ZHANG XINGLI v. ZHANG LI

DCCJ 1883/2020

[2024] HKDC 2204

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1883 OF 2020

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DECISION

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A.  Introduction

1.  By Judgment dated 17 June 2024:

(1)  The Plaintiff’s claims against the Defendant in this action were dismissed; and

(2)  The Court made an order nisi that the Plaintiff do pay the Defendant’s costs of the action, with certificate for counsel, to be taxed on a party and party basis if not agreed (“Costs Order Nisi”).

2.  By Summons dated 26 June 2024, the Defendant asks to vary the Costs Order Nisi as follows:

(1)  The Plaintiff shall pay the Defendant’s costs of the action, including all costs reserved, up to and including 8 December 2023, on a party-and-party basis and thereafter on an indemnity basis with certificate for counsel, to be taxed if not agreed;

(2)  Interest on costs awarded on an indemnity basis shall accrue at 10% above the judgment rate from 9 December 2023 until payment;

(3)  The Sanctioned Payment in the sum of HK$10,000 paid on 10 November 2023, together with interest accrued thereon, be paid out to the Defendant through his solicitors.

3.  The Plaintiff has no issue with an order that he pays the Defendant’s costs of the action including all costs reserved up to and including 8 December 2023 on a party-and-party basis to be taxed if not agreed, or with the order sought in paragraph 2(3) above.

4.  The dispute between the parties is whether the Plaintiff should be ordered to pay the Defendant’s costs of the action after 8 December 2023 on an indemnity basis with certificate for counsel to be taxed if not agreed (“Indemnity Costs Order”).

5.  The Plaintiff accepts that if the Court is minded to make the Indemnity Costs Order, an order for enhanced interest on costs awarded on an indemnity basis should follow (“Enhanced Interest Order”). What would then fall upon the Court to decide is the appropriate rate of enhanced interest and whether enhanced interest is applicable until the date of Judgment (i.e. 17 June 2024) or payment.

B.  Basis for Seeking Variation

6.  The basis of the Defendant’s variation application is a sanctioned payment he made which was not accepted by the Plaintiff.

7.  On 10 November 2023, the Defendant’s solicitors served on the Plaintiff’s solicitors a Notice of Sanctioned Payment pursuant to O22, r9 of the Rules of the District Court (Cap 336H) (“RDC”). The notice informed the Plaintiff that the Defendant had paid HK$10,000 into Court in settlement of the whole of the Plaintiff’s claim (“Sanctioned Payment”).

8.  Under RDC O22 r15(1), a plaintiff may accept a sanctioned offer or a sanctioned payment made not less than 28 days before the commencement of the trial without requiring the leave of the Court if he files with the Court and serves on the defendant a written notice of acceptance not later than 28 days after the offer or payment was made.

9.  It is undisputed that the last date on which the Plaintiff could have accepted the Sanctioned Payment without requiring the leave of the Court was 8 December 2023, being the last business day (Friday) before the trial of this action commenced on 11 December 2023 (Monday).

C.  Indemnity Costs Order

10.  RDC O22, r23 applies where inter alia a plaintiff fails to obtain a judgment better than the sanctioned payment (which is the case here). It provides 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 the 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 unjust 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 or sanctioned offer;

(b) the stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned payment or 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 payment or offer to be made or evaluated.”

11.  The Court has discretion to decline to apply the default rule in O22, r23(5) where it considers it unjust to do so. The plaintiff has the burden of showing why it would be unjust to order indemnity costs and enhanced interest. The powers under the regime in O22 are not meant to be penal in nature, but the aim is to achieve a fairer result for the winning party, and to redress the perceived unfairness from the fact that costs, statutory interest and damages will not fully compensate a successful party in litigation: CEP Ltd v Wuxi Jiacheng Solar Energy Technology Ltd Co [2016] 1 HKLRD 960 at paragraphs 21, 47-48 (Kwan JA).

