WEALTHY PLUS LTD. v. LAI MAN HO AND ANOTHER

FOR REFERENCE

DCCJ 15427/2000

HEADNOTE

Costs - dispute between neighbours - water leakage - minor damages - Calderbank offers - Order 22 Rule 14 and Order 62 Rule 5(2) - commencement of action without exploring reasonable offers from Defendants - Order 62 Rule 7 - unnecessary and wholly disproportionate costs being incurred - departure from costs follow events - Plaintiff to bear some of the costs of the Defendants and deprived of its own costs

DCCJ 15427/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 15427 OF 2000

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Judgment

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This action was commenced in the High Court as High Court Action No. 14309 of 1999. It was transferred to the District Court on 9th November 2000. It came before me on 30th May 2001 for trial. It arose out of a frequently occurred situation in multi-storey buildings in Hong Kong, The Plaintiff was the registered owner of Flat G, 23rd Floor of Block 1 of Kam Fung Garden in Tsuen Wan. The Defendants were the registered owners of the unit immediate above, viz. Flat G, 24th Floor of Block 1 Kam Fung Garden. The Plaintiff claimed that on 1st August 1999, water marks were discovered around one of the drain pipes at the bathroom of the Plaintiff's unit. The Plaintiff 's case is that those were caused by water leakage from the Defendants' unit. Complaint was made to the management office and inspection at the Plaintiff's unit by staff from the management office took place on 5th August 1999. The management office notified the Defendants and at the request of the 2nd Defendant, they gave the telephone number of the Defendants to the Plaintiff to sort things out between themselves.

2. I shall have to come back to what happened afterwards in greater details. The upshot was that the matter was not settled and the Plaintiff issued a Writ on 31st August 1999. On the first day of trial, after the case has been opened by Mr.Simon Woo on behalf of the Plaintiff and certain exhibits have been produced by a witness, counsel for the Defendant Mr.Joeson Wong informed the court that the Defendants admitted liability and offered a sum of $2,000 by way of damages. Mr.Woo accepted that sum as damages on behalf of the Plaintiff. The only outstanding issue was costs of the action. The Defendants' position was that there should be no order as to costs whilst the Plaintiff asked for the costs of the action.

The unusual length of the cost hearing

3. The rest of the hearing was taken up by arguments as to costs. Altogether it took more than 4 days and the hearing was concluded on 5th June 2001. It is of course unusual for a cost hearing to take so long. Parties have taken me through a large number of correspondence between solicitors and argue on a number of legal issues relevant to the question of costs. To be fair to Mr.Wong, he started his submission on costs at about 4:00 p.m. (after some time was taken up by the parties to sort out the bundle of correspondence) on 30th May 2001 and concluded his submission shortly after the morning break on 31st May 2001 (having started late at about 11:00 a.m. on that day due to the court's engagement in other cases). Originally, I was given one bundle of without prejudice correspondence by the Defendants and two bundles of correspondence by the Plaintiff in relation to the question of costs. It was at my suggestion that the parties utilized the weekend between 1st and 4th June 2001 to produce one bundle which contained most if not all the material relevant to the question of costs. The Defendants submitted 2 written submissions and one chronology on the question of costs whilst the Plaintiff submitted 3 written submissions. I mention these not with a view to criticize the parties but to partly account for the length of the hearing.

4. Since I have not heard much evidence during the trial, I allow the parties to take me through the correspondence in greater details than the court usually does in hearing arguments as to costs. It is also obvious that the question of costs is the major (if not the sole) reason why the action was continued. The history of this action since the dispute arose is highly relevant to the question of costs and parties have addressed me extensively as to that. To some extent the length of the cost hearing was due to the manner in which Mr.Woo conducted the same.

5. Mr.Woo is a director and shareholder of the Plaintiff. He was also a solicitor and in August 1999, he was a consultant of Messrs.David K.L.Man & Co. That firm acted as solicitors for the Plaintiff until August 2000. Mr.Woo appeared for the Plaintiff in his capacity as a solicitor at the Order 29 hearing before Deputy Judge To. He told me that he left that firm shortly thereafter. He is now a barrister although he does not hold a practising certificate. He said he has yet to complete his pupillage. A Notice to Act in Person was filed by the Plaintiff on 26th May 2001. During the trial and the cost hearing, he was authorized by the Plaintiff to represent the company in his capacity as a director. The other director and shareholder Miss Lau Yun Tai was also present throughout the proceedings.

6. I do not hold anything against the Plaintiff or Mr.Woo by reason of the manner in which the case was argued. Mr.Woo said he was inexperienced as an advocate. I also appreciate that sometime it is difficult to be objective when one acts as advocate in a case in which he has personal interest. To his credit, Mr.Woo has all along been very polite and courteous to the court. I have no doubt that it was not his intention to waste the court's time. However, the fact remains that proceedings were prolonged by Mr.Woo's lengthy submissions.

7. I should mention, for the sake of completeness, that Mr.Woo challenged the regularity of the cost proceedings when he was addressing the court on 1st June 2001. I have dealt with that in my Ruling made on that date and I shall not repeat the same here. I held that there was nothing irregular.

