COMMON LUCK INVESTMENT LTD. v. DIRECTOR OF LEGAL AID

HCMP2659/00

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2659 OF 2000

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J U D G M E N T

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1. The applicant, Common Luck Investment Ltd ("Common Luck") is a successful appellant in the Court of Final Appeal against a legally aided respondent, Mr Cheung Siu Ming ("Mr Cheung") and later his personal representative. The application is against the Director of Legal Aid ("the Director") for declarations relating to the liability of the Director to pay the legally aided respondent's costs. It involves the interpretation of section 16C of the Legal Aid Ordinance, Cap.91.

Background

2. Mr Cheung became the registered owner of a plot of agricultural land in 1962. By a mortgage dated 19 May 1964 ("the 1964 mortgage"), Mr Cheung mortgaged the land to the Canton Trust and Commercial Bank Ltd. That bank went into liquidation. On 8 July 1977, the bank, acting by the Official Receiver as liquidator, in its capacity as mortgagee sold the land to Common Luck.

3. Common Luck did not take any action to obtain possession of the land. Mr Cheung continued to occupy it until his death.

4. In 1991, Government took action to resume the land and offered to pay compensation of $517,498.80. Common Luck accepted the offer. Mr Cheung then came into the picture, claiming that he had never executed the 1964 mortgage. He claimed that the signature on the Memorial which purported to be his was in fact not his and had been forged. He claimed the compensation.

5. The District Lands Officer notified Common Luck that since there were rival claims for compensation and an allegation of fraud, he was not satisfied with Common Luck's title and that the processing of the claims for compensation would have to await the resolution of these issues. After lengthy exchanges of correspondence he notified Common Luck that the Attorney General's Chambers had been instructed to institute interpleader proceedings. In fact, this was not done and, on 5 May 1994, Common Luck began proceedings by Notice of Motion against the Attorney General for judicial review of the Government's decision not to pay Common Luck the compensation.

6. Mr Cheung intervened in the proceedings. On 13 December 1994, Mayo J ordered that the proceedings continue as if begun by Writ, with Common Luck as plaintiff and Mr Cheung as defendant, though their roles were to be reversed if Mr Cheung did not within seven days produce the original assignment in his own favour. The Attorney General came out of the proceedings. As between Common Luck and Mr Cheung there was an order for costs in the cause.

7. Common Luck claimed for a declaration that it was the registered and beneficial owner and/or had good title to the land, a declaration that it was entitled to the compensation on resumption, and other reliefs. Mr Cheung counterclaimed for declarations that he was the true owner of the land and that he was entitled to the compensation.

8. Mr Cheung relied on two grounds. The first was that the mortgage was not valid because he did not execute it and did not borrow the money it purported to secure. The second was that if the mortgage was valid, he had been in adverse possession of the land for 20 years from the date on which the debt became due, therefore Common Luck's right to recover was extinguished by virtue of the Limitation Ordinance and that he had acquired a good possessory title.

9. The judge at first instance found that Mr Cheung did in fact execute the 1964 mortgage; the bank validly exercised its power of sale as mortgagee; and Common Luck obtained a good title to the land. However, he held that Mr Cheung had been in adverse possession of the land for the statutory period; Common Luck's title expired by operation of section 17 of the Limitation Ordinance; Mr Cheung had acquired a possessory title with effect and was entitled to be paid the compensation. The judge ordered Common Luck to pay the costs of the proceedings to Mr Cheung. In effect Mr Cheung succeeded on his counterclaim at first instance.

10. Common Luck appealed to the Court of Appeal which dismissed the appeal and upheld the decision at first instance on the issue of adverse possession but did not specifically deal with the finding of fact that Mr Cheung had executed the 1964 mortgage. The Court of Appeal, in other words, upheld the decision on the counterclaim though only on the limitation point.

11. Common Luck appealed to the Court of Final Appeal. Mr Cheung died and the Court ordered that his son Mr Cheung Kam Chuen carry on the proceedings. The Court of Final Appeal reversed the decision of the lower courts on adverse possession and gave judgment in favour of Common Luck. At the same time, the court specifically upheld the finding of fact that Mr Cheung had executed the 1964 mortgage. The effect was to dismiss Mr Cheung's counterclaim.

