廈門新景地集團有限公司 Formerly Known As 廈門市鑫新景地房地產有限公司 v. Eton Properties Ltd and Others

HCCL13/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 13 OF 2011

(TRANSFERRED FROM HCA NO 961 OF 2008)

--------------------

Before: Deputy High Court Judge Stone QC in Chambers (Open to Public)

Date of Hearing: 26 October 2012

Date of Judgment : 20 November 2012

------------------------------------------------

JUDGMENT ON APPLICATION TO VARY
ORDERS NISI AS TO COSTS

-------------------------------------------------

The background

1.On 14 June 2012 this court handed down its judgment in this action.

2.The result was that the plaintiff’s case against all 11 defendants was dismissed for the reasons given in that judgment.

3.Paragraph 395 thereof ventured an order nisi that costs were to follow the event, such costs, to be taxed if not agreed, to be paid by the plaintiff to the defendants.

4.By oversight the order nisi as originally drawn did not certify the case as fit for two counsel.  In the circumstances of this case such certification was a given, the court’s view on the point having been communicated to the parties by letter well before the hearing the subject of this judgment, with the consequence that this aspect was not pursued further.

5.However, there remained three matters relating to costs, and variation of the order nisi, which have been ventilated at this hearing.

6.These issues were:

(a)  Should the unsuccessful plaintiff be required to pay only one (1) set of legal costs or the four (4) sets of costs incurred on behalf of the separate ‘tranches’ of defendants?

(b)  Did the case warrant a certificate for 3 counsel?

(c)  What should be the order regarding certain interlocutory reserved costs’ orders?

(a) How many sets of costs should the unsuccessful plaintiff be ordered to pay?

Scope of argument

7.Representation at trial was thus:

(a)  The plaintiff was represented by senior counsel, Mr Barlow, and by 3 junior counsel, Mr Tsang, Mr Wong and Mr Siu.

(b)  The representation of the defendants broke down into four separate blocs, viz:

The 1^st and 2^nd defendants were represented by Mr Yu SC, together with Mr Chan Chi Hung SC and Mr Richard Khaw; the 3^rd to 5^th defendants were represented by Mr Shieh SC, assisted by Ms Elizabeth Cheung; the 6^th defendant was represented by Mr Tong SC, together with Ms Kate Poon; and finally the 7^th to 11^th defendants were represented by Mr Warren Chan SC, appearing with Mr Law.

8.Mr Barlow SC, who also appears on this application, took the position that whilst he did not cavil at the defendants’ right to choose to be represented by counsel of their choice, nevertheless his client, the unsuccessful plaintiff, should not be required to pay the bill for 4 separate teams of lawyers, and therefore that the costs’ order nisi should be varied to an order that provided that the plaintiff do pay each of the 4 tranches of defendants one quarter (25%) of their costs of the action, such costs to be taxed if not agreed.

9.He argued that the circumstances of this case did not warrant such fragmentation of representation, and that the interests of the 11 defendants could as easily have been dealt with by representation by a unified team of counsel, consisting of a leader and a junior or juniors, together with a single instructing solicitor.

10.Mr Barlow suggested that the fact that the plaintiff had chosen to sue 11 related defendants did not “necessitate” 4 teams of lawyers, and drew the attention of the court to the words of Lindley MR in Bagshaw v Pimm [1900] P 148 at 151 that “it does not at all follow that the Court would allow the costs of appearing separately, however many defendants there might be…”; whilst more recently the English Court of Appeal in SEB Trygg Liv Holding Aktiebolag v Manches and others, [2005] EWCA 1237 had reaffirmed the proposition that “Whilst [P&J] had the right to separate representation that did not mean that, if successful, it would necessarily be entirely at [AMB’s] expense.”

11.Nor, he maintained, did the existence of different causes of action against different defendants make any difference, whilst the bare assertion of a possibility of a conflict of interest in itself was insufficient to justify a departure from the relevant principles.

