MAY FUNG CO LTD v. WING LUNG INDUSTRIAL LTD AND OTHERS

HCA 1607/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.  1607 OF 2007

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BETWEEN

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R U L I N G

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1.  After I handed down my Judgment on Costs on 9 October 2009, the order was finalized and perfected on 15 October 2009. On 19 October 2009, solicitors for the Defendants saw fit to write a letter to this court asking for costs on three items related to argument on costs in favour of the Defendants which they said the court had omitted to deal with. Solicitors for the Plaintiff objected by a letter of 21 October 2009. They said this court is now functus officio. A reply was given by solicitors for the Defendants on 28 October 2009.

2.  Whilst it is correct that the Defendants did not ask for costs of the argument as to scale of costs to be dealt with separately at any stage prior to the court’s judgment on costs, the court would have jurisdiction to deal with it if the omission to seek such costs is accidental and as such the same can properly be said to be falling within the scope of the slip rule, see Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140 paras.17 to 21.

3.  However, Order 20 Rule 11 requires a summons to be taken out if the Defendants wish to evoke the slip rule. This has not been done. There is no suggestion in the correspondence that the failure to make the application was a slip on the part of those representing the Defendants.

4.  In any event, this court is not minded to award costs to the Defendants in respect of the three items identified in the letters from the Defendants’ solicitors as follows,

(a)  The costs for written submissions and authorities for argument on scale of costs;

(b)  The part of costs for oral submissions and arguments and preparation in advance for argument on scale of costs on 5 October 2009;

(c)  The costs of obtaining and perusing the handed down Judgment on Costs.

5.  I do not accept the submission that settlement was not anticipated by the Defendants. Even though the hearing on 5 October 2009 was originally scheduled as a PTR, directions from this court on 24 September 2009 and the making of sanctioned offer by the Defendants clearly paved the way for the possibility of settlement being achieved on 5 October. With such possibility in mind, parties should take the necessary steps to ensure all outstanding matters are adequately dealt with either by way of agreements or by specific applications being made to the court on 5 October.

6.  Costs item (b) identified in the letters from the solicitors for Defendants clearly shows that preparation works were done on arguments as to scale of costs before the hearing on 5 October.

7.  After the achievement of settlement (other than on scale of costs), Counsel for the Defendants did not ask for the matter to be adjourned in order to prepare for arguments on scale of costs. In other words, as far as the Defendants were concerned they were ready willing and able to finalize matters by immediate oral argument canvassed at the hearing of 5 October.

8.  If the Defendants had intended to seek a separate order for costs in respect of the argument on scale of costs, that intention should have been made known at the time of argument. Further, there should be a reservation for this part of costs to the general order for costs in favour of the Plaintiff in the settlement agreement submitted to the court for approval on 5 October.

9.  The argument on scale of costs took the Plaintiff by surprise. But again there was no application by Plaintiff to adjourn the matter.

10.  In other words, both parties were contented with finalizing the matter by having oral arguments on 5 October 2009. No doubt that was done with a view to save the additional costs of coming back to court for another hearing. As such, the costs of the arguments would be absorbed by the costs of the PTR which is part of the costs of the action. This is in line with the underlying objectives under Order 1A.

11.  Whilst the court did request for relevant authorities to be submitted by the parties when the oral submissions have been concluded on 5 October 2009, in the exchange between the court and counsel for the Plaintiff it was made clear that the court did not give liberty for further written submissions to be filed.

12.  In the circumstances, even though the Defendants lodged written submissions on 6 October 2009 this court is not minded to give them costs for such works even assuming that the discretion on costs is to be exercised afresh. The written submissions were lodged without leave. There was no reason why the points canvassed in the written submissions could not have been made at the oral hearing on 5 October. Given that the Defendants’ legal team has done the preparation for argument on scale of costs, the relevant authorities should also have been submitted on 5 October in the course of hearing.

13.  More importantly, given the agreement on the order for costs in favour of the Plaintiff (subject to the question of scale of costs) without any qualification, it would not be right to entertain an application for a separate order for costs on the argument as to scale of costs which in effect seeks to rewrite the settlement agreement between the parties.

14.  I must say I regard this application by the letter of 19 October from the solicitors for the Defendants to be an opportunistic one. It is an attempt to re-open matter that should have been canvassed on 5 October and as such against the spirit of the underlying objectives in Order 1A. It is also against the terms and the spirit of the settlement agreement between the parties.

