HEUNG WING YAN v. HANGWAY HOUSING MANAGEMENT LTD AND OTHERS

HCPI 347/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO 347 OF 2012

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DECISION

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I.  INTRODUCTION

1.  On 14 October 2016, I handed down Judgment in the present action (“Judgment”) whereby I (a) awarded the plaintiff (“P”) damages in the sum of HK$1,017,545.35 with interest and costs against the 2^nd and 3^rd defendants (“D2” and “D3”), (b) dismissed P’s claim against the 1^st defendant (“D1”), and (c) dismissed D1’s claim against D2 and D3 in the contribution proceedings. D1, D2 and D3 are collectively referred to as “Ds” below. For convenience, I will adopt the abbreviations in the Judgment.

2.  I also granted the following cost orders nisi: (a) D2 and D3 shall pay P’s costs of the main action against them (including all costs reserved if any) to be taxed if not agreed, (b) P shall pay D1’s costs of the main action against it (including all costs reserved if any) to be taxed if not agreed (“Cost Order Nisi”), and (c) there be no order as to costs as between D1 on the one part and D2 and D3 on the other part in the contribution proceedings, and (d) P’s own costs be taxed in accordance with Legal Aid Regulations. The cost orders in (a), (c) and (d) above had since become absolute.

3.  On 28 October 2016, D1 applied by summons to vary the Costs Order Nisi (“Summons”) for an order that (a) costs of the main action be paid by P to D1 on indemnity basis to be taxed if not agreed, (b) P shall pay D1’s enhanced interest at the rate of 9% pa on the disbursements already paid and incurred up to the date of the Judgment and thereafter at judgment rate from the date of  the Judgment until payment, (c) costs of and occasioned by such application be paid by P to D1 on indemnity basis to be taxed if not agreed, and (d) P’s own costs be taxed in accordance with Legal Aid Regulations. At the hearing of the Summons on 8 February 2017 (“Cost Hearing”), Mr Lim, counsel for D1, informed this court that in respect of (c) above, D1 would be content with an award of costs of and occasioned by such application on party-and-party basis to be taxed if not agreed.

4.  On 28 October 2016 and 5 January 2017 respectively, D1 filed the 1^st and 2^nd affirmations of its solicitor Leung Bo Yee Nancy to support the Summons (“Leung 1^st and 2^nd Affs”). On 8 December 2016, P filed the 2^nd affirmation of his solicitor Mak Yiu Wah Bilan to oppose the Summons (“Mak Aff”).

II.  LETTERS

5.  P’s present action against Ds began life in the District Court on 21 October 2011 as DCPI2085/2011 whereby P claimed damages for personal injuries based on allegations inter alia that Ds were negligent and/or in breach of statutory duty. DCPI2085/2011 was transferred to the Court of First Instance pursuant to the order of Master S P Yip dated 18 April 2012, and it became the present action.

