Kan Wan Chung v. Leung Man Kon and Another

DCCJ 2388/2016

[2019] HKDC 1141

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2388 OF 2016

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.On 27 February 2019, I handed down the judgment in the present case (the “Judgment”)[1] whereby I gave judgment in favour of the plaintiff’s claim.  I granted a mandatory injunction sought by the plaintiff and awarded damages in the sum of HK$107,500 with interest to the plaintiff.  I also made a costs order nisi that the defendants are to pay the plaintiff’s costs of the action, including any costs reserved, to be taxed, if not agreed, with certificate for counsel.

2.By Summons filed on 12 March 2019, the plaintiff seeks to vary the costs order nisi.  He contends that such costs should be taxed on the following basis:-

(1)  costs up to 18 November 2016 be taxed on a party and party basis;

(2)  costs thereafter up to 12 September 2017 be taxed on a common fund basis;

(3)  costs thereafter be taxed on an indemnity basis with interest on such costs at an enhanced interest rate until full payment.

3.Further, the plaintiff also seeks to vary the interest provision in the Judgment.  He seeks interest on the sum of HK$107,500 at an enhanced interest rate as from 12 September 2017 until payment.

4.Essentially, the plaintiff is relying on:-

(1)  the defendant’s refusal to mediate after the Case Management Hearing (“CM Hearing”) on 18 November 2016 to claim costs as from 18 November 2016 to 12 September 2017 on a common fund basis;

(2)  the defendant’s failure to accept the plaintiff’s “sanctioned offer” made on 15 August 2017, which was open for acceptance on or before 12 September 2017 without the leave of court, to claim (a) costs as from 12 September 2017 on an indemnity basis with interest at an enhanced rate and (b) interest on the judgment sum of HK$107,500 at an enhanced interest rate as from 12 September 2017.

5.By letter dated 15 August 2017 (the “Offer”), the plaintiff offered:-

“(1)  the 1^st and 2^nd defendants do pay the plaintiff a sum of HK$50,000 (inclusive of interest) in full and final settlement within 14 days upon acceptance of this sanctioned offer; and

(2)  the 1^st and 2^nd defendants do pay the plaintiff the costs of this action up to date, which shall be taxed if not agreed.”

6.The Summons came before me on 1 April 2019 for a call-over hearing.  At the said hearing, the parties agreed to the time-table for filing of further affidavits and written submissions.  It was also agreed that the application should be determined on paper and judgment would be given in English.[2]

7.On 1 August 2019, I drew the parties’ attention to the following decisions:-

(1)  Wong Yim Man Anthea v Wong Ho Ming Felix[3];

(2)  Choi Tak Man v Chan Yuk Lan, Didi & Anor[4]; and

(3)  The Owners and/or Demis Charterers of the Ship or Vessel MCC Jakarta” v The Owners and/or Demise Charterers of the Ship or Vessel “Xin Nan Tai 77”[5].

8.I directed the parties to file further written submissions to address me on whether the Offer which contained a costs provision is nonetheless a valid sanctioned offer made pursuant to Order 22 of the RDC

9.Parties filed further written submissions pursuant to my direction.  However, the defendants in their further written submissions did not address the point I raised.  Rather, they simply replied to some of the points raised by the plaintiff in his submissions in reply filed on 9 July 2019.

10.The plaintiff in his further written submissions maintains the position that the Offer is a valid sanctioned offer.  He further argues that even if the same is not a sanctioned offer, the court is still entitled to treat the same as a Calderbank offer and take that into account in the exercise of its discretion.

11.The issues which I would need to decide for the purpose of disposing the Summons are:-

(1)  Whether the costs from after 18 November 2016 to 12 September 2017 should be taxed on a common fund basis?

(2)  Whether the Offer is a valid sanctioned offer?  If “yes”, whether indemnity costs and enhanced interest should be ordered as from 13 September 2017?

(3)  If the Offer is not a sanctioned offer, whether indemnity costs should nonetheless be ordered?

