CHUNG & KWAN, SOLICITORS (A FIRM) v. GOLDEN SAND TRADING LTD

DCCJ1718/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1718 OF 2012

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JUDGMENT

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Introduction

1.  This is a claim for outstanding legal fees in the sum of $715,899.57, the services of which were rendered to the defendant in High Court Companies Winding-Up Proceedings No HCCW85/2009 (“the WU”).

2.  The defendant alleges that the plaintiff was negligent in the conduct of the WU and claims a set-off in the sum of $839,060.57 being the amount of taxed costs the defendant was unable to recover from the WU.

3.  Central to the issues in dispute is whether or not an application for security for costs should be taken out in the WU.

Background

4.  The plaintiff is a firm of solicitors. Mr Peter Chan (“Chan”) is a partner of the firm. 

5.  The defendant and its associated or subsidiary companies had been Chan’s clients since 1997.  Mr Tso Man Tsun (“Tso”) was the chairman of the defendant and Mr Leung Po Tim Timmy (“Leung”) was the other director.

6.  In between 1997 and 2011, Chan had handled over 50 cases on behalf of the defendant or its associated companies.

7.  On about 17 February 2009, the WU was taken out by Golden Sand Contracting Company Limited (in Liquidation) (“GSC”).  GSC was a formerly subsidiary or associated company of the defendant.

8.  Chan was instructed to defend the defendant in the WU.  Mr Andrew Mak of counsel (“Mak”) was instructed by Chan.

9.  The trial of the WU took place on 21st January 2010.  As a result, the petition was dismissed by the High Court on 2 February 2010 with costs against GSC.

10.  By an Allocatur dated 21 March 2011, the costs of the defendant were taxed and allowed at $855,903.  Only $16,842.43 was recovered from the liquidators.

11.  The plaintiff issued a bill No.T-29050 to the defendant on 31 January 2012 for the balance of legal costs in the sum of $715,899.57.  Payment of which was refused by the defendant.

12.  The bill of the plaintiff is now subject to taxation by the Court of First Instance under HCMP 2339/2012.

The defendant’s case

13.  It is the defendant’s case that as soon as the plaintiff was instructed to act for the defendant in the WU in February 2009, the plaintiff was instructed to apply for security for costs.

14.  In 3 of the draft affidavits of Tso to be filed in the WU, they contained paragraphs in support of such application.

15.  However, in the 1^st affidavit of Tso which was filed on 24 April 2009, the reference relating to the application for security for costs was omitted.

16.  Despite repeated requests made by Tso and Leung to Chan and Mak, their concerns were not addressed to.

17.  Eventually, no application for security for costs was made on behalf of the defendant.

18.  The costs of the WU was taxed and allowed at $855,903.  The defendant only recovered $16,842.43 in costs leaving the sum of $839,060.57 unrecovered. 

19.  The defendant alleges that the plaintiff was negligent in not pursuing the security for costs application and therefore claims that it is entitled to a set-off in the sum of $839,060.57 against the claim of the plaintiff.

20.  In its amended defence, the defendant contended that it had paid a total sum of $651,020 to the plaintiff as costs on account as opposed to the sum of $465,200 as alleged by the plaintiff.

21.  At the trial, the defendant conceded that the amount of costs on account was in fact $465,200.

22.  The defendant also alleges that the bill of the plaintiff should be taxed by the Court of First Instance in accordance with the Legal Practitioners Ordinance.

23.  The defendant further alleges that the plaintiff has failed to comply with principle 4.06 of the Hong Kong Solicitors’ Guide to Professional Conduct (“the Guide”).

Issues

24.  The following issues are for determination by this trial:-

(1) whether the defendant gave specific instructions to the plaintiff to apply for security for costs in the WU;

(2) what was the reason for not taking out an application for security for costs;

(3) was the defendant aware of reason for not pursuing the application;

(4) whether the plaintiff was negligent in not pursuing an application for security for costs;

(5) whether the defendant is entitled to a set-off of $839,060.57; and

(6) whether non-compliance of principle 4.06 of the Guide would affect the defendant's liability.

Whether the defendant gave specific instructions to the plaintiff to apply for security for costs in the WU?

