Pine Enterprises Ltd v. Cyber Strategy Ltd and Another

Case No.HCA 1221/2006

Court

High Court CFI

Date27 Mar 2009

Judge—

Case Document

100%Judiciary

HCA 1221/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1221 OF 2006

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BETWEEN
	PINE ENTERPRISES LIMITED	Plaintiff
	and
	CYBER STRATEGY LIMITED	1^st Defendant
	LECTURE KIT COMPANY LIMITED	2^nd Defendant
	and
	WOO PAK HAY EDWARD	1^st Third Party
	LAW SHIU KAI ANDREW	2^nd Third Party

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Before: Deputy High Court Judge To in Chambers (Open to Public)

Date of Hearing: 22 January 2009

Date of Decision: 27 March 2009

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D E C I S I O N

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Introduction

1.This is an application by the 2^nd Third Party (“Mr Law”) against the then solicitors acting for the Defendants in High Court Action No 1221 of 2006 (“HCA 1221/2006”), Messrs Tang, Wong & Cheung (“TWC”), for an order that his costs in the third party proceedings be paid by TWC on an indemnity basis. The jurisdiction to make such orders against solicitors personally is commonly referred to as the wasted costs jurisdiction: see Myers v Elman [1940] AC 282 and Ridehalgh v Horsefield [1994] Ch 205 at 227B-E.

The Law

2.In Ma So So and Chin Yuk Lun Francis & Another (2004) 7 HKCFAR 300 at 308-314, Chief Justice Li laid down the legal principles for guidance of the courts in the exercise of this jurisdiction. These principles are summarised as follows.

The jurisdiction

3.The exercise of such jurisdiction is regulated by Order 62 rule 8 of the Rules of the High Court (“RHC”) which provides:

“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.”

4.The orders contemplated in (a) and (b) of the rule relate to the solicitor and his own client, whereas the order contemplated in (c) relates to the successful party and the solicitor acting for the opposing party in a litigation. Mr Law is obviously invoking the court’s jurisdiction to make an order contemplated under (c). Mr Fung, counsel for TWC, does not dispute that the court has jurisdiction under the rule to render the solicitor personally liable to indemnify the other parties to the proceedings against costs payable by them.

The procedure

5.An application under this rule is usually dealt with after the conclusion of the proceedings and by the judge who had conduct of the proceedings from which the application arose. Bearing in mind the summary nature of the application, the procedure should be as simple and summary as fairness permits. Usually, the application is made by summons setting out the particulars of the solicitor’s conduct complained of and how such conduct caused costs to be incurred or wasted and all other circumstances relied on by the applicant. The judge would have to consider how to treat the finding of fact already made in his judgment and give directions for the hearing of the application, such as whether affidavits should be filed or oral evidence be called. At the first stage of the application, the applicant invites the court to exercise its discretion to call upon the solicitor to show cause as required by Order 62 rule 8(2) of the RHC. That involves an assessment of the strength of the prima facie case shown by the applicant, a balancing of the costs likely to be incurred in litigating the application under the rule and the amount of wasted costs sought. If the court decides that the application shall proceed further, the solicitor is called upon to show cause why such order should not be made. Despite that, the burden of proof that the order should be made remains on the applicant. The standard of proof is the ordinary civil standard of proof on a balance of probability. However, because of the nature of the application, the standard of proof is a very high one commensurate with the seriousness of the misconduct alleged.

The approach

6.In Ma So So, Chief Justice Li held at 309B-E that in considering the exercise of the jurisdiction under this rule, the court should approach the matter by dealing with the following questions:

(1) whether the solicitor was responsible for (i) acting improperly or without reasonable cause or (ii) for undue delay or any other misconduct or default in any proceedings;

(2) whether such conduct of the solicitor caused costs to be incurred or wasted; and

(3) whether the court should exercise its discretion to make an order.

The first question is a question of fact. The solicitor’s conduct complained of is set out in the application. The second question is one of causation, that is establishing the causal link between the solicitor’s conduct and the extent of costs incurred or wasted. The last question is one of the court’s discretion. After setting down the approach,his Lordship then went on to consider a number of legal principles applicable to an application for wasted costs order.

Summary nature of the jurisdiction

7.The Chief Justice emphasised the importance of appreciating the summary nature of this jurisdiction as well as its limitations: see Ma So So at 309I-310G. In particular, his Lordship reminded the courts that the jurisdiction under this rule should be strictly confined to questions which are apt for summary determination. His Lordship expressly quoted and adopted Lord Hope’s speech in Harley v McDonald [2001] 2 AC 678 at 703E-G:

“As a general rule allegations of breach of duty relating to the conduct of the case by a barrister or solicitor with a view to the making of a costs order should be confined strictly to questions which are apt for summary disposal by the court. Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples. The factual basis for the exercise of the jurisdiction in such circumstances is likely to be found in facts which are within judicial knowledge because the relevant events took place in court or are facts that can easily be verified. Wasting the time of the court or an abuse of its processes which results in excessive or unnecessary cost to litigants can thus be dealt with summarily on agreed facts or after a brief inquiry if the facts are not all agreed. Scope for the making of a costs order that will compensate as well as penalise is then likely to be found in making an order against the practitioner that will indemnify the opposing litigant against costs incurred as a result of the breach of duty that would otherwise not be recoverable.”

8.Chief Justice Li quoted with approval the observation of Sir Thomas Bingham MR (as he then was) in Ridehalgh v Horsefield at 238H that the hearings under this summary jurisdiction should be measured in hours, and not in days or weeks and cautioned that the judges should be astute to control what threatens to become a new and costly form of satellite litigation. His Lordship also referred to the House of Lords’ observation in Medcalf v Mardell (Wasted Costs Order) [2002] UKHL 27 at paragraph 24 that save in the clearest case, applications against the lawyers acting for an opposing party are unlikely to be apt for summary determination, since any hearing to investigate the conduct of a complex action is itself likely to be expensive and time consuming. This jurisdiction is only to be exercised in clear or reasonably obvious cases: see Wall v Lefever [1998] 1 FCR 605 at 614. The more elaborate the procedure and the more complicated the enquiry the court is likely to be involved, the less likely will the court consider the matter appropriate for summary determination.

