YU WING KEI v. CHAN TAK KWONG

HCSA13/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO.13 OF 2011

(ON APPEAL FROM SCTC 13362 OF 2009)

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J U D G M E N T

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1.  This is an appeal against the costs order made in the Small Claims Tribunal. The Defendant contends that instead of no order as to costs, he should be entitled to costs.

BACKGROUND

2.  The Claimant and Defendant were former landlord and tenant respectively. The Claimant sought damages arising out of damage to the leased premises and fittings therein to the extent of $39,545.95.   The Defendant denied the claim and counterclaimed for return of rental deposit in the sum of $34,000 (“the security deposit”).

3.  After trial, the learned Adjudicator ordered that:

(i) The Claimant be entitled to recover a sum of $5,065.14 in respect of the physical damage caused to the premises;

(ii) The Defendant’s counterclaim be dismissed; and

(iii) The Defendant should pay the Claimant costs assessed at $13,913.33.

4.  After a review on the Defendant’s application, the learned Adjudicator set aside the previous ruling in relation to (ii) and (iii) above and ordered that:

(ii) The Defendant’s counterclaim for the security deposit be allowed;

(iii) After setting off of damages awarded to the Claimant against the security deposit, the Claimant should pay the Defendant a sum of $28,934.86; and

(iv) There be no order as to costs.

GROUNDS OF APPEAL

5.  The Defendant’s grounds of appeal are twofold:

(1) The Adjudicator erred in law in (a) wrongly identifying what the “event” of the proceedings was and consequently (b) failing to appreciate that the Defendant was substantially the winner of the proceedings.  He therefore erred in law in failing to apply the principle of “costs to follow the event”.

(2) The Adjudicator erred in law in failing to consider that the Claimant had vastly exaggerated or inflated her claims.

THE PRINCIPLES IN AN APPEAL ON COSTS ONLY

6.  Costs are matters of discretion though the discretion must be exercised judicially.  An appellate court should intervene only where the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that the exercise of his discretion was wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale: Roache v. News Group Newspaper Ltd [1998] EMLR 161 at 172; Choy Yee Chun v. Bond Star Development Ltd  [1997] HKLRD 1327.

GROUND (1)

The Applicable Principle: Costs to Follow the Event

7.  As a starting point, the successful party is entitled to costs.

“In re Elgindata Ltd (No. 2) [1992] 1 WLR 1207, Nourse LJ had set out 4 principles governing the award of costs. They are as follows (the applicable Hong Kong rules are set out in square brackets):

‘(i) Costs are in the discretion of the court [Order 62 r.2(4) RHC];

(ii) They should follow the event, except where it appears to the court that in the circumstances of the case some other order should be made [Order 62 rule 3(2) RHC];

(iii) 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;

(iv) Where the successful party raises issues or makes allegations ‘improperly or unreasonably’ [in Hong Kong, ‘improperly or unnecessarily’], the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs [Order 62 rule 7(1) RHC].”

Wang Din Shin v. Nina Kung alias Nina T.H. Wang, unrep., CACV460/2002, CACV67/2003, 19.4.2005, Yuen JA, at para 39

8.  In considering these principles under Re Elgindata, the Hong Kong Courts have emphasized again and again that (a) due and significant weight must be given to the general principle that costs should follow the event and any departure from this rule must be treated with circumspection, and (b) it is important not to decide costs according to a score sheet on how many issues had gone one way or the other:  Tam Lai King v. Incorporated Owners of Malahon Apartments & ors [2011] 1 HKC 104, para 92, per Au J;  Active Base Ltd v. Roderick John Sutton & others, unrep., HCCW470/2005, 17.10.2008, Kwan J (as she then was).

Ascertaining the Successful Party

9.  The Court looks at the whole circumstances of the case and decides this as a matter of common sense.  In a money claim, the important thing is to identify the party who has to pay money to the other.  It is not normally right to segregate a large element of the costs and thereafter to decide who the successful party is.  It needs to be decided at the outset.  See A.L. Barnes v. Tim Talk (UK) Ltd [2003] BLR 331,para 28; Day v. Day [2006] EWCA Civ 415,para 17.

