SHUN FUNG IRONWORKS LTD v. DIRECTOR OF BUILDINGS AND LANDS (VOLUME IV)

VOLUME IV

1987, CLRNo.18

IN THE LANDS TRIBUNAL OF HONG KONG

HIGH COURT

-------------------

BETWEEN

----------------------

J U D G M E N T

----------------------

COSTS AND "CALDERBANK LETTERS"

1. With a view to seeking the exercise of the Tribunal's discretion in its favour on costs, the Crown wishes to rely on settlement offers of sums of money it made in two letters from its solicitors, dated 3rd November 1988, and 10th June 1989, to SFI through the latter's solicitors.

2. Both of those letters were headed "Without Prejudice Save As To Costs" and went on to declare that the offers they contained were "... made without prejudice to our client's contentions as to the compensation payable herein save as to costs. We reserve the right to rely on this offer as a "Calderbank letter" in accordance with order 22, Rule 14 and Order 62, Rule 5(d) of the Rules of the Supreme Court when the question of costs is considered".

3. In the letter of the 3rd November 1988 there were alternative offers, one being of a global sum for settlement of all claims, and the other of sums to settle Heads 1, 2, 3, 8, 9, 10, 11, 12, and 13 of the Heads of claim on either a relocation basis or an extinguishment basis.

4. We now set out that letter in full :-

"3rd November 1988

Messrs. McKenna & Co. , 2507 Gloucester Tower, The Landmark, 11 Pedder Street, HONG KONG

WITHOUT PREJUDICE AVE A TO COST

Dear Sirs,

Shun Fung Ironworks Ltd - CLR 18/87

Before we conclude the arrangements necessitated by the fact that the case appears likely to run for much longer than anticipated, we are instructed to make a further attempt to settle all or, failing that, at least some of the outstanding issues between us so that the scope of the matters for argument is significantly reduced.

Accordingly, we are instructed to offer your clients the sum of in full and final settlement of any and all claims, whether past, existing or future, by your clients against our clients whether for compensation or otherwise arising out of the resumption and subsequent reversion to the Crown of Lot 132 in S.D.5 Tseung Kwan O under G.N.3508 of 21st October, 1985, and the Crown Lands Resumption Ordinance Cap.124. This sum is exclusive of interest and costs, which matters shall remain for resolution by the Tribunal.

This offer represents a substantial improvement on the terms offered previously by our client and represents their final position so far as a global settlement of this mattr is concerned.

However, as an alternative, we are instructed to offer your clients the sum of (assuming you are successful in your claim that compensation should be awarded on a relocation basis) or (in the event that the Tribunal prefers our argument that compensation should be awarded on an extinguishment basis) in full and final settlement of your client's claims under Heads 1, 2, 3, 8, 9, 10, 11, 12 and 13 of the Amended Substituted Schedule of Heads of Claim which is document SF6 before the Tribunal. As in the case of our client's global offer, this offer is exclusive of interest and costs, which matters shall remain for resolution by the Tribunal.

In the case of both alternatives, the sum offered is inclusive of the provisional payment of compensation in the sum of already made to your clients and New World Finance Company Limited in 1986 in accordance with the Agreement and Indemnity given by your clients and New World Finance Company Limited. Furthermore, each of these offers is made without prejudice to our clients contentions as to the compensation payable herein save as to costs. We reserve the right to rely on this offer as a 'Calderbank Letter" in accordance with Order 22, Rule 14 and Order 62, Rule 5(d) of the Rules of the Supreme Court when the question of costs is considered.

Finally, the offers contained in this letter shall remain open until 10.00 a.m. on Monday 7th November at which time they shall be withdrawn without further notice to you.

Yours faithfully,

LOVELL WHITE DURRANT"

5. The offer in the letter of 10th June 1989 was only in respect of Plant and Machinery (Head 4), on an extinguishment basis. It is unnecessary to set out that letter since, essentially, it is in the same form as that of 3rd November 1988.

6. In both letters, the offers were all stated to be "exclusive of interest and costs which matters shall remain for resolution by the Tribunal."

7. At the request of SFI, which opposes the admission of these letters into evidence on a variety of grounds, the actual sums of money offered by the Crown in them have not yet been made known to the Tribunal, but, presumably, they, (or, at least, most of them), are equal to, or exceed the amounts awarded by the Tribunal, for otherwise there would be no point in the Crown wanting the Tribunal to know about them.

8. Costs in the Lands Tribunal are governed by s.12(2) of the Lands Tribunal Ordinance, Cap.17, which is as follows :-

"12.(2) Subject to any rules made by the Chief Justice under section 10(3), Order 62 of the Rules of the Supreme Court shall apply to the award, taxation and recovery of costs in the Tribunal."

9. As the Chief Justice has not made any rules relating to costs under s.10(3), it follows that O.62 applies to costs in the Tribunal.

10. It is clear that, for present purposes, O.62, r.5, paragraphs (b) and (d), which I now set out, are of critical importance :-

"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...

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

11. Order 22, which concerns payments into and out of court, also falls to be considered. Besides its rule 14, one needs also to look at rule 1(1). We now set them out :-

"Payment into court (O.22, r.1)

1.(1) In any action for a debt or damages any defendant may at any time pay into court a sum or sums of money in satisfaction of the cause of action in respect of which the plaintiff claims or, where two or more causes of action are joined in the action, a sum or sums of money in satisfaction of any or all of those causes of action."

......................................................................................

"Written offers "without prejudice" save as to costs (O.22, r.14)

14.(1) A party to proceedings may at any time make a written offer to any other party to those proceedings which is expressed to be "without prejudice save as to costs" and which relates to any issue in the proceedings.

(2) Where an offer is made under paragraph (1), the fact that such an offer has been made shall not be communicated to the Court until the question of costs falls to be decided:

Provided that the Court shall not take such 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 payment into court under O.22."

12. Written offers to settle an action can take one of three forms. They can, firstly, be "without prejudice", simpliciter, which means they generally cannot be brought to the court's attention for any purpose. Then, secondly, there are "open" offers which can be brought to the court's notice at any time for any purpose including questions of which party should bear costs in the light of the offer. Thirdly, there are offers made "without prejudice save as to costs". Those latter offers are in the nature of a halfway-house between "open", and "without prejudice" offers. They cannot be-referred to in the litigation until the issues of liability, quantum, and remedies, other than costs, have been decided by the court. After such decision, the court can then look at the offer to see if it was as good as, or better than, what the offeree achieved in the litigation. An offeree who refused the offer, and finishes up bettering it by the court's decision will prima facie be entitled to costs.

13. Where the action was for debt or damages, pure and simple, and payment into court was possible, there is no scope for a defendant to protect himself against costs by making either an "open" offer or an offer "without prejudice save as to costs". In such circumstances, the defendant can only protect himself against costs by backing his offer with cash via a payment into court.

14. The "Calderbank letters" referred to in the correspondence now under consideration get their name from the case of Calderbank v. Calderbank [1976]. Fam.93, which illustrates the concept of how a party to litigation, other than a defendant in an action for a pure money claim by way of debt or damages, can make a written offer of settlement which, if the terms are suitable, can have the effect of being without prejudice on issues of liability, quantum, and remedies (other than costs), but of which that party can seek to take advantage when it comes to costs.

15. "Calderbank letters" have the effect of conferring on a party to litigation, who makes a written offer of settlement, advantages when it comes to costs, equivalent to those available to a defendant to an action for debt or damages who makes a payment into court under Order 22, Rule 1. To the "Calderbank" offeror, those advantages are that the court will not know about his offer until liability, quantum and remedies (other than costs) have been decided, and, if the party refusing the offer does not achieve more in the litigation than he was offered, the offeror will, prima facie, be entitled to costs from the time for acceptance of the offer expiring.

