LEE KA MAN v. NG TSZ MAN AND OTHERS

DCCJ 2840/2023

[2026] HKDC 323

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2840 OF 2023

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BETWEEN

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DECISION

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1.  This is an application by way of summons taken out by the Plaintiff on 11 August 2025 (the “Summons”) to vary the costs order nisi made under para 102 of the judgment handed down on 28 July 2025 in this case (the “Judgment”). I shall adopt hereinbelow the defined terms used in the Judgment.

2.  P commenced this action to recover damages for misrepresentations whereby P was induced, in the main, to invest in New Asia by paying a total sum of HK$1,466,001.82 for a Linguaphone (靈格風) language education business in Shanghai. By the Judgment, I have found for P and held, in the main, that D1, D2 and D3 were liable to P in damages for fraudulent misrepresentation[1], that judgment be entered for P against D1, D2 and D3 jointly and severally on her claim for the sum of HK$1,466,001.82 (the “Judgment Sum”) with interest at 1% above the HSBC best lending rate from 4 December 2010 to the date of judgment and thereafter at the judgment rate[2] and that the Counterclaim be dismissed[3].

3.  In para 102 of the Judgment, the following costs order nisi was made:-

(a) D1, D2 and D3 do pay P’s costs of the action on a party and party basis, such costs to be taxed if not agreed with certificate for counsel; and

(b) D1 and D2 do pay P’s costs of the counterclaim on a party and party basis, such costs to be taxed if not agreed with certificate for counsel.

4.  P, who is the winning party in this case, applies for the costs order nisi to be varied in the following ways:-

(a) D1, D2 and D3 do jointly and severally pay to P interest on the sum of HK$1,466,001.82 at 1% above the HSBC best lending rate from 4 December 2010 to 30 December 2024 (ie the latest date on which Ds could have accepted the sanctioned offer[4] without leave of the Court);

(b) D1, D2 and D3 do jointly and severally pay to P interest on the sum of HK$733,000.91 (ie the sum stated in the Sanctioned Offer) at 1% above the HSBC best lending rate from 31 December 2024 to the date of judgment and thereafter at the judgment rate;

(c) D1, D2 and D3 do jointly and severally pay to P interest on the sum of HK$733,000.91 (ie the balance of the Judgment Sum after deducting the sum stated in the Sanctioned Offer) at 10% above the judgment rate from 31 December 2024 to the date of judgment (or any such other rate as this Court deems just) and thereafter at the judgment rate;

(d) Costs, including all costs reserved if any, from the date of writ of summons (the “Writ”) up to 20 June 2023 (ie the date of joint letter to Court for the transfer of this case to the District Court) of this action be paid by D1, D2 and D3 jointly and severally to P on indemnity basis on the High Court scale, to be taxed if not agreed;

(e) Costs, including all costs reserved if any, from 21 June 2023 be paid by D1, D2 and D3 jointly and severally to P on indemnity basis on the District Court scale, to be taxed if not agreed; and

(f) Interest on the costs referred to in para 4(e) above be paid by D1, D2 and D3 jointly and severally at 10% above the judgment rate from 31 December 2024.

5.  Ds oppose the Summons.

6.  By an order dated 19 September 2025, I directed the Summons to be dealt with by way of paper disposal and gave directions to the parties to file their affirmation(s) and to lodge their written submissions pertinent to the Summons.

7.  P’s written submissions on costs/interest prepared by Mr Lau was lodged on 5 November 2025 (“P’s Submissions”) while Ds’ submissions on costs and interest prepared by Mr Leung lodged on 19 November 2025 (“Ds’ Submissions”). Mr Lau lodged P’s reply submissions on 25 November 2025 (“P’s Reply Submissions”).

DS’ STANCE

8.  Ds do not dispute the following[5]:-

(a) The Sanctioned Offer complies with the requirements under Order 22 of the Rules of the District Court, Cap 336H (“RDC”). Put simply, the Sanctioned Offer was a valid sanctioned offer.

(b) Ds were held liable for more than the proposal contained in the Sanctioned Offer. In a word, P did better after trial than the Sanctioned Offer.

(c) It is not unjust to award enhanced interest and costs on indemnity basis from 31 December 2024. Put another way, the jurisdiction under Order 22, rule 24 of RDC is triggered and Order 22, rule 24(2) and (3)(a) of RDC shall apply in this case.

(d) It is not unjust to award enhanced interest on indemnity costs from 31 December 2024. Put another way, Order 22, rule 24(3)(b) of RDC shall apply in this case.

9.  It is indisputable that the latest date for acceptance of the Sanctioned Offer without leave of the Court was 30 December 2025.

10.  Ds however take issue on the following:-

(a) The period over which costs should be on the High Court scale (the “1^st Issue”);

(b) Whether costs prior to the Sanctioned Offer should be on indemnity basis (the “2^nd Issue”);

(c) The rate of the enhanced interest (the “3^rd Issue”); and

(d) Interest on costs[6] (the “4^th Issue”).

