CHEN TEK YEE AND OTHERS v. CHAN MOON SHING AND ANOTHER

HCA 954/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 954 OF 2010

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DECISION

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I. INTRODUCTION

1.  On 7 May 2015, I handed down judgment in this action (“Judgment”), and granted (a) a declaration that the 1^st, 2^nd and 3^rd plaintiffs were entitled to sole and exclusive occupation of the subject property during each of their respective lifetime for so long as each of them wishes to continue to occupy the subject property to the exclusion of the 1^st and 2^nd defendants and/or their respective successors‑in‑title, and (b) a costs order nisi that the 2^nd defendant shall pay the 1^st, 2^nd and 3^rd plaintiffs half of their costs of the action in respect of their claim (but excluding costs of the counterclaim), including all costs reserved if any, to be taxed if not agreed (“Costs Order Nisi”).  For convenience, in this Decision I shall adopt the abbreviations in the Judgment.

2.  By a summons filed on 20 May 2015, Chen/Daughters applied to vary the Costs Order Nisi to the extent that Ng do pay the costs they incurred after 18 March 2013 on an indemnity basis and also enhanced interest on such costs (“Costs Summons”). 

3.  On the same day, Chen/Daughters filed the 2^nd affidavit of their solicitor Ma Wah Yan Billy in support of the Costs Summons (“Costs Aff”).  The Costs Aff stated that by letter from her solicitor to Ng’s solicitors (“Offer”) dated 18 February 2013 (ie after close of pleadings and before the case management conference held on 5 June 2013) Chen made a sanctioned offer to Ng pursuant to Order 22 of the Rules of the High Court (“RHC”), but there was no acceptance or reply to the Offer.  The Offer stated as follows:

“Pursuant to Order 22 of [the RHC], [Chen] makes this sanctioned offer to settle the whole claim in this action as between [Chen] and [Ng] and the offer takes into account [Ng’s] Counterclaim. The terms of [Chen’s] sanctioned offer are as follows:-

1. [Ng’s] Counterclaim be dismissed.

2. [Ng] agrees that [Chen] and her two daughters [Lin] and [Wendy] shall be entitled to the sole and exclusive occupation of the [Property] during their respective lifetimes (paying the expenses ancillary to their occupation such as utility bills, management fees and rates) and [Ng] shall execute an irrevocable licence to this effect which licence shall be binding on [Ng] and his successors in title and the same shall be registered in the Land Registry by [Chen];

3. Subject to the aforesaid licence to be granted, [Chen] and [Ng] shall each be entitled to 50% share of and in the [Property] and [Chen] shall cause to vacate the registration of the writ in this action from the Land Registry after the aforesaid licence has been registered; and

4. There be no order as to costs of this action.

Please note that after expiry of 28 days from the date of this sanctioned offer is made, [Ng] may only accept it if:-

a. the parties agree on the liability for costs; or

b. the Court grants leave to accept it.” (my emphasis)

The Costs Aff alleged that the Judgment in favour of Chen/Daughters was equivalent to or better than the Offer, so pursuant to Order 22 rule 24 of the RHC, Chen/Daughters were entitled to (a) their costs on indemnity basis after the latest date on which Ng could have accepted the Offer without requiring leave of the court (ie 18 March 2013) and (b) interest on those costs at a rate not exceeding 10% above judgment rate.

4.  Ng opposed the application, but did not file any affirmation in opposition. 

II.  PRELIMINARY MATTERS

5.  At the hearing of the Costs Summons on 5 June 2015 (“Costs Hearing”), Mr Miu, counsel for Chen/Daughters, made a faint‑hearted oral application for an order that Chen/Daughters be paid the whole (and not half) of the costs of the action in respect of their claim (but excluding costs of the counterclaim) in addition to taxation of such costs on indemnity basis.  There was no merit to such application because (a) it was not sought in the Costs Summons, (b) the Daughters only conceded during closing submissions at trial not to pursue any claim for beneficial ownership interest in the 50% Share, and (c) Chen actually failed in her claim for declarations that the Deceased, Chan and Ng held the 50% Share on trust for her as beneficial owner.[1] There was, quite simply, no justification for Chen/Daughters to claim for full costs of the action in respect of all their causes of action when they succeeded only on the issue of the Contractual Licence.

6.  In the end, Mr Miu confirmed at the Costs Hearing that Chen/Daughters would not seek disturb the Costs Order Nisi insofar as this court awarded half of their costs of the action in respect of their claim (but excluding the costs of the counterclaim), including all costs reserved if any, to be paid by Ng.  The variation sought was confined only to the basis of taxation.

