皇河實業有限公司 v. WAN CHIU YUEN AND ANOTHER

DCCJ 4448/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4448 OF 2011

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DECISION
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Introduction

1.  Before me are two applications for leave to appeal from both parties in respect of my judgment handed down on 20 April 2015 (the “Judgment”) and an application from the plaintiff to vary the costs order nisi which I had made in the Judgment.

2.  This is a water leakage claim transferred from the Small Claim Tribunal.  The parties are property owners of flats in Tower 1 (the “Building”) of Greenheight Villa (the “Estate”) at Shatin Heights Road, Tai Wai, Shatin, New Territories. 

3.  The plaintiff is and was at the material times owner of unit C at the first floor of the Building (“Flat 1C”). 

4.  The defendants are and were at the material times owners of unit C at the second floor of the Building (“Flat 2C”) and part of the roof immediately above Flat 2C (together “Ds’ Flat”).

5.  Flat 2C was located immediately above Flat 1C.

6.  The plaintiff claimed that in the early morning of 19 July 2009, there was serious water seepage from Ds’ Flat into Flat 1C (the “2009 Incident”) causing damage to the ceiling paper and wallpaper of Flat 1C.

7.  The plaintiff claimed that it had spent $18,000 on replacing ceiling paper and $46,700 on replacing wallpaper damaged in the 2009 Incident.  After the replacement, it was later found that there was further and frequent water seepage from Ds’ Flat into Flat 1C (the “Water Leakage”) causing damage to Flat 1C and rental loss to the plaintiff.

8.  The plaintiff claimed that because of the Water Leakage, the then tenant of Flat 1C (Miss Suen Wai Ling ie “PW1”) did not renew the tenancy after its expiration on 26 October 2010 and the plaintiff was unable to secure a new tenant until July 2013.  Thus suffering loss of rental for about 33 months at $18,000 per month.

9.  The plaintiff claimed that both the 2009 Incident and the Water Leakage were caused by the defendants’ negligence and/or nuisance.

10.  The plaintiff sought injunctive relief and damages against the defendants.

11.  In the Judgment, I found the defendants liable for the 2009 Incident and for the Water Leakage.  I found that the defendants were liable to pay $48,000 to the plaintiff as damages for the 2009 Incident and to pay $7,800 to the plaintiff as damages for the Water Leakage.  The total amount of damages payable by the defendants to the plaintiff was $55,800.  I disallowed the plaintiff’s claim for loss of rental.

12.  I also granted the injunctive relief sought by the plaintiff and ordered the defendants to carry out repair works to Flat 2C to stop further seepage of water from Flat 2C into Flat 1C.

13.  I made a costs order nisi that the defendants should pay 70% of the plaintiff’s costs incurred for the whole action including costs previously reserved with counsel certificate, to be taxed if not agreed (the “Costs Order Nisi”).

14.  Both parties seek leave to appeal against my different rulings in the Judgment pursuant to section 63A of the District Court Ordinance (Cap 336).  Section 63A(2) provides that:

“(2) Leave to appeal shall not be granted unless the judge, the master or the Court of Appeal hearing the application for leave is satisfied that ─

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.” 

15.  The threshold for granting leave to appeal is the “reasonable prospect of success” test or the “interests of justice” test. This is not disputed by the parties.  In SMSE v KL [2009] 4 HKLRD 125 at 129 Le Pichon JA stated at para 17 that:-

“Reasonable prospects of success involves the notion that the prospects of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable”.”

16.  Chu J (as she then was) stated in Wynn Resorts (Macau) SA v Mong Henry (unrep, HCA 192/2009, 10 August 2009) that: -

“19. To meet the “reasonable prospect of success” test, an applicant is required to show more than just an arguable case, but an appeal that has merits and ought to be heard, although he does not have to demonstrate that the appeal will probably succeed.”

The plaintiff’s leave to appeal application

17.  On 18 May 2015, the plaintiff applied by summons for leave to appeal.  The plaintiff seeks to appeal my decision of disallowing its claim for loss of rental.  On 24 August 2015, the plaintiff by a further summons sought to amend its proposed grounds of appeal.  At the hearing on 31 August 2015, I allowed the plaintiff’s amendment application.  The plaintiff’s grounds of appeal as set out in the amended draft notice of appeal are as follows: -

(1) I erred in law in failing to consider that the Water Leakage had substantial adverse impact on the rentability on the plaintiff’s property and rental losses are reasonably expected.  The opinions of the valuers on the rental value of Flat 1C should only be considered for the purpose of assessing the quantum of losses.  It was inappropriate for me to rely on the valuation reports to decide causation. (“P’s Ground 1”)

(2) I erred in law in putting excessive weight on the report of the defendants’ valuation expert (“Ds’ Valuer”), when such report was patently unacceptable. (“P’s Ground 2”)

(3) I erred in law in requiring the plaintiff to call the valuers to give oral evidence at the trial, when I had refused such application by the plaintiff at the pre-trial review. (“P’s Ground 3”)

(4) I erred in law in requiring the plaintiff to call the potential tenants to give evidence in support of the plaintiff’s claim for loss of rental income, when it was practically improbable for the plaintiff to do so.  I erred in reversing the burden of proving failure to mitigate loss. (“P’s Ground 4”)

(5) In deciding causation, I erred in law in putting excessive weight on the valuation reports on the market rental but failing to give proper consideration of the fact that the plaintiff had eventually rented the property to a tenant at the monthly rental of $20,000 in 2013 [wrongly stated as 2012 in the amended draft notice of appeal] and the fact that the valuation by the Rating and Valuation Department had a time lag. (“P’s Ground 5”)

(6) Notwithstanding that I had accepted that the failure of PW1 in renewing the tenancy was partly due to the residual problem caused by the 2009 Incident, I erred in law in not making an award for loss of rental income. (“P’s Ground 6”)

(7) When assessing the plaintiff’s loss of rental, I erred in failing to place sufficient weight on the valuation by the Rating and Valuation Department. (“P’s Ground 7”)

(8) In considering causation of loss of rental, I erred in failing to properly consider and/or give sufficient weight to the unchallenged evidence of the plaintiff’s witness (Miss Wong Yu Sin ie “PW4”) that Flat 1C was inspected by potential tenants but there was no offer made by the potential tenants. (“P’s Ground 8”)

(9) In considering causation of loss of rental, I erred in failing to properly consider that the conduct of the plaintiff was not unreasonable and/or that there was no evidence showing that had the plaintiff offer to rent Flat 1C at a lower rent, the property could be rented out. (“P’s Ground 9”)

18.  I shall deal with below each of the plaintiff’s aforesaid grounds of appeal.

P’s Ground 1

19.  Mr Leung, representing the plaintiff, submitted that I had found that there was water seepage to Flat 1C.  The water seepage would have adverse effect on the rentability of Flat 1C and one would expect that the rental would be significantly reduced from the normal rate to reflect such condition and defects of Flat 1C.

20.  I shall discuss this submission of Mr Leung further when I deal with P’s Grounds 4, 8 and 9 below. (See paras 69-70 and 76-77 below)  Suffice for me to point out at this juncture that the aforesaid submission of Mr Leung was inconsistent with the evidence adduced by the plaintiff.  The plaintiff’s evidence showed that the rent asked for by the plaintiff for Flat 1C after moving out of PW1 was higher than not only the rent paid by PW1, but also the market rents opined by the valuers of both parties and the rateable values of Flat 1C. (See para 280 of the Judgment)  

21.  Mr Leung contended that the opinions of the valuers were for the purpose of assessing quantum.  He submitted that the defendants could not rely on the valuation reports to argue on causation and I erred in relying on the valuation reports to make a finding on causation.

