LING MAN YIU RAYMOND t/a BUILD TECH ENGINEERING CO v. YAU LUEN METAL WORKS LTD

DCCJ 4198 & 5285/2019 (Consolidated)

[2022] HKDC 18

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4198 & 5285 OF 2019

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BETWEEN

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DECISION

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Introduction

1.  On 14 April 2021, Master Maurice Lam, in hearing an application for consolidation under Order 4 rule 9 of the Rules of the District Court at a three-minute call-over hearing, made an order to have consolidated the present two actions, namely DCCJ 4198/2019 (“the 1^st Action”) and DCCJ 5285/2019 (“the 2^nd Action”). There was no adjourned hearing for arguments. At the end of the call-over hearing, the learned Master gave a usual order for costs that “costs of the consolidation application be costs in the cause of the consolidated action.”

2.  By the Notice of Appeal dated 28 April 2021, the defendant gave notice of its intention to appeal against the Master’s decision on costs and substitute it with a costs order that costs be to the defendant. Certificate for counsel is no longer an issue as the defendant would not insist on seeking the same. This is an appeal against the Master’s order as to costs only.

3.  This appeal came before me on 1 December 2021, and I now give my decision.

Legal principles

4.  In general, a judge in chambers will not allow an appeal from a master’s costs order unless it can be shown that the order made by the master was unreasonable or erred in law, or that the master either failed to take into account proper matters or took into account matters that should not have been taken into account (Hoddle v CCF Construction [1992] 2 All ER 550; Lessy SARL v Pacific Star Development Ltd [1996] 2 HKC 326; Paul Y-ITC Construction Ltd v Kin Shing Co Ltd [1999] 1 HKC 511; see also Hong Kong Civil Procedure 2022, para 58/1/6).

5.  As such, it is trite and accepted by the parties that this appeal on costs is not to be dealt with by way of an actual rehearing of the matter while it is an appeal from a decision of a master (Wealth Growth (HK) Investment Ltd v Si Bun Bun Carmen Co Ltd [2021] HKDC 1363).

Background

6.  In the 1^st Action taken out on 9 August 2019, the plaintiff claims against the defendant on a dishonoured cheque for HK$120,000. The cheque was dated 31 October 2013, and it was dishonoured upon presentation on even date. The Writ was issued shortly before the expiry of the limitation period.

7.  On 27 September 2019, the defendant filed its Defence and Counterclaim. The defendant alleged that there was a building contract made between the plaintiff and the defendant in 2012. Under the building contract, the plaintiff was the sub-contractor of the defendant and agreed to supply and apply a fire protective coating system in respect of a project. The defendant made several payments to the plaintiff and the plaintiff’s sub-contractors. Disputes arose as to the certificate provided by the plaintiff and the final account of the building contract, where charges and contra-charges were set out. The defendant claims that it is entitled to set-off and counterclaim against the plaintiff for overpayment.

8.  On the same day when the defendant filed the Defence and Counterclaim, the plaintiff commenced another action, namely the 2^nd Action, claiming a sum of HK$495,509.50 being outstanding payment owed by the defendant under the building contract. However, the Writ of the 2^nd Action was not served until almost one year later on 11 September 2020.

9.  On 8 November 2019, the plaintiff filed its Reply and Defence to Counterclaim in which the plaintiff alleged that the defendant still owed the outstanding payment of HK$495,509.50 after deducting the HK$120,000 dishonoured cheque.

10.  In the meantime, inspection of documents had been done and witness statements had been filed in the 1^st Action.

11.  On 30 December 2020, the plaintiff served the Statement of Claim of the 2^nd Action to the defendant, for the claim of the said outstanding payment of HK$495,509.50 as pleaded earlier in the Reply and Defence to Counterclaim of the 1^st Action.

12.  On 17 February 2020, the defendant filed its Defence and Counterclaim of the 2^nd Action, which repeated the same content of its Defence and Counterclaim filed in the 1^st Action.

13.  When it came to the first Case Management Conference of the 1^st Action on 29 October 2020, Master Rita So gave directions that the parties do take out all interlocutory applications but not limited to the related 2^nd Action on or before 30 January 2021.

