Shanghai Land Holdings Ltd (in Receivership) v. Chau Ching Ngai and Another

HCA002704/2003

HCA 2704/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2704 OF 2003

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Coram: Deputy High Court Judge To in Chambers

Date of Hearing: 8 January 2004

Date of Decision: 8 January 2004

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D E C I S I O N

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Introduction

1.This is an appeal from the decision of Master Kenneth Wong made on 5 November 2003 in respect of the 1st Defendant's summons dated 29 September 2003 (the "Default Judgment Summons"), the Plaintiff's summons dated 10 October 2003 (the "Authority Summons") and the 1st Defendant's summons dated 29 October 2003 (the "Directions and Discovery Summons"). Subsequent to the Order of Master Kenneth Wong, the Plaintiff filed another summons dated 24 December 2003 (the "Handwriting Experts Summons").

2.The circumstances leading to the filing of these summonses are as follows. On 21 August 2003, the Plaintiff obtained a default judgment against the 1st Defendant in the sum of US$34,200,000. There was no statement of claim filed but a two-page endorsement of claim alleging that these monies had been misappropriated by the Defendants. On 29 September 2003, Messrs Morrison & Foerster ("M&F") issued the Default Judgment Summons on behalf of the 1st Defendant seeking to set aside the default judgment entered against the 1st Defendant. On 10 October 2003, Messrs Wilkinson & Grist ("W&G") issued the Authority Summons to challenge M&F's authority to act for the 1st Defendant. By this summons, the Plaintiff seeks to have the Notice to Act filed by M&F and the 1st Defendant's Default Judgment Summons set aside or stayed pending the final determination of the Plaintiff's Authority Summons. Following that, M&F took out the Directions and Discovery Summons on 29 October 2003. All three summonses were heard before Master Kenneth Wong on 5 November 2003.

3.In respect of the Default Judgment Summons and the Authority Summons, Master Kenneth Wong ordered, inter alia, that the 1st Defendant's Default Judgment Summons be heard after the final determination of the Plaintiff's Authority Summons and that the costs of hearing the Authority Summons be paid by the 1st Defendant. The 1st Defendant now appeals against these two orders. Master Kenneth Wong also gave the usual directions for filing of affidavits and costs in respect of the other parts of the summonses, for which there is no appeal.

Setting aside the default judgment

4.Since the making of the orders appealed against, M&F filed additional evidence which was not available before the master. Now, there is incontrovertible evidence that the 1st Defendant was out of Hong Kong since 5 May 2003 and has since been detained by the PRC Authorities. The submission on behalf of the 1st Defendant is essentially that the 1st Defendant is entitled to have the default judgment set aside as of right because the service of the writ was irregular in that the 1st Defendant was not within the jurisdiction at the time the writ was served or at the time the default judgment was entered. Mr Smith, SC quoted the case of Barclays Bank of Swaziland Ltd and Hahn [1989] 1 WLR 506 and Wing Lung Bank Ltd v Ho Man Iam [1999] 3 HKC 368 in support of his proposition.

5.Mr Fung, SC, referred me to the headnote in Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378 which reads:

"O 10 r 1(2)(b) authorised service of writ by inserting it enclosed in an addressed envelope in a letter box at the last known address of the party to be served. For such service to be effective the party must be physically within the jurisdiction and/or the proceedings were brought to the notice of the party."

He submitted that it is arguable that service was effective if the proceedings had been brought to the notice of the party.

6.I do not think the headnote is an accurate summary of the principle stated in that case. At 382, Leong JA, as he then was said:

"In my view, O 10 r 1(2)(b) authorised service of writ on a defendant within the jurisdiction otherwise than personally by inserting it enclosed in an envelope addressed to the defendant in a letter box at the last known address of the defendant. The authorities are clear that for service under this rule to be effective, the defendant has to be physically within the jurisdiction at the time of service (Barclays Bank of Swaziland Ltd v Hahn [1989] 1 WLR 506 applied in Desirable International Fashions Ltd v Chiang Shi Chau [1997] 3 HKC 170). Other authorities have held that service is effective when the proceedings are brought to the notice of the defendant and not on mere delivery of the writ to the last known address of the defendant (Forward v West Sussex County Council [1995] 1 WLR 1469; Fok Chun Hung v Lo Yuk Shi [1995] 2 HKC 648)."