7.  Secondly, even though the Daughters were mentioned in the Offer, which offer if accepted would also benefit them, it was plain that the Offer was made by Chen and not by Lin and/or Wendy, who were then not parties to the present action.  This court granted leave for the Daughters to join as co-plaintiffs in the present action only on 19 February 2014, ie only 3 months before trial.  In short, there were no proceedings or lis between the Daughters and Ng at the time of the Offer.  Order 22 rule 5(6) of the RHC provides that “[a] sanctioned offer may be made at any time after the commencement of the proceedings but may not be made before such commencement”.

8.  That being the case, it is hard to understand how the Daughters could have asked for their costs under the Costs Order Nisi to be taxed on indemnity basis under the Order 22 regime.  In the end, Mr Miu conceded at the Costs Hearing that the Daughters would not seek indemnity costs under Order 22 rule 24 of the RHC, but they would still ask this court to vary the Costs Order Nisi to award them indemnity costs in the exercise of the court’s broad discretion on costs.

9.  Thirdly, Mr Miu confirmed at the Costs Hearing that Chen/ Daughters would no longer seek any enhanced interest on the award of costs.  In any event, in light of the analysis in the above paragraph, the Daughters would not have been entitled to resort to the Order 22 regime to ask for enhanced interest on costs.

III.  ISSUES

10.  This meant that the remaining issues under the Costs Summons were (a) whether as a result of the Offer Chen was entitled to have her costs entitlement under the Costs Order Nisi taxed on indemnity basis under the Order 22 regime, and (b) whether Chen/Daughters were entitled to have their costs entitlement under the Costs Order Nisi taxed on indemnity basis under the court’s broad discretion on costs.

11.  Ng opposed the Costs Summons for the following reasons:

(a)   the Judgment was not more advantageous than the Offer so the costs consequences under Order 22 rule 24 of the RHC would not follow (“Ground 1”);

(b)   outside the scope of Order 22 regime, there was no reason why the court in exercising its discretion on costs should order indemnity costs against Ng in the present action (“Ground 2”).

12.  Order 22 of the RHC provides inter alia as follows:

“2.(1) A party to an action containing a money claim or a non‑money claim or both 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.

……

(3) An offer made under paragraph (1) has the consequences specified in rules 20, 21, 22, 23 and 24 (as may be applicable).

(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.

……

4. An offer by a plaintiff 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.

5.(1) A sanctioned offer must be in writing.

(2) A sanctioned offer may relate to the whole claim or to part of it or to any issue arising from it.

(3) A sanctioned offer must-

(a) state 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;

……

14.(1) The offeree may, within 7 days of a sanctioned offer or a sanctioned payment being made, request the offeror to clarify the offer or payment notice.

(2) If the offeror does not give the clarification requested under paragraph (1) within 7 days of service of the request, the offeree may, unless the trial has commenced, apply for an order that he does so.

……

21.(1) Where a plaintiff’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 upon which the defendants serves notice of acceptance, unless the Court otherwise orders.

……

24. (1) This rule applies where-

(a) a defendant is held liable for more than the proposals contained in a plaintiff's sanctioned offer; or

(b) the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff's sanctioned offer.

……

(3) The Court may also order that the plaintiff is entitled to-

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

……

(4) Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including-

(a) the terms of any sanctioned offer;

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

(c) the information available to the parties at any 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.  GROUND 1

13.  Mr Chan, counsel for D2, made a two-pronged attack under Ground 1.  First, he argued that by the Offer Ng was invited to dispose of the present action by inter alia (a) granting an irrevocable licence to Chen/Daughters to solely and exclusively occupy the Property during their respective lifetime, (b) paying the expenses ancillary to their occupation (such as utility bills, management fees and rates), and (c) there shall be no order as to costs of the action.  Since the Judgment did not order Ng to pay expenses ancillary to Chen’s/Daughters’ occupation of the Property, it was less advantageous than the Offer, and the costs consequences under Order 22 rule 24 of the RHC would not follow.  Mr Chan added that any ambiguity in reading the Offer in respect of (b) above to mean it was Chen/Daughters rather than Ng who would have to pay the expenses ancillary to their occupation of the Property was caused by Chen/Daughters in not setting out the Offer in clear terms, and they would have to bear the consequences of such ambiguity.

14.  I disagree with Mr Chan’s understanding of the Offer.  In my view, paragraph 2 of the Offer when read in its proper context plainly meant that (a) Chen/Daughters shall be entitled to sole and exclusive occupation of the Property during their respective lifetime (paying expenses ancillary to their occupation), and (b) Ng shall execute an irrevocable licence to this effect.  Clearly, the phrase concerning payment of expenses ancillary to “their occupation” put in parantheses right behind the reference to Chen’s/Daughters’ occupation of the Property necessarily meant Chen/Daughters (rather than Ng) would be the ones who would occupy the Property and therefore pay the expenses ancillary to “their” occupation.  On the other hand, Ng was called upon to agree to an irrevocable licence to this effect, ie Chen/Daughters would occupy the Property during their respective lifetime and pay for their expenses ancillary to such occupation.  In my view, such interpretation is plain and obvious from the words used in the Offer.  It also accorded with common sense for the actual occupier (rather than the paper title‑holder) to pay for occupation-related ancillary expenses such as utility bills, management fees and rates, and also it accorded with reality because this was the practice all along both before and after the Offer and/or the Judgment.  There is no merit to this argument.