16. Order 22, r.14, echoed in O.62, r.5 is, in effect, declaratory of the Calderbank principle, and resort has been successfully made to it in a wide variety of situations. Calderbank itself involved financial adjustments between parties to a divorce. Other examples where the point in issue the court was considering was not money pure and simple are injunctions coupled with other claims (Computer Machinery Co. Ltd v. Drescher [1983] 1 W.L.R. 1379, and Cutts v. Head [1984] 1 Ch.290); Admiralty cases where proportions of blame, and not amounts of money arising from collisions, are at stake (Cutts ect., 309); issues of proportions of contribution to liability in Common Law actions (idem, 309, 310)1; issues in the Court of Appeal of whether a judgment for damages in the court below was excessive (idem, 310); and the sealed offer procedure before the Lands Tribunal in England (Calderbank etc., 105).

17. An attack was mounted against the Crown's attempt to use "Calderbank letters", on the ground that SFI's claim for compensation was an "action for a debt or damages" within the meaning of those words in O.22, r.1(1), so that by virtue of the proviso to O.22, r.14(2), the Crown was not entitled to make a Calderbank offer, since it could have protected its position by making a payment into the Lands Tribunal. The Crown riposted by contending that a claim in the Lands Tribunal, under the Crown Lands Resumption Ordinance (C.L.R.O.), Cap.124, whilst, clearly, for, money alone in the light of s.9 of that Ordinance, was not an "action for a debt or damages". That spawned two questions, the first being whether a claim in the Lands Tribunal was an "action" and, secondly, was it "for a debt or damages"?

18. "Action" in s.2 of the Supreme Court Ordinance, Cap.4, is defined, "unless the context otherwise requires", as meaning, "a civil proceeding commenced by writ of summons or in such other manner as may be prescribed by any law". As the Rules of the Supreme court are made under the Supreme Court Ordinance, and as we can discern nothing in the context requiring otherwise, we consider the definition of "action" in the Supreme Court Ordinance applies to "any action" in O.22, r.1(1).

19. Since a claim for compensation under the C.L.R.O., lodged in the Lands Tribunal, is clearly "a civil proceeding", and is commenced in a manner, other than by writ of summons, prescribed by law (See ss.6(3)(b); 7(3); and 8(2) of the C.L.R.O.; Rules 32 and 33 of the Lands Tribunal Rules and Forms 3 and 4 of the Schedule to those Rules), we are satisfied that a claim under the C.L.R.O., brought in the Lands Tribunal, is an "action" for the purpose of O.22, r.1(1).

20. That brings us to the question of whether the juridical nature of what is claimed by such action is "a debt or damages", or something else.

21. On the view we take, the statutory compensation payable by virtue of ss.9, 10, 11 and 12 of the C.L.R.O. is neither debt nor damages : See Halsbury's Laws of England, 4th Ed., Vol.12, para.1123, and McGregor on Damages, 15th Ed., paras.1, 2 and 6. This statutory compensation shares some of the features of damages, such as, for example, the rules as to remoteness (Harvey v. Crawley Development Corporation [1957] 1 Q.B. 485). Damages and this statutory compensation also have a large degree of overlap in that both share the concept of loss or damage, but they part company when it comes to working out the details of loss or damage, the statutory compensation having its own criteria such as, for example, the requirement laid down in s.12(d) of the C.L.R.O. for taking as the value of the land resumed the amount which the land might be expected to realize if sold by a willing seller in the open market. That sort of criterion, introduced by the C.L.R.O., has no equivalent in the context of damages, as that concept is normally understood.

22. To support a contention that compensation under the C.L.R.O. was damages, attracting the requirement of O.22, r.1 for payment in, those appearing for SFI sought to rely on Spencer v. The Commonwealth of Australia [1907, 5 C.L.R.] 418 and Knibb v. National Coal Board [1986] 3 W.L.R., 895. Both involved interpretation of particular pieces of legislation entirely different from the C.L.R.O.

23. In the Spencer case, the Property for Public Purposes' Acquisition Act 1901 explicitly provided that claims for compensation under that Act were to be instituted in the ordinary courts. In the absence of any special provisions as to procedure, the High Court of Australia, unsurprisingly, held that the general practice of the courts in actions should apply, and the claim was treated as an action for debt or damages in accordance with their Rules of Court (O.XVIII r.1) about payments into Court. That is a very different situation from Hong Kong's C.L.R.O. where a claim has to be lodged in a special tribunal with its own Rules.

24. The Knibb case is even less helpful to SFI. There a claim for compensation had been made under the Coal-Mining (Subsidence) Act 1957. As that Act by its s.13(3) explicitly characterized such compensation as "damages", the Court of Appeal in England, understandably, treated the compensation as damages in the context of awarding interest under the Law Reform (Miscellaneous Provisions) Act 1934.

25. As to whether an action before the Tribunal under the C.L.R.O. can be said to be "for a debt", we do not think it is. That conclusion is a matter of impression. We regard it as unnatural to think of the former owner as a creditor and government as a debtor in a resumption situation.

26. The Crown suggested that in a Hong Kong resumption, as with compulsory acquisition in England's Lands Tribunal, there is a two stage process. Firstly, there is a determination under s.8(1) of the Lands Tribunal Ordinance, and then, secondly, an action via the Crown Proceedings Ordinance, Cap.300, by way of enforcement of a debt. That suggestion gained no favour with us. The idea floated before us on behalf of the Crown that the Lands Tribunal needs recourse to the Crown Proceedings Ordinance, for machinery to give effect to its orders was, we felt, misconceived.

27. Whilst the English Lands Tribunal is not a full-bodied court, and has to pray in aid auxilliary jurisdiction from ordinary courts for enforcement purposes, (see Halsbury's Laws of England, (4th Ed.), Vol.8, para.247) the same cannot be said of Hong Kong's Lands Tribunal.

28. By s.3 of the Lands Tribunal Ordinance, the Lands Tribunal is declared to be a court; s.8(9) of that same Ordinance gives it the same jurisdiction to grant remedies and reliefs, equitable or legal, as the District Court, and, by s.10(1)(g), it has the powers vested in the High Court in respect of the enforcement of decisions, judgments and orders and, so far as it thinks fit, may follow the practice and procedure of the High Court in the exercise of its civil jurisdiction. For the purposes of the present case, there is no need to enlarge on this point of how Hong Kong's Lands Tribunal is a court with ample power to bite as well as bark : we mention this only to avoid giving the slightest credence to the suggestion from the Crown in argument that Hong Kong's Lands Tribunal lacks coercive powers to make its orders stick. We do not think that such cases as Swift v. Board of Trade [1925] A.C. 520 and Monmouthshire County Council v. Newport Borough Council [1947] 1 All E.R. 900 on the status of decisions by arbitrators in England under miscellaneous pieces of legislation serve to throw any useful light on the powers endowed on Hong Kong's Lands Tribunal by the Lands Tribunal Ordinance.

29. In yet another respect, the Crown strained to fit Hong Kong's Lands Tribunal into the same mould as that of England's, this time the topic being the power to make a payment-in. In England, there cannot be payment into the Lands Tribunal because of the somewhat inchoate character of that tribunal, stemming from its historical development out of various forms of arbitration, and with arbitration there is usually no machinery for payment-in. To find out the attributes of Hong Kong's Lands Tribunal, one needs normally go no further than the language of the Lands Tribunal Ordinance itself, rather than fossick around in the English authorities from the last century. In Volume I of our Judgment (page 109), we signified our agreement with the passage from Judge Cruden's book to the effect that "The primary source of compensation and valuation law (in Hong Kong) is statutory". As we have indicated, Hong Kong's Lands Tribunal is a court, and, as with any other court, payment-in presents no problem of either principle or practice.

