CHUNG MEI INDUSTRIES LTD v. SO KWOK KEUNG

HCA 2604/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2604 OF 2005

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BETWEEN

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R U L I N G

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1.  This is a summons by which the Plaintiff seeks enhanced rates of interest on its judgment and an order for indemnity costs in respect of a judgment of mine handed down on 9 March this year. The court’s jurisdiction to make such orders is contained in RHC, O.22 r.24 which is concerned with the costs and other consequences in a situation such as this one where the Plaintiff does better than its proposal to settle the case couched in terms of a “sanctioned offer” introduced by the CJR.

2.  In my judgment I gave the Plaintiff all that it was claiming in the writ which was $2,925,000.  The sanctioned offer by the Plaintiff which, as Mr Kwan for the Defendant accepts, bites in these circumstances was that the Plaintiff was willing to accept $2,778,750 representing a 5% discount on the claim and that it would forego its claim for interest accruing on the debt for what was a period of four years.  This offer was ignored.  It simply was not responded to.  The Defendant must be taken to have demonstrated an unwillingness to enter into any sort of negotiation in settling the parties’ dispute.

3.  It is important to have regard to the rationale behind the regime of sanctioned offers introduced by the CJR.  This is set out in O.22/0/22 pages 468-469 of the current practice. Given its importance I will set out the note in full.  It says this:

“Rationale of ‘sanctioned offers’ and ‘sanctioned payments’ under O.22

Sanctioned offers and sanctioned payments aim to further encourage the parties to take position settlement seriously and avoid unproductive and expensive prolongation of the litigation. If a Plaintiff rejects a sanctioned offer or sanctioned payment and subsequently fails to achieve a better result at trial, even if victorious, he can be ordered to pay all of the Defendant’s costs after the date when the Plaintiff could have accepted the Defendant’s offer. This cost saving mechanism is already enshrined in pre-CJR O.22.

Scope of O.22 — Protection for the Plaintiff

The principal change brought about by CJR in respect of sanctioned offers is not provide that a Defendant who rejects a Plaintiff’s sanctioned offer (and the Plaintiff does better at trial) may be ordered to pay (i) indemnity costs and (ii) interest of up to base rate plus 10% on the sum awarded.  The new provisions relating to awards of interest are to be construed strictly.  Accordingly, it is only where a Plaintiff has made a sanctioned offer which satisfies the prescribed requirements that he may qualify for an award of additional interest but not otherwise.”

The rule is that where the Plaintiff has demonstrated, as it has in this case, that it made a valid sanctioned offer which was rejected and then did better at trial an enhanced order should usually be made unless it would be unjust to do so.

4.  In this case I can see no injustice to the Defendant who decided to fight the case to judgment on grounds which I roundly, I think this is a fair description, rejected he should now bear the consequences of the rule.

5.  In what is a low interest regime over the period that I am concerned with I propose to say that 3% is the appropriate enhanced rate under para.1(i) of the summons instead of the 10% that is asked for.  This rate will extend therefore to the period after judgment when the 8% judgment rate will apply anyway and be additional to it.  Contrary to Mr Kwan’s submission, I am satisfied that I have jurisdiction to make this order after judgment as did Chung J, in the case of Tsoi v Kok [2009] 4 HKLRD 216, with whom I respectfully agree.  As to para.2 of the summons which relates to costs, these will be as asked for by the Plaintiff, on a party and party basis up to 5 February 2010 which is the date by when the sanctioned offer needed to be accepted.  Thereafter, this is para.3 of the summons, I will order costs to the Plaintiff on an indemnity basis with interest at 3% above the judgment rate until payment in full.

6.  I will now hear counsel on the costs of the summons and of today’s hearing.

7.  After hearing argument I awarded the Plaintiff its costs, of the summons and of today, on an indemnity basis.