China Metal Recycling (Holdings) Ltd (in Compulsory Liquidation) and Another v. Chun Chi Wai and Others

CACV 109/2016
and CACV 155/2016
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 109 OF 2016 and 155 OF 2016

(ON APPEAL FROM HCA NO 1412 of 2013)

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BETWEEN

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(HEARD TOGETHER)

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

1.The Court fixed dates for the hearing of these appeals (which were brought on behalf of the 1^st and 13^th Defendants) in September 2016. On 6 September 2016, the Registrar of Civil Appeals gave directions for the filing of appeal bundles and skeleton submissions. The hearing of the appeals is scheduled to take place on 15^th and 16^th February 2017. According to the directions of 6 September 2016, the 1^st and 13^th Defendants should lodge appeal bundles by 11 January 2017. Skeleton submissions should be lodged on their behalf by 18 January 2017. The Plaintiff would have to lodge skeleton submissions by 25 January 2017.

2.There was a change of solicitors for the 1^st and 13^th Defendants.  On 29 November 2016, Notices of Change of Solicitors were filed in both appeals by which Messrs Lau Kwong & Hung [“LKH”] came on the record to act for the 1^st and 13^th Defendants in place of the firm of solicitors which acted for them in lodging the appeals.

3.In light of the directions regarding the filing of appeal bundles, solicitors for the Plaintiff, Hogan Lovells [“HL”], wrote to the solicitors for these defendants on 24 November 2016 regarding the preparation of the bundles.  At that stage, the former solicitors were still acting for these defendants.  It would appear that there was no reply.  After the change of solicitors, HL wrote to the new solicitors LKH regarding the bundles on 16 December 2016.  It was only after a reminder of 23 December 2016 that LKH responded on 23 December 2016.  It was not a very satisfactory response.  In the letter of 23 December 2016, LKH said:

“ Please be informed that we are trying to obtain our client’s instructions with respect to your proposed updates to the appeal bundles but he is not contactable at the moment. We will keep you posted and make a reply to you once we have the instructions.”

4.On 28 December 2016, HL referred again to the time limit for the lodging of appeal bundles and urged LKH to get on with the preparation of the same.  Quite rightly, HL observed it was not appropriate that the production of the bundles should be delayed due to LKH’s inability to contact the defendants.

5.LKH did not give any reply.  On 5 January 2017, HL wrote to LKH again providing an updated index for the appeal bundles and asked for a response by 6 January 2017.

6.LKH replied on 6 January 2017 and the contents of the reply demonstrated a remarkable failure on its part to observe the duty owed by a solicitor acting for a litigant prescribed under Order 1A Rule 3. The reply said:

“ As mentioned, we have not received the papers in the Actions from our predecessor to date. Despite making efforts to obtain instructions in this regard, we are still unable to contact our client. Without instructions and a sight of the papers, we are unable to agree on the proposed index of the appeal bundles or to confirm when we could provide you with the bundles.

That being said, we are aware of the directions of the Court of Appeal requiring the filing of the appeal bundles by 11 January 2017.  If necessary, we will apply to the Court for a time extension for filing of the appeal bundles and/or other appropriate directions. …”

7.We would make two observations in respect of such reply.  First, according to this letter, LKH did not have the papers in the action and were unable to contact their clients.  Apparently, it did not even have sufficient knowledge about the appeals to prepare the appeal bundles and did not even have the case papers before it filed the Notices of Change of Solicitors.  We find such conduct surprising.  Before a firm of solicitors takes on a case, particularly a pending case where hearing dates have been fixed, the handling solicitor should familiarize himself or herself with the case and its progress.  The solicitor should assess whether it is within his or her ability to comply with directions given by court, as a solicitor on record owes such duty (and is accountable for any defaults) to the court under Order 1A Rule 3. Thus, it is imperative that the solicitor should at least (either through his client or with the authorisation of his client through the existing solicitor handling the case) obtain knowledge of directions already given by court and other necessary information for timely compliance with the same.

8.Nowadays the courts place great regard to proper preparation and expect parties to comply with case management directions. In the context of an appeal, the relevant practices are now set out in the new Practice Direction 4.1 which will come into force on 1 March 2017. Before that, as in the present appeal, the Registrar of Civil Appeals usually gives case management directions when the date of appeal is fixed. Solicitors are expected to take the necessary steps to comply with such directions diligently and timely. This involves proper lead time being provided for by solicitors in undertaking the necessary works, including obtaining the necessary documents, liaising with the other parties (and sometimes with counsel) in the compilation of appeal bundles.   

