THE INCORPORATED OWNERS OF SHUN CHI COURT v. CITI-PRO PROPERTY SERVICES COMPANY LTD

HCA 2237/2019

[2023] HKCFI 2880

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2237 OF 2019

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D E C I S I O N

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1.  After trial, this court handed down judgment on 31 March 2023 (“the Judgment”) finding for the plaintiff, and entering judgment against the defendant together with the consequential nisi costs order. These are the parties’ applications for variation of this court’s order. By consent, direction was given for the filing of evidence and written submissions for the purpose of disposal of the applications together on paper only.

2.  Unless otherwise specified, the same definitions and abbreviations in the Judgment are adopted for the present purpose.

The Judgment and costs order

3.  The IO sued Citi-Pro for the latter’s alleged breach of the management service agreement during its 2-year term between July 2016 and June 2018. The IO claims for liquidated damages or alternatively overpayment of service charges had and received by Citi-Pro.

4.  This court found that overpayment on account of the shortfall in the management staff positioning in accordance with the terms of the Agreement in the total sum of HK$1,888,738.94 was proved, but was not satisfied that the IO was entitled to claim on the basis of the disputed liquidated damages/penalty provision of the contract.

5.  I therefore entered judgment in favour of the IO against Citi-Pro in the sum of HK$1,888,738.94 with interest thereon at HSBC best lending rate plus 1% per annum from the date of writ until judgment. Interest thereafter runs at the judgment rate until full payment.

6.  Following the event, I made the nisi order that Citi-Pro shall pay the IO’s costs of the action, including any costs reserved, to be taxed if not agreed (“the Nisi Costs Order”).

The applications

7.  By summons filed on 13 April 2023, the IO applies for the following order:

(1)  Citi-Pro do pay interest on the judgment sum at an enhanced interest rate not exceeding 10% above judgment rate to be determined by the court from 12 January 2021 until payment (§1(a) of the summons).

(2)  Citi-Pro do pay the IO’s costs of the action up to and including 12 January 2021, including any costs reserved, to be taxed if not agreed (§2(a) of the summons).

(3)  Citi-Pro do pay the IO’s costs of the action thereafter, including any costs reserved, on an indemnity basis to be taxed if not agreed (§2(b) of the summons).

(4)  Citi-Pro do pay the IO interest on costs at an enhanced interest rate not exceeding 10% above judgment rate to be determined by the court from 12 January 2021 until payment (§3 of the summons).

8.  By summons filed on 14 April 2023, Citi-Pro applies for variation of the Nisi Costs Order so that it shall pay the IO’s costs of the action, including any costs reserved, to be taxed if not agreed, on the District Court scale (§1 of the summons).

9.  Both sides also seek costs of their respective application.

The principles

10.  There is no argument in respect of the form of the IO’s sanctioned offer.

11.  O22, r24 of the Rules of the High Court, Cap 4A provides that where the plaintiff does better than he proposed in his sanction offer:

“…

(2) The Court may order interest on the whole or part of any sum of money (excluding interest) awarded to the plaintiff at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring leave of the Court; and

(3) 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 leave of the Court; and

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

(4) 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.

(5) 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;

(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.

…”

12.  It is the burden of the defendant to show that it is unjust to make the orders under O22, r24(2) and (3): see for instance CEP Ltd v Wuxi Jiacheng Solar Energy Technology Ltd Co [2016] 1 HKLRD 960 at §31.

13.  The appropriate enhanced interest rate within the range not exceeding 10% above the judgment rate is a matter of the court’s discretion to be exercised according to the circumstances of the case.

The IO’s application

14.  The IO’s application is based on its sanctioned offer made by letter dated 15 December 2020, offering to accept a sum of HK$1,510,000 (inclusive of interest) plus costs in settlement of its claim. Citi-Pro rejected the same by letter dated 22 December 2020. The IO achieved a result better than the offer. Hence its present application.

