GRAHAM M. MORLEY v. KWAN WO SAN AND OTHERS

   HCA4366/2003

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   ACTION NO. 4366 OF 2003

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BETWEEN

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DECISION ON COSTS

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Introduction

1.  This action came on for trial before me on 30 November 2009, with an estimate of 10 hearing days. Shortly after Mr Alfred Cheng, counsel for the plaintiff (“Mr Morley”), finished opening the case on the first day, and before any witness was called to give evidence, I was informed that Mr Morley and the 1^st and 2^nd defendants[1] managed to reach settlement of their dispute, save for the costs of the action. I was invited to make a consent order in the following terms:

“(1)  The 1^st and 2^nd defendants do jointly and severally pay HK$732,000.00 to the plaintiff within 7 days from today on without admission of liability basis;

(2)  Upon payment of HK$732,000.00 as stated in paragraph (1) above, the plaintiff do forthwith vacate the lis pendens he registered against [the Property];

(3)  Costs between the plaintiff and the 1^st and 2^nd defendants to be decided by the trial judge; and

(4)  Subject to paragraphs (1) to (3) above, the plaintiff’s claim against the 1^st and 2^nd defendants and the counterclaim of the 1^st and 2^nd defendants against the plaintiff by stayed.”

2.  The 3^rd defendant (“Mr To”), who has acted in person throughout these proceedings, was not a party to the settlement. Mr Cheng informed me that if I were minded to grant an order in terms of the draft consent order, Mr Morley would seek leave to discontinue the action against Mr To, but would seek to recover from Mr To his costs attributable to this part of the action.

3.  Further, Mr Morley and the 1^st/2^nd defendants agreed that for the purpose of determination of costs, they would proceed by way of written submissions and would not call any oral evidence.

4.  I was persuaded to make an order in terms of the consent order and to assist the parties by resolving the issue of costs.

5.  In this Decision, I shall first explain why I considered it appropriate for me to accede to the parties’ request to determine costs without determining the substantive issues. For that purpose it is necessary to give a brief summary of the action and to consider some relevant authorities on the court’s approach to determining costs of the action where the substantive issues have been settled. I will then proceed to determine the question of costs as between the parties.

The action

6.  In broad terms, the outline of the case is as follows.

7.  The action arose out of an agreement for the sale and purchase of a unit on the second floor and roof of what is commonly called a “village house” in Sai Kung (“the Property”). The agreement in question, called “Intent to Purchase”, was dated 27 January 2001. There is no dispute that it was a legally binding agreement. Pursuant to that agreement, Mr Morley agreed to buy and the 1^st/2^nd defendants agreed to sell the Property for the sum of HK$2,440,000.

8.  Mr To was the estate agent involved in bringing the two sides together.

9.  Pursuant to the agreement, Mr Morley paid the 1^st/2^nd defendants HK$732,000, or 30% of the consideration. (The parties referred to the sum of HK$732,000 as the “Deposit”, although there was dispute as to the nature of that payment. For convenience, I shall continue to use the term “Deposit” as a shorthand for the sum of HK$732,000.)

10.  It was provided in the agreement that Mr Morley would have the “right of abode” in the Property (the parties agreed that the term meant that Mr Morley would have the right to occupy or reside there) upon payment of 30% of the purchase price. Thus Mr Morley and his family moved into and resided in the Property in about March 2001. Problems began to surface shortly after the Morleys moved in, so it was claimed: there were construction defects, water seepages, etc. Mr Morley claimed that the 1^st/2^nd defendants failed to rectify the defects. For a substantial period of time, they had to move out of the Property and live in rented premises, and during that period the Property was let to a tenant.

11.  The agreement was eventually aborted (to put it neutrally) by around July 2003, or October 2003 at the latest. Mr Morley commenced this action in November 2003, seeking repayment of the Deposit, and other wasted expenses totalling about HK$135,000.

12.  Mr Morley’s case, in essence, was that he was misled into agreeing to purchase the Property by Mr To acting as agent of the 1^st/2^nd defendants. Mr Morley alleged that Mr To had represented to him that the 1^st/2^nd defendants were the owners of the Property. In fact, they were never the owners. It transpired that one Mr Lau was the registered owner of the land and the village house.

