CRB (a firm) v. MARK RICHARD CHARLTON SUTHERLAND

HCA 1895/2020

[2023] HKCFI 2984

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1895 OF 2020

(Transferred from DCCJ 4528/2019)

_____________

_____________

_____________

D E C I S I O N

_____________

A.  INTRODUCTION

1.  There were before me the following summonses:

1.1  a summons of 7^th June 2023 issued by the Plaintiff (“CRB”) seeking summary judgment against the Defendant (“Mr Sutherland”) (“the O.14 Summons”);

1.2  a summons of 19^th October 2023 issued by Mr Sutherland, seeking to amend his Defence and Counterclaim (“the Withdrawn Summons”);

1.3  a summons of 20^th October 2023 issued by Mr Sutherland, seeking to withdraw the summons of 19^th October 2023 and to amend his Defence and Counterclaim (“the Amendment Summons”).

2.  At the hearing, I granted leave to Mr Sutherland to withdraw the Withdrawn Summons, with the costs of and occasioned by the summons to be paid by Mr Sutherland to CRB.

B.  THE BACKGROUND

3.  CRB, a firm of solicitors, acted for Mr Sutherland in Family Court proceedings from about October 2017 to March 2019. CRB delivered nine bills of costs for services rendered to Mr Sutherland (“the Bills”). Mr Sutherland has only paid one in full. Some $1.6m remains outstanding. CRB originally commenced proceedings in the District Court in DCCJ 4528/2019 (“the DC Action”) to recover the outstanding amount. In his Defence, Mr Sutherland denied liability and counterclaimed for breach of contractual and fiduciary duties and for negligence. On 9^th November 2020, the action was ordered to be transferred to the Court of First Instance, that is, the current proceedings.

4.  On 17^th September 2019, CRB applied for summary judgment in the DC Action. On 5^th August 2020, DDJ Hew handed down his decision, dismissing the application on the basis that there were triable issues as to whether, in order to become binding, the written retainer of CRB needed to be signed, at least by Mr Sutherland.

5.  Meanwhile, on 12^th December 2019, Mr Sutherland issued an originating summons in HCMP 2285/2019 (“the OS”), seeking an order that the Bills be taxed. On 4^th November 2022, Au-Yeung J handed down her judgment (“the OS Judgment”). She found that there was a retainer by conduct, and referred seven of the Bills to taxation upon fulfilment of certain conditions, including the full payment of those bills, and refusing leave to refer the eighth bill to taxation. It was further ordered that failure to comply with the conditions would bar Mr Sutherland from taxation of the relevant bills and that part of the OS would stand dismissed with costs to CRB.

6.  Mr Sutherland did not comply with the conditions, so he has been barred from referring any of the Bills to taxation.

7.  Mr Sutherland’s application for leave to appeal against the OS Judgment out of time was dismissed on 19^th May 2023: [2023] HKCFI 1383. His renewed application to the Court of Appeal has yet to be heard.

8.  In the light of the OS Judgment, CRB amended its Statement of Claim to plead a retainer by conduct, that CRB’s hourly rates had been agreed by conduct, and that Mr Sutherland was barred from referring the Bills to taxation. CRB also issued the O.14 Summons.

9.  In opposition to the O.14 Summons, Mr Sutherland filed his 10^th affidavit on 27^th September 2023 (“Sutherland 10^th”), saying that his claim for professional negligence against CRB would operate to extinguish or at least very significantly reduce the amount of costs claimable against him by way of set off. His main complaint against CRB was that he was not advised to take steps to ensure a speedy trial, that this undermined his litigation position and forced him to spend unnecessary time and costs on various interlocutory applications, and that as a result, he incurred various losses, including (a) the wasted costs of interlocutory hearings and appeals, (b) the costs ordered to be paid to Mr Sutherland’s ex-wife, (c) the costs of appointing various experts and associated legal costs.

10.  In the draft Amended Defence and Counterclaim (“ADCC”) appended to the Amendment Summons, the original Defence and Counterclaim was sought to be replaced with a fresh pleading, setting out four causes of action which were relied on way of both defence and counterclaim, namely in negligence (ADCC paragraphs 3.5 and 3.6), breach of contract (ADCC paragraphs 3.6 and 3.7), breach of fiduciary duties (ADCC paragraph 3.6), and restitution for total failure of consideration (ADCC paragraphs 3.8 and 3.9).

