OR SIU LUNG, THE PERSON APPOINTED TO REPRESENT THE ESTATE OF LAM CHOI CHING v. FU HONG HOME FOR THE ELDERLY CO LTD t/a FU HONG HOME FOR THE ELDERLY

CACV 189/2017
[2018] HKCA 44

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 189 OF 2017

(ON APPEAL FROM DCPI NO 1495 OF 2015)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  On 9 September 2013, an elderly lady (“Lam”) who resided in an Elderly Home operated by the Defendant was injured in an accident. Loosen concrete spalling fell from the ceiling hit her whilst she was sleeping on bed. Both of her legs were injured and radiological examination showed fractures at the tibial shafts. Due to her old age, doctors did not carry out any operation to manage the fracture. Instead casts were applied to both her legs and she became wheelchair dependent and lost mobility on her own. Unlike her condition before the accident, she could no longer answer the call of nature independently and had to wear diapers. She was hospitalized until 18 September 2013. In DCPI 1495 of 2015, she claimed damages from the Defendant in relation to the injuries suffered in the accident.

2.  Lam was born in 1925 and at the time of accident she was 88 years old. 

3.  The writ was issued on 6 July 2015.  The Statement of Damages sought damages in the sum of $938,712.20 in respect of which $760,000 was claimed in respect of pain and suffering and loss of amenity.

4.  Very soon after the commencement of the action, the Defendant made a sanctioned payment into court in the sum of $380,000 on 17 July 2015. 

5.  Lam (as Plaintiff) did not accept the sanctioned payment within the time prescribed by the rules.

6.  Unfortunately, on 17 February 2016 (slightly less than 2.5 years after the accident) Lam passed away due to an ailment unrelated to the accident.  The action was subsequently taken over by her only son Or.

7.  On 14 July 2016, solicitors for Or issued a summons seeking leave to accept the sanctioned payment and costs of the action.

8.  On 16 November 2016, Deputy District Judge Eric Tam granted leave to Or to accept the sanctioned payment.  The judge ordered the Defendant to pay the Plaintiff’s costs up to 14 August 2015 and ordered the Plaintiff to pay the Defendant’s costs as from 15 August 2015, including the costs of the summons of 14 July 2016.

9.  Or sought leave to appeal against the order that he shall pay costs of the Defendant after 14 August 2015.  The judge refused leave on 22 February 2017.

10.  Or renewed his application for leave to appeal in this Court. Leave was granted on 12 April 2017.

11.  The relevant rules governing the situation are set out in Order 22 of the Rules of the District Court.  Order 22 has been substantially amended in the Civil Justice Reform in 2008 and the regime of sanctioned payment was introduced to replace the old payment into court regime.  The costs consequences where a plaintiff fails to do better than sanctioned payment are provided by Rule 23.  For present purposes, we only need to refer to Rule 23(3) and (5) to (6):

“ (3) The Court may order the plaintiff to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.

…

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

(6) In considering whether it would be unjust to make the orders referred to in paragraphs (2), (3) and (4), the Court shall take into account all the circumstances of the case including—

(a) the terms of any sanctioned payment or sanctioned offer;

(b) the stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned payment or 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 payment or offer to be made or evaluated.”

12.  Though the Rule 23 provides for situations where a judgment is entered and the plaintiff failed to obtain a judgment more advantageous than a sanctioned offer by a defendant, it has been held in England under similar rules that the approach should also guide the courts in the exercise of the discretion under Rule 15(3) when making order for costs upon granting leave to accept sanctioned payment out of time, see SG v Hewitt [2013] 1 All ER 1118 at [20] and [76]. 

13.  We respectfully endorse such approach and we see no reason not to adopt the same in the context of our Order 22 regime.  At the same time, we need to highlight a difference between the situation under Rule 15(3) and the one under Rule 23.  Rule 23 predicates upon a judgment being entered, hence there is a judicial determination on the merit.  The comparison is to be made between the terms of the sanctioned offer and the actual outcome in that judicial determination.  On the other hand, in the case of an acceptance of sanctioned offer out of time, there would not be any judicial determination on the merit.  In that respect, in the examination as to whether it would be unjust to apply the normal costs rule, in particular the consideration of the terms of the offer under Rule 23(6)(a), the court may need to make some broad assessment as to the reasonableness of the sanctioned offer in order to have a meaningful comparison instead of simply accepting the terms of the sanctioned offer as the benchmark for comparison.

