STANDARD CHARTERED BANK v. LI WAI PING AND OTHERS

HCA10587/2000
& HCA3575/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10587 OF 2000

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DECISION ON COSTS

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Introduction

1.  This Decision should be read together with the judgment handed down on 17 February 2011 (“the Judgment”).  The same abbreviations and references are used here.

2.  To recap, the Bank sued the defendants on the Guarantee in HCA10587/2000.  It had already obtained default judgment against the Husband, who was subsequently bankrupted.  The action continued against the Wife and the Son.  They raised undue influence as their principal defence.  The Wife additionally alleged misrepresentation by Mr Pang of the Solicitors.  Both the Wife and the Son counterclaimed for rescission of the Guarantee.  The Wife counterclaimed for damages for misrepresentation, too.

3.  The Bank commenced HCA3575/2003, as an alternative, against the Solicitors for professional negligence on the basis the court found in favour of the Wife and the Son in HCA10587/2000.  The Solicitors denied any undue influence or misrepresentation as alleged.  By a contribution notice, the Wife claimed against the Solicitors for damages for misrepresentation and breach of duty.

4.  The two actions were subsequently consolidated.

5.  After trial, I found that there was no undue influence or misrepresentation as alleged by the Wife and the Son and that the Solicitors were not guilty of any negligence.  I entered monetary judgment for the Bank against the Wife and the Son on the Guarantee and dismissed their counterclaims.  I also dismissed the Bank’s claims against the Solicitors and the Wife’s claims for damages against the Solicitors.

6.  Pursuant to my direction in paragraph 167 of the Judgment, the parties lodged with court their submissions on costs.  The Wife made no submission on the costs between the parties save and except on the choice between a Sanderson Order and a Bullock Order.  She also asked for legal aid taxation of her own costs.  (She was first granted legal aid on 27 July 2004.)  The Son’s only submission is that costs should be taxed.  The submissions of the Bank and the Solicitors will be addressed in detail below.

7.  Pursuant to my further directions by letters dated 25 March and 4 May 2011, the parties made submissions on (a) whether the fact that the Wife is on legal aid has any bearing on the choice between a Sanderson Order or a Bullock Order; and (b) the effect of section 17(3) of the Legal Aid Ordinance, Cap. 91 (“the Ordinance”) on the Wife’s liability for costs.  For reasons which will become apparent in a moment, it is not necessary for me to come to any conclusion on question (a).

Extent of the Wife’s liability for costs

8.  It is convenient to first consider the extent of the Wife’s liability for costs under the Ordinance.  The position may be summarised as follows.

9.  Subject to the provisions of the Ordinance, her liability for costs shall be determined in accordance with section 16C : section 16B(f).

10.  Section 16C(1) outlines seven situations in which a non-aided person who has been awarded costs against a legally aided person can recover such costs from the Director of Legal Aid : see Common Luck Investment Ltd v Director of Legal Aid (2002) 5 HKCFAR 467, per Bokhary PJ at para. 20.  Section 16C(1), insofar as it relates to the costs of an aided person, relates only to costs arising in respect of proceedings to which, and during the period to which, a legal aid certificate relates, and nothing in that subsection shall otherwise affect the liability for costs of an aided person : section 16C(2).  As noted, the Wife was first granted legal aid on 27 July 2004, that is, after the commencement of HCA3575/2003.  Her liability for the costs incurred by the Bank and the Solicitors before 27 July 2004 are not affected by section 16C(1).

11.  What is significant for present purposes is section 17(3) and (4), which provide :

“(3) Where it appears to a court or judge that an aided person has acted improperly in bringing or defending any legal proceedings or in the conduct of them, the court or judge may order the aided person to pay the costs of the Director and of the counsel or solicitor who acted for him or the costs of the other party, or the costs of the Director and such counsel and solicitor and such party.

(4)     Where an order is made under [subsection (3)], the costs shall be taxed as if the party ordered to pay them were not an aided person.”

The legislative intent is clear.  A person shall not be granted legal aid unless he shows that he has reasonable grounds for taking, defending opposing or continuing such proceedings : see section 10(3).  This requirement ensures that the limited resources of legal aid, which comes from public funds, are made available only to those who really deserve such assistance.  Once legal aid is granted, the benefits associated with the grant will be afforded to the aided person.  Such benefits include the limits on liability for costs under section 16C(1). When it later transpires that the aided person has acted improperly in bringing or defending the proceedings, he has abused the legal aid and the associated benefits granted to him.  In such circumstances, it is only right to deprive him of the limits on liability for costs and order him to pay costs as if he were not an aided person.

12.  The Wife, as I have found, had fabricated evidence in order to make good her defence of undue influence and misrepresentation.  Contrary to her submission, she had acted most improperly in conducting both actions.  Section 17(3) applies with full force to her.  I will order her to bear all the costs ordered against her below personally as if she were not an aided person.  Consequently, the limits imposed by section 16C(1) do not arise.

