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Union Glory Finance Incand Others v Merrill Lynch International Bank Ltd And Another

Judgment Cited authorities 8 Cited in Precedent Map Related
Vincent
Judgment Date13 December 2016
Subject MatterCivil Action
Judgement NumberHCA2494/2013
CourtHigh Court (Hong Kong)
HCA2494A/2013 UNION GLORY FINANCE INCAND OTHERS v. MERRILL LYNCH INTERNATIONAL BANK LTD AND ANOTHER

HCA 2494/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2494 OF 2013

____________________

BETWEEN
UNION GLORY FINANCE INC 1st Plaintiff
DOUBLE SMART FINANCE LIMITED 2nd Plaintiff
HANSON FINANCE LIMITED 3rd Plaintiff
CW FINANCING LIMITED
(formerly known as WILLIE FINANCING LIMITED)		 4th Plaintiff

and
MERRILL LYNCH INTERNATIONAL BANK LIMITED 1st Defendant
MERRILL LYNCH (ASIA PACIFIC) LIMITED 2nd Defendant
____________________
Before: Deputy High Court Judge Cooney SC in Chambers
Date of Written Submissions by the defendants: 6 October 2016
Date of Written Submissions by the plaintiffs: 20 October 2016
Date of Decision on Costs: 13 December 2016

_________________________

DECISION ON COSTS

_________________________

Introduction

1. On 22 September 2016, I dismissed the plaintiffs’ claims and ordered the plaintiffs to pay the defendants’ costs. By written submissions, dated 6 October 2016, the defendants applied for costs on an indemnity basis and for interest on those costs at 10% above judgment rate. The plaintiffs replied by written submissions, dated 20 October 2016.

2. By letter, dated 10 November 2016, the defendants’ solicitors asked the court to make an order that the plaintiffs pay the defendants costs on an indemnity basis from a date which the court deemed appropriate, with certificate for two counsel.

3. By letter, dated 15 November 2016, the defendants’ solicitors advised that the defendants were seeking a certificate for two counsel for both the pre‑trial review on 13 January 2016 and for the trial.

4. The grounds relied upon by the defendants are:

(1) On 30 December 2014, the defendants made a Calderbank offer to settle on the basis that the proceedings be discontinued with the parties bearing their own costs; and

(2) On 29 May 2015, the defendants made a sanctioned payment into court in the sum of HK$1,167,000.00.

5. The defendants rely upon Order 22, rule 23 of the Rules of the High Court, which provides:

“(1) This rule applies where a plaintiff —

(a) fails to obtain a judgment better than the sanctioned payment; …

(3) The court may order the plaintiff to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without requiring the leave of the court.

(4) The court may also order that the defendant is entitled to —

(a) his costs on the indemnity basis after the latest date on which the plaintiff could have accepted the payment or offer without requiring the leave of the court; and

(b) interest on the costs referred to in paragraph (3) or sub‑paragraph (a) at a rate not exceeding 10% above judgment rate.

(5) Where this rule applies, the Court shall make the orders referred to in paragraphs (2), (3) and (4) unless it considers it unjust to do so.”

6. When considering whether it would be unjust to make the orders referred to in para (3) and (4) the court shall take into account all the circumstances of the case including the matters set out in Order 22, rule 23(6), namely, the terms of the sanctioned offer, the stage at which any sanctioned offer was made, the information available to the parties at the time when the sanctioned offer was made and the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

7. The defendants ask for indemnity costs and interest on those costs from 30 December 2014 (the date of the Calderbank offer) or 26 June 2015, the latter date being the latest date (28 days after payment) on which the plaintiff could have accepted the sanctioned payment without requiring the court’s leave.

8. As the plaintiffs failed in their claim entirely, they plainly failed to better the sanctioned payment and this is a case for consideration of indemnity costs and interest above judgment rate.

9. As noted in Hong Kong Civil Procedure 2017 Vol 1, para 22/24/1, indemnity costs and interest above judgment rate are not penal. The rules are designed to provide important incentives to encourage parties to make, and accept, settlement offers at appropriate levels. The objective is to achieve a fair result.

Indemnity costs

10. The plaintiffs submitted an award of indemnity costs would be unjust for the following reasons:‑

(1) That the sanctioned payment was manifestly insufficient when compared with the total of the plaintiffs’ claims (HK$45,475,899.41) plus interest.

