KNORR BREMSE ASIA PACIFIC (HOLDING) LTD v. NG LAI CHING LUCIA

DCCJ 3796/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3796 OF 2011

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Decision

1.  This is an application by the Plaintiff for variation of the order nisi as to costs made by me in my Judgment in this action dated 7 January 2014. The costs order nisi was to be made absolute within 14 days of the Judgment. The Plaintiff applied for the variation and asked for the necessary directions by letter date 14 January 2014, parties were then directed to submit their agreed list of issue and their proposed directions for court to consider whether it is appropriate to conduct the hearing by paper.

2.  The Defendant by her statement of issue challenged the fact that the Plaintiff had not issued a summons for the costs variation application.  Thereafter the plaintiff is directed to address the court on the said issue, in response to Plaintiff issued a summons on 19 February 2014 for the variation of the costs nisi and requested for extension of time to make the present application.   The stance of the Defendant being that both applications are objected if the court is minded to grant the time extension, the Plaintiff should pay the Defendant the costs arising out of the extension of time application.

3.  Technically the Plaintiff is in breach of Rules of District Court Order 32 rule 1, yet the Defendant was informed of the application well before the deadline of which the costs nisi would become absolute.  It is true that the defendant only learnt from the Plaintiff’s submission that the order asked for is one that the Defendant is to pay the Plaintiff 70% of the costs of defending the counterclaim.   But the Plaintiff has stated in its statement of issue that it is asking to vary the order to the extent that the Defendant is to pay a portion of the Plaintiff‘s costs in defending the counterclaim.  In my view no prejudice was caused to the Defendant and I allowed the time extension requested by the Plaintiff.

Background

4.  This case is about a tenancy dispute of a high end fully furnished 4-storey terrace house situated in Stanley.  The Defendant landlord purchased the property subject to the tenancy in January 2009.  The original tenancy commenced on 15 August 2006, it had been extended and renewed a couple of times and finally terminated on 14 February 2011.  Large number of the furniture and light fittings of the property (including listed items of the tenancy) had been removed by the Plaintiff tenant, and damages to the property were noticed on 14 February 2011.  The disagreement as to the state of the property and missing chattels could not be resolved, and a complaint of theft was made to the Police by the Defendant.  Though the missing chattels were returned subsequently on 26 February 2011, the parties still held diverse views as to the state of the property and matters related to chattels.  

5.  Court proceedings commenced in December 2011.  The Plaintiff claimed for the return of deposit in the sum of HK$190,000 and damages for the breach of an implied condition that the property should be in a fit state for habitation; while the Defendant counterclaimed for damages for missing furniture and fixtures, and loss and damages done to the property, furniture and fixture, and loss of use of the property.  The total counterclaim was $900,901 of which $152,000 was for the loss of use of the property and $748,981 was damages to chattels, fixtures and the property itself.  In order to explain the cause of the damages and to assess the quantum, expert reports and Scott’s table were prepared in between April 2012 and June 2013 according to the Court directions.

6.  There was no dispute that the deposit has not been returned, Judgment was entered accordingly but the Plaintiff failed to prove its claim for damages; on the other hand the Defendant was only partially successful in her counterclaim.  After set off the Defendant is required to return a sum of $109,915.70 to the Plaintiff.  I also made an order nisi that there be no order as to costs.

7.  The reasons for my decision in relation to the costs order nisi can be found in paragraph 200 to 202 of my Judgment:

“200. Much time has been spent on whether there was an oral agreement between WTL and the Plaintiff with the effect that the ownership of the non-listed chattel passed to the Plaintiff before the sale of the property to the Defendant, and the Plaintiff failed on this issue. The Plaintiff also failed to establish its claim for breach of implied condition of fitness for habitation.

201. Likewise much time has been spent on the condition of the property and whether the damages/defects complained by the Defendant were beyond fair wear and tear; and the Defendant failed on all major items. As to the claim for loss of use, the Defendant was only successful for the limited period between the First Handover and the Second Handover.

202. In light of the circumstances of this case, I consider it is appropriate to make no order as to costs.  I therefore grant a costs order nisi to be made absolute within 14 days that there be no order as to costs, including all the reserved costs.”