13.  The Solicitors submitted that no order under section 17(3) should be made because it would practically mean that they would not be able to recover their costs of the contribution proceedings against the Wife, given her apparent impecuniosity.  However, as I will demonstrate in a moment, it was the way in which Mr Pang handled the transaction that enabled the Wife, together with the Son, to shift the blame to them.  I can see no injustice even if the Solicitors are effectively to be deprived of their costs of the contribution proceedings.

14.  As between the Director and the Wife, the Director does not ask for an order that she should pay him any costs under section 17(3).  I will just leave the matter there.

Five sets of costs

15.  The following sets of costs need to be determined :

(1) the Bank’s costs for its claims against the Wife and the Son;

(2) the Bank’s costs for its claims against the Solicitors;

(3) the Solicitors’ costs for defending the Bank’s claims;

(4) the Solicitors’ costs for defending the Wife’s claims; and

(5) the Wife’s own costs.

16.  For (1) and (4), costs should follow the event.  For (4), the Solicitors asked for indemnity costs because the Wife had fabricated allegations of insufficient advice and misrepresentation in order to make good her contributory claim against the Solicitors.  I agree.

17.  For (2), the Bank would not have commenced HCA3575/2003 against the Solicitors in the alternative but for the allegations raised by the Wife and the Son on undue influence and misrepresentation.  Now that those allegations have been found to be untrue, they should reimburse the Bank for the costs that it incurred in pursuing the alternative claims against the Solicitors.  Such costs are reasonably and properly incurred by the Bank as between the Bank on the one hand and the Wife and the Son on the other : Sanderson v Blyth Theatre Company [1903] 2 KB 533, per Romer LJ at p. 539.

18.  The third set of costs merits fuller discussion.

Sanderson Order or Bullock Order

19.  Both the Bank and the Solicitors agreed that the Wife and the Son should ultimately bear the Solicitors’ costs for successfully defending the Bank’s claims.  But they differed as to who should pay the costs in the first instance.  The Solicitors contended that the Bank should pay the costs first and then include such costs in its bill of cost against the Wife and the Son under a Bullock Order : see Bullock v The London General Omnibus Company and Others [1907] 1 KB 264, CA.  The Bank contended that the Wife and the Son should pay the Solicitors’ costs directly under a Sanderson Order : see Sanderson, ibid.

20.  Both the Bank and the Solicitors accepted that the choice between a Sanderson or Bullock Order is a entirely matter of discretion of the court : Bankamerica Finance Ltd v Nock [1988] 1 AC 1002, per Lord Brandon at p. 1011E-F.

21.  Two questions arose for consideration :

(1) Is the court’s discretion to impose either a Sanderson Order or a Bullock Order properly engaged?

(2) If yes, how should the court exercise the discretion?

22.  The discretion to impose either a Sanderson or Bullock Order is engaged only if the court is satisfied that the plaintiff has properly sued the two defendants with his claims in the alternative : see Leung Lai-ha and Another v Hon Sau-ling and Another [1993] 1 HKLR 86, per Kempster JA at p. 91.

23.  Here, the Bank was in the least enviable position when faced with the Wife and the Son’s allegations of undue influence and misrepresentation by Mr Pang at the October Meeting.  It was not privy to and had no first-hand knowledge of what actually took place at the Meeting.  It must rely on the evidence of Mr Pang and Mr Yeung to counter their allegations.  But the Bank could not have predicted whose account of the October Meeting would prevail at trial.  It would be rather imprudent to unreservedly accept their evidence.  The Bank must seriously consider the possibility of claiming the Solicitors in the alternative.  And the option of making such a claim only after the court dismissed its claims against the Wife and the Son in HCA10587/2000 was unattractive.  There was no agreement that the Solicitors would accept and be bound by the findings made in HCA10587/2000.  The risk that the court trying the later action might come to different findings could not be safely ignored.  The only way of preventing such a predicament was to join the Solicitors as a defendant now.  In short, any competent legal adviser, aware of the vicissitudes of litigation, would have advised the Bank to sue the Solicitors in the alternative as well : Leung Lai-ha, ibid, and per Bokhary J (as he then was) at p. 92.  The Solicitors accepted, and rightly so in my view, that it was reasonable for the Bank to join them as a defendant.  So the discretion is properly engaged.

24.  I next consider how the discretion should be exercised in the present case.

25.  I will first dispose of one general point.  Section 52A(1) of the High Court Ordinance, Cap. 4 requires the court to give due regard to all the circumstances when ordering costs.  And under Order 62, rule 3(2) of the Rules of the High Court, the court shall order the costs to follow the event except when it appears that in the circumstances of the case, some other order should be made.  Where the circumstances justify the imposition of either a Sanderson or Bullock Order, the court does not act in breach of the general principle of costs following the event : see Bankamerica Finance Ltd, supra, per Lord Brandon at p. 1011D-E.

