KAO, LEE & YIP (a firm) v. DONALD KOO HOI-YAN

HCA8847/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.8847 OF 1993

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REASONS FOR DECISION

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Introduction

1. In the course of proceedings instituted by a partnership, one of the partners retires from the partnership and becomes unwilling to continue with the litigation. What is to be done in such circumstances? This is simple question raised in the present summons.

2. By a Partnership Deed dated 16 December 1988 ("the Partnership Deed"), Mr Emmanuel Kao ("Mr Kao"), Mr Yip Wan Tak ("Mr Yip"), Ms Li Po Wan, Pauline ("Ms Li"), Mrs Alexa Cheung Lam ("Mrs Lam") and Mr Donald Koo ("Mr Koo") agreed as from 1 January 1999 to carry on in partnership as solicitors in the firm known as Kao, Lee & Yip ("the Firm"). The Firm had originally been founded by Mr Kao and Mr Yip, together with a Ms Mabel Lee. Under the Partnership Agreement, Mr Kao and Mr Yip were known as the "Founding Partners" while Ms Li, Mrs Lam and Mr Koo were "Equity Partners". Founding Partners enjoy greater rights in the partnership than Equity Partners.

3. Ms Li ceased to be a partner as from 1 July 1992.

4. On 30 December 1992, Mr Koo gave notice of his intention to retire from the Firm. He did so with effect from 1 October 1993.

5. The present action was instituted on 2 October 1993 by the then partners of the Kao, Lee & Yip (namely Mr Kao, Mr Yip and Mrs Lam) but in the name of the Firm (see RHC Order 81, rule 1) against Mr Koo (as the 1st defendant) and various former employees of the Firm (the 2nd to 6th defendants). The causes of action pleaded against the defendants were based on alleged breaches of fiduciary duty, contract and the Partnership Deed itself. I will hereinafter for convenience refer to the plaintiff in this action as the Firm, even though strictly speaking and more accurately, the plaintiff comprises Mr Kao, Mr Yip and Mrs Lam.

6. It is unnecessary for me to dwell on the Firm's claim against the defendants (and indeed the trial is to commence on 22 April 2002), for the present application before me concerns only the position of Mrs Lam. One aspect of the action should, however, be highlighted. Soon after the present action was instituted, the Firm applied for an injunction against Mr Koo seeking to enforce some of the restrictive covenants in the Partnership Deed against him. The injunction was refused, first by Mayo J on 21 January 1994, whose decision was upheld by the Court of Appeal on 27 July 1994 (the Court of Appeal's decision is reported as Kao, Lee & Yip (a firm) v. Koo Hoi-yan, Donald & Others [1995] 1 HKLR 248). Costs orders were made in favour of Mr Koo against the Firm payable in any event. I shall refer to this aspect of costs later.

7. When the present action was commenced, this was obviously with the approval of Mrs Lam who was at that time, as I have said, an Equity Partner of the Firm. She even made an affirmation in support of an application for Anton Piller relief.

8. On 15 April 1996, however, Mrs Lam gave notice of her intention to leave the partnership. This became effective on 15 April 1997. At the time of her retirement from the Firm, the present action was not actively pursued. In fact, from 25 April 1996 (when mutual discovery took place) to 16 October 1999 (when the plaintiff applied to re-amend the Statement of Claim) there was no activity. Mrs Lam says in her most recent affirmation that at the time she left the Firm, she considered that the action had been abandoned. However, there was no discussion or agreement about her future involvement in the proceedings. Whatever Mrs Lam's views on the progress (or lack of it) of the present action, it is clear that she did not at the time take any active steps either to reach an agreement with the other partners as to her continuing involvement in the proceedings or to apply to court to cease being a party. In these circumstances, it is clear that as far as the defendants and the court were concerned (and even Mr Kao and Mr Yip), she remained a willing party to the proceedings despite her retirement from the Firm.

9. On 13 November 2001, the defendants' solicitors (Messrs Tanner De Witt) wrote to the plaintiff's solicitors (Messrs Herbert Smith) seeking under RHC Order 18, rule 2 the names of the partners of the Firm at the time the causes of action against the defendants accrued. This letter prompted Herbert Smith to write to the Firm (its client) requesting the information sought. In a letter dated 24 November 2001 to Herbert Smith, the Firm said in relation to Mrs Lam, "In relation to Alexa Lam, Mr Kao and Mr Yip have not discussed matters with her since she retired from the partnership and, accordingly, they consider that it would be advisable for you to write to her direct and seek her advice in relation to whether you are also to represent her in these proceedings.".

