Akai Holdings Ltd (in Liquidation) v. Thanakharn Kasikorn Thai Chamkat (Mahachon)

HCCL 59/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 59 OF 2004

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BETWEEN

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Before : Hon Stone J in Chambers (open to public)

Date of Hearing : 9 July 2008

Date of Judgment : 31 July 2008

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JUDGMENT  UPON  PLAINTIFF'S
APPLICATION  TO  VARY  COSTS
ORDER  NISI

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The application

1.This is an application by the plaintiff herein, now in liquidation, for variation of the order nisi as to costs made by the court in its Judgment in this action dated 26 May 2008.

2.In that Judgment, which speaks for itself, the plaintiff’s claim against the defendant, otherwise known as Thai Farmers’ Bank, was dismissed.

3.As a result, at paragraph 570 thereof, the court made an order upon a nisi basis that the costs of the plaintiff’s action, and of the defendant’s counterclaim, be to the defendant, such costs to be taxed if not agreed, and that such order was to become absolute unless application be made so to vary within 42 days of the date of that judgment.

4.Application duly having been made, this is the judgment consequent upon the hearing of such application.

The ambit of the argument

5.Argument on both sides was assisted by comprehensive written skeleton arguments which have been of considerable assistance, and I mean no discourtesy to counsel if I allude only to the thrust of the detailed submissions mounted on each side.

6.For the plaintiff Mr Kosmin QC, who led for the plaintiff at the trial of this action, submitted that the order nisi as made did not do justice to his client.

7.He rehearsed the fundamental principles as laid down by the English Court of Appeal in Re Elgindata Ltd [1992] 1 WLR 1207, at 1214, and as applied by the Hong Kong Court of Appeal in Wang Din Shin v. Nina Kung, CACV 67 of 2003, unrep., judgment dated 19 April 2005, at para 39, and emphasized that, notwithstanding the general rule that failed issues raised or failed allegations made do not necessarily mean that costs should not follow the event, nevertheless where the successful party had raised issues which, in the terminology of the Hong Kong rules, were raised ‘improperly or unnecessarily’, it was open to the court in the exercise of its discretion not only to deprive the successful party of costs but to order payment of part of the unsuccessful party’s costs.

8.He suggested that the modern approach was exemplified by the speech of Lord Woolf MR in AEI Rediffusion Music Ltd v. Phonographic Performance Ltd [1999] 1 WLR 1507 – a case decided shortly before the coming into force of the new English civil procedure rules wherein his Lordship was discussing the merit of the ‘follow the event principle’, and in which he suggested that the change of philosophy exemplified by the new Rules already had begun to permeate judicial practice; at 1522H-1523B the Lord Woolf observed:

“I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate a wide range of considerations which will result in the court making different orders as to costs.  From 26 April 1999 [the date of the coming into force of the new Civil Procedure Rules 1998] the ‘follow the event’ principle will still play a significant role, but it will be a starting point from which a court can readily depart.  This is also the position prior to the new Rules coming into force.  The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues.  In doing this the new Rules are reflecting a change of practice which has already started.  It is now clear that too robust an application of the ‘follow the event principle’ encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take.  If you recover all your costs as long as you win, you are encourage to leave no stone unturned in your effort to do so…” (emphasis added)

Later in the same judgment, after reciting the ‘Elgindata principles’ as set out by Nourse LJ in that case, op cit., at 1214, his Lordship further commented, at 1523F:

“The ‘well established practice’ on which Nourse LJ based his third principle is, as I have already indicated, less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly [the English equivalent of the Hong Kong ‘improperly or unnecessary’] to be deprived of his costs of a particular issue on which he has failed.”

9.It was with these observations in mind that Mr Kosmin developed his argument.

10.He submitted that there was one discrete main issue, and four collateral issues which should be considered which plainly justified a variation in the existing costs’ order nisi, and which at the least fell within the rubric of ‘unnecessary’, and thus were susceptible to different costs’ treatment.

11.These were:

(i)      The issue of expert evidence as to Thai law and practice encapsulated in the phrase ‘the Thai law defence’;

(ii)      The other issues:

(a)      the issue of breach of fiduciary duty on the part of Mr Ting;

(b)     the ‘actual authority’ issue: did Mr Ting have such authority?

(c)     The defences of change of position and election;

(d)     Waste of trial time due to the plaintiff calling Mr Pakorn Partanapat.

12.In short, Mr Kosmin’s position was that a positive order as to the costs of and occasioned by the calling of expert evidence on Thai law should be granted in favour of the plaintiff, and that with regard to the other issues there should be a reduction in the costs as presently ordered in favour of the defendant to take account of the time taken to prepare and to try the issues upon which the defendant had failed, and failed clearly.

