CHEUNG KEE FUNG CHEUNG CONSTRUCTION CO., LTD. v. PERMANENT INVESTMENT CO., LTD.

HCCT 26/2019

[2020] HKCFI 385

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO 26 OF 2019

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DECISION ON COSTS

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1.  There are two sets of proceedings that have been before the court between the applicant and the respondent. The first was the respondent’s application to set aside an enforcement order dated 10 May 2019 made by Madam Justice Mimmie Chan (“the Enforcement Order”). These were the proceedings in HCCT 26/2019. Additionally, the respondent sought leave to appeal against the underlying award of an arbitrator, Mr Paul Barrett, dated 6 March 2019, as corrected on 10 April 2019 (“the Award”). These were the proceedings in HCCT 27/2019. The status of these two sets of proceedings is summarized below.

Setting aside proceedings

2.  In its decision dated 25 October 2019 (“the Decision”), the court dismissed the respondent’s setting aside application.  In the Decision, the court varied the terms of the Enforcement Order; and since the respondent had failed in its application to set aside the Enforcement Order, the court made an order nisi that the respondent shall pay the costs of the setting aside application.  

3.  By its summons dated 8 November 2019, the respondent seeks to vary the court’s order nisi such that the applicant shall pay the respondent the costs of the setting aside application.  There was no application at that time by the applicant to vary the order nisi.

4.  After submissions from the parties, the court set out a timeline for written costs submissions which resulted in one round of submissions from the respondent and applicant dated 4 and 18 December 2019, respectively.  With leave, further submissions were filed by the respondent on 20 January 2020.

Application for leave to appeal

5.  Subsequent to the Decision, the respondent’s application for leave to appeal in proceedings HCCT 27/2019 was dismissed, with an order nisi that the costs of the application were to be paid by the plaintiff in those proceedings to the defendant, with certificate for counsel.

6.  In effect, the respondent has failed in both of the proceedings described above.

Respondent’s submissions

7.  While the respondent accepts the general principle that costs in this case should follow the event, it argues that there are special matters that need to be taken into account that suggest that a different order should be made.  The respondent relies inter alia, upon Order 1A, Order 62 rule 3(2) and Order 62 rules 5(1) and (2) and some related authorities.

8.  In particular, the matters from the respondent’s written submissions that appear relevant are as follows:

a)  The applicant was not altogether successful in its defence of the Enforcement Order, in that paragraph 1(iii) of the Enforcement Order was deleted in the Decision.

b)  The respondent’s compromise proposals (as set out in paragraph 10 of the Decision) should have been accepted and that this ought to be taken into account in relation to costs. 

Applicant’s submissions

9.  As to the first of these points, the applicant says that the deletion of paragraph 1(iii) of the Enforcement Order took up minimal or no time at the hearing and that this is not a point that should lead the court to depart from the usual costs order.

10.  As to the second point, the applicant’s position is simple.  It says that the applicant had made a setting aside application. This application failed, such that the court’s order nisi is correct and should stand.  The applicant refutes that the respondent’s compromise proposals change this position.  This is because the compromise proposals were not directed towards an application to stay the execution of the Enforcement Order pending the outcome of the leave to appeal application.  The respondent’s application in proceedings HCCT 26/2019 was always an application to set aside, which ultimately failed.    

11.  The applicant also submits that the court should recognise, in deciding costs, that the respondent’s application for leave to appeal in proceedings HCCT 27/2019 also failed.   The applicant goes further and says that the costs order against the respondent should be for indemnity costs.

Decision on costs

12.  I am inclined to the position that costs should follow the event in this case and I am not persuaded that the circumstances of this case suggest a different order. 

13.  At the root of the present proceedings, is the Award, which awarded sums to the applicant.  Dissatisfied with the Award, the respondent proceeded on two fronts.  It sought to set aside the resulting Enforcement Order.  Additionally, it sought leave to appeal against the Award. Both applications having failed, this leads me to the view that costs in the Decision ought to follow the event.

14.  In reaching this view, I have considered the respondent’s costs submissions and would observe as follows regarding the respondent’s two principal arguments:

a)  I concur with the applicant’s submission that the deletion of paragraph 1(iii) of the Enforcement Order took up minimal time at the hearing and that this is not a point that should lead the court to depart from the usual costs order;

b)  I also accept the applicant’s submission that the respondent, in proceedings HCCT 26/2019 had mounted a setting aside application, not a stay of execution.  The setting aside application did not succeed and with the application for leave to appeal in HCCT 27/2019 having failed, the Enforcement Order is no longer stayed pursuant to the terms of §16(b) of the Decision.

15.  In terms of the different factors that this court must consider pursuant to Order 62 rule 5 (and Order 1A), I have weighed the respondent’s settlement proposals against the fact that the respondent ultimately failed in two separate proceedings designed to undo the Award.  I give greater weight to the latter. 

16.  Finally, I have considered the written submissions of the applicant proposing an indemnity costs order against the respondent.  The applicant relies upon the decisions of A v R [2010] 3 HKC 67 and Wing Hong Construction v Tin Wo Engineering Company (unreported) HCCT 13/2010. 

17.  From A v R, I have taken note of §69 and 70, which are in these terms. 

“Further, given the recent introduction of Civil Justice Reform (CJR), the Court ought not normally to be troubled by such type of application. A party unmeritoriously seeking to challenge an award would not be complying with its obligation to the Court under Order 1A Rule 3 to further the underlying objectives of CJR, in particular the duty to assist the Court in the just, cost-effective and efficient resolution of a dispute.

If the losing party is only made to pay costs on a conventional party-and-party basis, the winning party would in effect be subsidising the losing party's abortive attempt to frustrate enforcement of a valid award. The winning party would only be able to recover about two-thirds of its costs of the challenge and would be out of pocket as to one-third. This is despite the winning party already having successfully gone through an arbitration and obtained an award in its favour. The losing party, in contrast, would not be bearing the full consequences of its abortive application”.

18.  The decision in Wing Hong Construction v Tin Wo Engineering Company is to a similar effect. See paragraph 11;

“The nature of arbitration is such that, having regard to the underlying objectives in the RHC, an unsuccessful application to challenge an arbitrators award will normally attract indemnity costs against the applicant”.

19.  On the question of indemnity costs, the respondent observes that no application was made by the applicant to vary the costs order within the time prescribed by Order 42 rule 5B(6) and that in any event, the respondent’s settlement offer militates against indemnity costs.

20.  In my assessment, an indemnity costs order is appropriate in this case. I return again to the fact that the respondent has failed in both of the proceedings described above. Applying the authorities cited above, the respondent’s unmeritorious challenge to the Award has led to the applicant having to incur further legal costs. The applicant in this case should not have to subsidise the respondent’s abortive attempt to frustrate enforcement of the Award.

21.  As to the respondent’s response to the applicant’s submission that costs should be on an indemnity basis, I observe as follows:

a)  I do not construe Order 42 rule 5B(6) in the manner contended for by the respondent.  The effect of this rule is that once an application is made to vary an order nisi (as here), the order nisi does not take effect.  Even if the applicant’s application for indemnity costs were defective procedurally, that does not nullify the application (Order 2 rule 1(1)). Further, the applicant has made clear and coherent submissions on the question of indemnity costs and I am satisfied that the respondent has had the opportunity to respond to those submissions. 

b)  As set out herein, I have given greater weight to the fact that the respondent ultimately failed in two separate proceedings designed to undo the Award than to the respondent’s settlement proposals. 

22.  In these circumstances, I hereby order that the respondent shall pay the costs of the setting aside application, inclusive of the costs of the written costs submissions herein, such costs to be paid on an indemnity basis.