CH'NG POH v. MESSRS CHENG, YEUNG & CO. (a firm)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 87
(Civil)

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J U D G M E N T

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Nazareth, V.-P.:

The appeal

1. This is an appeal by the plaintiff against the order of Sears J dated 11 February 1998. It was ordered that the plaintiff's originating summons dated 12 February 1997 i.e. a year earlier, be dismissed and the plaintiff pay the defendant's costs of that day. The originating summons had sought an injunction restraining the defendants, a firm of solicitors, from acting as solicitors in IHD's action against inter alios the plaintiff broadly on the ground that it had acted for him earlier in related matters for China Everbright - IHD Pacific Ltd ("IHD"). IHD is the plaintiff in High Court Action No. A12837 of 1995 in which the plaintiff is a defendant. IHD withdrew its instructions from the defendant on 12 February 1997, the date the originating summons was taken out and on the same day filed a Notice of Change of Solicitors and served it on the plaintiff, but significantly after the plaintiff's originating summons dated 12 February 1997, was served on the defendant. The originating summons came to be considered by Sears J on 21 February 1997, in the context also of a Mareva injunction sought and obtained by IHD. By then the defendant had ceased to act for IHD, and counsel for the defendant took the point that the originating summons was academic. There remained however the question of the costs that had already been incurred. Sears J gave directions for the affidavits to be filed and the matter to be heard in open court. It came back to him a year later on 11 February 1998. He observed that he was being asked to try an academic point. He considered it wrong to entertain the matter just for costs. As mentioned, he accordingly dismissed the summons and made the order now appealed.

2. It is indicative of the somewhat diffuse limits of the issues in the appeal, that counsel were not able to agree them. It is helpful in the particular circumstances to have a quick look at the background to the matter.

The facts

3. The facts averred and relied upon by the plaintiff go back some years. The plaintiff became deputy chairman and Chief Executive Officer of IHD, and acquired a controlling interest in August 1985. In January 1986 he became chairman. In October 1985 he had got to know a Mr Tong, a solicitor who has been a consultant to the defendant firm since 1984. Shortly after the plaintiff got to know Mr Tong, he instructed the defendant to act for him in a personal matter and in January 1986 to act for IHD in Action CL1/86 instituted by IHD against one C.H. Low, Ka Wah Bank and others. The plaintiff says that the seven defendants in that case had perpetrated a fraud upon IHD and that it was upon his discovery of the fraud that he caused Action CL1/86 to be instituted against the seven defendants. In connection with that action, he had a 3-day interview with the police when he was accompanied by Mr Tong, and a Mr Clarence Chui, then a partner and now also a consultant to the defendant. Mr Tong at that time was a member of the Executive Committee of IHD. In 1986 C.H. Low's companies brought an action against the plaintiff and others alleging a conspiracy on their part. The plaintiff says that the defendant acted for him personally in two matters in 1987. He claims that in the same year he sold 4 million shares at a discount to Mr Tong at his request and subsequently another 30 million to people introduced by Mr Tong and his associates with the latter receiving commission paid by the plaintiff. He says the defendant again acted for him in 1988, in respect of his service contract with IHD.

4. The plaintiff was arrested by the ICAC in 1992. He ceased to be chairman of IHD in 1993. He points to documentary evidence that the defendant acted for him in 1993. In July 1994 the plaintiff was convicted and sentenced to a term of 5 years imprisonment which was subsequently reduced to 4 years on appeal. His chairmanship of IHD was voluntarily suspended. He points to correspondence between his solicitors and the defendant protesting about the defendant advising IHD against him between August and October 1995. In December 1995, IHD commenced proceedings against the plaintiff with the defendant acting as its solicitors, and obtained a Mareva injunction against the plaintiff. The latter resulted in the plaintiff's solicitors ceasing to act for him because of lack of funds. The plaintiff thereupon personally attempted to prevent the defendant acting for IHD on the basis of conflict of interest. Later, it is said, his wife obtained a loan and in that way the plaintiff was able to again retain solicitors. Written requests and demands were made of the defendant that it cease to act for IHD without avail. Indeed there was no reply to the final two letters. The defendant's stance was that it had earlier acted for IHD and not the plaintiff. The plaintiff then took out his originating summons on 12 February 1997.

