XCHRX WONG WAI CHUN AND OTHERS v. CHRISTINE LEWIN

DCCJ 6612 of 1998

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.6612 OF 1998

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Decision for Review of Taxation

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Introduction

1. On 22nd March 1999, in a simple action concerning tenancy dispute, the District Court entered judgment for the Plaintiff in the sum of HK$18,706.82 with interest and made an order nisi that the Defendant to bear 43% of the Plaintiff's costs, to be taxed if not agreed. The order nisi was subsequently made absolute on 22nd April.

2. The Plaintiffs commenced the taxation proceedings in the High Court by taking out an appointment to tax dated 10th May. In the bill (which is 27 pages long), the Plaintiffs claimed a sum of HK$92,765.49 for profit costs and HK$666 for disbursements. By a letter dated 9th July 1999 ("the Calderbank letter"), the Defendant, who was then unrepresented, offered to pay a sum of HK$25,000 in respect of the Plaintiffs' "total costs and disbursements (together)". The offer was rejected by the Plaintiffs. The reason of such refusal is not apparent from the materials before me. At the taxation hearing on 16th July, the total amount allowed by me was HK$57,897. Accordingly, the costs recoverable by the Plaintiff was HK$24,896. The question of the costs of the taxation was then adjourned sine die.

3. On 30th August, having heard the parties, I ordered, inter alia, that the Plaintiffs do pay the Defendant's costs of the taxation, including the attendance on taxation. The Plaintiffs now seek to review this order.

The Plaintiffs' contentions

4. The thrust of Mr. Fung's submission is this. A Calderbank offer must include all the matters arising out of the same subject matter. In relation to costs, it must include the costs, disbursements, interests and taxing fees. Interest on costs runs from the date of the order of judgment and not from the date when the amount is certified. When one takes the interest on the taxed costs from judgment (22nd March) up to the Calderbank letter (9th July) of $887.68 or the taxing fees of $5,607 or both, the total amount exceeds the offer. Accordingly, the Plaintiffs should be entitled to the costs of the taxation.

5. In support, Mr. Fung relies on Hunt v R M Douglas (Roofing) Ltd [1990] 1 AC 398, HL, Caltex Oil Hong Kong v The Director of Buildings and Lands [1994] HKDCLR 31 (Lands Tribunal) and In re Schindler Lifts (Hong Kong) Ltd & Ors [1993] 1 HKLR 45. Counsel also seeks to distinguish Australian Telephone Distributors Pty Ltd (in liquidation) v Golden Always Ltd & Anor [1996] 2 HKLR 325, CA.

The Defendant's contentions

6. The primary submission of the Defendant is that both the interest and taxing fees are not covered by the Calderbank letter. The court should not take either of them into account when deciding the costs of the taxation. Alternatively, interest on costs only runs from the date of taxation and not from the date of judgment. Thus, interest cannot be considered any way. Reliance is placed on Australian Telephone Distributors Pty Ltd (in liquidation) v Golden Always Ltd & Anor, supra, and Hong Kong Civil Court Practice Vol 1A, para [1169] at VII 84 & 85.

7. Mr Toms further relies on a recent judgment of the English Court of Appeal in Butcher v Wolfe & Anor (30th October 1998) and submits that the Plaintiffs ought reasonably to have accepted the offer. Having failed to do so, they should bear the costs of the taxation.

8. I will come back to the authorities cited by the parties in greater detail below.

The Calderbank letter and its scope

9. Calderbank procedure stemmed from the decision of the English Court of Appeal in matrimonial proceedings in Calderbank v Calderbank [1975] 3 All ER 333. Subsequently in Cutts v Head [1984] Ch 290, the Court of Appeal extended its application to all cases where what is in issue is something more than a simple money claim in respect of which a payment into court would be the appropriate way. Such a letter, however, should not be used as a substitute for payment into court, where a payment in is appropriate, and if so used should not be treated as carrying the same consequences as a payment in. Eventually the Calderbank procedure is codified in the English Rules of the Supreme Court under Order 22 rule 14(1): "A party may at any time make a written offer to any other party which is expressed to be 'without prejudice save as to costs' and which relates to any issue in the proceedings."

10. The position in Hong Kong is similar: see Order 22 rule 14 of the Rules of the High Court.

11. The Calderbank letter in the present case was drafted by a litigant in person. The Plaintiffs, however, do not dispute its validity. Nor do they argue that insufficient time had been given to them to consider it. The only issue before me is on its interpretation. If, as contended by Mr. Fung, it includes interest or taxing fee or both, the offer is beaten. The terms of the offer read:

"I confirm that in the interests of saving each of us costs of having to attend at full taxation I would be willing to agree your total costs and disbursements (together) in the total sum of HK$25,000. If this is acceptable to your client I would be grateful of your soonest confirmation in order that further unnecessary costs can be saved."

The Defendant then reserved her right to produce the letter to the taxing master on the question of costs of the taxation if the offer was refused.

12. I do not accept Mr. Fung's submission that a Calderbank offer on costs must also include interest and taxing fee. On the contrary, it is always open to a paying party to make an offer on the bill of costs, in whole or in part. This is clearly permissible by the rules and common in practice. But it is incumbent on the paying party to make it in clear terms so that the receiving party knows what he is offered: see C & H Engineering v F Klucznic & Son Ltd [1992] FSR 667. For it may well be reasonable for a party to whom an offer is made to refuse an offer made in ambiguous terms: see Butcher v Wolfe & Anor, supra, at 7.

