COMMON LUCK INVESTMENT LTD. v. DIRECTOR OF LEGAL AID

FACV No. 1 of 2002

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 1 OF 2002 (CIVIL)

(ON APPEAL FROM CACV NO. 375 OF 2001)

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J U D G M E N T

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Chief Justice Li:

1. I agree with the judgment of Mr Justice Bokhary PJ.

Mr Justice Bokhary PJ:

Introduction

2 This appeal concerns the liability of the Director of Legal Aid ("the Director") to pay costs awarded to non-aided persons against legally-aided persons. Such liability is governed by ss 19 and 16C of the Legal Aid Ordinance, Cap. 91. Section 19(1) empowers the courts to make orders for costs in favour of or against legally-aided persons in the same manner and to the same extent as they may make orders for costs in favour of or against other persons. But it provides that such orders may only be enforced against legally-aided persons and the Director to the extent permitted by section 16C.

3. In so far as is material to the present case, which is between a non-aided person and the Director, s.16C provides that:

" (1) ... the liability of an aided person and of the Director for costs shall be determined in the following manner -

(a) ...

(b) where a court or the Court of Final Appeal makes an order for costs against an aided person, or an agreement is entered into for the payment of costs by an aided person, in favour of a person not receiving legal aid -

(i) in any case in which the party not receiving legal aid is a defendant or respondent in the proceedings (other than a defendant or respondent to a counterclaim or cross-petition), or in the case of an appeal (including an appeal to, or an application for leave to appeal to, the Court of Final Appeal) is a respondent therein (other than a respondent to a cross-appeal) such costs shall be paid by the Director;

(ia) in any case in which the party not receiving legal aid is a defendant to a counterclaim or respondent to a cross-petition, or in the case of an appeal (including an appeal to, or an application for leave to appeal to, the Court of Final Appeal) is a respondent to a cross-appeal, the costs occasioned by the counterclaim, cross-petition or cross-appeal filed by or on behalf of the aided person shall be paid by the Director;

(ib) in any case in which the party not receiving legal aid is an appellant in an appeal (including an appeal to, or an application for leave to appeal to, the Court of Final Appeal) and in the court whose judgment or order is appealed against the plaintiff was an aided person, such costs shall be paid by the Director; and

(ii) in any other case, neither the Director nor the aided person shall be liable for such costs unless a contribution is payable by the aided person under section 18(1)(b); in which case the Director on behalf of the aided person shall pay such costs to the extent that the contribution is in excess of the costs incurred by the Director on behalf of the aided person; ..."

4. The result of this appeal turns on the true construction of this section and its application, so construed, to the circumstances of the present case as correctly analysed.

5. In the present proceedings a non-aided person, Common Luck Investment Ltd ("Common Luck"), sues the Director for certain costs which had in earlier proceedings been awarded to it against a legally-aided person with a nil contribution.

6. Those earlier proceedings consisted of: (i) judicial review proceedings commenced by Common Luck which were later continued as if begun by writ and involved a claim by Common Luck which failed at first instance and a counterclaim against Common Luck which succeeded at first instance; (ii) an unsuccessful appeal by Common Luck to the Court of Appeal; and (iii) a successful appeal by Common Luck to this Court. They culminated in our judgment in Common Luck Investment Ltd v. Cheung Kam Chuen (1999) 2 HKCFAR 229. Mr Cheung Kam Chuen became a party when he was appointed to represent the estate of his late father, Mr Cheung Siu Ming, who had been the party in litigation with Common Luck. I will refer to Mr Cheung Kam Shing as "the father" and to Mr Cheung Kam Chuen as "the son".

7. This Court awarded Common Luck costs here and below in the earlier proceedings. In the present proceedings, Common Luck seeks declarations that the Director is liable to it for its costs at first instance of the father's counterclaim in the earlier proceedings, including those of the initial judicial review proceedings, and for its costs of the two appeals in the earlier proceedings. The Director accepts that he is liable to Common Luck for what I will refer to as "the undisputed costs", namely Common Luck's costs of the father's counterclaim from the time when the initial judicial review proceedings were continued as if begun by writ. But he does not accept that he is liable to Common Luck for what I will refer to as "the disputed costs", namely the rest of the costs for which Common Luck seeks to make him liable.

