THE INCORPORATED OWNERS OF HIU KWONG COURT AND HIU MING COURT v. YIP HUNG LILY

DCMP 735/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 735 OF 2013

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D E C I S I O N

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1.  This is the defendant's application to vary the costs order nisi I made on 31 March 2016 in the present action. The defendant asks that there be no order as to costs of her failed application before me on the basis that the plaintiff had, up to the hearing of 18 March 2016, challenged the defendant's case on irregularity of service but failed on that issue. On the other hand, the defendant failed to set aside the order for sale, hence the present proposal on costs.

2.  Mr Lam for the defendant referred me to Order 62 rule 5 which sets out the manner in which this court should exercise discretion as to costs and the factors that this court may take into account.  Mr Lam also referred me to various authorities which set out the basic principles that costs following the event is just a starting point and that since the Civil Justice Reform the court has been more ready to take an issue-based approach and 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.  In this connection, that party does not have to be unreasonable in having raised those issues.  Whether or not the court should deprive a party of his costs depends on all the circumstances (see Commissioner of Inland Revenue v HIT Finance Limited No. 2 [2014] Vol 4 HKLRD 412, paragraph 7).

3.  A bit of the background: In October 2015 the defendant took out the summons to set aside the order for sale in question together with a supporting affirmation alleging that the plaintiff knew she did not live in the property in question. In response, the plaintiff's solicitors filed an affirmation in opposition.  In the first part of the affirmation, the deponent queried the propriety of the defendant's application and suggested that the proper application should also have the sale of the property set aside. 

4.  In the latter part of the same affirmation, the deponent dealt with the issue of service and highlighted the plaintiff's difficulty in enquiring with the former management company regarding the defendant's allegations made in her supporting affirmation. 

5.  In reply, the defendant filed a longer affirmation challenging the plaintiff's belief of the effectiveness of service by insertion of the court paper into the letterbox to the property and at the same time providing more information regarding the renovation of the whole building, of which the property forms part, particularly the replacement of the letterbox and the security gate to the building.

6.  From January 2016 or towards the end of January 2016, the legal representatives of the parties engaged in an exchange of letters regarding the way forward.  By its legal representative's letter of 29 January 2016, the plaintiff indicated to the defendant that while not accepting the defendant's alleged lack of notice, the plaintiff was prepared to accept that the defendant had, on the basis of her allegations, made out an arguable case of ineffective/irregular service and had a right to claim against the plaintiff for irregular/unlawful sale of her property. 

7.  In the same letter, the plaintiff pointed out that if the defendant intended only to set aside the order for sale to pave way for her intended damages claim against the plaintiff instead of having the sale itself set aside, then there would be no need or purpose for the defendant to proceed with her application.  This was because the plaintiff would not object to the defendant's intended claim against the plaintiff on the basis of the existence of the order for sale and because there was nothing left in DCMP 735/2013 for the defendant to defend. It was therefore suggested that the defendant should withdraw her summons while costs of the same be in the cause of the defendant's intended action or otherwise be disposed of by the court.

8.  There came a reply from the defendant's solicitor three weeks later, first challenging the plaintiff's alleged difficulty in taking instructions and then arguing that the plaintiff had no defence to the defendant's application.   The author went on to suggest that the proper procedure must be to set aside the order for sale with costs to the defendant.  No explanation for the suggestion was offered but the defendant or the author was clearly taking the view that the court had no choice but to set aside the order for sale once irregularity of service is proven.

9.  The plaintiff's solicitor promptly replied and pointed out that the defendant's letter had not addressed the issue as to what should happen next if the order for sale alone is set aside when there is nothing left for the defendant to defend.

10.  A week or so later, the defendant's solicitor wrote back referring to the plaintiff's "admission" as per its letter of 29 January 2016 and went on to say he did not see why the order for sale should not be set aside given the "admission".  The author then suggested that in order for this action to come to an end after the order for sale is set aside, the action should be dismissed.  The author stopped short of explaining why a dismissal of the action would be warranted given the rightful claim of the plaintiff in the first place. 

11.  A short reply from the plaintiff prompted the defendant's letter of 8 March 2016 to which Mr Lam drew my particular attention today.  In this letter, among arguments between lawyers, the defendant's solicitor repeated that given the plaintiff's "admission" he did not see why the defendant should withdraw the summons and then twice or rather thrice repeated that the proper step must be to have the order for sale set aside to reflect the plaintiff's "admission" and to dismiss the action.  Again, no reasons were given, nor was there any attempt to address the plaintiff's concern expressed in the previous letters. 

