YIP KAM CHUN v. WELLGAIN INTERNATIONAL INDUSTRIAL LTD

DCEC 1069/2017

[2021] HKDC 805

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1069 OF 2017

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DECISION

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A. Variation of costs order nisi

1.  By a written judgment (“Judgment”)  this court delivered on 5 May 2021[1] in these employees’ compensation proceedings (“EC Claim”)  in relation to an accident (“Accident”)  the Applicant met on 1 December 2015, I entered judgment in favour of the Applicant for a sum of $306,628 (“Judgment Sum”)  together with interest at half the judgment rate from 1 December 2015 to the date of judgment, and thereafter at the judgment rate until payment.  I further made a costs order nisi (“Nisi Order”), ordering the Respondent to pay the costs of these proceedings.

2.  This is the Respondent’s application by summons to vary the Nisi Order by substituting the Nisi Order by an order that the Applicant do pay the Respondent’s costs of these proceedings.  The summons was supported by the affirmation of Wong Tommy Ki Man (“Wong’s Affirmation”).

3.  The hearing on 7 June 2021 was fixed to hear this summons as well as a separate summons issued by the Respondent, which is also the Defendant in the corresponding parallel PI Action, DCPI 2197/2020 (“PI Action”), to strike out the PI Action.  The Applicant was absent from the hearing, but had submitted before the hearing written submissions in relation to both of the said summonses.  The Respondent/Defendant was represented by the same trial counsel, Mr Cheng. I struck out the PI Action at the hearing.

B.  The basis of the variation application

4.  This variation application is based on a “without prejudice” letter in Chinese dated 14 December 2016 (“Written Offer”)  TRM (HK)  Limited (“TRM”), which the loss adjuster of the Respondent’s insurer sent to the Applicant.  In the Written Offer, TRM offered a sum of $320,000 (inclusive of interest and advance payment the Applicant had already received)  (“Offered Amount”)  for a global settlement of the Applicant’s claims arising from the Accident.  The Applicant did not respond to the Written Offer by the deadline date of 28 December 2016.

5.  On 15 May 2017, one day before the commencement of these proceedings on 16 May 2017, TRM repeated offer of the Offered Amount in its second written offer in English marked “Without Prejudice Save as to Costs” to the Applicant’s former solicitors.

6.  By their letter in reply dated 17 May 2017, the Applicant’s former solicitors rejected the second written offer.

7.  According to the Respondent’s calculations[2], the total amount of the Applicant’s compensation (Judgment Sum together with interest)  computed up to 28 December 2016 (the deadline for the acceptance of the  Written Offer)  would have been $319,816 (“Gross Compensation”)  [$306,628+($306,628 x 4% x 12.903/12)].  The Respondent submitted that the Gross Compensation the Applicant would have had received by the deadline date of the Written Offer was less, albeit by a small amount, than the Offered Amount TRM stated in the Written Offer.

8.  The Respondent conceded that the gross amount of the Applicant’s compensation would have been larger than the second written offer TRM made in its letter of 15 May 2017.  Hence, the Respondent only relied on the Written Offer in this variation summons by submitting that the Written Offer was a valid Calderbank offer. In having failed to beat the Written Offer, the Applicant was, Mr Cheng submitted, unreasonable to have pursued the EC Claim to a full-blown trial.

9.  As the Respondent made no sanctioned offer or sanctioned payment pursuant to O 22 of the Rules of the District Court[3] in either the EC Claim or the PI Action, the statutory costs consequences provided in O 22 are not engaged. Notwithstanding the absence of a sanctioned offer or a sanctioned payment, the Respondent submitted that pursuant to O 62, r 5(1)(d), the Written Offer constitutes a special matter that I should favourably take into account in exercising my discretion as to costs.

10.  Order 62, r 5 provides for “Special matters to be taken into account in exercising discretion” when:-

“(1)  The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account—

…

(d)  any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;”

C.  The Parties’ arguments

C.1  The Objections

11.  The Applicant did not file any affirmation in opposition.  His objections were set out in his written submissions.  The Applicant raised three contentions.

