Ji Lihong v. Well Favour Ltd and Another

DCPI 849/2021

[2023] HKDC 1594

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

PERSONAL INJURIES ACTION NO 849 OF 2021

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DECISION

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INTRODUCTION

1.This is a summons taken out by the 1^st defendant (“D1”) against the 2^nd defendant (“D2”) who tried to settle its claim with the plaintiff (“P”) without the agreement of D2. It involves a situation not uncommonly found in personal injuries (“PI”) cases but seldom needs to be adjudicated by the Court.

2.In the summons filed on 21 February 2023 (“the Summons”) by D1 under O 1B r 1 and O 42 r 5A of the Rules of the District Court (“the RDC”), D1 sought the following order from the Court:-

“1.   On without admission of liability basis, the 1^st Defendant do pay the Plaintiff a sum of HK$125,000 (inclusive of interest, but net of employees’ compensation already received totalling HK$390,513.76) (“Settlement Sum”) in full and final settlement of the Plaintiff’s claim in the main action against the 1^st and 2^nd Defendants;

2.  The 1^st Defendant shall within 28 days pay to the Plaintiff through the Director of Legal Aid the Settlement Sum of HK$125,000;

3.   The 1^st Defendant do pay the Plaintiff’s costs of this action (except for the costs of and incidental to this application which is to be paid by the 2^nd Defendant as provided in paragraph 6 below) to be taxed if not agreed, and the Plaintiff’s own costs be taxed in accordance with the Legal Aid Regulations;

4.   Upon payment of the Settlement Sum and costs as aforesaid, the 1^st and the 2^nd Defendants be fully discharged from further liabilities in respect of the Plaintiff’s claim in the main action, but this is without prejudice to 1^st Defendant’s claim for indemnity or contribution against the 2^nd Defendant in the contribution proceedings;

5.   The claims between the 1^st Defendant and the 2^nd Defendant in the contribution proceedings do continue. A direction hearing be fixed for _________ (a date in May 2023) at ______ for the 1^st Defendant and the 2^nd Defendant to seek further case management directions in respect of the contribution proceedings;

6.  The 2^nd Defendant do pay the Plaintiff’s and the 1^st Defendant’s costs of and incidental to this application, to be taxed if not agreed.”

BACKGROUND

D1’s summary of background and issues

3.The following is the background leading to the issue of the Summons as summarized by D1 in its listing questionnaire filed for the purpose of the case management conference (“CMC”) hearing held before me on 21 August 2023:-

“Background

1. On 24.3.2021, the Plaintiff commenced these proceedings against the 1^st and 2^nd Defendants for damages arising out of a work accident on 9.4.2018. The Plaintiff slipped and fell whilst cleaning the public male washroom (“Washroom”) on 1/F of Portion A of Reserved Area, G/F & Shop 25-28, 33-37, 39-44 & 46, City Garden, North Point (“Mall”). She has received employees’ compensation of HK$390,513.76 from the 1^st Defendant.

2. At the material times:-

(a)  the Plaintiff was employed by the 1^st Defendant as a general worker;

(b)  the 1^st Defendant was running the restaurant “Lei Garden” at the Mall;

(c)  the 2^nd Defendant was the property manager of the Mall, including the Washroom.

3.  After negotiation, the Defendants had been unable to reach agreement on apportionment of liability. In view of the comparatively small sum of the Plaintiff’s claim, the 1^st Defendant wanted to settle the claim without affecting its claim for contribution or indemnity against the 2^nd Defendant.

4.  On a without admission of liability basis, the Plaintiff and the 1^st Defendant reached agreement to settle this case at HK$125,000 (net of ECC HK$390,513.76) plus costs in October 2022.  On 18.10.2022, the 1^st Defendant sent a draft Consent Summons to all parties regarding the settlement. The 1^st Defendant is to pay the settlement sum and the Plaintiff’s costs in the main action, but the Defendants’ contribution proceedings shall continue. The 2^nd Defendant did not agree to sign the Consent Summons. (See attached copies of the correspondence).

5.  So on 21.2.2023, the 1^st Defendant issued the Summons to seek the Court's approval of the settlement of the Plaintiff’s claim. The terms of the Summons were largely the same as that of the draft Consent Summons.

