CLP POWER HONG KONG LTD v. KONG CHUNG SANG

DCCJ 2775/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2775 OF 2010

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DECISION

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Introduction

1.  On 18 July 2012, I handed down my judgment and awarded damages to the Plaintiff (“CLP Power”) in the sum of $231,154 (“Judgment Sum”) together with interest and costs. The background leading to this action and my reasons for giving judgment in favour of CLP Power or rejecting the Defendant’s (“Mr Kong”) defence have been set out in my judgment, and I do not propose to repeat them here. For convenience, I would adopt herein the abbreviations used in my judgment.

2.  This is CLP Power’s application by way of a summons under Order 22 rule 24 of the Rules of the District Court to vary the costs order nisi and to apply for enhanced interest on the judgment sum and costs. Mr Wilmot appearing for CLP Power, upon clarification, confirms the following orders are to be sought:

(1)  Mr Kong shall pay interest on the Judgment Sum at an enhanced interest rate of 4% above judgment rate from 6 September 2011 until the date of the judgment (“Pre-judgment Period”) and thereafter at same enhanced rate until full payment (“Post-judgment Period”);

(2)  Mr Kong shall pay the costs of CLP Power incurred from 6 September 2011 onwards on an indemnity basis;

(3)  Mr Kong shall pay interest on such indemnity costs at an enhanced interest rate of 4% above judgment rate;

(4)  Costs of this application be to CLP Power to be taxed on an indemnity basis.

3.  The main basis for CLP Power’s application is that Mr Kong has failed to beat CLP Power’s sanctioned offer of $180,000 made on 9 August 2011 which is said to be in full and final settlement of all claims including costs of either party and interest of this action (“Sanctioned Offer”). The total amount of claim as shown in the writ and statement of claim is $240,070. The Sanctioned Offer represents about 25% discount of the original claim.  Pursuant to Order 22 rule 5(7) of the Rules of the District Court, the expiry date for Mr Kong to accept the Sanctioned Offer, without leave of the court, fell on 5 September 2011 (28 days from the date of the Sanctioned Offer). Mr Kong did not give any response to the Sanctioned Offer. He was held liable for the Judgment Sum of $231,154 after trial.

4.  Mr Chan, Counsel for Mr Kong, does not dispute that Mr Kong failed to make any reply to the Sanctioned Offer by 5 September 2011 or at all. He confirms that in such circumstances, the said Order 22 rule 24 is triggered. He also agrees that this court has the jurisdiction under the said Order 22 rule 24 to make the orders now sought by CLP Power. Further, he does not seem to challenge that enhanced interest, if granted, should start to run after the last date of acceptance of the Sanctioned Offer (ie 6 September 2011). His main contention is whether it is unjust for this court to grant an order so sought. He adds that in case this court was minded to allow CLP Power’s application, the enhanced interest rate should only be 1% above the judgment rate. As to the costs of this application, he submits that it should be on party to party rather than indemnity basis.

Issues

5.  In view of the submission made by the respective parties, the issues for determination in this hearing are:

(1)  Whether it is unjust to make the orders now sought by CLP Power;

(2)  If it was not unjust to do so, what should be the enhanced interest rate on the Judgment Sum and costs;

(3)  Whether indemnity costs should be awarded against Mr Kong in respect of this application.

Applicable Legal Principles

6.  Order 22 rule 24 of the Rules of the District Court provides a discretion to the court to order:

(1)    interest on the whole or part of the sum awarded at an enhanced interest rate (up to 10% above judgment rate) for some or all of the period after the latest date on which the sanctioned offer could have been accepted without leave (Order 22 rule 24(2));

(2)    costs on indemnity basis after the latest date on which the sanctioned offer could have been accepted without leave (Order 22 rule 24(3)(a));

(3)    interest on those costs at a rate up to 10% above judgment rate.

7.  Under Order 22 Rule 24(4), the court “shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so” (italics added).

8.  Whether it is unjust shall be determined with reference to all the circumstances of the case including the matters specified under Order 22 rule 24(5) including:

“(a) the terms of any sanctioned payment or sanctioned offer;

(b) the stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned payment or sanctioned offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the payment or offer to be made or evaluated.” 

