CAI GUOPING v. YIM HOK WING AND OTHERS

CACV 96/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 96 OF 2015

(ON APPEAL FROM HCPI NO. 494 OF 2013)

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DECISION ON COSTS
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Hon Kwan JA (giving the Decision on Costs of the Court):

1. On 9 September 2015, we handed down judgment allowing the plaintiff’s appeal to the extent of substituting the apportionment of contributory negligence of 50% with 25%. Otherwise, we maintained the judge’s assessment on the quantum of damages. We indicated that the costs below and on appeal would be dealt with on paper.

The costs order made below

2. The judge had assessed damages at $473,229.  As he held there was contributory negligence to the extent of 50%, damages were reduced by half to $236,614, which was less than the award of employees’ compensation received by the plaintiff of $333,300.  He therefore dismissed the plaintiff’s action even though liability was established.  He made an order nisi there should be no order as to costs.

3. The defendants applied to vary the costs order nisi on the basis that, among other things, on 18 November 2014 they had made a sanctioned payment of $120,000 (net of employees’ compensation and inclusive of interest) in settlement of the whole claim of the plaintiff.  The sanctioned payment was made just over two months before trial.  The latest date on which the plaintiff could have accepted the sanctioned payment without leave of the court was 16 December 2014.

4. On 23 June 2015, the judge handed down his decision on costs varying the costs order nisi.  He made a costs order in these terms:

(i) the plaintiff is to pay the defendants’ costs of this action, including any costs reserved, up to 16 December 2014, on a party and party basis, to be taxed if not agreed, in accordance with the High Court scale with interest thereon at judgment rate from the date of judgment until payment;

(ii) the plaintiff is to pay the defendants’ costs of this action, including any costs reserved, from 17 December 2014 up to the date of this order on an indemnity basis, to be taxed if not agreed, in accordance with the High Court scale with interest thereon at judgment rate from the date of judgment until payment;

(iii) the plaintiff is to pay enhanced interest on disbursements of $9,000 being the half share of the mediation fees (such disbursements are to be taxed if not agreed) at the rate of 9% per annum from 13 January 2015 to the date of judgment;

(iv) the costs of this application be to the defendants on an indemnity basis, to be taxed if not agreed, in accordance with the High Court scale; and

(v) the plaintiff’s own costs to be taxed in accordance with the Legal Aid Regulations.

The plaintiff’s position on the costs below

5. The effect of our judgment altering the apportionment of contributory negligence to 25% is that the net award of damages to the plaintiff would be $21,621.75.  Even though the plaintiff has succeeded in reducing the apportionment of his liability from 50% to 25%, he still fails to beat the sanctioned payment of $120,000 by a wide margin.

6. Mr Albert Yau submitted as the appeal was allowed to the extent that the plaintiff is now awarded a net sum instead of having his claim dismissed, the question of the costs below becomes at large and we are free to exercise our discretion on costs afresh, not constrained by the manner in which the judge had exercised his discretion.  He invited us to set aside the judge’s order on costs and make an order in these terms:

(i) costs of the action up to 16 December 2014 be to the plaintiff to be taxed at the District Court scale if not agreed; and

(ii) costs of the action thereafter be to the defendants to be taxed at the High Court scale if not agreed.

7. The effect of these orders suggested by the plaintiff is that (a) the defendants would not have their costs from 17 December 2014 to be assessed on an indemnity basis; (b) they would not have enhanced interest on disbursements of $9,000 being the half share of the mediation fees; and (c) they would not have their costs of the application before the judge to vary the costs order nisi on an indemnity basis.

8. Mr Yau made these submissions in support of the orders he proposed.  He contended that “objectively”, the plaintiff did stand a “reasonable chance” of beating the sanctioned payment.  If this court had held that contributory negligence should be further reduced to, say, 15% instead of merely 25%, the net sum of damages awarded to the plaintiff would have beaten the sanctioned payment.  So it was not unreasonable for the plaintiff to pursue his claim and it would be unjust to order him to pay the defendants’ costs from 17 December 2014 on an indemnity basis.

9. As for enhanced interest on the half share of the mediation fees, Mr Yau submitted this should not be awarded because the mediation fees were incurred on 17 November 2014 when the mediation took place and an invoice for the fees was issued on the same date, even though payment was made to the mediator only on 13 January 2015.  He contended that as the plaintiff is now awarded a net sum of damages by this court, the plaintiff is entitled to recover costs from the defendants up to 16 December 2014, being the latest date for accepting the sanctioned payment without leave of the court, and that such costs should include the disbursement incurred before that date.

The defendants’ position on the costs below

10. Mr Gary Chung accepted that para (i) of the judge’s order should be varied in the light of our holding that the plaintiff should now receive a net award of damages of $21,621.75 instead of having his claim dismissed.  He agreed with Mr Yau that the defendants should pay the plaintiff’s costs of the action up to 16 December 2014, to be taxed at the District Court scale if not agreed.

