LO KWOK KWEI DAVID v. YEUNG KAI CHEUNG PATRICK

HCA 638/2017

[2024] HKCFI 2172

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 638 OF 2017

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D E C I S I O N

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Introduction

1.  On 31 May 2024, I handed down the judgment after trial in these proceedings (“the Judgment”)[1], in which I dismissed P’s claim against D and made a costs order in favour of D at [188] of the Judgment (“the Costs Order”).  On 11 June 2024, D took out a summons (“D’s Summons”) for an order that the Costs Order be varied as follows:

(1)  P do pay D’s costs of these proceedings (including costs reserved), with a certificate for two counsel (covering the fees of senior counsel and the fees of senior junior counsel) on a party-to-party basis up to 24 October 2017 and thereafter on an indemnity basis, to be taxed if not agreed; and

(2)  P do pay enhanced interest at 2% per annum above the judgment rate (or at such rate as the Court shall deem just) on D’s costs and disbursements (to be taxed on an indemnity basis if not agreed) from 25 October 2017 to 31 May 2024, and thereafter at judgment rate until full payment of the same.

2.  In the same summons, D further seeks an order that a sum paid into court by D by way of Sanctioned Payment dated 26 September 2017 (“the Sanctioned Payment”) together with all interest accrued on the said sum be forthwith paid out of court to D through D’s solicitors.

3.  On 12 June 2024, I directed that D’s Summons be determined by me on paper without an oral hearing, and the order made in the Judgment (“the 31 May 2024 Order”) not be sealed until the determination of D’s Summons.

4.  In this application, D is represented by Ms Elizabeth Cheung and Mr Edward Tsui, and P is represented by Mr Raymond Chu.  The parties have filed their respective affirmations concerning D’s Summons, and have lodged their respective written submissions pursuant to my directions, and I have duly considered the same.

The parties’ respective submissions

5.  Ms Cheung for D submits that:

(1)  The Costs Order in substance is an order nisi, and hence the Court may vary the same. Although the Court has heard the parties on the question of costs at the final submissions hearing on 30 April 2024, the Court could not have seen (and was in fact not) aware of all relevant matters on the issue of costs, particularly the existence of the Sanctioned Payment.

(2)  Alternatively, if the Costs Order is not intended to be an order nisi, D invites the Court to exercise its discretion to vary the same, as the order has not been sealed or perfected.  The Court has the power to do so, and whether the Court should exercise that power is a matter of discretion.  Such power should only be exercised in “exceptional circumstances” or whether there are “strong reasons” to do so.[2] In this case, there are exceptional circumstances or strong reasons for the Court to exercise its discretion to revisit the Costs Order:

(a)  D could not inform the Court of the existence of the Sanctioned Payment before this Court handing down judgment after trial.[3]  This is a strong reason for the Court to consider the issue of costs afresh as if it were considering an application to vary a costs order nisi.[4]

(b)  Further, the exercise of the Court’s jurisdiction under RHC O.22, rr.23-24 is mandatory in nature and that jurisdiction ought to be exercised regardless of whether the costs order was made on a nisi or absolute basis.[5]

(3)  The variation as stipulated in RHC O.22, r.23(3) and (4) ought to be made unless the Court considers it unjust to do so.[6] The burden is on the party declining the sanctioned payment to show why it would be unjust to make an enhanced costs order.[7]

(4)  P’s only suggested reason of why it would be unjust for the Court to make an enhanced costs order is D’s reliance on materials shortly disclosed before the trial (“D’s Recent Discovery”).  P claimed that the newly-disclosed materials are significant because the same featured heavily and/or were major factors in the reasoning of the Judgment.[8] As to this objection raised by P, Ms Cheung submits that:

(a)  There is no suggestion that P would have accepted the Sanctioned Payment had D disclosed these materials at an earlier stage, or that the parties had incurred any substantial costs due to D’s alleged late discovery.  As such, P’s suggested reason is not a relevant circumstance to be considered by the Court.

