THE INCORPORATED OWNERS OF HO ON MANSION v. HERMAN H.M. HUI & CO

HCMP 1608/20 19

[2020] HKCFI 1710

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1608 OF 2019

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RULING ON COSTS

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1.  In my judgment of 20 May 2020, I made an order nisi that the costs of the Originating Summons^[1] by paid by the Defendant to the Plaintiff, to be taxed if not agreed.

2.  By summons of 2 June 2020, the Defendant applied to vary the costs order nisi, such that the Defendant is to pay 50% of the costs of the Originating Summons to the Plaintiff at the District Court scale, with certificate for counsel, or “otherwise to such an extent more favourable to the Defendant” which the Court saw fit to direct.  I directed that the application be dealt with by way of written submissions.  I now give my ruling on that application.

A.     THE RELEVANT PRINCIPLES

3.  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: RHC O 62 r 3(2).

4.  O 62 r 5 deals with the matters which the Court is to take into account in exercising its discretion as to costs:

“(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;

(a) any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) any payment of money into court and the amount of such payment;

(c) any written offer made under Order 33, rule 4A(2);

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(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; and

(g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.

(2) For the purpose of paragraph (1)(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.”

5.  The underlying objectives in O 1A r 1 are:

“(a) to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court;

(b) to ensure that a case is dealt with as expeditiously as is reasonably practicable;

(c) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings;

(d) to ensure fairness between the parties;

(e) to facilitate the settlement of disputes; and

(f) to ensure that the resources of the Court are distributed fairly.”

6.  In Wong Kam Tong v Tin Shing Court, Yuen Long (IO) [2012] 2 HKLRD 1128, Cheung JA made the following observations.

“10. Prior to the Hong Kong Civil Justice Reform (CJR) introduced on 2 April 2009, our Courts had adopted the approach on costs set out in the English case of Re Elgindata (No 2) [1992] 1 WLR 1207 where Nourse LJ at p.1214 held that:

(i) Costs are in the discretion of the court.

(ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made.

(iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs.

(iv) Where the successful party raises issues or makes allegations improperly or unreasonably, 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.

11. England introduced the new Civil Procedure Rules (CPR) which came into force on 26 April 1999. Lord Woolf MR in AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 commented on the effect of the CPR on the award of costs. I will set out his comments in full because it is also relevant to the understanding of the new rules introduced by the CJR:

The Civil Procedure Rules 1998 which have now been made and come into force on 26 April 1999 confer an equally broad discretion as to costs as the existing O 62 r 3 but are much more specific as to the matters to which the courts should have regard in deciding what order should be made. I refer to Part 44.3(2) and (4) which have to be considered together with the overriding objective of the Rules contained in Part 1:

(2) If the court decides to make an order about costs - (a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but (b) the court may make a different order … (4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including – (a) the conduct of all the parties; (b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and (c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention …

Part 44.3(5) defines “conduct” as including:

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (c) the manner in which a party has pursued or defended his case or a particular allegation or issue; (d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

Part 44 also sets out the wide range of different orders which the court can make in para.44.3(6).

I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs. From 26 April 1999 the ‘follow the event principle’ will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new Rules are reflecting a change of practice which has already started. It is now clear that too robust an application of the ‘follow the event principle’ encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so. (Emphasis added.)

12. Lord Woolf MR further held that:

The ‘well established practice’ on which Nourse LJ based his third principle is, as I have already indicated, less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed.

13.  One can see immediately that Hong Kong has adopted a similar approach under O 62 r 3(2) in terms of the ‘follow the event principle’ and its departure and also under r 5 in terms of the consideration whether a party has succeeded on part of the case, even if he has not been wholly successful, and conduct.  In our view, one can say with equal confidence that after 2 April 2009, while the ‘follow the event principle’ will still play a significant role in Hong Kong, it will nonetheless only be a starting point from which the Court can depart, the rationale being that a mechanistic adoption of the ‘follow the event principle’ may result in parties incurring unnecessary costs in civil litigation.  We do not consider the provisions of O 62 r 7(1) (which enable the Court to disallow a party's costs or order it to pay the other party's costs if there is anything done or omitted which is improper or unnecessary) will by itself curtail the power of the Court under the new regime.  The amendment to r 7(2) had specifically added the new (aa), namely, regard to the underlying objectives set out in O 1A, r 1.  In our view O 62 r 7 enables the Court to address the costs issue when there are improper or unnecessary acts or omissions but it does not confine the Court's power only to such situations.”