6.  The Summons was heard by Master Pun on 3.3.2023 and 10.5.2023. The 2^nd Defendant disagreed with the Summons. Its position is that the settlement cannot be approved without its consent, and its defence costs in the main action must be either paid by the Plaintiff or the 1^st Defendant now.

7.  After negotiation, the parties were still unable to come to agreed terms. On 20.7.2023, we wrote to the PI Master to seek to have the Summons referred to the PI Judge.”

4.Thus, according to D1, the issues which fall upon this Court to decide are as follow:-

“Issues

i) In light of the existing contribution proceedings between the Defendants, whether the 2^nd Defendant’s defence costs in the main action must be paid for now?

ii)  Whether the 1^st Defendant can settle the whole of the Plaintiff’s claim against the Defendants?”

D2’s summary of background and issues

5.In D2’s listing questionnaire filed for the purpose of the CMC, the following has been stated as a summary of the factual background of this action:-

“1. It is the Plaintiff’s case that on 9 April 2018, she was cleaning the washroom of 1/F of Block 9-10, City Garden, North Point (Washroom). Whilst the Plaintiff was applying force to remove some machine oil-like stain left on the floor of the Washroom with a mop, she sprained her shoulder.

2. The Plaintiff alleges that, as a result of the injuries sustained, the 1^st and 2^nd Defendants are liable to damages in the sum of $1,778,253.24 (inclusive of employees’ compensation $390,513.76) plus interest and costs.

3. The 2^nd Defendant alleges that:

(i)   The circumstances of the alleged accident was in dispute. According to the witness statement of Mr Hung Ying Hong of the 1^st Defendant, the floor of the Washroom was clean and there was no machine oil-like stain left on the floor upon he attended the accident scene shortly after the alleged accident.

(ii)  Even if the alleged accident was happened as alleged, it was wholly caused by or alternatively contributed to by the 1^st Defendant’s negligence in failing to devise a safe system or work and/or the Plaintiff’s negligence in performing the cleaning duties assigned by the 1^st Defendant.”

6.According to D2, the following are the issues to be tried in this action:-

“(1) Whether the alleged accident was happened as alleged;

(2) Whether 1^st and/or 2^nd Defendants are liable to the Plaintiff’s claim if the alleged accident was happened as alleged, and the apportionment of liability, if any;

(3) The extent of injuries sustained by the Plaintiff as a result of the alleged accident, if any; and

(4)  The loss and damage of the Plaintiff a result of the alleged accident, if any.”

7.Further, the following is a summary of the background to the Summons and the issues to be determined by the Court at the CMC as stated by D2 in its listing questionnaire:-

“(B) The following is a summary of the factual background of the Summons:

The 1^st Defendant took out a Summons on 21 February 2023 (“Summons”). The Summons is for approval of settlement affecting the position of all parties, but without involving the 2^nd Defendant in the course of the negotiation.

The Summons was heard on 3 March and 10 May 2023 and was adjourned to 7 September 2023 for the parties to negotiate further.

During the hearing on 10 May 2023 (“the Hearing”), Master Dominic Pun clearly stated that the Court was not prepared to approve any settlement proposal involving all parties without the consent of all parties.

Master had rightly pointed out that if the 1^st Defendant was minded to conclude any settlement with the Plaintiff unilaterally and proceed with the contribution proceedings, the proper way would be:

(1) For the 1^st Defendant and the Plaintiff to agree terms of settlement in the Main Action;

(2) The Plaintiff discontinue the claim against the 2^nd Defendant in the Main Action;

(3) The 2^nd Defendant’s costs of the Main Action be paid by the Plaintiff and/or the 1^st Defendant.

In the absence of the above, the 1^st Defendant cannot force the 2^nd Defendant to accept the terms of the Summons. 

Master Pun further indicated that if the 1^st Defendant was minded to proceed with the Summons, legal authorities would be required to support the 1^st Defendant’s position.

Despite our written reminder as to the above, the 1st Defendant insisted writing the Letter to Court to refer the Summons for argument before PI Judge.

