GOOD TRY INVESTMENTS LTD v. EASILY DEVELOPMENT LTD

DCCJ 3346/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3346 OF 2011

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DECISION

Introduction

1.  There are two summonses before me. The Plaintiff asks me to make an award of costs against the Defendant on indemnity basis after their disputes had been settled pursuant to District Court Rules Order 22 (“Ord 22”) whereas the Defendant asks that the Plaintiff should not be awarded any costs.

Background

2.  The action arose from an incident where water was found to have escaped to the Plaintiff’s residential unit. This incident first came into light on 19 June 2010.  After some communication between the parties which I will set out in more detail below, letter before action was issued on 13 August 2010 and a Writ of Summons was subsequently issued on 30 August 2011 together with the Statement of Claim setting out the cause of action and the relief claimed, i.e. $85,250. Such claimed amount included cost on repair works, expert report and alternative accommodation. Defence was filed on 3 October 2011 whereby the Defendant denied liability and put the Plaintiff to strict proof of its claim. On 26 June 2012 the Defendant’s solicitors wrote and made a without prejudice offer to settle the Plaintiff’s claim by proposing payment of $44,850 not including costs. The offer was not met with any positive response. There were then two sanctioned payments made pursuant to Ord 22. Initially a sum of $80,000 was paid into court on 10 August 2012 (“the Sanctioned Payment”) followed by another payment of $10,000 made later; but the latter payment was eventually withdrawn. The Plaintiff then on 15 August 2012 accepted the Sanctioned Payment in settlement of it’s claim.

3.  Now the Plaintiff says that costs to be awarded under Ord 22 r 21 against the Defendant should be made on indemnity basis. I shall set out the Plaintiff’s ground in support of its application below.

The Law

4.  The parties have no argument on the applicable legal principles regarding the court’s discretion on awarding costs on indemnity basis. In Town Planning Board v. Society for Protection of the Harbour Ltd. (2004) 7 HKCFAR 114 the Court of Final Appeal upheld the decision of Chu J, as she then was, and confirming that principle in awarding costs of indemnity basis is that “the successful party should show, in order to obtain an order for costs on indemnity basis, that the case has some ‘special or unusual feature’”.

5.  In the present case, the complaints of the Plaintiff are that when the evidence was so overwhelming the Defendant should not have put up a bare-denial defence and put the Plaintiff to strict proof. Further the Defendant had made its case even weaker as it had on the one hand carried out repair works in its bathroom and on the other hand denying that it was the source of leakage. It is also said that the Defendant’s manner in making  offers to settle was unacceptable.

6.  To be fair to the Defendant, I cannot agree with the Plaintiff’s saying that the evidence on the source of leakage was overwhelming. Inspection had been carried out by both parties immediately after water leakage was discovered. As revealed from documents put before this court, the finding of the BD/FEHD on the source of leakage was non-conclusive; the Defendant’s plumber could not locate the source; the infra-red investigation arranged by the Defendant was also non-conclusive in this regard, Dr. Wong, the Plaintiff’s expert hired before action, produced a report which was apparently inconsistent with the findings of both the Defendant’s plumber and Mr Cheng, the single joint expert, appointed later with leave of the court. Source of leakage, which is not easy to locate, is very often a hotly argued issue at trial. For these reasons I cannot agree with Mr Fung that the evidence on the source of leakage in this action was overwhelming. 

7.  The chronology below would be helpful to see whether the Defendant had been evasive and unreasonable in the course as alleged:

