Sean Eric Mclean Hotung v. Hillhead Ltd and Others
Read the full judgment text of HCA 1738/2006 on BabelCite. This High Court CFI judgment.
1. The Plaintiff (“Sean”) has issued 2 summonses in taxation proceedings in this action. By the first summons dated 17 June 2009, Sean seeks determination of various preliminary issues (“1 st Summons”). By the second summons dated 16 July 2009, Sean applies for discovery of various documents as well as an order for cross-examination of various persons (“2 nd Summons”).
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HCA1738/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1738 OF 2006 _________________________ BETWEEN
_________________________ Coram: Master Marlene Ng in Chambers (open to the public) Date of Hearing: 26 November 2009 Date of Handing Down Decision: 31 December, 2009 _________________________ DECISION ________________________
I. Introduction 1. The Plaintiff (“Sean”) has issued 2 summonses in taxation proceedings in this action. By the first summons dated 17 June 2009, Sean seeks determination of various preliminary issues (“1st Summons”). By the second summons dated 16 July 2009, Sean applies for discovery of various documents as well as an order for cross-examination of various persons (“2nd Summons”). 2. The 1st and 2nd Summonses came before me for argument on 26 November 2009. Sean, though not legally represented, has argued his case with skill and vigour. Mr Man appears as counsel on behalf of the 1st Defendant (“Hillhead”) and 2nd Defendant (“EY”). After the hearing I reserved my decision, which I now hand down. II. Background 3. This case is connected to the litigation between Mr Eric Edward Hotung (“Mr Hotung”) and his children including Sean. To properly understand Sean’s submissions, it is necessary to set out some relevant background, and in this I draw assistance from the unreported judgment and ruling of Tang JA (as he then was) in Eric Edward Hotung v Ho Yuen Ki & ors HCA571/2003, HCMP2820/2002 and HCMP4511/2002 respectively dated 4 March 2005 (“Tang Judgment”) and 17 June 2005 (“Tang Ruling”), the unreported ruling of Deputy High Court Judge Muttrie in Hillhead Ltd v Sean Eric Mclean Hotung & ors HCMP2757/2005 dated 20 March 2007 (“Muttrie Ruling”),and the affidavit evidence filed by Sean in the present action. 4. In about 1979-1980, Mr Hotung appointed Madam Ho Yuen Ki (“Madam Ho”) as trustee of certain trusts in favour of his 3 sons (“Ho Trusts”) and Hillhead as trustee of certain trusts in favour of his 3 daughters who were then minors (“Hillhead Trusts”). 5. The trust properties of the Ho and Hillhead Trusts are respectively 10,002 shares in Hotung Enterprises Ltd (“HEL”) and 3 shares in Hotung Investment (China) Ltd (“HICL”). HEL holds 93.75% of the shares in HICL. According to paragraph 8 of the Muttrie Ruling, “[it] is not disputed that the shares are now worthless”. Paragraph 10 of the Muttrie Ruling states “[it] appears that [Mr Hotung] indicated that Hillhead’s directors need not be concerned with the management of HEL and HICL, and indeed they did not concern themselves with it [see paragraph 10 below]. Also, [Mr Hotung] kept the Hillhead Trusts secret from his daughters and retained the original trust deeds. It appears that they only learnt of the trusts in April 1998”. 6. Paragraph 9 of the Muttrie Ruling says as follows :
7. In 2002, dispute arose between Mr Hotung and the beneficiaries of the Ho and Hillhead Trusts. Mr Hotung questioned the validity of inter alia the Hillhead Trusts and claimed that such trusts were subject to conditions. 8. Sean and his brother commenced HCMP2031/2002 and Sean commenced HCMP2820/2002 to compel Madam Ho and Hillhead to execute powers of attorney in relation to the Ho and Hillhead Trusts. Sean also commenced HCMP4511/2002 to require Hillhead to convene an extraordinary general meeting of HEL. Hillhead by its solicitors Messrs Simmons & Simmons (“SS”) issued a Beddoe application in HCMP5250/2002 for directions in relation to the Hillhead Trusts. In the meantime, Mr Hotung commenced HCA571/2003 against Madam Ho, Hillhead, Sean and his siblings. Eventually various actions were consolidated, and in April 2003 the court directed Hillhead to adopt a neutral stance and to agree to be bound by the eventual Tang Judgment/ Ruling. 9. In HCA571/2003, Mr Hotung alleged that the Ho and Hillhead Trusts were subject to 3 conditions (“Hotung Conditions”) :
10. According to the Tang Judgment handed down in March 2005, Tang JA held that Mr Hotung insisted on secrecy in relation to the Ho and Hillhead Trusts, but Mr Hotung failed to prove the 1st or 2nd Condition ever existed. Tang JA agreed that probably it had been made known to Mr Hann and Ron they were not to interfere with the management of HEL and HICL, but he declined to find that the Ho and Hillhead Trusts were subject to the 3rd Condition, which condition had little meaning since the trustees of the HEL and HICL shares were not obliged to manage any of the companies (see paragraphs 6-7 of the Tang Ruling). 11. Hillhead through SS sought to assign or transfer the HEL and HICL shares held by the Hillhead Trusts to the beneficiaries subject to various conditions. At the request of one of the beneficiaries, SS sought and obtained audited accounts of HEL and HICL which showed there had been substantial diminution in the value of the HEL and HICL shares since 2000. This was followed by correspondence from Sean alleging that Hillhead failed to preserve the assets of HEL and HICL and threatening to sue Hillhead for breach of trust. Sean later alleged Hillhead could be responsible for all the missing monies from the Hillhead Trusts, and required Hillhead to take steps to ascertain why the shares had diminished in value. 12. Hillhead took the view that since it did not enjoy the trust and confidence of the beneficiaries who threatened substantial claims for breach of trust, it was inappropriate to continue as trustee of the Hillhead Trusts. Further, Hillhead was not confident that Madam Ho (who holds half of the HEL and HICL shares) would cooperate in investigating the affairs of HEL and HICL. Still further, substantial legal costs had been incurred over various litigations involving the Hillhead Trusts. 13. Hillhead therefore commenced HCMP2757/2005 against Sean and others for transfer of the legal title in the HEL and HICL shares to the beneficiaries subject to indemnities. Quite a number of affidavits by Sean, his siblings and SS’ former partner Ms Wanda Tong (“Ms Tong”) were filed. Some agreement was reached eventually, and the issue of costs was resolved by the Muttrie Ruling. III. Present action 14. On 11 August 2006, Sean commenced the present action against Hillhead and EY to claim compensation for diminution in the value of the shares in HEL and HICL held on trust by Hillhead. SS filed acknowledgment of service on behalf of Hillhead and EY. On 12 July 2007, leave was granted for Sean to join Ron as the 3rd Defendant, but the Writ of Summons and/or Amended Writ of Summons have not been served on Ron. 15. According to Sean’s pleaded claim,
16. In the circumstances, Sean claims for (a) full account and enquiry from Hillhead and EY in respect of various transactions involving HEL and HICL, (b) “damages or equitable compensation in the value of the shares in HEL and HICL resulting from wrongful diversion of their assets or funds or moneys or from their subsidiaries”, and (c) “any necessary accounts and enquiries and orders for payment thereon”. 17. On 26 July 2007, SS filed a Defence on behalf of Hillhead and EY. On 10 August 2007, Sean filed a Reply. On 20 September 2007, Hillhead and EY applied to strike out Sean’s claim for disclosing no reasonable cause of action. At the hearing on 11 March 2008, Reyes J struck out Sean’s claim and dismissed the action against Hillhead and EY. He also awarded costs of the application and of the action to Hillhead and EY with certificate for two counsel to be taxed if not agreed on party and party basis (“Costs Order”). 18. In his written judgment (“Judgment”), Reyes J held as follows :
19. Up to this stage, Sean was still legally represented. He filed Notice to Act in Person on 26 March 2009. 20. As at the hearing before me, there was no appeal against and no application for stay of execution of the Judgment and Costs Order. On 16 December 2009 (ie after the hearing before me), Sean advised the court that on 14 and 15 December 2009 he has respectively issued (a) a summons returnable before Kwan JA on 27 January 2010 for leave to appeal against the Judgment and Costs Order out of time (“Appeal Summons”) and (b) a summons returnable before Reyes J on 3 February 2010 for stay of execution of the Judgment and Costs Order pending the intended appeal (“Stay Summons”). But pending the hearing of such summonses, the Judgment and Costs Order remain operative and binding on Sean, Hillhead and EY (see Order 59 rule 13(1)(a) of the Rules of the High Court (“RHC”)). 21. On 30 March 2009, SS filed a Bill of Costs (“Taxation Bill”) claiming for a single set of costs for both Hillhead and EY. On 26 May 2009, Sean filed his item-by-item List of Objections together with two pages of further objections to the Taxation Bill. At the call-over hearing on 2 June 2009, Madam Registrar Au-Yeung directed Sean to take out a summons setting out the preliminary issues in respect of the taxation of costs under the Costs Order. 22. On 17 June 2009, Sean took out the 1st Summons and filed his own affidavit in support. On 10 July 2009, Hillhead and EY filed the affirmation of Mr Alan John Collins (“Mr Collins”), EY’s General Counsel, in opposition (“Collins Affirmation”). On 16 July 2009, Sean took out the 2nd Summons and filed his second affidavit in support of such application. 23. In his written and oral submissions, Sean raises a number of additional factual matters and refers to additional documents that have not been set out in his affidavits or exhibits thereto. For example, he refers to his conversation with BEA’s Evon Chu (see paragraph 8 of his written submissions), pages 100-109 of the BEA Annual Report 2002 (“BEA 2002 Report”), and a document titled “Legal Statement” said to be published by EY. With no objection from Mr Man, I granted leave for Sean to rely on the extracts from the BEA 2002 Report for the purpose of the 1st and 2nd Summonses. But in the absence of further agreement by Mr Man, I have not granted further leave for Sean to rely on other additional facts and/or documents at the hearing. Hence, reference in this Decision to any such additional fact and/or document is merely for the sake of completeness, but does not amount to any express or implicit leave of the court for Sean to rely on the same. 24. At the hearing before me, with leave of the court and no objection from Mr Man, Sean has withdrawn the relief sought in paragraph 4 of the 2nd Summons. IV. Defence by Hillhead and EY25. The Costs Order awards costs of the striking out application as well as costs of the action to Hillhead and EY, so they are entitled to inter alia all costs necessarily and properly incurred for prosecuting the striking out application and for defending the entire action. I briefly set out below the defence averments pleaded by Hillhead and EY for better understanding of Sean’s arguments in due course. 26. Hillhead and EY deny Sean’s claim. It is averred in the Defence that Hillhead is a service company of EY, and EY is a firm of professional accountants operating in Hong Kong and a member of Ernst & Young International being a group of separate and independent firms of auditors and accountants around the world. The Defence specifically denies that the beneficial ownership of Hillhead has been transferred to Tricor. 27. The Defence avers that Hillhead is only a bare trustee of the HEL and HICL shares, which shares are the only assets of the Hillhead Trusts. Hillhead does not have any shareholding in CIHL, does not hold out to be providing professional trustee services or agree to be appointed professional trustee of the Hillhead Trusts, and has not provided services to the beneficiaries of the Hillhead Trusts as professional trustee. 28. The Defence claims that Hillhead has discharged all its fiduciary duties, but EY does not owe any duties to Sean or any other beneficiaries of the Hillhead Trusts. If, which is denied, Hillhead were in breach of its fiduciary duties by reason of the acts/omissions as alleged in the Amended Statement of Claim, and if there has been a diminution of the value of the assets of HEL and HICL, such acts/omissions are not causative of such diminution because :
