Party for The Civil Rights and Livelihood of the People of Hong Kong Ltd v. Public Bank (Hong Kong) Ltd

DCCJ 1302/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1302 OF 2009

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BETWEEN

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Coram : Deputy District Court Judge Edward Shum in Chambers

Date of Hearing  :  4^th December 2009

Date of handing down Judgment :  22^nd December 2009

JUDGMENT

1.This is an application for wasted costs order against Plaintiff’s former legal representatives, Messrs. Paul Kwong & Company (“PKC”) and Mr. Sui See Chun of Counsel (“Sui”) pursuant to Order 62 rule 8 of the Rules of the District Court (“the Rule”).

The Background

2.Briefly stated, what happened was this: On 17^th March 2009, the Plaintiff (then acting in person) issued these proceedings against the Defendant. Through its solicitors, the Defendant returned the Acknowledgment of Service to the District Court Registry on 30^th April 2009 indicating an intention to contest these proceedings.

3.On 19^th May 2009, the Plaintiff (still acting in person) filed and served its full Statement of Claim on the Defendant’s solicitors. In it, the Plaintiff claimed against the Defendant inter alia for a “declaration that the Defendant had committed tortious act against [its predecessor in title] and [was] liable to pay for damages … to be assessed”. At the same time, the Plaintiff also took out a summons asking for leave to administer interrogatories on the Defendant relating to the latter’s sales of certain mini bonds (“the Interrogatories Summons”).

4.Meanwhile, the Defendant’s solicitors had already taken out a summons on 15^th May 2009 asking inter alia for an order that “the Plaintiff’s claim in this Action be dismissed for the reason that the Plaintiff failed to file the Statement of Claim within the prescribed time limit” (the “Default Summons”).

5.On 20^th May 2009, PKC filed and served on the Defendant’s solicitors a Notice to Act for the Plaintiff.

6.It was initially proposed by PKC that the Default Summons could be dealt with by way of a consent order whereby the Plaintiff would be given leave to file the Statement of Claim out of time. However, Sui wrote directly to the Defendant’s solicitors later in the same day on 20^th May 2009 withdrawing the proposal. I shall further explain the reason(s) why Sui did so.

7.On 1^st June 2009, the Defendant took out a summons asking inter alia for an order that the Interrogatories Summons be dismissed with costs. At the same time, the Defendant also issued a Request for Further and Better Particulars of the Statement of Claim and further requested for discovery pursuant to RDC O.24 r.10.

8.On 3^rd June 2009, PKC filed and served on the Defendant’s solicitors Sui’s skeleton submission in opposition to the Default Summons. In it, Sui argued that the Statement of Claim was not filed out of time. And in his view, the time fixed for service of the Statement of Claim did not even start to run until after the Defendant’s notice of intention to defend had been “served” on the Plaintiff.

9.On 5^th June 2009, the parties came before Master Clement Lee on hearing of the Default Summons and the Interrogatories Summons. The learned Master dismissed the Interrogatories Summons and ordered the Plaintiff to pay the Defendant’s costs by way of summary assessment in the amount of $1,000.

10.Right after the hearing before Master Clement Lee, PKC wrote to the Defendant’s solicitors in the afternoon of 5^th June 2009 indicating that the Plaintiff was going to withdraw all claims against the Defendant. The Defendant’s solicitors replied later in the same day by asking if the Plaintiff would agree to bear the Defendant’s costs on an indemnity basis.

11.On 8^th June 2009, PKC filed a Notice of Withdrawal pursuant to RDC O.21 r.2 withdrawing all the Plaintiff’s claims against the Defendant. On 9^th June 2009, the Plaintiff also filed a Notice to Act in Person.

12.On 15^th June 2009, the Defendant took out the present Summons. In addition to an application for wasted costs order against PKC and Sui, the Defendant also asked for an indemnity costs order against the Plaintiff.

13.The parties came before Master Clement Lee again on 26^th June 2009 on hearing of the present Summons. At the end of that hearing, the learned Master ordered the Plaintiff to pay forthwith the Defendant’s costs of this action on an indemnity basis and by way of summary assessment in the amount of $90,000 whilst adjourning the Defendant’s application for wasted costs order against PKC and Sui to a date to be fixed to be heard before a judge in chambers.

