West Coast International Trading Ltd t/a Dandelion Fine Arts v. Chelesa Art Co Ltd

Case No.HCA 1636/2010[2020] HKCFI 243[2020] 1 HKLRD 841

Court

High Court CFI

Date22 Jan 2020

Judge—

Case Document

100%Judiciary

HCA 1636/2010

[2020] HKCFI 243

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1636 OF 2010

________________________

BETWEEN

	WEST COAST INTERNATIONAL TRADING LIMITED trading as DANDELION FINE ARTS	Plaintiff
	and
	CHELESA ART COMPANY LIMITED	Defendant

________________________

Before:

Hon Coleman J in Chambers (Open to Public)

Date of Hearing:	20 January 2020
Date of Costs Decision:	22 January 2020

________________________

COSTS DECISION

________________________

A Introduction

1.These proceedings began in 2010. They have a chequered procedural history, perhaps exemplified by the multi-coloured pleadings which have been through up five rounds of amendments, engaging black, red, green, purple, yellow and brown ink. The matter was finally set down and trial dates were fixed for September 2019. The trial was avoided by the plaintiff’s acceptance on 18 June 2019 of a sanctioned payment made by the defendant on 23 May 2019, following an earlier letter in similar terms on 15 May 2019.

2.The sanctioned payment was made against the defendant’s informing the plaintiff that even if the payment were accepted, the defendant reserved the right to seek an exceptional costs order under the “Otherwise Proviso” to RHC Order 22 rule 20(1). Now by summons dated 2 July 2019, the defendant seeks an order that it pay the plaintiff 25% (or such other percentage as the Court deems fit) of the plaintiff’s costs of these proceedings, including any costs reserved, up to 18 June 2019.

3.The underlying proceedings focused on a painting (“the 2^nd Painting”) which had been stolen from the plaintiff by one of its former staff members and allegedly sold to and converted by the defendant. For purposes of introduction, it suffices to say that the original issue between the parties was one of valuation, because there did not appear to be any dispute that the defendant had purchased the 2^nd Painting from the thief’s husband and on-sold it. However, it later transpired that that common ground might have been a mistake, and the real issue between the parties turned into one of identity: was the painting bought by the defendant in fact the 2^nd Painting, or was it some other painting.

B Applicable Principles

4.The applicable principles are well settled. Order 22 is a self-contained code introduced by the CJR into the Rules of the High Court in April 2009.

5.Order 22 rule 20(1) provides that:

“Where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the Court otherwise orders.”

6.It can be seen that the “Otherwise Proviso” is to be found in the last few words of the rule. That rule is different from the equivalent rule of English procedure in CPR Part 36, which has no similar proviso. For that reason, I share the view expressed by others that the English case law under Part 36 is not helpful in informing the approach to the Otherwise Proviso.

7.Order 22 rule 20(1) envisages that upon acceptance of the sanctioned payment or sanctioned offer, the plaintiff is prima facie entitled to the costs of his proceedings up to the date of serving notice of acceptance. The prima facie rule may, however, be displaced when the Court orders otherwise by applying the Otherwise Proviso. How that proviso is approached was considered by Jeremy Poon J (as he then was) in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd [2013] 2 HKLRD 184. In comments with which I agree, he said at [19]:

“The prima facie rule is important. In ordinary civil litigations, costs are incurred in a recoverable inter-parties sense from the moment the proceedings commenced and continue to be incurred as the litigation progresses. Every litigant, who needs to incur costs in order to pursue or defend the claim, definitely regards them as very real and present expenses. Further, the litigation is inescapably chancy. The prospect of paying costs to the other side after losing one’s case in addition to his own costs must very much exercise a party’s mind. Costs thus factor heavily in the negotiations and considerations of settlement. Sometimes, it may even make or break the settlement. But uncertainty as to costs is a notoriously difficult subject. It may easily frustrate an otherwise meaningful settlement negotiation and even become an irremovable obstacle to the settlement itself. What the prima facie rule does is to create certainty as to the costs consequences upon acceptance of the sanctioned payment or sanctioned offer. A party knows the exact extent of his exposure or entitlement to costs, as the case may be. Thus he will not be inhibited in proposing or accepting an otherwise reasonable offer to settle, as the case may be, because of uncertainty as to the cost consequences. This surely [facilitates] the principal objective of sanctioned payments and sanctioned offers, which is to encourage the parties to take positive settlement seriously and avoid unproductive and expensive prolongation of the litigation, resulting in more early settlements.”

