Costs on an Indemnity Basis

When costs are awarded, it is usually on a standard basis and where the party claiming costs has to demonstrate that the costs are reasonable before being allowed to claim for it. In practice, what this means is that the amount of costs awarded can be significantly lower than any out-of-pocket legal fees you may have paid your lawyers. So typically, at the Court of Appeal, where costs is awarded whether the appeal is allowed or dismissed, the figure for costs can be as low as RM5,000 or RM10,000 although a party may have paid its lawyer a lot more than that.

In certain exceptional circumstances, costs can be awarded on an indemnity basis. In practice, this means that a party ought to be allowed a full reimbursement of that party’s out-of-pocket legal expenses unless the paying party can show that certain items were so unreasonable.

The guiding principles on costs on an indemnity basis was summarised in the English High Court decision of Fiona Trust & Holding Corporate and ors v Yuri Privalov and ors [2011] EWHC 664 (Comm), where Justice Andrew Smith at [61] identified the following guiding principles:

“(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.

(2) The critical requirement before an indemnity order can be made in the successful defendant’s favour is that there must be some conduct or some circumstance which takes the case out of the norm.

(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.

(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.

(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.

(6) A fortiori, where the claim includes allegation of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross-examination.

(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.

(8) The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a defendant has discontinued only at a very late stage in proceedings:

(a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time;

(b) Where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology, to the bitter end;

(c) Where the claimant actively seeks to court publicity for its serious allegations both before and during the trial in the international, and national and local media;

(d) Where the claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case;

(e) Where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, far-fetched;

(f) Where the claimant pursues a claim which is irreconcilable with the contemporaneous documents;

(g) Where a claimant commences and pursues large-scale and expensive litigation in circumstances calculated to exert commercial pressure on a defendant, and during the course of the trial of the action, the claimant resorts to advancing a constantly changing case in order to justify the allegations which it has made, only then to suffer a resounding defeat.”

Locally, the Federal Court in Takako Sakao (f) v Ng Pek Yuen (f) & Anor (No 2) [2010] 2 MLJ 181 has held that the discretion to award costs on an indemnity basis is unfettered. Gopal Sri Ram FCJ quoted with approval some of the guidelines for an award of indemnity costs as discussed by Millett J (later Lord Millett) in Macmillan Inc v Bishopsgate Investment Trust plc and others (No 3) [1995] 3 All ER 747 :

 The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win. Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be ‘appropriate’.


Practical Tips when Seeking Committal

Some practical tips to keep in mind if an applicant is ever seeking committal proceedings to enforce compliance of an Order.

1. Set time frame to do the act

During litigation, if you are seeking to compel someone to do something (e.g. hand over documents, to hand over vacant possession, etc), do include an explicit time frame for them to do it. Committal can then be easily enforced for if there is a breach to do that act within that time frame (O. 45 r. 5 of the Rules of the High Court 1980 (“RHC”)), then you can apply for leave to commit. There is case law that states without such a time frame, you may not be able to go for committal. Without such a time frame, you may also not be able to get the penal indorsement (see below).

2. Set long enough time frame to get sealed Order and to serve

 However, do list out a long enough time frame (e.g. 28 days) for that person to do the act as you can only go for committal if the sealed Order is served personally on that person before the expiration of the time frame (O. 45 r. 7(2)(b) RHC). You can however go for an extension of the time frame, but that will add further complication and another round of litigation.

3. Penal indorsement

In order for you to go for committal for failure to do something within a certain time, the sealed Order must be indorsed with the necessary penal notice. When trying to extract the sealed Order, please double check that both the Order is sealed AND the penal notice which is at the bottom of the Order is sealed as well. Failure to seal the penal notice will make it defective. Sometimes, the Registrar and the court staff will forget to get the penal indorsement sealed.

4. Leave for committal

When going for leave for committal, which is carried out on an ex parte basis, you may also want to consider whether you want to have an additional prayer to exclude the need for personal service of the committal papers. Possibly state that the proper service can be effected by service on the contemnors’ solicitors (applicable if there is already ongoing litigation).

This is useful where you have individuals who may evade the service of the contempt papers, because the RHC requires that the contempt papers, after you get leave, be served personally on the alleged contemnors.

