Hong Kong: Implication Of Pre-Action Settlement Offers By Insurer Clients

In the personal injuries case of Ku Suet Yu Amy v. JV Fitness Ltd (HCPI No. 266 of 2015, Judgment on 5 February 2016), the defendant invited the Court to invoke the otherwise proviso provided under Order 22 Rule 20(1) of the Rules of High Court, and ordered costs against the plaintiff who accepted a Sanctioned Payment after the commencement of proceedings which is the same as the offer made by the defendant's insurer in the pre-action stage. The Court of First Instance demonstrated its approach in exercising its discretion provided under Order 22 Rule 20(1) of the Rules of High Court.

Background

The Plaintiff, a lawful visitor of a fitness centre operated by the Defendant, slipped, and fell, while walking towards the shower room area of the said fitness centre, leading to injuries in the left wrist.

After the issuance of a pre-action letter by the Plaintiff's solicitors, Falcon Insurance Company (Hong Kong) Limited (Falcon), the liability insurer of the defendant, admitted liability and put forward a without prejudice offer of HK$280,000 plus costs on District Court Scale in full and final settlement of the case ("the pre-action offer"). The pre-action offer was valid for 14 days but it was rejected by the Plaintiff, who counter-offered to settle the case at HK$500,000 plus costs.

The Plaintiff then issued the proceedings in the High Court. The Defendant's solicitors effected a Sanctioned Payment of HK$280,000 into Court ("the Sanctioned Payment") shortly after filing the Acknowledgment of Service of Writ of Summons. Simultaneously, the Defendant's solicitors issued a without prejudice letter to the Plaintiff's solicitors putting forward a Sanctioned Offer and warned that (1) if the Sanctioned Payment was accepted, the Defendant would apply to the Court that the Plaintiff must pay the Defendant's costs of this action by invoking the otherwise provision and (2) alternatively, the Defendant would ask for any costs awarded to the Plaintiff be taxed on District Court scale.

Although the Plaintiff's solicitors then issued a letter to the Defendant's solicitors putting forward settlement offer at a sum higher than HK$280,000 (which was rejected by the Defendant), the Sanctioned Payment was eventually accepted by the Plaintiff without leave of the Court.

The Defendant then applied to the Court for an order that the Plaintiff pay the Defendant's costs of the proceedings.

Judgment

Order 22 Rules 20 (1) of the Rules of High Court provides that "Where a defendant's sanctioned offer or sanctioned payment ...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" ("the otherwise proviso").

The question to be decided by the Court in this case was whether there is exceptional circumstance that warrants the Court to invoke the otherwise proviso. In exercising its discretion, the Court shall take all material facts into consideration and decide what would be the proper costs order.

In relation to the scale of costs to be applied, in line with the previous judgment of the Court in Wong Chim Hing v. Discovery Bay Transit Services Ltd (HCPI 254/2011), given that the settlement sum of HK$280,000 falls within the jurisdiction of the District Court, the Plaintiff conceded any costs awarded in her favour would be taxed on District Court scale.

As for the proper costs order to be made, the Court acknowledged that the pre-action offer was a Calderbank offer. Given that the Sanctioned Payment was no better than the pre-action offer, and that the Plaintiff failed to give any reasonable explanation for rejecting the pre-action offer, the Court ruled that the Plaintiff had acted unreasonably in rejecting the pre-action offer and invoked the otherwise proviso. The Court then ruled that the Plaintiff would only be entitled to costs up to the last day on which the Plaintiff could have accepted the pre-action offer. The Plaintiff would also have to bear the costs of the Defendant of, and incidental, to the proceedings after the last day on which the Plaintiff could have accepted the pre-action offer on High Court scale.

Takeaway

Pre-action settlement offers would be considered by the Court in exercising its discretion on costs. For the Court to invoke the Otherwise Proviso, it is important to make it clear, at the outset, of the defendant's intention to do so and reserving the defendant's position on costs, while making the sanctioned offer.

Originally published on 15 April 2016

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