6.  There was no dispute that D1’s solicitors wrote the following letters to P’s solicitors:

Date of Letter / Acronym	Description
29 June 2011 (“1st Letter”)	By such open pre-action letter, D1 denied liability and “sincerely urged [P] to discontinue her common law claim against [D1] and confirm such discontinuance to [D1’s solicitors] within 7 days from the date hereof, [D1’s solicitors] would advise [D1] to waive their costs incurred so far”, but P was warned that should there be no reply or should she proceed with her claim against D1, D1 would contest such claim “and seek all [D1’s] costs incurred from the beginning. No doubt, [P’s solicitors] will advise [P] on all the adverse costs implications if [P’s] claim is to be dismissed by the Court. All [D1’s] rights are hereby reserved. In particular, when the issue of costs arises, [D1’s solicitors] reserve [D1’s] rights to produce a copy of this letter to the Court for seeking costs against [P] on indemnity basis if [P] pursues a totally hopeless claim against [D1].”
25 April 2012 (“2nd Letter”)	By such open letter, D1 again denied liability, and “sincerely invite [P] to discontinue her common law claim against [D1] and confirm such discontinuance to [D1’s solicitors] within 10 days from the date hereof, [D1’s solicitors] would advise [D1] to waive their costs incurred so far. ...... All [D1’s] rights are hereby reserved. In particular, when the issue of costs arises, [D1’s solicitors] reserve [D1’s] rights to produce a copy of this letter to the Court for seeking costs against [P] on indemnity basis if [P] pursues a totally hopeless claim against [D1]”.
3 July 2012 (“3rd Letter”)	By such open letter, D1 reminded P it had repeatedly denied liability since the pre-action stage. “As a final ultimatum, [D1’s solicitors] invite for [P’s] immediate withdrawal of her claim against [D1] herein, failing which, [D1] shall have no alternative but to defend the action strenuously and seek costs of the main proceedings and the ancillary contribution proceedings against [P]”.
24 July 2012 (“4th Letter”)	By such without prejudice save as to costs letter, D1 noted P’s refusal to reply whether she would withdraw her claim against D1, so D1 had to incur costs to prepare/finalise its Defence. D1 also put on record that the settlement offer contained in the 2nd Letter had already lapsed. “[D1] shall reserve the right to produce a copy of this letter and all relevant correspondences in case the issue of indemnity costs against [P] arises.”
24 March 2015 (“5th Letter”)	By such open letter, D1 maintained its denial of liability, and noted P still failed to withdraw her claim against D1. “[D1’s solicitors] are instructed to make a final offer to [P] to discontinue her common law claim against [D1] and pay the costs incurred by [D1] up to today. Please take [P’s] instructions and let [D1’s solicitors] know whether [D1’s] said offer is acceptable to her within the next 7 days, i.e. on or before 31 March 2015, failing which [D1’s] offer herein will lapse automatically. Please note that [D1’s] estimated costs for the trial alone are not less than HK$300,000.00. [D1] shall seek costs against [P] on indemnity basis if she fails to establish liability against [D1] at the end of the day. [D1] reserves its right to produce a copy of this letter and all relevant correspondences should the issue of indemnity costs against [P] arises”.
29 October 2015 (“6th Letter”)	By a letter dated 29 October 2015 marked “sanctioned offer – without prejudice save as to costs” (“6th Letter”), D1 made the following offer: “Take notice that [D1] hereby offers to consent to [P] discontinuing her common law claim against [D1] on the condition that [P] shall pay the costs and disbursements as incurred by [D1] up to the date of acceptance of this sanctioned offer on a party-to-party basis, pursuant to Order 22 of the RHC (“the Sanctioned Offer”). Please note that:- 1. The Sanctioned Offer is intended to have the consequences of Order 22 of the RHC. 2.  After the expiry of 28 days from the date the Sanctioned Offer is made, [P] may only accept it if (a) the parties agree on the liability for costs; or (b) the Court grants leave to accept it. [D1’s solicitors] shall seek all costs against [P] on an indemnity basis (rather than on a party-to-party basis and enhanced interest) if she fails to establish liability against [D1] at the end of the day. [D1] reserves its right to produce a copy of this letter and all relevant correspondences should the issue of indemnity costs against [P] arise. Finally, a copy of our letter today to the Director of Legal Aid is enclosed for your reference. All [D1’s] rights herein are expressly reserved.”

7.  At the Cost Hearing, Mr Lim, counsel for D1, agreed (a) the 4^th Letter was not any offer at all (whether Calderbank, open or otherwise), and (b) the 1^st, 2^nd, 3^rd and 5^th Letters were open offers (and not Calderbank offers or sanctioned offers under Order 22 of the Rules of the High Court (“RHC”)). P did not accept any of the offers in the 1^st, 2^nd, 3^rd and 5^th Letters. However, there was dispute as to whether the 6^th Letter amounted to a sanctioned offer, but more of that below.

8.  In the Mak Aff, it was suggested D1 was not entitled to indemnity costs and enhanced interest under Order 22 of the RHC as (a) the 1^st to 6^th Letters were not genuine settlement offers and did not constitute either Calderbank or sanctioned offers, (b) indemnity costs could only be awarded after and not before the expiry of 6^th Letter (even if it was a sanctioned offer), and (c) it would be inappropriate to award indemnity costs even in the exercise of discretion under Order 22 rule 23 of the RHC.

III.  LEGAL PRINCIPLES: SANCTIONED OFFER

9.  Order 22 rules 3, 5 and 15 of the RHC provide as follows:

“(1) An offer by a defendant to settle the whole or part of a claim or an issue arising from the claim does not have the consequences specified in this Order unless it is made by way of a sanctioned offer ......” (rule 3)

“(3) A sanctioned offer must-

(a) state whether it relates to the whole claim or part of it or to an issue arising from it and if so to which part or issue; ......

(6) A sanctioned offer may be made at any time after the commencement of the proceedings but may not be made before such commencement.

(7) A sanctioned offer made not less than 28 days before the commencement of the trial must provide that after the expiry of 28 days from the date the sanctioned offer is made, the offeree may only accept it if –

(a) the parties agree on the liability for costs; or

(b) the Court grants leave to accept it. ......” (rule 5)

“(1) Subject to rules 7(3) and 10(2), a plaintiff may accept a sanctioned offer ...... made not less than 28 days before the commencement of the trial without requiring the leave of the Court if he files with the Court and serves on the defendant a written notice of acceptance not later than 28 days after the offer or payment was made. ......” (rule 15)

10.  Order 22 rule 23 of the RHC provides as follows:

“(1) This rule applies where a plaintiff-

......

