CHOW KEE JAMES t/a TAPBO CIVIL ENGINEERING CO v. TRANSWAY CONSTRUCTION & ENGINEERING LTD t/a WO KEE CONSTRUCTION & ENGINEERING CO

HCCT 11/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 11 OF 2006

(Transferred from DCCJ No. 3565 of 2005 and HCA No. 1203 of 2005)

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RULING  ON  COSTS

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1.  On 19 December 2006 I handed down judgment in which the defendant Wo Kee received an award being a net amount found due under its counterclaim.  But in an order nisi I gave costs to the plaintiff Tapbo as to three quarters of the assessed amount, on the preliminary basis that the majority of the disputed issues were resolved in its favour.

2.  Wo Kee brought the matter back for argument, and now with the benefit of that from counsel on both sides, I am bound now to consider the costs issue afresh.

3.  The parties were parties to a subcontract involving public works.  Tapbo had contracted with the Water Supplies Department to lay a line of water pipes, and then passed the majority of the work on to Wo Kee.

4.  The parties fell out.  Tapbo was called upon to pay workers of Wo Kee who had not been paid and sued to recover that.  This was an amount of $282,250.70.  There was no denial that this was due.  But of much greater moment was the counterclaim brought by Wo Kee.  It completed the work, at least substantially, and sued to recover the contract price outstanding.  Tapbo declined to pay because it had incurred counter charges which together with the amount it was suing for were, it alleged, for a significantly larger sum.

5.  At the outset Wo Kee counterclaimed not just for the balance due but also additional expenses incurred; this all came to $3,766,153.93.  Tapbo’s defence as pleaded was that it had been compelled to provide substantial services and materials and to meet liquidated damages, because of Wo Kee’s default.  These amounts not only absorbed the balance due under the subcontract but meant that it had overpaid and was due reimbursement of $685,895.06.

6.  Then at trial, by amended reply, Tapbo conceded that it did owe Wo Kee a net amount, being albeit a much smaller amount than that counterclaimed for, of $39,583.25.

7.  In the event I awarded Wo Kee net the sum of $346,853.84.

The Competing Arguments

8.  Mr Coleman SC, joining the fray for the first time, argued for Wo Kee that this was not a case where the fundamental principle of costs to the successful party should be departed from.  Wo Kee, he submitted, had had to come to court to recover what it could.  Whilst it failed to prove and recover all its claims, it nevertheless achieved much more by a net award than Tapbo’s originally pleaded case and then its amended case which it advanced at trial.

9.  In support of its contention that Wo Kee should recover all its costs he referred to the landmark English Court of Appeal case in re Elgindata Limited (No. 2) [1992] 1 WLR 1207.  In that case successful petitioners, part of whose case was disallowed, were awarded by the trial judge some of their costs but were ordered to pay a greater share of their opponent’s.  Nourse LJ said of this:

 

 “In order to show that the judge erred I must state the principles which ought to have been applied.  They are mainly recognised or provided for, it matters not which, by section 51 of the Supreme Court Act 1981 and the relevant provisions of R.S.C., Ord. 62, in this case rules 2(4), 3(3) and 10.  They do not in their entirety depend on the express recognition or provision of the rules.  In part they depend on established practice or implication from the rules.  The principles are these.  (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 a part of the unsuccessful party’s costs.  Of these principles the first, second and fourth are expressly recognised 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.  It was because of his disregard of that principle that the judge erred in this case.”

10.  Mr Coleman submitted that there was no suggestion that Wo Kee had behaved improperly; that it was the successful party, albeit as to a part only of what it claimed.  Conversely, Tapbo had until the date of trial claimed it was owed money, yet in the end failed to establish that; further, it lost its pleaded claim because of set-off.  Thus Wo Kee was the victor, whilst Tapbo was the vanquished.

11.  Mr Yee for Tapbo, submitted that the appropriate award was the one that I made nisi.  He referred me to a case of the Hong Kong Court of Appeal, Thomas Vincent v South China Morning Post Publishers Limited [2004] 3 HKLRD 471.  In that case the Plaintiff had made three discrete claims against his former employer under various heads.  After trial he had succeeded as to two claims and failed as to the third.  The trial judge awarded him all his costs.

12.  The appellate court allowed the defendant’s appeal in respect of one of the claims leaving the plaintiff the victor in respect of one claim only.

13.  Dealing with the costs of the action and appeal, the court ordered that the defendant should pay one third of the plaintiff’s costs of the action, that the plaintiff pay the defendant two thirds of the costs of the appeal and the defendant pay the plaintiff one third of the costs of appeal, liability to be set-off.

14.  As it happened, Mr Coleman represented the plaintiff.

15.  Yuen JA, giving the lead judgment, said at p.474:

“Costs of the action

10.  As for the costs of the action, I have taken into account Mr Coleman’s submissions that normally costs ‘follow the event’ and that the court should be slow to make ‘issue-based’ costs orders reflecting a party’s success or failure on individual issues.  Mr Coleman submitted that since the defendant had not made any payment into court, the plaintiff had to come to court to obtain the end-of-year payment.  Therefore, Mr Coleman submitted, his client should be entitled to the entire costs of the action.

