SHUN HO ENERGY DEVELOPMENT CO LTD v. GOLDEN CROWN INDUSTRIES LTD

CACV 161/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 161 OF 2014

(ON APPEAL FROM LDPE NOS. 1060, 1061 AND 1062 OF 2013)

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LDPE 1060/2013, LDPE 1061/2013
& LDPE 1062/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1060 OF 2013

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APPLICATION NO. LDPE 1061 OF 2013

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APPLICATION NO. LDPE 1062 OF 2013

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DECISION ON COSTS

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Hon Kwan JA (giving the decision on costs of the court):

1.  On 23 June 2015, at the conclusion of the hearing, we dismissed the tenant’s appeal without calling on the landlords. Our reasons for judgment were handed down on 30 June. We made an order nisi that the tenant should pay the landlords’ costs of this appeal, as we were informed by Mr Jason Wong that there might be argument on costs.

2.  On 13 July, the tenant issued a summons (which was amended on 16 July) to vary the costs order nisi such that the tenant is to pay the landlords the costs of the appeal up to 26 May 2015 and the landlords are to pay the tenant the costs of the appeal thereafter, to be taxed if not agreed.  Alternatively, the tenant seeks such other costs order as the court thinks fit.  In the further alternative, the tenant asks the court to disallow costs of the appeal to the landlords and make an order there be no order as to the costs of the appeal.

3.  The tenant filed an affirmation by its solicitor, Mr Huen Kwok Chung, in support of the summons.  The landlords filed an affirmation in opposition by Mr Yuen Chi Ming, a legal executive of their solicitors.  There is an affirmation in reply by Mr Huen.

4.  Unless it appears to the court in the particular circumstances that some other order should be made, the landlords should not be deprived of their costs of the appeal as they are the successful party.

5.  The reason advanced in Mr Huen’s affirmation for departure from the general rule that costs should follow the event is that “clearly, parties had reached an agreement to renew the respective tenancies which would make the appeal completely academic”.  Mr Huen produced three Calderbank letters: from the landlords’ solicitors Alan Ho & Co (“AHC”) to the tenant’s solicitors Huen & Cheung (“H&C”) dated 22 April 2015, from H&C to AHC dated 21 May 2015, and from AHC to H&C dated 15 June 2015.  In between the 1^st and 2^nd letters, there were two telephone discussions between Mr Huen and Mr Yuen on 23 April and 18 May.

6.  According to Mr Huen, agreement was reached between the parties on the renewal of the tenancies in the two oral discussions on the terms set out in the 1^st letter (being the commencement date of the new tenancy agreements from 1 May 2015 and the rentals), and although the tenant had sought an option to renew for a further three years on the expiry of the three-year term, he had “made it clear to [Mr Yuen] that [the tenant] would accept the 3 year term with or without the option”.  And as by the 2^nd letter AHC were requested to reply within five days, the tenant seeks an order that the costs after 26 May 2015 should be borne by the landlords.

7.  Mr Yuen denied that Mr Huen had said the words as quoted.  According to him, Mr Huen “insisted on adding the option clause of 3 years”, and had claimed that the option clause was “vital to [the tenant] in considering whether to enter into a new tenancy agreement”.

8.  We are not satisfied on the evidence that an agreement was reached to renew the respective tenancies as alleged by the tenant.  It is unnecessary to resolve the conflict on affidavit as to what was said, as according to the terms of the 1^st and 2^nd letters, no agreement on the renewal of the tenancies was reached.

9.  In the 1^st letter, after setting out the three terms on which the landlords were prepared to accept in full and final settlement of the appeal proceedings, AHC went on to say “if agreement in principle is reached then, doubtless, we could consider the precise terms of the new tenancy agreement.”

10.  It was not in dispute that Mr Huen did raise the question whether an option of three years was to be granted to the tenant in the two oral discussions, and this was how Mr Huen put it in the 2^nd letter:

“… our client [the tenant] is still willing to settle with your client [the landlords] amicably and hereby propose the following terms, namely: -

…

b. New tenancy agreement for a fixed term of 3 years commencing from 1 June 2015 (with an option for renewal of further term of 3 years at the prevailing market rent which is of course subject to your client’s [the landlords’] approval) to be entered into between the parties within 7 days from agreement; …”

11.  The letter concluded with a request to AHC to take instructions from the landlords on the terms proposed and revert to H&C within five days, failing which the tenant would proceed with the appeal without further notice.

12.  It is quite clear that this letter was not “setting out what was agreed between parties”, as alleged in Mr Huen’s affirmation.

13.  Mr Wong submitted that the words “subject to your client’s [the landlords’] approval” referred to the option to renew and so the tenant had made clear to the landlords that it was not insisting on an option to renew.  It would seem to us on a fair reading the words quoted referred to the prevailing market rent rather than the option to renew.  In any event, it is quite clear from the wording of the letter that the tenant was proposing certain terms to the landlords and requesting a reply within the next five days.  The letter was clearly not setting out the terms of a concluded agreement to settle.

14.  Besides, if there was indeed an agreement to renew the tenancies which would render the appeal entirely academic, the tenant should have brought this to the attention of the court at the outset of the hearing and just argue that the costs wasted as a result should be borne by the landlords, instead of arguing its appeal on the same grounds as before.

15.  The basis for departing from the general rule to award costs to the successful party is simply not made out.

16.  Mr Wong further submitted that the offer of AHC in the 3^rd letter seeking $750,000 for loss, damages and costs was unreasonable, so was the earlier offer of Mr Yuen on 18 May of $300,000 as agreed costs.  He submitted that the “failure to settle” was engineered by the landlords and for this reason the court should disallow costs to the landlords by making no order as to costs.

17.  Mr Wong’s contention that the “failure to settle” was engineered by the landlords further undermines the argument of the tenant that there was an agreement to settle.  Nor is there any merit in the contention in Mr Huen’s affirmation that the landlords were “forcing the appeal in order to make a profit from costs”.  As the party bringing the appeal, it was entirely up to the tenant whether it should continue to pursue the appeal or abandon it.  If the tenant decided to proceed with the appeal, and its grounds of appeal were found by the court to be wholly without merit, the tenant must bear the usual consequence in costs.

18.  Furthermore, we see no reason in these particular circumstances to enquire into the reasonableness or otherwise of the landlords’ offers to settle, bearing in mind it has always been a commercial decision for the parties whether they would want to renew the tenancies and the terms of settlement are outside of the issues of this litigation.

19.  We dismiss the tenant’s application to vary the costs order nisi.

20.  The landlords seek costs of this application on an indemnity basis, to mark the disapproval of the court that the application is a complete waste of time and costs.  We do not consider the tenant’s conduct in litigation so bad for indemnity costs to be awarded.  Costs of this application are awarded to the landlords on a party and party basis.