(b) fails to obtain a judgment that is more advantageous than a defendant’s sanctioned offer.

......

(3) The Court may order the plaintiff to pay any costs incurred by the defendant after the latest date on which the ...... offer could have been accepted without requiring the leave of the Court.

(4) The Court may also order that the defendant is entitled to-

(a) his costs on the indemnity basis after the latest date on which the plaintiff could have accepted the ...... offer without requiring the leave of the Court; and

(b) interest on the costs referred to in paragraph (3) or sub-paragraph (a) at a rate not exceeding 10% above judgment rate.

(5) Where this rule applies, the Court shall make the orders referred to in paragraphs ...... (3) and (4) unless it considers it unjust to do so.

(6) In considering whether it would be unjust to make the orders referred to in paragraphs ...... (3) and (4), the Court shall take into account all the circumstances of the case including –

(a) the terms of any ...... sanctioned offer;

(b) the stage in the proceedings at which any ...... sanctioned offer was made;

(c) the information available to the parties at the time when the ...... sanctioned offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the ...... offer to be made or evaluated.

......”

IV.  SANCTIONED OFFER

11.  Given Mr Lim’s concession in paragraph 7(b) above, the question was whether the offer in the 6^th Letter was a sanctioned offer prescribed by Order 22 rule 5 of the RHC.

12.  In Kwok Chin Wing v 21 Holdings Ltd (previously known as inter alia Rockapetta Holdings Ltd) & anor,[1] Saunders J said at p 546 as follows:

“11. Unless the sanctioned offer is in the prescribed form it will not constitute a sanctioned offer. The consequence of the offer not constituting a sanctioned offer is that a plaintiff who has made the offer, if successful, cannot rely upon the provisions of O 22 r 24 as to costs and other consequences where he does better than his offer. The principal provision that the plaintiff will not be able to rely upon is that in relation to enhanced interest.”

Saunders J must have in mind Order 22 rule 2 of the RHC which provides as follows:

“(1) A party to an action containing a money claim ...... arising from any cause or causes of action may make an offer to settle the whole claim, a part of it or any issue arising from it in accordance with this Order.

......

(4) Nothing in this Order prevents a party from making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Order, it does not have the consequences specified in this Order, unless the Court so orders.”

13.  In respect of the 6^th Letter, Mr Lin argued that Order 22 rule 5(3) of the RHC mandates any sanctioned offer must state inter alia whether it relates to the whole claim or to part of it or to an issue arising from it and if so to which part or issue, but the 6^th Letter failed to comply with such provision. I disagree. As Mr Lim submitted, the offer in the 6^th Letter was for D1 “to consent to [P] discontinuing her common law claim against [D1] on the condition that [P] shall pay the costs and disbursements as incurred by [D1] up to the date of acceptance of this sanctioned offer on a party-to-party basis”. In my view, it was obvious that a proposal for P to discontinue “her common law claim” against D1 with costs to date necessarily referred to P’s whole claim against D1.

14.  Mr Lin next argued that the offer in the 6^th Letter was not a sanctioned offer as it imposed a condition that P should pay costs and disbursements incurred by D1 which ran counter to the provisions in Order 22 rule 20(1) of the RHC that provide “[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”.[2] I agree that the offer in the 6^th Letter for P to “withdraw her claim with costs to date” did not sit well with the prima facie rule in Order 22 rule 20 of the RHC. Hence, the 6^th Letter did not meet the requirements in Order 22 rule 5 of the RHC. Mr Lim submitted the 6^th Letter gave P another chance to withdraw her claim against D1. But this is not a sufficient answer because sanctioned offers are creatures of statute and therefore they have to meet the statutory requirements. Moreover, Mr Lim did not attempt to invoke the “otherwise proviso” (ie “unless the Court so orders”) in Order 22 rule 2(4) of the RHC. No doubt, Mr Lim was well aware of the heavy burden that has to be discharged for invoking the “otherwise proviso” as explained by Poon J  in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd in relation to the similar “otherwise proviso” in Order 22 rule 20(1) of the RHC.[3]

15.  I therefore conclude that the 6^th Letter was not a properly constituted sanctioned offer, and did not have the consequences set out in Order 22 rule 23(4) of the RHC. In the circumstances, there is no need for me to consider Mr Lin’s submissions that (a) the 6^th Letter was a tactical ploy and not any genuine offer and/or (b) there was insufficient disclosure of relevant disbursements, costs and costs on account paid to D1’s solicitors[4] to support a claim for enhanced interest.