V. Initial observations 29. Before dealing with the particular reliefs sought by Sean, I set out my initial observations to which I shall return from time to time in this Decision. 30. First, Reyes J has struck out Sean’s claim on the ground that it discloses no reasonable cause of action. Order 18 rule 19(2) of the RHC provides that no evidence shall be admissible on such application, hence no affirmation evidence has been filed by either party for such purpose. Thus, Reyes J has not been called upon to consider the merits or demerits of the averments, denials and non-admissions in the Defence. 31. Secondly, there is as yet no viable appeal, so the taxing master cannot question the correctness of either the Judgment or Costs Order. The Costs Order, which is still binding on the parties, defines the scope of the taxation proceedings. 32. Thirdly, insofar as the Costs Order awards costs of the action against Sean, Hillhead and EY are entitled to recover inter alia costs of the entire action incurred for defending against Sean’s claim and such costs are to be taxed on party and party basis. In particular, Reyes J has not exercised his discretion to deprive Hillhead and EY of (a) any part of the costs of the action or (b) the costs of any issue/allegation raised in the proceedings. 33. I now turn to the 1st Summons. VI. Hillhead’s authority to appoint solicitors(a) Collins Affirmation 34. The Collins Affirmation states that EY has authority to act for Hillhead, one of its service companies, especially when EY is also sued in the same legal proceedings. Since 1 March 2002, Hillhead’s shareholders have been Mr David Sun (“Mr Sun”, 2 shares), Ron (1 share), Mr Howard Lau (“Mr H Lau”, 1 share), Mr Stephen Lau (“Mr S Lau”, 1 share) and Mr David Mace (7 shares), and they are all former or current partners of EY. When the present action commenced on 11 August 2006, both Hillhead and EY were and have remained insured entities under EY’s insurance arrangements. 35. Mr Collins goes on to say that upon receipt of the Writ of Summons herein on behalf of Hillhead and EY, he consulted Mr Sun and Mr H Lau, who are senior partners of EY, and with their agreement he instructed SS to defend Hillhead and EY against Sean’s claim, so on 21 August 2006 SS filed acknowledgment of service on behalf of Hillhead and EY. Mr Collins confirms that SS, who have acted for Hillhead previously in HCMP2757/2005, have not issued any formal retainer letter, but following their instruction in this matter SS have billed for their professional fees/disbursements incurred in connection with acting for Hillhead and EY in the present action, and they have been paid by EY. 36. Sean challenges both Hillhead’s authority to retain SS as its solicitors as well as EY’s authority to appoint SS to represent Hillhead in the present action, and he further questions SS’ locus to act for Hillhead on the various grounds discussed below. (b) Power of attorney 37. Article 102 of Hillhead’s articles of association (“Article 102”) provides as follows :
38. Sean claims that only the directors of Hillhead are authorised to engage legal representatives, and they must do so by power of attorney pursuant to Article 102. Mr Collins contends that Article 102 addresses the granting of power of attorney, but does not require (and there is no provision in Hillhead’s articles of association requiring) a board resolution before appointing solicitors to act on Hillhead’s behalf. Sean interprets such contention to mean all that is required for appointing solicitors to act for Hillhead is a power of attorney without any board resolution, and he disagrees with such contention on the basis that a power of attorney requires authorisation by the board of directors of Hillhead. 39. In fact, there is no power of attorney for appointing SS to act for Hillhead in the present action. In my view, Sean has misread Mr Collins’ contention. I agree with Mr Man that what Mr Collins is in fact saying is that the reference to “power of attorney or otherwise” (my emphasis) in Article 102 is permissive in that it allows the appointment of attorneys (ie agents who are not necessarily legal representatives) by written power of attorney, but does not require such written power of attorney. There is no merit to Sean’s argument. (c) Ownership of Hillhead and its corporate secretary/directors 40. Sean refers to the affirmation of Ms Tong dated 16 December 2005 filed on behalf of Hillhead in HCMP2757/2005 (“Tong Affirmation”) which states inter alia as follows :
41. The Tong Affirmation and the BEA 2002 Report show that as from 2002 Tricor (formerly Tengis), Tristan and Kaliwood are subsidiaries of and 71.3% owned by BEA. Sean argues that since (a) Hillhead has been acquired by the BEA/Tricor Group and (b) Tricor, Tristan and Kaliwood being Hillhead’s corporate secretary and corporate directors are all subsidiaries of or associated with BEA, Hillhead has come under the control of BEA and is no longer a service company of EY, so it is illogical for Mr Collins to say that Hillhead is an insured entity under EY’s insurance arrangements. Sean further argues that it is questionable whether BEA has approved EY’s instructions to SS to act for Hillhead. 42. Sean refers to the company profile of Tengis and a News Release dated 23 January 2002 which state that (a) Tengis being part of EY was one of Hong Kong’s leading share registrars and it provided corporate secretarial and other business advisory services, and (b) SS advised on the sale of Tengis and its related businesses to a consortium led by BEA. Sean therefore submits that SS are all along aware that they cannot act for Hillhead on the instructions of EY absent authorisation by BEA. 43. I disagree. The Collins Affirmation makes clear that even after the restructuring in 2002 Hillhead is still beneficially owned by EY through shareholders all of whom were/are the former or current partners of EY. Sean does not dispute Hillhead’s shareholdings as described by Mr Collins, so even though the directors/secretary of Hillhead have been changed to Tristan, Kaliwood and Tricor being subsidiaries of BEA, there is no altering the fact that Hillhead was and remains a service company beneficially owned by EY. Although it is unnecessary to look for further support, such fact is fortified by Mr Collins’ confirmation that EY’s insurance arrangements cover Hillhead. I am therefore of the view that BEA’s authorisation for appointing solicitors to act for Hillhead is irrelevant and unnecessary. 44. It is true that Tengis (later known as Tricor) is beneficially owned by BEA after their acquisition of EY’s company secretarial and business advisory services. But Tricor’s company profile makes clear that it continues to be a professional corporate services company. Further, although Hillhead’s current corporate directors Tristan and Kaliwood are subsidiaries of BEA, they also offer corporate secretarial services (see the BEA 2002 Report which describes their nature of business as “[nominee] director/shareholder ……”). Consequently, notwithstanding BEA’s ownership of Kaliwood and Tristan, they merely act as nominee directors of Hillhead which was and remains a service company of EY. I am unable to accept the leap in logic in Sean’s assertion that because BEA owns Hillhead’s corporate directors whose business is to provide nominee director services it also owns Hillhead, which assertion conveniently ignores the fact that all of Hillhead’s shareholders are former or current partners of EY. (d) EY’s “Legal Statement” 45. According to a “Legal Statement” purportedly published by EY, EY refers to the global family of member auditing and accounting firms each of which is a separate legal entity :
46. Sean interprets the “Legal Statement” to mean that EY has no power to represent or bind Hillhead, which he claims is in sharp contrast to the Collins Affirmation that says Hillhead is EY’s service company and EY’s insurance arrangements cover Hillhead. In my view, Sean has misread the “Legal Statement”. In fact, what it says is that the Far East regional member firms of the EY global family are separate entities that do not bind or represent one another. But this does not concern and is irrelevant to the relationship between a regional member firm and its own service company. There is no merit to this contention. (e) Instructions from EY 47. Mr Collins says that after he consulted and obtained the agreement of Mr Sun and Mr H Lau (senior partners of EY), he instructed SS to act for both Hillhead and EY in the present action. 48. Mr Man submits that the authority of SS to act for Hillhead is beyond doubt. Since Hillhead was/is at all material times a service company of and beneficially owned by EY, it is sufficient and proper for Mr Collins as General Counsel of EY (with the approval of EY’s senior partners) to authorise SS to act for Hillhead in the present action, especially when EY is also sued in the same litigation on the basis of being vicariously liable for the acts of Hillhead. 49. On the other hand, Sean argues that litigation is no light matter so it is necessary to convene a meeting of the board of directors of Hillhead to pass the requisite resolution before solicitors can be appointed to act for Hillhead in the present action. 50. There is no doubt that when Mr Collins instructed SS to act for Hillhead and EY in the present action, there was no written authorisation from Hillhead. Nevertheless, I find Mr Man’s submissions in paragraph 48 above more cogent in light of my conclusions in paragraphs 40-44 above. But even if I am wrong, it is too late for Sean to argue that SS lack authority to act for Hillhead (see paragraphs 54-58 below), and in any event their appointment has been ratified by the written resolution of Hillhead’s corporate directors on 27 November 2009 (see paragraphs 59-63 below). (f) EY’s insurance arrangements 51. Sean argues that EY’s instructions to SS to act for Hillhead (purportedly premised on EY’s insurance arrangements that allegedly cover Hillhead) are in breach of the requirements of “Hong Kong law regarding full disclosure with their insurer (in light of their misconduct)” as set out in Leung Yuet Ping v Manualife (International) Limited HCA2380/2006, Deputy High Court Judge Carlson (unreported, 19 May 2009). Sean cannot believe that EY and/or Hillhead have made proper disclosure to EY’s insurers, and that being the case the insurance arrangements cannot support the appointment of SS to act for Hillhead in the present action. 52. I am afraid this is another red herring. As explained in the paragraph 35 above, the instructions to SS to act for Hillhead in the present action have come from EY (ie from Mr Collins with the approval of Mr Sun and Mr H Lau). There is no evidence that such instructions have emanated from EY’s insurers. Mr Collins’ reference to Hillhead being an insured entity under EY’s insurance arrangements is to bolster the fact that Hillhead was/is a service company of EY, and to illustrate the community of interest between EY and Hillhead. On a fair reading of the Collins Affirmation, I am unable to discern Sean’s interpretation set out in the above paragraph (which I reject). 53. Having come to such conclusion, Sean’s concern over any non-disclosure of material facts to EY’s insurers falls away. Even if it does not (which I disagree), I cannot see how it can assist him. Leung Yuet Ping deals with the issue of whether as a result of non-disclosure of material facts by the insured the insurer can decline liability for a claim by the insured under a policy. This issue touches on the relationship between the insurer and the insured rather than that between the insured and other parties, and it certainly does not detract from the validity of Mr Collins’ instructions to SS to act for Hillhead in the present action. (g) Too late to challenge authority 54. Sean has not challenged SS’ authority to represent Hillhead in the present action at all until he filed his List of Objections in late May 2009 (ie over 2½ years after commencement of proceedings). Indeed, Sean’s former legal representatives have all along recognised SS as having authority to act for Hillhead by corresponding/liaising with and serving court documents on SS and by appearing before Reyes J to argue the striking out application issued by SS on behalf of Hillhead and EY without any objection or protest about SS’ authority. 