DAH SENG DECORATION PROPERTY AGENCY LTD. v. SZE KIE SET AND ANOTHER

CACV 1074/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1074 OF 2000

(ON APPEAL FROM HCA NO. 15405 OF 1998)

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J U D G M E N T

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Keith JA (giving the first judgment at the invitation of Rogers V-P):

Introduction

1. The action to which this appeal relates was tried by Deputy Judge Longley in the Court of First Instance. On 3 October 2000, the sixth day of the trial, the 1st Defendant submitted to judgment in the sum of $95,520.00. The Plaintiff agreed not to pursue any further claims against the 1st Defendant and to discontinue its action against the 2nd Defendant. For their part, the Defendants discontinued their counterclaim against the Plaintiff.

2. The judge then heard arguments relating to the costs of the action and the interest to be awarded to the Plaintiff. In relation to costs, he ordered, inter alia,

(a) the 1st Defendant to pay to the Plaintiff its costs of the action to be taxed if not agreed, and

(b) the Defendants to pay to the Plaintiff its costs of the counterclaim to be taxed if not agreed (though he noted for the assistance of the taxing master that no part of the trial was occupied with evidence or submissions relating to the counterclaim).

In relation to interest, he ordered the 1st Defendant to pay to the Plaintiff interest on the judgment debt of $95,520.00 from 6 May 1998 until the date of his order relating to interest, i.e. 3 November 2000, at the rate of 11.5% per annum and thereafter at the judgment rate. The Defendants now appeal against those orders. Although the principal issue on the appeal relates to costs, the appeal lies to the Court of Appeal as of right because the appeal does not relate only to costs: see section 14(3)(e) of the High Court Ordinance (Cap. 4).

3. I should add that the 1st Defendant was ordered to pay to the 2nd Defendant her costs of the action. To the extent that the 1st Defendant appeals against that order, he does not ask for the order to be set aside, because it has no practical effect. I therefore say no more about it.

The settlement of the action

4. The event which immediately preceded the settlement of the action was a successful application by the Plaintiff to re-amend its Statement of Claim. By that re-amendment, a separate claim for the sum of $95,520.00 was added to the existing claims. One of the questions which the judge had to decide was whether he could have given the Plaintiff judgment for that sum on the Plaintiff's case as it had previously been pleaded before the re-amendment. If he could have done, the re-amendment constituted no more than clarification of the Plaintiff's existing claim and did not amount to anything new. In that event, the normal order that costs should follow the event, i.e. that the Plaintiff should be awarded its costs of the action, would follow unless there was some special reason to make some other order.

5. On the other hand, the general rule is that

"... where a plaintiff makes a late amendment ..., which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to the costs of the action down to the date of the amendment": per Stuart-Smith LJ in Beoco Ltd. v. Alfa Laval Co. Ltd. [1995] QB 137 at p. 154A-B.

Thus, if the judge could not have given the Plaintiff judgment for the sum of $95,520.00 on the Plaintiff's pleaded claim before the re-amendment, the application of the general rule would require the Plaintiff to pay to the Defendants their costs of the action up to the date of the re-amendment. The judge concluded that he could have given the Plaintiff judgment for the sum of $95,520.00 on the Plaintiff's pleaded claim prior to the re-amendment, and he went on to make the order for costs which he did.

The Plaintiff's pleaded case before re-amendment

6. The Defendants are husband and wife. The Plaintiff's claim arose out of an agreement between them and the Plaintiff. The agreement was for the renovation and decoration of the Defendants' flat in Yuen Long. It expressly provided for the payment of an initial deposit representing 30% of the price of the works. It was common ground that that sum had been paid. The agreement also expressly provided for interim payments of 40% and 20% to be paid. The agreement was silent as to when the first of these interim payments was to be made, but the second was to be paid "near the completion of the works". The balance, representing the final 10% of the price of the works, was to be paid on completion of the works.

