CHOI TAK MAN v. CHAN YUK LAN, DIDI AND ANOTHER

HCA 600/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 600 OF 2015

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DECISION ON COSTS

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A. Introduction

1.  In this case, the Plaintiff sues the Defendants, who are legal owners of the land known as Lot 343 of Demarcation District 110 (the “Land”), for inter alia a declaration that he has acquired possessory title of the Land by adverse possession.  The Defendants dispute the Plaintiff’s claim and counterclaim against him for trespass.

2.  On 20 February 2017, I handed down my judgment (in Chinese) in which I made an order granting the Plaintiff the relief sought in this action, and dismissing the Defendants’ counterclaim.  On the question of costs, I made a costs order nisi that the Defendants do pay to the Plaintiff the costs of this action (the “Order Nisi”).

3.  By a Summons dated 21 February 2017, the Plaintiff applies to vary the Order Nisi to the extent that costs incurred after 26 December 2015 be paid by the Defendants on indemnity basis.

4.  In support of his application, the Plaintiff relies on a “Notice of Sanctioned Offer” dated 27 November 2015 filed by the Plaintiff (the “Offer”), in which the Plaintiff offers “to accept entering judgment in [his] favour for the declaratory reliefs set out in the Statement of Claim herein and dismissal of the whole of the 1^st and 2^nd Defendants’ counterclaim in full and final settlement of the captioned action with no order as to costs”.

5.  The Plaintiff’s application was heard before me on 2 March 2017.

6.  At the hearing, the Plaintiff contended that the Offer is a sanctioned offer under Order 22 of the Rules of the High Court (“RHC”).  Since the judgment against the Defendant is more advantageous to the Plaintiff than the proposal contained in the Offer, this Court should order indemnity costs against the Defendant from the latest date on which the Defendant could have accepted the offer (ie 26 December 2015) pursuant to Order 22, rule 24 of the RHC.

7.  After the hearing, I became aware of the decision of Wong Yim Man Anthea v Wong Ho Ming Felix [2016] 3 HKLRD 249, in which Deputy Judge Kent Yee held that an offer containing a terms as to costs was not a valid sanctioned offer under Order 22 of the RHC.

8.  Accordingly, on 3 March 2017, I directed the parties to file further written submissions to address me on the point.

9.  Both parties filed further written submissions pursuant to my direction.

10.  The Plaintiff in his further written submissions maintains the position that the Offer is a valid sanctioned offer.  However, he goes on to argue that even if it is not a sanctioned offer, the Court is still entitled to treat the Offer as a Calderbank offer and take that into account in the exercise of its discretion on costs.

11.  As far as the Defendants are concerned, although they are not legally represented, they also filed further written submissions (in English) in which they contend that the Plaintiff’s Offer cannot be regarded as a sanctioned offer under Order 22 of the RHC and, therefore, he is not entitled to indemnity costs thereunder.

12.  In view of the parties’ respective submissions, the issues which I would need to decide for the purpose of disposing of the Summons are:

(1) Issue 1:  Whether the Offer should be regarded as a valid sanctioned offer?  If “yes”, whether indemnity costs should be ordered in the circumstances?

(2) Issue 2:  If the Offer is not a sanctioned offer, whether the Offer can be taken into account as a Calderbank offer?  If “yes”, whether indemnity costs should be ordered in the circumstances?

B.   Issue 1: Sanctioned offer

13.  The question whether an offer providing terms as to costs can be regarded as a sanctioned offer under Order 22 of the RHC has been discussed in a number of cases.  Those cases have been extensively reviewed by DHCJ Kent Yee in Wong Yim Man Anthea.

14.  DHCJ Kent Yee held in that case that an offer including terms as to costs could not be treated as a sanctioned offer under Order 22 of the RHC.  His reasoning (as set out in paras 8 – 19 of his decision) can be briefly summarised as follows:

(1) Order 22, rule 1 defines a “sanctioned offer” to mean “an offer made (otherwise than by way of a payment into court) in accordance with this Order”. 

