TSANG CHIU TUNG v. 陳創成經營成記水喉渠務工程 AND ANOTHER

DCEC 713/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES' COMPENSATION CASE NO. 713 OF 2009

____________

IN THE MATTER OF AN APPLICATION

DECISION ON COSTS

1. For injury at work in 2007, Tsang (the Applicant) claimed compensation against his employer (the 1^st Respondent) and the principal contractor (the 2^nd Respondent) pursuant to the Employees’ Compensation Ordinance, Cap.282. By consent, judgment was entered in 2009 against the Respondents for compensation to be assessed. After trial, I handed down my judgment on assessment of compensation on 25 November 2010.

2.  In summary, the compensation was assessed as follows:

3.  Giving credit to the amount already received by Tsang from the Respondents in the total sum of HK$288,288, I made a net award of HK$88,508 with interest.

4.  I made a nisi order that the Respondents should also pay Tsang’s costs of the assessment proceedings.  Costs shall be taxed, if not agreed, with certificate for counsel. Tsang’s own costs shall be taxed according to legal aid regulations.

5.  Parties were given 14 days to apply for variation of the costs order; or the same should become absolute.  The Respondents did so by way of summons dated 9 December 2010.  By consent, the summons was amended and directions were given for the filing of affidavits subsequently.

The amended summons

6.  By the amended summons, the Respondents ask to vary the costs order nisi as follows:

(1)  that Tsang be deprived of the costs in relation to unsuccessful parts of:

(a)   the issues about whether he could resume his pre-accident job and rely on the Hong Kong Paper Mills formula for calculating the loss of earning capacity and his claim under section 9 of the Ordinance; and

(b)   his claim for entitlement for periodical payments be extended beyond 24 months under section 10(5) of the Ordinance, and/or Tsang do pay the Respondents’ costs as are attributable to the defence of those issues and claims by Tsang;

(2)  further or in the alternative, Tsang do pay the Respondents’ costs incurred after the date of their 2^nd sanctioned payment made on 7 August 2010, or after the without prejudice settlement offer on 9 August 2010, or otherwise after a date to be adjudged by the court to be just and appropriate, or on any basis and/or at any interest rate as the court sees fit;

(3)  further or in the alternative, and without prejudice to the above, there be no order as to costs from the date of the 2^nd sanctioned payment made by the Respondents on 7 August 2010 or the without prejudice settlement offer on 9 August 2010 or any other date as the court sees fit;

(4)  any other orders on costs of assessment proceedings as the court adjudges just and appropriate; and

(5)  the costs of the application be to the Respondents and Tsang’s costs be taxed in accordance with the Legal Aid Regulations.

The Respondents’ major contentions

7.  Mr Jim for the Respondents highlighted 10 features of the present case which I think boil down to the following main contentions:

(1)  Tsang managed to recover only marginally more than the sanctioned payments and definitely less than the amount of the Respondents’ written offers.  It was unreasonable for Tsang to refuse to settle and to press ahead with the assessment proceedings.

(2)  Tsang had raised and pursued unnecessary and improper issues during the trial that had significantly prolonged the trial and increased the legal costs.

The court’s discretion as to costs

8.  O.62, r.3 provides that:

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

9.  O.62, r.5 sets out the special matters to be taken into account in exercising the discretion:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account-

(aa) the underlying objectives set out in Order 1A, rule 1;

(a) [not applicable]

(b) any payment of money into court and the amount of such payment;

(c) [not applicable]

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is 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;

(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; and

(g) any admissible offer to settle made by a 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.”

The sanctioned payments and without prejudice offers

10.  This is a monetary claim where liability has been admitted.  Where there is payment into court, the relevant event is whether the claimant succeeds in recovering more than the payment: see Wong Ching Wan v AS Watson & Co Ltd [2007] 4 HKLRD 362 at 370.

11.  Prior to the trial, the following events took place:

12.  The net award of compensation inclusive of interest turned out to HK$99,652.73.  It managed to beat the 2^nd sanctioned payment by a margin of slightly less than HK$10,000.

13.  O.22, r.23 stipulates the costs consequences where the plaintiff fails to do better than sanctioned offer or sanctioned payment:

“(1) This rule applies where a plaintiff-

(a) fails to obtain a judgment better than the sanctioned payment; or

(b) fails to obtain a judgment that is more advantageous that a defendant’s sanctioned offer.

(2) The Court may by order disallow all or part of any interest otherwise payable under section 49 of the Ordinance on the whole or part of any sum of money awarded to the plaintiff for some or all of the period after the latest date on which the payment or offer could have been accepted without requiring leave of the Court.

(3) The Court may order the plaintiff to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.