There should be some explanation  in your affidavit in support of leave as to why you are asking for dispensation of personal service. You may have tried to serve an order before on these individuals for instance. If there is no disclosure of such grounds, the contemnors could try to set aside the ex parte leave Order.

5. Ex parte hearing for leave

If you are on the other side and your opponent is seeking leave for committal and you get wind of it, there is a High Court authority allowing a Judge discretion to hear you notwithstanding that the RHC states that leave must be ex parte.

I however lost before a Judge when the Court read the RHC very strictly and said since the RHC states that leave for committal “shall” be heard ex parte, the Court had no discretion and the Court did not allow me to be heard at the ex parte leave hearing. I still prepared submissions and left the submissions and authorities with the Court, as I stated that since this was an ex parte hearing, the Court would still have to consider all the arguments for and against the grant of leave. I still lost the leave application anyway (but eventually succeeded in opposing the committal proper).

Penal Notice on Court of Appeal Order

If pending your appeal at the Court of Appeal, you apply for an interim Order under section 44 of the Court of Judicature Act 1964, it is advisable to include a prayer along the lines of:

 “that the penal notice under Form 87(c) of the Rules of the High Court 1980 be endorsed unto this order”

The Rules of the Court of Appeal does not have a provision for the penal notice, so you will not be able to automatically include the penal endorsement. The prayer for the penal notice was granted by the Court of Appeal in the Metramac case for instance (see the Federal Court decision in Metramac Corp Sdn Bhd (formerly known as Syarikat Teratai KG Sdn Bhd) v Fawziah Holdings Sdn Bhd [2006] 4 MLJ 113).

Foreign Deponents of Affidavits in Malaysia

What is the correct procedure to allow for foreign deponents to affirm affidavits for use in Malaysian Court proceedings? See my summary of the procedure.

(i) Affirmation

Under Order 41 Rule 12 of the Rules of the High Court 1980, deponents from a Commonwealth country can affirm the affidavit before a notary public or person having authority to administer oaths (where there are commonly Commissioner for Oaths in Commonwealth countries).

But where the deponent is NOT from a Commonwealth country, then he must affirm the affidavit before a consular officer of a Commonwealth country i.e. head to the nearest Commonwealth embassy in that country.

(ii) Translation

Have the deponent affirm everything in English (which would include the exhibit cover page and all the headings in English).

The English copy of the affidavit will be filed and a Malay version of the affidavit will have to be affirmed by a certified translator and this Malay affidavit will exhibit the entire English affidavit along with a Malay translation of the contents. You can see this method stated by Vincent Ng J in Gilbert Engineering Co Inc v Zainuddin Ahmad & ors (No. 2) [2003] 3 CLJ 39.

Drafting of Court Applications

The drafting of court applications is an essential skill of all litigation lawyers. Whether it is the drafting of an originating process like a Writ of Summons or Originating Summons, or an interlocutory application via a Summons in Chambers, you will be eventually asking for the Orders you have crafted out in your court papers. So you need to be sure that the Orders have a sound basis in law and you need to protect your application from any sort of procedural objections.

A suggested workflow for such drafting can be along the lines of the following steps:

1.A possible starting point is to check with a colleague to get a sample precedent. This is often useful but it is merely the first step.

2.The more definitive source would be to look at the English Atkin’s Court Forms for the specific type of application you are drafting. The English civil procedure rules changed significantly post-1999 so if the application is very much based on civil procedure rules rather than a specific area of the law, it is best to have an older version of Atkin’s at hand.

3.The Malaysian Court Forms is the local version of Atkin’s and though not as extensive, it is also useful to compare with this guide.

4.Where the application is based on a specific statute, it is good to also check the annotated statutes to have a read of the description of that area of the law and the cases that have been decided under that section. CLJ Law provides a useful Noter Up function when you click on specific provisions of any Act.

5.Where your application is grounded on a specific provision of the Rules of the High Court 1980, then you need to have a read of the Malaysian High Court Practice book (dubbed the ‘Red Book’) which sets out a full description of the law under the various provisions. If you want to be thorough, then have a read of the English Supreme Court Rules (the old ‘White Book’) just to have a feel of what the old English authorities have to say, although these cases will not be directly binding.