7.In Forward v West Sussex County Council, quoted by Leong JA, the writ was served by post to the last known address of the defendant who had moved from that address. At 1476, Sir Bingham MR held:

"Thus rule 1(1) provides, as in past days, for personal service. The virtue of this of course is that it brings the proceedings to the notice of the defendant. But paragraph (2) provides for two alternatives to personal service: service by post and insertion through the letter box. Paragraph 3(a) provides that the date of service shall in either of these two cases be deemed to be the seventh day after sending or insertion as the case may be.

So far as the post is concerned, we could understand seven days being allowed as a safe if rather gloomy estimate of the time taken for delivery of a letter by ordinary first class post. So it would be a possible construction of paragraph (3)(a) to hold that in order to show the contrary the defendant would have to show that the letter had not been delivered by the seventh day, or perhaps at all, it being irrelevant (if the letter had been duly delivered) whether it had come to the defendant's notice or not. But it is not possible to apply this construction to insertion through the letter box: if a letter is inserted through a letter box it can make no sense to treat the seventh day after insertion as the deemed date of service if service takes place on delivery and is not concerned with notice. Reading paragraph (3)(a) in relation to both the alternatives to personal service provided for in (2), it seems to us that the generous time limit provided for deemed service by first class post and the allowance of seven days after insertion through the letter box are to allow for the possibility that the letter may not come to the defendant's notice at once. If this is the correct construction, a defendant could show the contrary by showing either that the letter had not come to his notice until after the seventh day or that it had not come to his notice at all.

This construction is in our view strongly reinforced by paragraph (3)(b). An affidavit proving due service must contain a sworn statement not simply that there has been compliance with paragraph (2)(a) or (b) but also of the deponent's opinion that the letter, whichever mode of delivery was adopted, "will have come to the knowledge of the defendant within seven days thereafter."

It is clear from the above well considered dicta of the Master of Rolls that the issue before the court was whether the service of the writ was effective if sent by post to or inserted in the letter box at the last known address of the defendant or that it must be brought to the notice of the defendant. The defendant in that case was within the jurisdiction. It is clear that the requirement that the proceedings be brought to the notice of the defendant is not an alternative to the requirement that he must be within the jurisdiction.

8.In Fok Chun Hung v Lo Yuk Shi, another case quoted by Leong JA, service by post which was subsequently returned was also held to be ineffective and the default judgment set aside. There is nothing said by the Court of Appeal in the judgment in that case to suggest that service would be effective if the proceedings were brought to the notice of the defendant who is not within jurisdiction.

9.Thus, in my opinion, in Chu Kam Lun, Leong JA was stating the well established principle that the defendant must be within the jurisdiction for the service to be effective. When he referred to the other authorities, he was stating another requirement for an effective service. Look at the matter from a common sense point of view. If a defendant is out of jurisdiction in a place where telecommunication is not readily available or where there are restrictions in travelling and a writ was served on his last known address in the jurisdiction, he certainly cannot attend to the matter within seven days even if the proceedings were brought to his notice. The law could not have intended that under such circumstances, he should be exposed to the risk of a default judgment. I agree with Mr Smith, SC's submission that the 1st Defendant is entitled as of right to have the default judgment set aside.

10.Mr Smith, SC's secondary attack on the default judgment is that the Plaintiff must have known of the 1st Defendant's detention in China before the issue and service of the writ of summons on 23 July 2003 because in the receivers' report exhibited in the Plaintiff's affirmation was annexed an article in the South China Morning Post dated 21 July 2003 which reported the 1st Defendant's detention in Shanghai since May 2003. Hence, Mr Smith, SC, submitted that the Plaintiff benefited from the 1st Defendant's detention by filing the endorsement of claim when it had every reason to believe that the 1st Defendant could not have defended it. I do not think the receiver's knowledge after the fact is conclusive evidence of the Plaintiff's knowledge at the time of issue and service of the endorsement. The Plaintiff did what was required to be done to enter the default judgment. Whether at the time the 1st Defendant was out of jurisdiction and whether the Plaintiff acted with that knowledge are issues which should be considered at the hearing of the Default Judgment Summons.