25.  It was Tso’s evidence that in or about February 2009, the defendant instructed the plaintiff to pursue security for costs alongside the main action in the WU. 

26.  Chan’s evidence is that right from the beginning of the WU, besides the merits of the proceedings were considered, one of the issues considered by Mak, himself and the defendant was the fact that GSC was a company in liquidation.  Therefore, they all had discussed from time to time the merits of applying for security for costs and also the timing of such application. 

27.  It was against this background that Chan wrote to Messrs Johnnie Yam, Jacky Lee & Co (“JYJL”) on 18 February 2009, the solicitors acting for GSC, demanded them to provide sufficient security on costs.  In the letter to JYJL dated 27 February 2009, the plaintiff provided a skeleton bill for their estimated costs up to the hearing of the petition.  Mak of counsel also in his e-mail to Chan dated 23 February 2009, mentioned that it might be worthwhile to consider applying for security for costs.

28.  Chan in his statement confirmed that in a meeting on 3 March 2009 with Mak of counsel, there must have discussion between Tso, Leung and Mak on the security for costs issue.

29.  I have no doubt that the issue of security for costs was raised and discussed by the parties.  However, whether the defendant had given specific instructions to the plaintiff to take out an application for security for costs is another question.

30.  Given the fact that the purpose the WU was to wind up the defendant, the main concern of Tso and Leung as its directors must be opposing the petition.  In my view, the security for costs application was only one of the tactics that could be deployed to resist the WU.  Whether it was a viable tactic depended on the circumstances of the case and therefore assessment by Mak and Chan as the legal representatives of the defendant was required.

31.  For reasons that will be appearing at paragraphs 42 to 67 of this judgment, I do not accept that the defendant had given specific instructions to the plaintiff to apply for security for costs in the WU.   

What was the reason for not taking out an application for security for costs?

32.  It is not in dispute that in the draft affidavit of Tso, reference was made that the defendant was applying for security for costs but in the final draft affidavit prepared by Mak, which was sent to Chan on 22 April 2009, such reference was deleted. 

33.  Chan explained that on about 9 April 2009, Mak advised orally that the reference was to be deleted because :-

(a) the evidence produced by the defendant at that stage did not support a meritorious application for security for costs;

(b) there was a chance to lose in such application with costs to be borne by the defendant;

(c) it might further delay the hearing of the WU and at that time the defendant wished to have a quick disposal of the WU;

(d) Mak of counsel might consider the merits of such application again after the second round of exchange of affidavits.

34.  In a conference with Tso on 20 April 2009, Chan explained to Tso that based on the advice of Mak, the application for security for costs should not be pursued at that stage.  Tso did not raise any query or objection.

35.  Chan further said that in the 1^st affidavit of Tso filed on 24 April 2009, no reference was made in relation to the application for security for costs.  Tso must be aware of this because he was fluent in English.  Chan denied that Tso had given him specific instructions to pursue an application for security for costs. 

36.  On the other hand, Tso said instructions were given to the plaintiff to demand for security for costs.  Mak was also instructed to give advice on the merits in applying for security for costs.

37.  In the draft 1^st affidavits of Tso which were sent to him on 25 and 26 February 2009 and 24 March 2009, reference was made therein in relation to an application for security for costs. 

38.  Furthermore, in the conferences on 3 March 2009, 6 and 8 April 2009 between with Mak and Chan, Tso and Leung raised the issue of security for costs and their concerns over the recovery of costs in the event that the petition was dismissed.  Tso also raised his concerns in a conference with Chan on 20 April 2009.

39.  However, in the 1^st affidavit of Tso which was filed on 24 April 2009, no reference was made in relation to security for costs.  Tso said their concerns were ignored with no explanation given.

40.  After April 2009, it was Leung who attended conferences with Mak and Chan.

41.  Leung said he attended conference with Mak and Chan on behalf of the defendant on 15 and 26 June 2009, 15 July 2009 and in the conference with Chan on 18 June 2009, 14, 16 and 23 July 2009, he repeatedly raised the issue of security for costs. However, he was told that it was not a priority.  Eventually, no application for security for costs was made.

