Dexter Lam & Co (A Firm) v. Ding Yu and Another

HCMP 1480/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1480 OF 2015

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D E C I S I O N

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1.There are 4 applications to deal with:

A.   Costs of the summons of the plaintiff to discontinue the present originating summons against D2;

B.   The plaintiff’s application for a Sanderson order against D1, in respect of the plaintiff and D2’s costs; 

C.   Costs arising out of D2’s application to file a counterclaim; and

D.   Costs of the hearing on 9 March 2016.

2.D1 was absent but has been given notice of these applications.  I therefore proceeded in his absence.

3.I have considered the oral and written submissions of both parties.  I mean no disrespect to any party for not setting out all the arguments but concentrate on only the most important points.  The other points, whether decided in favour of one or the other party would not affect my decision.

BACKGROUND

4.D1 (“DY”), D2 (“HKF”) and DY’s sister Ding Xiaohung (“DXH”) (“collectively “the clients”) signed a retainer agreement dated 30 January 2013 (“the retainer agreement”) agreeing to retain the plaintiff (“Dexter Lam & Co”) as solicitors.  Under the retainer agreement, the clients agreed to bear the solicitors fees and disbursements (including counsel’s fees) for the trial of HCA 992 of 2010 (“the action”).

5.The action involved a dispute as to whether DY or his brother DG was the true beneficial owner of HKF (“the real issue”).  The counterclaim was by DY (not HKF) against his brother DG.  Trial of the action (“the trial”) commenced about one month after the retainer agreement was entered into.

6.Dexter Lam & Co appeared on record on behalf of the clients throughout the trial.  Under a separate retainer agreement, KLG (former solicitors on record) remained acting for the clients.  KLG had taken over from Orrick when Mr Samuel Ngo joined KLG.

7.Judgment was entered in favour of DG after trial of the action.  DG then took over control of HKF.

8.After the trial, KLG and Dexter Lam & Co respectively issued bills of costs to the clients, being costs incurred for the trial of the Action.  As the bills remained outstanding, KLG and Dexter Lam & Co respectively issued HCMP 1569/2015 and the present originating summons for recovery of their costs.  In both sets of proceedings, HKF applied, by counterclaim, to set aside the respective retainer agreement.

9.By a judgment dated 15 February 2016 in HCMP 1569/2015 (“the KLG Judgment”), this court set aside the retainer agreement between KLG and HKF and dismissed KLG’s claim as against HKF.  Judgment was entered against DY on 18 March 2016.

10.On 23 March 2016, Dexter Lam & Co discontinued the present originating summons against HKF.  On 16 June 2016, judgment was entered by this court against DY in default of his appearance, with costs in favour of Dexter Lam & Co.  The remaining issues on costs have been set out in paragraph 1 above.

A.  COSTS UPON DISCONTINUANCE OF THE ORIGINATING SUMMONS AGAINST HKF

11.The general rule is that while a party withdrawing a claim should pay for the costs of the opposite side, the Court has complete discretion in dealing with the issue of costs and to do justice between parties.  The general rule may be departed from in a case where the discontinuance of the proceedings is due to the matter having become academic, rather than to any acknowledgement of likely defeat by the plaintiff.  It would be very unusual for an order for the payment of costs by the party against whom the party was discontinuing to be made.  See Hong Kong Civil Procedure 2016, Vol 1, §21/5/12.

12.Since Dexter Lam & Co has discontinued this case against HKF, admittedly because of the KLG judgment, it was akin to an acknowledgement of likely defeat Dexter Lam & Co should bear the costs of HKF in contesting the originating summons.  There is no reason to order otherwise.

B.  SANDERSON ORDER

B1.  Legal principles

13.Under Order 62, rule 3(2) of the Rules of the High Court, costs generally follow the event.  But the court has discretion to make a Sanderson order (the principles of which are not disputed) if the circumstances warrant it.  This type of order is not confined to personal injuries cases, as propounded by Mr Cheung.

14.Where a plaintiff sues a number of defendants, the court has discretion to order an unsuccessful defendant to pay the costs of a successful defendant:

(a)   by a Sanderson order[1] whereby the unsuccessful defendant is ordered to pay the costs of the successful defendant directly; or

(b)   by a Bullock order[2] whereby the plaintiff pays the costs of the successful defendant but is indemnified in respect of that liability by the unsuccessful defendant. 

15.In deciding whether to exercise that discretion, the court looks to see whether it was reasonable in all the circumstances of the case for the plaintiff to join the successful defendant in the action.  See Chong Ngan Seng v China Harbour Engineering Co Ltd & ors, CACV 54/2012, 25 September 2013, §§5-6.

16.The court must be careful not to lose sight of the uncertainties surrounding the case before its conclusion: Fung Chun Man v Hospital Authority & anor [2012] 1 HKC 531, Bharwaney J, at §7.

17.In cases where the unsuccessful defendant is insolvent, the question is how to distribute the hardship arising from his impecuniosity.  In balancing the hardship, the court must ensure fairness between the parties in the circumstances of the case. In achieving the fairness, the parties’ conduct is plainly relevant: Standard Chartered Bank v Li Wai Ping & ors, HCA 10587/2000 & HCA 3575/2003, 7 June 2011, at §§27 & 28, Poon J (as he then was).

18.The power to make a Sanderson order applies even where a plaintiff discontinues his action against a defendant if the court considers it just to do so in the light of the defendant’s conduct: Hong Kong Civil Procedure 2016, Vol 1, §21/5/12,citing Balwinder Singh v Sino Phil Engineering Services Ltd (unrep, HCPI 423/2004, [2009] HKEC 2026).

