CHOY YEE CHUN v. BOND STAR DEVELOPMENT LTD

IN THE COURT OF APPEAL

1996, No.225
(Civil)

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J U D G M E N T

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Stock J. (delivering the first judgment at the invitation of the Vice President) :

1. This is an appeal from an award of costs made in the Lands Tribunal. The respondent claimed possession of premises from one Chan Pui Yiu and after a contested hearing, HH Judge Muttrie, sitting as a Presiding Officer of the Tribunal, gave judgment in favour of the respondent, ordered Mr Chan to deliver up possession of the premises forthwith and to pay mesne profits until possession, and then ordered that costs be paid by him to the respondent, those costs to be taxed on an indemnity basis on the District Court scale with a certificate for counsel.

2. Mr Chan who was the respondent in the possession proceedings unfortunately passed away in December 1996, that is, after the judgment to which this appeal relates, and the conduct of this appeal has been assumed by his mother, Madam Choy, who is representative of Mr Chan's estate, and is now named as the appellant. Since it will be necessary to make regular reference both to this appeal, and to the hearing in the Tribunal before which Mr Chan gave evidence, and to events prior to that hearing to which events Mr Chan was a key party, it will be convenient if I refer in this judgment to the late Mr Chan as the appellant, even though that title has in fact been assumed by his representative.

3. By this appeal, the appellant asks that the order for costs be set aside, that there be no order as to costs; alternatively that costs be to the respondent, to be taxed on a party to party, or in the further alternative, on the common fund basis. It is said in particular that there was no justification for an award on an indemnity basis and that in the circumstances of the case such an award was wrong in principle.

Background

4. The premises, possession of which was claimed, constituted a small room of about 240 square feet on or near the ground floor of a building at 24 Ming Yuen Western Street, Hong Kong. The building is in North Point. It was a post war building within the meaning of section 50 of the Landlord and Tenant (Consolidation) Ordinance, Cap.7 ("the Ordinance") and to which therefore Part II of that Ordinance applied.

5. It is common ground that in November 1964 the appellant entered upon a written tenancy agreement by which he rented the premises from someone called Kwai Sau Tuk for a period of one year, and paid rent for that year. For matters which were not in dispute before the Tribunal, we must then move as far forward as 1983 when the appellant purchased a two-bedroom residential flat in Bedford Gardens, also in North Point.

6. The building was eventually purchased by the respondent company in September 1993, together with certain adjacent properties, and it did so with a view to redevelopment. The purchase was said to be subject to existing tenancies. There then followed negotiations between the respondent and sitting tenants for the payment of compensation in consideration of their vacating their respective premises. All the tenants except the appellant accepted terms or offers and moved out. Only the appellant refused to go.

7. By letter dated 12th May 1995, the respondent gave the appellant notice to quit the premises, stating that it was its intention to rebuild. There had, by the date of the notice to quit, taken place negotiations for compensation at which the appellant was present and, as the judge found, to which he was a party. But those negotiations, as far as concerned the appellant, failed.

8. A response to the notice to quit came in late May 1995. It was by letter written on behalf of the appellant by some surveyors, and although earlier in the year there had been correspondence from the appellant which appeared to acknowledge his status as tenant, this letter asserted that the respondent was not the appellant's tenant but rather that the appellant had been in uninterrupted adverse possession of the premises, without paying rent, since shortly after 1964, and that he had therefore by virtue of the provisions of the Limitation Ordinance acquired title to the premises. The surveyors were, they said "considering the possibility of registering [the appellant's] interest in the Land Registry." "Meanwhile" the letter continued, "before we take this matter further, we are instructed to advise you that he is prepared to discuss further with your client on the acquisition of his interest, provided the offer is reasonable and fully reflects the market value of the interest in the circumstances of the case."