42.  Mak was instructed by Chan to represent the defendant in the WU.  In the initial conference on 3 March 2009, he gave the preliminary advice that serious consideration should be given to applying for security for costs because according to Extramoney Ltd & Anr v Chan, Lai, Pang & Co. (a firm) [1990] 2 HKLR 268 at 273E and applied by Kwan J (as she then was ) in Grand Pacific Hotel Ltd v Leung Kai Man, HCCW 29/2001, 30 January 2004, it was well settled that where a company is in liquidation, it is presumed to be insolvent and will therefore be unable to pay costs. 

43.  However, after the initial conference, Mak formed the impression that the defendant’s case was a weak one.  The defendant was unable to provide sufficient documents and unable to provide satisfactory explanations on queries raised by the liquidators.  In the course of drafting Tso’s affidavit in opposition, it was also apparent to Mak that the defendant might not be able to show a positive net asset position.  The significance of this is that if the solvency of the defendant was raised as an issue, it would be detrimental to the defendant’s case.  Mak said he was accordingly instructed not to pursue the security for costs application in the 1^st affidavit of Tso which was filed in April 2009.

44.  Mak was not exactly clear as to when and how the decision of not pursuing the application was made.  He believed that it was the decision of either Tso or Leung who gave instructions at the conferences in June 2009.

45.  As a matter of strategy, according to Mak’s assessment, it was not advisable to take out an application for security for costs.  Even if the application is taken out, the court might still refuse the application on grounds that the impecuniosity of GSC was due to the defendant’s withdrawals and that the liquidators could easily show that it had a genuine and strong case.  In view of the difficulties of the defendant in providing explanations to the queries raised or expected to be raised by the liquidators, the viable tactic in defending the WU was to limit as far as possible the rounds of affirmations to be filed.  

46.  With hindsight, the strategy worked effectively in favour of the defendant because the learned Judge dismissed the petition and took the view that the defendant (as respondent to the WU) had no sufficient opportunity to answer the allegations made by the liquidators.

47.  In any event, Mak was of the view that security for costs issue was not of particular importance because at the time, there was serious concern on the merits of defending the petition.  Even if the security for costs issue was raised, he would have advised against it. 

48.  Further, Mak was told by Chan that Tso and/or Leung were concerned about the question of costs because ultimately, they would be the ones to finance the litigation. Therefore, they would prefer to spend the money on the hearing of the petition rather than on a satellite application such as an application for security for costs. 

49.  Whether or not to pursue the application for security for costs is a matter which involves not only legal, but also tactical and practical considerations.  

50.  Under cross-examination, Tso stressed that from his own experience, once it is established that the GSC is in liquidation, the application for security for costs would be granted as a matter of course.  That was the reason why he paid Chan $200,000 as costs on account, the sole purpose of which was to take out the application.

51.  I think the view taken by Tso is oversimplifying the legal aspect of the matter. I say this, of course, short of being critical of Tso as he is not legally trained.

52.  Section 357 of the old Companies Ordinance (which was applicable at the material time) gave the court power to order security where it appears by credible testimony that there is reason to believe that the company will be unable to pay costs. 

53.  Mr Lee for the defendant also suggested that as an alternative, Order 23 rule 1(b) of the Rules of the High Court is also applicable.  I have reservation as to the applicability of the rule as it applies to the case of a nominal plaintiff who is suing for the benefit of some other person.  Be that as it may, the principles governing the exercise of the discretion of the court are the same.  

54.  It is up to the applicant to establish by credible evidence that the plaintiff would be unable to pay the defendant's costs.  Once the threshold is met, the court shall have a complete discretion as to whether or not to order security: see the judgment of To J in E-Global Ltd v Trenda Ltd [2012] 2 HKLRD 1211 at paragraphs 8 and 9.

55.  In considering whether or not to exercise its discretion to order security, there is a set of governing principles which the court should bear in mind.  To err on the side of excess, the principles are summarised in the judgment of Peter Gibson LJ in Keary Development Ltd v Tarmac Construction Ltd & Anor [1995] 3 All ER 534 at 539-540 and adopted in Wing Hing Provision, Wine & Spirits Trading Co Ltd v Hanjin Shipping Co Ltd [1998] 4 HKC 461 at 464 A-F:-

“1. The court has a complete discretion whether to order security, and accordingly it will act in the light of all the relevant circumstances.