C.  THE AMENDMENT SUMMONS

11.  I deal with the Amendment Summons first, as although it was later in time than the O.14 Summons, logically I should first determine which defences can be relied on by Mr Sutherland in opposition to the O.14 Summons.

C1.  The applicable principles

12.  In Ketteman & Others v Hansel Properties Ltd & Others [1987] AC 189 at 212F to H, Lord Brandon said:

“First, all such amendments should be made as are necessary to enable the real questions in controversy between the parties to be decided. Secondly, amendments should not be refused solely because they have been made necessary by the honest fault or mistake of the party applying for leave to make them: it is not the function of the court to punish parties for mistakes which they have made in the conduct of their cases by deciding otherwise than in accordance with their rights. Thirdly, however blameworthy (short of bad faith) may have been a party's failure to plead the subject matter of a proposed amendment earlier, and however late the application for leave to make such amendment may have been, the application should, in general, be allowed, provided that allowing it will not prejudice the other party. Fourthly, there is no injustice to the other party if he can be compensated by appropriate orders as to costs.”

13.  In Topwell Corp Ltd v Kwan Kam Kee [2014] 5 HKLRD 1 at [39], Kwan JA said:

“The principles in Ketteman v Hansel Properties Ltd [1987] AC 189 at 212F-H on the exercise of discretion to allow or refuse an amendment of pleadings remain good law after the CJR … Having said that, in the exercise of discretion, the Court must of course have regard to the underlying objectives in O.1A of the RHC or of the RDC, so it cannot be assumed that once the principles in Ketteman are satisfied, the amendment would be allowed. The Court would need to balance all relevant factors to decide how its discretion should be exercised, if the application is made in circumstances offending one or more of the underlying objectives. In this particular case, a pertinent consideration in giving effect to the underlying objectives is that the Court "shall always recognise that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties" (O.1A r.2(2) of the RDC).”

14.  CRB initially opposed the Amendment Summons on the grounds that:[1]

14.1  the amendments were late;

14.2  the amendments sought to make new claims of unjust enrichment, fundamental breach of contract, and failure of consideration;

14.3  the amendments sought to re-open matters which had already been determined between the parties and were res judicata;[2]

14.4  the amendments were prolix and would require CRB to redraft its Reply and Defence to Counterclaim;

14.5  the amendments did not give rise to triable issues, as Mr Sutherland’s case was not significantly modified, the key allegation being that CRB was negligent in acting for Mr Sutherland in the Family Court proceedings.

C2.  Delay

15.  In relation to the issue of delay, Master Phoebe Man had already ordered on 8^th February 2023 that Mr Sutherland should apply for leave to amend his pleadings within 28 days, as he had indicated to the court that it was his intention to amend his Defence and Counterclaim. Yet no application was made until the Withdrawn Summons of 19^th October 2023 and the Amendment Summons one day later.

16.  Furthermore, I agree with Mr Sebastian Hughes,[3] counsel for Mr Sutherland, that it is stretching credulity for Mr Sutherland to seek to explain the delay in part in the grounds that although he had years of experience in practice as both a barrister and a solicitor, he was not aware, until advised in May 2023, that RHC O.18 required particulars of claims to be pleaded, including terms of contracts relied upon and particulars of the duty of care and negligence alleged.[4]

17.  Having said that, Mr Hughes accepted that:

17.1  Mr Sutherland’s claims of negligence, breach of contract (save for the complaint in ADCC paragraph 2.13.3 of breach of the implied term that Mr Sutherland did not have pay CRB’s fees if it was in breach of contract), and breach of fiduciary duty were not new, in that they had previously been pleaded, and that the proposed amendments were essentially particulars of the previous pleas;

17.2  the amendments did not substantially change the nature of the defence which Mr Sutherland sought to advance in opposition to the O.14 Summons, which was that he had a counterclaim against CRB for negligence.[5] That being the case, Mr Hughes did not identify any prejudice arising out of the lateness (aside from the issue of costs).

