In the recent case of Lam v Chan,(1) the High Court handed down a practice note relating to the practice of making settlement offers or payments into court in cases involving claims on behalf of persons under a disability – namely, minors or mentally incapacitated persons. The practice note (which reads like a reported judgment) confirms the previously understood position that the self-contained procedural regime for formal sanctioned offers and sanctioned payments in Order 22 of the court rules does not apply to claims for money arising out of proceedings on behalf of persons under a disability. This so-called 'gap' in the regime for sanctioned offers and payments can to some extent be filled by the court exercising a residual discretion under Order 62, Rule 5 to take into account any other payment into court or any "without prejudice save as to costs" (Calderbank) offer where the court considers it appropriate to do so.
In Lam the parties reached a settlement of a claim for personal injury on behalf of a young child which was stated to have arisen out of the alleged negligence of the defendant doctor. The proceedings appear to have given rise to a series of court cases which the court described as having been conducted "almost as a war of attrition lasting nearly a decade".(2) Ultimately, the settlement provided for damages for the plaintiff child, but for an amount less than that of either of the two sanctioned payments made on behalf of the defendant. As part of the settlement the parties agreed that the defendant would pay the plaintiff's costs of the first-instance proceedings to mid-2011 (a few months after the first payment), but that from thereon there would be no order as to costs. Therefore, the plaintiff (who was legally aided) would incur no liability for the defendant's costs, even though the amount of the damages was less than either of the defendant's payments.
Despite the eventual settlement, the court saw fit to give guidance to litigants and their legal representatives where settlement offers or payments into court are made with respect to claims on behalf of persons under a disability. The court's practice note addresses two issues:
- the conventional thinking that the regime for sanctioned offers and sanctioned payments in Order 22 of the rules of court does not apply with respect to any settlement offer or payment into court made in proceedings in which a claim for money is made on behalf of a person under a disability; and
- whether the court retains a residual discretion under Order 62, Rule 5(1)(b) to make an order as to costs where the plaintiff is a person under a disability but has failed to beat the amount of a payment into court made by a defendant.
On the basis of case law as things currently stand, the court confirmed the conventional thinking that the regime for sanctioned offers and payments in Order 22 does not apply to claims arising out of proceedings on behalf of persons under a disability. The court came to this conclusion based on existing first-instance case law.(3) In short, the costs consequences of failing to beat a sanctioned payment take effect only after the latest date on which a plaintiff could have accepted without requiring permission of the court – whereas under Order 80 (Disability), a claim for money in proceedings commenced on behalf of a person under a disability can be settled only with permission of the court.
Further, Order 22, Rule 19 specifically provides that a sanctioned offer or sanctioned payment in proceedings to which Order 80 (Disability) applies can be accepted only with permission of the court.
Interestingly, the court expressed some sympathy for the argument that the regime for sanctioned payments and offers in Order 22 should apply to claims in proceedings involving persons under a disability. First, it is arguable that (as a matter of policy) litigants involved in proceedings with persons under a disability should be no worse off than other litigants. Second, the so-called 'gap' in the regime for sanctioned offers and payments (insofar as Order 80 proceedings are concerned) is arguably not conducive to one of the overall objectives of the court rules – namely, to encourage early settlement. Third, the words "after the latest date on which the payment or offer could have been accepted without requiring the leave of the court"(4) arguably only fix a time when the adverse costs consequences might take effect and do not (of themselves) exclude persons under a disability from the operation of Order 22.
Therefore, while the court considered that it is arguable that the regime for sanctioned offers and payments does apply to persons under a disability, it was bound by existing first-instance case law that held otherwise – such case law being binding on the court until an appeal court decides otherwise.(5)
Having confirmed that the regime for sanctioned offers and payments under Order 22 does not apply to claims raised in proceedings involving persons under a disability, the court went on to consider the second issue – namely, whether the fact that a plaintiff is a person under a disability prevents the court from taking into account any payment into court (and the amount of such payment) when exercising a residual discretion under Order 62, Rule 5(1)(b) to make an award of costs.
With respect to this second issue, there did not appear to be any relevant Hong Kong case law, although there was relevant English case law.(6) Approving of that case law, the court was of the firm view that when considering costs, it retains a residual discretion (pursuant to Order 62, Rule 5(1)(b)) to take into account any payment into court made in respect of claims by persons under a disability. This also followed on from the conclusion that a payment into court with respect to a claim in proceedings on behalf of a person under a disability does not come within the Order 22 regime for sanctioned payments.
The practice note is important clarification for legal representatives and those who represent persons under a disability in civil proceedings in Hong Kong – particularly proceedings involving claims for damages arising out of personal injury and alleged clinical negligence.
It is noteworthy that the court approved of the settlement, while commenting that (given the manner in which the litigation had been conducted) it would have exercised its discretion to order that there be no order as to costs from on or about mid-2011 had the parties not agreed this as part of the settlement. However, the court does not appear to have been willing to go so far as to order that from that point the plaintiff pay the defendant's costs. This is not particularly surprising, given the general reluctance of the courts to penalise persons under a disability who are (after all) represented through their designated representatives and legal representatives.
Two of the takeaway points from the case (based on current case law in Hong Kong) are that with respect to claims arising out of proceedings commenced on behalf of persons under a disability:
- the gap in the regime for sanctioned payments can be filled to some extent by the courts exercising their discretion pursuant to Order 62, Rule 5(1)(b) to take into account any payment into court when considering an award of costs; and
- the gap in the regime for sanctioned offers can to some extent be filled by the courts exercising their discretion pursuant to Order 62, Rule 5(1)(d) to take into account any "without prejudice save as to costs" (Calderbank) offer.
However, in neither case can the court order the same costs (and interest) consequences that are provided for in the regime for sanctioned offers and payments pursuant to Order 22. Order 22 is permissive in that it permits a party to make a settlement offer as they see fit, but only a properly constituted and qualifying sanctioned offer and payment comes within its jurisdiction. Calderbank offers ("without prejudice save as to costs") survived the civil justice reforms that took place some 10 or so years ago and they are still very much alive in Hong Kong – however, they are a common law creation and are not as forceful or effective as sanctioned offers and payments.
Beyond these general points it is difficult to be more precise. The degree of uncertainty in how the court may exercise its residual discretion as to costs (pursuant to Order 62, Rule 5) can be a forceful element in encouraging parties to settle – looking back over 10 years of civil justice reforms this outcome may not have been unintended.
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