CHRONOLOGY OF RELEVANT EVENTS

11.  The events relevant to this Decision are chronicled as follows:-

(a) On 4 December 2010, P’s then solicitors issued two demand letters.

(b) On 9 March 2016, P served the Writ and commenced this action in the High Court, claiming the sum of HK$1,466,001.82.

(c) On 26 April 2017, Statement of Claim of P was filed.

(d) On 22 June 2017, Defence and Counterclaim of Ds was filed whereby D1 and D2 counterclaimed for damages to be assessed.

(e) On 14 November 2017, Reply and Defence to Counterclaim of P was filed.

(f) On 3 December 2018, the jurisdictional limit of District Court was increased to HK$3 million.

(g) On 25 February 2021, Re-Amended Defence and Counterclaim of Ds was filed whereby D1 and D2 counterclaimed for HK$3,152,559.00.

(h) On 23 September 2022, Re-Re-Amended Defence and Counterclaim of Ds was filed whereby D1 and D2 reduced their counterclaim to HK$2,867,208.67.

(i) On 22 November 2022, Amended Reply and Defence to Counterclaim of P was filed.

(j) On 26 April 2023, Re-Re-Re-Amended Defence and Counterclaim of Ds was filed.

(k) On 20 June 2023, P and Ds by joint letter applied to the Court to transfer this action to District Court.

(l) On 2 December 2024, P made the Sanctioned Offer.

(m) On 5 December 2024, Ds replied to the Sanctioned Offer.

(n) On 30 December 2024, Ds could have accepted the Sanctioned Offer without leave of the Court at the latest.

(o) On 31 December 2024, D1 and D2 abandoned their Counterclaim.

(p) On 21 January 2025, the trial of this action commenced.

(q) On 28 July 2025, the Judgment was handed down.

THE 1^ST ISSUE

12.  Ds agree that at the time of issuance of the Writ on 9 March 2016, it was reasonable for P to commence this case in the High Court as the claim then fell within the jurisdictional limit of the High Court[7] and that when the Defence and Counterclaim of Ds was re-amended on 25 February 2021, inter alia, quantifying the Counterclaim for the first time at HK$3,152,559, the proper scale of costs should be that of the High Court[8].

13.  Ds however argue the following:-

(a) that as soon as the jurisdictional limit of the District Court was increased on 3 December 2018, P ought to have applied to transfer this action to the District Court[9];

(b) that the fact that Ds counterclaimed for an unquantified amount at that time was no bar for P to transfer her claim to the District Court[10]; and

(c) that when the Defence and Counterclaim of Ds was re-re-amended on 23 September 2022, inter alia, reducing the quantified Counterclaim from HK$3,152,559 to HK$2,867,208.67, the proper scale of costs should be that of the District Court from that time onwards.[11]

14.  Ds pray aid of the case of Ip Siu Chi v Kwan Wing Hang t/a Fai Hung Construction Co & Others [2024] HKCFI 1622. Ds therefore submit that a fairer approach would be costs on the District Court scale, save and except the following periods in respect of which costs should be awarded on the High Court scale: -

(a) From the date of issuance of the Writ, ie 9 March 2016 to 2 December 2018; and

(b) From 25 February 2021 to 22 September 2022.[12]

15.  Section 44A of the District Court Ordinance, Cap 336 (“DCO”) provides the following: -

“(4) The court to which the proceedings are transferred has power to order costs and order the scales on which the costs of the several parts of the proceedings are to be taxed. The costs of the whole proceedings are to be taxed in the court to which the proceedings are transferred.

(5) In an action founded on … tort, for the proceedings in the Court of First Instance before the transfer, the Court may, if satisfied that there was sufficient reason for bringing the action in the Court of First Instance and subject to any order of the Court of First Instance, allow costs on the Court of First Instance scale.” (Emphasis added)

16.  In Ho Chung Yen, executor of the estate of Madam Wong Yuet Wan, deceased v Chang Din Hung & Anor [1985] 1 HKC 628, the plaintiff commenced an action in the High Court against the defendants, claiming damages in respect of the death of the deceased. Later, the action was transferred by consent to the District Court. After the claim was settled by the plaintiff accepting the sum of HK$30,000 paid into court by the defendants. At issue was whether the High Court scale should apply since at the date of the writ, the monetary limit of the District Court’s jurisdiction was HK$20,000 notwithstanding that the limit of the District Court’s jurisdiction was increased to HK$40,000 on 1 September 1983 and HK$60,000 on 1 January 1984. Downey DJ held in favour of the plaintiff. After referring to the wide and general terms of section 43(1) of the then District Court Ordinance, Cap 336 (similar to the current section 44A(1)-(3) of DCO) and the proviso thereto (similar to the current section 44A(4) and (5) of DCO), Downey DJ had the following to say at 630G-631G:-

“It seems to me that the need for the District Court to be ‘satisfied that there was sufficient reason for bringing the action in the High Court’ only applies to actions founded on contract and tort which were within the District Court's jurisdiction at the date when the proceedings were commenced. Assuming that the latter has to be determined by reference to the amount eventually recovered, in the present case the amount recovered was $30,000; well in excess of the District Court's jurisdiction on 8 July 1983, when the writ was issued. Accordingly, I consider that I do not have to be ‘satisfied that there was sufficient reason’ for bringing the present action in the High Court before exercising the discretion vested in me, by s 43(1) of the Ordinance.

