IAN RICHARD CARVER CULLEN, T/A IAN CULLEN & ASSOCIATES v. KAISILK DEVELOPMENT LTD

HCA 584/2017

[2019] HKCFI 2996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 584 OF 2017

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RULING ON COSTS

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Introduction

1.  This is my Ruling on Costs, following a trial on 2-5 September 2019, and my Judgment dated 12 September 2019.

2.  In this action, the plaintiff (“Mr Cullen”) claimed for unpaid fees in relation to professional chartered surveying services provided to the defendant (“Kaisilk”) over a lengthy period from May 2000 until around October 2007.

3.  The claim was brought under three agreements. The claim under the 1^st Agreement was for a sum which I held would be a little in excess of $1 million.  The claim under the 2^nd Agreement was for a sum of approximately $566,000.  The claim under the 3^rd Agreement was for a sum of $47,250. There was also a counterclaim made by Kaisilk.

4.  In my Judgment, I dismissed the claims under the 1^st and 2^nd Agreements, but allowed the claim under the 3^rd Agreement.  I also dismissed the counterclaim.

5.  I reserved the question of costs to a further argument, which was subsequently fixed for hearing on 9 December 2019.

6.  In the interim, by virtue of §232 of my Judgment, the funder of Kaisilk in defending and counterclaiming in these proceedings was added as a party to the proceedings for the purposes of costs only.  That party is Wellgan Investment Limited (“Wellgan”).

7.  Between the date of the Judgment and the hearing of the costs argument, Mr Cullen filed a notice to act in person, and he acted as his own advocate during the costs argument (with the benefit of some written submissions also prepared by him).  Mr Wilson Leung of Counsel continued (also with the benefit of a skeleton argument) to be the advocate for Kaisilk, and he also acted for Wellgan.

The Judgment

8.  As I noted in §4 of the Judgment, there was no significant dispute between the parties as to the applicable legal principles, and the real battleground was as to how those principles apply to the particular factual circumstances.  Much of the length of the Judgment was in the consideration of the factual context.

9.  It is fair to say that insofar as there were factual disputes, I resolved them almost entirely in favour of Mr Cullen, who I found to be a more straightforward, honest and helpful witness than Mr Tsang, who gave evidence for Kaisilk: see §7.  I specifically rejected a number of the factual assertions made by Mr Tsang.  Further, at a number of points in my factual analysis, I made reference to Mr Tsang’s weak credibility, vague evidence, inconsistencies, challenges which did him little credit, unfairness, and myriad inaccuracies and untruths: see, for example, §§20, 83, 92, 116, 117, 118.

10.  The claim under the 1^st Agreement failed because, on my interpretation of the agreement between the parties, it was time-barred (albeit that I rejected an alternative time bar argument).  However, although there was only one proper construction or interpretation of the agreement, it was necessary to engage in some considerable analysis before reaching the conclusion.  The claim under the 2^nd Agreement failed because, again on the proper interpretation of that agreement, which required detailed analysis to identify, it was a conditional agreement and where not all necessary conditions had been satisfied.  However, I rejected the argument that the claim under that agreement was time-barred. The claim under the 3^rd Agreement was more straightforward, and I rejected without difficulty Kaisilk’s legal arguments against its enforcement.

The Costs Argument

11.  There can be no dispute that the Court has a broad discretion in relation to matters of costs.  In the exercise of that broad discretion, which must of course be exercised judicially, it has long been accepted that a useful starting point for the consideration is that costs follow the event.

12.  Mr Leung submitted that, post-CJR, the Court is more ready to make ‘issue-based’ costs orders, that is costs orders which reflect the respective outcome of the various issues which have been argued by the parties.  This is correct.

13.  Indeed, the post-CJR rules emphasise the wide variety of matters to be taken into account, including those referenced in Order 62 rule 5, comprising (amongst others) the underlying objectives set out in Order 1A rule 1, and the conduct of all the parties.  The conduct of the parties includes: (a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (b) the manner in which a party has pursued or defended his case or a particular allegation or issue; (c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and (d) conduct before, as well as during, the proceedings.

14.  Adopting an ‘issue-based’ approach, Mr Leung says that where Mr Cullen succeeded only on the 3^rd Agreement and the counterclaim (which took up a small proportion of the trial time, evidence, and legal submissions), but Kaisilk succeeded on the 1^st Agreement and the 2^nd Agreement (which took up by far the bulk of the trial time, evidence, and legal submissions), then Kaisilk is “clearly the overall winner”.  Mr Leung says that should be reflected in the appropriate costs order which would be for Mr Cullen to pay 70% of Kaisilk’s costs of the action (or such lower percentage as the Court thinks appropriate).

