HCA 2711/2016
[2024] HKCFI 3623
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 2711 OF 2016
________________________
BETWEEN
CHEUNG HON KIN
Plaintiff
and
CHUBB LIFE INSURANCE COMPANY LTD.
Defendant
________________________
Before:
Hon Cheng J in Chambers
Date of Defendant’s Submissions:
13 September 2024
Date of Defendant’s Further Submissions:
25 October 2024
Date of Decision on Costs:
20 December 2024
________________________
DECISION ON COSTS
________________________
A. INTRODUCTION
1. On 24th May 2024, I handed down my Judgment in this matter (“the Judgment ”), dismissing Mr Cheung’s claim. I further made a costs order nisi (“the Costs Order Nisi ”) that the costs of and occasioned by the action should be paid by Mr Cheung to the Defendant, to be taxed if not agreed; as Mr Cheung was formerly legally aided, there was to be legal aid taxation in respect of the period to which the legal aid certificate relates.
2. By a summons of 6th June 2024 taken out pursuant to RHC O.22 r.23 (“the Summons ”), the Defendant seeks:
2.1 a variation of the Costs Order Nisi so that:
2.1.1 Mr Cheung pay the Defendant’s costs of and occasioned by the action up to and including 10th April 2019 on a party and party basis, and thereafter on an indemnity basis, to be taxed if not agreed;
2.1.2 Mr Cheung pay to the Defendant enhanced interest at 10% above judgment rate on each payment of costs incurred by the Defendant on or after 11th April 2019 from the date of each such payment to the date of the Judgment; and
2.1.3 Mr Cheung’s own costs in respect of the period to which his legal aid certificate relates, that is from 12th January 2017 to 20th June 2023, be taxed in accordance with the Legal Aid Regulations;
2.2 an order that the Sanctioned Payments totalling $1.5m paid into court by the Defendant on 13th March 2019, 19th April 2019 and 22nd November 2023 (“the Sanctioned Payments ”) be paid out to the Defendant through its solicitors, Messrs Kennedys;
2.3 an order that all interest accrued on the Sanctioned Payments be paid to the Defendant forthwith through its solicitors, Messrs Kennedys;
2.4 an order that Mr Cheung pay to the Defendant the costs of and occasioned by the Summons on an indemnity basis, to be taxed if not agreed.
3. By a consent summons of 13th September 2024 (“the Consent Summons ”), the Director of Legal Aid and the solicitors for the Defendant agreed on proposed variations to the Costs Order Nisi, to the effect that the Director of Legal Aid, on behalf of Mr Cheung, is to pay the Defendant’s costs of and occasioned by the action from 12th January 2017 to 10th April 2019 on a party and party basis, from 11th April 2019 to 20th June 2023 on an indemnity basis, and enhanced interest at 4% above judgment rate on costs and disbursements already paid by the Defendant from 11th April 2019 to 20th June 2023, from the date of actual payment by the Defendant up to the date of the Judgment and at judgment rate thereafter until payment.
4. The Consent Summons of course does not deal with any variation of the Costs Order Nisi in respect of the period before 12th January 2017 and after 20th June 2023, when Mr Cheung was not legally aided.
5. At the hearing on 19th September 2024, Mr Cheung asked for more time to respond to the Defendant’s submissions. The proposed draft order also required corrections. I therefore gave directions for the Defendant to provide a revised draft order to Mr Cheung, for leave to Mr Cheung to lodge and serve written submissions, and for the matter to be dealt with on the papers thereafter. Mr Cheung did not lodge any written submissions.
6. In response to the court’s queries regarding various paragraphs of the revised draft order, by a letter of 25th October 2024, the Defendant’s solicitors submitted a further revised draft order, and also asked for certificate for two counsel. I gave directions that Mr Cheung should have leave to provide a written response by Tuesday 12th November 2024. Mr Cheung did not submit any written response.
B. THE SANCTIONED PAYMENTS
7. The basis of the Defendant’s application is the Defendant’s Sanctioned Payments made on 13th March 2019 (in the amount of $220,000), 19th April 2023 (in the amount of $680,000) and 22nd November 2023 (in the amount of $600,000).