15.  By the time of the sanctioned offer, all the cards of the parties were on the table so that they could evaluate their respective positions in terms of merits and litigation risk. Prior to the sanctioned offer, it was actually Citi-Pro which made its offer to the IO very much for the IO to concede by discontinuing the claim and paying it 90% of its costs. This was followed by another letter setting out Citi-Pro’s view on the merits. Upon receipt of the IO’s sanctioned offer a week later, Citi-Pro communicated its outright rejection on the basis of its view on the merits.

16.  I am not impressed that Citi-Pro manages to discharge the burden of showing that it will be unjust to make the enhanced costs and interest orders in the circumstances of the case.

17.  The opposition of Citi-Pro is about the scale of taxation of costs, in view of the amount in the sanctioned offer and eventually the Judgment. Therefore, it also serves the purpose of its summons. Essentially it argues that the IO had no reasonable prospect of obtaining an award in excess of the monetary jurisdiction of the District Court, and therefore should not have maintained its claim in the High Court. The Judgment, it says, proves that.

18.  Scale of taxation of the IO’s costs forms the subject matter of Citi-Pro’s summons. However, insofar as the same contention is also relied on for opposing the IO’s summons, it cannot be accepted in the circumstances of the case.

19.  The sanctioned offer of the IO was put forward in terms of the settlement sum (inclusive of interests) plus costs. Had the applicable scale of costs, in view of the proposed settlement sum, been a concern standing in the way of Citi-Pro’s consideration, it could have sought clarification from the IO. O22, r14(1) empowered the offeree to make such request for clarification within 7 days of the offer.

20.  In any event, where a sanctioned offer is accepted without requiring leave of the court, the plaintiff is entitled under O22, r20(1) to his costs of the proceedings up to the date of service of notice of acceptance unless the court orders otherwise. Again, had the applicable scale of costs been the concern, Citi-Pro could have communicated to the IO its readiness to accept the sanctioned offer but leaving the scale of costs to be argued by the parties and determined by the court.

21.  The only response of Citi-Pro to the sanctioned offer was outright rejection and, as mentioned, on the ground of the merits of its defence. It did not have to do with concern about the scale of taxation of costs.

22.  Counsel for the IO acknowledges that interest on the judgment sum pursuant to §1(a) of the IO’s summons is not one within the scope of the Nisi Costs Order. He pleads that this be entertained on the basis that the order encompassing the Judgment is yet to be sealed so that this court retains jurisdiction to revisit the issue and to give effect to O22, r24(2). The case of Tim Lee Construction Engineering Co Ltd v Kwong Wah t/a Super King Engineering Co, HCCT 18/2010 (10 May 2012) at §§3-4 is an authority for such jurisdiction of the court but in the context of adjustment of the judgment sum instead of O22, r24(2). Counsel for Citi-Pro does not take any jurisdictional point in this respect.

23.  As to the enhanced interest rate, while this is a matter of discretion of the court, some guidance may be sought from the previous judgments of the court. For instance, extreme case of improper litigation conduct may attract the top rate: see Angbuhhang Netra Jang v Laing O’Rourke Construction Hong Kong Ltd, HCPI 69/2015 (27 January 2021) at §7. 4% above the prime rate or 1% above the judgment rate has been considered to be generous: see Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at §19. 2% above judgment rate was directed in the absence of criticism about litigation conduct: see Chan Chun Ni v Chan Ngai Keung [2023] 1 HKLRD 888 at §§16-18.

24.  Apart from proposing 5% above the judgment rate in counsel’s submission, the IO tendered no other material for the purpose of establishing an appropriate rate. On behalf of Citi-Pro, it is submitted that the present case does not bear circumstances warranting a rate over and above that should serve the purpose of penalising the rejection of the sanctioned offer. I tend to agree. I allow the enhanced rate of 2% above judgment rate.

