BRIGHT VIEW PROPERTIES LTD v. NEW KING PROPERTIES LTD AND ANOTHER

DCCJ 3606/2015

[2020] HKDC 1240

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3606 OF 2015

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DECISION ON COSTS

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INTRODUCTION

1.  This case which involved with a landlord and tenant dispute was originally set down for a 4-day trial before me commencing on 21 September 2020 (with 22 to 24 September 2020 reserved).  On Day 2 of the trial, ie 22 September 2020, in the middle of cross-examination of the 1^st plaintiff’s witness Mr Wong Kwok Leung Bruce (“PW1”) by the defendants (who was represented by Mr Amos Ma of counsel at the trial), the parties, after the Court adjourned the case to enable them to negotiate, reached a settlement under which that the defendants would pay the plaintiff within 7 days a sum of HK$92,300 in full and final settlement of the plaintiff’s claim.

2.  As parties could not reach an agreement on the issue of costs, directions were given by the court at the end of the hearing for lodging written submissions on the issue to be disposed of on paper.

BACKGROUND

3.  This landlord and tenant dispute only involved a modest sum of HK$358,090 only (see §9 of the amended Statement of Claim (“ASOC”)).  In the context of the rental of the subject premises, which is a luxurious apartment situated in Grand Garden at No 61 South Bay Road in the Southern District on Hong Kong Island (“the Premises”), this sum seems to be a drop in the ocean.  The monthly rental for the Premises during the term of the tenancy back in 2011-2013 was at $90,000 per month already. This case involved the dispute between the plaintiff as landlord and the 1^st defendant as tenant and the 2^nd defendant in her capacity as a director of the 1^st defendant as guarantor to the tenancy.  At all material time during the tenancy, the Premises was occupied by the 2^nd defendant and her family.  The claim involved with alleged outstanding rentals, cost of repairs and loss of rental income during repairs after the defendants had moved out of the Premises at the end of December 2013.

4.  About 3 months after the defendants had vacated the Premises, on 24 March 2014, the plaintiff’s solicitors issued a demand letter to the 1^st defendant, claiming the following sums:-

(a)	outstanding rental / mesne profits	$192,200
(b)	repairs costs	$72,000
(c)	extra cost to balcony repair works	$64,828
(d)	2 months’ loss of rental income	$260,000
	for repair works	________
	Total:	$358,028

5.  It is plain from the pleadings that the claim for the outstanding rental / mesne profits have been covered or almost entirely set-off by the rental deposit of $180,000 made by the 1^st defendant at the commencement of the tenancy: (see table of calculations at §9 of ASOC).

6.  In PW1’s witness statement dated 18 January 2019, the claim for the repair costs Item “(b)” had been reduced to HK$59,910.

7.  Although the defendants had originally made a counterclaim in the action but they chose to withdraw that a few weeks before the trial commenced.  A consent summons was signed by the parties for that purpose on 1 September 2020.  Under the agreement, the defendants agreed to bear the plaintiff’s costs of and incidental to their counterclaim.

8.  On 11 September 2020, ie 10 days before the trial commenced, the plaintiff’s counsel lodged his opening submissions with the court which was served on the defendants at the same time.  For the first time during these proceedings, the plaintiff indicated that it was not pursuing the claim for the increased costs relating to the balcony works and stated that its claim for the loss of rental income “will be reduced accordingly”.

9.  Hence, on the first day of the trial, the plaintiff’s claim was reduced to the following amount:-

(a)	Outstanding rents HK($195,200-$180,000)	HK$15,200
(b)	Repair costs	HK$72,000
(c)	Extra cost to balcony repair works	HK$  0
(d)	2 months’ loss of  rental income	HK$  0
	for repair works	________
	Total:	HK$87,200

10.  In other words, the plaintiff’s claim which started life at HK$358,028 by way of its solicitors’ demand letter before action, pleaded at HK$358,090 under the ASOC and claimed at HK$346,000 in PW1’s witness statement, had, by the time of the commencement of the trial, been substantially reduced to a meagre sum of HK$87,200 only.

11.  It is in this context and against the above background that I have to decide who should bear the costs of this action which was only settled on the 2^nd day of the trial, half way through the evidence of PW1.

DISCUSSION

General principal on costs

12.  I am grateful to Mr Ken Lee, the plaintiff’s counsel, for summing up on the general principles on costs which is not a matter disputed by the defendants’ solicitors.  I can do no better than by reproducing his summary here as a starting point.

