Au Yeung, Cheng, Ho & Tin (A Firm) and Others v. Au Yeung Chi Sang
Read the full judgment text of HCA 288/2014 on BabelCite. This High Court CFI judgment was delivered on 22 January 2020.
1. The 1 st plaintiff (“ P1 ” or “ AYCHT ”) was a partnership that carried on the business of a solicitor firm in Hong Kong since 1997, and the 2 nd and 3 rd plaintiffs (“ P2 ” and “ P3 ”) were/are P1’s only partners. The defendant (“ D ”), an experienced legal practitioner, was admitted as a solicitor in Hong Kong in 1994 and was one of P1’s founding partners. P1, P2 and P3 (collectively, “ Ps ”) claimed D was experienced in inter alia conveyancing legal practice, familiar with conveyancing pra
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HCA 288/2014 [2020] HKCFI 224 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 288 OF 2014 ________________________ BETWEEN
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________________________ J U D G M E N T ________________________ I. INTRODUCTION 1.The 1st plaintiff (“P1” or “AYCHT”) was a partnership that carried on the business of a solicitor firm in Hong Kong since 1997, and the 2nd and 3rd plaintiffs (“P2” and “P3”) were/are P1’s only partners. The defendant (“D”), an experienced legal practitioner, was admitted as a solicitor in Hong Kong in 1994 and was one of P1’s founding partners. P1, P2 and P3 (collectively, “Ps”) claimed D was experienced in inter alia conveyancing legal practice, familiar with conveyancing practice and procedure, and was active (and had direct involvement) in property market speculation in Hong Kong, but D denied he specialised in conveyancing matters and claimed that at all material times he focused primarily on personal injury and employees’ compensation cases. Ps claimed D retired from P1 since about 1 January 2008,[1] and became a consultant until he resigned from P1 on/about 7 June 2013, but D claimed he retired as partner of P1 on 28 March 2003, and then became a consultant and later senior consultant of P1 until June 2013. II. PARTIES’ RESPECTIVE CASE 2.Ps’ case Ps’ claim against D was based on the following incident (“Incident”):
3.Ps went on to claim as follows:
4.Ps claimed it was an express/implied term of the contract for service between Ps and D that D inter alia had to act in good faith and in Ps’ best interest, and D owed fiduciary duties to Ps to act in good faith, not to place himself in position of conflict of interest, not to benefit himself or third party without Ps’ informed consent/approval, to perform his work honestly believing that it was for the joint benefit of Ps and D, to ensure Ps were fully informed and/or to recommend Ps to take independent legal or other appropriate advice in case of potential conflict of interest. 5.Ps claimed D was in breach of the aforesaid obligations in (a) executing the Deed without first obtaining approval from BOC or first discharging the mortgage with BOC in respect of the Properties despite having relevant knowledge/expertise as a legal practitioner, (b) not informing Ps of the Incident or other matters relating thereto, and (c) placing himself in a position whereby his duty to Ps and his own interest might conflict, ie executing the Deed in favour of Lee Che Guy despite the obligations in the above paragraph. Ps claimed they suffered and continued to suffer loss and damage: “[loss] of profits caused by the suspension of legal works from BOC to be accounted for and assessed”, “[prospective] loss of profits to be assessed”, and “[other] loss and damage to be assessed”. 6.Ds’ case and Ps’ reply D claimed that at all material times P2 was a partner of P1 in charge of all conveyancing and related administration matters, and was assisted by 3 conveyancing solicitors specifically employed for handling P1’s conveyancing work[2] under P2’s supervision. But Ps disagreed, and denied P2 was the partner of P1 in charge of all conveyancing matters. 7.D averred that in/about July 2010 he / Lee Che Guy retained P1 to prepare a deed of exchange in respect of the TP Property (of which D was the registered owner and BOC was the mortgagee) for the TW Property (of which Lee Che Guy, whom D admitted was/is his close friend and a staff of P1, was the registered owner). D claimed he relied on P1’s conveyancing solicitors to handle all legal work in relation to such exchange of the Properties, and if there was no consent from BOC (which D did not admit), it was due to negligence/omission of P1, its partners (ie P2 and/or P3) and/or P1’s conveyancing solicitors who handled the exchange of the Properties. D averred he was a client of P1 in respect for the exchange of the Properties, and P1, its partners (ie P2 and/or P3) and/or P1’s conveyancing solicitors who handled the exchange of the Properties had actual/imputed knowledge about such exchange and/or “legal works relating thereto”. D agreed he executed the Deed in Wu’s presence, and claimed that by January 2013 he had fully repaid the mortgage loan to BOC so the mortgage of the TP Property was discharged. 8.But Ps denied (i) D / Lee Che Guy retained P1 to prepare the Deed in respect of the Properties, (ii) absence of consent from BOC was due to negligence/omission by P1 and/or so-called “conveyancing solicitors of P1” and/or (iii) D was P1’s client in the matter of the exchange of the Properties, and Ps averred as follows:
9.D averred that if P1 was no longer retained by BOC for legal services since about April 2013 (which D denied), it was noted that:
On the other hand, Ps agreed that ever since BOC engaged P1 for legal services, Ps occasionally failed to deliver title deeds to BOC on time, but (i) BOC did not suspend P1 from provision of legal services on such ground, (ii) BOC did not complain and in/about September 2012 merely reminded P1 to deliver the concerned title deeds to them, (iii) it was BOC’s practice all along to remind P1 to deliver title deeds to them on time, and (iv) P2, P3 and D (before he resigned from P1) from time to time issued circulars to remind P1’s staff to deliver title deeds and related documents to BOC and other banks on time. 10.D claimed that even if BOC suspended P1’s legal services in preparing mortgages/discharges and other related work and P suffered loss/damage as a result (which D denied), P1 could still have acted for clients in relation to the conveyance of properties, and P1 failed to take reasonable steps to mitigate loss by referring conveyancing clients to other banks that were prepared to provide mortgage loans on comparable terms and/or to other law firms who could act for BOC to prepare mortgages/ discharges at no extra cost to the clients (ie Ps would settle the fees of these other law firms). 11.D went on to aver (but P denied) that (a) whenever a staff (including non-professional staff) of P1 introduced a conveyancing case to P1, P1 would pay up to 57% of the legal fees received from the client to such staff as commission, and (b) each month P1 would pay commission to various non-professional staff in such manner “in the range of $100,000 to $270,000 to each of them”.[4] Further or alternatively, if the “BOC Group” suspended P1’s services for preparing mortgages/discharges and other related works and Ps suffered loss/damage as a result (which D denied), D claimed the above matters should be taken into account in reckoning any loss which should be reduced accordingly.[5] On the other hand, Ps denied D’s allegations, and claimed P1 would pay commission to professional staff who introduced cases (including conveyancing cases) to P1. III. PROCEDURAL HISTORY 12.On 19 February 2014, Ps commenced the present action by issuing the Writ of Summons with the Statement of Claim (“SoC”) endorsed thereon to claim for (a) damages for breach of contract to be assessed, (b) further/alternatively damages and/or equitable compensation for breach of fiduciary duties, (c) account and enquiries, and (d) interest and costs. The basis of Ps’ claim against D was set out in paragraphs 2-5 above. 13.On 4 March 2014, D by his solicitors filed acknowledgment of service to give notice of intention to defend. On 2 July 2014, D filed his Defence. On 25 July 2014, Ps filed their Reply. On 14 January 2016, Master A Ho directed all interlocutory applications as might be advised, including application for further amendment of pleadings, be taken out within 14 days thereafter. 14.On 4 and 11 February 2016, D and P filed their respective List of Documents. On 1 March 2016, D filed Notice Refusing to Admit Authenticity for certain documents disclosed in Ps’ List of Documents. On 10 March 2016, Ds filed the witness statements of 黃碧玉, 劉秀慧, 鄧偉文 and D, and P filed those of P2, P3 and Hui Kay Ming. Paragraph 37 of P2’s witness statement stated as follows:
On 11 July 2016, Ps filed their Supplemental List of Documents. 15.On 2 September 2016, D filed a summons under Order 26 rule 1(2) of the Rules of the High Court (“RHC”) for leave to serve on Ps written interrogatories as per the copy annexed (“Interrogatories”) and for Ps to answer the Interrogatories by affidavit to be filed within 28 days after service of the order and the Interrogatories (“Interrogatories Summons”). Paragraph 3 of the Interrogatories (“Question 3”) states as follows:
The Interrogatories Summons was supported by D’s affirmation filed on the same day. On 28 September 2016, Master K Lo granted an order by consent that D be at liberty to serve the Interrogatories on Ps, and that Ps shall within 63 days answer the Interrogatories by affidavit to be filed (“Interrogatories Order”). 16.On 2 September 2016, D filed a summons under Order 24 rules 10, 11 and 11A of the RHC for an order that Ps shall produce for inspection by D and his solicitors the documents set out in the Notice to Produce attached to such summons (“Notice”), and that leave be granted for D to take copies thereof at such place/time and in such manner as directed by the order (“Production Summons”). On the same day, D filed his 2nd affirmation in support of the Production Summons. On 28 September 2016, Master K Lo granted an order by consent that Ps do within 63 days from the date thereof produce for inspection by D and his solicitors the documents set out in the Notice and to take copies thereof at such place/time and in such manner as directed (“Production Order”). 17.On 2 September 2016, D filed a summons under Order 24 rules 7 and 11A of the RHC for an order that Ps do within 7 days from the date of the order make/file an affidavit stating whether they had or have at any time had in their possession, custody or power the classes of documents specified in the schedule thereto (“Schedule”), and if such classes of documents or any of those documents had been but were not then in their possession, custody or power stating when they parted with the same and what became of them (“Discovery Summons”). The Schedule had 18 items (“Items 1-18” or collectively, “Items”), including Item 2 being “[a] list of the telephone numbers of the staff of the firm of 2010” (“Item 2” or “2010 Telephone List”). 18.On 28 September 2016, Master K Lo granted an order by consent that Ps do within 63 days from the date of such order make/file an affidavit stating whether they had or have at any time had in their possession, custody or power the classes of documents specified in the Schedule, and if such classes of documents or any of those documents had been but were not then in their possession, custody or power stating when they parted with the same and what became of them (“Discovery Order”). 19.On 2 September 2016, D filed a summons under Order 20 rule 5 of the RHC for leave to amend his Defence in the manner marked in red as per the draft annexed thereto within 14 days, and for leave for Ps to file their Reply to the Amended Defence within 28 days from the date of service of the Amended Defence. On 28 September 2016, Master K Lo made an order by consent to grant leave for D to amend his Defence within 14 days and for Ps to file their Reply thereto within 42 days. On 29 September 2016, D filed his Amended Defence. 20.By a consent summons filed on 3 January 2017, Ps asked for inter alia time extension for 42 days from the date of the order to be made for them to comply with the Discovery, Production and Interrogatories Orders. At the case management conference (“CMC”) on 10 January 2017, Master A Ho granted inter alia an order that time for Ps to comply with such orders be extended to on/before 21 February 2017. 21.On 9 March 2017, D filed the affirmation of his solicitor Chan Tin Lup Trevor (“Chan”) to support D’s 3 summonses filed on 2 March 2017 referred to in paragraphs 22, 24 and 26 below (“Chan Aff”):
22.On 2 March 2017, D filed a summons under Order 24 rules 10, 11, 11A and 16 of the RHC for an order that (a) unless by 4pm on 9 March 2017 Ps do produce for inspection by D and his solicitors the documents set out in the Notice, and permit them to peruse the same and to take copies thereof, the present action be dismissed forthwith with costs to D, and (b) costs of and incidental to the application be to D to be taxed if not agreed. On 15 March 2017, D filed a summons for the same relief but the proposed deadline for compliance was postponed to 4pm on 24 March 2017, and such summons also sought (i) leave for D to withdraw the summons filed on 2 March 2017 with no order as to costs, and (ii) costs of and incidental to the application be to D to be taxed if not agreed. 23.On 17 March 2017, Master H Au-Yeung granted inter alia the following order (“Unless Production Order”):
