FAIRVIEW PARK PROPERTY MANAGEMENT LTD v. LEE YUEN YAU

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R U L I N G

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Hunter, J.A. :

1. This is an application for leave to appeal against a decision of Liu J. given on 3rd April of this year, when he allowed an appeal and set aside the decision of the Ajudicator of the Tsuen Wan Small Claims Tribunal given on review on 21st January of this year.

2. The applicant/appellants are the managers of the Fairview Park Estate. The respondent is owner of a property on that estate, at No. 71, Second Street. The background to the matter is that the managers complained that this respondent was committing breaches of coverant. They went to solicitors for advice, and correspondence followed. A writ was issued in the District Court. It is then said that all the breaches complained of were rectified. No further proceedings were pursued, but costs in a total sum of $2,610 were incurred. The claim in the Small Claims Tribunal was for the recovery of that sum.

3. The issue turns upon the true construction of the Deed of Mutual Covenant. It is, I think, somewhat unfortunate that a dispute which raised pure questions of law continued throughout in the Small Claims Tribunal, with both parties mounting legal arguments through the back door, because the parties were presenting written arguments prepared by their solicitors. One of the troubles seems to me to have been that the case for rather bogged down in certain English decisions, and in the technical distinctions in England between damages and costs. There is a long standing rule developed in England based on public policy. As a matter of policy the courts have sought to control and limit the costs recoverable in litigation so as not to ruin the unsuccessful litigant. This has been done by a form of control of costs through taxation, and the limitation of costs basically to costs taxed normally on a party and party basis.

4. When that rule was introduced taxed costs appear to have produced a sufficient indemnity. That is no longer sadly the position. It is at this point that legal presumption, i.e. fiction, enters into the law. In order to preserve the fiction, and in order to protect the policy, the court has had to take the line:-

(1)     that taxed costs do provide an effective indemnity and

(2)     that the rule must be protected by ensuring that it is not circumvented through the back door i.e. that parties cannot recover by way of damages, costs which are disallowed on taxation either in the proceedings themselves or in some other action.

5. This seems to me to be what Megarry V.C. was saying in Poss v. Caunters⁽¹⁾, in a passage much relied upon by Liu, J. The vice-Chancellor said this:-

"It seems to me that both on authority and on principle those legal expenses can be recovered by the plaintiff only as costs, and not in the form of damages."

6. The operative word there is "recovered". The basis of this rule, and the exceptions and the limitations to it, are very clearly set out by Devlin LJ in his judgment in Berry v. British Transport Commission⁽²⁾. Significantly at page 321 he points out that the rule can only start to apply where there has been an adjudication by the court on the question of costs so that the sum recoverable as costs is decided by the court in that adjudication.

7. The proposed applicants here made two submissions about the learned judge's judgment. The first is that they submit that it is arguable that he is wrong when he appears to consider that costs and damages are two different things and that a sum is either damages or costs not both. They say that the matter goes to recovery and to no more than that. Secondly, they submit that it is arguable that he is wrong because in this particular case there was no adjudication by any court on the question of costs which can bring the rule into operation at all. It is sufficient for the purposes of this application to say that both those points seem to us to be very arguable. Since the judge's decision turned upon the premise that a sum was damages or costs, and on his view the sum here, being costs, could not be recoverable by way of damages under a deed of mutual covenant which allowed the recovery of damages; if there is error in this approach, it goes to the root of his judgment.

8. In fact, the court is concerned here simply with the construction of the deed of mutual covenant and for my part I have some reservations as to the relevance of the technical rules about recovery of costs and damages as developed in the English court at all.

9. The remaining question is whether or not there is sufficient element of public importance in this case, to permit it to be brought to this court, because the Court of Appeal can only grant leave if it considers that "a question of law of general public importance is involved," section 29A Cap. 338.

10. There are, we are told, between three and four thousand owners on this estate, all of whom are particularly concerned by the correctness of the judge's view. His view could also have an impact upon a number of other deeds of mutual covenant which are likely to contain covenants similar to those before us in this case, and where this alleged dichotomy between costs and damages could be of significance. It therefore seems to us that there is a sufficient point of general public importance to justify the granting of leave to appeal.

11. Finally, we must deal with the position arising under O. 59 r.14(2) which requires a court which does not dismiss the application to adjourn it, and to give directions for the serving of notice on the other side (unless hardship would be caused thereby).

12. There is one convenient device regularly used in England to deal with this particular point, and to avoid the necessity of an inter partes hearing of the application for leave to appeal, separate and apart from the hearing of the appeal itself. There are occasions when the court may think it right to have a separate hearing. But in this case particularly there has been altogether too much litigation already over a comparatively small sum. It would be quite wrong in our view to add to that if it can possibly be avoided. A simple device is for this court on this application to grant provisional leave, and to direct that the notice be served upon the respondents for the adjourned hearing of this application is to come on before the Court of Appeal on the same date as the provisional appeal itself is listed. Upon that occasion the court can, if necessary then consider inter partes the application for leave to appeal, and then if leave is granted proceed to hear that appeal. This form of order conveniently avoids the rigidity of this particular rule.

1.     Direct service of notice of this application on the proposed respondent within 7 days.

2.     Leave to the proposed appellant to serve a provisional Notice of Appeal upon the proposed respondent within 14 days, and thereafter set down the Appeal.

3.     Direct that

i.     adjourned hearing of this application

ii.     the appeal provisionally constituted by the said Notice of Appeal be listed for hearing at the same time.

4.     Costs reserved.

5.     Liberty to apply.

(1) [1979] 3 ALL E.P. 580 at page 601

(2) [1962] 1 O.P. 306