The proceedings below

5. On the same day that the plaintiff's originating summons was issued, IHD filed a Notice of Change of Solicitors, but did not serve it on the plaintiff until after his summons had issued. The originating summons came to be considered by Sears J on 21 February 1997 in the context of the Mareva injunction that had been obtained by IHD. At the end of the hearing on the Mareva injunction, counsel for the plaintiff asked what was to happen to the originating summons. Defendant's counsel said it was academic; plaintiff's counsel responded that there was the question of the substantial costs that had been incurred. Sears J gave directions that affidavits were to be filed and the matter heard in open court.

6. It came before him a year later, on 11 February 1998.

The judgment

7. In his judgment dismissing the originating summons on 11 February 1998, Sears J referred to the plaintiff's conviction on one count of conspiracy to defraud and a second count of publishing a false statement relating to his acquisition of some 77 million shares in IHD, to the case turning on the circular flow of funds which went from the Ka Wah Bank of which Mr C.H. Low, one of the conspirators, was a director or in some similar position, to IHD and from IHD back to the Bank, amounting to $127m; that IHD then made a claim against the Bank and others for the return of $127m and that the defendant had acted for the plaintiff in some other matters. He continued:

"I heard last year, with leading counsel on both sides, a substantial application for the alteration of a Mareva injunction which had been granted by Seagroatt J and I heard two days of considerable argument over what I should do about that, and I gave my judgment.

At the end of this long hearing Mr Anthony Chan, who was the junior to Sir John Swaine in the Mareva, said that there was an originating summons and what should they do about that. Mr John Scott said that it was an academic point and Mr Chan said to me that there was a substantial issue as to costs. I confess I had not appreciated that the substantial issue as to costs was of a trivial sum-a few thousand dollars apparently-for the issue of an originating summons, and I was persuaded, I think against my better judgment, to make some directions as to what I thought was to be the hearing of this other matter to which I confess I had not really addressed my mind. ..."

But, the judge went on, in the context of the hearing on 11 February 1998 he had had the opportunity to look at the papers afresh. He referred then to the skeleton submissions that had been received and continued:

"... There does not appear to be a cause of action in the originating summons other than a claim for an injunction. At the time when it was served, there could not have been a cause of action against the defendant at any rate because they were no longer representing the defendant. The point was academic. The correspondence indicated the point was academic, but [the plaintiff] and his solicitors apparently were determined to get the costs of the originating summons which, as I have said, could only have been a few thousand dollars. ...

I am now being asked to try an academic point. I am being asked not to give a judgment at all on the injunction and in my view this is a misuse of the court's process. The court should not be used in this way to determine a point which is purely academic and appears to emanate from a determination by [the plaintiff] and his lawyers to get whatever sum of money they can out of Cheng, Yeung & Co. for the issue of this originating summons. I am certainly not going to try this academic point. ...

Having looked at these matters, in my judgment, it would be wrong for the court to try to make a judgment as it were 'in the sky' about what might have happened. It has never happened. They do not act for them. They did not act for them at the time the originating summons was issued. I think it is wrong of me to entertain an application which is an application just for costs. I therefore dismiss the Summons.

Costs

All the costs of and incidental to the previous hearing will be borne by both parties. The plaintiff do pay to the defendant costs for the appearance of counsel and solicitor at today's hearing, to be taxed if not agreed."

Counsel's submissions

8. Sir John Swaine SC who, with Mr Anthony Chan, appears for the plaintiff, suggests that there are two principal questions that have to be addressed. First, whether the judge was right in dismissing the originating summons; and second, whether the judge should not have tried the originating summons in order to determine whether the plaintiff was entitled to the costs of the originating summons.

9. For his part, Mr Yu SC submits that the primary question is rather whether the plaintiff was entitled as of right to insist upon a hearing of the originating summons in order to determine the question of costs. In the wake of this, he makes a number of ancillary submissions to which I shall come.