15.  Mr Miu suggested that because the Offer proposed to pay “expenses ancillary to [Chen’s/Daughters’] occupation [of the Property] such as utility bills, management fees and rates” and the Judgment was silent on this, the Offer was more advantageous than the Judgment because (a) it relieved Ng’s liability as co-owner of the Property to pay rates, and (b) it expressly spelled out the obligations of Chen/Daughters to pay expenses ancillary to their occupation of the Property which was better than the implicit understanding to such effect under the Judgment.

16.  I disagree with such argument.  As pointed out by Mr Miu, the status quo all along was that Chen/Daughters paid for expenses ancillary to their occupation of the Property.  If they cease to occupy the Property at any future date, then upon cessation of such occupation there will be no further expenses ancillary to “their” occupation. Such status quo did not require adjudication by the court and hence did not feature in the Judgment.  But it was plain that the Judgment (albeit silent on this) did not alter such status quo, and the obligations by Chen/Daughter to pay expenses ancillary to their occupation remained unchanged under the Judgment or the Offer.  In the circumstances, the Offer in expressly spelling out the obvious could not be said to have “bettered” the Judgment.  In any event, neither the Judgment nor the Offer would relieve the statutory liability of Ng as co-owner of the Property to pay rates to the government.  It was only between Ng and Chen/Daughters that the latter remained responsible (whether under the Judgment or the Offer) for payment of rates during their occupation of the Property.

17.  Secondly, Mr Chan argued that notwithstanding the Costs Order Nisi was more favourable than the proposal for no order as to costs under the Offer, the term as to costs in the Offer should not be taken into account when deciding whether the Judgment was more advantageous than the Offer because the Offer that included such term as to costs was not a valid sanctioned offer and hence would not have the consequences specified in Order 22 of the RHC unless the court so orders.  He drew support from Mitchell & ors v James & ors,[2] Sunbeam Investments Ltd v IO Villa Veneto,[3] and Lin Yanjin v Smart Billion Engineering Limited.[4]

18.  Mr Miu, on the other hand, distinguished those cases and drew support from Central Management Ltd v Light Field Investment Ltd[5] to argue that the Offer was a valid sanctioned offer which was more advantageous than the Judgment on the basis that Chen offered to accept less than her entitlement to costs under Order 22 rule 21(1) of the RHC.

19.  Lin Yanjin concerned an assessment of damages for personal injuries.  The defendant made a total sanctioned payment of $200,000 coupled with an offer (said to be part and parcel of the sanctioned payment) to pay costs on party and party basis on District Court scale to be taxed if not agreed upon full and final settlement of the issue of quantum but on condition that the plaintiff would agree to pay the defendant’s costs on the issue of liability on High Court scale for a specified period.  On 12 January 2011, the plaintiff accepted the sanctioned payment.  Question arose (amongst a host of other issues) as to whether the aforesaid offer was a valid sanctioned offer.

20.  It was noted in Lin Yanjin that the provisions in Order 22 rules 2(4) and 3(1) of the RHC were analogous to corresponding provisions to Parts 36.1(2), 36.2(1) and 36.3(1) of the English Civil Procedure Rules (“CPR”) prior to the amendments that came into effect on 6 April 2007 (“Old CPR”),[6] and that Order 22 rule 24 of the RHC was modelled on and almost on all fours with Part 36.21 of the Old CPR.  In considering the effect of the terms as to costs in the offer in that case, attention was drawn to Mitchell & ors and Sunbeam Investments Ltd.[7]

21.  Mitchell & ors concerned a claimant’s offer to accept payment of a specified sum and, amongst other terms, each party was to bear his own costs.  The claimant succeeded at trial, but the trial judge found the requirements of Part 36.21(1) of the Old CPR (equivalent to Order 22 rule 24 of the RHC) were not satisfied and ordered the defendants to pay costs on standard basis.  It was held on appeal that terms as to costs were not intended to be included in Part 36 offers.  Peter Gibson LJ (with whom Potter LJ and Sir Murray Stuart-Smith agreed) held that the draftsman of Part 36 did not intend terms as to costs to be included in a Part 36 offer, and gave 4 reasons for that conclusion at pp 1071-1072:

“[30] First, r 36.14 is worded as applicable whenever a claimant’s Pt 36 offer is accepted without needing the permission of the court. It does not say ‘unless a claimant’s Part 36 offer indicates to the contrary’ (r 36.22(1)) or other wording to indicate that the parties can agree otherwise. Similarly, para 7.2 of the practice direction indicates that on acceptance of the Pt 36 offer ‘[t]he costs consequences set out in [rule] ... 36.14 will then come into effect.’ So too in a case where the court’s permission is needed for the defendants to accept a Pt 36 offer, if permission is given, para 7.5 envisages that the court may order that the costs consequences set out in r 36.14 will apply. These provisions are inconsistent with a term as to costs being part of the Pt 36 offer.