13.  It is trite that costs is at the discretion of the court.  The starting point is that costs should follow the event “except when it appears to the court that in the circumstances of the case some other order should be made as to the whole or any part of the costs”: see Order 62, rule 3(2), of the Rules of the District Court, Cap 336H (“RDC”).  

14.  In the recent case Re Ho Yuk Wah David (bankrupt) [2019] HKCFI 942, Recorder Eugene Fung SC summarised the relevant principles in the following terms at §3:-

“…

(1) Order 62, rule 3(2) of the Rules of the High Court relevantly provides that “the court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

(2) There is a discretion in the court to deprive a successful party of the whole or part of his costs because he had caused significant increase in the length or costs of the proceedings by raising issues on which he did not succeed. Whether or not it should be done depends on all the circumstances. This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event. It is to be approached with due circumspection so as not to undermine the utility of that general rule. Too ready a departure from the general rule encourages unnecessary arguments. See Commissioner of Inland Revenue v HIT Finance Ltd (No 2) [2014] 4 HKLRD 412 at §7 (Bokhary PJ); Kam Leung Sui Kwan, Personal Representative of the Estate of Kam Kwan Sing, deceased v Kam Kwan Lai (unreported, FACV 4/2015, 3 February 2016) at §8.

(3) Order 62, rule 5 of the Rules of the High Court provides:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account -

(aa)  the underlying objectives set out in Order 1A, rule 1;

…

(e)  the conduct of all the parties;

(f)  whether a party has succeeded on part of his case, even if he has not been wholly successful; .

(2)  For the purpose of paragraph (l)(e), the conduct of the parties includes –

(a)  whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b)  the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c)  whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d)  conduct before, as well as during, the proceedings.”

(4) The burden rests with the losing party to demonstrate the circumstances which justify the exceptional course of displacing the general rule that costs should follow the event.  See Mariner International Hotels Ltd v Atlas Ltd (No 2) (2007) 10 HKCFAR 246 at §18 (Bokhary PJ).

(5) Where the successful party raises issues or makes allegations improperly or unnecessarily, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party's costs. See Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214B-C (Nourse LJ), applied with modification by Yuen JA in Wang Din Shin v Nina Kung (unreported, CACV 460/2002, 19 April 2005) at §39.” (Emphasis added)

15.  To add to the above principles, in particular those referred to in §3(3), another relevant factor to be taken into account in the court’s exercise of discretion is the existence of Calderbank offers: see Order 62, rule 5(1)(d), RDC.

16.  There is no dispute that the court still has the power to determine which party should be liable for costs even if a case is settled except as to costs.  The applicable principles are summarised by Au-Yeung J in Famous Marvel Co Ltd & Ors v Conversant Group Ltd & Ors (unrep, HCA 2153/2009, 29 October 2012) at §22:-

“…

(i) The Court is to decide if the party seeking costs has substantially obtained the reliefs sought in the litigation: Re Chinese United Establishment Ltd, HCCW 291/1994, 5 October 1995, Rogers J (as he then was), approved in CACV 214/1995; Lai Yuet Chun v Super Deluxe International Limited & Ors, HCCW 186/2001, 3 June 2003 Kwan J (as she then was).

(ii) At each end of the spectrum there will be cases where it is obvious which side would have won had the substantive issues been fought to a conclusion. In between, the position will, in differing degrees, be less clear. How far the Court will be prepared to look into the previously unresolved substantive issues will depend on the circumstances of the particular case, not least the amount of costs at stake and the conduct of the particular case, not least the amount of costs at stake and the conduct of the parties. Brawley v Marcynski (No.l) [2003] 1 WLR 813.

(iii) The Court will first consider if it is in a position to say what the likely outcome after trial would have been. If it is not in a position to do so, the order may well be no order as to costs: Brawley v Marcynski (No l),at para 18, Longmore LJ; followed in BCT Software Solutions Ltd v C Brewer & Sons Ltd [2004] FSR 150.

(iv) The court may permit parties to adduce evidence on the question of costs: Ta Tung China & Arts Ltd v Fontana Restaurant Ltd [1999] 1 HKLRD 404; Lai Yuet Chun v Super Deluxe International Limited & Ors, at para 12. However, to say that the parties must go to trial in order to resolve any outstanding questions of costs would be contrary to the underlying objectives enshrined in RHC Order 1A rules 1 and 2: Graham M Morley v Kwan Wo Wan & Others, HCA 4366/2003, 30 December 2009, Recorder Jat SC.

