WEALTHY CENTURY INVESTMENT LTD v. DBS BANK (HK) LTD

DCCJ 1519/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL JURISDICTION NO.1519 OF 2009

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BETWEEN

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DECISION

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Application to Vary Orders on Interest and Costs

1.  On 13 May 2010 I gave my decision in this case on the Defendant’s two summonses under Order 17 and Order 14A, dismissing the summonses and giving judgment to the Plaintiff as a result of my ruling on the Order 14A summons.  I made an order nisi on interest and costs.  Since then the Plaintiff has made an application to vary the order on the basis of a sanctioned offer.  I gave directions for written submissions to be filed by the parties without an oral hearing.

2.  In this action, the Plaintiff claims the sum of $528,006.56 in 2 bank accounts (“the Accounts”) held with the Defendant which the Defendant had frozen since June 2008.  The Plaintiff now relies on a sanctioned offer contained in a letter dated 8 April 2009, issued after the writ in this case was issued but before the Defence and Counterclaim was filed, in which the Plaintiff offered to accept the said sum in full and final settlement of the Plaintiff’s whole claim in the action. Since I have given judgment for the said sum with interest, the Defendant has been held liable for more than the Plaintiff’s proposal, and the Plaintiff seeks enhanced interest and costs order under Order 22 Rule 24.

3.  The Defendant contests the application on a number of grounds.  The first one is that although the letter dated 8 April 2009 constituted a sanctioned offer within the meaning of Order 22, that offer was subsequently withdrawn, because it was overtaken by other offers made by the Plaintiff which did not qualify as sanctioned offers.

Correspondence

4.  The 8 April 2009 offer was never accepted by the Defendant.  On 30 April 2009, the Defendant’s solicitors wrote to the Plaintiff’s solicitors, on a without prejudice basis, proposing settlement on terms that the Defendant would deduct its legal costs and expenses (in the sum of $68,000) from the Accounts, and return the remaining balances to the Plaintiff; within 7 days thereafter, the parties would discontinue the Writ and the Counterclaim respectively, with no order as to costs.

5.  By letter dated 7 May 2009, the Plaintiff’s solicitors replied by way of a without prejudice letter, counter-offering to settle all claims between the parties with no order as to costs upon the payment of $528,006.56, and asked the Defendant’s solicitors to reply by 11 May 2009.  The Defendant now argues that this letter, sent on the first day after the expiry of the 28-day period for acceptance, without the leave of the court, of the 8 April 2009 sanctioned offer, amounted to a withdrawal of the original sanctioned offer (no leave to withdraw being required after the 28-day period).  The new offer in the letter dated 7 May 2009, however, did not constitute a sanctioned offer for the purpose of Order 22 Rule 5, as it did not state whether the offer had taken into account the Defendant’s Counterclaim (filed on 23 April 2009), and did not state that after the expiry of 28 days, the Defendant could only accept it if the parties could agree on costs or upon leave being granted by the court.

6.  By another without prejudice letter dated 14 May 2009, the Plaintiff’s solicitors offered to settle all the claims of the parties on terms almost identical to those offered by the Defendant in the latter’s letter dated 30 April 2009, save that the amount of legal costs and expenses to be deducted by the Defendant was to be $30,000, and requested a reply by 18 May 2009.  The Defendant argues that the letter of 14 May 2009 from the Plaintiff’s solicitors, again for the same reasons, amounted to a withdrawal of the original offer, and failed to qualify as a sanctioned offer.

Nature of Sanctioned Offers

7.  Sanctioned offers and sanctioned payments have been introduced under the Civil Justice Reform to facilitate the settlement of proceedings by providing for the mechanics for such offers and payments to be made, clarified and accepted, and by specifying the consequences of acceptance or rejection thereof.

8.  Just as the previous provisions on payment into court were wholly procedural (per Goddard LJ, Cumper v Pothecary [1941] 2 KB 58 at 67), so are the new provisions on sanctioned payments and the parallel provisions on sanctioned offers.  A sanctioned offer, once made, will have the effect and consequences provided for under Order 22.  If made not less than 28 days before the trial commences, it may be accepted by the offeree any time within 28 days, during which time it cannot be withdrawn or diminished by the offeror without the leave of the court.  Even after the 28 days, it remains open for acceptance by the offeree, subject to the court’s leave or the parties’ agreement on the liability for costs.  A sanctioned offer does not normally “lapse”.  These provisions represent obvious departures from the normal rules of offer and acceptance in the law of contract.

9.  It is true that after the initial 28-day period, a sanctioned offer may be withdrawn or diminished without the leave of the court.  Order 22 does not specify how a sanctioned offer may be withdrawn after the 28-day period, although in most cases it should not be difficult to determine if a party intends to withdraw a sanctioned offer, given the potential costs and interest implications.

Withdrawal of Sanctioned Offer?

10.  The Defendant’s argument is that since the Plaintiff made an offer subsequent in time to the sanctioned offer, the original sanctioned offer must be taken to have been revoked.  The argument is a simple application of the rules of offer and acceptance in the law of contract, but in my view, therein lies the fallacy of the argument, since a sanctioned offer is not contractual in nature (in the sense that it is subject to all the normal rules of offer and acceptance in the law of contract), even though the Order 22 settlement procedure still involves an offer being made which has to be accepted.  It is also worth noting that Order 22 itself recognises that a party is free to make an offer to settle proceedings in whatever way he chooses: see Order 22 Rule 2.  This also means that parties may make further offers for settlement in tandem with an existing sanctioned offer or sanctioned payment, but outside the ambit of Order 22. While at this relatively early stage of the development of the law and practice under the new Order 22, it would be unwise for me to rule out the possibility that a subsequent without prejudice offer of settlement may in appropriate circumstances be capable of revoking a sanctioned offer, at the same time I have no doubt that it would be wrong to hold that the making of any subsequent offer, without more, would inevitably revoke an earlier sanctioned offer as in the law of contract.

