M BERAHA & CO LTD v. NG WAI LUN

CACV 256/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 256 OF 2003

(ON APPEAL FROM DCCJ NO. 3811 OF 2002)

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REASONS FOR JUDGMENT

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Hon Woo VP (giving the reasons for judgment of the Court):

1. This is an appeal against an order for costs, which was made by Judge Lok of the District Court on 8 July 2003, leave to appeal having been granted by the Judge on 21 August 2003.

2. At the conclusion of the hearing before us on 11 June 2004, we dismissed the appeal with costs, which we ordered to be in a gross sum of $500. We announced that we would hand down our reasons later, which we now do.

Background

3. The matter arose out of a claim by the plaintiff made in the District Court against the defendant for the return of the deposit of a sum of $52,000 which had been paid under a tenancy agreement between the plaintiff and the defendant for a term of three years from 1st April 1999 to 31st March 2002 at a monthly rental of $26,000. Although clause 5 of the tenancy agreement that governed this deposit seemed to state that it was a rental deposit equivalent to two months' rental, the parties treated the deposit as security for the due performance of the plaintiff's obligations as tenant under the tenancy agreement. Upon the termination of the tenancy on its expiry, the defendant refused to refund the deposit to the plaintiff. The defence raised by the defendant was that she was entitled to offset the following items of damages against the deposit:

(a) She had incurred $10,400 to restore the let premises which the plaintiff had failed to restore when delivering up possession of the premises upon the expiry of the tenancy; and she had suffered loss of rental income for period of 4 weeks for awaiting the plaintiff's response regarding restoration and for the restoration itself.

(b) She had incurred legal expenses in effecting a distress for rent that the plaintiff had failed to pay in August 2000, and the amount incurred was $5,000.

4. When the parties appeared before the Judge on 8 July 2003, the plaintiff accepted that an amount under item (b) in the sum of $4,870 legal costs should be deducted from the deposit. Moreover, after the Judge's explanation to the defendant, the defendant agreed that pursuant to Clause 7 of the tenancy agreement, the plaintiff was not obliged to demolish the installed partition and false ceiling in the premises. The parties therefore agreed without a trial that the defendant should pay the plaintiff $47,130 (ie, $52,000 - $4,870). The Judge gave judgment for that amount in favour of the plaintiff accordingly, and awarded interest on the judgment sum.

5. The Judge proceeded to deal with the question of costs. A fair translation of the judgment that he delivered in Chinese reads:

"5. As the costs, since the plaintiff's final recovery is below $50,000, the action could have been adjudicated by the Small Claims Tribunal. Therefore, I must determine the issue of costs.

6. Although, together with interest awarded, the sum the plaintiff has recovered exceeded $52,000 I believe the Small Claims Tribunal also has jurisdiction to adjudicate this dispute. First, under the Small Claims Tribunal Ordinance (Cap 338), section 5 and the contents of the Schedule, the tribunal has power to adjudicate on any claim that does not exceed $50,000 on contract, quasi-contract or tort. Since the plaintiff can only recover $47,130 in the present action, the tribunal has jurisdiction to deal with this case. Moreover, according to section 33 of the Small Claims Tribunal Ordinance, the Tribunal can award interest on the whole or part of any sum from the date when the cause of action arose until the date of the judgment or any part of the period, and include such interest in its award. Therefore, I consider that if the plaintiff had taken out this action in the tribunal, he could have recovered the amount as awarded by me today. Even if the compensation plus interest exceeds $50,000 (in this case, about $51,000), this action is still within the Tribunal's jurisdiction.

7. I consider that the plaintiff ought to have instituted this action in the Tribunal. Obviously, in the defendant's letter to the plaintiff dated 29 April 2002, the defendant had indicated that she would deduct the legal costs of about $5,000 associated with the distress of the plaintiff's goods from the deposit. Although the defendant at that time did not submit detailed information, the plaintiff could have demanded from the defendant all related documents. Since both parties have agreed eventually that this sum should be deducted from the deposit, the plaintiff should have initiated the action in the Tribunal originally. Base on the above analysis, the plaintiff may not recover costs to be taxed on the District Court scale.

8. Had the plaintiff initiated this action in the Tribunal, it would take four hearings to complete the trial in ordinary litigation. The Tribunal would generally award costs to the winning party at about $250 per hearing for transportation expenses and other related losses. I therefore award the plaintiff costs in the amount of $1,000. ..."

