R STAHL INC (A COMPANY INCORPORATED IN THE UNITED STATES OF AMERICA) v. AJ DEVELOPMENT LTD

HCA 1412/2019

[2020] HKCFI 1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1412 OF 2019

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RULING ON COSTS

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1.  In a decision dated 20 May 2020, this court entered judgment in the plaintiff’s favour in the sum of US$452,935.97. The court further ordered on a nisi basis that the defendant should pay the costs of the plaintiff’s summons dated 6 December 2019, such costs to be taxed, if not agreed.

2.  On 1 June 2020, the defendant wrote to the court requesting a hearing for the defendant to vary the nisi order to the effect that the defendant shall pay one third of the plaintiff’s costs of the plaintiff’s summons dated 6 December 2019, such costs to be taxed if not agreed.

3.  The following day, by its summons dated 2 June 2020, the plaintiff also seeks to vary the nisi order.  The plaintiff proposes an order whereby the defendant shall pay the plaintiff’s costs of the plaintiff’s summons dated 6 December 2019 and the costs of and incidental to this action on an indemnity basis, to be summarily assessed if not agreed.

Plaintiff’s submissions

4.  The essence of the plaintiff’s costs submissions are as follows:

(a)  for indemnity costs, the plaintiff relies upon RHC Order 62 rules 3(2) and 5, together with the authorities of Town Planning Board v Society for the Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 (§§15 to 17) and Heung Wing Yan v Hangway Housing Management Ltd & Others HCPI 347/2012 (§19).  From the first of these decisions, the plaintiff accepts that to succeed with an application for indemnity costs, it needs to show that this case has some “special or unusual feature”.  And from the latter, it is accepted that it will be a rare case indeed where the refusal of a settlement offer will attract… not merely an adverse order for costs, but an order on an indemnity rather than a standard basis;

(b)  it relies upon its “without prejudice save as to costs” letter dated 16 September 2019, by which the plaintiff offered to settle the dispute on a “without admission of liability basis” if the defendant paid over the sum remaining in the SCB Account, namely the sum of US$452,935.97, with no order as to costs.  The plaintiff says that the defendant did not respond to this offer at the time.  And it did not “do better” than this offer at the hearing of this matter (on this question, the plaintiff relies upon two decisions, namely Wong Yim Man Anthea v Wong Ho Ming Felix [2016] 3 HKLRD 249 (§8 to 18) and Leung Lai Kwan v Lo Kai Wing [2015] 3 HKLRD 152 (at §27));

(c)  the plaintiff refers to the decision of LLC v LMWA [2019] 2 HKLRD 529 (at §§51 to 52) for the proposition that even in the context of general civil litigation, the courts expect litigants to explore settlement in good faith;

(d)  The plaintiff also provides submissions to the effect that the whole of its costs should be recoverable on an indemnity basis, not a portion thereof (as is proposed by the defendant).

5.  I would add that in the course of reviewing the plaintiff’s costs submissions, together with the “without prejudice save as to costs” offer dated 16 September 2019, I do not construe that offer as constituting a plaintiff’s offer to settle made pursuant to Order 22.  I do not believe that the plaintiff contends otherwise.

Defendant’s Submissions

6.  In support of its application to vary the nisi order, to the effect that the defendant shall pay one third of the plaintiff’s costs of the plaintiff’s summons dated 6 December 2019, I understand the defendant’s costs submissions to be as follows:

(a)  the affidavits filed by the plaintiff contain mostly irrelevant and objectionable materials;

(b)  relying upon Order 14 rule 7, the plaintiff had made an application under Order 14 rule 1 where the case was not within the terms of that Order (ie, the fraud exception was found to have applied);

(c)  the defendant (traversing altogether beyond its costs application as set out in its letter dated 1 June 2020), now asserts that this court should order the plaintiff to pay the defendant’s costs in respect of the plaintiff’s unsuccessful application for summary judgment;

(d)  as to the plaintiff’s contention that its costs should be recoverable on an indemnity basis, the defendant comments, inter alia, that in inter partes correspondence subsequent to the “without prejudice save as to costs” offer dated 16 September 2019, it said that it would have no objection to an order requiring Standard Chartered Bank to pay over the remaining balance in the SCB Account provided that the defendant was indemnified as to its costs;

(e)  the defendant maintains its position that there was nothing unreasonable in it not conceding to the making of a payment from the SCB Account when, in the defendant’s contention, it had had no hand in the opening or operation of that account;

(f)  on the defendant’s case, Order 22 rule 24 does not apply since the plaintiff did not “do better” than the terms set out in its letter of 19 September 2019;

(g)  the defendant says that the test for indemnity costs as set out in Heung Wing Yan v Hangway Housing Management Ltd & Others (supra) is not met in this case;

(h)  given that most of the party’s time in these proceedings was spent on an ultimately unsuccessful Order 14 application, the defendant now proposes that the plaintiff should pay 1/3 of the defendant’s costs of that application.

