CHAN LAN v. SHING KEI AND ANOTHER

HCA 1206/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1206 OF 2006

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RULING  ON  COSTS

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1.  My Judgment in this action was handed down on 18 April 2008.  In that Judgment, I dismissed the Plaintiff’s claim and granted declarations sought by the Defendants in their counterclaim.

2.  In §99 of my Judgment I made an order nisi that the costs of the action, including the costs of the Defendants’ action in HCA 48/2006, should be paid by the Plaintiff to the 1^st and 2^nd Defendants to be taxed if not agreed.

3.  The Plaintiff seeks to vary that costs order nisi.  In written submissions, Mr Cheng, counsel for the Plaintiff, had originally advanced the submission that the Defendants should pay 50% of the Plaintiff’s costs.  At the hearing today, Mr Cheng conceded (correctly, in my view) that he could not maintain this submission and instead applied to vary the costs order nisi by substituting for that order an order that there be no order as to the costs of the action.

4.  In summary, the Plaintiff says that there should be no order for costs because:-

(1) The Defendants lost on their contractual claim for specific performance.

(2) Although the Plaintiff lost on her claim, namely that the 2^nd Defendant made a gift of the down payment for the Property to the Plaintiff and the 1^st Defendant so that she and the 1^st Defendant each had a 50% interest in the Property, the result of the action is, in substance, that she has a 35% interest in the Property.

(3) The monetary value of the Plaintiff’s 35% interest in the Property, which she estimates as $2.45 million, is far in excess of the amount the Defendants say they were obliged to pay her under the contract sought to be enforced by specific performance, namely $438,000.

(4) The order that the Plaintiff should pay 100% of the costs of the action to the Defendant is unfair to her since the Defendants wasted time at the trial arguing the contractual claim, on which they lost.  The Plaintiff estimates the time wasted to be 75% of the total trial.

5.  Although they succeeded in resisting the Plaintiff’s claim on the gift issue, the Defendants were not wholly successful in their counterclaim.  There were two claims advanced in the counterclaim, namely (i) that the Plaintiff had agreed to sell her interest in the Property to the Defendants for $438,000, alternatively (ii) that the Property was owned beneficially as to 30% by the 2^nd Defendant and that the Plaintiff and the 1^st Defendant held the Property as to 30% for the 2^nd Defendant.  The Defendants failed on the claim that there was a contract of sale in respect of the Plaintiff’s interest in the Property.  However, they were successful on the alternative basis of their counterclaim.

6.  As to costs, the applicable principles were conveniently summarised by Nourse LJ in In re. Elgindata (No.2) [1992] 1 WLR 1207 at 1214A-D:-

(1) Costs are in the discretion of the court.

(2) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made.

(3) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or costs of the proceedings he may be deprived of the whole or a part of his costs.

(4) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.

7.  These principles have been confirmed and applied in Hong Kong: see e.g. Vincent v. SCMP [2004] 3 HKLRD 471.

8.  Applying those principles, it is quite clear that there would have been no proper basis to order the Plaintiff to pay any part of the Defendants’ costs.  The Defendants were successful.  Unless they raised issues or made allegations improperly or unreasonably, the court should not deprive them of their costs or order them to pay the whole or a part of the unsuccessful party’s costs (principle (4)).  In my opinion, the Defendants did not raise issues or make allegations improperly or unreasonably.  Hence, Mr Cheng was quite right to abandon the original submission that the costs order should be varied to an order that the Defendants pay 50% of the Plaintiff’s costs.

9.  Instead, it seems to me that the applicable principle that may be relevant in the present case is principle (3), namely that a successful party may be deprived of the whole or a part of his costs where he raises issues or makes allegations on which he fails but where that has caused a significant increase in the length or costs of the proceedings.

10.  Mr Chong, counsel for the Defendants, submitted that the original costs order nisi was correct. 

(1) First, he submitted, relying on Ritter v. Godfrey [1920] 2 KB 47 (per Atkin LJ at p.60), that the Court has a very limited discretion in relation to the costs of a wholly successful defendant.  Here, since the Defendants were wholly successful in defeating the Plaintiff’s claim, they should not be deprived of any part of their costs.

(2) Secondly, he submitted, relying on Campbell v. Pollak [1927] AC 732, that a plaintiff who successfully enforces a legal right and in no way misconducts himself is entitled to his costs as of right.  Mr Chong submitted there was no question of any misconduct by the Defendants and so they should be entitled to the whole of their costs of the counterclaim.