2. The possibility or probability that the plaintiff company will be deterred from pursuing its claim by an order for security is not without more a sufficient reason for not ordering security.

3. The court must carry out a balancing exercise. On the one hand it must weigh the injustice to the plaintiff if prevented from pursuing a proper claim by an order for security. Against that, it must weigh the injustice to the defendant if no security is ordered and the defendant finds himself unable to recover costs from the plaintiff in due course.

4. In considering all the circumstances, the court will have regard to the plaintiff company’s prospects of success. But it should not go into the merits in detail unless it can clearly be demonstrated that there is a high degree of probability of success or failure.

5. The court may order any amount up to the full amount claimed by way of security, provided that it is more than a simply nominal sum; it is not bound to order a substantial amount.

6. Before refusing to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that, in all the circumstances, it is probable that the claim would be stifled.  There may be cases where this can properly be inferred without direct evidence.  The court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested parties.  It is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing the litigation.”

56.  Hence, even though the threshold of inability to pay costs is met, the exercise of the court’s discretion would still depend upon a number of factors.  The order for security is not made upon proof of inability to pay costs.  It is not as simple as what Tso had thought.

57.  In respect of the legal aspect of the application, Mak took the view that the defendant’s case is a weak one.  GSC could easily establish a genuine and strong case, which could have an impact on court in the exercise of discretion and hence the chance of success of the application.

58.  Further than that, there were other considerations Mak had to take into account.  As a matter of tactic, Mak was of the opinion that due to the defendant’s lack of explanation to the liquidators’ queries, there should be as few rounds of affidavits as possible.  In the end, the tactic paid off as the learned Judge took the view that the defendant did not have sufficient opportunity to answer the allegation made by the liquidators.

59.  Finally, practical consideration was also involved.  Mak was told by Chan that there was concern about the question of costs.  Such concern is reflected in the witness statement of Chan in which he stated that he was paid $200,000 as costs on account upon receiving instructions to defend the WU.  On 7 August 2009, he wrote to the defendant requesting payment of $200,000 as further costs on account.  A reminder was sent to the defendant on 15 December 2009.  The defendant was only able to pay the sum of $150,000 on 24 December 2009. 

60.  It seems that the defendant was short of fund during the period of time.  The question of how the limited resources of the defendant were to be utilized would naturally come into the picture.  It is therefore sensible to use the money on the hearing of the petition rather than on a satellite application, the chance of success of which was not high in Mak’s assessment.

61.  That being the case, there were sufficient reasons for Mak to advise against taking out an application for security for costs and I so find.  

62.  Both Tso and Leung complained that their repeated requests to pursue an application for security for costs were ignored and no explanation was given to them why such application was not taken out. 

63.  I do not accept their evidence. 

64.  Firstly, if it was their specific instructions to pursue the application, the fact that the reference to the application was omitted in the 1^st affidavit of Tso must not have escaped his attention.  In this regard, I reject Tso’s evidence that he only relied on a brief explanation of the contents of the affidavit by Chan and did not read the affidavit himself before signing.  By his own account, Tso has been doing business for over 20 years.  I do not believe that he would deal with his own affidavit which was for the purpose of opposing the winding up of his own company in such a care free manner. 

65.  Secondly, both Tso and Leung had attended many conferences with Mak and Chan from March to July 2009.  There is no dispute that the topic of security for costs was raised and discussed in those conferences.  If it was their specific instructions to take out an application for security for costs, they had had ample opportunity to bring home such request.  Such request could not be simply disregarded by Chan or Mak.  If it were the case, Chan was running the obvious risk of losing the defendant and its associated companies as his long time clients.  Indeed, if their specific instructions were not carried out by Chan, the defendant could and should have changed solicitors at any time.    

66.  As a matter of fact, the plaintiff represented the defendant in the WU until the conclusion of the matter.

67.  On balance, I accept the evidence of Chan and Mak as more credible and reliable.  I do not believe the evidence of Tso and Leung.

