CHAN CHI MING v. BRILLIANT RISE CONTAINER DEPOT LTD t/a 逸昇重櫃場 AND ANOTHER

HCA1110/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1110 OF 2003

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DECISION ON COSTS

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Introduction

1.  Upon the plaintiff’s application by summons filed on 21 May 2007 (“the plaintiff’s Summons”), Messrs Ko & Chow (“KC”) was ordered to show cause why it should not be liable personally for the wasted costs incurred by the plaintiff in prosecuting the claim against the 2^nd defendant for the period from 17 September 2004 to 11 September 2006, during which the 2^nd defendant was deregistered and KC was on the record representing the 2^nd defendant. 

2.  By my Decision handed down on 24 December 2004, KC was ordered to personally bear the wasted costs incurred by the plaintiff in pursuing the claim against the 2^nd defendant during the aforesaid period. The amount of the wasted costs was ordered to be taxed by the taxing master, if not agreed.

3.  Counsel for the plaintiff and KC had since put in written submissions relating to the costs of the application and proceeding on wasted costs order.

The parties’ case on costs

4.  The plaintiff’s position is that costs should follow event so that KC should be ordered to pay the plaintiff the costs of the wasted costs proceeding. The plaintiff further asks that the wasted costs as well as the costs of the plaintiff’s Summons be taxed on indemnity basis.

5.  On the other hand, KC’s position is that the plaintiff should only be entitled to the costs of the application up to 12 September 2007, and should pay the costs of KC incurred after 12 September 2007, relying on the fact that KC had made a “without prejudice save as to costs” offer, which was not accepted by the plaintiff.

The Calderbank offer

6.  In support of the argument, KC relied on a series of without prejudice correspondence it had with the plaintiff’s solicitors. The first is KC’s letter dated 30 June 2007 to the plaintiff’s former solicitors. The material part of it read:

“On without prejudice basis and without admission basis and with a view to settle the matter amicably, we hereby [sic] give the following offer for settlement of your client’s claim under the Summons dated 21-05-2007 in the following terms :-

(a)    a sum of HK$100,000.00 in full and final settlement of your client’s claim; and

(b)   the costs of the application of your [sic] summons to be paid by us to be taxed [sic] if not agreed.

Please be informed that this offer is open [sic] for your client’s acceptance within the next 5 days. Failing which the offer will be lapsed and we shall file and serve our affirmation to oppose [sic] your client’s application.

If the costs of your client’s Summons shall be in issue, we reserve our right to produce this letter to the Court for its consideration; in particular, if the costs is awarded in your favour but it is taxed below the aforesaid offered sum. Under that situation, we shall ask for the costs of your client’s Summons and the costs of taxation.” 

7.  The plaintiff’s current solicitors replied by letter dated 17 July 2007. The letter began by observing that it appeared that KC did not dispute personal liability for the plaintiff’s costs.  It went on to propose that KC agreed to an order being made along the terms of the plaintiff’s summons with costs to the plaintiff to be taxed if not agreed, and after the consent order was made, they could then negotiate on the amount of costs involved. The letter concluded by pointing out that the amount offered by KC was too low.

8.  KC replied by letter of the same date. The material part of it read:

“We reiterate that we dispute our firm’s personal liability to pay the costs after the de-registration of D2.

The offer to your client is on without prejudice and without admission basis save and except for costs and costs of taxation in order to settle the matter amicably.

Therefore, it is for your client to consider to accept it or not. If, which is denied, we were liable, the amount of the wasted costs is later taxed at below the offered sum, we shall apply to Court for the costs of the summons from the offer and the costs of taxation.”

9.  Then by letter dated 12 September 2007, the plaintiff’s solicitors informed KC that as a gesture of goodwill, the plaintiff was prepared to accept HK$500,000 as the costs incurred in prosecuting the 2^nd defendant. It stated that if KC did not accept this, it would be sensible to leave the matter to taxing matter. The letter further pointed out that it was unreasonable for KC to seek to show cause when the matter could have been disposed of by KC admitting liability and leaving the amount to be taxed.

10.  On 18 September 2007, KC wrote to reject the plaintiff’s offer. The letter went on to counter-offer HK$150,000 “in full and final settlement of [the plaintiff’s] claims.”

11.  Then by letter dated 1 December 2007, the plaintiff’s solicitors reiterated that the best course was for KC to agree to the costs to be taxed so as to dispense with the need of the substantive hearing of the plaintiff’s summons.

