MICHAEL REID SCOTT v. THE GOVERNMENT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION

HCAL 188/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO.188 OF 2002

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RULING AS TO COSTS

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Introduction

1. On 12 November 2002, the applicant instituted judicial review proceedings seeking a declaration that the Public Officers Pay Adjustment Ordinance, Cap.574 ('the Ordinance') offends the Basic Law and is of no force or effect.

2. The applicant was not the first to seek such a declaration. Prior to his institution of proceedings three other applications for judicial review had been filed. Two of those earlier applications, I will call them the 'lead cases', were heard in May 2003, both being dismissed in terms of a judgment handed down by myself on 10 June 2003.

3. After the dismissal of the lead cases, directions hearings were held to determine how best to deal with those applications (including that of the applicant) which had not yet been determined. In the result, of the remaining applications, only the applicant's proceeded to a substantive hearing. That hearing took place in October 2003.

4. In a judgment handed down on 7 November 2003, I dismissed the applicant's application. In respect of costs, I said the following (para.97) :

"... the applicant has earlier in the proceedings filed extensive written submissions as to why, even if unsuccessful in this matter, he should not in any way be penalised in costs. Accordingly, if the respondent seeks costs, the matter should be set down for hearing so that oral submissions may be made."

5. The respondent ('the Government') now seeks its costs and, if successful, a gross sum assessment in lieu of taxed costs pursuant to O.62, r.9(4)(b) of the Rules of the High Court.

6. The applicant, however, contends that, in the circumstances of this case, the appropriate order should not be the normal order anticipated in O.62, r.3(2); namely, that costs should follow the event, but should instead be an order in terms of which the Government is deprived of its costs. The applicant's submissions in support of his contention may be said to fall under four broad headings :

(i)	That the Government, in making equivocal statements acknowledging the contentious legality of the pay reduction issue, conducted itself in a way which led the applicant to believe that he had a good cause of action. It was therefore the Government's own conduct which induced the applicant to institute proceedings.
(ii)	That the applicant's application for judicial review was not in any event a 'run of the mill' public law challenge. It was a test case raising constitutional issues of great public importance which, if successful, would have enured to the benefit of a substantial class of persons; that is, all public officers affected by the Ordinance.
(iii)	That at a directions hearing held on 26 June 2003 to determine whether the applicant's application for judicial review should be adjourned pending the determination of possible appeals to be lodged by the applicants in the lead cases or whether it should proceed directly to a substantive hearing, counsel for the Government gave incorrect information to the court. That information was material and may have misled the court in its determination of the best way forward. In the circumstance, the Government cannot expect to secure its costs when it should have been 'more vigilant' to protect the integrity of the litigation process.
(iv)	That the Government's conduct was calculated to occasion unnecessary litigation and expense. This was manifested by the Government's refusal to give to the applicant an undertaking that, without any need on his part to institute proceedings or continue with them, he would be recognised as a party to the litigation already instituted (in the event) by the lead cases. Such recognition was necessary to protect his interests should the constitutional challenge to the Ordinance succeed in the Hong Kong courts, resulting in the quashing of the Ordinance, only to have the Ordinance reinstated by an interpretation obtained from the Standing Committee of the National People's Congress ('the NPC') pursuant to art.158 of the Basic Law.

First ground : inducing the applicant to believe he had a good cause of action

7. A successful defendant may be deprived of his costs if there is evidence that his conduct was such as to lead the plaintiff reasonably to think that he had a good cause of action; in short, if it was such as to induce the plaintiff to bring his action.

8. In Bostock v. Ramsey [1900] 2 QB 616, Vaughan Williams LJ said :

" The only question in this case comes to be whether there was conduct on the part of the defendants which can be considered as having led to the action being brought, and but for which it probably never would have been brought."

9. In Ritter v. Godfrey [1920] 2 KB 47, at 61, Atkin LJ, in approving of the principle, said he was inclined to think that, to prevent the principle being of almost universal application, it should be subject to the conduct of the successful defendant being unreasonable or improper and, in addition, being conduct other than that which constituted the alleged cause of action.

10. In my judgment, for the principle to apply so that a successful defendant is deprived of his costs there must have been something of a material nature in his conduct prior to litigation which induced the unsuccessful plaintiff to think it had a good case when it did not, something other than the conduct which itself constituted the alleged cause of action.

