THE INCORPORATED OWNERS OF KIN YUEN MANSION v. CHAN TIN KWONG AND OTHERS

DCCJ 5673/2021

[2025] HKDC 1552

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5673 OF 2021

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BETWEEN

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DECISION ON COSTS

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Introduction

1.  On 3 April 2025 I delivered Judgment in this case (“the Judgment”), which is concerned with a building management dispute. The facts of the case have already been set out in the Judgment in detail, and I shall not repeat the same here, suffice for me to recapitulate here that by the Judgment, I found that the Plaintiff has succeeded in its claim insofar as it relates to the breaches of the identified provisions of the Deed of Mutual Covenants (“the DMC”) concerning the building in question. The breaches are concerned with the existence of illegal structures in a store room (found to have been converted from a part of a lift shaft in the subject building by the Plaintiff in around 1978) being occupied by the 1^st to the 3^rd Defendants.

2.  I also ordered that the 1^st to the 3^rd Defendants do forthwith allow the Plaintiff to reinstate the subject store room at the cost of the Plaintiff, including the adjoining partition wall and the floor slab therein, in accordance with the building plans approved by the Building Authority, and in compliance with a Building Order issued by the Building Authority on 20 September 2018 (“the Building Order”).

3.  In respect of the 1^st to the 3^rd Defendants’ counterclaim, although I allowed the same to the extent that I made a declaration that the Plaintiff’s title to the subject store room has been extinguished and the Plaintiff is debarred from recovering possession, and that the Defendants have acquired a possessory title over the store room, this would obviously be subject to the order I made above that the Defendants shall allow the Plaintiff to reinstate the said store room, in compliance with the Building Order mentioned above.

4.  By the Judgment, I also made an order nisi (“the costs order nisi”) that there be no order as to costs of this action, the reason being that neither party has fully succeeded in their respective cases.

The parties’ respective applications to vary the costs order nisi

5.  By a Summons dated 15 April 2025, the 1^st to the 3^rd Defendants now apply for a variation of the costs order nisi to the extent that:

(1) The costs of and incidental to proving the facts stated in the 1^st to the 3^rd Defendants’ Notice to Admit Facts dated 16 May 2022 be to them, with such costs to be assessed summarily; and

(2) The Plaintiff shall pay 60% of the 1^st to the 3^rd Defendants’ costs of this action, to be taxed if not agreed (“the Defendants’ Summons”).

6.  By a Summons dated 17 April 2025, the Plaintiff also seeks to vary the costs order nisi to the extent that the 1^st to the 3^rd Defendants shall pay 50% of the Plaintiff’s costs in this action[1], with Certificate for Counsel, to be taxed if not agreed (“the Plaintiff’s Summons”).

7.  On 8 May 2025, directions were made for both the Plaintiff’s Summons and the Defendants’ Summons to be dealt with together by way of paper disposal.

The applicable principles

8.  The applicable legal principles concerning costs are not in real dispute. No doubt, the starting point is that costs are in the discretion of the court. The court shall, subject to Order 62 of the Rules of the High Court, Cap.4A (“RHC”), order the costs to follow the event, except when it appears that in the circumstances of the case, some other order should be made as to the whole or part of the costs (see Order 62, rule 3(2), RHC).

9.  Further, Order 62, rule 5(1) provides that the court may take into account various matters including (i) the underlying objectives set out in Order 1A, rule 1, (ii) the conduct of the parties, and (iii) whether a party has succeeded on part of his case, even if not wholly successful. In relation to conduct of the parties that may be considered by the court, rule 5(2) further provides that such conduct would include:

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, has exaggerated his claim; and

(d) the parties’ conduct before, as well as during, the proceedings.

10.  Further, if a successful party raises issues or makes allegations improperly or unnecessarily, the court may not only deprive him of his costs, but may order him to pay part or the whole of the costs of the unsuccessful party: Order 62, rule 7(1); see also the decision of the Court of Final Appeal in Commissioner of Inland Revenue v HIT Finance Ltd (No.2) [2014] 4 HKLRD 412 at para.7, where it is said that a successful party may be deprived of his costs if he had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed.

