ZEBRA INDUSTRIES (OROGENESIS NOVA) LTD v. WAH TONG PAPER PRODUCTS GROUP LTD

HCA 1551/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1551 OF 2004

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BETWEEN

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HCMP 2044/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2044 OF 2008

BETWEEN

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PROVISIONAL TAXATION

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1.  This is the provisional taxation of 2 bills of costs by Wah Tong against Zebra.

Background

2.  The underlying dispute and the ensuing legal and arbitral proceedings between the parties had been recounted by Saunders J in a judgment dated 11 March 2011 in HCA 1551/2004.  Although the Court of Appeal has subsequently reversed the learned Judge’s decision and granted leave to Zebra to appeal against the arbitrator’s award, Saunders J’s judgment nonetheless provides a concise summary of the background of this case.

3.  The following chronology (mainly taken from Saunders J’s judgment) is the bare minimal for a proper understand of the present taxation proceedings:

(a)   Mr Elijah Saatori (the Managing Director and Chief Executive of Zebra) had developed a board game (Galaxion) and a card game (Psilink).

(b)   By a contract made on 31 March 2003, Zebra and Wah Tong agreed to jointly develop the games.  Wah Tong was obliged by the contract to manufacture the first 2,000 pieces of each game and, in return, Mr Saatori would offer 10% of Zebra to Wah Tong.

(c)   Although the 2 lots of 2,000 pieces had been manufactured, a dispute subsequent arose between the parties and their relationship came to an end.  In the end, Wah Tong did not take up the shareholding in Zebra.

(d)   On 2 July 2004, Zebra commenced HCA 1551/2004 to claim against Wah Tong for damages in the region of $3.5 million alleging breach of contract, misrepresentation and negligence.

(e)   Relying on an arbitration clause in the contract, Wah Tong took out a summons on 9 July 2004 for stay of legal proceedings for arbitration pursuant to the Arbitration Ordinance.

(f)   At the call-over hearing on 21 July 2004, the Master set down the application for argument with “costs reserved”.

(g)   There was then a hearing on 18 August 2004 before the Registrar who directed the argument to take place before a Judge and ordered “costs of today’s hearing be in the cause of the application”.

(h)   On 15 September 2004 when the summons came up for argument, Zebra sought an adjournment and Chu J (as she then was) adjourned the argument with “the costs of today be to [Wah Tong] against [Zebra] in any event”.

(i)   On 17 December 2004, Burrell J, after argument, ordered a stay of proceedings and directed Wah Tong to approach the Hong Kong International Arbitration Centre (“HKIAC”) within 14 days to request appointment of an independent qualified arbitrator of the Christian faith to assist the parties to resolve their dispute.  The learned Judge ordered “the costs of this application be to [Wah Tong] in any event, to be taxed if not agreed”.

(j)   Despite the order, Wah Tong did not approach the HKIAC for an appointment.

(k)   On 17 October 2008, Zebra commenced HCMP 2044/2008 to seek leave to appeal against Burrell J’s order out of time. 

(l)   On 3 November 2008, Rogers VP refused leave with “costs be to [Wah Tong]”.  Zebra renewed its application before a two-man Court of Appeal, and the Court of Appeal (Tang VP and Sakhrani J) dismissed the application on 8 January 2009 with “costs of this appeal be paid by [Zebra] to [Wah Tong]”.

(m)   On 14 January 2009, Zebra applied to the HKIAC for appointment of an arbitrator.  Eventually, Mr Timothy Hill (a solicitor and a confirmed Anglican) was appointed arbitrator on 27 June 2009 to conduct the arbitration.

(n)   On 24 September 2010, the arbitrator delivered his final award on all issues save as to costs (“the 1^st Award”).  The award was in Zebra’s favour and Wah Tong was ordered to pay Zebra a sum of $58,000.

(o)   On 28 October 2010, the arbitrator delivered a further award dealing with questions of interest up to and beyond the date of the final award and in respect of costs (“the 2^nd Award”).  Zebra was awarded:

(i)   interest in the sum of $34,596.27;

(ii)   the costs of the reference and to the extent that those costs have hitherto been paid by Zebra, they should be reimbursed by Wah Tong; and

(iii)   the costs of the arbitration proceedings.

