NG POK LEUNG v. NG POK MAN AND ANOTHER

DCCJ 3883/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3883 OF 2012

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DECISION

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Application

1.  This is an application for variation of costs order nisi.

2.  On 12 May 2015, I gave judgment after trial. I ordered that:-

(a) judgment be entered for the plaintiff’s claim in the sum of HK$300,000 (“Judgment Sum”) together with interest at judgment rate from the date of service of the writ until payment;

(b) judgment be entered for part of the 1^st defendant’s counterclaim in the sum of HK$175,000 together with interest at judgment rate from the date of service of the amended defence and counterclaim until payment;

(c) the 2^nd defendant’s counterclaim be dismissed.

(“Judgment”)

3.  I also made an order nisi (“Order Nisi”) that the defendants do pay the plaintiff costs of the whole action, including all costs reserved, to be taxed if not agreed, with certificate for counsel.

4.  By Summons dated 20 May 2015 (“Summons”), the plaintiff seeks to vary the Order Nisi on the strength of Order 22 rule 24 Rules of the District Court (“RDC”). He contends that as he does better than the sanctioned offer he made to the defendants pursuant to Order 22 RDC on 3 June 2013 (“Offer”), this court shall make an order imposing indemnity costs, enhanced interest on the indemnity costs and the Judgment Sum (“Specified Consequences”) against the defendants under Order 22 rule 24 RDC.

The 1^st defendant’s setoff and counterclaim

5.  In essence, the terms of the Offer provide:-

(a) the plaintiff accepts HK$300,000 as full and final settlement of the plaintiff’s whole claim in this action;

(b) the Offer has taken into account of any counterclaim or set off in this action; and

(c) the plaintiff waives all claims for interest and costs.

6.  The Offer lapsed without being accepted on 1 July 2013 (last date of acceptance without leave of court), nor did the defendants ever respond to the Offer thereafter.

7.  The defendants do not dispute that the Offer satisfies the form and content of sanctioned offer within the meaning of Order 22 rule 5 RDC. They however argue that as the 1^st defendant’s setoff and counterclaim has set off part of the plaintiff’s claim resulting in the net amount recoverable by the plaintiff is HK$125,000 (HK$300,000 - 175,000) plus interest and costs, which is less than HK$300,000 as proposed in the Offer, the criteria for the application of Order 22 rule 24, namely, the defendants are held liable for more than the offer or that the judgment against the defendants is more advantageous to the plaintiff than the offer, has not been satisfied.

8.  I am not convinced. I do not regard the 1^st defendant’s setoff or counterclaim should be taken into account when assessing whether the plaintiff has bettered the Offer.

9.  The development history of the present proceedings is relevant to the present application. I nevertheless shall not repeat it in details which are covered in the judgment. Suffice it for the present purpose, the plaintiff’s claim against the defendants was for the return of HK$300,000 which was wrongfully drawn from the plaintiff’s bank account by the 1^st defendant and given to the 2^nd defendant. The writ was issued on 6 November 2012.

10.  On 18 December 2012, the defendants filed the defence of the 1^st and 2^nd defendants and the counterclaim of the 2^nd defendant (“Original Defence”). The gist of the defence is that the arrangement was made under the plaintiff’s authorization to give a gift as well as to repay a loan to the 2^nd defendant. The 2^nd defendant’s counterclaim was for repayment of another loan allegedly to have been owed by the plaintiff to her.

11.  On 9 January 2013, the plaintiff filed his reply to the defence and defence to the 2^nd defendant’s counterclaim, followed by the exchange of lists of documents between the parties.

12.  On 3 June 2013, the Offer was sent to the defendants by letter.

13.  By letter dated 11 June 2013, the 1^st defendant demanded the plaintiff to distribute to him HK$233,333.33, allegedly to be his share of the dividends of a sum of HK$700,000 (“Dividend”) distributed by the family business to its three equal shareholders including him (HK$700,000/3), which was held by the plaintiff as trustee for him (“1st Defendant’s Claim”). It said that legal proceedings would be commenced if no payment was received within 7 days.

