Sunbeam Investments Ltd v. The Incorporated Owners of Villa Veneto

LDBM 370/2007
LDBM 175/2009
(Consolidated)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 370 of 2007

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IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 175 of 2009

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(Consolidated by the Order of H.H. Judge WONG dated 21 December 2009)

Before: H. H. Judge WONG, Presiding Officer, Lands Tribunal

Date of Hearing: 3 August 2010

Date of Handing Down of Decision: 7 September 2010

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DECISION

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Background

1.The judgment of this case was handed down on 30 June 2010 (“the Judgment”), in which I ordered as follows:-

(1)    The Respondent do forthwith take such actions, including legal actions, against all the owners who have installed their air-conditioners otherwise than in the designated areas, i.e. the air-conditioning plant room and the air-conditioner racks marked on the floor plan attached to Savills’ notice to all the owners dated 13 August 2004, as are necessary for the removal of the said air-conditioners and restating the external wall of the Building to its original state and for restraining, prohibiting and/or preventing them from installing any air-conditioners in areas other than the designated areas.

(2)     The Respondent do forthwith take such actions, including legal actions, against the owner of Flat 34B, as are necessary for the removal of the Roller Shutters and restating the relevant part of the external wall of the Building to its original state, and for restraining, prohibiting and/or preventing the owner from erecting any structure similar to the Roller Shutters.

(3)      The Respondent shall within 4 months from the date of the order carry out rectification work to the external wall of the Building as in necessary to stop water seepage into the Applicant’s flat, and to repair and reinstate the damaged external wall of Flat 33B caused by such water seepage to its original condition.

(4)    The Respondent do pay the Applicant damages in the sum of $31,360.00.

(5)     The Applicant’s application in relation to the Balcony Enclosures be dismissed.

2.I also granted a costs order nisi that the Respondent do pay the Applicant costs of the consolidated application with certificate for counsel to be taxed on District Court Sale if not agreed.

3.On 12 July 2010, the Applicant took out a summons seeking an order that the costs order nisi be varied that the Respondent do pay the Applicant costs of the consolidated application including all reserved costs with certificate for counsel on an indemnity basis to be taxed if not agreed (“A’s summons”).

4.On 13 July 2010, the Respondent took out a summons seeking an order that the costs order nisi be varied that the Applicant do pay the Respondent costs of and occasioned by the Applicant’s application herein in respect of the Balcony Enclosures or a due proportion of the consolidated applications herein as the Lands Tribunal may consider appropriate, including all reserved costs with certificate for counsel to be taxed if not agreed (“R’s summons”).

5.Mr Fund Chi Wai (“Fung”), solicitor for the Applicant, made an affirmation dated 12 July 2010 to support A’s summons and a second affirmation dated 27 July 2010 to oppose R’s summons.  On the other hand, Mr James Foo (“Foo”), the chairman of the Respondent, made an affirmation dated 28 July 2010 in respect of the two summonses.  The two summonses were heard together on 3 August 2010 and I reserved my decisions after the hearing.

6.The following are my decisions on the two summonses.

A’ssummons

7.In seeking to vary the costs order nisi, the Applicant relies on the provisions in Order 22 of the Rules of the High Court and the two sanctioned offers made on 25 February 2010 (“1^st Sanctioned Offer”) and 22 March 2010 (“2^nd Sanctioned Offer”) respectively.  The Applicant also makes it clear that it is not relying on Order 62 of the Rules of the High Court, and that there is no need to cover reserved costs in the proposed costs order.  However, the Applicant claims interest on costs even though it is not mentioned in A’ summons.

8.Section 10(1) of the Lands Tribunal Ordinance provides that:-

“The Tribunal may, so far as it thinks fit, follow the practice and procedure of the Court of the First Instance in the exercise of its civil jurisdiction, and for this purpose, has the same jurisdiction, powers and duties of the Court of First Instance in respect of such practice and procedure”.

9.In the Direction issued by the President of the Lands Tribunal dated 12 February 2009 (LTPD:CJR No. 1/2009), it is expressly provided that Order 22 of the Rules of the High Court is among some of the measures under the Civil Justice Reform which are by their nature of general applicability even in the context of cases in the Tribunal.

10.Order 22, rule 2 allows any party to make a sanctioned offer, and Order 22, rule 24(1) provides that:-

“This rule applies where –

(a) a defendant is held liable for more than the proposals contained in a plaintiff’s sanctioned offer; or

(b) the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff’s sanctioned offer.”

