VICTOR CHIU v. CHARTER VIEW DEVELOPMENT LTD

HCSA 30/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 30 OF 2007

(ON APPEAL FROM Small Claims Tribunal Claim

No. 80302 OF 2005)

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J U D G M E N T

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1.  This is an appeal by a defendant against the orders of an adjudicator of the Small Claims Tribunal, Miss Lo Kit Yee, Katherine.  Miss Lo made an award in $7,909 in favour of the claimant’s claim on 16 January 2007.  She also ordered and assessed the costs of the claim at $135,000 in favour of the claimant on the same day.  The defendant applied for review of her decision.  In the application for review, the defendant asked for the claim to be transferred to the Court of First Instance despite an award having been made by the adjudicator.  Miss Lo dismissed the application on 9 May 2007 and ordered and assessed the costs of the application at $10,000 in favour of the claimant on the same day.  The defendant now appeals against the dismissal of the application for review and the assessments of costs both on 16 January and 9 May 2007. 

The claim and the defence

2.  The claimant is a company in liquidation (“the Company”).  The claim was brought by one of the liquidators, Mr Chiu on its behalf to recover from the defendant moneys paid by it for the defendant.  The payments were made on behalf of the defendant to the government on account of rates and government rent for certain lands of the defendant in Yim Tin Tsai Island in Sai Kung and the defendant’s business registration fees and filing fees.

3.  The payments were identified by the liquidator, Mr Chiu from the Company’s records.  There were 16 of them and totalled $7,909.  There was no written agreement providing for such payments to be made by the Company for the defendant.  Mr Chiu wrote to the defendant on 16 December 2005 demanding payment of this sum.  The defendant did not respond to the demand letter at all.  Mr Chiu then lodged the claim on 29 December 2005 at the Small Claims Tribunal.  The grounds of the claim were very simple.  They were merely the descriptions and particulars of the 16 payments.

4.  The defendant admitted the payments in the defence but denied liability.  The defendant alleged that the Company and the defendant had agreed that the Company would settle the government rent and rates for which the defendant was primarily liable.  The agreement was allegedly made for the purpose of facilitating a land acquisition project in Yim Tin Tsai Island.  The defendant also alleged that Mr Chiu was aware of this agreement.  There was annexed to the defence another document setting out the history of the Yim Tin Tsai Project and the alleged agreement.  The history and the alleged agreement (as set out in chronological order in the skeleton argument of the defendant’s counsel) were as follows:

“(a)      Charter View is a real estate investment company formed in 1993 primarily for acquiring and amalgamating all private lots in Yim Tin Tsai Island, Sai Kung (the ‘Land’) after which application would be made to the government for land exchange to allow resort hotel development on the Land (the ‘Project’) [p. 100 of bundle, para. 12].  The initial investors of Charter View included David Tse, Tsang Wing Kei, Wilkie (‘Tsang’), and two Messrs Cheng.

(b)       Due to a dispute between the then shareholders of Charter View, Best Resources was set up in 1999 to carry on the Project in the name of 2 nominee directors of shareholders (the ‘Nominees’) [p. 101 of bundle, para. 16].

(c)       The two Messer Cheng backed out from Charter View pursuant to a share swap in May 2000 which was part of the settlement of the said shareholder dispute.  Afterwards, Charter View became dormant and the Project was carried on by Best Resources.  The two remaining directors and shareholders of Charter View (and Best Resources through the Nominees), were David Tse and Tsang, who owned Charter View via their respective corporate vehicles.  They agreed that all the expenses incurred by Charter View for the Project would be borne by Best Resources [pp. 101 of bundle, paras. 17-18] (the ‘Agreement’).

(d)       Five other investors (the ‘New Investors’) injected further capital into the Project pursuant to a joint venture agreement (the ‘JVA’) dated 22^nd November 2000 [pp. 150-159 of bundle].  Under the JVA, the New Investors, together with the two corporate vehicles of Tse and Tsang, would jointly own a BVI company known as AOL Ltd. for the purpose of holding Best Resources to carry on the Project.  See also the minutes of AOL shareholders dated 22^nd December 2003 [pp. 161-162].

(e)       Due to subsequent difficulties, including the outbreak of SARS in 2003, there were disputes among the New Investors, Tsang and Tse, and the New Investors sought to back out from the Project.  Best Resources was petitioned to be wound up on 3^rd August 2004.”

