THE BANK OF EAST ASIA LTD v. TSIEN WUI MARBLE FACTORY LTD AND OTHERS

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION LIST

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JUDGMENT

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Background

1. On 25 June 1997, I handed down my judgment after the trial of this matter. The background was stated in the first two paragraphs of my judgment. I repeat them here -

          "In the late seventies, the plaintiff (the Bank) decided to build new headquarters in the middle of the business district in Hong Kong. At that time, the second to fifth defendants, with others, were practising as architects and structural engineers under the name of Palmer and Turner. I will refer to these defendants collectively as Palmer and Turner. Palmer and Turner acted as architects and structural engineers on the project. The main contractor was Gammon Building Construction Limited (Gammon). The nominated subcontractor for granite cladding for the building was the first defendant (Tsien Wui).

2. The granite cladding failed. The Bank blamed Tsien Wui and Palmer and Turner for this. It commenced proceedings against Tsien Wui on 20 June 1994 and against Palmer and Turner on 25 May 1996. Tsien Wui joined Palmer and Turner as third parties on 16 July 1996."

3. I stated my conclusion in this way -

          "In the result, the Bank's claim against Tsien Wui is dismissed. The Bank's claim based on tort against Palmer and Turner is upheld, and judgment is granted in favour of the Bank against Palmer and Turner as claimed. Tsien Wui's third party claim against Palmer and Turner is dismissed."

4. As to costs, I said this -

          "The matter of costs has not been argued. However, I will make orders nisi on the basis of how the matter appears to me at this stage in the hope that a further hearing can be avoided.

5. The Bank has failed in its claim against Tsien Wui. On this basis, the Bank should pay Tsien Wui's costs, save for any wasted costs involved in the adjournment during the trial because Tsien Wui's expert witnesses were not available. These wasted costs should be paid by Tsien Wui to the Bank. I make orders nisi accordingly.

6. The Bank has succeeded in its claim against Palmer and Turner. Here, on the basis that costs should follow the event, Palmer and Turner should pay the Bank's costs. I make an order nisi to this effect.

7. The third party proceedings by Tsien Wui against Palmer and Turner were, in the event, unnecessary. On the face of it, Tsien Wui should pay the costs of these third party proceedings. I make an order nisi accordingly."

The Matters Before Me Now

8. Neither the Bank nor Tsien Wui are happy with these orders nisi.

9. The Bank wishes me to make an order that the Bank pay Tsien Wui its costs of the action and recover from Palmer and Turner those costs as part of the Bank's costs of action; a Bullock order.

10. Tsien Wui seeks an order that only half the costs of the adjournment be paid by it; the other half being paid by Palmer and Turner. Tsien Wui also seeks an order that Palmer and Turner, or alternatively the Bank, should bear the costs of the third party proceedings.

The Costs of the Adjournment

11. One of these matters can be dealt with relatively easily. When I made an order nisi that the wasted costs involved in the adjournment during the trial because expert witnesses were not available should be paid by Tsien Wui to the Bank, I had overlooked the fact that this application for an adjournment was made also by Palmer and Turner. The application was made because the expert witnesses for both Tsien Wui and Palmer and Turner were not available to be present in court when the experts for the Bank gave evidence. Tsien Wui and Palmer and Turner wished this.

12. Accordingly, it seems to me just that both Tsien Wui and Palmer and Turner should be liable for these costs equally, and I so order.

Tsien Wui's Costs of the Action by the Bank

13. In making his submission that there should be a Bullock order against Palmer and Turner, Mr Scott relies heavily on Besterman v British Motor Cab Company Limited [1914] 3 KB 181. In that case, at 187, Vaughan Williams LJ said -

"... the fact that there were two people who upon the face of the transaction might, either of them, have been guilty is what made it reasonable in the plaintiff, when he brought this action, to join both these defendants, and, as it was part of the reasonable course of the action that he properly brought his action against a man who, as it turned out, was a wrong defendant, I agree that, under the circumstances, he ought to get the reasonable costs in that action in which both defendants were reasonably joined, although only one turned out to be the real defendant. ... do not join any defendant unreasonably; if the facts are such that it is reasonable to join them both and reasonable to be in a state of uncertainty as to which of the two is the really guilty one, then it is part of the reasonable costs of the action that the costs of the action which you have launched against one of these defendants, and who has succeeded in defending himself, should be borne by the man who is to blame."

14. Besterman was considered in Hong v A & R Brown Ltd [1948] 1 KB 515. Lord Greene MR, at 522, pointed out that what must be considered is whether the costs for which the plaintiff is liable in pursuing a winning defendant were reasonably and properly incurred by the plaintiff as between him and a losing defendant. (My italics.) He believed that there are situations in which, from the plaintiff's point of view, it was reasonable to incur the costs in unsuccessfully pursuing a defendant, but it was not so from the point of view of the unsuccessful defendant. Lord Greene quoted, with approval, the words of Mcnaghten J in the court below "... it was reasonable from the plaintiff's point of view, but it was not reasonable that [the losing defendant] should be penalized.".

15. Mr Scott also relies on Leung Lai Ha v Hon Sau Ling [1992] 2 HKC 109. In that case, the defendants blamed each other for the consequences of a collision. The first defendant conceded liability and judgment was entered against him. The plaintiff lost against the second defendant and was ordered to pay his costs. The Court of Appeal ordered that the costs of the second defendant be paid by the first defendant. The reason for this was that "the plaintiffs were throughout entitled to assume that the first defendant would give evidence in support of the case pleaded by the plaintiffs and by her against the second defendant and ... would have been foolhardy to regard the second defendant's exoneration from blame at the conclusion of the trial as assured.".

