LUK KWAN HUNG NELSON v. VICTORY MARK INVESTMENT LTD

HCA 8530/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8530 OF 1999

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J U D G M E N T

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1. This is an application by the defendant by summons dated 3 October 2003 to vary the costs order which I made on 19 September 2003. On 19 September 2003 I gave judgment to the plaintiff for damages in the sum of $1,158,967. I also awarded interest on the said sum from 25 May 1999 until judgment at 1% above prime rate and thereafter at judgment rate until payment. I made an order nisi for costs of the action in the plaintiff's favour to be paid by the defendant. The defendant seeks a variation of the order for costs to provide that, from and including 28 February 2000, the costs of the defendant shall be paid by the plaintiff to the defendant, such costs to be taxed if not agreed and to be paid forthwith.

2. The basis of the defendant's application is that by a letter from the defendant's former solicitors dated 28 February 2000 addressed to the plaintiff's former solicitors, the defendant offered to settle the action. It was submitted that this was a Calderbank offer which the plaintiff ought to have accepted. On the evidence before me, I am prepared to accept Mr. Dymond's submission that the value of the defendant's offer in the said letter exceeded what the plaintiff obtained by the judgment dated 19 September 2003. I am prepared to accept this on the evidence before me. The offer contained in the said letter was not accepted by the plaintiff's then solicitors. That being so, Mr. Dymond, for the defendant, submitted that the plaintiff should pay the costs as from the 28 February 2000.

3. The letter from the defendant's former solicitors dated 28 February 2000 was headed "Without Prejudice save as to Costs". By O.22, r.14, RHC it is provided that :

“ (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: (L.N. 404 of 1991) 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."

4. Ms Cheng SC, for the plaintiff, submitted that the court should not take the offer into account as the defendant could have protected its position as to costs by means of a payment into court under O.22. It was her submission that the claim for rescission and damages arising therefrom was a monetary claim. As such, a payment into court should have been made.

5. The primary claim of the plaintiff in the action was a claim for rescission of the sale and purchase agreement and the setting aside of the assignment. As I said at para. 17 of my judgment :

“ The plaintiff's primary claim is for rescission of the agreement and the setting aside of the assignment. He seeks the re-payment of the purchase price of the property, i.e. of Flat 25A and the car park, together with the legal costs and disbursements, stamp duty and management fees, government rates and government rent paid by him. The total sum claimed is $7,287,634.05 as particularised by Ms Cheng SC, for the plaintiff, in her closing submissions. The plaintiff claims damages in the alternative."

I do not consider that a claim for rescission of the agreement and the setting aside of the assignment is the same as a claim for money. Undoubtedly, the plaintiff sought the re-payment of the purchase price but this was on the understanding that he would transfer the title to the property back to the plaintiff or its nominee. The plaintiff had to do something to convey the property back. A notice of payment into court in respect of a settlement of all causes of action would not give the defendant the protection of getting the assignment back in its favour. I do not think that the defendant could have protected its position in respect of the assignment simply by making a payment into court of the full purchase price and the other expenses claimed. That being so, I am unable to accept the submission that the primary claim of the plaintiff for rescission and damages arising therefrom was a monetary claim and that only a payment into court would constitute a valid offer having an effect on the question of costs.

6. It is necessary to consider the said letter of 28 February 2000. It was marked "Without Prejudice save as to Costs" and stated as follows :

“	Dear Sirs
	Re :	High Court Action No.A8530 of 1999 ("the Action") Flat A, 25th Floor and Car Parking Space No. 102 on 1st Floor of Wilton Place, No. 18 Park Road, Hong Kong ("the Property")
	We refer to the captioned action.
	On an entirely without prejudice basis and in order to settle the matter amicably, we are instructed to revise our client's offer as follows in full and final settlement of your client's claim (including interest, if any) in relation to the Property and the Action :
	1.	Our client shall purchase or cause one of its subsidiary companies to purchase the Property from your client at the original price of HK$6,846,000.00 and each party shall bear its own legal costs in connection with such sale and purchase while stamp duty thereof shall be paid by our client. Completion of the sale and purchase shall take place within one month from the date of the filing of a Tomlin order in respect of the parties' settlement.
	2.	The case shall be settled by way of a Tomlin order under Order 42 Rule 5A(2)(b)(iii) of the Rules of the High Court.
	3.	Our client shall pay damages in the sum of HK$800,000.00 to your client within seven (7) days from the date of the Tomlin order. This amount is inclusive of all your client's claim for damages under different heads, interest and costs.
	4.	There shall be no order as to costs and each party shall waive their previous entitlement of costs as ordered by the Court (if any).
	5.	Your client shall not disclose the terms of settlement either directly or indirectly to third parties except to the High Court. Furthermore, our client is entitled to disclose the terms of settlement for, inter alia, the purpose of claiming against and/or recovering damages from other parties in respect of the construction or otherwise of the Property.
	Kindly take your client's instructions and revert to us accordingly within the next 7 days after which our client's counter-offer herein shall lapse automatically."

