AU FO KIU v. LIU KWOK KEI

HCPI 417/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO 417 OF 2014

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RULING
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1.  This is an action by the plaintiff claiming for her loss and damage as a result of the negligent act of the defendant.  The claim is for an unliquidated sum of money, interest and costs.

2.  The writ together with the Statement of Claim, Statement of Damages and List of Medical Reports were filed on 7 May 2014.

3.  Upon receipt of the writ, the defendant in accordance with Order 13A rule 7(7) of the Rules of High Court filed and served a Form No. 16C on 6 June 2014, admitting liability and offered to pay HK$10,000 in satisfaction of the plaintiff’s claim.  He was then acting in person but later Messrs. Lau Chan & Ko acted as his solicitors.

4.  If a plaintiff accepts the amount offered, final judgment could be entered under Order 13A rule 7(5).  Order 13A rule 7(9) and (10) further provide as follows –

“ (9) If the plaintiff does not accept the amount offered by the defendant, he may obtain judgment by filing in the Registry a request in Form No. 16E in Appendix A.

(10) Judgment under paragraph (9) shall be for an amount to be decided by the Court and costs.”

5.  The plaintiff does not accept the amount offered by the defendant and ask for judgment.  Pursuant to Order 13A rule 7(9), the plaintiff filed his Form No 16E on 18 June 2014, enclosing a draft judgment as requested.

6.  As the claim is for an unliquidated sum, the usual order would be “interlocutory judgment to the plaintiff for damages to be assessed.”  There is no dispute that this is correct and is in line with Order 13A Rule 7(10).

7.  The plaintiff in her draft judgment submitted with her Form 16E also ask for “costs on liability to be taxed”.  And on 20 June 2014, the defendant’s solicitors, Messrs Lau Chan & Ko write to the High Court Registry submitting that according to paragraph 1A of Part I of the Second Schedule of Order 62 of the Rules of High Court, the plaintiff should only be entitled to scale fees as set out in Part II of the Second Schedule, namely, a sum of $10,000.  It is not disputed that there should also be an allowance to cover the filing fees as provided by paragraph 3 of Part I of the Second Schedule, making a total of $11,045.

8.  The plaintiff disagreed and presented their written submission to the Registry.  The officer in charge of application for judgment under Order 13A referred the argument to me as one of the PI Masters for determination.  As the matter involves some complication, I call upon the solicitors for the parties to address me.  Both have kindly researched into the matter and presented me with helpful materials.

9.  At the hearing, both parties now agree that for judgment under Order 13A, the provision of paragraph 1A of Part I of the Second Schedule (“paragraph 1A”) shall apply.  The paragraph reads –

“ 1A. The scale of costs set out in Part II of this Schedule applies in relation to cases in which the plaintiff obtains judgment under Order 13A without a hearing.”

10.  Mr Wong, solicitors for the defendant submits that under Order 13A, judgment may be awarded for both liquidated sums and unliquidated sums.  In accordance with paragraph 1A, the scale costs should apply equally to both types of judgment obtained under Order 13A rule 7(8) or rule 7(10).  In both sub-rules, they only provide that costs should be awarded, with no other qualification. Hence he submits that the plaintiff should only be entitled to scale fees.

11.  Mr Lam, solicitor for the plaintiff does not challenge paragraph 1A shall apply to this case, which is a claim for unliquidated sum of money.  He relies on Order 62 rule 32(4) and submits that this Court has jurisdiction to direct that the cost shall not be fixed by the scale but by taxation.  Rule 32(1) and (4) read –

“ (1) Subject to the foregoing rules and the following provisions of this rule, the scale of costs contained in the First Schedule of this Order, together with the notes and general provisions contained in that Schedule, shall apply to the taxation of all costs incurred in relation to contentious business done after the commencement of these rules. [This is the provision for taxed costs]

(4) Notwithstanding paragraph (1), costs shall, unless the Court otherwise orders, be allowed in the cases to which the Second Schedule to this Order applies in accordance with the provisions of that Schedule. [This is the provision for scale fees]

12.  For the exercise of a discretionary power, it should be decided by a judicial officer, the plaintiff should have invited the processing clerk to refer the matter to the PI Master for direction.  For the present purpose, I treat the draft judgment with the request for costs to be taxed as an application for taxed costs under Order 62 rule 32(4).

