YIM WAI LING AND ANOTHER v. YUEN CHIK WAH AND ANOTHER

DCCJ 663/ 2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 663 OF 2013

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D E C I S I O N

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1.  In the judgment handed down on 12 August 2016 (“the Judgment”), it is the findings of this court that water seepage found in P’s Premises in 2012 was originated from D’s Premises due to the defect in the waterproof membrane underneath the bathtub.  As such, the defendants should be liable for the nuisance caused to the plaintiffs and should compensate the plaintiffs for loss and damage in the sum of $32,500. particularised as follows:

(1)	To take out a Third Party Insurance Policy	$2,000
(2)	To scrap away binding concrete at the ceiling of the bathroom	$3,000
(3)	To blast and cleanse the rotted and rusted re-bars, reinforcement in the ceiling slab then apply coats of primer on the reinforcement and make them good with concrete repair mortar, approx. 50 s.f.	$15,000
(4)	To finish the ceiling slab with plaster and ICI paint finish	$3,500
(5)	To replace false ceiling	Nil
(6)	To replace a wall cabinet, water damaged and discarded	$2,500
(7)	To replace portions of ceramic tiles, crack damaged but tiles on walls replaced	$3,000
(8)	To replace stainless fittings, rusted and replaced	Nil
(9)	To replace ceiling light and power socket, 2 nos including conduits, cables wiring and light fittings	Nil
(10)	To replace one wooden glazed partition between the basin compartment and the bathroom area which is soaked, dampened, stained by the water seepage downpour requiring replacement	$1,500
(11)	Submission of MW works completion form to BD	Nil
(12)	Removal of debris and discard	$1,000
(13)	General cleaning after the reinstatement works	$1,000
(14)	Hotel accommodation during reinstatement works, estimated 7 days	Nil
(15)	Expert fees	Nil
(16)	General damages	Nil
	Total :	$32,500

2.  A costs order nisi was also made in the Judgment that costs of the action be to the plaintiffs, including all costs reserved, with Certificate for Counsel, to be taxed if not agreed (“Costs Order Nisi”). 

3.  By a summons dated 24 August 2016 (“the Summons”), the defendants asked for the Costs Order Nisi to be varied on the ground that the plaintiffs failed to do better than a sanctioned payment and sanctioned offer.  The defendants asked for the Costs Order Nisi to be varied to :

a.  The defendants shall pay the plaintiffs’ costs of this action, including any costs reserved up to 4 July 2013 on party and party basis to be taxed if not agreed at Small Claims Tribunal scale with interest thereon at judgment rate from the date of judgment until payment;

b.  The plaintiffs shall pay the defendants’ costs of this action, including any costs reserved from 5 July 2013 on indemnity basis to be taxed if not agreed at District Court scale with interest thereon at judgment rate from the date of judgment until payment; and

c.  The plaintiffs shall pay the defendants’ enhanced interest at the rate of 10% on disbursements already paid and incurred from the respective payment dates of the said disbursements up to the date of judgment and thereafter at the judgment rate from the date of judgment until payment.

4.  This is the decision of the Summons.

Background

5.  The background facts relied upon by the defendants in support of the Summons is not in dispute.

6.  The writ of this action was issued on 25 February 2013.  On 15 March 2013, the defendants made the first sanctioned payment of $30,000 (“1^st Sanctioned Payment”).  On the Notice of Sanctioned Payment (B/84-86), it is stated that the sanctioned payment “is part of the terms of a sanctioned offer set out in the letter from Messrs. W. H. Chik & Co. to Messrs. Jackson Ho & Co. dated 15 March 2013” and “if you give notice of acceptance of this sanctioned payment, you will be treated as also accepting the sanctioned offer” (B/85).  In the letter dated 15 March 2013 (B/87-88), the defendants made a sanctioned offer in respect of costs, i.e. to pay the plaintiffs’ costs on Small Claims Tribunal scale (“1^st Sanctioned Offer”).

