Ryder Industries Ltd (Formerly Saitek Ltd) v. Chan Shui Woo

CACV 164 of 2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL APPEAL NO 164 OF 2013

(ON APPEAL FROM HCA 109 OF 2009)

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Before : Hon Lam VP, Barma JA and Poon J in Court

Dates of Written Submissions : 20 October 2014, 28 October 2014, 11 November 2014, 12 November 2014, 18 November 2014, 17 December 2014 and 18 December 2014

Date of Decision : 13 March 2015

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D E C I S I O N
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Hon Poon J (giving the judgment of the Court of Appeal) :

A. INTRODUCTION

1.We adopt the abbreviations used in the judgment that we handed down on 22 September 2014.

2.By that judgment, we allowed Timely’s appeal to the following extent :

(1) Subject to the orders below, the Recorder’s judgment in favour of Saitek against Timely and Chan stands.

(2) Judgment be entered for Timely against Saitek on its counterclaim in the sum of RMB569,000.00 with interest at judgment rate from the date of detention up to payment.

(3) There be a set off of the judgment sum entered in favour of Saitek against Timely and Chan by the judgment sum entered in favour of Saitek in (2) above.

3.We further varied, on a nisi basis, the costs order below to the extent that Saitek should only have 50% of its costs for trial.  As to the costs of the appeals, we also made an order nisi that Saitek shall have 50% of its costs against Timely and Chan to be taxed if not agreed.

4.Timely and Chan now apply for leave to appeal to the Court of Final Appeal against our judgment in affirming the Recorder’s judgment on Saitek’s claims against them.  Saitek applies, among other things, to vary the costs orders nisi and the interest rate of the judgment on Timely’s counterclaim.

B. TIMELY AND CHAN’S APPLICATION FOR LEAVE TO APPEAL

5.Saitek adopts a neural position with respect of Timely and Chan’s application for leave to appeal to the Court of Final Appeal.  Be that as it may, it remains the burden of Timely and Chan to satisfy us that such leave ought to be given.  They rely on both the “as of right” limb and “great and general public importance or otherwise” limb under 22(1)(a) and 22(1)(b) of the Court of Final Appeal Ordinance, Cap 484.

B1. The “as of right” limb

6.Mr Chiu, counsel for Timely and Chan, argued that their intended appeals fall within the “as of right” limb because for Timely’s case, Saitek’s claim against it was for the outstanding trading balance in the quantified sum principal sum of HK$6,502,555.15 plus contractual interest; and for Chan’s case, it is because Saitek claimed against him on his obligation as guarantor for Timely’s liability under the said outstanding trading balance.  And for both cases, the matter in dispute exceeds the statutory limit of HK$1,000,000.00 or alternatively involves directly or indirectly a claim exceeding the statutory limit.

7.We accept that Saitek’s claims against Timely and Chan are both quantified and exceed the HK$ 1 million statutory limit. However, as seen above, we affirmed the Recorder’s judgment on the Saitek’s claims against Timely and Chan subject to their counterclaim, which is not a quantified claim.  Bearing in mind the narrow construction to be given to the “as of right” limb, we need to consider if their counterclaim might exclude their intended appeals against Saitek’s claims, which are otherwise qualified, from that limb.

8.In Sinoearn International Limited v Hyundai-CCECC Joint Venture (a firm), CACV 83/2011, unreported, 30 March 2012, Cheung CJHC held :

“ 5. …The Court of Final Appeal has said on many occasions that the ‘as of right’ limb must be given a narrow construction : see, for instance, China Field Ltd v Appeal Tribunal (Buildings) (No 1) (2009) 12 HKCFAR 68, paras 13‑18; WLK v TMC (No 1) (2009) 12 HKCFAR 473, paras 7‑8.  Where, as here, a contractual dispute is involved and the substantive issue is whether one party or the other to the contract has committed a breach of contract in an ‘either or’ situation, it is unrealistic to divorce the claim from the counterclaim when considering the right to appeal.  In Mr Scott’s case, he cannot realistically appeal only on his counterclaim without also asking the Court of Final Appeal to overturn this court’s judgment for the plaintiff on its (unliquidated) claim.  In other words, he needs to have leave to appeal not only on his failed counterclaim but also on the plaintiff’s successful claim.  Whilst the former is a liquidated claim, the latter is not and an appeal on it must be based on discretionary leave.  Thus analysed, a narrow construction of the ‘as of right’ limb would require the court to exclude the present type of situation from its scope of application.