[31] Second, r 36.21 [being the equivalent of Order 22 rule 24 of the RHC] is applicable where at trial either a defendant is ‘held liable’ for more, or ‘the judgment’ against a defendant is more advantageous to the claimant, than the offer. The words ‘held liable’ and ‘the judgment’ both appear to me to connote what the trial judge holds or decides on the substantive issues in the case as distinct from the ancillary issue of costs to be determined after the substantive issues are decided. Mr. Brunner accepted that that was so in relation to ‘held liable’, though not in relation to ‘judgment’. For my part, I cannot see why there should be such a difference.

[32] Third, the rule is intended to apply universally at the end of the trial when the judge is required to make an order for costs. Save in a case where the judge can make a summary assessment or the rare case where the costs at that point are agreed, there will have been no assessment of the costs, the figure for which would therefore be uncertain. Yet the rule contemplates that merely by reference to that for which the defendant is held liable or by reference to the judgment the judge will be able to decide whether r 36.21 [being the equivalent of Order 22 rule 24 of the RHC] applies because the defendant has been held liable for more, or the judgment against a defendant is more advantageous, than the offer. I find it hard to believe that the draftsman contemplated that a Pt 36 offer is one which includes a term as to costs, so that the judge might have to evaluate the quantum of his costs order. That is normally the function of a costs judge, not the trial judge.

[33] Fourth, there would be a real risk of abuse if a term as to costs could be included in a Pt 36 order.  Every well-advised claimant would make a Pt 36 offer containing the terms sought in his claim plus an offer as to costs in the hope that if he succeeded in his substantive claim he would obtain indemnity costs in place of the ordinary award of costs on the standard basis.  Merely to win on his substantive claim and to obtain an order for costs under the general rule (see CPR 44.3(2)) will cause r 36.21 [being the equivalent of Order 22 rule 24 of the RHC] to be applicable, so that the court ‘will’ make the orders referred to in r 36.21(2) and (3) [being the equivalent of Order 22 rule 24(2) and (3) of the RHC] unless it considers it unjust to do so [being the equivalent of Order 22 rule 24(4) of the RHC].  Injustice in the eyes of the court is therefore the only basis on which the court could refuse to make an order for indemnity costs and interest.  That does not confer a general discretion on the court.”

22.  Eiles v London Borough of Southwark,[8] Shah v Elliot[9] and Epsom College v Pierse Contracting Southern[10] Ltd regarded the conclusion in Mitchell & ors as applicable to the Old CPR and to the CPR with amendments that came into effect on 6 April 2007 (“New CPR”).

23.  In Hong Kong, H H Judge Wong in dealing with the applicant’s offer in Sunbeam Investments Limited rejected the applicant’s attempt to distinguish Mitchell & ors on the basis that Order 22 rule 21(1) of the RHC contained the proviso “unless the Court otherwise orders” (“Otherwise Proviso”) absent in Parts 36.13(1) and 36.14 of the Old CPR and/or Part 36.10(1) of the New CPR.  H H Judge Wong alluded to the practical difficulty “where a party offers an actual amount of costs to the other side, and the court would have to assess whether the amount offered is the right amount, and hence there would be a taxation or assessment exercise in costs……” The learned judge did not think that the provisions on sanctioned offers in Order 22 of the RHC were to include terms as to costs so as to create such practical difficulty.[11]

24.  Returning to the defendant’s offer in Lin Yanjin, in that case I also rejected the defendant’s resurrection of the argument in Sunbeam Investments Limited premised on the Otherwise Proviso.  I followed the rationale in Mitchell & ors in holding that the defendant’s offer was not a valid sanctioned offer because it included terms as to costs, and as such it did not have the consequences specified in Order 22 of the RHC unless the court otherwise ordered.[12]

25.  However, in coming to my decision in Lin Yanjin, my attention had not been drawn to Central Management Ltd which concerned a plaintiff’s offer.  In that case, the trial judge found for the plaintiff and dismissed the defendants’ counterclaim and their claim against the third party for damages.  The learned judge then ordered the defendants to pay the plaintiff and third party costs of the action on indemnity basis pursuant to a contractual provision in the deed of mutual covenant.[13] Although the Court of Appeal did not support an award of indemnity costs on such basis, it went on to conclude that the plaintiff was nevertheless entitled to indemnity costs for the following reasons below:[14]

