MOZARD (HK) CO LTD v. DACHSER HONG KONG LTD

DCCJ 5823/2015

[2018] HKDC 735

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5823 OF 2015

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DECISION ON COSTS

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1.  In my judgment herein handed down on 21 May 2018 I directed parties to lodge and exchange written submissions on costs. Having read those submissions, the following is my decision on costs.

CORE FACTS

2.  D had in fact made the following offers to P, at various stages of the proceedings:-

(a)   Before the Writ was issued, on 5 August 2015, Jacky Cheuk of D through email to Helene Wong of P offered EUR5,773.47 in settlement of the then potential claim;

(b)   After the Writ was issued, on 3 February 2016, D’s solicitors made a “WP” offer to P by letter in the sum of US$8,500 inclusive of interest; reference to HAFFA limitation was made in that letter;

(c)   On 24 February 2016, D made a Sanctioned Payment into Court in the sum of HK$73,651.60.

3.  Obviously, P did not accept any of the above offers and the case proceeded.

4.  Mediation took place on 14 February 2017 and parties attended with their respective legal representatives.  There was of course no settlement.

5.  P pointed out in its submissions that it acted in person from the issuance of the Writ up to 22 July 2016, and then again acted in person from February 2018 onwards.  In other words, it only had the benefit of legal advice from July 2016 to February 2018.

ANALYSIS

Consequences flowing from the Sanctioned Offer

6.  Dealing with the effect of the Sanctioned Payment first, the starting point is that the Court is empowered to disallow interest to a plaintiff who failed to do better than the payment (O 22, r 23(2)), or order costs against such a plaintiff (O 22, r 23(3)), and even on indemnity basis and with enhanced interest (O 22, r 23(4)).

7.  Such powers under Order 22, although couched in discretionary terms by the word “may” in each of the sub-rules, do not amount to a totally unfettered or absolute discretion as O 22, r 23(5) mandates the Court to exercise such powers by the word “shall” and the only qualification/exception is where it would be “unjust” to do so considering all the circumstances of the case.  O 22, r 23(6) further sets out matters that have to be considered when determining the question of whether it would be “unjust”; the matters set out therein are of course non-exhaustive given the word “including”.

8.  Therefore, once there was a valid Sanctioned Offer as in the present case, the question is whether there is anything “unjust” to prevent the Court from exercising the powers under sub-rules (2) to (4). 

9.  The following points are made in P’s submissions on costs:-

(a)   It did not have the benefit of legal advice when the Sanctioned Payment was made (24 February 2016) or the period during which it could be accepted without leave (ie up to 23 March 2016);

(b)   The present case involved complicated legal questions and thus it could not have been clear to P that it had a weak case or that D had a strong defence; a trial was necessary to come to a proper determination;

(c)   When the Sanctioned Offer was made D had not filed its Defence and thus P did not have sufficient information to consider the Sanctioned Offer;

(d)   P did not simply ignore D’s settlement offers, P in fact did instruct its solicitors to make a Sanctioned Offer on its part; after it acted in person again, it did not know how to continue to negotiate with D;

(e)   P only looked at principles relating to Order 22 after receiving the judgment herein; it only had very limited understanding of them before that.

10.  In respect to 9(a), it does not make it “unjust” in the present case to exercise the powers under sub-rules (2) to (4):-

(a)   Logically, if the lack of legal advice/representation, or general ignorance of the law, could amount to being “unjust” then in every case a litigant in person would be able to rely on this matter to thwart the effect of O 22 – a litigation advantage totally unjustified;

(b)   By the same token, this could hardly be just for the other side as it would strip the other side of a protection specifically tailored and afforded by the rules, over a matter that is totally out of its control, namely whether the other side goes unrepresented or not – a litigation disadvantage totally unjustified;

(c)   This argument is especially objectionable in the present case where acting in person must have been a choice rather than necessity: P in July 2016 did engage solicitors to act for it but for real reason best known to itself rid of this benefit a month before the assessment trial, in February 2018;

