LEUNG LAI KWAN v. LO KAI WING AND ANOTHER

HCA 1158/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1158 OF 2011

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D E C I S I O N

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1.  In a reserved judgment, handed down on 31 July 2014, following a four day trial, I found for the defendants (Mr Lo and Ms Hon), in these proceedings, and dismissed the plaintiff’s (Madam Leung’s) claim entirely.  An order nisi was made that Madam Leung must pay Mr Lo and Ms Hon’s costs on a party and party basis. 

2.  Mr Lo and Ms Hon now apply to vary the costs order so that costs should be at the following rates:

(a) before 26 September 2013, on a party and party basis;

(b) from 26 September 2013, on a common fund that basis;

(c) from 18 July 2014, on an indemnity basis; and

(d) the costs of the application on an indemnity basis.

3.  The action related to property in Tai Po, registered in the name of Mr Lo and Ms Hon. Madam Leung contended that Mr Lo and Ms Hon held the property on trust for her.  That claim was comprehensively dismissed.

4.  The basis for the enhanced costs orders sought is a series of offers that were made prior to the commencement of trial.  These offers were as follows:

“(a) on 12 September 2013, Mr Lo and Ms Hon made an offer, marked ‘without prejudice save as to costs’, in the following terms (the Calderbank offer):

(i) Mr Lo and Ms Hon to remain the legal and beneficial owners of the property;

(ii) Mr Lo and Ms Hon to pay Madam Leung $178,500 within 21 days of the date of an order;

(iii) Mr Lo to pay Madam Leung the sum of $3,500 per month by way of periodicals payment from the date of an order during their joint lives;

(iv) costs of the action to Mr Lo and Ms Hon;

(v) the offer sought a response within 14 days, (i.e. by 26 September 2013).

(b) on 19 June 2014, Mr Lo and Ms Hon made an offer, marked ‘Sanctioned Offer’, in the following terms (the 1^st sanctioned offer):

(i) the property to be sold by private treaty within six months;

(ii) Mr Lo and Ms Hon to have conduct of the sale;

(iii) the proceeds of sale to be held by Mr Lo and Ms Hon’s solicitors as stakeholders;

(iv) all costs and disbursements and expenses be paid out of the proceeds of sale;

(v) one half of the net proceeds of sale to be paid to Madam Leung; the remaining half of the net proceeds of sale to be paid to Mr Lo and Ms Hon;

(vi) no order for costs.

(c) on 7 July 2014, Mr Lo and Ms Hon made an offer, again marked ‘Sanctioned Offer’, in the following terms, (the 2^nd sanctioned offer):

(i) a valuation of the property to be obtained from a bank or financial institution in Hong Kong chosen by Mr Lo and Ms Hon;

(ii) if the valuation exceeded $3,100,000, Mr Lo and Ms Hon to pay Madam Leung $1,550,000;

(iii) if the valuation did not exceed $3,100,000, Mr Lo and Ms Hon to pay Madam Leung one half of the market value as assessed;

(iv) provision was made for Madam Leung to get her own valuation;

(v)   no order to costs.”

5.  None of these offers were accepted by Madam Leung, and the matter proceeded to trial.  It is not suggested by Madam Leung that she did better than any of the offers.  Consequently the question arises as to whether or not enhanced costs should be ordered.  There is no dispute that the application to vary the costs order nisi was made within the required time.  The issue is whether or not any of the offers may be taken into account in determining the appropriate costs orders.

6.  Ms Kei accepts that neither of the offers marked “Sanctioned Offer” meet the strict requirements of RHC O 22, and cannot therefore be treated as sanctioned offers.  It is accordingly clear that the cost consequences of sanctioned offers as contained in O 22, r 20‑24 cannot apply.  She does however, rely upon the Calderbank offer.

