CHINNEY CONSTRUCTION CO LTD v. PO KWONG MARBLE FACTORY LTD

HCCT 7/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 7 OF 2005

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JUDGMENT   (ON  COSTS)

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1.  On 8 July 2005, I handed down judgment in these proceedings.  I gave leave to appeal against the award and decision made by the arbitrator, and ordered that the award and decision on the costs of the taxation exercise before the arbitrator be remitted to the reconsideration of the arbitrator.  I also made an order nisi that the Applicant (Chinney) pay to the Respondent (Po Kwong) the costs of the proceedings, to be taxed if not agreed.  I gave some provisional reasons for my order (paras. 102-105).

2.  Chinney has since applied to vary my costs order nisi.  The Respondent has also applied for a certificate for two counsel.  Pursuant  to directions given by me, the parties have filed written submissions on the respective applications.

3.  I do not intend to rehearse the respective submissions in any detail.  Suffice to say that I have borne what has been said by counsel in mind in their respective submissions.  I have also reflected further on my provisional reasons in light of counsel’s submissions.

4.  I will set out briefly my reasons for my final decision on costs.

5.  The primary rule is that costs should follow the event.  In a normal case, a successful party should be awarded his costs.  In exceptional circumstances, he may be deprived of the whole or part of his costs.  That is already an exception to the general rule.  In order to justify not only depriving the successful party of his costs, but also making him  pay the whole or part of the losing party’s costs, it would require even more exceptional circumstances.  As has been pointed out by Yuen JA  in Wang Din Shin v Nina Kung CACV 460/2002 and CACV 67/2003 (19 April 2005) para. 40, under Order 62 rule 7(1) of the Rules of the High Court (Cap. 4), it is only where anything is done or omission is made “improperly or unnecessarily” by the successful party that he may be ordered to pay a part of the other party’s costs.  The rule might have its primary application to things done or omitted to be done “in [the] cause or matter” in question, but the rationale behind it must apply equally to pre-proceedings matters or events.

6.  As was pointed out in my judgment, it was the unilateral mistake of Chinney in failing to ask the arbitrator to reserve the question of costs that led to the difficulties that it subsequently encountered.  The arbitrator had no jurisdiction to reopen the matter after he had made his final award on the costs of the taxation exercise.  The only way open to Chinney to redress the situation was to come to court for relief.  That therefore it must pay for that course is only a matter of common sense.  But it does not follow that all the costs incurred in the present proceedings must be borne by Chinney.

7.  What Chinney ought to pay for is an application to this court (by way of appeal) for an order that the question of costs be remitted to the arbitrator for reconsideration (taking into account the Calderbank letters).

8.  Generally speaking, an appeal cannot be allowed even by consent and therefore a formal hearing is required.  What is usually required at the formal hearing is for the party appealing to persuade the court that the appeal should be allowed.  Some costs would have to be incurred, but by the nature of things they should be limited in amount.  Certainly they would be much less substantial than the costs of a fully contested hearing.

9.  So to that extent, in my judgment, what has happened (i.e. Chinney’s own mistake and the resulting predicament) would constitute exceptional circumstances justifying not only depriving Chinney of the costs of the proceedings, but also making it liable to pay Po Kwong’s costs in the same, up to and including that hypothetical formal hearing.

10.  However, what actually happened after commencement of proceedings was that the application was strenuously opposed by Po Kwong.  Therefore instead of having a formal hearing before this Court in which Chinney, having placed all materials before the Court, would have simply sought to persuade the Court that leave should be granted and the award and decision on costs remitted to the arbitrator for reconsideration, Chinney was faced with vigorous opposition from Po Kwong at the substantive hearing.  Some of Po Kwong’s arguments were never raised by the arbitrator at all and all of them were, after much debate, rejected by this Court.

11.   In those circumstances, the costs incurred by Chinney in eventually obtaining an order in its favour after the substantive hearing were much more than that which it would have incurred if Po Kwong had adopted a passive stance and merely put Chinney to the task of persuading the Court to grant it relief.  In my view, these extra costs were not caused by the initial mistake of Chinney before the arbitrator.  That only formed the background.  They were incurred because of the view taken by Po Kwong regarding the merits of the application/appeal.

12.  In those circumstances, the extra costs incurred cannot be counted against Chinney.  Put another way, so far as those extra costs are concerned, there have been no exceptional or sufficiently exceptional circumstances to justify depriving Chinney of them as the eventual successful party, or even worse, making Chinney responsible for the same.  Here, the prima facie rule that costs should follow the event applies.

13.  That Po Kwong’s arguments raised at the substantive hearing were reasonable, and that the issues involved were mooted ones, are quite irrelevant to what I have to deal with here, in light of the hard fact that those arguments were eventually held by the Court to be erroneous.  The focus here must be whether there are exceptional circumstances to justify depriving the successful party of his costs, or even more seriously, making him pay the losing party his costs.  Put another way, the real question is whether Chinney has done anything or omitted to do anything that has caused or materially contributed to the incurring of the extra costs, which would justify an exceptional order as to costs despite its successful application/appeal, rather than whether Po Kwong was or was not reasonable in opposing the application/appeal.

14.  Thus focussed, I fail to see how the fact that Po Kwong raised reasonable arguments and that the issues argued were novel ones could constitute such exceptional circumstances to justify a departure from the normal rule on costs.

15.  The factual situation in the present case is different from that in King v. Thomas McKenna [1991] 2 QB 480.  In that case, as has been correctly pointed out by Ms Cruden for Chinney, there was a deliberate tactical decision on the part of the plaintiff there not to make the position “remotely clear” to the arbitrator and to the other party to the arbitration.  Here, Chinney made it abundantly clear to Po Kwong that it intended to rely on the Calderbank correspondence to argue the costs of taxation.  Po Kwong was not misled about it at all.  I do not think the costs order made by Hobhouse J in that case constitutes any general guideline or precedent on how a court should exercise its discretion on costs in an individual case.  Each case must depend on its own peculiar facts.

16.  In my judgment, having borne in mind the issues raised and the respective arguments put forward at the hearing and after the hearing (by way of further written submissions), 75% of the costs incurred for the hearing (including the written submissions thereafter) may be classified as such extra costs.  As I say, in relation to these extra costs, they should follow the event.

17.  In conclusion, I have come to the view that the costs of the proceedings, including and up to 25% of the costs of the hearing on 30 May 2005 (inclusive of the costs of the further written submissions submitted after the hearing) should be paid by Chinney to Po Kwong, whereas the remaining 75% of the costs of the hearing (including the further submissions) should be paid by Po Kwong to Chinney.  The costs are to be taxed if not agreed.  I so order (by way of variation of my costs order nisi).

18.  As for a certificate for two counsel for the hearing, given the reasons set out above and in particular the basis upon which I order costs in favour of Po Kwong against Chinney, I do not find it right to grant the certificate.  The application is refused.

19.  As for the costs of the respective applications to vary my costs order nisi, I order that they form part of the costs of the hearing; they therefore fall to be dealt with in accordance with my above costs order.