55. Sean seeks to explain this by saying that nothing could have been done between 2002 and 2005 pending the Tang Judgment/Ruling and he was unaware of the restructuring in 2002 involving Tricor and BEA until the recent revelation of such matters in the BEA 2002 Report and in the News Release dated 23 January 2002 in HCMP2757/2005. Sean adds that once he has become aware of SS’ lack of proper authority he has raised objection both in the present action and in HCMP2757/2005. 56. I find Sean’s submissions unconvincing. Upon enquiry by the court as to when he first became aware of SS’ lack of proper authority to act for Hillhead, Sean says he has to check his records but believes it should be some time in 2005 or 2007. In fact, the Tong Affirmation served on Sean in December 2005 in HCMP2757/2005 has already deposed to the essential background facts in respect of the restructuring in 2002 (see paragraph 40 above). Sean and/or his then legal representatives could have raised complaint that Hillhead and its corporate secretary and corporate directors were beneficially owned by BEA and not EY. But as it turns out, SS’ authority to act for Hillhead in various related litigations has not been questioned until quite recently. 57. In face of such difficulty, Sean resorts to say that because EY has only disclosed the insurance arrangements at a late stage in the Collins Affirmation he has just realised that Hillhead has changed hands from EY to BEA. However, such argument does not take Sean’s case much further because (a) the primary facts for his suggestion that there has been change of ownership of Hillhead are all found in the Tong Affirmation, and (b) Sean casts doubt on EY’s insurance arrangements anway. But as explained in paragraphs 40-44 above, actually the beneficial ownership of Hillhead has not changed at all, so the insurance arrangements have no direct bearing on the issue of SS’ authority to act for Hillhead. 58. The end result is that notwithstanding Sean’s awareness for some time about the BEA/Tricor Group restructuring in 2002, his past conduct in various related litigations suggests that he has recognised SS as having sufficient authority. It is unnecessary to refer to any legal authority for such obvious conclusion, but Gore-Browne on Companies 45th ed Vol.1 p.14-4 and the reference therein to Fusion Interactive Communications Ltd v Venture Investment Placement Ltd [2005] BCLC 250 are instructive. (h) Ratification 59. Mr Man points out that even if there are no minutes of meeting or written resolution of the board of directors approving the appointment when SS were first appointed to act for Hillhead in the present action, Hillhead can always produce a written resolution ratifying the acts of SS on its behalf. At the hearing before me, with encouragement and indeed demand from Sean, Mr Man has given an undertaking on behalf of Hillhead to submit such written resolution within 7 days. 60. On 2 December 2009, SS submitted the following written resolution (“Resolution”) passed on 27 November 2009 pursuant to article 96 of Hillhead’s articles of association (“Article 96”) and signed by Tristan and Kaliwood as corporate directors of Hillhead :
61. In my view, even assuming that the partners and/or the General Counsel of EY without formal authority have purported to appoint SS to act on behalf of Hillhead in the present action, Hillhead is able through the process of ratification to adopt the acts making them valid and effective as if they had been authorised in advance by Hillhead. 62. There can be no doubt that under Hillhead’s articles of association the appointment of solicitors to act for the company in legal proceedings is an act within the actual authority of its board of directors, and hence may be ratified by the board of directors alone. I am unable to accept Sean’s suggestion that Hillhead’s shareholders have to be notified and/or to attend the meeting to cast their vote, ie ratification by resolution of the members in general meeting. 63. Further, Article 96 provides that a resolution in writing signed by all directors for the time being shall be as effective as a resolution passed at a meeting of the directors duly convened and held. Pursuant to Article 96, Tristan and Kaliwood being the only directors of Hillhead have signed the Resolution, and such ratification leads to the act in question, ie the appointment of SS as solicitors for Hillhead in the present action, being treated as if it has been done with antecedent authority (see Boston Deep Sea Fishing and Ice Co v Farnham [1957] 1 WLR 1051), and such act is therefore adopted as the act of Hillhead. Any lack of authority (which I disagree) has been remedied by the Resolution. (i) Dormant company 64. Sean submits that since Hillhead has become dormant by June 2001, it is impossible for Hillhead to convene any directors’ meeting to pass the necessary resolution for the appointment of SS as its solicitors in the present action. He argues that any such resolution amounts to a “relevant accounting transaction” under section 344A(6)(a) of the CO such that the exemption under section 344A(4) will cease “as from the date of the relevant accounting transaction”. If Hillhead ceases to be dormant, it has to inform him (as a beneficiary of the Hillhead Trusts), the Registrar of Companies as well as the court. Hillhead has failed to do so, so any directors’ resolution is defective. 65. Section 344A(6)(a) of the CO provides as follows :
66. In section 344(9) of the CO, “relevant accounting transaction” is defined to mean a transaction which is required by section 121 of the CO to be entered in the company's books of account. This includes the receipt and expenditure of money and the sale and purchase of goods, assets and liabilities, but does not include a fee which the company is required to pay by law, for example the annual business registration fee. 67. I am not persuaded by Sean’s arguments. Given the definition of “relevant accounting transaction” in sections 344(9) and 121(1) of the CO, I cannot see how a board meeting and/or board resolution can amount to such transaction. 68. But is SS’ solicitor-client bill for professional fees and disbursements a relevant accounting transaction? The Collins Affirmation makes clear that EY and not Hillhead has paid the professional fees and disbursements billed by SS in connection with their acting for Hillhead and EY in the present action. On cash basis accounting, expenses are only recognised and reported when cash is actually paid, but Hillhead has not made any payment. Even on accrual basis accounting, which is a method of recognising and reporting expenses when incurred, if SS’ solicitor-client bill has been settled by EY when due as appears to be the case from the Collins Affirmation, it is doubtful whether any item for accounts payable (as distinct from Hillhead’s legal liability for legal costs) needs to be entered in Hillhead’s books of account. 69. Even if I am wrong and SS’ solicitor-client bill for professional fees and disbursements is a relevant accounting transaction within the meaning of section 121 of the CO, what is the consequence? Pursuant to section 344(6)(a) of the CO, (a) the relevant exemptions will cease to apply and (b) the shareholders who knew or ought to have known of such transaction and all directors of Hillhead will be personally liable for any debt arising out of the transaction, ie SS’ professional fees and disbursements incurred in acting for Hillhead in the present action. In my view, (b) makes it abundantly clear that Hillhead’s dealings with SS will not be avoided at all, but instead additional parties will become personally liable for SS’ professional fees and disbursements. There is therefore no merit to Sean’s arguments in this respect. (j) Joint and/or several entitlement to costs 70. Sean submits that if SS have not been properly authorised to act for Hillhead, then their professional fees and disbursements incurred on behalf of Hillhead (as distinct from those incurred on behalf of EY) are not payable by him irrespective of whether EY has actually paid the same or not. 71. The question of Hillhead’s and EY’s joint and/or several entitlement to costs in their favour under the Costs Order will be discussed in more detail in Part XV below. Suffice to say here that Sean’s arguments do not assist him. (k) Summary 72. In summary, I am unconvinced by Sean’s arguments that Hillhead does not have any authority to appoint or has not properly appointed SS to act for the company in the present action and/or that SS has no locus standi to act for Hillhead. VII. Maintenance and champerty 73. Sean submits that “unlawful maintenance is the improper stirring up of litigation and strife by giving aid to one party to bring about and defend a claim without just cause or excuse …… and champerty involved the concept of division of the spoils of litigation ……” Such description is extracted from the judgment of Master de Souza in Hotung v Hotung [2007] 1 HKLRD 548, 558. 74. Sean also has no quarrel with Mr Man’s submissions that it is well established there is no objection to the support of legal proceedings based on a bona fide community of pecuniary interest, and a person acting in legitimate defence of commercial interests will not fall foul of champerty or maintenance (see Halsbury’s Laws of England 4th ed (Reissue) Vol.9(1), para.853 at pp.611-612). 75. In fact, the law of maintenance and champerty has been definitively stated by the Court of Final Appeal in Unruh v Seeberger (2007) 10 HKCFAR 31, which case has not been cited by either party. However, given Sean’s strong reliance on his arguments in this respect, it is useful to refer to Ribeiro PJ’s helpful summary of the law in Unruh at pp.68-70 :
76. The Court of Final Appeal recognises a category of excluded cases, namely, the “common interest” category, as follows :
77. Sean argues that paragraph 21 of the Tong Affirmation admits that at all times Hillhead has conducted the litigation in HCMP2757/2005 under the instructions of EY’s chief operating officer Mr Byrnes. He further says it is evident from SS’ bill of costs for HCA571/2003 that EY has been financing Hillhead’s legal costs incurred in that action. Likewise in the present action, the Collins Affirmation admits that SS have been appointed to act as solicitors for Hillhead upon instructions of the General Counsel of EY (Mr Collins) with the approval of EY’s senior partners (Mr Sun and Mr H Lau), and EY has paid SS’ bill for professional fees and disbursements. 78. According to Sean, this is clear acknowledgment that all along EY has been SS’ secret client in respect of various litigations involving Hillhead vis-à-vis the Hillhead Trusts, and EY has been secretly funding Hillhead’s legal costs. However, as explained in paragraph 73-76 above, mere proof that an arrangement may be caught by the broad definitions of maintenance or champerty is not of itself sufficient to found liability. 79. Mr Man submits (and I agree) that the evidence before the court points to Hillhead and EY having a community of commercial and pecuniary interest so that it is proper for EY to participate in and fund the present litigation in defence of its own commercial interest :