30. Payment-in procedures already exist in the Hong Kong Lands Tribunal. There are even Practice Directions about them.

31. That said, however, we, nonetheless, do not consider there was scope for the Crown to make a payment-in under O.22 in the case before us, since O.22's payments-in are, we think, confined to actions for "debt or damages", and we have already concluded that the compensation payable under the C.L.R.O. is neither debt nor damages.

32. If such compensation fell within "debt or damages", the only way the Crown could take advantage of the provisions of O.22 concerning costs would be by paying into the Tribunal a global amount encompassing all of SFI's heads of claim. In such circumstances, it would avail the Crown nothing from a costs point of view to make payments-in, limited to particular heads of claim.

33. Rhetorically, we ask the following question: Should the Tribunal declare its practice to be that, even where compensation not falling within "debt or damages" is the only relief being sought, "Calderbank letters" from the Crown, offering compensation for some, but not all, heads of claim, will be disregarded when costs come to be considered? In other words, should the Crown only be permitted to protect itself against costs by making a payment-in of a global sum embracing all heads?

34. We do not doubt that we have the power to require such a practice in the Lands Tribunal were it to meet the tests of justice and convenience. (See Lands Tribunal Ordinance, s.10(1) and (4).)

35. As far as we know, the Lands Tribunal has functioned reasonably well up until now without anyone ever previously suggesting that, in respect of claims for compensation under the C.L.R.O., there was need for a practice of restricting payments-in to global amounts analogous to what is required under O.22 where a defendant in a claim for "debt or damages" wants to protect himself against costs. As far as we have been able to ascertain, the Crown has never made a payment into the Lands Tribunal in resumption proceedings, whether for the whole or part of compensation. Nor, as far as we know, has it, prior to the present case, ever gone in for writing "Calderbank letters" to claimants under the C.L.R.O.

36. Policy considerations do not, we think, point unerringly one way or the other. One school of thought argues that if only defendants who make a global payment-in (as with O.22) get protection against costs, this will encourage over-all settlements, and discourage picking and choosing over which heads to try to settle. That could be described as the "all-or-nothing-school." Cases giving support to the view that, for a compromise offer to be effective from a costs point of view, it must extend to everything claimed are Birmingham and District Land Company Ltd v. The London & North-Western Railway Company [1887] 57 LT 185, and Colgate Palmolive v. Markwell Finance Ltd [1990] RPC 197. Ranged against that view-point is the notion that even if the settlement of only some of the heads of claim is likely to be brought about by allowing the "Calderbank letter" procedure, that is a worth-while aim for the Tribunal's practice to encourage. That is the "grateful-for-small-mercies" school, and it is to this latter we find ourselves, on balance, attracted. Of course, as an ideal, we prefer over-all settlements, but, in reality, feel that the sum total of Lands Tribunal time likely to be saved by "Calderbank letters" on individual issues is likely to exceed that from the situation where the defendant might succumb to the pressure exerted by the knowledge that only a global payment would afford costs protection. There is no empirical evidence one way or the other.

37. We think, too, that the words of O.22, r.14(1) clearly support the Crown's view that its "Calderbank letters", offering to settle parts of SFI's claim, are effective from a costs point of view, since they relate to an "issue in the proceedings".

38. From what we have said so far, it has emerged that, the Tribunal, in principle, supports the Crown's view it was entitled to make "Calderbank letter" offers, either globally, or on particular issues arising under SFI's claim for compensation.

39. To qualify, however, for the protection on costs stemming from the "Calderbank letter" procedure, it was not by itself sufficient for the Crown to include the talisman "Without prejudice save as to costs", and/or "Calderbank letter" on its written offers to SFI.

40. For an offer to be effective for Calderbank purposes, the letter embodying it must be in such terms that, if the offer is declined, a court will, when called on to determine who should bear costs, be able to say with certainty whether what was obtained by persevering with the litigation bettered the written offer.

41. A classic situation of a purported Calderbank offer failing for this type of uncertainty is one where the offeree is left not knowing how he stands over costs. An example of that type of uncertainty is afforded by Tramountana Armadora v. Atlantic Shipping [1978]2 All E.R. 870. There, an offer of settlement was made in arbitration proceedings (which, for the point in issue at the moment, were no different from litigation) of a lump sum inclusive of costs. If such an offer is rejected in litigation, so that the judge goes on to make an award of damages, the judge will be in no position to compare the amount of damages he awarded to see whether it betters the settlement offer, since he will have no means of knowing how much of the settlement sum represented damages and how much costs up to the expiry date of the offer of the settlement sum. The unavoidable reality is that costs calculated to a date in the middle of a trial are an unknown factor a judge is not in a position to assess. In such circumstances, the judge is left in the impossible position of trying to compare like with unlike. It is only where the judge can compare like with like that the Calderbank approach can work. The judge needs to be in a position where he can answer the question, "Has the claimant achieved more in respect of his claim for principal and interest by rejecting the offer and going on with the litigation than he would have achieved if he had accepted the offer?"

42. In the Tramountana case (at page 878), an example is given of an effective "Calderbank letter" offer, namely, of "# X plus costs". That is in line with In the Matter of Balls v. Metropolitan Board of Works [1866] L.R. 1 Q.B. 337.

43. Tramountana was not, however, trying to decree that the only way a Calderbank offer can be effective is by following some cut-and-dried formula like "# X, plus costs".

44. Provided that, in substance, the judge is left in the position where he can compare like with like, "Calderbank letters" are not restricted to any particular form. Gibson, J. in Architral Luxfer Ltd v. Henry Boot Construction Ltd [1981] L1.L.R., Vol.642, 654, pointing out that Donaldson, J. in Tramountana, "was not intending to lay down any universal requirements as to form", went on to hold that an offer to settle by payment of #5,000 and "no order as to costs" was alright for Calderbank purposes, since it left the offeree in no doubt as to what was being offered, and when a judge, in those circumstances, looked at how the damages he had awarded compared with what had been offered, there was no problem since he was comparing like with like.

45. Gibson, J., rightly in our view, emphasized looking at substance rather than form.

46. As we have indicated, the case before Gibson, J. involved an offer of payment which included a term there was to be no order as to costs. That was a clear case of a valid Calderbank offer in his view (and ours). He went on (at p.655) to observe :-

"In another case the position on costs, if the offer were accepted, might not be so clear. There is no reason, in my opinion, why the substance of such an offer should not conclude with the proposal that there be no order as to costs but that, if the party to whom the offer is made does not accept that part of the offer, the question of costs should be referred to and decided by the arbitrator upon the basis that the other terms of settlement of the action are accepted. The offer could further provide that if the arbitrator then directed that the costs be paid in terms no more favourable to offeree than as first proposed, the arbitrator would be asked to direct the offeree to pay the costs thus wasted. If the offer were in those terms, and was rejected; and the claimant received no more than the sum offered in settlement the arbitrator could determine what costs ought to be allowed to the claimant on the basis that he had accepted the offer when made."

47. Everything said there in the context of arbitration applies with equal force to litigation.

48. Reliance was placed by SFI on the following observation by Judge Diamond, Q.C., sitting as a Judge of the High Court in Everglade Maritime Inc. v. Schiffahrtgesellschaft Detlef von Appen mbH The Maria [1992] 3 All ER 851, 863 that "Any offer of settlement to be effective must normally be an offer to settle for a specified sum 'plus interest and costs"'. There, much must depend on what is meant by "normally". As the settlement offer in that case was for a specified sum plus interest and costs, Judge Diamond did not have occasion to rule on the situation where the sum offered was on a basis other than "plus interest and costs". He in no way disputed the correctness of the approach of Gibson J. in Archital that the court should look at the substance of what was being offered rather than the form.

49. Moreover, Judge Diamond's observation was made in the context of an arbitration in England where a sealed offer had been made before the hearing of the arbitration had started.