24.On 2 March 2017, D filed a summons under Order 24 rules 7 and 11A of the RHC for an order that (a) unless by 4pm on 9 March 2017 Ps do make/file an affidavit stating whether they had or have at any time had in their possession, custody or power the classes of documents specified in the Schedule, and if such classes of documents or any of those documents had been but were not then in their possession, custody or power stating when they parted with the same and what had become of the same, the present action be dismissed forthwith with costs to D, and (b) costs of and incidental to the application be to D to be taxed if not agreed. On 15 March 2017, D filed a summons for the same relief but the proposed deadline for compliance was postponed to 4pm on 24 March 2017, and such summons also sought (i) leave for D to withdraw the summons filed on 2 September 2017 with no order as to costs, and (ii) costs of and incidental to the application be to D to be taxed if not agreed. 25.On 17 March 2017, Master Au-Yeung granted inter alia the following order (“Unless Discovery Order”):
26.On 2 March 2017, D filed a summons pursuant to Order 26 rules 4 and 6 of the RHC for an order that (a) unless by 4pm on 9 March 2017 Ps do file/serve the answer by affidavit to the Interrogatories, the present action be dismissed forthwith with costs to D, and (b) costs of and incidental to the application be to D to be taxed if not agreed. On 15 March 2017, D filed a summons for the same relief but the proposed deadline for compliance was postponed to 4pm on 24 March 2017, and such summons also sought (i) leave for D to withdraw the summons filed on 2 March 2017 with no order as to costs, and (ii) costs of and incidental to the application be to D to be taxed if not agreed. 27.On 17 March 2017, Master H Au-Yeung granted inter alia the following order (“Unless Interrogatories Order”):
28.On 30 March 2017, D filed a summons under Order 25 rule 1 of the RHC for an order that unless by “4:00pm on the 7th day of the Order to be made herein” Ps do file/serve Reply to the Amended Defence, Ps be debarred from filing/serving any Reply to the Amended Defence in the present action and their Reply filed on 25 July 2014 do stand for the trial. On the same day, D filed Chan’s 2nd affirmation in support of such summons. Pursuant to a consent summons filed on 5 April 2017, Master A Ho on the same day granted an order by consent inter alia that unless by 4pm on 25 April 2017 P1, P2 and P3 filed and served Amended Reply to the Amended Defence, Ps be debarred from filing and serving any Amended Reply to the Amended Defence in the present action, and their Reply filed on 25 July 2014 do stand for the trial. 29.On 6 April 2017, P filed the following affirmations: (a) P2’s affirmation pursuant to the Unless Interrogatories Order (“P2 1st Aff”), (b) P3’s affirmation pursuant to the Unless Interrogatories Order (“P3 1st Aff”), and (c) affirmation of P1’s assistant solicitor Lee Tsz Hong (“Lee”) pursuant to the Unless Discovery Order (“Lee 1st Aff”). 30.Paragraph 4 of the P2/P3 1st Affs stated as follows:
31.The Lee 1st Aff stated as follows:
32.On 24 April 2017, P filed the Amended Reply. 33.At the CMC on 20 July 2017, Master Hui granted inter alia the following order:
34.On 17 January 2018, D filed a summons pursuant to Order 24 rules 11 and 11A of the RHC for an order that (a) unless by 4pm on 31 January 2018 P1, P2 and P3 do provide D with true copies of Items 2, 4, 5, 6, 11, 16 and 17, the present action be dismissed forthwith with costs to D to be taxed if not agreed, and (b) costs of and incidental by the application be to D to be taxed if not agreed (“Items Summons”). 35.On the same day, D filed the affirmation of D’s solicitor Ho Ka Kit (“Ho”) in support of the Items Summons (“Ho 1st Aff”). Ho referred to the Discovery Order made on 28 September 2016 (see paragraph 18 above) and paragraphs 4-5 of the Lee 1st Aff (see paragraph 31 above). Thus, on 24 April 2017, D’s solicitors wrote to request AYCHT to provide copies of Items 1-17. On 27 April 2017, AYCHT replied to say they were in the course of collating the information/documents, and would revert within 14 days. Ho then referred to the Items Production Order dated 20 July 2017 (see paragraph 33(a) above). So on 8 September 2017, D’s solicitors wrote to request AYCHT to provide copies of Items 1-17. On 11 September 2017, AYCHT replied to say they were in the course of collating relevant documents and shall revert within 14 days. On 25 September 2017, AYCHT provided D’s solicitors with copies of Items 1, 3, 7-10 and 12-15 under a covering letter. On 21 December 2017, D’s solicitors wrote to AYCHT to grant final indulgence for D to produce outstanding copies of Items 2, 4, 5, 6, 11, 16 and 17. On 27 December 2017, AYCHT wrote to D’s solicitors to say “we are still in the course of retrieving and collating the requested documents and shall revert to you of their availability within the next 14 days. In the event that any of the requested documents is not in our possession, custody or power, we shall confirm the same by way of affirmation”. On 2 January 2018, D’s solicitors wrote to AYCHT requesting them to provide the outstanding documents in compliance with the Items Production Order, but D’s solicitors did not receive the outstanding documents that formed the subject matter of the Items Summons. 36.On 17 January 2018, D filed a summons pursuant to Order 26 rule 6 of the RHC for an order that (a) unless by 4pm on 31 January 2018 P1, P2 and P3 do file/serve the answer to Question 3(ii) the present action be dismissed forthwith with costs to D to be taxed if not agreed, and (b) costs of and incidental to the application be to D to be taxed if not agreed (“Question 3(ii) Summons”). 37.On the same day, D filed Ho’s 2nd affirmation to support such summons (“Ho 2nd Aff”). Ho referred to Question 3(i)-(ii) (see paragraph 15 above), the Unless Interrogatories Order dated 17 March 2017 (see paragraph 27 above) and paragraph 4 of the P2/P3 1st Affs filed on 6 April 2017 (see paragraph 30 above). Ho claimed the answer given in the P2/P3 1st Affs only answered Question 3(i) (ie the amount of fees earned from the BOC Group for 1 year before April 2013), but not Question 3(ii) (ie how the alleged sum of $127,617 stated to be the net profit generated from undertaking mortgage work for the BOC Group for 1 year before April 2013 was arrived at). 38.Pursuant to a consent summons dated 24 January 2018, Registrar K W Lung (“Registrar”) on the same day granted an order by consent inter alia as follows (“Consent Order”):
The Registrar further ordered inter alia that the parties shall obtain counsel’s advice after compliance with the directions set out in their consent summons dated 24 January 2018, and all interlocutory applications as might be advised shall be taken out within 14 days thereafter. 39.On 25 January 2018, D filed the Request for Further and Better Particulars in respect of the P2/P3 1st Affs. 40.On 6 March 2018, Ps filed (a) P2’s 2nd affirmation pursuant to the Question 3(ii) Order (“P2 2nd Aff”), (b) Lee’s 2nd affirmation pursuant to the Items Order (“Lee 2nd Aff”), and (c) P2’s supplemental witness statement, and D also filed the supplemental witness statements of D and 劉秀慧. 41.P2’s supplemental statement stated as follows:
42.Paragraph 3 of the P2 2nd Aff filed on 6 March 2018 gave answer to Question 3(ii) as follows:
43.Paragraph 4 of the Lee 2nd Aff stated as follows:
44.On 17 April 2018, D filed a summons pursuant to Order 26 rule 6 of the RHC, Order 24 rule 16 of the RHC and/or inherent jurisdiction of the court for the following orders (“D’s Summons”):
45.On the same day, D filed Ho’s 3rd affirmation to support such summons (“Ho 3rd Aff”). Ho noted the Consent Order was made by consent (see paragraph 38 above), and the Items and Question 3(ii) Orders were peremptory “unless” orders (see paragraph 38(a)-(b) above). Ho further noted that Ps claimed against D for loss/damages as a result of P1 being no longer able to undertake mortgage/legal works for BOC, Chiyu and Nanyang (or the BOC Group) since 2013, but paragraph 8 of the SoC merely averred “[loss] of profits caused by the suspension of legal works from BOC to be accounted for and assessed” and “[prospective] loss of profits to be assessed” as purported particulars of loss/damage. 46.As regards alleged non-compliance with the Question 3(ii) Order, the Ho 3rd Aff stated as follows:
47.As regards alleged non-compliance with the Items Order, the Ho 3rd Aff stated as follows:
48.On 25 April 2018, Master M Wong adjourned D’s Summons to a date to be fixed for argument before a master in chambers with directions for filing of affirmation evidence in relation thereto. 49.On 13 June 2018, P filed a summons pursuant to Order 24 rules 7 and 11, Order 26 rule 1, Order 2 rules 1, 4 and 5, Order 3 rule 5 and Order 20 rule 11 of the RHC and also the inherent jurisdiction of the court for the following orders (“P’s Summons”):
50.On the same day, P filed Lee’s 3rd affirmation to support Ps’ Summons and to oppose D’s Summons (“Lee 3rd Aff”). As to the nature of the Consent Order made by consent on 24 January 2018, Lee claimed the Items and Question 3(ii) Orders were not “unless” orders as conventionally understood because they did not provide for automatic sanction to take effect immediately following event of non-compliance that was subject only to relief from sanction (ie the onus was on the defaulting party to apply for relief from sanction), but rather such orders required the party who sought to take advantage of any default (ie D) to apply to the court for an order to put into effect the sanction for that default (ie dismissal of the present action) whereupon the parties would be able to address the court on the propriety/appropriateness of the sanction based on relevant factors and circumstances (ie D’s Summons), so it was not necessary for Ps to duplicate/complicate the procedure by taking out separate application for relief from sanction (which was yet to be imposed), but insofar as necessary P applied to seek relief from sanction. 51.Lee set out P’s primary stance in respect of the Question 3(ii) Order made by consent on 24 January 2018 as follows:
52.Lee explained P’s alternative stance for the Question 3(ii) Order made by consent on 24 January 2018 as follows:
53.For the Items Order made by consent on 25 January 2018, Lee referred to the Schedule to the Discovery Summons (see paragraph 17 above), and noted (a) Ps made discovery of Items 1 and 3-17 and (b) paragraph 5 of the Lee 1st Aff explained Item 18 (concerning payment of commission made by P1 to non-professional staff) had not been Ps’ possession, custody or power as there had been no payment of commission (but only bonus) to non-professional staff. 54.As for Item 2 (ie the 2010 Telephone List), Lee said as follows:
55.Lee then went on to set out P’s position in relation to the Items Order as follows:
56.Lee explained it was Ps’ primary position that they had complied with the Items Order by 6 March 2018. But if it were said Ps were required under the Items Order to provide Item 2 to D even if it was not in P1’s possession, custody or power, Ps would seek leave to amend, vary, supersede, discharge and/or supplement the Items Order by removal of Item 2 from its scope or otherwise grant appropriate order to relieve Ps from complying with a court order which they were not and would never be in a position to do because (a) the Items Order was made on the erroneous presumption that Item 2 was still in P1’s possession, custody or power and (b) there were change of circumstances as explained in the Lee 3rd Aff. 57.As regards relevant factors/circumstances for relief from sanction, Lee said the Items / Question 3(ii) Orders were not formulated to provide for a sanction to take effect immediately such that the onus rested on the party in default to apply for relief from sanction. Further, Ps did not accept they failed to comply with the Items / Question 3(ii) Orders so it was not necessary for Ps to apply separately for relief from sanction. But without prejudice to the foregoing, erring on the side of caution should the court take a different view and insofar as necessary, Ps filed P’s Summons for relief from sanction and relied on the Lee 3rd Aff. As to the factors listed in Order 2 rule 5(1) of the RHC, Lee stated as follows:
58.For all the above reasons, Ps invited the court to dismiss D’s Summons and, further/alternatively and insofar as necessary, to grant relief from sanction and/or to grant order to amend, vary, supersede, discharge and/or supplement the Items Order in the manner prayed for in Ps’ Summons. Lee confirmed he was authorised by Ps to make the Lee 3rd Aff and claimed Ps endorsed/agreed with its contents, but he indicated Ps were prepared to file further affirmations of P2 and/or P3 to confirm the contents of the Lee 3rd Aff (if so required). 59.On 22 June 2018, D filed a summons under Order 18 rule 12 of the RHC for inter alia (a) leave for D to file/serve request for further and better particulars of the SoC as per the draft annexed thereto within 7 days from the date thereof, (b) an order that Ps do file/serve their answer thereto by way of affidavit/affirmation within 28 days from service of such request, and (c) costs of and incidental to the application be costs in the cause. On 3 July 2018, Master Lai granted leave for D to file/serve request for further and better particulars of the SoC as aforesaid within 7 days (which D did on the same day), and ordered Ps to file/serve their answer thereto by way of affidavit/affirmation within 49 days of service of such request. 60.On 22 August 2018, D filed Ho’s 4th affirmation to support D’s Summons and to oppose Ps’ Summons (“Ho 4th Aff”). Ho complained that P2/P3 did not depose any affirmation personally even though Lee relied on P2’s words to explain Ps’ non-compliance with the Item / Question 3(ii) Orders. As regards the nature of such orders, Ho claimed the wording of such orders (eg “[unless P] …… [D] be at liberty to apply for dismissal of this action ……”) was similar to the wording of the Unless Discovery/Interrogatories Orders (ie “[unless Ps] …… this action be dismissed forthwith ……” 61.As regards alleged breach of the Question 3(ii) Order, Ho said there were repeated default of court orders and failure to comply with the rules by Ps:
62.Ho claimed that Ps’ recent assertion of their primary stance as set out in the Lee 3rd Aff, ie (a) “no additional costs or expenses would have to be incurred to generate the respective sums of fees earned from the BOC group” and (b) the average monthly fee (ie income) was equivalent to the average monthly net profit, showed Ps were not bona fide in giving answer to Question 3(ii) and were determined to avoid giving any meaningful answer because it was repugnant to any commercial sense to say “the average monthly fee [ie income] is equivalent to the average monthly net profit”. 63.Ho further claimed that Lee’s assertion to the effect that the commission and bonus paid out would not affect the claim of loss of profit and prospective profit was not bona fide as it was contradicted by the P/L Account (see paragraph 52(b) above) which showed that commission and bonus were part of a substantial total sum of $38,319,070.02 being “[salaries], bonus, commissions & MPF” that was, amongst other items, deducted as “EXPENSES”. 64.Ho said the assertion that paragraph 62(a) above also flied in the face of documents that Ps disclosed in the present action. First, the P/L Account showed (a) the sum of $38,319,070.02 being “Salaries, bonus, commissions & MPF” was the most substantial item of expenses whilst other items were merely fractions of such sum, and (b) professional income ($58,019,430.81) less expenses (including $38,319,070.02) and other less significant items resulted in net profit of just $412.01. 65.Secondly, Ps disclosed to D in March 2018 a table in respect of “AS-COMMISSION” (ie commission payments to assistant solicitors) for 5 years being 2012/2013, 2013/2014, 2014/2015, 2015/2016, 2016/2017 (“AS Commission Table”),[6] which showed a total sum of $6,436,588 was paid as commission to assistant solicitors for year 2016/2017. 66.Thirdly, the current Telephone List[7] confirmed inter alia 4 non-professional conveyancing staff (ie Edward Cheung (EC), Herman Ho (HH), Lisa Lam (LL) and Catherine Yeung (CY)) still worked at P1. Item 4 of D’s List of Documents was a set of accounting records relating to payments P1 made to professional staff and non-professional staff prepared by Mr Ho Kwok Chiu (who was in charge of the A/C Dept) inter alia from 2012 to July 2013, which showed EC, HH, LL and CY (leaving aside others) were paid very substantial amounts of “bonus” or commission, and (contrary to what Lee asserted) such bonus (or commission according to D) was paid/reckoned each month and not paid at P1’s discretion. 67.The table below showed payments made to EC, HH, LL and CY from April 2012 to March 2013:
So merely for these 4 (out of 17) non-professional staff, they were paid over $6,000,000 (be it commission or bonus) in 12 months, but according to the AS Commission Table (see paragraph 65 above), only $3,818,970 was paid to all assistant solicitors as commission over the same period. 68.As regards Ps’ alternative position, Ho claimed it was not made bona fide as it artificially ignored the sum of $38,319,070.02 being “[salaries], bonus, commissions & MPF” set out in the P/L Account, and was contradicted by the P/L Account which showed receipt of professional income ($58,019,430.81) and deduction of expenses (including the sum of $38,319,070.02) that resulted net profit of merely $412.01 (see paragraph 64 above). 69.As for alleged breach of the Items Order, Ho complained that the Lee 3rd Aff conveniently omitted other relevant events leading to D’s Summons for dismissal of the present action on the ground of inter alia failure to comply with the Items Order. Back on 2 September 2016 D filed the Discovery Summons which included discovery of the 2010 Telephone List (see paragraph 17 above), and on 28 September 2016 the Discovery Order was made by consent (see paragraph 18 above), but Ps did not comply with such order. By 2 letters from D’s solicitors, AYCHT reminded Ps of their obligation under the Discovery Order, but there was no response from Ps. By 2 summonses filed on 2 and 15 March 2017, D applied for an unless order against Ps (see paragraph 24 above). The Unless Discovery Order was made on 17 March 2017 (see paragraph 25 above). 70.Ps then filed the Lee 1st Aff in which Lee stated he verily believed that Items 1-17 had been in P1’s possession, custody or power (see paragraph 31 above). Then on 20 July 2017, Master Hui made the Items Production Order (see paragraph 33(a) above). But Ps did not serve copies of Items 2, 4, 5, 6, 11, 16 and 17 on D’s solicitors, and there was no explanation from P1. As a result, D filed the Items Summons on 17 January 2018 for an unless order against Ps (see paragraph 34 above), and on 24 January 2018 the Registrar made inter alia the Items Order (see paragraph 38(a) above). It was only under compulsion of the Items Order that Ps thereafter on 6 March 2018 (a) served copy Items 4, 5, 6, 11, 16 and 17 but not Item 2 on D’s solicitors, and (b) filed/served the Lee 2nd Aff (see paragraphs 40(b) and 43 above). Ho complained that notwithstanding that the Discovery Order was made as long ago as on 28 September 2016, the Lee 2nd Aff merely purported to claim (in a vague manner) that: “Upon double checking, …… [Item 2] could not be located and therefore it has not been in [P1’s] possession ……” (Ho’s emphasis). Ho claimed such explanation was different from the one in the Lee 3rd Aff (ie the old version Telephone List in the computer had been overridden by the subsequent edition). Ho further denied Lee told him over the telephone the 2010 Telephone List was not in Ps’ possession, and claimed he came to learn from reading the Lee 3rd Aff that P contended the old version of the Telephone List in the computer was overridden by the subsequent version. Ho next argued that even if such explanation were true, it would not be hard for Ps “to reverse” the current version to the 2010 Telephone List because P1 was required under rule 5 of the Solicitors’ Practice Rules to file annual Particulars Relating to Solicitor’s Firm to give particulars of all staff including their position, salary and bonus paid in the report filed with the Law Society.[8] 71.As for Ps’ claim for relief from sanction, Ho argued no relief ought to be granted. He said Ps displayed no conscientious effort to give proper discovery and/or to answer Question 3(ii), and even then the purported answer to Question 3(ii) was unhelpful and was not given in a bona fide manner. It was said the long history of repeated non-compliance of court orders and rules showed that Ps adopted a contumelious attitude to court orders. Leaving aside previous/unless orders made by other masters and focusing on the Items / Question 3(ii) Orders made on 25 January 2018, it was only some 6 months later that Ps applied for relief from sanction in June 2018, but P2/P3 as practicing solicitors ought to have known of the need to comply with court orders. 72.Ho claimed that in suing D for damages, P2/P3 as experienced solicitors must have known that if they based “their claim of loss of profit and prospective loss of profit upon a precise calculation they must give the defendant access to the facts which made such calculation possible”. Ho said D was disadvantaged in having to face a vague claim of loss of profit, prospective loss of profit (unsupported by any particulars) and aggravated damages (with no particulars at all). Although Ps gave a precise amount of $48,239,286 for their claim in P2’s supplemental witness statement, Ps vexatiously did not provide particulars or disclose relevant documents. P2/P3 should have known that after the Civil Justice Reform (“CJR”) the parties and their legal representatives were obliged to assist the court to further the underlying objectives of Order 1A of the RHC. Ho complained that the way Ps handled the present action made it impossible for D’s legal representatives (including Ho) to give proper advice to D on the resolution of the disputes as expeditiously and reasonably as possible. 73.As for Ps’ request to amend/vary the Items Order, Ho noted such order was made by consent, so there were no “clerical errors” and no clarification required of the court at all. 74.On 4 September 2018, Ps filed P2’s 3rd affirmation to give answer to D’s request for further and better particulars of the SoC (“P2 3rd Aff”). P2 gave the following further and better particulars in respect of paragraph 8 of the SoC:
75.On 18 September 2018, Master Hui granted an order by consent to give leave for D to file/serve within 14 days thereof Ho’s 5th affirmation as per the draft annexed to the consent summons filed on 12 September 2018, but no further affidavit shall be filed without leave of the court. 76.Ho’s 5th affirmation as filed (“Ho 5th Aff”) referred to the Ho 4th Aff which stated that “[merely] for these 4 (out of the 17) non-professional staff, over $6,000,000 was paid in the 12 months (be it commission or bonus) …… only $3,818,970 was paid to all the Assistant Solicitors as commission” (see paragraph 67 above), but the Ho 4th Aff inadvertently omitted to exhibit extract of the relevant part of the accounting records for the period from April 2012 to March 2013 that were used for compiling the table, so Ho exhibited such document as exhibit “HKK-07” to the Ho 5th Aff. 77.On 20 September 2018, Ps filed a summons to seek leave for Ps to file/serve P2’s 4th affirmation as per the draft annexed thereto. At the hearing on 26 September 2018 in respect of D’s Summons filed on 17 April 2018 and P’s Summons filed on 13 June 2018 (“Master Hearing”), Master Eliza Chang granted leave for Ps to file/serve P2’s 4th affirmation. Ps filed P2’s 4th affirmation (“P2 4th Aff”) on 8 October 2018 to confirm that the contents of the Lee 3rd Aff were true to the best of his knowledge, information and belief. 78.After hearing submissions, Master Eliza Chang granted inter alia the following order at the Master Hearing (“Master Order”):
79.On 5 October 2018, D filed Notice of Appeal against the orders in (c)-(d) above and to pray for an order as follows (“Appeal”):
80.On 8 October 2018, Ps filed Lee’s 4th affirmation (“Lee 4th Aff”) pursuant to the Master Order stating that he was informed by the supervisor of the A/C Dept Ling Ho (“Ling”) that copy Schedules 1-4 of “Form 1 – Solicitors’ Practice Rules – Particulars Relating to Solicitors’ Firms” of P1 for the period from 1 January 2010 to 31 December 2010 (“Form 1”) showing the particulars of P1’s staff for the year 2010 had been in their possession, custody or power, but Ling told Lee that the copy signing page of the Form 1 was missing/lost and it was not known from when such copy had been lost or parted with. The original Form 1 (copy of which was exhibited to the Lee 4th Aff as exhibit “LTH-3”) was served on and received by The Law Society of Hong Kong on 17 January 2011. 81.On 22 October 2018, pursuant to the Master Order at paragraph 78(b) above, AYCHT served “copy of the account record for the period from April 2012 to September 2018 in respect of payment of “bonus” by [P1] to the non-professional staffs as referred to in paragraphs 6 to 7 of [the P2 1st Aff] and [the P3 1st Aff]”, and many pages of handwritten records were enclosed (see C/19-97, “Bonus Documents”). 82.The Appeal came to be heard before this court on 27 February 2019 (“Hearing”). Whilst D pursued the Appeal, Ps supported the Master Order which, according to Ps, “struck the right balance between the parties, and Ps have since complied with the various conditions imposed by the [Master Order]”. IV. SCOPE OF APPEAL (a) Compliance with Bonus Documents Order / Master Order 83.D’s Summons sought inter alia an order for dismissal of the present action with costs on the ground of Ps’ alleged non-compliance of the Bonus Documents Order (which was not an unless order), but Master Eliza Chang did not dismiss the present action for non-compliance of such order and instead granted an unless order for compliance as referred to in paragraph 78(b) above. It was not the subject matter of the Appeal, but it featured in the written submissions of D’s counsel Mr Hung. But at the Hearing, Mr Hung confirmed Ds would not appeal against the Master Order in this respect. (b) Bonus Documents and Form 1 84.In his oral reply submissions at the Hearing, Mr Hung informed the court that he wished to rely on the Bonus Documents for the appeal against the Master Order that rejected D’s Summons that sought dismissal of the present action for alleged non-compliance with the Question 3(ii) Order (see paragraphs 78(c) and 79(b) above). Mr Hung explained he intended to rely on the Bonus Documents (a) to show that the “bonus” paid to P1’s non-professional staff was regular monthly income for such staff and was not discretionary in nature, and (b) to support D’s pleaded case that D1 would pay up to 57% of legal fees received from clients to non-professional staff who introduced such conveyancing work to P1 as “commission”, and he also wished to highlight that the Bonus Documents for the period from April to December 2012 showing bonus payments to non-professional staff did not sit well with Schedule 3 of the Form 1 which did not show “Bonus/es or other Allowances” for the period from 1 January 2010 to 31 December 2012. 