Civil procedure — costs — sanctioned offer or payment — plaintiff accepted defendant’s sanctioned payment — exceptional circumstances justifying departure from general rule under O. 22 r. 20(1) that plaintiff entitled to costs up to date of acceptance of payment — appropriate costs order under “otherwise proviso” to O. 22 r. 20(1) — Rules of the High Court (Cap.4A, Sub.Leg.)
P and D were art dealers. T, an ex-employee of P, stole various paintings from P. Four were sold to D, who sold them on without notice of the theft in good faith. D was able to return all but one of them to P, before P commenced these conversion proceedings against D in 2010. It was initially thought that the issue was valuation of the unreturned painting (2nd Painting). However, in 2013, when D presented an image of a “Water Village” painting (1994 Painting) to P for the purpose of the proceedings, it transpired that the real issue was the identity of the 2nd Painting, which had hitherto only been described as “An oil painting by Chen Yifei by the name of ‘Water Village’”, a generic name commonly used in the trade to refer to a particular series of the artist’s landscape paintings. P only disclosed an image of the 2nd Painting in 2017, which was clearly different from the 1994 Painting. Many steps were taken in the context of absence of any such image. Costs were reserved in interlocutory proceedings concerning issues of authenticity, amendments to pleadings, updating of valuations, and expert evidence. After sight of the image of the 2nd Painting in 2017, P’s expert valuation of the 2nd Painting was reduced from HKD4.2 million to RMB2.8 million (approximately HKD3.2 million). D then made a Calderbank offer of HKD3.2 million with no order as to costs (the 2017 Settlement Proposal). P counter-proposed RMB4.5 million plus its costs (Counter-proposal). On 18 June 2019, P accepted D’s sanctioned payment of HKD3.2 million made on 23 May 2019, acknowledging that it would then face an application for a costs order under the “Otherwise Proviso” to O. 22 r. 20(1) of the Rules of the High Court (Cap. 4A, Sub.Leg.) (RHC). D now sought an order under the Otherwise Proviso that it pay 25% of P’s costs of these proceedings, including any costs reserved, up to 18 June 2019.
Held, ordering D to pay 70% of P’s costs, including the costs reserved, that:
- The prima facie rule in O. 22 r. 20(1) of the RHC, that the plaintiff was entitled to costs of his proceedings up to the date of serving notice of acceptance, should apply unless: (a) the defendant discharged the burden of showing exceptional circumstances that justified a departure; and (b) he had given a prior warning to the plaintiff that he would apply to invoke the Otherwise Proviso on acceptance of the sanctioned payment or sanctioned offer (Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd  2 HKLRD 1184 applied). (See paras. 7–9.)
- What constituted “exceptional circumstances” was a matter in the court’s discretion to be exercised judicially. Examples included where the terms of the ultimate settlement were the same as an offer made previously. Applications under the Otherwise Proviso were not to be taken as an opportunity generally to revisit the procedural history or merits of the particular piece of litigation, and to apply the broader exercise of discretion on costs as might in appropriate circumstances be applicable outside the context of O. 22. (See paras. 10, 14.)
- Reserved costs fell to be dealt with under O.22 r.22(5)(b), instead of r.20(1) (Golden Tonn Industrial Ltd v Hong Kong Cyberport (Ancillary Development) Ltd  3 HKC 226 applied). (See para. 15.)
The present application
This was one of those rare cases where the Otherwise Proviso was triggered. The image of the 2nd Painting was at all times held by P and the failure to find and disclose the image much earlier was the result of the failure properly to look for it. That failure had a significant impact on valuation and was central to the issue of identity. This created exceptional circumstances permitting departure from the prima facie rule. Nevertheless, the Court also took into account that (on the evidence) D might have been able to obtain and present at least an image of the 1994 Painting somewhat earlier than April 2013. (See paras. 44, 49.)
As for P’s rejection of the 2017 Settlement Proposal, the Counter-proposal was not a reasonable response. There was no basis on the pleadings for claiming almost twice P’s own expert’s valuation. P ultimately accepted a monetary figure which it had been offered 18 months earlier and in the knowledge that it would then face this application under the Otherwise Proviso. These matters also triggered the Otherwise Proviso. (See para. 47.)
Regarding the steps taken by P to contest the authenticity of the 1994 Painting, this issue was a largely irrelevant and unnecessary side excursion. (See paras. 32, 45.)
On D’s complaint concerning particulars in the claim, where the identity of the painting did not appear to be at issue, the original pleading was probably sufficiently particularised. While it might be better if more detailed particulars of the 2nd Painting had been given, this matter did not constitute the necessary exceptional circumstances for triggering the Otherwise Proviso. As for D’s reliance on P’s combative approach and late withdrawal of unreasonable claims, these points alone would not suffice to trigger the Otherwise Proviso but might however be considered in the overall context. (See para. 43, 46.)
The “otherwise” order was to be approached on a relatively broad-brush basis. That basis would also include taking into account those costs which had been so far reserved, though it would be necessary to look at the specific applications on which they had been reserved. The fair and appropriate costs order to make in the exercise of the Judge’s discretion was to order D to pay 70% of P’s costs, including those costs reserved. This properly took into account the principle which underlay the prima facie rule in O. 22 r. 20(1), as well as the various matters above. It also took into account the fact that P had ultimately recovered what it said was the value of the lost 2nd Painting, but at the end of the proceedings which had been increased in length and complexity for ultimately no good, or little good, purpose. (See paras. 51–52.)
This was an application by the defendant for a costs order under the “otherwise proviso” to O. 22 r. 20(1) of the Rules of the High Court (Cap. 4A, Sub.Leg.). The facts are set out in the judgment.