TOWNMENS INVESTMENT CO LTD v. WIDER RIVER LTD (in liquidation)

HCA 538/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 538 OF 2009

_______________

J U D G M E N T

_______________

1.  The Plaintiff is the landlord and the Defendant, a limited company, operated a veterinary business, was its tenant under a tenancy agreement in respect of a premises (“Premises”) in Kowloon.

2.  The 1^st Third Party (“1^st TP”), a veterinary doctor, was the shareholder and director of the Defendant.

3.  Upon the winding up of the Defendant on 31 December 2008, provisional liquidators were appointed, and the tenancy agreement was terminated.  The Plaintiff would be entitled to take possession of the Premises by the operation of a relevant clause of the Tenancy Agreement.

4.  Upon termination of the tenancy agreement, the 1^st TP however continued to use the Premises to operate his veterinary clinic in the name of the 2^nd Third Party (“2^nd TP”).

5.  On 24 February 2009, the Plaintiff issued the main proceedings against the Defendant for vacant possession, and for mense profit for the continuous occupation of the Premises.

6.  The Defendant defended the action, and issued a Third Party Notice on 23 March 2009 against the 1^st and 2^nd TPs.

7.  On 8 June 2009, the Plaintiff obtained vacant possession when the keys of the Premises were delivered by the 1^st TP directly to the Plaintiff.

8.  On 26 February 2010, a Notice of Discontinuance against the 2^nd TP was filed.

9.  On 3 March 2010, two summonses were issued:

(i)                    The 2^nd TP’s summons (“2^nd TP Summons”) under Order 62 rule 10, Rules of High Court (“RHC”) for costs against the Defendant in respect of the main action and the Third Party proceedings.

(ii)                    The Plaintiff’s summons (“Plaintiff’s Summons”) under Order 21 rule 3, RHC for leave to discontinue against the Defendant with no order to costs.

10.  On 13 April 2010, the Defendant issued a summons (“Defendant’s Summons”), also under Order 21 rule 3, for leave to discontinue the Third Party Proceedings against the 1^st TP.

11.  On 19 April 2010, a Master made an order in terms of a consent summons by disposing part of the Defendant’s Summons by granting leave to the Defendant to discontinue the Third Party Proceedings against the 1^st TP, and by a separate order on 4 June 2010 allowed the questions of costs of the Third Party Proceedings be heard at the same time as the Plaintiff’s Summons.

12.  As the issue of costs could not be agreed, the Master adjourned the Plaintiff’s summons for arguments. The 2^nd TP’s Summons was also adjourned, but was never restored for hearing. Since parties have also advanced arguments in respect of the 2ndTP’s summons, I also dealt with it in the hearing. I have therefore before me three summonses on the issue of costs upon discontinuance of proceedings.

A.  The principle

A.1 Costs upon granting leave to discontinue

13.  The principles governing costs upon discontinuance with leave of the court can be derived from the cases cited by counsel for the Defendant[1] and counsel for the 1^st and 2^nd TP[2]:

(a)       The general rule is for the court to order a plaintiff for leave to pay a defendant’s costs upon granting leave to discontinue[3].

(b)       Court however has a wide discretion as to costs, and can depart from the general rule if there are exceptional circumstances[4].

(c)       It would be contrary to the underlying objectives of Order 1A rules 1 and 2, RHC, to require parties to go to trial to resolve any outstanding questions of costs[5].

(d)       In exercising its discretion on costs, a court can receive evidence, and may resolve factual disputes with the benefit of cross-examination[6].

(e)       A broad brush approach is to be taken when considering if a plaintiff (applicant) has succeeded in obtaining substantially the relief that it asks for in deciding whether the applicant is entitled to have the costs of the proceedings[7].

A.2 Costs of the Third Party proceedings

14.  Counsel for the Third Parties, Mr. Hew, submits two authorities, Thomas v Times Book Co. Ltd.[8] and Nam Kwong Medicines & Health Product Co. Ltd. v China Insurance Co. Ltd. & People’s Insurance Co. Ltd. (third party)[9],concerning the court’s approach to a third party’s costs upon a court dismissing a plaintiff’s claim against the defendant,

(a)       The court has complete discretion[10].

