MA KING HUEN v. THE SINCERE COMPANY, LTD

HCA 1746/2021

[2024] HKCFI 1437

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1746 OF 2021

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DECISION ON COSTS

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A.  Introduction

1.  By my judgment handed down on 1 February 2024, following the trial of this action I substantially upheld the Plaintiff’s claims herein; I gave judgment in his favour amounting in total to HK$12,064,271.80; I dismissed the Defendant’s counterclaim and made an order nisi that the Defendant should pay the Plaintiff the costs of this action and the counterclaim, to be taxed on a party and party basis, if not agreed, with a certificate for 2 counsel (“the Costs Order Nisi”).

2.  By summons issued on 15 February 2024, the Plaintiff sought an order that the Costs Order Nisi be varied (a)  to include the costs of proceedings in the Labour Tribunal (LBTC 2236/2021)  (“the LT Proceedings”)  and (b)  to provide for the taxation of the Plaintiff’s costs on an indemnity basis from 25 May 2022, or alternatively from 18 October 2023, onwards and for an order that the Defendant do pay the Plaintiff interest on costs at a rate not exceeding 10% above judgment rate from 18 October 2023 until 1 February 2024.

3.  In short, the Defendant’s position is that (a)  the costs incurred in the LT Proceedings should not form part of the costs awarded to the Plaintiff in the High Court Action – in other words that there should be no order for costs in respect of those proceedings and (b)  all costs in the High court action should be taxed on a party and party basis, as per the Costs Order Nisi.

4.  I have had the benefit of extensive written submissions by each party in support of their respective positions – by the Plaintiff on 19 March 2024; by the Defendant on 16 April 2024 and by the Plaintiff in reply dated 30 April 2024.

B.  Costs in respect of LBTC 2236/2021

5.  The Plaintiff’s claim in the LT Proceedings was transferred to the High Court by order made on 1 November 2021 and was successfully pursued by the Plaintiff in the present action to judgment, by which it was upheld in full.

6.  In my view, whilst it is usual that disputes adjudicated by the Labour Tribunal are resolved with no order as to costs (consistent with the purpose of the Labour Tribunal as providing a speedy, efficient and cheap means of adjudicating employment claims and, to that end, the requirement that, in the Tribunal, parties are required to represent themselves, without legal representation), there is no rigid rule governing this and indeed section 28 of the Labour Tribunal Ordinance, cap 25 expressly gives the Tribunal power to award to a party costs and expenses.

7.  In any case, whilst it is usual that disputes adjudicated by the Labour Tribunal are resolved with no order as to costs, different considerations apply in a case such as this where the claim first brought in the Tribunal is transferred to the High Court, particularly, as here, in large part, by reason of the fact that complex issues of law and fact are involved in the claim.

8.  In this respect it is significant that, in transferring the Plaintiff’s claims in the LT Proceedings to the High Court, the Presiding Officer directed that the costs of the legal proceedings before and after transfer should be determined by the High Court.

9.  In all the circumstances I am satisfied that it is appropriate that the costs which I ordered should be paid by the Defendant to the Plaintiff in respect of the present action should include the Plaintiff’s costs of the LT Proceedings, all on the High Court scale, and I so order.

C.  The basis for taxation – indemnity costs – general principles

10.  The party and party basis of taxation is the standard basis for taxing costs as between parties to litigation. Generally, in order to justify an award of costs on a more generous basis than this (e.g. an award of indemnity costs), it must be shown that the case has some special or unusual feature and taxation on this basis will only be ordered when it is appropriate to do so. This principle was reaffirmed by the Court of Final Appeal in Commissioner of Inland Revenue v Poon Cho-Ming, John, FACV no 1 of 2019, [2020] HKCFA 2.

11.  In Leung Chun Kwong v Secretary for the Civil Service [2019] HKCFA 34, the Court said (at paragraph 15)  that the sanction of an award of indemnity costs is “……usually reserved for those cases in which there has been something improper or inappropriate or wholly unreasonable in…the conduct of the proceedings.”

