NG YUK NGOR AND ANOTHER v. WONG TAK WAH & YU YUET NGOR and their successors in title in respect of Flat 4, 19th Floor Block E, Tuen Mun Trend Plaza, Tuen Mun

DCCJ 4992/2019

[2021] HKDC 1147

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4992 OF 2019

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(by original action)

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(by counterclaim)

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JUDGMENT

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Introduction

1.  This is the appeal of the defendants and plaintiffs’ by counterclaim (“Defendants”) against Master B Mak’s Order dated 17 August 2020 (“Costs Order”) that the costs of the Summons taken out by the plaintiffs and defendants by counterclaim (“Plaintiffs”) on 7 January 2020 (“Striking Out Summons”) to strike out the Defendants’ counterclaim be in the cause.

2.  The parties agreed that this appeal against the Costs Order is to be disposed of on paper.  As directed, the parties lodged their respective written submissions.

The applicable legal principles

3.  To begin with, I remind myself of the following legal principles which are relevant and applicable to the present costs only appeal.

4.  With regard to an appeal against a master’s decision on costs, it is well established that a judge in chambers will not allow an appeal from a master’s costs order unless it was unreasonable or the master erred in law, ie if he either failed to take into account proper matters or took into account matters that should not have been taken into account (Hoddle v CCF Construction Ltd [1992] 2 All ER 550 at 550h-551a, per Morland J; Paul Y-ITC Construction Ltd v Kin Shing Co Ltd [1999] 1 HKC 511 at 515A-C, per Sakhrani J; see also Hong Kong Civil Procedure 2021, Vol 1, paragraph 58/1/6).

5.  Whilst it is right that the court has an unfettered discretion in relation to the award of costs, that discretion has to be exercised judiciously. Where a party successfully enforces a legal right, and in no way misconducts himself, then he is entitled to costs as of right (Hong Kong Civil Procedure 2021, Vol 1, paragraph 62/2/6).

6.  For costs in interlocutory proceedings, Order 62 Rule 3 of the Rules of District Court stipulates that:-

“(2A) If the Court in the exercise of its discretion sees fit to make any order as to cost of or incidental to any interlocutory proceedings, it may, subject to this order, order the costs to follow the event or make such other order as it sees fit.”

7.  In Kickers International SA v Paul Kettle Agencies Limited and another [1990] FSR 436, Hoffman J discussed about the principles for awarding “costs in the cause” in respect of interlocutory costs before the English Civil Procedure Rules were enacted.  In particular, he held:-

“An order for a party’s costs to be ‘in the cause’ is made because the court has not investigated the merits and considers that it would not be fair for him to recover those costs unless he succeeded at the trial. But the fact that the merits have not been investigated, or not fully investigated, does not necessarily mean that the court cannot dispose finally of interlocutory costs. The question cannot be settled simply by reference to practice : it must be answered on the facts of the individual case. Would it be unfair in this case for the defendants to have the costs of the motion even if they lost at the trial ? On balance I do not think that it would. Although I cannot decide the merits, I can form a view on whether the plaintiff, on the material it has produced and what it must have known about the defendants, was justified in launching the motion. I do not think it was. Therefore whatever the outcome of the trial, the motion which has not been abandoned has put the defendants to a great deal of unnecessary expense.

…

Thus it seems to me that in making a costs order at the interlocutory stage, there are two risks of injustice which have to be balanced against each other.  On the one hand, a final order might award a party costs which, upon a fuller consideration at the trial, he would not have been given.  On the other hand, failure to make a final order might have the practical effect of depriving a party of some or all of the costs which he should in fairness have recovered.  I think it is possible that in the past the courts may have been more impressed by the first risk than by the second.”

8.  Johnson Lam J (as he then was) in Midland Business Management Ltd v Lo Man Kui (No 2) [2011] 2 HKLRD 667 held at [9]-[12] that:-

“9. Under Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings and if possible by way of summary assessment of costs. The objective is to discourage unnecessary and disproportionate interlocutory applications. It is recognised that the lack of immediacy of orders to pays costs “in the cause” or “in any event” weakens costs as a sanction against unwarranted applications or resistance, see paras. 529-536 of the Final Report of the Chief Justice’s Working Party on Civil Justice Reform.

10. By reason of O.62 r.5(1)(aa), the court should take into account the underlying objectives in O.1A r.1 in the exercise of its discretion. The objectives in r.1(a), 1(c) and 1(d) are particularly relevant in the present context. In my view, the approach recommended by the Working Party should be adopted in furtherance of these objectives. Unwarranted interlocutory applications should normally be sanctioned by an immediate costs order.

