SNE ENGINEERING CO LTD v. HSIN CHONG CONSTRUCTION CO LTD AND ANOTHER

HCA 1466/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1466 of 2012

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DECISIONS
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1.  There are 2 applications before me:

(i) SNE’s application dated 9 April 2014 to vary the costs order nisi made by me after the trial of this action (“the Costs Variation Application”); and

(ii) SNE’s application dated 17 March 2015 to vary the order made by me on 10 September 2013 granting leave to Hsin Chong and Chim Kee to amend the Particulars of Objection to include the challenge to the validity of the Patent on the ground of “obviousness” (“the Amendment Order Variation Application”).

2.  The background of this case has been fully set out in my Judgment handed down on 26 March 2014 (“the Judgment”), and I do not want to repeat the same here.

3.  For the purpose of these Decisions, I would adopt the same abbreviations I used in the Judgment.

4.  This is a claim for infringement of the Patent. Hsin Chong and Chim Kee put forward a number of grounds to challenge the validity of the Patent.  After the trial, I found that the Patent was invalid on the grounds that: (i) the Patent was bad for insufficiency as it failed to disclose the invention clearly and completely enough for it to be performed by a person skilled in the art without undue burden; and (ii) the Patent was not novel because SNE had disclosed the rotator and wedge method in various ways prior to the application of the Patent.  However, I rejected the challenge to the validity of the Patent based on the “obviousness” objection (“the Obviousness Objection”).  According to such objection, Hsin Chong and Chim Kee claimed that the rotator and wedge method was widely known and extensively used in Japan prior to the Patent application and the alleged patented process involved no inventive step in the light of the prior art in Japan as at the application date.  In the amendment application before me on 6 and 10 September 2013 (“the Amendment Application”), Hsin Chong and Chim Kee, in order to substantiate the Obviousness Objection, applied to include as part of the prior art a method allegedly similar to the rotator and wedge method disclosed in the Brochure of a Japanese company known as “Nippon Sharyo”.

5.  In the Judgment, I made an order nisi that the costs of the action be to Hsin Chong and Chim Kee.  By taking out the Costs Variation Application and the Amendment Order Variation Application, SNE is in effect asking the court to award the costs relating to the Obviousness Objection to it despite losing the action itself.

THE AMENDMENT ORDER VARIATION APPLICATION

6.  The Obviousness Objection based on the Brochure did not appear in the pleadings before the trial, but the Brochure was included in the trial bundles.  In the first few days of the trial, it became apparent to the court that the Brochure, in particular its English version, did disclose a method which was similar to the rotator and wedge method.  After some consideration, Hsin Chong and Chim Kee applied for leave to amend the Particulars of Objection to include the Obviousness Objection (“the Amendment Application”), and the order granting such leave was made by me on Day 4 of the trial, i.e. 10 September 2013 (“the Amendment Order”).

7.  SNE now complains that the Amendment Order should not have been made in the first place.  When the court was asked to determine the Amendment Application, the then counsel for Hsin Chong, Mr Felix Pao, informed the court that his client only came to know about the English version of the Brochure at the trial when the same was included in the core bundle (“the Core Bundle”).  Mr Clark, counsel for SNE, points out that this was a false statement, as the English Brochure was included in a prior art search report (“the Prior Art Report”) which was mentioned in the hearing before me on 2 August 2013.  He submits that, but for the positive misrepresentation made by Mr Pao, the court would not have made the Amendment Order.  As the Amendment Order had not been sealed, Mr Clark asks the court to exercise the power to revoke the Amendment Order.

8.  The crucial question here is whether this court has the jurisdiction to reconsider the Amendment Application, and if the court has such jurisdiction, whether the court should exercise the discretion to do so in light of the conduct of the action after the making of the Amendment Order.

9.  SNE essentially relies on what is known as the “the perfection rule”.  It is well established rule that until the point of time when the court’s order is finally recorded, it has the power to recall and vary a decision it has made earlier.  That moment marks the cut-off point after which the power to change an earlier decision ceases.  The final entry of the order in the record is known as the perfection of the order and thus the rule has conveniently been referred to as “the perfection rule”[1].

