KINFORM LTD v. TSUI LOI AND OTHERS

DCCJ 3854/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3854 OF 2009

__________________________

________________________

DECISION ON COSTS

________________________

BACKGROUND

1.  The plaintiff commenced this action against the defendants, among other things, for recovery of the outstanding price of timber products sold and delivered.

2.  The action was strenuously resisted. 

3.  The plaintiff’s claim was defended primarily on the ground that the timber products supplied by the plaintiff were substandard.  It was further alleged by the defendants that they had made numerous complaints to the plaintiff about the quality of those goods.  In particular, it was asserted by the defendants that they had issued a complaint letter to the plaintiff on 30^th October 2008 (“the Complaint Letter”).

4.  Upon inspection of the original Complaint Letter in the course of this action, the plaintiff found that such a letter was in fact printed on the reverse side of a letter which the Bank of China sent to the 2^nd defendant (“the BOC letter”).  The BOC letter was dated 24^th March 2009.  The plaintiff therefore commenced contempt proceedings against the 1^st defendant, the 2^nd defendant and a Mr. Chow Wing Kun (“Chow”) (who made a witness statement in support of the defendants’ case) and argued that the Complaint Letter could not have been in existence on 30^th October 2008 as alleged, on the basis that the 2^nd defendant had not received the BOC letter by then.

5.  The contempt proceedings were heard before me on 2^nd and 3^rd August 2011.  Judgment was reserved.

6.  With the consent of all parties herein, the trial of this action was also fixed to be heard by me from 15^th August 2011 to 19^th August 2011.

7.  On 12^th August 2011, the defendants’ solicitors informed this Court that the defendants would submit to judgment in this action.  This was confirmed by the defendants’ counsel, Mr. Lee, who appeared for them on 15^th August 2011.  Apart from the costs of the action, the parties were able to come to agreement as to the terms of the draft consent order which are nearly identical to those claimed under the Amended Statement of Claim.

8.  What the parties could not agree upon was the costs of the action.  While the defendants agreed that they should bear the party and party costs of the action, the plaintiff argued that it should be entitled to indemnity costs.

THE LAW

9.  To support his application for indemnity costs, Mr. Wong relied on Town Planning Board v Society for Protection of the Harbour Ltd (No.2) (2004) 7 HKCFAR 114 in which the Court of Final Appeal confirmed once again that in order to obtain an order for costs on an indemnity basis, the successful party should show that the case has some “special or unusual feature”.  The grounds upon which the costs are awarded must be connected with the case itself.  This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further.  It was also emphasised that it is undesirable to define the circumstances in which orders for indemnity costs are to be made and that the Court’s discretion should not be fettered.  What the Court has to decide is whether taxation on an indemnity basis is appropriate in the circumstances (see paragraphs 15 to 18 thereof).

10.  Mr. Wong also drew my attention to two cases in which orders for indemnity costs were made.

11.  In She Tsu Yi v Tsui Ki Ting & Others (HCA 1684/2004, unreported, 13^th December 2007), Poon J made an order for indemnity costs on the basis of two main features of the case.  Firstly, the defendants fabricated a bogus defence and the 1^st defendant resorted to making up evidence in support of such a defence.  Secondly, the bogus defence had unnecessarily lengthened the proceedings and the trial and escalated the costs.

12.  In Shun Fai Decoration Handicraft Co. Ltd. v F & F Investment Limited (HCA 1588/2006, unreported, 28^th April 2009), Deputy High Court Judge Carlson awarded indemnity costs to the plaintiff partly because the defendant had “conducted the litigation in such a way that it prolonged its course, raised very many issues which fell away by the time that the matter had come on for trial and continued to fall away during the course of the trial itself” (at paragraph 2 of the Judgment).

DISCUSSION

13.  Mr. Wong submitted on behalf of the plaintiff that the unusual and special feature of the present case is that the defendants have made use of the Complaint Letter which is false. 

