MAN FONG HANG v. MAN PING NAM AND OTHERS

HCA 7935/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7935 OF 1998

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J U D G M E N T

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1. This is an appeal against an order made by a master on 4 June 2002 in which he gave leave to the Plaintiff to file a supplemental expert report, and leave to the Defendants to file no more than two supplemental expert reports in reply, and ordered that "the costs of and incidental to the Plaintiff's application be costs in the cause with certificate for counsel". The appeal relates only to the order as to costs.

2. In this action, the Plaintiff, in his capacity as the surviving administrator of the estate of a deceased member of a Wui in the New Territories, sues the managers of the Wui for having sold a piece of land belonging to the Wui allegedly at an undervalue. It is alleged that the land was sold in August 1997 for HK$336 million by the managers, yet the same piece of land was resold by way of a confirmor sale in December, the same year, for over HK$446 million, i.e. $110 million more than the price fetched by the Defendant-managers.

3. The Defendants deny all allegations of wrongdoing and deny that the land was sold at an undervalue.

4. Given the nature of the claim, expert valuation evidence is naturally very important to both sides.

5. Pursuant to an earlier court direction, the parties filed and exchanged their expert reports on 18 January 2000.

6. On 22 December 2001, the Defendants' solicitors wrote to those representing the Plaintiff, making a number of serious allegations against the Plaintiff's expert valuer and his report and against the Plaintiff's case generally. All this was denied by the Plaintiff's solicitors, who also took the opportunity to inform the Defendants' side of the Plaintiff's intention to file a supplemental expert valuation report to comment on the valuation reports of the Defendants' experts. This suggestion did not attract the Defendants' solicitors at all.

7. Eventually, the Plaintiff took out a summons dated 30 January 2002 asking for, amongst other things, an order that the parties do exchange and file a supplemental expert report within 21 days. A supporting affidavit was filed in which the Plaintiff explained generally the need to file a supplemental expert report to comment on the Defendants' expert reports as well as to answer the serious allegations made against the Plaintiff's case and his expert in the Defendants' solicitors' letter. But no supplemental expert report or draft supplemental expert report was exhibited to the supporting affidavit or was otherwise supplied to the Defendants' side.

8. The application was strenuously opposed by the Defendants who through their solicitors wrote on 31 January 2002 that they would resist the summons "to the fullest extent of the law" and that senior counsel would be instructed to resist the application.

9. Furthermore, an affidavit was filed on behalf of the Defendants to oppose the application. Amongst other things, the affidavit pointed out that the Plaintiff had not disclosed any supplemental expert report or draft expert report and had not shown any real ground for asking for leave to file such a report.

10. On 21 March 2002, a second supporting affidavit was filed on behalf of the Plaintiff exhibiting a draft supplemental expert report. The draft report comprised three parts. The first two parts contained observations and comments on the Defendants' expert reports. The third part of the report comprised a reply to the various criticisms levelled at the Plaintiff's expert report by the Defendants' solicitors in their letter.

11. The application was eventually heard by the learned Master on 4 June 2002. Shortly before the hearing, the Defendants' counsel indicated in his skeleton argument that the Defendants had no objection to the Plaintiff getting leave to file his supplemental expert report; but that was a matter for the Court to decide; and in the event that the Plaintiff was successful in persuading the Court to grant leave, the Defendants would ask for leave to file supplemental expert reports in reply. Submissions were therefore heard by the Master on that basis.

12. After hearing the submissions, the Master gave leave to the Plaintiff to file his supplemental expert report. He gave brief reasons as follows:

"This is an adjourned hearing of the plaintiff's application to adduce a draft supplemental valuation report on essentially two matters. First, they were made to comment on the comparables presented in two valuation reports of the defendant, dated respectively 6 November 99 and 28 December 99. Second, they were made to answer criticisms from the defendant's solicitors dated 22 December 2001, contending that there were absurd allegations made by the plaintiff's valuation expert, Mr Lau Chun-kong.