11.  As to the first submission, it is partly happenstance that the Defendants were counterclaiming defendants as opposed to plaintiffs in respect of the causes of action in the Amended Defence and Counterclaim.  The claims made in the counterclaim were originally claims in an action (HCA No.48 of 2006) commenced by the Defendants.  When that action was stayed, the Defendants’ action was consolidated with the Plaintiff’s action so that the Defendants’ claims became counterclaims in this consolidated action.  In my view, I should treat the Defendants in this case as if they were plaintiffs for the purposes of determining whether they should be entitled to the entire costs of the counterclaim.

12.  As to the second submission, I do not regard the case of Campbell v. Pollak as requiring the application of any different principles to those identified by Nourse LJ in In re. Elgindata (No.2) and set out above.

13.  It is therefore necessary, in my judgment, to consider whether principle (3) should apply in the present case.  The Defendants lost on their contractual claim.  This was a discrete basis of their counterclaim and the question that arises is whether I should deprive the Defendants of part of their costs because of their failure on that claim.

14.  However, in this regard, Mr Chong further submitted, relying on Vincent v. SCMP (in particular §§11 and 16 of the judgment of Yuen JA), that it is only where a plaintiff is making a number of discrete claims for different sums and he fails on some of these claims and the court can isolate the time spent on these claims from that spent on the successful claims, that the court should exercise its discretion to deprive the successful litigant of part of his costs.  He submitted that this was not the case here.

15.  In summary, Mr Chong took two points.  First, he submitted that the Defendants’ pursuit of the contractual claim did not result in a significant increase in costs.  Secondly, he submitted that it was not possible to isolate the costs of the contractual claim from those of the equitable claim, on which the Defendants were successful, since the costs of the two were necessarily interwoven.

16.  As to these points, in my judgment, where principle (3) refers to a significant increase in the length or costs of the proceedings, this does not mean that a precise quantum of costs over a particular threshold must be ascertained.  It seems to me that the phrase “a significant increase in the length or costs of the proceedings” simply requires the court to be satisfied that the increase is one that can be estimated as a more than trifling proportion of the total costs.  As for the question of isolation of those costs from the costs of a successful cause of action, I do not consider that it is necessary for the court to be able to quantify this to any precise extent.  It suffices if the court can give an estimate of the proportion of these costs.

17.  I have reflected carefully on these two points and have revisited the pleadings, my notes of the evidence and the parties’ written submissions at the trial.

18.  The contractual claim advanced by the Defendants was a self-contained and discrete cause of action.  The pleading of the contractual claim can be found in paragraphs 20, 21, 23 and 24 of the Amended Defence and Counterclaim and this plea is to be contrasted with the wholly alternative case pleaded in paragraphs 4 to 18.  Some of the evidence relating to the contractual claim was inevitably distinct from the evidence concerning the issue of whether there was a gift and the Defendants’ alternative counterclaim.

19.  The contractual claim advanced by the Defendants was a separate and distinct claim which, if successful, would have led to different relief being granted in favour of the Defendants: see paragraph (1) of the Prayer to the Amended Defence and Counterclaim and contrast paragraph (2) pleaded in the alternative.

20.  It is true, as Mr Chong pointed out, that the Plaintiff herself gave evidence of an agreement that she dispose of her share of the Property and this evidence formed part of the matrix of facts out of which the Plaintiff’s claim and the Defendants’ alternative counterclaim arose.  However, there was considerable argument, on which the Defendants failed, as to whether the agreement was an enforceable contract.  Time need not have been spent on that issue had the Defendants’ confined their counterclaim to their alternative successful basis of claim.

21.  I therefore consider that it is appropriate, applying principle (3) above, to adjust the costs order nisi to reflect the fact that the Defendants, albeit the successful parties in this litigation, raised issues or made allegations on which they failed and which did cause a significant increase in the length or costs of the proceedings.  I think it is possible to isolate, by way of an estimate, the costs of the contractual claim.

22.  The Plaintiff estimated that the time spent on the contractual claim amounted to 75% of the whole trial.  I think that estimate is exaggerated.  Doing the best I can, I would estimate that time spent on the contractual claim that did not overlap with the time spent on the other parts of the Plaintiff’s claim or the Defendants’ alternative counterclaim accounted for about a quarter of the time spent at the trial.  In the exercise of my discretion, therefore, I vary the costs order nisi by ordering that the Plaintiff should pay to the 1^st and 2^nd Defendants 75% of the costs of the action, which should also include the costs of the Defendants’ action in HCA 48/2006 and the costs of today’s hearing, to be taxed if not agreed.

23.  The parties have agreed the terms of paragraphs 1 and 2 of the Order to be made in the light of my Judgment.  Paragraph 3, dealing with costs, will now be varied to provide, “That the Plaintiff doth pay the 1^st and 2^nd Defendants 75% of their costs of and incidental to the action herein and that of and in High Court Action No.48 of 2006 to be taxed if not agreed.”