8. More than 4 days' costs were incurred by the parties on arguments as to costs. Is it worthwhile? As far as the costs of the action is concerned, I was told that the Defendants themselves have incurred and paid about $150,000 on legal costs (including $15,000 on surveyor's fee) up to 27th September 2000. After that date, they obtained legal aid. Mr.Woo told me that the Plaintiff had paid about $30,000 to Messrs.David K.L.Man & Co. and the total amount charged by that firm was $80,000 odd. On top of that, the Plaintiff had been represented by two other solicitors firms in the course of this action. I was not given any further details as to the fees charged by those firms. It appeared from the material before me that the bulk of the legal costs of the Plaintiff (excluding those in respect of trial) were incurred when Messrs.David K.L. Man acted as its solicitors.

9. In the light of the agreed damages in the sum of $2,000, one can readily see that this is wholly disproportionate to the costs incurred by the parties. How does this sorry state of affairs come about? Is there something wrong with our legal system? Or is it the fault of the parties or one of them? This brings us back to the history of this action.

The history of the dispute

10. I have mentioned that the Defendants' telephone number was given to the Plaintiff through the management office. There were telephone conversations between the parties between 5th and 26th August 1999. There were disputes between the parties as to exactly what were said on those conversations. Since the witnesses were not cross-examined, I decline the invitation of Mr.Woo to act on the witness statements. I am of the view that in this case, the issue of costs could be resolved by reference to the correspondence between the parties.

11. I shall therefore approach the matter without any reference to the disputes of facts raised in the witness statements. The court cannot adjudicate upon those disputes without hearing the testimonies of the witnesses.

12. It is common ground that the telephone conversations did not result in any settlement. On 26th August 1999, late at night, Messrs. David K.L. Man & Co. wrote on behalf of the Plaintiff to the Defendants. They demanded the Defendants to give an undertaking in writing within 3 days to do the following (and I quote from that letter),

"to reinstate the ceiling and the drain pipe at the bathroom of our client's premises to its original condition before there was any water seepage from your premises and to rectify any or further water leekage (sic.) problem thereat."

13. 26th August 1999 was a Thursday. Another letter was written by Messrs.David K.L. Man & Co. on 27th August 1999 to the Defendants. A third letter was written by that firm on 29th August 1999, which was Sunday. It was inserted into the letter box of the Defendants. A draft Statement of Claim was sent together with the third letter. I do not find it necessary to go into the details of these two letters. In all the letters, the Plaintiff threatened the Defendants with legal proceedings and costs pertaining thereto. Those letters were written at a time when Mr.Woo was a consultant in that firm. Mr.Woo frankly admitted to me that he himself was involved as part of the legal team in Messrs. David K.L. Man & Co. in handling this case. He told me that apart from himself, Mr.Man and a trainee solicitor Mr.Tse were also involved. According to a letter dated 15th September 1999, another person called Mr.Cheng in the firm was also handling the case. Hence, altogether 4 persons within the firm were engaged in pursuing this water leakage case against the Defendants, including the sole proprietor Mr.Man who was qualified since 1982 and Mr.Woo who was admitted in 1993. One can hardly fail to notice that things began to develop in a manner out of proportion to the original dispute.

14. Through prior arrangement, an inspection by the management office took place on 30th August 1999 in respect of both the Plaintiff's unit and the Defendants' unit. After the inspection, the Defendants offered to repaint the ceiling for the Plaintiff. This is evidenced by exhibits P-1A and P-1B and the record kept by the management office at p.11-12 of the Cost Bundle. That offer was rejected by Mr.Woo on the ground that the offer came after the time limit set out in the demand letter. Apparently Mr.Woo expected the Defendants to reply by Sunday 29th August 1999. I have no hesitation in concluding that such stance of the Plaintiff was unreasonable.

15. Mr.Woo submitted that according to the record of the management office the Plaintiff asked the Defendants to submit a proposal to Mr.Cheng of Messrs.David K.L. Man & Co. I see no reason why Mr.Woo could not explore the matter further without the intervention of solicitors, bearing in mind that he himself was a practising solicitor. Communication through solicitors could be useful in a complicated case with difficult legal issues being involved. However, it could also be costly. A person in the position of the Defendants would feel obliged to engage a solicitor to respond to the three letters of the Plaintiff and that means costs would have to be incurred. In a simple case like the present one, parties should be able to sort things out amongst themselves. Legal costs have often been the stumbling block in settlement negotiation. As I will demonstrate, this case is no exception.

16. In view of the rejection of their offer made through the management office, the Defendants engaged Messrs.Lau & Leung. Two letters were written by Messrs. Lau & Leung on behalf of the Defendants on 30th August 1999. One letter was an open letter in which the Defendants denied liability. At the same time, there was a Calderbank letter offering a sum of $2,000 in full and final settlement of the Plaintiff's claim.

17. On 31st August 1999, Messrs. Lau & Leung revised the Calderbank offer in another letter. The revised offer was in these terms,

"1. [The Defendants] agree to instruct and employ a licensed plumber to conduct a comprehensive inspection for [the Defendants'] premises and agree to rectify and sort out all problems found upon inspection (if any); and

2. [The Defendants] agree to reinstate [the Plaintiff's] premises, i.e. the alleged water mark at the ceiling at the bathroom, by painting latex Paint in similar colour thereof; and

3. [The Defendants] is willing to pay [the Plaintiff] a reasonable legal costs incurred thereto subject to final confirmation between both parties."