6.Have a quick read of some recent appellate or High Court authorities on the specific provision, and in particular, to see what sort of objections may have been raised before. These cases also help to sometimes set out the Orders being prayed for and you can check the wording of your application with what was decided in that case and what was argued in that case.

For example, where you are drafting for various Orders allowing a director to inspect the records of a company under section 167 of the Companies Act 1965. A check through the case law will reveal that there is the decision of Paul Nicholson lwn Faber Medi-Serve Sdn Bhd & Satu Lagi [2002] 5 CLJ 383 which allowed certain Orders for not only the director to carry out an inspection of records, but also for the director to bring on to the company premises 2 photocopying machines to make copies and for 3 staff to operate the machines. So if you wanted such a wide Order, you would mirror the language of the Orders in the Paul Nicholson case and you would be able to rely on that authority at the hearing before the Court.

7.Armed with the above precedents and with the cases in mind, then you can craft your application or affidavit in support.

8.After drafting, take a step back and think of the Order that you are seeking and whether it will be easy to enforce, or whether procedural objections could be taken by the other side. More so, if you are applying for Orders ex parte (e.g. leave to enter Judgment in Default, or registration of a foreign judgment, or garnishee proceedings) and where you first serve the Order and a defendant has a right to set aside the Order. That is where the avalanche of procedural objections may be raised.

The Implied Undertaking Rule

An interesting read, Allens Arthur Robinson’s update on the implied undertaking rule which was affirmed by the recent Australian High Court decision of Hearne v Street[2008] HCA 36.The implied undertaking rule is that a party receiving documents in litigation holds them subject to an implied undertaking to use them only in the proceedings in which they were produced. The reasoning behind such a rule was explained by Denning in Riddick v Thames Board Mills Ltd [1977] QB 881:

“A party who seeks discovery of documents gets it on condition that he will make use of them only for the purpose of that action, and no other purpose.

Compulsion [to disclose on discovery] is an invasion of a private right to keep one’s documents to oneself. The public interest in privacy and confidence demands that this compulsion should not be pressed further than the course of justice requires. The courts should, therefore, not allow the other party – or anyone else – to use the documents for any ulterior or alien purpose. Otherwise the courts themselves would be doing injustice.”

Hearne v Street summarised that the implied undertaking rule applied to all documents and information that one party to litigation is compelled, whether by reason of a rule of court, a specific order of the court or otherwise, to disclose, including:

(i) documents inspected after discovery;
(ii) answers to interrogatories;
(iii) documents produced on subpoena;
(iv) documents produced for the purposes of taxation of costs;
(v) documents produced under a direction from an arbitrator;
(vi) documents seized under an Anton Pillar order;
(vii) witness statements served under a judicial direction;
(viii) affidavits; and
(ix) expert reports.

The implied undertaking is usually released once the relevant material is tendered or read in open court. A breach of this implied undertaking (which is given to the Court) would mean that a party is in contempt of Court.

Application of Implied Undertaking Rule

Let me just highlight some issues and the application of this rule in the context of a shareholder dispute.

A shareholder who is not a director, or a director-shareholder who has been denied access to company documents, will not have access to crucial documents to help evidence any of his complaints. A shareholder may wish to bring an oppression petition under section 181 of the Companies Act 1965 to seek for a share buy-out or other reliefs. One of the drawbacks of a petition is that there is no automatic right to discovery. In fact, in See Hua Realty Bhd v See Hua News Holding Sdn Bhd [2007] 7 CLJ 152, discovery of documents in the oppression petition was disallowed.

Would the new statutory derivative action provisions assist such a shareholder? The new provisions allow for wide ranging powers for inspection and to effectively order discovery of documents at the leave stage. At a talk I attended, it was suggested by a senior corporate litigator, that he did not see the inconsistency in bringing a section 181A statutory derivative action for the specific purpose of discovery, and to have an oppression petition run in parallel. This was to get over the hurdle and difficulty of obtaining discovery in the oppression petition.

However, I would think the implied undertaking rule should strictly apply in preventing the use of any documents obtained under the section 181A proceedings for use in the oppression petition proceedings.

Similarly, if the shareholder agreement contains an arbitration clause, any order for discovery by the arbitrator (or even interim order for discovery to be granted by the Courts under section 11 of the Arbitration Act 2005) should mean that the documents or evidence can only be used within the arbitration proceedings and not be used for other litigation proceedings.

