LAM YIN POK BOSCO, a minor by LAM PO YEE, his mother and next friend v. DR. CHAN YEE SHING also known as DR. CHAN YEE SHING ALVIN

HCPI 369/2010

[2019] HKCFI 1025

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO 369 OF 2010

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PRACTICE NOTE

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1.  The injury to the infant Bosco Lam Yin Pok’s right ring finger on 10 August 2009, when he was aged 14 months, which resulted in the surgical amputation of the distal phalanx and half of the medial phalanx of that finger, has generated a series of court cases that have been conducted by the parties almost as a war of attrition lasting nearly a decade. The matter came before me recently on certain outstanding costs issues. In the course of the hearing before me on 23 January 2019, I raised certain proposals for the parties to consider as a means of resolving the issues between them. The parties sought an adjournment of the hearing, which I granted, so as to enable them to obtain instructions on those proposals. Prior to the resumption of the hearing before me, the parties reached a settlement on the outstanding issues which was made on the understanding that adverse costs orders made against the infant plaintiff would not reduce the damages that he was awarded for the injury he suffered. The terms of the settlement were embodied in 2 consent orders that I made, on 9 April and 12 April 2019, which I reproduce below:

“HCPI 369 of 2010:

By Consent and with the Approval of the Court,

It is Ordered:

1. The Defendant shall within 28 days make a payment into Court the sum of HK$722,104.05 i.e. a sum equivalent to the damages awarded to the Plaintiff in these proceedings, CACV 276 of 2012 and interest calculated up to and including 19^th July 2011.

2. Upon payment by the Defendant as stipulated in para 1 above, the Order of Deputy High Court Judge Seagroatt dated 20^th November 2012 and the Order of the Honourable Madam Justice Marlene Ng dated 8^th May 2017 shall be varied such that

(a) the Defendant do pay the Plaintiff’s costs of these proceedings (including the Father’s value of care) incurred up to 19^th July 2011 on a common fund basis, to be taxed if not agreed; and

(b) there be no order as to costs of these proceedings i.e. HCPI 369/2010, including all reserved costs, costs order nisi and the costs of the Father’s value of care incurred after 19^th July 2011.

3. The Summons issued by the Plaintiff dated 10^th January 2018 shall be withdrawn, with no order as to costs.

4. The Summons issued by the Defendant dated 22^nd May 2017 insofar as it relates to the paragraphs which have been reserved for hearing by The Honourable Mr. Justice Bharwaney by the two Orders of The Honourable Madam Justice Marlene Ng dated 6^th June 2017 and 1^st November 2017 shall be withdrawn, with no order as to costs.

5. The Plaintiff’s own costs be taxed in accordance with Legal Aid Regulations.

HCPI 62 of 2011:

By Consent,

It is Ordered:

1. The Summons issued by the Plaintiffs dated 22^nd November 2017 shall be withdrawn, with no order as to costs;

2. The Plaintiff’s own costs be taxed in accordance with Legal Aid Regulations.”

2.  The primary issue that I was concerned with, in relation to the costs of the action of the infant plaintiff, was whether or not I ought to vary the costs order nisi, made in favour of the infant plaintiff, by reason of the fact that the amount of damages eventually awarded to the infant plaintiff, in the sum of about $720,000 and interest, was less than the sanctioned payment made into court by the defendant on 21 April 2011 in the sum of $800,000; and substantially less than the further sanctioned payment made subsequently, which increased the amount available to the infant plaintiff to accept to the sum of $1.5m.

The decision of the Court of Appeal on appeal from the decision of Deputy High Court Judge Seagroatt

3.  The defendant had sought initially to argue that the consequences of failing to beat a sanctioned payment set out in Order 22 of the Rules of the High Court (“RHC”) applied to infants and mentally incapacitated persons (“MIPs”).  However, the defendant had conceded, before the Court of Appeal in CACV 276/2012, 9 July 2015, that those consequences did not apply to infants and MIPs.  The concession was noted by Barma JA in his judgment in these terms:

“5. Initially, the defendant’s application was founded on the fact that it had made, in the proceedings below, a sanctioned payment which it said exceeded the amount of the award to the plaintiff in the court below and after appeal, and which would inevitably exceed such award as the plaintiff might ultimately succeed in obtaining after the remaining element of his claim (relating to the value of the care provided by his father) has been dealt with. It was suggested that in these circumstances, the defendant was entitled to take advantage of the provisions of RHC Order 22 providing for costs to be awarded on the indemnity basis, together with interest on such costs at enhanced rates, where a plaintiff fails to do better than a sanctioned payment made by a defendant. However, the defendant eventually accepted that as these proceedings were governed by RHC Order 80 (as the plaintiff is an infant), Order 22 could not apply, and the provisions of Order 22 relating to the basis of taxation and enhanced rates of interest on costs were not available.