8.Nevertheless, as Jeremy Poon J recognised at [20] and [21]:

“By virtue of the Otherwise Proviso, the court retains the discretion to depart from the prima facie rule where necessary. But the discretion should only be exercised in exceptional circumstances that clearly warrant a different costs order. Otherwise, the certainty as to costs consequences created by the prima facie rule, one of the very important features underpinning the effectiveness of sanctioned payments and sanctioned offers, will be greatly diminished.

While it is impossible and indeed imprudent to exhaustively state the exceptional circumstances that justify the departure from the prima facie rule, which by definition must be rare, the burden rests squarely on the party seeking to invoke the Otherwise Proviso to establish such circumstances. The court will not lightly displace the prima facie rule until and unless the applicant has discharged the burden to its satisfaction.”

9.The conclusion is that the prima facie rule in Order 22 rule 20(1) should apply unless (1) the defendant discharges the burden of showing exceptional circumstances that justify a departure; and (2) he has given a prior warning to the plaintiff that he will apply to invoke the Otherwise Proviso upon acceptance of the sanctioned payment or sanctioned offer.

10.Of course, what constitutes “exceptional circumstances” is a matter in the Court’s exercise of discretion. But, as always, the discretion must be exercised judicially, where the overriding objective of the Court is to do justice between the parties. Examples of circumstances which have previously been held to fall within the Otherwise Proviso include where the terms of the ultimate settlement were the same as an offer made previously, perhaps particularly if the offer was made even before commencement of the proceedings. Each case will turn on its own facts.

11.Sometimes it may be necessary for the Court in dealing with matters of costs to look at, and make some assessment of, the merits of substantive issues which have not been fought to a conclusion. This is clear from, for example, the approach to the exercise of the Court’s discretion as to costs provided for in Order 62 rule 5.

12.That rule requires the Court to take into account, to the extent as may be appropriate in any given circumstances, amongst other things: the underlying objectives set out in Order 1A rule 1; written offers made on a “without prejudice save as to costs” basis; and the conduct of all the parties. Order 62 rule 5(2) provides that the conduct of the parties includes: (a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (b) the manner in which a party has pursued or defended his case or a particular allegation or issue; (c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and (d) conduct before, as well as during, the proceedings.

13.The reference to the underlying objectives seems to me to be important. One such objective is the early identification of the issues really in dispute, so as to encourage the parties to cooperate and to promote efficiency and cost effectiveness, as well as potential settlement. Nevertheless, rarely can it be appropriate on costs arguments to conduct what amounts to a mini-trial on affidavits or witness statements so as to decide who might have won the case, or any particular issue, had compromise not been achieved.

14.In the context of the costs at issue on an application under the Otherwise Proviso, this last point seems to me to circle back to the importance of the prima facie rule. The structure of the regime for sanctioned offers and sanctioned payments is strongly to promote efficient resolution, finality and certainty. Applications under the Otherwise Proviso are not to be taken as an opportunity generally to revisit the procedural history or merits of the particular piece of litigation, and to apply the broader exercise of discretion on costs as might in appropriate circumstances be applicable outside the context of Order 22.

15.As to reserved costs, they do not fall within the purview of Order 22 rule 20(1), but fall to be dealt with under Order 22 rule 22(5)(b): see Golden Tonn Industrial Ltd v Hong Kong Cyberport (Ancillary Development) Ltd [2015] 3 HKC 226, at [7]-[8].

C Procedural and Factual Background

16.The plaintiff is an art dealer. So is the defendant.