Procedure

14.Application of this nature should usually be heard by the judge who dealt with the proceedings, unless there are exceptional circumstances which render this inappropriate. If however the application should proceed further before another judge, the court would have to take into account the likely increased costs as the judge will be starting afresh without any knowledge of the proceedings [see: Ma So So v Chin Yuk Lun & Another (2004) HKCFAR 300 per Li CJ at para. 19].

15.One of the difficulties that I am facing here is that I am not the hearing judge. I have little knowledge of how this action was being conducted at the material time when the conduct of PKC and/or Sui is to be judged. I must therefore take into account the likely increased costs if I were to exercise my discretion allowing this application to proceed further.

16.As I have said, not only did Master Clement Lee direct that the hearing of the Plaintiff’s application for wasted costs order be adjourned for arguments before a judge in chambers, the learned Master also made an order that the Plaintiff do pay the Defendant’s costs of this action on an indemnity basis and by way of summary assessment in the amount of $90,000. This is no doubt an important matter which I shall have to bear in mind when considering the proportionality of the exercise. In particular, I should compare (i) the costs likely to be incurred in litigating the application under the Rule with (ii) the amount of the wasted costs sought [see: the Ma So So case (supra.) at para. 16].

17.At the hearing before me, Mr. Chan, solicitor for the Defendant, was constrained to admit that whilst the Plaintiff had been ordered to bear the Defendant’s costs of this action on an indemnity basis but the wasted costs order being applied for here should cover only the costs of and occasioned by the Interrogatories Summons and the Default Summons. Together they would amount to 15% to 20% of the Defendant’s total costs. Put in another way, no more than $18,000.

My Approach

18.In considering the exercise of the jurisdiction under the Rule, I shall approach the matter by dealing with the following questions:

(1)  whether PKC and Sui were responsible for acting improperly or without reasonable cause or were otherwise guilty of misconduct in the course of these proceedings;

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

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

[Cf. the Ma So So case (supra.) at para. 6].

19.In this connection, the Defendant sought to rely on the following grounds in support of its application [see: paragraph 2(a) to (d) of the Defendant’s Summons dated 15^th June 2009], namely:-

“(a)  the Plaintiff’s legal representatives acted for the Plaintiff in this Action in circumstances where, they knew or should have known (as reasonably competent legal representatives) that the Plaintiff’s claim was bound to fail;

(b)  they continued in so acting for the Plaintiff notwithstanding this;

(c)  they knew or ought to have known (as reasonably competent legal representatives) that the said claim was embarrassing, oppressive and vexatious; and

(d)  they continued in so acting for the Plaintiff notwithstanding this.”

20.As Li CJ aptly pointed out in the Ma So So case (supra.):-

“14.  The court’s discretion operates at two distinct stages. Taking them in the reverse order, at the second stage, even where the court is satisfied that the solicitor had committed conduct of the kind prescribed in the rule and that such conduct had caused costs to be incurred or wasted, the court is not bound to make an order. But where it declines in its discretion to make an order, it must give sustainable reasons: Ridehalgh v Horsefield [1994] Ch 205 at p.239E-F.

15.  But the court’s discretion also operates at an earlier stage.  Initially, the court is invited by the applicant to call on the solicitor to show case as required by O.62 r.8(2). The court should not proceed automatically. It has a discretion whether to proceed further and may decline to do so: Ridehalgh v Horsefield [1994] Ch 205 at p.239D.

16.  In exercising its discretion at this first stage, the court has to take into account the strength of the prima facie case shown by the applicant. Obviously, the stronger the prima facie shown, the greater is the inclination to proceed. But a most important matter the court has to consider is the proportionality of the exercise. The rule enables an aggrieved party to obtain compensation from the solicitor concerned for costs incurred or wasted. The court should compare (i) the costs likely to be incurred in litigating the  application under the rule and (ii) the amount of the costs sought…

18.  In considering the exercise of its discretion at the first stage, the court should give the solicitor an opportunity to be heard. At this juncture, it is open to the solicitor to maintain that he should not be called upon to show cause. The court would be assessed by what the solicitor has to say on matters such as the requirement of procedural fairness, the extent to which facts relied on by the applicant are disputed and the likelihood of obtaining a waiver of privilege from his client where that may be involved.”