14.  The judge referred to Order 22 Rule 15(3) in his judgment of 16 November 2016 and the decision of Judge M Ng in Wong Ching Wan v AS Watson & Co Ltd [2007] 4 HKLRD 362.  Notwithstanding that counsel had cited the English authorities and made submissions on the same, the judge however did not refer to Rule 23 or the English authorities.  He regarded Wong Ching Wan as authority for the proposition that unless there are special circumstances the usual costs order is for the plaintiff to pay the defendant’s costs after the expiration of the prescribed period for acceptance: see [5] of the judgment.

15.  With respect, Wong Ching Wan was decided before the amendment of the rules in 2008.  After the amendment, it is better to start from the provisions on costs consequences in the rule.  The following guidance can be derived from Order 22 Rule 23:

(a) By virtue of sub-para (5), the court shall make an order according to sub-para (3) unless the court considers it is unjust to do so;

(b) The court should have regard to all the circumstances of the case and some relevant factors (not exhaustive) are set out in sub-paragraph (6).

16.  Mr Cheng, counsel for the Plaintiff, referred us to two relevant English Court of Appeal authorities decided on similar rules.  The first one is Matthews v Metal Improvements Co Inc [2007] EWCA Civ 215 in which the Court of Appeal was not satisfied that it would be unjust to deprive the defendant of costs protection under the sanctioned payment regime simply because the plaintiff’s prognosis for lymphoma (a condition unrelated to the accident) was poorer than previously expected. The second one is SG v Hewitt [2013] 1 All ER 1118 in which the Court of Appeal held that the uncertainty as to the impact of a head injury to a child of 6 (which only became assessable by the experts with greater certainty after a sanctioned payment was made) rendered it unjust to impose the normal costs consequences.

17.  The following propositions can be derived from the judgment of Black LJ (as she then was) in SG v Hewitt, supra:

(a) The approach on costs consequences under the English equivalent of our Rule 23 applies to an acceptance of sanctioned payment out of time with the leave of the court, see [20];

(b) As the relevant rule refers to “unjust”, injustice should be the benchmark.  Under such rubric, the court can assess “what the fairness of the situation demands”.  It is better to avoid reference to “exceptional circumstances” as the test, as it would have a tendency to give rise to the idea that circumstances must be at the extreme end of the spectrum before they will count.  See [22] to [25];

(c) The court should not attempt to prescribe or restrict in the abstract the circumstances in which the court may reach the conclusion that it is unjust to make the normal order.  Costs decisions are particularly sensitive to the facts of the individual case, see [29];

(d) Reasonableness of a plaintiff in not accepting the sanctioned payment within time is a relevant consideration though, depending on the facts of the case, it would not necessarily be determinative.  At the same time there are cases where it could form a sufficient basis for finding injustice in applying the normal costs rule.  As held in Matthews v Metal Improvements Co Inc, supra, the ultimate question is whether it is unjust to impose the normal costs consequences, see [43];

(e) Costs decision based on the assessment under Rule 23(5) and (6) is highly fact-sensitive and it would not be helpful to compare one case with another. The court should guard against citation of authorities for the purpose of persuading courts to follow decisions on the facts as if they were precedents, see [47].

18.  In Matthews v Metal Improvements Co Inc, supra, Stanley Burnton J (as he then was) said at [35] that contingencies inherent in litigation could not normally justify departure from normal rule:

“ Before us, neither party submitted that the other had acted unreasonably. Essentially, what has happened is that events have justified the defendant’s assessment of the total value of the claim, and falsified the claimant’s assessment. Changes in circumstances between the date of a Part 36 payment and trial are contingencies inherent in litigation. They cannot of themselves normally justify a conclusion that the defendant should be deprived of the benefit of his payment. …”

19.  However, as explained by Black LJ in SG v Hewitt, supra, at [44] to [47], that statement should not be read in isolation and the manner in which solicitor for the claimant handled the response to the Part 36 payment on the facts in Matthews played an important part in leading to the outcome in that case as shown by [36] and [37] in the judgment of Stanley Burnton J.  It illustrated the fact sensitive nature of a costs decision in this context.  Hence, Black LJ said at [47]:

“ That a feature such as this had the capacity to alter the outcome underlines just how fact-sensitive costs decisions of this kind are and how difficult it is to determine one case by comparing it with another. The defendant rightly invited us to be careful in reaching our decision that we did not condemn the courts to intensive investigations in every Pt 36 case as to how the parties should have approached an offer; I would be equally resistant to encouraging a time-consuming practice of citing authorities on costs for the purpose of persuading courts to follow decisions on the facts as if they were precedents … a firm distinction is [to be] made between, on the one hand, principle and guidance which can valuably be transported from one case to another and, on the other, consideration of the individual facts which cannot.”

