WONG YUK KUN v. WONG YUK WAN AND ANOTHER

DCCJ 4846/2016

[2022] HKDC 145

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4846 OF 2016

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DECISION

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A. INTRODUCTION

1.  Unless otherwise stated, I adopt herein the abbreviations used in the Judgment handed down (“the Judgment”) on 5 October 2021.

2.  In the Judgment, I have dismissed P’s claim and Ds’ counterclaim for declaration for compensation payable by P for P’s and/or her family’s occupation of the Property to the exclusion of Ds.

3.  In respect of Ds’ counterclaim, I grant the following:-

(a)     a declaration that the Property is held by P and D1 on trust for P and D2 proportionate to their respective beneficial interest in the Property, ie 68.56% and 31.44%.

(b)     an injunction to restrain P, whether by herself, her agent, her servant or otherwise from transferring, selling, agreeing to sell, charging, mortgaging, assigning or otherwise dealing with the Property including, but not limited to, any interest she has.

4.  I have made the following order nisi:-

(a)     costs of the action (including all costs reserved, if any) be to Ds, with certificate for Counsel, to be taxed if not agreed, except:-

(i)     costs of the Preliminary Matters be to P, with certificate for Counsel, on indemnity basis, to be taxed if not agreed; and

(ii)     costs thrown away on 16 April 2021 be to P, with certificate for Counsel, to be taxed if not agreed.

(b)     P’s own costs be taxed in accordance with Legal Aid Regulations.

     (collectively referred to “the Costs Order Nisi”).

5.  By Summons dated 19 October 2021 (“P’s Summons”), P seeks to vary the Costs Order Nisi in the following manner:-

(a)     60% of the costs of the action and counterclaim be paid by P to D2, on a party to party basis;

(b)     40% of the costs of the action and counterclaim be paid by D2 to P, on a party and party basis and;

(c)     D1 shall pay the costs of the action and counterclaim to P, on a party and party basis.

6.  By Summons dated 21 October 2021 (“Ds’ Summons”), Ds apply for variation of the Costs Order Nisi in respect of the Preliminary Matters, that the basis of taxation be varied from indemnity basis to party and party basis.

B. P’S SUMMONS

7.  Mr Chan for P invited the court to adopt an issue-based costs order as it is just and appropriate to do so.  It is submitted that there is no prerequisite to show that a successful party has acted unreasonably in embarking on an issue that eventually failed.  Mr Chan relies on cases including Momin Lok v Hospital Authority [2021] HKCA 1319, Chan Shun Kei trading as Chan Shun Kei Construction Works v Hong Kong Construction (Hong Kong) Limited, CACV192/2014, and Building Authority v Appeal Tribunal (Buildings) [2020] HKCFI 1245.

8.  Mr Chan pointed out that P has prevailed under Issues 4, 5, 7(a), (b), (c) and (d) of the 7 agreed issues, when this court held that:-

(a)     D1 did not make any monetary contribution in the sum of $100,000 (whether directly or indirectly) towards the purchase of the Property;

(b)     D1’s name was registered as joint owners of the Property solely to facilitate the mortgage application and protect D2’s interest therein, not D1’s and

(c)     D1 and D2 had no valid claim for occupation rent against P.

9.  Mr Chan submitted that D1 was the losing party as a whole and D2 was only a partially successful party under the action and counterclaim.  It is said that D1’s case on beneficial ownership of the Property wholly failed against P and her case against P for occupation rent by counterclaim was also unsuccessful.  D2’s case against P for substantial amounts of occupation rent under the counterclaim has wholly failed.

10.  Mr Lam for Ds refers to the well-established principle in Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 that:-

“(i) Costs are in the discretion of the court; (ii) They should follow the event, except where 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 hefails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or 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.  Mr Lam submitted Hong Kong courts prefer the approach in Seepersad v Persad [2004] UKPC19, where Lord Carswell held that in order to justify a reduction in costs to the successful party on the basis of an issue unsuccessfully litigated, that issue must be something so distinct and separate in itself that the decision of it constitutes an “event”.  Mr Lam referred to Momin Lok v Hospital Authority [2021] HKCA 1319 in this regard.

12.  Mr Lam reiterated, as he did at trial, that whether D1 had contributed $100,000 towards the $700,000 advanced by D2 is a matter between D1 and D2 and does not concern P.  Ds is the successful party against P’s claim for declaration of sole beneficial ownership of the Property and Ds’ counterclaim for a declaration of beneficial ownership and the injunction.