9.If it transpires that there are difficulties in complying with directions due to unforeseen developments, a solicitor should inform the court as soon as practicable. If the difficulties stem from a client not giving proper or adequate instructions, a solicitor should apply to cease to act in good time. The court will then consider making unless orders or striking out or barring a party from taking part in an appeal altogether. 

10.We must stress that case management directions issued by the Registrar of Civil Appeals are made to facilitate the efficient and proper preparation of appeals.  They are meant to be taken seriously. Non-compliance can lead to the disruption of the preparation work undertaken by judges sitting in the appeals as well as the preparation work by those acting for the opposite parties. Hence, the court expects solicitors to comply with such directions diligently and conscientiously.  Non-compliance has to be explained as unfair disruption in the preparation may, in serious cases, lead to the adjournment or even dismissal of an appeal.  Even though the courts nowadays are more proactive in case management, the whole process would only be effective if litigants and their lawyers co-operate and adhere to directions given by court, thus the importance of the duty under Order 1A Rule 3. 

11.Hence, a solicitor should never take on a case without knowing if it is within his ability to comply with case management directions. In the present appeal, LKH should not have gone on record to act for these defendants when its solicitors did not even familiarise themselves with the relevant directions and did not have the case papers or the necessary instructions to enable them to proceed with it properly.

12.It was submitted on behalf of LKH that there was no requirement for a solicitor to obtain the papers and secure the necessary funds before accepting a retainer. We cannot accept this as a general proposition, at least not in the context of an appeal (and also for other pending cases) where hearing dates have been fixed and directions for preparation have been given or set out in practice directions. Since the implementation of Civil Justice Reform, with emphasis placed on proper case management, and the statutory duty imposed on solicitor acting for a litigant under Order 1A Rule 3, a solicitor should ensure he is in a position to discharge such duty properly. When a solicitor takes over the conduct of a case from another firm, he or she should at least ascertain if the papers could be available within such a time frame that he could comply with the directions to facilitate the coming hearing. Otherwise, he or she would not be able to discharge the statutory duty. 

13.We appreciate that sometimes lack of instructions is the euphemism for the client not putting up funds on account.  We do not know whether it is the case here.  However, a solicitor should satisfy himself or herself that the risk of acting with insufficient funds is acceptable for the firm before going on record to act for a client who has not put funds on account. In the context of an appeal, a solicitor must instruct counsel or solicitor advocate to appear and such instructions must be given in good time before the hearing so that counsel can properly consider the case, advise the client and prepare skeleton submissions in time.  

14.Though a solicitor of LKH made an affirmation on 16 January 2017 to explain the defaults in complying with the directions of 6 September 2016, we were not told if LKH was aware that the appeals were scheduled for hearing in February 2017 when they accepted instructions from the defendants. The solicitor said LKH were not aware of the directions of 6 September 2016 until HL alerted them to the same by the letter of 16 December 2016.

15.At the hearing on 19 January, Mr Leung told us LKH approached the former solicitors for the papers immediately after the Notice of Change of Solicitors was filed and within one or two days LKH was told by the former solicitor firm that they withheld the papers on account of lien. After that, LKH made no attempt to get hold of papers from other sources (e.g. by making copies from the court files).

16.LKH further said in the submissions that they were focusing on another matter which they also handled on behalf of these defendants in HCA 1412 of 2013 and the case management conference of 15 December 2016.  We cannot accept this as an excuse for LKH’s failure to make any progress in relation to the appeals. If LKH did not have the resources to handle the appeals and HCA 1412 of 2013 at the same time, they should not have accepted instructions for both matters. Once they took on the role as solicitors for these defendants in the appeals, they should have discharged their duties in these appeals.

17.All in all, it is wholly unacceptable that no progress whatsoever was made in the whole of December by LKH towards the compliance with the directions.

18.The second observation about the reply of LKH on 6 January 2017 is that by then it was already very late in terms of the preparation of appeal bundles since the deadline for lodging the same was 11 January 2017.  In this connection, we must reject LKH’s suggestion that there was sufficient time to comply with the directions if they started work after 15 December and they could “receive instructions from the 1^st defendant in early January”. On their own admission, LKH did not have the papers in the appeals and they did not take any steps to obtain the papers from sources other than the former solicitors. Preparation of appeal bundles involves proper consideration as discussed in Gotland Enterprises v Kwok Chi Yau CACV 260 of 2014, 19 January 2016 and Tang Chung Wah v Jonathan Russell Leong CACV 38 of 2016, 11 October 2016. In a case of this magnitude and complexity, the solicitor would need to consult counsel arguing the appeals in preparing the appeal bundles. Without the papers of the case, it is difficult to see how LKH could have properly instructed counsel and begun to work on the preparation of appeal bundles. Bearing in mind the intervention of the Christmas and New Year holidays, the time was already very tight when LKH came on record in late November 2016.  When their request for papers was turned down by the former solicitors, they should have procured the same from another source immediately instead of waiting till the end of December. In any event, they did not do much work on the appeal after 16 December other than attempting to get hold of the 1^st Defendant and writing to HL on 23 December 2016 and 6 January 2017. 