13.  Mr Morley further claimed that the 1^st/2^nd defendants were not able to prove or pass good title of the Property to him on or before the contractual completion date, which was 18 September 2003 at the latest. There is no dispute that Mr Lau assigned the Property to the 2^nd defendant on 31 October 2003.

14.  The 1^st/2^nd defendants, on the other hand, claimed that Mr Morley was in breach of the agreement and they were entitled to forfeit the Deposit. They denied that Mr To was their agent, and denied that they had authorised Mr To to represent to Mr Morley that they were the “owners” of the Property. Additionally, their case was that they had an arrangement with Mr Lau and another party under which they had an “equitable interest” in the Property which entitled them to contract with Mr Morley as vendors. They seek various relief including damages for breach of contract and mesne profits including the rent received by Mr Morley from the tenant.

15.  Mr To, who as I said above always acted in person, denied all wrongdoing on his part.

16.  It is regrettable that this action has taken 6 years to come to trial. Moreover, the amounts at stake could hardly justify a 10‑day trial in this court. It is to be hoped that this unfortunate state of affairs would not recur after the Civil Justice Reform.

Cautionary approach to determining costs without trial

17.  Since Mr Morley and the 1^st/2^nd defendants have reached settlement on the substantive issues, there was no longer any live issue remaining as between Mr Morley, the 1^st/2^nd defendants and Mr To. It is readily understandable why the parties would wish to avoid incurring further costs of a lengthy trial in order to determine who should bear the costs of the action.

18.  In this case, central to the parties’ contentions are disputed allegations of misrepresentation and agency, which are evidence sensitive issues of fact or mixed fact and law, and plainly not capable of determination on paper. The dilemma faced by the court is whether it is possible for the court to come to a fair and just decision on costs without determining the substantive issues.

19.  In accepting the invitation to make the consent order, I was mindful of the wise counsel given by the English Court of Appeal in two recent judgments.

20.  In Butcher v Wolfe [1999] 1 FLR 334, a pre-Woolf Reform case, Mummery LJ observed at 338G–339C that:

“A point of general concern arises on the judicial determination of costs when everything else has been agreed.  It is unfortunate that, in compromising these proceedings, the parties were unable to reach an agreement on liability for costs.  That led to a situation which settlements are intended to prevent—further litigation between the parties, with the result that substantial additional costs have been incurred in deciding who should pay the substantial costs already incurred.

All lawyers learn from experience that costs are often a stumbling block in negotiating a settlement of proceedings.  A judge who is informed by the parties that they have agreed everything except costs may be placed in a difficult position.  On the one hand, he may take the view that, if the parties have not agreed everything, including costs, then they have not settled their case: they must either reach an agreement on costs or, failing that, go on with the case.  This is a matter for the discretion of the judge.  He may be entitled in some circumstances to adopt that position in the hope that the case will not go on and that a settlement on costs will be achieved.  On the other hand, a judge may not wish to risk jeopardising the settlement, and may agree to do what Rattee J did in this case—decide the costs issue for the parties.  There can be problems; as the case has not run its full course, the judge has not heard all the evidence and all the argument.  He may face difficulty in knowing what materials he should take into account in the exercise of his judicial discretion.”

21.  More recently, in BCT Software Solutions Ltd v C Brewers & Sons Ltd [2003] EWCA Civ 939, Mummery LJ again expressed caution over a judge agreeing to determine costs in the abstract. At paragraphs 4 to 8 of his judgment in that case, his Lordship said:

“4.  The arguments advanced on this appeal have demonstrated the real difficulties inherent in asking a judge to exercise his discretion in respect of the costs of an action, which he has not tried.  There are, no doubt, straightforward cases in which it is reasonably clear from the terms of the settlement that there is a winner and a loser in the litigation.  In most cases of that description the parties themselves will realistically recognise the result and the costs will be agreed.  There will be no need to involve the judge in any decision on costs.  If he becomes involved, because the parties cannot agree and ask him to resolve the costs dispute, the decision is not usually a difficult one for him to make.

5.  There are, however, more complex cases (and this is such a case) in which it will be difficult for the judge to decide who is the winner and who is the loser without embarking on a course, which comes close to conducting a trial of the action that the parties intended to avoid by their compromise.  The truth often is that neither side has won or lost.  It is also true that a considerable number of cases are settled by the parties in the belief that the terms of settlement represent a victory, or at least a vindication of their position, in the litigation, or in the belief that they have not lost; or, at the very least, in the belief that the other side has not won.

