Chinachem Charitable Foundation Ltd v. Chan Chun Chuen and Another

HCAP 8/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO. 8 OF 2007

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BETWEEN

Coram : Before Master Levy in Chambers

Date of Hearing : 27 May 2011

Date of Judgment : 30 June 2011

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J U D G M E N T

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A.  Background

1.In this action, the Plaintiff succeeded in obtaining a judgment (“the Judgment”) in its favour on 2 February 2010 when Lam J pronounced for the validity of an earlier will made by the late Madam Nina Kung after a highly contentious and much publicized trial that took place between May to September 2009 for a total period of 40 days.  By the Judgment, the Defendant’s counterclaim for propounding for the validity of a later will purportedly executed by the late Madam Kung was dismissed.

2.Pursuant to Lam J’s costs order of 16 April 2010 (“Subject Costs Order”), the 1^st Defendant was ordered to pay the Plaintiff the following costs to be taxed on indemnity basis:

(a) 80% of the Plaintiff’s costs in respect of the hearing on 17 March 2010 (hearing for variation of costs order nisi) (§1 of the Subject Cost Order);

(b) Costs of the action (§4 of the Subject Costs Order);

(c) Costs of the application for appointment of administrators pendente lite (§5 of the Subject Cost Order).

3.According to the Subject Costs Order, two items of costs (“Excluded Costs”) are excluded from the costs of the action.  They are in paragraphs 2 and 3 of the Subject Costs Order, and are as follows:

(a) The Plaintiff’s costs of and incidental to the calling of experts on testamentary capacity, and the trial days of July 6 and 7, 2009 (§2 of the Subject Costs Order).

(b) The 1^st defendant’s costs of the Plaintiff’s application for leave to issue a subpoena ad testificandum (§3 of the Subject Costs Order).

4.After the 1^st Defendant’s failure to overturn the Judgment as well as the Subject Costs Order in the Court of Appeal, the Plaintiff, based on the Subject Costs Order, filed its Bill of Costs (“the Bill”) for a total sum of $141, 125,287.

5.In the 1^st Defendant’s Objections to the Bill, the 1^st Defendant raises two preliminary objections on the ground of unlawful maintenance and champerty and breach of indemnity principle respectively in his objections 1 and 2.

6.This application I am now concerned with is the 1^st Defendant’s application for discovery of documents in connection with the said preliminary objections.

B.  The Application for Discovery

7.The 1^st Defendant’s summons is made under O.62 r.14 (d), and O.24 rr.7, 10, 11 and 11A of the Rules of the High Court.  The 1^st Defendant seeks discovery of 5 items of documents listed in the Schedule (“the Schedule”) to the summons.  For easy reference, I have annexed to this judgment a copy of the Schedule.

B.1  General Principle

8.The power of a taxing master to order production of documents under O,62 r.14(4) has been succinctly expounded by the learned Master Ng in Sean Eric Mclean Hotung v Hillhead Limited (unrep.), HCA 1738 of 2006, in which she held at §137 that the power under O.62 r.14 should only limit 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 O.62 r.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.”

9.There is not much dispute that the said passage identifies the correct approach under O.62 r.14.  The Plaintiff takes no issue regarding the existence of the documents sought, but resists the application on the ground that the documents sought are irrelevant.  Applying the principle as discussed above, and having regard to the Plaintiff’s position, I think two matters arise for consideration in this application.

B.2 Issues for Determination

(A)      Whether the 1^st Defendant raises a real and relevant issue pertaining to the Bill in respect of the allegations of unlawful maintenance/champerty and a breach of indemnity principle?  (Issue 1)

(B)      If so find, whether the court should exercise its discretion to order disclosure?  (Issue 2)

C.  Maintenance and Champerty

C.1  Principle

10.Like Master de Souza in Hotung v Hotung [2007] 1 HKLRD 548 at 558D-F, I too do not think it is necessary to repeat the principles and the underlying cases and legal texts both counsel (Mr. Stock for the 1^st Defendant and Mr. Chan for the Plaintiff) have extensively cited during the hearing.  The principles are not in dispute and are discussed at length in the Court of Final Appeal decision of Unruh v Seeberger [2007]10 HKCFAR 31 per Ribeiro PJ at 61 to 70.