6. In reality, the claim and counterclaim are just two sides of the same coin.  They simply represent two opposite ways of looking at the same subject matter of dispute.  To construe section 22(1)(a) otherwise would allow an unliquidated claim to be brought ‘as of right’ before the Court of Final Appeal via the backdoor.  That was, in effect, Mr Scott’s submission.”

9.Here, Saitek’s claims against Timely and Chan are purely contractual whereas their counterclaims are based on the separate and distinct tort of wrongful detention of goods.  Unlike Sinoearn, their intended appeals against Saitek’s claims do not involve any consideration of their counterclaim at all.  We therefore conclude that although their counterclaim is unquantified, it does not have the effect of excluding their intended appeals from the “as of right” limb.  We therefore grant them leave on the ‘as of right” limb.

B2. The “or otherwise” limb

10.That being our decision, we would only very briefly deal with Mr Chiu’s alternative submission that Timely and Chan’s intended appeals fall within the “great and general public importance or otherwise” limb.  Mr Chiu raised three main points.

11.The first point complains that we found that Saitek did not need to reply on the 4^th Illegality to mount its claims.  We do not think there is any substance in this complaint.  In any event, we do not think such a complaint qualifies itself under the “great and general public importance or otherwise” limb.

12.The second point concerns that application of proportionality test enunciated by the English Court of Appeal in ParkingEye Ltd v Somerfield Stores Ltd [2013] QB 840, which Mr Chiu submitted, represented a significant development of the law of domestic illegality, and which has never been applied by Hong Kong courts until the present case.  Mr Chiu argued that the correct application of the proportionality test in Hong Kong, in particular in cases involving foreign illegality, is a matter of great general importance as the test is a matter of law and not discretion.

13.We first note that at the trial below, the parties had no disagreement on the applicable principles derived from ParkingEye Ltd v Somerfield Stores Ltd. In fact, counsel for both sides commended that case to the Recorder.  Before us, subject to the points raised in the respondent’s notice, which we did not find it necessary to deal with, the parties’ position on the applicability of those was just the same.  In short, there is no dispute on those principles all along.  More importantly, the application of those principles must be case-specific.  After ruling that the defence based on the 4^th Illegality failed in limine because Mr Chiu had failed to satisfy us that the Recorder’s finding that Saitek did not need to rely on the 4^th Illegality is plainly wrong, we went on to apply the proportionality test as propounded in ParkingEye Ltd v Somerfield Stores Ltd on the assumption that the 4^th Illegality could be relied on as a ground for not enforcing the Agreement.  We do not think how we applied the principles to the particular facts before us involves any general public importance or is otherwise fit to be submitted to the Court of Final Appeal.

14.Finally, Mr Chiu argued that our decision in allowing enforcement of the Agreement in face of the illegality as found by the Recorder is wrong in law and in consequence thereof there is a grave miscarriage of justice if the decision is left undisturbed.  We can see no substance in this point.

15.In conclusion, we refuse to give leave to Timely and Chan to appeal to the Court of Final Appeal under the “great and general public importance or otherwise” limb.

B3. Security

16.Pursuant to section 25(2)(a) of the Court of Final Appeal Ordinance, Saitek seeks, by way of their solicitors’ letter dated 27 October 2014, security in the sum of HK$400,000.00 for each of Timely and Chan’s appeals, totaling HK$800,000.00.  In response, Timely and Chan, through their solicitors’ letter dated 28 October 2014, only agreed to pay HK$400,000.00 as security for the two appeals because they would most certainly be heard together with one and other with one and the same set of lawyers representing Saitek.