10.  A.L. Barnes wasan action that involves both a claim and counterclaim.  The Court of Appeal in exercising its discretion on costs afresh, did not see fit to consider one set of costs for the claim and another on the counterclaim.  It took an overall view to decide who the successful party was.  This happened also in other cases cited by counsel involving both a claim and counterclaim, e.g. Chow Kee James v. Transway Construction & Engineering Co Ltd, unrep., CACV36/2007, 21.5.2008.

11.  Day v. Day involved an issue as to beneficial ownership over net proceeds of sale.  The English Court of Appeal considered it erroneous to start off with a view that the result should be treated as a “draw” because each side failed to make good its primary contention to be entitled to 100% of the relief respectively claimed but each had succeeded on its fallback position.  The test was still who had to write the cheque at the end of the case.

Applicability to the Small Claims Tribunal

12.  Section 28 of the Small Claims Tribunal Ordinance, Cap. 228 confers power on the Tribunal to award costs and gives examples of the type of costs to be awarded.  It does not prevent the applicability of the above principles for deciding the incidence of liability for costs in the Small Claims Tribunal. 

The Adjudicator’s Approach

13.  In his Reasons for Decision (“the Decision”), the learned Adjudicator first dealt with an offer to settle which is no longer relevant to this appeal.  He was aware that each party had been successful in part.  Out of 11 items, he identified 2 heads of claim concerning the walls and floors (“the 2 main items”) as most controversial.   Over half of the hearing time was spent on those 2 main items.  The Claimant was eventually the winner although the damages she was awarded were low.  The remaining 5 items could not be established but were of secondary importance and involved less factual dispute.  As for the Defendant, the learned Adjudicator was of the view that if he had been successful in the defence, he could have the security deposit refunded to him in full.  His counterclaim had not caused extra cost.  In the premises, given that each party had been partly successful, the learned Adjudicator made no order as to costs. (para 27 of the Decision). 

14.  The Defendant, basing himself on Vincent v. South China Morning Post Publishers Ltd (No. 2) [2004] 2 HKC 570 had asked for costs to be awarded based on the extent of success on each head of claim.  The learned Adjudicator was of the view that the Small Claims Tribunal Ordinance only laid down simple guidelines and did not have the equivalent of Order 62 of the High Court Ordinance.  Therefore it might not be fair to apportion the costs according to the items on which a party had achieved success.  He nevertheless compared the position of making no order as to costs and the result on costs based on the approach advanced by the Defendant.  He came to the decision that the Defendant would have got costs plus disbursements totalling $21,800 (para 28-31 of the Reasons for Decision).  That was higher than the costs of the Claimant in the sum of $13,913.33.  However, the amount of time spent on the claim was much longer.  If one were to apportion the costs according to individual items of claim, then the costs on each side would likely to set off against each other.   He therefore maintained the view that there should be no order as to costs.

Analyses

15.  The learned Adjudicator had clearly failed to see the overall picture and identify the true winner.  At one stage, he had even dismissed the counterclaim.  On review, when he focused on who won various heads of claim (as opposed to counterclaim) and the proportion of time spent on the claim, he adopted the wrong approach. 

16.  On a fair reading of the Decision, however, I do not agree with Mr Kwong for the Defendant that the learned Adjudicator had adopted an issue by issue approach.  What happened was that it was the Defendant who invited him to adopt that approach.  The learned Adjudicator acceded to it, not to decide who should bear the costs, but to test if that would produce a result very far away from his initial view that each party should bear his/her own costs.

17.  Had the learned Adjudicator adopted the correct approach, he would have found that the Defendant was the successful party.  This was not a case where the Defendant could have got back the security deposit without a counterclaim as submitted by Mr Yee for the Claimant.  The Defendant had to contest the claim.  The Claimant was partly successful in her claim.  It was she who had to write out a cheque to the Defendant in the end.  Accordingly, the Defendant should be entitled to costs in the first place.