22.  Mr Leung also submitted that at the pre-trial review, the plaintiff had sought leave to call the valuation experts to give oral evidence but this was refused by me.  This is also P’s Ground 3.  I shall deal with this submission of Mr Leung below when I deal with P’s Ground 3. (See paras 45-51 below)

23.  On 28 September 2012, the court granted leave for the parties to adduce expert evidence on the market rental of Flat 1C from 27 October 2010 onwards.  The experts’ evidence was on the market rental of Flat 1C.  This was part of the evidence adduced by the parties at the trial. The trial was a trial of both liability and quantum.  The court should consider all evidence adduced by the parties in determining each and every issue before the court for determination.

24.  When the court dealt with the plaintiff’s claim for loss of rental, the court had to determine whether Flat 1C not being rented out for about 33 months was caused by the Water Leakage.  In determining this issue, the court was entitled and in fact duty bound to consider all evidence relevant to this issue adduced by the parties.    

25.  The expert valuers of the parties were to assist the court to determine the market rental of Flat 1C at the material times with their expert opinion evidence.  After the court determined the market rental of Flat 1C at the material times, it was a finding of fact.  The court had to take into account all its factual findings in determining the issue in dispute before the court.

26.  The plaintiff pleaded in paras 10 to 12 of the re-amended statement of claim that:

“10. As a result of the frequent water seepage [ie the Water Leakage] into the Plaintiff’s Unit [ie Flat 1C], the tenant [ie PW1] did not renew the tenancy, which expired on 26^th October 2010. Since then, the Plaintiff was unable to rent its unit out.

11. The Plaintiff avers that but for the negligence of the Defendants and/or nuisance caused to the Plaintiff or its tenants, the Plaintiff would have been able to rent its unit at, subject to valuer’s opinion, HK$18,000 per month from 27 October 2010.

12. The Plaintiff claim loss of rental income in the sum of HK$18,000 per month from 27^th October 2010 to a date when the Defendants have removed the seepage problem, or a date which this Honourable Court thinks appropriate.”

27.  The defendants in para 15 of the amended defence pleaded that:

“15. Paragraphs 10 to 12 [of the re-amended statement of claim] are denied. Further:

(1) It is specifically denied that the matters pleaded in paragraphs 10 and 12 were caused by the alleged water seepage [ie the Water Leakage], the existence of which is not admitted, and the Plaintiff is put to strict proof thereof.

(2) In any event, it is averred that even if the Plaintiff has suffered any loss of rental income (which is not admitted), it was due to its failure to mitigate its loss.”

28.  The first defendant (“D1”) in his witness statement dated 4 September 2012 stated that:

〝23. 無論如何，原告人並沒有採取積極有效或合理的方法盡力去減少其損失，例如以當時的市值租金或以較低的租金租出其單位，促使其單位租出。〞

29.  In paras 5 to 12 of D1’s supplemental witness statement dated 23 September 2013, D1 stated that one of the reasons for Flat 1C not being rented out was because the rent asked for by the plaintiff was too high.  D1 stated in paras 6, 8 and 12 of his supplemental witness statement that:

〝6. 原告人於該租約 [the tenancy agreement dated 10 December 2008 between the plaintiff and PW1] 期滿後要求以港幣25,000元將1C單位放租，租金升幅不但高達百份之六十六，而且與當時的市值租金比較為過高及非常不合理。〞

〝8. 因上述原因，本人認為原告人不能以港幣25,000元將1C單位成功出租，不足為奇。即使原告人聲稱其後將租金降低至每月港幣20,000元將1C單位放租，亦比當時的市值租金較高。… 〞

〝12. 其實，原告人並沒有採取有效或合理的方法盡力去減少其租金的損失。原告人不但沒有以當時的市值租金或以較低的租金租出其單位，促使其單位租出，反而要求比市值租金更高的租金出租其單位。…〞

30.  The cause for the plaintiff’s alleged loss of rental and whether the plaintiff had discharged its duty to mitigate were issues in dispute.  The defendants had raised theses issues in their pleading and evidence.  The market rental of Flat 1C at the material times was relevant not only to the quantum but also to both issues of causation and failure to mitigate.  Leave was granted for the parties to adduce expert evidence on market rent of Flat 1C at the material times.  Such evidence was admissible for determination of all the issues of causation, mitigation and quantum.  To determine these issues, the court had to consider all evidence relevant to the issues adduced by the parties.   

31.  An appeal relying on P’s Ground 1 does not have reasonable prospect of success and I do not see that the interests of justice require P’s Ground 1 to be put before the Court of Appeal for determination.  I refuse to grant leave to appeal on P’s Ground 1.

P’s Ground 2

32.  Mr Leung submitted that I erred in putting excessive weight on the valuation report of Ds’ Valuer.  He contended that the valuation report of Ds’ Valuer was fundamentally flawed for the following reasons:

(1) The comparables adopted by Ds’ Valuer were not information available to the open market and it was wrong in concept for Ds’ Valuer to rely on such information as comparables for determining the open market rental of Flat 1C.

(2) The valuation estimated by Ds’ Valuer was so much detached from the real market and, as such, should have been rejected.

(3) The market rent (inclusive of rates and management fees) for Flat 1C as on 27 September 2005 was $13,500, and that on 27 September 2006 was $14,000.  Starting from 27 October 2007, it was $15,600 (without car park).

(4) According to the Rating and Valuation Department the rateable value of Flat 1C had increased by about 12% from 27 October 2007 to 27 October 2010.  There was no reason why the real market for Flat 1C did not respond to that increase.

(5) Ds’ Valuer’s valuation of the market rental for Flat 1C as on 27 October 2010 was about 14% below the real market rental in 2007 and about 28% below the rental projected from the historical figures for Flat 1C.

(6) Ds’ Valuer’s valuation for Flat 1C as on 26 October 2012 was $15,900 (inclusive of rates and management fees and car park) which was almost the same as the real rental as on 27 October 2007 (without car park), ie $15,600.  The rateable value for Flat 1C had increased from $127,000 as on 27 October 2007 to $177,000 as on 26 October 2012 (about 39%).  Applying the same percentage increase, the market rental for Flat 1C as on 26 October 2012 should be around $21,684 (without car park).

(7) Ds’ Valuer’s valuation was patently unreliable and should not be relied on for any proper purpose.

(8) Ds’ Valuer should have made reference to the agreed historical rental for Flat 1C and applied a time adjustment factor which should be the most accurate method in estimating the rental value of Flat 1C.

(9) Three of the four comparables adopted by Ds’ Valuer were transactions occurred after 27 October 2010.

33.  I had dealt with the parties’ expert evidence on rental value of Flat 1C in paras 181 to 210 of the Judgment and I had dealt with the plaintiff’s loss of rental claim in paras 275 to 282 of the Judgment. I do not propose to repeat myself here.

34.  Mr Leung commented that the comparables adopted by Ds’ Valuer were not information available to the open market and the rental values of these four transactions had not influenced the open market.  He submitted that it was wrong in concept for Ds’ Valuer to rely on such information as “comparables” for determining the open market rental of Flat 1C.

35.  I do not quite follow this submission of Mr Leung on “open market”.  A transaction was a transaction in the market (ie a market transaction) irrespective of whether the transaction information was made available to the public.  A comparable is a market transaction in similar type of property, particulars of which after appropriate adjustments will provide referencing information assisting the expert to form his opinion on the market value (in our case the market rental value) of the property concerned.  It needs not be a transaction influencing the market.  A comparable is simply a transaction in the market.