18.  I therefore do not consider that the amendments should be refused on the ground of delay alone.

C3.  Counterclaim for breach of contract

19.  In relation to the counterclaim for breach of contract, at the hearing, after some discussion, Mr Hughes indicated that his objection was limited to the new implied term pleaded at ADCC paragraph 2.13.3 (that Mr Sutherland only had to pay fees if CRB was not in breach of contract), as it was nonsensical, and the complaint at paragraph 3.7 (that CRB’s breach was so serious and fundamental that Mr Sutherland was not required to pay, but in fact entitled to seek damages), as the doctrine of fundamental breach was no longer good law.

20.  On the latter point, whilst it may be the case that the effectiveness of an exemption clause is now a matter of construction rather than an issue of whether there has been a fundamental breach of contract,[6] Mr Sutherland’s plea is simply that CRB’s breach of contract was so severe that he is not only not liable to pay CRB’s fees, but is entitled to claim damages; it has nothing to do with exemption clauses.

21.  As regards the implied term, I do not think that it could be said to be nonsensical such that no leave should be given to allow the case to be run. The essence of the term is that Mr Sutherland should not have pay for negligent advice. Objectively, this is not nonsensical. Cf. Lou Siu Ping & anor v Lam Tsz Man & anor [2012] 4 HKC 394 at [72].

C4. Counterclaim for breach of duty of care

22.  At the hearing, after some discussion, Mr Hughes’ final position was that did not object to the amendments as they were essentially particulars produced in support of the negligence being alleged, subject to the question of costs, as costs would be thrown away by reason of the amendment.

C5.  Counterclaim for breach of fiduciary duty

23.  At the hearing, Mr Hughes indicated that the amendments relating to the counterclaim for breach of fiduciary duty were not objected to other than on the grounds of delay (which I have addressed above).

C6.  Counterclaim for restitution for total failure of consideration

24.  In ADCC paragraphs 3.8 and 3.9, Mr Sutherland seeks to introduce a counterclaim for the return of the amount of $475,000 already paid to CRB, on the grounds that CRB’s breach of contract amounted to a total failure of consideration.[7] Counsel for CRB, Mr Kenneth KY Lam, accepted that this was a new cause of action not previously pleaded.

25.  Mr Sutherland submitted that this was unarguable, as legal services had indeed been provided by CRB, even if (as alleged) they were provided negligently.

26.  I agree. I note that in paragraph 8 of the Defendant’s Reply to the Plaintiff’s Defence to Counterclaim, Mr Sutherland pleaded that CRB provided legal services to him from about 3^rd October 2017 to 8^th February 2019. Paragraph 2.7 of the ADCC says that the legal services which Mr Sutherland engaged CRB to provide were to advise and act for him in the Family Court proceedings, including in relation to all related or incidental issues, such as financial arrangements, funding issues, and dealing with Mr Sutherland’s wife and children. Paragraphs 6.1 to 6.38 of the ADCC sets out the various complaints of negligence against CRB, but it is also clear from these that CRB did in fact provide the legal services which it was engaged to provide – it is just that Mr Sutherland considers these to have been deficient. Any performance of the actual thing promised under the contract is fatal to a claim for total failure of consideration, as the test is not whether the promisee has received a specific benefit, but whether the promisor has performed any part of the contractual duties in respect of which the payment is due. See Chitty on Contracts, 34^th ed., paragraph 32-063.

27.  Accordingly, those parts of the pleading which raise a claim for restitution of the $475,000 should be expunged.[8]  Leave to amend the Defence and Counterclaim to include references to such a claim is refused.

D.  THE O.14 SUMMONS

28.  As mentioned above, it has all along been Mr Sutherland’s case that CRB was negligent, and the issue of set-off was raised in paragraph 24 of the Defence and Counterclaim, and also in Sutherland 10^th paragraph 140 filed in opposition to the O.14 Summons.

29.  CRB’s skeleton submitted that Mr Sutherland’s claim was not an equitable set-off and not closely connected to CRB’s claim. It was instead a freestanding, or separate, claim for the negligent provision of services, and therefore did not “go directly to impeach the plaintiff’s demands” (cf. Selwood Ltd v Ice Far East (HK) Ltd, unreported, HCA 4403/2021, 27^th November 2001, DHCJ Lam (as he then was) at [9] to [12]). It therefore did not constitute a bona fide counterclaim connected with the grounds of defence, as described in class “(b)” of the four types of set-off and counterclaim considered in Shenzhen Baoming Ceramics Co Ltd v Companion-China Ltd [2000] 2 HKLRD 288 at 293E-294A (Keith JA).