12.  The Plaintiff submits that it would be unjust to make the Indemnity Costs Order and Enhanced Interest Order, because:

(1)  The Sanctioned Payment was made only 1 month before the commencement of trial. In the ordinary course of events, substantial legal costs would have already been incurred. In particular, when the Sanctioned Payment was made, the Court already made the timetable for trial preparation. Counsel for the Plaintiff already started drafting the opening submissions and the legal team was largely prepared for the trial. As such, the legal costs which could be saved by accepting the Sanctioned Payment is relatively little;

(2)  The Sanctioned Payment is a tactical move and not a genuine intention to settle, as the Defendant must know that the Plaintiff would not accept such a nominal sum. Since the parties’ failed attempt at mediation on 30 April 2021, they had not been engaging in any settlement negotiation due to their insurmountable difference. All of a sudden, after 1.5 years of silence coupled with a change of solicitors and just before the trial, the Defendant tried to settle a claim of HK$2 million by a nominal Sanctioned Payment of HK$10,000. Against such background, it would be natural and logical for the Plaintiff to reject the Sanctioned Payment.

13.  I do not think the timing of the Sanctioned Payment makes it unjust for the consequences in O22, r23(5) to apply. As noted above, the rules permit acceptance without the Court’s leave of a sanctioned payment made not less than 28 days before the commencement of the trial. A party in the Plaintiff’s position is therefore expected to seriously consider the sanctioned payment, bearing in mind the likely consequences of non-acceptance.

14.  As to the point about the amount of costs that could have been saved, while I recognise that substantial legal costs would have been incurred already by the time the Sanctioned Payment was made, the potential saving on costs upon acceptance would not be insignificant either. Even assuming that brief to counsel was already delivered (given it was only 1 month before trial and on the Plaintiff’s evidence that his counsel had already started preparing opening submissions), the daily refreshers payable to counsel and the costs for solicitors attending the 5-day trial could still be saved if the Sanctioned Payment was accepted.

15.  There is also nothing to indicate that the Sanctioned Payment of a nominal sum was a tactical move rather than a genuine offer to settle. First, this is a case where the Defendant was entitled to the view that he had a meritorious defence (as was what the Court found at trial). Second, if the Sanctioned Payment was accepted without requiring the leave of the Court, the Defendant would have been required to pay the Plaintiff’s costs of the proceedings up to the date of acceptance, unless the Court otherwise orders: RDC O22, r20(1); CEP (supra) at paragraph 42. On the Plaintiff’s own case, the costs incurred up to that point were substantial.

16.  Viewed thus, I do not think the Sanctioned Payment can be castigated as tactical or non-genuine such that it was “natural” or “logical” for the Plaintiff to reject the same.

17.  I also take into account the fact that by the time the Sanctioned Payment was made, the Plaintiff was in a good and informed position to assess the merits of his claims.

18.  For all the above reasons, I do not find it unjust to make the Indemnity Costs Order, and I shall do so by varying the Costs Order Nisi accordingly.

D.  Enhanced Interest Order

19.  The Plaintiff fairly accepts that if the Court does not find it unjust to make the Indemnity Costs Order, an Enhanced Interest Order should follow.

20.  The power to award interest on costs is to redress the perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment and to compensate the winning party for the costs of money (or the loss of the use of money) which he has had to bear before trial in relation to payments which he has made on account of costs: Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at paragraph 16 (Johnson Lam J, as he then was).

21.  With the above in mind and considering that the Plaintiff has not acted mala fide in conducting the action, the Court will follow the approach (as suggested by the Plaintiff) in Golden Eagle (supra) at paragraph 19, and adopt half of 4% above prime rate as the enhanced interest rate for the period from 9 December 2023 to 17 June 2024 (being the date of judgment).

E.  Disposition

22.  For the above reasons, the Costs Order Nisi is varied as follows:

(1)  The Plaintiff shall pay the Defendant’s costs of the action, including all costs reserved, up to and including 8 December 2023, on a party-and-party basis and thereafter on an indemnity basis with certificate for counsel, to be taxed if not agreed;

(2)  Interest on costs awarded on an indemnity basis shall accrue at 4.9375% from 9 December 2023 to 17 June 2024;

(3)  The Sanctioned Payment in the sum of HK$10,000 paid on 10 November 2023, together with interest accrued thereon, be paid out to the Defendant through his solicitors.

23.  The costs of the Defendant’s application by Summons dated 26 June 2024 shall be to the Defendant.