9. In a letter written by the same surveyors shortly after to the respondent's assertion that the appellant was but a mere tenant, they repeated the suggestion of a better financial package in the following terms :

" Our client is not interested in your client's offer of $50,000 and do not consider that your client has any right to terminate our client's interest in the property. If we do not hear further from you for a reasonable offer reflecting the circumstances of the case, reflecting the impact of our client's interest on the relevant development potential of 24, 26, 28 and 30 Ming Yuen Western Street, in the very near future, we would consider further moves, including land title registration and then putting our client's interest up for disposal whether through private negotiation with interested parties or ... or public tender."

10. Up to this time the respondent had been in receipt of a monthly sum of HK$699 from the appellant, paid through a Madam Tam. The respondent says that it was rent. The defendant says it was his payment to Madam Tam, who also lived in the building, for a share of electricity and water charges. This sum continued to reach the respondent until May 1995, but not thereafter.

11. In September 1995, the respondent wrote to the appellant stating that the appellant had forfeited the agreement on the grounds that he had denied the landlord's title and had also failed to pay rent due. In that letter, they recited their assertion that although at one stage the appellant had acknowledged he was a tenant, he had changed his tactic when the respondent was negotiating compensation for the possession of the premises, and contended that the appellant, in demanding $160,000 compensation as a condition for relinquishing the premises, was engaged upon blackmail by mounting a bogus claim. They also asserted that they had discovered that he did not in fact reside at the premises at all. They forewarned him that they would institute proceedings and suggested that he consent to the forthcoming application for possession "to save you from the incidence of legal costs." The appellant maintained his stance, and proceedings were then instituted in the Lands Tribunal.

The Tribunal proceedings

12. The contention in the respondent's pleadings before the Tribunal was that after the expiry of the year's tenancy in 1964, the appellant held over on a monthly periodic tenancy, and that after the respondent acquired the premises in 1993 it became, by attornment, the new landlord. The grounds put forward for possession were the failure to pay rent since 25^th May 1995; the denial of title; and the change of occupancy of the premises evidenced by the appellant's alleged desertion of the premises from a date which the respondent was unable to particularise.

13. The grounds and particulars of opposition by the appellant which then followed reflected grounds which had been predicated by earlier correspondence. It was suggested that the respondent's predecessors-in-title had had in any event no right to demise the premises, since they formed part of the common area of the building and that such demise was prohibited by the Deed of Mutual Covenant which applied to the building. Then it was pleaded that the appellant had been in uninterrupted occupation of the premises since 1964 and was, by reason of adverse possession, the legal and beneficial owner of the premises : this is the defence to which almost the entire proceedings in the Tribunal were devoted.

14. The hearing which took place in May 1996 stretched over about five days, and in his lengthy opening Mr Chong, who appears here and appeared below for the respondent company - an opening which traversed fact and much law - made it clear that the respondent's case was that the appellant was engaged upon an unattractive exercise in blackmail. The judge took the contention on board, as is evident from the following exchange :

"Well, I take it that this is about money. It's not a case of some poor person being pushed out of the place that he's occupying, the only roof over his head and all the rest of it.

Mr Lee : Indeed, your Honour.

Court : So the real question is, how much does he want, isn't it?

Mr Chong : Your Honour, not on the record, we have a demand of 3.7 million, which in fact is ...

Court : 3.7 million for a scabby little wooden hut?"

15. On behalf of the respondent, testimony was given by two company employees who had been engaged upon negotiations and contact with the appellant in the course of 1995; as well as by a private investigator, the effect of whose evidence was that the appellant had not lived at the premises for some ten to twelve years, but rather had lived at the Bedford Garden Flat which he had acquired in 1983.

16. For the appellant, evidence was tendered by the appellant (Mr Chan) himself, and then by a cousin or nephew who said that he had lived at these premises with the appellant and the appellant's mother from about June 1960 to about November 1994. Madam Tam was the last witness. She was the person who occupied other premises in the building. It was the respondent's case that in 1964 the appellant was her subtenant, and that thereafter the appellant's rent was paid to the landlord through her. Her evidence, which mirrored that of the appellant, was that after 1964 the appellant never paid rent at all, whether to her or to the landlord; but that he occupied the premises throughout, paying her a set sum each month, namely, $699, towards the utility charges. The appellant said that he occupied the room in question during the week, rather than the Bedford Garden flat, because his motor vehicle was parked near the room and it was convenient for him to use that place to sleep to enable him more easily to reach his place of work on week days.