20.  We respectfully endorse the approach of Black LJ.  In some of the authorities cited to us (and as in the present case), judges reduced the question to whether the plaintiff demonstrated there were special circumstances to justify departure from the normal rule.  With respect, in light of the provision in Rule 23(5), it is better to examine the issue by asking if it would be unjust to apply the normal costs consequences in the facts and circumstances of the case.

21.  Further, in considering that question, one must have regard to the underlying purpose for the sanctioned payment regime in Order 22.  The underlying purpose of the regime is to encourage settlement and to discourage unnecessary litigation.  It is therefore normally consistent with such purpose that, having rejected a sanctioned payment, a party who fails to achieve a better outcome should pay for the costs incurred after the sanctioned payment.  However, there are situations where such rationale is not applicable and the imposition of the normal costs consequences may become unjust.  Flexibility is therefore built into the regime under Rule 23(5) and (6).  As Arden LJ observed in SG v Hewitt, supra, at [76], the power of the court to order otherwise is a deliberate and important safety valve.

22.  A classic situation where the normal rule should not apply is the withholding of information relevant to the assessment as to the acceptability of the payment, see the Final Report on the Civil Justice Reform at para 305 citing Ford v GKR Construction Ltd (Practice Note) [2000] 1 WLR 1397 at 1403; Wong Ching Wan v AS Watson & Co Ltd [2007]4 HKLRD 362 at [40] citing the judgment of Chadwick LJ in the unreported English case of Jones v Jones 13 October 1999.

23.  In Jones v Jones 13 October 1999, Chadwick LJ shed some light on the process of reassessment of risk regarding a sanctioned payment:

“ If the plaintiff decides not to accept the payment in within the 21-day period, then he cannot accept it without leave. But it is always open to him to reassess the risk in the light of anything which subsequently emerges in the course of the proceedings …If, on a reassessment of the risk, the plaintiff decides that it would be in his interest to accept the payment-in, then, he or she can apply to the court for an order that it be paid out. In deciding what order to make on such an application, the Court can take into account what costs the defendant has occurred since the date of the payment in: costs which, if the plaintiff had accepted the payment in within the period limited by the rules, would not have been incurred.

The Court may also take into account the circumstances which have given rise to the plaintiff’s change of mind.  In particular, if the court were satisfied that that change of mind - arising from a reassessment of the risk in the light of new material - was attributable to the defendant’s failure to produce that material at an earlier date … it may take the view that the plaintiff should not be required to bear all or some part of any intervening costs….”  

24.  We would add these observations.  First, a party may change his mind not because of new information calling for reassessment of risk.  It may due to a change in the person in charge of a corporate plaintiff.  It may due to change of legal advisor who takes a different view of the case.  Plainly, change of mind in such circumstances could not normally, without more, be a ground for the disapplication of the normal costs rule.

25.  Second, reassessment of risk arising from change of circumstances can be manifold.  Unavailability of a material witness, the change in the law brought about by new authorities from a higher court, unfavourable opinion in an expert report are some such examples.  All these could be unforeseen by a plaintiff but, consistent with the spirit of the sanctioned offer regime, it is unlikely that any of these contingencies in litigation can constitute injustice in the application of the normal costs rule.  In Matthews v Metal Improvements Co Inc, supra, it was held that on the facts of that case the change in the life expectancy of a plaintiff due to illness was a contingency which, coupled with the inadequate response of the plaintiff to a Part 36 offer, did not render it unjust to follow the normal costs rule.  

26.  Third, as illustrated by the facts of SG v Hewitt, supra, there are cases where the court may find it unjust to impose the normal costs rule notwithstanding that the defendant did not withhold any material information.  The injustice in that case was pinpointed by Black LJ at [71] (see also Arden LJ at [77] and Pill LJ at [90] and [94]).  That was a case where by the evolving nature of the injury the plaintiff could not have made a proper assessment of the acceptability of the Part 36 offer.  