11.Briefly stated, the public policy behind the rules of maintenance and champerty (in relation to litigation) is to render an arrangement or contract invalid if it is found that a person supports a litigation (the so called officious intermeddling in a suit) for a sharing in the proceeds of the litigation (i.e. the notion of a division of the spoils).  However, the common law doctrine has been known to be evolving with the change of time.  Hence, acts of maintenance and champerty which would have otherwise been rendered unlawful may now be justified on the grounds of “common interest” and “access to justice” – both of which the Plaintiff is relying on to resist the allegation of maintenance/champerty.

C.2  The Underlying Facts Giving Rise to the Allegation

12.In discussing the facts leading to the allegation, I think it is most convenient to begin by referring to a passage from the Judgment concerning the nature and characteristics of the Plaintiff.  In §7,  his Lordship states:

“The Plaintiff is a charitable organization set up by Nina and her late husband Teddy in 1988. It is named as the beneficiary of the entire estate of Nina under another will of Nina made on 28 July 2002 [the earlier will]”

13.Thus, it is common ground that the Plaintiff is a registered charitable institution, with its income largely drawn from charitable donations.  According to the audited financial statements (“AFSs”) for the three years of 2007, 2008 and 2009 (“the Relevant Period”), while the present probate action was underway, the Plaintiff’s litigation costs were funded substantially by donations and loans, which have provided fodder to the allegation of maintenance/champerty.

C.2A Donations

14.According to the AFSs of the Relevant Period, the Plaintiff had in total received donations of about $136 million. However, in 2007 (the year of the commencement of the probate litigation), the Plaintiff received donations and grants of about $35.6 m.  Yet, in 2008, the donations dropped to only $2.6 m but suddenly surged in 2009 to $98m.  Since the ebbing and flowing of the donations during the Relevant Period appear to have also followed very closely with the progression of the probate litigation, Mr. Stock therefore suggested that the donations having been received were likely not be for a specific charitable purpose (such as the $30 m given to the China Association of Social Workers in March 2007 as per §42 of the Judgment).

15.Thus, it is submitted that the donations together with the admitted funding difficulty disclosed in the Affirmation of Keith Ho filed on 19 February 2009 (“Ho’s Affirmation”) in support of the Plaintiff’s application for an adjournment of the trial then already fixed show evidently that the donations would have been provided for the purpose of maintaining the probate litigation.

C.2B  Loans

16.The AFSs of the Relevant Period show that an aggregated sum of $27 million had been made to the Plaintiff during the Relevant Period.  According to the AFSs, the Plaintiff could only be audited in the statement as a going concern unless the governors of the Plaintiff “elect to do so and the governors’ intention of electing to repay the loans only when such repayments do not result in the Foundation [the Plaintiff] not being able to operate as a going concern”.

17.All the three notes under the heading “Note 3” of the AFSs are almost identical. Since much has been said about this note, I set out in full the content of Note 3 contained in the 2009 AFS for illustration purpose:

“The amounts due are unsecured and have no fixed repayment terms. These loans were lent to the [Plaintiff] by the lenders for the purpose of funding the costs of the dispute in respect of the validity of the Will made by Mrs. Nana T.H. Wang on 28^th July 2002. The Foundation [the Plaintiff] has sole and absolute discretion to elect (i) whether to repay the loans lent in whole or in part; (ii) never to repay any loan to the lenders; and (iii) whether to pay any interest thereon and, if so, at what rate and for what period. It is the intention of the governors that the loans are repaid when it is in their opinion that the repayment will not result in a going concern problem for the [Plaintiff]. The Governors do not intend to elect for repayment of these loans within twelve months from the end of the reporting period.”

18.The content of this note, Mr. Stock submitted, suggests that the loans made to the Plaintiff were most unusual, and that they did not appear to be of loans made at “arms length” or on a commercial basis.

