Chan Alex and Another v. Take Care Logistics Ltd

DCCJ 5024/ 2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5024 OF 2013

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D E C I S I O N

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1.In the judgment handed down on 5 June 2017 (“Main Judgment”), I awarded the plaintiffs damages in the sum of $7,952.50 with interest and for the plaintiffs to repay the deposit paid by the defendant in the sum of $45,000 with interest.  A costs order nisi was made in that the defendant do pay the plaintiffs 50% of the costs of the claim and the counter-claim, to be taxed if not agreed on a party-to-party basis, with certificate for counsel (“Costs Order Nisi”).

2.In this Decision, I will adopt the same abbreviations used in the Main Judgment.

3.By a summons dated 16 June 2017 (“the Summons”), the plaintiffs applied for the Costs Order Nisi to be varied to:

a.   The defendant do pay the plaintiffs’ damages in the sum of $7,952.50 together with interest at 1% above the HSBC prime rate from the date of the writ until 1 February 2016 and at 10% above judgment rate from 2 February 2016 until the date of judgment;

b.   The defendant do pay the plaintiffs 50% of the costs of the claim and the counter-claim on or before 1 February 2016, to be taxed if not agreed on party-to-party basis, with certificate for counsel;

c.   The defendant do pay the plaintiffs 100% of the costs of the claim and the counter-claim on or after 2 February 2016, to be taxed if not agreed on indemnity basis, with certificate for counsel; and

d.   interest on costs in (b) and (c) above at 10% above judgment rate.

4.In the affirmation in support of the Summons, it is stated that the variation is based on the ground that the plaintiffs had obtained a judgment which is more advantageous than the terms in a sanctioned offer made by the plaintiffs on 4 January 2016 (“Sanctioned Offer”) and relying on Order 22 Rule 24 of the Rules of the District Court (“Order 22 rule 24”), the plaintiffs should be entitled to the costs and other consequences stipulated in Order 22 rule 24.

5.At this hearing, Mr Luk for the plaintiffs conceded that the Sanctioned Offer was not a properly constituted sanctioned offer and the plaintiffs are not entitled to the costs consequences in Order 22 rule 24 but submitted that since Order 22 rule 2(4) enables the court to take into account any offer other than sanctioned offer as a matter of discretion in the consideration of the question of costs, the plaintiffs will rely on Order 62 rule 5(1)(d) of the Rules of the District Court (“Order 62 rule 5(1)(d)”) to justify the application for indemnity costs and enhanced interests.

Parties’ Contention

6.The Sanctioned Offer was made as early as 4 January 2016 in which the plaintiffs offered to settle the entire proceedings by returning to the defendant the deposit and one month rental payment in the sum of HK$45,000 without interest and with no order as to costs.

7.Mr Luk submitted that the conduct of Yu justified a variation of the Costs Order Nisi which includes:

a.   Had the defendant accepted the Sanctioned Offer, costs of both parties and court time would be saved since the defendant well knowing that it only called Yu as the sole witness then.  Carmen was only subpoenaed by the defendant close to trial and there was no explanation as to why Wong was not called as a witness;

b.   At trial, out of the 8 issues to be determined, the court had found for the plaintiffs in Issues 1 to 7 and had rejected the evidence of the defendant; and 

c.   The defendant had, by way of 2 letters dated 26 January 2013 and 28 January 2013 respectively, asked the plaintiffs for damages in the sum of over $250,000 and even asked for proof of consent from the mortgagee bank to rent out the Premises.

8.Ms Tsui for the defendant submitted that since the plaintiffs’ position is to make a Sanctioned Offer under Order 22 at the outset which is invalid, the non-acceptance of the Sanctioned Offer by the defendant is understandable and justified.  Since the plaintiffs had indicated in the supporting affirmation that they intend to rely on Order 22 rule 24 only, no consideration of the costs pursuant to Order 62 rule 5(1)(d) should be entertained.  In any event, the Sanctioned Offer can only be considered as an offer to settle and such offer will not justify an exercise of discretion to order indemnity costs and enhanced interest against the defendant when there was no unreasonable conduct on the part of the defendant.  The Costs Order Nisi had already reflected the result of the trial so the findings against the defendant is no basis for an indemnity costs.

Discussion

9.Order 62 rule 5 of the RDC provides as follows:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in Order 1A, rule 1;

......

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a ...... sanctioned offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.”

10.Under Order 62 rule 28(3) of the RDC, the court may award costs on indemnity basis.  In Town Planning Board v Society for Protection of the Harbour Ltd (2004) 7 HKCFAR 114, the Court of Final Appeal confirmed the long established principle that in order to obtain an order for costs on indemnity basis, the successful party has to demonstrate that the case has some “special or unusual” feature.  It also pointed out that indemnity costs is not confined to cases brought with ulterior motive, for an improper purpose or where there is deception or underhand conduct, emphasizing that the court’s discretion is not to be fettered beyond the requirement that indemnity costs must be appropriate.

11.The conduct of the party against whom indemnity costs order is sought would be cogently relevant in light of Order 62 rule 5(1)(e) of the RDC.  In Kiam v MGN Ltd (No.2) [2002] 2 All ER 242, Simon Brown LJ found that such conduct must be “unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight ... It follows from all this that in my judgment it will be a rare case indeed where the refusal of a settlement offer will attract ... not merely an adverse order for costs, but an order on an indemnity rather than standard basis” (emphasis added).

12.I found the conduct highlighted by the plaintiffs in support of the Summons cannot be considered to be unreasonable to a high degree so as to justify an order for indemnity costs and “unreasonable in this context certainly does not mean merely wrong or misguided in hindsight”.

13.Order 22 and Order 62 rule 5 originated from different source and attract different consequences.  Under Order 62 rule 5 regime, unlike Order 22 rule 24(4), there is nothing to mandate that the defendant’s failure to beat a settlement offer would attract indemnity costs.  To accept the contention by the plaintiffs that the failure to accept the Sanctioned Offer should result in an indemnity costs against the defendant is treating Order 62 rule 5 having the same effect as Order 22 rule 24 and in this case, giving the invalid Sanctioned Offer the effect as if it is valid.  This cannot be right.

14.The mere fact that the defendant had failed to accept the settlement offer is not sufficient to support an order for indemnity costs.  Often hindsight might show it was unreasonable not to accept a better offer, this will not normally be sufficient for an award of indemnity costs and this is not the “rare case indeed” (see §10 above).

15.The failure to call crucial witnesses and failure to sustain its defence had already resulted in an adverse costs order against the defendant.  The whole case turns on credibility of the witnesses and it cannot be said that the defendant’s case against the plaintiffs was entirely hopeless. 

16.In conclusion, I do not accept the circumstances of the present action can be considered to be unreasonable to such a high degree to warrant an award of indemnity costs and enhanced interest.

Order

17.By reasons of the above, the Summons is dismissed and the Costs Order Nisi is made absolute.  There is no reason why costs should not follow the event.  I grant an order nisi that costs of the Summons be to the defendant to be taxed if not agreed on party-to-party basis, with certificate for counsel.

Mr Victor Luk, instructed by M/S Johnnie Yam, Jacky Lee & Co., for the plaintiffs

Ms Tsui Yin, instructed by M/S Mandy Wan & Co., for the defendant