HEBEI ENTERPRISES LTD AND OTHERS v. LIVASIRI & CO (A FIRM) AND OTHERS

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JUDGMENT  ON  COSTS

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Mr Justice Chan PJ (for the Court):

1.  On 15 July 2008, we allowed the Plaintiffs’ appeal in FACV 23 of 2007 and restored the trial judge’s judgment in favour of the Plaintiffs against the 1^st Defendant. We also dismissed the 3^rd Defendant’s appeal in FACV 25 of 2007 and affirmed the judgment in favour of the 3^rd Plaintiff against the 3^rd Defendant. Pursuant to the Court’s directions, the parties have filed written submissions on the question of costs. This is our decision on costs.

Costs on appeal

(i)  As against the 1^st Defendant

2.  In respect of the Plaintiffs’ appeal, the 1^st Defendant concedes that since the Plaintiffs are successful in overturning the decision of the Court of Appeal, costs should follow the event and the 1^st Defendant should pay the Plaintiffs’ costs of the appeal in the Court of Final Appeal as well as that in the Court of Appeal. 

3.  Although Ms Livasiri, a former partner of the 1^st Defendant, had attended by counsel before this Court, we did not consider it appropriate to hear her and we did not do so. The Plaintiffs ask for no order as to costs in relation to her in this appeal and an order setting aside the costs order made by the Court of Appeal in her favour. The 1^st Defendant has made no submission in this regard in its written submission and no submission was filed on behalf of Ms Livasiri. We see no reason why we should not accede to the Plaintiffs’ suggestion.

4.  In his written submission, Mr Clifford Smith SC for the 1^st Defendant argues that this Court should only give a certificate for two counsel in relation to the Plaintiffs’ costs. Rule 43 of the Hong Kong Court of Final Appeal Rules allows for two counsel to be heard for each party without the leave of the Court. It is thus not necessary to ask for such a certificate for the purpose of taxation of costs, but if any party seeks to recover the costs of more than two counsel, the Court should be invited to certify to this effect. The Plaintiffs have not made any application for such a certificate, although three counsel were engaged on their behalf. As far as the situation before the Court of Appeal is concerned, the recent decision of that court in Cheung Sun Lam v Lai Kam Man and others [2008] 5 HKLRD 1, makes it clear that parties are usually entitled to be represented by two counsel in the Court of Appeal and it is not necessary to ask for a certificate for two counsel unless there are reasons to the contrary.

(ii)  As against the 3^rd Defendant   

5.  In respect of the 3^rd Defendant’s appeal, the 3^rd Defendant accepts that it should bear the 3^rd Plaintiff’s costs of the appeal before this Court and the appeal before the Court of Appeal.

Costs at first instance

6.  Although this Court had restored the judgment of the trial judge against the 1^st Defendant and affirmed the judgment against the 3^rd Defendant, the Plaintiffs argue that in the light of the judgment of this Court, the orders for costs made by the trial judge should be varied. This is opposed by the 1^st Defendant and the 3^rd Defendant.

7.  At a separate hearing after he had delivered judgment in this action, the trial judge made the following costs orders:

(1)  the Plaintiffs do pay 75% of the 1^st Defendant’s costs of the action, to be taxed if not agreed;

(2)  the 1^st Defendant do pay 25% of the Plaintiffs’ costs of the action, to be taxed if not agreed;

(3)  there be a set off of the above costs; and

(4)  Mr Ho, a former partner of the 3^rd Defendant, do pay 10% of the 3^rdPlaintiff’s costs of the action, to be taxed if not agreed.

8.  It can be noticed that the order at (4) above was directed at Mr Ho. The judge did not explain in his Decision on Costs No. 2 why it should not be an order against the firm, Ho & Chan. It is the firm which is the 3^rd Defendant. Although the firm had now been dissolved (and we have no idea as to the state of its liquidation), it had been legally represented throughout these proceedings except at the hearing on costs before the judge when Mr Ho appeared by himself. That might have been the reason for the form of the order made by the judge. But as the Plaintiffs had pointed out, any order for costs should be made against the 3^rd Defendant firm. 