11.  In any event, the evidence in this case presents little difficulty in deciding whether the sanctioned offer was withdrawn by the Plaintiff’s subsequent offers.  The correspondence on which the Defendant relies began with its letter of 30 April 2009, marked ‘without prejudice save as to costs”.  It is important to note that the letter made no reference to the Plaintiff’s sanctioned offer of 8 April 2009 but instead, referred to the Defence and Counterclaim and the Defendant’s alleged entitlement to freeze the Accounts, and then proceeded to make an offer of settlement.  The Plaintiff’s without prejudice reply of 7 May 2009 was prefaced with a reference to the Defendant’s letter of 30 April 2009, and contained no reference to the sanctioned offer.  The same applies to the Plaintiff’s without prejudice letter of 14 May 2009.  It is clear to me that the parties were conducting a set of self-contained “without prejudice” negotiations for settlement in the ordinary way, outside the ambit of Order 22, which negotiations were independent of the existing sanctioned offer.  I can find no indication in the correspondence of any intention on the Plaintiff’s part to revoke or withdraw its earlier sanctioned offer.  I therefore find that the Plaintiff’s sanctioned offer of 8 April 2009 has not been withdrawn.

12.  I note that the sanctioned offer was made at a time when the Defence and Counterclaim had not been filed, and it did not state (and could not have stated) whether the offer took into account any counterclaim or setoff.  It was a valid sanctioned offer only in respect of the Plaintiff’s claim against the Defendant.  However, since the defence of setoff and the Counterclaim, which failed in any event, raised the same issues as those raised by the Plaintiff’s claim, the sanctioned offer effectively covered all the claims between the parties in this action.

Whether it would be unjust to make enhanced orders

13.  The Defendant submits that even if I find that there was a subsisting sanctioned offer, it would be unjust in this case to make an enhanced interest and costs order: the Defendant was an innocent party caught in the middle of a dispute between two camps of shareholders; the sanctioned offer gave no discount off the claim (although the Plaintiff did offer a $30,000 discount and no order as to costs in a subsequent non-sanctioned offer); the Defendant had tried various means to bring the matter to an end, including attempts to arrange a meeting of the parties involved, interpleader proceedings, and an application under O.14A; the matter was still in flux even after the issue of the writ, e.g. the making of a further statement to the police by Lui about the majority shareholders’ alleged misappropriation of company funds; and the defence was not entirely devoid of merit as the case turned on a question of degree as to whether the materials made available to the Defendant was sufficient to justify its decision to freeze the Accounts .

14.  As I said in my judgment of 13 May 2010, I am not unsympathetic to the Defendant’s position, in that it was caught in the middle of a shareholders’ dispute.  I also added that unfortunately the Defendant had involved itself, which it should not have, with the internal management of the Plaintiff in the handling of this case.  The Plaintiff had given the Defendant 10 months’ time before commencing the present action, during which period it supplied to the Defendant relevant information relating to the majority shareholders’ allegations and presented their version of events, including a police statement: information which should have enabled the Plaintiff to appreciate that it was a shareholders’ dispute over the internal management of the Plaintiff which could not be resolved on paper by, and should not concern, the Defendant.  Although Lui continued his threats and allegations, and made a further police statement after the issue of the writ, the substance of such information had been known to the Defendant at a much earlier stage.  Therefore, it cannot be said that by the time the sanctioned offer was made, the Defendant lacked sufficient information about the case it had to meet in order properly to assess the acceptability of the sanctioned offer, certainly not due to any fault on the part of the Plaintiff.  I do note that the Plaintiff’s offer made no or little discount from its claim.  Having said that, the Defendant did not accept the Plaintiff’s later without prejudice proposal for a $30,000 discount with no order as to costs either, so that the lack of a discount in the original sanctioned offer might not have made a difference.  Nevertheless, the fact remains that the sanctioned offer itself did not offer any discount, except perhaps for a small amount of interest since the offer would be deemed to be inclusive of interest.

15.  Having considered all the circumstances of this case and the Defendant’s submissions, I do not consider it unjust in this case to make the enhanced interest and costs orders, although the points raised by the Defendant and the observations I made thereon are still relevant to the actual terms of the orders I am going to make.

Varying the Orders

16.  The latest date by which the Defendant could have accepted the sanctioned offer without the leave of the court was 6 May 2009.  Taking into account all the factors in this case including the fact that the Defendant was an unwilling litigant, that the defence was not entirely unmeritorious, and that the Defendant has taken steps to try and shorten these proceedings, I consider it appropriate in the exercise of my discretion to vary my earlier order on interest to the extent that there should be interest on the judgment sum at the judgment rate plus 1% from 7 May 2009 until payment.  I also vary the costs order to the extent that the Plaintiff’s costs from 7 May 2009 onwards should be on the indemnity basis and that interest on those costs be at the judgment rate plus 1%.