I've been taken through the contents of the draft supplemental report and the defendant's solicitor's letter dated 22 December 2001. I am satisfied that the plaintiff should be given a fair opportunity to respond to those matters. I'm aware that there has been some delay in adducing comment on the comparables, but in the interests of justice and for good case management, I believe those comments from the plaintiff should form part of the evidence at trial and therefore I will allow the following order.

That the plaintiff do have leave to file a supplemental expert report, exhibited as AP23 of the ninth affidavit of Anthony Pun dated 21 March 2002. I'm also minded to give leave to the defendant to file a report in answer..."

13. Then the Master proceeded to hear counsel on the question of costs. Both counsel respectively asked for the costs of the application in their clients' favour. Without detailing all the submissions that were made before the Master, the main point of Mr Fung, SC who appeared for the Plaintiff before the Master as well as before this Court, was that costs should follow the event, and as the Plaintiff was successful with his application for leave, he should get the costs of the whole application. On the other hand, Mr Pun, also appearing for the Defendants at the Court below as well as in this appeal, mainly argued that the Plaintiff had delayed for 2 years after the first exchange of expert reports in January 2000 to make the present application. This would have the effect of increasing the costs of the Defendants' experts in preparing their supplemental expert reports in reply; moreover, as a matter of case management, the delay itself provided a ground for resisting the application and in any event for asking the Court in the exercise of its discretion to deprive the Plaintiff wholly or partly of his costs of the application. Mr Pun also argued that since the Plaintiff was asking for leave from the Court, he had to come to Court in any event. Another point, amongst others, taken by Mr Pun was that the application asked for an exchange of expert reports whereas the Defendants' position was that there should be a sequential disclosure of expert reports.

14. After hearing submissions, the Master ordered that the costs of the application be in the cause. He said as follows:

"I think after hearing parties, I don't think a more justified order can be made other than costs in the cause. I shall not say anything more apart from that is the exercise of my discretion. Obviously, both sides have a number of points, but if the case is managed properly, if the judiciary is required to manage this sort of case properly, then of course there are a number of things that could have been said, but I'm only dealing with the application as stated in paragraph 4 of the plaintiff's [Summons] and of course the evolution of the chronological events requires a slightly different order.

I don't think I can accept the point that you must [need] the attendance in court just because you need leave from the court to file an expert report under rule 36 of order 38. It may well be that in some cases the court is not happy, then they will require attendance, but on this particular case I'm not satisfied in fact court attendance is really necessary if, indeed the defendant is not opposing to the filing of the supplemental expert report by the plaintiff, and the only thing it wants is to file a supplemental report in response.

The point taken that the order has been asked for, has not been given, is perhaps a rather insignificant point given the evolution of the events in these proceedings. So, I will make the following order. That the costs of the plaintiff's application be in the cause with a certificate for counsel. Anything else? To clarify, perhaps I say costs of the plaintiff's application, I should add costs of and incidental to."

15. The Plaintiff is not satisfied with the cost order. He appeals to this Court asking me to substitute the cost order by an order that the costs of and incidental to the Plaintiff's application be to the Plaintiff (together with a certificate for counsel which is not in dispute).

16. The circumstances under which a judge sitting in chambers on appeal may disturb an order as to costs made by a master are limited. He or she may only do so if the master's order was unreasonable; if the order made erred in law; if the master failed to take into account proper matters; or if he or she took into account matters that should not have been taken into account. See Hoddle v CCF Construction Limited [1992] 2 All ER 550; Lessy SARL v Pacific Star Development Ltd [1996] 2 HKC 326; China Venturetechno International Company Limited v New Century Chain Development Company Limited Civil Appeal No. 20 of 1996 (3 July 1996); Hon Kwok Lun Wilson v Shin Pok Lai Alvin HCA 10334/1998 Suffiad J (8 March 1999); Honnin Development Ltd v Ho Ming HCA 16376/1999 Poon DJ (14 December 2000); Hong Kong Civil Procedure 2002 (Vol 1) para 62/2/11.

