William Allan v. Messrs Ng & Co. (A Firm) and Another
Read the full judgment text of CACV 13/2011 on BabelCite. This Court of Appeal judgment was delivered on 6 March 2012.
1. This is an appeal against the judgment of To J on 24 December 2010 after a 14-day trial. Judgment was given in favour of the plaintiff, William Allan, who is a barrister, against the 1 st and 2 nd defendants, Messrs Ng & Co and Christopher Erving, for breach of the duty of confidence. The 1 st defendant is a firm of solicitors and the 2 nd defendant one of its partners. The judge found that the 2 nd defendant had divulged confidential information imparted to him by the plaintiff’s sister Alis
Cited by 23 cases · Cites 16 cases
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CACV 13/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 13 OF 2011 (ON APPEAL FROM HCA NO 10844 OF 1994) ____________ BETWEEN
____________ Before: Hon Kwan, Fok JJA and Lam J in Court Dates of Hearing: 21 and 22 February 2012 Date of Judgment: 6 March 2012 _______________ JUDGMENT _______________ Hon Kwan JA: 1.This is an appeal against the judgment of To J on 24 December 2010 after a 14-day trial. Judgment was given in favour of the plaintiff, William Allan, who is a barrister, against the 1st and 2nd defendants, Messrs Ng & Co and Christopher Erving, for breach of the duty of confidence. The 1st defendant is a firm of solicitors and the 2nd defendant one of its partners. The judge found that the 2nd defendant had divulged confidential information imparted to him by the plaintiff’s sister Alison (“Alison”) on the plaintiff’s behalf with a view to instructing the defendants to act for the plaintiff in matrimonial proceedings against the plaintiff’s wife (“the wife”). No retainer had ever come into existence between the plaintiff and the defendants. The defendants later acted for the wife in the matrimonial proceedings. 2.The judge ordered the defendants to pay the plaintiff exemplary damages, jointly and severally, in the sum of $2.14 million, with interest at the judgment rate on the capital sum of $1.39 million with effect from 28 October 1994 and on the capital sum of $750,000 with effect from 29 November 1995 until payment. The total interest thus awarded, came up to over $3.9 million up to December 2011 and continues to accrue at around $59,000 a month. The defendants were also ordered to pay costs of this action on an indemnity basis. 3.The 2nd defendant does not appeal against the finding of liability against him for breach of confidence. The 1st defendant appeals against the finding of liability, contending that it should not be held vicariously liable for exemplary damages. Both appeal against the award of exemplary damages, whether exemplary damages should be awarded at all, the quantum of damages, if interest should be awarded over a 15-year period, and if costs should be awarded on indemnity basis. The background and factual findingsp> 4.The relevant background matters and findings of fact in the judgment (against which there is no appeal) may be stated as follows. 5.The wife filed a petition for divorce against the plaintiff on 29 April 1994 and obtained a non-molestation order against him the same day. Alison telephoned the 2nd defendant on 12 or 13 May 1994, to consult him with a view to asking him to represent her brother in the matrimonial proceedings. She informed the 2nd defendant that she approached him on the plaintiff’s behalf and expressed concern that their conversation be kept confidential as the matrimonial proceedings were at a critical stage in that there were intensive discussions between the plaintiff and the wife for settlement. She was reassured by the 2nd defendant that the conversation and contents would be kept confidential. They spoke for about 45 minutes (“the 1st Call”), during which Alison disclosed to the 2nd defendant 11 items of confidential information that included the merits of the wife’s grounds for divorce, the plaintiff’s stance on custody and financial issues, his bottom line and tactics in the matrimonial proceedings. 6.To J considered Alison a credible witness and accepted most of her evidence on the 1st Call as well as on other matters, but even on Alison’s evidence, which he accepted, there was no concluded oral retainer made in the 1st Call. 7.On 24 May 1994, the wife orally instructed the 2nd defendant and his firm, the 1st defendant, to act for her in place of her then solicitors in the matrimonial proceedings. The 1st defendant filed a notice of change of solicitors on 26 May. On 27 May, Alison telephoned the 2nd defendant demanding him to cease to act for the wife. He refused. The plaintiff and Alison made further telephone calls to the 2nd defendant that day protesting against the defendants acting for the wife but to no avail. 8.On 12 July 1994, the plaintiff instructed solicitors to act for him in the matrimonial proceedings. His solicitors wrote to the Law Society in July and August 1994 complaining against the defendants acting for the wife. On 16 September 1994, he issued an originating summons for an order that the 1st defendant should cease to act for the wife. Owing to a procedural irregularity, these proceedings were dismissed by consent. 9.On 28 October 1994, the plaintiff issued the writ in the present action and applied for an interlocutory injunction to restrain the defendants from acting for the wife in the matrimonial proceedings. To oppose the application, the 2nd defendant made two affidavits asserting his understanding that only the fact that the discussion was taking place in the 1st Call was confidential as opposed to the information conveyed, which was not of a confidential nature. He reiterated he had not received any confidential information from Alison. 10.On 10 November 1994, Sears J dismissed the application for an interlocutory injunction with costs against the plaintiff. No official transcript of the hearing was available and no written decision was given, only the notes of proceedings taken by the solicitors acting for the defendants were produced at the trial before To J. 11.To J found that Sears J dismissed the application apparently on the provisional finding that there was no retainer and no confidential information was imparted to the defendants as claimed by the 2nd defendant. To J held that the two affidavits made by the 2nd defendant were deliberately false and deliberately dishonest in that they were made for the purpose of procuring Sears J to refuse the plaintiff’s application for interlocutory injunction. The 2nd defendant admitted in the trial before To J his assertion that only the fact of the 1st Call was confidential but not its contents was misleading. The 2nd defendant had even withheld from Sears J that he had recorded his telephone conversation with Alison on 27 May 1994 (“the 4th Call”) and had his secretary prepared a transcript of the recording, which provided the best evidence to test the evidence of Alison and the 2nd defendant regarding the 1st Call. The transcript also contained an admission by the 2nd defendant that he had agreed to keep the contents of the 1st Call confidential. To J condemned the 2nd defendant’s behaviour as “gross dishonesty and unbecoming of a solicitor as an officer of the Court.” 