14.  By letter dated 12 July 2013, the plaintiff acceded to the request but reduced the share of the 1^st defendant to one-fourth of the Dividends on the ground that there were four beneficial owners of the family business. He promised to give credit to the sum upon resolving the dispute on his main claim. He urged that there was no need for any intended legal action by the 1^st defendant.

15.  On 26 July 2013, the 1st Defendant’s Claim was added to these proceedings by amendment of the Original Defence, hence, the Amended Defence of the 1^st and 2^nd Defendants and the Counterclaim of the 1^st and 2^nd Defendants (“New Defence”). The 1^st Defendant’s Claim was raised both by way of set-off and counterclaim.

16.  In the Amended Reply to the Amended Defence and Defence to the Counterclaim of the 1^st and 2^nd Defendants dated 27 July 2013, the plaintiff specifically pleaded to the effect that the 1^st defendant had not asked for distribution of the Dividends other than by letter dated 11 June 2013. Such contention has not been challenged or undermined by the defendants.

17.  At trial, the plaintiff admitted the 1^st Defendant’s Claim but limited to the extent that the 1^st defendant, being one of the four equal shareholders of the family business, was entitled to HK$175,000 only (HK$700,000/4). As a result, the 1^st Defendant’s Claim boiled down to one single issue of whether the family business was beneficially owned by three or four equal shareholders (“Shareholder Argument”).

18.  After trial, I accepted the plaintiff's case in its entirety including his proposition of having 4 shareholders of the family business. The defendants were found to be dishonest witnesses whose allegations carried no merits but lies. Given that the 1^st Defendant’s Claim was only emerged after 11 June 2013 and was added to the present proceedings by the filing of the New Defence, I ordered that interest on HK$175,000 be run from the date of service of the New Defence until payment.

Analysis

19.  Order 22 rule 2 RDC provides that:-

“(1) A party to an action containing a money claim or a non-money claim or both arising from any cause or causes of action may make an offer to settle the whole claim, a part of it or any issue arising from it in accordance with this Order.

(2) An offer made under paragraph (1) may take into account any counterclaim or set-off in the action.

(3) An offer made under paragraph (1) has the consequences specified in rules 20, 21, 22, 23 and 24 (as may be applicable).

……”

20.  Order 22 Rule 5 RDC provides that:-

“(3) A sanctioned offer must –

(a) state whether it relates to the whole claim or to part of it or to an issue arising from it and if so to which part or issue;

(b) state whether it takes into account any counterclaim or set off; and

…….”

[emphasis added]

21.  Plainly a party is free to make an offer to settle in any way he chooses under Order 22. The offeror is however required to state clearly whether the offer takes any counterclaim or set off into account. I take note that Order 22 is a self-contained statutory procedure which is complete in its own right and wholly procedural in nature. The provisions should be strictly construed.

22.  In my view, on a proper reading of Order 22 RDC, the construction of a sanctioned offer shall be judged at the time the Offer was made and the terms of it must be strictly interpreted accordingly. A sanctioned offer suggesting to have taken into account of any setoff and counterclaim in the action must have referred to the setoff and counterclaim as they stood at the time the sanctioned offer was made, but not those subsequently added to the action, unless specifically provided for. To suggest otherwise would have defeated the purpose of Order 22 rule 2(2) and 5(3).

23.  The rationale is well-elaborated in the case of Tingay v Harris [1967] 2 WLR 577. It is held that where the defendant makes a payment into court in satisfaction of the plaintiff’s claim which then comprises only one cause of action, and thereafter the plaintiff by amendment adds a further cause of action, the payment in stands as a payment in respect of the original cause of action, and not in respect of those added by amendment, because the amendment does not affect the nature or character of the payment into court nor the notice given to the plaintiff. See explanatory note 22/1/14 of the Hong Kong Civil Procedure 2016 Volume 1.