5.  In reply to the defence, Mr Chiu said that the agreement of the shareholders of AOL Ltd. (including the corporate vehicles of Tse and Tsang) (the “AOL Agreement”) did not contain any provision requiring the Company to pay the defendant’s expenses and did not even mention the name of the defendant.  There was also no documentary evidence confirming that the Company had to pay these expenses for the defendant.  Mr Chiu had also enquired with Mr Tsang who denied any agreement by the Company to pay such expenses for the defendant.

6.  The scope of the dispute may appear to be a narrow one.  However, the defendant filed a lengthy witness statement by Mr Tse dated 30 June 2006.  It provided the details of the history of the Yim Tin Tsai Project.  It in fact started from how Mr Tse came to know Mr Tsang.  It recounted how the Project had come into being; its progress and a shareholders dispute which gave rise to the setting up of the defendant.  The only part directly relevant to the claim was para. 18 where Mr Tse said:

“18.     Since the formation of the Best Resources in June 1999, the intention of both Tsang and I was to carry out further land amalgamation work for the YTT project through Best Resources.  After the above-mentioned share transfer, the Company became a dormant company with nil trade activities except the payment of the Business Registration fee, rates and ground rents of some of the building lots of the Company, and the filing fees of the Annual Return.  The then HSBC bank account of the Company was terminated by the Cheng’s group after the share transfer.  Given the Company had become a dormant company, Tsang and I agreed not to open a bank account for the Company.  Instead, Best Resources’ bank account would be used to pay for all the expenses incurred by the Company.  After all, all these Company’s expenses, i.e. the subject claim of $7,909, were incurred by the Company for the YTT project.”

7.  The witness statement then continued to describe the progress of the Project in detail.  It referred to the bringing in of the five new investors, the setting up of AOL and the Company, the number of shares and price for the shares in the Project, the acquisition of further lots for the project, the effect of SARS on the investors’ confidence on the Project, Tse’s falling out with Tsang over other matters, the board room battle for the control of the Company and the winding up of the Company.  It also dealt with the section 211 examinations of Tse and the nominee directors of the Company which were brought by the liquidator, Mr Chiu.  It accused Mr Chiu of being oppressive towards Mr Tse in general.  It also referred to the details about another claim brought by the Company in the tribunal against another company called Golden Rich Enterprises Limited of which Mr Tse was interested and the winding up of this company.  It accused Mr Chiu of acting in collaboration with Mr Tsang, the five investors and their solicitor.  It then alleged that the five investors were investing not just in the Company, but in the whole of the Yim Tin Tsai Project and that the $7,909 were paid for the Yim Tin Tsai Project.  It finally alleged that the purpose of this claim and the other proceedings was for those who were against Mr Tse to get control of the Yim Tin Tsai Project through the winding up of the Company, the defendant and Golden Rich to Tse’s exclusion.  There were also annexed to the statement about 100 pages of documents in support of the facts and matters mentioned in the statement.

8.  On 12 September 2006, the defendant submitted a further statement of Mr Tse to the tribunal.  It exhibited a lengthy counsel opinion saying that Mr Tsang should have committed perjury by using a false affidavit in some apparently unrelated legal proceedings.

The adjudicator’s resolution of the claim

9.  The claim was tried on 18 September 2006 and 15 and 16 January 2007.  Only the transcript for the hearing on 16 January 2007 was produced for this appeal.  Mr Chiu conducted the claim for the Company and Mr Tse conducted the defence for the defendant. 

10.  The hearing on 16 January 2007 started at 11:30 a.m. when Mr Tse was still cross-examining Mr Chiu.  The defence case started shortly thereafter.  Mr Tse gave evidence by himself and called one Ms Lam, a nominee director of the Company to give evidence.  The defence case concluded at 12:18 p.m.  The adjudicator gave her verbal decision in the afternoon with brief reasons.

