With the implementation of the Civil Justice Reform, offers to settle can be made not only by way of Calderbank letter (i.e. an offer letter marked without prejudice) but also by way of “Sanctioned Offers” and “Sanctioned Payments” in litigation cases in Hong Kong.
The new options are effective in encouraging a settlement because a plaintiff/defendant faced with a “sanctioned offer” and/or “sanctioned payment” made by the defendant/plaintiff do need to seriously consider whether or not to accept the offer, else the party who refuses to accept the offer will be faced with serious legal costs consequences if the offer turns out to be one that should have been accepted in the first place. By the same token, a litigant should also seriously consider whether or not a “sanctioned offer” and/or “sanctioned payment” should be made in order to place himself/herself in a better legal position.
What is a sanctioned offer / sanctioned payment
A sanctioned offer is a settlement offer which can be made by either the plaintiff or the defendant in respect of the whole or part of a claim or any issue arising from it. While a sanctioned offer by a plaintiff can be made in respect of both monetary and non-monetary claims, a sanctioned offer by a defendant can be made only in respect of non-monetary claims because a defendant’s offer in respect of monetary claims has to be made by way of a sanctioned payment, which involves payment of a sum of money into court and a notice to the plaintiff with the prescribed particulars.
There is no prescribed form for making a sanctioned offer but it must be in writing and contain a number of required particulars. If not, the offer may be treated by the court as a Calderbank offer but not a sanctioned offer, and the offer will lose its force and will not bite on the party who refuses to accept it with the same degree of legal costs consequences otherwise applicable with a properly made sanctioned offer.
Generally speaking, upon acceptance of a sanctioned offer or sanctioned payment in settlement of all of the claims being litigated upon, the legal proceedings will come to an end. Question of liability for legal costs would also be determined automatically in accordance with the rules of the court.
Time limit for making a sanctioned offer / sanctioned payment
It can be made only after legal proceedings have commenced. Making of an offer before commencement of legal proceedings can still be made by way of a Calderbank letter.
Time limit for accepting a sanctioned offer / sanctioned payment
If a litigant wishes to accept a sanctioned offer or sanctioned payment, it should be done not later than 28 days after it was made, in which case the consent of the other party to the legal proceedings or the permission of the court would not be required. If a litigant wishes to accept a sanctioned offer or sanctioned payment later than 28 days after it was made, it can still be accepted but only if the parties can agree on liability for costs or with permission of the court.
Confidential and without prejudice
The fact that a litigant has made a sanctioned offer or payment is confidential and cannot be brought to the attention of the court until after questions of liability and quantum have been decided i.e. only when question of legal costs is to be decided by the court.
Costs consequences of acceptance of a sanctioned offer or sanctioned payment
Where a defendant’s sanctioned offer or payment to settle the whole claim is accepted by a plaintiff, and where a plaintiff’s sanctioned offer to settle the whole claim is accepted by a defendant, without requiring the permission of the court, the starting principle is that the defendant will be held liable for the plaintiff’s legal costs up to the date of acceptance of the defendant’s sanctioned offer or sanctioned payment, or the plaintiff’s sanctioned offer, as the case may be.
A defendant who wishes the court to depart from this starting principle in respect of legal costs should at the very least give proper and timely notice to the plaintiff, and the court would depart from the starting principle only in exceptional circumstances that clearly justify a different costs order.
Costs consequences of non-acceptance of a sanctioned offer or payment
If a litigant refuses to accept a sanctioned offer or sanctioned payment, and the party who made the offer fails to obtain a judgment that is more advantageous than its own sanctioned offer or better than the sanctioned payment, the general principle on legal costs that “costs should follow the event” (i.e. the winner gets paid) would normally apply without an enhanced order on legal costs and/or interest.
On the other hand, if a litigant refuses to accept a sanctioned offer or sanctioned payment, and the party who made the offer obtains a judgment that is more advantageous than its own sanctioned offer or better than the sanctioned payment, the general principle on legal costs that “costs should follow the event” would normally be subjected to an enhanced order on legal costs and/or interest.
(a) Where a plaintiff does better than its own sanctioned offer
If a sanctioned offer made by a plaintiff is not accepted by the defendant, and the judgment is more advantageous to the plaintiff than its own sanctioned offer or the defendant is held liable for more than the proposal under the sanctioned offer, the defendant would (unless the court considers it unjust to do so) be subjected to an enhanced order on legal costs and/or interest, namely :-
(i) the amount of the defendant’s liability for the plaintiff’s legal costs during the period from the latest date on which the defendant could have accepted the sanctioned offer without requiring the permission of the court until judgment, will be determined on the indemnity basis instead of the usual and lower fee scale of party and party basis; and
(ii) the defendant will be ordered to pay interest (of up to 10% above judgment rate) on those costs; and
(iii) the defendant will be ordered to pay interest (of up to 10% above judgment rate) on the whole or part of any sum of money awarded to the plaintiff for some or all of the period after the latest date on which the defendant could have accepted the sanctioned offer without requiring the permission of the court.
(b) Where a defendant does better than its own sanctioned offer or sanctioned payment
If a sanctioned offer made by a defendant is not accepted by the plaintiff, and the judgment (including the situation where the plaintiff wins the case) is more advantageous to the defendant than its own sanctioned offer or better than the sanctioned payment, the plaintiff would (unless the court considers it unjust to do so) be subjected to an enhanced order on legal costs and/or interest, namely :-
(i) the plaintiff will be liable for the defendant’s legal costs during the period from the latest date on which the plaintiff could have accepted the sanctioned offer or sanctioned payment without requiring the permission of the court until judgment; and
(ii) the amount of the plaintiff’s liability for the defendant’s legal costs during the period from the latest date on which the plaintiff could have accepted the sanctioned offer or sanctioned payment without requiring the permission of the court until judgment, will be determined on the indemnity basis instead of the usual and lower fee scale of party and party basis; and
(iii) the plaintiff will be ordered to pay interest (of up to 10% above judgment rate) on those costs; and
(iv) the plaintiff may be disentitled to claim for interest otherwise payable on the whole or part of any sum of money awarded to the plaintiff for some or all of the period after the latest date on which the plaintiff could have accepted the sanctioned offer or sanctioned payment without requiring the permission of the court.
If you have any queries regarding the above eNews, experienced lawyers in our Litigation Practice will be happy to assist you.