Legal professional privilege

9.Another important consideration which the court must bear in mind in an application for wasted costs order against the opponent’s solicitor is legal professional privilege between the opponent and his solicitor. Where the application is made by a client against his own solicitor, the privilege is impliedly waived. This is not so where the application is made by a party against his opponent’s solicitor. That privilege is not for the solicitor to waive. His client may not wish to spend time and money seeking independent advice on any request to consider the waiver. His client may even for his own benefit and selfish motive decide not to waive the privilege. This would place the solicitor in a great disadvantage in defending the application. The Chief Justice noted that in the absence of a waiver only rarely will the court be able to make full allowance or to conclude that there is no room for doubt. Thus, his Lordship reminded the courts that it must make full allowance for the solicitor’s inability to tell the whole of his case and hence where there is room for doubt, the solicitor is entitled to the benefit of the doubt. His Lordship also emphasised that the order may only be made if in all the circumstances it is fair to do so: see Ma So So at 310I-311F. The difficulty in making full allowance for the solicitor’s inability to tell the whole of his case and the need for extreme care is amply demonstrated in the following dicta of Lord Bingham in Medcalf v Mardell and others [2003] 1 AC 120 at 135D-136B adopted by the Chief Justice:

“… First, in a situation in which the practitioner is of necessity precluded (in the absence of a waiver by the client) from giving his account of the instructions he received and the material before him at the time of settling the impugned document, the court must be very slow to conclude that a practitioner could have had no sufficient material. Speculation is one thing, the drawing of inferences sufficiently strong to support orders potentially very damaging to the practitioner concerned is another. …

Only rarely will the court be able to make ‘full allowance’ for the inability of the practitioner to tell the whole story or to conclude that there is no room for doubt in a situation in which, of necessity, the court is deprived of access to the full facts on which, in the ordinary way, any sound judicial decision must be based. The second qualification is no less important. The court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so … Even if the court were able properly to be sure that the practitioner could have no answer to the substantive complaint, it could not fairly make an order unless satisfied that nothing could be said to influence the exercise of its discretion. Only exceptionally could these exacting conditions be satisfied. Where a wasted costs order is sought against a practitioner precluded by legal professional privilege from giving his full answer to the application, the court should not make an order unless, proceeding with extreme care, it is (a) satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order and (b) that it is in all the circumstances fair to make the order.”

10.The burden is on the applicant to prove the improper conduct of the opponent’s solicitor. The applicant has to prove what the opponent’s instructions were and that based on those instructions the solicitor’s advice or conduct was not justified. Where a solicitor is precluded from disclosing the instructions, I think the fairest way to approach such a situation is to assume, unless proven otherwise, that on those instructions it was not improper for the solicitor to advise his client and to adopt the course he took. The applicant has to prove that the solicitor’s conduct was improper by reference to such instructions which could reasonably be inferred from the solicitor’s conduct and all the evidence available before and during the proceedings. If in doubt, the solicitor shall be given the benefit of it. Sometimes, the non-waivermay present an even greater hurdle for the applicant in proving his case than for the solicitor in establishing his defence.

Discretion

11.The summary jurisdiction under the rule is discretionary: see Ma So So at 311F-G. The court may make an order but is not bound to do so. The court’s discretion operates at both stages of the application. Thus, even if the applicant has shown a strong prima facie case, the court may nevertheless for other consideration decide not to call upon the solicitor to show cause. For example, if the costs likely to be incurred in litigating the application under the rule far exceeds the amount of wasted costs sought or if the application will result in a full scale re-litigation of the issues in the original trial before another judge. Likewise, even if the applicant has established the solicitor’s conduct had caused costs to be incurred or wasted, the court is not bound to make an order. But where it declines to make an order in those circumstances, it must give sustainable reasons: see Ridehalgh v Horsefield at 239E-F. The exercise as well as the non-exercise of its discretion must, of course, accord with legal principles.

The kind of conduct for which a solicitor is responsible

12.A solicitor is liable for costs unnecessarily incurred or wasted as a result of his acting improperly or without reasonable cause or undue delay or other misconduct or default in any proceedings. Acting improperly or without reasonable cause or undue delay is obvious misconduct. But what acts constituteother misconduct or default are less capable of description. In Harley v McDonald at 704G-H, Lord Hope said that a simple mistake or oversight or mere error of judgment would not, of itself, be sufficiently serious to fall into that category and that something more is required. In general the category involves gross negligence or serious breach of duty as officers of the court under circumstances which amount to an abuse of the process of the court, for example, a solicitor knowingly lends his assistance in proceedings which are, by itself, an abuse of the process of the court. In Ridehalgh v Horsefield at 233F-234: Sir Thomas Bingham MR, as he then was, held:

“A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he acts for a party who pursues a claim or a defence which is plainly doomed to fail …

…

… Legal representatives will, of course, whether barristers or solicitors, advise clients of the perceived weakness of their case and of the risk of failure. But clients are free to reject advice and insist that cases be litigated. It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. They are there to present the case; it is … for the judge and not the lawyers to judge it.

It is, however, one thing for a legal representative to present, on instructions, a case which he regards as bound to fail; it is quite another to lend his assistance to proceedings which are an abuse of the process of the court. Whether instructed or not, a legal representative is not entitled to use litigious procedures for purposes for which they were not intended, as by issuing or pursuing proceedings for reasons unconnected with success in the litigation or pursuing a case known to be dishonest, nor is he entitled to evade rules intended to safeguard the interests of justice, as by knowingly failing to make full disclosure on ex parte application or knowingly conniving at incomplete disclosure of documents. It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it.”

Sir Thomas Bingham MR’s dicta were adopted by Ribeiro PJ in Ma So So at 318D-G and by Lord Hope in Harley v McDonald at 705-706.

13.Very often, applications for wasted costs order arise in hopeless cases or as a result of proceedings which are doomed to fail. Officers of the court have a duty to achieve and maintain appropriate levels of competence and care. Advising clients to pursue a hopeless case is prima facie evidence of gross negligence or serious dereliction of duty as officers of the court. Evidence of such is sometimes sufficient to satisfy the court during the first stage of an application under the rule to call upon the solicitor to show cause. However, one must not forget that while it is the duty of the solicitor to advise his client of the strength or weakness of the client’s case, it is up to the client to accept or reject that advice. The client may insist and is free to instruct his solicitor to proceed on a case which the solicitor thinks is doomed to fail. It is the client’s choice and not his solicitor’s. Even under such circumstances, there are strong public policy reasons for the solicitor to continue representing his client than to leave him unrepresented. It is wrong to assume that because a hopeless case was pursued, the solicitor displayed such a level of incompetence as to be grossly negligent or in serious dereliction of duty. He would be liable if he had indeed been grossly negligent in advising his client to pursue a hopeless case or knowingly lends his assistance in proceedings which are an abuse of the process of the court. In this regard, the following dicta of Lord Hope in Harley v McDonald at 705F-H are apposite:

“… a duty rests on officers of the court to achieve and maintain appropriate levels of competence and care and that, if he is in serious dereliction of such duty, the officer is properly amenable to the costs jurisdiction of the court. But care must be taken not to assume that just because it appears to the court that the case was hopeless there was a failure by the barrister or solicitor to achieve the appropriate level of competence and care.”

His Lordship continued at 708G-709B:

“… there is the proposition that a barrister who pursues a hopeless case not appreciating it to be hopeless displays such a degree of incompetence as to amount to a serious dereliction of her duty to the court. Their Lordships consider this proposition, without more, to be unsound. Without attempting to provide a precise definition of what amounts to a serious dereliction of duty, they are of the opinion that it is open to the court to penalise incompetence which leads to a waste of the court’s time or some other abuse of its process resulting in avoidance cost to litigants. But it will almost always be unwise for the court, in the exercise of this jurisdiction, to treat the pursuit of hopeless cases as a demonstration of incompetence. As a general rule litigants have a right to have their case presented to the court and to instruct legal practitioners to present them on their behalf … And on the whole it is in the public interest that litigants who insist on bringing their cases to court should be represented by legal practitioners, however hopeless their cases may appear. For these reasons something more than the mere fact that the case is hopeless is required.”

