GREAT SOURCE ENTERPRISE LTD v. 陳德明 AND OTHERS

HCA 1189/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1189 OF 2005

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BETWEEN

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D E C I S I O N

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1.  This is the costs application by the parties subsequent to an order of Master J. Wong dated 13 May 2010 whereby leave was granted to Plaintiff to discontinue the present proceedings against all Defendants with costs reserved.

2.  The Plaintiff seeks costs of the action up to 12 July 2005, i.e. when he receives the tapes originally requested in the Statement of Claim.  Defendant objects and says it is inappropriate and that they should be awarded costs of the action instead.

3.  The Plaintiff was at all material times owner of the property known as Unit B, 6^th Floor, Block 2, 8 Yin Ping Road, Dynasty Heights, Kowloon (“the Subject Property”) and all Defendants were, at time of issue of writ, members of the 3^rd Owners’ Committee which was formed on 3 April 2004.  1^st Defendant was the chairperson and 2^nd Defendant was the secretary of the 3^rd Owners’ Committee.

4.  It is not in dispute that owners of property in Dynasty Heights took their assignment subject to a Deed of Mutual Covenant and Management Agreement dated 19 January 1999 registered in the Land Registry by memorial no. 7685467 (“DMC”).

5.  It is also not in dispute that: -

(a)    Prior to issue of writ on 22 June 2005, the Plaintiff had written on 7 February 2005, via his solicitors to the 3^rd Owners’ Committee, 1^st Defendant as chairperson of the 3^rd Owners’ Committee and 2^nd Defendant as secretary of the 3^rd Owners’ Committee requesting to listen to tape recording and to make extracts and/or transcript of certain Owners’ Committee meetings.

(b)    that the Defendant’s solicitors by their letter dated 16 February 2005 replied and requested the Plaintiff to give an undertaking and indemnity in the following terms: -

(1)    not to make copy in whatever manner of the tape recordings;

(2)    not to tamper with or in whatever manner damage or destroy the tapes;

(3)    not to use the extracts and/or transcripts being prepared for purposes other than for the proceedings in HCA 3444/2003;

(4)    to indemnify the Defendants on full indemnity basis upon breach on the part of the Plaintiff;

(5)    pay the Manager (Sino Estates Management Ltd.) such administration fees incidental to such arrangement including but not limited to such costs for the staffing and the exclusive use of such incidental facilities;

(6)    pay the representative(s) of the Defendants such costs in attending the listening appointments; and

(7)    pay the costs of the legal representatives of Defendants at the rate of $3,000 per hour such costs in attending the listening appointments.

(c)    that subsequent thereto, the Plaintiff’s solicitors on 29 March 2005 wrote and requested for duplicate set of tape recordings of the proceedings of the meetings.  They also offered to provide the Defendants with blank tapes.

The Plaintiff also disputed the said payment of administrative fee and legal costs.  The said request was refused by the Defendant in their reply letter dated 19 April 2005 and 13 May 2005.  The Defendants insisted on the aforesaid undertaking and indemnity.

(d)    that further on 17 June 2005, Plaintiff’s solicitors had written to the Defendants’ solicitors and informed the Defendants that in action HCA 3444 of 2003, Mr. Justice Burrell expressed his opinion on the rights of the owner of the Dynasty Heights to the tapes of owners committee meetings pursuant to clause 58 of the DMC, that an owner “can sift through them, they can take out what they want, they can discover …… and then they can produce themselves their extracts”.  The Plaintiff again reiterated their compromise to have the duplicate tape as to alleviate the worries of the Defendants that the Plaintiff would tamper or damage the tapes. Defendants are also reminded of clause 58 of the DMC.  In the same letter, Plaintiff challenged the right of the Defendants to impose the undertaking and indemnity.

(e)    that by letter from Plaintiff’s solicitors dated 16 June 2005 to the Defendant’s solicitors, Plaintiff also requested for a copy of the tape recording of the proceedings of the Owners’ Committee held on 5 May 2005.  No reply came from the Defendant until 12 July 2005, i.e. after issue of the writ.

