FORCE WAY ENGINEERING LTD v. THE INCORPORATED OWNERS OF GRAND COURT

DCCJ 3216/2016

[2018] HKDC 991

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3216 OF 2016

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DECISION

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1.  On 19 December 2017, I handed down the judgment in this action. There are before me this morning three summonses which were taken out subsequent to that:-

(1)  the defendant’s summons dated 2 January 2018 to vary the costs order nisi on the ground of a sanctioned payment made by it in March 2014;

(2)  the plaintiff’s summons dated 18 January 2018 to vary the costs order nisi in respect of two discrete sets of costs; and

(3)  the plaintiff’s summons dated 15 January 2018 for leave to appeal against my judgment.

2.  I shall adopt below the terms defined in the judgment.

The IO’s costs summons dated 2 January 2018

3.  When the action was commenced in December 2012, the Contractor claimed (a) a sum of $1,109,803.50 for works completed under the contract and (b) the return of retention money in the sum of $342,447.  The amount of the claim was subsequently reduced by $563,073 when the IO paid that amount to the Contractor on 17 September 2013, about nine months after the issue of the writ.  At the trial, the Contractor claimed against the IO for a total sum of $889,177.50. The IO had a counterclaim against the Contractor for defective works and delay in the completion of the works for a total sum of $564,883.50.

4.  In the judgment, I awarded, on a net basis, a sum of $14,550.50 payable to the IO.

5.  The basis of the IO’s present summons is that it made a sanctioned payment of $2,000 to settle the Contractor’s claim in March 2014, having taken into account the counterclaim as well.  As it turns out, the IO has clearly done better under the judgment.  Order 22, rules 23 and 24 of the Rules of the District Court are therefore engaged.  The relevant date here is 11 April 2014, that is the latest date on which the Contractor could have accepted the sanctioned payment.

6.  In the course of this morning’s hearing, the issues have been narrowed down to two points:-

(1)  What should be the enhanced rate of interest applicable to the judgment sum of $14,550.50 and the IO’s costs? 

In respect of the judgment sum, the IO asks for 8% above judgment rate whereas the Contractor says 2% above judgment rate would be appropriate. 

In respect of the IO’s legal costs, it is agreed by the parties that they should also carry interest after 11 April 2014 but the interest rate would be half of the enhanced rate applicable to the judgment sum.  This follows the approach adopted by Lam J in Golden Eagle International (Group) Ltd v GR Investment Holding Ltd [2010] 3 HKLRD 273 at para 18 and Bharwaney J in Fung Chun Man v Hospital Authority [2012] 2 HKLRD 490 at paras 3 to 6.  The halving of the rate is to reflect that not all items of legal works were done as of 11 April 2014, but were done from time to time throughout the proceedings, up to and until trial.

(2)  Should the judgment sum and costs bear the respective enhanced rates up to judgment or satisfaction?

7.  I should add here that notwithstanding the transfer of the action from the Court of First Instance to the District Court, parties agree that the costs should be taxed on the District Court scale from the outset.

8.  Having heard submissions from counsel, I make the following orders:-

(1)  The Contractor do pay the IO’s costs of the action and the counterclaim (a) on a party and party basis up to 11 April 2014, and (b) from 12 April 2014 on an indemnity basis, in each case to be taxed on the District Court scale if not agreed;

(2)  There be a certificate for counsel for the trial;

(3)  The Contractor do pay the IO enhanced interest on the judgment sum of $14,550.50 at 4% above judgment rate from 12 April 2014 until the date of judgment; and

(4)  The Contractor do pay the IO interest on costs incurred in this action and the counterclaim from 12 April 2014 at half of the interest rate set out in (3) above, such interest to accrue from 12 April 2014 until the date of judgment.

9.  My reasons are as follows.

10.  There is no exact science in determining what percentage of enhanced rate is a suitable one. Here, I take into account a number of matters. 