8. I note that the first of the Sanctioned Payments was made at a time when discovery was ongoing, the second when the notice of trial had already been issued and there remained some four months before the pre-trial review of 30th August 2023, and the third was made seven days before trial.
9. The latest date by which Mr Cheung could have accepted the first of the Sanctioned Payments without leave was 10th April 2019.
10. Mr Cheung did not accept the Sanctioned Payments.
11. It cannot be (and is not) disputed that Mr Cheung failed to obtain a judgment better than the Sanctioned Payments.
C. CONSEQUENCES UNDER ORDER 22 RULE 23
12. RHC O.22 r.23(3), (4), (5) and (6) provide that:
“(3) The Court may order the plaintiff to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.
(4) The Court may also order that the defendant is entitled to –
(a) his costs on the indemnity basis after the latest date on which the plaintiff could have accepted the payment or offer without requiring leave of the Court; and
(b) interest on the costs referred to in paragraph (3) or subparagraph (a) at a rate not exceeding 10% above judgment rate.
(5) Where this rule applies, the Court shall make the orders referred to in paragraphs (2), (3) and (4) unless it considers it and just to do so.
(6) In considering whether it would be unjust to make the orders referred to in paragraphs (2), (3) and (4), the Court shall take into account all the circumstances of the case including –
(a) the terms of any sanctioned payment …;
(b) this stage in the proceedings at which any sanctioned payment … was made;
(c) the information available to the parties at the time when the sanctioned payment … 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 payment or offer to be made or evaluated.”
C1. Whether unjust to make the orders under O.22 r.23(3), (4)
13. O.22 r.23(5) provides that the court “shall” make the orders for (inter alia ) indemnity costs and enhanced interest under O.22 r.23(3) and (4) unless it considers it unjust to do so.
14. Mr Cheung has not made any submissions as to why it would be unjust to make orders under O.22 r.23(3) and (4). As a general starting point, I do not see any reason why it would be unjust to make orders under O.22 r.23(3) and (4).
C2. Indemnity costs
15. The Defendant seeks indemnity costs from 11th April 2019 (after the last day on which Mr Cheung could have accepted the first of the Sanctioned Payments without leave of the court) up to 24th May 2024 (the date of the Judgment). The period from 11th April 2019 to 20th June 2023 is covered by the Consent Summons between the Defendant and the Director of Legal Aid. The period currently under consideration is therefore the period from 21st June 2023 to 24th May 2024.
16. Mr Cheung, as the Plaintiff, has all along been the party with the relevant information as to the existence or otherwise of the Alleged Oral Agreement.[1] He would have been able to assess the strength of his case from the start. The first of the Sanctioned Payments was made early on in the proceedings when relatively less costs had been incurred; had Mr Cheung wanted to negotiate further, he could have approached the Defendant, but he did not.
17. I see no reason why the order should not be made.
C3. Enhanced interest on costs
18. The Defendant seeks enhanced interest on costs for the same period. Again, the period from 11th April 2019 to 20th June 2023 is covered by the Consent Summons between the Defendant and the Director of Legal Aid. The period currently under consideration is therefore the period from 21st June 2023 to 24th May 2024.
19. The Defendant has noted that there are two approaches which have been used to calculate the enhanced interest.
19.1 The first is the traditional approach of making a separate calculation of interest for each item of costs paid, from the actual date of payment to the date of judgment (“the Traditional Approach ”). This will be accurate, but may be complicated and time consuming where there are many items of costs as each item will carry interest from a different date, or where there are changes in the interest rate.
19.2 The second is the one used by Lam J (as he then was) in Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at [18], where interest is ordered at half the rate which the court would otherwise order, but for the whole of the period. This approach (“the Modified Approach ”) is simpler.
20. In Golden Eagle International (Group) Ltd , Lam J was of the view that this modified approach was appropriate as the period in question was not substantial (a period of some four months).
21. The Defendant’s solicitors cited Shih Pik Nog v G2000 (Apparel) Ltd [2011] 4 HKLRD 121 where Bharwaney J at [18] said that the Traditional Approach was suitable for cases where there have only been a few payments and the Modified Approach for cases where there have been multiple payments spanning a long period of time.
