Lam Shun Yuen and Another v. Wong Suet Kiu and Another

DCCJ 1317/2022

[2024] HKDC 2056

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1317 OF 2022

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DECISION

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1.The 1^st Defendant and 2^nd Defendant (“Ds”) seek by summons dated 4 July 2024 (“Summons”):-

(a)  Costs of the proceedings from: (i) 26 April 2022 to 18 September 2022 be paid by Ds to the 1^st and 2^nd Plaintiffs (“Ps”), to be taxed if not agreed, and (ii) 19 September 2022 to 5 May 2024 be paid by Ps to Ds, to be taxed if not agreed, and

(b)  Leave be granted to Ds to disclose the communication which took place at a mediation session on 23 February 2024.

2.Ds have filed an affirmation in support dated 4 July 2024 (“Chan 1^st Aff”). Ps have filed an affirmation in opposition dated 19 September 2024 (“Lam Aff”). Ds have filed an affirmation in response on 18 October 2024 (“Chan 2^nd Aff”).

3.I had directed Ds and Ps to file and serve written submissions on 13 and 18 November 2024 respectively upon Ds’ request for paper disposal (and Ps taking neutral stance). However, Ps and Ds filed and served further rounds of written submissions without leave. I subsequently ordered there be no further rounds of written submissions without leave.

BACKGROUND

4.The underlying dispute pertains to Ps’ claim that water had seeped from Ds’ flat into P’s flat. The following background is salient.

5.Ps’ solicitors demanded Ds to rectify by way of pre-action letter dated 8 February 2022. Ps proposed that a Mr. Simon Cheung of Surveying & Construction Consulting Company to inspect and determine the cause of water seepage, or alternatively Ds could appoint an expert of their own choice to conduct a joint inspection.

6.Ps’ solicitors recorded that Ps had notified the building management office to request for Ds’ consent to arrange for water-seepage testing inside Ds’ flat by further letter to Ds dated 21 February 2022.

7.Ds deny receiving the above letters.

8.Ps proceeded to appoint Mr. Cheung who conducted his investigation from Ps’ flat. He prepared a report dated 24 March 2022 (“Mr. Cheung’s Report”). Mr. Cheung’s Report determined the water seepage was due to a burst water pipe from Ds’ flat.

9.Ps’ solicitors issued a writ of summons and statement of claim on 26 April 2022. Ds’ solicitors filed an acknowledgement of service on 23 August 2022.

10.Ds’ solicitors requested a copy of Mr. Cheung’s Report, and for the parties to conduct a joint inspection by letter dated 19 September 2022.

11.Ps’ solicitors recorded that Ds appear to have hired contractors to carry out repair works in a letter to Ds dated 21 September 2022. Ps solicitors requested details of any repair works so that all relevant information would be available for any proposed joint inspection.

12.Subsequently, Ds denied liability for water seepage by way of Defence dated 4 January 2023.

13.As the matter went through case management, the Court ordered there be a single joint expert by order of Madam Registrar Soong dated 6 September 2023. Mr. Patrick Lau was appointed as the single joint expert. He produced a report dated 19 January 2024 (“Mr. Lau’s Report”). Mr. Lau’s Report found that it was highly likely that the source of water seepage was from Ds’ flat.

14.Ds made a sanctioned payment on 21 February 2024.

15.The parties attended mediation on 23 February 2024 which did not result in a settlement.

16.Ds made a further sanctioned payment on 15 April 2024.

17.Around 3 weeks later, Ps accepted the sanctioned payment on 7 May 2024.

18.Ps sent a draft Notice of Request for sanctioned payment on 10 May 2024.

19.Subsequently, Ds’ solicitors wrote to the Ps’ solicitors by letter dated 14 May 2024 seeking to “… [notify Ps’ solicitors that Ds] intended to apply for costs order set out in the Summons, which was also the same proposal made… at the mediation session on 23 February 2024.”

20.Ps’ solicitors responded they would contest Ds’ proposed cost application by letter dated 17 May 2024.

21.Ds’ solicitors commented on Ps’ draft Notice of Request for sanctioned payment “without prejudice to [Ds’] right to take out appropriate application in relation to the costs of the captioned proceedings”.

LEGAL PRINCIPLES

Accepting Sanctioned Payments

22.O. 22, r. 20 of the Rules of the District Court, Cap 336H (“RDC”) states:-

“20. Costs consequences of acceptance of defendant’s sanctioned offer or sanctioned payment (O. 22, r. 20)

(1) 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.