6. However, the defendant maintained that this remained an appropriate case for indemnity costs to be ordered in its favour, notwithstanding that the plaintiff had succeeded by his appeal in obtaining from this court an increase in the award of damages made by the Deputy Judge. It was submitted by Mr Huggins SC for the defendant that failure to accept a sanctioned payment could be taken into account under RHC Order 62 rule 5 even in cases governed by RHC Order 80. He submitted that where (as he suggested was the case here) the damages award, even though increased on appeal, did not beat the sanctioned payment that had been made in the proceedings below, this was a highly relevant factor to be taken into account in considering the appropriate costs order to be made, and that an indemnity costs order should be made here, to take account of what he said was the plaintiff’s unreasonable pursuit of an exaggerated and unjustifiable claim, both at first instance and on appeal (although the amount claimed on appeal was less than that claimed at first instance, Mr Huggins pointed out that it was still substantially more than the damages that were ultimately awarded by this court, even including the whole of the claim for care by the father, which might not be allowed in full, if at all).

…

8. …It was … noted [in Ryder Industries Limited v Chan Shui Woo and Ryder Industries Limited v Timely Electronics Company Limited (CACV 164 & 165/2013, unreported, CA, 13 March 2015)], without deciding the point, that the provisions of Order 22 suggest that the scheme contained within that Order applies only to trials in the High Court (and not to appeals before the Court of Appeal) (see paragraphs 29 to 34 of the judgment). The court went on hold that in any event, a sanctioned offer in the court below could not be relied on to invoke the provisions of Order 22 in respect of the costs of the appeal, but that such a sanctioned offer could, and should in appropriate cases, be taken into account, both in dealing with the costs below and on appeal.

9. In the present case, the question of the applicability of Order 22 to appeals likewise does not arise, both because there was no attempt to make a sanctioned offer for the purposes of the appeal itself, and because these proceedings are governed by Order 80.  It is therefore neither necessary nor appropriate for us to address that question here. [Emphasis added]

10. However, the present case shares with the Ryder case the common feature that while the appellant failed to better the sanctioned offer made below both below and on appeal, it did improve its position in terms of the amount of the award that was obtained in this court.  This was not something that could have been achieved without the bringing of the appeal, and serves, as noted in the Ryder case (at paragraph 37) to distinguish the present case from the situation in the cases relied upon by Mr Huggins (where the appellant did not improve his position at all on appeal) in an important respect.  The plaintiff was, we think, successful in his appeal, even if not completely so.  That being the case, we are of the view that the costs order to be made in respect of the costs of the appeal should properly reflect that success, and it would not be appropriate to make an order for costs against the plaintiff, despite Mr Huggins’ arguments to the contrary.”  [Emphasis added]

4.  It is clear that the Court of Appeal decided the matter before them, being an application by the defendant to vary the costs order nisi made by the Court of Appeal when they handed down their decision on the substantive appeal made on 19 February 2014, on the grounds that the infant plaintiff had improved his position by getting a higher award of damages from the Court of Appeal.  They expressly stated that the infant plaintiff was successful in his appeal, even if not completely so, that the costs order to be made in respect of the costs of the appeal should properly reflect that success, and that it would not be appropriate to make an order for costs against the plaintiff, “despite Mr Huggins’ arguments to the contrary”.

5.  The defendant did not resile from that concession when he sought an order from me to vary the costs order nisi that had been made in favour of the infant plaintiff. Rather, he contended that, whilst the failure to beat the sanctioned payment did not engage the consequences set out under Order 22, the court could exercise its discretion under Order 62, r.5, by taking into account the fact that the damages eventually awarded to the infant plaintiff were less than the amount of the first payment into court made by the defendant, to make an order that costs incurred, after the first payment in, be paid by the plaintiff to the defendant; alternatively, that there be no order as to costs in respect of the costs incurred after the first payment into court was made.

6.  As the issue is an important one which would impact on all cases involving infants and MIPs, I address this issue in this Practice Note. In addressing this issue, which I do below, I do not consider that I am constrained in any way by the decision of the Court of Appeal referred to above, which did not make any ruling in respect of the submission made on behalf of the defendant that the failure to accept a sanctioned payment could be taken into account under Order 62 rule 5, even in cases governed by Order 80.

Law Ping Leung v. Ng Sze Pong

7.  Mr Recorder Benjamin Yu SC held in Law Ping Leung v. Ng Sze Pong [2011] 2 HKC 181, HCPI 601/2008, 24 November 2009, that the sanctions provided under Order 22 do not apply to a plaintiff under disability.  In that case the plaintiff, who was a MIP, had made a sanctioned offer to settle his claim in the sum of $1.3m inclusive of interest which the defendant did not accept.  He was awarded more than $1.75m after trial. On his application for enhanced interest and indemnity costs pursuant to Order 22, rr.24(2) and (3), the learned judge stated:

“4. … The difficulty with the plaintiff’s argument however is that this is a case where the plaintiff was under disability. Not only does Order 80, rule 10 apply to prevent any settlement to be valid without court approval, Order 22, rule 19 specifically provides that in proceedings under Order 80 a sanctioned offer cannot be accepted without leave of the court.

5. That being the case, I cannot see how the sanction under Order 22, rule 24(2) and (3) can apply. These provide:

Sub-rule (2):

“The court may order interest on the whole or part of any sum of money (excluding interest) awarded to the Plaintiff at a rate not exceeding 10 per cent above judgment rate for some or all of the period after the latest date on which the Defendant could have accepted the offer without requiring the leave of the court.”

