CHEUNG WEI MAN VIVIEN AND ANOTHER v. CENTALINE PROPERTY AGENCY LTD AND OTHERS

HCA 286/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 286 OF 2000

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DECISION  ON  COSTS

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1.  In my judgment of 28 September 2006, I made a costs order nisi that the Plaintiffs shall pay the Defendants’ costs. Parties applied for different costs order to be made.

2.  The Plaintiffs, whilst contending that the costs order nisi is basically correct, asked for specific costs order against the Defendants relating to the application for leave to amend the defences to plead the LARCO point and a reduction in the percentage of costs awarded to the Defendants by reason of the rejection by the court of some parts of the defence evidence. 

3.  On the other hand, the Defendants asked for costs to be taxed on indemnity basis or alternatively common fund basis.

Defendants’ applications

4.  I will first deal with the Defendants’ applications. 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) (2004) 7 HKCFAR 114 at p.124 Paras.16 to 18. Counsel highlighted the following points for present purposes,

(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.

5.  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.

6.  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.” 

7.  Mr Horace Wong SC relied on three grounds to invite this court to order indemnity costs or alternatively costs on common fund basis against the Plaintiffs,

(1)     Impropriety in the covert ‘fact-finding exercise’;

(2)     Oppressive, unbalanced and improper conduct of the litigation;

(3)     Unmeritorious claim based on flawed evidence, with serious allegations of dishonesty and deceit never withdrawn.

8.  Mr Ronny Wong SC relied on the ground that the Plaintiffs’ conducts substantially and disproportionately increase the costs of the action.

9.  The main attack launched against the Plaintiffs revolved around the so-called “fact-finding exercise” by Vivien and the genesis and subsequent use of the five documents that I have dealt with in my main judgment. I have given detail reasons as to why I did not feel able to attach any weight on the five documents. To a large extent, it was due to the circumstances under which the signatures to those documents were procured.

10.  In Jones v University of Warwick [2003] 1 WLR 954 at p.963, Lord Woolf alluded to possible costs sanction as a measure that the court can adopt to discourage the use of improperly obtained evidence,

“Excluding the evidence is not, moreover, the only weapon in the court’s armoury. The court has other steps it can take to discourage conduct of the type of which complaint is made. In particular, it can reflect its disapproval in the orders for costs which it makes … perhaps by ordering the defendant to pay the costs throughout on an indemnity basis. In giving effect to the overriding objective, and taking into account the wider interest of the administration of justice, the court must, while doing justice between the parties, also deter improper conduct of a party while conducting litigation. We do not pretend that this is a perfect reconciliation of the conflicting public interests. It is not; but at least the solution does not ignore the insurer’s conduct.”

11.   Mr Horace Wong described the way Vivien got those documents signed as trickery. I would not go so far as that. As Mr Chang SC pointed out, some of the documents had been sent back to Terry and David by post and they had not come back to the Plaintiffs with any objection. The covering letters highlighted the incriminatory aspects of the documents. Although I accepted the agents’ explanation with regard to their silence in assessing the weight that could be placed on those documents, it is understandable that the Plaintiffs took into account of their silence in deciding to use the documents as evidence at the trial.

12.  Whilst objectively speaking the documents were obtained under circumstances which rendered them inherently unreliable, the Plaintiffs might have placed undue or misguided weight on the silence of Terry and David. The unfortunate consequence of the Plaintiffs putting forward these documents in support of their case is that the trial had been considerably lengthened since substantial time had to be spent on the investigation of the various matters I referred to in Paragraph 195 of the main judgment. However, I do not think the court should award indemnity costs solely on that ground alone unless the Plaintiffs’ conduct were highly unreasonable.

13.  Mr Ronny Wong characterized these documents as “self-induced admissions”. Counsel even suggested that it is a case of artificially manufactured evidence. Mr Horace Wong submitted that the present case is worse than Jones v University of Warwick [2003] 1 WLR 954 because the products of the ‘fact-finding exercise’ were some misleading evidence. Counsel submitted that there is no distinction between the tapes and the written documents since Vivien tried to slip in some self-serving remarks in the taped conversations.