16. Each case depends on its own circumstances, and there can be no absolute rule governing the exercise of the discretion, but it seems to me that the proper approach to this matter is to consider whether, in the circumstances, it is reasonable that Palmer and Turner should meet the liability of the Bank for the costs of Tsien Wui. This can be reasonable only if, from the point of view of Palmer and Turner, there is some valid reason why they should be penalised in this way.

17. I accept Mr Scott's argument that it is not necessary to find that Palmer and Turner were, in some way, at "fault" for the plaintiff's action in unsuccessfully pursuing Tsien Wui, but it is necessary, in my view, to find some basis for saying that it is reasonable that Palmer and Turner should be responsible for the costs the Bank has to pay to Tsien Wui.

18. The plaintiff's case against Tsien Wui was, broadly, that Tsien Wui was responsible for the design of the cladding. Essentially, the case of Palmer and Turner was the same. I found that Tsien Wui was responsible for the design. So, we have a situation in which Palmer and Turner supported the Bank's case against Tsien Wui. I found that the Bank could not succeed against Tsien Wui on another ground that had nothing to do with Palmer and Turner's case. It follows that, although we have a case here of Palmer and Turner blaming Tsien Wui, the basis on which they laid that blame at the door of Tsien Wui was, I found, the truth of the matter.

19. I do not think that there are any factors in this case that should lead me to believe that it could be said that it would be reasonable for Palmer and Turner to bear responsibility for the Bank's primary obligation.

20. Accordingly, the order nisi that the Bank pay Tsien Wui's costs is made absolute without more.

The Costs of the Third Party Proceedings

21. There remains the submission by Tsien Wui that Palmer and Turner or the Bank should pay costs of the third party proceedings.

22. After the Bank commenced proceedings against both Tsien Wui and Palmer and Turner, Tsien Wui joined Palmer and Turner as third parties. After the third party proceedings were instituted by Tsien Wui, the actions by the Bank against Tsien Wui and Palmer and Turner were consolidated. Palmer and Turner did not make any claim against Tsien Wui. Because I found that Tsien Wui was not liable to the plaintiff, there was no basis on which Tsien Wui could recover from Palmer and Turner in the third party proceedings. Consequently, that claim had to fail, and normally costs would follow the event. Is there some reason why the normal consequence of failing in an action should not follow? I think not, but, in the ordinary course, because the Bank's action against Tsien Wui had rendered the third party proceedings inevitable, the court would order the costs for which Tsien Wui is responsible to be added to its costs of action recoverable from the Bank. The reason for this is that the Bank was in control of its own litigation and must have contemplated that, if it sued Tsien Wui, Tsien Wui would take action against Palmer and Turner, and, if the Bank failed against Tsien Wui, Tsien Wui would also fail against Palmer and Turner. The Bank had, of course, already commenced proceedings against Palmer and Turner when Tsien Wui started the third party proceedings.

23. The question then arises as to whether or not the Bank should be entitled to recover those costs from Palmer and Turner. If this is so, there is no point in having money circulating in this way, and it would be sensible to order that Palmer and Turner bear those costs directly. In this way, one returns to essentially the same question that arose when considering whether Palmer and Turner should bear ultimate responsibility for the costs of the plaintiff's action against Tsien Wui. In other words, is it reasonable that Palmer and Turner should be penalised because the Bank took action against Tsien Wui with the inevitable result that Tsien Wui claimed from Palmer and Turner? What valid reason is there for considering that Palmer and Turner should bear responsibility for these costs? In my view, it would be a strange result to find that Tsien Wui has lost its action against Palmer and Turner, but Palmer and Turner must bear the costs of that action. The Bank took action against Tsien Wui because it thought it was responsible for the design of the cladding system. The inevitable result of this was that Tsien Wui claimed against Palmer and Turner, but both the Bank and Tsien Wui knew that, if the Bank failed against Tsien Wui, Tsien Wui would fail against Palmer and Turner. For reasons similar to those recited under the heading "Tsien Wui's Costs of the Action by the Bank", I cannot find any good reason why Palmer and Turner should bear ultimate responsibility for the costs of unsuccessful action against it.

24. In the result, I make absolute the order nisi that Tsien Wui pay the costs of the third party proceedings as against Palmer and Turner, but that Tsien Wui be entitled to recover these costs from the Bank.

The Costs of these Proceedings

25. The Bank has failed in its application to vary the order nisi in favour of Tsien Wui to obtain a Bullock order against Palmer and Turner. It seems that it should pay Palmer and Turner's costs of this application. I make an order nisi accordingly.

26. Tsien Wui has been successful in its application to vary the order nisi regarding the third party proceedings as against the Bank. I make an order nisi that the Bank pay Tsien Wui's costs in this respect. Tsien Wui has been unsuccessful in its attempt to vary the order as against Palmer and Turner. I make an order nisi that Tsien Wui pay the costs of Palmer and Turner in this respect. Tsien Wui has been successful in varying the order relating to the costs of the adjournment. I make an order nisi that Palmer and Turner pay Tsien Wui's costs in this area.