24.  Absent any specific offer to taking into account any potential, contemplated or subsequent addition of setoff or counterclaim, I see no room for arguing that a sanctioned offer covers all the setoff and counterclaim that are added into the proceedings subsequently. Otherwise, the protection under Order 22 which is generated from the offeror’s genuine attempt to settle the disputes, will be easily frustrated by any subsequent setoff and/ or counterclaim, not to mention that the plaintiff or even the defendant may not have been aware of the existence of such set off or counterclaim when the sanctioned offer is made. That will discourage any genuine attempt to settle at the earliest stage. An express term for taking into account of a potential, contemplated or intended addition of setoff or counterclaim can be found in the case of AF v BG [2009] EWCA Civ 757.

25.  In the present case, the Offer states for its face that the offer was made in respect of the whole of the plaintiff’s claim and took into account of any setoff or counterclaim. It does not include any reference to any potential, contemplated or subsequent setoff or counterclaim. In my view, the Offer must refer to the plaintiff's claim taking into account of the setoff and counterclaim as it stood by the time the Offer was made, that is, the Original Defence. It should not have covered any setoff or counterclaim that has yet been brought into the proceedings, let alone yet come into existence.

26.  By the time the Offer was made, the 1st Defendant’s Claim did not exist. The 1^st defendant’s right to claim for it accrued long after the commencement of the present action. The demand letter was sent to the plaintiff and the New Defence was added to the present proceedings after the issue and expiration (last date of acceptance without leave of court) of the Offer.

27.  It is noteworthy that different from the position in England, Order 22 rule 5(6) RDC provides that a sanctioned offer may not be made at any time before the commencement of the proceedings. It follows that the 1^st Defendant’s Claim could not have been taken into account in the Offer.

28.  Looking at matters in the round, I take the view that the Offer must be judged by reference to the setoff and counterclaim as originally pleaded in the Original Defence and not as so amended by the addition of the set off and counterclaim in the New Defence. The Offer was to settle exclusively the plaintiff’s claim taking into account the 2^nd defendant’s set off and counterclaim but not the 1^st Defendant’s Claim.

29.  Further, as the sum setoff in respect of the 1^st Defendant’s Claim has yet accrued due at the commencement of the present proceedings but 7 days after the demand letter dated 11 June 2013, it could not be set off. Explanatory note 18/17/3 of the Hong Kong Civil Procedure 2016 Volume 1.

30.  For reasons above, even though I fully agree with the propositions of law as contended for the defendants that generally a defence of set-off should be taken into account in considering the costs issues of the overall claim, they however lend no support to the defendants’ arguments in the peculiar circumstances in this application.

The plaintiff does better than the offer

31.  I am also not impressed by the defendants’ argument that the Offer was essentially the full claim of the plaintiff and in the absence of give-and-take, the genuineness of the offer to settle is in doubt.

32.  Such argument simply ignores the proposal of waiving costs and interests in the Offer. Suffice it to say that in the Judgment, I have found that other than the 1^st defendant’s entitlement to one-fourth of the Dividends, the entire defence of the defendants and the 2^nd defendant’s counterclaim carried no merits but lies. The Offer was made after the filing of the Original Defence and the reply and defence to counterclaim. Apparently the plaintiff reasonably believed that he had a strong case when the Offer was made. He nevertheless offered to immune the defendants from interest and costs liability. I have no hesitation in believing that the Offer was a genuine and realistic attempt to resolve the dispute at the earliest reasonable opportunity, a genuine effort to avoid the dishonest claim and allegations from the defendants.

33.  I should add that where a sanctioned offer contained term as to costs, such offer is still regarded as a valid sanctioned offer that attracts the Specified Consequences under Order 22 rule 24(4). See Central Management Ltd v Light Field Investment Ltd [2011] 2 HKLRD 34.

34.  On my ruling that the 1^st Defendant’s Claim should not be taken into account when judging whether the plaintiff has bettered the Offer, it is plain that the plaintiff has done better than the Offer. He was awarded interest and costs which he offered to waive in the Offer.