The court’s finding of fact and credibility in the earlier proceedings

14.An application for wasted costs order is often heard by the judge who had the conduct of the proceedings in which the misconduct of the solicitor allegedly arose. The relevant finding of fact, the demeanour of the client in the witness box and the way the proceedings was conducted by the solicitor whose conduct is complained of were matters which occurred before the court which the judge is entitled to take notice of. Very often, the conduct of the proceedings by the solicitor and the judge’s own finding of fact made in his judgment form an important part of the factual matrix against which the applicant’s case is to be considered and the solicitor’s defence is to be tested. The judge’s view of the credibility and honesty of the solicitor’s client is often an important factor to be considered when assessing the conduct of the solicitor. For example, the judge may form the view that the client was so incredible that no reasonable lawyer in that solicitor and client relationship would have accepted and acted on the client’s instructions on its face value. At the other extreme, the judge may find that the client was such a persuasive though dishonest witness that even his solicitor was misled or deceived. What view the judge forms depends on the totality of the circumstances.

15.However, the judge must remember there is a limit to which his own findings in the proceedings may be put. It is important to bear in mind that the majority of the judge’s finding of fact and finding of credibility are against the parties to the proceedings and their witnesses, but not their solicitors. The solicitor, whose conduct is complained of, was not on trial and the judge had no opportunity of hearing the solicitor’s account. While the judge may take notice of what happened in the proceedings before him, he has no idea of what transpired between the solicitor and his client outside the courtroom. Thus, when acting on his own finding of fact in the earlier proceedings before him, the judge must be careful not to assume adverse finding against the client as if it were adverse finding against his solicitor or to draw adverse inference from such finding against the solicitor unless it is in all the circumstances reasonable to do so. Even if the court comes to the view that the proceedings were an abuse of the process of the court, it cannot jump to the conclusion that the solicitor knowingly assisted in abusing the legal process. Fairness requires that the solicitor should be given the chance to be heard by filing affidavits or giving oral testimony, if the solicitor so desires.

16.Furthermore, when relying on finding of fact in the earlier proceedings, the judge must be wary and not to allow himself to be carried away by the benefit of hindsight. Such danger has been pointed out by Neuberger J, as he then was, in Brown v Bennett (No 2) [2002] 1 WLR 713 at 747B-F. The conduct of the solicitor complained of has accrued over a long period. It is inherently unsatisfactory to consider that conduct over that period retrospectively from the end point of the trial. Apart from looking at the matters with the wisdom of hindsight, one is also looking at the matters in a completely different perspective from the solicitor whose conduct is complained of and with the benefit of other evidence not available to the solicitor at the material time. In particular, the solicitor did not have the benefit of seeing his client’s evidence being tested under cross-examination by the opponent’s counsel and did not have a full appreciation of the opponent’s evidence as it was being presented and tested in court.

17.With those principles in the forefront of my mind, I now turn to consider the application.

The Application

The background

18.On 1 August 2005, the Plaintiff petitioned for the winding-up of Union Resources (Educational Development) Limited (“UR Limited”), a company jointly owned by the Plaintiff and the 2^nd Defendant, under Companies Winding-up Proceedings No 593 of 2005 (“HCCW 593/2005”). On 7 June 2006, the Plaintiff commenced HCA 1221/2006 against the 1^st and 2^nd Defendants for breach of agreements. The writ was not served until after the Defendants issued and served their writ in High Court Action No 1267 of 2006 (“HCA 1267/2006”) on the Plaintiff, the 1^st Third Party (“Mr Woo”) and Mr Law for what essentially was their counterclaim in HCA 1221/2006. HCA 1267/2006 was stayed until the determination of HCA 1221/2006. The trial of HCA 1221/2006 was scheduled to commence before me on 17 September 2007.

19.In the month preceding the trial, there was a flurry of interlocutory activities among the parties, including the following. On 13 August 2007, the Defendants applied to strike out the Plaintiff’s Amended Statement of Claim. That application was adjourned on 16 August 2007 when the Plaintiff obtained leave to re-amend its Amended Statement of Claim. On 20 August 2007, the Defendants filed their Answers to the Plaintiff’s and the 1^st Third Party’s Request for Further and Better Particulars of the Defence and Counterclaim (“Answers”), in which the Defendants stated that the warranties and representations alleged in their Defence and Counterclaim were made only by Mr Woo. On the same day, the Plaintiff filed its Re-Amended Statement of Claim. On 13 September 2007, the Defendants filed their Amended Defence and Counterclaim.

20.The trial commenced on 17 September 2007. The Defendants were represented by Miss Gwilt. Miss Gwilt applied on behalf of the Defendants for leave to re-amend the Amended Defence and Counterclaim to include a new alternative claim against Mr Woo and Mr Law that they deliberately concealed certain information from the Defendants. On 18 September 2007, I granted leave to the Defendants to amend their pleading upon payment of security for costs to the Plaintiff, Mr Woo and Mr Law in the amount of $1,556,000 by 4 pm on 20 September 2007. No such security was paid. Accordingly, the Defendants’ application for leave to amend the pleading was dismissed. On 3 October 2007, the Defendants renewed their application for leave to re-amend their Amended Defence and Counterclaim. That application was again refused.

21.On 5 November 2007, Mr Li took over the conduct of the defence as leading counsel. He made an oral application to discontinue the third party proceedings against Mr Law with costs on 6 November 2007. The trial nevertheless continued while the Defendants and Mr Law negotiated on the terms of discontinuance. No agreement was reached. The application for discontinuance against Mr Law was not formally taken out by summons pursuant to Order 21 rule 3 of the RHC and was not pursued any further. Instead on 13 November 2007, the Defendants applied to have their claim against Mr Law dismissed with costs on party and party basis. The application was resisted by Mr Law who insisted not only that the costs be taxed on an indemnity basis but an undertaking be given by TWC to pay such costs if not paid by the Defendants. He refused to have TWC’s liability for his costs to be determined after the conclusion of the trial. For reasons as explained in paragraphs 167 and 168 of my judgment dated 14 March 2008 (“Judgment”), the Defendants’ application was dismissed and the third party proceedings were continued against Mr Law for the purpose of determining his costs. The trial concluded on 4 February 2008. On 14 March 2008, I delivered judgment in favour of the Plaintiff in the original action and Mr Woo and Mr Law in the third party proceedings with costs against the Defendants to be taxed on indemnity basis.

