POZDNYAEV, DENIS AND ANOTHER v. KINVAST LTD

DCCJ 3347/2020

[2022] HKDC 55

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3347 OF 2020

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DECISION

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1.  Judgment in this Action was handed down on 13 September 2021 (“the Judgment”).

2.  There were 5 Summons before the court. However, the defendant’s Summons dated 19 November 2021 to amend its Summons dated 27 September 2021 was not opposed by the plaintiff. It has already been dealt with by an order in terms during the hearing.

3.  The remaining 4 Summons are applications for :

a.  Variation of costs order nisi from the defendant

b.  Variation of costs order nisi from the plaintiff

c.  Leave for appeal against the Judgment from the defendant

d.  Leave for appeal against the Judgment from the plaintiff

4.  I shall deal with these Summons in the order as follows.

The defendant’s and the plaintiff’s applications for variation of costs order nisi

5.  Under paragraphs 78 and 79 of the Judgment, it was ordered (inter alia) that the defendant do pay the plaintiffs HK$1M plus interests at half judgment rate from the date of the Writ to the date of Judgment, and thereafter at judgment rate until payment, and that there be a costs order nisi for costs be to the plaintiffs with one certificate for counsel to be taxed if not agreed.

6.  The plaintiffs have made 2 sanctioned offers under Order 22, rule 4 of the Rules of High Court: a sanctioned offer made on 9 November 2018 (“Initial Sanctioned Offer”) and another made on 7 January 2019 (“Fresh Sanctioned Offer”). There is no dispute that both sanctioned offers complied with the requirements under Order 22, rule 5.

7.  Under the Initial Sanctioned Offer, the plaintiffs asked for HK$1.85M for settlement of the entire Action. The defendant did not respond.

8.  The plaintiffs made a concession in the Fresh Sanctioned Offer by asking for HK$0.95M. The last day to accept this would be 4 February 2019 but the defendant also did not respond.

9.  This sum was less than the judgment sum of HK$1M plus interest eventually awarded by this court.

10.  Accordingly, the plaintiffs applied to vary the cost order nisi to, inter alia, seek costs on indemnity basis with interest at enhanced rate of 5% per annum above judgment rate from 5 February 2019.

11.  On the other hand, the defendant also applied to vary the cost order nisi (as amended) to, inter alia, seek costs prior to the joinder of the 2^nd plaintiff on 23 April 2015 be to the defendant (as costs thrown away), and seek either no order as to costs or to allow only 50% of the costs between 23 April 2015 and 4 February 2019 to the plaintiffs.

12.  The defendant has drawn up a list of proposed order on variation of costs order nisi. Mr. Lee, Counsel for the plaintiffs, has helpfully indicated to the court which of these were agreed at the beginning of the hearing. The court will now deal with the proposed orders not agree.

Interest on judgment sum from 5 February 2019 to 13 September 2021 (date of judgment)

13.  As the plaintiffs did better than their Fresh Sanctioned Offer, Order 22, rule 24 of the Rules of District Court comes into play.

14.  With regards to the judgment sum, under rule 24(2), the court has a discretion to order interest on the whole or part of the Judgment sum (excluding 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 Fresh Sanctioned Offer without the leave of court.

15.  Rule 24(4) mandates the court to exercise the discretion under rule 24(2) in favour of the plaintiffs unless the court considers doing so would be unjust. Rule 24(5) states that the court shall take into account all the circumstances of the case in considering whether it would be unjust to make such an order.

16.   The defendant submitted it would indeed be unjust for the court to order so. In the case of Qvist Henrik v Clatronic Far East Ltd [2020] 1 HKLRD 703, it was held that: “The emphasis is on the reasonableness of the defendant’s conduct on the settlement process o in the conduct of the litigation.”

17.  Mr. Cheng, Counsel for the defendant, argued that these were the special circumstances and mitigating factors for the court to consider in that the defendant has actually been acting reasonably.

18.  Firstly, I would observe that it was stretching the facts very far to suggest that there has been any “settlement process” from the defendant’s side, let alone any “reasonable conduct” by the defendant in the process. The defendant simply did not respond to either sanctioned offers. In particular, it appeared to be completely oblivious to the very substantial concessions from the plaintiff in the Fresh Sanctioned Offer made some 2 years before the hearing of the trial.

19.  I note paragraph 22 of the Qvist Henrik case stated:

“A defendant ought to make reasonable efforts to settle the matter as early as possible, and a defendant who does not react to an early sanctioned offer at all but simply sits on his hands without attempting to seek any further information required needs to convince the Court that he has not been acting unreasonably.”

20.  Mr. Cheng argued that the sum of HK$950,000 in the Fresh Sanctioned Offer was “only HK$50,000 (i.e. 5%)” below the Judgment sum of HK$1M.

