TIM LEE CONSTRUCTION ENGINEERING CO LTD v. KWONG WAH t/a SUPER KING ENGINEERING CO

HCCT 18/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

ACTION NO. 18 OF 2010

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BETWEEN

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DECISION

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1.  In this Action, I gave judgment for the plaintiff in the sum of $341,031.53 with interest from 27 July 2010 until the date of Judgment at the rate of 1% above HSBC’s best lending rate from time to time, and thereafter at judgment rate until payment. I also made an order nisi for costs of the Action in favour of the plaintiff.

2.  It now transpired that in the course of the proceedings the defendant had made several sanctioned payments as well as without-prejudice offers to settle the dispute.  The defendant first gave notice of a payment-into-court of $300,000 on 3 September 2008.  Later, on 16 December 2009 the defendant offered a sum of $395,000 as full and final settlement.  The offer was then increased to $480,000 on 30 December 2009.  The increased offer was however rejected by the plaintiff without a counter-offer.

3.  The defendant then topped up the payment-in by an additional $180,000, making the total sum paid into court $480,000.  The defendant gave Notice to the plaintiff of the Sanctioned Payment for $480,000 on 6 January 2010 (“the Sanctioned Payment”).

4.  The plaintiff did not accept the Sanctioned Payment by the end of the 28-day period, that is, 3 February 2010.

5.  Although the defendant had subsequently further increased the amount of the payment-in to $760,000 in May 2011, for the purpose of the present application the primary contention of the defendant is that the plaintiff has failed to obtain a judgment better than the Sanctioned Payment in January 2010.  The defendant invokes the powers of the Court under Order 22, rule 23 for various sanctions against the plaintiff.

Costs

6.  There is no dispute that the plaintiff has failed to obtain a judgment better than the Sanctioned Payment.  The jurisdiction conferred by Order 22, rule 23(2), (3) and (4) is engaged.  Paragraph (5) of rule 23 provides that “the Court shall make the orders referred to in paragraphs (2), (3), and (4) unless it considers it unjust to do so”.  Paragraph (6) stipulates, non-exhaustively, the matters which the Court should take into account when considering whether it would be unjust to grant the orders.

7.  In opposing the application, Mr Chong (counsel for the plaintiff) relied much on the fact that the appointment of a joint expert to value the works under the 5^th Work Order was only directed by the Court on 8 January 2010, that is, 2 days after the defendant’s Notice of Sanctioned Payment was served on the plaintiff.  The report of the Joint Expert was not provided to the parties until 27 April 2010, and in the meantime, the Court had granted an extension of time for the parties to exchange witness statements and obtain counsel’s advice.  Mr Chong argued that in the circumstances the plaintiff did not have sufficient information to assess the merits of its case or the adequacy of the Sanctioned Payment.

8.  Mr Chong referred to the following observation of Lord Woolf MR in Ford v GKR Construction Ltd (Practice Note) [2000] 1 WRL 1397 at 1403:

“If a party has not enabled another party to properly assess whether or not to make an offer, or whether or not to accept an offer which is made, because of non-disclosure to the other party of material matters, or if a party comes to a decision which is different from that which would have been reached if there had been proper disclosure, that is a material matter for a court to take into account in considering what orders it should make.”

9.  It is clear that Lord Woolf’s observation was concerned with non-disclosure of material information by the party making the offer and thus preventing the other party from making a proper assessment of the adequacy or otherwise of the offer.  That observation clearly does not assist the plaintiff in the present case.  This is not a case where the defendant has withheld material information when the Sanctioned Payment was made.

10.  The plaintiff commenced the present Action for outstanding payment due under the sub-sub-contract between itself and the defendant.  Clearly at all times during the proceedings (if not prior to its commencement) it would be incumbent upon the plaintiff properly to assess the merits and value of its own claim, taking into account the defence and/or counterclaim of the opponent.

11.  The purpose of the regime for sanctioned payment is to encourage parties to give serious consideration to settlement.  By making a sanctioned payment, the defendant puts the plaintiff on risks of costs and other consequences set out in rule 23.  Given that a sanctioned payment can be made by the defendant as soon as he has been served with the writ (see Hong Kong Civil Procedure, 2012, para 22/3/1), the plaintiff must be prepared at any stage of the proceedings to assess the adequacy or otherwise of the payment.

12.  As Mr Chong has accepted in his written submissions, it is not the plaintiff’s contention that the defendant has intentionally withheld information or materials.  Nor indeed has it been shown that material information was withheld from the plaintiff.  There is no doubt that the parties would be in a better position to evaluate their respective claims with the benefit of the Joint Expert’s valuation.  But it does not follow that the intended appointment of the Joint Expert would relieve the plaintiff of its responsibility to conduct its own assessment of the claim and counterclaim, when faced with the Sanctioned Payment, before the report of the Joint Expert becomes available.

13.  In any event, as observed by the English Court of Appeal in Matthews v Metal Improvements Co Inc [2007] EWCA Civ 215, a plaintiff awaiting crucial information or expert opinion to enable him to decide whether to accept a sanctioned payment should have asked for an extension of time for him to do so (although I have reservation about their Lordships’ suggestion of an application for a stay of the proceedings).  In the present case, the plaintiff did not indicate it required more time or more information to consider the Sanctioned Payment and, as pointed out by the defendant, the plaintiff had never informed the defendant of such requirement notwithstanding the fact that there had been 3 sanctioned payments in the course of these proceedings.