10.  I agree with Mr Wong, counsel for Chim Kee, that SNE’s reliance on “the perfection rule” is entirely misconceived.  SNE has overlooked that an order for amendment of pleadings needs not be drawn up. Once the order is “given or made”, it is binding upon the parties, notwithstanding that no order is required to be drawn up[2].  It therefore follows that once leave has been given for amendment, the court will be functus officio so far as that amendment is concerned.  There is no jurisdiction for the court to recall its own order[3]. Alternatively, the amendment order should be regarded as “perfected” once the amended document becomes a record of the court, i.e. through the filing of the amended document[4]. Either way the court has become functus officio and there is no jurisdiction to reconsider the Amendment Application or to vary the Amendment Order.

11.  The cases cited and relied upon by SNE, Andayani v Chan Oi Ling[5] and Re Wing Fai Construction Co Ltd[6], were decided in a completely different context.  In both cases, the orders sought to be varied need to be drawn up, and so until the orders had been formally drawn up, the court retained the jurisdiction to reconsider the orders.

12.  In any event, even if the court still has the jurisdiction to vary the Amendment Order, the court should not exercise the discretion to do so in the present case.  In Re Leung Kit Hing Doris[7], the Court of Appeal said the following[8]:

“As a general rule, the court will not re-open a matter after it had given its judgment. After the perfection of an order, the court has no jurisdiction to re-open. Even before the perfection of an order, the court will not entertain an application to re-open a matter unless there are exceptional circumstances. Finality in legal proceedings is an important consideration.”

13.  Apart from the question of finality, the parties had acted upon the amendment and conducted the trial subsequently based on such amendment.  In such circumstances, even if certain misrepresentation had been made to the court, it would be grossly unfair for SNE to raise this issue only 1½ years after the Amendment Order was made.  Hence, I refuse SNE’s application to vary the Amendment Order.

THE COSTS VARIATION APPLICATION

14.  I then turn to the Costs Variation Application. SNE applies to vary the costs order nisi to the effect that Hsin Chong and Chim Kee should be ordered to pay SNE’s costs relating to the Obviousness Objection, or at the very least, SNE should not be ordered to pay all the costs of Hsin Chong and Chim Kee in this action.

15.  SNE’s argument is based on the following 2 grounds:

(i) the court had been misled by Mr Pao in granting the Amendment Order, and such misconduct alone is sufficient for the court to order costs against Hsin Chong relating to the Obviousness Objection; and

(ii) the court should adopt an issue-based approach in dealing with the question of costs in patent cases, which only reflects the modern approach in determining the issue of costs in civil cases after the CJR.

16.  I will deal with these arguments in turn.

(i) Costs resulting from the alleged misconduct of Mr Pao

17.  SNE seeks a special costs order in relation to the Obviousness Objection because of the alleged misconduct of Hsin Chong’s counsel at the trial.  In the argument in support of the Amendment Application, Mr Pao encouraged the court to believe that Hsin Chong first saw the Brochure when SNE placed the same in the Core Bundle.  According to Mr Clark, that was false.  The Brochure was included in the Prior Art Report which Hsin Chong sought to rely upon in a hearing on 2 August 2013, which was about a month before the trial.  Since Mr Pao had misled the court, all SNE’s costs of and incidental to the grant of leave to amend to plead the Obviousness Objection should be paid by Hsin Chong on an indemnity basis.  Mr Clark submits that the court should penalise Hsin Chong in costs as an exemplary and deterrent sentence.

18.  There is no dispute that Mr Pao made such a statement to the court, either expressly or impliedly, in making the Amendment Application.  Despite that, one has to understand the background leading to the making of such application.

19.  The English version of the Brochure first appeared in the Prior Art Report which was mentioned in the hearing before me on 2 August 2013.  The Prior Art Report contained, among 5 other items, a Japanese patent number “JP4644309” (“the Japanese Patent”) and the English Brochure.  In that hearing, Hsin Chong indicated to the court that it sought to rely on the Japanese Patent contained in the Prior Art Report to challenge the validity of the Patent.  By that time, I indicated that the court would not deal with such application without a proper summons.  For some reasons, Hsin Chong did not later pursue the application.

20.  On 6 August 2013, Hsin Chong disclosed the Prior Art Report in its 4^th Supplemental List of Document and delivered a full set of the said report to SNE’s solicitors by hand, the receipt of which is evidenced by a stamp of SNE’s solicitors acknowledging receipt of the same.

