DCCJ 3902/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3902 OF 2007

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BETWEEN

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DECISION

Background

1.  On 17 June 2010, this Court handed down judgment in favor of the Plaintiff ("Power Color"), whereby the Defendant ("Kam Kong") was ordered to pay to Power Color the sum of $625,884 together with interest at judgment rate from the date of service of the Writ until payment ("Judgment").

2.  By its Amended Summons dated 12 October 2010, Power Color applies under (inter alia) Order 22 rule 24 of the Rules of the District Court for Kam Kong's payment of enhanced interest on the judgment sum at a rate not exceeding 10% above judgment rate, and costs of the action on an indemnity basis, together with enhanced interest on such costs at a rate not exceeding 10% above judgment rate, from either 20 November 2009 or 1 April 2010 until payment.

3.  The basis of Power Color's application is that on 22 October 2009, Power Color had offered to accept a sum of $675,000 in settlement of its claim, which sum is expressed to be inclusive of interest ("1st Sanctioned Offer"). The payment sought in the Writ and the Statement of Claim was $625,884. On 3 March 2010, Power Color made a further offer to settle for the sum of $600,000, again inclusive of interest ("2nd Sanctioned Offer"). Power Color claims that the amount awarded in its favor under the Judgment, plus interest, is higher than the sums comprising both Sanctioned Offers, and that it is therefore entitled to enhanced interest and costs from either the date after the latest date on which Kam Kong could have accepted the 1st Sanctioned Offer, or the 2nd Sanctioned Offer.

4.  Since Kam Kong is held liable for more than the proposals contained in the Sanctioned Offers made by Power Color, Order 22 rule 24 is triggered, and under rule 24 (2), the Court may order interest on the whole or part of any sum of money awarded to Power Color at a rate not exceeding 10% above judgment rate. The Court may also order costs on an indemnity basis and interest on costs under rule 24 (3).

5.  Order 22 rule 24 (4) provides that the Court shall make the orders in question unless it considers it unjust to do so.

Is it unjust to make the orders sought?

6.  In considering whether it would be unjust to make the orders referred to in Order 22 rule 24 (2) and (3), the Court is to take into account all the circumstances of the case including the terms of the sanctioned offer, the stage at which any sanctioned offer was made, the information available to the parties at the time when the sanctioned offer was made, and the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

7.  Kam Kong has referred to various matters in opposition to the application under Order 22. It refers to the fact that the amount claimed by Power Color in these proceedings is substantial, that it was in a disadvantageous position when it came to assessing the quantum of Power Color's damages, and hence that it was entitled to test Power Color's evidence at trial by cross-examination and essentially to put Power Color to proof of its claim.

8.  It cannot be disputed that Kam Kong has the right to require Power Color to prove its case at trial and to justify its claim for damages. Any defendant is entitled to do this. However, a defendant has also to accept that in so doing, it has to bear the inherent risk of the plaintiff being able successfully to prove its case at trial to the satisfaction of the court, with the consequent risk of having to pay the costs of the action and, in the event of there being a sanctioned offer made by the plaintiff pursuant to Order 22, the risks of having to pay the enhanced interest, indemnity costs and interest on costs which are the consequences specified in Order 22 rule 24.

9.  The arguments raised on behalf of Kam Kong in relation to the merits or otherwise of Power Color's case and the strength or weakness of the evidence adduced by Power Color do not in my judgment justify the Court's refusal to make the order for enhanced interest, indemnity costs and interest on costs. In granting judgment in favor of Power Color, the Court already considered and evaluated the strength or weakness of Power Color's case. It is part of the risks of litigation accepted by Kam Kong in deciding to proceed to trial instead of accepting Power Color's sanctioned offers.

10.  Kam Kong referred also to Power Color's right to sue and the fact that the sub-tenancy agreement produced and sought to be relied upon by Power Color was not stamped until just before the commencement of trial. Again, this is part of the litigation risks which Kam Kong decided to take in putting Power Color to proof of its case in court. Even if the sub-tenancy agreement is not admissible for lack of stamping, Power Color could still have given oral evidence in relation to its right to occupy the premises, which the Court may accept.

