INTELLIGENT HOUSE LTD v. CHAN TUNG SHING AND OTHERS

LDCS 11000 / 2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION

NO. 11000 OF 2006

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D E C I S I O N

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I. Introduction

1. On 23 June 2008, we handed down our judgment (“the Main Judgment”) allowing Intelligent House’s application for an order for sale under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap 545) (“the Ordinance”).  We also made an order nisi that China Superior (the 13^th Respondent herein) shall pay the costs of the application to Intelligent House in relation to China Superior’s case, to be taxed if not agreed in accordance with the High Court Scale, with certificate for 2 counsel.

2. There are now before us three applications that need to be dealt with:

(1)  China Superior by its Amended Summons dated 7 July 2008 (“Costs Variation Summons”) asks to vary the costs order nisi, and to replace it with an order that there shall be no order as to costs, or alternatively that it shall only bear 1/19^th part of the Intelligent House’s costs only in relation to those over and above Intelligent House’s base costs incurred for proving its case.

(2)  Intelligent House by its Summons (“the Interim Costs Summons”) dated 21 July 2008 asks for an interim costs payment order under O. 62 r 9(A) of the Rules of High Court, requiring China Superior to make a payment of costs (under the costs order nisi or any costs order as varied) in the tune of $1.9m or so.

(3)  Intelligent House by its Summons dated 5 September 2008 (“Trustees’ Direction Summons”) asks the Tribunal to make a direction to the Trustees for Sale that the sale proceeds in relation to China Superior’s unit at Kam Kwok Building shall be held by the Trustees and be paid directly to Intelligent House to satisfy the interim costs payment order, if made, or alternatively, that proceeds shall be withheld by the Trustees pending the taxation of Intelligent House’s costs under the costs order against China Superior.

3.All these applications are of course contested.

4. Unless otherwise stated, we shall adopt in this decision the abbreviations used in the Main Judgment.

5. We will deal with each of these applications in the order as set out above.

II.   The Costs Variation Summons

6.Notwithstanding China Superior’s failure to oppose Intelligent House’s application for an order for sale at trial, in support of the present application that there should still be no order as to costs, Mr Edward Chan, SC’ submissions can be summarized as follows:

(1)  Although as a matter of general principle, costs should follow the event, it is still a matter of discretion which should be exercised judicially, and it can be disapplied in appropriate cases, depending on the nature and type of a particular set of proceedings or application:  Halsbury’s Laws of Hong Kong, Vol 5(2) (2006 issue), paras 90.1219, 90.1231 ; Jardine Engineering Corp Ltd v Shimizu Corp [1992] 2 HKC 271 at 316E-F per Kaplan J.

(2)  The underlying rationale for this general rule of costs should follow the event is essentially one of “wrongdoer pays”:  Interim Report on Civil Justice Reform, Judiciary, 21 November 2001, para 455.1; Schererv Counting Instruments Ltd [1986] 1 WLR 615 (CA) at 621D per Buckley LJ.

(3)  However, given the nature of the application made under the Ordinance, an applicant (including Intelligent House) carries a statutory burden to prove to the satisfaction of the Tribunal that the statutory requirements for a compulsory order for sale to be made have been satisfied.  In other words, the applicant has to come to court to make and prove the application in any event.

(4)  In the circumstances, any respondent in such an application does not and cannot be regarded as a “wrongdoer” as in an ordinary contested civil litigation, as he has not committed any wrong in causing the applicant to issue the legal proceedings and to come to court for the trial.  This is particularly so as the effect of an order for sale is to deprive him his general protected right to his own property provided under the Basic Law.

(5)  As such, the general rule on costs should not apply in an application under the Ordinance, and there should be no order as to costs against any of the respondents.

7.With respect, we do not accept Mr Chan’s submissions.

8.  In relation to the reasons why there is a general rule on costs should follow the event, Buckley LJ in Scherer, supra at 621D said as follows:

“… The normal rule is that costs follow the event.  That party who turns out to have unjustifiably either brought another party before the court or given another party cause to have recourse to the court to obtain his rights is required to compensate that other party in costs…” (emphasis added)

9.In our view, properly understood, the rationale under the general rule on costs includes the situation where a party (A) has been demonstrated to have unjustifiably caused another party (B) to incur further costs before the court to establish his legal rights, party A shall be required to compensate party B for any such increased costs, unless there are good reasons shown otherwise.