22.On 3 April 2008, Mr Law issued the present summons pursuant to the rule for an order that his costs in the third party proceedings be paid by TWC on an indemnity basis. TWC declined to contest the first stage of the application. Based on the evidence and facts I found in HCA 1221/2006, I was satisfied that it was appropriate to call upon TWC to show cause. Subsequently, affirmations were filed by Mr Law and Mr Victor Chan who is the partner of TWC, the then solicitor acting for the Defendants in HCA 1221/2006.

23.Mr Fung submits that the questions of TWC’s liability should be determined by examining TWC’s conduct during the following five stages of the proceedings:

(1) from 31 August 2006 to 19 August 2007:

That was the period since the Defendants filed the Defence and Counterclaim to the date before the Defendants filed the Answers withdrawing their allegations of fraudulent representation against Mr Law;

(2) from 20 August 2007 to 16 September 2007:

That was the period from the filing of the Answers to the date before the commencement of trial;

(3) from 17 September 2007 to 5 November 2007:

That was the period from the first day of the trial until the date before the Defendants made the oral application to discontinue the third party proceedings against Mr Law;

(4) from 6 November 2007 to 4 February 2008:

That was the period from the date when the Defendants made the oral application to discontinue the third party proceedings against Mr Law to the end of the trial; and

(5) from 5 February 2008 to 3 April 2008:

That was the period from the date following the end of the trial to the date when the present application was taken out.

I consider the breakdown convenient and an understanding the state of mind of TWC at the various stages important in assessing the allegations of misconduct against TWC and of their liability for wasted costs.

The solicitor’s conduct complained of and TWC’s defence

24.The basis of Mr Law’s application is that TWC, being officers of the court, have conducted themselves in a manner constituting serious misconduct, serious dereliction of duties and gross negligence by assisting the Defendants in claiming against Mr Law without any reasonable cause. Such conduct necessitated Mr Law incurring unnecessary or wasted costs in defending the third party proceedings.

25.TWC’s dereliction of duties or gross negligence are particularised as follows:

(a) TWC advised the Defendants that they had a case against Mr Law, despite there being no evidence to do so was grossly negligent;

(b) TWC advised the Defendants to initiate and maintain the third party proceedings against Mr Law, despite there being no evidence to have done so;

(c) TWC failed in its duties to the court by failing to cease to act for the Defendants at any time during the pre-action, pre-trial or trial periods, being in serious dereliction of their duties (there being no evidence to justify TWC assisting the Defendants pursuing their claim against Mr Law);

(d) TWC failed to consider their overriding duties as officers of the court, including advising the Defendants not to bring or maintain a hopeless action against Mr Law, and, secondly, if the Defendants ignore such advice, for TWC to assist the Defendants to prosecute a hopeless action constitutes serious misconduct and serious dereliction of duty;

(e) TWC effectively delegated its duty to avoid assisting the Defendants in bringing a hopeless case to court, namely avoid assisting in the Defendants’ abuse of the court’s processes, by submitting that it was the court’s jurisdiction to decide upon whether a case exists, in the face of total lack of evidence; and

(f) TWC assisted the Defendants knowing that any judgment against the Defendants would be an empty one.

26.These grounds are repetitive and are premised on the Defendants’ total lack of evidence in support of a pleaded case of fraud or fraudulent representation against Mr Law. In a nutshell, Mr Law’s case is that TWC were grossly negligent in advising and assisting the Defendants to bring and maintain the third party proceedings against him (i.e. grounds (a) and (b)). They were in dereliction of duties to the court by failing to advise the Defendants not to bring or maintain a hopeless action against Mr Law (i.e. ground (d)); by failing to cease to act for the Defendants if the Defendants ignored their advice or at such stages of the proceedings when the lack of evidence became apparent (i.e. grounds (c)) and by delegating to the court their personal duty to screen out hopeless cases (i.e. ground (e)). In addition, TWC assisted the Defendants knowing that any judgment against the Defendants would be an empty one (i.e. ground (f)).

27.I do not think ground (f), standing on its own, is a valid ground. In my opinion, it is monstrous even to suggest that any solicitor acting for his client who has no foreseeable means to satisfy any judgment or costs order that may be made against him in the event that he loses in the litigation is guilty of some form of misconduct. Quite on the contrary, it is a person’s undoubted constitutional right to have legal representation by a lawyer of his choice and there are good public policy reasons that any person should have the right to have his case presented by those who are legally qualified to practise law in the courts of law. Unless a solicitor knows that by acting for his client he is assisting his client in abusing the process of the court, his acting for the client with the knowledge that his client has no or will have no means to satisfy any judgment or costs order that may be made against the client could not a misconduct. To hold otherwise would discourage lawyers from acting pro bono for the unprivileged who has no means but a good case to present. Accordingly, this ground stands or falls on whether Mr Law can prove that TWC knowingly assisted the Defendants in abusing the process of the court.

28.TWC’s defence is that they were only acting on the Defendants’ instructions. They accepted the Defendants’ instruction as correct and held the honest opinion that the Defendants had a prima facie case against Mr Law. On that basis, they gave full legal advice to the Defendants. They were obliged to faithfully carry out the instructions of the Defendants and commence the third party proceedings against Mr Woo and Mr Law.

29.Mr Law’s complaint is premised on the total lack of evidential basis for TWC to advise the Defendants to bring and maintain the third party proceedings against him and not to cease to act for the Defendants at the various stages of the proceedings. Thus, the application turns on whether the Defendants’ instructions contained sufficient evidential basis to justify the course taken by TWC. The Defendants refused to waive their right to legal professional privilege. TWC is therefore precluded from disclosing the Defendants’ instructions. I have to give TWC full allowance for their inability to disclose the whole of their case. I assume it was not improper for TWC to act as they did. Mr Law has to prove that TWC’s conduct was improper by reference to such instructions which could reasonably be inferred from TWC’s conduct and all the evidence available before and during the entire proceedings.

The Defendants and their corporate mind

30.Before considering the allegations of misconduct, I have the following observations to make about the Defendants and their corporate mind which is important in understanding the state of mind of TWC in their dealing with the Defendants.

31.The Defendants were subsidiaries of Asian Information Resources (Holdings) Limited (“AIR Holdings”), a company listed in the GEM board of the Stock Exchange of Hong Kong Ltd (“Stock Exchange”). At the material time, Ho Wing Yiu (“Gary Ho”) was the managing director and chief executive officer (“CEO”) of AIR Holdings. Gary Ho was also a director of the Defendants and UR Limited.

32.Gary Ho is a person with remarkable academic achievement, including a first class honours degree from Warrick University and a master degree in economics from the University of Oxford. He has vast experience in senior management capacity in international corporations. He had worked in the People’s Republic of China (“the PRC”), the United Kingdom, Belgium, Australia, France, United States and Singapore. He is an extremely intelligent person.