9.  The sanction of ordering indemnity costs or enhanced interest provided in the said Order 22, however, is not meant to be penal in nature but is a means of achieving a fairer result (see: Poon Yiu Cheung v World Mastery Technology Ltd [2011] HKEC 1296 citing Lord Woolf MR in Petrotrade Inc v. Texaco Ltd [2002] 1 WLR 947).

Whether unjust to make the orders sought?

10.  There is no challenge from Mr Chan for Mr Kong on the clarity of the terms of the Sanctioned Offer. I would add that on a plain reading of the Sanctioned Offer contained in CLP Power’s letter dated 9 August 2011, one would not dispute that the offer made was expressed in clear terms devoid of any chance of misunderstanding.

11.  In his submission, Mr Chan relies on para (b) and (c) of Order 22 rule 24 (5) and in essence submits that this case is not an ordinary case as the whole of CLP Power’s case turns on circumstantial rather than direct evidence. Against this background, Mr Chan argues that the Sanctioned Offer was made too early at a stage whence the witness statements of CLP Power had not been exchanged[1]; the Old Meter had not been physically inspected by Mr Kong or his solicitors[2]; and the SJE Report was not prepared[3]. In the circumstances, Mr Kong had yet to be equipped with sufficient information to assess the validity of the offer and/or to make an informed decision on the merits of his case as at the date of expiry of the Sanctioned Offer (5 September 2011).

12.  On this respect, Mr Chan relies on Mamidoil-Jetoil Greek Petroleum Company SA & Another v Okta Crude Oil Refinery AD [2003] 1 Lloyd’s Rep 42 and Welltus Ltd v Fornton Knitting Co Ltd, HCA 349/2007, judgment dated 3 January 2012.

13.  In the case of Mamidoil-Jetoil (supra), Ailkens J took the view that the sanctioned offer of the plaintiffs was made at a very early stage when the particulars of claim in the respect of the actions had not yet been filed by the plaintiffs. No detail of how the sanctioned offer was made up was ever given by the plaintiffs at that time. Further, the quantum of the case would have reduced significantly as a result of an earlier decision of another judge concerning one of the contracts being sued, if not due to the later Court of Appeal’s judgment in March 2001. Upon taking into account all the circumstances of the case, Ailkens J found that it was unjust in the circumstances to make any sanction order against the defendant. 

14.  Due to the reasons which will become obvious below, I am of the view that the facts of Mamidoil-Jetoil (supra) are different from those of this case, and can thus be distinguished.

15.  In Welltus Ltd (supra), Deputy High Court Judge Carlson (as he then was) commented that the approach taken in Mamidoil-Jetoil (supra) was “a perfectly good approach to take”. Nevertheless, the learnt Judge was of the view that the plaintiff in his case had overall badly misjudged its case. He thus ordered indemnity costs and enhanced interest for the defendant.

16.  With respect, I fail to see how Welltus Ltd (supra) can help to advance Mr Chan’s argument.

17.  With the Civil Justice Reform being put into actual practice for a few years by now, there remains no need for me to point out that the introduction of this new Order 22 under the Reform aims at encouraging the parties to take positive steps for early settlement and to avoid unproductive and expensive prolongation of the litigation. Where a sanctioned offer is made by a plaintiff, a defendant has of course a choice to accept or reject it. However, such a decision should not be made lightly or hastily, but should only be made upon a careful review of the strength or weakness of the plaintiff’s and/or defence case, and where needs be, upon seeking further information or clarification from the plaintiff. In my view, it will be not taken as a prudent and careful review unless and until a defendant (or his legal advisors) has seriously and diligently considered the documents or information disclosed by the other side so far, such as the list(s) of documents, against his own evidence. If a defendant or his legal advisors has failed to take this prudent move and, after trial, finds himself being held liable for more than what is offered by way of a sanctioned offer from the plaintiff, it would be nobody but only the defendant himself to be blamed.

18.  Further, a defendant is perfectly entitled to reject the sanctioned offer. But in so doing, a defendant has to accept that he has to bear the inherent risk of the plaintiff being able to prove its case successfully or his defence being rejected by the court at trial, leading to the consequential risk of having to pay the enhanced interest, indemnity costs and interest on costs specified in the said Order 22 rule 24. This is what we call the risk of litigation.