The issue to be determined during the Case Management Conference:

(1) Whether the 1^st Defendant is entitled to settle the Plaintiff’s claim against the 2^nd Defendant on behalf of the 2^nd Defendant, without the consent of the 2^nd Defendant; and

(2) The costs of the Summons.”

Hearing of the CMC on 21 August 2023

8.At the hearing of the CMC before me on 21 August 2023, it was apparent that D1 and D2 (collectively as “Ds”) still could not resolve their differences.  P took a neutral stance on the matter but was, understandably, keen to settle her claim against both Ds.  I therefore directed D1 and D2 to file their respective skeleton submissions to set out their arguments in writing for the Court’s consideration and ruling.  In order to save costs and time, I further directed the matter to be dealt with by way of paper disposal.  P was excused from making any written representation or further appearance in relation to the Summons.

DISCUSSION

(A) D1’s Position

9.D1’s primary position on the Summons can be found in its written submissions lodged on 11 September 2023 in accordance with the directions given by the Court (“D1’s Submissions”).  It can be briefly stated as follows.

10.D1 started its submission by dealing with D2’s 3 main opposing grounds, which are:-

(i)   Consent – D2 was not involved in the settlement negotiation between D1 and P.  D1 therefore cannot settle P’s claim against Ds, without D2’s consent.

(ii)  Costs to D2 and discontinuance of the contribution claim – D2 suggests the proper way of the proposed settlement should be:-

(a)  P discontinues the claim against D2.  Either P and/or D1 is to pay D2’s defence costs in the main action.  There was no suggestion regarding its own costs in the contributing proceedings between D1 and D2 (“the Contribution Proceedings”); and

(b)  Regarding the Contribution Proceedings, D2 has not made any proposal in correspondence.  At the hearing of the CMC, D2 suggested that its own contribution claim may also be discontinued, but proposed nothing for D1’s contribution claim.

(iii) Burden of proof – If the Contribution Proceedings are to continue after the “settlement”, D2 can only recover its costs of the main action between P verses D1 & D2 (“the Main Action”) and the Contribution Proceedings if D2 proves 100% liability against D1.  The burden of proof is therefore “reversed" as originally P was supposed to bear the burden of proof.  Hence, D2 would be prejudiced in such a way.

11.D1 submitted the following “position” in relation to the 3 main objections raised by D2 in the Summons.

(a) D2’s “consent” is not required

12.D1 states that D1 and D2 had been negotiating apportionment of liability long before the proposed settlement. When it became apparent that there was no chance of an agreement, D1 tried to settle P’s claim first.  In such situation, D1 submits that it did not need D2’s consent. Otherwise, it says D1 would never be able to settle with P as D2’s consent may not be forthcoming.  As of the date of issue of the Summons, D1 claims that D2 has never alleged that the settlement sum is unreasonable.  And if D2 sees fit to challenge the settlement sum, D1 claims that they are free to raise this issue in the Contribution Proceedings.

13.D1 cited Lam Pui Yin v Wah On Engineering Limited and Anor [2020] HKCFI 601, where it submits that Master Roy Yu has dealt with a similar situation:-

(i)    The plaintiff claimed against the 1^st defendant (employer) and 2^nd defendant (principal contractor) for damages for personal injuries.  The 1^st defendant disputed liability to the plaintiff and claimed contribution/indemnity against the 2^nd defendant.  Default judgment in the contribution claim was entered against the 2^nd defendant;

(ii)   Eventually, the plaintiff and 1^st defendant reached settlement – the 1^st defendant was to pay the damages agreed at HK$1,380,400 (inclusive of employees’ compensation) and the plaintiff’s costs; and

(iii)  The contribution proceedings then continued to assessment of damages.  The Court did an assessment and decided that HK$1,380,400 was a reasonable settlement sum.  The Court ordered the 2^nd defendant to indemnify the 1^st defendant of the said sum, the 1^st defendant’s defence costs in the plaintiff’s claim and also the costs in the contribution proceedings.

14.D1 submits that the above case shows that even after settlement by D1, the Contribution Proceedings can still continue and the Court is empowered to assess quantum of the settlement.

15.D1 therefore submits that D2’s “consent” to D1’s settlement of P’s claim in this case is not necessary.