That discretion implicitly empowers me to order that the ‘several parts’ of the proceedings prior to the transfer should be taxed on the High Court scale. In the circumstances of the present case, I order that the entirety of the costs of the present action prior to 23 March 1984 be taxed on the High Court scale. It is true that the present action could have been transferred to the District Court on or shortly after 1 September 1983. But, I do not think that it would be just to direct that the costs incurred between that date and the actual date of transfer, ie 23 March 1984 or, indeed, those incurred between 1 January 1984 and the date of transfer, should be taxed on the District Court's scale. Apart from the fact that there does not appear to be any District Court scale of costs for claims brought within the jurisdiction of the court by the 1981 Ordinance or the 1983 resolution, because the District Court Civil Procedure (Costs) Rules have not been amended to take into account these increases in jurisdiction, the defendants did not take any step which would put a reasonable person in the position of the plaintiff on notice that a real issue as to costs might arise until 26 July 1984, when $30,000 was paid into court. Instead, the defendants did not file their defence until 15 November 1983. Although that included a more or less standard form of plea of contributory negligence, the defendants were apparently not confident that such plea might bring the claim within the recently increased jurisdiction of the District Court. At the hearing of the summons for directions on 10 January 1984, they consented to the action being tried in the Supreme Court. Presumably, they then thought that there was a real risk that the plaintiff might recover more than $60,000.

If I am wrong, and it is necessary to be satisfied that there was sufficient reason for bringing the present action in the High Court, the fact that the plaintiff eventually recovered $10,000 more than the limit of the District Court's jurisdiction, at the date of the writ, is, in my view, sufficient reason for commencing proceedings in the High Court. Commencement of the present proceedings could have been postponed until February 1984, by which time the jurisdiction of the District Court had been raised to $60,000. However, the situation has to be looked at in the light of the law and facts as they stood when the proceedings were brought; not at some other date when they might have been brought. In my view, any other interpretation would encourage undue delay in the institution or prosecution of claims.” (Emphasis added)

17.  The defendants in Ho Chung Yen (supra) had not raised the issue as to the scale of costs to be taxed in respect of the period between the increase in the limit of the District Court’s jurisdiction and the actual date of transfer of that case to the District Court. Downey DJ nevertheless took the view that the situation had to be looked at in the light of the law and facts as they stood when the proceedings were brought and ordered the entire pre-transfer costs to be taxed on the High Court scale.

18.  Increase in the limit of the District Court’s jurisdiction aside, the issue of the scale of costs may also arise after transfer of the case from the High Court to the District Court when damages awarded to the plaintiff after trial was below the limit of the District Court’s jurisdiction. In such cases, the Courts needed to be satisfied that there was sufficient reason for the plaintiff to bring the action in the Court of First Instance after applying the reasonable prospect test, ie whether it would be obvious to a reasonable plaintiff or his adviser that the case was a District Court rather than High Court case. The test required a balanced approach that imposed a duty on the plaintiff and his legal advisers to evaluate their choice of court reasonably and objectively. The relevant time to apply this test is at the time of issuance of the writ. Only in obvious cases where the claim should be brought in the District Court would their decision to do otherwise attract a costs sanction.[13]

19.  The nub of the 1^st Issue is not whether at the time of issuance of the Writ on 9 March 2016, it was unreasonable for P to commence this case in the High Court but whether it was unreasonable for P to persist in pursuing this action in the High Court (a) after the jurisdictional limit of District Court was increased on 3 December 2018 and (b) after D1 and D2 amended their Counterclaim to reduce the sum claimed to HK$2,867,208.67 on 23 September 2022.

20.  On this, Mr Leung cited Ip Siu Chi (supra) where Phoebe Man DHCJ observed that after the increase of the District Court jurisdiction, discovery or the award of the EC claim (whichever is later), the plaintiff should have been updated in the advice on the merits of her claim and the quantum of damages sought in light of the new circumstances, see para 7(1). The plaintiff had not done so and the sum awarded to the plaintiff for his personal injuries claim was HK$1,509,202 which was about half of the District Court’s jurisdictional limit. Hence, Phoebe Man DHCJ held at para 8 that costs should be on the District Court scale after the date when the EC award was issued or when discovery had taken place and after documents had been produced (whichever was later). In the same case, Phoebe Man DHCJ gave the following remarks at para 7(3): -

“(3) Although I agree that a defendant would under normal circumstances also be expected to raise the issue of whether a case should be transferred to the District Court; in this particular case, where the plaintiff’s claim was over HK$17 million, it would have been unrealistic for a defendant to suggest that the case be transferred to the District Court, when the plaintiff has shown no indication that her claim would have been adjusted substantially downwards.” (Emphasis added)

21.  It is trite that the District Court has a wide discretion in awarding costs under section 53(1) of DCO. The usual starting point is costs to follow the event, meaning that the losing party pays the costs of the winning party.[14]

22.  Order 62, rule 5(1)(e) of RDC provides that the conduct of the parties should be taken into account by the Court in exercising this discretion. They include[15]:-

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.