17. Closing submissions by counsel were made in writing. Mr Chong repeated the allegation of blackmail and went further, stating that the three witnesses called on behalf of the appellant had colluded with a view to blackmailing the respondent company.

18. On the question of costs, application was made for costs to be awarded on the High Court scale, and on an indemnity basis. Counsel referred to section 8(9) of the Lands Tribunal Ordinance -

"In the exercise of its jurisdiction, the Tribunal shall have the same jurisdiction to grant remedies and reliefs, equitable or legal, as the High Court."

And in support of the claim for costs on an indemnity basis, counsel argued that the defence was vexatious and an abuse of process, that the appellant must all along have known that his defence was unmeritorious and was a defence deliberately conducted as part of the blackmail campaign; in other words, that the defence had been conducted with an ulterior motive.

19. The learned presiding officer did not require the written submissions to be supplemented by oral argument, though he made specific reference at the concluding session to the question of indemnity costs :

"I can see why [Mr Chong] wants [costs] on an indemnity basis, because if - I mean, while the obvious and possible conclusion that I can draw is that this is a complete try-on on the part of the respondent, and I found that, I can see why there should be costs on an indemnity basis, but why High Court scale?"

Judgment

20. The judge rejected the evidence of Mr Chan as well as that of his two witnesses. He concluded that the appellant was evasive and self-contradictory. In particular, the judge noted that :

(1) Whereas the appellant had testified that he had never sought as a tenant to obtain compensation, this directly contradicted the terms of letters written by his solicitors in October 1995.

(2) The suggestion that he was still occupying the premises was not credible, given the state of those premises and the fact that only 10 minutes away the appellant had available to him very much smarter residential accommodation at Bedford Garden.

(3) The suggestion that the $699 paid each month to Madam Tam was for one third of the utility charges sat ill with the fact that that amount substantially exceeded one third of the actual total charges.

He concluded that the appellant was until 1994, Madam Tam's subtenant, and that thereafter he became the respondent's tenant by attornment.

21. The grounds for possession having been established, judgment was given in favour of the respondent for possession of the premises and for mesne profits.

22. As for costs the judge said this :

"I do not see any reason why costs should be granted on the High Court scale as sought by Counsel for the Applicant. However I accept Counsel's argument that the costs should be taxed on an indemnity basis. The costs will be on the District Court scale and taxed on an indemnity basis. Certificate for Counsel."

Statutory provisions

23. There are three statutory provisions relevant to this appeal :

1. Section 8(9) of the Lands Tribunal Ordinance provides that :

"In the exercise of its jurisdiction, the Tribunal shall have the same jurisdiction to grant remedies and reliefs, equitable or legal, as the High Court."

In Mr Chong's written submission to the Tribunal, this was the only statutory provision purportedly relating to costs which was cited. Whether the appellant's counsel drew the Tribunal's attention to other provisions as to costs, I know not, and must for the purpose of this appeal assume not. Citing section 8(9), Mr Chong submitted that :

"The Lands Tribunal has the necessary jurisdiction to grant costs on High Court scale and to exercise discretion. Such discretion on the scale of costs as it deems appropriate."

2. There are two provisions expressly referable to costs which were, it seems, not drawn to the Tribunal's attention, namely :

(1) Section 12 of the Lands Tribunal Ordinance :

"1. Subject to the provision of the Ordinance giving the Tribunal jurisdiction in any matter, the Tribunal may award costs to and against any party to any proceedings and may order that the costs be taxed on the basis of any one of the Scales of Costs set out in the First Schedule to the District Court Civil Procedure (Costs) Rules, and the Schedules to Order 62 of the Rules of the Supreme Court.

