TAI YING FAT t/a FAT KEE ENGINEERING CO.v. MANY HARVEST CONSTRUCTION CO.LTD

HCCT 47/2009
(Formerly HCA 2213/2007)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 47 OF 2009

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DECISION ON COSTS

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1.  I propose first to deal with the claim by the Plaintiff against Many Harvest. That claim was brought under three bases. First, two claims were made under the provisions of the Chinese Settlement Agreement. The third claim was based upon two oral agreements allegedly made in 1995 and 1996. The action was commenced in 2007, 10 years after the work had been carried out, and in the year following an identical action commenced by Mr Tai against Sun Fook Kee Construction Ltd, (SFK), that action being based upon the Chinese Settlement Agreement.

2.  The defence filed by Many Harvest made it plain that Many Harvest relied upon the fact that exactly the same claims under the Chinese Settlement Agreement were made by Mr Tai in a separate action against SFK.  The defence also pleaded the glaringly obvious fact that the claims based upon the oral agreements were time barred.

3.  On the eve of a PTR scheduled for hearing on 17 May 2011, Mr Tai’s legal aid certificate was discharged.  Following that PTR Mr Tai filed a notice of discontinuance, but he failed to appreciate that, 14 days having passed after service of the defence, he required the leave of the court to discontinue: see RHC O 21 r 2 & r 3.  At a further PTR on 3 June 2011, he was given leave to discontinue with the question of costs being reserved.

4.  It is not at all surprising in those circumstances that Mr Tai does not oppose an order for costs in favour of Many Harvest.  The issue is as to the level of those costs.

5.  On 1 June 2009, Many Harvest offered to settle the action by Mr Tai discontinuing, and each party bearing their own costs.  That offer was rejected.  In the event the action was resolved precisely as Many Harvest had offered to resolve it; by Mr Tai filing a notice of discontinuance.  In those circumstances Many Harvest seek indemnity costs.

6.  Legal Aid counsel opposes indemnity costs. First it is argued that there was a valid claim which was not unmeritorious. The argument must fail. 

7.  The claims based upon the oral agreements were plainly statute barred, and were doomed to failure.  The claim based upon the Chinese Settlement Agreement was identical to the claim made against SFK. Plainly the claim could not succeed against both. 

8.  Where a plaintiff is faced with a choice of defendants to sue and it necessarily follows that the claim can lie against only one of those defendants, it is no answer to the failure of an action against one to say that the plaintiff was faced with a choice.  Those advising a plaintiff must give appropriate advice, and the plaintiff, if he elects to proceed against both necessarily runs the risk of a costs order in favour of the defendant against whom that plaintiff does not succeed.

9.  In answer to the offer to resolve the matter on the basis of discontinuance with each party bearing their own costs it is said first that discovery had not been completed, and Mr Tai was not in a position to consider the offer properly.  That is no answer.  At any time that an offer is made a considered decision must be taken on the offer. 

10.  Offers are made often at a very early stage and proceedings, well before discovery and other interlocutory procedures are completed.  While it is right that those interlocutory procedures are designed to inform each party of the extent of the others case, any offer received must be considered.  The fact that interlocutory procedures were not completed is not an answer in a costs application to the rejection of an offer.  A plaintiff rejecting an offer does so in the knowledge that the offer may be held against him later on a costs argument.

11.  Next it is argued that the offer was not a sanctioned offer.  It is right that it did not meet the prescribed terms contained in O 22 r 5, but that only means that the particular enhancement orders contained in that Order cannot be made.  An offer need not be a sanctioned offer for it to constitute a Calderbank offer, relevant in costs.

12.  This was a very late discontinuance of a claim which was plainly misconceived.  In simple terms, the action was hopeless.  By the time of discontinuance all the preparation work for the trial had been completed and substantial costs had been incurred, quite unnecessarily, including the preparation of witness statements and expert reports.  The special feature in respect of this case is that it was clearly hopeless.  It is therefore an appropriate case for indemnity costs, but only following the rejection of the offer.

13.  There will be an order that Mr Tai must pay Many Harvest’s costs of the action, to be taxed on a party and party basis to 1 June 2009, and on an indemnity basis thereafter, if not agreed.