21.  However, this HK$950,000 offer was inclusive of interest, and this was made some 4 years after the commencement of proceedings. This could hardly be considered a miserly discount, and in any case, “Whether the discount was “miserly” or not is irrelevant; what matters under the rules is that the plaintiff has done better than what it has offered” (Kai Min Fashion (HK) Ltd v Fond Express Logistics Ltd & Anor [2013] 1 HKC, paragraph 12 per Recorder Jat SC)

22.  Further, Mr. Cheng sought to argue that since Deputy High Court Judge Sakhrani opined in his judgment that the defendant’s case was “arguable” (regarding the allegation that the plaintiffs had been seeking to compel the defendant to cancel the PSPA and enter into a new agreement, and the legal point about an agent not capable of being a contracting party under the circumstances), it was reasonable for the defendant to refuse to accept the Fresh Sanctioned Offer.

23.  Mr. Cheng is trying to persuade the court that the Learned Deputy High Court Judge was somehow encouraging the defendant to soldier on and not to accept the Fresh Sanctioned offer. I would say that the judgment concerned an appeal against a summary judgment under Order 14A, and the Learned Deputy High Court Judge stated that:

“The determination of issues of law are fact sensitive and where there are disputed facts, it is not appropriate to ask the court to proceed with O.14A summons” (paragraph 34 of the judgment)

“It is arguable, in my view, that by seeking to compel D to cancel the SPPA and enter into a new agreement with a different entity it was P1 and/or P2 and not D who was in breach of contract. It seems to me that unless there is a determination of the disputed facts, it cannot be ascertained whether P1 and/or P2 were in breach of contract or whether D was in breach of contract.” (paragraph 50 of the judgment)

“There is no dispute that the formal ale and purchase agreement was not signed. The reason why it was not signed is a question of fact to be determined.” (paragraph 51 of the judgment)

24.  And such, it is clear that the Learned Deputy High Court Judge did not sought to determine any facts of the case, he merely stated that the defendant’s case was arguable and it was not appropriate to determine the issues of law under O14A when there was dispute in facts. There was no encouragement for the defendant to soldier on.

25.  Further, the defendant argued that the production of an email from Father Denis to Mr. Tang which the court found in its Judgment to be supportive of the plaintiffs’ case (on liability) was late and this should also be consider as “special circumstances”. However, this email was disclosed by the plaintiffs’ Supplemental List of Documents dated 3 May 2021 which was still more than 1 month before the trial commenced (22 June 2021). If the defendant had considered that this evidence was so crucial on the issue of liability, the defendant could still have plenty of time to apply to accept the Fresh Sanctioned Offer out of time. Further, even now, the defendant is appealing against liability which shows that the defendant has never intended to accept the offer to settle.

26.  I therefore find no unjust circumstances that the court should not exercise its discretion under Order 22 rule 24(2) in favour of the plaintiffs. I would also find that the plaintiffs’ application for enhanced rate of 5% per annum on top of half judgment rate is reasonable.

Costs of the action incurred from 23 April 2015 to 4 February 2019

27.  This concerns the plaintiffs’ costs for period of the proceedings after the joinder of the 2^nd plaintiff up until the last day that the defendant could accept the Fresh Sanctioned offer without leave.

28.  The defendant argued that there should be no order to be made, or alternatively, the plaintiffs should be entitled to no more than 50% of such costs.

29.  Mr. Cheng’s basis of this argument appeared to be that the plaintiffs only succeeded in claiming 50% of the quantum of their claim, and thus, therefore there should be “no order as to cost” or some “pro-rata” discount of the costs.

30.  First of all, I note that the general practice is that “costs follows the event” and somehow Mr. Cheng appeared to suggest otherwise.

31.  Further, without providing any rule or precedents in support of any such practice, Mr. Cheng seemed to be suggesting that, in every claim that a plaintiff won, unless the court awarded 100% of the quantum claimed by the plaintiff, the plaintiff should not be allowed to recovered any of its legal costs from the losing defendant, or that there should be a “pro-rata” discount of such costs according to the proportion of quantum awarded.

32.  I see no basis for that argument. I do not see any special circumstances here to deviate from the general rule for costs to follow the event: the plaintiffs should be entitled to their costs without any discount to be taxed on a party to party basis if not agreed for this period.

Costs incurred as from 5 February 2019

33.  This concerned with the plaintiffs’ costs after the the last day that the defendant could accept the Fresh Sanctioned Offer without leave.

34.  Under rule 24(3), the court has a discretion to order that the plaintiffs are entitled to their costs on indemnity basis from 5 February 2019 and interest on those costs at a rate not exceeding 10% above judgment rate. The plaintiffs at the beginning of the hearing also conceded that they would not seek interest of their costs from 5 February 2019 to 13 September 2019.