12.  First, the Written Offer was not a valid offer of settlement.  The Written Offer was not expressly marked “without prejudice save as to costs”. In the absence of express provision of any costs consequences in the Written Offer, the Applicant contended that it was not valid and should be disregarded.

13.  Secondly, since the Written Offer covered both the employees’ compensation and damages for personal injuries, the Applicant stated that it was not relevant to this EC Claim.

14.  Thirdly, when the Written Offer was made, the Applicant was still receiving active medical treatment, and receiving sick leave.  It was therefore reasonable for him to reject the Written Offer.

C.2  The Respondent’s submissions

15.  The Respondent submitted that the absence of an express reference to “save as to costs” does not affect the validity of the Written Offer as a valid Calderbank offer. Mr Cheng referred to the last paragraph of the TRM’s letter, which set out an express reminder to the Applicant to carefully consider the Offered Amount to avoid unnecessary legal costs[4]. Mr Cheng submitted that by these express words, the Written Offer undoubtedly was in effect the same as an offer that is marked with “without prejudice save as to costs”.

16.  It was Mr Cheng’s submissions that since the Written Offer was a valid Calderbank offer, it is within the meaning of a written offer referred to in O 62, r 5(1)(d). Despite the lack of a sanctioned payment or a sanctioned offer under O 22, Mr Cheng submitted that this court’s discretion on costs in relation to the Written Offer should not be unduly fettered, referring to Lam VP’s criticism of the exclusionary rule of r 5(1)(d)  in CEP Ltd v Wuxi Jiacheng Solar Energy Technology Ltd Co [2016] 1 HKLRD 960 at §1.  As his Lordship stated in CEP Ltd that “the regime in O 22 should be permissive rather than mandatory”, Mr Cheng submitted that this court should adopt a permissive approach so that it will be more in line with “the spirit of the underlying objectives in O 1A” and be more in tune with O 22, r 2(4): see CEP Ltd at §1.

17.  Mr Cheng submitted that there are good reasons for this court not to exclude the Written Offer.

18.  First, the Respondent could not put forward a sanctioned payment that would have the same effect as the Calderbank letter.

19.  It was suggested that since the EC Claim was not stayed in favour of the PI Action, the Respondent could not make a sanctioned payment that could cover both actions because O 22 only allow sanctioned payments to be made with respect to one action, but not multiple actions jointly.  Under these circumstances, Mr Cheng submitted that the advice by Bharwaney J in Maxwell v Keliston Marine (Far East)  Ltd (In Liq)  & Anor[5] at §37 for an employer to protect the costs position by ‘making a “nominal” sanctioned payment in the employees’ compensation proceedings and a “full” sanctioned payment in the common law proceedings or to split the total payment-in between the two’ was not open to the Respondent in this case.

20.  Secondly, the Written Offer was a genuine one.

21.  It was Mr Cheng’s submissions that this court should not exclude the Written Offer simply because it beats the Gross Compensation by a mere small amount of $200.  There is no evidence that the Written Offer was tactically made: cf CEP Ltd (supra)  at §§40-42.  The court should therefore regard the Respondent as having made a valid Written Offer that the Applicant had failed to beat.  The Respondent was therefore an overall winner despite having lost on liability.  Mr Cheng also submitted that the Respondent’s defence was not tenuous.  The court should not therefore make a separate costs award in respect of the costs incurred on the issue of liability and to award those costs to the Applicant.  Such type of separate costs awards between costs on liability and quantum did not find favour with the learned Judge in Maxwell in §34.

22.  Thirdly, it was unreasonable for the Applicant to have disregarded the Written Offer.

23.  Mr Cheng did not agree with the Applicant’s suggestion that the Written Offer was pre-maturely made despite it having been made at a pre-action stage. Mr Cheng stated that the fact that the Applicant was still granted sick leave and attended medical consultations at that time was irrelevant.  This was because this court had rejected the Applicant’s unduly long period of sick leave, and instead found that a reasonable sick leave period was 6 months. According to the court’s said finding, Mr Cheng suggested, the Applicant would have been physically fit by May 2016.  His medical condition, which was found to be minor, should have been stable for assessment that would have enabled the Applicant to have at the very least obtained a medical report of his treating doctor if not an expert report to assess the quantum of his claim: see Ku Suet Yu Amy v JV Fitness Ltd t/a California Fitness[6] at §53.  Mr Cheng therefore submitted that the Applicant would have had sufficient information to enable him to make a proper consideration of the Offered Amount.

