Shih Pik Nog v. G2000 (Apparel) Ltd

HCPI 832/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO. 832 OF 2009

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BETWEEN

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Before : Hon Bharwaney J in Chambers

Date of Hearing : 25 May 2011

Date of Decision : 25 May 2011

Date of Further Hearing : 30 June 2011

Date of Reasons for Decision : 6 July 2011

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REASONS FOR DECISION

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1.Deputy High Court Judge Burrell tried this case in March this year. On 25 March 2011, he handed down his judgment and dismissed the plaintiff’s claim for damages for personal injuries which she alleged she had sustained at work, as a shop manageress, at a clothing retail outlet of the defendant. She had picked up some clothes from the floor of a storeroom in order to place them on the shelf and she had done so by bending her knees and squatting on the floor. She picked up two separate bundles of clothes in this manner when she experienced pain in her lower back and had to stop work. Although the learned deputy judge accepted that the plaintiff sustained injuries in the way that she had described, he dismissed the action on the ground that the plaintiff had failed to establish any negligence or breach of statutory duty on the part of her employer. The bundles were not heavy and the act of picking up objects on the floor was a normal routine act which the plaintiff had performed on this occasion in a safe manner.

2.The learned deputy judge went on to assess quantum, had liability been established.  He would not have found any contributory negligence on her part.  The plaintiff claimed damages in excess of $3 million.  The learned deputy judge assessed quantum in the sum of $833,889.  He deducted the amount of employees’ compensation in the sum of $797,987 previously received by the plaintiff from his assessment of damages at common law in order to produce a net award of $35,902.  In the event, he dismissed the plaintiff’s claim and made a costs order nisi in the defendant’s favour. 

3.The defendant’s solicitors issued a summons on 8 April 2011 seeking a variation of the costs order nisi.  As the learned deputy judge had completed his sitting by then, the matter was listed before me as the Judge in charge of the Personal Injuries List.  By their summons, the defendant’s solicitors sought costs of the action up to 4 November 2010, on a party to party basis, and costs of the action thereafter, on an indemnity basis, together with enhanced interest on such costs.  In support of their application, they relied on the plaintiff’s refusal to accept the sanctioned payment made by the defendant in the sum of $50,000, which was open for acceptance up to 4 November 2010, and they relied on the provisions of O. 22, r. 23 of the Rules of the High Court. 

4.O. 22, r. 23 and r. 24 provide for costs consequences where the plaintiff fails to do better than the defendant’s sanctioned offer or sanctioned payment and where the plaintiff does better than he proposed in his sanctioned offer. In the former case, r. 23 provides that :

“(2) The Court may by order disallow all or part of any interest otherwise payable under section 48 of the Ordinance on the whole or part of any sum of money awarded to the plaintiff for some or all of the period after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.

(3) The Court may order the plaintiff to pay 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.

(4) The Court may also order that the defendant is entitled to-

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

(b) interest on the costs referred to in paragraph (3) or sub-paragraph(a) at a rate not exceeding 10% above judgment rate.”

5.In either case, the Court “shall make the orders referred to” unless it considers it unjust to do so (r. 23(5) and r. 24(4)).  In considering whether it would be unjust to make the orders referred to, 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 (r. 23(6) and cf. r. 24(5)). 

5.Ms Julia Lau, counsel for the plaintiff, readily accepted that none of the circumstances identified in r. 23(6) applied to the present case but she submitted that the plaintiff had a genuine belief that the defendant was responsible for the injury she had sustained at work.  I am of the view that a plaintiff’s subjective belief that he or she has a good claim does not constitute a relevant consideration to override the mandatory direction in r. 23.  To rule otherwise would be tantamount to driving a coach and horses through these provisions. 

6.Further, in my judgment, the fact that the plaintiff had attempted to mediate her dispute and had attended a mediation meeting, which, however, failed to resolve the dispute, does not make it unjust for the court to give effect to mandatory provisions of r. 23 and r. 24.  A party’s failure to mediate attracts its own consequences.  However, the fact that a party has mediated his or her dispute does not take away the sting provided in O. 22 for failing to better a sanctioned payment or sanctioned offer.  

