KINETICS MEDICAL AND HEALTH GROUP COMPANY LTD AND OTHERS v. DR TSE IVAN CHEONG YAU

HCA 1115/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1115 OF 2010

I.  INTRODUCTION

1.  By a judgment dated 7 October 2013 (“Judgment”), this court made the following order and costs order nisi:

(a) judgment be entered in favour of the plaintiffs against the defendant for the balance of the purchase price in the sum of $959,994 and judgment be entered in favour of the defendant against the plaintiffs for damages for breach of contract in the sum of $174,240, resulting in a net judgment of $785,754 in favour of the plaintiffs against the defendant with interest thereon from the date of the Writ of Summons to the date of the Judgment at the rate of 8%pa and thereafter at judgment rate until payment;

(b) costs order nisi that the defendant do pay the plaintiffs costs of this action (including half of the costs of the counterclaim and all costs reserved if any) on High Court scale to be taxed if not agreed (“Costs Order”).

2.  Following the Judgment, both parties have issued summonses returnable before me on 11 December 2013:

(a) on 11 October 2013, the defendant filed his summons to vary the Costs Order to the effect that (i) there be no order as to costs of the plaintiffs’ claim and the plaintiffs do pay the defendant costs of the counterclaim to be taxed if not agreed, or alternatively (ii) costs of the plaintiffs’ claim be apportioned and borne by the parties in such proportion/percentage as the court deems fit and appropriate and the plaintiffs do pay the defendant costs of the counterclaim to be taxed if not agreed (“D’s Summons”);

(b) on 17 October 2013, the plaintiffs filed their summons for an order that certificate for two counsel be granted (“Ps’ Summons”).

3.  For the sake of convenience, I shall adopt herein the abbreviations used in the Judgment.

II. Ps’ SUMMONS – SYNOPSIS

4.  The defendant had no objection to the grant of certificate for two counsel for any costs order absolute that this court might make. The plaintiffs submitted that if D’s Summons were dismissed, the court should vary the Costs Order to specify that there be certificate for two counsel.  But the defendants argued that should the court decide there be no order as to costs of the plaintiffs’ claim, then apart from costs of the counterclaim which should be paid by the plaintiffs to the defendant to be taxed if not agreed with certificate for two counsel, the question of certificate for two counsel in relation to costs of the plaintiffs’ claim would become academic without further need to make any order under P’s Summons.  Alternatively, even if the defendant were required to pay a percentage of costs of the plaintiffs’ claim, the plaintiffs should still be required to pay costs of the counterclaim, and it might well be that after set-off, the ultimate costs order would be one for no order as to costs of the action in which case P’s Summons would be academic.

III. D’s SUMMONS – SYNOPSIS

5.  For costs of the plaintiffs’ claim, the defendant argued that given my findings, in particular my rejection of the plaintiffs’ pleaded case that there had never been any C/G Period, and further given substantial time and costs had been spent on such case, the fair and appropriate order would be that there be no order as to costs.  Alternatively, it would be unjust to require the defendant to be responsible for the entire costs of the plaintiffs’ claim given that substantial time/costs had been spent on the plaintiffs’ case (which I had rejected) that there had never been any C/G Period, and in such circumstances an apportionment of costs would be appropriate and at most the defendant should only bear 10% (or such other percentage as the court might think fit) of the costs of the plaintiffs’ claim.

6.  For the counterclaim, the defendant argued that given my findings that the plaintiffs were in breach of contract in failing to provide Ortho Support and my order that they should pay the defendant $174,240 as damages for such breach, the defendant was the successful party and there was no reason to depart from the general rule that costs follow the event, so the defendant claimed the plaintiffs ought to pay costs of his counterclaim to be taxed if not agreed.

7.  The plaintiffs contended that my findings in the Judgment did not support the defendant’s contentions described above, and the Costs Order should be made absolute with certificate for two counsel.

IV. BACKGROUND

(a) Claim and counterclaim

8.  On 22 July 2010, the plaintiffs commenced the present action to claim for the outstanding Balance Price of $959,994 for the Shares of the Company (being the corporate vehicle for the Clinic) and for the Other Sums. The defendant paid the Other Sums to the plaintiffs on 4 March 2013 shortly before the commencement of trial on 21 May 2013.[1]  For the Balance Price, it was common ground that the defendant was contractually obliged under the Memorandum, Dec06 Agreement and/or Agreement to pay the same to the plaintiffs, and the Balance Price was still outstanding and unpaid at the time of trial.[2]

9.  By his Defence and Counterclaim, the defendant claimed that in breach of contract the plaintiffs failed to provide or procure the provision of the Support for him as set out in the Addendum (including, but not limited to, failure to provide Locum and VMO Support) and to pay Physio Hire from March 2007 to April 2010, and further failed to provide Ortho Support from August 2007 to April 2010, and as a result he suffered loss and damages.[3]