19 June 2010	Water leakage found in the master bathroom of the Plaintiff’s
25 June 2010	Complaint lodged to BD/FEHD by the Plaintiff
05 July 2010	The Defendant obtained a quotation from a plumber (“the Plumber”) for works to be done in its  unit including inspecting the bath tub in the master bathroom and necessary works
14 July 2010	BD/FEHD inspected the master bathroom of the Plaintiff’s; colour test was performed because water leakage was found at the ceiling
26 -29 July 2010	Inspection and works carried out in the Defendant’s unit by the  Plumber  (p306)
2 Aug 2010	A cheque of $8,200 was issued by the Defendant to the Plumber
3 Aug 2010	BD/FEHD attended the master bathroom of the Plaintiff’s for test result; no water leakage was found
13 Aug 2010	Plaintiff’s solicitor wrote to the Defendant demanding it to stop the water leakage and repair the damage caused to the Plaintiff
19 Aug 2010	Solicitor of Defendant made a reply saying that the plumber could not locate any source of water seepage and the Defendant proposed infra-red survey to be conducted
08 Sept 2010	Plaintiff made a reply saying that they would agree to take infra-red survey if the Defendant could confirm no remedy had been done in the bathroom of the Defendants; also putting the Defendant on notice that an expert would be appointed to locate the source if the Defendant continued to deny liability
16 Sept 2010	Infra-red survey conducted
04 Nov 2010	Defendant offered to send workman to make good the damaged ceiling of the Plaintiff
22 Nov 2010	Offer refused by the Plaintiff saying that the Defendant had refused to admit liability, that there would not be further negotiation; that an expert would be engaged and that action would be taken against the Defendant without further notice
15 Dec 2010	Dr. Wong, expert of Plaintiff inspected the two bathrooms in question
17 Jan 2011	Dr. Wong came to the conclusion that the pipework embedded inside the false ceiling of the Plaintiff’s which connected the discharge from the Defendant’s unit to the system of the whole building was source of water seepage; (p337)
30 May 2011- 03 Jun 2011	Repair works were carried out in the Plaintiff’s master bathroom, the Plaintiff was invoiced for $49,350; another invoice of $10,000 for supervision works carried out; expenses on alternative accommodation for 4 nights incurred during the time of renovation works.
30 Aug 2011	Writ issued
07 Dec 2011	Certificate of Mediation filed by the Plaintiff refusing mediation
12 Mar 2012	Appointment of single joint expert pursuant to order of Master I Wong dated 8 Feb 2012
22 Jun 2012	Mr Cheng, single joint expert concluded that the source of the water seepage was most caused by water from the use of the bath tub of the Defendant’s seeping through the wall tile joints and the gaps of the sealant around the bath tub, settling on the floor below the bath tub and finally finding its way on the Plaintiff’s bathroom ceiling.
26 Jun 2012	Defendant made a without prejudice offer of $44,850 (save as to costs)
24 July 2012	Defendant made the Sanctioned Payment ( $80,000)
15 Aug 2012	Plaintiff accepted the Sanctioned Payment

8.  From the chronology, one could not really criticize the Defendant for being evasive. It had responded to complaint of the Plaintiff within reasonable time and had taken action or put up suggestions to solve the problem. The Defendant’s tenant had immediately attended the Plaintiff’s apartment with assistance of technician, the Defendant had allowed the management staff and the BD/FEHD inspector to inspect its bathroom as required; it proposed and eventually made arrangement for infra-red scan to be taken in the bathroom of the Plaintiff, and offered on without prejudice basis to appoint workman to make good the ceiling in the bathroom of the Plaintiff as demanded by the Plaintiff (pp 154, 155, 156 and 168).

9.  As stated above the Plaintiff also complained that the Defendant had all along been running a sham defence.  It had carried out repair work in its bathroom and denied being the source. It went further to deny having works done in its bathroom. It is always not desirable to resolve dispute on facts by way of affirmations. All I can say is that in the present case, even if I find in favour of the Plaintiff, this is no “special or unusual features” which would justify costs on indemnity basis taking into account the complexity in finding the source of leakage. One cannot disregard the fact that the Defendant started to make offers to settle the disputes soon after the availability of the single joint expert report.  More importantly, I am not suggesting that this court would tolerate dishonesty but it is not always regarded as a special and unusual feature when costs are considered.

10.  Mr Fung also complained that the Defendant only made an offer to settle by a Calderbank letter with an amount just enough to cover the repair cost initially and increased the sum by stages to $80,000 by the Sanctioned Payment. The whole claim amounted to $85,250. Such amount included cost on repair works ($44,850), cost on supervision by an architect ($10,000), expert report of Dr. Wong ($20,000), and alternative accommodation for 4 nights at the Conrad Hotel ($10,400). Mr Fung said that this type of market place haggling in making offers had no place in court and should be met with increased costs. Mr Fung however agreed that no substantive costs had been incurred between the Calderbank offer and the Sanctioned Payment. There was only one Case Management Conference in between.