13.As to quantification, Mr Kosmin thus suggested that a proper and reasoned approach to costs, in light of and in line with accepted principles, should result not only in a positive order in favour of his client in terms of the costs associated with the Thai ‘choice of law’ issue, but also should attract a deprivation to TFB of 40% of the costs of the action and if the counterclaim “to reflect the parties’ respective success on the issues in the action”; in other words, that TFB should be awarded 60% of the costs of the action and of the counterclaim, to be taxed if not agreed.

14.There was no reason, he said, why TFB should be awarded costs occasioned by the issues on which it failed, and this course would be to accord with, as he put it, “the modern approach to discourage the parties from increasing the costs of the action and of narrowing the issues to those at the heart of the case”, not least since this was a case wherein the court was able conveniently to differentiate between the time used in resolving the successful issues and the other issues.

15.On behalf of the defendant, TFB, Mr Eugene Fung, who attended as counsel at trial as junior to Mr Snowden QC, firmly opposed any application for the variation as now sought.

16.He submitted that the summons to vary the order nisi should be dismissed with costs, and that the existing costs order nisi be made absolute.

17.Mr Fung referred to the judgment of Nourse LJ in Re Elgindata Ltd (No 2), op cit., and noted that these principles had been applied in Hong Kong by the Commercial Court in Rabobank, Hong Kong Branch v. Bank of China, HCCL 56 of 2001, judgment dated 23 July 2004, by the Court of Appeal in La Chemise Lacoste SA v. Crocodile Garments Ltd [2000] 4 HKC 317, and by the Court of Final Appeal in CIR v. Tai Hing Cotton Mill (Development) Ltd, FACV 2 of 2007, judgment dated 13 March 2008.

18.Mr Fung stressed that the ‘event’ in the present case was the dismissal of the plaintiff’s claim against the defendant, and that unless the plaintiff was able to establish ‘exceptional circumstances’ justifying departure from the normal rule, the defendant should have all of its costs, as indeed had been recognized by the nisi costs’ order as made by the court in its judgment.

19.He emphasized that the party seeking to displace the general rule as to costs following the event bore the burden of demonstrating the circumstances justifying the exceptional course of such displacement: see Mariner International Hotels Ltd et al v. Atlas Ltd et al (2007) 10 HKCFAR 246 (per Bokhary J at para 19), and further that in relation to Elgindata principle (iii) – that is, deprivation of costs in relation to an issue which has caused a significant increase in the length of the proceedings – that such a course should only be contemplated if it was possible to isolate the issue as being ‘unnecessary’ in the sense of having no bearing on the real questions in the action: see Elgindata, op cit., at 1218E.

20.Mr Fung further submitted that the jurisdiction to make a positive costs order against a successful party – Elgindata op cit., principle (iv) – was a course to be exercised only in very rare cases where a party has acted, in the words of Order 62, rule 7, ‘improperly or unnecessarily’, and that this requirement was not met simply by an allegation that, as things had turned out, an issue was unnecessary for the court’s resolution of the case; in other words, that in this exercise it should not be the perfect vision accorded by hindsight which should inform the exercise.

21.At bottom, Mr Fung’s argument was that in none of the categories isolated by Mr Kosmin had the relevant benchmarks been met.

22.As to the Thai law issue, he submitted that this was a substantive issue and not a defence, and this court had granted leave to adduce expert evidence on the point.  In fact, he said, after reviewing the history of the direction permitting the use of expert evidence as to Thai law, and the sequence of pre-trial draft reports, during the pre-trial hearings the plaintiff never once had put forward any suggestion (as it now has, having lost the case) that the defendant’s reliance on Thai law and banking practice was improper or unnecessary; accordingly a positive order as to costs against his client should not be in the frame, he contended, and notwithstanding the court’s judgment on the issue it could not validly be said that the choice of law issue had been raised ‘unnecessarily’.

23.As to the other issues, which it was suggested when taken cumulatively should amount to a deprivation to TFB of 40% of the remaining costs of the action, Mr Fung submitted that this submission was ill-founded, and that the discretion to deprive a successful party of part of its costs in respect of an issue upon which that party has lost if that issue was one of the facets of the central issue or event which called for determination was not a discretion which was, or should be, exercised, citing in this regard the observations of Lord Carswell in Seepersad v. Persad [2004] UKPC 19, at para 24.

