HO LAI CHUEN CADIA v. XEROX (HONG KONG) LTD.

HCA 6454/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 6454 OF 1997

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J U D G M E N T

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1. This is an application by the Defendant to vary the order nisi as to costs I made in the Judgment that I handed down after trial on 16th January 2002. In the Judgment, I ordered that judgment be entered for the Plaintiff against the Defendant for damages in the total sum of US$470,156.03 as well as interest thereon at the rate of 2% per annum over the prime rate. I dismissed the counterclaim. I also ordered that the Defendant pay to the Plaintiff the costs of the action as well as the counterclaim, to be taxed if not agreed.

2. The Defendant argues that the Plaintiff should be deprived of the whole or alternatively half of his costs of the action and counterclaim incurred after 2nd April 1998. The Defendant bases its argument on two payments in. The first one in the sum of US$195,000 was made on 4th March 1998; the second one in the sum of US$225,000 was made on 2nd April 1998. The two therefore totalled US$420,000.

3. The judgment sum of US$470,156.03 comprises three amounts, i.e. US$380,156.03 for the outstanding licence fees, US$50,000 for the implementation service claim and US$40,000 for the annual maintenance claim.

4. There is little dispute that the Defendant's payments in were made on the basis of the outstanding licence fees plus interest and a small top-up. No provision was made for the service claim or the maintenance claim.

5. The Defendant correctly says that the Plaintiff claimed US$422,200 and US$512,742 under the service claim and maintenance claim respectively, but put in no or very little evidence to justify his claims. The Defendant argues that that was the reason why no provision was made in the payments in for these two claims. Had the Plaintiff disclosed material on the lost profits on service and maintenance, the Defendant would have included these claims in making the payments in. To that extent, the Defendant was embarrassed. The Defendant also submits that even at trial the Plaintiff did not attempt to adduce any evidence on these claims. Had there not been questions from the bench after the re-examination of one of the key witnesses, it is very likely that the Plaintiff would have failed to prove these claims and would have failed to beat the payments in.

6. The Defendant also argues that the Court should bear in mind that according to the pleadings, the Plaintiff claimed a total sum of US$1,986,838, but only got judgment for US$470,156.03. In relation to the maintenance claim for the second to the sixth years, the claim for service charges for modification and the claim for additional licence fees, totalling US$1,098,825, the Plaintiff was wholly unsuccessful.

7. Further, the Defendant invites me to look at the without prejudice (save as to costs) correspondence between the parties' solicitors relating to attempts to settle. The Defendant argues that the correspondence shows that despite many invitations from the Defendant, the Plaintiff resolutely refused to take part in meaningful settlement negotiations. Instead, the Plaintiff insisted on being paid at the entire contract sum and costs on a solicitor and own client basis before he would engage in talks; and the Plaintiff's subsequent position did not materially change. Had the Plaintiff adopted a more positive attitude, so the Defendant argues, the dispute may well have been settled without the need for this expensive trial, which lasted fifteen days.

8. Costs are in the discretion of the Court. But the discretion must be exercised judicially. The cardinal rule is that costs should follow the event: Order 62, rule 3(2), the Rules of the High Court (Cap. 4). In the case of a payment in, if a plaintiff cannot beat the payment in, he should be paid his costs up to the date of payment in, but normally he should be held responsible for his own costs as well as the costs of his opponent incurred thereafter. On the other hand, if he beats the payment in (subject to the de minimus rule), normally he should get the costs of the whole action in the absence of special circumstances.

9. Furthermore, if a party has not acted improperly or unreasonably in raising the issues or making the claims, the fact that he did not succeed on all the issues raised (but still managed to win the case) or that he did not succeed on all his claims (but was still awarded with a substantial judgment in his favour) should not be held against him and render him liable for the other side's costs. But there is leeway for depriving him of part of his own costs of the action in appropriate circumstances. See generally Hong Kong Civil Procedure 2002 Vol. 1 paras. 62/2/6, 62/3/2, 62/3/3 and 62/5/2.

10. In the present case, I cannot say that the difference between the judgment sum of US$470,000 and a total payment in based on US$380,156 plus interest and a small topping-up is insubstantial in amount, whether by itself or in comparison with the total amount of judgment. The de minimus rule is certainly not applicable here.

