LEGENT CERAMIC LTD v. RAINBOW CHOICE INVESTMENT LTD AND ANOTHER

DCCJ 2434/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2434 OF 2008

____________

D E C I S I O N

1.  The Plaintiff (“Legent Ceramic”) commenced this action for loss and damage to its shop as a result of flooding during the rainstorm on 19 April 2008. It claimed against the 1^st Defendant (“Rainbow Choice”), the owner of the premises immediately above, and the 2^nd Defendant (“the IO”), the incorporated owners of the building, in negligence. Rainbow Choice claimed contribution and indemnity from the IO as the third party.

2.  After trial, I handed down the written judgment on 10 June 2011.  I found Rainbow Choice, but not the IO, which was liable for the flood and its overflow into the shop of Legent Ceramic during the rainstorm.  I assessed the damages payable by Rainbow Choice to be HK$8,068; and made the following order:

(1)  There will be judgment in the sum of HK$8,068 in favour of Legent Ceramic against Rainbow Choice together with interest.

(2)  Legent Ceramic’s claim against the IO is dismissed.

(3)  Rainbow Choice’s claim against the IO as the Third Party is dismissed.

(4)  Legent Ceramic shall pay the IO’s costs of defending the action.

(5)  Rainbow Choice shall pay Legent Ceramic’s costs of action against it and the IO’s costs of defending the third party action.

(6)  Costs shall be taxed, if not agreed, with certificate for counsel.

3.  The parties had 14 days to apply to vary the above costs order; or the same shall become absolute. Rainbow Choice did so by its summons filed on 24 June 2011.

The application

4.  By its summons, Rainbow Choice applies to vary the nisi costs order as regards Legent Ceramic’s costs of the action and the IO’s costs of defending the third party action.  In other words, the application relates to subparagraph (5) above.

5.  Rainbow Choice asks that:

(1)  Legent Ceramic’s costs of the action be wholly disallowed;

(2)  Rainbow Choice be awarded its costs against Legent Ceramic on an indemnity basis from the date of issue of the writ; and

(3)  the IO’s costs of defending the third party action be borne by Legent Ceramic.

6.  By affidavit, Rainbow Choice put forward two grounds for its application, namely:

(1)  The award falls outside the jurisdiction of this court; and the claim should have been commenced in the Small Claims Tribunal.

(2)  Legent Ceramic fails to obtain a judgment more favourable than the Calderbank offers made by Rainbow Choice.

7.  At the hearing, Mr Yiu of the solicitors for Rainbow Choice dropped ground (2) above apparently because of O.62, r.5(1)(d) of the Rules of the District Court (see below).  It should also be noted that the Calderbank offers between Legent Ceramic and Rainbow Choice, though purportedly pursuant to O.22, were all made of a lump sum inclusive of interest and costs.  In any event, it was Rainbow Choice’s decision to proceed on the basis of ground (1) only.

8.  I should perhaps mention that the correspondence exhibited also reveals that Legent Ceramic and Rainbow Choice had sought to arrange mediation since January 2011.  Unfortunately mediation meeting could not be fixed by the time of the trial.  The correspondence does not suggest either party was unreasonable in contributing towards such failure.

Costs of the action between Legent Ceramic and Rainbow Choice

9.  Costs are in the discretion of the court.  Costs should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made as to the whole or part of the costs: O.62, r.3(2).

10.  O.62, r.5 provides that:

“(1) 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 –

(aa) the underlying objectives set out in Order 1A, rule 1;

……

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he had not been wholly successful; and

……

(2) For the purpose of paragraph (1)(e), 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.”

11.  It is contended on behalf of Rainbow Choice that Legent Ceramic’s claim was grossly exaggerated and it was unreasonable to commence the action in the District Court.

12.  Mr Yiu referred to 2 personal injury cases, namely Cheung Yu Tin v Ho Hon Ka [2006] 3 HKC 473; and Lai Ki v B+B Construction Co Ltd & Ors [2003] 3 HKC 322.  As explained in former (at para.47) and the latter (at para.12), the relevant consideration is whether at the commencement of the action, in view of the nature of the loss and damage and the available evidence, the plaintiff had a reasonable prospect of recovering more than HK$50,000.

13.  As far as the principles are concerned, Mr Kau, counsel for Legent Ceramic but not at the trial, did not suggest otherwise.  He referred to Lee Yau Wai v Yeung Kam Wing, HCPI 281/2009 (29 March 2011) (at para.9), also a personal injury case.  Referring to Wong Chi Ho Jacky v Poon Yuk Shan, HCPI 910/2002, the court in Lee Yau Wai (at para.10) emphasized that the test is an objective one, i.e., whether it would be obvious to a reasonable plaintiff or his legal advisor at the time of commencement of action that the case was within the jurisdiction of the court, or in the present case, the District Court.

14.  Legent Ceramic claimed damages in the total sum of HK$115,024 for 8 items of loss and damage (see para.5 of the Amended Statement of Claim).  Was the claim, when commenced, a gross exaggeration so that it lacked a reasonable prospect of an award within the jurisdiction of this court?

15.  Damaged stock of tiles was the most substantial item.  Legent Ceramic’s case was that they could not be reused and were therefore discarded.  Legent Ceramic possessed documentary evidence of their value.  I did not rule out on the evidence that some tiles were damaged beyond rescue during the flood.  It was just that neither the surveyor nor the witness for Legent Ceramic came up to proof.  That was why I awarded nominal damages in respect of this item (paras.55-59 of the Judgment).

