Qvist Henrik v. Clatronic Far East Ltd and Another

HCA 1144/2015

[2020] HKCFI 128

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1144 OF 2015

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BETWEEN

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DECISION

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A. Introduction

1.On 11 October 2019, I handed down my judgment[1] in this action after a six-day trial (“the Judgment”). 

2.At §140 of the Judgment, I said:

“For reasons stated above:

(1) I give judgment in favour of Qvist against the 1^st defendant in the sum of HK$1,672,948, together with interest thereon at 1% above the prime rate as quoted by The Hongkong and Shanghai Banking Corporation from time to time as from 27 January 2015 up to the date of this Judgment, and at the judgment rate thereafter, until full payment.

(2) Qvist’s claim against the 2^nd defendant is dismissed.

(3) The counterclaim by the 1^st defendant is dismissed.

(4) The 1^st defendant is to pay the costs of Qvist in this action and the counterclaim, such costs to be taxed if not agreed. In so far as the 2^nd defendant incurs any costs on its own in this action in addition to any costs incurred by the 1^st defendant, such costs are to be paid by Qvist to the 2^nd defendant, to be taxed if not agreed (and if and in so far as any such costs involved counsel’s fees, I decline to grant a certificate for two counsel). All the foregoing is on a nisi basis”.

3.By Summons dated 30 October 2019 (“the Summons”), ie 19 days after the handing down of the Judgment, Qvist applies for the following orders:

(1) To the extent that any extension is required, he be granted an extension of time to issue the Summons to vary §140 of the Judgment up to and including 30 October 2019; and

(2) §140 of the Judgment be varied, in order for him to be entitled to enhanced interest rate (at a rate not exceeding 10% above judgment rate) on the judgment sum of HK$1,672,948 as from 17 July 2015, indemnity costs as from 17 July 2015, and interest on costs (at a rate not exceeding 10% above judgment rate) from 17 July 2015.

The relevance of the date of 17 July 2015 is that 16 July 2015 was the last date on which the 1^st defendant could (but which it did not) accept without leave a sanctioned offer made by Qvist by way of letter dated 17 June 2015 from those acting for him (“the Sanctioned Offer”).

B. Late summons and extension of time

4.The first issue is whether, having only issued the Summons 19 days after the handing down of the Judgment, ie 5 days after the expiry of the time limit prescribed by Order 42, rule 5B(6), of the Rules of the High Court[2] for an application to vary the costs order nisi to be made, Qvist needs an order granting an extension of time to be made in his favour and if so whether I should make such an order.  (This, of course, does not affect the application to vary §140(1) of the Judgment to provide for enhanced interest on the judgment sum in any event.)

5.It is not in dispute that an application to vary a costs order nisi should be made by way of a summons or motion, and not, as is sometimes the case, informally by way of a letter to the Court: see PCCW-HKT Telephone Ltd v Telecommunications Authority[3]. The reason for this requirement was said by the then Chief Judge of the High Court as:

“to enable the other side and the Court to understand exactly the nature and extent of what is being asked for. Otherwise, there is a danger that it becomes unclear just what is being sought from the Court, thereby allowing parties to ask for relief in a haphazard manner”.[4]

6.However, that does not mean that the informal application to vary within time is a nullity.  It is a mere irregularity, as is evidenced by PCCW-HKT itself because even though disapproval was expressed on the manner in which the application was made in that case (ie by letter), the Court of Appeal did proceed to deal with the application because the party responding to the application did treat the letter as an application under Order 42, rule 5B(6). This would not have been permissible if the application by letter was a nullity rather than a mere irregularity.

7.In Law Cheuk v Chan Fung Luen Margaret[5], Saunders J allowed an application to vary a costs order nisi by letter to proceed because, following PCCW-HKT, there was no suggestion in that case that the party responding to the application did not understand exactly the nature and extent of what was sought.

8.In the present case, Qvist did not do nothing within 14 days of the handing down of the Judgment.  In fact, on 24 October 2019, ie within the prescribed period, an affidavit was filed and served on his behalf seeking inter alia a variation of the costs order nisi. 

9.In that affidavit, being the second affidavit of Mr George David Lamplough (“Lamplough”), the solicitor handling this case for Qvist, the deponent says at §3:

“I made this affidavit in support of the Plaintiff’s application that paragraph 140 of the Judgment … be varied in accordance with the terms of the Plaintiff’s Summons dated 24 October 2019”.