33.Gary Ho was the most important witness from the defence. Although he appeared honest, sincere and put up a great performance in the witness box, I found him evasive, crafty and vindictive. Despite his proficiency in English, he insisted to give evidence in Chinese and to have questions put to him interpreted in Chinese. He took time to consider his answers under cross-examination and he answered the questions very cautiously. He wisely twisted the Plaintiff’s evidence to support his defence. He armed himself with undisclosed documents to ambush Mr Law by accusing Mr Law of having demanded a six-digit figure from him in exchange for not giving evidence for the Plaintiff and to facilitate AIR Holdings to resume trading on the Stock Exchange. Though the documents were contemporaneous, they were carefully planned and created to smear Mr Law who was then inquiring into certain irregular activities in AIR Holdings: see pages 76-82 in the Judgment. This is the kind of conduct Gary Ho was capable of. Needless to say, he persuaded the Plaintiff to part with its majority shareholding in UR Limited including its subsidiary, Union Resources Educational Development (Yanjiao) Company Limited (“UREDY”) with its a very valuable property in Yanjiao in the PRC (“Campus”) for worthless shares of and in the 2^nd Defendant. While Gary Ho was in control of UR Limited and UREDY, through two fictitious consultancy agreements, he siphoned almost the entire asset of UREDY to other members of the AIR Holdings group. When litigation in HCCW 593/2005 was imminent, he amputated the whole line of subsidiaries including UR Limited from the AIR Holdings group by selling them to Beijing Olympics Limited for HK$50,000. Beijing Olympics Limited, as Rogers VP noted when hearing the 1^stDefendant’s appeal against my Judgment, was an entity of dubious existence. It was neither situated in Beijing nor has anything to do with the 2008 Olympics Games in Beijing. That was how AIR Holdings and the Defendants under the direction of Gary Ho conducted their corporate affairs relating to UR Limited.

34.From such conduct, the inference could readily be drawn that the Defendants’ conduct of their affairs in relation to UR Limited was extremely dubious and in their dealing with the Plaintiff extremely dishonest. In that light, it could readily be inferred that in order to advance their illicit motive including to delay and deny justice and remedy to the Plaintiff, the Defendants might have fabricated defences, made false allegations against Mr Woo and Mr Law and might not have been entirely sincere even with their own solicitors.

35.Furthermore, Gary Ho was the corporate mind behind AIR Holdings and the Defendants. To say the least, Gary Ho was an extremely intelligent but deceptive person who was prepared to do anything dishonest to achieve the Defendants’ or his own ends. He was able to sit comfortably in the witness box and to put up an appearance of confidence as he was giving false testimony. At the time, Gary Ho was in the driving seat of UR Limited. He had a smart and persuasive appearance, particularly when clothed as the CEO of a public listed company. He must be the person from whom TWC took instructions. Prior to the trial, the Defendants must have presumably paid TWC huge sums of money in defending HCCW 593/2005 and HCA 1221/2006 and in consulting top senior counsel who advised applying to strike out the Plaintiff’s Statement of Claim. In that position and under those circumstances, Gary Ho could easily have commanded respect and won persuasion from TWC. It was not unreasonable for TWC to believe the Defendants’ instructions were correct and to act on them.

Stage 1: 31.8.2006 - 19.8.2007

36.TWC claimed that the third party proceedings were brought against Mr Law based on the Defendants’ instructions. While they were precluded from disclosing those instructions, Mr Victor Chan said the fact that Mr Law was an independent non-executive director of AIR Holdings, his close connection with Mr Woo, that he was instrumental in introducing Mr Woo to AIR Holdings and was involved in the drafting of a letter of intent reinforced TWC’s assessment of the strength of the Defendants’ claim against Mr Law. Those facts also lend support to the credibility of the Defendants’ instructions.

37.Mr Tibbo, counsel for Mr Law, relies on my finding that the Defendants’ claim against Mr Law was an abuse of the process of the court and that there was absolutely no case to be made against Mr Law. He quoted paragraph 169 of my Judgment, in which I said:

“Taking out proceedings against a party without any cause is prima facie frivolous and vexatious and may justify indemnity costs. This is particularly so in the third party proceedings against Andrew Law. In essence and in effect, the Defendants are saying, “You owed me nothing. You did me no wrong. But I like to sue you. I want you to pay for what I will be liable to Pine.” This is vexatious and an abuse of the process of court and would in a normal case be sufficient for me to order indemnity costs.”

Mr Tibbo argues that by necessary implication, TWC was grossly negligent for having failed to properly assess the total lack of evidence and for advising the Defendants that they had a case against Mr Law. He further submits that legal professional privilege does not matter as TWC admit having advised the Defendants and that in the face of my finding there was no case to ever have been brought against Mr Law. Hence, by necessary implication, Mr Tibbo submits, TWC were grossly negligent having failed to properly appreciate the total lack of evidence to support the claim and having failed to advise the Defendants that they had a hopeless case.

38.My remarks at paragraph 169 of my Judgment are phrased in very strong language and I stand by what I have said. But it must not be forgotten that those remarks were directed at the Defendants or Gary Ho but not TWC and were made at the conclusion of the trial after I had the benefit of reviewing the totality of the evidence and assessing Gary Ho’s credibility. This is precisely the danger of hindsight and different perspective I mentioned in paragraphs 14 to 16 above and which I have warned myself to be very wary of. That a party abused the process of the court does not necessarily mean his solicitors must have aided and abetted his client in the process. It would, in my opinion, be wrong to jump to the conclusion that because a party’s claim has been found to be frivolous, vexatious or an abuse of the process of the court, his solicitors are guilty of some form of the misconduct under the rule. His solicitors will only be liable for wasted costs if they were responsible for acting improperly or without reasonable cause or for undue delay or any other misconduct or default which caused costs to be wasted and the court is satisfied that its discretion should be exercised by making the wasted costs order.

39.Mr Tibbo submits that the Defendants’ pleadings are completely devoid of particulars to support the Defendants’ allegation of fraud and material non-disclosure. He invites me to infer from such lack of particulars that there was no proper basis in the Defendants’ instructions on which TWC could have advised that there was a case against Mr Law and to have assisted the Defendants in initiating and maintaining the third party proceedings against Mr Law.

40.An action for fraud or fraudulent misrepresentation is the same as an action for deceit and consists of the following elements:

(a) a false representation was made to the plaintiff by or on behalf of the defendant;

(b) the representation was made fraudulently, i.e. knowingly, or without belief in its truth or recklessly careless whether it be true or false;

(c) the defendant induced the plaintiff to act on it; and

(d) as a result of the inducement, the plaintiff has suffered loss which he claims.

See Cartwright, Misrepresentation, Mistake and Non-Disclosure (2007), paragraphs 5.01, 5.05, 5.13 and 5.14.

41.Confining to the Amended Defence and Counterclaim as it stood on or before 19 August 2007, I think fraud has been adequately pleaded. That the Defendants failed to prove it is irrelevant. The false representations made to the Defendants by Mr Law were pleaded at paragraphs 5(f), 5(g) and 6(d) of the Amended Defence and Counterclaim; namely that Mr Woo and/or Mr Law made certain warranty and representation about the Campus. In paragraph 6(d), the Defendants pleaded that Mr Woo and/or Mr Law made the representations fraudulently and/or recklessly as they well knew that their representations were untrue and their proposals about what the Campus could be used could never be materialised due to its occupation by China Institute of Defence & Science Technology (“CIDST”). In paragraphs 6(d) and 6(e), the Defendants pleaded that Mr Woo and/or Mr Law induced the Defendants to act on the representations and the Defendants did rely and act on those representations. Lastly, the Defendants pleaded that they suffered loss and damage at paragraphs 18 to 20. The pleadings were by no means commendable, but the necessary elements were nevertheless pleaded with sufficient particulars.

