KAO, LEE & YIP (a firm) v. MIDLAND REALTY INTERNATIONAL LTD

HCA 2153/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2153 of 2007

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J U D G M E N T

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THE APPLICATION BEFORE THE COURT

1. Before the Court is an application to strike out the Statement of Claim and to dismiss this action.

FACTUAL BACKGROUND FROM WHICH THE PLAINTIFF’S CLAIM AROSE 

2. The Plaintiff (“KLY”), a firm of solicitors, and the Defendant (“Midland”), a licensed estate agent, acted for the owners (“the Owners”) of 10 units of Henredon Court, 8 Shouson Hill Road, Hong Kong (“the Properties”) in the joint tender and sale of the Properties.

3. More particularly, by certain Conditions of Sale by Tender (“the Conditions of Sale”) made between the Owners and one Novel Joy Group Limited (“the Purchaser”), the Owners agreed to sell and the Purchaser agreed to buy the Properties at HK$710 million.  The Purchaser’s offer and the Owners’ acceptance, both subject to the terms of the Conditions of Sale, were dated 2 and 4 May 2007 respectively.   

4. On completion on 15 June 2007, in addition to the balance of the purchase price, the Purchaser paid an extra sum of HK$7.1 million (“the Sum”) pursuant to Condition 24(a) of the Conditions of Sale under the heading “LEGAL COSTS AND DISBURSEMENTS” and which provided as follows:

“On completion, apart from the balance of the Purchase Price and other monies payable by the Purchaser to the Vendor, the Purchaser shall pay to the Vendor’s Solicitors an additional sum equivalent to 1% of the Purchase Price to reimburse the Vendor the professional and consultants costs and expenses incurred or to be incurred by the Vendor in relation to the tender and the sale of the Property including but not limited to all legal costs and expenses and estate agent’s commission.”  

5. The “Vendor’s Solicitors” in Condition 24(a) was a reference to KLY.  KLY received the Sum as the Owners’ agent.  This was made clear by Condition 26 under the heading “VENDOR’S AGENT FOR RECEIPT OF MONEY” and which stipulated:

“(a)  The Vendor declares that the Vendor’s Solicitors shall be the Vendor’s agent (“Agent”) for the purpose of receiving all moneys payable to the Vendor pursuant to these Conditions of Sale and/or the Agreement including (but not limited to) the Initial Deposit, the Further Deposit and the balance of the Purchase Price.

 (b)  Any payment made under these Conditions of Sale and/or the Agreement to such Agent, whether in respect of the Deposit or the balance of the Purchase Price or otherwise, shall be full and sufficient discharge of the Purchaser’s obligation in respect of such payment.

 (c)  The Vendor may revoke the authority of the Agent and appoint another solicitor as an Agent in their place. …”

The Sum (plus accrued interest) is currently held by KLY in an interest bearing account. 

6. The tendering of the Properties was preceded by an Agreement date 31 March 2007 (“the Owners’ Agreement”) made among the Owners (and one other owner of Henredon Court who eventually did not participate in the joint tender and sale).  The Owners’ Agreement set out the terms and conditions upon which the Owners would sell the Properties en bloc by tender.  KLY drafted and prepared the Owners’ Agreement.  Insofar as it is material to this action, the Owners’ Agreement contained the following express terms:

(1)  Clause 1(c):

“… The Purchase Price … payable by the successful tenderer pursuant to the terms of the Tender shall be paid to Messrs. Kao, Lee & Yip which is hereby appointed as solicitors by and for the Owners (“Appointed Solicitors”) …”

(2)  Clause 1(g):

“Subject to sub-clause (i) of this clause, all costs and disbursements payable to the Appointed Solicitors in relation to the preparation of this Agreement and in relation to the sale of the Properties (“the Appointed Solicitors’ Costs and Disbursements”) shall be borne by the Owners in accordance with the Relevant Percentage set out in the Fourth Schedule hereto provided that if the offer to purchase the Properties referred to in clause 1(b) hereof is not accepted by all the Owners, the amount of the Appointed Solicitors’ Costs and Disbursements shall not exceed a sum of HK$250,000.00.” 

(3)  Clause 1(h):

“The Owners agree to appoint Midland Realty International Limited (“Appointed Estate Agent”) as their estate agent for the sale of the Properties.  The Appointed Estate Agent shall only be entitled to charge commission (“Appointed Agent’s Commission”) on the condition that the completion of the sale and purchase of the Properties pursuant to the terms of the Tender shall have taken place on or before 15^th June 2007.  The Appointed Agent’s Commission shall be an amount equivalent to 1% of the Purchase Price minus the Appointed Solicitors’ Costs and Disbursements.  The Owners agree that if the offer to purchase the Properties referred to in clause 1(b) hereof is not accepted by all the Owners, the Owners shall pay a sum to the Appointed Estate Agent in an amount equivalent to the total amounts of the out-of-pocket expenses incurred by the appointed Estate Agent in relation to the sale of the Properties subject to a maximum of HK$200,000.00.  Such sum shall be borne by the Owners in accordance with the Relevant Percentage set out in the Fourth Schedule hereto.”

(4)      Clause 1(i):

“The Owners acknowledge that according to the terms of the Tender, the successful tenderer is required to pay, apart from the Purchase Price, the Appointed Solicitors’ Costs and Disbursements and the Appointed Agent’s Commission in the total sum equivalent to 1% of the Purchase Price.  Notwithstanding the aforesaid, the appointed Solicitors and the Appointed Estate Agent shall only act for the Owners, and not other persons, in relation to the sale of the Properties.”

Neither KLY nor Midland was a party to the Owners’ Agreement.

7. In short, the Owners had agreed among themselves that

(1) KLY and Midland should be appointed respectively as their solicitors and estate agent in the joint tender and sale of the Properties.

(2) In the event of a successful sale, KLY and Midland should be paid 1% of the price for their respective costs and disbursements and commission with Midland being entitled to what was left of the one percent after deducting KLY’s costs and disbursements.

(3) To enable the Owners to pay KLY and Midland, in addition to the price of the Properties, the successful tenderer should be required to pay the Owners an extra sum equivalent to 1% of the price. 

(4) Should be there be no sale,

(a)  KLY’s costs and disbursements should not exceed HK$250,000.

(b) Midland should be reimbursed for their out-of-pocket expenses subject to a cap of HK$200,000.  

