TAPBO CIVIL ENGINEERING COMPANY LTD v. HONG KONG RIVER ENGINEERING COMPANY LTD

HCA 610/2023 and HCA 611/2023

(Heard Together)

[2025] HKCFI 4537

HCA 610/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 610 OF 2023

____________

BETWEEN

____________

AND

HCA 611/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 611 OF 2023

____________

BETWEEN

____________

(Heard Together)

__________________________

DECISION ON COSTS

__________________________

Introduction and Background

1.  By a Judgment dated 16 May 2025 (“the Judgment”, see [2025] HKCFI 1977), I entered judgment against the Defendant in favour of the respective Plaintiff in these two actions. For ease of reference and consistency, save as otherwise indicated, I shall continue to adopt herein the abbreviations and definitions in the Judgment.

2.  In the Judgment at §63, I made a costs order nisi that HKR should pay to TC and TE (collectively, “Ps”) the costs of these actions, together with any costs reserved, to be taxed if not agreed (“the Costs Order Nisi”).

3.  By Summons dated 27 May 2025 each in HCA 610 and HCA 611 (“HKR’s Summonses”), HKR applied to vary the Costs Order Nisi to an order that HKR do pay only 30% of the costs of Ps of the actions together with any costs reserved to be taxed if not agreed. An Affirmation of Tam Wing Lok (“Tam’s Aff”) has been filed in support of HKR’s Summonses.

4.  By Summons dated 30 May 2025 (“Ps’ Summonses”) each in HCA 610 and HCA 611, Ps respectively seek to make the Costs Order Nisi absolute or be varied such that they be entitled to indemnity costs of the action and interest on costs at HSBC best lending rate plus 1%. An Affirmation of Chan Yin Cheung (“Chan’s Aff”) has been filed in support and in response to the Tam’s Aff.

5.  On 11 June 2025, I gave directions for the parties to exchange and lodge written submissions in support of their own respective Summonses and thereafter submissions in reply to the other side’s Summonses for the Court’s paper disposal of the Summonses.

6.  Essentially, the basis for HKR seeking an order requiring it to pay only 30% of the Ps’ costs in both actions is that the belated O.14A application on the first day of trial leading to Ps’ withdrawal or abandonment of the cause of action based on the Agreement resulted in the wasting of significant costs which had been incurred prior to the first day of trial. Other conduct of Ps in these actions were also relied upon. As for the basis for Ps to seek costs on an indemnity basis, Ps relied on the allegedly unreasonable conduct of HKR in the defence of these actions.

7.  This is my decision on the parties’ respective applications to vary the Cost Order Nisi having considered all the submissions filed by the parties.

HKR’s Summonses

8.  The applicable principles on costs are well-established:

(1) Costs are in the discretion of the court;

(2) They should generally follow the event;

(3) 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 costs of the proceedings he may be deprived of the whole or part of his costs;

(4) Where the successful party raises issues or makes allegations improperly or unnecessarily, the court may not only deprive him of his costs but may order him to pay the whole or part of the unsuccessful party’s costs;

(5) A party seeking to displace the general rule that costs follow the event bears the burden of showing that the circumstances justify the exceptional course of such displacement;

(6) The court has a discretion to exercise whether to deprive a party of all or part of his costs in respect of those issues which he has failed. The court has to exercise its discretion to achieve a just result having regard to the circumstances of the case;

(7) This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event. However, it is to be approached with due circumspection so as not to undermine the utility of that general rule. Too ready a departure from the general rule encourages unnecessary arguments which will itself increase costs;

(8) Where the party who has been successful overall has failed on one or more issues, particularly where such issues have occupied a significant amount of hearing time or led to the incurring of significant expense, the court may in its discretion order a reduction in the award of the costs to him. An issue for this purpose must be something so distinct and separate in itself that the decision of it constitutes an “event”;

(9) Whilst the court may order a successful party to pay the costs of the issues or allegations which were made improperly or unnecessarily and such issues have caused a significant increase in the length or costs of the proceedings, those issues have to be discrete and isolated;

(10) It is not the case that the lack of success in any specific argument of itself attracts a costs sanction. It is only if it is possible to isolate an issue in the case in that it can properly be said it is unnecessarily pursued as having no bearing on the real question in the suit that it would be proper to deprive the successful party of all costs of that issue, otherwise a more general assessment should be made. So unless discrete points can safely be isolated and can be shown to have led to a wastage of time and costs, the practice of the court is not to engage in any “filleting” of cases according to the success or failure of the disparate issues which, when taken cumulatively, constitutes the dispute to be judged.