14.  Neither party took the initiative to apply for consolidation before the deadline.

15.  In the second CMC of the 1^st Action on 26 February 2021, Master Maurice Lam extended the time for taking out interlocutory applications to 26 March 2021.

16.  By a Summons taken out on 9 March 2021, the defendant applied for consolidation of the two actions.

17.  On 14 April 2021, Master Maurice Lam heard the application. He granted the order for consolidation with consequential directions and made an order that costs be costs in the cause of the consolidated action.

18.  The learned Master gave reasons for his decision on costs as follows:-

“First of all, the normal costs order for a consolidation application is costs in the cause. …

Secondly, the consolidation application is not seriously opposed by the Plaintiff. …. [D’s counsel] informed me at the very beginning of the hearing that the Plaintiff had no objection to paragraphs 1 – 4 of the proposed directions [concerning the consolidation]. … [P’s counsel] confirmed that the Plaintiff had no objection to the consolidation of the two actions. [P’s counsel] however said that the Plaintiff’s solicitors insisted to have DCCJ 5285/2019 stayed. After pointing out to [P’s counsel] that his submission was misconceived (as, once two actions were to be consolidated, DCCJ 5285/2019 would be consolidated to be part of the consolidated action and could not be stayed separately), no further submission was made by [P’s counsel] in that respect.

Thirdly, the directions proposed by me after the recess were not seriously opposed by [D’s counsel]. …. I took a recess and came up with proposed directions concerning the consolidation of the actions, as well as the case management directions for the consolidated action, for counsel’s comments. It was proposed that the costs of the consolidation application be in the cause of the consolidated action. … [D’s counsel] made no substantive response after I questioned why I should depart from the usual costs order that the costs of consolidation be in the cause. He only repeated the Defendant’s request for costs of the consolidation application in its favour. …. Having considered the nature of the application and the parties’ respective stances, I could not see any particular reason why the normal costs order should be departed from. ….”

19.  In support of the proposition that the normal costs order for consolidation application is costs in the cause, the learned Master relied on Komal Patel & Ors v Chris Au & Ors (unreported, HCA 183/2014 & HCA 2063/2015, 14 January 2016), Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd & Ors (unreported, HCA 1957/2005, HCA 2196/2005, HCA 886/2007 & HCA 714/2007, 10 April 2008), Lee Tak (or Tuck) Yan & Ors v The Prudential Enterprise Ltd & Ors (unreported, HCCW 594/1999, HCA 1240/2001, HCA 4225/2001, 19 August 2003).

Preliminary issue as to admission of new evidence

20.  Prior to hearing the substantive arguments, an issue arose as to whether the letters of correspondence produced and exhibited in the defendant’s Affirmation (the 2^nd Affirmation of Lee) filed in support of the appeal were admissible. Counsel for the plaintiff submitted that they are not.

21.  Those were the letters exchanged between the parties’ respective solicitors on 11 February 2021 (before taking out of the Summons for consolidation) and between 12 and 13 April 2021 (before the three-minute call-over hearing of the application) as to whether the two actions should be consolidated. According to Ms Lan (counsel appearing in this appeal but not below for the defendant), those letters would show how the defendant had proposed the consolidation versus how the plaintiff unreasonably insisted on a stay of the 2^nd Action pending the final determination of the 1^st Action, while agreeing to consolidation.

22.  I have considered the further evidence de bene esse, and I found that those correspondences were, in broad terms, no more than repeating what the defendant suggested in their Schedule of Proposed Directions annexed to the Summons and the parties’ respective positions as stated in their affirmations filed in respect of the application.

23.  Under RDC O 58 r 1(4), no further evidence, other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made, may be received on the hearing of an appeal under RDC O 58 except on special grounds.

24.  The phase “special grounds” is the same expression as in RHC O 59, r 10(2) and requires the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 to be satisfied (Fortis Insurance Company (Asia) Limited v Lam Hau Wah Inneo, unreported, HCA 1840/2009, 30 March 2010, per Fok J, as he then was). The Ladd v Marshall conditions, as stated by Denning LJ (as he then was) at p 1491, are as follows:-

“To justify the reception of fresh evidence or a new trial, three conditions must be fulfilled: first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.”

