HONG KONG HIGH COURT REVERTS DEPARTURE FROM GENERAL RULE ON COSTS IN DISPUTE BETWEEN BROTHERS

Background

In Chan Chi Wai v Chan Sau Wah [2019] HKCFI 1662 an application was made to vary a costs order nisi granted by the Hong Kong High Court regarding a dispute between five brothers over the legal and beneficial ownership of two houses in the New Territories (Original Proceedings). The applicants were two of the brothers and the plaintiffs in the Original Proceedings.

In the Original Proceedings, the court had departed from the general cost rule that the successful party should be entitled to costs of the proceedings by handing down a costs order nisi that there be no order as to costs despite judgment being made in favour of the plaintiffs. This departure from the normal costs order was on the basis that the nature of the plaintiffs’ claim was unfair and unconscionable. In short, the judge made this finding based on the fact that the plaintiffs had already been occupying one of the houses to the exclusion of their other brothers but nevertheless sought to exclude the other brothers from the second house despite the plaintiffs being co-owners of that second house. 

At the time the Court made the costs order nisi, the Court was not aware of the parties’ without prejudice correspondence. The parties had made a number of failed without prejudice offers to one another and, significantly, the plaintiff had made a particularly generous offer while the defendants’ counter offer was particularly nonsensical. The plaintiffs’ offer had in fact been more favourable to the defendant than the outcome of the Original Proceedings.

The plaintiffs applied for the court to reverse its decision and instead order costs of the action in their favour.  Alternatively, the plaintiffs asked for costs incurred after the date of one of the “Without Prejudice Save as to Costs” letters issued by the plaintiffs to the defendants or such date as the court thought fit, to be paid by the defendants to the plaintiffs.

Judgment

After being presented with the without prejudice communication at the costs hearing, the court found that the original concern as to the unfairness of the plaintiffs’ claim now ceased to be a reason to depart from the general rule on costs. The court also placed weight on the fact that the defendants in the Original Proceedings had rejected the plaintiff’s offer which was more favourable than what the defendants obtained at trial.

As a result, the court set aside its order nisi and made an order that the plaintiffs should have costs after the date of the without prejudice offer issued by the plaintiffs to the defendants.

Comment

In the court’s decision, the general legal principles set out in Order 62, rule 3(2) of the Rules of the High Court (Cap. 4A) (RHC) were noted, namely that when making decisions as to costs, the starting point is that the successful party should be entitled to costs of the proceedings. The burden falls on the losing party to show why a different costs order should be made. The discretion to depart from the general rule should be exercised to achieve a just result having regard to the circumstances of the case and should be exercised with due circumspection since too ready a departure from the general rule encourages unnecessary arguments.

This case is a good illustration of the court’s approach to assessing costs issues – when the court considers it is appropriate to depart from the general rule; and when it is appropriate to reverse that decision.  In particular, the judgment reiterated that the court’s discretion as to costs should be exercised by reference to the factors set out in Order 62, rule 5(1) RHC.  One of these factors is to consider the underlying objectives set out in Order 1A, rule 1 RHC which sets out the modern post-Civil Justice Reform approach to litigation where parties are encouraged to take positive steps towards settlement of disputes.

This case might be especially relevant in heated disputes between family members where even if one party’s conduct is found to be unfair and unconscionable justifying departure from the normal costs order, a without prejudice settlement offer can nevertheless shield that party from some of the cost consequences of bringing an unfair and unconscionable claim.