Axa China Region Insurance Co. Ltd. & Another v. Pacific Century Insurance Co. Ltd. & Others

HCA009093B/2000

HCA 9093/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9093 OF 2000

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Coram: Deputy High Court Judge To in Chambers

Date of Hearing: 16 November 2001

Date of Decision: 16 November 2001

Date of Reasons for Decision: 22 November 2001

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D E C I S I O N

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Background:

1.This is an application by the 1st Defendant, PCI, and the 2nd to 10th Defendants, the Individual Defendants, seeking to vary the costs order nisi I made in my Decision handed down on 24 July 2001 granting the Plaintiffs' application for interlocutory relief. Mr Scott SC and Mr Ambrose Ho SC for PCI and the Individual Defendants respectively submit that the appropriate order should be "the Plaintiffs' costs in the cause" which was what the Plaintiffs, AXA, asked for in their summons, or alternatively "costs reserved to the trial judge" or "costs in the cause".

Whether the court may make a costs order beyond what is prayed for in the summons:

2.Mr Scott SC submits that there was no application by the Plaintiffs to amend the summons and the Court should not travel outside the maximum asked for in the summons. I do not consider the Court's power to order costs is in any way fettered by the terms of the summons. Section 52A of the High Court Ordinance gives me, subject to the provisions of the rules of court, full power to determine by whom and to what extent the costs are to be paid. The parties are bound by their pleadings and it is not the function of the court to determine how they should conduct their case. The court may not travel outside the pleadings and force on the plaintiff a case he never intended to pursue and on the defendant a case he never expected to answer. But when it comes to costs, the court has unfettered discretion to make an order which is fair and just in the circumstances. Each case depends on its own facts. Very often, in anticipation that the application will run the usual course, the parties may ask for the usual costs order. If by reason of the conduct of the parties, the matter took an unusual course which renders the usual costs order inappropriate, it is open to the Court to make an order which best serves the interest of justice in the particular case, with or without inviting the parties to make an amendment.

3.With no criticism on counsel, for reasons as given below I do consider the course taken unusual. I was fully aware of the costs order that AXA sought. But after hearing the case and after considering the merits, I do not consider the costs order sought appropriate. In the interest of saving costs, I did not invite AXA to amend the summons as I do not consider it necessary in view of my unfettered discretion. Accordingly, I made an order nisi so that the parties may come back to argue the matter before me and have their views ventilated if they consider necessary.

The legal principle:

4.Both Mr Scott SC and Mr Ho SC refer to Desquenne et Giral UK Ltd v. Richardson [2001] FSR 1. In that case, the English Court of Appeal held where an injunction was granted or continued on the basis of balance of convenience in order to hold the ring until the dispute between the parties could properly be decided at trial, it was inconsistent to say that there were successful or unsuccessful parties for the purpose of the rules relating to costs and the proper order was that the costs be reserved to the trial judge because only then could it be determined which party was successful and which was not. This is a decision after the enactment of the English Civil Procedure Rules, which do not apply to Hong Kong. While I consider the rationale relevant, in the absence of equivalent rules in Hong Kong, I consider the courts in Hong Kong have wider discretion.

5.In Hong Kong, there is no general practice whether a successful plaintiff in an interlocutory injunction shall be granted his costs in the cause or otherwise. The authors in Hong Kong Civil Procedure 2001 at paragraph 29/1/48 write as follows:

"It has for many years been the normal practice for a successful plaintiff granted an interlocutory injunction to be granted his costs in the cause and for a successful defendant to be granted his costs in the cause. But the rationale of that practice is perhaps not clear and the Courts are showing a greater willingness to depart from it."

6.In TKI Ltd v. New Happy Ltd [1995] HKC 551, Nazareth VP held that special reasons are necessary to justify a departure from the usual rule that costs should be in the cause.

7.In Kickers International SA v. Paul Kettle Agencies Limited and Another [1990] FSR 436, Hoffman J considered the different types of costs orders in respect of interlocutory costs before the English Civil Procedure Rules were enacted. At 437-439, he held:

"Mr Wyand accepts that although defendant's costs in the cause is an order commonly made in cases like this, there is no general practice. The court has a complete discretion. No doubt it is desirable to encourage litigants to give up when they realise that a motion is hopeless. But it may be even more desirable to encourage them not to launch such motions in the first place..........