50. What is "normal" for that situation does not necessarily provide useful guidance for the rather different circumstances with which we find ourselves confronted. Whatever might be the problems for arbitrators in England trying to compare a rejected sealed offer made before the hearing without provision for costs and/or interest, with their award, we do not envisage any difficulty for the Lands Tribunal in Hong Kong when it comes to comparing the sums offered by the Crown's "Calderbank letters" with the amounts we have awarded.

51. The formula used by the Crown in the two letters from its solicitors in issue (i.e. those of 13th November 1988 and 10th June 1989) was that the sums it was offering SFI in settlement were "exclusive of interest and costs, which matters shall remain for resolution by the Tribunal".

52. Both as to interest and costs, that formula left SFI in no difficulty determining what it was being offered, and this Tribunal will be comparing like with like when it compares the compensation it awarded SFI with the sums offered in those two letters.

53. In this context, it is instructive to bear in mind that the "Calderbank letter" was devised to protect an offer of settlement from a costs point of view in proceedings where payment into court was not appropriate. The "Calderbank letter" aims to be as near as possible an approximation of a payment-into-court situation. One should not overlook that, under the Hong Kong Rules of the Supreme Court, a plaintiff is never automatically entitled to his costs even where before trial he has filed a notice within time of his acceptance of money paid into court under O.22. Hong Kong's Rules of the Supreme Court have no equivalent of England's Order 62, r.5(4) which is as follows :-

"(4) Where a plaintiff by notice in writing ..., accepts money paid into court in satisfaction of the cause of action or of all the causes of action in respect of which he claims, or accepts money paid in satisfaction of one or more specified causes of action and gives notice that he abandons the others, he shall be entitled to his costs of the action incurred up to the time of giving notice of acceptance."

54. In Hong Kong, by contrast, the Court (and the Lands Tribunal) always retains a discretion as to costs by virtue of Hong Kong's O.62, r.10(2), which we now set out :-

"(2) If a plaintiff accepts money paid into court in satisfaction of the cause of action, or all the causes of action, in respect of which he claims, or if he accepts a sum or sums paid in respect of one or more specified causes of action and gives notice that he abandons the others, then subject to paragraph (4) he may, after 4 days from payment out and unless the Court otherwise orders, tax his costs incurred to the time of receipt of the notice of payment into court and 48 hours after taxation may sign judgment for his taxed costs."

The words, "... unless the Court otherwise orders ..." preserve discretionary powers for the court.

55. For reasons already stated, we do not think payment into the Tribunal was appropriate in the case before us, but, had it been, and had the Crown made a payment-in on the dates of the two letters we are considering, the issue of costs would have remained unresolved even if SFI had given notice of acceptance of the payment-in. Such would have been the position even if the assumed payment-in had been made before the hearing of the reference began. A fortiori would it have applied to a payment-in after the hearing began by virtue of O.62, r.10(4) :-

"Where money paid into court in an action is accepted by the plaintiff after the trial or hearing has begun, the plaintiff shall not be entitled to tax his costs under paragraph (2) ..."

56. Insofar as costs would have been concerned in the payment-in situation we have just posited, SFI, on acceptance of the payment-in, would, prima facie, have been entitled to them, but the Tribunal would have retained its overriding discretion on awarding them, and it would thus have been left to the Tribunal to resolve the costs issue. (Order 62, rules 5 and 10). Exactly the same situation exists on costs under the formula the Crown used in its letters. If, as we think, SFI was, in practice, as well-off under the "Calderbank letters" from a costs point of view as it would have been from a payment into the Tribunal, we fail to see how SFI has any legitimate grounds for complaint concerning the "Calderbank letters".

57. The same goes for interest. On the interest point, resort to Architral is unnecessary : Tramountana itself is authority (at page 877) for the view that, whether an offer does, or does not, include interest, creates no problem for a judge when it comes to asking the question:

"Has the claimant achieved more by rejecting the offer and going on with the arbitration (or litigation, our parenthesis) than he would have achieved if he had accepted the offer? This is a simple question to answer whether the offer does or does not include interest. The arbitrator (or judge, our parenthesis) knows what the claimant would have received if he had accepted the offer. He would have received that sum and could not have asked the arbitrator (judge) to award any interest. The arbitrator (judge) knows what he has in fact awarded to the claimant both by way of principal and interest. In order that like should be compared with like, the interest element must be recalculated as if the award had been made on the same date as the offer. Alternatively, interest for the period between offer and award must notionally be added to the amount of the sealed offer. But, subject to that, the question is easily answered."

58. There Donaldson, J. was explaining how a compromise offer, even if inclusive of interest, presents no problem to an arbitrator (or judge) when it comes to comparing what he has awarded by way of money with the offer.

59. In the circumstances of our case, under the formula in the "Calderbank letter", there is even less of a problem regarding interest when it comes to comparing offer and award. Neither, in our view, does it make any difference whether the interest is mandatory, discretionary, or a mixture, as under the C.L.R.O., where, by virtue of s.17 interest "shall be awarded" but the rate is discretionary. Anticipating our findings on interest a few pages hence, we have resolved the rate to be Prime plus 1%.

60. If there had been payment into the Tribunal, we fail to see how it would have been any easier for SFI to decide whether to accept than it was under the two "Calderbank letters" in issue.

61. In view of the foregoing, we are satisfied that the sums of money offered by the Crown in the two letters in issue should be admitted into evidence, so that the Tribunal can take them into account in exercising its discretion as to costs to such extent, if any, as may be appropriate in the circumstances (O.62, r.5).

Rate of Interest

62. Using the words of s.17(2) of the C.L.R.O., the compensation we have awarded SFI, "... shall bear interest from the date of resumption of the land ..." i.e. from 30th July 1986.

63. By sub-section (3) of that same section, the rate of interest "... shall be such rate as the Lands Tribunal may fix having regard to the lowest rate payable from time, to time by members of the Hong Kong Association of Banks on time deposits.

64. Rules on interest rates are made by the Committee of the Hong Kong Association of Banks under s.12(1)(a), (ab), (ac), (e) and (f) of the Hong Kong Association of Banks Ordinance, Cap.364.

65. In practice, so we were given to understand, there is no lowest rate on time deposits prescribed by the Hong Kong Association of Banks : only a maximum, and, as far as we have been able to gather, members of that Association, in fact, all pay their customers the highest rate permissible, so that, in reality, there is only one rate, the maximum and minimum rates being the same.

66. A point of considerable significance in the context of the present award (in round figures) of $133 million is that the Association's Rules on rates of interest do not apply to deposits of HK$500,000 or more.

67. Although not invariably so, the interest on short term deposits is usually lower than for long term. It was common ground that the interest payable on seven-day call should be treated as the lowest.

68. The words "having regard to" in sub-section (3A)  of s.17 of the C.L.R.O. obviously introduce an element of discretion on the rate the Tribunal may fix.

69. The following authorities came to our attention on the way courts have interpreted statutes embodying variants of "having regard to" or "taking into account" : Perry v. Wright [1908] 1 K.B.441; Palser v. Grinling [1948] A.C. 291; Flowers v. George Wimpey & Co. Ltd. [1956] 1 Q.B. 73; Nilamdeen v. Ibrahim [1968] 1 W.L.R. 1718; and R v. CD. [1976] 1 N.Z.L.R. 436. None of them was of any real help to this Tribunal in applying the words of the Hong Kong ordinance now under consideration to the facts in the present case.

70. Relying on basic principles of statutory interpretation, we will follow the modern approach of a purposive construction, leading to a result which will be reasonable and fair. Perhaps we should add that, had a literal approach been possible, we would have adopted that, unless it led to an absurd result.