11. In the English Court of Appeal case of Charm Maritime Incorporation v Elbourne Mitchell, 22/7/97 (unreported), the plaintiffs got judgment in the sum of US$841,070, and thus managed to beat the payment in of US$822,368 by US$19,000. The court did not say that the de minimus principle was applicable (although there were references to how small the margin was), but nonetheless deprived the successful plaintiffs of their costs of the action incurred after the date of payment in, holding that there were special circumstances in that case to justify the exercise of the court's discretion in that manner. Evans L.J. said:

" Should the established rule be qualified, therefore, by reserving to the court some power to order the plaintiff to pay the defendant's costs after the date of payment in, where the payment in came close to matching the amount of the award, even though it fell short of doing so? I think not, essentially for four reasons:

(1) If the plaintiff recovers more than was available to him, then he has succeeded on what became the lis or issue at the trial, as described by Somervell L.J. However small the margin, if he does recover more he cannot be said to have failed;

(2) the advantages of a clear-cut rule outweigh, in my judgment, the consequences of introducing a discretionary element which could lead to uncertainty and give scope for prolonged post-judgment debate.

(3) Mr Stewart contends for a discretion which would operate only in the defendant's favour. If the award is the same as, or any less than, the amount of the payment in, then he submits that the defendant should recover his costs, with no room for the exercise of any discretion in the plaintiff's favour. In my view, this would produce, in the name of justice, a one-sided and unjust result. It could be said that the corollary of the defendants' ability to recover his costs if the two amounts are equal, is that the plaintiff should be entitled to recover his costs if the award is greater.

(4) A clear-cut rule means that the defendant must not underestimate the plaintiff's chances of success, by however small an amount, just as the plaintiff must not be over-optimistic about them. This is consistent, in my view, with the policy considerations described by Denning L.J. in Findlay v. Railway Executive [1950] 2 All E.R. 969, [1950] WN 570 at 974 of the former report.

A possible qualification to the strictly arithmetical rule is that there might be scope for the application of some de minimis principle, defined as "trivialities, matters of little moment, of a trifling and a negligible nature" in Margaronis Navigation Agency Ltd. v. Henry W. Peabody & Co. of London Ltd [1965] 2 Q.B. 430, [1964] 3 All ER 333 at 444 of the former report per Sellers L.J. I am inclined to the view that this qualification, if it exists, could only apply in absolute as opposed to relative terms. $ 10,000 is not negligible, even though it may be a negligible percentage of a multi-million dollar claim. For that reason, I would not hold that a "few thousand dollars" was negligible, even in the present case, and therefore the qualification, if it exists, does not operate here.

In Ritter v. Godfrey [1920] 2 K.B. 47 Atkin L.J. attempted to formulate rules which should be regarded as controlling the exercise of the judge's discretion over costs. It was too late, he held, to contend for an arbitrary discretion over costs (see page 62). Lord Sterndale M.R. held that the discretion must be judicially exercised, and "therefore there must be some grounds for its exercise", and that there was a settled practice of the courts to award the successful litigant his costs "in the absence of special circumstances" (page 53). Lord Sterndale's approach was preferred by the House of Lords in Donald Campbell & Co. v. Pollack [1927] A.C. 732 and it was re-formulated by Viscount Cave L.C. at pages 811-2 in terms which are too familiar to need repetition here.

I come therefore to the second issue. Were there "special circumstances" which enabled the judge to exercise her discretion to deprive the plaintiffs of their costs, and to order them to pay the defendants' costs (in both cases, after the date of payment in), notwithstanding that they were the successful party?

She gave what were essentially two reasons. First, that the two amounts were effectively and for practical purposes the same. Secondly, that the plaintiffs had claimed a far greater amount than the sum for which they obtained judgment.

It becomes necessary at this stage, in my judgment, to distinguish between two different parts of the order that costs follow the event. The losing party has to pay the successful party his costs, in whatever amount is taxed or agreed, and in addition he has to bear his own. If both parts of the order are reversed, so that the successful party fails to recover his own costs and in addition has to pay those of the losing party, then a double penalty is imposed upon him. This is a penalty because it departs from the usual order and it will usually be unjust.

When such an order is contemplated, the Court should recognise that different considerations apply, as between depriving a successful part of his own costs and ordering him to pay all or a part of the other party's : Re Elgindata (No.2) Ltd [1993] 1 All ER 232, [1992] 1 W.L.R. 1207.

In my judgment, the same distinction should be recognised here. The plaintiffs were in fact the successful party, and they should not be ordered to pay any part of the defendants' costs. To do so would be contrary to the authorities on the effects of a payment in to which I have referred above. On the other hand, the Court has a discretion whether or not to order that the plaintiffs should recover part or all of their own costs. For the reasons given by Swinton Thomas L.J. with which I agree I would hold that no such order should be made here.

