Wong Che (or Chee) Sing v. Wong Wai Lung and Another

HCA1392/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1392 OF 2005

------------------------------

BETWEEN

------------------------------

Before : Hon Burrell J in Court

Date of Hearing : 22 January 2008

Date of Judgment : 30 January 2008

------------------------------

J U D G M E N T

------------------------------

1.In or about September 2004 the plaintiff became the victim of a fraud perpetrated by the 1^st defendant (D1) and another person.  The fraudsters persuaded a Bank (D2) to loan them $6 million using a property as a security.  In fact they did not own the property, the plaintiff did.  The fraudsters walked away with $5.6 million and have not been seen since.

2.When the plaintiff discovered the fraud he sought a declaration from the Bank that the documents which had been created to carry out the scam by the fraudsters, namely a statutory declaration, a power of attorney and a mortgage of the property, were null and void.  He also requested that the registration of the said documents at the land registry be vacated.

3.The Bank declined to do so and so, in July 2005, the plaintiff commenced these proceedings for the same relief, a declaration that the documents were null and void and the vacation of them from the registry.

4.Pleadings were drafted, filed and amended.  D2 joined as Third Party, the solicitors who had been responsible for the creation of the documents.

5.From the outset the plaintiff has been an innocent victim.  He has been unable in any way to deal with his property as an owner since September 2004.  The Bank did not admit that he was the true owner.

6.Ultimately in late December 2007, the proceedings between D2 and the Third Party were settled and then, and only then, did D2 withdraw its defence to the plaintiff’s claim and submit to judgment with costs.

7.The one issue which remains, which is the subject matter of this hearing, is upon what basis should the plaintiff’s costs be taxed.  D2 submits there can be no criticism of its conduct of the defence and that the costs should be on the usual party and party basis.  The plaintiff contends otherwise and asks for costs on an indemnity basis.

8.In a nutshell the plaintiff’s argument, as advanced by his counsel Ms Gekko Lan, is that the plaintiff was an innocent victim, he was forced to institute proceedings, he was forced to remain a party and go through all the usual steps and procedures in litigation, all at considerable cost to him, when D2 had no real defence to his claim and when D2 knew or ought to have known from an early stage that the plaintiff would easily be able to prove his title.  D2 only acknowledged this after it had reached a settlement with the solicitor Third Party.  Thus, it is submitted, that because D2 has unnecessarily and unreasonably kept the plaintiff in the litigation for three years and because considerable costs have been incurred in so doing, the court should award costs on a basis which will ensure that all, or almost all of the plaintiff’s legal costs will be repaid to him.  He should not be out of pocket.  In practice, party and party costs will almost certainly result in a costs award which will be less than he has had to pay out.  An indemnity award will ensure repayment of all costs reasonably incurred.

Principles

9.There is a measure of agreement between Ms Lan and Mr Peter Ng, SC for D2, as to the principles to be applied.

10.It was held in Town Planning Board v. Society for Protection of the Harbour Limited (No. 2) (2004) 7 HKCFAR 114 that :

“

The successful party would usually recover more of his costs under an indemnity award than under a party and party award, and in that sense the former might be perceived as achieving a fairer result for the successful party in circumstances such as the present.  However, the Judge rightly considered that the existence of such difference between the two types of award was not on its own a sufficient basis for awarding indemnity costs and that the successful party should show that the case had special or unusual features for such an order to be made.  An award of indemnity costs was not confined to cases brought with an ulterior motive, for an improper purpose, or where there was some deception or underhand conduct on the part of the losing party.  It was undesirable to attempt to define the circumstances in which such order would be made, and the discretion was not to be fettered beyond the requirement that indemnity costs must be ‘appropriate’ …”

11.In short, an award of indemnity costs is perceived as achieving a fairer result for the successful party where special or unusual circumstances exist which permits a court to exercise its discretion to make such an order.

Special or unusual circumstances?

12.In my judgment special or unusual circumstances relating to D2’s conduct of its defence do exist in this case which warrant a costs order other than party and party.  In particular I note the following :