15.  As to the scale of costs, Mr Leung says that if costs are ordered against Mr Cullen, they should be payable to Kaisilk on the High Court scale, but if Kaisilk is ordered to pay any costs, they should be on the District Court scale – because the amount ultimately awarded to Mr Cullen was well within the jurisdiction of the District Court.  In support of that submission, Mr Leung referred me to Ko Hon Yu v Chiu Pik Yuk [2018] HKCFI 1973 at §55 and May Fung Company Limited v Wing Lung Industrial Limited [2009] 5 HKLRD 590 at §§8-10, 15-16, 26-27.  Mr Leung also accepted that any costs order which might be made against Kaisilk could be made jointly and severally against Kaisilk and Wellgan.

16.  In his oral submissions, Mr Leung came up with the analogy of a meter, where the left side of the scale reflects all of the costs being payable to the plaintiff and the right side of the scale reflects all of the costs being payable to the defendant, so that the centre point on the scale reflects no order as to costs.  As he put it, against the ultimate result in this case, the starting point would be the baseline of ‘no order’, and it might be asked how the needle might move when looking at any other aspects or factors.  Mr Leung suggested that there was no reason why Kaisilk should bear any costs, in circumstances where it had come to court to defend two large and complex claims on the 1^st and 2^nd Agreements, which it did successfully.  On that basis, the needle points strongly towards the defendant’s end of the meter, and none of the points made by Mr Cullen would move the needle back to the centre point, or anywhere beyond.

17.  Mr Leung also cautioned me not to be derailed by the morality question, though he accepted that it was “prima facie compelling” where Mr Cullen worked for several years without any payment at all, save the relatively modest sum I awarded him in the Judgment.  He reminded me that the limitation point giving rise to the time bar is simply a question of the correct legal approach, and does not necessarily reflect any moral answer; it may not be a perfect system, but it is the system.

18.  For his part, Mr Cullen accepts (apparently with the benefit of some private legal advice) that when considering the liability and scale of costs to be ordered, the Court will consider (a) the outcome, or success, of each claim made; (b) the length of time each claim has taken during the hearing; and (c) the conduct of the parties, both before and during the court proceedings.

19.  Mr Cullen says that on a numeric basis, he succeeded on two issues and Kaisilk succeeded on the other two issues (albeit he accepts that the monetary scale of the claims under the 1^st and 2^nd Agreements outweigh that of the claim under the 3^rd Agreement and the counterclaim).  As to the time spent, Mr Cullen says that although cross-examination of him began on the first day of the trial and continued into the afternoon of the second, that cross examination failed to raise new evidence not already in the bundle and largely failed to touch on the 2^nd or 3^rd Agreements.  But Mr Tsang’s evidence across the third and fourth days of the trial encountered considerable delay because it was necessary to ask him the same question number of times after he failed to give a clear answer initially, and he was clearly unhelpful and disrespectful.  Mr Cullen also relies on the fact that Mr Tsang gave evidence through an interpreter, when clearly his English abilities were good enough not to need an interpreter, but (as I informed Mr Cullen during the costs argument) I do not think that is a matter which can properly be taken against Mr Tsang, who was perfectly entitled to choose to give evidence in his first language.  But there is more force in the suggestion that the evidence took longer than it might have done because of Mr Tsang’s approach.