85.Both Bonus Documents and Form 1 were served on D pursuant to and after the Master Order. D did not apply by summons to deploy such documentary evidence for the purpose of the Appeal. Indeed, D did not even intimate such intention to Ps until Mr Hung raised this in his oral reply submissions at the Hearing. I am not persuaded that Ds’ decision to include such documents in the hearing bundle for the Appeal amounted to any such notice. In my view, the Bonus Documents and Form 1 merely let this court know Ps had made effort to comply with the Master Order after the Master Hearing. Mr Suen, counsel for Ps, not unnaturally objected to such late application by D to rely on the contents of the Bonus Documents and Form 1 as evidence for the purpose of the Appeal. At the Hearing, I decided to deal with the Bonus Documents and Form 1 on de bene esse basis. 86.Order 58 rule 1(5) of the RHC provides that “[no] further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds”. Here, the copy Bonus Documents and Form 1 were served on and made available to D after the date of the Master Order, so the strict requirement of “special grounds” based on the Ladd v Marshall conditions would not apply. 87.But nevertheless, D still required leave of the court to adduce new evidence for the purpose of the Appeal, and proper application should have been made by summons supported by affidavit to explain why the new evidence was so required. This would give fair and reasonable opportunity for Ps to consider the application and decide whether or not to oppose the same, and even if Ps were to decide not to oppose the application, Ps should be given fair opportunity to adduce affirmation evidence in response. The way D approached such oral application in Mr Hung’s reply submissions at the Hearing was forensically unfair as Ps were denied such proper and reasonable opportunity. 88.This concern was exacerbated by the fact that the Lee 3rd Aff squarely raised Ps’ contention that bonus payment to non-professional staff was discretionary and thus should not be deducted from fees earned from the BOC Group in order to work out the net profit generated from such work (see paragraph 51(f)(iv) above). The Ho 4th Aff also asserted that at least 4 non-professional staff were paid substantial amount of “bonus” or commission, and that such “bonus” or commission was paid/reckoned each month and not paid at P1’s discretion (see paragraph 66 above). Yet from the time of disclosure of the Form 1 on 9 October 2018 (see paragraph 80 above) and the Bonus Documents on 22 October 2018 (see paragraph 81 above) until the Hearing on 27 February 2019 (see paragraph 82 above), ie about 4 months, no notice was given to Ps by D of his intention to rely on the Bonus Documents and/or Form 1. 89.Further, the mere existence of the Bonus Documents and/or Form 1 would not tell Ps how D wished to deploy their contents to support D’s contentions. The facts and arguments in paragraph 84 above should have been made clear by way of affidavit evidence and/or counsel’s written submissions, but there was no such affirmation by D and such matters did not feature in Mr Hung’s written submissions (or indeed Mr Hung’s initial oral submissions at the Hearing). In my view, it was far too late for Ds to raise these afterthought arguments, and Ps would suffer forensic prejudice not compensatable by costs if such application was allowed. 90.But even if leave were granted for D to rely on the Bonus Documents and Form 1 for the purpose of the Appeal (which I disagree), I am not persuaded these documents would have taken the matter much further for D. After all, there remained factual disputes between the parties as to whether payments to P1’s non-professional staff were bonus or commission, and whether such payments were discretionary. It would not follow ipso facto that if the payments to P1’s non-professional staff were reckoned and paid regularly (as D contended) then they would necessarily be non-discretionary commission and not discretionary bonus. As for D’s reliance on Form 1, it was but a piece of evidence to be considered in the relevant factual matrix in order to determine the nature of the payments to non-professional staff, and one cannot forget Ps had no opportunity to answer the contentions deployed in Mr Hung’s reply submissions at the Hearing. At the Hearing, Mr Hung urged this court to come to a firm view that the “bonus” was non-discretionary and then go on to conclude that it ought to be deducted from “fees earned” to arrive at the “net profit”. But as explained in paragraph 100 below, it is not the function of interrogatories to compel the party called upon to answer the same to agree to the interrogating party’s case, and in my view, it is also not appropriate to come to factual findings at this interlocutory stage. 91.For all of the above reasons, I refuse leave for D to rely on the Bonus Documents and Form 1 for the purpose of the Appeal. (c) Reconstructed copy to 2010 Telephone List 92.D by the Appeal asked for production of a true copy of Item 2 (ie the 2010 Telephone List) or alternatively a reconstructed copy thereof. In my view, the Appeal on the alternative ground of asking for a reconstructed copy of Item 2 is misconceived. 93.First, the Discovery / Unless Discovery Orders concerned discovery of documents and the Items Production / Items Orders concerned production of documents all under Order 24 of the RHC such that the specified documents must be in the possession, custody or power of the relevant party. To meet such discovery/production under Order 24 of the RHC, the relevant party has no obligation to generate a new document or carry out a forensic exercise to reconstruct any document that is no longer in existence because, quite simply, a document to be created or reconstructed ex post facto cannot be a document that is or has been in the possession custody or power of the relevant party. If any document has been discarded (eg last year’s Christmas card that was thrown away), lost (eg missing diary lost upon moving house) or given away (eg letter that was sent with no copy retained) etc, all that is required of the relevant party is to disclose/verify such fact without need for reconstruction. If it were otherwise, then the provision in Order 24 rule 7(1) of the RHC (as italicised below and which wording was adopted in the Discovery Order – see paragraph 18 above) would have been redundant and unnecessary:
In my view, common sense also dictates that if a document was formerly but is not presently in the possession, custody or power of the relevant party because such document has been, say, discarded, lost or given away, it will be physically impossible for such party to produce such document. 94.Secondly, Ho claimed it would not be hard for Ps “to reverse” the current version of the Telephone List to the 2010 Telephone List from the available Form 1, but in my view whether it was hard or easy to do so was neither here nor there because, as explained above, there was no obligation to reconstruct such document. Anyway, a comparison would show that the contents of the current version of the Telephone List and Form 1 were not an exact match, and Ho did not explain how to reverse engineer the information for the 2010 Telephone List that was not found in the Form 1 (eg direct/extension/mobile telephone numbers of P1’s staff and relevant division/department of P1 to which they were attached). As Mr Suen pointed out, if the information in Form 1 would suffice, D could have asked for production of Form 1 itself instead of asking for reconstruction of the 2010 Telephone List (which D was not entitled to anyway). Indeed, by the time of the Appeal, Ps had already disclosed the Form 1 by Lee’s 4th Aff pursuant to Master Order (see paragraph 80 above). 95.Thirdly, Mr Hung explained D’s motive in seeking a copy of the 2010 Telephone List was to have such document “confirm the number and names of non-professional staff working in the conveyancing department” of P1. Presumably D wished correlate this information with the P/L Account and other materials to support his contention that non-professional staff of P1’s conveyancing department was paid commission for introducing conveyancing business to the firm. But D’s motive for seeking Item 2 was irrelevant for the present purpose because the Registrar had made the Items Order, and the remaining questions should be whether there had been compliance with such order, and if not, whether such order was a true unless order, and if so whether relief from sanction out of time ought to be granted. 96.Fourthly and in any event, the Discovery, Unless Discovery and Items Orders did not require Ps to provide a reconstructed copy of Item 2, and D’s Summons only sought dismissal of the present action for Ps’ alleged failure to provide a true copy of Item 2 and not for failure to provide D a reconstructed copy of Item 2. In the circumstances, I agree with Mr Suen that it was not open for D in the Appeal to seek dismissal of the present action on the alternative ground that Ps failed to provide a reconstructed copy of Item 2 to D (which fell outside the scope of D’s Summons and Appeal). (d) Appeal against Master Order in relation to Item 2 97.At the Hearing, Mr Hung confirmed D would not say Ps deliberately concealed the 2010 Telephone List. That being the case, bearing in mind the Lee 3rd Aff confirmed and explained why Ps no longer had hard/soft copies of such document (see paragraph 54-55 above), this court queried how Ps could be called upon to produce a document that they said they no longer had in their possession, custody or power or how it could be said they were wilfully defective and not bona fide in not producing such document. I bear in mind that the making of an order for specific discovery does not preclude the other party from deposing in the affidavit that he in fact does not have the document in his possession, custody and power, and generally speaking, such affidavit is invariably taken at face value, and subject to limited exceptions, it is conclusive as to the existence or otherwise of documents at the interlocutory stage.[9] On reflection, Mr Hung confirmed at the Hearing that D would not appeal against the Master Order in relation to Master Eliza Chang’s refusal to dismiss the present action with costs for alleged failure by Ps to comply with the Items Order (see paragraphs 44(a) and 78(c) above). Thus, D’s arguments in Part IV(c) above fell away in any event. V. OVERVIEW 98.Before dealing with the parties’ substantive arguments on the Appeal proper, it is useful to set out some overview matters to put their arguments in perspective. 99.First, the Appeal focused on the quantum of Ps’ claim. As Mr Suen pointed out, at least for the purpose of the Appeal, there was no suggestion that Ps did not have a viable/arguable claim or cause of action against D, or that Ps’ claim ought not go to trial. In the circumstances, I proceed to consider D’s and Ps’ Summonses and the Appeal on the premise that Ps had a prima facie case on liability against D. 100.Secondly, the purpose of Question 3(ii) of the Interrogatories was for Ps to state a specific aspect of their case on quantum, and I agree with Mr Suen that its purpose could not have been to compel Ps to agree to D’s case before trial or to spell out their evidence on quantum. It must be remembered that interrogatories are generally not allowed where the object was to obtain admission from a party or to ascertain the evidence of the party interrogated.[10] In my view, the fact D disagreed with any answer Ps made by affirmation in answer to the Interrogatories was neither here nor there for D’s such disagreement with Ps’ case would either be a matter for resolution at the trial or a ground (if D saw fit) for other applications, eg striking out all or part of Ps’ claim. 101.Thirdly, D complained that Ps’ claim for loss of profits was not properly pleaded and/or particularised, particularly as to loss of profits and exemplary damages (see (a)-(c) below)[11]:
102.There was some criticism in Mr Hung’s written submissions that Ps’ further and better particulars of the SoC were not by way of pleadings but by way of affirmation. There is no merit to this criticism. First, where particulars are not contained in the pleading but are served separately either under request or order, they become part of the pleadings.[12] Secondly, it was D who by summons filed on 22 June 2018 requested for further and better particulars of the SoC to be ordered and served by way of affidavit/affirmation, and Master Lai so ordered on 3 July 2018 (see paragraph 59 above). 103.It is unnecessary for this court to form any definitive view as to whether Ps’ pleadings were defective, whether Ps’ further and better particulars in respect of paragraph 8 of the SoC “added nothing meaningful”, and/or whether the present particulars of loss and damage sat together with the assertions in P2’s supplemental witness statements. After all, if D’s complaints were correct, D could take such points against Ps at trial (and Ps did not dispute they carried the burden of proof to establish their loss and damages) or D (if so wished) could take out interlocutory applications to challenge such claim for loss or damages (eg striking out application). Notwithstanding such wider complaint, one must not lose sight that the focus of the D’s Summons, the Master Order in relation to Question 3(ii) and the Appeal in this respect concerned only 1 matter, ie Ps’ statement as to how the alleged “average monthly net profit” of $126,617 “generated from undertaking mortgage works for [the BOC Group] for one year before April 2013” was arrived at. 104.Fourthly, Mr Hung claimed D did not reply to each and every allegation made in Lee’s affirmations because most of them were argumentative materials which were inappropriately included in factual affirmations.[13] I am unable to see how such proposition took D’s case any further. Mr Suen did not complain that D failed to put forward response to Lee’s affirmations. Rather, Mr Suen submitted D’s affirmations/ submissions were not meritorious, and could not support D’s Summons and/or the Appeal. 105.Fifthly, D complained that (a) Ps failed to file affirmations by P2 and P3 to support Ps’ Summons and to oppose D’s Summons, and merely filed the Lee 3rd Aff in support, and (b) even when P2 later made the P2 4th Aff he merely verified what Lee said in the Lee 3rd Aff. In this respect, Mr Hung drew support from Ping Kai Engineering Company Limited v Hong Kong Teakwood Works Limited[14] in which Ma J (as he then was) struck out parts of the defence and counterclaim as well as a prayer of relief in the counterclaim. In that case, further and better particulars of the defence and counterclaim were unsatisfactory, and an unless order was granted for full and proper particulars failing which certain parts of such pleading would be struck out. Purported answer was given which excited the plaintiff to apply for and obtained the above striking out order. Ma J (as he then was) said in the pre-CJR context as follows:
I am unable to understand from the above passage that the affidavit must be personally made by the defaulting litigant. The above observations only drew distinction between sworn evidence and unsworn evidence/ submissions. Here, as explained above, Lee (who since 2007 was an associate of P1 being the main protagonis) was authorised by Ps to file the Lee 3rd Aff on Ps’ behalf, and albeit not strictly necessary, Ps filed the P2 4th Aff that adopted/verified the contents of the Lee 3rd Aff. Further, the above observations by Ma J (as he then was) dealt with explanation by the defaulting party “where there has been a failure to comply with an Unless Order”. But as seen below, I find Ps did comply with the Question 3(iii) Order, so Mr Hung’s such complaint had no relevance. 106.Sixthly, D’s Summons and now the Appeal, which sought the draconian/capital sanction of dismissal of the present action and which in turn would put asunder litigation steps taken by both parties to date and would end Ps’ claim against D, were based on Ps’ alleged failure to comply with inter alia 1 sub-question out of 13 Interrogatories (ie Question 3(ii) pertaining to how the average monthly net profit of $127,617 generated from undertaking mortgage work for the BOC Group during May 2012 to April 2013 was arrived at) under the Question 3(ii) Order. 107.It was in the above context that the parties disputed over D’s Summons and the Appeal. On the one hand, D claimed Ps did not comply with the Question 3(ii) Order, and any purported compliance was in fact wilful avoidance and not bona fide, which D alleged would justify the sanction of dismissing the present action. On the other hand, Ps claimed D’s Summons and the Appeal were nothing more than poor attempts by D, who was an experienced litigation lawyer, to administer extensive interrogatories on quantum against Ps and to seize any perceived breach of the Question 3(ii) Order (which Ps disagreed) to have the present action dismissed so as to avoid proper trial of P’s claim. Ps went on to claim that even if there were any breach(es), they were technical and did not justify dismissal of the present action. On this note, I turn to the Question 3(ii) Order. VI. NATURE OF QUESTION 3(II) ORDER (a) Nature of unless order 108.Order 2 rule 1 of the RHC provides that a failure to comply with the requirements of the RHC shall be treated as an irregularity and shall not nullify the proceedings. Order 2 rule 4 of the RHC provides that for non-compliance with an unless order, “any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure”. I have in paragraphs 68-72 of my judgment in Lee Sai Nam v Li Shu Chung & anor (No 2)[15] explained the nature of automatic sanction in an unless order, which explanation I adopt but would not repeat here.[16] In short, it is not for the non-defaulting party under an unless order taking advantage of a default to apply to court in order to render a sanction effective, but the sanction is to take effect immediately such that it is for the defaulting party to apply for relief from sanction. (b) Question 3(ii) Order 109.Mr Suen submitted that since D as non-defaulting party had to apply to court under the Question 3(ii) Order to make the sanction (ie dismissal of the present action) effective and such sanction would not take place automatically, such order was not a peremptory unless order as conventionally understood. Mr Suen said this was borne out by D’s Summons (see paragraph 44 above), and he argued that the parties could address the court on any non-compliance of the Question 3(ii) Order, and if there was any non-compliance, then address on the propriety of the proposed sanction. On such basis, it was said there was no need/necessity for Ps to separately apply for relief from sanction which had yet to be imposed, so there was no question of Ps being out of time for such application. Consequently, Ps’ Summons was only issued out of abundance of caution. 110.Mr Suen further submitted the above was obvious when one compared the Question 3(ii) Order with (a) the Supplemental Statements Order (see paragraph 38(d) above) that had an automatic sanction, ie “the defaulting parties be debarred from filing and/or serving and/or adducing any further and/or supplemental witness statements as to facts at the trial of this action” (my emphasis), and (b) the Unless Discovery Order (see paragraph 25 above) that had an automatic sanction, ie P’s present action be dismissed forthwith with costs to D to be taxed if not agreed. 111.On the other hand, Mr Hung referred to Practice Direction 16.5 (“PD16.5”) set out below, and submitted the clarification therein as to the nature/form of peremptory orders showed that the Question 3(ii) Order, which “clearly set out the deadline”, was a true unless order:
112.But at the Hearing, Mr Suen contended (and Mr Hung accepted[17]) the Question 3(ii) Order was not a classic unless order with a sanction that has direct and immediate final impact on the action (eg forthwith dismissal of the present action with costs) upon default. Mr Suen went further to argue that this difference between a classic unless order and the Question 3(ii) Order meant no “ordered consequences” would follow upon any failure by Ps to comply with the Question 3(ii) Order by the prescribed deadline. It was said that the Question 3(ii) Order merely provided D could apply for dismissal of the present action upon any default by Ps, and if the Registrar had intended to impose a classic unless order, he would have adopted the form in PD16.5 for automatic dismissal of the present action upon default (thus leaving it to Ps to apply for relief from sanction within 14 days pursuant to Order 2 rules 4-5 of the RHC) instead of giving liberty to D to apply for dismissal of the present action. 113.Mr Suen went on to say D’s Summons was at most an attempt to set aside the present action for irregularity under Order 2 rule 2 of the RHC, which application “shall not be allowed unless it is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity”. But despite the deadline imposed in the Question 3(ii) Order (4pm on 7 March 2018), D only filed D’s Summons about 6 weeks later on 17 April 2018, and did not offer explanation for such delay, which factor should be taken into account together with all relevant circumstances in deciding whether or not it would be appropriate/proportionate to dismiss the present action that had the serious consequence of putting an end to Ps’ claim when for present purposes Ps had a prima facie case on liability. 114.Turning to Mr Hung’s submissions, given his acknowledgment (see paragraph 112 above) at the Hearing that the Question 3(ii) Order was not a classic unless order even through he did not accept the fullness of Mr Suen’s submissions as to the effect of the Question 3(ii) Order, it would not bring the matter further to refer to (a) the authorities Mr Hung cited concerning the effect of a classic unless order with sanction that immediately “guillotines” the legal action upon default[18] and/or (b) PD16.5 and the deadline for compliance imposed in the Question 3(ii) Order (but I have carefully considered such authorities and practice direction). 115.Mr Hung submitted that in dealing with any application that D might choose to make for dismissal of the present action upon default of the Question 3(ii) Order (ie D’s Summons), which application he argued would be made under the inherent jurisdiction of the court rather than under provisions in the RHC, eg those provisions pertaining to unless orders, this court (which Mr Hung accepted had a discretion whether or not to dismiss the present action) should lean towards dismissal of the present action. 116.Mr Suen disagreed, and suggested that on Mr Hung’s stance that the court in dealing with D’s Summons had discretion whether or not to dismiss the present action upon Ps’ default (if established) under the inherent jurisdiction and not under the provisions in the RHC (which would exclude, say, striking out or summary judgment applications under Order 18 rule 19 and Order 14 rule 1 of the RHC), D must establish there was abuse of process of the court in order to justify dismissal of the present action. But as Ps had a prima facie case on liability (see paragraph 99 above), Mr Suen submitted that D failed to show Ps’ claim was an abuse of process of the court. 117.In my view, proper reading and proper understanding of the effect of the Question 3(ii) Order must be a matter of legal interpretation of such court order, and this court in carrying out this exercise is not bound by the parties’ submissions, or indeed by any overreach/concession made by any party. Having carefully considered both parties’ submissions and carefully studied the Question 3(ii) Order in its relevant context, I am satisfied it was a peremptory unless order. 118.As Mr Hung pointed out, under the Question 3(ii) Order Ps were ordered to answer Question 3(ii) by affidavit/affirmation by a specified deadline. But in my view, this alone would be insufficient to make the Question 3(ii) Order a true unless order. It is important to ascertain whether the Question 3(ii) Order contained an automatic sanction being an essential element for a true unless order, otherwise there would be nothing to “unless” about. I find this is where I do not accept Mr Suen’s submissions. 119.Mr Suen argued the relevant sanction for the Question 3(ii) Order was dismissal of Ps’ present action and since this could not happen automatically under the Question 3(ii) Order (as D had to apply for such relief), so the requisite “automatic” sanction for a true unless order was missing and the Question 3(ii) Order was therefore not a true unless order. But in my view, upon proper reading of the Question 3(ii) Order, the prescribed sanction for non-compliance with the prescribed condition by the prescribed deadline was D being immediately able to apply for dismissal of the present action with costs to be taxed if not agreed. Such liberty given to D to apply for dismissal of the present action with costs meant D would not have to resort to either the statutory rules in the RHC or inherent jurisdiction of the court (for such liberty is derived from the unless order itself), and it would not be open for Ps to re-argue whether or not it would be appropriate for D to seek the remedy of dismissal of the present action for Ps’ default. In my view, the propriety of such consequence had been considered by the parties who eventually came to the consensus as spelled out and as ordered by the court in the Question 3(ii) Order. Thus, the only matter left open was for D to persuade the court to dismiss the action. 120.Thus, for an unless order with sanction for the non-defaulting party to apply for dismissal of the action with costs, the alleged defaulting party can at such application argue whether or not there has been compliance with the unless order, but he cannot have a second bite of the cherry by re-arguing whether dismissal of the action is appropriate relief for non-compliance (especially when such unless order is made by consent), or to put it in another way, he cannot resist the non-defaulting party’s application for dismissal of the action on the ground that it is an inappropriate remedy. The defaulting party (if it is shown that he is in default) has to seek relief against sanction if he wishes to urge the court not to dismiss the action upon application by the non-defaulting party for dismissal following his default. 121.This form of sanction (which is automatic in the sense that the non-defaulting party is immediately at liberty to apply for dismissal of the present action) is particularly useful where, say, the plaintiff’s claim contains a prayer for, say, final declaratory and/or injunctive reliefs that are outside the jurisdiction of masters. In such circumstances, even if a master considers it appropriate to grant an unless order at an interlocutory stage of the proceedings, it will not be open to a master to grant any such order with sanction that has the effect of either granting or refusing, say, final declaratory and/or injunctive reliefs. However, it will be open for a master to impose a sanction that the plaintiff be at liberty to apply for judgment or the defendant be at liberty to apply for dismissal of the action with costs, so that the non-defaulting party can make appropriate application to a judge for the relevant order. But this does not mean the defaulting party can re-argue or raise opposition that the envisaged relief for such application (which is already embodied in the sanction) is inappropriate once default has been established. 