GOAL UPWARD INVESTMENT LTD v. OSMAN MOHAMMED ARAB AND ANOTHER

HCA 1355/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1355 of 2016

__________________

__________________

________________________

DECISION ON COSTS

________________________

1. The dispute between the parties concerns a notice (“the Notice”) issued by the defendants by which they purported to terminate an exclusivity agreement (“the Agreement”) whereby the plaintiff was given an exclusive right for a period of six months, from 14 April 2016 to 13 October 2016, to negotiate with the defendants a restructuring agreement for a company of which the defendants were the liquidators. The background is set out in my Decision, dated 23 September 2016.

2. The plaintiff claims that the termination was unlawful and, by Writ and Statement of Claim seeks relief, including: (1) a declaration that the notice and the purported termination are null and void; and (2) a declaration that the Agreement is still on foot and binding on the defendants.

3. By summons, dated 1 June 2016, the plaintiff sought an injunction restraining the defendants from negotiating with any others for the purpose of restructuring the company.  By a second summons, dated 6 July 2016, the plaintiff applied for the declarations sought by the Writ pursuant to Rules of the High Court, Order 14A, rule 1.

4. The plaintiff’s case was that the notice did not comply with the terms of the Agreement because the period of notice was too short; the Agreement required that notice should be not less than seven days.  I agreed with the plaintiff and concluded that the notice was null and void. 

5. However, as an exercise of discretion, I declined to grant the injunction because I considered that to have done so would have been futile for reasons including that the defendants considered that the plaintiff’s proposals are unlikely to succeed and, in those circumstances, it could be assumed that the defendants would exercise the right to terminate the Agreement, thereby rendering the grant of an injunction nugatory.  I also declined to make the declarations because to do so would not resolve all of the issues between the parties, including whether there were grounds or proper grounds to terminate the Agreement.

6. By summons, dated 5 October 2016, the defendants seek costs for the two summonses, with a certificate for two counsel, to be assessed summarily and paid by the plaintiff to the defendants forthwith and the costs of this application to be to the plaintiffs, to be taxed if not agreed.

7. By summons, dated 5 October 2016, the plaintiff seeks an order that costs of the two summonses are to be in the cause, alternatively, no order as to costs or, further alternatively, the plaintiff and the defendants pay such portion of costs as the court deems fit.

8. I made a costs order nisi that the plaintiff pay the defendants’ costs, with a certificate for two counsel, to be taxed if not agreed.  However, after considering the parties’ submissions I have decided to vary that order.

9. My attention was directed to a number of authorities setting out the modern principles concerning the exercise of discretion regarding costs.  There was no disagreement on the principles but each counsel emphasized particular passages in the authorities in support of their submissions.

10. Mr Kwong, for the plaintiff, submitted that the defendants, are clearly the wrongdoers.  They breached the contract by serving inadequate notice.  Mr Kwong referred me to a passage in the judgment of Chu JA in FBC Construction Co Ltd v Lee Ben [2014] 2 HKLRD 1054 at para 237: “… a wholly successful defendant should be given his costs unless there was evidence that he: … had done some wrongful act in the course of the transaction of which the plaintiff complained.  …”.

11. Mr Kwong also submitted that I should adopt an issue based approach, such as referred to by DHCJ Woo in Mega Yield International Holdings Limited v Fonfair Company Limited unrep, HCA 948/2009, 14 May 2013, at paras 7‑9.  Mr Kwong submitted that the issue concerning adequate notice was a distinct and substantial issue and, as the defendants lost this issue, on this point alone, the defendants should be deprived of at least a proportion of their costs.

12. Ms Seto, for the defendants, argued that, as the plaintiff failed to obtain any relief, the defendants were “the overall” successful party and costs should follow the event.  Ms Seto submitted that the defendants’ position regarding the adequacy of notice was not unarguable and, in any event, the resolution of the notice issue was not determinative of the two applications.

13. The starting point in respect of the two competing applications for costs is to consider what it was that the plaintiff wanted to achieve.  The plaintiff wanted an injunction to prevent the defendants negotiating with other parties and it wanted declarations to the effect that the Agreement remained in existence.  The applications were founded upon a case of inadequate notice but the injunction and the declarations were the ultimate goal and the plaintiff failed on both counts.  In that regard, the defendants were the successful parties.

14. I am not persuaded to deal separately with the issues raised by the plaintiff’s two summonses because my view is that I should consider whether the plaintiff was successful in obtaining the result it wanted.  It was the plaintiff which raised the notice issue but that issue was not determinative.  The plaintiff not only had to succeed on the notice point but also on the discretion.

