LAI KWOK WAH KENNETH AND OTHERS v. LEUNG KWOK HUNG JONATHAN AND OTHERS

LDBM 292/2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 292 Of 2004

BETWEEN

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DECISION

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1.  There are two summonses before me. The first one was taken out by the 1^st to 4^th Respondents against the 1^st and 2^nd Applicants on 11 February 2010 for an order that:-

“1.	This Application be struck out by reason of abuse of process and/or be dismissed for want of prosecution;
2.	The 1st and 4th Respondents’ Counterclaim be withdrawn/discontinued;
3.	Costs of this Application be to the 1st to 4th Respondents; and
4.	Costs of and occasioned by this Summons be to the 1st to 4th Respondents.”

2.  The second summons was taken out by the 1^st and 2^nd Applicants on 26 March 2010 for an order that:-

“1.	Leave be granted to the 1st and 2nd Applicants to discontinue all their claims in the Action;
2.	Subject to paragraph 3 below, there be no order as to costs of the Application (i.e. LDBM 292 of 2004 herein);
3.	Costs of and occasioned by this Summons be to the 1st and 2nd Applicants and borne by the 1st to 4th Respondents.”

3.  At the hearing on 23 April 2010, I granted leave to the 1^st and 2^nd Applicants to discontinue their main application herein against all the Respondents (“the Application”).  I also gave leave to the 1^st to 4^th Respondents to discontinue their counterclaim against the 1^st and 2^nd Applicants (“the Counterclaim”) and to withdraw the application for striking out the Application against them.  Thus, what remains for my determination is the question of costs relating to the Application and the Counterclaim, as well as the said two summonses.

4.  In the Application, the 1^st and 2^nd Applicants contended that by virtue of paragraph 4(2)(c) of Schedule 2 of the Building Management Ordinance, Cap. 344, the 1^st to 5^th Respondents ceased to be members of the management committee of the 6^th Respondent because they had absented themselves from 3 or more consecutive meetings of the management committee without the consent of the management committee.  In their Notice of Opposition, the 1^st to 4^th Respondents denied that the attendance records produced by the Applicants were true or complete records of the members’ attendance, and even if they were absent, they had the consent of the management committee.  In their Notice of Opposition, the 1^st to 4^th Respondents also counterclaimed against the 1^st and 2^nd Applicants for a declaration that they were not validly admitted/appointed as members of the management committee of the 6^th Respondent because their appointments were in contravention of the appointment resolution passed at the management committee’s meeting on 26 July 2003.

5.  It is common ground that the disputes in the Application and the Counterclaim had become academic since 15 November 2004 because a new management committee was elected at the annual general meeting held on that day. In fact, at the hearing before H.H. Judge Chan on 3 November 2004, the Tribunal was informed that a new management committee would be formed shortly and the disputes in the proceedings would be rendered academic. Thus, H.H. Judge Chan dissuaded the parties to proceed and ordered that the Application be adjourned sine die with liberty to restore.

6.  Thereafter, there were many correspondences passing between the Applicants’ solicitors and the 1^st to 4^th Respondents’ solicitors concerning the settlement of the case. Apart from consenting to have the 3^rd Applicant struck out as a party to the proceedings, there was no agreement reached to settle the Application and the Counterclaim. The consent order to strike out the 3^rd Applicant as a party was granted on 25 February 2005. After the 3^rd Applicant was struck out, the parties did not take any further step in the proceedings and stopped communicating for more than 4 years.

7.  On 31 August 2009, the 1^st to 4^th Respondents’ solicitors wrote to the 1^st and 2^nd Applicants’ solicitors again and threatened to take out formal application for dismissal of the Application for want of prosecution, unless the 1^st and 2^nd Applicants took prompt action to discontinue the Application and pay the 1^st to 4^th Respondents’ costs. On 24 October 2010, the 1^st and 2^nd Applicants offered to discontinue the Application with no order as to costs on the condition that the 1^st to 4^th Respondents should at the same time formally withdraw the Counterclaim. The 1^st to 4^th Respondents did not reply to the 1^st and 2^nd Applicants concerning the offer made on 24 October 2009, but took out the said first summons on 11 February 2010. Hence, the 1^st and 2^nd Applicants also took out the said second summons on 26 March 2010.

