HO LAI KING v. KWOK FUNG YING AND ANOTHER

CACV 108/2019

[2020] HKCA 763

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 108 OF 2019

(ON APPEAL FROM HCA NO 305 OF 2014)

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DECISION ON COSTS

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Hon G Lam J (giving the decision of the Court):

1.  In our judgment handed down on 31 July 2020 allowing the appeal and entering judgment for the defendants on the counterclaim,[1] we directed the parties to make written submissions on the question of the costs below. This is our decision on that question based on the submissions received. The same defined terms as used in our judgment are adopted below.

2.  By his decision on costs dated 4 November 2019,[2] the judge affirmed the costs order nisi in his judgment and gave the plaintiff the costs of the action as well as the counterclaim.  Obviously, this result cannot stand given the outcome of the appeal.

3.  The defendants contend in the written submissions of Mr Pun SC and Mr Yip that the plaintiff should only be entitled to the costs of her claims for the two declarations on which she succeeded and that, subject to this, the defendants should have the costs of the entire proceedings, including costs reserved. Instead of making cross-orders, they contend that it would be fair overall to order the plaintiff to pay 80% of the defendants’ costs below on a party and party basis, to be taxed if not agreed.

4.  The position of the plaintiff, as submitted by Mr Cheung, is that the plaintiff should have 80% of the costs, and the defendants 20%.  It appears that the rationale is as follows: the plaintiff gets 50% of the costs of the entire proceedings, representing the costs of the action; as to the other 50%, accounted for by the counterclaim, the plaintiff gets three-fifths (30%) and the defendants two-fifths (20%), for the reason that the defendants have failed in many of the challenges mounted in their counterclaim and only succeeded on the Oral Agreement issue. The plaintiff also contends that as an alternative, this court may remit the question of costs to the trial judge.

5.  The action was brought in February 2014.  After an amendment in January 2016 to remove a claim for nuisance (the costs of and occasioned by the amendments were awarded to the defendants in any event), the plaintiff claimed only declarations in the action, which have been divided and referred to in the judge’s judgment as follows:

(1)  Declaration 1: that the plaintiff is the sole beneficiary of the Property and the estate of the late Kwok Chun in respect of his Hong Kong assets;

(2)  Declaration 2: that the defendants are not entitled to the Property and the estate of the late Kwok Chun in respect of his Hong Kong assets;

(3)  Declaration 3: that the 1^st defendant is not entitled to any share or any part of the compensation money obtained by the plaintiff from the Mainland authorities; and

(4)  Declaration 4: that the 2^nd defendant is not entitled to the alleged authorisation from the plaintiff and HK$50,000 for expenses incurred for the negotiations on compensation.

6.  In the Amended Defence and Counterclaim, the defendants’ case was as follows:

(1)  They admitted the plaintiff obtained a grant of probate of Kwok Chun’s will, but put the plaintiff to proof that the will reflected the testamentary intentions of Kwok Chun.[3]

(2)  Kwok Chun’s will did not apply to his estate in the Mainland.  Under the succession laws of the Mainland, the 1^st defendant was entitled to a one-third interest in the Property.[4]

(3)  In response to the plaintiff’s reliance on the Declaration of Relinquishment, the defendants aver that the plaintiff represented to them that under PRC inheritance law, the Property should jointly vest in the plaintiff, Kwok Siu Po and the 1^st defendant even though the plaintiff was the sole beneficiary under the will, and that it was for convenience in the context of the resumption that the Property was to be held in the sole name of the plaintiff.  In reliance on such representations, the 1^st defendant signed the Declaration of Relinquishment.[5]

(4)  The defendants aver they entered into the Oral Agreement with the plaintiff which they did a series of acts to perform.[6]  The 2^nd defendant incurred expenses in the sum of HK$102,400 in carrying out the Oral Agreement.[7]

(5)  The plaintiff breached the Oral Agreement in that without the knowledge of the defendants, she accepted the sum of RMB3 million as compensation which was substantially below the amount of RMB5,407,452 that the Mainland authorities would be willing to offer pursuant to regulations promulgated in around December 2012.[8]  The 1^st defendant suffered loss and damage as a result.