18. Mr.Woo in his submissions accepted that this was a reasonable offer. He further said the Plaintiff did not reject it. However, two letters were written by Messrs.David K.L. Man & Co. on 1st September 1999, one open letter and one Calderbank letter. In the open letter, the Plaintiff threatened to press ahead with an Order 29 application which would no doubt increase the burden of costs. In the Calderbank letter, two counter proposals were put forward. I shall come back to these counter proposals later. At this stage, I would just observe that in both counter proposals, the Plaintiff asked the Defendants to pay legal costs in the sum of $60,000 plus disbursements in the sum of $1,500 or costs to be taxed. It was further said in that letter,

"We as solicitors, properly instructed, for and on behalf of our client have spent many hours in research, planning, taking instructions and preparing correspondence, pleading, perusing documents and reporting the matter to [the manager] at the very early stage before these proceedings have commenced. Our Mr.Man and Mr.Woo were admitted in 1982 and 1993 respectively. In the event that your clients have doubts about our costs. Our client is quite prepared to have the same properly taxed."

Mr.Woo did not seek to uphold this figure of $60,000 at the hearing before me. However, he said this was just a negotiation tactic. He also emphasized that taxation was offered as an option. He himself regarded $40,000 as a reasonable figure for costs up to that stage although it transpired later that the Plaintiff had only paid $30,000 to Messrs.David K.L.Man & Co. up to now. I have no doubt that such figures, whether $60,000 or $40,000, were excessive. If it was a tactic, it is a deplorable one and should be discouraged. It only served to increase the distrust between the parties. Although taxation of costs were offered, this could hardly allay the Defendants' concern as to their potential liabilities for costs in the light of that paragraph in the letter. Further, taxation means further costs to be incurred.

19. The Writ in this action was issued on 31st August 1999. There is a dispute as to whether the writ was served on the Defendants before the Defendants' Calderbank letter of 31st August 1999. According to the time chop appearing on the covering letter together with which the Writ was served, it was received by Messrs.Lau & Leung at 5:50 p.m. on 31st August 1999. Further, in the Calderbank letter, the caption was a reference to the alleged water seepage rather than High Court Action No.14039 of 1999. In contrast, starting from 2nd September 1999, the caption in the letters of Messrs.Lau & Leung referred to the action. Despite the submission by Mr.Woo to the contrary, I find on the basis of the material before me that the Calderbank letter was written and sent before the Writ was served.

20. This may have some bearing because of Order 22 Rule 14 and Order 62 Rule 5(d). It is necessary for me to disgress from the recital of the history to explain this point.

Order 22 Rule 14 and Order 62 Rule 5(d) and reasonableness of the commencement of the action

21. By reason of the provisos in these rules, the use of Calderbank letter is confined to cases where the party making a Calderbank offer could not have protected his position by means of a payment into court when the offer was made. Obviously, before the Writ was issued and served, the Defendants could not make a payment into court.

22. In the present case, Mr.Woo submitted that the Defendants could refer to Calderbank letters written prior to 13th October 1999 but not those written after that date. His rationale was that on 13th October 1999, a joint inspection at the Defendants' unit and the Plaintiff's unit took place. After the inspection, the Plaintiff was satisfied that water leakage had stopped and there was no need for any injunctive relief. The claim became one of pure claim for damages. Prior to that date, the Plaintiff was pursuing an Order 29 application.

23. However, Mr.Woo also invited me to look at the Calderbank letters after 13th October 1999. He submitted that although the Defendants could not rely on this correspondence, the Plaintiff could do so since the Plaintiff was not a party who could protect its position as to costs by means of a payment into court. Yet, if the court should, after reading the letters, find them to be unfavourable to the Plaintiff, Mr.Woo submitted that the court should disregard them even though they were considered at the invitation of the Plaintiff.

24. Mr.Woo further said that in any event, the restriction contained in the rules did not apply to the Calderbank offers from the Plaintiff. Hence the court could take into account those offers from the Plaintiff, whether before or after 13th October 1999. I was therefore invited to have regard to some of the Calderbank offers of the Plaintiff.

25. On the other hand, Mr.Wong submitted that Order 22 Rule 14 and Order 62 Rule 5 (d) are not applicable in the present case. He said that by the time the Writ was issued and served, reasonable offers have been made and accordingly it was not necessary for the Plaintiff to commence this action. By reason thereof, Mr.Wong submitted that the Defendants should not be responsible for the Plaintiff's costs of the action at all. If a payment into court was made pursuant to Order 22, the Plaintiff would be entitled to costs upon acceptance of the money paid into court (see Order 62 Rule 10(2)) . Hence, if the Defendants should not be liable for the costs of the Plaintiff in respect of the action, they could not protect themselves by making a payment into court.

26. According to Hudson v. Elmbridge Borough Council [1991] 1 WLR 880, the court has no discretion to override a plaintiff's entitlement to costs under the rules in cases of acceptance of payment into court.

