GOOD FORM CO LTD v. CHEUNG WAI HAN

DCCJ 3816/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3816 OF 2013

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DECISION
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1.  This is the Plaintiff’s application for costs under Order 22, rules 4 and 24 of the Rules of the District Court (“RDC”).

2.  As it turns out, this court is obliged to decide (i) whether the plaintiff can be said to have done better than its earlier sanctioned offer to the defendant so as to attract the costs and other consequences under Order 22, rule 24 when the plaintiff accepted the defendant’s sanctioned payment of a sum larger than that it proposed to accept under its earlier sanctioned offer; and (ii) whether the defendant’s conduct was such as to make it appropriate for the court to exercise general discretion to award indemnity costs against her.

3.  The plaintiff’s damages claim arose from a conveyancing transaction with the defendant that fell through.  I do not propose to repeat the background facts and the issues in dispute succinctly set out in the decision of HH Judge Andrew Li dated 21 March 2014 in relation to the plaintiff’s application under Order 14A, RDC save to note that the core issue was whether the plaintiff was entitled to claim its loss over and above the deposit liable to be forfeited under the sale and purchase agreement and that the plaintiff claimed to have managed to re-sell the subject property only at $1.22m while the contract price under the said sale and purchase agreement was $1.95m (“Contract Price”), thereby suffering a loss way above the 10% deposit.

4.  Having ruled in favour of the plaintiff, the learned judge entered interlocutory judgment against the defendant with damages to be assessed by a master.  The plaintiff proceeded with assessment of damages but subsequently accepted the defendant’s sanctioned payment before the matter had to be set down for assessment by the court.

5.  The following chronology of events is not in dispute:-

21-3-2014	HH Judge Andrew Li handed down judgment for liability against the defendant with damages to be assessed.
11-4-2014	The plaintiff made a sanctioned offer to accept HK$550,000 (“Sanctioned Offer”).
24-7-2014	The defendant’s application for leave to appeal was refused by HH Judge Andrew Li.
16-1-2015	The defendant’s application for leave to appeal was refused by the Court of Appeal.
26-1-2015	The defendant made a sanctioned payment of HK$440,000.
9-3-2015	The plaintiff filed its Statement of Damages for the purpose of assessment of damages
27-3-2015	The defendant topped up her sanctioned payment to $590,000.
2-4-2015	The plaintiff’s solicitors wrote to the defendant’s solicitors to explain why the increased sanctioned payment was still far too low for the plaintiff to accept.
15-4-2015	The defendant further topped up her sanctioned payment to $640,000 (“Sanctioned Payment”).
12-5-2015	The plaintiff filed a notice of acceptance of sanctioned payment.
14-5-2015	The plaintiff’s solicitors wrote to the defendant’s solicitors claiming that O.22, r 20 was inapplicable and asking the defendant to agree to pay the plaintiff’s costs incurred from 28 days from 11 April 2014 on an indemnity basis.  The plaintiff’s solicitors repeated the same demand by their letter of 18-5-2015.
27-5-2015	The plaintiff took out the present summons pursuant to O.22 rr.4 & 24.

6.  By its summons of 27 May 2015, the plaintiff asks that all the costs of the action (save the costs orders of HH Judge Andrew Li in the O14A application and Registrar Lui in relation to assessment of damages) be to the plaintiff (notwithstanding that Order 22, rule 20 already provides for the plaintiff to have costs of the proceedings up to the date of serving the notice of acceptance of sanctioned payment) and that the plaintiff’s costs incurred after 2 May 2014 (being the last day when the defendant could have accepted the Sanctioned Offer) be taxed on an indemnity basis with enhanced interest at 5% above the judgment rate until payment.

7.  In his written submission, Mr. Lo, counsel for the plaintiff, set out the basis of the plaintiff’s application as thus: (1) the normal costs order upon the plaintiff’s acceptance of the Sanctioned Payment is “not entirely applicable” as the issues between the parties on liability and quantum of damages have been dealt with separately with costs orders on the issue of liability having already been made; and (2) the quantum of damages secured by the plaintiff is far better than the Sanctioned Offer so that Order 22, rule 24 is applicable.

8.  No issue arises as to the propriety of the Sanctioned Offer.  Nor can it be disputed that the Sanctioned Payment exceeds the Sanctioned Offer by a wide margin in money terms.  The question is, however, whether the plaintiff can in the circumstances be said to have done better than the Sanctioned Offer.

