K.B. Chau & Co. v. China Finance Trust and Investment Corporation

CACV000139/1995

IN THE COURT OF APPEAL

1995, No. 139

(Civil)

Headnote

Costs ordered to be paid by solicitors personally under Order 62 rule 8(1)(c) Rules of the Supreme Court - Costs "wasted by misconduct or default" on part of solicitor in charge of application for Mareva injunction - Affirmation in support of ex parte application grossly misleading and deliberately tailored to give a false impression of the standing of the applicant - Action discontinued and Mareva injunction discharged approximately three weeks after ex parte application was made.

Held	(Court of Appeal): In conducting litigation the sphere of a solicitor's duty is not confined to the interests of his own client. A solicitor as an officer of the court has a wider duty. The court relies on the integrity and good sense of the solicitor responsible for an ex parte application: particularly in applications for orders in extreme form such as a Mareva injunction.
	The trial judge's finding that the costs incurred by the defendant in the Mareva injunction proceedings were wasted on account of the solicitor's misconduct and default were correct. Appeal by solicitors dismissed.

IN THE COURT OF APPEAL

1995, No. 139

(Civil)

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Coram: Hon Litton, V-P, Bokhary and Godfrey, JJ.A.

Dates of hearing: 5 and 6 December 1995

Date of handing down of judgment: 13 December 1995

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J U D G M E N T

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Litton, V-P (giving the judgment of the Court):

Introduction

1. This appeal concerns an order for costs made by Sears J on 22 May 1995 against the appellants, a firm of solicitors, pursuant to Order 62 rule 8(1)(c) which provides:

"8. Personal liability of solicitors for costs (O. 62, r. 8)

(1) Subject to the following provisions of this rule, where in any proceedings costs are incurred improperly or without reasonable cause or are wasted by undue delay or by any other misconduct or default, the Court may make against any solicitor whom it considers to be responsible whether personally or through a servant or agent an order -

(a) ....

(b) .....

(c) directing the solicitor personally to indemnify such other parties against costs payable by them."

2. The appellants were solicitors on the record in High Court Action No. A994 of 1995 acting for a company registered in the British Virgin Islands called Shanghai International Capital Ltd (the plaintiff). It was, as the judge described it, a $50 company, with virtually no assets. Mr Joseph Keung Shu-Hoi, a partner in the appellant firm, was in charge of that piece of litigation. It was his conduct of the matter on behalf of the plaintiff particularly in relation to a Mareva injunction application which led to the order now under appeal.

Background facts

3. Briefly, what happened was this.

4. On 24 January 1995 Mr Keung through the introduction of a barrister received instructions from a Mr Quon to act for the plaintiff. It was to make an urgent application to the court against China Finance Trust and Investment Corporation (the defendant): to "freeze" the assets of the defendant located in Hong Kong, in advance of a claim for damages to be brought by the plaintiff company against the defendant.

5. Mr Quon was a total stronger to Mr Keung. On being introduced Mr Quon handed to Mr Keung a visiting card which had on it prominently the words "First Shanghai Capital Ltd." and on the bottom "Randolf Quon, Managing Director, Bank Syndication Division".

6. Mr Keung proceeded to take instructions and, two days later, in the presence of counsel, an affirmation was drawn up, settled by counsel, in support of an ex parte application for a Mareva injunction. The affirmation was described by the judge in these terms:

" The affirmation which was filed by Mr. Quon in support of the 'ex parte' application makes startling reading. It stated:

'I am a Director of the above named Plaintiff and also the Managing Director of First Shanghai Capital Ltd. (which is a subsidiary of First Shanghai Investment Ltd.)'

First Shanghai Investment Ltd. is a well known listed company with substantial assets. First Shanghai Capital Ltd. is also a reputable company which is a subsidiary of First Shanghai Investment Ltd. and therefore also is financially very sound.

Mr. Quon is not and never has been the Managing Director of First Shanghai Capital Ltd. That was a deliberate untruth. On his visiting card, he was described as managing director bank syndication division.

