Plus Lucky Ltd v. Chin Yuk Lun Francis and Another

CACV 382/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 382 OF 2002

(ON APPEAL FROM HCA NO. 4645 OF 1998)

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Coram: Hon Woo JA, Yam J and Stone J in Court

Date of Hearing: 11 June 2003

Date of Judgment: 21 June 2003

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J U D G M E N T

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Hon Woo JA:

Introduction

1.This is an appeal brought by the respondent, Miss Josephine Ma So So ("JM") against the order of Deputy High Court Judge Woolley made in Chambers on 12 July 2002 that:

"the Respondent Ma So So, Josephine do pay the 1st and 2nd Defendants all solicitor-and-own-client costs for which they are liable to their solicitors as a result of these proceedings, such costs to be taxed, after giving credit for any sums recovered in these proceedings by the Defendants by way of party and party costs from the Plaintiff"; and

"there be order nisi that the Respondent, Ma So So, Josephine do pay the costs of this application to be taxed on the indemnity basis."

2.The order was made pursuant to an application by the defendants under Order 62 rule 8 of the Rules of the High Court, Cap. 4 and the inherent jurisdiction of the court.

Background

3.This matter arose out of a transaction of sale and purchase of a flat on the Redhill Peninsula. By a written sale and purchase agreement dated 4 October 1997, the defendants as vendors ("the vendors") agreed to sell and the plaintiff ("the purchaser") agreed to purchase the flat at the price of $15.1 million. Pursuant to the agreement, deposits totalling $2,265,000 were paid. The remaining balance of the purchase money, $12,835,000, was agreed to be paid upon completion. JM was the solicitor in Messrs Ng and Shum handling the transaction on behalf of the purchaser. The completion date and time was stipulated to be 20 March 1998 by 5 pm. On 16 March 1998, JM sent a letter to the vendors' solicitors requesting formal completion which was to take place at the offices of Messrs Poon & Cheung, solicitors acting for the vendors.

4.On 20 March 1998, at 4:23 pm, JM and the purchaser's representative, Mr Kwan, attended the offices of Messrs Poon & Cheung and at 4:47 pm they were joined by a Mr Tong of Wide Profit Finance Limited, the proposed mortgagee of the flat who had agreed to lend money to the purchaser to complete the transaction. Mr Tong was allegedly the person with the five cashier orders (as required by the vendors' solicitors) for the completion. He also had photocopies of the five cashier orders with him, a copy of which was time marked with the time marking machine of Messrs Poon & Cheung showing the time of 4:47 pm.

5.No completion took place by 5:15 pm on 20 March 1998 when JM declared that the time for completion had elapsed and she, Mr Kwan and Mr Tong left the offices of Messrs Poon & Cheung. By a letter dated 20 March 1998, which was faxed to Messrs Poon & Cheung at 12:20 am on 21 March 1998, Messrs Ng and Shum on behalf of the purchaser claimed that completion had failed because the vendors were in default and claimed the return of the deposit money and damages.

6.On 24 March 1998, the purchaser issued the writ in this action. The writ was registered on the same day as a lis pendens against the flat. On 21 April 1998, the purchaser filed its statement of claim. On 6 May 1998, the vendors filed their defence and counterclaim. On 19 May 1998, the purchaser filed its amended statement of claim. On 18 May 1998 and on 21 May 1998, the purchaser issued two time summonses for filing its reply and defence to counterclaim. On 28 May 1998, the purchaser changed its solicitors. Prior to 28 May 1998, it was Messrs Ng and Shum who were acting for the purchaser in this action. JM was the solicitor handling this action on behalf of the purchaser. She handled the pre-action correspondence and drafted the statement of claim and the amended statement of claim.

7.It is apparent from the pleadings that each of the parties to the transaction blamed the other for the failure to complete the transaction on 20 March 1998. The disputes revolved around what exactly happened between the legal representatives of the vendors and those for the vendors' mortgagee of the one part and JM, Mr Kwan and Mr Tong of the other part in the conference room of Messrs Poon & Cheung on 20 March 1998. The vendors alleged that it was the purchaser who failed to hand over the required cashier orders for checking and verification that caused the failure of completion. The purchaser alleged that it was the vendors who failed to hand over the executed assignment of the flat that caused such failure.

8.The action came up for trial before the judge who gave judgment in favour of the vendors on 10 August 2001. In his judgment, the judge found:

(a) there was overwhelming evidence that it was Mr Kwan and Mr Tong who managed and operated Wide Profit Finance Limited. The purchaser, Plus Lucky Limited, was a company with only one asset of questionable value and no income, and was clearly a vehicle for the investment in the flat.

(b) Formal completion of sale and purchase of a property in Hong Kong is an extremely unusual procedure, the more usual form being by way of solicitors' undertaking.

(c) By requiring formal completion four days before the stipulated time for completion, the vendors' solicitors had little more than the minimum time required by the Law Society to make preparations, and there was every chance that a situation would arise for something to go wrong.

(d) Had the transaction been completed, the purchaser would have suffered an immediate loss of at least $3,000,000 because of the dramatic drop in property prices between the date of the agreement and the date of completion.

(e) The cashier orders were never produced to the legal representatives of the vendors, and the only reason the completion did not proceed was that payment to the reasonable satisfaction of the vendors was not tendered by the purchaser in accordance with the agreement and proper conveyancing practice.

9.Relating to what had happened in the offices of Messrs Poon & Cheung on 20 March 1998, the judge said:

"24. ... the behaviour of the plaintiff's representatives, and, I regret to say their solicitor, bears all the hallmarks of an arrangement to delay and obfuscate the proceedings to engineer a situation where they can claim time has expired and they have no need to complete. I have already referred to the, in my view unnecessary, last minute arrangements for the cashier orders, so that they appeared only 13 minutes before the time limit. In addition to this the prolonged questioning of the bank's release, which while possibly not irrelevant, were excessive and repetitive, and appear designed to delay, and I would add to that the possibly contrived argument between Miss Ma and Mr Tong. The totally unnecessary demand for the presence of the defendants after being told that the assignment had been executed is a further example. While a party to a completion may request the other party to be present upon notice, it is not normally necessary, and Miss Ma herself admits in her witness statement that she did not insist they were there to execute the assignment in the conference room.

