LIBERTARIAN INVESTMENTS LTD v. THOMAS ALEXEJ HALL

HCA 2533/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2533 OF 2006

----------------------

-------------------------------------------

DECISION ON APPLICATION TO VARY
COSTS' ORDER NISI

-------------------------------------------

The application

1.  By a Judgment dated 25 February 2011 this court gave judgment for the plaintiff, Libertarian Investments Ltd, against the defendant, Mr Thomas Alexej Hall.

2.  This judgment speaks for itself; suffice to say that by way of remedy, the Order of the court (at paragraph 172 (i)) was for payment of the sum of £5,474,247.35, together with compound interest, and for the taking of an account in the terms therein set out (at paragraph 172(ii)).

3.  As to costs of the action, the court ordered (at paragraph 172(v), that there be an order nisi that the costs of these proceedings be to the plaintiff to be taxed and paid by the defendant upon a common fund basis, such order to become absolute unless written objection is made thereto within 14 days of the date of judgment.

4.  By letter dated 11 March 2011 this court was informed by M/s Kennedys, the solicitors for the defendant, that objection indeed was taken to the costs’ order nisi, and drew the attention of the court to an offer made on a “without prejudice as to costs” basis in a letter dated 17 December 2007, wherein the defendant had offered a sum of £9 million inclusive of costs in full and final settlement of these proceedings.

5.  Consequent upon this letter, by summons of the same date the defendant applied to the court for variation of the existing costs’ order nisi such that the costs of these proceedings “shall be determined following the taking of an account pursuant to Order 43, RHC”, and that provision be made for the costs of this variation application.

The evidence

6.  The defendant’s variation application was backed by the 6^th Affidavit of Ms Joanie Ko Chung-Ling dated 11 March 2011; in opposition thereto there was filed on behalf of the plaintiff the 10^th Affirmation of David John Hoare, a partner of M/s Haldanes, dated 14 March 2011.

The argument

7.  The costs’ variation issue was argued by the respective Counsel for the parties who had appeared at trial: Mr Barlow SC leading Mr Pat Chan for the plaintiff, and Mr Colin Wright for the defendant, the applicant for the variation of the order nisi.  In this context each side put in a useful skeleton argument.

8.  In essence Mr Wright’s thesis was this: true it was that the Court had ordered the defendant to pay in excess of £5 million within 21 days of the date of judgment, and further had ordered the formal taking of an account.

9.  However, he said, that which the court did not know at the time of making the order nisi was of the existence of the pre-trial offer of 17 December 2007, nor of course did the court know the further data/information which would be revealed by the taking of the account as now ordered.

10.  Hence, Mr Wright concluded, as matters presently stood it would be illogical to finalise any costs’ order until the full situation was known, and in particular whether ultimately the plaintiff has failed to obtain a monetary sum in excess of the defendant’s earlier offer.

11.  In these circumstances, he suggested, the order nisi should be varied so that a decision as to the costs of these proceedings be deferred until the completion of the taking of the account as ordered.

12.  For the plaintiff, Mr Barlow SC noted that the defendant had waited until the last day permitted by the court to challenge the costs’ order nisi, and characterized this application as “a chancer’s last throw of the dice”.

13.  Mr Barlow submitted that the defendant’s application was based upon two “misconceived” premises: first, the notion that an order for the taking of an account is equivalent to a damages claim; and second, that the assertion that the ‘offer letter’ of 17 December 2007 could be equated to a ‘Calderbank letter’.

14.  The judgment as it stood had held that the defendant was a trustee in default, and the defendant has been ordered to pay the sum of £5.47 million, which Mr Hall had admitted in evidence he had failed to return to the plaintiff, and further to account for the remainder of the misapplied trust property on a “wilful default” basis.

15.  Mr Barlow said that whilst the position on the evidence was that on the probabilities the defendant’s liability to account would result in orders for delivery up of assets likely to be at least double the monetary sum already awarded qua immediate payment, in itself this was not the determinative feature: this was that after full trial the defendant has been found liable qua defaulting trustee, and equity does not permit a trustee in default to “bargain his way” out of his duties as trustee when he has been ordered to account and to restore the trust.

16.  As to the second point, the so-called ‘letter of offer’ was not a Calderbank offer, he said, and in any event, Mr Barlow suggested that this proposal had been advanced by Mr Hall solely in an effort to avoid that which by that stage were imminent contempt proceedings.

17.  Nor had there been any payment into court under Order 22, rule 1, he said, for the simple reason that the equitable remedies sought against the defendant were not damages claims.

18.  Accordingly, Mr Barlow suggested that no useful purpose would be served by a deferral of a final decision as costs’ liability, and that the summons should be dismissed.

Decision

19.  I have sympathy with Mr Barlow’s argument, and with the correlative proposition that Mr Hall should not be permitted by the court to “further disadvantage” the plaintiff by deferring any costs’ decision further.

20.  I confess that at one stage, in face of Mr Wright’s persuasive submissions, I was on the verge of ordering that in any event the plaintiff’s costs should be taxed and paid into court to await the event of the account, but on reflection I have concluded that this would be analytically incorrect and effectively would be to ‘fudge’ the issue.

21.  In equity, a defaulting trustee – which this court has found Mr Hall to be – is required to deliver over the trust property, which may, or may not, be quantifiable in monetary terms.

22.  In the present case, the hard fact remains that, whatever be the outcome of the account as now ordered, on his own case Mr Hall owes the plaintiff the sum of £5.474 million odd, which has not been paid back (vide paragraph 68 of the Judgment): hence paragraph 172(i) of the Order of this court, requiring payment thereof within 21 days, together with compound interest thereon.