Paragraph 2 sets out that the Plaintiff company as a special-purpose company, incorporated in British Virgin Islands, 'which was at all material times and still is under the direct control of First Shanghai Capital Ltd.' That is also untrue.

Paragraph 3 says 'The Plaintiff at all material times carried and still carries on business as a merchant bank in Hong Kong.' That was also untrue.

At the end of the affidavit, in para. 30, are found these words:

'... Being a reputable merchant bank, the Plaintiff is financially sound and is certainly in a position to offer and give the said undertaking as to damages.'"

7. Sears J found the affirmation to have been grossly misleading and was deliberately tailored to give the impression to the judge dealing with the ex parte application that he was entertaining an application from a reputable and financially sound merchant bank which had the assets of a publicly-listed company behind it.

8. The Mareva injunction application was in aid of the plaintiff's supposed claim against the defendant for damages amounting to US$9,747,250 which included a sum of US$9,187,500 by way of interest on US$35m for three years. This was allegedly based on a written contract between the plaintiff and the defendant: but, as Mr Edward Chan, QC, counsel for the appellants, conceded at the hearing in this court, the very existence of this contract was questionable, as Nomura International (Hong Kong) Ltd one of the entities described in the agreement as an "Arranger" had not signed it. Moreover, none of the parties had signed the engrossed copy of the agreement. Further, there was no evidence that the plaintiff had rendered the services - to "line up and make available funds up to the amount of US$35 million" - which entitled it to earn any fees or income under the agreement. The foundation for a claim for substantial damages (amounting to nearly US$10 million), on the face of Mr Quon's affirmation, was highly questionable. No point was made in the court below regarding the insubstantial nature of the claim, and we mention it in passing only to illustrate a point which has virtually been conceded: the uncritical manner in which Mr Keung received and acted upon his instructions: an attitude which the judge described, at p19-M of his judgment, as "irresponsible".

9. On 28 January, a Saturday morning, the writ was issued, indorsed with a claim expressed in these terms:

"(1) Damages for wrongful breach(es) and/or repudiation of the Deposit Agreement dated 30th December 1994 (including the Letter of Undertaking dated 30th December 1994) entered into between, inter alia, the Plaintiff as the Arranger, Leader Manager and Manager and the Defendant as the Issuer."

On the same morning the ex parte application was heard by the duty judge Gall J who granted the plaintiff's application, freezing the assets of the defendant to the tune of US$10m. No fortification of the undertaking as to damages was sought or given.

10. The defendant's place of business was in Beijing, and there is some dispute as to whether the defendant was properly served with the papers after the injunction order was made. The defendant says it came to know of the injunction when so informed by its bankers in Hong Kong.

11. On 6 February Messrs Iu, Lai and Li, solicitors for the defendant came on the scene. A question was raised as to Mr Quon's capacity to properly instruct the appellants to commence proceedings on behalf of the plaintiff company. The appellants did not, at that stage, have any resolution of the board authorising Mr Quon to act. Eventually, a document was produced (p309 of the bundle) dated 7 February 1995, on the note-paper of Hotel Bela Vista Macau, in which Mr Quon as the sole director of the plaintiff company purported to authorise himself to give instructions to the appellants.

12. On 9 February 1995 the defendant took out a summons to strike out the plaintiff's claim and discharge the Mareva injunction, alternatively for fortification of the plaintiff company's undertaking as to damages, returnable on 15 February 1995 before Sears J. Before that was heard, the plaintiff discontinued the action against the defendant. No reasons were given as to why this claim for damages amounting to nearly US$10m should, less than one month after the writ was issued, be abandoned. The injunction was discharged and the judge ordered (i) the plaintiff to pay the costs of the action on a common fund basis and (ii) an inquiry as to the damages the plaintiff ought to pay to the defendant pursuant to its undertaking as to damages. Needless to say, these orders are worthless to the defendant.