11.Order 22, rule 24(3) provides that:-

“The Court may also order that the plaintiff is entitled to-

(a) his costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and

(b)  interest on those costs at a rate not exceeding 10% above judgment rate.”

12.Order 22, rule 24(4) provides that:-

“Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.”

13.Order 22, rule 24(5) provides that:-

“In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including –

(a) the terms of any sanctioned offer;

(b) the stage in the proceedings at which any sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.”

14.These rules were considered in detail by Lam J recently in Golden Eagle International (Group) Limited v. GR Investment Holdings Ltd, HCA 2032/2007.  The parties have no dispute on the applicability of these rules in the context of the Tribunal.  The disputes are mainly on whether the Applicant has achieved a better result than the sanctioned offers and whether liability for costs should form part of a sanctioned offer.

15.The Applicant relies on the following material facts as set out in Fung’s 1^st affirmation:-

(a)  On 25 February 2010, the Applicant made the 1^stSanctioned Offer for the Respondent: (a) to carry out the renovation works for the external wall of the Building within 6 months (to be completed within 12 months); (b) to ensure that all air-conditioners be relocated to the designated areas on or before the completion of the renovation work; (c) to remove all unauthorized structures of the Building before the completion of the renovation works in particular the Roller Shutters on the external walls of Flat 34B; (d) to carry out reasonable work to prevent further water seepage or leakage to the Applicant’s flat within 4 weeks; and (e) there be no order as to costs.

(b)  On 17 March 2010, the Respondent rejected the 1^st Sanctioned Offer and made a counter-offer: (a) the Respondent shall obtain the authorization of the owners’ meeting to carry out renovation of the Building (including the external wall thereof); (b) it shall take steps to ensure that all air-conditioner be relocated to designated areas, including the original designated area and other parts as specified therein, before the completion of the renovation works; (c) it shall take steps to ensure that the Roller Shutters be removed before the completion of the renovation works; (d) it shall carry out reasonable works to prevent water seepage or leakage to the Applicant’s flat in emergency cases where there is an immediate threat to life or property; and (e) the Applicant shall pay 2/3 of the costs of the Respondent.

(c)  On 22 March 2010, the Applicant made a 2^nd Sanctioned Offer in which: (a) the Respondent’s first 4 proposals were acceptable; but that (b) there shall be no order as to costs.

(d)  On 14 April 2010, the Respondent rejected the 2^nd Sanctioned Offer and insisted that the Applicant shall pay 2/3 of its costs.

16.The Applicant’s case is that it has achieved a better result than the terms of the 1^st Sanctioned Offer, or alternatively, the terms of the 2^nd Sanctioned Offer.  In contrast, the Respondent contends that the Applicant did not achieve a better result than the terms of the Sanctioned Offers.  The parties have no dispute that, in deciding on this issue, the Tribunal shall adopt a common sense and broad-brush approach, and consider each Sanctioned Offer as a whole.

17.The Applicant argues that the Respondent is held liable for more than the 1^st Sanctioned Offer and the Judgment is “more advantageous” than the 1^st Sanctioned Offer  in that:-

(a)  The Applicant was awarded HK$31,360.00 in the Judgment, whereas he did not ask for any damages in the 1^st Sanctioned Offer.

(b)  The Respondent is required to carry out rectification work to the external wall of the Building to stop the water seepage problems within 4 months under the Judgment, whereas it was given 6 months to do so in the 1^st Sanctioned Offer (although a 4 week period was mentioned in respect of the Applicant’s flat specifically).

(c)  The Respondent is required to take actions to ensure that the air-conditioners will be relocated to the designated areas forthwith under the Judgment, whereas it was only asked to do so before the completion of the renovation works in the 1^st Sanctioned Offer.

(d)  The Respondent is required to take actions to compel the owners of Flat 34B to remove the Roller Shutters forthwith under the Judgment, whereas it was only asked to do so before the completion of the renovation works in the 1^st Sanctioned Offer (the only illegal structure specifically mentioned was the Roller Shutters).

(e)  The Respondent is required to pay the Applicant’s costs under the Judgment, whereas the Applicant offered no order as to costs in the 1^st Sanctioned Offer.

(f)  There was no specific reference to the Balcony Enclosures in the 1^st Sanctioned Offer.

