WONG POON CHAN LAW & CO. (a firm) v. THE INCORPORATED OWNERS OF CHERRY MANSION AND ANOTHER

HCMP 6395/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 6395 OF 1998

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REASONS FOR DECISION

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Introduction

1. This is the plaintiff's appeal against the order of Master Poon dated 17 April 2001 whereby:-

(a) the plaintiff's action was struck out;

(b) the plaintiff's summons for leave to discontinue this action against the 2nd Defendant ("Ip Kwan") with no order as to costs was dismissed.

At the end of the hearing on 20 February 2002, I dismissed the appeal. I also refused the plaintiff's application for leave to cross examine Ms. Corrina Kwan who has made affirmations on Ip Kwan's behalf. These are the reasons.

2. Several sets of legal proceedings will be referred to below. For the sake of easy identification, the present action will be called "WPCL's costs action".

Background Facts

3. The plaintiff herein ("WPCL") is and was a firm of solicitors. WPCL were the solicitors acting for one of the defendants ("the IO") in HCPI No. 394 of 1995 ("the PI action"). The IO was the incorporated owners of a building and was sued for negligently causing personal injuries to the plaintiff in the PI action. WPCL represented the IO in the PI action from May 1995 to April 1998. Ip Kwan took over the conduct of the defence from WPCL from April 1998 onwards.

4. After the conclusion of the PI action, the IO commenced an action against WPCL in July 1998 claiming damages for professional negligence in WPCL's handling of the PI action while still the IO's solicitors (HCA No. 12211 of 1998 also called "the professional negligence action"). Ip Kwan represented the IO in the professional negligence action. In gist, the complaint was that WPCL settled the PI action without the IO's authority. The professional negligence action was settled between WPCL and the IO in September 2000. Terms of the settlement were contained in a consent order dated 1 September 2000 the relevant parts of which read:-

"... IT IS BY CONSENT ORDERED THAT this action be discontinued on terms that ...

... [WPCL] waives recovery of all their costs and disbursements claimed or incurred in [the PI action] against [the IO] (and [the IO's] solicitors) and [WPCL's] taxation bill issued in [WPCL's costs action] shall be withdrawn ...

... the parties will, within 7 days of [this order], enter into a Consent Summons to be filed in [WPCL's costs action] for withdrawal of the proceedings, with the costs of [WPCL's costs action] to be paid by [WPCL] to [the IO], such costs to be taxed if not agreed ... ".

The need to refer to WPCL's costs action in the above order arose because (as will be set out below) WPCL commenced an action for its costs incurred in the PI action against the IO in the meantime.

5. WPCL sought to enforce the implied undertaking given by Ip Kwan to pay WPCL's costs in the PI action. Ip Kwan denied liability and, in October 1998, WPCL commenced an action against Ip Kwan seeking damages for their breach of the professional undertaking (HCA No. 17215 of 1998 also called "the breach of undertaking action").

6. Further, WPCL applied for summary judgment in the breach of undertaking action and the Master entered judgment against Ip Kwan on liability for the amount of costs of WPCL in the PI action (yet to be taxed). Costs of the breach of undertaking action were awarded to WPCL and, in April 2000, taxed costs in the sum of $192,946.40 were paid by Ip Kwan to WPCL.

7. In November 1998, WPCL commenced another action against the IO for the taxation of their bill of costs in the PI action (that is, WPCL's costs action). Initially, only the IO was named as the defendant and the IO was represented by Ip Kwan. In May 1999, Ip Kwan applied, and was granted an order, to join as the 2nd defendant (acting in person) primarily on the ground that Ip Kwan has an interest in the matter. Ip Kwan's joinder application was unopposed by WPCL.

8. With the settlement of the professional negligence action (the settlement terms included a waiver of WPCL's costs in the PI action against the IO), there was no need to continue WPCL's costs action. After quite some correspondence between WPCL and the IO, it was agreed that WPCL was to apply for leave to discontinue its claim therein against the IO with costs to the IO to be taxed if not agreed.

9. Problems, however, appeared as between WPCL and Ip Kwan. This is because WPCL asserts that an agreement was reached with Ip Kwan whereby Ip Kwan would not claim its own costs incurred in WPCL's costs action from WPCL. This assertion was denied by Ip Kwan. The Master in essence rejected WPCL's assertion. The issue in this appeal was whether he was correct in so deciding.

Was There an Agreement to Waive Costs?

10. The negotiations relevant to this appeal were undertaken by Mr. Lane of Wilkinson & Grist ("W & G"), solicitors for WPCL, and Ms. Kwan acting for the IO. Whether Ms. Kwan also acted for Ip Kwan in the course of the negotiations was disputed (but this is irrelevant for the purpose of this appeal or WPCL's application for leave to cross examine).