12.After his application for interlocutory injunction was dismissed, the plaintiff capitulated and indicated that he would withdraw this action. He was seriously ill at the time and was on the verge of mental collapse. In late November 1994, he was admitted to hospital for two days of treatment for depression and drug dependence. He was suffering from tremendous pressure caused by the matrimonial proceedings and his condition worsened as the proceedings dragged on. Between December 1994 and April 1995, he was in Hawaii for a comprehensive drug and behavioural treatment programme. 13.On 29 November 1995, a consent judgment was entered against the plaintiff for the costs of the hearing before Sears J agreed at $375,000. As these costs were not paid, the defendants took out proceedings to enforce the judgment debt. On 27 March 1996, a charging order nisi was made against the plaintiff’s matrimonial home and the order was made absolute by consent on 16 April 1996. The wife and the daughter were then living in the matrimonial home. On 25 June 1996, the defendants instructed solicitors to issue bankruptcy proceedings against the plaintiff on the judgment debt. The plaintiff applied to stay the bankruptcy proceedings. This came before P Chan J (as he then was) on 22 July 1996. After the judge had remarked that the wife should have independent advice before making the decision to retain the defendants to act for her and that the wife should bear in mind the interest of the daughter, she instructed another firm of solicitors to act for her in place of the defendants. 14.On 30 May 1997, an order was made against the plaintiff on the defendants’ application for examination of a judgment debtor on the judgment debt. He was duly examined on 12 November 1997. He obtained legal aid on 10 March 1998 limited to seeking a stay of this action pending the final outcome of the ancillary relief proceedings. The defendants withheld taking further steps in the bankruptcy proceedings until after judgment was given in the ancillary relief proceedings. 15.The matrimonial proceedings between the plaintiff and his wife were protracted and extremely acrimonious. Deputy Judge Gill, who handled almost the whole of the proceedings during the period of six years, described this as “an extreme example of a divorcing couple, each consumed by a righteous indignation against the other, to their mutual destruction.” 16.In September 1994, the wife brought proceedings for an order to oust the plaintiff from the matrimonial home. The ouster proceedings ended in November 1994 in a dramatic turn of events when the plaintiff capitulated, confessed his infidelity in the witness box and agreed to an ouster order. The petition for divorce was amended and a decree nisi was pronounced on the admitted adultery. The proceedings for ancillary relief were later transferred to the High Court. 17.Deputy Judge Gill gave judgment on the ancillary relief proceedings on 17 January 2000. The proceedings continued until July 2001 with the costs hearing and the wife’s application for adjustments. Deputy Judge Gill was very critical of the plaintiff in the matrimonial proceedings. He was shown to be lying under oath in the ouster proceedings. He was demonstrably lying and fabricating evidence in the ancillary relief proceedings, and the judge found acts of dishonesty in removing matrimonial property out of reach of the wife. In the present action, To J considered the plaintiff a “dangerous witness” and treated his evidence with “extreme caution”. He remarked that “fortunate for [the plaintiff], his evidence is not of crucial importance in this case.” 18.After the conclusion of the matrimonial proceedings, the plaintiff applied for legal aid to pursue this action against the defendants. This was refused on 20 May 2001. His legal aid appeal on merits was allowed on 31 May 2002 and his legal aid appeal on means was allowed on 7 May 2004. His present solicitors were assigned in 2004. 19.In December 2004, the writ was amended to add a claim for “inquiry as to damages (including exemplary or aggravated damages) and/or equitable compensation for the 1st and/or 2nd Defendant’s breach of confidence in respect of the confidential information and payment of the amount certified in answer to such inquiry or account as aforesaid.” Prior to the amendment, the plaintiff’s claim with regard to divulging confidential information and wrongfully acting for the wife was pleaded only on the basis of there being a retainer between the plaintiff and the defendants and that the defendants were in breach of the retainer and fiduciary duty as solicitors for the plaintiff. Before To J, the defendants did not seriously dispute that they were under a duty of confidence to the plaintiff in respect of any confidential information imparted to them by Alison on the plaintiff’s behalf. 20.To J held that once the plaintiff has proved to the satisfaction of the court that confidential information had been imparted and that such information was relevant to the matrimonial proceedings in which the defendants were acting for the wife, the burden shifted to the defendants to adduce sufficient evidence to show that they had not made use of the confidential information or disclosed the same. This evidential burden was not discharged by the defendants. The 2nd defendant accepted that if he had been told by Alison information about the plaintiff’s position on financial matters (which he denied but was found by the judge to the contrary), he would not have acted for the wife because there was a potential conflict of interest. He also accepted that if he had been imparted the information (as the judge had found against him), he would have passed it to the wife as he was duty bound to do so as her solicitor. On these answers, the judge was satisfied that the plaintiff has discharged the legal burden of proving breach of the duty of confidentiality. The judgment on the quantum of damages 21.To J held that on the facts of this case, damage could be readily presumed. Had the information not been disclosed to the wife, the matrimonial proceedings would have at least proceeded more smoothly incurring less time and costs. Moreover, had there been no breach, this action and the application for interlocutory injunction would not have been necessary and the plaintiff would not have suffered the proceedings against him for the enforcement of the costs order of Sears J. The judge referred to China Light & Power Co Ltd v Ford [1996] 2 HKC 23 in support of the proposition that compensatory, aggravated and exemplary damages are available for breach of the duty of confidence. 22.The plaintiff’s counsel at the trial (not Mr Smith, SC who appeared for the plaintiff on appeal) abandoned the claim for compensatory damages and chose to pursue exemplary damages because he perceived a difficulty of proving the quantum of compensatory damages which would depend on evidence of how the confidential information had been misused and that would be difficult to fathom. In counsel’s written closing submission, he asked the court to make a “substantial award in favour of [the plaintiff] to reflect the Court’s disapproval of [the 2nd defendant’s] conduct and to adequately compensate [the plaintiff] for all that he has gone through both in the divorce proceedings and in this action resulting from [the 2nd defendant’s] breach of his duty of confidence and refusal to discontinue acting for [the wife].” He would appear to be asking the court to make a “combined award of compensatory and exemplary damages”, as in the case of Choy Bing Wing v Ng Yat Chi [1992] 1 HKC 508, which was a libel case cited to the court. What is clear is that no or no proper evidence was adduced before the court of any of the compensatory elements of damages of the plaintiff’s claim. 