MING AN INSURANCE CO (HK) LTD v. RITZ-CARLTON LTD (NO. 2)

FACV No. 21 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 21 OF 2008 (Civil)

(ON APPEAL FROM CACV No. 312 of 2006)

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JUDGMENT ON COSTS

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Mr Justice Ribeiro PJ:

1.  This is the Court’s judgment on costs following upon its judgment published on 19 December 2008.[1]

The litigation

2.  The events which gave rise to these proceedings took place some 11 years ago when, on 9 March 1998, the two plaintiffs (Ms Rebecca Chan Yuet Lui and Ms Tse Ngan Heung) were seriously injured as a result of being struck by a car driven negligently by Mr Lo Sin Tak, an employee of The Ritz-Carlton Ltd.  The hotel company and Mr Lo were sued as 1^st and 2^nd defendants and, since Mr Lo was not an insured driver, Ming An Insurance Co (HK) Ltd, was joined on its own application as 3^rd defendant, being interested in the proceedings as “the insurer concerned” under the MIB scheme. 

3.  On 18 January 2001, Seagroatt J found Mr Lo liable but held that the hotel company was not vicariously liable.  That judgment was upheld in the Court of Appeal on 23 November 2001.  Since Mr Lo was impecunious and uninsured, Ming An had to shoulder responsibility under the MIB scheme unless the hotel company’s vicariously liable could be established on appeal to this Court.  Meanwhile, on 7 January 2002, Ms Chan’s damages were assessed at $19,243,576 and on 10 January 2002, Ms Tse’s damages were assessed at $1,001,775.  On dates between 3 January 2002 and 8 January 2003, Ming An duly paid the plaintiffs the sums assessed.  Additionally, it paid to them the sum of $592,072.59 intended to represent post-judgment interest.

4.  On 4 December 2002, this Court reversed the lower court rulings and held the hotel company vicariously liable for Mr Lo’s negligence.[2]  A week later, Ming An demanded payment from the hotel company of an amount representing the sums it had paid out to the plaintiffs.  On 19 December 2002, a fortnight after the Court’s decision, the hotel company paid Ming An $20,245,351.  One might then have thought that this matter had been brought to a final conclusion.

5.  That proved to be far from the case.  In accepting payment, Ming An reserved its right to contend that it was entitled to certain sums of interest not taken into account in the hotel company’s payment.  It issued a summons claiming “post-judgment interest” which was dismissed by Jackson J on 5 May 2003, with further proceedings aborted when the Court of Appeal adjourned the matter sine die on 17 December 2003 on the basis that Ming An had not entered judgment against the hotel company.  Ming An also thought it necessary at that stage to issue a Third Party Notice against the hotel company suing as assignee of the plaintiffs.  The claim for interest was then re-started, leading to three hearings before Suffiad J in January and April 2006, followed by an appeal to the Court of Appeal on 21 June 2007, but without any recovery by Ming An.  Leave to appeal having been refused by the Court of Appeal, it was then granted by the Appeal Committee so that the claim for outstanding interest proceeded to this Court and culminated in the judgment of 19 December 2008.  

6.  The result was extremely modest in terms of money.  It was common ground that the only interest not included in the hotel company’s payment was interest in relation to the January-December 2002 period falling between the dates of the assessments of damages on the one hand, and the date of the Court’s judgment establishing the hotel company’s vicarious liability on the other.  The Court held in its judgment of last December that Ming An was entitled to be paid interest in the sum of $97,187 in respect of Ms Chan and $6,959 in respect of Ms Tse.

7.  The costs incurred in disputing the outstanding interest were therefore wildly disproportionate to the recovered amounts.  Not surprisingly, the parties have filed substantial submissions as to the costs.  They reveal that a total of six Calderbank Offers, that is, offers of payment by way of settlement marked “without prejudice save as to costs”, were made by the hotel company beginning with an offer of $921,844 dated 9 April 2003.  Five of those offers were followed by an open offer made by the hotel company at the start of the Court of Appeal hearing on 21 June 2007, to settle Ming An’s claim for $793,121.38.[3]  Then, two months or so before the hearing of the final appeal, a further Calderbank Offer dated 18 September 2008 was made to settle the outstanding interest claim.  All of these offers were in amounts substantially greater than the sums totalling $104,146 eventually awarded by this Court to Ming An.