B. COSTS FROM AFTER 18 NOVEMBER 2016 TO 12 SEPTEMBER 2017

12.In exercising its discretion on costs, the court will take into account all relevant circumstances.  These would include any unreasonable failure to engage in mediation.[6]

13.The court will not make any adverse costs order against a party on the ground of unreasonable failure to engage in mediation where:-

(1)  The party has engaged in mediation to the minimum level of participation; or

(2)  A party has a reasonable explanation for not engaging in mediation.[7]

14.On 18 November 2016, at the CM Hearing, Master D Ho specifically invited the parties to consider mediation and gave directions accordingly.  On the same day, the plaintiff indicated willingness to mediate and enquired whether the defendants would like to participate in mediation.  The defendants told the plaintiff’s solicitors that they would not consider mediation with no reason given.

15.The defendants do not dispute that they had never engaged in mediation to the minimum level of participation. The defendants contended that:-

(1)  They had cooperated with the Joint Office in conducting various tests and the Joint Office indicated in 2013 and 2014 that the origin or cause of the seepage could not be ascertained.

(2)  They had evidence to suggest that the source of seepage was the external walls and the plaintiffs’ expert report had deliberately omitted to mention the plaintiff’s dining area had seepage problems caused by the external walls and the unauthorized alteration of the window of the guest toilet in the plaintiff’s premises.

(3)  The plaintiff refused to allow the defendants to enter into his premises to inspect the seepage conditions and delayed the progress for inspection of the external walls.

16.I have already considered and dealt with the aforesaid contentions raised by the defendants in my Judgment.[8]  In any event, the defendants’ belief or contentions do not in any way justify their refusal to mediate.  Whilst the defendants might genuinely have believed the source of seepage was not their premises and were entitled to put the plaintiff to proof, this is not a reasonable explanation for not making reasonable effort in mediation.

17.Indeed, parties only engaged in without prejudice settlement negotiations as from 16 May 2017 which eventually led to the Offer made on 15 August 2017:-

(1)  By letter dated 16 May 2017, the defendants’ legal representatives (instructed for the purposes of engaging in without prejudice discussions on settlement) offered to settle the claim for a sum of HK$80,000 (inclusive of all costs and interests).  The offer was not accepted by the plaintiff.

(2)  Instead, on 8 June 2017, the plaintiff offered to settle the whole claim for a sum of HK$55,000 plus costs (to be taxed if not agreed) and an undertaking from the defendants to allow the inspection taken out at their premises to rectify the seepage problems.

(3)  On 14 June 2017, the defendants’ legal representatives indicated that before the defendants would consider whether to accept the offer, they would wish to inspect the plaintiff’s premises first.

(4)  On 15 August 2017, the plaintiff indicated that he did not agree to the aforesaid precondition but he would agree to the reciprocal undertaking of inspections at each party’s premises on condition that the defendants would have accepted his offer on 8 June 2017.

(5)  Also on 15 August 2017, the plaintiff made the Offer marked with “Sanctioned Offer” and “Without Prejudice Save As To Costs”.

(6)  The defendants’ legal representatives did not reply to the Offer.  On 7 September 2017, they specifically replied to the plaintiff’s 1^st letter dated 15 August 2017 and made a counter-offer in the sum of HK$100,000 (all inclusive) and requested undertakings from both parties to allow inspection.

(7)  The plaintiff did not accept the defendant’s offer dated 7 September 2017.

18.Further, whether or not the parties could have reached settlement after mediation given the lack of mutual trust is beside the point.  There is no costs sanction if the parties cannot reach settlement after making a reasonable effort in mediation: Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd[9].

19.In all circumstances, I do not see any reasonable explanation pro-offered by the defendants for refusing to mediate.  They should therefore be liable to pay costs to the plaintiff on a common fund basis after 18 November 2016[10] subject to my consideration of the Offer below. 

C. COSTS FROM AFTER 12 SEPTEMBER 2017

Whether the Offer is a Valid Sanctioned Offer

20.The question whether an offer providing terms as to costs can be regarded as a valid sanctioned offer under Order 22 has been discussed in a number of cases.  Those cases including the Court of Appeal decisions of Central Management Ltd v Light Field Investment Ltd[11], Chan Kwing Chiu v Chan Chi Kau[12] and Leung Lai Kwan v Lo Kai Wing[13], have been extensively reviewed by DHCJ Kent Yee in Wong Yim Man Anthea[14].

