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HCA 2032/2007
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 2032 OF 2007
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BETWEEN
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GOLDEN EAGLE INTERNATIONAL
(GROUP) LIMITED |
Plaintiff |
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and
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GR INVESTMENT HOLDINGS LIMITED |
Defendant |
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Before: Hon Lam J in Chambers
Date of Hearing: 24 May 2010
Date of Judgment on Costs and Interest: 25 June 2010
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JUDGMENT ON COSTS AND INTEREST
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1. Pursuant to the direction in my judgment of 30 April 2010, parties have agreed on the judgment sum to be entered in favour of the Plaintiff. The agreed sum is RMB 12,608,435.51.
2. That figure is higher than a sanctioned offer by the Plaintiff to the Defendant contained in a letter dated 4 January 2010. By a letter of that date, solicitors for the Plaintiff proposed to settle the claim and counterclaim on condition that the Defendant pays an additional sum of RMB 10 million to the Plaintiff. That offer was not taken up by the Defendant.
3. Hence, subject to the contention of Mr Chan regarding the wordings of the offer, the court’s discretion under Order 22 Rule 24 is triggered. Under that rule, the court may order,
(a) interest on the whole or part of the sum awarded at an enhanced interest rate (up to 10% above judgment rate) for some or all of the period after the latest date on which the sanctioned offer could have been accepted without leave, see Rule 24(2);
(b) costs on indemnity basis after the latest date on which the sanctioned offer could have been accepted without leave, see Rule 24(3)(a);
(c) interest on those costs at a rate up to 10% above judgment rate.
4. Further, Order 22 Rule 24(4) provides that the court shall make those orders unless it considers it unjust to do so. Whether it is unjust shall be determined with reference to all the circumstances of the case including the matters specified under Rule 24(5).
5. Mr Chan submitted that the offer of the Plaintiff was ambiguous. The relevant paragraph in the letter was in the following terms,
“The Defendant do pay the Plaintiff an additional sum of RMB 10,000,000.00 (apart from the previous partial settlement of the fees and commissions of RMB 3,000,000.00 by your client) within 14 days from the date of order to be made. In other words, the Defendant shall pay a total sum of RMB 13,000,000.00 to the Plaintiff in settlement of the above Action.”
6. Mr Chan said it was not clear whether the Plaintiff was asking for an additional amount of RMB 10 million or RMB 13 million.
7. I agree that a sanctioned offer must be couched in clear terms. But I am of the view that offer of 4 January 2010 was clear enough. Whilst the wordings could have been improved and the last sentence was in fact otiose, the first sentence made it very clear that under the proposed term the Defendant was to pay a further sum of RMB 10 million to settle the whole action. The RMB 13 million was referring to the addition of that RMB 10 million to the RMB 3 million already paid in the past.
8. Thus, I shall exercise my powers under Rule 24 unless I consider it unjust to do so. Apart from the ambiguity point, Mr Chan did not refer to other matters to contend it would be unjust to make such orders. Counsel however did address the court on how the powers should be exercised in terms of the relevant interest rates. I shall deal with the interest rates later. Having rejected the ambiguity point, having considered the circumstances of the case, including the specific matters set out in Rule 24(5), I do not find it unjust to make those orders.
9. I therefore turn to how the powers should be exercised. First, I will deal with enhanced interest for the judgment sum. The sanctioned offer could have been accepted by the Defendant without leave within 28 days, see Order 22 Rule 6(7). Thus, the Defendant had up to 1 February 2010 to accept the offer. Thus, we are talking about enhanced interest between 1 February 2010 and date of judgment.
10. In England, it has been explained in several cases that these powers under Order 22 Rule 24 are not meant to be penal in nature. Rather, they aim at achieving a fairer result for the winning party. Though our rules set the maxima of the interest to be awarded by reference to 10 % above the judgment rate instead of the base rate, I do not see any material distinction in terms of the rationale behind the rules. In the context of enhanced interest, Chadwick LJ identified its purpose as follows in McPhilemy v Times Newspapers (No 2) [2001] 4 All ER 861 at para. 21,
“I conclude, therefore, that the power to award interest … at an enhanced rate … is conferred in order to enable the court, in a case to which r 36.21 applies, to redress the element of perceived unfairness, otherwise inherent in the legal process, which arises from the fact that damages, costs (even costs on an indemnity basis) and statutory interest will not compensate the successful claimant for the inconvenience, anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on terms which (as events turned out) were less advantageous to him than the judgment which he achieved.”
11. In the agreed draft judgment, apparently without considering the power of the court to order enhanced interest, parties agreed upon interest on the judgment sum from date of writ to date of judgment at judgment rate. Judgment rate is usually higher than commercial rate. For pre-judgment period, the usual practice in commercial case (and I regard the present case as a commercial case) is to award 1% above prime, see Hong Kong Civil Procedure 2010 para. 6/L/11. Parties did not put evidence of prime rates before me. However, in the course of submissions, Mr Chan told the court that the Hongkong Bank prime rate is 5% whilst the judgment rate is now 8%. Thus the position agreed between the parties already carried an enhanced element as far as pre-judgment interest on the judgment sum is concerned.
12. In the circumstances, adopting the rationale of McPhilemy v Times Newspapers (No 2) [2001] 4 All ER 861 (where double compensation by the exercise of this power was disallowed when the jury award of damages in that case had already taken care of such perceived unfairness), I do not think I should order a further enhancement in respect of the pre-judgment interest on the judgment sum. I will simply adopt the agreed draft of the parties and order pre-judgment interest at the judgment rate.
13. Next I turn to the basis of taxation of costs. Chadwick LJ explained the purpose of the power to order costs on indemnity basis in McPhilemy v Times Newspapers (No 2) [2001] 4 All ER 861 at para. 22,
“… The purpose for which the power to order the payment of costs on an indemnity basis is conferred, as it seems to me, is to enable the court, in a case to which r 36.21 applies, to address the element of perceived unfairness which arises from the fact that an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor.”
14. I see no reason why I should not make such an order against the Defendant in respect of costs incurred by the Plaintiff after 1 February 2010. The Defendant shall pay the Plaintiff costs incurred after 1 February 2010 on indemnity basis.
15. The Plaintiff also asks for indemnity basis in respect of costs incurred earlier than 1 February 2010 based on grounds other than Rule 24(3)(a). I shall deal with that later.
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, 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...
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