(b) D2’s costs upon settlement

16.D2’s position on this issue is that upon “settlement”, either P and/or D1 should pay D2’s costs of the action, and D2 may then discontinue its claim for contribution.  D1 submits that, presumably D2 would also expect D1 to withdraw its contribution claim against it.  If so, in D1’s submission, D2 is effectively asking the Court not to allow the settlement unless D2 wins the action without a trial. 

(c) Burden of proof and prejudice to D2

17.In relation to the third objection of D2, namely, the purported “reversed” burden of proof and the supposed prejudice allegedly suffered by D2, D1 submits as follows.

18.D2 says that it can only recover defence costs from D1 if it can prove 100% liability on D1 in the Contribution Proceedings. It claims that, upon settlement between P and D1, the burden of proof is “reversed”, as P was supposed to prove her case against D2 in the Main Action.

19.D1 on the other hand submits that contribution claims between defendants under O 16 r 8 of the RDC are essentially claims under the Civil Liability (Contribution) Ordinance, Cap. 377 (“ the CLCO”).  In such a claim, each of the claiming party bears the burden of proof against the other.  D1 says that the settlement with P does not change the burden.

20.D1 cited the case of Li Shiu To v Cheung Pik Ng & Anors [2018] 2 HKC 381 in which Madam Justice Au-Yeung was faced with a similar situation.  In that case, the plaintiff settled the claim with the 1^st defendant and the 1^st defendant continued to pursue the claim against the third party.  The 1^st defendant says that, assuming what the plaintiff said in the main action was true, the 1^st defendant would be liable. So the settlement was a bona fide settlement and sought contribution of 50% from the third party.  The third party denied that the 1^st defendant was entitled to rely on the assumption and resisted the claim.

21.The Court in that case referred to the enactment background of the Civil Liability (Contribution) Act 1978.  S 1(4) of the 1978 Act is identical to s 3(4) of the CLCO.  The enactment was to deal with the unsatisfactory state of law in the case of Stott v West Yorkshire Road Car Co. Ltd [1971] 2 QB 651.   The Commission made 3 points.  D1 submits that the first 2 are irrelevant to this case.  The third one which D1 says being relevant is set out below:-

“28. The UK Law Commission's Law of Contract: Report on Contribution (Law Com No 79) (1977) explained the reasoning:

44…

45... The third reason is that defendants might be deterred from compromising claims in which liability was in doubt if their right of contribution was thereby put at risk…We attached particular importance to the third point and made the provisional recommendation that a person who had compromised a claim made against him so as to benefit some other possible defendant should have the right to claim a contribution from the other defendant provided that the other could be shown to be liable.

50. As for the point about prejudice to D2, the suggestion was made that D2 might find it harder to defend himself on issues of liability and quantum after the fait accompli of a settlement between P and D1, and that D1’s right of contribution after the compromise with P should only be available where D2 has unreasonably refused to be party to the compromise or to take part in the negotiations.

51. We are not convinced by the fait accompli argument. We do not see why D1’s compromise should make it harder for D2 to defend himself on the issue of liability or on the question of the amount recoverable.  As to liability, D1 would have to establish that D2 was liable to P, and the case against D2 would, presumably, be much the same whether it was advanced by P in the main proceedings or by D1 in his claim for contribution.”

[emphasis supplied by D1]

22.D1 therefore says that it is clear that the law encourages this kind of settlement and sees no prejudice to the non-settling defendant.

23.Finally, D1 submits that D2 has never alleged that its proposed settlement is against the law and certainly has not quoted any authority to that effect.

(B) D2’s Position

24.D2’s “primary position” in relation to D1’s Summons can be found in its written submissions lodged with the Court on 6 October 2023 (“D2’s Submissions”).  As mentioned above, D2 objects to D1’s proposed settlement with P principally on the following grounds.

(a) Settlement agreement reached between P and D1 without D2’s involvement

25.D2 clearly was not happy that P and D1 had reached an agreement amongst themselves without D2 being involved in the course of the negotiations of the Settlement Agreement: (See §8 of D2’s Submissions).

26.By highlighting the second half of §1 of the Summons, D2 claims that D1 is effectively asking the Court to make an Order to include D2 as a party of the Settlement Agreement but without involving D2 in the course of the negotiations and without the consent of D2: (See §10 of D2’s Submissions).

