IP PUI LAM ARTHUR AND ANOTHER v. F. ZIMMERN & CO AND ANOTHER

HCMP 995/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 995 OF 2014

(ON AN INTENDED APPEAL FROM HCB NO. 3819 OF 2011)

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Hon Barma JA (giving the Decision of the Court):

1.  This was an application for leave to appeal against the order of Ng J dated 5 March 2014, by which he ordered that the costs of a hearing before him on the same date should be paid by the 2^nd Respondent, Messrs Joseph Li & Co (“JLC”), to the Applicants, the trustees in bankruptcy of Ho Yuk Wah David (“the Trustees”). On 8 April 2014, JLC applied unsuccessfully to Ng J for leave to appeal against that order, and now applies to this court for leave to appeal. As is now usual in relation to such applications, this application has been considered on paper, having regard to submissions filed in support of the application by JLC, and submissions filed in opposition to it by the Trustees.

2.  The background to the matter can be summarised as follows:-

(1) The debtor was made bankrupt on 2 August 2011 on his own petition, and the Trustees were in due course appointed as his trustees in bankruptcy.  Although the debtor appeared to have little in the way of assets, the Trustees’ investigations suggested that he had used offshore companies and nominees to conceal his assets.

(2) As part of their investigations, the Trustees applied for an order against (among others) JLC seeking the production, pursuant to section 29 of the Bankruptcy Ordinance (Cap. 6), of documents relating to a payment made to JLC on about 21 September 2007 by way of a cashier’s order for HK$50,000.

(3) JLC took a neutral stance in respect of this application, and indicated that it would not attend at the hearing of the application.  On 2 October 2013, Ng J ordered that the documents sought by the Trustees should be produced by JLC, and that JLC’s costs of producing them, and of the application for production, should be paid out of the bankruptcy estate of the debtor.

(4) On 29 October 2013, JLC filed an affirmation of one of its partners exhibiting the documents that were to be produced.  However, portions of the documents were redacted.  It was stated in the affirmation that the redactions were made to preserve legal professional privilege and client confidentiality.  A total of about 20 pages contained redactions.

(5) On 6 November 2013, the Trustees sought directions from the court in respect of the legal professional privilege issue.  In their letter seeking such directions, the Trustees stated that they believed that most of the redactions related to information such as the client’s name, contact person, action number, and the names of the parties to the action, which were not matters covered by legal professional privilege.  This point was reiterated in the Trustees’ affirmation in support of their application for the redactions to be disallowed.

(6) As JLC maintained that all of the redactions related to privileged materials, the Trustees’ application for disclosure of the redacted materials was fixed for hearing before Ng J on 5 March 2014.  In its submissions and supplemental submissions for that hearing (lodged on 24 February and 3 March 2014 respectively) JLC maintained that legal professional privilege attached to the redacted parts of the documents.

(7) At or immediately before the hearing on 5 March, JLC indicated that it no longer maintained any claim to privilege in respect of such redactions as related to client names, addresses and the action number. JLC maintained a claim to privilege in respect of one email (contained in one page of the documents).  The Trustees took a neutral stance in relation to that email.  Ng J read an unredacted copy of the email and decided that it contained legal advice and was, as such, privileged and should not be disclosed.

(8) ; So far as costs were concerned, JLC submitted that it should not have to bear the Trustees’ costs of the application.  It did not seek an order for costs in its favour.  In brief oral reasons, Ng J stated that while he would not say that JLC had acted unreasonably, costs should follow the event, and ordered JLC to pay the Trustees their costs of the application in relation to the redacted materials.

(9) At the subsequent application for leave to appeal on 8 April 2014, Ng J explained that in saying that JCL did not act unreasonably, he had in mind their conduct after their decision not to resist disclosure in respect of the bulk of the redacted materials.

3.  In support of their application for leave to appeal, JLC (now represented by Mr Robert Pang SC and Mr Albert Wong) submit that:-

(1) The hearing before Ng J on 5 March 2014 should be regarded as being akin to a Norwich Pharmacal application, where the principle is that the applicant (i.e. the Trustees) should normally pay the costs of the party making disclosure, unless that party has acted unreasonably.  If so, it is suggested that in the light of Ng J’s observations, the usual rule should apply in this case.

(2) Alternatively, it is submitted that in exercising his discretion as to costs, Ng J should have taken into account the fact that JLC were successful in respect of at least part of the application, in that they were successful in maintaining their claim to privilege over the email in respect of which they continued to resist disclosure, and should accordingly have made an issue based costs order so that JLC should have been awarded part of their costs.  In this connection, it was suggested that the bulk of the hearing time on 5 March 2014 was taken up with a consideration of this document.

