THE HONGKONG & SHANGHAI HOTELS, LTD. v. CHOY BING WING t/a BING CHOY & ASSOCIATES

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 151
(Civil)

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J U D G M E N T

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Mortimer, V.-P. :

1. This is an appeal against an order for costs made by Master Cannon on 14 April 1998 for which she gave leave on 4 June 1998. This was an order made after an assessment of the plaintiff's quantum meruit claim which had been heard by Master Jennings. Master Jennings retired after making his award and the issue on costs was heard by Master Cannon.

Background

2. The plaintiff is a structural engineer. He was employed by the defendant on the Peninsular Hotel extension. But his services were terminated in June 1990. He was paid for the work he had completed. However, he was instructed to complete certain other work known as activities A to F but on 5 November 1990 the defendant terminated his services on all those activities save for A, C and D, and on 9 November terminated his services altogether. Thereafter the plaintiff submitted an invoice for the work he had carried out, but that was not agreed, and he began proceedings.

3. On 26 January 1991, the defendant paid into court $300,000 in full satisfaction of the claims but that was not accepted. His action came before Kaplan J. On 20 October 1994 he gave judgment for the plaintiff but with the damages to be assessed by a master. The defendant appealed against liability in items A, B, C and D. But the result of the appeal was that those matters were also sent to the master for damages to be assessed. Before Master Jennings assessments were made under two orders. One of 20 October 1994 made by Kaplan J relating to activities E and F, and one dated 10 May 1995 relating to the other activities made by the Court of Appeal.

4. Master Jennings heard the matter. He made the following orders:

(a) By consent, he awarded $125,000 to the plaintiff in respect of activities E and F;

(b) He made no award in respect of activities A and C; and

(c) He awarded the sum of $446,215 to the plaintiff for his services in activity D.

The consequence was that he gave judgment for a total of $571,215. He left the question of interest and costs to a date to be fixed.

5. Before the hearing, the defendant wrote a Calderbank letter, dated 7 November 1995 dealing with activities A, C and D only. It is useful to note at this point that the plaintiff abandoned his claim under B and those activities are irrelevant to this appeal.

The Calderbank letter reads as follows - the first two paragraphs:

"This letter constitute an offer by HKSH to Bing Choy to compromise the referral to the Master to assess a reasonable sum to be paid by HKSH to Bing Choy for the service rendered by Bing Choy to HKSH between 2S July l990 and 5 November l990 in relation to Activities A, C and D specified in the judgment and order of the Court of Appeal dated l0 May 1995. This letter is written under the principles of Calderbank v. Calderbank: [1975] 3 All E.R. 333 C.A. and pursuant to RSC Order 22 Rule 14.

In full and final satisfaction of all liabilities which HKSH may have to Bing Choy in respect of the services referred to above, HKSH offers to pay Bing Choy HK$538,860.00 principal ..."

A sum of interest is mentioned and then it specifies how it is calculated. Interest is not relevant to our decision.

6. The offer was made subject to certain conditions which can be summarised that the offer was to be partly satisfied by the money in court which was to be paid out to the plaintiff's solicitors and then to a stakeholder for reasons which will later appear.

7. The final paragraph reads:

"This offer is open for acceptance for a period of 21 days from the date of this letter. Thereafter the offer may be accepted only on condition that Bing Choy pays HKSH's costs incurred from the date of expiry of the 21 day period of acceptance, such costs to be taxed on a party and party basis if not agreed."

The general position was this. The total award made by Master Jennings was $571,215. The offer in the letter was for $538,860 but only for A, C and D. The award for A, C and D was $446,215.

8. When the matter was heard by Master Cannon, she ordered that the defendant was to pay the plaintiff's costs of the quantum meruit assessment, including the hearings before Master Jennings, on a party-and-party basis. It is against that order the defendant appeals.

9. The basis of the appeal is simple. That so far as A, C and D are concerned, the plaintiff did not recover an award in excess of the offer in the letter and therefore the costs ought to have gone to the defendant. So far as the issue on E and F is concerned, that was not dealt with in the letter but was dealt with in this manner; the judgment of Kaplan J put a ceiling of $125,000 on those two activities; on the day before Master Jennings began his hearing, that is 25 January, the defendant consented to pay the full sum of $125,000 in respect of those activities. So before Master Jennings there was no issue.

10. In dealing with the matter, Master Cannon summarised the defendant's case and the plaintiff's case. It is to be noted that in summarising the plaintiff's case, no reference is made to the one point made by the plaintiff on this appeal. Yet, it does appear - and there is no issue now upon the matter - that he did make the point but, for reasons which are not clear, the master did not deal with it. The reasons given by the master are as follows:

"I do not accept that the amount of the costs owed to the defendant in the Court of Appeal costs order should influence my decision as to which party should bear the costs of the assessment of quantum meruit before the Master. I should only have regard to the outcome of the assessment of the quantum meruit in deciding the costs liability."

So far I would agree entirely. Then

"Since the $300,000 paid into court on 26 January, 1991, was less than Master Jennings' award, it does not affect the basic rule that the costs should follow the event.