25. In short I find that the defendants' solicitors were ready to complete and presented the necessary documents for that purpose, and had they been given an opportunity to inspect the cashier orders, there would have been no obstacle to it. I also find that the original cashier orders were not produced for inspection, but that photocopies were made available only, and the only question now is whether that was sufficient."

10.The judge gave judgment for the vendors in the sum of $4,345,855.42, for the diminution of the price upon a resale and the wasted expenses. He also ordered the vendors' costs of the action be taxed and paid by the purchaser.

11.Against this judgment of 10 August 2001, the purchaser appealed. The appeal, which was CACV 2167/2001, was dismissed by the Court of Appeal comprising Mayo VP, Cheung JA and Sakhrani J on 11 March 2002. The purchaser's main argument was summarised in the joint judgment of Mayo VP and Sakhrani J, as follows:

"26. Sir John Swaine who represented the plaintiff [purchaser] informed the court that he was not seeking to reverse any findings of fact which had been made by the Judge. What he was seeking to do was to demonstrate that upon the findings of the Judge the appeal should be allowed.

27. Sir John placed heavy reliance upon the case of Edward Wong Finance Co. Ltd. v Johnson, Stokes & Master (1984) 1 AC 296 in support of the proposition that there must be mutuality on a completion. Put another way it was not open to a party to demand that the other party should perform its obligations under the contract before doing so itself."

12.Mayo VP and Sakhrani J held that:

"53. ... there is more to a completion than simply the exchange money for the title deeds. Completion includes the earlier process of examining documentation."

13.On the other hand, Cheung JA held that:

"62. ... until such time as the vendors have checked the money, there is no payment by the purchaser."

14.Mayo VP and Sakhrani J further stated:

"56. When addressing us Sir John expressed the opinion that the Judge had been unfair in criticizing Ms Ma's conduct. This was a serious matter for a young solicitor.

57. With respect we disagree. We share the view of the Judge that Ms Ma's conduct was deplorable. There was ample evidence for the Judge's findings. She is an officer of the court. It was highly reprehensible for her to lend herself to a scheme to attempt to defeat the rightful claims of the defendants. Had she not conducted herself in the way she did this litigation might well have been avoided." (Emphasis added)

15.Cheung JA said:

"65. What was most disturbing about this case is that the purchaser's solicitor, even at this late stage, insisted in producing the photocopy of the cashier orders. Clearly as the clock was ticking away, she should have produced the original cashier orders to the vendors' solicitor for checking if the intention was to complete the transaction. This was not done. The finding by the judge is that the original cashier orders were never produced.

66. This was the position up to the time when the purchaser's solicitor called off the completion at 5.15 pm and left on the ground that the vendors had failed to complete. She was wrong. By not producing the original cashier orders, the purchaser was not in a position to show that it was ready and willing to complete the transaction. The purchaser was in breach."

16.By a summons dated 1 November 2001, pursuant to Order 62, rule 8 of the RHC, the vendors applied for an order that:

"(i) unless sufficient cause to the contrary be shown to the Court as to why such costs order should not be made against her personally, Miss Ma So So Josephine do pay the costs of the Defendants incurred in these proceedings on a solicitor-and-owned client basis up to and including the trial of this action, such costs be taxed if not agreed.

(ii) the costs of and occasioned by this application be to the 1st and 2nd Defendants."

17.The hearing of the summons was adjourned until after the disposal of the appeal in CACV 2167/2001. After that appeal was concluded the hearing of summons resumed and the judge made the order, the subject of the instant appeal.

Grounds of appeal

18.In the supplementary notice of appeal, JM raises no less than 17 grounds of appeal. Mr Kenneth Kwok SC, for JM, has very helpfully grouped the grounds under various headings. The two major grounds relate to jurisdiction and causation.

Jurisdiction and causation

19.Under grounds 1, 10 and 11, it is contended that the judge had no jurisdiction or exceeded his jurisdiction to make the order. Order 62, rule 8(1) of the RHC provides:

"(1) Subject to the following provisions of this rule, where in any proceedings costs are incurred improperly or without reasonable cause or are wasted by undue delay or by any other misconduct or default, the Court may make against any solicitor whom it considers to be responsible whether personally or through a servant or agent an order-

(a) disallowing the costs as between the solicitor and his client; and

(b) directing the solicitor to repay to his client costs which the client has been ordered to pay to other parties to the proceedings; or

(c) directing the solicitor personally to indemnify such other parties against costs payable by them."

20.Mr Kwok refers us to AIE Company Ltd v Kay Kam Yu [1997] HKLRD 161, the head-note of which that correctly summarises the relevant facts reads:

"P, the purchaser, obtained an order for specific performance against D, the vendor. D's appeal against the order was dismissed. In dismissing the appeal, the court expressed the provisional view that D's solicitor, who acted for him on the real estate transaction, but not the present litigation, was exclusively responsible for D's situation. He was accordingly invited to show cause why no order for costs should be made against him. The solicitor questioned the court's jurisdiction to make such an order."

21.The situation created by D's solicitor was that he failed to answer a requisition raised by the purchaser to discharge before completion the outstanding management and service charges which were registered by a memorandum as a charge against the property, or to undertake to sign a memorandum of satisfaction of the charges. Both Bokhary JA (as he then was) and Godfrey JA held that the court had no jurisdiction to order costs against D's solicitor whether under the inherent jurisdiction of the court or under Order 62, rule 8 of the RHC. Godfrey JA, at pp 163I-164C stated:

"In England and Wales, this jurisdiction is regulated by O.62 r.11 (formerly O.62 r.8) of the relevant Rules of the Supreme Court (See Bahai v Rashidian [1985] 1 WLR 1337, per Balcombe LJ at p.1345 G-H).