(4) The Court may also order that the defendant is entitled to-

(a) his costs on the indemnity basis after the latest date on which the plaintiff could have accepted the payment or offer without requiring leave of the Court; and

(b) interest on the costs referred to in paragraph (3) or subparagraph (a) at a rate not exceeding 10% above judgment rate.

(5) Where this rule applies, the Court shall make the orders referred to in paragraphs (2), (3) and (4) unless it considers it unjust to do so.

(6) In considering whether it would be unjust to make the orders referred to in paragraphs (2), (3) and (4), the Court shall take into account all the circumstances of the case including-

(a) the terms of any sanctioned payment or sanctioned offer;

(b) the stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned payment or sanctioned offer was made; and

(d) the conduct of the parties with regarding to the giving or refusing to give information for the purpose of enabling the payment or offer to be made or evaluated.

(7)  The power of the Court under this rule is in addition to any other power it may have to award or disallow interests.”

14.  Sub-rule (5) above makes clear that the costs orders adverse to the plaintiff under this rule shall be made if this rule applies.  This happens if the situations under sub-rule (1) exist.  Sub-rule (6) exists for the purpose of sub-rule (5), i.e., when a prima facie case exists for making adverse costs against the plaintiff. Sub-rule (6) does not otherwise come into play independent of sub-rule (1).

15.  As Tsang managed to obtain a net award plus interest that exceeds the sanctioned payments, sub-rule (1) is not satisfied, and the basis for making the adverse costs order under this rule against the plaintiff does not exist.  This cannot be changed by purporting to consider all the circumstances of the case under sub-rule (6).

16.  Mr Jim cited Tsoi Hak Kong Herbert v Kok Wai Chun & Ors, HCA 4/2006 (9 June 2009).  But that case was really about the effect of the plaintiff’s sanctioned offer governed by O.22, r.24.  In relation to O.22, r.23, Mr Jim cited Lau Chi Keung v Wong Wai Kei & Anor, DCPI 1846/2008 (22 June 2010) in support.

17.  In Lau Chi Keung, damages together with interest amounted to HK$452,922.80.  It managed to beat the sanctioned payment of HK$450,000 by a margin of about HK$3,000.  The plaintiff was nevertheless deprived of his entitlement to part of his costs incurred after the sanctioned payment.

18.  Referring to the English case of Charm Marine Incorporated v Elborne Mitchell (22 July 1997), the learned deputy judge in Lau Chi Keung considered a possible qualification of the strictly arithmetical rule in comparing the award and the payment into court by some de minimus principle.  The court was of the view that the qualification, if it exists, would apply only in absolute, not relative terms.

19.  But in both Charm Marine Incorporated and Lau Chi Keung, the court actually refused to find that a few thousand dollars is negligible for the de minimus qualification, if it exists, to operate against the plaintiff.  Therefore, even assuming that the de minimus principle exists, it does not assist the Respondents here as the margin whereby the sanctioned payment was beaten can hardly be categorised as negligible in the present case.

20.  Mr Jim argued that the margin of slightly less than HK$10,000 would not have been worth the fight for Tsang, had he taken into account his irrevocable costs after taxation.

21.  In my view, if this argument is accepted, the defendant could somehow legitimately factor in such discount in coming up with a sanctioned payment; and yet could expect the protection of O.22, r.23.  Once such discount factor gets in the way, the simplicity of reference to the event of whether the amount recovered beats the amount of the sanctioned payment under O.22 would go.

22.  Mr Jim also argued that the very fact that the sanctioned payment was beaten by a narrow margin is merely one but not the sole governing criterion.  Again, he borrowed assistance from Lau Chi Keung.  The learned deputy judge there apparently agreed with the court in Carver v BAA plc [2008] 3 All ER 911, which was a post-CPR case in England, where the court decided to look at the matter in the round and to decide whether it was unjust to order the defendant to pay the plaintiff’s costs, though the sanctioned payment is beaten.  The learned deputy judge held that the circumstances of Lau Chi Keung gave rise to special circumstances justifying departure from the usual rule that a successful claimant is entitled to all his costs from the losing party.

23.  Whether the approach in Lau Chi Keung should be adopted, it was the finding of special circumstances in that case that caused the learned deputy judge to depart from the usual rule as to costs, notwithstanding that the sanctioned payment was beaten by the award.  Are there special circumstances in the present case?

24.  The Respondents placed heavy emphasis on their without prejudice offers made since the 2^nd sanctioned payment.  They argued that it was unreasonable for Tsang to reject those offers, which would have exceeded the amount he turned out to recover after trial.

25.  Mr Au-yeung put it bluntly that without prejudice offer has no place in the consideration, where the defendant could and should have made payment into court for the purposes of O.22 and O.62, r.5(1)(d).  What Mr Au-yeung submitted is in line with the authoritative statement of the principle by the Court of Final Appeal in Ming An Insurance Co (HK) Ltd v Ritz-Carlton Ltd (No.3) (2009) 12 HKCFAR 745 at 750F-752F.

