BONNIE BLAIR LTD v. WITMORE LTD AND ANOTHER

DCCJ 1871/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1871 OF 2011

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RULING ON COSTS

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Introduction

1.  This is the defendants’ application to vary the costs order nisi made by this court on 6 February 2015 that there be no order as to costs. 

2.  The application was made by way of a covering letter dated 17 February 2015 from the defendants’ solicitors with their “Submission on Costs”[1] attached to it.  Although the defendants had failed to follow the proper procedure by filing a summons for their application,[2] the plaintiff has agreed to save the formalities.  By consent, this court treated the said letter of the defendants as an application and did not insist on having a summons.[3]

3.  That said, this court is troubled by the fact that those representing the defendants had repeatedly failed to follow the relevant rules and procedures.[4] This court considers it necessary to remind the defendants’ legal representatives that procedural rules are meant to be complied with by practitioners.

Background

4.  The case was about the dispute between the plaintiff (as tenant) and the defendants (as landlords) concerning two warehouse premises.  Shortly stated, the plaintiff held over the two subject premises and failed to deliver vacant possession after their original leases had expired in August 2010.  The plaintiff’s case was that they had reached an oral agreement with the defendants (through agents) to renew for two years with an option of extension.  The defendants, however, denied that there was such an oral agreement and also alleged that the plaintiff had obstructed their contractor by not allowing them to enter the subject premises to carry out certain rectification works as demanded by the Building Authority. 

5.  On 18 May 2011 the plaintiff took out proceedings and claimed against the defendants for the breach of the alleged oral agreement and the plaintiff’s right to quiet enjoyment of the two subject premises, seeking declaratory relief, specific performance, damages and interests.  On the other hand, on 9 June 2011 the defendants defended and counterclaimed for trespass and wrongful obstruction of the rectification works, seeking declaratory and injunctive reliefs, vacant possession, mesne profits, damages and interests.  On 7 July 2011, the plaintiff filed a reply and defence to the counterclaim joining issues with the defendants.

6.  As noted in the Judgment, by the time the case eventually came up for trial in January 2015, many of the disputes between the parties had become largely academic.  That was because the plaintiff had vacated the two subject premises for more than 2 years ago and had paid the defendants a total of $1,656,000 by way of rent or interim payment.[5] Mr Hung for the plaintiff opened his case on the basis that the trial was mainly about costs and he referred to Ta Tung China & Arts Ltd v Fontana Restaurant Ltd & Others.[6]  During the trial, open offers were made by both sides.  The plaintiff proposed that both the claim and the counterclaim be dropped on the condition that there be no order as to costs.  The defendants counter-proposed that (i) the plaintiff should pay an additional $100,000[7] as mesne profits; (ii) $10,000 as damages for the aborted work of the contractor; and (iii) each party should file written submission on costs for the court’s decision. Despite much encouragement from the bench, the parties were unable to reach an agreement for settlement.  The major stumbling block seemed to be costs which would far exceed the amount of damages that the defendants were then asking.

7.  As the matter turned out, there was not a full trial. The plaintiff dropped their claim in the middle of the trial and conceded liability on the counterclaim. What remained to be resolved then was the assessment of damages for the defendants’ counterclaim.  There was no dispute about the $10,000 for the aborted work of the contractor.  However, the plaintiff argued that the defendants had been overpaid by way of interim payment and sought a refund of the overpayment.  On the other hand, the defendants argued that the interim payment was not sufficient and sought the shortfall of $106,800.  In the end, for the reasons given in the Judgment this court found that the defendants had been overpaid and ordered the defendants to refund $19,000 and $57,400 respectively to the plaintiff with interest thereon. 

8.  For the reasons given in the Judgment, this court made an order nisi that there be no order as to costs. 

The issue

9.  The issue for this court to decide in the present application is whether the defendants should have their costs and if so, to what extent.  This court has considered the written submissions from both sides, which were supplemented by oral submissions of counsel at the hearing of the application. 

10.  In summary, Mr Hung submitted that costs is a matter of discretion; that this court had already taken into account the relevant legal principles and circumstances including the open offers; that the defendant was not “the real winner” of the case; and that the defendants have failed to demonstrate any valid grounds for variation. 

