Professional Documents
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Etratech Asia-Pacific LTD V Leader Printed Circuit Boards LTD HCA000112 - 2009
Etratech Asia-Pacific LTD V Leader Printed Circuit Boards LTD HCA000112 - 2009
HCA 112/2009
B B
IN THE HIGH COURT OF THE
C HONG KONG SPECIAL ADMINISTRATIVE REGION C
COURT OF FIRST INSTANCE
D HIGH COURT ACTION NO 112 OF 2009 D
_______________
E E
BETWEEN
F F
ETRATECH ASIA-PACIFIC LIMITED Plaintiff
G (formerly AUDIO MECHANICAL CORPORATION G
LIMITED)
H H
and
I I
J
LEADER PRINTED CIRCUIT BOARDS LIMITED Defendant J
K K
_______________
L L
M
Before : Hon Poon J in Chambers M
Date of Hearing : 8 April 2013
N Date of Decision : 23 April 2013 N
O O
_______________
P DECISION P
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Q Q
1. Order 22, rule 20(1) of the Rules of the High Court1 provides :
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T 1 T
Cap 4A.
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C C
2. The applications now before the court raise the important
D question as to how the court will exercise the costs discretion under the D
F A. BACKGROUND F
G
A1. The main proceedings G
N
2008. N
O 4. It was the plaintiff’s case that the defendant knew, at the time O
of the contract, that the printed circuit boards were to be installed in a lock
P P
assembly for onward sale to Sargent & Greenleaf (“S&G”) in the USA as a
Q component/parts of gun safes. Q
R R
5. Since about December 2007, S&G had complained that the
S
lock assembly of the gun safes (in which the said printed circuit boards S
were installed) failed to function owing to electrostatic discharge. The
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plaintiff alleged that the printed circuit boards supplied by the defendant
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failed to meet the requisite standard, namely the electronic or electrical
C products containing the printed circuit boards should not lose function or C
by the defendant met and satisfied the ESD Standard, the printed circuit
F F
boards subsequently supplied by the defendant failed to do so. The
G defendant was in breach of the conditions and warranties of the sale G
M
representing the compensations paid to S&G, which accumulated from M
US$232,625.00 when the Writ was issued in January 2009 to
N N
US$448,321.00 in January 2012.
O O
7. On 29 March 2012, the defendant served a notice of
P sanctioned payment of the sum of HK$100,000.00. The sanctioned P
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By a reply letter dated 17 April 2012, the plaintiff disputed that costs
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should be on the District Court scale or that the claim was grossly
C exaggerated. C
order under the Otherwise Proviso that each party pays its own costs of the
F F
action or alternatively the defendant do pay the plaintiff 25% (or such
G percentage as the court deems fit) of its costs, to be taxed, if not agreed on G
the High Court or District Court scale, on the grounds that the plaintiff had
H H
signed statements of truth in respect of the pleadings and witness
I statements which are untrue or, without any honest belief in their truth and I
that the defendant had wasted costs in defending a grossly inflated claim.
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agreed.
N N
11. Two principal matters arose from the applications. The first,
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as said, relates to the Otherwise Proviso. The second concerns the scale
P of costs to be applied to taxation. P
Q Q
A3. Master Kwang’s direction
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12. The applications were first listed before Master Kwang. He
S was faced with two unreported decisions by two other masters as to how S
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Chan Yu Ching, Alexs2 and Lin Yanjin v Smart Billion Engineering Ltd.3
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And up to then, there had been no higher authority on the point. The
C learned Master considered that some authoritative guidance from a judge C
High Court Judge Burrell in Fung Yim Chun & Anor v Fung Kui Wah.4
G G
Apparently, the two decisions of the masters were not cited to him.
H H
I think given the present state of authorities, it is an opportune moment for
I
me to say something on how the costs discretion under the Otherwise I
Proviso is to be exercised.
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along the lines of Part 36 of the English Civil Procedure Rules with
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modifications and supplements. Although the provisions relating to
P sanctioned offers and sanctioned payments are derived from the P
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2
HCPI71/2010, 24 June 2011, Master KK Pang.
S 3 S
HCPI739/2009, 10 August 2011, Master Marlene Ng (as she then was).
4
HCA115/2010, unreported, 5 April 2012, which appears to be the only authority on
T the point by a judge so far. T
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to part only of the claim and at the time of serving notice of acceptance the
G G
claimant abandoned the balance of the claim, the claimant would be
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entitled to his costs of the proceedings up to the date of serving notice of
I
acceptance, unless the court ordered otherwise. The new Part 36 came I
into force in April 2007. Payment into court no longer plays any role in
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the Part 36 offer to settle proceedings. The costs consequences of
K
accepting a Part 36 offer are contained in Parts 36.10(1) and (2), which are K
substantial reproduction of the old Parts 36.13(1) and (2).
