Moral Luck Finance Ltd v. Law Kin Leung

DCCJ 736/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 736 OF 2011

----------------------

----------------------

DCMP 2062/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2062 OF 2011

----------------------

----------------------

--------------------

R U L I N G

--------------------

1.I shall now proceed to deal with the application by the Plaintiff under Order 62 rule 8 of the Rules of District Court that Mr. Chiu of Messrs. Chiu Szeto & Cheng (“CSC”) shall be personally liable for the costs of the Plaintiff incurred herein. CSC were the solicitors on record for the Defendant, and the solicitors appointed by Director Legal Aid to act for Madam Cheung, the Applicant.

2.Procedurally, the Plaintiff should take out such application after the conclusion of the trial (Order 62 Rule 8A).  I do not have to consider if the application is taken out of time.  CSC complains that the application is late, and I could only presume that it is a general ground asking this Court not to entertain the application.  For reason below, I do not have to cover this point and I take the application as issued in time.

3.I need to cover some relevant background facts before I come to the argument of Mr. Cheung, counsel for the Plaintiff.

4.I would start with the Notices to Act for the Defendant filed by CSC on 28 January 2012 in these actions and the Summonses they filed for the Defendant on the same day asking for various reliefs, including appointment of Madam Cheung as guardian ad litem of the Defendant, setting aside the relevant judgment and order given in these proceedings, an interim order for stay of execution, and an injunction to restrain the Plaintiff from executing the order for sale.  At this stage, no party is legally aided.

5.Parties came before me for an urgent interim injunction on 2 February 2012, when counsel Mr. Jacky Lai appeared and claimed in his skeleton that he acted for the Defendant and Madam Cheung.

6.I did not have to rule on the application on that day as the Plaintiff was prepared to give an undertaking not to proceed with the order of sale.  As a result, the summonses were adjourned for the Plaintiff to file affirmation in opposition before I hear the full argument.

7.Madam Cheung applied for Legal Aid on or about 22 February 2012.  And by a Legal Aid Certificate dated 19 March 2012, Legal Aid was granted to Madam Cheung for Law Kin Leung and Mr. Chiu Kwok Wing of CSC was assigned by Director of Legal Aid to act for the aided person.

8.Pausing here, though the certificate was granted to Madam Cheung “for Law Kin Leung”, the applicant for Legal Aid is Madam Cheung.  I believe Madam Cheung is the aided person.

9.Later, the Plaintiff came back asking for leave to medically examine the Defendant.  This is resolved and the Defendant is jointly examined by the psychiatrists nominated by the parties.  Mr. Cheung informed this Court that the instruction given to the experts was signed by CSC as solicitors for the Defendant.

10.And on 1 August 2012, CSC again took out a summons on behalf of the Defendant asking for leave to instruct a 3^rd psychiatrist to medically examine the Defendant.  The summons came before me on 6 August 2012 and counsel Mr. Kam Cheung appeared for Madam Cheung.  It is confirmed by Mr. Kam Cheung that it was Madam Cheung who took out the application by the said summonses, and the Legal Aid Certificate was granted in favour of her.  I have recorded the matter in my judgment.

11.The application for appointment of Madam Cheung as guardian ad litem for the Defendant was argued before me on 10 August 2012, when Legal Aid has been discharged.  And before the hearing, CSC had applied by summons to cease to act as solicitors for Madam Cheung.  An order was granted for CSC to cease to act.

12.After the hearing, I ruled against Madam Cheung and a written judgment has been delivered.  I ordered Madam Cheung to pay the costs of the Plaintiff.  The Plaintiff has applied by summons to vary my costs order to the effect that the Defendant should also be responsible for the costs, which I have given a separate ruling in Chinese today, when the application has been refused and I do not repeat.

