TSOI HAK KONG HERBERT v. KOK WAI CHUN AND ANOTHER

HCA 4/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4 OF 2006

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JUDGMENT ON BASIS OF TAXATION

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Introduction

1.  In a judgment handed down on 6 May 2009, I found in the plaintiff’s favour against the defendants.  In para. 36 and 37 thereof, I said this about costs:-

“… There will … be a costs order that the costs of this action … be paid by the defendants to the plaintiff to be taxed if not agreed. …

… The plaintiff indicates there may be dispute as to the basis of the taxation between him and the defendants.  Any such dispute will have to be resolved after the parties have submitted their written submission on basis of taxation.  Whether a hearing for such purpose is necessary will have to be decided after I have sight of the submissions”.

Having perused the parties’ subsequent written submissions (and further written submissions), I do not consider it necessary to hear from the parties further.  The following is my decision on the issue (and the reasons for it).

2.  The plaintiff’s case is he should be awarded indemnity costs whereas the defendants’ case is there is no justification for such costs.  They contend costs should be taxed on party-and-party basis.

3.  The above dispute relates to the new RHC Ord. 22 (which came into effect on 2 April 2009) and the court’s general discretion as regards litigation costs.

4.  As will be set out in more detail below, the factual context in this action concerns offers (including a “sanctioned offer” (see below for details)) made by the plaintiff to settle this action.  Further, the plaintiff’s sanctioned offer was made less than 28 days before the trial herein commenced. 

5.  Several types of sanctioned offer are expressly referred to in the new Ord. 22; for example, an offer which is made not less than 28 days before the commencement of the trial, or an offer which is made by a defendant.  Sanctioned payment can also be made under the new rule.

6.  Because of the above factual context, the discussion relating to the new Ord. 22 in this judgment is intended to apply to the sanctioned offer referred to in para. 4 above, and not other types of sanctioned offer (or sanctioned payment).  References to the provisions relating to these will be made only where it is necessary for ascertaining the true meaning of the provisions relating to the sanctioned offer referred to in para. 4 above.

7.  Further, for convenience, the type of sanctioned offer referred to in para. 4 above is called a “plaintiff’s offer” below.

Legal Principles

8.  The plaintiff’s argument is based on two matters:-

(a) a plaintiff’s offer has been made but refused by the defendants;

(b)    in any event, the defence put forth was such as should warrant indemnity costs to be awarded.

Sanctioned Offer

9.  A sanctioned offer is one made pursuant to the new Ord. 22, Rules of the High Court (Cap. 4A).  It is defined in Ord. 22 r. 1(1) as:-

“… an offer made (otherwise than by way of a payment into court) in accordance with [Ord. 22]”.

10.  A plaintiff’s offer is expressly referred to in Ord. 22 rr. 5(8), 7(2) and 16(2)(a):-

(1) Ord. 22 r. 5(8) deals with the form and content of a plaintiff’s offer:-

“[A plaintiff’s offer] must provide that the offeree may only accept it if-

(a) the parties agree on the liability for costs; or

(b) the Court grants leave to accept it”;

(2) Ord. 22 r. 7(2) deals with the withdrawal or diminution of a plaintiff’s offer:-

“[A plaintiff’s offer] may be withdrawn or diminished if the Court grants leave to withdraw or diminish it”;

(3) Ord. 22 r. 16(2)(a) deals with the defendant’s acceptance of a plaintiff’s offer:-

“If [a plaintiff's offer] … is made ... then the defendant may-

(i)  if the parties agree on the liability for costs, accept the offer without the leave of the Court; and

(ii) if the parties do not agree on the liability for costs, only accept the offer with the leave of the Court”.

11.  Further to those provisions, Ord. 22 r. 5(6) permits a sanctioned offer (including a plaintiff’s offer) to be made at any time after the commencement of proceedings.

12.  There are potential costs and interest consequences where a sanctioned offer has been made but not accepted.  Ord. 22 r. 24(1) provides:-

“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” (emphasis supplied).

Ord. 22 r. 24(4) then provides:-

“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” (emphasis supplied).

Ord. 22 r. 24(2) is concerned with the rate of interest which can be ordered against an offeree whereas Ord. 22 r. 24(3) is concerned with awarding indemnity costs (and the rate of interest thereon).

13.  The rate of interest which can be ordered against an offeree pursuant to Ord. 22 r. 24(2) is:-

“a rate not exceeding 10% above judgment rate”

on the whole or part of any sum of money (excluding interest) awarded to the plaintiff.  The period of such interest is:-

“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” (emphasis supplied).