11.  The adjudicator pointed out in her brief reasons that the beneficial shareholders of the Company were different from those of the defendant.  It was the intention of these shareholders who were the investing in AOL to procure the Company to purchase all the lands in Yim Tin Tsai.  The Company will then apply to the Government for surrender and regrant of the lots for the development of the Island.  This intent had in fact been set out neatly in the preamble of the AOL Agreement:

“WHEREAS the parties hereto have agreed to form a joint-venture company in the British Virgin Islands for the purpose of holding a wholly-owned subsidiary company incorporated in the Hong Kong Special Administrative Region (‘Hong Kong’) known as Best Resources Development Limited (‘BR’) and use BR as vehicle in acquiring land in Demarcation District nos. 246 and 250 in Sai Kung, the New Territories of Hong Kong which will be surrendered to the Government of the Hong Kong (‘the Government’) in exchange for grant of land for resort, hotel and recreation development or other development.”

12.  If the plan should make headway, the defendant would eventually assign its lots to the Company.  However, there was not even any negotiation of the price for the defendant’s lots or the payment thereof.  There was therefore conflict of interest between the Company and the defendant as the Company might not be willing to pay the price demanded by the defendant.  The adjudicator did not think that the Company and the defendant had a common interest.

13.  Mr Tsang also gave evidence at the tribunal.  He denied knowledge of the payments in question or of having authorized the same.  The financial statement of the Company, which had been distributed to its beneficial shareholders, also did not disclose that the Company had or had to make payments for another company.  The adjudicator therefore concluded that there was no effective reason for the Company to make payments for the defendant.  She then awarded $7,909 together with interest to the claimant.

The adjudicator’s assessment of Costs

14.  On the assessment of costs, the adjudicator said that both sides had been fighting the claim with vigour.  There were also many disputes at call-over hearings.  The number of appearances and the time spent were a lot more than that of other claims for $7,000 odd dollars.  The adjudicator acknowledged that the liquidator had to rely on documents and to make enquiry.  Therefore the Company should be allowed professional fees for such work.  The adjudicator was aware of the need to keep the costs to a reasonably low level.  At the same time, she was also aware that her costs order would affect the interest of the Company’s creditors.    

15.  The parties had appeared at the tribunal on eight sessions (with one full day counted as two sessions).  The parties agreed as a matter of fact that 24 hours had been spent on all the appearances.  Regarding the time for preparation, the liquidator initially put forward 100 hours whilst Mr Tse said that it should be 10 to 15 hours.  The adjudicator allowed 30 hours whilst bearing in mind the need of the liquidator to seek instructions after reading the documents.  She then applied an hourly rate of $2,500 despite the liquidator’s request for $4,000 per hour on the basis of 11 years post qualification practice as a solicitor.  The total costs were assessed at $135,000.

The defendant’s application for review

16.  The defendant then applied for review under section 27A of the Ordinance.  The defendant in the application asked for either a dismissal of the claim or alternatively the transfer of the claim to the Court of First Instance under section 7 of the Ordinance.

17.  Sections 7 and 27(1) and (2) are as follows:

“7.         The tribunal may at any stage of proceedings in the tribunal, either of its own motion or upon the application of any party, transfer the proceedings to the Board, the Labour Tribunal, the Lands Tribunal, the District Court or the Court of First Instance, whereupon the practice and procedure of the Board, the Labour Tribunal, the Lands Tribunal, the District Court or the Court of First Instance, as the case may be, shall apply.

27A. (1) Except where a party has filed an application for leave to appeal and does not agree to withdraw the application, an adjudicator may, within 14 days from the date of an award or order given or made by him, review the award or order and on such review may re-open and re-hear the claim wholly or in part and may call or hear fresh evidence and may confirm, vary or reverse his previous award or order.

(2) The power conferred by subsection (1) may be exercised –

(a) by an adjudicator of his own motion, by notice in the prescribed form to all parties;

(b) on the application of a party within 7 days, by notice in the prescribed form to all other parties.”

18.  Section 27A permits any party to apply for review at any time.  Despite an award having been made on the claim, section 7 also permits an application for transfer to be made at any time.  However, there seems to be a per-condition that no award should have been made or the award already made should have been set aside before the claim can be transferred.  Otherwise, there would be nothing to be the transferred.

19.  I also note the defendant’s allegation in the application for review that the adjudicator had made a wrong decision that the claim was suitable to be tried in the tribunal and not necessary to be transferred to the District Court or the Court of First Instance.  There was in fact no application for transfer until the application for review was made.  The question of transfer had also not been alluded to by the adjudicator.

