THE GRANDE PROPERTIES MANAGEMENT LTD v. SIEGONT LTD

DCCJ21516&21517/2001
(Consolidated)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 21516 OF 2001

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(Consolidated pursuant to the Order of
His Honour Judge Lok dated 10th January 2003)

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DECISION

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Introduction

1. On 13th October 2003, I handed down Judgment after the trial of the consolidated action. In this Decision, I adopt the abbreviations used in the Judgment. P succeeded in the consolidated action. In the Judgment I have made an order nisi that D1 and D2 shall pay P's costs of the consolidated action and their respective counterclaims (including all costs reserved) to be taxed if not agreed. P now applies to vary the order nisi to provide for P's costs to be paid on a solicitor and own client basis or alternatively, on an indemnity basis. D1 and D2 oppose such application.

2. Costs are a matter of discretion of the court. Order 62 rule 28(2) of the Rules of the District Court provides inter alia that "subject to the provision of this rule, costs to which this rule applies shall be taxed on a party and party basis ...". It is therefore implicit in the order nisi that P's costs were to be taxed in accordance with the party and party basis. The issue is now whether a more generous basis is justified.

Solicitor and own client costs

3. Mr Chan, counsel for P, referred to clause 15 of the DMC which provides inter alia as follows :

"All amounts which may be or become payable by any owner for the time being of any undivided share in the said premises, and the said building in accordance with the provisions of this Deed and all other expenses incurred in or in connection with recovering or attempting to recover the same shall be recoverable by civil action at the suit of the Manager (and the claim in any such action may include a claim for the legal costs thereof in a solicitor-and-client basis) and the defaulting owner shall in addition to the amount claimed in such action be liable for such costs and the Manager shall conclusively be deemed to be acting as the agent or agents for and on behalf of all the owners other than the defaulting owner and no owner sued under the provisions of this Deed shall raise or be entitled to raise any defence for want of authority or take objection to the right of the Plaintiff to sue or to recover such amounts as may be found to be due."

4. Mr Chan relied on such provision in the DMC as being part of the obligations binding on D1 and D2. Mr Chow submitted that as costs are in the discretion of the court, such discretion should not be fettered by a private contractual obligation between the parties.

5. I find that P fails on a claim for costs on a solicitor and own client basis. Although Mr Chan relies on Clause 15 of the DMC, it has not been pleaded and indeed there is no specific prayer of relief for costs on a solicitor and own client basis in reliance of the DMC. Further, the District Court, unlike the High Court, has no jurisdiction to grant costs on a solicitor and own client basis. In the course of submissions, Mr Chan acknowledged the latter point and he therefore relied on his alternative submission that costs should be awarded to P on an indemnity basis.

Indemnity costs

6. Mr Chan's main argument for seeking an award of indemnity costs was D1 and D2's conduct of the proceedings as set out in paragraph 167 of my Judgment. In that paragraph of my Judgment I noted that D1 and D2's pleadings left much to be desired. They put in issue a number of matters which were abandoned at the close of the trial. However, much trial time and pre-trial effort (eg discovery and witness statements) had been spent on those matters. Further, new issues were raised in closing submissions. I was therefore of the view that had D1 and D2 been successful in their defence and counterclaims (which they were not), I would have ordered them to pay P two-thirds of the costs of the proceedings with certificate for counsel.

7. For D1 and D2, it is argued that in coming to the order nisi on costs, I had taken into account all relevant factors and there is no good ground for varying the same. D1 and D2's conduct of the proceedings fell far short of the standard set out in the authorities for attracting a more onerous basis for payment of costs. In respect of the arguments that were abandoned by D1 and D2 at the trial, Mr Chow submitted that it would be self-defeating for them to raise at the trial the same points decided upon in the LT Judgment. Further, some arguments were abandoned at closing submissions because of the turn of Leung's evidence. Leung was the sole witness for D1 and D2.

8. This case therefore calls into question the circumstances under which an indemnity costs award may properly be made.

The law

9. Mr Chan did not refer me to any legal authority. Mr Chow referred me to the principles succinctly summarised in Hong Kong Civil Procedure 2002 Vol.1, para.62/App/12 at p.896. However, I find it useful to set out the principles as drawn from the key authorities on this subject.