14.  In respect of both the tapes as well as the documents, Terry and David were not told of the real purposes of Vivien. However, in my judgment, there are material distinctions between the tapes and the written documents. In the case of the tapes, the main vice was that Terry and David were not told about them being taped. But the circumstances under which the conversations were conducted were truthfully recorded and the court can fairly assess the weight to be attached to certain statements made in the course of such conversations. In the case of the written documents, whilst Terry and David were fully aware of their signatures, the contents of documents did not reflect adequately the circumstances under which their signatures were procured.

15.  Had the Plaintiffs chosen to put forward the written documents without the tapes, I would have no hesitation in holding that to be oppressive and positively misleading and an indemnity costs order would be appropriate. But the Plaintiffs had disclosed the tapes, albeit not at the initial round of discovery (a point which I shall return to). The court was therefore in a position to make a fair assessment of the weight to be placed on the written documents.

16.  Whilst the taping of the conversations without the consent of the parties were understandably regarded as offensive by Terry and David, counsel had not addressed me on any particular rule of law that outlaws such activities. The Personal Data (Privacy) Ordinance may be relevant but there is an exemption for “remedying of unlawful or seriously improper conduct, or dishonesty or malpractice, by persons” (see also Tse Lai Yin Lily v Incorporated Owners of Albert House [1999] 1 HKC 386).

17.  Had there been no tape recordings, subject to the question of relevance and the rule against collateral inquiry, there is no reason why the Plaintiffs could not refer to such conversations in cross-examining Terry and David to contradict their evidence in the witness box. The tape recordings in fact give the court more reliable records of what were said and what were not said in those conversations.

18.  In fact, all the parties made references to the tape recordings in the course of the trial. Whilst the deployment of the tapes inevitably lengthened the trial, the parties had been able to focus on issues relevant to the resolution of the central disputes in the case.

19.  I do not regard the use of the tape recordings by itself as a ground for awarding indemnity costs.

20.  But the Plaintiffs could not escape from the criticisms as regards the manner in which the signatures to the written documents were obtained. Misleading representations were made to Terry and David about the real purpose of the documents. The documents were drafted by the Plaintiffs without consultation with Terry and David. They were drafted in a calculated manner to further the Plaintiffs’ objectives in the contemplated litigation. Although the silence of Terry and David after the letters might have led the Plaintiffs to conclude that the written documents were strong evidence in their favour, such silence cannot be the justification for embarking on this exercise in the first place.

21.  Also I cannot see any answer to the submission that had the Plaintiffs not used the written documents, the Defendants would not need to go into the tape recordings and the lengthy investigation at the trial as regards the circumstances under which the documents were signed.

22.  Mr Horace Wong submitted that the pertinent question is whether there is any justification for this ‘fact-finding exercise’. I agree. Counsel reminded the court the findings in the main judgment, viz. there was no misrepresentation at all. Counsel argued that evidence could only be collected to support facts and when there was no fact, there was simply no justification for any fishing expedition.

23.  I think the analysis is more complicated than that. The extent of knowledge of the Plaintiffs at the time when they embarked on their ‘fact-finding exercise’ varied from representation to representation.  They knew or ought to have known whether the agents had made any representations to them but as regards the asking price representation, no decision representation and sole agency representation, they did not know whether those were true or false. Through the fact-finding exercise, they believed they had a case on the falsity of those representations. Further, they did not have much information as regards the agents’ knowledge on the matters represented and their state of mind at the material times.

24.  I would not say the Plaintiffs had no justification whatsoever for carrying out a fact-finding exercise. But I am of the view that the manner in which they carried out the exercise, perhaps clouded by their sense of grievance occasioned by the loss of their deposit, had not been as objective as it should have been. It was an exercise starting from the premise that the agents must be made liable for their loss. The Plaintiffs were only interested in procuring their signatures to documents that would be useful for the prosecution of their claims. That was the guiding principle in the drafting of the documents and the tactics adopted to secure the agents’ signatures.