68.  I find as a fact that Chan was instructed by the defendant to defend the WU.  The issue of security for costs was raised and discussed at the initial stage when the 1^st affidavit of Tso was drafted by Mak.  Mak took the view that the application for security for costs should not be pursued in the interest of defending the petition.  Chan informed Tso of the advice of Mak before Tso sworn his 1^st affidavit.  Both Tso and Leung accepted the advice of Mak.  In view of the advice of Mak, it was the consensus of Chan, Tso and Leung that the application should not be pursued.  Therefore, no application was made throughout the whole proceedings.

Was the defendant aware of the reason for not pursuing the application?

69.  In the light of my finding of facts at paragraph 67 above, I would answer the question in the affirmative.

Whether the plaintiff was negligent in not pursuing an application for security for costs?

70.  The legal principles summarised by Stock J (as he then was) in Foshan Hua Da International Co v Johnson, Stokes & Master (a firm) [1999] 1 HKLRD 418 at 425-426 in relation to the obligations of a solicitor to his client are not in dispute:-

“(1) A retained solicitor owes a duty to his client, both in contract and tort. There arises, when a solicitor is engaged for reward, a contractual duty to exercise skill and care on behalf of his client. A solicitor is not expected or bound to know all the law, nor is he to be judged according to the standard which might be demonstrated by “a particularly meticulous and conscientious practitioner”. (See Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (a firm) [1979] Ch 384 at p 403) (“Principle 1”)

(2) The duty of a solicitor is “to exercise that reasonable degree of skill and care to be expected of a competent and reasonably experienced solicitor” (Clerk and Lindsell on Torts (17^th ed) para.8-81). “The test is what a reasonably competent practitioner would do having regard to the standard normally adopted in his profession.” (See Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (a firm) [1979] Ch 384 at p 403.) (“Principle 2”)

(3) If in the course of taking instructions a professional man like a solicitor learns of facts which reveal to him as a professional man the existence of obvious risks then he should do more than merely advise within the strict limits of his retainer. He should call attention to and advise upon the risks. (Per Lawton LJ in Boyce & Rendells [1983] EG 268 at p 272) (“Principle 3”)

(4) Where a solicitor is asked to advise upon one matter then, as a general rule, he is not obliged to advise on different points though related, unless the connection is so close and reliance placed in the solicitor to advise generally so obvious, that advice on related points may be required. (Clerk and Lindsell on Torts (17^th ed) para.8-89) (“Principle 4”)

(5) The duty of a solicitor might be affected by the experience or inexperience of the client, in the sense that a client inexperienced in the field in which he seeks advice is “entitled to expect the solicitor to take a much broader view of the scope of his retainer and his duties than will be the case with an experienced client.” (See Carradine Properties Ltd v DJ Freeman & Co (1985) 1 PN 41) (“Principle 5”)

(6) The standard of care to be expected of a professional man must be based on events as they occur in prospect and not in retrospect. Per Simon Brown LJ in Boston & Co v Roberts (unrep, The Times, 17 March 1995), who then cited Duchess of Argyll v Beuselinck [1972] 2 Llyod’s Rep 172 at p 185:-

In this world there are few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having of a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone of negligence.

(“Principle 6”)

(7) A solicitor is not, in the absence of unequivocal instructions and acceptance by him to do so, expected to advise upon the commercial good sense of a business proposition, whether he should or should not, as a matter of commercial advantage, proceed with a transaction, whether a transaction is or is not good business or prudent, although where it is evident that a client relies on the solicitor for more than legal advice, the solicitor may be under a duty to refer the client to an appropriate source or sources of information. (See Yager v Fishman & Co and Teff & Teff [1994] 1 All ER 552; Reeves v Thrings & Long [1996] PNLR 265; Clark Boyce v Mouat [1994] 1 AC 428). Indeed, “it is in general the client’s privilege if he so wishes to mismanage his affairs. He is entitled ... to lend on insufficient security, or to enter an unwise bargain if he so chooses. The solicitor has a duty to advise on the legal hazards of the transaction, but no more:-

It was the duty of the solicitor to inform and advise, ensuring that the information and advice was understood by the client. It was not part of his duty of care to force his advice on the client.

