ASSOCIATED ENGINEERS LTD. v. LO CHEE PUI

CACV 398/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 398 OF 2002

(ON APPEAL FROM HCA NO. 328 OF 2000)

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J U D G M E N T

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Hon Cheung JA (giving the judgment of the Court):

The facts

1. The plaintiff was the former employer of the defendant. It alleged that the defendant was in breach of his contract of employment with the plaintiff or alternatively his implied duty of fidelity to the plaintiff. It alleged that the defendant had accepted another employment whilst he was still in the employ of the plaintiff and had intended to develop a project in the new employment to compete directly with the plaintiff's own project. The plaintiff claimed against the defendant first, a declaration that he was in breach of his employment contract, or alternatively his duty of fidelity to the plaintiff and second, damages.

2. The defendant denied the claim. The trial of the case was due to start on 7 January 2002. On 8 December 2001, the defendant made a payment of HK$5,000.00 into court. The notice of payment stated that :

“ The said sum of HK$5,000.00 is in satisfaction of all the causes of action in respect of which the plaintiff claims."

3. The plaintiff accepted the payment on 21 December 2001. The notice of acceptance stated that the plaintiff accepted the money "in satisfaction of the causes of action in respect of which it was paid in and in respect of which the plaintiff claims against the defendant".

4. After the plaintiff accepted the payment, it applied on 7 January 2002 to vacate the hearing date. The trial was duly vacated. The plaintiff then prepared the bill of costs for the action and obtained an appointment for taxation. The defendant applied by summons before the Master seeking an order that the plaintiff was not entitled to require its costs to be taxed pursuant to Order 62 rule 10(2) of the Rules of the High Court (the "Rules") and that the plaintiff's application for taxation of its costs of the action be dismissed. The Master granted the order. Deputy High Court Judge Poon affirmed the order on the plaintiff's appeal. The plaintiff now appeals to this Court.

The issue

5. The issue in this appeal is whether the plaintiff (as it contends) is entitled to tax its costs of the action against the defendant without a court order or whether (as the defendant contends) a court order is required. Before one deals with this issue, it is necessary to put the case in perspective. The plaintiff's claim for costs is nearly HK$2,000,000.00. HK$650,000.00 was for disbursements and HK$1,350,000.00 was for profit costs. This astronomical figure can be contrasted with the paltry figure of HK$5,000.00 which the plaintiff had accepted in satisfaction of its claims against the defendant. Naturally, the defendant was anxious not to allow the plaintiff to proceed with the taxation because it contends that the plaintiff is only entitled to costs on the Small Claims Tribunal scale and not on the High Court scale.

Order 62 Rule 10(2)

6. The starting point is that under Order 62 rule 3(1), no party is entitled to recover any costs inter partes except under an order of the Court. It follows that no taxation may take place in the absence of an order of the Court. An exception is provided by Order 62 rule 10(2) which provides that :

“ Where a plaintiff by notice in writing in accordance with Order 22, rule 3(1), accepts money paid into court in satisfaction of the cause of action or of all the causes of action in respect of which he claims, or accepts money paid in satisfaction of one or more specified causes of action and gives notice that he abandons the others, he shall be entitled to his costs of the action incurred up to the time of giving notice of acceptance."

Order 22 Rules 1 and 3

7. In order to determine whether the plaintiff can avail itself of Order 62 rule 10(2), it is necessary to ascertain whether the plaintiff had accepted the payment in in accordance with Order 22 rule 3(1). This in turn depends on whether in this case the payment in was made pursuant to order Order 22 rule 1.

8. I will first set out the relevant rules on payment in and out of money.

Payment in

Order 22 Rule 1(1). "In any action for a debt or damages any defendant may at any time pay into court a sum or sums of money in satisfaction of the cause of action in respect of which the plaintiff claims or, where two or more causes of action are joined in the action, a sum or sums of money in satisfaction of any or all of those causes of action."

