A I D LTD v. NANYANG BROTHERS TOBACCO CO LTD

DCCJ 1559/2013 &
DCCJ 876/2014
(Consolidated)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NOS 1559 OF 2013 AND 876 OF 2014

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DECISION

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Introduction

1.  On 20 April 2015, I handed down my judgment and awarded damages to the plaintiff in the sum of $501,060 in DCCJ 1559/2013 and $118,300 in DCCJ 876/2014 together with interest and costs. The background leading to both actions and my reasons for giving judgment in favour of the plaintiff have been set out in my judgment, and I do not propose to repeat them here. For the sake of convenience, I shall adopt the same abbreviations used in my judgment.

2.  This is the plaintiff’s application by way of a summons to vary the costs order nisi and to apply for enhanced interest on the judgment sums and for costs on indemnity basis.

3.  The main basis for the plaintiff’s application is that the defendant has failed to beat the plaintiff’s sanctioned offer of $421,060 made on 17 February 2014 which is said to be in full and final settlement of all claims and the defendant’s set-off and/or counterclaim including interest of DCCJ 1559/2013 (“1^st sanctioned offer”). The total amount of claim as shown in the writ and statement of claim is $501,060. The 1^st sanctioned offer represents about 15% discount of the original claim.  Pursuant to Order 22 rule 5(7) of the Rules of the District Court, the expiry date for the defendant to accept the 1^st sanctioned offer, without leave of the court, fell on17 March 2014. The defendant did not accept the 1^st sanctioned offer and was held liable for the full sum of $501,060 after trial.

4.  Further, the defendant has failed to beat another sanctioned offer by the plaintiff of $520,360 ($421,060 + $99,300) made on 3 October 2014 which is said to be in full and final settlement of all claims and the defendant’s set-off and/or counterclaim including interest of both DCCJ 1559/2013 and DCCJ 876/2014 (“2^nd sanctioned offer”). Again, the 2^nd sanctioned offer represents about 15% discount of the original claim for both actions.  The expiry date for the defendant to accept the 2^nd sanctioned offer, without leave of the court, fell on31 October 2014. The defendant did not accept the 2^nd sanctioned offer and was held liable for the sum of $118,300 in DCCJ 876/2014 after trial.

5.  Mr Leung, counsel for the plaintiff, submitted that pursuant to Order 22 of the Rules of District Court, in the situation where the defendant is held after trial liable for more than the proposed sums contained in the plaintiff’s sanctioned offers, costs awarded to the plaintiff should be on indemnity basis and enhanced interest on judgment sums to the plaintiff. He referred me to the cases of CLP Power Hong Kong Limited v Kong Chung Sang, DCCJ 2775/2010 (unreported, 5 September 2012), Poon Yiu Cheung v World Mastery Technology Limited, DCCJ 632/2005 (unreported, 30 September 2011) and Maysun Engineering Co Ltd v International Education and Academic Exchanges Foundation Co Ltd t/a Hong Kong Institute of Technology, DCCJ 27/2006 (unreported, 18 March 2011).

6.  He submitted that in respect of DCCJ 1559/2013, indemnity costs and enhanced interest rate should be awarded from 18 March 2014 onwards. In respect of DCCJ 876/2014, he submitted that I should exercise my discretion to award indemnity costs and enhanced interest rate from the date of the writ. For both actions, he suggested the enhanced interest rate be at 5% above the judgment rate.

7.  Mr Lui, counsel for the defendant, did not dispute that the defendant had failed to accept the 1^st and 2^nd sanctioned offers by the stipulated expiry time limit. He further confirmed that by virtue of the judgment sums awarded in both actions, the plaintiff is now in a better position than if the 1^st and/or 2^nd sanctioned offers had been accepted.

8.  He conceded that it is not unjust to order enhanced interest at a reasonable rate on the judgment sum of $501,060 from 18 March 2014 onwards for DCCJ 1559/2013. For DCCJ 876/2014, he also conceded that it is not unjust to order enhanced interest at a reasonable rate on the judgment sum of $118,300 from 1 November 2014 onwards. He suggested the enhanced interest rate be at 2% above judgment rate

9.  For costs, he submitted that it would be unjust for costs of both actions to be taxed on an indemnity basis. Alternatively, if indemnity costs is ordered, the appropriate period in relation to DCCJ 876/2014 should be costs incurred from 1 November 2014 onwards.

Issues

10.  In view of the submissions made by the respective parties, the issues for determination in this hearing are:

(1) Whether it is unjust to grant the orders sought, ie, enhanced interest and indemnity costs; and

(2) If it was not unjust to do so,

(a) what should be the enhanced interest rate; and

(b) what are the appropriate periods for enhanced   interest and costs to be taxed on indemnity basis, ie, whether enhanced interest and indemnity costs should be awarded before the making of the sanctioned offer.