10. It is convenient to begin with the foregoing primary question posed by Mr Yu. It is posited upon what Mr Yu submits was the insistence on the plaintiff's behalf that he was entitled to have the originating summons heard and determined; and also for the prayer in the plaintiff's notice of appeal to this Court for an order "that the said originating summons be tried". It has to be said that at the earlier stages of the hearing of this appeal, Sir Swaine appeared to be contending that since Sears J had directed affidavits to be filed and the originating summons set down for hearing, the plaintiff had some sort of entitlement to trial of the originating summons. I cannot say that I was attracted by the latter submission. However, that said, it seems to me to have been nothing less than plain below and at the hearing of this appeal, that it was only in the context of endeavouring to secure his costs that the plaintiff wished to have his entitlement to take out the originating summons determined. In those circumstances there is no substance in the point and I reject any suggestion that such insistence on the originating summons being heard and determined justified the judge in summarily dismissing the originating summons.

11. There remained Mr Yu's ancillary point. He submits that upon the defendant's instructions being withdrawn by IHD, the plaintiff ceased to be entitled to seek any relief claimed in his originating summons and accordingly he had no right to insist upon it being heard and determined; moreover, that the plaintiff should have applied for leave to discontinue the summons and sought his costs in that context. Mr Yu relies upon the following three cases as illustrating that discontinuance was the proper procedure and practice: Inchroy Credit Corporation Ltd v Cheung Man-cheung [1992]1 HKLR 120; Standard Chartered Bank (HK) Trustee Ltd v Brogan [1990]2 HKC 560; and Trend Publishing (HK) Ltd v Vivien Chan & Co [1996]3 HKC 433. I do not see that these cases can provide support for anything more than the proposition that discontinuance may be the proper procedure and practice in some cases; I can find nothing that would have precluded the judge from refusing the injunction sought by the summons while nonetheless dealing with the matter of costs upon a notional or actual determination of the issue raised by the summons.

12. As to the judge declining to proceed to determine a question that had become academic, it is clear from the several authorities referred to by counsel, that the court does have a discretion to decline to do so, and likewise to proceed to deal only with the matter of costs. Thus, between them counsel drew our attention to cases that, it was decided, should not go on simply to deal with costs (see e.g. Stratford Ltd v Lindley [1969]1 WLR 1547); likewise to others, that demonstrate that the court may feel able to take a view of whether the application or claim would have succeeded (see R v Holderness Borough Council ex parte James Robert Developments Ltd (1991) 64 P&CR 100; Barrets & Baird (Wholesale) Ltd v Institution of Professional Civil Servants, 15 November 1988, unreported, per Henry J). Notwithstanding that the questions in proceedings may become academic, the costs incurred may suffice to sustain the proceedings at any rate for the purpose of having those costs determined. (See Ainsbury v Millington [1987]1 All ER 929, at 931 a-b per Lord Bridge; National Coal Board v Ridgway [1987] All ER 582, at 603 f-g.)

13. Having regard to the following consideration I do not find it necessary to canvass further the legal position and the authorities to which we were directed. The decisions of Sears J declining to address the merits of the originating summons, and generally to deny the plaintiff his costs, were both made upon the assumption that the costs involved were only a matter of a few thousand dollars. What the judge said at p.2 of his judgment was this:

"I confess I had not appreciated that the substantial issue as to costs was of a trivial sum-a few thousand dollars apparently-for the issue of an originating summons..."

Sir John submits, upon the basis of skeleton bill of costs that has been supplied to the defendant's solicitors, that the costs were of the order of $400,000. Even if that amount were substantially taxed down, it would still remain a very substantial sum. To have regarded the costs as only a few thousand dollars, can, accordingly, be seen to have been both a substantial and material error of fact, as a result of which, in my view, both the decision not to proceed to consider the merits of the summons or to take a view of that matter, and to have generally denied the appellant his costs cannot stand. The matter of costs will accordingly have to be determined afresh. That, in my view, would be more appropriately done by the Court of First Instance, for which purpose in my view, the matter should now be remitted. None of Mr Yu's other points, I am satisfied, undermine that conclusion. And having regard to it, I do not think it appropriate to express further views upon the matter.

14. I would accordingly allow the appeal, set aside the judge's order and remit the matter to the Court of First Instance for the matter of costs to be determined.

15. As to the costs of this appeal, I see no reason why they should not follow the event. I would accordingly make an order nisi that the appellant is to have his costs of the appeal and below.

