BRIGHT CHINA INVESTMENT LTD v. YIP SIU KWONG TIMMY AND OTHERS

LDBM 303/2015

[2018] HKLdT 46

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 303 OF 2015

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DECISION ON COSTS

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1.  This is the application taken out by the Respondents (“Rs”) for costs upon the Applicant’s filing of its Notice of Discontinuance on 5 January 2018.

2.  The Applicant is a limited company holding 2 units in New Haven, 363 Sha Tsui Road, Tsuen Wan, New Territories, Hong Kong (“Estate”).

3.  The owner’s incorporation of the Estate was incorporated on 25 October 2014.

4.  The 1^st Respondent (“R1”) was the chairman of the management committee of the Estate (“MC”) whereas other remaining Rs and the Applicant represented by Mr Chan Yee Kwong (“Mr Chan”) were MC members at the material time.

5.  Originally, the Extra-ordinary General Meeting was scheduled to be held on 24 January 2015 (“1^st EGM”) but was cancelled by the MC without the attendance of Mr Chan on the reason that some of the proxies submitted by Mr Chan were invalid.

6.  The EGM was re-scheduled on 1 March 2015 (“2^nd/ EGM”) and the proxies originally submitted by Mr Chan for the 1st EGM were not accepted by MC. The resolution was passed at the 2nd EGM to dismiss Mr Chan as a member of MC.

7.  The Applicant then commenced the proceedings in the Lands Tribunal on 8 October 2015 briefly for the following reliefs:

i. Declaration that the resolution of MC held on 24 January 2015 to cancel the 1^st EGM is invalid;

ii. Order that the above MC resolution be set aside;

iii. Declaration that the 140 proxies to be used at the 1^st EGM were valid;

iv. Declaration that the said 140 proxies were continued to be valid until the 2^nd EGM;

v. Declaration that the solicitation by the Rs of fresh proxies from the other owners was ultra vires;

vi. Declaration that the resolutions passed at the 2^nd EGM were invalid;

vii. Declaration that the Applicant be entitled to vote pursuant to the said 140 proxies in the 2^nd EGM;

viii. Order restraining the Rs from giving effects to the resolution passed and order for removing R1 as chairman of the MC and for Mr Chan to be appointed chairman;

ix. Order for reinstating the Applicant as a member of the MC.

Legal Principles on Costs

8.  Rule 27 of the Lands Tribunal Rules (“LTR”) confers wide discretion on the Lands Tribunal in determining the question of costs upon discontinuance:

“Discontinuance and withdrawal

(1) A party may, without leave of the Tribunal, discontinue the proceedings or withdraw any part thereof by serving a notice to that effect on the other party.

(2)   A party upon whom a notice mentioned in subrule (1) is served may, within 14 days of that service, apply to the Tribunal for an order for costs and, subject to the Landlord and Tenant (Consolidation) Ordinance (Cap. 7), the Tribunal may make such order as it thinks fit.”

9.  Ms Wong for the Rs submitted that the test is whether the Applicant’s case is so strong that it is bound to win the case and thus justified in commencing the action in the first place. She relied on Anmol Kumar Sawlani v Yeshma Gobindram Sawlani[1], in which Recorder Shieh SC said as follows:

“10.  By summons dated 21 February 2013, the plaintiff seeks leave to discontinue this action with costs in his favour and for his solicitor’s and own client costs to come out of the estate.  It is trite law that costs and basis of taxation are in the discretion of the court. While that is so, case law has generated helpful starting points in different factual scenarios.  Generally speaking, upon an application for leave to discontinue, the discontinuing plaintiff pays the costs of the defendant.  The fact that the discontinuance had been caused by the issues becoming academic does not of itself justify departure from this starting point as a matter of discretion.  See Inchroy Credit Corporation Limited v Cheung Man Chung [1992] 1 HKLR 120, a decision of Mr Justice Kaplan.  In the case of Ta Chung China and Arts Limited v Fontana Restaurant Limited [1999] 1 HKLR 404, Mr Justice Godfrey JA said at 407:

“Where a plaintiff seeks to recover costs against a defendant in an action in which the substantive issues have been determined in one way or another before the trial, the only way in which the plaintiff can recover his costs if the defendant refuses to pay them is to bring the action to trial for the purpose of doing so.”

……..