17.One of the plaintiff’s employees was a Candy Tsang (“Tsang”), whose husband was Thomas Yeung (“Yeung”). It is common ground that sometime between 1997 and 2007, Tsang stole various artworks from the plaintiff. Apparently due to the plaintiff’s poor or lax management, the theft was discovered only in 2009. In DCCC 868/2009, Tsang was subsequently convicted of theft of three paintings. Yeung was acquitted.

18.In the trial of those criminal proceedings, the plaintiff’s director or CEO Mr Kan Ho-ming (“Kan”) gave evidence as PW2, asserting that five paintings were noted to be missing and that was reported to the police. (I note in passing that some aspects of Kan’s evidence were not accepted by the court because they were “less than frank”.) There were photographs of only four of the five paintings.

19.The defendant’s director Mr Siu Fai Lung (“Siu”) gave evidence as PW1 that three stolen paintings were sold to him by Yeung in 2007. One of those paintings was a “Water Village” painting by Chen Yifei. But there was no photograph or other image of that painting produced in the criminal proceedings. There were photographs of the other two paintings sold, and Siu identified the paintings depicted in the two photographs as two of those which the defendant had purchased from Yeung.

20.That evidence was consistent with the statement of Tsang, given in a video-recorded interview (which the trial judge ruled in as evidence at the trial, notwithstanding objections to it). The judge accepted that Tsang was telling the truth, and relied on her confession, when she said she stole three paintings from the plaintiff, of which two were by Ai Xuen and one was by Chen Yifei and that they were sold by her husband, Yeung, to the defendant. The judge did note that though Tsang did not specify which three paintings were stolen from the plaintiff and sold to the defendant, the “vacuum is filled by the evidence of [Siu] and the admitted facts”. That is why the judge said he had no doubt that the three paintings referred to in the confessions were the paintings set out in the charges.

21.In fact, Siu had purchased four paintings from Yeung. Once he discovered the theft involving Tsang, he not only cooperated with the police and gave evidence at the criminal trial, he sought to recover the lost paintings. The four paintings were subsequently defined for the purposes of these proceedings as the “1^st Painting”, “2^nd Painting”, “3^rd Painting”, and “4^th Painting”. All but the 2^nd Painting had been returned to the plaintiff before the commencement of these proceedings by writ and statement of claim dated 3 November 2010. Nevertheless, the statement of claim contained a claim for conversion of all four paintings, as well as ancillary and other claims.

22.In its original Defence to the claim, the defendant admitted purchasing the 2^nd Painting from Yeung, though in good faith and without any knowledge or notice of any alleged theft. That remained the case on the pleadings until 2014.

23.Siu says that from 2010 to April 2013 the defendant tried to locate the painting which he understood to be the 2^nd Painting, and which he thought was a Water Village painting dated May 1994 (“1994 Painting”). Siu has said in evidence that he bought the 1994 Painting from Yeung on 12 March 2007, and sold it to a Mr Zheng on 26 October 2007. He has produced a copy of the receipt from Yeung, and a copy of the invoice to Zheng.

24.In early 2013, the defendant changed solicitors, and by letter dated 25 March 2013 those solicitors (“KLY”) asked the plaintiff for an image of the 2^nd Painting. Originally the request was made as regards the issue of valuation. In a response dated 9 April 2013, the plaintiff’s solicitors (“HLLY”) stated that even though the plaintiff “has tried very hard to find an image of” the 2^nd Painting, it had yet to locate one. The letter however set out a description of “Chin Yifei’s famous painting”. No source was identified as the basis for that description. By letter dated 17 April 2013, KLY stated that the defendant upon exercising its best endeavours had managed to obtain an image of the 2^nd Painting, and attached that image, also giving the actual size of the painting. The image attached was of the 1994 Painting.

25.By letter from HLLY dated 18 April 2013, the plaintiff categorically denied that the image provided by the defendant was a true image of the 2^nd Painting. It was pointed out that the scenery depicted in the image does not come even close to that of the 2^nd Painting when comparing the image with the description previously provided on 9 April 2013. As the letter stated, “they are so different”. By letter dated 23 April 2013, KLY identified that it seemed that there was a dispute as to the identity of the 2^nd Painting. Indeed, that had clearly become the case.