8. Following the Owners’ acceptance of the Purchaser’s offer in early May 2007, concern naturally arose as to what KLY proposed to charge the Owners by way of “Appointed Solicitors’ Costs and Disbursements”.  Beginning from about mid May 2007, Midland contacted KLY for information on KLY’s costs and disbursements.  Midland made such enquiries with KLY at the request of some of the Owners.  However, KLY refused to discuss the question of its fees with Midland, asserting solicitor-client confidentiality and that KLY’s fee entitlement in connection with the tender and sale of the Properties was a matter to be resolved between KLY and the Owners and had nothing to do with Midland. 

9. Shortly before completion, on 12, 13, and 14 June 2007, four of the Owners, namely Goldwise Management Limited (“Goldwise”), Gloss Profit Limited, Palace Home Limited and Super Strategy Investment Limited (“Super Strategy”), wrote to KLY.  The 4 letters were, as far as I can tell, in identical terms.  They put on the record that the Owners had never agreed with KLY what its solicitors’ costs and disbursements would be in the event of a successful sale of the Properties or that KLY could charge the Owners any professional or consultant costs or expenses other than solicitors’ fees and disbursements for acting for the Owners in the tender and sale of the Properties.  As KLY’s clients, these 4 Owners demanded KLY to forthwith furnish them with a bill of its reasonable costs and disbursements to be charged at KLY’s standard hourly rates on a solicitors/own client basis no later than 20 June 2007.  The last 2 paragraphs read:

“On the assumption/basis that we are able to agree with the figure of your legal bill of costs/disbursements, you are hereby authorized to deduct such agreed figure from the Additional 1% and directed to transfer the balance thereof immediately to Midland.  If we are unable to come to an agreement over the figure of your firm’s costs and disbursements for acting in the successful sale and purchase of the 10 Flats, we will be asking your firm to have your legal bill of costs and disbursements taxed and you can deduct the amount of the taxed costs/disbursements from the Additional 1% after which you will forthwith remit the balance thereof to Midland.

For the avoidance of doubt and pending our agreement as to your firm’s solicitors’ costs and disbursements for acting in relation to the successful sale and purchase of the 10 Flats, the Additional 1% is to be placed by your firm on deposit with an interest bearing account any interest earned therefrom shall be for the respective benefit/entitlement of your firm and Midland to be shared in accordance with the ratio of the final figure of your costs/disbursements (agreed or taxed) to the final figure of Midland’s estate agency commission (arrived at after deduction of your agreed/taxed costs from the Additional 1%).” 

10. KLY did not respond.  Goldwise and Super Strategy wrote to KLY again on 24 July 2007.  They did so for themselves as well as on behalf of 5 other Owners (of Flats C1, C2, D1, E1 and F1).  These 7 Owners gave KLY final notice to render a bill for its costs and disbursements within 3 business days, failing which the Owners would bring the matter to the attention of the Law Society of Hong Kong.

11. KLY eventually replied by a letter dated 27 July 2007 addressed to Goldwise and Super Strategy and copied all the other Owners, asserting an agreement (“the Alleged Oral Agreement”) made on 25 January 2007 between KLY and a Mr John Wan (“Mr Wan”) whose company owned Flat F2 of Henredon Court and who was the prime mover for the tender and sale of the Properties en bloc that KLY should receive a consultancy fee equivalent to 0.65% of the purchase price of the Properties (“the Claimed Agreed Fee”) in consideration of KLY agreeing to provide the following consultancy services to the Owners in connection with the sale of the Properties:

“(1)  advising on the method of selling the Properties and what that required of the owners;

(2)    working with Mr John Wan and the owners’ committee on the terms of the owners’ Agreement, how to document that agreement and advising the means to make that binding;

(3)    explaining and assisting the owners to work through the terms of the owners’ agreement and to negotiate with each other and doing all necessary drafting and arranging engrossment and execution of the owners’ agreement;

(4)    recommending the terms of tender and drafting the tender documents (including form of agreement for sale by the owners and assignment) and obtaining the owners’ agreement to the tender documents including assisting them to negotiate with each other;

(5)    recommending a list of developers to be invited to tender;

(6)    issuing the tender; checking of all owners’ titles and dealing with tenderers’ requisitions on title;

(7)    receiving the tenders and opening them in front of the owners;

(8)    advising on how to deal with the tenders including questions of conformity and non-conformity;

(9)    advising and assisting in post-tender negotiations with tenderers and dealing with any legal matters raised by the successful tenderer at post-tender stage; and

(10)  arranging for execution of agreements for sale and assignments; negotiating terms of licences from successful tenderer for those owners who wished to remain in possession after completion; dealing with all completion matters including later handing over of possession for those owners who remained in possession; acting as stakeholder for various funds at various times and disbursing all relevant funds.”

Mr Wan was said to have so agreed on behalf of all the Owners.

12. I pause to make a few observations.  First, on 25 January 2007, the date on which the Alleged Oral Agreement was made by Mr Wan, KLY sent to Mr Wan, Ms Wong Kar Ki Rima (“Mrs Wei”) and Ms Chan He Kin Anna (“Mrs Wong”) (whom Mr Wan had robed in ahead of the other Owners to jointly explore the tender and sale of Henredon Court en bloc) a letter in the following terms:

“Re : Henreden Court, No.8 Shouson Hill Road, Hong Kong (“the Property”)

We refer to the meeting with you on 19^th January 2006 and confirm that you wish us to act for you in the following matters:-

1. preparing an agreement between the co-owners of the Property for the sale of the Property as a whole by such co-owners;

2. preparing tender document for the sale of the Property;

3. attending all legal matters in relation to the completion of the sale of the Property;

4. giving you advice and attending all meetings and correspondences in relation to the sale of the Property by tender; and

5. liaising with the co-owners and the estate agent appointed by you in connection with the above matters.

For the sake of good record, please sign the attached duplicate of this letter.  As agreed, we will let you have our fee quotation on the above matters in a separate letter.”

KLY did not mention the Alleged Oral Agreement.  Nor did it give any separate written quotation, whether for a fee equivalent to 0.65% of the price of the Properties or at all.

13. Second, KLY’s assertion that Mr Wan made the Alleged Oral Agreement on behalf of all the Owners did not sit well with the undisputed evidence that the other Owners were not presented with the proposal to sell the Properties en bloc until an owners’ meeting of Henredon Court in February 2007.