24.Accordingly, Mr Fung’s submission continued, if and in so far as this approach was correct, then it followed that argument as mounted by Mr Kosmin as to the issue of Mr Ting’s breach of fiduciary duty, the issue of Mr Ting’s actual authority, and the issue of election and change of position was nothing to the point, in that these matters arose directly in the factual matrix with which the court was required to grapple; whilst as to the complaint about the time taken by Mr Pakorn’s evidence, his client had received a letter from the plaintiff during the trial requesting that certain senior bank officers be called, including Mr Pakorn (at the material time Mr Aneaknithi’s supervisor), who duly was proffered for cross-examination.

Decision upon the variation application

25.It may assist at the outset simply to make a broad point of general application to costs’ arguments of this nature. 

26.For my own part I am able to identify no predisposition in the Hong Kong courts similar to that to which Lord Woolf made reference in AEI Rediffusion Music Ltd, op cit., that is, to a movement away from the Elgindata approach towards a situation wherein, as Lord Woolf expressed it, even prior to the fundamental changes in English civil procedure there had been a change of emphasis abroad requiring the courts to be more ready to make separate orders reflective of the outcome of different issues, and that the new Civil Procedure Rules simply had accentuated this pre-existing tendency.

27.I do not consider this to be the case in Hong Kong. 

28.Certainly so far as the Commercial Court is concerned, it is recognised that commercial disputes often are complex and involve interwoven strands of fact and law; thus, unless discrete points safely can be isolated and can be shown to have lead to a wastage of time and costs, both at trial and during the interlocutory process, the practice of this court is not to engage in any “filleting” of cases according to the success or failure of the disparate issues which, when taken cumulatively, constitute the dispute to be judged.

29.In this contest the court’s attention has been drawn by Mr Fung to passages in Rabobank, Hong Kong Branch v. Bank of China, op cit., wherein this court variously observed, at paras 13, 16 and 17 respectively:

“…as a matter of general approach to the issue of trial costs the occasions which justify the ‘filleting’ of costs according to the success or failure of any specific issue arising for decision within the composite whole are likely to be relatively few and far between, and in all probability are readily recognizable as meriting such treatment…

…Thus, in the instant case the defendant bank may indeed have failed on the ‘discrepancy’ and ‘notice of rejection’ issues, but the arguments put up by the defendant in this context demonstrably were not bad points.  To the contrary, within the factual matrix thrown up by this case they were entirely respectable arguments which in the result failed, but this is a far cry from saying that they should not have been run at all…

…it cannot be, and indeed is not the case, that lack of success in any specific argument of itself attracts a costs sanction. 

Within a trial of a commercial dispute inevitably there are disparate and often interwoven strands, and unless the court is satisfied that time and effort manifestly has been wasted in terms of any particular argument I discern no basis for revisiting these issues from a purely costs’ standpoint…”

30.I take this opportunity to observe that notwithstanding Mr Kosmin’s submissions that the more appropriate approach is along the lines of that adumbrated by Lord Woolf in AEI Rediffusion, op cit., the foregoing extracts from this earlier judgment represent the continuing views of this court.

31.Accordingly, it seems to me that save and except for Mr Kosmin’s submissions regarding the Thai law point, and the costs attributable to the evidence of Mr Pakorn, the other matters upon which Mr Kosmin relied fall squarely within the area of points which, when viewed from the standpoint of this defendant bank, it was not improper/unreasonable/unnecessary to ventilate, notwithstanding that when push came to shove the issues in question were lost, and in my view deservedly so – although that is not to say that the court now takes the view that they should not have been taken within the context of this particular case.

32.It follows, therefore, that I am against the plaintiff’s submissions upon every matter raised in Mr Kosmin’s costs’ variation argument save for the two discrete matters which I have mentioned.

33.Taking first the evidence of Mr Pakorn, I note that in the judgment this court records (at paragraph 171) that Mr Pakorn clearly had little or no memory of the events the subject of the case, and that in the circumstances it was difficult to avoid the conclusion that his attendance bore the hallmark of a belated ‘cosmetic’ appearance in the face of frequent allegations by the plaintiff during the course of the trial that senior Bank officials were not being called.

34.I hope that this judicial characterisation was not unfair, but that was how it struck me at the time, and reflection has not served to alter this view.

35.In this connection, I bear in mind that Mr Pakorn’s name indeed was on the list of a number of senior Bank officials whom the plaintiff wished the defendant to put into the witness box, and thus it may seem a bit rich if, having called this particular gentlemen, that the defendant now should be placed on risk as to these costs.

36.I see the attraction of this argument, but I am not sympathetic, not least because it must have been abundantly obvious to the defendant’s solicitors at the time of exploring his potential appearance with Mr Pakorn that he knew and/or could recollect nothing whatever of any substance; indeed, this fact became startlingly apparent to all in court quite shortly after Mr Pakorn had begun to give evidence.

