KAI MIN FASHION (HK) LTD v. FOND EXPRESS LOGISTICS LTD AND ANOTHER

(Heard Together)

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JUDGMENT ON INTEREST AND COSTS

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Application

1.  On 28 September 2012 I handed down judgment in favour of the Plaintiffs granting their applications for summary judgment against the 2^nd Defendant.  Judgments have been entered against the 2^nd Defendant as follows:

1.1   in HCCL 20 of 2011, US$417,836.42, with interest from date of the writ to date of judgment at 1% above the US dollar prime rate from time to time;

1.2   in HCCL 21 of 2011, US$208,553.72, with interest from date of the writ to date of judgment at 1% above the US dollar prime rate from time to time.

2.  In both cases, I also made a costs order nisi that the 2^nd Defendant should pay the Plaintiffs’ costs of the action to be taxed if not agreed.

3.  By summonses dated 12 October 2012, the Plaintiffs seek to vary the costs order nisi and ask for additional interest on the judgment sums pursuant to RHC Order 22 r 24.  The application was made on the basis that by letters dated 7 May 2012, the Plaintiffs made sanctioned offers offering to accept US$409,479.69 (in HCCL 20 of 2011) and US$204,382.65 (in HCCL 21 of 2011) respectively, in both cases excluding interest and costs, to settle the actions.  The 2^nd Defendant had 28 days, ie up to 4 June 2012, to accept the sanctioned offers but it did not do so.

4.  The Plaintiffs now ask for the following orders:

4.1  Interest on the judgment sums at 1% above the US dollar prime rate from 14 September 2011 to 4 June 2012;

4.2  Enhanced interest on the judgment sums at 6% above the US dollar prime rate from 5 June 2012 until full payment;

4.3  Costs on party and party basis and interest on those costs at judgment rate for the period from 14 September 2011 to 4 June 2012;

4.4  Costs on indemnity basis and interest at 2% above judgment rate from 5 June 2012 until full payment.  (For convenience I shall call 5 June 2012 the “cut-off date”).

Principles

5.  I set out Order 22 r 24 in full:

“24. Costs and other consequences whereplaintiff does better than heproposed in his sanctionedoffer (Order 22, r 24)

(1) This rule applies where-

(a)  a defendant is held liable for more than the proposals contained in a plaintiff's sanctioned offer; or

(b)  the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff's sanctioned offer.

(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 offer without requiring the leave of the Court.

(3) The Court may also order that the plaintiff is entitled to-

(a) his costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and

(b) interest on those costs at a rate not exceeding 10% above judgment rate.

(4) Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case 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.

(6) The power of the Court under this rule is in addition to any other power it may have to award interest.”

6.  There is no dispute that the Plaintiffs’ letters dated 7 May 2012 constituted sanctioned offers within the meaning of Order 22 r 5.

7.  The Plaintiffs undoubtedly did better than what was proposed in the sanctioned offers.  The question I have to decide is whether it is unjust to make an order under Order 22 r 24(2) and under r 24(3) (which, for convenience, I shall call an “Additional Order”).[1]  In considering this question, I am required to take into account all relevant circumstances of the case including the matters set out in Order 22 r 24(5).  See: Hong Kong Civil Procedure 2012 vol 1 para 22/24/1 and the authorities to which I shall refer presently.

Submissions

8.  In relation to the circumstances of the case, the Plaintiffs rely on the fact that prior to commencing the actions, the 2^nd Defendant (and its insurers) had been invited by letters dated 15 September 2011 to settle the Plaintiffs’ claims, to which no substantive reply had been given.

9.  The Plaintiffs also rely on the fact that after issue of the writs, the 2^nd Defendant refused to cooperate in agreeing to accept service of the writs in Hong Kong, even when its own bills of lading contained a Hong Kong law and jurisdiction clause.  The Plaintiffs were thus put to the (unnecessary) expense of having to serve the writs out of jurisdiction, only to find that the 2^nd Defendant appointed Hong Kong solicitors to acknowledge service.