7.Ms Lau also submitted that the sick leave certificates supported the plaintiff’s claims in quantum and that, if the learned deputy judge had allowed pre-trial loss of earnings based on the sick leave certificates, the net award would have been nearer to $150,000.  Accordingly, it was not unreasonable for the plaintiff to regard the sanctioned payment of $50,000 as being on the low side.  I leave open for consideration in a future case, where the plaintiff has failed, narrowly, to beat the sanctioned payment, whether or not a similar submission to ameliorate the provisions of r. 23 would be accepted by the court.  However, the plaintiff here has failed to establish liability and, as a consequence, she has failed to beat the sanctioned payment.  In such a case, the fact that the quantum of the claim is or may be larger than the sanctioned payment is not a relevant circumstance which makes it unjust for the court to apply the mandatory directions of r. 23. 

8.Despite Ms Lau’s valiant efforts on her client’s behalf, I concluded that I must vary the costs order nisi and I did so to award costs of the action to the defendant up to 4 November 2010, on a party to party basis, and costs of the action thereafter, up to the date of this decision, on an indemnity basis.  It must be noted that there is no provision in England, either in the old or in the new Part 36 of the Civil Procedure Rules, for a defendant to be awarded indemnity costs or enhanced interest on those costs.  R. 23(4)(a) is a Hong Kong creation.  In theory, there should be no distinction between a plaintiff and a defendant.  In a vast majority of personal injury proceedings, however, the real defendant is an insurance company to whom the rationale for the award of enhanced interest, set out below, may not apply.  Further, where the plaintiff is legally aided, an award of indemnity costs in favour of the defendant may have to be satisfied by the Director of Legal Aid from public funds, if the award of damages, if any, is insufficient to satisfy it.  However, these considerations, namely, that an insurance company is defending the action or that the Director of Legal Aid may be at risk of having to satisfy the costs order from public funds, did not lead me to conclude that it was unjust to order indemnity costs in this case. 

9.Before making on order for costs on an indemnity basis under O. 22, r. 23, the court, and the taxing master on a taxation of costs on an indemnity basis, must be alert to ensure that there has been no inflation of the defendant’s legal costs over and above the competitive fees usually charged by defendants’ solicitors to their insurer clients.  The purpose of an order for indemnity costs under O. 22, r. 23 is to ensure that the defendant or his insurer is not out of pocket in respect of legal expenses incurred after the last date of acceptance of a successful sanction payment or offer; the purpose of such an order is not to create a windfall for the defendant’s solicitors. 

10.The nature of the power to award costs on indemnity basis and enhanced interest to plaintiffs in the UK was explained by Lord Woolf MR at §§ 63 and 64 of his judgment in Petrotrade Inc v. Texaco Ltd [2002] 1 WLR 947 :

“63. The ability of the court to award costs on an indemnity basis and interest at an enhanced rate should not be regarded as penal because orders for costs, even when made on an indemnity basis, never actually compensate a claimant for having to come to court to bring proceedings. The very process of being involved in court proceedings inevitably has an impact on a claimant, whether he is a private individual or a multinational corporation. A claimant would be better off had he not become involved in court proceedings. Part of the culture of the CPR is to encourage parties to avoid proceedings unless it is unreasonable for them to do otherwise. In the case of an individual, proceedings necessarily involve inconvenience and frequently involve anxiety and distress. These are not taken into account when assessing costs on the normal basis. In the case of a corporation, corporation senior officials and other staff inevitable will be diverted from their normal duties as a consequence of the proceedings. The disruption this causes to a corporation is not recoverable under an order for costs.

64. The power to order indemnity costs or high rate interest is a means of achieving a fairer result for a claimant.”

The same reasoning applies to defendants in Hong Kong who seek indemnity costs and enhanced interest on those costs. 

11.The purpose of the power to award interest on costs under r. 24(3)(b) was explained by Chadwick LJ at § 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, 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 interest on his costs from the date of the order (whether he has actually paid them or not); but 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 § 3(b) of r 36.21 enables the court to achieve a fairer result in that respect.”

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 § 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.”

