GALLIUM DEVELOPMENT LTD AND OTHERS v. WINNING PROPERTIES MANAGEMENT LTD AND ANOTHER

CACV 186/2003
CV 400/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 186 OF 2003 AND

CIVIL APPEAL NO. 400 OF 2003

(ON APPEAL FROM BUILDING MANAGEMENT

APPLICATION NO. LDBM 121 OF 2000)

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D E C I S I O N

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Hon Woo VP:

Introduction

1. On 17 September 2004, we handed down judgment in these two appeals (“our main judgment”) with orders nisi as to costs.  The applicants, the 1^st Respondent (“R1”) and the 2^nd Respondent (“R2”) have made applications for variation of the costs orders.

2. The two appeals, namely, CACV 186/2003 and CACV 400/2003, were launched by R2 to challenge the decisions made by His Honour Judge Yung, sitting as a presiding officer of the Lands Tribunal. 

3. The Judge held that R2 was liable to pay damages to each of the applicants individually in the proportion of his/her/its respective contribution as flat owner in the building known as Island Beverly in the heart of Causeway Bay (“the Building”) towards the Sinking Fund established for major overhauls or replacement of facilities of a capital nature that had been used to pay for the works for the shopping arcade exclusively owned by R2.  He dismissed all the claims raised by the applicants against R1, the manager of the Building, for having allowed R2 to convert to R2’s own use some of the common parts of the Building within the shopping arcade and for having applied the Building’s Sinking Fund and Management Fund towards the expenses for the conversion and the works for R2’s exclusive benefit.  The Judge then assessed the damages payable by R2, but did not award damages against R2 for the conversion.

4. By CACV 186/2003, R2 appealed against the Judge’s decision on liability against it, and the applicants cross-appealed against the dismissal of their claims against R1.  By CACV 400/2003, R2 appealed against the order for damages.

The essential holdings of our main judgment

5. In our main judgment we held that

(a)	the Judge’s order of payment of damages as assessed by him, on the basis of $10,309,981, proportional to the applicants’ contributions towards the management and maintenance of the Building, being a total of 20.5% of the sum, was wrong and we made an order that R1 and R2, jointly and severally, were to pay the entirety of that sum into the Sinking Fund (paras 49, 51 and 76 of our main judgment);
(b)	R1 was liable to the applicants for allowing the conversion of the common parts of the shopping arcade for R2’s own private use; R1 was also liable for allowing the moneys in the Sinking Fund to be applied towards the expenses for the conversion and the works for R2’s exclusive benefit (para 60 of our main judgment); and
(c)	the Judge was wrong to have made no decision on the applicants’ claim for particular items of relatively small amounts, set out in schedules entitled Annexes A, B and C, to have been wrongfully or wrongly paid by R1 towards the expenses for the conversion and the works for R2’s exclusive benefit, affecting the amount of the damages R2 ought to pay and also affecting the amount of management fees that R1 was entitled to charge (paras 62, 70 and 71 of our main judgment).

Our costs orders nisi

6. In our main judgment, after dealing with a number of issues and arguments raised by the parties, we made the following orders with orders nisi as to costs, which were mainly set out in paras 75 to 81 of our main judgment, namely,

(a)	R2’s appeals in both appeals were dismissed with costs;
(b)	The applicants’ cross-appeal in CACV 186/2003 was allowed, and there be no order as to costs of the cross-appeal and their summons dated 1 June 2004 (to amend their notice of appeal to clarify the sums mentioned in Annexes A, B and C);
(c)	The applicants do have their costs of the proceedings below against both R1 and R2, with a certificate for counsel.

The applications

7. The applicants now apply to vary our costs orders nisi and ask to have their costs of the cross-appeal against R1 and R2.  They also ask that their costs of the trial, which we granted to them, be taxed on the High Court Scale, if not agreed. 

8. On the other hand, by their summons dated 2 October 2004, R1 and R2 seek to have the costs of the appeals, the cross-appeal and of the trial to be awarded to them.  They also request the costs of the trial to be taxed on the High Court Scale with a certificate for two counsel for the hearing on 1 December 2003.

9. By their summons dated 23 June 2005, the respondents seek to amend their application.  By their amendment, R2 asks for an award of costs to R2 in CACV 400/2003.  The respondents request to have the costs of CACV 186/2003 (including the costs of the applicants’ cross-appeal) or alternatively there be no order for costs of this appeal and cross-appeal. 

10. The respondents maintain their application for the costs of the trial before the Lands Tribunal, with a certificate for counsel, but in respect of the hearing on 1 December 2003, a certificate for two counsel.  Alternatively, they seek costs of the hearing on 1 December 2003 with a certificate for two counsel, and other than that they ask for no order for costs of the trial.