18.In short, the Applicant contends that the Judgment is better and more advantageous than the 1^st Sanctioned Offer because, under the Judgment, (a) the Applicant is awarded damages; (b) a more stringent time-table is imposed on the Respondent to resolve various issues; and (c) the Applicant is award costs of the proceedings.

19.In respect of the 1^st Sanctioned Offer, Foo merely stated in his affirmation that its terms were much wider than the Judgment and covered matters not claimed in the proceedings.  However, at the hearing, the Respondent submits the following:-

(a) Regarding the Applicant’s award of damages: The award of damages is merely a single part of the Applicant’s many claims. As stated above, a wide-ranging view should be applied and the award of damages alone is not conclusive that the Judgment is ‘more advantageous’ than the 1^st Sanctioned Offer when viewed in its entirety.  In the present case, the award of damages is offset by the fact that the other components of the 1^st Sanctioned Offer were very far off the mark compared to what was eventually granted in the Judgment (see Carver v. BAA plc. [2008] 3 All ER 911).

(b)  Regarding the ‘stringent time-table’: It is incorrect to state that the Judgment imposes a more stringent time-table than the 1^st Sanctioned Offer:-

(i)     Regarding the overall renovation of the external wall of the Building, the 1^st Sanctioned Offer required the Respondent to engage a contractor within 6 months and to complete such works 12 months thereafter with a waterproofing guarantee.  By contrast, the Judgment did not impose such an order, let alone a timetable for the overall renovation works of the Building.

(ii)   For the limited renovation of the external wall of the Applicant’s Flat, the 1^st Sanctioned Offer imposed an aggressive timetable of 4 weeks.  By contrast, the Judgment set a period of 4 months.

(c)   Regarding the award of Costs: The Applicant’s submission is incorrect.  A term relating to costs is not within the scope of a Sanctioned Offer under Order 22 of the Rules of the High Court and should not be considered in relation to the “trigger” provision of Order 22, rule 24(1) (see Mitchells and others v. James and others[2002] All ER (D) 200 (Jul)).

20.Thus, the Respondent argues that, when viewed as a whole, the 1^st Sanctioned Offer clearly does not ‘trigger’ Order 22, rule 24 of the Rules of the High Court.

21.As to the 2^nd Sanctioned Offer, the  Applicant argues that the Respondent is held liable for more than the 2^nd Sanctioned Offer and the Judgment is “more advantageous” than the 2^nd Sanctioned Offer in that:-

(a)   The Applicant was awarded HK$31,360.00 in the Judgment, whereas he did not ask for any damages in the 2^nd Sanctioned Offer.

(b)  The Respondent is required to carry out rectification work to the external wall of the Building to stop the water seepage problems within 4 months under the Judgment, whereas no specific timetable was imposed on it in respect of the renovation works and it was only required to carry out reasonable works to prevent water seepage to the Applicant’s flat in emergency cases where there is an imminent threat to life or property in the 2^nd Sanctioned Offer.

(c)   The Respondent is required to take actions to ensure that all air-conditioners shall be relocated to the designed areas forthwith under the Judgment, whereas it was only asked to take actions to relocate the air-conditioners to designated areas (much more broadly defined) before the completion of the renovation works in the 2^nd Sanctioned Offer.

(d)  The Respondent is required to take action to ensure the removal of the Roller Shutters forthwith, whereas it was only asked to do so before the completion of the renovation works in the 2^nd Sanctioned Offer.

(e)   The Respondent is required to pay the Applicant’s costs under the Judgment, whereas the Applicant offered no order as to costs in the 2^nd Sanctioned Offer.

(f)    There was no reference to the Balcony Enclosures or any other illegal structures at all in the 2^nd Sanctioned Offer.

22.In short, the Applicant contends that the Judgment is better and more advantageous than the 2^nd Sanctioned Offer because (a) the Applicant is awarded damages; (b) a fixed time table is imposed on the Respondent to resolve various issues whereas no time table was fixed at all in the 2^nd Sanctioned Offer; (c) the designated areas where air-conditioners can be installed is more restricted; (d) the Respondent is specifically required to repair and reinstate the damaged wall of the Applicant’s flat (and not just to take preventive measures in emergency where there is an immediate threat to life or property); and (e) the Applicant is awarded costs of the proceedings.

