Judged by their frequency of use, the procedural regime for sanctioned offers and sanctioned payments has arguably been a success (Rules of High Court and District Court, O. 22). Civil litigation practitioners frequently have to advise on the merits of sanctioned offers or sanctioned payments (and counter-offers) in all manner of civil cases, ranging from commercial disputes to personal injury litigation. Sanctioned payments are frequently combined with sanctioned offers. They come with the potential for (among other things) enhanced costs for the offeror.
So what of Calderbank offers (“without prejudice save as to costs”)? These survived the introduction of sanctioned offers and sanctioned payments as part of the civil justice reforms in April 2009. However, the interaction between the O.22 regime and Calderbank offers is often uncertain. The exclusionary rule in O. 62, r. 5(1)(d) provides that, in exercising its discretion as to costs, the court may not take into account an offer expressed to be “without prejudice save as to costs” if at the time the offer is made the offeror could have made a sanctioned offer or sanctioned payment.
The ambit of this exclusion (together with what constitutes a valid sanctioned offer) has given rise to a notable degree of uncertainty, besides generating a body of case law in the last seven years. The difficulty with trying to discern lessons from the case law is that it is largely fact specific and what (for example) may go on in costs disputes arising out of the use of sanctioned offers or Calderbank offers in routine personal injury litigation may have little relevance to commercial disputes. The uncertainty arising out of the application of O. 62, r. 5(1)(d) (the “exclusionary rule”) was the subject of another dispute before the Court of Appeal in re CEP Ltd  HKEC 42, CACV Nos. 97 and 165 of 2014, in which a Vice-President commented that:“In addition, I wish to highlight the unsatisfactory position regarding the latter part of Order 62 Rule 5(1)(d) which, in my view, unduly fetters the court’s discretion on costs … In my view, the regime in Order 22 should be permissive rather than mandatory. It would be most unfortunate if a Calderbank offer cannot be taken into account because those advising a litigant took a wrong view on the applicability of Order 22… The exclusionary rule also seems to be inconsistent with Order 22 Rule 2(4). The Rules Committees of the Rules of the High Court and the Rules of the District Court (which has a similar provision) should consider whether we should amend Order 62 Rule 5(1)(d) by deleting the exclusionary rule from it.”*
In CEP Ltd, the defendant offeror was successfully able to rely on (among other things) a Calderbank offer with respect to the costs of the appeal because the Court of Appeal acknowledged that the O. 22 regime did not extend to appeal proceedings.
As we observed in our Industry Insights for October 2015 (“Reasonable Settlement Offers”) a High Court judge has already noted that there are a myriad of situations in civil litigation where it is not possible for a party to make a sanctioned payment into court together with an offer to settle: Leung Lai Kwan v Lo Kai Wing  3 HKLRD 152 (para. 22) and, on appeal,  HKEC 1710 (para. 7). In another recent case, Ku Suet Yu Amy v JV Fitness Ltd  HKEC 330 (a “slip and fall” case), a master in the personal injuries list gave effect to a defendant insurer’s pre-action Calderbank offer for the same amount as that repeated in a combined post-action sanctioned payment and sanctioned offer.
While Calderbank offers and sanctioned offers and sanctioned payments are a common feature of the litigation landscape in Hong Kong, there is an unwelcome degree of uncertainty concerning the entitlement to enhanced costs. There is much to be said for the Vice President’s call for greater clarification. In the meantime, parties to civil litigation should think twice about failing to accept reasonable settlement offers (or failing to engage by, for example, making reasonable counter offers).
* For the full quote, see para. 1 of the Court of Appeal’s judgment.