6.  In my judgment, in all but straightforward compromises, which are, in general, unlikely to involve him, a judge is entitled to say to the parties ‘If you have not reached an agreement on costs, you have not settled your dispute.  The action must go on, unless your compromise covers costs as well.’

7.  The disposition of a judge to help parties in negotiations for a settlement is understood and applauded.  Good intentions are not, however, risk free.  If acted upon too readily, commendable judicial intentions can make things far worse than they would have been if the judge had adopted the unpopular stance of requiring the parties to confront the realities of their litigation situation.  The judge has a discretion to decline to do what the parties ask him to do.  If, on the one hand, the action is for damages, it will be relatively easy for the judge to tell from the size of the settlement sum and from the litigation history (offers, payments in and so on) how the costs should be borne.  As I have already said, it would be relatively unusual for the parties themselves not to agree on the costs of such cases.  In more complex cases, however, involving a number of issues and claims for discretionary equitable relief, the costs position is much more difficult for the judge to resolve without actually trying the case.

8.  … If there is a point of principle in this case, which I very much doubt, it does not arise from the way in which the judge exercised his discretion, but from whether he should ever have embarked on this particular exercise at all.  As both parties agreed that he should undertake the task, it is reasonable to expect them to accept his decision, unless it can be shown that the result is, in all the circumstances, manifestly unjust.  I would certainly not be inclined to interfere with the judge’s decision simply because it is possible to detect imperfections in his approach or in his reasoning.”

22.  Chadwick LJ, in the same judgment at paragraphs 21 to 27, expressed his views in the following way:

“21.  I agree that this appeal should be dismissed.  I add some observations of my own only in order to emphasise that—as has already been said by Lord Justice Mummery in his judgment—a trial judge should be cautious before making an order as to costs in litigation in which all other issues have been compromised without a full trial.

22.  The power to make an order as to the costs of civil proceedings is conferred by section 51(1) of the Supreme Court Act 1981 [equivalent to High Court Ordinance section 52A(1)].  It is in the discretion of the court whether, in any particular case, that power should be exercised.  That is made clear by CPR 44.3(1)(a).  It finds expression in the opening words of CPR 44.3(2)—‘If the court decides to make an order about costs—’.  The first question for the court—in every case—is whether it is satisfied that it is in a position to make an order about costs at all.

23.  In addressing that question the court must have regard to the need (if an order about costs is to be made) to have a proper basis of agreed or determined facts upon which to decide, in the light of the principles set out under the other provisions in CPR 44, what order should be made. The general rule, if the court decides to make an order about costs, is that the unsuccessful party will be ordered to pay the costs of the successful party—CPR 44.3(2)(a). But the court may make a different order—CPR 44.3(2)(b). Unless the court is satisfied that it has a proper basis of agreed or determined facts upon which to decide whether the case is one in which it should give effect to ‘the general rule’—or should make ‘a different order’ (and, if so, what order)—it must accept that it is not in a position to make an order about costs at all. That is not an abdication of the court’s function in relation to costs. It is a proper recognition that the course which the parties have adopted in the litigation has led to the position in which the right way in which to discharge that function is to decide not to make an order about costs.

24.  In a case where there has been a judgment after trial, the judge may be expected to be in a position to decide whether one party or the other has been successful overall; whether one party or the other has been successful on discrete issues; whether the fact that the party who has been successful overall but unsuccessful on some issues calls for an order which reflects his lack of success on those issues; and whether—having regard to all the circumstances (including conduct) as CPR 44.3(4) requires—the order for costs should be limited in one or more of the respects set out in CPR 44.3(6). But where there has been no trial—or no judgment—the judge may well not be in a position to reach a decision on those matters. He will not be in a position to decide those matters if they turn on facts which have not been agreed or determined. In such a case he should accept that the right course is to decide that he should not make an order about costs. As the arguments on the present appeal demonstrate, it does the parties no service if the judge—in a laudable attempt to assist them to resolve their dispute—makes an order about costs which he is not really in a position to make.