13.  Mr Wong rightly concedes that this court has the discretion to order taxation of costs for cases where the scale fees would usually apply.  The question before me is when this Court should direct taxed costs instead of scale fees and whether I should direct taxation in this case.

14.  There is little authority on this issue.  Mr Lam refers to Ever Good Trading Corporation v Cheng Ching Kwok t/a Bonanza Industry Co., Hang Send Bank Ltd. and others [1988] 1 HKLR 307.  According to the old Rules of High Court, a garnishee bank would be entered to fixed costs of $100.  Deputy Judge Cruden (as he then was) ruled that the Court had a discretion under Order 62 rule 32(4) of the old Rules of High Court to order taxation instead of fixed costs, which rule is in similar wordings to our rule 32(4).  The Honourable Judge did not analyse the principles on how to exercise the discretion.  For that case, it is clear that the argument between the garnishee bank and the judgment creditor is very complicated and not a usual case.  I believe the discretion must be exercised in light of the fact of each case.

15.  Mr Wong refers me to the judgment of Mr. Justice Godfrey (as he then was) given in Cobalt Industrial Co Ltd v Kin Sun Electronics Ltd [1997] 2 HKC 402.  After the hearing before a master on an Order 14 application, the learned master awarded partial judgment to the plaintiff “and costs”, without stating if the costs are to be taxed.  In those days, the Rules of High Court provides that after an Order 14 application, if successful, the plaintiff is only entitled to fixed costs unless an order for taxation is expressly made.  The parties appealed to a judge in the Court of First Instance on what is the meaning of “costs” in the order of the learned Master.  The issue finds its way to the Court of Appeal.

16.  Mr Justice Godfrey commented that the matter should be referred back to the Master to determine if the costs should be “fixed costs” or “taxed costs”. But to save the legal expenses, the Court of Appeal proceeded to rule on the matter and said “costs” in such context means fixed costs.  And in discussing the meaning of costs, Mr Justice Godfrey commented that “…it is possible, under Order 14 proceedings, for the master to make an order for costs to be taxed, instead of the usual order for fixed costs, that is a course which the master should and will take only in exceptional circumstances.”

17.  There is a reference to Order 62 rule 32(4) in the judgment of Mr. Justice Cheung (as he then was) given in the same appeal and I believe Mr. Justice Godfrey in making the above comment was referring to the discretionary power under rule 32(4).  Mr Wong invites me to follow the comment of Mr Justice Godfrey and submits that I should not depart from the scale fees unless there are exceptional circumstances.  There is nothing exceptional about this case to justify an order for taxed costs.

18.  To begin with, I agree with both Mr Lam and Mr Wong that for judgment under Order 13A, a plaintiff should have costs fixed according to the scale, unless directed otherwise by Court under the discretion of Order 62 rule 32(4).  Scale costs may create unfairness in some cases.  The power under Order 62 Rule 32(4) is a safeguard for justice.

19.  I believe the purpose of scale fees is to minimize the plaintiff’s recoverable cost to a reasonable minimum amount fixed by the scale.  This could encourage admission by defendant for a speedy resolution of the dispute, who knows with reasonable certainty what he has to pay for costs if he admits liability under Order 13A.  I am of the view that the Court should be slow to depart from the scale fees which reflect the legislative intent, and to maintain certainty of costs consequence in litigation. 

20.  I have not been referred to any other cases when the discretion under Order 62 rule 32(4) has been discussed.  I agree with the judgment of Mr Justice Godfrey that the discretion should only be exercised when there are exceptional circumstances.  I bear in mind the judgment by Mr Justice Godfrey is on interpretation of the old Order 62 of Rules of High Court, and the word “costs” given in the master’s judgment.  But I agree that the principle on when to depart from the fixed costs is equally applicable to the consideration to depart from the scale costs under the CJR regime. 

