The Owners and/or Demise Charterers of the Ship or Vessel "MCC Jakarta" v. The Owners and/or Demise Charterers of the Ship or Vessel "Xin Nan Tai 77"

HCAJ 48/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 48 OF 2011

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HCAJ 158/2012 and HCAJ 49/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NOS 158 OF 2012 AND 49 OF 2013

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DECISION ON COSTS

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Introduction

1.  On 2 June 2017, this court handed down a judgment (“Judgment”) after trial of liability in respect of two almost simultaneous collisions near the termination of the East Lamma Channel Traffic Separation Scheme, Hong Kong, at around 3:37am (“1^st Collision”) and 3:40am (“2^nd Collision”) on 14 May 2011 among three container vessels viz “Xin Nan Tai 77” (“Xin Nan Tai”), “MCC Jakarta” (“Jakarta”) and “TS Singapore” (“Singapore”). The 1^st Collision was between Xin Nan Tai and Jakarta. This was followed by the 2^nd Collision between Jakarta and Singapore. All three vessels suffered hull damage to various extent. While Xin Nan Tai and Singapore did not come into physical contact, it is Singapore’s allegation that Xin Nan Tai’s negligent navigation was causative of the 2^nd Collision.

2.  Shortly prior to the commencement of this trial, Singapore settled liability with each of Jakarta and Xin Nan Tai on inter alia the following terms:

(1) Singapore are 5% to blame for the 2^nd Collision;

(2) Jakarta and Xin Nan Tai are between them 95% to blame for the 2^nd Collision;

(3) Jakarta’s and Xin Nan Tai’s individual liability (out of the 95%) is to be determined at the trial, unless agreed; and

(4) Singapore are not to blame for and bear no liability in respect of the 1^st Collision.

3.  In the Judgment, this court found the parties’ respective liabilities for the collisions were as follows:

(1) 1^st Collision

Jakarta	20% to blame
Xin Nan Tai	80% to blame

(2) 2^nd Collision

Singapore	5% to blame
Jakarta	19% to blame
Xin Nan Tai	76% to blame

4.  At paragraph 88 of the Judgment, this court directed that:

“In the absence of agreement on costs within 21 days, the parties shall file and serve their written submissions on costs, to be dealt with by this court on paper."

5.  By a Consent Order dated 25 July 2017 in the Consolidated Action of HCAJ 158/2012 and HCAJ 49/2013, Xin Nan Tai’s counterclaim for declarations of indemnity against Singapore was dismissed and that submissions as to the costs of the said counterclaim were to be filed and served as part of the submissions in respect of the liability trial in the Action.

Costs between Singapore and Jakarta

1^st Collision

6.  Jakarta never made a claim against Singapore in respect of the 1^st Collision.  There are thus no costs issue between the two concerning the 1^st Collision.

2^nd Collision

7.  As between them, this court was informed by Singapore’s solicitors that they had reached an agreement as follows:

(1) For costs incurred up to and including 6 January 2016:

(a) Singapore will pay 5% of Jakarta’s costs of determining liability for the 2^nd Collision, such costs to be taxed on the party/party basis if not agreed; and

(b) Jakarta will pay 19% of Singapore’s costs of determining liability for the 2^nd Collision, such costs to be taxed on the party/party basis if not agreed.

(2) No order as between Jakarta and Singapore for the costs of determining liability for the 2^nd Collision after 6 January 2016.

8.  At paragraph 8 of Jakarta’s written submissions, the same costs order as stated above was put forward by Jakarta’s solicitors as the combined effect of an Interim Agreement to settle liability dated 6 January 2016 and the Judgment in which liability for the 2^nd Collision was apportioned.

9.  Since Singapore and Jakarta are ad idem as to the terms of the costs order between them, this court will make an order on costs accordingly.

Costs between Xin Nan Tai and Jakarta

10.  As there is no agreement on costs between the two, this court will proceed to deliberate on their submissions.

1^st Collision

11.  In his written submissions, Mr Luxton accepted that, as a general principle, costs in relation to determination of liability in a collision action are to be apportioned to the same degree in which the respective vessels are found to be at fault: Marsden & Gault on Collisions at Sea 14^th ed para 21–016.

12.  On that basis, in relation to the costs of determining liability for the 1^st Collision, Mr Luxton submitted that:

(1) Jakarta is entitled to 80% of its costs from Xin Nan Tai, to be taxed on the party/party basis if not agreed; and

(2) Xin Nan Tai is entitled to 20% of its costs from Jakarta, to be taxed on the party/party basis if not agreed.

13.  Solicitors for Jakarta, on the other hand, submitted that, in relation to the costs of determining liability for the 1^st Collision, the general principle should be departed from in the present case by reason of two sanctioned offers made under RHC O 22 to Xin Nan Tai.

14.  First, on 16 December 2013, Jakarta made a sanctioned offer to Xin Nan Tai (“1^st Jakarta Offer”) to agree liability for the 1^st Collision on the basis that Xin Nan Tai was 2/3 to blame and Jakarta was 1/3 to blame.  The 1^st Jakarta Offer was not accepted by Xin Nan Tai.

15.  Second, on 26 April 2016, Jakarta made another sanctioned offer to Xin Nan Tai (“2^nd Jakarta Offer”) to agree liability for the 1^st Collision on the basis that Xin Nan Tai was 60% to blame and Jakarta was 40% to blame.  The 2^nd Jakarta Offer was even more favourable to Xin Nan Tai but still not accepted.

16.  Solicitors for Jakarta submitted that the 1^st Jakarta Offer met all the requirements as to form and content of RHC O 22 r 5 and was an effective sanctioned offer.  They further submitted that Xin Nan Tai has done worse after trial than the 1^st Jakarta Offer — the 1^st Jakarta Offer provided for Xin Nan Tai to bear only 2/3 of the liability for the 1^st Collision whereas Xin Nan Tai was ultimately found to be 80% liable.  Hence, the situation falls squarely within RHC O 22 r 24(1)(b), the costs consequences of which are those set out in RHC O 22 r 24(3) and (4).

