LUNDI (a firm) v. THE PRUDENTIAL ENTERPRISE LTD

IN THE COURT OF APPEAL

1987, No. 82
(Civil)

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JUDGMENT

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Fuad, J.A.:

1. This is an appeal, pursuant to leave granted by a member of this Court, from a decision given by Judge Scriven in the District Court. Before him, the Plaintiff was a firm called Lundi and the Defendant, who now appeals, was the Prudential Enterprise Limited ("Prudential").

2. The action arose in this way. On 12 October 1983, Prudential leased a shop in Kowloon to Lundi for three years. As required by the tenancy agreement, Lundi paid Prudential a deposit of $54,201 when the agreement was signed "to secure the due observance and performance by the Tenant of the agreements, stipulations and conditions herein contained and on the Tenant's part to be observed and performed." (Section XI). During the currency of the tenancy, the deposit was increased to $55,001.40. The tenancy was terminated in accordance with the law and Lundi delivered vacant possession of the shop to Prudential on 9 October 1986.

3. The tenancy agreement provided that the deposit was to be refunded to Lundi without interest within 30 days of the expiry of the agreement and the delivery up of vacant possession or within 30 days of the settlement of the last outstanding claim which Prudential might have against Lundi in respect of breach. non-observance or non-performance of any of the agreements, stipulations conditions to be observed or performed on the part of Lundi, whichever was the later.

4. Lundi's case all along was that Prudential were entitled to retain only $4,000 of the deposit under Section XI of the tenancy agreement, while Prudential maintained that the proper sum to be deducted from the deposit was $29,250.

5. The parties were not able to resolve their differences and so it was that Lundi brought an action against Prudential to recover $55,001.40 ($59,001.40 less $4,000). Prudential resisted the claim and by way of “Counterclaim and/or set off” counterclaimed $29,250:  $2,000 being in respect of their architect’s fees for his report, and $27,250 "for the cost of repairs to the premises or alternatively for breach of the … agreement.".

6. At the conclusion of the trial of the action. the learned judge held that Prudential were only entitled to deduct $6,600 from the deposit they held and entered judgment in favour of Lundi for $52,401.40 with interest. He made an order on a nisi basis that Lundi should have their costs.

7. The judge delivered his judgment in writing on 25 March this year. The parties appeared before the judge again on 11 May. Counsel for Prudential sought to persuade the judge that the order he should have made was that there should be judgment for Lundi, with costs, on their claim and judgment for Prudential with costs on their counterclaim. The judge, for reasons which he gave, declined to vary his original order and hence this appeal.

8. The arguments put forward on behalf of Prudential, which did not find favour with the judge, were advanced again before us. No complaint is made about the assessment of the amount Prudential would he permitted to retain out of the deposit. By their Notice of Appeal Prudential say that the judge had exercised his discretion on the matter of costs on erroneous grounds. He had erred in law in deciding that the nature of Prudential’s counterclaim was a pure set-off so that a "balance" judgment should be given. It is also said that the judge was not justified in distinguishing Chell Engineering Ltd v. Unit Tool & Engineering Co. Ltd. [1950] 1 All E.R. 378, and that he was wrong in taking into account "the size of the counterclaim in relation to the claim in deciding on the nature of the counterclaim."

9. Further, the Notice Appeal has it that the judge failed to take into account the fact that it would be unjust to make an award of costs against Prudential on their successful claim for damages for breach of covenant in circumstances where a counterclaim had properly been made as a partial defence to Lundi's claim. Finally, Prudential say that the judge was wrong in law in failing to rule that the only issue tried in the action was the quantum of Prudential's counterclaim.

10. I think it is necessary to note that the defence pleaded in paragraph 12 was that in view of the terms of the agreement, damages and costs fell to be assessed by a chartered surveyor and the action should never been brought before the Court. This averment was abandoned at the trial but the following averment in paragraph 13 was not:

"In the absence of agreement as to the amount of damages, the Defendant was and still is not in a position to set off the damages against the deposit."

