SUPPLY CHAIN & LOGISTICS TECHNOLOGY LTD v. NEC HONG KONG LTD

HCA 1939/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1939 OF 2006

———————-

BETWEEN

SUPPLY CHAIN & LOGISTICS TECHNOLOGY LIMITED(供應鏈及物流科技有限公司) Plaintiff
and
NEC HONG KONG LIMITED Defendant

———————-

Before: Hon Lam J in Chambers

Date of filing of Written Submission: 8 December 2008

Date of Judgment on Costs: 29 January 2009

————————————————

JUDGMENT ON COSTS

———————————————-

1. Further to my Ruling on 24 November 2008, the Defendant put in a written submission on 8 December 2008. The Plaintiff chose notto file anything.

2. As per Paragraph 14 of my Ruling, I regard that both parties are applying for leave to discontinue their respective claims and counterclaim. I do not see any reason why things should not be regarded as finalized once and for all. I therefore grant leave to the Plaintiffto discontinue the claims without further recourse. In other words, the Plaintiff cannot commence fresh action on the same claimsagainst the Defendant.

3. In the same vein, and there is no objection to this by the Defendant, I grant leave to the Defendant to discontinue the counterclaimwithout further recourse.

4. On the question of costs, in respect of the Plaintiff’s claims, I do not see any reason to depart from the general rule that aplaintiff who discontinues his claim should pay the costs of the defendant. I therefore order the Plaintiff to pay the Defendant’scosts in respect of the claims herein.

5. In respect of the Defendant’s counterclaim, solicitors for the Defendant submitted that there should be no order as to costs. The Defendant said it decided to discontinue with the counterclaim for pragmatic reasons after the Plaintiff filed a Notice of Discontinuanceon the claims. The counterclaim was for damages quantified by the Defendant at $200,000 and proceeding with the counterclaim aloneis not justifiable in terms of costs. Witness who left the employment of the Defendant had to be flown from overseas and counselhad to be engaged if there were to be a trial on the counterclaim. Thus, although the Defendant did have the evidence to substantiatethe counterclaim, it decided to drop the same for economic consideration.

6. I accept this is not a case where the counterclaim is doomed to fail and the discontinuance of the counterclaim cannot be regardedas an acknowledgment of defeat. But it has been established in Hong Kong that the general rule does not cease to apply when a partydiscontinues his claim for reasons other than an acknowledgment of defeat, see Inchroy Credit Corp v Cheung Man Cheung [1991] 2 HKC 619 and Trend Publishing (HK) Ltd v Vivien Chan & Co [1996] 3 HKC 433. There must be good reason to show it is just to deprive the other party of his costs as a matter of discretion. The mere fact thata plaintiff discontinues with his claim for economic consideration by itself is not enough.

7. But the Defendant in the present case does not rely on its discontinuance of the counterclaim for economic consideration alone. It is said that the Defendant only made a Counterclaim in the light of the claims advanced by the Plaintiff. And the Plaintiffhad chosen to discontinue the claims at the last minute when the action was about to come on for trial.

8. Further the Defendant asked this court to take into account of the unreasonable delay on the part of the Plaintiff in the conductof the action at various stages outlined in the solicitor’s letter of 20 October 2008. There was dilatoriness on the part of thePlaintiff throughout the history of the proceedings. More significantly, the conduct of the Plaintiff leads this court to take theview that after the filing of the witness statements, the Plaintiff did not have any serious intention of continuing with the litigation. As a matter of fact, the witness statements of the Plaintiff were only filed after a long delay and the Defendant had to get anunless order before the statements were filed.

9. The lack of intention to proceed with the claim is reflected by the Plaintiff’s failure to engage trial counsel for the preparationof the checklist hearing and the Master therefore directed the Plaintiff to confirm the length of trial at the pre-trial review bytrial counsel. At the pre-trial review on 19 August 2008, the Plaintiff’s solicitor told this court that the Plaintiff had notyet instructed counsel. Bearing in mind the direction of the Master and that the trial was to commence on 13 October and in thelight of the filing of Notice of Discontinuance by the Plaintiff on 4 October, a few days before the trial, the inescapable inferenceis that the Plaintiff did not have any serious intention to instruct any counsel for trial even after the case had been set down.