25.  It does not, of course, follow that there will be no cases in which (absent a judgment after trial) the judge will be in a position to make an order about costs. There will be cases (perhaps many cases) in which it will be clear that there was only one issue, that one party has been successful on that issue, and that conduct is not a factor which could displace the general rule. But, in such cases, the answer to the question which party should bear the costs of the litigation is likely to be so obvious that, as Lord Justice Mummery has pointed out, the judge will not be asked to decide that question. It will be agreed as one of the terms of compromise.

26.  The cases in which the judge will be asked to decide questions of costs—following a compromise of the substantive issues—are likely to be those in which the answer is not obvious. And it may well be that, in many such cases, the answer is not obvious because it turns on facts which are not agreed between the parties and which have not been determined. The judge should be slow to embark on the determination of disputed facts solely in order to put himself in a position to make a decision about costs. As Lord Justice Mummery has put it, the better course may be to require the parties to confront the realities of their litigation situation; to point out to them that, if they have not reached an agreement on costs, they have not settled their dispute and the action must proceed to judgment.

27.  I share Lord Justice Mummery’s view that this is a case in which the judge could not have been criticised if he had taken that course. For my part, I think he would have been wise to do so. But it is not open to the appellant to complain that the judge set out to do what both parties had asked him to do—that is to say, to make an order about costs and to decide what order to make on the material before him and without determining disputed facts. Nor is it open to the appellant to complain that, in seeking to perform that task, the judge adopted an approach which he, himself, described as ‘broad brush’. It is difficult to see what other approach the judge could have adopted in the circumstances.”[2]

23.  In Foskett: The Law and Practice of Compromise (6^th ed, 2005), the learned authors of that highly respected treatise also suggest that the practice—of agreeing all substantive matters except costs and to invite the court to determine that issue—is “not really to be recommended”, citing Mummery LJ in Butcher and BCT Software.

Hong Kong authorities

24.  In the Hong Kong context, two cases are particularly instructive.

25.  In Re Chinese United Establishment Ltd, HCCW291/1994 (unrep, 5 October 1995), Rogers J (as he then was) had before him a petition for the just and equitable winding up of a company, alternatively an order for the buy out of the petitioners’ shares.  At the beginning of the second day of the trial, the respondents made an open offer to purchase the petitioners’ shares at a fair value to be assessed without discount.  This resulted in a consent order which the judge was asked to make, providing for the purchase of the petitioners’ shares at a fair value without discount and without prejudice to the claims which the parties might have in related litigation which were still pending.  The order was made on the express basis that there was no admission that any of the petitioners’ allegations were well-founded.  The consent order was made on the basis that either party could seek costs against each other.

26.  Immediately upon asking the court to make the order in terms, the petitioners applied for their costs and the respondents opposed that application.  Rogers J approached the matter in the following manner:

“[6]  … [the Petitioners’] point is simple: they came to court to get an order that was an order in the alternative, that either [the company] be wound up or the Petitioners’ shares be purchased.  They say that was an alternative order and they got the order which they came to court to seek, if they did not get the exact order, they obtained substantially the relief that they came for.

[7]  The Respondents resist the order for costs sought by the Petitioner.  First of all they point out that there was no admission of any allegation being well-founded and this was a Consent Order which provided expressly for that, nor have the merits been decided.  They say in effect that there has been no determination upon which the Court could order costs.  They say that although costs normally follow the event, the event would be a finding that the Petitioner would be entitled to his relief and that has not happened because what the Petitioner has done is to accept an offer which has been made.

[8]  In my view, I consider that the Petitioners are entitled to their costs on the very simple footing that they have, in effect, gained by these proceedings that which they had to come to court to get.  If this open offer had been made earlier, perhaps when the petition were presented, or in lieu of evidence being filed by the Respondents, or at any other time, then of course the Petitioners would not have had to proceed with their petition, or if they had done so, would have done so at their own peril as to costs.

[9]  I am mindful in so saying that once the matter comes to court the Respondents are in a difficult position; they may well have reached a situation where, with a three to five week case looming as this one was, their irrecoverable costs, even were they to defeat the petition, would be so high that the chances of recovering them from the Petitioner would not be great, I know not.