35.  I also accept the plaintiff’s contention that even taking into account of the 1^st Defendant’s Claim, looking at the net result, the plaintiff was awarded HK$125,000 net (after set off) plus interest (difference between interest on the main claim from the date of the writ and interest on the 1^st defendant’s counterclaim from the date of the New Defence) and costs. Clearly the Judgment is more advantageous to the plaintiff than the Offer.

36.  In reality, on the date of the Judgment, the plaintiff should receive the net sum of HK160,206.60 (HK$125,000 plus interest) and costs. The plaintiff gave evidence that the legal costs incurred up to 11 June 2013 and paid were HK$99,200. Such costs have yet included the costs incurred by amendments of pleadings, discovery, exchange of a number of witness statements and supplemental witness statements for 7 witnesses and a 5-day trial with counsel. I am persuaded by the plaintiff's contention that in all likelihood the combined effect of the net award plus interest and costs would take the amount recoverable by the plaintiff exceeding HK$300,000 as proposed in the Offer.

37.  By reason of matters set out above, I form the view that the requirement of Order 22 rule 24 (1)(a) and (b) are satisfied. The plaintiff can benefit from Order 22 rule 24.

Not unjust to impose the Specified Consequences

38.  The defendants did not refer to any specific matters to contend that it would be unjust to impose the Sanctioned Consequences. Having considered all the circumstances of this case, including the matters set out in Order 22 rule 24(5), I am satisfied that it is not unjust to impose the Specified Consequences.

39.  I bear in mind that the powers of the court under Order 22 rule 24 are to achieve a fairer result for the successful claimant and are not penal in nature. It is to redress the element of perceived unfairness, otherwise inherent in the legal process, which arises from the fact that damages, party and party costs and statutory interest will not compensate the successful claimant for the inconvenience, anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on terms which were less advantageous to him than the judgment which he achieved.

40.  In determining what terms should be imposed, I consider that the Offer was made shortly after the filing of the Original Defence. The defendants had ample time to consider its terms and to avoid incurring further costs on the proceedings. They however elected not to accept it but determined to drag the plaintiff into court to fight the case to its end. I see no reason why they shall not compensate the plaintiff for his inconvenience, anxiety and distress caused by these proceedings.

41.  As to the defendants’ criticism on the plaintiff’s failure to make payment into court or change the Offer to cope with 1^st Defendant’s Claim, I fail to see how the plaintiff’s inaction would constitute any adverse impact on his entitlement flowing from the Offer under Order 22 rule 24, bearing in mind that neither party was duty bound to make sanctioned payment or offer under Order 22 rule 24. It is fair to say that the defendants were equally at liberty to protect their positions by sanctioned offer or sanctioned payment. They in any event chose not to do.

42.  Had the Offer been accepted, the plaintiff’s whole claim and the 2^nd defendant’s counterclaim would have been stayed and the 1^st and 2^nd defendants would have been jointly and severally liable to pay the plaintiff a net sum of HK$300,000 only, without any liability to pay costs and interest. On the other hand, the 1^st defendant would still be free to commence and prosecute his claim against the plaintiff, needless to say he would only succeed on part of his claim and the Shareholder Argument would fail. In all, the whole proceedings would be limited to one single argument. The costs and time would no doubt be substantially saved.

43.  Having considered all the circumstances of this case, the amount involved is HK$300,000, and doing a balancing exercise not to provide a disproportionate benefit to the receiving party or impose a disproportionate burden on the paying party, I form the view that the Specified Consequences should be imposed on the defendants relating to the entire action except the 1^st Defendant’s Claim.

Interest rate

44.  I take the view that the defendants shall pay enhanced interest on the Judgment Sum at the rate of 4% above judgment rate from 2 July 2013 until payment.

Indemnity cost

45.  As to the basis of taxation of costs, I make an order that the plaintiff’s costs of the whole action except defending the 1^st Defendant’s Claim from 2 July 2013 onwards should be paid by the defendants on an indemnity basis.