21.  I find some support on this approach from the judgment of Mr. Justice Jeremy Poon given in Etratech Asia‑Pacific Limited v Leader Printed Circuit Boards Ltd [2013] 2 HKLRD 1184 commenting on the “prima facie” rule for costs to the plaintiff under Order 22 when he accepted a sanctioned payment was considered.  Again, the Court has discretion to depart from the prima facie rule.  And when to exercise the discretion has been considered by the Honourable Judge:

“18. … rule 20(1) plainly envisages that upon acceptance of the sanctioned payment or sanctioned offer, the plaintiff is, as a prima facie rule, entitled to his costs of the proceedings up to the date of serving notice of acceptance. The prima facie rule may, however, be displaced when the court orders otherwise by applying the Otherwise Proviso.

19. The prima facie rule is important.  In ordinary civil litigations, costs are incurred in a recoverable inter-parties sense from the moment the proceedings commenced and continue to be incurred as the litigation progresses.  Every litigant, who needs to incur costs in order to pursue or defend a claim, definitely regard them as very real and present expenses.  Further, litigation is inescapably chancy.  The prospect of paying costs to the other side after losing one’s case in addition to his own costs must very much exercise a party’s mind.  Costs thus factor heavily in the negotiations and considerations of settlement.  Sometimes, it may even make or break the settlement.  But uncertainty as to costs is a notoriously difficult subject.  It may easily frustrate an otherwise meaningful settlement negotiation and even become an irremovable obstacle to the settlement itself.  What the prima facie rule does is to create certainty as to the costs consequences upon acceptance of the sanctioned payment or sanctioned offer.  A party knows the exact extent of his exposure or entitlement to costs, as the case may be …[my emphasis]

20. By virtue of the Otherwise Proviso, the court retains the discretion to depart from the prima facie rule where necessary.  But the discretion should only be exercised in exceptional circumstances that clearly warrant a different costs order.  Otherwise, the certainty as to costs consequences created by the prima facie rule, one of the very important features underpinning the effectiveness of sanctioned payments and sanctioned offers, will be greatly diminished. [my emphasis]”

22.  As stated above, one of the purposes of having a scale fees is to allow a defendant to know what amount of costs he has to pay upon admission. Certainty must be preserved and I can safely borrow the able observation of Mr. Justice Jeremy Poon on sanctioned payment.  The discretion should only be exercised in exceptional circumstances.

23.  Mr Lam submits that there are special circumstances that justify taxed costs.  As this is an Action in the Personal Injuries List (“PI Action”), Practice Direction 18.1 (“PD 18.1”) applies.  All plaintiffs would be required to comply with the Practice Direction including pre-action protocol, which includes issuing a pre-action demand letter, setting out the details of the claim, and serving therewith the medical evidence and some other matter which I shall come back later. 

24.  Mr Lam presents a bundle of correspondence.  He submits that the plaintiff issued the pre-action letter dated 29 October 2013 to the defendant and his insurance company.  The defendant only admitted liability by the Form 16C filed herein on 10 June 2014.  And between 29 October 2013 and 6 June 2014, the plaintiff’s solicitors reasonably incurred significant time and costs on the issue of liability on gathering evidence including police documents, medical records and reports, taking instructions from the plaintiff and preparing pleadings to commence proceedings.

25.  Mr Lam also refers to the letter dated 20 November 2013 from Messrs Lau Chan & Ko (who was then acting as solicitor of China Taiping Insurance (HK) Limited, the insurer of the defendant) to the plaintiff’s solicitors seeking discovery of a number of documents, including, inter alia, medical notes, police statement, sick leave certificate, and tax return and other information on his earnings.