26.Facing allegations from the plaintiff that the defendant was now deliberately misrepresenting matters, that there was now a suggestion that the defendant had purchased five paintings (not four) from Yeung, and the change of story identified a false statement, the defendant refuted those allegations in KLY’s letter of 5 November 2013. That letter made clear that the defendant originally believed that the 1994 Painting was the 2^nd Painting stolen from the plaintiff by Tsang, but it now seemed clear that there was the issue as to the correct identity of the painting. KLY pointed out that there was no basis for the suggestion that the 1994 Painting was stolen property, or that it should or could properly be returned to the plaintiff or to the police. Indeed, the police had confirmed that the image of the 1994 Painting was not an image of the stolen painting, and there was no basis for suspecting the 1994 Painting was stolen property. The relevant dilemma was identified, as was the potential amendment to the pleadings.

27.Subsequently on 27 December 2013, the defendant applied to re-amended its Amended Defence to withdraw what it said was a mistaken admission. The amendment was refused by the Master, but taken on appeal to Chung J. Before the appeal was heard, the plaintiff filed a notice of non-admission of authenticity of the 1994 Painting, or its image.

28.At the appeal, Chung J allowed the amendment. In his Decision, he identified the issues of importance to the appeal, including whether one of the four paintings sold by Yeung to the defendant was in fact a painting which had belonged to the plaintiff. He also identified that from the history of the action the defendants claim that its then pleaded case relating to the 2^nd Painting resulted from a mistaken belief was believable, bearing in mind that no photographic or pictorial image of the 2^nd Painting had been provided by the plaintiff up to that point, and no narrative description of the 2^nd Painting was given in the criminal prosecution, except the “generic description of “Water Village” commonly used in the painting and artwork trade to refer to a series of Chen Yifei’ as paintings in which the painter used the landscape theme of village-by-the-water. Indeed, Chung J accepted that the only plausible explanation for the mistake was inadvertence on the defendant’s part, and he rejected as “far-fetched” the plaintiff’s contention that the defendant intentionally made an admission so as to seek its withdrawal later. Chung J also noted that the plaintiff’s complaint that it was inherently implausible for the defendant not to have an image record of the now disputed painting was difficult to reconcile with the fact that the plaintiff did not have a record for the 2^nd Painting either.

29.In connection with the rejection of the “far-fetched” contention, I might add that inadvertence as the cause of the mistake seems to me to be consistent with the defendant’s swift efforts to assist the police with their enquiries, with Siu’s giving evidence at the criminal trial, with the defendant voluntarily identifying it purchased four paintings (not just three) from Yeung, and with the defendant’s seeking to recover and return the paintings to the plaintiff, even at some loss or cost to itself.

30.The permitted amendment was made, in purple, on 2 May 2014. It was pleaded to in the purple amendments to the Reply, which pleading essentially asserted that the defendant always knew that the 1994 Painting was not the 2^nd Painting (for various reasons which it particularised), and the mistake said to have led to the earlier admission was denied. It was asserted that the 1994 Painting was a fake, and the plaintiff unhelpfully redefined, tendentiously, it as the “Fake Painting”.

31.On 14 June 2016, Chung J heard the plaintiff’s “renewed” application for expert evidence directions. In his Decision dated 27 June 2016, Chung J summarised the latest pleading position on which the application was premised. Materially, of the four paintings alleged to have been wrongfully converted, three of them had by then been returned, and the only painting still not recovered was the now disputed painting, such that the plaintiff claimed the loss and damage for which it was entitled to compensation and/or the return of the 2^nd Painting. He also materially noted that the loss suffered by the plaintiff was the value of the 2^nd Painting if it were ultimately not recovered.