7.  In relation to the third and fourth of the Elgindata principles, the Defendant further submitted that:

7.1    it is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs.  The court may so order where the failed allegation of the successful party has caused a significant increase in the length or costs of the proceedings: Zhuhai International Container Terminals (Jiuzhou) Ltd v Lo Tong Hoi, unreported, CACV 181/2011, 31 July 2012, at [33] per Kwan JA;

7.2    a “significant increase in the length or cost of the proceedings” does not mean that a precise quantum of costs over a particular threshold must be ascertained.  It simply requires the court to be satisfied that the increase is one that can be estimated as a more than trifling proportion of the total costs.  It is not necessary for the court to be able to isolate and quantify the (increased) costs from the costs of a successful cause of action to any precise extent; it suffices if the court can give an estimate of the proportion of these costs: Chan Lan v Shing Kei, unreported, HCA 1206/2006, 16 June 2008, at [16] per Mr Recorder Fok SC (as he then was);

7.3    The issue‑based approach is not a hard and fast rule, and the aim of the court is always to make an order which reflects the overall justice of the case.  The third Elgindata principle remains relevant because unless the issue in question has caused a significant increase in the length or costs of the proceedings, it is generally disproportionate to embark on an enquiry as to whether an issue-based approach should be adopted, as such likely to be inconsistent with the underlying objectives in O 1A r 1(a) to (c): SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd, unreported, HCA 1466/2012, 23 June 2015 at [48] to [49] per Lok J.^[2]

8.  There was no dispute as to these principles, save that the Plaintiff submitted O 62 r 5(1)(f) had no application as “case” should not be conflated with “issue”, citing Wu Leung Kui Jacky v Leung Ming Yun & ors, unreported, CACV 175/2011, 13 February 2012.  However, what Tang VP said at [10] was that he did not believe O 62 r 5(1)(f) was meant to cover a case where a plaintiff had succeeded in some issues although it had failed completely in his claim against a defendant.  In the present case, in contrast, the Plaintiff has succeeded in obtaining an order for delivery up of certain categories of documents, but not others.  I do not agree that O 62 r 5(1)(f) is inapplicable.

B.     THE DEFENDANT’S CONTENTIONS

9.  The Defendant says that:

9.1    the Plaintiff failed on some of its claims, and that its argument on some issues caused more than a trifling increase in the costs of the proceedings;

9.2    the Plaintiff unreasonably rejected the Defendant’s overtures to settle their disputes amicably;

9.3    the Plaintiff unreasonably included material in the hearing bundles which was not referred to;

9.4    costs should be awarded on the District Court scale.

B1.    “Unreasonable rejection of mediation and settlement”

10.  The Defendant says that both before and after the Originating Summons was issued on 30 September 2019, it had evinced an intention to settle any disputes with the Plaintiff amicably, including via mediation, as expressed in correspondence.  However, the Plaintiff inflexibly demanded delivery up of all nine categories of documents in one go.

11.  The Plaintiff says that the Defendant was evasive in correspondence, raised irrelevant matters, failed to make clear what documents the Defendant had, made conflicting offers and reneged on one such offer, and in any event could simply have handed over all the documents irrespective of the Plaintiff’s position.  It was therefore justified in refusing to attempt mediation, which would have increased costs.

12.  The parties’ submissions referred to various items of correspondence between them throughout 2019.  From a review of these, it is apparent that the Defendant did attempt to resolve the matter amicably, but the Plaintiff adopted a hostile attitude, making little attempt to grapple with what were the genuine issues between the parties. 

13.  The Defendant’s approach can be discerned from its letter of 20 February, which responded to the Plaintiff’s written request of 13 February 2019 setting out the nine categories of documents it sought from the Defendant.  The Defendant said that all except the fourth category could be obtained through the property manager.  The Defendant pointed out that as the property manager had copies of the relevant documents, it would be a waste of resources and costs to make a duplicate set of copies, and asked the Plaintiff to consider how such a large volume of documents would be dealt with in any event – would the MC members read them themselves, or incur costs to engage a professional to go through them all? The Defendant further offered to assist in locating any missing document which the property manager might not have.

14.  On 25 February 2019, the property manager produced to the Plaintiff copies of documents in categories 1 and 2 and part of the documents in categories 5, 6, and records provided by the Defendant in January 2019 relating to category 9.

15.  Thus it was not entirely correct for the Defendant to say that all the documents (except the fourth category) could be obtained from the property manager.  And even if the property manager had certain of the documents, this did not mean that the Plaintiff was not entitled to ask the Defendant for a duplicate set, subject to payment of copying charges where appropriate.  But the Defendant’s point was that it would be sensible for the parties to ascertain what documents were truly needed by the Plaintiff, so as to avoid duplication and costs.  The Plaintiff did not undertake this exercise.  In its solicitors’ letter of 14 May 2019 it was said that if the Defendant did not provide a full set of all nine categories of documents, the Plaintiff would not be able to follow up on outstanding contributions and check the figures.  However, the Plaintiff did not offer to pay any copying charges.