11. As to paras (ii) to (iv) of the judge’s order, Mr Chung submitted that no alteration should be made.

12. He reminded the court that pursuant to Order 22 rule 23(5), the result of the plaintiff failing to obtain a judgment better than the sanctioned payment is that the court “shall make the orders referred to” in Order 22 rules 23(2), (3) and (4), unless “it considers it unjust to do so”.  As stated in Shih Pik Nog v G2000 (Apparel) Ltd [2011] 4 HKLRD 121 at para 6, the provisions in Order 22 rule 23 are mandatory directions.

13. In considering whether it is unjust to make the orders referred to, the court shall take into account all the circumstances of the case including those set out in Order 22 rule 23(6).  Mr Chung submitted there is nothing unjust to award costs against the plaintiff as from 17 December 2014 on an indemnity basis.  The sanctioned payment was made more than two months before trial, so the plaintiff had ample opportunities to consider accepting it.  At the time the payment was made, the action had been set down for trial and all the cards were on the table.  When the plaintiff decided not to accept the payment, he must have done so on a fully informed basis, accepting that he had to bear the risk he might fail to obtain a judgment better than the sanctioned payment and the consequence that would follow.  The sanctioned payment was a generous offer and the plaintiff has failed to beat it by a wide margin.  Mr Chung submitted that the plaintiff might have formed a subjective belief regarding the quantum of damages based on his assertions of the extent of his injuries and disabilities and his capacity to return to work, which were not accepted by the judge.  The judge in ordering indemnity costs had taken all relevant circumstances into consideration, so para (ii) of his order should not be disturbed.  For the same reason, the indemnity costs in para (iv) ordered by the judge should stand.

14. As to enhanced interest on disbursements at 9% per annum from the date of payment on 13 January 2015, Mr Chung submitted that the defendants are entitled to enhanced interest and the rate of 9% is in line with decided cases.

Our decision on the costs below

15. Mr Yau’s contention that there was objective basis for thinking that the plaintiff might have a reasonable chance of beating the sanctioned payment is sheer speculation.  We agree with Mr Chung for the reasons he advanced that it has not been shown it would be unjust in any way if indemnity costs should be awarded to the defendants as from 17 December 2014.  This is not a case in which the judgment sum is narrowly beaten by the sanctioned payment.  The plaintiff failed to do better than the sanctioned payment by a wide margin.  Paras (ii) and (iv) of the judge’s order should stand.

16. As to enhanced interest on disbursements incurred before 16 December 2014 but paid after that date, we are inclined to agree with Mr Yau.  Order 22 rule 23(3) provides that the court may order the plaintiff to pay “any costs incurred by the defendant after the latest date on which the payment … could have been accepted without requiring the leave of the Court”.  Order 22 rule 23(4)(b) provides that the court may also order that the defendant is entitled to “interest on the costs referred to in paragraph (3) … at a rate not exceeding 10% above judgment rate”.  As the half share of the mediation fees was incurred by the defendants before 16 December 2014, this does not fall within the statutory provisions.  We would decline to make an order in terms of para (iii) of the judge’s order.

The defendants’ position on the costs on appeal

17. There is some uncertainty if the provisions for sanctioned offer in Order 22 would apply to proceedings in the Court of Appeal (Ryder v Industries Limited (formerly Saitek Limited) v Chan Shui Woo, CACV 164/2013, 13/3/2015, para 30; Dah Sing Insurance Services Limited v Gill Gurbux Singh, CACV 255/2012, 27/4/2015, paras 45 to 47).  In view of the uncertainty, the defendants adopted a belt and braces approach when they made an offer to the plaintiff regarding the appeal.

18. On 27 July 2015, the defendants’ solicitors wrote two letters to the plaintiff’s solicitors, making a sanctioned offer under Order 22 rules 3 and 5 and a Calderbank offer in the same terms, which were as follows:

(i) the defendants were to pay the plaintiff $118,000 (inclusive of interest but net of employees’ compensation);

(ii) the sum of $118,000 was to be paid out from the sanctioned payment made on 18 November 2014;

(iii) the defendants were to pay the plaintiff’s costs of the proceedings below up to 16 December 2014 on District Court scale to be taxed if not agreed;

(iv) the plaintiff was to pay the defendants’ costs of the proceedings below from 17 December 2014 up to the date of acceptance of the offer at High Court scale on indemnity basis to be taxed if not agreed; and

(v) the defendants were to pay the plaintiff’s costs of the appeal (including the respondent’s notice) up to the date of acceptance of this offer to be taxed if not agreed.

19. On 7 August 2015, the plaintiff’s solicitors responded by letter stating that the defendants’ offer was “unreasonable and unrealistic” and it was not accepted by the plaintiff.  The solicitors indicated they would deliver a brief to counsel to attend the full preparation of the appeal.

20. The latest date on which the plaintiff could have accepted the sanctioned offer without leave of the court was 24 August 2015.

21. In the judgment handed down on 9 September 2015, we allowed the appeal only to the extent of reducing the apportionment of the plaintiff’s liability on contributory negligence.  Otherwise, we rejected all the plaintiff’s arguments to challenge the quantum of damages.