10.  In response, the 2^nd Defendant’s main point appears to be that the sanctioned offer was “only” a “miserly discount” of 2% of the sums claimed.  It is contended that the sanctioned offers were “nothing but an attempt of the Plaintiffs to seek a draconian costs order against the 2^nd Defendant by pretending to have fulfilled Order 22 rule 24 of the Rules of High Court.  Accordingly, the present applications … are nothing but a sham.”

11.  It is also argued that there was no requirement that it should cooperate in agreeing to accept service in Hong Kong, and the 2^nd Defendant has not conducted the proceedings unreasonably or oppressively.

Discussion

12.  I reject the 2^nd Defendant’s arguments.  Whether the discount offered was “miserly” or not is irrelevant; what matters under the rules is that the Plaintiff has done better than what it has offered: see on this point Huck v Robson unrep [2002] EWCA Civ 398, 21 March 2002 (Tuckey LJ at §69-70; Schiemann LJ at §§76, 80).  Once that criterion is satisfied, the Court should make an order under Order 22 r 24 unless it is unjust in the circumstances of the case to do so.

13.  I note that in Huck v Robson, Tuckey LJ said at §71 that:

“ … if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the Rule (eg an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker LJ [who was in the minority in that case] that the judge would have a discretion to refuse indemnity costs.”

14.  I am, however, unable to describe the Plaintiffs’ sanctioned offers in this case as a “mere tactical step” in the sense referred to by Jonathan Parker LJ and Tuckey LJ.  Huck v Robson was a traffic accident case and in that type of cases issues of contributory negligence often arise, making it uncertain as to the extent of the parties’ respective responsibility for the accident.  Thus making a sanctioned offer of the kind described by Tuckey LJ may be seen as a tactical move.  This case, on the other hand, is what may be called a “mis-delivery” case and claimants in such cases are often, and justifiably, confident of success if the carrier has delivered the goods without production of the original bills of lading.  I do not see why the Plaintiffs should not offer a small discount in this type of case to reflect their reasonably justified confidence in the strength of their claims.

15.  I also reject the 2^nd Defendant’s argument that it would be unjust to make an order under Order 22 r 24 where the offeree has contested the claims in a normal way.  In my view, that fact alone does not make it unjust to make an Additional Order.

16.  Nor is there anything under any of the four matters set out in Order 22 r 24(5) that points to it being unjust to make an Additional Order.

17.  On the other hand, while I can take into account the 2^nd Defendant’s failure to make any offer of settlement, and its failure to cooperate in submitting to jurisdiction, in my view those matters add little in the circumstances of this case.

18.  I have therefore come to the view that an Additional Order should be made in this case.

19.  I turn to consider what order I should make.  I have set out in paragraph 4 above the orders sought by the Plaintiffs.  I need not deal with interest and costs prior to 5 June 2012.  Only interest and costs from the cut‑off date fall to be considered.

Enhanced Interest

20.  As is well known, the normal commercial rate is 1% above prime rate: Hong Kong Civil Procedure 2012 vol 1 para 6/L/11. The Plaintiffs have not explained why additional interest should be awarded at 6% above prime, nor has the 2^nd Defendant suggested any other rate.  

21.  I think this is a matter of the court’s broad discretion.  In my view 6% above the prevailing US dollar prime rate is an appropriate uplift.

Indemnity Costs

22.  For the reason set out above, I see no reason why I should not make an order under Order 22 r 24 (3) (a) that the Plaintiffs’ costs from 5 June 2012 onwards should be paid by the 2^nd Defendant on an indemnity basis.

23.  Nor is there any reason why I should not make an order under Order 22 r 24 (3) (b) that interest should be payable on those costs. 

24.  As to the rate of interest on costs, the Plaintiffs ask for 2% above judgment rate without explaining why that rate is proposed, or whether this rate would be substantially different from the enhanced rate I propose to order in respect of the judgment sums.