“32. However, in my view, the plaintiff is nevertheless entitled to indemnity costs because of the failure of the defendants to respond to the plaintiff’s sanctioned offer proposing to enter judgment by consent against the defendants with no order as to costs in full and final settlement of the parties’ claim and counterclaim. The Deputy Judge, apart from entering judgment against the defendants, further penalized them with costs. Accordingly the judgment against the defendants is more advantageous to the plaintiff than under its sanctioned offer. In such a situation, under the terms of O.22, r.24(4) of the Rules of the High Court (Cap.4A, Sub. Leg.), the Court shall order costs on an indemnity basis. It has not been shown that it is unjust to make such an order in the present case.” (my emphasis)

26.  Mr Chan submitted that Central Management Ltd was unhelpful because details of the sanctioned offer were unclear and hence it was not known how the judgment was more advantageous to the plaintiff.  He also argued “[it] is not clear whether to what extent did the Court reach the decision to order indemnity costs on the basis that the [trial judge’s] cost order beat the offer for no order as to costs contained in the sanctioned offer”.  I am not persuaded by these arguments.  In my view, irrespective of these concerns, it was obvious from the judgment of Cheung JA (with whom Rogers VP and Le Pichon JA agreed) in Central Management Ltd that the plaintiff’s offer contained terms as to costs, but such offer was still regarded as a valid sanctioned offer that attracted the costs consequences under Order 22 rule 24(4) of the RHC.  Mitchell & ors was not referred to, but the ratio of the decision in Central Management Ltd to award indemnity costs on the strength of a judgment that was “more advantageous” than the plaintiff’s sanctioned offer that contained terms as to costs plainly contradicted the decision in Mitchell & ors.

27.  I also drew counsel’s attention to the subsequent first instance decision (in 2012) in The Procter & Gamble Co v Svenska Cellulosa AB SCA & anor.[15] Mitchell & ors was again not referred to, but this case clearly reflected modern judicial concern about excluding terms as to costs (at least) in claimant’s Part 36 offers. 

28.  In the business sale agreement between the claimant as seller and the defendant as purchaserin The Procter & Gamble Co, there was a provision which provided for an adjustment of the purchase price.  The claimant’s case was that the adjustment due to the defendant was zero, but the defendant contended it was £19 million.  The claimant brought proceedings seeking declarations that would give effect to its position, and the defendant counterclaimed.  The court found in favour of the claimant on 2 out of the 3 declarations sought, with the result that the claimant’s liability to the defendant was less than the sum of £3 million which the claimant had offered to pay pursuant to its (purported) Part 36 offer a few months before trial.  Hildyard J held that the claimant should be regarded as the successful party who should be entitled in principle to its costs of the proceedings. 

29.  The learned judge went on to deal with the issue of whether the claimant’s offer qualified as a valid Part 36 offer.  The claimant’s offer proposed that it (the claimant) would be liable for the defendant’s costs up to the date of acceptance “in accordance with CPR 36.10” if such offer was accepted within 21 days.  In other words, the claimant was not asserting any entitlement to its costs if the offer was accepted.  Rather, it offered to be liable for the defendant’s costs on acceptance.  Hildyard J concluded it was open to a claimant making a Part 36 offer to forsake its entitlement to costs upon acceptance of the offer and/or to offer to pay the defendant’s costs:[16]

“45. So the question remains the specific one: whether P & G’s July Offer lacked or contained some specific feature as to its form or content such as to take it outside the definition of a Part 36 offer in CPR r 36.2.

……

47. In my view, the issue in the F & C case was really whether an offer accepted not to be within CPR Pt 36 could be given, by analogy, the same consequences as would have followed if it had been compliant and intended to be so. Here, the issue is whether CPR r 36.2(2), and thus the gateway to CPR rr 36.10 and 36.14, is to be so strictly construed that it requires (by CPR r 36.2(2)(c)) the offer made to provide for the defendant to be liable for the claimant’s costs even if the claimant expresses his offer to be a Part 36 offer, but as part of that offer, agrees to forsake that entitlement and instead pay the defendant his costs. Put another way, I do not accept that it is impossible for a claimant to comply with CPR Pt 36 unless he requires to be paid his costs and such payment to be made within a period of not less than 21 days.

48. As it seems to me, such a strict construction would tend to undermine a central objective of CPR Pt 36, identified by Davis LJ himself as being to encourage claimants to make sensible offers and provide an inducement to defendants to accept them lest otherwise they be exposed to the consequences provided. That objective would be advanced, not undermined, by reading CPR r 36.2(2)(c) as requiring a claimant who seeks his costs to specify a period of not less than 21 days within which the defendant will be liable to pay them, but not as mandating that the claimant must seek costs and make payment of them a condition of his offer.

