Mariner International Hotels Ltd and Another v. Atlas Ltd and Another

FACV No. 3 of 2006

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION 

FINAL APPEAL NO. 3 OF 2006 (CIVIL)

(ON APPEAL FROM CACV NO. 291 OF 2004)

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Between:

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Court : Chief Justice Li, Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ and Mr Justice McHugh NPJ

Date of Judgment : 20 April 2007

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J U D G M E N T  O N  C O S T S

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Chief Justice Li :

1.The Court’s judgment on costs will be given by Mr Justice Bokhary PJ.

Mr Justice Bokhary PJ :

2.This litigation is between, on one side, the purchaser and its guarantor and, on the other side, the vendor and its guarantor.  The trial judge gave judgment for the vendor and its guarantor with costs nisi.  His judgment was affirmed by the Court of Appeal with costs nisi.  We will refer to the two sides as “the Purchaser” and the “Vendor”, omitting further references to the guarantors.

3.By the judgment which we handed down on 5 February 2007, we allowed the Purchaser’s appeal so as to : (i) set aside the judgments of the courts below; (ii) declare that the Vendor repudiated the sale agreement; (iii) order repayment to the Purchaser of its deposit with interest to be assessed by the High Court if not agreed; (iv) award the Purchaser damages to be assessed by the High Court; and (v) leave the costs here and below to be dealt with by us on written submissions by the parties pursuant to procedural directions to be given by the Registrar of this Court. 

4.What we now say in this judgment on costs is to be read together with what we said in that main judgment.

5.All the written submissions have now been received and considered.  The Purchaser asks for costs here and below.  It also asks for a certificate for four counsel – it having been represented by two leaders and two juniors throughout.  The Vendor concedes costs here and in the Court of Appeal with a certificate for four counsel in respect of those two sets of costs.  It asks, however, that the costs at first instance be awarded to it – presumably with a certificate for three counsel, it having been represented throughout by Mr Neville Thomas QC, Mr Edward Chan SC and Mr Anderson Chow SC.  (Mr Chow was appointed a Senior Counsel mid-way through the trial.)

6.In asking for the costs at first instance, the Vendor puts forward four reasons (which we will refer to as Reasons One, Two, Three and Four respectively) why it says that the general rule that costs should follow the event ought not to be applied in respect of those costs.

7.In this Court, the Purchaser succeeded on the basis of its arguments (i) that practical completion of the Hotel by 30 June 1998 was a condition precedent to completion of the purchase and (ii) that by “practical completion” clause 2.01(b) of the Sale Agreement meant a state of affairs in which the Hotel has been completed free from any patent defects other than ones to be ignored as trifling. 

8.Reason One is erected on the Vendor’s contention that none of those arguments had been advanced at trial.  At trial, the Vendor says, the issue of which party wrongfully repudiated the Sale Agreement was fought out in the context of Hong Kong Fir Shipping Co. Ltd v. Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.  More particularly, the Vendor says that the rival stances at trial were as follows.  The Purchaser contended that there were breaches which went to the root of the contract and were therefore repudiatory.  To the contrary, the Vendor contended that any breaches of the contract were non-repudiatory so that the Purchaser’s proper course was to complete the purchase and then, so far as appropriate, sue for damages after such completion.  In such a context, the Vendor says, the trial judge was right to decide in its favour.  And it relies on Tripole Trading Ltd v. Prosperfield Ventures Ltd (No.2) (2006) 9 HKCFAR 172.  In regard to the costs at first instance in that case, we said at pp 173J – 174A that the costs question of “who really won?” had to be answered in the context of the case as it was actually fought out between the parties. 

9.Turning to the other three reasons, we begin by observing that it would appear that the bulk of the trial was taken up by what the trial judge referred to as the Group I and Group II issues while what he referred to as the Group III issues took up only a small part of the trial.  The Group I issues arose out of 152 complaints made by the Purchaser, the Group II issues related to the roof of the Hotel and the Group III issues related to various accounting matters.

10.On Reason Two, the Vendor’s submission runs thus.  Most of the Purchaser’s 152 complaints which gave rise to the Group I issues were of little or no consequence.  It admitted a small number of these complaints.  Of those which remained contentious, a large majority was determined in its favour.  Only in 13 instances was a complaint regarded to be significant in nature.  In oral argument before the Court of Appeal this catalogue of complaints was reduced to a handful: water leakage, fire safety and a small group of miscellaneous items.  In the Purchaser’s printed case before us, the original 152 complaints were condensed into a single paragraph with two additional paragraphs for water leakage and the riser shaft point, the latter of which had never been pleaded.  In terms of the Group I issues, therefore, the case argued at first instance was unrecognisable from the one pursued on appeal.

11.Then on Reason Three, the Vendor’s submission runs thus.  The Group II issues were developed by the Purchaser at trial into a massive “loading” issue.  A case was developed, seemingly at the frontiers of science, to the effect that the designed loading of the roof was not sufficient to support the actual imposed loading in the area of the chiller plants.  As recorded by the trial judge, although the loading issue occupied only one page in the Purchaser’s written opening, it “developed a life of its own at trial and occupied three weeks of evidence”.  Extremely detailed technical issues were raised by the Purchaser’s expert and, perforce, responded to by the Vendor’s expert.  Their written evidence covered over 2,000 pages of reports, calculations, diagrams, plans and other documents.  In the end, the trial judge found that there was no breach of any building regulation and, thus, there was no risk of any enforcement proceedings and no defect in title.  Only a tiny aspect of the loading issue was maintained by the Purchaser in the Court of Appeal, and none at all before us.