11.  In any event, the question of who is the successful party is a matter of common sense and should be looked at in a realistic and commercially sensible way – see SNE Engineering Co Ltd v Hsin Chong Construction Company Ltd, HCA 1466/2012, 23 June 2015, Lok J at para.48. The court should also survey the “whole battlefield” of the action and the conduct of the parties (Friston on Costs, 4^th Ed., at para.6.18), and it would be wrong to confuse success on an issue with success in a general sense (Friston on Costs, at para.6.80).

The Plaintiff’s arguments

12.  The Plaintiff, being the incorporated owners of the building in question, contends that although it has not been successful in its claim for recovery of vacant possession of the subject store room, it is nevertheless successful in its claim to enforce the relevant provisions of the DMC for the removal of the illegal structures in the store room that is being occupied by the Defendants.

13.  The Plaintiff also says that the predominant matter or purpose of commencing this action is to enforce the DMC and to reinstate the store room, in compliance with the Building Order. Although the Defendants were successful in principle in their counterclaim based on adverse possession and acquiescence, the store room in question has to be reinstated in any event, and there is no evidence to support the Defendants’ contention that there may be any commercial benefit derived from the Judgment. As such, the Plaintiff says it has practically already achieved its main purpose in this action, namely to enforce the DMC.

14.  The Plaintiff contends that apparently, the Defendant’s counterclaim based on adverse possession is not solely for the purpose of seeking declarative relief of a possessory title, but is used as a defence to the enforcement claim raised by the Plaintiff by arguing that the conversion of the store room would render the relevant part of the lift shaft no longer part of the common parts of the building, and that once they can establish possessory title over the store room, they would separately deal with Building Authority on the issue of the existence of an illegal structure, so that the court needs not deal with this question. These arguments have already been dismissed by the court in the Judgment.

The Defendants’ arguments

15.  On the other hand, the Defendants place heavy reliance on the Notice to Admit Facts dated 16 May 2022, to which the Plaintiff had not responded, which the Defendants say has led to the need to prove the facts as contained therein. Such facts included the allegation that the Plaintiff was the one who had constructed the floor slab in the subject store room (as well as similar store rooms built on other floors) and converted the partition wall of the common corridor of the building adjoining the store room back in 1978, and that after completion of the works, the Plaintiff had invited the owners of the building to purchase those store rooms. The facts put forward in the Notice to Admit Facts also covered the allegations that the Plaintiff had all along had full notice of the owners who had been occupying the store room in question, but had never complained about such occupation until April 2020.

16.  The Defendants say that as a result of the non-admission by the Plaintiff of such facts, they had to call their witness and to produce documentary evidence, and also to cross-examine the Plaintiff’s witness on the same at the trial, thereby incurring unnecessary costs since such facts have eventually been established. The Defendants say such costs should be borne by the Plaintiff, relying on Kwan Chui Kwok Ying and Another v Tao Wai Chun & Others [2006] HKCFI 522 at para.102.

17.  The Defendants also rely on the fact that they have succeeded in establishing their case eventually on adverse possession and acquiescence. On the other hand, they say the Plaintiff has only marginally succeeded in its claim as no injunction as sought was granted, nor was vacant possession ordered by the court against them. Further, the Plaintiff has only indicated to the court that it would bear the costs of reinstating the store room at the beginning of the trial. In any event, the Plaintiff has not succeeded in obtaining the entirety of the various reliefs claimed.

18.  Given the above circumstances, the Defendants say they should be considered as the overall winner in this action. In particular, they say that the declaration in relation to adverse possession has been the most important issue in this action. With regard to partial success of a party, the Defendants referred to Unity Profit Limited v Lee Ching Lam [2025] HKCFI 1563 where Winnie Tsui J varied her costs order nisi that there be no order as to costs, to one such that the plaintiff should pay 40% of the defendant’s costs of the action. The learned Judge said at paras.12 to 14:

“12. Where a plaintiff is successful in his action and a defendant is successful in his counterclaim and where the action and the counterclaim raise distinct issues, applying the above starting point, it is prima facie appropriate to make separate costs orders for the action and the counterclaim such that the plaintiff should have costs of his action and the defendant costs of his counterclaim. Where a party is not wholly successful in his claim, a discount may be applied to reflect the extent of his success in the order which is made in his favour.

13. Alternatively, instead of making separate costs orders which would involve separate assessments of costs attributable to the successful parts of the action and the counterclaim, the court may make a single overall costs order in respect of both the action and the counterclaim in favour of one party, subject to a percentage deduction: see Chung Pui Tong v Qian Zhen [2024] HKCA 814 at paras 11 and 20, citing Ho Lai King v Kwok Fung Ying [2020] HKCA 763 at para 14.