80. Sean argues that since Hillhead is under the control of BEA which has not authorised EY and/or SS to act for Hillhead and which has no commercial interest in the present litigation, EY’s support and funding of the present action in favour of Hillhead must be struck down on the ground of public policy against maintenance and champerty. However, given my conclusion that Hillhead is not under the control of BEA but was/is a service company of EY (see paragraphs 40-44 above), I have no quarrel with Sean’s suggestion that BEA has no commercial interest in the outcome of the present action, but for the reasons set out in the above paragraph EY plainly has a legitimate commercial interest in the outcome of the present litigation sufficient to justify its support to Hillhead without engaging the prohibition against maintenance and champerty. 81. Sean further claims that since a minimum of HK$780 million of trust assets have “vanished” under the care of Hillhead and EY in their capacities as professional trustees who received and managed monies and assets for the beneficiaries under the Hillhead Trusts, EY must have funded the present litigation on behalf of Hillhead in order to avoid proper accounting of the same and to retain the “spoils of division” which EY has profited from administering the Hillhead Trusts for the past 27 years. In support of such contention, Sean argues that Hillhead and EY have concealed information from the court and have lied in the Defence in saying they know nothing about the trust assets when in fact they are well aware of the same. Such allegations of concealment and inappropriate denials and non-admissions will be discussed in greater detail in Part X below. Suffice to say here I am not with Sean in respect of such argument. 82. In further support, Sean argues that the BEA 2002 Report shows that the BEA/Tricor Group acquired 71.3% interest of Tengis in 2002 for HK$422.5 million. The News Release dated 23 January 2002 says that SS advised on the sale of Tengis and its related businesses. Sean questions “…… how much profit did [SS] secured and whether the argument of Champerty can be applied to [SS] and is this the reason why [SS] does not require written authorization from [Hillhead] as admitted in HCMP2757/2005? What were the profits secured by directors [Mr Sun], [Mr S Lau], and [Mr H Lau] of [Hillhead] from this transaction? It is noted [Mr Collins] identified 2 of said directors as authorizing representation for [Hillhead] in this action. There is no question as to [EY’s] profits and “promotions” said 3 directors received (matter of public record) shortly thereafter” (see paragraph 10 of Sean’s written submissions). 83. Sean’s speculative arguments are difficult to follow. Since Hillhead is not owned by BEA but has remained a service company of EY after the restructuring in 2002, whether SS earned professional fees for advising on the sale of Tengis and its related businesses and/or whether EY received consideration for such sale and/or whether EY’s partners have shared the profits of such sale (if any) are neither here nor there. In any event, I cannot see how it can be suggested that the sale of Tengis to the BEA/Tricor Group savours of maintenance or champerty when there is no evidence that such sale is not an arms-length commercial transaction. I have already dealt with Sean’s arguments in respect of SS’ authorisation to act as solicitors for Hillhead in the present action in Part VI above, and rely on the discussions without repeating the same here again. 84. In the circumstances, I am of the view that Sean has not been able to raise a prima facie case of unlawful maintenance and/or champerty. VIII. Indemnity principle 85. There is no dispute that Hillhead has never paid any legal costs in the present action and that SS’ professional fees and disbursements in connection with the present action have been paid by EY. Sean says this is because Hillhead has admitted that it is without monies, assets or resources. He argues that in the circumstances there is no enforceable liability owed by Hillhead to its solicitors resulting in breach of the indemnity principle. 86. Mr Man submits that such argument is a non sequitur. The fact that Hillhead has no assets or resources does not mean it is not legally liable to pay SS for legal costs incurred in defending the present action initiated by Sean. Further, the mere fact that SS may have continued the defence of Sean’s claim in the present action in the knowledge of Hillhead’s lack of means does not necessarily justify a conclusion that they are unlawfully maintaining the defence in the present action or that the arrangement is champertous. 87. In Lam Lai Wah Susanna v Pacific Century Insurance Company Limited (formerly known as Top Glory Insurance Company (Bermuda) Limited) CACV385/2002 (unreported, 4 March 2003), Yuen JA explained the correct approach to identifying any breach of the indemnity principle as follows :
These principles have been adopted by Master de Souza in Hotung v Hotung [2007] 1 HKLRD 548. 88. Under the indemnity principle, the court’s concern is with the nature of the retainer. I agree with Mr Man that what is required is not that the winning party has paid the relevant costs to his solicitors, but that he is liable to pay such costs to his solicitors even though they are in fact paid by a third party and/or a third party is also liable for those costs. Further, once it is established that solicitors have acted for a winning party with his knowledge and assent, it is presumed that the winning party has a prima facie obligation to remunerate the solicitors because that is the ordinary basis on which a professional person is employed to represent a party. 89. From the analysis in Part VI above, it is clear that Hillhead has known and has duly authorised SS to act on its behalf in the present litigation (and it matters not that SS have been chosen or appointed by EY for Hillhead), therefore Hillhead has a prima facie obligation to remunerate SS. Yuen JA makes clear that the presumed obligation by Hillhead to pay SS’ fees and disbursements is not rebutted by evidence that EY has also undertaken to pay and has actually paid SS’ fees and disbursements, hence the fact that Hillhead may have no assets or resources to pay SS’ solicitor-client bill is an insufficient answer. The presumption will only be rebutted if there is evidence of an agreement between SS and Hillhead/EY that under no circumstance would Hillhead be liable to SS for costs. Sean has been unable to raise any prima facie case of such agreement. In my view, there is no merit to Sean’s argument that there is breach of the indemnity principle. IX. Sections 49 and 51 of the Legal Practitioners Ordinance Cap.159 (“LPO”) 90. At first, Sean submits that since Hillhead is a dormant and “bankrupt” entity without any resources or assets other than the shares in HEL and HICL it holds under the Hillhead Trusts which trusts are also “bankrupt”, SS are in breach of sections 49 and 51 of the LPO, so all of their solicitors who have acted in the present action on behalf of Hillhead are liable to be disciplined and struck off the roll of solicitors. In his written submissions, Sean concedes he has erred in his interpretation of sections 49 and 51 of the LPO, and he no longer maintains the above contention. X. Fraud upon the court 91. Sean complains that Hillhead, EY and SS have knowingly and deliberately lied to and deceived the court in the present action (in particular Reyes J) in that the averments, denials and non-admissions in the Defence are incompatible with facts revealed in affirmations filed on behalf of Hillhead in HCMP2757/2005 and HCA571/2003. He claims that Hillhead and EY as trustees are obliged to make proper disclosure of facts known to them, and if they had done so it would have been clear that both Hillhead and EY are directly liable to him, and Reyes J would have something to say in respect of vicarious liability on the part of EY. 92. In his written submissions, Sean argues that just because the Judgment has been decided on the reflective loss principle “it cannot be said the defence of the defendants had no influence of the Honourable Court …… We are now expected to believe [Reyes J] did not consider any part of the defendants’ defence and or did not read the said defense?” In short, Sean submits that (a) in coming to his conclusions in the Judgment and Costs Order Reyes J was unconsciously influenced by the false perspective given by the Defence that Hillhead and EY know nothing about and do not manage the trust assets, and (b) but for such misconduct on the part of Hillhead and EY (of which SS are well aware) leading to perpetration of deception and fraud on the court, Reyes J would have given greater consideration to the Giles v Rhind exception. Sean refers to a number of authorities including Derry v Peek [1889] All ER 1 (a case on fraudulent misrepresentation and deceit), HKSAR v Lee Ming Tee HCCC191/1999, Seagroatt J (unreported, 13 December 2002) (a criminal fraud case), Hui Chi Ming (previously known as X) v Koon Wing Yee HCA1479/2009, Poon J (unreported, 25 September 2009) (a case on material non-disclosure for ex parte Mareva injunction), Gao Hai Yan & anor v Keeneye Holdings Limited & ors HCMP1510/2009 (unreported, 18 September 2009) (an intended appeal case on material non-disclosure for ex parte appointment of receiver and manager), and two United States authorities on “fraud upon the court”. 93. The short and complete answer to this argument is found in my initial observation in paragraph 30 above. The application by Hillhead and EY to strike out Sean’s claim has been made on the ground that Sean’s pleading discloses no reasonable cause of action. No evidence of fact has been filed by either side as affidavit evidence is not allowed for such application. Consequently, whether the Defence has been filed and/or whether Reyes J has read the same is neither here nor there because Reyes J has not gone into any evidence or any averment/ denial pleaded in the Defence. The application has been determined solely upon the legal issues of (a) whether the loss claimed is purely reflective loss and not loss which can be legally claimed by a beneficiary from a trustee and (b) whether EY can be held to be vicariously liable for Hillhead’s alleged breach of fiduciary duty. The Judgment has held that the loss claimed by Sean is purely reflective so his claim against Hillhead has been struck out, and accordingly Reyes J has also struck out Sean’s claim against EY without saying anything regarding the issue of vicarious liability. In the circumstances, whether EY has any knowledge about the affairs of Hillhead could not have affected Reyes J’s conclusion that Sean’s claim violates the reflective loss principle. In my view, there is no basis for suggesting that any deception or fraud perpetrated by Hillhead, EY or SS on Reyes J has so misled him into striking out Sean’s claim. 94. In further support of his arguments, Sean has given specific illustrations of Hillhead’s and EY’s alleged “non-disclosure and deliberate concealments of material facts that caused consideration for the Principle of Reflective Loss”, which non-disclosure and concealment he claims explain why taxation of costs under the Costs Order has been deferred for two years. 95. First, Sean submits that in the Defence and the Collins Affirmation (a) the denial that Hillhead and EY have provided services to the beneficiaries of the Hillhead Trusts as professional trustees and (b) the assertion that Hillhead is only a bare trustee of the Hillhead Trusts and has neither held itself out to be providing professional trustee services nor agreed to be appointed as professional trustee of the Hillhead Trusts are false and fraudulent. He argues that as a matter of law a bare trustee is only applicable where there is one single absolute beneficiary, which is not the case with the Hillhead Trusts. 96. For this, Sean refers to clause 3(e) of Hillhead’s memorandum of association which states that the objects for which Hillhead is established includes carrying on any or all of the following businesses :