35.  Given my findings in paragraphs 16-24 above, similarly, I find no unjust circumstances that the court should not exercise its discretion under Order 22 rule 24(3) in favour of the plaintiffs’ application, that is, for the costs incurred from 5 February 2019 to be taxed on the indemnity basis.

Interest on the costs incurred as from 14 September 2021 until payment

36.  I accept that if a sanctioned offer is not accepted. The enhanced interest rate on costs should only cover the time from the last day for acceptance to the date of judgment, and thereafter interest should be at judgment rate until payment (Shih Pik Nog v G2000 (Apparel) Ltd [2011] 4 HKLRD, paragraph 14 per Bharwaney J).

Costs of the plaintiffs’ application to vary costs order nisi

37.  The defendant argued that there should be no order as to costs for this application, or, alternatively, the defendant shall only pay 50% of the plaintiffs’ costs with certificate for one counsel.

38.  I would think that the plaintiffs were largely successful in their applications, with minor concessions regarding costs prior to 23 April 2015 (which the plaintiffs conceded right at the beginning of the hearing) and interest on the costs incurred as from 14 September 2021 until payment (which the defendant spent a relatively short time arguing). On the other hand, the defendant also spent time unsuccessfully arguing for a discount of the plaintiff’s costs from 23 April 2015 to 4 February 2019.

39.  On balance, I see no reason why there should be any discount on the plaintiff’s costs (with certificate for one counsel) in this application.

Order regarding the plaintiffs’ and the defendant’s Summons on variation of costs order nisi

40.  For the sake of clarity, as stated in paragraph 12 above, certain variations on the costs order have been agreed by the parties. These are listed in paragraphs 42(a), 42(c), 43(a), 43(d), 43(e), 44(a) and 46 below.

41.  The orders for costs and interest under paragraphs 78 and 79 of the Judgment be varied as hereinafter provided.

42.  Interest on the judgment sum of HK$1 million shall accrued as follows:

a.  From 15 September 2014 (date of writ) to 4 February 2019, at half judgment rate;

b.  From 5 February 2019 to 13 September 2021 (date of Judgment), at rate of 5% per annum on top of half judgment rate;

c.  From 14 September 2021 until payment, at judgment rate.

43.  The costs of the Action as follows:

a.  Costs prior to 23 April 2015 (date of joinder of the 2^nd plaintiff) shall be to the defendant as costs thrown away, to be taxed on a party and party basis, if not agreed;

b.  Costs from 23 April 2015 to 4 February 2019 be to the plaintiffs, to be taxed on a party and party basis, if not agreed;

c.  Costs from 5 February 2019 be to the plaintiffs to be taxed on an indemnity basis, if not agreed.

d.  There shall be certificate for one counsel; and

e.  Costs of this action up to 3 December 2018 shall be on the Court of First Instance Scale.

44.  Interest on the costs referred to in paragraph (c) in the above paragraph shall accrued as follows:

a.  There be no interest accruing on the said costs from 5 February 2019 to 13 September 2021; and

b.  From 14 September 2021 until payment, at judgment rate.

45.  The defendant shall pay the costs of the plaintiffs’ application by Summons dated 24 September 2021 with certificate for one counsel to be taxed on an indemnity basis if not agreed.

46.  There be no order as to costs in respect of the defendant’s application by Amended Summons dated 25 November 2021.

Leave for appeal against the Judgment from the defendant

47.  The legal principle for granting leave for appeal under s.63A(2)(a) of the District Court Ordinance is trite and need not be repeated in details. Put it simply, the test is whether the appeal has “a reasonable prospect of success”.

48.  The defendant advanced 4 grounds of appeal as set out in its draft Notice of Appeal (Hearing Bundle page 31-39)

Ground 1

49.  The defendant argued that the 2^nd plaintiff was the only proper purchaser under the PSPA but the court did not make any determination on the issue of who was the proper purchaser, but instead gave judgment for both plaintiffs. The court should have held that the 1^st plaintiff, in his own personal capacity, was not a party to the PSPA and therefore not entitled to sue for it breach.

50.  I cannot see how that would make any practical difference on liability issues given that in this case, the 1^st and 2^nd plaintiff is the same person, Father Denis, though acting under different capacity: 1^st plaintiff being Father Denis in his own personal capacity and 2^nd plaintiff being Father Denis as a representative of the Church.

51.  Even if this court should hold the 1^st plaintiff being not entitled to sue, the only impact would be on costs and given the plaintiffs’ concession at the beginning of the hearing that the costs prior to the joinder of the 2^nd plaintiff be to the defendant (see order in paragraph 43(a) above), this ground of appeal has no remaining purpose.