2. Subject to any Rules made by the Chief Justice, Order 62 of the Rules of the Supreme Court, shall apply to the award, taxation and recovery of costs in the Tribunal."

(2) Section 68B of the Landlord and Tenant (Consolidation) Ordinance, Cap.7 :

"In any proceedings under this Part, the Tribunal shall not make any order as to costs against a party unless that party has conducted his case in frivolous or vexations manner."

In section 68B "this Part" refers to Part II of the Ordinance, and is the part under which the possession proceedings were instituted and concluded.

The Law

24. There are three separate forms which an order for costs in this jurisdiction might take : costs to be taxed as between party and party, costs to be taxed upon the common fund basis, and costs to be taxed upon an indemnity basis. The difference between the three is helpfully summarised by Godfrey J. (as he then was) in Overseas Trust Bank Ltd. v. Coopers & Lybrand (a firm) and Others and Peat, Marwick, Mitchell & Co. (a firm) and Another [1991]1 HKLR 177, at 182G - 183C :

"... The usual practice of the court, in hostile litigation, is to order the costs be paid by the unsuccessful party to the successful party, and taxed as between party and party. That means that the successful party will be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending his rights : see O.62, r.28(2). However, the court does have a discretion to order that the successful party's costs should be taxed, not as between party and party but on what is called (for historical reasons) the 'common fund' basis : see O.62, r.28(3). That is more generous and means that the successful party will be allowed a reasonable amount in respect of all costs he has reasonably incurred : see O.68, r.28(4). And, as I have held in this judgment, the court also has power to order that the costs of a successful party be taxed on the yet more generous indemnity basis. It is now settled that that means that all costs are to be allowed, except any which have been unreasonably incurred or are of an unreasonable amount (in this connection, the successful party will be given the benefit of any doubt) : see the EMI Records case.

To justify an order for costs on the common fund basis, the case has to have some special or unusual feature : see Preston v. Preston [1982] Fam 17 and my own judgment in Wharf Properties Limited v. Erci Cumine Associates HCA No.13431/1983 and CL No.48/1985 24th February 1988, unreported. In my opinion, in order to justify a taxation on the indemnity basis, the successful party has to show, either that the case is one of a type already recognised in the practice of the court as warranting a taxation on that basis (such as, for example, the contempt cases to which I have already referred) or that there is some feature in the case even more special or unusual than one which would justify a taxation on the common fund basis. A case in which the successful party has demonstrated that the proceedings were initiated or prosecuted by the unsuccessful party in a manner which constitutes that party's proceedings an abuse of the process of the court might well be a candidate for an award of taxation of costs on an indemnity basis. A taxation of the successful party's costs on an indemnity basis could properly be ordered, in my opinion, where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for the taxation of the successful party's costs on the indemnity basis."

The learned judge went on to suggest that in the course of "ordinary hostile" litigation it should only exercise its discretion by awarding costs on an indemnity basis "when it feels a proper sense of indignation at the unsuccessful party's conduct ... ".

25. It has since been held that, though there must still be shown special and unusual features, even the circumstances particularised by Godfrey J. are not to be taken as exhaustive of the conditions in which it might be appropriate to make such an award, and that the power to award taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. (See Macmillan Inc. v. Bishopsgate Investment Trust Ltd., 10 December 1993 (unreported) cited in Sung Foo Kee Ltd. v. Pak Lik Co. [1996]3 HKC 570).