10.  Further, the defendant claimed that by reason of (a) the plaintiffs’ aforesaid breach of contract and/or (b) his average monthly net income from the Clinic from March to September 2007 falling below $53,000, he was entitled to and did suspend payment of the Balance Price as from April 2007 pending agreement on reducing the amount of the Price and/or the plaintiffs resuming provision of adequate Support for the Clinic.[4]

11.  Still further, the defendant claimed that in breach of the Collateral Agreement, Drs Tse and Yu failed to personally provide Locum Support at the Clinic up to a maximum of 100 hours per year and VMO Support at least twice a week, and the defendant thereby suffered loss and damages.[5]

12.  The defendant counterclaimed for the loss/damages he suffered as a result of breach of contract by the plaintiffs and breach of the Collateral Agreement by Drs Tse and Yu. Subsequently, the defendant abandoned his counterclaim for the loss/damages he suffered due to the plaintiffs’ failure to provide Locum Support,[6] to provide VMO Support, to pay Physio Hire, and to provide or procure to be provided other Support set out in the Addendum.[7]  The only remaining counterclaim was for the Ortho Support Loss being loss/damages due to the plaintiffs’ alleged failure to provide Ortho Support from August 2007 to April 2010.

13.  The plaintiffs denied they failed to provide adequate Support for the defendant/Clinic.  They claimed they continued to provide support gratuitously after the defendant took over control/operation of the Clinic in March 2007 to help him establish his practice at the Clinic (and the Support in the Addendum was not a condition for payment of the Price), but denied they ever provided Ortho Support.  Further, the plaintiffs claimed the defendant never specified the TNI that would allegedly trigger the “grace period” in the Addendum.[8]

(b) Judgment

14.  In the Judgment, I concluded that the defendant was honest and reliable on the core matters (save for the matter of the Collateral Agreement and some of the Support services for the Clinic), but the evidence of the plaintiffs’ witnesses (ie Mr Chan, Dr Tse, Dr Yu and Ms Kwan) was unsatisfactory.  I have found that certain aspects of their evidence were unreliable and unconvincing, and they were not above embellishing their case and/or changing their evidence to suit their contentions.[9]

15.  I also found that the parties had entered into the Dec06 Agreement, and they agreed that the plaintiffs would continue their Support (but without canvassing the particular kinds of Support) until April 2010.[10]  The defendant took over the operation/management of the Clinic on 9 (or 10) March 2007, but he only secured financial control on 12 May 2007.  There were discussions between the parties over the instalment payments of the Price in March 2007, and they were keen to resolve the matter.  After a series of discussions and emails, the parties made the Mar07 Agreement over the terms of the C/G Period.[11] But the defendant failed to establish there was any Collateral Agreement.[12]

16.  I went on to find in the Judgment that following the Mar07 Agreement, the defendant exercised the C/G Period and suspended payment of the 5^th Instalment on the basis that the TNI was not met and/or there was inadequate Support.[13]  On/about 7 May 2007, the parties entered into the Agreement and Addendum, and the latter provided that the defendant was entitled to exercise the C/G Period on the basis that (a) the average monthly income of the Clinic was less than the TNI of $53,000 per month and/or (b) the plaintiffs failed to provide adequate Support as listed in Clause 5 for the defendant/Clinic.[14]

17.  In the Judgment, I concluded that in the early months after the handover of the Clinic in 2007, the monthly income of the Clinic was below the TNI, hence the defendant was entitled to and did continue with the C/G Period.  But due to eventual increase in the Clinic’s income, the defendant could no longer rely on this ground to maintain the C/G Period even before the commencement of the present action.[15]  But there was inadequate Support in that the plaintiffs failed to provide or cause to be provided Locum Support,[16] VMO Support,[17] Ortho Support,[18] the handbook for daily clinical practice[19] and secretarial support,[20] which justified the exercise and/or continuation of the C/G Period.[21]

18.  But the defendant failed to establish any breach of contract by the plaintiffs to pay for Physio Hire,[22] to organise public health talks and vaccinations,[23] to arrange for health check days at the Clinic,[24] to provide other health care support,[25] to give individual case management advice,[26] to oversee clinic operations and staff training,[27] and to provide accounting support.[28]  The post-Agreement email communications between the parties also supported these findings.[29]

