MOULIN GLOBAL EYECARE HOLDINGS LTD (IN LIQUIDATION) AND OTHERS v. OLIVIA LEE SIN MEI

HCA 167/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 167 OF 2008

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R U L I N G

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Introduction

1.  On 6 April this year, I struck out the Plaintiffs’ claim against the Defendant under Order 18 r 19(1) RHC on the basis that it was bound to fail.  I ordered the Plaintiffs to pay the Defendant her costs of the action.  In view of the fact that the judgment had been handed down the order for costs was an order nisi.  This order has resulted in two applications.  The Defendant has asked for a certificate for three counsel, she having been represented by Queen’s Counsel at the English Bar specially admitted to the Hong Kong Bar to argue the striking out application, as well as Senior Counsel and a junior at the Hong Kong Bar.  This is resisted by the Plaintiffs who submit that the application did not warrant the instruction of two leading counsel, they having been represented only by a junior.

2.  The Plaintiffs’ cross-application, as it were, is that they should not have to bear more than 50% of the costs.  My order nisi was based on an approach that costs should follow the event.  The Plaintiffs submit that I should adopt an issue-based approach in which the Plaintiffs have been successful on a number of the specific issues raised by the Defendant as grounds which, by themselves, would have resulted in the action being struck out.  In the event, as I will examine in a moment, the Defendant was only successful on two of her grounds and failed on the other two which were perhaps the most substantial that Mr John Jarvis QC, her leading counsel, had argued.

3.  I will take the Plaintiffs’ application first and then deal with the Defendant’s application for a certificate for three counsel, these matters having been dealt with on the basis of written submissions only.

The Order for Costs

4.  The Plaintiffs’ submissions are supported by an affidavit from Mr Tollan, the partner having the conduct of their case in the firm of solicitors who represent them.  There is also a full skeleton argument from Mr Sheppard, counsel who appeared on their behalf at the hearing of the strike out application.

5.  Mr Tollan’s affidavit seeks to analyse the issues in the striking out application which was based on a Deed of Release and Indemnity made between the 1^st Plaintiff and the Defendant which, if upheld, would give rise to a circuity of action.  Although Mr Tollan’s affidavit does not subscribe to this, it is right to say that the argument on the Deed, although standing alone, is related to and of similar character to the, ultimately successful, argument based on Bye-law 166 of the 1^st Plaintiff’s Memorandum and Articles of Association.  The other main argument related to, and only fell to be considered if the Defendant failed on both of her arguments based on the Deed and the Bye-law, causation of loss.  The submission on causation was that, in any event, the Defendant’s alleged breach of duties was not the effective or dominant cause of the Plaintiffs’ loss and damage.

6.  The remaining issue related to whether the Defendant was a shadow director of the 2^nd and 3^rd Plaintiff and also of the proposed 4^th Plaintiff.

7.  Of the live issues the Defendant succeeded on the Bye-law and therefore had the action struck out against the 1^st Plaintiff and on the shadow director point and, in that way, succeeded against the remaining Plaintiffs and the prospective 4^th Plaintiff, thereby having the action struck out against the 2^nd and 3^rd Plaintiffs and also succeeded in having the amendment summons, which would have added a 4^th Plaintiff, dismissed.  The Defendant failed on the Deed of Release and Indemnity and on the, by then, academic issue of causation.

8.  It is against that background of success and failure that the Plaintiffs venture to say that the correct approach to costs is on an issue by issue basis.

9.  The Plaintiffs press for the approach which has come with the CJR amendments.  The basis of it is that under Order 62, r 3(2) the court would normally order that costs should follow the event although that is by no means an immutable rule.  The court always retains a discretion as to what costs order to make.

10.  Under the CJR, amendments to Order 62, r 3(2) have been made by which interlocutory proceedings are excluded from the general “costs follow the event” rule.  This was an interlocutory proceeding for which the new Order 62, r 3(2A) provides that;

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit”, (emphasis added).

From this it is submitted that “costs follow the event” is but an option which is available to the court.  This being so one needs to look to Order 62, r 5 which requires the court to have regard to;

“(i)  “(aa) the underlying objectives set out in Order 1A, r.1…” which include the promotion of a sense of reasonable proportion and to ensure fairness between the parties;

(ii) “(e) the conduct of all the parties;”

(iii)    “(f)” whether a party has succeeded on part of his case, even if he has not been wholly successful…”.”

Order 62, r 5(2) provides for those issues to be considered in relation to the conduct of the parties supra under rule 5(1)(e) which includes whether it was reasonable for a party to pursue a particular allegation or issue and the manner in which it was pursued.

11.  The leading case on costs, In re Elgindata (No. 2) [1992] 1 WLR 1207, a decision of the English Court of Appeal, has always been the authority applied in Hong Kong.  It precedes the CPR in England and Wales and of course the CJR here.  The principles enunciated by Nourse LJ at page 1214A are these:

“(i)  Costs are in the discretion of the court.

(ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made.

(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 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…”

It follows that the range of discretion is a wide one depending on the facts of the particular case.