C.3  Documents Allegedly Relevant to the Issue of Maintenance/Champerty

19.The documents that are said to be allegedly relevant to the alleged maintenance/champerty are Item 1 (the retainer agreements), Item 3 (information about the loans), Item 4 (information about the donations) and Item 5 (correspondence between the Plaintiff and the Secretary for Justice (“SJ”) relating to the Plaintiff’s sources of funding).

20.The relevance of the documents sought will be further discussed below.

C.4  Plaintiff’s Contentions

21.Mr. Chan, on behalf of the Plaintiff, takes great exception to the allegations.

22.The Plaintiff has made no secret of the fact that the litigation in question was funded by way of donations and loans.  As to whether such act would be caught by the prohibition against unlawful maintenance and champerty, the Plaintiff relies on the two categories of exceptions – “common interest” and “access to justice” – modern jurisprudence now recognizes.

23.Mr. Chan’s contention is based on a very narrow compass.  It is contended that given its charitable status, it would be perfectly legitimate for the Plaintiff to rely on donations and loans in the probate litigation in ensuring that the huge estate bequeathed by the late Madam Kung in the earlier will would not be jeopardized by the 1^st Defendant’s allegation of an existence of a purported valid later will.  It is therefore contended that the Plaintiff had a common interest in the outcome of litigation, so that the funding from the maintainers in enabling the Plaintiff to conduct the litigation would satisfy another exception of “access to justice” as identified in Unruh.

C.5  Discussion

24.Costs will be disallowed where they are claimed in respect of fees or expenses incurred in consequence of an agreement that is contrary to public policy.  Maintenance and champerty are the main instances where costs are disallowed on the ground of public policy[1].

25.According to the authorities cited in this case on the rule of maintenance and champerty, there is no doubt that this doctrine is in the course of attenuation, and it is to be retained to target against mainly any wanton and officious intermeddling with the disputes of others in which the maintainer has no interest for the purpose of preserving the integrity of the judicial process.  A genuine and legitimate interest underlying the maintenance would validate an otherwise unlawful arrangement.

26.The second main mischief would be to prevent arrangements which involve a third party “trafficking” or “gambling” in the outcome of the litigation with the likelihood of a profit being made (see Unruh at §101). Many such arrangements that have the effect of maintaining an impecunious litigant to enable his claim that would otherwise be stifled for lack of financial funding to proceed may nowadays rely on the “access to justice” exception.

27.In order therefore to understand whether the underlying arrangement falls foul of the prohibition, the totality of the facts should be examined, which would involve looking at the relationship between the maintainer and the party maintained, as well as the action being maintained.

28.The maintenance/champerty allegation arises from the Plaintiff’s admitted impecuniosities.  The argument therefore goes that the Plaintiff would not have been able to conduct the probate action against the 1^st Defendant until its conclusion without the financial support of the third party.  Prima facie therefore there is maintenance.  The documents sought would therefore be allegedly necessary to enable the 1^st Defendant to advance his preliminary objection to the Bill.

29.From the documents the 1^st Defendant is seeking disclosure in this application, the alleged maintainers can be identified as: (A) solicitors (see Item 1 of the Schedule); (B) the lenders (see Item 3 of the Schedule) and (C) the charitable donors (see Item 4 of the Schedule).

30.Whether an action of maintenance/champerty would be regarded as unlawful would depend largely on the purpose of the financial assistance as well as the underlying transaction between the Plaintiff and alleged maintainers. Thus, they merit a brief separate discussion.

C.5A: Plaintiff’s solicitors

31.The rule would render an agreement between a solicitor and his client unenforceable if he accepts payment for professional services calculated as a proportion of the sum recovered from the defendant[2], or that he has knowingly and actively participated in a champertous agreement a client made with a third party[3]. Under such circumstance, a solicitor would not be able to recover his costs against the client.  Should the client be the receiving party in a bill of costs, the paying party would therefore not be liable to pay the former since the client has no liability to pay his solicitors.

32.Thus, not only the solicitors would not be allowed to claim costs against their client under a champertous arrangement, a third party would also not be liable for the costs of this client.  Hence if the client is a receiving party in a successful litigation, a claim for costs would be caught by the indemnity principle, which would be dealt with in Section D below.  Suffice it is to state that the 1^st Defendant has not alleged that the arrangement between the Plaintiff and the solicitors has been so tainted.