11. In so say, I must not be taken as saying that an immediate costs order should be made against every unsuccessful party in an interlocutory application. I can readily see that there are cases where such a party may have a proper justification for making an interlocutory application even though he fails at the end of the day. There could also be cases where the court considers that it would be more appropriate to make an order “in any event” or “in the cause” or to reserve costs.

12. However, what I do say is that after Civil Justice Reform the court is more astute to the impact of costs on legal proceedings and an order for immediate payment of costs will be made more readily as a discipline against unmeritorious interlocutory applications.”

The Striking Out Summons and the Master’s Determination

9.  By way of background, this is a case of water leakage dispute between neighbours.  The Plaintiffs are from the apartment downstairs (“Apartment Downstairs”) while the Defendants are from the apartment upstairs (“Apartment Upstairs”).  The Plaintiffs’ case is that in or about July 2018, when the 2^nd Plaintiff started renovating the Apartment Downstairs, it was discovered that the water pipes serving the Apartment Upstairs were seriously rusted and eroded leading to a risk of water leakage.  The 2^nd Plaintiff advised the Defendants that they might want to replace the same but such suggestion was declined.  Since December 2018, water stains and water drops have persistently been found at various locations on the ceiling at the living room, the kitchen and the bathroom of the Apartment Downstairs.  The Plaintiffs claim that the water leakage was caused by the defects in the fresh water, the sewage system and/or the waterproof membrane of the Apartment Upstairs (paragraph 8 of the Statement of Claim) of which the Plaintiffs have failed to inspect, repair and/or maintain (paragraph 9 of the Statement of Claim).  Paragraph 8 of the Statement of Claim reads:-

“8. The water leakage and/or seepage is caused by:-

(a) defects in fresh water pipe system of the Apartment Upstairs; and/or;

(b) defects in the sewage system of the Apartment Upstairs

which caused or permitted water to find its way into the concrete slab which forms the floor of the Apartment Upstairs and the ceiling of the Apartment Downstairs (“the Concrete Slab”);

Plus

Defects in the waterproof membrane underneath the floor of the bathroom of the Apartment Upstairs and/or waterproof membranes adjacent thereto.  Such membranes were put in place to prevent water leaked or seeped into the Concrete Slab from going further down to the ceiling of the Apartment Downstairs.”

10.  The Defendants deny that the water leakage is caused by the Defendants’ breach of their duties under the DMC, the laws of negligence and private nuisance (paragraph 9 of the Statement of Claim and paragraph 8 of the Defence).  The Defendants say that, if which is not admitted, it is found that any such water leakage that may have been suffered by the Plaintiffs were caused in the manner alleged at paragraph 8 of the Statement of Claim (ie caused by defects in the fresh water pipe system, sewage system and/or waterproof membrane), such water leakage were caused in the course of the renovation by the Plaintiffs (either by themselves or through their agents particularly renovation workers) in negligence and/or breach of duties. Paragraph 8 of the Defence reads:-

“8. Paragraph 8 [of the Statement of Claim] is not admitted and paragraph 9 is categorically denied. If, which is not admitted, it is found that any such water leakage and/or seepage that may have been suffered by the Plaintiffs (which are themselves not admitted) are caused in the manner alleged at paragraph 8, they were caused in the course of the renovation by the Plaintiffs (either by themselves or through their agents particularly renovation workers) in negligence and/or breach of duties.

Particulars of negligence and breach of duties

(1) Failing to carry out the renovation with reasonable care and skill;

(2) Damaging the water/freshwater pipes/pipe systems, the sewage system, and/or water membrane(s) of the Apartment Upstairs;

(3) Failing to inspect and carry out works to the Concrete Slab with reasonable care and skill such as to not cause the purported damage to the water/freshwater pipes/pipe systems, the sewage system, and/or water membrane(s) of the Apartment Upstairs;

(4) Failing to take any or any adequate measure to prevent the causing of such purported damage to the water/freshwater pipes/pipe systems, the sewage system, and/or water membrane(s) of the Apartment Upstairs; and

(5) Failing to inform the Defendants of such damage to the water/freshwater pipes/pipe systems, the sewage system, and/or water membrane(s) of the Apartment Upstairs.”

11.  In paragraph 14 of the Counterclaim, the Defendants repeat their Defence and plead that in order to mitigate the purported effects of the alleged water leakage and to ensure compliance to the terms of the DMC, the Defendants had engaged professional contractors/workmen in carrying out works at the Apartment Upstairs in respect of the entire freshwater pipe system and of the concrete slab and had expended costs.  The Defendants claim against the Plaintiffs, inter alia, for such costs.

12.  The Plaintiffs applied to strike out the whole of the Counterclaim on the grounds that it (i) discloses no reasonable cause of action and/or is frivolous and vexatious and/or (ii) contains allegations of act which are inconsistent with their Defence.  The Plaintiffs argued that the Counterclaim is not maintainable and is liable to be struck out because the Defendants have made no admission of any defect in the pipe system and of the concrete slab of the Apartment Upstairs.  There being no positive allegation of any defect in those facilities, there is no factual foundation for any allegation against the Plaintiffs for breach of duties.

