ARNOLD ROBERT LTD v. GLORIOUS MOTORS LTD

HCA 950/2014

[2019] HKCFI 91

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 950 OF 2014

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DECISION ON APPLICATION TO VARY
INTEREST RATE AND COSTS ORDER NISI

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1.  On 8 November 2018, I handed down a judgment[1] in this matter (“the Judgment”). In the Judgment, I hold that the defendant was in breach of the Agreement by refusing to proceed with the sale of the McLaren with the Ferrari used as the trade-in, and demanded the plaintiff either to pay for the full Quotation or cancel the transaction.[2]

2.  I make the following orders in favour of the plaintiff:

(1)   The defendant is to pay the plaintiff the sum of HK$696,000, together with interest on the said sum at the rate of 1% above the prime rate as quoted by Hongkong and Shanghai BankingCorporation Limited from time to time from 19 February 2014to the date of this Judgment, and at the judgment rate thereafter until payment.

(2)   There be an order nisi that costs of this action be to the plaintiff, to be paid by the defendant, to be taxed on the District Court scale if not agreed.[3]

3.  The sum of HK$696,000 is the liquidated damages provided for under the Agreement, being 20% of the price of the McLaren.[4]  Although various heads of loss and damage are claimed in the Statement of Claim, at trial the plaintiff confines its claim to that sum.[5]

4.  By letter dated 21 November 2018, the plaintiff applies to vary the orders I made.  Referring to and relying on an offer made to settle the action (“the Offer”), which was not accepted by the defendant, the plaintiff now asks for the following variations:

(1)   Interest on the judgment sum of HK$696,000 be enhanced as of 15 April 2015 to the judgment rate plus 4% until payment;

(2)   Costs of the plaintiff incurred from and including 15 April 2015 to be taxed on an indemnity basis;

(3)   Interest on costs be awarded at 4.5% from 15 April 2015, and at 9% from the date of Judgment until payment.

5.  The significance of the date of 15 April 2015 is that it is the last date on which the defendant could have accepted the Offer without leave under Order 22, rule 16 of the Rules of the High Court[6].

6.  The Offer, expressed to be a sanctioned offer under Order 22, was made by letter dated 17 March 2015 from the solicitors for the plaintiff, whereby the plaintiff offered to fully and finally settle the whole of its claim against the defendant arising from the subject matter of this action, upon the defendant paying to the plaintiff the sum of HK$692,000 inclusive of all interest.  The defendant’s attention was drawn to the consequences set out in rule 24.

7.  The defendant did not accept the Offer.

8.  Rule 24 provides as follows:

“ (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 defendantcould 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 ordersreferred 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.”

9.  The defendant does not dispute, although it does not admit, that the Offer made complies with the form and contents requirements of rule 5, or that the plaintiff has done better than it proposed in the Offer as required under rule 24(1).  In my judgment, the answer to both is plainly yes, and the consequences stated in rule 24 are engaged.  By reason of rule 24(4), I shall make the orders stated in rule 24(2) and (3) unless I consider it unjust to do so.

10.  The defendant submits that the list of factors listed in rule 24(5) is not meant to be exhaustive, and any factors that are relevant to the exercise of my discretion in relation to costs in the absence of a sanctioned offer continue to apply. 

11.  The defendant relies on the following:

(1)   The plaintiff chose the High Court as the forum and claimed a number of heads of damages in addition to the contractual damages, which it abandons only towards the end of its opening submissions at the trial.

(2)   Even though it eventually succeeds, it has lost on a number of issues. The example given is the various points taken by the plaintiff that clause 11.11 of the Agreement did not have contractual effect.  The plaintiff fails on those points but succeeds on clause 11.11 overall because of the manner in which I construe that provision.[7] The defendant refers to the well-known decision of Nourse LJ in In re Elgindata Ltd (No 2) [8].

12.  The rationale behind the sanctioned offer regime under Order 22 is to encourage settlement and to avoid unnecessary wastage of costs, and where a defendant ought (perhaps with the benefit of hindsight knowing the result of the trial) to have accepted an offer to settle which places him in a better position than after trial, so that costs incurred by both sides after the offer ought to have been accepted are in that sense wasted, with such wastage caused by the non-acceptance of the sanctioned offer, the consequences stated at rule 24(2) and (3) ought to be visited on the defendant unless it is unjust to do so.  In my judgment, while I agree that I should take into account all the circumstances of the case in considering whether it is unjust to make the orders stated at rule 24(2) and (3), such circumstances, to be relevant to that issue, having regard to the overall objectives of the sanctioned offer regime, ought to be where:

(1)   It relates to the reasonableness or otherwise of the defendant’s non-acceptance of the sanctioned offer; or

(2)   It suggests that, while 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.