Sub-rule (3):

“The court may also order that the Plaintiff is entitled to:

a) His costs on an indemnity basis after the latest date on which the Defendant could have accepted the offer without requiring the leave of the court; and

b) Interest on those costs at a rate not exceeding 10 per cent above judgment rate.”

6. Given the terms of Order 22, rule 19 it is not possible to say that there is a date on which the defendant could have accepted the offer without leave of the court. 

7. Mr Lam, on behalf of the plaintiff, argues that notwithstanding Order 22, rule 19, the defendant could still have accepted the offer and the parties should then obtain the court’s approval under Order 80, rule 10 and Order 22, rule 19. He argues that unless the court construes rule 19 in the manner he suggests it would frustrate the purpose of the new legislation in encouraging early settlement. 

8. I have a great deal of sympathy with that argument but in my view rule 19 is clear.  The offer may, “only be accepted with the leave of the court.” There is hence no date one can point to for the purpose of rule 24 that the defendant, “could have accepted the offer without requiring the leave of the court.” 

9. Mr Lee, on behalf of the defendant, suggests that a sanctioned offer can still be taken into account under Order [62], rule 5.  That may be the case, but in my view, the present rules do leave a lacuna for proceedings governed by Order 80.

10. So for these reasons I would not accede to the plaintiff’s application to vary the cost order to provide for indemnity costs and for the increased rate of interest.  This leaves the defendant’s cross-application to vary the cost order on the basis that the plaintiff should be deprived of part of its costs by reason of its conduct before and during the trial.  I have read the defendant’s submission and listened to Mr Lee’s argument on this but I can see no merit in that application.

11. The parties are, nevertheless, agreed that the standard of taxation in this case should be on a common fund basis.  I therefore make an order to vary the order nisi to provide that the costs of this action be taxed on a common fund basis.

(Discussion re costs)

12. I think, having heard the argument, and noting the defendant’s Calderbank offer, a fair order is to make no order as to costs and I so order.”

8.  The defendant had suggested that the sanctioned offer made by the MIP could be considered by the learned judge under Order 62, r.5. I have reviewed the court file and listened to the recording of the oral submissions made to the learned judge. The defendant’s written submissions did not make any reference to Order 62, r.5.  In making this concession, in the course of oral submissions, the defendant appeared to be attempting to avoid the harsh consequence set out in Order 22 of having to pay indemnity costs and enhanced interest.  The oral submissions lasted no more than a few minutes.  There was no detailed review of the provisions of Order 62, r.5, nor any analysis of those provisions.  The learned judge responded to the defendant’s suggestion by stating “[t]hat may be the case, but in my view, the present rules do leave a lacuna for proceedings governed by Order 80”.  It is clear from this statement that the learned judge refrained from making a ruling on whether or not Order 62, r.5 could apply to the case before him.

9.  The learned judge went on to hold, correctly, in my view, that a Calderbank offer could be considered when exercising the court’s discretion as to costs of the variation application.  This is consistent with what I had said in Fong Yau Hei by his next friend Bong Pit Fong v. Gammon Construction Ltd. & Ors. HCPI 1222/2003, 25 October 2017 that:

“20. … Persons under disability do not enjoy special rights and privileges under the law. All parties appearing in our courts are treated equally. If a person under disability sues by next friend and obtains judgment and a costs order in his favour after trial, the normal order for costs will be made, namely, that the plaintiff’s costs are to be taxed on a party and party basis. The reason why terms of settlement are only approved on the basis that the plaintiff’s costs are to be taxed on a common fund basis is to ensure that the settlement sum is not diluted by any payment that needs to be made to the plaintiff’s solicitors towards their costs and disbursements that have not been recovered from the defendant. The court cannot assess the reasonableness of the settlement sum and grant approval for the settlement if it does not know how much of that sum would be required to pay the plaintiff’s legal costs and disbursements.”

Because all settlements involving persons under disability are made on the basis of common fund costs being paid, the above principle is often lost sight of, and defendants often agree to an order being made after trial that costs be taxed on a common fund basis, as happened in Law Ping Leung v. Ng Sze Pong. Deputy High Court Judge Seagroatt also ordered the costs he had awarded to the infant plaintiff in the present case to be taxed on a common fund basis.  He said[1]:

“50. … The reason common fund costs is the normal award is that it is a more generous basis and means that, save in wholly exceptional circumstances, there will not be any deduction from the award for costs. I cannot envisage such an exceptional circumstance in this infant’s case.”

I respectfully disagree with this reasoning. The usual order after trial is that the winning party gets his costs to be taxed, if not agreed, on a party and party basis.  In the case of a settlement involving a person under disability, the court will not approve the settlement unless costs are taxed on a common fund basis.  Without such an order as to costs, the court would not know how much of the settlement sum will be diluted by the need to pay the plaintiff’s solicitors costs that are not recovered from the defendant and, therefore, cannot assess the reasonableness of the settlement sum.

10.  The Calderbank offer that the learned judge had regard to in Law Ping Leung v. Ng Sze Pong, which would have been expressed to be “Without Prejudice save as to Costs”, is not to be confused with sanctioned payments and sanctioned offers made in connection with the taxation of costs.  The latter are governed by Order 62A of the RHC.