15.  In my respectful view, there is a good deal of sense in the judgment of Deputy Judge Muttrie, and he need not have been so diffident, because if the parties were not to go to trial to resolve a costs dispute in an application for leave to discontinue, then the normal rule should apply, namely a discontinuing plaintiff should pay costs unless it can be demonstrated, without the need to go to trial, that his case is so strong that he is bound to win had it gone on to trial and therefore he was justified in commencing the action in the first place.  I cannot see how a lesser standard such as he may be 70 per cent right would suffice, because at the end of the day to award costs to a party is to recompense him for the fact that he was justified in issuing the writ in the first place.” (emphasis added)

10.  Such principle was applied in Wong Chee Shui Rossana v The Incorporated Owners of Wah Hung House & other[2] by Judge KW Wong, who said in his judgment:

“13. O.62 r.10, Rules of High Court (“RHC”) provides that the defendant can tax or sign judgment on costs against the plaintiff in “discontinuance without leave” situation. Although there is no similar counterpart in the LTR, the tribunal cannot see any difference between tribunal proceedings and high court proceedings by nature and why the same principles cannot apply. The fact that R27(2) & (3) of LTR provide that the respondent has to apply for costs will not alter the applicable principles. The rules only set out a procedure for the parties to follow in pursuing a claim of costs.

14. In Anmol Kumar Sawlani v Yeshma Gobindram Sawlani, Recorder Shieh SC, was dealing with a dispute on costs on “discontinuance with leave” situation. After reviewing a number of pre and post-CJR cases, the learned Recorder came to a conclusion that if the parties were not to go to trial to resolve a costs dispute in an application for leave to discontinue, the normal rule should apply, namely, a discontinuing plaintiff should pay costs unless it can be demonstrated, without the need to go to trial, that his case is so strong that he is bound to win had it gone on to trial and therefore he was justified in commencing the action in the first place. This tribunal sees no distinction on the applicable principles to costs between discontinuance with leave and without leave situations. The rules enunciated in Anmol Kumar Sawlani should be applicable to proceedings discontinued in the tribunal.”

11.  However, Mr Li for the Applicant disagreed the principle as set out in Anmol’s case is applicable in the Lands Tribunal. He submitted that the Tribunal need not trouble itself in determining whether the Applicant had a winning case and cited Lai Kwok Wah Kenneth & others v Leung Kwok Hung Jonathan & others[3] decided by Judge M Wong, who said in his Decision:

“10. Having considered all the submissions made by the parties, I come to the views that there is no need for me to hear oral evidence in this case and there should be no order as to costs in relation to the Application and the Counterclaim. First of all, I do not accept that once a party discontinues an action, the other party is entitled to costs as of right. The Court or the Tribunal always has unfettered discretion in deciding the question of costs, even though the starting point is that the defendant is entitled to costs when an action is discontinued. The authorities cited in paragraph 21/5/11 of Hong Kong Civil Procedure 2010 have all shown that where the discontinuance of the proceedings is due to the matter having become academic, the court may depart from the general rule. As there is no dispute that the reason behind the discontinuance of the Application and the Counterclaim is that the issues involved had become academic because of the election of a new management committee, I am clearly entitled to depart from the general rule.”

12.  Mr Li also quoted the Decision on Costs of Deputy Judge A Kot (as she then was) in The Incorporated Owners of Pearl Gardens Hong Kong & others v Giles Wong and Shirley Mae Leimomi Wong[4], who ordered no order as to costs upon discontinuance of the 1st applicant therein and said:

“17. Parties had addressed this court on the merits of the IO’s case against the respondents. Whilst this is not the occasion for the merits of the case to be determined since the factual disputes has to be resolved after trial, the only observation to make is that in view of the number of complaints received by the IO and Synergis from a number of owners, it cannot be said that the IO does not have a case against the respondents.”

13.  To start with, it is also worth to refer to para. 15/16/2 of Hong Kong Civil Procedure Vol. 1 that the court will not generally decide academic or hypothetical questions and in exercising its discretion, the court will consider whether any useful purpose would be served by granting the declaratory reliefs.

14.  Hence, I am of the view that in general, if the court refuses to grant declaratory relief on the ground that the issues become academic and no useful purpose can be served, the court should not set down for hearing of oral evidence and allow the witnesses to be cross examined solely for determination of the question of costs. Unless there are very good reasons for doing so; otherwise it will be contrary to the objectives of Order 1A, rule 1 RHC.  In the recent authorities cited by the parties’ Counsel, no case was indeed set down for hearing of oral evidence.

15.  Besides, if the appropriate merit threshold which the applicant has to achieve is that his case is so strong that he is bound to win had it gone on to trial and therefore he was justified in commencing the action in the first place,  I think that it is almost unavoidable to set down for hearing of oral evidence so as to allow the witnesses to be cross examined especially when there are serious factual disputes; otherwise it is unfair to a party if the factual dispute is resolved by the court against him.  Thus, I doubt very much about the high standard of this threshold as suggested in Anmol’s case, at least its applicability in the Lands Tribunal.

