GILL AJMER SINGH v. WAH HING SCAFFOLDING ENGINEERING LTD AND ANOTHER

DCEC 348/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO. 348 OF 2010

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DECISION

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Introduction

1.  This is an application by the respondents to vary the costs order nisi (the “Costs Order Nisi”) which I had made on 2 October 2013 when I dismissed the applicant’s claims in this action.

2.  The applicant claimed in this action that an accident occurred on 20 August 2008 while he was working for the respondents causing him the injury of acute retinal detachment.  I found that the applicant failed to prove the occurrence of the alleged accident and that even if there was such accident, it did not cause or lead to his injury.  Accordingly, I dismissed his claims.

3.  By the Costs Order Nisi, I ordered the applicant to pay the respondents’ costs for this action to be taxed, if not agreed, with counsel certificate.  By virtue of Order 62, rule 28 of the Rules of the District Court, the costs payable by the applicant will be taxed on party-and-party basis.  Orders and rules referred to in this Decision are Orders and rules of the Rules of the District Court unless otherwise specified. 

4.  The respondents took out a summons on 15 October 2013 (the “Summons”) pursuant to Order 22, rule 23 and Order 42, rule 5B(6) and the inherent jurisdiction of the court seeking to vary the Costs Order Nisi to provide that for the period after 19 August 2011, the applicant should pay the respondents’ costs of this action on indemnity basis with interest on such costs at 10% above the judgment rate.  The respondents also sought costs for this application on indemnity basis.

5.  I shall point out that unlike the Rules of the High Court, Order 42, rule 5B of the Rules of the District Court only has paragraphs (1) to (4) but does not have paragraph (6).  I would like to take this opportunity to remind the practitioners that they shall not readily assume that the Rules of the District Court are identical to the Rules of the High Court.  Nevertheless, the aforesaid error does not affect this application as I had made an order in my judgment to the effect of Order 42, rule 5B(6) of the Rules of the High Court for the parties to apply to vary the Costs Order Nisi within 14 days.

6.  The applicant was legally aided in this action from 26 January 2010 until 20 July 2012 when his legal aid certificate was discharged.  Accordingly, the Director of Legal Aid (the “DLA”) had interests in this application and sought leave to be heard in this application.  The respondents did not object the DLA’s application.  At the hearing on 30 October 2013, I granted leave for the DLA to participate in this application.

The application

7.  The respondents’ application was premised on the ground that they had on 19 August 2011 made a sanctioned offer pursuant to Order 22 offering the applicant to forthwith discontinue the claims against the respondents with costs to the respondents, to be taxed if not agreed on party-and-party basis (the “Offer”).  The Offer was not accepted by the applicant.

8.  On 2 October 2013, I dismissed the applicant’s claims with costs as aforesaid.  The respondents said that the applicant having failed to do better than the Offer, the sanction provisions of Order 22, rule 23 should apply.

The applicant’s case

9.  Despite the discharge of his legal aid certificate on 20 July 2012, the applicant was legally represented at the trial.  The applicant filed a notice to act in person on 8 October 2013 and was unrepresented when the respondents took out the Summons.

10.  The applicant had not filed any affidavit in opposition to the respondents’ application but had attended the hearing on 30 October 2013.

11.  The applicant said that he was not satisfied with the judgment and would appeal against the judgment.  He said that he had no money to pay the respondents’ costs claim and asked the court to hold on this application pending his appeal.

The case of the DLA

12.  Mr Chan, representing the DLA, submitted that one of the important features of a sanctioned offer was the consequence upon acceptance of the sanctioned offer.  Order 22, rule 20(1) provided that where a defendant’s sanctioned offer to settle the whole claim was accepted without leave of the court, the plaintiff was entitled to his costs of the proceedings up to the date of serving of the notice of acceptance.  In this case, the Offer required the applicant paying costs instead of receiving costs.  Mr Chan submitted that the Offer did not constitute a valid sanctioned offer because even if the applicant accepted it, he would be deprived of his entitlement to costs as envisaged in Order 22, rule 20(1).