11.  I have read the affirmation of Mr Gordon Chan representing the Defendant on to how they came up with the offer of $44,850 in the Calderbank letter. First I accept that this amount was suggested by the single joint expert, Mr Cheng, to be the reasonable repair cost.  Further I do not find Mr Gordon Chan’s reasons for making the first offer to cover only repair cost unacceptable. As to the cost of Dr Wong’s report Mr Chan submitted that it was not included because it was compiled before leave was obtained and Dr Wong’s finding was inconsistent with that of the joint single expert. I agree. Had the matter gone for trial, Dr. Wong’s report might not be necessary in view of the report from the single joint expert appointed with leave of court who came up with different findings. I am also of the view that such expenses if properly incurred should be listed as disbursement being part of the costs instead of being damages as it was pleaded in the Statement of Claim.

12.  Further for the $10,000 claimed under supervision work carried out by the architect, Ms Lam gave an explanation in her witness statement as to why an architect had been engaged. In paragraph 19 she said that “Given that there was concrete spalling and thus involving structural elements, on the side of caution, Good Try engaged architect firm to supervise the repair works (p314)”. Without going so far as to deciding whether this sum was reasonably incurred, I say that it was not unreasonable if this was not included in the first offer as there is no evidence showing that the appointment of the architect was necessary.

13.  I am also of the view that it was not unreasonable not to have the cost on alternative accommodation included in the Calderbank letter. I agree with Mr Chan that on the face of it there should still be other bathrooms for use for the 4 days when works were carried out mainly in one of the bathrooms. Mr Lau on behalf of the Plaintiff said in his witness statement that it was not possible to stay in the flat during the course of the repair work. He did not explain why.   Mr Lim, the Architect, had stated in paragraph 9 of his witness statement saying that the repair works had entailed substantial interruption of household habitation, that was a general statement without referring to the occupiers specific use of the unit in question. 

14.  To conclude, the present hearing is not for me to assess the damages to be awarded to the Plaintiff, but to look into the whole circumstances to see whether there are any special or unusual features in this case so that the Plaintiff is entitled to costs on indemnity basis. Having considered submissions made for and on behalf of the parties, I am not convinced that there are any “special and unusual features” in this case.

15.  The Plaintiff’s summons is therefore dismissed.

The Defendant’s Summons

16.  Pursuant to Order 22 r 21 (1) the plaintiff upon accepting a sanctioned payment is entitled to costs up to the date of serving notice of acceptance unless the Court otherwise orders. Under this rule, the plaintiff is entitled to its costs and a costs order is deemed to have been made whilst the Court retains the discretion on dealing with costs when situation so arises. The purpose is obviously to save costs. I am therefore of the view that the party asking for the court to make an order otherwise would bear the burden to convince the court that such an order is warranted.

17.  The Defendant took out a summons one day prior to the hearing of the Plaintiff’s summons without supporting affidavit; it asks for an order that the Plaintiff should not be awarded costs from the date it filed the Certificate for Mediation. Mr Yeung for the Defendant submitted that the Plaintiff had unreasonably refused to mediate and therefore should not be getting costs from the date of refusal. Mr Fung, in reply, said that the refusal to mediate was with valid reason and good cause.

18.  In the Certificate the Plaintiff gave these reasons to refuse mediation:

(i) The amount at stake is small (HK$ 85,250);

(ii) The liability of the Defendant is clear;

(iii) The Plaintiff has always been open to negotiate for settlement with the Defendant; and

(iv) It would be disproportionate to the claim and waste of money if the parties were to incur further costs (estimated to be at least a further HK$30,000 to HK $40,000 for each party) to attempt mediation, the outcome of which is unknown.

19.  With respect, these could not be valid reasons. The outcome of mediation is always unknown to the parties in most cases; hefty litigation costs are expected in cases of such nature and they should be given serious consideration instead of the amount of the claim. Last but not least, I could not agree with the Plaintiff’s assertion that it has always been and open to negotiation for settlement with the Defendant, at least that was not the attitude as could be seen in correspondences in particular the letters dated 8 September 2010 and 22 November 2010.    