10. What then followed was correspondence between Herbert Smith and Mrs Lam. In a letter dated 29 November 2001 from Herbert Smith to Mrs Lam, an indemnity was offered to Mrs Lam in the following terms regarding her liability to pay costs in the action, "We have been instructed by Kao, Lee & Yip to contact you directly in relation to this to confirm that we are to continue to act for you in these proceedings. Mr Kao and Mr Yip are prepared to provide you with an indemnity for any liability for our costs or any costs order that may be made against you, if we are to continue to act for you.".

11. Mrs Lam says in her affirmation that she was astonished to receive that letter. She had assumed that the action had been abandoned or discontinued, although she never had any confirmation of this.

12. In response to the offer of an indemnity from Mr Kao and Mr Yip, by a letter dated 16 January 2002 from Mrs Lam's solicitors (Messrs Fok & Johnson), her position was made clear : Mrs Lam had no wish to pursue the action against the defendants and no interest to do so. If Mr Kao and Mr Yip wanted to continue with the action, her position was that she had to be provided not only with a suitable indemnity from Mr Kao and Mr Yip as to her costs liability, but in addition, this indemnity had to be supported by security such as a bank guarantee.

13. In the correspondence that subsequently passed between the parties, it was the provision of security that became the main controversy between the parties (the parties had even acknowledged that if a suitable agreement could be reached as to the indemnity to be provided to Mrs Lam, she would forego any benefit that Mr Kao or Mr Yip might get in the event the Firm was successful against the defendants). While in correspondence Mr Kao and Mr Yip were willing to provide a "full indemnity" for Mrs Lam's potential liability on costs, they steadfastly refused to provide security.

14. Other options were canvassed in correspondence such as the striking out of Mrs Lam as a plaintiff and making her a defendant in the proceedings. No agreement was ever reached. This controversy has led to the present summons before the court taken out by Mrs Lam.

15. The summons, as amended on 7 February 2001, seeks the following orders :

"(a) the plaintiffs Emmanuel Chu Chee Kao and Yip Wan Tak do indemnify and keep indemnified the said Ms. Alexa Cheung Lam against all costs, charges, or liability herein to the satisfaction of the learned Judge and do provide security for such indemnity to the satisfaction of the learned Judge within 14 days from the date of the order; or alternatively

(b) leave be given to the said Alexa Cheung Lam for her to be struck out as a plaintiff and that the plaintiffs Emmanuel Chu Chee Kao and Yip Wan Tak do indemnity [sic] and keep the said Alexa Cheung Lam indemnified against all costs, charges or liability herein up to the date of the Order to be made herein to the satisfaction of the learned Judge and do provide security for such indemnity to the satisfaction of the learned Judge within 14 days from the date of the Order; and that

(c) the plaintiffs Emmanuel Chu Chee Kao and Yip Wan Tak do pay to the said Ms. Alexa Cheung Lam costs of and incidental to this application."

The issues

16. Briefly put, Mrs Lam's position was this. Even though when the present action was commenced, she was a willing plaintiff, she no longer is. This is due to the fact that she has retired from the Firm. As stated to the court by her counsel, Mr Daniel Fung, SC, she is no longer interested in the litigation, not interested in its outcome and she, in any event, exercises no control over the way it has been or will be conducted by the Firm. In these circumstances, her preferred option was to drop out of the action completely (see paragraph (b) of the summons). Alternatively, if she were to remain a plaintiff (and an unwilling one at that), she required protection from any liability for costs (both the Firm's as well as the defendants' costs), whether past or future, in the form of an indemnity from Mr Kao and Mr Yip backed up by adequate security (see paragraph 6(a) of the summons).

17. Mr Kao and Mr Yip's position was that even accepting the fact that Mrs Lam had ceased to be a partner of the Firm, it was important, so submitted by Mr Kenneth Kwok, SC (for Mr Kao and Mr Yip), that Mrs Lam remained as a party to the proceedings. At one stage, Mr Kwok submitted that if Mrs Lam was not to remain as a plaintiff, she should be joined as a defendant instead. This course was later abandoned. His submission was that Mrs Lam should remain as a plaintiff albeit he accepted an unwilling one. The only protection to which she was entitled, he submitted, was an indemnity from Mr Kao and Mr Yip as to future costs (and not past costs), without the provision of any security.