14. Third, although KLY was not a party to the Owners’ Agreement, one would have expected Clauses 1(g) and (h) to reflect, not just the consensus among the Owners, but also the agreements that the Owners had reached with KLY and Midland regarding their remunerations.  This is particularly so for KLY as it drafted and prepared the Owners’ Agreement.  Notwithstanding the provision for the payment of a fixed fee by the Owners to KLY in the event of the tender being unsuccessful, there was no reference to KLY’s alleged entitlement to a fixed, not to mention larger, portion of the Sum in the event of a successful sale.  Nor was there any mention of KLY being engaged to undertake any work other than work of a conveyancing solicitor.  

15. As far as the Owners were concerned, KLY’s letter of 24 July 2007 was the first occasion it had ever raised the Alleged Oral Agreement and claimed entitlement to 65% of the Sum.  By such letter, KLY also gave the Owners notice that it would deduct from the Sum the amount of HK$4,615,000 being the amount of the Claimed Agreed fee as and for the property consultancy fee payable to it on the expiration of 14 days from the date of the letter.  KLY also asked for written instructions as to how to deal with the balance 35% of the Sum, without which KLY said it was not in a position to release the same to Midland.  KLY claimed to be unaware of the details of the dealings between the Owners and Midland. 

16. According to Ms Joyce Ko, Midland’s Senior Sales Manager, Midland was informed of KLY’s assertion of the Alleged Oral Agreement in about late July 2007.

17. By 2 letters dated 4 August 2007 to KLY, Goldwise and Super Strategy denied that they had ever agreed, or authorized Mr Wan to agree, to KLY charging them the Claimed Agreed Fee.  Although Goldwise and Super Strategy formally only acted for themselves and the (former) Owners of Flats C1, C2, D1, E1 and F1, according to these letters, some other Owners also took the same position.  In particular, Mr Wan had, in response to some Owners’ inquiries, denied that there was ever any concluded agreement which allowed KLY to charge the Claimed Agreed Fee.

18. By a letter dated 8 August 2007, KLY threatened to apply to the Court against the Owners for appropriate declarations and orders if the Owners had not withdrawn their objections to KLY charging the Claimed Agreed Fee by 13 August 2007.

PROCEEDINGS BETWEEN THE OWNERS AND KLY

At first instance

19. Notwithstanding KLY’s threat to take the Owners to court, as it turned out, it was the Owners who made the first strike.  By an Originating Summons issued by Super Strategy and Goldwise in HCMP 1752/2007 (“the Owners’ Action”) on 14 September 2007 and amended on 18 April 2008, these Owners applied against KLY for

(1) a declaration that all costs and disbursements due or allegedly due to KLY in respect of all work undertaken by KLY in connection with the sale of the Properties (irrespective of the descriptions that KLY may choose to describe them) were costs and disbursements of “non-contentious business done by solicitors” within the meaning of the Legal Practitioners Ordinance, Cap 159 (“LPO”) and were legal costs and disbursements subject to the provisions of the LPO;

(2) an Order that KLY deliver a bill of all legal costs and disbursements due or allegedly due to KLY in respect of all works undertaken by KLY in connection with the sale of the Properties; and

(3) a declaration that save and except such costs and disbursements as set out in the bill to be delivered, KLY was not entitled to demand, recover, claim or sue for, whether by way of legal proceedings or otherwise, any costs or disbursements due or allegedly due to KLY for any business of whatever descriptions done by KLY in connection with the sale of the Properties.

20. The Owners’ Action came before Mr Justice Saunders on 17 June 2008.  By a Decision dated 19 June 2008, his Lordship summarily 

(1) ordered KLY to deliver a bill of costs which must cover all work undertaken by KLY in connection to the sale of the Properties, whether that work be styled “solicitors work”, “property consultant services”, “consultancy services” or anything else; and

(2) further declared that save and except such costs and disbursements as set out in the bill of costs to be delivered by KLY as ordered, KLY was not entitled to demand, recover, claim or sue for, whether by way of legal proceedings or otherwise, any costs or disbursements due or allegedly due to KLY for any business of whatever descriptions done by KLY in connection with the sale of the Properties (“the CFI Judgment”).

21. Saunders J so ordered and declared for the following reasons:

(1) The law in Hong Kong did not entitle a solicitor, when retained to act in relation to a sale, to separate his “solicitors work” undertaken in his professional capacity, from any other work undertaken by him, connected with the sale, when rendering a bill of costs.

(2) The whole of the work undertaken by KLY in connection with the sale of the Properties fell within the definition of “non-contentious business” in s 2 of the LPO (which includes “any business connected with sales”). 

(3) That work was therefore subject to the regime of the LPO.  Hence, KLY was obliged to deliver a bill of costs which, if contested, may be subject to taxation.  

(4) Since all the work undertaken by KLY was within the definition of “non-contentious business”, even if the Claimed Agreed Fee had been agreed as contended by KLY, in the absence of an agreement in writing signed by the Owners or their agent in that behalf as required by s 56(3) of the LPO, KLY could not charge the Claimed Agreed Fee.

On appeal

22. On 6 January 2009, the Court of Appeal (Rogers VP, Barma and Wright JJ) dismissed KLY’s appeal against the CFI Judgment (“the CA Judgment”).  The Court of Appeal upheld the CFI Judgment but on the basis that KLY was simply not able to make out a viable case either that it had contracted for a fixed fee or that it had contracted to act other than as a solicitor or on the basis that any work it carried out that might be considered as estate agent’s work would be treated separately or independently from its work as a solicitor.  That is to say, the Court of Appeal found the Alleged Oral Agreement “unworthy of belief”.

23. Rogers VP, however, expressly left open the question as to whether a solicitor could make a contract with a client that he would undertake non-contentious business within the meaning of the LPO but at the same time and separately provide other services which would be treated as something distinct from the services as a solicitor.

KLY’S BILL OF COSTS AND DISBURSEMENTS

24. Following the CA Judgment, on 14 January 2009, KLY delivered to the Owners a bill for the total amount of HK$757,283 (“the Bill”). 

25. On 19 January 2009, KLY’s solicitors wrote separately to each of the Owners as well as to Midland’s solicitors to seek the following information:

(1) the agreement between the Owners and Midland in respect of the fees payable to Midland for the sale of the Properties;

(2) whether there were any other professional costs and expenses required to be paid in respect of the sale of the Properties; and

(3) how the remaining balance of the Sum and interest accrued (HK$7,246,577.98 as at 19 January 2009), after taking into account KLY’s costs and disbursements, Midland’s commission and other professional costs and expenses, ought to be dealt with.