36.  When Mr Leung criticized the valuation estimated by Ds’ Valuer as “so much detached from the real market”, he had in mind a “real market rental value” for Flat 1C.  If there was a “real market rental value” for Flat 1C, it would not be necessary for the parties to adduce expert evidence on market rental value of Flat 1C.

37.  Mr Leung calculated the “real market value” of Flat 1C as at 27 October 2010 at $17,472 using the rent paid by PW1 as on 27 October 2007 (ie $15,600) and the increase in rateable values of Flat 1C from 27 October 2007 to 27 October 2010 (ie about 12%).  Mr Leung contended that if the same percentage of increase was applied to estimate the market rental of Flat 1C as on 27 October 2010, it would have been $17,472 (without car park).

38.  With respect, I am of the view that Mr Leung had over-simplified the exercise of property valuation.  If the actual rent paid by PW1 was the “real market rent” for Flat 1C and the “real market rent” for Flat 1C could be ascertained by the formula proposed by Mr Leung, the rent paid by PW1 for Flat 1C would not have been increased from $13,500 as on 27 September 2005 to $14,000 as on 27 September 2006 when the rateable value of Flat 1C had remained unchanged from 1 April 2005 to 31 March 2007.

39.  In any event, the “real market rental” for Flat 1C “found” by Mr Leung using his above formula was $17,472 (inclusive of rates and management fees but without car park) as on 27 October 2010.  This does not assist the plaintiff.  The asking rent of the plaintiff for Flat 1C after moving out of PW1 on 26 October 2010 was $25,000.  Although the asking rent was inclusive of a car park, it was very much above the “real market rental” found by Mr Leung.

40.  Mr Leung proposed what he called “the most accurate method in estimating the rental value of the property” by adopting the historical rental for Flat 1C with a time adjustment factor. (See para 13(8) of Mr Leung’s submissions for leave to appeal)   Even the plaintiff’s valuer did not adopt this “most accurate method” proposed by Mr Leung in rendering his expert opinion on the market rental of Flat 1C.  As I had pointed out in para 210 of the Judgment, counsel was not expert on property valuation.

41.  Mr Leung on the one hand urged the court to refer to the historical rental of Flat 1C with time adjusting factor to ascertain the rental value of the property but on the other hand criticized Ds’ Valuer for adopting comparable transactions transacted after 27 October 2010. He submitted that because three of the four comparables adopted by Ds’ Valuer were transactions occurred after 27 October 2010, it was unfair to rely on Ds’ Valuer’s valuation and comment that the plaintiff’s asking rental was too high.

42.  In para 197 of the Judgment, I noted that Ds’ Valuer had made various adjustments to the comparables adopted and that the plaintiff’s valuer had not challenged that any of the adjustments made by Ds’ Valuer was unreasonable or inappropriate.  I do not see that there is a reasonable prospect of success for an appeal relying on the aforesaid contentions of Mr Leung.

43.  In fact, when I considered the expert evidence of the parties, I had taken into account the rateable values of Flat 1C at the material times. (See paras 200 to 208 of the Judgment)  When I considered the plaintiff’s loss of rental claim, I did not merely consider the valuation of Ds’ Valuer.  I also took into account the rateable values and even the valuation of the plaintiff’s valuer and the historical rent paid by PW1. (See paras 279 to 280 of the Judgment)

44.  In the premise, I see no reasonable prospect of success for an appeal relying on P’s Ground 2 or that it is in the interests of justice to put P’s Ground 2 before the Court of Appeal for determination.  I refuse to grant leave to appeal on P’s Ground 2.

P’s Ground 3

45.  Mr Leung submitted that it was the evidence of Ds’ Valuer that the comparable transactions were internal information.  It was Ds’ Valuer’s duty to produce the tenancy agreements and to provide sufficient evidence to satisfy the court that his opinion was sound.  In commenting that the plaintiff should call potential tenants (which were usually unknown to or unreachable by the plaintiff) to give oral evidence in support of the plaintiff’s claim that potential tenants did not enter into a tenancy agreement due to the water seepage, I appeared to have applied different standards on similar issues.

46.  In paras 198 and 199 of the Judgment, I discussed the criticism of the plaintiff’s counsel on the comparables adopted by Ds’ Valuer.  In para 199 of the Judgment, I stated that:

“If the plaintiff wished to challenge the genuineness of the comparables adopted by Ds’ Valuer, the plaintiff should have required Ds’ Valuer to attend the trial for cross-examination. To criticize Ds’ Valuer at his back and without allowing him a reasonable opportunity to respond is simply unfair to Ds’ Valuer. In the Joint Valuation, Ds’ Valuer confirmed that he had adopted all transactions along Shatin Heights Road as comparables in his valuation without prejudice. I do not accept the aforesaid criticism of the plaintiff’s counsel on Ds’ Valuer’s valuation.”

47.  In the Judgment, I did not require the plaintiff to call the valuers to give oral evidence at the trial.  I only pointed out that it was unfair for Mr Leung to challenge the genuineness of the comparables adopted by Ds’ Valuer at his back.

48.  At the second pre-trial review held on 17 October 2013, ie 4 days (including a weekend) before the commencement of the trial, the plaintiff applied to call the parties’ valuers to attend the trial for cross-examination.  The defendants’ counsel told the court that the defendants had not contacted Ds’ Valuer for attending the trial to be commenced on the following Monday.  I refused the plaintiff’s said application on the ground that it was a very late application.  Ds’ Valuer might not be available and the length of the trial set by the court was on the basis that both parties needed not call their valuers to give oral evidence at the trial.

49.  The direction for the parties’ valuers’ valuation to be adduced as evidence without calling the makers was made on 28 September 2012, ie more than one year before the trial.  The joint statement of the parties’ valuers was available in November 2012.  The plaintiff had ample time to appeal against the aforesaid direction.  The direction was made before the parties’ valuers prepared the joint statement.  If after the joint statement was made available, the plaintiff was of the view that there were matters requiring Ds’ Valuer to be cross-examined at the trial, the plaintiff still had ample time to seek further directions from the court.

50.  The plaintiff did not appeal against the aforesaid direction and did not seek further directions from the court until four days before the commencement of the trial.  No good reasons had been provided by the plaintiff to explain such delay in seeking a direction which would likely disturb the trial.  I accordingly refused the plaintiff’s aforesaid application.  The plaintiff also did not appeal against my aforesaid decision.  It is too late for the plaintiff to now contend that I had wrongly refused the plaintiff application to require the parties’ valuers to give oral evidence at the trial. 

51.  The fact that I disallowed the plaintiff’s application to require Ds’ Valuer to attend the trial for cross-examination did not mean that the plaintiff was then free to make unfair criticism against Ds’ Valuer at his back or that the court would accept such criticism. 

52.  I do not consider that the plaintiff has reasonable prospect of success in an appeal relying on P’s Ground 3 and I do not see that it is in the interests of justice to put P’s Ground 3 before the Court of Appeal for determination.  I also refuse to grant leave to appeal on P’s Ground 3.

P’s Grounds 4, 8 and 9

53.  Mr Leung in his written submissions for leave to appeal included his submissions on P’s Grounds 8 and 9 in his submissions on P’s Ground 4.  In such case, I shall deal with these three grounds of appeal together.

54.  Mr Leung submitted that I erred in requiring the plaintiff to call the potential tenants to give evidence in support of the fact that they did not rent the unit due to water seepage.  He contended that this had placed an extremely onerous burden on the plaintiff to prove its case or to disprove the defendant’s averment of failure to mitigate.  He further submitted that it was in any event improbable and unrealistic for the plaintiff to call these people to give evidence.  He said that such evidential burden seemed unprecedented.