12.  As illustrated by the decision of the Court of Appeal in Choy Yee Chun (the Representative of the estate of Chan Pui Yiu v Bond Star Development Ltd [1997] HKLRD 1327, the principle for the award of costs on the indemnity basis applies equally to an order for costs against a defendant: In that case, after reviewing the authorities, Stock LJ said that “if a plaintiff has been forced to institute proceedings by a defendant whose conduct had been not only hostile in the normal litigious sense but oppressive and with base ulterior motive, and if the pursuit of a defence constituted conduct which was part of an oppressive game plan, then invocation of the power to award costs on an indemnity basis might well be justified.”

D.  The Plaintiff’s Primary case on indemnity costs – the Plaintiff’s offer of 17 May 2022

13.  The Plaintiff’s primary case is that an award of indemnity costs should be made in his favour against the Defendant in respect of costs incurred from 17 May 2022, when the Plaintiff made an offer to the Defendant (which was not accepted)  that all claims, cross claims and counterclaims as between the parties in this action be fully and finally settled on a payment by the Defendant of HK$11,560,616.28.  This offer was expressed to be made “without prejudice save as to costs” but the Plaintiff accepts that it was not a sanctioned offer under RHC Order 22 and that it was not an offer which the Court is permitted to take into account in exercising its discretion as to costs. This is by virtue of the provisions of RHC Order 62 r. 5(1)(d)  which provides that,  whilst in exercising its discretion as to costs  the Court may take into account any written offer which is expressed to be “without prejudice save as to costs” relating to any issue in the proceedings, the Court may not take it into account if, at the time it was made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22.

14.  In the Plaintiff’s written submissions, however, it is submitted that, notwithstanding that the offer of settlement cannot be taken into account in the exercise of the discretion as to costs, the Court is not precluded from considering the parties conduct vis-a-vis attempts to settle the action.  In this respect, the Plaintiff places reliance on the dictum of DHCJ Paul Lam SC in Sam Sien San Albert v Sam Mo Yee [2019] HKCFI 1188, at paragraph 10, viz:

“In the recent decision of LLC v. LMWA and LELP [2019] HKFA 347, the Court of Appeal reaffirmed that, since the CJR, all parties to litigation are under a duty to assist the court in the promotion of the underlying objectives in Order 1A, rule 1 including a duty to co-operate in a process facilitating settlement; the courts expect litigants to explore settlement in good faith; the conduct of a party in adopting an uncooperative stance can, and very often will be taken into account under Order 62, rule 5(2); and there is a need to engage in constructive negotiations even in face of any unacceptable sanctioned offer.”

15.  The Plaintiff also relies on remarks made by A Chan J in Bright Gold Ltd v Mega Well Development Ltd [2019] 3 HKLRD at paragraph 13, viz:

“It is reasonably well established that the failure to beat a favourable settlement offer can attract an award of indemnity costs….it is consonant with the underlying objectives enshrined in O. 1A r. 1 for the court to encourage dispute settlement and therefore failure to respond constructively to a reasonable Caldebank offer, coupled with the subsequent failure to beat the offer, should weigh heavily against the offeree on costs.”

16.  I entirely accept that failure to respond constructively to a reasonable Caldebank offer coupled with the subsequent failure to beat the offer should be taken into account by the court in exercising its discretion as to costs.  However, whether or not that should warrant an award of indemnity costs must depend on whether it can be shown that the case has some special or unusual feature (e.g. where there has been something improper or inappropriate or wholly unreasonable in the conduct of the proceedings (see paragraphs 10-12 above).

17.  In Heung Wing Yan v Hangway Housing Management Ltd, HCPI 347/2012 (14 February 2017, at [19], DHCJ Marlene Ng (as she then was)  said as follows:

“Although the discretion to award indemnity costs is unfettered and uncircumscribed, there must be some special or unusual feature in the case to justify an order for indemnity costs. I accept indemnity costs are no longer limited to cases where a party’s conduct lacks moral probity or deserves moral condemnation for which the court wishes to express disapproval. But such conduct must be ‘unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight ...... It follows from all this ...... it will be a rare case indeed where the refusal of a settlement offer will attract ...... not merely an adverse order for costs, but an order on an indemnity rather than standard basis’. Further, whilst pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless)  may well lead to such an order.”