Discussion

13.  The facts that the applicant would appeal against the judgment and that he had no money to pay the respondents’ costs claim are not grounds to resist this application of the respondents.  In fact, if the applicant is going to appeal against the judgment, it is even more necessary to finalize the costs order of this court so that the same can also be dealt with at the appeal.

14.  The Offer was contained in a letter dated 19 August 2011 from the respondents’ solicitors to the applicant’s then solicitors, Yeong & Co, and the DLA.  The material parts of the letter read as follows:-

“Solely for the purpose of disposing of this matter in its entirety without wasting further time of the Respondents, we are instructed to put forward this one off offer to the Applicant.

By virtue of Order 22 rule 5(4) of the Rules of District Court, Cap 336 (“RDC”), the Respondents make this sanctioned offer that the Applicant do forthwith discontinue the claim against the Respondents with costs to the Respondents, to be taxed if not agreed on party-and-party basis.

By virtue of Order 22 rule 5(7) of the RDC, please be informed that after the expiry of 28 days from the date of the sanctioned offer herein, the Applicant may only accept the Respondents’ said offer if the parties agree on the liability for costs or the Court grants leave to accept it.”

15.  There were no disputes that the Offer complied with the requirements of Order 22, rule 5 on form and content of sanctioned offer.

16.  As the respondents relied on Order 22, rule 23 to make this application, it is necessary to set out the relevant parts of the aforesaid Order below:-

“(1) This rule applies where a plaintiff:-

(a) ...; or

(b) fails to obtain a judgment that is more advantageous than a defendant’s sanctioned offer.

(2) ...

(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.

(4) The Court may also order that the defendant is entitled to -

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

(b) interest on the costs referred to in paragraph (3) or subparagraph (a) at a rate not exceeding 10% above judgment rate.

(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.”

17.  There were no disputes that the applicant failed to obtain a judgment that was more advantageous than the Offer.  The issues to be determined are whether the Offer constituted a valid sanctioned offer.  If so, whether it is unjust for the court to impose the contemplated sanctions in this case.

Whether the offer constituted a valid sanctioned offer

18.  The DLA contended that the Offer had deprived the applicant of his entitlement to receive costs pursuant to Order 22, rule 20.  Order 22, rule 20(1) provides that:-

“(1) 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.”

19.  Miss Kong, representing the respondents, submitted that the Offer was for the applicant to discontinue his claims and Order 62, rule 10(1) provided for a plaintiff who wholly discontinued his action to pay the defendant’s costs.  Miss Kong submitted that the respondents would be entitled to their costs under Order 62, rule 10(1), if the applicant discontinued his claims pursuant to the Offer.

20.  Order 62, rule 10(1) provides that:-

“(1) Where a plaintiff by notice in writing and without leave either wholly discontinues his action against any defendant or withdraws any particular claim made or question raised by him therein as against any defendant, the defendant may tax his costs of the action or his costs occasioned by the matter withdrawn, as the case may be, and, if the taxed costs are not paid within 4 days after taxation, may sign judgment for them.”

21.  Order 62, rule 10(1) applies to case where a plaintiff may discontinue his action or withdraw part of his claims without leave.  May the applicant discontinue this action without leave?  Order 21, rule 2 provides that:-

“(1) Subject to paragraph (2A) [which does not concern this action] the plaintiff in an action begun by writ may, without the leave of the Court, discontinue the action, or withdraw any particular claim made by him therein, as against any or all of the defendants at any time not later than 14 days after service of the defence on him or, if there are 2 or more defendants, of the defence last served, by serving a notice to that effect on the defendant concerned.

  (3A)   The plaintiff in an action begun by originating summons may, without the leave of the Court, discontinue the action or withdraw any particular question or claim in the originating summons, as against any or all of the defendants at any time not later than 14 days after service on him of the defendant’s affidavit evidence filed pursuant to Order 28, rule 1A(2) or, if there are 2 or more defendants, of such evidence last served, by serving a notice to that effect on the defendant concerned.”

22.  This action is not an action commenced by writ or by originating summons and the respondents had served their Answer on 29 April 2010, ie more than one year before the respondents made the Offer.  The applicant may not discontinue this action without leave.  Order 62, rule 10(1) does not apply to this action.