Ground 2

52.  The defendant argued this distinction between nomination and novation in that the 2^nd plaintiff was compelling the defendant to enter the contract for the sale and purchase by substitution of a new party, i.e. a novation and not a nomination. The defendant was therefore entitled to refuse this.

53.  Whilst it is true that the Judgment does not make such a distinction, overall, the factual finding of the court is that the plaintiffs were not “seeking to compel to enter into a new agreement with a new party” but were “only making proposals and never indicated that they would not be buying the Property” (paragraphs 39 and 40 of the Judgment).

54.  Unless there was a factual finding of any acts of “seeking to compel”, the defence of “novation” has no substance.

55.  Instead, the court has examined all the circumstances of the case (including oral evidence, documents including emails and WhatsApp messages, and lawyers’ letters etc.) to determine each parties’ “willingness and intention to see the transaction through to completion” and, as such, which party was actually in breach. For example, that it was Mr. Kwan’s evidence that he would accept nomination but chose not to inform the plaintiffs, and that he was aware of the possible mistaken concern of the plaintiffs but instead simply replied “I do not accept” to all suggested proposals (paragraphs 31 and 43 of the Judgment), that the reason in Mr. Kwan’s mind when he wrote the email on 15 May 2014 to terminate the transaction was not that he was being compelled to enter any new agreement, but that the Church had failed to pay the balance of the deposit and sign the Formal Agreement by the end of 14 May 2014 (paragraphs 48, 49 of the Judgment). Mr. Kwan wrongly took such as a breach (paragraphs 50 and 51 of the Judgment).

56.  Furthermore, the court has considered the conducts of the parties after the completion date of 14 May 2014, including Mr. Kwan’s evidence that the defendant had no intention to sell to the Church after midnight of 14 May 2014 (paragraph 56 of the Judgment) despite the plaintiffs’ continual willingness to buy (paragraphs 34, 35 and 36 of the Judgment).

57.  I agree with Mr. Lee, counsel for the plaintiffs, that these are factual findings that the Court of Appeal would be reluctant to disturb on appeal.

Ground 3

58.  This ground is more a rehash of ground 2 in that the defendant that the 2^nd defendant had unreasonably insisted on novating the PSPA.

59.  As above, this is not the factual finding of the court.

Ground 4

60.  This is an appeal against the costs order in the Judgment. That being an order nisi, I do not see it appropriate for the defendant to seek leave to appeal against it instead of applying to vary it.

61.  In any case, the defendant did apply to vary costs order nisi on similar terms (see paragraphs 11 above) which have already been dealt with by the court and the orders on costs of the Action and interest are already stated above. This ground of appeal is therefore unnecessary in any case.

62.  I therefore do not see a reasonable prospect of success in the defendant’s appeal and therefore refuse to grant leave for defendant’s appeal with costs of the application be to the plaintiffs with certificate for one counsel, to be taxed if not agreed.

Leave for appeal against the Judgment from the plaintiffs

63.  The plaintiffs are appealing on quantum, seeking an order on appeal that instead of HK$1 million, the defendant do pay the plaintiffs the sum of HK$2 million. The defendant argues that this was a matter of liability. This argument on the labelling is academic. In essence, this concerns the legal interpretation of Clause 7 of the PSPA.

64.  In support, the plaintiffs submit a very recent Court of Appeal decision in Castle Global Limited v Ip Tai Hoi Paul (unrep., CACV 255/2020, 22 October 2021) which was handed down after the Judgment. In the Castle Global case, the Court of Appeal examined a clause which was essentially the same as Clauses 6 and 7 of the PSPA in this Action and concluded that both the vendor and the purchaser could invoke such a clause.

65.  The defendant also accepts that “it is reasonably arguable that Clause 7 of the PSPA should not be construed as an “escape clause” that can only be invoked by the vendor” (paragraph 3 of the Reply Submissions of the Defendant (as per Judgment paragraphs 68-70 and 73).

66.  Yet, the defendant continued to argue that the clause would be triggered when the defendant (vendor) failed to complete the sale “in the manner herein contained”, but it was the 2^nd plaintiff who failed to complete by seeking to compel the defendant to cancel the PSPA and enter into a new agreement with a different entity.

67.  In other words, the defendant is rehashing its pleaded defence. This is not the factual finding of the court.

68.  Thus, the defendant has already lost in liability at trial and unless this could be overturned at an appeal, it cannot be used as grounds to oppose the plaintiffs’ application.

69.  In view of my refusal to grant the defendant leave for appeal as stated above, the defendant cannot rely on such arguments to resist the plaintiffs’ application.

70.  I would therefore grant the plaintiffs’ leave for appeal on quantum with costs of the application be to the plaintiffs with certificate for one counsel, to be taxed if not agreed.