13. The judge then made an order, the effect of which was not simply to afford to the appellants an opportunity to show cause under Order 62 rule 8(1) why an order for costs should not be made against them personally. The order compelled the personal attendance of Mr Keung at the hearing scheduled for March 1995. The relevant part of the judge's order reads:

"7(i) Insofar as to who has to bear the costs is concerned, the matter is adjourned to a date to be fixed in consultation with Counsel's diary and to be relisted for hearing before The Honourable Mr Justice Sears with an estimated time of 1 day and to be heard sometime in March 1995;

(ii) The Senior Partner of Messrs K.B. Chau & Co. is to attend at the said adjourned hearing to give evidence with regard to the instructions given by the Plaintiff and information on the assets of the Plaintiff;"

14. The judge had no power to make the order in terms of para 7(ii). What Order 62 rule 8(2) requires is that the judge should give Mr Keung (who was not the senior partner) a reasonable opportunity to show cause why an order under rule 8(1) should not be made against his firm personally. Mr Keung was not bound in law to show cause; he could have chosen to let the matter go by default; nor was he compelled by law to testify orally before the judge. But, once the order in those terms was made, and knowing that Mr Keung was going to testify, it was clearly reasonable for the defendant to engage the services of Queen's Counsel to represent it at the hearing in March 1995. This has implications for the costs order relating to the hearing.

15. Affirmations were then filed and Mr Keung attended before Sears J on 13 March 1995 to testify.

16. Eventually, an order was made in these terms:

"IT IS ORDERED that:

1. Messrs K.B. Chau & Co. do indemnify the Defendant's costs of and occasioned by the granting of the Mareva injunction and its subsequent discharge and the costs of and occasioned by the enquiry as to whether or not the said Messrs K.B. Chau & Co. should personally bear such costs;

2. Messrs K.B. Chau & Co. do have leave to appeal against this Order."

17. Hence the appeal now before us.

The formal order

18. The order is unhappily worded. It deals with two separate issues:

(i) The legal costs of the defendant occasioned by the granting of the Mareva injunction and its discharge: this would include all the costs incurred from the time Messrs Iu, Lai and Li were first instructed: including, of course, the legal costs incurred on the application dated 9 February 1995 to strike out the claim and discharge the injunction which was to be heard by Sears J on 15 February. The defendant should never have been put in the position to incur those costs. This is realistically conceded by Mr Chan, QC. The effect of the order of 22 May, now under appeal, is that the appellants are required to indemnify the defendant in respect of all those costs. But the order contains no direction as to taxation, although it is implicit in the order that those costs should be taxed on an indemnity basis: or, more accurately, on a solicitor-and-own-client basis. And once the costs have been thus ascertained, the appellants are to pay to the defendant the amount of such costs.

(ii) Separately, but in the same sentence, the order of 22 May deals with the defendant's further legal costs occasioned by the inquiry itself, concerning the appellants' personal liability as to costs. The effect of the order of 22 May is that those costs were ordered to "follow the event": to be paid on an indemnity basis.

19. As to (i) above, this was an exercise of the judge's jurisdiction under Order 62 rule 8(1)(c); but as to (ii) above, it was an exercise of the jurisdiction under Order 62 rule 3: the "event" was the judge's determination upon the inquiry that the solicitors should be made personally liable for the costs of the earlier proceedings.

Order 62 rule 8(1)(c): the wasted costs jurisdiction

20. The wasted costs jurisdiction of the High Court as applied to solicitors is of long standing. The leading case on the exercise of this jurisdiction is Myers v. Elman [1940] AC 282. The principle underlying this jurisdiction of the High Court is explained in Lord Wright's judgment at 319 in these terms:

"The underlying principle is that the Court has a right and a duty to supervise the conduct of its solicitors, and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally, as was said by Abinger C.B. in Stephens v. Hill. (I) The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error of judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor's duty to ascertain with accuracy may suffice. Thus, a solicitor may be held bound in certain events to satisfy himself that he has a retainer to act, or as to the accuracy of an affidavit which his client swears. It is impossible to enumerate the various contingencies which may call into operation the exercise of this jurisdiction. It need not involve personal obliquity. The term professional misconduct has often been used to describe the ground on which the Court acts. It would perhaps be more accurate to describe it as conduct which involves a failure on the part of a solicitor to fulfil his duty to the Court and to realize his duty to aid in promoting in his own sphere the cause of justice. This summary procedure may often be invoked to save the expense of an action. Thus it may in proper cases take the place of an action for negligence, or an action for breach of warranty of authority brought by the person named as defendant in the writ. The jurisdiction is not merely punitive but compensatory. The order is for payment of costs thrown away or lost because of the conduct complained of. It is frequently, as in this case, exercised in order to compensate the opposite party in the action."