71. As we understand the purpose of the C.L.R.O., it is to enable the Crown compulsorily to acquire privately-owned land for public purposes, in exchange for fair compensation. As we indicated in the main judgment (pages 111, and 112), fair compensation is full compensation : neither too little, nor too much. We regard it as inconceivable that the legislature would have wanted compensation to be on any other basis.

72. The lowest rate payable by members of the Association of Banks i.e. the seven-day call rate, can, in our view, be treated as in the nature of a benchmark at the very bottom of the scale. That seven-day call rate is suitable for run-of-the-mill resumption cases involving the sort of unsophisticated, small, non-business owner for whom it is natural to keep his money on deposit with banks. Such a rate might, conceivably, sometimes be fair, too, for the owner of a very small business, depending, of course, on the circumstances.

73. When one comes to the situation of a medium to large-sized manufacturing business, such as SFI's, which finances itself with bank credit, fairness and reason dictate that an interest rate considerably in excess of that on offer for seven-day call money will be appropriate.

74. To compensate it for being kept out of its money, (Pickett v British Rail Engineering [1980] AC 136), while at the same time it has to pay the bank (or some other source of funds) interest on its debts at the rate of at least Prime plus 1%, SFI submits the Tribunal should award it interest at that rate. That request from SFI impresses us as moderate and reasonable. In coming to that conclusion, we also take judicial notice of the fact that, in practice, in Hong-Kong, it costs at least Prime plus 1% to borrow from a bank; see Miliangos v. George Frank (Textiles) Ltd (No.2) [1977] 1 Q.B. 489.

75. Although, on our approach, the seven-day call rate hovers in the background as a benchmark, we do not feel that the Tribunal is pedantically required to fix interest rates according to a formula of "the seven-day call rate from time to time plus x%". No businessman would ever in practice think in those terms: he would almost certainly think in terms of "Prime plus x%".

76. The raw data of both the seven-day call rate and the Prime rate have been made available to us in relation to the material time. Although we could go through the slightly bizarre contortions of fixing the interest rate at the seven-day call rate from time to time, plus, say, 6%, we feel it less strained, yet still within the letter and spirit of the legislation, to adopt a businessman's approach by fixing the interest rate at the rate requested by SFI of the Prime rate from time to time plus 1%, and so we order.

Simple or Compound Interest

77. With the advent of calculators, the mechanics of working out compound interest no longer present a practical problem. Hong Kong's Law Commission in a report on interest on debt or damages makes out a persuasive case for compound interest affording a fairer measure of compensation to those claimants who, because they are kept out of their money, in practice are burdened with the compound interest banks invariably demand.

78. That said, we, nonetheless, feel it would be too radical a departure from settled practice were we to accede to SFI's request to be awarded compound interest (See South Australian Land Commission v. Perry (1977] 15 S.A.S.R. 315; and McGregor on Damages, 15th Ed., para 606). Any initiative in that direction should, we think, come from the legislature or the appellate courts, rather than from a trial court suddenly starting to march to a different drummer.

79. We accordingly order that the interest to be paid on the compensation is simple.

VOLUME V

1987, CL No.18

IN THE LANDS TRIBUNAL OF HONG KONG

HIGH COURT

-------------------

BETWEEN

---------------------

--------------------------------------------------------------------

CORRECTED TRANSCRIPT OF ORAL JUDGMENT

--------------------------------------------------------------------

80. PRESIDENT: Good morning. We now move on to the matter of the costs on the merits. So far we have generally set down the principles relating to costs in so far as they are affected by Calderbank letter offers, and we now consider whether the Calderbank letter in the present case was one which should reasonably have been accepted by the Claimant.

81. A good starting point for considering the topic of costs on the merits is the recent case of Roache v. News Group in the "Times" for November 23, 1992, where Sir Thomas Bingham, the Master of the Rolls, usefully set down what the basic principles are. And first of all, in relation to how the court exercises its discretion on costs, he points out that costs ordinarily follow the event, and that of course is embodied in Order 62, rule 3, paragraph 2, and it is something that is also confirmed, in so far as it needs any confirmation, by In re Elgindata [1992] 1 WLR 1207, which was No.8 in the Claimant's Bundle. And in relation to that first principle of costs following the event, the Master of the Rolls went on to point out that in complex cases - and certainly ours falls within that category - one has to investigate with some care to find out who really were the winners and the losers.

82. We think, on the case before us, where the Calderbank letter of the 3rd November 1988 offered global settlement of $170 million whereas the award was $133 million, it is clear that the Defendants would be the winners, provided it would have been reasonable on the Claimant's part to accept that global offer.

83. The second principle with which the Master of the Rolls deals is in effect the Calderbank principle that where an offer has been made which is greater than what is awarded, then normally the offeror is entitled to costs from the time of the expiry of the offer, which in our case is 7th November 1988. And both in relation to the first principle and the second principle, the Master of the Rolls points out the policies behind the rules and the one about the winner normally getting costs is because plaintiffs should be deterred from bringing cases which, it turns out, they have lost. And the principle of payment into court or Calderbank letter offers is that if a defendant is faced with a claim which is for more than he thinks he should reasonably pay, the defendant has a way of protecting himself by either paying in to court, which in our case we have already ruled was not necessary; or by way of a Calderbank letter. And from the time of the expiry of that letter, as I have already indicated, the defendant will normally be entitled to his costs provided it was reasonable for the plaintiff to have accepted that offer.

84. Of course, even if the defendant has made an offer that is not bettered by the award made in the Claimant's favour, it does not by any means mean that the defendant will automatically get his costs. The court still has a great measure of discretion and that discretion is much wider in cases where there has been a Calderbank letter offer than where there was payment into court. The position is helpfully explained in the case of Chrulew v. Borm-Reid [1992] QBD 953 at page 959, and there is a whole passage there which is extremely useful, starting from (c) down to (g) and I will start in the middle of the last sentence under (c): [Reads]

"... the real issue between parties after payment in is whether or not that is the right sum."

Of course this was not a payment in.

"In relation to a Calderbank offer, Mr Moore relies on the language of Cairns, L.J. quoted with approval by Oliver, L.J. where he says, in the Admiralty context that a party will be awarded his cost (see the passage quoted above). I think Mr Moore recognised that the position was not an absolute one in relation to a Calderbank offer, any more than it is in relation to a payment into court. There may be circumstances where the court in its discretion will not order costs but the reasons for not so doing will have to be special ones. In relation to a Calderbank offer it furthermore seems to me there must be in any event further room for flexibility. If the case is suitable for a payment in to court, then the payment in provisions will apply. A Calderbank offer will only be made where the payment in provisions do not apply. A Calderbank offer may be capable of being reasonably black or white, as for instance it is in the Admiralty context to which Cairns, L.J. was referring. A Calderbank offer may also, however, be utilised in a situation where one is not dealing with a monetary sum or an apportionment and in those circumstances a further degree of flexibility will be necessary. The right test in relation to a Calderbank offer is probably best expressed in the words of Ormrod, L.J. in McDonnell v. McDonnell."

And that is cited - the passage from McDonnell v. McDonnell [1977] 1 WLR 34, 38 which was also quoted by Ovliver, L.J. in Cutts v. Head [1984] 1 Ch 290 - and that particular passage is one that has found favour generally and it is certainly a passage with which the Tribunal agrees. And I think I will just read from the third sentence onwards from McDonnell v. McDonnell (at page 38): [Reads]

"I see no advantage in the court surrendering its discretion in these matters as it has to all intents and purposes done where a payment in to court has been made. A Calderbank offer should influence but not govern the exercise of the discretion. The question to my mind is whether on the basis of the facts known to the wife and her advisers and without the advantage of hindsight she ought reasonably to have acceptedthe proposals in the letter of 16th December, bearing always in mind the difficulty in making accurate forecasts in cases such as this. On the other hand, parties who are exposed to a full impact of costs need some protection against those who can continue to litigate with impunity under a civil aid certificate."