The Plaintiff’s case

8.  The claim and the counterclaim should be considered separately.  As both parties are only partially successful in the claim, no costs order is appropriate for the Plaintiff’s claim.  As to the counterclaim, the Plaintiff by a subsequent letter dated 28 May 2014 reiterated its position that the Defendant though obtained more than nominal damages, obtained less than 10% of the total claimed amount cannot be regarded as the real winner (MGA Entertainment Inc v Toys & Trends (HK) Ltd, FACV no.6 of 2013). 

9.  Where the court considers the defendant is the real winner, as the Defendant only succeeded in a small proportion of her claim, made late amendment to her pleadings (the inclusion of tortuous cause of action by amendment made on 24 January 2013), and has raised issues improperly or unreasonably which unnecessarily lengthened the proceedings and the trial and caused the Plaintiff to incur enormous time and costs on the preparation, the Defendant should pay the Plaintiff 70% of the costs of defending the counterclaim.

10.  Where the court considers there is no real winner, the court should still proceed to consider the issues improperly or unreasonably raised by the Defendant and award costs to the Plaintiff as requested.

The Defendant’s case

11.  The claim and the counterclaim should be considered as a whole.  The claim and the counterclaim are related to each other.  The parties are only partially successful in their respective claim and counterclaim, thus there is no real winner.  As there is no “event”, the Court should not award costs in favour of any party over the other.    

12.  The discrete issue argument put forward by the Plaintiff has no application in the present case.  The amendment argument has no merit as it was made long before the trial and only on the law based substantially on the same facts.  The Plaintiff’s application has no merit, and should be dismissed with costs.

Discussion

Is there a real winner in this case?

13.  The claim and the counterclaim related to the same tenancy.  The Plaintiff claims for the return of rental deposit of $190,000, and unquantified damages for breach of an implied condition that the property should be in a fit state for habitation (“the yellowish water claim”); while the Defendant counterclaimed for damages for missing furniture and fixtures, and loss and damages done to the property, furniture and fixture, and loss of use of the property.  Though the Plaintiff was adamant in pursuing the yellowish water claim, its focus was on its defence to the counterclaim.  

14.  Mr Hui for the Defendant stated in his written submission that the Plaintiff well knew that in order to be completely successful in its claim, it needed to be completely successful in defending the counterclaim.  On the other hand, the Defendant counterclaims for damage done to the house and the chattels, however, given the size of the Plaintiff’s rental deposit claim, the Defendant only needed to be partially successful in its counterclaim (to the extent of $190,000) in order to completely defend the Plaintiff’s claim.    

15.  As the claim and the counterclaim are inter-related, in my view they should be considered as a whole.  Mr Hui further submitted that the outcome of the award has two implications:

(a) First, the Plaintiff is only partially successful in its claims.  It can only recover about half of the rental deposit, and its unqualified damages claim is entirely dismissed.

(b) Second, the Defendant is also only partially successful in its counterclaim.  She can only defend about half of the rental deposit claim.

16.  I consider and agree with Mr Hui that whether in terms of (i) the comparison of monetary amount claimed and actually awarded and (ii) the causes of action that each party is successful in, that there is a draw in this litigation.  No party can be said to be the clear, overall or real winner, whatever terminology is used. 

Costs to follow event?

17.  Costs are in the discretion of the court, the powers and discretion of the court as to costs shall be exercised subject and in accordance with Order 62 of the Rules of the District Court.  Order 62 rule 3(2) provides that:

“If the court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as the whole or any part of the costs.”

18.  According to Order 62 rule 5 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, in particular, the underlying objectives set out in Order 1A, rule 1, the conduct of the parties, and whether a party has succeeded on part of his case, even if he has not been wholly successful.  For the purpose of rule 5, 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 a 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.”

19.  Both parties acknowledged the general rule that costs should follow the event, and both referred me to the principles summarized in Re Elgindata (No.2) [1992] 1 WLR 1207:

“(i) Costs are in the discretion of the court. (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (iii) the general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs. (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or part of the unsuccessful party’s costs. Of these principles the first, second and fourth are expressly recognized or provided for by rules 2(4), 3(3) and 10 respectively. The third depends on well established practice. Moreover, the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.”