17.This is a matter to be determined by the Court of Final Appeal.  We direct Timely and Chan to apply within 14 days from the date of this Decision to apply to the Court of Final Appeal for setting the conditions on leave and further directions as to the prosecution of their appeals.

B4. Dispositions

18.For the above reasons, we give Timely and Chan to appeal to the Court of Final Appeal on the “as of right” limb.

19.We further order that costs of their applications for leave to appeal to the Court of Final Appeal to be in the cause of the appeal.

20.We next turn to Saitek’s application.

C. SAITEK’S APPLICATION

C1. Orders sought

21.By summons dated 3 October 2014 (“the Summons”), Saitek applies for the following orders :

“ (1) Variation of the costs order nisi such that (‘Item 1’) :

(a) Timely and Mr Chan pay 100% of Saitek’s costs for the trial below except for the costs of an adjournment on 31 May 2013 (i) on a party to party basis up to 25 May 2013 and (ii) thereafter on an indemnity basis;

(b) Timely and Mr Chan to pay 100% of Saitek’s costs for both appeals on an indemnity basis;

(2) Variation of the interest order at paragraph 41(2) of this Court’s judgment such that the counterclaim in the sum of RMB 569,000.00 shall carry interest at commercial rate instead of judgment rate from the date of detention up to Judgment and at judgment rate from the date of the Judgment until payment (‘Item 2’).

(3) An order for payment of the sums paid by Timely and Mr Chan into court, or part thereof, be released to Saitek forthwith (‘Item 3’);

(4) Costs of the Summons be to Saitek with certificate for two counsel for both appeals and the Summons (‘Item 4’).”

C2. Item 1

22.Item 1 concerns the costs below and costs of the appeal.

C2.1  Sanctioned offers

23.On 26 April 2013, Saitek made a sanctioned offer to Timely and Chan respectively[1]. The sanctioned offer made by Saitek to Timely is couched in these terms :

“ Our client offers to settle the whole of the claim and counterclaim (including any setoff) in the Main Action, whether or not expressed in the preceding paragraphs, in the following terms :

(1) Timely shall pay Ryder or its solicitors the amount of HKD 6,000,000.00 (the ‘Settlement Payment’) by way of cashier’s order, bank draft, or solicitors’ cheque issued by Messrs Allen Chan & Co within 14 days of Timely’s acceptance of the offer in accordance with Order 22 rule 16.

(2) Notwithstanding any payment by Mr Chan of any amount of the Settlement Payment (whether paid under the Sanctioned Offer to Chan or otherwise in settlement of either or both of the Actions), Timely shall at all times be liable to pay the balance of the Settlement Payment remaining unpaid to Ryder or its solicitors until the Settlement Payment has been paid in full.

(3) Timely shall be entitled to reduce its liability for the Settlement Payment by such amounts paid by Mr Chan (whether paid under the Sanctioned Offer to Chan or otherwise in settlement of either or both of the Actions).

(4) Timely and Ryder do jointly within 14 days of Timely’s acceptance (in accordance with Order 22 rule 16) of this offer apply for the amount of HKD 3,000,000.00 which Timely has paid into court by a Notice of Sanctioned Payment dated 6 February 2013 (the ‘Sanctioned Payment’) to be paid out to Ryder or its solicitors, failing which Ryder shall be entitled to apply for the payment out of the Sanctioned Payment to Ryder or its solicitors.

(5) Ryder or its solicitors’ shall receive the payment out of the Sanctioned Payment as part payment of the Settlement Payment.

(6) Timely shall not apply for the Sanctioned Payment to be paid out to anyone otherwise than to Ryder or its solicitors.