27.Thus, D2’s main complaint is that the Settlement Agreement is a contract negotiated between P and D1 to settle P’s claim in the Main Action against D1 & D2, without involvement of D2 in the course of negotiations of “the contract”.   D2 submits that D2 is one of the intended parties of the Settlement Agreement and as such, D2 claims that “D2’s consent to enter into the contract is of the essence.”: (See §12 of D2’s Submissions).

28.In this regard, D2 cited the following authorities to support the above contention: RTS Flexible Systems Ltd v Molkerei [2010] 7 WLR 753, §§45-50, per Lord Clarke, as applied in Banco del Austro v Regal Prosper Trading Ltd, HCA 477/2015, [2016] HKEC 776, §§21-26, summarised in Re MSB International Ltd, HCCW 386/2021 [2023] 1 HKLRD 386 by Linda Chan J at §41.

29.Further, D2 tries to distinguish the case of Lam Pui Yin v On Engineering Limited and Anor [2020] HKCFI relied on by D1 on the following 2 grounds:-

(i)   Default judgment had been entered by D1 against D2 in the contribution proceedings in that case; and

(ii)  The settlement between P and D1 in that case was concluded by way of Tomlin Order between them, without forcing D2 to become part of the settlement agreement;

(b) D2’s claim of “proper way to conclude any settlement negotiated between D1 & P”

30.Instead of following what D1 proposed to do under the Summons, it has been suggested in §§19-22 of D2’s Submissions that: -

“19. If D1 was minded to conclude any settlement with P unilaterally and proceed with the Contribution Proceedings, the proper way would be:

(1) For D1 and P to agree terms of settlement in the Main Action;

(2) P do discontinue the claim against the D2 in the Main Action;

(3) D2’s costs of the Main Action be paid by P;

(4) P may seek indemnity from D1 for such costs payable to D2.

20. Thereafter, D1 is still at liberty to proceed with the Contribution Proceedings against D2 to seek recovery or contribution of the settlement sum paid to P and any costs D1 was obliged to pay to D2 whether directly or by way of indemnity to P. It would up to D1 to prove that D2 is liable.

21. D1’s submission that D2 would expect D1 to withdraw the Contribution Proceedings upon any settlement concluded between D1 and P [D1 Sub 7/§§7] is misconceived. D2 does not hold any such presumption at all.

22. If D1 proceeds with the Contribution Proceedings, D2 would then have the opportunity to consider whether or not to proceed with their contribution claim against D1 given that the

burden of proof is now different in view of the Main Action having been settled. Further submissions on this issues at elaborated below at paragraph 44 of the submissions.”

(c) Similar statutory mechanism to conclude settlement between D1 and P unilaterally

31.D2 further submits that there is also similar statutory mechanism where the plaintiff accepts settlement proposal made by one or more, but not all defendants under O 22 r 18 of the RDC:-

“(1) This rule applies where the plaintiff wishes to accept a sanctioned offer or a sanctioned payment made by one or more, but not all, of a number of defendants.

(2) If the defendants are sued jointly or in the alternative, the plaintiff may accept the offer or payment without requiring the leave of the Court in accordance with rule 15(1) if—

(a) he discontinues his claim against those defendants who have not made the offer or payment; and

(b) those defendants give written consent to the acceptance of the offer or payment.”

32.D2 claims that the “statutory mechanism” under the above rule for such “unilateral settlement” reached between one defendant and the plaintiff also requires either P (1) to discontinue the claim against the remaining defendants or (2) to obtain consent from the remaining defendants.

33.D2 claims that whilst the above alternative ways to conclude the settlement are readily available to D1, D1 is now attempting to circumvent the law of contract and statutory mechanism by issuing the Summons to avoid dealing with the issue of D2’s costs at that stage.

(d) Prejudice to D2 if the Settlement Agreement is concluded without D2’s consent

34.D2 submits that the above principles of contract should be sufficient for the Court to dispose of the Summons.

35.However, in D2’s submission, a further reason why D2 considers the Summons should not succeed is because the potential prejudice to D2 if the Settlement Agreement is allowed as the burden of proof on which party is liable is reversed.

