KWOK CHIN WING v. 21 HOLDINGS LTD AND ANOTHER

HCA 2332/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2332 OF 2004

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DECISION ON COSTS

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1.  In a reserved decision handed down on 2 March 2011, I gave judgment for Mr Kwok against Rockapetta for the sum of $44.5 million together with interest to be agreed, and made an order nisi that Rockapetta must pay Mr Kwok’s costs in the action on a party and party basis.  The parties have been unable to agree upon the issue of interest.  Leave was reserved in that respect.

2.  Now, Mr Kwok seeks to vary the order nisi so that Rockapetta be obliged to pay Mr Kwok his costs of the action:

(a) Until 25 January 2010, on a party and party basis, to be taxed if not agreed; and

(b) From 26 January 2010 onwards until the date of payment, on an indemnity basis to be taxed if not agreed; and

(c) The Rockapetta shall pay interest on Mr Kwok’s costs from 26 January 2010 until the date of payment at a rate of 10% above judgment rate.

3.  Rockapetta, for its part counters, seeking a variation of the costs order nisi in the following terms:

(a) Rockapetta shall pay half of Mr Kwok’s costs of the action, and Mr Kwok shall pay half of Rockapetta’s costs of the action, all costs to be taxed on a party and party basis if not agreed.

4.  As to interest, Mr Kwok seeks interest on the sum of $44.5 million:

(a) at prime lending rate from 1 January 2001, to the date of judgment, in the sum of $26,691,953.42 and thereafter at judgment rate; and

(b) at the rate of 10% above judgment rate for the period after 26 January 2010 until the date of payment.

5.  The rationale for the costs orders sought by Mr Kwok is the making of a sanctioned offer.  The rationale for the costs orders sought by Rockapetta is the contention that Mr Kwok advanced his case on three bases, but succeeded on one only, and that having regard to the underlying objectives of CJR such an order is justified.

6.  Mr Li argued that there had not been a sanctioned offer, but instead a conventional Calderbank offer.  The submission was based upon an assertion that because the letter relied upon as containing the sanctioned offer was marked “Without Prejudice Save As to Costs”, it could not constitute a sanctioned offer.

7.  It is clear that a letter so marked will constitute a Calderbank offer.  Such a letter may be referred to on the issue of costs if the offer is not accepted: see The Law and Practice of Compromise, Foskett, 7th Edn, T 18-05. 

8.  But there is an altogether separate reason why the letter does not constitute a sanctioned offer.  The manner in which a sanctioned offer may be made is set out in O 22 rr 3-6 RHC.  Rule 5(7) is particularly relevant:

“5. Form and content of sanctioned offer

(7) A sanctioned offer made not less than 28 days before the commencement of trial must provide that after the expiry of 28 days from the date the sanctioned offer is made, the offeree may only accept it if-

(a) the parties agree on the liability of costs; or

(b) the Court grants leave to accept it.”

9.  By a letter dated 29 December 2009, the solicitors for Mr Kwok wrote to the solicitors for Rockapetta in the following terms:

“With a view to explaining settlement of this action without the need for trial, we set out below our client’s sanctioned offer pursuant to Order 22 rule 5 of the Rules of the High Court.

(Explanation of the solicitors view of the strength of their client’s case omitted)

In keeping with the spirit of Order 1A of the Rules of the High Court, our client is prepared to accept following in full and final settlement of his claim:-

1. HK$41.5 million (instead of HK$44.5 million under paragraph 16 of the RRRASOC);

2. Interest up to 31 December 2000 of, say, HK$6.5 million (under paragraph 16 of the RRRASOC);

3. Interest from 1 January 2001 to date of HK$24 million; and

4. Costs to be taxed, if not agreed.

The total of the sanctioned offer is HK$72 million plus costs to be taxed, if not agreed.  This sanctioned offer approximates to a HK$3 million discount of our client’s claim in full.