15.  The application by the Defendants by letter dated 19 October 2009 is dismissed. For the avoidance of doubt, the costs of the parties on this application should form part of the costs of the action. In other words, the Plaintiff is entitled to such costs, to be taxed on the District Court scale if not agreed.

HCA 1607/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1607 OF 2007

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BETWEEN

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JUDGMENT  ON  COSTS

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1.  In this action the parties reached agreement on how the case should be settled and a draft consent order was placed before this court at the hearing on 5 October 2009. However, there is one point which the parties asked for a determination by the court.

2.  The Defendants agreed to pay the Plaintiff’s costs of the action, subject to argument on the scale of costs to be awarded. Mr Chain submitted that costs should be awarded on the District Court scale since the matter is clearly within the jurisdiction of the District Court in the light of the quantum of the claim and the settlement sum. On the other hand, Mr Chan submitted that the Plaintiff should have costs on the High Court scale.

3.  Before the amendments in 2008, Section 44A(6) of the District Court Ordinance provided that where proceedings within the jurisdiction of the District Court are brought in the Court of First Instance, costs shall be ordered on the District Court scale unless the proceedings were brought by the leave of the Court of First Instance or the Court of First Instance otherwise ordered. In effect, the section gave the Court of First Instance the power to order costs on District Court scale when matter should have been litigated in the District Court.[1]

4.  Section 44A(6) was repealed by Section 4 of the Civil Justice (Miscellaneous Amendments) Ordinance 2008. At the same time, the new Section 52D of the High Court Ordinance explicitly confers a power upon the Court of First Instance to order costs on District Court scale.

5.  There is no dispute that this court does have the power to order costs on District Court scale. The only issue is whether such discretion should be exercised in the present case.

6.  The new Order 62 Rule 5 provides that the court shall take into account of the various matters as appropriate in the circumstances in the exercise of its discretion as to costs. In the present context, the following matters are of particular significance.

7.  Order 62 Rule 5(1)(aa) requires the court to take into account of the underlying objectives in Order 1A Rule 1. The underlying objectives include the following,

“(a) to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court; …

(c) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings; …

(f) to ensure that the resources of the Court are distributed fairly.”

8.  In my judgment, all these underlying objectives point to the importance of conducting litigation in the appropriate forum. When a claim falls within the jurisdiction of the District Court, a plaintiff who chooses to commence the action in the Court of First Instance is expected to explain why such a course is adopted when the question of costs is considered.

9.  Prima facie, it is not cost-effective to pursue a claim in a more expensive manner by litigating in the Court of First Instance as opposed to the District Court.

10.  In many cases, such a choice of forum would not be proportionate. The present case is a good example. There is a singularly lack of particulars of damages claimed by the Plaintiff in the pleadings and the witness statements. Bearing in mind that this is a defamation claim by a corporate plaintiff, in the absence of proof of actual special damages, the damages recoverable would probably be small, see Yaqoob v Asia Times Online Ltd [2008] 4 HKLRD 911 at paras. 159 to 160.

11.  Pursuant to the direction of this court, the Plaintiff filed a Schedule of Quantum of Damages on 30 September 2009. In that Schedule, the Plaintiff asked for general and aggravated/exemplary damages at $250,000. In view of the confidential provision in the draft Tomlin order, I am not going to disclose the settlement amount but I can say it is less than the sum claimed in the Schedule.

12.  Again pursuant to the direction of this court, the parties filed estimates of costs incurred up to date and costs to be incurred up to the end of the trial (the case was set down for a seven days’ trial in December 2009). The Plaintiff estimated its costs incurred up to date to be $850,000 with additional costs to be incurred up to the end of trial to be $750,000. The Defendants estimated their costs incurred up to date to be $444,000 odd and about another sum of $740,000 to be incurred up to the end of trial.

13.  A comparison of these figures (viz. costs and quantum of the claim) must immediately alert any reasonable litigants and lawyers that this whole piece of litigation is getting out of proportion.

14.  In the absence of good reason to proceed in the Court of First Instance, litigating matters that could be dealt with in the District Court is also inconsistent with the fair distribution of judicial resources.

15.  Order 62 Rule 5(1)(e) provides that the conduct of the parties is relevant on the question of costs. Rule 5(2) highlights some relevant conduct, including the manner in which a party has pursued his case. The choice of forum is part and partial of the manner in which a plaintiff prosecutes his claim.