(f)    that on 2 July 2005, the Defendant through their solicitors agreed to tender the duplicate tapes requested (save for May 5, 2005 tape) on payment of costs for duplication in sum of $8,000 with no other conditions attached.  The same was agreed to by the Plaintiff and the tapes reached the Plaintiff on 12 July 2005.

6.  Order 62 rules 5(1) and (2) of RHC provides, inter alia:

“5.(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in Order 1A, rule 1 ……

……

(e) the conduct of all the parties; …

……

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful …

……

(2) For the purpose of paragraph 1(e), the conduct of the parties includes –

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.”

7.  This Court is also referred to the Hong Kong Civil Procedure 2010, Volume 1 (“White Book”) Order 21 rule 5: -

“[21/5/11] Terms for grant of leave (r.3) – The Court has a wide discretion as to the terms upon which it may grant leave to plaintiff or defendant, as the case may be, to discontinue or withdraw the whole or part of the action or counterclaim. It may impose terms as to costs, as to the bringing of a subsequent action or otherwise as it thinks just.

(1) As to costs – the order should provide for the payment of the costs of the action. The general rule that a defendant is entitled to costs when an action is discontinued may be departed from in a case where the discontinuance of the proceedings is due to the matter having become academic, rather than to any acknowledgement by the plaintiff of likely defeat …

… In the exercise of its discretion, the court may order costs against the defendant on an application for discontinuance by the plaintiff if it considers it just to do so in the light of the defendant’s conduct: Alan Soh v. The Owners of the Vessel Columbus Caravelle [2003] 1156 H.K.C.U. 1.  In particular, the court may order costs in favour of an applicant in exceptional circumstances where the application is doomed to failure by an act of the respondent which is within the respondent’s control, is out of the hands of the applicant and which could have been taken either before the application was made or at an earlier stage in the application so as either to obviate the possibility of the application being made, or to minimize the costs associate with it: Re Peaktop Technologies (USA) Hong Kong Ltd (unrep., HCMP 2456 of 2006) [2007] H.K.E.C. 992……”

8.  Solicitors for the Plaintiff submitted that in Re Chinese United Establishment Ltd, HCCW 291/1994 (unreported, 5 October 1995 upheld on appeal in CACV No. 214 of 1995, 24 April 1996), it was held that

“the Petitioner was entitled to costs when settlement was reached with the Respondents shortly after commencement of trial on the basis that the Petitioner have in effect gained by the proceedings that which they had come to court to get, in other words, they obtained substantially the relief they came for. This case was followed in Graham M. Morley v Kwan Wo San & Ors., HCA 3446/2003 (unrep.) in which Recorder Jat, SC analysed Re Chinese United Establishment Ltd in details, as follows: -

25. In Re Chinese United Establishment Ltd, HCCW 291/1994 (unrep, 5 October 1995), Rogers J (as he then was) had before him a petition for the just and equitable winding up of a company, alternatively an order for the buy out of the petitioners’ shares. At the beginning of the second day of the trial, the respondents made an open offer to purchase the petitioners’ shares at a fair value to be assessed without discount. The resulted in a consent order which the judge was asked to make, providing for the purpose of the petitioners’ shares at a fair value without discount and without prejudice to the claims which the parties might have in related litigation which were still pending. The order was made on the express basis that there was no admission that any of the petitioners’ allegations were well-founded. The consent order was made on the basis that either party could seek costs against each other.

26. Immediately upon asking the court to make the order in terms, the petitioners applied for their costs and the respondents opposed that application. Rogers J approached the matter in the following manner:

‘[6] … [the Petitioners’] point is simple: they came to court to get an order that was an order in the alternative, that either the company] be wound up or the Petitioners’ shares be purchased. They say that was an alternative order and they got the order which they came to court to seek, if they did not get the exact order, they obtained substantially the relief that they came for.