25.  Unfortunately, such mentality permeated throughout the exercise and the Plaintiffs’ misguided hope in their case was further fueled by their success in procuring the signatures of the agents to the documents. Although as observed above the agents’ insouciant silence to the letters had contributed to the Plaintiffs’ misplaced confidence in the strength of their case, the Plaintiffs must bear the prime responsibility for their ill-conceived evidence collection tactics.

26.  Based on the documents and their interpretation of the events, the Plaintiffs thought they could advance a case of fraud against the agents. It is trite law that allegations of fraud should not be made without cogent evidence in support. After the trial, this court concluded that these allegations did not have the necessary factual foundation and three representations were unsustainable even on the Plaintiffs’ own case. It is fair to say the action had been unnecessarily expanded by the inclusion of the asking price misrepresentation, the no decision misrepresentation and the sole agency misrepresentation which on proper analysis could not advance the Plaintiffs’ cause in any way.

27.  Further, as mentioned, instead of disclosing the taped recordings at the initial discovery which the Plaintiffs should have done, they chose to withhold the same. Worse still, the Plaintiffs administered interrogatories regarding matters that were evidenced by those tapes with a view to discredit the Defendants by answers inconsistent with the taped recordings. The tapes were only disclosed in 2002 after substantial costs had been incurred in the action.

28.  The Plaintiffs had attempted to explain the late discovery as a tactical move to expose what they perceived to be the lies of the Defendants. It was a deliberate decision and regrettably a solicitor was said to be involved. In my judgment, this is not an acceptable excuse. Concealment of documents would not assist the court in making a fair assessment of a witness. A party is entitled to conduct litigation on the basis that his opponent gives proper discovery as required by the rules. All litigants and those advising them should familiarize themselves with the duty relating to discovery. Any forensic manoeuvre that smacks of ambush has no place in modern litigation and this court will not hesitate in voicing a strong disapproval for such conduct. A witness should have the chance to consider the relevant documents before he reduces his evidence into witness statement. The duty of discovery requires full discovery being given and withholding materials with a view to gain some forensic advantage in terms of trapping the opponents is an abuse of process. This court must take a firm stance to discourage such improper conduct of litigation.

29.  Further, it is not a proper use of the procedure of interrogatories to set traps for the opponents. Interrogatories should only be administered if they are necessary for disposing fairly of the cause or matter or for saving costs. The interrogatories administered by the Plaintiffs on the 2^nd and 3^rd Defendants on 12 October 2000 sought extensive information about the conversations that had been covertly taped. The Plaintiffs had not explained why those interrogatories were necessary whilst they already had the taped recordings and those tapes were withheld from the Defendants. After this court had raised its concern about the interrogatories, Mr Chang very wisely and properly refrained from cross-examining the Defendants by reference to their answers in these interrogatories. But the Defendants had already incurred costs in answering the interrogatories which should not have been administered in the first place.

30.  Mr Chang urged upon this court that there was no finding that the Plaintiffs deliberately lied about the identity of the agent conducting the viewing of the property. Further counsel emphasized that the Defendants put forward a positive case of the illegal structures having been drawn to the attention of the Plaintiffs. With respect, I fail to see how these could rationalize the Plaintiffs’ claim based on the illegal structure misrepresentation. The finding of this court was that the agents did not make any representation on the legality of the structures. In preferring the evidence of Gary Ng, this court also accepted his evidence that some of the illegal structures had been drawn to the attention of the Plaintiffs in the course of viewing. Given that (1) no representation had been made by Gary Ng at the viewing, (2) the Plaintiffs’ pleaded case on this head of claim is confined to representations made at the viewing, (3) the Plaintiffs’ evidence did not allege further discussions of legality of the structures  prior to the conclusion of the provisional agreement, it must follow that the Plaintiffs had no factual basis to support this claim and they ought to know that.

31.  As regards the rejection of the evidence of agents about the genesis of Clause 5, it is a matter I would take into account in deciding the proper basis of taxation. However, I do not regard this as exonerating the Plaintiffs in terms of their unreasonableness in pursuing this head of claim.