21. In Ridehalgh v. Horsefield and Co. [1994] Ch. 205 Sir Thomas Bingham MR summarised the principle in Myers v. Elman as follows:

"The court's jurisdiction to make a wasted costs order against a solicitor is founded on breach of the duty owed by the solicitor to the court to perform his duty as an officer of the court in promoting within his own sphere the cause of justice" (emphasis added).

Sphere of solicitor's duty

22. In conducting hostile litigation the sphere of a solicitor's duty is not confined simply to the interests of his own clients. A solicitor being an officer of the court has a wider duty. Myers v. Elman itself is an illustration of the duty owed by a solicitor to the opposite party in litigation. For breach of his duty in permitting the filing of an inadequate affidavit verifying his own client's list of documents, the solicitor was ordered in Myers v. Elman to pay one-third of the taxed costs of the other side.

23. Generally-speaking, the opposite party's interests are taken care of by his own solicitor and, in such a situation, the court would normally be slow to find a solicitor in breach of duty to the other side.

24. However, the "sphere" of a solicitor's duty, in promoting the cause of justice, is very different when it comes to an ex parte application to the court. And when the ex parte application is for relief in an extreme form, the duty of the solicitor is even higher. In this regard, we draw attention to the observations of this court in Ng Chun-fai Stephen v. Tamco Electrical and Electronics (HK) Ltd. [1993] 1 HKC 160 at 173 in relation to Anton Piller and Mareva orders:

"They are powerful and valuable weapons against fraud or dishonesty. But the more powerful the weapon, the more important it is that the user should take care about its handling. And these remedies are extremely powerful. But, in practice, the plaintiff tells the judge (who is given only the briefest time to consider the matter) that the defendant is a foreigner, or that he is stealing or has stolen the plaintiff's intellectual property; and before he can blink, the defendant finds his bank accounts frozen, or his premises invaded and ransacked by the plaintiff's solicitors, or both ... Plainly, no such order should ever be made unless necessary in the interests of justice ...."

25. Since a Mareva injunction application is made ex parte, the judge hearing the application necessarily relies upon the integrity and good sense of the solicitor acting for the applicant. Were it otherwise, the judge hearing the application would be bound to approach each application much more critically. He might, to safe-guard the interests of the absent defendant, in some cases feel bound to challenge every fact and question every proposition put forward: to such an extent that the time taken by the judge in dealing with ex parte applications might defeat the very purpose of the application. Take this very case. Mr Edward Chan QC, in the course of argument, stressed the pressure of time upon Mr Keung; he said that the application was urgent and that, at any moment, the defendant could have caused the removal of the US$40m deposited with the Ka Wah Bank, thus defeating the object of the application. So the application was made to a judge on a Saturday morning. If the judge had felt it necessary to examine critically Mr Quon's lengthy affirmation - which with exhibits ran to 162 pages - and to question, for example, the foundation of the plaintiff's claim, as we have attempted to do with counsel in this court, he might have felt bound to adjourn the application over the weekend, to enable him to read and absorb the material more carefully. No doubt, if that suggestion had been made, he would have been told that he risked doing a grievous injustice to the plaintiff in the meanwhile.

26. So, to a high degree, the court necessarily relies upon the care, propriety and good sense of the solicitor in ascertaining the facts when putting forward an urgent ex parte application for a Mareva injunction. InNg Chun-fai v. Tamco (supra) this court, after referring to Thomas A Edison v. Bullock [1913] 15 CLR 679 where, at 681, Isaacs J has categorised the role of the solicitor in seeking ex parte relief as carrying the "most serious responsibility", said at 172:

"In our jurisdiction, this 'most serious responsibility' is borne by the party's legal advisers; they owe, of course, a duty to their client, but they owe an overriding duty to the court. The court itself bears a heavy responsibility, which it must discharge in unusual circumstances, without the benefit of adversary argument, and for just this reason the applicant's solicitors and counsel come under a duty to assist the judge so as to ensure, so far as possible, that the court does not make an order which perpetrates an injustice against the absent party."