M&F's authority

11.M&F claims to have been properly instructed by the 1st Defendant through Tao Wu Ping ("Tao"), a senior partner of Shen Da Law office in Shanghai which was instructed to assist the 1st Defendant by the 1st Defendant's elder brother in China. According to Tao's affirmation filed after the hearing before Master Kenneth Wong, the 1st Defendant was detained in Shanghai and he was the only person to have access to the 1st Defendant on an irregular basis. He produced two letters of authorisation purportedly signed by the 1st Defendant to instruct M&F in this matter and explained that prior to 30 October 2003, the PRC Authorities did not allow the 1st Defendant to sign the two letters of instruction. The Plaintiff disputes the authenticity of the purported signatures of the 1st Defendant which are obviously different from his usual signatures on the many company documents signed by him.

12.Counsel differ as to who bears the burden of proof. Mr Smith, SC, said there is a presumption of due authority in favour of the solicitor and submitted that the burden of proving M&F's lack authority is on the Plaintiff. He quoted the decision of Richmond v Branson & Son [1914] Ch 968 at 974 and Attorney General v Foley and another [2000] 2 All ER 609 in support of his proposition. He commended me to adopt the approach of the Ch'ng Choon Eng v Phaik Keow Lucien Gladys [2000] 1 SLR 257 where the High Court of Singapore asked itself the question:

"If the solicitor had no authority, why would the plaintiff affirm those affidavits in support? Where the action against the defendant appeared rational and furthered the interest of the plaintiff, then there would arise a fairly strong presumption that the plaintiff was mentally capable at the time the action was taken."

On the other hand, Mr Fung, SC, referred me to the decision of Shing Hai Doing & others And Shing Ho Yung [1961] HKLR 331 where Blair-Kerr J held that when the authority of a solicitor is in dispute, the burden of proof lies on the solicitor to establish his authority.

13.Starting from basic principles, the rule must be that he who asserts must prove not he who denies. It is just that he who invokes the aid of the law should be the first to prove his case. The question who bears the burden of proof cannot be considered in vacuo, without first considering what is to be proved. In deciding this initial question, regard must be had to the substance of the issue and not merely to its grammatical form and that in the nature of things, a negative is more difficult to establish than an affirmative. A burden of proving the affirmative by one party can always be put as a burden of proving the negative by the opposing party. Thus the solicitors' burden of proving due authority can be framed as a burden of proving lack of authority by the party seeking to challenge that authority. Here, what is in issue is M&F's authority. M&F asserts it has authority and is asserting an affirmative which is solely within its knowledge. Having decided this initial question, it must follow that where a solicitor's authority to act for a party is in question the burden of proof rests on the solicitors asserting this authority to prove that he is duly authorised and not on the party seeking to challenge or dispute that authority. Thus, M&F bears the burden of proof of due authority.

14.The above conclusion is reached without any disrespect to the authorities cited by Mr Smith, SC. In Richmond v Branson & Son, Warrington J said at 974:

"But the real question is the authority of the solicitor. Is that a question which can be raised as a relevant issue in the action and at the trial? No authority has been cited in support of the affirmative of such a proposition, and, in my opinion, it is impossible, according to the ordinary practice and procedure of the Court, to justify that proposition. The business of this Court could not be carried on if one were not entitled to assume the authority of the solicitor unless and until that authority has been disputed and shewn not to exist in the proper form of proceeding, namely, a substantive application on the part of the parties concerned to stay the proceedings on the ground of want of authority."

What Warrington J was saying was a presumption based on common sense which operates until the authority of a solicitor is in dispute. When the authority of the solicitor is in dispute, that has to be determined in a separate proceeding in the form of a substantive application to stay the proceedings on the ground of lack of authority. He did not decide the question of which party should bear the burden of proof at the hearing of the substantive application.

15.I do not think the Singaporean High Court in Ch'ng Choon Eng v Phaik Keow Lucien Gladys has decided any question on burden of proof of a solicitor's authority to represent a party. There, the court was considering the question of mental capacity of the plaintiff. The context in which the dictum cited by Mr Smith, SC, is as follows:

"3. Prima facie, the plaintiff must be taken to have the mental capacity to affirm those affidavits and decide on proceeding with the action against the defendant. If the solicitor had no authority, why would the plaintiff affirm those affidavits in support? Where the action against the defendant appeared rational and furthered the interest of the plaintiff, then there would arise a fairly strong presumption that the plaintiff was mentally capable at the time the action was taken. Until the contrary was proved, there would be a legal presumption that the plaintiff was mentally competent.

