FAIRVIEW PARK PROPERTY MANAGEMENT LTD v. LEE YUEN YAU

IN THE COURT OF APPEAL

No. 703 of 1987
Miscellaneous Proceedings

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No. 75 of 1987
(Civil)

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J U D G M EN T

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Hunter, J.A. :

1. The applicant/appellants and the claimants before the Tsuen Wan Small Claims Tribunal are the managers of Fairview Park Estate appointed under a deed of mutual covenant dated 27th February l979. The Respondent/defendant is the owner of a property on that estate, namely No. 71, Second Street.

2. Only two provisions of the deed of mutual covenant need be noticed namely:-

(i) Clause 5 .

"Each owner shall at all times hereafter be bound and shall observe and perform the covenant’s provisions and restrictions set out in the second schedule hereto."

(ii) Clause l (k) of the third Schedule which empowered the managers:-

"To commence proceedings for the purpose of enforcing the observance and performance by any owner ... of the covenant’s conditions and provisions of this deed ….. and of recovering damages for the breach non-observance or non-performance thereof.”

4. Instead the managers lodged a claim in the Tsuen Wan Small Claims Tribunal for $2,610, the costs incurred by them in instructing their solicitors as aforesaid. The basis of their claim before the Tribunal was that the defendant had committed breaches of covenant: that such breaches had occasioned this expenditure: and that the expenditure was recoverable as damages for breach of covenant.

5. The claim took a somewhat chequered course before the Tribunal. The first adjudication on 16th May was in the respondent's favour. The adjudicator then sought to review it but got himself into procedural difficulties which had to be corrected on appeal by Hooper J. A full review then followed and was completed on 21st January 1987. The adjudictor then found that the respondent had committed four specific breaches of covenant: that the claimants had incurred the legal costs claimed in order to enforce the said covenants; and that such costs were recoverable from the claimant as damages. He gave judgment for the claimant for $2,610 in respect of the said fees, $300 for a collection charge payable pursuant to the deed, and $308 expenses before the Tribunal.

6. The defendant appealed from this decision and on 3rd April 1987 Liu J. set it aside. The learned judge extracted the following proposition from the decision in Ross v Caunters^[1] namely:-

" Expenditure incurred in contemplation of the resolution of a dispute between parties in or out of court is not damages arising or flowing from any alleged wrong in that very dispute."

7. He concluded that the legal fees in question "cannot be damages or damages envisaged by para. l (k) of the third Schedu1e"

8. On 10th June this Court gave provisional leave to appeal from that decision. According to the directions we then gave the inter partes hearing of that application and the appeal itself came into our list together and were argued together. On the application, Mr. Wong for the defendant referred us to the decision of the Privy Council in Albright v Hydro-Electric Power Commission of Ontario^([2]) as authority for the proposition that the Privy Council did not grant leave to appeal where a decision depended on the "mere construction of agreements which do not raise either far reaching questions of law or matters of dominant public importance".  He invited us to apply that principle and conclude first that Liu J.'s decision involved a mere construction of an agreement, and that there was no question of law of general public importance raised by this appeal sufficient to satisfy section 29A of the Ordinance.

9. I cannot accept this submission. Liu J. did not merely construe this agreement. He concluded as a matter of law that costs and damages were separate, distinct and mutually exclusive concepts, and then applied that conclusion to this agreement. The trial judge's conclusion on law could have far reaching consequences if it he correct and therefore in my judgment this appeal raises a question of law of general public importance.

10. In his argument in support of the learned judge Mr. Wong founded upon the decision in Ross v Caunters^(l). He did not seek to support the judge's formulation, but he did seek to extract from that decision a general rule that costs were not recoverable as damages.  In that decision Sir Robert Megarry V.C. had to consider whether a claim for "legal expenses of investigating the plaintiff's claim up to the date of the issue of the writ herein - estimated £250" was recoverable as damages or costs.  Having concluded that pre-writ costs would properly be considered by the taxing master on the order for costs he was going to make in any event, he concluded that this claim was recoverable only as costs and not as damages. Otherwise the plaintiff would be recovering twice over.

11. In my judgment the Vice Chancellor was not purporting to lay down any general rule in that decision. He was simply recognising the rules of public policy in relation to costs which are most carefully set out and explained in the judgment of Devlin L.J. in Berry v British Transport Commission^([3]). The basic policy is that it is in the public interest for the Court to control costs.  This control is achieved and maintained first by the exercise of the Court's discretion in relation to orders for costs, and secondly by the taxation of those costs in accordance with the scale selected by the Court.  Further to maintain such control the Courts have not allowed litigants to by-pass the policy by claiming costs lost on taxation in some later action.

12. But as Devlin L.J. pointed out in his judgment at 321 a control based upon discretion and taxation cannot start to operate when neither event has occurred. He said :-

''If in the earlier case there has been no adjudication upon costs (as distinct from an adjudication that there shall he no order as to costs), a party may recover all his costs assessed on the reasonable, and not on the necessary, basis. If a party has failed to apply for costs which he would have got if he had asked for them, a subsequent claim for damages may be defeated; but that would he because in such a case his loss would he held to be due to his own fault or omission.”