(b)  Further, as a matter of fact, P himself had consented to D’s summonses filed on 21 December 2023 and 8 January 2024 to rely on the newly discovered materials with costs of the applications to be “in the cause”.  P himself had also made late discovery by his 3^rd Supplemental List of Documents dated 29 December 2023, shortly before the commencement of trial on 11 January 2024.

(c)  It is wrong for P to suggest that the newly discovered materials featured heavily and/or were major factors in the reasoning of the Judgment.  Instead, the Judgment was based on the Court’s refusal to accept P’s evidence because he was not a truthful and reliable witness.

(5)  Apart from indemnity costs, D is seeking enhanced

pre-judgment interest on costs and disbursements.  In cases where there is no criticism on litigation conduct, the enhanced pre-judgment rate would be of 2% per annum above the judgment rate.[9]  Ms Cheung has fairly drawn my attention to the fact that in this case, D has not adduced evidence to show the actual amounts and dates upon which payments of costs were made.  In the circumstances, the Court may consider to adopt the “modified approach” by assuming a fully enhanced rate of interest at 2% above judgment rate and awarding half that amount by way of interest on costs in respect of the relevant period, ie from 25 October 2017 to 31 May 2024.[10]

6.  Mr Chu for P submits that:

(1)  D’s Summons should be dismissed for the following reasons:

(a)  The Costs Order is an order absolute.

(b)  There is no exceptional circumstance justifying the variation of the Costs Order.

(c)  It is unjust to make an enhanced costs order due to D’s late discovery.

(d)  Enhanced interest rate would effectively penalise P and over-compensate D.

(2)  It is clear from the Judgment that the Court intended that the Costs Order is an order absolute.

(3)  The materials disclosed by D less than one month before the commencement of the trial formed a major part of the Judgment and a major part of the basis for assessing the evidence given by P and GM.  The late discovery deprived P of the opportunity of assessing the true merits of D’s case at the negotiation stage.  In the circumstances, it would be unjust to impose an enhanced costs order because of the Sanctioned Payment.

(4)  The enhanced interest rate on costs and disbursements as suggested by D would over-compensate D.

(5)  Irrespective of the outcome of D’s Summons, since D is seeking an indulgence from the Court to exercise a discretion in his favour to vary the Costs Order, D should not be awarded of costs of D’s Summons.  There is no proper reason why D did not propose that any costs order should be made nisi in the hearing on 30 April 2024.

7.  I have to mention that at [6] of his written submissions, Mr Chu has very fairly said: “P accepts that the Court being unaware of a sanctioned payment may constitute an exceptional circumstance to vary.” (Emphasis in original)

My view

8.  The Costs Order as set out at [188] of the Judgment is an order absolute, not an order nisi. In the hearing on 30 April 2024, I have invited counsel’s submissions on costs, and the Costs Order provided in the Judgment is meant to be an order absolute. However, the Costs Order has not yet been sealed.  I accept that the existence of the Sanctioned Payment (which could not be revealed to the Court at any time before the handing down of the Judgment) constitutes a sufficient strong reason for revisiting the Costs Order.  Further, I also agree that I should revisit the Costs Order given the mandatory nature of the Court’s jurisdiction under RHC O.22, rr.23-24.

9.  I am of the view that P has not shown that it would be unjust to make an enhanced costs order.

(1)  P has been given an opportunity to file evidence in opposition to D’s Summons, and P did file his 10^th Affirmation as evidence in opposition to the D’s Summons. At nowhere in this affirmation, P said that had the documents disclosed in D’s Recent Discovery been made available to him at an earlier time, he would have had accepted the Sanctioned Payment.  Further, P also did not say that P had incurred any substantial costs due to D’s Recent Discovery.  That being the case, this is no evidential basis upon which P may rely upon to make out an argument saying that it would be unjust to make the enhanced costs order now being sought by D.

(2)  Further, as identified in Part D of the Judgment, there are 5 issues in this case.

