XCHRX INCORPORATED OWNERS OF MILLION FORTUNE INDUSTRIAL CENTRE v. JIKAN DEVELOPMENT LTD. AND ANOTHER

HCA 14915/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14915 OF 1998

____________

____________

_______________

D E C I S I O N

_______________

Background:

1. The Plaintiff owners corporation instituted action against the 1st and 2nd Defendants who respectively were assignees from the First Owner of Million Fortune Industrial Centre and Manager of the building appointed under the Deed of Mutual Covenant. On 9 February 2001, I entered judgment against both defendants jointly and severally in the amount of $3,531,301.25. The award is made up of an amount of $1,993,421.00 being damages for conversion of the common parts of the building and an amount of $1,537,880.25 being wasted staff costs incurred by the 2nd Defendant in assisting the 1st Defendant's conversion, which was then passed onto the Plaintiff by way of management fees. By consent, I ordered that the 1st Defendant shall indemnify the 2nd Defendant of all loss and damages arising from and in connection with the Plaintiff's claim inclusive of interest. I also made an order nisi that the Plaintiff shall have costs against the 1st and 2nd Defendant jointly and severally. The 2nd Defendant now seeks to review the above costs order.

Whether the costs recoverable is subject to the ceiling under the Code of Practice issued by the Secretary for Home Affairs:

2. Mr Bok refers to Clause 1 of the Code of Practice issued by the Secretary for Home Affair as the Authority under section 44 of the Building Management Ordinance, Cap 334. That clause provides that any supply of goods or services to an owners corporation exceeding or likely to exceed $100,000 or equivalent to 20% (or such other percentage in substitution therefore as may be approved by the corporation by a resolution passed at a general meeting) of the annual income of the owners corporation shall be procured by tender. The upper limit of legal fee as determined by the management committee of the Plaintiff on 10 February 1998 was $150,000. Hence Mr Bok submits that as the Plaintiff's solicitors were engaged without such tendering process and as the costs exceeded the limit set by the Plaintiff corporation in general meeting, the Defendants should not be liable for costs exceeding that limit, i.e. $150,000.

3. Mr Cheung, for the Plaintiff, refers me to Pokfulam Development Co Ltd & Others v The Incorporated Owners of Scenic Villas LDBM 70/2000 and Jikan Development Ltd v The Incorporated Owners of Million Fortune Industrial Centre and Others LDBM 244/2000, in which His Honour Judge Chow of the Lands Tribunal held the provisions of the Code are for guidance only and are not subsidiary legislation and have no force of the law. Mr Bok does not seek to argue against those authorities. Of course, the second authority cited involved the same Plaintiff and the 1st Defendant also.

4. While I endorse the view of His Honour Judge Chow as correct, I do not think the status of the Code is relevant for determination of the question of costs inter partes in a litigation. The Code, even if it were mandatory, governs the relations between members of the owners corporation and has no application to the issue of costs as between the corporation and a contesting party in a litigation. While the 1st Defendant is also a member of the owners corporation, in these proceedings it has a separate status as a contesting litigant. Under section 52A of the High Court Ordinance, Cap 4, the Court of First Instance has absolute discretion and full power to determine by whom and to what extent the costs are to be paid in respect of litigation before the court. The usual rule is that a successful party should be awarded such costs as may be allowed on taxation. I do not consider the discretion given to me under section 52A is in anyway fettered by the resolution passed by the Plaintiff corporation in general meeting. In the circumstances, I consider I have absolute discretion to award costs to the Plaintiff, even if such costs are beyond the limit which the Plaintiff in general meeting has authorised its management committee to incur, so long as those costs are actually incurred and allowed on taxation. If the 1st Defendant as a member of the Plaintiff corporation wishes to challenge the management committee for acting ultra vires or for failure to observe the Code, it may do so in another venue.

Whether the 2nd Defendant is entitled to an indemnity of costs from the 1st Defendant:

5. Mr Bok argues that the damages awarded included an element for wasted staff costs incurred in collecting the parking fees for the 1st Defendant, which was incurred also as a result of the 2nd Defendant's breach of duty as manager. Hence he submits that the 2nd Defendant should itself alone be liable to the Plaintiff in respect of that part of the Plaintiff's costs. Mr Ho, for the 2nd Defendant, submits that the wasted staff costs were incurred for and on behalf of the 1st Defendant in collecting the parking fees for the 1st Defendant and as the 1st Defendant has agreed to indemnify the 2nd Defendant of all loss and damages arising from and in connection with the Plaintiff's claim, the 1st Defendant should also indemnify the 2nd Defendant in respect of its costs to the Plaintiff.

6. The wasted staff costs were incurred for the benefit of the 1st Defendant. If the 2nd Defendant was in breach of its duty as the Manager, the breach was also procured by the 1st Defendant. On these considerations, it is fair that the 1st Defendant should indemnify the 2nd Defendant in respect of the Plaintiff's costs against the 2nd Defendant. That was the rationale based on which I made the order nisi.

7. However, upon reflection of the way the 2nd Defendant conducted its defence, I am driven to a different conclusion. The 1st Defendant's defence is based on argument on point of law that it was and is the owner of the Common Parts. It raised no factual dispute and called no witness. On the contrary, the 2nd Defendant's defence is that it entered into a parking agreement with the 1st Defendant for the benefit and convenience of all the co-owners. As I have observed, this agreement was not even raised as a defence by the 1st Defendant in its pleading or supported by any evidence from the 1st Defendant who was allegedly a party to the agreement and the major co-owner having control and management of the Building at the material time. Apart from extensively cross examining the Plaintiff's witnesses, it also called a defence witness in support of its defence. Whatever might have been the agreement as to indemnity for damages between the 1st and 2nd Defendants, the course that the 2nd Defendant took was so distinct from that of the 1st Defendant that I think it would be unfair that the 1st Defendant should bear the 2nd Defendant's share of the Plaintiff's costs. The 2nd Defendant embarked on a wholly different defence, inconsistent with the 1st Defendant's. I think it appropriate that the 1st and 2nd Defendants should individually bear its own share of the Plaintiff's costs.

Conclusion:

8. In the circumstances, I set aside my cost order nisi and order that the 1st and 2nd Defendants shall pay the Plaintiff's costs, including the costs of this hearing. All costs are to be taxed if not agreed.