FAIRLAND OVERSEAS DEVELOPMENT CO LTD v. SECRETARY FOR JUSTICE

HCA2154/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2154 OF 2005

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RULING  ON  COSTS

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1. In this action, the defendant succeeded on the basis that a contract which existed in fact was unenforceable in law as being ultra vires.

2. The parties have sensibly agreed that costs arguments should be the subject of exchanged written submissions only.

3. The general rule is that costs should follow the event when a party successfully vindicates itself and in no way misconducts itself : Ho Shu Kwong v. Chiang Chun Yuan [2002] 3 HKLRD 419, 427 (CA) per Woo JA (as he was).  A successful party is not deprived of his costs because the other side had a case full of moral merit but unfortunately one empty of legal merit : Granville v. Firth (1903) 19 TLR 213, 214 (CA) (reliance on the Gambling Acts as a defence) and In re Birkbeck Permanent Benefit Building Society (1913) 108 LT 211 (an ultra vires contract).

4. The plaintiff correctly makes the point that prior to the Defence of the Government (filed on 3 January 2006) there was no clear or formal suggestion that the agreement was not binding upon the Government because of the doctrine of ultra vires.  The defendant had, however, clearly pleaded and thenceforth relied upon this defence, so the plaintiff had to be on notice of it from that time forward.

5. The plaintiff, quite remarkably, claims that because the defendant has been “permitted to escape from its own error” a costs order should be made in favour of the plaintiff so that the defendant ought to be ordered to pay the costs of the proceedings.  The defendant by contrast argues that the plaintiff must be liable for all the defendant’s costs, at least since the filing of the Defence.

6. A court only administers the law and not morality.  The law of contract includes a wide range of possible defences, including the doctrine of ultra vires.  While such a defence is very unusual, there is a full entitlement (if not an actual duty or requirement) to invoke it.  It is not a discreditable defence — it is one consecrated by the full force of the law.  When such a defence is pleaded and succeeds, it is as valid and as pristine as any other defence. 

7. Costs are not punitive — they are compensatory.  The plaintiff’s submission that a costs award against it would amount to a “penalisation” has no basis in law.

8. There cannot be a fixed or any principle of law that a successful party will not be entitled to costs, because a plea of ultra vires was properly relied upon.  On any discretionary analysis too, the defendant has succeeded by a wholly legitimate means mandated by law.  Applying that law, there is no room at all for the conclusion that the defendant has acted in any wrongful way in the conduct of the litigation.  The defendant was not legally advised at the time of the contract (unlike the plaintiff) and the ‘mixed equities’ throughout that phase are properly resolved by an Order that costs should only be payable from the filing of the Defence. 

Disposition

9. The plaintiff is to pay the costs of the defendant from the filing of the Defence on 3 January 2006, such costs to be taxed unless agreed.