(7) This offer shall be conditional upon Mr Chan’s acceptance of the Sanctioned Offer to Chan in accordance with Order 22 rule 16.

(8) This offer relates to the whole claim in the Main Action and takes into account all counterclaims (including any setoff) therein.

(9) This offer shall be inclusive of all interest claimed in the Main Action.”

24.Saitek’s sanctioned offer to Chan was similarly worded :

“ Our client offers to settle the whole of the claim and counterclaim (including any setoff) in the Guarantee Action, whether or not expressed in the preceding paragraphs, in the following terms :

(1) If Timely fails to pay any amount of the Settlement Payment within 14 days of its acceptance of the Sanctioned Offer to Timely in accordance with Order 22 rule 16 (‘Timely’s Acceptance’), Mr Chan shall pay such amount to Ryder or its solicitors forthwith.

(2) Mr Chan shall pay to Ryder or its solicitors such amount of the Settlement Payment as aforesaid by way of cashier’s order, bank draft, or solicitors’ cheque issued by Messrs Allen Chan & Co.

(3) Mr Chan’s payment obligations as aforesaid may be enforced without Ryder first having made any demand (written, oral or otherwise) to Mr Chan or taken any recourse, steps or proceedings against Timely.

(4) Notwithstanding any payment by Timely of any amount of the Settlement Payment (whether paid under the Sanctioned Offer to Timely or otherwise in settlement of either or both the Actions), Mr Chan shall at all times after 14 days from Timely’s Acceptance be liable to pay the balance of the Settlement Payment remaining unpaid to Ryder or its solicitors until the Settlement Payment has been paid in full.

(5) Mr Chan shall be entitled to reduce his liability for the Settlement Payment by such amounts paid by Timely (whether paid under the Sanctioned Offer to Timely or otherwise in settlement of either or both of the Actions).

(6) This offer shall be conditional upon Timely’s Acceptance.

(7) This offer relates to the whole claim in the Guarantee Action and takes into account all counterclaims (including any setoff) therein.

(8) This offer shall be inclusive of all interest claimed in the Main Action.”

25.Both sanctioned offers concluded with the same deadline for acceptance and warning for not doing so :

“ This offer will remain open for acceptance for 28 days from the date the offer is made, ie the date on which you are served the offer. If your client gives his notice of acceptance within that period, pursuant to Order 22 rule 21 of the Rules of the High Court our client will be entitled to its costs of the Guarantee Action – inclusive of the costs attributable to any counterclaim or setoff – up to the date of the service of his notice of acceptance.

If your client does not accept the offer within that period, it can be accepted after the expiry of 28 days from the date this offer is made if we can agree on the liability for costs of the Guarantee Action or if the Court grants leave to your client to accept it.

If your client does not accept this offer and is held liable at the trial for more, it would be our client’s intention to rely on Order 22 rule 24 of the Rules of the High Court.”

26.In the proceedings below, Timely and Chan disputed the validity of the sanctioned offers.  By a decision dated 19 September 2013, the Recorder upheld their validity.  He then ordered enhanced interest from 25 May 2013 to 11 July 2014 at 5% above the rate ordered in his judgment and indemnity costs from the period after 25 May 2013.

27.In his written submissions dated 11 November 2014, Mr Chiu, for Timely and Chan, sought to argue that the sanctioned offers were not valid.  This is of course an impermissible attempt to re-litigate the same issue already determined by the Recorder against which Timely and Chan did not appeal.  We will ignore this part of Mr Chiu’s submissions.

28.Initially, Mr Zimmern, for Saitek, simply argued that since Satiek had done better than the offers at trial and on appeal, it should be entitled to indemnity costs for both the trial and appeal as per Item 1.  Mr Zimmern’s argument is premised on the assumption that Order 22 of the Rules of the High Court, which created the statutory regime of sanctioned offers, applies to both the costs below and the costs of the appeal.  His argument merits a closer examination of Order 22.

