Swiss Singapore Overseas Enterprises Pte Ltd v. China Citic Bank Corporation Ltd, Xiamen Branch

CACV 197/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 197 OF 2013

(ON APPEAL FROM HCCL NO. 11 OF 2009)

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BETWEEN

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Before: Hon Lam VP, Kwan and Barma JJA

Dates of Written Submissions: 3, 14 and 24 July 2014

Date of Judgment on Costs: 29 August 2014

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JUDGMENT ON COSTS

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Hon Kwan JA (giving the judgment of the Court on costs):

1.On 15 May 2014, we handed down judgment (“the Judgment”) allowing the appeal of the Bank. We set aside the judgment below of Bharwaney J and dismissed the plaintiff’s action against the Bank in HCCL 11/2009. We gave leave to appeal against the judge’s decision on costs of a discovery application and restored his initial costs order. We made these costs orders which are nisi. We awarded the costs of the proceedings below to the Bank with a certificate for two counsel and ordered the plaintiff to pay the Bank’s costs of the appeal (at §§131 and 133).

2.On 27 May 2014, the plaintiff issued a summons to vary the costs order nisi in §§131 and 133 in these terms:

“i. The costs of the Court of First Instance action no. 11 of 2009 be to the Plaintiff;

ii.   The costs of the Court of Appeal action no. 197 of 2013 be in the cause.”

3.It is the plaintiff’s contention that notwithstanding this court’s ruling that its action against the Bank should be dismissed, not only should they not bear any part of the Bank’s costs below, but the Bank (which we held to have successfully defended the action) should pay the plaintiff’s costs of the proceedings.

4.In respect of the costs of the appeal, Ms Rachel Lam for the plaintiff confirmed that the practical effect of ordering costs of the appeal be “in the cause” is that “the costs of the appeal shall remain the same”.

5.That being the case, as the plaintiff is content with the costs of the appeal remaining the same as in the order nisi and there is in substance no application to vary that part of the order nisi, it is unnecessary to review the costs of the appeal and that part of the order nisi shall become absolute.

6.Ms Lam advanced these arguments in support of the application to vary the costs order nisi for the proceedings below.

7.First, the Bank succeeded on the defence of accord and satisfaction on appeal.  This was not pleaded in its Defence.  And although arguments of a compromise of a disputed claim giving rise to accord and satisfaction were advanced by the Bank at the trial without objection from the plaintiff (the Judgment, §§55, 90, 92), the defence of accord and satisfaction was not run in the court below as a “standalone defence” (the Judgment, §93).  Instead, the Bank raised numerous other points in the court below.  It would be doing injustice to the losing party if the costs order does not reflect the way in which the successful party has conducted its case (Woonsing Ltd v Wong Yi Ming, HCA 6744/1998, 26 February 2001, at §10).

8.Second, the defence of accord and satisfaction was not run in the appeal as an “independent appeal point” but was raised only in the context of the Bank’s argument on variation of contract.  The only reason why the Bank succeeded on appeal was because this court raised the issue during the hearing of the appeal.  All other grounds of appeal raised in the Amended Notice of Appeal were either rejected or not dealt with by this court in the Judgment.

9.Third, there has been a substantive change in practice with the implementation of the Civil Justice Reform in April 2009.  Although the general rule in Order 62 rule 3(2) that costs should follow the event would still play a significant role, it is only a starting point from which the court can “readily depart”.  It is no longer necessary for a party to have acted “unreasonably or improperly” to be deprived of his costs (AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 at 1522 to 1524; Wong Kam Tong v The Incorporated Owners of Tin Shing Court, Yuen Long (No 2) [2012] 2 HKLRD 1128 at §§10 to 13).  Among the changes introduced in relation to costs in the CJR are a number of provisions in Order 62 rule 5, the parts of which relevant for present purpose read as follows:

“5(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in Order 1A, rule 1;

…

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful;

…

(2) For the purpose of paragraph (1)(e), the conduct of the parties included –

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.”

10.Fourth, whether or not the issues unsuccessfully raised by the Bank in defending the action had caused a significant increase in the length or cost of the proceedings was purely a factual issue.  If the issues as to which the Bank was unsuccessful were substantive rather than peripheral, that alone would have justified depriving the Bank of at least a proportion of its costs. Intent was irrelevant (Re Ricacorp Ltd, CACV 3884/2001, 16 July 2002, §24).  By the amendments introduced to Order 62 rule 5, litigants should bear in mind the possible costs implications.  There is incentive to conduct litigation in a responsible way and be selective as to the issues raised (Zhuhai International Container Terminals (Jiuzhou) Ltd v Lo Tung Hoi & Anr, CACV 181/2011, 31 July 2012, at §33).