27. The Plaintiff did not dispute the effect of Order 62 Rule 10(2). However, Mr.Woo argued that the Plaintiff was entitled to commence the action by relying on Oriental Press Group Ltd. v. Apply Daily (No.2) [1997] 3 HKC 615 and E.W. Savory Ltd. v. World of Golf [1914] 2 Ch 566. Based on these authorities, Mr.Woo submitted that a plaintiff has a right to commence an action notwithstanding that a reasonable offer had already been made by the intended defendant. The only thing that a defendant could do would be to admit liability in the action or make a payment into court. The defendant would have to bear the costs of the action up to date. He relied in particular on the judgment of Neville J. in E.W. Savory Ltd. v. World of Golf [1914] 2 Ch 566 at p.571,

"In my view, where a right of this kind has been infringed by a defendant, the plaintiff is entitled to an order and is not debarred from exercising his right to sue by a suggestion on the other side that they will promise not to do it again and will pay such damages as may be agreed between them. I am not going to consider it, and it is not necessary from the point of view I take, but supposing that the plaintiffs had been offered all that they were entitled to except an order, and that then the writ was issued and the defendants had repeated the offer that they made before action, enlarging their offer by including the costs of the action up to date, and then the plaintiffs had persisted with the action, I think the whole of the subsequent costs, from the time of their offer to submit to an order, would be cast upon the plaintiffs, but that in my opinion is the only way in which, where a wrong has been done, the defendant can escape from the liability of having the rights which have been infringed asserted in a Court of law and a proper order obtained."

28. If that was read as giving all litigants an absolute right to commence legal proceedings with blatant disregard to reasonable offers from his adversary, I must respectfully disagree. That would be wholly inconsistent with the spirit behind the pre-action protocol recently introduced in personal injuries litigation under Practice Direction 18.1 Paragraph 2. It would also be against the underlying policy behind the law as to Calderbank offers, viz. to encourage the parties to reach settlement at an early stage to avoid unnecessary legal costs being incurred.

29. I am however satisfied that neither Neville J. nor Godfrey JA intended to lay down such a rule of general application. One must bear in mind that those two cases concerned with copyright infringement. In copyright cases, and in other cases involving intellectual properties, there are enforcement of monopoly right and public interest is involved. A plaintiff in those cases is generally entitled to an injunction or undertaking in open court and the costs thereof (see The Supreme Court Practice 1999 Para.62/B/105; J.T. Smith & J.E.Jones [1914] 2 Ch 576). The special nature of actions concerning intellectual property rights was pinpointed by Jacob J. in Delta Crompton Cables Ltd. v. Copper Cables Ltd. [1997] FSR 850 where His Lordship held that Order 22 payment in procedure had no application to those kinds of action.

30. There is nothing in the judgment of Godfrey JA which suggested that this rule should be extended to other kinds of cases. Mr.Woo tried to persuade me that the rule should be applicable in the present case. I disagree. It is plain that the Plaintiff is not enforcing an intellectual property right. The rationale of the rule is simply not applicable. Further, there is a great difference between intellectual property litigation (which usually involved commercial entities) and domestic dispute between neighbours concerning water leakage. In the latter kind of case, parties must be encouraged to settle the matter as soon as possible without the need to resort to litigation. I therefore hold that the Plaintiff in this case did not have an absolute right to commence the action.

31. It follows it is possible that the Defendants could not have fully protected his position as to costs by payment into court. Whether it was actually so depends on the reasonableness of the Plaintiff in commencing the action instead of accepting or exploring the offers of the Defendants.

32. Mr.Woo argued that it was reasonable for the Plaintiff to commence the action. He said he was alerted by the open letter of Messrs.Lau & Leung of 30th August 1999 in which liability was not admitted. He seemed to regard that as a declaration of war and he said it was that open letter which prompted him to issue the Writ on the next day. I reject that submission. The open letter was sent together with a Calderbank offer. The offer of $2,000 was put forward. In view of another offer being made orally through the management office on that day, it was obvious that there were scope for further negotiation if the Plaintiff was not satisfied with that monetary offer. To commence the action immediately would escalate the costs involved and make it more difficult to settle. This was similar to the refusal of Mr.Woo to consider the proposal of the Defendants put to him through the management office on 30th August 1999 and insisted that the Defendants should put forward the proposal to the Plaintiff's solicitors.

33. Mr.Woo further said that the Plaintiff was entitled to commence the action in order to obtain inspection of the Defendants' unit with a view to ascertain whether the problem had ceased. On the facts of this case, I hold that this was not a good justification. There had been inspection by the management office on 30th August 1999, albeit in the absence of the Plaintiff. There was nothing to suggest that the Defendants would not be agreeable to reasonable inspection by the Plaintiff upon prior arrangement. There was no demand for inspection in the pre-action correspondence. On the other hand, the Defendants (as recorded in the open letter of 30th August 1999 from Messrs.Lau & Leung) had agreed to ascertain the cause of seepage. There was no need for a writ to be issued to achieve an inspection. The actual request for inspection was made in a letter dated 1st September 1999 from Messrs.David K.L. Man & Co. The request was put forward with a threat to issue an Order 29 application.

34. In the circumstances, I hold that it was unreasonable for the Plaintiff to issue the Writ on 31st August 1999. I also hold that the pre-action conducts on the part of the Plaintiff amount to, to say the least, an omission to take reasonable steps to save costs. Further, in the wake of an inspection having been arranged by the management office to take place on 30th August 1999, I hold that the writing of the letters of 27th August 1999 and 29th August 1999 was calculated to occasion unnecessary costs. It should be remembered that not only were costs incurred by the Plaintiff in writing those letters, the Defendants also incurred costs in the perusal and taking of instructions regarding those letters by their solicitors. The Defendants should not be liable for costs to the Plaintiff regarding these letters and the drafting and issue of writ. According to Mr.Woo (as mentioned in Paragraph 18 above), a reasonable amount for costs incurred by the Plaintiff up to 1st September 1999 was $40,000. Apart from the reservation I have over the figure, a large portion of such costs should be disallowed under Order 62 Rule 7 if the Defendants were liable for the Plaintiff's cost.