22. In the present case, the Defendant helpfully produced a schedule showing the items of costs it has paid to its solicitors throughout the action, encompassing some 72 payments over more than seven years. As the Defendant’s solicitors agreed, since a number of the larger payments were made in relatively recent years, it can readily be seen that use of the Modified Approach would produce a larger total figure than the use of the Traditional Approach.
23. In Rai Gehendra Raj v Yick Hing Construction Co Ltd , unreported, HCPI 48/2012, 20th November 2017, Lisa Wong J was asked to order interest on costs at an enhanced rate, having dismissed the plaintiff’s personal injuries action. Calculations were placed before the court showing that the traditional approach would result in a lower total overall amount of interest being paid. Lisa Wong J observed that as the purpose of awarding interest on costs at an enhanced rate was not to penalise a plaintiff for not accepting a sanctioned payment but to compensate the defendant for the cost of the money (or the loss of use of the money) which he has had to bear before trial from making payments on account of costs (citing Shih Pik Nog ), it would be more appropriate to use the traditional approach.
24. Whilst the law has since developed, in that it is now recognised that the court has a discretion to include a non-compensatory element in the award as well (Wong Giles v Donowho Simon Christopher & anor [2020] HKCFI 1053 (K Yeung J), any such element ought to be proportionate in the circumstances of the case (as K Yeung observed). In my view, the non-compensatory element should not be imposed simply through the use of a rough and ready approximation method of calculation.
25. As the Defendant’s solicitors agreed, nowadays, with the assistance of appropriate technology, it is in fact not too complicated to calculate interest using the Traditional Approach. This is particularly so in the present case as there is a clear record of the amounts paid and the dates on which they were paid.
26. In the circumstances, it seems to me that the Traditional Approach ought to be used.
C4. Rate of enhanced interest
27. The Defendant submits that the enhanced rate of interest should be 10% above judgment rate if the Traditional Approach is adopted, and 5% above judgment rate if the Modified Approach is adopted.
28. The Defendant’s solicitors cited Wong Giles at [24] to [25] for the proposition that the court has the discretion to include a non-compensatory element to the award of enhanced interest, although the level of interest awarded must be proportionate to the circumstances of the case. In Wong Giles , K Yeung J referred to OMV Petrom SA v Glencore International AG (No.2) [2017] EWCA Civ 195 at [38] to [39], where Sir Geoffrey Vos C said:
“38 … The court undoubtedly has a discretion to include a non-compensatory element to the award as I have already explained, but the level of interest awarded must be proportionate to the circumstances of the case. I accept that those circumstances may include, for example, (a) the length of time that elapsed between the deadline for accepting the offer and judgment, (b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence, and (c) what general level of disruption can be seen, without a detailed inquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the Part 36 offer. But there will be many factors that may be relevant. All cases will be different. Just as the court is required to have regard to “all the circumstances of the case” in deciding whether it would be unjust to make all or any of the four possible orders in the first place, it must have regard to all the circumstances of the case in deciding what rate of interest to award under rule 36.14(3)(a). As Lord Woolf MR said in the Petrotrade case, and Chadwick LJ repeated in the McPhilemy case, this power is one intended to achieve a fairer result for the claimant. That does not, however, imply that the rate of interest can only be compensatory. In some cases, a proportionate rate will have to be greater than purely compensatory to provide the appropriate incentive to defendants to engage in reasonable settlement discussions and mediation aimed at achieving a compromise, to settle litigation at a reasonable level and at a reasonable time, and to mark the court’s disapproval of any unreasonable or improper conduct, as Briggs LJ put the matter, pour encourager les autres.
39 The culture of litigation has changed even since the Woolf reforms. Parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.”
29. OMV Petrom SA was a case where the defendant refused to engage in settlement discussions or to respond to the Part 36 offer, and the eventual award was very significantly greater than the Part 36 offer. Most importantly, it was a case where the defendant’s conduct of the litigation merited the court’s disapproval of unreasonable and improper conduct in the strongest terms – the defendant had put the claimant through the hoops of having to establish liability in a very flagrant case of fraud and in a manner that was wholly unreasonable; the defendant had advanced a dishonest and unreasonable defence; its conduct had been “deplorable, if not outrageous”; it had made a blanket refusal to engage in any negotiating or mediation process; and it had used a vast asset base to seek to frustrate the claimant’s attempts to reach a compromise solution.