17.  RHC O 22 r 24(1)(b), (3), (4) and (5) provide that:

“(1) This rule applies where —

…

(b) the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff’s sanctioned offer.

…

(3) The Court may also order that the plaintiff is entitled to—

(a) his costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and

(b) interest on those costs at a rate not exceeding 10% above judgment rate.

(4) Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including —

(a) the terms of any sanctioned offer;

(b) the stage in the proceedings at which any sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.”

18.  Solicitors for Jakarta submitted that this is a paradigm example of a party not accepting an offer and then doing significantly worse at trial and is therefore exactly the sort of scenario which the sanctioned offers scheme under RHC O 22 is directed at.  They therefore asked for costs on an indemnity basis after 13 January 2014 being the latest date on which Xin Nan Tai could have accepted the 1^st Jakarta Offer without leave of the court (“Cut‑Off Date”) as well as interest on those costs.  They suggested that the appropriate costs order should be as follows:

(1) Xin Nan Tai to pay 80% of Jakarta’s costs of determining liability for the 1^st Collision, to be taxed if not agreed on the party/party basis up until 13 January 2014, and thereafter on the indemnity basis.

(2) Xin Nan Tai to pay interest on Jakarta’s costs after 13 January 2014 at the rate of 10% above the judgment rate.

(3) Jakarta to pay 20% of Xin Nan Tai’s costs of determining liability for the 1^st Collision, to be taxed if not agreed on the party/party basis.

19.  Lastly, solicitors for Jakarta submitted that, if the 1^st Jakarta Offer is, for whatever reason, considered ineffective, they will rely on the 2^nd Jakarta Offer which was also not accepted and which Xin Nan Tai had failed to beat.  The Cut‑Off Date for the 2^nd Jakarta Offer was 24 May 2016.  They submitted that the appropriate costs order should be the same as those set out in the preceding paragraph, save that “13 January 2014” be substituted by “24 May 2016”.

20.  In response, Mr Luxton first argued that the 1^st Jakarta Offer had included an offer that costs incurred in determining liability be paid in the same proportion as liability itself ie Xin Nan Tai was 2/3 responsible while Jakarta was 1/3 responsible.  He said the inclusion of an offer as to costs was inconsistent with RHC O 22 and therefore the 1^st Jakarta Offer was ineffective as a sanctioned offer and did not attract the costs consequences prescribed in RHC O 22 r 24.  Mr Luxton further submitted that the 2^nd Jakarta Offer suffered from the same defect and was equally ineffective (“1^st Xin Nan Tai Argument”).

21.  Before turning to the authorities, this court would like to make two observations.

22.  First, in accordance with the long‑established practice in collision actions, trial of liability comes first before the Admiralty Judge, to be followed, if so required, by a reference to the Admiralty Registrar for assessment of damages: Calandra Shipping Co Ltd v Noor Maritime Ltd [2014] 2 HKLRD 242.  The sole purpose of a collision liability trial is to determine and apportion blame for a collision among two or more vessels on a percentage basis.  Hence, an offer to settle on liability does not purport to settle the whole or part of a claim within the meaning of RHC O 22 r 3 or r 4 — it is only an offer to settle “an issue arising from the claim”.  Nor does it purport to take into account any counterclaim or setoff since quantum of the claim, counterclaim or setoff will only come into picture later.

23.  Second, it is perfectly sensible for Jakarta to have made an offer of settlement of liability and costs in the same proportion, since this is in line with the established principle in collision cases that apportionment of costs should generally mirror the apportionment of liability: The Rockabill [1937] P 93; The Pencarrow (1948) 81 L1 L Rep 225; The Spyros [1953] 1 Lloyd’s Rep 501.  Offering Xin Nan Tai to pay less costs than its share of liability for the collision is illogical.  Requiring Xin Nan Tai to pay more costs than its share of liability is unfair and hence unattractive to Xin Nan Tai and defeats the purpose of making an offer to settle.

24.  This court now turns to the authorities under RHC O 22.

25.  In support of his submission that a valid sanctioned offer under RHC O 22 cannot include a term as to costs, Mr Luxton principally relied on Wong Yim Man Anthea v Wong Ho Ming Felix [2016] 4 HKC 243, a decision of DHCJ Kent Yee.

26.  In Wong Yim Man Anthea v Wong Ho Ming Felix, the court dismissed the plaintiff’s claim after trial but ordered her, on a nisi basis, to pay 40% of the defendant’s costs.  The defendant then applied to vary the costs order nisi and sought indemnity costs and enhanced interest on costs pursuant to RHC O 22 r 23 on the strength of a purported sanctioned offer.  The terms of the offer were for the plaintiff to withdraw her claim with no order as to costs.  The learned Deputy Judge held that the offer did not fit in the RHC O 22 mechanism due to its inclusion of a term as to costs.  His reasons were as follows:

“9. O 22 r 1 defines a “sanctioned offer” in the following terms: “sanctioned offer” means an offer made (otherwise than by way of a payment into court) in accordance with this Order.

10. O 22 r 3 provides that an offer by a defendant to settle the whole or part of a claim or an issue arising from the claim does not have the consequences specified in O 22 unless it is made by way of a sanctioned offer or a sanctioned payment or both.

…

15. O 22 r 20 provides that where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the court, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the court otherwise orders. It is remarkable that this rule is not made subject to any costs provision in the sanctioned offer accepted by the plaintiff.

16. It is thus clear that if a sanctioned offer made in good time by a defendant (28 days before the commencement of the trial), a plaintiff can accept the sanctioned offer within 28 days from the date of its making without leave of the court and any further agreement on the liability for costs, the consequences specified in O 22, to be precise, r 20 will automatically flow from the acceptance of the sanctioned offer.