12. The Court of Final Appeal ordered costs in favour of Common Luck against Mr Cheung with costs "here and below". Throughout all the proceedings, Mr Cheung and later his personal representative were in receipt of legal aid. Common Luck sought to recover the costs from the Director, who denied liability for any costs except the costs of the counterclaim at first instance, on the basis that these are the only costs payable by the Director under section 16C(1)(b)(ia) of the Legal Aid Ordinance, Cap.91.

Common Luck's Claim

13. Common Luck, as applicant in these proceedings, now claims declarations :

1. that Mr Cheung, being the plaintiff in the counterclaim, having obtained judgment on it and being the respondent in the Court of Appeal and the Court of Final Appeal, is liable to pay the costs of Common Luck in respect of the counterclaim and the appeals therefrom;

2. that Common Luck's costs in respect of the counterclaim include the costs of the originating proceedings by way of judicial review ; and

3. that pursuant to section 16C(1)(b)(ia) and (ib) of the Legal Aid Ordinance, Cap.91, the costs of Common Luck in respect of the counterclaim and the appeals be paid by the Director on behalf of Mr Cheung or his estate.

Common Luck's Case

14. Common Luck argues that :

1. Mr Cheung was the "natural plaintiff" in the proceedings, in that :

a) the litigation between the parties only came about by his intervention and that he was the party prosecuting the claims of forgery and/or fraud or alternatively adverse possession against Common Luck's title as bona fide purchaser from the mortgagee;

b) it was however natural for Mayo J to order that Common Luck continue as plaintiff, because this was what was envisaged by Order 53, rule 9(5) of the Rules of the High Court, under which the order was made, and this would avoid the need for Mr Cheung as applicant in the original judicial review proceedings to bring fresh proceedings;

c) the entire judicial review proceedings were one and the same with the action on the counterclaim and, therefore, the costs thereof should be included as part of such costs. Alternatively, the proceedings may be regarded as in the nature of an interpleader where each party sought a declaration that he was the true owner.

2. On Common Luck's appeal to the Court of Appeal, Mr Cheung had filed a Respondent's Notice under Order 59, rule 6(1)(b) of the Rules of the High Court seeking to affirm the judgment on additional and/or alternative grounds. There were eight grounds of appeal, of which seven were directed to the judge's Findings of Facts that Mr Cheung had executed the 1964 mortgage which Common Luck contended was wrong. Common Luck took the same stance before the Court of Final Appeal and, in the written Case for the Respondent, specifically relied on the grounds set out in the Respondent's Notice.

3. Mr Cheung was in exactly the same position as if he had cross-appealed in both courts; and Common Luck was effectively the respondent to a cross-petition for the purposes of section 16C(1)(b)(ia) and should be able to recover his costs from the Director.

15. Common Luck says further that it would be grossly unjust and inequitable for it to be left to bear the costs.

The Director's Case

16. The Director says that :

1. to hold the Director liable for costs the statutory criteria must be met. Legal aid expenses are from public money and clear express terms are necessary to found the liability. There is no room for implication. Injustice is no ground for making the order.

2. In these proceedings, the court decided who was to be plaintiff and who was to be defendant. The position of a plaintiff or a defendant is not merely a label of convenience but carries a substantive procedural difference. The same applies to the position of appellant and respondent.

3. Here, Common Luck is the plaintiff and the appellant in the appeals, Mr Cheung the defendant and the respondent in the appeals.

4. Mr Cheung did not cross-appeal under Order 59, rule 6(1)(c) nor did he seek to vary the judgment of the court below under rule 6(1)(a).

5. The only costs, therefore, that meet the criteria set out in section 16C of the Ordinance are the costs of the counterclaim at first instance.

The Ordinance

17. Section 19 of the Ordinance provides:

"(2) A court or the Court of Final Appeal may make an order for costs in favour of or against an aided person in the same manner and to the same extent as it may make an order for costs in favour of or against any other person but such an order may only be enforced against the aided person and the Director to the extent permitted by section 16C."