11.  Law Ping Leung v. Ng Sze Pong has been followed in matrimonial proceedings in KJ v. KMLM and KCK HCMC 4/2010, 21 May 2014.  In that case, To J held that the sanctioned offer regime under Order 22 is inapplicable to applications touching on matrimonial finance[2]. It must, however, be noted that the Court of Appeal has since held in AVT v VNT CACV 234 of 2014, 21 December 2015, without considering either Law Ping Leung v. Ng Sze Pong or KJ v. KMLM and KCK that“Order 22 applies to the family jurisdiction in Hong Kong”[3].  Law Ping Leung v. Ng Sze Pong has also been considered in an article published in the Hong Kong Civil Procedure 2015 Civil Justice Special Release[4].

Arguable that Order 22 does apply to infants and MIPs

12.  However, I think it is arguable that Order 22 does apply to infants and MIPs. Indeed, Mr Recorder Yu expressed a great deal of sympathy for the plaintiff’s argument that, unless the court construed Order 22, r.19 in the manner he suggested, it would frustrate the purpose of the new legislation in encouraging early settlement.

13.  The Final Report of the Chief Justice’s Working Party on Civil Justice Reform stated:

“292. The proposed sanctioned offers and payments aim to encourage the parties to take possible settlement seriously and to avoid unproductive prolongation of the litigation. A plaintiff who rejects a sanctioned offer or payment and then fails to achieve a better result at the trial may, despite winning the case, be ordered to pay all of the defendant’s costs incurred after the time when the plaintiff could have accepted the offer. This substantially mirrors the rules already in place under Order 22 of the RHC. The major change brought about by CPR 36[5] involves rules providing that a defendant who rejects a plaintiff’s sanctioned offer and then finds that the plaintiff does better at the trial, may be ordered to pay indemnity costs and additional interest at up to base rate plus 10% on the sum awarded.”

14.  Order 22 encourages early settlement of disputes by conferring cost benefits and enhanced interest on parties who make realistic offers of settlement, thus benefiting not only individual litigants but the administration of justice as a whole.  Similar observations were made by Lord Woolf, who was then Master of the Rolls, in Abada v Gray and the Motor Insurers Bureau, Court of Appeal, 25 June 1997, 1997 WL 1105394,in relation to the payment in regime under Order 22, prior to its replacement by Part 36 of the CPR.  He said:

“... ours is a traditional approach of longstanding in this country. We take the view that what is called in other jurisdictions a costs shifting rule, in all the circumstances is beneficial to the administration of justice, albeit that in some cases it does result in decisions which to those who are untutored as to the manner in which our system works as a whole would appear to be hard. The benefit of our practice as to payment into court is that where an action is brought, a defendant is in a position to protect him or herself from the consequences of the costs of that litigation by offering a sum which he or she is prepared to make, to dispose of the action.

…

In … cases which are being tried regularly up and down the country, the normal result is that, although the plaintiff has not been unreasonable in any way in not accepting the payment, the payment into court still has the result that it could deprive him in practice of any of the costs which he needs to recover to make the litigation worthwhile. This is the price we pay for the certainty which is achieved of having the normal rule.” [Emphasis added]

15.  In Matthews v. Metal Improvements Co. Inc [2007] EWCA Civ 215, Burnton J, as he then was, and with whom the other members of the Court of Appeal agreed, stated:

“33. Moreover, the Deputy District Judge’s approach is based on a misunderstanding of the function of a Part 36 payment or offer. The Defendant may make a conservative payment in the hope that it will tempt the claimant to accept a conservative estimate of the value of his claim. He may make a generous Part 36 payment because he is reluctant to incur the risks and costs of going to trial, and hopes thereby to avoid them. The Defendant may quite properly make a low payment in the hope that events or evidence will favour him: for example, that his expert will advise favourably in due course; that a prognosis of the claimant's injuries which are the subject of his claim will prove over-pessimistic; that cross-examination of the claimant or his witnesses may be successful; or that the trial judge will quantify general or special damages modestly. Conversely, there is nothing unreasonable in a competent claimant rejecting a Part 36 payment in the hope that at trial the judge will take a generous view of his damages. The risks that the parties run are costs risks, in the case of the defendant that he will have to pay all of the claimant's costs, notwithstanding his payment, and in the case of the claimant that he will have to pay the defendant's costs from the last date when he could have accepted the payment. In other words, the function of a Part 36 payment is to place the Claimant on that costs risk if, as a result of the contingencies of litigation, he fails to beat the payment.” [Emphasis added]

The same could be said of the defendant who refuses a sanctioned offer and thereby incurs a similar risk as to costs if, as a result of the contingencies of litigation, he fails to better the sanctioned offer.  It is important to note that, unlike an order for indemnity costs being imposed against a party for fraudulent or gross misconduct, there is no stigma attached to an order imposing the sanctions under Order 22 for indemnity costs and enhanced interest: such an order is simply the consequence that arises if a party, who has acted reasonably, fails to beat the sanctioned payment or fails to better the sanctioned offer.