29.Order 22 of the Rules of the High Court was revamped when the CJR was introduced in April 2009.  It introduced for the first time new provisions governing sanctioned offers and sanctioned payments. Significantly for present purposes :

(1) Under rule 5(6), a sanctioned offer may be made at any time after the commencement of the proceedings but may not be made before such commencement.

(2) Under rule 5(7) and (8), there are different requirements as to what the sanction offer should contain in terms of acceptance apply depending on whether it is made more or less than 28 days before the commencement of trial.

(3) Under rule 7, different provisions govern the withdrawal or diminution of a sanctioned offer depending on whether it was made more or less than 28 days before the commencement of trial.

(4) Under rules 15 and 16, different provisions govern the acceptance of a sanctioned offer depending on whether it was made more or less than 28 days before the commencement of trial.

(5) Under Part IV, different provisions govern the costs and other consequences of accepting a sanctioned offer (rules 20‑22), and the costs consequences where the plaintiff fails to do better than the sanctioned offer (rule 23) or where the plaintiff does better than he proposed in his sanctioned offer (rule 24).  Essentially, the provisions under rule 24 deal with enhancement of costs and interest on the judgment awarded to the plaintiff.

30.Presently worded, these provisions on their face suggest that the new statutory scheme for sanctioned offers apply to trials only.  This suggestion is bolstered by the absence from Order 22 an express provision applying the statutory scheme to appeals before the Court of Appeal.[2]

31.In MGA Entertainment Inc, formerly known as ABC International Traders Inc (t/a MGA Entertainment) v Toys & Trends (Hong Kong) Ltd & Ors [2012] 5 HKC 372, after the majority of the Court of Appeal dismissed the plaintiffs’ appeal against the assessment of the judge below for damages arising from the discharge of an interlocutory injunction , Tang VP (as he then was) said at §73 :

“ …I would also made a costs order nisi in favour of the defendants on an indemnity basis. This follows from the sanctioned offer [made below], which if it had been accepted there would have been no appeal.”

32.In Montrio Limited & Another v Tse Ping Shun David, CACV 291/2011, unreported, 31 January 2013, Kwan JA, at §4, applied the reasoning of Tang VP in MGA Entertainment Inc, formerly known as ABC International Traders Inc (t/a MGA Entertainment) v Toys & Trends (Hong Kong) Ltd & Ors, to an open offer made for the costs of the appeal and ordered indemnity costs against the losing party.

33.In Sino Trifone Limited v Fond Express Logistics Limited & Another, HCMP2366/2012, unreported, 22 May 2013, Fok JA, at §16, applied Montrio Limited & Another v Tse Ping Shun David and said that :

“ …we see no reason why the plaintiffs costs should not be assessed on an indemnity basis since, if the sanctioned offers had been accepted, there would have been no trial, no proposed appeals and no applications by notices of motion for leave to appeal to the Court of Final Appeal. In any event, for the reasons explained, the notices of motion are misconceived and wholly without merit.”

34.From the rules as they are presently worded and the case law as they now stand, we derive the following general principles :

(1) A sanctioned offer made below does not entitle the party making it to invoke the provisions in Order 22 for the purpose of the costs of the appeal.[3]

(2) In dealing with the costs below, by reason of the combined effect of Order 59 rule 10(1) and Order 22 rule 23, the Court of Appeal should take into account the sanctioned offer made below where appropriate, having regard to all the circumstances, including how the appeal is disposed of.

(3) In dealing with the costs of the appeal, the Court may take into account the sanctioned offer made below where appropriate, having regard to all the circumstances, including the result of the appeal.

35.Turning to the case before us, we need to deal with the costs below and the costs of the appeal separately.