55.  Mr Leung further submitted that there was no suggestion from the defendants that PW4 was telling lie in any aspect concerning the fact that potential tenants had inspected the unit and did not proceed with a tenancy.  He submitted that the fact that there were potential tenants inspecting the premises indicated that the asking rent was not too far from the market price.  The plaintiff had placed a banner at the entrance of the estate to attract potential tenants.  The plaintiff was very eager to rent out Flat 1C for income.

56.  Mr Leung contended that it was wrong to suggest that the plaintiff had failed to mitigate losses in any way.  The onus of proving failure to mitigate losses lied on the defendants.

57.  Mr Leung submitted that PW4’s evidence was that it was upon the real estate agent’s suggestion that she asked for $25,000 per month to rent out Flat 1C.  There was no reason for the real estate agent to suggest a level of rent which was unrealistic as estate agents relied on successful transactions for income.  It was also PW4’s evidence that the rental was negotiable and the asking rent had been reduced from $25,000 to $20,000 after six months.

58.  Mr Leung submitted that PW4’s evidence was that she had invited the estate agents to give evidence and the estate agents refused for the reason that they did not want to spend the time and trouble. He contended that it was unfair for the court to require the plaintiff to call the real estate agents to give evidence.

59.  Para 281 of the Judgment stated that:

“The evidence of potential tenants backing out because of the Water Leakage was only hearsay evidence from PW4. No evidence from those potential tenants had been adduced. Not even evidence from the handling estate agents had been adduced. I have to treat evidence from PW4 with caution for obvious reasons of her interest in this action. I agree with the defendant’s counsel that renting a unit depended on a lot of factors, to which only those potential tenants would have knowledge, and the court should not embark on a speculation without proper evidence. In the absence of supporting independent evidence, I am not prepared to accept PW4’s evidence as sufficient proof of the plaintiff’s claim for this head of loss. I am not satisfied that the plaintiff had proved on balance of probabilities that the Water Leakage had caused Flat 1C not being rent out for 33 months after PW1’s moving out. I am of the view that the aggressive asking rent set by the plaintiff was the main factor causing this long delay in renting out Flat 1C.”

60.  I did not disbelieve PW4’s evidence that there were inspections of Flat 1C by potential tenants but no offer was given by the potential tenants.  The court did not require the plaintiff to call a particular person to give evidence to support its claim.  It was for the party to decide how it would prove its case and who would be called as its witnesses to testify at the trial.  I only pointed out the facts that PW4’s evidence on Flat 1C not being rented out was because of the Water Leakage was not corroborated by evidence from parties without interest in the outcome of the case and that in this case both the potential tenants and the handling estate agents could provide independent direct evidence on this issue to the court.

61.  The Court of Appeal in Li Sau Keung v Maxcredit Engineering Ltd & Anor [2004] 1 HKC 434 referring to the judgment of Newton and Norris JJ in O’Donnell v Reichard [1975] VR 916 held that where a person without explanation failed to call as a witness a person who he might reasonably be expected to call, it was open to the court to infer that that person’s evidence would not have helped that party’s case.  If the court drew that inference, then it might properly take it into account against the party in question in deciding whether to accept any particular evidence, which had in fact been given, either for or against that party, and which related to a matter with respect to which the person not called as a witness could have spoken. 

62.  The plaintiff might not have the contacting details of the potential tenants but it would have contacting details of the handling estate agents.  The explanation of PW4 for the plaintiff not calling the estate agents to give evidence was not that the plaintiff did not have contacting details of the estate agents concerned but that the estate agents had refused her invitation to give evidence at the trial as they did not want to spend the time and trouble.  This was not a credible explanation as the plaintiff might issue subpoena to summons the estate agents to give evidence to the court.  In such circumstances, it is open to the court to infer that the estate agents’ evidence would not have helped the plaintiff’s case.

63.  The plaintiff’s pleaded case was that the Water Leakage had caused PW 1 not to renew the tenancy for Flat 1C and caused the plaintiff unable to rent out Flat 1C thereafter. (See para 10 of the re-amended statement of claim)  The plaintiff had proved that water had seeped from Flat 2C into Flat 1C and that Flat 1C was not rented out for about 33 months.  The defendants denied that the facts that PW1 did not renew the tenancy and Flat 1C not being rented out were caused by the Water Leakage. (See para 15(1) of the amended defence)  The defendants further pleaded that the plaintiff’s loss of rental was due to its failure to mitigate its loss. (See para 15(2) of the amended defence)

64.  The defendants had adduced expert evidence to show that the asking rent of the plaintiff was much higher than the market rent.  It was for the plaintiff to prove that its loss of rental was caused by the Water Leakage and to rebut the defendants’ evidence that the plaintiff’s loss of rental was caused by the plaintiff asking for a rent much higher than the market rent for Flat 1C.

65.  In para 6-06 of Phipson on Evidence (18^th ed) (2013) the learned editors stated the general rule for burden of proof in civil cases as follows:

“So far as the persuasive burden is concerned, the burden of proof lies upon the party who substantially asserts the affirmative of the issue. If, when all the evidence is adduced by all parties, the party who has this burden has not discharged it, the decision must be against him.”

66.  It is trite that the burden is on the claimant to prove causation of loss.  On the other hand, the burden is on the defendant to show that the claimant failed to mitigate his loss. (See para 6-08 of Phipson on Evidence)

67.  In McGregor on Damages (19^th ed) (2014), when the learned author considered the differences between contributory negligence, remoteness (ie causation) and mitigation, the learned author stated in para 6-013 that:

“Contributory negligence, remoteness, mitigation – it is submitted that this is the order in which they fall to be considered, so that if the case is one of contributory negligence the other two will generally not come into play, while if the matter is solved at the stage of remoteness then mitigation will never be in issue.”

68.  Contributory negligence did not concern us in this case.  However, before the defendants had to prove that the plaintiff had failed to mitigate, the plaintiff had to prove the causation between the Water Leakage and the delay in renting out Flat 1C.

69.  Mr Leung contended that the condition of Flat 1C as affected by the water seepage was prima facie evidence which would affect rentability.  The evidential burden of proof shifted to the defendants to show otherwise.

70.  I agree to Mr Leung’s contention that water seepage would affect the ability of a property being rented out at the market rent of a property without water seepage.  The defendants had not put forward a proposition that the Water Leakage did not affect the rentability of Flat 1C. The defendants only contended that in this case the delay in renting out of Flat 1C was not caused by the Water Leakage but by the plaintiff’s above the market asking rent.  The evidential burden of proof was still on the plaintiff to show causation.  The plaintiff proved the Water Leakage and proved Flat 1C not being rent out for 33 months, but failed to satisfy this court on causation.  I found that the plaintiff’s aggressive asking rent had broken the chain of causation. 

71.  In para 8-006 of McGregor on Damages (19^th ed) (2014), the learned author observed that:

“For the determination of whether a defendant’s wrongful conduct is a cause in fact of the damage to a claimant the test, which has almost universal acceptance, is the so-called “but for” test. The defendant’s wrongful conduct is a cause of the claimant’s harm if such harm would not have occurred without it; “but for” it. This is the threshold which claimants must cross if their claim for damages is going to get anywhere.”

72.  In this case, I found that the non-renewal of the tenancy for Flat 1C by PW1 was not caused by the Water Leakage. (See paras 275-276 of the Judgment)  The plaintiff had to find a new tenant for Flat 1C in any event after 26 October 2010.  My finding was that the plaintiff would in any event unable to secure a tenant for Flat 1C at the material times because of its aggressive asking rent.  The plaintiff failed to satisfy this court that “but for” the Water Leakage, notwithstanding its aggressive asking rent it would have found a new tenant after PW1 moved out.  I do not agree that I had reversed the burden of proof in this case.  I see no reasonable prospect of success of an appeal relying on P’s Ground 4.

