STANDARD CHARTERED BANK (HONG KONG) LTD v. SWEETMART GARMENT WORKS LTD AND OTHERS

HCA 1807/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1807 OF 2005

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DECISION ON COSTS

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This application

1.  On 10 March 2010 this court handed down its judgment in this action, which was a suit by the plaintiff bank against the 2^nd defendant, Mr Wong Chit Ming, for enforcement of his obligations under a guarantee.

2.  That judgment speaks for itself.

3.  In the event, this court upheld the validity of the guarantee and found in favour of the plaintiff against Mr Wong in the sum pleaded, together with interest thereon.

4.  An order nisi was made that the plaintiff was to have the costs of this action, including the costs of the trial, such costs to be taxed if not agreed. 

5.  This order nisi specifically declined the request of leading counsel for the bank, Mr Shieh SC, that costs be awarded to the plaintiff on an indemnity, or other enhanced, basis.

6.  The substantive judgment against the 2^nd defendant presently is subject of an appeal, in CACV 77 of 2010, by Notice of Appeal dated 7 April 2010.

7.  The plaintiff bank now applies to vary the costs’ order nisi, and it is in terms of this application that this Decision is rendered.

The submissions

8.  On behalf of the plaintiff, Mr Shieh SC, leading Ms Queenie Lau, submitted that the costs’ order as made should be varied and that costs should be awarded to the plaintiff on an indemnity basis. 

9.  In this argument he relied upon (as he had done in his submission on the issue at trial) the provisions of Clause 1(c) of the Guarantee entered into by the 2^nd defendant with the bank; this clause read, in terms, that the Customer, that is, Mr Wong, together with this two sons,

“…hereby unconditionally guarantee, undertake and agree on written demand by the bank:………

(c)    to pay all costs and expenses (on a full indemnity basis) arising out of or in connection with the recovery or attempted recovery by the Bank of moneys due to the Bank under this Guarantee.” 

10.  Mr Shieh SC naturally accepted that costs were in the discretion of the court, pointing out that section 52A(1) of the High Court Ordinance, Cap 4 provided:

“Subject to the provisions of rules of court, the costs of and incidental to all proceedings in the Court of Appeal in its civil jurisdiction and in the Court of First Instance, including the administration of estates and trusts, shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid.”

11.  However, he submitted that although wide, such discretion must be exercised on fixed principles according to rules of reason and justice, and pointed out that in considering the English equivalent of our section 52A(1), that is, section 51(1) of the Supreme Court Act 1981, the English Court of Appeal had observed as follows in the case of Gomba Holdings (UK) Ltd & Ors v Minories Finance Ltd & Ors (No 2), [1993] Ch. 171, wherein, at 194A-B, Scott LJ was summarising emergent principles, and had stated that whilst an order for costs always is a discretionary order (section 51 of the 1981 Act), nevertheless “where there is a contractual right to costs, the discretion should normally be exercised so as to reflect the contractual right.”

12.  Mr Shieh went on to point out that Gomba Holdings, op cit., was cited in the Hong Kong Court of Appeal in Chekiang First Bank v Fong Siu Kin [1997] 2 HKC 302, wherein that court was dealing with an argument on a mortgage claim in which the trial judge had taken account of the provision in the relevant legal charge to award the plaintiff bank costs on a solicitor-and-own-client basis, and where it was said that the judge had erred in thus creating a situation in which the award of costs on such enhanced basis had had the effect of bringing the defendant’s liability under the legal charge up to the limit of that charge.

13.  In the course of his judgment Litton VP (as he then was) observed, at 309E-F:

“To deal with this argument, it is necessary to identify the source of the jurisdiction to award costs.  This is to be found in s 52A of the Supreme Court Ordinance (Cap 4) which vests a general discretion in as to costs in the High Court; a jurisdiction the exercise of which is regulated by O 62 of the Rules of the Supreme Court.

Plainly, the exercise of the court’s jurisdiction as to costs cannot be fettered by anything in the mortgage deed.