13.The Plaintiff also applies for CSC to be responsible for their costs, joint and severely with the Defendant and/or Madam Cheung.  The application is based on Order 62 rule 8 which reads –

8. Personal liability of legal representative for costs-wasted costs order

(O. 62, r. 8)

(1) The Court may make a wasted costs order against a legal representative, only if-

(a) the legal representative, whether personally or through his employee or agent, has caused a party to incur wasted costs as defined in section 53(5) of the Ordinance; and

(b) it is just in all the circumstances to order the legal representative to compensate the party for the whole or part of those costs.

(2) A wasted costs order may-

(a) disallow the costs as between the legal representative and his client; and

(b) direct the legal representative to-

(i) repay to his client costs which the client has been ordered to pay to other parties to the proceedings; or

(ii) indemnify other parties against costs incurred by them.

 (3) ……

14.And wasted costs is explained in section 53(5) of the District Court Ordinance and read –

(3)  In any civil proceedings before it, the Court may, in accordance with rules of court, by order disallow, or order the legal representative concerned to meet, the whole or any part of any wasted costs.

(4) ……   

(5) In subsection (3), “wasted costs” (虛耗訟費) means any costs incurred by a party as a result of-[my emphasis]

(a) an improper or unreasonable act or omission; or

(b) any undue delay or other misconduct or default, on the part of any legal representative, whether personally or through an employee or agent of the legal representative.

15.Reading Order 62 rule 8 with section 53(5), a wasted costs order covers the position when a legal representative commits the wrongful act as set out in section 53(5) causing a party to incur wasted costs and hence should be personally liable to compensation that party, who may be his client, or another party in the action.  There has to be a causal link between the improper act and the costs incurred as a result thereof.

16.And, in accordance with rule 8B, I should consider the application by a 2 stage process –

8B. Stage of considering whether to make a wasted costs order

(O. 62, r. 8B)

(1) The Court shall consider whether to make a wasted costs order in 2 stages-

(a) in the first stage, the Court must be satisfied that-

(i) it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(ii) the wasted costs proceedings are justified notwithstanding the likely costs involved; and

(b) in the second stage (even if the Court is satisfied under subparagraph (a)), the Court shall consider, after giving the legal representative an opportunity to give reasons why the Court should not make a wasted costs order, whether it is appropriate to make the order in accordance with rule 8.

17.Parties agrees that for today, I am to rule at the first stage and I only need to consider herein if there is evidence before me that if unanswered, would be likely to lead to a wasted costs order being made.  If I rule in favour of the Plaintiff, I would give further direction on the evidence and hearing.

18.There is no affirmation filed in support of the Plaintiff’s application.  I believe the above matters are not in dispute.  And it must be accepted by all parties that CSC has no instruction to act for the Defendant.  The matters relied on by the Plaintiff in support of this application would be that CSC has filed the above summonses, supporting affirmation, and instructions to experts claiming to be solicitors for the Defendant.

19.It is the main argument of Mr. Chiu in his submission that no costs have been wasted.  This is an application by Madam Cheung in truth, right from the beginning.  And all the legal costs are necessary for determining the application.  He admits that his firm is at fault in wrongly stating that they act for the Defendant, but there is no wasted costs and I should not move onto the second stage.

20.Mr. Cheung submits that CSC remains the solicitors for the Defendant on record until the Defendant filed a Notice to Act to Person on 31 October 2012.  On the contrary, CSC has not acted for Madam Cheung on record.

21.Mr. Cheung moved on to submit that CSC is in breach of professional conduct when he acted for the Defendant without proper instruction from the Defendant.  They acted only on the instruction of Madam Cheung.  He relies on the judgment in Chan Chi Ming v. Brilliant Rise Container Deport Ltd. [2008] 1 HKLRD 648 and submits that CSC is in breach of warranty of authority and should be liable for the costs of the Plaintiff.

22.The case is distinguishable as the solicitor has no instruction to act for the 2^nd defendant in that action and costs has been wasted.  But here, CSC has instruction from Madam Cheung and the application, as I analyse later, is the application of Madam Cheung.