122.That said, given that nature of peremptory unless orders which favours automatic sanction with certainty/finality, this type of non-classic unless orders as discussed above should be imposed only if necessary, and the courts will lean towards granting classic unless orders with self-contained automatic sanctions. In future, when granting unless orders, masters should carefully bear this in mind. It is true the concerns highlighted in the illustrative example in the above paragraph did not arise for the Question 3(ii) Order, but it does not alter the fact that on proper reading of such order it was a peremptory unless order. In such circumstances, the key questions are (a) whether Ps were in default under the Question 3(ii) Order, and (b) if so, whether relief from sanction should be granted out of time. VII. QUESTION 3(II) (a) P’s primary stance 123.For Question 3(ii), P’s stance was that their net profit equalled fees earned from the BOC Group without need for deduction of expenditure.[19] (b) Ps’ alternative stance 124.Ps adopted an alternative stance (in case their primary stance was not accepted by the court) that pro rata deduction should be made from expenses except salaries, commission and bonus, but it would be up to the trial judge to scrutinise P1’s accounts for May 2012 to April 2013 (including the P/L Account) to see what deductions (if any) should be made (eg deducting office rental etc but not salaries, commission and bonus, or deducting all items of expenses, or not deducting any item of expenses, etc) such that in the worst scenario net profit might be almost nil (ie $412.01 or less). (c) Ps’ primary stance - breach of Question 3(ii) Order? 125.There was no dispute Ps had answered Question 3(i), ie breakdown for each of the 12 months in respect of fees earned from mortgage works for the BOC Group for 1 year from April 2013, by the P2/P3 1st Affs filed on 6 April 2017 made pursuant to the Unless Interrogatories Order (see paragraphs 27 and 30 above). The P2/P3 1st Affs explained that $127,617 being “the average monthly net profit generated from undertaking mortgage works for [the BOC Group] for one year before April 2013” was derived by dividing total fees of $1,531,400 earned from mortgage work for the BOC Group for that year by 12 months, which plainly meant Ps regarded the average monthly fees earned from mortgage work for the BOC Group was the same as the average monthly net profit generated by mortgage work for the BOC Group. 126.Even though D claimed Ps only answered Question 3(i) about “fees earned” but had not answered Question 3(ii) about “net profit” (see the Ho 2nd Aff in paragraph 37 above) and the Unless Interrogatories Order was undisputedly a true unless order, D did not rely on the automatic sanction in the Unless Interrogatories Order to enter judgment for dismissal of the present action with costs. Rather, more than 8 months later, D filed the Question 3(ii) Summons supported by the Ho 2nd Aff to seek another true unless order to dismiss the present action with costs should Ps failed to answer Question 3(ii) about “net profit” before a specified deadline (see paragraph 36 above). But the Registrar granted the Question 3(ii) Order as explained above (see paragraph 38(b) and Part VI above) so that if there was default by Ps then D would be at liberty to apply for dismissal of the present action with costs. Pursuant to the Question 3(ii) Order, Ps filed the P2 2nd Aff on 6 March 2018 (see paragraphs 40(a) and 42 above), which (in a nutshell) (a) confirmed the total net profit or fee generated from undertaking mortgage/legal works for the BOC Group for 1 year before April 2013 was $1,531,400, so the average monthly net profit or fee was $1,531,400 ÷ 12 months = $127,617, and (b) exhibited relevant account records in support. 127.In my view, the P2/P3 1st Affs and P2 2nd Aff plainly asserted the average monthly net profit was equivalent to the average monthly fees earned from the BOC Group without deduction. D clearly understood this was what Ps said in the P2/P3 1st Affs and P2 2nd Aff (see the Ho 3rd Aff in paragraph 46 above and paragraph 33 of Mr Hung’s written submissions), but he refused to accept this was sufficient answer because he took the view that fees earned and net profit from mortgage/legal works from the BOC Group must be different as there must be deduction of expenditure during the corresponding period to arrive at the net profit (see paragraph 46(b) above). 128.Mr Hung submitted that (a) P’s primary stance flied against commercial/common sense as it was axiomatic that “net profit by any business (including a firm of solicitors like P1) means the gross income less the expenditure = net profit”, ie fees earned and net profit were different matters, (b) in failing to deduct expenditure (eg staff salary, office rent and/or commission/bonus paid to professional and non-professional staff[20]) from gross income (ie fees earned from the BOC Group), the P2/P3 1st Affs and P2 2nd Aff merely answered Question 3(i) but failed to answer Question 3(ii), (c) the Lee 3rd Aff and P2 4th Aff in reiterating P’s primary stance that fees earned equated to net profit (ie no additional costs or expenses would be incurred to generate the fees earned from the BOC Group) again failed to answer Question 3(ii), and (d) P2/P3 should have known better than to give the purported answers in the P2/P3 1st Affs and P2 2nd Aff as they had practised as a lawfirm (ie P1) for over 20 years, so it was said Ps’ purported answers to Question 3(ii) in the P2/P3 1st Affs and P2 2nd Aff were not meaningful or bona fide, and instead were illusory, wilfully defective and made with a view to avoid giving proper answer to the relevant interrogatory. 129.Mr Hung drew my attention to Ka Wah Bank Ltd v Low Chung-song & anor.[21] In that case, the respondents (who were fugitives who absconded bail in proceedings concerning serious crimes) were sued by the appellant bank for damages for conspiracy. Orders were made for the respondents’ defences be struck out unless they filed lists of documents and verifying affirmations within 14 days. Lists and affirmations were filed within 14 days, but the lists were incomplete and the affirmations taken before Hong Kong solicitor gave an address in Taipei where the respondents could not be contacted as they had instructed persons there to deny knowledge of them. For reasons in paragraphs 130-131 below, the Court of Appeal struck out the defences of the respondents. 130.As regards the verifying affirmations, the appellant argued that the address given demonstrated the respondents’ determination to defeat the ends of justice and was an extension of their decision to abscond from the Hong Kong jurisdiction. Fuad VP agreed the address was illusory as it defeated the whole purpose of giving any address at all, and the respondents could hardly be said to have been acting honestly when they supplied it. With no evidence that the respondents had acted in good faith over the matter of the deliberately misleading address they had given, and “[no] explanation has been offered for what I am constrained to conclude was willfully defective discovery, other than a submission that it was not so”, it was said the court should be slow to condone the giving of an illusory address “in the circumstances as we have here, where the excuse given is that the defendant was anxious, having absconded, to conceal his whereabouts”. On such basis, it was held there were no proper verifying affirmations. 131.As regards the lists of documents, the appellant bank submitted the discovery made was incomplete and palpably inadequate. It was noted that each list was identical although the respondents had different roles in the relevant transactions, and the lists were short but only few documents therein were relevant. Fuad VP held the respondents displayed no effort to work out from available information[22] or otherwise what documents they once had but no longer have. Hunter JA noted that the respondents at one time controlled of a relevant company (subsequently liquidated) before they sold all their shares, which logically would have involved “share certificates, bought and sold documents, and as far as the consideration is concerned, entries in books of account, bank accounts and so on”, but these documents did not feature in the lists of documents, and that the further and better lists adopted words of “studied ambiguity” even though “the defendants had in their possession copies of all the relevant records which would have enabled them very readily to specify, if they wished”, which suggested such reticence to be “a deliberate refusal”. On such basis, it was held the lists of documents were evasive, illusory, a “mere travesty of discovery”, and displayed no evidence of real/ conscientious effort to meet the respondents’ obligations on discovery. 132.In my view, it is immediately apparent from the above summary of Ka Wah Bank Ltd that everything depended on the particular circumstances of the case. Whether there has been breach of the prescribed act/condition in an unless order (eg whether any alleged compliance was illusory, not real, not bona fide and/or wilfully defective) must be considered in its particular factual/procedural matrix, and previous authorities only serve to illuminate the principles but would not give direct assistance in any particular case (including the present one) that turned on its own facts and circumstances. 133.Turning to the present case, I find Ps did comply with the Question 3(ii) Order, and whether or not D agreed with Ps’ answer was neither here nor there. The focus of the Question 3(ii) Order was to compel Ps to state their position on how the average monthly net profit of $127,617 was made up. Ps by the P2/P3 1st Affs stated their position that the average monthly net profit was arrived at by reference to the average monthly fees earned. Ps fairly accepted it would have cleared the air if they had explained in the P2/P3 1st Aff that the net profit was the same as fees earned, but this was not strictly necessary as the Question 3(ii) Order only required Ps to state how the average monthly net profit of $127,617 was arrived at (ie the methodology of how such net profit sum was derived), but did not require Ps to explain and justify their stance. 134.In any event, the Ho 2nd Aff filed in support of the Question 3(ii) Summons did not even say the answer to Question 3(ii) by the P2/P3 1st Affs was not satisfactory because of non-deduction of expenditure from fees earned for mortgage/legal works for the BOC Group, so it was unsurprising that in the P2 2nd Aff Ps reiterated the formula for calculating average monthly net profit or fees earned for the relevant year (ie $1,531,400 ÷ 12 months = $127,617) as supported by relevant account records. In my view, it was clear from the answers in the P2/P3 1st Affs and P2 2nd Aff that Ps equated net profits with fees earned, and there was no suggestion D did not understand Ps’ such stance (irrespective whether or not D agreed with P’s position). 135.It was only by the Ho 3rd Aff (in support of D’s Summons) that D explained his objection based on “common sense” that there should have been deduction of expenses from fees earned to arrive at net profit. This led to the Lee 3rd Aff and P2 4th Aff that explained why under P’s primary stance no deduction was appropriate, ie no additional costs would be incurred in generating the fees earned from the BOC Group, especially in light of the reasons put forward in paragraph 51(f)(i)-(iv) above. But as explained above and pointed out by Mr Suen, such explanation was not strictly required under the Unless Interrogatories and Question 3(ii) Orders. 136.I note that Ps in giving the answers in the P2/P3 1st Aff and P2 2nd Aff that the average monthly net profit sum of $127,617 was arrived at by dividing the total amount of fees earned from the BOC Group for the relevant year by 12 months, ie P equated the average monthly fees earned as the average monthly net profit without deduction of expenses, Ps did not shy away from the fact that P1 had expenses/expenditure (including staff salary, office rent and commission/bonus for professional / non-professional staff). Rather, Ps’ primary position was that no additional expenditure/cost were required for generating net profit for mortgage/legal work from the BOC Group, and that commission/bonus were paid out of profits (which, according to Ps, were lost due to D’s breach of his obligations). Such stance was Ps’ primary position on the measure of damages for their claim for loss of profits, which must be a matter of mixed fact and law. 137.Mr Hung submitted it was specious to suggest that in generating fees earned from the BOC Group, office rent, staff salary and MPF payments should be ignored on the basis that they were fixed or operation costs that had to be incurred anyway, otherwise the same argument could have been made for legal work from any bank client even though different bank clients would have different volume of caseload for P1. But Mr Suen submitted Ps’ primary stance that loss of business would result in loss of profit of the same amount with no additional costs to be incurred as a measure of damages was not unarguable in the context of professional fees charged by solicitors in contrast to, say, price from sale of goods (in which there would be avoided/saved cost of, say, raw materials), and that even in the context of sale of goods loss of profits might well be the difference between purchase price and resale price without deduction of other expenditure such as office rent, staff salary etc. [23] 138.Be that as it may, in my view, the disagreement between Ps and D over whether and what expenses should be deducted from fees earned to arrive at net profit from mortgage/legal work from the BOC Group would be a matter for trial (or the subject of other applications if D thought fit). In my view, it would not be right at the stage of answering interrogatories to force Ps to concede to D’s insistence that expenses must be factored in or deducted from the calculation of net profit or else to have the present action dismissed without trial. The present case was a far cry from that of Ka Wah Bank Ltd in which the respondents obviously shut their eye to clearly relevant documents that were patently evident from the Taiwan records and the exhibits to Mr Banner’s affidavit (see footnote 22 above) that rendered the lists of documents incomplete, illusory and wilfully defective. Here, Ps accepted P1 did incur cost/expenditure in 2012/2013, and Ps in fact produced the P/L Account that demonstrated such fact, but it was their primary stance on the measure of damages for loss of profit that such cost/expenditure ought not be taken into account. 