16.  In any event, I consider that Anmol’s case can be distinguished easily as it is a High Court case but not a Lands Tribunal case, in which the Tribunal has the discretion to apply RHC pursuant to section 10 of the Lands Tribunal Ordinance.  Anmol’s case can also be distinguished in its own context or at least on its facts as the plaintiff therein was seeking leave to discontinue the action as well as asking costs against the defendant therein on solicitor’s and own client basis.  However, in the present case, it is the Rs who upon the Applicant’s filing of the Notice of Discontinuance, took out an application seeking costs against the Applicant pursuant to rule 27 LTR whereas the Applicant all along maintained “no order as to costs”.  

17.  Further in my view, the comments made by the learned Recorder in Anmol’s case are just obiter rather than ratio as the learned Recorder moved on to say in his Decision:

“16.  At the end of the day, the questions as to whether or not the plaintiff should pay the defendant’s costs on discontinuing, or the appropriate merit threshold that the plaintiff should be required to achieve in order to be able to reverse the normal starting point, have been rendered academic, because the defendant had, in his words, “generously” agreed by a letter dated 31 October to pay the plaintiff’s costs on discontinuance, but not on an indemnity basis and not agreeable to any part of the taxed off costs being borne by the estate.  But in the face of that, the plaintiff took out his summons for discontinuance seeking costs.”

18.  Eventually, the learned Recorder ordered the defendant to pay costs to the plaintiff on part and party basis rather than indemnity or solicitor’s and own client basis as sought by the plaintiff.

19.  As to Wong Chee Shui Rossana’s case decided by Judge KW Wong, I observed that the applicant therein was unrepresented and unfortunately, the respondents’ counsel had not cited Lai Kwok Wah Kenneth’s case and The Incorporated Owners of Pearl Gardens Hong Kong’s case, which are decided earlier by the other judges in the Lands Tribunal, to the learned judge for consideration. The learned judge did not have the benefit to read the contrary authorities before arriving his decision. Besides, I also disagree the applicability of Order 62 rule 10 RHC[5] in the Lands Tribunal as the respondent is not entitled to costs upon the applicant’s discontinuance as of right unless the respondent takes out an application under rule 27 LTR. Hence, this case is not followed.

20.  In my view, the correct approach on the question on costs after discontinuance by the applicant in the Lands Tribunal when the matter becomes academic is as follows:

i. The Lands Tribunal has very wide discretion as to the question of costs under rule 27 LTR including the discretion to apply any rule or rules of Order 62 RHC, if appropriate, pursuant to section 10 of the Lands Tribunal Ordinance;

ii. The Tribunal has to determine if the matter has become totally or just partly academic. In other words, the fact that there is/are still live issue(s) to be resolved will greatly affect the discretion to be exercised;

iii. The general rule that a respondent is entitled to costs when the proceedings are discontinued, is not an invariable rule, which may be departed from a case where the discontinuance is due to good reason(s), rather than to any acknowledgment by the applicant of likely defeat;

iv. The burden is on the applicant to show good reason(s) for displacing the general rule governing costs upon discontinuance;

v. It is not justified to have a full-blown hearing to hear oral evidence in order to determine the sole question of costs, which is contrary to the objectives of Order 1A, rule 1 RHC, unless in the exceptional circumstances;

vi. The overriding objective is to do justice between the parties without incurring unnecessary court time and consequential additional costs. The Tribunal may look at all other relevant factors including the merits of the parties in order to achieve this overriding objective;

vii. When the Tribunal is to consider the merits of the parties, the appropriate merit threshold is whether the party has an arguable case against the other unless the applicant is seeking costs against the respondent, the threshold is that the applicant has to show a strong case that is bound to win;

viii. At the end, the Tribunal shall make an appropriate costs order which may be no order as to costs or a party shall pay costs or a portion of costs to the other side.

Discussion

21.  First of all, both Mr Li for the Applicant and Ms Wong for the Rs had not made any submission as to which rule or rules of Order 62 RHC is/are applicable in the present application. So I will not consider exercising my discretion to apply any rule of RHC.

22.  Secondly, the Applicant claims the reason for discontinuance is that the declaratory reliefs sought had been rendered totally academic based on the fact that the new MC had been elected on 11 September 2016. I have to satisfy if it is the real reason for the Applicant to discontinue or not since in the written skeleton submission, Ms Wong for the Rs initially argued that if that is the real reason for discontinuance, the Applicant should have discontinued the case immediately after the election.