4. Plaintiff's counsel informed me that the defendant had not taken up any substantive application to stay or set aside the writ of summons on the aforesaid grounds despite knowing the plaintiff's stand that such an application was necessary. I did not think that it was for the plaintiff to prove that she was mentally competent. Neither did I think that the matter should be allowed to proceed to a trial simply to ascertain whether the plaintiff was suffering from any mental incapacity and whether counsel lacked the necessary authority. These were preliminary issues to be settled first in a substantive application, which should be taken up by the party challenging the mental capacity of the other party to instruct counsel. In the absence of such an application, the court would be entitled to assume that counsel had the requisite authority and had been properly instructed."

The court was primarily concerned with the question of the plaintiff's mental capacity while the solicitor's authority to act was a issue dependent on the court's finding as to the plaintiff's mental capacity. The court considered that the question of the plaintiff's mental capacity and likewise the solicitor's authority should be determined in a separate substantive application. No such application was made, though the defendant knew such application was necessary. This fact is important, because it was in the absence of such application that the court found the presumptions operated in favour of the plaintiff and her solicitors. Nothing was decided as to what was to be proved and who bears the burden of proof at the hearing of the substantive application.

16.Mr Smith, SC, relied strongly on the following dictum of Schiemann LJ in Attorney General v Foley and another at 615 as placing the burden of proving lack of authority on the party challenging the solicitor's authority:

"17. It will be seen that in our judgment it is for him who challenges the fact that the solicitor has authority to commence proceedings to lead evidence which lends support to that assertion. In the absence of such evidence we see no need for the Attorney General to lead evidence in rebuttal."

17.I think that dictum has to be understood in the full context of the case. In that case, the Attorney General applied for civil proceedings orders under section 42 of the Supreme Court Act 1981 prohibiting the appellants from instituting civil proceedings without the leave of the High Court, on the ground that they had previously instituted vexatious proceedings. The evidence in support of the solicitor's authority to act for the Attorney General was an affidavit by a solicitor in the Treasury Solicitor's office, stating that she had conduct of the matter on behalf of the Attorney General. At the hearing, the appellants raised for the first time that the application was not being made by the Attorney General as required by the 1981 Act. Schiemann LJ considered that the question of a solicitor's lack of authority is a preliminary matter which should be dealt with by way of a separate application to stay. He referred to Warrington J's dictum in Richmond v Branson & Son and other decisions and then set out at paragraph 16 of page 615 how such challenge should be made by way of an application to stay listed in the Crown Office. Then he made the dictum relied on by Mr Smith, SC, at paragraph 17 and queried the dicta of Pill LJ in Attorney General v Hayward (1995) Times, 20 November, [1995] CA Transcript 1477. In that earlier decision, Pill LJ held that "an application under section 42 can have serious consequences and the Attorney General's involvement required by statute should be demonstrated plainly in the evidence submitted to court with the application." It is clear from these dicta that both Pill LJ and Schiemann LJ were directing their minds to an application under section 42 of the 1981 Act. This section is exceptional in that it authorises the Attorney General to interfere with the right of an individual in instituting civil litigation. Under section 1 of the Law Officers Act 1944, then in force, this function of the Attorney General in relation to a particular case may be exercised by the Solicitor General if authorised. Thus the solicitor's authority referred to by Pill LJ and Schiemann LJ in their judgments was the Solicitor General's delegated authority to discharge the function given by the 1981 Act personally to the Attorney General and not a solicitor's general authority to act for his client, which is the type of authority we are concerned with in the present application. Attorney General v Foley and another and Attorney General v Hayward are decisions on section 42 of the Supreme Court Act 1981 and have no bearing to the issue now before me. In any event, following the replacement of section 1 of the Law Officers Act 1944 by section 1 of the Law Officers Act 1997 by a general delegation of the power to the Solicitor General, these decisions have lost their significance. In my opinion, neither decision may be taken as authority as to who bears the burden of proving the solicitor's authority to act for a party or lack of such authority. For reasons as I have given, I am of the opinion that in an application challenging the authority of the solicitor, the burden is on the solicitor to prove due authority.