35. I therefore hold that on the special facts of this case Defendants could not adequately protect their position as to costs by making a payment into court. This court is therefore free to take the Calderbank offers into account.

36. Although Mr.Woo made a concession with regard to the correspondence prior to 13th October 1999 (see para.22 above), I am not sure if his rationale is correct. Since it is not necessary for me to decide on that point, I will leave the matter to be dealt with in the future.

Post action history after 1st September 1999 up to aborted settlement

37. In the counter proposal B of the Plaintiff of 1st September 1999, apart from legal costs in the sum of $60,000, the Plaintiff asked for the following,

"[The Defendants] within 2 weeks at their own expenses do engage a reputable licensed plumber to remove the bathtub at [the Defendants'] premises to facilitate inspection and to carry out remedial work and to provide a permanent solution in relation to the water and/or moisture seepage or leakage whether in the past or at present on a permanent basis as well as reinstatement of [the Plaintiff's] premises where the water marks and rusting occur and evidence of such removal of the bathtub be provided to [the Plaintiff] if required by it."

38. That was met with a swift response from the Defendants' solicitors on 2nd September 1999 in a Calderbank letter. By that letter, the Defendants accepted proposal B except that a sum of $35,000 was offered to cover the Plaintiff's legal costs. I regard that as a very generous offer from the Defendants.

39. On the same date, by a Calderbank letter, the Plaintiff's solicitors counter offered a sum of $50,000 as costs plus disbursement of $1,500 or costs to be taxed. It also said,

"...we are confident that our client shall claim more than HK$50,000 against your clients upon taxation of our bills of costs."

Up to the hearing before me, the Plaintiff has only paid $30,000 to Messrs.David K.L. Man & Co. and up to August 2000, the fees charged by that firm was only $80,000 odd. How could this assertion regarding $50,000 be justified way back on 1st September 1999 when the only action taken in the proceedings were the issue of Writ and the writing of a few letters? Again, if that was a negotiation tactic, I deplore it.

40. I have no doubt that the Defendants were trying hard to settle this matter. On 3rd September 1999, in a Calderbank letter, they offered $40,000 in full and final settlement of the Plaintiff's claim for costs, increasing their already generous offer by another $5,000.

41. By this stage, the issue of legal costs had assumed a central place in the dispute between the parties. This was most unfortunate. On 3rd September 1999, Messrs. David K. L Man wrote to the Defendants' solicitors with regard to an intended Order 29 application. It was promptly dealt with by the Defendants' solicitors on 3rd September 1999 offering joint inspection by a chartered surveyor. In another letter of 4th September 1999, the Defendants reiterated that the Defendants would co-operate with regard to inspection.

42. On 6th September 1999, Messrs.David K. L. Man & Co. accepted the settlement offer of the Defendants (viz. proposal B and $40,000 costs). Regrettably, the parties fell apart in the course of the drafting of the relevant consent order. In a letter dated 8th September 1999, Messrs.David K. L. Man & Co. alleged that there were material and substantial departure in the Defendants' draft order from the terms agreed upon. Since Mr.Woo told me in court that those differences were indeed minor matters which could have been ironed out if further negotiations were conducted, I do not find it necessary to recite those differences here. Threat was made in the same letter for making application under Order 29.

43. The impetus for settlement negotiation died down. Mr.Woo said it was the fault of the Defendants. He relied on the following,

(a) the Defendants made application for Legal Aid on 7th September 1999;

(b) the Defendants changed their solicitors to Messrs.C.W. Heung & Partners on 8th September 1999;

(c) in Paragraph (4) in the Schedule to the draft order put forward on behalf of the Defendants, they unreasonably asked for a waiver from the Plaintiff as to water leakage in the future.

44. I find nothing sinister in (a) and (b). I refuse to draw the inference therefrom (as invited by Mr.Woo) that the Defendants changed their mind and did not intend to settle the matter. As to (c), there is simply no basis for such submission. The said paragraph was as follows,

"Upon the completion of Clause 1 & 2 referred herein and full payment of the said sum of HK$40,000, the 1st and 2nd Defendants be discharged from all liabilities in respect of which the Plaintiff claims in this action and the Plaintiff shall wholly discontinue this Action against the 1st and 2nd Defendant with no order as to costs and all parties do waive their rights (if any) to claim or bring any action or proceedings against all parties or each of them in respect of the alleged water seepage forming the subject matter of the Statement of Claim filed herein."

It did not require the Plaintiff to waive any future claims. The subject matter of the Statement of Claim was the water leakage discovered by the Plaintiff on 1st August 1999. That was the only thing that the Plaintiff was asked to discharge the Defendants from.

45. Unfortunately, such mistake on the part of the Plaintiff caused it to write in the letter of 8th September 1999 as follows,

"Even if your clients have complied with Proposal B and paying our client legal costs of HK$40,000 forthwith, in the event there is still water and/or moisture leakage from your clients' premises into our client's premises, our client shall still bring a fresh action against your clients."

This statement served no constructive purpose and widened the distrust between the parties. It cast serious doubt as to the sincerity of the Plaintiff in settling the matter.