12.  It should be noted that during all this time, KC had not filed its affirmation to show cause, notwithstanding that the 28 days’ period for it to show cause had long lapsed. The affirmation was only served on 11 December 2007, 2 days before the substantive hearing scheduled for 13 December 2007.

13.  Upon receiving the affirmation of Ko Kok Fai, which raised for the first time KC’s application to reinstate the 2^nd defendant to the register of the Companies Registry under section 291AB of the Companies Ordinance, cap.32, the plaintiff’s solicitors wrote on the same day enquiring whether the previous offer of $150,000 was still open. KC replied on the same day, stating, inter alia, that the offer had lapsed “for want of acceptance and for the rejection of the same by you from time to time by your without prejudice letters inviting us to consent to the costs order against us with the amount of the costs order to be taxed such as your letter dated 1^st December 2007.”

14.  Several points are clear from these without prejudice correspondence. First, KC had made two offers: The first is to pay the plaintiff $100,000 as the wasted costs plus the costs of the plaintiff’s Summons. The second is to pay the plaintiff $150,000 in full and final settlement of all the plaintiff’s claims. I shall refer to the offers collectively as the Calderbank offers.  Second, KC’s position throughout is that it disputes personal liability for the wasted costs. It therefore does not agree to a wasted costs order being made against it, leaving the amount of the wasted costs to be negotiated or taxed. Third, KC’s further position is that if it were found liable for the wasted costs and the taxed wasted costs were lower than the sum offered, then it would apply to the court for the costs of the plaintiff’s Summons as from the date of the making of the offer and the costs of taxation.   

The costs of the plaintiff’s Summons

15.  Costs is a matter of the court’s discretion. In general, costs should follow event. Given my decision that KC had failed to show cause why it should not personally bear the costs incurred by the plaintiff in pursuing the claim against the 2^nd defendant after the latter’s deregistration, the plaintiff had clearly succeeded on his summons. Prima facie, the plaintiff should be entitled to the costs of the application.

16.  The issue here is whether KC’s Calderbank offers should affect the plaintiff’s entitlement to costs after 12 September 2007. I note in passing that it is not altogether clear why KC chose 12 September 2007 as the cut-off date for determining the costs entitlement under the plaintiff’s Summons. 12 September 2007 is the date of the letter from the plaintiff’s solicitors indicating that the plaintiff was prepared to accept $500,000 as the wasted costs and proposing alternatively to leave the matter to the taxing master if KC did not agree to the sum proposed.  Neither of these proposals was taken up by KC. Furthermore, KC revised its offer to $150,000 by letter dated 18 September 2007. The chosen date of 12 September 2007 is inappropriate.

17.  That aside, it is trite that a Calderbank offer only influences, but does not govern, the Court’s discretion as to costs: McDonnell v. McDonnell [1977] 1 WLR 34 at 38. Where a Calderbank offer had not been accepted, the Court’s approach should be to ask whether the party to whom the offer was made ought reasonably to have accepted the proposal: Butcher v. Wolfe & Another {1999} 1 FLR 334 at 304B.

18.  In the present case, in considering whether the plaintiff has acted unreasonably in not accepting the Calderbank offers, the starting point is to note the nature and substance of the plaintiff’s Summons.  By the summons, the plaintiff sought an order that KC be required to show cause why it should not be liable personally for the wasted costs incurred by the plaintiff in prosecuting the claim against the 2^nd defendant after the latter became deregistered until KC ceased to act for it. In essence, the Court was asked to make a wasted costs order against KC. On the basis of the two-stage approach set out in Ma So So v. Chin Yuk Lun & Another [2004] 3 HKLRD 295, after the hearing on 7 June 2006, the issue to be decided by the court was whether it should make a wasted costs order against KC.  The court was not concerned with the amount of the wasted costs to be paid by KC. The amount of wasted costs is a separate matter to be decided by the taxing master after the court has ruled on the plaintiff’s Summons.  It has to be by way of a separate application to assess or tax the costs.

19.  Thus analyzed, the Calderbank offers did not relate to or address the application that was pending before the court. Despite making the offer, KC maintained that the summons should be decided in its favour. Therefore, insofar as the purpose of the Calderbank offers was to stop the costs of the plaintiff’s Summons from being continued in the plaintiff’s favour, KC’s offers did not serve the purpose at all. What is more, KC made it plain that the Calderbank offers were made on the basis that liability for the wasted costs continued to be disputed. With my decision that it should personally bear the wasted costs, the plaintiff has not been beaten by the Calderbank offers.