C.5B: The lenders

33.The AFSs have indeed shown that the Plaintiff during the Relevant Period needed to rely on loans in order to keep the Plaintiff solvent, and admittedly to finance the probate action.

34.Some information can actually be gleaned from the AFSs.  First, the purpose of the loans.  Secondly, the amounts lent. Thirdly, terms of the loans: (i) the loans were unsecured; (ii) the Plaintiff had complete discretion on how and when the loans were to be paid (or not repaid at all) including the determination of the rate of interest.  On the face of this information, can it be shown that the maintenance itself is prima facie unlawful?

35.In order to consider if such arrangement would enable the Plaintiff to pray in aid of the public policy exceptions, one should therefore start by looking at the underlying litigation the lenders had provided funds to support.  The background and the circumstances giving rise to the probate action are already expounded in great length in the Judgment, and it is not necessary to repeat what the action is about. It is noted that the Plaintiff, being an approved charitable organization, is not the same as an ordinary private commercial or business institution. It is required to conduct its business solely for charitable purposes for the law requires all its profits derived from trade or business to be applied solely for charitable purposes (Inland Revenue Ordinance (Cap.112) s.88).

36.Given the Plaintiff’s charitable status, the Plaintiff’s income would likewise be required to be strictly applied for such purposes. Any financial assistance that it had received for funding the litigation should only be for such purposes alone. Can the contrary then be said of the assistance in this case when the money did not go directly to charity but has been used to fund a piece of litigation?  In this case, the Plaintiff was the sole beneficiary standing to inherit the entire estate of the late Madam Kung under the earlier will (see the Judgment §7 referred to in paragraph 12 above).Once the validity of this will were successfully propounded (as it has been), the Plaintiff will be getting astronomical income from the late Madam Kung’s estate, which income will in turn be used for charitable purposes. In the circumstances, I think “legitimate interest” and “access to justice” exceptions would very likely validate such financial arrangement.

37.Given the essential information already revealed in the AFSs, and there is nothing suggesting anything other than for legitimate purpose, I am unable to see that the 1^st Defendant has raised a real issue of the existence of  any unlawful arrangement.

38.Further, given the fact that the Plaintiff is required to file an annual AFS, and that it is subject to the supervision by the SJ (being the protector of charity), the Plaintiff’s financial activities are therefore subject to public scrutiny.  Should there be any unlawful arrangement that suggests any financial support going beyond an otherwise legitimate purpose, the SJ would be duty-bound to take necessary step to protect the integrity of the administration.

39.Thus, when the relationship and the nature of the loans are considered in context, the lenders albeit maintaining the probate litigation could not be said to have broken the law of maintenance/champerty.

C.5C: Donors

40.Unlike the loans, the information regarding donations in the AFSs is much less. According to the Judgment (§§38 to 45), it is undisputed that the donations Plaintiff received were for charitable purposes.  The Plaintiff’s governor of the board of directors would decide (in consultation with Madam Kung before her demise) on how much to be given and to which charity.  For example, China Association of Social Workers was provided $30m in March 2007.

41.There is no denial that the Plaintiff had used donations to fund the probate litigation.  According to the Judgment, it also appears that the governor of the board of directors of the Plaintiff has a complete discretion in deciding how donations are to be disposed of so long as such disposal is in accordance with the Plaintiff’s objects clause (as apparent from the Affirmation of Chan Kam Por, the governor of the Plaintiff filed on 21 February 2011 (“CKP’s Affirmation”) in opposition to the 1^st Defendant’s present application).

42.Since the underlying purpose of the donations is similar to that of the loans, as already discussed above, the 1^st Defendant again cannot show that there is anything otherwise than for excepted purposes of “common interest” and “access to justice”.

D.  Breach of Indemnity Principle

D.1  Principle

43.The indemnity principle, simply put, prohibits a litigant who has been awarded costs from recovering from the paying party costs more than what he is liable to pay his own solicitors.