32.The expert evidence for which the plaintiff sought directions was in relation to whether the 1994 Painting was painted by Chen Yifei. This was proposed evidence as to its authenticity. Understandably, and for reasons with which I am in accord, Chung J did not agree that whether or not the 1994 Painting was in fact painted by Chen Yifei was in itself a relevant issue. As he pointed out, it was the plaintiff’s own case that it was never the owner of the 1994 Painting (irrespective of the identity of its painter and/or its monetary worth). Hence, it could not logically be part of the plaintiff’s case that it could seek the return of the 1994 Painting, or that the return of the painting could constitute a valid defence to the loss of the 2^nd Painting. Therefore, on the part of the plaintiff, authenticity was irrelevant. Further, authenticity could not be relevant to the defence case now pleaded that the defendant never purchased or converted or detained the 2^nd Painting.

33.Chung J noted the contention that the question of authenticity of the 1994 Paint could assist determining the veracity of the defence case was an attempt to adduce evidence concerning credibility, and to contradict a collateral matter. Albeit with stated reluctance, Chung J granted leave to adduce authenticity opinion, on the basis that where the plaintiff pleaded that the 2^nd Plaintiff was worth $4.2 million whereas the defendant pleaded it acquired the 1994 Painting for RMB850,000, that substantial monetary worth and the difference between the values seemed to make it worthy for more thorough examination of the credibility of the defendant’s acquisition of the 1994 Painting.

34.I note in passing that the disparity in values was based upon the then available expert evidence as to valuation. It seems to me to be striking that at that point in time expert valuations had been attempted simply on the basis of what was said to be a description of the 2^nd Painting, and in circumstances where no expert had seen either the 2^nd Painting itself or any photographic or other image of it. The reliability of any such opinion must have been in significant doubt, as later circumstances only showed (see below).

35.The plaintiff’s expert reports on authenticity were filed on 24 and 28 February 2017. The defendant’s expert evidence report on authenticity was filed on 27 March 2017.

36.In July 2017, the plaintiff discovered an image of the 2^nd Painting and it was disclosed in these proceedings. The delay was explained by Kan in the affirmation filed to oppose this costs application, broadly as follows. Kan was only employed by the plaintiff in 1997, and was informed that previous records relating to the purchase of the 2^nd Painting by the plaintiff could no longer be located. It was only realised that the 2^nd Painting was missing in 2007. The plaintiff has disclosed photo albums of photos taken in January 2006 and January 2008, but no photo of the 2^nd Painting was included. That was how it was realised it was missing. Time was taken to deal with various matters relating to Tsang’s complaint to the Labour Department, checking her expenses and so forth. As the police searched and investigated the plaintiff’s shop in about May 2009, the plaintiff did not consider it necessary to conduct further investigation or search for images of the 2^nd Painting, when focus was on locating the actual missing paintings. Subsequently, when the present proceedings started, the defendant initially admitted the plaintiff’s case on the 2^nd Painting, so that there was no need to search for any image of it. When in 2013 or 2014, the identity of the 2^nd Painting became an issue, there was a burst pipe which caused flooding to the plaintiff’s shop. All paintings there were removed for storage, and it did not occur to Kan that there would still be any relevant evidence in relation to the 2^nd Painting in the plaintiff’s shop. In mid to late 2017, the new handling solicitor (albeit at the same firm) advised the plaintiff to conduct a fresh search. That search led to the discovery of film negatives which included a picture of Tsang with the 2^nd Painting.

37.It might at once be noted this explanation is difficult to reconcile with the later assertion that the plaintiff had tried very hard to find an image. The explanation seems rather to suggest that the plaintiff did not think it needed to search for such an image, or that it had not even occurred to it to do so.

38.Anyway, a quick comparison between the image of the 2^nd Painting and the image of the 1994 Painting clearly shows the two paintings to be different.

39.It was subsequently discovered that the 2^nd Painting was sold under the name “Blue Homeland” at an auction in China on 7 July 2007. It was apparently sold again at another auction in China on 26 June 2014.