18. I should at this point clarify what is meant by "past costs" and "future costs" :

(1) It should first be pointed out that the cut-off date for determining what is past or future is the date of the resolution of the present summons.

(2) The term "past costs" refers to :

(a) From the point of view of the plaintiff's costs, to the Firm's own legal costs incurred up to the cut-off date.

(b) From the point of view of the defendants' costs, the costs of the defendants for which the Firm is liable to the defendants up to the cut-off date. This means those costs for which costs orders had been made by the court or as agreed between the parties in favour of the defendants payable by the Firm.

(3) The term "future costs" refers to :

(a) Again from the point of view of the plaintiff's costs, to the Firm's legal costs to be incurred from the cut-off date.

(b) From the point of view of the defendants' costs, to those costs for which the Firm will be liable or may be liable to the defendants after the cut-off date.

19. At the conclusion of the hearing on 22 February 2002, I made the following orders :

"1. Mr Emmanuel Chu Chee Kao and Mr Yip Wan Tak do indemnify and keep indemnified Mrs. Lam Cheung Alexa from and against all and any liability which she will hereinafter incur in respect of the Plaintiff's own costs and the Defendants' costs in this action;

2. Mr Emmanuel Chu Chee Kao and Mr Yip Wan Tak do indemnify and keep indemnified Mrs. Lam Cheung Alexa from and against all and any liability which she has to date incurred in respect of the Plaintiff's own costs and the Defendants' costs in this action;

3. Mr Emmanuel Chu Chee Kao and Mr Yip Wan Tak do within 14 days provide security in the sum of HK$4,500,000 to the satisfaction of the Court;

4. Liberty to apply;

5.	(i) Costs of and occasioned by this application (save the costs for the hearing on 7th February 2002) to Mrs. Lam Cheung Alexa to be paid by Mr Emmanuel Chu Chee Kao and Mr Yip Wan Tak with a certificate for 2 Counsel;
	(ii) The Defendants' costs of and occasioned by this application (save the costs for the hearing on 7th February 2002) be paid by Mr Emmanuel Chu Chee Kao and Mr Yip Wan Tak in any event;
	(iii) The Defendants' costs and the costs of Mr Emmanuel Chu Chee Kao and Mr Yip Wan Tak for the hearing on 7th February 2002 be paid by Mrs. Lam Cheung Alexa; and
	(iv) All the above costs to be taxed if not agreed."

20. It is convenient, in giving the reasons for this decision, to identify the issues that have arisen in the application. I do so in the form of the following questions :

(1) What are the approaches open to the court where a partner of a firm which has instituted proceedings no longer wishes to take part in those proceedings? (Issue 1 : The position of an unwilling party to proceedings).

(2) Should Mrs Lam be struck out as a party to the present proceedings altogether? (Issue 2 : Striking out as a party to the proceedings).

(3) Should Mrs Lam be joined as a defendant? (Issue 3 : Joinder as defendant).

(4) If Mrs Lam is to remain as a plaintiff, is she entitled to an indemnity for past and future costs? (Issue 4 : Indemnity for past and future costs).

(5) Where under (4), Mrs Lam is entitled to an indemnity, is she also entitled to security to support such indemnity and if so, in what amount? (Issue 5 : Security).

21. I now deal with these issues in turn.

Issue 1 : The position of an unwilling party to proceedings

22. The position that the parties find themselves in is similar to a situation where a co-plaintiff, whether at the commencement of proceedings or (as in the present case) in the course of such proceedings, no longer wishes to remain a plaintiff in the proceedings. This situation usually arises where a cause of action is vested in a number of persons who then institute proceedings as co-plaintiffs. The obvious example of this is where joint contractors are involved. Another example is where partnerships are involved, such as the present case.

23. The dilemma facing the court in the above situation is this : what is to be done where a cause of action is or may be vested jointly in a number of persons but one or a number of them do not wish to participate in the proceedings? While fairness and justice demand that a cause of action should not be defeated by a lack of parties before the court, yet it would not be right either that unwilling persons are made to participate in proceedings as plaintiffs when they have no wish to do so.

