that of the plaintiff and contend that all the costs of the inquiry and the costs of the appeals to the Court of Appeal and this Court should be awarded to it.  Their submission is that the inquiry was inevitable because the plaintiff was not prepared to submit to an award of damages greater than the amount of a sanctioned payment in the sum of US$231,612.80, which was substantially less than the amount to which they have been adjudged to be entitled.

7. Despite the citation by the parties of various Rules of the High Court and authorities on costs, the resolution of the issue of costs in this case boils down to a pure exercise of discretion and no question of principle is raised.

8. So far as the costs of the inquiry are concerned, it is clear that the defendants had to proceed to a hearing of that inquiry in order to recover more than the assessment proffered by the plaintiff’s expert in the sum of US$171,788.  As events have shown, that assessment was only about one-third of what the defendants have in fact been awarded.  In addition, although the plaintiff made a sanctioned offer of US$180,000 (exclusive of interest) or US$200,000 (inclusive of interest) and then a sanctioned payment equivalent to US$231,612.80 before the hearing of the inquiry, the amounts of the sanctioned offers and payment were insufficient to compensate the defendants for their losses caused by the injunction.  On the other hand, the defendants’ reliance on the testimony of their expert in order to seek to recover US$7,245,044 was unjustified for the reasons explained in this Court’s Judgment of 5 February 2014.  It is clear that considerable time was spent at the inquiry on the challenges to the evidence of the defendants’ expert in particular his assessment on the basis of ten years’ loss of profits.

9. A proper exercise of discretion on the question of costs of the inquiry would lead to an award of costs in favour of the defendants but discounted to reflect the inflated claim, which was not reasonably arguable and led to a considerable amount of time wasted.

10. So far as the appeal costs are concerned, the plaintiff was obliged to pursue the appeal to the Court of Appeal in the light of the excessive award of damages entered by the Judge.  Similarly, the plaintiff correctly pursued its appeal to this Court in the light of the Court of Appeal’s dismissal of the appeal from the Judge. 

11. In terms of the result, in place of the order to pay the defendants damages in the sum of US$7,250,000 plus interest, the plaintiff has now been ordered to pay the significantly reduced sum of US$450,000 plus interest.  Even taking the interest into account, the damages assessed by this Court represents less than 10% of the loss claimed by the defendants.  The plaintiff is therefore properly to be regarded as the real winner of the litigation on the appeals.

12. In the circumstances:

(1) The plaintiff shall pay 75% of the defendants’ costs of the inquiry, to be taxed on a party and party basis, if not agreed;

(2) The defendants shall pay the plaintiff’s costs of the appeal in CACV 104/2011 to be taxed on a party and party basis, if not agreed; and

(3) The defendants shall pay the plaintiff’s costs of this appeal to be taxed on a party and party basis, if not agreed.