21.  As there was an order for speedy trial made on 10 October 2012, both parties had limited time for the preparation of the trial which was scheduled to commence on 4 September 2013.  Even in August 2013, there were still exchanges of further witness statements between the parties.

22.  On 27 August 2013, Wilkin Lam made an additional witness statement, stating that Kobiyama and Sugisaki had introduced the rotator and wedge method to him during their site visits to Japan.  On 28 August 2013, Kobiyama made a witness statement in reply, stating that Wilkin Lam was confused about the methods shown to him in the presentations and site visits.  According to Kobiyama, he showed the Japanese version of the Brochure to Wilkin Lam and gave an explanation about the method shown in the Brochure, which was one different from the rotator and wedge method.

23.  SNE then prepared the Core Bundle for the trial which included a copy of the Japanese Brochure.  Mr Clark at some stage found the English version of the Brochure from the internet and he placed a copy of the English Brochure in the Core Bundle.

24.  On 30 August 2013, trial bundles were exchanged but SNE did not include the Prior Art Report in the trial bundles.  For the sake of completeness, Hsin Chong requested SNE to include the Prior Art Report in the trial bundles and SNE did so accordingly.

25.  The trial commenced on 4 September 2013.  Ms Winnie Tam, SC, leading counsel for SNE at the trial, referred to the English Brochure in her opening submissions.

26.  On Day 2 of the trial (5 September 2013), SNE called its expert witness, Professor Peter Lee, to give his evidence-in-chief. Mr Clark, junior counsel for SNE, proceeded to lead evidence from Professor Lee on the Brochure.  Counsel for Chim Kee and Hsin Chong then cross-examined Professor Lee on the English Brochure.

27.  On Day 3 of the trial (6 September 2013), Ms Tam suggested to the court that when Professor Lee was examined and cross-examined on the English Brochure, he would not have had the opportunity to properly address it as an expert.  Ms Tam then suggested that an opportunity should be given to Hsin Chong and Chim Kee to consider whether to make a formal application to amend the pleadings to include the Brochure as a piece of prior art so that Professor Lee could properly address the issue, thus putting a stop to further cross-examination.  Hsin Chong and Chim Kee then sought leave to amend the Particulars of Objection to include the Obviousness Objection, relying on the method disclosed in the English Brochure as a piece of prior art to support the allegation about the lack of inventive steps in respect of the alleged patented method.  SNE indicated no objection to the Amendment Application.

28.  The trial was adjourned to 10 September 2013 (Day 4) to allow for additional expert reports to be prepared.  On Day 4, leave was formally granted to Hsin Chong and Chim Kee to amend the pleadings to include the Obviousness Objection based on the English Brochure and for the parties to file supplemental expert reports.

29.  SNE’s case is that Mr Pao “encouraged the court to believe” that Hsin Chong did not know about the Brochure until SNE placed it in the Core Bundle sometime on or before 30 August 2013.  Further, but for Mr Pao’s alleged misleading of the court, Hsin Chong’s Amendment Application would most likely be rejected.  SNE’s case is that Hsin Chong “made numerous attempts” at a very late stage to plead the Brochure as a piece of prior art even after the court stated that no further amendment to the pleadings would be accepted. In saying that the Brochure had just been presented by SNE as evidence and Hsin Chong was merely responding to the new evidence, Mr Pao had misled the court.

30.  The parties have referred me extensively to different parts of the transcripts to support their arguments.  I do not find it necessary to cite the transcripts in any detail, but I would set out my observations on some of the points relied on by the parties.

31.  Firstly, SNE has wrongly accused Hsin Chong in seeking to rely on the Brochure as “its original case”.  After reading the transcripts of the pre-trial hearings on 2 & 9 August 2013, it is clear that Hsin Chong had only indicated its intention to rely on the Japanese Patent in the Prior Art Report to challenge the novelty of the Patent.  It had not indicated any intention to rely on the Brochure in the same report as a ground of objection.  In any event, Hsin Chong did not pursue the amendment application to rely on the Japanese Patent as a piece of prior art to challenge the validity of the Patent.