D The Current Application

40.Ms Margaret Ng, Counsel for the defendant appearing with Mr Leonard Chow, identifies the grounds of the defendant’s application as being broadly that the plaintiff has conducted these proceedings in “the most high-handed manner contrary to the spirit” of the CJR, violating the underlying objectives in Order 1A rule 1, as well as the duty to assist the Court under Order 1A rule 3. She says that had the plaintiff conducted the proceedings in accordance with those requirements, in particular in focusing on the real issue of the case, substantial costs would not have been incurred.

41.As to the specific manner in which Ms Ng says the plaintiff has acted unreasonably in the conduct of these proceedings, they include:

(1)  the plaintiff’s unjustifiable failure to provide sufficient and relevant particulars in the claim necessary to identify the issues at an early stage;

(2)  the plaintiff’s unjustifiable late discovery of an image of the 2^nd Painting only almost 7 years after the proceedings commenced;

(3)  the plaintiff’s spending unnecessary and disproportionate time and effort and costs in contesting the authenticity of the 2^nd Painting;

(4)  the plaintiff’s unreasonable and unjustifiably combative approach against the defendant;

(5)  the plaintiff’s late withdrawal of unreasonable claims;

(6)  the plaintiff’s rejection of a settlement proposal made in 2017 (“2017 Settlement Proposal”) and its failure in facilitating settlement.

42.As against the procedural and factual matters, I shall address them individually as follows.

43.(1) Insufficient particulars in claim: I can deal with the first point relatively shortly. It is, of course, correct that the original form of the statement of claim did not provide detailed particulars of the 2^nd Painting. All that was stated was that it was “An oil painting by Chen Yifei by the name of ‘Water Village’”. However, that must be viewed against the fact of the previous criminal proceedings, and other conduct, in and by which the defendant appeared to accept that it had unwittingly purchase stolen paintings, including the second Painting. Where there did not appear to be any issue as to the identity of the relevant painting, I think the original pleading was probably sufficiently particularised (though there was undoubtedly room for improvement). Of course, it may be that if better or more detailed particulars of the 2^nd Painting had been given, either in the criminal proceedings or in the statement of claim, and in circumstances where there was a series of similar paintings, the defendant would have discovered at an earlier stage what it says to be the mistake. So there is some force in Ms Ng’s submission that the defendant’s original admission on the pleadings was indirectly caused by the way in which the claim was pleaded, but I do not think this point amounts to the necessary exceptional circumstances for triggering the Otherwise Proviso. There is also some force in the point made by Mr Andrew Mak, Counsel for the plaintiff appearing with Mr Nicholas Oh, that there was some burden on the defendant properly to satisfy itself that it should make any admission before in fact so doing.

44.(2) Late discovery of image of 2^nd Painting: There is more to this complaint, and the consequences that flowed from it. Even though at first there may not have been an issue as to the identity of the relevant painting, it seems to me that an image of the 2^nd Painting was always relevant to, and so discoverable in, the proceedings. Until the issue as to identity arose, the central issue in the case was one of valuation. Where valuation was likely to turn upon expert evidence, some image of the 2^nd Painting was bound to be relevant, if the original 2^nd Painting were not to hand (as it was not). I do not accept that because the defendant originally admitted purchasing the 2^nd Painting, somehow that made an image of that painting (if available) not properly discoverable in these proceedings. Rather, the fact that the actual 2^nd Painting was apparently not available made it all the more important that there was the most thorough search for and disclosure of any image of it held by the plaintiff. Indeed, once the image of the 2^nd Painting became available, it was properly disclosed, and it appears to have had a real impact on the valuation (even leaving the identity issue to one side). This is because the plaintiff’s expert’s valuation as at 27 February 2017 was HK$4.2 million, and after sight of the image that valuation was reduced as at 10 November 2017 to RMB2.8 million (approximately HK$3.2 million). When it comes to the issue of identity, the image of the 2^nd Painting is central. The short point is that the image was at all times held by the plaintiff on its own purposes, and could have been found long before it was found almost 7 years into the ‘progress’ of these proceedings. The failure to have found and disclosed that image earlier was the result of the failure properly to look for it. That failure has had a significant impact on the proceedings. Many of the interlocutory proceedings, and preparation of supporting affirmations and attendance at hearings, as well as the preparation of the initial expert reports, took place before disclosure of the image, and in the context of the absence of any such image. I do not think this can be ignored, and is the sort of point which creates exceptional circumstances permitting departure from the prima facie rule. Nevertheless, I also take into account that (on the evidence) it is possible that the defendant might have been able to obtain at least an image of the 1994 Painting, if not actually to purchase it, somewhat earlier than April 2013. Clearly, if such an image had been presented to the plaintiff earlier, the plaintiff would have denied then (as it did later) that that image depicted the 2^nd Painting. Hence, the identity issue might have been recognized earlier.