…

18. In my view, the Offer does not fit in the O 22 mechanism due to its inclusion of a term as to costs. Its proposed costs order (no order as to costs) effectively prevents the specified cost consequences upon its acceptance by Madam Wong under O 22 r 20. It is not in dispute that the Offer was made more than 28 days before the commencement of the trial. If Madam Wong had accepted it within 28 days thereafter, she would have been completely deprived of her entitlement to her costs of the proceedings up to the date of serving her notice of acceptance under O 22 r 20.

…

34. Ms Lau helpfully draws my attention to Leung Lai Kwan v Lo Kai Wing and Anor (unreported, HCMP 1554/2015, 20.8.2015). There, the Court of Appeal consisting of Lam VP and Barma JA dealt with the plaintiff’s application for leave to appeal against the costs order made by DHCJ Saunders.

35. The deputy judge’s costs order was made after the defendants’ application to vary the costs order nisi in his judgment ([2015] 3 HKLRD 152) whereby the plaintiff’s claim was dismissed. The variations sought by the defendants were based on three separate offers made on three different dates prior to the trial. The deputy judge made three different costs orders in light of the three offers which he held not to be qualified as sanctioned offers. The last costs order he made was that the plaintiff should pay costs to the defendants on indemnity basis from 18 July 2014 to the end of the trial. The plaintiff only sought leave to appeal against this order and not the other two.

…

38. Lam JA explained why the offers of the three offers could not have been made by way of sanctioned offers (and hence the court might take them into account under O 62 r 5(1)(d)) in the following terms at §7:

“The offers to settle are not simply payment of money by the Defendants to the Plaintiff.  They involved the Plaintiff agreeing that she had no interest in the property (under the offer of 12 Sept 2013) or she agreeing to sell the property within 6 months (under the offer of 19 June 2014) or she co‑operating in the valuation process and agreement to accept her interest being limited to half of the assessed value or $1,550,000.  All the offers were made on the basis of no order as to costs, which cannot be accommodated in the sanctioned payment or sanctioned offer regime in view of O 22 r 20(1), see Wealthy Plus Ltd v Lai Man Ho [2001] 4 HKC 691.  The Judge was clearly right in holding that this is not a case where the Defendants could have protected their position by means of a sanctioned payment, and as such not within the scope of Order 62 rule 5(1)(d).  (emphasis supplied)”

39. It is clear that Lam JA was of the view that any offer made on the basis of no order as to costs cannot be accommodated in the O 22 regime by reason of its irreconcilable conflict with O 22 r 20(1).” (emphasis added)

27.  In Wong Yim Man Anthea v Wong Ho Ming Felix, counsel for the defendant placed heavy emphasis on two earlier Court of Appeal decisions viz Central Management Limited v Light Field Investment Limited and Ors [2011] 2 HKLRD 34 and Chan Kwing Chiu and Anor v Chan Chi Kau, unrep, CACV 209/2012, 3 October 2013 in which a sanctioned offer containing terms as to costs was accepted as valid for the purpose of RHC O 22.  The learned Deputy Judge however decided not to follow them on the ground that the validity of the sanctioned offer was not in issue in the two cases.

28.  In this court’s view, Wong Yim Man Anthea v Wong Ho Ming Felix is not authority for the proposition that a valid sanctioned offer can never include a term as to costs as such.  As can be seen from paragraphs 18 and 39 of DHCJ Kent Yee’s judgment quoted above, it is only if the term as to costs conflicts with the costs consequence prescribed by RHC O 22 r 20 (or some other rules in RHC O 22) that the sanctioned offer will be rendered invalid.

29.  The matter can be tested in this way.  Suppose a defendant’s sanctioned offer to settle the whole of a plaintiff’s claim includes a term as to costs, but that term is identical to what is stated in RHC O 22 r 20(1) ie the plaintiff is entitled to his costs of the proceedings up to the date of service of the notice of acceptance.  Unless the offer falls foul of other specific rules in RHC O 22, for instance, r 5 (concerning form and content), it does come squarely within the definition of “sanctioned offer” in RHC O 22 r 1 in that it is “an offer made in accordance with this Order” even though it includes a term as to costs. In those circumstances, there is no reason or logic to regard the offer as an invalid sanctioned offer.

30.  In the present case, the 1^st Jakarta Offer was made by Jakarta as the Plaintiff in HCAJ 48/2011 to Xin Nan Tai as the Defendant.  Hence, RHC O 22 r 20 is inapplicable since that rule is concerned with a defendant’s sanctioned offer.  Further, the 1^st Jakarta Offer was not an offer to settle the whole claim — rather, it only related to an issue arising from the claim.  Hence, RHC O 22 r 21, which sets out the costs consequences of a defendant’s acceptance of a plaintiff’s sanctioned offer to settle the whole claim, is also inapplicable.  As far as this court can see, the 1^st Jakarta Offer, in particular its offer as to costs, did not conflict with any “mandatory” rules under RHC O 22 as to costs consequences upon acceptance.  The same can be said of the 2^nd Jakarta Offer.

31.  For these reasons, this court rejects Mr Luxton’s 1^st Xin Nan Tai Argument.

32.  Mr Luxton’s next argument was confined to the 1^st Jakarta Offer.  He submitted that the 1^st Jakarta Offer was not properly served on Xin Nan Tai, as required by RHC O 22 r 6(a).  This was because it was sent to TZ & Co Law Firm of Shanghai, PRC whereas, at that time, Xin Nan Tai’s address for service was “Xiamen Nantal Shipping Co Ltd of Dongdu Road 106-4-301, Xiamen, PRC”, as stated in its Notice to Act in Person dated 25 October 2012.  Central to the submission is that the 1^st Jakarta Offer should have been sent to the address in Xiamen, PRC in order for it to be effective (“2^nd Xin Nan Tai Argument”).