23.  In the present case, P consistently claimed for the sum of HK$1,466,001.82 in damages and was ultimately awarded the same by the Judgment. At the time of issuance of the Writ, it was reasonable for P to commence this case in the High Court. When the jurisdictional limit of the District Court was increased, D1 and D2 had already mounted a connected unquantified counterclaim against P. The Counterclaim of D1 and D2 if in excess of the jurisdictional limit of the District Court would have ensured that this action would remain in the High Court in any event.[16] I am unable to see how P can be criticized for not suggesting a transfer whilst waiting for D1 and D2 to quantify the Counterclaim. The issue of quantifying the Counterclaim must be privy to D1 and D2. It was neither realistic nor reasonable to expect P to do so. This renders all the more realistic and reasonable to expect Ds to raise the issue of whether this case should be transferred to the District Court. In fact, D1 and D2 subsequently quantified their Counterclaim at HK$3,152,559.00. On 23 September 2022, D1 and D2 filed their Re-Re-Amended Defence and Counterclaim, reducing their counterclaim from HK$3,152,559.00 to HK$2,867,208.67, a figure just slightly below the present jurisdictional limit of the District Court. After a lapse of about 9 months, the parties jointly applied to transfer this case to the District Court. In these circumstances, I don’t think costs should be awarded to P on the District Court scale for any period(s) prior to the transfer of this case to the District Court.

24.  Accordingly, the costs awarded to P should be on the High Court scale from the date of issuance of the Writ to 20 June 2023 and thereafter on the District Court scale.

THE 2^ND ISSUE

25.  P relies on 2 grounds in seeking costs on indemnity basis for this entire action:-

(a) Ds’ fraud and dishonesty; and

(b) Ds’ oppressive litigation conduct by way of making a groundless counterclaim.[17]

26.  Ds accept that costs from 31 December 2024 should be assessed on indemnity basis. Ds’ position is predicated on their acceptance of their failure to accept the Sanctioned Offer without leave on 30 December 2024.[18]

27.  The principles applicable to indemnity costs are well-settled by the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at paras 14 to 18, summarised as follows:-

(a) In certain circumstances, costs may be awarded on a more generous than usual basis of taxation so as to achieve a fairer result.

(b) It is for the receiving party to show that the case has some special or unusual feature.

(c) Such features are not confined to an ulterior motive, an improper purpose, deception or underhand conduct on the part of the paying party.

(d) Neither the attributes of the parties nor the character of the proceedings is irrelevant to the question of whether a more generous than usual basis of taxation should be ordered.

(e) The discretion to order a more generous than usual basis of taxation is not to be fettered or circumscribed beyond the requirement that such taxation be ordered only when it is appropriate to do so.

(f) As to that, the grounds on which a more generous than usual basis of taxation is to be ordered must be connected with the case. That extends to – but no further than to – any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation.

28.  Mr Lau cites Non-No Fashion Wholesale Limited v Chung Kam Wing & Shu Man Lee, HCA 20335/1998, (Unreported), 31 January 2001, at p 32 per Cheung J (as he then was), adopted by Mr Recorder Pow SC in Wong See Lung v Huang Hua Jiang & Others, HCA 2067/2009, (Unreported), 4 November 2014 at para 3, in support of his legal proposition that indemnity costs are clearly appropriate in cases of fraud.

29.  Mr Leung submits that a finding of deceit does not automatically justify indemnity costs, and that fraudulent conduct exists on a spectrum of severity. He contends that each case must be decided on its own merits. Mr Leung emphasizes that the Shanghai venture was a genuine, albeit unsuccessful, business, not a bogus scheme devised from the outset to defraud P. Mr Leung further cites Chow How Yeen Margaret & Anor v Wex Pharmaceuticals Inc. & Anor, HCA 537/2013, (Unreported), 5 September 2017 to submit that the learned judge there did not order indemnity costs for the costs incurred before the last day for accepting the sanctioned offer notwithstanding that Chow How Yeen Margaret (supra) was a case of fraudulent misrepresentations. The learned judge there did not make such an order for indemnity costs is understandable since the plaintiffs only asked for indemnity costs on the ground that the defendants did not beat the sanctioned offer, see paras 4 and 31-51. The question whether the plaintiffs should be awarded indemnity costs for the entire action including the costs incurred before the deadline for accepting the sanctioned offer was never raised as an issue before the learned judge.