19.If the defendants and LKH were serious about seeking an extension of time, such need should have been apparent well before 6 January 2017. Any application for extension should have been made promptly.

20.Further, litigants and those acting for them should not expect an extension would be granted lightly.  The court takes account of the judges’ preparation schedule for cases when directions are given.  In this particular instance there were good reasons why the bundles should be lodged by 11 January 2017 bearing in mind the complexity of the case and the intervening Chinese New Year holidays.  The delay in the preparation of bundles also has a knock-on effect on the timely preparation and filing of skeleton submissions which are essential to the proper preparation of the appeals by the judges in terms of pre-reading.

21.In the event, LKH did not take out any application for extension of time even after 6 January.

22.HL expressed their concerns over the conduct of LKH in a letter of 9 January 2017.  On 10 January 2017, HL enquired if the defendants would agree to the appeals being dismissed.

23.LKH replied on the same day.  It said it was told by the family members of the 1^st Defendant that he was arrested and had been detained in the PRC.  LKH was unable to obtain instructions from the 1^st Defendant, including instructions regarding compliance with the directions of 6 September 2016.  They proposed to seek an adjournment of the appeals sine die with liberty to restore.

24.LKH did not disclose when the 1^st Defendant was arrested. In the affirmation of 16 January, the solicitor said LKH only learnt of the same on 9 January through the wife of the 1^st Defendant.  We cannot accept this as an excuse for the lack of preparation of the appeals. The 1^st Defendant must have been aware that the appeals are to be heard in mid February and the requirements of the directions of 6 September as these were communicated to his former solicitors when they were still acting for him. Further, LKH should also have been aware of the same (either, as proper practice dictates, in November before they accepted instructions, or as it happened by mid December after HL had alerted them). Given the imminence of the hearing of the appeals and the deadlines for complying with the directions, the 1^st Defendant should have procured the transmission of papers from his former solicitor to LKH promptly and LKH should have chased for the same soon after it came on record. When it was apparent that papers could not be obtained from the former solicitor, the 1^st Defendant and LKH should have obtained the relevant papers from another source. Leaving the matter until 9 January 2017 despite the reminders from HL is wholly irresponsible. 

25.In breach of the directions of 6 September, no appeal bundles were lodged and no skeleton submissions had been filed on behalf of the defendants.  Nor did LKH take out any summons on behalf of the defendants to seek extension of time or adjournment of the appeals.

26.After the matter came to the attention of the court, it was directed that the appeals be listed for hearing on 19 January 2017 for consideration as to their dismissal for want of prosecution.  The court also asked LKH to explain for the prima facie non-observance of their duty under Order 1A Rule 3. As mentioned, a solicitor of LKH made an affirmation on 16 January recounting the steps that had been taken by that firm since it came on record. Mr Leung also made submissions before us in addition to the written submissions lodged on behalf of LKH.

27.Due to the non-compliance with the directions of 6 September 2016, the position as at 19 January 2017 was that there were still no appeal bundles and skeleton submissions on behalf of the defendants for the two-day appeals to be heard on 15 and 16 February 2017.  We were told that LKH had not instructed counsel to appear in the appeals for the defendants. Such defaults seriously hampered the preparations for the appeals and there was no prospect of the defendants complying with the directions in the immediate future to facilitate the appeals to be heard on the scheduled dates.

28.The defendants did not place before us any credible explanation (supported by affirmation) for their non-action if they still had serious intention in prosecuting the appeals.  The mere fact that the 1^st Defendant was detained in the PRC was not a good ground for not complying with the directions through their lawyers.  If he chose to withhold instructions to LKH (in terms of funding, include payment of the fees of the former solicitors, or otherwise) which occasioned the defaults, the court could not countenance such as an excuse for adjourning the appeals. 

29.Mr Leung candidly informed us that he had no instructions from the 1^st Defendant regarding the proposed dismissal of the appeals.