24. One starts, of course, with the court's jurisdiction to ensure that all proper parties are before it. RHC Order 15 sets out a code whereby the court regulates its procedures and all proceedings to ensure that all proper parties are before it and correspondingly, that all unnecessary parties can be struck off.

25. However, RHC Order 15 is not the only source of the court's power to regulate the position of parties and other persons in proceedings. Quite apart from other Rules dealing with this aspect (see, for example, Order 24, rule 7A), the court retains an inherent jurisdiction to regulate its own procedures in respect of parties. This jurisdiction, as will be seen, is the foundation for the orders made in the present application.

26. In the case of partnerships, RHC Order 81, rule 1 enables, as we have seen, actions to be commenced by or against the firm instead of having to name each individual partner as plaintiffs or defendants, as the case may be. This, however, is a rule of convenience only because while, for example, a partnership may be sued in the firm's name and service may be effected on any partner or at the firm's principal place of business (see Order 81, rule 3), such use of the firm's name is merely for procedural convenience because a firm has no separate legal identity outside its partners. In other words, where a partnership sues as plaintiff or is sued as a defendant using the firm's name, this is mere shorthand for the individual partners being the plaintiff or the defendant as the case may be. See here the observations of Godfrey JA in Kao, Lee & Yip (a firm) v. Koo Hoi-yan, Donald.

27. This, therefore, explains why a defendant to proceedings commenced by a firm may serve a notice requiring disclosure of all names and addresses of the persons who were partners at the time the alleged cause of action accrued : see RHC Order 81, rule 2. I repeat at this point that in the present proceedings the defendants did issue a summons on 25 January 2002 under Order 81, rule 2 requesting a statement of the names and addresses of the relevant partners of the Firm at the time the causes of the action alleged in the writ accrued. Earlier, by a letter dated 30 November 2001 from Messrs Tanner De Witt to Herbert Smith, the defendants had already requested the necessary information under Order 81, rule 2. I have already referred to this letter earlier.

28. Where proceedings are commenced by joint contractors or a partnership but one or more of the contractors or partners is unwilling to participate further, there are three possibilities :

(1) The unwilling party (if I may use that expression), is joined as a co-plaintiff or where proceedings are already in existence, he remains a co-plaintiff. Normally, this obviously requires the consent of that person because no one can be joined or made to be a plaintiff against his will. In the case, however, of partners, the position seems to be different. Some of the authorities are of the effect that even where a partner is unwilling to be a co-plaintiff, he may be compelled by the other partners to be one, providing that an indemnity for his costs liability is given. In Whitehead v. Hughes (1834) 2 C&M 318, at 319, Bayley B said :

"One of several partners has a clear right to use the names of the other partners. If they object to their names being used, they may apply for an indemnity against the costs to which they might be subjected by the use of their names."

This statement was approved by the English Court of Appeal in Tomlinson v. Broadsmith [1896] 1 QB 386, at 392 and again in Seal & Edgelow v. Kingston [1908] 2 KB 579, at 582. The reason for this rule in the case of partnerships is probably that unlike joint contractors, partners are agents of each other and in general responsible jointly to third parties : c.f. sections 7 and 11 of the Partnership Ordinance, Cap.38; Sutherland v. Gustar [1994] Ch.304, at 310E-F. As I have mentioned what would be required in a situation where a partner is compelled to be a co-plaintiff is the provision of an indemnity for costs by the other partners. This would be a condition to his being made a co-plaintiff. This has ultimately been the position of Mrs Lam in the present case.

(2) Where the unwilling party is for any reason not a co-plaintiff, he may be joined as a defendant to the proceedings. In this way, he becomes a defendant simply to be bound by the result of the litigation and to ensure that the plaintiff's claim is not thwarted by a lack of proper parties before the court. A useful (but not exact) analogy is where derivative actions are concerned : the relevant company is always joined as a defendant in such proceedings. This is also the case with joint contractors : see Rodriguez v. Speyer Brothers [1919] AC 59, at 69; Johnson v. Stephens & Carter Ltd [1923] 2 KB 857, at 860; Sutherland at 310; RHC Order 15, rule 4(2).