The Order 29 application and renewal of settlement negotiation

46. Between 8th September 1999 and 2nd October 1999 there were numerous letters between the parties. They touched on the intended Order 29 application and the Defendants' application for legal aid. I will not go into the details of this correspondence. By 2nd October 1999, the Plaintiff had learnt that the application for legal aid by the Defendants had been refused. The Plaintiff indicated in a letter dated 2nd October 1999 that it would go ahead with the Order 29 application by the latest the middle of next week if no satisfactory reply was received from the Defendants. That was a Saturday and the letter was faxed to Messrs.C.W.Heung & Partners at 12:47 noon.

47. In the light of the previous indications from the Defendants that they were willing to have joint inspection and to co-operate with the Plaintiff, I hold that the Defendants should be given a reasonable chance to respond to that letter before application was actually made to the court. The Plaintiff did not give the Defendants any chance to respond. On 4th September 1999 (viz. the following Monday) the Plaintiff took out an inter parte summons under Order 29 returnable on 7th September 1999.

48. On 5th September 1999, Messrs.C.W.Heung wrote to Messrs.David K.L.Man & Co. in open letter offering to have inspection of the premises of both parties and disposal of the summons by consent with costs in the cause. In the light of that, I am satisfied that if a reasonable chance was given to the Defendants to respond to the letter of 2nd October 1999, the Order 29 application would be unnecessary.

49. In response, in a letter dated 5th September 1999, Messrs. David K.L. Man & Co. wrote on behalf of the Plaintiff that they were still waiting for board meeting to be held by the Plaintiff. They also said,

"Meanwhile, we are duty bound to our client, to you and to the court to make preparation for the hearing on 7th September 1999."

50. Shortly afterwards, Messrs.David K.L.Man & Co. wrote a Second Letter on 5th September 1999 asking the Defendants whether they would be agreeable to the terms of the summons. Paragraph 4 of that summons asked for costs of the application be to the Plaintiff in any event. Hence, the Plaintiff wished the Defendants to bear the costs of the application. The application was filed with an Affirmation of Lau Yun Tai on 4th October 1999. On 5th October 1999, a Second Affirmation of Lau Yun Tai was filed. Another lengthy letter was written by Messrs.David K.L.Man & Co. on 6th October 1999 which, as I see it, served to amplify issues rather than to achieve settlement.

51. The hearing of 7th October 1999 duly took place before Deputy Judge A.To. The Defendants had to incur costs to prepare an affirmation in reply. Mr.Woo appeared as solicitor for the Plaintiff in that application. The Defendants were represented by counsel. Eventually, the matter was disposed of by a Consent Order. Joint inspection was to take place within 7 days. As far as costs of that application is concerned, the order provided for such costs be in the cause. Hence, as the trial judge in this case, I have to deal with the costs of that application.

52. I am satisfied that the costs of that Order 29 application could have been avoided if the Plaintiff adopted a more reasonable stance in the matter and gave the Defendant reasonable chance to respond to the letter of 2nd October 1999. In the light of the history of the matter, I am satisfied that the Plaintiff was guilty of misconduct of the kind contemplated by Order 62 Rule 7. The summons was issued and costs pertaining thereto were incurred unnecessarily. Despite a reasonable offer made by the Defendants in the letter of 4th October 1999, the Plaintiff failed to engage constructively with the Defendants in trying to dispose of the application by consent which would have save further costs. As a result the Defendants were obliged to incur substantial costs in respect of that application. I was told by Mr.Wong that the Defendants incurred $22,000 as legal costs on account of that application. It is a substantial amount in the context of a neighbourhood dispute involving relatively minor damage to the Plaintiff's unit.

53. Irrespective of my decision on costs as to the other parts of this action, I am firmly of the view that I should exercise my power under Order 62 Rule 7 to direct that the Plaintiff should not have its own costs regarding this application. Further, I direct that the Plaintiff should pay the Defendants' costs of this Order 29 application.

54. After the hearing before Deputy Judge To, settlement negotiation resumed. On 8th October 1999, Messrs.C.W.Heung & Partneres wrote to Messrs.David K.L.Man & Co. offering a sum of $45,000 in full and final settlement of all the Plaintiff's claim. On its face, it was not a Calderbank letter. It was headed "without prejudice and without admitting liability". On its own, the court could not have regard to its contents.

55. However, both parties have referred the court to this letter at the hearing. Further, in an open letter dated 15th October 1999, Messrs.David K.L. Man & Co. made express reference to the letter and recited its contents. In the circumstances, I consider that the parties have waived the without prejudice privilege and the court is therefore entitled to have regard to the same.

56. That offer was expressly stated to be open for acceptance until the close of business on Saturday 11th October 1999. That was because pursuant to the order of Deputy Judge To, a joint inspection was scheduled to take place on 13th October 1999 and further costs would be incurred as a result.

57. Instead of accepting that offer, by a letter dated 11th October 1999, the Plaintiff asked for further time to consider the offer on the ground that Mr.Woo needed to have a board meeting with Miss Lau. It is not clear to me why this could not be done between 8th and 11th October 1999. The Defendants did not extend the time for acceptance of the offer. The offer lapsed accordingly.

58. In the meantime, the joint inspection took place on 13th October 1999 and the Defendants told me through Mr.Wong that they had paid their surveyor $15,000 for the exercise.

59. After the inspection, on 15th October 1999, Messrs.David K.L.Man & Co. wrote an open letter to "accept" the lapsed offer. In response, Messrs.C.W. Heung & Partners wrote on 15th October 1999 pointing out that the offer had lapsed and substantial costs were incurred by the Defendants in respect of the inspection. They indicated that the Defendants would only settle if the Plaintiff agreed to pay the Defendants' costs of the inspection, such costs to be taxed if not agreed.