I agree with these remarks.  In short, I agree that it will be a rare case where the refusal of a settlement offer will or should, by itself, attract an award of indemnity costs.

18.  The Plaintiff nevertheless argues that the Defendant’s failure to constructively engage with and respond to the offer of 17 May 2022 coupled with what he contends to have been the Defendant’s unreasonable conduct in these proceedings should warrant an award of indemnity costs.

19.  In short, the Plaintiff contends that Defendant’s conduct in these proceedings was unreasonable in that the Defendant (a)  persistently delayed and denied the Plaintiff’s contractual and statutory entitlement to wages, (b)  adopted a “kitchen sink” approach in advancing its Defence and Counterclaim and in particular advanced a wholly unmeritorious counterclaim for unjust enrichment and (c)  threatened to commence other unmeritorious counterclaims such as breach of fiduciary duty and defamation. The Plaintiff places particular reliance upon the finding at paragraph 70 of my judgment to the effect that the resolution passed by the Defendant on 18 August 2021 purporting to nullify the recommendation or determination of the Remuneration Committee, made on 29 May 2020 did not in any way affect the Plaintiff’s contractual entitlement and was, in any case, misconceived.

20.  I have carefully considered each of the points advanced by the Plaintiff in support of his contention that the Defendants’ conduct of these proceedings was so unreasonable such as to justify an order for indemnity costs from 17 May 2022.  I have however concluded that the matters upon which the Plaintiff relies are not sufficient to justify such an order.  In particular:

a.  I do not consider that either the defences or the counterclaims which the Defendant put forward in these proceedings were so unmeritorious such as to justify such an order;

b.  I do not consider that the fact that in the LT Proceedings, the Defendant raised potential defences which were not pursued in the High Court to be material to this question, and

c.  The fact that I found that the resolution of 18 August 2021 was misconceived does not in my view bear on the reasonableness or otherwise of the Defendant’s conduct of the proceedings. In any case the resolution did not form any significant element of the Defence or the Defendants’ submissions.

21.  Accordingly, I decline to accede to the Plaintiff’s primary case as to indemnity costs.

E.  The Plaintiff’s alternative case on indemnity costs – the Plaintiff’s offer of 19 September 2023

22.  On 19 September 2023, the Plaintiff repeated the offer which was first made on 17 May 2022.  However, unlike the offer of 17 May 2022, the offer made on 19 September 2023 was a sanctioned offer under RHC Order 22.

23.  RHC Order 22 rule 24(3)  provides that where the plaintiff does better than he proposed in his sanctioned offer, “the Court may also consider 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.

24.  RHC Order 22 rule 24(2)  further provides that “the Court shall make the orders referred to in paragraphs (2)  and (3)  unless it considers it unjust to do so.

25.  The latest date on which the Defendant could have accepted the offer of 19 September 2023 without requiring the leave of the Court was 18 October and, on the Plaintiff’s alternative case for indemnity costs, such costs are sought from this date. 

26.  Clearly, the provisions of Order 22 rules 24(2)  & (3)  override and supplant the general principles for indemnity costs as per the authorities to which I have referred in paragraphs 10-12 above and in a case where Rule 24(3)  applies it is for the Defendant to satisfy the Court that an order for indemnity costs from the specified date would not be unjust.

27.  The Defendant submits that it would be unjust to make an order for indemnity costs on account of the non acceptance of the sanctioned offer and, in this respect, contends that:

a.  The  Defence and Counterclaim were plainly arguable;

b.  The sanctioned offer was made less than 3 months before trial after the bulk of the legal costs had been incurred;

c.  The Defendant was not in a position to make an informed decision whether to accept the sanctioned offer as the issues turned on intricate issues of both fact and law, and

d.  The terms of the sanctioned offer were far from generous, being premised on the counterclaim failing in its entirety and representing only a small discount of approximately 7% of the amount claimed.