On the other hand, where parties have contractually provided for the basis upon which costs are to be quantified, the court would in the normal course of events give effect to that: the English Court of Appeal so held in Gomba Holdings…” (emphasis added)

14.  Mr Shieh further sought support for his argument by citing a decision of Deputy Judge Gerard McCoy SC in Yeung Kwok Fan & anr v Standard Chartered Bank [2001] 4 HKC 486, in which the learned Deputy Judge, whilst expressly recognizing the court plainly had a discretion under section 52A(1) of the High Court Ordinance (Cap 4), nevertheless granted the indemnity costs orders sought by the defendant on the basis that “where the parties had contractually provided for the basis upon which costs were to be quantified, the court should exercise that discretion so as to reflect that contractual right”, and that ‘commercial behaviour or financial arrogance’ were not relevant criteria for the court’s exercise of discretion as to the award of costs, and that “the court should not exercise such an arbitrary approach to oust the contract, unless there were some principled impetus justifying the court to do so.”

15.  Accordingly, Mr Shieh concluded, in making its order nisi for costs this court had erred in failing to accede to his submission that the costs of this action should be in the terms of the contractual provision within the Guarantee, and he asked that the existing order nisi be varied to reflect that fact.

16.  The “full indemnity basis” which the plaintiff now seeks is defined under Order 62, rule 28(4A) to mean that all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred; any doubts which the taxing master may have as to whether the costs were “reasonably incurred” or were “reasonable in amount” shall be resolved in favour of the receiving party.

17.  It followed, argued Mr Shieh, that in the present circumstances the court also should certify the case as being fit for two counsel.

18.  For the 2^nd defendant, Mr Alan Ng took issue upon both lines of the argument.

19.  He submitted that the provision regarding the award of costs was so widely drafted as to be, in effect, contrary to public policy, he emphasized the unfettered discretion of the court in the matter of costs - noting that absent unusual and well-recognised factors the ‘normal order’ in hostile litigation was for taxation on a ‘party and party’ basis - and he deprecated the request for certification for two counsel, at the least for this variation hearing, maintaining that this was not an intrinsically complex argument, and was more than capable of being dealt with by Mr Shieh’s competent junior.

Decision

(a)  The appropriate scale of costs

20.  The Commercial Court long has been less than enamoured of ‘indemnity costs’ provisions inserted into institutional commercial documents by commercial solicitors under instruction from client to produce patently one-sided pro-forma ‘boiler plate’, and duly has said so, having pointedly declined in past cases to make costs’ orders on this basis.  Anecdotal evidence suggests that other judges/masters may be of like view, and probably it is fair to say that there is no consistent judicial practice in this regard.

21.  Whilst legal enforcement is required of the principal obligation assumed under such commercial documentation (whether, for example, in terms of mortgage repayment or personal guarantee of third party debt), it is as plain as a pikestaff that the ramifications of an ‘indemnity costs provision’ such as that in the present case not only remain unappreciated and not understood by clients – whom in any event in practical terms have no option but to sign the document in the form in which it is proffered - but unashamedly aims at circumscribing the traditionally unfettered discretion of the court as to the award of costs in contested litigation arising out of the disputed obligation in question.

22.  Whilst articulated persuasively and perhaps not in such stark terms, Mr Shieh’s response to this sentiment, reinforced by reference to English case-law, was, in substance, that whether the court likes it or not the discretion as to costs indeed is practically qualified given that the appropriate approach is that the contractual presence of an ‘indemnity costs’ provision’ has the effect of reversing the burden, so that instead of the plaintiff asserting/proving that circumstances exist such as to merit the award of indemnity costs - the award of which is governed by long-established principles - it is the defendant who bears the burden of establishing that exceptional circumstances exist meriting departure from the sanctity of the contractual ‘promise’.  That at least appears to be the premise of Gomba Holdings, op cit., where the court held that where there is a contractual right as to costs, “the discretion normally should be exercised so as to reflect that contractual right”.

23.  This court is not bound by the English Court of Appeal decision in Gomba Holdings, and respectfully is disinclined to follow it.  It strikes me that in principle such reversal of the burden, which is said to be a concomitant of the contractual provision - I decline to accord it the status of a ‘right’ - amounts to a practical fetter upon what should be an wholly unfettered discretion in terms of the judicial award of costs, and the basis of taxation thereof.

24.  However, the Commercial Court being an inferior court to the Hong Kong Court of Appeal, the question which necessarily arises is the decision in Chekiang First Bank, op cit. can be regarded as laying down that, as a matter of Hong Kong domestic law, ‘indemnity costs’ provisions’ in commercial documents must produce that which, for shorthand purposes, I will term a ‘Gomba Holdings result’.

