Bank of China (Hong Kong) Ltd v. Twin Profit Ltd and Others

CACV 94/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 94 OF 2010

(on appeal from HCMP 874/2009)

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BETWEEN

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Before: Hon Yuen JA, Hon Stone and Sakhrani JJ in Court

Dates of written submission: 24 and 25 February 2011

Date of decision on scale of costs: 18 March 2011

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DECISION ON SCALE OF COSTS

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Hon Yuen JA:

1.On 10 February 2011 this court gave judgment dismissing the Defendants’ appeal with an order nisi for costs in favour of the Plaintiff. The parties were invited to make short written submissions within 14 days on the issue of the appropriate scale for taxation. Both the Plaintiff and Defendants have since provided written submissions together with the relevant authorities.

2.Having considered the submissions and authorities, I am of the view that the costs should be taxed on an indemnity basis.  My reasons appear below.

3.First, the Defendants have in the mortgage documents expressly agreed to pay or reimburse the bank the costs and expenses incurred in connection with the enforcement of the securities on a full indemnity basis.  This is not challenged by the Defendants. 

4.Indeed, even if there had not been an express agreement, there would be an implied agreement arising from the particular relationship between mortgagee and mortgagor whereby the mortgagee has a right to costs, reasonably and properly incurred, of proceedings between himself and the mortgagor and its sureties for the enforcement of its security (Fisher and Lightwood’s Law of Mortgage para. 55.1)   

5.In Gomba Holdings (UK) Ltd v Minories Finance Ltd [1993] Ch 171 Scott LJ held, after noting the court’s full discretion over litigation costs in proceedings between mortgagor and mortgagee (at 182A-B), that similar language in a mortgage giving the mortgagee full indemnity costs entitled the mortgagee “to be paid or to retain out of the mortgaged property all their actual costs, charges and expenses ... except in so far they are of an unreasonable amount or have been unreasonably incurred and with any doubts as to whether the costs have been reasonably incurred or are unreasonable in amount being resolved in favour of the [mortgagee]” (187 A-C).  If however the mortgage deed went so far as to provide that even charges of an unreasonable amount or charges unreasonably incurred would have to be paid by the mortgagor, then the court may interfere on public policy grounds (188A).   

6.The Gomba approach was followed by this court (Litton VP, Godfrey and Ching JJA) in Chekiang First Bank v Fong Siu Kin [1997] 2 HKC 302. The court again noted its unfettered jurisdiction as to costs, but held that “where parties have contractually provided for the basis upon which costs are to be quantified, the court would in the normal course of events give effect to that” (309 E-H).

7.A previous decision of this court is binding on us unless we are persuaded that it was “plainly wrong”.  I am not persuaded that Chekiang First Bank was plainly wrong.  Where parties have entered into a commercial transaction on a certain basis, the court should be slow to disturb the parties’ agreement, unless the circumstances are such as to cause the court in the exercise of its discretion to intervene.  For instance, the court may well consider intervention in the situation referred to in Gomba where the mortgagor is required to pay charges of an unreasonable amount or charges unreasonably incurred, but it is not suggested by the Defendants that that would be the case here.

8.Accordingly I would order that the Defendants pay the Plaintiff’s costs on an indemnity basis in accordance with the mortgage documents.

Hon Stone J:

9.I have had the advantage of reading in draft the decision of Yuen JA, and the concurrence therewith of Sakhrani J.

10.I am in the unfortunate position of disagreeing with the majority.

11.On the issue of indemnity costs in a situation wherein one party had made contractual stipulation therefor, I respectfully repeat the views expressed in the Commercial Court’s ‘Decision on Costs’ dated 6 July 2010 in Standard Chartered Bank (Hong Kong) Ltd v Sweetmart Garment Works Ltd & ors, unrep., HCA 1807 of 2005, and in the same case in the subsequent ‘Decision on Application for Leave to Appeal against Costs’ (wherein leave so to appeal was granted) as handed down on 11 August 2010.

12.It is clear from these decisions that when sitting at first instance I had declined to follow the English Court of Appeal in Gomba Holdings (UK) Ltd & ors v Minories Finance Ltd & ors (No 2), [1993] Ch 171, and further, that also I had taken the view – vide paragraph 26 of my Decision on Costs dated 6 July 2010 – that as a matter of strict precedent the Court of First Instance was not bound by direct Hong Kong appellate authority notwithstanding observations on the matter by their Lordships in the Hong Kong Court of Appeal in Chekiang First Bank v Fong Siu Kin [1997] 2 HKC 302.

