ACCURATE CONTRACTORS & RENOVATORS CO LTD v. EVANGEL COLLEGE SCHOOL MANAGEMENT COMMITTEE LTD

HCCT 78/2021

[2023] HKCFI 291

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 78 OF 2021

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BETWEEN

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VARIATION OF COSTS ORDER

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1.  This is the hearing of the Respondent’s Summons dated 13 October 2022 for variation of the costs order nisi made at the taxation hearing on 29^th September 2022 (“Respondent’s Summons”).

2.  The issue is who should bear the costs of the taxation considering the taxation outcome and the various without prejudice offers made by both parties.

Factual Background

The taxation hearings

3.  Pursuant to an Arbitral Award on Costs dated 29 October 2020, the Applicant as the receiving party commenced taxation proceedings on 22 October 2021.

4.  The costs claimed by the Applicant in the bill of costs (excluding interest) can be summarized as follows :-

	Profit Costs	$5,860,085.67
	Disbursements	$6,761,071.00
	Costs of taxation	$317,700.00
	Total:	$12,938,856.67

5.  After the taxation hearing conducted on 29 September 2022, the Applicant being dissatisfied with the outcome has applied for a review. The review was heard on 11 November 2022.

6.  Upon review, the Applicant’s costs (excluding interest) were eventually taxed and allowed as follows :-

	Profit Costs	$2,219,029.67
	Disbursements	$2,603,550.00
	Costs of taxation	$145,050.00
	Total:	$4,967,629.67

The Without Prejudice Offers

7.  Before the commencement of taxation proceedings, the Applicant on 26 March 2021 provided the Respondent with an estimate of costs and disbursements in the sum of HK$13,657,052. The Applicant proposed a global settlement in the sum of HK$13,000,000. This was rejected by the Respondent.

8.  On 8 December 2021, the Respondent offered the sum of HK$5,000,000 in full and final settlement of the Applicant’s costs and disbursements, inclusive of interest.

9.  On 15 February 2022, the Applicant counter-offered the sum of HK$9,500,000.

10.  On 31 March 2022, the Respondent increased its settlement offer to HK$5,100,000.

11.  On 7 April 2022, the Applicant counter-offered the sum of HK$7,800,000.

12.  On 11 April 2022, the Respondent made its final offer in the sum of HK$5,400,000 (“the Calderbank Offer”).

13.  The Applicant had until 18 April 2022 to accept the Calderbank Offer. However, the Applicant did not reply until 25 April 2022 it made a final counter-offer of HK$6,800,000 for global settlement including interest. The same was rejected by the Respondent on 6 May 2022.

Result of taxation and the Respondent’s Summons

14.  As said in paragraph 6 above, the Applicant’s costs eventually allowed was HK$4,967,629.67 excluding interest. Parties agreed that calculated up to 18 April 2020, costs inclusive of interest was HK$5,409,490.27. Thus, strictly speaking the Applicant has successfully beaten the Calderbank Offer, albeit by a very small amount.

15.  By the Respondent’s Summons, it seeks to vary the costs order nisi to the effect that the Respondent shall only pay the Applicant’s costs of the taxation up to 18 April 2022, and the Applicant shall pay the Respondent’s costs after 18 April 2022.

Applicable Law

16.   O 62 r 32A of RHC, Cap 4 provides that:-

(1) A party entitled to payment of any costs to be taxed is also entitled to his costs of the taxation except where-

(a) any Ordinance, any of these Rules or any relevant practice direction provides otherwise; or

(b) the Court makes some other order in relation to all or part of the costs of the taxation.

(2) In deciding whether to make some other order, the Court shall have regard to the underlying objectives set out in Order 1A, rule 1 and all the circumstances, including-

(a) the conduct of all the parties in relation to the taxation;

(b) the amount, if any, by which the bill of costs has been reduced; and

(c) whether it was reasonable for a party to claim the costs of a particular item or to dispute that item.

17.  In Singh Gorinder Bal v Chan Nga Kai, HCPI No 840 of 2008, unreported (13 May 2011), it was held that whether a plaintiff has or has not beaten a Calderbank offer is not determinative of the issue of costs of the taxation proceedings, because the offer is only a matter which the court may take into account when considering the question of costs. Other matters such as the parties’ respective conduct, and whether the offer has been beaten in all or only some of the constituents of the offer and by how much, are also relevant in the overall exercise of the court’s discretion on costs.

