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					                    IN THE HIGH COURT OF THE
             HONG KONG SPECIAL ADMINISTRATIVE REGION
                         COURT OF APPEAL

                                                                          1998, No. 151
                                                                                 (Civil)

  THE HONGKONG & SHANGHAI HOTELS, LIMITED v CHOY BING WING
              trading as BING CHOY & ASSOCIATES

                            -------------------------------------

Mortimer VP, Godfrey and Rogers JJA in Court
13 October 1998

                                   ----------------------
                                   JUDGMENT
                                   ----------------------


Mortimer V-P :       This is an appeal against an order for costs made by Master
Cannon on 14 April 1998 for which she gave leave on 4 June 1998. This was an order
made after an assessment of the plaintiff’s quantum meruit claim which had been
heard by Master Jennings. Master Jennings retired after making his award and the
issue on costs was heard by Master Cannon.


Background

       The plaintiff is a structural engineer. He was employed by the defendant on the
Peninsular Hotel extension. But his services were terminated in June 1990. He was
paid for the work he had completed. However, he was instructed to complete certain
other work known as activities A to F but on 5 November 1990 the defendant
terminated his services on all those activities save for A, C and D, and on 9 November
terminated his services altogether. Thereafter the plaintiff submitted an invoice for the
work he had carried out, but that was not agreed, and he began proceedings.

       On 26 January 1991, the defendant paid into court $300,000 in full satisfaction
of the claims but that was not accepted. His action came before Kaplan J. On
20 October 1994 he gave judgment for the plaintiff but with the damages to be
                                             –   2   –


assessed by a master. The defendant appealed against liability in items A, B, C and D.
But the result of the appeal was that those matters were also sent to the master for
damages to be assessed. Before Master Jennings assessments were made under two
orders. One of 20 October 1994 made by Kaplan J relating to activities E and F, and
one dated 10 May 1995 relating to the other activities made by the Court of Appeal.

       Master Jennings heard the matter. He made the following orders:

       (a)     By consent, he awarded $125,000 to the plaintiff in respect of activities
               E and F;

       (b)     He made no award in respect of activities A and C; and

       (c)     He awarded the sum of $446,215 to the plaintiff for his services in
               activity D.

The consequence was that he gave judgment for a total of $571,215. He left the
question of interest and costs to a date to be fixed.

       Before the hearing, the defendant wrote a Calderbank letter, dated 7 November
1995 dealing with activities A, C and D only. It is useful to note at this point that the
plaintiff abandoned his claim under B and those activities are irrelevant to this appeal.

       The Calderbank letter reads as follows — the first two paragraphs:

       “This letter constitute an offer by HKSH to Bing Choy to compromise the referral to the
       Master to assess a reasonable sum to be paid by HKSH to Bing Choy for the service rendered
       by Bing Choy to HKSH between 2S July l990 and 5 November l990 in relation to Activities
       A, C and D specified in the judgment and order of the Court of Appeal dated l0 May 1995.
       This letter is written under the principles of Calderbank v. Calderbank: [1975] 3 All E.R. 333
       C.A. and pursuant to RSC Order 22 Rule 14.

       In full and final satisfaction of all liabilities which HKSH may have to Bing Choy in respect
       of the services referred to above, HKSH offers to pay Bing Choy HK$538,860.00
       principal …”

A sum of interest is mentioned and then it specifies how it is calculated. Interest is not
relevant to our decision.

       The offer was made subject to certain conditions which can be summarised that
the offer was to be partly satisfied by the money in court which was to be paid out to
the plaintiff’s solicitors and then to a stakeholder for reasons which will later appear.
                                               –   3   –


         The final paragraph reads:

         “This offer is open for acceptance for a period of 21 days from the date of this letter.
         Thereafter the offer may be accepted only on condition that Bing Choy pays HKSH’s costs
         incurred from the date of expiry of the 21 day period of acceptance, such costs to be taxed on
         a party and party basis if not agreed.”

The general position was this. The total award made by Master Jennings was
$571,215. The offer in the letter was for $538,860 but only for A, C and D. The award
for A, C and D was $446,215.

