MONAT INVESTMENT LTD v. ALL PERSON(S) IN OCCUPATION OF Part of The Remaining Portion of Lot No 591 in Mui Wo DD 4 No 16 Ma Po Tsuen, Mui Wo, Lantau Island AND ANOTHER

HCMP 1894/2015

[2020] HKCFI 2447

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1894 OF 2015

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DECISION

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Introduction

1.  On 11 August 2020, I handed down judgment in this action dismissing the Plaintiff’s claim for possession and entering judgment in favour of the 2^nd Defendant on his counterclaim and declarations sought but only to the extent of the area covered by the brick house and the semi-circular paved area immediately outside its front entrance (the “Judgment”).  I also made a costs order nisi that there be no order as to costs.  Both parties now seek, by their respective summonses, to review that costs order nisi, asking for costs or part of the costs against the opponent.   I adopted “no costs” as the starting point principally for two reasons.  First, this is a case in which the parties are partially successful or in other words, partially unsuccessful, though in fairness, the 2^nd Defendant should be regarded as the substantially successful party.  Second, the 2^nd Defendant was dishonest in formulating his counterclaim and in his evidence, wasting much of the Plaintiff’s costs and the court’s time, which should set off the costs which he would otherwise be entitled. 

The legal principles

2.  The starting point is Order 62 rule 3(2) of the Rules of the High Court.  Costs are in the discretion of the court.  The court in the exercise of its discretion may make any order as to costs of or incidental to any proceedings as it sees fit.  The general rule is that costs to follow the event, except when it appears to the court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.  

3.  Following the Civil Justice Reform, Order 62, rule 5(1) was amended setting out some of the matters which the court may take into account in the exercise of its discretion on costs.  The following are particularly pertinent in the circumstances of this case:

(1)  the underlying objectives set out in Order 1A, rule 1: paragraph 5(1)(a);

(2)  the conduct of all the parties: paragraph 5(1)(e); and

(3)  whether a party has succeeded on part of his case, even if he has not been wholly successful: paragraph 5(1)(f).

In relation to the conduct of the parties, the court takes into consideration whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue, the manner in which he did so and whether a claimant who has succeeded in his claim in whole or in part, exaggerated his claim.  In Chan Shun Kei v Hong Kong Construction (Hong Kong) Limited[1], it was held that it is unreasonable for a party to put forward allegations knowing that the evidence in support was woefully inadequate, and in such situation the party, despite winning the claim, could be required to pay the costs of the unsuccessful party, notwithstanding the absence of a finding of dishonesty on the part of the successful party.

4.  Order 62, rule 7 provided that where in any cause or matter anything is done or omission is made improperly or unnecessarily by or on behalf of a party, the court may direct that any costs to that party in respect of it shall not be allowed to him and that any costs occasioned by it to other parties shall be paid by him to them.

5.  The court may adopt an issue-based approach based on the amount of time spent on the issues in dispute in assessing the percentage of costs of the party who is entitled to costs: see Poon Ching Man v Lam Hoi Pun[2] and Golden Bright Manufacturer Ltd v Sunlight Electronic Toys Manufacturing Co Ltd[3].  

The major issues

6.  There are two major issues in this case: the fact of adverse possession and the illegality in acquiring possession and the manner of possession.  These issues are well defined.  It is appropriate to adopt the issue-based approach in awarding costs.  The illegality issue was a purely a legal issue.  There was no factual evidence involved.  Though the coverage in the Judgment was extensive, the arguments advanced by the parties were comparatively brief.  I give that issue 20% weighting on costs.  I attribute 20% of the costs to the experts’ evidence as to the Disputed Area and the remaining 60% to the factual witnesses’ evidence as to the fact of adverse possession.

Conduct of the parties

7.  The Plaintiff is the paper owner.  It relied on its paper title in making his claim.  It was only exercising its right as owner.  It only tested the 2^nd Defendant’s evidence and pleaded no positive case.  Its conduct cannot be described as reproachable.