B2.  Whether joinder of HKF was reasonable

19.The retainer agreement was addressed to the clients but was purportedly signed only by DY and DXH.  Although DY and DXH were the only directors and shareholders of HKF on record at that time, they did not purport to sign as directors or shareholders for HKF and HKF’s chop was not applied to the retainer agreement.  There appeared to be no board resolution of HKF to authorize the retainer agreement either.  The properties listed in the retainer agreement belonged to DY/DXH (not HKF) which he/she was expected to sell to meet the costs.

20.There was not even a prima facie case against HKF.  On this ground alone, joinder of HKF was unreasonable.  It is not appropriate to make a Sanderson or Bullock order.  The letter of HKF’s solicitors dated 11 May 2015 had warned of the possibility of indemnity costs.  An order for indemnity costs was justified.

21.Assuming I am wrong, and Dexter Lam & Co was able to convince the court that HKF was a party to the retainer agreement, the position was as follows.  Six weeks before the originating summons was issued, LCP had pointed out (by letter dated 11 May 2015) to Dexter Lam & Co that the real issue in the action was between DY and his brother DG and that HKF was joined as a necessary party to be bound by the result.  There was no active participation of HKF in the action.  The principles in Core Pacific-Yamaichi International (HK) Ltd & anor v Yuanta Securities Asia Financial Services Ltd, HCMP 3231/2003, 17 October 2003, Barma J (as he then was), §§43-47 applied.  It meant that where claims were between shareholders with the company as a nominal party, the company should not expend its funds in a partisan way in those proceedings.

22.In my view, it may be arguable that the Yuanta Securities principles did not apply to Dexter Lam & Co’s situation.  It was true that Dexter Lam & Co had acted for DY when DY’s very first firm of former solicitors (King & Wood) sued for solicitor-client costs.  Those costs concerned steps taken in the early stages of the action, ie for injunction, receivership order and resisting the application for leave to appeal against the receivership order.  However, by the time of the retainer agreement, much more evidence had been filed for the action.  Even if Dexter Lam & Co was not regarded as “new” in the action, that firm would at least have been entitled to go through the documents to determine for itself what the real disputes were and whether or not HKF should be a proper party.  It was not obliged to rely on the word of the clients (or even Mr Samuel Ngo or KLG) as to the real issues in dispute.  Just this part of the work would have made it reasonable to join HKF.

B3.  Financial condition of DY

23.Dexter Lam & Co was apparently aware that KLG would not act for the clients for lack of costs on account for counsel’s fees.

24.The retainer agreement listed 5 properties.  It was obvious that Dexter Lam & Co had been in a position to protect itself with costs on account at the time the retainer agreement was signed, and yet it was content with just a promise by the clients to pay over all proceeds of sale as costs on account.

25.Furthermore, DY may be impecunious because of various judgment debts and HKF may not be able to recover costs against him.

(a)   DY has been absent in proceedings for recovery of fees against him issued by King & Wood, KLG and Dexter Lam & Co.

(b)   The allocatur for $31.49 million costs in the action remains unpaid by DY.

(c)   DY has launched an appeal against the judgment in the action.  He has since become unrepresented and the appeal has not been proceeded with since 2014.

(d)   DY cannot be located, probably because of his being wanted by the Interpol.

B4.  Balancing the interests of Dexter Lam & Co, HKF and DY

26.If the joinder had been reasonable, in view of HKF’s clear statement of defences before the originating summons and DY’s financial position, it would not be fair to leave HKF to recover costs from DY who has not met huge judgment debts and cannot be located.  It would have been more appropriate to make a Bullock order.  After all, the benefit of Dexter Lam & Co’s representation went to DY.

C.  COSTS ARISING OUT OF THE COUNTERCLAIM

27.The intended counterclaim of HKF was to set aside the retainer agreement.  It clearly arose out of Dexter Lam & Co’s claim.  Given my views in paragraphs 19 and 20 above, the counterclaim would have been justified.  I therefore make the same order as for costs to HKF on indemnity basis.

D.  COSTS OF THE HEARING ON 9 MARCH 2016

28.The originating summons was first heard on 9 March 2016.  It had to be adjourned because (i) Dexter Lam & Co did not indicate beforehand that it would seek a Sanderson order; and (ii) DY was not served with the summons for discontinuance against HKF, in which DY was asked to bear costs.  HKF, on the other hand, was ready to proceed.

29.Accordingly, Dexter Lam & Co ought to bear costs of the hearing on 9 March 2016 anyway, regardless of whether this court grants a Sanderson order. 

30.I do not, however, regard it as reasonable to engage counsel because Dexter Lam & Co had not indicated that it would seek a Sanderson order.  The arguments on costs for a simple application to discontinue would not have warranted much costs.  Accordingly I award costs of $800 to HKF.

CONCLUSION

31.I order costs to follow the event such that Dexter Lam & Co shall bear the costs of HKF on the originating summons and in relation to the counterclaim on indemnity basis.  I decline to make a Sanderson or Bullock order against DY as the joinder of HKF was unreasonable. 

32.Although the amount claimed in this case was 14 times that of HCA 1569/2015, the arguments in both cases were similar.  In fact, this case had stronger merits than the other for the reasons given in paragraphs 19 and 20 above.  Further, in HCA 1569/2015, this court disallowed HKF costs on an abandoned issue and that ruling should apply to the present case.

33.Taking into account all factors, I summarily assess HKF’s costs on indemnity basis at $120,000.

34.I order Dexter Lam & Co to pay costs of $800 to HKF for the hearing on 9 March 2016.

35.I thank Mr Cheung and Mr Ngo for their assistance.

Mr Andrew Ngo, of Wong & Lawyers, for the plaintiff

The 1^st defendant was not represented and did not appear

Mr Lawrence Cheung, instructed by LCP, for the 2^nd defendant