The position is the same here: see Ho Lee Man v Wong Wai Kai (No. 2) [1993] 1 HKC 193, especially per Litton JA at p. 195G. But in our case the conduct of the solicitor which was criticized in this court was not misconduct in the course of the proceedings fought out between the vendor and the purchaser in the High Court and this court. The solicitor had acted for the vendor in the conveyancing transaction which gave rise to the dispute between the parties; but he did not act as the vendor's solicitors in the litigation to which it gave rise. The misconduct (if any) of the solicitor here was misconduct in the course of the conveyancing transaction, leading perhaps to civil proceedings for compensation against him at the suit of the vendor (or even the purchaser); but it was not misconduct 'in the course of a cause' (cp. Stephens v Hill (1842) 10 M&W 28) and accordingly not misconduct in his capacity as an officer of the court (see Brendon v Spiro [1938] 1 KB 176). It is not enough that a solicitor's general conduct for a client has been improper; in every case where a solicitor has been made to pay costs, he has been proved guilty of misconduct 'in the matter itself' (emphasis added); see In re Gregg (1869) LR 9 Eq. 137 per Lord Romilly MR at p. 141. And there is, so far as I am aware, no modern case to the contrary effect: all the cases in which solicitors have been ordered to pay costs personally have been cases in which they were acting as solicitors in the litigation in which the costs were incurred.

Conclusion

I conclude that this court has no jurisdiction to order the solicitor to pay the costs of what I described in my judgment on the appeal as 'all this ruinous litigation.' ..."

22.Bokhary JA at 165I-J had this to say:

"... The particular jurisdiction regulated by O.62 r.8 is, in short, a 'wasted costs' jurisdiction exercisable summarily (albeit of course on due notice and with a proper opportunity to be heard) over solicitors in proceedings in which they function as solicitors but unfortunately misconduct themselves or put themselves in default of their duty as officers of the court. Messrs J. Fang & Co were not engaged as solicitors in these proceedings. The summary jurisdiction which I have just described does not, therefore, extend to them. ..."

23.Mr Kwok has also referred us to Myers v Elman [1940] AC 282, per Lord Wright at 318, Stephens v Hill, Brendon v Spiro and In re Gregg to emphasise the point that the jurisdiction of the court to make an order of the costs against a solicitor relates to his misconduct or default in the course of the case tried before the court. In his submissions, Mr Kwok lumps the issues of jurisdiction and causation together. He refers to the wording of Order 62, rule 8 and the rulings in the above authorities to submit that there must have been "wasted costs" incurred by the "misconduct" of the solicitor responsible in the course of the proceedings for the summary jurisdiction to be exercised by the court. He contends that as there was no misconduct of JM as identified by the judge in the course of this action, in which JM only acted for the purchaser during the period between 24 March 1998 (the day when the writ of summons was issued) and 28 May 1998 (when she ceased to act as the purchaser's solicitor), the judge had no jurisdiction to make the order under appeal against her. He also argues that the judge erred in failing to attribute JM's misconduct, even if identified, to any wasted costs (ground 14). He stresses that (as raised in ground 12) the judge erred in considering JM's conduct prior to the commencement of the action.

24.In his judgment dated 12 July 2002, the judge accepted that Order 62, rule 8 only applies to costs being improperly incurred or wasted by misconduct or default in the proceedings in which the solicitor is acting. But he was satisfied that JM's conduct was in relation to this action and was in the course of this action. He said:

"3. ... Following the failed completion, Miss Ma then commenced these proceedings on behalf of the plaintiff. She must have known that it was her client that was in breach of the agreement, and that she would be a witness at the trial, and that there was a strong possibility that her client would be found to be in breach."

"5. ... Looked at in isolation, without proceedings having been commenced, any allegation of misconduct of a solicitor is a matter solely between her and her client and the Law Society. However, once proceedings are commenced, the solicitor as an officer of the court owes a duty not only to the client but to the court, which has a duty and a right to supervise that solicitor's conduct, and in doing so may, in my view, consider conduct leading up to those proceedings, particularly conduct which the solicitor knew would make it a hopeless case if the truth became known. These proceedings were commenced on 24 March 1998 by Miss Ma for the plaintiff, and she continued to act as their solicitor until 28 May 1998 when conduct of the proceedings was passed to another firm.

6. The first question then is whether Miss Ma has been guilty of conduct in the litigation justifying an order for costs. For this it is necessary to return to the events giving rise to it, and seeing whether there was any justification for the proceedings. There is no suggestion here from Miss Ma, no evidence having been filed, that the proceedings were commenced and continued against her advice, and, as the plaintiff's solicitor, I have to assume that some advice was given. She accordingly commenced proceedings which she knew may well fail, and in which she was to give evidence, and continued to act for some two months. The action was then taken over by the plaintiff's present solicitors together, no doubt, with the notes and evidence upon which the plaintiff intended to rely, including the evidence of Miss Ma. Not having been privy to the events giving rise to the proceedings, these solicitors can hardly be criticized for continuing the action to trial. However, had they been told by Miss Ma the truth of what had transpired in March 1998, I have no doubt that their advice to the plaintiff would have been very different, and this litigation would have had a much shorter lifespan.

7. In commencing these proceedings, in the knowledge of what had gone before, I have no difficulty in finding that Miss Ma was guilty of conduct justifying an order for costs against her. Not only has court time been taken up with an unmeritorious claim, but the defendants, who are private individuals, have been put to considerable expense as well as trouble and, no doubt, mental anguish. This is not a case of a solicitor acting for a party whose case did not appear to be very strong, or merely making an error of judgement. It is a situation where, in my view, her conduct amounted to serious dereliction of duty."

25.I entirely agree. As JM was acting as solicitor for the purchaser between 24 March 1998 and 28 May 1998, her conduct that was criticised was, at least, partly conduct in the course of the action. She was the solicitor commencing the action for the purchaser and conducted the action for over two months. This gives rise to the court having jurisdiction over her conduct in the action under Order 62, rule 8 of the RHC. In Davy-Chiesman v Davy-Chiesman [1984] Fam 48, Dillon LJ said at pp 66H-67B:

"... certain points are in my judgment clear beyond possibility of serious argument, viz: ...(iii) Unreasonably to initiate or continue an action when it has no or substantially no chance of success may constitute conduct attracting an exercise of the above jurisdiction."

