HANG KEE DEVELOPMENT CO LTD v. MING HING CIVIL CONTRACTORS LTD

HCA 1724/2018

[2022] HKCFI 1321

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1724 OF 2018

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DECISION ON COSTS

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1.  On 16 February 2022, this Court handed down its judgment (the “Judgment”)  and made a costs order nisi. On 1 March 2022, the Plaintiff filed and served a summons (“the Summons”)  to vary the costs order nisi to the following terms:

“The Plaintiff shall pay the Defendant’s costs of and occasioned by its claim and the Defendant shall pay the Plaintiff’s costs of and occasioned by its counterclaim up to and including 27 September 2021, to be taxed on a party to party basis, if not agreed.”

2.  Directions were given to the parties for this matter to be dealt with by paper disposal and the parties have filed their respective written submissions to which this Court has carefully considered. I am of the view that the costs order nisi made by this Court should be varied according to the terms as proposed by the Plaintiff.

3.  First, the Plaintiff is correct that as the Defendant’s counterclaims were withdrawn shortly before the trial or on its first day, the costs of and occasioned by the counterclaims, shall be borne by the Defendant. The general principle is that usually whoever withdraws his or her claims or counterclaims should bear the related costs.

4.  The counterclaims are concerned with the alleged costs of rectifying the defective works (performed by the Plaintiff), to be assessed, and the sum of HK$7,179,208 being overpayments to the Plaintiff. I agree that these claims are distinct from the Plaintiff’s claims in this action.

5.  In the absence of any persuasive explanation from the Defendant for the withdrawal of its counterclaims, it is only fair and just that it should bear costs of and occasioned by the same. The Plaintiff did incur substantial costs to respond to the Defendant’s counterclaims and such costs are wasted. There is no reason why the Plaintiff should not be compensated by the Defendant for the unnecessary costs that were incurred in order to meet with the Defendant’s counterclaims.

6.  Mr Sit for the Plaintiff submitted that in an effort to show that the Plaintiff’s works were defective and that overpayments have been made, the Defendant has set out in detail evidence to that effect in its witness statements. It further adduced voluminous site diaries (over 6,000 pages)  allegedly being evidence of the overpayments.

7.  In order to defend the counterclaims, the Plaintiff had to adduce evidence to show that the works it completed were without any contemporaneous complaint. It also needed to call evidence to explain how the interim payment mechanism worked and why it was improbable for the Defendant to overpay the Plaintiff. Further, it had to rely on the works records attached to the interim payment certificates to demonstrate that it was entitled to the sums it received. All these costs have been thrown away as the counterclaims were withdrawn by the Defendant at the last minute.

8.  Mr Chung for the Defendant first submitted that the costs order nisi was granted with full knowledge of the Defendant’s withdrawal of its counterclaims as stated in the Judgment. That is true. But the whole point of making a costs order nisi is to invite the parties’ submissions for the court’s consideration. The effect of the withdrawal has to be argued and the Defendant has not adduced any explanation for its last minute withdrawal.

9.  Secondly, Mr Chung submitted that the Defendant’s counterclaims and the Plaintiff’s claims are under the same main contracts and sub-contracts. That is true but irrelevant. The fact is that the Defendant has mounted separate and distinct counterclaims which necessitated wasted costs to which it should be responsible.

10.  Thirdly, Mr Chung submitted that the site diaries and the sub-contracts payment documents are also relevant to the Plaintiff’s claims as set out in the pleadings which are subject to disclosure by the parties regardless of the Defendant’s counterclaim for overpayment. The same are also relevant to the Plaintiff’s claim for wasted expenditure due to the alleged breach of the Defendant by deferring the assignment of daywork to the Plaintiff as submitted in the trial. Hence, the Defendant’s withdrawal of its counterclaim will not save any of the Plaintiff’s costs incurred in relation to the site diaries and the sub-contracts payment documents. I disagree.

11.  First, the Plaintiff is correct that the Defendant has never relied on the site diaries and the interim payment certificates to conduct its defence in either its pleadings, witness statements, examination of witnesses or submissions. On its pleaded case and its witness statement, the site diaries were only used by the Defendant to justify its counterclaim for overpayment.

12.  Mr Sit also submitted that the fact remains that but for the counterclaims, the Defendant would have no need to make discovery of the site diaries, which were works records at the main contract level. Equally, the Plaintiff would have no need to adduce the voluminous site sketches and daywork sheets attached to the interim payment certificates, which formed the bulk of the trial bundles, to show that all interim payments were supported by extensive documentations and the allegation of overpayment is unsustainable. All these were additional costs occasioned by the counterclaims.

13.  Secondly, I agree with Mr Sit that even assuming (without deciding)  that the site diaries and the interim payment certificates were relevant to both the main claims and the counterclaims, it would only be a question of apportionment for the taxing master and not a ground to deprive the Plaintiff of its entitlement to costs.

14.  For all the reasons stated above, I make an order in terms of the Summons as set out in paragraph 1 above.