The authorities

11. In their submissions, the parties refer us to a number of authorities regarding the award of costs, which can be summarised as follows:

(a)	Re Elgindata (No. 2) [1992] 1 WLR 1207 and other cases to the same effect, that costs should follow the event, except when it appears to the court that in the circumstances of the case, such as the successful party having unreasonably and unjustifiably increased the costs, some other order should be made;
(b)	Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 AER 873 and Stag Line Ltd v Tyne Shiprepair Group Ltd (“The Zinnia”) [1984] 2 Lloyd’s Rep 211, that generally a party who recovers nominal damages only is the loser and must pay the costs.

The costs of the appeal

12. The essential issues for our decision that resulted in our main judgment were whether R2 was liable for the conversion of the common parts in the shopping arcade for its private use and whether R1 was liable for allowing R2 to make the conversion and to use the Building’s funds for the purpose.  On both of these essential issues, the applicants were successful.  Consequently, we ordered R2 and R1 to repay the $10.3 million so used into the Sinking Fund.  Regarding R2’s liability for the conversion and R1’s liability for allowing the conversion, we awarded only nominal damages to be paid by R1 and R2.  This was because the Judge was not satisfied that the applicants had provided sufficient evidence to prove the damages.  Nevertheless, R2 failed in its appeal in CACV 186/2003 and the applicants were successful in their cross-appeal in CACV 186/2003 on liability against R1, which resulted in R1 being liable, jointly and severally with R2, to repay the wrongfully used monies back into the Sinking Fund, and both respondents being liable to pay nominal damages for the conversion for R2’s private use.  Thus, it is not entirely correct to say that only nominal damages were awarded as a result of our holding that R1 and R2 were both liable.

13. Moreover, the cross-appeal and, for that matter, the claim were brought by the applicants to establish their legal rights that the common areas of the Building were to be safeguarded from being converted to the private use of a particular co-owner (R2), and that the funds for the interests of the Building as a whole should be kept intact and protected by the manager of the Building (R1).  In such circumstances, the applicants’ failure to obtain damages, in my view, should not debar them from recovering the costs where they have their legal rights established by the proceedings.  In Anglo-Cyprian Trade Agencies, Devlin J said at p 874F-G:

“No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.  In applying that rule, however, it is necessary to decide whether the plaintiff really has been successful, and I do not think that a plaintiff who recovers nominal damages ought necessarily be regarded in the ordinary sense of the word as a ‘successful’ plaintiff.  In certain cases he may be, e.g., where part of the object of the action is to establish a legal right, wholly irrespective of whether any substantial remedy is obtained.  To that extent a plaintiff who recovers nominal damages may properly be regarded as a successful plaintiff, but it is necessary to examine the facts of each particular case.”

14. Regarding R2’s costs of the appeal on damages in CACV 400/2003, that appeal was partially successful.  Before us, R2 did not challenge the amount of $10.3 million that was used as the basis for the Judge’s award of damages against R2.  What R2 challenged was that the Judge was wrong in awarding the damages to be payable to the applicants in proportion of their respective contributions towards the funds of the Building.  We set aside that order and substituted for it an order that the respondents pay the sum in its entirety to the Sinking Fund.  To that extent and only to that extent, R2 succeeded in its appeal against the Judge’s order for damages, and the converse was that the applicants failed in this regard.

15. However, in our view, R2 did not get financial benefit of any substance out of its limited success.  Instead of paying 20.5% of the $10.3 million to the applicants proportionally, in our main judgment we ordered the entirety of that sum to be paid into the Sinking Fund.  While R2 had to pay the full sum into the fund, roughly the balance of that full sum over the 20.5% would be for its own benefit, reducing its future contribution to that extent.  Thus, while this initial payment as ordered by us is about 79.5% higher, the reduction of R2’s future contribution in effect offsets the monetary benefit it could obtain from having to pay only the 20.5% ordered by the Judge.  If anything could be said in favour of R2 regarding its appeal in CACV 400/2003, it is that the appeal resulted in an error of the Judge being corrected, but R2 has suffered a financial disadvantage of having to pay the full amount of $10.3 million forthwith instead of only 20.5% of it as ordered by the Judge.

16. It was due to the applicants’ insistence up till late at the appeal hearing to uphold the Judge’s award of damages to them individually and their seeking indulgence by their summons of 1 June 2004 that we disallowed their costs of the cross-appeal and the summons. 

