WONG CHIM HING V. DISCOVERY BAY TRANSIT SERVICES LIMITED

HCPI 254/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO 254 OF 2011

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REASONS FOR DECISION

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1.  This is an appeal by the plaintiff against the decision of Master Roy Yu who refused the plaintiff’s application for her costs of the action to be taxed at the High Court scale after she had accepted a sanctioned payment of $700,000 in satisfaction of her claim for damages for personal injuries. After hearing the parties, I dismissed the appeal and said I will give my reasons later. These are my reasons.

2.  Prior to the enactment of the Sanctioned Payment regime under the new Order 22 of the Rules of the High Court (“RHC”), there were two schools of thought on the effect of accepting a payment into court in a High Court action in an amount which was within the jurisdiction of the District Court.  Deputy High Court Judge Louis Chan, as he then was, held in Wellegant Development Ltd v Fine Telecom Ltd [2007] 2 HKC 427 that when a High Court claim was disposed of by way of acceptance of a payment into court under the old Order 22 in an amount which fell within the District Court jurisdiction, the plaintiff would automatically be entitled to taxed costs on a High Court scale.  In Wong Lan & Anor v Hong Chang Construction Transportation Engineering Co Ltd & Anor [2007] 3 HKC 499, Fung J held that, in such a case, the court enjoyed a discretion to order taxation on the District Court scale, and he declined to follow the earlier decision of Deputy High Court Judge Louis Chan.

3.  These decisions, and the provisions of the former Order 22, as well as the corresponding provisions in Order 62, referred to in these decisions, are relevant to my consideration as historical background.  However, I do not find them to be of assistance in my construction of the new Order 22 rule 20(1)&(2) of the RHC, which I set out below:

“Costs consequences of acceptance of defendant’s sanctioned offer or sanctioned payment (O.22, r.20)

20. – (1) Where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the Court otherwise orders.

(2) Where –

(a) a sanctioned offer or a sanctioned payment relating to a part of the claim or an issue arising from the claim is accepted; and

(b) at the time of serving notice of acceptance the plaintiff abandons the other parts of the claim or other issues arising from the claim,

the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the Court otherwise orders.”

4.  These provisions can be compared to the UK Civil Procedure Rules (“CPR”) 1998 on which our new Order 22 is partly based.  I specifically refer to Rule 36.13 of the 1998 CPR which states:

“Costs consequences of acceptance of a defendant’s Part 36 offer or Part 36 payment

36.13 – (1) Where a Part 36 offer or a Part 36 payment is accepted without needing the permission of the court the claimant will be entitled to his costs of the proceedings up to the date of serving notice of acceptance.

(2) Where –

(a) a Part 36 offer or a Part 36 payment relates to part only of the claim; and

(b) at the time of serving notice of acceptance the claimant abandons the balance of the claim,

the claimant will be entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the court orders otherwise.

(3) The claimant’s costs include any costs attributable to the defendant’s counterclaim if the Part 36 offer or the Part 36 payment notice states that it takes into account the counterclaim.

(4) Costs under this rule will be payable on the standard basis if not agreed.”         

5.  A comparison of the UK rules with our rules shows that in the UK the court’s jurisdiction to deal with costs after the acceptance of the Part 36 offer, or Part 36 payment, is limited to those cases where such offer or payment relates to only part of the claim and where, at the time of serving notice of acceptance, the claimant has abandoned the balance of the claim.  Under our rules, the court has jurisdiction to deal with costs, not only when the sanctioned offer or sanctioned payment relates to a part of the claim, but also when the sanctioned offer or sanctioned payment is made to settle the whole claim. 

6.  Once Order 22 rule 20(1) or (2) is engaged, Order 62 rule 10(2) and rule 9(1) come into play.  Order 62 rule 10(2) states:

“Where a plaintiff by notice in writing in accordance with Order 22, rule 3(1), 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.”

7.  Order 62 rule 9(1) states:

“Subject to this order, where by or under these rules or any order or direction of the Court costs are to be paid to any person, that person shall be entitled to his taxed costs.”

8.  Under Order 62 rule 1, “taxed costs” means “costs taxed in accordance with Order 62” which, of course, is Order 62 of the RHC.