(v) A broad brush can be taken by referring to all matters already laid before the court, eg pleadings, correspondence, witness statements. transcripts of evidence and the terms of the settlement order: c.f. BCT Software Solutions Ltd v C Brewer & Sons Ltd, at para 9; Graham M Morley v Kwan Wo Wan & Others.

(iv) The objective is to do justice between the parties without incurring unnecessary Court time and consequently additional cost: Brawley v Marcynski (No l).” (Emphasis added)

Analysis of the evidence

17.  First and foremost, I do not agree with Mr Lee’s submission that the plaintiff was the “real winner” of the present case in that it was able to recover substantial damages.  In actual fact, the ultimate damages which the plaintiff was able to recover under the settlement agreed between the parties after the first full day of trial was only at a meager sum of HK$92,300 only.  I note that this was only marginally higher than the present jurisdiction limit of the Small Claims Tribunal (“SCT”) at HK$75,000 and not much more than the HK$50,000 limit of the SCT at the time when the present action was commenced in the District Court in 2015.

18.  Second, while it is true that costs should normally follow the event and in this case it was the plaintiff who has ultimately recovered something at the end of the day, to put it in the context of the original claim of HK$358,090, what the plaintiff managed to recover represents only about a quarter of its original claim.  This, in my opinion, could hardly be described as a “real win”.  This amount, when put in the proper context, was only marginally over the limit of the SCT today.

19.  Further, if one were to take into the account of the original “without prejudice” offer provided by the defendant’s former solicitors at HK$26,550 in their letter dated 15 October 2014, which was sent to the plaintiff after receiving the first demand letter from the plaintiff’s solicitors, it covered at least 6 out of the 13 items of the repair works. Hence, the “net gain” of the plaintiff under the settlement when compared with that position 6 years ago was at HK$65,750 only (HK$92,300 - HK$26,550). 

20.  When one put this in the context of the rental of a luxurious apartment such as that of Grand Garden, one can immediately see that the time, the costs and the efforts in bringing this matter to trial, including the costs of appointing survey experts on both sides to prepare their respective reports, are totally disproportionate to the “net sum” that the plaintiff was able to recover at the end of the day. 

21.  In my judgment, this is totally against the spirit as well as the letters of the underline objectives of the Civil Justice Reform (“CJR”) which has been implemented since April 2009.  In my judgment, this case could have been easily resolved either by way of without prejudice negotiations or mediation.  In my view, had the parties not been so stubborn and uncompromising, this matter could have been resolved much earlier and much cheaper.

22.  Third, having said the above, I do not think the plaintiff is entirely to blame for not settling the case earlier either. It is quite clear to me that the defendants were only willing to agree to pay the sum of HK$92,300 on Day 2 of the trial as a result of the solid and cogent evidence given by PW1.   His evidence on the damage caused during the occupation of the defendants had been clear and unblemished.  It had not been shaken at all despite the lengthy cross-examination by the defendants’ counsel. 

23.  In my judgment, the 2^nd defendant and her husband, who had physically occupied the Premises, must knew very well of the extent of the damage they had caused during their 2-year tenancy actually went beyond the normal wear and tear level.  The photos showing the conditions of the Premises before and after the tenancy agreement at [DB/98-105G] clearly reveal that the damage to the Premises was well beyond fair wear and tear, including but not limited to the removal of the kitchen countertop and the related set of cupboard and the missing toilet seat.  PW1 explained this in some details in his oral evidence.  The defendants were clearly liable for most, if not all, of the items under this head of claim. 

24.  Further, the 1^st defendant had failed to pay rent for November 2013 and was liable for the mesne profit for December 2013, the latter of which could be assessed by reference to the rent the defendant agreed to in the Offer for Tenancy Renewal which was $100,800 more than the monthly rental of $90,000 during their occupancy under the 2-year tenancy.  As such, in my view, the plaintiff would also be entitled to recover at least some loss of rental income.

25.  In my judgment, the defendants could have made sanctioned payment or without prejudice offer at a realistic sum in order to get rid of this action.  They had failed to do that for the 6 years prior to the trial.  Instead, they insisted on fighting the case all the way to the Court and made the director/shareholder of the plaintiff’s company, PW1, to give evidence and subject him to some detailed (but not very effective) cross-examination by their counsel for many hours.  It was only after PW1 was subject to lengthy cross-examination of the photos at [DB/98-105G] that the defendants admitted part of the plaintiff’s claim for repair costs, viz items 1-2, 6-7 and 10-13 as set out in the plaintiff’s expert report in the morning of Day 2 of trial.  In my view, such admission must have been made after the defendants realized (rather belatedly) the strength of the plaintiff’s claim.