13.  As for the unsuccessful counterclaim for declaration for compensation from P for occupation rent (and the consequential inquiry as to amount of compensation), Mr Lam submitted no reduction should be made as the issue involved purely legal argument as a result of the CFA judgment in Cheung Lai Mui v Cheung Wai Shing [2021] HKCFA 19.

Discussion

14.  I have carefully considered the cases cited by both Mr Chan and Mr Lam.

15.  In Chan Shun Kei trading as Chan Shun Kei Construction Works v Hong Kong Construction (Hong Kong) Limited, CACV 192/2014, the Court of Appeal held that:-

“27. Mr Lee then submitted that the judge erred in failing to have to regard to the fact that the Plaintiff was ultimately the successful party in this action, having an award made in his favour in a money action where there was no sanctioned payment. Counsel submitted that the judge should not segregate part of the trial in assessing who was the overall winner. Thus, in making the order for costs that he did in relation to the Liability Trial, the judge lost sight of the overall success of the Plaintiff and his need to come to court to obtain relief.

28. In this connection, we are of the view that Mr Lee is on firmer ground. His contention is supported by the judgment of Longmore LJ in A L Barnes Ltd v Time Talk[2003] EWCA Civ 402 (subsequently endorsed by Pill LJ in ACT Construction v Mackie [2005] EWCA Civ 1336). In that case, the learned judge held that it was an error of principle if a judge segregated a large element of costs before he decided who was the successful party in a monetary dispute.

29. Though there had been a split trial in the present case, it came about in the rather exceptional circumstances as recited above. We are of the view that the principle discussed by Longmore LJ should be equally applicable in the present context. Bearing in mind how the split trial came about and the fact that prior to the first day of trial, parties proceeded on the basis that there would be a trial of all the issues, we do not think it is correct for the judge to ignore the ultimate success of the Plaintiff in considering the proper order for costs including the costs on the liability issues. Actually, the liability issues are not determinative of the question of liability. The claims of the Plaintiff were substantially reduced as a result of the determination on the 6 issues. But the Plaintiff remains as the ultimate successful party in the action.” (emphasis added)

16.  While the Hong Kong court do adopt an issue-based approach, the court must first decide which party has the overall success when dealing with costs.

17.  Although P has succeeded in some of the agreed issues (which mainly depends on the alleged contribution of $100,000 from D1), the overall success of the case lies with Ds.  As pointed out by Mr Lam, whether or not D1 did contribute the $100,000 towards the $700,000 advanced by D2 is a matter between D1 and D2 and does not affect P’s case.

18.  In any event, evidence at trial on D1’s contribution of $100,000 was rather short and most of the time was spent on explaining the background and nature of the $700,000 advanced by D2.

19.  However, I am persuaded by Mr Chan that P is the successful party in resisting Ds’ counterclaim for declaration and the consequential inquiry of occupation rent.  The same should be reflected in costs.

20.  The defeated counterclaim in relation to occupation rent, I agree with Mr Lam, involves essentially legal argument.  Ds’ case is premised on “mutual understanding or agreement” to which very little or no evidence was elicited at trial.

21.  I shall order Ds to pay P’s costs of and in relation to the submissions and argument on occupation rent.  The Costs Order Nisi shall be varied accordingly.

C. Ds’ SUMMONS

22.  Mr Chan took issue that Ds’ application is 2 days out of the 14 days stipulated under the Judgment.  It is said that:-

(a)     It was late and on the ground of delay alone that has not been explained, Ds’ Summons should be dismissed with costs;

(b)     Alternatively, it should be dismissed because it is meritless.

23.  As noted by Mr Chan, there is no application under either O  3 r 5 RDC and O 2 r 5 RDC to extend time or seek relief.  Mr Lam in his Written Submissions dated 28 December 2021 sought to argue that Ds’ application was “responsive” to P’s Summons which was taken out on the last of the 14 days period.

24.  In this regard, Mr Chan argued that:-

(a)     There is no affirmation evidence to explain the delay;

(b)     The absence of prejudice to P due to the 2 days’ delay does not, ipso facto, enable this Court to consider Ds’ application on its merits and

(c)     There is in fact prejudice caused to P.