26.Davy-Chiesman v Davy-Chiesman was referred to in the judgment of Litton JA (as he then was) in Ho Lee Man v Wong Wai Kai (No 2) [1993] 1 HKC 193, at 196F. I have no doubt that as JM commenced the action on behalf of the purchase, bringing forward a contrived case as the basis for a claim against the vendors, the court has jurisdiction over her conduct in the proceedings.

27.Once there is jurisdiction, whether it was proper for the judge to take into account her conduct leading up to the litigation relates to the question of relevance, not jurisdiction. I consider that the judge was correct to take into account her conduct on 20 March 1998 that was the basis for the purchaser to claim that the failure to complete was caused by the vendors and to raise its claim in this action against them. As the solicitor for the purchaser, JM on its behalf took out the writ and drafted the statement of claim and the amended statement of claim. She also caused the lis pendens to be registered on the same day when the writ was issued. She had taken part in engineering the situation to frustrate the completion and in the making of a contrived case that it was the vendors' fault that caused the failure to complete. She followed this created situation to issue the writ for the purchaser to claim for the return of deposit and damages, based on the contrived case. When she stopped acting for the purchaser in the action, she passed the file note to the new solicitors confirming the contrived case, and in cross-examination she told the judge that:

"However, after the file has been passed to another solicitor's firm, they've asked me to make a more comprehensive note to them very soon after they've got the file but that's not in here."

Later, when the action was approaching trial, she provided a witness statement dated 18 August 2000 to the purchaser confirming the contrived case. The misconduct of JM in the course of the action was, as the judge held, that knowing the contrived case, she presented it in the amended statement of claim that she drafted. I would add this: knowing that she would be a key witness at the trial, she confirmed the contrived case in her witness statement and testified to it before the judge. In her witness statement, she stated that she made the statement at the request of the purchaser. One can readily infer that she was willing and prepared to be a witness for the purchaser. She gave evidence before the judge in the capacity of solicitor acting for the purchaser in the transaction. Had she not taken any of those steps, either this action would not have started or this action would have had a much shorter lifespan.

28.Mr Kwok argues that the purchaser knew the events on 20 March 1998 as well as JM, and it would take out the action regardless of whether JM participated as solicitor acting for it to commence the action and carry it on for two months before she ceased to act. Therefore, Mr Kwok argues, the commencement of the action, no matter how hopeless it might have been, was caused by the purchaser's insistence and maintenance of its case, whether JM was involved in taking out the writ or not. So, the argument continues, JM did not cause the action to be commenced and did not cause the wasted costs. I do not agree. Had she not commenced the action for the purchaser, drafted the statement of claim and the amended statement of claim and been agreeable to become a witness to a doomed cause, the action might not have been taken by the purchaser or the action would most probably be short-lived. The purchaser's new solicitors (and counsel), if JM had revealed the true facts to them or refused to be a witness to the events on 20 March 1998, would have little doubt to advise the purchaser that it would be running a hopeless case, at least on facts, against the vendors.

29.The grounds of appeal challenging jurisdiction as well as causation have no merit.

No evidence to support findings

30.Grounds 2 and 8 complain that the judge took into account irrelevant matters, and grounds 3 and 4 contend that there was no evidence to support some of the judge's findings.

31.The alleged irrelevant matter was the conduct of JM on 20 March 1998 that is contended as only leading up to this action but not conduct in the course of this action. I have dealt with this point above and considered that it has no merit. The other matter which is said to be irrelevant was that the judge found the ability of the purchaser to pay any costs questionable. In my judgment, this is obviously a relevant matter for the judge to take into account in making the order for costs against JM. I shall return to this later.

32.The findings that it is now contended not being supported by evidence are that:

(a) JM knew by 28 May 1998 that a trial would be inevitable and that she would be a witness.

(b) There was no evidence that any costs were wasted by JM commencing a hopeless case for the purchaser.

33.In my judgment these findings were soundly based on the most likely inferences to be drawn from the facts. As solicitors handling the completion for the purchaser, playing a key role in the events between 4:23 pm and 5:15 pm on 20 March 1998, taking out the action against the vendors for the purchaser, and providing her file note to the purchaser's new solicitors followed with a more comprehensive note, both confirming the contrived case, JM must, as the judge had found, have known that she was presenting a contrived case for the purchaser and she would be required as a witness to give evidence on the contrived case. In my judgment, the judge was correct to find that costs of the action were wasted by JM's misconduct in commencing a hopeless case for the purchaser.

34.Ground 5 complains of inconsistent or contradictory findings made by the judge. The finding of the judge was that had the purchaser's new solicitors been told by JM of the truth of what had transpired in March 1998, the litigation would have had a much shorter lifespan. This is contended to be contradictory to the judge's finding that JM was a party to an arrangement to try to abort the completion to enable the purchaser to avoid a transaction which had become financially undesirable. I cannot see how these two findings are contradictory. Perhaps, the strange logic sought to be applied appears to be that since JM was a party to the arrangements for aborting the completion to enable the purchaser to get out of a financially undesirable transaction, it is contradictory to any willingness on the part of JM and the purchaser to reveal the truth to the new solicitors. I consider that there is nothing contradictory, but rather both courses of conduct are most consistent. JM and the purchaser contrived a situation to frustrate the completion so as to enable them to assert that it was the vendors' failure to produce the assignment that aborted the completion. Their subsequent conduct in telling and confirming to the new solicitors the contrived case was a natural consequence or else they would have defeated their own purpose: there was no contradiction.

35.Had JM stopped short of commencing the action for the purchaser, she might have been able to hide behind the principle in AIE Company Ltd v Kay Kam Yu to assert that the court has no jurisdiction under Order 62, rule 8 over her pre-action conduct. But she did commence the action. In my judgment, when she did so, the court is not precluded from examining the whole course of her conduct insofar as it is relevant. Her role in the completion process on 20 March 1998 which preceded the action and her conduct after she had ceased to act in the action, namely, providing the file note and a comprehensive note to the new solicitors, providing the witness statement and becoming a witness, are all relevant to show her conduct and her knowledge in commencing a hopeless case and in assisting the purchaser to proceed with it. The court is entitled to act under the summary jurisdiction provided by Order 62, rule 8 upon all these pre-action and post-cessation conduct.