73.  The defendants were in no position to challenge the evidence of PW4 on inspections of Flat 1C by potential tenants as the defendants were not present in those occasions.  However, the court is not bound to accept all the “unchallenged evidence” of PW4.

74.  When only one of the parties was able to give evidence on a particular matter at trial, it does not follow that the court must accept his/her oral evidence without further ado.  As pointed out by Chung J in Chiu Chi Tong v Lau Chong Sai & anor (unrep., HCA 765/2002, 11 May 2005, at para 28), when assessing the credibility of a witness on a matter which he had testified “regard may be had to a witness’s motive for deliberately not giving truthful testimony.  For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest.”  The court shall consider such evidence in the context of other evidence adduced before the court.

75.  I noted in the Judgment that PW4 had interest in the outcome of this case. (See para 72 of the Judgment)  I did not query that there were inspections of Flat 1C by potential tenants with no offer being made by them.  However, I had pointed out in para 281 of the Judgment that renting a unit depended on many factors.  The court had to consider all evidence adduced to determine whether the court would accept PW4’s evidence that the potential tenants did not offer to rent Flat 1C because of the Water Leakage.  After considering evidence adduced to this court on the market rent and the plaintiff’s asking rent, I did not accept PW4’s evidence in this respect, which was not supported by objective documents or independent third party evidence.  I found that the plaintiff had failed to prove this item of its loss.  I do not accept that the plaintiff has reasonable prospect of success for an appeal relying on P’s Ground 8.

76.  I did not query that the plaintiff had put Flat 1C on the market and had tried to rent out the property.  However, I do not agree that the plaintiff had acted reasonably in mitigating its loss by putting Flat 1C (a property affected by the Water Leakage) on the rental market with an asking price even higher than a similar property without water seepage problem.  I found that the long delay in renting out Flat 1C was caused by the plaintiff’s aggressive asking rent.

77.  The plaintiff contended that there was no evidence showing that had the plaintiff offered to rent Flat 1C at a lower level, the property could be rented out.  It was not the plaintiff’s case that there was no market for renting Flat 1C.  If there was a market, the property should have been rented out at its market price.  I agree that the conditions of a property will affect its market price in the rental market.  A property with water seepage problem may not command the same market price as a property without such problem.  However, in this case, no evidence had been adduced by the parties on market rental of Flat 1C with water seepage condition.  The valuation reports of the parties’ valuers did not cover market rental of Flat 1C with water seepage condition.  The evidence adduced before me only showed that the plaintiff was asking for a rent for Flat 1C even higher than the market rental of a similar property without water seepage problem and I found that this too aggressive asking rent had caused the substantial delay in renting out Flat 1C.     

78.  I do not see that there is reasonable prospect of success for an appeal relying on P’s Ground 9 or that it is in the interests of justice to have a hearing on appeal on P’s Ground 9.  I therefore also refuse to grant leave to appeal on P’s Ground 9.

P’s Ground 5

79.  In the amended draft notice of appeal, the plaintiff referred to Flat 1C being rented out at $20,000 in 2012.  The evidence adduced at the trial showed that Flat 1C was rented out at $20,000 in July 2013.  In his written submissions, Mr Leung confirmed that Flat 1C was rented out since 21 July 2013.

80.  Mr Leung submitted that I accepted the valuation of Ds’ Valuer without any reservation and without noticing the flaws advanced by him. (See para 32 above)  I also failed to give proper consideration that the property had been rented out at $20,000 (inclusive of rates, management fee and car park space) since 21 July 2013.

81.  Mr Leung contended that applying the rateable value for Flat 1C as on 21 July 2013, the market rental for Flat 1C (with car park) should be higher than $20,815 as on 21 July 2013.  He further contended that this level of rental could be used to project backwards in determining the market rental of Flat 1C as on 26 October 2012.  He calculated the monthly rental of Flat 1C inclusive of car park, rates and management fees at $18,615 as on 26 October 2012.  He submitted that the rental estimated by Ds’ Valuer as on 26 October 2012 at $15,900 was too much detached from the real market to be of any probative value.

82.  Para 280 of the Judgment stated that:

“If the Water Leakage had affected the conditions of Flat 1C to such extent that it would put off potential tenants, the plaintiff would not have increased the asking rent for the premises by more than 60% after PW1 left. Such asking rent was beyond the market rental opined not only by Ds’ Valuer but also by P’s Valuer. When the plaintiff lowered the asking rent to $20,000, the asking rent for Flat 1C became $19,096 (ie $20,000 - $904 [for the Carpark]). It was still more than 27% above the rent paid by PW1 and more than 39% above the market rental accepted by this court. The asking rent for Flat 1C net of rates and management fee would be $16,702 (ie $19,096 - $595 [rates] - $1,799 [management fee]) It was still more than 40% above the rateable value of Flat 1C for 2010 to 2011 and more than 19% above the rateable value of Flat 1C for 2011 to 2012. This level of rental was not achieved until July 2013, ie more than 2 years and 8 months after PW1 moved out when the rateable value of Flat 1C had been increased to $201,000 (ie $16,750 per month).”

83.  The fact that Flat 1C was rented out in July 2013 at $20,000 had been duly considered in the Judgment.  In fact, it was one of the matters supporting my finding that the long delay in renting out Flat 1C was not caused by the Water Leakage but by the plaintiff’s aggressive asking rent.

84.  The fact that the valuation by the Rating and Valuation Department has a time lag did not escape my attention.  That was the reason why when I considered the rateable values in assessing the asking rent for Flat 1C in 2010, I did not only consider the rateable value for 2010/2011, but also the rateable value for 2011/2012. (See paras 205- 208 and 278-280 of the Judgment)

85.  Mr Leung tried to play the role of an expert to calculate the market rental of Flat 1C (together with a car park) according to his formula.  He arrived at the figure of $18,615 as on 26 October 2012 whereas the plaintiff’s asking rent in 2010 (ie two years earlier) was $25,000 (in October 2010) or $20,000 (six months later).  Mr Leung’s hard tried efforts only confirmed that the plaintiff’s asking rents at the material times were simply too aggressive. 

86.  The matters raised in P’s Ground 5 had been duly considered in the Judgment, I see no reasonable prospect of success on an appeal relying on P’s Ground 5.  I do not see that the interests of justice require P’s Ground 5 to be put to the Court of Appeal.  I refuse to grant leave to appeal on P’s Ground 5.

P’s Ground 6

87.  Mr Leung submitted that PW1’s evidence was that the most important reason for her to move out was the mould stains appeared in the master bedroom but I erroneously taken her evidence as that the mould stains were only a contributing factor.

88.  Mr Leung submitted that had the 2009 Incident not occurred, it would not be necessary for the plaintiff to find another tenant.

89.  This was not the pleaded case of the plaintiff. The plaintiff pleaded in para 10 of the re-amended statement of claim that:

“As a result of the frequent water seepage into the Plaintiff’s Unit [ie the Water Leakage], the tenant [ie PW1] did not renew the tenancy, which expired on 26 October 2010. Since then the Plaintiff was unable to rent its unit out.”

90.  The plaintiff’s pleaded case was that the loss of rental was caused by the Water Leakage (not the 2009 Incident).  Mr Leung submitted at the leave to appeal hearing that the plaintiff might amend its pleading.  With respect, I think it is a bit too late to seek to amend one’s pleadings after delivery of judgment.

91.  P’s Ground 6 simply has no merits and no reasonable prospect of success in an appeal.  Leave to appeal on this ground is refused.

