WISDOM GAINING LTD v. WISDOM LIGHT INDUSTRIAL LTD AND OTHERS

LDCS23000 /2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 23000 OF 2012

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DECISION ON COSTS

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1.  On 3 June 2014, we handed down our judgment in this case granting the applicant’s application under the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”) for an order for sale. 

2.  We also made an order nisi that there be no order as to costs.

3.  There are now two applications before us to vary the order nisi:

(a)   The applicant’s application that the 1^st and 3^rd respondents should pay the applicant’s costs to be taxed on an indemnity basis and the High Court scale with certificate for counsel.

(b)   The 1^st respondent’s application that the 3^rd respondent should pay half of the 1^st respondent’s costs with certificate for counsel.

Discussion

4.  Counsel for all three parties (Mr Li SC, Ms Siu and Mr Cheung) have submitted fully in writing and orally at the hearing.  There is really no dispute on the application for certificate for counsel.  What divides counsel appear to be:

(1)   Whether the 1^st and 3^rd respondents should be responsible for the applicant’s costs and, if so, to what extent.

(2)   If the answer to the above is yes, whether the applicant is entitled to tax its costs on (i) an indemnity basis and (ii) the High Court scale.

(3)   Whether the 3^rd respondent should pay the 1^st respondent’s costs.

5.  The main dispute over issue (1) turns on whether costs should generally follow the event for compulsory sale cases.

6.  Mr Li SC (for the applicant) basically invites us to embrace Order 62, rule 3(2) of the Rules of the High Court.  He says that the applicant has succeeded in the “event” in getting an order for sale and should be entitled to its costs.

7.  On the part of Ms Siu (for the 1^st respondent) and Mr Cheung (for the 3^rd respondent), they mainly rely on Sin Ho Yuen[1]in their bid to resist the application.

8.  Noting that this tribunal has basically accepted the EUV evidence of the 1^st respondent’s expert, Ms Siu goes so far as to suggest that the 1^st respondent is “the overall successful party (in terms of valuation) and the proper costs order shall be no order as to costs between App and R1”.

9.  In our view, each side has emphasized one aspect of the consideration we need to take in deciding on the incidence of costs but their analysis is far from comprehensive.

10.  This tribunal generally follows the practice of the Court of First Instance on costs,[2] and Order 62, rule 3(2) of the Rules of the High Court provides as follows:

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

11.  So there is indeed a general disposition for costs to follow the event.  It has even been said in §62/3/3 of Hong Kong Civil Procedure 2014 that “[a] successful plaintiff who recovers more than nominal damages against the defendant should in normal circumstances have an order for costs against the defendant.”  The applicant came with the single purpose of seeking an order for sale and they succeeded.  There is cause for the applicant to seek costs against the respondents who have opposed the application.

12.  But that is only one side of the story.  The general power of the tribunal respecting costs is provided under section 12(1) of the Lands Tribunal Ordinance in these terms:

“The costs of and incidental to all proceedings in the Tribunal are in the discretion of the Tribunal, and the Tribunal has full power to determine by whom and to what extent the costs are to be paid.”

13.  The tribunal will take into account all the circumstances of the case in the exercise of its discretion.

14.  In Sin Ho Yuen (which is also a compulsory sale case), the Court of Final Appeal commented on the costs order made by the Lands Tribunal as follows:

“6. As to the costs of the proceedings before it, the Lands Tribunal ordered that the estate bear 90% of Fineway’s costs, to be taxed on the High Court scale and with a certificate for counsel…

7. … One of the objectives of the Land (Compulsory Sale for Redevelopment) Ordinance is, as Mr Justice Ribeiro PJ said in Capital Well Ltd v. Bond Star Development Ltd (2005) 8 HKCFAR 578 at para.21, ‘to ensure that the minority owner receives fair and reasonable compensation for his interests in the lot’. That objective would be defeated if such compensation is swallowed up or materially eroded by the costs which the minority owner has to pay to his own or the other side’s lawyers. It is the Lands Tribunal’s duty, under the statutory scheme and as a component of the judiciary, to take resolute steps to prevent that. The proceedings before the Lands Tribunal appear to have spun expensively out of control, and neither party seems more to blame than the other for that.