23.  According to the letter from the Rs’ solicitors dated 24 October 2016, the Applicant was requested by the Rs to withdraw the action with costs due to the appointment of a new MC on 11 September 2016. Thereafter, there were several correspondences between the parties’ solicitors. Eventually, the Applicant’s solicitors wrote to the Rs’ solicitors on 23 March 2017 that the Applicant proposed to discontinue with no order as to costs and the letter was marked “without prejudice save as to costs”. The Applicant’s solicitors also stressed in the said letter that the proposed discontinuance was not acknowledgment by the Applicant of any lack of merits but solely due to the matter having become academic and was to save costs and time. The Rs’ solicitors refused such proposal by letter dated 31 May 2017. Subsequently, the Applicant extended the time for acceptance of this proposal until 23 November 2017 by letter dated 14 October 2017. Judging from the said correspondences, I am of the view that the parties have already reached the consensus that the Applicant should discontinue these proceedings but the only outstanding issue is costs. Hence, I am satisfied that the real reason for the Applicant to discontinue is because of the election of a new MC on 11 September 2016. Indeed, at the hearing, Ms Wong for the Rs conceded that eventually.

24.  Based on the Applicant’s solicitors letter dated 23 March 2017, I also accept that the Applicant has never acknowledged lack of merit on its part or being likely defeated.

25.  I think that Ms Wong for the Rs was raising the issue of delay on the part of the Applicant to discontinue. The letter dated 23 March 2017 and marked “without prejudice save as to costs”, in which the Applicant’s solicitors proposed to discontinue the proceedings with no order as to costs, was sent to the Rs’ solicitors about 5 months after the Applicant was informed of the new election by the letter from the Rs’ solicitors dated 24 October 2016. I consider that given the complexity in the question of costs, it is not unreasonable for the Applicant to take 5 months to seek and consider the legal advice from its lawyer as to the legal position after the new election. I also consider that there is no substantial prejudice suffered by the Rs during these 5-month period. In the circumstances, I reject the argument of delay made by Ms Wong for the Rs.

26.  In my view, since a new MC was elected on 11 September 2016, there is no live issue to be resolved and the matter becomes totally academic. The declaratory reliefs sought serves no useful and meaningful purpose and there is no reason for the Tribunal to set down the case for trial to resolve the academic question.

27.  Regarding the merits of the parties’ case, Ms Wong for the Rs raised at least 5 grounds to show that the Applicant is not justified in commencing the present proceedings. In my view, there are many serious legal and factual disputes in this case. Some of the major disputes are the validity of the proxies submitted by Mr Chan for the 1^st EGM, whether the 2^nd EGM was the adjournment of the 1^st EGM or a fresh EGM and whether these proxies could be used by the Applicant in the 2^nd EGM, etc.

28.  Apart from the Notice of Application and Notice of Opposition, the Applicant had also filed its witness statement but the Rs had not. The parties further filed their respective affirmations in support of and opposing this application. I consider that it is inappropriate to resolve the substantive legal and factual issues between the parties based on the very limited documents filed by the parties. If I really have to deal with the grounds raised by Ms Wong for the Rs, I may have to direct the Rs to file their witness statements and set down for hearing of the oral evidence, which is not an effective way to resolve the costs issue and against the objective of CJR.

29.  After reading the documents filed by the parties, I consider that the Applicant has an arguable case which justifies the commencement of these proceedings against the Rs whereas the Rs also has an arguable defence. As the Applicant never seeks costs against the Rs, it is unnecessary for the Applicant to demonstrate a strong case that it is bound to win.

Conclusion

30.  I therefore come to conclude that the Applicant has shown good reason for displacing the general rule governing costs upon discontinuance. Further, I think that if the Rs could sensibly accept the proposal made by the Applicant in its solicitors’ letter dated 23 March 2017, the entire case can be resolved without further hearing or costs incurred. It is arguably that the Rs shall bear the costs incurred by the Applicant afterwards. But Mr Li for the Applicant confirmed at the hearing that the Applicant still maintained no order as to costs. Bearing in mind the overriding objective to do justice between the parties without incurring unnecessary court time and consequential additional costs and taking into account of all the relevant circumstances, I exercise my discretion that no order as to costs is appropriate. I now order that there be no order as to costs of these proceedings including all costs reserved.

Costs of this application

31.  Based on the principle that costs shall follow event, I make an order nisi that the Rs do pay costs of this interlocutory application dated 12 January 2018 including all costs reserved to the Applicant with certificate for Counsel, to be taxed on the District Court scale, if not agreed, which shall become absolute unless any of the parties apply to vary the same by way of summons within 14 days.