23.On the other hand, Foo stated in his affirmation that the results in the Judgment were much closer to the Respondent’s offer by letter dated 17 March 2010 than the Applicant’s 1^st Sanctioned Offer.  The Respondent also contends at the hearing that by letter dated 22 March 2010 from the Applicant’s solicitors, the Applicant purported to make its 2^nd Sanctioned Offer by simply agreeing to the Respondent’s proposals and including a separate term as to liability for costs, and that the Applicant’s purported 2^nd Sanctioned Offer is defective and falls outside of the scope of Order 22, rule 24 for the following reasons:-

(a)   Lack of formality: A Sanctioned Offer must be in the prescribed form.  The Applicant’s purported 2^nd Sanctioned Offer fails to specify the time period when the Respondent may accept the offer.  Order 22, rule 5(7) of the Rules of the High Court provides that:-

“(7) A sanctioned offer made not less than 28 days before the commencement of the trial must provide that after the expiry of 28 days from the date the sanctioned offer is made, the offeree may only accept it if-

(a) the parties agree on the liability for costs; or

(b)     the Court grants leave to accept it.”

(see Mitchells and others v. James and others, supra.)

(b)  Lack of an actual ‘offer’: The Applicant’s purported 2^nd Sanctioned Offer is not an offer at all but is properly viewed as an acceptance of the Respondent’s proposals.  The only material addition is in relation to the separate issue of liability for costs.  As stated in Carver v. BAA plc., supra., costs is a separate issue outside of the scope of Order 22, rule 24 of the Rules of the High Court.  As set out in the Applicant’s letter dated 22 March 2010:-

“2. It seems that in view of the latest development, your client now agrees to consider settling this matter amicably. In respect of your proposed terms for settlement of the Applications, we are instructed that your proposed items nos. 1-4 for settlement of the Applications are agreeable to our client.”

24.Thus, the Respondent submits that the purported 2^nd Sanctioned Offer also falls out of the scope of Order 22, rule 24 of the Rules of the High Court.

25.In my views, I agree with the Applicant that the Judgment is more advantageous to the Applicant than the proposals contained in both the 1^st and 2^nd Sanctioned Offers, save that I do not agree that a term as to costs should be considered as part of a sanctioned offer.  First of all, there is an award for damages in the Judgment, even though the sum awarded is not very substantial, but in both Sanctioned Offers, the Applicant would not be getting any damages.  I agree that the award of damages is not conclusive and has to be considered with the other factors, but it is still an advantage that I need to take into consideration. 

26.Although the Respondent contends that the award of damages is offset by the fact that the other components of the 1^st Sanctioned Offer were very far off the mark compared to what was eventually granted in the Judgment, what the Respondent really suggests is that the Judgment does not give a more stringent time-table to the Respondent than the terms of the 1^st Sanctioned Offer, which is essentially the same as the second point raised by the Respondent.

27.On this point, I do not agree with the Respondent’s interpretation of the 1^st Sanctioned Offer.  I have made it very clear in paragraph 52 of the Judgment that it is simply unreasonable to have the overall rectification work done at the time of major renovation when the water seepage problem has been in existence for over 5 years already.  Thus, when I ordered the Respondent to carry out rectification work to the external wall of the Building within 4 months, it is entirely independent from the overall renovation works or the major renovation of the Building.  It is not for me to order a timetable for the major renovation of the Building in any event.  The 1^st Sanctioned Offer gave the Respondent 4 weeks to “carry out reasonable works to prevent further water seepage or leakage to Flat 33B”, but 6 months to 12 months to “carry out the renovation works for the external walls of the Building” and the contractor is required to “provide a guarantee for waterproofing of external walls of the Building for a reasonable period”.  It is clear to me that the Applicant did not intend to have the renovation work of the external wall to be completed within 4 weeks but just to have some temporary measures to prevent further water seepage or leakage until the renovation work for the external walls could be carried out in 6 months’ time.  Thus, the Respondent cannot equate the 4 weeks’ period in the 1^st Sanctioned Offer to the 4 months’ period in the Judgment. They are for different types of works to be completed, the former is for temporary work and the latter is for permanent rectification.  The Respondent should in fact compare the 4 months’ period with the 6 months’ to 12 months’ period, which is for permanent rectification.  When these two periods are compared, obviously the Judgment is more advantageous to the Applicant than the proposals in the 1^st Sanctioned Offer, as a more stringent timetable is imposed.

28.The Respondent is also required by the Judgment to take actions in respect of the air-conditioners and the Roller Shutters forthwith, whereas the Respondent can deal with these matters on or before the completion of the renovation works of the Building under the 1^st Sanctioned Offer.  The Judgment obviously imposes a more stringent timetable than the 1^st Sanctioned Offer.  Thus, I simply fail to see how the Respondent can argue that the Judgment is not more advantageous to the Applicant than the 1^st Sanctioned Offer.

