PIONEER GLOBAL MANAGEMENT LTD v. REDHILL PROPERTIES LTD

DCCJ 1938/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1938 OF 2009

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D E C I S I O N

1.  This is a dispute between neighbours.  The Plaintiff (“Pioneer”) is the owner of the residential unit allegedly damaged as a result of the renovation work carried out in the Defendant (“Redhill”)’s unit immediately above in July 2008.  Pioneer claimed damages against Redhill.  Redhill has subsequently met Pioneer’s claim on a without admission basis.  Now parties cannot agree on how to properly dispose of this action and the issue of the costs of this action.

2.  Before this court are 2 summonses, both taken out by Redhill with a view to having this action dismissed.

Background

3.  Upon Pioneer’s complaint in July 2008, Redhill inspected Pioneer’s unit.  Pioneer then appointed its surveyor to inspect the damage.  A survey report was produced in September 2008, which was sent to Redhill’s representative, Swire Properties Management Limited.  Letter of demand was sent to Redhill in December 2008.

4.  On 9 April 2009, Pioneer commenced this action against Redhill claiming damages in the sum of HK$57,000 or to be assessed.  The claim was based on alleged negligence in the carrying out of the work in Redhill’s unit.  However, Redhill denied liability arising out of the manner in which its independent contractor carried out the work.

5.  On 13 May 2009, Pioneer amended its claim by adding the causes of action in the tort of nuisance and breach of the deed of mutual covenant (“DMC”).  Redhill then pointed out the arbitration clause in the DMC and suggested that any dispute as to breach of the DMC should be referred to arbitration.

6.  Pioneer invited Redhill to consent to resolving the dispute in respect of all the causes of action, including the breach of the DMC, in this action.  Redhill refused and reiterated its readiness and willingness to do all things necessary for the conduct of arbitration.  It invited Pioneer to discontinue this action altogether so that the dispute could be resolved entirely by way of arbitration.

7.  On 27 May 2009, Pioneer gave notice to Redhill of its withdrawal of the cause of action for breach of the DMC from this action with a view to referring the same to arbitration.

8.  On 3 June 2009, Redhill pointed out that in respect of the same incident and the same relief claimed, Pioneer would effectively be pursuing its claim by way of parallel sets of proceedings.  Redhill considered that this would be improper and duplicity of process.

9.  Nevertheless, Redhill filed the Defence on 10 June 2009.  Pioneer’s Amended Reply was filed 2 weeks later.  Pleadings were closed on 9 July 2009.  Discovery of documents began.

10.  In the meantime, Pioneer took steps in preparing for arbitration through the Hong Kong International Arbitration Centre (“HKIAC”).  Correspondence between the HKIAC and Swire also endured regarding the appointment of the arbitrator.

11.  In September 2009, through Swire, Redhill represented to the HKIAC that in view of the preparation already done in this action by then, it was likely that the trial of this action would be set down and concluded shortly.  Redhill took the view that if Pioneer succeeded in this action, the arbitration would become redundant.  Redhill therefore repeatedly requested to put the appointment of the arbitrator on hold pending the outcome of this action.  Nevertheless, the arbitrator was appointed by the end of September 2009.

12.  On 2 October 2009, Redhill took out a summons seeking to dismiss this action on the ground that Pioneer has failed to file a timetabling questionnaire and to take out a case management summons pursuant to O.25 of the Rules of the District Court (“the O.25 summons”).  This became the first summons now before this court.

13.  A week later, Pioneer served the timetabling questionnaire and invited Redhill to withdraw the O.25 summons.  It also expressed its intention to join Redhill’s contractor as a defendant in this action.  On the same day, Pioneer served its arbitration submissions to the arbitrator and Redhill.

14.  A week later, on 16 October 2009, Redhill tendered to Pioneer a cheque for the sum of HK$64,125 in settlement of Pioneer’s claim plus interest in the arbitration.  Redhill also agreed to bear the costs of the arbitration.  The tender was made without admission of liability.

15.  On 19 October 2009, Pioneer returned the above cheque, only to request Redhill to draw the cheque in favour of Pioneer’s solicitors instead.  On the same day, Redhill took out a summons seeking to strike out Pioneer’s claim and to dismiss this action on the ground that this is an abuse of process of the court, i.e., pursuant to O.18, r.19(1)(d) (“the O.18 summons”).  This became the other summons now before this court.