7.  Neither the 1^st Sanctioned Payment nor the 1^st Sanctioned Offer was accepted by the plaintiffs.

8.  On 6 June 2013, the defendants made a 2^nd sanctioned payment of $15,000, bringing the total to $45,000 (“2^nd Sanctioned Payment”) (B/90-92). The 2^nd Sanctioned Payment was also tied to a sanctioned offer made in the letter dated 6 June 2013 (“2^nd Sanctioned Offer”) (B/93-94) which was in the same terms as the 1^st Sanctioned Offer.  The 1^st and 2^nd Sanctioned Payment are collectively referred to as the Sanctioned Payment and the 1^st and 2^nd Sanctioned Offer are collectively referred to as the Sanctioned Offer.

9.  The 28 days’ time limit for accepting the 2^nd Sanctioned Payment without leave ends on 4 July 2013.  The plaintiffs had not accepted the same.

10.  On 27 August 2013, the plaintiffs’ solicitors (“JH”) wrote to the defendants’ solicitors (“WHC”) proposing to accept the Sanctioned Payment of $45,000 provided that the defendants do pay the plaintiffs’ costs at District Court scale (B/96).

11.  On 28 August 2013, WHC wrote back enquiring the estimate of the plaintiffs’ claims for legal costs for their consideration (B/98-99).  JH replied on 10 September 2013 that “legal costs plus the fees payable to the surveyor for inspection of the property are $36,000” (B/101).

12.  On 10 September 2013, WHC sought a breakdown of the costs of $36,000 together with supporting documents (B/103).

13.  On 30 June 2014, JH provided WHC with the breakdown (B/105).  On 28 July 2014, WHC wrote back and agreed leave to be granted to the plaintiffs to accept the Sanctioned Payment but disagreed with JH’s proposal on costs and insisted that there should be no order as to costs in this action (B/108-109).

14.  On 28 July 2014, JH replied agreeing for the $45,000 to be paid out to the plaintiffs but insisted that costs be to the plaintiffs.  JH counter proposed the costs issue to be determined by the court (B/111) after acceptance of the payment in.

15.  Trial took place in May and June 2016 with the Judgment handed down on 12 August 2016. The awarded damages cannot beat the Sanctioned Payment resulting in the taking out of the Summons by the defendants seeking a variation of the Costs Order Nisi under Order 62 rule 5 of the Rules of District Court.

16.  The issues involved in this argument are :

a.  Whether a sanctioned payment containing a term as to costs is a valid sanctioned payment?

b.  Even if the Sanctioned Payment and Sanctioned Offer made are found to be not valid, whether this court should exercise its discretion under Order 22 rule 2(4) of the Rules of District Court?

17.  Orders and rules referred to in this Decision are Orders and rules of the Rules of District Court unless otherwise specified.

Legal Principles

18.  O 22 r 20(1) provides that where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the court, the plaintiff is entitled to his costs of the proceedings after the date of serving notice of acceptance, unless the court otherwise orders.

19.  O 22 r 23 stipulated that:

“(1)  This rule applies where a plaintiff-

(a)  fails to obtain a judgment better than the sanctioned payment; or

(b)  fails to obtain a judgment that is more advantageous than a defendant’s sanctioned offer.

(2)  The Court may by order disallow all or part of any interest otherwise payable under section 49 of the Ordinance on the whole or part of any sum of money awarded to the plaintiff for some or all of the period after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.

(3)  The Court may order the plaintiff to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without requiring the leave of the court.

(4)  The Court may also order that the defendant is entitled to-

(a)  his costs on the indemnity basis after the latest date on which the plaintiff could have accepted the payment or offer without requiring the leave of the Court; and

(b)  interest on the costs referred in paragraph (3) or subparagraph (a) at a rate not exceeding 10% above judgment rate.

(5)  Where this rule applies, the court shall make the orders referred to in paragraphs (2), (3) and (4) unless it considers it unjust to do so.