6. The Judge having made the award as to costs, the plaintiff's legal representative informed him Judge that the plaintiff had arranged for a witness to come from overseas to attend the trial. The Judge assessed the reasonable expenses for the attendance of the witness for two days for the trial that had been rendered unnecessary and awarded an additional sum of $7,000 to the plaintiff as part of its costs in the action. The total costs therefore came to $8,000.

7. The Judge gave another judgment when he granted leave to appeal against his costs order. Unlike at the trial when the defendant was not legally represented, this time round she was represented. In his judgment, the Judge first drew attention to the case of Cho Ho-kuen v Yu Kwok-wah and Ors, CACV 480/2000, unreported, but he expressed the view that Keith JA in that case especially left open the question as to whether the District Court has jurisdiction to award costs on the basis other than the District Court scale. The Judge went on:

"6. ... In the District Court, it is so easy for a Plaintiff to make a claim of over $50,000. However, the final adjudicated sum may be much less than $50,000, and as a result, substantial legal costs are wasted by having the case heard in the District Court. In such case, what should be the proper costs order?

7. If the court cannot tax the costs on a basis other than the District Court scale, I suppose there are only two options open to the court. The first one is to allow the winning Plaintiff to obtain his costs on the District Court scale. In such case, the winning Plaintiff does not have to take any responsibility for the wasted legal costs. The Defendant would also in a difficult position. If he chooses to be represented by a lawyer, he would have to incur unnecessary legal costs. On the other hand, if he chooses to represent himself, he will be deprived of the benefit of fighting the case on equal footing without legal representation on both sides in the Small Claims Tribunal, and if he loses, he has to pay the unjustifiably high legal costs of the other side. Indeed, I can foresee that such option would provide disincentive to litigants to give serious consideration as to the proper forum for the case.

8. The second only option is to deprive the Plaintiff of any costs even if he succeeds in a claim for less than $50,000. This option is also undesirable, but weighing the two evils, it seems to me that depriving the Plaintiff of costs is the more attractive option.

9. There is also another interesting point. Even if the District Court cannot make an order that the Plaintiff's costs be taxed on the scale of the Small Claims Tribunal, does the judge have a wider discretion to deal with the issue of cost if he exercises the power for gross sum taxation and taxes the costs himself? This is actually what I have done in the present case.

10. I am therefore satisfied that the intended appeal does involve principles of law of some importance, and I therefore grant the Plaintiff leave to appeal against my earlier costs order.

11. ... I hope that both parties will be represented in the Court of Appeal so that all the principles of law can be fully argued."

Grounds of Appeal

8. Broadly, two grounds of appeal, both on point of law, are raised in the Notice of Appeal:

(1) The Judge erred in concluding that the action was within the jurisdiction of and should have brought in the Small Claims Tribunal.

(2) The Judge erred in law by failing to apply correctly the relevant provisions of Order 62 of the Rules of the District Court ("RDC") as to award and determination of costs.

9. In his skeleton arguments, Mr Tracy, on behalf of the plaintiff, addressed on ground (2) first, because he frankly admitted that ground (1) was advanced with some trepidation. At the commencement of the hearing before us, he informed us that he was not pursuing ground (1), because it was not to the advantage of his client to rely on that ground. However, he did not accept that the Small Claims Tribunal has jurisdiction to deal with the claim in the present action. Due to this attitude of Mr Tracy and the fact that the point may be of importance, we feel it proper to state our views on the issue.

Ground (1)

10. This is a ground on the jurisdiction of the Small Claims Tribunal. Mr Tracy's skeleton argument runs as follows. Even if the plaintiff's claim in the present action satisfies the monetary condition, being less than $50,000, insofar as it is not a matter within the jurisdiction of the Small Claims Tribunal, it could not have been brought in the Tribunal and the Judge would have erred in applying the Tribunal's scale of costs.

11. The relevant subsections of section 5 of the Small Claims Tribunal Ordinance, Cap 338 read as follows:

"(1) The tribunal shall have jurisdiction to hear and determine the claims specified in the Schedule.

(2) Save as provided in this Ordinance, no claim within the jurisdiction of the tribunal shall be actionable in any other court in Hong Kong.

(3) A claim within the jurisdiction of the tribunal may be brought in another court if there is included in such claim a claim for some other relief, redress or remedy, other than a claim for costs."