KLY’S CLAIM AGAINST MIDLAND IN THIS ACTION

26. Turning then to the present action, KLY issued a generally indorsed Writ of Summons in this action on 11 October 2007 to claim against Midland a declaration that it was entitled to deduct from the Sum with interest

(1) either a sum of HK$4,615,000 (i.e. 65%) as and for KLY’s property consultancy fees in relation to the tender and sale of the Properties;

(2) or such sum(s) as may be assessed by this Court as and for the fees, costs and/or expenses payable to KLY in respect of the property consultancy services rendered by KLY to the Owners in relation to the tender and sale of the Properties.

27. In support of its primary claim to 65% of the Sum, by the Statement of Claim filed and served on 30 November 2007, KLY asserted that:

(1) In or about December 2006, Mr Eric John Davison (“Mr Davison”), a partner of KLY, was approached and orally instructed by Mr Wan to advise on, structure, set up and implement a scheme for the sale by tender of the Properties en bloc to prospective purchasers and to take a leading and dominant role as property consultant in such sale.

(2) Midland, though also involved as a property consultant, was to play a subsidiary role, mainly acting as valuers and advising the Owners on their individual shares in the sale of the Properties.

(3) In or about January 2007, during a telephone discussion between Mr Davison and Mr Wan, the latter orally assured, represented and/or promised Mr Davison that as KLY assumed and performed a leading role in acting as property consultant in the sale by tender of the Properties, KLY would receive 65% of the 1% property consultancy fee to be paid by the purchaser in addition to the purchase price.

(4) Mr Wan held himself out and was held out by the Owners to represent the Owners to finalise the terms (including the fee structure) of the sale of the Properties by tender, and the Owners accepted and acceded to the Scheme on, inter alia, the bases that:

(a)  in the event of a successful sale, a property consultancy fee of 1% of the sale price was to be paid by the purchaser and no legal or other fees and expenses would be payable by the Owners; and

(b) in the event of the sale not materialising, the Owners would pay KLY not exceeding HK$250,000 as their legal costs and expenses and Midland a maximum of HK$200,000 for Midland’s out-of-pocket expenses.

(5) In reliance on Mr Wan’s assurances, representations and promises, KLY rendered property consultancy services to the Owners in the successful tender and sale of the Properties.

(6) KLY was entitled to 65% of the Sum either pursuant to Mr Wan’s assurances, representations and promises or based on the role it played and the services it rendered to the Owners in the tender and sale of the Properties.

28. It can be seen that KLY was here asserting the same entitlement to the Sum on the same basis as it did against the Owners in the Owners’ Action.

KLY’S APPLICATION TO STRIKE OUT OR STAY THE OWNER’S ACTION

29. On the day the generally indorsed Writ of Summons in this action was issued, i.e. 11 October 2007, KLY applied to stay the Owners’ Action pending the determination of this action.  KLY so applied on the premise that only KLY and Midland were entitled to share the Sum.  The resolution of the share between KLY and Midland in this action would make the Owners’ Action academic. 

30. KLY’s subsequently applied on 9 January 2008 to add to the stay summons an application for the striking out of the Owners’ Action.  KLY’s argued that they acted as property consultant for the Owners in addition to being their solicitors.  KLY was not charging any fee qua solicitors, but claiming an agreed fee qua property consultant.  Such agreed consultancy fee was not taxable under the LPO.  The request for a bill was therefore vexatious or frivolous and/or without reasonable cause of action.  The Owners’ Action was also an abuse of process, the same being motivated by the Owners’ fear of possible law suit by Midland against them for commission. 

31. Mr Justice Fung dismissed both applications on 13 February 2008 for the following reasons:

(1) It was not clear or obvious that KLY’s fees were not taxable.

(2) Super Strategy and Goldwise were seeking to avail their right of solicitor and own client taxation under the LPO.  They were not seeking any advantage beyond that.  Whatever fear or apprehension that they might labour towards Midland was irrelevant.

(3) The Owners were necessary parties to the resolution of the question of KLY’s fees.  Their absence from this action meant that no saving of costs or other convenience would be achieved by staying the Owners’ Action pending the determination of this action.

32. Fung J, however, refused to order KLY to pay Super Strategy and Goldwise costs on an indemnity basis.  His Lordship was not prepared to view the striking out application as motivated by the ulterior motive of delay.  As for the stay application, regardless of what might have motivated KLY to make that application in the first place, it became subsumed under the striking out application as a fall back position and took up only a fraction of the argument.

MIDLAND’S GROUNDS FOR STRIKING OUT

33. In support of its contention that the Statement of Claim discloses no reasonable cause of action and/or it is scandalous, frivolous and/or vexatious and/or it is otherwise an abuse of process of the Court:

(1) Midland argued that the Statement of Claim did not disclose any justiciable legal rights as between KLY and Midland: 

(a)  Midland was not a party to the Alleged Oral Agreement.  The issues regarding the existence of such agreement and its effect (if made) were matters between KLY and the Owners.  Midland had no locus standi and did not wish to involve itself in the resolution of such issues.

(b) Although the Sum was paid under Condition 24(a) of the Conditions of Sale to “reimburse” the Owners “the professional and consultants costs and expenses” incurred or to be incurred by the Owners in relation to the tender and sale of the Properties, it was a payment by the Purchaser to the Owners.  The Sum was (and remains) the Owners’ monies.  The primary liabilities to settle the professional fees, whether KLY’s costs and disbursements or Midland’s commission, always rested with the Owners. 

(2) Further, Midland invited the Court to infer that KLY commenced this action against Midland to delay or otherwise prejudice the resolution of the Owners’ Action with a view to bargaining for a better deal for itself.  Midland attributed such ulterior motive to KLY because

(a)  This action was inconsistent with the stance that KLY had previously taken regarding Midland’s locus in the question of KLY’s fee entitlement in connection with the tender and sale of the Properties. 

(b) It was not preceded by any letter before action to ascertain Midland’s position.

(c) On the same day the Writ of Summons herein was issued, KLY took out a Summons in the Owners’ Action to stay those proceedings pending the determination of this action.

