G & A Ltd v HNJ Jewelry (Asia) Ltd

LORD JUSTICE WALLER: On 27 May we handed down a judgment ruling on the proper construction of a supply contract. We now have to deal with the costs of the appeal and the costs of the trial of the issue which we were dealing with.

The claimants, who were the respondents on the appeal, were asserting that the supply contract was a three- year rolling contract, which meant that three years' notice had to be given, in effect, day by day; thus the contract was only terminable on three years' notice on whichever day was chosen. The position as far as the appellants were concerned was that the first and fourth defendants were suggesting that the contract was terminable on reasonable notice. The first and fourth defendants were represented by Mr Kuschke and Mr Horan. The second, third and fifth defendants, who were represented by Mr Maclean QC, were also arguing that the contract was terminable on reasonable notice, however they had a different basis on which they suggested that that notice should run. The different bases are explained in the judgment.

When the matter was before Crane J in December 2003 the question that arose was whether there should be a final determination of the construction of this agreement which would bind all parties. In that context, Mr Doctor for the claimants was arguing that his construction of three years was the only matter that should be tried out before the judge. If he was wrong about that and the answer was that reasonable notice was all that could bring this contract to an end, he was accepting that the matter would have to go off and be tried elsewhere at some other stage in order to determine what was reasonable notice. There was no suggestion by anyone that the construction of the contract was that which we have now found to be the proper construction (which was one which was only suggested by me on the application for permission to appeal). It was in that context that the judge decided that the contract was determinable on three years' notice.

On the application for permission to appeal I took the view that the appellants' construction - ie that the contract was terminable on reasonable notice - was not arguable and I would have refused permission to appeal. However I did think that it was possible that a different construction might be put on the contract than that being contended for by the claimants. My suggestion was that the contract required reasonable notice to be given before the end of the first year of three. If that construction had been right and had been accepted before Crane J, it would have produced the same result as being contended for by the claimants. Remembering that the hearing before Crane J was on 15 December, the claimant's construction would have brought an end to the contract in December 2006. My proposed construction would have had very much the same result. Mr Doctor said it would have produced a further two weeks because my proposed construction would have produced a notice on 15 November 2004 and would have brought the contract to an end on 31 December 2006.

My suggested construction was not taken up by any of the parties, but all defendants pursued their application for permission to appeal. Even in the context of the appeal the appellants did not take up the construction that I was suggesting was the appropriate construction. It is right to say that Mr Kuschke having gone through various constructions relating to reasonable notice which could have brought the contract to an end at a very much earlier period, did ultimately say that if the court was against him on all his proposed constructions then my proposed construction would be one that he would accept. Mr Doctor's position was that three years was the proper period of notice. He did not ever resile from that. But again, as I understood his submissions, he was not fighting tooth and nail to resist my suggestion if his was ultimately rejected. We then ruled that my suggested construction was the appropriate construction.

The question is what should happen to the costs. I should add that there was a point on the terms of the injunction that was granted by the judge on which we were in favour of the respondents/claimants, in any event.

Mr Doctor suggests that his clients should be entitled to retain the costs order in the trial below 100 per cent. He suggests, so far as the Court of Appeal is concerned, that there should be some reduction, having regard to the fact that his construction of three years only was not accepted and my suggestion as to the proper construction was the one adopted by the court.

Mr Kuschke argues that Mr Doctor was going for three years and three years alone; that that was the issue that was decided by the judge, and now that his clients have succeeded in the Court of Appeal, and that being the only issue, his clients should have the costs of the trial and indeed the costs of the appeal. That, as it seems to me, is a totally unrealistic attitude as to what this case is really about. As already indicated, if my suggested construction had been put forward as at the date of the hearing before Crane J, it is likely that Mr Doctor's clients would have leapt at it since it would have had exactly the same effect as his suggested construction; and as for the appeal process the terms of that suggested construction were clearly set out on paper by me and if Mr Kuschke's clients had wanted to accept it they could have done so and that would have placed the appellants at risk.

So far as Mr Maclean is concerned he puts the point slightly differently, but it comes to very much the same thing. He says that the construction of Mr Doctor before the judge has been found by this court to be an unreasonable construction and therefore it would be quite wrong if his clients were made to pay either the costs of the trial or the costs of the appeal. He says that his suggested construction was the only alternative suggested by this court, therefore he should get credit for that. What he overlooks is that permission to appeal would not have been granted on the basis of his suggested construction. He is in no better position than Mr Kuschke's clients in the sense that he could before Crane J have gone for - although he never thought of it - the construction now found to be appropriate. Certainly when it came to an appeal the construction was set out by me plainly on a piece of paper and he could have accepted it, but he did not.

As it seems to me, the claimants/respondents must give some credit for the fact that their construction has not succeeded at the end of the day. However substantially they have been the successful party so far as construing this contract is concerned. The proper reflection of the position of the respondents is allowed for if the order in the court below is varied to make an order for 75 per cent of their costs before Crane J and if they obtain 75 per cent of their costs in the Court of Appeal. That is an order for costs which should be made against the first and fourth defendants and as against the third defendant.

LORD JUSTICE JONATHAN PARKER: I agree with that order.

LORD JUSTICE WALLER: We will assess the costs at £40,000. There will be the normal order for payment of those costs. We obviously have taken on board the point that Mr Kuschke made about there being a £100,000 interim payment, but, as it seems to us, that should be sorted out and will be sorted out in the costs of the trial below. The order will be for payment of 75 per cent of the £40,000.