36.For the costs below, we initially adopted a global approach in our order nisi.  Now with the sanctioned offers, we will deal with the costs below at two stages.  For the costs incurred before the latest date on which the offers could have been accepted, in light of how we disposed of the appeal, Saitek should have its costs on the claim while Timely and Chan should have their costs on the counterclaim, both sets of costs are to be taxed on a party and party basis.  For the costs incurred after that date, although we allowed Timely and Chan’s counterclaim to the limited extent as we did, Saitek still did better than it proposed in the sanctioned offers.  So it should be entitled to all its costs on an indemnity basis incurred after that date : see Order 22 rule 24(3)(a).  We therefore vary our costs order nisi for the costs below as follows :

(1) Saitek shall have the costs of its claim and Timely and Chan shall have their costs of the counterclaim, both sets of costs to be taxed on a party and party basis, up to the latest date on which the sanctioned offers made by Saitek to Timely and Chan could have been accepted; and

(2) Saitek shall have its costs of the proceedings below except for the costs of the adjournment on 31 May 2013 on an indemnity basis thereafter.

37.For the costs of the appeal, Saitek cannot invoke Order 22 based on the sanctioned offers under the present rules. Although even after appeal, Saitek still did better than it proposed in the sanctioned offers, the fact remains that Timely and Chan did succeed partially in their appeals.  This is an important consideration which distinguishes the present case from MGA Entertainment Inc, formerly known as ABC International Traders Inc (t/a MGA Entertainment) v Toys & Trends (Hong Kong) Ltd & Ors and Kai Min Fashion (HK) Limited v Fond Express Logistics Limited & Another where the fact that the appeal failed entirely and was without merit was an important factor in the Court’s decision of awarding indemnity costs because of the sanctioned offer made below.  In the exercise of our discretion on costs here, we do not think Timely and Chan, having succeeded partially in their appeals, should be visited with indemnity costs.  We think the costs order nisi that we made for the costs of the appeal is fair, reasonable and reflective of the result of the appeals.  We refuse to vary our costs order nisi on appeal as per Item 1(b).  That order nisi is now made absolute.

C3. Item 2

38.Mr Zimmern invited us to vary our order on interest as our judgment has not been sealed.  He however agreed with Mr Chiu’s submission that while we are not functus on this point, this power should be exercised sparingly.  But Mr Zimmern submitted that the overriding purpose for awarding interest is to compensate the claimant for being kept out of pocket of money which ought to be have been paid, citing Polyset Ltd v Panhandat Ltd, FACV 28/2000, unreported, 25 April 2002, per Ribeiro PJ at §13, and Menno Vox v Global Fair, CACV 281/2009, unreported, 7 October 2014, per Kwan JA at §18.  He submitted that the usual practice in commercial cases to award pre-judgment interest at commercial rate should not be departed from and could represent reasonable compensation to Timely for having been kept out of the counterclaim claim sum from the date of detention until judgment, citing MGA v Toys & Trends (2014) 17 HKCFAR 27, at §84. Thereafter interest should then run at the judgment rate starting from judgment until payment.

39.In opposition, Mr Chiu argued that there had been no new matter which arose after our judgment which would bear on the decision on interest.  The present application is simply an attempt at a second bite of the cherry.

40.We agree with Mr Chiu.  We can see no reason why Mr Zimmern did not make submission on interest at the appeal hearing.  And we are not persuaded that we should now revisit the interest rate.

41.Item 2 is disallowed.

C4. Item 3

42.In principle, Mr Chiu did not object to the payment out application.  The exact amount of course has to be worked out.  We will direct the parties to provide an agreed figure to the court within the next 14 days.  We will then order the payment out as per the agreed figure on paper.

C5. Item 4

43.Item 4 covers costs the certificate for two counsel and the costs of the Summons.

44.Having regard to the issues involved in the appeal and the Summons, we do not think the engagement of two counsel is justified.  Such a certificate is refused.  In light of how we dispose of the Summons, we make no order as to costs for the Summons.

Mr Richard Zimmern and Mr Jason Yu, instructed by Munros, for the plaintiff in both cases

Mr Simon Chiu, instructed by Allen Chan & Co, for the defendant in both cases