Hong Kong Kam Lan Koon Ltd v. Realray Investment Ltd

HCA 15824/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15824 OF 1999

____________

BETWEEN

____________

AND BETWEEN

____________

Before: Hon Lam J in Chambers

Date of Hearing: 27 September 2005

Date of Decision: 14 October 2005

_____________

D E C I S I O N

_____________

1.In my judgment of 26 July 2005, I made a costs order nisi against the Defendant as between the Defendant and the 2^nd Defendant by Counterclaim [“the 2^nd Defendant”].  The Defendant applied to vary the order.  This is my decision on that application.

2.In substance, Mr C H Chan SC took three points. First, he submitted that by the application of the Elgindata principle (iii), the 2^nd Defendant should be deprived of the costs relating to the adverse possession issue.  Second, he said the 2^nd Defendant should pay the Defendant the costs of the Order 14A Summons.  Third, he said the 2^nd Defendant should pay the Defendant the costs of the striking out summons.

3.I need not repeat what I said in my previous judgments as to the issues raised in the trial and the disposal of the same.  For the purpose of deciding the costs issue, I would start with a broad overview of the case as between the Defendant and the 2^nd Defendant.  The 2^nd Defendant was dragged into this action by the Defendant.  In view of the background recited in my July judgment, it is to say the least extraordinary for the Defendant to contend that the 2^nd Defendant continued to run the affairs of the Koon after the incorporation of the Plaintiff.  The Defendant did not have much evidence to advance such a case to start with.  But for the misconceived judicial review proceedings and certain statements made by the witnesses therein, I would have considered the contention wholly unarguable.

4.Having joined the 2^nd Defendant as a party to the Counterclaim, the Defendant must expect to pay the costs of the 2^nd Defendant if it fails to establish the liability of the 2^nd Defendant.  Mr CH Chan however said that there was good reason why the Defendant should not be ordered to pay the costs of the 2^nd Defendant on the adverse possession issue.

5.As I observed in the March Judgment, the real protagonists in the dispute about adverse possession were the Plaintiff and the Defendant.  That was the fundamental issue in the claim of the Plaintiff against the Defendant.  The evidence on the issue was called by the Plaintiff.  Mr F Chan had confined himself to establishing the informal dissolution of the Association in cross-examining the witnesses.

6.The 2^nd Defendant had pleaded adverse possession in its Defence to the Counterclaim.  Given the state of law and the state of the evidence when the point was pleaded, it is impossible to suggest the 2^nd Defendant did so unreasonably or improperly.  However Mr CH Chan submitted that having taken the benefit of the evidence on adverse possession, albeit evidence called by the Plaintiff, the 2^nd Defendant had to take the costs consequence as well. Bearing in mind the relationship between the Plaintiff and the 2^nd Defendant and the same solicitors acted for the two parties, Mr CH Chan argued that the 2^nd Defendant could decide with some confidence that the issue of adverse possession would be sufficiently taken care of by the Plaintiff.  Looking from that angle, it could be a case of division of labour.

7.Mr CH Chan further said that had the 2^nd Defendant not pleaded adverse possession, the Defendant could have asked for direction that the trial of that issue be segregated from the other parts of the trial in order to minimize the Defendant’s exposure to the costs of the 2^nd Defendant.

8.With respect, there is no merit in the last point.  The witnesses giving evidence on adverse possession also gave evidence on the defunct of the Association and the transfer of the administration of the Koon to the Plaintiff.  The 2^nd Defendant had a legitimate interest to be present when the credibility of such witnesses was challenged by the Plaintiff.  As a matter of case management, it is unlikely that the court will accede to the suggestion of Mr CH Chan to have the trial segregated.

9.The issue boils down to this: should the 2^nd Defendant be deprived of its costs in relation to the adverse possession issue by reason of the decision of the court on the Order 14A summons since it had also prayed in aid of adverse possession in its defence to the counterclaim.

