LEUNG PO PO AND ANOTHER (JOINT TENANTS) v. OLYMPIC LEADER INTERNATIONAL LTD AND ANOTHER

DCCJ 5004/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5004 OF 2013

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JUDGMENT

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1.  This action arose from an incident occurred on 10August 2010 of water overflowing from Flat A, 17^th Floor of One Robinson Place, No 70 Robinson Road, Hong Kong (“One Robinson Place” and “Flat 17A”) into the flat directly below it, namely, Flat A, 16^th Floor of the same building (“Flat 16A”).

2.  The plaintiff was the registered joint-tenant owners and occupiers of Flat 16A.  The 1^st defendant was the registered owner and landlord, while the 2^nd defendant was the tenant, of Flat 17A.

3.  The 3^rd party was the insurer of the 1^st defendant under a policy covering certain risks in relation to Flat 17A.

4.  After some prolonged but unsuccessful attempts to settle the dispute, the plaintiff commenced this action on 19 December 2013 against both defendants claiming loss in the sum of HK$588,251 and general damages for discomfort, anxiety, distress and inconvenience.  On 29 January 2014, the 1^st defendant issued a Third Party Notice against the 3rd party and a Contribution Notice against the 2^nd defendant (“the Contribution Notice”).

5.  On 4 June 2014, Interlocutory Judgment was entered by the plaintiff against the 2^nd defendant in the main action in default of filing her defence.  In relation to the 1^st defendant’s claim against her, the 2^nd defendant has been absent in all the case management proceedings.

6.  The trial before me was originally scheduled for six days commencing on 18January 2017.  On 13 January 2017, the Third Party proceedings between the 1^st defendant and the 3rd party was amicably settled.  On the first day of trial, the main action was also settled, in gist, by the 1^st defendant paying the plaintiff HK$200,000 (inclusive of interest) and their costs of this action to be taxed if not agreed, whereupon the liability of both defendants as against the plaintiff would be discharged (“the Settlement”).

7.  Remained for trial therefore was the 1^st defendant’s claim against the 2^nd defendant.  The 2^nd defendant did not appear at the trial to contest, nor did she lodge any written submission in reply to the 1^st defendant’s lodged on 17 February 2017 pursuant to my directions given at trial.  Here is my judgment in respect of this claim.

CLAIM AGAINST THE 2^ND DEFENDANT PROVED

8.  It is the evidence of Mr Lawrence Ng, a director of the 1^st defendant, which was corroborated by the report dated 18December 2010[1] of Jones Lang La Salle Management Services Ltd, the management company of One Robinson Place, that he received a call from his personal assistant on the day in question, who in turn received a call by the Management Office of One Robinson Place (“the MO”), informing him that water leaked from Flat 17A.  Mr Ng then went there and met up with the staff of MO.  He was told by the MO that they had immediately turned off the fresh water supply to Flat 17A upon learning the incident.  Fearing that the 2^nd defendant or other occupants might have fallen unconscious in Flat 17A, Mr Ng called the police and eventually engaged a locksmith to open the door.  Mr Ng and the staff of MO found no one inside Flat 17A.  To ascertain the cause of water leakage, the staff of MO turned on the fresh water supply again.  They found that the water tap in the kitchen of Flat 17A had not been turned off and water overflowed from the kitchen sink.  At this point the 2^nd defendant returned to Flat 17A.  She was shown what happened and the situation was explained to her.  They then investigated together and discovered that water had overflowed to Flat 16A and indeed down to the 15^th Floor.

9.  I accept Mr Ng’s evidence as summarized above and find that the water overflow was caused by the fact that on the day in question the water tap in the kitchen of Flat 17A had not been turned off, property or at all, before the 2^nd defendant or other occupants of Flat 17A left the premises and water was therefore left flowing unattended, which caused damage to Flat 16A.

10.  In relation to acts or omissions by other persons occupying Flat 17A, Clause 4(f) of the tenancy agreement dated 27 March 2009, under the terms of which the 2^nd defendant rented and occupied Flat 17A at the material time (“the Tenancy Agreement”), provided that “For the purpose of these presents any act default or omission of the agent’s servants and customers of the Tenant shall be deemed to be the act default or omission of the Tenant”.  I therefore find it does not matter that there was no direct proof showing that it was the 2^nd defendant who personally failed to turn off the water tap in the kitchen.

11.  I find the 2^nd defendant owed a duty of care to the plaintiff and the 1^st defendant; and she was negligent in not having turned off, or caused to be turned off, the water tap, properly or at all, as above found.  I therefore find that she is liable to the 1^st defendant for damages in negligence as pleaded in the Contribution Notice.