An order for a party's costs to be 'in the cause' is made because the court has not investigated the merits and considers that it would not be fair for him to recover those costs unless he succeeded at the trial. But the fact that the merits have not been investigated, or not fully investigated, does not necessarily mean that the court cannot dispose finally of interlocutory costs. The question cannot be settled simply by reference to practice: it must be answered on the facts of the individual case. Would it be unfair in this case for the defendants to have the costs of the motion even if they lost at the trial? On balance I do not think that it would. Although I cannot decide the merits, I can form a view on whether the plaintiff, on the material it has produced and what it must have known about the defendants, was justified in launching the motion. I do not think it was. Therefore whatever the outcome of the trial, the motion which has now been abandoned has put the defendants to a great deal of unnecessary expense.

One solution sometimes adopted is to reserve the costs of the motion to the trial judge. There is a superficial attraction about this course because the trial judge will have all the facts and be in the best position to decide whether a party should have interlocutory costs despite the fact that he has lost at the trial. But in practice it has serious disadvantages. One is the difficulty of reconstructing for the trial judge how things looked at the time of the interlocutory application, particularly when it involved questions of balance of convenience which were irrelevant at the trial. But the more important reason is that very often there is no trial. In such a case, an order that costs be in the cause or reserved to the trial judge is in practice a decision that there should be no order as to costs. Not many defendants, even with the encouragement of success at the interlocutory stage, are willing to insist on a trial for the purpose of recovering their interlocutory costs. But unless they do, the costs are left in limbo, as in Stratford v Lindley (No. 2) [1969] 1 WLR 1547. This gives the unsuccessful plaintiff a powerful bargaining weapon. He can face the defendant with the alternative to accepting a substantial discount on the interlocutory costs or having to incur the trouble, expense and risk of a trial. Furthermore, the existence of an order for substantial costs contingent upon the outcome of the trial, or reserved to the trial judge, may push the parties into a trial of an action which would otherwise have settled.

Thus it seems to me that in making a costs order at the interlocutory stage, there are two risks of injustice which have to be balanced against each other. On the one hand, a final order might award a party costs which, upon fuller consideration at the trial, he would not have been given. On the other hand, failure to make a final order might have the practical effect of depriving a party of some or all of the costs which he should in fairness have recovered. I think it is possible that in the past the courts may have been more impressed by the first risk than by the second.

The plaintiff says that it is not abandoning the action and that it intends to pursue a claim for damages to trial. Nevertheless, I think I should take into account first, possibility that it may change its mind and secondly, the effect that a contingent order for costs would have upon any settlement negotiations. Having regard to all these matters, I think that the proper exercise of the discretion is to deal finally with the costs now. I shall therefore order the plaintiff to pay the defendants' costs in any event."

Probably, the above represents the rationale for the Hong Kong courts' departure from the practice of making the usual order of costs in the cause. I, for one, adopt the rationale in Kickers International SA v. Paul Kettle Agencies Limited and Another.

8.There is no rule of law that interlocutory costs should be in the cause. If the injunction was granted without contest or for the purpose of holding the ring, then cost in the cause would certainly be appropriate. The type of costs order to be made depends on the facts of the particular case. In essence, there are two questions to be considered where the plaintiff succeeds in the interlocutory application. The first question is whether it was justified for the defendant to resist the application. If "not", secondly, whether it would be unfair for the plaintiff to be awarded interlocutory costs unless he succeeds also at trial. Or, put it in another way, whether it would be fair for the plaintiff to be awarded his costs even if he fails at trial.

9.Much reliance has been placed by counsel for PCI and the Individual Defendants on the recent English decisions in Desquenne et Giral UK Ltd v. Richardson and Picnic at Ascot v. Kalus Derigs. However, the English Civil Procedure Rules do not apply in Hong Kong and there is no rule of law in Hong Kong that a plaintiff may only get his interlocutory costs if he also succeeds at trial. Mr Scott SC also argues on the authority of TKI Ltd v. New Happy Ltd that good reasons are required to justify a departure from the usual order. In my view, existence of good reasons is one particular facet of fairness or unfairness to be considered. I have certainly taken that as well as the rationale of the English Court of Appeal in Desquenne into account when making my costs order nisi.