    And another case that was cited to me in the context of the court always having a discretion was No.14 in the Claimant's Bundle, Lipkin Gorman v. Karpnale [1989] 1 WLR 1340.

85. The Tribunal has already ruled that the Calderbank letter of the 3rd November 1988 is admissible in evidence for the purpose of costs in the present case and, having ruled it admissible, the question is the extent to which, if any, it is appropriate in the circumstances of the present case to take that offer into account. And in performing this exercise, of course, one needs to look at the position before the expiry of the offer on November 7, 1988, and also the position after November 7, 1988, and I will deal first of all with the costs of the post-November 1988 situation.

86. And the basic question, or the basic criterion, that the court has to apply is whether the Claimant ought reasonably to have accepted that global offer of $170 million.

87. I think there are two peripheral matters that I will quickly dispose of. One is whether because the offer was on the basis that costs and interest were to be left for resolution by the Tribunal that meant that the offer was insufficiently certain for it to be reasonable to expect the Claimants to accept it. That has already been ruled upon by us and I do not find it necessary to repeat what we said then, our conclusion then being that that was a reasonably certain offer.

88. The case of McDonald's Restaurants v Burgerking, [1987] FSR 112 which was No.6 in the Claimant's Bundle, dealt with a situation where an offer in passing off and other proceedings was made on the basis of there being no order as to costs, and, in the circumstances of that particular case, that was considered to be an unreasonable offer, because the Claimants were held to have been entitled to damages, although the judge went on to order that there should not be any enquiry as to damages. The court took the view there that the plaintiff was justified in refusing the offer on that basis, but of course, our circumstances, are entirely different.

89. The other matter is whether the offer should be regarded as unreasonable because in terms it was stated to extend to all claims that the Claimants had against the Government arising out of this resumption and the Claimants say that if they had accepted, it would have precluded them from pursuing a claim they wish to make now before the Commissioner for Administration relating to an ex gratia payment. The Plaintiffs have conceded in effect, and I do not think they had any choice on the matter, that this was not a claim that could be pursued in the resumption proceedings, because it was not a legal claim, and in my view the possibility of the Plaintiffs having that claim does nothing to make the offer unreasonable or uncertain, and in my view that ex gratia payment has to be totally disregarded by the Tribunal when it performs the exercise of considering whether the Claimants were unreasonable in refusing the offer of $170 million.

90. In that context, the case of State of NSW v. Dueeasy, a case from New South Wales, was cited to the court. The Tribunal was supplied with a transcript of the Judgment delivered on 28th February 1992 in the Construction List of the Common Law Division of the Supreme Court of New South Wales. It was No.5 on the Plaintiff's List. There, an offer was made to extend to several claims, whereas the plaintiff was only pursuing one particular claim in the arbitration that he had embarked on, and, in those rather special circumstances, it was held that the offer which related to claims other than those before the arbitrator, was one that the plaintiff was reasonably entitled to reject.

91. On the matter of general principles relating to so-called Calderbank letters, I have already referred to the McDonnell v. McDonnell decision, and that in its turn was adopted in the leading case of Cutts v. Head which was No.3 in the bundle.

92. Although this is a Calderbank offer situation, it does have the somewhat unusual feature that it is a claim for pure money. Most Calderbank offer cases are ones where the remedy being sought is of the non-monetary kind, and the case I have already cited, Chrulew v. Borm-Reid No.4 in the bundle, does point out that where it is a pure money claim; the situation is different from where it is a non-monetary claim, but, again, the situation where a Calderbank letter is offering pure money is not the same as a payment-in, and it is a situation where the court should be more flexible in deciding whether the offer being made was a reasonable one. And clearly, in the context, the judge there was referring to flexibility in a Claimant's favour, because, with a Calderbank offer, the money does not continue to remain in court, or the offer does not continue indefinitely, and, in our case, for example, the offer only stood open from the 3rd-7th November 1988.

93. I have already cited the passage from Chrulew v. Borm-Reid to the effect that there can be Calderbank letter offers which can be regarded as more or less black and white, and that is referring to the situation where it is a pure money claim, and the view we adopt is basically this is a black and white situation of money alone being in dispute, and money having been offered. In this context we also refer to the passages in Mustill and Boyd, Second Edition, on Arbitration at pages 396 and 397, again in the Claimant's Bundle, and there it goes on to explain that, even where it is a complex case, it is normally regarded as unreasonable for a claimant to have refused an offer which is not bettered by the award.

94. And we think that certainly the Tribunal is entitled to bear in mind the approach that was advocated by Donaldson, J. (as he then was) in Tramountana v. Atlantic Shipping [1978] 2 All ER 870 to which we were referred extensively on the matter of principle involving Calderbank letters. In that case at page 877, Donaldson, J. Indicated that a reasonable approach was: has the claimant achieved more by going on with the action or arbitration than he would have done by accepting the offer? In that context, though, Donaldson, J. did also refer to the overriding discretion which the court has, and, obviously, in our case, the discretionary element is one that is of extreme importance.

95. The view we take in relation to the Claimants not accepting the offer is that, in so far as relocation was concerned, at the time the offer was made, it should have been clear to the Claimants that their relocation claim, which was far and away the larger basis on which they claimed, was bound to fail, because the business had in fact been extinguished as of the date of resumption, and that is something that we dealt with in our judgment at page 204 where we indicated that if you chose the date of resumption, the 30th July 1986, the date of actually stopping work, 22nd August 1986 - or the day of vacating the site - the 19th January 1987 - at each and every one of those times there was the situation, both in fact and in law, as we see it, that the business had been extinguished, and at the time the Calderbank offer was made, it was not, in our view, reasonable of the Claimants to continue persevering with their claim because it had no hope of success on the relocation basis. And the fact that we had indicated that had the relocation basis been reasonable, we would have awarded $388 million - with odds and ends that can be raised to $400 million - the fact that there was so much money at stake by itself did not make it reasonable for the Plaintiffs to continue pursuing that particular aspect of their claim, which we think was all along doomed.

96. The Plaintiff's view in relation to that relocation claim obviously, we think, greatly coloured their whole approach as to whether they would accept this offer of $170 million which was to cover both relocation and the alternative of extinguishment. And what we have to go on to consider is whether, in the light of the relocation claim being, in our view, unsustainable and clearly so, even when viewed in November 1988, whether the Claimants ought reasonably to have accepted this $170 million which would have been in relation to the alternative extinguishment claim. And one of the factors according to the case of McDonnell v. McDonnell, which I have cited, is the relevance of a Claimant's knowledge at the time that an offer is made to him, and, based on how he sees the matter then, rather than with the benefit of hindsight, was it reasonable for him to reject the offer?

97. In a case like the present one where it was an enormously complex claim, whether on the relocation basis or the extinguishment basis, we think that an approach has to be adopted along the lines suggested in the Chrulew v. Borm-Reid case at page 962 where it is indicated that, with an offer of pure money, the offer is meant to reflect the strengths and weaknesses of each party in a variety of different areas. And one can certainly see how that applied even on the extinguishment basis where there were the elements of land, buildings, plant and machinery, capacity, build-up, scrap, rebar, and the discount rate. And what we feel is that, at that stage, the Plaintiffs knew their own case and they also knew what the Government was offering and they knew that the Government was disputing their claim on virtually everything, certainly on land, buildings - well the land claim was $64 million, the Government was offering sixteen; the amount claimed for buildings was much greater than the Government was offering - and the same applied in relation to each of the elements that I have been discussing.

98. In relation to most of the elements, we think it clear that there was not much that changed after the Government made its offer; and in relation to three elements where the Claimants say there was a lot of change, we are not persuaded that that is so, and the Claimants were given a good idea what the Government's position was and the Claimants had to make a judgment call on that in the same way that the Government did in making its offer, with this tremendous mix of factors that were involved. It was one of those situations where each side had to weigh up its weaknesses and strengths and then exercise its judgment. And the view we take is that the Claimants were not reasonable in deciding that they would reject that offer of $170 million as insufficient.