7.  Mr Lam says that none of the offers made can have any impact at all on costs.

8.  First, he says that the Calderbank offer, involving as it does a payment of money, is barred from consideration by virtue of O 62, r 5(1)(d) which provides:

“(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 –

…

(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;”

9.  Mr Lam’s argument goes this way.  By O 22, r 3(2), where an offer by a defendant involves a payment of money to the plaintiff, the payment offered must be made by way of a sanctioned payment.  It is clear that no payment was made at the time the Calderbank offer was made. 

10.  It would have been possible for Mr Lo and Ms Hon to have paid into court the sum of $178,500 which was offered by way of lump sum.  But it would not have been possible for them to have paid into court the proposed monthly payment, payable for the joint lifetimes of Mr Lo and Madam Leung of $3,500 per month.  It would not have been possible because it is simply impossible to assess the amount of the payment. 

11.  It necessarily follows that Mr Lo and Madam Leung could not have protected their position in respect of that offer by making a sanctioned payment.  It follows from that, that the exception contained in O 62, r 5(1)(d) does not apply, and the offer, being a Calderbank offer, is open to be taken into account.

12.  Ms Kei, somewhat tentatively I felt, suggested that because a response was sought to the offer within 14 days and there was no response, the offer had lapsed. No authority was cited for the proposition and in the absence of a specific provision in the offer that it would lapse within 14 days, I would not hold that the offer had lapsed.

13.  Mr Lam’s argument in this respect must fail.

14.  Second, in respect of the two purported sanctioned offers, Mr Lam again contended that as both proposals involved a payment to Madam Leung, they could not constitute sanctioned offers unless the sums to be paid were paid into court as sanctioned offers pursuant to the appropriate rules.  That must be right. 

15.  Having regard to the terms contained in the offers upon which the payments were to be assessed, it was simply not possible to fix an appropriate sum which could be paid into court.  For precisely the same reasons as apply to the Calderbank offer, the two offers entitled “Sanctioned Offers” could not have constituted sanctioned offers and accordingly are not caught by the provisions of O 62 r 5(1)(d).

16.  Mr Lam further argued in the alternative that as both purported sanctioned offers contained a provision that there be no order as to costs meant that such a proposal excludes the offers from being considered sanctioned offers in terms of the rules. 

17.  O 22, r 20(1) provides that where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the court, the plaintiff is entitled to his costs of the proceedings after the date of serving notice of acceptance, unless the court otherwise orders.

18.  Mr Lam says that by virtue of that provision a defendant cannot make a sanctioned offer containing a provision that there be no order for costs.  There appears to be a strong argument arising from the reasoning of the English Court of Appeal in Mitchell & Ors v James & Ors [2003] 2 All ER 1064, that the rules as to sanctioned offers do not intend that terms as to costs be included in sanctioned offers, and accordingly the inclusion of a reference to costs would not prevent an offer, entitled “Sanctioned Offer” from being such. I do not find it necessary for the purposes of this decision to reach a conclusion on this point as in any event the offers do not constitute sanctioned offers. 

19.  Mr Lam made the bold submission that under the rules of court as they now stand the only offer that could have an impact on costs was a sanctioned offer or a sanctioned payment.  He said that with the new regime of sanctioned offers now contained in the Rules, following CJR, an offer that did not constitute a sanctioned offer or a sanctioned payment could not have any impact at all on costs.

20.  With respect to Mr Lam that cannot be right.  It is correct that an offer to settle by either a plaintiff or a defendant will not have the specified consequences contained in O 22 unless that offer complies strictly with the rules.  But Mr Lam’s submission entirely disregards O 22, r 2(4) which provides:

“Nothing in this Order prevents a party from making an offer to settle in whatever way he chooses, but if the offer is not made in accordance with this Order, it does not have the consequences specified in this Order unless the court so orders.”

21.  It is clear from the provisions of O 22 and O 62, r 5(d), that the intent of the rules is that where an offer is to be made which constitutes a payment, usually by a defendant to a plaintiff, of a known sum of money, or an ascertainable sum of money, that sum must be paid into court if the party making the offer wishes to have the offer taken into account to his advantage in respect of costs.  There are obvious reasons why that should be so.  By insisting upon the payment being made into court, the party entitled to the payment will not have his action settled and then have to wait for funds.