33.  Solicitors for Jakarta submitted that the address for service given in Xin Nan Tai’s Notice to Act in Person was not a proper address for service since it was an address outside the jurisdiction.  In support of that submission, this court was referred to Questnet Ltd v Kurt Georg Rocco Rinck, unrep, HCA 1475/2006, 15 June 2007; Chu J (as she then was) at [18] and Dianoor International Ltd v Aiyer Vembu Subramaniam, unrep, HCA 806/2008, 19 November 2010; DHCJ L Chan (as he then was) at [4].  In both cases, the learned Judges held that the address for service given by a defendant’s notice to act in person under RHC O 67 r 4 must be an address within the jurisdiction, by reason of the combined effect of RHC O 12 r 3(2) and O 67 r 4.

34.  RHC O 12 r 3(2) provides that:

“(2) An acknowledgment of service must specify —

(a) in the case of a defendant acknowledging service in person, the address of his place of residence and, if his place of residence is not within the jurisdiction or if he has no place of residence, the address of a place within the jurisdiction at or to which documents for him may be delivered or sent,

…

and where the defendant acknowledges service in person the address within the jurisdiction specified under sub-paragraph (a) shall be his address for service, but otherwise his solicitor’s business address shall be his address for service.” (emphasis added)

35.  In Dianoor International Ltd v Aiyer Vembu Subramaniam at [4], the learned Deputy Judge reasoned as follows:

“The intention of Order 12, rules 3 and 4 is clear. It is to ensure that a defendant contesting a claim here should provide an address within this jurisdiction for service of documents on him. Though Order 67, rule 4 does not expressly say that the address for service has to be within this jurisdiction, I have no doubt that it has to be within this jurisdiction, otherwise Order 12, rules 3 and 4 can easily be defeated by a defendant who acknowledges service by a solicitors and then files a notice of intention to act in person but not giving a local address for service. I do not think Order 12, rules 3 and 4 can be defeated that way. I also refer to the judgment of Chu J, in Questnet Limited v Kurt George Rocco Rink & Anor HCA 1475/2006 (15 June 2007) at paragraph 18 where the learned judge referred to the combined effect of Order 12, rule 3(2)(a) and Order 67, rule 4.” (emphasis added)

36.  This court agrees with solicitors for Jakarta and sees no reason to depart from the two cases cited.  If so, the basic premise of Mr Luxton’s submission ie the 1^st Jakarta Offer should have been sent to the address in Xiamen, PRC falls away.

37.  Furthermore, solicitors for Jakarta have adduced contemporaneous correspondence suggesting that TZ & Co Law Firm was at the material time instructed on behalf of Xin Nan Tai to communicate with them for the purpose of exploring an amicable settlement.  In an email dated 26 September 2012, TZ & Co Law Firm wrote to Ince & Co stating that:

“for the purpose of exploring a quick and amicable solution, Owners of mv Xin Nan Tai 77 now instruct us to render help. In order to push forward the case … we wonder you would be available on 4 or 5 October … and would like together with Owners’ representative Mr. Xia to pay you a visit.”

38.  Similarly, in response to the same argument by Mr Luxton, solicitors for Singapore have also adduced correspondence in 2014 suggesting that TZ & Co Law Firm was at the material time instructed on behalf of Xin Nan Tai to communicate with them as well as Ince & Co for the purpose of exploring an amicable settlement.

39.  This court also put on record that in Mr Luxton’s written submissions, it was not denied that Xin Nan Tai had instructed TZ & Co Law Firm to communicate on its behalf with Jakarta’s or Singapore’s solicitors on the question of settlement.  Nor did Xin Nan Tai dispute having received the 1^st Jakarta Offer.

40.  For these reasons, this court also rejects the 2^nd Xin Nan Tai Argument.

41.  Having decided that the 1^st Jakarta Offer was an effective one made under RHC O 22, this court will now turn to the question of indemnity costs and interest on those costs.

42.  The starting point is RHC O 22 r 24(4) which provides that the court shall make the orders at (3) unless it considers it unjust to do so.

43.  Sanctioned offers are part of the new regime introduced by the CJR to encourage litigants to take settlement offers seriously and to avoid protracted legal proceedings, with all their ramifications on legal costs, the courts’ time and resources, as well as to avoid undue delay.  The powers under the new regime are not penal in nature — the aim is to achieve a fairer result for the “successful” party, in this case the Jakarta, and to redress the perceived unfairness of the fact that it will not be fully compensated for by costs orders on the ordinary basis (whether party and party or indemnity): CEP Ltd v Wuxi Jiacheng Solar Energy Technology Co Ltd [2016] 1 HKLRD 960 at [31].

44.  This court would take the opportunity to add that the purpose of the CJR generally and the underlying objectives of the Rules of the High Court are inter alia to ensure that a case is dealt with as expeditiously as is reasonably practicable, to facilitate the settlement of disputes and to ensure that the resources of the courts are distributed fairly.  Since these are the general and underlying purpose and objectives of the Rules, there is no reason why RHC O 22 r 24 should be treated differently.  Hence, while achieving a fairer result for the “successful” party is important, it is equally important that the power under that rule should be so exercised that the courts’ time and resources will not be unnecessarily spent and incurred by the rejection of a serious sanctioned offer which the other party eventually fails to beat.

45.  In this court’s view, there is nothing unjust to award costs on indemnity basis after the Cut‑Off Date, and none has been shown by Mr Luxton.

46.  In OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195, Sir Geoffrey Vos, Chancellor of the High Court, observed at [38] and [39]:

“38. In my judgment, the use of the word “penal” to describe the award of enhanced interest under CPR r 36.14(3)(a) is probably unhelpful. The court undoubtedly has a discretion to include a non-compensatory element to the award as I have already explained, but the level of interest awarded must be proportionate to the circumstances of the case … All cases will be different. Just as the court is required to have regard to “all the circumstances of the case” in deciding whether it would be unjust to make all or any of the four possible orders in the first place, it must have regard to all the circumstances of the case in deciding what rate of interest to award under rule 36.14(3)(a). As Lord Woolf MR said in the Petrotrade case, and Chadwick LJ repeated in the McPhilemy case, this power is one intended to achieve a fairer result for the claimant. That does not, however, imply that the rate of interest can only be compensatory. In some cases, a proportionate rate will have to be greater than purely compensatory to provide the appropriate incentive to defendants to engage in reasonable settlement discussions and mediation aimed at achieving a compromise, to settle litigation at a reasonable level and at a reasonable time, and to mark the court’s disapproval of any unreasonable or improper conduct, as Briggs LJ put the matter, pour encourager les autres.