Liu, J.A.:

16. The material facts are set out in the judgment of Mr Lord, the Vice-President. I need briefly say this: in his capacity of Chairman and Chief Executive of International Housing Development Limited (IHD), the plaintiff instructed the defendant firm as solicitors. It is claimed that the plaintiff imparted to the defendant firm his personal information in these instructions and that at the same time he had also personally consulted the defendant firm. In addition, the plaintiff had previously retained the defendant firm in litigation involving his own affairs. In sum, the plaintiff claimed that the defendant firm owed him a fiduciary duty as solicitors regarding his association and dealings with IHD.

17. After the plaintiff's arrest by ICAC on 12 December 1995, on the instructions of IHD the defendant firm caused to be instituted proceedings against him. A day earlier, on the same instructions of IHD, the defendant firm caused to be obtained an ex parte Mareva injunction against the plaintiff. Through his former solicitors in 1995, by himself in 1996 and again via his present solicitors in January 1997, the plaintiff requested the defendant firm to desist from acting for IHD but to no avail. Finally, on 12 February 1997, the plaintiff caused to be issued an originating summons seeking an injunction restraining the defendant firm from acting or continuing to act for IHD, described therein as China Bright-IHD Pacific Limited. On the same day, a notice of change of solicitors for IHD was filed but was not served on the plaintiff until after the issuance of his originating summons.

18. Sears, J. had given directions for the hearing of the originating summons. On the date fixed for hearing, the judge dismissed the summons peremptorily on the grounds that the injunction application had become an academic question, that costs incurred by the plaintiff were trivial, in the region of several thousand dollars and that it was wrong for the court "to try to make a judgment, as it were, 'in the sky' about what might have happened". Costs before the hearing were ordered to be borne by the parties as their respective own costs, with costs of the hearing be paid by the plaintiff. From that dismissal and order for costs, the plaintiff now appeals.

19. Sir John Swaine, leading counsel for the plaintiff, poses two questions for our consideration, viz. (1) whether or not the judge was wrong in dismissing the originating summons and (2) whether or not the judge should try the originating summons in order to determine the plaintiff's entitlement to costs. Counsel submits that on the alleged breach of professional confidence, the plaintiff's prayer for an injunction in the originating summons was well-founded and that the judge should have proceeded to determine the claimed costs for removing the defendant firm from acting for IHD, at least up to the issuance of the originating summons.

20. Mr Yu, S.C. for the defendant firm, invites us to consider a single question viz. whether the plaintiff was entitled as of right to insist on the hearing of the originating summons in order to determine the question of costs. The question as posed implies that the plaintiff unreasonably refused to put an end to the hearing save for arguments as to costs. Counsel argues that in addition to the merits as to the plaintiff's entitlement to demand the removal of the defendant firm and to issue the originating summons against them, the question of costs could have been otherwise decided on matters such as (a) whether the relief sought in the originating summons had become hypothetical, (b) whether the plaintiff had properly conducted himself in his flat refusal to discontinue the originating summon proceedings save as to costs, (c) whether time and expenses were wasted on pursuing an issue which had become academic and (d) whether the plaintiff's invitation to determine the merits of his alleged entitlement to an injunction had unfairly and quite unnecessarily driven the court from a mere exercise of discretion to having to make findings on fact. Counsel complains, in particular, of the relief sought in the plaintiff's Notice of Appeal for the originating summons to be "tried", but it is reasonably clear that what the plaintiff seeks in this appeal, is simply an order that the originating summons be tried for the purposes of determining claimed costs. Sir John Swaine must be right in that the plaintiff has not shifted from his original stance. The judge also noted that in his judgment: "Sir John Swaine has said 'Well, we what you to say that we were entitled to issue the originating summons.' That may be so, but when they issued it and served it, the solicitors were not acting."

21. Costs were not a mere several thousand dollars but as much as $400,000 up to the hearing of the originating summons. The question which the plaintiff invited the judge to decide, was whether he was justified to proceed to the stage of, at least, the issuance of the originating summons, thus incurring $400,000 costs.

22. A great many cases which the industry of counsel has brought to light are canvassed on the need to consider the merits of a litigant's legal basis for instituting his proceedings in determining the question of costs. It is axiomatic that no party will be given costs unless he has a good claim. It would suffice to make only a passing reference to the reported cases in which the hearing proceeded to trial solely on the question of costs in the absence of a live issue.

