Cep Ltd v. 无锡巿佳诚太阳能科技有限公司

HCCL 12/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 12 OF 2012

(Transferred from High Court Action No 181 of 2011)

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Date of Written Submissions by the Defendant: 16 April & 23 May 2014

Dates of Written Submissions by the Plaintiff: 16 & 23 May 2014

Date of Written Reply Submissions: 30 May 2014

Date of Judgment on Costs: 18 June 2014

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JUDGMENT ON COSTS

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1.By my judgment dated 4 April 2014 (“Judgment”), I dismissed the plaintiff’s claim and made a costs order nisi that the defendant shall have its costs of the action to be taxed if not agreed.

2.Both parties applied to vary the costs order nisi:

(1) On 16 April 2014, the defendant applied by summons to vary the costs order nisi so that the plaintiff shall pay the defendant’s costs incurred after 15 November 2012 on an indemnity basis and enhanced interest on such costs at 5% above judgment rate until actual payment, on the basis that the plaintiff failed to do better than the sanctioned payment of HK$1,015 made by the defendant on 18 October 2012.

(2) On 22 April 2014, the plaintiff applied by summons to vary the costs order nisi so that there be no order as to costs, alternatively, that it should bear no more than 40% (or such proportion that the court may think fit) of the defendant’s costs.

3.On 8 May 2014, I gave directions that both applications be dealt with on paper and for the filing of written submissions.

Defendant’s application for indemnity costs and enhanced interest

4.It is convenient to deal with the defendant’s application first.

5.The defendant made a sanctioned payment of HK$1,105 (equivalent to €100) on 18 October 2012.  The plaintiff had 28 days, ie up to 15 November 2012, to accept the payment but it did not do so.  In the event, the plaintiff failed to do better than the sanctioned payment, because it lost the case. 

6.I set out the relevant parts of Order 22, r 23 of the Rules of the High Court:

“Costs consequences where plaintiff fails to do better than sanctioned offer or sanctioned payment (Order 22 r 23)

23. (1) This rule applies where a plaintiff –

(a) fails to obtain a judgment better than the sanctioned payment ...

(2) ….

(3) The court may order the plaintiff to pay any costs incurred by the defendant after the latest date on which the payment … could have been accepted without requiring the leave of the court.

(4) The court may also order that the defendant is entitled to –

(a) his costs on the indemnity basis after the latest date on which the plaintiff could have accepted the payment … without requiring the leave of the court; and

(b) interest on the costs referred to in paragraph (3) or subparagraph (a) at a rate not exceeding 10% above judgment rate.

(5) Where this rule applies, the court shall make the orders referred to in paragraphs (2), (3) and (4) unless it considers it unjust to do so.

(6) In considering whether it would be unjust to make the orders referred to in paragraphs (2), (3) and (4), the court shall take into account all the circumstances of the case including –

(a) The terms of any sanctioned payment or sanctioned offer.

(b) The stage in the proceedings at which any sanctioned payment or sanctioned offer was made.

(c) The information available to the parties at the time when the sanctioned payment or sanctioned offer was made; and

(d) The conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the payment or offer to be made or evaluated.

(7) The power of the court under this rule is in addition to any other power it may have to award or disallow interest.” (Emphasis added)

7.The question I have to decide is whether it is unjust to make an order under Order 22, r 23 (4) (which, for convenience, I shall call an “enhanced costs order”).  In considering this question, I am required to take into account all relevant circumstances of the case, including the matters set out in Order 22 r 23 (6).

8.Ordinarily, a party who fails to beat a sanctioned payment (or sanctioned offer) would expect to have to pay costs on an indemnity basis with enhanced interest: Order 22, r 23 (5).  The plaintiff accepts that it bears the burden of showing why it would be unjust to make an enhanced costs order in this case. 

9.It is contended on the plaintiff’s behalf that it had acted reasonably towards an unreasonable sanctioned payment, so that it would be unjust to follow the default rule.

10.It is argued that the sanctioned payment was unreasonable in that it was a “nominal offer”.  I understand that to mean that the amount of the payment was a nominal sum.  But I fail to see why a sanctioned payment for a nominal (or very small) sum is, in itself, unreasonable.  The sanctioned payment was plainly made in order to protect the defendant’s costs position, and to put pressure on the plaintiff to take a realistic look at its claim.  If the plaintiff had accepted the sanctioned payment, it would automatically be entitled to its costs up to that stage.  It cannot be said that the sanctioned payment was not a genuine offer to settle the case.  I see no reason to exclude such a payment from the ordinary operation of the rule.

11.To accept the plaintiff’s argument would mean that a “valid” sanctioned payment must be “substantial” (as opposed to “nominal”) in order to attract the operation of Order 22, r 23.  I am unable to add such a gloss on the rule. It would mean that a defendant who considers its case to be very strong might be deprived of the protection given by Order 23, r 23 unless it is prepared to make a “substantial” (or at least more than “nominal”) sanctioned payment.  In my judgment, there is no reason to introduce a qualification which is not only absent from the rule, but is contrary to the purpose of the rule itself. I do not find support for that approach from the cases relied on by the plaintiff: Singapore Airlines Ltd v Fujitsu Microelectronics (Malaysia) Sdn Bhd (No 2) [2001] 1 SLR 532 (Singapore Court of Appeal); AB v CD [2011] EWHC 602 (Ch D, Henderson J); Quinlan Brothers Ltd v Coady, 2012 NLTD(G) 194 (Supreme Court of Newfoundland, LeBlanc J). Indeed, Julstar Property Ltd v Hart Trading Pty Ltd [2014] FCA 108, 20 February 2014 (Federal Court of Australia, Greenwood J) at §§76-80, also cited by the plaintiff, seems to be inconsistent with that proposition.