44.To ensure that the principle is not breached, Practice Direction 14.3 requires a receiving party of costs to confirm when claiming costs against the paying party in his statement or bill of costs a solicitors’ certificate verifying that the amount claimed in a statement or a bill does not exceed the receiving party’s liability of costs to his solicitors.

45.The Plaintiff’s Bill has included such a certificate, and the court would therefore assume, in the normal circumstance, that the Bill represents the true state of affairs, and there is no breach of the principle.

46.The 1^st Defendant in this case however argues that the amount of costs claimed in the Bill does indicate otherwise.

D.2  The Underlying Facts giving rise to the Allegation

47.The alleged breach of this principle stems from the Plaintiff having included in the Bill costs that the 1^st Defendant is not liable to the Plaintiff under the Subject Costs Order. The Bill has also included items of costs made in the 1^st Defendant’s favour in some interlocutory applications as well as costs relating to the SJ.

48.Apart from alleging the Bill of having included costs that the Plaintiff is not entitled, the 1^st Defendant further submitted that the amount of $141,568,958.60 as now claimed in the Bill also appears to have exceeded the Plaintiff’s liability to its solicitors’ costs in the sum of $138,079,787 as disclosed in the AFSs of the Relevant Period.  By the Subject Costs Order, the Plaintiff shall not able to cover costs of the entire probate action. It is therefore submitted that 1^st Defendant’s liability to costs (even before taxation) will definitely be below $138,079,787; the costs the Plaintiff had paid to its solicitors. Based on these figures, Mr. Stock submits that the Plaintiff is prima facie in breach of the indemnity principle.

D.3  Documents Allegedly Relevant to the Breach of the Principle

49.In connection with the issue of the breach of indemnity principle, the 1^st Defendant is seeking discovery of documents in Item 1 (which documents are also sought in connection with the issue of maintenance/champerty) and Item 2(the “Existing Budget” exhibited to Ho’s Affirmation).

D.4 Plaintiff’s Contentions

50.Mr. Chan, at the hearing, agreed that the Bill in its present form has indeed included items of the Excluded Costs, which the Plaintiff cannot recover.  Mr. Chan contends that this alone however will not automatically mean that the Plaintiff will be guilty of the breach as these items shall undoubtedly be disregarded at the taxation hearing.  

51.Since it is admitted that a number of items of the costs should be left out, I directed the Plaintiff at the conclusion of the hearing to clarify the amount of costs to be disregarded from the Bill. Subsequently, the Plaintiff’s law costs draftsman filed an affirmation confirming that a sum of $7,601,631.7 (comprising of $1,017,631.70 of profit costs and $6,584,000 of counsel’s fees) will be excluded.  

52.Apart from the items of the costs to be excluded from the Bill at the taxation, the Plaintiff has also further clarified that the total amount of legal costs in the sum of $138,079,787 as shown in the AFSs for the Relevant Period was only in respect of the legal costs having been incurred and paid by the Plaintiff ending on 31 December 2009.  However, that amount does not cover legal costs incurred from January 2010 up till 16 April 2010 (“the date of the Subject Costs Order”) as well as the costs of the taxation in the total sum of $7,701,918.78. The Plaintiff has in fact paid a total sum of $145,781,705.78 (CKP’s Affirmation at §5).

53.Given the fact that the actual amount of costs claimed in the Bill is to be reduced (as subsequently confirmed, by $7,601,631.7 as stated in paragraph 51 above), Mr. Chan therefore contends that it is abundantly clear that the Plaintiff’s had in fact paid substantially more legal costs than the actual amount to be claimed in the Bill, and the 1^st Defendant has failed to demonstrate any breach of the indemnity principle.

54.Further, the Plaintiff is asserting privilege in respect of Items 1 and 2 of the Schedule.  Mr. Chan contends that since the Plaintiff is not prepared to waive privilege, and further that there is already the solicitors’ certificate having been verified in accordance with Practice Direction 14.3, the 1^st Defendant will not be entitled to go beyond the certificate.  In any event, the Plaintiff contends, the taxing master would be able to inspect all documents when assessing costs at the taxation hearing.