8. Those are, briefly and mildly stated, the reasons why we regarded the order as to costs made by the Lands Tribunal as cause for concern.” (per Bokhary PJ)

“25. As the title of the Ordinance states, it provides mechanism for the compulsory sale of land for redevelopment, by giving to the tribunal the power to order the sale of a property in multiple ownership, over the objections of a minority owner. In order that the entrenched right of private ownership of property in Articles 6 and 105 of the Basic Law be not infringed, the protection of minority interest under the Ordinance becomes therefore a key factor. In turn, it behoves the tribunal, in carrying out the scheme of the Ordinance, to ensure that such protection be not diminished, or be whittled down through inefficiency and delay. And there would be diminution if, for instance, the minority owner bore, at the end of the day, an inordinate burden of costs, so that what he got by way of his share of the proceeds of sale was largely taken away by the costs incurred in the legal process.” (per Litton NPJ)

15.  Thus, we would be failing our duties if we do not consider in the exercise of our discretion the likely effect our costs order would have on the minority owners.

16.  Having said that, however, it does not mean that we should over-protect minority owners.  As this tribunal (differently constituted) pointed out in Intelligent House (No 2):[3]

“8. In relation to the reasons why there is a general rule on costs should follow the event, Buckley LJ in Scherer, supra at 621D said as follows:

‘… The normal rule is that costs should follow the event. That party who turns out to have unjustifiably either brought another party before the court or given another party cause to have recourse to the court to obtain his rights is required to compensate that other party in costs…” (emphasis added)

9. In our view, properly understood, the rationale under the general rule on costs includes the situation where a party (A) has been demonstrated to have unjustifiably caused another party (B) to incur further costs before the court to establish his legal rights, party A shall be required to compensate party B for any such increased costs, unless there are good reasons shown otherwise.

10. Thus, where an applicant under the Ordinance has a statutory right to come to the Tribunal to prove its case that an order for sale should be made, and where the respondents maintain a neutral stance (simply requiring the applicant to prove its case), we would well understand why there should be no order as to costs made against these respondents, as no extra costs (other than the costs that need to be incurred by the applicant to discharge its statutory duty to prove its case) have been shown to be unjustifiably increased by reason of the respondents’ stance.

11.   This is however very different from the case where the applicant is required to further meet any active grounds of opposition raised by any of the respondents.  If these opposing grounds are later found by the Tribunal to be unjustified (in that they are not upheld as valid grounds to oppose the making of an order for sale), we do not see any good rationale to say that the respondents raising these grounds should not be required to pay the additional costs incurred by the applicant in meeting these oppositions in the application.”

17.  All these were said before Sin Ho Yuen and the civil justice reform that came afterwards.  The new Order 62, rule 5 (brought about by the reform) now provides guidance on how the discretion on costs should be exercised.  The tribunal is directed to take into account, inter alia, the conduct of the parties, which includes whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue and the manner in which a party has pursued or defended his case or a particular allegation or issue.  In our view, what was said in Intelligent House (No 2) still holds true although it must now be read subject to the comments in Sin Ho Yuen.

18.  We do not agree with Ms Siu that the 1^st respondent may be regarded as “the overall successful party (in terms of valuation)”.  At the beginning of the trial, we noted that the 1^st respondent had dropped many of its contentions but maintained its challenge in respect of the applicant’s EUV valuation and whether the applicant had taken reasonable steps to acquire all the undivided shares in the Lot.  We enquired with Ms Siu and she did confirm that the 1^st respondent was minded to challenge the reasonableness of the offers knowing full well that if they succeeded, there would be no sale and all the parties (including the 1^st respondent) would be stuck with their properties.  So the primary dispute at the trial was not on EUV.

19.  In our view, the 1^st and 3^rd respondents did not take a neutral stance at the trial but had advanced active grounds in opposing a compulsory sale order.  For example, the 1^st respondent challenged the constitutionality of the Ordinance, and both respondents argued that the applicant had not taken reasonable steps in acquiring their interests. The applicant was obliged to answer these challenges with evidence and submissions.

20.  In the premises, we agree with Mr Li that the 1^st and 3^rd respondents should be ordered to pay costs.  The next question is how much of the applicant’s costs should they bear and how to apportion such costs amongst them.