16.  As to the HID lamps, the original amount claimed was substantially reduced at the commencement of the trial.  The last minute downward adjustment of both the unit cost and the quantity was so awkward that doubt arises as to whether the original amount claimed was arbitrary (para.60 of the Judgment).

17.  The cost of the signage at the shop front was another substantial item.  There is no finding that the amount claimed was itself an invention.  The amount was claimed on the basis that the signage was affected by the flood water; and that it could not be repaired or cleaned.  Legent Ceramic eventually failed to prove that as a matter of evidence (paras.61-64 of the Judgment).

18.  The claim for the cost of the plywood flooring is the obvious item that should not have been claimed. The fact that it was not and would not be replaced should be apparent by the time when the present action was commenced (paras.65-67 of the Judgment).

19.  The wooden cabinet was in fact damaged by the flood water.  Legent Ceramic would have been entitled to claim either for its replacement or its diminution in value.  The subsequent retention of the cabinet for 3 years up to the date of trial determined that it was not entitled to its replacement cost.  This item failed in the absence of any claim for diminution in value (paras.71-74 of the Judgment).

20.  No serious criticism could be made in respect of the claim for the cost of painting and computer transformer as at the date of writ.

21.  In the circumstances, definitely except for the cost of the plywood flooring and perhaps except for part of the cost of the HID lamps, the other items of claim could not be said to have been put forward as a matter of gross or wilful exaggeration.  The fact that Legent Ceramic did not manage to come up to proof eventually could be contributed to by factors such as preparation of the evidence.  Such problem, in my view, did happen in the present case.

22.  As to the surveyor’s report, I expressed my dismay (paras.52-53 of the Judgment).  More importantly, rather than dictating what Legent Ceramic subsequently put forward in its claim as now suggested, the surveyor essentially reproduced a summary of the loss provided by Legent Ceramic.  This should be apparent from reading the report.  Nevertheless, the very same report was filed as expert report regarding the quantum purportedly in compliance with the court’s direction in August 2010.  Its value as expert evidence was next to nil (see paras.51; 53 of the Judgment).

23.  Whether a party has unreasonably persisted in pursuing a particular issue or claim since the commencement of the action may well be a consideration.  If that has caused significant increase in the length or costs of the proceedings, it is possible to argue that the successful party may nevertheless be deprived of part of the costs of the action: see Kwan Siu Wa Becky v Cathay Pacific Airways Limited, CACV 92/2010 (19 April 2011) (at paras.6-9); and Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd (No.4) [2005] 4 HKC 162 (at 166) (as referred to in Wong Ka Ming v Ng Yin King, HCPI 760/2009 (22 July 2011) cited by Mr Kau).  But no argument was advanced on behalf of Rainbow Choice along this line.  The fact was that the issue of liability was seriously argued during the trial.

24.  I can understand that Rainbow Choice might have been reluctant to actually make a sanctioned payment, as once accepted, Legent Ceramic would have been entitled to costs on the District Court scale even if the sanctioned payment were less than HK$50,000.  But the other side of the matter is that costs could have been saved.  Had the sanctioned payment not been accepted, Rainbow Choice’s costs position would have been protected (with the operation of O.22).  Rainbow Choice has decided not to do so.

The IO’s costs of the third party action

25.  The basis for Rainbow Choice’s contention that had Legent Ceramic not commenced legal proceedings in the District Court, it would not have joined the IO as the Third Party.  Put it another way, the matter, if commenced in the Small Claims Tribunal, would have been settled by Rainbow Choice without seeking recourse against the IO.

26.  There is no contemporaneous document to evidence such stance of Rainbow Choice prior to or after the present action was commenced.  The correspondence between the solicitors for Legent Ceramic and Rainbow Choice exhibited were dated the latter half of 2009.

27.  The fact was that Legent Ceramic first commenced the present action against Rainbow Choice.  Upon filing of its defence, Rainbow Choice issued Third Party Notice to the IO.  Legent Ceramic did not join the IO as a defendant until January 2010.

28.  In my judgment, there is no basis for Rainbow Choice to transfer its risk of the deciding to initiate the third party action against the IO to Legent Ceramic.  The application in respect of the IO’s costs of the third party action fails.

29.  Rainbow Choice then argues that even if it is to bear the IO’s costs of the third party action, such costs should be taxed on a Small Claims Tribunal scale.  This is also the only real concern of the IO in the present application.

30.  I disagree with Rainbow Choice.  The IO had no choice but to defend the main action by Legent Ceramic and the third party action by Rainbow Choice.  Irrespective of the conclusion of whether Legent Ceramic ought to have filed its claim in the Small Claims Tribunal, depriving the IO of its costs on the District Court scale would mean the IO will suffer for no fault on its part or any other good reason.

Conclusion

31.  In the premises, I dismiss the application of Rainbow Choice.  The nisi costs order is absolute.

32.  I see no reason why the costs of Legent Ceramic and the IO occasioned by the present application should not be borne by Rainbow Choice.  Mr Middleton of the solicitors for the IO suggested summary assessment of such costs; and submitted a costs summary.  I think this is sensible.  I therefore direct that Legent Ceramic submits their costs summary as well within 14 days for such assessment on paper.