Maurizio De Gasperis and Another v. Shanghai Tang Investment Holding Company Ltd and Others

HCA 1450/2020

[2025] HKCFI 4407

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1450 OF 2020

________________________

________________________

____________________________________

DECISION ON COSTS

____________________________________

1.Following my judgment handed down on 18 June 2025 (the “Judgment”), the Defendants by summons apply for a variation of the costs order nisi, on the basis that the Plaintiffs have failed to beat any of the Defendants’ three settlement offers.

2.To recapitulate, the order nisi is set out in paragraph 138(2) and (3):

“(2) In so far as the Defendants' breach gave rise to the Plaintiffs' claim under Part 2 of the Separation Terms, and taking into account the unsuccessful claim for damages by the Plaintiffs, I make an order nisi that there be no order as to costs of the action in relation to the Plaintiffs' claim under Part 2 of the Separation Terms.

(3) Regarding the remaining costs of the action, I see no reason why costs should not follow the event. I therefore make an order nisi that, other than those costs stated in paragraph 138(2) above, the Plaintiffs shall pay the Defendants costs of the action, to be taxed if not agreed”

3.By a summons dated 30 June 2025, the Defendants seek an order that:

(1)  There be no order as to costs of the action in relation to the Plaintiffs’ claim under Part 2 of the Separation Terms up to 5 July 2024, save that the costs of the Plaintiffs’ claims under Part 2 of the Separation Terms after 5 July 2024 be paid by the Plaintiffs to the Defendants on an indemnity basis, to be taxed if not agreed.

(2)  Other than those costs stated in paragraph 3(1) above, the costs of the action up to 5 July 2024 be paid by the Plaintiffs on a party and party basis, save that the costs of the action after 5 July 2024 be paid by the Plaintiffs to the Defendants on an indemnity basis, to be taxed if not agreed.

4.The Defendants made three settlement offers before the trial commenced on 21 October 2024. In summary:

(1)  First offer: On 7 June 2024, the Defendants offered to pay HK$50,000 in full and final settlement of the action, with no order as to costs.

The Plaintiff did not respond to this offer.

(2)  Second offer: On 8 July 2024, the Defendants offered either (a) US$125,000 (with US$75,000 to be paid upon dismissal of the action with no order as to costs, and the remaining US$50,000 payable by 10 equal monthly instalments thereafter), on condition that the Plaintiffs would act as consultants to explore eyewear or other business opportunities for Shanghai Tang during the 10-month period; or (b) US$50,000 payable by 10 equal monthly instalments without any consultancy requirement.

The Plaintiffs rejected this offer by a letter dated 11 July 2024, dismissing any settlement involving less than US$150,000, any consultancy arrangement, no payment of their costs and any instalment payment. They did not make a counter-offer.

(3)  Third offer: On 21 August 2024, the Defendants improved their Calderbank offer by proposing to pay US$125,000 (with US$75,000 payable upon dismissal of the action with no order as to costs, and the remaining US$50,000 payable by 10 equal monthly instalments), without any consultancy requirement.

The Plaintiffs did not ever respond to this offer.

5.I agree with the Defendants that the Plaintiffs have achieved substantially less than what was offered by the Defendants in each of the three offers. In the Judgment, all the Plaintiffs’ claims were dismissed, save that only nominal damages were awarded in respect of the 3^rd Defendant’s failure to provide the management accounts in breach of Part 2 of the Separation Terms.

6.The Defendants’ first offer was marked “without prejudice save as to costs” and “sanctioned offer”, and was accompanied by a Notice of Sanctioned Payment and payment of HK$50,000 into court. It is common ground[1] that it did not constitute a sanctioned offer or sanctioned payment under Order 22 of the Rules of the High Court. As such, the cost consequences under Order 22 rule 23 are not in issue. The second and third offers were both marked “without prejudice save as to costs”. Consequently, the Court needs only to consider the three offers as Calderbank offers and determine how to exercise its discretion.