10. It is trite that costs are in the discretion of the court. Order 62 rule 28(3) of the Rules of the District Court empowers the court to award costs on a common fund or indemnity basis "in any case in which it thinks fit to do so".

11. Godfrey JA in Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570, 574 said that "on a taxation of costs on the standard basis there is to be allowed a reasonable amount in respect of all costs reasonably incurred and any doubts as to whether the costs were reasonably incurred or were reasonable in amount are to be resolved in favour of the paying party (that is equivalent to the common fund basis here). On a taxation on the indemnity basis all costs are to be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the taxing master may have as to whether the costs were reasonably received or were reasonable in amount are to be resolved in favour of the receiving party ......".

12. It was also made clear in Sung Foo Kee Ltd's case (supra) that Hong Kong judges have a discretionary power to direct taxation of the receiving party's costs on the basis they consider to be appropriate to the case, including the indemnity basis. Such discretion is not limited by indications in the previous cases as to the sort of special or unusual features which could justify an award of indemnity costs.

13. Godfrey JA (supra at p.575) also referred to Disney v Plummer, 16th November 1987 where the English Court of Appeal refused to accept the proposition by counsel that indemnity costs were appropriate if there was some deception or underhand conduct on the part of the losing party, but not if litigation was merely fought bitterly or even unreasonably. He also referred to Millet J's judgment in Macmillan Inc v Bishopgate Investment Trust Ltd, 10th December 1993 (unreported) which said as follows :

"The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win. Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be 'appropriate'."

14. The above principles were endorsed by the Court of Appeal in Choy Yee Chun (The representative of the estate of Chan Pui Yan) v Bond Star Development Ltd [1997] HKLRD 1327, 1334-6. It was held that the principles for the award of an order of costs on an indemnity basis applied equally to those who not only instituted proceedings but who defended them. If a plaintiff had been forced to institute proceedings by a defendant whose conduct had not been hostile in the normal litigation sense, but oppressive and with base ulterior motive, and if the pursuit of a defence constituted conduct which was part of an oppressive game plan, then invocation of the power to award costs on an indemnity basis might well be justified.

15. In M & R Marking Systems, Inc v Tse Mee Shuen Wilson also known as Wilson Tse and ors HCA1598/2001, Chu J (unreported, 20th December 2001), the defendant took out a first summons to set aside a default judgment but failed. He made a repeated application with a second summons by setting out the particulars of irregularity and failed again. In dismissing his appeal, Chu J refused to allow costs of the second summons to be taxed on an indemnity basis although she found the second summons to be an abuse of process. The learned judge could not conclude on the evidence available that it was a deliberate abuse of the court process.

16. There are numerous other authorities which confirmed the above principles and I need not recite them here. However, I find it useful to re-emphasise the underlying principle in any award of costs, namely, that an award of costs, even on an indemnity basis, is to afford an indemnity to the party incurring them and not to punish the paying party. Indeed, the paying party is to be protected by having the costs taxed. This underlying principle is cogently set out in the recent judgment of Chu J in Society for Protection of Harbour Limited v Town Planning Board HCAL19/2003 (unreported, 5th December 2003) where the learned judge referred to Bramwell B's observations in Harold v Smith (1860) 55 H. & N. 381, 385 as follows :

"Costs as between party and party are given by the law as an indemnity to the person entitled to them; they are not imposed as a punishment on the party who pays them; nor given a bonus to the party who receives them. Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained."

17. Chu J went on the say that it was precisely for the indemnity principle, ie costs are not awarded as punishment, that the losing party is normally ordered to pay costs on the lower basis of party and party costs. But the court may visit an unsuccessful party with a more onerous costs order to mark the court's disapproval of the party's conduct in litigation. Even so, the court is still approaching the matter on the indemnity principle and, even on the indemnity basis, the receiving party will still only be indemnified as to costs actually incurred.