11. In the present case, the applicant contends that the conduct of Government in bringing the Ordinance into being constituted such an inducement. The inducement, he said, arose out of the following history :

(i)	In March 2002, in his budget speech, the Financial Secretary proposed a cut in the pay of public officers.
(ii)	In a letter dated 28 May 2002 addressed to public officers, the Secretary for the Civil Service confirmed that the reduction would be effected by means of legislation. In that letter, he said that Government had come to the conclusion that -
	" ... legislation is the only viable means to implement with certainty a justified decision of a modest pay reduction made strictly in accordance with the established mechanism for civil service pay adjustment. Based on legal advice, since many of the contractual arrangements between the Government and serving civil servants do not contain an express authority for the Government to reduce pay, there is a serious risk that implementation of a civil service pay reduction without legislation would be subject to a successful legal challenge. In such an eventuality, considerable uncertainties will ensue, and the good governance of the HKSAR and the stability of the civil service will be seriously affected."
(iii)	The Law Officer (Civil Law) had earlier advised the Secretary for the Civil Service that :
	" ... the only safe way to achieve a lawful reduction in civil service pay is through legislation. If legislation to reduce pay is enacted the risk of a successful legal challenge would be significantly reduced."
(iv)	In June 2002, in moving the second reading of the bill, the Secretary for the Civil Service spoke in terms similar to those expressed in his letter of 28 May 2002 :
	"Our main reason for seeking to implement the pay reduction by legislation is that the contractual employment arrangements between the Government and the vast majority of serving civil servants do not contain an express provision authorising the Government to reduce pay. ... The legal advice we obtained is that on the basis of decided cases, the courts are unlikely to accept that [the provision in the contractual employment arrangements conferring on the Government the general right to alter an officer's terms and conditions of appointment and conditions of service] could apply to such a fundamental term as the salary. It is possible that the Government would face legal challenges if it relies solely on this provision to implement the decision on a civil service pay reduction. Any civil servant can challenge the Government's decision in court."

The Secretary continued :

	" ... Article 100 of the Basic Law provides that public servants in all Hong Kong government departments before the establishment of the Hong Kong Special Administrative Region (SAR) 'may all remain in employment and retain their seniority with pay, allowances, benefits and conditions of service no less favourable than before.' ... Since nominal civil service salaries would not be lower than the level on 30 June 1997 after the pay reduction, there would be no question of breaching the provisions under Article 100."
(v)	The Ordinance came into effect on 19 July 2002.

12. The applicant contends that the effect of this history was to give rise to a reasonable belief on his part (and other aggrieved public officers) that he had a good cause of action since, to express it in his words :

(i)	the Government had effectively conceded that the weight of case law prevented it from unilaterally reducing pay and that an attempt to do so could be successfully challenged in the courts.
(ii)	this concession by Government amounted to an implicit invitation, even if unintended, to aggrieved public officers to consider whether redress should be obtained through the courts, and
(iii)	was conducive to a reasonable belief that the pay reduction was inconsistent with art.100 of the Basic Law.

13. I have had difficulty following the logic of these submissions. Clearly, the Government accepted that without legislation it was vulnerable. But equally clearly it believed that legislation would remove that vulnerability and would, in addition, comply with the Basic Law. As I see it, therefore, far from indicating to public officers that a challenge under the Basic Law would constitute a good cause of action, the conduct of Government was at all times to indicate to public officers that a challenge under the Basic Law would not constitute a good cause of action. What Government quite manifestly was attempting to do (in a transparent fashion) was to construct the legal means by which civil service pay could be reduced across the board without giving rise to litigation (of whatever nature) that would place it in a vulnerable position. Far from inducing public officers to believe they had a good cause of action, Government was doing its best to construct ramparts to dissuade public officers from taking action.

14. The principle in Bostock v. Ramsey had no application in the present case.

Second ground : the applicant's challenge amounted to a test case of general public importance

15. If an action is brought in the public interest, often as a test case, so that the law may be clarified and if that clarification will benefit a large class of persons or the public generally, those circumstances may warrant a court in making a costs order that does not follow the event.

16. It is the applicant's contention that his action was a test case; that it raised important issues of public law which not only went towards clarifying the law but stood to provide tangible benefits to a large class of persons; namely, public officers. In such circumstances, he has submitted that an order for costs adverse to him should not be made.

17. In my view, however, while I do not dismiss the applicant's assertions in this regard as being without merit, they have been pitched too high.