[10]  The only suggestion I can make is that any offer which is to be made in such circumstances, whether for protection of costs or otherwise, would have to be made specifically with the order as to costs included, otherwise it seems to me that the normal course should follow and the Petitioners, having obtained their buy out order, should receive their costs.”

27.  The respondents’ appeal to the Court of Appeal (CACV214 / 1995, unrep, 24 April 1996, Litton VP, Mayo and Ching JJA) was dismissed.  Mayo JA, giving the judgment of the court, said this:

“[13.]  The way that the judge approached the problem was to consider what had been achieved by the petitioners.  It had been as a consequence of the filing of the petition that the respondents had made the offer they had.  It could be said that the action taken by the petitioners had achieved this.

 

[14.] The main contention advanced by the appellants is that it is wrong to conclude that the respondents have in fact been successful. There had been no admission as to liability and the whole issue between the parties remained at large. In considering whether it was a case where costs should follow the event it was necessary to consider what is meant by ‘event’. Mr [Robert Tang QC, as he then was] called in aid the case of Howell v. Dering and Others [1915] 1 KB 54 and in particular a passage at p63 of the judgment of Buckley LJ:

‘In the next place, was the answer of the jury to that question an ‘event’? In my opinion it was not. An ‘event’ within the meaning of the rule is an outcome of the presentation to the tribunal of some claim made by the plaintiff against the defendant which results in a finding that the plaintiff is or is not entitled to relief against the defendant.’

[15.] Mr Tang submitted that there had been no determination of the issues between the parties. This is not really germane to the present case. The fact of the matter here is that the petitioner did substantially obtain the relief sought.

[16.] When the judge made the order he did he was exercising his judicial discretion. We can only interfere with the exercise of this discretion if we are satisfied that the exercise of this discretion was either wrong in principle or manifestly in error.

[17.] This cannot be said in the present case. Clearly the parties left open the question of costs when they agreed the terms of the consent order. The reasons given by the judge for making the order he did are valid reasons. We are not justified in interfering with this order and accordingly this appeal is dismissed with costs on a common fund basis.”

28.  More recently, in Re Super Deluxe International Ltd (unrep., HCCW186/2001, 3 June 2003), Kwan J (as she then was) was faced with a similar situation. That was also a petition for the winding up of the company in question on the just and equitable ground, alternatively for an order that the petitioner’s shares be purchased by the respondents. Prior to trial the parties settled their substantive dispute, by entering into a deed of settlement pursuant to which the respondents agreed to purchase the petitioner’s shares and to other matters. But they were unable to agree on costs of certain outstanding interlocutory applications and the costs of the petition generally.

29.  Kwan J addressed the approach to dealing with the costs of the petition generally in the following way:

“6. As for the costs of the petition generally, it was recognised by both parties that even though the other prayers for relief have become unnecessary for adjudication, it is still necessary for the petitioner to bring the proceedings for hearing for the purpose of obtaining costs (Ta Tung China & Arts Ltd. v. Fontana Restaurant Ltd.[1999] 1 HKLRD 404). The Court of Appeal held in that case that it was impossible to have the costs liability issue resolved without having the action disposed of in one of two ways, namely, by 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. Godfrey JA has this to say at 407F to G:

‘Where a plaintiff seeks to recover costs against a defendant in an action in which the substantive issues have been determined in one way or another before the trial, the only way which the plaintiff can recover his costs (if the defendant refuses to pay them) is to bring the action to trial for the purpose of doing so. The issues at the trial will be limited and no additional expense should be incurred by adopting that course...’

7. Mortimer VP also observed at 407A that the issues on such a trial would be ‘extremely limited’, and like Godfrey JA, he did not elaborate as to the extent to which the issues might be limited or whether it would be necessary in all cases for the court to make a determination of the issues in the proceedings on the merits. The third member of the Court of Appeal, Rogers JA, gave a concurring judgment, and stated at 409C that ‘there is no alternative but to resolve the action’.