The Notice of Appeal: whether the appeal is misconceived

18.Mr Patrick Fung, SC, referred me to M&F's Notice of Appeal dated 14 November 2003 which reads:

"... 1st Defendant ... intends to appeal against the decision of Master Kenneth Wong given on 5th November 2003 ordering inter alia:

1. That the hearing of the [Default Judgment Summons] be stayed pending the final determination of the [Plaintiff's Authority Summons], in particular paragraph (1) thereof that the Notice to Act filed by Morrison & Foerster on 11th September 2003 be set aside/struck out."

He submitted that M&F's appeal against Master Kenneth Wong's order for stay of the hearing of the Default Judgment Summons is misconceived. His argument is that despite a stay had been sought under the Plaintiff's Authority Summons, the master had not ordered a stay and had impliedly refused the Plaintiff's request for a stay by giving directions for filing of further affidavits for the further conduct of the Default Judgment Summons. In my view, though the master did not expressly order a stay, he effectively granted a stay by ordering the Default Judgment Summons to be heard after the final determination of the Authority Summons. The Default Judgment Summons is not to be heard together with the Authority Summons or immediately after it, but to be heard after the final determination of the Authority Summons, allowing for the Authority Summons to run the full course of any subsequent appeal. Even though the Notice of Appeal was drafted by counsel, I do not consider I should be unduly concerned with semantics. Obviously, M&F is seeking to challenge the master's order to defer the hearing of the Default Judgment Summons until the Authority Summons has been finally determined. I shall consider the merit of the appeal on the basis a stay has been granted.

The appeal against stay of proceedings

19.In respect of the Authority Summons, the thrust of the appeal is that there is direct evidence from Tao's affirmation that M&F had authority to act for the 1st Defendant and there is no direct evidence from the Plaintiff of M&F's lack of authority, save the doubts over the authenticity of the 1st Defendant's signatures in the letters of instruction. In respect of the Default Judgment Summons, Mr Smith submitted that the 1st Defendant has a very good chance of success in setting aside the default judgment which should never have been entered and that there is little prejudice to the Plaintiff if the judgment is set aside but the 1st Defendant would suffer lengthy delay if the stay is ordered. He submitted that the proper time to determine M&F's authority is after the hearing of the 1st Defendant's application to set aside the default judgment. In short, Mr Smith SC's submission is that the Plaintiff should not be allowed to hang onto a judgment which it should not have obtained in the first place and therefore the mechanism for setting aside that default judgment should be invoked notwithstanding there is some doubt as to the authority of the solicitors purportedly acting for the 1st Defendant in challenging the default judgment.

20.As a matter of law, the 1st Defendant has a good chance of success to have the default judgment set aside. His solicitors have taken out a summons for that purpose. However, the Plaintiff has taken out a separate application to challenge the authority of the solicitors purportedly acting for him. According to the authorities I referred to above, this is the well-established procedure for making such a challenge and it is appropriate to stay the on-going proceedings pending the determination of the authority of the solicitors whose authority to act for a party is in dispute. Apart from the support of judicial authority, this approach is logical and sensible. The issue in this appeal is whether in view of the 1st Defendant's very likely chance of success in challenging the default judgment, the court should depart from logic and the well established procedure in order to achieve the purpose of setting aside the default judgment which should never have been entered. I have to consider two competing interests: the interest of justice that no default judgment should be allowed to stand and the public interest that solicitors purporting to act for a party to a litigation should satisfy the court that they are duly authorised by those whom they claim to represent.