How the wasted costs jurisdiction applies in this case

27. There can be no doubt in this case that the defendant's legal costs, incurred from the time Messrs Iu, Lai and Li were instructed, to the time the Mareva injunction was discharged on 15 February, were wasted costs. The undertaking as to damages given by the plaintiff - essential to the grant of relief - was not worth the paper it was written on: a fact concealed by the misleading way in which Mr Quon's affirmation was framed. We entirely agree with the judge's findings in this regard, and share his sense of shock. The more one reads the affirmation, the more it becomes apparent that there was a real attempt the obfuscate the true facts. The plaintiff was described as a "Special-Purpose Company": formed solely for the business which was said eventually to have been frustrated by the defendant's "anticipatory breach" of contract: and yet we find this statement, in paragraph 3 of Mr Quon's affirmation:

"One of the Plaintiff's businesses was and still is arranging syndicated loans to its customers so as to enable its customers to raise finance for their business purposes. In so doing, the Plaintiff charges management and other fees for the works done and thereby makes profits."

28. This sentence, false in its implication that the plaintiff had a history of conducting the business of arranging syndicated loans for customers, could only have been inserted to boost the image of the plaintiff as a "reputable merchant bank".

29. Further, in paragraph 2 of the affirmation, the financial statements of First Shanghai Investments Ltd, a publicly-listed company, were exhibited, under the wholly misleading assertion that the plaintiff was under the direct control of First Shanghai Capital Ltd, a subsidiary of First Shanghai Investments Ltd. It is difficult to avoid the conclusion that these financial statements were a smoke-screen, to hide the real weakness of the plaintiff's case. So much for the discharge of the applicant's duty of "full and frank disclosure", in which the solicitor has clearly an important part to play.

30. The Mareva injunction ought never to have been applied for. An order was made behind the defendant's back which ought never to have been made. A Mareva injunction is never free-standing: The only possible justification for the application was to ensure that the plaintiff would not eventually obtain an empty judgment: yet the claim itself was abandoned within less than one month. With no explanation. In the meanwhile the defendant was put to substantial costs.

31. There can be no doubt that the legal costs incurred by the defendant, up to the time the injunction was discharged, were wasted costs, in terms of Order 62 rule 8(1).

"Misconduct or default"

32. The only question that remains is this: Were the costs "wasted by ... misconduct or default" on the part of the appellants?

33. Mr Edward Chan QC, submits, in effect, that the whole responsibility for the wasted costs falls on the shoulders of Mr Quon.

34. This submission is surprising. There is no evidence that Mr Quon was in any way familiar with the Mareva jurisdiction of the court. It must be assumed that the choice of legal remedy was, at least to a large extent, that of the solicitor in charge of the case. As to this, the judge's finding was to this effect (pp18-19 of his judgment):

"The affirmation was by the client, but in my judgment this solicitor deliberately took the risk of doing nothing to check the financial position of the plaintiff and the affirmation was disguised to hide the true position.

Although counsel settled the affirmation and the client swore to it, Mr Keung knew full well that the plaintiff had no assets. Even if I am being uncharitable to Mr Keung's motives and I confess that I was not impressed with him as a witness, then he deliberately made no inquiries. He did nothing to verify or check any matters relating to the plaintiff.

As I said earlier, I am not seeking to say that in every application for an injunction, a solicitor should carry out a check on his client, but the circumstances here were highly unusual.

Mr Quon had, as it were, stepped straight off the street, and for Mr Keung to say that as the introduction came from a barrister, it was a 'trustworthy connection,' is not only naive, but demonstrates to me that Mr Keung's whole attitude was irresponsible. Mr Keung should not have permitted the application for the 'ex parte' injunction to be presented to the court, and on the facts as I find them this was misconduct by the solicitor."