That means a shareholder may have to continue to grope in the dark and not be able to have access to documents to evidence at least some of the complaints the shareholder may have.

The National Language in the Courts

A very common question asked by friends who aren’t in the legal profession, or friends outside of Malaysia, is whether the Malay language has to be used in court. For the purposes of this blog entry, allow me to side-step the debate surrounding the correct usage of the term Bahasa Malaysia or Bahasa Melayu, and just refer to all generically as the Malay language.The short answer to the posed question is that strictly under the law, all proceedings and court papers have to be in the national language i.e. the Malay language.

This is covered specifically under statute as well as the rules governing court procedure. But it was not always the case where it was compulsory to use Malay in the court.

In Malaysia pre-independence, the English language was used in all the courts. Even when the National Language Act was introduced in 1963 making the Malay language the official language of Malaysia, the courts were exempted from making the transition from English to Malay.

However, on 30 March 1990, the National Language (Amendment) Act 1990 came into force which removed the exemption enjoyed by the courts. The new section 8 now reads:

All proceedings (other than the giving of evidence by a witness) in the Federal Court, the Court of Appeal, the High Court or any Subordinate Court shall be in the national language

Provided that the Court may either of its own motion or on the application of any party to any proceedings and after considering the interests of justice in those proceedings, order that the proceedings (other than the giving of evidence by a witness) shall be partly in the national language and partly in the English language.

Subsequently, the Rules of the High Court 1980 which govern the manner in which court proceedings are carried out was also amended to mandate the use of the national language. However, this restriction only applies to court proceedings within West Malaysia. Sabah and Sarawak still continue to be allowed to use the English language. In fact, the Rules of the High Court 1980 directs that for Sabah and Sarawak, any document to be used in court shall be in the English language and may be accompanied by a translation in the Malay language.

“Order 92 Rule 1 of the Rules of the High Court

(1) Subject to subrule 2, any document required for use in pursuance of these rules shall be in the national language and may be accompanied by a translation thereof in the English language…

(2) For Sabah and Sarawak, any document required for use in pursuance of these rules shall be in the English language and may be accompanied by a translation thereof in the national language …”

If you speak to some senior lawyers who moved out of litigation, the compulsory switch from the English language to the Malay language more or less cemented their decision to leave litigation for good. This also signalled the start of the ‘mandatory’ component of every pupillage, translation!

All court documents now need to be translated into the Malay language, and I am sure every single pupil would have done their significant share of helping lawyers to translate affidavits or other cause papers into Malay. Some of the larger law firms can afford to employ dedicated translators to help with some of the translation. But ultimately, there is still no escaping from doing your own translation work. Having worked hours and hours crafting an affidavit, you then spend as many hours leafing through English-to-Malay dictionaries to translate your work. I always find it ironical that the English portions are marked ‘Terjemahan’ (‘translation’ in Malay) when in actual fact, the English portions are drafted first and then translated into Malay.

This compulsory use of the Malay language is relaxed somewhat at the High Court when lawyers are making submissions. Generally, the Registrars and the Judges allow you to file in your skeletal written submissions in English, as well as to orally submit in English. At the subordinate courts, the use of Malay is still more or less compulsory. This means written and oral submissions all have to be in Malay. With my atrocious command of Malay, no surprise then that I do not look forward to my matters at the subordinate courts.

At the appellate courts, being the Court of Appeal and the Federal Court, English is almost exclusively used. I know of certain appellate judges who will tick off Counsel for failing to file in the English translation of the court papers at the High Court level, when these documents are referred to at the appellate stage.

English is also widely-used in the written judgments of the Courts. I would estimate at least 90% of the reported judgments are in the English language.

It is a pity that the court system had to adopt the usage of the Malay language, and could not enjoy the previous exemption. From a commercial point of view, nearly all contracts are drafted in English and it would make sense for litigation arising from these contracts to continue in English. The language used in international commerce is largely English, so again, if parties negotiate for Malaysian courts to adjudicate on a dispute, it would be a plus for the Court language to be in English.

But the use of the Malay language in the Court is necessary as this is a common language understood by all Malaysians. In a criminal court for instance, if charges are being read out to an accused who is unrepresented, the Malay language would largely be understood by all.