Interest on indemnity costs

46.  In principle the plaintiff should have interest on costs to run from the date upon which the work was done or liability for disbursements was incurred. In this case, the plaintiff only provided evidence of his actual payment of costs up to 11 June 2013 but not thereafter. I follow the “simplified approach” as adopted in Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd[2010] 3 HKLRD 273 in that the court awarded interest at half of the rate the Court would have otherwise ordered on all the indemnity costs incurred after the last day on which the sanctioned offer could be accepted without leave of the court. That is to avoid the complicated process of having the successful claimant to prove his liability for costs and disbursements as well as his payment for them, particularly where the evidence in support is not forthcoming.

47.  I would, however, slightly inflat the rate to reflect the substantial period involved from the Offer to the date of this decision on costs and interest when the judgment is finalized, that is more than 28 months. I therefore allow interest on the plaintiff’s indemnity costs incurred after 2 July 2013 at 1% above the judgment rate, and such interest shall run from 2 July 2013 until payment.

Other grounds

48.  Even if I were wrong in holding that the plaintiff is entitled to be benefited from Order 22 rule 24 RDC, I would not be slow to impose a costs order on indemnity basis against the defendants. Costs are at the discretion of the court. In exercising my discretion, I give regards to the matters referred to in Order 62 rule 5 RDC, amongst other things, the underlying objectives set out in Order 1A rule 1 RDC and the conduct of the parties. This court should therefore consider whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue, the manner in which those allegations or issues were raised, the parties’ conduct before and during the proceedings.

49.  In the Judgment, I have elaborated the untruthfulness of the evidence of the defendants. Other than the 1^st defendant’s entitlement to one-fourth of the Dividends, the entire defence and counterclaims were unmeritorious and found on lies. As to the 1^st Defendant’s Claim, the single issue for determination was the Shareholder Argument, to that the defendants lost completely. The whole proceedings could have considerably shortened, if not disposed of, but for the false allegations of the defendants.

50.  The defendants’ conduct has unnecessarily and unreasonably lengthened the proceedings, thereby escalating costs. I am convinced that the approach of Maysun Enguneering Company Limited v International Education and Acadmic Exchanges Foundation Company Limited trading as Hong Kong Institute of Technology DCCJ 27 of 2006 dated 18 March 2011 HH Judge Mimmie Chan (as she then was) should be adopted in this case. In view of the underlying objectives of the Civil Justice Reform, with its emphasis on reasonable proportionality, cost-effectiveness, expeditious dealing with cases and facilitation of settlement, I take the view that this is an appropriate case for the court to mark its disapproval of the litigation conduct of the defendants by awarding the plaintiff the costs of the entire action except the 1^st Defendant’s Claim, for the period as sought by the Summons, from 2 July 2013 on an indemnity basis.

51.  Having considered all the submissions of both parties, the legal authorities and evidence, I allow the plaintiff’s application.

52.  I vary the Order Nisi and make an order that:-

(1) the 1^st and 2^nd defendants do pay the plaintiff costs of the whole action up to 1 July 2013 on a party and party basis;

(2) the 1^st defendant do pay the plaintiff costs in defending the 1^st defendant’s counterclaim on a party and party basis;

(3) the 1^st and 2^nd defendants do pay the plaintiff costs of the whole action except the costs of defending the 1^st defendant’s counterclaim from 2 July 2013 on an indemnity basis with enhanced interest on such indemnity costs at the rate of 1% above judgment rate from 2 July 2013 until full payment;

(4) all costs, including all costs reserved, to be taxed if not agreed, with certificate for counsel;

(5) interest on the Judgment Sum of HK$300,000 at judgment rate from 6 November 2012 to 1 July 2013 and at enhanced interest at the rate of 4% above judgment rate from 2 July 2013 until full payment.

53.  The Order Nisi as varied above is made absolute.

54.  I further make an order nisi that the 1^st and 2^nd defendants do pay the plaintiff the costs of and occasioned by the Summons, including the hearing on 11 September 2015, on indemnity basis, to be taxed if not agreed, with certificate for counsel, and carry interest at 1 % above judgment rate in the same manner as other costs incurred after 2 July 2013.

55.  The costs order nisi shall become absolute after 14 days from the date hereof unless any party applies by summons to vary.

56.  I thank both counsel for their assistance.