BRIGHT GOLD LTD v. MEGA WELL DEVELOPMENT LTD

HCA 2194/2011

[2019] HKCFI 1907

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2194 OF 2011

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(by Original Action)

(By Counterclaim)

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DECISION ON COSTS

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1.  This is WKLL’s application to vary the costs order nisi made in the judgement of this court dated 9 January 2019 (“Judgment”). WKLL say that they are entitled to have their costs on an indemnity basis based on 2 Calderbank offers (“Offers”) dated respectively 4 August 2016 and 14 October 2016.

2.  The issues are relatively straightforward. Firstly, it has to be determined if the Exclusionary Rule under O 62, r 5(1)(d) applies such that the Offers are not to be taken into account in the exercise of discretion on costs by the court.  That turns upon whether the Offers could have been made by way of sanctioned offers pursuant to O 22.  Secondly, if the Exclusionary Rule does not apply, whether in the exercise of discretion it is appropriate for the court to award indemnity costs. 

First issue

3.  Pursuant to the 1^st Offer, Mega Well was invited to have its claim against WKLL dismissed with payment of 50% of the latter’s costs.  The letter which contained the Offer set out an analysis of the merits of Mega Well’s case.

4.  Under the 2^nd Offer, WKLL suggested that Mega Well’s claim be dismissed with no order as to costs. 

5.  Pursuant to the Judgment, Mega Well’s claim was dismissed with a costs order nisi that WKLL’s costs be paid by Mega Well with a certificate for 2 counsel.  It should be said that the merits analysis set out under the 1^st Offer was largely vindicated by the Judgment.

6.  I am of the view that neither of the Offers could have been made by way of a sanctioned offer under O 22 because each one of them contained a costs provision: see Wong Yim Man v Wong Ho Ming [2016] 3 HKLRD 249, §18; and Mitchell v James [2004] 1 WLR 158, §§33-34.

7.  Mr Kok, who appeared for Mega Well relied on Central Management Ltd v Light Field Investments Ltd, CA, [2011] 2 HKLRD 34, §32, Chen Tak Yee v Chan Moon Shing, unrep, HCA 954/2010 (11 June 2015) which followed Central Management and Union Glory Finance Inc v Merrill Lynch International Bank Ltd, unrep, HCA 2494/2013 (13 December 2016) to support the proposition that an offer which contained a costs provision could fell within the O 22 regime. 

8.  The first 2 authorities were dealt with in Wong Yim Man.  In particular, I agree with Deputy High Court Judge Yee that there was no ratio in Central Management which might bind this court (see §29).  As identified by the learned Deputy Judge, there was at least an obiter dicta from the CA in Leung Lai Kwan v Lo Kai Ming, unrep, HCMP 1554/2015 (20 August 2015), §7, to the effect that an offer with a costs provision did not fall within O 22. 

9.  As regards Union Glory, I agree with Mr Ho, who appeared for WKLL, that the authority does not assist because the offeror did not argue that they could not have made a sanctioned payment or offer. 

10.  Finally, Mr Kok, drawing supporting from Etratech Asia-Pacific Ltd v Leader Printed Circiut Boards Ltd [2013] 4 HKC 282, argued that WKLL could have made an offer with a clear indication that they would apply to the court to make a different costs order under the power reserved to the court pursuant to O 22, r 20(1) (“unless the Court otherwise orders”). 

11.  With respect, I agree with Mr Ho that such an offer would be rather different to those made by WKLL.  It is common ground that there is a high threshold for invoking the power in question.  In other words, there would be no assurance that WKLL would not be ended up paying Mega Well’s costs, contrary to their intention.  As submitted by Mr Ho, such an offer would be a different creature to the ones envisaged under the O 22 regime.  I am unable to see why it would be justified for the court to construe the rules in a creative manner so as to fit with Mega Well’s case. 

Second issue

12.  It follows that this court’s discretionary power to award indemnity costs can be triggered.  Such a costs order should not be regarded as a penalty but a means of achieving a fairer result for the payee: see Grant Williams v Jeffries Hong Kong Ltd, HCA 320/2011, unrep, 12 July 2013, §5 citing Petrograde Inc v Texaco Ltd [2002] 1 WLR 947, §§63-64; and TPB v Society for Protection of Harbour Ltd (No 2) (2004) 7 HKCFAR 114, §§16-17.

13.  It is reasonably well-established that the failure to beat a favourable settlement offer can attract an award of indemnity costs: see Sam Sien San v Sam Mo Yee [2019] HKCFI 1188, §24; and Euro Search (Hong Kong) Ltd v Snow Lake Capital (HK) Ltd [2018] HKCFI 2292, §10. 

14.  In this case, it would have been advisable for Mega Well to accept certainly the 2^nd Offer.  Given the merits analysis set out under the 1^st Offer, it was unreasonable for Mega Well to have failed to engage in any negotiation with WKLL to put an end to this part of its case (see Codent Ltd v Lyson Ltd [2007] 2 Costs LR 185, §§29-30; and LCC v LMWA [2019] 2 HKLRD 529, §§51-52).

15.  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 Calderbank offer, coupled with the subsequent failure to beat the offer, should weigh heavily against the offeree on costs.

16.  Last but not least, Mega Well’s case against WKLL was damaging to their professional reputation.  The costs order sought would provide a fairer result to them.

Disposition

17.  For these reasons, I accede to the application and make an order that WKLL’s costs of this action be paid by Mega Well to be taxed if not agreed, with a certificate for 2 counsel.  The taxation be on party and party basis save that the costs incurred after the 4 November 2016 be on indemnity basis. 

18.  WKLL should have the costs of this application. I make an order nisi accordingly.  As discussed during the hearing, the parties should endeavour to agree such costs.  Failing agreement, a succinct joint letter be written to the court identifying the items of disagreement and the respective position of the parties.  Failure to act reasonably may be visited with costs.  The matter may then be determined on paper if the court sees fit.