21.In my view, it is a fundamental right of an individual to have access to court. He may exercise that right personally or by his solicitors duly authorised by him. In order that the confidence in the judicial system can be maintained, it is important that solicitors who claim to represent a party in the exercise of that right must prove, if required, to the satisfaction of the court that they are so and duly authorised by those whom they claim to represent. It is unusual to make such a challenge and it is very rare that a solicitor will act without being instructed. But the court cannot be unwary of the possibility that relatives of the defendant or other third parties who may have an interest in the outcome of the proceedings or an interest in protecting the asset of the defendant might step in for practical reasons and induce solicitors to act for the defendant without defendant's authority or knowledge. If the solicitor has no authority to act for the defendant, it is only right and proper that he should not have further conduct of the proceedings. If the solicitor is properly authorised, usually there would be no difficulties in proving due authority and the defendant would suffer no prejudice as a result of the stay in having his authority verified. A default judgment is not irreversible until it has been executed. Even if the solicitor has failed to prove due authority when indeed he has been authorised, there is nothing to prevent him from perfecting his authority and restore the proceedings. A judgment which is bound to be set aside for whatever reason may only be set aside properly in accordance with the law and procedure. To allow a solicitor, whose authority is in doubt, to have conduct of the proceedings on behalf of a party in order to achieve the desired result of setting aside a judgment which should not have been entered is wrong in principle. It would be a ridicule to the judicial system and would bring the judicial system to disrepute. It derogates a court of law into a court of chances or arbitrariness. It would encourage third parties to try their luck in the hope of obtaining some collateral benefits. I consider there is a far greater public interest to protect in maintaining confidence in the judicial system than the individual's interest or the interest of justice to have a default judgment which should not have been entered set aside. Public interest therefore requires that where the authority of a solicitor is reasonably challenged, his authority must be verified first before he should be allowed to have further conduct of any proceedings on behalf of those whom he represents irrespective of the strength of the case, unless there is a real risk of grave injustice. Such challenge must be reasonably and timeously made and should not be used as an excuse to obstruct the course of justice or to take advantage of the opposite party.

22.Mr Smith, SC, submitted that the Plaintiff's challenge of the authority of M&F to represent the 1st Defendant in circumstances which precluded normal means of communication is an affront to the Court. This is a matter of conjecture. In my view, the Plaintiff has good reasons to launch the attack on M&F's authority because the signatures of the 1st Defendant on the letters of instruction are different from his usual signatures as appearing in the Plaintiff's company documents. No explanation was given for the difference in the signatures. The 1st Defendant was a director of a substantial public listed company. He must have good intelligence and understanding and must have realised the importance of putting a proper signature to a legal document. It is unlikely that the strain and stress of his detention could have so affected the way he signed his signature. While I have no doubt on the good faith of M&F, M&F does not have direct first hand information about the execution of the letters of instruction by the 1st Defendant. M&F only acted on the information of Tao whose firm was purportedly instructed to assist the 1st Defendant by the 1st Defendant's brother. Though Tao is a practising lawyer in China, in view of the obvious difference in the signatures, I cannot rule out the possibility that the signatures are not genuine and the possible lack of good faith on the part of those instructing Tao or even of Tao himself. The Court has to be wary that the 1st Defendant's relatives or others who may have an interest in the outcome of the proceedings or in preserving the 1st Defendant's asset might have over-zealously stepped in for practical reasons and gave instructions to Tao without actually obtaining the 1st Defendant's authority or without his knowledge. A curious feature in this regard is that the 1st Defendant's wife, who is the 2nd Defendant in these proceedings, and who was served the endorsement in a similar manner is legally represented, but she saw fit not to arrange legal representation for the 1st Defendant.

23.What fuelled this suspicion is M&F's contesting the Handwriting Experts Summons. If there is nothing to hide, why should M&F or those instructing M&F resist the Plaintiff's request for production of the original letters of instruction for examination by the Plaintiff's expert? If there is nothing suspicious, why couldn't those instructing M&F wait for the outcome of the hearing of the Authority Summons, but instead chose to mount an appeal against the master's decision which has the effect of delaying the hearing of the Handwriting Experts Summons and determination of the Authority Summons. I can well foresee further delay all the way up the course of the appellate route. Even if M&F had a technical reason for not producing the original letters of instruction for examination, its refusal is unreasonable. It would have been less costly and time consuming by producing the original letters of instruction for forensic examination, complying with the various directions and have the Authority Summons set down for hearing instead of contesting the Handwriting Experts Summons. For three months since the challenge to the 1st Defendant's signature was raised, M&F indulged itself in meaningless correspondence asking to be shown the usual signatures relied on by the Plaintiff. M&F did nothing to perfect its authority by asking the 1st Defendant to sign another letter of instruction with his usual signature. Instead, M&F tried what it could to avoid the hearing of the Authority Summons and attempted to jump the gap of logic by asking the Court to consider the Default Judgment Summons irrespective whether it could show it has been duly authorised to act for the 1st Defendant. If the Default Judgment Summons is heard before the Authority Summons and the default judgment set aside, the challenge to its authority would be rendered meaningless and M&F may walk out of the arena even if it has not been properly authorised by the 1st Defendant. M&F is obviously trying to avoid its burden of proving due authority. One wonders whether this appeal is so vigorously pursued because M&F realises it has insurmountable difficulties in discharging its burden of proof.