25.  The above principles are not in dispute by the parties. However, Ms Lan relied on Langdale v Danby [1982] 1 WLR 1123 and submitted that the conditions should require some modification to adopt a more relaxed approach. I disagree. Langdale v Danby was a case related to the situation arising on an appeal from a summary judgment, where the standard of diligence required of the defendant in preparing his case in opposing to a summons for summary judgment might not be that high as that required in preparing for trial, due to the constraints of time. Accordingly, I refuse to extend such modification to the conditions in our present case.

26.  Apparently, those correspondences were readily available before the Master either before or at the hearing and are evidence which could previously have been obtained with reasonable due diligence, but the defendant chose not to produce or did not pay heed in preparing to produce them. I find that the first condition laid down in Ladd v Marshall is not satisfied.

27.  Further, for the reason I have given above, I do not consider that the further evidence, if accepted, would probably have an important influence on the result of the case (ie the Master’s decision on costs), though it need not be decisive. Therefore, I also find that the second condition in Ladd v Marshall is not satisfied.

28.  I would also adopt the observation made by DHCJ Au-Yeung (as she then was) in Bank of China (Hong Kong) Ltd v Certain Aim Ltd (unreported, HCMP 1272/2007, 4 October 2010), at para 17:-

“Order 58 rule 1(5) [RDC O 58 r 1(4)] was introduced to curb the undesirable practice before the Civil Justice Reform when parties sought to adduce a further round(s) of evidence on appeal after an unfavourable decision from a Master. Rule 1(5) aims at effecting a change of culture so that parties should prepare their application properly at the earliest possible opportunity and lay all cards on the table prior to the hearing before a Master. The spirit of this rule will be defeated if a party is allowed to revert to the pre-CJR practice.”

29.  Thus, in my decision, I hold that the further evidence is inadmissible, a fortiori in the instant appeal against the Master’s order as to costs.

The Appeal

30.  Ms Lan submits that the learned Master had erred in the exercise of his discretion in ordering the costs to be in the cause as it was plainly wrong for the Master to have taken the view that the application was “not seriously opposed” by the plaintiff, and thus the order he made was unreasonable. Counsel’s argument is basically two-fold: (1) there was a persistent failure on the part of the plaintiff to consolidate the two actions, and (2) the plaintiff had actually opposed the application for consolidation by insisting on a stay of the 2^nd Action.

31.  The first part of Ms Lan’s argument can be dealt with very quickly. She said that it was the plaintiff’s fault in not bringing its claim in one action in the first place (eg by amending the Statement of Claim of the 1^st Action), and that it should be the plaintiff who was under a duty to apply to consolidate its two actions.

32.  In my view, it is not for this Court to ascertain the reason why the plaintiff had started the two actions separately. If that question is relevant, it should have been heard by the Master when dealing with the application for consolidation. All shall be noted is that the 1^st Action was a simple and straightforward claim on a dishonoured cheque in the sum of HK$120,000, whereas the claim in the 2^nd Action was a more complicated one for a final account between the parties. As it turned out that the two actions involved common issues and common parties, it hence gave rise to the question of consolidation. I would say no more than that. As to the question of whether the plaintiff should be the party to take out the application for consolidation, I would point out that the defendant has made counterclaims in the two actions as well. The two Counterclaims were also identical. As such, the defendant also had the burden to apply for consolidation, and such burden is no less to the plaintiff’s. Thus, I see no merit in this part of the defendant’s complaint.

33.  The second part of Ms Lan’s argument does require more consideration. It is submitted that the fact that the plaintiff did not agree to the defendant’s proposed directions and insisted on having a stay of the 2^nd Action meant the plaintiff effectively opposed the defendant’s application for consolidation. As the Master had found against a stay and granted order in terms of most of the defendant’s proposed directions, Ms Lan further submits that the defendant was the “winning party” in so far as the Summons for consolidation is concerned and should be entitled to costs to reflect the costs unnecessarily incurred or caused by the plaintiff.

