CREDIT ONE FINANCE LTD v. YEUNG KWOK CHI AND OTHERS

HCA 33/2016

[2020] HKCFI 3046

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 33 OF 2016

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REASONS FOR DECISION

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1.  In a judgment handed down on 21 September 2020 (“the Judgment”), I dismissed the claims brought by the plaintiff (“P”) against the 2nd defendant (“D2”) and the 3rd defendant (“D3”). I made an order nisi that the costs of D2 and D3 in the proceedings (including any reserved costs) are to be paid by P to be taxed if not agreed (with a certificate for two counsel for D3).

2.  D3 now applies to vary my costs order nisi such that P is to pay (1) D3’s costs in the proceedings, including any reserved costs and a certificate for two counsel, on a party and party basis up to 8 October 2019, and thereafter on an indemnity basis and (2) interest on D3’s costs from 9 October 2019 at the rate of 10% above judgment rate or at such rate above judgment rate as the court thinks fit.  At the hearing, I dismissed D3’s application with costs to P and made my costs order nisi absolute.  I now give my reasons for the decision.

A.  INDEMNITY COSTS

3.  The issue of costs is a matter of discretion for the court.  For an order for costs on an indemnity basis to be made, the party seeking it would need to show that the case has some special or unusual feature.  Such features are not confined to a situation where a case has been brought with an ulterior motive, or for an improper purpose, or where there is some deception or underhand conduct on the part of the losing party.  The courts should only award costs on an indemnity basis when it is appropriate to do so.  See Town Planning Board v Society for Protection of the Harbour Ltd (2004) 7 HKCFAR 114 at §§15-17 (Li CJ); Commissioner of Inland Revenue v Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74 at §§4(b)-(e) (Bokhary NPJ).

4.  In making this variation application, D3 relied on two grounds to support his application.  First, it was said that P’s conduct has been unreasonable in advancing unfounded fraud claims against D3.  Second, D3 relied on P’s rejection of a “without prejudice save as to costs” offer made before the trial commenced.

5.  To support his first ground that P has been unreasonable in advancing unfounded fraud claims against him, D3 submitted that P has failed to give proper particulars of fraud in its pleading, and that P had deliberately and consciously left its particulars of fraud vague so as to maintain a speculative claim against D3.  I am unable to accept this submission.  It was not D3’s case at the trial that P’s case of fraud should be rejected on the basis of the lack of sufficient particulars in P’s pleading alone.  As stated in paragraph 116 of the Judgment, if it was necessary to do so, I would have rejected P’s case of fraud on the basis of the findings made in the Judgment.  I do not consider that it was objectionable for P to pursue its pleaded case of fraud against D3.

6.  As mentioned in paragraph 27(11) of the Judgment, P made an application during the trial to amend its pleading to mount a new case of fraud against D3 and the application to amend was dismissed with costs.  D3 relied on the mounting of a new alternative case of fraud by P and its failure to amend its pleading by the time when the trial commenced as a further basis to contend that P was unreasonable in pursuing its case of fraud against D3.  The court had separately dealt with the costs of the P’s application to amend separately and there was no suggestion by D3 at the time that the costs of the amendment application should be P on an indemnity basis.  The fact that P had advanced an alternative case of fraud during the trial and failed in its application to amend is not sufficient basis for me to order costs against P on an indemnity basis.

7.  D3 further relied on a “without prejudice save as to costs” letter written to P before the trial to justify this application for indemnity costs.  In a letter dated 2 October 2019 marked “without prejudice save as to costs” to P’s solicitors, D3’s solicitors stated:

“Following the unsuccessful medication on 24 September 2019, we have instructions to confirm our client’s offer to settle your client’s claim against our client in this action on a “drop-hands” basis.

Your client was the architect of its own (probable) misfortune regarding the loans to D2.  It chose on two separate occasions to sign loan agreements with D1 only, despite knowing that his mother, aged 81, was to be surety of those loans.  Your client deliberately refrained from contacting D2 to ensure she was an informed and willing borrower and surety.  In a belated attempt to escape the consequences of those decisions, your client has attempt to plead causes of action against our client when there is plainly none.

Nevertheless, our client is prepared to reaffirm the above offer, solely to try to avoid the additional considerable time and costs of going to trial.”

8.  The offer made by D3 was rejected by P on 22 October 2019.  D3 submitted that this rejection would warrant an order for costs on an indemnity basis.  His reason was that because by the time when the offer was made, P must have known that it lacked cogent evidence of fraud against D3 and that its fraud claim D3 was weak and speculative.

9.  I cannot accept D3’s contention.  At the time when D3’s offer was made, P’s case of fraud could not be said to be bound to fail because a large part of it would depend on the court’s assessment of the witnesses’ credibility.  Moreover, it is apparent from the Judgment that apart from a claim in fraudulent misrepresentation, P also had a claim in negligence and breach of duty of care against D3.  I am unable to say that it was unreasonable on the P to reject the offer from D3 in October 2019.

10.  For these reasons, D3 has failed to demonstrate any special or unusual feature in the case to justify an order for indemnity costs.

B.   ENHANCED INTEREST

11.  D3 acknowledged that his “without prejudice save as to costs” offer made to P on 2 October 2019 was not a sanctioned offer made pursuant to RHC Order 22.  However, D3 submitted that the court has jurisdiction under section 49 of the High Court Ordinance (Cap 4) and inherent jurisdiction to grant enhanced interest on his costs on the same grounds as those in support of his application for indemnity costs.

12.  I reject this submission.  Where a plaintiff fails to obtain a judgment better that is more advantageous than a defendant’s sanctioned offer, the court may, amongst other things, order the defendant pay interest on costs after the latest date on which the plaintiff could have accepted the offer at a rate not exceeding 10% above judgment rate.  This is recognised in RHC Order 22 rule 23. However, D3 has failed to produce any authorities to suggest that the court has jurisdiction to order enhanced interest outside the Order 22 regime.  In any event, given that I have rejected all the grounds put forward by D3 to support his application for indemnity costs, it must follow that there is no basis for D3 to ask for any enhanced interest on his costs even if the court has jurisdiction to grant such interest in the absence of any sanctioned offer made by D3.

13.  For all of the above reasons, I dismissed D3’s application to vary with costs to be paid by D3 to P to be taxed if not agreed, and made my costs order nisi absolute.  Even though P sought a certificate for two counsel, I do not consider that the application merits the involvement of two counsel and therefore only granted a certificate for (one) counsel to P.