34. Following the CFI Judgment and the CA Judgment, Midland added to the abuse of process ground, making the point that the continuation of this action would constitute a collateral attack upon the CFI Judgment and the CA Judgment. 

35. It was also suggested that the CFI Judgment “confirmed the correctness of Midland’s submission that the question of the fees properly chargeable by KLY were matters to be resolved between the Owners and KLY in accordance with the provisions of the LPO, and do not involve any justiciable legal or equitable rights as between KLY and Midland”.

KLY’S RIVAL CONTENTIONS

36. KLY opposed Midland’s application on the following grounds:

(1) There was a dispute and justiciable issue between KLY and Midland, i.e. their respective entitlement to the Sum over which (KLY said) there was constituted a trust under which only KLY and Midland were the beneficiaries.  There were triable issues as to KLY’s entitlement.

(2) This action was properly commenced for the resolution of the dispute between KLY and Midland as to their respective entitlement to the Sum.  Midland’s assertion that this action was commenced by KLY with the ulterior motive to delay the Owners’ Action or otherwise achieve some collateral advantage in those proceedings was unsupported.

37. KLY continued to oppose Midland’s application after the CFI Judgement, arguing that

(1) The issue raised in this action namely, the relative entitlement of KLY and Midland (if any) to the Sum, had not been considered or decided in the Owners’ Action.

(2) Even if this action involved re-litigation of the same issues decided by Saunders J in the Owners’ Action, Midland was not a party to the Owners’ Action.  The opinion of Saunders J in proceedings between different parties was in law not even admissible in evidence in this action (Secretary of State for Trade and Industry v Bairstow [2004] Ch 1).

(3) The principle of collateral challenge did not apply to a previous decision on a question of law between different parties.  In all cases concerned with collateral challenge, the argument related to a challenge over findings of fact made by a tribunal after trial (Secretary of State for Trade and Industry v Bairstow, per Sir Andrew Morritt V-C at paragraphs 37-38).  Saunders J did not make any finding or conclusion of fact after trial.  There had been no trial on the merits. 

(4) Even if the doctrine applied, it was not unfair to require Midland to establish the soundness of its proposition of law.  It was open to Midland to say that KLY was precluded as against the Owners to claim the Claimed Agreed Fee, without relying on the CFI Judgment.  This was not manifestly unjust to Midland, and did not bring the administration of justice into disrepute.

(5) The CFI Judgment did not confirm “the correctness of Midland’s submission that the question of the fees properly chargeable by KLY were matters to be resolved between the Owners and KLY in accordance with the provisions of the LPO, and do not involve any justiciable legal or equitable rights as between KLY and Midland”.  Saunders J was not seised of and did not express any view on Midland’s striking out application. 

(6) Midland’s supplemental submissions dated 2 July 2008 were also inconsistent with the position it adopted at the hearing on 3 June 2008 which was that it was not concerned with the rights and obligations as between KLY and the Owners.  There was inconsistency because Midland sought to say that the present action was not maintainable because Saunders J had made a ruling as between the Owners and KLY.  If Midland was really not concerned at all with what were the rights and obligations as between the Owners and KLY, it was difficult to see how the CFI Judgment advanced its position in this summons. 

38. KLY’s opposition persisted after the CA Judgment which, KLY said, had not determined that either of Midland’s contentions for striking out as summarised in paragraph 33 above to be correct.  

39. However, KLY does accept that in light of the CA Judgment,

(1) it cannot maintain a claim to 65% of the Sum; and

(2) its fee entitlement will now be determined on the basis of quantum meruit and the exact amount will be determined by taxation of the Bill, if the same cannot be agreed between the Owners and KLY.

40. KLY is awaiting the response of the Owners and Midland to its said letters dated 19 January 2009.   Unanimous consent from the Owners and Midland on the distribution of the balance after deducting KLY’s agreed or taxed costs and disbursements is necessary because

(1) Midland still has not disclosed what arrangement it had made with the Owners in relation to its fees for the services they had rendered to the Owners.

(2) KLY is holding the Sum and interest as trustee.  

If unanimous consent is forthcoming, KLY will apply to discontinue this action, leaving only the question of costs.  If not, KLY will apply to amend the Statement of Claim to seek appropriate relief, including but not limited to interpleader relief.  In either scenario, the action should not be struck out.

NO JUSTICIABLE ISSUE BETWEEN KLY & MIDLAND

41. I cannot agree with the submission made on behalf of Midland that the CFI Judgment “confirmed the correctness of Midland’s submission that the question of the fees properly chargeable by KLY were matters to be resolved between the Owners and KLY in accordance with the provisions of the LPO, and do not involve any justiciable legal or equitable rights as between KLY and Midland”. 

42. In the Owners’ Action, Fung J held that such action should not be struck out or stayed because the Owners were necessary parties to the resolution of the issue of KLY’s remuneration for the services that it had rendered in connection with the tender and sale of the Properties.  Saunders J resolved such issue between the Owners and KLY. 

43. KLY is right that Saunders J was not seised of Midland’s present Summons.  His Lordship did not express, or say anything that could be taken as expressing, a view on the question whether the issue of KLY’s fee entitlement was also a justiciable issue as between KLY and Midland. 

44. To decide that question, it is to my mind important to be precise about the issue that had arisen and the parties between whom such issue had arisen.

45. KLY has, by its solicitors’ said letters dated 19 January 2009, asked the Owners and Midland for information as to, inter alia, whether there were any professional costs and expenses required to be paid out of the Sum in respect of the sale of the Properties other than KLY’s costs and disbursements and Midland’s commission. 

46. I am puzzled by this inquiry.  Notwithstanding the wider terms of Condition 24(a) of the Conditions of Sale, it is from Clauses 1(h) and (i) of the Owners’ Agreement that the Sum was intended to cover only KLY’s costs and disbursements and Midland’s commission.  The last 2 paragraphs of the Owners’ letters dated 12, 13 and 14 June 2007 (set out in paragraph 9 above) instructed KLY to pay to Midland what remained of the Sum after KLY had taken from it its agreed/taxed costs and disbursements.  Although such instruction emanated from 4 of the Owners only, it was entirely consistent with Clauses 1(h) and (i).  The evidence in this action and that in the Owners’ Action that I have been shown does not disclose any professional costs or expenses having been incurred by the Owners in the tender and sale of the Properties other than the “legal costs and expenses and estate agent’s commission” payable to KLY and Midland respectively. 