10. Thus, where an applicant under the Ordinance has a statutory right to come to the Tribunal to prove its case that an order for sale should be made, and where the respondents maintain a neutral stance (simply requiring the applicant to prove its case)^[1], we could well understand why there should be no order as to costs made against these respondents, as no extra costs (other than the costs that need to be incurred by the applicant to discharge its statutory duty to prove its case) have been shown to be unjustifiably increased by reason of the respondents’ stance. 

11. This is however very different from the case where the applicant is required to further meet any active grounds of opposition raised by any of the respondents.   If these opposing grounds are later found by the Tribunal to be unjustified (in that they are not upheld as valid grounds to oppose the making of an order for sale), we do not see any good rationale to say that the respondents raising these grounds should not be required to pay the additional costs incurred by the applicant in meeting these oppositions in the application.

12. In the premises, subject to the arguments on the apportionment of costs (which we will deal with below), we do not accept there are any in principle reasons to depart from the general rule that costs should follow the event in the present case.

13.We therefore hold that, subject to proper apportionment, China Superior shall bear the costs of Intelligent House in relation to the matters and issues raised by China Superior in opposing Intelligent House’s application under the Ordinance.  

Proper Apportionment of costs

14. Mr Chan submits that China Superior should only be asked to bear 1/19^th of the Intelligent House’s costs, since:

(1)  In principle, the proper costs order that should be made in the present case should be one that all the 19Respondents be jointly and severally liable to Intelligent House’s costs.  This is particularly so as all the other in person respondents (a) had generally and similarly also opposed Intelligent House’s application for an order for sale, and (b) had “benefited” from, and to certain extent relied on, China Superior’s legal representations and submissions at the trial.  There is therefore neither logic nor justification to “segregate” the costs position between China Superior and the other respondents, solely because China Superior had legal representation.

(2)  Further, Intelligent House’s stance in not asking for any costs against the other respondents, but only against China Superior is clearly made out of spite.  This is so because had Intelligent House sought the usual costs order (as submitted above, where all the respondents shall bear the costs jointly and severally), even if Intelligent House were only to enforce it against China Superior, China Superior would have the right to seek contribution from the other respondents.   By openly not asking any costs order against the other in person respondents, Intelligent House seeks (Mr Chan further submits) to inflict maximum harm on China Superior with no proper justification other than spite.  Mr Chan says, although Intelligent House could of course be as generous as it likes with the other respondents, there is no reason (and it would be unfair and unjust) for the Court to “assist” it to venture its “spite” against China Superior.

15. We are unable to accept Mr Chan’s submissions.  Our reasons are as follows.

16.In our view, in relation to the trial of the order for sale application, there are enough materials and clarity to enable the Tribunal (and later the taxing master) to identify the broad issues and arguments raised separately by China Superior on the one hand, and the other respondents on the other hand.  

17. China Superior had raised specific and substantial legal contentions against Intelligent House (on the proper construction of the section 4 of the Ordinance, and the relevant legal tests to be applied to the meaning of “age” and “state of repair” thereunder), and specific and voluminous expert evidence in rebuttal to Intelligent House’s evidence on “age” and “state of repair’, as well as on the costs of repair.

18. These are generally different from the arguments^[2]and evidence^[3] raised by the other respondents at the trial. 

19. As such, for fairness, any costs order against the respondents could and should be made separately against China Superior on the one hand, and the other respondents on the other hand, as the costs incurred by Intelligent House in dealing with the arguments and rebuttal evidence raised by China Superior are in our view broadly distinguishable and different from those incurred by it to deal with the arguments and evidence raised by the other respondents.

20.Of course, we accept that at the trial and at closing submissions, the other respondents had relied on some of the arguments or evidence provided by China Superior.  But in our view, such reliance is generally formalistic and limited, and they did not in any appreciable or significant extent increased the time and costs spent on them.  In other words, they are negligible in the broad question of costs position as discussed above.

21. For these reasons, we also do not accept Mr Chan’s “spite” submissions, since they would only succeed on showing that there should in principle be a single joint and several costs order made against all the respondents in the present case.  We have already ruled against that. 