35. Mr Chan QC challenges the judge's finding that Mr Keung knew full well that the plaintiff had no assets and that the undertaking as to damages was worthless. He points to the fact that in Mr Quon's later affirmation, sworn for the purposes of the present proceedings, he had asserted that the plaintiff company, though an off-shore shell, had the apparent "support" of First Shanghai Capital Ltd, a subsidiary of a publicly-listed company. Mr Quon apparently had a desk in the offices of First Shanghai Capital Ltd until, suddenly, on 7 February 1995 (some two weeks after the Mareva injunction was made) he found the door slammed in his face.

36. Mr Chan QC also challenges the judge's finding that Mr Keung knew that the plaintiff's undertaking as to damages was worthless.

37. There are no merits in these submissions. The judge himself, in the course of the hearing, probed Mr Keung's state of mind by his own questions, reproduced on pp27-29 of the judgment: Did Mr Keung, as a solicitor takes steps to satisfy himself that the plaintiff was able to give a meaningful undertaking as to damages (particularly having regard to the very substantial sum to be "frozen" by the injunction)? Mr Keung, as appears from the record, was at first unable to give a coherent answer. Eventually he said No. The only fair inference to draw, in reading Mr Keung's answers, is that he never believed for a moment that the plaintiff was a "respectable merchant bank, financially sound and certainly in a position to give the undertaking as to damages", as asserted in paragraph 30 of Mr Quon's affirmation. If Mr Keung had so believed, his answers to the judge would have been very simple. He would have said: "I never gave the question of fortification any thought. I was dealing with a highly reputable merchant bank, well able to meet any order for damages consequent upon US$10m being frozen". He said nothing of the kind. Instead, his replies to Sears J's questions indicated a "wait-and-see" attitude: if the judge dealing with the ex parte application should be content with the bare undertaking given by the plaintiff, well and good; if the judge should prove awkward at the hearing, perhaps the client could procure a bank bond, or perhaps Nomura (a well known Japanese financial institution) could join the party: Nomura International (HK) Ltd was supposed to have acted jointly with the plaintiff as one of "the Arrangers" in the deposit agreement - though Nomura never signed the agreement. At no time did Mr Keung believe that the plaintiff alone had the resources to meet the undertaking as to damages.

38. As this court has said in Ho Lee Man v. Wong Wai Kai (2)[1993] 1 HKC 193 at 202:

"The courts do not demand perfection from solicitors, but they do expect reasonably high standards of professionalism and almost invariably, these are attained. In this case, there has been such ignorance and incompetence that it amounts to a gross dereliction of duty by the solicitors ...."

39. Similar remarks would be apt in this case. The judge's finding was that Mr Keung's whole attitude was irresponsible: irresponsible in a sphere which required the exercise of the utmost responsibility.

40. It was urged upon us that Mr Keung was "taken in" by Mr Quon: to the extent that Mr Keung never asked Mr Quon for any costs on account, even though disbursements for counsel's fees were to be incurred. There is no evidence before us as to whether counsel was in fact paid. But this is beside the point. If the solicitor was reckless in safeguarding his own interests, or those of his firm, it does not in any way indicate that he was any less reckless in regard to the discharge of his duty as an officer of the court. The exercise of the jurisdiction does not depend upon dishonesty, personal obliquity or behaviour such as would warrant suspending a solicitor from practice - gross naivety and a cavalier attitude in a situation which called for the exercise of particular care - such as invoking the court's jurisdiction to grant a Mareva injunction - would be enough.

41. In our view, the judge was plainly right to conclude that the wasted costs arose through the solicitor's misconduct and default. Personal liability for those costs properly attached in this case.

Costs on indemnity basis

42. As mentioned earlier, the judge made, in effect, two orders on 22 May, comprised in paragraph 1 of the formal order as drawn up. The first directed the appellants to indemnify the defendant in respect of its costs incurred up to the discharge of the injunction: That is, all the costs paid and payable to its own solicitors and counsel.