[7] The Respondents resist the order for costs sought by the Petitioner. First of all they point out that there was no admission of any allegation being well-founded and this was a Consent Order which provided expressly for that, nor have the merits been decided. They say in effect that there has been no determination upon which the Court could order costs. They say that although costs normally follow the event, the event would be a finding that the Petitioner would be entitled to his relief and that has not happened because what the Petitioner has done is to accept an offer which has been made.

[8] In my view, I consider that the Petitioners are entitled to their costs on the very simple footing that they have, in effect, gained by these proceedings that which they had to come to court to get. If this open offer had been made earlier, perhaps when the petition were presented, or in lieu of evidence being filed by the Respondents, or at any other time, then of course the Petitioners would not have had to proceed with their petition, or if they had done so, would have done so at their own peril as to costs.

[9] I am mindful in so saying that once the matter comes to court the Respondents are in a difficult position; they may well have reached a situation where, with a three to five week case looming as this one was, their irrecoverable costs, even were they to defeat the petition, would be so high that the chances of recovering them from the Petitioner would not be great, I know not.

[10] The only suggestion I can make is that any offer which is to be made in such circumstances, whether for protection of costs or otherwise, would have to be made specifically with the order as to costs included, otherwise it seems to me that the normal course should follow and the Petitioners, having obtained their buy out order, should receive their costs’.

27. The respondents’ appeal to the Court of Appeal (CACV 214/1995, unrep, 24 April 1996, Litton VP, Mayo and Ching JJA) was dismissed. Mayo JA, giving the judgment of the court, said this:

‘[13.] The way that the judge approached the problem was to consider what had been achieved by the petitioner. It had been as to consequence of the filing of the petition that the respondents had made the offer they had. It could be said that the action taken by the petitioners had achieved this.

[14.] The main contention advanced by the appellants is that it is wrong to conclude that the respondents have in fact been successful. There had been no admission as to liability and the whole issue between the parties remained at large. In considering whether it was a case where costs should follow the event it was necessary to consider what is meant by ‘event’. Mr [Robert Tang QC, as he then was] called in aid the case of Howell v. Dering and Others [1915] 1 KB 54 and in particular a passage at p63 of the judgment of Buckley LI:

‘In the next place, was the answer of the jury to that question an ‘event’? In my opinion it was not. An ‘event’ within the meaning of the rule is an outcome of the presentation to the tribunal of some claim made by the plaintiff against the defendant which results in a finding that the plaintiff is or is not entitled to relief against the defendant.’

[15.] Mr Tang submitted that there had been no determination of the issues between the parties. This is not really germane to the present case. The fact of the matter here is that the petitioner did substantially obtain the relief sought.

[16.] When the judge made the order he did he was exercising his judicial discretion. We can only interfere with the exercise of this discretion if we are satisfied that the exercise of this discretion was either wrong in principle or manifestly in error.

[17.] This cannot be said in the present case.  Clearly the parties left open the question of costs when they agreed that terms of the consent order.  The reasons given by the judge for making the order he did are valid reasons.  We are not justified in interfering with this order and accordingly this appeal is dismissed with costs on a common fund basis.”

9.  In the prayer of the Statement of Claim as originally filed, the Plaintiff asked for,

“ (1) a declaration that the 1^st to 11^th Defendants have breached their duties as members of the Owners Committee of Dynasty Heights and Clause 58(b) of the Deed of Mutual Covenants of Dynasty Heights in that they have failed to make available the following tape recordings of the proceedings of the Owners’ Committee meetings of Dynasty Heights as set out in paragraph 13 hereof to the Plaintiff for inspection and to make extracts or copies thereof;

(2) A mandatory injunction order ordering that the Defendants do forthwith and produce and make available to the Plaintiff the tape recordings of the proceedings of the following Owners’ Committee meetings for inspection and to make copies and/or extracts thereof by the Plaintiff and/or its agents:

(i) 14^th meeting of the 1^st Owners’ Committee held on 12.12.2001;

(ii) 15^th meeting of the 1^st Owners’ Committee held on 31.01.2002;

(iii) 16^th meeting of the 1^st Owners’ Committee held on 08.03.2002;