20.  The defendant further alleged in the application that the adjudicator had erred in failing to give proper weight to Mr Tsang’s evidence, the credibility of Mr Tsang and the background of the relationship/dispute between Mr Tsang and the parties involved in the claim.  It also complained that the adjudicator did not give directions to the defendant and to guide the defendant to call various persons as witnesses.

21.  The defendant also complained that the costs as assessed were disproportionate to the claim.  It relied on the case of Real Honour Limited v Gamuse Co. Ltd, HCSA 29/1999 and argued that the costs should not have been assessed on an hourly basis.

The adjudicator’s decision of the application for review

22.  The adjudicator heard the application for review on 9 May 2007 and dismissed it on the same day.  She said in her brief reasons that the claim did not involve any complicated question of law; it was all a matter of fact.  The background leading to the dispute had also been emphasised to her by the parties repeatedly which resulted in substantial waste of resources.  Though the background was comparatively complicated, the dispute was all on facts.  She therefore did not see any reason for the claim to be transferred to the Court of First Instance.  She, having reviewed all the papers submitted by the defendant, took the view that Mr Tse was not unfamiliar with legal service.  He had obtained legal service on many instances.  When representing the defendant in the claim, Mr Tse had no difficulty in expressing himself both orally and in writing.  His oral presentation of the defendant’s case was also in line with his written presentation.  The adjudicator also refuted the defendant’s allegation that she had not considered the background leading to the dispute.

23.  Regarding costs, the adjudicator realized the need to keep the costs to the minimum.  She however, noted that the claimant was a liquidator who would charge the Company a professional fee.  She therefore did not alter her assessment of costs.

24.  In dismissing the application for review, the adjudicator also ordered the defendant to pay the claimant $10,000 costs as assessed on an hourly rate of $2,500 for four hours.

The adjudicator’s full reasons

25.  The adjudicator later elaborated on her brief reasons in her full reasons.  She also added more justifications for her award and her dismissal of the application for review.  Regarding her reasoning in her award, she also referred to clause 6(g) of the AOL Agreement which stipulated:

“DECISION

6.    ‘Notwithstanding the provisions of the Company’s (AOL’s) or BR’s (the Company’s) Articles of Association, each of the following matters of the Company (AOL) or BR (the Company) must be agreed by the shareholders of the Company (AOL) or BR (the Company) holding 70% or more of the issued capital of the Company (AOL) or BR (the Company) at general meetings of the Company (AOL) or BR (the Company): -

(g)  guaranteeing of the obligations of or the making of a loan, gift, surety or security by the Company or BR to any Corporation, partnership, joint venture, person or entity,”

She pointed out that there was no agreement made pursuant to this clause for the Company to pay the expenses of the defendant.

26.  For the dismissal of the application for review, the adjudicator further pointed out that Mr Tse was able to cite legal authority and conduct the application properly.  He could also reply to the points raised by the claimant and had no difficulty in cross-examining the claimant to make his point.  However, a lot of the materials adduced by the defendant were irrelevant to its case and the defendant had repeated its case of the Yim Tin Tsai Project over and over again.

The appeal against the dismissal of the application for transfer

27.  The defendant was unsatisfied with the dismissal of the application for review.  It appealed against the adjudicator’s dismissal and her two assessments of costs.

28.  On appeal, counsel for the defendant referred to the judgment of Godfrey JA in Ho Siu Mei v Solution House Ltd, HCSA No. 5 of 1997 for the test of when the tribunal should transfer a claim:

“Any decision to transfer a claim to the District Court must be supported by ‘some good and sufficient reason’; see for this proposition Chapman v. Thai Airways International Limited (an unreported decision of this court) where Bokhary, J.A., on 1 March 1995, said this :

‘… when a small claim is excluded from the very tribunal set up to deal with such claims, there has to be some good and sufficient reason for that course.’

What is a ‘good and sufficient reason’?

Section 7 (see above) is expressed in quite general terms.  The legislature has given no guidance as to what cases may or may not be suitable for such transfer; but I would venture to suggest that only where it is necessary in the interests of justice will an order for transfer be justified.  In a case where the issues are complicated, and where the case cannot be decided without the reception of independent expert evidence on both sides, it may be proper for the tribunal to come to the conclusion that there is good and sufficient reason for such a transfer.  But such cases will be rare indeed.”