45.(3) Contest on authenticity: I have already indicated my understanding of, and agreement with, the views expressed by Chung J in his reluctant grant of leave for the deployment of expert evidence as to authenticity. I also note that the leave granted was at a time when there was yet to be disclosure of the image of the 2^nd Painting. Had that image already been disclosed, Chung J might have taken a different approach. In any event, where it remains Mr Mak’s submission that the totality of evidence, including that in the criminal proceedings, suggested it could only have been the 2^nd Painting and not the 1994 Painting or some other Water Village painting by Chen Yifei that was stolen and sold to the defendant, surely the authenticity point remained peripheral as a collateral attack on credibility. I do not think it carries the force Mr Mak now wishes to place upon it. Nor do I think I can properly make any assumptions as to the basis upon which the defendant was ultimately willing to settle by making a sanctioned payment on the valuation last provided by the plaintiff’s expert. I do not think that it would be right to find, and I do not find, that the settlement was to avoid losing the case “badly”. So I reject Mr Mak’s submission that the settlement was proffered to avoid an adverse costs order upon what he says would be the inevitable finding that the defendant had proceeded on a false basis. I have already referred to the other circumstances of the defendant’s conduct, once it became aware that it had apparently purchased stolen paintings, which make such an allegation rather less likely to be correct. Ultimately, the real issue remaining on the pleadings was that as to the correct identity of the painting sold by Yeung to the defendant: was it the 2^nd Painting or was it the 1994 Painting. The authenticity point was in my view a largely irrelevant and unnecessary side excursion.

46.(4) Combative approach and (5) late withdrawal of unreasonable claims: I think these two points can be taken together. Ms Ng points to the various events which she says identify the plaintiff’s hostility against the defendant and unwillingness to be cooperative. Amongst them, she relies on the plaintiff’s initial unreasonable claims for over 40 lost items launched against the defendant without any legal or factual basis, and the unreasonable insistence to include voluminous documents for translation exercise which at one point HLLY estimated might cost HK$2.45 million (when ultimately the translations performed cost a small fraction of that amount). The claims for over 40 lost items were only withdrawn in April 2015, and the additional claims for inconvenience and/or loss of use of the four paintings were only withdrawn in January 2018, so there is some force in this point. But, these two points taken alone would not, in my view, amount to the exceptional circumstances required to trigger the Otherwise Proviso. They might however be considered in the overall context, which I shall do later.