26.  In cases where the unsuccessful defendant is solvent, the practical different between a Sanderson or Bullock Order is minimal.  He can pay the successful defendant’s costs either way.  But the costs of taxation will be greater because the successful defendant’s costs will be taxed twice, once between the plaintiff and the successful defendant and once between the plaintiff and the unsuccessful defendant as part of the plaintiff’s costs.  The additional costs of taxation are a relevant factor and may persuade the court to make a Sanderson Order.

27.  In cases where the unsuccessful defendant is insolvent, the question is how to distribute the hardship arising from his impecuniosity : Bankamerica Finance Ltd, supra, per Lord Brandon at pp. 1011F-1012A; applied in China Everbright Finance Ltd & Anor v Chan Yung & Anor, HCA18300/1999, unreported, 12 December 2006, per Deputy Judge Muttrie at para. 9.  On the one hand, if a Bullock Order is made, the successful defendant would recover his own costs but the plaintiff would probably recover neither the judgment debt nor his own costs and further bear the successful defendant’s costs.  The hardship all falls on the plaintiff.  On the other hand, if a Sanderson Order is made, the successful defendant will not be able to recover his costs although he has won the case.

28.  In balancing the hardship, the court must ensure fairness between the parties in the circumstances of the case, a factor which Order 62, rule 5(1)(aa) read together with Order 1A, rule 1[1], requires the court to take into account.  In achieving fairness, the parties’ conduct, another factor specified by the rules, is plainly relevant.

29.  The Solicitors submitted that the Wife and the Son are probably insolvent.  Insofar as the Wife is concerned, the submission is inferentially supportable by the fact that she is on legal aid.  For the Son, there is simply no evidence on his financial position. Absent such evidence, I am not prepared to accept that he is insolvent.  Accordingly, even if the Wife is insolvent, the Solicitors can recover all their costs if the Wife and the Son are made jointly and severally liable.  In the circumstances, to avoid the additional costs of taxation, a Sanderson Order is more appropriate.

30.  Even assuming the Wife and the Son are both insolvent, a Sanderson Order is still more preferable than a Bullock Order.  As rightly submitted by the Bank, as against the Bank, the Solicitors deserved to bear some of the burden of the action against them by reason of their conduct of the impugned transaction, which had facilitated the Wife and the Son in putting the blame on them.

31.  First, the Solicitors were specifically instructed to explain the contents of the Guarantee to the Wife and the Son at separate meetings with each of them alone.  The purpose was precisely to prevent the guarantors from subsequently seeking to avoid the Guarantee on grounds such as undue influence or other wrongs against them by Peace Hill.  But Mr Pang had inexplicably failed to have the one-to-one meeting with them, thereby unwittingly arming the Wife and the Son with an objective fact with which they could cast doubt on the explanation given for the Guarantee.

32.  Second, as I have found, the Acknowledgement had been presented to each of the Wife and the Son in blank, without the appropriate boxes having been ticked. Although in the end, I accepted that the fact that the boxes were not ticked did not necessarily mean that Mr Pang had not explained the contents of the Guarantee and other documents to them before they signed, it is yet another failure on Mr Pang’s part which the Wife and the Son made use of in bolstering their case.

33.  Third, contrary to good practice, Mr Pang did not keep any contemporaneous notes of the October Meeting.  Had he done so, such notes would provide the strongest evidence to refute their allegations. Mr Pang’s failure had rendered his and Mr Yeung’s attempts to recall the particulars of the October Meeting years later vulnerable to questions.  Indeed, Mr Yeung said he had not real recollection of the October Meeting because of the long lapse of time.

34.  In light of Mr Pang’s conduct, I reject the Solicitors’ submission that they were made a defendant through no fault of their own.  It is in the circumstances fair to ask both the Bank and the Solicitors to bear the hardship arising from the impecuniosity of the Wife and the Son.  While the Bank will most likely be unable to recover the judgment debt, the Solicitors will have to cover their costs themselves.  A Sanderson Order as opposed to a Bullock Order is more appropriate.

Orders

35.  I will make the following orders of costs :

(1) as between the Bank and the Wife and the Son, the Bank shall have costs against them jointly and severally, to be taxed if not agreed;

(2) the Bank’s costs incurred in claiming against the Solicitors shall be borne by the Wife, to be taxed if not agreed;

(3) the Solicitors’ costs for defending the Banks’ claims shall be paid by the Wife and the Son jointly and severally, to be taxed if not agreed;

(4) the Wife shall further pay the Solicitors’ costs for defending her contributory claim on an indemnity basis, to be taxed if not agreed; and

(5) the Wife’s own costs are to be taxed in accordance with the legal aid regulations.