29.Nevertheless, I agree with the Respondent that a term relating to costs is not within the scope of a sanctioned offer under Order 22 of the Rules of the High Court.  This is in fact the ruling made by the English Court of Appeal in Mitchells and others v. James and others, supra., in respect of Part 36 of the Civil Procedure Rules 1998, from which Order 22 of the Rules of the High Court is derived.  Gibson LJ in that case gave the following judgment:-

“29. However, I have come to the conclusion that the draftsman of Part 36 did not intend terms as to costs to be included in a Part 36 offer for the following reasons.

30. First, r. 36.14 is worded as applicable whenever a claimant’s Part 36 offer is accepted without needing the permission of the court. It does not say “unless a claimant’s Part 36 offer indicates to the contrary” (cp.r.36.22(1)) or other wording to indicate that the parties can agree otherwise. Similarly, para. 7.2 of the Practice Direction indicates that on acceptance of the Part 36) offer “the costs consequences set out in rule ….36.14 will then come into effect.” So too in a case where the court’s permission is needed for the defendants to accept a Pail 36 offer, if permission is given, para. 7.5 envisages that the court may order that the costs consequences set out in r.36.14 will apply. These provisions are inconsistent with a term as to costs being part of the Part 36 offer.

31. Second, r.36.21 is applicable where at trial either a defendant is “held liable” for more, or “the judgment” against a defendant is more advantageous to the claimant, than the offer. The words “held liable” and “the judgment” both appear to me to connote what the trial judge holds or decides on the substantive issues in the case as distinct from the ancillary issue of costs to be determined after the substantive issues are decided. Mr. Brunner accepted that that was so in relation to “held liable”, though not in relation to “Judgment”. For my part, I cannot see why there should be such a difference.

32. Third, the rule is intended to apply universally at the end of the trial when the judge is required to make an order for costs. Save in a case where the judge can make a summary assessment or the rare case where the costs at that point are agreed, there will have been no assessment of the costs, the figure for which would therefore be uncertain. Yet the rule contemplates that merely by reference to that for which the defendant is held liable or by reference to the judgment the judge will be able to decide whether r.36.21 applies because the defendant has been held liable for more, or the judgment against a defendant is more advantageous, than the offer. I find it hard to believe that the draftsman contemplated that a Part 36 offer is one which includes a term as to costs, so that the judge might have to evaluate the quantum of his costs order. That is normally the function of a costs judge, not the trial judge.

33. Fourth, there would be a real risk of abuse if a term as to costs could be included in a Part 36 order. Every well-advised claimant would make a Part 36 offer containing the terms sought in his claim plus an offer as to costs in the hope that if he succeeded. in his substantive claim he would obtain indemnity costs in place of the ordinary award of costs on the standard basis. Merely to win on his substantive claim and to obtain an order for costs under the general rule (see CPR 443(2)) will cause r.36.21 to be applicable, so that the court “will” make the orders referred to in r.36.21 (2) and (3) unless it considers it unjust to do so. Injustice in the eyes of the court is therefore the only basis on which the court could refuse to make an order for indemnity costs and interest. That does not confer a general discretion on the court.

34.    I therefore conclude that a term as to costs is not within the scope of a Part 36 offer. That does not of course mean that a claimant cannot make an offer which includes a term as to costs; the court will have regard to that in exercising its usual discretion in relation to inter partes costs at the end of the case. As r.36.1(2) states, nothing in Part 36 prevents a party making an offer to settle in whatever way he chooses. However, nothing in r.36 (1)(2) permits a party to include a term as to costs as part of a Part 36 offer for the purpose of obtaining an order for costs on an indemnity basis.”

30.The Applicant argues that the 4 reasons given in Mitchells’ case cannot be applicable to Hong Kong because there is an absence of any residual discretion on the part of the court to vary the automatic costs order as provided in the English rules, whereas Order 22, rule 21 of the Rules of the High Court in Hong Kong has an important additional proviso, namely “unless the Court otherwise orders” to make the costs order subject to the court’s ultimate overriding discretion. The Applicant also submits that the English Court of Appeal has construed the word “judgment” in a restrictive manner which is wrong and against the overriding objective of a sanctioned offer, and that costs is always an essential part of a judgment.  In relation to the difficulties in evaluate the quantum of the costs order, the Applicant submits that the worry was overstated because the court should not go through a taxation exercise, but should simply deal with the entitlement to costs.  The Applicant submits that the court always retain a discretion not to order indemnity costs if it decides on the facts that it is not just to do so, and hence the court is not powerless to prevent any abuse.  Lastly, in relation to the Lands Tribunal, the Applicant submits that the Tribunal has a greater flexibility in deciding to what extent it applies the provision in the rules by virtue of section 10 of the Lands Tribunal Ordinance.