18. Chu J also referred to two English cases dealing with Part 36 offers under the English Civil Procedure Rules. The learned judge found the discussions on the nature of indemnity costs helpful. In Petrograde Inc v Texaco Ltd [2002] 1 WLR 957, 949, Lord Woolf MR referred to the non-penal nature of an award of indemnity costs and observed that the power to order indemnity costs was a means to achieve a fairer result for a claimant. He said :

"A claimant would be better off had he not become involved in court proceedings ... In the case of an individual proceedings necessarily involve inconvenience and frequently involve anxiety and distress. These are not taken into account when assessing costs on the normal basis. In the case of a corporation, corporation senior officials and other staff inevitably will be diverted from their normal duties as a consequence of the proceedings. The disruption this causes to a corporation is not recoverable under an order for costs. The power to order indemnity costs ... is a means of achieving a fairer result for a claimant ..."

This case was cited with approval in McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934.

19. After the hearing, Mr Chan submitted written submissions in support of his contention that there is a legal basis for ordering taxation on indemnity basis for a step or steps in (instead of the whole of) the proceedings. He referred to the general principles in Order 62 rules 2, 9, 12 and 28 of the Rules of the District Court and the guidance to be obtained from discussions on apportionment of costs in Hong Kong Civil Procedure 2002 (supra, at paras.62/9/11 and 62/8/12). However, a more useful reference can be found in the judgment of Lord Woolf MR in Petrograde Inc's case (supra at p.949) which stated that an award of indemnity costs need not be for the entire proceedings.

Analysis

20. With these principles in mind, I now turn to examine P's contentions. The facts leading to the trial and the reasons for my conclusions and findings have been set out in my Judgment. I will not repeat them here.

21. It is apparent from the Judgment that the action has been beset with problems with pleadings. As it eventually turned out, the disputed facts on which the defence and counterclaim arguments were run fell within a small compass. Much turned on the application of legal and statutory principles and propositions to the facts and on the interpretation of various documents, including the DMC.

22. For the pre-trial stage, I do not consider D1 and D2's conduct, to adopt the words of Chu J in M & R Marking Systems, Inc (supra), a deliberate abuse of the court process, or one that was conducted with an oppressive or base ulterior motive. It came across quite clearly when Leung gave evidence for D1 and D2 at the trial that he firmly and fervently believed that P was not entitled to claim against D1 and D2 for the sums in the 1st and 2nd Debit Notes. I have found his belief to be misconceived but I cannot agree that the conduct of D1 and D2's case suggested that they or Leung did not regard the contest with conviction or seriousness.

23. It is true that much pre-trial time and effort were unnecessarily spent (as it turned out). In my view and as explained in my Judgment, both parties contributed to this unfortunate state of affairs. D1 and D2's pleadings were indisputably loose in their drafting. But P not only did not attempt to tie down D1 and D1's general allegations in the pleadings with a request for particulars, P filed a substantial Reply and Defence to Counterclaim in answer. The waiver of particulars as explained in paragraph 15 of my Judgment left the door wide open for D1 and D2 to adduce specific evidence in support of general allegations and, indeed, P filed substantial and detailed witness statements in answer to such general allegations.

24. Mr Chan submitted that the omission to ask for particulars was a tactical move which P was entitled to adopt. Secondly, P refrained from asking for particulars in the hope or expectation that spurious arguments would die a natural death, thereby minimising or limiting costs, or shortening the proceedings. Thirdly, it was submitted that D1 and D2 failed to plead the necessary averments which is more fundamental than the lack of sufficient particulars of a pleaded averment.

25. I quite agree with Mr Chan that P was entitled to adopt the approach it did, but that did not mean that such conduct had no implications, particularly costs implications. The court is entitled to look at all the circumstances to determine where and how costs should fall. Although the function of particulars is not to take the place of necessary averments, it is trite that one of the key purposes of particulars is to limit and define the issues to be tried, discovery to be required and evidence to be led (see paragraph 14 of my Judgment). Particulars properly sought and answered have the effect of saving time and costs and with the current era on proper and efficient case management, all parties, including opposing parties, should approach civil litigation with a view to save unnecessary or unwarranted time and costs.

26. Further, if necessary averments of defence have not been pleaded, then there is no live issue in contest between the parties that calls for any substantive reply or evidence in answer. For matters which have been specifically pleaded by D1 and D2 or for general allegations of which there had been waiver of particulars, D1 and D2 were entitled to lead evidence on the same.

