TSE TSZ CHONG v. LAW SZE MAN

CACV 262/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 262 OF 2014

(ON APPEAL FROM DCEC NO. 619 OF 2014)

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

1.  This is an appeal against the decision of Deputy District Judge Amy Chan on 15 September 2014. By that decision, the judge ordered interim payment in the context of an employee compensation claim by the applicant in respect of injury she suffered in the course of employment. The interim payment ordered was in the sum of $20,000. The judge also ordered the applicant to pay the costs of the respondent in the application because the respondent had made an offer of $20,000 before the application for interim payment was made on 7 July 2014. The respondent also made a sanctioned payment in the sum of $25,000 on 23 June 2014.

2.  Leave was refused by the judge.  On 19 December 2014, this court granted leave with a direction for the expeditious hearing of the appeal.

3.  The fact that a sanctioned payment had been made and the amount thereof was revealed in the affidavit made by the solicitor for the respondent opposing the interim payment application.  There is thus an issue as to whether this constitutes a breach of Order 22 Rule 25(2) which provides:

“ The fact that a sanctioned payment has been made must not be communicated to the trial judge or the master hearing or determining the action or counterclaim or any question or issue as to the debt or damages until all questions of liability and the amount of money to be awarded have been decided.”

4.  In view of the general importance of this issue, this court invited submissions on this question though it had not been raised in the grounds of appeal by the plaintiff.

5.  There are authorities suggesting that Rule 25(2) only applies to the trial judge or a judicial officer deciding an issue at trial or a final hearing as opposed to interlocutory applications.  In Williams v Boag [1941] 1 KB 1, Goddard LJ said the following in respect of the then English rule, Order 22 rule 6:

“ It should be made clear, I think, that [the rule] does not prevent a Judge on an interlocutory application being informed of the fact of payment in, where it is desirable that he should know it.”

6.  That dicta had since been cited as authority for the proposition that the rule has no application to interlocutory proceedings, see Virtyre Ltd v Century Group Ltd HCA 3235 of 2003, 8 December 2003.  See also Hong Kong Civil Procedure 2015 paragraph 22/7/1.  This is so notwithstanding that there had been changes to the wordings of the rule since 1941.  The English rule which Goddard LJ considered was in these terms:

“ … no communication of [the fact that money has been paid into court] shall at the trial of any action be made to the Judge or Jury until all questions of liability and amount of debt or damages have been decided …”

7.  The modern rule, with which we are concerned, is wider.  It refers to “the trial judge or the master hearing or determining the action or counterclaim or any question or issue as to the debt or damages”.  It could cover the situations of a trial by master or the determination of question or issue by way of summary procedures.  But, as appears in the commentary in the White Book, it is generally understood that it does not apply to interlocutory applications.

8.  In Fryer v London Transport Executive, 30 November 1982, an unreported judgment of the English Court of Appeal in the context of a leave application, Waller LJ held that the then Order 22 Rule 7 in the English rules did not prohibit the disclosure of a payment into court in the context of an interim payment application as such application does not involve the determination of any question or issues as to damages.  The learned judge said:

“ In my judgment, in deciding whether or not an interim payment should be made, and in deciding how great the interim payment should be, it is not an issue as to damages. It is a question of what, in the interlocutory proceedings before the learned judge, should be done to meet the justice of the case.”

9.  This authority was cited in Hong Kong Civil Procedure 2015 at paragraph 29/11/9 and the commentator said it is usual to order that the interim payment should be made out of any money in court.  

10.  On these authorities, we are prepared to accept that Order 22 Rule 25(2) does not prevent the disclosure of a sanctioned payment in interlocutory proceedings, including interim payment applications. However, that is not the end of the matter.

11.  Quite apart from that rule, under common law, there are circumstances under which the quantum of a payment into court should not be made known to the court.  Prior to the enactment of a similar rule for the Court of Appeal (now to be found in Order 59 Rule 12A), the courts have held that it was not appropriate to disclose that information to a court of appeal hearing an appeal on quantum: see Mason v Mason [1966] 1 WLR 767; Thornton v Swan Hunter (Shipbuilders) Ltd [1971] 1 WLR 1759; Shek Kam-tin v Chan Fuk-sang [1979] HKLR 532.  In Mason v Mason, supra, Lord Denning MR gave the following rationale for the imposition of such restriction on disclosure:

“ … A trial judge does not know what payment has been made into court. Although at one time he used to know, under the rules of the court he no longer knows. It is thought to be fairer that he should not know. Although there is no rule about the Court of Appeal, it seems to me that it would be less embarrassing to this court if they did not know of the payment into court.”