10.Lamplough then refers to the Sanctioned Offer and of the notification to the 1^st defendant when it was made that if it did not accept the Sanctioned Offer and if Qvist went on to obtain a judgment that was more advantageous to him than the offer:

“… the Court shall make the following orders unless it considers it unjust to do so:

(A) That the 1^st defendant pay interest on the whole or part of any sum of money (excluding interest) awarded to Mr Qvist at a rate not exceeding 10% above the judgment rate (currently 8% per annum) for some or all of the period after 16 July 2015; and

(B) That Mr Qvist is entitled to –

(i) His costs on the indemnity basis after 16 July 2015; and

(ii) Interest on those costs at a rate not exceeding 10% above the judgment rate”.

11.Lamplough then refers to the fact that Qvist was awarded a sum under the Judgment which is higher than the sum he offered to settle (HK$1,500,000 in full and final settlement, inclusive of interest up until 16 July 2015), and to what he says to be “aggravating factors”, being the making of allegations of fraud, dishonesty or other misconduct committed by Qvist which were not pursued at the trial, and threats made by personnel of the defendants when Qvist was summarily dismissed, as well as the sending of notices to customers that Qvist’s employment had been terminated. 

12.Lamplough then refers to a “Summons” at least twice more in his second affidavit.  Thus, it appears clear that a summons was indeed intended to be issued together with the second affidavit but somehow it was not until six days later.  This, according to the third affidavit of Lamplough, was because of a miscommunication between him and a junior colleague, being that somehow oral instructions given by the former to the latter to issue a summons (which had been prepared by 24 October 2019, when Lamplough was due to fly out to Europe) together with his second affidavit was somehow not followed. It was only when those acting for the 1^st defendant raised the lack of a summons on 29 October 2019 that the mistake was discovered, and the Summons was filed and served the following day.

13.In my judgment, given the contents of the second affidavit of Lamplough, the 1^st defendant, within the 14-day period prescribed by Order 42, rule 5B(6), would have been left in no doubt whatsoever as to what Qvist is seeking from the Court, as what Lamplough quotes from the effect of the non-acceptance of the Sanctioned Offer as stated when it was made is basically what Qvist now seeks by way of the Summons, or as to Qvist’s grounds for what he is seeking.  The lack of a summons being a mere irregularity, the 1^st defendant having suffered no prejudice, Qvist should not suffer from a rather unfortunate mistake made by those acting for him.  In all the circumstances, it is right in my judgment that I should exercise my discretion, which I do, under Order 2, rule 1, of the Rules of the High Court to waive the irregularity.

14.In the circumstances, no extension of time is needed.

C. Variation

15.Order 22, rule 24, of the Rules of the High Court provides as follows:

“ (1) This rule applies where—

(a) a defendant is held liable for more than the proposals contained in a plaintiff’s sanctioned offer; or

(b) the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff’s sanctioned offer.

(2) The Court may order interest on the whole or part of any sum of money (excluding interest) awarded to the plaintiff at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court.

(3) The Court may also order that the plaintiff is entitled to—

(a) his costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and

(b) interest on those costs at a rate not exceeding 10% above judgment rate.

(4) Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including—

(a) the terms of any sanctioned offer;

(b) the stage in the proceedings at which any sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

(6) The power of the Court under this rule is in addition to any other power it may have to award interest.”

16.There is no suggestion that the offer made on behalf of Qvist to settle the matter for HK$1,500,000 does not comply with the requirements of Order 22, rule 5, or that Qvist fails to better the Sanctioned Offer under the Judgment.  In the premises, I shall make the orders under Order 22, rule 24(2) and (3) unless I consider it unjust to do so.

17.As summarised by HHJ Mimmie Chan (as she then was) in Maysun Engineering Co Ltd v International Education and Academic Exchanges Foundation Co Ltd[6]:

“In McPhilemy v Times Newspapers Ltd (No 2) [2002]1 WLR 934, it was made very clear that an order under rule 36.21 of the English rules, which is equivalent to O.22 r.24, carries no implied disapproval of the defendant's conduct, nor any stigma. The orders are aimed to provide a means of achieving a fairer result for a plaintiff, to compensate the plaintiff for having to come to court to bring proceedings and for the incidental inconvenience, anxiety, distress and disruption to its business (Petrotrade Inc v Texaco Ltd [2002] 1 WLR 947), which are not compensated by orders for costs in the proceedings, even when they are made on an indemnity basis. These principles were recognised and accepted by Johnson Lam J in Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273. Chadwick LJ explained in his judgment in McPhilemy v Times Newspapers Ltd (No 2) that it is when it must be assumed that the anxiety, inconvenience and distress of proceedings have already been taken into account (for example by the jury in reaching their award of damages in defamation proceedings) that enhanced interest should not be awarded, to avoid any element of double compensation”.