25.  Mr Chan further argued that there are no merits in Ds’ application. The Preliminary Matters were raised in Mr Lam’s Written Opening, against the ruling by Master Peony Wong disallowing Ds to plead “illegality”.  Mr Lam effectively invited this Court to invoke its inherent jurisdiction to allow illegality argument and at the same time failed to draw to the Court’s attention of the Master’s order.  In doing so, they were embarking on a clear abuse of process.

26.  Mr Lam submitted, had P not made her application to vary the Costs Order Nisi, Ds would have left the costs order as it is.  It is also argued that no conceivable prejudice is caused by the slight delay of 2 days.

27.  Mr Lam further argued that there is no requirement that there has to be affidavit evidence to explain the delay.  Effectively, Mr Lam is inviting this Court to treat his Written Submissions of 28 December 2021 as evidence in support of Ds’ application to extend time.

28.  Mr Lam submitted that the court has discretion to allow such application out of time, cf Tang Man Kit v Hip Hing Timber Co CACV 137 of 2002, an authority relied on by Mr Chan.

29.  As for merits of the application itself, Mr Lam relies on Huge Dragon Corporation Ltd v Lung Mun Oasis (IO) [2014] 3 HKLRD 286, where the court held that:-

“…… where the proceedings in question should never have been brought or defended but the party nevertheless unreasonably and unjustifiably persisted, he may well be visited with indemnity costs …...”

30.  Mr Lam said that there must be something “out of the ordinary” to make it “appropriate” for indemnity costs to be awarded.

31.  The reason given in the Judgment was to discourage last minute pre-trial applications, cf Li Xiao Yun & Another v China Gas Holdings Limited, unrep, CACV 38/2013.

32.  Mr Lam argued that the Preliminary Matters were first raised by P on the first day of trial that Ds should not be allowed to argue “illegality” or adduce evidence of the same.

33.  Mr Lam noted that Ds’ Opening Submissions were filed and served on 7 April 2021 and P did not issue a summons or give any prior indication that she was making an application to reject Ds’ illegality argument at trial (which commenced on 12 April 2021).  Also, Mr Chan’s submissions was unnecessarily lengthy.

34.  The Striking Out Application was necessitated by the Court’s ruling on “illegality”, and the time taken was short.  There is no suggestion or ruling by this Court that the Striking Out Application was unreasonable or unjustifiable.

Discussion

35.  It is trite the court has discretion to allow application to vary costs order out of time.

36.  Ds’ Summons was taken out under O 32, r 2, O 42, r 5B and O 62, r 3 and r 28, but not under O 3 r 5 and O 2 r 5, or even under O 59, r 10 (inherent jurisdiction).

37.  There is strength in Mr Chan’s objection in that there is no proper application to extend time.

38.  However, the content of Ds’ Summons did contain “the costs order nisi be varied out of time”.

39.  Reading Ds’ Summons in its entirety, Ds did in fact ask for extension of time.

40.  I am not prepared to dismiss Ds’ Summons on this technical ground alone.

41.  That said, I am reluctant to accept Mr Lam’s Written Submissions as evidence in support to explain the delay.  It is trite that submissions from Counsel cannot be treated as evidence.  Mr Chan is correct in pointing out that there is no evidence to explain the delay.

42.  Be that as it may, I shall proceed to consider the merits of Ds’ Summons.

43.  As submitted by Mr Chan, an indemnity costs order will be made by the court to reflect the fairness and justice in a particular case and there is no need for a finding of mala fide, being vexatious or acting out of an ulterior motive against the paying party.  Mr Chan referred to Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 and Town Planning Board v Society for Protection of the Harbour Ltd (2004) 7 HKCFAR 114.

44.  The Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Ltd (2004) 7 HKCFAR 114 held:-

“16. The courts have rejected the proposition that an award of indemnity costs will only be made where a case has been brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party.

17. In these and other cases, courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made. It has been said that:

“…... the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.

18.     Neither statements of principle nor authority provide any support for the Board's proposition that the attributes of the parties and the character of the proceedings are irrelevant to the exercise of the discretion to award indemnity costs.  In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while:

“…... the grounds [upon which costs are awarded] must be connected with the case. This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further.