(2) Where—

(a) a sanctioned offer or a sanctioned payment relating to a part of the claim or an issue arising from the claim is accepted; and

(b) at the time of serving notice of acceptance the plaintiff abandons the other parts of the claim or other issues arising from the claim,

the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the Court otherwise orders.

(3) The plaintiff’s costs include any costs attributable to the defendant’s counterclaim or set-off if the sanctioned offer or the sanctioned payment notice states that it takes into account the counterclaim or set-off.”

23.In Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd [2013] 2 HKLRD 1184, Poon J (as he then was) reviewed the authorities and stated the following:-

“18. In my view, O.22 r.20(1) plainly envisages that upon acceptance of the sanctioned payment or sanctioned offer, the plaintiff is, as a prima facie rule, entitled to his costs of the proceedings up to the date of serving notice of acceptance. The prima facie rule may, however, be displaced when the court orders otherwise by applying the Otherwise Proviso.

19. The prima facie rule is important. In ordinary civil litigations, costs are incurred in a recoverable inter-parties sense from the moment the proceedings commenced and continue to be incurred as the litigation progresses. Every litigant, who needs to incur costs in order to pursue or defend a claim, definitely regards them as very real and present expenses. Further, litigation is inescapably chancy. The prospect of paying costs to the other side after losing one’s case in addition to his own costs must very much exercise a party’s mind. Costs thus factor heavily in the negotiations and considerations of settlement. Sometimes, it may even make or break the settlement. But uncertainty as to costs is a notoriously difficult subject. It may easily frustrate an otherwise meaningful settlement negotiation and even become an irremovable obstacle to the settlement itself. What the prima facie rule does is to create certainty as to the costs consequences upon acceptance of the sanctioned payment or sanctioned offer. A party knows the exact extent of his exposure or entitlement to costs, as the case may be. Thus he will not be inhibited in proposing or accepting an otherwise reasonable offer to settle, as the case may be, because of uncertainty as to the costs consequences. This surely facilities the principal objective of sanctioned payments and sanctioned offers, which is to encourage the parties to take positive settlement seriously and avoid unproductive and expensive prolongation of the litigation, resulting in more early settlements: Montrio Ltd v Tse Ping Shun David.⁷

20. By virtue of the Otherwise Proviso, the court retains the discretion to depart from the prima facie rule where necessary. But the discretion should only be exercised in exceptional circumstances that clearly warrant a different costs order. Otherwise, the certainty as to costs consequences created by the prima facie rule, one of the very important features underpinning the effectiveness of sanctioned payments and sanctioned offers, will be greatly diminished.

21. While it is impossible and indeed imprudent to exhaustively state the exceptional circumstances that justify the departure from the prima facie rule, which by definition must be rare, the burden rests squarely on the party seeking to invoke the Otherwise Proviso to establish such circumstances. The court will not lightly displace the prima facie rule until and unless the applicant has discharged the burden to its satisfaction.

22. This requirement to demonstrate exceptional circumstances has been referred to and applied in all the three cases referred to in Part A3 above. I hope by my analysis, the jurisprudential basis for such a requirement is now established.

23. Further, when applying the Otherwise Proviso, the court is in effect depriving the plaintiff of his costs or even ordering him to pay the defendant’s costs. The plaintiff will be significantly disadvantaged. In my view, fairness dictates that the plaintiff, who is considering whether to accept the sanctioned payment or sanctioned offer, should be given a prior warning that the defendant will apply to invoke the Otherwise Proviso and how it is to be invoked. The plaintiff can then make an informed decision whether to accept the payment or offer with the full knowledge that upon acceptance, the prima facie rule on his entitlement as to costs may be displaced. Further, if a defendant is allowed to invoke the Otherwise Proviso without giving the prior warning, a plaintiff who has accepted the payment or offer on the faith of being entitled to recover his costs up to the date of serving notice of acceptance would never know if at the next moment the defendant would apply for a different costs order. The certainty as to costs created by the prima facie rule will be gone. Faced with the uncertainty as to costs, the plaintiff would be greatly handicapped in deciding if he should accept the payment or offer in the first place. It would render the operation of sanctioned payments and sanctioned offers ineffectual.” [my emphasis]

24.The requirement for prior warning was applied by HHJ A Li in Govindan Sakhivel v Secretary for Justice [2023] 4 HKLRD 721 at §§12, 37-47. The learned judge provided the rationale at §46:-

“46. The principle behind the requirement of prior warning is self-evident. The design of O. 22 r 20(1) of the RDC is to promote amicable settlement in accordance with the certainty of costs. As stated at §12 above, the rule allows the plaintiff to consider his exposure or entitlement to costs before accepting the defendant’s sanctioned payment in settling the whole of his claim. It is not right to allow the defendant to ambush the plaintiff by applying to court for variation of costs scale without any forewarning at/or before the plaintiff’s acceptance to the Sanctioned Payment. It would violate the plaintiff’s expectation that he was entitled to costs at the District Court scale.”