(iv) 1^st meeting of the 2^nd Owners’ Committee held on 02.05.2002;

(v) 2^nd meeting of the 2^nd Owners’ Committee held on 06.06.2002;

(vi) 3^rd meeting of the 2^nd Owners’ Committee held on 03.08.2002;

(vii) 4^th meeting of the 2^nd Owners’ Committee held on 25.10.2002;

(viii) 5^th meeting of the 2^nd Owners’ Committee held on 20.12.2002;

(ix) 6^th meeting of the 2^nd Owners’ Committee held on 21.02.2003;

(x) 7^th meeting of the 2^nd Owners’ Committee held on 25.04.2003;

(xi)    8^th meeting of the 2^nd Owners’ Committee held on 23.05.2003.”

10.  Solicitors for the Plaintiff submitted that just 10 days after the issue of the writ in the present case, the Defendant agreed to the Plaintiff’s request made months ago for supply of duplicate set of tapes.  The Plaintiff got substantially what he seeked for, the same having been earlier refused by the Defendants.  He urged the Court to adopt the approach in Re Chinese United Establishment Ltd and persuaded this Court to exercise its discretion and award costs of the action up to date to receipt of duplicate set of tapes in favour of the Plaintiff.

11.  He also relied on the commentary in the White Book at para 62/10/3 which reads as follows: -

“But where a defendant before defence delivered up certain deed the subject matter of the action and the plaintiff then applied for leave to discontinue with costs of the action to be paid by the defendant, the judge so ordered.”

(Fenwick v. Lurde, unreported, Sutton J. in chambers, May 5, 1906)

12.  Solicitors for the Plaintiff further asserted that though after 12 July 2005, i.e. on the 28 July 2005, the Plaintiff still amended the Statement of Claim and seeked for the record of proceedings in relation to 5 May 2005 meeting and had chosen later to abandon proceeding with this action, the Plaintiff was not conceding defeat but had only done so after considering costs implication and having regard to the conduct of the Defendant.

13.  In this case, on 17 June 2005, i.e. 5 days before the issue of proceedings, Plaintiff’s solicitors wrote to Defendant’s solicitors and asked them to give a reply within 3 days on the Plaintiff’s refusal to accept the undertaking and indemnity imposed by the Defendants regarding the access to tape.  Plaintiff said that the case would be restored before the court should there be no reply.

14.  Mr. Erik Shum, Counsel for the Defendants submitted that the undertakings and indemnity imposed on the Plaintiff via their letter dated 16 February 2005 was attached pursuant to legal advice and advice from the manager of the Dynasty Heights which was solely for the protection of interests of all owners of the development.

15.  He also stressed that 7 days’ notice to the other owners’ committee members was necessary before convening an owners’ committee meeting and that Mr. Fong Chau Kwai (“Fong”) of the Plaintiff being himself previously a committee member of the 1^st and 2^nd Owners’ Committee should know and that therefore it was unreasonable that the Defendants were only given 3 days’ time to reply to their letter before action.

16.  It is the Defendant’s case that they had no prior knowledge of requests made by the Plaintiff to the 1^st and 2^nd Owners’ Committee and the Manager for the subject tapes, not until 5 February 2010 and that they were only aware of the Plaintiff’s previous numerous requests when the same was disclosed in the 2^nd affirmation of Fong dated 3 June 2010.

17.  Defendants conceded via the 2^nd affirmation of 1^st Defendant that such previous requests were in fact made by the Plaintiff.

18.  Clause 58 of the DMC reads: -

“58. (a) The Owner’s Committee shall cause to be kept records and minutes of: -

(i) the appointment and vacation of appointments of all its members and all changes therein;

(ii) all resolutions and notes of proceedings of the Owners’ Committee;

(iii) the members present at all meetings.

(b) Such records and minutes shall all be kept in such place as the Owners’ Committee may from time to time determine and shall be open to inspection by any Owner on reasonable notice being given and such Owner shall be also be entitled to extracts thereof on paying the reasonable charges therefor.”

