WONG KAM TONG v. THE INCORPORATED OWNERS OF YUEN LONG TIN SHING COURT

HCMP 1454/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1454 OF 2011

(ON AN INTENDED APPEAL FROM LDBM 284 OF 2010)

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BETWEEN

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REASONS FOR DECISION
and
DECISION ON COSTS

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Hon Cheung JA (giving reasons for decision and decision on costs of the court) :

1.  The applicant was an owner of a flat in a residential development known as the Yuen Long Tin Shing Court in Tin Shui Wai, New Territories (‘the Development’). In 2010, he wished to stand as a candidate in the election of the Management Committee of the Incorporated Owners of the Development. However, he together with eight other owners were disqualified from standing as candidates by the then Management Committee which was referred to in the proceedings as the 4^th Management Committee. At the Annual General Meeting of the owners held on 17 October 2011 the applicant together with the eight other owners applied to stand for election. The owners at the meeting rejected their application. The applicant then brought proceedings against the Incorporated Owners of Tin Shing Court (‘the 1^st respondent’) and the newly elected members of the Management Committee which was referred to as the 5^th Management Committee (‘the 2^nd–16^th respondents’) seeking a declaration that the election of the 5^th Management Committee was invalid.

2.  Deputy Presiding Officer Kot (‘the Judge’) of the Lands Tribunal (‘the Tribunal’) found that the applicant was wrongly disqualified (‘the disqualification issue’) but held that the decision of the owners to reject the applicant’s application to stand as a candidate (‘the owners’ decision issue’) to be correct.  The Judge dismissed the application and made no order as to costs of the proceedings. 

3.  The 1^st respondent who was the successful party below applied for leave to appeal against the disqualification issue of the decision.  The Judge refused the application. The 1^st respondent then applied for leave before Chu JA sitting as a single judge of the Court of Appeal.  She was asked to grant leave to appeal in respect of the disqualification issue and the costs order made by the Judge.  Chu JA refused the application.  She held that while the 1^st respondent was entitled to appeal against a decision, it had no right to appeal against the reason of a decision.  She held that the disqualification issue was only a reason reached by the Judge and it was not the decision itself.  She further held that the Judge had not erred in the exercise of her discretion on costs.

4.  The 1^st respondent renewed its application on both issues before this Court.  However, before the hearing, the 1^st respondent indicated through counsel’s written submission that it would only seek leave to appeal on costs only.  At the conclusion of the hearing, we dismissed the application.  We now give our reasons.  Although the judgments of the Judge and Chu JA were in Chinese, the parties conducted their submissions before us in English.  We will give our reasons in English.

Provisions on the award of costs

5.  Section 12(1) of the Lands Tribunal Ordinance (Cap. 17) confers on the Tribunal the jurisdiction to award costs at its discretion :

‘ (1) The costs of and incidental to all proceedings in the Tribunal are in the discretion of the Tribunal, and the Tribunal has full power to determine by whom and to what extent the costs are to be paid.’

6.  Section 12(7) further provides that Order 62 of the Rules of the High Court (‘RHC’) applies, with necessary modifications to the award of costs in the Tribunal.

7.  Order 62, rule 3(2) of the RHC affirms the principle that costs should follow the event (‘follow the event principle’), 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.

8.  Order 62, rule 5 deals with the special matters to be taken into account in the exercise of discretion :

‘ 5.—(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account —

(aa) the underlying objectives set out in Order 1A, rule 1;

(a) any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) any payment of money into court and the amount of such payment;

(c) any written offer made under Order 33, rule 4A(2);

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes—

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.’

(emphasis added)

9.  The underlying objectives set out in Order 1A, rule 1 are

(a) to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court;

(b) to ensure that a case is dealt with as expeditiously as is reasonably practicable;

(c) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings;

(d) to ensure fairness between the parties;

(e) to facilitate the settlement of disputes; and

(f) to ensure that the resources of the Court are distributed fairly.

Principles to be adopted

10.  Prior to the Hong Kong Civil Justice Reform (‘CJR’) introduced on 2 April 2009, our Courts had adopted the approach on costs set out in the English case of In re Elgindata Ltd (No. 2) [1992] 1 WLR 1207 where Nourse LJ at 1214 held that :

‘ (i) Costs are in the discretion of the court.

(ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made.

(iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs.

(iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.’

11.  England introduced the new Civil Procedure Rules (‘CPR’) which came into force on 26 April 1999. Lord Woolf MR in A.E.I. Ltd v. Phonographic Performance Ltd [1999] 1 WLR 1507 commented on the effect of the CPR on the award of costs.  I will set out his comments in full because it is also relevant to the understanding of the new rules introduced by the CJR :

‘ The Civil Procedure Rules 1998 which have now been made and come into force on 26 April 1999 confer an equally broad discretion as to costs as the existing Ord. 62, r. 3 but are much more specific as to the matters to which the courts should have regard in deciding what order should be made. I refer to Part 44.3(2) and (4) which have to be considered together with the overriding objective of the Rules contained in Part 1:

“(2) If the court decides to make an order about costs—(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but (b) the court may make a different order ... (4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including–(a) the conduct of all the parties; (b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and (c) any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention ...”

Part 44.3(5) defines “conduct” as including:

“(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (c) the manner in which a party has pursued or defended his case or a particular allegation or issue; (d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.”

Part 44 also sets out the wide range of different orders which the court can make in paragraph 44.3(6).

I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs. From 26 April 1999 the “follow the event principle” will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new Rules are reflecting a change of practice which has already started. It is now clear that too robust an application of the “follow the event principle” encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so.’

(emphasis added)

12.  Lord Woolf MR further held that,

‘ The “well established practice” on which Nourse L.J. based his third principle is, as I have already indicated, less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed.’

13.  One can see immediately that Hong Kong has adopted a similar approach under Order 62, rule 3(2) in terms of the ‘follow the event principle’ and its departure and also under rule 5 in terms of the consideration whether a party has succeeded on part of the case, even if he has not been wholly successful, and conduct.  In our view, one can say with equal confidence that after 2 April 2009, while the ‘follow the event principle’ will still play a significant role in Hong Kong, it will nonetheless only be a starting point from which the Court can depart, the rationale being that a mechanistic adoption of the ‘follow the event principle’ may result in parties incurring unnecessary costs in civil litigation.  We do not consider the provisions of Order 62, rule 7(1) (which enable the Court to disallow a party’s costs or order it to pay the other party’s costs if there is anything done or omitted which is improper or unnecessary) will by itself curtail the power of the Court under the new regime.  The amendment to rule 7(2) had specifically added the new (aa), namely, regard to the underlying objectives set out in Order 1A, rule 1.  In our view Order 62, rule 7 enables the Court to address the costs issue when there are improper or unnecessary acts or omissions but it does not confine the Court’s power only to such situations. 

14.  In the present case, the Judge had departed from the ‘follow the event principle’.  Ms    Ann Lui, counsel for the 1^st respondent, argued that the 1^st respondent being the successful party ought to be awarded the costs of the proceedings.  In our view the Judge was entitled to depart from the usual approach having regard to the fact that the applicant, although being the unsuccessful party, had succeeded in the disqualification issue below.  The only question is whether the Judge had erred in principle when she made no order as to costs?  Should the Judge make a proportionate costs order to reflect the different success of the parties on different issues?

15.  Ms Lui argued that there were five issues before the Judge and the applicant only succeeded on one of them.  On that basis the 1^st respondent should get at least 80% of the costs.  Ms Lui referred to the judgment of the Privy Council in Seepsad v Persad & Anor [2004] UKPC 19 (1 April 2004) which held at paragraph 24 that,