47.(6) Rejection of the 2017 Settlement Proposal: The 2017 Settlement Proposal was an offer of the same monetary figure as ultimately was the subject of the sanctioned payment, namely HK$3.2 million. That figure was put forward on the basis of the (then recent) re-valuation by the plaintiff’s own expert after sight of the image of the 2^nd Painting. It is correct that the 2017 Settlement Proposal proposed that the figure be accepted with no order as to costs between the parties, and was put forward only on a “Calderbank” basis. Nevertheless, in light of the fact that the plaintiff accepted the same sum of HK$3.2 million after it was made the subject of a sanctioned payment, it is significant that, if the issue was truly one of costs, there was no counter-proposal accepting the offered figure but on the basis of some different costs arrangement than proposed by the defendant. Instead, what the plaintiff did was to counter-propose settlement at the figure of RMB4.5 million plus its costs. I do not think that was a reasonable response. Mr Mak has drawn my attention to the fact that the counter-proposal was made at that figure, because it appeared that the 2^nd Painting was sold at auction in mid-2014 for around that sum. But I do not see on the pleadings any basis for claiming that figure. Indeed, it might be noted that figure was almost twice the plaintiff’s own expert’s valuation, which the plaintiff was putting forward in support of its claim to damages. I do not think the analysis is changed by the fact that Mr Mak submits that the plaintiff reasonably accepted the sanctioned payment on 23 May 2019, instead of proceeding to trial and/or disputing whether the defendant’s 15 May 2019 letter constituted valid sanctioned offer. Against the two-week difference in date, that seems to me to have been an entirely sterile argument in any event. If there were to be speculation, it might also be suggested that the plaintiff’s willingness to accept the sanctioned payment in the amount of its own expert’s valuation showed understandably little confidence in obtaining any higher figure. But the point is that the plaintiff ultimately accepted a monetary figure which it had been offered 18 months earlier. It is also relevant that the sanctioned payment was accepted in the knowledge that the plaintiff would then face this application under the Otherwise Proviso (so that the plaintiff could not reasonably say that it knew it was definitely going to receive all of its costs up to 18 June 2019). These matters seem to me to be of the sort which permit triggering the Otherwise Proviso.

48.(7) Other matters: I agree with Mr Mak that the losses which the defendant the ledge it suffered as a result of recovering and returning the various paintings is immaterial to the present consideration. I have also taken into account to the extent that it seems to me to be material Mr Mak’s criticisms of the defendant’s own conduct within the proceedings, in so far as they provide the context against which to assess the conduct of the plaintiff in the proceedings. However, I do not think anything of the point about the commencement and abandonment of third-party proceedings.

E Result

49.I am therefore satisfied that this is one of those rare cases where the Otherwise Proviso is triggered, and where it would not be overall fair or appropriate for the prima facie rule to be followed. The question remains as to what the “otherwise” order should be.

50.I agree with Mr Mak that no clear basis has been identified by Ms Ng to justify the proposed discount of 75%, or (to put it another way) to identify why the defendant should only be liable for 25% of the plaintiff’s costs. Indeed, I see no basis for depriving the plaintiff of as much as 75% of its costs, when it has ultimately succeeded on its claim by accepting the sanctioned payment calculated by reference to its primary valuation of its loss.

51.It is open to approach the question by reference to dates, such as when the 2017 Settlement Offer was made, or by issue, such as the costs of dealing with authenticity. Nevertheless, both Ms Ng and Mr Mak accepted that it would be appropriate in the present circumstances, if the Otherwise Proviso has been triggered, to approach the “otherwise” order on a relatively broad brush basis. That basis would also include taking into account those costs which had been so far reserved, though it would be necessary to look at the specific applications on which they had been reserved. I note that costs were reserved in relation to the issue of authenticity, amendments to plead the falsity case, updating is of valuations, and the application to deal with certain expert evidence by VCF at trial.

52.Looking at the matter overall, it seems to me that the fair and appropriate costs order to make in the exercise of my discretion is to order the defendant to pay 70% of the plaintiff’s costs, including those costs reserved. I think this properly takes into account the principle which underlies the prima facie rule in Order 22 rule 20(1), as well as the various matters which I have dealt with above, individually and in combination. I think it also takes into account the fact that the plaintiff has ultimately recovered what it says is the value of the lost 2^nd Painting, but at the end of proceedings which have been increased in length and complexity for ultimately no good, or little good, purpose.

53.As to the costs of this application, whilst it can be said that the defendant has succeeded in obtaining an order under the Otherwise Proviso, it has nowhere near achieved its discount target. In the circumstances, I make an order on a nisi basis that there should be no order as to costs on this application.

54.The nisi order will become absolute after 14 days, if neither party applies for variation. If any variation application is made, the precise variation sought should be identified with reasoning, it shall be responded to by the other party within 14 days, and the matter will be decided by me on the papers.