18. First, not all public law challenges, even if constitutional issues of importance are raised, bring with them an automatic protection against adverse costs orders. Each case will depend on its own circumstances. The rule that costs should generally follow the event applies in public as well as private law matters. What cannot be ignored is that when an unsuccessful claim is brought against a public body, that body must expend costs in defending its position, those costs, as in the present case, coming from public funds.

19. Second, the applicant's challenge was not a public interest challenge in its proper sense. The essential characteristics of such a challenge are not only that issues of general importance are raised but that the applicant has no private interest in the outcome. See R v. Lord Chancellor, ex parte Child Poverty Action Group [1999] 1 WLR 347, at 353G. In the present case, the applicant's stated purpose for making his challenge was to protect his own terms and conditions of employment. Even though issues of general importance were raised, the applicant was therefore looking to protect his own private interests.

20. Third, the applicant's challenge did not stand on its own as a single test case. It was preceded by the lead cases. It was these cases that forged the way, testing the constitutional fabric of the Ordinance. Nor could it be said that the lead cases were impoverished in the nature and extent of their challenges.

21. Viewed in that context, in my view, the applicant's contentions lose much of their potency and, standing on their own, are not sufficient to persuade me to make an order that frees the applicant of any liability for costs.

Third ground : the court being materially misled

22. In my judgment of 10 June 2003, I dismissed the applications for judicial review made in the lead cases. Thereafter, a number of directions hearings were held in order to determine how best to deal with the outstanding applications, including that of the applicant.

23. Counsel for the respondent were on all occasions keen to bring the outstanding applications to final determination rather than adjourning them sine die to await the outcome of any appeals lodged in the lead cases. At a hearing held on 26 June 2003, in advocating an early determination of the outstanding applications, senior counsel for the respondent, Mr Joseph Fok SC, is recorded as saying the following :

MR FOK :

There is ... an overwhelming public interest, I would submit, in resolving this one way or the other now - and when I say now, I mean very, very shortly - for this reason : that it places the administration in an intolerable situation of never being able to interact with the legislature whilst there are, in theory, applications pending. And I don't wish to, as it were, exaggerate that factor, but it's a very, very important feature of this case."

24. It is the applicant's contention that a study of various documents, more especially the report of the Bills Committee formed to consider the Public Officers Pay Adjustments (2004/2005) Bill, makes it clear that Mr Fok's submissions, while not intended to be misleading, were, in fact, materially incorrect. In his affidavit of 7 January 2004, the applicant said that the report of the Bills Committee (dated 28 November 2003) made it clear that Government had had no difficulty in presenting its case for new legislation to the legislature and that it was therefore quite wrong to suggest that outstanding litigation placed the Government in an 'intolerable' position. This affected the issue of costs, said the applicant, for a number of reasons. More particularly, in his affidavit, he said the following; namely, that this Court -

" ... may (or may have been likely to) have been influenced - by what has proved to be incorrect information ... to conclude, for example, that, in such circumstances, the wider public interest in the finality of litigation restricted the options for proceeding in a way which would better protect the rights of the remaining applicants to access to justice. Such conclusion may in turn have been material to [this Court's] decision to direct (on 1 September 2003) a full hearing of [the outstanding applications] which the correct information tends to show was premature and, therefore, lengthier and costlier than a hearing following an appellate judgment (if any) in [the lead cases]."

He continued by saying :

" ... the undue haste inequitably insisted upon by the Respondent, for its own purposes or trial tactics, pre-empted the reasonable case management options which existed to avoid unnecessary litigation and expense ..."

25. I do not intend to go into the question of whether or not Mr Fok's submissions were misleading. Suffice to record that the allegation is denied. To determine this matter, I find it necessary to refer to two matters only.

26. First, while I took note of Mr Fok's submissions, they did not determine my ruling on that day. To the contrary, I ordered that the directions hearing be adjourned to a date when it was anticipated that it would be known whether the lead cases had appealed. In respect of Government's ability to process new legislation, I commented :

" ... as always in these matters, it is a question of balance and, as I have said earlier, I do not want this Court, especially in respect of important matters of public law - and public law by definition is law which is for the benefit and protection of the public - inadvertently to oust the public from their right to have these matters heard properly by placing too much emphasis on the requirement for the Administration to go ahead with its own responsibilities."