30.  While I make no finding of a pre-meditated bogus scheme, it does not mean that I am satisfied that the purported business was “genuine” but “unsuccessful”. Particularly, when P, as a 49% shareholder of New Asia, has never received any financial documents, let alone income, profit, or dividends from Ds.

31.  In the present case, Ds lost on each and every issue they contended for. In the face of the serious allegations relating to Ds’ fraudulent conducts, Ds met those allegations with D1’s evidence which was riddled with inconsistencies and contradicted by contemporaneous documentation. Key examples include:-

(a) D1’s denial of his involvement in drafting the 2009 announcement, see para 70(b) of the Judgment;

(b) D1’s initial position that "Pingu" was never their choice, contradicted by contemporaneous documentary evidence, see para 70(d) of the Judgment;

(c) Ds’ case on the Shanghai Shareholder was incompatible with the objective undisputed facts, see para 78 of the Judgment;

(d) D1’s testimony on the application for education licence “defies belief”, see para §82(a) of the Judgment;

(e) The complete absence of paper trail regarding the application for education licence, see para 82(c) of the Judgment; and

(f) D1’s explanation for the delay in processing the application for education licence “strains credulity”, see para 82(d) of the Judgment.

32.  In my view, the defence was hopelessly pursued in the light of the overwhelming contemporaneous documentation. More importantly, I have made detailed findings regarding Ds’ fraudulent state of mind at para 95 of the Judgment and the upshot of Ds’ fraudulent conducts was that P was fleeced of a total of HK$1,466,001.82. I agree with Mr Lau that Ds’ fraudulent misrepresentations involved 2 persons, were not one-off but were repeatedly made on 3 different key aspects of the Intended Business for months.

33.  I accept that in every case where there is a material dispute of fact, the Court is bound to prefer one party’s account. Such a finding, without more, is not a special or unusual feature making indemnity costs appropriate.[19] However, the matters mentioned in paras 31 and 32 above are serious enough and amount to deception or underhand conduct on the part of Ds. At the very least, the aforesaid matters portray a special or unusual feature of this case, warranting a more generous than usual basis of taxation. In my view, this special or unusual feature cries out for an indemnity costs order.

34.  I don’t think it is necessary for me to further consider whether the abandoned Counterclaim and how D1 and D2 proceeded with the Counterclaim in this action will further justify my decision for indemnity costs. If necessary, I am inclined to accept Mr Lau’s submissions that how D1 and D2 quantified and thereafter abandoned on the first day of the trial, the Counterclaim (not to mention how Ds handled the accounts of the PRC Subsidiary in the litigation of this action), cumulatively would give further justification for indemnity costs to be awarded to P in this action.

THE 3^RD ISSUE

35.  In the present case, P seeks an enhanced interest on the sum of HK$733,000.91 (ie balance of the Judgment Sum after deducting the sum stated in the Sanctioned Offer) at the rate of 10% above the judgment rate from 31 December 2024 to the date of the Judgment.

36.  Mr Leung submits that an appropriate uplift would be 5% which would be translated into an enhanced interest rate of 13.25% per annum.[20]

37.  Order 22, rule 24(1) and (4) of RDC provide that where a defendant fails to achieve a better result than a sanctioned offer, the Court shall, unless it considers unjust to do so, make the order referred to in rule 24(2) and (3), namely (a) enhanced interest on the judgment sum for some or all of the period after the latest date on which the defendant could have accepted the sanctioned offer without requiring leave of the Court (the “Latest Date”) or agreement with the plaintiff on costs and (b) costs on indemnity basis after the Latest Date, and (c) interest on costs. For the present purpose, only Order 22, rule 24(1), (2) and (4) of RDC is apposite.

38.  Order 22, rule 24(5) of RDC requires the Court, in considering whether it would be unjust to make the orders in rule 24(2), to take into account all circumstances of the case including:-

(a) the terms of any sanctioned offer;

(b) the stage in the proceedings at which any sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

39.  It is undisputed that there are no positive reasons making it unjust for the Order under Order 22, rule 24(2) of RDC to be made. As I have said, the difference between P and Ds on this issue is the level of enhanced interest to be awarded.

40.  I would adopt in this Decision the guiding principles distilled by Jonathan Chang DDJ in Cheung Shuk Han v Chik Wai Yin [2013] 4 HKC 311 as to how the Court should exercise its discretion in deciding the level of enhanced interest to be awarded. The relevant passage can be found at paras 12 to 20, excerpted as follow:-

“12. The power to award enhanced interest on the judgment sum is compensatory and not penal in nature. It is conferred to enable the court to redress the element of perceived unfairness, otherwise inherent in the legal process, which arises from the fact that damages, costs (even costs on an indemnity basis) and statutory interest will not compensate the successful claimant for the inconvenience (including disruption in business or daily life), anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on less advantageous terms than what he obtained after trial: McPhilemy v Times Newspapers Ltd (No 2) [2001] 4 All ER 861, [2002] 1 WLR 934 at pp 943F to 944B per Chadwick LJ.