21.  In Cathay Pacific Airways Limited v Kwan Siu Wa Becky,[4] the Chief Justice said:

“We agree with the appellant’s approach insofar as it ought to be recognized that where discrete issues are raised in an appeal, generally the Court will, as a starting point in determining the question of costs, examine how the parties have succeeded (or failed) on these issues. The Court will then take an overall view of the matter to arrive at a suitable order. We use the word ‘overall’ to emphasize that the Court will not generally go into a minute examination of whether each issue and each sub-issue and argument within each issue has been argued successfully or not by the parties. Usually, an overall view of the justice of the case will serve as the best guide to determine the question of costs.”

22.  We are minded to take an overall view.  At the conclusion of the hearing, we invited Mr Li to give us an estimate (insofar as he was able to do so) on the costs the applicant would have to spend anyway to satisfy the statutory requirements.  He replied 10% of the applicant’s overall costs.  Ms Siu and Mr Cheung declined to comment on his estimation.

23.  We think that was an under-estimation, for Mr Li gave the same estimation in §2.9 of his written submission as the costs to be “knocked off” if this tribunal were to accept Ms Siu’s submission that 1^st respondent had succeeded on the EUV argument.  After all, the applicant was also required by the Ordinance to justify the redevelopment and to assist us in setting a reserve price, ie the RDV.  All these would entail costs too.

24.  We have not neglected Mr Li’s complaint that the respondents had raised many issues in evidence which were not pursued at trial (eg whether RDV should be assessed on a merged-site basis and the related issue of whether special conditions should be imposed on the sale), which the applicant had to cover in evidence nonetheless.  It was also said that the 1^st respondent had made “late concession” in terms of the EUV valuation date, rendering some expert evidence otiose.  In our view, the costs involved in these abandoned issues (consisting mostly of expert expenses) would not be too significant when comparing to the costs of the 12-day trial.

25.  We outlined the issues pursued at trial in §25 of our judgment.  The time spent on the constitutionality issue was negligible as it was raised late in Ms Siu’s closing submission and Mr Li was hardly engaged in argument.  The respondents did not challenge the justifications put forward by the applicant for redevelopment and no additional costs (on top of what the applicant had spent in terms of expert evidence) were involved.  Considerable trial time, however, was spent on the EUV and RDV assessments of the parties. The 1^st respondent took issue with the applicant’s EUV valuation only, whilst the 3^rd respondent challenged both.  We note that the pre-trial conferences of the experts had been fruitful in defining and refining their differences.  The applicant had revised its EUV and RDV valuations in response to the evidence of the respondents, and we more or less adopted the 1^st respondent’s EUV assessment and the applicant’s RDV assessment in the end after due consideration.  As we have observed in our judgment, the respondents expended considerable effort in their objections in relation to the reasonableness of the applicant’s offers and much trial time was spent on evidence and argument.  All in all, we consider that the 1^st and 3^rd respondents should be responsible for 60% of the applicant’s overall costs.

26.  The question of apportionment ties in with issue (3).  It relates to Ms Siu’s argument that the 3^rd respondent was more culpable than the 1^st respondent in terms of usage of time and costs so much so that the 3^rd respondent should bear half of the 1^st respondent’s costs.

27.  She submits, “Given that R3’s assessment is substantially different from that of App and R1, much of the time and costs have been incurred for the experts to reach agreement(s) in the joint expert meeting and joint statement.  Given the discrepancy of R3’s assessment, approximately half of the trial time was used to deal with R3’s evidence.  It was held by the Tribunal that R3’s expert evidence is wholly unsatisfactory and [should] be rejected. The Tribunal further found that R3’s expert is [in breach of the Code of Conduct for Expert Witnesses].  By the above reasons and as gathered from the Judgment, it would appear that R3 has unjustifiably increased the costs of the proceedings.”

28.  We are surprised by the argument.  In our view, the 1^st respondent had done pretty much the same thing as the 3^rd respondent by putting forward different EUV and RDV valuations, only to abandon many of its contentions at trial.  The experts must have spent time in dealing with the initial contentions of the 1^st respondent too.  What’s more, the 1^st respondent together with the 3^rd respondent unsuccessfully challenged the reasonableness of the applicant’s offers.  To us, this challenge was much more important and meticulous than the 3^rd respondent’s challenge on the applicant’s RDV valuation (which was not disputed by the 1^st respondent at trial) and much time and costs were involved.