36.To illustrate, D2 claims that if P fails to prove her case against D2 after the trial of the Main Action, D2 is entitled to costs of the Main Action. D2’s contribution claim against D1 would then be extinguished and D2 would be able to seek indemnity from P for any costs that D2 may be liable to pay to D1 in the Contribution Proceedings.

37.Further, D2 claims that if the Main Action was settled in the manner contended for by D1, D2 would lose the rights and opportunity to recover the defence costs of the Main Action from P.

38.D2 would only be able to seek recovery of such costs if it succeeds to prove 100% liability on the part of D1 in the Contribution Proceedings. Hence, the burden of proof is “reversed” as a result of the settlement of the Main Action.

(e) Burden of Proof

39.D2 says that its position above has been illustrated by the authority of Li Shiu To v Cheung Pik Ng & Ors [2018] 2 HKC relied on by D1.

40.S 3(4) of the CLCO 3 reads:-

“a person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established” [emphasis supplied]

41.D2 submits that the enactment of s 3(4) of the CLCO was to deal with the problem created by Stott, supra. It is a case where the plaintiff and the defendants had reached a settlement agreement and the defendants wished to proceed with a claim against a third party for contribution.  The UK Court of Appeal held that the contribution claim should proceed but pointed out that it would fail unless it was established in the contribution proceedings that the defendants claiming the contribution were tortfeasors.

42.With the enactment of s 3(4) of the CLCO, any person entering into a bona fide settlement would have the right to seek recovery on the basis that he would have been liable assuming that the factual basis of the claim against him could be established.  The settling defendant is no longer required to prove that he is liable for the plaintiff’s claim in the contribution or third party proceedings.

43.D2 further submits that if the Court grants P’s application in the Summons, D2 would become part of the Settlement Agreement as P’s claim against both D1 and D2 would be settled pursuant to §1 of the Summons.

44.D2 says that for D2 then to proceed with the Contribution Proceedings against D1, D2 would either (1) need to rely on the presumption under s 3(4) of the CLCO, i.e. D2 would have been liable assuming that the factual basis of the claim against D2 could be established; or (2) need to prove that D2 is liable for P’s claim in the Contribution Proceedings.

45.However, it is D2’s position that D2 is not liable for the P’s claim herein at all.  The Settlement Agreement would put D2 in the absurd position of having to accept that D2 is liable (for the rights to proceed with the Contribution Proceedings against D1 and to prove that D1 is solely liable/100% liable for the P’s claim in order to recover their defence costs

of the Main Action.  D2 provided 2 illustrations in D2’s Submissions which I shall not recite them here.

46.In the aforestated premises, D2 asks the Court to dismiss the Summons with costs in its favour.

(C)  D1’s Reply

47.D1 has made a short written reply on 17 October 2023 (“D1’s Reply”) disputing D2’s arguments above.  I shall not repeat the contents here but will deal with some of the issues raised in D1’s Reply in my findings below.

FINDINGS OF THE COURT

48.In my judgment, the Summons can be resolved by looking at the following 4 main grounds of objections raised by D2 in D2’s Submissions. I shall try to deal with them individually hereinbelow.

(i)  Whether D2’s consent is needed in a settlement involving contribution proceedings?

49.In my view, D2’s primary objection that D1 could not settle the case with P without its consent in a case involving contribution proceedings is not valid for several reasons.

50.First, this case is not a “contractual dispute” between P, D1 & D2.  This case is in the context of a tort claim brought by P against D1 and D2 jointly and severally for loss and damage allegedly caused by the “civil wrongs” of D1 and D2.  The Settlement Agreement was a proposed contract between P and D1 to settle the P’s claim against both D1 and D2, without admitting any liability on behalf of D2 nor binding D2 to pay any of P’s damages or costs.  While D2 being a party in the Main Action, it is not a party to the Settlement Agreement.  Thus, in my view, the cases referred to by D2 in D2’s Submissions which concerned with basic contractual principles or contract formation in a normal civil case can be distinguished from a personal injury case where the defendants have made claims against each other under the Contribution Proceedings. 