19.  The same rationale obviously applies to a sanctioned payment made by a defendant.

20.  Turning back to the chronology and facts of this case, I notice that the Sanctioned Offer was made almost 9 months after CLP Power had filed its 1^st list of documents on 15 November 2010. In the said list of documents, CLP Power disclosed, among other items, major documents that it was going to rely on (and in fact were cross-examined on) during trial, such as the supply rules, the meter irregularity report, the meter irregularity as found test report, Billed Consumption Records and the photos of the Old Meter to Mr Kong.  

21.  Then, on 21 March 2011 came the voluntary disclosure of further particulars to the statement of claim on. In the said voluntary disclosure of particulars, CLP Power spelt out clearly that it would rely on clause 228 (3) of the Supply Rules to make retrospective adjustment to rectify undercharge of a customer’s records of electricity consumption on the basis of CLP Power’s records, available technical evidence, customer’s consumption history and other relevant circumstances.

22.  It needs to be emphasized that the said clause 228(3) (i) envisages a scenario of “a malfunction of a meter or its associated equipment or part thereof” and that the defence has conceded that personal culpability of Mr Kong needs not be proved in this case.

23.  If the Billed Consumption Records (which is unchallenged evidence) were read properly and carefully together with the voluntary particulars of the statement of claim (both of which were made available to Mr Kong by 21 March 2011, ie about 4 months prior to the making of the Sanctioned Offer), one would easily see that the electricity consumption during the Irregularity Period was very much lower than the pre-Irregularity Period but once when Old Meter was replaced, electricity consumption soared up at once. Simply applying a reasonable man’s standard, the scenario under clause 228(3)(i) was prima facie triggered. The witness statements of CLP Power and/or the inspection to the Old Meter itself and/or SJE Report may show more lights on the merits (or otherwise weakness) of CLP Power or the defence case, but they are not, in my view, indispensible documents/events before Mr Kong or his legal advisors could give a preliminary assessment on the merits of this case, and thus consider if to accept the Sanctioned Offer or not.

24.  On the other hand, it remains undisputed that Mr Kong has never by himself or through his solicitors requested, within that 28 days or at any time thereafter, for any information which he needed or claimed to be in need in order to be able to assess whether or not to accept Sanctioned Offer.

25.  There is no suggestion that if such request was made at that stage, it would be refused by CLP Power. In fact, there was a clear invitation by CLP Power in their letter of 9 August 2011 containing the Sanctioned Offer to Mr Kong to raise any questions about the content of the letter or to seek clarification within 7 days thereafter.

26.  It is obvious (and in fact it is conceded during this hearing) that Mr Kong has done nothing since the Sanctioned Offer was made, be it a request for further information or for further clarification. He has not advanced any concern that there was insufficient information by the time of the Sanctioned Offer as to the basis of the claims for payments made by CLP Power and to compare these claims with the amount proposed in the Sanctioned Offer. 

27.  In this regard, Mr Wilmot adds that the Sanctioned Offer in the sum of $180,000 was made after an unsuccessful mediation session and Mr Kong should know full well why this amount of Sanctioned Offer was made. Mr Chan does not seem to challenge this part of Mr Wilmot’s submission.  

28.  It can thus be seen that Mr Kong simply took an inactive attitude to this Sanctioned Offer. Moreover, he failed to reassess his position when the allegedly vital information (such as witness statements, inspection of the Old Meter or SJE Report) was unfolded.

29.  If compared with Mr Kong, CLP Power’s Sanctioned Offer (representing some 25% discount to its claimed sum in the statement claim) shows that it was sensible and realistic in trying to settle the dispute at an early stage.

30.  As to Mr Chan’s submission that the physical inspection to the Old Meter by Mr Kong is of utmost importance in order to ascertain if there was 1 or 2 holes at the plastic cover of the Old Meter, Mr Wilmot for CLP Power provides me with this chronology which is not challenged by Mr Chan:

(1)  On 16 September 2010 (the date when the defence was prepared and filed), Mr Kong made his 1st request to inspect the Old Meter. CLP Power replied that this should wait until discovery;

(2)  Mr Kong did not protest or make counter-offer to this reply of CLP Power. In fact, he did not raise the request for physical inspection of the Old Meter again until 27 October 2011 (ie about 1.5 months upon expiry of acceptance of the Sanctioned Offer without leave).