If that advice is disregarded he must carry out the client’s instructions or else determine the retainer”. (Jackson & Powell on Professional Negligence (4^th ed) para 4-92, citing Dutfield v Gilbert H Stephens & Sons [1988] Fam Law 474). (“Principle 7”)

(8) The onus of proving professional negligence over and above errors of judgment is a heavy one. (See Rondel v Worsley [1969] 1 AC 191) (“Principle 8”)”

71.  In the amended defence, the defendant pleaded the following particulars of negligence:-

(1) The plaintiff failed to formally and properly make an application for security for costs to protect the defendant in HCCW 85/2009. (“Ground 1”)

(2) The plaintiff failed to carry out the defendant’s instructions in failing to pursue an application for security for costs. (“Ground 2”)

(3) The plaintiff failed to properly advise the defendant on the issue of security for costs and the risk of not recovering litigation costs in the event of the dismissal of GSC’s petition. (“Ground 3”)

(4) The plaintiff failed to properly advise the defendant on the difficulty of obtaining a costs order against a liquidator personally. (“Ground 4”)

(5) The plaintiff removed references to an application for security for costs from the 1^st affidavit of Tso Man Tsun, Gordon, contrary to the defendant’s instructions. (“Ground 5”)

(6) The plaintiff failed to give any explanation to the defendant for the plaintiff's failure to apply for security for costs. (“Ground 6”)

Ground 2

72.  In its logical order, I would deal with Ground 2 first. 

73.  I have already found that the defendant did not give specific instructions to the plaintiff to take out an application for security for costs.  I have also found that Tso and Leung accepted the advice of Mak that the application should not be pursued in the interest of defending the WU. 

Ground 1

74.  I have accepted the reasons put forward by Mak for not pursuing an application for security for costs.

75.  The fact that no mention was made in relation to the application in the 1^st affidavit of Tso filed on 24 April 2009 is an indication that Chan, as the instructing solicitor, also shared the view of Mak.

76.  The standard required of Chan is that of a competent and reasonably experienced solicitor: see Principle 2.  As a prudent solicitor, Chan must consider if the application would yield a positive result.  If a bad judgment is made, an unsuccessful application would result in costs against the defendant.  In this regard, Chan should (as he did) consult the advice of Mak.  I accept that what Chan did was what a reasonably competent practitioner would do in the circumstances of this case.

77.  Mr Lee for the defendant cited the case of Martin Boston & Co v Roberts & Ors [1996] 1 PNLR 45 presumably in support of the proposition that the plaintiff should have applied for security for costs.  In his closing submission, Mr Lee submitted that in that case “a firm of solicitors was held liable to their client when they did not apply for security for costs but instead advised the acceptance of a doubtful guarantee” and said no more.  Mr Lee seems to have misread the facts of that case.  In that case, one day before the hearing of an appeal against the refusal by the district registrar to order the nominal plaintiff to give security, the solicitor for the defendant, without first obtaining instructions, accepted an unsecured guarantee which was later proved to be worthless. The majority of the English Court of Appeal held that the standard of the solicitor fell below that to be expected of reasonably competent litigation solicitors.  It can readily be seen that the facts of Martin Boston are distinguishable.  The decision made by the solicitor in that case was without instructions from his client.  Furthermore, the solicitor had failed to obtain a secured guarantee thus exposing the client to foreseeable risk.  With respect, I do not see how Martin Boston can assist the defendant. 

Ground 3

78.  I have already found that the issue of security for costs was raised and discussed by Mak, Chan, Tso and Leung during the initial stage when the 1^st affidavit of Tso was drafted.

79.  At the material time, the plaintiff was instructed to defend the WU.  The main concern of Tso and Leung was opposing the winding up of their company.  In the opinion of Mak, the defendant’s case was a weak one.  Though the question of recovery of costs in the event of dismissal of the petition was a remotely related issue, that must be a very minor issue so much so that neither Chan nor Mak was obliged to advise: see Principle 4.

Ground 4

80.  At the stage when the defendant was defending the WU, the question of recovering costs against the liquidators was even more remote.  Therefore, the question did not arise at that stage and neither Chan nor Mak was obliged to give advice: see Principle 4.