(6)  By way of relief, the defendants counterclaimed for an order that the plaintiff account for the resumption compensation and damages to be assessed.

7.  In light of the result of the appeal, in terms of the outcome of the action, the plaintiff succeeded in obtaining Declarations 1 and 2, but failed to obtain Declarations 3 and 4.  The defendants succeeded in obtaining judgment for a sum of RMB1.5 million, but the 2^nd defendant did not obtain any award for reimbursement of his expenses.

8.  Focusing on the counterclaim first, it is clear in our view that the defendants have prevailed.  It is true that the 2^nd defendant did not in the end obtain an order for reimbursement in the relatively small sum of HK$102,400.  However, first, the defendants had actually succeeded in proving the acts they carried out in performance of the Oral Agreement.[9] Those acts were relevant, inter alia, to the issues of whether the Oral Agreement was binding and whether the defendants had performed it, issues on which they succeeded.  It has not been shown that much separate and additional costs had been incurred below in relation to the quantum of expenses associated with those acts.  Secondly, the claim for reimbursement did not fail for lack of merits.  In the absence of a finding below on the amount incurred, the 2^nd defendant agreed in the appeal hearing to waive his claim only to avoid the case having to be remitted to the judge for such a finding to be made.  Thirdly, since any reimbursement had to be set off against the amount of compensation before it was divided in accordance with the Oral Agreement, the net amount given up by the defendants was only HK$51,200 which paled into insignificance when compared to the judgment they obtained.

9.  Mr Cheung points to the fact that the defendants’ case was that the proper amount of resumption compensation should be RMB5,407,452 under the applicable regulations in the Mainland and that by accepting RMB3 million the plaintiff had caused loss to the 1^st defendant.  However, there was no expert evidence adduced and the defendants simply included around 30 pages of PRC rules and regulations in the trial bundles for the purposes of that allegation.  The judge had little difficulty in rejecting that part of the counterclaim.[10] It does not seem to us to be an allegation that had caused a significant increase in the length or cost of the proceedings, such as to justify an order depriving the defendants of part of their costs of the counterclaim in accordance with the principles flowing from the case of In re Elgindata Ltd (No 2) [1992] 1 WLR 1207.

10.  It follows in our view that, based on the general starting point in RHC Order 62 rule 3(2) that costs should follow the event, the defendants should in principle be entitled to the costs of the counterclaim.

11.  As to the plaintiff’s action, the plaintiff succeeded in obtaining Declarations 1 and 2, but failed on Declarations 3 and 4. 

12.  The claim for Declarations 3 and 4 was the obverse of the defendants’ counterclaim.  It might be said, technically, in relation to Declaration 4, that the 2^nd defendant had failed to prove his entitlement to HK$50,000 or any other sum because there was no finding on the amount spent.  Nevertheless, given that the Oral Agreement was established, the plaintiff could not obtain a declaration that the 2^nd defendant had received no authorisation from her.  The plaintiff has clearly failed on the substantive issues underlying these two declarations and the counterclaim. 

13.  In these circumstances, we accept the defendants’ submission the proceedings below may be broadly divided into two parts:

(1)  the defendants’ counterclaim and that part of the action which relates to Declarations 3 and 4 and which is the obverse of the counterclaim; and

(2)  the claims for Declarations 1 and 2 in the action. 

14.  Effectively, the defendants have succeeded on the first part whereas the plaintiff has succeeded on the second part.  It seems to us in principle appropriate that costs should follow the event in respect of these parts respectively, but that instead of cross-orders with separate assessments of the costs attributable to each part, there should be a single overall order of costs in favour of one party subject to a percentage reduction.

15.  Having reviewed the pleadings, witness statements, the documents available and the judgment below, in our view the issues relating to the Oral Agreement, including whether there was in fact an agreement, whether it was a legally binding agreement, and whether it had been performed by the parties, plainly represented the principal part of the litigation below. 