36.Ground 9 of the grounds of appeal contends that the order for costs against JM on an indemnity basis was inconsistent with the judge's finding that JM was a party to an arrangement with the purchaser to try to abort the completion but the judge had only ordered costs against the purchaser on a party-and-party basis. In my judgment, there is nothing inconsistent about this. The normal order for costs against a party to litigation is on a party-and-party basis, whereas when a court is supervising the conduct of a solicitor as an officer of the court, the costs order against him may have a punitive element (see Myers v Elman [1940] AC 282, at 304 per Lord Atkin and at 319 per Lord Wright). I consider that ordering costs on an indemnity basis against JM is proper, which cannot fairly be compared with the order for costs against the purchaser as a party to litigation.

Other challenges on evidence

37.The remaining grounds of appeal challenge the judgment in various aspects relating to the evidence before the judge. Ground 6 contends that the judge erred on the burden of proof, ground 7 complains that the judge failed to give JM any allowance on account of legal professional privilege, and grounds 15 and 16 allege that the judge erred in regarding JM as being bound by his findings of fact in the action despite the fact that JM was not a party in those proceedings and had ceased to act for the purchaser since 28 May 1998. Ground 13 contends that there was no evidence that JM knew the action might well fail.

38.The order for costs against JM was made by the judge upon the application of the vendors pursuant to Order 62, rule 8 of the RHC. At the hearing of the summons, which sought an order of costs against JM "unless sufficient cause to the contrary be shown to the court", JM was represented by counsel. As was mentioned in the judge's judgment, she chose neither to present herself at the hearing nor file any evidence in opposition. It is true that JM was not a party to the action and the findings of fact by the judge in the action itself prior to the summons cannot give rise to an issue estoppel against JM. However, together with the summons, the vendors had served a list of particulars in support of their application which set out the basis on which their application was made and such particulars were based on the findings of fact made by the judge. Ample opportunity was given by the judge to JM to answer the particulars raised by the vendors, and doubtless, JM and her legal representatives including counsel must have familiarised themselves with the judgment of the judge dated 10 October 2001 and the judgment of the Court of Appeal dated 11 March 2002 in CACV 2167/2001. She knew that the judge made findings criticising her, and two of the judges in the Court of Appeal stated that there was ample evidence for those findings (see para 14 above) and commented that her conduct was deplorable. She had chosen to file no evidence and offer no explanation as to her conduct that was complained of and failed to present herself before the judge to testify or explain.

39.In Ridehalgh v Horsefield [1994] Ch 205 at 239B, Sir Thomas Bingham MR, giving the judgment of the Court of Appeal, said:

"'Show cause'

Although Ord. 62, r. 11(4) [similar to our Order 62, rule 8(2)] in its present form requires that in the ordinary way the court should not make a wasted costs order without giving the legal representative 'a reasonable opportunity to appear and show cause why an order should not be made,' this should not be understood to mean that the burden is on the legal representative to exculpate himself. A wasted costs order should not be made unless the applicant satisfies the court, or the court itself is satisfied, that an order should be made. The representative is not obliged to prove that it should not. But the rule clearly envisages that the representative will not be called on to reply unless an apparently strong prima facie case has been made against him and the language of the rule recognises a shift in the evidential burden."

40.In view of both of the judgments of the judge dated 10 October 2001 and of the Court of Appeal dated 11 March 2002, it is obvious to any reader of the findings and comments in them as to what had happened on 20 March 1998 that there was at least a strong prima facie case of misconduct against JM, and in the circumstances, it was most proper, and that was exactly what the vendors' summons sought, for the court to request JM to show cause why an order for costs should not be made against her. Throughout the judge's judgment of 12 July 2002, there was no indication that he had reversed the burden of proof. He merely revisited his findings in his judgment of 10 October 2001 and the judgment of the Court of Appeal in CACV 2167/2001 in his consideration of the summons. JM chose not to tender any evidence nor present herself, save to appear by counsel. This cannot be said to be the judge reversing the burden of proof. It was rather that JM elected not to take up the reasonable opportunity to tender evidence to challenge the findings or offer any explanation. That was a choice made by her, and it now lies ill in her mouth, not challenging the findings, to attack the judge's reliance on them.

41.Mr Kwok submits that a solicitor is under no duty to prove his innocence or exculpate himself just because a party in the proceedings has issued a summons against him under Order 62, rule 8. This may be correct as a statement of law, but it does not apply to the circumstances of the present case. A very strong case of misconduct supported by ample evidence was found by the judge against JM. A reasonable opportunity was given to her pursuant to Order 62, rule 8(2) of the RHC to show cause why no order for costs should be made against her. In the absence of any evidence or explanation given by JM, it would be unrealistic to expect the court not to act on such a strong case. Any way, JM was only condemned after a reasonable opportunity to be heard had been given to her.

42.Mr Kwok also relies on the difficulty that JM would be faced in view of the legal professional privilege that could not be waived by her but could only be waived by the purchaser, her client. If this argument has any substance, it must be premised on the fact that it was against her advice that the purchaser commenced the action against the vendors. This, if I may say so, is a non-starter, as there was no evidence adduced by JM or from any other source that she had given an advice not to commence the action, let alone that the action was nevertheless commenced and proceeded with against her advice. This matter cannot be assumed unless some evidence was adduced in support. Indeed, such an advice would be contrary to her providing a witness statement to the purchaser and testifying to the contrived case before the judge. Nor was the ground of professional privilege whereby JM's position was hampered ever mentioned to the judge. Mr Pirie, for the vendors before the judge and us, confirms that not a word relating to legal professional privilege was uttered to the judge. Had it been mentioned, the judge would no doubt have acted in accordance with what had fallen from Sir John Donaldson MR in Orchard v South Eastern Electricity Board [1987] 1 QB 565, at 572G,

"Justice requires that the solicitor shall have full opportunity of rebutting the complaint, but circumstances can arise in which he is hampered by his duty of confidentiality to his client, from which he can only be released by his client or by overriding authority, ... In such circumstances, justice requires that the solicitor be given the benefit of any doubt."