39. The culture of litigation has changed even since the Woolf reforms. Parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.” (emphasis added)

47.  Although the above observation was made in the context of enhanced rate of interest on the award itself, it seems to this court the same rationale and sentiment applies in relation to enhanced rate of interest on costs.

48.  With regard to enhanced interest on costs, it is not in dispute that 10% over judgment rate is the upper limit.  As such, the upper limit should be reserved for the worst type of cases such as OMV Petrom SA v. Glencore International AG [2017] EWCA Civ 195 in which the Court of Appeal awarded the maximum rate of enhanced interest on costs in view of inter alia the fact that costs were largely incurred in advancing a dishonest and unreasonable defence: OMV Petrom SA v. Glencore International AG at [44].  Such a factor is not present here.  Although Xin Nan Tai has failed to beat the 1^st Jakarta Offer, this court does not consider their conduct at the trial as anywhere close to being “dishonest” or “unreasonable”.

49.  Having considered all the circumstances of the case, including the matters set out in RHC O 22 r 24(5) as well as Xin Nan Tai’s conduct at the trial, in this court’s view, there is nothing unjust to award interest on costs incurred after the Cut‑Off Date at an enhanced rate, and none has been shown by Mr Luxton.  In view of the low interest rate environment worldwide for the last decade or so, this court respectfully agrees with Lam J (as he then was) in Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 where he suggested that 4% over prime rate would generally represent a generous assessment of the cost of money.

50.  Lastly, to avoid the necessity of calculating the precise amount of interest on each item of costs incurred, this court will respectfully adopt the approach of the Court of Appeal in Antwerp Diamond Bank NV v Brink’s Incorporated (no 2) [2015] 4 HKLRD 628 at [27]:

“27. As for whether the rate of interest should be enhanced, and if so to what level, it seems to us that the mere fact that the Plaintiff is a bank is not something that can render it unjust to make an order for the payment of interest on costs at an enhanced rate. That being so, such an order should be made (see Order 22 rule 24(4)). We also see no reason to depart from the approach of Lam J (as Lam VP then was) in Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273, where he suggested that 4% over prime rate would generally represent a generous assessment of the cost of money. We would therefore order that interest on costs be paid at half of 4% over prime rate on the whole of the costs to avoid the necessity of calculating the precise amount of interest on each item of costs incurred.” (emphasis added)

51.  To conclude, this court is of the view that the appropriate costs order with regard to the 1^st Collision should be as follows:

(1)   Xin Nan Tai to pay 80% of Jakarta’s costs of determining liability for the 1^st Collision, to be taxed if not agreed on the party/party basis up until 13 January 2014, and thereafter on the indemnity basis.

(2)   Xin Nan Tai to pay interest on Jakarta’s such costs after 13 January 2014 at the rate of half of 4% over prime rate.

(3)   Jakarta to pay 20% of Xin Nan Tai’s costs of determining liability for the 1^st Collision, to be taxed if not agreed on the party/party basis.

2^nd Collision

52.  In relation to costs of determining liability for the 2^nd Collision, Mr Luxton submitted that the general principle is applicable so that:

(1)   Jakarta is entitled to 76% of its costs from Xin Nan Tai, to be taxed on the party/party basis if not agreed;

(2)   Xin Nan Tai is entitled to 19% of its costs from Jakarta, to be taxed on the party/party basis if not agreed.

53.  Solicitors for Jakarta again submitted that the general principle should be departed from in the present case by reason of a sanctioned offer made under RHC O 22 to Singapore and Xin Nan Tai on 6 January 2014 (“3^rd Jakarta Offer”).  In this offer, Jakarta proposed to agree liability for the 2^nd Collision on the basis that Singapore was 10% to blame, Jakarta was 30% to blame and Xin Nan Tai was 60% to blame, with costs to be paid in the same proportions.  The 3^rd Jakarta Offer was not accepted by either Singapore or Xin Nan Tai.

54.  Solicitors for Jakarta submitted that since Xin Nan Tai had done much worse than the offer of 60% to blame, the costs consequences set out in RHC O 22 r 24 should be engaged. 

55.  Mr Luxton, for Xin Nan Tai, submitted that the 3^rd Jakarta Offer did not comply with the requirements of RHC O 22 and therefore did not attract the costs consequences specified in O 22 r 24.  In essence, he repeated his 1^st Xin Nan Tai Argument ie the offer contained a specific provision for apportionment of costs, and 2^nd Xin Nan Tai Argument ie the offer was addressed to TZ & Co Law Firm whereas Xin Nan Tai’s address for service at that time was in Xiamen, PRC, as stated in its acknowledgment of service dated 3 December 2013.  For the same reasons already set out earlier in this Decision, this court rejects the 1^st and 2^nd Xin Nan Tai Arguments with regard to this offer.

56.  Mr Luxton further argued that the 3^rd Jakarta Offer could not have been accepted by Xin Nan Tai alone as it was addressed to both Singapore and Xin Nan Tai.  Since Singapore did not accept the offer that it was 10% to blame for the 2^nd Collision, there could not have been a final settlement even if Xin Nan Tai accepted it was 60% to blame (“3^rd Xin Nan Tai Argument”).