See e.g.: Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214; Mariner International Hotels Ltd v Atlas Ltd (No 2)(2007) 10 HKCFAR 246 at §18; Re Moulin Global Eyecare Holdings Limited (unrep) HCCW 470/2005, 17 October 2008, §§7 and 10; Commissioner of Inland Revenue v HIT Finance Ltd (No 2) [2014] 4 HKLRD 412, §7 and Pony HK World Limited v Vand Petro-Chemicals (BVI) Company Limited & Anor (unrep) FACV 4/2013, 18 March 2014, §4.

9.  Counsel for parties do not dispute costs are in the discretion of court and that the starting point is that costs should follow the event. The burden is on HKR to show why a different order should be made.

10.  Firstly, it was submitted by Mr Cheung (together with Mr Poon) that Ps had withdrawn their cause of action based on the Agreement and that pursuant to O.62, r.10(1) of RHC, HKR is entitled to have the costs of the withdrawn claim or question raised. With respect, I do not agree that O.62, r.10 is applicable. There was never any discontinuance of the cause of action based on the Agreement without leave of court. Rather in the course of proposing to seek the determination of the Question by O.14A, Ps’ counsel undertook to abandon the cause of action based on the Agreement and mere account stated such that no trial of the factual issues was necessary and the court’s determination of the Question would finally determine Ps’ entire claim.

11.  Secondly, it was submitted with the withdrawal of the cause of action based on the Agreement, Ps have only been partially successful in their claim, i.e. they succeeded in one of two causes of action. In so far as it is suggested that Ps had failed in the cause of action based on the Agreement that plainly is not right. That cause of action was not pursued given counsel’s undertaking and with the determination of the Question under O.14A, Ps’ claim was finally disposed of without it being necessary to consider the alternative claim based on the Agreement. It was not necessary for the court to have a trial of the alternative cause of action and plainly no significant hearing time was taken up by that. For completeness, I should mention the fact that HKR had succeeded in its counterclaim in HCA 610 should not be taken to diminish the overall success of Ps. As noted in the Judgment at §8, HKR’s counterclaim has been admitted since the filing of the Reply. Hence no substantial time and costs were incurred by the HKR’s counterclaim. On the other hand, the fact that the counterclaim under HCA 611, raised by HKR, shall have to be transferred to the District Court and has not been resolved cannot be a matter which Ps should be penalized in costs. Ps had always objected to the inclusion of the counterclaim in HCA 611: see Amended Statement of Claim, §12. The raising of the counterclaim and the fact it has not been determined has nothing to do with whether or not the O.14A application was taken out or taken out earlier by Ps.

12.  Thirdly, whilst costs were incurred in the preparation of witness statements and documentary evidence adduced, which could have been saved if the O.14A application was taken much earlier, that should be balanced against the significant saving of time and costs of the trial by the O.14A application (the trial scheduled for 7 days only took 3 days). Furthermore, there is no basis to suggest the cause of action based on the Agreement was improperly or unnecessarily pleaded. At the very least, the Agreement formed part of the underlying factual and legal basis of the underlying debts. The documentary evidence (invoices and quotations) adduced was necessary to support the underlying debts. The relevant invoices were also necessary to cross-reference the invoiced items set out in the Confirmation of Debt. In these circumstances, I see no basis for depriving Ps for all or any of their costs.

13.  Fourthly, it was submitted that Ps had not specified whether the cause of action based on the breach of the Agreement or account stated was the primary case. As noted in §6 of the Judgment, it was made clear on the first day of trial that the primary case was based on account stated. There were also complaints that Ps failed to make clear in its pleadings which category of account stated was relied upon. I do not think these matters could have caused any significant increase in the length or costs of these proceedings and they were not improperly or unnecessarily raised.