8. It was contended by Mr Godfrey Lam, who appeared for the petitioner, that I do not need to resolve the factual disputes arising in the petition and I could simply have regard to the fact that the petitioner had issued letters before action which were completely ignored by the respondents and that she had to bring these proceedings to seek, inter alia, buy-out relief under section 168A. As the respondents did subsequently agree to buy out the petitioner’s shares, the respondents ought prima facie be held responsible for the petitioner’s costs unless it could be shown that the petition is demurrable or it does not disclose a prima facie case, citing Burgess v. Hill (1858) 26 Beav 244 in his written submission. I do not think Burgess v. Hill is authority for the proposition advanced by Mr Lam. It was held by Sir John Romilly, MR at 249 that the plaintiff could not have the question of costs decided without moving for judgment as the court had ‘no power to do anything but to adjudicate on the rights of the parties’.

9. Mr Lam also sought to rely on the unreported decision of Re Chinese United Establishments Ltd., CWU No. 391 of 1994, 5 October 1995, a case referred to by Mr Rimsky Yuen, SC, who appeared for the respondents. That was a decision on costs by Rogers J (as he then was). The court was concerned with a petition to wind up the company on just and equitable ground and alternatively for buy-out relief of the petitioners’ shares. At the second day of the hearing of the petition, the respondents made an open offer to purchase the petitioners’ shares and that resulted in a consent order for the purchase of the petitioners’ shares. The order provided that it was made without admission that either party was entitled to costs and without prejudice to either party seeking costs against the other. Immediately after the order was made, the petitioners applied for costs on the simple footing that they had substantially obtained the relief for which they had to come to court to get. The respondents resisted costs on the basis that there was no determination upon which the court could order costs as there was no admission of any allegation being well-founded in the consent order, nor was there any finding that the petitioners would be entitled to relief. The respondents’ submission was rejected by the court.

10. This decision was upheld by the Court of Appeal in CACV No. 214 of 1995, 24 April 1996. The Court of Appeal did not think it germane to the case there had been no determination on the merits of the issues ventilated in the petition, or that the judge had erred in principle or was manifestly in error in the exercise of his discretion by considering what the petitioners had achieved.

11. I do not think the above decision is necessarily in conflict with the subsequent case of Ta Tung. Costs are a matter of judicial discretion. What materials are to be taken into consideration in the exercise of that discretion would depend on the circumstances of a particular case. It is not apparent from the decision in Chinese United Establishment whether the court was asked to receive evidence and make a determination of the petitioners’ entitlement to relief before it was to rule on costs, or whether the court was asked to adjudicate on costs simply on the basis of what was put forward by the petitioners as the parties were anxious to avoid the costs of a three to five week trial of the petition on the merits. I do not think anything was said in the judgments of the Court of Appeal in Chinese United Establishment or in Ta Tung that 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.

12. In the present case, I was asked by the respondents to receive evidence and make a finding on the petitioners’ entitlement to the relief sought for the purpose of ruling on the costs liability of the petition generally. It is up to the parties to put forward such evidence as is helpful to their case for the purpose of seeking adjudication on any matter. And if the evidence put forward were such that the court would need to resolve factual disputes with the benefit of cross-examination, then that exercise would have to be undertaken.

13. In view of the evidence filed for the purpose of this hearing, I accept Mr Yuen’s submission that I should rule on the petitioner’s entitlement to the relief sought. To do so, it would be necessary to resolve the factual disputes arising in the petition and the evidence filed in opposition. For that purpose, the parties have served notice to cross-examine the other side’s deponents on their affirmations, pursuant to directions given by the court on 11 November 2002, and I have to assess the evidence given on affirmation in the light of the cross-examination of these witnesses.”

30.  In the event, since the respondents wanted to adduce evidence to support their case that the petition was doomed to fail, Kwan J heard oral evidence and submissions from both sides over 3 days and ruled in favour of the petitioner.[3]

31.  With respect, I agree with Kwan J that Ta Tung does not purport to limit the way in which the court may approach questions of costs where the substantive issues between the parties have been resolved. I say so for two reasons.

32.  First, the decision in Ta Tung must be considered in context: in that case the parties having settled their dispute only wanted the court to determine the question of costs, without in some way disposing of the action: see [1999] 1 HKLRD at 406E–F and 407B. The Court of Appeal held that it was not possible to decide a “pure” question of costs without also disposing of the action. That is not the situation in the current case, as the action has been disposed of by the consent order and the discontinuance of the action against Mr To. I consider that the scenario in the current case is indistinguishable from that in Re Chinese United Establishment Ltd, where the action is disposed off by a consent order leaving only the issue of costs outstanding.