(3) The unwilling party is not joined in the proceedings at all whether as plaintiff or defendant. This option occurs only where the other joint contractors or partners view their cause of action as being complete without the need to join the unwilling party. Where, for example, obligations are owed to a number of persons not just jointly but also severally, it may be unnecessary to join every one of the contractors. However, by the nature of things, persons who embark on litigation will want to be cautious so that if there is any risk at all that a point on lack of parties will be taken by the other side, it will often be the case that all persons of possible relevance will be joined.

29. I now turn to the applicability of these three options in the present case. If I may, I deal first with the two options that, ultimately, are inapplicable.

Issue 2 : Striking out as a party to the proceedings

30. Although it was submitted by Mr Fung that Mrs Lam's preferred course was to be struck out altogether as a party to the action (paragraph (b) of the summons), Mr Kwok resisted this. He did not want his clients to be exposed to the defendants' arguing a lack of parties defence, although he obviously did not accept that such a defence would be open to the defendants to run anyway. In short, Mr Kwok wanted to be safe. I agree with Mr Kwok that it would be inappropriate at this stage to strike out Mrs Lam as a party. I have heard no arguments as to whether a lack of parties defence would or would not succeed. Naturally, Mr Side, who appears for the defendants in the summons, wanted to reserve his position. In these circumstances, it is right that Mrs Lam be left as a party.

Issue 3 : Joinder as defendant

31. In the present case, as I have already mentioned, although Mr Kwok submitted at one stage that this may be an appropriate course to take, in view of the lack of enthusiasm by all parties, he abandoned this as a viable option. Therefore I need not say anymore about it.

Issue 4 : Indemnity for past and future costs

32. I have already referred to the somewhat special position of partners as unwilling plaintiffs : unlike other situations in which joint claimants are involved, it would appear that the partner who is unwilling to embark on litigation can be compelled against his will to be a co-plaintiff. It should be pointed out, however, that the correctness of this rule, founded on the case of Whitehead, has been left open by the English Court of Appeal in cases like Johnson at 861 (per Atkin LJ) and Sutherland at 311A.

33. It is unnecessary for me to enter into a discussion on whether the rule established by cases like Whitehead still represents good law. There is no application before me for Mrs Lam to be joined as a defendant. As I have said, Mr Kwok abandoned this option and Mr Fung, for his part, did not want this option either. I therefore proceed on the basis of Mrs Lam remaining as a co-plaintiff together with Mr Kao and Mr Yip, albeit an unwilling one.

34. The authorities I have referred to in the paragraph 28(1) above, all point to the need to protect the unwilling partner against the costs liability of the litigation, by the provision of an indemnity. Such costs liability relates both to the plaintiff's own costs as well as the liability for the defendants' costs. Both aspects feature in the present case.

35. I should pause briefly just to mention the foundation of the court's jurisdiction to impose an indemnity in the present case. There are two possibilities here. First, it arises from the court's inherent jurisdiction to make ancillary orders protecting the position of parties before it who are not willing participants. This is part of the court's overall jurisdiction to make orders ensuring that proper parties are before it in proceedings. Such an order for an indemnity is necessary because the partner who becomes an unwilling plaintiff is nevertheless to be treated as a plaintiff, with all that this entails in a litigation : see, for example, Seal and Edgelow (discovery obligations). The second possibility is that since the reason why an unwilling partner can be forced to become a plaintiff in proceedings is because partners are agents to each other (see paragraph 28(1) above), the implied indemnity may therefore arise as a matter of contract. On balance, I prefer the first possibility. The contractual basis, I feel, is somewhat artificial and may be a dubious further implication of a term of the partnership agreement.

36. Mr Kwok does not dispute in general the requirement to provide an indemnity. What he does contend, though, is that such an indemnity should only relate to future costs. Mrs Lam had until the present application willingly participated in the proceedings.

37. In my view, this must be correct as a starting point. The indemnity given to an unwilling plaintiff in the case of a partnership is intended to protect the unwilling partner for his liability in a partnership venture (i.e. the litigation) in which he does not wish to participate. Where a partner has willingly participated in the litigation, however, there is no reason for the court to impose an indemnity for the costs incurred at the time of his willing participation in the proceedings.

