FONG KIN WA v. LI HAU YI AND ANOTHER

HCMP 2235/2019

[2023] HKCFI 1826

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2235 OF 2019

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D E C I S I O N

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A. INTRODUCTION

1.  I handed down my judgment on 17th March 2023 in this matter (“the Judgment”) granting declarations in favour of the Plaintiff that (inter alia) the Defendants were in repudiatory breach of the Agreement, and the Plaintiff was entitled to and did terminate the Agreement,[1] and ordering that the Defendants refund the deposits paid under the Agreement with interest.  I further made a costs order nisi that the costs of and occasioned by this action should be paid by the Defendants to the Plaintiff.

2.  By a summons of 24th March 2023 taken out pursuant to RHC O.22 r.24 (“the Summons”), the Plaintiff seeks:

2.1  a variation of the costs order nisi so that:

2.1.1  the costs of and occasioned by the action up to and including 18th August 2020 be paid by the Defendants to the Plaintiff, to be taxed on a party-and-party basis, if not agreed;

2.1.2  ;the costs of and occasioned by this action from 19th August 2020 onwards be paid by the Defendants to the Plaintiff, to be taxed on an indemnity basis if not agreed, with interest on such costs at an enhanced rate of 5% per annum on top of the judgment rate until the date of actual payment;

2.2  an order that the Defendants pay to the Plaintiff enhanced pre-judgment interest on the judgment sum of $3,273,000 (“the Judgment Sum”) at the rate of 5% per annum on top of the HSBC prime rate plus 1% per annum from 19th August 2020 to the date of judgment, and thereafter at an enhanced rate of 5% per annum on top of the judgment rate until the date of actual payment; and

2.3  an order that the Defendants pay to the Plaintiff the costs of and incidental to this application to be taxed on an indemnity basis, if not agreed.

B.  THE SANCTIONED OFFER

3.  The basis of the Plaintiff’s application is the Plaintiff’s sanctioned offer of 21st July 2020, in which the Plaintiff asked for a payment of $3,200,000 (and which under O.22 r.26(1)(a) was treated as inclusive of all interest until the last date for acceptance) (“the Sanctioned Offer”).  It is not disputed that the Plaintiff has achieved a better outcome after trial.

4.  The Sanctioned Offer was not accepted by the Defendants.

5.  The Sanctioned Offer was made on 21st July 2020, a day before the filing of the Reply and Defence to Counterclaim.  The matter eventually came on for trial in March 2023.

C.  CONSEQUENCES UNDER ORDER 22 RULE 24

C1.    Whether unjust to make orders under O.22 r.24(2), (3)

6.  O.22 r.24(4) provides that the court “shall” make the orders for enhanced interest and costs under O.22 r.24(2) and (3) unless it considers it unjust to do so.

7.  The Plaintiff points out that the Sanctioned Offer was made at a time when the pleadings were closed (or about to be closed) and essentially all the evidence relied on by the Plaintiff was already available to the Defendants (the parties having filed their affidavit evidence, which eventually formed most of the evidence at trial).

8.  The Defendants say that it would be unjust to do make orders under O.22 r.24(2) and (3), because paragraph 24 of the Statement of Claim gave the impression that the basis for the Plaintiff to allege repudiatory breach was the Defendants’ failure to file tax returns, whereas in the Judgment, the court rejected the argument that the Defendants had an absolute duty to file tax returns.  Furthermore, not all of the Plaintiff’s other arguments were accepted.

9.  As the Defendants fairly acknowledge, in considering whether it is “unjust” to make orders under O.22 r.24(2) and (3), it is for the offeree to seek further information if he considers that he cannot evaluate an offer properly without such information: Hong Kong Civil Procedure 2023 note 22/24/1.  Furthermore, the mere fact that an offeror has failed on a number of issues does not in itself make it unjust to displace the general rule as to costs entitlement: Friston on Costs, 3rd ed., paragraph 17.146 (in the context of offers under the CPR in England and Wales).

10.  I would accept that the manner in which the Plaintiff conducted his case at trial was not entirely clear, as it focused on the submission that cl.22(i) of the Agreement obliged the Defendants to file tax returns of the Company, which submission was rejected.  However, it is not the case that the Plaintiff succeeded on an unpleaded claim, nor did the Defendants complain at trial about any ambiguity in the Statement of Claim.  Paragraphs 23 and 24 of the Statement of Claim had complained of the Defendants’ failure to provide copies of various documents, including tax returns.  In the Judgment, I held that the Defendants were in breach of their obligation to produce documents reasonably requested by the Plaintiff, as they were obliged to do under the Agreement, and that this breach was repudiatory in nature.

11.  Whilst the Plaintiff did not succeed in every argument taken, he obtained all the relief which he had sought in the Statement of Claim.

12.  The Defendants would have been able to assess the Sanctioned Offer by reference to almost all of the material evidence which was eventually relied on at trial.  The parties were able to agree on a set of facts and to dispense with calling witnesses at trial so that there was no additional evidence which emerged only at trial.