(p)   On 3 November 2010, Zebra sought leave in HCA 1551/2004 to appeal against the 1^st Award out of time.

(q)   As I have mentioned before, Saunders J initially refused leave but the Court of Appeal granted leave to Zebra on 16 November 2011 in CACV 52/2011 to appeal against the 1^st Award out of time. The appeal is still pending.

The bills

4.  The 1^st bill is in respect of Wah Tong’s costs for the summons in HCA 1551/2004 to stay all legal proceedings in favour of arbitration.  Wah Tong is claiming costs in the total sum of $140,083.

5.  The 2^nd bill is in respect of Wah Tong’s costs in resisting Zebra’s summons in HCMP 2044/2008 for leave to appeal against the order of Burrell J out of time.  The total costs claimed is $78,230.

6.  Zebra has submitted 3 objections in HCA 1551/2004 to object to the 1^st bill:

(a)   “Notice of objection to bill of costs filed by the Defendant on 31^st March 2011” (“the 1^st Objection”);

(b)   “Notice of objections to the Defendant’s bill of costs only properly served by the Defendant on the 27^th June 2011 (Pursuant to the order of Master Woolley of 24^th June 2011. This notice replaces the wording of the previous notice filed with the court in mid April 2011, save only the documents included as attached therewith must remain and be used in conjunction with this notice – Amen)” (“the 2^nd Objection”); and

(c)   “Addendum to list of objections – 25^th August 2011” (“the 3^rd Objection”).

7.  Zebra also filed the 2^nd Objection and the 3^rd Objection in HCMP 2044/2008 to object to the costs claimed in the 2^nd bill.

8.  Essentially, Zebra objects to all items in the bills and raises the following general arguments:

(1)       Wah Tong should not be entitled to costs at all, as it has now been proven that it had committed 2 breaches of contract and failed to comply with Burrell J’s order.

(2)       Wah Tong is time-barred under O.62, r.22 and is not entitled to commence these taxation proceedings.

(3)       Wah Tong may not seek to have its bills taxed before the conclusion of the appeal in CACV 52/2011.

(4)       Zebra alleges undue delay on the part of Wah Tong in commencing these taxation proceedings, and seeks an order under O.62, r 22(5)(b) to disallow all the costs claimed.

(5)       Zebra alleges misconduct on the part of Wah Tong’s solicitors (WK To & Co), and seeks an order under O.62, r.8D to disallow all the costs claimed.

(6)       Zebra asks me to take into account the costs awarded to it by the arbitrator in the 2^nd Award.  According to the bill attached to the 2^nd Objection, Zebra claims almost $3 million costs including a sum of $30,000 said to be reimbursement of disbursements directed by the arbitrator.

(7)       Zebra wishes to apply for a wasted costs order against its former legal representative in HCMP 2044/2008 (Andy Fung & Associates), so much so that any costs taxed by me in these proceedings will be paid by the solicitor.

9.  On 20 September 2011, I set down these bills for provisional taxation without an oral hearing.  This is my decision on provisional taxation.

Discussion

10.  I shall first deal with the general arguments raised by Zebra before turning to the individual items in the bills.

11.  The first and third points can be taken together.

(a)   The 1^st bill is based on the costs orders of Chu J and Burrell J in HCA 1551/2004, and the 2^nd bill is pursuant to the costs order of Rogers VP and the Court of Appeal respectively in HCMP 2044/2008.

(b)   There has been no appeal against Chu J’s order.

(c)   Zebra’s appeal against Burrell J’s order was first dismissed by Rogers VP and then by the Court of Appeal in HCMP 2044/2008. There has been no further appeal.

(d)   Zebra tried to reopen these costs orders in CACV 52/2011, but the Court of Appeal declined to do so with this comment:

“ 6. As to the second issue, it is difficult to understand the point raised by [Zebra]. It said that it would like to maintain HCA1551/2004 as the basis of the litigation and ‘incorporating the resultant costs issue’.

7. Burrell J, when ordering the stay of HCA1551/2004, also ordered costs of the application in favour of the defendant. He did not deal with the costs of the action itself.