27.  In his judgment of 16 November 2016, the judge gave the following reasons for holding that the normal rule should apply:

“10. I agree with Mr Ngai’s submission that the merits of the plaintiff’s claim on quantum were irrelevant.  It is impossible for the court on the costs hearing to adjudicate on the merit issues.

11. It was not submitted by either parties that the other party was acting unreasonably.  I accept the reasonableness is one of the factors to be considered but it is not determinative.  The plaintiff failed to convince the court the death of Lam was a special circumstance.  

12. Lam was born in 1925; she was about 90 years old at the time of issuance of the writ.  According to Mr Cheng, her life expectancy had been estimated to be 6.69 years.  Notwithstanding that, at her age, her demise before trial could only be regarded as the vicissitudes of life, an event not unusual and should be within contemplation.  It is a contingency inherent in litigation. 

13 I find that it is unreasonable to deprive the defendant the protection under the sanctioned payment.  Such decision will also give certainty on costs relating to sanctioned payment in respect of the death of an aged plaintiff.”

28.  With respect, it is clear to us that the judge had not paid sufficient regard to Order 22 Rule 23 and the history of proceedings in making his decision on costs.  He had not considered if it would be unjust to order costs against the plaintiff in the circumstances of the case.  For this reason, we should set aside the order of the judge and exercise the discretion afresh. 

29.  Rule 23(6) requires the court to take account of all the circumstances of the case in considering whether it is unjust to apply the normal costs rule.  Without being exhaustive, it directs the court to have regard to:

(a) the terms of any sanctioned payment or sanctioned offer;

(b) the stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned payment or 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 payment or offer to be made or evaluated.

30.  We start from a consideration of the terms of the sanctioned payment.  Whilst the judge is correct in saying that it is impossible for the court to adjudicate on the merit at the costs hearing (see [10] of the judgment of 16 November 2016), it does not mean that the court could not make some broad assessment of the term of the sanctioned payment, particularly in the context of ordinary personal injuries litigation.  For the reason given at [13] above, in a case of acceptance out of time with leave, when the application of the normal costs rule is disputed, by virtue of Rule 23(6)(a), the court is actually obliged to consider the reasonableness of the sanctioned payment albeit on a very broad brush basis in order to assess if it is unjust to apply the normal costs rule.

31.  The present case is a clearly one in which liability cannot be contested and there is no question of contributory negligence.  Actually, liability was admitted by the Defendant. We have read the submissions placed before the court in the application for leave on quantum of damages.  Without going into the details, bearing in mind the injuries sustained by Lam and the loss of amenities occasioned to her, even taking account of her pre-existing disability arising from the fracture at her left humerus, we agree with Mr Cheng that it was a case falling within the serious injury category and it was reasonable for the Plaintiff to reject the sanctioned payment in July 2015 though we do not agree with Mr Cheng’s overall assessment.  As held by Bharwaney J in Wong Man Kin v Golden Wheel (C&HK) Transportation Co Ltd [2015] 5 HKC 570, the PSLA award for serious injury category should be in the range of $510,000 to $692,000.  The $380,000 figure is, in our view, even taking account of the age and pre-existing condition of Lam before the accident, plainly outside the range of reasonable offers in the circumstances of this case.

32.  The sanctioned payment was made at the very early stage of the action.  In light of the inadequacy of the sanctioned payment, it was inevitable that substantial costs had to be incurred in respect of the conduct of the litigation.  In the normal course of event if the action went to trial, unless there was an increase in the offer (sanctioned or otherwise) from the Defendant, the Defendant would have to pay the costs of the action. 

33.  Though the judge referred to the history of the action at [3] of his judgment, that chronology was incomplete.  After the making of the sanctioned payment on 17 July 2015, interlocutory judgment was entered on 31 July 2015.  Mediation certificate was issued by solicitors for the Plaintiff on 6 July 2015, the Defendant only responded on 21 September 2015.  Notwithstanding both parties agreed to mediate, mediation had yet to take place.  List of documents were filed on behalf of the Plaintiff on 17 August 2015 and Defendant’s List was filed on 27 August 2015.  Expert reports were not yet prepared and by a joint letter of 15 October 2015, parties made a joint request for adjourning the checklist review (originally scheduled for 30 December 2015) to a date not earlier than 14 May 2016.  The master adjourned the Checklist Review to 2 June 2016.  Joint examination by experts took place on 26 November 2015 and the joint expert report was produced on 25 December 2015.  In the meantime, witness statement of Lam was made on 3 December 2015.  According to the time table prescribed by the master, the Plaintiff had 28 days from the joint expert report to file a revised statement of damages.  Solicitors for the Plaintiff could not comply with that direction due to the passing away of Lam on 17 February 2016.  Hence, no Answer to statement of damages had yet been filed by the Defendant.