12.The plaintiff’s submission seeking to divide one set of costs between the 4 sets of defendants was firmly opposed by counsel appearing for each set of defendants, each of whom sought to justify as reasonable the retention by their respective clients of a discrete legal team in the highly unusual circumstances of this case, and who thus wished to retain the order nisi that costs were to follow the event absent any reduction/fragmentation.  Mr Shieh SC voiced the common refrain when he argued that in the circumstances of this litigation the “four clusters” of defendants each were well justified in retaining their own teams.

Procedural background

13.In my view the question cannot fairly be decided absent reference to the particular manner in which these proceedings came to involve these 11 defendants – this was not a case in which at the outset a writ was issued by the plaintiff against all 11 defendants.

14.As the substantive judgment records, this case had its provenance in a separate action, HCCT 54/2007, between the plaintiff and the 1^st and 2^nd defendants, wherein the plaintiff successfully had registered the 1^st Arbitral Award handed down in its favour by the CIETAC Arbitral Tribunal convened to hear the dispute between the plaintiff and the 1^st and 2^nd defendants arising from the non‑performance by these defendants of an Agreement entered into with the plaintiff regarding the development of a piece of land in Xiamen, China.

15.However, consequent upon a Court of Appeal hearing on 22 May 2009, nothing further occurred in this first action, which thereafter was left to lie on the court file.

16.The plaintiff then commenced the present action, HCA 961/2008 (later renamed HCCL 13/2011) by a writ dated 27 May 2008, and it is this second action which is the subject of the judgment of this court handed down on 14 June 2012.

17.This writ named not only the 1^st and 2^nd defendants (the defendants to the original action), but 3 additional corporate defendants, namely the 3^rd, 4^th and 5^th defendants, which were associate companies within the ‘Eton Group’.

18.This extension of scope of this second action had as a primary aim the assertion by the plaintiff of proprietary rights over the shares of the 4^th defendant, and further to seek declaratory relief that the 3^rd defendant was holding the 9,999 shares in the 4^th defendant then registered in the name of the 3^rd defendant upon constructive trust for the plaintiff (and likewise that the 2^nd defendant was holding the one outstanding share of the 4^th defendant on constructive trust for the plaintiff).

19.At this stage, therefore, there were 5 corporate defendants to the second action, but this did not remain the position.

20.In the face of a strike out/stay application mounted by the 3^rd, 4^th and 5^th defendants, the plaintiff subsequently sought, and obtained leave to amend in order to add 6 additional individual defendants to the initial 5 corporate defendants, and at the same time added new claims sounding in damages, the plaintiff asserting that the 6^th to 11^th individuals as now joined to the action had been instructive in and/or were privy to the alleged dishonest conduct of the 1^st to 5^th corporate defendants; causes of action in conspiracy to defraud and/or for the tort of inducing breach of contract were added to the litigation mix.

21.The purpose of this ‘thumbnail’ sketch is not to reiterate old ground – this procedural sequence having been described in greater detail in the judgment of 14 June 2012 – but simply to place into appropriate factual context the current argument on the part of the plaintiff that in this action the defendants should have made do with but one set of legal representatives.

22.It must follow from the plaintiff’s argument that the additional 9 defendants which ultimately were added to the original 1^st and 2^nd defendants – which alone had been privy to the Agreement with the plaintiff and which remained the ‘common defendants’ within the CIETAC arbitration and the two Hong Kong actions thus arising consequent upon the 1^st Arbitral Award – simply should have been absorbed into the existing legal team retained to defend the interests of the 1^st and 2^nd defendants.

Relevant principle

23.Mr Barlow was correct in making the broad argument that the courts carefully scrutinize costs’ orders in order to ensure that apparent ‘profligacy’ of representation is not necessarily to be subvented by an unsuccessful plaintiff.  Divers judicial observations readily illustrate that the courts are concerned with weighing, in the exercise of an unfettered discretion, where costs should, or should not, appropriately lie upon resolution of an action.