18.  The learned Adjudicator would have next considered whether to deprive the Defendant of part of his costs or asked him to pay the Claimant’s costs.  In respect of the former, he had to satisfy himself that the Defendant had caused a significant increase in the length or cost of the proceedings; and in respect of the latter, that the Defendant had improperly or unnecessarily raised issues or made allegations.  There was no suggestion, let alone finding, that the Defendant had been guilty of such conduct.  The learned Adjudicator had accepted the expert evidence on the Defendant’s side on the 2 main items (para 8(1), 8(2)(iii) of the Decision), the Defendant’s admissions and upheld the Defendant’s challenge to the various heads of claims (para 8 of the Decision). There was therefore no basis on which to deprive the Defendant of the entire costs. 

19.  To take the matter further, the Claimant only managed to win 5 out of 11 heads of claim and that was mainly because of the Defendant’s admission on liability (items 1, 2, 3, 8, 9) leaving only quantum to be assessed.  On other items, the Defendant was unable to come up to proof.  In terms of quantum, she was awarded about 16% of her claim (i.e. $6,155.64 awarded against $39,545.95 claimed).  Taking into account the sum of $1,090.50 previously paid by the Defendant to the Claimant, she was awarded only $5,065.14.  It cannot be said that the Claimant was a substantial winner on her claim.  There was no basis on which the learned Adjudicator could deprive the Defendant of his entire costs.

20.  Ground (1) is established.

GROUND (2)

21.  The Defendant contends that the Claimant had vastly exaggerated her claim, making it more difficult for the parties to settle at an earlier stage.  The Adjudicator had failed to take this relevant consideration into account.

22.  Looking at paragraph 8 of the judgment, the learned Adjudicator had carefully analyzed each head of the claim.  He took the view that some was not supported by evidence, whilst some was based on undisputed evidence or concession of the Defendant.  In my view, the mere fact that a party has failed to come up to proof or had limited success was not sufficient to justify an inference that he/she had exaggerated the claim.

23.  The case of Painting v. University of Oxford [2005] EWCA 161 relied on by Mr Kwong is distinguishable on the facts.  There, counsel for the plaintiff was constrained to accept that Mrs Painting had been deliberately misleading in the course of the claim.  The Court considered that the exaggeration which was intended and fraudulent was an important element which needed to be addressed in any assessment of costs (at para 26).  In the present case, there was no finding that the Claimant had exaggerated her claim.

24.  Ground (2) is unsustainable.

FRESH EXERCISE OF DISCRETION

25.   Since the learned Adjudicator had adopted the wrong approach, this Court can exercise its discretion afresh.  Given that the Defendant was the overall winner he was to have the costs in the first place.

26.  The next question would be what proportion of costs he should recover: A.L. Barnes Ltd v Time Talk (UK) Ltd [2003] BLR 331,at para 30.  In that case, there was both a claim and counterclaim.  The claim was for quantum meruit for work done.  The defendant hotly contested the claim, alleging a conspiracy between the claimant’s director and the project manager for the latter to be doubly paid.  The trial judge found for the claimant on the quantum meruit but denied that part of the claim which included any project management fees element.  He allowed the defendant to recover the project management fees previously paid to the claimant.   He entered judgment for the claimant after setting off the 2 parties’ award of damages.  The judge made no order for costs in respect of the parties’ experts and associated costs.  He went on to hold that the great bulk of court time had been taken up with the question whether the project manager had been dishonest and that there had been late disclosure on the claimant’s part in that regard. The defendant should be seen as the successful party and should recover half of its general costs.  The Court of Appeal disapproved of the judge’s approach and held that the claimant was the successful party.  It was, however, of the view that the judge was correct to be influenced by the fact that most of the time spent in court was on an issue (concerning dishonesty) on which the claimant had failed albeit at the least serious end of the spectrum.  The Court of Appeal therefore granted the claimant 25% of its costs.