9.  I construe these provisions to mean that upon the plaintiff’s acceptance of the defendant’s sanctioned offer or sanctioned payment, without requiring the leave of the court, the plaintiff is entitled to his costs of the proceedings up to the date of service of his notice of acceptance and, further, that he is entitled to have those costs taxed in accordance with Order 62 of the RHC on the High Court scale, unless the Court otherwise orders. 

10.  In my judgment, the default position, or the prima facie entitlement, is that the plaintiff is entitled to have his costs taxed on the High Court scale, regardless of whether or not the sanctioned payment is within the jurisdiction of the District Court, unless the Court otherwise orders.  I derive support for my construction from the decision of Tang ACJHC, as he then was, in Oriental Daily Publisher Ltd v Ming Pao Holdings Ltd [2011] 3 HKLRD 425 where he expressed his agreement with counsel’s submission (at §27 of his judgment) that formerly, under s.44A(6) of the District Court Ordinance, Cap. 336, (which was replaced by s52D of the High Court Ordinance, Cap. 4), the default position would be that the District Court scale applies where claims in which the District Court has jurisdiction were brought in the High Court, subject to any specific order of the Court of First Instance, whereas now, under s.52D, a specific order of the Court of First Instance or Court of Appeal is required to direct taxation on the District Court scale.

11.  Mr Justice Poon had occasion to consider and deal with Order 22 rule 20(1) in his decision in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd [2013] 4 HKC 282. I agreed with his decision in my own decision in RBA Far East Ltd v Yuen Chak Hang Edward & Ors, HCCL 3/2011, 1 August 2013, in which I stated:

“The proviso to O 22, r 21 of the RHC

19. I agree with the recent of observations of Poon J on the proper approach to follow when faced with an application to apply the “Otherwise Proviso” contained in O 22, r 20(1) and O 22, r 21(1) of the RHC. Under r 20(1), where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date of service notice of acceptance. Under r 21(1), where a plaintiff’s sanctioned offer to settle the whole claim as accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date on which the defendant served notice of acceptance. These prima facie costs consequences follow upon the stated event “unless the court otherwise orders” (“the Otherwise Proviso”). In his judgment in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd, Poon J analysed the legal position and concluded that the prima facie rule in O 22 r 20(1) should apply unless (1) the defendant discharges the burden of showing exceptional circumstances that justify a departure; and (2) he has given a prior warning to the plaintiff that he will apply to invoke the Otherwise Proviso upon acceptance of the sanctioned payment or sanctioned offer. In my judgment, the same applies with regard to r 21(1) under which the defendant has to give a prior warning to the plaintiff that he would apply to invoke the Otherwise Proviso when he serves his notice of acceptance of the plaintiff’s sanctioned offer.”

12.  In the course of oral argument in this case, I had postulated a hypothetical case of a defendant making a sanctioned payment and, at the same time, making a sanctioned offer that the sanctioned payment can only be accepted if the plaintiff agrees to have his costs taxed on the District Court scale.  I had also postulated an alternative hypothetical case of a defendant who did not make a sanctioned payment but who made a sanctioned offer to pay a sum of money, and to pay the plaintiff’s costs, taxed on the District Court scale, in settlement of the plaintiff’s claims.

13.  The provision in Order 22 rule 3(2), which stipulates that where an offer by a defendant involves a payment of money to the plaintiff the offer must be made by way of a sanctioned payment, appears to militate against the second hypothetical case, whereas the terms of Order 22 rule 5, on the form and contents of a sanctioned offer, which do not contain any provision in relation to the taxation of costs, appear to militate against the first hypothetical case postulated above.