Applicable Legal Principles

11.  Order 22 rule 24 of the Rules of the District Court provides a discretion to the court to order:

(1) interest on the whole or part of the sum awarded at an enhanced interest rate up to 10% above judgment rate for some or all of the period after the latest date on which the sanctioned offer could have been accepted without leave (Order 22 rule 24(2)); and

(2) costs on indemnity basis after the latest date on which the sanctioned offer could have been accepted without leave (Order 22 rule 24(3)(a)).

12.  Under Order 22 rule 24(4), the court “shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so”.

13.  Whether it is unjust shall be determined with reference to all the circumstances of the case including the matters specified under Order 22 rule 24(5) 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.”

14.  The sanction of ordering indemnity costs or enhanced interest provided in Order 22 is not meant to be penal in nature but is a means of achieving a fairer result (see: Poon Yiu Cheung v World Mastery Technology Ltd [2011] HKEC 1296 citing Lord Woolf MR in Petrotrade Inc v. Texaco Ltd [2002] 1 WLR 947).

Whether unjust to make the orders sought?

15.  The 1^st and 2^nd sanctioned offers were both expressed in clear terms devoid of any chance of misunderstanding.

16.  The 1^st sanctioned offer was made on 17 February 2014. By that time, the pleadings of DCCJ 1559/2013 had been closed. Further, the plaintiff had already provided the defendant with answers to the defendant’s request for further and better particulars of the statement of claim and reply. The defendant also made a sanctioned payment into this court on 23 January 2014. There were also on-going “without prejudice save as to costs” discussions and correspondences exchanged between the parties. The 2^nd sanctioned offer was made on 3 October 2014 covering both actions. By that time, pleadings for both actions were also closed. The defendant also made a sanctioned payment on 10 September 2014 in DCCJ 876/2014. The statement of issue in dispute was prepared by the parties on 25 September 2014.

17.  In the circumstance, I find that the defendant should have understood fully the respective cases of both parties for consideration on whether or not to accept the 1^st and 2^nd sanctioned offers.

18.  Mr Lui submitted that the court’s discretion as to costs is wide and unfettered. He submitted that it is unjust for this court to order costs of both actions to be taxed on an indemnity basis. He pointed out that the defendant had attempted to settle both actions. In DCCJ 1559/2013, by way of a sanctioned payment on 23 January 2014, the defendant intended to settle the case at $421,060. In DCCJ 876/2014, by way of a sanctioned payment on 10 September 2014, the defendant intended to settle the case at $99,300.

19.  Mr Lui further submitted that the defendant did not proceed on an unmeritorious defence at trial and was not wholly unsuccessful in its defence or set-off.

20.  I do not agree with the submission of Mr Lui. When a sanctioned offer is made by a plaintiff, a defendant has a choice to accept or reject it. That decision will certainly have a bearing on costs. If a defendant, after trial, finds himself being held liable for more than what has been offered by way of a sanctioned offer from the plaintiff, it would be nobody but only the defendant himself to be blamed.

21.  In this case, for both actions, the fact is that the defendant failed to beat the sanctioned offers. The sanctioned payments made by the defendant, though a good indication on the part of the defendant in an attempt to settle both actions, were less than the judgment sums.

22.  It is obvious that the defendant has done nothing particular but to ask for clarification about the issue on costs since the 1^st and 2^nd sanctioned offers were made. The defendant did not advance any concern that there was insufficient information to consider accepting the 1^st and/or 2^nd sanctioned offers or not. In refusing to accept the 1^st and 2^nd sanctioned offers, the defendant has to accept that it has to bear the risk of the plaintiff being able to prove its case successfully or its defence being rejected by the court at trial, leading to the consequential risk of having to pay the enhanced interest and indemnity costs. After trial, the defendant failed to beat the 1^st and 2^nd sanctioned offers, which were made about 13 months and 5 months respectively prior to the commencement of trial. In the circumstance, I see nothing unjust to impose enhanced interest and indemnity costs in both actions.  

Enhanced interest on judgment sum

23.  Mr Leung requested for 5% enhanced interest rate on the judgment sums. Mr Lui submitted that 2% enhanced interest rate should be reasonable.