16.  On behalf of the defendants, Mr Pun SC and Mr Yip submit that there was no factual dispute in respect of the plaintiff’s entitlement to Kwok Chun’s estate and that the only dispute at trial was whether there was a genuine need for these declarations and whether as a matter of discretion of the court, the declarations should be made.  It seems to us that in this regard, the following matters are of note:

(1)  While this might be the defendants’ position when it came to the trial, it should not be overlooked that on the pleadings, they had put the plaintiff to proof that Kwok Chun’s will reflected his testamentary intentions.  It was further their pleaded case that the will did not apply to his assets in the Mainland and that, under PRC succession laws, the 1^st defendant was entitled to a one-third interest in the Property. 

(2)  Pursuant to expert evidence directions applied for by the defendants, a joint experts’ opinion dated 11 May 2017 was obtained which stated that the will had legal effect in Mainland and could be enforced there.[11]

(3)  In light of the joint experts’ opinion, the defendants appear to have backtracked somewhat on their position.  By their solicitors’ open letter dated 26 October 2017, the defendants indicated that the 1^st defendant’s claim was not founded on her entitlement to Kwok Chun’s estate in Hong Kong or the Property, and that they did not challenge the grant of probate.  However, the defendants did not clearly abandon any specified parts of their Amended Defence and Counterclaim or further amend their pleaded case; nor did they retract the paragraphs in the 1^st defendant’s witness statement made in March 2015 that suggested the will did not accurately reflect Kwok Chun’s testamentary intentions.

(4)  It was only at the commencement of the trial that the defendants, through counsel, indicated there was no relevant factual issue in relation to the plaintiff’s claims for Declarations 1 and 2.

17.  On the other hand we also reject Mr Cheung’s submission that the defendants’ primary aim was to challenge the plaintiff’s entitlement to the estate.  It may be noted that according to the list of assets filed by the plaintiff for probate purposes, there were only assets of HK$10,000 in cash and HK$4.93 in bank deposits in the estate.

18.  The defendants submit that the costs order herein should cover the costs reserved in Master Lai’s order dated 9 November 2016 in relation to the defendants’ application for leave to adduce expert evidence on Mainland law.  Mr Cheung does not make any contrary submissions.  Given that the costs incurred in relation to the plaintiff’s opposition to that application had already been separately awarded by the Master to the defendants, the reserved costs would appear to be insubstantial.  To avoid the need for further steps in the proceedings below in relation to such limited costs, we agree that these costs should be covered by our order herein.

19.  We note that Mr Cheung has in his written submissions relied on the abandoned claim for nuisance, alleging that the defendants had resorted to improper and oppressive acts to harass the plaintiff.  We reject these submissions.  The pleaded allegations had been deleted as long ago as in January 2016.  No finding has ever been made by any court on the allegations in question.  The costs of and occasioned by the plaintiff’s amendments had already been dealt with at the time.  There is no factual or legal basis for the plaintiff now to revisit that aspect of the case.  Mr Cheung has also referred to certain allegations in correspondence by the defendants about a family trust but they have never formed part of the defendants’ case in the action or counterclaim and are not, in our view, relevant for present purposes.

20.  We should also mention that both sides have referred to unsuccessful attempts before the trial to compromise their disputes. None of them however can be regarded as an offer that the other side has failed to beat by reference to the ultimate outcome as determined by the courts.  We do not think that these offers provide any useful basis for determining the question of costs.

21.  In all the circumstances, the dispute over the Oral Agreement seems to us plainly to be the major part of the litigation in terms of the time and costs spent.  Taking a broad-brush approach, we consider it fair to require the plaintiff to pay the defendants 50% of the costs of the proceedings below (including the costs reserved by Master Lai by order dated 9 November 2016), to be taxed if not agreed.  This is therefore the order we make.

22.  The costs of the submissions on costs are to be paid by the plaintiff to the defendants.