11.  In summary, Mr Yeung submitted that the plaintiff was wrong not to surrender and pay all the damages and costs that the defendants had asked for, as the plaintiff knew that their case of “an oral agreement to renew” had already been refuted by their own estate agent, Miss Tam of Centaline; that the defendants were entitled to proceed with the trial to resolve the issue of costs; that the plaintiff should have conceded liability at the outset and only asked for assessment of damages; that by eventually conceding liability, the plaintiff had also conceded the defendants’ claim of costs and therefore this court simply has no discretion in that regard.

12.  One point which calls for consideration in the present application is whether the defendants should be treated as being not successful in their counterclaim. This requires this court to take an overview of the justice of the matter to see whether or not the defendants are in fact the real winners of the case: see Alltrans Express Ltd v CVA Holdings Ltd;[8] applied in Elpe International (Far East) Ltd v Hewlett Packard Hong Kong Ltd.[9]  See also Hong Kong Civil Procedure 2015, at §62/2/6.  Another point for consideration which is equally, if not more, important is the conduct of the parties.  In this regards, the factors listed out in Order 62, r 5(2) of the Rules of the District Court, Cap 336 are pertinent.  In order to get a big picture of the case, it would be more convenient to review with its procedural history first.

Procedural history

13.  After the pleadings were closed, on 14 December 2011 the defendants issued a summons for interlocutory injunction or alternatively summary judgment against the plaintiff.  On 25 April 2012, the summons was heard before Deputy District Judge Joseph Chung.  At the hearing, however, the defendants’ withdrew the summons on the plaintiff’s undertaking to the court to deliver vacant possession of the two subject premises on or before 26 August 2012.  Despite the interlocutory nature of the proceedings before him, the learned Deputy Judge saw fit to award costs of the application (with counsel certificate) to the plaintiff. [10] That final costs order was made on the basis that the defendants’ application was “doomed to fail” because of excessive delay and that the application “should not have been launched in the first place”.  There was no appeal against the costs order.

14.  What is pertinent for present purpose is the following observation of the learned Deputy Judge about the respective claims of the parties:-

“38.     In these proceedings, the plaintiff seeks specific performance of the Oral Agreement to Renew which if it does exist and is enforceable (and I make no finding as to this), it would have extended the Tenancies to 26 August 2012.  Given that the plaintiff has now undertaken to deliver vacant possession of the Premises by 26 August 2012, for the plaintiff to continue with these proceedings, would in my view be academic and serve no useful purpose.  Similarly, the essence of the defendants’ counterclaim is to secure the plaintiff delivering vacant possession of the Premises.  I note that in the counterclaim, the defendants also claim mesne profit of HK$34,500 per month[11] for each floor of the Premises from 27 August 2010 to the date of the plaintiff delivering vacant possession.  I have been told by [then counsel for the defendants] during the Hearing that the plaintiff has been paying that sum to date although the plaintiff’s case is that such payments represent rent under the Oral Agreement to Renew. Whatever the payments may represent, in my judgment, given that the plaintiff will be vacating the Premises by 26 August 2012, and the defendants have been receiving payments from the plaintiff (whether it be mesne profit or rent), it would serve no meaningful purpose for the defendants to continue to pursue its counterclaim following the plaintiff vacating the Premises.  …”

15.  From court records, since the withdrawal of the defendants’ interlocutory application, the plaintiff had not taken any active steps in the proceedings for more than a year.  The case then became dormant.

16.  On 6 June 2013, however, the case was “re-activated” by the Notice of Intention to Proceed filed by the defendants and was eventually set down for trial.

17.  On 5 January 2015, the trial commenced at 9:40 am.  At 10:12 am the matter had to be adjourned to 2:30 pm as the court had another matter to deal with.  In the afternoon, after Mr Hung had finished his opening, the court urged the parties to seriously re-consider their stance.  That was because Mr Yeung indicated that the damages that the defendants were then seeking were only about $116,800.[12] The court took the view that the likely legal costs for a full-fledged trial would be wildly out of proportion.  The parties were given time to negotiate.

18.  On 6 January 2016, the court was informed of the open offers of the parties and the fact that the parties were unable to reach an agreement.  The stumbling block for settlement, Mr Hung informed, was costs.  After that, Mr Hung made an application to amend the plaintiff’s pleadings by changing the basis of their case to one of “tenancy at will” or alternatively “tenancy by sufferance”.  Mr Yeung opposed the application.  The court refused the application.  The whole process, namely application, submissions and ruling, lasted for about half an hour.  At 11:41 am, Mr Hung called his first and only witness (Mr Luk) and the examination-in-chief finished at 12:33 am.  The cross-examination of Mr Luk was not yet finished at 4:38 pm when the trial was adjourned to the following day.