(b)       Court may order an unsuccessful plaintiff to pay the costs of a third party whose joinder was made inevitable by the plaintiff’s claim[11].

B. RELEVANT MATERIALS

15.  With the above principles in mind, I now turn to consider the evidence before me.

16.  From the brief background set out above, I think the facts are largely undisputed.

17.  As a result of the winding up of the Defendant (by the 1^st TP), the tenancy agreement was terminated, and the Plaintiff was entitled to obtain vacant possession of the premises.

18.  The Provisional Liquidators had along, before the issuance of the writ, informed the solicitors for the Plaintiff that the 1^st TP had made it impossible to deliver vacant possession because the latter was operating his veterinary clinic in the name of the 2^nd TP.  At the same time, the Provisional Liquidator had repeatedly written to the solicitors for the Third Parties that they had occupied the premises without their permission, and the latter were required to deliver vacant possession.

19.  Upon the Defendant being wound up, the 1^st TP, commenced his veterinary business under a new trade name in the premises- but continuing to pay rent to the Plaintiff- and attempted to negotiate a new rental agreement with the Plaintiff.

20.  When the negotiations for a new rental agreement failed, the 1^st TP attempted to deliver vacant possession by returning the keys to the solicitors for the Provisional Liquidators around 20 May 2009,  but the solicitors refused to accept the keys.  Hence, vacant possession was only delivered on 8 June 2009 by the attendance of all parties concerned.

C. DISCUSSION

21.  Both the counsel for the Plaintiff and the Defendant pointed an accusing finger at the 1^st TP for the institution of the proceedings.  Whilst the Plaintiff was content with no order to costs in the main action, the Defendant asks for costs against the Plaintiff in the main action, and against the 1^st TP for the costs of the Third Party Proceedings.

22.  The Third Parties also seek costs against the Defendant (by following the general principle) or alternatively against the Plaintiff on the ground that the Plaintiff was aware that the Third Parties were in occupation of the Premises before the commencement of the action, and hence it made the Third Party proceedings inevitable.

23.  Whilst I would be disclined to approach the application by determining who was at fault, I however think that I should take into account broadly the circumstances the action was commenced, and also conduct of a party that necessitated the relevant proceedings.

24.  I will now consider each summons in turn.

C.1 2^nd TP’s Summons

25.  On 26 February 2010, the Defendant filed a summons for Third Party Directions as well as a Notice of Discontinuance against the 2^nd TP.  This may explain why on the hearing of the summons for the Third Party Directions, the Master granted leave to the Defendant to amend the summons by deleting there from all references to the 2^nd TP.

26.  It is not in dispute that the Third Party Notice was never served on the 2^nd TP.  On the face of the Notice of Discontinuance, it seems it was also not served on the 2^nd TP.

27.  In spite of the fact that the 2^nd TP was not served with the Notice of Discontinuance, the 2^nd TP however subsequent to the Notice of Discontinuance issued this summons under Order 62 rule 10, RHC for costs.

28.  Under Order 62 rule 10, when an action is withdrawn without leave, a defendant is entitled under Order 62 rule 10 to tax his costs of the action or his costs occasioned by the matter withdrawn.

29.  If the mechanism for withdrawal under Order 21 applies also to third party proceedings, there would be no need to obtain leave from the court when discontinuing the proceeding, and further by the operation of Order 62 rule 10, the 2^nd TP would be entitled to have its costs up to the date of the discontinuance.

30.  At the hearing for this summons as neither counsel for the Defendant and the 2^nd TP have addressed me on the applicability of Order 62 rule 10, I therefore invited further submissions from them.

31.  I am indebted to the further written submissions from counsel. After having considered counsel’s further submissions, I think (as Mr. Hew) has pointed out, there is confusion as to whether the mechanism for automatic taxation provided in Order 62 rule 10(1) applies to the discontinuance of third party proceedings.  The commentary has this to say;

“This rule does not appear to apply to third- party proceedings. If a defendant discontinues third- party proceedings, it would seem that the third party must obtain an order for his costs, and a plaintiff can discontinue against a third party only by summons and not by notice of discontinuance. There appears to be no reported authority.