31.I do not accept the Applicant’s submissions in this regard.  Apart from the addition of the discretion proviso, the sanction offer referred to Order 22 and its counterpart in Part 36 of the English rules are basically the same.  There may be some modifications of the wordings, but the essential features of the sanctioned offer in Hong Kong are not different from its English counterpart. I find that the intention not to include any terms as to costs is equally applicable to Hong Kong, especially when one looks at Order 22, rule 15(2)(b) and rule 16(2)(b), where the liability for costs can be considered separately from the acceptance of the sanctioned offer.  From these provisions, it is clear that the parties can always accept the sanctioned offer without agreeing on the liability for costs.  I do not accept that the word “judgment” is construed restrictively, as costs is always to be dealt with after the substantive issued are determined first.  It is always possible to have judgment on the substantive issues with or without any costs order.  If costs were to be considered as part of the sanctioned offer, there could be real situations where a party offers an actual amount of costs to the other side, and the court would have to assess whether the amount offered is the right amount, and hence there would be a taxation or assessment exercise on costs.  The court can prevent any abuse is one thing, but whether a sanctioned offer would create situations for abuse is another matter.  I do not think that the intention of the sanctioned offer provisions was to include terms as to costs so as to create such a risk of abuse.  The Lands Tribunal may have wide discretion on costs, but it has no relevancy as to whether costs should be considered as part of a sanctioned offer.

32.I therefore find that all the reasons given in Mitchells’ case are equally applicable to sanctioned offers in Hong Kong, and a term as to costs should not be considered as part of a sanctioned offer.  Nevertheless, as held in Mitchells’ case, that does not mean that a claimant cannot make an offer which includes a term as to costs, the court can still take that into consideration in exercising its usual discretion in relation to inter partes costs at the end of the case.  It just cannot be considered as part of the sanctioned offer for the purpose of obtaining costs on an indemnity basis.

33.Despite that costs should not be considered as part of the 1^st Sanctioned Offer, I am of the view that on the other substantive issues, the Judgment is more advantageous to the Applicant than the 1^st Sanctioned Offer. The exception is of course in relation to the issue on the Balcony Enclosures, for which the Applicant did not obtain any relief.  On the whole, I find that the advantages obtained by Applicant under the Judgment can trigger the provisions under Order 22, rule 24 of the Rules of the High Court, and hence the Applicant is entitled to costs on an indemnity basis after the latest date on which the Respondent could have accepted the 1^st Sanctioned Offer.  The parties have no dispute on the calculation of the date and it should from 26 March 2010 onward when the costs should be taxed on an indemnity basis.

34.Likewise, there should be interest on the costs from 26 March 2010 onward.  The rate of interest should be 4.5% per annum, as ordered by Lam J in Golden Eagle International (Group) Limited v. GR Investment Holdings Ltd, supra.  I do not consider it necessary for me to repeat what is discussed in that case on the arrival of this rate, save to say that I adopt Lam J’s reasoning in deriving this rate.

35.Having made the above rulings, it is in fact not necessary for me to consider the 2^nd Sanctioned Offer.  However, for completeness, I will deal with the Respondent’s objections too.  The Respondent is merely taking technical objections by contending that the 2^nd Sanctioned Offer is in lack of formality by not stating the time period when the Respondent may accept the offer, and that it is not an actual offer because it just accepted the Respondent’s proposal with an additional term on costs.  In Mitchells’ case, it was held that where “the Defendants having legal advisers and there being no evidence that the Defendants were misled”, the court can use the power in r.36.1(2) to waive the technical defects.  Likewise, the Respondent in the present is legally represented and there is no evidence that the Respondent is misled on the time period to accept the offer.  In fact, under Order 22, there is only one time period of 28 days for the Respondent to accept the offer.  I am not satisfied that the Respondent can rely on this technical defect to avoid the consequences of a sanctioned offer.  I am prepared to use my power in Order 22, rule 2(4), as in Mitchells’ case, to ignore this technical defect.