16.  By a letter of 30 April 2019, the Defendant provided documents under categories 2, 6 and 9 (see paragraphs 38, 54 and 64 of my judgment of 20 May 2020).

17.  By a letter of 6 May 2019, the Defendant offered to provide further documents, under categories 1, 5 and 7, but the Plaintiff’s solicitors did not pick them up on the suggested date.  By a letter of 13 August 2019, the Defendant referred to a further agreement for collection of these items on 16 August, but this was scuppered by the Plaintiff’s insistence that all nine categories of documents should be provided.

18.  After the Plaintiff issued the Originating Summons, the Defendant proposed directions that the parties first seek to resolve their differences by mediation, and that only if this was unsuccessful should further evidence be filed and steps be taken in the proceedings.  The Plaintiff declined and insisted that the matter be litigated.

19.  As noted in my judgment of 20 May 2020:

19.1  in relation to category 2, the Plaintiff’s case was simply that it was unclear whether what had been provided was complete or relevant, but the complaint was unparticularised.  The Plaintiff did not seek to show the basis for alleging incomplete or wrong documents;

19.2  in relation to categories 6 and 9, the Plaintiff did not identify what remained to be delivered up thereunder.

20.  This approach indicates that the Plaintiff had not properly addressed its mind to what was truly in issue between the parties.

21.  As B Chu J said in Yau Yic Lock v Wu Tsang Kwai Yuk and Fong Man Sang, unreported, HCMP 2272/2014, 10 March 2017:

“15. Order 62 rule 5(1) has set out those special matters which the court shall take into account in exercising its discretion over costs. As submitted by Mr Chiu, the court will take into account the underlying objectives [in O 1A r 1] under Order 62 rule 5(1) (aa) and further the conduct of the parties under Order 62 rule 5(1) (e).

16. Both parties have the duty to assist the court to further the underlying objectives and to facilitate settlement of disputes between the parties.  Although PD 31 does not apply to proceedings commenced by originating summons, there is no reason for the parties not to attempt mediation.  However, in the present case, neither party has suggested mediation.”

22.  In the present case, it is relevant to take into account the following matters.

22.1  Despite the fact that certain of the documents had been provided to it by the Defendant (categories 2, 6 and 9), the Plaintiff still issued proceedings seeking such documents, without identifying a positive basis for saying that the documents were incomplete or wrong.

22.2  The Defendant had pointed out that the Plaintiff already had various other documents under some of the categories sought (as produced by the property manager), and expressed the view that it was a waste of costs to produce a duplicate set.  Of course, the Plaintiff was within its rights to seek a duplicate set from the Defendant, upon payment of the appropriate charges, but it did not agree to pay. 

22.3  If the Plaintiff was not going to pay, it could have considered which of the documents originally sought under the nine categories had already been provided by the property manager.  Furthermore, the Defendant had offered to assist if any document (within the documents to which the Plaintiff had access) was found to be missing.  However, this was not taken up.

22.4  The Defendant offered to provide documents under categories 1, 5 and 7, but they were not collected.

22.5  The Defendant proposed mediation to resolve the parties’ differences, and had all along indicated a willingness to settle the matter amicably, but the Plaintiff declined and insisted on litigating all nine categories of document.

23.  Had the Plaintiff not adopted such an inflexible attitude, the scope of the dispute between the parties could have been reduced, leading to a saving of time and costs.

24.  The Plaintiff says that the Defendant was evasive in the correspondence and raised minor quibbles.  I do not agree.  It should have been reasonably apparent as to what was being proposed, as outlined above.

25.  The Plaintiff says that the Defendant was evasive as to the existence of documents, for example saying that the property manager had copies of almost all of the documents when in fact the property manager only had some of them.  The general tenor of the Defendant’s letters does not suggest that the Defendant was seeking to hide anything.  Insofar as the Plaintiff was unsure as to whether there were certain documents, this was precisely what the Defendant offered to assist in clarifying.

26.  The Plaintiff says that the Defendant made conflicting offers, citing the Defendant’s letters of 6 May 2019 and 12 November 2019, and that this rendered it “futile” to attempt amicable settlement.  However, much had happened between those two letters, not least of which was the Plaintiff’s institution of proceedings.  The evolution of the Defendant’s position over time did not make it futile to attempt settlement, especially when the Defendant indicated that it wished to do so.

27.  The Plaintiff says that the Defendant could simply have delivered up the documents regardless of the Plaintiff’s position; it did not need the Plaintiff’s cooperation.  I do not think it was reasonable to expect the Defendant to have delivered up all documents in all nine categories without charging for certain of the copies, and indeed I have not held that the Defendant is legally bound to do so.  The Defendant’s failure to provide such delivery up did not justify the Plaintiff’s inflexible stance.