8. The state of play in the present proceedings is as follows. On 22 January 2001 Common Luck succeeded at first instance before Deputy Judge Muttrie who declared that the Director was liable to Common Luck for the disputed costs as well as the undisputed costs. But on 4 December 2001 the Director won in the Court of Appeal (Mayo VP, Woo JA and Yeung J) which adjudged that he was only liable to Common Luck for the undisputed costs but not the disputed costs. As for the costs of the present proceedings themselves, Deputy Judge Muttrie awarded Common Luck costs, but the Court of Appeal awarded the Director costs there and below. Common Luck now appeals to this Court.

How the earlier proceedings were constituted and the course they took

9. Reverting to the earlier proceedings, it is necessary to examine in some detail how they were constituted and the course which they took at each stage. I now do so.

10. The subject-matter of the earlier proceedings was the compensation payable by the Government in consequence of its resumption in 1991 of a certain piece of agricultural land in the Yuen Long district of the New Territories. Prior to the resumption, Common Luck had in 1977 purchased the land from the liquidator of the bank to which the father had in 1964 mortgaged the land. The father had acquired the land in 1962 under an assignment pursuant to a deed of gift. He farmed the land and lived on it with his family. In 1963 he mortgaged the land to the Canton Trust and Commercial Bank ("the bank"). The loan secured by this mortgage was repaid, and this mortgage was redeemed. But in 1964 the father mortgaged the land to the bank to secure another loan. This time he defaulted on repayment, and the 1964 mortgage has never been redeemed. In 1965 the bank went into liquidation. It never entered into possession of the land. The father continued to occupy the land.

11. In 1977 Common Luck purchased ? and took an assignment of ? the land from the liquidator of the bank. And at the time of the resumption, the land was registered in Common Luck's name. The dispute over who was entitled to the compensation arose because the father put himself forward as the person who owned the land at the time of the resumption. And the Government was not prepared to release the compensation until the dispute was resolved.

12. In 1994 Common Luck moved for judicial review of the Government's refusal to release the compensation to it. With legal aid, the father intervened in the judicial review proceedings.

13. By an order dated 13 December 1994 Mayo J (as he then was) ordered that the judicial review proceedings continue as if they had been begun by writ. He also ordered that Common Luck be the plaintiff while the father be the defendant (unless the father failed to produce the original assignment to him of the land within seven days, in which case their roles would be reversed). This document was produced in time, and so the role-reversal provision did not come into operation.

14. Common Luck claimed a declaration that it was entitled to the compensation. The father counterclaimed a declaration that he was entitled to the compensation. Common Luck's case was simple. It relied on the registration in the Yuen Long District Land Office of the Conveyance of Sale dated 8 July 1977 by which the land had been assigned to it by the liquidator of the bank to which the father had mortgaged the land.

15. The father's case, on the other hand, was somewhat involved. It consisted of two limbs. Under the first, he denied executing the 1964 mortgage. No such mortgage was ever found. But the fact of it having been executed by the father was evidenced by a memorial dated 19 May 1964 signed by him and registered in the New Territories Administration's land register. And he, having suffered a stroke which adversely affected his memory, was driven to expressing the belief that dishonest employees of the bank had duped him into signing the memorial and then used it to misappropriate money which they pretended had been loaned to him.

16. Under the second limb of his case, the father pleaded in his defence and counterclaim that, if he had executed the 1964 mortgage, then he had acquired possessory title to the land through over 20 years' adverse possession thereof after default in repayment under that mortgage.

17. On 3 December 1997 Deputy Judge Whaley found that the father had executed the 1964 mortgage. But the judge, dismissing Common Luck's claim and giving judgment for the father on his counterclaim, declared that the father had acquired possessory title to the land and was entitled to the compensation. The judge awarded the father his costs of the claim and the counterclaim.

18. On 28 May 1998 the Court of Appeal (Godfrey, Leong and Rogers JJA) dismissed Common Luck's appeal to it with costs. The Court of Appeal did so on the basis of its view that the judge was correct to decide in the father's favour on the issue of possessory title. It did not consider it necessary to deal with the father's respondent's notice asking that the judge's judgment be affirmed, alternatively, on the ground that the judge should have found that he had not executed the 1964 mortgage.

