BANK OF INDIA v. GIMAJASA LTD AND OTHERS

HCA 1956/2017

[2021] HKCFI 521

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1956 OF 2017

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D E C I S I O N   O N   C O S T S[1]

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1.  At the end of the trial, I dismissed P’s claim against D4. The Court was informed by Mr Hughes that D4 had made a sanctioned payment which was not accepted by P. As the materials relevant to the submissions on costs were not available to the parties, the parties were directed to lodge written submissions on costs and for the issue to be determined on papers. Mr Hughes lodged his submissions, supplemental submissions and reply submissions on 11, 16 and 24 February 2021 respectively, while Messrs Nixon Peabody CWL (“NPC”), lodged their submissions dated 19 February 2021 on behalf of P.

2.  D4 made the sanctioned payment on 20 September 2018, shortly after his Defence had been filed.  The latest date on which P could have accepted the payment without leave of the Court was 18 October 2018.

3.  D4 seeks costs of the action on an indemnity basis and enhanced interest on such costs from 18 October 2018 at 18%, being 10% above judgment rate (i.e. the maximum rate which may be ordered under Order 22 rule 23(4)(b)).

4.  P accepts that (1) D4 is entitled to indemnity costs from 18 October 2018, but contends that the costs incurred by D4 in the 3 months prior to the sanctioned payment should be on a party-and-party basis; and (2) it is liable to pay enhanced interest on costs and the appropriate rate is 9% (i.e. 1% above judgment rate). 

Indemnity costs

5.  Other than the assertion that all along P knew that its claim is hopeless, Mr Hughes has not advanced any submissions in support of his contention that the costs incurred by D4 prior to 18 October 2018, being the latest date on which P should have accepted the sanctioned payment, should be ordered on an indemnity basis.  I do not think the assertion is supported by the evidence adduced by the parties. 

6.  I agree with NPC that P should pay the costs of the action up to 17 October 2018 on a party and party basis and, thereafter, on an indemnity costs.

Enhanced interest

7.  Mr Hughes submits that this Court should follow the principles propounded in OMV Petrom SA v Glencore International AG [2017] 1 WLR 3465 where Sir Geoffrey Vos set out the relevant considerations at §§38-39 in this way:

“[38] In my judgment, the use of the word ‘penal’ to describe the award of enhanced interest under CPR r 36.14(3)(a) is probably unhelpful. The court undoubtedly has a discretion to include a non-compensatory element to the award as I have already explained, but the level of interest awarded must be proportionate to the circumstances of the case. I accept that those circumstances may include, for example, (a) the length of time that elapsed between the deadline for accepting the offer and judgment, (b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence, and (c) what general level of disruption can be seen, without a detailed inquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the Part 36 offer. But there will be many factors that may be relevant. All cases will be different. Just as the court is required to have regard to ‘all the circumstances of the case’ in deciding whether it would be unjust to make all or any of the four possible orders in the first place, it must have regard to all the circumstances of the case in deciding what rate of interest to award under rule 36.14(3)(a). As Lord Woolf MR said in the Petrotrade case, and Chadwick LJ repeated in the McPhilemy case, this power is one intended to achieve a fairer result for the claimant. That does not, however, imply that the rate of interest can only be compensatory. In some cases, a proportionate rate will have to be greater than purely compensatory to provide the appropriate incentive to defendants to engage in reasonable settlement discussions and mediation aimed at achieving a compromise, to settle litigation at a reasonable level and at a reasonable time, and to mark the court’s disapproval of any unreasonable or improper conduct, as Briggs LJ put the matter, pour encourager les autres.

[39] The culture of litigation has changed even since the Woolf reforms. Parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.” (underline added)

8.  The same approach has been followed by the Hong Kong Court in Yeung Ho Man v Shum Kin Leung, HCPI 547/2017, 30 October 2020, per Bharwaney J; and Angbuhhang Netra Jang v Laing O’Rourke Construction Hong Kong Ltd, HCPI 69/2015, 27 January 2021, per Lisa Wong J.  In both cases, the Court took into account the plaintiff’s unreasonable refusal to accept the sanctioned payment and the egregious and dishonest manner in which the plaintiff had conducted the proceedings and imposed the maximum rate to mark the disapproval of the plaintiff’s improper conduct. 