D.5 Discussion

55.As very often the case, whenever an issue of a breach of indemnity principle arises, it may require a consideration of privileged documents in the subject proceedings as in the present case.  Zuckerman on Civil Procedure: Principles of Practice (2^nd ed. 2006) at §§26.113-26.114 referred by Mr. Stock has summarized the general approach in this regard.  I do not think there is much difference in the approach as discussed in Zuckerman with our taxing authority in Hong Kong. I believe the following approach should therefore be relevant also to the present consideration:

(a)      A solicitors’ certificate endorsed in accordance with Practice Direction 14.3 on a bill of costs is sufficient for the court to assume that the bill represents the true state of affairs, and that there is no breach of the indemnity principle.

(b)      If the taxing master, upon a closer look of the bill that suggests otherwise, the court may take an intrusive examination of the receiving party’s communications with his lawyers.

(c) If the paying party raises a factual issue, which is real and relevant and not a sham or fanciful dispute, the court has power to order discovery but subject to an assertion of the documents being privileged.

(d)      If the receiving party asserts privilege, the court can always inspect all privileged documents for the purpose of taxation or assessment of costs.

(e) If after having inspected the documents, the court is of the view that a particular document is of sufficient importance to be taken into account in arriving at a conclusion as to the recoverability of costs, the receiving party would be put to his election as to whether to disclose the document to the paying party in order that he can rely upon the contents or else he would have to content itself with other evidence to prove his entitlement on recoverability.

(f)  The privilege cannot be overridden by the court.

56.Applying as I am the above approach, I now deal with the grounds of the 1^st Defendant’s allegations under this principle. The 1^st Defendant’s allegation basing on the amount being claimed in the Bill having exceeded the legal costs as disclosed in the AFS ending on 31 December 2009 is evidently unsustainable given the subsequent clarifications as stated in paragraphs 51 to 52 above.  The actual amount as revised will be  $133,523,655.3,  Since the Plaintiff has now confirmed that it has altogether paid a total sum of $145,781,705.78, the Plaintiff’s liability to its solicitors in fact exceeds the amount to be claimed in the Bill by $12,258,050.48 .

57.In addition to the allegation basing on the amount claimed in the bill, if the 1^st Defendant is able to show a real issue of champertous arrangement between the Plaintiff and the solicitors, it would in turn lend support to his allegation of the breach of this principle as discussed in paragraphs 31-32 above.

58.In Section C above, I have set out my view in respect of the public policy exceptions of “common interest” and “access to justice” that may likely be available to the Plaintiff in respect of the maintenance of the Plaintiff’s probate litigation. I do not find therefore the 1^st Defendant is able to satisfy the first hurdle of showing a real issue relevant to the taxation proceedings. 

59.Since the 1^st Defendant has also alluded to other minor points in respect of the individual items of document, I will next deal with each item of the documents in the next section.

E. Items of Documents

E.1A: Item 1

60.Under Item 1, the 1^st Defendant seeks documents in respect of (i) retainer agreements in respect of probate action (ii) all documents, correspondence or attendance notes containing or evidencing any agreement or arrangement as to the terms upon which the fees of the Plaintiff’s solicitors and counsel in the probate action are to be paid by the Plaintiff or any other party.

61.Mr. Stock submits that retainer agreements should, like retainer letters, generally not be privileged, citing a passage (§2.132) in The Law of Privilege (2005) by Thanki QC. in which the learned author referred to the Court of Appeal decision in Three Rivers District Council v Governor and Company of the Bank of England (No.6) [2004] QB916.  In the same text (at §2.129) it is suggested by the learned author that fee notes are not automatically be regarded as privileged in their entirety in the light of Three Rivers 6 as they are not directly related to the performance of the retainer by the lawyer.

62.Mr. Stock has referred to the text passages without referring to Three Rivers 6.  It is perhaps instructive to recap what Three Rivers 6 says about legal advice privilege.  The Court of Appeal in UK held that where a solicitor-client relationship is formed for the purpose of obtaining advice or assistance in relation to rights and liabilities, broad protection will be given to communications passing between solicitor and client in the course of that relationship.  The primary object of the relationship was to obtain assistance that required knowledge of the law between solicitor and client when the dominate purpose is not the obtaining of advice and assistance in relation to legal rights and obligations (at §26).