21.Wong Yim Man Anthea was in turn considered and applied by DHCJ A Wong S C in Choi Tak Man[15]. In short, it was held that an offer including terms as to costs could not be treated as a sanctioned offer under Order 22 of the RHC as it is incompatible with the Order 22 mechanism in that it will prevent the specified costs consequences upon acceptance from arising.

22.Wong Yim Man Anthea was also considered and approved by the Honourable Mr Justice Ng in MCC Jakarta[16], and more recently, by the Honourable Mr Justice Chan in Bright Gold Ltd v Mega Well Development Ltd[17].

23.Therefore, whilst Wong Yim Man Anthea has not been considered by the court of Appeal in Hong Kong, there is no reason why it is not binding on me: Poon Ching Man v Lam Hoi Pun[18].

24.It was further held in Choi Tak Man[19] that the same analysis in Wong Yim Man Anthea, which concerns a defendant’s sanctioned offer, is equally applicable to a plaintiff’s sanctioned offer.  In both decisions, it was held that the costs provision “no order as to costs” contained in the offer is incompatible with the costs consequence provided under:-

(1)  Order 22 rule 20(1) ie where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the court, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the court otherwise orders; and

(2)  Order 22 rule 21(1) ie where a plaintiff’s sanctioned offer to settle the whole claim is accepted without requiring the leave of the court, the plaintiff is entitled to his costs of the proceedings up to the date upon which the defendant serves notice of acceptance, unless the court otherwise orders.

25.As submitted by Ms Chan acting for the plaintiff, Wong Yim Man Anthea is not authority for the proposition that a valid sanctioned offer can never include a term as to costs as such.  As the dicta of Mr Justice Ng in MCC Jakarta[20] relevantly pointed out:-

“The matter can be tested in this way. Suppose a defendant’s sanctioned offer to settle the whole of a plaintiff’s claim includes a term as to costs, but that term is identical to what is stated in RHC O. 22 r20(1) i.e. the plaintiff is entitled to his costs of the proceedings up to the date of service of the notice of acceptance. Unless the offer falls foul of other specific rules in RHC O.22, for instance, r.5 (concerning form and content), it does come squarely within the definition of “sanctioned offer” in RHC O.22 r.1 in that it is “an offer made in accordance with this Order” even though it includes a term as to costs. In those circumstances, there is no reason or logic to regard the offer as an invalid sanctioned offer.”

26.The Offer in the present case contained the costs provision that “the 1^st and 2^nd defendants do pay the plaintiff the costs of this action up to date, which shall be taxed if not agreed”.  Ms Chan submitted that this costs provision does not irreconcilably conflict with the costs consequence provided under Order 22 rule 21(1) of the RDC.  Notwithstanding the omission of reference to “upon which the defendants serves notice of acceptance”, Ms Chan submitted that the costs provision is in line with the costs consequences specified under Order 22 rule 21(1) of the RDC.

27.I must say Ms Chan’s submissions have considerable force and attraction.  However, I am unable to accept such arguments for the following reasons:-

(1)  Order 22 is meant to provide for a well-planned and self-contained mechanism for settlement: Wong Yim Man Anthea[21]. The authorities are clear that in order to qualify as a sanctioned offer which entails the costs consequence of Order 22, such an offer must adhere strictly to the requirements under Order 22: Ng Hau Wan v Ng Pik Chu Naomi[22]

(2)  Accordingly, it must be the case when the parties had chosen to depart from the form and content of sanctioned offers, that party should expect the costs consequence of Order 22 would not follow.[23]

(3)  The underlying objectives of Order 22 are not compromised in any event.  An offer which is not a sanctioned offer can still be considered under Order 62 rule 5(1)(d) if it does not fall within the exclusionary rule therein: Wong Yim Man, Anthea[24] The rationale is clearly that the self-contained mechanism under Order 22 and the use of Calderbank letters are meant to complement each other.

(4)  Order 22 rule 21(1) is not made subject to any costs provision in the sanctioned offer accepted by the defendant.  Unless the costs provision in the plaintiff’s sanctioned offer can be read as identical or subject to what is stated in Order 22 rule 21(1) ie the plaintiff is entitled to his costs of the proceedings up to the date of service of the notice of acceptance, it does not come squarely within the definition of “sanctioned offer” in Order 22 rule 1.