V.  LEGAL PRINCIPLES: INDEMNITY BASIS

16.  Mr Lim submitted that even in the absence of a sanctioned offer, the nature of P’s claim against D1 and P’s conduct of the proceedings when viewed against D1’s offers and admonitions in the 1^st to 6^th Letters would lead this court to the conclusion that costs awarded in favour of D1 should be taxed on indemnity basis. Before I turn to Mr Lim’s arguments, I set out the relevant legal principles.

17.  Order 62 rule 5 of the RHC provides as follows:

“(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 –

(aa) the underlying objectives set out in Order 1A, rule 1;

......

(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 offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.”

18.  Order 62 rule 28(3) of the RHC provides that “[the] Court in awarding costs ...... may in any case in which it thinks fit to do so order or direct that the costs shall be taxed ...... on the indemnity basis”. Hong Kong Civil Procedure 2017 summarises the relevant principles as follows:[5]

“The Court of Appeal in Choy Yee Chun (The Representative of the estate of Chan Pui Yiu) v. Bond Star Development Ltd [1997] H.K.L.R.D. 1327, CA reviewed the cases and summarized the law as follows. A taxation of the successful party’s costs on an indemnity basis could properly be ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for the taxation of the successful party’s costs on the indemnity basis. However, the circumstances in which an indemnity award might properly be made were not restricted to circumstances such as those described. The discretion was not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”. ......”

19.  Although the discretion to award indemnity costs is unfettered and uncircumscribed,[6] there must be some special or unusual feature in the case to justify an order for indemnity costs.[7] I accept indemnity costs are no longer limited to cases where a party’s conduct lacks moral probity or deserves moral condemnation for which the court wishes to express disapproval. But such conduct must be “unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight..... It follows from all this ...... it will be a rare case indeed where the refusal of a settlement offer will attract ...... not merely an adverse order for costs, but an order on an indemnity rather than standard basis”.[8] Further, whilst pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order.[9]

20.  But there is an infinite variety of situations which can come before the courts and which the courts may be consider appropriate to make an indemnity order. So the court must consider each case on its own facts to ascertain whether there is something in the conduct of the action, or the circumstances of the case in question that takes it out of the norm so as to justify an award of indemnity costs.

VI.  INDEMNITY COSTS

21.  Despite the force of Mr Lim’s  submissions, I have come to the view that the appropriate order is that the relevant costs should be taxed on party-and-party basis.

22.  Mr Lim submitted P’s claim against D1 was misconceived and fundamentally flawed, which should not have been brought in the first place, especially when (a) she had a good claim against D2/D3 and (b) various invitations had been made to her to discontinue her claim against D1. But Mr Lin submitted P’s case against D1 was not so doomed to fail that it warranted an order for indemnity costs.

23.  It is true P’s claim against D1 was not a strong one, and this appears in the Judgment after trial. However, I do not regard it as having been so weak to be especially remarkable. P’s claim against D1 was essentially for negligence, breach of the implied terms of her contract of employment, and breach of the OSHO. P’s case on negligence turned on her belief that D1 must have known all along cleaners had been mopping the Floor without any Sign or notice and/or without cordoning off the area cleaned, so it behoved D1 to take steps to warn/instruct her about the relevant dangers and to take reasonable precautions to ensure her reasonable safety. P essentially invited inferences that D1 had knowledge/ awareness to be drawn from the evidence. But it transpired that the evidence as to D1’s knowledge/awareness was not greatly impressive, and it was starkly exposed at trial. Perhaps P had hopes that such evidence might be elicited from Yu (intended witness for D1), but such hopes were dashed when D1 decided not to call Yu to give oral evidence, and this court decided in the overall factual matrix it was inappropriate to draw adverse inference against D1 for not calling Yu as witness.

24.  The above matters also affected P’s claim for breach of statutory duty. This court accepted the Corridor where P slipped/fell was wet and slippery due to mopping by D3 without using any Sign or other measures and was therefore unsafe, but found that the need to take precautions was not reasonably foreseeable. It must not be forgotten that I accepted P’s account of the Accident and that of her witness Ng, and I further found P was not contributorily negligent. Taking all those matters into account, there was some basis, albeit weak, on which P’s allegations against D1 could be taken to trial. The exposure of such weakness at trial was a different matter from saying that the pursuit of the case in reliance on it was unreasonable to such a high degree that it ought to be marked by an award of indemnity costs. As explained above, the matter should not be viewed with hindsight.