23. In R. v. Holderness Borough Council, Ex parte James Robert Developments Ltd., (1991) 64 P & C R 100 where the hearing of an application for judicial review was rendered unnecessary by the granting of a planning permission, the application heard by Popplewell, J. was in relation to costs. The basis on which judicial review was applied for was sought to be justified. At p. 104 the judge took the view that he would not have granted judicial review and consequently declined to award costs. In National Coal Board v. Ridgway, [1987] 3 ALL ER 582 at p. 604g, Bingham C.J., then in the Court of Appeal, observed :

"........ no agreement had been reached concerning the costs of the appeal, and it would seem that that of itself provides sufficient lis to keep the appeal alive."

In Meade v. Haringey London Borough Council, [1979] 1 WLR 637, at p.645F to p.649D, after the shut schools were re-opened and an interim injunction was no longer required, Lord Denning M.R. gave the following as one of his reasons for proceeding with the appeal :

"the costs of the legal proceedings would depend on whether the parents were justified or not in making their applications [for injunctions and declarations, including the interim injunction]".

Costs were ordered to be costs in the cause. See p.658H. In Ainsbury v. Millington, [1987] 1 ALL ER 929, at p.931a, Lord Bridge concluded that

"litigation [might] sometimes be properly continued for the sole purpose of resolving an issue as to costs when all other matters in dispute [had] been resolved."

24. It is argued by Mr Yu that of all the factors including those set out in (a) - (d) above, the plaintiff should not have elected to focus on merits of the plaintiff's entitlement to remove the defendant firm from acting for IHD. This court is alerted to the further fact that the defendant firm did not choose to leave IHD but was replaced on instructions. However, counsel concedes that in the overall consideration of costs, regard would in any event have to be paid by the court to these other factors for exercising its discretion.

25. It would seem that in considering the plaintiff's claim as to costs up to, at least, the institution of the originating summons, the court must inevitably decide whether or not the plaintiff was entitled to demand the removal of the defendant firm as solicitors for IHD and to institute the originating summons against them. Granted that there may well be very little difference between a trial on the originating summons and a hearing to resolve the plaintiff's disputed entitlement to keep the defendant firm off the record as solicitors for IHD, it was nevertheless incumbent on the plaintiff to demonstrate that he had merits in bringing the defendant firm to book. In my view, the judge must proceed to hear the originating summons with the view to resolving the question as to costs. Costs incurred up to, at least, the institution of the originating summons were not a hypothetical question. The amount was not trivial. The plaintiff was entitled to have his claim for costs adjudicated. Whether or not the plaintiff ought to have discontinued before proceeded to recoup himself for his $400,000 wasted costs was of itself a sufficient issue which called for a decision from the judge. There was no abuse in prosecuting the originating summons for determining the incidence of costs and the court's inherent jurisdiction could not be invoked to dismiss it.

26. The judge's order for costs was made on a wholly erroneous basis. The order was made consequential upon an adopted approach which is fundamentally wrong. His discretion in awarding costs was, in effect, left unexercised. If the costs order made by the judge could be regarded as discrete and the plaintiff's complaint against the costs order an appeal "as to costs only" as debated in Wheeler v. Summerfield [1966] 2 QB 94, at pp.106, 107, by setting out on an erroneous footing the judge must have wholly failed to exercise his discretion in costs. See Scherer v. Counting Instruments Ltd., [1986] 1 WLR 615. The order for costs made may, in any case, be interfered with without leave. For all these reasons, the judge's order for costs cannot be sustained.

27. I would allow the appeal, set aside the judge's order including his order for costs and make an order nisi that the respondent do pay the appellant costs here and below. I would further order that the originating summons be heard by a judge of the Court of First Instance for the purpose of determining costs claimed by the plaintiff against the defendant firm.

Wong, J.:

28. I agree.

Nazareth, V.-P.:

29. The appeal is accordingly allowed and the order below set aside. The matter is remitted to the Court of First Instance for costs to be determined. There will an order nisi that the appellant is to have his costs of the appeal and below to be paid by the respondent.