33.  Secondly, and in any case, it seems to me that to hold that in the absence of agreement or an application to discontinue the action, the parties must go to trial in order to resolve any outstanding questions of costs would be contrary to the overriding objectives enshrined in RHC Order 1A rules 1 and 2.

34.  As Chadwick LJ rightly observed in the BCT case, the first question for the court is whether it is in a position to make an order for costs. Whether the court considers that it is able to do so, and if so how the discretion should be exercised, must depend on the circumstances of each case. There is no hard and fast rule.

35.  My attention was also drawn to the recent decision of Deputy High Court Judge Bharwaney SC in California Red Ltd v Neway Karaoke Box Ltd. (unrep., HCA748/2008, 26 May 2009) in which the learned Deputy Judge accepted the principle stated in Hong Kong Civil Procedure 2010 paragraph 62/3/3 that:

“Notwithstanding the general proposition that a court did not sit to determine a substantive question of law which had become academic because there was no dispute to be resolved between the parties, where there was an outstanding issue as to costs the court was entitled to determine the substantive issue so as to decide the liability as to costs.”

36.  I do not think that decision in any way contradicts the general principle I have ventured to identify in paragraphs 31 to 34 above.

37.  In the instant case, neither counsel contends that I must determine the substantive issues in order to determine the costs. Indeed, all parties agree that I 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.

38.  In those circumstances, I was persuaded, albeit reluctantly, to make an order in terms of the consent order and to assist the parties by resolving the issue of costs without determining the substantive issues.

Costs as between plaintiff and 1^st/2^nd defendants

39.  I turn, therefore, to the incidence of costs as between Mr Morley and the 1^st/2^nd defendants. Mr Morley seeks his costs against the 1^st/2^nd defendants, but is prepared to give 10% reduction on account of the perceived possibility of the 1^st/2^nd defendants recovering something (less than HK$100,000) in respect of mesne profits.

40.  The 1^st/2^nd defendants in turn seek their costs of the action against Mr Morley, alternatively no order as to costs.

41.  Having considered submissions advanced by the parties, I consider that the right approach in this case is to adopt a broad brush approach, substantially the same as what Rogers J did in Re Chinese United Establishments Ltd and as approved by the Court of Appeal.

42.  I bear in mind that the agreement by the 1^st/2^nd defendants to pay, or rather repay, the Deposit was reached on a without admission of liability basis. Ms Sheena Chan, counsel for the 1^st/2^nd defendants, emphasised that her clients believed that they had good grounds to oppose the action, and only made the commercial decision to settle the case so as to finish the case as quickly and least expensively as possible. While I accept that commercial considerations might well have been very important in the 1^st/2^nd defendants’ decision to offer the terms which have been accepted by Mr Morley, I am unable to place much weight on the assertion of belief as to the merits of their case.

43.  I also bear in mind that Mr Morley did not succeed in obtaining any interest on the Deposit or compensation in respect of the other heads of claim. Nonetheless, it is reasonably plain that he has managed to secure recovery of the most significant part of his claim. At the same time, the 1^st/2^nd defendants have effectively abandoned their counterclaim. Also, I have no idea whether Mr Morley was prepared to forgo these claims in order to achieve a settlement and to avoid the further substantial costs of a 10-day trial. In my view, these factors roughly balance out each other.

44.  I have also considered the without prejudice correspondence between the parties. I only need to record that the 1^st/2^nd defendants’ offer, as accepted by Mr Morley, only came on the first day of the trial. Mr Morley therefore had to go this far to recover the Deposit.

45.  Taking into account all the circumstances, in my view this is one of those plain cases where, objectively viewed, one party should be considered substantially the winner. In my judgment Mr Morley should have his costs of the action as against the 1^st/2^nd defendants.

Costs as between plaintiff and 3^rd defendant

46.  Having obtained the consent order, Mr Morley applied and was given leave to discontinue the action against Mr To. Mr Morley, however, seeks his costs of the action against Mr To. Mr To, who acted in person throughout, argued that he should not have to bear Mr Morley’s costs.

47.  As stated above, Mr Morley’s claim against Mr To was mainly for misrepresentation as to the ownership of the Property. This Mr To vehemently denied. I am unable to determine without hearing oral evidence whose version is correct.