17. In my judgment, the Court is entitled to exercise afresh the discretion on costs in the present case. First, in this type of contested applications, there are two sets of costs to be considered, i.e. the costs of and occasioned by the application for leave itself (including, for all practical purposes, the costs of the three-minute call-over hearing), and the costs of the (substantive) hearing before the master. The same distinction has been drawn by Yam J in Lessy SARL (supra) concerning an application for leave to amend. In that case, the learned Judge said (at p. 327B - G) as follows:

"It is accepted by both sides that in the usual order in an application to amend, when the application was resisted, there should be two sets of costs, namely:

(a)	costs of and occasioned by the amendment shall be to the other side, and in this case the plaintiffs, in any event; but
(b)	costs of the hearing before the tribunal shall be to the party who is successful in the argument, and in this case the defendants, who were successful in obtaining leave to amend.

...

The rationale behind in differentiating these two sets of costs is not to encourage the other side who has decided to resist an application to amend to have a try-on. Otherwise the resisting party would be under an impression that, win or lose, they will get their costs anyway. The resisting party should be deterred to adopt such an attitude. In deciding to resist the amendment, they should know that in the event they have lost the argument, they would be ordered to pay the cost of the argument and that is the costs of the hearing whilst the first set of costs (ie the costs of and occasioned by the amendment), would be to them in any event."

18. Although Lessy SARL was concerned with a different type of applications, it seems to me that as a matter of principle, the same rationale must apply. Moreover, both types of applications involve a party seeking the court's indulgence to take a certain step. Of course, in the case of an application to amend pleading, the first set of costs, namely, the costs of and occasioned by the amendment should, as a matter of usual order, be given to the other side in any event, in the absence of exceptional circumstances, as pointed out in Lessy SARL. This is due to nothing more than the very nature of the application itself.

19. In the case of an application for leave to adduce further expert evidence, the position may not be that straightforward, and the nature of the application is slightly different. As very general guidance, I would say that if the application for leave to adduce further or supplemental expert evidence was occasioned by the applying party's omission to include something that ought to have been included in his earlier expert report, then the costs of and occasioned by the application (i.e. the first set of costs) should normally be paid by him to his opposite party in any event. The position is no different from an application to amend pleading.

20. On the other hand, if the application for leave to adduce further or supplemental expert evidence was occasioned by some other reasons, like the need to comment on one's opponent's expert report or to deal with matters arising after the earlier report was disclosed, then there could be good justification for ordering that the costs of and occasioned by the application be costs in the cause. This is because in this latter situation, the application is more in the nature of a direction application, i.e. an application for a direction to facilitate the further prosecution of the claim or conduct of the defence, and/or the proper conduct of the eventual trial. There is not much "right" or "wrong" in the application itself, and the underlying "merits" of the application are really determined by the general merits of a party's case. Therefore, it would be generally fair in those circumstances to order the costs to be in the cause.

21. In short, so far as the costs of and occasioned by an application for leave to adduce further or supplemental expert evidence is concerned, one must look at the reasons prompting the application in the first place and then decide on the most appropriate order as to costs. Of course in this process, if there are other matters that are relevant, the court can and should take them into account. So for instance, if, borrowing the facts in the present case, the supplemental report sought to be filed was prepared to comment on the opposite party's expert report, yet the application was taken out very late so that it would likely increase the costs of the opposite party's expert in preparing a report in reply to the supplemental expert report because the opposite party's expert had to read the relevant papers all over again, then that could constitute a relevant factor to be taken into account in the exercise of the court's discretion, in relation to the proper order regarding the costs of and occasioned by the application for leave to file the supplemental report. Likewise, for example, the pre-summons conduct or correspondence of the parties or their solicitors may be taken into account, to see if the matter could have been dealt with by consent without needing to take out a summons at all, or, at the other end, if the applying party's conduct itself unnecessarily attracted resistance to his application.