27.  Each party’s case had merits.  It was not correct to say that the counterclaim did not incur extra costs because although the Claimant seemed to have agreed to apply the security deposit to the amount claimed at one stage, there was at one stage arguments as to whether that security deposit had been applied to reduce the 2 months’ rental in default which the Defendant was adjudged to have to pay. It was, however, correct for the learned Adjudicator not to take into account the issue on the 2 months’ rent in default as it was not part of the claim.  In fact, since the Claimant had retained the security deposit as security for her damages claim, she must take the consequence of having to bear costs when the damages awarded were far below the amount of the security deposit.   On the other hand, the learned Adjudicator did not see problems with the basis of the Claimant’s claims but it was merely due to evidential difficulties that she did not win all.  The learned Adjudicator was correct in finding that each party had been partly successful.

28.  The complexity of an issue is often not measured by the amount actually awarded as damages but sometimes by the time spent.  The Defendant contested the 2 main items all along (and even went to the extent of seeking a review).   The learned Adjudicator was of the view that the 2 main items had taken up the bulk of the hearing time.  Being the trier of the case, his view must be respected.  Whilst the Defendant should be deprived of part of his costs, it will be wrong for this Court to blindly apply, say, a 16% cut to reflect the mathematical outcome of the claim.   

29.  Mr Yee tries to persuade me that this was a special case and distinguishable from the “who is the overall winner” authorities cited by the Defendant.  Without disrespect, in my view, the Claimant’s entitlement to make deductions from the security deposit for breach of the terms of the tenancy agreement, her initial honest assessment of her claim supported by her expert evidence, the Defendant’s failure to pay 2 months’ rent as ordered even by the time of the trial in this case and the Defendant’s denial of liability throughout, cannot distinguish this case from an ordinary landlord and tenant dispute after termination of a tenancy.

30.  Mr Kwong also submits that assuming it was appropriate to adopt an issue-by-issue approach, the learned Adjudicator should have considered (i) what costs were referable to each issue and (ii) what costs were common to all issues.  The Defendant should have got costs of the issues he won (loss of salary for attending trial and miscellaneous expenses such as photocopying) as well as the common costs (loss of salary for attending call-over and mention hearings and surveyor’s fees): Multiplex Constructions v. Cleveland Bridge [2008] EWHC 2280.

31.  The short answer to Mr Kwong’s submission is that the present claim was in the nature of a small claim and not complex litigation.  Each head of claim surrounded the condition when the leased premises were handed back to the Claimant.  The spirit of the Small Claims Tribunal is to try a claim expeditiously and in a most cost saving manner.  I do not regard it as consistent with this spirit to enter into minute dissection of types of costs claimed for individual issues in the circumstances of this case.

32.  The learned Adjudicator had assessed the Defendant’s costs at $21,800 and parties have no objection to my using it in this appeal.  Taking into account all the circumstances, in particular the bulk of the trial time spent on the 2 items but the low damages awarded, the Defendant should be awarded 70% of his costs in the proceedings below, i.e. $15,260 ($21,800 x 70%).

COSTS OF THE APPEAL

33.  The Defendant has tried to settle this appeal with the Claimant by offering (by open letter 2 weeks before the appeal) that the Claimant should pay him $10,000 plus costs of this appeal.  The Claimant counter-offered that the Defendant should discontinue this appeal and bear 75% of the costs.  The Defendant has now achieved a result better than his offer.  Accordingly, the Defendant is entitled to costs of this appeal.

ORDER

34.  The first ground of appeal is established.  I order as follows:

(i) that the appeal be allowed;

(ii) that the Defendant be awarded costs in the proceedings before the Small Claims Tribunal in the sum of $15,260;

(iii) that there be an order nisi that the Defendant shall have the costs of this appeal to be summarily assessed by me on 23 November 2011 at 9:30 am.  No attendance is required.  The Defendant shall file and serve its statement of costs by 14 November 2011.  The Claimant shall file and serve its grounds in opposition by 21 November 2011. 

35. I am most grateful to the thorough arguments and assistance of Mr Kwong and Mr Yee.