7.Order 62 rule 5 sets out the considerations that the Court should take into account when exercising its discretion as to costs. In the present context, the relevant factors include:

(1)  Rule 1(aa) - the underlying objectives set out in Order 1A, rule 1;

(2)  Rule 1(d) - the “without prejudice save as to costs” offers;

(3)  Rule 1(e) - the conduct of all the parties, which, under Rule 2, includes:

(a)  whether it was reasonable for the Plaintiffs to pursue the claims;

(b)  the manner in which the Plaintiffs have pursued their case; and

(c)  conduct before, as well as during, the proceedings.

(4)  Rule 1(f) – whether a party has succeeded on part of his case even if not wholly successful; and

(5)  Rule 1(g) – any admissible offer to settle that is drawn to the Court’s attention.

8.I agree with the Defendants’ submissions that: (a) the failure to beat a favourable settlement offer can attract an award of indemnity costs: Bright Gold Ltd v Mega Well Development Ltd [2019] 3 HKLRD 868, §13 per Anthony Chan J; and (b) the failure to respond constructively to a reasonable offer, coupled with subsequent failure to better that offer, should weigh heavily against the offeree on costs: ibid, §15.

9.The Plaintiffs rely heavily on the English Court of Appeal’s decision in Kiam v MGN Ltd (No 2) [2002] 1 WLR 2810, in which Simon Brown LJ (as he then was) explained in §12 that an indemnity costs order under Part 44 of the English Civil Procedure Rules (“CPR”) (governing the general rules on costs), unlike one made under Part 36 of the CPR (similar to a sanctioned offer under the Rules of the High Court), is “of its nature penal rather than exhortatory” and that the conduct justifying such an order “would need to be unreasonable to a high degree”. His Lordship further stated that “unreasonable in this context certainly does not mean merely wrong or misguided in hindsight”. This case was referred to by Mr Recorder Stewart Wong SC in Yau Lai Wah v Wong Kan Yu [2020] HKCFI 1399 at §13.

10.In the present situation, where Order 22 is not engaged, the Court’s task is to assess the reasonableness of the parties’ conduct, particularly that of the party who refused an offer but failed to beat it, having regard to the factors in Order 62, rule 5 set out above, and to determine whether a departure from the normal party-and-party basis is justified. The court must consider each case on its own facts to ascertain whether there is something in the conduct of the action or the circumstances that takes the case out of the norm so as to justify an award of indemnity costs: Heung Wing Yan v Hangway Housing Management Ltd, HCPI 347/2012, 14 February 2017 at §19, per Deputy High Court Judge Marlene Ng (as she then was), referred to in Yau Lai Wah at §14.

11.The Plaintiffs were justified in pursuing their claim under Part 2 of the Separation Terms for the Defendants’ failure to provide the management accounts, and it was reasonable for them to seek specific performance as an appropriate remedy for that breach. However, they chose to abandon that remedy at the outset of the trial, and, rather unjustifiably (as explained in Section D of the Judgment), sought outright payment of US$150,000 instead. As a result, they succeeded only to the extent of obtaining nominal damages on that head. Their claim under Part 3 of the Separation Terms was ultimately held unenforceable for uncertainty and for constituting an agreement to agree.

12.Notwithstanding their very limited success on Part 2 of the Separation Terms, the Plaintiffs’ conduct in settlement negotiations was unreasonable. The Defendants made three successive offers on materially improving terms: first, HK$50,000; then, US$125,000 with a consultancy requirement; and finally, US$125,000 without any consultancy requirement. The Plaintiffs’ sole substantive response was to insist on US$150,000 together with costs, and to reject both the consultancy and instalment proposals, despite having no evidential or legal basis for entitlement to that sum under Part 2. This inflexible stance, and their refusal to engage in meaningful negotiation, was neither constructive nor reasonable, and ran counter to the objective of facilitating the settlement of disputes under Order 1A, rule 1.