29.  We do not see any distinction between the 1^st and 3^rd respondents.  In our overall assessment, we would order each of them to pay half of 60% of the applicant’s overall costs.  In other words, each will be responsible for 30% of the applicant’s costs. 

30.  We have not lost sight of the 3^rd respondent’s relatively humble entitlement over the net sale proceeds (a mere 2.836% or about $3.5 million according to our determination).  As we have followed a principled approach and the result is appropriate and proportionate, we do not think our costs order would substantially affect the 3^rd respondent’s entitlement as in the case of Sin Ho Yuen.

31.  We now turn to issue (2). 

32.  Mr Li argues that we should order the applicant’s costs to be taxed on an indemnity basis and the High Court scale because:

(a)   The 1^st respondent did not respond and the 3^rd respondent made incomprehensible responses to the applicant’s pre-application offers, so much so that the applicant was forced to apply under the Ordinance.

(b)   The open offers made by the applicant to the 1^st respondent and the 3^rd respondent respectively at the beginning of the trial were rejected.  Those last offers turned out to be more favourable than our determination.

(c)   Both respondents had raised many issues in evidence only to abandon them at the beginning of the trial, causing the applicant to waste costs in dealing with them.

(d)   The 1^st respondent only challenged the constitutionality of the Ordinance at the time of closing submissions.

(e)   The respondents only accepted at the beginning of the trial the applicant’s case on the valuation date for EUV. 

(f)    The 1^st respondent advocated that the reasonableness of the applicant’s offers should be judged as at the date of the application without adducing its own RDV valuation as at that date.  What’s more, the 1^st respondent reused its RDV valuation as at 20 February 2013 in its argument, which it had abandoned at the beginning of the trial when it agreed to the applicant’s RDV valuation.  Much time and costs were wasted on the meticulous calculations of the respondents and the tribunal eventually ruled in favour of the applicant on this issue.

(g)   The 3^rd respondent made many invalid points at trial, eg comparing its offers with the applicant’s purchases of other properties in the Lot.

(h)   The 3^rd respondent ran “a false case by adducing Mr Lam’s valuation evidence”.

33.  With respect, we do not agree.  The Court of Final Appeal has recently reiterated that the usual order for costs in favour of a successful party should be on a party and party basis and an order for costs on an indemnity basis should only be considered where the case has some “special or unusual feature”.[5]

34.  In our view, the points taken by Mr Li (whether viewed individually or collectively) do not constitute any special or unusual feature warranting indemnity costs.  If he were right, all minority owners who had rejected the offers of the majority owner thus necessitating an application under the Ordinance would have to bear indemnity costs.  This would run contrary to the objectives of the Ordinance as observed by the Court of Final Appeal in Sin Ho Yuen.  We believe that in the circumstances of this case the applicant is adequately compensated in terms of costs by having its costs taxed on a party and party basis.

35.  The Court of Appeal has also said in Lee Ming Yueh v Broadway-Nassau Investments Ltd[6] that the complexity of the case is a factor justifying an award of costs on the High Court scale.

36.  At the hearing, we invited Mr Li to clarify why he would regard this case as complex.  He replied that the complexity stemmed from the number of issues raised and he regarded the issues of economic life span of the Building, the reasonableness of the applicant’s offers and the stipulation of special condition to the sale to be particularly complicated.  He also said that the subject matter of this case and the eventual real estate development were particularly important and valuable to his client.

37.  We do not regard this case as any more complicated than other compulsory sale cases that had come before this tribunal.  Many of the issues debated in this case had been dealt with before, and some of the so-called complicated issues had not been pursued at trial.  All litigants (including minority owners) would no doubt regard their case as important.  We simply fail to see any merit in Mr Li’s argument.

Conclusion

38.  For the above reasons, we vary the costs order nisi such that:

(a)   the 1^st respondent do pay 30% of the costs of the applicant; and

(b)   the 3^rd respondent do pay 30% of the costs of the applicant,

such costs to be taxed on a party and party basis and the District Court scale with certificate for counsel.

39.  The 1^st and 3^rd respondent do pay the applicant’s costs of the applicant’s application to vary the costs order nisi to be taxed on a party and party basis and the District Court scale with certificate for counsel.

40.  The 1^st respondent’s summons be dismissed with costs to the 3^rd respondent to be taxed on the District Court scale with certificate for counsel.