(1)	The plaintiff reported the fraud to the police as soon as it was discovered.  D2 was informed as early as February 2005 that the police had confirmed that the ID card used in connection with the fraud was a forged one.
(2)	Also in February 2005 D2 was invited by the plaintiff’s solicitors to examine the sole document which verified the plaintiff as the true owner, namely the government lease.  They declined to do so.
(3)	D2 always knew that the plaintiff was claiming to be the true owner and that a fraud had been committed against him, to his considerable alarm and inconvenience.  Rather than take steps to verify this, which would have been reasonably straightforward, D2 treated the plaintiff as if he had been the person who had taken out the mortgage.  By a letter dated 31 May 2005 D2’s solicitors sent to the plaintiff a demand letter for unpaid repayments of the loan plus overdue interest stating :
	“	We hereby demand, on behalf of our client and pursuant to the terms of the facilities letter and the Mortgage, immediate payment of the appropriate amount of principal and interest outstanding in your account with our client.  Unless full payment is made to our client or us on its behalf within the next 7 days, legal proceedings will be instituted against you for recovery of the said debt and possession of the Property without further notice or delay, in which case, you will no doubt be further liable to pay our client’s legal costs.”
	The only softening from this position came in July 2005 when a similar letter informed the plaintiff that “7 days prior notice” would be given before taking any further enforcement action.
(4)	D2 took out the Third Party proceedings before it filed its defence to the plaintiff’s claim and, when it did file a defence it made no counterclaim to enforce the mortgage.  In truth, D2 must have realised it had no proper defence to the claim and that, if the matter went to trial, it could do no more than put the plaintiff to proof.  The “proof” that it would then have to face would have been the plaintiff’s possession of the original government lease, 46 certificates of increase of rents between 1976 and 1995 issued by the Ratings and Valuation Department, various tenancy agreements naming the plaintiff as owner and proof of demands and settlement of rates naming the plaintiff as owner.
(5)	An examination of the correspondence in this matter reveals that on many occasions the plaintiff’s solicitors wrote letters to D2’s solicitors in the ordinary course of litigation to which they received no reply.
(6)	The plaintiff has had to wait for and reluctantly become involved in the Third Party proceedings.  The plaintiff had to attend four checklist hearings (adjourned through no fault of theirs) and has had to resist attempts by the Third Party (not opposed by D2) to get the main action and the Third Party proceedings heard together, which would have been at great extra cost to the plaintiff, when the latter had nothing to do with the plaintiff.

13.The above matters are merely some of the factors advanced in the plaintiff’s favour.  The cumulative effect of the totality of Ms Lan’s submission leads me to the conclusion that D2 could have and should have put the plaintiff’s mind at rest at an early stage in these proceedings.  Proof of ownership was available.  D2 should not have dragged the plaintiff along in its wake arising from its argument with the Third Party.

14.In response Mr Ng has submitted that D2’s solicitors were doing no more than protecting its client’s position.  It is, at least, entitled to “not admit” the claim and put the plaintiff to proof.  I accept that but if it does so in the face of having no real defence it risks indemnity costs being awarded against it.

15.Mr Ng also submits that if the plaintiff was so confident why did it not institute Order 14 proceedings.  I think this criticism is adequately answered by the submission that where there are issues of fact between the parties there is always a risk that a court would direct the matter goes to trial.  Taking such a risk might have greatly increased the plaintiff’s exposure to more costs.

16.Mr Ng also submits that the plaintiff will not necessarily be out of pocket if taxation is on a party and party basis because he will get all the costs that have been “necessarily” incurred.  However, the reality of the situation is somewhat different.  In the normal course of events experience shows that a bill from a successful plaintiff is consistently discounted by about one-third.  There is no guarantee that the taxation of this bill on a party and party basis would be any different.

17.Finally, parties against whom indemnity awards are made need not be unduly sensitive about it.  In only the rarest cases is such an award made because of scandalous or vexatious behaviour.  This is not such a case.  Also, it is not necessarily penal, rather it is the fairest method of ensuring that a plaintiff is not left having to pay for his own litigation when he had plainly been on the right all along and the defence have unreasonably refused to recognise that fact.

18.In this context the words of Lord Woolf MR in Petrotrade Inc. v. Texaco Ltd [2002] 1 WLR 947 at page 949 have general application :

“

The ability of the court to award costs on an indemnity basis …. should not be regarded as penal because orders for costs, even when made on an indemnity basis, never actually compensate a claimant for having to come to court to bring proceedings.  The very process of being involved in court proceedings inevitably has an impact on a claimant, whether he is a private individual or a multinational corporation.  A claimant would be better off had he not become involved in court proceedings. … In the case of an individual proceedings necessarily involve inconvenience and frequently involve anxiety and distress.  These are not taken into account when assessing costs on the normal basis. …

The power to order indemnity cost … is a means of achieving a fairer result of a claimant. …”

19.I direct that the costs of these proceedings between the plaintiff and D2 be taxed, if not agreed, on an indemnity basis.  The costs of and occasioned by the hearing on 21 January 2008 however will not be on an indemnity basis.  D2’s resistance to an indemnity costs order has been unsuccessful but was not unreasonable.

Ms Gekko Lan, instructed by Messrs Leung, Chan & Pang, for the Plaintiff

Mr Peter Ng, SC, instructed by Messrs Johnson, Stokes & Master, for the 2^nd Defendant

Messrs Stephenson Harwood & Lo, for the Third Party, absent