P’s Ground 7

92.  Mr Leung submitted that the rateable values provided by the Rating and Valuation Department had to be worth for referencing. It showed the trend of rental movement of a particular unit.  He referred to the rateable values of Flat 1C from 2005 to 2014 (with the rateable values for 1 April 2008 to 31 March 2010 missing) to submit that “it is clear that the rental [of Flat 1C] had been increasing since 2006”. (See para 34 of Mr Leung’s submission for leave to appeal)  He submitted that the court could deal with the figures without the assistance of experts.  He further submitted that I erred in requiring experts to make use the values provided by the Rating and Valuation Department in determining the market rental.

93.  I have some difficulties to follow Mr Leung’s aforesaid submission when he first submitted that the rateable values “must be worth for referencing” and later contended that I erred in requiring the experts to use the rateable values in determining the market rental.

94.  Furthermore, it is unscientific to draw conclusion relying on data with missing parts.  This is not surprising as counsel is not expert in property valuation.

95.  Nevertheless, I did find that the rateable values were worth for referencing when I stated in para 204 of the Judgment that: “The rateable value is not the exact rental which a particular property may fetch in the open market but it provides a useful reference of the market rental of a property.”  I had considered the rateable values of Flat 1C at the material times when I considered the expert evidence of the parties’ valuers and whether the plaintiff’s asking rents for Flat 1C were too aggressive at the material times.

96.  However, I did not require the experts to make use of the rateable values in determining the market rental.  What information would be required for the experts to form their expert opinions was a matter within their expertise.  In fact, I had pointed out in para 200 of the Judgment that: “Both P’s Valuer and Ds’ Valuer referred to the rateable value of Flat 1C in their reports.”

97.  I see no reasonable prospect of success for an appeal relying on P’s Ground 7.  I refuse the grant leave to appeal on this ground.     

Conclusion to the plaintiff’s application for leave to appeal

98.  All proposed grounds of appeal of the plaintiff do not have reasonable prospect of success and I do not see that the interests of justice require any of them to be put before the Court of Appeal.  I dismiss the plaintiff’s application for leave to appeal.

The defendants’ application for leave to appeal

99.  On 15 May 2015, the defendants by summons applied for leave to appeal. 

100.  The defendants set out in the aforesaid summons their grounds of appeal as follows:-

(1) I erred in refusing expert from Building Diagnostic Consultants Limited (“BDC”) to give oral evidence at the trial. (“D’s Ground 1”)

(2) I drew wrong conclusion on the evidence of the defendants’ expert on water leakage. (“D’s Ground 2”)

(3) I drew wrong conclusion on the source of the Water Leakage. (“D’s Ground 3”)

101.  I shall also deal with each of the defendants’ grounds of appeal below.

D’s Ground 1

102.  The defendants submitted that I erred in handling the expert evidence in that I queried the infra-red report of BDC (the “BDC Report”) on the one hand and refused to allow BDC’s expert to testify at the trial to explain his report to the court.

103.  Mr Ko, representing the defendants, submitted that the BDC Report formed part and parcel of the defendants’ expert report on water leakage.  The court should have allowed expert from BDC to give oral evidence at the trial to clarify issues queried by the court.

104.  The court had on 8 May 2012 granted leave for the parties to adduce expert evidence on water leakage.  On 22 August 2012, the court ordered that the number of such expert to be limited to one surveyor for each party.  The defendants had not appealed against such direction.  The defendants nominated Mr Chan Jor Kin Kenneth as their expert on the water leakage issue.

105.  On 19 August 2013, the defendants took out a summons returnable at the first pre-trial review of 30 August 2013 seeking leave to call the technical manager of BDC to attend the trial to give expert evidence.  I declined to grant the leave sought as the expert nominated by the defendants should be able to explain the BDC Report to the court and I saw no justification for a party calling two experts on the issue of water leakage in this case.  I nevertheless granted liberty for the defendants to take out fresh interlocutory application at the second pre-trial review scheduled for 17 October 2013 if after reconsidering their case the defendants maintained that they needed to call a second expert on the issue of water leakage.  The defendants did not appeal against my said decision and made no further application on this matter at the second pre-trial review.  I see no merits for the defendants to complain now that they were not allowed to call more than one expert on the water leakage issue to give evidence at the trial.

106.  The BDC Report was incorporated into the joint expert report by the defendants’ expert.  The defendants should have engaged an expert who might address the court on all relevant matters contained in the joint expert report.  However, the defendants chose to engage an expert who “admitted that he did not know whether BDC had checked each point on the infra-red photographs as he had left it to BDC to do its analysis” (see para 132 of the Judgment) and “agreed that eye inspection of the [infra-red] photographs [produced in the BDC Report] was not accurate.  They should be checked against the actual temperature readings which BDC should have kept in its computer [but not included in the BDC Report].” (See para 133 of the Judgment)   

107.  Appeal relying on D’s Ground 1 does not have a reasonable prospect of success.  I refuse to grant leave to appeal on such ground.

D’s Ground 2

108.  The defendants submitted that I had not thoroughly considered the qualification of the defendants’ expert on the issue of water leakage and his report.  The court also had not sufficiently considered the expert reports submitted to the Small Claim Tribunal.

109.  Mr Ko submitted that I erred in inferring the evidence of the defendants’ expert.  He contended that despite the evidence of the defendants’ expert in court was not concrete it should not render his report, in particular the photographs taken after the test, useless.  He submitted that the defendants’ expert’s evidence on water leakage was corroborated by the expert reports submitted to the Small Claim Tribunal which stated that the wallpaper in Flat 1C did not show damage by water seepage.

110.  The experience and qualification of a witness are relevant when the court considers whether such person will be accepted as expert witness for a particular issue before the court.  However, they are totally irrelevant when the court is considering whether the court will accept the opinion of such expert.

111.  Order 38, rule 36(1) of the Rules of District Court (the “RDC”) provides that:

“Except with the leave of the Court or where all parties agree, no expert evidence may be adduced at the trial or hearing of any cause or matter unless the party seeking to adduce the evidence –

(a) has applied to the Court to determine whether a direction should be given under rule 37 or 41 (whichever is appropriate) and has complied with any direction given on the application.”

112.  The defendants had not sought leave to adduce expert evidence from experts who had prepared expert reports for the Small Claim Tribunal.  I do not see how the defendants may rely on those reports or opinion statements from such persons or other contractors to appeal against the Judgment.

113.  The aforesaid ground of appeal as stated in D’s Ground 2 has no merits and does not have a reasonable prospect of success.  I refuse to grant leave to appeal on this ground.

D’s Ground 3

114.  The defendants submitted that I accepted there was water seepage at the common pipe well but found that the water seepage found at Flat 1C was not related to the common pipe well.  The defendants contended that this was self contradicting.  The defendants sought support from the report prepared by Mr Wu Tze Cheung (“Mr Wu”), the plaintiff’s former expert on water leakage issue.

115.  The defendants further submitted that I had not sufficiently considered the relation between the water seepage to Flat 1C and the want of repair at various common areas of the Estate including the external walls.

116.  Mr Ko submitted that I erred in inferring the cause of the Water Leakage.  He submitted that the court accepted that there was evidence of water seepage at the common pipe well but had not sufficiently considered that the common pipe well passed through all units of the Building and the effect of the common pipe well seepage on Flat 1C.

117.  Mr Ko further submitted that I had not sufficiently considered the location and condition of the Estate and the condition of the external walls of the Building and the water seepage problem caused, in particular the water seepage through the external walls into Flat 1B.

