Introduction
Background
Judgment
Comment


Introduction

In Östling v Östling & Anor,(1) the High Court was asked to determine the correct order to be made on the plaintiff's application to discontinue his action approximately eight days before trial. The plaintiff sought a discontinuance on condition that he pay the defendants' costs. The first defendant sought an order that the action be struck out and that his costs be paid by the plaintiff on an indemnity (higher) basis of assessment. The court appears to have used the case as an opportunity to clarify the usual order that should be made where a plaintiff applies to discontinue their action shortly before trial.

Background

How a party may bring an action or a claim to an end is important. One way is pursuant to Order 21, rules 2-3 of the Rules of the High Court, which provides for discontinuance or withdrawal. A party can discontinue their action or withdraw a claim against one or more defendants as of right, provided that they do so no later than fourteen days after service of the defence (or the last defence). Later applications to discontinue or withdraw require the court's permission. On discontinuance or withdrawal as of right, the plaintiff would normally expect to pay the defendant's costs unless there are good reasons for not doing so, in which case they can apply to discontinue or withdraw. Discontinuance or withdrawal as of right does not bar a plaintiff from commencing a second action based on the same claims. Where discontinuance is pursuant to a court application, the court can order discontinuance on such terms at it thinks just – including as regards the commencement of a subsequent action.

Östling v Östling & Anor appears to arise out of a dispute between two family members over the ownership of shares in the second defendant company (which was not represented at the court hearing). On the settlement of some other related proceedings, the plaintiff's legal representatives applied to discontinue the action on 16 March 2023 – approximately eight days before a four-day trial had been due to commence.

The plaintiff's application was contested because the first defendant wanted the plaintiff's action to be struck out (as opposed to discontinued) and his costs paid by the plaintiff on an indemnity basis. It appears that the first defendant considered that a formal strike out of the action would assist him with other existing or anticipated litigation overseas.

The issue for the court to determine was the correct order to make on the plaintiff's application to discontinue, together with the appropriate award of costs. At the hearing, the first defendant appears to have accepted that dismissal of the action was not an option under Order 21, rule 3 – the two options were either discontinuance of the action or strike out of any or all the claims. The first defendant argued that all the claims should be struck out.

Judgment

Discontinuance with permission of court
The court noted that this was a case of an application for discontinuance with permission of the court and the application had been made shortly before trial.(2) In those circumstances, the court held that where a plaintiff applied to discontinue their action so close to trial the order for discontinuance should be on terms that prohibit the plaintiff from recommencing litigation in respect of the same claims, unless they could show good reason as to why not. The court noted that such an outcome should provide a defendant with protection from the risk of relitigation.

Strike out
The court did not consider that strike out of the plaintiff's claims was appropriate. Generally, strike out of an action would be pursuant to established criteria – for example, as set out in Order 18, rule 19 (striking out pleadings and indorsements). The court commented:

In my view, a defendant who wishes an action to be struck out and who cannot satisfy the conventional criteria should ask the court to order the trial to take place. If the plaintiff elects not to prosecute the claim it will be struck out at what will be the end of probably a very short and straightforward trial.(3)

In this case, the court considered that strike out was inappropriate because:

  • while the first defendant considered that the plaintiff's action was (in effect) "devoid of merit", he had not sought to argue that the plaintiff's claims were liable to be struck out by reference to established criteria set out in Order 18, rule 19 (eg, the claims disclosed no reasonable cause of action or were an abuse of process);(4) and
  • the first defendant was unlikely to have been successful had he sought to demonstrate that the claims should be struck out on the conventional ground that it was "plain and obvious" that they would fail.(5)

Decision
The court ordered that the plaintiff's action be discontinued and that he not be allowed to commence proceedings in Hong Kong for the same or substantially the same relief.

As for costs, the court could not see that there was any special or unusual feature in the case such as to justify an award of indemnity costs against the plaintiff. The court ordered that the plaintiff pay the first defendant's costs on the usual basis and those costs be paid out of the HK$1.13 million (approximately £114,000) paid into court by the plaintiff as security for the defendants' costs, with the balance of such security being retained in court pending agreement or assessment of the first defendant's costs.

Comment

The judgment is a useful review of the practice on discontinuance with permission of the court, particularly where the application is made shortly before trial.

Discontinuance (of an action) and withdrawal (of one or more claims in an action) are provided for in Order 21, rules 2-5, which is a complete procedural code on the matter. Dismissal of an action (eg, as a result of the court's case management powers) is different to discontinuance by a plaintiff and Order 21, rules 2-5, does not address this remedy.(6)

In this case, the condition that the plaintiff not commence proceedings in Hong Kong seeking the same or substantially the same relief appears (in effect) to have given the first defendant the finality that he sought. Unlike with discontinuance, no such condition is usually necessary following dismissal of an action or strike out of a plaintiff's claim where the order is final (subject to appeal) and usually determinative of the issues in dispute.

While the different terminology (discontinuance, withdrawal, strike out or dismissal) can appear a bit confusing, it is important that an action is brought to an end in the appropriate way – particularly, in the context of settlement agreements where the parties often also seek further comfort from provisions such as releases, covenants not to sue and indemnities, among other things.

Finally, the court's judgment in Östling v Östling & Anor is a useful summary of well-established principles that support an award of indemnity costs. The last word should go to the court:

In the present context this means in my view that the court should not permit, and certainly avoid encouraging, disputes over the basis on which costs are ordered unless fairness requires it. Indemnity costs orders are the exception and the court is only likely to make an order for costs to be taxed on this basis if it has not heard argument on the merits of an application or proceedings as a whole, if it is obvious that the circumstances justify it and to do otherwise would be unfair to the successful party.(7)

For further information on this topic, please contact Samuel Hung or David Smyth at RPC by telephone (+852 2216 7000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) [2023] HKCFI 952, 17 April 2023 (and related proceedings – HCMP 782/2022 and 783/2022).

(2) Supra note 1, at para 6.

(3) Supra note 1, at para 7.

(4) Supra note 1, at para 7.

(5) Supra note 1, at para 7.

(6) It appears that the court has an inherent power to treat an application for discontinuance at trial as in effect an abandonment of the action and to refuse such application, resulting in an order for dismissal given the exceptional features of the case: Chiu v Chui [2023] 1 HKLRD 1375.

(7) Supra note 1, at para 13.