13.  Do the points taken by the defendant come under these categories? In my judgment, they do not.

14.  The issue of the forum, and the fact that the judgment sum eventually awarded is within the jurisdiction of the District Court, does not make it reasonable for the defendant not to accept the Offer.  Had the defendant accepted the Offer, no doubt the question of the scale of costs can be addressed by the Court under rule 21. As to costs incurred thereafter, it is, in my judgment, adequately addressed by the award of costs only on the District Court scale.  

15.  As for the abandonment of the claims other than the contractual damages, again this does not suggest that the defendant was reasonable in not accepting the Offer.  It is the defendant’s own express alternative plea in its Defence (as originally filed and maintained through two amendments) that if it were liable the amount recoverable by the plaintiff is limited to HK$696,000.  The closeness of the sum stated in the Offer to the contractual damages must, or ought to, have suggested to the defendant that the plaintiff, by the Offer, was abandoning all claims save the contractual damages, making it all the more reasonable for the defendant to accept, rather than not to accept, the Offer. 

16.  Further, while I agree with the defendant that, with the Offer not accepted and the action proceeding, the actual abandonment of the other heads of claim is not (contrary to what the plaintiff now suggests) made clear until the end of the plaintiff’s opening submissions, the claims relate only to heads and quantum of damages, and not the question of liability.  I do not agree with the defendant’s argument that it had been, before the abandonment, defending against a claim which was markedly different. I further do not see how any significant costs would have been incurred by either the plaintiff or the defendant in relation to the abandoned points, given that, as the plaintiff correctly concedes, there has been a dearth of evidence from the plaintiff of such claims.

17.  Regarding the fact that the plaintiff fails on some of the issues, quite apart from the question of the interplay between the consequences set down in rule 24 where a plaintiff does better than the sanctioned offer which is not accepted, and principles (iii) and (iv) stated in Elgindata which if applicable will deprive the plaintiff his costs and may even require him to pay the costs, I do not think that those principles stated in Elgindata apply in this matter in any event.  The only points taken by the plaintiff in which it fails are those at §§72 – 83 of the Judgment which in my judgment can be said not to be discrete issues but part of the broader issue of whether the defendant could rely on clause 11.11 to cancel the transaction.  In any event I do not think that the plaintiff, by taking those points, has caused any significant increase in the length or costs of the proceedings or had been acting improperly or unreasonably.  It must be borne in mind that in any case where the losing party feels able to make a submission based on principles (iii) and/or (iv) of Elgindata, the other side must have lost on some points or issues, but, as Nourse LJ said in that case[9]:

“ The general rule [that costs should follow the event] does not cease to apply simply because the successful party raises issues or makes allegations which he fails ….”

18.  What was said by Bokhary PJ in Commissioner of Inland Revenue v HIT Finance Ltd (No 2) [10], must also be borne in mind:

“ There is a discretion in the court to deprive a successful party ofthe whole or part of his costs because he had caused a significantincrease in the length or costs of the proceedings by raising issues on which he did not succeed. That can be done even if it was not unreasonable to have raised those issues. Whether or not it should be done depends on all the circumstances. This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event. It isto be approached with due circumspection so as not to undermine the utility of that general rule. …” [Emphasis added]

19.  Applying due circumspection, I do not think that principles (iii) or (iv) of Elgindata apply.  It cannot therefore be a relevant reason to “disapply” rule 24(2) and (3).

20.  I accede to the plaintiff’s application.  The plaintiff does not ask for the maximum enhanced rates of interest allowed under rule 24‌(2) and (3) and no submissions are made by the defendant as to the reasonableness or otherwise of the enhancement sought.  I consider the rates asked for to be reasonable for the purpose of rule 24(2) and (3) given the maximum allowed.  I vary my orders stated at §118 of the Judgment in the following manners:

(1)   The rate of interest on the judgment sum of HK$696,000 to be paid by the defendant to the plaintiff be unchanged from 19 February 2014 to 14 April 2015, and as from 15 April 2015 to the date of payment be varied to 4% above the judgment rate (all dates inclusive).

(2)   Costs of this action be to the plaintiff, to be paid by the defendant, with costs incurred before 15 April 2015 to be taxed on a party to party basis on the District Court scale if not agreed, and with costs incurred on or after 15 April 2015 to be taxed on an indemnity basis on the District Court scale if not agreed.

(3)   There be interest on the costs incurred on or after 15 April 2015 payable by the defendant to the plaintiff, with interest on each item of costs payable as from the date of incurring to the date of payment at the rate of 4.5% from 15 April 2015 and of 9% from the date of judgment, until payment.

21.  I also order that the costs of this application be to the plaintiff to be paid by the defendant, and the orders at §20(2) and (3) above also apply to such costs.