19.  Since the defendant admitted (a) he was contractually obliged to pay the outstanding Balance Price to the plaintiffs, (b) he was only entitled to suspend and not extinguish such obligation if either or both conditions for the exercise of the C/G Period under the Addendum were satisfied, (c) he no longer satisfied the first condition for the continuation of the C/G Period (ie the monthly net income of the Clinic falling below the TNI) by 2009, and further given the Ortho Support Loss of $174,240 (as found under the defendant’s counterclaim) that crystallised the defendant’s claim for loss/damages arising from the plaintiffs’ breach of the Dec06 and Mar07 Agreements as well as the Agreement and Addendum (which award of damages was less than the outstanding Balance Price), I held that the defendant should pay the plaintiffs the net judgment of $785,754 being the Balance Price ($959,994) less the Ortho Support Loss ($174,240).[30]

20.  The above thumbnail sketch of the present action culminating in the Judgment is not for the purpose of reiterating old ground, but to put the question of costs in its proper factual context.

V. LEGAL PRINCIPLES

21.  It is evident from oral submissions at the hearing that Mr Ng (and Mr Lui with him), counsel for the defendant, and Mr Tang (and Ms Kei with him), counsel for the plaintiff, had no dispute over the relevant legal principles.

22.  The starting point is Order 62 rule 3(2) of the Rules of the High Court (“RHC”) which provides as follows:

“If the Court in the exercise of its discretion sees fit to make any order as to costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

23.  Order 62 rule 5(1)(aa), (e) and (f) and 5(2) of the RHC provide that the court in exercising its discretion as to costs shall take into account the following matters:

(a) the underlying objectives set out in Order 1A, rule 1 of the RHC; and

(b) the conduct of all the parties, which would include:

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

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

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

(iv) conduct before, as well as during, the proceedings;

(c) whether a party has succeeded on part of his case, even if he has not been wholly successful.[31]

24.  The underlying objectives in Order 1A rule 1 of the RHC are as follows:

“(a) to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court;

(b) to ensure that a case is dealt with as expeditiously as is reasonably practicable;

(c) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings;

(d) to ensure fairness between the parties;

(e) to facilitate the settlement of disputes; and

(f) to ensure that the resources of the Court are distributed fairly.”

25.  Under Order 62 rule 7(1) of the RHC, it is only where a successful party raises issues or makes allegations improperly or unnecessarily that he may be ordered to pay a part of the other party’s costs.[32]

26.  As explained by the Court of Final Appeal in Mariner International Hotels Ltd v Atlas Ltd (No 2), “[a] party seeking to displace the general rule that costs should follow event naturally bears the burden of showing that the circumstances justify the exceptional course of such displacement”.[33]

27.  The principles governing the award of costs have been identified by Nourse LJ in In re Elgindata Ltd (No 2) [34] and summarised by Yuen JA in Wang Din Shin v Nina Kung alias Nina T H Wang [35] 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].”

28.  As Tang Atg CJHC (as he then was) noted in Kwan Siu Wa Becky v Cathay Pacific Airways Limited,[36] Lam J (as he then was) said in Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd (No 4) as follows:[37]

“13. I also bear in mind what was said at para 24 of the judgment of Lord Carswell in Seepersad v Persad [2004] UKPC 19,

The general rule which should be observed unless there is sufficient reason to the contrary is that costs will follow the event. Where the party who has been successful overall has failed on one or more issues, particularly where consideration of those issues has occupied a material amount of hearing time or otherwise led to the incurring of significant expense, the court may in its discretion order a reduction in the award of costs to him, either by a separate assessment of costs attributable to that issue or, as is now preferred, making a percentage reduction in the award of costs … The Court of Appeal’s order was predicated upon the proposition that the assessment of damages for pain and suffering and loss of amenity was a separate issue from the assessment of the other heads of damage. This was an incorrect assumption. An issue for these purposes must be something so distinct and separate in itself that the decision of it constitutes as ‘event’. The ‘event’ was the quantum of damages to which the appellant was entitled and he succeeded on his appeal in obtaining a higher award than the judge had given … Their Lordships accordingly consider that the Court of Appeal had insufficient ground for reducing the award of costs made to the appellant and that he should have been awarded full costs in that court … (my emphasis)

14. One therefore starts with the premise that a successful party is prima facie entitled to the full costs of the action.  The burden is on the losing party to show that there is good reason to depart from the general rule.  The exercise is a matter of discretion.  It would be wrong to read Elgindata as laying down that as a rule, the court must (instead of may) deprive a successful litigant of costs for his failure on a discrete issue which caused a significant increase in costs.  The court has to exercise its discretion to achieve a just result having regard to the circumstances of the case.”