18.Given the express terms of Order 22, rule 24(4), and the rationale behind the sanctioned offer regime as summarised, there must therefore be some positive reasons making it unjust for the orders under Order 22, rule 24(2) and (3), to be made. In my judgment, such reasons ought to be those which show that the defendant who has refused to accept a sanctioned offer which the plaintiff is managed to better at the trial has been acting reasonably in the settlement process and the litigation process despite the plaintiff’s attempt to settle.  As was said by Sir Geoffrey Vos C[7] said in OMV Petrom SA v Glencore International AG[8]:

“38 In my judgment, the use of the word ‘penal’ to describe the award of enhanced interest under CPR r 36.14(3)(a) is probably unhelpful. The court undoubtedly has a discretion to include a non-compensatory element to the award as I have already explained, but the level of interest awarded must be proportionate to the circumstances of the case. I accept that those circumstances may include, for example, (a) the length of time that elapsed between the deadline for accepting the offer and judgment, (b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence, and (c) what general level of disruption can be seen, without a detailed inquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the Part 36 offer. But there will be many factors that may be relevant. All cases will be different. Just as the court is required to have regard to ‘all the circumstances of the case’ in deciding whether it would be unjust to make all or any of the four possible orders in the first place, it must have regard to all the circumstances of the case in deciding what rate of interest to award under rule 36.14(3)(a) . As Lord Woolf MR said in the Petrotrade case, and Chadwick LJ repeated in the McPhilemy case, this power is one intended to achieve a fairer result for the claimant. That does not, however, imply that the rate of interest can only be compensatory. In some cases, a proportionate rate will have to be greater than purely compensatory to provide the appropriate incentive to defendants to engage in reasonable settlement discussions and mediation aimed at achieving a compromise, to settle litigation at a reasonable level and at a reasonable time, and to mark the court's disapproval of any unreasonable or improper conduct, as Briggs LJ put the matter, pour encourager les autres.

39 The culture of litigation has changed even since the Woolf reforms. Parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process”.

19.The emphasis is on the reasonableness of the defendant’s conduct in the settlement process or in the conduct of the litigation.  As I said in Arnold Robert Ltd v Glorious Motors Ltd[9], for a circumstance to be taken into account as relevant in considering whether it is unjust to make the orders stated in Order 22, rule 24(2) and (3):

(1) It ought to relate to the reasonableness or otherwise of the defendant’s non-acceptance of the sanctioned offer; or

(2) It suggests that, while the continuation of the proceedings is primarily due to the non-acceptance of the sanctioned offer, costs are incurred or increased thereafter due to any unreasonable conduct of the plaintiff.

20.For the 1^st defendant, Ms Tinny Chan (who did not appear at the trial) submits that it is unjust to make the orders under Order 22, rule 24(2) and (3), because the Sanctioned Offer was made at a very early stage of the action, even before the Statement of Claim was filed on 3 July 2015.  At that time, she submits, the 1^st defendant was only aware of the basic nature of the claim and calculation of damages through the statement made at the Labour Tribunal (from which this action was transferred by order dated 6 May 2015).  The 1^st defendant was unable at that time to evaluate Qvist’s offer properly, and it is not unreasonable for it not to accept the Sanctioned Offer.

21.While I do accept that a defendant should not be required to make a decision whether to accept or to reject a sanctioned offer without a careful review of the case with proper information (and this is made clear by Order 22, rule 24(5)(b) to (d)[10]), it is a question of fact in each case as to whether a defendant is able to do so when the sanctioned offer is made, depending on the nature and complexity of the case and the issues involved.  Further, on receiving a sanctioned offer which a defendant considers he is unable to evaluate properly because of insufficient information or evidence, he should seek further information if possible.  A balance must be struck between fairness to the defendant in that he should not be required to make a decision whether to accept a sanctioned offer without proper information to assess the merits of the case, and the spirit behind the sanctioned offer regime of encouraging settlement of actions as early as possible.  The principle that a defendant ought to be allowed to make a decision with proper information must be applied with circumspection because it is always open to a defendant to say that the proper assessment cannot be made with only the pleadings, without full discovery and the exchange of witness statements.  That is, on this argument, it can be said that no sanctioned offer ought to be made or accepted until quite an advanced stage of the proceedings are reached, which would be quite contrary to the whole intent behind the sanctioned offer regime.

22.A defendant ought to make reasonable efforts to settle the matter as early as possible, and a defendant who does not react to an early sanctioned offer at all but simply sits on his hands without attempting to seek any further information required will need to convince the Court that he has not been acting unreasonably.