12.  The 1^st defendant also claims that the 2^nd defendant has thereby also breached Clause 2(g) and Clause 2(m) of the Tenancy Agreement.

13.  Clause 2(g) and Clause 2(m) respectively provided that the tenant agreed:-

“2(g) Not to do or permit to be done in or upon the said premises or any part thereof anything which may be or become a nuisance annoyance damage or disturbances to the Landlord or the tenants or occupiers of other property in the neighbourhood or anywise against the law or regulations of Hong Kong”.

“2(m) To observe and perform and not to contravene any of the terms, covenants and conditions contained in the … Deed of Mutual Covenant …”.

14.  I find the 2^nd defendant has breached the said terms of Tenancy Agreement as claimed by the 1^st defendant and is liable to pay the 1^st defendant damages for such breach.

15.  It is clear that the water overflow and the plaintiff’s resultant loss were caused entirely by the fault of the 2^nd defendant.  I therefore also find it just and equitable to order the 2^nd defendant, pursuant to Section 3 of Civil Liability (Contribution) Ordinance Cap 377, to indemnify the 1^st defendant to the full extent of the plaintiff’s claim herein.

RELIEF

Compensation paid by the 1^st defendant to the plaintiff

16.  In the Settlement, the 1^st defendant agreed to pay the sum of HK$200,000 in full and final settlement of the plaintiff’s claim herein.  The 1^st defendant submits that the amount would have been very close to the amount that would have been awarded to the plaintiff, such that it should be allowed as the amount to be indemnified by the 2^nd defendant.

17.  The 1^st defendant refers to the joint statement dated 16 June 2016 prepared by the plaintiff’s expert GAS Adjusters (HK) Limited and the 1^st defendant’s expert Wesley & Associates Company Limited, in which the two experts agreed to various items of loss assessed at the total value of HK$145,308.  This agreed amount of HK$145,308 plus interest at the rate of 6% (Best Lending Rate of 5% plus 1%) for about 6 years - from early 2011 to January 2017 - would have amounted to about HK$197,600 already.  Still in contest were the remaining items not agreed.  If all of these contested items were allowed, the plaintiff’s expert opined their total value at HK$174,366, while the 1^st defendant’s expert opined their value at HK$38,245.  There was also outstanding the plaintiff’s claim for general damages.

18.  In view of the above expert evidence and calculations, I agree with the 1^st defendant’s submission and am satisfied that the sum of HK$200,000 would likely be, or less than the amount that would likely be, awarded to the plaintiff and is thus reasonable.  I therefore order the 2^nd defendant to indemnify the 1^st defendant the plaintiff’s claim in that amount.

Plaintiff’s costs of the action to be paid by the 1^st defendant; and the 1^st defendant’s own costs in defending the plaintiff’s action

19.  The 1^st defendant further claims, as part of the indemnity against the plaintiff’s claim or as damages, 2 sets of costs, namely (a) the plaintiff’s costs of the action, to be taxed if not agreed, agreed to be paid by the 1^st defendant to the plaintiff under the Settlement (“Costs A”), and (b) the 1^st defendant’s own costs in defending the plaintiff’s action (“Costs B”).

20.  It is well established that costs in previous proceedings between the now claimant and a third party can be awarded as damages subject to them not being too remote and subject to the claimant’s duty to mitigate[2].

21.  In my view, the 2 sets of legal costs now claimed by the 1^st defendant were reasonably foreseeable from, and were the natural consequences of, the 2^nd defendant’s breach, and were not too remote.  I also do not find it unreasonable for the 1^st defendant to defend this action both on liability and quantum as, firstly, the amount claimed by the plaintiff has all along been quite exorbitant, secondly, the 2^nd defendant, the party at fault, has refused to admit liability and has been absent, and lastly, the 3^rd party insurer has vehemently disclaimed liability until days before trial.  In short, the quite innocent 1^st defendant found itself caught in between.  In any event, in the main action the liability issue was only mildly contended, while the issue on quantum was hotly contested, such that relatively little cost was spent on the former issue.

22.  I find that the 2^nd defendant is liable to indemnify the 1^st defendant Costs A and to pay the 1^st defendant Costs B as damages.

23.  Mr Lau for the 1^st defendant asked that these 2 sets of costs be taxed or assessed on an indemnity basis pursuant to Clause 11 of the Tenancy Agreement.  On that I directed further submissions be lodged by both parties as asked by Mr Lau.