63.Hence, Mr. Stock submitted, the documents in Items 1 and 2 should not be automatically accorded protection. Should the contents of the documents be caught by such privilege – Mr. Stock said- they can be redacted.

64.The request will be declined as I have already ruled above that the 1^st Defendant has been unable to raise a real issue suggesting any unlawful champertous arrangement between solicitors and the Plaintiff. I am further disinclined to conduct an exercise in deciding to what extent the subject documents are privileged for the purpose of this application. As discussed in paragraph 55, it is open to a taxing master to consider this issue when determining recoverability and reasonableness of the costs claimed in the Bill.

E.1B: Item 2

65.The “Existing Budget” was placed in a sealed envelope when it was exhibited to Ho’s Affirmation for the purpose of enabling the court to properly evaluate the validity of Plaintiff’s claim that it would be able to have sufficient funds to engage another team of counsel in preparation for trial if the application for adjourning the trial were granted.

66.It is submitted that but for the document being sealed, the 1^st Defendant is entitled to inspect it under O.24 r.10[4], and demand for inspection accordance with the commentary of the  Hong Kong Civil Procedure 2011 §41/11/16.

67.In this regard, I tend to agree with Mr. Chan’s submission that since Lam J before whom the Existing Budget was placed has acceded to the Plaintiff’s request to have it concealed from inspection, it could be inferred that it is not appropriate to disclose it to the 1^st Defendant.

68.Apart from the issue of indemnity principle, there is an additional ground Mr. Stock has put forward in support of the request for discovery of the Existing Budge. He said that it is likely to be relevant to the issue of reasonableness of the costs the Plaintiff is now claiming in the Bill.

69.The Existing Budget, according to the purpose in respect of which it was exhibited, was only a mere estimation even if it might have been containing information on the amount of the estimated legal costs. I think the Costs Budget prepared in a situation when the Plaintiff needed to ask for an indulgence from the court to vacate the trial dates would be of little relevance to the indemnity principle issue. 

70.Should the issue of reasonableness and recoverability become necessary, the court would always take such necessary and appropriate steps as those discussed in paragraph 55 above in deciding whether intrusive examination is to be taken.

71.For these reasons, I decline the discovery of this item.

E.1C: Items 3 & 4

72.The documents sought in both Items 3 and 4 of the Schedule cover a wide range of documents pertaining to disclosing identities of the lenders/donors, payments, repayments and of communication between the parties and lenders/ donors through their legal representatives.

73.These documents have been discussed in relation to the issue of maintenance/ champerty in respect of which that I have ruled against the 1^st Defendant. Discovery is therefore refused.

E.1D: Item 5

74.The documents are supposed to be able to throw light on the issue of the maintenance/champerty.  Since, I have declined discovery of documents sought under Items 1, 3 and 4, the relevance of these documents would be much less than the said Items in respect of same issue.

E.2 Conclusion for Issue 1

75.For the foregoing reasons, I am not satisfied that the 1^st Defendant has raised a real and relevant dispute based on the grounds of maintenance/champerty and a breach of indemnity principle.  He is unable to pass the threshold test of relevance, and I do not therefore find discovery necessary.

F.  Discretion (Issue 2)

76.However, should I be wrong in respect of the above, and that the 1^st Defendant were found to have  raised a real issue relevant to the taxation proceedings, I would next consider whether I would exercise my discretion in favour of the 1^st Defendant.

77.Generally speaking, a court may decline discovery if the documents sought is too wide, and the discovery process is so onerous that the costs of discovery would be become disproportionate.

78.In respect of the documents in Items 1 and 2, since they involve the court overriding the privilege the Plaintiff is asserting, I would be disinclined to exercise my discretion to allow discovery when the court at the taxing proceedings is still able to ensure that the Plaintiff can only cover costs it is entitled to and has reasonably incurred.  In the light of the underlying objectives of the Civil Justice Reform, I think it may not be procedurally economical to take the steps as suggested in paragraph 55 above at this stage.