26. In Sung Foo Kee Ltd a litigant had been repeatedly in contempt of court orders and the trial judge had found that the defendant had deployed defences which he termed "hocus pocus" and had used the legal process to prevent the plaintiff obtaining its just payment. The Court of Appeal said that it would have awarded costs on an indemnity basis. It remarked (at page 575) that the circumstances in which an indemnity award might properly be made were not restricted to circumstances such as those described by Godfrey J. in Overseas Trust Bank (supra). At p.575B - E of Sung Foo Kee Ltd. (supra), Godfrey J.A. said -

" Here, as in England and Wales, the judge has a discretion, in a case which does fall outside the general rule, to direct the taxation of the receiving party's costs on the basis which he considers to be appropriate to that case. This is not a discretion limited by indications in previous cases, such as, eg the observations of Godfrey J in Overseas Trust Bank Ltd v Coopers & Lybrand [1991] 1 HKLR 177 (in which he declined to order the successful party's costs to be taxed on the indemnity basis), as to the sort of special or unusual feature (there does have to be some special or unusual feature) which could justify an award of indemnity costs. Although the examples given in the judgment of Godfrey J at 182J-183C may be of assistance in other cases in which indemnity costs are claimed, his judgment does not purport to be and is not to be taken as determinative of the sort of case in which indemnity costs may be ordered."

27. The Court of Appeal endorsed the view of the English courts that :

"The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win. Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be 'appropriate'." (see Macmillan Inc. v. Bishopsgate Investment Trust Ltd. supra)

Further at p.576 -

"... it is a pity that various courts have attempted to define in exactly what circumstances indemnity costs may be ordered." (see Munkenbeck & Marshall v. McAlpine (1995) 44 Con LR 30 per Hollis J, at page 33)

The Court of Appeal inSung Foo Kee Ltd at page 576F added :

"... Our rules do now expressly provide for the taxation of costs on an indemnity basis and when they consider it appropriate judges should not be slow to make orders for the receiving party's costs to be taxed on that basis."

28. Mr Hung who appeared for the appellant before us at short notice and has advanced his case cogently, and as fully as he possibly could, suggested that the perameters set down by Godfery J. in Overseas Trust Bank were somehow obiter and, further, that the power to award costs on an indemnity basis was designed and should be employed for cases of contempt and that it was only in the most exceptional circumstances that an award should otherwise be made. There is no justification for either contention. The circumstances described by Godfery J are well established as circumstances in which an order on an indemnity basis might properly be made. They are confirmed and stated to be non-exclusive in Sung Foo Kee Ltd and confirmed further, if further confirmation were necessary, in Fenn Kar Bak Lily v. Goh Kim Lay, [1995]3 HKC 313. Those decisions alone clearly gainsay the suggestion that the power is effectively limited to contempt cases.

29. There has been a suggestion by counsel for the appellant that somehow the principles apply to a party who has instituted proceedings, but not to a party in response. In my judgment, the principles apply equally to those who not only institute proceedings but who defend them. If a plaintiff has been forced to institute proceedings by a defendant whose conduct has been not only hostile in the normal litigious sense, but oppressive and with base ulterior motive, and if the pursuit of a defence constitutes conduct which is part of an oppressive game plan, then invocation of the power to award costs on an indemnity basis may well be justified. Of course there will in most litigation be evidence which a court rejects, and it is far from rare that a court will find that evidence has been deliberately untruthful. Such a finding will not necessarily in itself warrant an order for costs upon either of the bases alternative to party and party taxation. But there will be cases - and it is true that they will be the exception and not the rule - where the conduct of a party in a case is of a more venal kind, where the conduct of the litigation has in some sense been wicked, and in such a situation the exceptional power can quite properly be applied.

