WAH LUN INTERNATIONAL DEVELOPMENT LTD v. LAU CHIU SHING

HCA 1429/2015

[2021] HKCFI 1976

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1429 OF 2015

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BETWEEN

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DECISION

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APPLICATION

1.  This Court handed down its judgment on 26 February 2021 (the “Judgment”).  On 11 March 2021, the Plaintiff took out a summons (the “Summons”) to vary the costs order nisi made by this Court. In essence, the Plaintiff applies for:

(1) Costs of the action up to and including 18 December 2017 on a party-to-party basis, and on an indemnity basis from 19 December 2017.

(2) Enhanced interest of 10% above the judgment rate, i.e., 18% throughout the relevant period, on the judgment sum of RMB 20 million from 19 December 2017 until payment.

(3) Interest on the costs after 18 December 2017 at 10% above judgment rate, i.e., 18% throughout the relevant period.

2.  The Defendant does not oppose to the application for costs on indemnity basis on and after 19 December 2017.  Accordingly, this Court will make an order in those terms. 

3.  The parties, however, are in dispute as to whether an enhanced interest should be awarded and if so what should be the reasonable rate in the circumstances of this case.

APPLICABLE LEGAL PRINCIPLES

4.  Order 22, rule 24 of the Rules of High Court, Cap. 4A provides:

“24. Costs and other consequences where plaintiff does better than he proposed in his sanctioned offer

(1) 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.

(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 the leave of the Court.

(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 the 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; 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.

(6) The power of the Court under this rule is in addition to any other power it may have to award interest.”

5.  There is no dispute that by two sanctioned offers respectively dated 20 November 2017 and 17 February 2020, the Plaintiff had repeatedly offered to settle with the Defendant by accepting the return of RMB 20 million without any interest or costs, but the sanctioned offers were not accepted by the Defendant.  I accept Mr Yin’s submission that waiving costs and interest of not insignificant amounts are genuine offers.

6.  The Judgment is clearly more advantageous to the Plaintiff than the proposals contained in the Plaintiff’s sanctioned offers in that on top of the RMB 20 million, the Defendant was ordered to pay interest and costs which are not insignificant sums. 

7.  I am of the view that the requirement of Order 22, rule 24(1)(b) has been met. In light of the stipulation in Order 22, rule 24(4) that “the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so”, the onus is on the Defendant to show that in view of all the circumstances of the case including the matters set out in Order 22, rule 24(5), it is unjust to make an order under Order 22, rule 24(2) and (3).

8.  I am of the view that it is not unjust to award enhanced interest in the present case because both parties took diametrically opposite stance on the alleged oral agreement and both parties, obviously, had faith in their own cases.  I do not consider that the two sanctioned offers are deployed by the Plaintiff with pre-dominantly tactical objectives and hostile and/or adversarial attitude.  The two sanctioned offers are genuine.  Waiving interest and costs are substantial concessions.  

9.  The key issue for this Court is the percentage of the enhanced interest.  Mr Yin in his oral submissions very sensibly did not ask for 10% above the judgment rate, he submitted that 5% is about right.  Mr Chan for the Defendant, on the other hand, submitted that 2-4% is appropriate.  

10.  In coming to a fair result, the Court takes into account the following principles:

(1) Sanctioned offers are part of the new regime introduced by CJR to encourage litigants to take settlement offers seriously and to avoid protracted legal proceedings, with all their ramifications for legal costs, the courts’ time and resources, as well as to avoid undue delay.  The powers under the new regime are not penal in nature – the aim is to achieve a fairer result for the winning party and to address the perceived unfairness of the fact that it will not be fully compensated for by costs orders on the ordinary basis (whether party and party or indemnity), statutory interest and damages. (See CEP Ltd v Wuxi Jiacheng Solar Energy Technology Co Ltd [2016] 1 HKLRD 960 at [31] and Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2017] 2 HKLRD 477 at [26] per Ng J.)

(2) Order 22, rule 24 is aimed at genuine offers to settle and not some tactical ploy for the purpose of advancing a claim thereafter.  (See Gill Ajmer Singh v Wah Hing Scaffolding Engineering Ltd [2014] 1 HKC 495 at §§35-40 per Deputy Judge R Lai)

(3) The power to award enhanced interest is compensatory and not penal.  It enables the Court to redress the unfairness which arises from the fact that damages, costs (even on an indemnity basis) and statutory interest would not compensate for inconvenience (including disruption of business or daily life), anxiety and distress.  The Court should not start from the assumption that the full uplift would normally be awarded or be taken as the starting point.  That said, the level of enhanced interest should make a material, albeit proportionate, difference to the outcome. Generally the uplift should be at a higher rate for small claims. (See Cheung Shuk Han v Chik Wai Yin [2013] 4 HKC 311 at §§10-15 per Deputy Judge Jonathan Chang)

(4) Conduct is also a relevant factor.  In assessing conduct, the difference between the sanctioned offer and the judgment sum is relevant.  The larger the difference, the more unreasonable not to take up the offer.  It is also necessary for the court to consider whether enhanced interest would provide a disproportionate benefit or burden.  For instance, the low interest regime over the relevant period is a relevant factor in determining the appropriate uplift.  A straightjacket approach is inapposite and the Court should consider all the circumstances of the case.  (See Cheung Shuk Han v Chik Wai Yin [2013] 4 HKC 311 at §§16-20 per Deputy Judge Jonathan Chang)

(5) The level of enhanced interest awarded must be proportionate to the circumstances of the case.  Those circumstances may include (a) the length of time that elapsed between the deadline for accepting the offer and the judgment date; (b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence; and (c) what general level of disruption can be seen, without a detailed inquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the relevant offer. (See OMV Petrom SA v Glencore International AG (No.2) [2017] 1 WLR 3465 at §38)