13.  In the circumstances, I do not agree that it would be unjust to make the orders under O.22 r.24(2) and (3).

C2.    Rate of interest for the Judgment Sum

14.  Under O.22 r.24(2), the court may order interest on the whole or part of any sum of money (excluding interest) awarded to the plaintiff at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the plaintiff’s sanctioned offer without requiring the leave of the court.

15.  The powers under O.22 r.24 are not meant to be penal in nature, and are aimed at achieving a fairer result for the winning party.  They enable the court to redress the element of perceived unfairness arising from the fact that damages, costs and statutory interest will not compensate a successful plaintiff for the inconvenience, anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on terms which turned out to be less advantageous to him than the judgment he achieved.  See Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at [10] (Lam J, as he then was).  In that case, the parties by agreement had agreed that pre-judgment interest should run at judgment rate (apparently without considering the power of the court to order enhanced interest).

16.  In the Summons, the Plaintiff asked for an enhanced rate of 5% as an addition to both the pre-judgment and the judgment rate.

17.  The Defendants say that this is too high, since as the Plaintiff acknowledged, this is not a case where the Defendants have been acting “most unreasonably”, and since the Plaintiff did not include a prayer for interest in the Statement of Claim.[2]  They say that a 2% enhancement should be adopted, similar to that in Golden Eagle International (Group) Ltd (where the agreed pre-judgment interest rate rate of 8% amounted to 2% above the pre-judgment interest rate of prime plus 1%).

18.  The Plaintiff has not adduced any evidence in support of the enhanced rate of 5% sought.  In his reply submissions, he indicated that he was content with the proposed 2% enhancement in respect of the pre-judgment interest rate.  As regards the post-judgment interest rate, the Plaintiff indicated that since the Defendants had paid the Judgment Sum one month after the Judgment,[3] so that the amount of enhanced post-judgment interest would not be high, he would no longer pursue an enhanced post-judgment rate of interest.

19.  In the circumstances, interest on the Judgment Sum from should be calculated at the rate of 3% per annum over the HSBC prime rate,[4] from 19th August 2020 to the date of the Judgment, and then at judgment rate thereafter until the date of payment.

C3.    Rate of interest for costs

20.  Under O.22 r.24(3), the court may order that a plaintiff is entitled to his costs on an indemnity basis after the latest date on which the defendant could have accepted the plaintiff’s sanctioned offer without requiring the leave of the court, and interest on such costs at a rate not exceeding 10% above judgment rate.

21.  The Defendants say that they should not have to pay indemnity costs as it would be unjust to order them to do so.  I have dealt with this argument above.

22.  As to the rate of interest, the Plaintiff has clarified that he is not seeking pre-judgment interest on costs.  For post-judgment interest on costs, the Plaintiff now seeks an enhancement of 2% over and above the judgment rate.

23.  The Defendants accept that the court has jurisdiction to order enhancement of the post-judgment rate of interest for costs: Maysun Engineering Company Limited v International Education and Academic Exchanges Foundation Company Limited [2011] 2 HKLRD 844 at [25], [26].[5]  They say however that there is no justification for enhanced interest in respect of the post-judgment period.

24.  The rationale for awarding interest on costs in the context of O.22 r.24 is to redress the perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment, which means that a successful plaintiff who has paid his solicitor costs on account in advance of the trial will be out of pocket even if he obtains, at the trial, an order for costs on an indemnity basis.  See Golden Eagle International (Group) Ltd at [16], [17].

25.  However, in the present case, the Plaintiff is not seeking pre-judgment interest on costs.  In respect of post-judgment interest on costs, I agree with the Defendants that no real justification has been put forward for awarding an enhanced rate (over and above the interest that would be payable on costs in any event).  The Plaintiff submits that if the Defendants wish to limit their liability for post-judgment interest, they should try to agree the amount of costs with the Plaintiff as soon as possible.  However, as noted above, the purpose of the power under O.22 r.24(3) is to compensate a successful plaintiff for the trouble of having to pursue proceedings despite making an offer advantageous to the defendant.  It does not seem to me that awarding enhanced post-judgment interest, so as to put pressure on the Defendants to reach agreement with the Plaintiff regarding costs, furthers such a purpose.

D.  DISPOSITION

26.  I therefore order that:

26.1  there be a variation of the costs order nisi so that:

26.1.1  the costs of and occasioned by the action up to and including 18th August 2020 be paid by the Defendants to the Plaintiff, to be taxed on a party-and-party basis, if not agreed;

26.1.2  the costs of and occasioned by this action from 19th August 2020 onwards be paid by the Defendants to the Plaintiff, to be taxed on an indemnity basis if not agreed; and

26.2  the Defendants pay to the Plaintiff enhanced pre-judgment interest on the Judgment Sum at the HSBC prime rate plus 3% per annum from 19th August 2020 to the date of the Judgment, and thereafter at judgment rate until the date of actual payment.

27.  As for the costs of the Summons, the Plaintiff has been substantially successful, even though this may not have been to the fullest extent originally sought.  I make an order nisi that the Defendants pay the Plaintiff the costs of the Summons, to be taxed on a party and party basis, if not agreed.