12. Paragraph 1 of the Schedule to the Small Claims Tribunal Ordinance provides:

"1. Any monetary claim founded in contract, quasi-contract or tort where the amount claimed is not more than $50,000, whether on balance of account or otherwise:

Provided that the tribunal shall not have jurisdiction to hear and determine ..." (Emphasis added)

13. In his skeleton arguments, Mr Tracy accepts that the tenancy agreement, or the lease as he calls it, in the present case is founded on agreement. However, he argues that historically leases evolved in law some two centuries before the law of simple contract started to develop. Leases create estates in land. The parties to a lease may unilaterally be changed by assignment of the reversion or assignment of the tenant's interest. Further estates may be created out of them by sub-leasing. They bind third parties. Actions involving leases are real actions, which are very different from personal actions. He refers to a number of authorities to say that the doctrine of frustration (Cricklewood Property etc v Leighton Investment etc [1945] AC 221; National Carriers Limited v Panalpina (Northern) Ltd [1981] AC 675) and the doctrine of repudiation (see eg Man Fu-wan v Tam Wah-hung [2003] 2 HKC 639 at 647D-649C, Well Century Holding Ltd v Leung Kam-yu, CACV 370/2002, 7 March 2003 (unreported), and Sichant Investments Ltd v Wong Kam Kei, HCA 3430/1994, 19 December 1995 (unreported) did not apply to leases in Hong Kong. However, Le Pichon JA in Typhoon 8 etc v Seapower etc [2002] 2 HKLRD 660 at 666C-E, thought repudiation had very limited application to leases in Hong Kong. Mr Tracy submits that leases, short or long, are quite distinct from contract.

14. He also submits that the present situation is not covered by "quasi-contract", as since 1976, the law of quasi-contract has had well defined heads, eg unjust enrichment, money had and received, work done etc, but these well defined heads do not include leases. In the circumstances, he submits that section 5(1) and the Schedule to the Small Claims Tribunal Ordinance do not cover the present case, as far as the jurisdiction of the Tribunal is concerned. He further argues that if the Small Claims Tribunal should have jurisdiction to deal with "money only" claims arising from short leases or tenancy agreements that would be a matter for the legislature. As the Tribunal had no jurisdiction over the subject matter of the present case, the District Court was the proper venue and the only available one in the present circumstances of the case, and therefore the plaintiff should not be deprived of the costs on the District Court scale. Mr Tracy has not been able to find any authority on the point.

15. In our view, despite differences that there are between leases and contracts as Mr Tracy has pointed out, basically leases or tenancy agreements are by their nature contracts, albeit leases have certain additional attributes because they relate to land or landed interests. A covenant to return to the tenant at the end of the term a deposit paid by him was held not to touch and concern the land so that it did not run with the reversion (see Hua Chiao Commercial Bank v Chiaphua Industries [1987] AC 99, the opinion of the Privy Council on appeal from Hong Kong). In that case, it was held that the obligation of a landlord to return the deposit is merely a personal obligation that does not pass with land.

16. Clause 5 of the tenancy agreement provided that upon the tenant moving out of the premises the landlord would return the deposit without interest to the tenant. Clause 5 imposed an obligation on the defendant's part to repay the deposit when the plaintiff vacated the premises, and that obligation, following the Hua Chiao case, was a contractual obligation. For the purpose of the jurisdiction of the Tribunal, in spite of the fact that a claim for the return of a deposit paid under a lease or tenancy agreement arises out of the lease or tenancy agreement, insofar as it is a monetary claim of not more than $50,000, it is covered by paragraph 1 of the Schedule to the Ordinance under a "claim founded in contract". In the present case, the claim before the Judge was for the return of deposit paid under a tenancy agreement. The purpose for which the deposit was paid was as security for the due performance of the obligations under the tenancy agreement on the part of the tenant (the plaintiff) to perform. At the termination of the tenancy agreement, subject to deduction of the damages for the failure on the part of the tenant to perform its obligations, the deposit had to be returned. See Hong Kong Tenancy Law, 4th Ed, pp 175-176. Even if there had not been a provision such as clause 5 in the tenancy agreement for the return of the deposit, it would still be a necessary term implied in the agreement as a term of a contract. The claim is clearly founded on contract.

17. Moreover, the proviso to paragraph 1(a) of the Schedule to the Small Claims Ordinance also lends weight to our opinion. The proviso excludes some actions from the jurisdiction of the Tribunal, such as defamation, contracts of employment under the Labour Tribunal's jurisdiction and actions brought by moneylenders for recovery of money lent, etc. It is to be noted that there is no exclusion from the Tribunal's jurisdiction actions generally that can be brought in the Lands Tribunal or claims arising out of a tenancy agreement or lease.

