CHEUNG TAK MAN DESMOND AND ANOTHER v. IP PUI LAM ARTHUR AND OTHERS

DCCJ 2733/2021

[2025] HKDC 1936

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2733 OF 2021

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REASONS FOR DECISION

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Ps’ application

1.  This is the 1^st and 2^nd Plaintiffs’ (“Ps”) application to vary the costs order nisi. I have given my decision and the reasons thereof at the hearing on 2 October 2025. I now hand down my written reasons for decision.

2.  On 26 June 2025, I gave judgment to the Ps and ordered that

(i)  The 1^st Defendant do pay Messrs. Li, Wong, Lam & W.I. Cheung the outstanding legal fees of HK$2,196,478.52 and the taxing fee of HK$48,100.00, totaling HK$2,244,578.52 together with interest thereon at judgment rate from the date of the Writ of Summons (i.e. 11 June 2021) until payment; and

(ii)  There be a costs order nisi that the 1^st, 3^rd and 4^th Defendants do pay costs of the action, including any costs reserved, to the 1^st and 2^nd Plaintiffs, to be taxed if not agreed, with certificate for counsel. This costs order nisi shall become absolute unless the parties apply to vary the same by letter within 14 days from the date hereof.

3.  There is no dispute that in the course of the trial, I raised the question on custody of the money in the event that I held in favour of the Ps given that the partnership had already ceased practice. As a result, both Ps and D3/D4 had voluntarily given their respective undertakings as to the custody of the money. In the end, I accepted Ps’ undertaking.

4.  On 27 January 2023, Ps served a without prejudice letter titled Sanctioned Offer (“the Sanctioned Offer”) with the following material terms:

“Pursuant to Order 22 of the Rules of the District Court (Cap. 336H), the 1^st and 2^nd Plaintiffs hereby make a sanctioned offer to your clients that the 1^st and 2^nd Plaintiffs offer to accept HK$2,244,578.52 plus legal costs of the above Action, to be taxed if not agreed in full and final settlement of the 1^st and 2^nd Plaintiffs’ claims in the above Action.”

5.  On 10 July 2025, Ps, by letter, applied to vary the costs order nisi on the ground that D1, D3, D4 (“Ds”) failed to do better than the Sanctioned Offer in that Ps were also awarded interest on the said sum of HK$2,244,578.52 from the date of writ in the Judgment. Hence, Ps had done better in the Judgment. Ps asked for, inter alia, indemnity costs from 25 February 2023 onwards and enhanced interest at a rate of 5% above judgment rate from 25 February 2023 until date of judgment. Ds disagreed.

6.  Mr Ho, counsel for Ds, referred to

(1)  Ng Pok Leung v Ng Pok Man & Another [2016] 3 HKC 236 at §§21 and 22:

“21. Plainly a party is free to make an offer to settle in any way he chooses under O 22. The offeror is however required to state clearly whether the offer takes any counterclaim or set-off into account. I take note that O 22 is a self-contained statutory procedure which is complete in its own right and wholly procedural in nature. The provisions should be strictly construed.

22. In my view, on a proper reading of O 22 RDC, the construction of a sanctioned offer shall be judged at the time the Offer was made and the terms of it must be strictly interpreted accordingly. A sanctioned offer suggesting to have taken into account of any setoff and counterclaim in the action must have referred to the setoff and counterclaim as they stood at the time the sanctioned offer was made, but not those subsequently added to the action, unless specifically provided for. To suggest otherwise would have defeated the purpose of O 22 rr 2(2) and 5(3).”

(2)  Ashai Iwasawa & Associates Management Consultants Limited v Shibakawa (Hong Kong) Limited [2023] HKCFI 2340 and at §§29 and 30:

“29. The upshot of the Defendant’s submissions is that notwithstanding strict compliance with the prescribed procedural formalities of O 22 for a sanctioned payment, the court is nevertheless required to ascertain the parties’ intention, taking into account considerations such as “common sense” and “unconscionability”.

30. I do not accept the Defendant’s submissions and its reading of the 3 authorities cited by the Plaintiff. It is clear from those authorities and Montrio that Order 22 is a self-contained statutory code, to be read and applied according to its terms and non-contractual in nature. Adopting that approach, the parties’ contractual intentions (an exercise that necessarily creates uncertainty) is irrelevant.”

7.  Mr Ho submitted that the Sanctioned Offer could not contain any implied terms (which is a doctrine in contract law but not under O.22 of the RDC), or that the Court should ascertain Ps intention by “common sense” and “unconscionability”.