22. Further, in light of Mr Chan’s above submissions made at the hearing, we find it necessary to clarify the following:

(1)  Mr Mok on behalf of Intelligent House has made it clear that there was no “spite” motivation in the way it has sought the costs order only against China Superior.   Given our above reasons in rejecting China Superior’s costs arguments, we do not find it necessary for us to come to a view on whether the application for costs was spite motivated or not. 

(2)  In the course of the hearing, Mr Chan refers us to (a) Mr Roots QC’s submissions on costs made the last day of the trial on behalf of Intelligent House[4], and (b) paragraph 350 of the Main Judgment.  Mr Chan submits that these show that it was Mr Roots’ submissions that Intelligent House accepted as a matter of general principle that, for an application like the present one, there should be no order as to costs against the respondents (as they were forced into litigation), and the only reason why China Superior should be asked to bear the costs, was because of the fact that it “took it upon” itself the litigation.  Mr Chan submits this could hardly be a proper and correct legal justification for making a costs order solely against China Superior.

(3)  With respect to Mr Chan, we did not understand that to be the meaning of Mr Roots’ submissions.  We understood that Mr Roots was not trying to make a submission on the legal justification as to why Intelligent House was not seeking costs against the other respondents but China Superior.  He was only trying to explain to us why (perhaps morally) Intelligent House decided not to ask for a costs order against the other respondents, albeit the general principle on costs should still be costs should follow the event.   These are also what we meant (and intended to mean) at paragraph 350 of the Main Judgment.

23.In the premises, after considering all the circumstances of the case and the trial, as well as the issues and evidence raised by the parties, in the exercise of our discretion, we believe it is just and fair to make a costs order that China Superior shall pay Intelligent House’s costs which are incurred in relation to the following:

(1)  The legal contentions raised by China Superior against Intelligent House’s interpretation of the Ordinance.

(2)  All the rebuttal expert evidence filed and relied on by China Superior.

These costs are to be taxed if not agreed, at the High Court Scale, with certificate for two counsel.

24.To avoid any doubt, it is further directed that such costs should not include Intelligent House’s costs incurred in any event to prove its application under the Ordinance had the above matters not been raised by China Superior. 

25. The costs order nisi is thus varied to the extent as set out above.

III. Interim costs Summons

26. Intelligent House seeks an interim payment of costs order under O 62 r 9A(1)(b) of the Rules of High Court (Cap 4A) against China Superior in the sum of $1,983,418 in relation to its costs liability under the above costs order.

27. Order 62 r 9A(1) of the Rules of High Court provides as follows:

“(1)  If a party makes or resists an application at any stage of proceedings before the Court, the Court may –

(a)    if the Court considers the application or resistance to the application, as the case may be, to be frivolous or vexatious; or

(b)   for any other reason that the Court in the circumstances of the case considers just,

when ordering costs against that party in respect of the application, order that party to pay forthwith to any other party to the application an amount which in the opinion of the Court approximates the costs that would be allowed on taxation” (emphasis added)

28. In support of its application, Intelligent House submits as follows:

(1)  The sale of the Kam Kwok and National Buildings would be completed by the Trustees for Sale on 22 September 2008.  Upon its completion, China Superior would in principle be paid $1,983,418 as its share of the sale proceeds in relation to the unit it held at Kam Kwok Building.

(2)  However, the following history and circumstances in which China Superior had engaged itself in this litigation shows that there is real risk that, once the said $1,983,418 is paid into China Superior’s hands, it would take advantage of  the time gap between now (when the costs order is made) and taxation (which is likely to take a long time) to dissipate proceeds, and would not meet its obligation under the costs order:

(a)    Those behind China Superior bought China Superior, a $1 shell company, through a BVI company (China Falcon Ltd) after the commencement of the compulsory sale application herein.  Then China Superior bought its suit unit at $2,500,000, which is more than 2.7 times the EUV of the unit and is more than China Superior’s share of the residue of the sale proceeds.

(b)   China Superior has no assets known to Intelligent House other than this suit unit.

(c)    With the participation of China Superior and its team of lawyers and experts, the trial took a total of 19 days.

