ASAHI IWASAWA & ASSOCIATES MANAGEMENT CONSULTANTS LTD v. SHIBAKAWA (HONG KONG) LTD

HCA 969/2014

[2023] HKCFI 2340

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 969 OF 2014

____________________

BETWEEN

____________________

_________________

DECISION

_________________

1.  These are appeals by the Plaintiff from:

(a) the order of Master Jeffrey Chau dated 3 April 2023 (“the April Order”) (“the 1^st Appeal”) dismissing the Plaintiff’s summons filed on 14 April 2022 (“the April summons”) for payment out to the Plaintiff (i) of the Defendant’s sanctioned payment into court of sum of $500,000; and (ii) the $500,000 paid into court by the Plaintiff as security for costs; and

(b) the order of Master Jeffrey Chau dated 19 May 2023 (“the May Order”) (“the 2^nd Appeal”) granting leave to the Defendant to withdraw the sum of $500,000 being the purported Sanctioned Payment paid into court by the Defendant.

Background facts

2.  The Plaintiff commenced the underlying action against the Defendant on 4 June 2014 claiming approximately $5.5 million for fees for professional services rendered to the Defendant. The Defendant counterclaimed against the Plaintiff for negligence and breach of duties of care.

3.  There have been a number of orders made on interlocutory applications including orders made in August 2021 and September 2021 which, inter alia, provided for costs in relation to those applications.

4.  Subsequent to those orders, a series of letters were exchanged between the Plaintiff’s solicitors (“Ko & Co”) and the solicitors acting for the Defendant (“RLLO”) between 2 September 2021 to 2 December 2021 relating to the costs orders with a view to settling the same if not also the action.

5.  On 16 November 2021, RLLO wrote to Ko & Co with the heading “Sanctioned offer by Defendant under RHC O 22 Rule 3” and “without prejudice save as to costs”:

“To expedite an early resolution of the matter, the Defendant offers to pay the Plaintiff, pursuant to Order 22 rule 3 of the Rules of the High Court, HK$1,000,000 inclusive of interest and costs in full and final settlement of the whole of the Plaintiff’s claim in this action, including the Defendant’s counterclaim (‘Sanctioned Offer’).

This Sanctioned Offer of HK$1,000,000 comprises of the following:

1. An increase of sanctioned payment by the sum of HK$400,000 to be made by the Defendant into Court;

2. The sanctioned payment of HK$100,000 already paid into Court by the Defendant; and

3. The HK$500,000 paid by the Plaintiff into Court as security for costs which is to be returned to the Plaintiff upon waiver of the Defendant’s right in claiming the same.”

6.  In their reply of 18 November 2021, after setting out RHC Order 22 rule 3[1], Ko & Co stated, inter alia, that as the offer by the Defendant involves a payment of money to the Plaintiff, the offer is not a sanctioned offer but must be made by way of sanctioned payment, the procedure for which is to be found in Order 22 rule 8.

7.  On 26 November 2021, RLLO sent 2 letters to Ko & Co. The 1^st letter of 26 November 2021 (“the 1^st letter”) was in these terms:

“We refer to our client’s Notice of Further Increase of Sanctioned Payment filed in Court today, a copy of which is enclosed.

With a view to achieving an amicable settlement and to save the parties’ time and costs, our client offers to pay your client HK$500,000 inclusive of interest and costs in full and final settlement of the whole of the Plaintiff’s claim in this action including the Defendant’s counterclaim ("Sanctioned Offer").”

8.  A notice of further increase of sanctioned payment in the prescribed form and dated 26 November 2021 (“the SP notice”) was attached, stating that the payment of $400,000 was in addition to the 2 sums of $50,000 each paid into court on 13 February 2015 and 3 May 2018 respectively.

9.  The 2^nd letter read as follows:

“We have made our sanctioned payment in accordance with our client’s instructions.

…

Unless and until we have further instructions from our client, our increase in sanctioned payment stands as filed with the Court.”

10.  On 8 December 2021, the Plaintiff served on the Defendant a notice of acceptance of sanctioned payments totalling $500,000 in settlement of the whole of the Plaintiff’s claim.

11.  The 1^st Appeal is from the Master’s dismissal of the Plaintiff’s application for payment out to the Plaintiff of (i) the sanctioned payment; and (ii) the $500,000 paid into court by the Plaintiff as security for costs.

12.  On 19 May 2023, on the Defendant’s application by letter dated 12 April 2023 to the court, the Master made the May Order (the subject of the 2^nd Appeal), granting leave for the release of the $500,000, being “the purported Sanctioned Payment” paid into court by the Defendant.