8.  Mr Ho argued that:

(1)  The Sanctioned Offer did not provide for any mechanism for the sum to be distributed to LWLWIC or D3, and D4, which was now expressly provided in §1 of the sealed Judgment;

(2)  The discussion of the undertaking was only brought up in the course of the trial, after Ps’ counsel clarified in oral opening submissions that the money should be put into an escrow or in the trust account of LWLWIC. Subsequent events had no bearing on the interpretation of the terms;

(3)  The Sanctioned Offer was directed to D3 and D4 as well. Plainly, it was intended that D3 and D4 might have to contribute to the payment of the settlement sum. The Sanctioned Offer was not to ask D1 to pay HK$2,244,578.52 to Ps, D3, and D4. The Sanctioned Offer was to ask D1, D3, and D4 to pay HK$2,244,578.52 to Ps (and not D3 and D4);

(4)  The plain meaning of the Terms is that if the Sanctioned Offer was accepted, the sum of HK$2,244,578.52 would go to Ps absolutely and immediately;

(5)  Ps admit that they are not entitled to the whole of the sum of HK$2,244,578.52. Further, Ps are not at liberty to utilize the sum of HK$2,244,578.52. Hence, the Judgment is not more advantageous than the Sanctioned Offer.

9.  Mr Lam, counsel for Ps, contended that:

(1)  The entirety of the judgment is not contingent on the giving of the undertaking;

(2)  It had been clearly pleaded in paragraphs 16 and 17 of the Amended Statement of Claim that the moneys were owed by D1 to the partnership, P1, P2, D3 and D4 and that D1 was liable to repay P1, P2, D3 and D4. Ps’ claim was for the benefit of the partnership LWLWIC;

(3)  In paragraph 21 of the Amended Statement of Claim, it had also been clearly pleaded that D3 and D4 were joined as the defendants in these proceedings so that they could be bound by the result of this action. Had Ds accepted the Sanctioned Offer, Ps would still be obliged to hold the money for all the ex-partners of LWLWIC.

10.  I agree with Mr Lam that Ps’ claim is clearly for the benefit of the partnership and that if Ds accepted the Sanctioned Offer, Ps would still be obliged to hold the money for all the ex-partners of LWLWIC. There is no ambiguity on that. In the circumstances, I am of the view that Ps had done better in the Judgment than the Sanctioned Offer.

11.  Regarding the enhanced interest rate, I am told that the current prime rate from HSBC is 5.125% and that judgment rate is 8.25%. Hence, 1% above judgment rate is equivalent to some 4% above prime rate. I agree with Ds that 1% above judgment rate is a sufficiently generous assessment on cost of money. There are no other special features in the present case which should bring the rate higher.

12.  Ps do not dispute that Ps have the duty to produce evidence on the costs paid to their solicitors. In the present case, there is no evidence of payment of other legal fees apart from counsel fees. Hence, I hold that Ps should be entitled to interest on paid counsel fees only. Mr Ho agreed to 1% above judgment rate on counsel fees and I so ordered. Ps are entitled to interest on counsel fees at 1 % above judgment rate from 31 March 2025 until 26 June 2025, the date of Judgment.

13.  It has come to my attention that the interest rate on counsel fees was omitted when the order was being read out in court on 2 October 2025. Notwithstanding the order has been sealed, I shall add it back on pursuant to the “slip-rule”, see Man Ping Nam v Man Fong Hang (2007) 10 HKCFAR 140. Ps are directed to submit an amended order for approval within 14 days from the date hereof.

Order

14.  The costs order nisi made on 26 June 2025 be varied as follows:

(1)  The 1^st Defendant do pay Messrs. Li Wong Lam & W.I. Cheung interest on the Judgment Sum:-

(a)  at judgment rate from the date of the Writ of Summons, that is, 11 June 2021 to 24 February 2023;

(b)  at a rate of 1% above judgment rate from 25 February 2023 until the date of Judgement, that is, 26 June 2025; and

(c)  at judgment rate from 27 June 2025 until full payment;

(2)  The 1^st, 3^rd and 4^th Defendants do pay the costs of the action, including any costs reserved, to the 1^st and 2^nd Plaintiffs, to be taxed if not agreed, with certificate for counsel. Such costs incurred up to 24 February 2023 are to be taxed on a party and party basis if not agreed, whereas such costs incurred from 25 February 2023 onwards, subject to paragraph 4 herein, are to be taxed on an indemnity basis if not agreed;

(3)  The 1^st, 3^rd and 4^th Defendants do pay the 1^st and 2^nd Plaintiffs interest on counsel fees in the sum of HK$313,600 incurred of this action at 1% above judgment rate from 31 March 2025 until the date of Judgment, that is, 26 June 2025; and

(4)  The 1^st, 3^rd and 4^th Defendants do pay the 1^st and 2^nd Plaintiffs costs of this application, with certificate for counsel, on party and party basis, to be taxed if not agreed.

15.  Lastly, I thank both counsel for their helpful submissions.