As I read the tenancy agreement it might well be that this was a complete answer to Lund's claim which would then have left the counterclaim to go forward in its own right, but those advising the Appellant have not chosen to present the case in that way to us for the order sought by the Appellant, as a basis for the order for costs contended for, is that judgment should be given for the Plaintiff on the claim and for the Defendant on the counterclaim. It must he accepted therefore that Prudential have abandoned their pleaded stand and certainly there is no appeal against the judge's decision in relation to whether or not the amount claimed by Lundi was due at the time the action was instituted.

11. Mr. Peter Lo for Prudential relied on Childs v. Gibson [1954] 1 W.L.R. 809 And I mean no disrespect to him when I say that I consider that case to "be of no assistance because there, unlike here, the defendants on the pleadings in the two relevant actions had admitted liability on the claims and had counterclaimed for breach of covenant by the plaintiff. He also referred us to Chell where the Court of Appeal held that where a plaintiff succeeds on his claim and the defendant succeeds on his counterclaim the more convenient course was not to enter judgment for the balance in favour of the party entitled thereto, but to enter judgment for the plaintiff for the amount for which he succeeded on the claim and to enter judgment for the defendant for the amount for which he succeeded on the counterclaim. The Court went on to say that in the ordinary course, if there were costs on both claim and counterclaim, each party was entitled to the costs which he had to incur to recover the sum recovered on the claim and the counterclaim respectively.

12. When considering the Chell case, I think it is important to bear in mind what Denning L.J. (as he then was) said at page 393 at the end of his short judgment, he said:

"1 would only add that in most of these cases it is desirable that a judge should consider whether a special order should be made as to costs because the issues are often very much interlocked, and the usual order of 'judgment for plaintiff on claim with costs and for defendant on counterclaim with costs' does not always give a just result."

13. I conclude that the learned judge must have had in mind the following. As we have seen, Prudential had claimed to be entitled to set-off or counterclaim, however one puts it, the sum of $27,250 as the cost of repairs or damages, the additional sum of $2,000 being claimed for the fees of their architect. As it turned out, the judge decided that the amount allowable for the cost of repairs to the premises should only he $4,600 to which he added the amount spent on the architect's report. Lundi all along were prepared to concede that Prudential were entitled to retain $4,000.

14. I do not think that it can now be maintained that the judge erred in principle in deciding in all the circumstances to give a "balance" judgment once his decision to deal with the case in the way he did on the merits is not challenged. Having exercised his discretion to give a "balance" judgment, in my view it has not he en demonstrated that he exercised his discretion wrongly in deciding to give Lundi their costs and not to award any costs to Prudential.

15. The judge clearly considered that he was dealing with a single issue. In practical terms, in the light of the stand taken by Prudential on this appeal, I think that he was, indeed, dealing with a single issue which was: How much money from the deposit should properly he retained by Prudential? In my judgment his order in relation to costs was perfectly fair.

16. I find it impossible to interfere with the discretion exercised by the judge and I would, therefore, dismiss the appeal.

Cons, V.-P.

17. I agree with my Lord. Mr. Lo, who has appeared in this Court for the landlord, has frequently emphasised what he referred to as the overriding principle that costs should follow the event. To that extent, I am in respectful and full agreement with him. Where we part company, however, is on his approach to what the event really was. He argues that it was a counterclaim. For my part, I join with the judge in thinking that although in the Defence it was entitled a "Counterclaim and/or Set-off" and was pleaded in detail as a counterclaim, it was in essence a set-off. For that reason, the judge gave a single judgment for the balance which he found due to the tenant and he made a single order for costs in favour of the tenant.

18. We are told that in similar cases involving the same landlord, a different order has been made. We took the view that the details of those cases would be of no assistance to us in this appeal and we declined to go further into them. I would do no more than observe at the moment that in those cases apparently no appeals were ever brought and we cannot say that any appeal would necessarily have failed.

19. In the present instance, the judge exercised his discretion on what I take to be a proper view of the circumstances and I would not seek to interfere with it in any way.

Clough, J.A.:

20. I agree with both the judgments that have just been delivered and have nothing to add.