21.I have to bear in mind these guiding principles when considering the exercise of my discretion at the first stage.

Burden of Proof

22.The burden of proof was neatly summarized in paragraph 23 of Li CJ’s judgment in the Ma So So case (supra.):-

“Where the court exercises its discretion at the first stage deciding that the application should proceed further, the burden of proof does not shift to the solicitor. The burden remains on the applicant. It is for him to satisfy the court that an order should be made. However, where the court calls upon the solicitor to show cause, having satisfied itself that the applicant has shown a strong prima facie case, the evidential burden may, depending on the circumstances, shift to the solicitor: Ridehalgh v  Horsefield [1994] Ch 205 at p.239B; Bashi v Rashidian [1985] 1 WLR 1337 at pp.1342H-1343B.”

Standard of Proof

23.Although Li CJ did not indicate in the above cited passage the standard of proof he was applying or the degree of satisfaction which was required at the first stage, it is clear from reading his Lordship’s judgment (at para. 7) that the jurisdiction under the Rule is compensatory as well as punitive. That being the case, not only is the civil standard applicable but the evidence adduced by the applicant must also establish a degree of satisfaction commensurate with the seriousness of the complaints against the legal representatives [see: A Solicitor v The Law Society of Hong Kong [2008] 2 HKLRD 576 CFA].

The Present Case

24.I shall firstly consider the strength of the prima facie case shown by the Defendant.

25.At the beginning of the hearing before me, Mr. Chan sought to argue that this action was doomed to fail. He further submitted that the Plaintiff’s claim should fall within the exclusive jurisdiction of the Small Claims Tribunal.

26.With respect, it does not appear to me from reading the Statement of Claim that this action was doomed to fail. Be that as it may, a legal representative is not to be held to have acted improperly or unreasonably simply because he acts for a party who pursues a claim which is plainly doomed to fail [see: Ridehalgh v Horsefield (supra.) at p.233F].

27.But then again, if the Plaintiff’s claim was obviously unsustainable, I fail to see any good reason why the Defendant would incur unnecessary costs by serving on the Plaintiff the Request for Further and Better Particulars of the Statement of Claim and asking for discovery pursuant to RDC O.24 r.10. Moreover, if the Defendant had genuinely thought of the jurisdiction point, it would certainly refrain from taking unnecessary further steps after acknowledgment of service.

28.Insofar as the Default Summons was concerned, Mr. Chan submitted that Sui’s argument was so fundamentally wrong in principle that Sui would be in gross dereliction of his duty as counsel by allowing it to proceed to full argument before Master Clement Lee. With respect, I do not agree. The mere fact that Sui had argued a procedural point which was found to be misconceived does not mean that he was guilty of misconduct and let alone gross dereliction of his duty as counsel.

29.At the hearing before me, I pointed out to Sui that “notice of intention to defend” is defined in RDC O.1 r.4 to mean “an acknowledgment of service containing a statement to the effect that the person by whom or on whose behalf it is signed intends to contest the proceedings to which the acknowledgment relates”. The Defendant had done exactly what was required under this rule.

30.Sui however argued that the whole point of asking the Defendant to give a notice of intention to defend is to enable the Plaintiff to know that the proceedings are going to be contested. Unless and until the Acknowledgment of Service was brought to the attention of the Plaintiff, the 14 days time limit under RDC O.18 r.1 should not start to run.

31.Since the Acknowledgment of Service was sent by the District Court Registry by post to the Plaintiff and service by post is deemed to have been effected, unless the contrary is proved, at the time at which the document or notice would be delivered in the ordinary course of post pursuant to section 8 of the Interpretation of General Clauses Ordinance, Cap. 1 (as further explained in para. 19.2 of the Practice Directions), Sui argued that the 14 days period fixed for filing the Statement of Claim did not expire until after 19^th May 2009 owing to the intervening public holidays viz. 1^st to 3^rd May 2009.