29.  Counsel also referred to Leung Muk Lan v Country Club Publishing Co. Ltd, HCMP 4851 of 1998 at page 3 where Liu JA approved the transfer of a claim so that it could be consolidated with related claims in the Court of First Instance and the District Court.  The transfer avoided duplication of proceedings.

30.  Counsel also referred to M Beraha & Co. Ltd v Ng Wai Lun, CACV 256/2003 where the Court of Appeal said at para. 33:

“… One of the main purposes of establishing the Small Claims Tribunal and let litigants have resort to it is to let the parties resolve their disputes on matters within the monetary jurisdiction of the Tribunal without incurring the expenses of retaining legal services (which normally would involve a rather substantial amount) and at the same time would not have the effect of an unrepresented litigant having to fear the imbalance of power caused by a lawyer representing the other side while he himself does not have legal representation. …”

31.  Counsel thus submitted that the adjudicator had taken too narrow a view on her jurisdiction to transfer.  She should have considered the imbalance of advocacy skill between the liquidator, who was an experienced solicitor, and Mr Tse, who was a layman.  I note that Mr Tse has no legal qualification.  He is however an experienced chartered surveyor.  Back in 1981, he was already a senior partner of Messrs Levett & Bailey, Chartered Surveyors.  He has also been assisted by Messrs Tanner De Witt in the several litigation he was involved in.

32.  Counsel also referred to the adjudicator’s brief reasons given on 9 May 2007 and submitted that she had placed too much emphasis on the fact that the defendant’s application for transfer was only made after the claim had been allowed.

33.  Counsel however agreed that the first thing to consider is whether the adjudicator’s reasons for her award were problematic and the award should have been set-aside on the application for review.  If the award should be immune from attack at the application, then there was no need to consider the question of transfer.  It was only when the award should have been set-aside at the application that this court can proceed to consider the adjudicator’s dismissal of the application to transfer the claim.

34.  Counsel thus submitted that the adjudicator, in the course of trying the claim, should have concluded that there was something in the claim or its conduct that amounted to a good and sufficient reason warranting the transfer of the claim so that the defendant could be legally represented.  Counsel relied on the imbalance of advocacy skills between the parties as the good and sufficient reason for transfer.  Counsel submitted that the resolution of the claim in the tribunal was unfair to the defendant as it was fighting the battle with one arm tied at its back against a lawyer.

35.  Counsel also complained that Mr Tse had been subjected to a lengthy and protracted cross-examination.  Mr Tse also did not know how to lead evidence from the defendant’s witness, Ms Lam, who had also been subjected to lengthy cross-examination.

36.  Counsel also submitted that the defence was interwoven with the complicated factual background of the project which involved numerous investors at different times, various corporate vehicles controlled by them and substantial capital investment spanning over a period of over 10 years.

37.  Counsel thus submitted that the failure of the adjudicator to make a transfer order frustrated the purpose of the Small Claims Tribunal and the adjudicator erred in law in not transferring simply on the ground that there was no question of law involved.

Decision on the appeal for transfer

38.  This is one of those rare cases where a lawyer can appear at the Small Claims Tribunal against a lay person.  I agree that the imbalance of skill of advocacy may be a factor for consideration for transfer.  However that factor without more is not a good and sufficient reason to transfer the claim to another venue.  There are other factors like the presence of a difficult question or questions of law, the presence of complicated factual disputes and/or the need for independent expert evidence on both sides.  They can all affect the exercise of the discretion to transfer.

39.  I do not accept that whenever a lay person comes across a lawyer as a party on the other side at the tribunal, the claim should be transferred regardless of whether the claim is still suitable for resolution in the tribunal.  M Beraha was a case where a successful plaintiff in the District Court was only given costs “assessed” on a basis similar to the scale of the Small Claims Tribunal.  The statement of the Court of Appeal in that case as referred to above was to highlight the need to discourage claims to be brought in the District Court when they should be brought in the tribunal.  It does not mean that whenever there is a lawyer as one of the parties in a claim before the tribunal, the claim should be transferred to the Court of First Instance or the District Court.

40.  Regarding the defendant’s criticism that the adjudicator had placed too much emphasis on the fact that the application for transfer was only made after the claim had been decided, the lateness of the application cannot be disputed.  The fact that it was only made after the defeat of the defence certainly gave the defendant an appearance that it was trying to have two bites of the cherry.  I think the adjudicator was just making a casual observation in passing.  I do not think she was placing much emphasis on this.