         When the matter was heard by Master Cannon, she ordered that the defendant
was to pay the plaintiff’s costs of the quantum meruit assessment, including the
hearings before Master Jennings, on a party-and-party basis. It is against that order the
defendant appeals.

         The basis of the appeal is simple. That so far as A, C and D are concerned, the
plaintiff did not recover an award in excess of the offer in the letter and therefore the
costs ought to have gone to the defendant. So far as the issue on E and F is concerned,
that was not dealt with in the letter but was dealt with in this manner; the judgment of
Kaplan J put a ceiling of $125,000 on those two activities; on the day before Master
Jennings began his hearing, that is 25 January, the defendant consented to pay the full
sum of $125,000 in respect of those activities. So before Master Jennings there was no
issue.

         In dealing with the matter, Master Cannon summarised the defendant’s case
and the plaintiff’s case. It is to be noted that in summarising the plaintiff’s case, no
reference is made to the one point made by the plaintiff on this appeal. Yet, it does
appear — and there is no issue now upon the matter — that he did make the point but,
for reasons which are not clear, the master did not deal with it. The reasons given by
the master are as follows:

         “I do not accept that the amount of the costs owed to the defendant in the Court of Appeal
         costs order should influence my decision as to which party should bear the costs of the
         assessment of quantum meruit before the Master. I should only have regard to the outcome of
         the assessment of the quantum meruit in deciding the costs liability.”

So far I would agree entirely. Then
                                               –   4   –


       “Since the $300,000 paid into court on 26 January, 1991, was less than Master Jennings’
       award, it does not affect the basic rule that the costs should follow the event.

                As to the Calderbank offer, I do not accept that the letter was of continuing effect,
       since it incorporated a time limit within its terms. In considering the offer, I am satisfied that
       the total award on the quantum meruit of $571,215 is the figure I should take into account in
       exercising my discretion. Although $l25,000 of that figure was in respect of Activities E and
       F, and was awarded by consent, it nevertheless forms part of the sum awarded and is part of
       the assessment. As to the offer itself, the figure I should use in my consideration is $538,860,
       ignoring the sum of $234,902.55, representing interest. While the plaintiff’s claims may have
       been considerably larger than the award, the Calderbank offer was less than the final award.
       Although it can be said that the difference in the comparative values of the Calderbank offer
       and the quantum meruit award is not great, it does not alter the fact that the offer fell short of
       the award. I am satisfied that the Calderbank offer of $538,860 was not effective in protecting
       the defendant’s position on costs.”

On those issues, Mr Chan, who appears for the defendant on this appeal, submits
simply that a Calderbank letter was the only appropriate way to protect the defendant
against costs in the particular circumstances because there were orders for costs made
in the proceedings in front of Kaplan J, and in the Court of Appeal, which were at the
time of the Calderbank letter had not been taxed. It was clear to the plaintiff that those
costs would exceed any award which would be made on the master’s order. Therefore,
it would be inappropriate to pay into court because the plaintiff would simply take out
that sum in satisfaction of the claim, ignoring the sums which would become owing
on costs.

       The defendant’s submissions on that were borne out. The amount owing by the
plaintiff on the costs taxed is of the order of $1.2m. Further, the defendant submits
that, in her assessment of the Calderbank offer, the master was in error in exercising
her discretion. First, because she thought wrongly that the letter was not of continuing
effect and that it had to be accepted within 21 days. On that she was clearly wrong.
Secondly, that in considering the letter, she ought to have considered only the
activities A, C and D and the sums involved in those activities, ignoring the $125,000
award by consent on E and F. Had the matter rested there, for my part, I would have
been inclined to think that the defendant’s submissions on this appeal were good.