19.  When the trial resumed on the following morning on 7 January 2015, Mr Hung informed the court of the plaintiff’s concession.  The court then dealt with the assessment of damages.  The defendants did not call any witnesses for the assessment.  The defence evidence on this respect consisted only of the joint expert report and the contractor’s invoice of the aborted work.  Then, there were short submissions from counsel on quantum.  Not a word was said by Mr Yeung then about exemplary damages and no evidence was adduced on that claim. After that, the court adjourned for consideration and invited parties to provide further assistance by way of written submissions on just two points:-

(1) whether any account should be taken of the defendants’ incidence of tax when assessing the mesne profits; and

(2) the calculations showing the amounts, if any, to be refunded to the plaintiff.

20.  In due course, written submissions were received from the parties.  However, Mr Yeung in his written submission strayed outside the aforesaid boundaries and addressed (without leave) on the question of exemplary damages.  Mr Yeung also sought to (without leave) adduce and rely on a new piece of additional evidence in the form of a letter from a firm of certified public accountants.  Subsequently, Mr Yeung filed (again without leave) another document which he called “Addendum” to his written submissions on quantum, submitting further on the claim for exemplary damages. Mr Yeung attached to the “Addendum” various correspondence between solicitors.  What Mr Yeung had done naturally prompted Mr Hung to response by way of written submissions. 

Conduct of the parties

21.  Regarding the above procedural history, I have the following observations:-

(i) Given what was said by the learned Deputy Judge as quoted above, one would have expected the parties to take a more pragmatic stance about the matter.  In fact, the plaintiff had shown little interest in pursuing further after the withdrawal of the interlocutory application by the defendants.  As regards the defendants, by then they had achieved their major objective of regaining vacation possession of the two subject premises and had received the interim payment, as well as the management fees, government rents and rates of the relevant period.  There was no request for any refund by the plaintiff.  As regards the declaratory reliefs sought by the defendants, they had clearly been overtaken by events. 

(ii) Had the case stopped there and then, the legal costs incurred by the parties for this case would have been rather limited.[13] Firstly, the costs of the interlocutory application had already been provided for.  Secondly, the main documents for the trial had yet to be obtained:-

(a) the witness statements and lists of documents of the parties were all dated and filed on 14 November 2013; and

(b) a joint surveyor report was only ordered on 21 January 2014 and that was done on the application of the defendants.[14]  The plaintiff originally did not intend to adduce any expert evidence.[15]  Later, at the request of the defendants it was further ordered that valuations of the two subject premises be obtained as on 27 August 2014, 27 February 2011, 27 August 2011 and 27 February 2012[16]. The joint report was filed on 12 May 2014.

(iii) That the case was eventually set down for trial as a result of the defendants’ insistence can be gleaned from one of the letters of the defendants’ solicitors which the defendants placed before this court for the purpose of the present application.  In that letter, the defendants’ solicitors wrote:-

“We refer to the above Action, in which no further action was taken by you as solicitors for the Plaintiff despite an extensive lapse of time. As a result, we have issued a Notice of Intention to Proceed and on behalf of the Defendants and taken out a Summons returnable on 29^th August 2012 before Mr. Registrar Lui in chambers regarding setting down of the Action for trial.”

(iv) Although the plaintiff subsequently conceded liability, it does not mean that the evidence that Mr Luk had given became useless.  Part of his evidence was still relevant for the assessment of damages and the Court had considered it.[17]

(v) As the matter turned out to be, the defendants were worse off by not accepting the plaintiff’s open offer; had they accepted the open offer, there would not be an assessment of damages and there would not be any orders for refund.  I attach substantial weight to the plaintiff’s open offer.  As regards the relevancy and weight of an open offer in relation to costs, see Ming An Insurance Co (HK) Ltd v Ritz-Carlton Ltd (No 3).[18] For avoidance of doubt, this court will not take into account the “Calderbank” from the plaintiff’s solicitors to the defendants’ solicitors dated 5 December 2014.  This court is of the view that the letter is excluded by Order 62, r 5(1)(d) in that the plaintiff had not made any sanctioned payment under Order 22 when they could have done so. 