9.  It is common ground that the principles to be applied are those discussed in Re Elgindata Ltd (No.2) [1993] 1 All ER 232, per Nourse LJ at p.237f. The parties however disagree on the application of these principles by the trial judge in the present case. As between the Plaintiffs and the 1^st Defendant, the dispute is whether the judge should not only have deprived the Plaintiffs of part of their costs, but also ordered them to pay part of the 1^st Defendant’s costs. As between the Plaintiffs and the 3^rd Defendant, the issue is whether the judge should apportion the liability of the 3^rd Defendant for costs in respect of the 3^rdPlaintiff.

(i)  as between Plaintiffs and 1^st Defendant

10.  In making the orders (1) to (3) as set out in paragraph 7 above, the judge took the view that the Plaintiffs’ allegations, their conduct in these proceedings and the way their witnesses testified in court had unnecessarily and considerably lengthened the trial and that the Plaintiffs had improperly and unreasonably raised and persisted with what was described in the lower courts as the Stakeholder Claim and the attempt to expand on such a claim (which he described as the “Attempt”).

11.  Against the judge’s conclusion, the Plaintiffs raise two main points. First, it is argued that the judge was wrong to hold that the exceptional length of the trial was mainly caused by the Plaintiffs’ conduct of the proceedings and the serious allegations made by their witnesses which had led to the long cross-examination by the 1^st Defendant. Secondly, it is further argued that the judge should not have held that the Stakeholder Claim was improperly and unreasonably raised and persisted with by the Plaintiffs. Counsel submits that the Plaintiffs were acting in good faith in pursuing the Stakeholder Claim and that the judge’s reasons for dismissing that claim were not accepted by this Court. It is submitted that since the Plaintiffs were successful in the action albeit on the basis of the negligence claim and not of the Stakeholder claim, they should be awarded their costs of the action and not be penalized by the costs orders made by the judge. On the other hand, the 1^st Defendant submits that the judge was right to take into account the Plaintiffs’ conduct and the witnesses’ allegations and to come to the conclusion that the Plaintiffs had improperly and unreasonably raised and persisted with the Stakeholder Claim.    

12.  In our view, the trial judge’s costs orders should be varied. We do so for the following reasons.

13.  The trial was set down for 19 days but lasted 102 days. Only three witnesses were called by the Plaintiffs and none by the 1^st Defendant or the 3^rd Defendant. But the 1^st Defendant’s cross-examination of the three Plaintiffs’ witnesses took a total of 63 days. The judge was clearly not impressed by these witnesses who had made serious allegations against the 1^st Defendant. It was said that their evidence was poor and inherently improbable. But even then, it is, in our view, extremely hard to see how the circumstances of this case justified such an extraordinarily lengthy questioning of the witnesses.

14.  However deficient the Plaintiffs’ case on the “Stakeholder Claim” was, the fact remained that they had a solid case of negligence which could largely be established on the undisputed documents. The extraordinarily lengthy cross-examination primarily devoted to destroying the Stakeholder Claim did nothing to dispel the negligence claim.   

15.  Accordingly, we take the view that the regrettable and exceptional length of the trial was mainly attributable to the way in which the 1^st Defendant had conducted its defence, in particular in the unjustifiably long cross-examination of the witnesses; and that most of the blame for its length should not be laid at the door of the Plaintiffs.

16.  Moreover, we do not think the Stakeholder Claim can be regarded as having been “improperly and unreasonably” raised by the Plaintiffs (which was the judge’s reason for ordering the Plaintiffs to pay part of the 1^st Defendant’s costs). As we said in our judgment, this claim was in essence a claim based on an alleged breach of fiduciary duty on the part of the 1^st Defendant in handling the Plaintiffs’ money. The judge rejected this claim principally on the basis of his finding that the Plaintiffs had given express instructions to the 1^st Defendant to hand over the money to the 3^rd Defendant. However, we took the view that the judge’s finding could not be supported on the evidence. We rejected the claim on a different basis - that a strong inference could be drawn that the Plaintiffs, with knowledge of the transfer of money by the 1^st Defendant to the 3^rd Defendant but raising no objection afterwards, had implicitly authorized the transfer and that there was no question of the money being held by the 1^st Defendant as stakeholder.  However, we did indicate that we were attracted by the new argument raised by Mr Thomas SC for the Plaintiffs based on resulting trust, although we ultimately refused to entertain it on the ground that it was not open to the Plaintiffs to take this point at this late stage.