7. The first question for me to consider is whether or not the terms are sufficiently certain as to be capable of a valid acceptance by the defendant without any further query or negotiation on the matter. In other words, if everything set out in the letter had been accepted by the defendant, would that have constituted a binding and enforceable contract between the parties?

8. Ms Cheng submitted that the terms were too uncertain in two main respects :

(1) in relation to the sale and purchase agreement that was to be entered into; and

(2) in relation to the terms of the Tomlin order.

9. Mr. Dymond for the defendant submitted that the letter set out all the central terms sufficient to give rise to a binding agreement. He submitted that there was no uncertainty in any of its terms.

10. There must, of course, be certainty in the essential terms. I accept that the price and date of completion as stated in the letter are sufficiently certain. I also accept Mr. Dymond's submission that the giving of vacant possession would also be implied in a contract of sale and purchase in the absence of a term to the contrary effect. However, there must also be certainty as to the identity of the parties that were going to enter into the contract of sale and purchase. At para. 1 of the letter it is stated that :

“ Our client shall purchase or cause one of its subsidiary companies to purchase the Property........"

The plaintiff was told that the party entering into a contract of sale and purchase of the property as the purchaser would be either the defendant or one of its subsidiary companies which was not identified. Who was going to be the purchaser? Was it going to be the defendant or an unidentified subsidiary company? It seems to me that the identity of the purchaser was uncertain and this was a matter requiring further query or negotiation between the parties. That being so, the offer made in the letter was not, in my view, capable of a valid acceptance by the plaintiff without any further query or negotiation on the matter. The acceptance of the offer without any further query or negotiation would not have resulted in a binding and enforceable contract between the parties.

11. As regards the terms of the Tomlin order, para. 2 of the letter stated that :

“ The case shall be settled by way of a Tomlin Order under Order 42 Rule 5A(2)(b)(iii) of the Rules of the High Court."

However, the terms of the Tomlin order were not submitted for the consideration of the plaintiff or his solicitors.

12. Mr. Dymond submitted that the words in para. 2 of the letter do not require elaboration as a Tomlin order is a very simple order and merely provides for a stay of the action, save for the purpose of enforcing the schedule to the order. However, it is plain that a Tomlin order is an order of the court. What are the terms to be included in the order and in the schedule to the order? What are the terms to be omitted from the order and from the schedule to the order? Although the concept of a Tomlin order is well-known and understood by legal professionals, I am unable to accept that all Tomlin orders are to be worded in the same way. It seems to me that the wording of the Tomlin order that was to be made and what precisely was to be included in the schedule to the Tomlin order were matters that required further discussion and negotiation. I accept Ms. Cheng's submission that depending on the terms of a Tomlin order a non-compliance may give rise either to a separate action being instituted to enforce the terms of the scheduled agreement or the lifting of the stay of proceedings in the current action. That being so, for this reason also the letter dated 28 February 2000 did not contain an offer which was capable of being validly accepted without any further discussion or negotiation on the matter. The acceptance of the offer without any further query or negotiation on the terms of the Tomlin order and the schedule to that order would not have resulted in a binding and enforceable contract between the parties.

13. For the above reasons, the offer made in the letter dated 28 February 2000 was not an offer which, in my view, the court should take into account on the question of costs. The summons should, therefore, be dismissed.