7. The Plaintiff's pleaded case in its Amended Statement of Claim was as follows. After it had substantially completed the works, it asked the 1st Defendant to pay the interim payment of 40%. He refused to do so. Indeed, he asked the Plaintiff to reduce the amount of marble to be supplied and requested an adjustment of the price to reflect that. The Plaintiff produced a draft amended agreement giving effect to that request. However, the 1st Defendant refused to sign it. Indeed, he locked the flat thereby preventing the Plaintiff's workmen from getting into it and completing the works.

8. The Amended Statement of Claim pleaded that this conduct constituted a repudiation of the agreement. However, it also pleaded that the Plaintiff had not accepted this repudiation. In effect, the Plaintiff was pleading that it had elected to affirm the agreement. This, therefore, was not a case in which it was being said that the parties' obligations under the agreement were at an end, and that the Plaintiff was entitled only to such damages as compensated it for its losses sustained as a result of the Defendants' repudiatory breach. This was a case in which the Plaintiff was asserting that the Defendants had continued to be obliged to perform their obligations under the agreement. Those obligations included their obligation to pay the whole of the price for the works because the Plaintiff had continued to be ready, willing and able to complete the works which it had agreed to perform. The Plaintiff's claim was therefore a claim for the whole of the balance of the price of the works.

9. The interim payment of 40% amounted to the sum of $95,520.00. Thus, in the light of this analysis of the Amended Statement of Claim, the short point is whether it would have been open to the judge to give judgment for the Plaintiff for the interim payment alone on its pleaded case. I do not see how it can be said that the judge would not have been entitled to do that. Where the price of works is payable in stages, a claim for the whole of the balance of the price necessarily includes individual claims for each stage payment - though just as the Plaintiff had to plead that it had been ready, willing and able to complete the works which it had agreed to perform in order to claim the whole of the balance of the price, so too it had to plead the facts which had triggered its entitlement to the interim payment of 40%. The Plaintiff had pleaded those facts by pleading that the interim payment of 40% had been demanded after the works had been substantially completed.

10. Ms Gekko Lan for the Defendants argued that the Plaintiff's case as pleaded in the Amended Statement of Claim was that the agreement was an entire contract of the kind entitling the Plaintiff to only the whole of the balance due under the agreement, and not to part of the balance due under the agreement. I do not agree. The Plaintiff's case as pleaded was the very opposite, namely that under the agreement the Plaintiff was entitled to interim payments as and when they fell due. The mere fact that it claimed the whole of the balance, because the whole of the balance was due in view of the fact that it had been ready, willing and able to complete the works, but had been prevented from doing so, did not mean that the Plaintiff became disentitled from claiming only part of the balance. In any event, although it is necessary for present purposes to examine what the Plaintiff pleaded, rather than to determine whether as a matter of law the agreement was an entire contract of the kind alleged by the Defendants, I do not see how it could be said to have been an entire contract of that kind. The provision for stage payments meant that the agreement was not one in which the entire performance of the agreement was a condition precedent for payment of any part of the price of the works.

The exercise of discretion

11. For these reasons, I have concluded that the judge was right to find that the Plaintiff would have been entitled to judgment for only $95,520.00 on the basis of the Amended Statement of Claim. But that is not the end of the matter. That finding of the judge did not automatically mean that the 1st Defendant had to be ordered to pay the Plaintiff's costs of the action. Ord. 62 r. 3(2) provides:

"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, 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."

Thus, the judge had to decide whether there was some reason, other than the re-amendment to the Statement of Claim, for ordering that the costs should not follow the event.

12. I regard two matters as of significance in that connection. First, although the Amended Statement of Claim did not have to be re-amended to permit judgment to be given for the interim payment of 40%, the Plaintiff had never put its case on a basis which would have entitled it to judgment for such a payment alone. It had always put its case only on the basis that it had been entitled to the whole of the balance of the price of the works. The Plaintiff had never pleaded an alternative claim that if for one reason or another it was not entitled to the whole of the balance of the price of the works, it was nevertheless entitled to the interim payment of 40%. The first time when that alternative claim was pleaded was when the Amended Statement of Claim was re-amended. The fact that the application for leave to re-amend was made at all is an indication that the Plaintiff's advisers took the view that, although the Plaintiff may have been entitled to judgment for the interim payment of 40% on the Amended Statement of Claim before re-amendment, the fact that it was making an alternative claim should have been spelled out.