Discussion

18.  In the present case, the amount of the solicitors’ profit costs and disbursements taxed and allowed represent only approximately 37.86% and 38.5% respectively of those claimed in the bill of costs. Further, there was an unreasonable demand for the Applicant’s own disbursements under item B.4 of the bill of costs in the amount of $3,489,556.00. Such item was entirely taxed off.

19.  The above suggested that both solicitors’ profit costs and disbursements were very substantially inflated. Such inflation was so unreasonable and disproportionate to the work involved. Since it discouraged settlement and was an invitation to the Respondent to contest the matter, the Respondent should not be ordered to fund such unnecessary taxation. See: Manova International Limited v Giga Technology Limited and another, HCA 733/2009, unreported (26 February 2010).

20.  Although the award of HK$5,409,490.27 exceeded the Calderbank Offer, the beat was only by a small margin of $9,490.27 ie 0.17% of the offer of HK$5,400,000.00. Under the de minimus principle, it allows matters of insufficient importance or small scale to be exempted from a rule or requirement.

21.  The de minimus rule was applied in Wong Wai Chun v Lewin [2000] 2 HKC 271 and in Lo Ah Wah v Wo Hing Transportation Company, HCPI 1203/1999, unreported (1 December 2001). I am of the view that the de minimus rule is also applicable to the present case.

22.  On the parties’ conduct in relation to the taxation proceedings, it is noted that there was a delay of more than 6 months on the part of the Applicant in setting down the bill of costs for taxation. Further, the Applicant’s earlier without prejudice offers of HK$13,000,000, HK$9,5000,000, HK$7,800,000 and HK$6,800,000 were all unrealistic. On the contrary, the Respondent has acted promptly and reasonably by making various sensible offers with a genuine view to settle and to save costs and time.

The Applicant’s argument

23.  The Applicant submits that in considering whether its claim for costs was unreasonably inflated, the court should give sufficient regard to its final counter-offer of HK$6,800,000. It is boldly asserted that the claim was not significantly inflated because the award of HK$5,409,490.27 represents 79.6% of the Applicant’s “final claim”.

24.  The Applicant’s claim under the bill of costs is for the sum of $12,938,856.67 (excluding interest). The attempt to call a final counter-offer of HK$6,800,000 by the fine-sounding name of a “final claim” did not assist the Applicant nor confuse the court.

25.  The Applicant also suggests that in considering whether the de minimus rule applies, its final counter-offer of HK$6,800,000 is a relevant figure to be considered. This must be flawed. The relevant figure is HK$9,490.27, ie the difference between the award of HK$5,409,490.27 and the Calderbank Offer of HK$5,400,000.

26.  On the issue of delay, the Applicant submits that the several time extensions to set down the bill for taxation were made with a view to attempt settlement and save costs. I disagree. As said in paragraph 22 above, the Applicant’s offers were so unrealistic that would only discourage as opposed to promote settlement. The Respondent was prejudiced by having to incur more costs to test how genuine the bill and the offers were.

27.  By reason of the above, I find that it would be unfair if the Applicant does not have to pay the Respondent’s costs after 18 April 2022. The Respondent’s Summons is therefore allowed.

Conclusion

28.  The costs order nisi be varied as follows:

(i) the Respondent shall pay the Applicant’s costs of the taxation only up to 18 April 2022, and

(ii) the Applicant shall pay the Respondent’s costs after 18 April 2022.

29.  I make an order nisi that the Applicant do pay the Respondent’s costs of this application, to be summarily assessed. The order nisi shall become absolute unless an application to vary is made within 14 days from today.

30.  Directions in respect of summary assessment of costs:

(i) Within 7 days after the nisi order becomes absolute, the Respondent do lodge with the court and serve on the Applicant its statement of costs;

(ii) Leave for the Applicant to lodge with the Court and serve on the Respondent its written response (if any) within 7 days thereafter; and

(iii) No further submission shall be lodged without leave of the court.