20.  Additionally, Mr Ng for the plaintiff pointed out that the letter dated 18 September 2007 containing the revised offer of $150,000, did not offer to pay the costs of the plaintiff’s Summons.  While KC’s first offer was to pay the sum of $100,000 plus the costs of the plaintiff’s Summons to be taxed if not agreed, the letter of 18 September 2007, in making the revised offer of $150,000, made no mention of the costs of the plaintiff’s Summons.  The duty is on the offering party to make a clear offer: see Cheung Yu Tin v. Ho Hon Ka [2006] 2 HKLRD 674 at para.22. If KC intended to pay the costs of the summons in addition to the revised offer of $150,000, it was under a duty to make it clear in the letter.

21.  In my view, the plaintiff cannot be said to have acted unreasonably in refusing to accept the Calderbank offers. On the contrary, the plaintiff had made a reasonable proposal when it suggested KC to consent to the summons and to have the amount of wasted costs to be determined by the taxing master. Had this course been adopted, much of the costs of the summons, including the costs associated with the reinstatement of the 2^nd defendant and the costs of the substantive hearing, would have been saved.

22.  As an alternative, Mr Lin for KC asked that the costs of the plaintiff’s Summons be reserved until after the taxation of the wasted costs. I do not agree that this is an appropriate course. As noted above, the plaintiff’s Summons relates to whether a wasted costs order should be made against KC. This had been determined in the plaintiff’s favour. The Calderbank offers made by KC fail to address the issue to be resolved under the plaintiff’s Summons. The offers only relate to the amount of wasted costs, which is to be determined by separate proceeding before the taxing master, if there is no agreement between KC and the plaintiff. There is no justifiable reason for denying the plaintiff’s entitlement to the costs of the plaintiff’s Summons.      

Indemnity costs

23.  The plaintiff’s submission for indemnity costs has two aspects. The first relates to the wasted costs and the second concerns the costs of the plaintiff’s Summons. I will deal with them in turn.

24.  In respect of the wasted costs, it is important to bear in mind that the wasted costs jurisdiction under Order 62 rule 8 is compensatory, apart from being punitive. It is directed towards compensating the party concerned for the costs wasted as a result of the solicitor’s conduct: Ma So So v. Chin Yuk Lun & Anor, op cit., at 300, para.7. For this reason, solicitor-own-client costs or indemnity costs would in general be appropriate.

25.  For KC, Mr Lin raised two arguments against awarding the wasted costs on indemnity basis. The first is that the basis for finding KC personally liable for the wasted costs was the want of authority occasioned by deregistration of the 2^nd defendant. It is said that the order was not based on serious dereliction of duty and is therefore not an order properly based on Order 62 rule 8. I do not accept that a wasted costs order arising out of want of authority on the solicitor’s part falls outside the scope of Order 62 rule 8 or that the application of Order 62 rule 8 is confined to misconduct or serious dereliction of duty on the part of a solicitor. In my view, the rationale of compensating the affected party for the costs wasted equally applies to a case like the present, where the wasted costs were occasioned by the want of authority on the solicitor’s part.

26.  In the circumstances of the present case, I am of the view that it is a proper exercise of the court’s discretion to order KC to indemnify the plaintiff for the wasted costs on an indemnity basis. There is nothing to justify a departure from the principle of compensating the plaintiff for the costs wasted as a result of KC’s acting without authority.

27.  The second argument advanced by Mr Lin is that the plaintiff should have asked for indemnity costs at the hearing. I do not accept that the plaintiff cannot raise the basis of taxation after it was decided that a wasted costs order should be made against KC. That aside, there is no irreparable prejudice to KC given that it had been afforded an opportunity to deal with the submission on basis of taxation.

