GOLDEN TONN INDUSTRIAL LTD v. HONG KONG CYBERPORT (ANCILLARY DEVELOPMENT) LTD

HCA 362/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 362 OF 2011

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1. This is the plaintiff’s appeal from an order of Master Ho dated 24 April 2014. The issue is whether the plaintiff is entitled to the costs of and occasioned by a summons (which the parties referred to as “the expunction summons”) that was adjourned part‑heard with costs reserved in the context of a sanctioned payment within Order 22, rule 20(1) of the Rules of the High Court. 

2. The plaintiff’s claim extends to two other reserved costs orders.  The first (dated 19 September 2012) was made by Master de Souza upon the plaintiff’s application for an unless order for the defendant to file a witness statement which was adjourned pending the determination of the expunction summons and the second (dated 17 January 2013) was a consent order adjourning the first CMC.

3. At the conclusion of the hearing, judgment was reserved which I now give.

BACKGROUND

4. In brief, the underlying dispute between the parties that gave rise to the action concerns the sale and purchase of two adjoining flats with the plaintiff alleging that it was induced to purchase the property by promises/representations made on behalf of the defendant and claiming damages.

5. On 18 September 2012, the defendant took out the expunction summons to expunge certain documents from the plaintiff’s list of documents.  On the following day Master de Souza ordered that it be adjourned for hearing with two days reserved.  Costs were reserved.

6. The adjourned hearing was fixed for 20 and 21 March 2013 before Master Ho.

7. On 8 March 2013, 12 days before the hearing of the expunction summons, the defendant served a notice of sanctioned payment pursuant to Order 22 of the Rules of the High Court.  The deadline for acceptance was 5 April 2013.

8. The two‑day adjourned hearing took place as scheduled but was adjourned part heard (with costs reserved) to 28 March 2013.

9. Meanwhile, on 26 March 2013, the plaintiff accepted the sanctioned payment. 

10. As earlier mentioned, the plaintiff’s claim extends to the other two reserved costs orders mentioned above. 

11. The plaintiff’s summons for costs issued on 7 June 2013 came before Master Ho on 24 April 2014 who dismissed the application and ruled that there should be no order as to costs in respect the expunction summons as well as the other two reserved costs order. 

THE RELEVANT RULES

12. For present purposes, the relevant rules are to be found in rules 20 and 22 of Order 22:

“20. Costs consequences of acceptance of defendants sanctioned offer or sanctioned payment

Where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the Court otherwise orders.”

“22. Other consequences of acceptance of sanctioned offer or sanctioned payment

(1) If a sanctioned offer or a sanctioned payment relates to the whole claim and is accepted, the claim is stayed.

…

(5) Any stay arising under this rule does not affect the power of the Court -

...

(b)  to deal with any question of costs (including interest on costs) relating to the proceedings; ...”

THIS APPEAL

13. The issues that arise can conveniently be considered under the following subheadings.

(1) The “prima facie” rule

14. It is common ground that pursuant to rule 20(1), the plaintiff is entitled to the “costs of the proceedings” up to the date of acceptance of the sanctioned offer.  It is also common ground that it may be displaced should the court order otherwise by applying the ‘otherwise proviso’.

15. The parties differ as to the scope of “costs of the proceedings” specifically, whether it encompasses reserved costs.

16. Jeremy Poon J had occasion to consider rule 20(1) and, in particular, the proper approach to the otherwise proviso in Etratech Asia‑Pacific Limited v Leader Printer Circuit Boards Ltd [2013] 2 HKLRD 1184 where he explained the “prima facie” rule and the role and importance of that rule in the sanctioned payments context:

“18. … rule 20(1) plainly envisages that upon acceptance of the sanctioned payment or sanctioned offer, the plaintiff is, as a prima facie rule, entitled to his costs of the proceedings up to the date of serving notice of acceptance. The prima facie rule may, however, be displaced when the court orders otherwise by applying the Otherwise Proviso.