25.  Mr Lim next complained P’s claim against D1 was made with ulterior motive as evident from the Mak Aff. The Mak Aff stated that P was forced to sue and maintain her claim against D1 due to D2’s allegations that D3 was an independent contractor.[10] It appeared P feared the fact D3 did not have insurance cover at the time would pose a serious litigation risk of an empty judgment even if she were to succeed on her claim against D3 since D2 would not be vicariously liable for an independent contractor’s liability.

26.  Mr Lim submitted this was not justified because P’s causes of action against D1 (employer) and D2/D3 (tortfeasor and her employer) were different, and whether or not D3 was an independent contractor was irrelevant to P’s claim against D1. Further, as early as on 3 September 2012 D2 by her Amended Defence removed her allegations against D1, and about a fortnight later on 19 September 2012 D2’s solicitors sent a “without prejudice save as to costs” letter to P’s solicitors to highlight such fact, ie D2 no longer placed any blame on D1, and to urge P to drop her claim against D1. On 20 August 2014, D2’s and D3’s pleadings were amended to admit their employer-employee relationship, and at the pre-trial review on 27 October 2015 this court urged both P and D2/D3 to consider their respective positions in relation to the former’s claim against D1 and latter’s resistance to D1’s contribution claim in view of the acknowledgment of employment relationship between D2 and D3. Mr Lim also asked this court to consider the 1^st to 6^th Letters in such context (especially the 6^th Letter which was sent 2 days after the aforesaid pre-trial review), and he submitted that for P not to heed all such reminders and to pursue her claim against D1 (whom she knew from the Amended Form 2 was insured for the Accident) because D3 was uninsured, the inference must be that P’s claim against D1, despite its obvious lack of merit, had been pursued in the hope of pressurising D1 and its insurer to avoid the stress and irrecoverable expense of prolonged proceedings and a trial by making an offer for settlement. It was suggested that this was oppressive against D1.

27.  As evident from the Judgment, P had a meritorious claim in respect of the Accident, and I have found that overall she was a truthful and reliable witness. She did not make any false or grossly exaggerated claim. Further, as explained above, even though the nature of P’s claim against D1 was weak and perhaps evidence as to D1’s knowledge or awareness of the cleaning arrangements for the Corridor was thin, her case against D1 was not entirely hopeless. Whilst P might have practical fears about whether she would be able to actually recover compensation for her genuine claim in respect of her personal injuries, I see no reason to believe that the proceedings against D1 were pursued to pressuring its insurer to settle an unmeritorious claim. Her conduct was nothing that of Choy Yee Chun,[11] Sung Foo Kee Ltd[12] or Amoco (UK) Exploration Company v British American Offshove Ltd (No 2).[13]

28.  As regards the 1^st to 6^th Letters and other indications to P to drop her claim against D1, it has to be something more than merely non‑acceptance of offer(s) before it is appropriate to make an order for indemnity costs. Whilst it is possible that an unreasonable failure to accept an offer for settlement or an unreasonable resistance to a sensible approach to finding a solution for the proceedings may attract indemnity case, it has been described as “a rare case indeed” (see paragraph 19 above). Often hindsight might show it was unreasonable or imprudent not to accept a better offer, but that will not normally be sufficient for an award of indemnity costs.

29.  In my view, the dismissal of P’s claim against D1 would not as a matter of course attract costs on indemnity basis. P’s claim against D could not be said to have been commenced or prosecuted in such a manner as to constitute to an affront to the court. I do not accept the circumstances of the present action were so insufficient as to put it outside ordinary hostile litigation, or cause the court to feel a proper sense of indignation at P’s conduct that arose out of concern over eventual recovery of her entitlement to compensation for personal injuries. P’s claim against D1 was a far cry from having knowingly put forward a false case from the start. With hindsight the 1^st to 6^th Letters as well as the letter dated 19 September 2012 by D2’s solicitors that Mr Lim relied on were sensible offers that ought to have been seriously considered or even accepted, but P had some basis for her claim against D1, albeit somewhat weak and thin, and her rejection of such proposals was not so unreasonable as to be in that “rare” category of case that justified an award of indemnity costs.

VII.  CONCLUSION

30.  In the circumstances, the Summons is dismissed, and the Cost Order Nisi is made absolute. There is no reason why costs should not follow event. I grant a cost order nisi that D1 should pay P costs of the Summons (including all costs reserved, if any) to be taxed if not agreed on party-and-party basis, and P’s own costs be taxed in accordance with Legal Aid Regulations.