(5)  The costs provision contained in the Offer meant that by accepting the same, the plaintiff would only be entitled to costs up to the date of the Offer ie 15 August 2017 which is different from the costs consequence as provided under Order 22 rule 2(1).  The cost provisions will therefore prevent the specified costs consequences upon acceptance from arising.

28.The fact that the defendants were legally represented at the material time and made no attempt to seek clarification of the Offer is beside the point.  It is incumbent upon the plaintiff to make sure that the Offer is in strict and full compliance with Order 22 of the RDC in order to benefit from the costs and other consequences provided thereunder.  It does not lie in his mouth to say that his failure to do so or any omission is only a technical slip: Montrio Limited & Anor v Tse Ping Shun David[25].

29.In the circumstances, I rule that the Offer is not a valid sanctioned offer within the meaning of Order 22 of the RDC.  The plaintiff is not entitled to rely on Order 22 rule 24 of the RDC to claim enhanced interest on the judgement sum and indemnity costs with enhanced interest[26].

Whether indemnity costs should still be ordered

30.Although the Offer is not a sanctioned offer, it can still be taken into account as a Calderbank offer in considering the issue of costs pursuant to Order 62 rule 5(1)(d): Choi Tak Man[27].

31.I accept that costs could have been avoided had the defendants accepted the Offer.  This is however just one of the factors that I need to take into account.  At the end of the day, any award of costs requires the court to exercise its discretion in light of the surrounding circumstances.[28]

32.As it turns out, it is unwise for the defendants not to accept the Offer.  However, having taken into account all the circumstances ie including the Offer and the overall conduct of the defendants, I do not consider it is just or appropriate to exercise my discretion to order indemnity costs against the defendants.

33.First, the defendants had no duty to prove the source of seepage did not originate from their premises.[29]  They were fully entitled to put the plaintiff to proof regarding his case.  The fact that the defendants did not engage their own expert or had refused to appoint a joint expert did not prevent me from ruling on the plaintiff’s case.  Further, it also did not prolong the trial.

34.Second, the plaintiff also takes issue with the lengthy cross-examination of his expert.  The 1^st defendant spent a total of 2 days to cross-examine the expert.  Whilst I did request the 1^st defendant to update his estimate on the time for cross-examination as it had run beyond his original estimates, it is not uncommon that trials do overrun.  Some leeway can be given to parties and I had never intended to hold parties strictly to their original time estimates.  In particular, I also took the view that there were shortcomings in the expert’s reports[30] such that clarifications had to be sought.

35.Third, the plaintiff also relies on the defendants’ stance taken during the pre-trial settlement negotiations.  Whilst it is regrettable that no settlement could be reached to avoid the trial, I consider that the defendants did attempt to make genuine effort to engage in without prejudice settlement negotiations.  Whilst the plaintiff perceived the defendants’ offer was way off the mark, they were once prepared to settle the action by payment of HK$100,000 (inclusive of costs) and requested undertakings from both parties to allow inspection in order to understand and rectify any water seepage problem.

36.That said, on account of the defendants’ unreasonable refusal to mediate, I have already held that they should be liable to pay costs to the plaintiff on a common fund basis.  The costs sanction is applicable to all the costs incurred after 18 November 2016.

D. CONCLUSION

37.For the above reasons, I make the following orders in respect of the plaintiff’s Summons:-

(1)  my costs order nisi at Paragraph 68 of the Judgment be varied to the effect that the defendants are to pay the plaintiff’s costs of the action, including any costs reserved, with certificate to counsel, to be taxed if not agreed on the following basis:-

(i)  costs up to 18 November 2016 on a party and party basis;

(ii)  costs thereafter on a common fund basis.

(2)  Since the plaintiff is substantially successful in this application, I order that the costs of the Summons be to the plaintiff, to be taxed if not agreed with certificate for counsel.

38.It remains for me to thank Ms Chan for her assistance.

Ms Margaret Chan, instructed by H Y Leung & Co LLP, for the plaintiff

The 1^st and 2^nd defendants were not represented and were acting in person