SOCIETY FOR PROTECTION OF THE HARBOUR LTD v. TOWN PLANNING BOARD

HCAL19/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO.19 OF 2003

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D E C I S I O N

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1. On 8 July 2003, I handed down the judgment on the applicant's application for judicial review. I granted the application and made an order nisi that the costs of these proceedings be to the applicant against the respondent with a certificate for two counsel. By letter dated 17 July 2003, the applicant applied to vary the order nisi to provide for : (1) the applicant's costs of the proceedings be paid on an indemnity basis and (2) a certificate for three counsel. The respondent opposes both variations.

Indemnity costs

2. The applicant's main argument for seeking an award of indemnity costs is that the present proceedings were commenced in the public interest such that the applicant, being a charitable organization, ought to be fully compensated for the costs incurred. It is submitted that the court can make an award of indemnity costs on account of such factors as absence of private motivation and gain on the applicant's part, the public interest element of the litigation and the disparity of resources between the parties.

3. For the respondent, it is argued that there has to be special and unusual circumstances to merit an award of indemnity costs. It is pointed out that the judgment in favour of the applicant turns primarily on statutory construction and there is no suggestion that the respondent acted in bad faith or defended the proceedings unreasonably, such that the respondent ought not be penalized in costs. It is further said that the matters relied upon by the applicant do not amount to special circumstances justifying an indemnity costs order.

4. The issue is therefore, as Mr Neoh SC for the applicant puts it, whether it is appropriate in all the circumstances of the case for the applicant, a charitable organization, having instituted judicial review proceedings in the public interest on a point of law of general public importance, to be awarded costs on an indemnity basis to ensure that it is adequately and fully compensated for costs incurred. This in turns calls into question the circumstances under which an indemnity costs award may be properly made.

5. Costs is a matter of discretion. Order 62, rule 28 of the Rules of the High Court deals with the bases on which costs are to be paid and taxed. For the present purposes, sub-rules (2), (3) and (4A) are relevant, which provide as follows :

"(2) Subject to the following provisions of this rule, costs to which this rule applies shall be taxed on the party and party basis, and on a taxation on that basis there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed.

(3) The Court in awarding costs to which this rule applies may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on the common fund basis or on the indemnity basis.

(4A) On a taxation on the indemnity basis all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the taxing master may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party; and in these rules the term 'the indemnity basis' in relation to the taxation of costs shall be construed accordingly."

6. There are two points to be noted. Firstly, under a party and party award, the receiving party will be paid his necessary or proper costs, and the burden is on him to justify his costs. In the case of an indemnity award, however, the receiving party will be paid all his costs unless it is of an unreasonable amount or is unreasonably incurred. The burden is on the paying party to establish unreasonableness. As a result of these differences, it is generally accepted, and it is also common ground between counsel, that an award of indemnity costs, being a more generous basis, will enable the successful party to recover significantly more of his costs than under a party and party award.

7. Secondly, while some special and unusual features have to be shown to justify an indemnity costs award, the court's discretion under Order 62, rule 28(3) is a wide one. Indemnity costs may be ordered where the court thinks fit.

8. In Sung Foo Kee Ltd v. Pak Lik Co. [1996] 3 HKC 570 at 575B-E, Godfrey JA said :

"Here, as in England and Wales, the judge has a discretion, in a case which does fall outside the general rule, to direct the taxation of the receiving party's costs on the basis which he considers to be appropriate to that case. This is not a discretion limited by indications in previous cases, such as, e.g. the observations of Godfrey J in Overseas Trust Bank Ltd v Coopers & Lybrand [1991] 1 HKLR 177 (in which he declined to order the successful party's costs to be taxed on the indemnity basis), as to the sort of special or unusual feature (there does have to be some special or unusual feature) which could justify an award of indemnity costs."

Referring to the English case of Macmillan Inc. v. Bishopsgate Investment Trust Ltd, 10 December 1993 (unreported), Godfrey JA further said that :

"The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win. Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be 'appropriate'."

