WONG YIM MAN ANTHEA v. WONG HO MING FELIX

HCA 352/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 352 OF 2011

____________

____________

_______________

DECISION

_______________

Introduction

1.  This is an application of Mr Wong for indemnity costs and enhanced interest on costs pursuant to Order 22 r.23 of the Rules of the High Court (“RHC”) on the strength of a purported sanctioned offer contained in a letter of Mr Wong’s solicitors dated 1 September 2014 (“the Offer”) served on Madam Wong on the even date.

2.  After trial, this court handed down a judgment on 24 September 2015 whereby Madam Wong’s claim was dismissed and an costs order nisi was made to the effect that Madam Wong do pay Mr Wong 40% of his costs, to be taxed if not agreed (“the Order Nisi”).

3.  By his Amended Summons, Mr Wong asks for a variation of the Order Nisito that Madam Wong do pay 40% of the costs of this action to Mr Wong on a party and party basis up to 29 September 2014 and thereafter 100% of the costs of the action to Mr Wong on an indemnity basis to be taxed if not agreed with certificate for two counsel. Mr Wong further asks for enhanced interest on his costs from 29 September 2014 until the date of the judgment and thereafter at judgment rate until the date of actual payment.

4.  The Offer was in the following terms:

(1) Madam Wong do withdraw her Statement of Claim;

(2) there be no order as to costs of this action.

5.  At the hearing, Mr Sham (with Ms Chun) for Mr Wong submits that Mr Wong’s present application is made pursuant to O.22 and he should be entitled to the added protection under the mechanism of O.22 by reason of the Offer and there is nothing unjust to make an order thereunder. He also indicates that he no longer insists on certificate for two counsel.

6.  Ms Lau (with Mr Fong) for Madam Wong submits that the Offer is no more than a meaningless tactical move and not a genuine offer to settle. As such, it is against the spirits of O.22 and should not be given its legal effect thereunder.

7.  This court has some doubt as to whether the Offer was a sanctioned offer under O.22 given its express term as to the parties’ costs of the action. Pursuant to the directions given by this court, the parties filed further written submissions on the nature of the Offer after the hearing.

Discussion

8.  In view of the following provisions of O.22, the Offer, in my view, does not appear to fall within the definition of a sanctioned offer under O.22.

9.  O.22 r.1 defines a “sanctioned offer” in the following terms: “sanctioned offer” means an offer made (otherwise than by way of a payment into court) in accordance with this Order.

10.  O.22 r.3 provides that 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 O.22 unless it is made by way of a sanctioned offer or a sanctioned payment or both.

11.  O.22 r.5 concerns the form and content of a sanctioned offer. I note that there is neither express prohibition against nor reference to inclusion of any costs element in a sanctioned offer.

12.  O.22 r.5(7) provides that a sanctioned offer made not less than 28 days before the commencement of the trial must provide that after expiry of 28 days from the date the sanctioned offer is made, the offeree may only accept it if the parties agree on the liability for costs or the court grants leave to accept it. Thus, a late acceptance of a well-timed sanctioned offer is allowed only with either the parties’ agreement on the liability for costs or leave of the court.

13.  Similarly, O.22 r.5(8) provides that a sanctioned offer made less than 28 days before the commencement of the trial must provide that the offeree may only accept it if the parties agree on the liability for costs or the court grants leave to accept it.

14.  O.22 r.15(2) further provides that where a defendant’s sanctioned offer or sanctioned payment is made less than 28 days before the commencement of the trial or the plaintiff does not accept it within the 28 days after the offer or payment was made, the plaintiff may accept the offer or payment without leave only if the parties agree on the liability for costs. If such an agreement is not unavailable, the plaintiff may still accept the offer or payment if the court grants the leave and makes an order as to costs.

15.  O.22 r.20 provides that where a defendant’s sanctioned offer or sanctioned payment 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. It is remarkable that this rule is not made subject to any costs provision in the sanctioned offer accepted by the plaintiff.

16.  It is thus clear that if a sanctioned offer made in good time by a defendant (28 days before the commencement of the trial), a plaintiff can accept the sanctioned offer within 28 days from the date of its making without leave of the court and any further agreement on the liability for costs, the consequences specified in O.22, to be precise, r.20 will automatically flow from the acceptance of the sanctioned offer.

17.  The specific requirement of the parties’ agreement on the liability for costs in the case of a late sanctioned offer (O.22 r.5(8)) or an intended late acceptance of a sanctioned offer (O.22 r.5(7)) fortifies my view that the specified costs consequences in O.22 r.20 and none others will without further ado flow from a plaintiff’s timely acceptance of a defendant’s sanctioned offer made no less than 28 days before the commencement of the trial.