41.  Having gone through the statements filed by both sides and their respective exhibits, the transcript of the last day of the trial of the claim and all the reasons of the adjudicator, I agree with the adjudicator that there was no question of law involved in the claim.  The background of the claim was also not complicated.  Counsel for the defendant has summarised it neatly in just a few paragraphs that I have quoted above.  The transcript also shows that Mr Tse had not been subjected to a lengthy or protracted cross-examination.  Judging from the number of pages recording the cross-examination, I think he was cross-examined for about 15 to 20 minutes only.  The defendant’s other witness, Ms Lam was also cross-examined very briefly as her cross-examination only covered three pages of the transcript.  In fact the whole of the defence case took less than 40 minutes (the defence case started at p. 331P of the bundle).  The defendant’s case had also been presented very clearly and elaborately in the defence documents and witness statements.

42.  Looking at the conduct of the defence as a whole, I do not think the presence of an experience solicitor on the opposite side had produced any prejudice to the defendant.  I do not think the adjudicator should have, in the course of trying the claim, transferred the claim to another venue.  She had not committed any error in not setting aside her award on the application for review.  She had also not made any error of law in not transferring the claim out of the tribunal.  Hence, there was no basis for the claim to be transferred elsewhere after it had already been adjudicated.  I dismiss this part of the appeal.

The appeal against the assessments of costs

43.  Counsel submitted that the costs as assessed were totally disproportionate to the amount of the claim.  Counsel further submitted that it was an error of law for the adjudicator to have applied the hourly rate of the liquidator in assessing the costs for the claimant.  Counsel referred to Real Honour Ltd v Gamuse Co. Ltd, HCSA No. 29/1999.  That was a case where two firms of solicitors were fighting against each other through their respective service companies over certain tenancy dispute.  The adjudicator, after disposing of an interlocutory application in that claim, assessed costs for the successful party on the hourly rate of the solicitor who appeared.  The matter went on appeal.  Deputy Judge Tong (as he then was) said at pp. 8 to 9:

“Reasons for allowing the appeal on costs

As to the point regarding the costs order, I would simply say that I agree with applicant’s counsel that the calculation of costs should not be on such an hourly basis.  Section 24(1)(a) and (b) of Small Claims Tribunal, Cap. 338, states that:

‘(1)  Subject to subsection (2), the tribunal may award to a party costs and expenses, which may include –

(a)   any reasonable expenses necessarily incurred and any loss of salary or wages suffered by that party; and

(b)   any reasonable sum paid to a witness for expenses necessarily incurred and any loss of salary or wages suffered by him,

in attending the hearing.’

I failed to see how this amount of cost could be described as ‘reasonable expenses necessarily incurred’ or ‘loss of salary or wages suffered’.  The purpose of the section was compensatory in nature with an emphasis on reasonableness.  The costs order is not meant to be punitive.  I considered it generally inappropriate to take the hourly charge of a solicitor to be the basis of assessing loss of salary or wages or expenses when he appears as a litigant in the Tribunal …”

44.  Counsel also referred to 怡居地產有限公司訴蔡路加 [2006] 2 HKLRD 761 by A Cheung J at paras. 46 to 47 which contained wisdom of a similar vein.  It was a case where a solicitor appeared as a witness for the successful party and that party was given the costs of the attendance at the hourly rate of the solicitor.

Decision on the appeal on the assessments of costs

45.  To apply the hourly rate in Real Honour amounted to treating the solicitor as a legal representative appearing for the service company rather than as a member/director/officer of the Company.  The hourly rate was for calculating the profit costs of the solicitors firm which employed the solicitor and not the costs or expenses of the service company.  It was therefore wrong to apply the hourly rate of the solicitor in that case.  To apply the hourly rate in 怡居地產also amounted to paying for the professional services of the firm which employed the solicitor rather than paying the solicitor the expenses necessarily incurred and any loss of salary suffered by him in attending the hearing.  That assessment of costs was obviously not in line with section 24(1) of the Ordinance.

46.  In the present case, the Company was in liquidation.  It could only have pursued the claim by the liquidator.  The liquidator was entitled to charge the Company at his hourly rate.  The costs and expenses of the Company in pursuing the claim are calculated at the liquidator’s hourly rate. 