16.  Redhill re-issued the cheque for settlement of the arbitration.  Pioneer accepted the same.  Pioneer’s claim in this action has effectively been satisfied.

17.  On 21 October 2009, Pioneer requested that Redhill withdrew the O.25 summons and the O.18 summons.  On the basis that Redhill has satisfied its claim in full, Pioneer also proposed to discontinue this action subject to Redhill’s paying its costs of this action.  Redhill rejected the proposal.

The O.25 summons

18.  As at the date of the O.25 summons, the deadlines for filing the timetabling questionnaire and to take out a case management summons pursuant to O.25, r.1 have lapsed.  Redhill had 2 options: to take out a case management summons pursuant to r.1(5)(a); or to apply to dismiss this action pursuant to r.1(5)(b).  Redhill opted for the latter.

19.  In the hearing of such summons, r.1(6) empowers the court to grant an order in terms or, if not, to proceed as if this was a hearing of a case management summons.  Had the O.25 summons been heard at that stage, I think the court would likely have proceeded as if that were a case management hearing for the further conduct of this case.

20.  The matters that the court would have considered during such a case management hearing then have subsequently been overtaken by events.  Redhill has effectively satisfied Pioneer’s claim for the substantive relief in this action.  What remain outstanding are the proper disposal of this action and the issue of costs.

21.  Mr Khaw did not seem to insist that this action ought to be dismissed now on the ground of Pioneer’s non-compliance with O.25.  Both counsel accepted that I am entitled to treat this as a case management hearing with a view to resolving how this action should be disposed of and the issue of costs.  However, if Redhill succeeds in its application by the O.18 summons, the disposal of the O.25 summons will become consequential.

The O.18 summons

22.  The sole ground for the application by the O.18 summons is that this action is an abuse of process of the court.  Mr Khaw for Redhill submitted that given the result in the arbitration proceedings, Pioneer has fully recouped its loss and hence the subject matter has already been disposed of.  Therefore this action is liable to be struck out and dismissed.

23.  Redhill has wasted no time in taking such stance.  After tendering payment to Pioneer on Friday, 16 October 2009, Redhill took out the O.18 summons on the following Monday, 19 October 2009 even prior to Pioneer’s communicating to Redhill of its acceptance of the payment.

24.  Mr Khaw referred to Lord Nicolls’ speech in The Personal Representatives of Tang Man-sit, deceased v Capacious Investments Limited [1996] 1 HKLR 16 at 21C-E.  His Lordship’s key point was the principle against double recovery by way of separate proceedings.

25.  Indeed the situation now is that the dispute as to the substantive relief claimed in this action has become academic.  No doubt this action has to be disposed of properly.  But such situation did not render this action an abuse of process overnight.  Further, the issue of costs of this action is outstanding, which the court still needs to determine.  By asking for a costs order in its favour, Pioneer is not seeking double recovery at all.

26.  Mr Khaw asked me to take into account the following:

(1)  Pioneer should have properly considered the causes of action available to it when commencing this action.  Pioneer has failed to do so and chose to plead its case solely on the basis of negligence.

(2)  Subsequently Pioneer added the causes of action in the tort of nuisance and breach of the DMC.  In doing so, Pioneer has neglected the arbitration clause contained in the DMC.

(3)  Despite Redhill’s request, Pioneer insisted on withdrawing the cause of action for breach of the DMC for its reference to arbitration whilst maintaining this action in respect of the other causes of action.  Pioneer proceeded with this action and the arbitration concurrently.

(4)  Notwithstanding the full satisfaction of the claim for damages and interest, Pioneer proposed to proceed to trial merely for the purpose of determining the costs of this action.

27.  Mr Chan for Pioneer justified the concurrent court action and arbitration by referring to a litigant’s right to pursue all the causes of action available to him.  But in my view, Pioneer’s right to pursue all the causes of action is not the question here.

28.  Mr Chan also submitted that notwithstanding the arbitration clause in the DMC, it would still be up to the parties to waive its application and to resolve the dispute by way of court proceedings.  I agree.  But the fact was that Pioneer and Redhill could not agree on this; and Pioneer decided to maintain both this action and the arbitration in respect of the same incident and for the same relief.  Strictly, this became objectionable.