18. Another point that lends support that the claim is within the jurisdiction of the Tribunal is the closeness in terminology between paragraph 1 of the Schedule to the Small Claims Tribunal Ordinance and section 32(1) of the District Court Ordinance, Cap 336 which reads:

"(1) The Court has jurisdiction to hear and determine any action founded on contract, quasi-contract or tort where the amount of the plaintiff's claim does not exceed $1,000,000."

19. If the District Court has jurisdiction over this matter, similarly the Tribunal will have jurisdiction, as far as the nature (and not the amount) of the claim is concerned.

20. It is therefore unnecessary to decide if the claim for the return of deposit is also within the ambit of "quasi-contract" under paragraph 1 of the Schedule.

21. As we said before, we consider that the Small Claims Tribunal does have jurisdiction in hearing and adjudicating the present action. Its monetary jurisdiction covers any money claim not exceeding $50,000. As the Judge had said in his judgment, had the plaintiff properly taken into account the amount of $4,870 for the distress of rent in its consideration of the proper venue to bring its claim against the defendant, the claim would and should have been brought before the Tribunal, as opposed to the District Court.

Ground (2)

22. Mr Tracy accepts that Section 53 of the District Court Ordinance gives the Judge very wide discretion as to costs. Section 53 (1) provides as follows:

"The costs of and incidental to all proceedings in the Court, ..., are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid." (Emphasis added).

23. Mr Tracy, however, refers us to O 62, r 2(4) of the RDC and argues that the exercise of the discretion under section 35 must be subject to O 62. O 62, r 2(4) provides as follows:

"(4) The powers and discretion of the Court as the costs under section 53 of the Ordinance (which provides that the costs of and incidental to any proceedings in the Court shall be in the discretion of the Court and that the Court shall have full power determine by whom and to what extend the costs are to be paid) and under the enactments relating to the costs of criminal proceedings to which this Order applies shall be exercised subject to and accordance with this Order."

24. Mr Tracy also submits that O 62, r 9(4)(b) relied on by the Judge to award a "gross sum" does not give the Judge any power to award costs on the Small Claims Tribunal scale. That rule provides as follows:

"(4) The Court in awarding costs to any person may direct that, in stead of taxed costs, that person shall be entitled -

(a) ...; or

(b) to a gross sum so specified in lieu of tax costs, ..."

25. We accept, as submitted by Mr Tracy, that the purpose of applying O 62, r 9(4)(b) is to avoid expense, delay and aggravation involved in a protracted litigation arising out of taxation, see Fairview Park Property Management Ltd v Sun Wai-chun [1999] 4 HKC 42 at 58C, and Cho Ho-kuen, CACV 480/2000 (unreported), and that O 62, r 9 (4)(b) itself does not empower the Judge to make a "gross sum" costs order for the purpose of applying the Small Claims Tribunal scale.

26. It has to be noted, however, that the Judge did not say that the costs were to be taxed on the Small Claims Tribunal scale. He merely used that scale as the basis for assessing the costs and awarded a gross sum as a result. The Judge has a wide discretion on costs. O 62, r 3(2) provides as follows:

"(2) If the Court in the exercise of its discretion sees fit to make any order as to costs of and incidental to any proceedings, the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs." (Emphasis added)

27. Mr Tracy argues that this rule only allows the Judge to order costs other than to follow the event, such as depriving the successful party of costs altogether, or to order part of the costs to follow the event and part not so. We consider that is too restrictive a construction of the rule. The wording of O 62, r 3(2) is wide enough to give the Judge the discretion to make the costs order as he did. He is entitled to make any costs order, according to the circumstances of the case before him, which includes an order for costs not following the event, and also in relation to the whole or any part of the costs. So long as the circumstances of the case justify, he can make no order as to costs (equivalent to ordering no costs), he can order a party to have a certain percentage of the costs (equivalent to part of the costs) and he can limit costs to be not more than a sum certain (which is within the ambit of "some other order" and may cover the whole or part of the costs), etc. Thus, a judge may make an order for costs to be limited to a certain sum. In our judgment, O 62, r 3(2) gives the Judge a wide discretion. Insofar he exercises his discretion under this rule, he is fully entitled to make a gross sum costs order under O 62, r 9(4)(b) in the exercise of his discretion to avoid delay or expense.

28. In Cho Ho-kuen, Keith JA said:

" ... it is, I think, pertinent to observe that there is no provision in either the District Court Ordinance (Cap. 336) or the Small Claims Tribunal Ordinance (Cap. 338) restricting the entitlement to costs of a plaintiff who brings his claim in the District Court when the claim might more appropriately have been brought in the Small Claims Tribunal. That is to be contrasted with section 43(2) of the District Court Ordinance (as it then was prior to its recent replacement), which empowered the Court of First Instance to award costs only on the District Court scales when a claim brought in the Court of First Instance might have been more appropriately brought in the District Court."