20.  As to conduct of the parties, Mr Cullen asked me to take into account the following issues: (a) that the 1^st Agreement was terminated unilaterally by Kaisilk, without cause save for personal monetary gain; (b) Mr Cullen believes he provided exemplary professional services, achieving through his efforts nearly $10 million of additional compensation, and laying out a strong case for more, only to be curtly fired because Mr Tsang/Kaisilk would not pay for court attendance at the HKIS hourly rates, despite the fact that they were agreed in the 1^st Agreement; (c) Kaisilk has sought to avoid any liability for any payment of any fees, instead creating groundless and fictitious complaints regarding professional service provided over seven years – which Mr Cullen described as an “appalling response” to his diligent and effective provision of services; (d) Mr Cullen’s repeated attempts to settle the proceedings, first by an early proposal to deal with fees due under the 1^st Agreement a reduced rate (approximately 40% of what I held would have been payable but for the time bar), and subsequent offers of alternative dispute resolution through mediation or arbitration – and where the court appointed mediation lasted no more than 10 minutes before Kaisilk ended it; (e) notwithstanding receiving over $75 million of statutory compensation in respect of the properties, and despite agreeing to make payment on receipt of all funds, Kaisilk paid nothing at all to Mr Cullen for any of the services provided by him over the seven-year period; (f) Kaisilk adopted evasive tactics, including being wound up whilst claiming needing time to find all paperwork; (g) at the hearing, Mr Tsang was uncooperative and told clear falsehoods (that is, committed perjury); (h) Kaisilk’s litigation was champertously funded by Wellgan; so that (i) whereas overall Mr Cullen has been on the ‘moral high ground’, Kaisilk has displayed abhorrent morals and behaviour throughout.

21.  On that basis, Mr Cullen suggested that if there were to be some kind of split of costs, it should be 70%/30% in his favour (and certainly no less than a 50-50 split).  He also asked for costs on a punitive scale, namely indemnity costs to reflect the poor behaviour by Kaisilk, and to send a strong message to the business community that the Courts take a dim view of such conduct.

Analysis

22.  Though I was originally attracted to the analogy of the meter, with the needle moving to and fro depending upon individual matters under consideration, on reflection I am not sure the analogy is helpful.  The real problem with it may be the fact that it requires the needle to have a starting point, which is significantly influenced by at least some of the factors which, when considered against the totality of relevant matters in any individual case, ought only to identify the endpoint.

23.  In my view, the real starting point in this case is to note that, on my findings in the Judgment, Kaisilk was from a very early stage – and long before any limitation point could possibly have arisen – trenchant in its refusal to pay Mr Cullen a cent for the undoubtedly extremely valuable professional services provided by him over the course of the seven-year period from May 2000 to October 2007.  Indeed, the reason why the contractual arrangements were ended by Kaisilk was because it did not wish to pay Mr Cullen for his services, even at rates previously agreed.  Quite clearly, to my mind, Mr Cullen had to bring Kaisilk to trial to recover even the amount that he did.  Before the trial, he had nothing, but he won something at the trial and because of it.

24.  I have not lost sight of the fact that it was open to both parties to have made offers which might seek to give them costs protection, though neither did.

25.  But there also seems to me to be force in each of Mr Cullen’s points which I have lettered (a) to (e) and (g) above.  The 1^st Agreement was terminated unilaterally by Kaisilk, because of a desire to pay cheaper fees, notwithstanding the provision of exemplary and valuable professional services.  In seeking to avoid any liability for any payment of any fees, Kaisilk did create groundless and fictitious complaints about that professional service.  In doing so, it wrapped itself up in inconsistencies.

26.  Though I am conscious that I may not have been shown all relevant materials, from the open materials shown to me it appears other ways of resolving matters have been rebuffed.  Nevertheless, I do not think much weight can be placed upon any particular offer to settle where such offer could have been protected through a sanctioned payment or sanctioned offer under Order 22.  What I think I can give some weight to, though, is the apparently differing stance as to consideration of alternative means of resolving this dispute other than through litigation to a trial.

27.  It was also deeply unattractive for Kaisilk to have failed to pay anything at all to Mr Cullen, despite the increase in offers of statutory compensation which he engineered.  Further, Mr Tsang was indeed uncooperative (which did nothing to shorten the length of the trial), and he told clear falsehoods during his evidence, expanding them even beyond what was in his witness statement.  So I think it fair to say overall that Mr Cullen has been on the ‘moral high ground’ – before, and during, the action.

28.  Of course, I also recognise that the limitation point successfully taken by Kaisilk is provided to it as a matter of law, irrespective of its earlier conduct, and Mr Cullen has to bear the consequences of not having commenced his claim under the 1^st Agreement in time.  But the earlier conduct is specifically something which I am empowered to take into account.

29.  Against the totality of the circumstances, it is unthinkable to me that Mr Cullen should be required to pay any part of Kaisilk’s costs.  I wholly reject the submission that somehow Kaisilk should overall be regarded as the ‘winner’ in this litigation.

30.  Instead, it seems to me that it is Mr Cullen who should be the receiving party under the costs order I shall make.  Though he has apparently had to come to court to obtain anything (without Kaisilk taking any step to protect itself on costs), I accept that some other features point against full recovery. Indeed, Mr Cullen himself fairly accepted that the appropriate way to reflect the various factors was to order that he be paid only a percentage of his costs, his suggestion being 70%.