43.In my view, this argument of Mr Kwok grounded on privilege is advanced for argument's sake, does not have any support on fact, and has no merit whatever in advancing the appeal.

The amount and classes of costs

44.The judge had found that the purchaser's ability to pay the vendors' costs of the action and of the appeal questionable. Mr Kwok argues that JM owed the vendors no duty to secure their position on costs. This is correct. But the questionable ability of the purchaser to pay the vendors' costs was a relevant factor for the judge's framing of his costs order against JM: the order was to reduce the amount of costs payable by JM to the vendors by what could be recovered from the purchaser. As it turns out, a winding-up order was made against the purchaser on 13 January 2003. This fact was not known to the judge. Mr Pirie suggests that in order to avoid the vendors having double recovery and because any payment from the liquidators towards the costs may take time, it would be best if the solicitors for the vendors undertake, and they do undertake to this court, to pay to JM such money as and when they receive the same from the liquidators. I agree to the suggestion. It would have the effect similar to the order for costs against JM made by the judge, that the costs to be paid by JM "to be taxed, after giving credit for any sums recovered in these proceedings by the [vendors] by way of party-and-party costs from the [purchaser]", but it is a more practical approach in view of the liquidation.

45.Mr Kwok submits that two classes of costs should not be borne by JM, namely, the costs of the appeal in CACV 2167/2001 from the judge's judgment of 10 October 2001 and the costs of the interlocutory proceedings in the action that the vendors had been ordered to bear or to pay to the purchaser.

46.Regarding the costs of the appeal in CACV 2167/2001, Mr Pirie readily agrees that the judge's order does not include such costs. I consider that this agreement is correct, briefly for two reasons. First, the main ground of that appeal, as referred to in para 11 above, was based on an argument without challenging the findings of fact made by the judge. To say that the costs of that appeal incurred by the vendors to oppose the appeal was caused by JM's misconduct would be too far-fetched. That appeal was too remote as being caused by JM's misconduct. Secondly, it is quite clear that the costs of that appeal are costs outside the ambit of the order made by the judge, as properly understood. The costs that are expressly within the ambit of the order which was made in the action itself, neither in nor including that appeal, are the costs of the vendors on a solicitor-and-own-client basis

"for which they are liable to their solicitors as a result of these proceedings".

Moreover, the summons dated 1 November 2001 taken out by the vendors was a summons under the present action and it sought an order for costs against JM on a solicitor-and-own-client basis "up to and including the trial of this action". It is therefore clear that the costs sought against JM do not relate to the costs of CACV 2167/2001.

47.I think it is correct to say that the misconduct of JM could only be related to costs of the action insofar as the costs were incurred for the reasonable defence of the action by the vendors, but it cannot reasonably be assumed that her misconduct had given rise to or caused the steps taken by the vendors that were held to fail and for which the vendors were ordered to bear the costs or pay the costs related thereto to the purchaser ("failed costs"). Such failed costs therefore should not be borne by JM. I consider that the judge's order should be varied to reflect this. Such failed costs include the costs that the vendors were ordered to bear themselves, the costs that they were ordered to pay to the purchaser, and the costs that they had incurred (solicitors' and counsel's) for those steps taken in the course of the proceedings of the action resulting in the failed costs orders. All these should be excepted from the order of the judge.

Conclusion

48.For the reasons given above, subject to the suggestion of Mr Pirie as to how to deal with the costs that may be received from the liquidators of the purchaser, and on the strength of the undertaking given by Mr Pirie on behalf of the vendors' present solicitors, Messrs Lo and Lo, expressed above, and subject to the variation of the judge's order referred to in the preceding paragraph, the appeal must be dismissed. In view of the very limited success on the part of JM in this appeal resulting in the variation of the judge's order, I consider that the appropriate order for costs is that JM do have one-quarter of the costs of the appeal and the vendors do have three-quarters of the costs of the appeal, on a party and party basis.

49.In view of the deplorable conduct of JM as found by the judge, I consider this an appropriate case to be referred to the Law Society.

Yam J:

50.I agree entirely with the judgment delivered by Woo JA. I would just like to reiterate one point concerning the causation of all costs incurred by the vendors. In particular, can it be said that the respondent solicitor Miss Ma should be responsible for improperly wasting the costs as claimed by the vendors and not just for the 2 months when she was acting for the purchaser? I consider the vendors can say so for the following reasons.

51.In the first place, even Mr Kwok for the solicitor agreed with the proposition advanced by the amicus in Davy-Chiesman v. Davy-Chiesma, op.cit. that :

".... Unreasonably to initiate or continue an action when it has no or substantially no chance of success may constitute conduct attracting an exercise of the [Order 62, rule 8] jurisdiction." (emphasis added)

Thus, for a solicitor who is not even involved in aborting the completion of the conveyancing, he would be responsible if he unreasonably initiated an action which he knew at the outset had no or substantially no chance of success. A fortiori, Miss Ma should be more responsible as the person responsible for the abortion because she would certainly have known herself that the action had no chance of success.

52.The aforesaid contention could be tested in another scenario. Suppose Miss Ma was not the solicitor who initiated this action for and on behalf of the purchaser for the recovery of the deposit, and instead she instructed another solicitor to do so. But that solicitor was informed of her actual conduct, as found by the trial judge below, that she was actually the main instigator or, at least, a co-conspirator with the purchaser in aborting the completion. The other solicitor would have come within the proposition in Davy-Chiesman as a solicitor who had unreasonably initiated an action when he knew it had no or substantially no chance of success. No doubt, he would be responsible.

53.Alternatively, if Miss Ma instructed another solicitor to initiate this action but remained as an undisclosed principal in the conduct of the proceedings, she would also be responsible.

54.Thus the emphasis is on the initiation, and any solicitor, being an officer of the court, should not assist in initiating an action with no chance of success deliberately (not just negligently as pointed out by Litton JA (as he then was) in Ho Lee Man v. Wong Wai Kai (No.2) (supra)). This would be the case even if that solicitor immediately ceased to act for the purchaser after the initiation of the unreasonable action.