25.  If it does, then this court is bound, whatever its views as to the intrinsic merit of such approach; conversely, if not, this court remains free to do what it considers just and appropriate in all the circumstances of the particular case, subject always to appellate overview.

26.  For my part, I have taken the view that the observations (quoted herein at paragraph 13) of Litton VP in Chekiang First Bank do not constitute a binding precedent which restricts this court in its award of costs in this litigation which recently it has been required to judge; in fact, to be fair I did not understand Mr Shieh’s submissions to go so far as to suggest that it does.

27.  The observations of the learned Vice President upon which Mr Shieh relies expressly are preceded by the statement that the exercise of the court’s jurisdiction as to costs “plainly…cannot be fettered by anything in the mortgage deed”, and thus the learned judge’s following observation as to that which generally happens in the “normal course of events” wherein there is such a contractual provision as to costs seems to me to be no more than descriptive of the manner in which courts often approach such situations: indeed in this passage Litton VP refers specifically to the holding of the English Court of Appeal in Gomba Holdings.

28.  If this analysis be correct - as I hope that it is since naturally no disrespect is intended to the superior court - I also remain uncomfortably aware that I differ in my view of this matter from the cogently argued decision of Deputy Judge McCoy in Yeung Kwok Fan, op cit., sitting in a court of co-ordinate jurisdiction, wherein the learned Deputy Judge refers (at 491) to a litigant not being deprived of his ‘contractual rights’ to costs absent good reason, once again following the approach in Gomba Holdings, op cit.

29.  My attention usefully also has been drawn to the judgment of Yam J in Hang Seng Credit Card Ltd & ors v Tsang Nga Lee & ors, [2000] 3 HKC 13, wherein the learned judge took the view that whilst contractual costs’ provisions were not in themselves against public policy, such provisions could not override the court’s discretion, and that in exercising its discretion, the court was entitled to look at all the circumstances of the case, and in particular (as on the facts of that case) the Unconscionable Contracts Ordinance.  It seems to me, with respect, that this decision peculiarly is ‘fact-sensitive’, involving as it did the provisions of an alleged unconscionable credit card agreement - wherein the burden of establishing ‘unconscionability’ lay on the defendant thus asserting - and that in terms of the current debate this case perhaps is of limited utility.

30.  It remains my judgment that any attempt by commercial law draftsmen to trespass upon the court’s domain and to purport to create a contractually binding obligation as to costs, and as to the level thereof, should not be accorded the judicial time of day.  Litigation costs are the business of the court dealing with that litigation and of that court alone, and for my part I am of the view that whatever the contract wishes to assert or purport to provide on the issue of costs is nothing to the point. 

31. Nor do I consider that this ineluctable principle is ameliorated by on the one hand acknowledging the wholly unfettered discretion of the court in matters of costs, yet on the other giving effect to a so-called ‘contractual right’ to indemnity costs by visiting upon the unfortunate signatory to such oppressive clause the burden to demonstrate why this extreme level of costs should not be awarded against him. 

32. As I have ventured respectfully to suggest, the very fact of the purported reversal of the burden of establishing that costs should not be awarded consequent upon such anomalously termed ‘contractual right’ (which in truth is no ‘right’ at all) seems to me to fly in the face of the jealously-guarded judicial discretion with regard to all aspects of litigation costs.

33. Thus, to revert to the circumstances of the present case, the order nisi as to costs which this court has made - and which now is the subject of the plaintiff’s variation application - was made after fully reflecting on the progress of this particular piece of litigation, and after detailed consideration of the arguments canvassed therein.

34. Had this court been of the view that the points variously raised on behalf of the defendant in disputing his liability under this guarantee had been frivolous, unarguable and wholly without substance, so that in effect this suit legitimately could have been regarded as no more than an exercise in delay and obfuscation, I should have been the more amenable to Mr Shieh’s submission, made both at the conclusion of the trial and in this application to vary the order nisi, that in the circumstances costs should be awarded upon an enhanced basis.

35. But had I been thus amenable - which I was and am not - in that event I would have based any such decision as to an enhanced costs award on the manner in which the defendant had conducted the litigation, and not upon any argument that, pursuant to an alleged contractual ‘right’ vested in the plaintiff, the burden thus lay on the defendant to establish ‘exceptional circumstances’ (such as, for example, unreasonable or negligent conduct or unconscionability on the part of the plaintiff) in order to defeat the successful plaintiff’s application for taxation of costs on an indemnity or common fund basis.