57.  In this court’s view, the difficulty of treating the 3^rd Jakarta Offer as a valid sanctioned offer under RHC O 22 is not so much that it required the acceptance of both Singapore and Xin Nan Tai in order to achieve a final settlement and avoid the necessity of a trial.  While the 3^rd Jakarta Offer was addressed to both Singapore and Xin Nan Tai, it was up to Xin Nan Tai to protect its own costs position by accepting it was 60% to blame and settled with Jakarta on that basis.  Hence, this court also rejects the 3^rd Xin Nan Tai Argument.

58.  Rather, the difficulty, as recognized by Jakarta’s solicitors in paragraph 11 of their written submissions, is that the terminology as well as the structure of RHC O 22 are not entirely apt to cover the present situation.  Having considered RHC O 22 in its entirety, it appears to this court that the scheme under it contemplates a relatively straightforward settlement offer made either by a plaintiff[1] or by a defendant[2].  Depending on its terms, the acceptance of such an offer will settle the entire claim, part of a claim or an issue arising from it, with specified costs consequences under r 20, 21 or 22, while the non‑acceptance of it, depending on the outcome of the action, may attract the costs consequences under r 23 or 24.

59.  While Jakarta’s solicitors submitted that, for the present purpose, Jakarta ought to be regarded as the Plaintiff and Xin Nan Tai regarded as the Defendant, they have not proceeded to explain, and it is not easy to see, why that should be so.  No authorities, direct or otherwise, have been cited to this court to support their contention. In the Consolidated Action of HCAJ 158/2012 and HCAJ 49/2013, both Jakarta and Xin Nan Tai were Defendants.  There are no express provisions in RHC O 22 which cater for the making of sanctioned offers by one defendant to another or specify the costs consequences of such offers.  In particular, RHC O 22 rr 23 and 24 only envisage two scenarios: (1) a plaintiff fails to “do better” than a defendant’s sanctioned payment or offer; and (2) a plaintiff “does better” than his sanctioned offer. Neither scenario is applicable to the present case.

60.  It seems to this court the better analysis of the situation is to treat the 3^rd Jakarta Offer as an open offer, as Jakarta’s solicitors submitted in the alternative.  In this regard, RHC O 22 r 2(4) provides that:

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

61.  The mechanism of open offers and their costs consequences in collision actions are set out in Marsden & Gault on Collisions at Sea 14^th ed at para 21–018:

“In a collision action, it has always been the practice of the Admiralty Court that offers to settle before trial were treated as analogous to payment into court. If the offeree did less well at the trial than the offer he would have to pay the offeror’s costs from about the date of the offer … The party to whom the offer was made would be allowed some time to consider it but the date of a rejection might be taken as the cut‑off point. Costs remained at the discretion of the judge and he might choose to disregard the offer made.”

62.  Since Xin Nan Tai did worse at the trial than the offer of 60% to blame for the 2^nd Collision, it should have to bear Jakarta’s costs after a certain cut‑off point.  In the 3^rd Jakarta Offer, it was stated that the offer was open for acceptance for 28 days.  It seems to this court that should be enough time for Xin Nan Tai to consider accepting the offer or not.  

63.  Hence, the appropriate order as to the costs should be:

(1)   Xin Nan Tai be liable for 76% of Jakarta’s costs of determining liability for the 2^nd Collision, to be taxed if not agreed on the party/party basis up to 3 February 2014[3].

(2)   Jakarta be liable for 19% of Xin Nan Tai’s costs of determining liability for the 2^nd Collision, to be taxed if not agreed on the party/party basis up to 3 February 2014.

(3)   Xin Nan Tai be liable for all of Jakarta’s costs of determining liability for the 2^nd Collision after 3 February 2014, to be taxed if not agreed on the party/party basis.

(4)   Jakarta is not liable for Xin Nan Tai’s costs of determining liability for the 2^nd Collision after 3 February 2014.

64.  At paragraph 34 of his written submissions, Mr Luxton has very sensibly accepted that if the court is minded to take into account the 3^rd Jakarta Offer, then Jakarta would be entitled to its costs in full on the party/party basis after the offer expired on 3 February 2014.

65.  However, Mr Luxton also submitted that since Singapore is, by agreement with Jakarta, liable for 5% of Jakarta’s costs in relation to the 2^nd Collision up until 6 January 2016, there is a potential problem of double recovery by Jakarta of its costs after 3 February 2014 until 6 January 2016.  He suggested that for that period, Jakarta is only entitled to recover 95% of its costs from Xin Nan Tai - the remaining 5% of its costs should come from Singapore.

66.  This court agrees that Jakarta cannot have double recovery of its costs from both Singapore and Xin Nan Tai incurred between 4 February 2014 and 6 January 2016, but does not agree that the proper order for costs between Jakarta and Xin Nan Tai should be revised in the way suggested by Mr Luxton, which represents a windfall for Xin Nan Tai to the extent of the 5% which Singapore agreed to pay. So long as there is no double recovery, it is up to Jakarta to pursue Singapore and/or Xin Nan Tai for its costs to the extent the two are legally liable.

Costs between Xin Nan Tai and Singapore

67.  Again, as there is no agreement on costs between the two, this court will proceed to deliberate on their submissions.

1^st Collision

68.  With regard to Xin Nan Tai’s counterclaim in HCAJ 158/2012 against Singapore for a declaration that Singapore is liable to indemnify it for any damages payable to Jakarta^[4], Mr Luxton accepted that Singapore is entitled to its costs from Xin Nan Tai, to be taxed on the party/party basis if not agreed^[5].