The widening of discretion of the Court under the Civil Justice Reform, particularly in respect of costs either in favor of or against non- parties, may assist, though it is unclear whether discontinued parties are, strictly speaking, non- parties.”

32.  If the said comments of the learned editors were right, one then doubts whether the mechanism for discontinuance and withdrawal under Order 21 would also be applicable to third party proceedings.  It follows therefore it is doubtful whether the Notice of Discontinuance the Defendant had filed was indeed valid.

33.  Since parties have not in fact taken any issue on the validity of the Notice of Discontinuance, I would refrain from ruling on the applicability of Order 62 rule 10 to third party proceedings but I tend to think that it is open to a defendant in the third party proceedings to invoke the mechanism under Order 21 to withdraw the proceedings against a third party.

34.  I say this because under Order 16 rule 3, once a court grants leave to issue a third party notice, the procedure governing matters such as service, and acknowledgment of service is substantially similar to that of a writ.  The commentary at para. 16/3/3 seems to be a confirmation of such procedure.

35.  Under the Civil Justice Reform, I think it would be quite contrary to the underlying objectives under Order 1A rule 1 to require discontinuance by summons.

36.  Coming back to this case, I think the parties were so carried away by the issue of liability for costs that they seem to have overlooked the fact that in this case the Third Party Notice was never served on the 2^nd TP.

37.  Hence, without ruling on whether Order 62 rule 10 is applicable to third party proceedings, I think the 2^nd TP was not even vexed with the proceedings and there is really no issue on costs.

38.  Hence, I am inclined to think that it is not proper for the 2^nd TP to issue the summons for costs.  The summons is therefore dismissed.

C.2 The Plaintiff’s Summons

39.  In the light of the facts as discussed above, I am of the view that the Plaintiff is justified in instituting the action for vacant possession.  In fact, it was only through the institution of the writ that the Defendant and the 1^st TP were put under pressure to deliver vacant possession.  It is therefore a situation that the Plaintiff  has substantially obtained the relief it has claimed for.

40.  In the circumstances, I think this is a sort of case where the usual rule can be departed from, and since the Plaintiff asks for no order to costs, I think it is a proper order to be made, and so order.

41.  As there was no order for discontinuance having been granted, I make an order that leave to the Plaintiff to discontinue the action against the Defendant with no order to costs.

C.3 The Defendant’s Summons

42.  Mr. Hew has conceded that the joinder is inevitable.  Hence, the facts of the case clearly demonstrate that the Defendant was a totally innocent party, and the Provisional Liquidators have been actively urging the 1^st TP to deliver vacant possession to the Plaintiff. Hence the Defendant should not be liable for costs.

43.  The fact that the 1^st TP had along used the same Premises for his veterinary practice, and that he was negotiating a new lease with the Plaintiff was not a valid reason for exculpating him from his liability for the costs the parties have incurred in enabling the Plaintiff to obtain vacant possession.

44.  I do not think that the facts of the present case are similar to those in the authorities Mr. Hew relied on (as per paragraph 14 above) and that the Plaintiff should be ordered to pay for the 1^st TP costs because the joinder was inevitable.  The discontinuance of the action is not the same as a plaintiff (as in the cases stated in paragraph 14 above) having lost an action against a defendant in a main action.  Hence, I am unable to accept Mr Hew’s argument by ordering the Plaintiff to pay for the costs of the 1^st TP upon discontinuance of the main action.

45.  On the facts of this case, I think it is just for me to exercise my discretion by ordering the 1^st TP to pay the Defendant’s costs of the third party proceedings, including all costs reserved.

46.  As for the costs of the Defendant in the main action, I also think that the Defendant is entitled to be reimbursed for the costs incurred.  Hence, the 1^st TP is also to pay the costs of the Defendant in the main action including costs reserved.

47.  I further order the costs that I have made in favour of the parties shall be summarily assessed. I would now hear submissions on the costs of the summonses, and on certification for counsel’s attendance.