14.  On further reflection, I find these discussions to be academic, as I am firmly of the view that the procedure formulated by Poon J in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd is entirely workable and expedient.  And I can do no better than adopt and agree with §23 of his judgment where he said:

“23. Further, when applying the Otherwise Proviso, the court is in effect depriving the plaintiff his costs or even ordering him to pay the defendant costs. The plaintiff will be significantly disadvantaged. In my view, fairness dictates that the plaintiff, who is considering whether to accept the sanctioned payment or sanctioned offer, should be given a prior warning that the defendant will apply to invoke the Otherwise Proviso and how it is to be invoked. The plaintiff can then make an informed decision whether to accept the payment or offer with the full knowledge that upon acceptance, the prima facie rule on his entitlement as to costs may be displaced. Further, if a defendant is allowed to invoke the Otherwise Proviso without giving the prior warning, a plaintiff who has accepted the payment or offer on the faith that he would be entitled to recover his costs up to the date of serving notice of acceptance would never know if at the next moment the defendant would apply for a different costs order. The certainty as to costs created by the prima facie rule will be gone. Faced with the uncertainty as to costs, the plaintiff would be greatly handicapped in deciding if he should accept the payment or offer in the first place. It would render the operation of sanctioned payments and sanctioned offers ineffectual.”

15.  Where the defendant wishes the court to make an order for costs to be taxed on the District Court scale, he should give written warning of his intention to invoke the proviso were the plaintiff to accept the sanctioned payment, and he should give that warning at the time when he serves the notice of sanctioned payment on the plaintiff. 

16.  In his decision in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd, Poon J held that, by virtue of the proviso in Order 22, rule 20(1) & (2), the court retains a discretion to depart from the prima facie rule when necessary, but that such discretion should only be exercised in exceptional circumstances that clearly warrant a different costs order.  I agree.  The need for exceptional circumstances is in keeping with the underlying objectives of the CJR to promote procedural economy and discourage satellite litigation.  But how can this principle be invoked in the context of an application by the defendant to obtain an order that the plaintiff’s costs of the action be taxed on the District Court scale and what is the test to be applied by the court which is asked to invoke the proviso under Order 22 rule 20(1) or (2) and depart from the default position or prima facie rule?

17.  The test that has been adopted, and the practice that has prevailed for many years, flowed from the decision of Seagroatt J in Lai Ki v B+B Construction Co Ltd [2003] 3 HKC 322, where he stated:

“21. The position in relation to a claim in the High Court settled or adjudicated upon in a sum which is within the District Court jurisdiction is as follows:

(1) The usual order will mean that costs will be on the District Court scale unless the High Court is, in the exercise of its discretion, persuaded that there was a reasonable prospect of obtaining an award in excess of the District Court jurisdiction. To that end the valuation of the claim must be on the basis of full liability.

(2) The order by consent, or upon adjudication, for the plaintiff’s costs to be taxed does not carry with it any inference or construction that it means costs on a High Court scale.

(3) For the purposes of deciding the proper forum in which to commence proceedings the amount of the employee’s compensation paid and received must be deducted.

22. The proper course for the plaintiff’s solicitors to take in a High Court action is as follows:

(1) Where a sum of money which is within the District Court jurisdiction is paid into court, and accepted by the plaintiff (without agreement by the parties as to the scale of costs to be taxed), the plaintiff must apply promptly by way of summons to a master for a determination as to the scale of costs.

(2)   Where the parties agree a settlement in a sum within the District Court jurisdiction and there is agreement as to the scale of costs, this must appear in the consent order or in a joint letter to the court.  If there is no such agreement as to costs then the plaintiff must promptly apply by way of summons for the costs issue to be determined by a master.  If the settlement is achieved before trial commences or in the course of a trial then the plaintiff’s solicitors must ask the trial judge to decide the issue of the scale of costs.”

It follows from my construction of the new Order 22 and from the decision of Poon J in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd that the practice, set out in §22(1) of the decision in Lai Ki v B+B Construction Co Ltd, that it is for the plaintiff to apply by summons for a determination of the scale of costs when he has accepted a sanctioned payment within the District Court jurisdiction, is no longer appropriate under the new Order 22.  On my construction of the new Order 22, the defendant must give prior written warning of his intention to apply for an order for taxation on the District Court scale, when he makes a sanctioned payment within the jurisdiction of the District Court, and the defendant must make prompt application to the master for such an order after the sanctioned payment has been accepted.   