10.Mr CH Chan referred to the dicta of Nourse LJ in Re Elgindata Ltd (No.2) [1992] 1 WLR 1207 at p.1214.  He very properly accepted that it would be difficult to contend that the 2^nd Defendant made such a plea unreasonably and improperly.  Instead, he argued that under principle (iii) in that dicta, the court could deprive a successful party of the costs spent on a failed issue where it had contributed to significant increase in the length or costs of the proceedings.  He submitted that this principle could be evoked even though the issue had not been raised unreasonably or improperly.  He highlighted the distinction between principles (iii) and (iv).

11.There is indeed a distinction between (iii) and (iv).  Yuen JA highlighted one aspect of it in Para.40 of her judgment in Wang Din Shin v Nina Kung CACV 460 of 2002 by reference to Order 62 Rule 7(1).  It is only where a successful party raised issues or made allegations improperly or unnecessarily that he may be ordered to pay the other party’s costs.

12.Under this head, unlike the position regarding the two summonses, Mr CH Chan did not ask for costs in favour of his client.  He only sought an order to deprive the 2^nd Defendant of costs on the adverse possession issue.

13.I also bear in mind what was said at Para.24 of the judgment of Lord Carswell in Seepersad v Persad [2004] UKPC 19,

“The general rule which should be observed unless there is sufficient reason to the contrary is that costs will follow the event.  Were 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 …  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 as ‘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 …  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 …”  (my emphasis)

14.One therefore starts with the premise that a successful party is prima facie entitled to the full costs of the action.  The burden is on the losing party to show that there is good reason to depart from the general rule.  The exercise is a matter of discretion.  It would be wrong to read Elgindata as laying down that as a rule, the court must (instead of may) deprive a successful litigant of costs for his failure on a discrete issue which caused a significant increase in costs.  The court has to exercise its discretion to achieve a just result having regard to the circumstances of the case.

15.In the present case, Mr CH Chan failed to persuade me that there is sufficient reason to depart from the general rule.  Although one can say that the Defendant won the adverse possession issue, that was a victory secured by a determination on a point of law and this court did not make any finding on the disputed facts.  The state of the law was uncertain at the time when the issue was raised and when the evidence was adduced.  There were conflicting first instance decisions and the Court of Appeal had yet to hand down the judgment in Chan Tin Shi.  That was the reason why the parties considered necessary and why this court permits factual evidence on the history of occupation of the land to be adduced.  As far as the disposal on the point if law is concerned, most if not all the costs pertaining thereto were incurred in the context of the Order 14A summons.  I will deal with that later.

16.Further, irrespective of the pleadings of the 2^nd Defendant, the Defendant would have to deal with the Plaintiff’s evidence on the factual aspects of adverse possession.  The joinder took place well after the adverse possession issue had been raised by the Plaintiff.  For reasons already given, the 2^nd Defendant had a legitimate interest to be present when such evidence is tested by the Defendant.  I do not think the 2^nd Defendant had lengthened (not to mention significantly lengthened) the trial by reason of its plea of adverse possession in the Defence to Counterclaim.

17.In my judgment, subject to what I shall say regarding the costs of the summonses, fairness in this case does not require the court to deprive the 2^nd Defendant of the costs spent at the trial on the factual disputes regarding adverse possession.  As regards the costs on the preparation for trial, in the light of the joint representation of the Plaintiff and the 2^nd Defendant by the same firm of solicitors (and by the same counsel until 14 July 2004) and the position of Mr F Chan taken at the trial, I do not think the 2^nd Defendant could suggest that additional costs had been incurred by him over and above those incurred by the Plaintiff on that issue.  The taxing master will no doubt take these observations into account if the 2^nd Defendant shall attempt to recover anything by way of costs on the pre-trial preparation on the adverse possession issue.