8. The plaintiff had applied for leave to appeal against BurrellJ’s order. It was refused with costs by RogersVP. On further appeal it was also dismissed by this Court (TangVP and SakhraniJ). Neither SaundersJ nor this Court had any jurisdiction to revisit the costs order made by BurrellJ.”

(e)   So, all the costs orders remain valid and there has been no stay of execution.  Wah Tong is entitled to file its bills for taxation.

(f)   In any event, I (as taxing master) do not have jurisdiction in the course of taxation to reconsider these costs orders granted in Wah Tong’s favour.

12.  The second point concerns the limitation period for Wah Tong to commence these taxation proceedings.

(a)   O.62, r.22 provides, inter alia, that:

“ (7) A party is not entitled to commence taxation proceedings under rule 21-

(a) after the expiry of 2 years from the completion date; or

(b) where the Court has extended the period specified in sub-paragraph (a), after the expiry of the period as extended,

whichever is the later.

(8) Where the completion date is before the commencement of this rule, paragraph (7)(a) has effect as if for the words "completion date", there were substituted the words "commencement of this rule".

(9) In this rule, "completion date" (完結日期) means-

(a) in relation to a costs order made by the Court of First Instance-

(i) the date of the judgment or order of the Court of First Instance which disposes of the action;

(ii) the date on which the Court of First Instance makes the costs order, or if the order is an order nisi, the date on which the order is made absolute or varied (as the case may be);

(iii) the date on which the taxing master orders under rule 9D(4) the person entitled to payment of the costs of any interlocutory proceedings in the Court of First Instance to commence taxation proceedings; or

(iv) where the person entitled to payment of costs is entitled to tax those costs without an order of the Court of First Instance directing the taxation of them, the date on which he becomes entitled to tax those costs,

whichever is the later; and

(b) in relation to a costs order made by the Court of Appeal-

(i) the date of the judgment or order of the Court of Appeal which disposes of the appeal;

(ii) the date on which the Court of Appeal makes the costs order, or if the order is an order nisi, the date on which the order is made absolute or varied (as the case may be);

(iii) the date on which the taxing master orders under rule 9D(4) the person entitled to payment of the costs of any interlocutory proceedings in the Court of Appeal to commence taxation proceedings; or

(iv) where the person entitled to payment of costs is entitled to tax those costs without an order of the Court of Appeal directing the taxation of them, the date on which he becomes entitled to tax those costs,

whichever is the later.”

(b)   In my view, HCA 1551/2004 was disposed of by Burrell J when the learned Judge ordered a stay of all further proceedings in that action.  So, the “completion date” for the costs orders of Chu J and Burrell J for the purpose of O.62, r.22 should be 17 December 2004 which predated the commencement of the rule on 2 April 2009.

(c)   The “completion date” for the costs orders of Rogers VP and the Court of Appeal in HCMP 2044/2008 should be 8 January 2009 which was the date when the Court of Appeal finally refused leave to appeal.  That was also before the commencement of the rule.

(d)   Since all completion dates fell before the commencement, the 2-year limitation period for Wah Tong to tax its bills should run from 2 April 2009 by operation of O.62, r.22(8).  Wah Tong filed its notices of commencement of taxation on 31 March 2011 and was therefore within time.

(e)   I have no discretion to take Wah Tong as time-barred irrespective of the above (as suggested by Zebra) just because Wah Tong had commenced these taxation proceedings so close to the end of the limitation period.

13.  The fourth and fifth points can be taken together.

(a)   Here, Zebra’s complaint is two-fold: (1) Wah Tong and its solicitors failed to serve the relevant documents for these taxation proceedings on Zebra at the proper address for service; and (2) there has been undue delay on the part of Wah Tong in commencing these proceedings.

(b)   The first complaint has already been dealt with by Master Woolley on 23 and 24 June 2011.  At the inter partes hearing on 24 June 2011, the learned Master set aside his orders made at the ex parte hearing on the day before, and gave directions for re-service of the bills on Zebra and for Zebra to file its list of objections.  The consequence of all these is that Zebra has now been served with the necessary papers and it has since filed its objections to the bills.  The learned Master decided to make no order as to costs after hearing the parties, and there has been no appeal. 