(d)   Notwithstanding the financial capacity to purchase the suit unit at a much-inflated price and to engage the legal team and experts to participate at the trial, those behind China Superior “calculatedly” used China Superior as a vehicle to buy into this costly litigation for a possible gain.  This is clearly to exploit the fact that China Superior is a $1 company held by a BVI company, giving them the comforts of limited liability and anonymity, thus evading liability that might have been generated by litigation.

(e)    In light of these, there is clearly no incentive to China Superior to pay Intelligent House its costs under the costs order, once the sale proceedings have gotten into China Superior’s hands.  Quite to the contrary, the above shows that there is every incentive and possibility that China Superior will dissipate the proceeds before it is required to pay the costs after taxation.

(3)  In these circumstances, it is clearly just and fair that the Court should make an interim payment costs order to the extent of the sale proceeds, which by any way of calculation would be well within Intelligent House’s eventual taxed costs under the costs order.

29. In opposing the application, China Superior submits as follows.

30. First, it submits that there is no jurisdiction for this Tribunal (or any other court) to make an interim payment order for a costs order at the conclusion of proceedings, since the wordings of O 62 r 9A show that the rule is intended only to apply to interlocutory applications.  Mr Chan relies on: 

(1)  Halsbury’s Laws of Hong Kong, Vol 5(2) (2006  issue) at para 90.1241:

“Interim payment of costs.  A recent provision has empowered the court to make an order for the interim payment of costs, which costs are to be paid immediately without waiting for taxation.  The purpose of the power is to penalize and discourage frivolous and unnecessary interlocutory applications and discourage fruitless opposition to these applications…” (emphasis added)

(2)  Hong Kong Civil Procedure 2008, para 62/9A/2:

“Difference between a gross sum order and interim payment – Payment under [O 62 r 9A] differs from a gross sum order under r.9 in several aspects … Further, a gross sum order is not committed o interlocutory applications where an interim payment is …” (emphasis added)

(3)  Mr Chan further submits that there is no logical reason why an interim costs order ought to be made against an unsuccessful party at the conclusion of trial hearing in respect of costs incurred for the entire proceedings.  He says quite apart from the fact that this is clearly not anticipated by the plain wordings of O 62 r 9A, it is open for a party who is awarded costs to proceed to taxation in the usual manner and obtain an allocatur for the taxed costs. 

31. Secondly, even if the Tribunal has the jurisdiction to make an interim costs payment order, it should not do so in the present case since (China Superior further submits):

(1)  There is insufficient evidence to suggest that China Superior is to evade its costs liability and to dissipate the sale proceeds.  The fact that the suit unit was purchased by China Superior (which is admittedly a $1 company held by another BVI company) is neither here nor there, as there is nothing unusual in commercial terms that property is purchased via a shell company.

(2)  The words “other reasons” provided under O 62 r 9A(1)(b) should be construed juii generis with the words “frivolous or vexatious” as provided in subrule (1)(a) (because of the disjunctive word “or” used within subrule (a), and separating subrules (1)(a) and (1)(b)).  Thus, these “other reasons” must refer to something akin to being “frivolous or vexatious”.  

(3)  There is nothing in this case which is close to being “frivolous or vexatious”, and thus no interim costs payment order should be made under O 62 r 9A(1)(b).

32. We do not accept China Superior’s submissions.

33. Insofar as jurisdiction is concerned, one starts with the wordings of the rule.  In our view, for the present purpose, the operative words are “an application” and “at any stage of proceedings”.    Clearly, these refer to any application made at any stage of the proceedings, including at the very beginning of the proceedings.  The rule does not provide, limit or refer to when such an application, once made or resisted, is determined to enable it to be operative.   

34. There is thus nothing in the rule which excludes it from being applicable to an “application” which, say, commences the proceedings (thus made at the beginning of the proceedings), is resisted when a respondent files its opposition (during the course of the proceedings), but determined conclusively at the end stage of the proceedings.   We cannot read into the rule any words which show clearly or objectively that the “application” must be one of interlocutory in nature. 