18.I now turn to the costs of the Order 14A summons.  I already gave the Defendant costs of that summons vis-à-vis the Plaintiff.  Mr CH Chan also wanted costs against the 2^nd Defendant.  I shall proceed on the basis that the 2^nd Defendant was a party to the summons.  Apart from submissions on adjourning the summons pending the determination of Chan Tin Shi by the Court of Final Appeal, Mr F Chan did not advance any submissions on the merits under the summons.  Mr CH Chan submitted that was probably due to the reason that in the light of the Court of Appeal’s decision in Chan Tin Shi, there was not much that the 2^nd Defendant could say on the merits.

19.The Order 14A summons was based on the Court of Appeal’s decision in Chan Tin Shi.  As I said in my March judgment, the real protagonists to the adverse possession issue were the Plaintiff and the Defendant.  The involvement of the 2^nd Defendant in the Order 14A was, in the circumstances, more a matter of formality than substance.

20.An exceptional feature here is that the Order 14A was issued in the course of the trial.  By then, Mr F Chan had indicated on several occasions that the defence of the 2^nd Defendant focused on the cessation of activities by the Association on the land in question.  On 2^nd February 2005, Mr F Chan indicated that the 2^nd Defendant would abide by whatever outcome between the Plaintiff and the Defendant on the adverse possession issue.  But for the potential implications as to wastage of time in terms of hearing evidence on factual issues which would not need to be resolved, the point should have been left for argument in closing submissions.  Although technically speaking, the Defendant was successful against the 2^nd Defendant in the summons, the court must have regard to the circumstances under which the summons came to be issued in deciding whether to segregate the costs of the summons from the costs of the trial and if so, how should it exercise its discretion regarding the costs of summons in the light of the stances taken by the parties on the summons.

21.Having regard to the justice of the matter as a whole, I think a fair order as between the Defendant and the 2^nd Defendant regarding the Order 14A summons is each of them shall bear its or his own costs.  In effect, the Defendant will get its costs from the Plaintiff.  The 2^nd Defendant will have to bear his own costs.

22.As regards the costs of the Striking out Summons, Mr CH Chan did not have much quarrel with no order as to costs concerning the revocation of the representation order.  However, he asked for costs against the 2^nd Defendant as to the costs on striking out.

23.Although for convenience sake I describe that summons as the Striking out Summons, the summons was issued in the wake of problems relating to the representation order and the Defendant’s pleadings.  Granted that the summons also sought to strike out the counterclaim and there were paragraphs in the skeleton submissions of Mr F Chan on the topic, the whole summons was not proceeded with as a result of notice being given to the other alleged members of the Association after the issue of the summons and the procedural fairness thereby achieved.  There were also some overlaps in the argument on striking out and the opposition by the 2^nd Defendant to the application for leave to amend by the Defendant.  It should be apparent from my March judgment that there were unsatisfactory aspects in the Defendant’s pleadings and Mr CH Chan took a number of steps to rectify the situation in the course of the summons.  The merit of the striking out application at the time when the summons was issued was quite different from the merit by the time when it was not proceeded with.

24.Not much time was spent on the striking out part of the summons and in my judgment, a fair order for costs, particularly in the light of the final outcome of the trial between the Defendant and the 2^nd Defendant, is that each party shall bear his or its own costs for this summons.

25.The end result is that, subject to the variations concerning the costs of the two summonses as indicated above, my costs order is made absolute.

26.Regarding the costs of the application for variation, the Defendant succeeds in obtaining a variation regarding the costs of the two summonses, but not to the full extent.  In fact, Mr F Chan’s position at the hearing on 27 September 2005 was to accept no order for costs regarding the two summonses.  That is the same as what I order in this Decision.  The Defendant fails to persuade me to vary the costs order for the trial.  I will order the Defendant to pay - of the 2^nd Defendant’s costs of the application.

Mr Chan Hing Fai, Frederick, instructed by Messrs Peter, Mo & Co., for the 2^nd Defendant (By Counterclaim)

Mr Chan Chi Hung, SC, instructed by Messrs Kao, Lee & Yip, for the Defendant (By Original Action) and the Plaintiff (By Counterclaim)