14. Whether to make separate orders or a single overall order will depend on the circumstances of each case. Ultimately, it will depend on the court’s assessment of which option is more likely to do justice to the case. There is no hard and fast rule…”

19.  Based on the above arguments, the Defendants say that they should at least recover part of the costs in defending the Plaintiff’s claims, and the entire costs of running the counterclaim. Overall, they invite the court to order the Plaintiff to pay 60% of the costs of the action.

Discussion

20.  As a starting point, as I have stated in para.95 of the Judgment, the costs order nisi was made on the basis that neither party has fully succeeded in their respective cases.

21.  Although the Plaintiff has not succeeded in recovering vacant possession of the subject store room, it did succeed in its claim in seeking to enforce the DMC and to comply with the Building Order, against which the Defendants have sought to defend based on arguments that have been rejected by the court (including the arguments that by the conversion of the relevant part of the lift shaft into the store room, the latter has ceased to be a common part of the building, and that the Defendants would directly deal with the Building Authority when it issues a fresh Building Order against them concerning the store room, after they have succeeded in the counterclaim). In this regard, I accept that the predominant purpose of the Plaintiff’s claim is to facilitate the reinstatement of the store room in compliance with the Building Order. This is obvious as the Building Order was directed at the Plaintiff. There is also apparently no alternative purpose of the Plaintiff in seeking to obtain possession of the store room. If the Plaintiff does not proceed to reinstate the same, obviously further action will be taken by the Building Authority in this regard.

22.  On the other hand, whilst it is true that time has been spent on establishing the Defendants’ case that the store room was installed by or at the instance of the Plaintiff back in 1978, and their case on adverse possession, it remains the fact that the arguments put forward by them concerning the enforcement claim of the Plaintiff has been rejected by the court.

23.  Further, I accept the Plaintiff’s submission that concerning the allegation that the store room was constructed by the Plaintiff, the Defendants have been put to strict proof as the Plaintiff (or as I take it, its current members) has no personal knowledge of the circumstances. I do not think that in the circumstances of this case, there should be a separate costs order that the Plaintiff shall bear the costs of the Defendants in proving this part of their case. In any event, as the Plaintiff has pointed out, this part of the Defendants’ case have little bearing on the result, as the Defendants are successful in acquiescence and adverse possession on the basis of their own occupation of the store room since 1991.

24.  It is also true that by its pleaded claim, the Plaintiff sought an order that the Defendants shall reinstate the store room at their own costs and expenses, whereas the Plaintiff has only indicated to the court at the commencement of the trial that it is amenable to bearing the costs of the reinstatement. However, despite the force of this part of the argument, I have serious doubt as to whether such an indication, if given earlier, could have avoided the trial. The Defendants have all along been running their case on the basis that they have possessory title to the store room, and that they were not required to succumb to the enforcement claim by the Plaintiff. In any event, as it turned out, the trial had proceeded to the end despite such indication by the Plaintiff at the commencement of the trial.

25.  It may be appropriate in this case, given the circumstances and bearing in mind the above legal principles, that the court make an order that the Plaintiff shall be entitled to 50% of the costs of its claim, and the Defendants to 50% of the costs of their counterclaim, to be taxed if not agreed (I do not think summary assessment of the costs of the trial would be appropriate in this case). However, as I have pointed out in the Judgment, regrettably the parties have not been able to agree on a more pragmatic way to resolve their differences.

26.  It will not likely be beneficial to the parties if they are required to proceed to a taxation of their respective costs, only to find at the end of the proceedings that their respective costs may be cancelled out at large in all likelihood. This is especially so as the Plaintiff is catering for the benefit of the incorporated owners.

27.  In the circumstances, after considering the whole “battlefield”, and taking into account the above matters and the parties’ submissions, I am of the view that the costs order nisi as it stands should be the fairest one to make in light of my findings that led to the Judgment.

Decision and Order

28.  I therefore make an order that the costs order nisi as it stands be made absolute. The Plaintiff’s Summons and the Defendants’ Summons are respectively dismissed, with no order as to costs.

29.  In any event, I would like to thank counsel for their helpful assistance.