Section 16C provides:

"(1) Subject to section 18A, the liability of an aided person and of the Director for costs shall be determined in the following manner-

(a) an aided person shall not be liable for costs incurred by the Director on his behalf-

(i) in the case of costs incurred under the Supplementary Legal Aid Scheme, except in accordance with section 32; and

(ii) in any other case, in excess of such aided person's contribution;

(b) where a court or the Court of Final Appeal makes an order for costs against an aided person, or an agreement is entered into for the payment of costs by an aided person, in favour of a person not receiving legal aid-

(i) in any case in which the party not receiving legal aid is a defendant or respondent in the proceedings (other than a defendant or respondent to a counterclaim or cross-petition), or in the case of an appeal (including an appeal to, or an application for leave to appeal to, the Court of Final Appeal) is a respondent therein (other than a respondent to a cross-appeal) such costs shall be paid by the Director;

(ia) in any case in which the party not receiving legal aid is a defendant to a counterclaim or respondent to a cross-petition, or in the case of an appeal (including an appeal to, or an application for leave to appeal to, the Court of Final Appeal) is a respondent to a cross-petition, the costs occasioned by the counterclaim, cross-petition or cross-appeal filed by or on behalf of the aided person shall be paid by the Director;

(ib) in any case in which the party not receiving legal aid is an appellant in an appeal (including an appeal to, or an application for leave to appeal to, the Court of Final Appeal) and in the court whose judgment or order is appealed against Common Luck was an aided person, such costs shall be paid by the Director; and

(ii) in any other case, neither the Director nor the aided person shall be liable for such costs unless a contribution is payable by the aided person under section 18(1)(b); in which case the Director on behalf of the aided person shall pay such costs to the extent that the contribution is in excess of the costs incurred by the Director on behalf of the aided person; and

(c) where a court or the Court of Final Appeal makes an order for costs against an aided person, or an agreement is entered into for the payment of costs against an aided person, in favour of a person who is also receiving legal aid, neither such person shall be liable for such costs in excess of his contribution and the contribution of the party who is liable for the payment of costs under such order or agreement shall be charged first with the costs of both parties and thereafter the contribution of the other party shall be charged to the extent of his own costs in so far as such costs are not recovered from the contribution of the party liable to pay costs. (79 of 1995 s. 50)

(2) ......"

18. It is not in dispute that section 16C(1)(b)(ia) applies to Common Luck's costs occasioned by the counterclaim at first instance.

19. The general effect of section 16C(1)(b) is, as I understand it, as follows:

1. a successful unaided defendant or respondent can recover costs from the Director;

2. a successful unaided defendant to a counterclaim, or respondent to a cross-petition or cross-appeal can recover the costs occasioned by the counterclaim, cross-petition or cross-appeal from the Director;

3. a successful unaided appellant can recover his costs from the Director but only where the plaintiff in the court below was legally aided; and

4. in any other case, the successful unaided party does not recover except to the extent provided in paragraph (ii).

20. The common feature is that liability falls on the Director when the aided person prosecutes unsuccessfully a claim, counterclaim or appeal. Even in the situation where the appellant is unaided liability will only ensue where the aided person has prosecuted a claim in the court below. So in simple and wide terms, when an aided person prosecutes a case and loses or loses on appeal, the Director pays. When an aided person defends a case and loses, the Director only pays to the extent of the aided person's contribution, if any.

The "Natural Plaintiff"

21. It is no doubt true that Mr Cheung in the original proceedings was the "natural plaintiff". It was up to him to make out his case in the face of Common Luck's bona fide purchase of the lot from the mortgagee. He did so at first instance on the counterclaim, at least, on the limitation point. The Director contends that one cannot go behind the positions of the parties as they stand in the proceedings. He relies on Taly NDC International NV v. Terra Nova Insurance Co. Ltd & Ors [1985] 1 WLR 1359 where the Court of Appeal in England affirmed a decision at first instance, refusing to treat a third party as a defendant for the purpose of security for costs against Common Luck.