L L
16. In short, under the CPR, if the whole of the claim is settled by
M M
way of a Part 36 offer, the claimant is as of right entitled to costs up to the
N date of serving notice of acceptance. The court has no power to make any N
position in our Order 22, rule 20(1) is entirely different. The Otherwise
Q Q
Proviso may be invoked only if the whole claim is settled by acceptance of
R the sanctioned payment or sanctioned offer. R
S S
5
See generally the commentary in Civil Procedure 2013, Vol 1, at para 36.10.1 at
T p 1141. T
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Order 22.6
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18. In my view, Order 22, rule 20(1) plainly envisages that upon
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acceptance of the sanctioned payment or sanctioned offer, the plaintiff is,
F as a prima facie rule, entitled to his costs of the proceedings up to the date F
I I
19. The prima facie rule is important. In ordinary civil
J litigations, costs are incurred in a recoverable inter-parties sense from the J
6
See a similar observation by Master Ng in Lin Yanjin v Smart Billion Engineering
T Ltd, supra, at para 96. T
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of his exposure or entitlement to costs, as the case may be. Thus he will
B B
not be inhibited in proposing or accepting an otherwise reasonable offer to
C settle, as the case may be, because of uncertainty as to the costs C
I
discretion should only be exercised in exceptional circumstances that I
clearly warrant a different costs order. Otherwise, the certainty as to
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costs consequences created by the prima facie rule, one of the very
K
important features underpinning the effectiveness of sanctioned payments K
and sanctioned offers, will be greatly diminished.
L L
satisfaction.
Q Q
7
HCA757/2009, Decision on Costs, unreported, 17 February 2012, a decision of
T mine, at para 20. T
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warning that the defendant will apply to invoke the Otherwise Proviso and
G G
how it is to be invoked. The plaintiff can then make an informed decision
H H
whether to accept the payment or offer with the full knowledge that upon
I
acceptance, the prima facie rule on his entitlement as to costs may be I
displaced. Further, if a defendant is allowed to invoke the Otherwise
J J
Proviso without giving the prior warning, a plaintiff who has accepted the
K
payment or offer on the faith that he would be entitled to recover his costs K
up to the date of serving notice of acceptance would never know if at the
L L
next moment the defendant would apply for a different costs order. The
M
certainty as to costs created by the prima facie rule will be gone. Faced M
with the uncertainty as to costs, the plaintiff would be greatly handicapped
N N
in deciding if he should accept the payment or offer in the first place. It
O
would render the operation of sanctioned payments and sanctioned offers O
ineffectual.
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Wah. The simple reason is that the plaintiff had been clearly forewarned
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in the solicitors’ correspondence of the application under the Otherwise
C Proviso. C
I
For present purposes, I need not go into detail of how the learned Masters I
dealt with that authority. It is not necessary because it is a case decided
J J
on the pre-CPR provisions. We are now in the post-CJR era. We
K
should look at the current provisions, that is, Order 22 rule 21(1), to see K
how the court should approach the Otherwise Proviso. And as I have
L L
demonstrated above, on a proper understanding of Order 22, rule 21(1)
M
with a view to achieving its intended effect to encourage settlements, the M
requirement of a prior warning is indeed a pre-requisite for applying the
N N
Otherwise Proviso. In any event, if necessary, I prefer the reasoning of
O
Master Ng when she concluded that on the authority of Glenlion O
Construction Limited v Beqverfoam (Moreton) Limited, a prior warning is
P P
required.
Q Q
26. In sum, the prima facie rule in Order 22, rule 21(1) should
R apply unless (1) the defendant discharges the burden of showing R
S 9 S
Supra, at para 68.
10
Supra, at paras 107-109.
T 11 T
(1983) 134 Fam Law 861 (CA).
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application.