12.Lam J referred to these decisions but adopted a modified approach in Golden Eagle International v. GR Investment Holdings [2010] 3 HKLRD 273 by taking the personal injury practice of awarding pre-trial loss and damage at half the usual rate :

(a)   He awarded interest at half rate on costs incurred after the last date of acceptance without requiring leave of court, with such interest to run from that date to the date of his judgment on interest and costs;

(b)   the normal commercial rate of interest awarded by the courts is prime plus 1%. Lam J enhanced that rate of interest by 3% and awarded interest at a rate of 4% above prime.  The prime rate was 5% and adding another 4% on top of that produced an enhanced rate of 9%, i.e. 1% above the then (and current) 8% judgment rate;

(c)   he awarded interest at half of that rate, i.e. at 4.5%, on costs incurred after the last date of acceptance without requiring leave of court, such interest to run from that date to the date of his judgment on interest and costs.

13.Interest on costs runs from the date of judgment at the judgment rate (Wong Wai Chun v. Lewis [200] 2 HKC 271).  Should the court award enhanced interest on costs after the date of judgment?  I think not.  If a sanctioned offer or payment is accepted, the plaintiff is entitled to his costs up to the date of notice of acceptance (O. 22, rr. 20 and 21).  An order entitling the accepting party to his costs is deemed to be made on the date of acceptance (O. 62, r. 10(5)).  This deemed order as to costs also attracts interest from the date of acceptance at the judgment rate.  If the offer or payment is not accepted, the consequence of non-acceptance includes an order for enhanced interest from the last date of acceptance to the date of judgment.  Chadwick LJ stated in §24 of his judgement in McPhilemy v. Times Newspapers (No 2) that he could see no reason why a party who failed to pay a judgment debt, which the court had ordered or was deemed to have ordered him to pay, should pay more interest on that debt because the other party had made an offer to which Part 36 applied.  He did not make an order for enhanced interest after the date of judgment.  Waller LJ agreed with Chadwick LJ in KR v. Bryn Alyn Community (Holdings) Ltd stating in § 21of his judgment that interest would be payable on the amount awarded as to costs from the date of judgment at judgment rate, “thus the period to be compensated runs only up until the date of judgment”.  Lam J in Golden Eagle International v. GR Investment Holdings also awarded enhanced interest up to the date of judgment.  In a case where a sanctioned offer or payment has been accepted, the accepting party is entitled to interest on costs at the judgment rate from the date of acceptance until the date of payment.  In a case where a sanctioned offer or payment has not been accepted, the “successful” party is also entitled to interest on his costs, just as the defendant is in the present case, at the judgment rate from the date of judgment until date of payment.  In either case, some time will pass between the date of entitlement to costs and the date of payment of such costs, depending on the time taken to tax or agree the costs in question and the paying party’s ability and willingness to pay the taxed or agreed costs.  The fact that a sanctioned offer or payment has not been accepted in a particular case is unlikely to impact on the period of time that would pass between the date of judgment and the date of payment.  

14.The approach adopted by Lam J is to be commended.  It does away with the need to ascertain the actual dates when the defendant had put up funds on account of costs and from which interest would run at the full enhanced rate of 9% to the date of the judgment on interest and costs.  Instead, Lam J’s approach is to award interest for the whole period from the date after the last date of acceptance without requiring leave of court up to the date of his judgment on interest and costs but at half the rate. 

15.I adopted the approach of Lam J and also awarded interest on costs to the defendant from 5 November 2010 up to the date of my decision on 25 May 2011 at the rate of 4.5% (being half the commercial enhanced rate of 9% per annum).  

16.However, in writing these reasons for my decision it has occurred to me that the defendant’s insurer, who had the carriage of the case on behalf of the defendant, might not have advanced any funds to its solicitors on account of costs between 5 November 2010 and 25 May 2011.  Depending on their relationship, solicitors may offer to work for insurers on the basis that they will only ask for payment of fees at the conclusion of the case.  One motor insurer, now in liquidation, was notorious for late payment of solicitors’, and counsels’, fees.  If the insurer has not made any advance on account of fees, the rationale for awarding interest on costs would not apply and an order for enhanced interest on costs incurred after the last date of acceptance would produce an unjust windfall for the insurer. In such a case, the court ought not to award any interest on costs.  