11. Ip Kwan's version of the events was set out in Ms. Kwan's affirmation dated 18 September 2000 as follows:-

"... It is true that the Consent Summons has made no provision of costs to be paid to [Ip Kwan] being the 2nd Defendant in [WPCL's costs action], our understanding is that WPCL will also be responsible for such costs because according to the Consent Summons filed in [the professional negligence action], WPCL should withdraw [WPCL's costs action]. If WPCL is withdrawing [WPCL's costs action] against [Ip Kwan] as well, they need to obtain our consent and pay our costs ...

Therefore, our understanding is that WPCL will have no objection to pay our firm's costs ...

... I then received a letter dated 4th September 2000 by [WPCL's solicitors] acknowledging receipt of my letter and confirming that they have sent the Consent Summons to WPCL with a recommendation that it be endorsed and returned. Such recommendation shows clearly that the understanding as contained in paragraph 18 of this affirmation is a common understanding between the 2 parties attending negotiation for settlement. I exhibit hereto marked "KLYC-7" a copy of the said letter ... " (emphasis supplied) (para. 17 to 19).

12. WPCL's claim that Ip Kwan agreed to waive its costs of WPCL's costs action was set out in the affidavit of Mr. Lane dated 10 October 2000. The relevant parts read:-

"I have ... been shown a copy of the 1st ... Affirmations of [Ms. Kwan] by which she deposes to the factual background giving rise to [Ip Kwan's] application to strike out (WPCL's costs action) ...

... There is now produced and shown me marked "JHL-1" copies of further items of correspondence exchanged between my firm and [Ip Kwan] leading to the settlement of [the professional negligence action]. These items of correspondence are produced to the Court to assist it in understanding the communications that were exchanged ... and by way of explanation and justification of my belief that the terms agreed for settlement included an agreement by [Ip Kwan] that it would waive all claims to costs in these proceedings. However, following the execution of the consent order, and as is apparent from the correspondence exhibited hereto, [Ip Kwan] has a quite different recollection of the terms upon which settlement was agreed. ...

... I ... confirm that it was my understanding that the agreement reached in concluding [the professional negligence action] included a requirement that [WPCL] discontinue [WPCL's costs action] on terms, inter alia, that [Ip Kwan] would not pursue its claim to costs. My correspondence reflects this as, indeed, does the attendance notes referred to therein ... " (emphasis supplied) ( para. 2 and 4).

13. Despite the court's indication that it has perused the relevant correspondence, Counsel for WPCL has out of thoroughness read to the court all the correspondence in the bundle called "Correspondences between Solicitors" at the hearing on 26 July 2001. To avoid any doubt, all correspondence has been taken into account in determining the factual dispute as to whether Ip Kwan has agreed to waive its claim for costs.

14. As counsel fairly accepted at the hearing on 20 February 2002, it has not been asserted by WPCL that an express agreement on costs has been reached. It was rather argued by WPCL that when the whole circumstance was looked at objectively, a reasonable man would have concluded that such an agreement on costs was made. It can be seen from the paragraphs quoted above both deponents repeatedly referred to their personal "understanding" and/or "belief". Whether an agreement exists is a dispute on fact, but such a dispute cannot properly be determined by relying on a deponent's personal "understanding" or "belief". Such assertions are indeed inadmissible as evidence for this purpose.

15. The negotiations between the parties' solicitors, as can be expected, were conducted by way of correspondence. The relevant correspondence will be set out below. The 2 exhibits referred to in the affirmation/affidavit ("KLYC-7" and "JHL-1" respectively) will be set out below together with other relevant correspondence. Apart from correspondence, there were telephone conversations between Mr. Lane and Ms. Kwan. At the hearing on 20 February 2002, it was fairly also accepted by counsel for WPCL that whatever was said/agreed over the telephone has been accurately set out in the written documents. All emphasis by way of italics and bold type below is supplied by the court.

16. In a letter dated 31 August 2000 from Ip Kwan to W & G, Ip Kwan said:-

"[The IO] has just resolved and instructed us that they are prepared to consider settlement of [the professional negligence action] on condition ... [WPCL] will agree to bear our costs and disbursement incurred in [WPCL's costs action] ... ".

The reference to "our costs" obviously (and this is undisputed) referred to the solicitor-own client costs incurred by the IO in WPCL's costs action. W & G wrote in its fax dated 31 August 2000 to Ip Kwan:-

"We refer to the telephone conversation between our Mr Lane and your Ms Kwan.

... [WPCL] will bear your client's costs of [WPCL's costs action] ... ".

Ip Kwan responded in its letter of 31 August 2000:-

"... In respect of [WPCL's costs action], we shall also provide that [WPCL] will agree to enter into a Consent Summons with us for discontinuation ... with costs in favour of our client ... ".