23.Given the position adopted by counsel, and as the judge had found that the plaintiff had proved breach, the judge held that the plaintiff is entitled to a nominal sum for compensatory damages. The judge then went on to consider whether he is entitled to exemplary damages, which are over and above compensatory damages. 24.The judge considered the 2nd defendant’s conduct with regard to the second category for awarding exemplary damages as stated by Lord Devlin in Rookes v Barnard [1964] AC 1129, namely, that the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff. Having referred to the speeches of Lord Nicholls in Kuddus v Chief Constable of Leicestershire Constabulary [2002] 2 AC 122 at paras 63, 67 and 68 and in A v Bottrill [2003] 1 AC 449 at paras 23 and 35, the judge held that exemplary damages are available where the plaintiff has proved that compensatory damages are perceived as inadequate to achieve a just result between the parties by showing that the defendant’s conduct is so outrageous or such a contumelious disregard of the plaintiff’s right that it would be an affront to the court’s sense of justice if it does not show its disapproval by awarding damages over and above that which would in an ordinary case have been adequate to compensate the plaintiff for his loss. 25.On the facts found, the judge held that the 2nd defendant had committed a knowing breach of confidentiality with a view for gain. He prepared his two affidavits knowing that they were false in material particulars for the purpose of enabling him to continue to act for the wife, which he knew was in breach of the solicitors’ code of conduct and would put him in the impossible position of conflict and breach of his duty of confidentiality owed to the plaintiff as quasi-client. As a solicitor and an officer of the court, he had perjured and practised a fraud on the court. Not only was he not entitled to be reimbursed his costs in the injunction application, he should have ceased to act for the wife and paid the plaintiff’s costs of that application. Further, he knew the plaintiff’s mental health was quite unstable when he took out the bankruptcy proceedings against the plaintiff, which did not have the support of the wife, the insurers and one of the partners of the 1st defendant. The judge found his conduct “extremely outrageous”, “utterly unreasonable”, a persecution of the plaintiff and a contumelious disregard of the plaintiff’s right and held that the court must show its disapproval of such conduct, for which the 1st defendant is also liable, by making an award of exemplary damages against the defendants. 26.As for the quantum, the judge was guided by the decision of the Supreme Court of Canada in Whiten v Pilot Insurance Company (2002) 209 DLR (4th ) 257 at paras 112 to 126 of the broad principles for the kind of factors to be taken into account when assessing quantum. He took into account proportionality by reference to (1) the blameworthiness of the defendant’s conduct; (2) the degree of vulnerability of the plaintiff; (3) the harm or potential harm directed specifically at the plaintiff; (4) the need for deterrence; and (5) the advantage wrongfully gained by the defendant from the misconduct. He considered depriving the profits made by the defendants in acting for the wife plus an additional sanction element an appropriate starting point. He also took into account retribution against the 2nd defendant by way of disciplinary proceedings of the Law Society. 27.Thus, in determining the starting point, the judge included these three elements:
28.Having arrived at a starting point of $2.14 million (being the sum of the three elements above), and as he could find no mitigating circumstances in the defendants’ favour, he awarded exemplary damages against them of $2.14 million, with interest to run on $1.19 million and $200,000 from 28 October 1994 (the date of the writ in this action, even though the costs in the “notional sum” of $200,000 had yet to be incurred as at that date) and on $750,000 from 29 November 1995 (the date of the judgment for the agreed costs). He directed the Law Society to commence disciplinary proceedings against the 2nd defendant and to consider removing him from the roll of solicitors. The issues on appeal 29.I will discuss the issues raised in this appeal under these ten topics:
The liability of the 1st defendant 30.The question of liability of the 1st defendant did not appear to be an issue in the court below and was not given separate treatment. It was just mentioned in paras 1 and 195 of the judgment that the 1st defendant would be vicariously liable for the 2nd defendant’s breach of confidence. No suggestion was made that the other partners of the 1st defendant had knowledge of or was complicit in the 2nd defendant’s breach of duty. 31.Mr Smith submitted that liability of the 1st defendant was based on section 12 of the Partnership Ordinance, Cap 38, which provides as follows:
32.As stated by Lord Millett in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 103, section 10 of the Partnership Act 1890 (equivalent to our section 12) is in the widest terms; it applies whenever injury is caused to a non-partner, or any penalty is incurred, “by any wrongful act or omission of any partner”; the section is concerned only with fault-based liability, and there is nothing in its wording to indicate that liability must arise at common law. See also the decision of the Supreme Court of Canada in Strother v 3464920 Canada Inc (formerly known as Monarch Entertainment Corporation) [2007] 2 RCS 177 at para 100 on a similar provision in the partnership legislation. Mr McCoy, SC for the defendants accepted that breach of the duty of confidence, being a fault-based equitable wrong, is within section 12. 33.The issue then is whether the 2nd defendant’s act in holding the discussion with Alison in the 1st Call was “in the ordinary course of the business of the firm”. It is not in dispute that this is to be evaluated by an examination of the closeness of the connection between the duties which the partner was authorised to do and his wrongdoing. Lord Nicholls had this to say in Dubai Aluminium at para 23:
34.Lord Nicholls further explained that this formulation using the phrase “may fairly and properly be regarded” betokens a value judgment by the court, and essentially the court makes an evaluative judgment in each case, having regard to all the circumstances, whether the type or degree of connection is sufficiently close to conclude that the risk of the wrongful act and any loss flowing therefrom should fall on the firm. 35.Mr McCoy submitted that the absence of a retainer between the plaintiff and the firm should make a material difference. Whilst he accepted that an equitable wrong for breach of confidence can occur without a retainer, he contended that the act of breach of confidence in the absence of a retainer could not be in the ordinary course of business of the 1st defendant as solicitors. This is because the 2nd defendant did not receive the confidential information in the 1st Call as the plaintiff’s solicitor and owed no fiduciary duty to the plaintiff as such. And as the 1st Call was just an initial exploratory call and the nascent business opportunity did not mature into a retainer, no fiduciary obligation or legal professional privilege could arise on the part of the 1st defendant unless and until it had a retainer. 36.I reject this submission. The 2nd defendant was acting in the capacity of a solicitor when he received confidential information in the exploratory call. He was authorised to hold discussions with potential clients or their representatives with a view to the firm being retained to act for the client. What he did in the 1st Call was work-related, as distinct from personal. He was certainly not moonlighting, as in the case of the valuer in Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462, see also Dubai Aluminium at para 126. Had a retainer come into existence, he would certainly have been acting in the ordinary course of business of the firm. The risk of his wrongdoing in divulging information received in confidence in an initial call is one which can fairly be said to be reasonably incidental to the firm’s business. Mr McCoy has conflated the breach of confidence as a breach of the fiduciary duty of loyalty with the breach of confidence arising from the separate duty to respect confidential information received (Arklow Investments Ltd v Maclean [2000] 1 WLR 594 at 600A to B). 37.I uphold the judgment that the 1st defendant was vicariously liable for the breach of the duty of confidence of the 2nd defendant under section 12 of the Partnership Ordinance. I turn to consider the objections in principle raised by Mr McCoy that exemplary damages should not be awarded in this case, none of which were taken below. Exemplary damages and breach of confidence 38.Mr McCoy’s point here is that breach of confidence is an equitable wrong, whereas the primary function of exemplary damages is to punish the defendant for his outrageous conduct. He cited the classic statement of James LJ in Vyse v Foster (1872) LR 8 Ch App 309 at 333 to 334 that a court of equity is not a court of penal jurisdiction, it compels restitution of property unconscientiously withheld, and gives compensation for loss or damage through failure of some equitable duty, but it has no power to punish anyone. He referred to the decision of the Court of Appeal in New South Wales in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 in which the above dicta was applied and the court, by a majority, held that it has no power to make a punitive monetary award for breach of fiduciary duty where that duty arises in the context of a contractual relationship. 39.This Australian decision runs counter to authorities in Canada (Norberg v Wynrib [1992] 2 SCR 226) and New Zealand (Aquaculture Corporation v New Zealand Green Mussel Ltd [1990] 3 NZLR 299). The Law Commission in England recommended that exemplary damages should be available for equitable wrongs (Report on Aggravated, Exemplary and Restitutionary Damages, Law Com No. 247 (1997) (“the Law Commission Report”) at paras 5.54 to 5.56), regarding it unsatisfactory to perpetrate the historical divide between common law and equity. 40.In Hong Kong, as mentioned in the judgment of To J, there is the decision of the Court of Appeal in China Light & Power v Ford that exemplary damages are available in cases of breach of confidence[1] (supra at 29Cto F, 30C to E, 34H to I and 38H). The court applied the statement of Lord Goff in Attorney General v Guardian Newspapers (No 2) [1990] 1 AC 109 at 286D to E and had considered, among other cases, Aquaculture Corporation v New Zealand Green Mussel Ltd. 41.Mr McCoy did not contend before us that the decision in China Light & Power v Ford is plainly wrong, so that this court may depart from its previous decision (Solicitor (24/07) v Law Society of Hong Kong (2008) 11 HKCFAR 117 at para 45). That being the case, and as we are bound by China Light & Power v Ford, there is no need to say anything further about this point. Exemplary damages and liability under the Partnership Ordinance 42.The next objection is that exemplary damages should not be awarded against an innocent party who has not committed any wrongdoing but is found vicariously liable for the conduct of another. 43.Mr McCoy relied on the speech of Lord Scott in Kuddus v Chief Constable of Leicestershire Constabulary, supra at paras 125 to 138. The question whether exemplary damages can be recovered in a claim where the defendant’s liability is merely vicarious was not the subject of submissions in Kuddus. The other Law Lords did not express any opinion on this and Lord Scott stated that the views he expressed on this issue must be regarded as provisional. Nevertheless, he took the view that the objection to exemplary damages awards where liability is vicarious is “fundamental”, and as the principle of such an award is to punish a defendant who has committed punishable behaviour, it should leave “no room” for such an award to be made against an individual whose liability is only vicarious and is not the actual wrongdoer. Mr McCoy relied also on the minority speech of Lord Hutton and Lord Millett in A v Bottrill, supra at paras 76 to 82 for the proposition that the rationale of an award for exemplary damages does not apply where the defendant does not have the intent to harm or has not been subjectively reckless. 44.Lord Scott’s view was not followed by the English Court of Appeal in Rowlands v Chief Constable of Merseyside Police [2007] 1 WLR 1065, but has the support of cases in New Zealand (S v Attorney-General [2003] 3 NZLR 450; Falwasser v Attorney-General [2010] NZAR 445; Couch v Attorney-General [2010] 3 NLLR 149[2]) and Canada (Blackwater v Plint [2005] SCC 58). 45.Mr McCoy submitted as we are untrammeled by authorities, this court should take a principled approach and rule that exemplary damages are not available as a matter of law where liability is only vicarious, as it would not be proper or fair to inflict punishment on a person who has not been complicit in the wrongdoing. 46.The cases cited by Mr McCoy were all concerned with vicarious liability at common law, which is not the position here. Vicarious liability in the present case is statutory, founded on section 12 of the Partnership Ordinance. As stated by Binnie J in Strother, supra at para 103, the relevant section in the partnership legislation provides for a statutory remedy, and nowhere in this provision is it suggested that prior knowledge of the delinquency by the other partner is a condition precedent to liability. “It is in the nature of vicarious liability under s 12 that the firm may be innocent of any fault other than the misfortune of having on board a rogue partner at the time of his or her delinquency.” See further at para 107: “If the rogue partner cannot pay, the legislature has decided that there is no good reason why the loss or injury should be inflicted on the innocent client rather than on the partnership which put the rogue partner in a professional position to do what he or she did.” 47.Further support that vicarious liability under the partnership legislation should be treated differently may be found in the Law Commission Report at para 5.205 which reads as follows:
48.As there is clear legislative policy for the liability of partners, I do not think awarding exemplary damages in this situation is subject to the objections in principle one would find in a case of common law vicarious liability. I hold that exemplary damages may be awarded against a defendant who is liable under the Partnership Ordinance. A single award of exemplary damages against the defendants 49.Mr McCoy contended that under the rule laid down in Broome v Cassell & Co [1972] AC 1027, only one sum can be awarded by way of exemplary damages where the plaintiff elects to sue more than one wrongdoer in the same action in respect of the same wrongdoing and that the sum awarded must not exceed the sum which is necessary to punish the less or the least culpable of the wrongdoers. Applying that rule, as the 1st defendant was blameless and does not deserve punishment, no exemplary damages should have been awarded, however culpable the 2nd defendant might be. 50.I do not accept this submission. The rule applies where the wrongful act is committed jointly by more than one defendant, and they may have different degrees of culpability for the wrongful act. It aims to avoid the risk of over-punishment when a wrongdoer could be made liable to pay an award which was assessed with reference to the greater fault of another of the wrongdoers, and that the burden of such an award could not be transferred to those wrongdoers by a claim to contribution or to an indemnity, see the Law Commission Report, paras 4.78 and 5.191. It has no application to the situation where the wrong is committed by one defendant and the other defendant is liable for the wrong of the first “to the same extent” under section 12 of the Partnership Ordinance. Some matters of principle of exemplary damages 51.Before I turn to Mr McCoy’s criticism of the judge’s approach in his assessment of exemplary damages, it is relevant to have regard to some matters of principle about exemplary damages, which have been considered as an anomaly at law. 52.The rationale for exemplary damages is not to compensate, but to punish. They are additional to an award which is intended to compensate a plaintiff fully for the loss he has suffered, both pecuniary and non-pecuniary. See, for example: A v Bottrill, supra at para 29 per Lord Nicholls; Kuddus, supra at para 51 per Lord Nicholls, para 95 per Lord Scott. This extract from Lord Nicholls’ judgment in A v Bottrill atpara 20 would suffice:
53.It is therefore important to distinguish the different roles of compensatory and exemplary damages. It may be easy to lose sight of this distinction if the court is to make a “combined award” of compensatory and exemplary damages. 54.The second important thing, which follows from the rationale, is that exemplary damages are a remedy of last resort. This is the “if, but only if” test mentioned by Lord Devlin in Rookes v Barnard, supra at 1228, in which he stated that when assessing damages in a case in which exemplary damages are available, the jury should be directed that:
55.The importance of this principle was emphasised by the House of Lords in Broome v Cassell & Co, supra at 1060A to D, 1082A to B, 1089D to E, 1104D to E, 1116C, 1121G to 1122A, 1126C to D. Applying the “if, but only if” test, the question the court should ask is whether the remedies available to it are inadequate to punish and deter the defendant. It is only if the available remedies are inadequate to punish and deter the defendant for his conduct that exemplary damages should be considered. 56.Thirdly, awards of exemplary damages are governed by a principle of moderation and restraint, see Lord Devlin in Rookes v Barnard, supra at 1227 to 1228. Exemplary damages are “analogous to a criminal penalty”, so “principle requires that an award of exemplary damages should never exceed the minimum sum necessary to meet the public purpose underlying such damages, that of punishing the defendant, showing that tort does not pay and deterring others.” (John v MGN Ltd [1997] QB 586 at 619F to G) The judge’s approach in assessing exemplary damages 57.Mr McCoy’s primary criticism of the judge’s approach is along the following lines. 58.Firstly, the plaintiff’s counsel at trial had abandoned the claim for compensatory damages and had adduced no or no proper evidence to prove his claim for compensation. The judge acknowledged that the plaintiff is only entitled to a nominal sum for compensatory damages. Having done so, the judge re-labelled what could have been proved as compensatory damages (the second and third elements in the components that made up the exemplary damages) or as an account of profits (the first element in the components) as exemplary damages and awarded these amounts as punishment for the 2nd defendant’s outrageous conduct. In so doing, the judge had erred in principle. Exemplary damages are awarded when compensatory damages or restitution of enrichments are inadequate remedies, not to take the place of compensatory damages or restitution of enrichments when they are not proved. 59.Secondly, compensatory damages (in effect the second and third elements of the components that made up the exemplary damages) and an account for profits (in effect the first element) are alternative, not cumulative remedies. Had the plaintiff sought compensatory damages and an account for profits, he would have been put to an election of these inconsistent remedies (Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514 at 521D; China Light & Power Co Ltd v Ford, supra at 34H to I). In awarding both heads to the plaintiff under the rubric of exemplary damages, the judge had erred in principle and in law. 60.Thirdly, and in any event, the amount of exemplary damages awarded at $2.14 million with interest approaching $4 million is unreasonable and wholly excessive. 61.I think all these are valid criticisms. 62.Mr Smith accepted that it is feasible for the plaintiff to seek an account of profits for his claim of breach of confidence, and likewise the plaintiff could have adduced evidence to prove the loss he has suffered in legal costs in various proceedings which should not have been brought. Indeed, that was acknowledged by the judge who said at para 200 of the judgment: “Had the plaintiff wished to prove compensatory damages, he would have been able to prove the above damages [the second of the three components] at least as part of his loss. He did not. It is just as appropriate for me to include that in the exemplary damages to be awarded.” 63.The law is clear on what is required of a plaintiff in pursuing a claim for damages. In Born Chief Co v George Tsai & Anr [1996] 2 HKLR 188, the Court of Appeal set aside the order of the judge in directing an inquiry to be made by a master as to damages and substituted an order for nominal damages, as there was no order for a split trial, the plaintiff had adduced no evidence to prove quantum at trial and should not be given a further opportunity to prove damage at the expense and to the prejudice of the defendants. Nazareth V-P had this to say at 195B to D:
64.Here, as the plaintiff had not adduced evidence to establish compensatory damages, the judge could only have awarded a nominal sum to compensate the plaintiff for his monetary loss in respect of the legal fees he had incurred. There is no basis to treat such loss, of which no or no proper evidence was adduced, as exemplary damages instead. (I will come back to the legal fees of $375,000 awarded to the defendants against the plaintiff, which the judge wrongly assumed the defendants had been paid and made an award the effect of which is to order the defendants to repay an amount they had not been paid.) The same consideration applies to the first element of the components, which is in effect disgorgement by the defendants in an account for profits (Here, the effect of the award is to make the defendants disgorge profits they had not received, as the wife was billed legal fees of $2.38 million for the work done in the matrimonial proceedings in the 1990s and according to the 2nd defendant’s evidence, $1.8 million remained outstanding and was never collected.) The judge’s approach offends the principles identified earlier, that the rationale of exemplary damages is not to compensate but to punish, they are to be awarded as a last resort when the compensatory damages or the restitutionary award is inadequate to punish and deter the defendant. 65.Mr Smith sought to salvage the situation by inviting us to look at the award as a whole and contended that the overall amount is justified in that the award could be regarded as a combined award for compensatory and exemplary damages, as counsel for the plaintiff had submitted at the trial. But that was not what the judge had set out to do in making this award. He stated that the plaintiff is entitled to a nominal sum for compensatory damages, so one can only regard the whole of the award as punitive damages. 66.As the judge had erred in his approach and in law, this court would need to look at the assessment of exemplary damages afresh. Before doing so, I will consider some of the other points raised by Mr McCoy in contending that the award of exemplary damages should not be made or should be reduced. Clean hands, laches and disciplinary proceedings 67.Mr McCoy complained that the judge had failed to deny or reduce relief for the equitable wrong on account of the plaintiff’s conduct, in that the plaintiff had behaved badly in the matrimonial proceedings and was found to be lying under oath and fabricating evidence and that the judge was “utterly unable” to believe his evidence in the present proceedings. The judge did not mention laches and did not appear to have considered the plaintiff’s delay in stalling this litigation for ten years (the claim for exemplary damages for breach of confidence was only added in December 2004), and that the plaintiff’s conduct in the pursuit of this litigation has been vacillating and desultory. In any event, as the judge had directed that the Law Society should consider bringing disciplinary proceedings and removing the 2nd defendant from the roll of solicitors, this should be adequate punishment and no exemplary damages should have been awarded. 68.The judge expressly stated in para 198 that he had regard to the plaintiff’s conduct, so Mr McCoy’s complaint is not made out. The matter of disciplinary proceedings has also been considered by the judge in that same paragraph of the judgment. The issues of clean hands and laches were not pleaded in the defence, and we understand from counsel had not been raised at the trial. It is far too late for Mr McCoy to raise these matters on appeal for the first time. The measure of exemplary damages 69.I am in agreement with the judge that the reprehensible conduct of the 2nd defendant deserves special condemnation. This is a bad case of perjury and deceit practised by a solicitor on the court. If the plaintiff had proved his claim for compensatory loss or his claim for an account of profits in the proper way, I do not think the compensation or the quantum of restitution that would have been available would be an adequate remedy to punish and deter the defendants, even taking into account the disciplinary proceedings that would be brought against the 2nd defendant. This is an appropriate case for an award of exemplary damages. 70.I bear in mind the principle of moderation and restraint mentioned earlier, that an award should not exceed the minimum sum necessary to meet the public purpose underlying such damages. Awards of exemplary damages made in this jurisdiction are relatively few. I annex as an appendix to this judgment a table handed up by Mr Smith of cases on exemplary damages in Hong Kong. There are a total of 13 cases since 1976. Mr McCoy has come up with more or less the same cases. In a number of instances, the court had not differentiated the award made for exemplary damages from the awards of compensatory damages and only a global figure was mentioned. The combined award of $2.5 million made in Choy Bing Wing v Ng Yat Chi, supra, a libel case, would have included compensation for the substantial loss of profits suffered by the plaintiff, and it is not possible to tell what was the amount awarded for exemplary damages. 71.Insofar as separate awards were made, $200,000 was the highest amount awarded for exemplary damages, in Chan Kwok Wai v Secretary for Justice, HCPI 134/1999, 30 June 2000 (assault by a number of police officers in a police station), and Wong Kwai Fun v Li Fung [1994] HKLY 688 (loan shark who charged excessive interest threatened and assaulted the victim). The amount of $2.14 million awarded here is way above the level of exemplary damages awarded in the past, granted that the past awards were made in very different factual situations. 72.In arriving at an appropriate figure for exemplary damages, I have regard to the level of awards in the past. As the highest award of $200,000 was made more than ten years ago, it is appropriate to take into account inflation since then. I also take into consideration that the 2nd defendant will face disciplinary proceedings to be brought by the Law Society after this judgment, plus the fact that the defendants have, through Mr McCoy, offered an undertaking to this court (which we accept) that they will not seek to enforce against the plaintiff the costs orders made against him by Sears J in the interlocutory injunction application, any adverse costs orders against the plaintiff in relation to the charging orders, the examination of judgment debtor and the bankruptcy proceedings, and that the defendants will forthwith procure the discharge of the charging orders nisi and absolute made against a property registered in the plaintiff’s name. I have also borne in mind the factors mentioned in Whiten v Pilot Insurance Company, supra relevant to the proportionality of the award that had been considered by the judge. 73.In my judgment, an appropriate amount to be awarded as exemplary damages against the defendants is $400,000. These exemplary damages will be in addition to the nominal damages to which the judge held the plaintiff was entitled by way of compensation. Interest on exemplary damages 74.The judge ordered interest to run on the amounts he awarded from the date of the writ or from the date when the loss was incurred. It may be appropriate to so order if this had been a compensatory award. The overriding principle for awarding interest to the plaintiff is not as compensation for the damage done, but for being kept out of money which should have been paid to him (London, Chatham and Dover Ry Co v South Eastern Ry Co [1893] AC 429 at 437; Lam Rogerio Sou Fung v Tan Soon Gin George, CACV 85/2011, 17 January 2012, para 19). 