18.  In my view, the Offer does not fit in the O.22 mechanism due to its inclusion of a term as to costs. Its proposed costs order (no order as to costs) effectively prevents the specified cost consequences upon its acceptance by Madam Wong under O.22 r.20. It is not in dispute that the Offer was made more than 28 days before the commencement of the trial. If Madam Wong had accepted it within 28 days thereafter, she would have been completely deprived of her entitlement to her costs of the proceedings up to the date of serving her notice of acceptance under O.22 r.20.

19.  Of course Madam Wong could have waived her right thereunder and proceeded to accept the Offer including the costs proposal of Mr Wong. However, such an acceptance could not ex post facto turn the Offer into a sanctioned offer.

20.  I now turn to the relevant authorities on this issue cited to me by the parties. Mr Sham places heavy reliance on two Court of Appeal decisions in    Central Management Limited v Light Field Investment Limited and Ors. [2011] 2 HKLRD 34 and Chan Kwing Chiu and Anor. v Chan Chi Kau (unreported, CACV 209/2012, 3.10.2013). He also relies on the decision of DHCJ Marlene Ng in Chen Tek Yee & Ors v Chan Moon Shing & Anor., unreported, HCA 954/2010, 5.6.2015 in which the deputy judge accepted that Central Management Limited was binding on her and hence despite her previous decision in Lin Yanjin v Smart Billion Engineering Limited (unreported, HCPI 739/2009, 10.8.2011), she held that a sanctioned offer in O.22 can include a term as to costs.

21.  Mr Sham submits that as with the deputy judge, this court is also bound by the decision of Central Management Limited and hence the Offer must be a sanctioned offer despite its provision as to costs.

22.  Chen Tek Yee & Ors is indeed a good starting point for discussion. O.22 is modelled on Part 36 of the Civil Procedure Rules (“CPR”) in England and Wales prior to its amendments in April 2007.  The deputy judge first referred to Mitchell & Ors v James & Ors [2003] All ER 1064 (CA).

23.  There, Peter Gibson LJ (with whom Potter LJ and Sir Murray Stuart-Smith agreed) concluded that the draftsman of Part 36 did not intend any inclusion of terms as to costs in a Part 36 offer (the counterpart of our sanctioned offer). He gave four detailed reasons for his conclusion and I do not find it necessary to set them out here. Suffice it to say, he observed that a term as to costs being part of a Part 36 offer is inconsistent with the specified costs consequences intended to flow from an acceptance of the Part 36 offer. I agree on his reasons entirely.

24.  Mitchell & Ors was consistently followed in the English court both before and after the said amendment to the CPR.  In Hong Kong, HH Judge Wong in Sunbeam Investments Limited v The Incorporated Owners of Villa Veneto (unreported, LDBM 370/2007 and LDBM 175/2009, 7.9.2010) held that Mitchell & Ors was not distinguishable there and concluded that a term as to costs should not be a part of a sanctioned offer. The judge in particular pointed out that there must be a risk of abuse if a term as to costs could be included in a sanctioned offer.

25.  In Lan Yanji, Master Marlene Ng followed Mitchell & Ors after a thorough study of the relevant authorities including both pre-amendment CPR decisions and post-amendment CPR decisions in England.

26.  In Chen Tek Yee & Ors, the deputy judge however took a different path and observed that in reaching her previous decision in Lan Yanji, her attention was not drawn to Central Management Ltd, which was binding on her. In light of the ratio of Central Management Ltd which the deputy judge found to be in contradiction to Mitchell & Ors, the deputy judge held that a valid sanctioned offer can include terms as to costs. The deputy judge also derived support from an English decision in The Procter & Gamble Co v Svenska Cellulosa AB SCA & Anor. [2013] 1 WLR 1464 per Hildyard J. The deputy judge was of the view that there appeared to be a fundamental contest of principles that underlined the interpretation of the relevant English provisions. 

27.  It is then necessary to look closely at Central Management Ltd given the fact that it should be binding on this court. I respectfully reproduce a passage in Chen Tek Yee & Ors where an accurate summary of the background and the relevant ruling of the Court of Appeal in Central Management Ltd can be found:

“… 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. 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:

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)

28.  As the deputy judge rightly observed, in Cheung JA’s judgment (with whom Rogers VP and Le Pichon JA agreed), Mitchell & Ors was not referred to. She opined that nonetheless, the Court of Appeal upheld the validity of the sanctioned offer which included a proposal of no order as to costs meaning a term as to costs could be included in a sanctioned offer. The deputy judge thus felt obliged to make the same holding.

29.  With respect, I am unable to share the view of the deputy judge. There was never any argument before both the trial judge and the Court of Appeal in Central Management Ltd about the validity of the sanctioned offer. Accordingly, the Court of Appeal was not required to scrutinize its validity and did not have the benefit of the reasonings in Mitchell & Ors and Sunbeam Investments Limited. In the circumstances, I cannot accept that it is the ratio of the decision in Central Management Ltd that a sanctioned offer can contain terms as to costs.