This seems to me to be a proper exercise of the Court's discretion. Where the plaintiff recovers more than the amount of the payment in, the defendant cannot say that the plaintiff has failed to beat it, and claim an order in his favour on that ground. But the Court can say to both parties, where the defendant has made a payment in but without admitting that that sum was due, "You have each tried for a higher or a lower figure, and in practical terms neither of you has succeeded. You should each pay your own costs of the Court time that you have used"."

12. Swinton Thomas L.J. said in the same case:

" It is clear that the Judge had in the forefront of her mind, as we must, the basic rule that costs follow the event and that a Plaintiff who recovers more than the payment in will recover his costs unless there are special circumstances or it appears to the court that some different order should be made. There remains a discretion which must be exercised judicially but the courts are not tied in a mathematical straight jacket. In this case the Plaintiff has, in the end, after the judgment of this court, beaten the payment in by a few thousand dollars. On the facts of this case, which I have recited but very shortly, any reasonable bystander or onlooker, if told that the Plaintiff had recovered a few thousand dollars more than he had been offered well before the trial began, would, in my judgment, take the view that the Plaintiff should pay the costs incurred since the date the offer was made. That, also, was the view of the trial judge, whose views on the case as a whole must be treated with great respect.

In my judgment, on the particular facts of this case as finally resolved in this Court, the Plaintiffs clearly were at fault in that they should have accepted the sum that was offered. Also it can be said that the Defendants were at fault in not paying into court the amount that was eventually recovered by the Plaintiff's. I have no difficulty in concluding that there are special circumstances in this case justifying the Court in departing from the general rule or concluding in the circumstances of this case some other order than the normal one should be made.

The Judge's view, having heard the case, was that the Plaintiff should pay the Defendants' costs after the payment in even if they beat the payment in by a few thousand dollars. I have considerable sympathy with that view, and, indeed as she was exercising a discretion, there must be proper grounds for this Court coming to a different conclusion. When the Judge was considering this issue on the first occasion she was doing so in the abstract, in the sense that the actual figure was not then ascertained. When she considered the costs issue on the second occasion, on her findings, the Plaintiffs had failed to beat the payment in. We are dealing with a different situation, namely one where the Plaintiffs have beaten the payment in, albeit by a small margin. Accordingly we can, in my view, exercise our discretion afresh but, in doing so, we must place considerable weight on the trial Judge's views on this issue.

I am quite satisfied that the circumstances of this case give rise to special circumstances justifying departure from the usual rule and that some order other than the usual order should be made. In the end, orders for costs are blunt instruments, and a court, having considered the principles and the authorities can do no more than attempt to reach a result which does broad justice as between the parties. In this case, I have concluded that that result can best be achieved by ordering that the Defendants pay the Plaintiffs costs to the date of payment into court, and that each party should bear its own costs thereafter."

13. As I see it, if the de minimus principle applies on the facts, the plaintiff should normally be regarded as having failed to beat the payment in, in which case not only should he not be entitled to get costs from the defendant that were incurred after the payment in, he should be ordered to pay the costs of the defendant incurred after the payment in. However, where the plaintiff beats the payment in by a margin which cannot be described as trifle or negligible, he should normally get costs from the defendant save in special circumstances when he may be deprived of his costs of the action wholly or partially or from a particular date. It would take even more exceptional circumstances to justify any order that he bear in whole or in part the costs of his unsuccessful opponent.

14. In Charm, Evans L.J. in the passage extracted above clearly did not treat the case before the court as a case for the application of the de minimus rule, the difference there being US$19,000 in the context of a judgment in the sum of US$841,070. What has been done in Charm may however be explained by reference to the principle I outlined above, namely, that when a party was more ambitious with his claim than its merits justified, whilst the Court should not in the absence of improper or unreasonable conduct order him to pay the other side's costs of the action or the relevant part thereof, it may in appropriate circumstances deprive him of part of his costs of the action, particularly when there was a payment in which was only beaten by a small margin.

15. In the present case, as I said, the difference between the judgment sum and the total payment in is far too substantial for the application of the principle. That notwithstanding, I agree with Mr. Jat, counsel for the Defendant, that there are some similarities between our case and Charm, even though each case turns on its own facts. Equally one can say to both parties here (as Evans L.J. did in Charm) that "You have each tried for a higher or a lower figure, and in practical terms neither of you has succeeded." Whether one can go on to say (as the learned judge did on the facts of that case) that "You should each pay your own costs of the Court time that you have used" is however more debatable, and must be determined by reference to the facts of the present case.

16. I also agree with Mr. Jat's argument that the Plaintiff had really put in very little by way of evidence to justify his very substantial claims in respect of service and maintenance. I will not repeat here what I have said in the Judgment in relation to these two items of claim, the amount and quality of evidence adduced by the Plaintiff on whom the burden of proof lied to establish the claims, the difficulty faced by the Court in adjudicating on the claims, and how eventually the two awards of US$50,000 and US$40,000 were arrived at.