(c)   The second complaint relates to the time taken by Wah Tong to file these bills for taxation.

(i)   Chu J and Burrell J granted costs to Wah Tong “in any event”.  Such orders do not confer upon Wah Tong a right to tax its costs until the event is finally decided or settled: see Hong Kong Civil Procedure 2012, para.62/1/3 (at p.1093).  The order staying all further proceedings in HCA 1551/2004 has the effect of disposing of the action.  So, the earliest time upon which Wah Tong could have taxed its costs in pursuance of the orders should be 17 December 2004.

(ii)   Wah Tong would have been justified in not proceeding with taxation immediately if there had been ongoing arbitration.  But, according to Zebra, Wah Tong had done nothing in pursuance of Burrell J’s order and an arbitrator was only appointed in June 2009 upon the application of Zebra.  The arbitration more or less concluded in October 2010 when the arbitrator delivered his 2^nd Award.

(iii)   Thereafter, Zebra sought leave in November 2010 to appeal against the 1^st Award out of time and the appeal is still ongoing.

(iv)   In my view, there was undue delay on the part of Wa Tong in submitting the 1^st bill for taxation for at least 4 ½ years (from December 2004 to June 2009).  There is some justification for Wah Tong not to proceed with taxation during the course of arbitration.

(v)   On the other hand, HCMP 2044/2008 was disposed of when the Court of Appeal finally refused leave to appeal in January 2009.  Zebra then immediately approached the HKIAC for appointment of an arbitrator.  In my view, it was not unreasonable for Wah Tong to withhold taxation of the 2^nd bill in view of the forthcoming arbitration.  The arbitration was more or less concluded with the delivery of the 2^nd Award in October 2010, and Wah Tong submitted the 2^nd bill for taxation in March 2011.  I do not think there is “undue” delay in prosecuting the 2^nd bill.

(vi)   O.62, r.22(5) provides that:

“On the taxation of a bill of costs … the taxing master, if he is satisfied that there has been undue delay in commencing taxation proceedings or in proceeding with the taxation-

(a) may make such order as he thinks fit as to the costs of any application or as to the costs of the taxation;

(b) may disallow any part of the costs to be taxed pursuant to the costs order; and

(c)   may, in relation to the taxed costs or any part of those costs, disallow interest or reduce the period for which interest is payable or the rate at which interest is payable.”

(vii)   According to the authorities cited in para.62/22/5 of Hong Kong Civil Procedure 2012, the Court has in previous cases ordered global deduction of 20% for a 1-year delay and 30% deduction in view of a 2-year inordinate delay. In the circumstances of this case and in view of the 4 ½ years delay, I am minded to order a global deduction of 60% of the amount allowed under the 1^st bill.

14.  By the sixth point, Zebra has invoked O.62, rr.12 and 18 to invite me to tax the costs granted by the arbitrator in Zebra’s favour and to set-off such costs against Wah Tong’s costs claimed in the bills.

15.  O.62, r.12(1)(b) provides that:

“A taxing master shall have power to tax … the costs directed by an award made on a reference to arbitration under any enactment or pursuant to an arbitration agreement to be paid.”

There has been no direction for me to tax the costs of the arbitral proceedings.  In fact, the arbitrator has reserved the assessment of such costs to himself in the 2^nd Award. 

16.  Until Zebra’s costs is assessed by the arbitrator, one cannot say how much is due from Wah Tong to Zebra.  The situation is further complicated by Zebra’s appeal against the 1^st Award.  If, for whatever reason, the appeal is allowed, that may impact on the 2^nd Award on costs.

17.  It may take some time for Zebra to prosecute the appeal, as it is apparently acting in person in the appeal.  Zebra will also have to return to the arbitrator to have its costs assessed.  In the circumstances, it is not appropriate for me now to guess the amount of costs to be allowed to Zebra under the 2^nd Award (as Zebra would want me to do) and order a set-off.