9.  Mr Hughes relies on the following matters in support of his contention that the Court should order enhanced interest on costs at the maximum rate:

(1)  Abuse of process and affront to the Court: P knew at the outset that its case was hopeless as the 2013 Indebtedness was not the Subject Sum, and the alternative claims (introduced by way of amendment) based on waiver and estoppel were hopeless.  P sought to raise new and unpleaded claims in written closing;

(2)  P failed to plead and prove quantum: D4 was kept in complete dark as to the quantum of P’s claim until P handed up an amended version of 2 tables during oral closing;

(3)  Unreasonable and excessive delay in pursuing the action which resulted in 2 unless orders having been made against P and multiple extension of time having been obtained.  It was D4 who took steps to press ahead with the action;

(4)  P withheld crucial evidence regarding the 2013 Indebtedness and failed to put forward any of its senior management involved in the transactions as witnesses;

(5)  P failed to engage in mediation;

(6)  In D4’s “without prejudice save as to costs” letter dated 20 September 2018, P was told in clear terms all the defence relied upon by D4, which the Court ultimately held in favour of D4.  On the same day, D4 made the sanctioned payment.  P unreasonably refused to accept the sanctioned payment;

(7)  D4 suffered considerable anxiety, stress and financial hardship through contesting P’s claim; and

(8)  D4 “had to budget and tie up sufficient funds to cover his costs up to and including trial” in light of P’s refusal to accept the sanctioned payment.    

10.  NPC does not take issue with the matters set out in §9(2), (4), (5) and (6) above.  

11.  As for the matters in §9(1) and (3), NPC submits that D4 knew the case he had to meet in terms of wavier and estoppel which was based on correspondence and was at one stage accepted by D4 himself.  There was no unreasonable delay, given that the action was set down for trial within 2 years after D4 had filed his acknowledgement of service.  I am inclined to agree with NPC on these 2 matters. 

12.  NPC relies on Golden Eagle International (Group) LTD v GR Investment Holdings Ltd [2010] 3 HKLRD 273, §19, per Johnson Lam J (as he then was), followed by DHCJ Cooney SC in Union Glory Finance Inc and ors v Merrill Lynch International Bank Ltd & anor, HCA 2494/2013, 13 December 2016, §§24-26, where the Court held that the purpose of enhanced interest is to compensate the winning party for the loss of the use of the money and reflect the cost of money.  In Golden Eagle, the Court considered that 9% is a generous assessment of costs of money.  NPC accepts that the Court has jurisdiction to order enhanced interest at a rate higher than purely compensatory, but submits that the cases cited by Mr Hughes are distinguishable. 

13.  NPC submits that the Court may adopt half rate (i.e. 4.5%) on all costs incurred after 18 October 2018, following the approach in Union Glory Finance (§35).   

14.  I consider that it is appropriate to order enhanced interest on D4’s recoverable costs at 8% p.a. for the following reasons:

(1)  I agree with Mr Hughes that P has withheld crucial evidence regarding the 2013 Indebtedness. 

(2)  As regards P’s failure to put forward any of its senior management involved in the transactions as witnesses, I am unable to see the relevance of their oral evidence.  In any event, it is a matter for P to decide who should be called to give evidence on its behalf.   

(3)  I do not think the 2 tables handed up by P’s counsel during closing have any bearing on quantum.  The tables were already in the evidence, and the notations were added to assist the Court to identify the underlying documents.  It seems to me that D4 was not kept in the dark as Mr Hughes was able to identify and refer to the underlying documents during cross-examination of Mr Satpute.

(4)  Having said that, I agree that P should have appreciated, at least by the time the “without prejudice save as to costs” letter was sent to it, that D4 had very strong defence to the claim, such that it was unreasonable for P to have continued to press ahead with the claim and refused to accept the sanctioned payment. 

(5)  I consider P’s failure to engage in mediation to be unreasonable.  After the CJR, the parties are expected to engage in mediation, and the party who refuses to mediate must justify the refusal, and bears the burden of providing a reasonable explanation for not engaging in mediation (Golden Eagle, §§42-44). 

(6)  I take into account the considerable anxiety, stress and financial hardship suffered by D4 in having to face a claim in excess of $5 million for over 3 years, in particular the 2 years’ period after he had made the sanctioned payment, which P ought to have accepted so as to put an end to the action.

(7)  For the above reasons, subject to the matter discussed in §(8) below, the appropriate enhanced interest should be 15% (i.e. 7% above judgment rate).  

(8)  There is no evidence as to when D4 paid the costs incurred in defending the action and how much costs were incurred.  It is reasonable to assume that not all the costs were incurred at the outset and the bulk of the costs were incurred close to the time of the trial.  As I am going to order enhanced interest on the total costs recoverable by D4 for the entire period from 18 October 2018 up to the date of payment, it is fair to reduce the rate from 15% to 8% to reflect the fact that D4 did not incur all the costs at the outset. 

Conclusion

15.  I order P to pay the costs of the action up to 17 October 2018, to be taxed on a party and party basis, and from 18 October 2018 up to the date of Judgment on an indemnity basis. 

16.  I also order P to pay enhanced interest at 8% p.a. on the costs recoverable by D4 from 18 October 2018 up to the date of payment.   

17.  As for costs of the submissions, I order P to pay the costs of the submissions on costs on an indemnity basis, to be taxed if not agreed.