D.  Discussion

24.  A court has a wide and unfettered discretion in the award of costs. Generally, costs should follow the event, “except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs”: see O 62, r 3(2).

25.  Since this court has already struck out the PI Action, I’d be inclined, for the purpose of this variation application, to treat the whole Offered Amount as an offer for this EC Claim.  Hence, the Respondent has successfully beat, albeit by a small margin, the Gross Compensation the Applicant was awarded by the deadline date of the acceptance of the Written Offer.

26.  As for the validity of the Written Offer, I reject the Applicant’s arguments.  When the contents of the letter of the Written Offer were read in context, I agree with Mr Cheng’s submissions (at §15)  that the Written Offer, despite the absence of a reference to “save as to costs”, is a valid Calderbank offer.  In my view, the last paragraph of the said letter Mr Cheng relied on clearly shows that TRM had made a genuine Calderbank offer to the Applicant, intending to make a compromise of the Applicant’s intended employees’ compensation claim and the common law action arising from the Accident.  Hence, when considering the variation application, I accept that the Written Offer is within the meaning of the “written offer” referred to in O 62, r 5(1)(d).  Accordingly, the next matter I need to consider is whether I should take into account the Written Offer when the Respondent had not made a sanctioned payment or offer within the statutory O 22 regime.

27.  It should first be noted that the provisions for a sanctioned payment and sanctioned offer together with the statutory consequences under O 22 have not deprived the freedom of a party to make an offer (such as by way of the traditional Calderbank offer)  to settle a matter in whatever way the party chooses.  However, with the new O 22 that provides for a well-regulated procedure for settlement by way of a sanctioned payment or a sanctioned offer with the pertaining costs consequences, a settlement offer which is not the mandated O 22 sanctioned offer or sanctioned payment does not have, unless the court so orders, the consequences specified in O 22, r 2(4).  As to how a court should exercise its discretion in relation to a Calderbank letter or offer, the commentary in the Hong Kong Civil Procedure 2021, Vol 1 at §22/2/A provides a useful guidance as follows:-

“5. Although the existence of a Calderbank letter may be an important and material consideration in the exercise of the court’s discretion as regards to costs, it must not be equated with a sanctioned offer or a sanctioned payment under O 22. The existence of a Calderbank letter should influence but not govern the exercise of the Court’s discretion (See McDonnell v McDonnell[1977] 1 W.L.R 34; [1977] All E.R. 766 CA.)”

28.  In the circumstances, the Written Offer despite being a valid offer, does not have the statutory consequences provided in O 22.  Ultimately, the Written Offer should not be a governing factor, but only a matter I can consider when exercising my discretion on costs.

29.  Having considered all the circumstances of this case, I do not accept that the Written Offer constitutes a special matter that I should take into account when exercising my discretion on costs.  My reasons are as follows.

30.  First, it is reasonable for the Applicant to reject the Written Offer.

31.  Pursuant to s 16D (4)  and (5)  of the Employees’ Compensation Ordinance[7], the Ordinary Assessment Board (“OAB”)  is empowered to assess the percentage of the loss of earning capacity permanently (“LOEC”)  caused by an employee’s injury and the period of absence from duty necessary as a result of the injury upon referral by the Commissioner for Labour (“Commissioner”)  of a “claim for compensation for an injury to an employee of which he has notice if in the opinion of the Commissioner such injury is likely to result in … incapacity”.  After the completion of the assessment, the OAB will, pursuant to s 16F, issue an assessment certificate by way of a specified “Form 7” (“Form 7”), and a review assessment certificate, by way of a specified “Form 9” (“Form 9”)  (pursuant to s 16G (3)).