(2) In the case of a defendant’s sanctioned offer, it is provided in Order 22, rule 15(1) that any such offer made not less than 28 days before the commencement of the trial can be accepted by the plaintiff “without requiring the leave of the Court”.

(3) It is then further provided in Order 22, rule 20(1) that where a defendant’s sanctioned offer to settle the whole claim is accepted “without requiring the leave of the Court”, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the court otherwise orders.

(4) Put it simply, if a sanctioned offer is made in good time by a defendant (ie more than 28 days before trial), the plaintiff can accept it without leave of the court and the costs consequences provided for in Order 22, rule 20(1) will automatically follow.

(5) Hence, an offer including a term as to costs is incompatible with the Order 22 mechanism in that it will prevent the specified costs consequences upon acceptance from arising.

15.  I entirely agree with the learned Deputy Judge’s scholarly analysis.  As I will explain in para 21 below, the same analysis is in my view equally applicable to a plaintiff’s sanctioned offer.

16.  In terms of authorities, DHCJ Kent Yee reviewed many English and Hong Kong authorities, including MitchellvJames (Costs)[2004] 1 WLR 158 (CA), Central Management LtdvLight Field Investment Ltd [2011] 2 HKLRD 34 (CA), Chan Kwing ChiuvChan Chi Kau (unreported, CACV 209/2012, 3 October 2013), Lin YanjinvSmart Billion Engineering Ltd(unreported, HCPI 739/2009, 10 August 2011) per Master Marlene Ng, Sunbeam Investments LtdvIncorporated Owners of Villa Veneto[2011] 1 HKC 86 per HH Judge K W Wong, Chen Tek YeevChan Moon Shing [2015] 3 HKC 622 per DHCJ Marlene Ng, The Procter & Gamble CovSvenska Cellulosa AB SCA [2013] 1 WLR 1464 per Hildyard J, Leung Lai KwanvLo Kai Wing (unreported, HCMP 1554/2015, 20 August 2015) per Lam VP and Barma JA.

17.  I do not think it is helpful for me to revisit all the above authorities, which have been carefully considered in Wong Yim Man Anthea.  Suffice it to say, I agree with what he said about these cases. 

18.  In particular, I agree with DHCJ Kent Yee’s view that the issue regarding whether an offer containing terms as to costs is a valid sanctioned offer was in fact not argued and, hence, not determined in the Court of Appeal decisions of Central Management Ltd and Chan Kwing Chiu.  On the contrary, the Court of Appeal in Leung Lai Kwan specifically ruled that “offers [which] were made on the basis of no order as to costs … cannot be accommodated in the sanctioned payment or sanctioned offer regime in view of O 20 r 20(1)” (at para 7, per Lam VP).

19.  Hence, I am satisfied that both as a matter of principle and authority, an offer containing terms as to costs cannot be treated as a sanctioned offer since it is incompatible with our Order 22 regime.

20.  In his further written submissions, the Plaintiff seeks to distinguish this case from Wong Yim Man Anthea.  The Plaintiff points out that Wong Yim Man Anthea is a case involving defendant’s sanctioned offer; whereas the present case concerns plaintiff’s sanctioned offer.  He then argues that in case of defendant’s sanctioned offer, a defendant cannot by such offer deprive the plaintiff of his right to the automatic costs consequence in his favour; whereas, in case of a plaintiff’s sanctioned offer, the plaintiff by such order should be allowed to voluntarily gives up or waives his right to his entitlement to costs.

21.  Despite its apparent attractiveness, I cannot accept the Plaintiff’s argument for the following reasons:

(1) The conclusion that a defendant’s offer with terms as to costs cannot be treated as a sanctioned offer within the meaning of Order 22 is drawn on the basis of the wording and effect of Order 22, rule 15(1) and Order 22, rule 20(1) (see para 14 above).