12.  In our judgment, the correct view is that the disclosure of a sanctioned payment in interlocutory proceedings is permissible if such disclosure will not cause embarrassment to the court or unfair prejudice to a party in the determination of the interlocutory issue in question.  Hence, much depends on the purpose of the disclosure and the relevance of such disclosure to the issues that the court needs to decide in the context of that application.  In Williams v Boag, supra, the application in question was an application to amend a defence to withdraw an admission after a payment into a court had been made.  By the amendment, the defendant intended to plead a defence which was an absolute defence to the claim.  The judge allowed the amendment (without knowledge of the payment into court).  The plaintiff then applied for payment out of the money which was allowed by the judge.  The actual appeal was against the order of payment out in favour of the plaintiff.  In the course of the appeal, the English Court of Appeal observed that it was desirable that the payment into a court was made known to the judge at the hearing of the application for leave to amend.  In such circumstances, one can readily see the desirability of informing the court of the payment into court and there could not be any question of embarrassment for the judge to deal with the application for amendment with such knowledge.

13.  The English Court of Appeal in Fryer v London Transport Executive focused on the applicability of the English Order 22 Rule 7 without examining the admissibility of evidence on payment into court in the common law context.  There was no discussion on the relevance of such evidence and the “without prejudice” nature of the payment in mechanism. 

14.  In the context of an application for interim payment, there are two potential sources of embarrassment or prejudice if the judge is told of the sanctioned payment. First, if the question of liability is in issue (and the prospect of a plaintiff succeeding in recovering substantial damages is a relevant consideration in an interim payment application), the disclosure of a sanctioned payment might be regarded as the perceived weakness in the defence case on liability.  Though a professional judge should understand that sanctioned payment could be made on various considerations and not necessarily due to such perceived weakness, one must bear in mind the perception of fairness from the point of view of a defendant.  Thus, a defendant may harbour some grievance if a sanctioned payment was disclosed without his consent.

15.  This is not the case here.  There is no dispute on the question of liability. The only dispute is on quantum.  This brings us to the second potential source of embarrassment and unfair prejudice.  Apart from deciding whether there should be an order for interim payment, if an order were to be made a master or judge hearing the application will also have to determine the appropriate level of payment.  For that purpose, there are occasions where a plaintiff may wish to refer to a sanctioned payment as showing that a defendant acknowledged the claim’s worth at a particular level.  In our view, this is not a legitimate point to take.  To start with, there could be many reasons behind the making of a sanctioned payment at a particular level.  It is speculative to draw an equal sign between the amount of a sanctioned payment and a fair assessment of the worth of a claim.  The judge deciding on the quantum for interim payment should form his own independent view on the submissions of the parties and admissible evidence before him instead of placing reliance on what in substance is an offer for settlement.

16.  More importantly, it is against the spirit of the sanctioned payment regime (which, similar to without prejudice negotiations, is to provide a mechanism to foster settlement without prejudicing the contest of the issues in the litigation process).  In principle, the reference to a sanctioned payment in an interim payment application is irrelevant on the ground that it had no bearing on the proper assessment of the quantum for interim payment in view of the earlier criticism on equating such payment with the defendant’s assessment of the worth of the claim (in which case it should not be admitted as evidence).  It is also unfairly prejudicial and infringing the spirit of a mechanism which is designed as a “without prejudice” process when a reference to a sanctioned payment was made with a view for the forensic advancement of one’s case on quantum in the application.  The importance of the without prejudice rule in the context of admissibility of evidence was considered in Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 and Unilever plc v Procter & Gamble Co [2000] 1 WLR 2436.  In principle, we do not see any reason why the without prejudice protection under the common law should not be extended to a sanctioned payment.     

17.  Here, the disclosure of the sanctioned payment was made by the respondent as opposed to the applicant.  Even in such a context, the same observations as to the abuse by making reference to a sanctioned payment can be made.  If the respondent wishes to make out a case as to why the quantum for interim payment should be less than a particular sum, there was no need for it to refer to the sanctioned payment for such purpose.

18.  In personal injury litigations, litigants often contested claims by reference to the sanctioned payments that had been made.  In a dispute on quantum, whether a plaintiff succeeds in beating a sanctioned payment can have immense practical importance.  The present case is a good illustration.  The interim payment sought by the applicant was in the sum of $80,000 whilst the sanctioned payment was $25,000.  The judge in the end awarded $20,000 and ordered the applicant to pay the costs of the application.  The liability for costs could effectively wipe out the benefit of the interim payment as ordered.

19.  Thus, it is important for the public perception as to the fairness of the process that the judge or judicial officer adjudicating on the question of quantum should not be influenced by what may have occurred by way of a without prejudice settlement process and this is the rationale for the common law rule as well as the provision in Rule 25(2) and the extension of the rule to an appeal against quantum in the Court of Appeal.  In our view, similar consideration applies to an application for interim payment.  