20.  On whether it is a good reason to refuse mediation if a party, the Plaintiff in the present proceedings, reasonably believed that it had a strong case, I have noted Dysan LJ’s  speech in Halsey v Melton Keynes General NHS Trust [2004] 1 WLR 3002  cited by Lam J, as he then was,  in Golden Eagle International (Group) Limited v GR Investment Holdings Limited HCA 2032/2007:-

“27. The fact that a party reasonably believes that he has a strong case is relevant to the question whether he has acted reasonably in refusing ADR. If the position were otherwise, there would be considerable scope for a claimant to use the threat of costs sanctions to extract a settlement from the defendant even where the claim is without merit. Courts should be particularly astute to this danger.”

“28. Large organizations, especially public bodies, are vulnerable to pressure from claimants who, having weak cases, invite mediation as a tactical ploy. They calculate that such a defendant may at least make a nuisance-value offer to buy off the cost of a mediation and risk of being penalized in costs for refusing a mediation even if ultimately successful.”

21.  Lam J was of the opinion that the scenario as referred to by Dysan LJ was unlikely to occur in Hong Kong. Further he cited another passage in the judgment of Dyson LJ to illustrate in what circumstances a party could say that the he has reasonable belief of a strong case:-

“30. Some cases are clear-cut. A good example is where a party would have succeeded in an application for summary judgment … Other cases are more borderline. In truly borderline cases, the fact that a party refused to agree to ADR because he thought that he would win should be given little or no weight by the court when considering whether the refusal to agree to ADR was reasonable. Borderline cases are likely to be suitable for ADR unless there are significant countervailing factors which tip the scales the other way.”

22.  In the present case, I do not agree that the liability on being the source of water leakage is a clear cut matter. I am not convinced that the Plaintiff had a good reason to refuse mediation.

23.  Having said that I however do not think that the Plaintiff should be deprived of its costs only because there had not been a valid reason for his refusing mediation. I would still have to take into consideration the whole of the circumstances before the issue on costs could be disposed of in a fair and just manner.

24.  I am of the view that although the Plaintiff had refused to mediate, it had accepted the Sanctioned Payment in good time and the matter did not have to go for trial eventually. It is nowhere akin to a case where Ord 22 r 23 should apply. The costs incurred between the refusal and the acceptance of the Sanctioned Payment was not unreasonable. They included mainly the costs for a joint expert report and witness statement of the parties. A joint report is always helpful and conducive to a successful mediation. The Defendant had vehemently denied being the source of leakage and in such circumstances a joint single expert report would only be necessary. The complaint on the number of witness statements tendered by the Plaintiff is without basis and they were compiled prior to the single joint expert report was made available. This court also noticed that there was an application taken out by the Defendant asking for an unless order against the Plaintiff for exchange of witness statements.

25.  I would not give any weight to the complaint of Mr Fung on the Defendant’s not filing any Mediation Notice pursuant to PD 31 as this was made outside the scope of further submission I have asked for and the Defendant was not given a chance to reply. Further  I am of the view that although “mediation” is not expressly set out in Ord 62 r 5 as one of the matters to be taken into account when the court is exercising its discretion as to costs, Ord. 62 r5((1)(aa) has clearly referred to the underlying objectives set out in Ord 1A r. 1 and Ord. 1A r. 1 (e) must have included mediation as one of the ADR means to settle the dispute.

26.  I have considered the whole of the circumstances, I find that the despite its litigious attitude, the Plaintiff had nonetheless accepted the Sanctioned Payment eventually and on the other hand, the Defendant had chosen to make the Sanctioned Payment after exchange of witness statements and compilation of single joint report, I do not think the Plaintiff should be deprived of its costs or any part thereof which it is entitled to under Ord 22. The Defendant’s summons is therefore dismissed.

Costs

27.  As to costs of the present applications, costs should normally follow the event. The Plaintiff asks for costs on indemnity basis in case it gets costs. I have considered this. I have found in the above that the reasons given by the Plaintiff in refusing mediation are not valid reasons, I do not agree that it should get costs on indemnity basis although costs should be awarded in its favour. Further, I find Counsel Certificate disproportionate to the claim and argument herein.

28.  I take into consideration that the two summonses were heard together; that the parties have each failed in its own summons respectively; that it may be difficult to disentangle one application from another as far as costs are concerned, I therefore exercise my discretion to make an order nisi that there be no order as to costs for each of the summonses. This order will become absolute unless an application to vary the same is made within 14 days herefrom.