69.  While the terms of the declaration sought by Xin Nan Tai in HCAJ 158/2012 are not entirely clear on this, it would appear from Mr Luxton’s written submissions that he accepted the declaration covered damages arising from the 1^st Collision. That is certainly the understanding of Singapore’s solicitors.^[6]  Singapore’s solicitors submitted that by reason of (1) Xin Nan Tai being the only party to blame Singapore for the 1^st Collision, (2) the Judgment that Singapore was not to blame for the 1^st Collision and (3) the subsequent dismissal of Xin Nan Tai’s counterclaim, Xin Nan Tai should bear all of Singapore’s costs of determining liability for the 1^st Collision and this should be spelt out clearly in the costs order as follows:

“Xin Nan Tai to pay Singapore’s costs of determining liability for the 1^st Collision, to be taxed on a [party/party] / [indemnity] basis if not agreed.”[7]

70.  This court accepts that Singapore’s formulation of the costs order is more preferable by virtue of its clarity.  However, as submitted by Mr Luxton, since Singapore and Xin Nan Tai finally reached an agreement on liability for the 1^st Collision on 15 July 2016, Singapore should not be entitled to costs in relation to the 1^st Collision from Xin Nan Tai after that date.  There is force in that submission.

71.  As for Singapore’s claim to costs on the indemnity basis, this is premised on the validity of the two purported sanctioned offers referred to below.

72.  With regard to the 1^st Singapore Offer, this can be disregarded for the simple reason that, as it did not deal with the 1^st Collision at all[8], it had no effect on the costs relating to the 1^st Collision. 

73.  With regard to the 2^nd Singapore Offer, for reasons which shall become apparent, this court does not consider it to be a valid sanctioned offer.  Nor can this court take it into account as a Calderbank offer.  

74.  In these circumstances, the proper order for costs shall be:

(1)   Xin Nan Tai to pay Singapore’s costs of determining liability for the 1^st Collision up to and including 15 July 2016, to be taxed on the party/party basis if not agreed.

(2)   No order as between Xin Nan Tai and Singapore for the costs of determining liability for the 1^st Collision after 15 July 2016.

2^nd Collision

75.  On the basis of the general principle referred to in paragraph 11 above, in relation to the costs of determining liability for the 2^nd Collision, Mr Luxton submitted that:

(1)   Singapore is entitled to recover 76% of its costs from Xin Nan Tai, to be taxed on the party/party basis if not agreed;

(2)   Xin Nan Tai is entitled to recover 5% of its costs from Singapore, to be taxed on the party/party basis if not agreed.

76.  Singapore submitted that, in relation to the costs of determining the liability for the 2^nd Collision, it had made sanctioned offers under RHC O 22 to Xin Nan Tai which had a significant impact on costs.

77.  First, on 10 February 2014, Singapore made a sanctioned offer to Xin Nan Tai and Jakarta (“1^st Singapore Offer”) to agree liability for the 2^nd Collision as follows:

“Singapore 5% to blame; Xin Nan Tai and Jakarta jointly and severally 95% to blame, while costs shall be paid on the same basis and in the same proportion.”

78.  Second, on 20 October 2014, Singapore made another sanctioned offer to Xin Nan Tai and Jakarta (“2^nd Singapore Offer”) to agree liability as follows[9]:

(1)   1^st Collision — Singapore 0% to blame.

(2)   2^nd Collision — Singapore 5% to blame; Xin Nan Tai and Jakarta 95% to blame (in proportion to their respective blameworthiness as agreed or held by the Court).

79.  Xin Nan Tai did not accept either offer.

80.  It was not until 15 July 2016 that Singapore and Xin Nan Tai were able to reach an agreement on liability:

(1)   1^st Collision — Singapore 0% to blame.

(2)   2^nd Collision — Singapore 5% to blame; Xin Nan Tai and Jakarta 95% to blame (their liability to be apportioned at trial if not agreed).

81.  Mr Luxton submitted that the 1^st Singapore Offer did not comply with the requirements of RHC O 22 and hence was invalid as a sanctioned offer.  Essentially, he repeated the substance of the 1^st Xin Nan Tai Argument (inclusion of an offer as to costs), the 2^nd Xin Nan Tai Argument (no proper service) and the 3^rd Xin Nan Tai Argument (the offer could not have been accepted by Xin Nan Tai alone).  For reasons already set out earlier in this Decision, this court does not accept any of the three arguments.  But that is not the end of the matter.

82.  It seems to this court the reason why the 1^st Singapore Offer can be disregarded is this.  Its term was that Xin Nan Tai and Jakarta should be jointly and severally 95% to blame for the 2^nd Collision. Whereas, at the trial, Xin Nan Tai was found to be only 76% to blame for the 2^nd Collision. In other words, Xin Nan Tai was not held liable for more than Singapore’s 1^st offer and so the costs consequences set out in RHC O 22 r 24 are not applicable.

83.  In relation to the 2^nd Singapore Offer, Mr Luxton repeated the 1^st Xin Nan Tai Argument and 3^rd Xin Nan Tai Argument and submitted that it did not comply with the requirements of RHC O 22.  For reasons already stated, this court does not accept either argument.

84.  Further, he submitted that the 2^nd Singapore Offer failed to comply with the mandatory requirement set out in RHC O 22 r 5(7) in that it failed to specify that after 28 days from the date when the offer was made, the offeree could only accept the offer if the parties agreed on the liability for costs or the Court granted leave to accept it.  As such, it was not a proper sanctioned offer within the meaning of RHC O 22.

85.  RHC O 22 r 5(7) provides:

“A sanctioned offer made not less than 28 days before the commencement of the trial must provide that after the expiry of 28 days from the date the sanctioned offer is made, the offeree may only accept it if —

(a) the parties agree on the liability for costs; or

(b) the Court grants leave to accept it.” (emphasis added)

86.  In the absence of authorities, this court would have thought that the submission is highly technical and devoid of merits.  But the submission is in fact supported by direct authorities.

87.  In Kwok Chin Wing v 21 Holdings Limited & Anor [2011] 3 HKC 542, Saunders J held that where an offer, although expressed as a sanctioned offer, did not comply with the provisions of RHC O 22 r 5(7) for failing to set out the required circumstances enabling acceptance of it after the expiry of 28 days, it was not a valid sanctioned offer.  As a result, a plaintiff who had made the offer could not rely on it in order to invoke the costs and other consequences set out in RHC O 22 r 24.  

