Li Chun Bon and Another v. China Mobile Hong Kong Co Ltd

DCCJ 617/2017

[2023] HKDC 1507

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 617 OF 2017

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DECISION ON COSTS

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1.On 25 May 2023, I handed down my judgment in this action dismissing the plaintiffs’ claim (“the Judgment”). I also made a costs order nisi that the plaintiffs do pay the defendant’s costs to be taxed if not agreed with certificate for counsel.

2.This is the defendant’s application to vary the costs order nisi, which is opposed by the plaintiffs.

3.The application has been set down for paper disposal with directions for written submissions. I am grateful for:

(a)  the submissions in support dated 26 July 2023 and the reply submissions dated 23 August 2023 of the defendant’s solicitor advocate (Ms Hin Han Shum); and

(b)  the submissions in opposition dated 9 August 2023 of the plaintiffs’ counsel (Ms Tinny Chan).

The argument

4.It is apparent from the summons and the supporting affirmation[1] that the application is based on the defendant’s sanctioned offer dated 26 July 2017 (“the Sanctioned Offer”) and premised on Order 22, rule 23 of the Rules of the District Court, Cap 336H.

5.By the Sanctioned Offer, the defendant offered to pay the plaintiffs the sum of HK$63,333.40 with costs of the action up to the date of acceptance in settlement of the plaintiffs’ claim.[2] The offer carried this confidentiality provision:

“5. The Plaintiffs and the Defendant shall not at any time make any announcement in respect of this settlement and/or disclose any term of this settlement or the negotiation and discussions leading up to it, which shall remain strictly confidential to the Plaintiffs, the Defendant, and their legal, tax and professional advisers save and except:

(a) to the extent as may be required by law or in any local court or arbitration and/or as necessary for the purposes of complying with the relevant rules and regulations of any statutory body, including any tax authority and/or as necessary to carry out or enforce the terms of the order being made therein; and

(b) that in response to a direct enquiry about the Action, either of the parties may make the following statement:

‘[The parties / We] have reached a settlement, the terms of which are confidential.’”

6.According to the defendant’s advocate, the last day on which the Sanctioned Offer could have been accepted by the plaintiffs without requiring the leave of the court was 23 August 2017 but there was no response. Given the dismissal of the plaintiffs’ claim, the plaintiffs have failed to obtain a judgment that is more advantageous than the Sanctioned Offer and Order 22, rule 23 is engaged.

7.The defendant seeks to vary the costs order nisi so that:

(a)  The plaintiffs do pay the defendant’s costs up to and including 23 August 2017 on a party-to-party basis, to be taxed if not agreed;

(b)  The plaintiffs do pay the defendant’s costs after 23 August 2017 on an indemnity basis, to be taxed if not agreed;

(c)  Interest on the amount payable under (a) up to the date of payment at judgment rate; and

(d)  Interest on the amount payable under (b) up to the date of payment at 10% per annum above judgment rate.

8.The 1^st plaintiff filed an affirmation and the plaintiffs’ counsel offered submissions in opposition. Whilst the plaintiffs do not dispute the validity of the Sanctioned Offer, they contend that they should only be liable for:

(a)  The defendant’s costs up to and including 23 August 2017 on a party-to-party basis with interest at prime rate plus 1% up to the date of the Judgment, and interest at judgment rate up to the date of payment; and

(b)  The defendant’s costs after 23 August 2017 on an indemnity basis with an enhanced interest rate of 4.9375% per annum up to the date of the Judgment, and interest at judgment rate up to the date of payment.

9.In other words, the plaintiffs do not resist an adverse costs order and are agreeable to pay (i) the defendant’s costs up to and including 23 August 2017 on a party-to-party basis and (ii) the defendant’s costs after 23 August 2017 on an indemnity basis. The difference between the parties is in respect of the rate of interest to be charged on such costs:

	The plaintiffs’ suggestion	The defendant’s suggestion
(i) The defendant’s costs up to and including 23 August 2017 on a party-to-party basis	At prime rate plus 1%	At judgment rate
(ii) The defendant’s costs after 23 August 2017 on an indemnity basis	At 4.9375% per annum	At 10% above judgment rate

10.In particular, the defendant’s suggestion of 10% above judgment rate for (ii) is premised on Order 22, rule 23(4)(b) which empowers the court to award interest on costs at a rate not exceeding 10% above judgment rate.

11.The plaintiffs dispute the applicability of Order 22, rule 23, and their counsel has also urged the court to consider a number of factors in deciding on the appropriate interest rate.

12.The ensuing discussion will focus on:

(a)  Whether the plaintiffs have failed to obtain a more advantageous judgment?

(b)  Whether it would be unjust to order enhanced interest against the plaintiffs?