Payment out

Order 22 rule 3(1). "Where money is paid into court under rule 1, then, subject to paragraph (2), within 14 days after receipt of the notice of payment or, where more than one payment has been made or the notice has been amended, within 14 days after receipt of the notice of the last payment or the amended notice but, in any case, before the trial or hearing of the action begins, the plaintiff may-

(a) where the money was paid in respect of the cause of action or all the causes of action in respect of which he claims, accept the money in satisfaction of that cause of action or those causes of action, as the case may be, or

(b) where the money was paid in respect of some only of the causes of action in respect of which he claims, accept in satisfaction of any such cause or causes of action the sum specified in respect of that cause or those causes of action in the notice of payment, by giving notice in Form No. 24 in Appendix A to every defendant to the action."

Order 22 rule 3(4). "On the plaintiff accepting any money paid into court all further proceedings in the action or in respect of the specified cause or causes of action, as the case may be, to which the acceptance relates, both against the defendant making the payment and against any other defendant sued jointly with or in the alternative to him, shall be stayed."

Debt and damages

9. It is clear from the terms of Order 22 rule 1 that it only applies to actions for a debt and damages and not to other claims, see, for example, Nichols v. Evens (1883) 22 Ch D 611. This Order, however, also applies to actions where debts and damages are sought together with other relief, for example, injunction, see Moon v. Dickinson (1890) 63 L.T. 371. In such a case, payment in must be only in respect of the claim for damages, otherwise it is not within this rule.

10. In Moon, the plaintiff claimed for an injunction and damages for nuisance by the defendant. The defendant made payment into court in respect of the plaintiff's claim for damages. The plaintiff accepted the money in satisfaction of his claim for damages and wrote to the defendant that he should discontinue the action and take out of court the amount paid in and have his costs taxed. It was held by North J. that the money had not been paid into court to satisfy the entire cause of action, but only in respect of the claim for damages. The plaintiff therefore could not treat the whole action as satisfied by the payment in. As the entire claim or cause of action was not satisfied, the English Order 22 rule 7 did not authorize the taxation of costs thereunder.

11. In Young v. Black Sluice Commissioners (1909) 73 J.P. 265, the plaintiff claimed three reliefs, namely a declaration, an injunction and damages. Parker J. held that the payment in could only be in respect of the claim for damages. See Note 22/1/1 of the 2002 Hong Kong Civil Procedure and Note 22/1/3 of the 1999 Supreme Court Practice.

12. This Court in The Prudential Enterprise Limited and another v. P.H. Shek Limited and another [1990] 2 HKLR 79 also stated that payment in can only be made in respect of monetary claims. The latest judgment on this topic referred to by counsel is Braben v. Emap Images Ltd. [1997] 2 All ER 545 which is another example that payment in can only be made of a claim for a debt or damages.

Payment in does not satisfy declaration

13. In this case, as the plaintiff is seeking a declaration in addition to its claim for damages, it is clear that the payment in by the defendant of HK$5,000.00 could only be made in respect of the plaintiff's claim for damages and not for the declaration.

14. It is necessary to emphasize the words in Order 22 rule 1 namely, "in an action for a debt or damages" because it is only in an action which involves a claim for a debt or damages that the payment in mechanism can be invoked. While different causes of action may be joined in the same action, the essential requirement for payment in for the purpose of compromising the action is that it must be in respect of debts and damages. Where the claims include other relief then the payment in mechanism cannot be invoked to satisfy those claims. The proper reading of the rule is that the payment in is in satisfaction of the cause or causes of action in respect of which the plaintiff claims a debt or damages.

15. The causes of action in this case are breach of contract of employment and breach of duty of fidelity towards the plaintiff. While the payment in was said to be in satisfaction of both causes of action, the fact remains that the payment in can only satisfy the claim for damages based on these two causes of action and not on the claim for declaration based on the same causes of action. It is all too easy to lose sight of this essential requirement when the question of causes of action is considered.

16. In order to bring the situation within Order 22 Rule 3 it is not sufficient to say that the payment in was in satisfaction all the causes of action. It is clearly necessary to also take into account the nature of the claims of the plaintiff that are based on these causes of action.

17. In this case, despite the use by the defendant of the words that the payment in was "in satisfaction of all the causes of action in respect of which the plaintiff claimed", they would not enlarge the ambit of the Order. This is likewise for the plaintiff whose acceptance of the payment in was said to be "in satisfaction of the causes of action in respect of which it was paid in and in respect of which the plaintiff claims against the defendant".