29.  There were various alternatives at that stage.  Redhill could have applied for a stay of this action pending the outcome of the arbitration.  Alternatively, Redhill could have taken out a striking out application then (though, in my view, the court would likely have ordered a stay instead of dismissal of this action).  Lastly, Pioneer could have chosen to pursue its other causes of action too in the arbitration.  In that case, Pioneer would have had to discontinue this action.  None of these steps has been taken.

30.  Upon Pioneer’s notice of withdrawal of the cause of action for breach of the DMC, Redhill expressly reserved its right to make application to strike out the claim in this action.  Redhill did not do so but proceeded to file the Defence.  This might fairly be an act of prudence, given that Redhill was at the receiving end of this legal battle.

31.  However the approach of Redhill since then showed its actual preference of proceeding with this action rather than the arbitration.  Redhill repeatedly requested to put the appointment of the arbitrator on hold pending the outcome of the trial of this action.  Redhill represented to the HKIAC that the trial of this action was expected to be set down and concluded shortly.  Redhill also took out the O.25 summons.

32.  Without taking any substantive step in the arbitration, Redhill tendered payment in satisfaction of the Pioneer’s claim.  Only then did Redhill take out the O.18 summons, complaining that Pioneer should not have maintained this action after it has initiated the arbitration proceedings.

33.  The arbitration has been settled.  Pioneer’s claim for substantive relief has been met.  Pioneer has no intention of proceeding with this action further except to the extent necessary for the determination of the outstanding costs issue.

34.  In view of that, Redhill’s present complaint that this action was liable to be struck out or be stayed has become academic.  No doubt the proceedings in this action need to be brought to an end.  But taking out the O.18 summons on the basis of abuse of process is hardly the right way of achieving that in the circumstances.

35.  Pioneer is also criticised for insisting on bringing this action to trial for the purpose of determining the issue of costs.  Mr Khaw referred to Graham M Morley v Kwan Wo Shan & Ors, HCA 4366/2003 (30 December 2009) where the learned Recorder remarked that it would be contrary to the objectives of the civil justice reform enshrined in O.1A, rr.1 and 2 for the parties to go to trial for the purpose of resolving the issue of costs.  Given that the plaintiff has already recovered its alleged loss, the substantial costs necessitated by the trial would be wholly unnecessary and disproportionate.

36.  In my view, how the issue of costs should and could be determined, where the substantive issues have become academic, varies from case to case.  This is actually in line with the learned Recorder’s observation in Graham M Morley after summarising the authorities in this context.  They included the Hong Kong authorities of Re Chinese United Establishment Ltd, HCCW 391/1994 (5 October 1995), Ta Tung China & Arts Ltd v Fontana Restaurant Ltd [1999] 1 HKLRD 404 and Re Super Deluxe International Ltd, HCCW 186/2001 (3 June 2003).

37.  In Re Chinese United Establishment Ltd, a consent order was made on the second day of the trial settling the petition on the basis of no admission and either party had the liberty to seek costs against each other.  Upon the making of the order, the petitioner applied for costs and the respondent resisted.  The court made a costs order in favour of the petitioner on the footing that the petitioner had obtained what he came to the court for.  On appeal, the court of appeal saw no justification for interfering with the trial judge’s exercise of discretion.

38.  In Ta Tung, the parties resolved their differences before trial such that the substantive issues had become academic.  A summons was taken out for the determination of the issue of costs by the court.  The matter went on appeal and the appellate court held that it was impossible to have the costs liability issue resolved without having the action disposed of in one of 2 ways: seeking leave to discontinue the action and asking for the costs to be determined; or by going to trial and having the costs dealt with after the trial.  The court concluded that the only way the plaintiff in that case could recover his costs, if the defendant refused to pay them, was to bring the action to trial for the purpose of doing so.

39.  In Re Super Deluxe International, the learned Judge did not think that anything said in the above 2 cases would tie the hands of the court as to what evidence it should or should not receive and what findings it should or should not make in a particular case for the purpose of adjudicating on costs.  In that case, the court was indeed asked by the respondents to receive evidence and to make a finding on the petitioners’ entitlement to the relief sought for the purpose of adjudicating on costs.  The court accepted that she should do so.  For that purpose, parties had to put in affidavit evidence and the court had to assess the evidence in the light of the cross examination of the witnesses.