32.  On the contrary, it was the unanticipated reliance on the Brochure by SNE, both in its opening submissions and the examination-in-chief of Professor Lee, that led to the making of the Amendment Application.  At the trial, Mr Clark informed the court that he only obtained the English version of the Brochure from the internet shortly before the trial.  Mr Clark included the English Brochure in the Core Bundle with a view to support the evidence of Kobiyama and Sugisaki that the method they presented to Wilkin Lam in the Japan site visits was not the rotator and wedge method.  Unfortunately for the plaintiff, when Mr Clark began to lead evidence from Professor Lee on the Brochure in the English version, they realised that there were discrepancies between the English and the Japanese versions of the Brochure.  As a result, Professor Lee’s evidence began to support the defence case rather than SNE’s case.

33.  Two points are clear from the above.  Firstly, SNE’s reliance on the Brochure was quite unanticipated at least before the trial. Secondly, it was only when Professor Lee started to give evidence on the Brochure that it became clear the Brochure, in particular its English version, might be a source to challenge the validity of the Patent.   Reviewing the transcripts of the trial, it is clear that the Amendment Application was caused not so much by the mere insertion of the English Brochure into the Core Bundle by SNE, but rather by the reference to the English Brochure by SNE in the opening submissions, and more importantly, by the oral testimony of Professor Lee given in relation to the English Brochure during his examination-in-chief and cross-examination. But for such reference and evidence of Professor Lee, it was highly unlikely that Hsin Chong or Chim Kee would have applied for the Amendment Application.

34.  I have serious doubt as to whether Mr Pao had deliberately tried to mislead the court under such circumstances.  All the parties were aware of the existence of the Prior Art Report when the same was referred to in the hearing on 2 August 2013.  Though Mr Clark denies seeing the Prior Art Report before the trial, such report was supplied to SNE’s solicitors on 6 August 2013.  Despite that, when the Amendment Application was made before me on Day 3 of the trial, all the parties proceeded on the basis that the English version of the Brochure was a new document.  As Mr Clark told the court that it was a document recently downloaded by him from the internet, there was no reason for the court and Mr Pao to doubt the accuracy of such statement.

35.  Because of the order for speedy trial, there were still a lot of preparation works to be done in August 2013.  Further witness statements had to be exchanged, and the parties were also busy preparing for the lengthy opening submissions and lists of authorities of this complicated case shortly before the trial.  In such circumstances, it would have been easy for the parties to overlook the English Brochure which was included in the Prior Art Report.  If the legal representatives for SNE had overlooked the English Brochure and informed the court that it was a new document recently downloaded from the internet, the same kind of omission could have been made by the legal representatives for Hsin Chong.

36.  Furthermore, if Mr Pao had deliberately tried to mislead the court, he should have been aware that SNE had obtained the Prior Art Report from Hsin Chong well before the trial.  Knowing that the other side had possessed such report at an earlier time, any “misrepresentation” could have been rectified easily by SNE.  Given the “fog of war” before the trial, I am prepared to give Mr Pao the benefit of doubt and do not find that he had deliberately tried to mislead the court.

37.  Secondly, I find it extremely odd that SNE has not made any complaint about the alleged misconduct until November 2014.  No complaint was made of any misconduct during the trial which lasted for 20 days.  No complaint was made at the closing submissions of SNE and no complaint was made when SNE first took out the Costs Variation Application.  In fact, the allegation of misconduct was only made in the 2^nd hearing of the Costs Variation Application on 13 November 2014.  In such circumstances, I have reasons to believe that the misconduct allegation was only an afterthought attempt by SNE to support the Costs Variation Application.

38.  Thirdly, I do not think that Mr Clark is exactly right when he says that the court would not have made the Amendment Order but for the alleged misrepresentation of Mr Pao.  As rightly pointed out by Mr Clark, late applications should be discouraged by the court[9].  In the hearing on 2 August 2013, I had also indicated that the court should not allow any further amendments of the pleadings to plead prior art.  If Hsin Chong wished to rely on the Japanese Patent as a piece of prior art to challenge the novelty of the Patent, then it had to explain why the application was made so late.

