So what if I ignore a Calderbank offer unacceptable to me?

In Sam Sien San Albert v Sam Mo Yee (HCMP 1203/2016), Deputy High Court Judge Paul Lam SC held that the Plaintiff failed in his claims and the Defendant failed in her counterclaim and made a costs order nisi that each party bear its own costs. Upon the Defendant’s application to vary the costs order nisi, the Court, in exercising its discretion as to costs,  considered (i) the underlying objectives set out in Order 1A, rule 1 of the Rules of the High Court (including “to facilitate the settlement of disputes”), (ii) a Calderbank offer made by the Defendant which the Plaintiff failed to beat in every way, and (iii) the conduct of the parties, and held the Plaintiff liable for the Defendant’s costs in the proceedings on a common fund basis from the day after the deadline by which the Plaintiff was allowed to accept the Calderbank offer.

Key Facts

(1) 

About a month before trial, for a full and final settlement, the Defendant through her solicitors sent to the Plaintiff’s solicitors a Calderbank offer containing terms to the effect that the parties withdraw their claim and counterclaim and bear their own costs.

(2) 

By another “without prejudice save as to costs” letter, the Defendant’s solicitors stated that, if they did not hear from the Plaintiff’s solicitors before a certain deadline (Deadline), they would take it that the Plaintiff elected to proceed to trial and in such event the Defendant would seek wasted costs on indemnity basis by reason of the Plaintiff’s neglect of the underlying objectives set out in Order 1A, rule 1 of the Rules of the High Court, the parties’ conduct and any offer made.

(3) 

In response, the Plaintiff’s solicitors made a number of observations on the Calderbank offer, raised some disagreements and queries and stated that the Plaintiff was out of Hong Kong and would be able to give a substantive reply before the trial began. However, the Plaintiff failed to give the Defendant a substantive reply or counteroffer before the trial began.

Ruling

(1) 

The Plaintiff failed to do better than the Calderbank offer in every way.

(2) 

The Plaintiff failed to adopt a cooperative attitude, and engage in constructive and meaningful negotiations in response to the Calderbank offer. In particular, the Plaintiff had not given any substantive reply or counteroffer.

(3) 

The Court rejected the Plaintiff’s submissions in opposition to vary the costs order nisi, because the contemporaneous correspondence did not show that the submissions were, in fact, the reasons, or some of the reasons, why the Plaintiff did not accept or respond substantively and constructively to the Calderbank offer. The fact that the Plaintiff was not in Hong Kong was not a reasonable explanation for his lack of substantive and constructive response.

(4) 

The Court stressed the importance of negotiating in good faith in a constructive manner, as well as the adverse consequences for failing to do so.

(5) 

The Court noted that the Defendant stated in the Calderbank offer that she would seek costs on an indemnity basis but she only asked for costs on a common fund basis in her summons. Accordingly, in varying the costs order nisi, the Court ordered each party to bear its own costs of the proceedings up to the Deadline and the Plaintiff to pay the Defendant the costs of the proceedings after the Deadline on a common fund basis.

Lessons to be learnt

(1) 

Parties are expected to cooperate, explore settlement in good faith, and engage in constructive negotiations, even in the face of an unacceptable settlement offer. Ignoring a settlement offer or failing to give any substantive reply or counteroffer may attract adverse costs consequences.

(2) 

If a Calderbank offer is unacceptable, the party receiving it should make a substantive and constructive response, by setting out the reasons for non-acceptance properly in a timely manner, because failure to do so may estop him from making submissions based on such reasons when he seeks to explain to the Court why an adverse costs order should not be made against him.

(3) 

The Court ordered the Plaintiff to pay costs on a common fund basis as requested in her summons. If the Defendant had asked for costs on an indemnity basis (as she said she would in the Calderbank offer), it seems that the Court would have considered ordering the same.