(c)  What should the rate of enhanced interest be?

Whether the plaintiffs have failed to obtain a more advantageous judgment?

13.Order 22, rule 23 applies “where a plaintiff … fails to obtain a judgment that is more advantageous than a defendant’s sanctioned offer”: see Order 22, rule 23(1)(b).

14.In the affirmation in opposition,[3] apart from mentioning the Sanctioned Offer, the 1^st plaintiff also made reference to a prior offer dated 25 April 2014 and two subsequent offers dated 23 November 2020 and 11 January 2021 respectively of the defendant. He complained that all the defendant’s offers contained similar confidentiality provision that would restrict his freedom of expression. He said,

(a)  “Indeed I have not made any monetary counter-offer as I value the freedom to share my experience much more than any monetary compensation. The Defendant’s position is clearly that any settlement must entail a restriction of my freedom of discussion, as evidenced by each and every offer it made. Therefore there was no settlement simply because of the Defendant’s unreasonable insistence on the Confidentiality Condition in any settlement, resulting in this case going to trial.”

(b)  “The Judgment does not restrict me from discussing the legal action and the process of negotiations I underwent with the Defendant.”

15.Relying on paras 19-20 of Ryder Industries v Timely Electronics Co Ltd [2013] 5 HKLRD 343, the plaintiffs’ counsel argues that the confidentiality provision of the Sanctioned Offer “is significant as it constituted an additional element of the Sanctioned Offer which the offeror, D, must better at trial”. She submits that “[i]t was D who sought to impose a condition not within the scope of relief sought by Ps without bringing any feasible counterclaim or applying for an appropriate gagging order. Thus, it must be prepared to accept the consequence of its failing to better its own additional demand in the sanctioned offer.”

16.I do not think the confidentiality provision has the wide effect contended for by the plaintiffs. A plain and literal reading of the provision reveals that its scope is confined to the negotiation leading to and the terms of any settlement. Thus, whether or not the Sanctioned Offer is accepted, there is nothing to prohibit the plaintiffs from discussing the action with others.

17.It should be noted that the Sanctioned Offer is marked “without prejudice save as to costs”. Order 22, rule 25(1) also provides that “[a] sanctioned offer is treated as ‘without prejudice save as to costs.’” What that means is that “whilst it can be referred to the court on the issue of costs, it cannot be referred to on any other issue except in the very restricted circumstances that the law permits.”[4] The purpose of asserting the “without prejudice” privilege is to enable negotiations to take place on a “cards on the table” basis without fear that anything said or done will be translated into some kind of admission upon which the recipient of the offer seeks to rely at trial.[5] Thus, whether or not the plaintiffs have accepted the Sanctioned Offer, they are bound by the “without prejudice” nature of the offer.

18.Ryder Industries is clearly distinguishable. That case concerned two related actions which had been consolidated. Shortly before trial, the plaintiff made a sanctioned offer in each action which was conditional upon acceptance of the offer in the other action. Neither offer was accepted and subsequently the defendants were held liable for a greater sum than the offered amount. The plaintiff invoked Order 22, rule 24 to apply for enhanced interest. The defendants disputed the operation of the rule, arguing that a conditional offer did not qualify as a sanctioned offer under Order 22.

19.The learned Recorder referred to the English case of Gibbon v Manchester City Council [2010] 1 WLR 2081 and said:

“20. In my judgment the correct approach involves firstly a consideration of whether the minimum requirements for a valid sanctioned offer have been complied with. If those requirements have been met, then the offer made is ordinarily to be taken as falling within the ‘scheme’ provided for in the rules. If those requirements have been met, but conditions have been added to the offer, it seems to me that these conditions are to be considered in the context of whether or not the particular offer which has been made has been bettered, not whether it is an offer at all. I do not accept therefore that the fact that an otherwise compliant (with O 22) offer contains a condition precludes it from being a valid offer for these purposes. This appears moreover to be the implication of O 22 r 24(5)(a). The better approach in my judgment is for the condition (where relevant) to be considered as an additional element of the offer which the offeror itself has to ‘better’ at trial in order to be able to claim the specified consequences.”

20.The above ruling is justified in the circumstances of that case. Both actions proceeded to trial upon the rejection of the offers. The Recorder found it inevitable that the outcome of the two actions would go hand-in-hand as there was no line of defence in one action which was independent of the defences canvassed in the other. The defendants had achieved less than would have been the case had the offers been accepted and the plaintiff was entitled to enhanced interest.