These observations were followed by the Court of Appeal in Choy Yee Chun (The personal representative of the estate of Chan Pui Yiu) v. Bond Star Development Ltd [1997] HKLRD 1327 at 1334-5.

9. Plainly, the circumstances in which an indemnity costs award may properly be made are not limited to cases amounting to an abuse of process, or brought or defended with an ulterior motive or for an improper purpose. For the applicant, it is said that the court may properly take into account the fact that these judicial review proceedings are brought in the public interest and for public benefit, with no personal gain to the applicant, that the proceedings involve an issue that has an important bearing on the community, and that the applicant is a company limited by guarantee and derives its funding from donations. It is also said that indemnity costs should be ordered because if it were otherwise, people may be deterred from seeking to uphold public rights against the government. Miss Cheng SC for the respondent, on the other hand, argues that the special circumstances justifying indemnity costs award refer only to circumstances in the litigation itself, and do not extend to factors such as those identified by the applicant.

10. The starting point in determining the issue is to consider the indemnity principle underlying an award of costs. Bramwell B in Harold v. Smith (1860) 5H. & N. 381 at 385 observed :

"Costs as between party and party are given by the law as an indemnity to the person entitled to them; they are not imposed as a punishment on the party who pays them; nor given as a bonus to the party who receives them. Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained."

11. It is precisely because costs are not intended as a punishment to a losing party that the usual order is to award the lower basis of party and party costs. It has long been accepted that the court may visit the unsuccessful party with a more onerous costs order to mark the court's disapproval of the party's conduct in the litigation. But even in such instances, the court is not departing from the fundamental principle of indemnity. On an indemnity taxation, therefore, the receiving party will not be allowed to get a windfall out of it but will only be indemnified as to the costs actually incurred.

12. In my view, the very fact that costs are not imposed by way of punishment suggests that the circumstances justifying the award of indemnity costs are not limited to the conduct of the litigation. In Choy Yee Chun, the appellant argued that the judge erred in taking into account events prior to the institution of the proceedings in making an indemnity costs order. Stock J (as he then was) in rejecting that argument, referred to the judgment of Buckley LJ in Scherer v. Counting Instruments Ltd [1966] 1 WLR 615 at 619, which said that while "the grounds upon which costs are awarded must be connected with the case, this may extend to any matter relating to the litigation and the parties' conduct in it, and also to the circumstances leading to the litigation, but no further" : at 1338G-H.

13. Further, given the underlying rationale is to indemnify the successful party, it will be open to the court to use the indemnity costs award to achieve a fairer result for the successful party. In Petrograde Inc. v. Texaco Ltd [2002] 1 WLR 947, Lord Woolf MR pointed out that an award of costs on standard basis will almost invariably mean that a successful party has to pay part of his costs out of his own pocket, and that an indemnity costs order would avoid that element of unfairness : see also McPhilemy v. Times Newspapers Ltd (No.2) [2002] 1 WLR 934 at 943D-F. Although Petrograde and McPhilemy are cases on Part 36 offer under the English CPR, the discussions on the nature of indemnity costs order and the use of it to redress elements of unfairness inherent in the legal process are of general application.

14. It follows that factors such as those identified by the applicant may properly be taken into account by the court in deliberating on a costs order that will do justice to the parties involved. In New Zealand Maori Council v. Attorney General of New Zealand [1994] 1 AC 466 at 485G-H and also in Oshlack v. Richmond River Council (1998) 193 CLR 72 at 80-81, 91, both the Privy Council and the High Court of Australia in making no order as to costs against an unsuccessful party, took into account the fact that the losing party did not bring the proceedings out of motive of personal gain, but was pursuing an important point of law that had wide socio-cultural or environmental implication.