9.  Order 22, rule 24(1)(a) and (b), RDC stipulates that:

“ (1) This rule applies where

(a) a defendant is held liable for more than the proposals contained in a plaintiff’s sanctioned offer or

(b) the judgment against a defendant is more advantageous to the plaintiff than the proposal contained in a plaintiff’s sanctioned offer.”

 (Emphasis added)

10.  Mr. Lo did not deal with this question in his written submission and appeared to have assumed either of the conditions prescribed by Order 22, rule 24(1) to have existed.

11.  Miss Cheung, counsel for the plaintiff, submitted, and I agree, that the words underlined above clearly suggest that a judgment or order is a pre-requisite for triggering the costs and other consequences under Order 22, rule 24.  Here the defendant did not insist on fighting the issues of quantum to the conclusion but made sanctioned payments eventually accepted by the plaintiff so as to absolve the need for actual assessment of damages by the court.  There could be a variety of reasons for the defendant to make a sanctioned payment and such payment should not, without more, be taken as an admission of defeat or otherwise suffice for the purpose of Order 22, rule 24(1)(a) or (b).

12.  Miss Cheung drew support from the observations of Deputy Judge Le Pichon in Golden Tonn Industrial Ltd v Hong Kong Cyberport (Ancillary Development) Ltd (HCA 362/2011), unreported, 27 August 2014 (a case on whether the scope of “costs of the proceedings” envisaged under Order 22, rule 20(1) of the Rules of the High Court encompasses reserved costs): 

“ 25. It was said that by making a sanctioned offer, there was an “unspecific throwing in of the towel” by the defendant. So the plaintiff being the receiving party is to be considered the overall ‘victor’.

   26. Mr Man’s approach that the plaintiff was the clear or overall victor appears to be based on the sole fact that the defendant had made a payment that was accepted.  But does it mean that in every sanctioned payment case that is settled, the receiving is to be deemed the “clear or overall victor” for the purposes of reserved costs? 

   27. As a matter of first principles, it would not appear to be correct since settlements come about for a variety of reasons and the merits of the defence may not necessarily be the overriding consideration.  Moreover, the argument appears to contradict the position that Mr Man had expressly disavowed: see §18 above.  (As an aside, for my part, I would say that it is well‑nigh impossible for someone not having been involved in this matter to come to any informed view as to which party would have prevailed had the matter been fought to a conclusion.)”

13.  That case went on to the Court of Appeal.  In refusing leave to appeal, Barma JA had this to say:

“11. …It was clear that the Deputy Judge took the view that it was unrealistic to expect a court which had no previous involvement in the matter to come to a view on which party would ultimately have prevailed without, in effect, hearing the whole of the argument (see para 27 of the Decision). It seems to us this was, particularly in the light of Mr. Man’s acknowledge), clearly correct…

…

13. Mr. Man suggested that the plaintiff should get its costs as it could be regarded as the overall victor in the proceedings, as it had had to bring the proceedings to obtain the sanctioned offer…We do not think that the fact that the defendant made the sanctioned offer should be regarded as throwing in of the towel, including in relation to the expunction application….”[1]

14.  Miss Cheung further drew my attention to this remark of Burrell J in Fung Yim Chun& Anor v Fung Kui Wah (HCA 115/2010), unreported, 5 April 2012, at paragraph 15:

“ Mr Leung submits that when there is a settlement there are no winners or losers, it is merely a compromise. That is correct. Settlements are encouraged so as to dispel the notion of winners and losers wherever possible. Even late settlements are better than no settlements.”

15.  With respect, I find these observations of the higher court apposite to the present case.

16.  In reply, Mr. Lo referred to the judgment of Chung J in Tsoi Hak Kong Herbert v Kok Wai Chun and Another [2009] 4 HKLRD 215 and invited this court to rely on s.19 of the Interpretation and General Clauses Ordinance (Cap. 1) as the learned judge did there and give the phrase “held liable” in Order 22, rule 24(1)(a) a liberal construction and interpretation to accord with the CJR spirit. 

17.  When asked what a liberal construction should entail, Mr. Lo suggested that, in making the Sanctioned Payment, the defendant should be taken to have considered herself liable to make such payment.  I can hardly see how the court can, even if by way of liberal construction, read this into the phrase “held liable”.  Indeed, what Chung J said in paragraph of the same judgment clearly militates against such a construction.[2] Mr. Lo’s strained argument must be rejected. 