In my view, such permissive rather than mandatory object merely shows that it is not ultra vires for Hillhead to act as trustee, but it does not amount to any promotion of the professionalism of Hillhead in acting as trustee as suggested by Sean. 97. Sean also refers to an extract from the webpage of the Hong Kong General Chamber of Commercial which states that EY is a leading international and professional services firm that provides a full range of professional services including “Tax Advisory Services: …… Trust & Estate Planning ……” But even assuming that professional trustee services are part of the range of services offered by EY, it does not necessarily follow that Hillhead is a professional (and not just a bare) trustee of the Hillhead Trusts. 98. Sean says the fact that Hillhead and EY act as professional trustees is bolstered by the instrument of transfer and bought and sold notes for the transfer of 10,002 shares of HEL from Mr Hotung to Hillhead signed by Mr Hann and Mr James (partners of EY and then directors of Hillhead) which provide for a consideration of HK$1,000,200.00. Sean argues this clearly shows that Hillhead and EY act as professional trustees in respect of the Hillhead Trusts, so they should not have denied such fact and/or denied Hillhead’s payment of such consideration in the Defence. 99. Next, Sean argues that in various litigations involving the Hillhead Trusts, Hillhead and EY through their officers/partners such as Ms Seng, Mr H Lau, Mr Brynes, Ron, Mr Hann and/or Mr Collins have under oath or through SS/Ms Tong submitted pleadings, affirmations and correspondence to the court that falsely assert they are not to interfere with the management of HEL and HICL and that they purportedly have no information as to the Hillhead Trusts under their professional care. 100. Sean says there is clear evidence (which has been concealed from Reyes J) that Hillhead and EY have been in direct management position vis-à-vis the Hillhead Trusts as seen from various documents showing that Hillhead and EY have represented the interests of the Hillhead Trusts in actively conducting the business of HEL and HICL, eg exhibits SEMH-8 to SEMH-13 of Sean’s 1st affidavit which show that Hillhead’s proxies Mr Alexander Wong, Mr Chow Hao Chang, Mrs Patricia Will, Mr Hann, Mr Horace Yao and Ron attending, voting at and signing minutes of annual or extraordinary general meetings of HICL and HEL, and signing minutes of directors’ meetings or written resolutions of directors of HICL and HEL for opening bank accounts, accepting banking facilities and other matters. 101. Sean further points out that EY being responsible for auditing Supernational Limited (ie the trading arm of the Hillhead Trusts) is well aware of the loans from the Hillhead Trusts through HICL to Supernational Limited for investment purposes, which loans are related to various transactions being the subject of his claim in the Amended Statement of Claim (see exhibit SEMH-20 of Sean’s 1st affidavit). However, this has been denied in the Defence without justifiable basis. 102. Although Tang JA in the Tang Judgment was not satisfied that blank instruments of transfer had been supplied at the same time of the declaration of trust for the Hillhead Trusts, Sean notes that in May 2002 Hillhead and EY sought to produce fraudulent blank instruments of transfer in respect of the trust shares for purported revocation of the Hillhead Trusts, which shows that they have not acted honestly. 103. In his 6th and 7th affidavits filed for HCMP2757/2005, Sean complains inter alia that Hillhead has wrongfully attempted to escape its duties as professional trustee of the Hillhead Trusts by seeking to transfer the HEL and HICL shares held by the trusts instead of the vested assets and interests of the trusts to the beneficiaries, and has wrongfully failed to account for “dividend and interest income” as required under the express terms of the relevant trust deed. 104. Sean further says that Ms Estella To (“Ms To”), senior tax manager of EY, has played a significant role vis-à-vis the Hillhead Trusts as seen from her letter to the Inland Revenue Department (“IRD”) dated 18 May 1999 and from the subsequent correspondence between EY and the IRD, which correspondence reveals that EY is well aware of various transactions (eg disposal of investment properties, land redevelopment, loans from related companies, etc) involving HICL. Sean argues that the denial of these matters and of any knowledge of the assets and accounts of the Hillhead Trusts in the Defence is a lie, especially when his Amended Statement of Claim has specifically pleaded that these transactions are wrongful and in breach of fiduciary duties and trust. 105. Sean further complains about Ms To being part of the Taxation Bill. The Collins Affirmation says this is not the case because item 40 of the Taxation Bill only covers SS’ costs incurred in interviewing Ms To in relation to some of Sean’s allegations given her former involvement in EY’s work as tax advisor of HICL. Sean rejects such argument as duplicitous. He argues that if Ms To has been frank in revealing information in respect of the assets and accounts of the Hillhead Trusts during the purported “interviews” with SS, such information would not have been concealed from the court by way of denials and non-admissions in the Defence, and SS would not have incurred professional time costs in preparing such denials and non-admissions which only serve to unnecessarily escalate costs. Sean maintains that such costs should not be allowed to Hillhead and EY by reason of their misconduct under Order 62 rule 7 of the RHC. 106. In my view, the matters discussed in paragraph 30-32 above offer a complete answer to all of the arguments by Sean in paragraphs 94-105 above. In awarding costs in favour of Hillhead and EY for defending the entire action against Sean, the Costs Order does not disallow their costs in respect of any specific issue or in respect of any part of the action. Since the Costs Order remains binding on Sean, Hillhead and EY, the taxing master has no jurisdiction under Order 62 rule 7 of the RHC or otherwise to re-consider liability for costs afresh and/or to disallow any aspect of the costs of the action already awarded to Hillhead and EY. 107. In my view, notwithstanding Sean’s oral submissions that he does not intend to re-litigate the issues between the parties, in making the arguments in paragraphs 94-105 above he is in fact saying that had his claim proceeded to trial, Hillhead and EY would have lost and he would have succeeded in establishing “[the] misappropriation/disappearance of more than 780,000,000.00 HK$ while under the active management of proxies and officers of [EY] and [Hillhead]” in addition to “the monies seen in the above exhibits as per trusts accounts directly under the control of [Hillhead] and or their proxies”. Quite clearly, this is an impermissible attempt to try certain assertions, denials and non-admissions in the Defence in the course of taxation proceedings in defiance of the Judgment and/or Costs Order that dismissed Sean’s claim for being bad in law. It is not for the taxing master to try the merits or demerits of the underlying claim or defence. Sean’s arguments in this respect are necessarily rejected. 108. Sean further claims that SS must have known all along that the defence averment that Hillhead and EY are unaware of the particulars of the transactions referred to in the Amended Statement of Claim is in fact untrue, and it is professional misconduct on the part of SS to plead such lack of knowledge in the Defence. Indeed, Sean argues that SS/Ms Tong are well aware that all denials and non-admissions in the Defence are untrue, and having thus concealed the true facts from Reyes J they amount to a fraud on the court. Sean argues that “[frankly], a deception, a lie, a knowing concealment of an officer of the court can be considered nothing less than ‘fraud upon the court’”, so SS should be sanctioned under the LPO for wilful deception in the Defence and in the Tong Affirmation, and should not recover (and Sean should not be made liable to pay) any costs. 109. Sean also argues that SS are clearly aware from the Tang Judgment/Ruling that Tang JA has dismissed the Hotung Conditions, so SS on behalf of Hillhead and EY should not have relied on them in the Defence or in the Tong Affirmation. By relying on the same, SS has persistently violated solicitors’ professional conduct which prohibits any knowing attempt to deceive or participate in a deception of a tribunal and/or any knowing misstatement of the substance of an argument or the provisions of an Ordinance or like authority (see The Hong Kong Solicitors’ Guide to Professional Conduct, Chap.10.3), and Sean says the taxing master should address this. 110. Although Sean strongly relies on the Tang Judgment/Ruling (see paragraphs 5 and 10 above), there is no doubt that Tang JA has not determined whether Hillhead has acted as professional or bare trustee of the Hillhead Trusts. As Reyes J has dismissed Sean’s claim and granted costs of the entire action in favour of Hillhead and EY, there is no basis for the taxing master to revisit the underlying correctness of the averments, denials and omissions in the Defence in taxation proceedings pursuant to the Costs Order which is binding on the parties. 111. Further, paragraph 16(iii) of the Defence avers inter alia that from 2002 to June 2005 HEL and HICL denied Hillhead access to their books and records despite Hillhead’s repeated requests, and refused to answer any queries which Hillhead made in relation to HEL and HICL by reason of Mr Hotung’s assertion that the Hillhead Trusts were subject to the Hotung Conditions. The Defence further avers that by reason of (a) such assertion by Mr Hotung, (b) HCA571/2003 issued by Mr Hotung seeking declaration in relation to the Hotung Conditions and (c) Mr Hotung’s declaration that the Hillhead Trusts had been revoked in/about 2004, it was impossible for Hillhead and/or EY to press or take any action to press HEL and HICL to disclose their financial information during the period. In my view, it is evident from the above that the Defence has not expressly pleaded the validity of the Hotung Conditions. Rather it avers that HEL and HICL have failed to accede to Hillhead’s requests for financial information and in the meantime Hillhead has been unable to take action because of inter alia Mr Hotung’s reliance of the Hotung Conditions. In the circumstances, there is no need for me to consider the Tong Affirmation filed for the purpose of HCMP2757/2005 or to discuss the alleged breach of solicitors’ professional conduct. In any event, I repeat paragraphs 30-32 above which offer a complete answer to Sean’s submissions in this respect. 112. I note that Sean takes the Judgment as a belated admission by EY that it is “vicariously if not directly liable for any misconduct of their partners who were the directors of [Hillhead] as per [EY’s] “insurance arrangements”; this should not only eliminate any costs on the preparations/arguments of said liability; but the costs I wasted on this element of the case should be returned as per Order 62 of RHC. [EY] had a duty to make these “insurance arrangements” known in 2002. It certainly was not made known to [Reyes J]. In fact, the opposite occurred when they denied their liability in para. 14 of their defense”. 113. In my view, there is no merit to this argument. I will not repeat my discussions above in relation to (a) EY’s insurance arrangements (see paragraphs 51-53 above) and (b) the alleged concealment of material information from Reyes J (see paragraph 93 above) save to say that they are also applicable here. I cannot see how Reyes J having found against Sean on the reflective loss principle (which also forms a complete answer to Sean’s claim against EY) without any discussion of the matter of vicarious liability can amount to any admission by EY that it is vicariously liable for any misconduct of its former or current partners acting as directors of Hillhead. 114. Sean further complains about (a) the “bought” testimony of Ron and Mr Hann for HCA571/2003 as evidenced by fees paid by Mr Hotung (and reimbursed by HICL) for preparation of Ron’s witness statement/statutory declaration and for assistance in procuring witness statement/statutory declaration of Mr Hann and Mr James, and (b) Ron’s attempt (which has failed) to extort money for attending trial. Sean says such acts amount to perverting the course of justice. 