32.In my view, Sui’s argument is unsound. This is because RDC O.18 r.1 requires only a notice of intention to defend to be “given” by the defendant. There is no reference to “service” of the notice of intention to defend on the plaintiff.

33.But then again, it does not mean that Sui’s attempt to give RDC O.18 r.1 a purposive interpretation by arguing that the notice of intention to defend has to be brought to the attention of the plaintiff so fundamentally wrong as to constitute a gross dereliction of his duty as counsel.

34.The Defendant’s complaint in relation to the Interrogatories Summons is equally unfounded. Indeed, Mr. Chan was constrained to admit that although interrogatories are seldom allowed before filing of defence, it does not mean that they would never be allowed. Lawyers, whether barristers or solicitors, are there to present their client’s case, it is for the judge and not the lawyers (let alone those representing the adversary) to judge it. It is only when a legal representative has lent his assistance to proceedings which are an abuse of the process of the court then he would become personally liable for wasted costs.

35.In my view, the conduct of PKC and/or Sui in pursuing the Interrogatories Summons was nowhere close to an abuse of process of the court. As I have said, Master Clement Lee merely dismissed the Interrogatories Summons and ordered the Plaintiff to pay the Defendant’s costs by way of summary assessment in the amount of $1,000. Obviously, the learned Master did not find it appropriate to order the Plaintiff to pay indemnity costs. And I fail to see how the Plaintiff’s legal representatives would be more culpable.

36.For these reasons, I am unable to agree with the Defendant that PKC and Sui were responsible for acting improperly or without reasonable cause or were otherwise guilty of misconduct either in contesting the Default Summons or in pursuing the Interrogatories Summons. Even if I were wrong, I would nevertheless exercise my discretion not to allow the exercise to proceed further. This is because the amount of the wasted costs sought is plainly out of proportion to the likely costs to be incurred in further litigating the application under the Rule.

Similar Facts Evidence

37.In the course of arguments, Mr. Chan sought to adduce evidence on some previous occasions when indemnity costs orders were made against clients represented by PKC and Sui (including the Plaintiff) but this was rejected by me.

38.It is trite law that although in civil cases the courts may admit evidence of similar facts if it is logically probative, facts which prove nothing more than likelihood of repetition, although logically relevant, should be rejected on grounds of fairness. This is because as Godfrey JA vividly expressed in So Amy & Others v Au Leslie [1995] 2 HKC 113 at 122: “…they tend to waste time, embarrass the inquiry with collateral issues, prejudice the fact finding tribunal, and encourage attacks without notice…”

39.In his judgment in that case, Godfrey JA also had this to say of evidence relating to collateral facts (quoting from AG v Nottingham Corp [1904] 1 Ch 673): -

“Farwell J draws attention to the distinction between evidence having a direct relation to the principal question in dispute and evidence relating to collateral facts, which will, if established, tend to elucidate that question. As the judge points out, to make the latter admissible the party tendering the evidence must satisfy the court that the collateral fact which he proposes to prove will, when established, be capable of affording a reasonable presumption or inference as to the matter in  dispute and also to satisfy the court that the evidence which he is prepared to adduce will be reasonably conclusive…”

40.In my view, the similar facts evidence sought to be adduced by the Defendant bears no direct relation to the principal question in dispute. Even if established, those facts are incapable of affording a reasonable presumption or inference as to the matter in dispute. In any event, evidence that on some previous occasions former clients of PKC and Sui were ordered to pay costs on an indemnity basis is of little significance unless there is further evidence to show that PKC and/or Sui had caused their former clients to incur wasted costs.

41.Out of completeness, I should also mention in this context the possible implications of legal professional privilege on PKC and Sui. As Sir Thomas Bingham MR said in Ridehalgh v Horsefield [1994] Ch 205 at 237:-

“The respondent lawyers are in a different position. The privilege is not theirs to waive. In the usual case where a waiver would not benefit their client they will be slow to advise the client to waive his privilege, and they may well feel bound to advise that the client should take independent advice before doing so. The client may be unwilling to do that, and may be unwilling to waive if he does. So the respondent lawyers may find themselves at a grave disadvantage in defending their  conduct of proceedings, unable to reveal what advice and warnings they gave, what instructions they received… Judges who are invited to make or contemplate making wasted costs order must make full allowance for the inability of respondent lawyers to tell the whole story. Where there is room for doubt, the respondent lawyers are entitled to the benefit of it. It  is gain only when, with all allowances made, a lawyer’s conduct of  proceedings is quite plainly unjustifiable that it can be appropriate to make a wasted costs order.”