14.  In relation to the indemnity costs which can be awarded pursuant to Ord. 22 r. 24(3), the period for such an award commences:-

“after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court” (emphasis supplied) (Ord. 22 r. 24(3)(a)).

Similar to Ord. 22 r. 24(2), the rate of interest which can be ordered on those costs is a rate not exceeding 10% above judgment rate: Ord. 22 r. 24(3)(b).

15.  To understand why difficulties arise in this action, it is necessary to set out the salient facts.

Relevant Facts

16.  The following are undisputed:-

(a) the plaintiff’s sanctioned offer (“the subject offer”) was made in writing;

(b)    the form of the subject offer complies with Ord. 22 rr. 5(3) and (8);

(c) the subject offer was made less than 28 days before the commencement of the trial (it was made on 2 April 2009, about 20 days before the trial commenced (on 22 April 2009));

(d)    leaving aside the details such as the time of payment, costs and interest, it offered to settle the plaintiff’s claim for a sum of $850,000.

As stated above, the new Ord. 22 came into effect on 2 April 2009; so the earliest date on which the subject offer could be made was that date.

17.  Because of the above undisputed matters, the subject offer was a sanctioned offer within the meaning given to it by Ord. 22 (and a plaintiff’s offer as defined above).

18.  Further, the judgment entered in the plaintiff’s favour against the defendant was for $1,287,500 (with interest and costs of the action).  Hence, this is a case which can fall within either limb of Ord. 22 r. 24(1) (see para. 12 above).

19.  For the reasons given above, subject to the discussion below regarding the applicability of Ord. 22 rr. 24(2) and (3), it appears that the subject offer is one which falls within Ord. 22 rr. 24(1) and (4).

How Ord. 22 rr. 24(2) and (3) Should Apply to a Plaintiff’s Offer

20.  Where the parties reach agreement as regards a plaintiff’s offer (including an agreement on the liability for costs), no difficulty should arise.  The defendant can accept the offer without the leave of the court (Ord. 22 r. 16(2)(a)(i)) and the proceeding is stayed (Ord. 22 r. 22(1) to (3), for example).

21.  Where, however, a plaintiff’s offer is not accepted at all (because the parties do not agree on the liability for costs, for example), it is not immediately apparent how Ord. 22 rr. 24(2) and (3) should be applied.  The present case is one where the subject offer was not accepted by the defendants.  Naturally, the parties did not agree on the liability for costs either.

22.  The difficulties with regard to how Ord. 22 rr. 24(2) and (3) are to apply in such situation have not been addressed by the parties in their original written submissions (both dated 7 May 2009).  As a result, a letter was sent to them on 25 May 2009 (“the 25 May letter”) inviting their assistance about that aspect:-

“(a)   whether the provisions of Ord. 22 rr. 24(2) and (3) are applicable to [a plaintiff’s offer] (i.e. Ord. 22 r. 16(2)(a));

(b) related to sub-paragraph (a) above, the true meaning of “the latest date on which the defendant could have accepted the offer without the leave of the Court” in Ord.22 rr. 24(2) and (3);

(c) whether it is argued that the phrase referred to in sub-paragraph (b) above does or does not include the possibility of the offeror and offeree agreeing on the liability for costs (i.e. Ord. 22 r. 16(2)(i)), the relevance (if any) of:

(1) Ord. 22 rr. 24(1) and (4);

(2) the purpose of the specific reference to a sanctioned offer made less than 28 days before the commencement of the trial in Ord. 22 rr. 5(8), 7(2) and 16(2)(a);

(3) the distinction made between an offer expressed to be “without prejudice save to costs” and a sanctioned offer in Ord. 62 r. 5(1)(d)

to that argument;

(d) any other matter(s) relevant to the Court’s jurisdiction related to a sanctioned offer referred to in sub-paragraph (a) above”.

23.  In short, the defendants argue that Ord. 22 rr. 24(2) and (3) are inapplicable to a plaintiff’s offer.  Their stance in this regard is summed up in the following passages in their further written submissions:-

“[Those provisions] are only applicable to [a plaintiff’s offer] if the parties agree on the liability for costs” (para. 2, 9, 11, 16 and 27 thereof).

24.  I disagree with the defendants.

25.  First, where the parties have reached agreement on the liability for costs in respect of a plaintiff’s offer, it is difficult to see why either of them should still need an order to be made pursuant to Ord. 22 r. 24(2) or (3).

26.  Secondly, in such a case, it is highly unlikely the proceeding will continue.  Consequently, it is highly unlikely the defendant will be held liable (let alone (i) being held for more than the proposals in the offer (which falls within Ord. 22 r. 24(1)(a), or (ii) a judgment being pronounced which is more advantageous to the plaintiff than those proposals (which falls within Ord. 22 r. 24(1)(b)).