139.I see nothing wilful, illusory or lack of bona fides about Ps’ primary stance. Ps having so bluntly stated their primary stance on affirmation, if D was dissatisfied with such stance, it was for D to take appropriate step in relation to Ps’ answer to Question 3(ii) as he saw fit. If D considered Ps’ claim for loss of profits on the basis of such answer (now also part of Ps’ pleadings as Ps’ primary stance was repeated in their further and better particulars of the SoC by way of the P2 3rd Aff – see paragraph 74 above) was entirely without merit, it was for D to consider whether to apply to strike out such claim for loss of profits or to take any other step. If D did not take any further step at the interlocutory stage, then the matter would be resolved at trial which would provide occasion for D to put Ps (who admittedly bore the burden of proof to establish their claim for damages) to prove their claim for loss of profits (as constrained by Ps’ answer to Question 3(ii) which, as explained above, was also reflected in Ps’ current pleadings) and/or to put up positive defence case against such claim (if D so wished). 140.Mr Hung in his submissions complained that not every case would proceed to trial, and D’s legal representatives needed to know the fullness of Ps’ case so as to properly advise D on whether to negotiate settlement, participate in mediation or proceed to trial, but to date full particulars of Ps’ alleged loss (particularly for, say, exemplary damages) were not particularised or properly particularised. Mr Suen reminded that since the BOC Group suspended mortgage/legal works for P1 after April 2013, there was no exact financial data for calculation of loss of profits, so the formula or methodology for working out the average monthly net profits was based on pre-existing data such as information from the P/L Account as set out in further and better particulars in the P2 3rd Aff. But in my view, D’s subjective concern in dealing with the present litigation and whether or not he was satisfied with the further and better particulars would not affect the more confined question of whether or not Ps did answer Question 3(ii). 141.Mr Hung next contended it was specious for Ps to argue that commission/bonus should be ignored in ascertaining the net profit generated by mortgage/legal work from the BOC Group because P1 was obliged to pay commission to staff, ie payment of commission was not merely sharing profits with staff as D claimed, but was regular payment of remuneration to staff as evidenced by P1’s P/L Account for the period from 1 May 2012 to 30 April 2013 that showed out of total expenses of $58,019,477.86, “[salaries], bonus, commission & MPF” took up a lion’s share at $38,319,070.02 together with other expenses included “[partners’] drawings” ($4,254,291) and “[staff] benefits” ($182,564). Since bonus/commission were part of P’s expenses in the P/L Account, it was said the assertion that “no additional costs or expenditures were to be incurred for generating the fees earned from BOC” must be wilfully erroneous. The Ho 4th Aff went further to say Ps’ such assertion could not be supported as (a) the AS Commission Table showed $6,436,588 was paid as commission to assistant solicitors for the year 2016/2017 (see paragraph 65 above), but (b) 4 non-professional conveyancing staff currently working for P1 (shown in the current version of the Telephone List) received substantial bonus/commission of over $6,000,000 in 2012/2013 (see paragraphs 66-67 above). 142.But I note that Ps again did not shy away from the fact that commission was paid to P1’s assistant solicitors and bonus was paid to P1’s non-professional staff. There was dispute between the parties as to whether P1’s non-professional staff received bonus or commission, but Mr Hung conceded such dispute was irrelevant for the present purpose since there was no disagreement that payments were indeed made to non-professional staff. In my view, on the same rationale explained above in relation to other expenses but applied mutatis mutandis, Ps did not fail to answer Question 3(ii) by excluding bonus/commission from the methodology in calculating or arriving at the average monthly net profit for mortgage/legal work from the BOC Group. 143.More importantly, I am of the view that there is at least an arguable case that P1 paid commission / bonus to its assistant solicitors and non-professional staff out of profits. On the basis of Ps’ case that bonus payable to non-professional staff (which D claimed was commission rather than bonus but was in any event more substantial than commission paid to assistant solicitors) was discretionary, it must at least be arguable that such bonus would be defrayed from profits rather than income, ie P1 would not have awarded discretionary bonus if it made a loss in the relevant year. Moreover, as Mr Suen pointed out, D’s duties as pleaded in the SoC were owed to Ps and not to P1’s employees, so only Ps (and not P1’s employees) could sue D for damages for loss of business from the BOC Group even though P1’s employees also suffered loss of commission/bonus from cessation of mortgage/legal work from the BOC Group (which according to Ps was on profit-sharing basis only), so D would be unjustly enriched if the measure of damages required Ps to recover loss of profits after deducting employees’ bonus/commission, and P1’s employees could only share through damages payable to Ps and could not claim against D. Likewise, it was at least arguable that partners’ drawings being distributions from their equity accounts were for recovering initial investments and taking share of profits out of the business. After all, a partner’s equity is made up of funds he invested in the business and his share of any profits less any drawings out of his equity account. But in any event, at this interlocutory stage, it would be sufficient for Ps to state their case, and there was no need for the court to debate the merits of the parties’ respective contentions. 144.In the circumstances, Master Eliza Chang was correct in dismissing D’s Summons in relation to Question 3(ii), and it is unnecessary for this court to go on to consider Ps’ alternative position and/or fallback application for leave to apply for relief from sanction out of time in respect of the Question 3(ii) Order. But for completeness, I will briefly do so. (d) P’s alternative stance – breach of Question 3(ii) Order? 145.Although not strictly necessary, Ps had set out their alternative position,[24] and at trial the court would scrutinise P1’s accounts for the period from May 2012 to April 2013 to decide what deductions (if any) should be made. As explained above, it was not unarguable that loss of additional fees earned from the BOC Group rested on existing overheads without need for deduction of expenditure, but whether there should be pro rata deduction would be a matter for trial, and at this stage it was neither here nor there whether or not D agreed with Ps’ alternative stance, especially when D would easily appreciate Ps’ alternative stance from the P/L Account and the explanation in the Lee 3rd Aff (see paragraph 52(b) above). 146.In my view, D could not at this interlocutory stage unilaterally impose his own stance/case[25] on Ps and thereby assert Ps’ case was not bona fide such that the present action was liable to be dismissed. As alluded in paragraph 46(b) above, D rested his case on “common sense”. Whilst I need not go so far as Mr Suen’s submissions that this approach was “both dangerous and unhelpful”, I reiterate that D could not by his interrogatories (including Question 3(ii)) force Ps as the interrogated parties to concede their case or to require the court to conduct a mini-trial to adjudicate on the parties’ opposing stances as to whether or not certain amounts should be deducted to arrive at the average monthly net profit. (e) Summary 147.I agree with Mr Suen that by debating the merits of Ps’ primary/alternative stance D already went beyond the Question 3(ii) Order. In my view, Ps had complied with the Question 3(ii) Order by the P2/P3 1st Affs and the P2 2nd Aff, and insofar as they had not done so (which I disagree) they had answered the Question 3(ii) Order latest by the Lee 3rd Aff anyway. In the circumstances, D’s Summons in respect of the Question 3(ii) Order must be dismissed, and the Master Order must be upheld. But in case I am wrong and Ps were in default of the Question 3(ii) Order (which I disagree), I proceed to deal with Ps’ Summons for relief from sanction out of time. VIII. LEGAL PRINCIPLES – RELIEF FROM SANCTION 148.I reiterate but will not repeat here the legal principles concerning unless orders, proportionate sanction and relief from sanction set out in Lee Sai Nam (No 2) at paras 73-78 and Bruce James Stinson v Gu Ming Gao.[26] The factors set out in Order 2 rule 5(1) of the RHC for relief from sanction are not exhaustive, but a weighty consideration is “the question of proportionality of the sanction in the circumstances of the case”.[27] In exercising discretion whether or not to grant relief from sanction, judicial guidance has urged for a multi-faceted balancing exercise.[28] 149.As to whether to extend time for the defaulting party to apply for relief from sanction, the court has to consider all relevant factors, particularly (a) the length of the delay, (b) the reasons for the delay, (c) the merits of the proposed application for relief from sanction, and (d) the degree of prejudice to the other party. The factor in (c) above, ie consideration of the merits, will bring into focus the factors in Order 2 rule 5(1) of the RHC.[29] 150.In considering whether to allow application for relief from sanction out of time, it is necessary to look at all relevant matters and to consider the overall justice of the case and not to apply a rigidly mechanistic approach. Such approach is directed at resolving 2 conflicting considerations: (a) that a party should observe procedural rules default of which could result in dismissal of his claim, and (b) that a party should not be deprived of an adjudication on the merits unless there had been prejudice to the other party that could not be compensated by costs.[30] IX. RELIEF FROM SANCTION 151.In view of the “unless” nature of the Question 3(ii) Order as explained in Part VI above, if Ps were in default of such order (which I disagree), then they would be out of time in applying for relief from sanction. To avoid unnecessary duplication, I will consider the issue of whether leave should be granted for Ps to file Ps’ Summons for relief from sanction out of time together with the issue of whether relief from sanction ought to be granted (if such extension of time were to be granted). On the merits, the court should take into account the factors in Order 2 rule 5 of the RHC and conduct a balancing exercise of all relevant circumstances, bearing in mind that a weighty factor is the question of proportionality of the sanction in the circumstances in the case. In my view, based on the analysis below, I consider that even if Ps were in breach of the Question 3(ii) Order (which I disagree), it was not intentional/deliberate (after all Ps had answered all other Interrogatories) and Ps had since provided further information (eg the P/L Account) and explained their position in detail in the Lee 3rd Aff and P2 4th Aff, so it would be disproportionate to foreclose and dismiss Ps’ claim in the present action without trial, so relief from sanction should be granted (with extension of time for such purpose). (a) Whether application for relief was made promptly (Order 2 rule 5(1)(b) of the RHC) 152.Ps did not apply for relief from sanction within 14 days from the prescribed deadline for compliance with the Question 3(ii) Order (ie by 21 March 2018). However, Ps explained they did not take out such application because they believed it was not necessary as (a) the Question 3(ii) was not a conventional unless order, and (b) they thought they could still address the court on the propriety of the proposed relief when D applied to dismiss the present action for breach of the Question 3(ii) Order (ie D’s Summons). Although in the end I disagreed with Ps’ view as to the nature of the Question 3(ii) Order and their belief in (b) above, I cannot say Ps’ aforesaid view (which led to (i) Ps’ belief that upon engagement of the court’s jurisdiction to dismiss the present action it would be duplicitous and cost-wasting to have Ps file another application for relief from sanction, and hence (ii) Ps’ inaction after 21 March 2018 in intimating intention to file or in filing application for relief from sanction) was not bona fide, especially when prior to 17 April 2018 it was uncertain whether or not D would file D’s Summons. 