31.  I have taken into account that the largest claim was under the 1^st Agreement, which was ultimately determined against Mr Cullen on the point of law relating to time bar.  But that turned on the question of construction, which required analysis of the context against which the words in the agreement were properly to be construed applying the usual test which I set out in the Judgment. Indeed, in so far as that analysis required fact-finding, the facts were found very much in favour of Mr Cullen and against Kaisilk.  That fact-finding exercise took up a considerable amount of time at the trial, and in submissions.  Similar contextual analysis was required to construe the 2^nd Agreement.  Further, I saw no real argument against payment under the 3^rd Agreement, and the relatively modest sum of money due under it – and already the subject of hard bargaining – ought to have been paid years ago without hesitation.

32.  Therefore, in the exercise of my discretion on the incidence of costs, I order Kaisilk and Wellgan jointly and severally to be liable to pay Mr Cullen 70% of the costs of the action.

33.  As to the appropriate Court scale, though the recovery ultimately achieved by Mr Cullen was relatively small, I do not think it was unreasonable of him to have commenced and pursued the action in the High Court.  I think it would be unreasonable in all the circumstances that his costs should be recovered only on the District Court scale; the High Court scale will be applied.

34.  As to the basis of taxation, Mr Cullen asks for his costs to be taxed on the indemnity basis.  It is settled law that the discretion to order costs on an indemnity basis is not to be fettered or circumscribed beyond the requirement that such basis must be “appropriate”.  One example which might well justify awarding costs on an indemnity basis, given in the Hong Kong Civil Procedure 2020 at Note 62/App/12, is where a plaintiff has been forced to institute proceedings by a defendant whose conduct had been not only hostile in the normal litigious sense, but oppressive and with base ulterior motive, and if the pursuit of a defence constituted conduct which was part of an oppressive game plan.  The Court may also have regard to events prior to the institution of the proceedings, rather than merely confine itself to the way the litigation was contested by the losing party.

35.  In this case, I do not think it can properly be regarded as hostile beyond the normal litigious sense to have defended the case by reference to a limitation point (reference the 1^st Agreement), or on the proper construction of an agreement which required conditions to be satisfied before payment was due under it (reference the 2^nd Agreement).  But I do think the defence of the payment due under the 3^rd Agreement, and the pursuit of the counterclaim (as presaged by the hostile correspondence sent by or for Kaisilk, and which was clearly a hostile litigation tactic) can properly be regarded as hostile beyond the normal litigious sense.  I have also already commented on my view of the quality of the events prior to the institution of the proceedings, and the unattractive way in which Mr Tsang at times gave evidence, including lying in his challenges to the authenticity of certain clearly authentic documents because they were unhelpful to Kaisilk’s position.

36.  There is, therefore, something of a ‘mixed bag’ of considerations to go into the discretionary mix.  But, on balance, I am persuaded that this is a case in which, in the exercise of my discretion against all of the circumstances, it is “appropriate” to order such part of the costs as I have awarded to Mr Cullen to be taxed on the indemnity basis.

37.  I should say that I have not acceded to Mr Cullen’s invitation to make the indemnity costs order in part so as to pass the message to the business community that the Court deprecates certain types of commercial behaviour, such as unilaterally breaking contracts, failing to attempt to settle cases before they reach the courts, and failing to give honest testimony in court.  First, such conduct does not necessarily amount to circumstances in which it would be appropriate to order costs on an indemnity basis.  In any event, I am not sure that it would be right to penalise an individual party in any individual case simply “pour encourager les autres”.  Each case will turn on its own facts, as this one does.  Of course, other parties in other cases will nevertheless know that they might face costs orders on an indemnity basis should they conduct themselves before and/or during the litigation in any way which makes that order appear to be appropriate in the eyes of the Court.

38.  Though Mr Cullen has essentially won the costs argument, I make no order as to the costs of that argument and the court attendance on 9 December 2019.  By then, of course, Mr Cullen was acting in person, so no costs could have been incurred which might be included within the costs of the action.

Result

39.  For the avoidance of doubt, by way of conclusion I repeat my order.  Kaisilk and Wellgan are ordered jointly and severally to pay 70% of Mr Cullen’s costs of the action, to be taxed if not agreed on the indemnity basis.