19.  Clause 28.5 of the Estate Rules reads: -

“Any member of the committee or owner who wishes to have access to the tapes, may apply in writing to the secretary. With the approval of the chairman the tape can be played at a time appointed by the owners’ committee. No duplication of the tape is allowed.”

20.  The rights of an owner to the records of meetings has clearly been spelt out in the plain English language in the said clause 58 of the DMC.

21.  Further, the Plaintiff in their letter dated 17 June 2005 to the Defendants had referred them to the comments made by Mr. Justice Burrell in HCA 3444/2003 which will, in the least, give notice to the Defendants here as to how clause 58 of the DMC has been interpreted by Burrell J. and by the parties in that case.  If the Defendants think otherwise, obviously they need to have good reasons.  What are their good reasons?  No explanation was given by them save that the undertaking and indemnities were imposed for the good of the owners.

22.  The conditions imposed in the reply letter dated 16 February 2005 in my view, is oppressive and unreasonable, in particular, the undertaking to the use of the extracts/transcript solely for HCA 3444/2003, the requirement to pay the manager administration fee incidental to the arrangement to listen to the tapes including but not limited to cost for staffing and the exclusive use of such incidental facilities, the need to pay the representatives of the Defendants costs in attending the listening appointments, the need to pay costs of the legal representatives of Defendants at $3,000/hour in attending the listening appointment.  There is no doubt that these are all measures intended to obstruct the exercise of the right of an owner under the said clause 58(b) of the DMC. There is really no basis, legal or otherwise for the Defendants to impose these conditions.

23.  It is true, as submitted by solicitors for the Plaintiff that shortly after the issue of the present proceedings i.e. on 2 July 2005, the Defendants changed their stance and agreed to the previous proposal of the Plaintiff made on 29 March 2005 for supply of duplicate set of tapes.  The Plaintiff had obtained substantially what he seeked for.

24.  It is noted also that the Plaintiff first made these requests to the Defendants on 5 February 2010, i.e. more than 5½ months before he started the action.  In fact, on 16 June 2005, he also requested for the tape of 5 May 2005 meeting but had received no reply not until shortly after the issue of the writ i.e. 12 July 2005.  This 5 May 2005 tape was not subject matter of the action in the initial stage.

25.  Counsel for the Defendant Mr. Erik Shum submitted that the comments made by Burrell J. in the course of proceedings of HCA 3444/2003 is irrelevant. This Court cannot agree as the same turns on the construction of clause 58 of the DMC, though only obiter.

26.  He also submitted that subsequent to the delivery of tapes to the Plaintiff on 12 July 2005, the Plaintiff amended the Statement of Claim on 28 July 2005 seeking reliefs such as declarations and injunctions as well as the tape for the 5 May 2005 meeting.  Mr. Shum said as the Plaintiff failed to proceed further with the claim, as a result, the Defendant took out a summons to dismiss the Plaintiff’s action for want of prosecution on 6 August 2009, i.e. 4 years later and Plaintiff subsequently took out summons for leave to discontinue the action.

27.  Mr. Shum in his written submission stated that the general rule is that a Defendant is entitled to costs when an action is discontinued (White Book 21/5/11) and that only in exceptional circumstances may the court order costs in favour of the Plaintiff.  He said in the present case, none of the circumstances could be said to be exceptional which would entitle the Plaintiff to costs.  He said further that the Plaintiff’s conduct relevant to this case suggests that the whole action is frivolous and is grossly unfair and prejudicial to the Defendants who are volunteers serving the co-owners of the building.  He stressed that the cited case of Re Chinese United Establishment Ltd relied on by the Plaintiff are clearly distinguishable because those actions were settled by the parties instead of being dismissed for want of prosecution or discontinued and that the resolution of the case came shortly after commencement of trial.

28.  It is a fact that on 12 July 2005 the Defendant’s Solicitors replied, only for the first time to the request by the Plaintiff’s Solicitors made on 16 June 2005 that they did not have any tape recording of the 5 May 2005 owners’ committee meeting.

