CHAN CHING KIT KATHERINE v. LAM SIK SHI AND ANOTHER

HCMP 2239/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2239 OF 2000

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DECISION ON COSTS

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1. I am dealing with an application to vary an order nisi as to costs and an application relating to the costs incurred in respect of the terms upon which an appointment of a receiver is made by the court. Both applications are made by the 2nd defendant.

2. On 24 June 2002, I handed down my judgment in these proceedings. I ruled against the plaintiff on her eligibility to seek relief for an order of sale against the 1st and 2nd defendants under the Partition Ordinance, Cap. 352. As I have ruled against the plaintiff on her locus standi to seek relief under the Ordinance, the question whether the court should have exercised its discretion to order a sale under the statute did not arise. Nevertheless I went on to consider if I should have exercised my discretion in the plaintiff's favour. I did so because the question of eligibility of the plaintiff to seek an order of sale under the Ordinance was not decided in previous cases. Also, a substantial amount of evidence has been filed on matters relating to the exercise of the discretion, on the premise that it was within the power of the court to order a sale of the property in question. I had heard submissions from counsel for the plaintiff, the 1st defendant and the 2nd defendant on the exercise of the discretion. I took the view that it would be desirable to rule on the question of discretion as well, in case I were wrong on the question of locus standi and any of the parties might wish to lodge an appeal against my decision. I found against the 1st and 2nd defendants on all the points they advanced regarding the exercise of the discretion.

3. The orders I made were set out in paragraphs 55 and 56 of my judgment. I made these orders nisi as to costs:

(1) The plaintiff is to pay 75% of the 2nd defendant's costs of these proceedings, as the 2nd defendant has succeeded on the question of jurisdiction to grant an order of sale, which was the most important issue to be determined and took up most of the time for the hearing, but he has not succeeded on the question of discretion which was argued and in respect of which evidence was filed.

(2) The plaintiff is to pay half of the 1st defendant's costs of these proceedings, as the 1st defendant has succeeded on the question of jurisdiction to grant an order of sale, but he has not succeeded on the question of discretion to order a sale and on the question of appointment of a receiver.

4. The 1st defendant has not challenged the order nisi as to costs. The 2nd defendant has applied to vary the order nisi against him. The 2nd defendant seeks an order that the plaintiff should pay all his costs.

5. Three grounds were put forward by the 2nd defendant's counsel why the order nisi should be varied in this way.

6. Firstly, the 2nd defendant's counsel, Mr Tommy Lo, referred to the case of the English Court of Appeal in Polydor Ltd v. Sandhu and British Airways Board (1980) 130 New Law Journal 18, in support of his submission that as the question of discretion "did not fall to be considered by the court" because I have ruled against the plaintiff on the question of jurisdiction, I should not take into account my ruling on the question of discretion in considering costs and should have awarded all the costs in favour of the 2nd defendant because he is the successful party.

7. Only a summary of the case of Polydor was reported in the New Law Journal and it is not a satisfactory report. I have attempted to search for the full report in Lexis but have not been able to find it. What happened in that case, according to New Law Journal, was that Polydor had obtained an Anton Piller order against Mrs Sandhu. British Airways refused permission to Polydor to go upon their premises to serve Mrs Sandhu with the order. Hence, Polydor joined British Airways as a defendant to their action seeking an order requiring British Airways to give appropriate facilities to enable Mrs Sandhu to be served upon their premises. Before the application for that order was heard, Polydor had managed to serve Mrs Sandhu elsewhere. At the hearing, no award of costs was made to British Airways and British Airways appealed on the issue of costs.

8. The English Court of Appeal allowed the appeal and ordered Polydor to pay British Airways costs of the application. The Court of Appeal found that the judge had decided the matter of costs on the basis of his conclusion that Polydor was entitled to the order they sought. It was held that "since the judge had made up his mind on an issue which did not fall to be decided before him, the judge had arrived at his decision on costs as a result of an error of principle in his approach to the matter" and the Court of Appeal was entitled to interfere with the exercise of his discretion. It was further reported that the Court of Appeal would "express no view as to whether [Polydor] should have succeeded on their application".

9. Without the full report, I find it difficult to understand why the English Court of Appeal had awarded the costs of the application in favour of British Airways. This would appear not to be on the basis that Polydor should never have brought the application against British Airways, because the Court of Appeal would "express no view as to whether [Polydor] should have succeeded on their application". Were costs awarded to British Airways on the basis that the application had been withdrawn or not proceeded with? Even if the application were withdrawn because subsequent events had made it unnecessary to proceed with it, there is no inflexible rule that costs should be awarded against the party making the application. And in the court below, did the judge hear submissions as to whether it was proper for Polydor to have made the application in the first place? All these matters are not apparent from the case summary in the New Law Journal.

10. In the present case, the 2nd defendant had filed evidence on the question of the exercise of the court's discretion and made submissions on this. Mr Lo submitted it was reasonable and proper for the 2nd defendant to do so in order to have a "fall-back position", in case he should fail on the question of jurisdiction which was a point not previously decided. In those circumstances, I ought to make a ruling on the question of discretion notwithstanding my finding in the 2nd defendant's favour on the question of jurisdiction. As the question of discretion was a live issue in the application before me and was distinctly raised and argued by the 2nd defendant, and as it was proper for the court to make a ruling on this question in the circumstances of this case, I am unable to agree with the submission that the question of discretion was not an issue that did not fall to be considered by the court. I would distinguish the case of Polydor on this basis. In the further alternative, I would decline to follow this decision as it is not entirely clear from the case summary what really was the basis upon which the English Court of Appeal had awarded costs to British Airways.