14.  Next, Mr Chong argued that the plaintiff acted reasonably in not accepting the Sanctioned Payment because of the confusion of the costs of the granite tiles by reason of the existence of the 3 quotations.  It was argued that the plaintiff had all along disputed the defendant’s case that $710,000 represented the true deductible cost for the tiles and the defendant’s admission of over-deduction did not come until shortly before commencement of the trial.

15.  However, the defendant’s List of Documents shows clearly that the 3 quotations were disclosed as early as 3 September 2008.  Although in my Judgment I did not accept Mr Kwong’s explanation as to why there existed 3 different quotations, there is no question of the defendant withholding or concealing the various quotations from the plaintiff.  With the disclosure, the plaintiff would have to form its own view on the question of deduction, and if necessary, with suitable request for particulars or interrogatories.  In any event, there was nothing to indicate that the plaintiff was prevented from assessing the Sanctioned Payment by reason of the defendant’s assertion that $710,000 represented the deductible costs rather than the smaller sum of $338,416.30 as later conceded.  In fact, as it turns out, the Sanctioned Payment was in any event more advantageous than the ultimate award whether the court were to find that the sum to be deducted should be $710,000 or the smaller sum.

16.  Mr Chong further argued that the plaintiff was not in a position to accept the Sanctioned Payment because changes to the pleadings were still being made after 3 February 2010.  Mr Chong also submitted that the defendant only provided further and better particulars on 22 March 2011.  With respect, I am unable to accept Mr Chong’s argument.  First, as I said in paragraph 149 of the Judgment, it was the plaintiff who substantially re-formulated its claim in July 2010.  The plaintiff can hardly rely on its own failure to formulate the claim as a justification.  In any event, I fail to see why the mere fact that there had been subsequent reformulation of the pleaded case should afford the plaintiff any justification either to ignore the Sanctioned Payment or to refuse to accept it in February 2010.  Mr Chong certainly did not go so far as saying that the state of the pleading as of February 2010 was such that the plaintiff was justified in rejecting the offer.  The truth of the matter is that the plaintiff has never accepted the Sanctioned Payment even after reformulation of the pleadings.

17.  Mr Chong further submitted that the plaintiff had incurred costs in resisting the Counterclaim which was eventually withdrawn, and hence should be awarded the costs of the Counterclaim.  I think Mr Chong is right in this regard that the plaintiff should be given the costs incurred in resisting the Counterclaim, but only up to and including 3 February 2010.

18.  In respect of the defendant’s application for costs after 3 February 2010 to be paid on indemnity basis, Mr Chong submitted that indemnity costs is penal in nature and no factual basis had been put forward to justify indemnity costs.

19.  It is regard, it is relevant to take note of the comment of Lam J (as he then was) in Golden Eagle International (Group) Limited v GR Investment Holdings Limited [2010] 3 HKLRD 273 at para 10, that the various powers conferred by Order 22, rule 24 are not meant to be penal in nature.  Rather, they aim to achieve a fairer result for the winning party.  I think the learned judge’s comment is equally applicable in relation to the powers under Order 22, rule 23.

20.  Having considered all the circumstances, I do not consider it unjust to order the plaintiff to pay the defendant’s costs incurred after 3 February 2010.  In relation to the defendant’s costs incurred after that day, it would be unnecessary to distinguish between the costs of the plaintiff’s claim or the defendant’s Counterclaim because those costs would simply not have to be incurred (or at most minimal costs) if only the plaintiff had accepted the Sanctioned Payment.

21.  The plaintiff has not shown why it would be unjust for such costs to be paid on an indemnity basis and I would therefore make an order to that effect.

Interest

22.  Even though it now transpires that the plaintiff would be better off had it accepted the Sanctioned Payment, it remains a fact that the plaintiff has been kept out of the money until payment of the Judgment sum.  As I have already disallowed the part of the interest before 27 July 2010, I am not prepared to make a further disallowance of the plaintiff’s interest under the award.

23.  I would, however, allow the defendant’s application for interest on the costs incurred after 3 February 2010 (calculated from the various dates of payment), at judgment rate.

Conclusion

24.  For the reasons set out above, I would order that the costs order nisi in my Judgment be varied as follows:

(1)    Save and except those previous interlocutory costs orders to the contrary prior to 3 February 2010, the defendant do pay the plaintiff’s costs (including costs incurred by the plaintiff in relation to its own claim and in resisting the defendant’s Counterclaim) on a party and party basis up to and including 3 February 2010;

(2)    The plaintiff do pay the defendant’s costs incurred after 3 February 2010 (without distinguishing between the costs incurred for the plaintiff’s claim or the defendant’s Counterclaim) on an indemnity basis (save that my previous order on 10 May 2012 not to award costs in relation to the application for amendment of the Judgment, still stands); and

(3)    The defendant is entitled to interest on its costs referred to in (2) above (calculated from the various dates of their payment), at judgment rate.

25.  For all intents and purposes the defendant is the winner in this application.  I would accordingly order that the costs of this application be paid by the plaintiff to the defendant on a party and party basis.