15. As to Mr Kwong’s submission that the defendants are the wrongdoers, the passage from FBC Construction Co Ltd upon which Mr Kwong relies concerns depriving a successful defendant of costs because of a wrongful act in the course of the transaction of which the plaintiff complains.  In that judgment, the wrongful acts are characterized as particularly bad behaviour.

16. However, there is nothing to suggest that the inadequate notice was particularly bad behaviour or behaviour which requires an approach different from considering the overall result of the plaintiff’s applications.

17. For these reasons, I consider it appropriate that the defendant have its costs.

18. I turn to consider whether the costs should be paid forthwith. Rules of the High Court, Order 62, rule 9D(1) provides: “Subject to paragraphs (2) and (4), the costs of any proceedings shall not be taxed until the conclusion of the action”.  Rule 9D(2) provides: “If it appears to the Court when making a costs order that all or any part of the costs ought to be taxed at an earlier stage it may order accordingly.”

19. The principles regarding the court’s exercise of its discretion to order the costs of an interlocutory application to be paid forthwith were summarized by DHCJ Marlene Ng in China Agri‑Products Exchange Ltd v Wang Siu Qun & anor., HCA 1807 of 2011, 16.1.14 at para 7, including:

(1) Whether the proceedings in question are severable and self‑contained from the rest of the action.

(2) The justice of making the costs order, having regard to the effect on the respective parties’ cash flow, e.g., the court would have regard to the unfairness of keeping the successful party in the interlocutory application out of its money until trial, or alternatively, the unfairness of hampering the further conduct of the action by the unsuccessful party or destroying his business.

(3) Whether the amount at stake was sufficient to justify the expense of a separate taxation.

20. In Midland Business Management Ltd v Lo Man Kui (No 2) [2011] 2 HKLRD 667, Johnson Lam J (as he then was) observed, at para 9:

“Under Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings and if possible by way of summary assessment of costs. The objective is to discourage unnecessary and disproportionate interlocutory applications. It is recognized that the lack of immediacy of orders to pays (sic) costs ‘in the cause’ or ‘in any event’ weakens costs as a sanction against unwarranted applications or resistance … .”

21. The plaintiff submitted that its applications could not be said to be “unnecessary and disproportionate interlocutory applications” or “unwarranted applications” requiring immediate payment of costs as a “sanction” as it succeeded on the issue concerning adequate notice.  Whether or not the applications were unnecessary, disproportionate or unwarranted, is not determinative and I consider payment forthwith to be appropriate for the following reasons.

22. I consider the application for injunction and the application for declarations under Order 14A, rule 1 to be severable and self‑contained from the rest of the proceedings.  The plaintiff submitted that the issues taken and argued in those applications are inextricably linked with the issues to be determined in the rest of the proceedings.  Although the issues may be the same, I do not consider them to be linked.  The further conduct of the proceedings is not linked or dependent upon the applications or their outcome. The plaintiff has applied for summary judgment on the Notice Issue but that application will rise and fall on its own.  Perhaps there may be reliance or reference to my finding on the Notice Issue but that is a far as it will go (the plaintiff did not suggest otherwise).

23. The amount of costs claimed is $1,201,480, which is sufficient to justify the expense of a separate taxation.

24. There was no suggestion by the plaintiff that an order for payment forthwith would hamper the further conduct of the action or cause a cash flow issue.  On the other hand, without an order for payment forthwith, the defendants would be out of pocket for a substantial sum in the meantime and, as court‑appointed liquidators, this may affect the discharge of their duties.

25. With regard to summary assessment, I do not consider summary assessment is appropriate.  The total of the costs claimed is $1,201,480, of which $943,200 is comprised of counsel fees.  The counsel fees include perusal of papers, advising in conference and emails, consultation between senior and junior counsel, advising, preparation work, and settling affirmations but there are no details of these items of work.  Also, different leading counsel was briefed to appear on 10 June 2016 and 11 July 2016 respectively, with a separate brief fee for each counsel on each occasion.  I consider that the proper course is to consider the costs claimed at a taxation.

26. For the above reasons, I dismiss the plaintiff’s summons, dated 5 October 2016.

27. On the defendants’ summons, dated 5 October 2016, and for the above reasons, I make the following orders nisi:

(1) The plaintiff to pay the defendants’ costs of the two summonses, dated 1 June 2016 and 6 July 2016, respectively, with a certificate for two Counsel, to be taxed if not agreed, to be paid forthwith;

(2) The costs of and occasioned by the plaintiff’s summons and the defendants’ summons, each dated 5 October 2016, be to the defendants, summarily assessed at $60,250, to be paid forthwith.