11.  First, the ultimate judgment sum awarded is a small amount, whether absolutely or when compared with the original claim amounts.  On the size of the award, I accept the IO’s submission and would follow the approach adopted in Petrotrade Inc v Texaco Ltd [2002] 1 WLR 947 (Note) at para 77 – where the judgment sum is small, it may be appropriate to adopt a higher rate in order to achieve a meaningful advantage to the winning party.

12.  However, at the same time, I bear in mind that the IO’s costs incurred after 11 April 2014 would carry half of the enhanced rate.  It can be expected that the costs there would be a much more substantial sum than the judgment sum in the present case, given that the action continued from then on for another three years through to a full-blown trial which lasted eight days, with expert evidence adduced on the issue of quantum. 

13.  Given the specific circumstances of the present case, there is something to be said for not designating too high an interest rate on the ground of the smallness of the judgment sum.  Here, the legal costs are much higher in amount and they would also carry interest after 11 April 2014, albeit only at half of the enhanced rate.  To award too high an interest rate would have the effect of over-compensating the IO on an overall basis.

14.  Second, given the closeness of the judgment sum and the sanctioned payment, I think it may be said that the Contractor’s refusal of the latter is not to be looked upon too harshly.  The figure of 8% suggested by the IO is certainly on the high side, when viewed from this perspective. 

15.  Third, another competing factor is the fact that the IO made the sanctioned payment at a fairly early stage of the proceedings.  In fact, a few months before the payment, it made a without prejudice offer to settle the case by paying $200,000 to the Contractor, inclusive of costs and interest – see the letter of 29 January 2014 from the IO’s solicitors to the Contractor’s.  All these show that the IO had been keen to settle the case and had taken steps to avoid having to go through the litigation all the way to trial.  (Two months before the trial, the IO also made another without prejudice offer to the Contractor.)

16.  It is accepted by the Contractor at today’s hearing that these are matters that I can take into account under Order 22, rule 23(6) and rule 24(5) when considering the rate of the enhanced interest.  (In this regard, I do not consider that I am barred by Order 62, rule 5(1)(d) from taking into account the without prejudice offers.  In the present context, I am not determining the incidence of costs, which that rule appears to govern, but instead the appropriate rate of interest.)

17.  The efforts made by the IO to settle at different stages of the proceedings are a matter in favour of a higher enhanced rate.

18.  Overall speaking, having weighed the above competing considerations, I consider that the suitable enhanced rate applicable to the judgment sum should be 4% above judgment rate.

19.  On the issue of the date till which the enhanced interest should run, I do not agree with the IO, however, that it should continue to run after the judgment date.  In this regard, I follow the Court of First Instance decision and reasoning in Lo Yuk Sui v Fubon (Hong Kong) Ltd [2017] 2 HKLRD 477 at paras 57 to 58.

The Contractor’s costs summons dated 18 January 2018

20.  The Contractor’s costs summons was taken out 30 days after the handing down of the judgment, which is outside of the 14-day period set out in Order 42, rule 5B(3).  By consent of the parties, leave was earlier granted by me to extend time for the Contractor to apply to vary the costs order nisi.  The Contractor applies for a different costs order in respect of two sets of costs. 

21.  As regards the costs up to and including 17 September 2013, the date on which the IO made a payment partially satisfying the Contractor’s claim (see para 1(1) of the summons), I see no basis for awarding such costs to the Contractor for the simple reason that the costs incurred by the parties from the date of the writ up to the partial payment date were all incurred in respect of the Contractor’s claim and the IO’s counterclaim and such costs should simply follow the event.

22.  Upon a perusal of the court file, the steps taken during this period covered the filing of pleadings and when the payment was made by the IO in September 2013, the parties were at the stage of discovery.

23.  The costs spent on such steps were incurred in respect of the main claim and the counterclaim which were fought all the way to trial.  It is not the case where the costs were incurred on a discrete and separate subject matter or cause of action and, as such, could have been saved in their entirety if the IO had admitted to it or conceded that part of the claim at the outset.