(6) The quantum of the judgment sum would also affect the amount of the uplift, which should be more substantial if the judgment sum is relatively small.  (See Petrotrade Inc. v Texaco Ltd [2002] 1 WLR 947 at §77)

(7) The emphasis is on the reasonableness of the defendant’s conduct in the settlement process or in the conduct of the litigation.  For a circumstances to be considered relevant in determining whether it is unjust to make the orders stated in Order 22, rule 24(2) and (3), first, it ought to relate to the reasonableness or otherwise of the defendant’s non-acceptance of the sanctioned offer, or secondly, it suggest that, whilst the continuation of the proceedings is primarily due to the non-acceptance of the sanctioned offer, costs are incurred or increased thereafter due to any unreasonable conduct of the plaintiff. (See Qvist Henrik v Clatronic Far East Ltd [2020] 1 HKLRD 703 at §19).

(8) The maximum of 10% above judgment rate must be reserved for the worse kind of cases. (See Qvist Henrik v Clatronic Far East Ltd (supra) at §29)

(9) Whilst the Court under Order 22, rule 24 does have jurisdiction to fix a post-judgment interest rate which needs not be the judgment rate, such power is discretionary in nature.  In practice, the Courts are normally content to award interest at judgment rate for the sake of, inter alia, consistency and certainty.  Early recovery of the sum due under judgment does not seem to be one of the underlying objectives of Order 22, rule 24, and to award post-judgment interest at an enhanced rate would be disproportionate and over compensatory to the winning party in the absence of exceptional circumstances. (See Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd (supra) at §48-60)

ANALYSIS

11.  Mr Chan for the Defendant submitted that one factor this Court should take into account is the failure or refusal by Mr Jia of the Plaintiff to attend mediations personally.  Mr Chan submitted that if Mr Jia had attended mediations personally, the Defendant might be able to reach an amicable settlement with the Plaintiff.  The unreasonable refusal by Mr Jia to meet with the Defendant personally contributed to the continuation of the present proceedings.  On the other hand, Mr Yin for the Plaintiff submitted that the Plaintiff, being a company limited by shares, had already sent duly authorized representatives to participate in the mediations but as the parties were miles apart, it was impossible to reach any compromise.  The failure of Mr Jia to attend the mediations personally should not be taken as a factor against the Plaintiff.  

12.  It goes without saying that this Court encourages mediation whenever possible.  I do think that it might help if Mr Jia did attend the mediations personally.  However, I also agree with Mr Yin that given the fact that the parties were miles apart, one cannot be confident that the presence of Mr Jia would make a difference.  What I can say is that, on the facts of the present case, this Court will take this factor into consideration but not as a weighty factor.  

13.  Mr Chan for the Defendant also submitted that the Defendant was prejudiced by the general adjournment period last year due to COVID-19.  But for COVID-19, this matter could be listed for trial earlier.  On this point, I am of the view that Mr Yin must be right that this is not a matter that the Court should take into account, as it is always up to the Defendant to settle this action earlier with the Plaintiff.

14.  However, I do not think that the conduct of the Defendant is unreasonable simply because he did entertain the belief that the oral agreement existed.  This is reflected in the Defendant’s counter-offer of about 1/10 of the claimed sum.

15.  I agree with Mr Chan this is a far cry from cases like Wong Giles v Donowho Simon Christopher [2020] HKCFI 1053 where the Court awarded 10% enhanced interest rate and found that the litigant’s conduct was disgraceful and the way he prosecuted his case constituted an affront to the court.  The present case does not fall within the cases for which maximum sanction is reserved.

16.  Mr Chan for the Defendant referred this Court to Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd (supra) and pointed out that Mr Justice Ng in that case awarded an enhanced interest rate of 4% above prime + 1% from the cut-off date to judgment (§38) and at judgment rate thereafter (§§48-60).

17.  Applying the legal principles to the facts of the present case, I am of the view that the proper enhanced interest should be 4% above the prevailing prime rate in RMB, namely, 5.125% plus 1%.

18.  I am also of the view that post judgment, the judgment rate should apply.

19.  In order to seek interest on costs, the applicant must put forward evidence to show that he was out of pocket by payment of costs ahead of trial. Mr Chan for the Defendant fairly accepted that costs were paid in advance of the trial.

20.  In Golden Eagle, 4% above prime was adopted.  There the court suggested a practical approach of ordering interest on costs at half of the aforesaid rate on all costs incurred after the last day on which the sanctioned offer could be accepted without leave.  Such simplified approach did away with the need to ascertain the actual dates when the successful party had put up funds, from which interest would run at full rate.  I am of the view that this Court should adopt this approach.

21.  As far as the costs of the Summons is concerned, I am of the view that the Plaintiff is entitled to costs but on party and party basis as the Plaintiff did ask for the maximum enhanced interest and the Defendant is reasonable in resisting the same.  This is not a suitable case for costs to be awarded on indemnity basis.

DISPOSITION

22.  For the reasons stated above, I will make the following orders:

(1) Order in terms of paragraphs 1 and 2 of the Summons;

(2) The Defendant should pay enhanced interest at 4% plus 5.125% plus 1% on the sum of RMB 20 million from 19 December 2017 and thereafter at the Judgment Rate;

(3) The Defendant should pay interest on the Plaintiff’s costs incurred after 19 December 2017 at 5.0625% up to the Judgment.

(4) The Defendant do pay the Plaintiff the costs of and occasioned by the Summons to the Plaintiff, on a party and party basis, to be taxed if not agreed.

23.  Finally, it remains for this Court to thank Mr Yin for the Plaintiff and Mr Chan for the Defendant for their helpful assistance.