THE INCORPORATED OWNERS OF GREENWOOD TERRACE v. U TECK LTD

LDBM 11 of 2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION

NO. 11 OF 2011

_________________

_________________

_________________

D E C I S I O N

_________________

 

Background

1.  The applicant claimed against the respondent for the share of repair costs to be borne by the latter together with interests as well as a declaration concerning the liability of specific owners towards the repair costs.

2.  On 29 May 2012, I handed down the judgment (page 1-32 Bundle C) (“the Judgment”).  In the Judgment, I considered the claim for declaration unnecessary and made the following orders :

(a) the respondent do pay the applicant the sum of $1,200,820.53 with interests according to Clause 13(b)(1) of the DMC till full payment;

(b) the declaratory relief sought by the applicant is dismissed;

(c) costs order nisi that the respondent do pay the applicant costs of this case, with certificate for counsel, to be taxed if not agreed at District Court scale; 

(d) unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.

3.  By summons dated 7 June 2012, the applicant applies for variation of the costs order to the effect that :

(a) the respondent do pay the applicant the costs of this case, with certificate for counsel;

(b) costs before 18 November 2010 be taxed on a party-and-party basis, at the High Court scale, if not agreed;

(c) costs on and after 18 November 2010 be taxed on an indemnity basis, at the High Court scale, if not agreed;

(d) the respondent do pay the applicant interests on the aforesaid costs on and after 18 November 2010 at a higher rate to be directed by the Court.

4.  By summons dated 21 June 2012, the respondent applies for variation of the costs order to the effect that :

(a) there be no order as to costs in these proceedings from 5 March 2012; and

(b) alternatively, such other order as the Tribunal shall think fit as from 5 March 2012.

5.  At the first day of the hearing, Mr. Lam for the applicant had indicated that the applicant is no longer pursuing with the application under paragraph 3(d) above.  And at the second day of the hearing, Mr. Lam had further indicated that the applicant is not pursuing with the argument on the scale of taxation and accept that costs should be taxed at District Court scale as ordered.

6.  So the issue remained is whether the costs should be taxed on an indemnity basis and whether there should be no order as to costs from 5 March 2012.

Undisputed Facts

7.  The applicant took out an action in the High Court (HCA 2557/2009) on 30 December 2009.

8.  By a letter from its solicitors dated 20 October 2010, the applicant made a valid sanctioned offer under Order 22 rules 4 and 5 of the Rules of High Court (“RHC”) to the respondent (page 1 Bundle D) (“the Sanctioned Offer”).  The respondent failed to accept the same within 28 days, i.e. on or before 18 November 2010. 

9.  By an order dated 20 October 2010 by Master Lung, the action was being transferred to this Tribunal for disposal (“Master’s Order”).  It is also ordered that “costs before this order shall be taxed at the High Court scale.  The costs after this matter is transferred to the Lands Tribunal shall be taxed at the District Court scale” (page 55-56 Bundle A). 

10.  At the call over hearing at the Lands Tribunal on 5 March 2012, the respondent had indicated its willingness to attempt mediation whilst the applicant refused. In the Mediation Certificate filed by the applicant dated 20 October 2010 (page 20-42 Bundle D), the applicant stated that the case is not suitable for mediation due to the fact that :

(a) it is necessary for the court to determine on the interpretation of the DMC in this case;

(b) the interpretation of the DMC would not only affect the parties to these proceedings and the subject matter of the dispute, but also the rights and obligations of other owners of the Estate (in particular the owners of the car parking spaces); and

(c) a binding precedent would be useful.

11.  In the Judgment, the respondent was found to be liable for more than the proposals contained in the Sanctioned Offer.  The interests to be awarded under the Judgment amounts to about HK$728,129.34 which the applicant had indicated its willingness to waive the same in the Sanctioned Offer.  The Judgment is more advantageous to the applicant than the terms of the Sanctioned Offer.

Legal Principles

12.  O.22 r.24(1) RHC provides for the costs consequences where the plaintiff does better than he proposed in his sanctioned offer.  This includes the situation where the judgment against the defendant is more advantageous to the plaintiff than the proposals contained in the sanctioned offer.

13.  O.22 r.24(3) provides that the court may order that the plaintiff is entitled to costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without leave of court.  When this rule applies, the court shall make such orders unless it considers it unjust to do so (O.22 4.24(4) refers) and the burden is on the defendant to show injustice.

14.  In considering whether it would be unjust to make the orders, the court shall take into account all the circumstances of the case including the matters specified in O.22 r.24(5). 

15.  By virtue of Paragraph 7 of the Practice Direction LTPD CJR No. 1/2009, O.22 r.24 is applicable to all cases in the Lands Tribunal.

Indemnity Costs

16.  The applicant contends that O.22 r.24 is applicable in this case and the respondent should be ordered to pay indemnity costs to the applicant after 18 November 2010 when the respondent failed to accept the Sanctioned Offer and failed to show that it is unjust to make the order. 

17.  The respondent contends that “all the circumstances of the case” should include the refusal by the applicant to mediate.   And since interests had been awarded in the Judgment, interest payment alone would have covered a substantial part of the legal costs of the applicant.  An order for indemnity costs means that the applicant would recover more than enough for compensation for the legal costs. This is inconsistent with the comment by Chadwick LJ in the case of McPhilemy v Times Newspaper (No. 2) [2002] 1 WLR 934 that:

“the purpose for which the power to order the payment of costs on an indemnity basis is conferred, as it seems to me, is to enable the court, in a case to which r.36.21 applies, to address the element of perceived unfairness which arises from the fact that an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor.” (at page 278)

Another factor, it is submitted, that the Tribunal should consider is the acceptance of the expert evidence of the respondent at trial.