21.Unlike the condition in Ryder Industries, the confidentiality provision under discussion has nothing to do with the subsequent trial. Once the offer is rejected, there is no settlement to be kept confidential (subject to the “without prejudice save as to costs” stipulation discussed above). If the plaintiffs were right, then there would automatically be an additional element to better at trial by reason of Order 22, rule 25(1) for every sanctioned offer rejected. I therefore reject the plaintiffs’ suggestion to treat the confidentiality provision as an additional element of the Sanctioned Offer that the defendant must better at trial.

22.The plaintiffs could have walked away with HK$63,333.40 plus costs had they accepted the Sanctioned Offer. They chose to proceed with the action but their claim was eventually dismissed after trial. They have certainly failed to obtain a judgment that is more advantageous than the Sanctioned Offer and Order 22, rule 23 is engaged.

Whether it would be unjust to order enhanced interest against the plaintiffs?

23.Order 22, rule 23 relevantly provides:

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

(6) In considering whether it would be unjust to make the orders referred to in paragraphs (2), (3) and (4), the Court shall take into account all the circumstances of the case including—

(a) the terms of any sanctioned payment or sanctioned offer;

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

(c) the information available to the parties at the time when the sanctioned payment or 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 payment or offer to be made or evaluated.”

24.The plaintiffs’ counsel has submitted that:

(a)  “[T]he sanction of ordering indemnity costs or enhanced interest provided in Order 22 is not meant to be penal in nature but is a means of achieving a fairer result: Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at §10…”.

(b)  “Ps did not instigate the proceedings with a view to make a financial windfall. They only ever claimed a modest sum, as the action was very much motivated by their genuine desire to resist a resourceful telecommunication company’s encroachment on their properties and their firm belief that such encroachment by way of installation of antenna equipment posed a health hazard.”

(c)  “[I]n stark contrast to D, whose costs are readily expendable to D, Ps are only ordinary citizens of limited and modest means.”

25.I shall discuss her first submission in the next section of this decision.

26.Her second submission must be rejected.

(a)  The plaintiffs conceded at the trial that all the defendant’s antenna equipment were removed by 16 August 2012 – about 4½ years prior to the commencement of the action in February 2017: see paras 12-13 & 29 of the Judgment. Leaving aside whether the defendant’s action amounted to encroachment of the plaintiffs’ property, it may not be said that the action was motivated by a desire to resist the defendant’s encroachment when the defendant’s equipment was cleared years ago.

(b)  In their letter dated 31 March 2014, the plaintiffs asserted: “Your client had installed the antenna and ancillary equipment at the common part of the Building without my authorization or consent. As the co-owner of the building. I am entitled to 1/3 share of the mesne profit of your client’s occupation.” The demand was purely financial and there was no complaint of any encroachment. When the action was set down for trial about 7 years later, they estimated their claim to be in the region of $270,000: see their Listing Questionnaire dated 2 November 2021.

(c)  Whilst I accept they were once concerned about their health (see para 78 of the Judgment), the action was clearly instigated for financial gain and their claim was not insubstantial.

27.Her third submission has no factual basis. The plaintiffs have failed to put in evidence to show either that they have limited or modest means or that the defendant has readily expendable money.

28.Looking at the plaintiffs’ self-professed reason for rejecting the Sanctioned Offer (see para 14(a) above) in the light of the above, it does appear to me that the rejection was somewhat headstrong and unreasonable. Instead of sensibly considering the offer, the plaintiffs stubbornly brushed it aside for no good reason. The offer was made early in the proceedings. Had that been accepted, a lot of costs could have been saved by both parties.

29.There is nothing unjust in awarding enhanced interest to the defendant.

What should the rate of enhanced interest be?

30.Whilst her first submission is correct (see para 24(a) above), the plaintiffs’ counsel has quoted the wrong reference. The part of the judgment of Golden Eagle that encompasses para 10 is concerned with “enhanced interest for the judgment sum” which is not in issue here.

31.In a later part of the judgment, Lam J (as he then was) explained:

“16. I come to the power to award interest on costs under Rule 24(3)(b). The purpose of such power was explained by Chadwick LJ at para 23 of McPhilemy v Times Newspapers (No 2) [2001] 4 All ER 861,

‘… It is to redress, in a case to which r 36.21 applies [which is equivalent to our Order 22, rule 24], the element of perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment …. So, in the ordinary case, the successful claimant who has made payments to his own solicitor on account of costs in advance of the trial will be out of pocket even if he obtains, at the trial, an order for costs in an indemnity basis. … he will get nothing to compensate him for the costs of money (or the loss of the use of money) which he has had to bear before trial in relation to payments which he has made on account of costs. An order under para 3(b) of r 36.21 enables the court to achieve a fairer result in that respect.’