24.There has been debate between counsel as to the appropriate benchmark to be adopted when considering the issue of the representation of multiple defendants: is it, as Mr Barlow says, one of ‘necessity’ or, as Mr Shieh argues, a matter of ‘reasonableness’?

25.In this regard Mr Barlow drew implicit comfort from the observations of Madam Justice Kwan in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679, wherein her Ladyship observed (at paragraph 100):

“Although the principles in Re Elgindata (No 2) [1992] 1 WLR 1207, 1214A-C continue to apply after the Civil Justice Reform, the approach these days is to regard the proposition that costs should follow the event not as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case (Chan Mei Yiu Paddy v Secretary for Justice, unrep, HCAL 16/2007, para 5, per Saunders J), the rationale being that a mechanistic adoption of follow the event principle may result in the parties incurring unnecessary costs in civil litigation (Wong KamTong v Tin Shing Court, Yuen Long (IO) (No 2) [2012] 2 HKLRD 1128, paras 10‑13).

26.In addition, Mr Barlow relied heavily on the observations of Gloster J in SEB Trygg Liv, op cit, (quoted at para 70 of the appellate report), in the following terms:

“…I am concerned that no attempt seems to have been made to limit the representation of the solicitor defendants at trial to one firm of solicitors and one set of counsel, or, at least, with merely junior counsel, if necessary, representing the separate interests of the three different firms. Although I received assistance by way of submission and otherwise from all three sets of counsel, and although in theory at least, there was a conflict between the three firms by virtue of the different dates at which they had been retained, and the different periods when they had acted, that conflict was more apparent than real; in the event the solicitor defendants presented a united front at trial and no cut‑throat defence was seriously advanced or even advanced at all…”

27.I do not consider the observations of a particular judge in a particular case, and her ruling that the unsuccessful party in that case should pay only 50% of the costs of each of the solicitor defendants to the preliminary issues – a ruling that was upheld on usual principles by the appellate court, which deferred to her Ladyship’s “unique and prodigious grasp of the dynamics of the trial” ‑ is of great assistance in the instant decision this court now has to make on a like issue; all cases are fact‑sensitive, and the present case perhaps represents the high watermark of that proposition.

28.Nor do I necessarily agree with Gloster J if a fair reading of her Ladyship’s observations leads to the conclusion that the issue of ‘necessity’ should be evaluated only after the event.  Litigation is often opaque at the outset, in stark contrast to the position pertaining once a trial has taken place, when any conclusion as to the ‘necessity’ of particular representation has the inestimable benefit of hindsight, which always provides 20/20 vision; to take one of Mr Barlow’s examples, the fact that no cut‑throat defence actually was run in this case (which it was not) is not, I think, dispositive of the point now in issue.

29.Accordingly if, as Mr Barlow strongly pressed, ‘necessity’ indeed is the appropriate benchmark when considering the separate representation of multiple defendants, then it seems to me that this must be qualified in terms of the ‘necessity’ of such separate representation being reasonably apparent when viewed through the factual prism existing at the time of the retention of such representation, and not simply as a post‑facto conclusion based upon that which did, or did not, occur at trial.

30.In the present case therefore, at the time of retention of the representation in question – and as we know in this case eventually there were four ‘cluster’s of defendants and four legal teams – was it reasonable or unreasonable to have taken the view that separate representation was ‘necessary’ in order to guard against the possibility of conflicts of interest arising between the multiple defendants?

Decision

31.Viewed from that perspective, Mr Barlow’s submission that in this case “a unified team” of counsel and solicitors would have been sufficient for all 11 defendants, that there was no real conflict of interest or possibility thereof, and consequently that the plaintiff should not have to pay for such other ‘unnecessary’ legal representatives, in my judgment was ambitious.