22. I think this must be right. Though it was the court that decided on the relative positions, making Common Luck the plaintiff and Mr Cheung the defendant, that was the decision and I do not see how one can go behind it for the purpose of deciding liability for costs, at any rate in the present situation where that liability depends on statute, though the position might be different if liability for costs fell to be decided under the court's discretion.

Mr Cheung's Position Equivalent to that of Cross-Appellant

23. Order 59, rule 6 of the Rules of the High Court provides:

"(1) A respondent who, having been served with a notice of appeal, desires-

(a) to contend on the appeal that the decision of the court below should be varied, either in any event or in the event of the appeal being allowed in whole or in part, or

(b) to contend that the decision of the court below should be affirmed on grounds other than those relied upon by that court, or

(c) to contend by way of cross-appeal that the decision of the court below was wrong in whole or in part,

must give notice to that effect, specifying the grounds of his contention and, in a case to which sub-paragraph (a) or (c) relates, the precise form of the order which he proposes to ask the Court to make.

(2) ....."

24. This follows the corresponding English provision. Atkins Court Forms refers to three forms of respondent's notice, the Notice to Affirm, the Notice to Vary and the Notice by Way of Cross Appeal. The latter is only to be used where the respondent wishes to ask for the order of the court below to be varied upon a cause of action, separate and distinct from any cause of action which is the subject of the appellant's appeal, or upon the a point to which the appellant was not a party, or where the respondent wishes to contest the court's jurisdiction (1997 Edition, pages 80-81).

25. Common Luck seeks to equate these three categories of respondent. It relies on four cases : Cracknall v. Janson (1879) 11 Ch. 1, Harrison v Cornwall Minerals Ry. Co. (1881) 18 Ch. 334, How v. Earl Winterton (1896) 2 Ch. 626 and Jones v Stott (1910) 1 KB 893. In particular, Harrison is relied on by the authors of both the Hong Kong Civil Procedure and the Supreme Court Practice as authority for the proposition that :

"A respondent who has given a respondent's notice under this rule is generally in the same position as to costs as though he had presented a cross-appeal." (59/6/5 in both works.)

26. So far as I can see, none of these cases covers the situation of a respondent who seeks to affirm the decision of the court below on additional or alternative grounds. What was sought was variation or in the case of Jones v Stott a cross-appeal.

27. In fact, it is difficult to see how a respondent who seeks to affirm the decision of the court below can be in the same position as a cross-appellant. Where the respondent seeks to vary the original order or cross-appeal on a separate cause of action, both parties may succeed with costs which must then be apportioned or set off. Where the respondent simply affirms the decision of the court below as it stands, either the appeal succeeds in which case he may normally expect to pay the costs of the appeal and below, or the appeal fails in which case he may expect to recover those costs from the appellant. That must be so whether there is any consideration of, or even need for, additional or alternative grounds relied on by the respondent.

28. I do not, therefore, see how a respondent who seeks to affirm the decision of the court below can be equated with a cross-appellant even if he is not an aided person. It seems to me that the cases referred to can only apply to the situation where the respondent seeks to vary the decision of the court below or contend that it is wrong in whole or in part. To hold otherwise would be to hold that a respondent who gives notice affirming the decision of the court below becomes in effect the appellant, which would make the appellant the respondent, in respect of the whole of the decision. That would be absurd.

29. Here, Mr Cheung in affirming the decision at first instance, sought to attack that part of it which went against him, i.e. the findings of facts that he had executed the mortgage, while affirming the part which went in his favour, i.e. the decision on the limitation point. It is contended that this puts him in the position of a cross-appellant because he was attacking that part of the decision at first instance which went against him. I do not see that it does, because he was still seeking to affirm the decision on fact on other grounds, if the decision on the limitation point went against him. In any event, costs are awarded not on the basis of which points succeed and which points fail, but on the final decision.

30. I therefore find that Mr Cheung, as a respondent who affirmed the decision of the court below on additional or alternative grounds, could not be regarded as in the position of a cross-appellant.

