TOWN PLANNING BOARD v. SOCIETY FOR PROTECTION OF THE HARBOUR LTD

FACV No. 14 of 2003

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 14 OF 2003 (CIVIL)

(ON APPEAL FROM HCAL NO. 19 OF 2003)

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JUDGMENT ON COSTS

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Chief Justice Li:

1. This is the judgment of the Court on costs.

Introduction

2. This appeal by the Town Planning Board ("the Board") is brought against an order for costs in favour of the Society for Protection of the Harbour Limited ("the Society") made by Chu J on 5 December 2003 in the case relating to the Draft Wan Chai North Outline Zoning Plan. Chu J, after initially making a costs order nisi in favour of the Society, varied that order by ordering, under O.62 r.28(3) of the Rules of the High Court, Cap. 4, that the Society's costs be taxed on an indemnity basis with a certificate for three counsel. Chu J made a like order for the costs of the application to vary the order nisi.

3. On 9 January 2004, when this Court delivered its judgment in the main appeal by the Board, the Court dismissed that appeal and made an order nisi for costs of the appeal in favour of the Society. The Court also ordered that any party seeking any other order or any related order should lodge written submissions by 20 February 2004 and replies within 2 weeks thereafter. The Court further ordered that, if the Board wished to challenge the costs orders made by Chu J, the Board should lodge written submissions by 20 February 2004 and the Society should lodge any response within 14 days thereafter. Subsequent directions were made on the filing of further submissions.

4. The Board now seeks orders that

(1) costs of this appeal on costs be to the Board on a party and party basis with certificate for two counsel.

(2) costs of the application to Chu J by the Society to vary the costs order nisi be to the Board on a party and party basis with certificate for two counsel.

(3) costs of the substantive appeal and below be to the Society on a party and party basis with certificate for two counsel.

The Board seeks orders (1) and (2) above in its appeal against the costs orders made by Chu J and order (3) above both in such appeal and by way of variation of this Court's order nisi for costs of the main appeal.

Jurisdiction

5. This Court has jurisdiction to deal with the costs orders made by Chu J. Section 17(1) of the Hong Kong Court of Final Appeal Ordinance, Cap. 484 provides:

"The Court may confirm, reverse or vary the decision of the court from which the appeal lies ..., or may make such other order in the matter, including any order as to costs, as it thinks fit."

The judgment of Chu J

6. Order 62 r.28(3) provides

"The Court in awarding costs ..... may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on the common fund basis or on the indemnity basis."

7. Chu J recognised that, although the discretion conferred by O.62, r.28(3) is a broad discretion, some special and unusual features must be shown to justify an indemnity costs award rather than an order for costs on a party and party basis. Chu J, having rejected the notion that indemnity costs are only awarded in order to mark the court's disapproval of a party's conduct in the litigation, went on to say:

"Having regard to the fact that the applicant instituted these proceedings in the public interest, that the case carries general public importance and that the applicant is of limited means, being financed primarily by donations, I am of the view that this is an appropriate case to order that the applicant's costs be taxed on indemnity basis."

The Board's case

8. The Board submits that the judge's exercise of discretion miscarried by reason of error of law and the taking into account of irrelevant considerations. According to the Board, both the attributes of the parties and the character of the proceedings are irrelevant considerations in exercising the discretion whether to award indemnity costs or party and party costs. The Board also argues that, underlying the approach taken by the judge, was her view that

"it will be open to the court to use the indemnity costs award to achieve a fairer result for the successful party."

9. The Board submits that the judge's underlying view was based on a misunderstanding of two decisions of the English Court of Appeal, Petrotrade Inc. v. Texaco Ltd [2002] 1WLR 947 and McPhilemy v. Times Newspapers Ltd (No. 2) [2002] 1 WLR 934. They were decisions on r.36.21 of the English Civil Procedure Rules which deals with a specific matter. The rule provides that, if a defendant fails to beat a claimant's filed offer, a court will make an order for indemnity costs in favour of the claimant, unless the court considers it unjust to do so. It was the element of unfairness in that situation with which the Court of Appeal was concerned in those two cases.

10. As appears from the judgment of Chadwick LJ in McPhilemy (at para.21), the power to award interest at a higher rate under r.36 enables the court

"to redress the element of perceived unfairness, otherwise inherent in the legal process, which arises from the fact that damages, costs (even costs on an indemnity basis) and statutory interest will not compensate the successful claimant for the inconvenience, anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on terms which (as events turned out) were less advantageous to him than the judgment which he achieved." (Emphasis added)

According to the Board, in the absence of a rule like r.36.21, there is no element of general inherent unfairness in the legal process arising from the difference between party and party costs and indemnity costs and no principle which recognises a principle of such inherent unfairness.

The Society's case on costs at first instance

11. The Society's case is that an appellate court is reluctant to disturb an exercise of discretion as to costs and will only to do so when it is vitiated by an error of principle or by the taking into account of any irrelevant considerations or by the failure to take into account a relevant consideration. The Society says none of these vitiating elements are present in this case.

The nature of the discretion to award costs

12. Order 62 r.28(3) is to be seen in the context of s.52A of the High Court Ordinance, Cap. 4, which provides that:

"the Court shall have full power to determine by whom and to what extent the costs are to be paid."