As to the Calderbank offer, I do not accept that the letter was of continuing effect, since it incorporated a time limit within its terms. In considering the offer, I am satisfied that the total award on the quantum meruit of $571,215 is the figure I should take into account in exercising my discretion. Although $l25,000 of that figure was in respect of Activities E and F, and was awarded by consent, it nevertheless forms part of the sum awarded and is part of the assessment. As to the offer itself, the figure I should use in my consideration is $538,860, ignoring the sum of $234,902.55, representing interest. While the plaintiff's claims may have been considerably larger than the award, the Calderbank offer was less than the final award. Although it can be said that the difference in the comparative values of the Calderbank offer and the quantum meruit award is not great, it does not alter the fact that the offer fell short of the award. I am satisfied that the Calderbank offer of $538,860 was not effective in protecting the defendant's position on costs."

On those issues, Mr Chan, who appears for the defendant on this appeal, submits simply that a Calderbank letter was the only appropriate way to protect the defendant against costs in the particular circumstances because there were orders for costs made in the proceedings in front of Kaplan J, and in the Court of Appeal, which were at the time of the Calderbank letter had not been taxed. It was clear to the plaintiff that those costs would exceed any award which would be made on the master's order. Therefore, it would be inappropriate to pay into court because the plaintiff would simply take out that sum in satisfaction of the claim, ignoring the sums which would become owing on costs.

The defendant's submissions on that were borne out. The amount owing by the plaintiff on the costs taxed is of the order of $1.2m. Further, the defendant submits that, in her assessment of the Calderbank offer, the master was in error in exercising her discretion. First, because she thought wrongly that the letter was not of continuing effect and that it had to be accepted within 21 days. On that she was clearly wrong. Secondly, that in considering the letter, she ought to have considered only the activities A, C and D and the sums involved in those activities, ignoring the $125,000 award by consent on E and F. Had the matter rested there, for my part, I would have been inclined to think that the defendant's submissions on this appeal were good.

11. Mr Bing Choy, who appears in person, repeats one point that he made below. It is a simple one. He invites our attention to O22 r14 which reads:

"(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) Where an offer is made under paragraph (1), the fact that such an offer has been made shall not be communicated to the Court until the question of costs falls to be decided:

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"

Mr Choy says this is purely monetary claim and that a payment into court could have been made by the defendant to protect their position as to costs. Indeed, a payment-in had already been made and that in the circumstances he can rely upon the proviso as the other parts of r14 are satisfied. In those circumstances, he says, the court should not take the offer in the Calderbank letter into account. Undoubtedly, it seems to me the proviso was introduced into O22 r14 consequent upon the decision in Cutts v Head [1984]1 Ch 290. Indeed the proviso was added to the rules in England but later the rules in England have been amended to omit the proviso in this rule, but not in O62. Indeed, in the Hong Kong Rules (O62 r5(d)) as well as the English Rules (O62 r9(1)(d)), the same proviso appears. In both jurisdictions it has survived the omission of the proviso in England in O22 r14.

12. In Cutts v Head, Oliver LJ (as he then was) dealt with Calderbank letters exhaustively and added at the end of his judgment:

"I would add only one word of caution. The qualification imposed on the without prejudice nature of the Calderbank letter is, as I have held, sufficient to enable it to be taken into account on the question of costs; but it should not be thought that this involves the consequence that such a letter can now be used as a substitute for a payment into court, where a payment into court is appropriate. In the case of the simple money claim, a defendant who wishes to avail himself of the protection afforded by an offer must, in the ordinary way, back his offer with cash by making a payment in and, speaking for myself, I should not, as at present advised, be disposed in such a case to treat a Calderbank offer as carrying the same consequences as payment in."

Fox LJ, at the end of his judgment, agreed.

13. Faced with this point, Mr Chan for the defendant, submits that nevertheless it was appropriate in this case to make the offer by way of a Calderbank letter and that we should give the proviso a restricted interpretation, bearing in mind the intention of these rules to encourage settlements. He repeats that the payment-in was not appropriate because it does not deal with the other issues and claims between the parties. He submits that a payment-in could not have been made with a view to settling the whole of the case. The second point he takes is that the words "as to costs" in the proviso mean not simply the costs in relation to the issues on which the Calderbank letter was written, but are appropriate to cover all the costs in the action. For my part, I am unable to accept the defendant's submissions. There is no reason why the defendant could not have made a payment-in in order to protect itself on the costs in relation to the issues A, C and D to which the Calderbank letter referred.

14. We have been invited to consider the case of Singh v Parksfield Group PLC, reported in the Times Newspaper on 20 March 1996 where a similar argument was advanced although there was no dispute that the defendant could have made a payment-in in that case. Stuart Smith LJ, having considered these matters, said:

"In the ordinary way where a defendant was facing a monetary claim, he should make a payment into court in sufficient time for the plaintiff to consider it.

The policy of the law should be to settle cases wherever possible. There might be advantages if the court had a wider discretion in this area. Although there were equal advantages in certainty in the system. It was not a matter for the courts to change. The appeal would be dismissed."

Whereas for my part, I have some sympathy for the view that it would be better if the judge or master had a wider discretion than is given in O22 r14. That is not a matter for the courts to change.

15. In those circumstances, although for reasons other than those given by the master, I would dismiss this appeal.

Godfrey, J.A.:

I agree.

16. As it seems to me, the only way in which a defendant in the position of the defendant here can protect his position is by means of an open as distinct from a without prejudice offer. The machinery provided by Order 22 rule 14 is simply not available where the party making a without prejudice offer can protect his position by means of a payment into court as the defendant could have done here.

17. I too would dismiss the appeal.

Rogers, J.A.:

I agree. I have nothing further to add.

Mortimer V-P:

There will be an order for the costs of the appeal to the respondent to be taxed if not agreed.