28.  I turn now to deal with the basis of the costs of the plaintiff’s Summons. In Ma So So v. Chin Yuk Lun & Anor, op cit., at 322, para.95, Ribeiro PJ pointed out:

“The wasted costs order itself is the response (both punitive and compensatory) to the misconduct which attracted the disapproval. That disapproval cannot be allowed to spill over into the costs order made in the O. 62 r.8 proceedings where there has been no procedural or other impropriety justifying a special costs order in the latter proceedings”    

29.  Accordingly, whether the costs of the plaintiff’s Summons should be awarded on indemnity basis falls to be governed by the general principles relating to the award of indemnity costs. In Town Planning Board v. Society for Protection of the Harbour Limited (No.2) (2004) 7 HKCFAR 114, it was held that the court has a broad discretion to determine how costs should be paid and whether indemnity costs should be ordered. The Chief Justice (at paras.15-17) confirmed the principle that the successful party should show, in order to obtain an order for costs on an indemnity basis, that the case has some special or unusual feature. However, an award of indemnity costs order is not confined to cases 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. It is undesirable to attempt to define the circumstances in which such order would be made, and the discretion was not to be fettered beyond the requirement that indemnity costs must be appropriate.           

30.  In the present case, the plaintiff contends that there has been procedural impropriety on the part of KC in dealing with the wasted costs proceedings such that an indemnity costs order should be awarded under the plaintiff’s Summons. Specifically, the plaintiff relies on the fact that there had been inordinate and inexcusable delay by KC in that, despite the Order dated 7 June 2007 directing the filing and service of evidence to show cause within 28 days, KC only filed the affirmation and an Order 3 rule 5 summons seeking extension of time, three days before the hearing.  Further, KC failed to comply with Practice Direction 5.4 and only served the submissions until the day before the hearing.

31.  In reply, KC argues that the late filing of affirmation and service of submissions had occasioned no prejudice to the plaintiff and that costs of the O.3 r.5 summons had already been awarded to the plaintiff.   

32.  In my view, the plaintiff’s complaints are not groundless.  After hearing KC, the Court directed that the evidence to show cause should be filed and served within 28 days from 7 June 2007. If more time is required, it is incumbent upon KC to seek an extension of time as soon as it realized that it could not meet the time limit. No explanation had been given for taking out the Order 3 rule 5 summons only 3 days before the hearing.  It is not open to a party, not to say an officer of the court, to assume that it does not have to adhere to the time imposed by the Court to act.  Further, the affirmation filed by KC was a substantial one. It raised for the first time the reinstatement of the 2^nd defendant, which was upon KC’s application. The affirmation showed that KC had been in communication with the Registrar of Companies for some time before the hearing. It is therefore quite possible for KC to make the Order 3 rule 5 application much earlier on. Insofar as the delay in filing the affirmation was said to be due to the reinstatement application, it has to be noted that when KC first wrote to the Registrar of Companies on this matter, the 28-day limit for filing evidence had long expired.

33.  As to the submission that the delay had occasioned no prejudice to the plaintiff, the fact is: until KC served the affirmation and the Order 3 rule 5 summons, the plaintiff was entitled to assume that KC would not adduce evidence to show cause and to prepare for the hearing on that basis.  Indeed, by the time KC’s affirmation was served, the plaintiff had already served and lodged with the court his counsel’s written submissions. Given that the affirmation raised substantial matters and that it was served so close to the hearing, it cannot be said that there was no prejudice at all. Plainly, additional time and costs have to be incurred to consider and deal with the new matters raised by the late affirmation.

34.  Mr Lin also submitted that it was not open to the plaintiff to complain about the delay in the filing of affirmation and serving of submission because had the plaintiff accepted the Calderbank offers, then it would not have been necessary to file the affirmation and hold the hearing. I do not agree. First and foremost, KC’s delay has nothing to do with the Calderbank offers, let alone the non-acceptance of them by the plaintiff. Further, as the discussions above show, the Calderbank offers are misconceived and the plaintiff did not act unreasonably in not accepting them instantly. On the contrary, but for KC’s insistence on disputing liability for wasted costs, the hearing of the plaintiff’s summons could have been dispensed with. It should also be noted that upon receipt of the affirmation, the plaintiff’s solicitors immediately enquired whether the revised offer was open, but was met with a negative reply from KC. 

35.  In short, KC’s conduct of the wasted costs proceeding is far from satisfactory. It is appropriate that the costs be awarded on a higher scale. Considering that the plaintiff is legally aided, I will order that the costs of the plaintiff’ summons be taxed on common fund basis.

Conclusion

36. For the above reasons, I order that:

(1)        The wasted costs be taxed on indemnity basis, if not agreed.

(2)        KC pays the plaintiff the costs of the plaintiff’s Summons, to be taxed on common fund basis, if not agreed.

(3)        The plaintiff’s own costs be taxed under the Legal Aid Regulations.