13.  The Defendants’ position is that they do not admit water seepage (either its occurrence or its cause), but accept that there was damage in the Defendants’ facilities, which were caused by the Plaintiffs in the course of their renovation.  The Defendants therefore counterclaim for the costs of repairing the facilities damaged by the Plaintiffs.  On such premise, the Defendants say that even if it is found that water leakage has occurred as a result of defects of the Defendants’ facilities (which were said to be damaged by the Plaintiffs), such water leakage was caused by the Plaintiffs themselves.

14.  The Defendants argued that the Plaintiffs have misread the Defendants’ pleading, in particular, the Defendants’ non-admission that the water leakage was caused by the defects in the Defendants’ facilities was erroneously taken by the Plaintiffs to mean that the Defendants had not admitted to the existence of defects.

15.  I have the opportunity to read the transcript of the hearing before the Master.  The Master, having heard parties’ submissions, dismissed the Plaintiffs’ Striking Out Summons and gave his reasons for decision as follows:-

“With respect to Mr Leung who settled the defence and counterclaim, paragraph 8 is worded in a convoluted way. The second sentence contains two non-admissions and two subclauses in brackets. Without doubt, a sentence like this would have caused readers difficulty in understanding.

Having said that, however, the sentence did state that if water leakage was found to have been caused by the defects of the fresh water pipes, the sewage system or the waterproof membrane as alleged in paragraph 8 of the statement of claim, such defects were caused by the plaintiff’s workers in the course of renovation of the plaintiff’s premises. It may perhaps be criticized that the pleading of a cause of action in such manner is inadequate and lacking in details, but I think the inadequacies can be cured by amendment or a request for further and better particulars. It is not a case of lack of cause of action.

Finally, I do not accept Ms Liao’s submission that the defendants’ are pleading inconsistent alternatives. The defendants are saying that the plaintiff’s workers had damaged the fresh water pipes, the sewage system and the waterproof membrane of the defendants’ premises, it is not inconsistent with the defendants’ non-admission of the allegation of the plaintiffs that the water seepage was caused by the defects in the fresh water pipes, the sewage system and the waterproof membrane of the defendants’ premises.”

16.  The Master declined the Defendants’ costs.  The Master considered that had the Defence and Counterclaim been drafted in a clear and unambiguous manner, this application could have been avoided therefore a fair costs order is that the costs of the Striking Out Summons be in the cause with certificate for counsel.

This Appeal

17.  In this costs only appeal, Mr Leung for the Defendants argued that the Master was wrong to order costs be in the cause because (1) the Defendants have been wholly successful in resisting the Striking Out Summons; (2) the Plaintiffs’ improper conduct should have been taken into account; (3) the Defendants’ quality of pleading per se was not a matter of conduct insofar as Order 62, rule 5(1)(e) is concerned and is therefore not a matter that should have been taken into account by the Master when exercising his discretion as to costs; (4) even if the Master wished to convey his dissatisfaction with the quality of the Defendants’ pleading or conduct, he could have deprived the Defendants’ costs in part by ordering the Plaintiffs to pay a portion of the Defendants’ costs or in whole by making no order as to costs.

18.  Ms Liao for the Plaintiffs submitted that the appropriate costs order was costs in the cause or no order as to costs because of the ambiguity and inadequacy of the Counterclaim and the fact that the Plaintiffs’ solicitors wrote to the Defendants twice inviting them to consider amending the Counterclaim before taking out the Striking Out Summons, which was flatly rejected by the Defendants.

Discussion

19.  The main plank of the Defendants’ argument to strike out the Plaintiffs’ Counterclaim is the lack of positive assertion of any defect in the Defendants’ facilities which resulted in no factual foundation for any allegation against the Plaintiffs for breach of duties.

20.  In my view, the Defendants in their Defence and Counterclaim are not advancing mutually inconsistent allegations of fact but simply advancing alternative positions based on the same underlying facts.  In this regard, I refer to the Court of Appeal decision in Yiu Ka Fung Vincent v Info‑Vantage Ltd, CACV 96/2014 (unreported, 3 July 2015) whereby Zervos J (as he then was) who gave judgment on behalf of the Court of Appeal explained at paragraph 63 as follows:-

“Cases may arise where the party has no personal knowledge of the facts, but has evidence pointing to alternative possibilities. The pleading and verification of such alternative pleas is permissible as long as there is a reasonable basis for doing so on the evidence available. In such circumstances, where a party puts forward a pleading with alternative and mutually inconsistent versions of the facts, because the facts as known to him admit of alternative interpretations, the pleading is permissible and verifiable on the basis that the party believes on the evidence available that the facts will ultimately correspond to one or other of the possibilities pleaded. However, if the matters pleaded are matters which are plainly within that party’s knowledge, so that he must know which of the inconsistent alternatives is the correct one, then the pleading of inconsistent alternative cases is not permissible.”