55.The conduct of continuing an action is just another conduct which will attract the court to exercise its jurisdiction under Order 62, rule 8 against that solicitor. Thus it is not the conduct of initiation and continuation but any conduct of initiation or continuation of action would attract such an order of personal liability of a solicitor.

56.A fortiori in this case, Miss Ma was the instigator or co-conspirator in the breach of the sale and purchase agreement or otherwise in aborting the completion deliberately for and on behalf of or in conjunction with the two directors of the purchaser company. She should be more responsible once she had initiated this action for and on behalf of the purchaser, albeit she had just continued the action for two months. By that time, she must have realized that she could not continue to act as solicitor for the purchaser since she would be a main witness for her litigant client.

57.Of course, it will be different if Miss Ma instructed another firm of solicitors to act for and on behalf of the purchaser in the initiation of the action and at the same time instructed that firm of solicitors according to the evidence she had given in court before the learned trial judge below. That firm of solicitors could not be said to have known that the action had no or no substantial chance of success. Miss Ma herself would not be liable either under Order 62, rule 8 as she would not be the solicitor acting for the purchaser in the action either. The question of whether the vendors can sue Miss Ma for conspiracy or otherwise is another matter which is not appropriate for this court to comment here.

58.For the same reason, I agree with the orders made by Woo JA.

Stone J:

59.I have the misfortune to disagree, in substantial part at least, with the views of Woo JA and Yam J.

60.My disagreement stems not from a difference of opinion as to the apparent conduct of Miss Ma in this case which in my opinion should be brought to the attention of the Law Society, if such has not already occurred but from my view of the ambit to be attached to the provisions of Order 62, rule 8.

61.Order 62, rule 8 clearly is most appropriately invoked in terms of a remedy for wasted or improperly incurred costs arising from blatant procedural impropriety. A classic instance of the exercise of this jurisdiction arises, for example, in Ho Lee Man v. Wong Wai Kai (No 2) [1993] 1 HKC 193, in which the Court of Appeal ordered the appellant's solicitors to be personally liable for all the appeal costs in circumstances wherein there was such ignorance and incompetence in the prosecution of the appeal that it amounted to gross dereliction of duty by the solicitors involved.

62.This rule, however, sits less happily in a situation in which, as here, the costs order as made against the solicitor owes as much to misconduct of the solicitor in the transaction giving rise to the litigation as to misconduct by the solicitor within the ensuing proceedings; as the learned judge below expressed the position. "In commencing these proceedings in the knowledge of what had gone before, I have no difficulty in finding that Miss Ma was guilty of conduct justifying an order of costs against her."

63.This in fact formed the starting point for Mr Kwok SC, counsel for the appellant, whom at the outset of his careful argument took what he termed a 'jurisdiction point' and sought to drive a wedge between all that had occurred prior to the issuance of the writ in these proceedings, and that which had occurred thereafter within the proceedings themselves. There was a danger, he said, in the elision of the one into the other, and thus the only relevant conduct to be taken into account in the exercise of this jurisdiction was the conduct of the solicitor in the action itself, which latter element comprised matters of which the court had immediate cognizance and thus, in appropriate circumstances, was in a position immediately to exercise what is a punitive and summary costs jurisdiction.

64.I do not think that the matter can be quite so neatly delineated, although I accept that jurisdiction is not established under the rule unless the solicitor in question acts qua solicitor in the relevant proceedings. As Woo JA has pointed out, had Miss Ma not acted as a solicitor in these proceedings at all she could have availed herself of the principle underpinning the Court of Appeal decision in AIE Company Ltd v. Kay Kam Yu [1997] HKLRD 161, wherein the court took the view that the summary jurisdiction of Order 62, rule 8 was not exercisable because the solicitor in question was not engaged as solicitor in those proceedings and, further and by a majority, that the general jurisdiction under section 52A(1) of the Supreme Court Ordinance did not assist because the solicitor was not a party to the proceedings.

65.This is not the situation in the present case, of course, given that Miss Ma had been the solicitor responsible for commencing the proceedings for recovery of the plaintiff purchaser's deposit, and in fact had continued to act as the plaintiff's solicitor for a period of some two months before handing conduct of the case to another firm.

66.So in this instance Mr Kwok must wrong in terms of what may be termed his primary jurisdiction argument. In this instance jurisdiction existed to invoke Order 62, rule 8. Miss Ma did act in these proceedings, and had not, for example, been content merely to be a witness in her client's cause. Had she thus limited her participation I would accept that in so doing she would not have been acting qua solicitor, and thus would not have been caught by the rule.

67.At bottom it seems to me that Mr Kwok's real argument was one of causation. He took no issue with the proposition which was drawn to his attention, and which was advanced by the amicus in Davy-Chiesman v. Davy-Chiesman [1984] Fam 48, per Dillon LJ at 67B, to the effect that "Unreasonably to initiate or continue an action when it has no or substantially no chance of success may constitute conduct attracting the exercise of [the Order 62, rule 8] jurisdiction". This approach also found favour with the appellate court in Ho Lee Man, op cit, wherein it was held that the initiation or continuance of an action absent any chance, or substantial chance, of success might constitute such serious misconduct as to attract application of the rule.

68.However, Mr Kwok maintained that even if it be assumed that his client had so acted (and he made it clear that he did not accept that Miss Ma, who had not been a party to the vendor and purchaser proceedings, was bound by the findings of the learned Deputy Judge in the trial below), nevertheless the vendors, as applicants for the costs indemnity, had not discharged the burden upon them of establishing that his client had been responsible for improperly incurring or wasting the costs such as now were claimed.

69.In this regard Mr Kwok's recurrent thesis was that, whatever his client had or had not done, it was the purchaser plaintiff, Plus Lucky Ltd, that clearly had demonstrated its desire to commence and thereafter to continue to prosecute these proceedings, even choosing to go to the lengths of mounting an unsuccessful appeal against the adverse judgment in the vendor and purchaser action. As such, therefore, said Mr Kwok, it was Plus Lucky which had been the entity driving those proceedings and which had been responsible for causing such costs as were now said by the vendors to have been "wasted" or "incurred improperly without reasonable cause."