11.Mr Nigel Kat for the Bank made a number of points in response.  Among them, he emphasised that there was no suggestion that any of the Bank’s defences were untenable, or had been improperly or unreasonably or irresponsibly argued or maintained.  He referred to the judgment on costs in Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (in liquidation), FACV 16/2009, 21 January 2011, in which Lord Neuberger of Abbotsbury NPJ stated at §5 that “where a party advances its case on two different grounds and it succeeds on both grounds, then, unless the court considers that it was unreasonable for that party to have relied on both grounds, or there is some other special reason, it would be wrong to deprive that party of its costs in connection with maintaining both grounds.”  And at §6: “Where a party has two alternative ways of putting his case, it is normally not unreasonable to run them both, especially in a case, such as this, where a reasonably substantial amount of money is at stake, and it is therefore hard to argue that it was disproportionate to raise two arguments.”

12.As for Ms Lam’s point that accord and satisfaction was not run as a “standalone” defence, Mr Kat submitted that the relevant legal and evidential substance of the defences of accord and satisfaction and consensual variation was common to both.  Neither could stand alone on the evidence in this case.  Accord and satisfaction could not reasonably or prudently have been pleaded on its own on the evidence in this case.

13.Mr Kat also relied on Order 62 rule 5(2)(d), which provides that conduct of the parties for the purpose of rule 5(1)(e) includes conduct before the proceedings.  He submitted that as found by the court below, the Bank had relied on the plaintiff’s clear representation that the shortfall of the letter of credit would not be pursued.  Having collected the money from the Bank, the plaintiff then commenced this action claiming the shortfall eight months later.  This was a commercial party experienced and engaged in the commodity trade by letters of credit not conducting itself in accordance with standard rules of acceptable behaviour.

14.We do not think this is an appropriate case to order the party who had successfully defended the action to pay the costs below of the losing party.  That is not a realistic position to take, and that was not the order made in any of the cases relied on by Ms Lam.  In all those cases, what the court did was to deprive the successful party of a proportion of its costs, to reflect the manner in which the successful party had conducted his case.  And that is what should exercise our consideration here.

15.We do not think it material that accord and satisfaction was not pursued as a “distinct” or “standalone defence” at trial or that it was not pleaded in the Defence.  The fact remains it was a line of defence that was argued below and we have taken the view that the plaintiff would not have suffered any prejudice as a matter of procedure (the Judgment, §93).

16.Ms Lam submitted if this was raised as a line of defence distinct from variation and estoppel, then the plaintiff would have addressed the arguments relating to accord and satisfaction “distinctly”, and if the Bank had succeeded on accord and satisfaction below as a distinct ground, the plaintiff “may have had reason to reconsider the merits of the appeal” and “act accordingly”.

17.We do not accept this submission, which is based on the conjectural premise that the court below might have decided differently if accord and satisfaction was run as a distinct defence.

18.Nor do we think it relevant that accord and satisfaction was not pursued as an “independent appeal point” on appeal.  The conduct of the appeal has nothing to do with the appropriate costs order of the proceedings below.  The plaintiff is not seeking to vary the order nisi we made for the costs of the appeal.  But insofar as it was submitted that legal arguments on accord and satisfaction “have not been fully ventilated in the Court below” and “were only belatedly and somewhat summarily addressed by subsequent written submissions”, we must firmly reject these complaints as unfounded.  At every stage, the parties had the fullest opportunity to make written submissions before a hearing and to supplement the same with oral submissions.  And we have made clear the basis on which we had allowed limited additional written submission from both parties after the hearing of the appeal.

19.But all that is really immaterial for the present exercise, in the end we must be guided by the considerations in Order 62 rule 5.  The matters to be taken into account under that rule are not to be applied mechanically.  We do not think the court should simply reduce costs with regard to the number of issues raised and lost and the time taken by those unsuccessful issues.  There is clearly a discretionary element in making a proportional reduction.  And an important matter that may be taken into consideration is the reasonableness in advancing the unsuccessful arguments.

20.The Bank raised a number of defences at the trial (the Judgment, §§51 to 55).  One of the main arguments was the defence of reimbursement authorisation and the Bank had failed on this.  We think it right to deprive the Bank of some of its costs on account of the lack of success in a substantial line of defence.  Taking into account that this argument was reasonably advanced, we would make a relatively moderate reduction.  As for the other lines of defence that were raised unsuccessfully at trial (consensual variation, waiver and estoppel), we have taken into account that they were mounted on the same evidential basis as the defence of accord and satisfaction.

21.We do not think it right to have regard to the plaintiff’s pre-action conduct as submitted by Mr Kat.  The judge had refused to find sharp practice on the plaintiff’s part, and thought it likely that the claim was made against the Bank pursuant to legal advice subsequently obtained.

22.In the exercise of our discretion, we think it appropriate to deprive the Bank of 40% of its costs below.  We vary the costs order nisi by awarding 60% of the costs below to the Bank.

23.As for the costs of this application, both parties would appear to be contending that costs should follow the event.  The plaintiff should have part of its costs as its application is partially successful.  We order the Bank to pay 50% of the plaintiff’s costs of the application to vary the costs order nisi.

Written submissions by Ms Rachel Lam, instructed by Smyth & Co, for the Plaintiff (Respondent)

Written submissions by Mr Nigel Kat, instructed by Eversheds, for the Defendant (Appellant)