13. The court may award enhanced interest at a rate of up to 10% above judgment rate, but it should not start from the assumption that the full uplift should normally be awarded or should otherwise be taken as the starting point, since litigation varies greatly in weight and complexity, and the underlying facts in any given case will be different: Earl v Cantor Fitzgerald International (No 2) (2001) LTL (3 May 2001) per Moore-Bick J; Petrotrade Inc v Texaco Ltd [2001] 4 All ER 853, [2002] 1 WLR 947 at p 951F per Lord Woolf MR (as he then was).

14. That said, the level of enhanced interest on the judgment sum should make a material, albeit proportionate, difference to the outcome of the case, or else O.22 would become otiose: Little v George Little Sebire & Co reported in The Times (17 November 1999) where Deputy High Court Judge David Foskett QC noted in the full judgment as follows:

“… since one of the factors mentioned in the overriding objective is the saving of expense, the powers conferred by the rules are likely to be interpreted by the Courts in a way that encourages settlement. Settlement is achieved only if parties focus properly on the strengths and weaknesses of their respective cases. The powers conferred by r 36.21 [our equivalent of O.22] are plainly designed to sharpen that focus. Unless the discretions conferred by the rule are exercised in a way that makes a material, albeit proportionate, difference to the outcome of the case, the rule becomes otiose.”

15. That explains why generally the uplift should be at a higher rate for small claims, otherwise the additional advantage for the receiving party (and, in turn, the imposing of a material difference or impact to the outcome of the case) would not be achieved. The size of the claim is thus a relevant factor when considering the amount of the uplift in interest under O.22: see Petrotrade Inc v Texaco Ltd at p 951D-E, followed in Poon Yiu Cheung v World Mastery Technology Ltd, [2011] HKCU 1877, DCCJ 632/2005 (unreported, 30 September 2011) at para 15 per Deputy Judge R Yu, and in Tsang Yuen Mui v蔡嬋貞 Choi Sim Ching [2012] HKCU 94;, DCCJ 1347/2008 (unreported, 15 December 2011) at para 11 per Judge H C Wong.

16. The conduct of the paying party in the proceedings is also a relevant factor. If there is cause to criticize the paying party (for example, in unreasonably pursuing the matter to trial where his case was obviously unsustainable either on the facts or in law), whilst this would not justify increasing the rate of enhanced interest to punish that party, it would mean that due to his conduct in the proceedings he had forfeited the opportunity of asking the court to apply a lower rate of the additional interest payable: Petrotrade Inc v Texaco Ltd at p 951C-D. See, for instance, the conduct of the defendants in the defence of the claims (namely the inadequacy in the defence expert valuation report) was considered by the court in deciding whether to make an order under O.22, the rate of enhanced interest to be awarded, and the period to which the orders may relate: Ho Kin Pong & Anor v Tam Kok Hung & Ors, [2011] HKCU 1209, DCCJ 624/2010 (unreported, 27 June 2011) at paras 22 to 24 per Judge Mimmie Chan (as she then was). See also Maysun Engineering Co Ltd v International Education and Academic Exchanges Foundation Co Ltd [2011] 2 HKLRD 844, [2011] HKCU 559 at para 17 (p 851) where Judge Mimmie Chan took into account the conduct of the defendant in maintaining its case which was partly abandoned only at trial, and partly rejected by the court after trial, in deciding the enhanced interest rate.

17. I add that in assessing the conduct of the paying party in the proceedings, the difference between the sanctioned offer and the judgment sum should also be a relevant consideration: the larger the difference (ie the receiving party being more prepared to forgo part of his claim to settle), the more unreasonable it is for the paying party not to take up the offer.

18. At the same time, it is also necessary for the court to stand back and consider whether, viewed in the round, any given award of enhanced interest would provide a disproportionate benefit to the receiving party or impose a disproportionate burden on the paying party: Earl v Cantor Fitzgerald International (No 2).

19. For instance, the low interest regime over the relevant period of time is a relevant consideration in determining the appropriate uplift: Chung Mei Industries Ltd v So Kwok Keung, [2011] HKCU 1090, HCA 2604/2005 (unreported, 10 June 2011) at para 5 per Deputy High Court Judge Carlson. This is to guard against making an award that has the effect of giving the receiving party a windfall in interest that he would otherwise not have been able to achieve under the prevailing economic environment and conditions.

20. I stress that as with any exercise of discretion, straightjackets are inapposite for the approach that the court should take when dealing with costs, and the above principles are there to guide and are by no means exhaustive. Ultimately, the court should consider all the circumstances of the case: O.22, r.24(5).” (Emphasis added)

41.  Cheung Shuk Han (supra) is a landlord-and-tenant case where the tenant successfully sued the landlady and the tenant did better after trial than her earlier sanctioned offer. Jonathan Chang DDJ was not prepared to award a full uplift of 10% above judgment rate given the low interest regime then but awarded 6% above judgment rate as the appropriate rate of enhanced interest.