29.  In Commissioner of Inland Revenue v HIT Finance Limited, the Court of Final Appeal held that the discretion to depart from the normal rule that costs should generally follow the event should be approached with due circumspection.  Since the Commissioner was the real winner, the general rule is that costs follow event – in other words, go to the real winner – except if and when it appears to the court that in all the circumstances some other order as to costs should be made:[38]

“6. Not every point taken by the Commissioner proved to be a winning one. But there is nothing exceptional about a case being won on only some of the winner’s points.

7. There is a discretion in the court to deprive a successful party of the whole or part of his costs because he had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed.  That can be done even if it was not unreasonable to have raised those issues.  Whether or not it should be done depends on all the circumstances.  This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event.  It is to be approached with due circumspection so as not to undermine the utility of that general rule.  In the circumstances of the present case, after weighing the rival arguments on costs, we do not consider it appropriate to deprive the Commissioner of any of her costs. ……”

30.  In Waddington Limited v Chan Chun Hoo Thomas & ors,[39] the Court of Final Appeal held that the appeal succeeded on one point (which was an important point of law) and not on the other, and said as follows:

“9. …… There can be circumstances in which it would be appropriate to make an order as to costs that deprives the substantial winner of some of his costs for the reason that his arguments on one or more points have not prevailed. But in the present circumstances Waddington’s victory was so substantial in practical terms that there is no reason why the costs of this Court should not follow the event. They should be awarded to Waddington.”

In Yiu Hon Lam v Chan Yu Chun, the Court of Appeal allowed the appeal against the order by the first instance judge that the defendant pay half of the plaintiff’s costs upon dismissal of the claim for damages for defamation, and ordered the plaintiff to pay the defendant 80% of her costs below.  Tang VP (as he then was) referred to the observations above in Waddington Limited and held that the defendant was the real winner and her victory was substantial, so she should not be deprived of any part of the costs of the appeal. The learned judge said that “as Waddington Ltd shows that it is not necessarily a reason for depriving her of some of the costs.”[40]

31.  In Regent National Enterprises Ltd v Goldlion Properties Limited,[41] it was held that two discrete issues raised by the party that was ultimately successful “added significantly to the length and costs of the proceedings”, and they should result in a reduction of the costs to be awarded to the party who, although ultimately successful, did not win on those issues.  The Court of Final Appeal therefore reduced such party’s entitlement to its costs there and below by 20%, and awarded to it 80% of those costs.

32.  Poon J in Big Island Construction (HK) Ltd v Wu Yi Development Ltd & Anor reiterated the above principles.[42] In that case, the learned judge ordered BIC to pay costs to the Wu Yi Parties. He rejected all major components of BIC’s claim and made findings there were lies and fabrication of evidence to pursue an invented claim.  But the conduct of the Wu Yi Parties who made up a particular defence which was incredible and which took up considerable time was equally bad.  Having regard to the parties’ conduct and the way they had pursued the claim and defence, under Order 62 rule 5(2) of the RHC and in order to achieve a just result overall, the learned judge varied the costs order nisi and ordered there should be no order as to costs as between the parties.[43]

33.  In Zhuhai International Container Terminals (Jiuzhou) Limited v Lo Tong Hoi & anor,[44] the Court of Appeal noted that the court below ruled against the 1^st defendant who successfully resisted the plaintiff’s claim on his alternative ground of defence, which was a discrete issue that added significantly to the time and costs of the proceedings, and deprived the 1^st defendant of 25% of the costs below for raising the failed issue.  Kwan JA with whom Cheung and Yuen JJA concurred said as follows:

“33. …… On established principles, it is held that it is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs. The court may so order where the failed allegation of the successful party has caused significant increase in the length or costs of proceedings (Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214B to C). By the amendments introduced to Order 62 rule 5, litigants should bear in mind the possible costs implications. There is incentive to conduct litigation in a responsible way and be selective as to the issues raised.”

34.  In Wong Wai Kay v Hong Kong Economic Journal Company Ltd & anor,[45] Chung J dismissed the action and awarded half of the costs of the trial and two-thirds of the costs of the action (including any reserved costs) to the defendant. Globally, apart from the issue of whether the subject article bore any defamatory meaning (taken as a whole), the learned judge found against the defence on four other issues at trial. Considerable time had been spent to deal with witness/documentary evidence and written/oral submissions on those issues.  Further, the credibility of the plaintiff’s witnesses had been accepted, but the testimony of the defendants’ witness was found to be less than convincing. Since half of the time and expenses of the trial (and one-third of the other costs of that action) had been incurred to deal with the matters set out above, there had been a substantial increase in the length (or costs) of the action, to the extent indicated above.