11.  In relation to the terms of the Sanctioned Offers, the 1st Sanctioned Offer was made as early as October 2009, about 6 months before trial, and the 2nd Sanctioned Offer was made in March 2010, more than 28 days before the commencement of trial on 20 April 2010.

12.  Kam Kong stresses that the 1st Sanctioned Offer was made on the basis that Power Color sought full payment of its claim for $625,884, with a small amount of interest, which provided very little incentive to Kam Kong to settle.

13.  Apart from this, the documentary evidence relating to Power Color's claim for damages had all been disclosed in the usual course in the proceedings. There is nothing in the correspondence exchanged after the making of Power Color's Sanctioned Offers to show that the reason for Kam Kong not agreeing to make payment of the amounts sought by Power Color was due to any particular aspect of the evidence produced by Power Color, be it Power Color's right to sue, or the loss adjusters' reports relied upon by Power Color. There is no evidence that Kam Kong had asked to be provided with any information which they needed in order to be able to assess whether or not to accept the Sanctioned Offers, but were refused such information.

14.  Counsel for Kam Kong relies on the decision of Lam J in Golden Eagle International (Group) Ltd. v. GR Investment Holdings Ltd. [2010] 3 HKLRD 273 to argue that to award enhanced interest would be tantamount to awarding double compensation to Power Color, or imposing a penalty on Kam Kong, which is not the purpose intended by Order 22 rule 24.  In Golden Eagle, the parties agreed that interest should be at the judgment rate of 8%, and the Court did not consider that it should be further enhanced. Counsel pointed out that Lam J referred to the fact that the usual practice in commercial cases is to award pre-judgment interest at 1% above the prime rate, and that interest at judgment rate already carried an enhanced element.

15.  Read in its proper context, I do not agree that the decision in Golden Eagle is to be interpreted to mean that payment of enhanced interest should never be awarded since interest at judgment rate is already higher than the commercial rate of interest. Clearly, the aim and objective of Order 22 rule 24 is to provide an incentive to encourage plaintiffs to make, and defendants to accept, settlement offers at appropriate levels (para 22/24/1 Hong Kong Civil Procedure 2010), in furtherance of the underlying objectives of the Civil Justice Reform. Such an incentive would not exist if, in every case, the Court considers that payment of interest at judgment rate is already payment of enhanced interest.

16.  In McPhilemy v. Times Newspapers Ltd. (No. 2) [2002] 1 WLR 934, it was made very clear that an order under rule 36.21 of the English rules, which is equivalent to Order 22 rule 24, carries no implied disapproval of the defendant's conduct, nor any stigma. The orders are aimed to provide a means of achieving a fairer result for a plaintiff, to compensate the plaintiff for having to come to court to bring proceedings and for the incidental inconvenience, anxiety, distress and disruption to its business (Petrotrade Inc. v. Texaco Ltd. [2002] 1 WLR 947), which are not compensated by orders for costs in the proceedings, even when they are made on an indemnity basis. These principles were recognized and accepted by Lam J in Golden Eagle. Chadwick LJ explained in his judgment in McPhilemy that it is when it must be assumed that the anxiety, inconvenience and distress of proceedings have already been taken into account (for example by the jury in reaching their award of damages in defamation proceedings) that enhanced interest should not be awarded, to avoid any element of double compensation.

17.  In all, after considering all the circumstances of the case, I can see nothing which makes it unjust to grant the orders for enhanced interest, indemnity costs and interest on costs.

What should be the rate of enhanced interest?

18.  Under Order 22 rule 24 (2), the Court may order interest at a rate not exceeding 10% above judgment rate, for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court. Obviously, this does no more than to indicate the order which can be made by the Court.

19.  Counsel for Kam Kong points out that the judgment rate of interest as specified in the Judgment is already higher than the usual 1% above prime rate normally awarded in commercial cases.