17. In the subsequent case of KR v Bryn Alyn Community (Holdings) Ltd [2003] PIQR P562, Waller LJ referred to this part of the judgment of Chadwick LJ and went on to say at para 22,

‘If an order is made to pay costs on an indemnity basis, it is unlikely to be unjust to make the party pay interest on those costs for the period when litigation is being funded when acceptance of a Pt 36 offer should have led to it not being funded. There may be cases where evidence will demonstrate actual dates when clients had put up funds and from which interest will run. Without such evidence the court can do no more than Chadwick LJ did and make the interest run from the date when the work was done or liability for disbursements was incurred.’

18. I propose to adopt a similar but modified approach here. There is no evidence of actual payment of costs by the Defendant. In principle the Plaintiff should pay the Defendant interest on the costs incurred after 1 February 2010 running from the date when the works were done respectively. However, it would be a complicated process if each item of work were to carry interest from a different date. To simplify the process, I shall borrow a well-established approach in working out interest for special damages in personal injuries litigation. I will order interest at half of the rate I would otherwise order on all the costs incurred after 1 February 2010 with interest starting to run from 1 February 2010 for all the items. I consider this approach to be appropriate bearing in mind that we are not talking about a substantial period. The relevant period is between 1 February 2010 and the date of this judgment on costs and interest when the judgment is finalized.

19. As regards the interest rate, the English authorities adopted 4% above the base rate as a generous assessment of the costs of money. Mr Ng [the plaintiff’s counsel] argued that since our O 22 r 24(3)(b) referred to the judgment rate, the proper award should be 4% above judgment rate. I cannot accept that submission. The rule only sets the maxima. Given the rationale for the exercise of the power and that it is not penal, I should ask what should be the appropriate rate in Hong Kong which can generously reflect the costs of money to the Defendant. Based on the information from Mr Chan [the defendant’s counsel], 4% above prime in Hong Kong is 1% above judgment rate. I shall adopt this (9%) as our generous assessment of costs of money. Applying that to my simplified approach, I will order interest on costs incurred after 1 February to the date of this judgment be paid by the Plaintiff to the Defendant at 4.5% and such interest shall run from 1 February 2010.”

32.In the present case, the defendant has settled its legal costs over the years and been out of pocket of those sums. According to the statement of paid costs annexed to its reply submissions, the defendant has already paid:

Part I	From 15 April 2014 to 23 August 2017	$400
Part II	From 23 August 2017 to 31 December 2018	$5,990.40
Part III	From 1 January 2019 to 31 December 2019	$164,224.12
Part IV	From 1 January 2020 to 31 December 2020	$118,274.86
Part V	From 1 January 2021 to 31 December 2021	$575,309.69
Part VI	From 1 January 2022 to 31 December 2022	$137,088.65
Part VII	From 1 January 2023 to 13 March 2023 (trial)	$727,387.60
Total		$1,728,675.32

33.Having regard to the rationale behind the exercise (that it is not penal but to compensate the defendant for the cost of money which it has had to bear in relation to the legal costs paid), there is no good reason to enhance interest by as much as 10% above judgment rate as contended by the defendant.

34.The plaintiffs’ counsel has urged me to follow Golden Eagle in adopting 4% above prime rate in Hong Kong (currently at 5.875%) as a generous assessment of the cost of money to the defendant and order interest at half of the rate I would otherwise order to simplify the process. I agree.

35.In the exercise of my discretion under Order 22, rule 23(4)(b), I order the plaintiffs to pay interest on the defendant’s costs incurred after 23 August 2017 at 4.9375% per annum,[6] such interest shall run from 23 August 2017 until payment.

36.Whilst both parties seem to agree that interest is payable for the defendant’s costs incurred before 23 August 2017, they have not articulated on their legal basis. Order 22, rule 23(4)(b) has a limited reach. It only applies to “any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.” As explained in para 16 of Golden Eagle (see para 31 above), the general rule is that but for the intervention of Order 22, the defendant will get nothing to compensate it for the cost of money in relation to payments made on account of costs.

Disposition

37.For the above reasons, I allow the application and replace the costs order nisi with the following order:

(a)  The plaintiffs do pay the defendant’s costs up to and including 23 August 2017 on a party-to-party basis, to be taxed if not agreed;

(b)  The plaintiffs do pay the defendant’s costs after 23 August 2017 on an indemnity basis, to be taxed if not agreed; and

(c)  The plaintiffs do pay interest on the amount payable under (b) at 4.9375% per annum from 23 August 2017 until the date of the Judgment.

38.Costs normally follow the event. As the defendant has been substantially successful, I make an order nisi that the plaintiffs do pay the defendant’s costs of this application, to be taxed on a party and party basis if not agreed.

Ms Tinny Chan, instructed by C Y Tsang & Co, for the 1^st and 2^nd plaintiffs

Ms Hin Han Shum, Solicitor Advocate of Squire Patton Boggs, for the defendant