13. Mr. Wong tried to persuade us that DevIin L.J. was wrong. This is demonstrably not the case. Devlin L.J. cited from two of the relevant authorities. In Doe v fillite^([4])  Rolfe B. said:

"Where, indeed, there has been no taxation, then, ex necessitate, the jury must say what is to he an indemnity."

Again in Re Bater and Birkenhead Corporation^([5])  Lord Esher M.R. emphasised that this was a question of substance not form when he said:

" An endeavour is made to avoid this conclusion by giving these expenses a legal name and calling them costs; but they are nonetheless expenses which the man has had to pay.

Those words are particularly apposite to the present costs. Devlin L.J. might equally have cited from the judgment of  Vaughan Williams L.J. in Walshaw v Brighorse Corporation^([6]) where he said:

"With the general proposition as to the recovery of such costs as damages, I agree - that is to say, that you could not have included in the damages in the action costs in respect of which there has been an adjudication by a court of competent jurisdiction ….. I entirely agree that if the matter had been before a Court which had power to adjudicate upon the costs, and has adjudicated, you cannot in any subsequent action go behind that adjudication, or go outside it in any way. But in the present case, as there was no adjudication of any sort or kind on costs, there is nothing to prevent damages or compensation being assessed on the basis of including the costs in the assessment."

14. In my judgment this appeal is concluded by the application of the principle of those authorities. There was in this case "no adjudication of any sort or kind on costs" by the District Court. The writ was never served. There was no occasion for adjudication, no occasion for the Court to exercise its discretion: and no occasion for any taxation or assessment of costs. It follows in my judgment that there was nothing to prevent the appellants before the Small Claims Tribunal from recovering their reasonable costs by way of damages.

15. The only possible argument open to the Defendant which was not advanced or relied upon below at all, was that the appellants should have proceeded with the District Court action in order to obtain an order for and taxation of costs in such action.  It is transparently obvious that this would have been a very much more cumbersome and expensive procedure which would simply have involved both parties in much greater and wholly wasted expense.  Nor is it a course which the appellants were under any obligation in law to take.

16. In my judgment therefore the adjudicator came to a correct conclusion upon his review in January. Whilst congratulating him on this result I am to bound to express my regret that this claim was allowed to remain in the Small Claims Tribunal and that no application to transfer it to the District Court was made under Section 7.  The case turned into an argument almost entirely on law, which argument was advanced by unrepresented parties handing in written submissions prepared by their solicitors.  I regard that as a wholly unsatisfactory procedure which must have contributed to the difficulties which occurred before the Tribunal.

17. For my part, therefore, I would allow this appeal and restore the judgment of the adjudicator.

Cons, V.-P.:

18. The basis for the judge's decision below is to be found in the following passage of his judgment -

"Counsel for the Appellant drew my attention to the ratio decidendi  in Ross v. Caunters, [1979] 3 A.E.R. 580.  The position may be, 1 believe, neatly stated thus: Expenditure incurred in contemplation of the resolution of a dispute between parties in or out of Court is not damages arising or flowing from any alleged wrong in that very dispute. Legal fees incurred by the management company in respect to the matters that are said to have been found in favour of the management company cannot be, in my judgment, damages or damages envisaged by paragraph l(k) of the "Third Schedule to the Deed of mutual Covenants."

19. I agree with my Lord that this formulation of the law involves a point of general and public importance and therefore I would grant leave under Section 29A of the Smal1 Claims Tribunal Ordinance Cap. 338.

20. If by this formulation the judge intended to separate legal fees and damages into two distinct, mutually exclusive concepts, then with respect, I think he went too far.  I can find no principle which might differentiate legal fees from medical or other professional fees which are commonly recoverable as damages once it has been established that they are the natural consequence of a civil wrong. Indeed they have been so recovered: Berry, v. British Transport Commission[1].

21. Of course compensation for legal fees is more frequently encountered in the form of an order of costs awarded under a court’s statutory powers.  These powers as discretionary and in the course of time the Courts have evolved principles to govern their discretion in order to keep the cost of litigation within acceptable limits.  For example a successful party will recover only such amount as is allowed to him on taxation.  He may not recover under the guise of damages in a second action excess costs which were disallowed in the first instance: Cockburn v. Edwards[2].  Ross v. Caunters[3] is a case where that principle was extended to the same action.  I do not think it is authority for anything further.  In particular I am not persuaded that it has established a conceptual distinction between damages and costs sufficient to preempt a construction of the former word in the Deed of Mutual Covenant which would include the latter.  For my part I have no doubt that on a true construction of paragraph 1(k) of the Third Schedule it is apt to cover a claim of the kind which was made in this instance.