42.  In Chow How Yeen Margaret & Others v Wex Pharmaceuticals Inc & Anor (supra), Queeny Au-Yeung J, while commenting at para 17 that “[the case] was a thoroughly bad case of fraudulent misrepresentation and concealment and the plaintiffs were kept out of their money, being made to wait for a real opportunity for profits for 8.5 years until the Acro Pharm Agreement was terminated with nil return”, held that it was not unjust to allow enhanced interest of the judgment sum at 10% above judgment rate. In allowing the maxima of the enhanced interest rate, Queeny Au-Yeung had considered the overall position having regard to the pre-judgment interest to see if the plaintiffs were over compensated or the defendants over penalized, see para 56. This part of Queeny Au Yeung J’s decision was upheld in the Court of Appeal.[21]

43.  In Grupo Pacifica Incorporada v Worldwide Marine Product Limited & Others [2018] HKCFI [2584], the plaintiff was the victim of a fraud as a result of which sums of money to which the plaintiff was entitled had been diverted to the bank accounts held by the defendants. The trial concerned only the plaintiff’s claim against the 1^st defendant. The plaintiff succeeded in its claim in unjust enrichment and did better than the sanctioned offer made by it to the 1^st defendant previously. Queeny Au-Yeung J holding that the 1^st defendant rejected the sanctioned offer in a hostile and dismissive manner and never came back with another offer and that the 1^st defendant’s rejection of the sanctioned offer (despite having sufficient documents to make an informed consent) was objectionable in the light of its unreasonable defence, awarded enhanced interest of 10% above judgment rate after the latest date on which the sanctioned offer could have been accepted without leave of the court. Had the 1^st defendant accepted the sanctioned offer, the case would have been disposed of without a trial 31 months earlier.

44.  Mr Lau cites another case in support of his submission to enhance the rate of interest to 10% above judgment rate, ie OMV Petrom SA v Glencore International AG (CA) [2017] 1 WLR 3465 which is a case of deceit happened on the British soil where the claimant did better at trial than a CPR Pt 36 offer made by it to settle its claim against the defendant. The first instance judge enhanced interest to a rate of 4.5% per annum after the expiry of the CPR Pt 36 up to judgment. On appeal by the claimant, the English Court of Appeal enhanced the interest to 10% over base rate. Sir Geoffrey Vos C took the view that the Court must have regard to all the circumstances of the case in deciding what rate of interest to award under rule 36.14(3)(a) and the level of interest awarded must be proportionate to the circumstances of the case, that those circumstances might 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 enquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the CRP Pt 36 offer.

45.  Sir Geoffrey Vos C said that relevant to the determination of the appropriate rate of enhanced interest in that case were the 1^st defendant’s refusal to engage in settlement discussions or to respond to the Part 36 offer[22], the fact that the eventual award (US$40,071,913) was very significantly greater than the Part 36 offer (US$35 million) itself and, most of all, the 1^st defendant’s deplorable (if not outrageous) conduct of the litigation

46.  Sir Geoffrey Vos C further highlighted the change in the litigation culture since the Woolf reforms and adumbrated at para 39 the following:-

“… 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.” (Emphasis added)

47.  This rationale applies equally to the litigation culture in Hong Kong after the Civil Justice Reform. In Qvist Henrik v. Clatronic Far East Ltd. [2020] 1 HKLRD 703, Recorder Stewart Wong SC took the view at para 19 that the emphasis was on the reasonableness of the defendant’s conduct in the settlement process or in the conduct of the litigation and at para 22 that 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 will need to convince the Court that he has not been acting unreasonably.

48.  In considering the only issue of what should be the enhanced rate for the judgment sum, Recorder Stewart Wong SC, in Qvist Henrik (supra), took into account the making of allegations of fraud, dishonesty or other misconduct committed by the plaintiff but not pursued at the trial. He however discounted the threats made by personnel of the defendants when the plaintiff was summarily dismissed and the sending of notices to customers that the plaintiff’s employment had been terminated. Recorder Stewart Wong SC explained the reason for the foregoing distinction at para 28, as follows:-

“… as the sanctioned offer regime ought to address conduct of the parties in the settlement and litigation process in relation to the effect and consequence of the making, and the acceptance or rejection, of a sanctioned offer, and not pre-action matters independent of the making or otherwise of such an offer. Where there is such other unreasonable conduct of a party which the Court feels it should express disapproval, that should be done by way of an award of indemnity costs if at all possible and appropriate.” (Emphasis added)

49.  After opining at para 29 that a maximum of 10% above judgment rate as enhanced interest must be reserved for the worst kind of cases, Recorder Stewart Wong SC awarded the plaintiff an enhanced rate of 4% above judgment rate as an appropriate enhanced rate of interest.

50.  In Antwerp Diamond Bank NV v Brink’s Incorporated (No 2) [2015] 4 HKLRD 628, the plaintiff successfully appealed and the 3^rd defendant was ordered to pay the plaintiff damages of US$852,399 with interest at the commercial rate (1% over prime) from the date of misdelivery and costs of both the trial and the appeal. On the plaintiff’s application to vary the orders, the Court of Appeal increased the rate of interest to 4% over prime rate.