The peculiar background in this case:

10.This case is of particular importance to PCI. The interlocutory relief sought has serious impact on its business and reputation. AXA claim their damages are in the region of $500 million. PCI's and the Individual Defendants' would be no less, if not more in view of the large number of defendants being continuously added onto the list of defendants. PCI launched a policy matching scheme ("PMS") targeted at AXA's policyholders and recruited ex-AXA agents by paying them hefty welcoming bonus so much that it announced a profits warning. In view of the massive discovery involved, it is not likely that the trial will come up within a year or two. If these agents recruited are restrained during the period pending trial, not only that PCI's investment in these agents will be lost, it suffers enormous loss in business and reputation as well. It is therefore understandable that PCI would wish to resist the application and put in all the ammunition it has now rather than later. Indeed in its holding company's annual report for 2000, the company said the group will contest the action vigorously.

11.The affidavits filed on behalf of AXA and the law, i.e. the threshold required by American Cyanamid are all in favour of AXA. It is well settled that it is no part of the courts' function at this stage of the litigation to try to resolve conflicts of evidence on affidavits as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature consideration: per Lord Diplock in American Cyanamid [1975] AC 396 at 407. Brown LJ held in Alfred Dunhill Ltd v. Sunoptic S.A. [1979] FSR 337 at 373 that it is irrelevant whether the court thinks that the plaintiff's chances of success in establishing liability are 90 percent or 20 percent. But this does not mean the defendant may not resist the application on the strength of his case and the weakness of his opponent's. Thus when holding that the plaintiff's prospects of success are not to be weighed against his prospects of failure, Megarry VC held in Mothercare Ltd v. Robson Books Ltd [1979] FSR 466 at 474 that "Odds against success no longer defeat the plaintiff, unless they are so strong that the plaintiff can have no expectation of success, but only a hope". It is therefore open to the defendant to challenge the plaintiff's case as having no expectation but only a hope of success. For that purpose, they may raise all issues to show that AXA have no expectation of success. In view of the severity of the injunction if granted, they may put into the weighing pan the strength of their defence and the weakness of AXA's case as well as the balance of risk of injustice in granting the injunction. Apparently, this was what PCI and the Individual Defendants were attempting to do in this case. While I consider the Defendants were entitled to take that unusual course, they will face the consequence of costs for travelling outside the American Cyanamid framework should they fail.

Reasons for the costs order:

12.AXA's basis of claim against the Individual Defendants are their breach of implied duty of fidelity in wrongfully removing confidential information belonging to AXA during the currency of their agency with AXA for use after the termination of their agency and to AXA's detriment. Against PCI, AXA's course of action is based on breach of confidence in that PCI received confidential information from the Individual Defendants with knowledge of their breach of duty of fidelity and intending to use or disclose the information without AXA's permission; and unlawful interference with AXA's business through the wrongful use of confidential information and misrepresentation made by PCI's own agents in marketing the PMS targeted at AXA's policyholders.

13.As can be seen from my Decision of 24 July 2001, the Defendants argued on every possible issue: whether the information contained in SAMS belonged to the Plaintiff, whether agents may use information obtained from alternative sources, whether the information are trade secret or confidential information equivalent to trade secrets. PCI went even further. It argued whether the information was imparted to PCI in circumstances importing an obligation of confidence and whether PCI had been dishonest. PCI challenged each and every element constituting the unlawful means for the purpose of the tort of unlawful interference. In the ultimate balancing exercise, the Defendants put in the weighing pan everything they could, including the strength of their case and weakness of AXA's, appropriateness of the injunction against PCI as a third party, delay, status quo, utility of the Client Data after the lapse of time and clean hands. As for the relief, PCI and the Individual Defendants argued on the term of the injunction, whether the relief to be granted should be a springboard relief and the width of the order. Some of these issues were arguable but others did not have even a flimsy chance of success. The width and depth counsel took in their arguments are remarkable. In the end, all these issues were resolved in favour of AXA for the purpose of the interlocutory application. Mr Kotewall SC refers to the conclusion I reached in my Decision about these issues. I do not find it necessary to refer to them here. They are clearly set out in my Decision.

