PETER MAN HO LAYE v. TAM MA LAI AND ANOTHER

HCA 1780/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1780 OF 2009

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BETWEEN

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D E C I S I O N

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Background

1.  By my judgment dated 22.11.2010, I ordered that the plaintiff should have costs on both the claim and counterclaim.  Since the defendants (collectively referred to as “Madam Tam”) were legally aided, section 16C(1)(b)(ii) of the Legal Aid Ordinance, Cap 91, applied.  The Director of Legal Aid (“DLA”) was not liable for the plaintiff’s costs incurred on the claim but only those on defending the counterclaim.  The costs position of the non-legally aided plaintiff was thus as if he had lost on the claim but won on the counterclaim.  An issue has arisen on which part of the costs fell within the counterclaim. 

The parties’ contentions

2.  Madam Tam contends that the DLA should bear only the amount by which the costs of the proceedings have been increased by it.  The only counterclaim was in relation to her counterclaim in adverse possession. The other part on resulting trust was a consequence of and incidental to defending the claim by the plaintiff. 

3.  Alternatively, she invites the court to exercise its discretion to apportion the time spent on the counterclaim as:

(i) 22.5%, relying on the fact that only 41 out of 182 paragraphs of the my judgment dealt with adverse possession; or

(ii) 15%, being the total time spent on the trial.

4.  The plaintiff, on the other hand, relies on the case of Chun Wo Construction & Anor v China Win Engineering Ltd, HCCT 37/2006, 12.6.2008, Lam J.  There the court treated the counterclaim as an independent action.  The defendant was awarded costs incurred on its counterclaim including costs common to its successful defence of the plaintiff’s claim and the successful prosecution of its own counterclaim; but the defendant could not have the costs incurred solely for its successful defence of the plaintiff’s claim (at para 88).  The defendant invites this court to do likewise.

The proper approach

5.  I do not think that the Chun Wo case establishes the general proposition as advanced by the plaintiff.  That case did not involve a trial but a settlement of the counterclaim by acceptance of payment in.  There was automatic entitlement to costs of the counterclaim.  The parties had forgotten about the costs of the claim until some time later.  Lam J dismissed the defendant’s application for costs on the claim and, in line with the common intention of the parties as reflected in the settlement, he gave a direction that neither party was entitled to any costs in respect of the claim apart from those previously ordered.  The net result was that the defendant got costs on the counterclaim but not costs on the claim.  (See paras 76-79, 83, 86, and 87 of the judgment.)  It was in those circumstances that Lam J held that the proper approach was to treat the counterclaim as an independent action, which meant that the defendant got the costs incurred on the counterclaim, including costs common to the defence of the claim and the prosecution of the counterclaim; but the defendant could not have the costs incurred solely for defending the claim.  I do not think the circumstances there are analogous to the present situation. 

6.  On the other hand, apportioning the costs of all the proceedings which related to both claim and counterclaim or any common issue in the manner suggested by Madam Tam’s solicitors is also an incorrect approach. That was the approach adopted by the Court of Appeal in Medway Oil & Storage Co Ltd v Continental Contractors Ltd & Ors [1928] 1 K.B. 238but rejected by the House of Lords (at pages 92, 94, 95, 105).

7.  In my view, the proper approach is the one laid down by the House of Lords in Medway Oil and Storage Company, Ltd v Continental Contractors, Ltd & Ors [1929] AC 88.  After reviewing a long line of authorities, the House of Lords adopted the approach in Saner v Bilton (1879) 11 Ch.D. 416 and held that (as summarized in the headnote):

“Where a claim and counterclaim are both dismissed with costs, upon the taxation of the costs, the true rule is that the claim should be treated as if it stood alone and the counterclaim should bear only the amount by which the costs of the proceedings have been increased by it. No costs not incurred by reason of the counterclaim can be costs of the counterclaim.”

8.  In determining whether costs have been incurred on a claim or counterclaim, the court looks to the substance and not the form.

“… in determining for the purposes of taxation in such a case as this whether a particular issue is an issue on the claim or on the counterclaim or on both the claim and the counterclaim, the Taxing Master is not by any rule in Saner v. Bilton to be enslaved by the form of the pleadings. The question must be determined as one of substance and not of form – the manner in which the action was fought and in which the issues were dealt with by the parties and the Court not being disregarded. On the facts in Christie v. Platt the Master was to be entitled, indeed he was invited, to attribute to the counterclaim exclusively all costs really incurred by the defendant in maintaining the disputed issue, although that issue had first appeared in the defence and was introduced to the counterclaim only by reference to the defence.” The Medway case, at page 108, per Lord Blanesburgh.

