WELLTUS LTD v. FORNTON KNITTING CO LTD

HCA 349/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 349 OF 2007

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R U L I N G

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Introduction

1.  This is an application by the successful defendant in the action to vary the costs order nisi so as to provide for an award of costs on an indemnity basis from the expiry of the date by which the Plaintiff had to accept a sanctioned offer of $400,000 and also, to have awarded to it interest on those costs.

Costs

2.  I will deal with the basis of taxation of those costs first.  It is clear that the Defendant had been anxious to settle the case early on in the litigation, it having made a “Calderbank offer” in June 2008 when it offered to pay the Plaintiff $400,000 to settle the action. Subsequently, it paid into court $100,000 and thereafter increased it by a further $300,000.

3.  The question to be answered is whether the Defendant should have an indemnity taxation from 21 December 2010 which is the date up to which the Plaintiff had to accept the sanctioned offer.  Mr Man, who appears for the Plaintiff, is relying on the judgment of Aikens J (as he then was) in Manidoil-Jetoil Greek Petroleum Company SA v Okta Crude Oil Refinery AD [2002] 1 TLR 567, in which the judge decided that it was unjust to make an indemnity costs order where the conduct of the party making the sanctioned offer meant that the rejecting party was in no position to assess its validity.

4.  In this regard, Mr Man has taken four points as to why such an order would be unfair.  What these points really come to is that the Defendant had been slow in providing sufficient explanation of the amount of its counterclaim principally through the production of documentary evidence which would enable those advising the Plaintiff to say whether the counterclaim was worth the pleaded amount.

5.  This, of course, is a perfectly good approach to take.  It is pointless making a sanctioned offer unless one’s opponent is able to properly and effectively analyse it.

6.  In this case Miss Wong concedes that a lot of the material ultimately placed before the court came after 21 September although most of it was clearly available to the Plaintiff during the period when the sanctioned offer needed to be accepted or rejected.

7.  When one considers the material that was there I am satisfied that there was more than enough for the Plaintiff to properly evaluate the situation.  This after all is not a complicated counterclaim.  It principally breaks down to extra labour costs, the purchase of new yarn and air flight charges.

8.  I am satisfied that this is a case where under RHC, O.22 r.23, I ought to exercise my discretion in favour of awarding the Defendant its costs on an indemnity basis from 21 September 2010 which means that it will get its costs of the trial.  I am afraid that the Plaintiff has overall badly misjudged its case.  It had received a sensible offer to settle very early in the proceedings.  It rejected the offer and took the Defendant to a long and expensive trial which in the event overran its estimated length but, nobody is to blame for that.  When it comes to it, on my findings, the Plaintiff has pursued a very weak claim by providing extremely sub-standard yarn and caused the Defendant to be put to additional expense as represented by the counterclaim in order to fulfil its contractual obligations with its USA client.

9.  It is only just that the Defendant should have the indemnity taxation that it seeks.

Interest on Costs

10.  In this regard, I am not inclined to award interest on these costs at anything like the 10% maximum that is available to me.  Nevertheless, there should be an award of some interest.  It is important to support the post-CJR regime by which parties, who have had a sufficient opportunity to evaluate a sanctioned offer, as is the case here, will realise that they are liable to have to compensate their opponent who has made a sanctioned offer which, in the event, has been shown to be effective.  I will award interest on the costs from 21 September 2010 until judgment at 2% above HSBC best lending rate and from judgment until payment at 1% above the judgment rate.  I only award 1% above the judgment rate to reflect the fact that the judgment rate of interest is already generously high in what is a low interest regime.

11.  I will now here counsel on the costs of this application.

Costs Of This Application

12.  Having heard the submissions of both counsel, I have decided to award the Defendant these costs also on an indemnity basis but without the award of any interest on them.  In this application, the Defendant has been substantially successful notwithstanding the fact that the award of interest on its costs of the trial has not been at the rate that had been asked for by Miss Wong on its behalf.