26.  It is Mr Lam’s submission that it is unjust to award only scale costs and invites me to exercise my discretion.

27.  There cannot be a general guideline on all the circumstances that are exceptional.  The particular facts of each case would determine if additional costs should be allowed.  There is some discussion on what amount to exceptional circumstances in the judgment of Mr Justice Cheung given in the Cobalt’s case which is helpful.  His Lordship refers to a passage in the Supreme Court Practice (1976 Ed)–

“There have been changes to the English Rules of the Supreme Court O 62. But the former O 62 r 32 of the English Rules is almost identical to our O 62 r 32. I find considerable assistance from a passage in the 1976 edition of the Supreme Court Practice in whichat Note14/7/7 it was stated that:

If the judgment is for, or includes, a debt or liquidated amount for a sum of £100 and upwards, or where the costs are otherwise on the High Court scale, the plaintiff is generally awarded the Fixed Costs (popularly called ‘Scale Costs’) as provided by App. 3, to Order 62. Even in such cases, however, if the circumstances warrant it, e.g., where a certificate for counsel is allowed or the case has called for more than the usual steps in its preparation or presentation, the order should be for costs to be taxed and added to the judgment.

The current English O.62, r.17 (3) is similar to our O.62, r.32 (4).  There is a similar comment in Note 14/7/9 of the current edition of the White Book on fixed costs in O.14 judgments.”

28.  I agree with the learned author that when the case called for more than the usual steps in its preparation or presentation, or that counsel ought to be involved, these are examples of factors that may justify taxed costs.  What are the usual steps included in the scale fees?

29.  In fixing the scale fees at $10,000, there must be a specific group of legal work in the mind of the legislature.  It must including the normal legal works leading to issuance of the writ and statement of claim, including taking of instruction and perusal of documents, research, and drafting of the writ and statement of claim. When there has to be additional work, or unusual expenses which are outside the usual work done to be covered by the scale fees, the scale fees may be replaced by an order for taxation. 

30.  One obvious example in PI cases would be claim based on medical negligence.  It is trite that the plaintiff has to have expert evidence on liability and it is proper and necessary to have the evidence ready before the writ is issued.  Cost of one medical expert would easily exceed $10,000. Limiting the recovery of costs to scale fees would obviously be unfair to the plaintiff and taxed costs may be ordered.  This is just one example of extra works that prima facie justify taxed costs.

31.  Would compliance of PD18.1 itself be an exceptional circumstance to justify an award of taxed costs?  It can be argued that the costs incurred to comply with the requirement under PD18.1 for pre-action protocol would not be the usual costs in civil litigation and it may be argued that the scale fees should not cover such additional expenses.    

32.  The costs incurred must be a factor to be taken into account in deciding whether the discretion to direct taxed costs should be exercised.  But it would be too bold a statement that because of PD18.1, then all the PI cases must be allowed taxed costs.  While I agree in principle that when additional work is commanded by a Practice Direction, it cannot be right if the plaintiff cannot recover the additional costs.  But it would still be a matter of degree.  One must ask in each case what additional steps have been taken and what are the additional costs involved that amount to exceptional circumstances.

33.  One of the purposes of introducing PD 18.1 is to encourage early settlement and to save future costs.  And this is the convenient time to look at some paragraphs in PD 18.1.  One area of concern would be on the filing of Statement of Damages and List of Medical Evidence.

53. A medical report(s) within the meaning of RHC, Order 18, rule 12(1C) including in a fatal accident case a post-mortem report (if one exists) shall be filed and served at the same time as the Statement of Claim but not attached thereto.  If liability has been admitted and no Statement of Claim is filed, then such medical report(s) should be filed and served at the same time as the Statement of Damages.

54. Full particulars of the heads of damage claimed shall appear in the Statement of Damages including a summary of the Plaintiff's injuries, the treatment received and, where practicable, the prognosis.  The Statement of Damages shall be filed and served contemporaneously with the Statement of Claim, and be physically separated from that and from any other document.  If liability has been admitted and no Statement of Claim is filed, then the Statement of Damages shall be filed and served at the time when the Statement of Claim should have been filed had liability not been admitted.