Plaintiff’s response

7.  The points which I have noted from the plaintiff’s reply submission dated 17 July 2020 are these:

(a)  the plaintiff takes exception to what it says is essentially an entirely new costs application (see paragraph 6(h) above), which it says falls outside the scope of this court’s order as to the making of costs submissions, namely that submissions were to be responsive to the parties’ costs applications dated 1 and 2 June 2020, as described above;

(b)  aside from this fundamental objection, the plaintiff says that its summons seeking final judgement was pursued upon two alternative bases, namely, Order 14 and Order 27.  Having succeeded with the latter, an Order 62 costs enquiry in the plaintiff’s favour is appropriate;

(c)  Given the decisions of this court in Ferrari North America, Inc v Changhon International Energy Co Ltd and Others (HCA 852/2017) [2018] HKCFI 1603 and DBS Bank (Hong Kong) Limited v Happy Grace International Development Limited (HCA 59/2017) [2019] HKCFI 2864, it could not be said that the plaintiff’s decision to pursue its Order 14 application was unreasonable;

(d)  The plaintiff maintains its application for indemnity costs and seeks that the defendant’s costs applications, made formally and otherwise, be dismissed.

Decision on costs

8.  Having considered the parties’ submissions, I have formed the view that an order for costs to follow the event (in favour of the plaintiff) is an appropriate order, as may be made under Order 62 rule 3(2).  At its essence, the plaintiff mounted its claim for final judgment on two alternative bases, namely Order 14 and Order 27.  Having succeeded with the latter (albeit not the former), it is reasonable that the plaintiff should have its costs.

9.  This is more so, in my view, given that the plaintiff’s “without prejudice save as to costs” offer dated 16 September 2019 was not accepted by the defendant.  As noted by the plaintiff, that offer was made on a “without admission of liability basis” and it gave the defendant what appears to me to have been a sensible way of exiting from these proceedings at an early stage, particularly bearing in mind that the plaintiff had proposed that there be no order as to costs.  Had that offer been accepted, a great deal of time – and costs (for both parties) – could have been avoided.

10.  It appears that the defendant chose not to respond to the plaintiff’s offer at the time it was made.  I have taken note in this regard of the case of LLC v LMWA (supra) and the proposition set out therein that even in the context of general civil litigation, the courts expect litigants to explore settlement in good faith.  It is unfortunate that the defendant did not respond constructively (or at all) to the plaintiff’s offer which was, in all the circumstances, a reasonable one and an offer which could at the very least have formed a basis for further settlement dialogue.

11.  In reaching this view, I have taken note of the defendant’s submissions as to two further matters, namely that:

(a)  at the time of the September 2019 offer from the plaintiff, the plaintiff had not yet filed its Statement of Claim.  This does not appear to be relevant however since, on the face of the generally endorsed writ in these proceedings (dated 2 August 2019), the nature of the plaintiff’s claim was sufficiently clear;

(b)  the defendant indicated (in April 2020) that it would have no objection to SCB paying over the remains of the money in the SCB Account provided that the defendant was indemnified as to its costs.  I do not believe that offer to be relevant, firstly because it came much too late and secondly because the request for an indemnity for the defendant’s costs would surely have made no sense to the plaintiff at all, given the factual circumstances of this case.  It should have come as no surprise to the defendant that an offer in these terms would not be accepted by the plaintiff.

12.  I have also taken note of the defendant’s reliance upon Order 14 rule 7, that since the application made under Order 14 was not within the terms of that order (ie the fraud exception was found to have applied), the court should make an order in the defendant’s favour.  I am disinclined to view the matter in this way.  As noted, pragmatic settlement proposals from the plaintiff were not responded to and in those circumstances, the plaintiff had no option but to pursue its Order 14 and Order 27 applications before this court.  I see no reason to depart from the usual costs order, namely costs in the plaintiff’s favour based on a successful application under Order 27.

13.  In reaching this view, I accept the plaintiff’s submission that it was reasonable to pursue its Order 14 application given the decisions of this court in Ferrari North America, Inc v Changhon International Energy Co Ltd (supra) and DBS Bank (Hong Kong) Limited v Happy Grace International Development Limited (supra).  The making of a costs order under Order 14 rule 7 is a matter of discretion and in the present case, I am not inclined to make an order under that rule as against the plaintiff.

14.  At this point, it remains for this court to determine whether a costs order in the plaintiff’s favour should be on an indemnity or a standard basis.

15.  As to this question, this not a case where an indemnity costs order appears appropriate.  While in my view the defendant’s position was curiously intransigent, its position appears to have arisen from the defendant maintaining its stance that it played no part in the opening of the SCB Account and hence that it did not wish to have a hand in its operation.  While the plaintiff says that these assertions of “non-complicity” in the opening and running of the SCB Account are not credible, it would be premature for this court to make findings on such issues at this juncture.

16.  This being so, the plaintiff’s costs should be on a standard rather than indemnity basis.

Summary

17.  I accordingly make an order that the defendant shall pay the plaintiff’s costs of the summons dated 6 December 2019 and the costs of and incidental to this action on a standard basis, such costs to be taxed if not agreed.

18.  Taxation proceedings will allow the defendant the opportunity to scrutinise the plaintiff’s costs as claimed, including to pursue the defendant’s assertions as to the content and relevance of the plaintiff’s affidavit evidence.