17. Looking at it from the angle of the Defendant, there was indeed some justification for its total rejection of the two claims in calculating the appropriate amount of payment in, as well as its resistance of the two claims in their entirety up to the very end. And had it not been for evidence emerging here and there at the trial itself, there would have been no or insufficient evidence to support the final awards for damages in relation to the two items of claim in question. Further, I think it should be quite apparent from my Judgment how close the contest in relation to the two items of claim was. I think all this can and should be taken into account in considering how my discretion on costs should be exercised.

18. As regards the correspondence, I am of the view that unless it demonstrates that the Plaintiff had behaved very badly or was (with fault on his part) responsible for the need for a trial when the case could and should have been settled reasonably, the correspondence, or matters like who offered what, should not be taken into account. The Court should be very slow to look at correspondence on settlement or attempted settlement in deciding questions of costs, when the matter could be put beyond doubt by the making of an appropriate payment in, which is still the only sure means in our present system of litigation by which a defendant may legitimately and effectively exert pressure on a plaintiff to settle his claim on reasonable terms.

19. Having looked at the correspondence between the parties, I do not think the Plaintiff has behaved so badly in the negotiations or attempted negotiations that he should be held responsible for the need for a trial. His earlier stance on the matter could at least to some extent be explained by the justifiable grievance he felt in the whole matter. Although his eventual position was still very far off the mark, this would suggest to me a lack of judgement rather than any culpability on his part. I do not think this is something that can be taken into account in the exercise of my discretion on costs. If I were wrong, the weight to be attached to such a factor would be relatively insignificant in any event.

20. One further matter that I should specifically mention as constituting part of my consideration on costs is this. Despite the fact that the very substantial payments in made by the Defendant was obviously premised on a concession on liability, no such concession was made in the open. Instead, the Plaintiff was made to fight every inch of the battle at trial. Much time, effort and costs were expended on liability. Experts were called giving lengthy evidence on computer science. At the end of the day, the Defendant lost on all grounds on which it relied to resist liability.

21. This fact, in my judgment, has the effect of taking away some if not much of the force of the Defendant's argument based on the payments in and the case of Charm. Unlike the two claims on maintenance and service regarding which the Defendant may say both parties failed, the Defendant cannot say the same thing in relation to liability. Rather the Plaintiff is fully justified to say that the Defendant came to Court to resist liability but failed, and therefore must pay the costs at least in relation to liability.

22. Bearing all the above in mind as well as all other relevant circumstances, I am of the view that the order nisi as to costs should be varied to reflect that the Plaintiff only managed to succeed in a relatively insignificant manner his claims for damages relating to maintenance and service, and that the most unsatisfactory evidence (both in terms of amount and quality) that the Plaintiff put in to prove these two claims must have to some extent affected or clouded the judgement of the Defendant in evaluating their worth for the purpose of determining the appropriate amount of payment in.

23. The variation only relates to the Plaintiff's costs to be recovered from the Defendant, and leaves untouched the costs of the Defendant, which must be borne by the Defendant itself. This is a very different situation from one where a plaintiff fails to beat a payment in, in which case he has to pay the costs of the defendant incurred after the date of payment in.

24. As to the extent, in my judgment, a 15% reduction of the costs incurred after the two payments in would seem to me to be fair and reasonable.

25. In other words, I order that my order nisi on costs be varied as follows, namely, that the Defendant pay to the Plaintiff his costs of the action including the counterclaim that were incurred on or before 2nd April 1998 and 85% thereof that were incurred thereafter, to be taxed if not agreed.

26. There is another outstanding matter. In the Judgment I handed down, I ordered that interest be paid on top of the judgment sum, which is in US dollars. The parties now ask me for clarification as to whether the interest rate should be that for US dollars or Hong Kong dollars.

27. I would now clarify that interest on the judgment sum as ordered in my Judgment should be based on the US dollar interest rate applicable from time to time.

28. As regards the costs of the present application, the Defendant seeks either a total or 50% deprivation of the Plaintiff's costs of the action and counterclaim after the payments in; whereas the Plaintiff argues that there should be no reduction. At the end of the day, I rule that there should be a reduction of 15%, which is a substantial reduction (particularly given the amount of costs likely involved), but is nowhere near the percentages suggested by the Defendant. Neither party is wholly successful, or for that matter, unsuccessful.

29. As regards interest, the time expended on it was minimal as only a simple clarification from the Court was required.

30. I think it fair in the exercise of my discretion not to make any order as to costs. I make no order as to costs.