48.  Mr Cheng on behalf of Mr Morley submitted that while the usual order on discontinuance is that the party seeking leave to discontinue would have to pay the other side’s costs, it is not the invariable rule and each case must depend on its own facts. I have no hesitation in accepting that proposition: see, for example, Inchroy Credit Corp Ltd v Cheung Man Cheong [1992] 1 HKLR 120 and cases cited in Hong Kong Civil Procedure 2010 paragraph 21/5/11.

49.  As between Mr Morley and Mr To, I am unable to say who is in substance the winner. It is probably more apt to say that both are losers in this unfortunate episode. In the circumstances, I think a fair order to make is that there be no order as to costs as between Mr Morley and Mr To.

50.  In coming to this decision, I have considered Mr Morley’s fallback claim that Mr To should bear the costs reserved for the two pre-trial reviews on 10 October and 30 October 2007. These costs, it is claimed, were wasted because of Mr To’s late application for legal aid. Mr To denies that he had been dilatory; he claims that he did not receive all the documents from Mr Morley’s solicitors. I am unable to say on the basis of the materials placed before me that Mr To was wholly to blame for the costs wasted. It seems to me that in the circumstances, no specific costs order should be made in regard to these two items.

Summary assessment of plaintiff’s costs

51.  Given the long time it has take this unfortunate case to reach this stage, it seems to me that whoever succeeds in obtaining a costs order in his favour should not have to incur further costs to have those costs taxed.

52.  I therefore informed the parties that I would exercise my power under Order 62 rule 9(4)(b) to assess those costs summarily.

53.  For that purpose, parties were directed to supply the court with their statements of costs. The amount of costs, on a party and party basis, that Mr Morley seeks from the 1^st/2^nd defendants is HK$899,745.13. This represents about two-thirds of Mr Morley’s total costs of the action, the other one-third being attributed to the costs against Mr To.

54.  The amount of costs submitted by the 1^st/2^nd defendants is HK$1,344,750.00.

55.  Hence the total costs of Mr Morley and the 1^st/2^nd defendants incurred for the action are roughly the same.

56.  Mr Cheng submitted that I should not further reduce the costs claimed by Mr Morley, on the basis that the 1^st/2^nd defendants cannot say that the fees charged by Mr Morley’s team are unreasonable, because their team has charged more in terms of solicitors’ profit costs and counsel’s fees. Mr Cheng informed me that other judges of this court has adopted the paying party’s costs as a guide or even starting point, for consideration of the reasonableness of the receiving party’s costs.

57.  I am unable to accept that approach. Whether the costs claimed by the receiving party are reasonable cannot be determined by reference to the other side’s costs. That approach presumes that the paying side’s costs are reasonable. While it may be the case that the paying party may be embarrassed in suggesting that an item or amount of costs claimed by the other side is unreasonable if he has claimed more for the same item, it does not follow that the court will necessarily accept that the item or amount claimed is reasonable. However, it seems to that the costs claimed by the paying party would provide a useful “reality check” against the sum that the court intends to allow in favour of the receiving party.

58.  Having considered Mr Morley’s statement of costs, I have summarily assessed his costs against 1^st/2^nd defendant at HK$750,000. Briefly, I find the items of costs and amounts claimed are on the whole reasonable, save that for some items I am of the view that the work done by a senior solicitor could have been done by a less senior solicitor at a lower charging rate: see, for example, items 6 to 14, 19–23, 26, 34, 35, 37 to 39, 88, 99. Some items seem to me to have taken a more than reasonable amount of time: see for example, items 5.1, 5.2, 13, 14, 22, 31, 53, 55, 56.1, 56.3, 64, 99, 101, 107, 108. I have also decided to disallow the costs claimed in respect of the surveyor’s report, which in the end was not relied upon. However, I do not think it is necessary to give a further 10% discount to reflect the possibility of the 1^st/2^nd defendant succeeding in some items of the counterclaim.

Result

59.  I therefore order that the 1^st/2^nd defendants pay Mr Morley forthwith costs of the action assessed in the sum of HK$750,000.

60.  As between Mr Morley and Mr To, I formally give leave to Mr Morley to discontinue the action against Mr To, with no order as to costs between Mr Morley and Mr To.