Change in the terms of the Order

18. Mr. Kat, counsel for the defendant, argues that the wording of Order 22 had been changed since the cases like Moon or Young had been decided. This entitles the defendant to make payment in to satisfy the causes of action upon which the declaration was based and once the causes of action had been satisfied, the claim for declaration does not have an independent existence.

19. It is true that the wording of the Order had been changed. The history of the change can be seen in Hudson v. Elmbridge B.C. [1991] 1 WLR 880. I will set out first of all the relevant parts of Order 22 in the 1883 Rules of Supreme Court :

“ Order XXII ... 1. Where any action is brought to recover a debt or damages, any defendant may, before or at the time of delivering his defence, or at any later time by leave of the court or a judge, pay into court a sum of money by way of satisfaction, which shall be taken to admit the claim or cause of action in respect of which the payment is made; or he may, with a defence denying liability, (except in actions or counterclaims for libel or slander) pay money into court which shall be subject to the provisions of rule 6 : ... 6. When the liability of the defendant, in respect of the claim or cause of action in satisfaction of which the payment into court has been made, is denied in the defence, the following rules shall apply : (a) the plaintiff may accept, in satisfaction of the claim or cause of action in respect of which the payment into court has been made, the sum so paid in, in which case he shall be entitled to have the money paid out to him as hereinafter provided ... (b) If the plaintiff accepts the money so paid in, he shall, after service of such notice in the Form No. 4 in Appendix B as is in rule 7 mentioned, or after delivery of a reply accepting the money, be entitled to have the money paid out to himself ... 7. The plaintiff, when payment into court is made before delivery of defence, may within four days after the receipt of notice of such payment, or when such payment is first signified in a defence, may before reply, accept in satisfaction of the claim or cause of action in respect of which such payment has been made the sum so paid in, in which case he shall give notice to the defendant in the Form No.4 in Appendix B, and shall be at liberty, in case the entire claim or cause of action is thereby satisfied, to tax his costs after the expiration of four days from the service of such notice, unless the court or a judge shall otherwise order..."

Form 4 was in these terms :

“ Take notice that the plaintiff accepts the sums of ? paid by you into court in satisfaction of the claim in respect of which it is paid in."

20. In 1933, the Order was amended. The relevant parts were :

“ 1(1) In any action for a debt or damages or in an admiralty action the defendant may at any time upon notice to the plaintiff pay into court a sum of money in satisfaction of the claim or (where several causes of action are joined in one action) in satisfaction of one or more of the causes of action; provided that with a defence setting up tender before action the sum of money alleged to have been tendered must be brought into court. (2) Where the money is paid into court in satisfaction of one or more of several causes of action the notice shall specify the cause or causes of action in respect of which payment is made and the sum paid in respect of each such cause of action, unless the court or a judge otherwise order....

2(1) Where money is paid into court under rule 1, the plaintiff may, within seven days of the receipt of the notice of payment into court, accept the whole sum or any one or more of the specified sums in satisfaction of the claim or in satisfaction of the cause or causes of action to which the specified sum or sums relate, by giving notice to the defendant in Form 4 in Appendix B; and thereupon he shall be entitled to receive payment of the accepted sum or sums in satisfaction as aforesaid. (2) Payment shall be made to the plaintiff or on his written authority to his solicitor, and thereupon proceedings in the action or in respect of the specified cause or causes of action (as the case may be) shall be stayed."

Form 4 introduced the words "and abandons his other claims in this action," as in the present Form 24. Rule 2(3) provided :

“ If the plaintiff accepts money paid into court in satisfaction of his claim, or if he accepts a sum or sums paid in respect of one or more of specified causes of action, and gives notice that he abandons the other cause or causes of action, he may, after four days from payment out and unless the court or a judge otherwise order, tax his costs incurred to the time of payment into court, and 48 hours after taxation may sign judgment for his taxed costs."

21. According to Hudson, there was no relevant change of the rules between 1933 and 1986 save that the provision as to taxation of costs in Order 22 rule 2(3) became first rule 10 of the Supreme Court Cost Rules 1959 and later Rules of Supreme Court Order 62 rule 10(2). In each case there was provision that the defendant could ask for a special order for costs.