39.  However, it was not Hsin Chong or Chim Kee who initiated the Amendment Application.  As I have mentioned above, it was SNE who included the English Brochure in the Core Bundle and referred to it in its opening submissions.  But even these conducts did not initiate the Amendment Application, and it was only when Professor Lee was led to give evidence on the English Brochure and his cross-examination that the relevance of the English Brochure as a piece of prior art to challenge the lack of inventive steps became apparent.  With the answers given by Professor Lee, it would only have been reasonable for Hsin Chong and Chim Kee to rely on such prior art to challenge the validity of the Patent.

40.  As it was the late and unanticipated reliance on the English Brochure on the part of SNE which led to the making of the Amendment Application, delay and the time when Hsin Chong first came to know about the English Brochure became less relevant considerations.  Since SNE did not oppose the Amendment Application, I did not provide full reasons for allowing such application.  However looking at the transcripts of the proceedings and the peculiar development of the case, I am sure that even without the alleged misrepresentation, the court would have allowed the Amendment Application in any event.  In other words, the alleged misconduct should not have affected the outcome of the Amendment Application.  Hence, even if Mr Pao was guilty of positively misleading the court, it should not affect the determination of costs relating to the Obviousness Objection.

41.  Mr Clark submits that if Mr Pao had forgotten about the English Brochure in the Prior Art Report when he told the court it was a new document disclosed by SNE, he should have made an affirmation to explain his oversight.  In particular, the hearing had been adjourned once to enable Mr Pao to answer the allegation against him.

42.  Despite the adjournment, Mr Pao has not filed an affirmation to defend himself.  However, SNE is not applying for a wasted costs order against Mr Pao under O 62 r 8 of RHC, and so Mr Pao is not obliged to answer the allegation made against him.  Ultimately, the court is only asked to consider the question as to whether Hsin Chong or Chim Kee should be asked to pay SNE’s costs relating to the Obviousness Objection.  As I have mentioned above, whether Mr Pao was guilty of misconduct may not be a relevant factor in determining the said costs issue.  As Mr Pao is not the party being asked to pay for the wasted costs, he is not required to take part in the proceedings. Hence, the court should not draw any adverse inference against Mr Pao simply because he has not filed an affirmation to defend himself.

43.  As: (i) the Amendment Application was not initiated by Hsin Chong or Chim Kee; (ii) there is a doubt as to whether Mr Pao had deliberately misled the court in obtaining the Amendment Order; and (iii) the court would have allowed the Amendment Application even without the alleged misrepresentation, I do not accept that the misconduct allegation is a relevant factor in determining the issue of costs in the present case.

(ii) The issue-based approach in apportioning liability for costs

44.  The remaining question is therefore, since Hsin Chong and Chim Kee succeed on all the issues except the Obviousness Objection, whether the court should adopt an issue-based approach in apportioning the liability for costs.

45.  Mr Clark submits that, after the CRJ, the courts are more prepared to adopt an issue-based approach in dealing with the question of costs.  With such approach, the winning party may not be able to recover all his costs from the losing party, but rather the court would apportion the costs to reflect the issues upon which a party has lost.  This is generally done by the court ordering the party who has lost on some but won on other issues to pay only a percentage and not the whole of the other side’s costs of the action.

46.  In Pfeiffer GmbH v Cheung Hay Kit, the Court of Appeal adopted the issue-based approach in determining the question of costs.   Kwan JA said the following:

“7.For the present case, the relevant provisions in the Rules of the High Court governing the exercise of discretion as to costs are Order 62 rules 3(2), 5 and 7, which contain amendments introduced as a result of the Civil Justice Reform. The impact of these amendments is similar to the effect of the Civil Procedure Rules as commented upon by Lord Woolf MR in AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 at 1522H to 1523B and 1523H, which have been adopted by Cheung JA in giving the judgment of the court in Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No 2) [2012] 2 HKLRD 1128 at §§11 to 13.

8.The relevant comments of Lord Woolf read as follows:

‘I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs. From 26 April 1999 the "follow the event principle" will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new Rules are reflecting a change of practice which has already started. It is now clear that too robust an application of the "follow the event principle" encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so.’

‘The “well established practice” on which Nourse L.J. based his third principleis, as I have already indicated, less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed.’

