What is the proper costs order for an interlocutory injunction when the defendant later decided to concede?

In the case of Fremery Enrich Holdings Ltd and another v Chan Michael Cyrus (formerly known as Chan Yun Yin) and another [2024] HKCFI 2011, the Court of First Instance was asked to determine the issue of costs of an injunction application in a case where the substantive issues of the injunction application had been agreed upon. The 1st Defendant, represented by DLA Piper Hong Kong, received a favourable ruling and the 1st Defendant was granted costs for the hearing. The DLA Piper team was led by Harris Chan (Partner), assisted by Desmond Cheung (Of Counsel) and Cleo Chau (Senior Associate).

 

FACTUAL BACKGROUND

The Plaintiffs applied for an interlocutory injunction against the Defendants in February 2024 (Injunction). Between the Plaintiffs and the 2nd Defendant, the 2nd Defendant has agreed to be subject to the Injunction until trial or further order of the court, and it was agreed that costs of the injunction application to be in the cause of the action.

Initially, the 1st Defendant opposed to the Injunction and sought time extensions to file and serve his evidence in opposition. In the affirmation filed by the 1st Defendant in May 2024, the 1st Defendant stated that he would in principle agree with the substantive reliefs sought by the Plaintiffs in the Injunction "solely to save time and costs, and without prejudice to [his] position, contentious or defence in [the] proceedings and without any admission". However, the 1st Defendant's position was that the costs of the application should be in the cause of the action or reserved.

There were rounds of correspondence between the Plaintiffs and the 2nd Defendant on the issue of costs whereby the Plaintiffs asked for an immediate costs order in their favour, and the 1st Defendant maintained that the costs should be in the cause of the action.

 

ISSUE

The issue before the Court was what the proper costs order should be for the interlocutory injunction application in which the Plaintiffs had succeeded in getting all the substantive injunctive relief by reason of the concession made by the 1st Defendant some time before the hearing.

 

DECISION

Acknowledging that there is no default position on costs for an interlocutory injunction application, the Court considered the following matters in ruling that the costs of the injunction application (save for the costs of the hearing) should be in the cause of the action: (i) the end result of the injunction application, (ii) the 1st Defendant's delay in conceding; and (iii) the remaining costs of the injunction application.

The end result of the injunction application

The Plaintiffs argued that they are the successful party in receiving all the substantive injunctive reliefs so they are entitled to receive the awarded costs immediately. However, the Court pointed out that the merits of the injunction application remains undetermined, which supports the 1st Defendant's position to align the costs of the application with the costs of the action. Further, the Court considered the reason for the 1st Defendant's concession was to save costs and time, in which the Court recognised that much time and costs had in fact been saved, e.g. the Plaintiffs did not need to file a reply affirmation and the parties did not need to file full-blown skeleton submissions for the hearing.

Delay in conceding

The Court did not see any substantial or prejudicial delay in the 1st Defendant's concession. Although the 1st Defendant indicated that he would oppose the application and had sought 2 time extensions to file his opposition affirmation, the 1st Defendant made the concession in May 2024, which was 3 months after the injunction application and about 7 weeks before the hearing. The Court was of the view that there was still ample time for the Plaintiffs to consider the 1st Defendant's proposal before the hearing in July 2024.

The remaining costs of the Injunction application

Most of the costs in the injunction application had been dealt with previously by the Court's express costs orders. The Court considered the remaining costs to be insignificant and minimal as the costs only concerned the 2-page affirmation filed by the 1st Defendant and written correspondence between the Plaintiffs and the 1st Defendant. The Court accordingly held that there was no strong reason for the Plaintiffs to insist that the 1st Defendant should immediately pay those costs.

As for the costs of the hearing, the Court granted costs to the 1st Defendant because the 1st Defendant already proposed back in May 2024 to settle the matter in the form of the Court's ruling. As such, the Plaintiffs ought to have accepted the 1st Defendant's offer so that the hearing could have been avoided.

 

KEY TAKEAWAYS

The Court's decision in this case illustrates that a defendant's change of mind in relation to its position regarding an injunction application does not necessarily mean that costs of the injunction application must be paid immediately to the "successful party", i.e. the plaintiff who obtains the substantive relief. In determining the costs order of an interlocutory injunction application, the court has a broad discretion in taking into account all the relevant circumstances of the particular case. Therefore, when conceding to an injunction, it would be helpful to set out express reservations, namely that the concession was made without prejudice to one's position or defences and without admitting any liability.

Further, parties should also consider the amount of the costs in dispute as the Court in this case explicitly stated that parties are expected to resolve their differences for insignificant costs pragmatically. The party who did not accept a proposal which then becomes a costs order made by the court may have to bear the costs of the hearing if the such costs issue has to be ultimately settled by the Court.