HSIN CHONG CONSTRUCTION COMPANY LIMITED (in liquidation) v. BUILD KING CONSTRUCTION LIMITED

FACV No. 11 of 2020

[2021] HKCFA 20

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 11 OF 2020 (CIVIL)

(ON APPEAL FROM CACV NO. 321 OF 2019)

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JUDGMENT ON COSTS

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Mr Justice Fok PJ (giving the judgment of the Court):

1.  By the Court’s judgment dated 13 May 2021 ([2021] HKCFA 14), the appellant’s appeal was unanimously allowed and the validation orders in respect of the Supplemental Agreement and the dispositions made thereunder were set aside.  The Court made a costs order nisi that the respondent should pay the costs in this Court and below but gave liberty to the parties to make submissions in writing should they wish to argue for a different order as to costs.  The parties have now filed written submissions on costs.

2.  The respondent does not challenge the award of costs against it in respect of the appeal to this Court, including the costs of the applications for leave to appeal. However, it contends that it should be entitled to recover 50% of the costs below.  This is on the basis that the respondent maintains it “is and remains a successful party on the discrete issue concerning the validation of [the respondent’s] exclusion of the [appellant] from the JV under Clause 17 of the JVA” (“the Exclusion Issue”).  It is contended that the provisional liquidators’ opposition to that issue was the main issue before the Court of First Instance ([2019] HKCFI 1531) and the Court of Appeal ([2019] HKCA 1305) and caused a significant increase in the length and costs of the proceedings.

3.  The appellant, for its part, submits that it should be awarded the costs of the appeal to this Court, including the costs of the leave applications to the Court of Appeal and the Appeal Committee, but that there should otherwise be no order as to costs in the courts below.  It contends that both the Exclusion Issue and the issue regarding validation of the Supplemental Agreement and the payments thereunder (“the SA Issue”) were equally important issues in the case.  As such, it is contended, since each party was successful on one of the two main issues, the parties’ costs entitlement in the courts below should be set off against each other, with the result that no order as to costs is the appropriate costs disposition.

4.  By supplemental submissions on costs, which we have taken into account in reaching this determination on costs, the respondent maintains that it is appropriate that it be awarded 50% of the costs in the courts below “even if [the respondent] is entitled to the costs of the ‘Exclusion Issue’ and the [appellant] is entitled to the costs of the ‘SA Issue’ at all levels of court”.  It contends that any set-off between the costs associated with the SA Issue and the Exclusion Issue should result in a net percentage due to the respondent and that 50% is consistent with the length and proportions of the judgments in the courts below, and the parties’ respective submissions, on those two issues.

5.  In the circumstances, there is no issue between the parties as to the costs of the appeal to this Court.  The appellant is entitled to an order that the respondent pay its costs in this appeal (FACV 11/2020), including the costs of the application to the Court of Appeal for leave to appeal in CACV 321/2019 and the costs of the application to the Appeal Committee for leave to appeal in FAMV 152/2020, to be taxed if not agreed.  Such costs will be taxed on the basis that the case was fit for two counsel.

6.  As regards the costs of the proceedings in the Court of First Instance and the Court of Appeal, it is accepted by the parties that, in reality, each party ultimately won on one of two issues argued below.  It is also accepted that it is appropriate to set-off the costs of one issue against the other but there is a difference between them as to the extent of that set-off: the appellant submits that they be set-off equally so that the costs in each party’s favour cancels out their respective costs liabilities, whereas the respondent submits that they be set-off so that the net result is that 50% of the costs below is due in its favour.  Whilst the adoption of an issue based approach to costs is not always appropriate and may indeed increase costs and whilst the appellant might have argued that the costs below should simply have followed the event of the respondent’s failure on the SA Issue, the parties are in agreement that there should be a set-off of the costs below.  The only issue is the quantification of the set-off.

7.  Applying the broad brush approach that is appropriate to this exercise, we are satisfied that the proper costs order is that there should be no order as to costs in the courts below.  The arguments concerning the exclusion of the appellant from the JVA formed a separate issue and the respondent had sought declaratory relief, alternatively a validation order, in respect of that exclusion independently to the validation of the Supplemental Agreement and any payments thereunder.  In substance, both parties were partly successful and partly unsuccessful.  Some set-off of the costs is appropriate and the only question is the extent of that set-off.  Despite the respondent’s submissions seeking to quantify the proportion of costs relating to the Exclusion Issue (on which it was successful) as being greater than those in relation to the SA Issue (on which, with hindsight, it was, or should have been, unsuccessful below), had the litigation concluded after the appeal to the Court of Appeal (and assuming that court’s judgment had reflected the result achieved following the appeal to this Court) a broad equality of outcome as to costs would have been appropriate.  Although more time may well have been spent in argument on the Exclusion Issue (as reflected in the judgments below), that was an issue on which the respondent would have needed to succeed in order to mount a successful application for validation of the Supplemental Agreement and the payments thereunder.  That is to say, the Exclusion Issue was not wholly free-standing from the SA Issue.  In broad terms, a net equal outcome as to costs is a fair disposition of the incidence of costs and it will certainly simplify, and therefore also reduce the expense of, any costs taxation exercise that may need to be undertaken.

8.  For the above reasons, we order that:

(1)     The respondent pay the appellant’s costs of the appeal in FACV 11/2020, including the costs of the application to the Court of Appeal for leave to appeal in CACV 321/2019 and the costs of the application to the Appeal Committee for leave to appeal in FAMV 152/2020, to be taxed if not agreed; and

(2)     There be no order as to the remainder of the costs of the proceedings below in HCCW 239/2018 and in CACV 321/2019 giving rise to the appeal to this Court.