9.After quoting the above comments, Cheung JA went on to say in §13 in Wong Kam Tong:

‘One can see immediately that Hong Kong has adopted a similar approach under O.62 r.3(2) in terms of the “follow the event principle” and its departure and also under r.5 in terms of the consideration whether a party has succeeded on part of the case, even if he has not been wholly successful, and conduct. In our view, one can say with equal confidence that after 2 April 2009, while the “follow the event principle” will still play a significant role in Hong Kong, it will nonetheless only be a starting point from which the Court can depart, the rationale being that a mechanistic adoption of the “follow the event principle” may result in parties incurring unnecessary costs in civil litigation. We do not consider the provisions of O.62 r.7(1) (which enable the Court to disallow a party’s costs or order it to pay the other party’s costs if there is anything done or omitted which is improper or unnecessary) will by itself curtail the power of the Court under the new regime. The amendment to r.7(2) had specifically added the new (aa), namely, regard to the underlying objectives set out in O.1A, r.1. In our view O.62 r.7 enables the Court to address the costs issue when there are improper or unnecessary acts or omissions but it does not confine the Court’s power only to such situations.’”

47.  Mr Clark also submits that the issue-based approach has been well established in dealing with the question of costs in patent cases[10].

48.  However, the court retains a wide discretion as to costs.  The issue-based approach is not a hard and fast rule, and the aim of the court is always to make an order which reflects the overall justice of the case.  In HLB Kidsons v Lloyd Underwriters[11], Gloster J said the following:

“10. The principles applicable to costs were not in contention. The court’s discretion as to costs is a wide one. The aim always is to ‘make an order that reflects the overall justice of the case’ … … … the general rule remains that costs should follow the event, i.e. that ‘successful party should be ordered to pay the costs of the successful party will be ordered to pay the costs of the successful party’: CPR 44.2(2). In Kastor Navigation v Axa Global Risks [2004] 2 Lloyd’s Rep 119, the Court of Appeal affirmed the general rule and noted that the question of who is the ‘successful party’ for the purposes of the general rule must be determined by reference to the litigation as a whole; see para 142, per Rix LJ. The court may, of course, depart from the general rule, but it remains appropriate to give ‘real weight’ to the overall success of the winning party: Scholes Windows v Magnet (No. 2) [2000] ECDR 266 at 268. As Longmore LJ said in Barnes v Time Talk [2003] BLR 331 at para 28, it is important to identify at the outset who is the ‘successful party’. Only then is the court likely to approach costs from the right perspective. The question of who is the successful party ‘is a matter for the exercise of common sense’: BCCI v Ali (No. 4) 149 NLJ 1222, per Lightman J. Success, for the purposes of CPR, is ‘not a technical term but a result in real life’ (BCCI v Ali (No. 4)(supra)). The matter must be looked at ‘in a realistic … and … commercially sensible way”: Fulham Leisure Holdings v Nicholson Graham & Jones [2006] EWHC 2428 (Ch) at para 3 per Mann J.

11.     There is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues.  In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case.  As Simon Brown LJ said Budgen v Andrew Gaardner Partnership [2002] EWCA Civ 1125 at para 35: ‘the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues’.  Likewise in Travellers’ Casualty (supra), Clarke J said at para 12:

‘If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.’”

49.  In Hong Kong, the relevant applicable principles were summarised by Lam J (as he then was) in Chinachem Charitable Foundation Ltd v Chan Chun Chuen & Anr as follows[12]:

“This, in deciding whether it is appropriate to depart from the costs follow event starting point, the court should address the two pertinent matters indentified under Rule 5(2)(a) and (b). Elgindata principle (iii) remains relevant because unless the issue in question has caused a significant increase in the length or costs of the proceedings, it is generally disproportionate to embark on an enquiry as to whether an issue-based approach should be adopted, as such likely to be inconsistent with the underlying objectives in Order 1A rule 1(a) to (c). And the court is required to bear in mind these underlying objectives under Order 62 Rule 5(1)(aa).”

50.  O 62 r 5(1) specifies that the court can take into account, inter alia, the conduct of all the parties in exercising the discretion as to costs.  R 5(2) then goes on to state the conduct of the parties is to include:

“(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;

… … …”

51.  As I see it, there is no hard and fast rule to be applied in all cases, and much has to be determined according to the facts of each individual case.  On the one hand, the court should not encourage litigants to raise all sorts of issues for argument irrespective of the merits, which has the effect of unnecessarily prolonging the proceedings.  On the other hand, facing with a claim by a plaintiff, a defendant should be entitled to raise all reasonable defences with a view to defeat the claim which is eventually ruled by the court as an unmeritorious claim.