18.  Although the practice must now change, does the test set out in Lai Ki v B+B Construction Co Ltd remain the same after the implementation of the CJR?  In that case,  Seagroatt J confirmed and adopted the test in Hopkins v Rees & Kirby Ltd [1959] 1 WLR 740 at 742, namely:

“Putting myself as far as I can, in the position of the plaintiff at the time when he issued that writ, am I satisfied that it was then obvious that this was a county court action, or was it an action which, when tried by one judge rather than another, might have resulted in an award exceeding [the jurisdictional limit]

excluding any reduction for contributory negligence?” (emphasis added)

Seagroatt J then observed, at 197H that:

“The acid test therefore has been, ignoring all questions of contributory negligence, has the plaintiff a reasonable prospect of recovering a sum of money in excess of the [District] Court jurisdiction?” (emphasis added)”

19.  Tang ACJHC, as he then was, questioned in Oriental Daily Publisher Ltd v Ming Pao Holdings Ltd [2011] 3 HKLRD 425 at §32 whether a more stringent test was required after the implementation of the CJR but left the matter to be determined in future.  I am tempted to say that the time has come to restate the test, taking into account the objectives of the CJR to promote proportionality and fairness.  Active case management under the CJR ensures that the parties, when apprised of the case being put by the other side, are able to assess on the evidence that has been discovered whether or not the plaintiff has a reasonable prospect of recovering a sum of money in excess of the District Court jurisdiction at the time that the sanctioned offer has been accepted by the plaintiff.  Active case management processes ensure that the parties continuously evaluate their case and, where appropriate, make application for transfers to the District Court.  However, in the absence of full argument and detailed consideration of the potential impact on PI and non-PI civil litigation by any restatement of the test, I must also leave the matter for determination on another occasion.

20.  Where the application for an otherwise order is based on the monetary amount of the sanctioned payment, I would apply Poon J’s “exceptional circumstances principle” by ruling that the acceptance by the plaintiff of an amount less than $1,000,000 would constitute an exceptional circumstance for the exercise of the court’s discretion to make an otherwise order, under Order 22 r. 20(1) or (2), that costs be taxed on the District Court scale, for the reason that the bringing of such proceedings in the High Court, instead of the District Court, constitutes a failure to conform to section 32 of the District Court Ordinance, Cap. 336, which confers jurisdiction on the District Court to hear monetary claims up to HK$1,000,000.

21.  Of course, there may be other considerations, such as the complexity of the factual and legal issues involved, which would justify proceedings being brought in the High Court, which was the reason for the decision of Poon J to award costs on the High Court scale in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd even though the plaintiff in the case before him had accepted the sanctioned payment of only $100,000. One cannot exhaustively state all thecircumstances that may arise which may be relevant to the exercise of the court’s discretion to invoke the proviso and make an otherwise order departing from the default position.  However, it seems to me that where the sanctioned payment that had been accepted is in a sum less than $1,000,000, the defendant enjoys good prospects of obtaining an order for costs to be taxed on the District Court scale, absent some good reason to justify the proceedings being brought in the High Court. 

22.  However, an order for costs to be taxed on the District Court scale should not readily be made in cases where the amount of the sanctioned payment is close to the jurisdictional limit of the District Court as to do so would unduly penalise a plaintiff who enjoyed good prospects of securing a judgment after trial in the sum of $1 million or more, but who was willing to settle at a discount to avoid the risks of litigation and in order to achieve a speedy resolution of the case.        

23.  The plaintiff who wishes to establish that he enjoyed reasonable prospects of recovering a sum of money in excess of the District Court jurisdiction must do so by reference to the evidence available to him at the time he commenced the proceedings.  Given the pre-action protocols in PI litigation, there ought to be considerable evidence available even at that early stage.  If and when the test is restated, he may need to do so by reference to the evidence available to him at the time he accepted the sanctioned payment.  The court must not conduct a mini trial before exercising its discretion to make an otherwise order or refusing to do so.  It must adopt a broad brush approach in its review of the evidence.  In personal injury cases, the court is likely to find assistance from the joint medical expert report on the plaintiff’s permanent disabilities and future employability. This approach is also in keeping with the underlying objectives of the CJR to promote procedural economy and discourage satellite litigation.

24.  In the present case, the plaintiff accepted a sanctioned payment made by the defendant in the sum of $700,000. The payment had been made after the action had been set down for trial.  As the sum in question was less than $1 million, the plaintiff, following the practice in Lai Ki v B+B Construction Co Ltd, took out an application before the master to seek an order that costs of the action be taxed on the High Court scale. 