22. A certain amount of confusion has I think been introduced into the present proceedings by the assumption that the action in the Small Claims Tribunal was a second or subsequent action to an action in the Tsuen Wan District Court.  In my view, for present purposes it was not.  Firstly the District Court action proceeded no further than the issue, and later amendment, of the writ.  No attempt was ever made to serve it upon the Defendant.  Secondly the small claims proceedings were in fact the same action without, of course, the claim for unliquidated damages. With respect to the learned adjudicator the claim for legal charges was not based, as he appears to suggest at page 5 of his judgment on review, on a separate cause of action for a different and additional wrong.  It was based on the same alleged breaches of covenant.  This is apparent from the ground lodged in support, and it is with those breaches that the adjudicator’s decision was mostly concerned.

23. It may be suggested that having commenced his action in the Tsuen Wan District Court the Plaintiff should have pursued it there in order to recover his costs.  The suggestion would, I assume, be derived from the comments of Devlin L.J. in the Berry case[1] at p.321 –

"If a party has failed to apply for costs which he would have got if he had asked for them, a subsequent claim for damages ay be defeated; but that would be because in such a case his loss would be held to be due to his own fault or omission.”

24. In my view the Plaintiff was not obliged to take that course.  There had been no fault omission on his part.  The Small Claims Tribunal provided, at what should have been a much lesser expense, all the relief that at that stage he wish to claim.  There was no reason to go elsewhere.  Had the Defendant thought the venue prejudicial to him in some way or other it was open to him to apply for a transfer to the District Court.  He did not.  Perhaps he now feels that the Plaintiff has in this way obtained some unfair advantage over him by gaining more than he would have been allowed on a party and party taxation.  However reference to the First Schedule to the District Court Civil Procedure (Costs) Rules would show him that, if anything, the charges in question were on the low side.

25. For these reasons I too would allow the appeal and restore the judgment of the Adjudicator.

[1] [1962] 1 Q.B. 306
[2] (1881) 18 Ch.D. 449
[3][1979] 3 A.E.R. 580

Hooper, J. :

26. I too agree with my Lords that leave should be granted under s. 29A for the reasons given by them.

27. After considerable hesitation I also agree that the appeal should be allowed and the decision of the adjudicator restored. 

28. Initially I took the view that the action before the Tribunal was unnecessary and that the appellant, should it wish to recover it’s costs, should have pursued the action in the District Court and that it should not have been able to recover in the Tribunal solicitor and client costs which it would not have been able to recover in the District Court.

29. Having had the advantage of reading the drafts of the judgments delivered by my Lords, I am persuaded that the appellant was under no obligation to pursue the District Court action once the respondent had taken remedial steps before the writ was served.

30. I respectfully agree with my Lords that the concepts of "Damages” and "costs” are not mutually exclusive.  That is clear from the judgment of Devlin, L.J. in Berry v. British Transport Commission and the authorities cited therein. However once the court has adjudicated on the quantum of costs, the Matter cannot be litigated again under the guise of damages.  The basis for this rule as Lord Devlin makes clear :

"Is not that the costs incurred in excess of party and party allowances are deemed to be unreasonable: it is that what is presumed to be the same question cannot be gone into twice."

31. In Cockburn v. Edwards Jessel M.R. in the Court of Appeal held:

" It is not according to law to give a party by way of damages the costs as between solicitor and client of the litigation in which the damages are recoverable. The law gives a successful litigant his costs as between party and party and he cannot be said to sustain damage by not getting them as between solicitor and client."

32. Cotton, L.J. in the same court emphasized that the difference between solicitor and client costs and party and party costs in an action cannot be given by way of damages in the same action, since the latter costs is all that the plaintiff is entitled to. However he pointed out that costs in another action stand on quite R different footing. This decision was followed in Ross v. Caunters upon which the judge below relied.

33. It seems to me that the effect of these decisions is that a plaintiff cannot recover under the guise of damages any costs in respect of the same action in which the damages are claimed. Whether he can do so or not in another action depends, as my Lord Hunter J.A. has pointed out, on whether there has been an adjudication on costs in the first action or whether the plaintiff failed to apply for costs which he would have got if he had asked for them.

34. The rule has been based on a presumption or fiction that in civil actions an order for costs provides a complete indemnity in respect of the successful party's legal expenses. However in my view that presumption cannot apply to an order for costs in the Small Claims Tribunal. A claimant in that Tribunal ought to be able to claim as damages his solicitor and client expenses in addition to his costs. It seems to me that since barristers and solicitors have no right of audience in the Tribunal and since the costs and expenses recoverable under S.24 of the Small Claims Tribunal Ordinance must relate to the costs of the action itself, there is no reason in law why the appellant should not have been able to recover as damages in the Tribunal all its solicitor and client expenses reasonably incurred as a direct result of the respondent's breaches of the deed of mutual covenant. It seems to me that the costs recoverable under S.24 could not have included the fees of lawyers and there is therefore no presumption of a complete indemnity in respect of the appellant's legal costs. For this reason I consider that Cockburn v. Edwards and Ross v. Caunters have no application to the Tribunal.

35. Further if this is to be regarded as a second action, there has been no adjudication on costs in the District Court.

36. For these reasons I respectfully differ from the Judge below and would al1ow this appeal and restore the decision of the adjudicator.