22. As I say, all this is merely intended to be no more than general and non-exhaustive guidance regarding the first set of costs.

23. However, as regards the second set of costs, i.e. the costs of the substantive hearing, assuming as I do that the application is resisted, the similarities between an application to amend and an application for leave to adduce further or supplemental expert evidence are marked. In my judgment, the same rationale applies. A party on the receiving end of such an application must decide before the hearing whether to resist the application. Any attempt to have a "try on" must be discouraged. For as Yam J observed in Lessy SARL, otherwise a resisting party would be under an impression that win or lose he would get the costs anyway. The resisting party should be deterred from adopting such an attitude, which not only escalates costs unnecessarily but also consumes valuable court time and resources. In deciding to resist the application, a party must fully consider the risk of his losing the argument and being ordered to pay the costs of the argument, regardless of the incidence of the first set of costs (i.e. the costs of and occasioned by the application for leave to adduce further or supplemental expert evidence).

24. However, as demonstrated by the facts in Lessry SARL itself, if there was a reasonable ground for resisting the application, then even if the application was eventually successful, the court could still award the second set of costs, i.e. the costs of the hearing, to the resisting party although he was unsuccessful in opposing the application. Needless to say, even in relation to this second set of costs, there is nothing to stop the court from taking into account and indeed the court should take into account any and all other relevant factors in the exercise of its discretion.

25. In my judgment, the learned Master in the present case apparently failed to realise that there were involved or, in any event, differentiate, the two sets of costs (see below). He should not, however, be blamed because that was not the way arguments were presented before him and indeed both counsel asked for the whole costs of the application (including the hearing itself) to be in favour of their respective clients. Lessy SARL was not cited to him.

26. Be that as it may, since the learned Master did not consider the two sets of costs separately, this Court is entitled to exercise the discretion afresh in relation to the two sets of costs.

27. In my judgment, it is impossible to rescue the situation by arguing that the Master must have taken a global view of the matter in reaching his decision on costs. I accept that it was indeed open to the Master to take a global view of the matter eventually, but I would emphasize the word "eventually". As I tried to analyse above, as a matter of principle, two sets of costs were involved. Before one could adopt a global approach, one should, in my judgment, first consider the two sets of costs separately and come to a certain preliminary view in relation to the two sets of costs respectively; after that had been done, one could then proceed to consider the situation globally and see whether an overall view of the matter could be taken, and if "yes", what should be the most appropriate order as to costs. Some sort of a mental balancing exercise or setting-off exercise would have to be preformed and the respective estimated quanta of the two sets of costs would have to be borne in mind before one could attempt such a global approach; and if the whole exercise should prove too difficult to perform, then perhaps the only conclusion one could draw would be that it was impossible or impracticable to make a global order as to costs. In that case, one should make separate orders as to costs in respect of the two sets of costs respectively. That was clearly not done here. Indeed the Master never said he was adopting such a global approach (in the above sense) at all.

28. In any event, the second reason why I conclude that the discretion should be exercised afresh, which is quite independent from the differentiation of costs into two sets, is this. The Master gave three reasons for his decision, namely, the chronology of events (i.e. "the evolution of the chronological events") which apparently required "a slightly different order", the rejection of the Defendants' argument that there was a need to attend court for the Plaintiff to obtain leave, and finally his rejection of the Defendants' further argument that there should not be a mutual exchange of expert reports but rather a sequential disclosure of reports.

