FUNG YIM CHUN AND ANOTHER v. FUNG KUI WAH

HCA 115/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 115 OF 2010

-------------------------------

----------------------

D E C I S I O N

----------------------

1.  This is an application for costs made by the defendant, pursuant to Order 22, rules 20 and 21 of the Rules of the High Court.

2.  The plaintiffs and the defendant are three of the five children of Tse Suk Ying who died intestate on 22 July 2006.  The children have had a series of disputes ever since. Regrettably the legal costs that have been incurred now exceed the entire value of the estate which was always relatively modest.  As both counsel agreed (Mr John Wright and Mr Micky Yip for the defendant and Mr Paul Leung for the plaintiff) “it’s now all about the costs”.

3.  The application arises because of a disagreement about what should be the proper costs order following the acceptance of a sanctioned offer, pursuant to Order 22, rules 20 and 21 RHC.  Order 22, rule 20 provides:

“(1) Where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the Court otherwise orders.”

Order 22, rule 21 provides:

“(1) Where a plaintiff’s sanctioned offer to settle the whole claim is accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date upon which the defendant serves notice of acceptance, unless the Court otherwise orders.”

4.  In the present case both parties made a sanctioned offer (in identical terms save for costs).  Because there was a counterclaim the defendant submits that his sanctioned offer was as plaintiff in the counterclaim.  Thus, hereafter references to “the defendant” are both as defendant to the claim and plaintiff to the counterclaim.

5.  In outline the plaintiff claimed in the Statement of Claim (i) a sum of $525,000 (ii) a sum of NZ$105,854 and (iii) a car park space and rents therefrom.  The defendant counterclaimed for (i) the sum of $525,000 (ii) a sum of $517,303 (iii) a car park space and rents.

6.  The first Statement of Claim was dated 26 June 2008 (amended 11 January 2010).  The defence and counterclaim 22 July 2008 (amended 26 February 2010).

7.  The matter has eventually been settled by way of a compromise. However the route to the compromise was not straightforward.  Before I outline it, it is useful to have in mind the terms of the settlement (save as for costs).

8.  In short, it was agreed that the defendant:

(i) shall keep the NZ$105,854;

(ii) shall receive from the estate the sum of $517,303;

(iii) shall return to estate the $525,000; and

(iv) shall keep the car park.  (“The settlement”)

Correspondence leading to settlement

(i) On 9 December 2011 the defendant made a sanctioned offer in the terms of the above settlement.  The letter made no specific reference to costs but it is submitted that it was made as plaintiff in the counterclaim and thus the defendant would ordinarily be entitled to costs.

(ii)On 30 December 2011 the plaintiffs rejected the 9 December 2011 offer and made their own offer.

(iii) On 10 January 2012 this was effectively rejected because the defendant wrote that he insisted on his original sanctioned offer (The plaintiffs’ offer of 30 December 2011 can be hereafter ignored).

(iv) On 12 January 2012 the plaintiffs made a second sanctioned offer.  As far as the exchange of property and money is concerned it was in identical terms as the defendant’s offer of 9 December 2011.  In effect the letter said, “the terms of the offer in your letter (9 December) are acceptable to our clients but as we rejected that offer it cannot now be accepted and so we are now making exactly the same offer to you”.  The letter added “should this offer be accepted by your client, your client shall be liable to pay our client’s costs …”.

Mr Leung concedes that the purpose of this offer was so as to become the plaintiff offeror and thereby protect the estate from any liability as to costs.

(v)On 13 January the defendant said his original offer could still be accepted and offered that each party bear their own costs.

(vi) On 17 January the plaintiffs maintained their rights to costs being the offeror and the plaintiffs.

(vii) The trial dates (in February 2012) were getting ever closer.  More expense might be incurred as a result.  The plaintiffs were pushing for acceptance of their offer by twice stating they would soon send a brief to counsel.

(viii) On 19 January 2012 the defendant gave notice of his acceptance of the plaintiffs’ sanctioned offer subject to an application to the court on costs, unless the plaintiff accepted the suggestion that each party bear its own costs.

(ix) On 26 January 2012 the plaintiffs said the offer was inclusive of their position on costs.  They described it as ‘a package’.

(x)On 27 January 2012 the defendant formally accepted the offer but again confirmed he would apply to the court for a costs order.