17. Our costs orders nisi in relation to the appeals took into account R2’s partial but financially ineffectual success in CACV 400/2003 and also the applicants’ belated acceptance of the propriety of that appeal, as well as the applicants’ success in their cross-appeal on liability against both R1 and R2 in CACV 186/03.  It was in those circumstances, and taking into account the success or otherwise of the parties’ arguments raised before us and the time of the hearing spent on them, that we made the orders nisi as to costs of the appeal by adopting a broad-brush approach.

The costs of the trial

18. Regarding the costs below, the Judge ordered the applicants to pay R1’s costs and 30% of R2’s costs, and R2 was ordered to pay 70% of the applicants’ costs, to be taxed on the High Court Scale. 

19. The Judge’s order for costs regarding R1 is clearly founded on his decision that R1 was not liable to the applicants for permitting the conversion of the common parts and allowing the expenses for the conversion and the construction works for R2’s exclusive benefit to be paid out of the funds of the Building.  Since the applicants were vindicated by our main judgment with those decisions of the Judge reversed, we considered it proper for R1 to pay the costs of the trial to the applicants.

20. It is argued on behalf of the respondents that out of a total of 29 hearing days which came to 27 full days of the trial, about 19 full days were spent on the accounting issues relating to the amount wrongfully taken out of the Building’s funds and the overcharge of remuneration by R1.  The applicants were only successful in getting less than 20% of the sums they claimed regarding overcharged remuneration.  From the tables very helpfully prepared by those acting on behalf of the respondents, it can be seen that the accountant called by the applicants in respect of the claimed sums took 5 full days in his oral testimony.  The Judge described his evidence as thoroughly discredited by cross-examination.  These facts might probably have been the reason for the Judge ordering the applicants to pay 30% of the costs to R2, while R2 was to pay 70% of the costs to the applicants.  However, the claims of the applicants against R1 and R2 arose out of the wrongful conversion and the wrongful application of the Building’s funds by R1 and R2 towards the expenses for the conversion and the construction works for R2’s exclusive benefit.  The applicants were compelled to make their claims.  The items of expenses, their nature and from which of the two funds of the Building the expenses were wrongfully taken were, or should have been, within the peculiar knowledge of R1 and R2.  R1 was the manager of the Building and the custodian of the funds and accounting records, including all the relevant invoices.  R2 was the owner of the shopping arcade who caused the common parts within the shopping arcade to be converted and incurred the cost for the conversion works, which had been wrongfully paid out of the Building’s funds.  The applicants were obviously faced with difficulty in proving these issues, but they should not be treated as unjustified in trying.  Despite the time used at the trial for proving such sums and their source, and perhaps a long time was spent in that exercise, it is to be noted that only one key witness (the accountant) was called by the applicants but three witnesses gave evidence on behalf of R2 (taking about 8 full days).  The applicants were vindicated in getting $10.3 million to be paid back into the Sinking Fund and in getting about 20% of the sums claimed for R1’s overcharge.  As the applicants have been held by us to be substantially successful in their claims against R1 and R2, they should not fairly be penalised with the costs involved.  We took also a broad-brush approach in awarding the costs of the trial to the applicants against both respondents.

21. As regards the 1 December 2003 hearing, as Mr Alan Leong SC points out in his skeleton submissions, and we accept, that that hearing was for the purposes of seeking clarification from the Judge as to what was the “share” of contribution and “the costs of alteration works” in his judgment that “The damages should be the share of contribution they [the applicants] have made towards the costs of alteration works.”  That was not a hearing on assessment of damages or where fresh evidence on damages was adduced.  The costs of that hearing should, in my view, be part and parcel of the costs of the trial.

22. Both parties’ applications ask for costs of the trial to be taxed on the High Court Scale.  It was by an oversight on my part not to have expressly stated in our main judgment that the costs of the trial were to be taxed on the High Court Scale, which was the view taken by the Judge after having heard the parties for 30 days.  The amount involved in the claims also fully justifies that scale of costs.

Conclusion

23. Despite the parties’ arguments, I am not persuaded that there is anything improper or against principle for us to exercise our discretion on costs in the way we did.  Nor do I see any justification in varying the orders nisi in any manner of substance, save for my omission to state expressly that the costs of the trial are to be taxed on the High Court Scale.  Accordingly, I would allow the applicants’ application regarding the scale of costs, while I would refuse the application of the respondents.

24. The scale of costs of the trial is common ground.  Apart from that, as both parties have failed to persuade me to vary our costs orders, I consider the proper order for costs of these applications should be no order as to costs.

Hon Le Pichon JA:

25. I agree.

Hon Yuen JA:

26. I agree.