25.The above principles were adopted and recently applied by HHJ G Chow in recent decisions Jasbir Singh v Secretary for Justice sued for and on behalf of Director of Immigration [2024] HKDC 1540 at §§9-14, 15-17 and Avtar Singh v Secretary for Justice sued for and on behalf of Director of Immigration [2024] HKDC 1529 at §§9-16.

Disclosure of mediation communications

26.The objects of the Mediation Ordinance, Cap 620 are set out in s. 3 which is to “(a) promote, encourage and facilitate the resolution of disputes by mediation; and (b) to protect the confidential nature of mediation communications.”

27.“Mediation communication” is defined in s. 2 as “(a) anything said or done; (b) any document prepared; or (c) any information provided, for the purpose of or in the course of mediation, but does not include an agreement to mediate or a mediated settlement agreement.”

28.Section 8 of the MO prohibits the disclosure of mediation communications save in limited circumstances:-

“8. Confidentiality of mediation communications

(1) A person must not disclose a mediation communication except as provided by subsection (2) or (3).

(2) A person may disclose a mediation communication if—

(a) the disclosure is made with the consent of—

(i) each of the parties to the mediation;

(ii) the mediator for the mediation or, if there is more than one, each of them; and

(iii) if the mediation communication is made by a person other than a party to the mediation or a mediator — the person who made the communication;

(b) the content of the mediation communication is information that has already been made available to the public, except for information that is only in the public domain due to an unlawful disclosure;

(c) the content of the mediation communication is information that is otherwise subject to discovery in civil proceedings or to other similar procedures in which parties are required to disclose documents in their possession, custody or power;

(d) there are reasonable grounds to believe that the disclosure is necessary to prevent or minimize the danger of injury to a person or of serious harm to the well-being of a child;

(e) the disclosure is made for research, evaluation or educational purposes without revealing, or being likely to reveal, directly or indirectly, the identity of a person to whom the mediation communication relates;

(f) the disclosure is made for the purpose of seeking legal advice; or

(g) the disclosure is made in accordance with a requirement imposed by law.

(3) A person may disclose a mediation communication with leave of the court or tribunal under section 10—

(a) for the purpose of enforcing or challenging a mediated settlement agreement;

(b) for the purpose of establishing or disputing an allegation or complaint of professional misconduct made against a mediator or any other person who participated in the mediation in a professional capacity; or

(c) for any other purpose that the court or tribunal considers justifiable in the circumstances of the case.”

29.To this end, s. 10 of the MO provides for leave for disclosure or admission of mediation communication:-

“10. Leave for disclosure or admission in evidence

(1) The court or tribunal specified in subsection (3) may, on application by any person, grant leave for a mediation communication to be disclosed under section 8(3) or to be admitted in evidence under section 9.

(2) For the purposes of subsection (1), the court or tribunal must take into account the following matters in deciding whether to grant leave for a mediation communication to be disclosed or admitted in evidence—

(a) whether the mediation communication may be, or has been, disclosed under section 8(2);

(b) whether it is in the public interest or the interests of the administration of justice for the mediation communication to be disclosed or admitted in evidence;

(c) any other circumstances or matters that the court or tribunal considers relevant.

(3) The court or tribunal specified for the purposes of subsection (1) is—

….

(c) if the mediation communication is sought to be disclosed or admitted in evidence in proceedings in the District Court — the District Court.”

30.The confidential nature of mediation is well-established and will only be invaded in highly exceptional circumstances. In Champion Concord Ltd v Lau Koon Foo (2011) 14 HKCFAR 534 at §17, the Court of Final Appeal observed:-

“17. … The fundamental importance of confidentiality in mediation is universally acknowledged and it can only be in highly exceptional circumstances that evidence which invades such confidentiality will be permitted to be adduced.”