35. The passage in Halsbury’s Laws of Hong Kong cited by Mr Chan does not in our view take China Superior’s submissions any further.  It appears to us that the passage seeks to rely on the wording of subrule (1)(a) (i.e., the words “frivolous or vexatious”) to assist its interpretation of the enabling provision under O 62 r 9A by apparently saying that the only purpose of the rule is to prevent and discourage frivolous and vexatious application.  We do not find this helpful or conclusive.  As we will explain later, we find this a limited construction of the purpose of the rule, given that the legislature sees it necessary to provide a much wider ground under subrule (1)(b). 

36. The same observation applies to the commentary made at The Hong Kong Civil Procedure 2008.  The commentary is also not based on any authority, and does not in any way affect our above construction of the rule.

37. We also accept Intelligent House’s submissions that, when considering whether an interim payment order should be made, there is no sound logic to make a distinction between a costs order made under interlocutory applications and one made after the final conclusion of a trial, so long as the grounds provided under subrules (a) or (b) are satisfied.   In both of these situations, the parties shall in the ordinary course of event proceed to taxation seeking an allocatur.   An construction of the rule that it only applies to interlocutory application therefore does not make good common and logical sense, and will require much clearer language to achieve the objective if this were that the legislature had intended.

38. For the above reasons, we conclude that this Tribunal has the necessary jurisdiction under O 62 r 9A to make an interim costs payment order if the requirements under its subrules are satisfied.

39. We are further satisfied that the condition under O 62 r 9A(1)(b) is satisfied in the present case:

(1)  We disagree with China Superior that the words “other reasons” under subrule (b) should be interpreted to mean only something akin to “frivolous or vexatious”. 

(2)  We come to this view because the use of the words “any other reasons” and “in the circumstances of the case to consider just”, in their ordinary and objective meaning clearly refer to anything other than the grounds of “frivolous or vexatious” referred to in subrule (a).    This must also be why the legislature and draftsman saw the need to provide a specific separate subrule (b) other than subrule (a).   We do not see why the use of a disjunctive word “or” to separate subrule (a) and (b) provides for a juii generis construction as submitted. 

(3)  We believe that the words in subrule (b) are clear, and the rule includes anything other than “frivolous or vexatious” applications or resistance to an application, which in all the circumstances make it just to require a party to make an interim payment of costs even before taxation has been carried out.  The court is given a wide power and discretion, and is entitled to take into account of all the circumstances of the case, and to consider what and whether it is just to make such an order.

(4)  Since the effect of an interim costs payment order is to require a party to make an immediate and speedy payment of costs, instead of waiting for the usually lengthy taxation process, we believe that it must be one of the considerations envisaged under subrule (b) that it would be just to make such an order if there is a genuine risk that the party liable under the costs order is likely to do something (including dissipating its assets) during the time gap between the costs order and taxation to avoid payment liability.

(5)  We accept the submissions from Intelligent House set out at paragraph 28(2) above that the history and the way in which China Superior had participated in this litigation, and the evidence that the suit unit is its present only asset indicates that there is a likely risk that it would not use the sale proceeds to pay Intelligent House’s costs when taxation is completed. 

(6)  We come to this view in particular after taking also into account of the fact that, notwithstanding the direct allegation made by Intelligent House in its supporting affirmation that China Superior intends to avoid liability to pay the costs (given the above observations)[5], there is a total lack of evidence from China Superior to say for example (a) at least confirm by its director that it is not its intention to avoid liability to pay costs, and (b) explain its financial position suggesting that it would be in a position to meet its costs liability after taxation.  

(7)  This coyness in China Superior’s stance and evidence in response to Intelligent House’s case does not assist this Tribunal and only confirms Intelligent House’s concern that there is a genuine risk that, if the sale proceeds are paid into its hands, and without a corresponding interim payment order of costs, China Superior will take advantage of the time gap between now and taxation to dissipate them to avoid its costs liability.

(8)  In the premises, we conclude that in the present case, Intelligent House has shown to our satisfaction there is a genuine risk that China Superior will dissipate the sale proceeds before taxation of Intelligent House’s cost to avoid its liability to pay such costs.   We are also satisfied that, given the present state of the evidence on the quantum of costs of about HK$12m incurred as a whole by Intelligent House (which is not in any way seriously challenged), even in light of the costs order we have made above, the taxed costs that China Superior is likely to be required to pay Intelligent House would well exceed $1,983,418.