13.  In the circumstances, resolution of the 1^st Appeal would necessarily also resolve the 2^nd Appeal.

Sanctioned payment

14.  It is common ground that the offer made by the Defendant in their 1^st letter of 26 November 2021 (“the 1^st letter”) was not a “sanctioned offer” within Order 22.

15.  The only question for determination is whether the payments into court by the Defendant totalling $500,000 constituted a “sanctioned payment” within Order 22 rule 8 capable of acceptance by the Plaintiff.

16.  Mr Kurt Ng, counsel for the Plaintiff, submitted that the SP notice attached to the Defendant’s 1^st letter dated 26 November 2022 (“the 1^st letter”) which was in the prescribed form (“Form 23”) makes no reference to the 1^st letter itself or any sanctioned offer and was not qualified in any respect. In particular, the last checkbox of Form 23[2] was left unchecked. The first paragraph of the 1^st letter simply gave notice of the filing of the SP notice which was attached. Accordingly, the amount of $400,000 paid into court together with the earlier payments specified in the SP notice constituted a “sanctioned payment” for the purposes of Order 22 which was validly accepted.

17.  As to the approach when construing the application or otherwise of Order 22, Mr Ng referred to the observations of Master Marlene Ng (as she then was) in Lin Yanjin v Smart Billion Engineering Limited, unrep., HCPI 739/2009, 10 August 2011 (at §72) that:

“Order 22 of the RHC is a self-contained statutory code with a carefully structured and prescriptive set of rules that are wholly procedural and not contractual in nature …”.

18.  Saunders J took a similar view in Kwok Chin Wing v 21 Holdings Limited & Anor [2011] 3 HKC 542 holding that unless the sanctioned offer is in the prescribed form it will not constitute a sanctioned offer.

19.  That was also the view taken by Bharwaney J in Rai v Pacific Construction (HK) Co Limited [2011] 3 HKLRD 469 at §20 where it is stated that:

“… the provisions under O. 22 are entirely procedural in nature and that they are not affected by the general law of contract …”

Bharwaney J reached that conclusion deriving support from the observations[3] of Goddard LJ in Cumper v Pothecary [1941] 2 KB 58 at 67 and from the judgment of Moore-Bick LJ in Gibbon and Manchester City Council and LG Blower Specialist Bricklayer Limited [2010] 1 WLR 2081 at §6:

“… Certainty is as much to be commended in procedural as in substantive law, especially, perhaps, in a procedural code which must be understood and followed by ordinary citizens who wish to conduct their own litigation. In my view, Part 36 was drafted with these considerations in mind and is to be read and understood according to its terms without importing other rules derived from the general law, save where that was clearly intended.”

20.  The court was also referred to Yeung Kiu Ying v Fairwood Fast Food Limited trading as Fairwood [2020] HKDC 293 (“the Fairwood case”) a case where the sanctioned payment formed part of an invalid sanctioned offer[4]. Nevertheless, as the notice of the sanctioned payment complied with the requirements of Order 22 rule 8, HH Judge Phoebe Man held that those requirements were complied with, and as such, it was a valid sanctioned payment on its own: at §12 (1).

21.  The Plaintiff’s stance is that its acceptance of the “sanctioned payment” by its notice of acceptance of December 2021 in the prescribed form resulted in a settlement with automatic costs consequences under Order 22 rule 20 (1).

22.  Mr Philips BF Wong, counsel for the Defendant submitted that there was no “sanctioned payment” capable of acceptance in that the SP notice was not a stand-alone offer as regard must be had to the 1^st letter in its entirety.

23.  He submitted that the parties never intended that the SP notice should constitute a stand-alone offer. Rather, there was but one offer made if the SP notice is read in conjunction with the offer made on 16 November 2021 and the 1^st letter, namely, a composite offer which includes the sanctioned payment. Pausing here, it is to be noted that it is not the Defendant’s case that there was any valid sanctioned offer made by the 1^st letter.

24.  Mr Wong further submitted that it would be ‘unthinkable’ that the Defendant intended to make 2 alternative offers: (i) the SP notice making a sanctioned payment, and (ii) the invalid sanctioned offer contained in the 1^st letter. That was because one was significantly better than the other. From the Plaintiff’s point of view, acceptance of (i) (the sanctioned payment) would have the costs consequences set out in Order 22 rule 20.

25.  Moreover, it was said that it would be contrary to “common sense” for the Defendant to have made 2 separate offers as it was said no one with a sound mind would have accepted the composite offer contained in the 1^st letter and that it would be wholly “unconscionable” for the Plaintiff to assert that it genuinely thought the Defendant had made two separate offers under the circumstances.