4.  The Trustees (represented by Mr Jason Yu) oppose the grant of leave.  They contend that the intended appeal has no reasonable (or indeed, any) prospects of success, because:-

(1)JLC never sought an order for costs in their favour before Ng J, seeking only to argue that they should not have to pay the Trustees’ costs of the hearing on 5 March 2014.

(2) The usual rule in relation to contested applications under section 29 of the Bankruptcy Ordinance is that costs should follow the event (see Re BCCI (No. 12) [1997] BCC 561 at 579, a decision in respect of the English equivalent of section 29).

(3) JLC did not take a neutral stance in respect of the application on 5 March 2014, but had actively opposed it, and such opposition was unjustified in relation to the redaction of the client names, addresses and action number.

(4) Viewing the application as a whole, it was not until a very late stage that JLC conceded that the bulk of the documents in respect of which legal professional privilege had been claimed should in fact be disclosed, and in relation to the one document in respect of which the claim to privilege was maintained and upheld, the Trustees made no submissions but left it to the court to read the document and make a determination, a process which took up little time.  It therefore could not be said that JLC had been substantially successful, or successful to any significant degree, in its resistance to the Trustee’s application.

(5) Further, leave should be refused on the grounds of procedural economy and proportionality, as the intended appeal would involve the expenditure of costs that were plainly disproportionate to the subject matter of the dispute.

5.  We agree with the submissions of the Trustees, and are of the view that the proposed appeal has no realistic prospects of success.  Moreover, it is clearly disproportionate in terms of the costs involved.

6.  We do not think that the hearing on 5 March 2014 can be regarded as akin to a Norwich Pharmacal application for costs purposes.  While the earlier application for disclosure of documents under section 29 of the Bankruptcy Ordinance would properly have been so regarded, it does not seem to us that in wrongly insisting until the last moment before the hearing that materials relating to client name, addresses and action number were the subject of legal professional privilege, JLC can be regarded as doing no more than taking a neutral stance in relation to whether or not such documents should be disclosed.  That such material is not covered by legal professional privilege is clear from textbook authority (such as Passmore, Privilege (3^rd ed), at paras 2-167 to 169, and Thanki, Law of Privilege (2^nd ed), at para 2.88) and from The Hong Kong Solicitors’ Guide to Professional Conduct at para 8.01.21.  This was pointed out to JLC at an early stage, when the Trustees explained that the bulk of the redactions appeared to relate to such matters, rather than actual legal advice, but JLC persisted in their mistaken approach until the beginning of the hearing before Ng J.  Had JLC acknowledged in good time that the bulk of the documents were not privileged, and limited their resistance to production to the one document that was the subject of a justifiable claim to privilege, it seems probable that the Trustees would either have accepted that more limited claim, or left the matter to the court to determine at relatively little cost to either party.

7.  We would also accept the Trustee’s submission that this was a contested application, to which the costs follow the event approach should be applied.

8.  It also follows from the foregoing that we do not think it is possible to characterise the outcome of the hearing as being, in any real sense, a success for JLC.  Had they approached the matter in accordance with a correct view of the position, it is very likely that the hearing would not have been required at all, or could have been dealt with quickly and simply, at little expense to either party.  In our view, this was plainly not a case in which an issues based approach to costs was appropriate, and the Judge cannot be faulted for having made the costs order that he did.

9.  Further, we would also accept that this is one of those rare cases in which it would be wrong to allow the matter to go further, for reasons of proportionality and procedural economy.  It is clear that this is, in an appropriate case, a ground for refusing leave to appeal (see e.g. CWG v MVF Ltd (unreported, HCMP 2409/2013, 9 January 2014 per Kwan JA at paras 13 and 18).  The costs involved in the hearing below (on the Trustee’s side) were some HK$40,000.  For this leave application alone, the costs involved, according to the statements of costs lodged in connection with the application, were over HK$132,000 (HK$24,000 odd for the Trustees and HK$108,000 odd for JLC).  If leave were granted those costs would be substantially further increased.  These figures have only to be stated to demonstrate the lack of proportion and procedural economy that would be involved in the proposed appeal.

10.  For all of the foregoing reasons, we refuse leave to appeal.  Further, we are satisfied that the proposed appeal is totally without merit, and accordingly direct pursuant to RHC Order 59 rule 2A(8) that no party may request this determination to be reconsidered at an oral hearing.

11.  So far as costs are concerned, we make an order nisi that JLC shall pay the costs of this application to the Trustees.  Having considered the Trustees’ statement of costs, we assess those costs, also on a nisi basis, in the amount of HK$21,000.  Although JLC have suggested that their own costs in relation to the 2 October 2013 order should also be summarily assessed and set off against the Trustees’ costs of this application, we do not consider that it would be appropriate for this court to assess those costs – no doubt those costs can either be agreed, or failing that, steps can be taken to have them assessed by the court below, whether on a gross sum basis or otherwise.