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Plaintiffs’ entitlement to costs upon accepting a sanctioned offer or payment
Under both the High Court and District Court Rules (Order 22, rule 20(1)), where a defendant’s sanctioned offer or sanctioned payment to settle the whole of the claim is accepted (without requiring the court’s leave), the plaintiff is entitled to his costs of the proceedings up to the date of serving his notice of acceptance of the sanctioned offer or payment, unless the court orders otherwise. In the recent cases of Wong Ka Chi and Wong Chim Hing, the court considered the Otherwise Proviso.
The court’s approach in exercising discretion under the Otherwise Proviso
The Wong Ka Chi case usefully sets out the proper approach to be adopted by the court when exercising its discretion under the Otherwise Proviso, as follows:-
The Wong Ka Chi case
In the Wong Ka Chi case, the Plaintiff accepted the Defendants’ sanctioned payment and the Defendants applied to the court to invoke the “Otherwise Proviso”, seeking an order that the Plaintiff pay the Defendants’ costs of the proceedings. On appeal, the court held that the Defendants had shown that there were exceptional circumstances justifying a departure from the Plaintiff’s prima facie entitlement to costs because:
Since the Defendants had given the Plaintiff prior written warning that they would invoke the Otherwise Proviso before issuing the application to seek costs, the court said that there was no reason why the Otherwise Proviso should not apply and ordered the Plaintiff to pay the Defendants’ costs of the proceedings.
The Wong Chim Hing case
The earlier case of Wong Chim Hing demonstrates how the Otherwise Proviso can be invoked by a defendant where the plaintiff commences proceedings in the High Court, but accepts a sanctioned payment in an amount within the District Court’s jurisdiction (i.e. up to HK$1 million), a common scenario in personal injury actions. In such situations, defendants and their insurers will argue that since the settlement is within the District Court jurisdiction, costs should be taxed on the District Court scale. Conversely, plaintiffs will argue that they had a reasonable prospect of obtaining an award of over HK$1 million, had the case proceeded to trial, and their costs should therefore be taxed on the High Court scale.
In the Wong Chim Hing case, the Plaintiff had commenced proceedings in the High Court, but accepted a sanctioned payment of HK$700,000 i.e. within the District Court’s jurisdiction. The court held that:
Again, where the defendant wishes the court to make an order for costs on a District Court scale in High Court proceedings, he must give the plaintiff written warning (at the time he serves the notice of sanctioned payment) of his intention to invoke the Otherwise Proviso upon the plaintiff accepting the sanctioned payment and must apply promptly for such order after the sanctioned payment is accepted.
Significance of the two cases
Both of the above judgments are favourable to defendants and their insurers as they show the court’s willingness to depart from the prima facie rule that the plaintiff is to have his costs of the action up to the date of accepting a sanctioned offer or sanctioned payment.
As the court said in the Wong Ka Chi case, it is time for plaintiffs and their legal advisors to wake up to the fact that the court will strictly adhere to the underlying objectives of the court rules (to increase cost-effectiveness, ensure a case is dealt with expeditiously, facilitate settlements etc), particularly in situations where a party has unreasonably refused to accept offers made at an early or pre-action stage of proceedings and then subsequently accepts a sanctioned payment in the exact same amount, without good reasons.
In order to invoke the “Otherwise Proviso” it is important for defendants and their legal advisors to ensure that they give the requisite and appropriately worded written notice of their intention to do so at the same time as making the sanctioned offer or sanctioned payment.
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