27. Second, far from wishing to have his own application held in abeyance to await the outcome of any appeals advanced by the lead cases, the applicant came to be in agreement with Mr Fok that, in respect of his case at least, it should not be adjourned sine die. In short, the applicant's case was not brought on for hearing against his wishes.

28. In light of these two matters, I do not see how it can be said that, even if Mr Fok's words were factually wrong or over-stated, they caused the applicant any actual prejudice.

29. Actual prejudice, of course, is not always the test. If the conduct of a party in litigation is grossly improper, that party may, it seems to me, be deprived of its costs as a mark of the court's disapproval even if the conduct has caused no clear and assessable prejudice to the other party. In the present case, however, I am satisfied that the advocacy of Mr Fok fell far short of any suggestion that it may have constituted any form or degree of improper conduct.

Fourth ground : Government's conduct was calculated to occasion unnecessary litigation and expense

30. This, on my reading of the applicant's submissions, constituted his principal ground of opposition to an order for costs being made against him. The applicant's contentions arise out of the following history.

31. On 8 July 2002, the Legislative Council Panel on Administration of Justice and Legal Services ('the Panel') issued a report. In that report it was recorded that certain members of the Panel had expressed concern that, when the NPC was requested pursuant to art.158 of the Basic Law to make an interpretation, that interpretation "displaced the precedential value of the Court of Final Appeal's judgments". This was so because under art.158 "non-representative applicants" were deprived of any benefit acquired under the Court of Final Appeal's judgments as they were not "the actual parties in the relevant legal proceedings". This, in the view of the members, gave rise to concern as to how multi-party public law cases involving Government as a party "should be handled in the future". The report went on to record that the Department of Justice had responded to those concerns. The manner in which it had done so was described in paragraph 37 of the report :

" ... the Department of Justice explained that the perceived problem did not arise only in respect of an interpretation of NPCSC under Basic Law 158(1). There were other situations in which the precedential value of a court's judgment could be lost in a way that could prejudice those who were not parties to the previous litigation. If a public law litigation in future involved a large class of potential claimants, a specific undertaking could be given by the Administration to individuals (who could be identified as being covered by the undertaking) to the effect that they would be treated as if they were parties to the litigation. This would obviate the need for all claimants to join in the proceedings and would ensure that they would all benefit from (or be bound by) the court's final decision." [my emphasis]

32. The applicant was deeply concerned that, unless he became a party to a successful challenge to the lawfulness of the Ordinance, he would be at risk of not benefiting from that challenge. Put shortly, if the challenge was successfully made in the Hong Kong courts and the matter taken no further, then the Ordinance would be struck down and all public officers would benefit. If, however, the Government sought an interpretation from the NPC and that interpretation affirmed the lawfulness of the Ordinance then, unless he was an actual party to the Hong Kong litigation, that interpretation would remove any benefit to which he would otherwise have been entitled.

33. That being the case, the applicant wrote to the Secretary for the Civil Service to suggest that he be given the sort of undertaking that Government itself had suggested to the Panel may be appropriate in cases involving a " large class of potential claimants". In that letter of 29 October 2002, the applicant went to pains to explain his position. He said the following :

" It is important to note that ... there is no provision in the Rules of the High Court for representative or multi-party proceedings (similar to those in civil actions) to be taken in judicial review. Individuals who wish to be certain of benefiting from a possibly successful result of a judicial review have to apply for judicial review themselves at (or nearly) the same time as the first applicant filed a notice of application. Another, but less certain, option is for those who are adversely affected by the action of a public authority to rely on the public authority to apply the judgment as having precedent value in their favour. If that did not occur, they would have to take enforcement action against the public authority on their own behalf further to the principle that, if they are similarly placed, they have a right to be treated equally with the successful parties in the judicial review proceedings.

However, you may be aware that, as a result of last January's judgment of the Court of Final Appeal in Ng Siu Tung, enforcement under this principle would not be possible (even if the judicial review succeeded up to the Court of Final Appeal), were the government to apply successfully to the Standing Committee of the National People's Congress for an interpretation of the Basic Law which had the effect of overturning a successful judicial review only those individual officers who were actual applicants in the judicial review would be protected against such a result under Article 158 of the Basic Law. Assuming that they are aware of this legal position, it is up to individual officers who are victims of the pay reduction to consider whether or not they would also wish to be applicant's for judicial review. Alternatively (also further to Ng Siu Tung), they could request the government to give a clear and unambiguous undertaking (enforceable under the doctrine of legitimate expectation) to them as individuals to the effect that they would benefit from a successful court challenge to the pay reduction."