(Scherer v Counting Instruments Ltd [1986] 1 WLR 615 at p.621F, per Buckley LJ).  There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs.” (emphasis added)

45.  The above principles are summarized and further elaborated by the Honourable Lam J (as he then was) in Cheung Wei Man Vivien & Chan Kim Thiam v Centaline Property Agency Ltd and Others HCA 286/2000:-

“The applicable legal principles on award of costs on indemnity basis are not in dispute. They are encapsulated in the judgment of the Chief Justice in Town Planning Board v Society for Protection of the Harbour Ltd (No. 2)

(a) The discretion to award costs on indemnity basis is unfettered and is not limited to circumstances where a case has been brought with ulterior motive or for improper purpose or where there is deception or underhand conduct on the part of the losing party;

(b) In considering whether indemnity costs is to be awarded, the court may consider any matter relating to the litigation and the parties conduct in it and also circumstances leading to the litigation.

Further, conducts leading to unreasonable escalation of costs is a relevant factor to be taken into account, particularly when such conduct leads to substantial increase in costs. In Macmillan Inc v Bishopgate Investment Trust Ltd, Millett J (as he then was) referred to costs “incurred irrationally or out of all proportion as to what is at stake”(endorsed by the Court of Appeal in Sung Foo Kee Ltd v Pak Lik Co [1996] 3 HKC 570). Counsel also brought to this court’s attention other illustrations of award of indemnity costs by reason of unreasonable escalation of costs: Tonkin v UK Insurance (No. 2) [2006] EWHC 1185 (TCC); NLA Group Ltd v Bowers [1999] 1 Ll Rep 109 at p. 113.

It is also useful to remind ourselves what Simon Brown LJ said in Liam v MGN Ltd (No. 2) [2002] 1 WLR 2810 at Paras. 11 and 12 in considering whether the conduct of a losing party is so unreasonable so as to warrant an award of indemnity costs. In particular, at Para. 12, His Lordship observed, “I for my part understand the court there to have been deciding no more than that conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight.”…” (emphasis added)

46.  Mr Lam sought to argue that the Preliminary Matters were “first raised by P on the first day of trial”.

47.  Looking at the history of the litigation and how the Preliminary Matters came about, with the greatest respect to Mr Lam, it was Mr Lam who attempted to have a second bite of the cherry after the pleading on “illegality” was rejected by Master Peony Wong.

48.  And, as submitted by Mr Chan, Ds failed to draw the Court’s attention to the Master’s ruling when attempting to raise the illegality argument in the Written Opening.

49.  This offends the principle of res judicata/issue estoppel.  I also repeat paragraphs 29 to 32 of the Judgment that there was nothing ex facile illegal which warrants the illegality argument.

50.  Contrary to Mr Lam’s submissions, the Preliminary Matters were raised by Ds at the 11^th hour. It is not something “wrong or misguided in hindsight” but surely is “out of the ordinary” and unreasonable. Indemnity costs is justified in the circumstances.

51.  There are no merits in Ds’ Summons and it should be dismissed accordingly.

D. DISPOSITION

On the Costs Order Nisi

52.  The Costs Order Nisi be varied as underlined below:-

(a)     costs of the action (including all costs reserved, if any) be to Ds, with certificate for Counsel, to be taxed if not agreed, except:-

(i)     costs of the Preliminary Matters be to P, with certificate for Counsel, on indemnity basis, to be taxed if not agreed; and

(ii)     costs thrown away on 16 April 2021 be to P, with certificate for Counsel, to be taxed if not agreed.

(iii)     Ds do pay P’s costs of and in relation to submissions and argument on occupation rent, with certificate for Counsel, to be taxed if not agreed.

(b)     P’s own costs be taxed in accordance with Legal Aid Regulations.

On P’s Summons and Ds’ Summons

53.  Although I do not agree with Mr Chan’s proposed variation under P’s Summons, P is still successful in varying the Costs Order Nisi.

54.  I therefore order that costs of P’s Summons be to P, with certificate for Counsel, to be taxed if not agreed.

55.  Ds’ Summons is dismissed with costs.  I agree with Mr Chan that costs should again be on indemnity basis for lack of merits: Huge Dragon Corporation Ltd v Lung Mun Oasis (IO) [2014] 3 HKLRD 286, cfTown Planning Board v Society for Protection of the Harbour Ltd (2004) 7 HKCFAR 114. 

56.  I order costs of Ds’ Summons be to P, on an indemnity basis, with certificate for Counsel, to be taxed if not agreed.

57.  P’s own costs be taxed in accordance with Legal Aid Regulations for both Summonses.

58.  I am grateful for Counsel’s assistance.