26.  It was only after the Court gave some very clear indications in open court on Day 2 of the trial that they were finally willing to settle the matter.  To me, such kind of stubborn and unreasonable behaviour should not be condoned or encouraged.  Otherwise, it will only lead to proliferation of unnecessary litigations; waste of precious judicial resources and wasting time, money and energy of all parties concerned.  One would have thought that the CJR should have put a stop to such kind of behaviour from litigants.  However, sadly, I find this was not the case at all as this piece of totally avoidable litigation has amply demonstrated. 

27.  Last but not the least, despite abandoning its counterclaim and claiming set-off against the plaintiff’s claim, the defendants continued to pursue their complaints on quiet enjoyment.  I agree with Mr Lee for the plaintiff that even if the defendants’ version of events (which is denied by the plaintiff) were to be accepted after trial, it is highly doubtful if this would constitute any valid “defence”.  The major renovation of the building carried out by the incorporated owners could not be regarded as the plaintiff’s acts as landlord and constitute a breach of the covenant: see Chong Lap Fu George v Hydra Shipping Services Ltd [20091 4 HKLRD 369 at §33.

The Calderbank offers

28.  In this case, there are a number of Calderbank letters exchanged between in the parties which Mr Lee for the plaintiff has invited me to take into account.  They are:-

(1)  By an offer contained in a letter dated 16 October 2014, ie before the present proceedings commenced in August 2015, the defendants offered to pay the plaintiff HK$26,550.

(2)  By an offer contained in a letter dated 18 June 2020, the defendants offered to pay the plaintiff HK$50,000 in full and final settlement of the plaintiff’s claim (inclusive of all costs, expenses and interest).

(3)  By an offer contained in a letter dated 20 August 2020, the plaintiff offered to settle its claim for HK$30,000.  (While this offer was stated to be sanctioned offer made pursuant to Order 22, rule 4, RDC, the plaintiff is not relying on the same as a sanctioned offer but as a Calderbank offer as the sanctioned offer regime under Order 22 does not apply to cases which are settled by parties).

29.  I agree with Mr Lee and find the plaintiff has acted in a reasonable manner in this respect for the following reasons:-

(1)  The sum of HK$92,300 ultimately recovered by the plaintiff is significantly higher than the 2 offers made by the defendants.  In fact, the defendants’ offer of HK$50,000 dated 19 June 2020 is nothing but a nominal one as it was inclusive of all costs and interest. 

(2)  The sum of HK$92,300 also exceeded the plaintiff’s offer dated 20 August 2020, which was made about 1 month before the trial was due to begin.  Had the defendants accepted this offer, the trial would have been avoided altogether.

CONCLUSION

30.  While I agree that with the defendants solicitors’ submission contained in their written submission on costs lodged with the Court on 4 November 2020 that the engagement of experts in this case was disproportionate and unnecessary when compared with the claimed amount on the repair costs.  However, in my view, the fault did not lie with the plaintiff.  The defendants could have put a stop to this by simply admitting the damage that they had done to the Premises before they moved out.  They did not have to wait until going to Court to find out about the extent of the damage and the likely cost of the repairs.  Therefore, in my judgment, I find it was the defendants who have primarily caused the unnecessary dragging of this case all the way to the Court without acting in a sensible and practical manner. 

31.  On the other hand, the plaintiff, who has only managed to recover about one quarter of its original claim at the end of the day in my view should not be allowed its costs in full or 90% of its costs (as suggested by its counsel Mr Lee in his written submissions).

32.  On balance, taking all the circumstances into account, I consider that a fair costs order in this case would be that the plaintiff be entitled to 70% of its costs. 

33.  In conclusion, based on the above discussions, I find in this case it was the defendants who were the principal party who had acted unreasonably which caused the matter to go all the way to the trial and only be able to settle on Day 2 of the trial when the evidence was clearly against them. In all the circumstances of the case, I consider that the defendants should be ordered to pay 70% of the plaintiff’s costs in this case, including the costs of the hearing on 21 and 22 September 2020, with certificate for counsel.  Such costs should be taxed on a party and party basis, if not agreed.