37.In the circumstances, therefore, I am minded to disallow to the successful defendant the costs arising from and incidental to the evidence of Mr Pakorn at this trial.

38.Mr Kosmin put this at 1 day of court time, (which I have identified, from my record, to be Wednesday 5 March 2008), and although Mr Fung opposed any dimunition in principle, I do not think he demurred as to the quantification of the time occupied at trial by Mr Pakorn’s evidence.

39.I do not know if any claim is to be made on taxation for the expenses of Mr Pakorn’s visit to Hong Kong, but if this is the case it follows that such expenses also would be disallowed.

40.This then leaves the particularly thorny question of ‘the Thai law issue’.

41.I have reflected upon this at some length, and confess that I have been in two minds between on the one hand ordering that the defendant is to be deprived of the costs of and occasioned by the trial of this issue, and on the other going a step further and making a positive order for costs in favour of the unsuccessful plaintiff and against the successful defendant.

42.Ultimately I have come to the view that ‘the Thai law issue’, which, as matters ultimately transpired, was placed far from the forefront of Mr Snowden’s final submission, represented an wholly discrete issue which it was unnecessary to have raised, that as an issue its failure cannot have caused any surprise, and that as a consequence this should attract a positive order as to costs, in favour of the plaintiff and against the defendant, under the principle in Elgindata (iv).

43.I have not come to this conclusion lightly and without reflection.  Nevertheless it seems to me that Mr Kosmin is correct when he submits that there never was anything in this point, and that it was an wholly unnecessary addition to and encumbrance upon this case; not only should it not have been taken, particularly so since TFB expressly accepted that the issue of the authority of Mr Ting in entering into the Share Pledge Agreement, which was part of the Akai Credit Facility, was a matter to be determined by Hong Kong law, but the manner of its taking also was wholly deficient given the unfortunate performance in the witness box of the charming defence ‘expert’ who purported to educate the court upon the vagaries of Thai banking law and practice.

44.Nor do I consider in this context that Mr Fung can derive much comfort from the fact that, as indeed was the case, the court ultimately permitted expert evidence upon Thai law to be adduced.  My recollection is that at the time this interlocutory decision caused a real degree of judicial hesitation, not least because it then was less than clear as to how or why such evidence would assist resolution of the issues to be decided; introduction of this evidence eventually was permitted because – as must inevitably be the situation in complex and detailed cases such as this – at the interlocutory stage the parties must be regarded as knowing and appreciating the niceties of their case far better than the bench, and thus as a matter of practical case management, unless it is abundantly clear on its face that expert evidence would be of no assistance and should not be adduced, the preferred course is to allow it in and thereafter to evaluate the issue within the context of the case as tried – hence the view expressed in the judgment, culminating in the conclusions set out at paragraphs 437-441 thereof.

45.In the circumstances, therefore, I consider there is resonance in the plaintiff’s argument that this issue in fact represented a not-inconsiderable investment for the plaintiff liquidator in terms of time and cost in endeavouring to meet the Thai law/choice of law argument, that it involved the generation of a significant amount of paper in the form of expert reports, and that it took two full days to deal with the issue in court – albeit in this context I do not intend to make any attribution as to costs of the one reading day which was set aside to consider these reports.

46.After considering all the circumstances, therefore, and after the benefit of argument on the point, I am driven to the conclusion that, in the exercise of my discretion, this issue should attract the relatively rare order of a defendant successful upon the general issue being ordered to pay the costs of an unsuccessful plaintiff upon a discrete, and in my view wholly unnecessary, sub-issue.

Order 

47.It follows from the foregoing that the application to vary the costs’ order nisi has succeeded, at least in part.

48.Accordingly, the revised order as to costs of this case is to read thus:

Save that (i)  there is to be no order as to the costs of and incidental to the calling of Mr Pakorn Partanapat on Wednesday 5 March 2008; and (ii) the costs of and incidental to the issue of Thai law and the calling of expert evidence (including 2 court days) are to be paid by the defendant to the plaintiff, such costs to be taxed if not agreed,

the costs of and occasioned by this action, and of the defendant’s counterclaim, be to the defendant, such costs to be taxed if not agreed.

49.This, then, leaves extant the issue of the costs of this application to argue about costs order nisi.

50.As to this, I decline to be so bold as to venture another order nisi, and in lieu thereof invite the parties to submit written representations (not exceeding 2 pages) on this matter, upon the basis of which the court will make a final costs’ order.

Mr Leslie Kosmin QC, leading Ms Linda Chan, instructed by Messrs Lovells, for the plaintiff/applicant

Mr Eugene Fung, instructed by Messrs Baker & McKenzie, for the defendant/respondent