8.  The 2^nd Defendant’s case is founded on three blatant lies.  First, he was gifted the Disputed Area as the eldest son of the family.  Second, he continued in exclusive possession of the Disputed Land in his own right, even to the exclusion of his parents who lived in the brick house as his licensees.  Third, to further buttress his case, he instructed and permitted his mother (the “Mother”) to reply to the questionnaire issued by the Rating and Valuation Department claiming herself to be the owner of the brick house.  On my finding, the 2^nd Defendant’s father (the “Father”) was in adverse possession of the brick house, while he together with his siblings lived there as licensees of the Father.  When the Father passed away, the Mother succeeded as the person in exclusive possession.  The 2^nd Defendant and his siblings were her licensees.  Then, upon the Mother’s death, the 2^nd  Defendant succeeded her.   It was on a case which is wholly different from his pleaded case that the 2^nd Defendant succeeded. 

9.  The thrust of the 2^nd Defendant’s argument for a costs order in his favour is that he is substantially successful.  That is only a general rule.  Having regard to the principles I outlined above, it is too simplistic to jump to the conclusion that in all cases a successful party is entitled to costs without regard to his conduct of the litigation.  This rule may not apply to a case where the conduct of the litigation by the successful party is blameworthy or otherwise reproachable.  If, despite his success, he raised unnecessary or indisputable issues, adduced false evidence which has the effect of wasting the costs of his opponent and the court’s time, he may be deprived of all or some of his costs.  In an appropriate case, he may even be required to pay the unsuccessful party’s costs. 

10.  The 2^nd Defendant’s pleaded case is built on three lies.  He amended the pleading to add all the three lies.  He was the only witness.  It is despicable that these lies were repeated in his witness statements and maintained in his cross-examination.  He even sought leave to adduce his supplemental witness statement to buttress his case on the Mother’s filing of the questionnaire.  The entirety of the Plaintiff’s counsel’s cross-examination of the 2^nd Defendant was to destroy those lies.  Counsel succeeded, but on the basis of the truth revealed under cross-examination the 2^nd Defendant is still entitled to succeed.  Though successful, he actually failed on his pleaded case.  It is the pleadings that define the issues in a trial and dictates the course of the proceedings both before and at trial.  The parties armed themselves to meet the pleaded case of the opponent.  The evidence of the Father’s adverse possession is overwhelming.  It was not challenged at trial.  So is the evidence of the Mother’s continued adverse possession after the Father.  It was also not challenged at trial.  Had the 2^nd Defendant not presented the three lies, much time and costs could have been saved.  The Plaintiff might also have conceded the claim.  The 2^nd Defendant added significantly to the length and costs of the proceedings.  He should be responsible for the time wasted.  Litigants should be discouraged from improving his case by pleading and attempting to prove a false one.

11.  Honesty is the corner stone of our judicial system.  People come to court to seek justice on the basis of their sworn evidence of what they allege is the truth.  Dishonesty must be condemned in particular in a case of adverse possession.  As I have said in my Judgment, “the major theme behind the Limitation Ordinance and the law on adverse possession is to protect the squatter’s long and uninterrupted possession of land from stale claims of the paper owner and to give him a good title”.   This protection is founded on honesty.  The paper owner usually has no knowledge of the adverse possession.  It is incumbent upon the squatter to set out the particulars in support of his case.  The court acts on his honest evidence to extinguish the proprietary right of the paper owner.  Honesty is all important in an adverse possession claim, otherwise a squatter can always exaggerate if not lie about his history of occupation and has a free ride on the fact of his present occupation of the subject land.  If a squatter fails in his claim for adverse possession, he certainly has to bear costs of the paper owner in enforcing his rights.  Even if he succeeds, but on a case different from his pleaded case, he should also be penalised in costs.  The court should not countenance such abuse of the judicial system.