38. In the present case, Mrs Lam was a partner at the time the proceedings were instituted. There is no question but that she was a willing plaintiff. When she left the partnership in April 1997, as I have said, nothing apparently was said about her continued participation in the present action. It is clear that until the recent correspondence between Fok & Johnson and Herbert Smith, she had not made clear her stance that she was no longer a willing participant in the action. The present application, however, confirms her position now.

39. In the normal case, there would be no question of Mrs Lam being provided with an indemnity for her liability for past costs incurred at a time when she was a willing plaintiff.

40. In the present case, however, I have decided that she should have such indemnity. This arises as a matter of contract as a consequence of Mrs Lam retiring from the Firm. It is in general an implied term of a partnership agreement that upon the retirement of a partner, where the assets of the partnership are left with the remaining partners, the retiring partner should have an indemnity from the remaining partners for all partnership debts and liabilities : see Lindley & Banks on Partnership (17th Edn) at paragraph 10-207; Halsbury's Laws of England Vol.35 (4th Edn reissue) at paragraph 70. In the absence of any express provision in the relevant partnership agreement, such a right to an indemnity is usually implied : see Halsbury's Laws of England Vol.35 at paragraph 187; Gray v. Smith (1889) 43 Ch. D.208, at 220.

41. The Partnership Deed does not contain any express term providing for an indemnity for retiring partners such as Mrs Lam (who, it will be recalled, was an Equity Partner). What is clear though is that upon an Equity Partner's retirement from the Firm, that partner leaves behind to the remaining partners the assets of the Firm. The only clause that relates to the entitlement of a retiring partner is clause 8(c) which states, "For the avoidance of doubt, any Partner ceasing to be a Partner of the partnership shall be entitled to his due share of any receipt arising from bills rendered during the period in which he is a partner but received after he ceases to be a partner, and his due share shall mean his share in the Net Distributable Profits in the financial year in which the bill is rendered". Further, whereas in the case of the retirement of a Founding Partner, there are express provisions for the purchase of that Founding Partner's shares in the partnership (see clauses 18, 19 and the Schedule to the Partnership Deed), there is no equivalent provision in the case of the retirement of an Equity Partner. In other words, when an Equity Partner retires from the Firm, all his shares become in a sense forfeited. The only entitlement is what is stipulated under clause 8(c).

42. In these circumstances, there is no doubt that the implied right to an indemnity arises in favour of Mrs Lam in the present case as far as past costs are concerned. While I accept that this entitlement is contractual rather than one that arises from the exercise of the court's inherent jurisdiction, it is right in my view to impose the indemnity in the present case as a condition of Mrs Lam remaining as a co-plaintiff in the present proceedings.

43. For the above reasons, I decide that Mrs Lam is entitled to an indemnity as to both past and future costs (it should be recalled that Mr Kwok accepted, rightly in view of the authorities, the liability to provide an indemnity for future costs).

Issue 5 : Security

44. Mr Kwok questioned whether the court had the jurisdiction in the event an indemnity was ordered, to order security to back up that indemnity. In my view, the court undoubtedly has this power. It is part of the court's inherent jurisdiction to ensure that its orders (in this case for an indemnity) are rendered effective where the justice of the case requires.

45. In Hong Kong Civil Procedure 2002 at paragraph 81/1/12, it is stated, "Where one partner commenced an action in the name of the firm against the express wishes of his co-partners, the action was stayed until the partner bringing the action had given his co-partner a full indemnity, coupled with security, against all costs, charges, or liability by reason thereof (Davey & Co. v. Alby United Carbide Factories Ltd, unreported, Coleridge J in Chambers, March 19, 1914)" (emphasis added).

46. What factors does a court then take into consideration in deciding whether or not security should be ordered?

47. Mr Kwok submits there is an overriding factor in the present case, namely, that there is no assertion by Mrs Lam, much less any evidence, that Mr Kao and Mr Yip will not be good for any indemnity which they may be required to honour. This is right : there is no such assertion nor any evidence to suggest this.