(2) Similar to Order 22, rule 15(1) (which deals with acceptance of defendant’s sanctioned offer), Order 22, rule 16(1) provides that a plaintiff’s sanctioned offer made not less than 28 days before trial may be accepted by the defendant without requiring the leave of the court.

(3) Also, similar to Order 22, rule 20(1) (which deals with costs consequence of defendant’s sanctioned offer), Order 22, rule 21(1) provides that where a plaintiff’s sanctioned offer is accepted by the defendant without requiring the leave of the court, the plaintiff is entitled to his costs up to the date upon which the defendant serves notice of acceptance, unless the Court otherwise orders.

(4) Thus, there is on this issue a perfect symmetry between a plaintiff’s sanctioned offer and a defendant’s sanctioned offer.  If, as held by Lam VP in Leung Lai Kwan and DHCJ Kent Yee in Wong Yim Man Anthea, a defendant’s settlement offer with terms as to costs is incompatible with the regime of sanctioned offer, it follows that a plaintiff’s settlement offer containing terms as to costs also does not fit into such regime.

(5) The Plaintiff’s argument, in my view, misses the point.  The point is not so much about whether the Plaintiff is deprived of his right to costs, or whether he can waive his entitlement to costs.  The point is whether the offer (whether made by a plaintiff or a defendant) is a sanctioned offer within the meaning of Order 22.  As explained by Lam VP and DHCJ Kent Yee, an offer with terms as to costs is simply not the kind of sanctioned offer envisaged under Order 22.

(6) On proper analysis, the point that a plaintiff can waive or give up his entitlement to costs is incapable of distinguishing a plaintiff’s sanctioned offer from a defendant’s sanctioned offer.  The same point can equally be made in connection with a defendant’s offer, in that one can also say the plaintiff should be entitled to waive his entitlement to costs in accepting a defendant’s offer with costs proposal different from that provided for in Order 22, rule 20(1).  That, however, does not change the fact that such offer is not a sanctioned offer contemplated under Order 22 regime.

(7) This point was in fact considered by DHCJ Kent Yee in Wong Yim Man Anthea, and the learned Deputy Judge observed (at para 19) that:

“ Of course, Madam Wong [ie the plaintiff] could have waived her right thereunder and proceeded to accept the Offer including the costs proposal of Mr Wong [ie the defendant]. However, such an acceptance could not ex post facto turn the Offer into a sanctioned offer.”

Again, I entirely agree with this astute observation of DHCJ Kent Yee that a waiver by the plaintiff would not turn what is not a sanctioned offer into a valid sanctioned offer.

22.  For the above reasons, I find that the Offer in this case is not a sanctioned offer under Order 22. It therefore follows that the non‑acceptance of the Offer by the defendant does not attract the same consequences flowing from the non‑acceptance of a sanctioned offer provided for in Order 22.  However, even assuming that the Offer is a valid sanctioned offer, this Court still needs to decide whether it is unjust to order indemnity costs under Order 22, rule 24(4).  For the reasons explained in paras 31 – 33 below, I consider that it is unjust to order indemnity costs in the circumstances of this case.

C.   Issue 2: Calderbank offer

23.  Although the Offer is not a sanctioned offer, it can still be taken into account as a Calderbank offer in considering the issue of costs pursuant to Order 62, rule 5(1)(d) of the RHC: Wong Yim Man Anthea (at paras 47 – 50, per DHCJ Kent Yee), Leung Lai Kwan (at para 7, per Lam VP).