23.  Furthermore, if this action was discontinued pursuant to the Offer, it was not a discontinuance under Order 21 which triggered the operation of Order 62, rule 10(1).  It would be a discontinuance under the Order 22 regime.  This is recognized by Order 62, rule 10 when it provides in Order 62, rule 10(5) that:-

“(5) In the circumstances mentioned in this rule, Order 22, rules 20 and 21 and Order 25, rule 4(6) an order for costs shall be deemed to have been made to the effect described and, for the purposes of section 50 of the Ordinance, the order shall be deemed to have been entered up on the date on which the event which gave rise to the entitlements to costs occurred.”

24.  Thus, it can be seen that costs entitlement pursuant to Order 22, rule 20 is not covered by Order 62, rule 10(1).

25.  However, I do not agree that a sanctioned offer will be invalidated if it contains costs provisions different from those provided in Order 22, rule 20.  There are no provisions in the Rules of the District Court which prohibit a sanctioned offer to deal with costs.  Order 22, rule 5 in dealing with the “form and content of sanctioned offer” does not exclude costs as an element which may be included in a sanctioned offer.  In fact, Order 22, rule 20 expressly provides for the court to make a different costs order.  In sub-para 3 of para 22/2/A at p 489 of the Hong Kong Civil Procedure 2013 Vol 1, the learned editors pointed out that “a sanctioned offer under O 22, rule 2(1) provides the defendant with a prima facie entitlement to an order that the Plaintiff pays all the post-offer costs … where the Plaintiff has failed to better the Defendant’s offer at trial.” (Emphasis added) …  If a defendant makes a sanctioned offer containing different provisions as to costs to settle the action and the offer is accepted by the plaintiff, the aforesaid prima facie entitlement will be replaced by the parties’ agreement.  I see no reason why the court will not give effect to the parties’ agreement by exercising its power under Order 22, rule 20(1).

26.  In Chan Kwing Chiu and another v陳志球 (transliterated as Chan Chi Kau) also known as Johnnie C K Chan (unrep, CACV 209/2012, 3 October 2013) a sanctioned offer on a “drop hands” basis with no order as to costs was made by the defendant to the plaintiffs in the proceedings in the Court of First Instance where there were claim and counterclaim.  The sanctioned offer lapsed without being accepted.  The plaintiffs failed in both the claim and the counterclaim and were ordered to pay costs of the defendant for both the claim and the counterclaim.  As the plaintiffs had failed to do better than the sanctioned offer, Deputy High Court Judge M Chan (as she then was) awarded costs on indemnity basis for the post-offer costs and enhanced interest on such costs to the defendant.

27.  The case went to the Court of Appeal when the Court of Appeal allowed the plaintiffs’ appeal in respect of the judgment on the counterclaim against them.  The Court of Appeal held that the plaintiffs should pay 80% of the defendant’s costs in the court below up to the date when the sanctioned offer might be accepted without leave.  However, the Court of Appeal did not disturb the sanctions on the post-offer costs imposed by the learned Deputy High Court Judge on the ground that even with the plaintiffs’ appeal to the judgment of the counterclaim being allowed, the plaintiffs still had not achieved anything better than the sanctioned offer.  (See paras 102 to 105 of the Court of Appeal judgment)

28.  The sanctioned offer made in the Chan Kwing Chiu case also contained costs provisions differed from Order 22, rule 20(1) of the Rules of the High Court (which is identical to Order 22, rule 20(1) of the Rules of the District Court).  Both the learned Deputy High Court Judge and the Court of Appeal did not consider that such costs provisions would have the effect of invalidating an otherwise valid sanctioned offer.  I reject Mr Chan’s contention that the Offer was not a valid sanctioned offer because of the costs proposal contained therein.

29.  An offer qualifies as a sanctioned offer not because the offeror calls it a “sanctioned offer”.  An offer is a sanctioned offer because it is made pursuant to Order 22, rule 2 which provides that:-

“Offer to settle with specified consequences (O 22, r 2)

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.”

