HUNG MAU DECORATION CO LTD v. KOWLOON TSAI HOME OWNERS ASSOCIATION

HCA 3609/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3609 OF 2001

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J U D G M E N T

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1. On 20 March 2003 I dismissed an action by the plaintiff and made an order nisi that it pay the defendant's costs. The defendant, by summons, sought an order, in chambers, varying the order nisi and seeking an order that costs be taxed on an indemnity basis, alternatively a common fund basis. That was opposed. I took the view that any such matter should be heard in open court, not chambers, despite the additional costs that such a course would impose upon the parties. I adjourned the summons to 10 April 2003.

2. It is common ground that the usual practice is for costs to be taxed on a party and party basis. It is common ground that a discretion to make an order for indemnity or common fund basis taxation vests in a court. The exercise of that discretion depends upon the facts of the case. In Munkenbeck & Marshall (a firm) v McAlpine (1995) 44 Con LR 30, Hollis J, observed:

"In my view it is a pity that various courts have attempted to define in exactly what circumstances indemnity costs may be ordered. It is a matter in each case of the judge exercising his discretion to order costs on an indemnity basis when appropriate to the facts before him."

3. That is an approach which has found favour in Hong Kong. In Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327, Stock J, (as he then was) said, at p. 1336A:

"Of course, there will in most litigation be evidence which a court rejects, and it far from rare that a court will find that evidence has been deliberately untruthful. Such a finding will not necessarily in itself warrant an order for costs upon either of the bases alternative to party and party taxation. But there will be cases - and it is true that they will be the exception and not the rule - where the conduct of a party in a case is of a more venal kind, where the conduct of the litigation has in some sense been wicked, and in such a situation the exceptional power can quite properly be applied."

and, as to what it is proper to take into account in deciding whether to exercise that discretion, this at p. 1338F:

"Then it is said that somehow the judge ought not to have taken into account events prior to the institution of the proceedings. I do not agree. In determining whether the conduct of proceedings or the motive behind that conduct is or is not of a particular colour, the court cannot put on blinkers and shut out earlier behaviour by a litigant which might well explain conduct within the litigation itself. In any event, in the course of normal litigation, whilst "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"(See Scherer v Counting Instruments Ltd [1966] 1 WLR 615 per Buckley LJ at 619)."

4. In this matter the plaintiff had sued for moneys which it said were due by the defendant consequent upon a contract entered into between them relating to certain building works. The background to the matter appears in some detail in my judgement but I shall attempt to summarize the salient features.

5. The plaintiff is in the business of construction, the defendant of operating a social club. It is the owner of certain property upon which are erected inter alia sporting facilities, a clubhouse and staff quarters. In 1980 the parties contracted for the plaintiff to perform certain construction works. In respect of that contract the defendant was represented by one David WU. Mr WU has long been involved, in various capacities, with the operation of the defendant. The 1980 work was done. Over the years thereafter the plaintiff performed varying amounts of work about the premises, primarily the clubhouse, for the defendant on an ongoing basis. The plaintiff dealt with Mr WU, as representative of the defendant, as well as with others, in respect of work to be performed during the period 1980 to 1996.

6. In 1996 Mr WU assumed the position of General Manager of the defendant. The defendant was in a poor financial condition. Mr WU agreed to be remunerated by way of the provision of free use of the staff accommodation. In October 1996 Mr WU contacted Mr CHAN of the plaintiff. They, and others, met to discuss quite extensive work that the defendant required to be done. After those discussions, so I found, Mr WU discussed with Mr CHAN a request that the plaintiff also carry out certain work to the staff quarters for the cost of which he would be personally liable. It was the plaintiff's case that Mr WU did not make it clear that he would be personally liable and that, in effect, it assumed he was acting on behalf of the defendant. That was the real issue in this matter.

7. The plaintiff carried out the required work. There were arrangements in terms of which the defendant was permitted to pay the amount due to the plaintiff, for the clubhouse works, by way of monthly instalments. Mr CHAN testified that not only were all of those amounts paid by the defendant (the cost of the works eventually came to a shade under $6,000,000.00) but so had all amounts due over the preceding 16 years of business: indeed, some payments had even been made in advance of expected dates of payment. There was, it seems, no specific arrangement with Mr WU regarding payment for the work to the staff quarters, the plaintiff assuming that payment would be made after completion of payment for the clubhouse works. No sensible reason was advanced for this assumption.