13.The Plaintiffs submit, in paragraph 4(d) of their written submissions, that the abandonment of the specific performance came after the Defendants’ three offers. This submission is inconsistent with the position they adopted during negotiations, where their sole emphasis was on payment of US$150,000 and costs. In fact, as the Defendants pointed out in paragraph 7.1 of their written submissions, when, before the trial commenced, the Defendants attempted to produce certain accounts and referred to the Plaintiffs’ claim for specific performance, the Plaintiffs’ solicitors stated in their reply letter dated 30 September 2024, in unequivocal terms, that the Plaintiffs sought specific performance of the Defendants’ “contractual obligation to pay an extra bonus of US$150,000 under Part 2 of the Separation Terms, not the provision of management accounts under this contractual clause.”

14.The Judgment confirms that the Plaintiffs’ insistence on US$150,000 was untenable and unsupported by the facts and the law. Their recovery – nominal damages only on the management-accounts head and dismissal of all other claims – starkly demonstrates the disparity between their negotiation position and their eventual failure at trial. Whilst a party may persist in pursuing an untenable claim, its conduct in negotiations must nonetheless be reasonable so as to comply with the objective in Order 1A, rule 1.

15.For these reasons, the Plaintiffs’ failure to beat the offers, coupled with their unreasonable conduct in negotiations, justifies an award of indemnity costs. The cumulative effect of refusing reasonable “without prejudice save as to costs” settlement terms, and ultimately obtaining only nominal relief on the substantive claim, is sufficient to warrant a departure from the normal party-and-party costs regime.

16.As to the date from which indemnity costs should run, I treat the three offers and the Plaintiffs’ response as parts of a single negotiation process. The third offer, dated 21 August 2024, was an unconditional, improved “without prejudice save as to costs” offer which was left unanswered by the Plaintiffs. It marks the reasonable point at which the Plaintiffs should have reconsidered the merits of continuing full litigation and engaged constructively with the offer – by responding, making a realistic counter-offer, or narrowing their case – rather than persisting with a litigation position that ultimately proved untenable. As the third offer in that letter expired on 26 August 2024, I consider that liability for indemnity costs should run from 27 August 2024.

17.Therefore, I order that the costs order nisi in paragraphs 138(2) and (3) of the Judgment in this action, handed down on 18 June 2025, be varied as follows:

(1)  There be no order as to the costs of the action in relation to the Plaintiffs’ claim under Part 2 of the Separation Terms up to 26 August 2024.

(2)  The costs of the action in relation to the Plaintiffs’ claim under Part 2 of the Separation Terms from 27 August 2024 be paid by the Plaintiffs to the Defendants on an indemnity basis, to be taxed if not agreed.

(3)  Save as provided in paragraphs (1) and (2) above, the costs of the action up to 26 August 2024 be paid by the Plaintiffs to the Defendants on a party-and-party basis, and the costs of the action from 27 August 2024 be paid by the Plaintiffs to the Defendants on an indemnity basis, to be taxed if not agreed.

18.The Plaintiffs have no objection to the payment-out application. I therefore order that the sum of HK$50,000 paid into court by the Defendants on 7 June 2024, together with any interest accrued thereon, be paid out to the Defendants.

19.The Defendants have largely succeeded in this application. The parties agree that the costs of this application should follow the event. This is not a complex application. I do not consider that a certificate for two counsel is warranted. I therefore order that the costs of this application be paid by the Plaintiffs to the Defendants. Having considered the Defendants’ Statement of Costs, I summarily assess the amount of the Defendants’ costs at HK$84,729.

Mr Vincent Chen, instructed by Justin Chow and Bedin Solicitors, for the 1^st and 2^nd Plaintiffs

Mr Terrence Tai and Ms Regina Yip, instructed by Oldham, Li & Nie, for the 1^st to 3^rd Defendants