25.  As to enhanced interest on IO’s costs payable by Citi-Pro, counsel for Citi-Pro takes issue as to the period covered. The IO seeks enhanced interest rate on costs up to payment. Counsel for Citi-Pro acknowledges that whilst apparently unsettled, there is at least a discernible practice of the court in awarding enhanced interest on costs up to the date of judgment but not payment: see Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2017] 2 HKLRD 477 at §§48-60; Kai Min Fashion (HK) Ltd v Fond Express Logistics Ltd & Anor [2013] 1 HKC 563 at §§28-30; Chan Wai Chung v China Travel Service (Hong Kong) Limited, HCPI 914/2015 (31 May 2023). I am content to adopt a similar approach in the circumstances of the present case.

Citi-Pro’s application

26.  There is no dispute that where the judgment in respect of a claim lodged in the High Court is entered for a sum falling within the monetary jurisdiction of the District Court, the tendency is to award costs of the claim on the District Court scale unless the commencement and maintenance of the claim in the High Court carried a reasonable prospect of an award within that jurisdiction: see Lai Ki v B+B Construction Co Ltd & Ors [2003] 3 HKLRD 192 at §21(1).

27.  Counsel for the IO argues that the IO had a prima facie reasonable prospect of recovering a sum in excess of the District Court jurisdiction on the basis of what clause 5 supplement (3) of the Agreement on its face meant. He points out that Citi-Pro agreed to enter into and became bound by the clause. He also refers to the lack of pleading by Citi-Pro as to its precise challenge of the provision as a penalty clause, which was made known only when the trial commenced. Had there been proper pleading as to that, the IO, it argues, could have fully assessed the merit of the argument and the desirability of transferring the case to the District Court.

28.  In my view, the fact that Citi-Pro was bound by the clause is not the crux for the present purpose. I also consider that the IO is over-labouring on the pleading point. Citi-Pro argued during the trial that the right to invoke the clause might be exercised during the term of the Agreement. I took a similar view and concluded that the clause was conceived as penalty to deter breach, which had to be the situation during the term of the Agreement. Whilst I accepted that this precise argument was not specifically pleaded, it was part and parcel of the construction of the clause in issue as a question of law. That entailed the consideration of the legitimate interest, if any, to be served by the provision, which was pleaded by Citi-Pro.

29.  As discussed, the clause per se specifically referred to the exercise of the right under the clause within the term of the Agreement, which I found was abundantly clear. By claiming on the basis of its contractual right in the absence of exercise of the same within the term in accordance with the clause, the IO took the risk of failing this limb, which did not carry reasonable prospect of success.

30.  No other feature of the case is proposed in terms of complexity which could have warranted the case to proceed in the High Court instead of the District Court.

31.  Lastly, that the IO saw fit to propose to settle the case at the sum stated in the sanctioned offer, even inclusive of interest, is not without relevance. Had the offer been accepted, one would have expected similar argument in respect of the scale of costs as discussed above. The outcome would still have to depend on the circumstances. However, in my view, discretion would have been exercised to order costs of the IO in such a situation to be taxed on the District Court scale in the circumstances of this case.

32.  I therefore conclude that the IO’s costs of the action should be taxed on the District Court scale.

Order

33.  The Judgment is varied so that interest on the judgment sum shall run at 2% above the judgment rate from 12 January 2021 until the date of judgment, and thereafter at the judgment rate.

34.  The Nisi Costs Order is varied so that:

(1)  Citi-Pro do pay the IO’s costs of the action up to and including 12 January 2021 to be taxed on a party and party basis, and thereafter on an indemnity basis, if not agreed;

(2)  The above costs include any costs reserved, and shall be taxed on the District Court scale;

(3)  Citi-Pro shall pay the IO interest on the above costs at the enhanced rate of 2% above the judgment rate from 12 January 2021 until judgment.

35.  Both sides somehow succeed in their respective applications. I make no order as to the costs of them, such order being nisi and, in the absence of application in 14 days to vary, will become absolute without further order.