52.  Having considered all the circumstances of this particular case, I decide to exercise the discretion in favour of Hsin Chong and Chim Kee.

53.  Firstly, as I have mentioned above, it was not the case that Hsin Chong and Chim Kee had initiated the Amendment Application.  It was only when SNE was trying to rely on the English version of the Brochure at the trial that Hsin Chong and Chim Kee sought to rely on the same piece of document against SNE.

54.  Secondly, it cannot be said that Hsin Chong and Chim Kee raised and pursued the Obviousness Objection unreasonably.  As pointed out by me in the Judgment, the grounds of obviousness and insufficiency are closely related and it is not uncommon for these grounds to be argued in the alternative.  In paras 220 to 222 of the Judgment, I said the following:

“220. The interactions between different grounds to challenge the validity of a patent are discussed in Terrell on the Law of Patents. In particular, the learned authors said the following in relation to the interaction between insufficiency and obviousness:

‘It is not uncommon for the grounds of obviousness and insufficiency to be argued in the alternative, the contention in an appropriate case being that either the difference between the cited prior art and the claim is such that the invention would have been obvious to the skilled addressee given the state of his/her common general knowledge, or if not (because some necessary aspect was not part of the common general knowledge) then the specification insufficiently discloses how the invention is to be performed.

Such an interrelationship was considered by then Court of Appeal in Halliburton v Smith, where it was stated:

‘We would add one further comment here: there is an interrelationship between obviousness and insufficiency. At the first blush one might suppose that an idea which requires masses of work to implement would be more readily rejected by, or less likely to occur to, the notional unimaginative skilled person/team who is the addressee than one which can be readily put into practice. This produces an apparent paradox: the less sufficient the description, the less is an idea likely to be obvious. The answer to the paradox is this: that if the notional skilled person/team is one that is prepared to contemplate an immense amount of work, that attribute must also be considered part of the person/team’s consideration of what is obvious. Obviousness and sufficiency of description must be considered by the same person/team.’

However the last sentence must be qualified having regard to the subsequent decision in Schlumberger v EMGS.’

221. The court is perhaps facing the same paradox here. Although the person skilled in the art for obviousness is not necessarily the same person skilled in the art for performing the invention once it is made (as observed by the English Court of Appeal in Schlumberger v EMGS[13]), I am of the view that, in the present context, persons skilled in art, when they have difficulty in working out the exact method under the Patent, would have the same problem when they have to work out the rotator and wedge method just by studying the method described in the Brochure. On the other hand, if persons skilled in the art would have been so skilful in working out the rotator and wedge method by studying the specification in the Patent, which I do not accept it to be the case, the rotator and wedge method would have been obvious to them after studying the method described in the Brochure. In other words, the Patent involves no inventive step.

222.     In the Judgment above, I have already ruled that the Patent is invalid for insufficiency, as the specification has failed to disclose sufficient particulars to enable a person skilled in the art to work out the alleged patented process without undue burden.  As the key concepts of the rotator and wedge method are missing both in the specification in the Patent and in the description of the method in the Brochure, I do not accept that the rotator and wedge method is obvious to a person skilled in the art after studying the method described in the Brochure.  Hence, the challenge based on the prior art in Japan and s 129(1) of the Patents Ordinance fails.”

55.  In the end, I found that the Patent was invalid due to insufficiency.  However, I have also made it clear that if the Patent was not bad for insufficiency, it would probably have been declared invalid for lack of inventive steps for the reasons set out in para 221 of the Judgment. Both defences are therefore interrelated, and in either way, Hsin Chong and Chim Kee would succeed in attacking the validity of the Patent.

56.  Thirdly, the time spent on the issue of “obviousness” alone was quite insignificant, especially when compared to the overall length of the trial.  I must point out here that the evidence relating to the English version of the Brochure was relevant both to the issues of novelty and insufficiency, in particular in support of SNE’s allegation that the rotator and wedge method was not known before in Japan.  In fact, the Japanese version of the Brochure (without the English texts) was disclosed by SNE before “obviousness” became an issue in the present proceedings, thus showing that SNE also considered the Japanese Brochure to be relevant to the other issues in this action.