51.  In Ko Philip Zhi Yao v The Incorporated Owners of Hamburg Villa [2024] HKDC 1388, Isaac Chan DDJ held that although there was no lack of criticisms against the defendant’s conduct of the action, the defendant’s conduct was not of the most egregious type, eg conducting proceedings with dishonest ulterior motive or dishonest behaviour. Isaac Chan DDJ considered an enhanced interest of 5% above judgment rate to be appropriate for the judgment sum.

52.  The maximum uplift of 10% above judgment rate is reserved for the worst kind of cases. There are plentiful reasons which convince this Court that this case is a very bad case verging on the worst of its kind. The reasons are as follows:-

(a) P has successfully proven a case of deceit against Ds. P was kept out of her money since 2010.

(b) The abandoned Counterclaim of D1 and D2 was groundless and was instituted to put pressure on P into settling her case of deceit. Despite legal advice received that “[D1 and D2] would have difficulty in establishing the counterclaim”[23], D1 and D2 sustained their Counterclaim until they abandoned it on 31 December 2024. Whether D1 and D2 could establish the Counterclaim was a matter entirely within their own knowledge. They did not need P’s discovery of documents for them to come to their view and, certainly, did not need to wait until the advent of the trial to abandon the Counterclaim.

(c) P made the Sanctioned Offer about one month before the trial and about 8 months before the Judgment. The Sanctioned Offer was half of the sum claimed by P. The Sanctioned Offer was very generous and should not have been met by the high-handed if not dismissive response of D1 and D2. D1 and D2 should have acted reasonably to accept the Sanctioned Offer. At the very least, Ds should have made reasonable counteroffer to keep the settlement negotiation alive. It is not an excuse for Ds to contend that P’s claim is “all-or-nothing” in nature; they could have counteroffered by proposing a lesser sum. This was particularly so when D1 and D2 must have known that they had difficulty in establishing the Counterclaim. In my view, Ds’ reply to the Sanctioned Offer was more of a tactical ploy than a bona fide constructive attempt towards resolving the dispute.

53.  I am required to stand back and consider everything in the round. In doing so, I take note of the low interest environment in Hong Kong and the likelihood that the maximum uplift may provide a disproportionate benefit to P. The HSBC best lending rate from 4 December 2010 to the date of the Judgment ranged from 5% to 5.88%. Accordingly, the maximum enhanced interest rate of 18.25% (10% above judgment rate) per annum proposed by P would be about an additional 12% compared to the interest of around 6% (ie 1% above HSBC best lending rate) without the Sanctioned Offer.

54.  Viewed everything in the round, I consider an enhanced interest of 8% above judgment rate to be appropriate for HK$733,000.91 (ie the balance of the Judgment Sum after deducting the sum stated in the Sanctioned Offer) from 31 December 2024 to the date of the Judgment.

THE 4^TH ISSUE

55.  As to enhanced interest on costs, the only issue remains is the rate of enhanced interest on the indemnity costs from 31 December 2024.

56.  By parity of reasoning[24], I order that the entirety of P’s taxed costs from 31 December 2024 shall carry interest at 4%[25] above judgment rate.

DISPOSITION

57.  For reasons set out above, my Orders under paras 101 and 102 of the Judgment shall be varied as follows:-

(a) Judgment be entered for P against D1, D2 and D3 jointly and severally on her claim for the sum of HK$1,466,001.82;

(b) D1, D2 and D3 do jointly and severally pay P interest on the sum of HK$1,466,001.82 at 1% above the HSBC best lending rate from 4 December 2010 to 30 December 2024;

(c) D1, D2 and D3 do jointly and severally pay P interest on the sum of HK$733,000.91 at 1% above the HSBC best lending rate from 31 December 2024 to the date of judgment and thereafter at the judgment rate;

(d) D1, D2 and D3 do jointly and severally pay P interest on the sum of HK$733,000.91 at 8% above the judgment rate from 31 December 2024 to the date of judgment and thereafter at the judgment rate;

(e) Costs, including all costs reserved if any, from the Writ up to 20 June 2023 be paid by D1, D2 and D3 jointly and severally to P on indemnity basis on the High Court scale, to be taxed if not agreed with certificate for counsel;

(f) Costs, including all costs reserved if any, from 21 June 2023 be paid by D1, D2 and D3 jointly and severally to P on indemnity basis on the District Court scale, to be taxed if not agreed with certificate for counsel;

(g) Interest on the costs referred to in para 4(e) above be paid by D1, D2 and D3 jointly and severally at 4% above the judgment rate from 31 December 2024 until full payment;

(h) The Counterclaim be dismissed; and

(i) D1 and D2 do pay P’s costs of the Counterclaim on a party and party basis, such costs to be taxed if not agreed with certificate for counsel

58.  I order that the costs of the Summons be to P to be taxed on indemnity basis with certificate for counsel.