88.  Kwok Chin Wing v 21 Holdings Limited & Anor was followed in Montrio Ltd v Tse Ping Shun David [2012] 2 HKC 392.  The purported sanctioned offer in that case also failed to stipulate the circumstances enabling acceptance of the offer after the expiry of 28 days as required by RHC O 22 r 5(7). At [9] and [10] of the judgment, Poon J (as he then was) observed:

“9. Sanctioned offers are part of the new regime introduced by CJR to encourage litigants to take positive settlement seriously and avoid unproductive and expensive prolongation of the proceedings. Such offers enable a plaintiff to make an offer for settlement of his claims, wholly or partially. Serious consequences may follow from the sanctioned offer. If the defendant rejects it and the plaintiff does better at trial, he may have to pay indemnity costs and enhanced interest of the sum awarded. Since it is the plaintiff who seeks to invoke the new rules to protect his position, he must strictly comply with all the mandatory requirements when he purports to make a sanctioned offer. It does not lie in his mouth to say that his failure to do so is only a technical slip or the defendant is legally represented and hence must know what the requirements are. The plaintiff has a positive duty to fully comply with the rules in the first place in order to make his offer a valid sanctioned offer. I therefore rule that the Offer is not a sanctioned offer within the meaning of Order 22.

10. It follows that the plaintiffs are not entitled to rely on Order 22, rule 24 for their respective application for enhanced interest on the judgment sum, and indemnity costs with enhanced interest…” (emphasis added)

89.  In light of the two direct local authorities which this court sees no reason to depart from, this court accepts Mr Luxton’s submission and rules that the 2^nd Singapore Offer is not a valid sanctioned offer for the purpose of RHC O 22.

90.  While the 2^nd Singapore Offer is not a valid sanctioned offer, the next question is whether this court can nevertheless take it into account as a Calderbank offer, as submitted by Singapore’s solicitors.  After all, the 2^nd Singapore Offer was marked “Without Prejudice save as to costs”.  In this regard, the potential hurdle for Singapore lies in RHC O 62 r 5(1)(d) which provides:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account —

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the court may not take the offer into account, if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or sanctioned offer under Order 22.” (emphasis added)

91.  The issue is therefore whether Singapore could have protected its position as to costs by means of a sanctioned offer under RHC O 22.  If yes, the court may not take it into account, and vice versa.

92.  It seems to this court the answer should be yes.  In the present case, the only reason why the 2^nd Singapore Offer was not valid was because it failed to comply with RHC O 22 r 5(7). If Singapore had complied with it, the 2^nd Singapore Offer would have been valid as a sanctioned offer.  In the present case, there can be no suggestion that Singapore would have had difficulty in making a sanctioned offer which complied with RHC O 22 r 5(7).  There is none.

93.  If such a sanctioned offer was not accepted, Singapore’s position as to costs would be protected as long as its liability for the 2^nd Collision was held to be 5% or less, with the remaining 95% to be borne by Xin Nan Tai and Jakarta, which was what eventually happened.  Although the express wording of RHC O 22 r 24 does not cover a case where a defendant’s liability exactly equals a plaintiff’s sanctioned offer, this court was referred to Read v Edmed [2004] EWHC 3274 which held that the costs consequences would be the same ie the plaintiff should be entitled to indemnity costs after the expiry of the offer and interest on those costs.

94.  To conclude, since Singapore could have protected its position as to costs by means of a sanctioned offer under RHC O 22, this court is precluded from taking the 2^nd Singapore Offer into account in considering costs.

95.  In the circumstances, this court rules that the appropriate costs order should be:

(1)   Singapore is entitled to recover 76% of its costs of determining liability for the 2^nd Collision from Xin Nan Tai up to and including 15 July 2016, to be taxed on the party/party basis if not agreed;

(2)   Xin Nan Tai is entitled to recover 5% of its costs of determining liability for the 2^nd Collision from Singapore up to and including 15 July 2016, to be taxed on the party/party basis if not agreed;

(3)   No order as between Xin Nan Tai and Singapore for the costs of determining liability for the 2^nd Collision after 15 July 2016.

Apportionment of Costs between 1^st Collision and 2^nd Collision

96.  Strictly speaking, this is a matter for taxation. Nevertheless, Singapore’s solicitors submitted that, given the proximity of the two collisions, both factually and causally, it is an artificial exercise to attempt to distinguish how the parties allocated time between the two.  Rather, the likelihood is that the time spent by the parties (and hence costs) between the 1^st and 2^nd Collisions would approximately be equal.  Hence, they proposed this court to give a direction that for the purpose of taxation, each party’s liability for costs be split evenly between the 1^st and 2^nd Collisions.

97.  The proposal has the appeal of simplicity which in turn is likely to save costs as well as the taxing master’s time and resources. But in order to justify the direction sought, the factual basis for the proposal ie the time spent by the parties (and hence costs) between the 1^st and 2^nd Collisions was approximately equal, must also be sound.  In this regard, Mr Luxton submitted that the division of legal costs between the 1^st Collision and the 2^nd Collision for Jakarta and Xin Nan Tai on the one hand and Singapore on the other, was likely to be different.  This was because the focus of the trial was the 1^st Collision involving only Xin Nan Tai and Jakarta.  As for Singapore, its main focus was obviously in relation to the 2^nd Collision.

98.  There is force in Mr Luxton’s submission. In these circumstances, the better course to take is to leave it to the good sense of the parties’ legal advisers to try to agree some sort of apportionment of costs between the 1^st and 2^nd Collisions, failing which the matter will be left to taxation.

Disposition

99.  There shall be Orders for costs

(1)   between Singapore and Jakarta: as set out in paragraph 7 above;

(2)nbsp;  between Xin Nan Tai and Jakarta: as set out in paragraphs 51 and 63 above;

(3)   between Xin Nan Tai and Singapore: as set out in paragraphs 74 and 95 above.

100.  Liberty to apply.