26.  The Defendant then sought to read the authorities cited by the Plaintiff (Lin Yanjin, Kwok Chin Wing and Rai) as no more than merely emphasising the need to show strict compliance with the formalities where a party seeks to “enjoy” the costs consequences provided under Order 22 and that none of them involved a scenario as the present, with the Plaintiff seeking to rely on a “procedural mistake” to unconscionably secure a windfall to which it would otherwise not be entitled[5].

27.  It would be apposite at this point to recall the principles underpinning Order 22 which inform the approach to be adopted when applying Order 22. In Montrio Limited v Tse Ping Shun David, unrep., HCA 757/2009, 17 February 2012, Poon J (as he then was) explained that:

“19. Order 22 was revamped when the CJR was introduced … the new Order 22 introduces the new concepts of sanctioned offers and sanctioned payments.

20. The policy behind is … to encourage the parties to take positive settlement seriously and to avoid unproductive and expensive prolongation of the litigation, resulting in more early settlements. A party who wishes to invoke the costs saving mechanism in Order 22 must either make a sanctioned offer or sanctioned payment as mandated by the relevant provisions. When a valid sanctioned offer or sanctioned payment has been made, the court will apply Order 22 in exercising its discretion as to costs. (Emphasis supplied)

21. The new Order 22 is a self-contained statutory procedure for settlement. It is complete in its own right and by itself without the need to have recourse to other measures.”

28.  In that case, the plaintiffs had made an offer that did not constitute a valid sanctioned offer because it did not fully comply with rule 5 (7). They sought to argue that their failure was but a “technical slip[6]”, that the irregularity did not nullify the effect of the offer, that it was stated to be a sanctioned offer and was clearly intended to be so. The judge rejected the submissions holding (at §9) that:

“[s]ince it is the plaintiff seeks to invoke the new rules to protect his position, he must strictly comply with all the mandatory requirements when he purports to make a sanctioned offer. It does not lie in his mouth to say that his failure to do so is only a technical slip…” (Emphasis added).

29.  The upshot of the Defendant’s submissions is that notwithstanding strict compliance with the prescribed procedural formalities of O 22 for a sanctioned payment, the court is nevertheless required to ascertain the parties’ intention, taking into account considerations such as “common sense” and “unconscionability”.

30.  I do not accept the Defendant’s submissions and its reading of the 3 authorities cited by the Plaintiff. It is clear from those authorities and Montrio that Order 22 is a self-contained statutory code, to be read and applied according to its terms and non-contractual in nature. Adopting that approach, the parties’ contractual intentions (an exercise that necessarily creates uncertainty) is irrelevant.

31.  As regards the Fairwood decision, the Defendant relied on Yim Wai Ling & Anor v Yuen Chik Wah & Anor DCCJ 663/2013, 14 February 2017, a decision of HH Judge A Kot. In the Yim case, a sanctioned offer was made accompanied by a sanctioned payment. It was held that with the sanctioned offer, the plaintiffs could not accept the sanctioned payment and take advantage of the costs consequences in rule 20 (1) but instead had to accept the terms of the sanctioned offer as well which deprived them of the said benefit.

32.  However, in the Yim case, importantly, it was clearly stated in the sanctioned payment that “it is part of the terms of a sanctioned offer set out in the letter dated 15 March 2013[7]. The 2^nd sanctioned payment in that case was also tied to the 2^nd sanctioned offer.

33.  That decision was premised on the fact that the sanctioned payment was expressly tied to the sanctioned offer by the express reference in the notice of sanctioned payment[8]. In the present case, there is no such tie. The Yim case is thus distinguishable on the facts.

34.  In so far as the Plaintiff was criticised for not mentioning that the judge in the Fairwood case, the judge granted leave to appeal. But, as the Plaintiff pointed out, there is no reported decision of the appeal. Upon further inquiry, it transpires that the appeal was dismissed by consent.

Conclusion

35.  For the reasons set out above, I find that the Plaintiff validly accepted the stand-alone sanctioned payment made by the Defendant. Accordingly, the 1^st Appeal is allowed.

36.  As the parties are agreed that the outcome of the 2^nd Appeal follows that of the 1^st Appeal, the 2^nd Appeal is also allowed.

37.  It is ordered that:

1. the 1^st and 2^nd Appeals be allowed;

2. the April Order and the May Order be set aside;

3. there be an order in terms of the April summons;

4. there be an order that the Defendant do pay into court the sum of $500,000 being the purported Sanctioned Payment which had been paid into court by the Defendant; and

5. there be an order nisi of costs of the 1^st and 2^nd Appeals and below in favour of the Plaintiff with certificate for counsel, such costs to be summarily assessed.

38.  It is further directed that (a) the Plaintiff’s statement of costs be revised (if so advised) and lodged within 14 days of this Decision; and (b) the Defendant’s revised statement of objections (limited to 3 pages) be lodged within 14 days thereafter.