34.  In support of her contention, Ms Lan relies heavily on the case Man Fong Hang v Man Ping Nam & Ors (unreported, HCA 7935/1998, 26 September 2002), per DHCJ A Cheung (as the Chief Justice then was), at para 17:-

“17. In my judgment, the Court is entitled to exercise afresh the discretion on costs in the present case. First, in this type of contested applications, there are two sets of costs to be considered, i.e. the costs of and occasioned by the application for leave itself (including, for all practical purposes, the costs of the three-minute call-over hearing), and the costs of the (substantive) hearing before the master. The same distinction has been drawn by Yam J in Lessy SARL (supra) concerning an application for leave to amend. In that case, the learned Judge said (at p. 327B - G) as follows:

‘It is accepted by both sides that in the usual order in an application to amend, when the application was resisted, there should be two sets of costs, namely:

(a) costs of and occasioned by the amendment shall be to the other side, and in this case the plaintiffs, in any event; but

(b) costs of the hearing before the tribunal shall be to the party who is successful in the argument, and in this case the defendants, who were successful in obtaining leave to amend.

…

The rationale behind in differentiating these two sets of costs is not to encourage the other side who has decided to resist an application to amend to have a try-on. Otherwise the resisting party would be under an impression that, win or lose, they will get their costs anyway. The resisting party should be deterred to adopt such an attitude. In deciding to resist the amendment, they should know that in the event they have lost the argument, they would be ordered to pay the cost of the argument and that is the costs of the hearing whilst the first set of costs (ie the costs of and occasioned by the amendment), would be to them in any event.’”

35.  Mr Ng, counsel appearing for the plaintiff in this appeal but had not appeared below, submits that Man Fong Hang is distinguishable because:-

(1) Man Fong Hang was a case about an application to adduce further expert evidence. The learned judge adopted the two sets of costs rule as applicable for application to amend pleadings in Lessy SARL. Whereas our present case is a case management decision, there is no winner or loser and there was no “true fight” between the parties; therefore, the two sets of costs rule should not apply.

(2) Mang Fong Hang was a case in which the application was hotly contested, and there was a substantive hearing for arguments. The learned judge drew the line in differentiating the costs of the application leading up to and including the call-over hearing and the costs of the substantive hearing. Whereas it was only a non-contested call-over hearing in our present case, there should not be any two sets of costs.

(3) The learned judge in Man Fong Hang was entitled to exercise the discretion afresh was because the master in that case did not consider the two sets of costs rule in the particular application, and that was an error in law. Whereas in our present case the learned Master had not erred in law.

36.  Ms Lan confirms to the Court that she is not trying to suggest that the Court should apply the two sets of costs rule to a three-minute call-over hearing for an application for consolidation. Her stance is that the learned Master should have at least disallowed some part of the costs and should not have ordered the normal costs order.

37.  I agree with Mr Ng’s submissions. But I also find that the rationale elucidated in Lessy SARL (supra) that “not to encourage the other side to have a try-on” still holds true as a matter of principle. I do not see that the court is prohibited from applying the same principle to a three-minute call-over hearing. If one party considers that the other party’s conduct was not reasonable, leading to additional costs being incurred, they can, of course, draw the court’s attention to those features and ask for a whole or part of the costs in their favour. However, it should be borne in mind that due to the practical nature of a call-over hearing was not intended for arguments, the party who wanted to seek costs must be well prepared to persuade the court to depart from any usual costs order. It all goes back to the basic principle that costs are in the discretion of the court.

The affidavit evidence

38.  Counsel for the defendant then refers the court to several paragraphs in the plaintiff’s Affirmation, which stated, in particular in paragraph 2, that the plaintiff was “in support” of the defendant’s application to consolidate the two actions “subject to the 2^nd Action be stayed until after the determination of the 1^st Action”. She submits that the plaintiff clearly opposed the consolidation by making such an assertion.