23.In this case, I am satisfied that, as at 16 July 2015, the 1^st defendant knew sufficiently about Qvist’s case so as to be in a position to evaluate the Sanctioned Offer properly.  Qvist’s case is a simple one of wrongful dismissal.  Even though the Statement of Claim was only filed on 3 July 2015, that was preceded by demand letters written on behalf of Qvist by his solicitors dated 29 January 2015 and 9 February 2015, as well as Qvist’s statement of his case filed with the Labour Tribunal dated 11 February 2015.  Those documents sufficiently set out the nature of Qvist’s case and how the damages claimed were calculated.  As the burden is on the 1^st defendant to justify the summary dismissal of Qvist, and not the other way round[11], it is more a question of the 1^st defendant assessing the strength of its own case and evidence as to whether there were grounds to dismiss Qvist summarily, rather than, as Ms Chan submits, Qvist’s case on whether he had been habitually neglectful which turned out to be the only cause relied on by the 1^st defendant. 

24.I consider that there is no reason not to make the orders under Order 22, rule 24(2) and (3), and Qvist should be awarded enhanced interest on the judgment sum, indemnity costs, and interest on costs, as from 17 July 2015.

25.The next question is the rate of enhanced interest for the judgment sum, and rate of interest for costs.

26.Mr Nick Luxton, for Qvist, now clarifies that he is asking for a rate of 15% per annum (ie 7% above the current judgment rate) for the judgment sum until the date of the Judgment.  It is common ground that the interest for the period after the date of the Judgment should be at the judgment rate.  As for the rate of interest for costs, Mr Luxton asks for 4.5% per annum as from 17 July 2015 which Ms Chan does not dispute (if I am minded to order such interest at all).

27.The only issue is therefore what should be the enhanced rate for the judgment sum.

28.Mr Luxton relies on three matters which he says justifies a higher enhanced rate of interest: see §11 above.  While the first matter (allegations of misconduct not pursued at trial) is one which I can and will take into account[12], in my judgment the other two are pre-action matters which ought not be (without expressing a view as to whether they were conduct which the Court should express disapproval in any event), as the sanctioned offer regime ought to address conduct of the parties in the settlement and litigation process in relation to the effect and consequence of the making, and the acceptance or rejection, of a sanctioned offer, and not pre-action matters independent of the making or otherwise of such an offer.  Where there is such other unreasonable conduct of a party which the Court feels it should express disapproval, that should be done by way of an award of indemnity costs if at all possible and appropriate.

29.Order 22 allows a maximum of 10% above judgment rate as enhanced interest.  I agree with Ms Chan that that must be reserved for the worst kind of cases and this is not one of them.  Having regard to the maximum allowed and the first “aggravating” factor, and the quantum of the judgment sum which affects the amount of the uplift[13], in my judgment an enhanced rate of 4% above judgment rate is appropriate.

D. Disposition

30.I replace §140 of the Judgment with the following:

“For reasons stated above:

(1) I give judgment in favour of Qvist against the 1^st defendant in the sum of HK$1,672,948, together with interest thereon:

(a) at 1% above the prime rate as quoted by The Hongkong and Shanghai Banking Corporation from time to time from 27 January 2015 to 16 July 2015 (both dates inclusive);

(b) at the rate of 4% above the judgment rate from time to time from 17 July 2015 to 11 October 2019 (both dates inclusive);

(c) at the judgment rate from (and including) 12 October 2019 until full payment.

(2) Qvist’s claim against the 2^nd defendant is dismissed.

(3) The counterclaim by the 1^st defendant is dismissed.

(4) The 1^st defendant is to pay the costs of Qvist in this action and the counterclaim, such costs to be taxed if not agreed. Such costs, incurred up to and including 16 July 2015, are to be taxed on a party-to-party basis, and as from and including 17 July 2015, are to be taxed on an indemnity basis.

(5) The 1^st defendant shall pay interest on costs incurred as from and including 17 July 2015 at 4.5% per annum calculated as from 17 July 2015.  

(6) In so far as the 2^nd defendant incurs any costs on its own in this action in addition to any costs incurred by the 1^st defendant, such costs are to be paid by Qvist to the 2^nd defendant, to be taxed if not agreed (and if and in so far as any such costs involved counsel’s fees, I decline to grant a certificate for two counsel)”.

31.I make no order on §1 of the Summons.

32.I also order that the costs of this application be to Qvist to be paid by the 1^st defendant (for the avoidance of doubt, with a certificate for counsel), and the orders at §140(4) and (5) as revised also apply to such costs.

33.I thank counsel for their assistance.

Written submissions by Mr Nick Luxton, instructed by Holman Fenwick Willan, for the plaintiff

Written submissions by Ms Tinny Chan, instructed by C Y Tsang & Co, for the 1^st defendant