22. We do not consider the change in the wording of the Order would bring about so drastic an effect as to enable a defendant in an action which consists of both a debt or damages and other relief to make payment into court to satisfy the other relief when the payment was purported to be "in satisfaction of all cause of action" of the plaintiff. The old rules referred to "claim or causes of action" while the present rules referred to "causes of action in which the plaintiff claims." In my view the substance of the rules remains the same. The ambit of the payment in is still bound by the words "in action for a debt or damages". While joinder of other causes of action is permitted in such an action and the payment in mechanism is also applicable, it does not mean that the payment in can be made for a non-monetary claim.

Payment in for other relief

23. Mr. Kat also referred to Hargreaves Construction (Lineside) Ltd. v. Williams & Another (The Times 3 July 1982) where the plaintiff claimed for a mandatory injunction and damages. Payment in was made by the defendant "in satisfaction of the cause of action in respect of the plaintiff claims". Foster J. held that the payment had satisfied the plaintiff's cause of action in its entirety. The point was not specifically argued because, as can be seen from the judgment, counsel for the plaintiff agreed with the proposition put forward by counsel for the defendant that "under Order 22 this type of claim, despite a note to the rule, can be disposed of by way of payment into court and acceptance of that payment".

24. Note 22/1/5 in the 1982 Supreme Court Practice reads :

“ Action for Debt or Damages. -This Order applies only to actions for 'debt or damages', and not to actions for an account (Nichols v. Evens, 22 Ch. D. 611); but it applies to actions where debt or damages are sought together with other relief (e.g., injunction), see Moon v. Dickinson, 63 L. T. 371. In such a case payment in must be only in respect to the claim for damages, otherwise it is not within this Rule (Young v. Black Sluice Commissioners, 73 J. P. 265).

On the other hand, it should be remembered that in actions for claims other than 'debt or damages,' the defendant can make an 'open offer' which may have the same effect on the question where such offer amounts in substance to everything to which the court eventually holds the successful party to be entitled, see (n.) 'offer,' para. 62/2/73, infra.

See also Order 33, rule 4A, 'split trial : offer on liability,' infra."

25. The first part of the Note can be found in Note 22/1/3, while the second part in Note 22/1/5 of the 1999 Edition. The Editors at Note 22/3/6 questioned whether Hargreaves was in conflict with the cases cited in Note 22/1/3 i.e. Nichols, Moon and Young. We consider Hargreaves to be incorrectly decided and should not be followed.

Plaintiff not entitled to taxation without order

26. In the present case, as the defendant cannot make a payment in in satisfaction of the claim for declaration, the entire causes of action by the plaintiff were not satisfied and the plaintiff was not entitled to a taxation of costs as of right.

The substance of the claim

27. Mr. Kat argues that the substance of the plaintiff's claim is the damages claim; the plaintiff's prayer for a 'declaration' was no more than a claim to entitlement to judgment in its favour, and it was not a claim for 'declaratory relief' substantive or independent from the damages claim.

28. In our view as Order 22 rule 1 provides the basis for the plaintiff to have an automatic right to tax its costs if the required conditions are met, it must be construed strictly. All that the Court is required to do is to see whether the payment in is in respect of the claim for a debt and damages. It is not concerned with trying to analyse whether the claim is substantially in respect of a debt or damages. In any event there may be some specific reasons why the plaintiff wished to seek a declaration against the defendant in the first place. The Court is not concerned with all these.

Discontinuance or withdrawal of a cause of action

29. In M'Ilwraith and others v. Green and another [1884] 14 Q.B.D. 766, the plaintiffs commenced an action for breach of contract relying on two distinct breaches. The defendants paid money into court with regard to one of the breaches. The plaintiffs gave notice under Order 22 rule 7 that they accepted the money paid into court in full satisfaction of the causes of action in the statement of claim. The defendants argued that the plaintiffs were not entitled to have the costs taxed but must proceed to determine the liability of the parties as to the second breach. The English Court of Appeal held that the plaintiffs were entitled, without proceeding to judgment, to their costs of the action. This is because by accepting the money paid into court in satisfaction of all their alleged causes of action they had in effect discontinued or withdrawn the action as to the breach in respect of which the money was not paid in. The Court further held that when the costs were taxed, the plaintiffs must not be paid in respect of the cause of action which they had abandoned : they must be paid costs only in respect of the breach as to which they had succeeded; and if the defendants had been put to any unnecessary costs by the cause which the plaintiffs had taken, they must be reimbursed those costs.

