XCHRX LEE YAU TSANG v. UNITED INDIA INSURANCE CO. LTD. and Others

1995, No. PI690
(formerly 1993, No.A2159)

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H E A D N O T E

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Practice and procedure - Calderbank offer.

Defendants were jointly and severally liable to the Plaintiff in a personal injury claim. The 2nd and 3rd Defendants made a Calderbank offer to the 1st Defendant to settle the Plaintiff's case. The 1st Defendant only responded two months later. The Defendants then agreed to make payment into court. Money was accepted by the Plaintiff.

Held : The 1st Defendant solely responsible for the Plaintiff's costs up to acceptance of payment in.

Observation on early settlement of cases and parties' obligation to respond to offer of settlement.

1995, No. PI690
(formerly 1993, No.A2159)

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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Background

1. In this action the Plaintiff claimed against the Defendants damages he sustained in a traffic accident. Interlocutory judgment on liability was entered against the Defendants on 20th January 1996. Their liabilities were apportioned as followed : 1st Defendant, 80%; 2nd and 3rd Defendants, 20%. The Defendants also agreed to pay costs to the Plaintiff on the same basis of apportionment. The assessment of damage was scheduled to be held on 30th July 1996.

2. The Defendants made payment into court on 15th July 1996 in the sum of $1 million. This sum was in satisfaction of all the causes of action of the Plaintiff and after taking into account a sum of $500,000 paid by the Defendants by way of interim payment. The sum was accepted on 27th July 1996 which was within the 14-day period for acceptance under O.22, r.3.

The issues

3. Under O.62, r.10(2) where the Plaintiff accepts payment into court in accordance with O.22, r.3(1), he shall be entitled to his costs of the action incurred up to the time of giving notice of acceptance. There is no dispute that the Plaintiff is entitled to his costs up to the acceptance of the money in court. The issue in this hearing is firstly, whether the 1st Defendant should be solely responsible for the Plaintiff's costs and secondly, the costs of the Plaintiff for the hearing today.

The 2nd and 3rd Defendants' position

4. The 2nd and 3rd Defendants argued that the 1st Defendant should be wholly responsible for the costs relating to the assessment of damage 30 days from 22nd February 1995 when a Calderbank offer was made by them to the 1st Defendant. Initially, they had asked that the 1st Defendant should be responsible for the costs of the action starting from 8th June 1996 which was 30 days from 8th May 1996 when another Calderbank offer was made to the 1st Defendant. The 30 days period was arrived at by reference to the time of the offer, the response and the time required by the Plaintiff to accept the offer.

The first offer

5. On 22nd February 1995, Hoosenally & Neo, Solicitors for the 2nd and 3rd Defendants wrote to the Plaintiff's solicitors agreeing to contribute 10% towards the damages that the Plaintiff might recover in this action and offered to agree quantum in the sum of $1.55 million. A similar offer was written to Yung, Yu, Yuen & Co. ("YYY"), the 1st Defendant's solicitors. The letter stated that the offer was open for 14 days and if the offer was accepted after 14 days, the 1st Defendant would have to bear the costs occurred by the 2nd and 3rd Defendants. There was no response from the 1st Defendant to this offer.

6. In my view, the 2nd and 3rd Defendants are not entitled to rely on the first offer. At that stage, the question of liability between the Defendants had not been resolved. It was only in January 1996 that the Defendants reached terms as to the apportionment of liability. The offer on quantum must be considered together with liability. Further, although the 1st Defendant had not responded to this letter, it is apparent that the 2nd and 3rd Defendants did not rely on this letter because on 8th May 1996, they made a further offer to the Plaintiff and the 1st Defendant.

The second offer

7. By letter dated 8th May 1996, Hoosenally & Neo wrote to the solicitors of the Plaintiff and the 1st Defendant, stating, inter alia, that :

"We are instructed to offer to agree the Plaintiff's quantum inclusive of interest in the sum of HK$1,500,000.00 and an interim payment in the sum of HK$500,000.00 having been made by the Defendants to the Plaintiff under a Consent Order dated 27th March, 1996, leaving HK$1,000,000.00 payable.

Please take notice that unless this offer is accepted within 14 days from its receipt by you, it can only be accepted on condition that you pay the costs incurred by the 2nd and 3rd Defendants after the date of such receipt."

8. On 18th May 1996, the Plaintiff rejected the offer and made a counter-offer. Nothing was heard from YYY until 11th July 1996 when they wrote to Hoosenally & Neo proposing to make a payment into court of $1 million with the 2nd and 3rd Defendants bearing $200,000.

9. On the same day, Hoosenally & Neo wrote to YYY stating that :

"... We have requested our client to put us in funds and hoped that our client's share of $200,000 would be available to be paid into court by Monday, 15th July 1996.

If the Plaintiff accepts the said payment into court, your client would have to bear ours and Plaintiff's costs from 8th May 1996."

The letter further stated that the previous offer of $1.5 million was inadequate and counsel had advised payment into court of $2.1 million.

10. There was further correspondence on the new offer of $2.1 million. On 13th July 1996, YYY informed Hoosenally & Neo that their clients had provided them with $800,000 for payment into court.