12.And then on Reason Four, the Vendor’s submission runs thus.  Quite independently of the foregoing instances of abandonment, great swathes of the Purchaser’s original case, as considered by the trial judge, were jettisoned on the way to the Court of Appeal with a further reduction on the way to us.  Most of this vacated ground had been pleaded, expertly witnessed and lengthily argued at trial.  Paragraph 7 of the Vendor’s printed case and the schedule thereto at pp 67-71 should be inspected in this connection.

13.Penultimately the Vendor submits that taking Reasons One, Two, Three and Four together, there are exceptional circumstances in the present case which displace the general rule that costs should follow the event, and justify us in not disturbing the costs order made by the trial judge.  Ultimately the Vendor submits that on no account should it be ordered to pay the Purchaser’s costs at first instance.

14.We turn now to the Purchaser’s response.  The Purchaser disputes each of the four reasons put forward by the Vendor.  Responding on Reason One, the Purchaser points out that it had pleaded and run a case (i) of time being of the essence, (ii) of completion of the purchase being conditional upon the Vendor having procured practical completion of the Hotel and (iii) of the Vendor’s failure to do that, it having failed to procure construction of the main lobby and rooms of the Hotel with furniture, fixtures, fittings and decoration and finishes to a standard equivalent to those of the comparator hotel chosen.  Also on Reason One, the Purchaser reminds us of the basis on which the trial judge decided in the Vendor’s favour.  That basis was rejected by the Court of Appeal and not re-newed before us.  It was that practical completion under the Sale Agreement is a purely documentary requirement satisfied by the certificates of practical completion issued by the architect under the building and fitting out contracts.

15.The Purchaser begins its response on Reason Two by pointing out that the trial judge had, in addition to the 13 referred to by the Vendor, found 38 other patent defects, so that 51 complaints were established.  Continuing, the Purchaser says as follows.  Even if the Vendor succeeded on the issue of liability, it would be necessary to have a determination on each complaint raised by the Purchaser before the quantum of damages due to the Vendor could be assessed.  This is because credit had to be given to the Purchaser for each of the defects found in the Hotel.  Thus an assessment of the gravity of each defect, even if not repudiatory, had to be carried out.

16.On Reason Three, the Purchaser begins its response by pointing to the assertion in the Vendor’s pleading that the roof of the Hotel had been designed to withstand the loading of the concrete plinths, gondola posts and doghouse.  Thus, the Purchaser says, the loading issue was raised not by it but by the Vendor.  Continuing, the Purchaser says that the expansion of the loading issue into many days of evidence and many pages of the report was substantially due to the Vendor’s conduct on that issue.  Referring to the transcript for the purposes of such submission, the Purchaser submits that such conduct consisted of the Vendor’s repeated production of further sets of calculations and reports during the trial and of the Vendor’s requests to the Purchaser’s expert under cross-examination to produce responses to those further sets of calculations and reports.

17.In responding on Reason Four, the Purchaser repeats its response on Reason One.  It then notes the Vendor’s concession that the Group III issues took up only a small part of the trial.  And as for the remainder of Reason Four, it says that the same are “nit-picking” examples of minor differences in the way in which its case was presented before the trial judge, before the Court of Appeal and before us.  It offers an example, saying this.  Before us, it did not specifically advance a case on the I-beams, whereas they had done so at trial.  However, any argument on the I-beams would have stood or fallen with the argument on the plinths, so that it was not really necessary to advance a separate case based on the I-beams, and any additional evidence which a consideration of the I-beams entailed was negligible.

18.A party seeking to displace the general rule that costs should follow the event naturally bears the burden of showing that the circumstances justify the exceptional course of such displacement.  While a court naturally prefers to have a clearer picture than one in which a case has to be decided on the burden of proof, that is not always possible.  The present situation is a difficult one in which a final appellate court is confronted with acute controversy over the hows and whys of the way in which a 64-day trial was fought out.  Giving our best consideration to the rival submissions, we feel unable to conclude that the Vendor has discharged the burden of proof it bears.  Accordingly, costs here and in both courts below must follow the event. 

19.In conceding that the Purchaser should have costs here and in the Court of Appeal, the Vendor also concedes that the Purchaser should have a certificate for four counsel in respect of those two sets of costs.  In our view, the case for a certificate for four counsel in respect of the Purchaser’s costs at first instance is on par with the case for such a certificate in respect of its costs here and in the Court of Appeal. 

20.In the result, we award the Purchaser costs here and in both courts below with a certificate for four counsel throughout.

Written submissions on costs by Mr Jonathan Sumption QC, Mr Ronny KW Tong SC and Ms Yvonne Cheng (instructed by Messrs Deacons) for the appellants

Written submissions on costs by Mr Neville Thomas QC, Mr Edward Chan SC and Mr Anderson Chow SC (instructed by Messrs Johnson, Stokes & Master) for the respondents