10. At the pre-trial review, the court gave directions for the trial and adopted the procedures in Parts B and D of Practice Direction6.3 with modifications. Pursuant to such directions, the Defendant issued a mediation notice on 23 August 2008. The Plaintiff failedto file any response and up to now no explanation had been offered for such failure. As far as this court is aware, the only thingthe Plaintiff did after the pre-trial review was to file a Notice of Discontinuance on 4 October 2008. These are hardly conductsof a litigant who is serious with his claims.

11. Failure to participate in mediation can be taken into account on the question of costs. The rationale is that the purpose of civillitigation is to resolve dispute between the parties. Proper case management requires the court and the parties to consider whatis the most cost effective and satisfactory way to resolve a dispute. In many instances, adversarial litigation is only one of themodes to resolve a dispute and it may not be the best mode. If there is an alternative by which the dispute may be resolved in amore cost effective, timely and satisfactory manner but a party insists on resorting to litigation despite suggestion from the courtto explore that alternative, in effect he is adopting a potentially more expensive and time-consuming mode in dealing with the samesubject matter that may cause greater attrition to all parties in terms of financial and personal well-being and human relationship,and as such less satisfactory. He may or may not have good reasons for taking such a stance. But before the court suggests theparties to consider mediation, it usually would have examined whether the case is appropriate for mediation. A party who choosesto ignore such suggestion should not be surprised if the court seeks an explanation from him for not making attempts in mediationwhen it deals with the question of costs.

12. This approach is well in line with English authorities, see Dunnett v Railtrack [2002] 1 WLR 2423 and Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002. In Hong Kong, the pilot schemes on mediation in the High Court Construction and Arbitration List, Sections 168A and 177(f) Companies Ordinance cases and the Lands Tribunal Building Management Cases adopted the same approach.

13. In dealing with costs, it is well established that settlement attempts that have a prospect in satisfactory resolution of the disputeand the rejection of such attempts are relevant considerations because such case management conducts have a direct bearing on thereduction or escalation of the costs of the litigation. As Simon Brown LJ put it in Butcher v Wolfe [1999] 1 FLR 334,

“For the plaintiff to be entitled to recover his costs — in this or any other litigation — he must show at least that he hasobtained at the hearing something of value which he could not otherwise have expected to get. Only that justifies his proceedingwith the action to trial.”

14. Mediation is in substance third party neutral assisted negotiation. It has a better prospect of success than the usual inter partes negotiation because of the involvement of a neutral who has the necessary skill and expertise in helping the parties to explore theirrespective needs and interests with a view to come to a solution acceptable to all parties. That is so even in cases where mediationis compared with inter partes negotiation conducted through the parties’ lawyers. By the very nature of the different role played by a lawyer acting for a party,there are things that a skillful mediator can achieve which such lawyer cannot. Thus, unreasonable refusal to participate in mediationeven after the court suggested the parties to do so is a conduct relating to the litigation that should be taken into account whenthe court deals with question of costs.

15. However, in the present case, not much legal cost were incurred after the Plaintiff’s failure in responding to the Defendant’smediation notice due to the discontinuance of the claims and the counterclaim. Hence, it is difficult to suggest that the failureon the part of the Plaintiff to participate in mediation has any significant impact on costs. The position may well be differentif the Defendant has issued a mediation notice earlier or if the case has proceeded to trial.

16. But the failure to response to the Mediation Notice is an event that the court can take into account in considering whether thePlaintiff has been acting properly in the pursuit of its claims or the defence of the counterclaim. Such failure is a non-compliancewith the direction of this court given on 19 August 2008 and the only step taken by the Plaintiff afterwards was the filing of theNotice of Discontinuance on 4 October 2008.

17. The situation is compounded by the Plaintiff’s complete silence when the court directed submissions on costs were to be made.

18. In the circumstances, I conclude that after the filing of the written statements the Plaintiff did not pursue this litigation withany serious intent to bring it to trial and to defend against the counterclaim. As far as I can see, very little has been done onthe part of the Plaintiff in the preparation of defence to the counterclaim. Taking all these into account, it is just that in respectof the counterclaim there should be no order as to costs.

(M H Lam)
Judge of the Court of First Instance
High Court

Messrs Benny Kong & Yeung, for the Plaintiff

Messrs Hasting & Co., for the Defendant