20.  Counsel for Power Color referred to cases decided by the Court, indicating that the rate of enhanced interest awarded under Order 22 rule 24 (2) and (3) since its introduction ranges from 1% to 5% above judgment rate.

21.  Considering all the circumstances of this case, including the terms of the Sanctioned Offers, the lack of incentive offered by the 1st Sanctioned Offer, the timing of the Sanctioned Offers, the correspondence exchanged between the parties after these offers were made, and the fact that Kam Kong never asked for any clarification or information relating to the Sanctioned Offers, I consider that a fair rate of the enhanced interest to be paid by Kam Kong should be 2% above judgment rate. It is true that the 1st Sanctioned Offer contained no or little discount from the original claim made. However, Kam Kong never even responded to the 1st Sanctioned Offer and did not accept the 2nd Sanctioned Offer either, so it is dubious whether the lack of an attractive discount in the 1st Sanctioned Offer made any difference. In ordering this lower rate of 2%, I have already taken into consideration the fact that under the Judgment, interest on the judgment sum is already payable at judgment rate from the date of service of the Writ.

Period for payment of enhanced interest

22.  On the facts of this case, the 1st Sanctioned Offer was superseded by the 2nd Sanctioned Offer. I will order enhanced interest on the judgment sum to the paid from 1 April 2010, being the date after the latest date on which Kam Kong could have accepted the 2nd Sanctioned Offer.

Costs and interest on costs

23.  As I have found nothing to make it unjust to grant the orders under Order 22 rule 24, I will order indemnity costs from 1 April 2010, and enhanced interest on these costs to be paid by Kam Kong.

24.  The rationale for payment of interest on costs is explained by Chadwick LJ in McPhilemy (at para 23, page 944 of his Judgment):

"Nor do I see any injustice, in principle, in an order … for the payment of interest on the costs which are the subject of the order which I would make under paragraph (3)(a).  The purpose for which the power to order interest on costs under that paragraph is conferred is, I think, plain. It is to redress, in a case to which rule 36.21 applies, the element of perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment: see Hunt v. R M Douglas (Roofing) Ltd. [1990] 1 AC 398, 415F. So, in the ordinary case, the successful claimant who has made payments to his own solicitor on account of costs in advance of the trial will be out of pocket even if he obtains, at the trial, an order for costs on an indemnity basis. He will get interest on his costs from the date of the order (whether he has actually paid them or not); but he will get nothing to compensate him for the cost of money (or the loss of use of money) which he has had to bear before trial in relation to payments which he has made on account of costs. An order under paragraph (3)(b) of rule 36.21 enables the court to achieve a fairer result in that respect."

25.  In McPhilemy, Chadwick LJ set the period for payment of interest on costs to run from the date upon which the work was done or liability for disbursements was incurred, at a rate which reflects the cost of money, 4% over base rate.

26.  In the case of KR v. Bryn Alyn Community (Holdings) Ltd [2003] PIQR P30, the Court pointed out that interest on costs is intended to compensate a litigant who is out of pocket, having funded litigation which he should not have had to fund, and that in cases where there is no evidence to demonstrate the actual dates when clients had put up funds from which interest will run, the Court may order interest to run from the date when the work was done or liability for disbursements was incurred, as in McPhilemy.

27.  In this case, there is no evidence as to when Power Color was out of pocket in having to make payment on account of costs, or in having to actually put up funds for payment of its legal costs. Nor is there evidence of when liability for disbursements such as Counsel’s fees was incurred. I will therefore adopt the simplified approach used by Lam J in Golden Eagle, by ordering interest on these costs at half the rate I ordered for enhanced interest on the judgment sum, for the same period specified in paragraph 22 above.

Conclusion

28.  I allow Power Color's application for enhanced interest on the judgment sum at the rate of 2% above judgment rate, indemnity costs and interest on costs at the rate of 1% above judgment rate, from 1 April 2010 until payment.

29.  Kam Kong is to pay to Power Color the costs of the application, to be taxed if not agreed, with certificate for counsel, on a indemnity basis.