34.  In PI cases, by PD 18.1, the plaintiff is required to file Statement of Damages and medical evidence on quantum.  As a comparison, for general civil cases, no Statement of Damages has to be filed with the Statement of Claim.  No expert on liability or quantum should be engaged without leave of Court and leave would usually be given at the first Case Management Summons.  Hence in most cases, costs on quantum would only be incurred after the first Case Management Summons (with or without interlocutory judgment on liability).

35.  There is a long established practice in PI cases that, when parties reached agreement for the defendant to admit liability with damages to be assessed, and when interlocutory judgment was granted, only costs on liability would be awarded to the plaintiff.  Hence the costs relating to damages and assessment, including the Statement of Damages and medical evidence on quantum would remain as costs in the assessment and to be determined at a later stage.  I presume this practice is to take into account the fact that costs on quantum has been incurred at the early stage pursuant to PD18.1.  Since the question of quantum has not been determined, it should not be awarded to the plaintiff with the judgment on liability.

36.  For judgment under Order 13A, it may be a final judgment if the plaintiff accepts the offered sum.  The costs on quantum may be considered as additional and extraordinary costs incurred and on direction of PD 18.1.  This may be a reason for taxed costs, but this is not the situation before me today.

37.  The plaintiff only has an interlocutory judgment in this case.  And the costs would be the costs of the interlocutory judgment.  If it is an interlocutory judgment, it must be referring to the costs of liability notwithstanding some costs on damages may have been incurred as aforesaid. Such costs have not been disposed of by the admission of liability and would be at the discretion of this Court at a later stage. 

38.  With this analysis, and after putting aside the costs of damages, the costs of liability incurred in PI case would be very similar to a general civil litigation.

39.  It may be argued that it is not clear from Part II of Second Schedule if $10,000 is the scaled costs to cover all costs up to the date of interlocutory judgment.  If the date is taken as the cut off time, the scale costs would cover all the plaintiff’s costs and expenses incurred before the interlocutory judgment, including the Statement of Damages, the medical reports, and in some cases the expert medical reports.  This cannot be fair.  But I do not believe that this is the correct reading of Order 13A by the above analysis.

40.  I believe Mr Wong would not argue against this position.  Indeed, he only submits that the costs of liability should be $11,045 and he has no objection to specify that the scale costs are only to cover the costs of liability. 

41.  And Mr Lam does not rely on the filing of Statement of Damages and List of Medical Reports as additional or extraordinary work.  As set out above, the main argument of Mr Lam is on additional work/correspondence in relation to pre-action protocol.  On pre-action protocol, to give some example of additional work required, I refer again to PD 18.1 –

15. Prior to the commencement of proceedings, the claimant should send to the proposed defendant(s) 2 copies of a letter of claim which should follow the format of the specimen letter as per Appendix A.  Where the identity of the insurer(s) concerned is known or can be ascertained, a copy of such letter of claim should additionally be sent to them.  The format of the specimen letter can be amended to suit the particular case, and it may be appropriate to make proposal for obtaining expert medical report and / or arranging expert medical examination (see paragraph 22 hereof).  By such letter of claim, the claimant shall give as much information and produce such documents as are reasonably required to enable the proposed defendant(s)' Solicitors or insurer(s) concerned to give a constructive reply (including, if available and practicable but without limitation, the information and documents identified in Schedule A of the specimen letter).

19. The letter of claim should be sent no later than 4 months prior to the commencement of proceedings, and the proposed defendant(s) or insurer(s) concerned should reply constructively thereto within one month. A simple acknowledgement is not a constructive reply.  If there is no such reply, the claimant will be entitled to commence proceedings forthwith without risk as to costs arising out of non-compliance of this paragraph.  If such reply is received within one month, the parties should over the next 3 months communicate constructively and provide mutual disclosure of information and documents with respect to issues of liability and quantum (including, without limitation, the information and documents identified in Schedules A and B of the specimen letter which have not already been served) as are reasonably required for attempting to settle the claim in whole or in part, instructing medical expert(s) and / or arranging expert medical examination (see paragraph 22 hereof).