47.  Counsel for the defendant argued that it was hardly unfair for the Company to bear the costs of the liquidator, as it was the decision of its creditors to pursue the claim whilst fully aware of the small amount recoverable.  If this argument were right, it could induce those who owe small debts to defunct companies not to honour their repayment obligations. 

48.  Counsel further argued that a successful defendant would only be awarded minimal costs, but if he had to face disproportionate legal costs in the event of losing, then it would deter the defendant with a genuine defence from contesting the claim.  However, I also do not think defunct companies should be deterred from pursuing genuine small claims. 

49.  I think the solution lies in the need of a reasonable attitude and a sense of proportion in the minds of all parties concern rather than the prohibition of the use of the liquidator’s hourly rate in assessing costs.  If the liquidator should use a sledgehammer to crack a nut or present the claim in an unnecessarily complicated fashion, the tribunal can always reflect its disapprobation in the assessment of costs when the liquidator succeeds in the claim.  If the defendant should adopt an elaborate defence tactics which is out of proportion to a small claim and lose it, the tribunal should also make sure that the Company would recoup its proper costs and expenses.

50.  In the present case, the liquidator initially made a simple demand.  The defendant did not even respond to it.  The liquidator then lodged a simple claim with the tribunal.  The case was only made complicated by the defendant when Mr Tse tried to provide the details of the background starting from his introduction to Mr Tsang.  He referred to a lot of details and produced a large number of documents which at the most could only be marginally relevant.  His conduct of the defence was totally out of proportion to the amount claimed.

51.  Since the defendant had not responded to the demand letter, there was no indication to the liquidator that he would encounter an elaborate defence.  Once the defendant has adopted the elaborate defence tactics, the liquidator had to go along.  His only alternative was to withdraw the claim and pay the costs to the defendant.  But that did not appear to be a reasonable option as the ground of defence was only a disputed verbal agreement.  If the costs and expenses incurred by the Company were disproportionate to the amount of the claim, it was because they had been escalated by the conduct of the defendant.  Since the Company has to pay the liquidator according to his hourly rate, it was reasonable for the adjudicator to have used such rate to assess costs for the Company.

52.  Counsel for the defendant also submitted that a junior solicitor/accountant could have been added to the team of liquidators to conduct the claim so that the hourly rate would be lower.  However, when the liquidator started the claim, there was no indication that he would have to incur so much time and effort to deal with the defence.  To appoint an additional liquidator would also have costs repercussions.  I do not see any merit in this argument either.

53.  This is an exceptional case where the hourly rate is justified as such rate was only used to assess the reasonable costs and expenses of the Company.  If not, the Company can turn out to be the loser despite winning the claim.  I do not think the adjudicator has committed any error of law in applying the hourly rate.

54.  The appeal on costs only focused on the use of the hourly rate in the assessment of costs.  There is no dispute on the number of hours adopted for the assessment.  For the above reasons, I also dismiss this part of the appeal. 

Stay of execution of the adjudicator’s costs orders

55.  Despite my dismissal of the appeal, I have to stay the execution of the adjudicator’s costs orders.  The reason being that the costs payable by the Company to the liquidator is subject to taxation (see Re Peregrine Investments Holdings & Others [1998] 2 HKLRD 670).  The amount of costs as may be allowed by taxation to the liquidator may or may not be the same as those assessed by the adjudicator.  If the taxed costs should be more than the assessed costs, then the Company will have to bear the shortfall.  If the taxed costs should be below the assessed costs, then the assessed costs would be more than the costs and expenses incurred by the Company.  In that event, the assessed costs should be reduced so that it would be the same as the taxed costs possibly with the addition of the costs for taxation.  I therefore stay the execution of the adjudicator’s two costs orders pending the taxation of the liquidator’s costs.

Costs

56.  I also order the defendant to pay the claimant 85% of the costs of this appeal.  I make a 15% discount to reflect my decision to the stay the execution of the costs orders.  Though I initiated the stay, it was prompted by the defendant’s argument that the assessed costs may exceed the liquidator’s taxed costs.

57.  I also direct the parties to approach the listing officer within the next 30 days to fix a 30 minutes appointment before me for gross sum taxation.  The claimant should furnish the defendant a bill of costs for such taxation no less than 14 days before the hearing.