39.  In my opinion, however, if one reads the plaintiff’s Affirmation as a whole, it appears that it was not the consolidation of the two actions that the plaintiff disagreed with. What the the plaintiff disagreed with the defendant was the “consolidated pleadings” suggested by the defendant in their proposed directions, and the plaintiff considered it was inappropriate. It can also be seen from paragraphs 1 – 4 of both of the plaintiff’s and the defendant’s proposed directions that they both agreed to have consolidation. The plaintiff only opposed to the defendant’s seeking of consolidated pleadings (paras 4 – 6 of the D’s proposed directions) and instead, in order to save costs and time, they would rather have a stay of the 2^nd Action (para 6 of P’s proposed directions) and proceed with what was already ready in the 1^st Action, namely, the filed pleadings, witness statements, Lists of Documents, etc. The plaintiff asserted in the Affirmation that the main reason for having a stay of the 2^nd Action was that the 1^st Action was in a more advanced stage and ready to be set down for trial, whereas the 2^nd Action was only up to the close of pleadings.

40.  There is no doubt that the plaintiff had misconceived in asking for a stay of the 2^nd Action while in support of the consolidation of the two actions. I also agree with Ms Lan that the plaintiff’s Affirmation was not well drafted and thus leading to the convoluted suggestion of consolidation with a stay. However, in my view, the fact that the plaintiff had misconceived as to consolidation or stay does not necessarily mean that the application was unreasonably opposed. As it is rightly pointed out by Mr Ng, a stay is one of the alternatives (or modes) available under O 4 r 9(1) for the court’s consideration, and there was no winner or loser in a case management decision. I agree with Mr Ng, adding that so long as the matter was not unreasonably opposed. And I find there was none here.

41.  In my view, the Master was fully entitled to conclude that the application was not seriously opposed.

Statement of Costs

42.  Ms Lan further submits that the parties had filed their Statement of Costs and asked for a summary assessment at the hearing below. It is said that the Master must have appreciated there was resistance in the application upon reading the plaintiff’s Affirmation, but had overlooked, as shown in the Statements of Costs, there were “not insubstantial” amount of costs (ie HK$54,000 for the plaintiff and HK$26,000 for the defendant) being incurred as a result of the plaintiff’s resistance.

43.  I am unable to accept Ms Lan’s submissions in this respect. First, a summary assessment would not be done on the Statement of Costs unless and until the party has obtained a costs order in its favour. Secondly, the amount of legal costs incurred was not explained to the Master and certainly had not been assessed by the Master. The costs stated therein might or might not be justified. If the counsel at the hearing below did not make any submission to persuade the Master to depart from the usual order, I do not think it is open to the counsel at the appeal to take that point afresh. This appeal on costs is not an actual rehearing.

Part of case management

44.  The hearing before the Master for the consolidation application is one of case management in nature. The issues in question, namely whether to consolidate or to stay proceedings, are essentially case management matters under O 4 r 9(1). The Master must have decided on balance that the matters in dispute were still part of the case management of the two proceedings.

45.  In my view, it is quite obvious that the difficulty the defendant encountered here is not whether the Master had failed to take into account any additional costs incurred due to the plaintiff’s misconception. Instead, the crux of the problem is that the defendant’s counsel below failed or chose not to address the court for any reason, if any, why the court should depart from the usual costs order.

46.  In such circumstances, I can find no error of law in the Master’s decision, nor can I see the order he made was unreasonable. As stated in his Decision on Costs, the Master had considered the nature of the application and the respective stances of the parties. In the exercise of his discretion, the Master did not think it right to make any costs order that departed from the usual order. I see no reason to interfere with the costs order made by the Master. I would dismiss the appeal.

Usual costs order for consolidation

47.  As to the question posed by this Court that whether the parties accept that the usual costs order for an application for consolidation is “costs in the cause”, Mr Ng submits that it is the usual order whether or not the application was contested. Ms Lan submits that it is the usual order only for uncontested applications. With respect, I am not satisfied with either answer.

48.  Ms Lan submits that since the learned Master rejected the plaintiff’s suggestion to stay, there is no reason why the defendant as a winning party should not be entitled to recover costs unnecessarily incurred. She said for contested applications, costs should follow the event. In support, she cited the case of Bank of East Asia Ltd v Yeung Lam Wilson & Ors (unreported, HCMP 4077 of 1998, 27 October 1999).