32.  Pursuant to s 16H, the assessments stated in Form 7 and Form 9 would constitute conclusive evidence in the absence of an appeal.  In the circumstances, for the purpose of assessing compensation, an injured employee’s percentage of LOEC and the number of days of sick leave can only be ascertained until a Form 7 is issued.  If there is an objection to Form 7, it will then be until the Form 9 is available.  Thus, the result of the assessment contained in Form 7 provides not only the essential, but also objective evidence and information for the working out of the s 9 and s 10 compensation respectively for an employee’s permanent incapacity and periodical payments.

33.  The Applicant’s Form 7 assessment certificate was issued on 26 April 2018.  The dates of the assessment by the OAB were stated to be 4 October 2017 and 12 April 2018.  The Written Offer was made about 10 months before the Applicant attended the first medical assessment by the OAB.  Without the information in relation to the calculations for compensation under s 9 and s 10, the Applicant, in my view, lacked the most fundamental evidence that would have enabled him to evaluate the reasonableness of the Offered Amount, and make an informed decision.  Unless there was undue delay for the OAB to conduct the medical assessment, I believe that it was reasonable to have allowed the Applicant to rely on the OAB assessment certificate rather than resorting to a medical expert as Mr Cheng suggested (see §23).

34.  My finding in the Judgment that the Applicant was only entitled to 6 months’ sick leave, in my view, should not be unfairly equated with the Applicant as having acquired the sufficient information to enable him to conduct an assessment of the amount of compensation and damages he would likely be awarded.  Sick leave is only one of the two items that a Form 7 certificate deals with for it also includes an assessment for the percentage of LOEC.  The Applicant’s Form 7 assessment was in fact reviewed, resulting to the issue of his Form 9 review assessment on 18 October 2018.  The Respondent appealed against the Applicant’s Form 9[8]. The findings of this court were based on the evaluation of all the medical evidence, including the joint orthopaedic expert report. Ultimately, this court confirmed the Applicant’s Form 9 review assessment in relation to the percentage of LOEC.

35.  In the circumstances, I am of the view that when the Written Offer was made, the Applicant did not have the vital medical evidence in relation to the extent of his injuries to enable him to make an informed decision. It is reasonable for him to have disregarded the Written Offer.

36.  Secondly, no sanctioned offer or sanctioned payment was made throughout the proceedings.

37.  The only settlement offers in relation to the Accident were made at the pre-action stage by TRM (see §§4-5 above).  The Respondent made no sanctioned offer or sanctioned payment throughout the entire proceedings between 16 May 2017 when this EC Claim was filed and 19 January 2021, the first day of trial when it was legally represented throughout, and had ample opportunities to make a sanctioned payment or offer.  Despite having had the benefit of legal advice to help evaluate the merits of the EC Claim, the Respondent had nonetheless chosen not to avail itself of the O 22 sanctioned scheme to protect itself on costs, but pursued the litigation until the end with vigour.

38.  I do not agree with Mr Cheng’s submissions that the Respondent could not protect itself against costs by the O 22 sanctioned mechanism on the ground that this EC claim was not stayed. Since a court would have regard to payments made in an employees’ compensation proceeding and the related personal injuries action when exercising its discretion as to costs for the reason of the proviso to s 26(1), which provided that common law damages were to be reduced by the value of compensation, I find the explanation given by Mr Cheng on behalf of the Respondent irrational: see Maxwell at §§21-25.  Even if the Respondent found it undesirable to make a sanctioned payment due to the complexity caused by the parallel proceedings, I’d be inclined to believe that the Respondent should have at the very least been able to make an O 22 sanctioned offer.  There is no justification for the Respondent’s complete disregard of the O 22 regime to protect itself from costs.

E.  Conclusion

39.  For these reasons, I’m disinclined to consider the Written Offer as a special matter that I need to take into account when considering this variation application.  The Respondent’s summons is therefore dismissed.

40.  Since the Applicant was acting in person and did not attend the hearing, I do not think that he would have incurred costs. I therefore make a costs order nisi that there should be no order as to costs, including any costs reserved.  In the absence of any variation application within 14 days of the handing down of this Decision, the costs order nisi shall become an absolute order.

41.  Lastly, I wish to thank Mr Cheng for his assistance.