19. Finally the matter came to this Court, where the son was appointed to represent the father's estate. The son contended that the father ought not to have been found to have executed the 1964 mortgage or, alternatively, that the father had rightly been held to have acquired possessory title. Neither contention prevailed. On 11 June 1999 this Court allowed Common Luck's appeal to us with costs here and below. So Common Luck got the compensation. But can it recover the disputed costs?

Section 16C summarised: seven situations

20. At this point, it is worthwhile summarising the provisions of s.16C of the Legal Aid Ordinance by outlining the seven situations in which a non-aided person who has been awarded costs against a legally-aided person can recover such costs from the Director. The non-aided person can so recover the costs of:

(1) any claim to which he was a defendant (s.16C(1)(b)(i));

(2) any petition to which he was a respondent (s.16C(1)(b)(i));

(3) any appeal to which he was a respondent (s.16C(1)(b)(i));

(4) any counterclaim to which he was a defendant to counterclaim (s.16C(1)(b)(ia));

(5) any cross-petition to which he was the respondent (s.16C(1)(b)(ia));

(6) any cross-appeal to which he was the respondent to cross-appeal (s.16C(1)(b)(ia)); and

(7) an appeal and the proceedings below even where he was the appellant if the legally-aided person had been the plaintiff below (s.16C(1)(b)(ib)).

Common Luck's primary argument on the disputed costs

21. By its primary argument on the disputed costs, Common Luck seeks to make the Director liable to it for all of the disputed costs. The first point urged by Common Luck under this argument is that its costs of the initial judicial review proceedings are part of its costs of the father's counterclaim. I reject this. It is plain that the initial judicial review proceedings, to which the father was not a party, were not part of the father's counterclaim. Section 16C(1)(b)(ia) speaks of the Director's liability for the costs "occasioned by" the legally-aided person's counterclaim. The costs of the initial judicial review proceedings were not occasioned by the father's counterclaim. That still leaves Common Luck's contentions which pertain to all of its costs of the two appeals in the earlier proceedings. One of these contentions is as to the facts. The others are as to the law.

22. The contention as to the facts is that the father was the "natural" plaintiff while Common Luck was the "natural" defendant. The first contention as to the law is that s.16C looks to substance rather than form, so that (i) its references to plaintiffs and defendants are to be read as references to "natural" plaintiffs and defendants and (ii) the father was such a plaintiff under item (ib) of subsection (1)(b). The second contention as to the law is that Order 15, rule 2 of the Rules of the High Court defines a defendant who files a counterclaim as a plaintiff.

23. In regard to the contention as to the facts, it is true that the burden of proof, both on the issue of whether the father had executed the 1964 mortgage and on the issue of possessory title later raised, lay on the father. It is also true that unless the father discharged his burden of proof on at least one of those issues, Common Luck was bound to succeed. In that sense, the father was the "natural" plaintiff while Common Luck was the "natural" defendant. It would have made good sense for Mayo J to have made the father the plaintiff and Common Luck the defendant. I dare say he would have done so if he had been invited to do so and that invitation had been accompanied by a submission as to the burden of proof and a reference to s.16C. But no such invitation at all was made, let alone one accompanied by such a submission and such a reference.

24. Turning to the first contention as to the law, I begin by observing that there is nothing in the language of s.16C which suggests that its references to plaintiffs and defendants are implicitly to be qualified so as to be read as references to "natural" plaintiffs and defendants. Expressions like "plaintiff" and "defendant" are well understood terms of art which appear without implicit qualification in statutes, rules, pleadings, judgments and court orders. So much for language, but what about context?

25. In many situations the law looks beyond form and at substance instead. That is done in order to arrive at reality. But in the present context, the reality is this. The obvious intention of s.16C is to provide a code by which a non-aided person's costs entitlement against the Director can be seen from the face of the court's order. This avoids disputes which might even result in further litigation. And it necessarily involves going by the parties' formal designation. In the vast majority of cases, form will naturally follow substance when it comes to who is the plaintiff and who is the defendant. The risk of a mismatch between substance and form in that regard can arise in a case like the present. I mean proceedings not begun by writ which are ordered to continue as if begun by writ, and in which directions are made as to who is to be the plaintiff and who is to be the defendant. But that risk can be catered for ? and I dare say will in future be catered for ? by submissions with an eye to s.16C's implications.