We trust you will advise your client of their potential exposure to enhanced interest should they refuse to accept this sanctioned offer.”

10.  On 29 December 2009, the matter had not yet been set down for trial.  It was not until 17 February 2010, that the trial was listed to commence on 3 January 2011.  The offer was accordingly made not less than 28 days before the commencement of trial.  The offer, although expressed as a sanctioned offer, did not comply with the provisions of O 22 r 5(7), because it failed to set out to Rockapetta the required circumstances enabling acceptance of the offer after the expiry of 28 days; see O 22 r 5(7).  I accept that there was a provision as to costs in the offer but the terms of O 22 r 5(7) are specific and must be precisely set out in the letter if it is intended that the offer should be a sanctioned offer.

11.  Unless the sanctioned offer is in the prescribed form it will not constitute a sanctioned offer.  The consequence of the offer not constituting a sanctioned offer is that a plaintiff who has made the offer, if successful, cannot rely upon the provisions of O 22 r 24 as to costs and other consequences where he does better than his offer.  The principal provision that the plaintiff will not be able to rely upon is that in relation to enhanced interest.

12.  However, the letter does meet all the requirements of a Calderbank offer and in that respect may be taken into account on costs if Mr Kwok has succeeded in obtaining a judgment which exceeds the amount of the offer.

13.  In order to determine whether or not Mr Kwok has done better then the offer made it is necessary to consider the question of interest, because the offer was made on a global basis of both principal and interest.

14.  The agreement between the parties was that the advances made by Mr Kwok to Rockapetta were to bear interest at prime lending rate in Hong Kong dollars as quoted by Hongkong and Shanghai Banking Corp Ltd from 1 April 1999.  There is nothing in these proceedings to suggest that, Mr Kwok having succeeded in obtaining judgment for the principal sums, he should not have interest at the agreed rate.  There is no dispute between the parties that upon that formula a sum of $6,498,000 is due to 31 December 2000, and the sum of $26,691,953.42 from 1 January 2001 to the date of judgment. I am satisfied but Mr Kwok is entitled to those sums by way of interest, and I so award.  Thereafter the judgment sum will bear interest at judgment rate.

15.  The total amount of the judgment obtained by Mr Kwok is accordingly $77,689,953, a sum which exceeds the Calderbank offer of $72 million.

16.  The Calderbank offer having been exceeded, the starting point in respect of costs is that Mr Kwok would be entitled to his costs on a party and party basis on the action. 

17.  Mr Ramanathan seeks to justify a higher level of costs than mere party and party costs by relying upon the following matters:

(i) Mr Kwok has had to wait 11 years before securing judgment;

(ii) Rockapetta has steadfastly refused to acknowledge its liability to Mr Kwok and has enjoyed the benefit of the funds advanced;

(iii) Rockapetta relied upon Mr Chan as its witness, he being found by the court to be a person who had an “utter lack of personal or commercial morality” and who was “not a person who was capable of belief”;

(iv) Rockapetta, whilst under the control of Mr Chan, participated in a series of exercises of asset stripping of the subsidiary company in order to defeat Mr Kwok’s attempt to recover his advances from that company.

18.  Mr Li responds to these arguments by reminding me that the delay in bringing the matter to trial lay with Mr Kwok who had control of the litigation, but he was obliged to acknowledge the other arguments made.  His primary argument was to correctly draw my attention to the fact that the court identified three principal issues in Mr Kwok’s claim and to remind me that Mr Kwok succeeded on the first only, and failed on the remaining two issues, those two issues occupying the bulk of the trial preparation and the trial days.  It is right, as he said, that Mr Kwok failed in those two issues on his own case.