28.  Given the above, I agree that the Defendant should not have to pay the entirety of the costs of the Originating Summons.  At the same time, I bear in mind that even if the issues had been narrowed down, the Plaintiff would still have had to come to court in order to obtain an order in respect of certain categories of documents.  In the circumstances I would order that the Defendant should pay two-thirds of the costs of the Originating Summons to the Plaintiff.

B2.    “Issues on which Plaintiff failed caused more than trifling increase in costs”

29.  The Defendant says that:

29.1  the Plaintiff failed in its application for delivery up of four out of nine categories of documents (categories 2, 6, 8, 9);

29.2  the Plaintiff failed in its argument that the scope of the 1^st Retainer included the settlement of contracts;

29.3  the Plaintiff failed in its argument that O 106 r 3 applied.

30.  The Plaintiff says that the court did not find that it was not entitled to the documents in categories 2, 6, and 9, but only that the Plaintiff did not identify what remained to be delivered up in three of the categories, and the Plaintiff did not pursue category 8 in its substantive submissions.  It says that the Defendant embarked on a misguided exercise in counting the number of paragraphs in the judgment which dealt with the four failed categories as an indication of the level of costs involved.

31.  To the extent that the Plaintiff failed to narrow down the issues between the parties by properly considering its position in relation to categories 2, 6 and 9, this has already been covered by my observations in the preceding section.  As for category 8, this was not pursued by the Plaintiff in its substantive submissions and did not occupy much of the evidence.

32.  As to the point that the Plaintiff failed in establishing that the scope of the 1^st Retainer included the settlement of contracts, so that it should be entitled to documents in category 1, whilst this is true, the Plaintiff succeeded in obtaining delivery up of these documents on other grounds.  The failed argument did not involve a significant amount of evidence and argument.

33.  As to the argument over the applicability of O 106 r 3, whilst the Plaintiff had referred to this rule in the marginal note to the Originating Summons, the Plaintiff had also indicated that it relied on O 106 r 5 and s 65(1) LPO, which had the effect of requiring the Plaintiff’s application to be made by way of an expedited form originating summons, so that the point was of no consequence and should not have caused any significant increase in costs.

B3.    “Unreasonable inclusion of authority”

34.  The Defendant says that it was unreasonable for the Plaintiff to have included the entirety of the Hong Kong Solicitors’ Guide to Professional Conduct in its bundle of authorities, being some 240 pages, when it only relied on a single paragraph (paragraph 5.23).  The Defendant cited Velatel Global Communications Inc and anor v Chinacomm Limited and ors, unreported, HCA 1978/2011, 8 March 2013 at [34] to [35], where Au-Yeung J disallowed costs in relation to preparation of bundles which were not referred to at the hearing.

35.  The Plaintiff says that this is a matter to be raised at taxation rather than on variation of the costs order nisi, and that the excessive material in Velatel was on a greater scale.

36.  However, there is no reason why the matter cannot also be dealt with at this stage,^[3] and it is convenient to do so to avoid arguments about the relevance of the authority being placed before the taxing master and prolonging taxation.  The fact that the excessive material in this case relates to a single authority is not a reason to distinguish Velatel Global Communications Inc.

37.  It was entirely unnecessary and wasteful for the entirety of the guide, including the forewords and the indices, to be reproduced in the bundles.  Furthermore, a further 20 pages were wasted on re‑duplicating chapter 5 of the guide.

38.  I therefore rule that the costs which the Defendant is to pay the Plaintiff should not include the costs in relation to reproduction of the guide, save for the 7 pages comprising the title page and paragraph 5.23 and its accompanying appendix (“the Disallowed Costs”).

B4.    “District Court scale”

39.  The Defendant says that the MC had given instructions to institute proceedings in the District Court, and costs should be awarded on that scale.

40.  The Plaintiff says that the jurisdiction under s 65 LPO to order a solicitor to deliver up documents is exercised by the Court of First Instance, rather than the District Court.

41.  I agree that as the jurisdiction under s 65 LPO is conferred on the Court of First Instance, the Plaintiff could not be faulted for commencing proceedings in the Court of First Instance.

B5.    Certificate for counsel

42.  It appears that there is no dispute that certificate for counsel should be granted.

C.     DISPOSITION

43.  I therefore order that the costs order nisi in my judgment of 20 May 2020 be varied such that two-thirds of the costs of the Originating Summons (save for the Disallowed Costs) should be paid by the Defendant to the Plaintiff, with certificate for counsel, to be taxed if not agreed.

44.  As the Defendant has been successful in its application to vary the costs order nisi in its favour, I further make an order nisi that the costs of the application should be paid by the Plaintiff to the Defendant, with certificate for (one) counsel, to be taxed if not agreed.