40.  The learned Recorder in Graham M Morley agreed with the learned Judge’s observation in Re Super Deluxe International.  Graham M Morley is similar to Re Chinese United Establishment Ltd in that the action was disposed of by a consent order leaving only the issue of costs outstanding.  The 2 cases differed from Ta Tung where the appellate court found it impossible to adjudicate on costs without also disposing of the action one way or the other.

41.  The learned Recorder in Graham M Morley carried out the above analysis (at paras.24-32) before making the remarks (at para.33) that Mr Khaw referred to in his submission.

42.  The learned Recorder went on to conclude (at para.34) that the question then is whether the court is in a position to make an order for costs.  This depends on the circumstances of the case.  There is no hard and fast rule.  The circumstances of Graham M Morley were that no party argued that the learned Recorder had to determine the substantive issues in order to determine the costs.  Indeed all parties agreed that he should proceed to determine costs without hearing evidence and without attempting to determine on paper whose version of events would likely have prevailed, had there been a trial (see para.37).  The circumstances were quite different from Re Super Deluxe International.

43.  In view of the above, I do not agree that by proposing to bring this action to trial for the purpose of adjudicating costs, Pioneer is abusing the process of the court.  In his submissions, Mr Chan also accepted that it would be up to the court to decide whether it is in a position to resolve the issue of costs without going into the substantive issues or the actual merits of parties’ respective cases.

44.  For the above reasons, the O.18 summons fails.

Costs of this action

45.  Neither the O.25 summons nor the O.18 summons succeeds in having this action dismissed.  In this event, parties agree that this court may treat this as a case management hearing with a view to resolving how this action should be disposed of and the issue of costs of this action.

46.  On behalf of Pioneer, Mr Chan asked for leave to discontinue this action and for costs of this action.  Both parties asked this court to adjudicate on the issue of costs without going into the substantive issues.  In my view, I am in a position to rule on the costs issues upon disposing of this action.  I am also satisfied that a broad brush approach, as the court in Re Chinese United Establishment Ltd and the learned Recorder in Graham M Morley applied, could be adopted in the circumstances of this case.

47.  Mr Chan submitted that Pioneer should be entitled to the costs of this action on the very simply footing that it is essentially the successful party.  Pioneer has obtained what it had to come to court to get.  It is neither here nor there that Redhill chose to settle the arbitration instead of this action.  The substantive relief claimed pursuant to the various causes of action was just identical.

48.  In the affirmation filed on its behalf, Redhill explained that it recognised that its legal position in respect of the new causes of action, including the breach of the DMC, was not as good as that in the negligence claim.  Hence Redhill decided to settle the arbitration.  Mr Chan submitted that if Redhill had intended to meet Pioneer’s claim due to such consideration, Redhill could have done so when the new cause of action was first pleaded in this action.  Instead, Redhill rejected Pioneer’s request to consent to have this additional cause of action resolved in this action and insisted on referring this cause of action to arbitration.

49.  I agree with Mr Chan.  It was the consideration of the merits of the case that caused Redhill to decide to meet Pioneer’s entire claim for breach of the DMC.  Whether this cause of action should in principle be resolved in this action or by way of arbitration was immaterial to such decision.

50.  Further, the reference of the cause of action for breach of the DMC to arbitration per se hardly had any significant bearing on the merits of the claim.  As mentioned above, after the claim for breach of the DMC has been referred to arbitration upon the insistence of Redhill, Redhill actually preferred proceeding with this action to the arbitration.

51.  Redhill decided to meet the claim after its consideration of Pioneer’s submissions in the arbitration.  But the materials in support of such submissions do not appear to differ materially from those already disclosed and relied on by Pioneer in this action.

52.  Mr Khaw submitted that the question of costs turns on the parties’ conduct.  He was referring to the matters already discussed above.  I do not repeat them here.  In view of the approach Redhill has adopted at different stages, I agree with Mr Chan that Redhill could not be heard to say that it was Pioneer’s unreasonable conduct that has resulted in the duplication of proceedings and escalation of costs.

Order

53.  In the circumstances, I make the following order:

(1)  leave to Pioneer to discontinue this action;

(2)  costs of the O.25 summons be to Redhill;

(3)  the O.18 summons be dismissed;

(4)  save as aforesaid, Redhill shall pay Pioneer’s costs of this action, including the costs of and occasioned by the O.18 summons;

(5)  all costs ordered shall be taxed, if not agreed, with certificate for counsel.