153.In coming to the aforesaid view, I bear in mind the discussions in Part VI above, and in particular the non-conventional nature of the sanction in the Question 3(ii) Order even though I eventually recognised such order as an unless order. I also take into account the fact that both Ps and D had difficulties in appreciating the true nature of the Question 3(ii) Order. Thus, even if an extension of time for relief from sanction were necessary, I am prepared to grant such extension. I accept the delay (ie about 3 months after the deadline in the Question 3(ii) Order[31] or 2 months after D filed D’s Summons) was due to Ps’ bona fide belief of compliance with the Question 3(ii) Order and it being unnecessary to seek time extension. To this, I would add there were persuasive grounds for Ps’ application for relief from sanction (as discussed below), and the delay in filing Ps’ Summons until about 3 months before the Master Hearing would not cause D any forensic prejudice as D’s Summons was scheduled to be heard at the same time. (b) Whether failure to comply was intentional, whether there was good explanation, and the extent to which the defaulting party has complied with other rules and court orders (Order 2 rule 5(1)(c)-(e) of RHC) 154.Mr Hung submitted that a review of the procedural history of the present action showed that Ps had dragged their feet and made no conscious effort in properly setting out their case,[32] and that they repeatedly failed to comply with court orders and to answer interrogatories, which deliberate “hide and seek” conduct[33] was intentional, deliberate, contumelious, unhelpful and not bona fide (especially when viewed against Ps’ vague pleaded claims for damages even though P2’s supplemental witness statement alluded to huge and precise sums for such damages) such that “[enough] is enough”.[34] Mr Hung submitted Ps should have known better as P2/P3 were practicing solicitors and should have been aware of the underlying objectives of the RHC and the spirit of the CJR,[35] and they must have known D’s legal representatives would be hampered in rendering proper legal advice to D in the absence of proper answers to interrogatories. In short, Mr Hung argued that Ps brought dismissal of the present action on their own heads and were undeserving of relief from sanction.[36] 155.I accept Ps took some time to answer the Interrogatories and to meet the Discovery Order. But by now, Ps did answer more than 12 out of 13 of the Interrogatories (on the assumption there was non-compliance of the Question 3(ii) Order which I disagree), and made discovery of 16 out of 17 Items (Ps addressed Item 18 and D no longer pursued Item 2). Ps had gone further to exhibit account documents to the P2 2nd Aff in support of the average monthly fees earned / net profits (see paragraph 42 above), and exhibited the current Telephone List to the Lee 3rd Aff (see paragraph 55(f) above). 156.I have found Ps had complied with the Question 3(ii) Order, but even if they had not, I am not satisfied that non-compliance was deliberate, and instead I am satisfied that their interpretation of the nature of the Question 3(ii) Order was bona fide albeit erroneous. I am not persuaded by Mr Hung’s harsh criticism of Ps’ conduct as being contumelious and demonstrating no conscious effort. Ps might have cleared the air by setting out their primary/alternative stances as set out in the Lee 3rd Aff if D had explained at an earlier stage why he considered Ps’ answer to Question 3(ii) deficient (now put forth in the Ho 3rd Aff), but even putting aside such consideration, I am not satisfied that any alleged non-compliance of the Question 3(ii) Order was intentional. (c) Whether failure to comply was caused by defaulting party or his legal representatives (Order 2 rule 5(1)(f) of RHC) 157.I agree with Mr Suen this was a neutral factor as P1 acted as Ps’ solicitors in the present action. (d) Whether trial date or likely trial date can still be met if relief is granted (Order 2 rule 5(1)(h) of RHC) 158.No trial date had been fixed yet. The above account of the procedural history of the present action showed that time had been taken up Ds’ various interlocutory applications, Ps’ various responses and the Appeal. Anyway, extending time for granting relief from sanction would not frustrate any trial date which has not been fixed. (e) Effect which failure to comply and grant of relief would have on each party (Order 2 rule 5(1)(i)-(j) of RHC) 159.There could be no doubt that dismissal of Ps’ entire action would be the most draconian/capital sanction against Ps’ interests because, quite simply, it would put an end to Ps’ claim. But the effect of Ps’ failure to comply with the Question 3(ii) Order (which I disagree) on D would be limited because by the P2/P3 1st Affs and P2 2nd Aff D already knew P’s primary stance as explained above (ie their net profit was arrived at by reference to fees earned from mortgage/legal work from the BOC Group without any deduction for expenses) and Ps’ alternative stance was set out in the Lee 3rd Aff. As explained above, it was not the purpose of interrogatories to ascertain whether or not Ps could make good their primary/alternative stance on the quantum of damages, which would be matters for trial (and the subject of other applications if D might think fit), and D’s disagreement with Ps’ primary/alternative case could be subject of dispute at trial or of any other application that D might think fit. There was no suggestion that D did not understand Ps’ stance/position. (f) Interests of administration of justice (Order 2 rule 5(1)(a) of the RHC) 160.In light of the above discussion, I am unable to see how interests in the administration of justice would call for dismissal of the present action so as to stifle/prevent Ps’ claim from going forward to trial, especially when Ps’ had a prima facie claim on liability. In all the circumstances, I consider refusal of relief with consequent dismissal of the present action would be disproportionate to the alleged/assumed non-compliance (which I disagree), especially when Ps had complied with Ds’ specific discovery and interrogatories except for only part of 1 interrogatory (ie 12.5 out of 13 interrogatories), produced account records to support the answer given for Question 3(ii) (see paragraph 42 above), provided copies of classes of documents under specific discovery (save for the 2010 Telephone List which was no longer in Ps’ possession, custody or power), provided copy of the current version of the Telephone List (see paragraph 55(f) above), and gave more detailed explanation in relation to Question 3(ii) in the Lee 3rd Aff (see paragraphs 51-52 above) as verified by the P2 4th Aff. 161.In all the circumstances, I am satisfied that had Ps been in default of the Question 3(ii) Order, it would be appropriate to exercise discretion to extend time for Ps to file/serve Ps’ Summons, and to grant relief from dismissal of the present action. However, there is no need for me to explore the form of relief because I have found that Ps had actually complied with the Question 3(ii) Order. X. CONCLUSION 162.For the above reasons, the Appeal is dismissed. There is no reason why costs should not follow event. I therefore grant a costs order nisi that D should pay Ps costs of and occasioned by the Appeal (including all costs reserved if any) to be taxed forthwith if not agreed.
Mr Jenkin Suen, instructed by Au-Yeung, Cheng Ho & Tin, for the 1st to 3rd plaintiffs Mr Andy Hung, instructed by Au-Yeung, Chan & Ho, for the defendant [1] Ps claimed D retired as a partner of P1 with effect from 1 January 2008 because (a) clause 1 of the written agreement dated 25 April 2002 between P2/P3 and D provided inter alia that any partner of P1 could give 6 months’ notice to the other partners to retire from the partnership, and (b) D served written retirement notice on P2/P3 under such agreement on/about 29 June 2007 [2] Including, according to D, conveyancing work brought by litigation solicitors, consultants and/or non-professional staff who were entitled to receive commission for bringing in such conveyancing business to P1 [3] title documents including mortgage or legal charge should be registered at the Land Registry within 1 month after execution in order to obtain priority under the Land Registration Ordinance Cap 128 [4] it was said this was supported by negligible/minute net profit of $421.00 shown in the P/L Account referred to in paragraph 52(b) below (see paragraph 64 below) [5] D essentially claimed Ps’ payment of commission to professional and non-professional staff who introduced conveyancing business to P1 would affect P1’s net profits [6] ie exhibit “HKK-03” to the Ho 4th Aff [7] exhibited as “LTH-2” to the Lee 3rd Aff [8] see Circular 11-904(COM) dated 5 December 2011 issued by the Law Society together with Form 1 marked as exhibit “HKK-06” to the Ho 4th Aff [9] see UOB Kay Hian Futures (Hong Kong) Limited v Lai, Lawrence & anor HCA1946/2011 (unreported, 4 June 2015) paras 43-45 [10] see Hong Kong Civil Procedure 2020 Vol 1 paras 26/4/11 – 26/4/13 at pp 717-720 [11] see Perestrello e Companhia Limitada v United Paint Co Ltd [1968] WLR 570, 579 [12] see Hong Kong Civil Procedure 2020 Vol 1 para 18/12/67 at p 487 [13] Mr Hung cited R Leslie Deakm, sued as personal representative of Nicholas Lousis Deak (deceased) & anor v Deak Perera Far East Ltd (in liquidation) [1991] 1 HKLR 551 in support of such proposition [14] HCCT2/2001, Ma J (as he then was) (unreported, 6 February 2002) [15] HCA1711/2009 (unreported, 31 May 2013) [16] see also Daimler AG v Leiduck [2012] 3 HKLRD 119, 134-135, Duracell US Operations, Inc v Matsushima Electric (HK) Co Ltd & Ors HCA1474/2017, DHCJ Joseph Kwan (unreported, 7 March 2018) paras 24-26, Glory Sky Finance Ltd v Chen Jianhua & anor HCMP2482/2014, DHCJ Keith Yeung (as he then was) (unreported, 15 March 2018) para 48 and Bruce James Stinson v Gu Ming Gao HCA2352/2012 (unreported, 4 January 2019) paras 89-90 [17] even though Mr Hung’s written submissions suggested that as the Question 3(ii) Order imposed a deadline for answering Question 3(ii) as required under PD16.5 the Question 3(ii) Order was therefore a “true” unless order [18] see Goh Soo Siah v Au Yeung Tin Wah & ors HCA1100/2014, Mr Registrar K W Lung (unreported, 22 December 2015), In re Jokai Tea Holdings Ltd [1992] 1 WLR 1196, Hytec Information Systems Ltd v Conventry City Council [1997] 1 WLR 1666 and Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 cited by Mr Hung [19] Mr Suen in footnote 3 of his written submissions argued this was commonly the case in a claim for loss of profits, eg (a) in a claim for loss of consultancy fees or service charges, it was at least open to the innocent party to claim the loss of additional fees it would have earned but for breach of duties without deducting overheads or staff-related expenses, (b) similarly in the context of non-delivery of goods, it was at least open to the buyer to claim loss of profits in terms of the difference between re-sale price and the contract price, so in calculating loss of profits it was not ordinarily necessary for the buyer to deduct, say, its payment of office rental, salaries, bonus, commission, utilities, office supplies, stationaries, travelling expenses, telephone, fax & broadband, etc. [20] Mr Hung submitted that for the present purpose it was the fact of payments to non-professional staff rather than the label of such payments that was important [21] [1989] 1 HKLR 451 [22] eg the Taiwan records or material available to the respondents from an affidavit by a Mr Banner prepared for a Mareva application that exhibited complete record of approvals for the relevant loans [23] Mr Suen submitted that to apply D’s argument in a sale of goods scenario would mean that to calculate loss of profits for goods acquired at $1,000 and resold at $2,000, the seller must deduct rent, salary, bonus, commission etc so that the profit of $1,000 would be reduced (possibly to nil), which Mr Suen contended could not be right but which in any event should be resolved at trial and not by interrogatories [24] ie insofar as it would be necessary to deduct any expenditures (which was denied), such deduction should be computed on a pro rata basis by reference to the percentage of relevant expenditures out of total fees earned by P1, but partners’ drawings, salaries, bonus, commission and MPF should not be included as deductible expenditures (see the Lee 3rd Aff - see paragraph 52 above) [25] ie Ps must deduct all expenditure including salaries, bonus and commission in order to arrive at the sum for average monthly net profit (which would be less than $127,617 or even as low as nil) [26] HCA2352/20212 (unreported, 4 January 2019) paras 65-66 [27] see Daimler AG at pp 134-135, Glory Sky Finance Ltd at paras 50-52 and Bruce James Stinson at para 66(b) [28] see The Incorporated Owners of Yue Sun Mansion v Lake Side Elderly Centre Ltd HCMP556/2017, Lam VP and Kwan JA (unreported, 25 October 2017) para 12, Noor Maritime Ltd v Calandra Shipping Co Ltd [2018] 2 HKLRD 328, 332 and Lee Sai Nam (No 2) at paras 73-78 [29] see Lee Sai Nam (No 2) at paras 120-122 [30] see Bruce James Stinson at para 67 [31] D’s allegation that there was delay of 4 months was incorrect because time should be counted from the deadline for performance (ie 7 March 2018) and not from the date of the Question 3(ii) Order (ie 24 January 2018) [32] see Jose Miranda da Costa Junior & anor v Lorenzo Yih, also known as Yu Chuan Yih & ors HCA156/2010, DHCJ Le Pichon (unreported, 22 August 2014) [33] see Top One International (China) Property Group Co Ltd at p 623 [34] see An Zhou & ors v Zhou Zheng Kuan & ors HCA241/2010, To J (unreported, 30 August 2012) and CACV193/2012 (unreported, 19 July 2013), Lai Sai Sang v UBS AG HCA97/2010, DHCJ Burrell (unreported, 3 April 2012), In re Jokai Tea Holdings Ltd at p 1203, Wing Fai Construction Co Ltd v Yip Kwong Robert (2011) 14 HKCFAR 935, 957, and Jose Miranda da Costa Junior & anor at para 76 [35] see Hytec Information Systems Ltd and Hong Kong Civil Procedure 2020 Vol 1 para 3/5/6 at pp 71-72 [36] see Top One International (China) Property Group Co Ltd at pp 618-619 and 625 |
Cases cited in this judgment