In the recent Court of First Instance case Ryder Industries Ltd v Timely Electronics Co Ltd  HCA 2358/2007 & 109/2009, the Court held that the existence of a condition precedent in an otherwise compliant sanctioned offer did not preclude it from being a valid sanctioned offer. 

Introduction

A sanctioned offer means a settlement offer made in accordance with the Order 22 (“O22”) of the Rules of High Court (Cap. 4A) (“RHC”) (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.

In order for an offer to carry the specified consequences as a sanctioned offer, it must comply with certain requirements as to form and content of a sanctioned offer set out under O22 rule 5 (“r5”) of RHC.  What if a settlement offer is made subject to a condition, will it still be a valid sanctioned offer?

In the recent Court of First Instance case Ryder Industries Ltd v Timely Electronics Co Ltd  HCA 2358/2007 & 109/2009, the court held that the existence of a condition precedent in an otherwise compliant sanctioned offer did not preclude it from being a valid sanctioned offer.

Ryder Industries Limited (formerly Saitek Limited) (“Ryder”) was awarded judgment for HK$ 6,502,555.15 plus interest against Timely Electronics Company Limited (“Timely”), the defendant in the High Court Action under no. 2358/2007 (“Main Action”) and a certain Mr. Chan Siu Woo (“Mr. Chan”), who was a guarantor for the liabilities of Timely in the Main Action, the defendant in the High Court Action under no.109/2009 (“Guarantee Action”).  The Main and the Guarantee Actions were tried together.  Timely and Mr. Chan will be collectively addressed as “the Defendants”. 

Conditional Sanctioned Offer

On 26 April 2013, Ryder respectively issued a letter to Timely and Mr. Chan to make a sanctioned offer to settle the claims and counterclaims in both actions by a payment by Timely of a sum of HK$6 million.  The Defendants did not accept the offers because they believed that neither of the two letters dated 26 April 2013 were qualified as sanctioned offers under O22 rules 4 and 5 of RHC since they were both conditional.  In particular, the letter served on Timely in the Main Action provides that “this offer shall be conditional upon Mr. Chan’s acceptance of the Sanctioned Offer to Mr. Chan in accordance with Order 22 rule 16”.  The letter served on Mr. Chan in the Guarantee Action reflected a similar provision. The Defendants believed that the prescribed form of a sanctioned offer as set out in O22 r5 of RHC must be strictly complied with.  Further, a sanctioned offer should be an immediately valid offer not subject to a condition precedent.

As pointed out by Mr. Anthony Houghton (“Mr. Houghton”), the Recorder in his judgment, the underlying objective of the sanctioned offer procedure is to encourage the settlement of actions without recourse to adjudication of the matter by the court.  To that end, rules have been devised so as to codify a process by which a plaintiff may make an offer of settlement of a claim through a mechanism which is quite similar to the mechanism for the making of payments into court by defendants.  Accordingly, if an offer meets the requirements of the rules, then the ‘code’ applies including the costs and interest consequences specified in the rules, as appropriate, as and when the offer is accepted, rejected, beaten at trial or otherwise. 

Mr. Houghton was of the view that it is clear from the authorities referred to in the White Book that the minimum requirements as to form prescribed by O22 of RHC must be met.  However, it is not clear whether conditions which form part of the offer would exclude such an offer from the scheme under O22 rules 4 and 5 of RHC.

When the minimum requirements under O22 are met, the offer made is ordinarily taken as falling within the scheme provided for in the rules and is thus considered a sanctioned offer.  The Court took the view that if conditions have also been added to the offer, those conditions are to be considered in the context of whether or not the particular offer which has been made has been bettered, not whether it is an offer at all.

Therefore, Mr. Houghton gave a judgment that the existence of a condition does not preclude an otherwise compliant offer from being a valid offer and the condition, which the offer is subject to, is to be considered as an additional element of the offer which the offeror itself has to better at trial in order to be able to claim the specified consequences.

Points to note

In fact, this case has its own peculiarity since it is inevitable that the outcome of the Main and the Guarantee Actions would go hand in hand and the liabilities of the Defendants were co-extensive.  Nevertheless, the legacy of the case is that when making a sanctioned offer, the offeror can make the offer to the opposite party subject to a condition precedent if he so chooses.  A sanctioned offer subject to a condition precedent will still be regarded by the court as a sanctioned offer with the specified consequences as long as it fulfils the requirements set out under O22 of RHC.  However, such condition (if any) will be an additional element of the offer which the offeror also has to better at trial in order to claim the specified consequences. 

An otherwise compliant sanctioned offer should not be rejected simply because it contains a condition precedent.  Failure to accept a valid sanctioned offer may attract adverse costs consequences pursuant to O22 of RHC; if the offeror obtains a judgment better than the sanctioned offer, the court may order the offeree to pay the offeror’s costs on an indemnity basis, with 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 offeror.