27.  Thirdly, if Ord. 22 rr. 24(2) and (3) were inapplicable, in effect the whole statutory regime relating to a plaintiff’s offer will have no consequence pursuant to the provisions of the new Ord. 22 (although there may still be costs consequences under the regime extrinsic of that rule).  This cannot be the legislative intention when:-

(1) express reference has repeatedly been made in the new rules to a plaintiff’s offer (see para. 10 above);

(2) Ord. 62 r. 5(1)(d) appears to maintain a distinction between an offer expressed to be “without prejudice save to costs” and a sanctioned offer when the costs issue is considered by the court;

(3) Ord. 22 rr. 24(1) and (4) do not appear to distinguish a plaintiff’s offer from other types of sanctioned offer.

28.  Further to para. 27 above, pursuant to s. 19, Interpretation and General Clauses Ordinance (Cap. 1):-

“An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit”.

S. 3, Cap. 1 defines an Ordinance as including any such subsidiary legislation made under any such Ordinance.  There is also a presumption at common law that a piece of legislation is not to be construed in a manner which renders it ineffective.

29.  The defendants now argue that the phrase:-

“the latest date on which the defendant could have accepted the offer without the leave of the Court”

in Or. 22 rr. 24(2) and (3) means that where the parties never reach agreement on the liability for costs in relation to a plaintiff’s offer, those words mean that the only way in which the offer can be accepted is to apply for the court’s leave to do so.  In other words, in such a case, effectively the offer cannot be accepted without the court’s leave.

30.  But this argument ignores the use of the language actually used in Ord. 22 rr. 24(2) and (3):-

“the defendant could have accepted the offer without the leave of the Court” (emphasis supplied).

The legislation chose to use words which indicate a supposition or hypothesis; they are not concerned with whether the defendant in fact accepts the offer without the court’s leave; in other words, the language of the legislation shows that it suffices as long as notionally the defendant could have done so at some stage.

31.  Understood in that light, Ord. 22 rr. 24(2) and (3) should apply to a plaintiff’s offer in the manner set out below even if the parties in fact never agree on the liability for costs.

32.  The defendants refer to Civil Justice Reform: Final Report of the Chief Justice’s Working Party on Civil Justice Reform, para. 311 (and other similar passages).  The relevant parts are quoted below:-

“… [sanctioned offers] allowing less than 28 days before trial for [acceptance of the offer by the offeree] would not qualify [as valid offers].  In the Working Party’s view, this requirement would be of particular importance in relation to sanctioned offers made by the plaintiffs.  It would be undesirable to enable a plaintiff to place a defendant under the significant threat of additional interest at potentially punitive rates at the very door of the court … as a means of forcing what may be an unfair settlement” (emphasis supplied).

Based on the above passage, the defendants ask me not to consider the subject offer.

33.  There are two difficulties with the above contention:-

(a) to be able to rely on such materials, the defendants need to show the exceptions set out in Pepper v. Hart [1993] AC 593 (adopted in CIR v. Agrila Ltd. and Others (2001) 4 HKCFAR 83) apply here.  But it is clear the new Ord. 22 regime applies to a plaintiff’s offer: Ord. 22 rr. 5(8), 7(2), 16(2)(a) and 24 (see para. 10 above).  What is unclear is how Ord. 22 rr. 24(2) and (3) should apply to such an offer.  The Final Report does not discuss that at all;

(b)    related to sub-para. (a) above, when the legislation expressly confers a power on the court, it is the court’s duty to at least consider how to exercise that power.  It is wrong in principle for the court not to do so because a pre-legislation report opines that it should not.

The Meaning of “Latest Date” in Ord. 22 rr. 24(2) and (3)

34.  The 25 May letter also asked:-

“(1)(i)   what was the period (with dates) referred to in Ord.22 r.24(2);

(ii)  what was the date referred to in Ord.22 r.24(3) in the factual context of this action”.

35.  A plaintiff’s offer can be accepted without the court’s leave up to the time when the court pronounces its holding or judgment (but not beyond that time).  This conclusion flows from the following:-

(a) the power conferred by Ord. 22 r. 24(4) becomes exercisable when there is a holding or judgment which falls within the terms of Ord. 22 r. 24(1)(a) and/or (b) (see para. 12 above);

(b)    to prevent Ord. 22 from becoming operative, not only must a defendant accept a plaintiff’s offer (pursuant to Ord. 22 r. 16(2)(a)(i) or (ii)), he must do so before the holding or judgment is pronounced.  Once that event occurs, it will be too late for him to do so;

(c) in other words, the period during which the defendant could have accepted the offer without the court’s leave cannot extend beyond the time when the holding or judgment is pronounced.