57.  The English Brochure was also included in the Core Bundle by SNE before the Obviousness Objection became an issue, and was referred to in SNE’s opening submissions.  Professor Lee was asked questions about the English Brochure during his examination-in-chief before Hsin Chong and Chim Kee amended their case to introduce the Obviousness Objection.  Hence, I have reasons to believe that, even in the absence of the amendment of the pleadings to introduce the Obviousness Objection, the parties would have had to spend time at the trial to deal with the Brochure in any event.  Although the amendment might require more time to deal with the Obviousness Objection, I do not accept that it had significantly increased the overall length of the trial.  In any event, the Amendment Application was made only at the trial and so such application should not affect the liability for costs incurred before the commencement of the trial.

58.  Fourthly, I found in the Judgment that the application of the Patent was a tactical move by SNE to protect its interests under the Sub-Contracts after the circulation of the rumour about the possible termination of the Sub-Contracts[14]. As a result, a simple contractual dispute was turned into a complicated patent infringement claim.  As Hsin Chong and Chim Kee were dragged into this complicated litigation, they should be entitled to recover for all the costs reasonably incurred by them in defending the claim.  In particular, Chim Kee was not even involved in the contractual dispute between SNE and Hsin Chong.

59.  Due to the peculiar circumstances of the present case, I do not accept that awarding costs to Hsin Chong and Chim Kee without apportioning the liability for costs for the unsuccessful issues would send a wrong message that litigants can raise all sorts of unnecessary arguments in the future.  Hsin Chong and Chim Kee were not the parties who introduced the English Brochure in the first place, and I consider it reasonable for Hsin Chong and Chim Kee to have made the Amendment Application on Day 3 of the trial to include the Obviousness Objection in the pleadings.  Hence, I would not apportion the liability for costs simply because Hsin Chong and Chim Kee were not successful in the Obviousness Objection.

60.  According to Mr Clark, there were other issues on which SNE succeeded which should justify a reduction in the total percentage of costs payable by SNE to Hsin Chong.  They were:

(i) Hsin Chong could not establish that SNE had disclosed the rotator and wedge method in Japan or to the Japanese workers prior to the Patent application;

(ii) Hsin Chong had abandoned the contractual defence as pleaded in para 12 of the Defence and Counterclaim of Hsin Chong only at the commencement of the trial; and

(iii) Hsin Chong was not successful in the argument that it was necessary for SNE to identify a proprietary interest in the confidential information.

61.  I refuse to apportion the liability for costs in respect of these issues.  In my judgment, the time and costs spent on these issues were quite insignificant as compared to the overall length and costs of the proceedings.  Further, these issues are, to a great extent, interrelated with the other issues involved in the case, and so it would be inappropriate for the court to apportion the liability for costs relating to these issues.

62.  For item (i), I do not remember that we had spent any significant time on such issue.  In any event, the court had to deal with the other disclosures at the trial and so item (i) was quite an insignificant issue.  For item (ii), apart from the discovery of certain contractual documents, the parties had not spent any significant time on such issue.  For item (iii), it was again an insignificant issue and I do not remember that the parties had devoted any particular effort in dealing with this particular argument.  I also did not see the need to deal with this particular issue in the Judgment.

63.  I also echo the dicta of Lam J in Chinachem Charitable Foundation v Chan Chun Chuen[15]. As these are quite insignificant issues, it is generally disproportionate to embark on an elaborated enquiry to determine whether an issue-based approach should be adopted, as such kind of exercise may not be consistent with the underlying objectives stated in RHC.

64.  For the above reasons, I dismiss the Costs Variation Application and order that the costs order nisi included in the Judgment be made absolute.  Costs should follow the event, and so I order the costs of both the Amendment Order Variation Application and the Costs Variation Application be to Hsin Chong and Chim Kee.

65.  There is also one outstanding matter relating to the costs of an interlocutory application dated 7 June 2013 to strike out certain paragraphs of the expert report of Dr Yeung (Hsin Chong’s expert).  SNE asks for the costs of such application.  As there is no opposition from Hsin Chong, I make the order accordingly.