60. Subsequently, the Defendants changed their solicitors to Messrs.Kenneth C.C.Man & Co. Various offers were put forward, including those contained in letters dated 29th November 1999, 25th April 2000, and 1st August 2000 respectively. There were also offers from the Plaintiff, contained in letters dated 26th April 2000, 28th April 2000, 3rd August 2000 and 19th September 2000. I would not burden this judgment with the specific terms contained in these letters. Suffice to say that the offers of the Defendants became less generous than those previously put forward (although in the last offer of 1st August 2000, they still offered $10,000 as costs to the Plaintiff) whilst the Plaintiff invariably asked for the costs of the action to be taxed if not agreed.

61. In the special circumstances of this case, especially those surrounding the commencement of the action and up to the joint inspection on 13th October 1999, I hold that it was unreasonable for the Plaintiff to demand for costs of the action and insist on the same as a term for settlement.

My decision on the costs of the action

62. I have dealt with some of the points raised by Mr.Woo on the question of costs in reciting the relevant history. A further point raised by Mr.Woo was that the Defendants should have admitted liability. He suggested that it was only upon production of exhibits P1A, P1B, P1C and P1D that the Defendants finally admitted liability in open court. He said this showed that the Defendants were unreasonable in defending the action.

63. In my judgment, the crucial question is whether the Plaintiff ought to have accepted the offers of the Defendant. That depends on whether the Defendants had offered to the Plaintiff all that it was entitled to obtain from this action rather than whether the Defendants should have admitted liability earlier. In considering the question of costs, the court generally would not penalise a defendant for not admitting liability. A defendant who makes a payment into court could protect his position as to costs without admitting liability. The same principle should apply in circumstances where it is appropriate for the court to consider Calderbank offers.

64. Further, I do not regard the exhibits as having such pivotal importance. Liability for water seepage does not depend solely on whether the water comes from the Defendants' premises. The principle of law have been set out in the Court of Appeal's decision of 張秀玲及吴炳漢對鄭禮莊, CACV 268/98, 9th April 1999. The exhibits produced in this case showed that the Defendants had taken reasonable steps to deal with the matter.

65. The practical significance of an admission of liability hinges on the Plaintiff's entitlement to damages and costs. If those were adequately offered to the Plaintiff, the Plaintiff should not carry on with the action just to establish liability.

66. From my recital of the history, it is clear that ever since 30th August 1999, the Defendants have repeatedly made reasonable offers to the Plaintiff. Mr.Woo relied on the following as reasonable excuses on the part of the Plaintiff for not accepting the offers,

(a) before the inspection of 13th October 1999, the Plaintiff did not know the full extent of the problem and hence could not safely accept any offer;

(b) the Plaintiff was entitled to damages for more than $2,000. The Plaintiff accepted that sum because some heads of damages were reduced by subsequent events and the Plaintiff did not wish to waste time and costs;

(c) the Defendants did not give full information to the Plaintiff to enable it to assess the pre-action offer of $2,000.

67. I do not accept these as good reasons for the Plaintiff's rejection of the offers. Inspection was one of the term set out in the draft Consent order prepared by Messrs.Lau & Leung and sent under the cover of their letter dated 7th September 1999. Damage was apparently not the concern of the Plaintiff at that stage. That settlement attempt was however aborted in the circumstances set out in Paragraphs 42 to 45 above.

68. Further, since the Plaintiff accepted the quantum of damages as $2,000, there was no assessment by the court on the figure. The Defendants were not given any opportunity to test the evidence in relation to quantum. This court simply cannot adjudicate whether the Plaintiff was right in suggesting that damages could have been more than $2,000 and if so, to what extent was it reduced by subsequent development. In any event, there were other offers apart from the monetary offer.

69. The third point is related to the argument based on inspection. Irrespective of what had been said by the Defendants prior to 30th August 1999, the situation should be reasonably clear upon inspection on that day. As I have said, there was no need for the action to be commenced in order to have inspection given the attitude of the Defendants. In fact there had been an inspection by the management office on 30th August 1999 before the Writ was issued. However, Mr.Woo refused to accept the findings from the management office as to the extent of the damage in his unit. This is evidenced in Exhibit P-1B and Exhibit P-1D. Mr.Woo thought that the water seepage problem was continuing. That turned out to be unsubstantiated. According to the surveyor's report of Messrs.Chesterton Petty, the expert engaged by the Plaintiff, the problem had stopped. Hence, before the action, Mr.Woo had the necessary information to assess the extent of damages. He just refused to accept the same. Whilst it is a matter for him to have a second opinion in addition to that from the management office, it would not be right to increase the burden of the Defendants because of that, especially when the second opinion (albeit obtained more than one month later) was consistent with the opinion of the management office.

70. In any event, as early as 3rd September 1999, Messrs.Lau & Leung had proposed inspection by a jointly appointed surveyor. Mr.Woo said the Plaintiff wished to have its own surveyor instead of a jointly appointed one. I do not see any good justification for that in the present case. To have two surveyors will only duplicate costs.

71. Mr.Woo relied on the Court of Appeal's decision in Oriental Press Group Ltd. v. Apple Daily Ltd. (No.2) [1997] 3 HKC 615 to argue that the Plaintiff should not be deprived of its costs. I have already dealt with the point as to the right to commence action. Further, the actual order on cost made by the Court of Appeal was no order as to costs below. Mr.Wong did not ask for more.