24.I consider the challenge to M&F's authority is reasonably raised. I do not think the 1st Defendant would suffer any grave injustice or detriment if the merit of the Default Judgment Summons should be considered after his solicitors have shown to the Court that they are duly authorised to act on his behalf. The default judgment is not irreversible. There is nothing to suggest that the 1st Defendant cannot wait for his solicitors' authority to be verified. If indeed he had truly authorised M&F to act on his behalf, he only had himself to blame for not signing his name in the proper manner. He must know what is his proper and usual signature. There is nothing to prevent him from perfecting his letter of instruction by appending his proper and usual signature. Even if the Authority Summons and Default Judgment Summons were all determined against him because M&F failed to prove due authority, there is nothing to prevent him from renewing his application to set aside the default judgment by perfecting his authority to M&F or by properly instructing another firm of solicitors. Even assuming that the 1st Defendant was desirous to engage M&F to represent him to have the default judgment set aside, it is of paramount importance that M&F should be able to show due authority if required to do so. In view of the rhetoric questions which I have asked myself, I do not think there is any good reason to depart from logic and the well established procedure which is supported by the authorities that the challenge to the solicitors' authority should be finally determined before hearing the application to set aside the default judgment. The appeal against the stay of the Default Judgment Summons must be dismissed.

The appeal on costs

25.M&F also appealed against the master's costs order in respect of the hearing of the Authority Summons on 5 November 2003. The summons was originally fixed for two hours. In a letter dated 16 October 2003, the Plaintiff's solicitors, W&G, wrote to M&F to confirm that the hearing was fixed for 15 minutes instead of two hours and would be a call-over hearing. As the master said in his Reasons for Decision, "although Messrs Wilkinson & Grist had requested for an affidavit to be filed, they, despite their previous written indication that today's hearing would be a call-over hearing, did not expressly tell the other side that they would instruct Leading Counsel and go for full-fledged argument today. The position was a mess and there was full of misunderstanding between parties." At the hearing, M&F confirmed that it wished to file an affidavit in opposition to the Plaintiff's Authority Summons. The master granted leave for filing of affidavit and ordered the 1st Defendant to pay costs of the hearing on the ground that had M&F field the affidavit in opposition the arguments would be wholly saved.

26.Usually, an appellate court will seldom interfere with the master's exercise of discretion in making an order for costs. However, such discretion must be exercised in accordance with legal principles. The master rightly commented that the position was a mess and full of misunderstanding. Obviously, W&G created that misunderstanding by confirming that the hearing would be a 15 minute call-over hearing. In the circumstances, M&F could not be blamed for not having armed itself with the affidavit in preparation for full argument. In any event, as the master noted, 15 minutes was insufficient to dispose of the summons. After making directions in respect of filing of affidavits, the master ordered a further direction hearing for 15 minutes. Obviously, the hearing on 5 November 2003 was a direction hearing. It would be wrong in principle to order a party to pay costs of a direction hearing when what it did was to seek leave for filing an affidavit, a matter which would usually be dealt with in such a direction hearing. The appropriate costs order would have been costs in the cause of the summons with certificate for counsel. This part of the appeal on costs must be allowed.

Conclusion

27.For the above reasons, save and except the master's costs order in respect of the hearing of the Authority Summons on 5 November 2003, the appeal is dismissed. The master's said costs order is set aside and replaced by a costs order that the costs be in the cause of the summons with certificate for counsel.

28.As for the costs of this appeal, the Plaintiff is essentially successful. Discounting for what the 1st Defendant has succeeded, I consider it appropriate that the 1st Defendant shall pay 80% of the costs of this appeal to the Plaintiff, with certificate for two counsel.

Representation:

Mr Patrick Fung, SC and Mr Michael Liu, instructed by Messrs Simmons & Simmons, for the Plaintiff

Mr Clifford Smith, SC and Mr Jose-Antonio Maurellet, instructed by Messrs Morrison & Foerster, for the 1st Defendant