99. I mentioned three significant factors where we are satisfied that there was no essential change in the Defendant's position, despite what the Claimants say to the contrary, and the first of those is scrap, the Claimants contending that the Government was more or less agreeing with them about scrap as at the beginning of November 1988. But the position is that the Government was far from happy about the Claimant's contentions over that, and the Government had indicated that, certainly after the financial year 85/86, it thought that the Shui Wing Steel figures that had been produced were too low, and the Government was keeping its position open on that because it was not satisfied with what the Claimants were contending over it.

100. In relation to rebars, the Government was, so the evidence disclosed, toying with the idea of using an index in the same way that the Claimants were, the Claimant's index being the Average Wholesale Price Index, and the Government were considering the slightly more generous Land & Work Index, but, even at that stage, the Government had indicated that it was suspicious about the relevance of those indices to the claim that was being made in relation to rebar prices, and the Government had already pointed out that the amount that the Claimant got for its rebars in the last three normal years before the shadow, was not the same as the amount shown by the Average Wholesale Price Index, and so that was an area where the Government indicated that it was not happy with what the Claimants were contending as the basis for rebar prices. And then, as events turned out, the Government was correct in having its doubts about the relevance of either of the price indices.

101. On the matter of discount rate as at the beginning of November 1988, at that stage, Mr Best, the accountant for the Claimants, had indicated a discount rate of twelve-and-a-half per cent which is the equivalent of a P/E-ratio of 8, and the Government had already indicated that it thought a P/E-ratio of 4 or 5 was more suitable, so that was an area, too, where the Claimant could see that the Government was not agreeing with it. And with all these factors over which there were so many possibilities of change by either side, this was a classic situation for a judgment call on the evidence as it existed then, where both sides were taking up their extreme positions. And we do not think that the fact that there were some changes should make any difference in a situation like the present one where there is this great mass of variables. We think that unless the Claimant takes a reasonable view on what is being offered, and if he rejects what is a reasonable offer on the basis of all these unknown factors, then the view we take is that the Plaintiff should not get its costs if the award does not better what was on offer by the Calderbank letter.

102. One particular item which calls for just very brief comment is the matter of goodwill. Government at all stages has indicated there was no goodwill in the sense of the value of the business as a whole exceeding the value of the assets of that business and the amount that was ultimately decided by the Tribunal as correct on a going-concern basis was only $84 million, whereas the Claimants as at November 1988 was claiming something in the region of over $100 million for goodwill alone.

103. In relation to events which occurred subsequently, and whether these show that the Plaintiff as at the beginning of November 1988 was not in a position to make a fair judgment on what was being offered, there is a further item that needs mention in the context of scrap. And we feel there that certainly the Claimants had no cause for complaint about the Government ultimately adopting a higher price for scrap than what they were indicating in November 1988. The view we take is that the Claimants, at that stage, already knew that what they were suggesting as a scrap price was too low, because the Claimants already knew that they had had severe cash flow problems, and that this had affected their scrap price even before the shadow. The Plaintiffs, as at November 1988, and even subsequently, still wanted to give the impression that they could buy scrap at below the average price, because of their experience in the market, whereas the reality was that they must have know that was not the case when the shadow fell, and, even in the no-scheme world for many years, it would not have been the position. And so we feel that there was no change on the price for scrap subsequent to November 1988, concerning which the Claimant has any cause to complain.

104. The point was made on behalf of the Claimants that Government had in effect presented a new case on scrap, rebar and goodwill in June 1989, but we do not regard that as giving rise to any grounds for the claimants to say that, because of changes, they were not really in a position in November 1988 to be able to say whether it was reasonable to accept the offer of $170 million or not. The changes, such as they were, in the Government's case, were all ones that came about as the result of probing the Claimant's witnesses, and the Claimant should have known what its own case was and whether it was reasonable, bearing in mind that the Claimants were the ones who were running the mini-mill and should have known what reasonable scrap and rebar prices were. And the Government was largely dependent on the Claimants for any knowledge it got of the case, and if the Claimants did not use the knowledge it had correctly as at the beginning of November 1988, this in our view does not make it reasonable for it to have rejected the offer that was made.

105. As we see the position in November 1988, both sides were confronted by a very complex set of factors, particularly having to deal with the complexities of the no-scheme world and profitability, but the view we take is that, in a situation like that, the parties should concentrate their minds, and consider the weaknesses and strengths of their case as it appears then, and should make what is in effect a judgment call, and, on the view we take, the Plaintiff was in a position to make a judgment call then but got it wrong, and that was largely, we think, because the Claimants did not seriously enterain this offer, because the Claimants were so set on pursuing the case on the relocation basis, when the reality, as we see it, was the business was already extinguished.

106. And so the view we take is that certainly in relation to the period from 7th November 1988, the Government should have its costs because the Claimants in our view unreasonably rejected this offer of $170 million which turned out to be a generous one in view of the amount ultimately being awarded being something in the region of $133 million.

107. The next question that we have to consider is whether in respect of the post-November 1988 costs, whether these should be on the ordinary party and party basis or on a common fund basis, and the cases certainly show that the party and party basis should not be departed from unless there are special or unusual circumstances. And one particular matter that the cases emphasise is that just because a party's witnesses told lies and made some exaggerations, that by itself is no justification for awarding costs on the more generous common fund basis. And one of the cases cited to us for that proposition was Lipman v. Pulman which was No.12 in the Claimant's Bundle, and this particular topic of whether the way in which a case has been conducted is so special and unusual as to justify common fund costs has been ventilated in several cases, many of them from the Hong Kong Courts, and I will just quickly mention them. They are nearly all in the Claimant's Bundle. There is Laklan v. Wu Wing Tat: Civil Appeal 104 of 1987. That was one involving the Court of Appeal headed by the Chief Justice, Sir Denys Roberts. Then there is Wharf Properties v. Eric Cumine: HCA 13431/1983; Citibank v. Kung Kwok-Wai_: Civil Appeal No.81 of 1989; Koo Chih-Lines, Linda v. Lam Tai Hing [1992] HKLR 314; Overseas Trust Bank v. Coopers & Lybrand, and they all deal with what are special and unusual features. And two other cases that were in the bundle are Preston v. Preston [1983] 1 All ER 41, and Bowen-Jones v. Bowen-Jones [1986] 3 All ER 163. And what those cases indicate is, as I have indicated, lies and exaggerations by themselves are not sufficient to justify departure from the party and party basis, but if a defence or a claim has been presented in such a way that it could be regarded as unreasonable and having unreasonably added to the time for hearing the case, then the court, in its discretion, in a proper case, can order costs on a common fund or even a higher basis, but no one has claimed there should be a higher one here.

108. The issue on which the Plaintiff lost, and, on which, in our view, spent time unreasonably, was the one of relocation and the Plaintiff persevered, we thought, unreasonably, with that claim, and because it was such an inflated claim, it certainly had the effect of deterring any further attempt to try to settle the case, and that is a feature of this case which conforms with what was described in the Tramountana v. Atlantic Shipping case as the sort of unreasonable conduct of a case that could result in the court ordering costs to be on a common fund basis.

109. In our particular case, those representing the Claimant have done a calculation showing that, if you approach the matter on the basis of the number of pages in. the transcript where relocation is dealt with, it only works out to be something like six per cent of the pages of the transcript, and we accept that that is probably so, but we think that pursuing an issue that increases the hearing time by six per cent is certainly something that we should consider when weighing whether the common fund basis should be used.