14.  In the SFK action, Mr Tai claimed a sum of $2,052,142.83.  Judgment was ultimately given for the sum of $284,707.52.

15.  The first issue between the parties is that of interest.  The Court of Final Appeal held in Polyset Ltd v Panhandat Ltd (unreported, 25 April 2002, FACV 28 of 2000):

“The trial judge has a discretion to determine the rate of interest. To compensate a successful plaintiff for being kept out of his money, the general practice in Hong Kong has, at least since 1984, been to award interest reflecting the theoretical cost to (Mr Tai) of borrowing the sums withheld. This rate is taken to be prime plus 1% unless the evidence in a particular case makes adoption of another rate appropriate: see Komala Deccof & Co SA v Perushaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219.”

16.  In the present case Mr Tai seeks interest at prime plus 3%, to be compounded on a quarterly basis to the date of judgment, and thereafter at judgment rate.

17.  Pursuant to O 18 r 8(4), a party must plead specifically any claim for interest under s 48 of the High Court Ordinance or otherwise.  The plea for interest was contained in §23 of the re-amended statement of claim, and was in these terms:

“The Plaintiff is entitled to and claims interests pursuant to Section 48 of the High Court Ordinance, Cap 4 on the damages found at such rate and for such period as this Honourable Court deems fit.” (sic)

The prayer for relief claimed only “Interest”.

18.  The requirement to “plead specifically” a plea for interest must mean that where other than simple interest is sought, the plea must make it clear to the defendant that compound interest is sought, and the basis upon which the compounding should take place.  The failure of Mr Tai to make other than a plea “for interest”, necessarily therefore confines the plea to one for simple interest.  There is no basis upon which compound interest can be ordered.

19.  There is no evidence at all upon which it can be said there should be a departure from the usual rule of interest is to be at prime plus 1%.  Where a plaintiff seeks to depart from that rule there must be a proper evidential foundation.  In this respect too, I accept Mr Tsang’s submission of the claim for prime plus 3% is not supported by the authorities.

20.  The real question as to interest is whether or not interest should be disallowed by reason of Mr Tai’s failure to obtain a judgement that is more advantageous than the sanctioned payment: see O 22 r 23(2).

21.  There is no dispute that the payment into court was a sanctioned payment.  There can be no dispute that, even after allowing for interest, Mr Tai has failed to do better than the sanctioned payment.  In fact, Mr Tai has failed to do better than his own sanctioned offer of $856,000.  Even having made that offer, Mr Tai kept the proceedings in the High Court, when on his own estimate of the worth of his action, the action was well within the jurisdiction of the District Court.

22.  Mr Lee argues that the costs order ought to be made on an issue-based basis.  It is right that success or failure on particular issues is a matter which may be taken into account in exercising the discretion in respect of costs: see O 62 r 5.  But it is merely one of a number of factors that may be taken into account.

23.  Here, Mr Tai has failed substantially, having brought a claim in excess of $2 million, and has been awarded only 13% of that sum.  Further, SFK succeeded on five of the seven issues identified in the case, with Mr Tai succeeding on only two issues. The central issue, the extent of builder’s works carried out by Mr Tai was the most significant in financial terms, and was an issue upon which Mr Tai failed.

24.  I reject the contention that there was a refusal to give information or to clarify the position in respect of the sanctioned payments.  The terms of the payments were perfectly clear and needed no clarification.  It was up to Mr Tai to assess his risk upon the information he had.  He made a decision and must accept the consequences of that decision.

25.  The Plaintiff argued that SFK’s manner in the conduct of the case added to the costs.  That is simply not so.  It was those advising Mr Tai who demanded the various scenarios addressed by the experts it was those various scenarios that added to the extent of the work required for the case.

26.  The case was a straightforward construction claim there are no special features on the conduct of the case by either party which would justify indemnity costs.

27.  The Plaintiff having failed to achieve an offer that was more advantageous than the sanctioned offer must accordingly be deprived of interest, and must pay SFK’s costs, to be taxed on a party and party basis if not agreed.