35.  Recently in Mega Yield International Holdings Limited v Fonfair Company Limited,[46] DHCJ Woo discussed the impact of the Civil Justice Reform on the Elgindata principles as follows:

“8. The “following the event” in principle (ii) is no longer regarded as a general rule but “only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case, since “a mechanistic adoption of the ‘following the event principle’ may result in parties incurring unnecessary costs in civil litigation” (Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No 2) [2012] 2 HKLRD 1125 at 1133-1135, paras 10-13 and Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679 at 701, para 100), and “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” (AEI Rediffusion Mustic Ltd v Phonographic Performance Ltd [1999] 1 WLR 1057, at 1522-1523; see also Chan Ching Kit Katherine v Lam Suk Kei, HCMP 2239/2000 (8 October 2002, unreported) paras 10-12; Chan Mei Yiu Paddy v Secretary for Justice, HCAL 16-19/2007, HCMP 1175/2007 (9 December 2010, unreported) para 5).

9. The emphasis of principle (iii) has also been shifted. It is less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed (AEI, supra, at 1523-1524; Wong Kam Tong, supra, at 1133-1135, paras 10-13; Chan Ching Kit, Katherine, supra, at paras 10-12; Chan Mei Yiu Paddy, supra, at para 7; and Zhuhai International Container Terminal (Jiuzhou) Ltd v Lo Tong Hoi, CACV 181/2011 (12 July 2012, CA, unreported) at para 33, nor is it necessary to show that the plaintiff has deliberately wasted time and costs. In short, intent is irrelevant: Re Ricacorp Limited, CACV 3884/2001 (16 July 2002, unreported) at paras 23-24, upheld on appeal (2003) 6 HKCFAR 265. Even before the CJR, “where the issues as to which the petitioner was unsuccessful were substantive rather than peripheral, that alone would have justified depriving the petitioner of at least a proportion of his costs”: Re Ricacorp, supra at para 24.

10. “… where principle (3) [ie principle (iii) in Re Elgindata] refers to a significant increase in the length or costs of the proceedings, this does not mean that a precise quantum of costs over a particular threshold must be ascertained.  … the phrase simply requires the court to be satisfied that the increase is one that can be estimated as a more than trifling proportion of the total costs.  As for the question of isolation of those costs from the costs of a successful cause of action, I do not consider that it is necessary for the court to be able to quantify this to any precise extent.  It suffices if the court can give an estimate of the proportion of these costs”: Chan Lan v Shing Kei & Anor, HCA 1260/2006 (16 June 2008, unreported) at para 16.

11. There is no hard and fast rule as to how an “issue” is defined in this context.  It all depends on the circumstances of the case: Wong Kam Tong, supra, at 1136, para 16.  

12. A party may be deprived of part of his costs on the “failed issues” even if such costs overlap with those of the “succeeded issues”.  This may be the case where, for instance, the trial would not have gone to the length it had gone to, or costs would not have accumulated to the extent that they have accumulated, if the failed issues had not been raised: Zhuhai International, supra, at para 33.”

The learned judge also referred to Order 62 rule 5(1)(aa), (b), (e) and (f) and rule 5(2) of the RHC and the underlying objectives in Order 1A rule 1 of the RHC, and to the admonition in Zhuhai International Container Terminals (Jiuzhou) Limited that in light of the amendments introduced to Order 62 rule 5 of the RHC litigants should bear in mind the possible costs implications, and that there is incentive to conduct litigation in a responsible way and be selective as to the issues raised.

36.  In summary, the starting point is that costs should follow event, and a party seeking departure from that bears the burden of showing a departure is justified. The court has a discretion to deprive a successful party of costs incurred on failed issues if the issues in question are discrete and isolated and the arguments on those issues had caused a significant increase in the length or costs of the proceedings.  The court can only order a successful party to pay the costs of the unsuccessful party if the former raised issues or made allegations improperly or unnecessarily.[47] How the discretion is to be exercised in each case depends very much on the particular circumstances of the case.

VI. COSTS OF THE PLAINTIFFS’ CLAIM

37.  Mr Ng submitted that one key issue in respect of the plaintiffs’ claim was whether the parties agreed to (and whether the defendant was entitled to and did exercise) the C/G Period under the Mar07 Agreement to suspend payment of the Balance Price under one or both of the two conditions referred to in paragraph 16(a) above.  Since the plaintiffs by their pleadings denied any C/G Period and claimed that any support they provided to the defendant was on a gratuitous basis, substantial time (ie  about 70%- 80% of the time at trial) was spent on this key issue as demonstrated by the following:

(a) both parties’ witnesses (except perhaps Ms Kwan) were extensively cross-examined on this issue with cross- examination of the witnesses taking up seven days in an eight-day trial;

(b) the contemporaneous documents which featured in the cross-examination of witnesses all related to this issue, and a core bundle of email correspondence was prepared in the course of trial to facilitate such cross-examination;

(c) a large part of the Judgment was devoted to this issue.[48]

38.  Mr Ng submitted that the other key issue at trial was whether the plaintiffs agreed to provide clinical, marketing or management Support to the defendant and whether the plaintiffs were in breach of contract in failing to provide such Support, which formed the subject matter of the defendant’s counterclaim.  Mr Ng estimated that about 20%-30% of trial time was spent on this issue.