70.This is not an immediately attractive submission, involving as it does the insertion of another wedge, in this instance between Miss Ma and her erstwhile client, with the consequent abrogation of any costs responsibility to be laid at the solicitor's door, notwithstanding the clear view of the learned Deputy Judge that Miss Ma's conduct had amounted to "a serious dereliction of duty".

71.For my part I do not consider that this submission can succeed in terms of the two-month period in which Miss Ma in fact did act for Plus Lucky Ltd. On its face there appears to have been involvement on the part of the solicitor in her client's bid to avoid completion in a fast-declining property market, and thereafter the situation was exacerbated by the attempt to recoup the deposit through the initiation of what has been found to be an unmeritorious action. Accordingly, I reject the suggestion that Miss Ma is to bear no responsibility for the costs incurred in proceedings commenced and overseen by her during her short period of involvement as the plaintiff's solicitor of record.

72.However, where I disagree with the learned Deputy Judge below, and reluctantly also take a different view to that of the majority in this appeal, is that I am unable to accede to the stark proposition that, having ceased to be the solicitor for the plaintiff purchaser in the vendor and purchaser proceedings, Miss Ma nevertheless is to be charged with the provision of an indemnity against all the vendors' solicitor and own client costs in that action, which is that which has been ordered below (indeed in this appeal Mr Pirie went so far as to suggest that such indemnity also should encompass costs awarded against his clients upon unsuccessful interlocutory applications).

73.I do not consider that such a 'global' approach is warranted. I do not consider that Order 62, rule 8 envisages or permits costs to be thus extrapolated against a solicitor who no longer is a solicitor in the proceedings at the time of expenditure of the vast bulk of the costs as now are sought to be recovered, nor do I consider in this case that the defendant vendors, the applicants for these costs, have discharged the burden placed upon them of establishing the responsibility of Miss Ma for the costs incurred subsequent to her departure as solicitor for the plaintiff in these proceedings.

74.With respect to the learned judge below, it follows that I cannot agree that, as he put it, it would be "wholly artificial" so to limit the costs order to the period prior to Miss Ma passing the case to other solicitors.

75.Accordingly, in differing from the order as made below, and from the order of the majority of this court, I do so as a matter of construction in particular and of causation in general.

76.It is agreed by all concerned that Order 62, rule 8 embodies a summary procedure. It seems to me that it is precisely because it is summary in nature, and potentially draconian in effect, that very considerable care should be taken to ensure that it does not lend itself to a "broad brush" approach to be exercised "if the court finds moral turpitude", which was how Mr Pirie chose to formulate the position.

77.The situation is a fortiori, I should have thought, when, as in this case, the costs award the subject of this appeal reflects, and is intended to reflect, not merely disapproval of matters of which the court has immediate cognizance (such as in Ho Lee Man, op cit, wherein the focus of the appellate court was upon what was regarded as the deplorable conduct of an appeal), but is based upon findings made as to a solicitor's pre-litigation conduct in a case to which she was not a party, and in which she had acted at the outset as solicitor for the plaintiff for a period of but two months.

78.This is clearly a valuable jurisdiction, but equally clearly it is important in principle that the exercise of this jurisdiction should not be subject to the type of expansive treatment for which Mr Pirie has contended, nor that it should be extended on the basis of unestablished assumption, which in this case can only be that 'but for' Miss Ma's actions as solicitor in these proceedings that the substantial costs now claimed would not have been incurred.

79.With respect, this strikes me as an argument too far; this dispute between vendor and purchaser cannot be said to have been set in stone at the time of Miss Ma's departure as the purchaser's solicitor. And whilst I bear in mind that in the instant case Miss Ma did not give evidence upon the application to show cause, instead choosing to appear by counsel only, a further unsatisfactory aspect of this case is that the application as made under Order 62, rule 8 was buttressed by no affidavit in support on behalf of the applicants for this relief, a schedule of particulars providing its sole documentary underpinning.

80.I have little sympathy for Miss Ma, if indeed she did what she is said to have done. And I have considerable sympathy for the defendant vendors, whom evidently have had a most unpleasant experience. But this does not detract from the fact that, in my judgment, Order 62, rule 8 is not to be utilized, in effect, as a blunt instrument to be wielded in lieu of other forms of relief which may be, or which may have been, available to the vendors in the circumstances of this case.

81.For my part I would allow this appeal to the extent that the Order of Deputy Judge Woolley be varied so as to restrict such payment of the defendants' solicitor and own client costs as were ordered below to that part of those solicitor and own client costs as were incurred during the period of the proceedings when Miss Ma had acted as solicitor for the plaintiff.

82.As to costs of this appeal, I would order that the respondents do pay 80% of the appellant's costs, to be taxed if not agreed.

Woo JA:

83.This Court makes the following orders:

(1) Upon the undertaking given to this Court through counsel by Messrs Lo & Lo, solicitors for the defendants, to pay to Ma So So, Josephine ("JM") the amount of money if and when they receive the same from the liquidators of the plaintiff company (in liquidation) for the costs of this action on a party and party basis as ordered by the judge, JM do pay the defendants all solicitor-and-own-client costs for which they are liable to their solicitors, subject to (2) below, as a result of this action (not the appeal therefrom nor this appeal), such costs to be taxed.

(2) The solicitor-and-own-client costs in (1) above do not include the costs of this action which were ordered by the court to be borne by the defendants, or to be paid by the defendants to the plaintiff, or for which they are liable to their solicitors for the proceedings in which those orders were made.

(3) The defendants do have the costs of their summons dated 1 November 2001 and the hearings of the summons before the judge on an indemnity basis against JM.

(4) An order nisi that JM do have one-quarter of the costs of this appeal and the defendants do have three-quarters of the costs of this appeal, both on a party and party basis.

Representation:

Mr Nicholas Pirie, instructed by M/S Lo and Lo, for the Defendants (Respondents)

Mr Kenneth Kwok SC, instructed by M/S Y T Chan & Co, for the Respondent (Appellant)