30.  The respondents sought to invoke the provisions of Order 22, rule 23.  The prerequisite was that they had made an offer under Order 22, rule 2(1).  Under Order 22, rule 2(1), the respondents had to make one of the following offers to the applicant:-

(1)   an offer to settle the whole claim of the applicant;

(2)   an offer to settle a part of the claim of the applicant; or

(3)   an offer to settle any issue arising from the claim of the applicant.

31.  Miss Kong submitted that the Offer was an offer to settle the whole claim of the applicant.  With respect, I disagree.  The Offer was certainly an offer to dispose of the whole claim of the applicant but it was not an offer to “settle” the applicant’s claim.

32.  Sanctioned offer is a new feature introduced to our litigation system by the Civil Justice Reform (the “CJR”) implemented on 2 April 2009.  It was introduced by proposal 15 of the Interim Report and Consultation Paper for the CJR which read as follows:-

“Rules governing the making and costs consequences of offers of settlement and payments into court along the lines of Part 36 of the CPR [the Civil Procedure Rules 1998 enacted in England and Wales] should be adopted.”

33.  The aforesaid proposal was adopted in Recommendation 38 of the Final Report for the CJR which read as follows:-

“Proposal 15 (for introducing sanctioned offers and payments along the lines of CPR 36) should be adopted as modified and supplemented by Recommendations 39 to 43.”

34.  Recommendation 43 of the Final Report read as follows:-

“The rules should make it clear that a plaintiff may qualify for an award of additional interest along the lines of Part 36 where he makes a sanctioned offer which satisfies the prescribed requirements, but not otherwise.”

35.  It can be seen that our system of sanctioned offer is modelled on the Part 36 offer of the 1998 English Civil Procedure Rules.  In East West Corp v DKBS 1912 and AKTS Svendborg (No. 2) [2002] 2 Lloyd’s Rep 222 Thomas J considered that an offer from the plaintiff to settle for 100% of their claim was “no offer to settle in the ordinary sense of the word” (see para 15 of the judgment).  His Lordship expressed in para 14 of the judgment at 225 his following observations in respect of the Part 36 offer:-

“the Part 36 offer is aimed at an offer to settle, that is to say a genuine offer to settle and not some tactical ploy for the purpose of advancing a claim under Part 36.21 [ie pre 6 April 2007 English Civil Procedure Rules dealing with costs and other consequences where claimant did better than he proposed in his Part 36 offer which provided for sanctions similar to Order 22, rule 23 of the Rules of the District Court in Hong Kong]. The purpose of the award of an enhanced rate of interest or indemnity costs is to encourage parties to make offers of settlement in the ordinary sense of that word.”

36.  An offer requiring the opponent to pay 100% of the claim or to wholly discontinue the claim is “no offer to settle in the ordinary sense of the word”.

37.  The English Court of Appeal expressed similar observations in Huck v Robson [2002] 3 All ER 263 when Jonathan Parker LJ stated at 275 in para 63 of the judgment that:-

“it is in my judgment implicit in r 36.21 that, consistently with the philosophy underlying Pt 36 (to which I have already referred), in order to qualify for the incentives provided by paras (2) and (3) of the rule, a claimant’s Pt 36 offer must represent at the very least a genuine and realistic attempt by the claimant to resolve the dispute by agreement. Such an offer is to be contrasted with one which creates no real opportunity for settlement but is merely a tactical step designed to secure the benefit of the incentives. That is not to say that the offer must be one which it would be unreasonable for the defendant to refuse; that would be too strict a test, and would introduce considerations of punishment and moral condemnation which (on the authority of Petrotrade Inc v Texaco Ltd [2001] 4 All ER 853, [2002] 1 WLR 947 and McPhilemy v Times Newspapers Ltd (No 2) [2001] 4 All ER 861, [2002] 1 WLR 934) are irrelevant in the context of para (3) of r 36.21. Indeed, the terms of the offer may reflect a degree of optimism and confidence on the part of the claimant/offeror. Provided only that the offer represents a genuine and realistic offer to resolve the dispute by agreement, it is for the claimant to decide at what level to pitch his offer. In some cases, an offer which allows only a small discount from 100% success on the claim may be a genuine and realistic offer; in other cases, it may not.”