115. The above matters are unrelated to the present action since the subject witness statements/statutory declarations are for HCA571/2003. I note that Ron has not even been served with the originating process in the present action. Sean will have to take up his complaints, if he can, in other appropriate legal proceedings. But I pause to note that in coming to his decision in the Tang Judgment Tang JA already knew of the following facts : (a) Ron was only willing to give a witness statement after he had been given an indemnity by Mr Hotung, (b) Mr Hann was paid professional remuneration for preparing witness statements, giving evidence and debriefing after his testimony, (c) Mr Hotung paid the fees of Mr Hann’s lawyers and (d) Mr Hann also had Mr Hotung’s indemnity. 116. In summary, I am persuaded that Sean’s arguments do not raise any prima facie case of any genuine and relevant issue that calls for investigation by the taxing master in the course of the taxation of costs under the Costs Order. To accede to Sean’s arguments will give rise to inappropriate and unnecessary satellite litigation that should be avoided. XI. Reflective loss principle 117. In his written submissions, Sean argues that “…… if the defendants had acted in accordance with their fiduciary duties and or publicly advertised standards of purported high ethics and had been truthful in their defense the Principle of Reflective Loss could not have been applied as per the direct assistance, knowledge and misconduct displayed not only by the officers of [Hillhead] but by the taxing, auditing and secretarial services of [EY] as per misappropriations of the assests claimed in the Statement of Claim.” 118. Sean further submits that although EY has knowledge about the affairs of Hillhead, Reyes J has not been told that the board of directors of HEL and HICL may have been controlled by the de facto agents of the trustees who are the alleged wrongdoers. Hence, the Giles v Rhind exception should have been applicable because when the present action commenced HEL and HICL were unable to bring claims forward without fear of starting another action to determine who was then in control of their board of directors, ie the alleged wrongdoers or the beneficiaries. Sean says that the matter is further complicated by investigation into the control of the board of directors of HEL and HICL by the police and the Commercial Crimes Bureau. 119. In his written submissions, Sean refers to new legal proceedings issued by HICL against Hillhead for recovery of loss pursuant to the 1998 sale of HICL’s property in the New Territories for HK$17.5 million (see paragraph 21(4) of the Amended Statement of Claim in the present action). He says that SS oppose HICL’s claim on the ground that such claim is time-barred. He cites Lewin on Trusts 18th ed para.39-40 in support of the contention that where HICL’s claim has become time-barred, the beneficiaries of the Hillhead Trust have a claim against Hillhead as trustee for having allowed HICL’s claim to become time-barred, and that claim is not caught by the reflective loss principle since HICL has no claim in respect of it, so the Judgment cannot stand. 120. Sean also complains that Reyes J in the Judgment has failed to address the question of dividends that Hillhead is required to deal with under the express terms of the trust deed for the Hillhead Trusts. He cites Lewin on Trusts 18th ed paras.25-24 and 25-35 to say that the income beneficiary is entitled to dividends duly declared while his interests subsists, and argues that the Judgment is flawed in failing to deal with the issue of dividends (which have since been traced to a bank account in HCMP2757/2005). 121. I refer to paragraphs 30-32 and 106-107 above which provide a complete answer to this argument. More fundamentally, pending the hearing of the Appeal and Stay Summonses, Reyes J’s decision in the Judgment on the reflective loss principle and consequently his Costs Order are beyond challenge. Sean cannot reopen substantive arguments on the reflective loss principle in the course of taxation proceedings under the Costs Order. The taxing master can only proceed on the basis that the Judgment and Costs Order are correct. Further, in paragraph 93 above, I have explained why the alleged concealment of material information is irrelevant to the Judgment. In any event, it is now clear that the Giles v Rhind exception does not exist at all. The Court of Final Appeal in Waddington Ltd v Chan Chun Hoo Thomas FACV15/2007 (unreported, 8 September 2008) held that Giles v Rhind has been wrongly decided and should not be followed in Hong Kong (per Lord Millett NPJ paras.81-88). Hence, any factual dispute in respect of this exception would not have affected the correctness of Reyes J’s decision. XII. Order 62 rule 7 of the RHC 122. Order 62 rule 7 of the RHC provides inter alia as follows :
123. Sean says that under Order 62 rule 7 of the RHC Hillhead and EY are barred from collecting any costs as a result of misconduct, neglect and/or omission. He says that such provision is applicable because SS with full knowledge of the facts and information set out in the Tong Affirmation, and Hillhead and EY with full knowledge of the facts and information known to its partners and staff (see paragraphs 91-92, 95-105, 108, 112 and 114 above) “wilfully lied and conceal damaging facts and information (through the false denials in their defence) from [Reyes J], and was fully aware that the Defence is rift with deceptions, denials, omissions and misconduct”. Sean submits that such misconduct is unacceptable and that this court should dismiss the taxation proceedings, and order Hillhead and EY to pay his costs of the action occasioned by their misconduct. 124. For reasons explained in paragraphs 30-32, 93, 106-107, 110-111, 113 an 115 above, these arguments are without merit. Whilst I accept that there may be occasions when a taxing master is required to consider questions of misconduct under Order 62 rule 7(4) of the RHC and for that purpose make findings of fact (eg when a real and relevant issue of breach of the indemnity principle is raised), it is not open to the taxing master to re-adjudicate any costs order already made by a judge and which is binding on the parties. Here, Reyes J has not disallowed Hillhead’s and EY’s entitlement to any part of the costs of the action, and he has not directed that any part of the costs of the striking out application or of the action be paid to Sean. The learned judge also has not exercised his discretion under Order 62 rule 7(3) of the RHC to direct the taxing matter to inquire into the matter of costs. To the contrary, Reyes J awarded costs of the striking out application and of the entire action to Hillhead and EY, and the taxing master is therefore tasked to tax such costs under the Costs Order. XIII. Section 9A of the LPO 125. Sean submits that SS being fully aware that the Defence is rift with deceptions, denials, omissions and misconduct “maliciously attempted to damage [Sean being the beneficiary of the Hillhead Trusts] through the unconscionable usage of the Judicial machinery in gross violation of the Hong Kong Code of Solicitors’ Professional Conduct, the rule of law and Hong Kong Ordinance”. Sean submits that such misconduct is unacceptable and has brought disrepute to the profession of solicitors, so the taxing master should discipline/sanction SS and further discipline its solicitors and strike them off the roll under section 9A of the LPO. 126. Section 9A of the LPO provides that the Law Society has powers to inquire and investigate into the conduct of a solicitor :
127. Mr Man submits there is absolutely no basis for Sean to allege any misconduct on the part of SS. They have acted for Hillhead and EY in making a successful application for striking out. Mr Man submits that the arguments advanced for Hillhead and EY were completely proper; and indeed they rightly found favour with Reyes J. He goes further to suggest that the satellite allegations against SS only serve to cause delay to the taxation proceedings. 128. The short answer to the above arguments by Sean is that section 9A of the LPO confers statutory powers on the Law Society failing which on the Chief Judge (and not on the taxing master in the course of taxation proceedings) to enquire and investigate into the conduct of solicitors. In respect of the allegations of concealment, denials and non-admissions in the Defence, I refer to and repeat the discussions in Part X above. XIV. Sections 16 and 17 of High Court Ordinance Cap.4 (“HCO”) 129. Sections 16 and 17 of the HCO provide as follows :
130. Sean argues that Hillhead and EY have secured the Judgment and Costs Order in violation of the principles of equity enshrined in sections 16 and 17 of the HCO. He says that since Hillhead and EY by their misconduct and deceptions and by their infliction of the Taxation Bill of about HK$2.7 million on him as beneficiary (whom they are bound by fiduciary duties to protect) have not done equity and have come to court with “unclean heads”, they are not entitled to equity. Sean submits that the court orders issued since 2002 as regards SS are now suspect, and the Taxation Bill should be “dismissed with extreme prejudice” as a matter of equity under section 16 of the HCO, and Hillhead and EY should be ordered to specifically perform their duties in their capacities as professional trustees towards Sean as beneficiary under section 17 of the HCO. Sean also claims that SS “has a duty to specific performance to the “rule of law” and the Judiciary of Hong Kong in their capacity as Officers of the Court”. 131. Mr Man submits and I agree that sections 16 and 17 of the HCO provide for the administration of equity in our courts and the power to award damages in lieu of specific performance, which have nothing to do with taxation of costs. Indeed, as explained in paragraphs 30-32 above, Sean’s submissions are irrelevant because Reyes J has already decided that Sean is not entitled to the reliefs sought in his claim, and the taxing master will not reopen the case to substitute or grant other substantive reliefs. Further, the reliefs granted to Hillhead and EY under the Judgment and Costs Order, ie striking out Sean’s claim, dismissing the action and awarding costs in favour of Hillhead and EY, are not equitable remedies, but remedies under the rules of court which follow from Reyes J’s conclusion that Sean’s claim is bad in law. There is no merit to this argument. XV. Joint and several entitlement to costs 132. As Mr Man submits, Sean’s arguments are not entirely clear. Sean appears to suggest that either (a) Hillhead and EY are jointly and severally entitled to costs so they should not be paid twice over or (b) SS has no authority to act for Hillhead so the costs claimed in the Taxation Bill should be apportioned between Hillhead and EY. In respect of (a), Mr Man submits (and I agree) this is not controversial; Hillhead and EY are claiming only one set of costs and hence have filed only one Taxation Bill. When faced with such submission, Sean contends that Hillhead and EY are not jointly but severally entitled to costs under the Costs Order, so apportionment of the relevant costs as suggested in (b) above is required. He adds that EY can only become vicariously liable if the case against Hillhead is made out, so any legal costs incurred for EY is minimal at best. 133. In my view, the defence is the same for both Hillhead and EY since EY is sued on the basis of vicarious liability for Hillhead’s acts. It is open to EY to contend (and it has done so in the Defence) that Hillhead is not liable to Sean and then go on to argue that in any event EY is not vicariously liable. Further, given (a) the common interest between Hillhead and EY and (b) Mr Collins’ instructions to SS to act for Hillhead and EY at the same time, I have no basis for concluding that the nature of SS’ retainer is not joint but several. XVI. Summary on the 1st Summons 134. By reason of the above analysis, the preliminary issues raised by Sean in the 1st Summons have no merit, and I therefore dismiss items 2-6 of the reliefs sought in the 1st Summons. I will deal with items 1 and 7 of the reliefs sought below. XVII. Discovery and cross-examination : preliminary considerations 135. As a matter of general principle, it is for the receiving party to satisfy the taxing master of his entitlement to the costs claimed by placing before the taxing master whatever evidence he wants to adduce for such purpose. If he fails to do so, the taxing master will not allow the sum(s) claimed. Thus, the taxation process ordinarily requires the receiving party to lodge the bundle of taxation documents with the court in support of the taxation bill. Some of the documents in the taxation bundle are privileged, and those documents will not ordinarily be provided to the paying party. 136. Under Order 62 rule 14 of the RHC, the taxing master in discharge of his functions with respect to the taxation of costs have the following powers :