17.In my judgment, save for legally aided parties, it is incumbent on the party seeking interest on costs, be that party a plaintiff or a defendant, to state, in his supporting affidavit, the amount of disbursements, costs, and costs on account paid to his solicitors during the period commencing from the last date of acceptance up to the date of the supporting affidavit, and the date(s) of payment.  Upon sight of this information, the court can either refuse to or make an order for enhanced interest on the actual amounts of disbursements, costs, and costs on account paid during the relevant period, and the court can award interest either at the full rate from the actual dates of payment or adopt the modified approach of Lam 17.      The former approach would be suitable for cases where there have only been a few payments and the latter approach for cases where there have been multiple payments spanning a long period of time. 

18.The matter was not argued before me and may have to be decided in an appropriate case.  However, I would indicate my agreement with Waller LJ who stated in § 23 of his judgment in KR v. Bryn Alyn Community (Holdings) Ltd that the court has power to award enhanced interest on costs to parties who are publicly funded and who may obtain an award of enhanced interest costs and disbursements which have been incurred but not yet paid or fully paid.  Parties on legal aid seeking interest on costs should state in their supporting affidavit the dates on which the work was done and disbursements paid or the dates on which liability for disbursements was incurred.  Again, the modified approach of Lam J would be suitable for cases where there are multiple items spanning a long period of time.  Although I incline to the view that the interest or enhanced interest ordered to be paid pursuant to O. 22, r. 23 or r. 24 in a legally aided case ought to be paid to the Director of Legal Aid instead of the aided person, I refrain from deciding this point as I have not had the benefit of argument on the point.  However, the fact that publicly funded plaintiffs may be able to obtain an award for enhanced interest on costs incurred but not yet paid or not yet fully paid by the Director of Legal Aid does not, in my judgment, justify an order for enhanced interest on costs incurred but not yet paid by privately funded parties. 

19.The affidavit of Yung Rocky Pun Lok sworn on 7 April 2011 and filed on support of the present application is silent on point.  Therefore, I requested the defendant’s solicitors to provide a statement to me of the funds, if any, advanced by the defendant’s insurer on account of costs during the relevant period.  They responded on 22 June 2011 that costs and disbursements incurred from 5 November 2011, the day after the last date of acceptance of the payment into court, up to 25 May 2011 amounted to $461,980.50 and that that their insurer clients had paid the sums of $62,288 on 15 March 2011 and $148,000 on 4 April 2011.  On receipt of that communication I indicated that I wished to hear from the parties on whether I ought to exercise my power to re-consider my order to pay enhanced interest on costs pursuant to my power to do so before my order was drawn up and perfected, and, more, specifically, whether it is unjust to order a paying party to pay enhanced interest on costs and disbursements that have been incurred when the receiving party has not paid those costs and disbursements. 

20.After hearing from Mr John Wright for the defendants and Ms Julia Lau for the plaintiff on 30 June 2011, I have decided to vary my order to pay enhanced interest on costs pursuant to my power to do so before my order was drawn up and perfected.  That power should only be exercised in exceptional circumstances which are present here as we are dealing with the newly enacted provisions on Order 22 on which there are no proper precedents.  I conclude that if the receiving party has not made any payment of costs and disbursements incurred and has not made an advance on account of fees, the rationale for awarding interest on costs would not apply and that, in such a case, an order for interest or enhanced interest on costs and disbursements incurred after the last date of acceptance would produce an unjust windfall for the receiving party.  For this reason, I vary my previous order for enhanced interest on costs and order the plaintiff to pay enhanced interest at 9% per annum only on the sum of $62,288 from 15 March 2011 up to the date of this judgment and on the sum of $148,000 from 4 April 2011 up to the date of this judgment. 

21.I also awarded the costs of this application to the defendant to be taxed on an indemnity basis.  However, I make no order as to costs in respect of the hearing on 30 June 2011. 

Ms Julia Lau, instructed by Messrs King & Wood, for the Plaintiff

Mr Rocky Yung Pun Lok of and Mr John Wright instructed by Messrs Mayer Brown JSM, for the Defendant