29.  There has been no explanation given by the Defendants why they needed nearly 1 month to reply.  I do not see the need to convene an owners’ committee meeting for this purpose, especially if they said they simply did not have the tape.  The delay has not been explained.

30.  It is observed that the request of the Plaintiff for the 5 May 2005 tape was made against the background that it was resolved in the first meeting of the 3^rd Owners’ Committee on 6 May 2004, on proposal of the 1^st Defendant, that there be audio recording to facilitate the manager recording whole proceedings of the meetings.  Defendants did not challenge this as a fact in their affirmation in reply by 1^st Defendant dated 12 June 2010.  It is interesting to note that the Defendants replied that they did not have the 5 May 2005 meeting taped despite the said resolution.

31.  It is not true that the Plaintiff’s action here has been dismissed for want or prosecution.  Rather, it was by consent between the parties, that leave was granted to the Plaintiff to discontinue the action.

32.  I agree that there is no exceptional circumstances justifying costs to the Plaintiff for period since 28 July 2005 until discontinuance of the action.

33.  However, I find the case of Re Chinese United Establishment Ltd applicable and useful in the circumstances of this case as far as costs up to 12 July 2005 is concerned.

34.  Nevertheless, I need further to consider clause 56 of the DMC.

35.  Clause 56 of DMC provides that: -

“56. The Owners’ Committee and the members thereof shall not be liable to the Owners or any of them or to any person or persons whomsoever whether claiming through, under of in trust for any Owner or otherwise, for or in respect of any act, deed, matter or thing done or omitted in pursuance or in purported pursuance of the provisions of this Deed not being anything involving criminal liability or dishonesty or gross negligence by or on the part of any or all the members of the Owners’ Committee, and the Owners shall fully and effectually indemnify the Owners’ Committee from and against all actions, proceedings, claims and demands whatsoever arising directly or indirectly out of or in connection with any act, deeds, matter or thing done or omitted as aforesaid which does not involve criminal liability, dishonesty or gross negligence on the part of the Owners’ Committee or the members thereof and all costs and expenses in connection therewith.”

36.  Plaintiff, being an owner of Dynasty Heights has taken the assignment of the Subject Property subject to the DMC and is therefore bound by its terms.

37.  The Defendants, under the DMC, is not liable to other owners for their acts or omission unless the same involve criminal liability, dishonesty or gross negligence.

38.  Issue is therefore “Is there gross negligence on the part of the defendants in this case? ”

39.  At all times, the Defendants are legally represented and therefore had the benefit of legal advice.  It can be assumed therefore they know of the rights of the Plaintiff as an owner in respect of the records of meetings, including that of the tapes recording the meetings.  Furthermore, they have also been informed of the comments of Burrell J. on interpretation of clause 58 of the DMC. They nevertheless chose to ignore all these by imposing onerous conditions.  After the issue of the proceedings, they responded immediately to the requests of the Plaintiff and delivered the duplicate set of tapes.

40.  I have no hesitation to conclude that this conduct of the Defendants comes nothing short of gross negligence.

41.  Whilst I understand that these defendants are members of Owners Committee on a volunteer basis, it does not mean that they could recklessly obstruct the exercise of clear lawful rights by an owner.  This must be discouraged.

42.  I find it appropriate therefore to award costs to the Plaintiff payable by the Defendants up to 12 July 2005, the same to be taxed if not agreed.

43.  Plaintiff only received the reply from the Defendants on 12 July 2005 that the May 5 tape did not exist under interesting circumstances.

44.  Accordingly, it is reasonable for him to have to consider his case in light of the reply for costs after 12 July 2005 and before 28 July 2005, I will order that there be no order as to costs.

45.  Coming to the costs of the action as from 28 July 2005, as said earlier, I am not satisfied there are exceptional circumstances in the case that allows me not to follow the normal rule of costs following the event.  Accordingly, costs of the action for this period be paid by the Plaintiff to the Defendants (subject to order of costs made on 13 May 2010), the same to be taxed if not agreed.