CHAN WAI KIT v. LAI KWOK LEUNG

DCCJ 5320/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5320 OF 2009

____________

D E C I S I O N

1.  Chan, the Plaintiff, claimed against Lai, the Defendant, for breach of contractual undertaking and fiduciary duty in the real property investment in question. He claimed for declaration, damages and account.

2.  On 2 March 2011, I handed down the judgment after trial.  I considered the claim for declaration of trust unnecessary.  I found Lai to have been in breach of his fiduciary duty but awarded only nominal damages to Chan.  I also gave an order for an account to be taken of Lai’s own contribution towards the purchase and maintenance of the property in question as well as the rental income received immediately prior to the sale of the trust property in question; and an order for payment upon taking of the account, if any.  For such purpose, application for directions shall be made within 30 days

3.  As to costs, I made a nisi order that Lai pays Chan’s costs of the action (including any costs reserved) to be taxed, if not agreed, with certificate for counsel.  The parties had 14 days to apply to vary the costs order.

4.  By summons dated 14 March 2011, Lai applies for variation of the costs order to the effect that:

(1) he shall have the costs of this action (and the present application);

(2) alternatively, he shall have costs of this action incurred after 12 April 2010, being the latest date on which a sanctioned offer dated 15 March 2010 could have been accepted without leave of the court (and the costs of the present application); or

(3) alternatively, there shall be no order as to costs of this action (and the costs of the present application).

Discussion

5.  Costs is a matter of the discretion of the court: O.62, r.2(4) of the Rules of the District Court.  Costs shall follow the event except when it appears to the court that in the circumstances of the case some other order should be made as to the whole or any part of the costs: O.62, r.3(2).

6.  O.62, r.5 contains the following provisions:

“(1) The court in exercising of its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account-

(aa) the underlying objectives set out in Order 1A, rule 1;

……

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) the conduct of the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(g) any admissible offer to settle made by a party, which is drawn to the court’s attention.

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes-

(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, exaggerated his claim; and

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

Whether Chan was the successful party

7.  It is argued on behalf of Lai that Chan should not be considered as successful in his claim. Reference is made to para.62/2/6 of the Hong Kong Civil Procedure 2011, Vol.1 which says:

“…… where plaintiffs in action for breach of contract recover only nominal damages and do not establish anything which is of the least value to them, they are not to be regarded as successful plaintiffs, and the court will normally treat the defendants as having succeeded and awarded the defendants the costs of action, whether or not the defendants have at any stage made a payment into court of nominal damages (Anglo-Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394……”

8.  Contrary to what was submitted, the claim for declaration of trust was not dismissed as such.  It was simply unnecessary, as the trust position was a common ground.  The major dispute was whether Lai was in breach by selling the property in question at the price without the consent of Chan.

9.  Insofar as the claim on contract is concerned, whilst Lai failed in his challenge against the validity and binding effect of the 1997 undertakings; Chan failed in his claim on this basis as a matter of construction of the terms of the undertakings.

10.  Insofar as the claim for breach of trust is concerned, Chan succeeded on liability; but fails to prove his claim for substantial damages on the basis of the alleged value difference.  Nominal damages were awarded.  Chan succeeded in his claim for an account.

11.  In the circumstances, whilst Chan was not wholly successful, it cannot be said that Chan has failed to establish or obtained anything which is of value apart from the nominal damages.

Lai’s offers to settle

12.  Reference is made to the ‘without prejudice’ offer to settle the case made by Lai through his solicitors on 21 January 2010.  Besides reiterating his defence, Lai proposed to effectively surrender to Chan his own share of the net proceeds of sale of the property in question in the sum of HK$50,033.20 in full and final settlement of the matter.  This was rejected by Chan.

13.  In view of O.62, r.5(1)(d) above, such offer may not be taken into account, as at the time it was made, Lai could have protected his position as to costs by means of actual sanctioned payment or sanctioned offer pursuant to O.22.  Indeed Lai did subsequently make another offer by way of letter dated 15 March 2010 from his solicitors.  The parties are ad idem that that was in the form of a sanctioned offer.

14.  O.22, r.23 provides that:

“(1) This rule applies where a plaintiff-

(a) fails to obtain a judgment better than the sanctioned payment; or

(b) fails to obtain a judgment that is more advantageous than a defendant’s sanctioned offer.

……

(2) The Court may by order disallow all or part of any interest otherwise payable under section 49 of the Ordinance on the whole or part of any sum of money awarded to the plaintiff for some or all of the period after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.

(3) The Court may order the plaintiff to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.