11. By letter dated 15th July 1996, Hoosenally & Neo confirmed that they had received $220,000 from the 2nd and 3rd Defendants for their contribution towards payment in. They also prepared two notices of payment into court, one for $1.6 million i.e. based on the offer of $2.1 million, and the other for $1 million. The letter concluded that :

"We put you on notice that in the event that your client insists on making a joint payment into Court of HK$1 million, we will seek to have our costs paid by your client from the date of the receipt by you of this letter if the Court awards HK$2.1 million inclusive of interest or less than HK$2.1 million inclusive of interest. If the award is HK$1.5 million or less, we will seek costs from your client from 8th May, 1996."

12. YYY opted for payment in of $1 million.

The Rules

13. Order 22, r.14(1) provides that "A party to proceedings may at any time make a written offer to any other party to those proceedings which is expressed to be 'without prejudice saved as to costs' and which relates to any issue in the proceedings."

14. The rule codifies and extends the procedure first commenced by the Court of Appeal in Calderbank v. Calderbank [1976] Fam.93. However, unlike the English rules, the proviso to r.14(2) of our rules states that "Provided that the court shall not take such 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 payment into court under O.22."

15. Under O.62, r.5, it is stated that the court in exercise of its discretion as to costs shall take into account any written offer made under O.22, r.14 subject to the same proviso as well.

Encouragement for settlement

16. It is clear that the 2nd and 3rd Defendants wished to solve this case by making an offer of $1.5 million to the Plaintiff and the 1st Defendant. Other than by making this offer in writing, the 2nd and 3rd Defendants could not possibly have made a payment into court by themselves in order to safeguard their own costs. They were only responsible for 20% of the liability. The Defendants were jointly and severally liable. To make a payment into court of $200,000, which was their share of the damages, would not be effective to protect their position on costs. Realistically, the Plaintiff would not accept $200,000, particularly when a previous offer of $1.55 million made in February 1995 was not accepted. Furthermore, it would not be right to expect the 2nd and 3rd Defendants to pay the whole $1 million into court. Hence, the second offer is not something there should be ignored in considering the question of costs between the Defendants.

17. In Director of Buildings & Lands v. Shun Fung Ironworks Ltd. [1995] 2 AC 111, Lord Nicholls of Birkenhead after reviewing the Hong Kong O.22, r.14 and O.62, r.5 stated that :

"Their Lordships recognise this is a strict, even a literal, interpretation of the rules. However, viewing the matter more broadly, it is difficult to see why the Calderbank letters should not have consequences as to costs in this case. Parties are to be encouraged to settle their disputes and assisted in their attempts to do so. ..... Had the Crown made a payment into court, assuming this is possible, Shun Fung's position would have been much the same, neither better nor worse. It is not as though a payment of money into court would have given Shun Fung some advantage over and above an offer by the Crown to settle for a like amount."

18. In civil litigation, more so in personal injury litigation, the parties should be encouraged to resolve their disputes as early as possible. This is of benefit to all the parties concerned. The only effective way of encouraging an early settlement is to ensure that the offer is responded promptly and the position of a party who has indicated its willingness to settle a case is not prejudiced.

19. In this case, no response was made to the offer of 8th May 1996 until 11th July 1996 when YYY proposed to make payment into court of $1 million. Although Mr Lam, Counsel for the 1st Defendant, addressed the court as to the steps taken between May and July, all that he could say about the lack of response was that the 1st Defendant was still considering its position. With respect, the position should have been considered a long time ago. The incident took place on 3rd February 1991 and the writ of summons was issued on 15th March 1993. If by May 1996, the 1st Defendant's solicitors were still not in a position to quantify the damages, than either there was something seriously wrong with our system of litigation or the legal advisers had not done their work properly.

20. Mr Lam also argued that the offer of $1.5 million was revoked because the 2nd and 3rd Defendants revised the quantum to $2.1 million. It is clear that the previous offer of $1.5 million was not revoked.

21. In my view, the 1st Defendant had not responded timeously to the offer made by Hoosenally & Neo. It only responded two months later. Had this been done earlier, there is no doubt that questions of payment into court jointly by the Defendants could be dealt with at a much earlier stage, thereby safeguarding the Defendants' position as to costs. In my view, the 1st Defendant is solely liable to the Plaintiff for the costs relating to the assessment of damage from 8th June 1996 to date of acceptance of payment in by the Plaintiff.

Costs arising from the argument on costs

22. After the Plaintiff's acceptance of payment in, Hoosenally & Neo by letter of 27th July 1996 informed the parties that in order to resolve the issues of costs, it was necessary for the parties to attend court on 30th July. It was only in late evening of 29th July 1996 that Hoosenally & Neo informed the Plaintiff's solicitors that the hearing was only in respect of costs between the Defendants only and did not concern the Plaintiff and that there was no need for the Plaintiff to attend the hearing. The Plaintiff's solicitors were unable to obtain confirmation from Hoosenally & Neo that their clients would pay the Plaintiff's costs occasioned by the letter of 27th July 1996. The Plaintiff's counsel and solicitor attended court today.

23. The hearing today was scheduled for the assessment of damage. It is clear that, as brief to the Plaintiff's counsel had already been delivered prior to the acceptance of payment into court, the Plaintiff will be entitled to recover such costs in taxation. Any additional costs that may be incurred by way of preparation on arguments on costs would be minimal. Without complicating the matter, I would not make any order in regard to the Plaintiff's costs for today.

24. I further authorise the publication of this judgment.