12.  The dangers of a “winner takes all” approach were pointed out by Lord Woolf MR (as he then was) in AEI Rediffusion Music Limited v Phonographic Performance Limited [1999] 1 WLR 1507, 1522H to 1523B where he warned that;

“…too robust an application of the ‘follow the event principle’ encourages litigants to increase the costs of litigation…If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so.”

13.  From this it is submitted by Mr Sheppard, on behalf of the Plaintiffs, that the court will now examine individual issues to decide what is a just order on costs and in doing so takes an overview of the case as a whole.  See Lightman J in BCCI v Ali (No. 4) [1999] All ER(D) 1222, in which he held that an allowance in costs should be made for those matters which the overall unsuccessful party had nonetheless won.  Reference is also made to the judgment of Simon Brown LJ (as he then was) in Budgen v Andrew Gardner Partnership [2003] C.P. Rep 8 (see paras. 26 and 27 of his judgment):

“26. For my part I have no doubt whatever that judges nowadays should be altogether readier than in times past to make costs orders which reflect not merely the overall outcome of proceedings but also the loss of particular issues.  If, moreover, the “winning” party has not merely lost on an issue but has pursued an issue when clearly he should not have done, then there are two good reasons why that should be reflected in the costs order: first, as a sanction to deter such conduct in future; secondly, to relieve the “losing” party of at least part of his costs liability.  It is one thing for the losing party to have to pay the costs of issues properly before the court, another that he should have to pay also for fighting issues which were hopeless and ought never to have been pursued.

27.  By no means does it follow, however, that the judge should give effect to these considerations by making an issue based costs order rather than a percentage costs order.  Indeed, quite the contrary, as rule 44.3(7) makes plain.  As was said of that rule in English (at p 410):

“In our view there are good reasons for this rule.  An order which allows or disallows costs of certain issues creates difficulties at the stage of the assessment of costs because the costs judge will have to master the issue in detail to understand what costs were properly incurred in dealing with it and then analyse the work done by the receiving party’s legal advisors to determine whether or not it was attributable to the issue the costs of which had been disallowed.  All this adds to the costs of assessment and to the amount of time absorbed in dealing with costs on this basis.  The costs incurred on assessment may thus be disproportionate to the benefit gained.  In all the circumstances, contrary to what might be thought to be the case, a ‘percentage’ order (under CPR 44.3(6)(a)) made by the judge who heard the application will often produce a fairer result than an ‘issues based’ order under CPR 44.3(6)(f).  Moreover, such an order is consistent with the overriding objective of the CPR.””

14.  Mr Sheppard submits that I should apply this approach and make a percentage-based order on a proper appreciation of the issues won and lost.

15.  In reply it is submitted on behalf of the Defendant that given the fact that the case was heard some time before the coming into effect of the CJR on 2 April 2009, this issue should be decided on the principles, and the approach, that were in force when the application was heard.  I agree that this should be so.  It would not be right to resolve costs on the basis of the amended rules despite the fact that judgment had been handed down shortly after the CJR had come into effect.

16.  As to the correct approach to costs, what had fallen from the Court of Appeal in England in the Elgindata supra continues, at all events for pre-CJR cases, to represent the proper basis for deciding costs issues.  So much is clear from the application of those principles by Yuen JA in Wang Din Shin v Nina Kung CACV 460/2002, CACV 67/2003; Stone J in Akai Holdings Limited v Thana Kharn Kisikorn Thai Chamkot (Mahachon) HCCL 59/2004 and Kwan J in Active Base Limited v Joint and Several Liquidators of Moulin Global Eyecare Holdings Limited et al HCCW 470/2005.  A very useful summary of these cases has been provided on behalf of the Defendant by Miss Chan which I gratefully reproduce here:

“Costs are in the discretion of the Court and should generally follow the event (Active Base §7).

The Court may deprive a successful party of part of his costs under what has been described as the “Elgindata (iii)” principle, if the successful party raises issues or makes allegations on which he fails and such issues have “caused a significant increase in the length or cost of the proceedings”.

The Court may also order a successful party to pay the costs of the issues or allegations which were made “improperly or unnecessarily” under 0.62 r.7(1).  This has been described as the principle under “Elgindata (iv)” (Active Base §8).

The party who seeks to displace the general rule that costs should follow event bears the burden of demonstrating the circumstances justifying the exceptional course of such displacement (Akai § 19; Active Base § 10(1)).

Where the issue on which the successful party failed had occupied a significant amount of hearing time or led to the incurring of significant expense, the Court may order a reduction in the award of costs if the issue is “so distinct and separate in itself that the decision of it constitutes an ‘event’ ” (Akai §19; Active Base §10(3)).

Lack of success in any specific argument of itself does not attract a costs sanction.  Unless discrete points can safely be isolated and can be shown to have led to a wastage of time and costs, the practice of the Court is not to engage in any “filleting” of cases according to the success or failure of the disparate issues which, taken cumulatively, constitute the dispute to be judged (Akai §§26-29; Active Base §§10(4), 11).