38.  Although Jonathan Parker LJ was the dissenting judge in the above case, his aforesaid view was shared by other Law Lords in that case.  Tuckey LJ although he disagreed with the ruling of Jonathan Parker LJ, stated in para 71 of the judgment at 277 that:-

“I would however add that if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the rule (eg an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker LJ that the judge would have a discretion to refuse indemnity costs.”

39.  The other majority judge Schiemann LJ also stated in para 81 of the judgment at 278 that:-

“Nevertheless, I accept, like my Lords, that circumstances can exist where, notwithstanding that a claimant has recovered in full after making a Pt 36 offer for marginally less, he will not be awarded costs on the indemnity basis. I do not consider that Pt 36 was intended to produce a situation in which a claimant was automatically entitled to costs on the indemnity basis provided only that he made an offer pursuant to r 36.10 in an amount marginally less than the claim.”

40.  The difference between their Lordship in the above case was not in principle but in their views as to whether a 5% discount of the claim amount was a genuine or illusory settlement offer.

41.  I am of the view that the Offer requiring the applicant to discontinue his claims and to pay the respondents’ costs was, in the words of Jonathan Parker LJ, “one which creates no real opportunity for settlement but is merely a tactical step designed to secure the benefit of the incentives”.  It was not an offer “to settle in the ordinary sense of the word” and did not qualify as a sanctioned offer as set out in Order 22, rule 2.

42.  If I were wrong in holding that the Offer was not a sanctioned offer, I would exercise my discretion under Order 22, rule 23(5) in this case not to impose the sanctions stipulated in Order 22, rule 23(4) after taking into account the terms of the Offer pursuant to O 22, rule 23(6)(a).  I am of the view that the Offer went beyond an offer reflecting “a degree of optimism and confidence” on the part of the respondents.  It was an attempt to seek judgment against the applicant without trial.  Such offer was not a genuine and realistic offer to resolve the dispute by agreement but a tactical offer to secure indemnity costs and enhanced interest on the costs.  Such offer was inconsistent with the underlying philosophy of the sanctioned offer scheme.

Other grounds

43.  The respondents also cited the inherent jurisdiction of the court in the Summons.

44.  As I do not accept that the Offer was “an offer to settle”, I shall consider whether other circumstances of this case justified an order on indemnity basis against the applicant.  Costs are at the discretion of the court and the court in exercising its discretion shall take into account the matters referred to in Order 62, rule 5.

45.  An order for costs on indemnity basis will be ordered if the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motives, or in an oppressive manner.  (See Choy Yee Chun (The Representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd [1997] HKLRD 1327 CA)  It was not the respondents’ case that this action fell within any of the aforesaid categories.  Of course, there may also be other circumstances which justify a costs order on indemnity basis.

46.  However, I do not consider that the mere fact that the applicant had refused to accept the respondents’ invitation to surrender to a judgment without trial justified an order on indemnity basis against him.

47.  The injury occurred to the applicant when he was working for the respondents at a construction site. Although the experts’ evidence, including the opinion of the applicant’s own expert, was not in the applicant’s favour, the applicant did produce some medical evidence, albeit not accepted by the court, in support of his case.  “The usual practice of the court, in hostile litigation, is to order the costs be paid by the unsuccessful party to the successful party, and taxed as between party and party” (per Godfrey J (as he then was) in Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) and Others and Peat, Marwick, Mitchell & Co (a firm) and Another [1991] 1 HKLR 177 at 182)  I am of the view that the circumstances of this case do not justify a departure from the usual costs order on party-and-party basis.

Order

48.  In the premise, I dismiss the Summons and make the Costs Order Nisi absolute.

49.  Mr Chan informed the court at the hearing that the DLA would not seek costs against the respondents in the event that their application should fail.  The applicant was not legally represented at the hearing of this application and his submissions made at the hearing did not assist the court in determining this application.  In such case, a fair costs order for this application is no order as to costs.  I so order.