36.Although the 2^nd Sanctioned Offer is in the same terms as proposed by the Respondent except with the additional term as to costs, it is still an offer made by the Applicant.  The term as to costs should only be disregarded when considering whether indemnity costs should be ordered, it is still an offer made by the Applicant when the normal costs order is considered (see Mitchells’ case).  Thus, it is not right to say that the Applicant did not make an actual offer.

37.Nevertheless, the Respondent further contends that if the Tribunal considers that either or both of the said Sanctioned Offer falls within Order 22, rule 24(1), then the Respondent submits that it would be unjust to order indemnity costs and the saving provisions in Order 22, rule 24(4) and (5) apply.  The Respondent relies on the following “unjust factors”:-

(a)    O.22, rule 24(5)(a) – By comparing the Applicant’s 1^st Sanctioned Offer and the Respondent’s Proposals, it is clear that the Respondent’s Proposals were much more reasonable and closer to hitting the mark with regards to what was actually granted in the Judgment.

(b)   O.22, rule 24(5)(a) – The Applicant’s purported 2^nd Sanctioned Offer is essentially an acceptance of the Respondent’s proposals.  Therefore it would be highly unjust if the Applicant could simply adopt the Respondent’s proposals and turn them back against the Respondent to justify an order for indemnity costs.  In effect, the Respondent would have been better off not making a reasonable offer at all.  This would go against the objectives of Order 22 to promote settlement.

(c)    O.22, rule 24(5)(d) – The Respondent’s conduct was always forthright and open in its discussions with the Applicant and with a genuine view to reach a settlement.  This is not a case where there have been allegations of misconduct and the parties have communicated amicably and professionally.  The Applicant’s own 1^st Sanctioned Offer admits that the Respondent has taken various steps to satisfy the Applicant’s claims prior to the trial.

(d)   Other factors – The Applicant’s claim was not entirely successful and its claim related to the Balcony Enclosures was dismissed.  It would be unjust to require the Respondent to bear the full costs of the Applicant on the highest basis of taxation when the Applicant’s only achieved a mixed result in the Judgment.

38.I do not agree that there are any unjust factors as submitted by the Respondent. As mentioned above, the judgment is clearly more advantageous than the 1^st Sanctioned Offer.  What I said above equally applies to the 2^nd Sanctioned Offer.  I simply do not find that the Respondent’s proposal is closer to the mark as submitted, and hence it cannot be a factor to avoid indemnity costs.  As I will order indemnity costs based on the 1^st Sanctioned Offer, the 2^nd Sanctioned Offer has no relevance at all, even though it is essentially the same as the Respondent’s proposal.  Order 22 is not about whether a party has committed any misconduct and hence indemnity costs should be awarded.  That is not the test and hence the absence of misconduct or the genuine desire to settle cannot be a factor to avoid the consequences of not accepting the sanctioned offer.  The failure by the Applicant in obtaining relief in respect of the Balcony Enclosures issue may perhaps affect the proportion of the costs awarded, and that can be dealt with in R’s summons, but it should not affect the consequences of not accepting the sanctioned offer.  Thus, none of the factors can be regarded as unjust factors as alleged by the Respondent.

R’s summons

39.In Chinachem Charitable Foundation Ltd v. Chan Chun Chuen and another, HCAP 8/2007, Lam J considered the principles in relation to a proportionate costs order or an issue-based order andruled hat:-

“Thus, in deciding whether it is appropriate to depart from the costs following event starting point, the court should address the two pertinent matters identified under Rule 5(2)(a) and (b). Elgindata principle (iii) remains relevant because unless the issue in question has caused a significant increase in the length or costs of the proceedings, it is generally disproportionate to embark on an enquiry as to whether an issue-based approach should be adopted, as such likely to be inconsistent with the underlying objectives in Order 1A rule 1(a) to (c). And the court is required to bear in mind these underlying objectives under Order 62 Rule 5(1)(aa).”

40.Order 62, rule 5(2)(a) and (b) read as follows:-

“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.”

41.Elgindata principle (iii), as stated in Re Elgindata Ltd (No 2) [1992] 1 WLR 1207, is that:-

“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 increased in the length or cost of the proceedings he may be deprived of the whole or part of his costs.”

42.Lam J further held in Chinachem’s case that:-

“Insofar as a losing party is seeking costs on a particular issue, I am bound by Nina Kung to hold that by reason of Order 62 Rule 7(1) such party has to show that the issue was raised improperly or unnecessarily.”