8.  The 1^st to 4^th Respondents contend that as a general rule, a defendant is entitled to costs when an action is discontinued (paragraph 21/5/11 of Hong Kong Civil Procedure 2010). Thus, the 1^st to 4^th Respondents ask for their costs of the Application to be borne by the 1^st and 2^nd Applicants. When asked by the Tribunal whether by the same token they should bear the 1^st and 2^nd Applicants’ costs when they discontinued the Counterclaim, the 1^st to 4^th Respondents concede that they should bear the costs of the Counterclaim. However, the 1^st to 4^th Respondents argue that since the two sets of costs are different and the amount involved for the Counterclaim is much higher than the costs of the Application, the Tribunal should not offset the two sets of costs against each other, but should make two separate orders for costs of the Application and costs of the Counterclaim respectively. The 1^st to 4^th Respondents also argue that as there are disputed issues of facts, the Tribunal should hear oral evidence in order to determine who should bear costs, and that by a letter dated 4 September 2004 from the solicitors of the 1^st to 5^th Respondents, a Calderbank offer was proffered to the 1^st to 3^rd Applicants to settle the case with no order as to costs but the Applicants unreasonably rejected it.

9.  The 1^st and 2^nd Applicants, however, contend that the general rule suggested by the 1^st to 4^th Respondents is not an invariable rule and each case must depend on its own facts (Graham M. Morley v. Kwan Wo San & others, HCA 4366/2003). The general rule may be departed from in a case where the discontinuance is due to the matter having become academic, rather than to any acknowledgment by the plaintiff of likely defeat (paragraph 21/5/11 of Hong Kong Civil Procedure 2010 and Trend Publishing (HK) Limited v. Vivien Chan & Co. (a firm) [1996] 2 HKLR 227). Costs is a matter of judicial discretion. What materials are to be taken into consideration in the exercise of that discretion would depend on the circumstances of a particular case (Re Super Deluxe International Limited, HCCW186/2001). The first question is whether the Court is in a position to make an order for costs, and if so, the second question is how the discretion should be exercised (Graham M. Morley, supra). If, on the materials before the Court, the Court is unable to say whether or not the plaintiff and the defendant would have succeeded in their respective claim in the action, the Court should make no order as to costs (Brawley v. Marczynski and another, [2004] 4 All ER 1060, Mehta v. Mehta, [2007] 2 HKLRD 520 and Graham M. Morley, supra). As the disputes between the parties in the present case had become academic, there is no or no proper basis upon which the Court can say that the 1^st and 2^nd Applicants’ claim is likely to fail, and the 1^st and 2^nd Applicants have a good case against the Respondents, it is just and fair to make no order as to costs. The 1^st and 2^nd Applicants also argue that it is not justified to have a full-blown hearing to hear oral evidence in order to determine the question of costs (Brawley, supra and Mehta, supra), and that it would be contrary to the objectives in Order 1A, rule 1 of the Rules of the High Court to have a full-blown hearing on costs in the circumstances of this case.

10.  Having considered all the submissions made by the parties, I come to the views that there is no need for me to hear oral evidence in this case and there should be no order as to costs in relation to the Application and the Counterclaim. First of all, I do not accept that once a party discontinues an action, the other party is entitled to costs as of right. The Court or the Tribunal always has unfettered discretion in deciding the question of costs, even though the starting point is that the defendant is entitled to costs when an action is discontinued. The authorities cited in paragraph 21/5/11 of Hong Kong Civil Procedure 2010 have all shown that where the discontinuance of the proceedings is due to the matter having become academic, the court may depart from the general rule. As there is no dispute that the reason behind the discontinuance of the Application and the Counterclaim is that the issues involved had become academic because of the election of a new management committee, I am clearly entitled to depart from the general rule.