13.I perceive no need to reiterate in detail the contrary opinion expressed on the point in these earlier Costs’ Decisions. 

14.Suffice to say that I remain of the view – vide paragraphs 30 ‑ 32 of the ‘Decision on Costs’ dated 6 July 2010 in Sweetmart, op cit. – to the effect that:

“…any attempt by commercial law draftsmen to trespass upon the court’s domain and to purport to create a contractually binding obligation as to costs, and to the level therefor, should not be accorded the judicial time of day. Litigation costs are the business of the court dealing with that litigation and of that court alone, and for my part I am of the view that whatever the contract wishes to assert or purport to provide on the issue of costs is nothing to the point.

Nor do I consider that this ineluctable principle is ameliorated by on the one hand acknowledging the wholly unfettered discretion of the courts in matters of costs, yet on the other giving effect to a so-called ‘contractual right’ to indemnity costs by visiting upon the unfortunate signatory to such oppressive clause the burden to demonstrate why this extreme level of costs should not be awarded against him.

As I have ventured respectfully to suggest, the very fact of the purported reversal of the burden of establishing that costs should not be awarded consequent upon such anomalously termed ‘contractual right’ (which in truth is no right at all) seems to me to fly in the face of the jealously-guarded judicial discretion with regard to all aspects of litigation costs…”

15.Clearly however, the majority decision in the present case represents an unequivocal Hong Kong Court of Appeal decision on the point, and equally clearly the view which I take on the matter has not prevailed.

16.I readily acknowledge the depth and consistency of contrary view by eminent senior appellate judges both in England and Hong Kong, and with the greatest respect I am driven to conclude that the views of the majority in this case, together with the earlier observations of the Hong Kong appellate court, and the views of the English Court of Appeal in Gomba Holdings, op cit., represent an approach with which I am wholly unable to agree.

17.I say this with all due diffidence, but in this matter I remain, if I may say so, unreconstructed.

18.I appreciate that in normal course when it comes to contractual provisions which often occupy the attention of the court – such as, for example, consideration of contractual foreign jurisdiction clauses, wherein the parties expressly have agreed the relevant forum for the resolution of their dispute – the court takes the view that the agreement on the issue is to hold (‘pacta sunt servanda’) unless the objecting party can satisfy the burden of demonstrating why this should not be the case.

19.For my part, however, I fail to appreciate why this principle should be applied to the wholly discrete issue of the costs of the litigation, which always has been within the exclusive purview of the court hearing the dispute, and why the efforts of a commercial draftsman – who naturally has been tasked to produce the most commercially advantageous agreement for his institution, and, by the same token, the most commercially disadvantageous agreement for the contractual counterparty (of which the situation in Sweetmart, op cit., is a classic example) ‑ should have any bearing whatever in terms of the award of costs, even in the relatively oblique terms of placing the burden upon the counterparty to justify departure from what has become the normal (and in my view pernicious) ‘indemnity costs clause’ within the particular agreement which then is sought to be enforced by the court.

20.In so far as this point relates to the exercise of judicial discretion as to the award of costs, it seems to me that this involves a matter of fundamental principle wherein the courts should assert their traditional primacy and have no truck with being ‘steered’ in an indemnity costs’ direction by commercial institutions who specialize in imposing ‘commercial boilerplate’ in terms wholly adverse to their clients (who in the vast majority of instances have no choice but to accept that which, as in Sweetmart, op cit., they are required to sign as part of the ‘price’, for example, of obtaining a mortgage).

21.It strikes me, with great respect, that in the fullness of time this particular issue is a matter deserving of the consideration of the Court of Final Appeal.

Hon Sakhrani J:

22.I agree with the Order proposed by the Hon Yuen JA for the reasons she has given.  I have nothing to add.

Hon Yuen JA:

23.There will accordingly be an Order in terms of paragraph 8 above.

Representation (written argument only):

Mr Mike Lui, instructed by Messrs Li & Partners, for the respondent/ plaintiff

Mr Jeremy SK Chan, instructed by Messrs Mayer Brown JSM, for the appellants/1^st to 7^th defendants

Please refer to FAMV4/2012 for the relevant appeal(s) to the Court of Final Appeal.