43.Hence, a material distinction needs to be drawn between two different types of application:-

(a)   The losing party asks the court to deprive the successful party the costs relating to certain issues or some of the costs; and

(b)  The losing party asks the court to award to it the costs relating to certain issues or some of the costs.

44.In R’s summons, the Respondent asks this Tribunal to order the Applicant to pay to it the costs in respect of the Balcony Enclosures Issue.  It is not merely asking this Tribunal to deprive the Applicant of such costs.  In order to support such an application, the Respondent must show that the Balcony Enclosures Issue “was raised improperly or unnecessarily” by the Applicant.  The Respondent relies on the following facts in support of its summons:-

(1)   There was simply never any substance in the Balcony Enclosures Issue and it was improperly raised in the trial.  As stated by this Tribunal in paragraph 78 of the Judgment:-

“However I agree with the Respondent that the Balcony Enclosures do not constitute any breach of Clause 18 of Section IV of the DMC… In construing this clause purposively, the provision can only mean that there must be alteration done to the external appearance of the Building as opposed to alteration made within a unit but which can be seen from the outside. It would be absurd to say that no curtain or window blind can be installed at the Balcony or window because it alters the external appearance of the Balcony” (Emphasis added)

(2)   Further, the Applicant’s litigation of the Balcony Enclosures Issue lengthened proceedings.  It required consideration of the expert report of Professor Tam whose conclusions on this issue were found by the Tribunal to be very speculative.

(3)   The issues in the present case are sufficiently distinctive and can easily be identified.  This is not a complex case where it would be impractical to separate the issues.  The Judgment itself is able to neatly separate the issues into:- (a) the Air-Conditioners Issue, (b) Water Seepage Issue, (c) Roller Shutters Issue, (d) the Balcony Enclosures Issue.

(4)   The Applicant’s submission that it is essential for the Respondent to adduce evidence of costs occasioned solely by the Balcony Enclosures Issue is incorrect.  In a fairly straightforward case such as the present one, it is respectfully submitted that the Tribunal (having heard the case recently) could easily apply a broad brush approach to account for any overlap between the issues.  Applying such a broad brush approach, a fair estimate of the dismissal of the Balcony Enclosures Issue would fall between 5% (Applicant’s broad estimate) and 15% (Respondent’s broad estimate) of the Respondent’s total costs.

45.Although in the Judgment I found it absurd to say that no curtain or window blind can be installed at the balcony or window, it is only an analogy.  It does not mean that the Applicant is raising the Balcony Enclosures issue improperly or unnecessarily.  The mere fact that I disagree with the Applicant’s contention will not make an application becoming improper or unnecessary.  Thus, I do not agree that the Respondent can ask the Applicant to pay this part of the costs to it in accordance with the principle stated above.

46.Nevertheless, I agree with the Respondent that the Balcony Enclosures Issue has caused a significant increase in the length and costs of the proceedings.  I do not need to have detailed evidence on the proportion of the costs and can just apply a broad brush approach.  As I have the benefit of hearing the case, my assessment of the time and costs incurred in relation to this issue is 10%.  The Applicant is therefore liable to have 10% of its costs deducted.  Even though in R’s summons, there is no request for a deduction of the Applicant’s costs, I have the discretion to vary the costs order nisi and grant such an order.

Conclusion

47.For the above reasons, the costs order nisi on 30 June 2010 is varied and replaced by the order below:-

(a)     The Respondent do pay the Applicant 90% of its costs of the consolidated application with certificate for counsel to be taxed on a party-to-party basis up to 25 March 2010 and on an indemnity basis as from 26 March 2010 on District Court Scale if not agreed;

(b)  The Respondent do pay interest on the costs incurred as from 26 March 2010at 4.5% per annum from 26 March 2010 up to the date of Judgment and after that on all costs at judgment rate until payment.

48.As to the costs of the two summonses, since both parties obtain variations of the costs order nisi in their favour, and win and lose on some contentions respectively, I think there should be no order as to costs between them.  I therefore order that there be a costs order nisi for no order as to costs in respect of both summonses.  The costs order nisi shall become absolute if there is no further application for costs within 14 days from today.

Mr Paul LAM, instructed by M/S Boase, Cohen & Collins, for the Applicant

Mr Elliot Justin FUNG, instructed by M/S Lo, Wong & Tsui, for the Respondent