If there is a genuine and relevant factual issue which cannot be resolved in any other way, the taxing master may direct the production of relevant documents, order witness statements or affidavits, and/or require the attendance of the witnesses/deponents for examination or cross-examination for the purpose of determination of such issue. 137. The power of the taxing master to order the production of documents under Order 62 rule 14(d) of the RHC is limited to documents that are relevant in connection with the proceedings for the taxation of costs and not in relation to any other question. This means that satellite litigation must not be encouraged. So unless the paying party raises a real and relevant issue or dispute pertaining to the taxation of costs, the taxing master ought not order the receiving party to make discovery in taxation proceedings. If, however, the paying party raises a real and relevant dispute that is not fanciful or fishing, then Order 62 rule 14(d) of the RHC is engaged and the taxing master must exercise his judicial discretion to decide whether or not to order production of documents. 138. As explained above, documents sought to be produced may be protected by legal professional privilege. At the hearing, I asked the parties to address on the matter of privilege in the context of discovery and examination of witnesses or deponents in the course of taxation proceedings. Neither party has referred to any legal authority on the subject. 139. The starting point is that it is for the receiving party to establish his entitlement to costs and to prove the facts on which he relies, and he must choose what evidence he will adduce and to what extent he will waive privilege. In Pamplin v Express Newspapers Ltd [1985] 1 All ER 185) and Goldman v Vesper [1988] 3 All ER 97 (cited with approval in Choy Bing Wing v Building Authority & ors HCA2458/2007, Fung J (unreported, 23 July 2008)), the courts recognised two principles, the first being the natural justice requirement in the sense that a party should have an opportunity to see the material placed by the other party before the court so that he can address and counter the same, and the second being the right of a party not to disclose documents covered by legal professional privilege. 140. Hobhouse J in Pamplin at pp.190-191 said as follows :
141. In Goldman, the same question of entitlement to inspect privileged documents in the course of taxation proceedings arose, and after referring to the two principles discussed above Taylor LJ said whether inspection should be ordered depended on the facts of each case. At p.102 he said as follows :
142. In Bailey v IBC Vehicles Ltd [1998] 3 All ER 570, it was held that a taxing officer was entitled, if he saw fit, to be provided with the information which he needed, and he had jurisdiction therefore to make orders for discovery or require affidavit evidence. However, bearing in mind the danger of satellite litigation, that jurisdiction should not be over enthusiastically deployed, particularly at the behest of the paying party. In that case, the defendants’ request that the plaintiff be required to provide information proving that the indemnity principle had been observed represented pointless satellite litigation and was refused. 143. In Hazelett v Sefton Metropolitan Borough Council [2000] 4 All ER 887, the paying party questioned whether the receiving party was liable to pay her solicitors’ costs and wished to cross-examine the receiving party and her solicitor. Harrison J said at p.893 as follows :
144.In South Coast Shipping Co Ltd v Havant Borough Council [2002] 3 All ER 779, 793, Pumfrey J said as follows :
In that case, the paying party raised the issue of breach of the indemnity principle, so the costs judge should have put the receiving party to its election, but the costs judge was right to conclude on the strength of the available interim bills, the cheques and the correspondence that there was nothing deserving further investigation. 145. The above cases and principles have been cited with approval and followed in Dickinson (t/a Dickinson Equipment Finance) v Rushmer (t/a FJ Associates) [2001] EWHC 9018 (Costs) (21 December 2001), Burstein v Times Newspapers Ltd [2002] EWCA Civ 1739 (28 November 2002) and Various claimants in the Gower Chemicals Group Litigation v Gower Chemicals Ltd & anor [2008] EWHC 735 (QB). Further, as seen in Hazelett (see paragraph 143 above), similar principles apply to the matter of whether to order cross-examination of witnesses or deponents in taxation proceedings. On the basis of the above principles, I turn to Sean’s specific requests. XVIII. Discovery : bill of costs 146. Sean seeks discovery of the following :
It is evident that Sean seeks discovery of the Solicitor Bill in support of his arguments that Hillhead’s claim for costs offends the indemnity principle and that the retainer to act for Hillhead is unlawfully maintained and champertous. 147. In my view, the Solicitor Bill as distinct from the Taxation Bill is a privileged document (see paragraph 12 of the judgment of Rimer J in Dickinson). Given the protection of legal professional privilege, Sean submits he does not require sight of the Solicitor Bill and is content to have such document produced to the taxing master. If the taxing master is satisfied with the same, Sean says he will not take further issue. But this still begs the question whether discovery ought to be ordered in the first place. 148. In line with the principles discussed in Part XVII above, it is clear the mere fact that Sean raises the issue of whether Hillhead is liable for SS’ costs and wants to test the evidence in relation thereto is not sufficient justification for the discovery sought if there is no prospect that such discovery will further undermine or elucidate Hillhead’s and/or EY’s case. The starting point is whether Sean has shown a real and relevant issue or dispute in respect of breach of the indemnity principle and/or in respect of unlawful maintenance and champerty. In light of the analysis in Parts VII and VIII above, the correct conclusion is that Sean has not. In the circumstances, I decline to allow discovery of the Solicitor Bill. XIX. Discovery : retainer agreements, instructions and minutes 149. By the 1st Summons, Sean requires discovery and production of “any retainer agreements and the authorizations/instructions of [Hillhead and EY] that caused [SS] to represent the said Defendants” and “the legitimate minutes which retained the legal representation of [SS]” (collectively, “Solicitor Retainer”). 150. I accept that a retainer agreement that sets out the terms on which the solicitor is to act for the client is not necessarily and automatically covered by legal professional privilege. Whilst it is possible in a particular case that such document will reflect or contain advice or other material which serves to clothe it with privilege, those parts can be redacted if required. Likewise, I cannot see how any minutes of meeting can be privileged, and indeed Hillhead has openly disclosed the Resolution. However, there can be no doubt that instructions given by Hillhead and/or EY to SS for the purpose of seeking legal advice and/or for the purpose of the present litigation are privileged, and there is no evidence before me that the contents of those instructions have been deployed. At the hearing before me, Sean has confirmed that he only asks for production of the Solicitor Retainer to the taxing master, and he himself does not require sight of such documents. 151. Sean in his written submissions says that he has been requesting discovery of the proper authorisation from Hillhead to SS for some time, but in HCMP2757/2005 SS has informed the court on 16 September 2009 that they do not have any written retainer with Hillhead and that EY (who is not a party to such action) is in control of such litigation, and in the present action the Collins Affirmation echoes this in suggesting that a written retainer is not necessary and there is no written authorisation from Hillhead to SS. 152. On the basis of the matters in the above paragraph, Sean argues that in saying that it is unnecessary to have written authorisation to appoint SS to act for Hillhead and that Mr Collins has instructed SS upon approval by Mr Sun and Mr H Lau (both senior partners of EY), Hillhead and EY are merely attempting to avoid discovery of the necessary board resolution of Hillhead for appointing solicitors to act on its behalf in the present action. Sean also complains that the production of any resolution at this late stage is suspect “as per [Hillhead’s and EY’s] established pattern of fabricating evidence (i.e. the dismissed and disproven false assertions of HCA571/2003 of the recent public scandal regarding the Akai Ltd case)”. 153. But notwithstanding such arguments, the fact is that there is no written retainer or minutes of meeting for appointing SS in 2006, and I cannot see the way to ordering discovery of admittedly non-existent documents. Further, Hillhead has already produced the Resolution shortly after the hearing before me. 154. Next, Sean claims that he has advanced a prima facie case as to the issues of whether the retainer is unlawfully maintained and champertous and/or whether the claim for costs is in breach of the indemnity principle, and hence discovery of the Solicitor Retainer is necessary. In Sean’s 1st affidavit, he goes further to ask Hillhead and EY to identify “the directors of Hillhead that purportedly produced minutes to retain [SS] to conceal the misappropriations of the trusts while attacking their beneficiaries through the judicial machinery”. However, again in light of the analysis in Parts VI, VII, VIII and X above, I am not persuaded that Sean has sufficiently raised such issues so that Hillhead and EY are required to provide further evidence. 155. Still further, Sean claims that the retainer agreements and instructions are the properties of the Hillhead Trusts which in turn means they belong to him. However, a claim for return of trust properties that are allegedly beneficially owned by the beneficiary is a substantive claim/relief which does not fall within the powers of the taxing master who is only tasked to tax costs under a costs order. If there is any merit to such claim, Sean will have to pursue it separately. In the circumstances, I refuse Sean’s request for discovery of the Solicitor Retainer. XX. Discovery : power of attorney 156. By the 2nd Summons, Sean requires Hillhead to discover and produce the “power of attorney” “referred to in the [Collins’ Affirmation] that purportedly enabled the retention of their solicitors; and the minutes of the board of directors of [Hillhead’s] authorization the production of said “power of attorney”” (collectively, “PA Documents”). Sean claims that Hillhead as “public trust service company” is under a fiduciary duty to make such discovery and produce the PA Documents to Sean as beneficiary of the Hillhead Trusts to establish there is no breach of the indemnity principle. 157. I agree with Mr Man that nowhere has it been suggested in the Collins Affirmation that the PA Documents exist. Indeed, as explained above, the whole tenor of the Collins Affirmation is that such documents are unnecessary (see paragraphs 37-39 above). There is no sufficient basis for seeking discovery of the PA Documents. XXI. Discovery : additional requests 158. Sean in his 1st affidavit and in his written submissions ask for discovery and production of (a) the relevant minutes and authorisation from Tricor Group and written authorisation from BEA (which owns 71.3% of Tricor) to SS to represent Hillhead, (b) the insurance arrangements that purportedly cover Hillhead’s liabilities in this action but which violates EY’s published legal disclaimer, and (c) “[any] and all authorizations from BEA, authorizing [Hillhead] to be covered under the insurance of [EY] and or the authorization for [SS] from BEA to be acting for Hillhead”. 