49. I do not myself see why such a purposive approach to construction should not be available in the context of CPR Pt 36, as it is in the context of statutes and contracts and other instruments (subject, of course, to well-known limitations). Nor do I see that such an approach is precluded by the judgment of Davis LJ in F & C case: this is not a matter of applying CPR Pt 36 by analogy; and the strict compliance required is of the statutory provision properly, and, if appropriate, purposively, construed.

50. Accordingly, I have concluded that P & G’s July Offer should be treated as compliant with CPR Pt 36, as it was expressed and intended to be. That, however, is not the end of the matter: there arises the further question as to whether the usual consequences prescribed would be unjust having regard to the particular circumstances of this case.

…….

51. It is plain that P & G have beaten their offer: it has done better than if SCA had accepted P & G’s July Offer. If the offer had been accepted substantial costs would have been saved and the distraction and wear and tear of litigation would have been brought to an end. On the basis of my conclusion that it is to be treated as a Part 36 offer, P & G’s July Offer is effective to open the gateway to CPR r 36.14, and in particular the consequences that CPR rr 36.14(1)(b) and 36.14(3) prescribe.”

30.  The above conclusion appeared inconsistent with that in Mitchell & ors.  Although 3 of the 4 reasons put forward by Peter Gibson LJ in Mitchell & ors for his conclusion that terms as to costs should not be included in a Part 36 offer turned on the provisions in Part 36.21 of the Old CPR (which were materially similar to Order 22 rule 24 of the RHC), the 4^th and last reason was a point of principle, ie there would be risk of abuse to allow a term as to costs to be included in a Part 36 offer because a claimant could make a Part 36 offer of his claim plus an offer as to costs in the hope that if he succeeded on his substantive claim and obtain an order for costs under the court’s general discretion as to costs, Part 36.21 of the Old CPR would allow indemnity costs in place of ordinary costs. 

31.  But such concern (which would only arise if the plaintiff is to succeed on his substantive claim and to obtain costs of the action in his favour at trial) must be cast against the countervailing matter of principle in The Procter & Gamble Co which suggested that such strict understanding flied against a purposive approach to construction as it would undermine the central objective of Part 36 of the CPR which was to encourage and provide incentives for claimants and (albeit to a slightly lesser extent) defendants to make sensible offers to settle in the hope that the dispute would be resolved before it got to trial, and such sensible and purposive interpretation should allow the claimant to waive/reduce his Part 36 costs entitlement as part of his sanctioned offer and should not insist that he must seek costs as part of his offer.  The short point was that if a claimant’s sanctioned offer with a term that waived/reduced the claimant’s costs entitlement were accepted, there would have been no trial with consequent savings in costs.

32.  Thus, on the English scene, there appeared to be a fundamental contest of principles that underlied the interpretation of the relevant English provisions.  I note also that although Ramsey J in the earlier case of Eiles followed Mitchell & ors, he also (as seen paragraph 36 below) alluded to the important objectives of encouraging settlements and giving incentives for claimant’s Part 36 offers.  But here in Hong Kong, given the ratio in the appellate decision in Central Management Ltd (at least in respect of claimant’s sanctioned offers) that is binding on this court, I find the Offer to be a valid sanctioned offer under Order 22 of the RHC notwithstanding it contained a term that waived costs entitlement under Order 22 rule 21(1) of the RHC.  That being the case, the costs consequences in Order 22 rule 24(3)-(4) of the RHC would follow “unless [the court] considers unjust to do so”.  I am unable to discern any injustice in awarding indemnity costs as sought vis-à-vis Chen because by proposing no order as to costs the Offer was plainly more advantageous than the Judgment that awarded half of the costs of the action in respect of the claim to P.  This is a far cry from Lin Yanjin where the defendant’s offer sought to reduce or limit the defendant’s liability for the specified costs consequences under the Order 22 regime.

33.  But even if I am wrong and Mitchell & ors prevailed, that is not the end of the matter under the Order 22 regime.  Order 22 rules 2(4) and 4(1) of the RHC provide that unless a sanctioned offer was made in accordance with the Order, it would not have inter alia the costs consequences specified in the order “unless the Court so orders”.

34.  In Eiles, a case cited in Lin Yanjin, the defendant accepted the claimant had done better than the offer, but argued that Part 36.21 of the Old CPR did not apply because (a) the offer included a provision as to costs and was therefore not a Part 36 offer, and (b) the court should not make an order under Part 36.21(2) of the Old CPR (which provision was similar to Order 22 rule 2(4) of the RHC) that the offer should have the consequences specified in Part 36. 