14.Mr Scott SC refers to various passages in my Decision in which I refrained expressly from giving a conclusive view of the fact and of the law. He therefore submits that the interlocutory injunction was granted on a balance of convenience in order to hold the ring until the dispute between the parties could properly be decided at trial and costs should be reserved to the trial judge after investigation into the merit of the case. I think almost all interlocutory injunctions involve balancing exercise and it is not the function of the court hearing such matter to try to resolve conflicts of evidence on affidavits as to facts nor to decide difficult questions of law. While it would have been wrong for me to make definitive finding of fact on the basis of the affirmations and to decide on the law, that does not mean the materials before me could not enable me to form a view as to where the merit lies in so far as interlocutory costs are concerned. The Defendants put everything in issue. Counsel compared and contrasted affirmations filed by the other side. They addressed me fully on the law. In effect, they tried to put everything in the weighing balance, including the strength of their case and the weakness of AXA's. Though my finding of fact was provisional, the questions of law were very thoroughly argued, and having heard counsel's submission during those 23 days, I am able to say with some conviction what the facts were likely to be and what the legal consequences were on those facts as to enable me to determine the question of interlocutory costs.

15.For reasons as given in my Decision of 24 July 2001, I dismissed the arguments of the Defendants. While I consider it is open to a defendant to resist an application for interlocutory injunction by showing that the plaintiff has no expectation of success and while in the particular position of the Defendants, I consider it understandable for them to take that course; they must run the risk that at the end of the day, they may fail nevertheless and in which event the court may find the course they took unreasonable. This is precisely the position the Defendants now find themselves in. I have found the Defendants' arguments flawed and erroneous. In the light of the American Cyanamid principle, the Defendants' pursuit of all the issues is unreasonable. The Defendants' arguments took up substantial time. AXA's opening took six and half days, while PCI and the Individual Defendants took seven and half days and five and a half days respectively in their response. AXA took another three days in reply. In the light of the American Cyanamid principle, if the Defendants sought to take the course they took and failed, I have to find their conduct of the defence unreasonable and that they have unjustifiably prolonged the proceedings. Unnecessary costs have been incurred. Regardless of the outcome at trial, these unnecessary costs should never have been incurred had the Defendants confined their defence within the American Cyanmid framework. It is unfair that AXA could recover these unnecessary costs only if they are successful at trial.

16.I am also able to conclude that the balance of convenience in this case is so clear and the outcome of the hearing of the interlocutory application is so plain to the parties, that an order should be made against the Defendants for wasting time and money in contesting the application. Had the Defendants confined their defence within the American Cyanamid framework, the grant of injunction would have been for the purpose of holding the ring, in which event, cost in the cause would be appropriate. But as the Defendants have traversed outside that framework of convenience and put everything in issue, then they would have to bear the consequence of costs. The course taken by the Defendant was unusual and, as it turned out, unjustified. In the circumstances, I consider the costs order sought by AXA inappropriate. In the circumstances, it is appropriate that the Defendants shall pay the Plaintiffs' costs irrespective of the outcome at trial.

17.Mr Scott SC and Mr Ho SC argue that this is not a case where the costs should be taxed and made payable forthwith. Mr Kotewall SC argues to the contrary. It is my usual practice to make express order for immediate taxation, if immediate taxation is intended. It was not my intention to order immediate taxation in the present case, nor do I see any need or justification to do so. For the avoidance of doubt, I would amend my costs order by adding the words "in any event".

Conclusion:

18.Accordingly, I affirm my costs order made on 24 July 2001 to the effect that the Defendants shall pay the Plaintiffs' costs with certificate for three counsel in any event, to be taxed, if not agreed.

19.As I have affirmed my costs order nisi, hence, I also make an order that the Defendants shall pay the Plaintiffs' costs of this hearing with certificate for two counsel in any event, to be taxed, if not agreed.

Representation:

Mr Robert Kotewall, SC leading Mr Stewart Wong, instructed by Messrs Herbert Smith, for the Plaintiffs

Mr John Scott, SC leading Mr David Stokes, instructed by Messrs Richards Butler, for the 1st Defendant

Mr Ambrose Ho, SC leading Mr M C Law, instructed by Messrs Hoosenally & Neo, for the 2nd to 10th Defendants