30. Mr Hung sought also to rely upon judgments in the Court of Appeal in Celestial Shun Tok Ltd. v. Dialbright Co. Ltd & Others, Civil Appeal No.83 of 1992, in support of the proposition that a distinction is to be drawn for the purpose of the exercise of the discretion to award indemnity costs between, on the one hand, the institution of a claim and, on the other, the pursuit or maintenance of an unmeritorious or unsustainable defence, and that mere persistence in an unsustainable defence does not constitute an abuse of the process of the court. In that case the judge at first instance had decided that an application by originating summons made by trustees seeking the court's directions as to the disposal of trust funds was a misconceived application, because the issue at hand was one which was and could be determined in proceedings already afoot between the same parties. It was in that context that the Court of Appeal decided that the judge should not have awarded as against the settlor of the trust, whose assertion as to the proper disposal of the assets had sparked the application, costs on an indemnity basis. The case can readily be distinguished from the present. There was no suggestion in that case of mala fides or base ulterior motive by the settlor, and the issue there centred upon a narrower contention of abuse of process. It did not purport to decide that for the purpose of addressing the question whether in a particular case indemnity costs should be awarded or not, such costs should never be awarded against an unsuccessful defendant, or that the conduct of a kind which would normally trigger such an award if displayed by a plaintiff should not equally result in such an award by reason of the fact that the vexation or base conduct lay at the hands of the defendant or respondent to an action, rather than at the hands of the party which instituted the proceedings.

31. Then Mr Hung suggested that there was authority for the proposition that it was wrong in principle to award costs on an indemnity basis against a party pursuing an obviously unsustainable claim, or even a fabricated claim, a proposition which he seeks to draw from the judgment of the late Hunter J. (as he then was) in Shoman Trading Co. Ltd. v. Yee Tung Industrial Co., CL No.116 of 1985. In that case an action succeeded in the face of gross lies and forgery by a defendant. The learned trial judge awarded costs on a common fund basis, but declined to make an award on an indemnity basis. He said that the practice or stage from which he had to start was that in many cases where there has been fraud, the successful party ended by receiving party and party costs, and that there was some support for the view that indemnity costs should be reserved for cases with a penal element. That case is however not authority for the proposition for which Mr Hung contends. First, the judge was entitled to take the view he did, though I apprehend that if in the exercise of his discretion he had decided to award costs on an indemnity basis, that is a decision which would not have been subject to a successful review. Second, the circumstances described by Godfrey J. in Overseas Trust Bank in which such an award may properly be made were somewhat wider than those to which Hunter J. addressed himself, and in any event the discretion is not now circumscribed by the kind of circumstances itemised by Godfrey J. in that decision.

Analysis

32. The only issue in this appeal relates to the order for costs made by the Tribunal. Accordingly, the appeal lies only with leave of this Court or of the Tribunal (see section 14(3)(e) of the Supreme Court Ordinance) and leave has previously been granted.

33. It is well established that this Court will not interfere with the exercise of a judge's discretion in the award of costs unless it be shown that he failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially. It is common ground that whilst the judge was well aware that he had a discretion in the matter and that he provided reasons, by implication perhaps rather than expressly, for exercising the discretion in the way he did, he may not have had in mind the provisions of section 68B of the Ordinance. That omission is understandable, for he did not have that provision drawn to his attention.

34. Subject for the moment to the import or impact of section 68B, I am satisfied that this was a case in which there was no misapplication of principle by the judge in awarding, as he did, costs on an indemnity basis. It is clear that he took the view that this had been, as he put it, a "try on". I am satisfied that by that he meant a bogus claim intended to exert pressure on the respondent to pay as much compensation as possible. There was ample room for the judge to come to that conclusion. There was cogent evidence that the applicant had not been living at the premises for some 10 to 12 years, evidence established in a number of ways including that of a private investigator whose evidence the appellant said must have been fabricated. There was evidence of claims for compensation tied directly to threats of registering a lis. An affirmation was registered with the Lands Registry by the appellant accompanied by a letter to the respondent making it quite clear that the quid pro quo for lifting the registration was more compensation. There were complaints of disrepair, admitted in the event by Madam Tam to have been put forward with a view to "augmenting the compensation claim". There was evidence of a clear change of stand by the appellant - who, I add in passing was an educated man - once he appreciated that his status as a tenant, which he had in correspondence originally admitted, was not as staunch a weapon as a suggestion that he had in fact legal and beneficial title to the premises. And there was evidence upon which the judge could, and quite evidently did, conclude that the appellant and his witnesses colluded to pursue the entirely false defence.