(d)   That brings me to another objection to P’s argument: P had had the benefit of legal advice for no less than 18 months and yet no difference was apparently made; it does not lie in P’s mouth to say now that if it had the benefit of legal advice earlier then things would have turned out differently;

(e)   For the avoidance of doubt, in considering this argument I have not taken into account D’s submission that Ms Tang of RPC or Mr. Holder of D had allegedly explained to Ms Wendy Wong of P the effect of a sanctioned payment and of the Sanctioned Payment respectively, because:-

(i)   There is no evidence before me as to whether they did so and if so what did they actually say; I would not for that purpose delve into the potential factual disputes arising as “it is plainly right that a full-scale trial examining privileged material, and listening to ex post facto justification should be avoided” (see HKCP 2018 Vol 1 n 22/24/1 pt 7 at p 569);

(ii)   Further, neither Ms Tang nor Mr Holder was or should be P’s legal advisor so in the absence of evidence of what they actually said, it would not be fair to find that P was properly warned of the consequence of failing to beat the Sanctioned Offer.

11.  In relation to 9(b), it does not make it “unjust” in the present case to exercise the powers under sub-rules (2) to (4):-

(a)   This argument boils down to this: “one would not know if one would win or lose until after the trial”, but this is always the case: clear cut disputes would not have proceeded far or even being litigated in the first place;

(b)   It also ignores the fact that it is exactly this uncertainty that the rules are to address and encourage settlement – the considerations encouraged are not purely legal but also commercial and practical.

12.  In relation to 9(c), it does not make it “unjust” in the present case to exercise the powers under sub-rules (2) to (4):-

(a)   Firstly, when D filed its Defence on 16 March 2016, there was still about a week left for the Sanctioned Offer to be accepted without leave;

(b)   Secondly, even before D made the Sanctioned Offer, RPC alluded to the HAFFA limitation in its “WP” letter of 3 February 2016;

(c)   Hence, the only information not available to P seems to be just legal advice, but there was nothing to prevent P from obtaining legal advice at that earlier stage to help it consider its position.

13.  In relation to 9(d), it does not make it “unjust” in the present case to exercise the powers under sub-rules (2) to (4):-

(a)   Firstly, the truth of the matter is that there is no evidence of any reply from P to RPC’s “WP” letter of 3 February 2016;

(b)   Even if the Sanctioned Offer made by P when it was represented could be said amounting to a “reply”, it was made at least 5 months after the “WP” letter (as P first engaged solicitors only in July 2016);

(c)    Again, there is no justification for P not to engage solicitors earlier and seriously consider and deal with the “WP” letter or the Sanctioned Payment.

14.  In relation to 9(e), it does not make it “unjust” in the present case to exercise the powers under sub-rules (2) to (4):-

(a)   Firstly, there is an obvious factual contradiction in this argument: P submitted that its solicitors had made a Sanctioned Offer to D in 9(d), in that case, how could P not know at least something about Order 22?  If anything, the solicitors must have explained the same to people of P and in doing so must have also explained the effect of D’s Sanctioned Payment; I cannot imagine, and there is certainly no evidence to suggest, that P’s solicitors could have failed to explain to P the effect of the Sanctioned Payment – that would be grossly negligent;

(b)   Secondly, this is but another way of making the ignorance of law argument similar to 9(a) above, which I have rejected.

15.  What is left is the extent of interest enhancement under O 22, r 23(4)(b) and the period of which it should apply. 

16.  In The Owners and/or Demise Charterers of the Ship or Vessel "MCC Jakarta" v The Owners and/or Demise Charterers of the Ship or Vessel "Xin Nan Tai 77" [2017] HKCFI 2158, the Court summarised the following principles (at para 48 to 50):-

(a)   That 10% over judgment rate is the upper limit and reserved for the worst type of cases, such as those involving “dishonest” or “unreasonable” conduct in conducting the case;

(b)   The start date for which the enhanced interest on costs to apply is to be the day after the sanctioned offer/payment could be accepted without leave, if there is nothing “unjust”;

(c)   Given the global low interest environment, 4% over prime rate would generally represent a generous assessment of the cost of money;

(d)   To avoid the necessity of calculating the precise amount of interest on each item of costs incurred during that period, the Court will adopt the practical calculation of applying half of the enhanced rate over the entire period.

