Union Base Ltd. v. Tsang Shek Tong t/a Hawaii Engineering Co.

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1997, No. 252
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from H.H. Judge Gill, sitting as a Deputy Judge of the Court of First Instance of the High Court. On 20 October 1997, the judge ordered judgment to be entered for the plaintiff on the plaintiff's claim and for the defendant on the defendant's counterclaim. The amount due to the plaintiff on the claim was $717,496.48. The amount due to the defendant on the counterclaim was $590,235. The judge directed a set-off of the amount due to the defendant on the counterclaim against the amount due to the plaintiff on the claim, so that $127,261.48 became payable by the defendant to the plaintiff. The judge gave judgment in favour of the plaintiff accordingly. He made no order as to interest. He went on to order the plaintiff to pay the defendant's costs to be taxed if not agreed. He made no distinction between the costs of the action and the costs of the counterclaim. The plaintiff now appeals against the judge's order as to costs and as to his refusal to award interest.

Background

2. The plaintiff's claim was a claim for moneys due and outstanding on a contract for the supply and installation of some parquet flooring, and for some additional work undertaken in that connection. The defendant was a sub-contractor undertaking some work for a developer of a property in Tuen Mun which included the supply and laying of wood flooring and skirting.

3. By a contract made on 8 August 1991, the defendant sub-contracted the supply and laying of the wood flooring to the plaintiff, on the terms therein mentioned. The material agreed to be supplied by the plaintiff under the contract was Malaysia origin "Kempas". The material for the wood skirting to be supplied by the defendant was Vietnamese teak wood. Both the Malaysian Kempas flooring and the Vietnamese teak wood skirting were approved by the architect for the project, and subsequent to the approval by the architect the defendant ordered from a timber yard a supply of Vietnamese teak wood at HK$85 per cubic foot.

4. In or about September 1992, the plaintiff informed the defendant the Malaysian Kempas was not available, and proposed to substitute Malaysian Kempas by Indonesian teak. Owing to a difference in the colour texture in Indonesian teak flooring and Vietnamese teak wood skirting, the architect approved the re-submitted Indonesian teak flooring on the condition that Indonesian teak skirting should be adopted for colour matching. He rejected the use of the initially approved Vietnamese teak wood. As a result, the defendant had no alternative but to adopt also Indonesian teak as material for the skirting so as to match the colour texture of both flooring and skirting. The cost of material and rate for skirting were thus increased. There was a further loss to the defendant by reason of some delay in the completion of the work.

The plaintiff's appeal

5. The plaintiff says it was wrong in principle, in the circumstances I have outlined, for the judge to have ordered the plaintiff to pay the defendant's costs of the claim and counterclaim and to have refused to order payment of interest.

The costs point

6. A successful plaintiff who recovers more than nominal damages against the defendant should, in normal circumstances, have an order for costs against the defendant. So it is stated in the commentary to Order 62 rule 3 of the Rules of Supreme Court in the Supreme Court Practice 1997, Vol. 1 at p. 1056, and, for my part, I agree. As is shown by Gupta v. Klito, "The Times", 23 November 1989, a decision of the English Court of Appeal, it is only in the most unusual circumstances that the successful plaintiff should be ordered to pay the defendant's costs of the action. This is so even when the defendant has counterclaimed and has been largely successful in the counterclaim. In principle, the plaintiff should still have his costs of the action but the defendant should have his costs of the counterclaim. By conflating the action and counterclaim into one for the purposes of the costs order here, the judge, in my opinion, fell into error.

7. The judge ought to have considered the claim and the counterclaim separately, before coming to a conclusion as to what order to make here (quite possibly a special order) as to the costs of the proceedings. We must set aside his exercise of discretion and exercise that discretion for ourselves.

8. The plaintiff had to come to court in order to establish its claim. I appreciate that there was little or no dispute at the hearing as to that claim, and I say nothing about what might have been done earlier to avoid the costs that were incurred in proving it. The fact is the plaintiff had to come to court to prove its claim. In those circumstances it seems to me we should now order the defendant to pay the plaintiff's costs of the action.

9. However, there remains the costs of the counterclaim. Upon that, the defendant was largely but not wholly successful. I think that, in those circumstances, the defendant should be awarded 3/4 of the costs of his counterclaim.

10. The costs should be set off, the smaller set of costs against the larger.

The interest point

11. The overriding principle is that interest should be awarded to the plaintiff, not as compensation for the damage done, but for being kept out of the money which ought to have been paid to him : see London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [1893] A.C 429, per Lord Herschell, L.C. at p. 437. In this case, the plaintiff, as it seems to me, is entitled to say that it has been kept out of some of its money since 20 July 1995 when the figures were finally settled. I am of the opinion that the plaintiff ought to have been awarded some interest from that date. It was wrong in principle for the judge to award no interest at all. Substituting again our discretion for his, I propose that we award the plaintiff interest on $127,261.48 from the date I have indicated.

12. For these reasons, I would, to the extent indicated, allow this appeal.

Rogers, J.A. :

13. I agree and have nothing to add.

Mortimer, V.-P. :

14. The appeal must be allowed.

15. I agree with the reasons given by Godfrey JA. Although we are differing from the judge in the exercise of his discretion, there is nothing I can add to those reasons.

16. In those circumstances the appeal will be allowed. The defendant will be ordered to pay the costs of the action. The plaintiff will pay 75% of the costs of the counter-claim to the defendant. Those sums will eventually be set off one against the other.

17. There will be interest on the sum awarded - $127,261.48 - from the 20th July 1995 until the day of the judgment. The interest will be at the judgment rate for the time being.

18. The appellant shall have the costs of the appeal.