22.  But when read together, O 22, r 2(4) and O 62, r 5(1) plainly recognise that there may be a myriad of situations in litigation where it is simply not possible for a party to make a payment into court in conjunction with an offer to settle.  I simply cannot accept that the Rules are designed to exclude such a party from having an offer taken into account in respect of costs, if that offer to resolve litigation is not one which enables or requires a payment into court.  Such a conclusion would be quite contrary to the spirit and intent of CJR, much of which is directed towards the resolution of disputes without the need for those disputes proceeding to trial.  Mr Lam’s submission, if accepted, would encourage litigation for the sole purpose of resolving questions of costs.

23.  Consequently, although I am satisfied that the two sanctioned offers do not constitute sanctioned offers in terms of the High Court Rules, as with the Calderbank offer, there is no reason at all why they should not be taken into account in the exercise of the court’s discretion as to costs.

24.  It is well established that an offer may be taken into account even if it does not constitute a sanctioned offer although so entitled: see Montiro Ltd & Anor v Tse Ping Shun David [2012] 2 HKC 392, upheld in Montiro Ltd & Anor v Tse Ping Shun David, (unreported, CACV 291/2011, 28 December 2012).  In that case the offer, when made, was described as a sanctioned offer but found, by reason of the Rules, not to constitute a sanctioned offer, nor, in the absence of appropriate notification that the offer was “without prejudice save as to costs”, a Calderbank offer.  The judge described the offer in those circumstances as an “open offer”.

25.  I do not think it is necessary to characterise such an offer precisely in those terms as the expression “open offer” carries with it an implication that it is an offer which contains a concession of some nature which might be put before a trial judge.  In the absence of such factor, I would prefer to characterise the offer as an “offer relevant to costs”.  It is not necessary for the purposes of this decision to determine whether an offer, inappropriately entitled “sanctioned offer”, if containing a concession, would thereby constitute an open offer which might be put before a trial judge.

26.  Mr Lam confined his argument to the technical issue as to whether or not the jurisdiction existed to vary the order to costs.  His arguments fail and I am satisfied that I do have jurisdiction to vary the order.  Mr Lam made no submission as to the level of the costs orders.

27.  A party who is in receipt of an offer which is reasonable and who goes to trial having rejected that offer is always liable to a higher level of costs if they do not do better than the offer that has been rejected.  Over a period of time three offers were made in this case each of which has proved to be worthy of acceptance by Madam Leung.  Each offer was significantly better than the total failure of Madam Leung’s litigation which was the end result.  Each offer was rejected.  The level of costs enhancement sought by Mr Lo and Ms Hon, staged as it is progressively, is reasonable and fair. 

28.  There is a further factor, not specifically relied upon by Ms Kei, which leads me to conclude that indemnity costs are appropriate, after 18 July 2014, the first day of the trial.  Part of the evidence relied upon by Madam Leung was an assertion that there had been a family meeting at which an agreement had been reached in respect of the ownership of the property, with Madam Leung and Mr Lo’s siblings being added to the title to the property.  In respect of that assertion I made the following finding at §72 of the judgment:

“I am satisfied each of the four witnesses asserting an agreement has done so falsely, in an attempt to bolster Madam Leung’s case. Accordingly little reliance can be placed upon the residents. The matter also tells significantly against Madam Leung’s credibility on any evidence she gave it was in her own favour.”

29.  It is entirely appropriate that indemnity costs should be awarded against party who propounds false evidence in support of a claim.

30.  I am satisfied that it is a proper exercise of my discretion in respect of costs having regard to the whole of the circumstances of the case to make an order in terms of §2(a), (b) and (c) above.  There is no basis to award interest on costs.  Costs on the summons will be on a party and party basis to Mr Lo and Ms Hon.  Madam Leung’s costs will be taxed on Legal Aid Regulations.