12.  I need not go into the details of the next round of exchange of correspondence other than to highlight the fact that the plaintiff's solicitor, correctly in my view, pointed out in their next letter that the real battleground between the parties was in the future action, with or without the purchaser.  No constructive response came from the defendant and there came the hearing before me in March.

13.  Before me today, Mr Chain for the plaintiff indicated that the plaintiff is happy with the costs order nisi but otherwise suggests that the costs incurred by the parties up to a reasonable time after the plaintiff's concession in January 2016 can be left to the defendant's claim as costs in the cause provided the defendant commences action within, say, the next three months and the rest of the costs of the defendant's failed application should be to the plaintiff anyway.

14.  In my view, one need not go beyond established principles to resolve the parties' disagreement here.  It is not in dispute that the plaintiff succeeded in resisting the defendant's application for setting aside the order for sale alone on grounds that largely found favour with this court and Mr Lam does not dispute the fact that the plaintiff was the winner in the defendant's application. 

15.  As Mr Chain for the plaintiff rightly submitted, the real dispute between the parties was always, or at least since the plaintiff's concession, whether the order for sale be set aside on its own, not whether the default judgment was regular or whether the defendant was entitled to issue a claim for damages.  And before me, the plaintiff's argument prevailed.

16.  On the other hand, the plaintiff can of course be said to have failed on the issue of regularity or otherwise of the service of process here.  That said, I do wonder if that issue is a distinct issue among the many others or just a usual basis for setting aside an order obtained by default.

17.  Assuming that the issue-based approach is to be taken, the question to be asked would be whether the plaintiff's challenge on the defendant's allegations about her lack of notice of these proceedings, reasonable or otherwise, had caused a significant increase in the length or costs of the proceedings. 

18.  In that regard, it is relevant to note a number of things: First, service of process here was effected by insertion into the letterbox to the property. That being so, service was deemed to have been effected within 7 days.  It would be for the defendant to prove otherwise.  The defendant was therefore obliged to prove her lack of notice in the first place irrespective of the plaintiff's stance on her knowledge. 

19.  In the face of the defendant's application, the plaintiff's solicitor, as said, did file one affirmation in opposition which addressed both the propriety of the defendant's summons as well as the defendant's alleged lack of notice. Regarding the latter issue, the contents of the affirmation appeared to me to be consistent with the deponent's professed difficulty in making enquiries regarding the defendant's allegations in the affirmation in support of her application.

20.  The defendant then filed an affirmation in reply providing further information on her lack of knowledge which, in my view, could have been included in her first affirmation.  The plaintiff then filed no more affirmation to challenge the defendant's assertion before making the concession it did via its solicitor's letter of 29 January 2016. 

21.  In light of the above, I must say, for one thing, I do not find the plaintiff to have been unreasonable in challenging the defendant's lack of notice, or better say, putting the defendant to strict proof of her lack of notice.  For another, I am unable to say that the plaintiff's affirmation or the plaintiff's only affirmation in opposition can be said to have significantly increased the length or costs of these proceedings when the defendant was, as I said, obliged to make good her case on her lack of notice in any event.

22.  As it transpired at the hearing before me, counsel hardly needed to deal with the issue of irregularity of service and the discussion in court focused largely on whether the order for sale could or should be set aside without the sale being set aside at the same time.  More importantly, I do not think the hearing before me could have been avoided in light of the defendant's stance towards the plaintiff's concession or the plaintiff's suggestions made since January 2016.

23.  With the greatest respect to the defendant's legal representative, I do not find the defendant's letters in reply to the plaintiff's letters constructive at all. In the circumstances, I can see no basis for depriving the plaintiff of any part of its costs in relation to the defendant's failed application.  That my ruling on regularity, or rather, irregularity of service may be beneficial to the defendant in her future action does not deflect from the fact that the defendant had failed to obtain the order she sought from me on grounds of irregularity of service. 

24.  The defendant's summons of 13 April 2016 should therefore be dismissed with costs to the plaintiff to be taxed if not agreed with certificate for counsel, and this is my ruling.