(6)  In considering whether it would be unjust to make the orders referred to in paragraphs (2), (3) and (4), the Court shall take into account all the circumstances of the case including-

(a)  the terms of any sanctioned payment or sanctioned offer;

(b)  the stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(c)  the information available to the parties at the time when the sanctioned payment or 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 payment or offer to be made or evaluated.”

20.  However, O 22 r 2(4) states that “nothing in this Order prevents a party from making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Order, it does not have the consequences specified in this Order, unless the Court so orders”.

Valid Sanctioned Payments?

21.  Relying on the case of Wong Yim Man Anthea v Wong Ho Ming Felix [2016] 3 HKLRD 249 and Leung Lai Kwan v Lo Kai Wing and another (unreported, HCMP 1554/2015, 20 August 2015), Mr Ko for the plaintiffs submitted that the Sanctioned Payment and Sanctioned Offer made by the defendants which provided for no order as to costs is inconsistent with the mechanism provided under O 22 r 20(1) and cannot be a valid Sanctioned Payment and Sanctioned Offer since the rule expressly provides that the plaintiff is entitled to his costs of the proceedings upon acceptance of the same.

22.  Mr Gidwani for the defendants submitted that the Notice of Sanctioned Payment is valid in full compliance with O 22 r 8 and the Sanctioned Offer was made in order to invoke the otherwise proviso prescribed by O 22 r 20(1) (“Otherwise Proviso”) which is a pre-requisite if the defendants are minded to protect their position should the plaintiffs choose to accept the Sanctioned Payment.  And a term as to costs contained in the Sanctioned Offer does not invalidate the Sanctioned Offer and the Sanctioned Payment.  Mr Gidwana is relying on the following cases in support:

Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd [2013] 2 HKLRD 1184

Wong Chim Hing v Discovery Bay Transit Services Limited (unreported, HCPI 254/2011, 7 November 2014)

Leizel Dalera Ramones v Lee Kut Tung (unreported, HCPI 1264/2015, 28 October 2016)

Central Management Limited v Light Field Investment Limited [2011] 2 HKLRD 34

Chen Tek Yee and ors v Chan Moon Shing and Anor [2015] 3 HKC 622

Chan Kwing Chiu and another v 陳志球 (unreported, CACV 209/2012, 3 October 2013)

Gill Ajmer Singh v Wah Hing Scaffolding Engineering Limited and another [2014] 1 HKC 495

23.  Having considered the submissions of both parties, I agree with the plaintiffs that the Sanctioned Payment and the Sanctioned Offer made by the defendants cannot be a valid one having the legal effect of securing the protection under O 22.

24.  From the wordings of the Sanctioned Offer, I do not agree that it is just for the purpose of invoking the Otherwise Proviso in O 22 r 20(1).  Nothing in the Sanctioned Offer had the effect of a prior warning to the plaintiffs stipulated in the case of Etratech Asia-Pacific Ltd. 

25.  With the Sanctioned Offer, the plaintiffs cannot accept the Sanctioned Payment and take the advantage of the costs consequences of O 22 r 20(1) but instead had to accept the terms in the Sanctioned Offer as well which deprived them of the said benefit.  Even though the Notice of Sanctioned Payment was made in line with O 22 r 8, this cannot be considered out of the context and ignored the terms in the Sanctioned Offer as well since the defendants had specifically mentioned that the Sanctioned Payment is part of the terms of the Sanctioned Offer.

26.  The Sanctioned Offer, being framed in its existing terms, had tied down the Sanctioned Payment as not just a payment into court.  The terms of the Sanctioned Offer had turned the Sanctioned Payment into part and partial of the Sanctioned Offer.  It would only be fair to treat the Sanctioned Offer as a payment of a sum as well as other non-monetary terms, ie the costs consequence of accepting the payment.