30.It seems clear to us that the defendants did not have further interest in prosecuting the appeals and their serious and contumelious non-compliance with the directions prevented the appeals from being properly considered. The breaches were contumelious as the defendants did not give proper instructions to their former solicitors and LKH to proceed with the appeals despite repeated reminders from HL and the clear directions from the court. We do not see any justification for adjourning the appeals as there is no reason why the defendants, had they intended to, could not prosecute the appeals with due diligence through their lawyers notwithstanding the incarceration of the 1^st Defendant. 

31.In the circumstances, we dismissed the appeals for want of prosecution and ordered the 1^st and 13^th Defendants to pay the costs of the Plaintiff in the appeals on indemnity basis, such costs to be taxed if not agreed.

32.On behalf of the Plaintiff, HL asked for a wasted costs order to be made against LKH in respect of costs incurred by the Plaintiff since 29 November 2016 on indemnity basis. It was said that but for LKH’s filing of notice of change of solicitors, the Plaintiff would have found out that the defendants had no interest in further prosecuting the appeals and the Plaintiff would not have incurred further costs on the same.

33.LKH resisted the application. In the written submissions of 18 September 2016, the firm demanded that an application for wasted costs order should be made on proper footing and it asked for an opportunity to put in further evidence to demonstrate that it did not act in serious dereliction of its duty.    

34.At the hearing on 19 January, we invited HL to give us some information regarding the costs incurred during this period. The Statement of Costs prepared by HL for this period set out costs which added up to $174,422.

35.Whilst we were aware of the requirements in Practice Direction 14.5 and the relevant rules in Order 62 Rules 8 to 8C, we were also mindful that proceedings on wasted costs application should not lead to disproportionate escalation of costs and satellite litigation. Having considered the Statement of Costs, we found ourselves to be in a position to inform the parties that if parties agreed we could deal with the application at the hearing. We also indicated to the parties that in our view the wasted costs should in any event start to run from 16 December 2016 and our assessment of such costs would be $50,000.  

36.Mr Leung wisely accepted that the wasted costs should be dealt with at the same hearing and informed us that LKH would not insist on having a summons issued for the application and further opportunity to file evidence. Actually, Mr Leung frankly accepted that there was not much more evidence LKH could pray in aid other than those matters already before the court.

37.Mr Dobby also agreed to have the matter decided at the hearing.

38.In the circumstances, having regards to the underlying objectives and provision in Order 1A Rules 1 and 2, we decided it was appropriate to deal with the wasted costs application on 19 January 2017 notwithstanding that HL did not issue a summons for that purpose.

39.The power of the court to make a wasted costs order against a solicitor is now put on a statutory footing under Section 52A(4) of the High Court Ordinance and Order 62 Rules 8 to 8C. However, earlier cases in the exercise of a similar jurisdiction under common law remain relevant. In Full Country Development Ltd v Ng Architects & Associates Ltd [1999] 2 HKC 318, but for the deregistration of the opposite party, the majority of the Court of Appeal would have made a wasted costs order against a solicitor who kept an appeal on foot notwithstanding he did not have proper instructions from his client to enable the appeal to proceed.

40.For the reasons we gave above when we recited the progress of the matter, we came to the clear conclusion that LKH was guilty of undue delay in the preparation of the appeals and, in the context of these appeals the delay amounted to a serious dereliction of duty on the part of LKH. Had LKH discharged their duty properly, they should have learnt about the directions of 6 September soon after 29 November 2016. Bearing in mind the steps and time that needed to be taken in the proper preparation of appeal bundles (including the intervening holidays), they should have urged their clients to give them proper instructions as a matter of urgency. When proper instructions were not forthcoming by 16 December 2016, they should have realised that they would not be able to comply with the directions and the only proper course open to them was to apply to cease to act. Had they done so, HL could then have taken steps to seek summary dismissal of the appeals.

41.We were also of the view that such dereliction of duty on the part of LKH had caused the Plaintiff to incur wasted costs after 16 December 2016 though we accepted that not all the costs incurred after that date was attributable to such default. The Plaintiff would still have to incur some costs to make the summary application for dismissal. Taking these into account and reducing costs in the Statement of Costs which we regarded as excessive and not necessary, we concluded that it was appropriate to order LKH to pay wasted costs in the sum of $50,000 to the Plaintiff.  We made an order in those terms accordingly. 

Mr Chris Dobby of Hogan Lovells, for the 1^st and 2^nd plaintiffs

Mr Leung Hei Man of Lau Kwong & Hung, for the 1^st and 13^th defendants