18.  Zebra has insisted that Wah Tong should now reimburse it disbursements in the sum of $30,000.  Although the arbitrator did order that “[Zebra] is awarded the costs of the reference and to the extent that those costs have hitherto been paid by [Zebra], they shall be reimbursed by [Wah Tong]”, there is no quantification of any reimbursement in the 2^nd Award.  Insofar as there is any dispute on the amount to be reimbursed, parties should go back to the arbitrator for a ruling.

19.  Lastly, Zebra, apparently relying on O.62, r.8A(2)(a), had requested an oral hearing so that it may orally apply for a wasted costs order against its former legal representative.  Zebra’s complaint is that the solicitor had “misrepresented” it and made a wrong application on its behalf in HCMP 2044/2008.  I declined the request.

20.  The proceedings to which the intended application for wasted costs order relate is the applications before the Court of Appeal in HCMP 2044/2008 for leave to appeal against Burrell J’s order out of time.  That has nothing to do with the taxation of these bills.  Even if (for the purpose of discussion and without deciding) Zebra has some legitimate complaint against its solicitor, that is a matter between Zebra and its solicitor.  It is inappropriate for me to investigate the complaint in the course of taxing Wah Tong’s bills.  Insofar as Zebra wishes to pursue the application, that should be done formally by summons before the appropriate forum.

21.  I now turn to quantum.  Zebra has made the following general objections to the amount of costs claimed by Wah Tong:

(a)   Burrell J only granted costs of the hearing to Wah Tong, and Wah Tong is not entitled to claim for “letters, affidavits and other materials and time expanded by WK To & Co had nothing to do with that hearing” and “the materials produced by [Wah Tong] in arguing the fine details of the entire [HCA 1551/2004] claim”.

(b)   The amount of costs claimed in the 1^st bill is excessive, having regard to the simple and short hearings.  There is also a huge disparity (so observed Zebra) in the costs claimed in the bills.

(c)   Zebra has not been provided with a paginated bundle on the costs claimed.

22.  What must be appreciated is that Burrell J did not just grant the costs of the hearing on 17 December 2004 to Wah Tong.  The learned Judge granted costs of the entire stay application to Wah Tong.  That goes beyond the costs of the hearing and covers all that was necessary or proper for the application. Furthermore, in view of the Registrar order that the costs before him was to be in the cause of the stay application, Wah Tong is also entitled to claim for the costs before the Registrar in the 1^st bill as it had been successful in the stay application.

23.  There may not be much point in criticising the amount of costs claimed in the 1^st bill without reference to the actual proceedings.  Zebra was legally represented in HCMP 2044/2008 and the proceedings therein were much more confined and focused.  Whereas Zebra was acting in person in HCA 1551/2004 and had filed quite a few affidavits (some with lengthy exhibits) and submissions to oppose Wah Tong’s stay application.  It was necessary and proper for Wah Tong to expand costs in dealing with these affidavits and submissions. That, perhaps, explains why Wah Tong is claiming more costs in the 1^st bill.

24.  I have had the benefit of the taxation bundles lodged into court by Wah Tong in pursuance of para.28-29 of Practice Direction 14.3 for this provisional taxation exercise.  The bundles contain supporting documents of the items of costs claimed.  Insofar as Wah Tong is claiming beyond the terms of the relevant costs order, for work which was not necessary or proper, or for excessive costs, suitable adjustment will be made by me.

25.  With the above general observations in mind, I have proceeded to tax the bills.  I have set out the deductions to the 1^st and 2^nd bills in Appendices A and B to this judgment respectively.  All the costs claimed in the bills (including the additional costs of taxation claimed in WK To & Co’s letter dated 6 December 2011) are taxed and allowed subject to these deductions.  The 1^st bill is further subject to a global deduction of 60% as mentioned before.

26.  Parties are reminded of para.34-37 of Practice Direction 14.3.  If no clarification is sought or no objection is made to the amount allowed or disallowed within 14 days of this judgment, the above order will become absolute.

Appendix A

Deductions for Bill No. 1 in HCA 1551/2004 (i.e. the 1^st bill)

Appendix B

Deductions for Bill No. 1 in HCMP 2044/2008 (i.e. the 2^nd bill)