18.  It is not in dispute that O.22 r.24 RHC is applicable and it turns on whether the respondent can show that it would be unjust to make an order for indemnity costs.  Having heard the submissions, I found the respondent had failed to discharge such a burden.

19.  I agree with the respondent that unreasonable failure of a party to engage in mediation is conduct to be taken into account when the court exercises its discretion as to costs.  The refusing party has to provide a reasonable explanation for not engaging in mediation and the willing party does not carry any burden to show that mediation has a reasonable prospect of success.  

20.  I accept the submission by Mr. Lam for the applicant that, judging from the reasons stated in the Mediation Certificate, the refusal by the applicant to mediate is not unreasonable.  I shared the observation of Mr. Justice Cheung JA in The Incorporated Ownes of Shatin New Town v Yeung Kui CACV 45of 2009 that:

“while I share the desire that parties should make all possible attempts to resolve their disputes by alternative means such as mediation, this is a case which ultimately involves a decision on law concerning the correct interpretation of the terms of the Deed of Mutual Covenant (‘DMC’). Bearing in mind that the applicant has a responsibility in applying the DMC correctly. I do not consider that its refusal to take part in the mediation should be visited with an order that it could not recoup the costs below” (at paragraph 8).

21.  The respondent also contends that since the respondent had sold its interests in the property concerned, any ruling from court would have no effect on the respondent who is no longer bound by the DMC.  The desire of the applicant to obtain a judgment should not be allowed to prejudice the opportunity of the respondent to take the case to mediation for a possible settlement.

22.  I disagree.  The argument on the interpretation of the DMC involved in this case may arise from time to time given the fact that there are other owners in the same shoes as the respondent.  The applicant’s intention to have a precedent cannot be considered as unreasonable and to the contrary, well justified since this will be essential for the future discharge of its duty. 

23.  What’s more, the applicant is asking for a declaration in this case.  With such a relief being sought, a determination by the court is a must and mediation is not suitable.  The fact that this court had eventually declined to make the declaration sought by the applicant does not change the fact that declaratory relief sought is not suitable for mediation.  And even though the declaration is being declined, the ruling on the interpretation of the DMC serves as a precedent for the applicant. 

24.  I found the applicant had shown reasonable explanation for refusing to mediate.  I do not find the applicant’s refusal to mediate should be a factor to render it unjust to make an order for indemnity costs.

25.  As for the fact that the applicant is being awarded interests for the judgment sum at a rather high percentage in accordance with the DMC, I do not find this to be relevant in the consideration of whether to grant indemnity costs.  The entitlement to interests is being provided in the DMC.  It has nothing to do with the question of costs.  According to the Hong Kong Civil Procedure (2012),

“the provision of O.22 r.24 are designed to provide an incentive to encourage plaintiffs to make, and defendants to accept, settlement offers at appropriate levels…The enhancement provisions as to costs and interest contained in O.22 r.24(3) are new provisions and are designed to redress any perceived unfairness if there was to be no difference between acceptance and non-acceptance” (at para. 22/24/1)

The respondent’s contention that the legal costs of the applicant can be covered by the award of interests is in total refutation of the rationale behind O.22 r.24.  Though the powers under O.22 r.24 are not meant to be penal in nature … they aim at achieving a fairer result for the winning party.  It would be unfair to the applicant if such a contention of the respondent on the award of interests is being accepted.  

26.  Mr. Tsui for the respondent also contended that since this court had preferred the respondent’s expert evidence to that of the applicant, this should be a relevant factor to be considered since the possibility that the court may come to a determination in favour of the respondent could not be ruled out at that stage.  But attention must be paid to paragraph 60-61 of the Judgment in which I had specifically found that, the relevant clause of the DMC relied upon by the respondent in which the evidence of the expert evidence is concerned, is not applicable in this case.  The expert evidence is technically not relevant and even though this court accepts the respondent’s expert evidence, it does not turn on the final determination of this case but to increase in the length or costs of the proceedings.  I cannot see how the respondent can rely on the acceptance of the expert evidence as a ground to justify against an indemnity costs order.

27.  Having rejected the arguments raised by the respondent, I do not find it unjust to make an indemnity costs order against the respondent. 

The Respondent’s Summons

28.  The basis for the respondent’s application is the unreasonable refusal by the applicant to mediate.  Such an issue had been dealt with in paragraph 19-24 above in which I found the applicant had not been unreasonable in its refusal.  The respondent’s summons must fail.

The Order

29.  It is ordered that the costs order nisi in the Judgment be varied to :

(a) the respondent do pay the applicant costs of this case, with certificate for counsel;

(b) costs before 18 November 2010 be taxed on a party-and-party basis, at the District Court scale, if not agreed;

(c) costs after 18 November 2010 be taxed on an indemnity basis, at the District Court scale, if not agreed;

(d) the respondent’s summons for variation of the costs order nisi be dismissed;

(e) the respondent do pay the applicant costs of this application, with certificate for counsel, to be taxed on an indemnity basis, at the District Court scale, if not agreed.