LEUNG NAI HANG AND ANOTHER v. THE INCORPORATED OWNERS OF SUCCESS INDUSTRIAL BUILDING (SHEUNG HEI STREET

HCA 1570/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1570 OF 2010

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DECISION ON COSTS

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1.  On 31 October 2014, I handed down judgment dismissing the plaintiffs’ claim against the defendant but with a direction that the parties file written submissions on costs.

2.  I did so primarily because I had some sympathy for the plaintiffs given the circumstances that led to this litigation.  It is worthwhile setting out briefly those circumstances, although I should say at the outset that the question of costs is an exercise of discretion based on principles, according to rules of reason and justice.  See Hong Kong Civil Procedure, 2015, at para 62/2/6.

3.  The plaintiffs purchased a unit in Success Industrial Building (the Building) with the intention of operating from the unit their business of processing and cooking meat.  It transpired that there was no gas supply to the units in the Building and the plaintiffs used gas cylinders to cook meat in the unit.  In the meantime, the plaintiffs made arrangements to have gas connected to their unit with Towngas.  They discussed the matter with a representative of the defendant, being the incorporated owners of the Building, and arrangements were put in place to connect gas to their unit. There were various site inspections between the plaintiffs, a representative of Towngas and a representative of the management company to discuss and approve a gas pipe route to the unit.  The representative of the management company approved a route for the laying of gas pipes to the unit and as a result arrangements were made for the installation of the pipes.  In the meantime, there was a change in the composition of the management committee of the defendant and opposition to the laying of gas pipes to the unit from other co‑owners. The management committee of the defendant had not given its approval for the installation of the pipes as they were to be laid on or over common areas of the Building and hence stopped the works.

4.  The plaintiffs submitted that the action was triggered by a sudden change of heart on the part of the defendant which did not appear genuine and was partially successful in that a new common facility could be added to the Building in accordance with the Deed of Mutual Covenant (DMC) and therefore there should be no order as to costs of this action.  The defendant submitted that the plaintiffs commenced this action on the basis that they had a right to connect gas to their unit which at the end of the day failed and therefore they should bear the consequences of their action.  It was argued that the plaintiffs’ initial claims for misrepresentation and estoppel were abandoned at the close of the trial and they proceeded on a construction of the DMC which was not upheld.  It was submitted that there should not be a departure from the general rule that costs should follow the event, and that the plaintiffs should be ordered to pay to the defendant the costs of the action to be taxed if not agreed, including the costs of and thrown away by the amendment of the Amended Statement of Claim in abandoning their claims for misrepresentation and estoppel, and the submissions on costs.

5.  The plaintiffs brought this action against the defendant for a declaration that they were entitled to connect gas to their unit and lay and install gas piping on or over common areas of the Building. The defendant contested this action on the basis that the DMC only permitted the uninterrupted and free passage and supply of existing services and therefore did not permit the installation of new gas pipes.  By my judgment, I rejected the defendant’s argument but nevertheless I held that the declaration sought by the plaintiffs was not available on a construction of the provisions of the DMC.  In doing so, I found that the plaintiffs were partially correct in their construction of the provisions of the DMC in that it did allow for the free and uninterrupted passage and running of gas from and to the unit through an existing system or one that is subsequently installed.  In the latter respect, Clause 3 of the DMC allowed for the laying of pipes “in, under or passing through the Land and Building” at any time after its execution.  As noted, the defendant argued the unit owner was only entitled to a free and uninterrupted passage and running of gas through a system, if and only if, one was in existence at the time of the execution of the DMC.  This was the main thrust of the defendant’s case and clearly on the wording of Clause 3 this argument was flawed.  However, the defendant was also partially correct in that the laying of pipes had to be approved by the management committee in accordance with the decision making process under the DMC. 

6.  The starting point when addressing the issue of costs between litigants at the end of the case is Order 62, rule 3(2) of the Rules of the High Court which provides, amongst other things, that a court should order the costs to follow the event except when it appears that in the circumstances of the case some other order should be made as to the whole or any part of the costs.  There is discretion in the court to deprive a successful party of the whole or part of his costs because he had caused significant increase in the length or costs of the proceedings by raising issues on which he did not succeed but this will depend on all the circumstances.  See Mo Ying v Brillex Development Ltd, HCA 111/2011, 9 June 2014, unreported, at para 4 per Deputy High Court Judge Eugene Fung SC.  See also Order 62, rule 5. 

7.  In Pfeiffer GmbH v Cheung Hay Kit trading as Sun Wai Construction, CACV 254/2013, 29 October 2014, unreported, Kwan JA giving the judgment of the court, highlighted at para 21 that:

“Under Order 62 rule 5(1)(e), the court may take into account ‘this conduct of all the parties’. Rule 5(2) provides that ‘conduct’ for this purpose includes ‘(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (b) the manner in which a party has pursued or defended his case or a particular allegation or issue; (c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and (d) conduct before as well as during, the proceedings.’ ”

8.  In her preceding comments in para 20, Kwan JA said:

“Although the general rule that costs will follow the event still plays a significant part, it is but a starting point from which the court is more ready to depart, mindful that too robust an application of the general rule encourages litigants to increase the costs of litigation since it discourages them from being selective as to the points they take. And it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed.”

9.  A court in exercising its discretion as to costs can, when it is appropriate in the circumstances, take into account the conduct of the parties, how a case has been pursued or defended, the nature or basis of a particular allegation or issue and whether or not it has been successful or has substance or merit to it.  It basically turns on the question, in the particular circumstances of the case, as to whether it is unjust to follow the general rule. 

10.  The plaintiffs mounted their claim on three grounds, being misrepresentation, estoppel and construction of the DMC.  They abandoned their claim on the grounds of misrepresentation and estoppel.  This represented in my view a small part of the claim in terms of time and effort in addressing these grounds throughout the proceedings.  This left the ground in relation to the construction of the DMC, which was the major focus of the proceedings.  I felt that even though the defendant successfully resisted the ultimate objective of the plaintiffs’ claim, it was challenged mainly on the proposition that I concluded was flawed.

11.  From my assessment of the overall case, I consider that about 20 percent of the proceedings were occupied on issues raised by the defendant that were unsuccessful and fatuous.  I will apportion costs on the basis that the plaintiffs should pay 80 percent of the defendant’s costs and that the defendant pays 20 percent of the plaintiffs’ costs.  Assuming that the costs of each party is about the same, and in order to simplify and less complicate the issue of costs between the parties, I make an order that the plaintiffs’ pay 60 percent of the defendant’s costs of the action, to be taxed if not agreed, and that there be no order as to costs on the submissions on costs.