42.Mr Tibbo submits that there was no evidential basis for TWC to have pleaded fraud against Mr Law and criticises TWC for blindly believing in the Defendants’ instructions. He criticises TWC for merely relying on documents which were not inconsistent with the Defendants’ allegations instead of looking for evidence which were corroborative. He argues that had TWC done so, they would have realised the total lack of corroborative evidence and the emptiness of the Defendants’ allegations.

43.I now deal with Mr Tibbo’s argument on lack of evidential basis. At Stage 1, TWC can only act on the instructions given by the Defendants. Mr Law argues in his affirmation that when he was joined as a party by the Defendants, the Defendants’ instructions given to TWC were the same as those given almost a year later when the allegations against him were withdrawn upon filing the Answers on 20 August 2007. However, according to Mr Victor Chan, the Answers were filed after taking further instructions from the Defendants. Thus, unless TWC had been acting maliciously when they drafted the Defence and Counterclaim, the withdrawal of the allegations against Mr Law must have been made as a result of a subsequent change of instruction from the Defendants. I think there is simply no basis to make that assumption or inference as suggested by Mr Law. The allegations were not very precise and were made against both Mr Woo and Mr Law or either one of them. Imprecise as they were, I must assume that according to the instructions at least some of those allegations were made by Mr Law. The strength of the Defendants’ case against Mr Law could not be assessed as the allegations were withdrawn. But the allegations against Mr Woo involved some factual dispute. The Defendants effectively pleaded three false representations, namely that the Campus could be used for certain purposes and was vacant but the representations were rendered false by reason of CIDST’s occupation of the Campus. Mr Woo and Patrick Lee who was a former accountant of the AIR Holdings group were called by the Plaintiff, while Gary Ho and Ye Xinping who was the former deputy principal of CIDST gave evidence on behalf of the Defendants. I accepted the evidence of the Plaintiff and rejected the evidence of the Defendants about occupation of the Campus by CIDST. Hence, I dismissed the Defendants’ claim of false representations and non-disclosure. My analysis on this factual issue alone covered thirteen pages in the Judgment (pp 39-52). In coming to that conclusion, I had the benefit of testing the Plaintiff’s evidence against the Defendants’ as well as their evidence against the totality of the evidence. TWC did not have this benefit when advising the Defendants on pleading fraud against Mr Law. It must also be reminded that Gary Ho was a crafty and persuasive CEO and Ye Xinping was a person of some standing, being the deputy principal of CIDST. In the eventual analysis, TWC were wrong. But this is only an error of judgment. Assuming that TWC’s advice to proceed against Mr Law was based on similar instructions as those against Mr Woo (but for the subsequent change in instructions), I think no reasonable counsel could have considered such advice unreasonable or reckless.

44.I now turn to Mr Tibbo’s second argument of blindly believing in client’s instructions. In Orchard v South Eastern Electricity Board [1987] QB 565 at 595H, Dillon LJ emphasised that a lawyer is normally entitled to proceed on the basis of his client’s instructions being correct. I agree with that view. A client pays his solicitor for the legal advice he seeks from the solicitor and for instituting or defending an action brought for or against him. In the usual course of event, it is unlikely that a client would deliberately mislead his solicitor by giving him false information and to obtain an advice which is worthless as it is based on wrong premises. Likewise, it is unlikely that a client would deliberately give false instructions to his solicitor to commence or defend a proceeding which is bound to fail for similar reason. Thus, usually and in general, a solicitor would not query his client’s instructions. The solicitor is entitled to rely and act on his client’s instructions, after allowing for imprecision due to human nature, failure of memory or lapse of time, unless those instructions are so inconsistent with incontrovertible evidence or documents.

45.As Mr Victor Chan said in his affirmation, TWC had never acted for the Defendants prior to May 2006 and had no part in the making of the various agreements between the Plaintiff and the Defendants which formed the subject matter of the litigation in HCA 1221/2006. TWC had no dealing with Gary Ho or any other members of the Defendants before. Mr Victor Chan said that there was no way for TWC to verify the Defendants’ instructions. Gary Ho, as I have noted, was a very crafty person. He had a very deceptive demeanour. From the dubious way Gary Ho siphoned the assets of UREDY to other members of the AIR Holdings group and then sold the line of subsidiaries including UR Limited to Beijing Olympics Limited when the petition to wind up UR Limited in HCCW 593/2005 was imminent, the inference could readily be drawn that Gary Ho’s conduct of the affairs relating to UR Limited and his dealing with TWC in connection with the conduct of the litigation in HCA 1221/2006 might not be entirely honest. It would not be difficult to infer that in order to protect their interest, the Defendants could have misled TWCin their instructions in order to present a fabricated defence which they hope would succeed. Gary Ho approached TWC as a CEO of a public listed company, giving TWC instructions and paying them for conducting the litigations in HCCW 593/2005, HCA 1267/2006 and HCA 1221/2006 on the Defendants’ behalf. Presumably, he authorised engaging top senior counsel to give advice at an early stage as a result of which the Defendants applied for striking out the Plaintiff’s claim on 31 July 2007. That application proceeded with some success, which necessitated the Plaintiff to re-amend its Statement of Claim. Besides, no application was made by Mr Law to strike out the Defendants’ claim against him in HCA 1267/2006 and/or the third party proceedings in HCA 1221/2006. Obviously, the Defendants invested heavily in the litigations, which no doubt boosted TWC’s confidence in the veracity of Gary Ho’s instructions. There was no reason for TWC not to rely on the instructions given by Gary Ho, especially as Mr Victor Chan said in his affirmation, he considered the documents available were not inconsistent with Gary Ho’s instructions. It was reasonable for TWC to have accepted the Defendants’ instructions on their face value.