11.  I accept that having a full-blown trial to hear oral evidence in order to determine the issues between the parties is not the only way to deal with the question of costs, and in appropriate cases, no order as to costs can be made without resolving the substantive issues between the parties. As held in Brawley, supra:-

“Although ‘no order as to costs’ was a possible order if it were truly impossible to say what the likely outcome would have been, there was no tradition of there being no order as to costs merely because a case had been settled except as to costs.  In such a case, the overriding objective was to do justice between the parties without incurring unnecessary court time and consequently additional cost.  At each end of the spectrum there would be cases where it was obvious which side would have won if the substantive issues had been fought to a conclusion.  In between, the position would, in differing degrees, be less clear.  How far the court would look into previously unresolved substantive issues would depend on the circumstances of the case, not least the amount of costs at stake and the conduct of the parties.  In the absence of a good reason to make any other order, the fallback was to make no order as to costs.”

12.  Looking at the circumstances of this case, I agree that it is inappropriate and unnecessary to resolve the substantive issues between the parties just for the sake of determining costs. Although the case was commenced on 28 August 2004, it was still in its early stage of the proceedings. It was only up to stage of filing of the Notice of Opposition, together with the Counterclaim, by the 1^st to 4^th Respondents, and the parties have not taken any further steps for about 4 to 5 years. In fact, the parties were well aware that the case would become academic right at the beginning of the case and were dissuaded by H.H. Judge Chan to proceed with the case further on 3 November 2004. Apart from adjourning the case sine die, H.H. Judge Chan also suspended the directions for filing and serving witness statements and all relevant documents. I do not consider that the costs involved so far (apart from the costs of the two summonses in question) would be substantial. Even though the 1^st to 4^th Respondents contend that the costs involved for the Counterclaim is substantial and much higher than the costs of the Application, I simply cannot see that the costs involved so far could be regarded as substantial when compared to the costs that would be required to be spent if a full-blown trial is ordered. I have no doubt that the costs involved for a full-blown hearing would be very much higher than the costs involved so far. There is simply no reason to incur such further costs, which would clearly be substantial, in order to determine the relatively much lower amount at stake at this present stage.

13.  I also agree with the 1^st and 2^nd Applicants that the underlying objectives in Order 1A, rule 1 of the Rules of the High Court, which is applicable to the Lands Tribunal, would not be achieved if oral evidence is to be heard, as it is clearly not a cost-effective way to dispose of the matter.

14.  As to the Calderbank offer, I do not accept that the refusal to accept such an offer was unreasonable. As submitted by the 1^st and 2^nd Applicants, just the day before the issuance of the Calderbank offer, the 1^st to 5^th Respondents together with some other persons commenced another action in the Lands Tribunal (LDBM 299/2004) against the then acting chairman of the management committee Tse On Po, but in that case, the actual reliefs sought, inter alia, were to seek declarations that the 2^nd Applicant was not validly admitted/appointed as member of the management committee, and that the 2^nd Applicant did not have the right to vote at the management committee meeting. At that time, the new management committee was also not elected yet. With the commencement of a fresh action and the appointment of the new management committee not yet confirmed, I do not find it unreasonable on the part of the 1^st and 2^nd Applicants not to accept the offer then.

15.  In fact, the position of the 1^st to 4^th Respondents changed after the Calderbank offer was issued, because since then they wanted the Applicants to pay costs to them. From the correspondence between the parties, I do not find that the 1^st and 2^nd Applicants were to be blamed for not being able to reach settlement with the 1^st to 4^th Respondents. It is clear to me that the insistence of getting costs and the refusal to withdraw the Counterclaim have contributed significantly to the failure of the settlement. The delay in taking further steps in the proceedings is not just one-sided. The 1^st to 4^th Respondents have also failed to take further steps themselves until 31 August 2009.

16.  In the circumstances, I would adopt the approach referred to in the Brawley case, and simply made no order as to costs in relation to the Application and the Counterclaim, without hearing oral evidence or determination of the substantive issues between the parties. I am of the view that such an order will do justice between the parties without incurring unnecessary court time and consequently additional costs.

17.  As to the costs of the two summonses, since the 1^st to 4^th Respondents have contested unsuccessfully, they should pay costs to the 1^st and 2^nd Applicants.

18.  I think District Court Scale should be appropriate in the circumstances of this case, and for the two summonses, they are fit for counsel’s attendance.

19.  I therefore order as follows:-

(1)	There be no order as to costs in relation to the Application and the Counterclaim; and
(2)	The 1st to 4th Respondents do pay the 1st and 2nd Applicants their costs of the said two summonses, with certificate for counsel, to be taxed on District Court Scale if not agreed.