UBC (Construction) Limited v. Sung Foo Kee Limited

Construction List No. 11 of 1991

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Ruling on Costs

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1. On 1st June 1993, I handed down judgment in this matter.

2. Since handing down judgment, the parties have appeared before me in order to deal with a number of consequential matters. It has now been agreed that judgment in favour of the UBC shall be in the sum of $3.5m. I have also dealt with interest which I awarded at 2% above prime from the date of the writ until judgment and thereafter at the judgment debt rate.

3. As to costs, Miss Cheng for SFK accepts that her clients will have to bear the costs of this action including any costs reserved. She did seek an order for costs on the counterclaim.

4. The one outstanding issue between the parties is whether I should award the costs or any part thereof on a scale above that of the normal party and party taxation.

5. Mr. Graham for UBC tells me that the estimate of UBC's costs is in the region of $7m. Even allowing for some exaggeration in this figure, and taking into account SFK's likely costs, it does not seem to me to be unrealistic to assume that the costs of this 35-day action will be in the region of $ 10m, the greater part of which will have been borne by the UBC. It is a significant comment on the way in which litigation is conducted, particularly in the construction field, that a small sub-contractor has to incur such substantial costs to recover what may seem to others to be a relatively inconsequential sum.

6. Mr. Graham informed me that the fees for UBC's expert are in the region of $600,000 and some $150,000 was spent on photocopying. There was also cost relative to translating huge number of daywork certificates. Mr. Graham submits that whatever the total costs incurred by UBC they will probably only recover something in the region of 2/3, or perhaps a little more, on taxation and they are going to be substantially out of pocket.

7. The principle applicable to awarding costs on a higher scale are clear.

8. In Overseas Trust Bank Ltd. v. Coopers and Lvbrand [1991] 1 HKLR 177, Godfrey J. at 182 expressed the applicable principles as follows;

"To justify an order for costs on the common fund basis, the case has to have some special or unusual feature: see Preston v. Preston [1982] Fam 17 and my own judgment in Wharf Properties Limited v. Eric Cumine Associates, HCA No. 13431/1983 and CL No. 48/1985, 24th February 1988, unreported. In my opinion, in order to justify a taxation on the indemnity basis, the successful party has to show, either that the case is one of a type already recognised in the practice of the court as warranting a taxation on that basis (such as, for example, the contempt cases to which I have already referred) or that there is some feature in the case even more special or unusual than one which would justify a taxation on the common fund basis. A case in which the successful party has demonstrated that the proceedings were initiated or prosecuted by the unsuccessful party in a manner which constitutes that party's proceedings an abuse of the process of the court might well be a candidate for an award of taxation of costs on an indemnity basis. A taxation of the successful party's costs on an indemnity basis could properly be ordered, in my opinion, where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for the taxation of the successful party's costs on the indemnity basis."

9. In addition, I have been referred to and considered the following cases;

Margaret Hirst v. Valerie Agrava-Kerr, [1992] HKLR 414; EMI Records v. Ian Cameron Wallace Ltd. [1983] 1 Ch. 59; Lau Wong & Chan v. Famous Investment Co. Ltd. [1991] 1 HKLR 115; Linda Koo v. Lam Tai-hing [1992] HKLR 315; Citibank v. David Kung [1989] C.A. 81; Lakham v. Wu [1987] C.A. 104; Owner of Cargo Lately on Board 'Neddloyd Nassau' v. The Owners of Same [1991] C.A. 176.

10. The application for an unusual order for costs was, I have no doubt, prompted by various comments I made in the course of my judgment dated 1st June 1993. However, merely because I was critical of the way in which SFK had conducted this contract and litigation, it does not inevitably follow that I am bound to conclude that it would be a correct exercise of my discretion to award costs on a scale above that party and party costs.

11. Mr. Graham for UBC submitted that in relation to the Variation Orders, SFK's defence was founded upon lies and that this justified an award of indemnity costs. He is, of course, correct that in my judgment I disbelieved SFK's two witnesses who testified that there was no agreement with UBC as to any of these Variation Orders. However, in my judgment, the mere fact that a court disbelieves witnesses called by one party does not justify an unusual costs order. If it did, then such orders will be made in a large number of cases but that is not the case.

12. I can find no warrant for making an unusual order for costs in relation to the Variation Orders. SFK were perfectly entitled to deny that there was any agreement in relation to them and were further perfectly entitled to put forward the various legal arguments which they did.

13. I now turn to consider whether the position is the same in relation to the dayworks issue.

14. By a late amendment made shortly before trial, SFK put UBC to strict proof of compliance with Clause 7 of the contract. I do not propose to go into this issue all over again as I dealt with it in my judgment of 1st June 1993. SFK wanted to argue that the UBC Certificates, upon which both parties had previously relied, were not in conformity with Clause 7. This necessitated copying and translating a large number of documents which were placed before me. Both experts spent hours dealing with the dayworks issue.

15. SFK witnesses then went into the witness box and stated that the UBC Certificates signed by SFK, upon which reliance had been placed during the course of the contract, were not evidence of what they stated on their face. I found this was an absurd contention and one which added considerably to the costs of the action.

16. I have no doubt that this late amendment, to put in issue the validity of the UBC Certificates, was intended to, and did, cause the maximum inconvenience and cost to UBC. I have no doubt that this was oppressive coming, as it did, so late in the day and causing a tremendous problem for UBC just before trial. I believe that this was intended to place pressure on UBC in order to wear them down to induce a settlement. I believe it was part of a plan of pressure placed upon a small sub-contractor to submit to the will of a large public company and it is to the credit of UBC that they did not in fact succumb.

17. SFK's conduct in relation to the daywork issue was both oppressive and an affront to the Court. The attempt to deny the clear meaning of documents signed by them and relied upon by them was nothing short of outrageous. I have already made comments upon SFK's expert who took a totally unreasonable attitude in relation to dayworks, many of which he abandoned under cross-examination.

18. Applying the principles which I have derived from the above cited cases, I am satisfied that it would be a proper exercise of my discretion to order that certain items of costs should be taxed on an indemnity basis. These items are (1) The costs of translating and photocopying the SFK daywork certificates. (2) The costs of preparing (including copying) the dayworks Scott schedule. (3) The costs referable to UBC's expert dealing with the daywork issue both in relation to his report and his attendance at Court. (4) The costs relating to four days of trial which is my best estimate of the unnecessary time spent on this issue. It will, of course, be left to the good sense of the taxing master to give effect to this direction.

19. Apart from the above, I am not prepared to go any further with Mr. Graham's submission. Save as to these specific items, both the pre-trial costs and the costs of the trial itself will be taxed on the usual basis.

20. As for the costs of the counterclaim, I propose to make no order. The bulk of the counterclaim which related to overpayments failed completely. The Yee Kee claim was substantially reduced. Two other claims failed completely. The other matters were not seriously in dispute.

21. As for all the post judgment hearings these will be borne by SFK on the usual basis and I make an order nisi to that effect. For the avoidance of doubt, I make clear that the order for costs in favour of UBC includes all costs previously reserved.