16.  The rationale of Part 36 of the CPR is provided in Zuckerman on Civil Procedure,  3^rd Ed., in these terms[6]:

“Given that the costs risk of litigation is high and unpredictable, it is vital that litigants should have some means of limiting their exposure to this risk. In the absence of some form of controlling the exposure to costs claimants and defendants would be faced with a stark choice of either giving up their entitlement or, else, underwriting and unlimited liability to litigation costs. The position of defendants is exacerbated by the principle that for the purpose of the costs shifting rule a claimant is generally considered to be the successful party if he recovers any portion of his claim, no matter how small by comparison to the amount claimed. This rule could give claimants an unfair advantage. A claimant who is confident of recovering something would be tempted to inflate his claim, to protract the litigation and to increase his costs, sure in the knowledge that if he secured a judgment of any amount, however small, he would recover his costs from the defendant. To ensure that claimants are not put in such a situation, English law had for a long time enabled defendants to protect themselves by making payments into court. Such payment safeguarded defendants from costs liability where the claimant refused to accept the payment into court in full settlement and subsequently failed to obtain a judgment for a higher amount of money; in which event the claimant would be liable for the defendant’s costs too… .

The CPR 36 system of offers to settle expanded the previous system in important respects. In particular, claimants too may make an offer to settle which provides them with additional protection. This system formed part of Lord Woolf’s “policy… to develop measures which will encourage reasonable and early settlement of proceedings”. It goes without saying that the court must interpret CPR 36 and apply it so as to further the overriding objective. However, it needs to be stressed that in doing so the court should bear in mind two important considerations.  First, that it is a requirement of fairness that litigants, and especially defendants, should have some means of limiting their exposure to the risk of costs. Second, the court must ensure that the procedure remains an effective encouragement to settlement, which can only be achieved if the consequences of offers and refusals are predictable.” [Emphasis added]

17.  Our new Order 22 is modelled on the English CPR Part 36, prior to its amendment in 2007[7].  The rationale for the enactment of CPR Part 36, which I have set out in the preceding paragraphs, applies with equal force to our Order 22.

18.  The relevant provisions of Part 36 and our Order 22, and the English and our procedural rules relating to infants and MIPs, are set out below in the following table:

English CPR 2006		RHC
Part 21.10 Compromise, etc. by or on behalf of child or patient 21.10– (1) Where a claim is made– (a) by or on behalf of a child or patient; or (b) against a child or patient, no settlement, compromise or payment and no acceptance of money paid into court shall be valid, so far as it relates to the claim by, on behalf of or against the child or patient, without the approval of the court.		O.80, r.10 Compromise, etc., by person under disability 10. – (1) Where in any proceedings money is claimed by or on behalf of a person under disability, no settlement, compromise or payment and no acceptance of money paid into court, whenever entered into or made, shall so far as it relates to that person’s claim be valid without the approval of the Court.
Part 36.18 Other cases where a court order is required to enable acceptance of a Part 36 offer or a Part 36 payment 36.18– (1) Where a Part 36 offer or a Part 36 payment is made in proceedings to which rule 21.10 applies– (a) the offer or payment may be accepted only with the permission of the court; and (b) no payment out of any sum in court shall be made without a court order. (Rule 21.10 deals with compromise etc. by or on behalf of a child or patient.)		O.22, r.19 Other cases where court order is required to enable acceptance of sanctioned offer or sanctioned payment 19. – (1) Where a sanctioned offer or a sanctioned payment is made in proceedings to which Order 80, rule 10 (Compromise, etc., by person under disability) applies– (a) the offer or payment may be accepted only with the leave of the Court; and (b) the money in court may not be paid out except in pursuance of an order of the Court.
Part 36.20 Costs consequences where claimant fails to do better than a Part 36 offer or a Part 36 payment 36.20– (1) This rule applies where at trial a claimant– (a) fails to better a Part 36 payment; (b) fails to obtain a judgment which is more advantageous than a defendant’s Part 36 offer; or (c) in a claim to which rule 36.2A applies, fails to obtain a judgment which is more advantageous than the Part 36 offer made under that rule. (2) Unless it considers it unjust to do so, the court will order the claimant to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without needing the permission of the court. [Emphasis added] (Rule 36.11 sets out the time for acceptance of a defendant’s Part 36 offer or Part 36 payment.)		O.22, r.23 Costs consequences where plaintiff fails to do better than sanctioned offer or sanctioned payment 23. – (1) This rule applies where a plaintiff– (a) fails to obtain a judgment better than the sanctioned payment; or (b) fails to obtain a judgment that is more advantageous than a defendant’s sanctioned offer. (2) The Court may by order disallow all or part of any interest otherwise payable under section 48 of the Ordinance on the whole or part of any sum of money awarded to the plaintiff for some or all of the period after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court. [Emphasis added] (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. [Emphasis added]
Part 36.21 Costs and other consequences where claimant does better than he proposed in his Part 36 offer 36.21– (1) This rule applies where at trial– (a) a defendant is held liable for more; or (b) the judgment against a defendant is more advantageous to the claimant, than the proposals contained in a claimant’s Part 36 offer (including a Part 36 offer made under rule 36.2A). (2) The court may order interest on the whole or part of any sum of money (excluding interest) awarded to the claimant at a rateGL not exceeding 10% above base rateGL for some or all of the period starting with the latest date on which the defendant could have accepted the offer without needing the permission of the court. [Emphasis added] (3) The court may also order that the claimant is entitled to– (a) his costs on the indemnity basis from the latest date when the defendant could have accepted the offer without needing the permission of the court; and (b) interest on those costs at a rateGL not exceeding 10% above base rateGL. [Emphasis added] (4) Where this rule applies, the court will make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so. (Rule 36.12 sets out the latest date when the defendant could have accepted the offer.)		O.22, r.24 Costs and other consequences where plaintiff does better than he proposed in his sanctioned offer 24. – (1) This rule applies where– (a) a defendant is held liable for more than the proposals contained in a plaintiff’s sanctioned offer; or (b) the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff’s sanctioned offer. (2) The Court may order interest on the whole or part of any sum of money (excluding interest) awarded to the plaintiff at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court. [Emphasis added] (3) The Court may also order that the plaintiff is entitled to– (a) his costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and (b) interest on those costs at a rate not exceeding 10% above judgment rate. [Emphasis added] (4) Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.