20.  The fact that the court may order interim payment to be made out of money paid into court under a sanctioned payment does not provide a good reason for the disclosure of sanctioned payment before the substantive determination of the application for interim payment.  Parties can disclose the sanctioned payment after the determination and invite the court to order the money be paid out of the sanctioned payment.

21.  Accordingly, we are of the firm view that the respondent should not have made reference to the sanctioned payment in the affidavit opposing the interim payment application. The same applies to without prejudice correspondence. In this connection, the letter of 11 June 2014 from the solicitors of the respondent containing the offer of $20,000  ended with this sentence,

“We will produce this letter to Court to argue on the issue of costs should we find it appropriate.”

22.  That is a clear indication that the offer is a Calderbank offer and we are of the view that the letter should not have disclosed to the court before the determination on the quantum of the interim payment.

23.  Having said so, it does not necessarily follow that the proceedings before the judge was a nullity.  As observed in Shek Kam-tin v Chan Fuk-sang, supra, the court could quite properly continue to hear the application provided it could demonstrably dispel any effect of such irregularity.  See also Millensted v Grosvenor House (Park Lane) Ltd [1937] 1 KB 717; Garratt v Saxby [2004] 1 WLR 2152; Tsui Wai Kam v Wang Fung Machinery DCEC 530 of 2009, 27 October 2010).   However, the court must be mindful of the overall perception as to the fairness of the process.  In Shek Kam-tin v Chan Fuk-sang, supra, Roberts CJ decided that the court should not continue to hear the matter even though the court did not feel embarrassed.  At p.534, His Lordship said:

“ We do not ourselves feel in any way embarrassed by the knowledge which we have and would have been perfectly prepared to continue with the hearing of the appeal if that were the only consideration. However, we take into account the fact that it might very well be that, if we continued to hear the appeal and ultimately decided against the respondents, they might feel that in some way they have been prejudiced by the fact that we knew the amount of the payment into court.

For this reason, and for this reason only, we accede to the request of counsel for the respondents that we should not proceed with the hearing today and that it should be adjourned for subsequent hearing before another division of this court. …”

24.  For a recent instance in which the court decided to recuse due to improper disclosure of without prejudice material, see Tang Yau Keung v Tang Choi Yau [2014] 2 HKLRD 940.  In that judgment, Deputy Judge Eugene Fung SC discussed the modern approach in dealing with similar situations at paragraphs 10-13.

25.  In the present case, neither the judge nor the counsel for the parties saw any problem with the disclosure of sanctioned payment and the Calderbank offer at the hearing below.  Though there was no reference by the judge to the sanctioned payment in her judgment, there was equally no explicit statement by the judge to dispel any perception that she might have been influenced by it.

26.  Further, reading the judgment as a whole, we cannot confidently say that a fair-minded and informed observer would conclude that the judge had not been influenced by the improper disclosure of the sanctioned payment.

27.  The applicant put forward a calculation of her claim in the total sum of $170,393 and relied on sick leave certificates issued to her by various doctors up to 439 days.  On the other hand, the respondent contended that the applicant’s complaints were not supported by objective medical findings.  The respondent submitted, without putting forward any evidence to rebut the sick leave certificates, that there should not be any loss of earning capacity for more than 28 days.  On that basis, solicitor for the respondent advanced the submission that the applicant’s claim would not go beyond $25,000.  Thus, solicitor for the respondent argued that interim payment should only be $20,000.

28.  In essence the judge accepted the submissions of the solicitor for the respondent.  She referred to Tam Fu Yip Fip v Sincere Engineering [2008] 5 HKLRD 210 for the proposition that sick leave certificates are not binding on the court.  That was a case for common law damages.  In the context of employee compensation claims, the weight to be attached to sick leave certificate is governed by s 10(2) of the Employees’ Compensation Ordinance.  The judge did not address this section in her judgment of 15 September 2014.  Though she referred to it in her subsequent decision on refusal of leave to appeal, she did not refer to relevant court of appeal authorities on the effect of this section: Yu Tat Kam v Chu Tung Shing [2009] 6 HKC 411 and Kan Wai Ming v Hong Kong Airport Services Ltd [2011] 3 HKC 582.  In a nutshell, the correct legal position is this: s 10(2) set out a rebuttable statutory presumption of temporary incapacity during the certified period in the context of an employee compensation claim.  The burden is on an employer to rebut that presumption.