31.  Again, if it was a bona fide argument of Mr Kong that the inspection of the Old Meter was of paramount importance, it remains unexplained why such a request was not followed up with timely and vigorously.

32.  In the circumstances, despite his eloquent arguments, I am not persuaded by Mr Chan that the information made available to Mr Kong as at 5 September 2011 was insufficient for him to form an informed view on the merits of this case. And after considering all the circumstances of the case, I do not find it unjust to make Mr Kong pay CLP Power’s costs on an indemnity basis or to grant an enhanced interest on the judgment sum and costs.

Enhanced interest on Judgment Sum

33.  Mr Wilmot refers me to Poon Yiu Cheung (supra) in support for his request for 4% enhanced interest rate on the judgment sum after the last date of acceptance of the Sanctioned Offer until full payment.

34.  Though Mr Chan submits that only 1% enhanced interest rate should be ordered (in case this court finds it not unjust to make the orders sought), I have not been shown with any comparable authorities on this percentage. 

35.  In Poon Yiu Cheung (supra), the facts show that a sanctioned offer of $300,000 was made by the plaintiff who ended up obtaining an award of $330,000.  In para 15 of his judgment, Deputy Judge R Yu cited Lord Woolf MR in Petrotrade Inc v. Texaco Ltd (supra) saying that (which I humbly beg to agree):

“The amount of the claim is also a relevant factor. If a claim is small, enhanced interest has to be at a higher rate than if the claim is large, otherwise the additional advantage for the claimant will not be achieved.”

36.  Deputy Judge R Yu considered that the amount involved in his case was neither large nor small and ordered a uniform enhanced interest rate of 4% above judgment rate for both the pre- and post-judgment period. The pre-judgment period in that case was from 21 October 2010 to the date of judgment of 10 June 2011 (about 8 months).

37.  In another case of Tsang Yuen Mui v 蔡嬋貞 [2010] HKEC 54 cited by Mr Wilmot, HH Judge HC Wong awarded the defendant an enhanced interest rate of 5% above judgment rate on the judgment sum of $50,658.55 in relation to the defendant’s counterclaim when the plaintiff failed to beat the sanctioned offer of the defendant to accept $40,000 in full and final settlement of the plaintiff’s main claim and the defendant’s counterclaim.  The learnt Judge also applied a uniform enhanced rate for both the pre- and post-judgment period. The pre-judgment period in that case was from 25 August 2011 to the date of judgment of 4 November 2011 (slightly more than 2 months).

38.  The amount involved in this case is not substantial. The pre-judgment period in this case is about 11 months, which duration is much longer than that in Tsang Yuen Mui (supra). Interest at judgment rate has already been awarded by me in my judgment to CLP Power from the date of writ to the date of judgment. I have also reminded myself that the sanction under Order 22 is not penal in its nature. And upon considering all the circumstances of this case, including the terms of the Sanctioned Offer, the timing of the Sanctioned Offers and the fact that Mr Kong has never asked for any clarification or information relating to the Sanctioned Offer, I consider that a fair rate of the enhanced interest on the judgment sum to be paid by Mr Kong should be 3% above judgment rate from 6 September 2011 until full payment.

Enhanced interest on costs

39.  On the enhanced interest rate on costs, Mr Wilmot also relies on the case of Poon Yiu Cheung (supra) to say that the enhanced interest rate should be at 4% above judgment rate. Mr Chan for Mr Kong submits that the enhanced rate should be 1% over judgment rate.

40.  Pausing here, it needs to be noted that in Poon Yiu Cheung (supra), Deputy Judge R Yu did not order a uniform enhanced interest rate on costs at 4% over judgment rate for pre- and post-judgment periods; rather the interest was fixed at 6%, being at half enhanced rate [(4%+8%)÷2], for the pre-judgment period and thereafter at judgment rate only until payment (see paras 28 to 30 of his judgment).