75.Of the past awards of exemplary damages, Mr McCoy has drawn to our attention that in Yeung Wah James v Alfa Sea Limited, HCA 426/1992, 8 June 1993, Deputy Judge Yeung (as he then was) made an award of $50,000 for general damages for trespass and $50,000 for exemplary damages but awarded interest only on $50,000 from the date of the writ, so no interest was awarded for exemplary damages. I note also in the decision of the New South Wales Court of Appeal in Chen v Karandonis [2002] NSWCA 412 at para 133, no interest before the date of judgment was awarded on the amount of exemplary damages of A$300,000. 76.I agree with this approach. Interest before judgment should not be awarded on exemplary damages, as the function of this kind of award is to punish and deter the defendant and the plaintiff is not being kept out of money which should have been paid to him. I would set aside the judge’s order on interest. Indemnity costs 77.I see no basis to interfere with the discretion of the judge in awarding indemnity costs against the defendants, notwithstanding the judge was critical of the plaintiff in some respects. This action would not have been brought by the plaintiff or prolonged to an extent which would have been unnecessary if the 2nd defendant had not breached the duty of confidence, acted for the wife in the matrimonial proceedings, and sought to cover up his wrongdoings by his false affidavits. Orders 78.I would allow this appeal, set aside the award of $2.14 million of exemplary damages and the order for pre-judgment interest, and substitute this with an award against both defendants, jointly and severally, of (i) nominal damages of $100 by way of general compensatory damages; and (ii) exemplary damages of $400,000. I decline to order pre-judgment interest on the award of $400,000. Interest on this sum should run from the date of the judgment below at the judgment rate. The order of indemnity costs of the proceedings below against the defendants would not be disturbed. 79.As for the costs of this appeal, I take into account that the defendants have not been wholly successful. I would make an order nisi there be no order as to the costs of this appeal and that the plaintiff’s own costs are to be taxed in accordance with the Legal Aid Regulations. Hon Fok JA: 80.I have had the advantage of reading in draft the judgment of Kwan JA. I am in full agreement with it and wish only to add a few observations of my own on the question of damages. General principles 81.It is important to keep in mind some basic distinctions between compensatory (or basic) damages, aggravated damages and exemplary damages as these differences are significant both in terms of substance and procedure. 82.As a result of an actionable wrong, loss suffered by a plaintiff may be pecuniary or non-pecuniary and damages may be awarded to compensate for either type of loss. In a typical personal injuries action, for example, there will be a claim for both special damages and general damages. Special damages reflect pecuniary loss and are those quantifiable by reference to specific items of expenditure, such as the cost of medical treatment. General damages are non-pecuniary in nature and are those which the court quantifies by reference to the facts and circumstances of the case, such as damages for pain, suffering and loss of amenities. In the context of an action for defamation, a plaintiff may recover general damages for injury to his reputation. 83.Non-pecuniary loss may also include hurt feelings and mental distress arising from the circumstances in which the wrong was committed, such as justified feelings of outrage at the defendant’s conduct. Additional damages over and above the normal general damages may be awarded to reflect this, in order to mark the aggravation of damage suffered by the plaintiff by reason of the defendant’s conduct. Such aggravated damages are awarded to compensate the plaintiff for injury to his proper pride and dignity and the consequence of his being humiliated. Typically, in an action for defamation, the defendant’s conduct after the publication of the libel including the manner in which the defence has been conducted will be relevant. Where appropriate, a court (or jury) may award aggravated damages in addition to the general damages to reflect the additional loss suffered by the plaintiff. 84.All the above-mentioned types of loss are compensatory in nature. Even where aggravated damages are also awarded on top of these general (or, as they are sometimes referred to, basic) damages, the total figure of such award is intended to reflect what is considered to be fair compensation for the plaintiff’s injury or loss: see Thompson v Commissioner of Police of the Metropolis [1998] QB 498 at p.516G. 85.Such compensatory damages are to be contrasted from exemplary damages, also sometimes referred to as punitive damages. Exemplary damages are anomalous: Rookes v Barnard [1964] AC 1129 per Lord Devlin at p.1221 and see §§96 to 105 of Lord Scott’s speech in Kuddus v Chief Constable of Leicestershire [2002] 2 AC 122. As is explained in McGregor on Damages (18th ed.) at §11-001, exemplary damages are anomalous in the civil sphere since they confuse the civil and criminal functions of the law. In particular, it is anomalous that money extracted from a defendant by way of punishment should be paid to a claimant, in whose hands they are a windfall, rather than the State. However, they remain a part of the common law of England and also that of Hong Kong. 86.An important consequence of exemplary damages not being compensatory is that their assessment does not in principle relate to the loss suffered by the plaintiff. Instead, the general objectives of exemplary damages may be stated as being punishment, deterrence and denunciation: see per Pratt LCJ in Wilkes v Wood (1763) Lofft.1, 98 ER 489. As Kwan JA has pointed out, they are a remedy of last resort (see §54 above). 87.Another important factor to bear in mind is that awards of exemplary damages should, in principle, be moderate: see Rookes v Barnard [1964] AC 1129 per Lord Devlin at pp.1227-1228 and the discussion in McGregor (supra) at §§11-035 to 11-038. In contrast with the particularly large awards of exemplary or punitive damages encountered in some common law jurisdictions, it has not been the policy of courts in Hong Kong to make such awards of exemplary damages. This is amply demonstrated by the cases respectively identified by Mr McCoy and Mr Smith, set out in the Appendix to Kwan JA’s judgment, in which exemplary damages have been awarded by courts in this jurisdiction. 88.Procedurally, full particulars of a claim for special damages must be provided (RHC O.18 rr.12(1), 12(1A)(b)). Generally, it is not necessary to plead the amount of a claim for general damages, although Practice Direction 18.1 provides (in respect of personal injuries actions) an exception in that a statement of the range of damages claimed as general damages for pain, suffering and loss of amenities and damages for loss of earning capacity should, where practicable, be provided (PD 18.1 §65(2)(f)). 89.In England, rule 16.4(1)(c) of the Civil Procedure Rules specifically requires that, if a claimant is seeking aggravated damages, the particulars of claim must include a statement to that effect and his grounds for claiming them. The Rules of the High Court do not contain this express requirement but, as a matter of practice, a claim for aggravated damages and the facts relied upon to support such a claim should be pleaded: see Khodaparast v Shad [2000] 1 WLR 618 at p.628A, and Hong Kong Civil Procedure (2012 ed) at Note 18/12/10 (at p.393). 