18.  In this connection, reference is made to the mirroring provisions in rule 23(1) which read:

“ (1) This rule applies where a plaintiff -

(a) fails to obtain a judgment better than the sanctioned payment; or

(b) fails to obtain a judgment that is more advantageous than a defendant’s sanctioned offer.”

19.  If a defendant’s sanctioned payment can give rise to an order for indemnity costs and enhanced interests under rule 24 as Mr. Lo has suggested, an anomaly would arise in that a judgment is a pre-requisite only for the plaintiff to face the consequences of failing to beat a defendant’s sanctioned offer or payment whereas a defendant could be visited with the consequences of failing to beat a plaintiff’s sanctioned offer simply by making a sanctioned payment of a better sum even though the court has never held him liable for the same.  That cannot be right.

20.  Mr. Lo rhetorically asked: for what then does the Sanction Offer serve?  The answer is: it serves to do fairness to a plaintiff by way of indemnity costs and enhanced interest if, and only if, a defendant is held liable under a court order or judgment for more than what the plaintiff proposed in a sanctioned offer.  And a defendant is not being held liable as such in making a sanctioned payment of a better sum.

21.  The defendant does not dispute that the Sanctioned Payment was accepted by the plaintiff within time so that the costs consequences under Order 22, rule 20(1) should follow and the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the court otherwise orders (“Otherwise Proviso”).  And as Miss Cheung rightly pointed out, the default position under Order 62, rules 1, 9 and 28 is that the plaintiff’s costs are to be taxed on a party and party basis unless the court orders such costs to be taxed on a different basis.

22.  In this regard, counsel referred to the oft-cited judgment of Poon J (as he then was) in Etratech Asia-Pacific Ltd v Leader Printede Circuit Boards Ltd[2013] 4 HKC 281 where the learned judge laid down the proper approach to the otherwise proviso in Order 22, rule 20(1) of the Rules of the High Court and concluded that the prima facie rule as to costs applies unless (i) the defendant discharges the burden of showing exceptional circumstances that justify a departure therefrom; and (ii) the defendant has given a prior warning to the plaintiff that he would apply to invoke the otherwise proviso.

23.  Mr. Lo further referred to the observation of Burrell J in Fung Yim Chun, supra, at paragraph 12, that the expression “unless the Court otherwise orders” is merely a recognition of the court’s discretion and submitted that the court in dealing with the costs consequence of acceptance of sanctioned payment is armed with a wide discretion to depart from the usual costs position so that the court can award indemnity costs to the plaintiff under the Otherwise Proviso.

24.  For one thing, Burrell J continued in the same paragraph, “Needless to say the discretion must be exercised judicially and the usual order will only be departed from if there are compelling reasons to do so.”

25.  For another, Mr. Lo’s proposition ignores the fact that the prima facie rule under Order 22, rule 20 deals with the incidence of costs rather than basis of taxation of costs and the Otherwise Proviso concerns the court’s discretion to depart from the prima facie rule and deprive a plaintiff of his costs.  As Poon J said in Etratech, supra:

“ 23. Further, when applying the Otherwise Proviso, the court is in effect depriving the plaintiff his costs or even ordering him to pay the defendant costs.”

26.  To suggest otherwise, Mr. Lo relied on Wong Chim Hing v Dicovery Bay Transit Services Limited (HCPI 254/2011), unreported, 7 November 2014, where Bharwaney J ruled that the plaintiff was entitled to have his costs under the prima facie rule taxed on the High Court Scale (as opposed to the District Court scale), unless the court otherwise orders. I do not think this case supports Mr. Lo’s proposition as the court there was dealing with the default position as to the appropriate scale of costs under the prima facie rule.

27.  Mr. Lo accepts that Order 22 is self-contained code for promoting settlement. As per Deputy Judge Le Pichon in Golden Tonn, supra, at paragraph 32, the scheme of the self-contained code relating to sanctioned payments contemplates finality upon acceptance (save as to incidental matters mentioned in rule 22(5)).   

28.  In my view, barring any special circumstances that may oblige the court to consider ordering the plaintiff’s costs to be taxed on an indemnity basis outside Order 22, rule 24, regard must be had to Order 22, rule 24 before the court can award to a plaintiff indemnity costs (and enhanced interests) when he does better than his own sanctioned offer, provided that the precondition for such consequences to come about is met.  Here, the precondition is not met and the costs and other consequences under rule 24 simply do not follow. 