‘ The Measure of Costs

24. The Court of Appeal gave the appellant only half costs of his appeal and the cross-appeal brought by the respondents against the amount of the award for pain and suffering and loss of amenity. In so ordering it must have treated the assessment of damages under this head as if it were a separate issue on which the appellant had lost, while succeeding on the other issues. In their Lordships’ view this was an erroneous approach. The award of costs in Trinidad and Tobago is in the discretion of the court, as is usual in most common law jurisdictions. The general rule which should be observed unless there is sufficient reason to the contrary is that costs will follow the event. Where the party who has been successful overall has failed on one or more issues, particularly where consideration of those issues has occupied a material amount of hearing time or otherwise led to the incurring of significant expense, the court may in its discretion order a reduction in the award of costs to him, either by a separate assessment of costs attributable to that issue or, as is now preferred, making a percentage reduction in the award of costs: see, eg, In re Elgindata (No 2) [1992] 1 WLR 1207. The Court of Appeal’s order was predicated upon the proposition that the assessment of damages for pain and suffering and loss of amenity was a separate issue from the assessment of the other heads of damage. This was an incorrect assumption. An issue for these purposes must be something so distinct and separate in itself that the decision of it constitutes an “event”. The “event” was the quantum of damages to which the appellant was entitled and he succeeded on his appeal in obtaining a higher award than the judge had given him: even though one head was decreased, another was increased and one which the judge had omitted was added to the total. Their Lordships accordingly consider that the Court of Appeal had insufficient ground for reducing the award of costs made to the appellant and that he should have been awarded full costs in that court, without separating out any element attributable to the cross-appeal, which was only a means of putting in issue the quantum of all the items of damage in the judge’s award.’

16.  Whether a matter is an issue in the context of an award for costs must depend on the circumstances of the case. One can understand why different heads of damages in a personal injury claim were not considered by the Privy Council as issues because in that case while there was an decrease in one head, there was an increase in another head.  In the present case the Judge identified five issues in her judgment, namely,

(1) Whether the 4^th Management Committee had the authority to appoint an Election Officer?

(2) Whether the Election Officer had the authority to make Election Rules. If yes, whether the Election Rules were reasonable?

(3) Whether the Election Officer had the authority to disqualify an owner’s right to stand as a candidate in the election?

(4) Whether the resolution electing the 5^th Management Committee was invalid because,

1) the applicant was disqualified or

2) a resolution was allowed to be passed at the AGM to consider whether owners could apply at the meeting to stand as a candidate for election?

17.  In our view the broad categorisation of two issues by the Judge could not be faulted.  Issues 1 and 2 are obviously related to and merged with Issue 3, namely, the disqualification issue which caused the applicant to bring the proceedings.  Issue 4, although dealing with two events, is in fact one issue.  In practical terms the applicant had succeeded in one issue but failed in another.

18.  Ms Lui further referred to Fleming v Chief Constable of the Sussex Police Force [2004] EWCA Civ 643 where the claimant claimed damages against the Police for

(1) wrong arrest, assault and false imprisonment;

(2) malicious prosecution;

(3) misfeasance in public office.

19.  The jury awarded the claimant damages for assault and malicious prosecution and also aggravated damages in relation to the conduct of the Police.  The judge ordered that, upon the issue of misfeasance (which was part of the original claim but later struck out by consent prior to trial) there should be no order as to costs as between the parties but that otherwise the defendant was to pay the remainder of the claimant’s costs of his claim.

20.  The claimant argued on appeal that he should be entitled to the whole of his costs since he won the case. Alternatively even if there should be some discount of his costs for a matter he had lost, he should still be entitled to at least two third of his costs on the basis he succeeded on two of the civil torts out of the three alleged by him.  The Court of Appeal dismissed his appeal.

21.  This case does not assist the 1^st respondent because, contrary to Ms Lui’s submission and as apparent from our summary of the case, the claimant did not have the costs of the action.  The Judge in fact departed from the ‘follow the event principle’.  The Court of Appeal was further of the view that it was not in a position to disturb the costs order below.

22.  In the present case the Judge could well have ordered the applicant to have the costs on the disqualification issue on which he succeeded, and the 1^st respondent to have the costs on the owners’ decision issue on which it succeeded.  But she did not do so.  In making no order as to costs of the proceedings, she was in the best position to assess the proportion of costs incurred relevant to each issue.  We are unable to say that she had erred such that we can disturb the exercise of her discretion. 

23.  As we have not heard arguments on the merits of the judgment other than on costs, it would not be appropriate for us to express any view on the merits of the applicant’s claim.  We proceeded on the basis of the finding made by the Judge.

Decision on Costs

24.  The 1^st respondent failed in its application before us.  We see nothing to depart from the ‘follow the event principle’.  Accordingly the applicant is entitled to the costs of the application.