19.  The decision of the Court of Appeal in Matthews v. Metal Improvements Co. Inc [2007] EWCA Civ 215 was not cited to the learned judge in Law Ping Leung v. Ng Sze Pong. In Matthews v. Metal Improvements Co. Inc, the Court of Appeal held that a judge, giving the claimant permission to accept, out of time, a sum paid into court, had not identified any fact that made it unjust to make the usual order for the claimant to pay the defendant’s costs after the expiration of 21 days from the date of the payment into court, as stipulated in Part 36 of the CPR.  The claimant suffered a head injury at work in consequence of which he developed a disabling psychiatric disorder and he was, therefore, a patient within the meaning of Part 21 of the CPR. Burnton J. addressed the implications of the claimant being a patient within Part 21 of the CPR.  He stated:

“26. Neither [counsel] suggested that any special rule applies to patients, other than that resulting from the need for the Court’s approval of any settlement and for its permission to accept the money in Court … In addition, in some cases it will be necessary for those acting for a patient to request additional time to consider a Part 36 offer and payment into Court beyond the 21 days provided by Part 36.11.”

He noted that it was common ground between the parties, and rightly so, that:

“28. … the incidence of costs in the present case is not affected by the fact that the Claimant is a patient. In principle, a defendant in proceedings brought on behalf of a patient is entitled to the same costs protection from his Part 36 offer or payment as a defendant against whom a claim is brought by a competent claimant.” [Emphasis added]

The reasons in support of this principle are well explained in the passages quoted from Zuckerman on Civil Procedure in §16 above.

20.  Counsel did not seek to argue in Matthews v. Metal Improvements Co. Inc,  that the words in Part 36.20(2), “the latest date on which the payment or offer could have been accepted without needing the permission of the court”, or the words in Part 36.21(2), “starting with the latest date on which the defendant could have accepted the offer without needing the permission of the court”, or the words in Part 36.21(3), “from the latest date when the defendant could have accepted the offer without needing the permission of the court”, prevented a child or a patient, who could only accept an offer or payment with the permission from the court, from being subject to the sanctions imposed under Part 36.  If I had to construe these provisions, and our similarly worded provisions in Order 22, rr.23(2) and (3) and 24(2) and (3) of the RHC, I would hold that they only fix the time when the sanctions may bite and do not, either expressly or by implication, exclude children and patients and infants and MIPs from the operation of either Part 36 or our Order 22.

21.  In a subsequent decision of the English Court of Appeal in SG v Hewitt on 2 August 2012, the court held that it could depart from the normal rule in Part 36.10(5) of the CPR in order to give weight to the particular features of the case, of a young boy who had suffered frontal lobe damage in a road traffic accident at the age of 6, in which the experts were unable to predict the impact of the brain injury until he fully matured.  Lady Justice Black considered the earlier decision in Matthews v. Metal Improvements Co. Inc and observed:

“36.  I do not think that in §28 of his judgment Stanley Burnton J was dismissing the status of the claimant and the requirement to seek court approval as necessarily irrelevant in all cases. He was certainly rejecting the notion that the mere fact that the proceedings were brought on behalf of a patient would of itself always be sufficient to displace the costs protection normally available to a defendant from a Part 36 offer but that is not the same as saying the factor is irrelevant. When he said that “[i]n principle” a defendant in proceedings brought by a patient is entitled to the same costs protection from his Part 36 offer as a defendant against whom a claim is brought by a competent claimant, Stanley Burnton J was setting out the starting point but the court is, of course, obliged to consider all the circumstances of the case and the fact that a claimant is a patient/protected party or child differentiates his case from the usual case of a competent claimant and cannot just be ignored. Two differences arising from the claimant’s status as a patient were set out in Stanley Burnton’s judgment at §26, to which reference back is made in §28, and later in his judgment he in fact went on, himself, to consider the difficulties of those advising the claimant (see particularly §36 et seq).  In Matthews, these considerations were not such as to disrupt the normal rule, but that does not mean that the implications of the claimant being a child or protected party may not be such in other cases as to make it unjust that a costs order is made against him.” [Emphasis added]