23.  It followed therefore that the only possible impediment raised to costs following the event was Mr Wright’s reference to the pre-existing 1997 ‘offer’ of £9 million in full and final settlement.

24.  The letter of 17 December 2007 containing this ‘offer’ is an intriguing document.  As Mr Barlow suggests, it was written shortly prior to the contempt proceedings which were launched against Mr Hall ‑ which ultimately were unsuccessful before Reyes J, as I have been reminded ‑ and on close reading refers in express terms, as Mr Barlow has pointed out, to “an appropriate settlement agreement which can be drafted to deal with payment, variation of the injunction to allow payment and discharge of the injunction and proceedings following completion.”

25.  As such, therefore, it amounts to little more than an invitation to treat in the context of possible entry into a multi-faceted agreement which had yet to be drafted, with all relevant and highly significant details yet to be ironed out, and notwithstanding its heading ‘Without prejudice save as to costs’, I decline to characterize this as a proper ‘Calderbank letter’ in the accepted sense.

26.  In this regard the salient question, as Mummery LJ pointed out in Butcher v Woolfe [1999] 1 FLR 334, at 340B-E, is as follows:

“The proper approach to a Calderbank offer, when it is taken into account on a later argument as to costs, is to ask whether the party to whom the offer was made ‘ought reasonably to have accepted the proposal in the letter?’ Or, to put it another way, account must be taken of the reasonableness or otherwise of the refusal to accept the offer – see

Cutts v Head and Another [1984] Ch 290, 302, per Oliver J, and Chrulew and Others v Borm-Reid & Co [1992] 1 WLR 176, 182A. This approach is to be compared with the payment into court where, in the absence of a special reason for depriving the offering party of his post-offer costs, the simple question is whether the payment in is equal to or is beaten by the defendants at trial.

A Calderbank offer must be made in clear terms so that the party against whom it may be used on the issue of costs knows what he is offered – see C & H Engineering v F Kluznic & Sons Ltd [1992] FSR 667, 671.  It may well be reasonable for a party to whom an offer is made to refuse an offer made in ambiguous terms.”

27.  With respect, I fail to see how these clear and specific criteria can be made to apply in this case, so as to convince this court to exercise its discretion and in effect to postpone the making of a formal costs’ order pending the taking of the account.

28.  It seems to me that that which was outlined in the alleged ‘letter of offer’ of 17 December 2007 plainly does not hit the required parameters, and in the circumstances as they have been revealed in this trial, I am unsurprised that this letter apparently provoked no interest: on its face, it is redolent with ambiguity.

29.  Nor, for that matter, does any attempt appear to have been made nearer the time (as, for example, when the pleadings had been fully constituted) for the defendant to make a realistic assessment of the position and to make a reasonable and specific suggestion, which for the comfort of the plaintiff would have to have been backed up with cogent data/information as, for example, regarding the whereabouts of the remaining TSE shares.

30.  Yet nothing further seems to have been forthcoming on the issue the subject of the instant litigation, and resultant judgment, since the end of 2007. I note from the pleadings chronology that whilst the writ was issued on 16 November 2006, the Re-re-Amended Statement of Claim was filed on 20 April 2010, and the Re-re-Amended Defence on 11 May 2010.  In effect, these two pleadings contained the thrust of the respective cases as ultimately put forward by plaintiff and defendant, and the trial of these issues commenced on 20 September 2010. 

31.  Accordingly, it strikes me that were a sensible (and tolerably certain) offer have been made in plain terms after the date as now invoked, which is 17 December 2007, this may have provided a more fruitful argument in terms of costs than that which now has been put forward by the defendant.  However, as matters stood the case was driven forward in all possible detail (and denial), and duly resulted in the judgment of this court dated 25 February 2011 wherein the Order was for payment of a sum certain together with the taking of an account.

32.  In all the circumstances, therefore, I do not consider that the historical letter of December 2007 which, as I have said, was couched in the vague terminology of general intent, should now play any part in the costs’ order nisi as made in paragraph 172(v) of this court’s substantive judgment.

33.  Thus, in answer to the question posed by Mummery LJ in the foregoing quotation from Butcher v Woolfe, op cit., in my judgment it would not have been reasonable in the circumstances then prevailing for the plaintiff to have been advised to accept such a general proposal; to the contrary, had this arbitrary figure of £9 million been accepted ‘blind’, as it were, absent even the limited degree of discovery as has been achieved in the process of getting the present case to trial – wherein even now there are significant missing pieces of the ‘financial jigsaw’ – any such acceptance would have struck me as representing unreasonable (and potentially negligent) conduct/advice, not least in light of the additional – but manifestly incomplete – information as now has come to light.

34.  I should record, for the sake of completeness, that Mr Wright further objected to the scale of the taxation of costs, which was ordered to be on a common fund basis.  However, the ‘deferment pending account’ issue patently was the main thrust of his submission, and in so far as he objected to taxation on a common fund basis, I have no sympathy whatever on the facts as thus far revealed in this case.

Order 

35.  It follows from the foregoing that in the exercise of my discretion, and after considering all the circumstances which have been brought to my attention, the defendant’s summons dated 11 March 2011 to vary the order nisi is dismissed, with costs.

36.  I so order.

37.  As to the costs of this application to vary the order nisi, these must follow the event of the application, and be paid by the defendant to the plaintiff.

38.  However, in the circumstances, if not agreed, the taxation of such costs is to be on the normal ‘party and party’ basis, and further I decline to certify the application as fit for two counsel.  Whilst Mr Barlow SC has, as always, considerably assisted the court, on this occasion the argument was well within the compass of his learned junior.