28.  I do not agree with the Defendants’ submissions:

a.  Whilst I accept that the Defence and Counterclaim were arguable, I do not accept that this fact by itself justifies a departure from the default position under O. 22 rule 24 that indemnity costs should be awarded in the circumstances specified in O. 22 r. 24(3).

b.  I do not regard the fact that the sanctioned offer was made less than 3 months before trial as having any relevance. Significant legal costs would inevitably have been incurred thereafter;

c.  I do not accept that the Defendant was not in a position to make an informed decision as to whether to accept the sanctioned offer. Notwithstanding the complexity of the issues of fact and law, he had ample opportunity to seek and obtain an advice on the merits;

d.  I do not regard the fact that the sanctioned offer was premised on the counterclaim failing completely and that the discount from the amount claimed was small as being material. The fact is that the offer was vindicated and was bettered by my Judgment.

29.  Accordingly, I do not accept that there is any injustice in making an order for indemnity costs pursuant to Order 22 rule 24(3).

30.  The Costs Order Nisi will therefore be varied to provide that the costs of this action and the counterclaim (including the costs of the LT Proceedings)  as from 18 October 2023 shall be paid by the Defendant to the Plaintiff on the indemnity basis.

31.  It is also appropriate that the Defendant should pay enhanced interest on costs pursuant to Order 22 rules 24(2)  and (3)  in respect of the period from 18 October 2023 to 1 February 2024, being the date of the Judgment.  It can be assumed that the Plaintiff would have paid moneys on account to his solicitors in respect of these costs, but the Plaintiff has not adduced any evidence to show the actual amounts and dates upon which payments were made.  In these circumstances I will follow the “modified” approach to the award of enhanced interest which has been widely adopted in other cases, (notably by Johnson Lam J in Golden Eagle International (Group)  Ltd v GR Investment Ltd [2010] 3 HKLRD 273 and by Bharwaney J in Shih Pik Nog v G200 (Apparel)  Ltd [2011] 4 HKLRD 121)  and endorsed by the Court of Appeal in Antwerp Diamond Bank NV v Brink’s Incorporated (No 1) [2015] 4 HKLRD 628, by assuming a fully enhanced rate of interest at 4% above prime rate and awarding half that amount by way of interest on the award of indemnity costs in respect of  the relevant period (18 October 2023 to 1 February 2024).

F.  Order

32.  The Costs Order Nisi will therefore be varied (a)  to include the costs of the LT Proceedings, (b)  to provide for the taxation of the Plaintiff’s costs in respect of the action and the counterclaim on an indemnity basis from 18 October 2023 onwards and (c)  to award the Plaintiff interest on such indemnity costs at one half of 4% above the prime rate prevailing from time to time from 18 October 2023 to 1 February 2024.

G.  The Costs of this application

33.  The Plaintiff has prevailed on the issue as to whether or not the costs of this action should include the cost of the LT Proceedings; he has failed in respect of his primary case on indemnity costs, albeit succeeding in his alternative claim and has succeeded in his claim for enhanced interest (albeit on rather a different basis than that on which the application was based).  That being the case I have concluded that the appropriate order for costs in respect of this application is to award the Plaintiff 80% of his costs.

34.  The Plaintiff has lodged a statement of his costs in respect of this application for summary assessment. This amounts in total to HK$320,340 which includes the fees of both Senior and Junior Counsel.  I regard this as grossly excessive for what has been a fairly straightforward application to vary a costs order nisi which should not have required or warranted more than one counsel. By way of contrast, the statement of costs submitted by the Defendant amounted in total to HK$129,480.

35.  In all the circumstances I have decided to summarily assess the Plaintiff’s costs in respect of this application at the amount of HK$136,000 (80% of HK$170,000).