Ip Kwan also wrote on 31 August 2000:-

"In respect of the costs and disbursement of [WPCL] in [the PI action], settlement will cover that [WPCL] will waive all their rights to claim such costs and disbursement against our client and this firm".

Ip Kwan wrote to W & G on 2 September 2000 enclosing a draft Consent Order (in WPCL's costs action) for endorsement by WPCL. The relevant part of the draft headed "CONSENT ORDER" reads:-

"[WPCL] do pay the Defendants' costs of [WPCL's costs action] to be taxed if not agreed".

W & G wrote the following on 4 September 2000:-

"We have forwarded your draft consent summons to our client with a recommendation that it be endorsed and returned ... ".

When the draft was endorsed and returned on 7 September 2000, W & G wrote:-

"You will appreciate that this differs slightly from the earlier consent summons in that it does not allow for the costs of both defendants to be recovered but this, we understand, is in accordance with the terms agreed for settlement.

No doubt you will let us know if this is contrary to your understanding".

The relevant part of the endorsed "Consent Summons" states:-

"[WPCL] do pay [the IO's] costs of [WPCL's costs action] to be taxed if not agreed".

Ip Kwan wrote on 7 September 2000:-

"We have revised the Consent Order. The terms of the enclosed Consent Order follow closely with what has been agreed in the Consent Summons ...

[WPCL] has to pay our costs as well ... because we are also a party to [WPCL's costs action] ...

... If [WPCL] is not to agree to pay our costs, a Summons will be taken out on our part to strike out ... we shall similarly seek costs ... ".

The draft enclosed says:-

"costs of [WPCL's costs action] be paid by [WPCL] to the 2 Defendants ... ".

Ip Kwan also wrote on 7 September 2000 stating, among other things, there was up to then no agreement between WPCL and Ip Kwan regarding the conclusion of WPCL's costs action.

W & G then wrote the following on 8 September 2000:-

"... With respect, there appears to be some misunderstanding by you as to the terms ... The consent order that you now seek attempts to recover the costs of [Ip Kwan] ... This has never been the intention of [WPCL], and we had understood that you had no intention of pressing for recovery of the same. It is partly in reliance upon this understanding and, indeed, the express representations to this effect by your Ms. Kwan, that this matter has been resolved ...

... In the course of a conversation between your Ms. Kwan and Mr. Lane on 1 September 2000, you again repeated that the costs of [WPCL's costs action] be paid by [WPCL] or [sic: to] yours ... Again, there was no mention of the costs of your firm being settled by [WPCL] ...

Finally, we attach a copy of a handwritten note prepared by Mr. Lane ... contemporaneous with the conversation ... on 31 August 2000. ... The note records, and Mr. Lane specifically recalls that ... the issue of your firm's fees in [WPCL's costs action] was addressed. The indication given to Mr. Lane was that your firm's fees ... were quite a separate matter and we were left with the impression, no doubt you will say mistaken, that such fees would not be pursued ... ".

The said note is part of exhibit "JHL-1" and the relevant part reads:-

"JHL attending Corrina Kwan.

Offer of settlement as follows:

... [WPCL] to bear Claimant's costs of [WPCL's costs action] ... Kwan's costs not included. Agreed separate matter for her firm ... ".

Ip Kwan responded on 8 September 2000 as follows:-

"... Our Ms. Kwan has only said that we are not claiming against [WPCL] for costs incurred in [the breach of undertaking action] which is certainly a separate matter. When we refer to a separate matter, we are referring to [the breach of undertaking action]. Alternatively, if our costs in [WPCL's costs action] is a separate matter, it must mean that it should only be dealt with after conclusion of [the professional negligence action]. And now we are doing it. But we have never said that we waive our costs in [WPCL's costs action] ...

... If such is an agreement at the time of the Consent Summons, we wonder why you have not made express provision in the Consent Summons. As a matter of fact, your letter dated 4th September 2000 to us has said that you have already recommended [WPCL] to endorse and return to us our draft Consent Order which provides for costs in our favour. The intention at the time of Consent Summons that [WPCL] should pay our costs is [sic] very clear ... ".

17. The reference to "the express representations to this effect by your Ms Kwan" in W & G's letter dated 8 September 2000 (which was denied by Ip Kwan) apparently gives rise to a dispute regarding the basic facts. This assertion was however not repeated in the affidavit evidence filed on WPCL's behalf. Indeed, when queried by the court regarding this, counsel accepted that the representations relied upon were contained in the written documents.

18. An express agreement was made between WPCL and Ip Kwan (on the IO's behalf) relating to WPCL's liability to pay the IO's costs of WPCL's costs action. In an appropriate case, even though there was no express agreement, a reasonable man may still conclude that an agreement has by necessary implication been reached. However, in relation to Ip Kwan's own costs in WPCL's costs action, and applying the objective test to the circumstances of this case, I did not consider such a conclusion can properly be made.