       Mr Bing Choy, who appears in person, repeats one point that he made below. It
is a simple one. He invites our attention to O22 r14 which reads:
                                             –   5   –


           “(1)     A party to proceedings may at any time make a written offer to any other party to
                    those proceedings which is expressed to be "without prejudice save as to costs"
                    and which relates to any issue in the proceedings.
           (2)      Where an offer is made under paragraph (1), the fact that such an offer has been
                    made shall not be communicated to the Court until the question of costs falls to
                    be decided:
           Provided that the Court shall not take such offer into account if, at the time it is made,
           the party making it could have protected his position as to costs by means of a payment
           into court under O. 22”

Mr Choy says this is purely monetary claim and that a payment into court could have
been made by the defendant to protect their position as to costs. Indeed, a payment-in
had already been made and that in the circumstances he can rely upon the proviso as
the other parts of r14 are satisfied. In those circumstances, he says, the court should
not take the offer in the Calderbank letter into account. Undoubtedly, it seems to me
the proviso was introduced into O22 r14 consequent upon the decision in Cutts v Head
[1984]1 Ch 290. Indeed the proviso was added to the rules in England but later the
rules in England have been amended to omit the proviso in this rule, but not in O62.
Indeed, in the Hong Kong Rules (O62 r5(d)) as well as the English Rules (O62
r9(1)(d)), the same proviso appears. In both jurisdictions it has survived the omission
of the proviso in England in O22 r14.

       In Cutts v Head, Oliver LJ (as he then was) dealt with Calderbank letters
exhaustively and added at the end of his judgment:

       “I would add only one word of caution. The qualification imposed on the without prejudice
       nature of the Calderbank letter is, as I have held, sufficient to enable it to be taken into
       account on the question of costs; but it should not be thought that this involves the
       consequence that such a letter can now be used as a substitute for a payment into court, where
       a payment into court is appropriate. In the case of the simple money claim, a defendant who
       wishes to avail himself of the protection afforded by an offer must, in the ordinary way, back
       his offer with cash by making a payment in and, speaking for myself, I should not, as at
       present advised, be disposed in such a case to treat a Calderbank offer as carrying the same
       consequences as payment in.”

Fox LJ, at the end of his judgment, agreed.

       Faced with this point, Mr Chan for the defendant, submits that nevertheless it
was appropriate in this case to make the offer by way of a Calderbank letter and that
we should give the proviso a restricted interpretation, bearing in mind the intention of
these rules to encourage settlements. He repeats that the payment-in was not
                                             –   6   –


appropriate because it does not deal with the other issues and claims between the
parties. He submits that a payment-in could not have been made with a view to
settling the whole of the case. The second point he takes is that the words “as to costs”
in the proviso mean not simply the costs in relation to the issues on which the
Calderbank letter was written, but are appropriate to cover all the costs in the action.
For my part, I am unable to accept the defendant’s submissions. There is no reason
why the defendant could not have made a payment-in in order to protect itself on the
costs in relation to the issues A, C and D to which the Calderbank letter referred.

       We have been invited to consider the case of Singh v Parksfield Group PLC,
reported in the Times Newspaper on 20 March 1996 where a similar argument was
advanced although there was no dispute that the defendant could have made a
payment-in in that case. Stuart Smith LJ, having considered these matters, said:

       “In the ordinary way where a defendant was facing a monetary claim, he should make a
       payment into court in sufficient time for the plaintiff to consider it.

              The policy of the law should be to settle cases wherever possible. There might be
       advantages if the court had a wider discretion in this area. Although there were equal
       advantages in certainty in the system. It was not a matter for the courts to change. The appeal
       would be dismissed.”

Whereas for my part, I have some sympathy for the view that it would be better if the
judge or master had a wider discretion than is given in O22 r14. That is not a matter
for the courts to change.

       In those circumstances, although for reasons other than those given by the
master, I would dismiss this appeal.




Godfrey JA:        I agree.

       As it seems to me, the only way in which a defendant in the position of the
defendant here can protect his position is by means of an open as distinct from a
without prejudice offer. The machinery provided by Order 22 rule 14 is simply not
                                         –   7   –


available where the party making a without prejudice offer can protect his position by
means of a payment into court as the defendant could have done here.

       I too would dismiss the appeal.




Rogers JA:           I agree. I have nothing further to add.




Mortimer V-P:        There will be an order for the costs of the appeal to the
respondent to be taxed if not agreed.




     (Barry Mortimer)               (G.M. Godfrey)                (A. Rogers)
      Vice President               Justice of Appeal           Justice of Appeal


Mr Alfred H.H. Chan (M/s Lovell White Durrant) for Defendant/Appellant
Plaintiff/Respondent in person

				
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