THE INCORPORATED OWNERS OF PROVIDENT CENTRE v. WHAMPOA PROPERTY MANAGEMENT LTD

LDBM 268 OF 2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT Application No. 268 of 2002

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J U D G M E N T

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1.  The disputes between the parties have been disposed of in November 2004.  The parties now came back for argument on costs.  Each party claimed costs against the other on the ground that the other had acted unreasonably in conducting their affairs or in this litigation.   Not surprisingly, the Applicant relied also heavily on the basic rule that costs should follow the event unless there are some special reasons for departing from it. 

2.  Each party had been unreasonable at one time or another and to varying extent. Both parties made contributions to the unnecessary complexity of the case. An apt but definitely oversimplified description of the root cause of the dispute is the general mutual distrust of the parties soon after incorporation of the Applicant.  The initial dispute was in fact over the amount of funds the Respondent should retain.  The Respondent sought to retain an amount representing the estimated the expenditure for one month.  This dispute had therefore become academic soon after the initiation of these proceedings.  When the management contract of the Respondent terminated, the dispute developed into one of a different nature.  The issue became to be what was due to the Applicant on termination of the management contract. Accordingly the present solicitors for the Applicant had to amend the claim in the Notice of Application. 

3.  The accounts the Respondent rendered were not accepted by the Applicant who employed its own accountant to audit them.   There was nothing to show that the accounts were not properly rendered.  An owners incorporation can of course for whatever reasons employed its own accountant to audit the final accounts of the building manager on the termination of its contract. Equally it is entitled to take legal advice on the auditing process, on the findings of its accountant, and on correctness and appropriateness of each entry. If this exercise do not produce anything useful to challenge the accounts rendered by the outgoing manager, no legal action can or would then be taken against the manager and in such a case, clearly it has to bear the costs. On the contrary if something does come up in the exercise enabling the owners incorporation to challenge the final accounts. These challenges or disputed items have to be made known to the manager. If the manager conceded these challenges, there would be no need for legal action and the manager without more cannot be made liable for the costs of the exercise undertaken by the owners incorporation.  If the manager does not concede these challenges and the owners incorporation takes out legal action.  Further costs would have to be incurred in engaging lawyers and accountants. These further costs the owners incorporation would be entitled to recover from the Applicant but not the costs of and in the course of the auditing exercise.  

4.  In the instant case, the Applicant owners incorporation succeeded in challenging a few items in the accounts rendered by the Respondent manager. Unfortunately the auditing exercises was not done before this litigation but during its course.  The work of auditing exercise was interwoven with that of the litigation.  As a result the costs of litigation which the Applicant can properly recover from the Respondent cannot be severed from the costs of auditing process. The latter I do not think the Applicant was entitled to recover from the Respondent. 

5.  Mr. Lau, quite elegantly and fairly informed me that it is not the intention of the Applicant to include the costs of its accountant in its costs.   In the circumstance of this cases the costs of the accountant clearly fall entirely within the ambit of the auditing exercise, be there litigation or not.  The Applicant has to incur these costs in any event to verify the accounts rendered by the Respondent. These costs of auditing should not be borne by the Respondent generally, and especially in the circumstances of the case.  Equally costs of the legal advisers and other cost were incurred partly for the auditing exercise and partly for the litigation. It is impossible to quantify these parts. One way is to split the total into two equal parts.

6.  The Respondent asked for costs relying on the unreasonable conduct of the Applicant.  The Respondent has gone into quite a lot of trouble in meeting the request of the Applicant for accounting information.  This, to certain extent, is inevitable. As an out -going manager, it would be for its own benefit for the Respondent, as a matter of business good will, or good business practice or even its duty, to answer any query reasonably raised by the Applicant’s auditors and legal advisers.    The Respondent incurred costs in dealing with the queries raised, many of which came to nothing.   Part of the costs is the proper costs of litigation and the rest had to be incurred in any event for its own benefit whether there was to be litigation or not.  These two types of costs again cannot be severed from the total costs. 

7.  As to the counter-claim, it was unreasonable for the Respondent to put it in.  It would only raise an academic issue without any assistance in resolving the real dispute. Fortunately the costs wasted on it should be minimal.

8.  Taking all the above factors into account the fair and proper costs order should be:

1.    costs to the Respondent up to the date of amendment of the Notice of Application, namely 13 June 2003;

2.    Respondent do pay half of the costs of the main claim, half of the costs reserved; half of the costs for the hearing on costs.

3.    No order as to costs for the counter-claim;

4.    Fees and ancillary charges for the accountant be disallowed.

5.    Costs to be taxed, if not agreed, on High Court Scale with certificate for counsel.

And I so ordered.