The applicant then made the following request :

" In both my staff union and individual capacities, I would be grateful if, at your earliest convenience, you would confirm whether or not the government will give such an undertaking to all officers who are victims of the pay reduction to enable them to consider if they should (or need to) themselves become applicants for judicial review."

34. By letter dated 13 November 2002, the applicant was informed that the Government was not prepared to give the undertaking that the applicant had sought. No reasons were given, no explanation offered.

35. The applicant had, in fact, filed his notice of application to apply for judicial review on 12 November 2002, a day or so before receiving Government's letter refusing to give an undertaking. Time constraints, however, would have compelled him to do so and I do not see that that point of chronology advances the matter one way or the other.

36. Expressed succinctly, it is the applicant's contention that had the Government given the requested undertaking, he could and would have awaited the result of the lead cases and would not himself have had to commence proceedings for judicial review to protect his legal rights. The Government's refusal to give the undertaking, therefore, caused unnecessary litigation and expense.

37. Why was it then that the Government, having suggested a convenient mechanism for cases of exactly the kind that were being instituted in the present case, nevertheless declined to put that mechanism into place?

38. On behalf of the Government, it was argued that at that early stage it could not be said that the litigation being instituted involved a large class of potential claimants. I reject that. It must have been obvious to Government at the time that potentially virtually all public officers were claimants.

39. It was further submitted that for Government to be forced to give an undertaking at that early stage would have 'tied its hands', committing it effectively never to pursue a course in terms of art.158 notwithstanding what the courts may or may not pronounce. But why would Government's hands be tied? If the Ordinance was pronounced unconstitutional by the Court of final Appeal the Government could still seek an interpretation from the NPC for prospective purposes; that is, in order to receive an assurance that it could pass further legislation diminishing civil service terms and conditions without fear of constitutional challenge.

40. Having considered the submissions made at the costs hearing, I have been drawn to one inference only; namely, that Government refused to give the undertaking for tactical reasons. It did not wish to open the flood gates. But why? The Ordinance was intended to affect a whole class of persons so why should not that class as a whole benefit from a finding by Hong Kong's highest court that the Ordinance was constitutionally flawed?

41. The applicant has complained that Government's refusal to give him an undertaking amounted in all the circumstances to an attempt to deny him access to justice. In his submissions, he expressed himself in the following way :

" The Respondent [Government] is attempting to 'have its cake and eat it' by nevertheless wanting to claim its costs under the common law system, when it could have avoided any costs at all by following a mechanism which the Respondent itself had ... proposed in a paper to the Legislative Council (and to the Director of Legal Aid, the Judiciary Administrator and the Bar Association, and also the public at large by publication on the Legislative Council's website) as providing a solution to the problems posed by Article 158 for multi-party litigation in public law cases."

42. In my view, there is substance in that complaint. As I have said earlier in this ruling, each case must be decided on its facts. I therefore make no attempt to set a general precedent. But on the facts of this case, read in its legal and historical context, I am satisfied that Government, having refused to give an undertaking for what could only have been tactical purposes, has indeed attempted, in seeking costs from the claimant, to 'have its cake and eat it'. This is not to criticise Government's conduct as improper as such but, in my view, it does go to the issue of whether the applicant should be penalised in costs.

43. It has been argued that the applicant, having filed his judicial review proceedings, was, however, not content to sit back as a party in form rather than substance, awaiting the outcome of the lead cases. But by then, of course, the applicant had been forced into litigation. Nor did Government in any way during the course of proceedings soften its stance concerning any form of undertaking. To the contrary, Government pressed for an early determination of the applicant's challenge. The applicant faced the dilemma of abandoning his action and paying costs or pressing ahead with what he believed were good grounds of challenge. Yes, litigation involves these kind of risks. But the applicant need never have been placed in that position if the undertaking had been given.

Conclusion

44. This has not been the easiest matter to resolve. I have concluded, however, that there are merits in the applicant's fourth ground and that this, combined with the lesser merits contained in the second ground, demand that, in the circumstances of this case, the applicant should not be penalised in costs. In my judgment, an order of no order as to costs (to include the costs proceedings themselves) will best reflect the equities. Accordingly, that is the order I make.