(a)  Issue 1 is factual issue (ie whether the arrangement between P and D was in the nature of a trust or an ELL).  This Court refused to accept P’s evidence on this issue. Whether P’s case on issue 1 is true or not true must be a matter within P’s personal knowledge at all times.  It cannot be said that P would not be able to know the truthfulness of his case on issue 1 before seeing the documents disclosed in D’s Recent Discovery.  Further, there is nothing unjust in requiring P to pay enhanced costs while P has come to the Court to put forward a false claim by relying upon untrue evidence given by him under oath.

(b)  Issue 2 is a legal issue, the outcome of which depends upon P’s case as pleaded in the ASOC and the law.  The resolution of issue 2 would not be affected by the documents disclosed in D’s Recent Discovery in any way.  There is no suggestion from P that the documents in D’s Recent Discovery would have the effect of affecting his assessment on his chance of success on issue 2.

(c)  It is plain and obvious that a ruling against P on both issues 1 and 2 would be the end of P’s case.

(d)  Viewing the matter objectively, I do not accept that P would not be able to appreciate the strength of the parties’ respective cases before seeing the documents in D’s Recent Discovery.

(3)  In my judgment, P has failed to make out a valid objection to D’s application for an enhanced costs order by relying upon D’s Recent Discovery.

10.  I do not see why the enhanced interest rate on costs and disbursements, with the modified approach as suggested by Ms Cheung, would over-compensate D.  The modified approach is well supported by the authorities cited in Ms Cheung’s submissions.

11.  Further and without prejudice to the above, as pointed out by Ms Cheung, it is not correct to say that an enhanced costs order can only be compensatory in nature.  As explained by Recorder Stewart Wong SC in Qvist Henrik v Clatronic Far East Ltd[11]:

“…… 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 ..…. 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.” (Emphasis added)

12.  For the reasons above, I would allow the application as per D’s Summons, subject to the modified approach as mentioned in Ms Cheung’s submissions.

13.  As to costs, I am of the view that costs of D’s Summons should follow the event.  It is indisputable that D could not inform the Court of the existence of the Sanctioned Payment at any time before the handing down on the Judgment.  There may well be practical difficulties in requesting the Court to preserve the position on costs by making a costs order nisi in the hearing on 30 April 2024, without hinting the possibility of the existence of a sanctioned payment at the same time.[12] In my view, no valid criticism can be made against D for not requesting for a costs order nisi in the hearing on 30 April 2024.  It is entirely proper for D to make the present application by taking out D’s Summons shortly after the handing down of the Judgment.  P chose to oppose the application but failed.  There is no reason why costs of D’s Summons should not be borne by P.

Disposition

14.  I order that the Costs Order be varied as follows:

(1)  P do pay D’s costs of these proceedings (including costs reserved), with a certificate for two counsel (covering the fees of senior counsel and the fees of senior junior counsel) on a party-to-party basis up to 24 October 2017 and thereafter on an indemnity basis, to be taxed if not agreed; and

(2)  P do pay enhanced interest at 1% per annum above half of the judgment rate on D’s costs and disbursements (to be taxed on an indemnity basis if not agreed) from 25 October 2017 to 31 May 2024, and thereafter at judgment rate until full payment of the same.

15.  I also order that the Sanctioned Payment together with all interest accrued on the said sum be forthwith paid out of court to D through D’s solicitors.

16.  I further order that costs of D’s Summons be paid by P to D forthwith, with a certificate for two counsel.  I have considered D’s Statement of Costs for Summary Assessment (“the Statement”) and P’s List of Objections.  In my judgment:

(1)  Counsel’s fees in Section E of the Statement are reasonable and be allowed in full.

(2)  As to Section C and Section D of the Statement, given that two counsel are involved, the number of hours charged by the two solicitors should be reduced.  I would only allow 2 hours charged by the partner and 6 hours charged by the associate.

(3)  With the aforesaid and the undisputed items in the Statement in mind, taking a broad-brush approach, costs payable by P to D be summarily assessed at HK$122,348.

17.  Out of an abundance of caution, I direct that the 31 May 2024 Order shall only be sealed after the order made in this decision is perfected.

18.  Lastly, it remains for me to say that the assistance rendered by all counsel in this application is appreciated.