39.  Mr Ng submitted that the trial was essentially for determination of the above key factual issues, and after hearing the witnesses and considering the evidence this court rejected the plaintiffs’ case and also the evidence of their witnesses (which was found to be unsatisfactory and unreliable) on such issues and preferred the defendant’s evidence on such issues, in particular it was found that the parties did agree to and did exercise the C/G Period and there was inadequate Support provided by the plaintiffs that justified the exercise and/or continuation of the C/G Period.

40.  Mr Ng contended that this court’s conclusion there should not be “double benefit” or “double recovery” on the part of the defendant by obtaining and continuing to hold the Company/Clinic/Shares, refusing to pay the Balance Price and claiming for loss/damages under his counterclaim for the plaintiffs’ breach of contract for providing inadequate Support all at the same time as well as the court’s analysis of the effect of Clause 3 did not take up time for taking evidence at trial.

41.  Mr Ng submitted that it would not be fair and just for the defendant to bear the entirety of the costs of the plaintiffs’ claim even though I found against him and granted the net money judgment in favour of the plaintiffs upon set-off between the Balance Price and the award for the Ortho Support Loss, especially when I rejected the plaintiffs’ allegation that there had never been any C/G Period. Mr Ng argued that upon taking into account the underlying objectives and having regard to the manner the parties pursued their claim/defence, especially when I ultimately preferred the evidence of the defendant to that of the plaintiffs’ witnesses, a fair order that would achieve a just result overall would be no order as to costs of the plaintiffs’ claim.

42.  It was said that on the aforesaid grounds the second limb of principle (iii) in Elgindata was applicable in that the plaintiffs as the successful party raised issues or made allegations on which they failed, and such failed issues had caused a significant increase in the length or cost of the proceedings, so in all the circumstances the plaintiffs ought to be deprived the whole of the costs of their claim.

43.  Alternatively, Mr Ng submitted that taking into account all the circumstances, especially the plaintiffs’ unreasonable conduct in denying any C/G Period which allegation was eventually rejected by the court, any award of costs in respect of the plaintiffs’ claim should reflect this by apportioning such costs between the parties so that the plaintiffs would bear part of their own costs.  Mr Ng argued that apportionment of costs would be best based on an estimate of time and effort spent,[49] and since the resolution of the key issues pertaining to the existence or otherwise of the C/G Period and whether the defendant was entitled to exercise the C/G Period added significantly to the length and costs of the proceedings, the defendant ought only be required to bear at most 10% of the costs of the plaintiffs’ claim or such other percentage as the court might think fit. 

44.  Mr Ng went further to rely on principle (iv) in Elgindata. It is not clear why such principle is relevant since the D’s Summons did not seek to vary the Costs Order by asking the court to order the plaintiffs to pay the defendant the whole or a part of his costs in respect of the plaintiffs’ claim. Rather, the defendant only sought to deprive the plaintiffs of the whole or part of the costs of their claim.  The second limb of principle (iii) in Elgindata can apply to deprive the successful party of the whole or part of his costs even if it was not unreasonable or improper for such party to have raised some issues that failed or even if the successful party did not deliberately waste time and costs.[50]

45.  Be that as it may, I shall assume it was Mr Ng’s argument that the plaintiffs raised issues or made allegations (in particular the allegation that there had never been any C/G Period) “improperly or unnecessarily” to support the defendant’s application to deprive them of the whole or part of their costs even though there was no need to reach for such high threshold.

46.  Mr Ng relied on two grounds to suggest that the plaintiffs had raised issues or made allegations “improperly or unnecessarily”.  First, he submitted that the plaintiffs previously admitted to the existence of the C/G Period in paragraph 6(3) of the original version of their Reply and Defence to Counterclaim as verified by statement of truth, but the plaintiffs changed their case to dispute the existence of the C/G Period in their amended pleadings. But in the Judgment I concluded that I would not discredit the evidence of the plaintiffs’ witnesses merely on discrepancies between the plaintiffs’ pleadings and amended pleadings, and I preferred to assess their credibility/reliability on broad principles.[51]  I do not think the Judgment offered any support for Mr Ng’s suggestion that the plaintiffs acted improperly or unnecessarily on this matter.