30. It is to be noted that M'Ilwraith related to two breaches of contract as claimed by the plaintiffs and that the plaintiffs accepted the defendants' payment in "in full satisfaction of the causes of action in the statement of claim mentioned". The plaintiff's claims in the present case include a claim for a declaration to which no monetary value can properly be attached and in respect of which Order 22 rule 1 does not apply.

31. Moreover, in the present case, the notice of acceptance by the plaintiff cannot be construed as a withdrawal or discontinuance of its claim for the declaration because this will amount to a discontinuance without leave which under Order 21 rule 2 can only be done not later than 14 days after the service of the defence on the plaintiff. The period had long lapsed in this case.

Notice of abandonment

32. Under Order 62 rule 10(2), the plaintiff when accepting money that was paid in may give notice that he abandons the other causes of action in respect of which he claims and proceeds to taxation. Form 24 of Appendix A to the Rules is the statutory form for the notice of acceptance. It includes a provision for the abandonment of other causes of action. The entire form is as follows :

“ Take notice that the plaintiff accepts the sum of $.............................. paid in by the defendant C.D. in satisfaction of the causes(s) of action in respect of which it was paid in and in respect of which the plaintiff claims (against that defendant) (and abandons the other causes of action in respect of which he claims in this action). "

33. Had the plaintiff abandoned the claim for declaration, it would have been entitled to tax its costs automatically. But the plaintiff did not do so. Although it was argued by Mr. Kat that the plaintiff had abandoned this claim, this is clearly not so. Likewise, by no stretch of imagination can one construe the notice of acceptance by the plaintiff in this case as to include a notice of abandonment as well. It would now be too late to abandon the declaration because Order 62 rule 10(2) clearly envisages that the acceptance and abandonment should take place at the same time in order for the plaintiff to have the costs taxed as of right.

34. In Hudson, the English Court of Appeal commented on the unsatisfactory aspect of the equivalent of our Order 62 rule 10(2) which entitles the plaintiff to the automatic right of taxation. It suggested that the defendant's right to seek a specific order of costs which were originally present in the Order but deleted when the Order was amended should be re-instated. We agree. In order to balance the interest of having a case compromised by payment in and the prejudice that a party may suffer in terms of costs, as so vividly shown in this case, the retention of the court's discretion on costs is a safeguard which can easily be implemented. We hope the Rules Committee will look into this matter.

Conclusion on appeal

35. To conclude, as the entire causes of action had not been satisfied and the plaintiff had not abandoned its claim for the declaration, it is not entitled to have its costs of the action taxed without a court order. The appeal is accordingly dismissed with costs to the defendant.

Costs of the action

36. Mr. Kat invites the Court to make a costs order for the action. He refers to the costs order made in M'Ilwraith and invites us to adopt the same approach in respect to the claim for declaration. He also refers to Cho Ho Kuen v. Yu Kwok Wah & Others [2001] 3 HKC 566 where this Court held that where a plaintiff in the District Court was entitled to an automatic taxation of costs upon acceptance of payment in, the scale of costs was that of the District Court scale despite the amount that was paid in was within the jurisdiction of the Small Claims Tribunal.

37. Mr. Liang, counsel for the defendant, opposes this application.

38. We decline to take up the invitation. This is not an issue of this appeal. The plaintiff had all along assiduously avoided inviting the Court to make a costs order. It insisted that it was entitled to proceed to taxation as of right. In any event, there may be materials not before us upon which the parties may wish to rely in their arguments on various aspects of costs, including the appropriate scale. Further as the cause of action relating to the declaration has not been satisfied, the plaintiff has to seek leave to withdraw this claim. The costs for this claim can be dealt with as and when the application is made. We would observe that Cho Ho Kuen was concerned with the situation of an automatic right of taxation and was not intended to cover the situation where the court is required to exercise its discretion on costs.