24.  Before I consider Clause 11, the question on the basis of taxation regarding Costs A can be briefly disposed thus (in addition to the reasons below).  It is beyond dispute that regarding Costs A, whether the 1^st defendant is claiming them by way of an indemnity under Civil Liability (Contribution) Ordinance or claiming them by way of damages for breach of contract or for negligence or whether Clause 11 is applicable as claimed, at the end of the day the costs actually to be paid out of pocket by the 1^st defendant are the costs of the plaintiff taxed on a party and party basis.  I therefore see no basis for awarding to the 1^st defendant Costs A over and above what it actually has to and will pay to the plaintiff.

25.  Going back to Clause 11, it is submitted that this contractual provision should prevail to justify taxation on indemnity basis, citing DBS Bank (Hong Kong) Ltd v Sit Pan Jit[3], Church Commissioner for England v Ibrahim[4] and Yeung Kwok Fan v Standard Chartered Bank[5].

26.  While I think it is now quite well established that in exercising its discretion in awarding costs, the court would normally so exercise its discretion to reflect the parties’ contractual right save in exceptional cases justifying departure, the first and foremost question, however, must be whether the contractual provision is applicable and has the effect as claimed.  Mr Lau submitted barely that Clause 11 was applicable without developing any reasons in support.

27.  Clause 11 provided:-

“The Tenant shall pay or reimburse to the Landlord on demand and indemnify the Landlord against all costs and expenses including legal costs (on a solicitor and own client basis) incurred by the Landlord in demanding payment of the rent and/or other sums due and payable under this Agreement and in enforcing any other rights of the Landlord under this Agreement upon the failure on the part of the Tenant to observe or perform any of the terms or conditions herein contained.”

28.  It is in my view plain from the language of this clause that by it, the Landlord is entitled to be reimbursed/indemnified legal costs (on a solicitor and own client basis) incurred for two purposes - firstly, “in demanding payment of the rent and/or other sums due and payable under this Agreement”, and secondly, “in enforcing any other rights of the Landlord under this Agreement”.

29.  Costs A were the costs of the plaintiff that the 1^st defendant was liable to pay by reasons other than the Tenancy Agreement.  Costs B were the landlord’s own costs incurred in defending against a claim by a third party, albeit caused by the tenant’s fault.  Unlike the 1^st defendant’s costs incurred in pursuing its claim herein against the 2^nd defendant, Costs A and Costs B were not incurred to recover any sums or enforce any rights under the Tenancy Agreement. The 1^st defendant’s entitlement to them flowed from the general law and not this provision.  I am therefore of the clear view that Clause 11 is not engaged.

30.  Moreover, on an indemnity basis, all costs would be allowed save those that have been unreasonably incurred or are unreasonable in amount.  The benefit of any doubt however goes to the receiving party. Therefore in practice the burden of proving a disputed item as unreasonably incurred or a sum unreasonable in amount effectively is placed on the payee.  This effective reversal of burden on disputed items is the opposite of the established principle regarding the burden of proof in awarding damages in contract and in tort.

31.  For these reasons I therefore decline to award Costs A and Costs B to be taxed or assessed on an indemnity basis, as asked, but would award them on the usual party and party basis.

32.  For the benefit of the master taxing the costs and assessing the damages, I wish to mention this so that particular note could be taken to distinguish these 2 sets of costs from the costs incurred by the 1^st defendant in pursuing the claim against the 3^rd party, which in fact formed quite a substantial part of this action.  Indeed, a senior counsel was originally instructed to attend the trial and his opening submissions lodged dealt primarily with the claim against the 3rd party.  As mentioned, satisfaction, which included the 1^st defendant’s costs of the Third Party proceedings, has been obtained amicably by the 1^st defendant against the 3^rd party.

Costs of the Contribution Notice

33.  The said Clause 11 would be applicable regarding the costs incurred by the 1^st defendant to pursue its claim herein against the 2^nd defendant, thereby such costs should be paid on a solicitor and own client basis.

DISPOSITION

34.  I therefore order that:-

(a) the 2^nd defendant do indemnify and pay the 1^st defendant the sum of HK$200,000, with interest at judgment rate from the date of this judgment to full payment;

(b) there be an assessment of damages of 2 sums and interest thereon as the court deems just, namely, (1) the amount being the plaintiff’s costs of this action to be taxed on a party and party basis paid by the 1^st defendant to the plaintiff, and (2) the amount being the 1^st defendant’s own costs in defending the plaintiff’s claim herein to be assessed on a party and party basis;

(c) there be an order for payment by the 2^nd defendant to the 1^st defendant of the sums found due under paragraph (b) above and interest thereon; and

(d) on nisi basis, the 2^nd defendant do pay the 1^st defendant the costs of the Contribution Notice proceedings to be taxed on a solicitor and own client basis, if not agreed; this order nisi will become absolute unless an application by Summons to vary is taken out within 14 days from today.