51.As §1 of the Summons has clearly spelt out, the Settlement Agreement was made on a “without admission of liability basis” between D1 and P.  Thus, there is in my view no question of D1 having accepted any liability on behalf of D2 under the Settlement Agreement as claimed by D2.  Nor is it in my view D1 asking the Court to make an order to include D2 as part of the Settlement Agreement, without the consent of D2, as alleged by D2 in D2’s Submissions.

52.Second, the Settlement Agreement between P and D1 is expressly stated as “without prejudice to D1’s claim for indemnity and contribution against D2 in the Contribution Proceedings” and that the claims between D1 and D2 against each other will continue: (See §§4 & 5 of the Summons).  Hence, even if D1 has agreed to settle P’s claim in the Main Action against D1 and D2 in the sum of HK$125,000, it does not mean that D2 cannot dispute both the amount agreed to be paid by D1 to P and/or the liability of D2 to pay to P or D1 in the Contribution Proceedings. 

53.Third, while there is a dispute between D1 and D2 as to whether D2 was involved in the settlement negotiations, at the end of the day, in my view, it should not affect the Settlement Agreement reached between P and D1, provided D2’s substantive rights to dispute both the liability to pay and the amount to pay in the Contribution Proceedings will not be affected.  D1 claims that D1 and D2 had been negotiating apportionment of liability long before the “settlement” but could not reach any agreement with D2 on this.  Hence, they proceeded with the negotiation/settlement between D1 and P.  D2 does not seem to dispute that.  Their main complaint is that D1 went on to reach a settlement between them without their consent. However, I see nothing wrong with that provided D2’s rights to dispute its liability to P in the accident; the amount of damages; and the costs agreed to be paid by D1 to P, are all preserved in the Contribution Proceedings.        

54.In this regard, I agree with the approach of Master Roy Yu in dealing with the main action and the contributory proceedings as separate proceedings in Lam Pui Ying, supra, referred to by D1 in D1’s Submissions.  In my view, provided that D2’s substantive rights are not affected by the Settlement Agreement and that its right to claim against D1 for any damages and costs paid to P by D1 “without its consent”, I do not see why D1 could not reach an agreement with P first and then sort out the respective liability between the Ds and the reasonableness of the settlement sum as well as costs agreed under the Settlement Agreement in the Contribution Proceedings.   In my judgment, this is particularly the case when one of the defendants is unwilling to settle the main action with the plaintiff and stand in the way of a settlement, as D1 alleges happened in this case.  In my judgment, under such circumstances, the underlying objectives of the Civil Justice Reform (“CJR”) as spelt out under O 1A, r 1 of the RDC not only should be taken into consideration and adhere to but also be given priority.  In terms of proportionality, it must be the case that the smaller the amount of claim or damages involved, the earlier the parties should try to find ways to dispose of the action in a costs effective and time efficient manner.      

(ii)     D2’s costs upon settlement

55.In my judgment, D2’s proposition on this issue (as summed up in §30 above) cannot be right.

56.First, as a matter of basic common sense and contractual principles, D2 cannot dictate the terms of the Settlement Agreement of which it is not a party of.  In this case, the Settlement Agreement is strictly a contract made between P and D1 only.  D2 cannot ask P to discontinue the action against D2 and pay for D2’s costs in the Main Action upfront first and then ask P to seek indemnity from D1 for such costs payable to D2. 

57.Further, D2’s proposal would in my view only add more unnecessary costs to what turns out to be a very modest common law claim brought by P.  If D2’s approach is to be adopted, then P will have to pay for D2’s costs first and for P later to seek indemnity of those costs from D1. Since P is on legal aid, it is most unlikely that the Director of Legal Aid will be prepared to allow P to settle the case in such a manner. Even if P is not on legal aid, I do not think any litigant will be willing to settle the Main Action in such a way. By insisting P and D1 to settle in such manner, D2 will only cause further delay and additional costs to what is a very modest claim, all of which in my judgment would be against both the letters and spirit of the CJR.

(iii)   D2’s proposed “similar” statutory mechanism to conclude settlement between D1 and P 

58.D2’s proposed “similar” statutory mechanism settlement approach has been summed up in §§31-33 above.