35.  Ramsey J followed Mitchell & ors and concluded that the offer was not a valid Part 36 offer because it included an offer in respect of costs.  The learned judge then referred to the alternative argument under Part 36.1(2) of the Old CPR and to the guidance by Dyson LJ in Trustee of Stokes Pension Fund v Western Power Distribution (South West) plc.[17] In reviewing the discretion under Part 36.1(2) of the Old CPR, Dyson LJ (with whom Auld LJ agreed) identified 4 features an offer had to exhibit in order to be regarded as a Part 36 payment:[18]

(a) the offer was expressed in terms which left no doubt as to what was being offered, including which parts of the claim it was intended to satisfy, whether any counterclaim had been taken into account, and what provision for interest was proposed;

(b) it was open for acceptance for at least 21 days;

(c) it was not a sham or non-serious offer; and

(d) it was made by a defendant who was clearly good for money at the time the offer was made.

Dyson LJ considered that if all the above conditions were met, there was no reason in principle why the effect of an offer should differ from that of a payment into court, which would encourage settlement.[19]

36.  Ramsey J in Eiles when deciding whether to exercise his discretion to order the claimant’s invalid Part 36 offer as having the relevant consequences under Part 36 summarised the factors he would have regard to, ie the observations by Dyson LJ in Trustees of Stokes Pension Fund, the overriding objectives under Part 1.1, and the requirement to deal with cases justly and in particular to save expense and deal with the case in ways which are proportionate to the amount of money involved.[20] The learned judge found the claimant’s offer in that case satisfied the requirements outlined by Dyson LJ, which favoured the exercise of discretion under Part 36.1(2) particularly in respect of a claimant’s offer:

“44. …… “Reverse” without prejudice offers made by a claimant are a comparatively new feature and, as Lord Woolf pointed out in Petrotrade Inc v. Texaco Ltd (Note) [2007] 1 WLR 947 para. 59, the provisions of rule 36.21(2) and (3) are important because without them claimant’s Part 36 offers would be of no value to a claimant. It is those rules which create the incentive for a claimant to make a Part 36 offer. Otherwise, if a claimant offered to accept less than it was awarded then it is generally unlikely to have any effect on costs …… The discretion to award costs on an indemnity basis would not be engaged without Part 36 …… Thus, the provisions of Part 36 are of considerable importance in the context of the beneficial effect of claimant's offers.

45.  The purpose of giving an incentive to a claimant’s Part 36 offer is to encourage settlements and obviously this meets the overriding objective.  When therefore, independently of the costs consequences, the sum which a claimant offers to accept is less than the judgment sum, I can see no reason in principle, why the court should not exercise its discretion under rule 36.1(2) to order that the claimant’s offer should have the costs consequences under rule 36.21. 

46.  In addition, as Mr. Crowley points out, if the consequences of Part 36 did not apply to the Offer, the claimant would be in a worse position than if it had made a higher offer, that is for £60,000 and 100% of its costs.  The encouragement of compromise would hardly be assisted if Part 36 applied to the offer if it had included the automatic 100% of costs under rule 36.14 but not if it included 90% of costs.  I do not consider that there is anything which favours such an outcome.

47.  It seems to me therefore that all the arguments relied upon by Mr Crowley in relation to the facts of this case are apt arguments for why, in this case, the Court should now order that the offer made by the Claimant should have the costs consequences in Part 36 and, in particular, under Rules 36.21. 

48.  As a result, I consider that the claimant’s offer should have those consequences because the defendant has been held liable for more than £60,000 and, on this basis, the judgment against the defendant is more advantageous to the claimant than the proposals contained in the claimant’s offer, quite independently of whether the further advantage of the costs offer is taken into account.”

37.  Here, Ng did not contend there was anything unclear or uncertain about the terms of the Offer, which was expressed to be open for acceptance for 28 days.  This is not a case where Ng was misled or prejudiced by the terms of the Offer.  It was a serious offer and being a plaintiff’s offer was not one which raised a requirement for Chen to be good for the money.  The Offer was made before the case management conference on 5 June 2013, and had it been accepted the trial would have been obviated and costs would have been saved.  That being the case, even if the Offer was not a sanctioned offer due to the inclusion of a term as to costs, I consider there was sufficient justification in the particular circumstances of this case for the exercise of the court’s direction under Order 22 rule 2(4) of the RHC to order that the Offer, which was in the overall more advantageous to D2 given the proposal of no order as to costs, shall have the consequences specified in Order 22 rule 24(3)(a) of the RHC.

38.  Therefore, irrespective of whether the Offer was or was not a valid sanctioned offer, I consider it appropriate to order indemnity costs in favour of Chen after 18 March 2013.