35. This was no ordinary possession action defended by a person in possession of property who asserted that he was or was not in breach of an agreement, or disputed the terms of the agreement. It is not a case where there was a tenable or respectable argument which might support a finding of adverse possession but which in the event failed - for example, a case in which the alleged tenant had in fact been in occupation but where the circumstances in which he came to be in occupation were at issue, or a case in which his animus possidendi was the key matter for determination. It is difficult to come to a conclusion other than that the defence was not simply unreliable and false, but deliberately so. Nor was this just an attempt by a person in possession to retain possession to avoid the cost and inconvenience of having to move. This was a defence where there was no objective to retain possession at all. The objective was an ulterior one, namely, to place the landlord under the greatest possible pressure to pay compensation well above that which was otherwise merited, well knowing that the very act of litigation and the passage of time which the pursuit of that litigation necessarily involved, itself placed substantial pressure upon a landlord anxious to redevelop the property, unable to do so solely because of the tenant's continued presence or hold on the premises in question. It is clear that to that end the appellant fabricated a defence and colluded with other witnesses to strengthen that defence. The conduct of the litigation for this purpose was but the tail end of a campaign in aid of the same objective, a campaign which had commenced months before the proceedings were instituted, as evidenced by the correspondence between the parties and by the purported registration of a lis, where no lis was in fact pending. In my judgment, this is a type of oppressive and vexatious conduct to which the power to award indemnity costs is designed. It is conduct which could well leave a court with a sense of indignation at the appellant's behaviour.

36. It has been suggested by Mr Hung that there was in fact no finding by the judge of a base motive or of a bogus claim; none in any event to be found in the judgment itself. I do not agree. A reading of the judgment, in the context of the transcript as a whole and of submissions, demonstrates quite clearly that the judge must have found the defence to have been deliberately fabricated. There could be no other basis for his findings. It could not be, in the circumstances, a case of mistake or honest error. Mr Chan had either lived at the premises since 1983 or not. He had not, even though he said so. The witnesses were either lying or not. There was no room in this particular case for misinterpretation by them of the same given facts. The judge had expressly referred to a "try on" when canvassing the question of indemnity costs, and then made that very order. He quite clearly found the defence to be bogus.

37. It has been suggested further in argument that the order in its effect is to penalise a tenant for not succumbing to proposals for compensation put by the landlord respondent, proposals which the appellant was not obliged to accept, and that the proceedings which were instituted were proceedings which the respondent, if it wished to redevelop was, in any event, obliged to pursue. That is not, in the circumstances as they developed, to the point. The proceedings launched were not in fact based on a desire to redevelop. The entire hearing, lasting some five days, was devoted to defeating the appellant's contention that he was not a tenant at all. The appellant chose to stop paying rent and to deny the landlord's title. He himself provided the perameters of the claim, and the grounds upon which the respondent wished to obtain possession were not in dispute. It was admitted that no rent had been paid, and that the title had been denied. So the sole issue was an issue created by the tenant. Nor was it a case of a tenant saying "I do not wish to move until such time as you have a possession order". Furthermore, it was not just a case of a fabricated defence. It was a case of a fabricated defence which, if successful, was the very one defence which the supposed landlord could in no circumstances which might thereafter arise tackle. It was not even a question of lying about one of the grounds for possession prescribed by the Ordinance. It was a fabrication of a ground about which, in the future, the landlord would have no recourse. The choice of that defence was, in my judgment, a deliberate choice of a ground which was, in the circumstances, a ground which the judge was quite entitled to find was particularly oppressive and threatening, and which entitled him to award costs on an indemnity footing.

38. Then it is said that somehow the judge ought not to have taken into account events prior to the institution of the proceedings. I do not agree. In determining whether the conduct of proceedings or the motive behind that conduct is or is not of a particular colour, the court cannot put on blinkers and shut out earlier behaviour by a litigant which might well explain conduct within the litigation itself. In any event, in the course of normal litigation, whilst "the grounds upon which costs are awarded must be connected with the case, this may extend to any matter relating to the litigation and the parties' conduct in it, and also to the circumstances leading to the litigation, but no further" (See Scherer v. Counting Instruments Ltd. [1966]1 WLR 615 per Buckley LJ at 619).