14.  At this juncture, I should note that by the time when the plaintiff’s application was heard, I have not delivered my judgment in respect of the contempt proceedings.  However, in order to save cost, instead of adjourning the hearing, I directed that the hearing of the question of costs should be proceeded and argued on the basis that the Complaint Letter is held to be a false document in the contempt proceedings.  Of course, if at the end of the day it is ruled otherwise, the basis of the plaintiff’s application would fall away and the plaintiff would only be entitled to the usual costs order.  For that reason, I have reserved my decision herein and informed the parties that I would hand down this judgment on the same day when I deliver my judgment in the contempt proceedings.

15.  As I have explained in my judgment in the contempt proceedings, it is my finding that the Complaint Letter is a false document which could not have been sent or received on 30^th October 2008 as alleged by the defendants.  So the factual basis of the plaintiff’s application is established. 

16.  The next question is: should I exercise my discretion in favour of the plaintiff and make an order for indemnity costs?

17.  Mr. Wong argued that the defendants had chosen not to resist liability in this action because they knew they were not telling the truth and they wanted to avoid being cross-examined on the Complaint Letter.  I should note that this argument would only be applicable to the 1^st defendant because the 2^nd defendant did not make any witness statement at all in this action and the 3^rd defendant is a company owned by the 1^st and 2^nd defendants.

18.  On the other hand, Mr. Lee submitted that I should not speculate as to why the defendants chose to submit to judgment.  He said they might have their own reasons and they should not be penalized for settling the case at last minute which is not unusual in civil cases.

19.  In my view, I should decide the present application on the basis of objective facts, my own findings in the contempt proceedings and the reasonable inferences which I can draw therefrom. 

20.  Pausing here, I should add that it was Mr. Lee’s submissions that there is no finding of facts made in the present action because there was no trial as such.  He may be correct technically, but I do not agree that I should approach the matter in such a technical way.  It should be remembered that parties have agreed that the evidence adduced in the contempt proceedings should be admitted as evidence in the present action.  It would be against logic if I simply ignore what I have found in the contempt proceedings.  To the contrary, it is my view that justice requires me to take into account what I have found in the contempt proceedings.

21.  In my judgment, the followings are the important matters which I have to take into account when I exercise my discretion on costs in the present case:

(1) The plaintiff’s action is mainly for the recovery of the price of the goods sold;

(2) The defendants’ main defence is that the goods supplied by the plaintiff were substandard;

(3) To support its primary ground of defence, the defendants relied on:

(i)  The Complaint Letter; and

(ii) Various oral complaints made by the 2^nd defendant to Chow;

(4)  The Complaint Letter has been proved beyond reasonable doubt to be a false document;

(5) The defendants have now conceded that the plaintiff should be entitled to judgment.

22.  It should be borne in mind that unlike many other last minute settlement agreements reached at the door of the courtroom, the defendants have in reality submitted to judgment in respect of the entirety of the plaintiff’s claim.  Therefore, looking at the above matters (except (4)) objectively, I think it is fair to infer that the defendants have now accepted that they do not have a defence to the plaintiff’s claim.   

23.  I accept that defendants should not be penalized on costs for giving up at last minute per se.  However, the position would be different if defendants have knowingly relied on false evidence in support of their defence and only abandon such defence upon the revelation of the false evidential basis of the defence. 

24.  Here, the Complaint Letter is the only written complaint which was said to have been sent to the plaintiff.  This is no doubt an important piece of evidence in support of the defendant’s defence. It is my finding in the contempt proceedings that the 1^st defendant knew that that was a letter which could not exist on 30^th October 2008 (the date on which the letter was allegedly sent to the plaintiff).   Now that the falsity of the letter is discovered, the defendants give up and submit to judgment.  In these circumstances, I think it is appropriate for an order for indemnity costs be made so that the plaintiff would be able to recover a larger part of its costs.  Such an order is justified by a special and unusual feature of the case, namely, the use of false evidence by the defendants.

25.  I therefore order that the defendants do pay the plaintiff’s costs of the action, to be taxed on indemnity basis if not agreed, with certificate for counsel in respect of the hearing held on 15^th August 2011.