COMMISSIONER OF INLAND REVENUE v. ASPIRATION LAND INVESTMENT LTD

HEADNOTE

Costs - proceedings an abuse of process - whether jurisdiction to award indemnity costs- whether discretion should be exercised.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

INLAND REVENUE APPEAL NO. 10 OF 1989

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BETWEEN

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JUDGMENT

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1. On the 31st October 1990 in a very long judgment I dismissed an application by the commissioner of Inland Revenue to amend a case stated under section 69(4) of Inland Revenue Ordinance.

2. I did so on two grounds. The first was that I concluded that the application (for reasons which I set out in that judgment and do not intend to repeat) was an abuse of the process of the court and secondly, I found that I would not have exercised my discretion under the section in any event.

3. This case had a long history which is set out not only in my judgment, but the judgment of Mr. Justice Barnett which I annexed to my judgment. This morning, I have heard an application on behalf of Aspiration who were the respondents to the application (the taxpayer) and they are seeking the costs of the hearing before me. It is common ground between the parties that costs should follow the event and therefore, there must be an order for costs against the commissioner. Mr. Rosenberg has helpfully agreed that there should be a certificate for two counsel because Aspiration were represented by leading and junior counsel.

4. The only question that I have to decide is whether or not I ought to award costs to Aspiration on any other basis than the normal party and party basis. Mr. Swaine seeks an order on the indemnity basis, alternatively common fund basis.

5. As is well-known, there are two conflicting decisions as to whether or not the court has jurisdiction to grant indemnity costs. In a previous judgment of mine recently delivered, I concluded that there was jurisdiction to award indemnity costs. That judgment will not be published because it related to wardship proceedings. Therefore, I propose, in this judgment, very briefly to give my reasons for coming to that conclusion before considering how I should exercise my discretion.

6. The two cases are, firstly, a judgment of Mr. Justice Barnett in December 1988 in Hanwa Co. (HK) Ltd. v. Everbright Shipping Co. Ltd. in which he found that there was no jurisdiction to award indemnity costs. Secondly, there is a judgment in August of this year of Mr. Justice Godfrey in Overseas Trust Bank v. Coopers & Lybrand in which he concluded that he did have jurisdiction.

7. I have therefore been faced with the invidious task of choosing between two diametrically opposed decisions of two of my brother judges. It is to be hoped that the Court of Appeal will have an early opportunity of giving an authoritative ruling on which of the two views is correct. I should add that I am personally aware of other decisions where judges have held that jurisdiction does exist to award indemnity costs but as the two main protagonists are Mr. Justice Godfrey and Mr. Justice Barnett, it is between their fully expressed views that I have to choose.

8. No useful purpose can be served by me reciting the rival contentions. Suffice it to say that I have read both judgments very carefully as well as the authorities referred to in them. Although I take Mr. Justice Barnett's point concerning the use of the word 'shall' in Order 62 rule 28(2) of the Rules of the Supreme court, nevertheless I am persuaded by the approach of Sir Robert Megarry, V.C. in E.M.I. Records v. Ian Wallace Ltd. [1983] 1 Ch. 59 which Mr. Justice Godfrey followed in the Overseas Trust Bank case. I, too, am impressed by the fact that orders for indemnity costs have been made over the years in England and in Hong Kong and, indeed, have been made in cases in which I have been involved. I agree that judges should have the widest possible discretion in dealing with costs and indeed, as Mr. Justice Godfrey observed, section 52A(1) of the Supreme Court Ordinance is in very wide terms. I, for my part, am not prepared to circumscribe that wide discretion nor am I prepared to ignore the practice of the courts over many years. I am particularly impressed by the obvious good sense of the practice to award indemnity costs in contempt cases. It would be a very grave injustice if an innocent party who brings before the court an obvious contempt of the court's order should have to pay the difference between party and party costs and costs on an indemnity basis. It seems inappropriate that there should be a costs penalty in bringing such matters before the court bearing in mind that the court has no facilities for acting upon its own motion.

9. I should also add that the same would seem to apply to cases where an abuse of process has been established and I refer to page 10 of Mr. Justice Godfrey's judgment in which he says this:

"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."

10. I should also point out that in a case called Pacific Insurance v. Wong [1989] 1 W.L.R. at 602 as Mr. Justice Godfrey points out the Privy Council, on appeal from Hong Kong, did make an order for indemnity costs although it is not apparent from the report that there was any argument on the question of jurisdiction.

11. I am, therefore, quite satisfied that I have jurisdiction and so, with the greatest of respect to Mr. Justice Barnett I, too, prefer to follow the path shown by Sir Robert Megarry, V.C. and so carefully trodden by Mr. Justice Godfrey in Hong Kong. Having concluded that I have jurisdiction the question now is whether I should exercise that jurisdiction.

12. I have to be faithful to my judgment in which I concluded that there was an abuse of the process of this court. I did not mean that there was any ulterior motive or any bad faith on the part of the commissioner. The simple fact was that he was attempting to argue something which had been argued and decided before and which really was not possible to be raised again. The fact remains that this was the fourth hearing in relation to these matters. There was an earlier hearing before the Board of Review where the question of the terms of the case stated were considered. No costs were ordered then. Then there was a judicial review before Mr. Justice Barnett in which he found against the Commissioner and awarded ordinary party and party costs to Aspiration. Then there was the appeal to the Court of Appeal which was abandoned after a short while and again costs were awarded on the party-and-party-basis. And then there was the application before me.

13. I take into account that costs are not intended to punish any litigant but I am more concerned at looking at the position of Aspiration. They had been brought to court for a 3-day hearing and they were represented by leading and junior counsel, and at the end of the day I concluded that those proceedings were completely misconceived and should not have been brought in that form at all. It seems to me that this is a classic situation where the winning party should not be out of pocket. Clearly, in contempt cases it is right that the winning party should not have to suffer any extra costs in bringing the matter before the court. When one party has been found to have abused the court's process it seems to me that that is a situation where it would be appropriate to award indemnity costs.

14. Having considered this matter very carefully, it seems to me that in the exercise of my discretion I should award indemnity costs in this case on the basis that these proceedings before me really ought not to have been brought at all and that all the costs incurred by Aspiration were unnecessary and that they should have a court order requiring taxation on the highest basis.

15. Let me add this; if I ever be held to be wrong on the question of jurisdiction I would have ruled that this was an appropriate case for a common fund taxation. It certainly would be unfair and unjust in my judgment if Aspiration were only to get party and party costs which would mean that they would be between 40% and 30% out of pocket. The order I propose to make is that Aspiration do have the costs of the hearing before me on an indemnity basis and that there should be a certificate for two Counsel.