24.  In Poon Yiu Cheung (supra), the facts show that a sanctioned offer of $300,000 was made by the plaintiff who ended up obtaining an award over $330,000.  In paragraph 15 of his judgment, Deputy District Judge R Yu (as he then was) cited Lord Woolf MR in Petrotrade Inc v. Texaco Ltd (supra) saying that :

“The amount of the claim is also a relevant factor. If a claim is small, enhanced interest has to be at a higher rate than if the claim is large, otherwise the additional advantage for the claimant will not be achieved.”

25.  Deputy District Judge R Yu considered that the amount involved in his case was neither large nor small and ordered a uniform enhanced interest rate of 4% above judgment rate for both the pre- and post-judgment period. The pre-judgment period in that case was about 8 months.

26.  In Tsang Yuen Mui v 蔡嬋貞, DCCJ 1347/2008 (unreported, 15 December 2011), HH Judge HC Wong awarded the defendant an enhanced interest rate of 5% above half judgment rate on the judgment sum of $50,658.55, a small one compared to most civil cases in the District Court, in relation to the defendant’s counterclaim when the plaintiff failed to beat the sanctioned offer of the defendant to accept $45,000 in full and final settlement of the plaintiff’s main claim and the defendant’s counterclaim.  The learnt Judge also applied a uniform enhanced rate for both the pre- and post-judgment period.

27.  In this case, the total amount of the judgment sums for both actions exceeded $600,000 and were not a small amount. The 1^st sanctioned offer was made about 13 months prior to the commencement of trial. The 2^nd sanctioned offer was made about 5 months before the commencement of trial.

28.  Interest at judgment rate has already been awarded by me in my judgment to the plaintiff from the date of writ to the date until satisfaction. I have also reminded myself that the sanction under Order 22 is not penal in its nature. Upon considering all the circumstances of this case, including the terms and timing of the 1^st and 2^nd sanctioned offers, I consider that a fair rate of the enhanced interest on the judgment sum to be paid by the defendant should be 3% above judgment rate.

Appropriate period

29.  Mr Leung asked me to consider awarding indemnity costs and enhanced interest prior to the making of the 2^nd sanctioned offer. He submitted that as early as on 7 February 2014, ie, before DCCJ 876/2014 was commenced, the plaintiff had already offered to settle all the matters under the contract in one go. The plaintiff proposed by a without prejudice letter suggesting that the defendant to pay the plaintiff an aggregate sum of $580,360 for the entire outstanding sum under the contract plus $200,000 for all legal costs. That was not accepted by the defendant. Mr Leung submitted that the defendant did not make any genuine effort to settle the case and was not reasonable to have contested the claim in DCCJ 876/2014. Further, Mr Leung submitted that the defendant’s conduct was highly questionable in not asking the key witness to testify in court during trial.

30.  I agree that in respect of DCCJ 876/2014, the plaintiff was able to succeed at a sum higher than the sanctioned offer. However, my judgment was that the defendant was successful in how the contract was to be interpreted. But for my finding that there was a further agreement between the plaintiff and the defendant as to the commencement date for the Phase 2 Works, the plaintiff would have been held liable for compensating the defendant. Therefore, I do not think that the defendant was contesting this case by an unmeritorious defence.  I fail to see any particular reason to order an indemnity costs and enhanced interest prior to the expiry of accepting the 2^nd sanctioned offer.

31.  I think that the costs and rate of interest shall be on the usual party and party basis and at judgment rate prior to the expiry date for the defendant to accept the 1^st sanctioned offer for DCCJ 1559/2013 and the 2^nd sanctioned offer for DCCJ 896/2014 respectively. Indemnity costs and enhanced interest at 3% above judgment rate shall be applied upon expiry of the 1^st sanctioned offer and the 2^nd sanctioned offer respectively.

Conclusion

32.  I allow the plaintiff’s summons and will accordingly vary the orders I made on 20 April 2015 with regard to the rate of interest and costs to the following:

(1) In respect of DCCJ 1559/2013:

(a) The defendant do pay the plaintiff enhanced interest on the judgment sum at a rate of 3% above the judgment rate from 18 March 2014 until satisfaction;

(b) The defendant do pay the plaintiff costs on indemnity basis (with counsel certificate) from 18 March 2014 onwards, to be taxed if not agreed.

(2) In respect of DCCJ 876/2014:

(a) The defendant do pay the plaintiff enhanced interest on the judgment sum at a rate of 3% above the judgment rate from 1 November 2014 until satisfaction;

(b) The defendant do pay the plaintiff costs on indemnity basis (with counsel certificate) from 1 November 2014 onwards, to be taxed if not agreed.

33.  I also order that on nisi basis, the defendant do pay the plaintiff the costs of this application (with counsel certificate) to be taxed if not agreed, on indemnity basis.  This order nisi on costs shall become absolute in the absence of application to vary within 14 days hereof.