29. The second and third reasons are clearly in favour of the Plaintiff and cannot be utilised against the Plaintiff for any adverse order as to costs or "a slightly different order" from the usual one (whatever it might be). The first reason is ambiguous. At the hearing, both counsel informed me that according to what they guessed, the Master was trying to say that as a starting point, costs should follow the event and therefore the Plaintiff should get the costs of the application, but the "evolution of the chronological events" i.e. the delay of the Plaintiff in making the application "required a slightly different order", namely, an order less favourable to the Plaintiff. (Incidentally, this demonstrates my first point that the Master did not realize that there were two sets of costs involved here and therefore there were two starting points instead of one.)

30. In deciding to give leave to adduce the supplemental expert report, the Master recognised that there were two reasons for applying for leave, namely, to answer the serious allegations made against the Plaintiff's expert in the Defendants' solicitors' letter, and to comment on the Defendants' expert reports. The delay point could only be applicable to the second reason for applying for leave but not the first. Moreover in terms of prejudice, the consequence of delay was the possibility that the Defendants' experts might charge a higher fee for compiling their reports, if any, in reply to the Plaintiff's supplemental expert report, because they might need to read the papers all over again after the lapse of more than 2 years. Mr Pun said at the hearing that this is a "commonsense" point and needs no factual evidence to back it up. I accept this argument but in the absence of factual evidence, one could only make a very rough estimate of how much extra expert fees would likely be caused by the delay in making the application.

31. Assuming counsel were correct with their understanding of the Master's first reason, the Master's starting point was that the Plaintiff should get the costs of the application; but because of the delay, he was given a less favourable order. It was less favourable in that if he should eventually lose the action, he would not only be unable to recover his own costs of the application, he would have to pay the Defendants their costs of the application. The order may be analysed thus: If the Plaintiff should lose the action, he would, in the normal course of events, have to pay the Defendants their costs of the action, and that would have included the costs of their expert reports in reply comprising, amongst others, any extra fees that would have been charged by the experts in having to read the papers all over again because of the 2-year delay (i.e. the Defendants' main subject of complaint before the Master). In other words, the Defendants would have been fully "compensated" for whatever extra expert fees that would have been occasioned by the Plaintiff's delay in making the present application. That being the case, from a "compensatory" point of view, there would be no justification whatsoever left for depriving the Plaintiff of his costs of the present application, and still less, for making him liable to pay the Defendants their costs of resisting the present application, in the event of the Plaintiff eventually losing the action, which is the effect of the Master's "slightly different order".

32. From a "punishment" or "case management" point of view, bearing in mind the likely costs of counsel and solicitors in attending before the Master at the hearing below, to make an order which would have the effect of depriving the Plaintiff of the taxed costs of the whole application including the costs of counsel and solicitors in attending the hearing before the Master, as well as obliging the Plaintiff to pay the Defendants their taxed costs of the whole application (including the costs of their counsel and solicitors at the substantive hearing), in the event of the Plaintiff being unsuccessful at the trial, in order to mark the Court's disapproval of the Plaintiff's delay in making the application or stamp the Court's authority regarding proper case management on the present litigation would, it seems to me, be quite disproportionate to the delay in question and its likely prejudice to the proper progression of the action to trial. Further, if the Plaintiff's delay was a relevant and sufficient justification for the "punishment" on the Plaintiff for the sake of good case management, then likewise one should take into account the unreasonable resistance put up by the Defendants to the application after they had had sight of the supplemental expert report of the Plaintiff, also for the sake of good case management.

33. So for this reason as well, I am of the view that the learned Master fell into error, the three reasons he gave could not justify the order he made, and the cost order made was unreasonable. In those circumstances, this Court is entitled to exercise the discretion afresh.

34. As regards the first set of costs, based on the two reasons identified by the learned Master in giving leave to file the supplemental expert report, against which there is no appeal, I am of the view that prima facie the application was occasioned by the course of litigation itself rather than any omission on the part of the Plaintiff in relation to his first expert report. In those circumstances, the costs of and occasioned by the application should be in the cause. But there is one relevant matter which I should specifically consider, namely, the delay, and in particular, the likely monetary prejudice that may be caused to the Defendants by reason of the delay of over 2 years.