90.As a matter of procedure, a claim for exemplary damages must be specifically pleaded together with the facts on which the party pleading such a claim relies (RHC O.18 r.8(3)). The basis of a claim for exemplary damages being different to a claim for compensatory damages, the facts relied upon will for the most part be different to those relied upon in support of a claim for aggravated damages. 91.Reference to the procedural rules regarding the various types of damages underscores the need for a plaintiff clearly to differentiate between the different heads of damages claimed and the good sense in a court, when giving judgment, making discrete awards in respect of each type of damages claimed, be they special, general, aggravated or exemplary. At the very least, this distinction is of practical necessity in respect of any calculations of applicable interest. In a personal injuries action, for example, interest on pre-trial special damages runs at half the judgment debt rate from the date of loss whereas interest on general damages for pain, suffering and loss of amenities runs from the date of service of the writ until the date of judgment at 2%. The Judge’s approach 92.I am in full agreement with Kwan JA’s analysis of the Judge’s approach in assessing exemplary damages (see §§57 to 66 above). 93.The Judge’s approach was flawed in respect of the second and third elements of the damages he awarded in that he sought to approach the quantification of exemplary damages as if on a compensatory basis. 94.That the Judge adopted this approach is particularly clear from the manner in which he calculated the second element of the award in the sum of $750,000. He started by taking the sum of $375,000 which the plaintiff was ordered to pay to the defendants as the costs of the interlocutory injunction application. Had Sears J been apprised of the facts as found by the Judge, he ought to have granted the injunction sought by the plaintiff and ordered costs to be paid to the plaintiff. He would certainly not have ordered the plaintiff to pay costs of the defendants. The Judge proceeded to assess damages on the footing that the sum of $375,000 was an amount that had presumably been paid with interest. There was, however, no evidence that this was the case (and, as a matter of fact, these costs had not been paid). The Judge then added a like amount of $375,000 to represent the costs that the Judge considered represented the plaintiff’s own costs in relation to the injunction application. Again, an award of this nature might be justified as compensation to the plaintiff, on the assumption he had paid such costs, but there was simply no evidence that this was the case. The Judge was alive to this because, in paragraph 200 of the Judgment, he said:
95.With respect to the Judge, I consider that this was an erroneous approach since he should not have used the quantification of exemplary damages as a means by which to enable the plaintiff to recover compensatory damages indirectly and without proper evidence. 96.These comments apply equally to the notional sum of $200,000 which the Judge awarded by way of exemplary damages as representing the plaintiff’s costs in the bankruptcy proceedings and the costs incurred in respect of the charging order over the matrimonial home, i.e. the costs of resisting the defendants’ enforcement proceedings in relation to the costs order in their favour arising from the interlocutory injunction application. 97.The first element of damages of $1.19 million was assumed by the Judge to represent the defendants’ gross profits. He considered that the defendant should not have acted for the wife in the first place and should not keep those profits. He therefore determined that the plaintiff should be awarded, by way of exemplary damages, $1.19 million in respect of the costs which the defendants earned from acting for the wife. 98.That approach was, loosely, to conduct an account of the profits made by the defendants from their wrongdoing and to order their disgorgement. That is an orthodox remedy in the case of a claim for breach of an equitable duty. But the plaintiff did not seek an account of profits (and, had he done so, he would have had to elect between the account and damages as inconsistent alternative remedies). Instead, in his counsel’s closing submissions, the plaintiff invited the judge to award exemplary damages by reference to the defendants’ profits. 99.In my opinion, the Judge’s approach was not appropriate. The error is compounded by reference to the fact that the defendants’ billing to the wife in the sum of $2.38 million was not paid. Indeed, in his closing submissions at trial, the plaintiff’s counsel indicated that $1.8 million of the bill remained outstanding and was never collected. As a matter of principle, it is unjust to arrive at a figure of exemplary damages, in order to punish the defendants, by reference to profits which have not in fact been made. The amount of damages and interest to be awarded 100.It was for the plaintiff to adduce evidence of his loss and damage flowing from the relevant breach of duty to establish any entitlement to compensatory damages. In the absence of evidence establishing the quantum of damages, the appropriate award would have been one of nominal damages. This is the position, even where it is clear that some damage has been caused by the defendant’s wrongdoing (see the reference to Born Chief Co v Tsai George & Anr in §63 of Kwan JA’s judgment). Given the plaintiff’s abandonment of the claim for compensatory damages, general damages for the breach of confidence should be nominal. In Nam Tai Electronics Inc v PwC (2008) 11 HKCFAR 62, in a claim for damages for breach of confidence, the CFA assessed nominal damages at $100 (§§83 and 85). In my view, that is the appropriate award for general (or basic) damages in the present case. 101.In the light of the undertakings offered by Mr McCoy on behalf of the defendants, there is no question of any need for relief by way of indemnity, declaration or injunction. 102.Turning to the amount of exemplary damages, given the need for moderation in the quantum of awards of exemplary damages, I agree with Kwan JA that the sum of $400,000 would be an appropriate award by way of exemplary damages in the circumstances of the present case. 103.An award of interest on damages is to compensate a plaintiff for being kept out of his money. Since general damages are nominal, there is no reason to award interest on those damages at all whether pre- or post-judgment. Since the award of exemplary damages is punitive and not compensatory, there is also no rational basis for awarding interest on those exemplary damages prior to the date of judgment. Hon Lam J: 104.I have read in draft the judgments of Kwan JA and Fok JA and agree with both judgments.
Mr Clifford Smith, SC and Mr Raymond Ho, instructed by Hampton, Winter & Glynn, for the plaintiff (respondent) Mr Gerard McCoy, SC and Mr Felix Ng, instructed by Erving Brettell, for the 1st and 2nd defendants (appellants) Appendix Table of Hong Kong Cases on Exemplary Damages
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Cases cited in this judgment
Other judgments that cite this case
Further hearings and rulings under CACV 13/2011