However, it is to be noticed that Keith JA observation was entirely obiter, as he had made it clear in the conclusion of his judgment in that case:

"... I do not propose to comment on whether, assuming that the judge had had a discretion to direct that the costs be assessed on some other basis, the Judge should have exercised his discretion to direct that the costs be assessed as if the Plaintiff's claim had been brought in the Small Claims Tribunal."

29. It is also to be noticed that Chan Ho-kuen dealt with a case of the plaintiff's acceptance of a payment into court made by the defendant in a sum below the lower limit of the District Court's monetary jurisdiction. This Court in that case held that, considering the combined effect of O 62, r 10(2) and r 9(1) of the RDC, the plaintiff was entitled as of right to have his costs in the action up to the date of his acceptance of the payment-in taxed, and the taxation must be in accordance with O 62 of the RDC, which was on the District Court scale.

30. The repealed section 43(2) of the District Court Ordinance (referred to by Keith JA) provides as follows:

"(2) Where any proceedings in which the Court [meaning the District Court] has jurisdiction are brought in the Court of First Instance costs shall be recoverable on such scale and in such amount as would have been recoverable if the proceedings had been brought in the Court, unless the proceedings were so brought by leave of the Court of First Instance or unless the Court of First Instance otherwise orders."

31. A similar provision can now be found in section 44A(6) of the District Court Ordinance, which reads:

"(6) Where proceedings in which the Court [meaning the District Court] has jurisdiction are brought in the Court of First Instance, the Court shall order costs on the scale and in the amount as if the proceedings had been brought in the Court, unless the proceedings were brought by leave of the Court of First Instance or unless the Court of First Instance otherwise orders."

32. It is true that there is no provision in the District Court Ordinance, the RDC or in the Small Claims Tribunal Ordinance similar to section 44A(6) or the repealed section 43(2) to give express power to the District Court to order costs to be taxed on the Small Claims Tribunal scale, it does not mean that the District Court has no power to award costs on a basis different from that for taxed costs on the District Court scale. O 62, r 3(2) combined with O 62, rule 9(4)(b), in our judgment, are wide enough to entitle the District Court to order costs to be not more than a specified sum, or to be assessed on a basis, for want of a more certain term, similar to the scale applied in the Small Claims Tribunal.

33. If one adopts the purposive approach to interpreting the RDC, there would be even fuller justification for a District judge to have the discretion to order costs, in an appropriate case, to be in accordance with the scale of the Small Claims Tribunal. For otherwise, it would lead to the undesirable alternative results as alluded to by the Judge in his judgment referred to above. One of the main purposes of establishing the Small Claims Tribunal and let litigants have resort to it is to let the parties resolve their disputes on matters within the monetary jurisdiction of the Tribunal without incurring the expenses of retaining legal services (which normally would involve a rather substantial amount) and at the same time would not have the effect of an unrepresented litigant having to fear the imbalance of power caused by a lawyer representing the other side while he himself does not have legal representation. See section 19 of the Small Claims Tribunal Ordinance for the prohibition against legal representation. Moreover, there is only a limited right of appeal against decision of the Small Claims Tribunal, which restricts the parties' right of appeal to questions involving points of law or excess of jurisdiction, see section 28(1) of the Small Claims Tribunal Ordinance. Unlike an appeal from the District Court, there can be no appeal on findings of fact by the Tribunal. Finality of litigation is thus more speedily achieved.

34. Ground (2) fails.

Other matters

35. Mr Tracy has also argued on the facts of this case in order to challenge the award by the Judge on the basis of the Tribunal scale. First, he should not be permitted to do so, for questions of fact have not been raised in the Notice of Appeal and the basis for the Judge's granting leave was on questions of law and jurisdiction. Even if Mr Tracy be allowed to do so, we do not consider, in the circumstances of this case, that it is necessary to go into the facts. The Judge had considered all the relevant factors and exercised his discretion properly in making the costs order as he did. The main basis for the costs order he made was that the claim should have been brought in the Small Claims Tribunal, which was certainly correct. Mr Tracy has not been able to satisfy us that the Judge had made any error in principle or in any other manner justifying this court to interfere with his exercise of discretion.

Conclusion

36. For the above reasons, we dismissed the appeal with costs. Since the defendant was unrepresented before us, we made a gross sum order that the costs payable by the plaintiff to her be in the sum of $500.