31.As explained in CHN v CCY [2024] 3 HKC 460 at §§31-46 (per Liu J), offers made during mediation have the full protection of confidentiality as provided under the MO, and also by without prejudice privilege at common law. As the learned judge noted, mediation communications are not Calderbank offers.

APPLICATION AND DISPOSITION

No exceptional circumstances to invoke the Otherwise Proviso

32.In the present case, Ds’ claim there is exceptional circumstances to invoke the “Otherwise Proviso” has been set out at Chan 1^st Aff at §§33-40. Ds’ counsel, Ms. Tina Mok, has submitted in her written submissions, inter alia, that:-

(a)  First, Ds took pro-active steps with a view to resolving the disputes between the parties upon receiving a copy Ps’ expert report in around September 2022.

(b)  Second, unbeknownst to Ds at the time, the water seepage had ceased already when Ps received Ds’ letter dated 19 September 2022.

(c)  Third, Ps now contend that they did not reject or refuse Ds’ proposal for a joint inspection to be carried out.

33.Having considered the above, I do not accept Ds have been able to demonstrate exceptional circumstances. The threshold for establishing exceptional circumstances is high. The onus rests on Ds who seek to invoke it. The Otherwise Proviso is not to be lightly invoked. If not, the certainty as to costs consequences created by the prima facie rule, one of the important features underpinning the effectiveness of sanctioned payments and sanctioned offers, will be greatly diminished. The court will not lightly displace the prima facie rule until and unless Ds have discharged the burden to its satisfaction: see Etratech Asia-Pacific Ltd, §§20-21 (per Poon J – as he then was).

34.For the avoidance of doubt, I do not consider Ps have acted unreasonably. Ps had sent a pre-action letter and complained to the building management in February 2022 to attempt resolution. This is irrespective of Ds’ allegation they did not receive such letters and only knew about the water seepage problem in August 2022 because they “…did not occupy the premises”: Chan 2^nd Aff, §§13-14. Ps’ solicitors had requested “details of all the scope of repairing works [that] had been done by Chi Fu Decorating Plumbing Co. first before [Ps reply to Ds’ joint examination invitation]” by letter to Ds’ solicitors dated 21 September 2022. This appears to have largely fallen on deaf ears. In this regard, Ds’ contention that Ps only raised for the first time on 6 September 2023 the water seepage had stopped has minimal to no relevance.

No prior warning to invoke the Otherwise Proviso

35.Like Etratech Asia-Pacific Ltd at §31, I will deal with the requirement for prior warning although strictly-speaking it is academic given my findings above.

36.It appears to me Ds did not give Ps prior warning as required under the Otherwise Proviso.

37.The parties do not dispute that Ps had accepted the Notice of Sanctioned Payment on 7 May 2024. Ds cannot now seek to re-characterise a “cost proposal” (in Ds’ own words at Chan 1^st Aff, §30) made during mediation on 23 February 2024 as if it were a “prior warning” for the purposes of invoking the Otherwise Proviso. Indeed, I note that when mediation took place, the 2^nd sanctioned payment was not even made yet. The 2^nd sanctioned payment was only made over a month later.

38.I do not consider Ds’ attempts to “give warning” after 7 May 2024 would assist them given that such attempts are made after the acceptance of the Notice of Sanctioned Payment.

No exceptional circumstances for disclosure of mediation communication

39.Ms. Mok seeks to disclose mediation communications to prove that the pre-requisite for invoking the Otherwise Proviso has been met. She argues that it would be in the interest of administration of justice or otherwise an exceptional circumstance for the mediation communication to be disclosed.

40.I do not consider Ms. Mok has been able to demonstrate there is a proper basis to lift the prohibition in disclosing mediation communications under ss. 8 and/or 10 of the MO. She has been unable to show that there are highly exceptional circumstances here. I am not prepared to strip away the protection of the MO designed for the parties to exchange and explore ideas freely and without fear in their attempts to reach settlement: see CHN v CCY at §§60-61 (per HHJ Liu).

41.In light of the above, I dismiss Ds’ summons dated 4 July 2024.

42.I order costs to follow the event. Ps have submitted statement of costs for summary assessment. I consider the items and amounts are generally reasonable. Taking a broad-brush approach, I would summarily assess at HK$60,000.

Disposition

Mr. Timothy Lam, instructed by Raymond Luk & Co, for the 1^st and 2^nd Plaintiffs

Ms. Tina Mok, instructed by CFN Lawyers in association with Broad and Bright, for the 1^st and 2^nd Defendants