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Important Notice to all Litigation Clients: Sanctioned Offer/Payment

2009-04-01

As you may know, the Civil Justice Reform in Hong Kong comes into effect today.  A lot of the new measures are aimed at encouraging parties to a litigation case to settle their disputes without proceeding the case to a full trial. One such important measure is the Sanction Offer/Sanction Payment mechanism. It affects all currently ongoing cases, whether you are a plaintiff or a defendant. We shall briefly explain it below.  

What is a Sanctioned Offer?

Sanctioned offer means a settlement offer made in accordance with the new Order 22 of the Rules of High Court (Cap. 4A) (or the Rules of the District Court (Cap. 336H), as the case may be).  A plaintiff or a defendant may, at any time after the commencement of the court action, make a sanctioned offer.  

What is a Sanctioned Payment?

Sanctioned payment means an offer made by a defendant by way of a payment into court in accordance with Order 22.  Where an offer by a defendant involves a payment of money to the plaintiff, the offer must be made by way of sanctioned payment instead of sanctioned offer.  

Sanctioned Offer/ Sanctioned Payment is Confidential and Without Prejudice

Generally speaking, the fact that one party has made a sanctioned offer/ sanctioned payment is confidential and cannot be brought to the attention of the court until the end of the trial.  In addition, a defendant may make a sanctioned payment without admitting any liability.  As such, the concessions made by the offeror in the sanctioned offer/ payment would not be seen as a sign of weakness before the court.

Consequences of Non-Acceptance by Defendant

If a plaintiff has made a sanctioned offer which is not accepted by the defendant, and the plaintiff obtains a judgment better than the offer, the defendant is likely to be ordered to pay the plaintiff’s costs on an indemnity basis, enhanced interest (up to 10% above judgment rate) on those costs and enhanced interest (up to 10% above judgment rate) on any sum awarded to the plaintiff.  

Case Example

If the assessment is that the plaintiff, if successful at trial, will likely be awarded HK$1 million, making an early sanctioned offer to accept from the defendant a sum of, say, HK$990K has obvious advantages to the plaintiff.   

If the defendant, for fear of the severe sanction, accepts the offer, the plaintiff will be able to quickly recoup more or less all his likely entitlement, minus a small discount.  

If the defendant does not accept the offer and the plaintiff eventually succeeds at trial with an award of HK$1 million, then the defendant is likely to be ordered to pay the plaintiff’s costs on an indemnity basis, enhanced interest (up to 10% above judgment rate[1]) on those costs and enhanced interest (up to 10% above judgment rate) on any sum awarded to the plaintiff.  

Consequences of Non-Acceptance by Plaintiff

By the same token, if a defendant has made a sanctioned offer or sanctioned payment which is not accepted by the plaintiff, and the plaintiff fails to obtain a judgment better than the offer or payment, the plaintiff may, despite winning the case, be ordered to pay all of the defendant’s costs incurred after the time when the plaintiff could have accepted the offer and enhanced interest (up to 10% above judgment rate) on those costs.  Furthermore, the court may disallow interest on the principal sum or damages awarded to the plaintiff.

Given the possible consequences on costs and interests, litigants should seriously consider making a sanctioned offer or payment to the opponent.

For further details of the principles and mechanism of Sanctioned Offer/Payment, please refer to the Judiciary’s publication:

http://www.civiljustice.gov.hk/cjr/download.jsp?FN=eng/documents/Leaflet_08_Eng.pdf

If you have any query on the above, or any query related to your case which is currently handled by us, please do not hesitate to contact us to discuss.



[1] Judgment rate is currently 8% p.a.


For enquiries, please contact our Litigation & Dispute Resolution Department:

E: ldr@onc.hk                                             T: (852) 2810 1212

W: www.onc.hk                                          F: (852) 2804 6311

19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
Published by ONC Lawyers © 2009

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Senior Partner
Sherman Yan
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Managing Partner
Olivia Kung
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Partner
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