59.In my view, the problem with using O 22 r 18(2) is that a plaintiff may only able to accept the offer or sanctioned payment without leave of the Court if the plaintiff discontinues his claim against those defendants who have not made the offer or payment (which would be D2 in our case) and those defendants (again it would include D2 in our case) willing to give written consent to the acceptance of the offer or payment.   

60.With respect to D2’s solicitors, O 22 r 18(2) does not provide an “either … or” option as suggested by them: (see §32 above).  Hence, it is in my judgment a misconceived notion on the part of D2 that the matter can be dealt with under the “similar” statutory mechanism as suggested by them. 

61.In order to follow such “similar” statutory mechanism as proposed by D2, takes this case as an example, if D1 makes a sanctioned payment which P wants to accept, P will have to apply for leave from the Court to accept it (as it is extremely unlikely that D2 would give its written consent unless either P or D1 would pay its costs first).  I agree with D1 as stated in D1’s Reply that, upon such application, one of the two below scenarios would most likely take place:-

Either (i) the Court will need to decide as to who should bear D2’s costs;

or (ii) the Court will direct that D2’s costs be dealt with in the contribution proceedings.

62.I further agree with D1’s submission that scenario (i) will not be ideal as it would involve a full trial on liability between the parties.  Scenario (ii) will be exactly what D1 is proposing under the Summons which in my view must be a preferred option.

(iv)     Was there a “reversed” burden of proof?

63.D2 also alleges that D1’s proposed way of dealing with the matter would have the effect of “reversing” the burden of proof in the Contribution Proceedings: (See §§39 - 45 above).

64.Again, with respect to D2’s solicitors, I do not regard that as a sound argument at all for the following reasons.

65.First, I do not consider s 3(4) of the CLCO applies in this case.  As stated, D2 is not a party to the Settlement Agreement between P & D1. 

66.In my view, s 3(4) of the CLCO only applies to a person “who has made or agreed to make any payment” in a bona fide settlement or compromise of any claim made against him.  In the Settlement Agreement, it was only D1 who has agreed to make any payment to P. D2 who was not a party of the Settlement Agreement will not be making any payment. Hence, I do not think D2 can claim that it is “a person” referred to in the rule and therefore able to rely on the rule.

67.Second, as §1 of the Summons has stated, the Settlement Agreement entered between P and D1 is on a without admission of liability basis.  §5 also preserves the rights of D2’s claim against D1 in the Contribution Proceedings.  In the Contribution Proceedings, D1 bears the burden of proof to prove its case against D2 and D2 in turns bears the burden of proof to prove its case against D1.  I do not see why D2 thinks there exists a disadvantage just because D1 wishes to settle the case with P under the Settlement Agreement.  I also do not see how the burden of proof will be “reversed’ under such circumstances.

68.In this regard, I agree with what D1 has cited in Li Shiu To, supra at §51 where Madam Justice Au-Yeung quoted the UK Law Commission’s Law of Contract: Report on Contribution (Law Com No 79) (1979) must be correct:-

“51. …As to liability, D1 [the paying defendant] would have to establish that D2 was liable to P, and the case against D2 would, presumably, be much the same whether it was advanced by P in the main proceedings or by D1 in his claim for contribution…”.

CONCLUSION     

69.In conclusion, I do not think there is anything wrong with D1’s proposed way of disposing the Main Action.  I do not see how D2’s rights to claim any amount of damages agreeable to by paid by D1 to P (including the costs of the action) cannot be recovered by D2 from D1 in the Contribution Proceedings.  I also do not see how the burden of proof will be reversed in the Contribution Proceedings as claimed by D2.  Finally, I do not see how the case can be settled by a mechanism under O 22 r 18(2) of the RDC as suggested by D2 in the circumstances of this case.

70.In the aforestated premises, I will make an order in terms of the Summons that with a Checklist Review hearing to be fixed before a PI Masters on 8 January 2024 at 9:30 am in Court No 14 for further case management directions in respect of the Contribution Proceedings.

71.As it was D2 who has insisted to contest the Summons, I order the costs of the Summons to be borne by D2 as stated in §6 of the Summons.  P’s own costs (in dealing with the Summons and for attending the CMC on 21 August 2023) will be taxed in accordance with the Legal Aid Regulations.