27.  I found the terms of the Sanctioned Offer in this case is analogous to the one in Leung Lai Kwan (supra) in which the defendants made 3 sanctioned offers to settle where the plaintiff had not accepted the same.  The terms of the offers in Leung Lai Kwan are not simply payment of money by the defendants to the plaintiff but include, inter alia, a term that there shall be no order as to costs.  After trial, the defendants applied to vary the costs order based on the offers made.  The question of whether or not enhanced costs should be ordered and whether any offers other than sanctioned offers can be taken into account is being considered by the Court of Appeal.  Lam VP found that:

“7.  ... All the offers were made on the basis of no order as to costs, which cannot be accommodated in the sanctioned payment or sanctioned offer regime in view of O 22 r 20(1), see Wealthy Plus Ltd v Lai Man Ho [2001] 4 HKC 691. The Judge was clearly right in holding that this is not a case where the Defendants could have protected their position by means of a sanctioned payment, and as such not within the scope of Order 62 rule 5(1)(d).”

28.  Such finding is applied in the case of Wong Yim Man Anthea (supra) in which Deputy High Court Judge Yee found that:

“39.  It is clear that Lam JA was of the view that any offer made on the basis of no order as to costs cannot be accommodated in the O.22 regime by reason of its irreconcilable conflict with O.22 r.20(1).

...

42.  ... I do not think that the Court of Appeal in Central Management Ltd and Chan Kwing Chiu ever made any ruling on the validity of a sanctioned offer containing a costs provision. They simply adopted the parties’ common position on the validity of the sanctioned offers in question...

43.  I further reject ... the fact that the Court of Appeal in Leung Lai Kwan cited with approval Chen Tek Yee means that they found nothing wrong with the decisions in Central Management Ltd...

...

45.  It is true that settlement to be reached between the parties before trial should be encouraged, which would result in huge savings of both their personal and public resources. However, to alter the nature of a sanctioned offer in order to enable it to include a term as to costs would only do violence to the well-plannned and self-contained mechanism in O.22.

46.  In my view, O.22 adopts a carrot and stick approach.  One of the attractions for a plaintiff to accept a sanctioned offer of the defendant is that the plaintiff can benefit from the favourable costs consequences under O.22 r.20.  If the plaintiff refuses to accept such a sanctioned offer including the benefits under O.22 r.20 and it turns out that he fails to do better than the sanctioned offer, he should take the consequences and would receive sanctions in costs and enhanced interest under O.22 r.23.  The stick in O.22 r.23 is only justified when the plaintiff unreasonably rejects, among other things, the carrot in O.22 r.20.”

29.  I agree with the findings of DHCJ Yee quoted above and gratefully adopted and applied the same to the facts of this case.  The Sanctioned Payment made, being tied with the Sanctioned Offer which included a term as to costs had deprived the plaintiffs the benefit they should enjoy under O 22.  This is clearly against the spirit of O 22 and the defendants could not have protected their position by means of the Sanctioned Payment or the Sanctioned Offer and the consequences contained in O 22 r 23 is not applicable.

30.  The case of Wong Chim Hing and Leizel Dalera Ramones are distinguishable since these are cases where the sanctioned payment was accepted, which is not the situation in our present case.  And the case of Gill Ajmer Singh has no binding nor persuasive effect on this court.  In any event, given the subsequent rulings in Leung Lai Kwan and Wong Yim Man Anthea, the findings in Gill Ajmer Singh should no longer be considered good law.

General Discretion

31.  O 22 r 2(4) enables the court to take into account any offer other than sanctioned offer as a matter of discretionary consideration in the question of costs.

32.  Relying on the case of Chen Tek Yee, Mr Gidwani submitted that this court should exercise such discretion in favour of the defendants and order that the Sanctioned Offer, which was in the overall more advantageous to the plaintiffs, shall have the consequences specified in O 22 r 23(4).  And Mr Gidwani relied on the following grounds:

a.  the Sanctioned Offer was made shortly after the commencement of these proceedings;

b.  serious and sincere offer and payment into court had been made;

c.  the plaintiffs did not allege that they had been misled or prejudiced by the terms of the Sanctioned Offer and since the plaintiffs had never sought any clarification from the defendants, the plaintiffs must have fully understood the effects of the Sanctioned Offer and Sanctioned Payment;

d.  since the plaintiffs’ claim in the Statement of Claim, including the expert fee of $8,000, was slightly more than $50,000, the plaintiffs should not have chosen District Court as a venue to launch their claim at all and should commence the proceedings at the Small Claims Tribunal (“SCT”); and

e.  the judgment awarded was $32,500 which fell within the jurisdiction of the SCT, a claim in the District Court was completely unnecessary.