32.I also consider that it is unjustified, in light of the probably unique procedural background to this case, wherein after impleading the 1^st and 2^nd defendants in the 1^st action [HCCT 54/2007], and successfully registering the 1^st Arbitral Award so that it became a judgment of this court for the purpose of enforcement, the plaintiffs then proceeded to ignore the 1^st action and the remedy already obtained therein in order to embark on the 2^nd action, issued initially against the 1^st to 5^th corporate defendants prior to subsequent joinder of the 6^th to 11^th individual defendants, with differing causes of action invoked against all 11 defendants in the ‘original actions’ (summarized at para 80(b) of the judgment), in addition to pursuit of ‘the derivative action’ against 1^st defendant and 2^nd defendant consequent upon the 1^st Arbitral Award.

33.Accordingly after putting this litigation in train in the convoluted form that ultimately it took, the unsuccessful plaintiff’s submission that it should bear only one set of costs to be divided between the ‘4 teams’, on the basis that only one legal team should have been retained to cater to and for the interests of all defendants, strikes me as a bit rich.

34.The division of representation between the corporate and the individual defendants, that is, between the 1^st to 5^th defendants and the 6^th to 11^th defendants cannot in my view be assailed, not least since part of the plaintiff’s case was that the individual defendants variously had been responsible for the economic torts sought to be laid both at their individual doors and at the door of their respective corporate employers.

35.Nor do I consider that the differentiation between the 6^th defendant and the 7^th to 11^th defendants should have been characterized as ‘unnecessary’ at the time of considering the representation of this bloc of individual defendants; it would have been surprising if the so‑called “puppet master”(6^th defendant) were to be represented by the same legal team that represented the minor individual players, all of whom were said to have been acting ultimately under instructions emanating from the 6^th defendant.

36.The only element of representation in this case which has given me pause for reflection is the issue of separate representation within the ‘corporate camp’, that is, the 1^st to 5^th defendants.

37.Could and should the representation of the 3^rd to 5^th defendants have been added to the existing representation of the 1^st to 2^nd defendants on the basis that such separate representation was practically ‘unnecessary’?

38.Putting to one side the fact that Mr Barlow has made what was solely an ‘all or nothing’ application in terms of 1 set of costs to cover all 11 defendants, at the end of the day I have concluded that in the particular circumstances of this case the plaintiff’s contention has not been made out in the instance of the 5 corporate defendants either, and thus that the plaintiff is to pay the costs of the two teams representing these corporate defendants.

39.Whilst there was some degree of overlap on legal issues – Mr Shieh adopted, for example, Mr Yu’s submissions on the constructive trust allegation – on the issues of ‘knowing receipt’ and conspiracy the 3^rd to 5^th defendants were on their own, and in my view it would have been difficult properly (and safely) to have had the same legal team for all 5 corporate defendants absent the differentiation that in fact was put in place.

40.It follows, therefore, that I reject the plaintiff’s application that the order nisi should be varied to provide for payment of 25% of the costs of each of the 4 tranches of defendants.

41.Accordingly, subject only to the discrete issue regarding certification of the number of counsel, with which I now deal, the substance of the order nisi as to costs is unaffected.

(b)  3 counsel?

42.This was an application by the 1^st and 2^nd defendants, by letter dated 25 June 2012, that the order nisi be varied to provide for a certificate for 3 counsel in terms of the costs incurred by the 1^st and 2^nd defendants.

43.In mounting his application Mr Chan SC, who was retained in the case as junior silk to Mr Yu SC, rehearsed the complexity arising from the manner in which this case had been advanced against his clients, pointing out the difficult and complex issues of law involved in the ‘derivative action’, which was aggravated, he submitted, by the plaintiff’s failure to identify the juridical basis of the ‘derivative action’ until day 18 of the trial; in addition Mr Chan prayed in aid the complexity of the other causes of action, in particular in relation to the constructive trust issue, as mounted against his clients in the ‘original action’.

44.Mr Barlow opposed.  He contended that no such certificate was warranted.