110. In relation to this relocation basis, we feel that it has totally coloured the way those acting for the Claimant presented their case, and it seems to have had the effect of not allowing those appearing for the Plaintiff to consider the realities of the case, as revealed by the evidence. And we note that, even now, the Plaintiff's legal advisers do not accept that the business was extinguished. I think one can see the intransigence of the Plaintiff's side over this by looking at page 76 of the note which the Plaintiff submitted to the Tribunal as part of the presentation of its Costs Submission. This was at a stage when the court had clearly indicated what it had ruled in relation to relocation. One sees the Claimants adopting the same stance in relation to the significance of the various South Australian Authorities cited to the court in relation to relocation. The court, in its judgment had dealt with those fully, but the Claimant still comes before this court saying that it is entitled to bring this action to consider whether there should be relocation, despite the business having been closed-down. It is certainly wholly legitimate for those appearing for the Claimants to open this up on appeal, but to fail to acknowledge what this court has already ruled on that particular item of relocation, whether it is justified, to us does appear to indicate unreasonableness.

111. Beside the inflation of the size of the claim, we think that also in the context of whether the common fund basis should be adopted, we should not overlook that it was because the Plaintiffs destroyed many of the records relating to the operation of their business that extremely indirect methods had to be adopted to try to work out what their performance would have been, and this too, was a feature that inevitably did prolong the trial. That was described by Mr Carnwath as a point about lack of primary material and we feel that if there had been that primary material the trial would have taken much less time and it would not have been necessary to rely on the evidence of Roy and Len Leung to the same extent. They would not have had to give so much evidence-in-chief, nor would it have been necessary to probe them at the length which cross-examination in fact took.

112. One other feature which ties in with the point of the Claimants persisting with what was an inflated claim is their clinging to what happened to Chiap Hua which got $404 million in compensation for the purpose of relocating. On the view we take, Chiap Hua is a different company entirely. The court was provided with no material to go on in relation to the significance of Chiap Hua being relocated, and it would not have been relevant - we certainly would not have welcomed any such evidence - but it obviously was a factor that played on the minds of those who were members of the Claimant company, but it was, as we see it, an irrelevant factor. Chiap Hua were in a different line of business and also they are a different company with presumably a different history from the Claimant's and we feel that it was yearning for a result similar to the one of Chiap Hua which was one of the factors that persuaded the Claimants to continue what was an exaggerated claim.

113. On the matter of common fund costs - and we feel that this is a case where costs should be awarded on the common fund basis. One sees from the case of EMI Records v. Wallace [1982] 2All ER 980, at page 9832 that, normally, common fund taxation is reckoned to add something like five to ten per cent to a taxation when compared to one on a party and party basis, and that increase is of the same order of magnitude as the amount of time unnecessarily taken up by pursuing the relocation claim which we accept as being around the six per cent mark. And bearing that in mind, we are go in to order that the Plaintiffs have to pay the costs of the Government from the date of rejecting the Calderbank offer which expired on the 7th November 1988.

114. Now I turn to the pre-November 1988 position, and where one party has made an offer to settle the claim, the normal rule is that the costs before the offer are to go to the offeree, in our case the Claimant of course. We are satisfied that, in the pre-November 1988 situation, the Claimants did act reasonably, and there is nothing that should deprive them of their costs for that period. The Government before November 1988, made offers which were extremely low, almost bordering on the derisory, and the Claimants had to pursue the case in the way they did up to November 1988 to get the Government to come up with what we regard as a reasonable offer, that offer being the one of $170 million.

115. There is the fact that we think relatively little time would have been spent by the Government experts before the November 1988 offer, and we think that there is nothing to indicate unreasonableness in the Plaintiff's conduct of the case before then. There is also the point that some of the costs that the Claimants would have incurred in relation to the relocation claim before November 1988, have already been disallowed, and, in particular, I have in mind the design work Mr Medley did for a new steel mill and the Deloitte Haskins & Sells Feasibility Study, and, as I understand the position, those have already been disallowed as they relate to the pre-January 1987 position. The Claimant, on the relocation basis, I think, claimed something like $700,000-odd in respect of fees incurred in relation to relocation, and in fact only got something like $70,000, and that reduction, as I understood it, reflected the Claimants not getting reimbursed for the Medley Design and the Deloitte Haskins & Sells Feasibility Study.

116. So the position relating to the costs generally is: for the costs of the reference, the Claimant gets its costs up to and including the 7th November 1988 on a party and party basis, whereas the Government gets its costs on the common fund basis for the period 8th November 1988 onwards. And certainly, in respect of both lots of costs, we grant a certificate for two counsel. There also were some miscellaneous cost orders that have to be ruled on but, in fact, we do not think there is very much disagreement on these.

117. The first item in terms of time is the Interlocutory Hearing before Wong, J. in November 1987, and, as I understood the position, the Crown was not seeking to disagree with the Plaintiffs having those costs and certainly it seems reasonable to us that those costs should be to the Plaintiff as being in relation to the pre-November 1988 situation.

118. Then next there are costs relating to various applications. On the 3rd August, 15th October, 16th October 1992, and the 18th February 1993 - these are all matters where the costs should either be in the cause or in the event, and they are all matters where, in effect, the costs should go to Government either on the basis of being in the cause or in the event.

119. In relation to the costs for the Costs' Submission, the view we take is that they should also be in the cause, with the Government in our view emerging as the obvious winner in the case overall. The Government should have those costs.

120. There might be some miscellaneous items I might have overlooked. Under Professional Fees and Interest, being Section B. of Mr Neoh's short Submission on Miscellaneous costs, item 1. "Interest". That goes to the Claimant as the Claimant won on that. On the next item "Professional Fees" - I'm not sure what the crown's position was on that one.

MR CARNWATH: My lord, we said that we should get the costs on that one because effectively we had won. Although it was agreed at $1.3 million the original claim was in the order of $200 million, and it was also included in our global offer of $170 million. So that we said it should be taken in really and follow the Calderbank issue, that was our position.

PRESIDENT: Yes, is there anything you want to say on that, Mr Neoh?

MR NEON: My lord, it was a separate item and of course eventually it was agreed. The Crown of course could have protected themselves by making a Calderbank offer, that was not made, so the alternative for dealing with --

PRESIDENT: Are these pre-November 1988 or do they straddle the --

MR NEOH: My lord, most of it would be, I would say, about 90 per cent of that would be pre-1988. One way to deal with that would be to actually follow your lordship's orders. My lord, I am told that it is all before November 1988.

PRESIDENT: Well, we are going to take a break now in any event so we can look at the position on this a little more fully.

MR NEOH: There is just one minor matter before your lordship takes the break.

PRESIDENT: Yes.

MR NEOH: It is in relation to the $40 million. That was the Application for the Provision of Security.

PRESIDENT: Ah yes, this is. interest.

MR NEON: That is not interest. It was the $40 million. We came before your lordship to apply for that to be taken out and your lordship then said that security in the form of a bank draft should be given.

PRESIDENT: Yes.

MR NEOH: If your lordship was thinking of the event, then the event of couse went in favour of the Claimant, but, on the other hand, the Crown has actually said that they should get that in any event. Now your lordship just mentioned that the event should all go to the Government in relation to all these. Now if that is your lordship's ruling, obviously we will abide by that, but I thought there might be scope for clarity on that one.

PRESIDENT: Which date was that - 16th October?

MR NEOH: Yes.

PRESIDENT: I will have another look at that.

MR NEOH: Yes, perhaps your lordship might like to have another look at that.

PRESIDENT: Yes. As with these other matters outstanding in relation to interest, we will deal with that after an adjournment as well. So on the costs we have dealt with everything other than those two matters you have pinpointed.

MR NEOH: Indeed, my lord. Perhaps I might let your lordship know that when your lordship returns I will be making an Application for Directions on Interest as well.

PRESIDENT: Yes.