19. One document which may advance WPCL's argument is the attendance note of 31 August 2000 (exhibit "JHL-1"). But even that only states that the parties agreed "Kwan's costs not included" and "Agreed separate matter for her firm". I found that these statements only meant that Ip Kwan's own costs in WPCL's costs action were "a separate matter" and were to be dealt with later, probably "after conclusion of [the professional negligence action]". (See these phrases used in Ip Kwan's letter dated 8 September 2000)

20. Ip Kwan made the point in its letter of 8 September 2000 that W & G's "recommendation [to WPCL] to endorse and return ... our draft Consent Order which provides costs in our favour" negatives the alleged agreement asserted by WPCL. In fact, it may even be argued that the recommendation was consistent with W & G having agreed that Ip Kwan's costs should be paid by WPCL. No such argument was advanced by Ip Kwan and I therefore did not need to consider if this was the case. What is important is this: the point was made not only in Ms. Kwan's affirmation filed herein but also in the contemporaneous correspondence. Surprisingly, it was never responded to by W & G; for example, W & G did not assert the recommendation was made mistakenly or because of an oversight. In fact, at the hearing of 20 February 2002, when the court invited counsel for WPCL to respond to the point made by Ip Kwan, counsel indicated that he had no instruction regarding this.

21. By reason of the above matters, I found as a fact that (judged objectively) the circumstances show that no agreement was reached between WPCL and Ip Kwan. The Master was entirely correct to conclude the way he did.

22. I should also mention for completeness that, at the hearing on 20 February 2002, counsel for WPCL indicated WPCL was not concerned with the mode of termination of WPCL's costs action. In other words, WPCL was not concerned whether it should be brought to end by discontinuance or by striking out.

The Application to Cross Examine

23. By virtue of RHC Ord. 38 r. 2(3), the court retains a discretion to order cross examination on affidavits filed on interlocutory applications: see also Hong Kong Civil Procedure 2002, para. 38/2/5, p. 572. The Court of Appeal decided in Wendy Wenta Seng Yuen v. Philip Pak-yiu Yuen [1984] HKLR 431 that an applicant must establish good and sufficient reason requiring the court to exercise the discretion to allow cross examination before the court will do so.

24. The usual purpose of cross examination is to enable a litigant to demonstrate that a witness is untruthful or unreliable, or to elicit further relevant matters not (or not sufficiently clearly) already stated by the witness through questioning. Once it is clear in the present case that there was no dispute regarding the underlying facts said to have given rise to an agreement on costs, no useful purpose could be served by the proposed cross examination.

25. Accordingly, the application to cross examine should be (and was) refused.

Discretion on Costs of WPCL's Costs Action

26. Counsel for WPCL argued that if WPCL and Ip Kwan had not agreed on the costs of WPCL's costs action, the matter is at large and I should exercise my discretion to order that there be no order as to costs between WPCL and Ip Kwan.

27. It must be borne in mind that this was in effect an appeal against the Master's order as to costs. Hong Kong Civil Procedure 2002 sums up the law in this regard as follows:-

"In general a judge in chambers should not allow an appeal from a master's order unless it is unreasonable or the master erred in law: Hoddle v. CCF Construction Ltd [1992] 2 All E.R. 550, Morland J.: see also Lessy S.A.R.L. v. Pacific Star Development Ltd & Another [1996] 2 H.K.L.R. 1; China Venturetechno International Co. Ltd v. New Century Chain Development Co. Ltd. (t/a Century Chain Property Agency) [1996] 2 H.K.L.R. 18; see also Paul Y-ITC Construction Ltd v. Kin Shing Co. Ltd [1999] 1 H.K.C. 511 at 515 per Sakhrani J.: 'as this is an appeal as to costs only from the discretion of the master, such application should not be allowed unless it can be shown that the order made by the master was unreasonable or erred in law, i.e. if he either failed to take into account proper matters or took into account matter that should not have been taken into account'".

28. There is no indication that this has happened. RHC Ord. 62 r. 10(1) provides in effect that when a plaintiff discontinues his action by written notice without leave, the defendant may tax his costs of the action. There is no apparent reason why this usual rule should not apply to a case where leave is needed for the action to be discontinued.

29. If it were necessary for me to exercise my discretion as to costs, I would still have concluded in the way the Master has. Counsel for WPCL argued that Ip Kwan should not be awarded its costs in WPCL's costs action because it asked to be joined as a party. Reasonableness is not normally relevant in the court's exercise of its discretion as to costs although exceptionally unreasonable conduct on the part of a litigant may be. At the time of the joinder application, there was reasonable basis for

that application to be made by Ip Kwan. In fact, WPCL must have taken a similar view at the time because the joinder application was unopposed.