(2) The plaintiffs’ considered they had a strong case. They had conducted financial checks on the subject borrower and found it to be in poor shape such that they would not be prepared to lend money to it unless their loans were protected by what they believed was a commitment by Merrill Lynch to lend the borrower HK$200,000,000.

(3) The plaintiffs’ witness was only prepared to recommend the loans to the defendants because he believed Merrill Lynch had committed to lending the borrower HK$200,000,000.

(4) The plaintiffs were entitled to take the view that a court, taking into account inherent probabilities and improbabilities, would accept that there clearly was something which motivated the plaintiffs to advance over HK$70,000,000 to an uncreditworthy borrower and that that something was the alleged misrepresentation that Merrill Lynch had committed to lend HK$200,000,000 to the borrower.

(5) In other words, the decision to reject the minimal sanctioned payment was a considered and not a frivolous decision.

(6) There were no adverse findings of untruthfulness made by the court regarding the plaintiffs’ witnesses.

(7) The court had rejected part of one of the defendants’ witness’ evidence.

(8) Of seven days of evidence, the plaintiffs’ case took 5½ days, principally consisting of cross‑examination by the defendants’ leading counsel. In contrast the defendants’ case lasted only one day, including cross‑examination confined to only the essentials. The plaintiffs did not prolong the trial unnecessarily.

Discussion

11. The procedural requirements of Order 22 were complied with.

12. Regarding the terms of the sanctioned offer, as noted in Hong Kong Civil Procedure 2017 Vol 1, para 22/24/1, a sanctioned offer does not have to be of a large amount and a nominal amount qualifies. In CEP Ltd v Wuxi Jiacheng Solar Energy Technology Co Ltd [2014] 4 HKLRD 44, Recorder Jat Sew Tong SC held that a sanctioned payment for a nominal sum was not in itself unreasonable.

13. In a long letter to the plaintiffs’ solicitors, dated 30 December 2014, the defendants’ solicitors set out detailed reasons why the defendants considered that the plaintiffs’ claims would fail. In that letter, the defendants proposed that the plaintiff discontinue the proceedings, with the parties bearing their own costs. At the time the sanctioned payment was paid into court, in a letter, dated 29 May 2015, the plaintiffs’ solicitors referred to their earlier letter and repeated that the defendants considered the claims were without merit and advised that the defendants were prepared to settle the matter by way of the sanctioned payment with a view to avoiding wasting further time and costs.

14. The letters indicate that the defendants considered they had a good defence and were making a genuine offer to settle. In the circumstances, I am not prepared to refuse indemnity costs because of the amount of the sanctioned payment.

15. As to the plaintiffs’ assessment of the strength of their case, whatever strength the plaintiffs perceived in their case, the fact remains that they failed to better the sanctioned payment. That they believed in their case and were not frivolous does not mean that an award of indemnity costs would be unjust. Litigation carries risk and belief in the strength of a case is a matter of assessment of that risk. Howsoever the plaintiffs assessed their risk, the result was that the plaintiffs failed to establish fundamental elements of a case of misrepresentation.

16. Turning to the stage in proceedings at which the sanctioned payment was made, the sanctioned payment was made at an early stage, about 1½ years before trial. By the time the sanctioned payment was made, lists of documents and witness statements (apart from one) had been filed and served. The issues and the parties’ respective cases should have been clear by that time. The sanctioned payment was made at an appropriate stage in proceedings and I have not been referred to any evidence demonstrating that the plaintiffs were refused any relevant information for the purposes of enabling the offer to be evaluated.

17. As for the defendants’ witness whose evidence was partly rejected, if that part of his evidence caused the plaintiffs to consider that they had a strong case, that evidence was not determinative. The plaintiffs failed because they failed to prove their own case. Not only did they fail to prove that the defendants’ witnesses made the representations pleaded in the statement of claim and in the evidence of their witnesses, they also failed to establish the necessary relationship to give rise to a duty of care owed by the defendants and they failed to establish reliance, both of which are elements for the plaintiffs to prove.

18. I do not consider the defendants unnecessarily prolonged the trial.

19. After considering all of the circumstances, I do not consider that an award of indemnity costs would be unjust.

20. As for the date from which indemnity costs should apply, I consider they should apply from 27 June 2015, which is the first day after the...

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