14. In case I am held to be wrong on the above matters, I go on to consider the exercise of the discretion. It is plain that a Calderbank offer should influence but not govern the exercise of the discretion on costs. As was said by Mummery L.J. in Butcher v. Wolfe and Wolfe [1999] 1 FLR 334 at page 340

“ A Calderbank offer is made for the same reason as a payment into court is made; to encourage a settlement and, failing a settlement, to protect the position on costs of the person making the payment in or the Calderbank offer. But a Calderbank offer is not to be treated as, or to be regarded as a substitute for, or to be equated for all purposes with, a payment into court. As a Calderbank offer is appropriate in a case other than a claim for debt or damages, it requires a greater degree of flexibility. The proper approach to a Calderbank offer, when it is taken into account on a later argument on costs, is to ask whether the party to whom the offer was made 'ought reasonably to have accepted the proposal in the letter?' Or, to put it another way, account must be taken of the reasonableness or otherwise of the refusal to accept the offer - see Cutts v Head and Another [1984] Ch 290, 302 per Oliver J, and Chrulew and Others v Borm-Reid & Co [1992] 1 WLR 176, 182A. This approach is to be compared with the payment into court where, in the absence of a special reason for depriving the offering party of his post-offer costs, the simple question is whether the payment in is equal to or is beaten by the defendants at trial.

(8) A Calderbank offer must be made in clear terms so that the party against whom it may be used on the issue on costs knows what he is offered - see C & H Engineering v F Klucznic & Sons Ltd [1992] FSR 667, 671. It may well be reasonable for a party to whom an offer is made to refuse an offer made in ambiguous terms."

15. Whether or not it was reasonable for the defendant to refuse to accept the offer made on 28 February 2000 depends on the facts of the case. The evidence as set out in the 3rd affirmation of the plaintiff shows that although the plaintiff did not accept the offer contained in the letter of 28 February 2000, the negotiations for settlement did not stop there. There were a number of 'without prejudice' letters exchanged between the solicitors after 28 February 2000. On 11 July 2000, however, the defendant gave notice of a payment into court which it had made. It paid into court the sum of HK$1,005,000.00 in full satisfaction of all causes of action in respect of which the plaintiff claimed against the defendant. Thus, on 11 July 2000 there was this new offer made by the notice of payment into court. The defendant was no longer willing to re-purchase the property at the original purchase price and pay damages in the sum of HK$800,000. Instead it was willing only to pay the sum of HK$1,005,000 as damages and interest. The notice of payment into court superseded the previous offer which was not accepted. By the judgment given in his favour on 19 September 2003 the plaintiff has obtained more than the amount paid into court. The plaintiff, therefore, has beaten the payment-in.

16. The plaintiff said in his 3rd affirmation that when he received the offer letter of 28 February 2000 he did not believe that the defendant was sincere to settle the action with him. The reason for this was that back in 1997 the defendant had agreed to re-purchase the property from him at HK$7,096,000.00 which made up the original purchase price plus HIK$1,000,000.00 damages. The defendant, however, backed out from the agreement and demanded the return of the cheque of the 10% deposit from his former solicitors on 7 July 1998. It is true that the agreement to re-purchase the property in 1997 was said to be 'subject to contract' in the solicitors' correspondence. Nevertheless, there was an agreement, although 'subject to contract', which the defendant backed out of in July 1998. All that the plaintiff was told was that "the transaction has fallen through". By this time a deposit of 10% of the purchase price had been sent to the plaintiff's solicitors and the terms of the formal sale and purchase agreement had been agreed to by the respective solicitors, although this was done 'subject to contract'.

17. It is not surprising that in view of what had occurred in 1997 and 1998 the plaintiff did not believe that the defendant was sincere to settle the action with him in the terms offered when he received the letter of 28 February 2000. In my view, the plaintiff cannot be criticised for losing confidence in the defendant unless the defendant could show its sincerity. The plaintiff deals with this at paras. 5 and 6 of his 3rd affirmation. It seems to me that it was reasonable, in view of the background of the matter, for the plaintiff not to immediately accept the offer made in the letter of 28 February 2000 but to discuss the matter further in 'without prejudice' negotiations which is what he did. As it turned out, on 11 July 2000 the defendant gave notice of the said payment into court thereby making a new offer and making it clear that it was no longer willing to re-purchase the property at the original price. This was a marked change of stance by the defendant. As Mr. Luk said at para. 10 of his 3rd affirmation :

“ This notice of payment-in reflected the true intention of the Defendant and their lack of sincerity to re-purchase the Property from me as the said payment is in full satisfaction of all the causes of action I claimed against the Defendant."

In the circumstances, it was, in my view, reasonable for the plaintiff not to immediately accept the offer, but to enter into further 'without prejudice' discussions and negotiations on the offer which he did.

18. In the exercise of my discretion, I do not consider that in the circumstances the order for costs made on 19 September 2003 should be varied. I dismiss the defendant's summons. The order for costs made on 19 September 2003 is to be made absolute.

19. Costs should follow the event. I also make an order nisi that the costs of the summons be costs to the plaintiff.