25.  The matter came before Master Yu who reviewed the medical expert evidence that had been obtained by the parties as well as the surveillance video taken of the plaintiff.  It was submitted on behalf of the plaintiff that she enjoyed reasonable prospects of an award for damages for future loss of earnings which would have enabled her to obtain a total award of damages, net of employees’ compensation already received, in a sum in excess of $1 million.  Upon his review of the evidence, Master Yu concluded that there was no objective evidence he could rely upon to support the plaintiff’s claim that she could not return to work, and that there was a lot of objective evidence to dispute that claim.  He did not accept that the plaintiff acted reasonably in commencing these proceedings in the High Court and that, in any event, no reasonable plaintiff would have continued the claim in the High Court after receipt of the medical reports.       

26.  The following table demonstrates that Master Yu had accepted the assessment of quantum made by the plaintiff’s counsel, save in respect of the claim for future loss of earnings.  He concluded that the claim for future loss of earnings was not supported by objective evidence, and he substituted, in its stead, an award of $200,000 for loss of earning capacity:

Heads of Claim	Plaintiff’s counsel’s advice	Master’s decision
PSLA	$300,000	$300,000
Pre-trial Loss of Earnings and MPF	$619,837.42	$600,000
Special Damages	$50,000	$50,000
Loss of Earning Capacity	NIL	$200,000
Post-trial Loss of Earnings	(a)      $800,754.83  or (b)      $491,400	NIL
Future Medical Expenses and Traveling Expenses	NIL	NIL
Less: EC compensation	($360,350.78)
Total:-	(a)      $1,410,241.47  or (b)      $1,100,886.64	$789,649.22

27.  The plaintiff’s appeal against the master’s decision is an appeal against his decision on costs, namely, the scale of costs to be adopted for the taxation of the plaintiff’s costs of the proceedings up to the date of acceptance of sanctioned payment.

28.  The principle is that judges in chambers should not allow appeals against costs orders made by masters, unless it can be shown that the order made was unreasonable or contained an error in law or that the master either failed to take into account proper matters or took into account improper matters.  I am not satisfied that the plaintiff has made out a case for me to entertain the appeal from the master’s decision on costs, either on the ground that the order was unreasonable or on the ground that he failed taken to account proper matters or that he took into account improper matters. 

29.  However, I would entertain the appeal on this basis, that the master seemingly approached the matter without having regard to the decision of Poon J in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd.  On that basis, I would entertain the appeal by way of a rehearing de novo. 

30.  Doing so, and applying the principle that I have set out above, I would also have made an otherwise order under Order 22 rule 20, on the ground that exceptional circumstances had been demonstrated to me, namely, the acceptance of a sanctioned payment in the sum of $700,000, as would enable me to make an order that the plaintiff’s costs of the action be taxed on the District Court scale up to the date of the acceptance of the sanctioned payment. 

31.  I am not persuaded that I should refuse to do so on the ground that the plaintiff enjoyed reasonable prospects of recovering more than $1 million.  I am satisfied, on my review of the relevant evidence, that there is no objective evidence to support an award for future loss of earnings in this case.  In my view, Master Yu was generous to conclude that there was objective evidence to support an award for loss of earning capacity in the sum of $200,000.         

32.  Finally, I would not exercise my discretion against the defendant, either on the ground that the application was not made by the defendant but by the plaintiff; or on the ground that the defendant did not give prior written warning of its intention to ask for taxation of the plaintiff’s costs on the District Court scale.  The parties had proceeded on the basis that the practice set out in Lai Ki v B+B Construction Co Ltd was to be followed. Of course, in future, the practice I have formulated above, following the judgment of Poon J in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd., ought to be followed.  

33.  As the appeal has enabled me to set out the proper approach to be adopted in future for this type of application, and the principles by which they are to be determined, which would be of benefit to civil litigation practitioners, I am minded to, and hereby make a costs order nisi that the plaintiff pays 50% of the defendant’s costs of the appeal which I summarily assess in the sum of $20,000 (being 50% of the sum of $40,000 which I would summarily assess as the costs on the appeal that lasted half a day).  Further, I do not disturb the order of costs made by the master below.