32.  In my judgment, the Plaintiffs had unreasonably conducted their claims in a manner that disproportionately escalated costs. In the special circumstances of this case, it is appropriate to order costs awarded in favour of the Defendants on a more generous basis than the usual party and party basis.

33.  However, I am not convinced that the Plaintiffs’ unreasonableness was of such a high degree that merits costs on indemnity basis. In coming to such conclusion, I take into account of the following matters. First, as mentioned, the Plaintiffs were encouraged by the silence of the agents in the wake of the letters enclosing the written documents to adduce the documents as evidence.

34.  Second, the Defendants were not entirely blameless in their conduct of the litigation. There was late discovery of documents by the 1^st Defendant. Some computer records were only disclosed at the trial. There were aspects of the agents’ evidence that this court rejected. The LARCO point was raised at a very late stage. Whilst these would not justify the Plaintiffs’ conducts, I think the court should take these into account in deciding which basis of taxation would be fair to all the parties in the present case.

35.  Third, the Defendants must bear some responsibility for their lack of care in signing or generating the relevant documents including the written documents signed by Terry and David, the letter prepared by Phoebe Chan, the draft agency renewal agreement and computer record entry prepared by Simon Shea.

36.  On balance, I shall adopt the approach of Bokhary J (as he then was) in Dr Koo Chih Ling Linda v Dr Lam Tai Hing [1992] 1 HKC 193 and vary the costs order nisi to order (subject to the order below as regards the application on costs pertaining to the LARCO point) the Plaintiffs to pay the Defendants’ costs in this action and such costs to be taxed on a common fund basis.        

Plaintiffs’ application

37.  The Plaintiffs submitted that the Defendants should bear the costs of and incidental to and thrown away by their application for leave to amend their Defence to add the LARCO plea and costs of the preceding arguments as regards whether the point could be advanced without amendments.

38.  The LARCO point only surfaced after the close of evidence and the Defendants first referred to it in their written closing submissions. The 1^st Defendant argued that no amendment was necessary for the point to be canvassed. I ruled against them. The Defendants then applied for amendments and the application was resisted by the Plaintiffs. The Plaintiffs failed in their attempt to resist the amendments. Leave to amend was granted by the court. After leave was granted, Terry was recalled for cross-examination by Mr Chang.   

39.  I have referred back to the transcript to refresh my memory about how these applications had developed and the time took up by the parties to argue the matter at each stage.  I also bear in mind that the time spent in court may not be a full reflection on the costs involved as parties had no doubt spent a fair amount of time in preparation.

40.  The first point to be resolved is whether the Defendants should bear the costs of the amendments because they are seeking an indulgence. The Defendants relied on Lessy SARL v Pacific Star Development [1996] 2 HKLR 1 and argued that there should be a dichotomy between the costs of and occasioned by the amendments on the one hand and the costs of the hearing for leave to amend on the other.

41.  I accept there are cases where such a distinction should be made. However, there are also cases where even though leave to amend was granted, the opposing party should still have the costs of resisting the amendments because it was not unreasonable to resist. That was what happened on the facts of Lessy.

42.  In the present case, I am of the view that it was not unreasonable for the Plaintiffs to resist the application for leave to amend bearing in mind the timing of the application and the impact of the amendments to their claims based on fraudulent misrepresentation on financial standing. Even though the evidence obtained in the subsequent recall of Terry was narrowly confined and did not take up too much time and the progress of the trial was consequently not substantially disrupted, it shows that the amendment should have been put in at an earlier stage and this is a factor this court should take into account on the question of costs.

43.  The next point is the extent to which the Plaintiffs should have their costs out of this episode. I agree with Mr Chang that the Plaintiffs should have the costs of the argument on the need to amend as well as the costs of the application for leave to amend. The arguments started some time in the afternoon of 19 June and the whole of 20 June was taken up by these matters.

44.  Terry was recalled to give evidence on 21 June that lasted not more than half an hour and another half hour was usefully utilized by Mr Chang on some other submissions on law not relating to the LARCO point.