17.  Given my finding on the question of whether there is anything “unjust” above, there is no reason why I should not order an enhanced interest of 4% over prime rate, ie a total of 9%.  I shall also adopt the practical calculation method, ie apply half of the rate, ie 4.5%, over such costs incurred by D from 24 March 2016.

18.  In the above premises, I find nothing unjust in exercising the powers under O 22, r 23(2) to (4) and as a result of P failing to do better than the Sanctioned Payment and I shall make the following orders:-

(a)   The order as to interest in the judgment be varied to the effect that interest on the judgment award from 24 March 2016 onwards be disallowed;

(b)   Costs of the action from 24 March 2016, save as to costs order(s) already made, onwards be to D to be taxed on an indemnity basis, if not agreed;

(c)   P to pay interest on the costs referred to in (b) above at 4.5% p.a. from 24 March 2016.

Before 24 March 2016

19.  For proceedings before 24 March 2016, ie before the Sanctioned Payment was to take its effect, D further argues that it should be paid the costs incurred in relation to preparation, filing and service of its Defence. 

20.  I take it that D is therefore not seeking to reverse any costs order(s) made as a result of the time extension application it made on 11 February 2016.

21.  This is not within the ambit of Order 22 but within the realm of the Court’s general discretion on matters of costs.  Since P has been successful in obtaining a judgment against D, it bears on D to satisfy the Court why such costs should not follow the event.

22.  D’s arguments are as follows:-

(a)   The filing of the Defence was due to P’s refusal to stay the proceedings or agree on a time extension;

(b)   P could have accepted the Sanctioned Payment before the Defence was due to be filed, but it did not;

(c)   D offered to settle the case on 2 occasions prior to making the Sanctioned Payment and filing the Defence, and P did not accept.

23.  My views on the above arguments are as follows:-

(a)   It was D’s duty to comply with the timeline for filing pleadings in the first place and P could not be blamed for not consenting to giving D an indulgence; as indeed, the Court made an Unless Order for D to file its Defence on that application (which was the first time indulgence was sought), demonstrating the Court’s disproval of D’s failure to comply with the timeline;

(b)   The matching of the timeline between the 28-day period for P to accept the Sanctioned Payment and filing of Defence is a matter completely within the control of D, it could have made the Sanctioned Payment earlier or could have persuaded the Court in setting a deadline for filing matching that of the deadline of accepting the Sanctioned Payment (which the Court did not do so, so either D did not try or the Court did not agree); it does not lie in D’s mouth to complain about the “mis-match” and it would be unfair to effectively cut short P’s entitlement to 28 days to consider the Sanctioned Payment;

(c)   The “WP” offer letter of 3 February 2016 was however significant: it offered to settle the present claim (by that point already taken out) at a sum significantly higher than the judgment award, and did in fact referred to the possibility of the much lower HAFFA limitation being applicable instead; P ought to have seriously considered this offer and should have sought legal advice in that regard, yet P did not seem to have even replied.

24.  On the strength of the “WP” letter of 3 February 2016 I find that there is justification for departing from the usual costs order, at least to the extent as sought by D.

25.  However, I do not see any justification for ordering P to pay such costs on an indemnity basis, which requires special circumstances.

CONCLUSION

26.  Given the above, I make the following orders pursuant to parties’ submissions on costs:-

(a)   The order as to interest in the judgment be varied to the effect that interest on the judgment award from 24 March 2016 onwards be disallowed;

(b)   Costs of the action from 24 March 2016, save as to costs order(s) already made, onwards be to D on an indemnity basis, to be taxed if not agreed;

(c)   P to pay interest on the costs referred to in (b) above at 4.5% p.a. from 24 March 2016;

(d)   P to pay D’s costs of preparing, filing and serving the Defence on a party-to-party basis, to be taxed if not agreed.

27.  As to costs of this costs application, D being substantially successful I make the usual order that costs of this costs application be to D on a party-to-party basis, to be taxed if not agreed.