47. KLY itself applied to stay the Owners’ Action pending the determination of this action on the ground that only KLY and Midland were entitled to share the Sum and that the resolution of the share between KLY and Midland in this action would make the Owners’ Action academic. 

48. Paragraph 15 of the Skeleton Submissions for KLY dated 31 May 2008 in opposition to Midland’s striking out application read:

“Apart from KLY and Midland Realty, there are no other professionals providing professional services to the Owners in the sale of the Properties or any claiming any part of the Sum.  There is no other contestant for the Sum other than KLY and [Midland].  There was constituted a trust over which only KLY and [Midland] were the beneficiaries.”

49. I can see no or no valid concern that the Sum might be required to pay professional costs and expenses other than KLY’s costs and disbursements and Midland’s commission.

50. The justiciable issue between KLY and Midland that KLY put forward in this action was KLY and Midland’s respective entitlement to the Sum.

51. Focusing on Midland’s share in the Sum first, KLY has repeatedly said that Midland has not disclosed, and KLY does not know, what arrangement Midland had made with the Owners in relation to Midland’s fees for the services they had rendered to the Owners.  I have difficulty following such statement. 

52. Clauses 1(h) and (i) of the Owners’ Agreement clearly provided for the application of the Sum to settle KLY’s costs and disbursements and Midland’s commission with Midland being entitled to what was left of the Sum after deducting KLY’s costs and disbursements.  Although KLY was not a party to the Owners’ Agreement, it drafted and prepared the Owners’ Agreement.  One would have expected KLY to do so on instructions from the Owners.  One would therefore have also expected Clauses 1(h) and (i) to reflect the Owners’ instruction to KLY as to the arrangement that the Owners had made or would make with Midland regarding Midland’s commission. 

53. As for Midland, there is nothing in the evidence to suggest that upon and following the successful sale of the Properties to the Purchaser in early May 2007, Midland has claimed commission from the Owners other than in accordance with the formula set out in Clause 1(h).

54. Paragraph 17 of the Skeleton Submissions for KLY dated 31 May 2008 reads:

“From all the circumstances, it is reasonably clear that [Midland]’s agreement with the Owners is that their fees would come out of the Sum, being the balance of what remains of the Sum after taking account of what KLY charges for its services.”

55. Midland’s commission entitlement, or rather the formula for the computation of such commission, is therefore not an issue.

56. What was in dispute at the commencement of this action was the only variable in that formula, that is, the amount that KLY was entitled to take out of the Sum.

57. Such dispute arose from KLY’s assertions and the Owners’ denials that:

(1) KLY had been engaged by the Owners to act as the leading “property consultation” in the tender and sale of the Properties;

(2) the Owners had through Mr Wan orally agreed with, or assured, represented to and/or promised, KLY that KLY would receive 65% of the Sum;

(3) KLY had rendered “property consultant services” to the Owners pursuant to such agreement or assurances, representations and/or promises. 

58. The issues raised by such assertions and denials arose between KLY and the Owners. 

59. The question raised by Midland’s striking out application was not, as suggested by Mr Davison in paragraph 4b of his Affidavit dated 12 March 2008, whether it was plain and obvious that KLY did not have a claim for the amount of HK$4,615,000 out of the Sum as property consultancy fees based on Mr Wan’s assurances, representations and promises or for quantum meruit fees qua property consultant. 

60. The question was whether KLY could have it declared against Midland that it had such a claim.  

61. Mr Charles Sussex SC, Leading Counsel for Midland, accepts that declaratory relief may be granted whether or not the plaintiff has a cause of action against the defendant, provided that there is a justiciable issue between them as to matters of legal and equitable rights (Guaranty Trust Co of New York v Hannay & Co [1915] 2 KB 536; Gouriet v Union of Post Office Workers [1978] AC 435 and Dicks v Easy Finder Ltd [1996] 2 HKC 65). 

62. As to what constitutes a justiciable issue as to matters of legal and equitable rights, one can for present purpose start with Lord Diplock’s speech in Gouriet at 501B-H:

“Authorities about the jurisdiction of the courts to grant declaratory relief are legion.  The power to grant a declaration is discretionary; it is a useful power and over the course of the last hundred years it has become more and more extensively used – often as an alternative to the procedure by way of certiorari in cases where it is claimed that a decision of an administrative authority which purports to affect rights available to the plaintiff in private law is ultra vires and void.  Nothing that I have to say is intended to discourage the exercise of judicial discretion in favour of making declarations of right in cases where the jurisdiction to do so exists.  But that there are limits to the jurisdiction is inherent in the nature of the relief: a declaration of rights.

The only kinds of rights with which courts of justice are concerned are legal rights; and a court of civil jurisdiction is concerned with legal rights only when the aid of the court is invoked by one party claiming a right against another party, to protect or enforce the right or to provide a remedy against that other party for infringement of it, or is invoked by either party to settle a dispute between them as to the existence or nature of the right claimed.  So for the court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation, either as a subsisting right or as one which may come into existence in the future conditionally on the happening of an event. 

   The early controversies as to whether a party applying for declaratory relief must have a subsisting cause of action or a right to some other relief as well can now be forgotten. It is clearly established that he need not. Relief in the form of a declaration of right is generally superfluous to a plaintiff who has a subsisting cause of action. It is when an infringement of the plaintiff’s rights in the future is threatened or when, unaccompanied by threats, there is a dispute between parties as to what their respective rights will be if something happens in the future, that the jurisdiction to make declarations of right can be most usefully invoked. But the jurisdiction of the court is not to declare that law generally or to give advisory opinions; it is confined to declaring contested legal rights, subsisting or future, of the parties represented in the litigation before it and not those of anyone else.” (emphasis added)

63. I have been referred to a number of decisions post Gouriet.  In particular, Mr Sussex SC relies on Meadows Indemnity Co Ltd v The Insurance Corporation of Ireland [1989] 2 Lloyd’s Rep 298 (CA) and Link Organisation v North Derbyshire Tertiary College [1990] ELR 20 (CA) for the proposition that in the context of a contractual claim, the Court would not grant a declaration in respect of that contractual relationship in favour of or against a party who is not privy to that relationship. 

64. Mr Benjamin Yu SC, Leading Counsel for KLY, retorts with what Jonathan Parker LJ (delivering the judgment of the Court of Appeal) said in Feetum v Levy [2006] Ch 585 at 606D:

“things have indeed moved on since the Meadows case was decided; and that the courts should not nowadays apply such a restrictive meaning to the passage in Lord Diplock’s speech in Gouriet’s case.”