22. Mr Chung made the point that the plaintiff has not been entirely successful on appeal.  More importantly, the plaintiff still failed to beat the sanctioned payment made in the proceedings below or the offers made by the defendants on 27 July 2015.  The net amount of damages the plaintiff is held entitled to recover is far less than the sanctioned payment or the amount on offer.  In dealing with the costs of the appeal, the court may take into account the sanctioned payment in the proceedings below, where appropriate, having regard to all the circumstances, including the outcome of the appeal (see Ryder, para 34(3)).  In the offers on 27 July 2015, the defendants also made offers in respect of the costs for the proceedings below and on appeal.  Mr Chung submitted that the offers on costs are entirely reasonable and the plaintiff ought reasonably to have accepted them.

23. By reason of the above, Mr Chung submitted it would be appropriate to order that there should be no order as to costs for the appeal up to 24 August 2015 (being the latest date the sanctioned offer could be accepted without leave) or 7 August 2015 (being the date on which the Calderbank offer was rejected).

24. As for the costs thereafter, Mr Chung submitted that costs should be awarded to the defendants on an indemnity basis (from 25 August 2015, if the sanctioned offer should apply to appeal proceedings) or on a party and party basis (from 8 August 2015, if only the Calderbank offer should apply).

The plaintiff’s position on the costs on appeal

25. Mr Yau submitted that the effect of the sanctioned payment made in the proceedings below has been spent.  It is unclear if the provisions for sanctioned offer apply to proceedings in the Court of Appeal and Order 22 would require much adaptation or reinterpretation for the provisions to apply to appeal proceedings.  He submitted we should only be concerned with the Calderbank offer.

26. Mr Yau proposed that the plaintiff should have the costs of the appeal up to 24 August 2015 and the costs thereafter should be to the defendants.  He also asked the court not to award the costs of the present application to the defendants if the plaintiff is largely successful on the costs arguments.

Our decision on the costs on appeal

27. We do not find it necessary to resolve the question whether the provisions in Order 22 would apply to appeal proceedings, as we have doubts whether the defendants could properly rely on the sanctioned offer made on 27 July, assuming that the provisions should apply.

28. Under Order 22 rule 3(2), it is provided that where an offer by a defendant involves a payment of money to the plaintiff, the offer must be made by way of a sanctioned payment.  Order 22 rule 8(2) provides that a defendant who makes a sanctioned payment shall file with the court a notice in Form 23 in Appendix A.  Order 22 rule 9(b) provides that a defendant who makes a sanctioned payment shall file with the court a certificate of service of the notice of sanctioned payment.

29. No sanctioned payment was made by the defendants in the appeal proceedings.  What was proposed in the sanctioned offer was that payment should be made out of the sanctioned payment in the proceedings below.  It does not appear that the provisions mentioned above – rules 3(2), 8(2) and 9(b) – were complied with.

30. In the circumstances, we would not allow the defendants to rely on the sanctioned offer.  They could only rely on the Calderbank offer.

31. That being the case, we should make separate provisions for the costs of the appeal before and after the Calderbank offer was rejected on 7 August, instead of 24 August as contended by Mr Yau.

32. As the plaintiff has failed to do better than the judgment by a wide margin, it is appropriate that the costs as from 8 August 2015 should be awarded to the defendants, on a party and party basis.

33. For the costs up to 7 August 2015, we do not think it appropriate to award all the costs to the plaintiff, as suggested by Mr Yau.  We also think it too harsh to the plaintiff to make no order as to costs, as proposed by Mr Chung.  Although the plaintiff was justified in appealing against the apportionment of contributory negligence, he had failed completely in seeking to overturn the assessment of damages.  Costs were incurred by the defendants in preparing a respondent’s notice.  We think it appropriate to deprive the plaintiff of half of the costs of the appeal for the costs up to 7 August.

34. For the costs of the present application, we will take a broad brush approach and award costs to the defendants, who are largely, although not wholly, successful.

Orders

35. In summary, we make these orders on costs:

(1) paragraph (i) of the costs order made by the judge on 23 June 2015 be set aside, in lieu thereof, the defendants are to pay the plaintiff’s costs of this action up to 16 December 2014, on a party and party basis, to be taxed if not agreed, in accordance with the District Court scale;

(2) paragraphs (ii), (iv) and (v) of the costs order made by the judge on 23 June 2015 do stand;

(3) paragraph (iii) of the costs order made by the judge on 23 June 2015 be set aside;

(4) the plaintiff is to have half of the costs of the appeal up to 7 August 2015, on a party and party basis, to be taxed if not agreed;

(5) the costs of the appeal as from 8 August 2015 be to the defendants, on a party and party basis, to be taxed if not agreed; and

(6) the plaintiff’s own costs in the appeal be taxed in accordance with the Legal Aid Regulations.

36. We further direct the parties to agree on the terms of the draft formal judgment to be drawn up in accordance with our reasoned judgment on 9 September.  We do not expect there should be any argument on interest on damages, although Mr Chung does not appear to have responded specifically to the proposals of Mr Yau in this respect.