11.  One can easily understand the application of a single ‘follow the event’ costs order in an action where a plaintiff is seeking a single remedy, even though in the pursuit of that remedy, he may have succeeded on some issues and failed on others (Re Elgindata (No.2) [1992] 1 WLR 1207).  However, in my view, it is a different matter where a plaintiff is making a number of discrete claims for different sums.  Where he fails on some of these claims, and where the court can isolate the time spent on these claims from that spent on the successful claims, I consider that the court should exercise its discretion in appropriate cases to make costs orders that reflect the time spent on the failed claims.

…”

She then made reference to recent English cases and in particular Phonographic Performance Limited v AIE Rediffusion Music Limited [1999] 1 WLR 1507.  She quoted an excerpt from the judgment of Lord Woolf MR as follows:

“From 26 April 1999 the ‘follow the event’ principle will still play a significant role, but it will be a starting point from which a court can readily depart.  This is also the position prior to the new rules coming into force.  The most significant change of emphasis of the new rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues.  In doing this the new rules are reflecting a change of practice which has already started.  It is now clear that a too robust application of the ‘follow the event’ principle encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take.  If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so. (Emphasis added).”

Yuen JA then said:

“15.  Lord Woolf MR went on to say that where the successful party raises issues on which he fails, he may not only be deprived of his costs but may also be ordered to pay the other party’s costs, even though those issues may not have been raised improperly or unreasonably.

16.  In circumstances where there were discrete claims for different sums and the time spent on the failed claims could be differentiated from that spent on the successful claims, I think the traditional practice of simply ordering costs to ‘follow the event’, however much time may have been wasted on the failed claims, should give way to a fairer, more precise approach that would reflect the realities of litigation.”

Then she went back to the case before the court, and said this:

“19.  Since it is possible in this action to differentiate between the time used for the successful claim and the failed claims, there is no reason why the fairer, more precise approach to costs orders in the case of discrete claims referred to above cannot be adopted.

20.  Should the plaintiff be required to bear the defendant’s costs of the action insofar as they relate to the failed claims, or should the Court simply decline to award costs to the plaintiff for the failed claims?  In the present case, I do not consider that it would be appropriate to require the plaintiff to bear the defendant’s costs of the action insofar as they relate to the failed claims.  Part VIA of the Employment Ordinance was relatively new, having come into being only in June 1997, it was not a direct reproduction of the English legislation and there was no case law in Hong Kong at the time on this area of the law.  I think it would be harsh on the plaintiff to require him to bear the defendant’s costs relating to these failed claims, even though they would have taken most of the time used at the trial.  This approach would also be consistent with principle (3) in Re Elgindata (No. 2) [1992] 1 WLR 1207, ie that where the successful party raises issues or makes allegations on which he fails, where that has caused a significant increase in the length or costs of the proceedings, he may be deprived of part of his costs.”

16.  Mr Yee submitted that the order nisi giving Tapbo three quarters of its costs and making no other order justly reflected the extent to which Tapbo had succeeded in reducing the amount due under the counterclaim from more than $3.7 million to, in round terms, $346,000.

17.  He submitted the case was a classic example of discrete claims for different sums made by both parties, and produced a table to show that Tapbo had won 91.5% of the amounts at stake, leaving Wo Kee a paltry 8.5%.

18.  Mr Coleman’s reposte was that these were not discrete claims separately grounded as contemplated in the sort of circumstances referred to by Lord Woolf.

My Determination

19.  I agree with Mr Coleman that there is no suggestion that in the conduct of its case Wo Kee behaved improperly or unreasonably.

20.  Thus in the exercise of my discretion it is a matter of whether to apply the third principle spelt out in Elgindata or whether, in the circumstances, to treat the various claims as discrete and apportion costs accordingly.

21.  Looking at the matter as a whole it seems to me that the appropriate course is the latter one.  At trial the focus was on the different issues; this was particularly apparent as the parties moved towards settlement of many of these during the trial, and presented me with tables to show how this was achieved.

22.  Mr Coleman sought to emphasize that Wo Kee succeeded in getting an award at judgment many times that which Tapbo had acceded to; further, that concession was delayed until trial.  But the reality is that the majority of the issues remaining to be resolved were won by Tapbo.

23.  However a feature of this case overlooked by me when I made my preliminary order on costs were the extent of the concessions made by Tapbo which were not put forward until after preparation for trial.  Mr Yee’s calculation that Tapbo had won, in money terms, 91.5% of the disputed amount (what I refer to in my judgment as the lion’s share) is somewhat skewed because it does not take into account the lateness of the concessions.  It seems to me that Wo Kee should be entitled to the costs in respect of those matters it won whilst Tapbo should similarly be rewarded for its successes.

24.  Doing the best I can on the matter of time taken I vary the costs order nisi by awarding to Wo Kee one quarter of its costs and to Tapbo one quarter of its costs, to be netted off.

Costs of This Hearing

25.  These are nisi.  Wo Kee came to court to argue a variation of the nisi costs order and was successful, albeit not wholly so.  Nevertheless it shall have its costs.  In this respect, Wo Kee having also applied to vary the judgment sum on the grounds that I had erred in the arithmetic which in the event was not pursued, the costs of dealing with that matter are to be disregarded.