PARK AVENUE TOYS LTD v. CANDY NOVELTY WORKS LTD

HCA 11135/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11135 OF 1997

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R U L I N G

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1.  This matter came before me for trial over six days commencing on 24 July 2004.  By a reserved decision delivered on 23 August 2004, I found that Park Avenue had established its claim for breach of contract against Candy Novelty, but that Park Avenue’s failure to mitigate its loss resulted in there being no award of damages against Candy Novelty.  For reasons given in that decision I made an order nisi that each party should bear its own costs.  Candy Novelty now seeks to vary the order for costs and argues that it is entitled to costs.

2.  Park Avenue’s claim was a claim for a sum of money and a declaration.  Order 22 Rule 1, makes provision for payment into court in any action for a debt or damages, of a sum in satisfaction of the cause of action.  However, when the claim is for other than debt or damages, as in a claim for a declaration, it is not open to a defendant to protect his position against an award of costs by making a paying in, for the plaintiff may accept the sum and still proceed and seek the additional relief, such as a declaration.  In such a case the proper course for a defendant who wishes to protect his position against costs is to make a Calderbank offer: see Hong Kong Civil Procedure 2004, 22/1/4.

3.  That is precisely what happened in this case.  On 27 May 2004, Candy Novelty, by their solicitor’s letter, made an offer in full settlement of the entire action, by a payment to Park Avenue, in the sum of US$30,000.00, plus interest and costs to that time.  The offer was open for 14 days after the date of the letter.  That offer was not accepted by Park Avenue who elected to proceed to trial.

4.  On the first day of the trial, Park Avenue abandoned the claim for a declaration.  The claim thereby became a simple claim for a debt or damages.  It was accordingly then open to Candy Novelty to make a payment into court.  There is nothing in the Rules to prevent a party making a payment into court on the first day of trial, or even after the commencement of the trial.  Order 22 Rule 3, provides that a plaintiff may, where a payment in is made in advance of the trial, within 14 days after receipt of the notice of payment in, accept the sum in satisfaction of the cause of action.  If the payment in is made after the trial has begun the plaintiff may accept the money within two days after receipt of the notice of payment: see O. 22 R 3(2)(a).

5.  There is a significant difference between the two situations.  If a payment into court is made more than 14 days prior to the commencement of the trial, the plaintiff has the right without, the leave of the court, to accept and receive the money, in which case, significantly, he is entitled, as of right, to tax his costs: See O 62 R 10(2) & (3).  Where however, the payment in is made at or after the commencement of the trial, the right of the plaintiff to accept such payment in must be exercised within two days after receipt of the notice, and importantly, the plaintiff is not entitled as of right to tax his costs upon acceptance of the money, but the entitlement costs must be decided by the trial judge: see O 22 R 4(3), HKCP 204 22/4/1, Unistress Building Construction Ltd v Humphrey’s Estates (Forestdale) (Unreported MP 3268 & 33211/1991, [1992] HKLY 47.

6.  The situation is not, as Mr Sakhrani argued, that a payment into court on the second day of the trial would have automatically entitled Park Avenue to their costs, with the Court not having any discretion in the matter.  It would not, as Mr Sakhrani argued, had been “fatal to Candy Novelty from the point of view of costs”, to have made a payment into court.  Notwithstanding Mr Sakhrani’s argument, it was open to Candy Novelty, upon Park Avenue abandoning the claim for a declaration and reducing the action to one for damages, to have made a payment into court.  There would be no automatic right in Park Avenue, on acceptance of that offer, to tax their costs to that point in time.  Costs would have remained in the discretion of court.

7.  Mr Wong, for Park Avenue, relies upon the decision of the Court of Appeal in England in Cutts v Head [1984] Ch 290, where it was held at a Calderbank offer ought not to be used as a substitute for a payment into court, where a payment into court is appropriate.  That principle has been adopted in Hong Kong: see Choy Bing Wing v Hong Kong & Shanghai Hotels Ltd (No. 2) [1998] 4 HKC 555.

8.  The Calderbank offer was an offer that was made to the Park Avenue’s solicitors on 27 May 2004.  It was expressly stated in the latter that if not accepted within 14 days, the offer would lapse.  There is no suggestion that the offer was extended, and it accordingly lapsed on 10 June 2004.  There is no evidence at all that the offer was revived prior to the commencement of the trial, and accordingly there was nothing on the table which Candy Novelty could accept prior to the commencement of the trial.  The offer was not renewed, either by way of further Calderbank offer, or by way of a payment in, on or after the first day of the trial when the claim had reduced to a simple money claim for damages.

9.  In the circumstances I am satisfied that the matter of costs lies in my discretion.  Pursuant to the Rules, consequent upon the claim being reduced to a simple money claim for damages it was open to Candy Novelty to make a payment into court.  That would have been prudent course because there would have been no immediate right to the taxation of costs on the part of Park Avenue on acceptance of the payment, and costs would have been in the discretion of the court.  It is right that a Calderbank offer was earlier made, but it was made on specific terms of acceptance within a fixed period of time, or it would lapse.  It having lapsed, Candy Novelty elected not to renew the offer and was apparently content to begin the trial with no offer at all to protect its position against costs.  The offer was not renewed, either on a Calderbank basis, or by way of a payment into court, after the claim for a declaration was abandoned.

10.  Weighing all of these matters I am not persuaded that the making of the Calderbank offer, an offer which had lapsed more than a month prior to the commencement of trial, is such as to justify variation of the decision for costs nisi.  In reaching this decision I have particular regard to the conduct of Candy Novelty as set out in paragraph 67 to 69 of the judgment.

11.  The order that each party will must bear their own costs for the trial is made absolute.  Candy Novelty have failed in their effort to vary the order nisi for costs.  They must pay Park Avenue’s costs on the application to vary the tax on the party and party basis if not agreed.