49.  Mr Ng replies that Bank of East Asia Ltd is a pre-CJR authority. In the pre-CJR era, there was no distinction between costs in interlocutory proceedings and costs in other proceedings. The former O 62 r 3(2) prescribed a general rule that costs to follow the event except in special circumstances. However, the court’s approach post-CJR has changed that costs following the event except in special circumstances remains only as one of the options, and the court is no longer required to apply that general rule of costs in interlocutory proceedings. (see Waxman & Anor v Li Fei Yu & Anor [2013] 6 HKC 424 per To J at paras 11 & 19).

50.  In addition, Mr Ng refers to the case of K&L Gates v Navin Kumar Aggarwal & Others (unreported, HCA 1061/2011 & HCA 349/2012, 15 July 2013). In that case, the plaintiff opposed the application for consolidation filed by one of the defendants. The main reason put forward by the plaintiff’s counsel was that, though the plaintiff agreed in principle for consolidation, the second action was at a more advanced stage and consolidation with the first action at this stage would cause undue delay to the second action. DHCJ B Chu (as she then was) made an order for consolidation in terms of the defendant’s summonses. The defendant asked for costs. DHCJ B Chu declined such request and said, at para 32, “as the matter was really part of case management, costs were to be in the cause.”

51.  I agree with Mr Ng that K&L Gates supports the proposition that costs should be costs in the cause if the matter is part of case management. And indeed, I find the situation of our present case is quite similar to K&L Gates, and that proposition is also applicable to our present case.

52.  Mr Ng further submits that there is a wide spectrum of cases in support of his proposition that the usual order for costs for a consolidation application is “costs in the cause”, even in hotly contested applications. He refers to, for example, the case authorities relied on by the learned Master at the hearing below, namely Komal Patel & Ors v Chris Au & Ors (supra), etc. Nevertheless, Mr Ng properly accepts that the usual order for costs would still apply only if the contest to the application were not too far-fetched or over-reached.

53.  In my judgment, “costs in the cause” is the usual order for an application for consolidation. Whether the court is going to order the usual order would depend. The decisive issues are (1) whether the application is opposed or unreasonably opposed, and more importantly, (2) whether the matters considered in the application are essentially part of case management of the proceedings. The court will depart from the usual order if the application is unreasonably opposed or the matters fall outside the ambit of case management. Of course, there are other reasons that would justify the court doing the same, such as an application which is an abuse of the process of the court. In any event, costs are in the discretion of the court (s 53(1) of the District Court Ordinance, Cap 336).

54.  As to the question why costs of case management matters would be costs in the cause? I would draw counsel’s attention to Man Fong Hang (supra) per DHCJ A Cheung (as the Chief Justice then was) at para 20:-

“… be costs in the cause. This is because … the application is more in the nature of a direction application, i.e. an application for a direction to facilitate further prosecution of the claim or conduct of the defence, and/or proper conduct of the eventual trial. There is not much ‘right’ or ‘wrong’ in the application itself, and the underlying ‘merits’ of the application are really determined by the general merits of a party’s case. Therefore, it would be generally fair in those circumstances to order the costs to be in the cause.”

55.  For the literal meaning of “costs in the cause”, I would respectfully refer to the judgment of Cross LJ (as Lord Cross then was) in J T Stratford & Son Ltd v Lindley (No 2) [1969] 1 WLR 1547 at 1555F, where his Lordship said, “the words ‘costs in cause’ only mean that the costs in question are to be dealt with as part of the general costs of the action.”

Disposition and Costs

56.  For the above reasons, I dismiss the defendant’s appeal.

57.  I make an order nisi that the defendant do pay the plaintiff’s costs of the appeal, and such costs to be summarily assessed with certificate for counsel. The plaintiff’s own costs to be taxed in accordance with the Legal Aid Regulations. In absence of any application for variation, this costs order shall be made absolute in 14 days from the date hereof.

58.  Unless any application for variation of the said costs order nisi is made within time, the plaintiff shall lodge and serve its statement of costs within 7 days after the expiry of the said 14-day period, and the defendant shall lodge and serve its statement of objection within 7 days thereafter. Summary assessment of costs of the appeal will then be conducted on paper (no matter whether any statement of objection is lodged by the defendant within time) thereafter. The costs assessed shall be payable by the defendant within 14 days after assessment.

59.  Finally, it remains for me to thank counsel for their assistance.