19.  Mr Li invites me to adopt the following passage from my judgement in Chan & Ors v Secretary for Justice & Ors, (unreported HCAL 16/2007, 9 December 2010), as setting out the principles to be applied in respect of costs following CJR:

“The principles to be applied

3. Mr Grossman, for the Respondents, acknowledges that costs are in the discretion of the court and argues, relying upon the well-known passage from Re Elgindata Ltd (No. 2) [1992] 1 WLR 1207 at 1214A-C, per Nourse LJ, that there is a general rule arising from a matter of accepted practice and case law that costs should follow the event, even if the successful party has raised issues or made allegations on which he fails, (i.e., principle (iii) referred to by Nourse LJ).

4. Mr Grossman then reminds me that those principles have been adopted by the Hong Kong Court of Appeal in La Chemise Lacoste SA v Crocodile Garments Ltd [2000] 4 HKC 317.  Finally, he acknowledges that the following civil justice reform, the terms of O 62 R 3(2A), are now in permissive rather than mandatory terms, enabling the court in the exercise of its discretion to order costs to follow the event or make such an order as it sees fit.

5. However, I accept Mr McCoy’s submission that the proper approach to costs, having regard to the changes brought about by civil justice reform, is that the proposition that costs follow the event is not a general rule, but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case.  When regard is had to the provisions of O 62 R 5(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;

(e) the conduct of all parties;

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

it becomes abundantly apparent that the dictum of Lord Lloyd of Berwick in Bolton MBC v Enc Sec (Practice Note) [1995] 1 WLR 1176 at 1178 more properly reflects the approach to costs:

“As in all questions to do with costs, the fundamental rule is that there are no rules.  Costs are always in the discretion of the court, and a practice, however, widespread and long standing, must never be allowed to harden into a rule.”

6. The proper context in which Nourse LJ’s statement in Elgindata, should now be viewed, and the effect of the changes consequent upon civil justice reform, is demonstrated by the following passages from the decision of Lord Woolf MR in AEI Ltd v Photographic Performance Ltd [1999] 1 WLR 1507:

“I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs.  From 26 April 1999 the ‘follow the event principle’ will still play a significant role, but it will be a starting point from which a court can readily depart.  This is also the position prior to the new Rules coming into force.  The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues.  In doing this the new Rules are reflecting a change of practice which has already started.  It is now clear that too robust and application of the ‘follow the event principle’ encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take.  If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your efforts to do so.” (1522H-1523B)

The ‘well-established practice’ on which Nourse LJ based his third principle is, as I have already indicated, less generally followed than has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which it has failed.” (1523H)

7. Relying upon that decision, and two other decisions, Stoczina Gdanska SA v Latvian Shipping Co, Times Law Reports, 25 May 2001, and Summit Property Ltd v Pitmans [2001] EWCA Civ 2020 at §§ 16-17, Mr McCoy formulates the following propositions:

(1) It is no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party on a particular issue on which he (the first party) has failed;

(2) The Court may make different orders for costs in relation to discrete issues - and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in that event, may make an order for costs against the party who has been generally successful in the litigation; and

(3) It may be appropriate, in a suitably exceptional case, to make an order which not only deprives the successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party’s costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably; and

(4) The above propositions give effect to the particular purpose of encouraging litigants to be selective as to the points they took, thus decreasing the costs of litigation.

I am satisfied that the authorities, and the new Rules justify those propositions, which I apply.”

20.  In my view the principal factors to be balanced on the question of costs in these proceedings are, on the one hand, those set out in paragraph 16 above, and, on the other hand, those set out in paragraph 17.  In the present case an application of the principles as to costs set out in paragraph 19, does not, in my view, demand simply either an enhanced award of costs to Mr Kwok, or a greatly reduced award, on an issue-based basis, including an award of costs to Rockapetta.

21.  Weighing the various factors, including the fact of the Calderbank offer, and particularly the factors set out in paragraph 16(ii), (iii) and (iv), I am satisfied that justice would be done in the present case by making the order nisi absolute.

22.  Mr Kwok has failed to increase the order for costs nor has he achieved enhanced interest.  However Rockapetta has failed in its request for
costs in its favour.  There will accordingly be no order for costs on the argument on11 April 2011.