 The main issues as to costs

8.  The arguments advanced fall into two main categories: arguments relating to the merits of each side’s case viewed in the light of the outcome as determined by the Court; and arguments concerning the offers of settlement made by the hotel company.

The merits and the outcome

9.  Ming An seeks to argue that the issue between the parties was a narrow interlocutory issue, namely, whether the plaintiffs’ causes of action had been extinguished and whether an assessment against the hotel company was still legally possible.  That, Mr Sussex SC submits, was an issue decided entirely in favour of his client Ming An.  The costs should therefore follow the event so formulated. 

10.  That is far too narrow an approach.  As Bokhary PJ pointed out, Suffiad J “ordered that the issue of what if any further sums (including interest) Ming An should recover from the hotel company be tried as a preliminary issue.”[4]  Since Suffiad J had found against entitlement, he naturally did not seek to quantify any interest due.  But if his Lordship had found otherwise, it is inconceivable that he would not have determined the sum of the interest due. 

11.  Mr Bharwaney SC submits for the other side that the paltry recovery demonstrates the wholly disproportionate nature of the litigation undertaken by Ming An and that this should be reflected in the costs order.  The disproportion is certainly a relevant factor, however, it is fair to say that both sides contributed to the protracted course of the litigation by taking unsound points.  Thus, Ming An unsustainably pressed its claim as one for post-judgment interest calculated from the date of its judgment against Mr Lo and claimed rights as an assignee of the plaintiffs’ rights against Mr Lo.  It also untenably claimed $610,756 interest on general damages.  On the opposing side, the hotel company unsoundly suggested or adopted the argument that Ming An’s rights could only be asserted as a claim in restitution.  It also erroneously contended that its payment to Ming An had extinguished the plaintiffs’ rights to any unpaid interest.

12.  Both parties therefore bear some responsibility for the irrelevancies and distractions which steered the litigation on its unhappy course.  Leaving aside the orders made in relation to the application before Jackson J and the abortive appeal from his decision, on which the Court was not addressed and on which we make no orders, our inclination, viewing the parties’ respective positions on the merits, would be to order them each to bear their own costs.

The offers of settlement

13.  But to its credit, the hotel company plainly did its best in good faith to bring this unfortunate litigation to an early end.  Thus, its Calderbank Offer dated 9 April 2003, made just before the very first hearing before Jackson J, was to pay Ming An $921,844, stated to be a refund of the post-judgment interest ($592,072.59) paid by Ming An to the plaintiffs plus interest on all sums paid to the plaintiffs at six-month HIBOR + 1%.  It is no doubt a matter of regret for Ming An that it did not accept that offer as that would have avoided incurring the whole of the legal costs incurred in three tiers of court over the following five years and would have resulted in recovery of almost nine times the amount eventually awarded.

14.  Ming An argues, however, that in exercising its discretion as to costs, the Court is not permitted to take into account any of the Calderbank Offers made by the hotel company since, they argue, it could and should have protected its position by a payment into court.  They rely on O 22 r 14 of the Rules of the High Court which provides:

(1)        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 save as to costs’ and which relates to any issue in the proceedings.

(2)        ... 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.  This is echoed in O 62 r 5(d) stating:

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 made under Order 22, rule 14, provided that the Court shall not take such an 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 Order 22.

16.  The policy behind this rule is self-evident.  If a defendant is willing to settle a claim by the payment of money, he is required to pay it into court so that there is no doubt about the seriousness of his offer of settlement.  Otherwise, Calderbank Offers might be abused by defendants seeking to put off the day of judgment by promising to pay but then defaulting and requiring the plaintiff to chase them for payment.

17.  Mr Bharwaney seeks to argue on three grounds that the hotel company’s offers should be treated as falling outside the exclusionary rule. 

(a)              First, he puts this on the basis that the hotel company’s prompt payment of over $20 million demonstrated its seriousness and ability to pay.  That, however, is beside the point.  Every defendant who offers in good faith to settle by paying a sum of money has presumably the ability to pay.  He should act on that ability and pay it into court in accordance with the rule.  His ability to pay is not a reason for dis-applying the rule.

(b)             Secondly, he points to the existence of a raft of issues outstanding between the parties outside the present proceedings.  The hotel company reasonably wished to achieve a global settlement and, he argues, that could not be done by a payment into court in these proceedings.  But there was nothing to prevent it from paying a sum into court in respect of this issue with a view to bringing these proceedings to an end.  If the desire to achieve a global settlement was allowed to stand in the way of protecting itself by a payment into court in accordance with the rules, the hotel company thereby chose to forego such protection.