35. Mr Fung argued that after the writ was first issued, the proceedings had a chequered history and the parties' attention was focused elsewhere in the past.

36. I will not repeat the history of the action or proceedings thus far here. Nor will I repeat the importance of expert valuation evidence in the present case. I should say that I have borne all this, as well as the pre-summons correspondence and the fact that the draft report did not surface until 21 March 2002, in mind. In the exercise of my discretion, I order that the costs of and occasioned by the application for leave (including the costs of the call-over hearing) be the Defendants' costs in the cause, to be taxed if not agreed. This is meant to be a sort of a half-way house between costs in the cause and costs to the Defendants in any event.

37. Turning to the second set of costs, namely, the costs of the substantive hearing itself, the chronology shows that the draft supplemental expert report was disclosed on 21 March 2002 and the hearing before the learned Master did not take place until 4 June 2002. In my judgment, there was more than ample time available to the Defendants to make up their mind as to whether they should resist the application for leave to file that supplemental expert report, and if the answer was in the negative, what consequential direction they would like to obtain from the Court, such as the exchange of supplemental expert reports (as suggested by the Plaintiff) or the filing of supplemental expert reports in reply (as the Defendants eventually opted for). I agree entirely with the Master that there was absolutely no need for the Defendants to attend the Master in order to see whether the Plaintiff could successfully persuade the Master to grant him leave.

38. Likewise, there was ample justification for the Plaintiff's expert to seek to reply to the serious allegations made by the Defendants' solicitors against him in his supplemental report, and the Defendants would not be justified to resist the application on that ground (which was, as a matter of fact, not relied on by Mr Pun at the hearing before the Master). I also agree totally with the Master when he said that the difference between a mutual exchange of expert reports and a sequential disclosure of expert reports was insignificant. I certainly do not think that this difference justified the Defendants' resisting the application at the hearing. A telephone call or a short letter from the Defendants' solicitors to the Plaintiff's solicitors setting out the Defendants' solicitors' preference for a sequential disclosure of expert reports would, in my judgment, be more than sufficient to cater for the Defendants' concern. It did not provide any justification for resisting the application at the adjourned hearing on 4 June 2002.

39. Mr Pun argued at the hearing of this appeal that the delay justified the Defendants' resisting the application before the Master. I must say I am puzzled by this submission. As I said, shortly before the hearing before the Master, Mr Pun put in a skeleton argument in which he indicated that his side did not oppose the application for leave and left it entirely in the hands of the Court. The delay point was not put forward as a ground for resisting the application. It was only relied on as a ground for asking for costs after the application was granted. Furthermore and more importantly, in my judgment, the delay, even if it had been relied on, was not a good reason for resisting the application. As the Master rightly observed during the course of submission, it was really a "cost point".

40. For all these reasons, I can find no sustainable reasons for the Defendants' continued resistance to the application for leave after the disclosure of the draft supplemental expert report. In other words, the Defendants had unreasonably resisted the application until the very last moment before the same was heard by the Master. The costs of the substantive hearing should follow the event and be awarded to the Plaintiff. So I make a further order that the costs of the hearing before the Master on 4 June 2002 be paid by the Defendants to the Plaintiff to be taxed if not agreed. I have deliberately omitted the words "in any event" because I do not see any reason why recovery of those costs should be delayed, particularly when, given the chequered history of the proceedings, I am not sure when the matter will come on for trial. As I said, there is no dispute relating to the grant of a certificate for counsel. I therefore order that there be a certificate for counsel in respect of the hearing before the Master.

41. As regards the costs of this appeal, costs should follow the event. I make an order that the Defendants pay to the Plaintiff his costs of this appeal to be taxed if not agreed; again the costs should be paid forthwith for the same reasons.

42. Lastly, I would like to thank counsel for their helpful assistance.