30. In Wong Giles , K Yeung J rejected the plaintiff’s claim. The plaintiff’s conduct was such as to justify an award of indemnity costs even for the period prior to the date for accepting the sanctioned payment made by the defendant. The plaintiff had lied about the reasons for his installation of fourteen speakers deliberately installed to make life a misery for his neighbours for several years, and advanced a case that he was the one who was the victim. The way in which he prosecuted his claim was “an affront to the court”.
31. In the present case, the Defendant says that Mr Cheung’s case was premised on the existence of the Implied Term and Alleged Oral Agreement, which were rejected, and the Defendant had made endeavours to settle the case by making the Sanctioned Payments. Mr Cheung does not suggest otherwise.
32. In my view, whilst Mr Cheung’s case was not believed and whilst he did not reciprocate the attempts to reach a settlement, it was not a case of such outrageous conduct so as to attract the maximum sanction of a 10% uplift on the judgment rate. On the Defendant’s case, there was a “Special Allowance” given to Mr Cheung, and it could perhaps be said that the arrangement for this had some faint echoes in the Alleged Oral Agreement. Taking all the circumstances into account, I would order an uplift of 5% above judgment rate.
D. CERTIFICATE FOR TWO COUNSEL
33. I accept that the matter was sufficiently complex to justify the instruction of two counsel.
E. DISPOSITION
34. I therefore order as follows.
35. The Costs Order Nisi is to be varied as follows:
35.1 The costs of and occasioned by the action, with certificate for two counsel, should be paid to the Defendant:
35.1.1 by Mr Cheung, up to and including 11th January 2017, on a party and party basis, to be taxed if not agreed;
35.1.2 by the Director of Legal Aid, for and on behalf of Mr Cheung, from 12th January 2017 to 10th April 2019 (both dates inclusive), on a party and party basis, to be taxed if not agreed;
35.1.3 by the Director of Legal Aid, for and on behalf of Mr Cheung, from 11th April 2019 to 20th June 2023 (both dates inclusive), on an indemnity basis, to be taxed if not agreed;
35.1.4 by Mr Cheung, from 21st June 2023 to the date of Judgment, on an indemnity basis, to be taxed if not agreed.
35.2 The Director of Legal Aid, for and on behalf of Mr Cheung, should pay the Defendant enhanced interest at 4% above judgment rate (i.e. 12.875% per annum) on costs and disbursements incurred by the Defendant from 11th April 2019 to 20th June 2023 (both dates inclusive) insofar as these have been paid by the Defendant, calculated from the date of actual payment by the Defendant up to the date of Judgment (both dates inclusive), and at judgment rate thereafter until payment.
35.3 Mr Cheung should pay the Defendant enhanced interest at 5% above judgment rate (i.e. 13.875% per annum) on costs and disbursements incurred by the Defendant from 21st June 2023 to the date of Judgment (both dates inclusive) insofar as these have been paid by the Defendant, calculated from the date of actual payment by the Defendant up to the date of Judgment (both dates inclusive), and at judgment rate thereafter until payment.
35.4 Mr Cheung’s own costs in respect of the period to which his legal aid certificate relates, that is from 12th January 2017 to 20th June 2023, be taxed in accordance with the Legal Aid Regulations.
36. The Sanctioned Payments totalling HK$1,500,000 paid into the Court by the Defendant on 13th March 2019, 19th April 2023 and 22nd November 2023 should be paid out to the Defendant through its Solicitors, Messrs Kennedys.
37. All interest accrued on the Sanctioned Payments should be paid to the Defendant forthwith through its Solicitors, Messrs Kennedys.
38. The costs of and occasioned by the application made by the Summons (filed on 6th June 2024), including the hearing on 19th September 2024, should be paid by Mr Cheung to the Defendant on an indemnity basis, to be taxed if not agreed.
39. There should be no order as to costs of and occasioned by the application made by the Consent Summons (filed on 13th September 2024).
(Yvonne Cheng)
Judge of the Court of First Instance
The Plaintiff appeared in person
Messrs. Kennedys for the Defendant
[1] Capitalised terms not defined in this decision are those appearing in the Judgment.