13. Secondly, in their Defence, the Defendants admitted that the 1st Defendant had refused to pay the interim payment of 40%. They denied that they had been in repudiatory breach of the agreement. They claimed that the Plaintiff had been in repudiatory breach of the agreement, and that they had accepted that repudiatory breach as bringing the agreement to an end. They admitted, subject to the counterclaim, that the Plaintiff was entitled to be remunerated for the work it had done on a quantum meruit. It was on the basis of their valuation of the Plaintiff's entitlement to remuneration on a quantum meruit that they paid the sum of $56,871.00 into court shortly after the issue of the writ. Thus, the fact that the Defendants were prepared to pay into court a sum of that size indicates that they might have been prepared to settle the action on the basis of a slightly higher payment to the Plaintiff if the Plaintiff had pleaded an alternative claim for the interim payment of 40%. The fact that the action was settled immediately after the Amended Statement of Claim was re-amended to plead that alternative claim is an indication that the Defendants might have been prepared to settle the action much earlier on that basis if the alternative claim had been pleaded hitherto.

14. These considerations lead me to conclude that the justice of the case requires an adjustment to be made to the usual order for costs so as to reflect the fact that the Plaintiff might not have incurred the costs which it did if it had pleaded its alternative claim earlier, being a claim for a sum of money significantly less than the Plaintiff's primary claim and not much more than the Defendants had paid into court. In my judgment, the costs order which should have been made to reflect that conclusion was an order requiring the 1st Defendant to pay 50% of the Plaintiff's costs of the action and the Defendants to pay 50% of the Plaintiff's costs of the counterclaim.

15. I am reinforced in that view by an exchange between counsel and the judge on the third day of the trial after the Plaintiff had closed its case. Counsel for the Defendants wanted to know whether the Plaintiff was relying on quantum meruit as a basis of its claim. Not surprisingly, counsel for the Plaintiff said that the Plaintiff was not relying on quantum meruit. After all, the Plaintiff had led no evidence as to the value of the work it had done. But counsel for the Plaintiff added words to the effect that the Plaintiff's case was "all or nothing". It is contended on behalf of the Defendants that, even if on the case as pleaded the Plaintiff had been entitled to judgment for the interim payment of 40% only, the Plaintiff was still disavowing any intention to make such a claim.

16. The judge dealt with this last argument in the following way:

"It must be remembered however that those words were uttered in the context of an enquiry as to whether the Plaintiff was seeking to base its claim on quantum meruit. Even if [counsel for the Plaintiff's] words at that stage may have led the defence to misapprehend that the Plaintiff's case was 'all or nothing', [the Plaintiff's counsel] made clear the following day that that was not the case. Although he did not refer to any right of the Plaintiff to interim payments what he said did not exclude it."

I agree with the judge's assessment as to what the Plaintiff's counsel had said on the third day of the trial. As I read the transcript, all that the Plaintiff's counsel was saying was that the Plaintiff's claim was not based on a quantum meruit. Thus, his reference to the case being all or nothing was a reference to the claim being only for the balance of the price of the works, and that if the Plaintiff was not entitled to the balance of the price of the works, it was entitled to nothing. The Plaintiff's counsel was not addressing the question whether a claim for the balance of the price of the works included a claim for one of the stage payments, although the use of the phrase "all or nothing" might have suggested otherwise.

17. It is with the judge's characterisation of what happened on the following day that I respectfully part company with him. On the following morning, the Plaintiff's counsel attempted to clarify any misapprehension which his use of the phrase "all or nothing" might have created. Unfortunately, the language which he used may have added to any confusion which existed in the minds of the Defendants' advisers. What he told the judge was that, even if the judge were to find that it had been the Plaintiff who had been in repudiatory breach of the agreement, the Plaintiff would still be entitled to "an assessment of damages".