79.The scope of discovery in respect of documents in Items 3, 4 and 5 (as discussed above) is wide-ranging for it covers a period of more than 4 years. I do not think the probative value of the documents would outweigh the inconvenience of giving discovery (HKCP 2011 §24/7/11).

80.Hence, my answer to Issue 2 is in the negative.

G.  Conclusion and Order

81.In conclusion therefore, the 1^st Defendant’s summons is dismissed.  I further make a costs order nisi that the 1^st Defendant pays the Plaintiff’s costs together with certificate for counsel, to be gross sum assessed in lieu of taxation.

80.  Upon the costs order nisi becoming absolute, and should the costs not be agreed, the Plaintiff shall fix a hearing before me for summary assessment of costs with ½ hour reserved.  The Plaintiff is to lodge and serve a statement of costs 7 days before the hearing for summary assessment of costs, and the 1^st Defendant likewise lodge and serve his list of objections 3 days before the hearing.

Mr. Alexander Stock, instructed by Messrs Reed Smith Richards Butler for the 1^st Defendant

Mr. Jeremy S K Chan, instructed by Messrs Wilkinson & Grist for the Plaintiff

Schedule

1. All retainer agreements entered into between the Plaintiff and its solicitors in respect of HCAP No. 8 of 2007, and all documents, correspondence or attendance notes containing or evidencing any agreement or arrangement as to the terms upon which the fees of the Plaintiff’s solicitors and counsel in HCAP No. 8 of 2007 are to be paid by the Plaintiff or any other party.

2. The Existing Budget referred to at paragraph 17 of and exhibited as “KMKH-9” to the 1st Affirmation of Keith Man Kei Ho dated 19 February 2009 filed in this action.

3. The following documents or classes of documents relating to the “Loans” reported in the Plaintiff’s Governors’ Reports and Financial Statements for the years ended 31 December 2007, 31 December 2008 and 31 December 2009, and more particularly described in Note 3 in the said Reports and Financial Statements:

3.1 loan agreements and correspondence setting out or referring to the identity of the parties and the terms of the loans from 2007 to date;

3.2 bank statements, remittance advices, receipts and correspondence referring or relating to the transfers, remittances or payments of the loans by the lenders (or their nominee(s)) to the Plaintiff (or any person or entity acting on behalf of the Plaintiff, including the Plaintiff’s legal representatives) from 2007 to date;

3.3 bank statements, remittance advices, receipts and correspondence referring or relating to repayment of the loans, payment of interest on the loans and/or any payment by the Plaintiff (or any person or entity acting on behalf of the Plaintiff, including the Plaintiff’s legal representatives) to the lenders (or their nominee(s)) from 2007 to date;

3.4 letters and emails referring or relating to communications between or among any of the Plaintiff (or any person or entity acting on behalf of the Plaintiff, including the Plaintiff’s legal representatives) and the lenders (or their nominee(s), ultimate beneficial owner or legal representatives) from 2007 to date.

4. The following documents or classes or documents relating to the “Donations received” reported in the Plaintiff’s Governors’ Reports and Financial Statements for the years ended 31 December 2007, 31 December 2008 and 31 December 2009:

4.1 bank statements, remittance advices, receipts, agreements and correspondence referring or relating to the donations and the transfers, remittances or payments of the donations by the donors (or their nominee(s)) to the Plaintiff (or any person or entity acting on behalf of the Plaintiff, including the Plaintiff’s legal representatives) from 2007 to date;

4.2 letters and emails referring or relating to communications between or among any of the Plaintiff (or any person or entity acting on behalf of the Plaintiff including the Plaintiff’s legal representatives) and the donors (or their nominee(s), ultimate beneficial owner or legal representatives) from 2007 to date.

5. All correspondence (letters and emails) between the Plaintiff (or its legal representatives) and the Secretary of Justice relating to the Plaintiff’s sources of funding for this action, and all attendance notes containing or evidencing any communication between the Plaintiff (or its legal representatives) and the Secretary for Justice relating to the same subject matter.