As noted in a previous update concerning Calderbank offers – that is, offers without prejudice save as to costs – parties are making good use of such settlement offers in Hong Kong in appropriate circumstances (for further details please see "Sanctioned offers and old-style Calderbank offers").Calderbank offers continue to be used to good effect by defendants as an alternative to, or in tandem with, the procedural regime for sanctioned payments into court and sanctioned offers that was introduced as part of the court rules seven years ago. This has led to some interesting disputes between parties as to who should bear liability for the legal costs.
In Ku Suet Yu v JV Fitness Ltd the plaintiff suffered a 'slip and fall' accident while at the defendant's premises, hurting her left wrist in the process.(1) In accordance with the relevant personal injuries practice direction, the plaintiff's lawyers gave details of her pain and suffering (and other alleged damages) to the defendant.(2) The defendant's insurer responded by making a pre-action Calderbankoffer to pay the plaintiff HK$280,000, plus her legal costs based on the lower scale for the District Court.(3) That pre-action offer was stated to be open for acceptance for 14 days (failing which it could be accepted only on the plaintiff paying the defendant's insurer's legal costs). The defendant's pre-action offer was rejected by the plaintiff, who in turn counteroffered for HK$500,000. This was rejected by the defendant's insurer. The main sticking point between the parties appears to have been the amount that the plaintiff was claiming for pain and suffering (rather than other alleged damages).
The plaintiff commenced court proceedings in the High Court, by now quantifying her overall damages in excess of HK$1 million – therefore exceeding the District Court's general monetary civil jurisdiction.
The defendant, by this time having instructed lawyers, made an early formal sanctioned payment (into court) for the same amount as its pre-action Calderbank offer. This was supported by a formal written offer putting the plaintiff on notice (among other things) that, if she accepted the sanctioned payment within time (ie, within 28 days), the defendant would seek an order disentitling her to legal costs.
Ultimately, the plaintiff accepted the defendant's sanctioned payment within time. The issue of liability for legal costs was unresolved (including whether these costs should be assessed on a High Court scale or the lower District Court scale).
The issue became one of who should bear the legal costs.(4)
The plaintiff asserted her prima facie entitlement to legal costs having accepted the defendant's sanctioned payment within time. The defendant argued that the court should exercise its discretion to disentitle the plaintiff to legal costs from the date she could have accepted its pre-actionCalderbank offer (noting that offer was for the same amount as the sanctioned payment). The defendant also sought an order that the plaintiff's costs before that date be assessed on the lower District Court scale.
In a fully reasoned judgment for a costs dispute, the court agreed with the plaintiff. In brief, the court ordered that while the plaintiff could recover her legal costs for the period before the defendant's Calderbank offer could have been accepted, she should pay the defendant's legal costs after that date – in effect, a 'split order' as to costs.
First, the court accepted that it had jurisdiction to grant such an order, because the Calderbank offer was made before the plaintiff formally commenced her legal claim and, at the pre-action stage, the defendant and its insurer could not have protected themselves as regards costs by making a sanctioned payment (into court). Therefore, this was a case where the court had a residual discretion to take into account a Calderbank offer.(5)
Second, as a matter of procedure, the defendant had complied with the requirement to inform the plaintiff that it would seek to persuade the court to exercise its discretion to deny the plaintiff some of her legal costs if she accepted the sanctioned payment within time.(6)
Third, as a matter of discretion, the court noted that the pre-action Calderbank offer was for the same amount as the sanctioned payment and that fact of itself could justify the exercise of the court's discretion in favour of the defendant.(7) Reviewing other legal cases, the court considered that the plaintiff had acted unreasonably in rejecting the pre-action Calderbank offer.
Fourth, in making a split order as to costs between the parties from the date that the Calderbankoffer could have been accepted (but was not), the court allowed the defendant's legal costs on a higher scale, but the plaintiff's costs on a lower scale. Having decided to commence a legal action, the plaintiff's lawyers should have commenced it in the District Court (as opposed to the High Court).
While court decisions on costs turn on their individual facts, the court's judgment is interesting.
The court appears to have been less than impressed by the plaintiff's efforts to quantify her claim for an amount far in excess of the defendant's Calderbank offer and later sanctioned payment. The amount initially claimed by the plaintiff for pain and suffering appears to have been on the high side for what is described in the judgment as "not a particularly serious" injury.(8)
Importantly, the defendant's reliance on its pre-action Calderbank offer needs to be seen in the context of the requirements of the pre-action protocol regime for personal injuries claims in Hong Kong.(9) This does not apply to non-personal injury matters. That said, as noted in the previous update on Calderbank offers, the courts are proving adept at finding ways to allow offerors to rely on reasonable settlement offers in order to obtain some costs protection where a payment into court cannot be made.
In this case, the defendant's first settlement offer was made early on in the dispute (pre-action) and, following the commencement of legal proceedings, the same amount was offered by means of an early sanctioned payment; at the same time, the defendant put the plaintiff on notice as regards its intention to challenge the plaintiff's entitlement to legal costs should she accept the sanctioned payment. This is good defence strategy and such a modus operandi holds true for civil litigation generally.
Ultimately, a party in the plaintiff's position (which is not in receipt of legal aid) will have to pay some of the legal costs in dispute, which may not be insignificant in the context of the amount of the claim. The recipient of a reasonable settlement offer should think long and hard before rejecting it.
Finally, it is worth noting that the procedural regime for sanctioned offers and sanctioned payments in Hong Kong is permissive, rather than mandatory.(10) While a Calderbank offer does not have the same cost consequences of a properly constituted sanctioned offer or sanctioned payment, it can still affect the court's discretion in awarding costs between the parties.(11)
For further information on this topic please contact Antony Sassi or Denise Pong at Smyth &Co in association with RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(1)  HKEC 330, HCPI 266/2015, February 5 2016. Being a decision concerning an exercise of the court's discretion as to costs, a party that wishes to appeal will require prior permission of the court. At the time of writing, no appeal is evident.
(2) Practice Direction 18.1.
(3) Two-thirds of the amount allowed in the High Court.
(4) It appears to have been accepted that, in the context of a personal injury claim conducted in accordance with Practice Direction 18.1, the plaintiff was prima facie entitled to her legal costs for the period up to the date of the pre-action Calderbank offer.
(5) Rules of the High Court, Order 62, Rule 5(1)(d).
(6) See Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards  2 HKLRD 1184. Sanctioned payments are often accompanied by supporting sanctioned offers; for example, see High Court Form 23 ("Notice of sanctioned payment").
(7) Supra note 1, at paragraph 29.
(8) Supra note 1, at paragraph 53.
(9) Supra note 2.
(10) See Re CEP  HKEC 42, CACV 97 and 165 of 2014, at paragraph 1; and Rules of High Court, Order 22, Rule 2(4).
(11) Supra note 1, at paragraph 43. Also see Leung Lai Kwan v Lo Kai Wing  3 HKLRD 152, at paragraph 27,  HKEC 1710 and supra note 5. Matters that require careful consideration.
Warren Ganesh assisted in the preparation of this update.
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