65. Mr Yu SC is referring to the liberal interpretation of Lord Diplock’s statement regarding “contested legal rights” in the Gouriet case taken by the Court of Appeal in In re S (Hospital Patient: Court’s Jurisdiction [1995] 3 WLR 78, a case in which the plaintiff’s standing to seek declaration as to the appropriate course for the treatment of a patient, to whom the plaintiff was unrelated by blood or marriage, was in issue.  Millet LJ, after citing the above quoted passage from Lord Diplock’s speech in Gouriet, observed at 93-95:

“Since that decision the courts have developed the jurisdiction to grant declaratory relief in a number of cases which, though distinguishable from the present, are nevertheless not altogether dissimilar to it.  We have now reached a position where the court is prepared in an appropriate case to fill much of the lacuna left by the disappearance of the parens patriae jurisdiction by granting something approaching an advisory declaration.  In my judgment, the passage which I have cited from Lord Diplock’s speech in the Gouriet case [1978] AC 435, 501, can no longer be taken to be an exhaustive description of the circumstances in which declaratory relief can be granted today.  It is to be regarded rather as a reminder that the jurisdiction is limited to the resolution of justiciable issues; that the only kind of rights with which the court is concerned are legal rights; and that accordingly there must be a real and present dispute between the parties as to the existence or extent of a legal right.  Provided that the legal right in question is contested by the parties, however, and that each of them would be affected by the determination of the issue, I do not consider that the court should be astute to impose the further requirement that the legal right in question should be claimed by either of the parties to be a right which is vested in itself.”

66. However, in any particular case, the Court does not approach the questions as to whether there is a real and present dispute between the parties as to the existence or extent of a legal right or whether a legal right is contested by the parties and whether each of the parties to the case would be affected by the determination of the issue without some degree of pragmatism and without being mindful of the harsh consequences of expense and inconvenience that may flow from one being unnecessarily joined in proceedings.  The Court should not allow a plaintiff to pick a fight against a defendant where there is none between them. 

67. We are not here concerned with the more usual case of a claimant seeking declaratory relief as to the effect of a contract to which he is not party but which affects him.  Rather, we have the reverse situation of KLY seeking declaratory relief against Midland as to the existence and effect of a contract between KLY and the Owners to which Midland was not a party but would be affected by it (if it existed and was effective).  

68. In an attempt to show the need for declaratory relief vis-à-vis Midland, paragraph 18 of the Statement of Claim opened with this sentence:

“The respective entitlements of [KLY] and [Midland] to the [Sum] is now in dispute”.

69. However, it is noteworthy that the dispute that KLY then went on to identify and particularize was the one between KLY and the Owners:

“By [KLY]’s letters to the [Owners] dated 27^th July 2007 and 8^th August 2007, [KLY] asserted its entitlement to the said sum of HK$4,615,000.00 and requested the [Owners] to inform [KLY] as to the disposal of the balance of the [Sum] after deduction of the said sum of HK$4,615,000.00.  The [Owners] have denied [KLY]’s entitlement to the said sum of HK$4,615,000.00 and also they and [Midland] have refused and/or failed to inform [KLY] as to the disposal of the balance of the [Sum].”

70. This is not surprising.  Although Midland did in the affirmations filed in support of this application make observations that tended to contradict and discredit KLY’s allegations that Mr Wan had orally assured, represented to and/or promised Mr Davison that KLY could charge 65% of the Sum and that KLY had served the Owners as a property consultant in reliance upon such assurances, representations and/or promises, there is nothing in the evidence to suggest that Midland itself, as opposed to the Owners, had prior to the commencement of this action contested or indicated that it wished to contest such allegations by KLY.  There is in fact no evidence of any communication between the Owners and Midland regarding KLY’s fees after KLY’s letter dated 27 July 2007 to Goldwise and Super Strategy by which KLY set up the Alleged Oral Agreement.  And contrary to what was suggested at the end of paragraph 18 of the Statement of Claim, there is no evidence of KLY having ever asked Midland for information as to the disposal of the balance of the Sum prior to 19 January 2009.  It seems to me that KLY just assumed that Midland would, in its own right, contest KLY’s claim to 65% of the Sum or to quantum meruit fees qua property consultant.

71. However, at the hearing before this Court on 3 June 2008, Mr Sussex SC confirmed Midland’s position that it claimed the Sum net of the costs and disbursements to which KLY were entitled.  The nature and extent of KLY’s costs and disbursements were matters to be resolved between the Owners and KLY.  The Owners’ Action was pending for that purpose.  It would be unfortunate if the Owners had indeed agreed to give KLY 65% of the Sum but Midland would have to accept it, having agreed with the Owners to take the Sum minus KLY’s costs and disbursements.

72. Acting in a manner entirely consistent with this position, Mr Sussex SC expressly did not press for striking out on the basis that the assertions underlying KLY’s claim to 65% of the Sum were unsound factually or legally.  

73. I do not agree with Mr Yu SC that Midland’s supplemental submissions arising from the CFI Judgment were inconsistent with the position adopted by Midland at the hearing on 3 June 2008.  I do not understand Midland to be saying that it was not affected by the nature and extent of fees to which KLY was entitled out of the Sum.  What Midland was not concerned with was the adjudication of KLY’s fees, which it said, should be left to the Owners and KLY, without involving Midland.  The CFI Judgment resolved the nature and extent of KLY’s fees between the Owners and KLY.  I see nothing inconsistent on the part of Midland when it pointed to the CFI Judgment as having the effect of putting an end to the matter of KLY’s fees.  

74. In view of Midland’s stated position, there was no or no real or present dispute between KLY and Midland that Midland should receive the Sum less KLY’s share therein, whatever such share might turn out to be as adjudicated between the Owners and KLY.

75. The characterization of the Sum as trust property in the hands of KLY does not, in my view, improve KLY’s position.  As noted in paragraph 33(1)(b) above, Midland had further taken the position that the Sum was a payment by the Purchaser to the Owners.  It was (and remains) the Owners’ monies.  As far as Midland is concerned, it looks to the Owners for settlement of its commission. 