27. But even ignoring P's role in the pre-trial stage, looking at the conduct of D1 and D2 broadly in the context of the proceedings at the pre-trial stage, and having considered both counsel's submissions, I do not find it "appropriate" to order costs for that stage on an indemnity basis.

28. At the trial stage, Mr Chow (who also represented D1 and D2 at the trial) maintained the general defence allegations in the Defence and the more specific averments in the Counterclaim although a number of matters were abandoned at the close of the trial. Mr Chow sought to make two points in answer to P's present application.

29. First, Mr Chow submitted that he found that certain arguments could not be pursued at the trial because of the LT Judgment. He argued that to do otherwise would be self-defeating. It was the court who first raised with the parties the possibility of issue estoppel arising from the LT Judgment. Both Mr Chow and Mr Chan (who also appeared for P at the trial) required time to consider and address the court on this issue. Nevertheless, of the two potential issue estoppel points, Mr Chow in his opening submissions already abandoned the argument that P had no power under the DMC to proceed with the renovation works of the Building (paragraph 11 of the Judgment). The other argument that P had an ulterior motive in undertaking the renovation works was abandoned at Mr Chow's closing submissions after Mr Chan made his submissions on the matter of issue estoppel.

30. I am not persuaded by Mr Chow's submission. The LT Judgment was handed down on 2nd July 2003, more than 2 weeks before the trial in the present action. By that time, all issues had been joined, discovery completed and witness statements filed in the present proceedings. If there were any issues which D1 and D2 considered could not be pursued because of the LT Judgment, such matters would have been apparent by the commencement of the trial. In any event, the "ulterior motive" argument (see above paragraph) took only minimal trial time as it was largely canvassed in the witness statements. I do not consider the matters of the LT Judgment had a significant impact on the trial.

31. That still leaves a raft of issues as listed in paragraph 16 of the Judgment (save for the arguments that the renovation works were not authorised and were in breach of the Code) and the arguments in respect of the roof and the external walls which were abandoned by D1 and D2 at the close of the trial. Mr Chow next contended that some of the arguments were abandoned at the close of trial as a result of the turn of the evidence. I note that evidence was led by D1 and D2 in relation to, say, arguments on the external wall and roof and on the disclosure of information on the renovation works to the owners, and P's witnesses were cross-examined on the same. But due to the turn of the evidence, Mr Chow considered it proper to abandon these arguments. Whilst the usual costs order is for the losing party to pay costs on failed arguments, I do not consider it "appropriate" to visit a losing party with a draconian or onerous costs order because of failure of his contentions or because he adopted the sensible attitude of abandoning arguments which became bad in the course of trial.

32. Further, the abandoned arguments must also be viewed in the context of the whole of the trial. There were other issues which were pursued by D1 and D2 at the trial, such as whether there was any misrepresentation, whether the 1997 Notice was served, whether there was breach of the Code, whether there was any reliance on the alleged misrepresentation, whether any loss and damages arose from the alleged misrepresentation, whether the renovation works were authorised, etc, which had been pleaded and argued, and which ultimately failed. Again, whilst such failed arguments justified an adverse costs order against D1 and D2, I see no basis for imposing indemnity costs against D1 and D2 for contesting P's claims on such arguments.

33. D1 and D2 do not contest the order nisi. Looking at the matter as a whole, I see no reason to disturb the order nisi. I do not consider D1 and D2's conduct in prosecuting their case such as to constitute an affront to the court. I see no evidence of a deliberate abuse of the court process or bad faith that invites the court's disapproval with an award of indemnity costs. Although there had been "overloading" of evidence when considered in light of the ultimate contested issues, it is interesting to note that both counsel submitted to me in the course of the present application that such evidence was useful as background information to view the contested matters in the proper context. In light of the above analysis and looking at the conduct of D1 and D2 as a whole as well as bearing in mind counsel's submissions, I conclude that I should exercise my discretion in refusing P's application. I therefore order that the order nisi set out in my Judgment be made absolute.

34. In respect of the present application, I make an order nisi that P shall pay D1 and D2's costs of the application to be taxed if not agreed with certificate for counsel.