Law

9.  There are four matters of law to keep in mind before determining this costs issue.

10.  Firstly, the fact that there is a counterclaim means that either party can claim the consequences of being a plaintiff.  The interpretation of Order 22 provides as follows:

“(1) In this Order-

‘claim’ includes, where the context so permits or requires, a counterclaim;

‘counterclaim’ includes, where the context so permits or requires, a claim;

‘defendant’ includes, where the context so permits or requires, a defendant to a counterclaim.”

11.  Thus, when the defendant made his sanctioned offer on 9 December 2011 he would have been able to claim an entitlement to costs as of right and not under the heading “unless the court otherwise orders.”

12.  Secondly, the expression “unless the Court otherwise orders” is merely a recognition of the court’s discretion.  Needless to say the discretion must be exercised judicially and the usual order will only be departed from it if there are compelling reasons to do so.

13.  Thirdly, there are circumstances in which a court may order costs against the administrators of an estate, the plaintiffs here, personally.  This may apply where the court considers their conduct to have been unreasonable, for example by attempting to protect their personal positions at the expense of the estate.  A party seeking to persuade the court to order costs against trustees in their personal capacity face a high threshold.

14.  Fourthly, Order 62, rule 5 provides for many matters which the court should take into account when exercising a discretion.  They include:

“(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful;

(g) any admissible offer to settle made by party, which is drawn to the Court’s attention;

(2) 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;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.”

Unusual features

15.  This case contains a number of unusual features which I now list in order to explain the costs order which follows:

1.  The terms of the defendant’s 9 December offer are the terms of the ultimate settlement.

2.  The plaintiff rejected that offer, solely on the grounds of costs, and then returned precisely the same terms back to the defendant.

3.  The ‘estate’ is worth $525,000 to be shared between five beneficiaries including both plaintiffs and the defendant.  The total legal costs incurred to date is likely to be more than double that figure.

4.  By the settlement the plaintiffs did not pursue their claim for NZ$105,854 or their claim for the car park.  They also conceded the defendant’s counterclaim for $517,303.  Mr Leung submits that when there is a settlement there are no winners or losers, it is merely a compromise.  That is correct.  Settlements are encouraged so as to dispel the notion of winners and losers wherever possible.  Even late settlements are better than no settlements.  The facts remain however, that after 4 years of sibling disputes the defendant retained that which he had always claimed was his property save for the parties ultimate agreement that the total estate was the sum of $525,000.

5.  The plaintiffs’ motive for returning the defendant’s own offer back to him and calling it their own is not unreasonable.  The motive was to protect the estate from any liability as to costs.  However, it seems to me, that this was too little too late.  Knowing the estate was relatively modest the parties and the other siblings continued their disputes for 4 years before reaching an agreement.

Order

16.  Considering the history of the entire dispute and, in particular, bearing in mind the unusual features, the main ones of which are listed above, it seems to me that this is a case which falls into the category catered for by the words in Order 22 namely “unless the Court otherwise orders”.

17.  It is a regrettable reality that the only orders which will protect the modest estate are either an order condemning the defendant in the entire costs of the case or an order making the plaintiffs personally liable.  Neither of these seem appropriate in all the circumstances of the case.

18.  Up until 27 January 2012 the defendant offered an order as to costs whereby each side bore their own costs.  In my judgment that offer was appropriate at the time and I consider it should form part of the court’s order in this hearing.

19.  Since 27 January the following facts are relevant:

(i) the terms of the settlement are as proposed by the defendant on 9 December 2011;

(ii) the defendant has retained much of the property he always maintained was his;

(iii) the defendant’s “acceptance” in January 2012 was motivated by his desire to prevent further costs being incurred by briefing counsel for trial which was the step about to be taken by the plaintiffs’ solicitors; and

(iv) but for the addition of arguably unsustainable

(v) claims by the plaintiffs this case would have and should have remained in the District Court.

20.  These factors favour the defendant.  On the other hand, the defendant, by the wording of the summons, seeks an order that the plaintiffs pay all the costs in person on an indemnity basis.  To this extent the defendant has not succeeded.  Nonetheless both parties clearly require the court to make a final order (albeit not as specifically sought) so as to draw a line under these proceedings.

21.  The order I make is that both parties bear their own costs up to and including 27 January 2012.  Thereafter the plaintiffs shall be liable for 50% of the defendant’s costs on the District Court scale.  For the avoidance of doubt I decline to make an order against the plaintiffs in their personal capacity.