30.  By the same token, I cannot agree to the submission of Mr Sham that Chan Kwing Chiu and Anor is binding on this court and I have to accept that a term as to costs in a sanctioned offer is permissible.

31.  In Chan Kwing Chiu and Anor., a defamation action, after trial, DCHJ Mimmie Chan dismissed the plaintiff’s claim and allowed the defendant’s counterclaim. The deputy judge later acceded to the defendant’s application for indemnity costs and enhanced interest on such indemnity costs on the basis of an unaccepted sanctioned offer which was akin to the Offer, namely a “drop hands” basis with no order as to costs.

32.  When the matter reached the Court of Appeal, despite overturning certain part of the decision of the deputy judge, Kwan JA (with whom Cheung JA and Yuen JA agreed) did not interfere with the deputy judge’s sanctions on the post-offer costs. The Court of Appeal did not raise any doubt about the validity of the sanctioned offer and approved the decision on costs on the basis of the sanctioned offer.

33.  Clearly there was never an issue as to the validity of the sanctioned offer and the parties proceeded with the application to vary the costs order nisi before the deputy judge and the appeal before the Court of Appeal on the basis that the sanctioned offer was valid. Not surprisingly neither the deputy judge nor the Court of Appeal found it necessary to examine its validity. In these circumstances, I too cannot accept that it is the ratio of the Court of Appeal’s decision in Chan Kwing Chiu and Anor. that a sanctioned offer can contain terms as to costs.

34.  Ms Lau helpfully draws my attention to Leung Lai Kwan v Lo Kai Wing and Anor. (unreported, HCMP1554/2015, 20.8.2015). There, the Court of Appeal consisting of Lam VP and Barma JA dealt with the plaintiff’s application for leave to appeal against the costs order made by DHCJ Saunders.

35.  The deputy judge’s costs order was made after the defendants’ application to vary the costs order nisi in his judgment ([2015] 3 HKLRD 152) whereby the plaintiff’s claim was dismissed. The variations sought by the defendants were based on three separate offers made on three different dates prior to the trial. The deputy judge made three different costs orders in light of the three offers which he held not to be qualified as sanctioned offers. The last costs order he made was that the plaintiff should pay costs to the defendants on indemnity basis from 18 July 2014 to the end of the trial. The plaintiff only sought leave to appeal against this order and not the other two.

36.  In the Court of Appeal, the plaintiff sought to argue that the court cannot take into account any offers other than sanctioned offers. This was rejected in light of O.22 r.2(4) which provides that nothing in O.22 prevents a party from making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with O.22, it does not have the consequences specified in O.22, unless the court so orders.

37.  The Court of Appeal went on to hold that the offers made by the defendants did not fall within the exclusionary rule of O.62 r.5(1)(d) of the RHC, which provides,

“(1) the Court in exercising its discretion as to costs shall, to such extent, of any, as may be appropriate in the circumstances, take into account –

(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 payment or a sanctioned offer under Order 22.”

38.  Lam JA explained why the offers of the three offers could not have been made by way of sanctioned offers (and hence the court might take them into account under O.62 r.5(1)(d)) in the following terms at §7:

“The offers to settle are not simply payment of money by the Defendants to the Plaintiff. They involved the Plaintiff agreeing that she had no interest in the property (under the offer of 12 Sept 2013) or she agreeing to sell the property within 6 months (under the offer of 19 June 2014) or she co-operating in the valuation process and agreement to accept her interest being limited to half of the assessed value or $1,550,000. All the offers were made on the basis of no order as to costs, which cannot be accommodated in the sanctioned payment or sanctioned offer regime in view of O 22 r 20(1), see Wealthy Plus Ltd v Lai Man Ho [2001] 4 HKC 691. The Judge was clearly right in holding that this is not a case where the Defendants could have protected their position by means of a sanctioned payment, and as such not within the scope of Order 62 rule 5(1)(d). (emphasis supplied)”

39.  It is clear that Lam JA was of the view that any offer made on the basis of no order as to costs cannot be accommodated in the O.22 regime by reason of its irreconcilable conflict with O.22 r.20(1).

40.  I note that it was already accepted by the defendants before the deputy judge that neither of the three offers met the strict requirements of O.22 and thus they were not sanctioned offers (at §6).  The plaintiff’s counsel nevertheless went on to argue that each of the three offers containing a provision that there be no order as to costs and on the authority of Mitchell & Ors, they could not be qualified to be sanctioned offers. Though the deputy judge opined that it appeared to be a strong argument, he found it unnecessary to reach a conclusion on this point due to the concession of the defendants that their three offers did not constitute sanctioned offers (at §18).