29.  As it transpired during argument, the main thrust of Mr. Lo’s argument was that this court should exercise its general discretion to order indemnity costs against the defendant in light of her conduct since the making of the Sanctioned Offer.

30.  In Huge Dragon Corporation Limited v The Incorporated Owners of Lung Mun Oasis [2014] 3 HKLRD 286, the Court of Appeal has this to say:   

“ 12. As to when the courts may award indemnity costs, Li CJ had this to say in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 :

“16. The courts have rejected the proposition that an award of indemnity costs will only be made where a case has been brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party. (Macmillan Inc v Bishopsgate Investment Trust Plc, (unreported, 10 December 1993) (Millett J); Disney v Plummer, (unreported, English Court of Appeal, 16 November 1987)). These decisions and the reasoning on which they were based have been endorsed by the Hong Kong Court of Appeal (Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 at pp. 575E-576F, per Godfrey JA; see also Choy Yee Chun v. Bond Star Development Ltd [1997] HKLRD 1327 at pp. 1334G-1335I, per Stock J.)

17. In these and other cases, courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made. It has been said that

…the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be ‘appropriate’.

(Macmillan Inc v Bishopsgate Investment Trust Plc (unreported, 10 December 1993), per Millett J; Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 at pp. 575E-576F, per Godfrey JA; see also Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at pp. 1334G-1335I, per Stock J).”

13. What constitute appropriate circumstances to award indemnity costs must be fact-sensitive.  As demonstrated by numerous authorities and now enshrined in Order 62, rule 5(1)(e), Rules of the High Court, the conduct of the party against whom indemnity costs are sought is cogently relevant.  Thus, where the proceedings in question should never have been brought or defended but the party nevertheless unreasonably and unjustifiably persisted, he may well be visited with indemnity costs : see, for example, Montrio Ltd & Another v Tse Ping Shun David, CACV 291/2011, unreported, 31 January 2013; Grant David Vincent Williams v Jefferies Hong Kong Limited, HCA 320/2011, unreported, 12 July 2013.”

31.  Here, Mr. Lo submitted, the defendant failed to carefully and properly consider the Sanctioned Offer or review the merits of her own case.  Instead she chose to appeal HH Judge Andrew Li’s ruling and ended up with the Court of Appeal awarding on its own accord indemnity costs against her in dismissing her leave application.  The plaintiff’s costs incurred in proceeding with assessment of damages were therefore unnecessarily incurred.

32.  Miss Cheung submitted, and I agree, that Mr. Lo had mixed up the merits of the defendant’s appeal with the need for assessment of damages.  The former solely relates to the issue in dispute in the O14A application and does not touch on the issue of quantum.  When the defendant was refused leave to appeal, the parties were obliged to either proceed with assessment of damages or otherwise deal with the question of quantum.  The defendant’s failure (if at all) to properly consider the merits of her case would at most put off the assessment of the plaintiff’s damages.

33.  I further agree with Miss Cheung’s observation that the question of quantum is not as simple as Mr. Lo has suggested.  I accept that the defendant is entitled to challenge the propriety of the plaintiff’s sale of the subject property to a third party at a price substantially below the Contract Price.  Indeed, the defendant sought to adduce before HH Judge Andrew Li a valuation report which opined that the market value of the subject property stood at $1.76m.  The learned judge disallowed such expert evidence as it was obtained without leave, and more pertinently, because such evidence would only go to the issue of quantum which is a matter for a master.  Had this matter proceeded to assessment without the plaintiff accepting the Sanctioned Payment, the defendant would in all probability seek leave to adduce valuation expert evidence to challenge the plaintiff’s case on quantum.     

34.  True it is that the Court of Appeal found the defendant’s application to be hopeless and awarded indemnity costs against the defendant, but the fact that the defendant chose not to accept the Sanctioned Offer pending her application for leave to appeal, and upon her application being refused by the Court of Appeal, made the various payments into court ultimately accepted by the plaintiff would not, in my view, constitute appropriate circumstances to award indemnity costs against the defendant.

35.  In the circumstances, the plaintiff’s application for indemnity costs and enhanced interest must be dismissed.  And in light of the defendant’s concession in paragraph 21 above, it is unnecessary for this court to make a separate order for the plaintiff’s costs of the proceedings already covered by the prima facie rule under Order 22, rule 20, RDC. 

36.  Counsel agree that costs should follow the events.  I order that costs of and incidental to the plaintiff’s application be to the defendant, to be taxed if not agreed with a certificate for counsel.

37.  Counsel’s assistance is appreciated.