72. Given the facts of the present case, I consider that this case is worse than the case before the Court of Appeal. Offers were repeatedly made by the Defendants. Although the Plaintiff did engage in settlement negotiation, the tactic employed by it was deplorable. Steps were taken by the Plaintiff which caused unnecessary costs to be incurred, not only by the Plaintiff but also by the Defendants. Although Mr.Woo denied he had abused his position as solicitor, the Plaintiff was in an advantageous position in terms of legal expenses. This was reflected by the amount of legal fees paid by the respective parties: the Defendants paid $150,000 up to the grant of legal aid (27th September 2000) whilst the Plaintiff only paid about $30,000 up to today.

73. In Roache v. News Group Newspaper Ltd. (unreported) 19th November 1992, Sir Thomas Bingham set out that the correct approach as follows,

"The judge must look closely at the facts of the particular case before him and ask: who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?"

That was cited by Simon Brown LJ in Butcher v. Wolfe [1999] 1 FLR 334 at 344G. Asking myself that question, I hold that in the present case, the Plaintiff could have obtained everything he could legitimately asked for from the Defendants without resort to litigation.

74. At one stage, on the authority of Butcher v. Wolfe [1999] 1 FLR 334, I am minded to order that the Plaintiff should bear the costs of the Defendants. However, on reflection, except two areas which I shall mention later, I decide to make no order as to costs. I bear in mind that the Plaintiff did engage in negotiation with the Defendants although in a belligerent and antagonistic manner. Whilst the Plaintiff was acting in an unreasonable manner which caused the breakdown in settlement negotiation, I am of the view that the Defendants could have done better in trying to resolve the matter shortly after the commencement of the action. Although I found nothing amiss in their change of solicitors on 8th September 1999, I believe more could have been done on their part after that date to revive the settlement impetus. Further, since Mr.Wong asked for no order as to costs, and in view of the fact that these parties are neighbours, I do not think it is right for me to deviate substantially from the Defendants' position as this might aggravate the relationship between them.

75. The two areas for which I would make orders for costs are,

(a) the costs relating to the Order 29 application: for reasons given in Paragraphs 46 to 53 above, the Plaintiff should pay the Defendants' costs;

(b) the costs of the hearing on costs, viz. from the afternoon of 30th May to 5th June 2001: since the Plaintiff fares no better than what was proposed by Mr.Wong, the Plaintiff should pay the costs of the hearing.

I should also mention that there were some previous cost orders. I would not disturb the same.

My order

76. There is also disagreement as to the form of judgment. I shall order as follows,

(1) Judgment be entered in favour of the Plaintiff in the sum of $2,000;

(2) The Plaintiff do pay the Defendants' costs of the summons taken out by the Plaintiff on 4th October 1999, such costs to be taxed on High Court Scale if not agreed;

(3) The Plaintiff do pay the Defendants' costs of the hearing from the afternoon of 30th May to 5th June 2001 with certificate for counsel, such costs to be taxed on District Court Scale if not agreed;

(4) Save as to (2) and (3) and previous orders as to costs, there be no order as to costs;

(5) The Defendants' own costs be taxed according to the Legal Aid Regulations.

Postscript

77. Normally, I would not write such a lengthy judgment on costs. I do so in this instance not because of the length of the hearing. I do so with a hope that this judgment could provide a lesson to those involved in cases of similar kind. Dispute between neighbours occurred frequently. Domestic disputes have far too often been blown out of proportion with substantial legal costs being spent on matters which the parties, with a bit of good sense and mutual goodwill, should be capable of resolving between themselves. It is hoped that in the future parties could act with a sense of proportionality and be more proactive in terms of settling their dispute before the cost element gets out of hand. Solicitors acting for parties should advise their clients accordingly. In the present case, no one emerges as a winner. It is indeed a borderline case and whilst each case must depend on its own facts, an over-zealous and vindictive plaintiff may one day find himself end up as a loser in terms of costs even though he is successful in his claim. Those advising a plaintiff should also bear in mind the principles set out in the judgment of Butcher v. Wolfe [1999] 1 FLR 334.

78. The other reason why I write this lengthy judgment is to draw attention to the fetter on the court's discretion imposed by Order 22 Rule 14 and Order 62 Rule 5(d). An unfair result would arise in the present case if the court cannot have regard to the Calderbank letters. I held that the rules do not apply in this instance. But there could be situation similar to this case where the rules apply. Whilst I accept that there must be a difference between payment into court and a Calderbank offer (see Mummery LJ at p.340B to D in Butcher v. Wolfe [1999] 1 FLR 334), it may be time for us to consider whether the present approach is too mechanistic. Would it be better to leave it to the judge to decide what weight should be given to a Calderbank offer in the light of the circumstances of a particular case? The arguments of the Plaintiff in this case summarized by me in Paragraphs 23 and 24 above may give rise to some unsatisfactory and unjust results. The restriction was abolished in England (see Part 36 of the Civil Procedure Rules and para.36.1.1 of Civil Procedure 2nd Edn.). Mortimer VP had expressed sympathy for wider discretion be given to judges in this regard in the case of Choy Bing Wing v. Hong Kong & Shanghai Hotels Ltd. (No.2) [1998] 4 HKC 555 at p.561A. Perhaps the Rules Committee may consider whether there should be any changes in Hong Kong.