8. In due course, when payment for the staff quarters work was not forthcoming, the plaintiff's solicitors sent a letter of demand to the defendant. The then solicitors for the Defendant responded on 13 April 2001 setting out, in what I described as "stark terms", the Defendant's defence: not a simple denial but a proper disclosure of the person it said was liable to make payment.

9. Notwithstanding this, action was instituted by the plaintiff without making any other enquiries or approach whatsoever - that despite its long-term relationship with the defendant. It choose - according to Mr CHAN, on advice - to proceed solely against the defendant, entirely ignoring Mr WU.

10. In due course, the defendant filed its defence in which it set out, in terms, the defence it had earlier foreshadowed. No attempt was made by the plaintiff, in these circumstances, to join Mr WU in the proceedings or to amend its action to include a claim of enrichment. The defendant filed witness statements which, yet again, spelt out without any ambiguity the fact that it was Mr WU in his personal capacity who had contracted with the plaintiff.

11. I take the view that given

* the long-standing relationship between the parties;

* the harmonious dealings they had shared during that period;

* that the defendant had always promptly paid amounts due;

* that it had discharged, in terms of its arrangement, the full amount due on this occasion in respect of the clubhouse work;

* that the defendant had not simply sat back and denied liability but had set out, with blinding clarity, the true facts;

* that Mr WU was (and is) still in its employ;

* that he was well known to the plaintiff;

* that to the knowledge of the plaintiff, the defendant's financial situation was unhealthy

the fact that the plaintiff simply launched into litigation against the defendant without making even the most cursory enquiries as to whether Mr WU admitted liability, demonstrates that the plaintiff was intent upon pursuing the defendant, which it knew to have an asset in the form of the property, in the face of reality.

12. There were two striking features in Mr CHAN's evidence which are of particular relevance to the plaintiff's conduct in these proceedings. Firstly, he accepted during his evidence that Mr WU had not, at any stage, told him that the defendant would be liable for the work to the clubhouse: he had merely thought that Mr WU was acting on behalf of the defendant. Secondly, he acknowledged that he had received a personal cheque from Mr WU as a deposit but says that he had "assumed" this was paid on behalf of the defendant - this being the only occasion, ever, upon which Mr WU had given him a personal cheque. These factors, of course, were known to the plaintiff even prior to the letter of demand being sent to the defendant.

13. It is noteworthy that when Mr WU gave evidence he admitted being liable for payment to the plaintiff, explaining that he had not come forward with payment due to a dispute over quantum.

14. It is worth noting, too, that I was satisfied, as appears from my judgement, that Mr CHAN was not an impressive witness. This is not a matter in which it was simply a question of preferring one witness' evidence over that of another: the evidence he gave I found necessary to describe variously as "...contrived and strained...", "...literally, incredible", ".. the remarkable claim..." and "That seems so improbable in the context of this matter as not to be believable.".

15. What, of course I was unaware of is that the defendant paid an amount into court at the same time as it filed its defence. Mr Jeremy Cheung who appears now, I hasten to add not previously, for the plaintiff suggests that this fact may have lulled the plaintiff into a view that the action was well-founded and that the defence, made so clear from prior to the commencement of litigation, was simply a try on. That seems to me to ignore two matters - firstly, the action had already been instituted in the circumstances in which I have described: secondly, even when faced with the payment in the plaintiff still made no effort to contact the defendant or Mr WU but relentlessly ground on. Not even the filing of witness statements seems to have made any impression on it.

16. Payments into court are made for many reasons. It does not seem to me that the payment in in this matter in any way vindicates the plaintiff's conduct: on the contrary, its non-reaction thereto highlights, in the context of this matter, its cavalier attitude towards the litigation.

17. This is an action which was devoid of merit: it was doomed to failure from the outset and did fail on precisely the basis that the defendant had drawn to the plaintiff's attention well in advance of its commencement. It is an action which should never have been instituted. It has a distinct air of having been instituted so as to harass the defendant.

18. I would repeat one thing that I said in my judgement: a feature of this case has been the refusal by the plaintiff, or its advisors, to address the real issue, even so late as in the closing speech.

19. I can see no good reason why the defendant, having acted responsibly throughout, should be required to bear the loss which would result from a reduced payment of party and party costs. An order for indemnity costs will better, but not fully, compensate the defendant and will properly mark the disapproval with which the manner in which this litigation was conducted should attract.

20. Counsel are agreed that, whatever the outcome, costs of these proceedings should follow the event and upon the same basis.

21. I regard this as an appropriate matter in which to exercise my discretion in favour of the defendant. The plaintiff is to pay the costs of the action, together with the costs of these proceedings, all such costs to be taxed on an indemnity basis.