13. On a proper reading of the Calderbank letter, I am of the view that the offer was only intended to cover the Plaintiffs' total costs and disbursements of the action as disclosed in their bill and nothing more. The letter was written by the Defendant personally. I doubt very much if she was aware of the interest element and the question of taxing fee at all when the offer was made. I do not think she had ever intended to include these two components in her offer.

14. Even if I am wrong and it did occur to the Defendant the question relating to interest and taxing fee, it was still open to her to make a limited offer on costs and disbursements of the action only. That was exactly what she did and the terms were couched with no ambiguity. It is clear that the question of interest and taxing fee would have to be decided separately, if the need ever arose.

15. The Plaintiffs' primary contention fails on both footing. As the offer was not beaten, the Plaintiffs have to bear the costs of the taxation. This review must fail.

16. This is sufficient to dispose of the present application. However, in light of the parties' submissions and the possible bearing they may have on similar cases, it is desirable for me to address two further questions. Assuming I am wrong on the interest point so that interest on the taxed costs should be included, is the offer beaten and if so, does it follow that the Plaintiffs would necessarily have the costs of the taxation? In order to answer them, one has to consider:

(1) when interest on costs starts to run; and

(2) how the court should exercise its discretion when dealing with costs of the taxation.

When interest on costs starts to run

17. In England, following the decision in K v K [1977] Fam 39, CA, interest on costs was payable from the date of the taxing master's certificate (the allocatur rule). This decision was overruled by the House of Lords in Hunt v R M Douglas (Roofing) Ltd, supra, where it was held that interest on costs should run from the date judgment is pronounced (the incipitur rule).

18. In Hong Kong, the Hunt Case was followed and the incipitur rule, adopted in the Caltex Oil case. And it is generally accepted to be the governing rule: see, eg, In re Schindler Lifts (Hong Kong) Ltd & Ors, supra, at 47, Aktieselskabet Dansk Skibsfinansiering (body corporate) v Wheelock Marden & Co Ltd & Ors, HCMP No 2625 of 1988 & HCA No 1670 of 1988, Barnett J (unreported) at 4 and Halsbury's Law of Hong Kong Vol 5, para [90.1174] at 1005.

19. In the Australian Telephone case which Mr. Toms relies on, the issue was when the taxed costs became immediately due and payable for the purpose of a winding up petition. Was it upon taxation or upon service of the allocatur? The Court of Appeal held that it was the former. The very issue of when interest would start to run on costs was not before the Court. For my part, I agree with Mr. Fung that it is clearly distinguishable and, with respect, decline to accept the suggestion in Hong Kong Civil Court Practice Vol 1A, para [1169] at VII 84 & 85 that the Caltex Oil case can no longer stand.

20. As seen above, the interest from judgment (22nd March) up to the Calderbank letter (l9th July) amounts to HK$887.68. The total amount of costs and interest is thus $25,783.68, which exceeds the sum offered by a meagre margin of $783.68. The offer is beaten but should the Plaintiffs have the costs of the taxation? It involves the court's discretion, to which I now turn.

Exercise of discretion

21. As with a payment into court, a Calderbank offer is a matter which the court must take into account in the exercise of its discretion as to costs: Order 62 rule 5(d). In this regard, the court retains an overall broad judicial discretion. "A Calderbank offer should influence but not govern the exercise of the discretion": McDonnell v McDonnell [1977] 1 WLR 34, per Ormrod LJ at 38. In Butcher v Wolfe, supra, at 7, Mummery LJ said:

"The proper approach of a Calderbank offer, when it is taken into account on a later argument on costs, is to ask whether the party to whom the offer was made "ought reasonably to have accepted the proposal in the letter?" Or, to put it another way, account must be taken of the reasonableness or otherwise of the refusal to accept the offer: see Cutts v Head, supra, per Oliver J at 302 and Chru& Ors v Brom-Reid & Co lew [1992] 1 WLR 176 at 182A. This approach is to be compared with payment into court where, in the absence of a special reason for depriving the offering party of his post-offer costs, the simple question is whether the payment in is equal to or is beaten by the defendants at trial."

22. In my view, it was unreasonable for the Plaintiffs to have refused the offer. In arriving at this conclusion, I take into account the following:

(1) The total amount originally claimed in the bill ($93,431.49) is highly disproportional to the matters in issue. This is a simple action commenced in the District Court for $33,486 being arrears of rent and other incidental damages. It took about 11 months to conclude. But the steps taken were neither lengthy, unusual nor complicated. Default judgment was obtained but was later set aside. So was the garnishee order. The trial took one day and lastly there was a short hearing on costs. No difficult issue of facts or law was involved. Throughout the proceedings, the Plaintiffs had not engaged counsel and the Defendant acted in person. How the Plaintiffs could have incurred such a large sum of costs is beyond me.

(2) The Plaintiffs are only entitled to 43% of their costs. Based on the Defendant's offer of $25,000, the Plaintiff's total costs of the action would be $58,140. In my view, it is a very reasonable figure. The Plaintiffs ought to have accepted the offer and avoided the taxation, which in the end achieved substantially a similar result.

(3) The amount of interest ($887.68) is insignificant as compared to the costs claimed and allowed. There is no evidence before me that the Plaintiffs did take into account of this small amount of interest and rejected the offer. Nor is there any evidence to show why the Plaintiffs chose to reject the offer. In my view, it is more probable than not that the Plaintiffs wanted to recover a much larger amount and found $25,000 unattractive. The attempt failed miserably.

(4) The offer was beaten by a meagre margin of $783.68. I accept Mr. Toms's submission that the de minimis principle should apply in the present case, having regard to all the circumstances.

23. Accordingly, I will exercise my discretion and order costs against the Plaintiffs even if, contrary to my earlier ruling, the Calderbank letter is beaten by including interest.