12.  Mr Yuen referred me to the case of Grant David Vincent Williams v Jefferies Hong Kong Ltd[4]in which the court cited with approval the principle found in Bank of Baroda v Panessar[5]that “if a person conducted himself on a wholly false basis, the true state of affairs being within that person’s knowledge, or at least capable of ascertainment if properly investigated, and the proceedings were thereby significantly prolonged and the costs commensurately increased the court was entitled to order that the person so adversely affected by that conduct should receive its costs on an indemnity basis.”   That principle applies to indemnity costs.  A fortiori, it also applies to liability for costs where a party deliberately pleads and attempts to prove a false case, even though he turns out to be successful.  The court should not countenance such dishonesty, otherwise it would encourage litigants to try their luck.  Not only should the 2^nd  Defendant be deprived of his costs in proving his lies which he failed, he should compensate the Plaintiff’s costs in disproving those lies since it was he who raised them in his pleadings.

The Brown Area and Semi-circular Paved Area v The Green Area

13.  The 2^nd Defendant counterclaimed for the Brown Area and the Green Area which together are larger than the area claimed by the Plaintiff against him.  He was successful only in respect of the Brown Area and a small plot of semi-circular paved area in the Green Area.  Mr Yuen argues that the 2^nd Defendant is not entitled to any costs against the Plaintiff because he was not successful in respect of the Green Area, whereas in respect of the Brown Area and the Semi-circular Paved Area he would have to pay costs to prove his case in seeking a declaration anyway.

14.  Mr Yuen referred to the case of Chan Pui Lok Daniel v The Personal Representatives of Leung Shu Ming and Others[6]. In that case, despite the absence of the defendant, the claimant was unable to obtain default judgment and was asked to prove his case through a full trial. He also quoted the case of Fung Shek Wa v Chang Lai Yue[7] in which the court held that it is generally reluctant to grant a declaratory relief as to the possessory title of a property without hearing evidence.  He submits that in any event, the 2^nd Defendant has to prove his case if he wishes to obtain the declaration.   The 2^nd Defendant is therefore not entitled to costs against the Plaintiff.  The fallacy in his submission is that the defendants in those two cases did not appear.  Had they appeared and contested the claims, as the Plaintiff did, they would have been ordered costs.  If they appeared and consented to the judgment, maybe no issue of costs would arise.

15.  As I have said, the 2^nd Defendant should be regarded as substantially successful.  He is entitled to costs subject to a discount in respect of the substantial part of the Green Area which he failed.  The 2^nd Defendant argues that he is the overall or major winner of about 80% of the Disputed Land.  In my view, he was only successful in respect of less than half of the Disputed Land.  In my assessment, 60% of the costs was incurred in proving the fact of adverse possession.  The majority of those costs was spent in proving the three lies, which he failed.  Having regard to the area in which the 2^nd Defendant is successful and having regard to nature of the evidence required in proving adverse possession of the Brown Area and of the Green Area and after discounting the evidence in proving the three lies, I consider the 2^nd Defendant is only entitled to 10% of the costs in proving the fact of adverse possession in relation to the brick house and the Semi-Circular Paved Area and the costs of his expert in identifying the area he possessed.

Illegality

16.  The Plaintiff raised the issue of illegality and lost.  It should bear the costs of that issue which I estimate to be 20% of the total costs of this action.

Conclusion

17.  On an issue-based approach, the 2^nd Defendant is entitled to the costs of proving the fact of possession in respect of the Brown Area occupied by the brick house and part of the Green Area occupied by the Semi-Circular Paved Area immediately outside the entrance of the brick house.  I assess those costs to be 10% of the overall costs after discounting the costs in proving the three lies.  The 2^nd Defendant is entitled to the costs of his expert in proving the area adversely possessed by him by way of succession through his Mother and Father, which I assess to be 20% of the overall costs.  He is also entitled to costs of the illegality issue, which I assess to be 20% of the overall costs.  The costs of the expert and the illegality issue are independent of the lies and should be allowed in full. 

18.  On the other hand, the Plaintiff is entitled to the wasted costs in dealing with the 2^ndDefendant’s three lies which is just sufficient to set off the 2^nd Defendant’s cost.  Hence, it is appropriate that there should be no order as to costs.  Accordingly, I affirm my costs order nisi. As both parties are unsuccessful in varying the costs order nisi, I make no order as to costs of the application.