(cp. David Philip Hawley v. Luminan Leisure PLC and Others [2006] EWCA Civ 30)

36.  A simple example will provide a clear illustration.  The plaintiff makes a sanctioned offer pursuant to Ord. 22 r. 16(2)(a) on Monday.  The trial commences on Tuesday and finishes on Wednesday.  Judgment (which falls within the terms of, say, Ord. 22 r. 24(1)(b)) is pronounced on Thursday.  In such a case, the “latest date” falls on Wednesday.

37.  In the factual context of this action, the “latest date” on which the defendants could have accepted the plaintiff’s offer without the court’s leave (referred to in Ord. 22 rr. 24(2) and (3)) was 5 May 2009.

38.  By reason of the matters aforesaid, I do not agree with the plaintiff’s argument that (1) the “latest date” is meaningless, or (2) the relevant period should commence from 2 April 2009.

39.  In relation to para. 38(2) above, it should be noted that, for a sanctioned offer which is made not less than 28 days before the commencement of the trial (pursuant to Ord. 22 rr. 5(7)) (which is not accepted within that period), the court’s jurisdiction under Ord. 22 rr. 24(2) and (3) only covers the period after expiration of the 28-day period (the combined effect of Ord. 22 rr. 15(1), 15(2)(a), 16(1), 16(2)(a) and 24(2) and (3)).  To accept the argument set out in para. 38(2) above will effectively mean that a plaintiff may be given more favourable treatment under Ord. 22 if he makes a sanctioned offer later rather than earlier.  This cannot be the legislative intent.

40.  Although the parties have not addressed the point, I have also considered whether, in the case of a plaintiff’s offer, the phrase “latest date” in Ord. 22 rr. 24(2) and (3) can mean the day immediately following the expiration of the 28-day period and I conclude that it cannot.  The reasons are as follows.

41.  For a sanctioned offer which is made not less than 28 days before the commencement of the trial, the offeree can accept the offer without leave within the 28-day period: Ord. 22 rr. 15(1) and 16(1).  The 28-day period is material because, after the expiration of that period, the offeree will need to obtain the parties’ agreement on the liability for costs or the court’s leave to do so: Ord. 22 rr. 15(2)(b) and 16(2)(b).  However, an offeree of a sanctioned offer which is made less than that period (hence, a plaintiff’s offer is included) is not given the “optional” 28-day period by Ord. 22 r. 15(2)(a) or 16(2)(a).

42.  Finally, s. 49(1)(a), High Court Ordinance (Cap. 4) provides:-

“Judgment debts shall carry simple interest… at such rate as the Court of First Instance may order”.

Section 49(1)(b), Cap. 4 in effect provides that in the absence of such order, judgment debts shall carry interest at what is commonly called “judgment rate” or “statutory rate.”

43.  In Hong Kong, it is common practice for judgment debts to carry interest at judgment rate.  The commentaries in Hong Kong Civil Procedure 2009 appear to confirm the practice: see Vol. 1, para. 42/1/11 thereof.

44.  In KR v Bryn Alyn Community (Holdings) Ltd. (In Liquidation)(Permission to Amend) [2003] EWCA Civ 383; [2003] PIQR P30, the parties agreed to vary the first instance judgment so that the “enhanced” interest (awarded pursuant to provisions similar to our Ord. 22) covered the period from date of sanctioned offer to date of judgment (instead of from date of judgment to date of payment) (see para. 6, CA judgment).

45.  I have considered the matters set out in para. 42 to 44 above before exercising my discretion in the manner set out in para. 53 below.

Exercising the Discretion

46.  It is undisputed Ord. 22 rr. 24(2) and (3) confer a discretionary power on the court.

47.  I also cannot agree with the plaintiff’s contention that Ord. 22 rr. 24(2) and (3) provide for:-

“minimum ‘standard’ orders” (para. 21, 31, 37, 47 and 55, further written submissions).

The contention runs contrary to the express language used by those provisions, as well as the provisions of Ord. 22 r. 24(5):-

“In considering whether it would be unjust to make the orders referred to in Ord. 22 rr. 24(2) and (3), the Court shall take into account all the circumstances of the case … ”.

48.  The contention is also inconsistent with the conclusion reached in judicial decisions in the UK determining the nature of similar statutory powers conferred by the Civil Procedure Rules (for example, Factortame v. Secretary of State [2002] EWCA Civ 22; [2002] 1 WLR 2438; Read v. Edmed [2004] EWHC 3274).