34.  From the history of the action up to the death of Lam, it is clear that there were still works to be done before those acting for the Plaintiff could properly and accurately advise Lam on the reasonable quantum of her claim.  Whilst there are cases in personal injuries litigation where those advising a plaintiff could at least put forward a reasonably fair assessment of quantum based on information obtained before the commencement of action, it would be unwise to pay no heed to the materials relied upon by the defence and the Answer to Statement of Damages is an important document setting out defence case on quantum.  This is particularly so when the sanctioned payment is manifestly outside the range of reasonable offers. In the present case, as mentioned above, no Answer to Statement of Damages had been filed by the Defendant. 

35.  On the other two specified factors in Rule 23(6), we agree with Mr Wong that the lack of more helpful response from the Defendant in reply to the request from solicitors for the Plaintiff on 17 July 2015 and the non-withdrawal of the sanctioned payment by the Defendant could not assist the Plaintiff in making out a case of injustice.

36.  Though the sanctioned offer of the Defendant was not attractive, Lam (with the benefit of those advising her) could have put forward her own sanctioned offer based on her estimate of the reasonable range of damages, see Antwerp Diamond Bank NV v Brink’s Incorporated (No 2) [2015] 4 HKLRD 628 at [21].  In that case, in light of the merit of the claim, this Court rejected the notion that because an offer from the plaintiff only gave minimal discount to the full claim, it should be regarded as not genuinely made in the attempt to resolve dispute. The Court refused to find injustice on that ground alone: see [18] to [22].

37.  The Court would not speculate why no counter sanctioned offer was made though the history of the action as set out above suggests that those advising Lam deferred finalizing their views on quantum pending the joint report and answer to statement of damages.  Likewise, it is not necessary nor appropriate for the Court to examine the reason for Or deciding to accept the sanctioned payment, see Factortame Ltd v Secretary of State [2002] 1 WLR 2438 at p.2448B.  At the same time of his application for leave to accept the sanctioned payment, Or also asked for costs up to the acceptance, see the summons of 14 July 2016.  Thus, his acceptance could not prevent the Court from examining the sanctioned offer was outside the range of reasonable offer.  For reasons we have given above, even taking into account of the unexpected demise of Lam, the sanctioned offer is below the range. 

38.  It can be said that Or could have continued with the action if he was of the view that the sanctioned offer was below the level of reasonable offers.  That would be one option.  But in our judgment, it is equally open to Or to choose to accept the offer (for whatever reasons) and contend he should have costs up to the date of late acceptance.  It is not in line with the spirit of Order 1A for the Court to insist on having a trial when a party (not subject to disability in the Order 80 sense) is willing to accept a sanctioned payment to settle the case even though costs is contested.  In such circumstances, the Court should simply apply the regime in Order 22, including Rule 15(3) together with Rule 23, in deciding on the order to be made on costs.    

39.  To recap, the Court must consider if it would be unjust to apply the normal costs rule on the facts and circumstances of the case.  It is a highly fact-sensitive exercise.  

40.  In our judgment, it is unjust to require Or to pay costs to the Defendant when liability is not contested and the sanctioned payment is outside the reasonable range for damages payable by the Defendant even though Or, for whatever reason, chose to accept the sanctioned payment out of time whilst Lam acted reasonably in not accepting the same. The costs incurred since the sanctioned payment could not have been avoided. The position could be different if the sanctioned payment is within the reasonable range.

41.  We allow the appeal and set aside the order on costs made by the judge.  Instead, we see no reason why the Defendant should not be responsible for the costs of the action up to the date of acceptance.  We order the Defendant to pay the costs of the action up to that date and also the costs of this appeal, including the costs of the application for leave in HCMP 535 of 2017.  Such costs are to be taxed if not agreed.