CHAU YAU v. CHAN CALVIN AND ANOTHER

HCA666/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 666 OF 2007

---------------------

BETWEEN

----------------------

----------------------------------------------

D E C I S I O N   O N   C O S T S

----------------------------------------------

1.  This matter arises from an appeal by the 1^st and 2^nd defendants against the order of Master Kwang given on 19 December 2008 whereby the Master ordered Interlocutory judgment against both the 1^st and 2^nd defendants with damages to be assessed upon the plaintiff’s application by Summons for summary judgment under Order 14.

2.  The substantive appeal from the Master has now been disposed of by the plaintiff consenting to unconditional leave to the defendants to defend the plaintiff’s claim herein as per the Consent Summons dated 7 October 2009.

3.  The only dispute outstanding and which is dealt with in this Decision relates to the costs as between the plaintiff and the 1^st defendant in respect of this appeal as well as the application and hearing below.

Background

4.  The plaintiff issued his Writ against the 1^st and 2^nd defendants on 2 April 2007 claiming damages for wrongful repudiation by the defendants of three written agreements entered into between them in respect of the development of properties under the Small House Policy in the New Territories.

5.  Home made defences were filed by the 1^st defendant on 3^rd October and by the 2^nd defendant on 7 November 2007. In both their defences, there was no dispute that the three agreements sued upon by the plaintiffs were entered into between the parties, and no issue of illegality were raised by both the 1^st and 2^nd defendants as to those three agreements.

6.  The Statement of Claim was amended on 13 March 2008, but only as to the reliefs sought by the plaintiff.

7.  On 12 August 2008, the plaintiff issued the Order 14 Summons against both defendants.

8.  On 29 August 2008, both defendants were represented by solicitors and a Notice to Act was filed. A draft Amended Defence (settled by counsel) was prepared for both defendants but had not been filed presumably because of the pending Order 14 application. In the draft Amended Defence of the 1^st and 2^nd defendants there was no pleaded point of illegality of the three agreements relied upon by the plaintiff.

9.  Affirmations were filed by the 1^st and 2^nd defendants in August 2008 opposing the plaintiff’s application for Order 14 judgment. Once again, no mention was made in those affirmations as to illegality in respect of the three agreements. The defence relied upon by the defendants was simply that the original agreements between the parties had been cancelled and replaced by a new agreement such that the plaintiff had no longer any development rights in Lot 660E.

10.  The Master heard arguments on 19 December with the defendants being represented by counsel on the Order 14 application. Again the point of illegality was not raised at the hearing before the Master by counsel for the defendants. The Master, after hearing arguments, ordered Interlocutory judgment against the defendants with damages to be assessed. The Master also ordered the defendants to pay the costs of proving liability in the Order 14 application including costs of the Order 14 Summons and all costs reserved under it to be taxed if not agreed, with certificate for counsel.

11.  Notice of Appeal from the decision of the Master was filed on 1 February 2009 by both defendants.

12.  On 21 April 2009 the 1^st defendant applied for leave to file the 3^rd affirmation of the 1^st defendant in which the point of illegality was raised for the first time. That application by the 1^st defendant was granted by Sakhrani J on 11 May 2009.

13.  Leave having been granted to the 1^st defendant to file his 3^rd affirmation raising the point of illegality, the plaintiff consented to unconditional leave to defend being granted to the defendants and the Consent Summons dated 7 October 2009 to that effect was filed. However, the 1^st defendant and the plaintiff could not agree as to the costs order necessitating this hearing (being the date fixed for the hearing of the appeal proper) to resolve that dispute between them.

Plaintiff’s stance as to costs

14.  The plaintiff took the stance that since the point of illegality was only raised by the 1^st defendant in his 3^rd affirmation after the hearing before the Master, the costs below should not be disturbed and in light of the Consent Summons dated 7 October 2009, the costs of the appeal should be costs in the cause.

15.  In taking this stance, the plaintiff relies on the statement against Marginal Note 14/7/18 of the White Book under the heading “Costs on appeal” where it is stated:

“If, however, the appeal turns upon evidence or material not placed before the master or the judge, as the case may be, the costs below are normally left undisturbed and the costs on the appeal made costs in the cause.”

Defendant’s submission on costs

16.  Counsel for the defendant submitted that since the plaintiff’s claim was brought under the Small House Policy, it must have been clear to the plaintiff’s legal advisers that the three agreements sued on by the plaintiff was fraught with illegality and therefore that it was firstly, the duty of plaintiff’s counsel to have brought that to the notice of the Master even though illegality was not raised by the defendants and secondly, it must have been an abuse of the court’s process for the plaintiff to have taken out Order 14 application on the basis that there was no defence to the claim.

17.  On that basis it was submitted that the Order 14 application ought to have been dismissed by the Master on the grounds of abuse of process and that the 1^st defendant should have the costs below as well as the costs of this appeal albeit conceded by the plaintiff by the Consent Summons.

Decision

18.  In coming to a decision on the matter, I note firstly, that the circumstances of this case, in particular the fact that the point on irregularity was only raised for the first time in the 1^st defendant’s 3^rd affirmation well after the hearing before the Master, will make it fall fairly and squarely within the statement referred to by counsel for the plaintiff against marginal note 14/7/18 of the White Book.

19.  However, as against that general statement as to costs, counsel for the 1^st defendant have sought to argue on the basis that the point of illegality, even if not pleaded and even if not raised by the defendant at the hearing below, there was a duty on the part of the plaintiff’s legal advisers to bring this to the attention of the Master. Counsel for the plaintiff went as far as to submit that it was an abuse of the court’s process for the plaintiff to have failed to do so at the hearing below and that the Master ought, on that basis, to have dismissed the Order 14 summons of the plaintiff.

20.  However, that argument of the 1^st defendant is met with the reply that by the Consent Summons dated 7 October 2009 the parties agreed to unconditional leave to the defendants to defend and not to the dismissal of the Order 14 application.

21.  In the circumstances, the abuse of process point taken by the 1^st defendant flies out the window.

22.  Furthermore, I accept the point taken by counsel for the plaintiff that the illegality point now taken by the 1^st defendant is not something which the plaintiff agreed to, but since it has been raised, the plaintiff concedes that there must be a triable issue and the matter must go to trial.

23.  Whether or not the three agreements sued on are tainted with illegality depends largely on the evidence and the facts of the case.

24.  In all the circumstances, I can see no good reason to depart from the general rule stated in 14/7/18 of the White Book.

25.  Accordingly there will be an order that the cost order made by the Master below do stand and the costs of the appeal from the Master be costs in the cause.

26.  There will also be a costs order nisi as follows:

(a)  that the costs of this hearing before me be paid by the 1^st defendant to the plaintiff in any event on the basis that this hearing was not necessary had it not been for the stance taken by the 1^st defendant on costs, and for which the 1^st defendant failed;

(b)  although the 2^nd defendant attended this hearing, acting in person, he did not see fit to make any submission on costs and there will be no order as to costs in relation to the 2^nd defendant in respect of the hearing.