The court therefore has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered.

Difference between party and party basis and indemnity basis

13. In the exercise of the court's discretion, the usual order for costs made in favour of a successful party in litigation is that the party be awarded costs on a party and party basis. On a taxation of costs on such a basis, O.62 r.28(2) provides that there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed and the burden is on the receiving party to justify his costs. In contrast, on a taxation on an indemnity basis, O.62 r.28(4A) provides that all costs are to be allowed except insofar as they are of unreasonable amount or have been unreasonably incurred and any doubts are to be resolved in favour of the receiving party.

14. Having regard to the different statutory tests, an award of indemnity costs, which is a more generous basis, will usually enable the successful party to recover more of his costs than under a party and party award. In that sense, an award of indemnity costs may be perceived as achieving a fairer result for the successful party in circumstances such as the present and Chu J was not in error in recognising this point. Nor was she in error in referring to Petrotrade and McPhilemy, since this point was also recognised in those decisions although they were concerned with r.36.21 of the English Civil Procedure Rules. See McPhilemy at 943F (per Chadwick LJ).

15. Chu J rightly recognised that the existence of such difference between an indemnity award and a party and party award is not on its own a sufficient basis for awarding indemnity costs. Indeed, the courts in this jurisdiction have repeatedly emphasised, correctly in our view, that the successful party should show, in order to obtain an order for costs on an indemnity basis, that the case has some "special or unusual feature" (Overseas Trust Bank Ltd v. Coopers and Lybrand [1991] 1 HKLR 177 at 182J, per Godfrey J; Sung Koo Kee Ltd v. Pak Lik Co. (A Firm) at 575C-D).

Grounds for making an order for indemnity costs

16. The courts have rejected the proposition that an award of indemnity costs will only be made where a case has been brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party. (Macmillan v. Bishopsgate Investment Trust Ltd, unreported, judgment delivered 10 December 1993 (Millett J); Disney v. Plummer, unreported, judgment delivered 16 November 1987 (English Court of Appeal)). These decisions and the reasoning on which they were based have been endorsed by the Hong Kong Court of Appeal (Sung Foo Kee Ltd v. Pak Lik Co. (A Firm) at 575E-576F, per Godfrey JA; see also Choy Yee Chun v. Bond Star Development [1997] HKLRD 1327 at 1334G-1335I, per Stock J.)

17. In these and other cases, courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made. It has been said that

"the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be 'appropriate'."

(Macmillan v. Bishopsgate Investment Trust Ltd, per Millett J; Sung Foo Kee Ltd v. Pak Lik Co. (A Firm) at 575E-576F, per Godfrey JA; see also Choy Yee Chun v. Bond Star Development Ltd at 1334G-1335I, per Stock J).

18. Neither statements of principle nor authority provide any support for the Board's proposition that the attributes of the parties and the character of the proceedings are irrelevant to the exercise of the discretion to award indemnity costs. In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while

"the grounds [upon which costs are awarded] must be connected with the case. This may extend to any matter relating to the litigation and the parties' conduct in it, and also to the circumstances leading to the litigation, but no further." (emphasis supplied)

(Scherer v. Counting Instruments Ltd [1986] 1 WLR 615 at 621F, per Buckley LJ). There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs.

19. The fact that proceedings are commenced to vindicate the public interest, more particularly to protect a public asset which is a central element in Hong Kong's heritage, rather than to assert or enforce some private right or interest, is plainly relevant to the exercise of the discretion. Also relevant is the fact that, but for the commencement of the proceedings by the Society, the public interest in securing compliance with the law would not have prevailed and resulted in the resolution of fundamental legal issues. Likewise relevant are the manifest public importance of the case (the protection of the Harbour) and the Society's limited finances dependent as they are on public donations.

20. Support for the relevance of these considerations in the making of non-standard orders for costs is provided by decisions in other jurisdictions. See New Zealand Maori Council v. Attorney-General of New Zealand [1994] 1 AC 466 at 485G-H; Oshlack v. Richmond River Council (1998) 193 CLR 72 at 80-81, 91; Re Friends of the Oldman River Society v. Canada [1992] 88 DLR (4th) 1 at 53-54; Reilly PCJ v. Wachowich CJPC (1999) Lexis 1380; affirmed by the Alberta Court of Appeal [2000] AJ No. 1029.

Conclusions on the appeal on costs

21. It follows that Chu J exercised the discretion as to costs in accordance with principle, after taking account of considerations which were relevant to the exercise of that discretion and which indicated that the case possessed special and unusual features.

Costs of the main appeal

22. It is appropriate that, for like reasons, the costs of the main appeal be awarded to the Society on an indemnity basis and, having regard to the importance and complexity of the issues, with a certificate for three counsel.

23. We would, however, emphasise what we have pointed out earlier in these reasons, that the discretion to award indemnity costs is unfettered and uncircumscribed. It is not to be assumed that the considerations which have resulted in an order for indemnity costs in the present case will necessarily result in a like order in other cases where the same considerations are present. Other factors, such as the reasonableness of the conduct of the parties, may need to be taken into account.

Orders