Hong Kong has not departed from the Elgindata approach to the approach described by Lord Woolf in AEI Rediffusion Music Ltd v Phonographic Performance Ltd – that is, more ready to make separate costs orders to reflect the outcome of different issues (Akai §26; Active Base §11).”

17.  Although both the Active Base and the Akai cases supra were decided very much on their own facts and therefore can provide little guidance here, the judges in those cases declined to deprive the successful party, who had carried “the event”, of a part of its costs because it had failed on some of the issues that it had raised.

Application of the facts to an Elgindata approach

18.  Mr Tollan’s affidavit has identified the Defendant’s argument on the Deed of Indemnity and causation as occupying the bulk of Mr Jarvis’s skeleton submission and in terms of the time taken in the course of the two day hearing.  On both of these aspects of her application the Defendant had failed.  Mr Tollan’s affidavit seeks to characterise the successful arguments based on the Bye-law and the inapplicability of section 165 Companies Ordinance, together with the issue of whether the Defendant was a shadow director of the other relevant companies, as very much a subsidiary part of the argument.  It is therefore submitted on behalf of the Plaintiffs that where more than half of the hearing was taken up on issues on which the Defendant had failed it is hardly right to give her all of her costs.

19.  It seems to me that although unsuccessful on these issues, it was perfectly reasonable of the Defendant to have taken these points.  Whilst a scatter-gun approach, involving the taking of obviously untenable points alongside an ultimately successful argument is to be strongly deprecated, which will almost certainly be reflected in an adverse order on costs, I do not believe that this sort of criticism is open to the Plaintiffs on this occasion.  All of Mr Jarvis’s submissions were perfectly proper and in my judgment ought to have been taken.  Although he failed on his two most substantial arguments, both had substance and a proper basis for the court’s consideration.  Whilst the court does not encourage the deployment of submissions that have very little prospect of success, it is not the policy of the authorities to which I have referred to discourage a party from placing before the court perfectly reasonable and properly founded the submissions which, in the event, may not find favour with the court.  The issues upon which the Defendant was unsuccessful fell into this latter category.  The decided cases allow for a fairly generous margin of error.  I go so far as to say that not to have taken these points would have been very surprising indeed.

20.  It seems to me that when one considers the course of the hearing overall, as a result of which the action has been struck out, it would be unjust not to order costs to follow the event which is the order that I will make.  The Plaintiff must therefore pay the Defendant’s cost of the action to be taxed on a party and party basis if these cannot be agreed.

Certificate for three counsel

21.  I do not consider this application to strike out the action, an application on paper after all (and by expressing it in this way I do not intend to diminish the degree of difficulty involved in mounting such an application) merits a certificate for two leading counsel and, in this case, a junior of standing.

22.  The starting point, it seems to me, is that the Chief Judge considered that the degree of difficulty and the legal issues raised were of sufficient complexity and perhaps novelty which warranted the admission of English Queen’s Counsel to lead for the Defendant.  Theoretically, I suppose, the order admitting leading counsel from overseas would not bind the court hearing the case, on what is a matter of taxation of costs in saying one way or the other that the instruction of two counsel is or is not justified but, I would have thought that the refusal to grant a certificate for leading counsel from overseas would have to be based on the case having developed in a way that was not foreseeable when the application to admit the overseas leader was made.  This is not the case here.  The matter has been argued in the way that had been placed before the Chief Judge.  It should also be noted that an overseas leader has to have a local member of the Bar to appear with him. 

23.  But in declining to certify for two leaders, I take the following into account.  It is clear that the Defendant’s solicitors had already instructed Mr Scott SC before Mr Jarvis QC had been admitted for this case.  It was a matter for them to decide on how many counsel to instruct.  I accept that this is a case heavily-laden with documents which needed to be considered with care and that the statement of claim is a substantial document.  This quite apart from the difficult legal arguments that would need to be deployed.  These are the features which undoubtedly merited the instruction of a leader and a junior.

24.  Nevertheless, what distinguishes this application to strike out a heavy action from the trial of such an action is the difference between the two.  A trial will require a different sort of preparation.  The preparation for the calling of live evidence, the cross-examination of one’s opponents’ witnesses and for opening and closing speeches presents a materially more substantial proposition to an application of this type.  One would expect that the tasks might be divided up between the three counsel including the advocacy itself which might even involve junior counsel taking some of the witnesses.  This application required none of that.  Plainly, the oral advocacy was always going to be for Mr Jarvis to conduct.  This would have needed him to be thoroughly conversant with the papers.  The legal research would have required him and his junior to get up, and in terms of the bulky documentation one should also not lose sight of the fact that the Defendant was represented by an experienced and substantial firm of solicitors who regularly conduct large scale litigation.

25.  And so, whilst I may have been more disposed to give a certificate for three counsel following a trial of an action such as this, I do not believe that the unsuccessful Plaintiffs on this application should have to bear the cost of three counsel on the other side.  This was only a two counsel application.  I will therefore certify for one leader and a junior.

Costs of this Ruling

26.  Because I am handing down this ruling and at the risk of having a re-run on an issue-based order for costs, I propose to make an order nisi. It seems to me that honours have been shared, in which circumstances I will say no order as to costs on this application.