Court of Appeal rules on the correct approach for determining costs where leave is granted to accept a sanctioned payment/offer out of time

Order 22, rule 23 of both the Rules of High Court and Rules of District Court provide for the costs consequences where a plaintiff fails to obtain a judgment which is better than a defendant’s sanctioned payment (or sanctioned offer, as the case may be). The Court of Appeal recently held, in Or Siu Lung v Fu Hong Home for the Elderly, CACV 189/201, that these provisions should also guide the courts in the exercise of their discretion (under Order 22, rule 15(3)), when making an order for costs upon granting a plaintiff permission to accept a sanctioned payment or offer out of time. In the latter case, however, since there is no judgment on the merits, the court may need to make some broad assessment as to the reasonableness of the sanctioned payment or offer.

Sanctioned payment mechanism

The Or Siu Lung case involved a sanctioned payment, but the wording of the judgment makes it clear that the ruling will apply equally to sanctioned offers.

A defendant may make a payment into the Court in settlement of all or part of a plaintiff’s claim – a sanctioned payment.  If the plaintiff accepts the sanctioned payment, he will be awarded his costs of the proceedings up to the date of acceptance.  Under Order 22, rule 23, if the plaintiff does not accept it and does not better it at trial, then, unless the court considers it unjust, the plaintiff will be disallowed all or part of the interest he would otherwise have been entitled to on the judgment sum and will also have to pay the defendant’s costs from the latest time he could have accepted the sanctioned payment, on an indemnity basis, plus interest on such costs at up to 10% above judgment rate.

When considering whether it would be unjust to make such costs and interest order, Order 22, rule 23(6) provides that the court shall take into account all the circumstances of the case, including:-  

(1)   The terms of any sanctioned payment or sanctioned offer;

(2)   The stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(3)   The information available to the parties at the time when the sanctioned payment or sanctioned offer was made; and

(4)   The conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the payment or offer to be made or evaluated.

The above sanctioned payment procedure under Order 22 allows a sanctioned payment to be accepted by a plaintiff, without the  Court’s permission, by a notice of acceptance within 28 days after the sanctioned payment is made, provided that such sanctioned payment is made not less than 28 days before trial. Otherwise, the Court’s permission is required for such acceptance, unless the parties have agreed on liability for costs. Order 22, rule 15(3) provides that if the court gives permission to accept a sanctioned offer or payment out of time, it shall also make an order for costs.

Late acceptance

What are the cost consequences where the court gives the plaintiff permission (under Order 22, rule 15(3)) to accept a sanctioned payment after expiry of the prescribed 28-day period? This was the issue before the Court of Appeal in the Or Siu Lung case. 

The Facts

An elderly lady residing in an Elderly Home operated by the defendant sought damages against the defendant for leg injuries suffered at the Home. Soon after commencement of legal proceedings, the defendant made a sanctioned payment, in July 2015, which was not accepted. The elderly lady died in February 2016 and her son took over the action and sought the Court’s permission to accept the sanctioned payment out of time and costs of the action. 

Court of First Instance Ruling

Although the Court of First Instance allowed the son to accept the sanctioned payment, it ordered him to pay the defendant’s costs from 15 August 2015 (i.e. costs from the expiry of the 28-day period after the sanctioned payment was made). The defendant was ordered to pay the son’s costs up to 14 August 2015.

The son appealed to the Court of Appeal.

Court of Appeal Ruling

The Court of Appeal endorsed the English approach in SG v Hewitt (also a personal injuries case) where the  Court ruled that when considering what costs order to make when granting a plaintiff permission to accept a sanctioned payment or offer out of time (under Order 22, rule 15(3)), the court should adopt the same approach as it does when considering what costs order to make where a plaintiff has rejected a sanctioned payment/offer and fails to do better at trial i.e. it must consider the terms of the sanctioned payment/offer and at what stage it was made etc.

However, although the Court of Appeal endorsed such approach, it also highlighted the differences between the situations under rules 15(3) and 23. It said that rule 23 predicates upon a judgment being entered and there being a judicial determination on the merits of a case and where a comparison is made between the terms of the sanctioned offer/payment and the actual outcome in the judicial determination. On the other hand, in the case of an acceptance of a sanctioned payment/offer out of time, there will not be any determination on the merits, in which case, the court when determining the appropriate order for costs may need to make some broad assessment as to the reasonableness of the sanctioned offer in order to have a meaningful comparison, rather than simply accepting the terms of the sanctioned payment/offer as the benchmark for comparison.

In Or’s case, the Court of Appeal decided that in all the circumstances it was unjust to require the son to pay the defendants costs because:-

• liability had been admitted;
• as the case fell within the “serious injury” category, it was reasonable for the elderly lady to have rejected the sanctioned payment in July 2015,  since it was plainly outside the range of reasonable offers in the circumstances of the case and the costs incurred since the sanctioned payment could therefore not have been avoided.

The Court of Appeal ordered the defendant to pay the costs of the action up to the date of acceptance of the sanctioned payment.

Comment

The judgment is good news for plaintiffs wishing to accept sanctioned payments out of time. However, obtaining a favourable costs order as the plaintiff did in this case, will very much depend on the court finding that the plaintiff acted reasonably in not accepting the sanctioned payment/offer in time, in the circumstances of the particular case. As such, the ruling is very fact sensitive. In Or’s case, the defendant’s admission of liability and the fact that the sanctioned payment fell outside the reasonable range of damages for the type of injury in question led to the court making the order it did. The position could have been different, for example, if the amount of the sanctioned payment had been within the reasonable range.

In non-personal injuries cases, defendants are generally less willing to admit liability and it is often difficult to determine a reasonable range, if any, for damages.  It will therefore be interesting to see this judgment applied to non-personal injuries cases in future.