Arden LJ and Pill LJ agreed, the former adding that:

“78. … The fact that the claimant is a child is not in my judgment in general a strong enough actor of itself because the child has the protection of a litigation friend and approval by the court of any settlement. Thus the fact that the claimant is a child is not necessarily of itself sufficient to bring the case within the safety valve…”

22.  As I stated in §12 above, I think that it is arguable that Order 22 does apply to infants and MIPs. However, notwithstanding the above analysis, unless and until another judge of the Court of First Instance disagrees with and departs from the decision in Law Ping Leung v. Ng Sze Pong and, more importantly, such departure from the decision in Law Ping Leung v. Ng Sze Pong is upheld by a higher court, the law in Hong Kong, as it currently stands, is that Order 22 does not apply to infants and MIPs.

If Order 22 does not apply to infants and MIPs, then Order 62, r.5 applies

23.  I am of the firm view that, if Order 22 does not apply to infants and MIPs, then Order 62, r.5 applies to them.  As I observed in §8 above, the learned judge in Law Ping Leung v. Ng Sze Pong refrained from making a ruling on whether or not Order 62, r.5 could apply to the case before him.

24.  Order 62, r.5 provides:

“5. Special matters to be taken into account in exercising discretion

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

(aa) the underlying objectives set out in Order 1A, rule 1;

(a) any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) any payment of money into court and the amount of such payment;

(c) any written offer made under Order 33, rule 4A(2);

(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;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.”

25.  Order 22, r. 2(4) provides:

“2. Offer to settle with specified consequences

…

(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.

Order 22, r.3(1)-(3) provide:

“3. Defendant’s offer to settle

(1) 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 this Order unless it is made by way of a sanctioned offer or a sanctioned payment or both.

(2) Where an offer by a defendant involves a payment of money to the plaintiff, the offer must be made by way of a sanctioned payment.

(3) A sanctioned payment may only be made after the proceedings have commenced.”          

26.  These provisions reflect the views set out in the The Final Report of the Chief Justice’s Working Party on Civil Justice Reform which stated:

“319. In Hong Kong, s.52A of the High Court Ordinance provides that, subject to the provisions of rules of court, the costs of and incidental to all civil proceedings in the High Court are in the court’s discretion. The introduction of sanctioned offers would not affect this residual discretion which would enable the court to make an adverse costs order reflecting an unreasonable rejection of an ‘unsanctioned offer’.”

27.  Accordingly, notwithstanding that they are not sanctioned offers within the meaning of Order 22, the court can have regard to written offers expressed to be “without prejudice save as to costs”, commonly known as Calderbank offers, when exercising its discretion as to costs pursuant to Order 62, r.5(1)(d), in cases where the party could not have protected his position by making a sanctioned payment or a sanctioned offer. Examples of such cases include offers in relation to the taxation of costs[8] and offers in relation to appeals.

28.  Order 62, r.5(1)(b) provides that, in exercising its discretion as to costs, the court shall take into account any payment of money into court and the amount thereof. This was the provision used by the court to make an adverse costs order against a plaintiff who failed to beat the payment into court made by the defendant under the former Order 22. Where the plaintiff fails to beat a sanctioned payment made pursuant to the provisions of the new Order 22, the court will make an adverse costs order against the plaintiff pursuant to the provisions of the new Order 22, and not pursuant to Order 62, r.5(1)(b).

29.  However, if the payment made into court is one to which the new Order 22 cannot apply, it must follow that the court can have regard to Order 62, r.5(1)(b) in exercising its discretion as to costs in such a case.  I held in Maxwell v Keliston Marine FE Ltd. (in liq) & Anor [2012] 2 HKC 249 at §§7-8 that Order 62, r.5(1)(b) continues to apply to cases where payment into court was made under the former Order 22 and the proceedings were pending when the Civil Justice Reform took effect on 2 April 2009.  As I have stated in §22 above, the law in Hong Kong, as it currently stands, is that Order 22 does not apply to infants and MIPs.  It must follow that the court ought to be able to have regard to the provisions of Order 62, r.5(1)(b) when exercising its discretion as to costs in a case where the plaintiff is an infant or a MIP who has failed to beat a payment into court by a defendant.

30.  Does the fact that the plaintiff is an infant or a MIP prevent the court from taking into account the payment into court pursuant to Order 62, r.5(1)(b)?  There does not appear to be any previous Hong Kong decision on point.  However, this very issue was considered by the English Court of Appeal in Abada v Gray and the Motor Insurers Bureau, 25 June 1997, 1997 WL 1105394, in relation to the payment in regime under the former Order 22, prior to its replacement by Part 36 of the CPR.  Unfortunately, this authority was not cited to the learned judge in Law Ping Leung v. Ng Sze Pong.  The Court of Appeal held that that where a plaintiff under a disability rejected a payment into court made by the defendant in an action for damages in respect of personal injuries and was subsequently awarded damages amounting to less than the payment in, the general practice of the court, pursuant to Order 62, r.9(1)(b)[9] of the Rules of the Supreme Court (“RSC”),  to order the plaintiff to pay the defendant’s costs from the date of the payment in, was still applicable.  The only situation in which it would not be appropriate was where the plaintiff’s next friend had decided to accept the payment in,  but the court, exercising its powers under Order 80 r.10 of RSC[10],  had not approved such acceptance.