26.  Ming An was decided prior to the CJR.  At that time, O.62, r.5(1)(d) provides that in exercising the discretion as to costs, the court shall take into account any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings; but the court shall not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a payment into court under Order  22.

27.  Mr Jim emphasized the change of wordings of O.62, r.5(1)(d) brought about by the CJR.  The court now “may not”, instead of “shall not”, take into account without prejudice offer, if at the time it is made, the party making it could have made a sanctioned payment under O.22.  Mr Jim suggested that what used to be mandatory prohibition has been relaxed.  Whether without prejudice offer would be taken into account is now a matter of discretion of the court.

28.  In support, Mr Jim referred to the post-CPR English cases of Codent Limited v Lyson Limited [2005] EWCA Civ 1835 (8 December 2005) and The Trustee of Stokes Pension Fund v Western Power Distribution [2005] EWCA Civ 854 (11 July 2005).  The English court is apparently prepared to equate the effect of without prejudice offer to Part 36 payment under the CPR, when considering the discretion as to costs.

29.  Mr Au-yeung acknowledged the change in wordings of O.62, r.5(1)(d) after the CJR.  Nevertheless he submitted that what the final court stated in Ming An remains valid, and the court should refrain from departing from that.  He gave 2 main reasons.

30.  First, a new rule, r.3(2), was specifically introduced to O.22 as a result of the CJR which provides that:

“where an offer by a defendant involves a payment of money to the plaintiff, the offer must be made by way of a sanctioned payment.”

31.  The introduction of new rule leaves no room for any doubt about the exclusive manner in which an offer to pay money must be made by the defendant to the plaintiff.  The offer must be made by way of a sanctioned payment under O.22.

32.  The new rule is also unique in the local jurisdiction.  Whilst provision equivalent to O.22, r.3(1) exists in the CPR in the UK (i.e., r.36.3(1)), there is no equivalent provision of the new local O.22, r.3(2) in the CPR.  On this basis, Mr Au-yeung urged for caution before the court here considers applying the relatively lax attitude of the English court towards equating the effect of written offer to Part 36 payment in exercising the discretion as to costs as demonstrated in Codent Limited and The Trustees of Stokes Pension Fund.

33.  Second, accepting what was submitted on behalf of the Respondents would effectively open a backdoor to the defendant, who would be able to take advantage of the sanctioned payment provisions without having to act in accordance with them.  This is particularly unjust in the present case, in terms of the very limited time open to Tsang to accept the various without prejudice offers, as opposed to the statutory period of 28 days for accepting a sanctioned payment without leave of the court.

34.  In this regard, whilst accepting that a written offer should usually be treated as having the same effect as a Part 36 payment, the court in The Trustees of Stokes Pension Fund still expected the written offer to be made on terms that it would be open for acceptance for at least 21 days (i.e., as long as the period within which a Part 36 payment may be accepted without permission of the court).

35.  In my view, Mr Au-yeung’s arguments are valid.  I agree with him.

36.  Mr Jim also referred to what the final court said in Ming An about the exception of open offer. Open offer, which could be made known to the court, is tantamount to concession by the defendant.  That open offer could be taken into account should not be surprising.  Yet, the offers made by the Respondents were not open offers.  The exception is irrelevant for the present purpose.

37.  The Respondents also criticise Tsang for failing to provide quantification of his claim or evidential support. I would have understood, had the Respondents sought to explain their inability or difficulty in coming up with a sanctioned payment sufficient to meet the likely award: see Ford v GKR Construction Ltd [2000] 1 WLR 1397 at1403D-G cited by Mr Jim.  But the fact was that the Respondents managed to and did offer to pay an amount after the 2^nd sanctioned payment that would have exceeded the award.

38.  Had the Respondents made that offer by way of further sanctioned payment, as O.22, r.3(2) requires, the situation would have been completely different.  In that event, this court would have had to consider whether it would be unjust in all the circumstances of the case pursuant to O.22, r.23(5) and (6) to make an adverse costs order against Tsang.

39.  Within the current legal framework, the event in the present proceedings was that Tsang managed to recover more than what the Respondents had properly offered to pay.  Unless there are other circumstances, including what is discussed below, justifying the departure from the general rule, costs of these proceedings should still follow such event.

Conduct of the claim

40.  The general rule that costs should follow the event does not cease to apply simply because the successful party raises issues or makes allegations on which he fails.  But where that has caused a significant increase in the length or costs of the proceedings, he may be deprived of the whole or part of his costs: see Wang Din Shin v Nina Kung, CACV 460/2002; CACV 67/2003 (19 April 2005) at para.39.  Instances of such conduct are also set out in O.62, r.5(2) for the purpose of r.1(e) (above).