41.  Therefore there was a challenge to the validity of the sanctioned offers in light of their costs provisions before the deputy judge. Though the deputy judge did not decide on this debate, the Court of Appeal took it up and confirmed their inability to be qualified as sanctioned offers by reason of their terms as to costs. I see no reason why this court is not bound by the dicta of Lam VP.

42.  For the reasons given above, I do not think that the Court of Appeal in Central Management Ltd and Chan Kwing Chiu and Anor. ever made any ruling on the validity of a sanctioned offer containing a costs provision. They simply adopted the parties’ common position on the validity of the sanctioned offers in question. I do not accept Mr Sham’s submission that Lam VP in Leung Lai Kwan had to find the two previous decisions of the Court of Appeal plainly wrong in order to depart from them.

43.  I further reject Mr Sham’s submission that the fact that the Court of Appeal in Leung Lai Kwan cited with approval Chen Tek Yee means that they found nothing wrong with the decisions in Central Management Ltd and The Procter & Gamble Co., which were analysed in depth by the deputy judge in regard to the validity of a sanctioned offer containing a costs provision. The Court of Appeal plainly referred to  Chen Tek Yee on a different issue, namely, the discretion of the court under O.22 r.2(4).

44.  For completeness, though not strictly necessary, I should indicate my disagreement to the purposive approach advocated by Hildyard J in The Procter & Gamble Co. with a view to provision of stronger encouragement and incentives for the parties to resolve their disputes without a trial serving the central objective of Part 36 of the CPR. 

45.  It is true that settlement to be reached between the parties before trial should be encouraged, which would result in huge savings of both their personal and the public resources. However, to alter the nature of a sanctioned offer in order to enable it to include a term as to costs would only do violence to the well-planned and self-contained mechanism in O.22.

46.  In my view, O.22 adopts a carrot and stick approach. One of the attractions for a plaintiff to accept a sanctioned offer of the defendant is that the plaintiff can benefit from the favourable costs consequences under O.22 r.20. If the plaintiff refuses to accept such a sanctioned offer including the benefits under O.22 r.20 the and it turns out that he fails to do better than the sanctioned offer, he should take the consequences and would receive sanctions in costs and enhanced interests under O.22 r.23. The stick in O.22 r.23 is only justified when the plaintiff unreasonably rejects, among other things, the carrot in O.22 r.20.

47.  The underlying objectives of O.22 are not compromised in any event. A payment or offer which is not a sanctioned payment or offer can still be considered under O.62 r. r.5(1)(d) if it does not fall within the exclusionary rule therein.

48.  At the outset of the hearing, Mr Sham has confirmed that this application is made under O.22 only. In Ms Lau’s written submissions filed after the hearing, she merely accepts that at best the Offer could be a conventional Calderbank offer and she does not proceed to argue that even given such a Calderbank offer, no indemnity costs and enhanced interest thereon should be ordered against Madam Wong.

49.  In reply to Ms Lau’s written submissions, in his written submissions, as a fallback position, Mr Sham urges this court to consider the Offer as a Calderbank offer. His major ground is that the trial could have been avoided if Madam Wong had accepted the Offer, which was clear and serious.

50.  Having found the Offer to be incapable of being made in O.22, I should take into account the Offer in my consideration of the costs issue pursuant to O.62 r.5(1)(d). Despite the fact that Madam Wong’s acceptance of the Offer would have avoided the trial and hence further costs, I do not find it just and appropriate to exercise my discretion to order indemnity costs and enhanced interest thereon against her for the following reasons.

51.  To begin with, I was plainly not impressed by the conduct of Mr Wong and I have said enough about this in the Judgment. He only abandoned certain pleas in the last minute such as justification in respect of three subject statements containing a host of allegations and an express allegation that Madam Wong at all material times had a bad reputation as a school teacher. I can well understand Madam Wong’s frustration arising from and her disapproval of such pleas and a trial might seem to her to be necessary to vindicate herself.

52.  Furthermore, the success of Mr Wong in his defence of qualified privilege in respect of the four subject statements depended very much on my acceptance of Mr Wong’s honesty to negative malice after trial. I can well understand why Madam Wong refused to accept his honesty given the manner in which Mr Wong made allegations against her in these proceedings. I can well understand why Madam Wong insisted on her allegations of malice to be proved at trial.

Conclusion and Order

53.  For the reasons given, I conclude that the Offer was not a sanctioned offer. Even treating it as a Calderbank offer, I am not convinced that I should exercise my discretion and vary the Order Nisi. I dismiss the Amended Summons and the Order Nisi should be made absolute.

54.  I further order that Mr Wong should pay Madam Wong forthwith her costs of this application. After perusing her statement of costs, I summarily assess her costs at HK$55,000. I believe a sum of HK$50,000 should be a reasonable amount for her counsel fee (all inclusive) in all the circumstances.

55.  It remains for me to thank counsel on both sides for their assistance.