14.  I am not satisfied that HKR has satisfied its burden to demonstrate that I should exercise my discretion to make a different costs order. I therefore dismiss HKR’s Summonses.

Ps’ Summonses

15.  At the outset, it is noted that notwithstanding Ps’ Summonses seek the Costs Order Nisi be made absolute or alternatively be varied to entitle Ps to indemnity costs, in the written submissions for Ps, Mr Chan submitted that the Cost Order Nisi be varied to an order on common fund basis as alternative to costs on an indemnity basis. This however was never the order sought by Ps’ Summonses nor mentioned in Chan’s Aff, and such application should not be allowed.

16.  I accept that indemnity costs are not confined to cases brought with an ulterior or improper motives and may be appropriate where litigation has been pursued in an unreasonable, oppressive, disproportionate or bitter manner. There is no closed category of situations where an award for indemnity costs is appropriate. Plainly, it depends on the circumstances of the particular case. See e.g. Sung Foo Kee Ltd v Pak Lik Co [1996] 3 HKC 570 at 575C-576E and Choy Yee Chun (The representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd [1997] HKLRD 1327 at 1334G-1336B.

17.  Mr Chan submitted that the following features taken together show conduct which is unreasonable, obstructive and out of proportion to the legitimate defence of these actions:

(1) Ps’ claims were properly pleaded and advanced on a clear and consistent basis. On the other hand, HKR had shifted its position repeatedly by pleading contradictory defences, failed to adequately traverse key allegations relating to the account stated and refused to make proper admissions until forced to do so at the door step of the trial;

(2) HKR failed to comply with its disclosure obligations and included materials in the trial bundles with no evidentiary foundation. In particular, it is complained a table [C5/905] prepared by one of HKR’s witness, which was not previously identified in any witness statement or affirmation, had been referred to in opening submissions of HKR’s counsel;

(3) The inclusion of HKR’s counterclaim in HCA 611 rather than pursuing it in a separate action the District Court; and

(4) HKR chose to ignore Ps’ pre-action letters sent on 13 April 2023 and failed to do better than Ps’ offer.

18.  With due respect to Mr Chan, I fail to see how separately or cumulatively these matters demonstrate unreasonable conduct in defending these action to justify an award for indemnity costs. In so far as it was asserted that HKR pleaded confusing and contradictory defence, request for further and better particulars or application to strike out the offending parts of HKR’s pleading could have been made if that was the case. The fact that allegations were raised and were later abandoned or admissions were made at trial could hardly have significantly increased the length and costs of proceedings. It is not clearly demonstrated any of the matters raised and later abandoned were improper or oppressive, even if Ps’ case that the Confirmation of Debt were account stated was “vigorously contested” by HKR’s counsel. As for the failure to properly prepare trial bundles, there is only an assertion in Chan’s Aff that this unnecessarily increased preparation costs and the lack of clarity and transparency prejudiced Ps’ ability to prepare their case. I cannot see how this could have significantly increased the costs of these proceedings. For the inclusion of HKR’s counterclaim whilst Ps should not be penalized for its inclusion, I am of the view HKR should also not be. If it was thought that procedurally it was not proper to have that included as a counterclaim, rather than to plead to that counterclaim, steps have been taken to strike out the counterclaim or have it transferred to the District Court prior to trial. As for Ps’ pre-action letters, they simply set out Ps’ claims and were not offers expressed to be “without prejudice save as to costs” or offers made under O.22 of RHC. It is plain that no settlement proposals were offered which could have avoided the present litigation.

19.  In all, I am of the view no award of indemnity costs is justified in the circumstances of the present case.

20.  Accordingly, I dismiss Ps’ Summonses.

Costs of HKR’s Summonses and Ps’ Summonses

21.  As neither Ps nor HKR succeeded in seeking a variation of the Cost Order Nisi, which are now made absolute, I am of the view that it is appropriate to make no order as to costs of the Summonses.