16.  These are not new concepts. Even before the introduction of the Civil Justice Reform, there were cases (including defamation cases) where the Court of First Instance awarded costs on District Court scale by reason of the inappropriate choice of forum, some of them were cited by counsel (Yuen Yiu Kwong v Chan Kwok Chuen [2003] 2 HKLRD 70; Fast East Engineering Services Ltd v Choy Yau Chiu HCA 2146 of 2004, 7 Oct 2005; Candace Guidance Signage Ltd v Halitech Tactile & Signage Co Ltd HCA 138 of 2006, 20 Nov 2007; Cheng Hing Chiu Lionel v Cham Tze Kwong HCA 2206 of 2006, 25 Aug 2008). The new provisions introduced by the Civil Justice Reform only serve to highlight the same.

17.  Mr Chan relied on the following to support his contention that costs should be awarded on High Court scale,

(a)  The sanctioned offer from the Defendants and the correspondence did not take any issue as to scale of costs;

(b)  The settled sum is a relatively high figure as far as defamation case is concerned;

(c)  The quantum of damages is difficult to quantify and at the beginning the Plaintiff had hoped to establish commercial loss;

(d)  The claim being defamation, the Plaintiff had a right to preserve the option of jury trial.

18.  With respect, I do not regard these grounds, whether taken individually or collectively, as sufficient justification for not awarding costs on District Court scale.

19.  The first point is a red herring. The sanctioned offer from the Defendants was not accepted by the Plaintiff. Hence, the question of costs is at large. The potential risk as to the scale of costs to be awarded arising from an inappropriate choice of forum must have been obvious to any reasonably competent lawyers right from the beginning. So is the blatant disproportionate level of costs spent on this piece of litigation. Even if the Defendants did not raise the issue, the court in the exercise of its case management power could ask the Plaintiff to justify its choice of forum.

20.  The second and third points can be dealt with together. Those advising the Plaintiff should have advised their client on quantum before deciding to issue the writ in the Court of First Instance. In the process of such advice, the lawyers should have considered the prospect of establishing a claim exceeding the jurisdiction of the District Court, including the prospect of recovery of commercial loss. Even though there may be uncertainty at that stage, the lawyers must have some idea as to whether any commercial loss has been suffered. This is particularly important in view of the fact that the Plaintiff is a company and general damage is likely to be small (see paragraph 10 above).

21.  On the information and material before me, I do not see any basis for the Plaintiff entertaining any reasonable belief that the claim in this case would exceed the jurisdiction of the District Court. Even though the Plaintiff pleaded a claim for special damages, as I said no particulars was given and the evidence is wholly silent on that aspect.

22.  Mr Chan acknowledged that in the absence of special damages it is unlikely that a corporate plaintiff in a defamation case can recover damages exceeding the jurisdiction of the District Court. Hence, the Plaintiff should have seriously considered whether it was appropriate to commence the action in the Court of First Instance when it did not have the necessary material to support a claim for special damages.

23.  Mr Chan submitted the settled figure was a relatively high award in defamation cases. He had shown this court several cases where the awards were lower. However, there are also cases where the awards were higher. But the important point is not whether the quantum is relatively high or low. So long as it is within the jurisdiction of the District Court, one has to ask why did the plaintiff choose to litigate in the Court of First Instance. In the present case, both the damages quantified by the Plaintiff and the settled figure are much lower than the limit of the District Court jurisdiction.

24.  Coming to the last point, even though Section 33A of the High Court Ordinance permits a plaintiff in a defamation case to apply for a jury trial in the Court of First Instance, the Plaintiff in the present case has never made such an application. As can be seen from the Checklist filed on behalf of the Plaintiff on 27 June 2008, the Plaintiff sought a trial by a bilingual judge. The trial was subsequently set down accordingly.

25.  Mr Chan however submitted that the Plaintiff was entitled to keep the option of jury open when the writ was issued. Counsel further said it was due to complication arising from some German witnesses not being available that the Plaintiff finally decided to elect trial by judge. I must say I have difficulty in accepting the last submission. I simply cannot understand how the absence of German witnesses could have any bearing at all. Based on the records in the court file, the Plaintiff had never sought a jury trial. If the option of jury trial were the real reason for the Plaintiff to commence the action in the Court of First Instance, I would expect the Plaintiff to have applied to transfer the case to the District Court after it chose a trial by judge alone. But the Plaintiff did not make such application.

26.  Having considered the issues raised in the pleadings and the evidence, I do not see any reason why this case cannot be properly litigated in the District Court.

27.  In the circumstances, I rule that the Plaintiff should only be entitled to costs on District Court scale. Parties shall incorporate my ruling into their agreed draft order and the Plaintiff shall submit a draft order for approval within 3 days.