41.  A major contention on behalf of the Respondents is that Tsang had raised and pursued unnecessary and improper issues during the trial that had significantly prolonged the trial and increased the legal costs.  Those issues included:

(1)  whether Tsang could resume his pre-accident job;

(2)  whether the court should exercise discretion to extend Tsang’s entitlement to periodical payments in excess of 24 months;

(3)  whether the Hong Kong Paper Mill formula should be adopted in assessing Tsang’s loss of earning capacity; and

(4)  in respect of the above issues, whether Tsang has exaggerated his case.

42.  In Active Base Limited v Roderick Hohn Sutton and Desmond Chung Seng Chiong, Joint and Several Liquidators of Moulin Global Eyecare Holdings Limited, in Liquidation, HCCW 470/2005 (17 October 2008), Kwan J (as she then was) explained (at paras.10-11) what an “issue” is for this purpose:

(1)  Where the party who has been successful overall has failed on one or more issues, particularly where such issues have occupied a significant amount of hearing time or led to the incurring of significant expense, the court may in its discretion order a reduction in the award of the costs to him.

(2)  An issue for this purpose must be something so distinct or separate in itself that the decision of it constitutes an “event”.  It is not the case that lack of success in any specific argument of itself attracts a costs sanction.  It is only if it is possible to isolate an issue in the case in that it can properly be said it is unnecessarily pursued as having no bearing on the real questions in the suit that it would be proper to deprive the successful party of all costs of that issue, otherwise a more general assessment should be made.

(3)  Unless discrete points can safely be isolated and can be shown to have led to wastage of time and costs, the practice of the court is not to engage in any “filleting” of cases according to the success or failure of the disparate issues which, when taken cumulatively, constitute the dispute to be judged.

43.  Kwan J concluded that the courts here have not adopted the approach of more readily departing from the principle that costs should follow the event and making separate costs orders to reflect the outcome of different issues.

44.  In the present case, no assessment has been made by the Medical Assessment Board (“MAB”) in respect of Tsang’s loss of earning capacity.  This court had to make its own finding of such loss in order to assess the section 9 compensation.  At the end of the day, I found the percentage loss of earning capacity which was neither party’s suggested percentage.

45.  For the purpose of determining the section 10 compensation, this court had to find the period of temporary incapacity.  Tsang applied for extension of his entitlement to periodical payments beyond 24 months from the date of the accident pursuant to section 10(5).  However, the Respondents argued that the appropriate sick leave should be about 17 months or at most the statutory basic maximum of 24 months. At the end of the day, whilst I rejected Tsang’s application for extension of his entitlement, I did not accept the Respondents’ primary case in respect of the sick leave period.

46.  In accordance with the principles discussed above, the alleged incapacity to resume pre-accident job, the applicability of the special formula and the application under section 10(5) by Tsang cannot said to be separate and distinct from the dispute in respect of his temporary and permanent incapacity.  The fact that this court found against him on those questions does not mean that they were improperly or unnecessarily raised or pursued issues for the present purpose of considering costs.

47.  I am not convinced that the evidence that was relevant and necessary for determining the dispute in respect of Tsang’s capacity to work would have materially differed from what was adduced.  Nor do I find that the length and thus the costs of these proceedings have significantly increased as a result of Tsang’s contentions.

48.  Mr Jim submitted that there was a strong likelihood that, but for exaggeration, the claim would have been settled at an early stage and with modest costs.  He also criticised Tsang for refusing to negotiate.  In support, Mr Jim referred to the English case of Yvonne Hazel Painting v University of Oxford [2005] EWCA Civ 161 (3 February 2005).

49.  It should be noted that the 10 features of the present case that Mr Jim highlighted in his submission seem to have followed closely those highlighted by counsel in Yvonne Hazel Painting.  But in that case, the central issue was overwhelmingly that of exaggeration.  Even the claimant’s counsel accepted (see para.26) that his client had been deliberately misleading in the course of the claim.  The fact that the exaggeration was found to be both intentional and fraudulent affected the court’s assessment of the costs in a very important way.  I do not think the exaggeration by Tsang reached that degree of fraudulent conduct.

50.  I am not satisfied that any material part of the proceedings and thus costs has been wasted, which could have been saved but for any issue raised improperly or unnecessarily by Tsang.

Order

51.  The costs order made on 25 November 2010 is made absolute.  The Respondents’ application is dismissed. Following such event, Tsang shall have the costs of and occasioned by this application.  Costs shall be taxed, if not agreed, with certificate for counsel; and Tsang’s own costs shall be taxed in accordance with the legal aid regulations.  I still give leave to the parties to submit further* on the costs of and occasioned by this application within 14 days; or the costs order shall become absolute.

*limited to not more than 2 pages in length