24.  Here, the same causes of action were pursued by the parties before and after the payment.  The effect of the IO’s payment was merely to reduce the quantum of the Contractor’s claim for the sum certified in the fourth stage certificate and the retention money.  The IO did not specify a particular item or items of claim which the payment was to satisfy.  As a matter of fact, the Contractor then carried on with the balance of the claim all the way through to trial. 

25.  The main thrust of the Contractor’s submission is that without the partial payment, it would have been the overall winner of the action.  It was therefore justified in commencing the action and hence it should be entitled to costs up until the date of payment. 

26.  At first glance, the submission appears to make sense.  As counsel put it this morning, before the payment, the Contractor was the successful party. However, on closer analysis, it appears to me to be incorrect for the Contractor to now say that it was justified in commencing the action for the originally claimed amount.  It would only be justified in commencing the action if the amount claimed was limited to the partial payment made by the IO.  (In fact, as it turned out, according to my ruling, the IO had overpaid by an amount equal to the judgment sum of about $14,000.  Therefore, strictly speaking, when it commenced the action, the Contractor could only have justifiably launched a claim equal to the partial payment less the judgment sum.) 

27.  I therefore do not accept counsel’s submission that before the payment, the Contractor was the successful party.  Its claim was for over $1.4 million and it only got back about $560,000.  When things are looked at on an overall basis (as they should be), the Contractor could not be accurately described or viewed as the successful party of its claim, as formulated in its writ.  The action it had in fact commenced was for a larger sum than it was entitled to, as found after trial.  Therefore, there is simply no basis to award costs for that period to the Contractor.

28.  Para 1(1) of the summons should be dismissed.

29.  As regards the costs of the 2^nd pre-trial review held on 20 June 2016 (see para 1(2) of the summons), the only basis put forward by the Contractor is the allegation that the IO had failed to have the expert report ready at the 1^st PTR and that had given rise to the need for the 2^nd PTR.  The Contractor’s stance had all along been that it did not require any expert evidence for its case.

30.  The issue therefore turns on whose responsibility it was to procure the expert report and to make sure it was available by the time of the 1^st PTR.  (At today’s hearing, there is some debate on whether the need for translation of documents was another reason for the adjournment to a 2^nd PTR.  I am however prepared to proceed on the basis that the lack of expert report was the main reason.) 

31.  An order was made back in December 2015 by Mimmie Chan J that evidence be obtained from a single joint expert on two issues relating to quantum.  The order appeared to have been made after parties put forward opposing views on the need for expert evidence.  Given that the expert was a joint one, it seems to me that it would be the joint responsibility of both the Contractor and the IO to proceed with the obtaining of the expert report in a timely manner.  It might well be that all along, and notwithstanding the express order of the court, the Contractor subjectively did not consider that it would need expert evidence on quantum.  Nevertheless, it does not mean that the responsibility in this regard rested solely with the IO.

32.  In the circumstances, insofar as the need for the 2^nd PTR arose out of the unavailability of the expert report at the 1^st PTR, both parties were to equally bear the responsibility.

33.  In any event, even if I am wrong on this and the IO should indeed be responsible for obtaining the expert report, according to the correspondence disclosed by the IO, it appeared to have acted diligently in the procuring of the expert report.  No blame should be laid at its door. 

34.  Accordingly, regarding para 1(2) of the Contractor’s summons, I consider that the proper order to make would be that costs of the 2^nd PTR be in the cause.

The Contractor’s summons dated 15 January 2018 seeking leave to appeal

35.  There are four proposed grounds of appeal put forward by the Contractor.

36.  The principles governing the threshold for granting leave to appeal are not in dispute.  The applicant needs to show that the appeal has a “reasonable prospect of success” or there is some other reason in the interests of justice why the appeal should be heard: section 63A(2) of the District Court Ordinance.

37.  On the “reasonable prospect of success” limb, “an applicant is required to show more than just an arguable case, but an appeal that has merits and ought to be heard, although he does not have to demonstrate that the appeal will probably succeed”: Wynn Resorts (Macau) SA v Mong Henry [2009] 5 HKC 515 at para 19, per Chu J.  In SMSE v KL [2009] 4 HKLRD 125, Le Pichon JA observed that “reasonable prospect of success” involves the notion that the prospects of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (at para 17).