11. Secondly, Mr Lo relied on the dicta of Atkin LJ in Ritter v. Godfrey [1920] 2 KB 47 at 60 to the effect that in the case of a "wholly successful defendant", the defendant must be awarded his costs unless there is evidence that the defendant (1) brought about the litigation; or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense; or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains. I have no quarrel with these principles but is the 2nd defendant a "wholly successful defendant"? In my view, he is not.

12. This brings me to the third ground relied on by Mr Lo for which he cited the decision of the English Court of Appeal in Re Elgindata Ltd (No. 2) [1992] 1 WLR 1207. It seems to me that his reliance on this decision is misplaced. For one thing, I did not order the 2nd defendant to pay any part of the plaintiff's costs, as the court below had done so in Re Elgindata. In the order nisi, I have merely ordered that the 2nd defendant should be deprived of part of his costs, as he has failed on another issue which was raised and argued. These orders are totally different. I refer to the judgment of Nourse LJ in Re Elgindata at 1214 A-C. They are the third and fourth principles stated in his judgment and the relevant extract reads as follows:

" (i) Costs are in the discretion of the court. (ii) They should follow the event except when it appears to the court that in the circumstances of the case some other order should be made. (iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his cost. (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs, but may order him to pay the whole or a part of the unsuccessful party's costs. Of these principles the first, second and fourth are expressly recognized or provided for by rules 2(4), 3(3) and 10 respectively. The third depends on well established practice. Moreover the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party's costs."

13. Thus, it would appear that a party may be deprived of part of his costs on an issue which he raised unsuccessfully is a "well established practice". In Re Elgindata, the English Court of Appeal set aside the order in which the successful party was required to pay part of the costs of the unsuccessful party. As for the order in which the successful party was deprived of part of his costs, the Court of Appeal had merely varied the proportion of the costs of which he should be deprived.

14. I was also referred by Miss Jennifer Tsui, who appeared for the plaintiff, to the dicta of Lord Woolf MR in AEI Ltd v. Phonographic Performance Ltd [1999] 1 WLR 1507 at 1523 in which he noted the practice in England, even before new provisions were made in this respect in the Civil Procedure Rules which came into force in April 1999, was that the courts had been adopting a more robust approach and were "more ready to make separate orders which reflect the outcome of different issues", to encourage litigants to be more selective as to the points they took and to discourage them to leave no stone unturned and thereby increasing the costs of litigation if they were more or less assured they could recover all their costs provided they were successful overall. At 1523H, Lord Woolf stated that the "well established practice" on which Nourse LJ based his third principle in Re Elgindata is "less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed".

15. For the above reasons, I see no merit in the third ground advanced by Mr Lo that the 2nd defendant should not be deprived of part of his costs as he was unsuccessful on the question of discretion. It was a considered decision of the 2nd defendant and his legal advisers whether to raise the question of discretion and make submissions why the discretion should not be exercised in the plaintiff's favour, notwithstanding that some of the economic grounds advanced by the 2nd defendant would have more relevance to the 1st defendant's case than the 2nd defendant. I see no valid reason for distinguishing the economic, sentimental and miscellaneous grounds advanced by the 2nd defendant in support of his contention that the discretion should not be exercised in the plaintiff's favour.

16. Having taken a firm stance on this issue and having failed on all the grounds advanced on this issue, there is no reason why costs should not follow the event in this instance so as to deprive the 2nd defendant of that part of his costs attributable to the ventilation of this issue.

17. On the question of apportionment being 25% of the 2nd defendant's costs which the plaintiff is not required to pay, I have taken into account the time spent on this issue in terms of the filing of evidence, the preparation involved and the submissions made. I am not persuaded that 25% is excessive or that I should only deprive the 2nd defendant of his costs incurred in the preparation of his affirmation dated 12 November 2001 but not in relation to the other evidence he has filed or other aspects of his costs incurred attributable to this issue.

18. I make an order affirming the order nisi as to costs against both the 1st defendant and the 2nd defendant.

19. As for the costs concerning the terms of the appointment of a receiver, the matter arose in this way. When I handed down the judgment on 24 June 2002, I made an order appointing a receiver by way of equitable execution to receive the 1st defendant's share of the rents and profits in respect of the property, the precise terms of which were to be finalized upon a draft to be submitted by the plaintiff. At that time, the plaintiff's solicitors had not submitted a draft order for that purpose.

20. On 16 July 2002, the plaintiff's solicitors made an ex parte application on affidavit exhibiting a copy of a draft order providing for the terms of appointment of a receiver by way of equitable execution and what he is empowered to do. Having considered the draft, I directed that the application should be made inter partes as this clearly affected the 1st defendant and the 2nd defendant. Thereafter, correspondence was exchanged between solicitors. The solicitors for the 1st defendant and the solicitors for the 2nd defendant have both proposed amendments. Eventually, an agreement was reached regarding the terms of appointment of the receiver except for the costs involved in this exercise. On 20 August 2002, I made an order on the revised draft order setting out the terms of appointment of the receiver and the powers he should have.

21. It was submitted by the 2nd defendant, in his application today, that the costs incurred by the 2nd defendant's solicitors in perusing the draft order and in proposing amendments thereto should be paid by the plaintiff or by the plaintiff and the 1st defendant or out of the income attributable to the 1st defendant's half share of the property and that such costs should be paid to the 2nd defendant on an indemnity basis. I see no reason why the costs incurred by the 2nd defendant in this respect should not be regarded as part and parcel of the costs of the entire proceedings and I so order. The effect is that the 2nd defendant would receive 75% of his costs incurred in this respect, to be taxed on a party and party basis.

22. As for the costs of today, I order that costs should follow the event. The 2nd defendant is to pay the plaintiff's costs of both applications, to be taxed if not agreed.