43. Mr Chan QC says this: When the judge awarded the costs as between the parties on 15 February, he only gave to the defendant the costs on a common fund basis. In requiring the appellants to indemnify the defendant, why should the judge direct the appellants to pay more than those taxed costs? Mr Patrick Fung QC, counsel for the defendant, responds as follows: The judge was not, on 15 February, examining the conduct of the solicitor under Order 62 rule 8(1)(c); when he did, at the inquiry in March, and concluded that the solicitor was personally responsible for the wasted costs, he quite properly directed that those wasted costs should be paid by the appellants in full: for the judge at the conclusion of his judgment said: "... in all the circumstances, it is just to order K.B. Chau & Co. to compensate the defendants for the whole of their costs."

44. Our difficulty is to discover, from those few words, what the judge meant precisely. Did he mean to give the defendant a full indemnity as to the costs incurred, however extravagant, without the need to have them assessed by a taxing master, or did he mean that those costs should first be taxed on the most generous scale and then be paid by the appellants?

45. The wasted costs jurisdiction is compensatory and there is no reason in principle why the wronged party should not recover, as against the defaulting solicitor, all the costs incurred: except those of an unreasonable amount or have been unreasonably incurred. This would seem consistent with the wording of paragraph 1(c):

"(c) directing the solicitor personally to indemnify such other parties against costs payable by them."

46. In principle, there is nothing wrong in the judge ordering the solicitors to indemnify the defendant in respect of its costs assessed on the most generous scale: as between opposing parties that would mean on an indemnity basis. But the order of 22 May is unhappily worded. It gives no direction to the taxing master as to how those costs, for which the appellants are liable to pay, should be ascertained. In upholding the judge in this regard we will, later on, formulate the terms in which the order should be couched.

47. The second part of paragraph 1 of the judge's order dated 22 May deals with the costs of the inquiry itself. Should these costs be taxed, as between the appellants and the defendant, on an indemnity basis, or on a less generous scale?

48. As to this, it must be recalled that the defendant had not put itself into the position of having to seek to recover its costs against the appellants. The inquiry - and therefore the costs incurred in that inquiry - came about because it appeared to the judge on 15 February when the injunction was discharged that the appellants might have come under a liability to pay costs personally under Order 62 rule 8(1), and appointed a day in March to show cause why an order should not be made. The situation the defendant found itself in vis-à-vis the appellants was not of its own making and was quite different from that of a party in contentious litigation.

49. Obviously, the defendant had every interest in ensuring that the costs incurred up to the discharge of the Mareva injunction should be paid by the appellants, since there was no prospect whatever that the plaintiff would pay. The judge had, on 15 February, made the order we have referred to earlier: requiring the attendance of Mr Keung to testify. It was, in the circumstances, plainly reasonable for the defendant to be represented by solicitors and counsel at the hearing. Why should those further costs not be recovered upon the most generous scale, together with the costs incurred up to the discharge of the injunction?

50. In our judgment, the judge was right to have ordered, in effect, that those costs should be recovered from the appellants on an indemnity basis.

Conclusion

51. This appeal is dismissed.

52. To give effect to what we have said earlier concerning the form of the order of 22 May 1995, we discharge paragraph 1 of that order and replace it with the following:

"IT IS ORDERED that:

(1) Messrs K.B. Chau & Co. the solicitors for the plaintiff do personally indemnify the defendant against the defendant's costs of and incidental to its application by summons dated 9 February 1995 to discharge the injunction granted ex parte to the plaintiff by the order made on 28 January 1995, such costs to be taxed as between Messrs K.B. Chau and the defendant on a solicitor-and-own-client basis and paid forthwith.

Messrs K.B. Chau & Co. do pay the defendant its costs of and incidental to the inquiry as to the incidence of the above-mentioned costs directed by the order of 15 February 1995 such costs to be taxed on an indemnity basis and paid forthwith."

53. There will be an order nisi that the defendant should have the costs of the appeal, to be paid by the appellants upon taxation.

54. We will hear counsel as to the proper basis for the taxation of these further costs.

Representation:

Mr Edward Chan, QC and Mr Ambrose Ho (M/S P.C. Woo & Co.) for Appellant

Mr Patrick Fung, QC (M/S Iu, Lai & Li) for Defendant/Respondent