36. It follows from the foregoing, therefore, that the plaintiff’s application for variation of the order nisi as to costs is unsuccessful.  Having re-read the judgment, I reiterate my view in the particular circumstances of this case, wherein the arguments run by the 2^nd defendant struck me as respectable albeit ultimately unsuccessful, that save for the plaintiff’s invocation of the contractual ‘indemnity costs clause’ - to which I firmly decline to accord evidential significance or weight - I perceive no basis whatever to depart from the usual order that the losing party is to pay the opponents costs upon the normal ‘party and party’ basis.

(b)  Certificate for two counsel

37. The other aspect relating to costs which arose during the variation argument - and upon which the court called for brief written submissions - focused upon whether there now is a requirement, following a trial in the High Court in open court, for a judge to give a certificate for two counsel in order for a taxing master on taxation to allow the costs of two counsel? 

38. I am grateful to counsel on both sides for their assistance on the issue, which subsequent to the introduction of the CJR was, at least so far as this court was concerned, by no means clear. 

39. Prior to the advent of the CJR, it seems that a certificate for two counsel was not required in respect of trials in open court in the High Court; it was for this reason, I suspect, that the issue of two counsel was not specifically canvassed at the end of the trial, nor was there reference made thereto in the costs’ order nisi appearing in the judgment (at para 133).

40. However, the matter appears now to be governed by paragraph 2(3) of Part II of the First Schedule to Order 62, which states:

“No costs shall be allowed in respect of counsel appearing before a master in chambers, or of more counsel than one appearing before a master in open court or a judge or the Court of Appeal, unless the master or judge or the Court of Appeal, as the case may be, has certified the attendance as being proper in the circumstances of the case.” (emphasis added)

41. Thus, the general rule now prevailing is that no costs are to be allowed in respect of the appearance of two (or more) counsel before a High Court judge in open court unless the judge has certified such attendance as proper. 

42. I am told that the like conclusion – that is, that certification for two counsel under paragraph 2(3) of Part II of the First Schedule to Order 62 applies only to appearances in court – was drawn by Chung J in Gao Hai Yin v Keeneye Holdings Ltd., HCA 1315A of 2009, judgment dated 27 August 2009 (at para 16), and that in addition in that case the learned judge also made the point that in relation to costs of the proceedings other than attendance in court, such costs fall beyond the ambit of the aforesaid paragraph 2(3) of Part II of the First Schedule, and that in this regard the correct position (referring to the equivalent of Hong Kong Civil Procedure 2010, M/N 62/App/48) is that in the absence of a court order allowing two counsel on taxation, such costs remain a matter of the taxing master’s discretion.

43. Applying this principle to the court attendance at trial in the present case, I cannot think that Mr Alan Ng, whom himself was led by Mr Ronny Wong SC during the trial, could have much adverse to say about the plaintiff’s own use of two counsel for this trial; had the 2^nd defendant been successful, likewise he would have recovered the costs of the two counsel he had retained to argue his case.

44. Accordingly, and for the avoidance of doubt, since the point does not seem specifically to have been covered in the judgment, I certify the trial of this action to have been fit for two counsel.

45. However, had it been relevant (which given my conclusion upon this variation application it is not), I should have declined similarly to certify the present application to vary the costs’ order nisi as fit for two counsel.  Mr Shieh SC, as usual, has been of considerable assistance to this court, but in terms of the parameters of this argument the matter easily and competently could have been dealt with by his junior, Miss Queenie Lau.

Order

46. It follows from the foregoing that the Order of this court on this application to vary the order nisi as to costs is thus as follows:

(i)    The plaintiff’s application to vary the order nisi as to costs to provide for taxation of costs on an indemnity basis is dismissed;

(ii)  Save as aforesaid, and ex abundante cautela, the existing order nisi as to costs be clarified to certify that the trial was fit for two counsel;

(iii)    The costs of and occasioned by this application so to vary the order nisi to provide for taxation on an indemnity basis are to be to the 2^nd defendant, such costs, if  not agreed, to be taxed and paid on a ‘party and party’ basis.