31. The Director's main argument in any event is that legal aid expenses are from public money and clear express terms are necessary to found the liability. He relies on the English case of Holden & Co. v Crown Prosecution Services (No 2) [1994] AC 22. In that case, orders had been made in the Crown Court that four firms of solicitors should personally pay costs thrown away as a result of their conduct of the defences of their clients. They successfully appealed against those orders to the Civil Division of the Court of Appeal which granted orders for payment of the costs of their appeals out of central funds. On appeal, the House of Lords held that there was no express statutory authority for the orders made by the Civil Division of the Court of Appeal for payment from central funds and no power to make such orders could properly be implied into the legislation or as a matter of justice.

32. The principle of statutory interpretation set out in that case applies equally in Hong Kong. I accept that there is no room for the Director, or for this court, to imply into the Legal Aid Ordinance a power which is not there, whether the interests of justice require it or not.

33. So the question before me is quite simply whether the criteria set out in section 16C(1)(b)(ia) and (ib) apply. I can look no further than those criteria as they apply to the original action and the appeals.

34. In the original proceedings, after the order of 13 May 1994, Common Luck, the party not receiving legal aid, was the defendant to the counterclaim. The effect of the judgment of the Court of Final Appeal is to make Mr Cheung liable for the costs occasioned by the counterclaim. By section 16C(1)(b)(ia), these are to be paid by the Director. This much is not in dispute.

35. I turn to the appeal to the Court of Appeal. I have found that Mr Cheung could not be regarded as being in the position of a cross-appellant. Therefore, section 16C(1)(b)(ia) cannot apply.

36. However, where the party not receiving legal aid is an appellant in an appeal, and in the court whose judgment or order is appealed against the plaintiff was an aided person, the criteria in section 16C(1)(b)(ib) are met.

37. It seems that the question of the application of subparagraph (ib) has been rather overlooked in argument in favour of the more complicated arguments on subparagraph (ia). Mr Yau, in his written submissions, relies simply on subparagraph (ia). He said in argument that subparagraph (ib) "did not really apply". However, Common Luck in the Originating Summons still seeks a declaration that subparagraph (ib) applies. I therefore asked counsel to come back and address me on this point. Having heard counsel, I take the view that subparagraph (ib) must apply.

At first instance Mr Cheung was the plaintiff by counterclaim and succeeded on it. He obtained exactly the declarations which he prayed for in his counterclaim. I do not see that there can be any difference, for the purposes of subparagraph (ib), between a plaintiff and a plaintiff by counterclaim. Order 15, rule2 of the Rules of the High Court provides that a defendant may, instead of bringing a separate action, make a counterclaim and that where he does so he must add it to his defence. "A counterclaim is to be treated, for all purposes for which justice requires it to be so treated, as an independent action." (Per Bowen LJ in Amon v Bobbett 22 Q.B.D. 543 at 548.)

38. I would also say that I cannot see how, if subparagraph (ia) applies, as the Director accepts that it does, because Common Luck was Mr Cheung in the counterclaim, subparagraph (ib) would not equally apply because Mr Cheung was plaintiff in the counterclaim.

39. It seems to me therefore that since Mr Cheung was, for the purposes of the counterclaim, the plaintiff in the court below, subparagraph (ib) must apply to the costs of the appeal against the judgment on the counterclaim in the Court of Appeal, to make them payable by the Director.

40. The same must apply to the costs in the Court of Final Appeal because subparagraph (ib) applies to appeals including an appeal to, or an application for leave to appeal to, the Court of Final Appeal. These costs also must be paid by the Director.

41. It also appears to me that the costs in respect of the counterclaim must include the costs of the originating proceedings by way of judicial review, given that Mayo J ordered in his Order dated 13 December 1994 that there be no order for costs insofar as the respondent (i.e. the Attorney General) is concerned, otherwise, the costs be in the cause.

42. It follows that the applicant in these proceedings must have the declarations which it seeks. There will be judgment in favour of the applicant as prayed for in the Originating Summons save that the order for costs will be made nisi.