Section 68B

39. But what of section 68B? Two points are, or might be, put forward :

(1) It might be said that the terms of the section constrict the Tribunal to looking at the conduct of the case only, meaning that it must excise from its mind anything that has happened before. To that there is this answer - that if a court has to examine previous conduct in order to decide whether the conduct of the proceedings themselves has been vexatious, then that is what it can and should do. And that is what happened in this case.

(2) It is then said that the section presupposes a starting point quite different from that to be adopted in the course of average or other litigation. In normal litigation, the approach is that the successful party should as a rule have its costs on a party and party basis; yet here the starting point is that there should be no order as to costs. And it should follow from that, so the argument goes, that if costs are exceptionally to be awarded, they should only be awarded on a party and party basis - in other words, that the reserve position postulated by the statutory provision starts further down the ladder of severity. Again, I do not agree. The provision itself evidences a design that if in fact a party has been vexatious, and by that vexatious conduct has put the successful party to wholly needless expense, it should be open to a court to compensate that party for that expense. That being so, there is no warrant for then saying that the court's hands should be precluded from awarding a level of costs which the degree of vexation and the general circumstances merit.

40. It follows that in my judgment once the provisions of the section are applied against a party to proceedings under Part II of the Ordinance, the question of the appropriate scale of costs is at large, and a court is quite entitled to approach the basis of the award as it might in any other case in which it finds that a litigant has acted vexatiously or frivolously.

41. In the event, although there is no express reference to the section in the papers, and I must assume that the section itself was not drawn to the attention of the judge, he has addressed the correct principle. The issue of vexation was squarely before him, and indeed the very last sentence of Mr Chong's written submission to the Tribunal invited costs on an indemnity basis on the express footing that the defence was vexatious.

Conclusion

42. It follows that there is no basis upon which, in my judgment, we could properly find that the judge failed to exercise his discretion or acted upon some false principle, or took into account irrelevant material. The findings of fact were for him and there is no basis for their impeachment. Whether each of us might have made the same order is ultimately not determinative of the appeal, although speaking for myself, I happen to agree with the order made. The point though is that in my judgment on the findings which the Tribunal made, the learned judge was entitled to exercise the discretion as to costs and as to the basis of the award as he ultimately did.

43. Accordingly, I would dismiss this appeal.

Yeung J.:

44. An order of costs on a full indemnity basis is an unusual order and should only be made in very rare and exceptional circumstances, particularly in cases under the Landlord and Tenant (Consolidation) Ordinance in view of its provision under S.68(b).

45. Speaking from myself, I would properly not have made such an order if I were the trial judge. But I cannot say that the trial judge was wrong in the exercise of his discretion in ordering the Appellant to pay the Respondent's costs on a full indemnity basis on the facts as he found. For the reasons given by my Lord, Stock J., I too would dismiss the appeal.

Nazareth V-P:

46. I agree with Stock and Yeung JJ.

47. In Lakhan v Wu Wing-tak [1987] 3 HKC 54 this Court acknowledged that it must be very slow to interfere with the exercise of a judge's discretion in making a costs order and should not do so simply because it happened to be inclined to a different view. In that case, pointing out that the judge below was aware of the relevant costs considerations, the Court stated at p. 61D that

"In such circumstances, it would be wrong for an appellate court to substitute its discretion for that of the trial judge, unless satisfied that he was plainly wrong."

48. I cannot say that I have been persuaded by Mr Hung's fulsome submissions (and I pause to say they were amply made despite his being retained at a very late stage) that the considerations (including s.68(b)) upon which the Court may order indemnity costs have quite the effect here that he contends for, or that the judge misdirected himself in any way or that we would be entitled to intervene upon any of the other well-known grounds.

49. The appeal is accordingly dismissed.