24.  The Plaintiff in his further written submissions argues that even treating this offer as a Calderbank offer, this Court should still order indemnity costs.  In this regard, the Plaintiff places reliance on the following observations made by DHCJ Saunders in Leung Lai KwanvLo Kai Wing [2015] 3 HKLRD 152:

“ 24. It is well established that an offer may be taken into account even if it does not constitute a sanctioned offer although so entitled …

…

27. A party who is in receipt of an offer which is reasonable and who goes to trial having rejected that offer is always liable to a higher level of costs if they do not do better than the offer that has been rejected. …”

25.  Whilst I agree that a party who fails to do better than an offer which he has rejected may justify the court awarding costs against him on a higher scale, I am unable to accept that the court must always do so.  At the end of the day, the existence of a settlement offer is just one of the many factors that the court can take into account in the exercise of its discretion on costs under Order 62, rule 5.

26.  In fact, the plaintiff in Leung Lai Kwan (who was ordered to bear costs on indemnity basis) later applied to the Court of Appeal for leave to appeal against the costs order made by DHCJ Saunders.  In addition to those observations set out above, Lam VP in dealing with the leave application further observed (at para 9) that:

“… The Judge [ie DHCJ Saunders] did not equate the offers with sanctioned offers. He did not award indemnity costs based on the offers of 12 September 2013 and 19 June 2014. Though he awarded costs on indemnity basis for the trial, the Judge did so primarily due to the Plaintiff propounding false evidence given at the trial than the offer of 7 July 2014.”

(emphasis added)

27.  Clearly, the Court of Appeal in Leung Lai Kwan did not consider DHCJ Saunders to be making any general statement of law that a party who fails to do better than an offer previously rejected by him would invariably be liable for costs on a higher scale.  Instead, the Court of Appeal considered that the primary reason for DHCJ Saunders to award indemnity costs was the proffering of false evidence by the plaintiff.

28.  For this reason, I do not think there is any principle laid down by DHCJ Saunders in Leung Lai Kwan that the court must award costs on a higher scale in favour of a party who has offered something more advantageous to his opponent than what is provided for in the judgment.

29.  At the end of the day, any award of costs requires the court to exercise its discretion in light of the surrounding circumstances.

30.  Whilst I accept that costs could have been avoided had the Defendants accepted the Offer, this is just one of the factors that this Court needs to take into account.

31.  In the present case, the Plaintiff claims for adverse possession against the Defendants who only purchased the Land in December 2014.  There is in my view nothing wrong for the Defendants to take the position that the Plaintiff should be put to strict proof of his case at trial.

32.  In this regard, it is also pertinent to note that the Defendants had also engaged their own expert to give an opinion on the historical occupation of the Land based on the aerial photos.  However, due to financial reasons, the Defendants did not call their expert to testify at trial, and it was for this reason that I refused to accept the evidence of the Defendants’ expert (insofar as it was not agreed by the Plaintiff’s expert).

33.  Accordingly, although I did not accept the Defendants’ evidence and ruled in favour of the Plaintiff after trial, I can well understand why the Defendants did not accept the Offer and insisted on going to trial. 

34.  With the benefit of hindsight, it seems to be an unwise decision for the Defendants not to accept the Offer.  However, having taken into account all the circumstances (including the Offer), I do not consider it is just and appropriate to exercise my discretion to order costs on indemnity basis or common fund basis against the Defendants.

D.   Disposal

35.  For the reasons given, I find that the Offer is not a sanctioned offer.  Even treating it as a Calderbank offer, I am not satisfied that I should order costs on indemnity basis or common fund basis against the Defendants in the circumstances of this case.  I, therefore, dismiss the Plaintiff’s Summons and order that the Order Nisi be made absolute.

36.  Since the Defendants are the successful parties in this application, I order that the costs of the Summons be to the Defendants, to be taxed if not agreed.

37.  Lastly, I wish to mention that although the hearing was conducted in Cantonese, I consider it more appropriate to write this judgment in English since it involves some technical issues of law.  I think the Defendants in person would also agree since their further submissions are also written in English.  That said, I hereby direct that, if so requested by the Defendants, the Court will arrange an interpreter to orally interpret the contents of this judgment to the Defendants.