33.  Mr Ko for the plaintiffs contended that the case of Chen Tek Yee relied upon by the defendants is distinguishable and not applicable.  In any event, a substantial part of the costs in relation to the trial of the present case concerned with the issue of liability, which the court ultimately found for the plaintiffs.  The defendants should not have insisted on fighting the issue on liability, so it is only just that the plaintiffs should not be liable for the defendants’ costs on liability.  To allow the defendants to recover costs on liability and worse still on an indemnity basis, makes a complete mockery of the underlying objectives of the Civil Justice Reform.  It would be unjust in the circumstances to order indemnity costs and enhanced interest and the Costs Order Nisi should not be varied.

34.  Again, I agree with the plaintiffs that it would not be just and appropriate to exercise my discretion to order costs against the plaintiffs and on indemnity basis with enhanced interest.  The conduct of the defendants in these proceedings had prompted such a conclusion. 

35.  Had the defendants accepted the proposal by the plaintiffs for the Sanctioned Payment to be accepted with question of costs to be disposed by this court, much of the costs would be saved.  Worse still, the defendants had a full blown fight in the issue of liability which turned out to be futile and this had added so much to the costs of these proceedings.  Such unreasonable behaviour of the defendants should be taken into consideration in the exercise of the discretion and go against the defendants so as to deprive them of the consequences under O 22 r 23.

36.  Having said so, this court cannot ignore the fact that the damages awarded fall within the jurisdiction of the SCT.  As can be seen from the heads of claim and damages awarded at §1 above, the damages awarded is below $50,000 which is within the jurisdiction of the SCT.  It is also not in dispute that the claim for damages in water leakage case is well within the jurisdiction of the SCT. The claim for interest is neither here nor there since the SCT also have the jurisdiction to award interest on an award even if with the interest added, the total award is beyond its jurisdiction limit.

37.  Under such circumstances, I failed to see why the plaintiffs should not have commenced these proceedings in the SCT.  Hence, the plaintiffs should only be entitled to have its costs of these proceedings to be assessed at a scale as if the claim was being brought in the SCT.

Conclusion

38.  The Sanctioned Offer and the Sanctioned Payment are not valid to attract the costs consequences in O 22 r 23.  Even treating them as an offer to settle, this court is not convinced that discretion should be exercised in favour of the defendants to vary the Costs Order Nisi.  However, the plaintiffs should have commenced these proceedings in the SCT instead so taxation of the costs should be assessed as if the plaintiffs’ claim had been brought in the SCT. 

39.  The Costs Order Nisi is being varied to the effect that costs of this action be to the plaintiffs including all costs reserved, to be summarily assessed by this court if not agreed, as if the claim had been brought in the Small Claims Tribunal. 

40.  Should parties fail to agree on the quantum of costs within 14 days of this order, the plaintiffs shall submit their statement of costs to court with copy to the defendants within 7 days and the defendants are to submit their comment within 7 days thereafter.  Summary assessment is to be conducted by way of paper disposal.

41.  Costs should follow the event.  Since both parties had been successful in part of their argument in the application of this Summons, it is ordered that there should be no order as to costs for this variation application.  This is a costs order nisi.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.

42.  Based on the agreement of the parties, it is also ordered that $42,630 out of the payment made into Court be paid to the 1^st & 2^nd plaintiffs’ solicitors, Messrs. Jackson Ho & Co with the balance of $2,370 be paid to the 1^st & 2^nd defendants’ solicitors, Messrs. W.H. Chik & Co forthwith.