18. It is difficult to understand the basis on which the Plaintiff would be entitled to damages on the assumption that the Defendants had not been in breach of the agreement, and that is where the confusion arises. However, what the Plaintiff's counsel must be regarded as having intended to say was that the Plaintiff was entitled to be paid for the work it had done prior to any breach of the agreement on its part which the judge might find. There were only two bases on which the Plaintiff was entitled to be paid for that: either on the basis of a quantum meruit or on the basis that the Plaintiff's entitlement to stage payments had been triggered. Since the Plaintiff's counsel was still expressly disavowing a claim on the basis of a quantum meruit, he must have been intending to preserve the Plaintiff's right to claim one or more of the stage payments.

19. I recognise that a careful analysis, with the advantage of hindsight and the opportunity to re-visit what the Plaintiff's counsel had said by reading the transcript, shows what he was intending to say. But Mr Paul Carolan for the Plaintiff (who did not appear for the Plaintiff at the trial) accepted that his predecessor in the case had been less than clear. As a result of what the Plaintiff's counsel could reasonably have appeared to the Defendant's advisers to have been saying, I can see how they may still have thought that

(a) to the extent that the Plaintiff was claiming the sums due under the agreement, the claim was for the whole of the balance of the price of the works, and not for any of the stage payments (because its claim was "all or nothing"), and

(b) to the extent that the Plaintiff was claiming for the work which it had done, it was not claiming any of the stage payments (again because its claim was "all or nothing"), and the only basis on which it could put such a claim, namely on a quantum meruit, was a basis which could not be advanced in view of the absence of any evidence as to the value of the work done.

It is entirely possible that had the Defendants' advisers not been misled into thinking that (if indeed they were), they would have then advised the 1st Defendant to offer the interim payment of 40% to settle the action. Having said that, it is entirely possible that the Defendants' advisers would have advised the 1st Defendant very much earlier to offer the interim payment of 40% to settle the action if an alternative claim for such a payment had been pleaded.

20. Finally, the sum for which judgment was entered for the Plaintiff was well within the jurisdiction of the District Court. Although the judge was not expressly asked to order that the costs be taxed on the District Court scale, it was, I think, a matter which he should have addressed. I see no reason for not reflecting the fact that the judgment was for a relatively modest sum by varying the judge's order to provide that the costs be taxed on the District Court scale.

Interest

21. The Defendants' argument on interest stands or falls with its argument on the way the Plaintiff's case was pleaded. If the Plaintiff would only have been entitled to judgment for $95,520.00 on the basis of the Re-amended Statement of Claim, the time for interest to accrue on the judgment debt should be from the date of re-amendment, not from 6 May 1998 (which was when the interim payment of 40% was first requested). Since I have concluded that the Plaintiff would have been entitled to judgment for $95,520.00 before the re-amendment of the Amended Statement of Claim, that argument falls away.

22. But the argument would have been untenable anyway. Interest accrues on judgment debts in respect of claims in contract, not on the date on which proceedings are commenced or the case is first pleaded, but on the date when the Plaintiff's cause of action accrued. That applies whether the Plaintiff pleads his case correctly or not. Thus, the Plaintiff was entitled to interest on the judgment debt from 6 May 1998 when its cause of action for the interim payment of 40% accrued.

Conclusion

23. For these reasons, I would allow this appeal, and I would vary Deputy Judge Longley's order by ordering (a) that the 1st Defendant must pay to the Plaintiff 50% of its costs of the action and that the Defendants must pay to the Plaintiff 50% of its costs of the counterclaim, and (b) that the taxation of the Plaintiff's costs be on the District Court scale.

24. As for the costs of the appeal, the stance of the Defendants was that they should not have had to pay any of the Plaintiff's costs of the action, and that the Plaintiff should have had to pay their costs up to the date of the judgment. The Defendants have not achieved that, but the variations which I think should be made to the judge's order are not insignificant, and mean that the Defendants have achieved a significant measure of success on this appeal. That could not have been achieved if the appeal had not been brought. I would reflect that by making an order nisi that the Plaintiff must pay to the Defendants 60% of the Defendants' costs of the appeal to be taxed if not agreed.

Le Pichon JA:

25. I agree.

Rogers V-P:

26. I also agree. Accordingly, the appeal is allowed to the extent set out in the judgment of Keith JA, and there will be an order nisi in the terms set out in his judgment.