26. I would add that the sort of difficulty to which accepting this contention by Common Luck as to substance over form can lead is starkly illustrated by the circumstances of the present case itself. This is because, although Common Luck otherwise insists on substance, its entitlement as against the Director to its costs of the father's counterclaim is based on form. It is based on Common Luck being a non-aided "defendant to a counterclaim" under item (ia) of s.16C(1)(b).

27. The second contention as to the law can be dealt with quite briefly. Order 15, rule 1 deals with joinder of causes of action. In doing so, it speaks in terms of a claim by a plaintiff against a defendant. Then Order 15 turns to counterclaims. And rule 2(2) thereof provides that "Rule 1 shall apply in relation to a counterclaim as if the counterclaim were a separate action and as if the person making the counterclaim were the plaintiff and the person against whom it is made a defendant". What that does ? and all that it does ? is to provide that the rule relating to joinder of causes of action applies to a counterclaim in the same way as it applies to a claim. It is of no assistance to Common Luck for present purposes.

28. For the foregoing reasons, I reject Common Luck's primary argument on the disputed costs. And I turn now to Common Luck's alternative argument on the disputed costs.

Common Luck's alternative argument on the disputed costs

29. By its alternative argument on the disputed costs, Common Luck seeks to make the Director liable to it for at least the costs in the Court of Appeal pertaining to the issue of whether the father had executed the 1964 mortgage. Under this argument, Common Luck invokes item (ia) of s.16C(1)(b). And the argument is that the father's respondent's notice on the issue of whether he had executed the 1964 mortgage amounted to a cross-appeal because it involved a challenge to the judge's findings of act.

30. Order 59, rule 6(1) of the Rules of the High Court provides that:

" A respondent who, having been served with a notice of appeal, desires -

(a) to contend on the appeal that the decision of the court below should be varied, either in any event or in the event of the appeal being allowed in whole or in part, or

(b) to contend that the decision of the court below should be affirmed on grounds other than those relied upon by that court, or

(c) to contend by way of cross-appeal that the decision of the court below was wrong in whole or in part,

must give notice to that effect, specifying the grounds of his contention and, in a case to which sub-paragraph (a) or (c) relates, the precise form of the order which he proposes to ask the Court to make."

31. Where, as happens under a respondent's notice under sub-paragraph (a) and (c), the Court of Appeal is asked to change the trial court's order, the situation is in reality that of a cross-appeal. But where, as happens under a respondent's notice under sub-paragraph (b), the Court of Appeal is only being asked to affirm the trial court's order albeit on additional or alternative grounds, the situation is not that of a cross-appeal. In VCS Ltd v. Magmasters Ltd [1984] 1 WLR 1208 at p.1209 F Sir John (later Lord) Donaldson MR noted that "a respondent's notice covers three quite different situations" and that the situation under sub-paragraph (b) merely adds "further arguments to an existing appeal" while the situation under sub-paragraph (a) and the situation under sub-paragraph (c) is each "in reality a cross-appeal".

32. The father's respondent's notice was headed as one under sub-paragraph (b), and it only invited the Court of Appeal to affirm the trial court's order on an alternative ground, if necessary. It did not ask the Court of Appeal to change the trial court's order. So it did not amount to a cross-appeal.

33. For the foregoing reasons, I also reject Common Luck's alternative argument on the disputed costs.

Conclusion

34. All of Common Luck's arguments fail, and I would therefore dismiss this appeal with costs, it having been accepted by both sides at the hearing that costs must follow the event.

Mr Justice Chan PJ:

35. I agree with the judgment of Mr Justice Bokhary PJ.

Mr Justice Ribeiro PJ:

36. I agree with the judgment of Mr Justice Bokhary PJ.

Sir Anthony Mason NPJ:

37. I agree with the judgment of Mr Justice Bokhary PJ.

Chief Justice Li:

38. The Court unanimously dismisses the appeal with costs.