25.  Since an order for costs is considered a judgment debt, I can see an argument that any interest payable on costs should be based on the judgment rate.  On the other hand, in Order 22 r 24 (2) and r 24(3)(b), the same maximum rate of 10% above judgment rate is used, and I can also see an argument that normally the enhanced rate of interest under r 24(2) and interest on costs under r 24(3)(b) should be the same rate.

26.  As the matter has not been the subject of argument, in the absence of any material that would assist me, and subject to what I propose in the next paragraph, I would make an order that interest on costs should be payable at a rate which is the lower of (i) 6% above US dollar prime from time to time or (ii) 2% above judgment rate.

27.  In principle the Plaintiffs should have interest on each item of costs from the dates on which work was done or incurred: see McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934 at §23.  But that would be overly complicated.  In Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at §18, Johnson Lam J (as his Lordship then was) adopted a “simplified process” by ordering that interest would be payable on all items of costs at half the rate which would otherwise have been ordered, with interest starting to run from the “cut‑off” date on all the items.  I would propose to adopt the same approach in this case.

28.  Finally, the Plaintiffs ask for the enhanced interest under Order 22 r 24(2) to apply from the cut-off date until full payment.  The same applies to interest payable on indemnity costs under Order 22 r 24(3)(b).  Neither party addressed me on whether I could make the orders in this form, ie, beyond date of judgment.

29.  In McPhilemy v Times Newspapers, Chadwick LJ (with whom Longmore and Simon Brown LJJ agreed) observed that the Court probably does not have jurisdiction under Rule 36.21 of the English CPR (the equivalent of our Order 22 r 24) to award enhanced rate of interest under Order 22 r 24(2) or interest on costs under Order 22 r 24(3) after judgment.  I am not aware of this point having been considered in any subsequent UK or Hong Kong case.

30.  I am not satisfied I have jurisdiction to order enhanced interest or interest on costs under Order 22 r 24 (2) and (3) after judgment.

Costs of the application and summary assessment

31.  As the Plaintiffs are substantially successful in its application, I see no reason why it should not have its costs.

32.  The Plaintiffs ask for its costs of the application on an indemnity basis.  The 2^nd Defendant has not responded to this request.

33.  In Golden Eagle International, Lam J (having ordered the costs of the application for additional interest and costs on a higher scale to the plaintiff) observed in §50 that his Lordship saw no reason why the sanction under Order 22 r 24 should not apply to those costs. His Lordship therefore ordered the costs of the application to be taxed on the indemnity scale with interest in the same manner as other costs incurred after the cut‑off date.  I would respectfully follow the same approach.

34.  I was invited to assess the Plaintiffs’ costs of the application on a summary basis.  In the circumstances of this case I would decline to do so.  This is because of two cumulative reasons.  First, the Plaintiffs did not ask for summary assessment in its main submissions and only raised it in its reply submissions.  The 2^nd Defendant therefore does not have a proper opportunity to address me on the matter.  Secondly, the Plaintiffs would need to have its costs of the two actions taxed in any event, and it seems to me that it would not achieve any significant savings in time or costs for me to assess the costs of the application on a summary basis.

Order

35.  I therefore order in each action that:

35.1   interest shall be payable on the judgment sum at 6% above the US dollar prime rate from 5 June 2012 until judgment, and thereafter at judgment rate;

35.2   the 2^nd Defendant shall pay the Plaintiffs’ costs on indemnity basis with interest thereon at half the lower of (i) 6% above the US dollar prime rate from time to time, or (ii) 2% above judgment rate, from 5 June 2012 until judgment, and thereafter at judgment rate.

36.  I also order that the Plaintiffs shall have their costs of the application, to be taxed if not agreed on an indemnity basis.  For the avoidance of doubt, no interest is payable on such costs other than by way of judgment debt.