(vi) Furthermore, as noted in the Judgment, the improper conduct of the legal representatives of the defendants had caused the plaintiff to incur unnecessary costs:-

“68. I take into account that the defendants made submissions on exemplary damages when the opportunity for doing so had already gone. I take into account the fact that the defendants sought to adduce further evidence, in the form of the letter from the certified public accountants, without leave. Such improper conduct of the defendants caused the plaintiff to respond and incur additional costs.”

(vii) As noted in the Judgment, the defendants’ counterclaim for exemplary damages was misconceived, not supported by evidence and without a scintilla of merits.[19]

22.  As regards Mr Yeung’s reliance on Ta Tung China & Arts forthe proposition that the defendants were entitled to proceed with the trial in order to get their costs, I accept the submission of Mr Hung that that case does not in fact assist the defendants.  As said by Mortimer VP, if litigants only go to trial with a view to have the costs dealt with after trial, the issues on such a trial would be extremely limited.  In the present case, however, the defendants had been asking, quite apart from costs, additional mesne profits of not insubstantial amount, exemplary damages and injunction orders.  It is clear, therefore, that the defendants had not attempted to limit the issues. Instead, the defendants had sought to raise issues even when the time for doing so had gone. The defendants had simply failed to take heed of what Kwan JA said in Zhuhai International Container Terminls (Juszhou) Ltd v Lo Tong Hoi and Another:[20] -

“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 a significant increase in the length or costs of the 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.

23.  In the present case, by insisting on seeking additional mesne profits and subsequently exemplary damages as well, the defendants activated a case which had lain dormant and also caused a significant increase in the length and costs of the proceedings. Had the plaintiff’s open offer been accepted, Mr Luk would not be required to give evidence and the written submissions subsequently filed by the parties would not have been necessary.

24.  In relation to Miss Tam, the estate agent of the plaintiff, reasons have already been given as to why this court is not in a position to find that the plaintiff had committed dishonest or even criminal conduct (as suggested by the defendants) by having maintained a false case against the defendants.[21] From the materials available, what can be safely said is that the plaintiff should have known before trial that the evidence that Miss Tam might give would not be helpful to them and that their case of “oral agreement to renew” would be weakened as a result.  That may account for the plaintiff’s eventually concession on liability.  However, the fact that the plaintiff had initially maintained their case against the defendants knowing that it was weak is only one of the many factors that the court has taken into account when deciding costs. 

Whether Ds the real winner

25.  In Anglo Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, [22] which was adopted by the Court of Appeal in Elpe International (Far East) Ltd, Delvin J said,

“No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct. In applying that rule, however, it is necessary to decide whether the plaintiff really has been successful, and I do not think that a plaintiff who recovers nominal damages ought necessarily to be regarded in the ordinary sense of the word as a “successful” plaintiff. In certain cases he may be, eg, where part of the object of the action is to establish a legal right, wholly irrespective of whether any substantial remedy is obtained. To that extent a plaintiff who recovers nominal damages may properly be regarded as a successful plaintiff, but it is necessary to examine the facts of each particular case.”

26.  In the present case, the defendants argued that they were entitled to more mesne profits than what they had received from the plaintiff.  In the event, they failed to make good their claim.  Instead, they have to refund part of the money received.  Their claim for exemplary damages was devoid of merits.  In my view, based on the principle in Anglo-Cyprian Trade Agencies Ltd, the defendants cannot be regarded the real winner in this case. 

27.  However, even if I were wrong as to whether the defendants were the real winner, in view of the underlying objectives of the Civil Justice Reform as pronounced in Order 1A, r1 of RDC, based on what have been discussed above, namely the history of the case, the intertwining nature of the claim and the counterclaim, the defendants’ rejection of the open offer made by the plaintiff, and the conduct of the parties both before and during the proceedings, I would still consider that the defendants’ pursuance of the proceedings was wildly out of proportion so that it is just not to award costs in their favour.  That the defendants are not the real winners of this case simply provides one more ground for depriving them of their costs.

Whether plaintiff conceded costs

28.  With the great respect, this court is unable to accept Mr Yeung’s contention that the plaintiff by agreeing to the dismissal of their claim and by conceding liability on the defendants’ counterclaim, also conceded costs in favour of the defendants.  The contention is completely misconceived and devoid of merits.  I should say no more on this. 

Conclusion

29.  Based on all of the above, this court maintains the view that there should be no order as to costs.  The order nisi is hereby made absolute. 

30.  As regards the costs of this application, parties have agreed that costs should follow the event.  I therefore order that the defendants pay the plaintiff’s costs (with counsel certificate) of this application.