23.There is no evidence adduced and the Plaintiff is relying entirely on the document filed and some undisputed fact.  Apart from the statement on the summons, there is no evidence that the application is taken out by the Defendant.  Taking the argument of Mr. Cheung to the highest, CSC has made a mistake in stating on paper as to whom they acted for.  If there is a mistake, it is a clerical mistake.

24.The summons is an application for appointment of a guardian ad litem, on the ground that the Defendant could not give instruction to legal advisor, including CSC.  It is obvious that the claim to be the solicitors for the Defendant is a mistake and definitely would not conflict with the explanation given to this Court that the summons is indeed taken out by Madam Cheung.

25.And most important, this Court and the Plaintiff had been notified on 6 August 2012 that the application is taken out by Madam Cheung.  Assuming for a moment that the summons had been wrongly taken out by the Defendant initially, it must have been taken over by Madam Cheung at that juncture.  There was no objection raised by the Plaintiff or its legal advisors.  And indeed, application had later been taken out by summons to join Madam Cheung as a party, on the concern that if she was not a party, the Plaintiff could not recover costs against her.  I had ruled in my judgment that it is not necessary.

26.Indeed Madam Cheung has obtained Legal Aid in March 2012.  The Legal Aid Certificate has been filed and served on the Plaintiff.  While accepting that no Notice to Act for Madam Cheung has been filed by CSC, serving of the Legal Aid Certificate gave actual notice to the Court and the Plaintiff that CSC has become her solicitor on record.  If the Plaintiff thought that the summons had been wrongly taken out for the Defendant, they should have clarified with CSC there and then.  There is no evidence to suggest this is not an application taken out by Madam Cheung.

27.Mr. Cheung has also relied on the case of Ma So So v. Chin Yuk Lun (2004) 7 HKCFAR 300.  I believe the case is relevant that when a solicitor is in serious dereliction of duty on his part, he may be held liable for the costs of the whole action.  There the solicitor has been acting mali fide.  But the case is distinguishable as here we are dealing with the clerical mistake on the part of CSC, or at most a mistake on practice or law.

28.And what could be the wasted costs incurred? Is there any costs wasted because of the alleged misconduct of CSC?

29.At end of the day, the application for guardian ad litem has been argued at length and all the expert report had been referred to.  The summonses and affirmation, and the expert reports are necessary for a fair hearing of the matter.

30.It might be argued that the first hearing on 2 February 2012 is wrongly stated as an application of the Defendant.  The legal team of Madam Cheung has indeed made a mistake.  But the summonses have not been disposed of on that day, and in fact is part of the final adjudication.  Given the subsequent acknowledgement by counsel for Madam Cheung that she is indeed the applicant, the costs would be covered by the costs order against Madam Cheung.  And no addition costs is wasted because of the wrong statement of CSC being the solicitor of the Defendant. 

31.It may be argued that the costs incurred before March 2012 would not be covered by the Legal Aid Certificate and the Plaintiff has greater difficulty to recover direct from Madam Cheung.  But that is not wasted costs.  And in any event, if the summons has been taken out correctly under the name of Madam Cheung, this part of the costs would not be covered by the Legal Aid Certificate.

32.The only costs unnecessarily incurred would be the Notice to Act.  In compare to the costs of further argument in this case, it is not justified to move on to the 2^nd Stage.

33.From the above, it is not likely that the Court would give a waste costs order against CSC.

34.Accordingly, I refuse the application of the Plaintiff.  Mr. Chiu also argues that the Plaintiff is late in making the application.  For reason above, I do not have to rule on the ground. 

35.This is an unfortunate situation and a good reminder to practitioners that they should be more careful with their drafting.  It is always a nightmare to solicitors when he fails to spot the mistake before he signed the document.  CSC might be in greater trouble if the Defendant has a complaint against them.  And given the special nature of the application, I am not minded to grant any order of costs.

Mr. Wallace Cheung, instructed by Messrs. Philip T. F. Wong & Co., for the plaintiff

Mr. Benedict Chiu, of Messrs. Chiu, Szeto & Cheng, on record for the defendant