9.  Where there are costs common to an issue (e.g. counsel’s brief), the proper approach is to divide[1] it in accordance with the principle in the preceding paragraph (page 99-100 of the Medway case). By way of illustration, a taxing master should not “apportion” the brief fee in the present case, as to 85% for the claim and 15% for the counterclaim as suggested by Madam Tam.  He should, instead, ask himself (i) how much would the brief fee be if there had only been the claim in the present case and (ii) by how much the brief had increased as a result of the counterclaim.  The plaintiff cannot recover from DLA (i) but only (ii).

10.  The Medway case involved a sale and purchase of goods.  The issues concerned whether there had been an agreement to extend time for delivery, which party repudiated the contract and whether the buyers had conspired with the seller’s supplier (page 93 of the Medway Case).  Each party claimed damages against the other.  The burden of proof was on the seller (plaintiff/respondent).  If the seller were successful in establishing its allegations, the counterclaim would, as a necessary corollary, collapse.  If, on the other hand, the buyer (defendant/appellant) were successful, the counterclaim would arise but by then the issues would already have been decided under the claim in favour of the buyer (page 109 of the Medway case).  The seller failed in the claim.  The buyer failed in the counterclaim since it had suffered no damage.  That was why the seller could not recover costs common to the claim and the counterclaim but was limited to recover costs of the proceedings increased by the counterclaim. 

11.  The same cannot be said of the present case. Here, the plaintiff’s claim for possession and mesne profits rested on his being the registered owner of the subject premises and his having given a license to his uncles to occupy.  After the death of his uncles, he sought to recover possession from the 1^st defendant, Madam Tam (widow and administratrix of the 6^th uncle).  Madam Tam’s defence and counterclaim rested on trust (that the 6^th uncle was the one who provided the purchase money for the premises) and adverse possession. 

12.  The claim started off in the District Court under Order 113 against Madam Tam.  As a result of her defence and counterclaim, the proceedings were converted into a writ action and subsequently transferred to the High Court because of the increase in value of the premises.

13.  Establishing the plaintiff’s claim was simple – by production of the land search record to prove his title.  (The title deeds were not even in his possession.)  Madam Tam did not dispute the plaintiff’s paper title. Nor could it be disputed that any license ever granted had terminated on the death of both uncles.  The claim for mesne profits took no trial time because there was no proof of the market rent.  Determination of the plaintiff’s claim would not have disposed of any of the 2 limbs of counterclaim.

14.  Any defendant running a “defence” like Madam Tam’s would not have just asked for dismissal of the claim without counterclaiming for some relief such as declaration of beneficial ownership or transfer of title.  At the trial, Madam Tam sensibly recognized that the burden of proof rested on her and so it was she who opened the case. 

15.  In my view, contrary to the submission of Madam Tam, the bulk of the costs arose out of the counterclaim and not the claim.  The trial was virtually devoted to the counterclaim.  (Way above the 15% “apportionment” suggested by Madam Tam.)  It did not matter that the facts in support of the averments of trust were pleaded under the “defence” and repeated in the “counterclaim”. 

16.  The present case is similar to that in Christie v Platt [1921] 2 KB 17, 24, 26 cited in the Medway case.  There the plaintiff landlady claimed for rent.  The defendant pleaded that the premises were uninhabitable.  By way of counterclaim, the tenant repeated the allegations in her defence and claimed damages.  Judgment was entered for the landlady on her claim and for the tenant on the counterclaim, both with costs.  On each side, claim and counterclaim was dealt with in one brief.  By the time of trial, it became clear that the alleged condition of the premises was no defence to the claim for rent.  The plaintiff’s case in support of her claim was confined to proof of the tenancy agreement and of the rent due thereunder.  The evidence was not challenged.  After a full hearing, it was found that there had been an implied term that the premises should be reasonably fit for occupation and they had not been so.  The tenant won on the counterclaim.  The taxing master was of the view that because the defendant pleaded the breach of the implied term as a defence to the claim for rent, therefore the expense of proving the breach was attributable to the claim. Atkin LJ found that the taxing master had imputed the costs to an irrelevant plea and has allowed them no share in establishing a relevant and substantial counterclaim.  (page 26 of Christie v Platt)

17.  Having regard to the above analyses, it is not appropriate to “apportion” a percentage of the plaintiff’s overall costs as attributable to the counterclaim.  The suggestion of fixing a percentage by reference to the number of paragraphs in my judgment dealing with adverse possession is even worse. 

Conclusion

18.  Re paragraph 1 of the summons, the plaintiff’s costs on defending the issues both on trust and adverse possession formed part of the counterclaim recoverable from the DLA.  The taxing master should tax the plaintiff’s costs in accordance with the principles set out in paragraphs 7 to 9 above.  Paragraphs 2 and 3 of the summons concerning “apportionment” are dismissed. 

19.  On a nisi basis, the plaintiff shall have the costs of this summons, to be taxed at the same time as the costs of the main proceedings.  There shall be legal aid taxation of the defendants’ own costs.

20.  I thank the solicitors for their assistance.