12.The plaintiff also contends that it was not unreasonable to consider that it had a reasonably arguable claim at trial.  That might be so, but the plaintiff must face the consequences if it did not accept the sanctioned payment.

13.Nor is there anything under any of the matters set out in Order 22, r 23(6) or the circumstances of this case that points to it being unjust to make an enhanced costs order.

14.In my judgment, the plaintiff has failed to persuade me that it would be unjust to make an enhanced costs order.

15.Accordingly, subject to the plaintiff’s application, I would order that the defendant’s costs of the action incurred after 15 November 2012 be taxed on the indemnity basis.

16.The parties did not address me on the appropriate enhanced rate of interest, or the time until which such enhanced rate of interest ought to be paid.  I have previously had to deal with a similar situation in Kai Min Fashion (HK) Ltd & Sino Trifone Ltd v Fond Express Logistics Ltd, HCCL 20 & 21/2011, 4 December 2011.  Regrettably, despite that judgment, I have not received any assistance on these aspects.

17.In the absence of any opposition from the plaintiff to the rate sought by the defendant (5% above judgment rate), I would order that interest on the enhanced costs be payable on all items of costs at half that rate, with interest starting to run from 16 November 2012 on all the items, until judgment: see HCCL 20 & 21/2011 at paras 24 – 30.

Plaintiff’s application to vary

18.I proceed to consider the plaintiff’s application.

19.The parties are agreed on the principles to be applied, which are helpfully summarised in the recent judgment of DHCJ Marlene Ng in Kinetics Medical and Health Group Co Ltd v Dr Tse Ivan Cheong Yau, HCA 1150/2010, 7 April 2014, at paras 21-35.  The defendant accepts those principles and I need not repeat them here.

20.In a nutshell, the plaintiff relies on what it calls the “exceptional circumstances” of this case, namely that it has “succeeded on every single disputed primary fact [but was] unsuccessful because of the inferences drawn/contractual interpretation from those primary facts.”  The plaintiff then elaborates on the facts which this court found in its favour, emphasising that the defendant lost on every primary fact it contended at trial.

21.On the other hand, the defendant submits that the factual allegations were all raised by the plaintiff and were critical to the issues the plaintiff needed to succeed on in order to establish its case, and that the defendant was only answering the plaintiff’s case in accordance with what it believed or contended to be the true version of events.  In short, it is said that any significant increase in the length or costs of the proceedings was caused by the plaintiff raising those issues.

22.It is unnecessary for present purposes to reiterate my conclusions and reasons for my findings of fact which I believe have been sufficiently set out in the Judgment. I agree with the plaintiff that the defendant did dispute a number of factual issues unreasonably and unnecessarily, especially when one had regard to the contemporaneous documents available.  I would give a few (not exhaustive) examples of the defendant unreasonably contending the indisputable:

(1) First, as to what had happened at the meeting between Mr Cicero and Mr Li at the Intersolar fair.

(2) The 22 June Meeting between Ms Hernandez and Mr Li.  Moreover, the fact that Ms Hernandez was not even cross‑examined added to the futility of requiring her to come to court to testify.

(3) The fact, which as I found was clear from the contemporaneous documents, that the defendant (essentially Mr Li) repeatedly attempted to increase the contract price.

(4) The events surrounding the 25 June factory visit, including whether copies of the unamended L/Cs were provided to Mr Zhang. 

(5) Whether the 007 L/C was transferred to the defendant.

23.In my view, the defendant plainly ought to have taken a more realistic view on the facts, and should have focused on the interpretation of the Sales Contract and the legal consequences flowing from the objective facts.  In short, it is my view that the defendant’s conduct unnecessarily prolonged the case and the trial and, consequently, the parties’ costs.

24.Taking a broad view of the matter, a fair assessment would be to award the defendant 70% of its costs of the action.

Disposal

25.The final order on costs is as follows:

(1) The plaintiff shall pay 70% of the defendant’s costs of the action, to be taxed (if not agreed) on the party and party basis up to 15 November 2012, and thereafter on an indemnity basis;

(2) Interest on such costs shall accrue at half of 5% above judgment rate from 16 November 2012 until 4 April 2014, and thereafter at judgment rate.

26.Insofar as is necessary, the sum of HK$1,015 paid into court by the defendant, together with any interest accrued thereon, shall be paid out to the defendant’s solicitors.

27.As to the costs of the applications, both sides succeeded to a certain extent.  It would be fair to make no order.

28.Finally, I did not find it necessary to consider the draft affirmation of Tian Jingjing attached to the defendant’s submissions dated 30 May 2014, and I have not taken it into account. For the avoidance of doubt, the defendant’s application for leave to refer to that affirmation is refused.

Mr Christopher S L Chain, instructed by Sit, Fung, Kwong & Shum, for the plaintiff

Mr James Thomson , instructed by Sidley Austin, for the defendant