38.  As accepted by the Contractor in its written submissions, all the four proposed grounds are based on arguments that it had advanced at trial and canvassed in its closing submissions.  I have dealt with all of these arguments in the judgment with full reasons given.  There is nothing in the submissions made on behalf of the Contractor this morning that would suggest to me that my ruling and its reasoning, to which each of the proposed grounds is related, is wrong or flawed.

39.  As such, I consider that the Contractor has not made out any reasonable prospect of success in its proposed appeal.

40.  It is not necessary for me to repeat the arguments and recite my rulings, save to point out the relevant passages in my judgment in which those arguments are addressed.

41.  Under the first proposed ground, the Contractor challenges my factual finding that at the time the IO terminated the contract on 16 October 2012, there existed defects as identified by the IO (para 151 of the judgment).  The main complaint is that I reached that conclusion on facts in the absence of any expert evidence on liability.  The Contractor submits that as far as the water leakage and the external wall are concerned, expert evidence was a must as it would be for the expert to inform the court as to whether the Contractor’s works were up to the contractual standard.

42.  I do not agree with the Contractor’s submission.  My reasons are set out in paras 151, 155 to 160 of the judgment.  I took into account the nature of the project, Choy’s evidence and contemporaneous photographs in support of the factual finding.

43.  Under the second proposed ground, the Contractor challenges my award to the IO of the rectification costs as claimed, save with some deductions.  Again the complaint is that I have made the ruling in the absence of proper expert evidence.  (I have concluded in the judgment that the opinion of the single joint expert was not of much assistance in the present case.)  I dealt with the Contractor’s submissions in paras 232 to 236 of the judgment and shall not repeat them here.

44.  Under the third proposed ground, the Contractor argues that I ought to have concluded that the IO was bound by the fourth stage certificate and should not now be heard to dispute the quality of the works vis-à-vis the Contractor. I have dealt with this legal issue at length in paras 169 to 201 and, more specifically, the main planks of the Contractor’s arguments, which are repeated in its written submissions for today’s hearing, in paras 193 to 199.  Again, I shall not repeat them here.

45.  Under the fourth proposed ground, the Contractor argues that the IO ought to be held liable for works already done on the item of the main gate. The issue turns on whether the Contractor should have gone ahead to produce a gate (which it in fact did) based on a plan which had been approved by the IO, even though the gate, as designed, would fail “blatantly to function as a main gate”.  The Contractor contends that it was entitled to do so as it was under no duty to advise the IO on design matters.  I have dealt with this issue in paras 218 to 220 of the judgment.  As I see is, the issue does not, strictly speaking, turn on a formal or separate duty to advise on design but, in the specific circumstances of the present case, concerns the Contractor’s duty to work in a good and workmanlike manner.  There is no new argument raised at today’s hearing which would suggest that I reached a wrong conclusion on this point.

46.  None of the proposed grounds put forward by the Contractor has any reasonable prospect of success.  There being no other reason why the appeal ought to be heard, I dismiss its application seeking leave to appeal.

(Submissions on costs of the three summonses)

47.  In respect of the leave to appeal summons, costs should follow the event.  I order that the IO do have costs of that summons with certificate for counsel, summarily assessed in the sum of $100,000, payable within 14 days from today.

48.  In respect of the Contractor’s costs summons, again costs should follow the event.  The IO should have costs, with certificate for counsel. 

49.  In respect of the IO’s costs summons, I am of the view that on an overall basis the IO has largely succeeded on getting enhanced rates of interest on both costs and judgment sum for a substantial period of time from 12 April 2014 up to 19 December 2017, ie the date of judgment, and also costs on an indemnity basis for that period.  The IO should be awarded costs of that summons, on an indemnity basis, following the approach in Golden Eagle at para 50.

50.  The costs of these two summonses are summarily assessed in the sum of $120,000, also payable within 14 days.