47.  Next, Mr Ng submitted there was contemporaneous email correspondence that contradicted the plaintiffs’ case that there had never been any C/G Period. But the plaintiffs’ witness statements failed to deal with them, so much time had to be spent in cross-examination to elicit evidence on these documents from the plaintiffs’ witnesses, which evidence was ultimately rejected by the court. In my view, given the way how the C/G Period was featured in the case of the defendant, I am not persuaded that cross-examination of the plaintiffs’ witness would have been significantly shortened had their witness statements canvassed the subject.  To put in another way, I am not convinced that the scope of the statements of the plaintiffs’ witnesses reflected “unnecessary” or “improper” conduct or added significantly to the length and costs of the proceedings. In the circumstances, I do not think principle (iv) in Elgindata is of assistance.

48.  In my view, it is important to put Mr Ng’s submissions in their proper context.  Mr Ng’s submissions largely focused on what transpired at trial and was canvassed in the Judgment. But one must not lose sight of the fact that we are concerned with costs of the plaintiffs’ claim from the commencement of the action to its final disposal, and not merely costs of the trial. One therefore needs to look at the matter more broadly and avoid a blinkered perspective through the prism of the trial.

49.  Here, given that the defendant declined to pay the Balance Price which admittedly he was contractually obliged (but declined) to pay, the plaintiffs were necessarily entitled and indeed had to commence the present action to recover the same. In my view, they were fully justified in bringing the claim in the present action to secure what they were entitled.

50.  The pleaded quantum of the defendant’s counterclaim for failure to provide Locum, VMO and Ortho Support and to pay Physio Hire was $685,160, and the defendant further claimed general damages for the plaintiffs’ failure to provide other Support services. But ultimately the counterclaim was successful only to the extent of $174,240 in respect of Ortho Support Loss (which was still $113,520 less than the pleaded amount for such lead of loss), so looking at the financial result, the plaintiff is the overall successful party. Indeed, as pointed out in paragraph 45 of the Judgment, even if one were to take the defendant’s counterclaim for Ortho Support Loss (being the sole remaining head of loss under the counterclaim after the defendant abandoned all other heads of loss) to its highest, there was no escape from his having to pay the plaintiffs the Balance Price less the Ortho Support Loss as assessed with interest.

51.  In this respect, I note with interest the following observations in Hong Kong Civil Procedure 2014:[52]

“The correct approach in principle in money claims is that it is important to identify the party who has to pay money to another when deciding what order for costs to make where both the claim and counterclaim are successful. Where the value of a defendant’s counterclaim amounted to one quarter of the claimant’s claim the English Court of Appeal quashed an order that the claimant should pay the defendant’s costs on the counterclaim and ordered the defendant to pay 75 per cent of the claimant’s costs of the claim and counterclaim taken together: ACT Construction v Mackie [2005] EWCA Civ 2336.”

52.  Mr Tang argued that since the defendant’s contentions in relation to the C/G Period (even though they were accepted by this court) did not prevail over or extinguish his liability to pay the Balance Price such that the plaintiffs secured a net judgment in their favour, the defendant having merely won the battle and not the war failed to discharge the burden of displacing the general principle that costs follow the event.

53.  But in my view, there can be no denying the fact that the issues as to the existence and/or trigger of the C/G Period to suspend payment of the Balance Price were discrete and separate issues that took up time and costs at the trial, and the defendant was successful on these issues.

54.  But this is not the end of the matter. The defendant had to go further to establish that the condition in either (a) or (b) or both in paragraph 16 above persisted in order to maintain the C/G Period after it was exercised or triggered. Since the monthly income of the Clinic had increased beyond the TNI before the commencement of the present action, it was incumbent upon the defendant to establish inadequate provision of the clinical, marketing and/or management Support services to sustain the C/G Period as part of his defence.  But there were different and distinct items of Support services, and the defendant prevailed on some and failed on others.[53]  It was certainly not a landslide victory on these matters (which went to the defence and not just solely for the counterclaim) for the defendant. Further, the defendant also failed to establish the Collateral Agreement, which again was a separate and distinct issue.

55.  Looking at the matter globally, I do not agree with Mr Ng’s suggestion that what he described as the plaintiffs’ failed issues (or the issues upon which defendant succeeded) took up 70%-80% of the time at trial. This is particularly so since cross-examination of the plaintiffs’ witnesses on the email correspondences over the aforesaid issues in paragraphs 53-54 above in which the defendant won some and lost some and which went both to his defence as well as his counterclaim were in fact quite interwoven.  

56.  Likewise, I cannot agree with Mr Tang’s suggestion that the issues upon which the defendant prevailed only took up 10% of the time at trial.  Mr Tang referred to the 11 factual issues listed in paragraph 22 of the Judgment, and submitted that the issue of the C/G Period was only one of them.  The factual issues identified in the Judgment were matters on which the court had to make findings of fact in order to determine the dispute between the parties. Mathematical counting of the number of requisite factual findings would not assist for they might not proportionately correlate to their significance and/or contribution to the length and costs of the proceedings.