21.  I consider that a fair reading of paragraph 8 of the Defence (as repeated in the Counterclaim) together with the particulars of the Plaintiffs’ negligence and breach of duties, either by themselves or through the renovation workers in the course of the renovation by the Plaintiffs, is that the non-admission therein involves an affirmative proposition that the facilities could have been damaged during the renovation by the Plaintiffs.  Such alternative plea is permissible. I agree with the Master that it is therefore not a case of lack of cause of action nor pleading inconsistent alternatives which warrants the striking out of the Counterclaim.

22.  Both parties criticized the conduct of the other side.  The Plaintiffs argue that the Defendants’ Counterclaim is ambiguous and inadequate and the Plaintiffs had requested the Defendants to consider amending the Counterclaim before taking out the Striking Out Summons but was rejected by the Defendants. The Defendants claim that the Plaintiffs have failed to comply with Practice Direction 19.1 to inform the Defendants the ground of the Striking Out Summons at least five clear working days before the day fixed for the hearing.

23.  Insofar as the Plaintiffs’ complaint, I have already found that the plea in paragraph 8 of the Defence (as repeated in the Counterclaim) is permissible.  I do not share the Master’s comment that the Defence and Counterclaim is unclear and ambiguous.  In respect of the Defendants’ complaint, I do not agree that the Plaintiffs had failed to comply with Practice Direction 19.1.  I am satisfied that the Plaintiffs had by letters informed the Defendants of their grounds of the Striking Out Summons.

24.  Where a party successfully enforces a legal right, and in no way misconducts himself, he is entitled to costs as of right (Hong Kong Civil Procedure 2021, Vol 1, paragraph 62/2/6).  The aforesaid conducts complained of by both parties against each other are in my judgment not sufficient to justify any departure of the general rule of costs to follow event.

25.  In my decision, it is incorrect for the Master to order costs to be in the cause given that there is no correlation between the outcome of the Striking Out Application and the outcome at trial.  The Defendants successfully resisted the Striking Out Application.  I see no reason why their entitlement of costs would have to be dependent upon the outcome at trial.

26.  Even assuming that the Defendants’ pleading is badly drafted, which I do not agree, the fair costs order may well be a denial of part of the Defendants’ costs or no order as to costs.  Ms Liao has referred me to the decision in Lau William John v Wan Yuk Lin Alison & Others, HCA 1255/2006, 22 June 2019 whereby the court dismissed the striking out application made by the defendants therein and ordered that costs of the striking out application be in the cause.  In that case, the plaintiff in the course of submissions admitted and the court agreed that some of the plaintiff’s claims were not satisfactorily drafted.  Nevertheless, the court did not take the view that it is plain and obvious that the plaintiff’s claims against the defendants are totally bad and are bound to fail.  Furthermore, the same are not so bad as to be incapable of being cured by an amendment.  Contrary to what Ms Liao submitted, the costs order of costs in the cause in Lau William John was made because the plaintiff therein has succeeded in part of his appeal and abandoned another part of it.  Ms Liao has also referred me to Ocean Base Company Limited v Tsang Chiu Ming & another, HCA 1916/2015, 31 March 2017.  In that case, the plaintiff survived the striking out application by amending the statement of claim and was ordered to pay the costs of the defendant’s striking out summons up to the time the plaintiff proposed the amendment and thereafter the costs of the striking out application was the plaintiff’s costs in the cause.  In my judgment, that case is distinguishable from the present case.  In that case, the deficient statement of claim was not struck out because it was remedied by the proposed amendment.

27.  I agree with Mr Leung that by ordering costs in the cause, the Master has left open an unreasonable possibility that the Defendants may subsequently be liable for costs of the Striking Out Application despite being the successful party thereof.

28.  Having considered all the circumstances and bearing in mind the guidance in the above authorities, I am of the view that there is no sufficient justification for leaving costs of the Striking Out Summons to turn on the ultimate merits of the present action.  The Defendants being the successful party in the Striking Out Application should be entitled to costs.  The present appeal is therefore allowed and the Costs Order of Master B Mak dated 17 August 2020 is set aside.  I order the Plaintiffs to pay the Defendants costs of the Striking Out Summons to be taxed if not agreed with certificate for counsel.

29.  There is no reason why costs of this appeal should not follow event.  I therefore grant a costs order nisi that costs of this appeal be paid by the Plaintiffs to the Defendants, to be taxed if not agreed with certificate for counsel.