15. Mr Neoh SC also draws assistance from two Canadian cases in which successful litigants in judicial review proceedings relating to matters of fundamental importance, namely, the constitutional right to judicial independence, were awarded indemnity costs : Reilly, PCJ v. Wachowich CJPC (1999) Lexis 1380 (Mason J) upheld by the Alberta Court of Appeal in [2000] A.J. No.1029, and Reference Re Territorial Court Act (NWT), section 6(2) (1997) 152 D.L.R. (4th) 132. These decisions recognize the chilling effect on pursuits of constitutional right if parties are required, even in part, to suffer the payment of their legal expenses. They are further instances of the court resorting to an indemnity costs order to redress the unfairness occasioned to a successful party in terms of his costs liability. Additionally, these cases also serve to illustrate that the special circumstances that justify an indemnity costs order are not confined to matters in the proceedings.

16. In the present case, there is little doubt that these proceedings involve a point of law of general public importance. I also have no difficulty accepting that there is a public interest in the outcome of the litigation in that it carries significant implications both for the respondent, who is a public body, and for the general public. Secondly, it cannot be seriously argued that the applicant did not bring these proceedings out of motive for private gain. The applicant, and its predecessor, has throughout taken a keen interest in the Harbour as well as in the proper construction of section 3 of the Protection of Harbour Ordinance ("the Ordinance"). I accept Mr Neoh SC's submission that this is not a piece of standard litigation and the applicant should not be regarded as a mere private litigant.

17. Thirdly, it is not in issue that the applicant is a company limited by guarantee and has no share capital. Miss Cheng SC has commented on the applicant's ability to raise donations for its course. But it remains a fact that the applicant's source of funding is from donations. There is clearly a disparity in resources between the applicant and the respondent who is financially supported by the government.

18. The authorities noted above have demonstrated that the character of the proceedings and the attributes of the parties are proper matters to be taken into account in achieving a fair allocation of costs between the parties. Having regard to the fact that the applicant instituted these proceedings in the public interest, that the case carries general public importance and that the applicant is of limited means, being financed primarily by donations, I am of the view that this is an appropriate case to order that the applicant's costs be taxed on indemnity basis. It is Miss Cheng SC's submission that the respondent had not acted in bad faith and should not be penalized in costs. As observed in Petrograde and McPhilemy, an indemnity costs order is compensatory, and not penal in nature. In the present case, the order aims at achieving a fairer result for the applicant by reducing the amount of costs that has to come from its pocket.

Certificate for three counsel

19. It follows from the award of indemnity costs order that the applicant should be allowed to recover all the counsel fees incurred save where it is of an unreasonable amount or is incurred unreasonably.

20. Mr Pao for the applicant refers to a number of matters justifying the appearance of three counsel at the hearing of the judicial review application. Firstly, it is said that the case is a test case in that it is the first time the court was called upon to construe the Ordinance. Secondly, it is argued that the case carries great importance for the applicant, the environmentalists as well as the people of Hong Kong as a whole. Thirdly, it is pointed out that because of the unique nature of the Ordinance and the section, it is necessary to conduct extensive research so as to draw assistance from the jurisprudence of various different jurisdictions. Fourthly, Mr Pao refers to the fact that because the proceedings had been expedited, counsel had to work under compressed time. The division of work among three counsel not only attained efficiency, but also resulted in savings in costs. It is further emphasized that there is a clear division of work among counsel such that there is no duplication of work.

21. Having heard Mr Pao, I am persuaded that it is not unreasonable for the applicant to be represented by three counsel at the hearing of the judicial review. Although the outcome of the judgment was not founded on the arguments on international treaty and human rights, they are not arguments that are wholly devoid of merits as would disentitle the applicant to the costs relating thereto. Neither should it render the involvement of three counsel unreasonable.

Conclusions

22. For the reasons set out above, I grant the applicant's application to vary the costs order nisi. The order is varied to the extent that the applicant's costs are to be taxed and paid on indemnity basis with a certificate for three counsel.

23. On the costs of the application to vary the costs order nisi, there is no reason why the normal rule of costs follow event should not apply. Accordingly, I order that the respondent pays the applicant the costs of the application to vary. In line with the costs order made on the application for judicial review, the costs of the application are to be paid on indemnity basis, to be taxed if not agreed.