57.  Looking at the matter broadly with a view to achieve a just result having regard to all the circumstances, I am neither persuaded by Mr Ng’s suggestion of having spent severely substantial time and effort on the issue of C/G Period nor by Mr Tang’s suggestion of minimal time having been spent on such issue.  In light of the above analysis, it is wholly inappropriate to deprive the plaintiffs the entire costs of their claim when they were the overall successful party and the defendant failed on some matters, eg some of the Support services and the Collateral Agreement.  A just order that achieves fairness between the parties would be to deprive the plaintiffs of half of their costs of the claim.

VII. COSTS OF DEFENDANT’S COUNTERCLAIM

58.  Mr Ng argued that since I found in favour of the defendant on his counterclaim against the plaintiffs for breach of contract in failing to provide Ortho Support and awarded damages in the sum of $174,240 for such breach, the defendant was the successful party in the counterclaim and there was no reason to depart from the general rule that costs follow the event.  He submitted that the plaintiffs should pay the entirety of the defendant’s costs of the counterclaim notwithstanding that the defendant abandoned some heads of claim in his counterclaim.  Relying on the first limb of principle (iii) in Elgindata, Mr Ng contended that the general rule that costs follow the event did not cease to apply in respect of the defendant’s counterclaim simply because the defendant as the successful party raised issues or made allegations on which he failed.

59.  On the other hand, Mr Tang submitted that except for Ortho Support Loss, the defendant had abandoned all the other four heads of his counterclaim. Further, in respect of Ortho Support Loss, this court only awarded damages in the sum of $174,240 (which was $113,520 less than the amount as pleaded in the Amended Defence and Counterclaim).  Mr Tang argued that in practical terms the defendant failed in most respects on the counterclaim, so the Costs Order that required the defendant to pay only half of the plaintiffs’ costs of the counterclaim was fair and reasonable, and verged on being generous.

60.  In my view, it is a matter of significance that the defendant abandoned his claims for loss/damages for alleged failure by the plaintiffs to provide Locum Support and VMO Support, to pay Physio Hire, and to provide or procure to be provided other Support set out in the Addendum.  The last head of claim covered a cluster of Support services. In respect of the aforesaid discrete heads of claim, one was abandoned shortly before trial and the others were abandoned as late as Mr Ng’s closing submissions during trial, leaving only the defendant’s pursuit of Ortho Support Loss (which, as Mr Tang pointed out, was only successful to a limited extent). Notwithstanding the defendant’s abandonment of the four heads of his counterclaim, the plaintiff had to meet such claims unnecessarily before they were abandoned (and most of them were abandoned at the very end of the trial). This is quite a different situation from a defendant having reasonably run a counterclaim and failing on a finding in favour of the other party.  I see no reason why the plaintiffs should be barred from recovering costs for being put to the trouble of having to meet the abandoned claims through no fault of their own.  I also note that the counterclaim based on the Collateral Agreement wholly failed. In such circumstances, I see no basis to vary the Costs Order in respect of the counterclaim.

VIII. CONCLUSION

61.  In the circumstances, I vary the costs order nisi to the extent that defendant do pay half of the costs of this action (including half of the costs of the claim and half of the costs of the counterclaim with costs reserved if any) on High Court scale with certificate for two counsel to be taxed if not agreed.

62.  In respect of D’s Summons, both Mr Tang and Mr Ng agreed that costs should follow event.  Since neither of them succeeded entirely on their contentions, I consider that a fair order to make would be no order as to costs of and occasioned by D’s Summons.

63.  In respect of Ps’ Summons, both Mr Tang and Mr Ng did inform the court at closing submissions at the end of the trial that there should be certificate for two counsel.  But this was omitted in the Judgment and the Costs Order.  Given Mr Ng’s concession on this matter at trial, one would have thought it would be simple enough to resolve this by agreement and, say, a consent summons.  However, ready consensus was not forthcoming from the defendant, which necessitated the issuance of P’s Summons to formally vary this aspect of the Costs Order with supporting affirmation to identify the relevant part of the transcript of the oral closing submissions that reflected the earlier understanding.  The defendant finally agreed to P’s Summons in Mr Ng’s written submissions lodged shortly before the hearing. In the circumstances, I am of the view the defendant should bear the costs of Ps’ Summons which could have been avoided/minimised had he adopted a proactive and timely approach to indicate his agreement.  I therefore order the defendant to pay the plaintiffs’ costs of Ps’ Summons to be taxed if not agreed with certificate for two counsel.