WHETHER COMMENCEMENT OR CONTINUANCE OF ACTION WOULD CONSTITUTE AN ABUSE OF PROCESS

Collateral challenge on the CFI and CA Judgments

76. Following the CA Judgment, KLY accepts that it has no claim to 65% of the Sum or to quantum meruit fees as a property consultant (as opposed to a solicitor). 

77. In the exercise of its inherent power to prevent an abuse of its process, the Court will, in an appropriate case, prevent an attempt to re-litigate an issue decided in previous proceedings, even though the issue in question was not decided between the same parties.  Such power may be exercised where the new proceedings amount to a collateral attack upon a final decision against the plaintiff, where that decision has been made by another court of competent jurisdiction in proceedings which the plaintiff had a full opportunity of contesting.  See Reichel v Magrath (1889) 14 App Cas 665 (HL) at 668; Hunter v Chief Constable of the West Midlands Police [1982] AC 529 (HL) at 541B-C and China North Industries Investment Ltd v Ronald RC Chum,CACV 321 & 322/2006, 21 December 2007 (unreported) at §§50-52.

78. Where the parties to the new proceedings were not parties or privies of those who were parties to the earlier proceedings, a collateral attack upon a decision in the earlier proceedings will amount to an abuse of process if one of the following two conditions is demonstrated:-

(1) that the new proceedings result in manifest unfairness, or

(2) that the pursuit of the same issue in the new proceedings will bring the administration of justice into disrepute among right-thinking people.

See Hunter (supra) at 536C and China North Industries Investment Ltd (supra) at §§58-61.

79. The question of whether there is an abuse by reason of a collateral attack is to be decided at the time when the court decides the striking-out application and it does not matter that it was not an abuse at the time when the proceedings were commenced: Re Thomas Christy Ltd (in liquidation) [1994] 2 BCLC 527, per Jacob J at 536f.

80. I agree with Mr Sussex SC that it will bring the administration of justice into disrepute among right-thinking people if KLY could continue to assert entitlement to 65% of the Sum or to quantum meruit fees as a property consultant in this action against Midland who was not privy to the alleged agreement or arrangement between KLY and the Owners giving rise to such entitlement after the same assertions by KLY had been dismissed as incredible by the Court of Appeal vis-à-vis the Owners, KLY’s clients.

81. And it is, in my opinion, not an answer for KLY to say that it would either discontinue this action or amend the Statement of Claim herein, depending on whether all the Owners and Midland unanimously agree on the disposal of the Sum less KLY’s agreed/taxed costs and disbursements. 

82. Even if KLY should now apply to discontinue, Midland is as a matter of principle (at least for the purpose of costs) entitled to a ruling that in the first place the Statement of Claim is liable to be struck out and the action dismissed for want of a justiciable issue between the parties as to matters of legal and equitable rights and for constituting a collateral challenge at the latest upon the pronouncement of the CA Judgment and therefore an abuse of process. 

83. Alternatively, if a dispute regarding the disposal of the balance of the Sum in the hands of KLY should emerge between the Owners and Midland, the relief then required by KLY would be completely different from that prayed for in the Statement of Claim, not to mention the need for all the Owners to be joined to resolve such new dispute.  KLY might as well start fresh proceedings.

No sufficient evidence of other form of abuse  

84. Mr Sussex SC sought to read from the following parts of Fung J’s decision dated 19 February 2008 in the Owners’ Action an opinion that this action and the consequential stay application were brought with the ulterior motive of delay:

“40.    Mr. Wong pointed out that the defendant’s previous position was that the fees of Midland and the defendant were separate matters, and the owners would be sued if their objection to the 0.65% agreed fee were not withdrawn.  There is nothing to show how the defendant could retract from that position.  Further, the determination of the Related Action is not binding on the plaintiffs who are not parties thereto.  In fact, the determination of the fees chargeable by the defendant herein will determine the Related Action.

41.     I note that there was no clear and obvious indication that the liability of the owners to Midland and the defendant would be limited to $7.71 (sic) million.  Hence, the question of the defendant’s fees is not a matter inter se the defendant and Midland vis-à-vis the $7.71 (sic) million.  The owners are necessary parties to the resolution of the issue.  Their absence from the Related Action means that no saving of costs or other convenience is achieved by staying the present proceedings pending the determination of the related Action.

…

45.   Mr Wong’s ground is that the application for stay was brought for the ulterior motive of delay.  It was the defendant’s previous position that a declaration would be sought against the owners on the fee agreement, but the Related Action lacked the necessary parties of the owners to achieve such resolution.  There is no attempt to explain why there was a change of position.  Hence, the inference of ulterior motive is to be drawn.

46.     The summons was first taken out on 11 October 2007 for the stay only.  On 9 January 2008, the defendant took out a summons for leave to add the striking out.  In refusing to strike out, I have not come to any definite determination on the merits, and I am not prepared to view the striking out as motivated by the ulterior motive of delay.  Then, whatever motive in the original stay application, the stay was subsumed under the striking out, and in fact had subsided as a fall back position, taking up only a fraction of the argument.” 

85. I do not agree with Mr Sussex SC’s interpretation.  As I read it, Fung J expressly did not come to a view as to whether KLY’s application to stay the Owners’ Action on the ground of the pendency of this action was prompted by the ulterior motive of delay because it had become unnecessary for his Lordship to consider this question, the stay application having been so overshadowed by the striking out application that it took up only a fraction of the argument before him.

86. Looking at the matter afresh, while I can to some extent understand why Midland viewed with suspicion KLY’s reasons for taking this action, I feel unable to infer an ulterior motive to delay or gain any collateral advantage in the Owners’ Action from KLY’s previous refusal to deal with Midland on the question of KLY’s fees, the lack of a letter before action, the timing of this action and of the application for the striking out or stay of the Owners’ Action.  The presence of an ulterior motive is not plainly and obviously the only reasonable inference that can be drawn from these circumstances, suspicious though they may be.  KLY could simply have changed its view as to how the dispute concerning its fee entitlement could be resolved.

ORDER

87. For the foregoing reasons, the Statement of Claim should be struck out and the action dismissed and I so order.

88. Mr Yu SC reserves the right to make submissions on costs in his 2^nd Supplemental Submissions for KLY.  In light of such reservation, I shall not make any costs order nisi without hearing the parties.  I hereby direct Midland to make written submissions on costs within 14 days from the date of this judgment and KLY to make written submissions on costs within 14 days thereafter, if the parties cannot agree on the appropriate costs order.