30.  In Selwood Ltd, the plaintiff’s claim was for the unpaid price of goods sold and delivered; the defendant’s counterclaim was not that the goods were defective, but that the plaintiff was in breach of the parties’ distributorship agreement in supplying goods to other traders when the defendant was supposed to be exclusive distributor. There was no direct relationship between the plaintiff’s transactions with the other traders and the plaintiff’s sale of goods to the defendant. The court held that the mere fact that the various transactions took place under the umbrella of the same agreement was not by itself sufficient to allow set-off.

31.  The situation is very different in the present case. Mr Sutherland’s claim that CRB acted negligently in its provision of legal services to Mr Sutherland, thereby causing him (inter alia) to incur legal fees which he should not have had to incur, arises out of the very same subject matter as CRB’s claim for payment of fees for the provision of such services.

32.  At the hearing, Mr Hughes did not press the submission that the counterclaim did not fall within class “(b)” as described in Shenzhen Baoming Ceramics Co Ltd, but instead, argued that the lack of clarity between classes (b), (c) and (d) gave the court “the freedom to respond to the perceived justice of the individual case” (Shenzhen Baoming Ceramics Co Ltd at 293J), so that judgment should be entered against CRB, with no stay of execution pending trial of the counterclaim; alternatively, conditional leave could be granted to Mr Sutherland to defend CRB’s claim upon payment into court.

33.  Whilst it is the case that Mr Sutherland is barred from referring the Bills to taxation, he has nevertheless raised a counterclaim which arises out of the same subject matter as CRB’s claim and is connected to the grounds of defence, so that it cannot be said that there is no defence to the claim and judgment should be entered at this stage, with the counterclaim to be tried subsequently. As Au-Yeung J observed in the context of the context of Mr Sutherland’s application to tax the bills, the allegations of negligence raised cannot be dealt with summarily: OS Judgment at [48]. There are grounds for CRB to submit that the allegations of negligence are no more than “spurious, unsavoury, scandalous and cynical” attempts to postpone payment of fees, principally being Mr Sutherland’s delay in raising the allegations (OS Judgment at [55] to [56][9]). On the other hand, it cannot be said that the allegations are mere moonshine. For example, Mr Sutherland says[10] that CRB wrongly advised him to make various applications to vary the interim-interim access order made by the Family Court in September 2017, even though the judge had repeatedly expressed the view that the parties should have proceeded to an early trial instead and had indicated that dates would be available for the same. The reply affidavit filed by CRB[11] understandably does not descend into particulars to refute the allegations, but this also means that apart from Mr Sutherland’s delay in raising the allegations, which casts doubt on the veracity of the allegations in a general way, I am not able to conclude at this stage that the counterclaim is so doubtful that an order for payment in should be made. I am not persuaded that I should depart from dealing with the case in a way other than by giving unconditional leave to defend, in line with Shenzhen Baoming Ceramics Co Ltd.

E.  DISPOSITION

E1.  The Amendment Summons

34.  In respect of paragraph 1 of the Amendment Summons, I give leave to amend the Defence and Counterclaim to the extent indicated in paragraph 27 above. Mr Sutherland is to file and serve a signed revised Amended Defence and Counterclaim, together with a signed Statement of Truth, within 7 days.

35.  I make an order in respect of paragraphs 2 and 3 of the Amendment Summons, which give leave for the making of consequential amendments.

36.  Mr Lam does not dispute that Mr Sutherland should pay for the costs of the amendments, but argues that the amendment was unreasonably opposed, so that the costs of the argument should be paid by CRB.[12] Having regard to the inadequacy of the explanation for the delay in applying for the amendments, which application had been ordered to be made by 8^th March 2023, and in any event the length of the delay, I do not agree that the opposition was unreasonable. I order that the costs of and occasioned by the Amendment Summons, and the costs of the argument in relation to the Amendment Summons including the costs of half of the hearing,[13] be paid by Mr Sutherland to CRB, to be taxed if not agreed.

E2.  The O.14 Summons

37.  I give Mr Sutherland unconditional leave to defend, and order that costs be in the cause.