42.As I have said, the fact that former clients of PKC and Sui had been ordered to pay indemnity costs is one thing but the fact that PKC and Sui had caused them to incur wasted costs is quite another.

43.Furthermore, as Ma JA (as he then was) neatly summarized in paragraph 41 of his judgment in Yau Chiu Wah v Gold Chief Investment Ltd. & Another [2003] 3 HKLRD 553:-

“(1)  … “Speculation is one thing, the drawing of inferences sufficiently strong to support orders potentially very damaging to the practitioner concerned is another.

(2)  It is perhaps only on rare occasions that a court will, even after making full allowance for the handicap the solicitor finds himself in, conclude there is no room for doubt in holding that the solicitor has been at fault. The reason for this is that a court must necessarily proceed with the utmost caution where it does not have the full facts before it.  

(3)  Where a solicitor’s professional reputation is at risk of being tarnished (an inevitable consequence of an order under O.62 r.8), the court must be fair to him in the light of the handicap on privileged material I have referred to.

(4)  Lord Bingham of Cornhill summarises the position in this way at p.185:

  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 shall not make an order unless, proceeding with extreme care, it is:

(a)  satisfied that there is nothing that the practitioner could say, if unconstrained, to resist the order; and

(b)  that it is, in all the circumstances, fair to make the order.”

44.Mr. Chan raised the point that there was nothing in the evidence to show that PKC and Sui had asked the Plaintiff to waive the legal professional privilege. This is however beside the point. It is for the Defendant to satisfy the court that there is nothing that PKC and Sui can say, if unconstrained by the legal professional privilege, to resist the wasted costs order. It is only when the court has satisfied itself that the Defendant has shown a strong prima facie case against PKC and Sui then the evidential burden may, depending on the circumstances, shift to them.

Conclusion

45.For these reasons, I am not satisfied on the evidence that the Defendant has discharged its burden of proof to show a strong prima facie case that PKC and Sui had committed conducts of the kinds prescribed in the Rule. Accordingly, paragraph 2 of the Defendant’s Summons dated 15^th June 2009 is dismissed.

Costs

46.Mr. Chan further submitted that even if the Defendant’s application for wasted costs order is unsuccessful, he would urge me to make no order as to costs of this application. Mr. Chan also referred me to the Yau Chiu Wah case (supra.) and the decision of Deputy High Court Judge To (as he then was) in Pine Enterprises Limited v Cyber Strategy Limited & Others (unreported) HCA No.1221 of 2006; 27^th March 2009.

47.In the Pine Enterprises Limited case (supra.), the learned judge specifically remarked in paragraph 64 of his Decision that he does “have some reservation whether [the solicitors’ firm concerned] were not at all to blame for their error of judgment in assessing the credibility of [their clients’] witnesses and of the strength of [their clients’] case.” It was on this basis that the learned judge went on to make an order nisi that there be no order as to costs.

48.And in the Yau Chiu Wah case (supra.), Ma JA (as he then was) made an order nisi that each side bears its own costs because, firstly, a large and critical part of the evidence is missing owing to legal professional privilege not having been waived. More importantly, it was because his Lordship took the view [see: para. 65 of his judgment] that “it does not seem to me in the circumstances that the Plaintiff has taken out either a misguided or misconceived application nor that she has acted unreasonably in doing so or continuing it.”

49.Obviously, neither of these cases can assist the Defendant here. Accordingly, I make an order that the Defendant do pay to PKC and Sui costs of and occasioned by this application to be taxed if not agreed.

The Defendant (Applicant) : represented by Mr. B. Chan of M/S. Robertsons, Solicitors

The 1^st Respondent : Mr. Sui See Chun, in person

The 2^nd Respondent : represented by Mr. Paul Kwong of M/S. Paul Kwong & Co., Solicitors