(4) The Court may also order that the defendant is entitled to-

(a) his costs on the indemnity basis after the latest date on which the plaintiff could have accepted the payment or offer without requiring the leave of the Court; and

(b) interest on the costs referred to in paragraph (3) or subparagraph (a) at a rate not exceeding 10% above judgment rate.

(5) Where this rule applies, the Court shall make the orders referred to in paragraphs (2), (3) and (4) unless it considers it unjust to do so.

……”

15.  The pre-requisite of the application of O.22, r.23 is set out in sub-rule (1).  The question therefore is whether Chan failed to obtain a judgment that is more advantageous than Lai’s sanctioned offer.

16.  The terms of the sanctioned offer dated 15 March 2010 were that Chan discontinued the action by filing a notice of discontinuance; and each party bearing his own costs of the whole proceedings including the costs of negotiation and approval of settlement.  That was to be full and final satisfaction of all the claims that either party might have against each other.  Chan was given 28 days to accept the offer, i.e., by 12 April 2010.

17.  Again much emphasis was placed on the fact that Chan was awarded with nominal damages.  But considering all those he managed to obtain from the court after trial, I do not agree that they were less advantageous than the sanctioned offer, which was nothing more than asking Chan to drop the claim with no order as to costs.  The terms of the sanctioned offer were actually less favourable than the previous ‘without prejudice’ offer of payment by Lai to settle the dispute.

18.  During submissions, Mr Kong seemed to suggest that there may be room for considering the extent to which the sanctioned offer has been beaten.  He borrowed assistance from the English case of Carver v BAA plc [2008] 3 All ER 911 and the local case of Lau Chi Keung v Wong Wai Kei & Anor, DCPI 1846/2008 (22 June 2010).

19.  I have indeed studied the de minimus argument put forward and the above cases cited by Mr Kong in the other case of Tsang Chiu Tung v 陳創成經營成記水喉渠務工程 & Anor, DCEC 713/2009 (24 January 2011) (in particular, paras.17 to 23).  It suffices for me to say that the de minimus argument, even if accepted in principle, has no application in the context of comparing the judgment and the terms of the sanctioned offer in the present case.  Nor do I find in the present case the kind of special circumstances like those in Lau Chi Keung that caused the learned Deputy Judge there to depart from the usual rule as to costs.

Conduct of the parties

20.  What remains to be considered is whether the parties, in particular Chan, conducted themselves as such that Chan should be deprived of his costs wholly or partly.  Matters including those set out in O.62, r.5(2) should be taken into account.

21.  The general rule that costs shall follow the event does not cease to apply simply because the successful party has raised issues or made allegations on which he fails; but where that has caused a significant increase in the length or costs of the proceedings, he may be deprived of the whole or part of his costs: see Re Elgindata Ltd (No.2) [1993] 1 All ER 232 (at 237f) cited by Mr Tsui.  I referred to the same principle in Tsang Chiu Tung (above) (at para.40).

22.  The claim for declaration of trust was unnecessary; and no time and costs has been wasted on the proof of it.  Both the claims in contract and breach of fiduciary duty were based on the sale of the property by Lai at the price without the specific consent of Chan.  That was the major dispute which was resolved in favour of Chan.

23.  The dispute as to the validity and binding effect of the contractual undertakings raised by Lai was resolved against him.  Chan failed his claim on this basis mainly as matter of construction of the terms of the undertaking.  Relative to the time and costs spent on resolving the factual dispute raised by Lai, those spent on the construction of the terms of the undertaking could only be less.

24.  Chan succeeded in his claim for breach of fiduciary duty on Lai’s part.  Nominal damages were awarded because of lack of evidence to prove the value difference of the property.  There is no question of an exaggerated claim on that basis.  Chan succeeded in obtaining an order for an account of all the rental income received and expenses in respect of the property for the entire period prior to the sale.  For the purpose of the argument on his behalf, Lai seems to have downplayed the significance of that.

25.  Considering the conduct of the case including the 2-day trial, I do not find that the aspects in which Chan failed in the present case have caused wastage of significant amount of time and costs.

26.  Much was said about Chan’s refusal to mediate.  In considering the reasonableness of such stance, one has to take into account the circumstances prevailing then and after.  That includes what were put by the parties on the table for the mediation.  The fact was that those proposed by Lai since the sanctioned offer in March 2010 had not changed.  Chan made clear in the mediation certificate dated June 2010 his view that the chance of reaching settlement through further negotiation by way of mediation would be slim.  That was not an unreasonable observation then.

Order

27.  The application is dismissed.  The costs order nisi is made absolute.  Lai shall pay Chan’s costs occasioned by this application to be taxed, if not agreed, with certificate for counsel.