20.  I agree with Ms Chan for the Plaintiff that in exercising my discretion, I should take into account of all the relevant circumstances, and not simply consider the cause of the event. By the written submission, the Plaintiff sought to support its application by the following arguments:

(a)  The improper or unnecessarily/ unreasonable raised issues argument;

(b)The real winner argument;

(c)  The exceptional circumstances argument;

(d)The amendment argument;

(e)  The discrete issue argument

21.  During the hearing, Ms Chan focused her submission upon the small amount of damages the Defendant recovered as an exceptional circumstance and the discrete issue argument by referring to the individual item of chattel/fixture/property claim.  By letter dated 28 May 2014, the plaintiff stated that should the court find that there was no winner; the court should proceed to make a court order which is just and fair having regard to all the circumstances.  Thus the question being: are there circumstances in this case which call upon me to exercise discretion to make a costs order in favour the Plaintiff as requested.

22.  Ms Chan in her written submission referred to Order 62 rule 7(1) which provides that where in any cause or matter any thing is done or omission is made improperly or unnecessarily by or on behalf of a party, the Court may direct that any costs to that party in respect of it shall not be allowed to him and that any costs occasioned by it to other parties shall be paid by him to them.  Ms Chan stated that the Defendant’s counterclaim consisted of large numbers of trivial items and founded on complaints that were unrealistic given the age of the property and the length of the plaintiff’s tenancy.  The replacement value sought was grossly exaggerated. 

23.  Ms Chan submitted that the Defendant had committed breaches of the costs rules, by unreasonably raised, pursued most of the items of damages, by exaggerating her claim, and conducting the counterclaim with reasonable proportion or procedural economy.  Ms Chan also attempted to break down the case into many and various small issues and treat each item of chattel/fixture/property claim as a discrete issue and sought to rely on the fourth proposition accepted in the case of Chan Mei Yiu, Paddy HCAL 16/2007, as follow:

“(1) It is no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party on a particular issue on which he (the first party) has failed;

(2) The Court may make different orders for costs in relation to discrete issues – and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in that event, may make an order for costs against the party who has been generally successful in the litigation; and

(3) It may be appropriate, in a suitably exceptional case, to make an order which not only deprives the successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party’s costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably; and

(4) The above propositions give effect to the particular purpose of encouraging litigants to be selective as to the points they took, thus decreasing the costs of litigation.”

24.  I agreed with Mr Hui, the attempt to treat each item in the counterclaim as a discrete issue is not the correct approach.  In appropriate case the court may make different orders for costs in relation to discrete issues but should not be bogged down with many minute issues.  The expert reports and the attendance of the experts were required to assist the court on liability and quantum related to damages to chattels and property. Ultimately the Defendant did recover about $40,000 for damages to chattels and property.  Should the Plaintiff consider the Defendant had exaggerated her claim, it could have protected its costs position by taking advantage of the Order 22.

25.  On the other hand, the Plaintiff also committed breaches of the costs rule.  The Plaintiff had improperly/unreasonably raised an issue that there was an oral agreement that the ownership of the non-listed chattel passed to the Plaintiff before the sale of the property to the Defendant which is contrary to undisputed evidence, further it was only during the cross-examination that it became clear the agreement was allegedly made between Loretta and Mrs Bell, yet the Plaintiff had not sought to call either of them, considerable time had been spent on this issue and Mr Bell’s evidence was far from cogent to prove such agreement.   Further, the Plaintiff had improperly/unreasonably pursued the yellowish water claim which was bound to fail.

26.  In my view both parties had been unreasonable to certain extent and both contributed to the length of the trial, they should bear their own costs.  After considered all the circumstances of the case, I consider it is appropriate to confirm the costs order nisi. 

Costs

27.  By the written submission the Defendant asked to dismiss the Plaintiff’s summons with costs, the Plaintiff did not submit otherwise should its application be dismissed.  In my view the general rule that costs should follow the event applies in the present application.

Order

1. Extension of time granted for the hearing of the Plaintiff’s application for variation of costs order nisi.

2. The Plaintiff’s application for variation of costs order nisi is dismissed.

3. The costs order nisi to be made absolute.

4. Costs related to the Plaintiff’s summons dated 19 February 2014 to the Defendant with counsel certificate, to be taxed if not agreed.