Lehman & Co. Management Ltd v. Effiscient Ltd and Another

CACV 272/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 272 OF 2011

(ON APPEAL FROM HCCW NOS. 377 AND 383 OF 2010)

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HCCW 377/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 377 OF 2010

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BETWEEN

AND

HCCW 383/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 383 OF 2010

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________________________

BETWEEN

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(Actions consolidated pursuant to the order of
Hon Harris, J dated 17.1.2011)

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JUDGMENT ON COSTS

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Hon Kwan JA (giving the Judgment of the Court):

1.On 13 March 2013, we handed down our judgment allowing the appeal of Lehman Management to a limited extent as stated in paragraph 97 of the judgment.  We directed Lehman Management and Effiscient to make written submissions on the costs of the appeal and the costs of the remedies trial below which included the fees of the court expert.

The costs of the appeal

2.Mr Barlow SC’s position is that Lehman Management should be regarded as the overall successful party notwithstanding that the appeal is allowed to a limited extent.  He submitted this court should award Lehman Management all of its costs in the appeal.

3.Effiscient’s position is that it is the real winner of the appeal in that Lehman Management is successful or partially successful on only three out of the nine issues argued in the appeal.  Hence, costs of the appeal should be apportioned as follows: Effiscient should pay Lehman Management 30% of its costs of the appeal (for the three issues which Lehman Management won) and Lehman Management should pay Effiscient 70% of its costs of the appeal (for the six issues which Lehman Management lost).  Alternatively, there should be a significant reduction of the costs to be awarded to Lehman Management.

4.We reject Mr Barlow’s contention that Lehman Management should be regarded as the overall successful party in the appeal such that it would be inappropriate to deprive it of the costs incurred in respect of issues which it raised unsuccessfully.  The cases cited by him (Active Base Limited v Roderick John Sutton & Ors, HCCW 470/2005, 17 October 2008, and HLB Kidsons (A Firm) v Lloyds Underwriters [2007] EWHC 2699 (Comm)) are not to the point as both were concerned with costs of a hearing or trial at first instance.  In an appeal, it is usually easier to isolate discrete issues that are the subject of argument and there is no reason why the costs order should not reflect the fact that a party has not been successful on some of the issues, where argument on those issues has caused significant increase in the length or costs of the hearing.

5.We do not think it appropriate to order Lehman Management to pay Effiscient part of its costs of the appeal, as Lehman Management was required to bring the appeal to set aside the award and quantification of damages.

6.We award costs of the appeal to Lehman Management, but with a substantial reduction to reflect the fact that it is successful to a limited extent.  We order Effiscient to pay Lehman Management one-third of the costs of the appeal.

The costs below

7.Regarding the costs of the liability trial, we would not disturb the costs order of the judge in the petition and cross-petition.  The argument of Lehman Management on the reflective loss principle, which is the reason for its success in setting aside the award of damages, was not raised at the trial.

8.Only those parts of the costs below affected by the setting aside of the award of damages would be considered by us, as we have made clear in paragraph 98 of the judgment.  So we are looking at two aspects of costs, the fees of the court expert (which the judge had ordered should be borne equally by the parties) and the costs of the remedies trial.

9.For the fees of the court expert, as well as the costs of the remedies trial, Mr Barlow submitted Effiscient should be ordered to pay Lehman Management all its costs, alternatively 50% of such costs which have been wasted, as a result of the setting aside of the damages award, on the basis that the remedies trial could be regarded as equally divided into two main issues, namely, valuation of the company and the quantification of damages.

10.The first alternative is clearly not viable and no more need be said.

11.For the fees of the court expert, Effiscient’s solicitors submitted that the equal apportionment ordered by the judge should be varied, as the expert had spent a substantial amount of time attending to allegations and applications of Lehman Management which are found to be unwarranted or are unsuccessful.  Likewise, for the costs of the remedies trial, Efficient’s solicitors pointed out that not an equal amount of time was spent on the two issues of valuation and quantification of damages.

12.Effiscient proposed that the fees of the court expert and the costs of the remedies trial should be borne by Lehman Management save for such parts of the fees and costs which were attributable to the quantification of damages and which they apportioned at 14.3% for the expert’s fees and 6.2% for the costs of the remedies trial.

13.We are inclined to agree with Effiscient that there should not be equal apportionment of the fees of the expert and the costs of the remedies trial, as it is apparent that less than half of the work done and time spent was attributable to the damages issue.  However, we do not think the apportionment should be as low as the figures put forward by Effiscient.  It is inappropriate to take a mechanistic approach with reference to the number of pages in the expert report or the transcript of hearing that dealt with the damages issue.

14.For the expert’s fees, we vary the judge’s order of equal apportionment and order Effiscient to bear 30% and Lehman Management 70% of the expert’s fees.  We have taken into account the work done by the expert on the damages issue (quantified by Effiscient at 14.3%), which was wasted, and an appropriate percentage to reflect Lehman Management’s share of the expenses incurred in the work done by the expert on the valuation issue.

15.In respect of the costs of the remedies trial, we set aside the judge’s order awarding costs to Effiscient and substitute this with an order that Lehman Management should pay Effiscient two-thirds of its costs.

The costs of this application

16.For the costs of this application, as neither party is entirely successful, we would make no order as to costs.

Written Submission by Mr Barrie Barlow SC, instructed by Miller & Peart, for the Petitioner/Appellant

Written Submission by Howse Williams Bowers, solicitors for the Respondent