48. In my judgment, however, while the financial ability to honour an indemnity is a relevant factor, it is not the only one. There is no provision whether in the Rules or elsewhere which in any way limits the relevant factors to be taken into account by the court when determining whether or not security should be given to support an indemnity; contrast those provisions which set out the factors governing the exercise of the court's jurisdiction whether or not to order security for costs : see RHC Order 23 and section 357 of the Companies Ordinance, Cap.32. It is to be noted that the court does have jurisdiction in certain circumstances to order security even where the ability (or inability) to pay is not in issue : for example, in cases where security for costs is ordered on the basis of the plaintiff being resident abroad (RHC Order 23, rule 1(1)(a)) or where conditional leave to defend is given (i.e. conditional leave granted in Order 14 applications : Order 14, rule 4(3)) or as a condition for setting aside default judgment (Order 13, rule 9) or even where a bail bond is required to be posted for the release of a ship under arrest (Order 75, rule 16). I accept that these situations are not similar to the one in the present application, but they all illustrate the court's jurisdiction to order security where the justice of the case requires that such a course be adopted.

49. In the present case, Mrs Lam is, in my view, entitled to security. I regard the following factors as important :

(1) By her own admission, Mrs Lam does not stand to gain in any way from the present proceedings against the defendants. If the Firm is successful against the defendants and obtains an order for damages, she will not share in such an award.

(2) On the other hand, while she remains a plaintiff, she is liable at such. Chief among Mrs Lam's liabilities would be that in relation to costs, both the plaintiff's own costs as well as the defendants'.

(3) This potential liability is exacerbated by her lack of control over the conduct of the proceedings. For example, it is not in her power to decide whether or not any costs saving tactics should be adopted. As Mr Fung submits, these tactics will be determined by Mr Kao and Mr Yip.

(4) By the time these proceedings are concluded (and even assuming there to be no appeals), the costs incurred by both sides will be very significant.

50. In these circumstances and given the fact that having left the Firm, Mrs Lam's wish is simply no longer to be involved with the litigation, it is in my view just that I should exercise my discretion in favour of granting security to back up the indemnity. Mr Kwok says that in every case in which there is an unwilling plaintiff, there exist factors similar to those I have earlier set out. This may or may not be so but the submission does not in my view in any way diminish the justice of the situation. What I find difficult to ignore is the fact that in the present case, perhaps unlike other cases in which there is an unwilling partner as a plaintiff, Mrs Lam has absolutely nothing to gain from pursuing the present litigation, but potentially much to lose. As is now common belief, litigation can be very expensive indeed. Justice demands therefore that Mrs Lam is fully protected.

51. Accordingly, in principle, Mrs Lam is entitled to security, but in what sum?

52. I have ordered that security should be provided in the sum of $4.5 million. All these relate to Mrs Lam's potential liability for future costs. In circumstances where she has been a willing participant in the proceedings until the present summons, it would not be right in the exercise of my discretion to order security in relation to past costs. I would also add here that the indemnity for past costs exists as a result of the implied term of the Partnership Deed. I see no reason for the imposition of a further implied term regarding security.

53. I also do not feel it is right that security ought to be provided for the plaintiff's costs in the future. Here, I note that as far as the plaintiff's own costs are concerned (which in reality means the fees and disbursements payable to its solicitors), it is likely that costs on account will be paid before the liability for any major expenditure is incurred.

54. The security therefore relates only to Mrs Lam's potential liability for the future costs of the defendants. The $4.5 million can be broken down as follows :

(1) $3 million relates to the costs of the trial itself and the preparation for it (the trial is fixed for 10 days).

(2) $1.5 million relates to the defendants' costs which may be payable up to the trial itself for which as yet no costs orders had been made. This would, for example, include the costs of the hearing of the three summonses which took place on 26 February 2002.

55. I add here that in terms of Mrs Lam's potential liability for the defendants' costs, it is not, as Mr Kwok submits, only a third share but she will be liable, jointly and severally with Mr Kao and Mr Yip, for the whole of such costs.

Costs of the present summons

56. Mrs Lam has largely succeeded in the present summons. It is right, therefore, that costs should follow the event and that she should have her costs of and occasioned by the present summons to be paid by Mr Kao and Mr Yip. As far as the defendants' costs are concerned, these should also be borne by Mr Kao and Mr Yip.

57. However, I have ordered that Mrs Lam must pay Mr Kao and Mr Yip's costs and the defendants' costs of the hearing of 7 February 2002. This is because the reason why the hearing of the present summons could not take place that day was entirely due to Mrs Lam's failure to serve the summons on the defendants, whose presence (particularly given paragraph (b) of the summons) was essential.