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J belief in their truth. However, at the hearing before me, Mr Kwok, SC, J
for the defendant, did not press on with these grounds.12 He just focused
K K
his submissions on the defendant’s complaint that the plaintiff had
L exaggerated its claim. He cited Order 62, rule 5(2)(c), which mandated L
the court, in exercising its costs discretion, to have regard to the point
M M
whether a claimant who has succeeded in his claim, in whole or in part,
N exaggerated his claim. He argued that the plaintiff had exaggerated the N
29. The mere fact that the plaintiff had accepted the sanctioned
R R
payment of a mere HK$100,000 does not necessarily mean that its original
S S
12
I would simply say that on the evidence available, the defendant would have
T tremendous difficulty to establish these grounds. T
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claim was exaggerated. Properly understood, the plaintiff’s claim for loss
B B
and damage was based on the actual compensations paid to S&G paid and
C increased from time to time. The compensations paid were well C
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E
9. The plaintiff has been under great pressure from its Board E
to settle the matter as expeditiously as possible in light of
the costs and time incurred and spent and to be incurred
F and spent. Prior to the plaintiff’s acceptance of the F
Sanctioned Payment, the proceedings had already been
running for over 3 years and many of the plaintiff’s
G G
witnesses have either left the company or about to retire
which increase our litigation risks. Further, in the course
H of seeking discovery from the defendant in early 2012, the H
plaintiff came to know from the defendant’s solicitors that
the defendant had sold its factory in the Mainland China
I back in September 2009. Naturally this caused further I
concerns about the potential recoverability of the judgment
sum from the defendant when the cost of preparing the
J J
action to a full trial continued to surge. I wish to mention
that in view of the prolonged proceedings and escalating
K legal costs, the plaintiff had approached the defendant at K
different stages of the proceedings with a view to exploring
an amicable settlement of the claim (including mediation)
L but to no avail. Against this backdrop, the Board decided L
to accept the Sanctioned Payment although this only
M represented a small portion of the plaintiff’s total claim. M
10. I was advised by the plaintiff’s legal advisors and believe
N that it was open for the defendant to make a payment into N
Court (prior to the Civil Justice Reforms) of a Sanctioned
Payment (post Civil Justice Reforms) and it chose not to do
O so until 3 years after commencement of the action when the O
matter was listed to be tried in the High Court. And the
defendant has all along vigorously defended the claim.
P P
As soon as the defendant made the Sanctioned Payment,
the plaintiff took into consideration all the circumstances of
Q the case including the legal advice given by its legal Q
advisers and litigation risks and decided to accept the
Sanctioned Payment. There is no room for the defendant
R to complain our acceptance of the Sanctioned Payment. R
and its being liable to pay our costs when it could have
S made payment into court as sson as the proceedings S
began.”
T T
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30. I reject Mr Kwok’s contention and hold that the defendant has
B B
not discharged the burden of showing exceptional circumstances to apply
C the Otherwise Proviso. Its application must fail on this ground alone. C
E 31. For completeness, I will deal with the requirement for prior E
G 32. Although the defendant did not accept that a prior warning G
J B3. Conclusion J
nisi that the defendant do pay the plaintiff costs, including any costs
L L
reserved, to be taxed if not agreed.
M M
C. SCALE OF COSTS
N N
34. Under Order 62, rule 9(1), where by or under the Rules of the
O O
High Court, costs are paid to any person, that person shall be entitled to his
P taxed costs. And “taxed costs” means costs taxed in accordance with P
Order 62 : see Order 62, rule 1. So the plaintiff is entitled to his taxed
Q Q
costs upon serving the notice of acceptance of the sanctioned payment.
R R
35. There are conflicting first instance authorities as to whether,
S S
when a High Court claim is disposed of by way of acceptance of a
payment into court under the old Order 22, which fell with the District
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the costs under Order 22, rule 20(1) are automatically taxed on the High
E E
Court scale or the scale is subject to the court’s discretion. It does not
F really matter because assuming that the latter view is correct, the plaintiff F
has satisfied me that it is entitled to have its costs taxed on the High Court
G G
scale.
H H
plaintiff could or should have commenced the action in the District Court.
K K
Although the plaintiff did accept the sanctioned payment of HK$100,000,
L it had good commercial reasons to do so. And it had already incurred L
O O
P P
Q 13 Q
Wellegant Development Ltd v Fine Telecom Ltd [2007] 2 HKC 427, per Deputy
High Court Judge L Chan (as he then was) at paras 48-49.
R 14 R
Wong Lan & Anor v Hong Chang Construction Transportation Engineering Co Ltd
& Anor [2007] 3 HKC 499, per Fung J at paras 42-44; Sunbeam Investments Ltd v
S
Mannitop Investment Co Ltd [2008] 5 HKC 250, per Burrell J at paras 10-12. S
15
The plaintiff’s case alone involved 3 factual witnesses with 9 witness statements,
5 expert reports including one joint expert report and documentary evidence of over
T 7,000 pages. T
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D D
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F F
(J Poon)
G
Judge of the Court of First Instance G
High Court
H H
K K
L L
M M
N N
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