46.Mr Tibbo draws support from Mr Li’s offer to discontinue the third party proceedings against Mr Law as evidence of the total lack of evidential basis for TWC advising the Defendants that they had a case against Mr Law. He argues that TWC should have, as did Mr Li, advised the Defendants that there was no case against Mr Law and should have discontinued the third party proceedings before trial or to cease to act for the Defendants if the Defendants refused to accept their advice and in any event should not have commenced the proceedings in the first place. I assume that the instructions given to Mr Li were no different from those given to TWC. That Mr Li held a different view as to the strength and weakness of the Defendants’ case against Mr Law was neither here nor there. For reasons as explained in paragraph 45 above, it was reasonable for TWC to have accepted the Defendants’ instructions as correct and on that basis their advice could not be said to be unreasonable or reckless. Though on the face, TWC’s advice was contrary to Mr Li’s, their advice was nevertheless within the range which reasonable minds may differ. More importantly, by the time Mr Li gave his advice, the Plaintiff’s case had almost been concluded. He had the benefit of assessing, if not seeing, the strength of the Plaintiff’s case, which was a partial reflection of the strength of Mr Law’s and Mr Woo’s defence to the Defendants’ third party proceedings as there were substantial overlaps between the Plaintiff’s case and the Defendants’ third party claim. Mr Li also had the benefit of assessing the strength or weakness of the Defendants’ case as put to the Plaintiff’s witnesses. He had a better picture of the Defendants’ case than TWC had at Stage 1 and might have formed the opinion that the Defendants’ allegations about occupation by CIDST, whether the Campus was mortgageable under PRC law and non-disclosure were not sustainable. Simply put, Mr Li had the benefit of hindsight from seeing the Plaintiff’s case and Mr Law’s defence which TWC had not. I think it is wrong to assume that TWC were grossly negligent or in dereliction of duty simply because their advice was contrary to Mr Li’s.

47.Mr Tibbo argues that even if TWC were acting on the Defendants’ instructions, they were grossly negligent and in serious dereliction of their duty as officers of the court by delegating their duty to the court to determine whether there was a case against Mr Law. He submits that TWC were acting improperly by blindly following the Defendants’ instructions without considering the merit of the Defendants’ case which was a hopeless case. I have to give full allowance to the fact that TWC were precluded from disclosing the instructions they had received from the Defendants. TWC were entitled to accept the Defendants’ instructions as correct. For reasons as explained in paragraph 45 above, it was reasonable for them to act on the Defendants’ instructions. I assume that initially TWC had instructions which would have justified them advising the Defendants that they had a case against Mr Law. Assuming that the initial instructions against Mr Law were similar to those against Mr Woo, for reasons as explained in paragraphs 41 to 43 above, the case against Mr Law based on the initial instructions could not have been classified as a hopeless case and TWC cannot be said to have been reckless in their advice.

48.Lastly, even if TWC were at all wrong in their assessment of the weakness of the case against Mr Law and that the case was indeed hopeless, that was only an error of judgment. As was held in Harley v McDonald, error of judgment, without more, is not to be equated with gross negligence or serious dereliction of duty. There is nothing to suggest that the third party proceedings were instituted otherwise than upon the Defendants’ instructions. There is nothing to suggest that the case against Mr Law, though hopeless, was pursued at the advice of TWC under circumstances which amounted to an abuse of the process of the court.

49.For the above reasons, I am unable to find that TWC acted improperly in advising the Defendants to launch a case of fraudulent representation against Mr Law, to commence and maintain the proceedings against him and in not ceasing to act for the Defendants since 31 August 2006.

Stage 2: 20.8.2007 - 16.9.2007

50.On 20 August 2007, the Defendants filed their Answers. It should be recalled that initially the Defendants alleged that Mr Woo and/or Mr Law made the fraudulent representations. In the Answers, the Defendants confirmed that all the fraudulent representations were made by Mr Woo only. In effect, by their Answers, the Defendants withdrew all allegations of fraudulent representations against Mr Law. Despite that, the Defendants continued the third party proceedings against him.

51.Mr Law therefore complains that in view of the clear admissions made in the Answers, the Defendants should never have commenced the third party proceedings against him in the first place, let alone continued the proceedings after 20 August 2007. Mr Law’s complaint is premised on there being no change in the Defendants’ instructions to TWC. However, according to his 1^st Affirmation, Mr Victor Chan explained that upon being ordered by Recorder Kwok SC to give the Answers requested, he took instructions from the Defendants. Based on those instructions, he and counsel, Miss Gwilt, prepared the Answers. Notwithstanding the Answers given, Mr Victor Chan and Miss Gwilt still believed that the Defendants might have a claim against Mr Law based on non-disclosure and they intended to patch up the claim against Mr Law. Seemingly, the Answers were given as a result of a change in instructions.

52.However, Mr Tibbo submits that what Mr Victor Chan said was wholly unbelievable because TWC had never sought to re-amend the Amended Defence and Counterclaim despite they had three further opportunities to do so on 23 August 2007, 13 September 2007 and 18 September 2007. With respect to Mr Tibbo, his account of the facts is incorrect. On 16 August 2007, Recorder Kwok SC granted the Plaintiff leave to re-amend the Amended Statement of Claim and the Defendants leave to file and serve consequential Amended Defence and Counterclaim on 23 August 2007. No Amended Defence and Counterclaim was filed on that day as the Defendants were unable to finalise their pleading. They were given extension of time until 13 September 2007 when the Amended Defence and Counterclaim was filed, but those amendments were consequential to the Plaintiff’s Re-amended Statement of Claim and did not contain any patch up amendments based on concealment. On 17 September 2007, the Defendants applied for re-amendment of their Amended Defence and Counterclaim to plead concealment. The application was objected by the Plaintiff because the Defendants were seeking to introduce a new case by the amendments. Despite the objection, I granted the Defendants leave to re-amend their pleading on condition of payment of security. As the Defendants failed to pay the security, the application was dismissed. Then the Defendants renewed their application again on 3 October 2007 which was refused. I have no reason to doubt the truth of what Mr Victor Chan said in his affirmation. Indeed, I have to give TWC allowance for their inability to disclose the instructions from the Defendants. I am satisfied that despite the Answers TWC believed the Defendants had a case against Mr Law based on non-disclosure which they intended to patch up or perfect by introducing a claim based on concealment. However, they were unable to plead concealment, presumably because the Defendants refused to pay the security I ordered.

53.I now turn to the Defendants’ case based on non-disclosure. TWC obtained signed witness statements from Gary Ho and Ye Xinping dated 12 and 13 September 2007 respectively in support of the Defendants’ claim for non-disclosure. TWC believed that the Defendants’ instructions were correct and considered Ye Xinping’s statement credible. Hence, TWC continued to proceed against Mr Law.

54.As I have found in paragraph 23 of my Judgment, the pleadings have drawn a clear distinction between non-disclosure and false representation. It is manifestly clear that non-disclosure was relied on as an alternative basis for rescinding the four agreements sued upon by the Plaintiff. Two non-disclosures were relied on by the Defendants: occupation non-disclosure and non-mortgageability non-disclosure. Those issues were considered in pages 71 to 77 of my Judgment. The Plaintiff’s witnesses were Mr Woo and Mr Law. The Defendants’ witnesses were Gary Ho and Ye Xinping. Ye Xinping was the principal witness against Mr Law. I found her regurgitating evidence, evasive and ignorant about a number of matters which she should have knowledge of as the deputy principal of CIDST. I rejected her evidence. Those are all hindsight now. At the time, TWC did not have the benefit as I had in observing the demeanour of all the witnesses and testing their evidence against one another and against the totality of the evidence.