V.  GROUND 2

39.  Mr Chan submitted that outside the scope of Order 22 of the RHC there was no reason in the context of the present action for the court to exercise its discretion to order indemnity costs in favour of the Daughters against Ng. 

40.  On the other hand, Mr Miu urged this court to order indemnity costs after 18 March 2013 in favour of the Daughters by applying the spirit of the sanctioned offer regime as explained by Lord Woolf MR and Chadwick LJ in Petrograde Inc v Texaco Ltd (Note).[21] Mr Miu also relied on Read v Edmed[22] where the claimant had offered to settle the case on a 50/50 basis by means of a Part 36 offer, but the defendant had rejected that offer.  At the trial on preliminary issues, it was decided on precisely that 50/50 basis.  The issue arose as to whether the claimant should be entitled to indemnity costs from 21 days after the date of the original offer.  It was held that as a matter of principle, where in a relatively uncomplicated claim for damages for personal injuries a valid Part 36 offer or some other admissible offer had been made to settle a liability issue and the court gave judgment in the terms of the offer, the claimant should be entitled to the benefit of an award of indemnity costs.  The only exception to that principle would be if there was some particular circumstance such as a change in the nature of the case or unreasonable conduct on behalf of the claimant.

41.  I do not find these authorities to be of assistance because the Daughters did not make any offer that was “on the spot” as in Read or indeed any offer at all.  As explained above, they were not parties to the Offer made by Chen.  That being the case, it is necessary to turn to the court’s broad discretion to award costs on indemnity basis.[23]

42.  Order 62 rule 28(3) of the RHC provides as follows: “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”.  Although the discretion to award indemnity costs was unfettered and uncircumscribed,[24] there must be some special or unusual feature in the case to justify an order for indemnity costs.  Mr Chan submitted that an order for costs on indemnity basis required some element of the paying party’s conduct which deserved some mark of disapproval.[25]

43.  Mr Miu submitted there was conduct on the part of Ng that deserved some mark of disapproval.  He essentially relied on two matters.  First, Mr Miu complained that Ng as an experienced property investor had gone ahead with the purchase of the 50% Share knowing full well Chen’s claim for the Contractual Licence.  I am unable to discern any conduct that deserved disapproval in this respect.  The 50% Share did not belong to Chen/Daughters, and it was on the market.  I cannot see how Ng could be faulted for buying the 50% Share.  He took a commercial risk over whether or not there was any encumbrance over the 50% Share and lost when this court upheld the Contractual Licence, but he nevertheless became the owner of the 50% Share upon purchase by auction.

44.  Secondly, Mr Miu submitted that Ng’s conduct deserved some mark of disapproval because he tried to gain access to the Flat on 20 August 2010 and had asked a representative/friend to remain/loiter at the lobby when they were denied access, which (a) caused Wendy to flee from and Lin to stay away from the Property, (b) caused Chen to suffer from stress and anxiety and (c) led to the application for an ex parte injunction to restrain such nuisance.  In my view, such arguments are without merit.  Chen/Daughters elected to abandon their claims for damages for nuisance at trial, and the court did not make any findings at all in relation to the above matters which were disputed by Ng.  I totally fail to see the logic of the Daughters relying on their abandoned cause of action to seek indemnity costs on a separate cause of action on which they succeeded.

45.  In my view, there is no basis for awarding costs for the Daughters on indemnity basis.

VI.  CONCLUSION

46.  In the circumstances, I vary the Costs Order Nisi and grant a costs order absolute as follows:

(a)   Ng shall pay Chen half of her costs of the action as between Ng and Chen in respect of Chen’s claim (but excluding costs of the counterclaim), including all costs reserved if any, to be taxed if not agreed on party and party basis up to and including 18 March 2013 and thereafter on indemnity basis;

(b)   Ng shall pay the Daughters half of their costs of the action as between Ng and the Daughters in respect of the Daughters’ claim (but excluding costs of the counterclaim), including all costs reserved if any, to be taxed if not agreed on party and party basis.

47.  As for costs of the Costs Summons, the Daughters, having abandoned the claim for enhanced interest, failed in their application to vary the Costs Order Nisi.  There is no reason why costs should not follow event, and I grant a costs order nisi that the Daughters shall pay costs of the Costs Summons as between the Daughters and Ng to be taxed if not agreed.  As between Chen and Ng, Chen also abandoned the claim for enhanced interest, and time was taken up at the Costs Hearing with Mr Miu’s attempt to seek an award of the whole and not half of the costs of Chen’s claim which was eventually abandoned.  In all the circumstances, a fair order as to costs would be for Ng to pay Chen two‑thirds of the costs of the Costs Summons as between them to be taxed if not agreed, and I grant a costs order nisi to such effect.  The aforesaid costs orders nisi are on party and party basis.