118.  The court had considered the possibility of water seeping into Flat 1C from external walls or other common areas (including the common pipe well) of the Building. (See paras 112 and 283-286 of the Judgment)  The fact that there was water seepage from external walls into Flat 1B did not escape my attention. (See para 284 of the Judgment)  For reasons set out in the Judgment, I reject the defendants’ contention that the water seeped into Flat 1C came from the external walls or other common areas of the Building.  Mr Ko did not say which of my reasons and how such reasons were wrong in fact or in law.

119.  The court had not granted leave for Mr Wu to give any opinion evidence to the court.  The parties had not agreed for Mr Wu’s report to be adduced as expert evidence at the trial and no application had been made under rule 37 or 41 of the RDC for admission of Mr Wu’s report as expert evidence.  At the second pre-trial review, when the court allowed for Mr Wu’s report to be included in the trial bundle, the court had made it clear to the parties that Mr Wu’s report was included in the trial bundle as a document upon request of the defendants but not as expert evidence.  Mr Wu’s opinion played no role in the trial of this action and might not be relied on by the defendants to support their application for leave to appeal.   

120.  For the above reasons, I do not see a reasonable prospect of success on appeal relying on D’s Ground 3 and I refuse to grant leave to appeal relying on this ground of appeal.

Conclusion to the defendants’ application for leave to appeal

121.  As all proposed grounds of appeal of the defendants also do not have reasonable prospect of success and the interests of justice do not require any of them to be put before the Court of Appeal, I too dismiss the defendants’ application for leave to appeal.

Vary the Costs Order Nisi application

122.  The plaintiff by a summons dated 4 May 2015 applied to vary the Costs Order Nisi to the effect that the defendants shall pay 90% of the plaintiff’s costs of the action on indemnity basis.

Variation of the proportion of costs liable by the defendants

123.  Mr Leung agreed that the court had the discretion in awarding costs to litigants but submitted that the court would look at the conduct of the parties to see if any of them was acting unreasonably or oppressively during the course of proceedings.

124.  Mr Leung submitted that in the present case, the property concerned was an investment property and the plaintiff did not reside there.  As it was the plaintiff’s case that the property was not rented out due to the Water Leakage, it was reasonable for the plaintiff to claim for loss of rental.  He contended that unless the successful plaintiff was acting unreasonably, the court would normally award costs in favour of the plaintiff in full.  He further contended that there was no unreasonable conduct on the part of the plaintiff in making a claim for loss of rental.  Although the plaintiff was not successful in each and every part of its claim, it should not be deprived of any part of its costs.

125.  Mr Leung submitted that to deduct 30% from the plaintiff’s costs to reflect that the plaintiff had failed in its claim for loss of rental was far too much than the actual proportion of costs incurred on that issue to the overall costs.  He submitted that only two of the plaintiff’s witnesses gave evidence on the loss of rental claim.  Their evidence on this particular issue took less than one hour when the whole trial last for eight days (excluding the day for closing submissions).

126.  Mr Leung further submitted that the costs for obtaining the valuation report were only a small fraction of the overall costs.  He said that the costs for preparing the joint expert report on water leakage were a great deal more costly than the valuation reports.  He further submitted that counsel fees in attending the rental loss issue should be no more than 5% of the total time spent on the whole case.

127.  Mr Leung submitted that even if the plaintiff should be deprived of part of its costs for failure in the loss of rental claim, the deduction should be no more than 10% and a deduction of 30% was far too generous to the defendants.

128.  Mr Ko submitted that the plaintiff only succeeded in the sum of $55,800 but failed in the rental loss claim which was several times of the amount awarded to the plaintiff by the court.  The defendants’ liability for costs should have been lower than 70%. 

129.  It is trite that costs are in the discretion of the court.  Order 62, rule 3(2) of the RDC provides that:

“(2) If the Court in the exercise of its discretion sees fit to make any order as to costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to 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.”

130.  Order 62, rule 5 of the RDC further provides that:

“(1) The Court in exercising 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;

(a) …

(e) the conduct of all the parties;

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

(g) …..

(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.”

131.  The principles which the court would apply in deciding costs prior to the implementation of the Civil Procedure Rules (the “CPR”) in England had been set out by Nourse LJ in Re Elgindata Ltd (No 2) [1993] 1 All ER 232 at 237f-g as follows:

“… The principles are these. (1) Costs are in the discretion of the court. (2) 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. (3) 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 costs of the proceedings he may be deprived of the whole or a part of his costs. (4) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but order him to pay the whole or a part of the unsuccessful party’s costs.”

132.  The above principles had been adopted by the Hong Kong Court of Appeal in La Chemise Lacoste SA v Crocodile Garments Ltd [2000] 4 HKC 317 at 327B-E prior to the civil justice reform in Hong Kong (the “CJR”).

133.  In Gwembe Valley Development Co Ltd (in Receivership) v Koshy and Ors [2000] 11 LS Gaz R 38, Ch D, Rimmer J affirmed the principle that a successful party should not have to pay costs to an unsuccessful party unless the points taken by the successful party and/or the manner in which they were taken were unreasonable.  However, Rimmer J also pointed out that even prior to the entry into force of the CPR, the principle that costs should follow event had become merely a starting point from which the court could readily depart and that the entry into force of the CPR did not alter the nature of the court’s discretion, so much as indicate a change of emphasis, requiring courts to be more ready to make separate orders reflecting the outcome of different issues.

134.  We are now in the post-CJR era.  The court’s approach to costs after the CJR was discussed in Chan Mei Yiu, Paddy & Ors v Secretary for Justice & Ors (unrep., HCAL 16/2007, 9 December 2010) when Saunders J stated that:

“5. However, I accept Mr McCoy’s submission that the proper approach to costs, having regard to the changes brought about by civil justice reform, is that the proposition that costs follow the event is not a general rule, but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case. When regard is had to the provisions of O 62 R 5(1) [of the Rules of the High Court]:

“The Court in exercising 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;

(e) the conduct of all parties;

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

it becomes abundantly apparent that the dictum of Lord Lloyd of Berwick in Bolton MBC v Enc Sec (Practice Note) [1995] 1 WLR 1176 at 1178 more properly reflects the approach to costs:

“As in all questions to do with costs, the fundamental rule is that there are no rules. Costs are always in the discretion of the court, and a practice, however, widespread and long standing, must never be allowed to harden into a rule.”

  6. The proper context in which Nourse LJ’s statement in Elgindata, should now be viewed, and the effect of the changes consequent upon civil justice reform, is demonstrated by the following passages from the decision of Lord Woolf MR in AEI Ltd v Photographic Performance Ltd [1999] 1 WLR 1507:

“I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs. From 26 April 1999 the ‘follow the event principle’ will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new Rules are reflecting a change of practice which has already started. It is now clear that too robust an application of the ‘follow the event principle’ encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your efforts to do so.” (1522H-1523B)

The ‘well-established practice’ on which Nourse LJ based his third principle is, as I have already indicated, less generally followed than 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 it has failed.” (1523H)

7. Relying upon that decision, and two other decisions, Stoczina Gdanska SA v Latvian Shipping Co, Times Law Reports, 25 May 2001, and Summit Property Ltd v Pitmans [2001] EWCA Civ 2020 at §§ 16-17, Mr McCoy formulates the following propositions:

  (1) It is no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party on a particular issue on which he (the first party) has failed;

  (2) The Court may make different orders for costs in relation to discrete issues - and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in that event, may make an order for costs against the party who has been generally successful in the litigation; and

  (3) It may be appropriate, in a suitably exceptional case, to make an order which not only deprives the successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party’s costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably; and

(3) The above propositions give effect to the particular purpose of encouraging litigants to be selective as to the points they took, thus decreasing the costs of litigation.

I am satisfied that the authorities, and the new Rules justify those propositions, which I apply.”