55.Again, I have to give full allowance to TWC for their inability in disclosing their whole case. The Answers were prepared after taking instructions from the Defendants and with the assistance of counsel. Based on those instructions and with the assistance of counsel, TWC came to the opinion that the Defendants still had a claim for non-disclosure against Mr Law. They might have misplaced their trust on Gary Ho and over-estimated their confidence in Ye Xinping. Those are errors of judgment only. Besides, they are entitled to assume their clients’ instructions as correct. This is particularly so as Gary Ho who gave them instructions was a crafty person and who had every motive not only to lie in court but also to mislead TWC in order to advance the Defendants’ illicit cause. On the other hand, Ye Xinping, being a non-interested witness and the deputy principal of CIDST, must have appeared to TWC to be a person of good credibility. It was not unreasonable for TWC to have accepted the Defendants’ instructions and to have relied on the witness statements of Gary Ho and Ye Xinping. Accordingly, I am unable to find that TWC had acted improperly or without reasonable cause in continuing to pursue the Defendants’ claim against Mr Law based on non-disclosure between 20 August 2007 and 16 September 2007.

Stage 3: 17.9.2007 - 5.11.2007

56.The trial commenced on 17 September 2007. On the first day of trial, the Defendants applied for leave to re-amend the Amended Defence and Counterclaim to include a new claim against Mr Woo and Mr Law that they deliberately concealed certain information from the Defendants. On the following day, I granted leave to the Defendants to re-amend their Amended Defence and Counterclaim upon payment of security to the Plaintiff, Mr Woo and Mr Law by 4 pm on 20 September 2007. No such security was provided by the Defendants. The application for leave to re-amend the Amended Defence and Counterclaim was accordingly dismissed. On 3 October 2007, the Defendants renewed their application for leave to re-amend the Amended Defence and Counterclaim. That application was again refused. The trial was then adjourned to 5 November 2007 when the Plaintiff closed its case. Incidentally on that day Mr Li took over as the Defendants’ leading counsel. It should also be noted that Mr Law’s attendance was excused from 21 September 2007 until 5 November 2007. Thus, not much costs could have been incurred on the part of Mr Law during that stage.

57.On 6 November 2007, Mr Li offered to discontinue the third party proceedings against Mr Law. Mr Tibbo disputes that it was after 17 September 2007 that TWC received Mr Li’s advice to discontinue the proceedings against Mr Law. He argues that by implication, such advice was never given before 6 November 2007 and that such advice was something which TWC should have given to the Defendants during the pre-action stage. With respect, I can see no basis for such challenge. Mr Tibbo’s argument that such advice should have been given before 6 November 2007 must be rejected in view of my finding in paragraph 46 above.

58.It is unclear what was the conduct on the part of TWC between 17 September 2007 and 5 November 2007 which Mr Law alleges to be improper or unreasonable. It cannot be said that the application for leave to re-amend the Amended Defence and Counterclaim was improper or unreasonable as I have granted conditional leave to the Defendants to re-amend their pleading. According to Mr Victor Chan, that application was made upon the Defendants’ instructions. The renewed application on 3 October 2007 was annoying. But I must assume that TWC and Miss Gwilt were also acting on instructions in renewing the application. Solicitor and counsel are under a duty to fearlessly advance their client’s interest. There was nothing to suggest that either of the applications was made by TWC for the purpose of assisting the Defendants in abusing the process of court. Hence, I am unable to find any improper or unreasonable conduct on the part of TWC during Stage 3.

Stage 4: 6.11.2007 - 4.2.2008

59.On 5 November 2007, Mr Li took over as leading counsel representing the Defendants. He offered to discontinue the third party proceedings against Mr Law on 6 November 2007. The Defendants and Mr Law entered into negotiation on the terms of the discontinuance but failed to reach any agreement. On 12 November 2007, Mr Li made his final offer to have the third party proceedings against Mr Law dismissed with costs. The offer was rejected by Mr Law who insisted that the proceedings be dismissed with costs on indemnity basis and with an undertaking from TWC to pay such costs if not paid by the Defendants. Mr Law’s demand were not acceptable to the Defendants and TWC. On 13 November 2007, in default of agreement with Mr Law, Mr Li made the unusual application to have the Defendants’ claim against Mr Law dismissed with costs. For reasons as explained in paragraphs 167 to 168 of the Judgment, I refused the application. The trial continued till its conclusion with Mr Law remaining as a party to the third party proceedings.

60.It is also unclear what was the conduct on the part of TWC during this stage which Mr Law alleges to be improper or unreasonable. Mr Tibbo submits that Mr Law was forced to remain in the trial to the end in order to obtain a costs order on indemnity basis. He quoted paragraphs 172 and 173 of my Judgment. In paragraph 172, I said that the Defendants’ refusal to pay Mr Law’s costs on indemnity basis made it necessary for Mr Law to insist on continuing the litigation and that Mr Law was entitled to have his costs for the entire proceedings. In paragraph 173, I held that the third party proceedings against Mr Law were vexatious and an abuse of the process of the court. Those dicta are directed to the position as between Mr Law and the Defendants, not as between Mr Law and TWC.

61.Mr Li first offered to discontinue the third party proceedings against Mr Law and then to have the proceedings dismissed against him with costs. What was in the way of an agreement to bring the proceedings to an end was not so much the conduct of TWC but that of Mr Law. Not only that Mr Law insisted that the costs be taxed on an indemnity basis as between him and the Defendants, he also insisted an undertaking to be given by TWC to pay those costs if unpaid by the Defendants. TWC were not a party to the proceedings. They were entitled to resist Mr Law's demand made against them. At that stage, I could have in the exercise of my inherent jurisdiction dismissed the proceedings against Mr Law with costs against the Defendants to be taxed on indemnity basis, but not with the undertaking he asked for. In effect, Mr Law was asking TWC to consent to a wasted costs order to be made against them without the necessity of the present proceedings. Mr Law had been advised and he ought to know that the appropriate course to take against TWC was by way of a separate proceeding. But he insisted to continue the third party proceedings for the purpose of seeking an indemnity against TWC. TWC could not have taken any other course nor could they have advised the Defendants to do anything else but to allow the trial to take its full course. Apart from the Defendants' refusal to pay Mr Law’s costs on indemnity basis, I think Mr Law’s costs in Stage 4 were incurred as a result of his own deliberate and conscious choice and not as a result of TWC’s improper or unreasonable conduct.

Stage 5: 5.2.2008 - 3.4.2008

62.Nothing was done by TWC during this stage, which caused Mr Law to incur any costs.

Conclusion

63.For the above reasons, I find that Mr Law has failed to discharge the burden of proving any improper or unreasonable conduct on the part of TWC at any stage of the third party proceedings against him. The questions of causation and discretion to make a wasted costs order pursuant to Order 62 rule 8 do not arise.

64.Accordingly, Mr Law's application for a wasted costs order against TWC is dismissed. Nevertheless, I do have some reservation whether TWC were not at all to blame for their error of judgment in assessing the credibility of the Defendants' witnesses and of the strength of the Defendants’ case. Hence, I make an order nisi that there be no order as to costs of this application.