81.  As a matter of fact, such question only arose after the delivery of the judgment of Kwan JA (sitting as an additional Judge of the Court of First Instance) dismissing the petition with costs to the defendant on 4 February 2010.

82.  According to Chan, he was instructed by the defendant on 12 and 23 February 2010 to consider how to claim against the liquidators for damages.  In this respect, he was instructed to brief another counsel, Anthony Chow (“Chow”).  A conference with Chow was held on 15 May 2010 in which Tso was advised that there was a chance to sue the liquidators for abuse of court process.  However, the defendant needed to prove malice.  The defendant was asked to provide further documents for Chow’s consideration.

83.  Tso’s account of the events is somewhat illogical.  In his witness statement, he said the defendant's costs was taxed and allowed at $855,903 and the Allocatur was issued on 21 March 2011.  As the defendant was only able to recover $16,842.43 on costs, the plaintiff suggested that the defendant would still be entitled to seek legal costs from the liquidators personally.  It was on that basis that Chow was instructed and a conference with Chow was held on 18 May 2010, which is 10 months before the issue of the Allocatur.

84.  Chan’s evidence was supported by contemporaneous documents such as his attendance notes.  I accept his evidence. I do not believe Tso’s evidence as being illogical and inherently improbable.

85.  I find that Chan had acted timely in response to the defendant’s instructions to explore the possibility of suing the liquidators personally.  I do not accept that Chan was negligent.

Ground 5

86.  I have already found that the defendant did not give specific instructions to the plaintiff to apply for security for costs.  The omission was the result of Tso accepting the advice of Mak in not pursuing the security for costs application.

87.  I do not accept that the plaintiff was negligent.

Ground 6

88.  I have already found that Tso was informed of the reasons why an application for security for costs was not appropriate.

89.  I do not accept that the plaintiff was negligent.

Whether the defendant is entitled to a set-off of $839,060.57?

90.  I do not find that the plaintiff had been negligent.

91.  It appears that the defendant is assuming that if an application for security for costs was made, the court would order security covering the defendant’s costs in the WU. 

92.  As discussed above, the court has a complete discretion as to whether or not to order security.  Even if the court is minded to order security, the quantum of security is also within the discretion of the court.  More often than not, a discount has to be given particularly when the application is made at the early stage of the proceedings: see Hong Kong Civil Procedure 2014 Vol 1 at 23/3/32.  Therefore, the assumption of the defendant is unrealistic.

93.  Accordingly, I would answer this question in the negative.

Whether non-compliance of principle 4.06 of the Guide would affect the defendant’s liability?

94.  In the amended defence at paragraph 13, the defendant pleaded the following:-

“Further and/or in the alternative, the plaintiff has failed to comply with the requirements under Chapter 4 of the Hong Kong Solicitors’ Guide to Professional Conduct in that the defendant failed to inform the defendant “on an appropriately regular basis the approximate amount of the costs to date,” contrary to principle 4.06.”

95.  No evidence was led on this allegation at the trial.  Mr Lee for the defendant neither cross-examined Chan nor made any submission on this point at the trial.

96.  I do not see there is substance in it.

Conclusion

97.  In view of my findings above, I find that the defendant is liable to pay the plaintiff its outstanding legal costs without set-off.

98.  However, I am given to understand that the plaintiff’s bill is now subject to taxation in the Court of First Instance under HCMP 2339/2012.  Both parties agreed that the defendant’s liability should be subject to the result of taxation.

Order

99.  Accordingly, I give judgment in favour of the plaintiff in the following terms which are agreed upon by both parties:-

“Judgment be entered in favour of the plaintiff against the defendant at such sum to be found due by the taxing master under HCMP 2339/2012 less costs on account in the sum of $465,200 and the sum of $16,842.43 being costs recovered from the liquidators.”

Interest

100.  The defendant shall pay interest on the sum found due to the plaintiff at half judgment rate from the date of writ of summons to the date of judgment and thereafter at judgment rate to the date of payment.

Costs

101.  Costs should follow the event.  I make an order nisi that the defendant shall pay the plaintiff costs of this action with certificate for counsel.

102.  The order nisi shall become absolute upon the expiration of 14 days in the absence of any application to vary the same.