YAU LAI WAH v. WONG KAN YU

HCA 2734/2016

[2020] HKCFI 1399

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. 2734 OF 2016

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BETWEEN

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DECISION ON APPLICATION TO VARY COSTS ORDER NISI

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1.  In this action, the plaintiff sues the defendant for HK$3,000,000 plus interest.  She alleges that she lent that sum to the defendant, who failed to repay.

2.  After a four-day trial in November 2019, by a judgment handed down on 29 April 2020[1], I dismissed the plaintiff’s claim and made an order nisi that the defendant is to have the costs of the action, to be taxed if not agreed.

3.  By summons dated 12 May 2020, the defendant applies for a variation of the costs order nisi in the following manners:

(1) The plaintiff to pay the defendant’s costs of this action on a party-to-party basis up to 31 March 2019 and thereafter on an indemnity basis to be taxed if not agreed; and

(2) The plaintiff to pay enhanced interest at 10% per annum above the judgment rate on the defendant’s costs of this action from 1 April 2019 onwards, such date being the latest date on which the defendant’s sanctioned offer dated 4 March 2019 could have been accepted by the plaintiff without the leave of the court.

4.  The reference to the “sanctioned offer” in the summons is a reference to a letter of that date (when the trial had already been set down and the trial dates fixed) sent by the former solicitors for the defendant to the former solicitors for the plaintiff.  The letter is marked “Without prejudice save as to costs” and “Sanctioned offer Order 22 of the Rules of the High Court”, and states:

“We refer to the above Action and are instructed to put forward a Sanctioned Offer in the sum of HK$1.00 inclusive of interest and costs in full and final settlement of all your client’s claims under the above Action. Please note that the Sanctioned Offer herein :-

1. relates to the whole of your client’s claim, inclusive of interest and costs;

2. takes into account no counterclaim or set off which are not claimed;

3. is inclusive of all pre-judgment interest;

4. may, after the expiry of 28 days from the date hereof, only be accepted by your client if the parties agree on the liability for costs or the Court grants leave to accept it.

If this Sanctioned Offer is not accepted and in the event that your client fails to do better than the Sanctioned Offer herein, our client will apply for enhanced interest and indemnity costs as provided for in Order 22 Rule 23 of the Rules of the High Court and the Court will be required to so order unless it considers unjust to do so”.

5.  The offer was not accepted.

6.  Despite the references to Order 22 and “sanctioned offer” in the said letter, it is now common ground that the offer contained in the said letter is not a sanctioned offer falling within Order 22, as the offered sum of HK$1 is inclusive of costs which is incompatible with Order 22, rule 20(1).  Further, the defendant has not made a payment into court, as required by Order 22, rule 3(2).

7.  However, it is also common ground that the above does not disentitle the defendant from seeking to rely on the offer to ask for a costs order in more favourable terms to her than the usual party-to-party costs: see Order 22, rule 2(4), and Hong Kong Civil Procedure 2020 at [22/0/2].  The exclusionary rule in Order 62, rule 5(1)(d), does not apply to prohibit me from considering the offer in relation to costs because the defendant could not have protected her position as to costs by means of a sanctioned payment, since her offer is that the HK$1 is to be inclusive of costs, which as I said above is incompatible with Order 22, rule 20(1).

8.  It is also common ground that the issue before me boils down to whether the plaintiff ought reasonably to have accepted the offer.[2]

9.  In my judgment, the answer is no.

10.  One should consider the position when the offer was made, in April 2019.

11.  The offer made is a payment of HK$1 inclusive of interest and costs.  As Mr Erik Shum, for the defendant, submits, it is in effect an offer to “drop hands”, and is significantly different from a sanctioned offer or payment where a plaintiff, if he or she accepts even a nominal sanctioned payment, would have been entitled to all the costs incurred up to that time.  The difference is not merely, as Mr Shum suggests, between whether there is a payment in of the sum offered or otherwise.  In this case, if the plaintiff accepted the offer, she would have to bear all her own costs incurred up to that time, which would be significant.  Thus, while Mr Shum is correct to say that the defendant had to make her offer outside the Order 22 regime, she had to do so because she was offering settlement terms to the plaintiff in a manner which were much less favourable to the latter than what a sanctioned offer/payment requires, and it is against this that one has to consider whether the plaintiff ought reasonably to have accepted the offer, and to abandon her claim.

12.  It could have been reasonably expected that the result of this case would very much turn on the inherent probability and credibility of the plaintiff’s case, assessed in the light of the testimony of the witnesses (including the plaintiff and the defendant (who although did not give evidence at the trial, did provide a witness statement so it was reasonable to expect that she would give evidence)). As it turns out I did not accept that the plaintiff has proved her case on the balance of probabilities (and not, as has been suggested, because her case is inconsistent with contemporaneous documents, which I found to be quite neutral). However, as I pointed out in my judgment, legitimate questions could be asked of the defendant’s case and the evidence adduced on her behalf. 

13.  As stated by Simon Brown LJ (as he then was) in Kiam v MGN Ltd (No 2)[3]:

“it will be a rare case indeed where refusal of a settlement offer will attract … not merely an adverse order for costs, but an order on an indemnity rather than standard basis”.

14.  The above was quoted by DHCJ Marlene Ng (as she then was) in Heung Wing Yan v Hangway Housing Management Ltd[4], and her Ladyship went on to say (which Mr Shum accepts as correct)[5]:

“But there is an infinite variety of situations which can come before the courts and which the courts may be consider appropriate to make an indemnity order. So the court must consider each case on its own facts to ascertain whether there is something in the conduct of the action, or the circumstances of the case in question that takes it out of the norm so as to justify an award of indemnity costs”.

15.  In the light of the above considerations, I do not think that the plaintiff was being unreasonable in not accepting the offer, but chose to have her day in court.  There is nothing out of the norm in this case to justify indemnity costs or, a fortiori, enhanced interest. 

16.  Both sides have submitted to me previous cases where applications to vary costs orders nisi were made.  Since each case depends on its own facts, I do not think that it is necessary to refer to them.

17.  I dismiss the defendant’s application to vary the costs order nisi, which is now made absolute.  The plaintiff is to have the costs of this application, to be taxed if not agreed.