NOVO STEEL (HK) LTD v. PEAKO ENGINEERING CO LTD

HCCL 14/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 14 OF 2012

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D E C I S I O N

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1.  This is the plaintiff’s application to vary the costs order nisi that I made when I handed down my judgment in this case on 7 November 2014. The ground relied upon is that the defendant had failed to beat the sanctioned offer made by the plaintiff prior to trial and ought to pay enhanced interest and costs on an indemnity basis. The application gives rise to a consideration of the element of interest that is contained in a sanctioned offer or sanctioned payment.

2.  Originally, the payment into court provisions contained in O. 22, r. 1 of the Rules of the High Court made no provision for the payment of interest.  The Court of Appeal had decided in Jefford v Gee [1970] 2 QB 130 at pp.149-150 that a claim for interest was not in itself a cause of action and formed no part of the debt or the damages claimed, so that a defendant making a payment into court under O. 22 r. 1 in satisfaction of the plaintiff’s claim did not need to include any additional sum to cover the interest which may be awarded by the trial judge in respect of the period prior to the payment into court.  This decision caused considerable difficulties in practice and O. 22, r. 1(8) was enacted to counter those difficulties.  O. 22, r. 1(8) stated as follows:

“(8) For the purposes of this rule, the plaintiff’s cause of action in respect of a debt or damages shall be construed as a cause of action in respect, also, of such interest as might be included in the judgment, whether under section 48 of the Ordinance or otherwise, if judgment were given at the date of the payment into court.”

3.  The defendant was not bound to pay into the court any sum in respect of interest, but if he failed to do so, and if an award of interest was eventually made, he would be at risk on the question of costs, having paid into court an inadequate sum.  I agree with the following commentary in Hong Kong Civil Procedure 2008 at 22/1/10 at p. 411:

“Paragraph (8) has the effect that the trial judge may have to make a special calculation of interest at the end of the trial for the purpose of deciding whether the payment into court was adequate at the time when it was made, in order to determine what order for costs should be made. Thus if the trial judge awards $x by way of damages and the defendant has paid into court $y, which exceeds $x then a calculation may have to be made as to what the amount of interest would have been if judgment were given for $x at the date of the payment into court. If such figure amounts to $a, and if $x+$a exceeds $y, the result would be that the amount recovered by the plaintiff will have exceeded the amount paid into court by the defendant, so that the plaintiff will be entitled to be awarded the whole costs of the action.”

4.  When the new sanctioned offer/sanctioned payment regime was enacted by the provisions of the new O. 22, the provision contained in the old O. 22, r. 1(8) was not re-enacted.  Instead, O. 22, r. 26 came into effect providing as follows:

“26. Interest(O. 22, r. 26)

(1) Unless-

(a) a plaintiff’s sanctioned offer which offers to accept a sum of money; or

(b) a sanctioned payment notice,

indicates to the contrary, any such offer or payment is to be treated as inclusive of all interest until the last date on which it could be accepted without requiring the leave of the Court.

(2) Where a plaintiff’s sanctioned offer or a sanctioned payment notice is expressed not to be inclusive of interest, the offer or notice must state-

(a) whether interest is offered; and

(b) if so, the amount offered, the rate or rates offered and the period or periods for which it is offered.”

5.  It is clear that the consequences set out in O. 22, r. 24 only arise where a defendant is held liable for more than the proposal contained in a plaintiff’s sanctioned offer.  The plaintiff made a sanctioned offer whereby it was willing to accept the sum HK$2,800,000 in full and final settlement of its claims, inclusive of interest, on 26 June 2013.  Pursuant to O. 22 r. 16, the defendant could accept that sanctioned offer without leave, within 28 days, the last of those days falling on 24 July 2013.

6.  Pursuant to the judgment, the plaintiff’s entitlement up to 24 July 2013 is in the sum of HK$2,749,479.85 comprising of:

(1) Interest on HK$1,755,472.51 for 26 days:

      HK$1,755,472.51 x 6%/365 x 26 = HK$7,502.84

(2) Assessed damages: HK$2,628,346.05

(3) Pre-Judgment interest on the assessed damages from 4 November 2012 up to 24 July 2013:

HK$2,628,346.05 x 6%/365 x 263 days =HK$113,630.96

7.  In my judgment, O. 22, r. 24 has to be applied by considering the position that would have obtained if judgment had been given on the last date on which the plaintiff’s sanctioned offer could have been accepted by the defendant without requiring the leave of the court[1]. Such a construction naturally follows from the terms of O. 22, r. 26.  Any other construction would not only be contrary to the express terms of O. 22, r. 26 but would also render the provisions of O. 22 unworkable as parties, be they plaintiffs or defendants, can never predict when trials would take place, when judgments would be handed down, and when final judgments would be entered. It is illogical to require a defendant to pay interest up to a notional date of trial taking place or date of judgment to be handed down in the future.  The aim of the Civil Justice Reform is to promote early settlement at reduced cost not to gift the receiving party who accepts a sanctioned payment with a windfall.

8.  As the plaintiff’s sanctioned offer was greater[2] than the entitlement of the plaintiff, inclusive of interest, on 24 July 2013, being the last date on which the plaintiff’s sanctioned offer could be accepted without requiring the leave of the court, the provisions of O. 22, r. 24 are not engaged, and the plaintiff’s application to vary my costs order nisi must be dismissed, with the costs to the defendant.