49.  Having said that, in exercising the discretion, it is important to bear in mind the legislative intention of the new Ord. 22 regime (which is part of the new regime under the civil justice reform).  It is obvious the new rules encourage the parties to settle their litigation sooner rather than later: see, for example, Victor Kermit II v. MGN Ltd. [2002] EWCA Cir 66, para. 8.

50.  In light of the conclusion reached above regarding the manner in which Ord. 22 rr. 16(2) and (3) should apply to a plaintiff’s offer, it will mean that in an extreme case, a plaintiff’s offer can be made the day before the holding or judgment is pronounced.

51.  In such an extreme case (as well as in other cases), however, the court’s discretion should be exercised in a way which reflects the above legislative intention.  Indeed, Ord. 22 r. 24(4) requires the court to consider if making an order pursuant to Ord. 22 rr. 24(2) and/or (3) will cause injustice.  Guidance as to what may cause injustice is given to the court by Ord. 22 r. 16(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”.

52.  I have considered the following matters when exercising that discretion:-

(1) the subject offer was preceded by two earlier “without prejudice” offers;

(2) the first offer was made on 14 March 2007 (about 2 years before trial commenced).  Its terms were even more advantageous to the defendants than the subject offer: in effect, they could pay $850,000 inclusive of interest and costs in full and final settlement of this action;

(3) the second offer was made on 23 March 2009 (about 3 weeks before trial commenced).  In brief, it offered to settle this action for $850,000 with costs;

(4) the subject offer was made as early as the new Ord. 22 permitted the plaintiff to do so (it was made on the day when the new Ord. 22 came into effect);

(5) about 20 days were available to the defendants for considering the subject offer before the trial commenced.  This period is not substantially shorter than the 28-day period provided for in Ord. 22 rr. 5(7) and (8);

(6) the defendants’ only contention of unfairness is that the subject offer was made at a time too close to the trial.  This contention has to be considered in the light of sub-para. (1) to (5) above.

53.  In brief, my discretion should be exercised as follows:-

(a) interest on $1,287,500 is awarded to the plaintiff at the rate of 3% above judgment rate (instead of the 10% sought);

(b)    costs of this action as between the plaintiff and the defendants are to be taxed if not agreed on an indemnity basis with interest thereon at the rate of 3% above judgment rate (instead of the 10% sought).

In accordance with the conclusion reached above, the “enhanced” costs and interest which are awarded under this heading can only apply to those commencing on 6 May 2009.  The higher rate of interest is applicable until payment (subject to the taxation master’s discretionary power under Ord. 62 in relation to the interest on the indemnity costs (if any)).

(b) No Defence

54.  The essence of the defence to the plaintiff’s case has been summarized in the judgment dated 6 May 2009 (especially at para. 1 to 7, 11 and 31 thereof).

55.  I agree with the plaintiff that the defence put forth has no merit at all, whether judged from the factual or legal perspective.  I have also taken into consideration the matters set out in para. 52(1) to (6) above.

56.  Further to para. 53(b) above, I find this to be an appropriate case for indemnity costs to be awarded based on general principles: Hong Kong Civil Procedure 2009, para. 62/App/12.  The defence is scandalous or vexatious.

57.  In coming to this conclusion, I have taken into account a plaintiff’s offer has been made as early as possible: Ord. 62 r. 5(1)(d).

Other Matters

58.  It can be seen from the conclusion reached at para. 35 and 37 above, and the orders actually made pursuant to Ord. 22 rr. 24(2) and (3) (at para. 53(a) and (b) above), that the practical benefit to the offeror of a plaintiff’s offer is minimal.  That may be a reason why the UK Civil Procedure Rules have earlier decided to remove provisions similar to those concerning a plaintiff’s offer.

59.  Voluminous photocopies of:-

(1) Blackstone’s Civil Practice 2009 (25 pages);

(2) Civil Procedure 2009, Vol. 1 (24 pages);

(3) Civil Justice Reform: Final Report (25 pages (including 7 pages of table of contents))

have been supplied with the defendants’ further written submissions.

60.  Save the passages referred to in para. 32 above, no reference has been made to those documents; nor is there indication in the further written submissions regarding how they can assist the court.

61.  This kind of practice is to be deplored:-

(a) it wastes natural resources;

(b)    it hinders rather than assists the court’s work; the court should not be left to second-guess the relevance of such documents (if any);

(c) for the same reason given in sub-para. (b) above, it may cause injustice to either or both of the parties.

Conclusion

62.  Accordingly, I will make the orders referred to in para. 53 and 56 above.