29.  Whilst it was open to the judge to consider that the sick leave certificates may not ultimately be conclusive, she should have considered what evidence the respondent had put forward before her to rebut the statutory presumption.  Further, she also should have considered that the doctors in the Neurosurgery of Kwong Wah Hospital had made a diagnosis of post-concussion syndrome and granted her long sick leave periods on that basis.  Instead, she only referred to a remark in the report of the Accident & Emergency department that on 16 April 2013, the doctor examined her there found her to be well.  That was far from a comprehensive picture of her condition because the same report also mentioned that she was referred to the Department of Neurosurgery for management. 

30.  Had she asked the correct questions, the judge should have appreciated that the respondent had not put forward any evidence to rebut the statutory presumption.  There is also no evidence from the respondent to challenge the diagnosis by the doctors that the applicant was suffering from post-concussion syndrome for which it was appropriate to grant the relevant sick leave period.

31.  The judge took the view that as the extent of injury and the length of sick leave were in serious dispute, there was a substantial risk of overpayment if $80,000 was ordered by way of interim payment.  At paragraph 24 of her judgment of 15 September 2014, the judge said:

“ In the light of the evidence presented before the court at this stage, I have reservation if the applicant will obtain a substantial amount of damages at the hearing for assessment of compensation. It is understandable why the respondent did not make any periodic payment nor reimburse the applicant any medical expenses after the accident. Having regards to all the circumstances, the sum to be granted must be conservative. I would exercise my discretion to allow the applicant an interim payment. I find $20,000 is an appropriate sum.”

32.  With respect, it is rather puzzling for the judge to award any interim payment when she was not satisfied that the applicant would obtain a substantial amount of damages at the trial.  It appears that she simply picked up the figure as advocated by the respondent.  And that was calculated by reference to the valuation of the claim at $25,000, which was the amount of the sanctioned payment. And the sum she awarded was the same as the Calderbank offer which should not have been disclosed to her.

33.  The judge might not have the sanctioned payment in mind when she made her decision.  However, it can equally be said that she might have.  As we cannot say that she had dispelled from her mind the prejudice occasioned by the disclosure of the sanctioned payment, fairness dictated that her decision must be set aside.

34.  Having set aside that decision, the application must be considered afresh.  Though we also had knowledge of the sanctioned payment and the Calderbank offer, we are able to put them aside for the purpose of our consideration for the application and we have informed the parties accordingly.  Counsel for both parties intimated to this court that the parties were contented with our assurance in that regard.  They also invited this court to decide on the proper award in the interim payment application as opposed to remitting the matter back to the court below.  In the circumstances, we are satisfied that a fair-minded and informed observer would not find anything amiss if we were to accede to the joint request of the parties.

35.  The correct approach to be adopted in an interim payment application is set out in Top One International (China) Property Group Co Ltd v Top One Property Group Ltd CACV 269 of 2011, 20 July 2012.  Though there has to be some judicious weighing of the evidence before it to arrive at an estimate of the damages likely to be awarded, it is a fairly broad approach and the court should not confuse its role at this stage with the function of the future court in the final assessment of damages.  After an estimate is made, the court should take account of the financial ability of the plaintiff to repay any overpayment and the hardship that the defendant may suffer if overpayment could not be recovered and other matters relevant to the just exercise of the discretion in assessing the reasonable proportion of the likely damages as the amount for the interim payment.  We also agree with observation of Suffiad J in Sun Jianqiang v Chan Tai Kau [2001] 2 HKC 702 that though hardship on the part of the plaintiff can be relevant, it is not essential.

36.  We have already pinpointed the deficiency in the judge’s approach to s 10(2). Despite the efforts of Mr Sakhrani, we are not persuaded that the respondent has put forward a proper evidential basis for upsetting the presumption flowing from the sick leave certificates.  Nor is there any evidential basis for suggesting that the neurosurgeons who granted the sick leave certificates (for 439 days) did not perform their jobs conscientiously or that they simply acted on the request or complaints of the applicant without exercising their own professional judgment. A diagnosis of post-concussion syndrome was made by the neurosurgeons. On the materials before us, there has not been any attempt by the respondent to seek medical examination of the applicant by the respondent’s expert.

37.  On the present state of evidence, examining the matter afresh, we are of the view that the applicant is likely to obtain judgment for substantial damages.  Mr Chung put forward a calculation of s10 compensation in the sum of $170,393.33 (of which $163,893.33 is attributable to loss of earnings during the sick leave period).  Bearing in mind the potential prejudice to the respondent in case of overpayment in view of the lack of means on the part of the applicant to repay, we agree with counsel that the sum claimed, $80,000, is, on the facts of this case, a reasonable proportion of the compensation that the applicant is likely to recover.

38.  We therefore set aside the judge’s order, and make an order that the respondent shall make an interim payment in the sum of $80,000.  We also order the respondent to pay the costs of the applicant here and below, such costs are to be taxed if not agreed.  The applicant’s own costs shall be taxed in accordance with Legal Aid Regulations.