(c)              Thirdly, Mr Bharwaney submits that the hotel company could not protect itself against costs by a payment into court because of the peculiar way in which Ming An became a party to the proceedings.  He argues that since Ming An was joined merely as the insurer concerned, there was no lis between the hotel company and Ming An so that a payment into court could not have been made in these proceedings.   That is an over-technical approach.  Ming An had demanded and received payment of principal and interest from the hotel company.  There was a dispute between them, namely, as to the balance, if any, of the interest due.  As pointed out in the judgment,[5] the reality was that the plaintiffs had lent their names to Ming An to conduct the continuing litigation against the hotel company.  Ming An was a party on the record. We fail to see why the hotel company could not have made a payment into court in settlement of Ming An’s claim to interest.

18.  It follows that in our view, the Calderbank Offers cannot be taken into account in exercising the Court’s discretion in the present case.  However, the exclusionary rule only applies to offers which are made “without prejudice save as to costs”.  It does not apply to an open offer such as that made by the hotel company in open court at the start of the Court of Appeal hearing.  As Le Pichon JA noted, the hotel company stated that it:

“... would be content to reimburse the amount of post-judgment interest and to calculate interest on the judgment sums totalling $20 million odd at the commercial rate of interest which he submitted should be at say, 2.5% per annum, being Hibor plus 0.5% given the ready access to money markets by an insurer such as Ming An.  According to his calculations the total amount would come to $793,121.38.  There is in fact a typographical error in the amount of the post-judgment interest set out in Mr Bharwaney’s calculations which, if corrected, would increase the amount to $794,121.38.”[6]

19.  Ming An endeavours to argue that the Court should nevertheless give no weight to this open offer since Ming An reasonably refused it because it was made on the basis of Ming An bearing its own costs and paying the hotel company’s costs of the earlier hearings.  The Court will of course consider the circumstances bearing on the costs at each relevant stage.  However, it remains undeniable that the open offer, if accepted, would have led Ming An to a recovery 7.6 times larger than the amount eventually recovered and that it would have resulted in the avoidance of either side incurring costs in the Court of Appeal, in the leave applications and in this Court.  These are matters which deserve to be given substantial weight.

20.  Mr Sussex also argues that the modest recovery should not be held against Ming An, at least in relation to the present appeal, in that it served the public interest in giving this Court the opportunity to correct important errors contained in the judgment of the Court of Appeal in relation to payments made and proceedings conducted by MIB insurers.  While the Court may take such considerations into account,[7] it is only in rare and exceptional cases in the context of a private law dispute that the Court would consider the opportunity of stating the law and reversing the approach taken in the Court of Appeal a basis for favouring one party or the other in the exercise of its discretion as to costs.  In any case, if the open offer in the present case had been accepted, the proceedings would have stopped short of any judgment by the Court of Appeal.

Conclusion

21.  For the foregoing reasons, we make the following orders as to costs, namely:

(a) That the orders as to costs in respect of the hearings before Suffiad J on 13 January 2006, 20 January 2006 and 13 April 2006; of the appeal to the Court of Appeal culminating in the judgment dated 17 July 2007; and of the application for leave to appeal before the Court of Appeal on 4 January 2008, be set aside.

(b) That the parties each bear their own costs in respect of the hearings before Suffiad J on 13 January 2006, 20 January 2006 and 13 April 2006.

(c) That Ming An pay to the hotel company the costs of the appeal to the Court of Appeal culminating in the judgment dated 17 July 2007; of the application for leave to appeal before the Court of Appeal on 4 January 2008; of the application for leave to appeal before the Appeal Committee on 16 June 2008 and of the Appeal to this Court, including the costs of the written submissions as to costs.

[1] FACV 21/2008, Chief Justice Li, Bokhary, Chan and Ribeiro PJJ, Lord Woolf NPJ.

[2] (2002) 5 HKCFAR 569.

[3] CACV 312/2006, 17 Jul 2007; Rogers VP and Le Pichon JA, §20.

[4] Judgment §17.                                                                               

[5] At §§42 and 57.

[6] At §20.

[7] See eg Poon Hau Kei v Hsin Cheong Construction Co Ltd Taylor Woodrow International Limited Joint Venture, FACV 12 of 1999 (3 March 2000).