159. None of these requests are the subject of either the 1st or the 2nd Summons. It is inappropriate to have such requests slipped in by affidavit and/or submissions. In any event, in light of the analysis in Part VI above, Sean has failed to raise any genuine and relevant issue to justify the discovery sought. In the circumstances, I am not prepared to entertain his additional requests. XXII. Cross-examination 160. By the 2nd Summons, Sean requires Hillhead and EY as well as Mr S Lau, Ms Seng, Ron, Ms To, Ms Tong, Mr Mo Charles Chun Ling (“Mr Mo”), Mr Sun and Mr H Lau (collectively, “XXN Persons”) and Mr Collins “to attend the hearing for taxation to be cross-examined on their respective purported “interviews” that contributed to the [Taxation Bill], and their defense or affidavit filed herein which [Hillhead and EY] rely upon regarding the issues of being a non-professional trustee, joint or several retainers, Maintenance and Champerty, indemnity principle, omissions and misconduct as per Order 62 of the RHC”. 161. The cost item under item 40 of the Taxation Bill refers to “12 conferences with Alan Collins/Estella To/Stephen Lau/Larry Mills/Natalia Seng/Betty Yeung/Julian Chow [collectively, “EY Staff”] on background of the case, taking instructions from Stephen Lau to prepare his witness statement; discussing tactics, indemnity, liability, reporting progress, and inspecting documents at [EY] including preparation”. 162. Sean submits that the EY Staff, Ron and Mr Sun have knowledge of the Hillhead Trusts through their active management position as professional trustees, but in breach of their fiduciary duties they concealed such information from Reyes J, so they should attend the taxation proceedings to be cross-examined (a) on their “concealing/ denying the above while contributing to the [Taxation Bill] through the “expensive interview process” of regarding their knowledge of “little or no information””, (b) as to “why they denied (and they are bound by their fiduciaries to know) in para.4 of [the Defence] the existence of the true Instrument of Transfer as per consideration of payment of $1,000,200.00 ……”, (c) as to “why they denied para.21(4) of the Statement of Claim in their defence at para.13 which they are bound by their fiduciary duties and the duties of a trustee to be fully aware of as per the misappropriation of my trusts properties ……; and how much did said denial contribute to the Bill of Costs”, (d) as to “why they sought to produce a fraudulent blank instrument of transfer in May, 2002 to secure indemnities to cancel the Deed of Trusts …… and why they denied any knowledge of [Hillhead Trusts’ holdings in CIHL] as per their “interviews, tactics, etc… of item 40 of the Bill of Costs”, and (e) as to the loans from the Hillhead Trusts to Supernational Limited. 163. Sean says that although Mr Collins as informed by Ms Seng states in the Collins Affirmation that such information as Hillhead has in its possession about HEL and HICL has been disclosed to Sean in HCMP2757/2005, new evidence that has been recovered shows that such assertion is false or that Hillhead and EY have failed to retain trust records/documents in their possession in breach of trust. Sean says that (a) EY as the auditor of Cosmopolitan Properties & Securities Ltd, Supernational Ltd and Village Properties Ltd should have been aware of the loans from the Hillhead Trusts to Supernational Limited, (b) Ms To and Ms Seng apparently know a lot about the Hillhead Trusts, (c) Hillhead as trustee would have been aware of its holdings in CIHL, yet such information has been concealed and even denied in the Defence. 164. Sean further says “[it] is noted that [Ms Seng] and Betty Young, ex-officers of [EY] and involved in the [Hillhead Trusts] are in positions of power at Tricor Group; and that [Ms Seng], as an officer (with others) of [EY], attempted to cancel the Declarations of Trusts without the knowledge of the beneficiaries as per Exhibit SEMH-33 of HCMP2757/2005 in May, 2002”. 165. As regards Ms Tong and Mr Mo, another solicitor of SS, Sean says they should attend for cross-examination on “the impossibility of incurring such high cost in this ‘strike out’ action when the said costs were already incurred through HCA 571/2003 and HCMP 2757/2005; and the further inconsistencies presented by [SS] in the said actions that they have now included in this [Taxation Bill]”. Sean reiterates that Ms Tong and Mr Mo should be cross-examined on their breach of solicitors’ professional conduct. 166. Mr Man points out that the XXN Persons, including the former or current partners and employees of EY and SS, have not even filed any affidavit in these proceedings, so it is unclear why Sean says the taxing master has jurisdiction to order such persons to be cross-examined by him. Mr Man submits that on this basis alone the application must fail. 167. Sean submits that he is still entitled to cross-examine the XXN Persons even though they have not filed any affidavit because he is the paying party under the Taxation Bill and he is entitled to information in respect of the cost items under such bill. 168. In my view, in asking Hillhead and EY to tender the XXN Persons and Mr Collins to be examined in the taxation proceedings (other than cross-examination on the factual matters in the Collins Affirmation), Sean in effect is seeking cross-examination on privileged solicitor-client communications. Here, the taxation bundle has not been lodged as yet, and it is unknown whether any interview notes/records will be disclosed to the taxing master. But so far these communications have not been deployed in evidence in the present action, and privilege is not waived by supplying the taxing master with copies of such notes/records within the taxation bundle for they will be in the hands of the taxing master as part of the procedure and not a matter of voluntary choice to rely on the documents. 169. It is for Sean to justify his request to override legal professional privilege to have the XXN Persons and Mr Collins come forth to explain why the Defence is so pleaded, to disclose the contents of solicitor-client communications/conferences and to give information on instructions given for the purpose of litigation in order to investigate into allegations of fraud, impropriety and misconduct when the Judgment and Costs Order remain binding on the parties. 170. Further, in light of the analysis in Parts VI, VII, VIII and X above, none of the matters that Sean seeks to establish by cross-examination of the XXN Persons and Mr Collins raises a genuine and real issue that brings into consideration any need for cross-examination of witnesses or deponents. As Mr Man submits, mere allegation of fraud and impropriety to the effect that certain averments in the Defence have not been made out will not pierce the protection of legal professional privilege and will not justify an order for cross-examination since taxation of costs cannot be and is not an opportunity under the guise of testing the evidence for taxation of costs to re-adjudicate the underlying claim or defence and/or to try the substantive issues concerning the correctness of the Judgment or Costs Order. This is especially so when there is no trial of the action in the first place and Sean’s claim has been struck out for being bad in law. 171. I am persuaded that Sean’s proposed approach is not only irrelevant and unnecessary for the taxation of costs, but will in fact increase costs and delay resolution of the taxation proceedings contrary to the underlying objectives in Order 1A of the RHC. Taxing masters should be astute to ensure that taxation proceedings do not become an excuse for expensive satellite litigation at the behest of the disappointed paying party, and to prevent taxation proceedings from being protracted by allegations that are without substance. 172. Still further, even if Sean were able to establish a real and relevant issue that calls for the exercise of the taxing master’s power under Order 62 rule 14(c) of the RHC to direct examination of witnesses (which I disagree), given the protection of legal professional privilege, the nature of taxation proceedings and the need to avoid delay and expense in what may prove to be unwarranted satellite litigation, Sean should not be allowed free rein to examine witnesses in any way he chooses. 173. Even if Sean were able to establish a real and relevant issue that calls for investigation (which I disagree), the taxing master may require Hillhead and/or EY to produce witness statements or affidavits of the XXN Persons to him alone at first, and then on the strength of such witness statements/affidavits and the taxation bundle decide whether it is necessary to put Hillhead and/or EY to their election as to whether to disclose the witness statement or affidavits. If it is necessary to do so and Hillhead and/or EY choose to rely on the witness statements or affidavits, Sean will see them and then he may apply for examination of the witnesses or deponents if there is justifiable basis. If Hillhead and/or EY choose not to rely on such witness statements or affidavits that deal with privileged matters, they will face the disadvantage of relying on what will inevitably be limited evidence on the real and relevant issue properly raised before the taxing master. In any event, I would not have granted any order that would have allowed Sean to cross-examine the XXN Persons and Mr Collins on privileged matters. 174. For all of the above reasons, I refuse to allow cross-examination of the XXN Persons and Mr Collins as requested by Sean. In light of such conclusion, I need not consider, as Mr Man asks me to, whether such request by Sean is in fact a disguised attempt to obtain information in aid of Sean’s case in parallel legal proceedings between Sean and Hillhead and/or EY. XXIII. Summary on the 2nd Summons 175. In my view, there is no substance to Sean’s requests for discovery and cross-examination, so I dismiss paragraphs 1-3 of the 2nd Summons and paragraph 1 of the 1st Summons. But such conclusion does not prevent the taxing master from exercising his discretion as he thinks fit in disallowing any item of work or disbursement as not being necessary and proper for the purpose of party and party taxation of costs under the Costs Order and/or in determining the appropriate quantum of taxed costs and disbursements. XXIV. Conclusion 176. Both the 1st and 2nd Summonses are dismissed, and the taxation of costs in these proceedings should proceed in the usual way. Hillhead and EY do within 21 days from the date hereof apply to the Listing Clerk to re-list the Taxation Bill for further call-over hearing to seek appropriate directions. 177. As regards costs of the 1st and 2nd Summonses, there is no reason why costs should not follow event. I therefore grant a costs order nisi that Sean is to pay Hillhead and EY the costs of the 1st and 2nd Summonses, including all costs reserved in respect of the 1st and 2nd Summonses, with certificate for counsel to be summarily assessed. For the avoidance of doubt, I hold that Hillhead’s and EY’s entitlement to such costs to be joint and several. 178. Mr Man suggests that costs should be on a higher scale in light of the serious but unsubstantiated allegations of fraud, impropriety and misconduct. I am not with Sean in his arguments, but I am not persuaded that his contentions are such that a higher scale of costs is called for. 179. I therefore make the following consequential directions :
180. Last but not least, I thank Sean and Mr Man for their submissions in this matter.
Representation: The Plaintiff in person and present. Mr Bernard Man instructed by Messrs Simmons & Simmons for the 1st and 2nd Defendants. |
Cases cited in this judgment
Further hearings and rulings under HCA 1738/2006