22. If the claimant finds it necessary to obtain medical expert report(s) before commencement of proceedings, he should consider arranging medical examination either by single joint expert(s) if agreed upon or jointly together with the expert(s) of the proposed defendant(s).  A party who unreasonably fails to cooperate in instructing or arranging such expert medical examination before the commencement of proceedings will risk sanctions being imposed by the Court (see paragraphs 81 and 84 hereof) should proceedings be commenced.

42.  There are cases when the plaintiff has not complied with PD18.1 to serve the pre-action letter.  There is no reason to depart from the usual scale fees.  On the contrary, there could be cases when the defendant has made significant enquiry or seek further documents (in accordance with paragraph 19 of PD 18.1) resulting in a speedy resolution of the issue of liability.  Award of costs on the additional work, by taxation or assessment may be justified. There could not be a lot of possible situations between the 2 extremes.

43.  In most of the cases, what the plaintiff has done is nothing more than sending a simple pre-action letter in the Form of Appendix A.  The contents of the letter on liability should be based on the contentions in the statement of claim and would be covered by the scale fees.  The contents on quantum would be based on the Statement of Damages and medical notes and evidence.  Such costs have been reserved and recoverable as I mentioned above.  The additional cost in drafting a letter according to the Form provided in PD18.1 would not be significant.  The document suggested in Appendix A for parties to serve are no more than usual document obtained by plaintiff before commencing the action.  And in most civil cases, plaintiff would have issued pre-action demand letter before commencing the proceedings. 

44.  I now come back to the case of the plaintiff.  There is no suggestion of any unusual workdone in relation to the issue of liability.

45.  As to the correspondence between the parties before the writ was issued, the pre-action letter dated 29 October 2013 is in the form of Appendix A.  The first 2 pages on liability are very much the same as the statement of claim. The document discovered is only a Police letter, particulars of parties involved, police statement of the plaintiff.  These would be the usual document collected by solicitor for a plaintiff before action.

46.  There is no response from the defendant to the letter.  In accordance with PD 18.1, the pre-action letter has to be served on the insurer of the vehicle in issue.  And the response from Messes. Lau Chan & Ko is from the insurance company. 

47.  While the insurance company is not a party, I have to accept that the communication with the insurance company is incidental to this action.  This is incurred both in compliance of PD 18.1 and with a view to reach an earlier settlement.  Hence the costs would in usual taxation be taxable.  Such costs incurred may be taken into account in determining if scale fees should be replaced.

48.  The burden rests on the plaintiff to satisfy me that there is special reason to depart from the scale fees.  From the documents disclosed, there are a few letters from Messrs. Lau Chan & Ko asking for discovery in compliance with PD 18.1, which are mainly on quantum.  The documents supplied are not unusual and would be obtained by plaintiff before action.  Photocopying charges has been paid for the documents supplied. 

49.  Summing up, I found that the additional costs as claimed is not significant.  Taking all matters into account, and after hearing submission, I am not convinced that this is a case that there is exceptional circumstances that justifies taxed costs.  The scale fees shall apply with a sum of $11,045 ($10,000 + $1,045) is awarded.

50.  I only repeat that each case has to be determined on its own fact.  When a plaintiff asks this Court to depart from the usual order, application should be made to a Master.  To save costs, a plaintiff in similar situation should upon filing of the draft judgment provide the Registry with a simple letter stating that the plaintiff applies to the PI Master for cost of the liability to be taxed with brief reasons.  The letter should be copied to the defendant(s) who shall within 7 days confirm whether he has any objection.  Then the matter would be presented to a PI Master for direction.  Speaking for myself, I would direct interlocutory judgment be entered and to save costs, the question of taxed costs may be determined at the next Checklist Review Hearing.

51.  That disposes of the application.  And for the costs of this application, I am minded not to award costs against any party.  This is an area which is not clear and I am grateful to parties for their kind assistance.  I believe the fair order is no order as to costs and I give an order nisi accordingly.