Civil Procedure — Costs — Action — Third party proceedings — Whether third party liable to costs incurred by defendant in action — Basis of taxation — Indemnity basis

The Defendant: represented by Mr. Simo Ho, instructed by Messrs. Ince & Co., Solicitors.

The Third Party: represented by Mr. Jose Maurellet, instructed by Messrs. Wilkinson & Grist, Solicitors.

Judge Chow


Decision

[1] There are two summonses I have to deal with: the summons taken out by the Third Party on 29 April 2009, and the summons taken out by the Defendant on 29 May 2009. In the former summons, the Third Party applied for the following orders:

(1) The Defendant’s costs of the Main Action shall be recoverable as costs to be taxed by the Court on party and party basis;

(2) The Defendant’s costs of and incidental to the Third Party Proceedings payable by the Third Party be taxed on party and party basis.

[2] In the latter summons, the Defendant asked the following orders to be made:-

(1) The Defendant’s costs of and incidental to the Main Action including those incurred in defending the claim by the Plaintiff and pursuing counter-claim against the Plaintiff be paid by the Third Party as damages to be assessed.

(2) Further or in the alternative, the Defendant’s costs of and incidental to the Main Action including those incurred in defending the claim by the Plaintiff and pursuing counter-claim against the Plaintiff be paid by the Third Party on an indemnity basis, to be taxed if not agreed.

(3) The Defendant’s costs of and incidental to the Third Party Proceedings be paid by the Third Party on an indemnity basis, to be taxed, if not agreed.

[3] The Defendant accepts that the costs of the Main Action are to be paid on an indemnity basis; it would not insist the costs of the Main Action to be assessed as damages. The Third Party agrees to pay the costs of the Main Action, but argues that it should be taxed on party and party basis.

Background

[4] On 12 April 2008, the Plaintiff instituted an action against the Defendant to recover the balance of the purchase price of certain moulds in the sum of $375,000, pursuant to a purchase order (dated 2 November 2007) issued by the Defendant to the Plaintiff. The total purchase price was $750,000. The Defendant paid a deposit of $375,000, leaving a balance of $375,000.

[5] On 31 December 2007, the Defendant and the Third Party entered into an asset transfer agreement ("the Asset Transfer Agreement") under which all the Defendant’s rights and obligations of the purchase of the moulds were transferred to the Third Party.

[6] On 12 April 2008, the Plaintiff issued the Writ of this case against the Defendant. After receiving the Writ, the Defendant sent a email to the Third Party, asking them to make the payment of the balance of $375,000. But the Third Party did not make any response.

[7] On 9 May 2008, the Defendant filed a defence and counter-claim to respond to the claim. On 21 May 2008, the Defendant’s solicitors wrote to the Third Party, asking the Third Party either to pay off the Plaintiff immediately if they think that there is no defence to the claim, or if they think that there is a good defence they shall take over the proceedings by appointing their own lawyer. But the Third Party made no response. On 18 June 2008, the Defendant issued a Third Party Notice against the Third Party to indemnify the Defendant against the claim, and costs incurred by the Defendant in defending the claim and in pursuing the indemnity. On 30 June 2008, the Third Party filed an acknowledgement of Service to contest the Third Party proceedings.

[8] On 14 November 2008, the parties agreed, by way of a consent summons, amongst other things, that:-

(1) the Plaintiff shall deliver the moulds to the Third Party on the terms set out therein;

(2) the Main Action shall be wholly discontinued;

(3) the default judgment be set aside with no order as to costs;

(4) the Third Party admits liability to pay the Defendant’s costs of and incidental to both the Main Action as well as the Third Party Proceedings, and the quantum of liability would be subject to the Court’s determination on the following issues: -

(i) Whether the Defendant’s costs of the Main Action shall be recoverable as damages to be assessed or as costs to be taxed by the Court or partially assessed and partially taxed; and

(ii) Whether the Defendant is entitled to costs of the Main Action and of the Third Party Proceedings (which the Defendant accepts assessment or taxation by the Court) on an indemnity basis.

On 17 November 2008, Master K. Lo made an order in terms of the consent summons.

[9] Under the Asset Transfer Agreement, the Defendant transferred to the Third Party all their rights "under open purchase orders for merchandise for resale, components parts and tooling, including carryover orders and future purchase orders" (section 1.1(e)), "all obligations and liabilities under the Purchase Orders existing at the Closing Date (31 December 2007)" (section 1.3(b)), and section 3.5(a) provides that "legal and equitable title and risk of loss with respect to all of the Transferred Assets shall pass" to the Third Party. By reason of the above provisions, it is undisputable that the obligations and liabilities of paying for the Moulds were transferred by the Defendant on 31 December 2007 to the Third Party. Thus, when the Plaintiff instituted the proceedings on 12 April 2008, for the balance of the purchase price, the liability of paying the balance rests with the Third Party. The Defendant had no more liability to shoulder as all the rights and liability relating to the Moulds had been transferred to the Third Party. Because the Third Party did not pay or defend the action on behalf of the Defendant, the Defendant was forced to face the legal suit, practically in the shoe of the Third Party; he was in effect acting for the Third Party, and not for itself, because in respect of the Moulds, it had no liability to bear since 31 December, 2007. On this basis it must be indemnified by the Third Party for the costs it reasonably incurred.

[10] The Third Party argued that there is no special feature in this case to depart taxation on a party and party basis. Because of the matters aforesaid, that cannot be right. Order 62, r. 28(2) and (4) of the Rules of the District Court provide:-

"(2) Subject to the following provisions of this rule, costs to which this rule applies shall be taxed on the party and party basis, and on a taxation on that basis there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed.

……

(4) On a taxation on the common fund basis, being a more generous basis than that provided for by paragraph (2), there shall be allowed a reasonable amount in respect of all costs reasonably incurred, and paragraph (2) shall not apply; and accordingly in all cases where costs are to be taxed on the common fund basis the ordinary rules applicable on a taxation as between solicitor and client where the costs are to be paid out of a common fund in which the client and others are interested shall be applied, whether or not the costs are in fact to be so paid."