40. For these reasons, we allow Intelligent House’s application, and make an order that China Superior shall make an interim payment of costs to Intelligent House in the sum of $1,983,418.

IV. Trustees’ Direction Summons

41. Given the above interim payment of costs order, Intelligent House further seeks a direction from this Tribunal to direct the Trustees for Sale to hold and make payment of China Superior’s  share of the sale proceeds directly to Intelligent House.  This application is made pursuant to s 4(6)(a)(iii) of the Ordinance.

42. The relevant part of s. 4(6)(a)(iii) of the Ordinance provides as follows:

“(6)  Where the Tribunal makes an order for sale, it may order, subject to section 8(3), (4) and (5), that compensation be paid to a tenant for termination of his tenancy under section 8(1)(b) and it may also give such direction as it thinks fit –

(a)    relating to-

(i)  …

(ii)    ..

(iii)   subject to section 11(5), the application of the proceeds to the sale including-

(A)  the holding by the trustees of such part of those proceeds as is specified by the Tribunal in view of any lis pendis affecting the lot; and

(B)  the payment of that part of those proceeds, upon the occurrence of an event specified by the Tribunal, to such person or persons as is or are specified by the Tribunal.” (Emphasis added)

43. In our view, on a proper reading of s 4(6)(a)(iii) of the Ordinance, in particular the wordings of subsections (A) and (B) as emphasized in the above quote, under subsection (B) the Tribunal can only direct payment of those parts (thus the words “that part”) of the sale proceeds which it has also directed the Trustees for Sale to withhold under subsection (A) in relation to any lis pendis affecting the lot (thus the use of the conjuctive word “and” between subsections (A) and (B)).  

44. This provision for directing payment of sale proceeds to persons other than in accordance with section 11(5) of the Ordinance is therefore a very limited one, and is confined to situation where there is a lis pendis against the lot.

45. This is simply not the present case in relation to the interim costs payment order.  We therefore do not think we have the power or jurisdiction under the Ordinance to make the direction sought by Intelligent House.

46. We dismiss the Trustee Direction Summons.

Conclusion

47. For the above reasons:

(1)  Under the Costs Variation Summons, we vary the costs order nisi to as follows:

(a)    China Superior shall pay Intelligent House’s costs which are incurred in relation to (i) the legal contentions raised by China Superior against Intelligent House’s interpretation of the Ordinance, and (ii) all the rebuttal expert evidence filed and relied on by China Superior.  Such costs are to be taxed of not agreed, at the High Court Scale, with certificate for two counsel.  

(b)   It is further directed that such costs should not include Intelligent House’s costs incurred in any event to prove its application under the Ordinance had the above matters not been raised by China Superior.

(2)  Given that China Superior is only partially successful in varying the costs order nisi, but has lost its primary and substantive contention, we believe the proper costs order for the Costs Variation Summons should be no order as to costs. We so order.

(3)  We allow the Interim Costs Payment Summons and order that China Superior shall forthwith make an interim payment of costs to Intelligent House in the sum of $1,983,418.  Costs of this Summons be to Intelligent House to be taxed if not agreed at High Court Scale.

(4)  We dismiss the Trustees Direction Summons.  Costs of this Summons be to China Superior to be taxed if not agreed at High Court Scale, with certificate for two counsel.

 

 

[1] As in the case of Gilmerton Ltd & others v Polywin Holdings Ltd (unrep., LDCS 2000/2004, 17 January 2005, H H Judge L Chan, Mr W K Lo), where the applicants were required only to prove their case (since the only active respondent, the 1^st respondent, had withdrawn its opposition just before the trial, and consented to the sale).  The Tribunal did not make any costs order against the 1^st respondent and the other two respondents, who were joined as their whereabouts were unknown.

[2] The other respondents themselves raised no specific legal arguments, other than Basic Law related contentions, on the proper construction of s 4 of the Ordinance.

[3] The other respondents filed their own expert report on valuation, and had not relied on any expert report to deal with state of repair and the costs of repair.

[4] Transcript: Day 19: 94:21-96:3.

[5] See: paras 7 to 12 of the Affirmation of Lui Wing Wan dated 21 July 2008.