19. The prima facie rule is important.  In ordinary civil litigations, costs are incurred in a recoverable inter-parties sense from the moment the proceedings commenced and continue to be incurred as the litigation progresses.  Every litigant, who needs to incur costs in order to pursue or defend a claim, definitely regard them as very real and present expenses.  Further, litigation is inescapably chancy.  The prospect of paying costs to the other side after losing one’s case in addition to his own costs must very much exercise a party’s mind.  Costs thus factor heavily in the negotiations and considerations of settlement.  Sometimes, it may even make or break the settlement.  But uncertainty as to costs is a notoriously difficult subject. It may easily frustrate an otherwise meaningful settlement negotiation and even become an irremovable obstacle to the settlement itself.  What the prima facie rule does is to create certainty as to the costs consequences upon acceptance of the sanctioned payment or sanctioned offer.  A party knows the exact extent of his exposure or entitlement to costs, as the case may be …”

17. For my part, I share the views expressed by the judge.  The scheme to be discerned from rule 20(1) in light of the rationale behind it is that costs are recoverable because they fall under ‘general costs’ of the action or because the otherwise proviso applies.  I do not consider that there is scope for a third element or limb to exist within that scheme.

18. Mr Man, counsel for the plaintiff, made it clear at the outset that it is not his case that the plaintiff is entitled to the costs claimed because the phrase “costs of the proceedings” in rule 20(1) extends to all reserved costs.  His submission is that Etratech does not say that there is a presumption that all reserved costs orders should be turned into “no order as to costs”.

19. Mr Eugene Fung SC who appeared for the defendant submitted that the answer to the question whether a plaintiff would normally be entitled to all costs reserved on taxation is clear: reserved costs are not recoverable on taxation, citing British Natural Premium Provident Association v Bywater [1897] 2 Ch 531 where (at 532‑533) Byrne J held that where judgment has been passed and entered, costs reserved not mentioned at the trial would not be allowed except under very special circumstances and How v Earl of Winterton (No 4) (1904) 91 LT 763 where Kekewich J observed (at 765) that where costs are reserved, it is necessarily implied that “there is reserved the incidence of those costs” and it is impossible for a taxing master to look at costs that have been reserved. 

20. It is pertinent to mention that Mr Man accepts that it is impossible to predict the outcome of the expunction summons with any degree of confidence.  Nevertheless, he contended that the fact that costs were reserved does not mean that the plaintiff is not entitled to them. 

21. Mr Man sought to rely on Brawley v Marczynski and Anor (Nos 1 and 2) [2003] 1 WLR 813 where a case was settled save as to costs.  Under the liberty to apply provision the judge was asked to rule on costs and conclude that the plaintiff in that case was the “clear victor”.  On appeal the English Court of Appeal upheld the judge.  It applied the principles stated in R (Boxall) v Waltham Forest London Borough Council, unrep, 21 December 2000 (the relevant passage being set out in the judgment of Longmore LJ at §21) and concluded that the judge evidently thought the case came within the fourth principle stated, namely, that:

“(iv) At each end of the spectrum there will be cases where it is obvious which side would have won had the substantive issues been fought to a conclusion. In between, the position will, in differing degrees, be less clear. How far the court will be prepared to look into the previously unresolved substantive issues will depend on the circumstances of the particular case, not least the amount of costs at stake and the conduct of the parties.”

22. §22 of the judgment of Longmore LJ shows that in cases where it was obvious which side would have won had the substantive issues been fought to a conclusion, it would be appropriate to award costs to that party.  

23. Mr Man’s argument was that, first, by virtue of rule 22(5), the court retains jurisdiction to deal with the question of costs (and thus the incidence of costs) even after acceptance of a sanctioned payment.  Therefore, when a dispute arises, for example, as to whether a particular set of reserved costs fall under the prima facie rule, the court must scrutinise and determine that question.  My understanding of Mr Man’s contention is that the costs of the expunction summons would form part of the general costs under the prima facie rule, albeit that an application had to be made under rule 22(5) for that purpose.