135.  In Commissioner of Inland Revenue v HIT Finance Limited (No 2) [2014] 4HKLRD 412 at 415, the Court of Final Appeal pointed out that:

“7. There is a discretion in the court to deprive a successful party of the whole or part of his costs because he had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed. That can be done even if it was not unreasonable to have raised those issues. Whether or not it should be done depends on all the circumstances. This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event. It is to be approached with due circumspection so as not to undermine the utility of that general rule.” (Emphasis added)

136.  In Zhuhai International Container Terminals (Jiuzhou) Limited v Lo Tong Hoi & anor (unrep, CACV 181/2011, 31 July 2012), the Court of Appeal observed in para 33 of the judgment that:

“On the established principles, it is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs. The court may so order where the failed allegation of the successful party has caused significant increase in the length or costs of proceedings (Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214B to C). By the amendments introduced to Order 62 rule 5, litigants should bear in mind the possible costs implications. There is incentive to conduct litigation in a responsible way and be selective as to the issues raised.” (Emphasis added)

137.  In Mega Yield International Holdings Limited v Fonfair Company Limited, (unrep., HCA 948/2009, 14 May 2013) DHCJ Woo discussed the impact of the CJR on the Elgindata principles.  His Lordship pointed out that a mechanistic adoption of the “following the event principle” might result in parties incurring unnecessary costs in civil litigation and too robust an application of the “follow the event principle” encouraged litigants to increase the costs of litigation, since it discouraged litigants from being selective as to the points they took. 

138.  After the CJR, a plaintiff who succeeds in a claim may not get his full costs or any costs at all in an extreme case if he fails in some issues raised or allegations made in relation to that claim after the court takes into consideration the matters referred to in Order 62, rule 5.  The fact that it was not unreasonable for the successful party to raise the failed issue was no bar to the court exercising its aforesaid discretion in appropriate cases.  Furthermore, if a plaintiff fails in a claim made against the defendant, he should expect to pay costs for the lost claim to the defendant.

139.  As pointed out by DHCJ Woo in the Mega Yield International Holdings Limited case (supra), Re Elgindata referred to a significant increase in the length or costs of the proceedings, this did not mean that a precise quantum of costs over a particular threshold had to be ascertained.  The phrase simply required the court to be satisfied that the increase was one that could be estimated as a more than trifling proportion of the total costs.

140.  I do not think that I may quantify with accuracy the actual time spent by the witnesses at the trial and the costs incurred by the parties on the plaintiff’s claim for loss of rental, suffice for me to say that I am satisfied that it is a more than trifling proportion of the total costs as it constituted the major part of the quantum of the plaintiff’s claims and expert evidence had been adduced on this issue.  We are concerned with costs of this proceeding from commencement of the action to its final disposal and not merely costs of the trial.  “One therefore needs to look at the matter more broadly and avoid a blinkered perspective through the prism of the trial.” (per DHCJ M Ng in Kinetics Medical and Health Group Company Limited v Dr Tse Kin Sang & Ors (unrep., HCA 1115/2010, 7 April 2014) at para 48)

141.  I agree to Mr Leung’s submission that not much time had been spent at the trial on the plaintiff’s claim for loss of rental although the amount claimed under that item was many times more than the amount claimed for repairing the water damage.  After considering Mr Leung’s submissions, I agree that a deduction of 30% of the plaintiff’s total costs would be on the high side.  I agree to vary the deduction to 10% as proposed by Mr Leung.

Whether the defendants shall pay costs on indemnity basis

142.  Mr Leung submitted that the conduct of the defendants in conducting this proceeding warranted awarding costs on indemnity basis against them.  He drew my attention to the following events:

(1) The defendant had opposed to conducting ponding test and a summons had to be taken out for an order that such test be carried out.  It was unreasonable for the defendants to refuse the test in the first place.  Mr Leung contended that the only reason for the defendants to refuse a ponding test was that they tried to avoid liability by improper means.

(2) During the post ponding-test inspections, after being told that the test result was positive, the defendants’ expert on the issue of water leakage tried to avoid joint inspection with the plaintiff’s expert.  As a result, various matters were put in dispute including whether fluorescent material existed at the seepage areas; whether the fluorescent material discovered by the plaintiff’s expert belonged to the material used in the test; and dispute on the whereabouts were the photographs produced by the plaintiff’s expert taken.  More time and costs had been incurred for the plaintiff to prove its case.  Such time and costs could be avoided if the defendants’ had not acted unreasonably.

(3) The defendants had only called two witnesses and both of them keep avoiding answering questions posed to them during cross-examination.  That had unreasonably lengthened the trial and escalated the costs.  Mr Leung criticized the defendants’ witnesses in giving untrue evidence.  

143.  Mr Ko submitted that it was not an appropriate case to award indemnity costs against the defendants.

144.  In Town Planning Board v Society for Protection of the Harbour Limited (No 2) [2004] 7 HKFAR 114 CJ Li in delivering the judgment of the Court of Final Appeal on costs stated in para 15 of the judgment that:

“Indeed, the courts in this jurisdiction have repeatedly emphasised, correctly in our view, that the successful party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature” (Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) & Others [1991] 1 HKLR 177 at p.182J, per Godfrey J; Sung Koo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 at p.575C-D).”

145.  His Lordship further stated in para 17 of the judgment that:

“In these and other cases, courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made. It has been said that:

… the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.

(Macmillan Inc v Bishospsgate Investment Trust Plc (unrep., 10 December 1993), per Millett J; Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 at pp.575E-576F, per Godfrey JA; see also Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at pp.1334G-1335I, per Stock J).”

146.  In relation to the award of costs generally, the Court of Final Appeal cited with approval the judgment of Chu J (as she then was) in the first instance when Her Ladyship pointed out that it had been accepted that while the grounds upon which costs were awarded had to be connected with the case, this might extend to any matter relating to the litigation and the parties’ conduct in it. 

147.  After considering the matters raised by Mr Leung especially the conduct of the defendants in resisting the ponding test, the conduct of the defendants’ expert in refusing to co-operate in the post ponding-test joint inspection and the conduct of D1 and the defendants’ expert when they testified at the trial, I agree that the defendants had conducted this litigation in an unreasonable matter which this court shall disapprove.  I agree to further vary the Costs Order Nisi to require the defendants to pay costs to the plaintiff on indemnity basis. 

Conclusion to the plaintiff’s variation of order costs nisi application

148.  In the premise, I vary the Costs Order Nisi to the extent that the defendants do pay 90% of the plaintiff’s costs of this action (including costs previously reserved) with counsel certificate, to be taxed, if not agreed on indemnity basis.

Costs for these applications

149.  As I have refused both parties’ applications for leave to appeal, a fair costs order will be no order as to costs for both applications for leave to appeal.  I have allowed the plaintiff’s application to vary the Costs Order Nisi.  The plaintiff shall have the costs for this application but on party-and-party basis with counsel certificate.  I so ordered.

150.  The above order is an order nisi which shall become absolute after 14 days from the date of this decision unless application is received from either party within the said 14 days to vary the same. 

151.  I shall assess by summary assessment the aforesaid costs payable by the defendants to the plaintiff.  I apportion 25% of the time of the hearing of 31 August 2015 to the plaintiff’s application to vary the Costs Order Nisi.

152.  I direct the plaintiff to submit its statement of costs for its application to vary the Costs Order Nisi to the court within seven days after the aforesaid order nisi shall become absolute with copy to the defendants.  The defendants shall send to the court their comments (if any) on the plaintiff’s statement of costs within seven days thereafter with copy to the plaintiff.  The costs payable by the defendants to the plaintiff for the plaintiff’s application to vary the Costs Order Nisi will be assessed by the court by way of paper disposal.