45.  Mr Horace Wong argued that those three days were reserved for closing submissions by the 1^st Defendant and as it turned out no extra time was required to deal with these matters arising from the LARCO defence. As far as the court’s diary is concerned, it is correct that no additional day needed to be reserved for the LARCO point to be canvassed.  However, it does not follow that no extra costs had been incurred. Subject to the LARCO point, Mr Ronny Wong had finished his closing submissions on 19 June and parties needed not come back on 20 and 21 June but for that point. In addition, costs were incurred in terms of preparation for arguments on the point.

46.  Although it can be said that had the LARCO point were pleaded from the outset trial time would equally be taken up by evidence of Terry on the point, it seems to me that Mr Chang’s cross-examination on that point could have easily been absorbed into the trial prior to the close of evidence on 27 March 2006. Hence, even though the costs arising from the recall of Terry was not thrown away, it is nevertheless costs occasioned by the late amendment.    

47.  I will order the Defendants to pay the Plaintiffs’ costs of the LARCO amendment and the costs of 20 and 21 June and any extra costs stemming solely from the preparation for arguments relating to the LARCO point up to 21 June.  Although 21 June was taken up by some submissions on legal points other than the LARCO point, the time spent in court was roughly the same as the time taken up by the LARCO point on 19 June (for which I do not order costs against the Defendants).

48.  Mr Chang also asked for the award of costs in favour of the Defendants be reduced by a certain percentage on account of the court’s rejection of some of the Defendants’ evidence and some other features in the conduct of the defence case at the trial. I do not regard there is any valid basis for so doing in the present case. First, the rejection of some of the evidence has already been taken into account by this court in ordering costs on common fund basis as opposed to indemnity basis.

49.  Second, the proper approach is the one set out by Nourse LJ in Re Elgindata Ltd (No.2) [1992] 1 WLR 1207 at p.1214. The Defendants were wholly successful in terms of event, viz. all the claims of the Plaintiffs were dismissed. The general rule that costs should follow event does not cease to apply simply because the successful party raises issues or makes allegations on which he fails. Having considered the aspects of the evidence of the Defendants that I rejected, I do not think they fall within any of the exceptions set out by Nourse LJ. They are merely run-of-the-mill litigation contingency.

50.  Third, as regards the other elements in the conduct of the defence case referred to by Mr Chang, I do not regard them as sufficiently serious to warrant the deprivation of the Defendants of their costs. Some of them were taken into account in the above section dealing with the basis of taxation. The question regarding the admission of existence of unauthorized structures could at most be characterized as error of judgment on the part of the lawyers. The points made by Mr Chang as to the lack of contemporaneous records, the written documents and the Gary Ng issue are simply a further attempt to re-argue the question of weight of evidence. It should be apparent from my Reasons for Decision of 20 March 2006 that the resistance to the Plaintiffs’ application for leave to amend is entirely reasonable. Late discovery of computer records had been taken into account.       

51.  Hence, I dismiss Paragraph 2(ii) of the Plaintiffs’ summons.

Results

52.  There shall be order in terms of Paragraph 36, 47 and 51 above.

53.  The Defendants asked for certificate for two counsel. Strictly speaking, this is not necessary. Since I have ordered taxation on common fund basis, the test is whether the engagement of two counsel was reasonable. Given the complexity of this case, the engagement of two counsel by all the parties, the imputation cast on the Defendants’ reputation by allegations of fraud, it is difficult to imagine how a taxing master could perceive the engagement of two counsel as other than reasonable.

54.  For the costs of the hearing on 4 December 2006, the Defendants succeeded in their summons in getting costs on common fund basis whilst the Plaintiffs succeeded in getting costs for the LARCO amendments. The Plaintiffs failed in their attempts to deprive the Defendants a percentage of their costs of the action. A lot more time and efforts were spent on the debate relating to the basis of taxation and the reduction of the Defendants’ costs. I order the Plaintiffs to pay 70% of the Defendants’ costs of that hearing, such costs to be taxed on party and party basis.