24. Assuming (for the sake of argument only) that the approach Mr Man advocated were correct, Mr Man will need to establish that the plaintiff would succeed.  

25. Mr Man’s answer was that the receiving party would be entitled to the costs of the expunction summons on the basis that the paying party failed to obtain the relief he sought by issuing the expunction summons.  It was said that by making a sanctioned offer, there was an “unspecific throwing in of the towel” by the defendant.  So the plaintiff being the receiving party is to be considered the overall ‘victor’. 

26. Mr Man’s approach that the plaintiff was the clear or overall victor appears to be based on the sole fact that the defendant had made a payment that was accepted.  But does it mean that in every sanctioned payment case that is settled, the receiving is to be deemed the “clear or overall victor” for the purposes of reserved costs?  

27. As a matter of first principles, it would not appear to be correct since settlements come about for a variety of reasons and the merits of the defence may not necessarily be the overriding consideration.  Moreover, the argument appears to contradict the position that Mr Man had expressly disavowed: see §18 above.  (As an aside, for my part, I would say that it is well‑nigh impossible for someone not having been involved in this matter to come to any informed view as to which party would have prevailed had the matter been fought to a conclusion.)

28. While Etratech was silent on the question of reserved costs because it did not arise in that case, it is pertinent to note that, as stated by the judge, Order 22 is a new, self‑contained code introduced by the Civil Justice Reform into the Rules of the High Court in April 2009. 

29. Given the rationale for the prima facie rule as stated in Etratech (with which I agree), if Mr Man’s analysis were correct, it would seriously undermine the certainty as to costs consideration that underpins the prima facie rule.  For it would mean that the incidence of reserved costs which, in a particular case, might well be a significant if not also the dominant consideration in the equation.  If Mr Man were correct, a party would not be in a position to evaluate the sanctioned offer on an informed basis because the ‘bottom line’ would be wholly uncertain and subject to future determination which necessarily involves the prospect of incurring yet further costs. 

30. The present case is a good illustration.  It is plain that the costs involved in the expunction summons were not de minimus (such as the reserved costs of a three minute call‑over hearing) but significant costs since two counsel including senior counsel were engaged in a matter for which two full days had proved insufficient and which it is accepted was complex.  I venture to suggest that the other costs incurred in the litigation probably pale into significance.

31. This simply brings home the importance of certainty of costs.  If “costs of the proceedings” had to involve a future determination by the court which would very much be at large, such a scenario would be a serious disincentive to the parties reaching a settlement.  That would appear to defeat the very purpose of the rules providing for sanctioned payments.  In my view, Mr Man’s approach would seriously negate or undermine the raison d’etre for the prima facie rule and should be rejected. 

32. For those reasons, I do not consider that on a proper interpretation, rules 20(1) and 22(5) contemplate that a party who has accepted a sanctioned offer could ask the court to revisit the merits of each set of reserved costs or for that matter each order of costs in the cause on a future occasion after acceptance of a sanctioned offer.  Rather, the scheme of the self‑contained code relating to sanctioned payments contemplates finality upon acceptance save as to incidental matters mentioned in rule 22(5).

(2) The otherwise proviso

33. It was Mr Man’s contention that the plaintiff’s entitlement to those costs is not dependent on his successfully invoking the otherwise proviso but that, in any event, special circumstances exist in the present case.  The special circumstances invoked is the timing of the sanctioned payment made shortly before the issuance of the scheduled hearing of the expunction summons.

34. For my part, I cannot see the relevance of the timing relied on.  It was not within the defendant’s control whether and, if so, when within the 28 days the sanctioned offer remained open for acceptance it would be accepted.

CONCLUSION

35. For the reasons stated above, the appeal is dismissed with an order nisi of costs with certificate for counsel.