31.  In that case, the plaintiff suffered from schizophrenia and was a patient under Order 80 of RSC.  He claimed damages for personal injuries against the defendants.  The principal issue in the case was whether the schizophrenia was attributable to the accident.  The defendants had made a payment into court which took account of the plaintiff’s orthopaedic injuries but only incorporated a sum equivalent to about 5% of the very substantial damages that the plaintiff would have expected to recover for the schizophrenia if his claim in relation to that had succeeded.  At trial, the judge preferred the medical evidence of the defendants’ experts.  Although the plaintiff recovered some damages, he did not establish causation in relation to the schizophrenia and he failed to beat the payment into court.

32.  In the Court of Appeal, the plaintiff argued that he could not have accepted the payment in because it would not have been possible for him to have obtained the court approval he needed underOrder 80 rule 10 and, therefore, he sought an order that the defendants should pay the costs after the date of the payment in.  The Court of Appeal was not persuaded by this argument.  Lord Woolf, with whom the other members of the court agreed, said that the plaintiff’s next friend should have been in a position to form a judgment on the basis of the advice which he received as to whether or not to accept the payment into court.  Unless the next friend would have been minded to have accepted the payment, but was prevented from doing so because of the difficulty of obtaining approval under Order 80 rule 10 (which was not in fact the position),  Order 80 rule 10 did not materially alter the situation from that which normally existed where a payment into court has not been beaten.  Lord Woolf said[11]:

“For a person under a disability, there are two protections. First there is the protection that the plaintiff has a next friend. That applied in this present case. The next friend should have been in a position to form a judgment on the basis of the advice which he received as to whether or not to accept the payment into court. From a practical point of view the next friend is always going to be influenced by the advice of the legal advisers. No doubt that was the position in this case.

The second protection is the provisions of Order 80 rule 10, the requirement of the approval of the court. It is largely on the basis of Order 80 rule 10 that Mr Brilliant founds his argument. However, it seems to me that unless in this case the next friend would have been minded to have accepted the payment into court, but was prevented from so doing because of the difficulty of obtaining the approval of the court under Order 80 rule 10, Order 80 rule 10 does not materially alter the situation from that which normally exists where a payment into court has not been beaten.

Order 80 rule 10 did not need to be considered by the next friend unless and until the next friend was minded to accept the payment into court. That was not position in this case. The next friend, in the same way as an ordinary plaintiff who was not under a disability would do, had to decide on the basis of the information which was placed before him, whether the money should be accepted or not. In my judgment, the situation is not one where Order 80 rule 10 alters the position.

The position would be very different if the plaintiff had decided to accept the sum in court, through his next friend, and the court had then prevented him from doing so.  I regard this case, so far as principle is concerned, as therefore being no different from the very many cases where a payment into court is made and everyone appreciates that, if the plaintiff succeeds on a particular issue, the payment will be inadequate.  Equally, if the plaintiff fails on an issue, the payment will be more than sufficient to meet the claim.”

33.  The decision of the English Court of Appeal in Abada v Gray and the Motor Insurers Bureau on the English equivalent of our Order 62, r.5(1)(b) is very persuasive authority which supports my firm view that the fact that the plaintiff is an infant or a MIP does not prevent the court from taking into account a payment into court pursuant to Order 62, r.5(1)(b).  If the parties had not reached a settlement on the terms set out in §1 above, it is likely, given the manner in which this litigation has been conducted, that I would have exercised my discretion under Order 62, r.5(1)(b) by making an order that there be no order as costs from on or about mid-2011, rather than making an order that the plaintiff pays the defendant’s costs incurred after that date.

34.  The defendant’s application to vary the costs order of Deputy High Court Judge Seagroatt included a relief that his award of interest be reduced to the period ending 28 days after the date of the payment into court that was made by the defendant on 21 April 2011. Order 22, r.23 applies where a plaintiff fails to obtain a judgment better than the sanctioned payment. Order 22, r.23(2) provides:

“The Court may by order disallow all or part of any interest otherwise payable under section 48 of the [High Court] Ordinance on the whole or part of any sum of money awarded to the plaintiff for some or all of the period after the latest date on which the payment or offer could have been accepted without requiring the leave of the Court.”

Unlike Order 22 r.23(2), Order 62, r.5 does not empower a court to do the same. Harrington v. Cap Gemini Ernst & Young HK Ltd. [2004] HKLRD (Yrbk) 81, HCCL 10 and 61/2002, 14 July 2004, is a decision of the court based on the provisions of the old Order 22.  In that case, the court held that non-acceptance of a sum, inclusive of interest up to the date of payment in, which is paid into court in satisfaction of the claims made does not have the effect of precluding the award of interest upon such lesser sum, as is eventually adjudged due, for the period between the date of non-acceptance of the payment in and the date of judgment. In effect, the court ruled that, in such a case, the plaintiff did not forfeit interest for the full period up to date of judgment on the sum recovered.

35.  In the present case, however, the parties were able to come to an agreement regarding interest, which I approved.