17.  We are keenly aware that the question of costs is a matter of discretion for the trial judge and that an appellate court should be slow to interfere with the exercise of his discretion. We also agree that the Plaintiffs were partly responsible for the significant increase in the length of the trial as a result of their conduct of the proceedings, the allegations they had made (many of which were held to be unfounded), their reluctance to make timely disclosures of the relevant documents and the unsatisfactory witnesses they called. They should thus be deprived of part of their costs. However, we do not agree that it should be as much as 75%. Nor are we satisfied for the reasons we have given above that a case has been made out for ordering that the Plaintiffs should also bear part of the 1^st Defendant’s costs. We think that insufficient regard was paid to the principle that costs should normally follow the event and that this is so even if a party raises issues on which he fails. (See the 2^nd and 3^rd principles discussed in Re Elgindata (No.2).)

18.  In deciding what costs orders to make, we take into account all the circumstances, in particular the fact that the Plaintiffs were ultimately successful in claiming against the 1^st Defendant, the reasons for the unjustifiable and significant increase in the length of the trial and that the claim based on the alleged breach of fiduciary duty was not improperly and unreasonably raised. Taking a global view of the matter, we are of the opinion that justice would be served by ordering that the Plaintiffs should be deprived of 25% of their costs of the action, but should not be ordered to pay part of the 1^st Defendant’s costs.  

(ii)  as between 3^rd Plaintiff and 3^rd Defendant

19.  The costs order made against Mr Ho (which should have been against the 3^rd Defendant) was directed only at the 3^rd Plaintiff. This is because notwithstanding that the claim against the 3^rd Defendant was pleaded as a claim made by all Plaintiffs, the judge found that only the 3^rd Plaintiff had the locus to sue and gave judgment in favour of the 3^rd Plaintiff only. See paragraph 207 of the judge’s judgment. There was no appeal against this finding. 

20.  The 3^rd Defendant had failed in its appeals to the Court of Appeal and to this Court. The costs order made by the judge in relation to it strictly speaking stands (except that it should have been made against the 3^rd Defendant), unless it can be shown that it was a wrong exercise of discretion. We do not think it was.

21.  In making the order that Mr Ho do pay 10% of the 3^rd Plaintiff’s costs of the action, the judge considered that Mr Ho was not involved in many of the matters which the 3^rd Plaintiff had to prove against the other defendants and had taken a neutral stance in relation to the issue regarding the transfer of money by the 1^st Defendant to the 3^rd Defendant; that there was no allegation of impropriety against Mr Ho personally and that it would be unfair to order him to bear the costs relating to the other matters.

22.  In the circumstances of this case, we think that it is clearly right that the 3^rd Defendant should be responsible only for that part of the costs which were incurred by the 3^rd Plaintiff in establishing its claim against the 3^rd Defendant. There is no suggestion that the judge’s apportionment of 10% of the 3^rd Plaintiff’s costs of the action was erroneous and we would uphold it. We would, however, observe that it may not be an easy exercise in trying to separate the costs of the Plaintiffs from those of the 3^rd Plaintiff since the whole action was instituted and proceeded with by all three Plaintiffs together. But this is a problem facing the Plaintiffs in preparing their bill of costs. The taxing master will no doubt resolve any disagreement between the parties where necessary. 

Conclusion

23.  For the reasons given above, we set aside the costs orders made by the courts below and make the following orders:

(1)  the 1^st Defendant do pay the Plaintiffs their costs of the appeals to the Court of Appeal and to the Court of Final Appeal;

(2)  the 1^st Defendant do pay 75 % of the Plaintiffs’ costs of the action before the Court of First Instance;

(3)  the 3^rd Defendant do pay the 3^rd Plaintiff its costs of the appeals to the Court of Appeal and to the Court of Final Appeal;

(4)  the 3^rd Defendant do pay 10% of the 3^rd Plaintiff’s costs of the action before the Court of First Instance; and

(5)  all costs are to be taxed if not agreed.