45.Whilst I agree that certification for three counsel is exceptional, I take the view that many and various the challenges the 1^st and 2^nd defendants had to meet in this trial, with its extraordinary procedural history and, if I may say so, the multiple angles from which the plaintiff’s case was presented, is in this instance sufficient to justify certification for 3 counsel for the trial only.

46.I so order, subject only to the qualification that I see no reason why the 1^st and 2^nd defendants should have the advantage of 2 silks and a junior.  Thus, the certification for 3 counsel is to contain the proviso that the fees of the additional silk, namely Mr Chan SC, are to be taxed on the scale adopted for the taxation of fees of senior junior counsel.  Whether this will make any difference in these times of ballooning costs is a matter for the taxing master.

(c) Reserved costs

47.This court had had little substantive contact with this case until the onset of trial; with one exception, it thus has no personal knowledge of the interlocutory orders reserving costs which I am informed by counsel remain outstanding and which now require adjudication.

48.Having heard counsel on each of these reserved orders, and having considered the submissions variously made in this regard, I specify below the orders in question, together with the order which now is to stand in place of that hitherto reserved:

(i)  Costs reserved by Reyes J on 21 November 2011 (pursuant to the hearing of the plaintiff’s summons (‘Valuation Summons’) dated 7 December 2011 requesting leave to adduce expert evidence on ‘fair market value’ of the 4^th defendant:

Order: Costs of and incidental to the plaintiff’s application by summons dated 7 December 2011 be to the 3^rd to 5^th defendants, with certificate for two counsel for the hearing of the application on 21 December 2011, such costs to be taxed if not agreed.

(ii)  Costs reserved by Deputy Judge Stone on 14 February 2012 (pursuant to the hearing of the plaintiff’s discovery summons dated 10 February 2012):

Order: No order as to costs.

(iii)  Costs reserved by Burrell J on 6 June 2008 (pursuant to the plaintiff’s summons dated 2 June 2008 (the ‘injunction continuation order’):

Order : Costs of and incidental to the ‘continuation element’ of the plaintiff’s summons dated 2 June 2008, including the costs of the hearing on 6 June 2008, be to the 4^th defendant, such costs to be taxed if not agreed.

(iv)  Costs relating to the summons of the 1^st and 2^nd defendants dated 4 January 2012 (for strike out/stay of the plaintiff’s claim for equitable compensation and/or damages: listed for Day 1 of trial but not brought on) :

Order : No order as to costs.

(d)  Costs of the applications and of the hearing on 26 October 2012 to vary the order nisi

49.As indicated to counsel at the conclusion of the various applications to vary the order nisi as to costs, and of the applications to consider the issue of reserved costs, this court takes the view that the appropriate order relating to this hearing on 26 October 2012 should be one of no order as to costs.  I so order.

Order absolute as to costs

50.Consequent upon the foregoing, the order absolute as to costs is therefore to be in the modified terms following:

(i)  The costs of this action are to be paid by the plaintiff to the defendants, such costs to be taxed if not agreed;

(ii)  Save that as to the costs of the 1^st and 2^nd defendants the trial is certified as fit for three (3) counsel (to be taxed on the basis of one (1) senior counsel and two (2) junior counsel), the action is certified as fit for two counsel.

Mr Barrie Barlow SC and Mr Anson Wong instructed by Clyde & Co, for the plaintiff

Mr Chan Chi Hung SC, instructed by Mayer Brown JSM, for the 1^st and 2^nd defendants

Mr Paul Shieh SC and Miss Elizabeth Cheung, instructed by Wilkinson & Grist, for the 3^rd to 5^th defendants

Miss Kate Poon, instructed by Baker & McKenzie, for the 6^th defendant

Mr Law Man Chung, instructed by Woo Kwan Lee & Lo, for the 7^th to 11^th defendants

Please refer to HCMP13/2012, HCMP15/2012, HCMP18/2012 & HCMP21/2012 for the relevant appeal(s) to the Court of Appeal.