Hong Kong – High Court Confirms That Offer Containing An Express Term In Relation To Costs Of The Action Does Not Qualify As A Sanctioned Offer.

21 August, 2016

 

In the recent High Court decision of Wong Yim Man Anthea v. Wong Ho Ming Felix, HCA 352/2011 (22 April 2016), the Court ruled that a purported sanctioned offer did not in fact qualify as a sanctioned offer because it contained an express term in respect of the parties’ costs of the action. The judgment has clarified the position on this issue.

 

Facts

 

The Defendant put forward a purported sanctioned offer (Offer) to the Plaintiff in the following terms:

 

(1)     The Plaintiff do withdraw her Statement of Claim;

(2)     There be no order as to costs of the action.

 

The Plaintiff did not accept the Offer and after trial, the Court dismissed the Plaintiff’s claim and made an order nisi that the Plaintiff pay the Defendant 40% of his costs. The Defendant applied to vary the costs order nisi, seeking indemnity costs and enhanced interest on costs, on the strength of the Offer which the Plaintiff had failed to better at trial. The Court concluded that the Offer did not fall within the definition of a sanctioned offer under Order 22 of the Rules of the High Court (RHC).

 

Relevant RHC Provisions

 

A “sanctioned offer” is an offer made in accordance with Order 22 of the RHC), the relevant provisions of which are:

 

Order 22, rule 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 consequence specified in Order 22 unless it is made by way of a sanctioned offer or a sanctioned payment or both.
 

Order 22, rule 5 concerns the form and content of a sanctioned offer and is silent on whether the inclusion of a costs element in a sanctioned offer is permissible.
 

Order 22 rule 20 provides that when a plaintiff accepts a sanctioned offer to settle the whole claim without requiring the leave of court, he is entitled to his costs of the proceedings up to the date of accepting the sanctioned offer, unless the court orders otherwise. Regarding this provision, a plaintiff does not require leave to accept the sanctioned offer, where the offer is made not less than 28 days before commencement of trial and the plaintiff accepts it within 28 days of it being made (as was the case here).

 

The Court took the view that although Order 22 rule 5 is silent on whether the inclusion of a costs element in a sanctioned offer is permissible, the proposed costs order included in the Offer effectively prevented the specified costs consequences under Order 22, rule 20 applying upon the Plaintiff acceptance. If the Plaintiff had accepted the offer within the time prescribed under Order 22 rule 5(7), 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 Order 22 rule 20.

 

Although the Court recognised that the Plaintiff could have waived her right under Order 22 rule 20 and accepted the Offer, including the costs proposal, it said that such an acceptance could not retroactively turn the Offer into a sanctioned offer.

 

Court’s Ruling

 

After reviewing a number of Hong Kong and English case authorities, the Court concluded that a term as to costs being part of an offer is inconsistent with the specified costs consequences intended to flow from an acceptance of a sanctioned offer.

 

Where the Court finds that an offer does not qualify as a sanctioned offer, it may nonetheless take into account any written offer expressed to be “without prejudice, save as to costs” (i.e. a “Calderbank Offer) when exercising its discretion in relation to costs (although only where the party making such Calderbank offer could not have protected his position as to costs by means of a sanctioned offer or payment).

 

In this case, having ruled that the Offer did not qualify as a sanctioned offer, even treating the Offer as a Calderbank Offer, the Court declined to exercise its discretion as to costs in the Defendant’s favour, given certain conduct of the Defendant during the proceedings.

 

This case provides welcome clarification that a sanctioned offer should not contain terms as to costs. To alter the nature of a sanctioned offer in order to enable it to include a term for costs would only, the Court said, do violence to the well-planned and self-contained mechanism in Order 22.