41.  A number of other English and Hong Kong authorities on this topic was cited to the learnt Judge in Poon Yiu Cheung (supra), which neither Mr Wilmot nor Mr Chan seek to elaborate on in this application. But I find it useful to consider some of them.

42.  In McPhilemy v Times Newspapers Ltd (No 2] [2001] 4 All ER 86, Chadwick LJ explained on the rationale for payment of interest on costs at para 23 of his Judgment:

“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.”

43.  In McPhilemy (supra), 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.

44.  In the case of KR v. Bryn Alyn Community (Holdings) Ltd [2003] PIQR P30, Waller LJ commented that :

“If an order is made to pay costs on an indemnity basis, it is unlikely to be unjust to make the party pay interest on those costs for the period when litigation is being funded when acceptance of a Pt 36 offer should have led to it not being funded. There may be cases where evidence will demonstrate actual dates when clients had put up funds and from which interest will run. Without such evidence the court can do no more than Chadwick LJ did and make the interest run from the date when the work was done or liability for disbursements was incurred.”

45.  In Golden Eagle Group Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273, Lam J (as he then was), despite the English authorities adopting 4% above base rate as a generous assessment of the costs of money, took a modified approach of 4% above the prime rate or 1 % above judgment rate, and adopted 9% as the generous assessment of the costs of money as the appropriate rate in Hong Kong. The learnt Judge (as he then was) ordered interest on costs for the pre-judgment period to be half of that rate of 9%.

46.  In this application before me, there is no evidence as to when CLP Power had to make out of pocket payment on account of costs, or when it had 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. Yet, just as what Deputy Judge R Yu was faced with his case, there are no special circumstances in this case before me, such as in a legal aid case or when a receiving party is backed by its insurer in the litigation, which would suggest that CLP Power does not have to pay its lawyers in advance.

47.  Taken into account all the circumstances and cited authorities, I will adopt the modified approach of Lam J (as he then was) and adopt 9% as the generous assessment of the costs of money in this case. I will order interest on indemnity costs from 6 September 2011 up to the date of my judgment at 4.5% ; and thereafter at 9% (being 1% above judgment rate) until full payment.

Indemnity costs of this application?

48.  Mr Chan for Mr Kong submits that if this court is minded to allow CLP Power’s application, Mr Kong should bear the costs of this application on party and party basis only, because he resisted this application in good faith and has not put forward any silly argument.

49.  Mr Wilmot, however, disagrees and refers me to Tsang Yuen Mui (supra) in which indemnity costs were granted for the same application.

50.  In view of my analysis set out in paras 13 to 32 of this decision, I am bound to say that I am not persuaded by Mr Chan’s argument. Further, none of the Hong Kong authorities cited by the parties and considered by me in this decision has awarded costs of the relevant application, if successful, on any basis other than indemnity costs basis. There is no reason why the sanction under Order 22 rule 24 should not be applicable to the costs of this application.

51.  I thus order that the costs of this application are to be taxed on indemnity basis.

Conclusion

52.  I shall allow CLP Power’s summons and vary the costs and interest order that was made by me on 18 July 2012 to the following:

(1)  Mr Kong shall pay the interest on the judgment sum of $231,154 at an enhanced rate of 3% above judgment rate from 6 September 2011 until full payment;

(2)  Mr Kong shall pay the costs of CLP Power incurred from 6 September 2011 onwards to be taxed on an indemnity basis;

(3)  Mr Kong shall pay interest on such indemnity costs incurred from 6 September 2011 to the date of my judgment (ie 18 July 2012) at 4.5% per annum; and thereafter at an interest enhanced to 9% (ie 1% above judgment rate) until full payment.

53.  I also order that Mr Kong is to pay to CLP Power the costs of this application, to be taxed if not agreed, on indemnity basis.  

[1] The witness statements were exchanged on 22 November 2011.

[2] Mr Kong/his solicitors inspected the Old Meter on 27 October 2011.

[3] The SJE Report was dated 5 January 2012. It was further amended (without objection from the defence) on 19 June 2012 due to an inadvertent transcribing error made by the single joint expert in table 3 of the SJE Report.