HO LEE MAN v. WONG WAI KAI

H E A D N O T E

Since the legislation in Hong Kong empowers not only the court below but also the Court of Appeal itself to give leave to appeal as to costs only, there is no room here for the operation of the Scherer practice fashioned by the Court of Appeal in England to fill the gap left by the English legislation which empowers only the court below but not the Court of Appeal itself to give such leave.

IN THE COURT OF APPEAL

1992, No. 183
(Civil)

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J U D G M E N T

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Litton, J.A.:

1. The first judgment will be given by Mr Justice Bokhary.

Bokhary, J.A.:

2. This appeal or purported appeal by the plaintiff from an order made on September 24 last year by Miss Gladys Li Q.C. sitting as a Deputy Judge of the High Court relates only to costs left to her discretion.

3. Section 14(3)(e) of the Supreme Court Ordinance, Cap 4, provides that:

"No appeal shall lie ... without the leave of the court or tribunal in question or of the Court of Appeal, from an order of the High Court or any other court or tribunal ... relating only to costs which are by law left to the discretion of the court or tribunal".

4. The plaintiff has not obtained - indeed he did not even seek - leave from the High Court. And he submits that he does not need leave from this Court either. In adopting that stance, he relies on what is described in the 1993 Supreme Court Practice, Vol. 1, p. 930, note 59/1/31 as the Scherer principle, which principle is described thus in that note:

"No appeal lies without the leave of the court or tribunal making the order from an order of any court or tribunal as to costs only which by law are left to the discretion of the court or tribunal (S.C.A. 1981, s. 18(1)(f)).

If the court or judge has exercised this discretion judicially, on relevant material, and has not given leave to appeal, the Court of Appeal has no jurisdiction to entertain an appeal on costs only. Where, however, the judge has not exercised the discretion at all or has exercised it otherwise than judicially, the Court of Appeal can, notwithstanding s. 18(1)(f), entertain an appeal (Donald Campbell & Co. v. Pollak [1927] A.C. 732; Jones v. McKie [1964] 1 W.L.R. 960; [1964] 2 All E.R. 842, C.A. and Scherer v. Counting Systems Ltd. [1977] F.S.R. 569 [1986] 1 W.L.R. 615; [1986] 2 All E.R. 529 (note))."

Scherer v. Counting Instruments Ltd (which is the real name of the case wrongly cited as Scherer v. Counting Systems Ltd in the passage which I have just quoted) is a decision of the Court of Appeal in England reached in 1977 but reported as a note at [1986] 1 WLR 615. The court was there concerned with s. 31(1)(h) of the Supreme Court of Judicature (Consolidation) Act 1925 which provided that:

"no appeal shall lie without the leave of the court or judge making the order from an order of the High Court or any judge thereof ... as to costs only which by law are left to the discretion of the court".

That provision has been replaced by the one referred to in the passage from the Supreme Court Practice which I have just quoted, namely s. 18(1)(f) of the Supreme Court Act 1981 which provides that:

"No appeal shall lie to the Court of Appeal ... without the leave of the court or tribunal in question, from any order of the High Court or any court or tribunal ... relating only to costs which are by law left to the discretion of the court or tribunal".

5. Comparing our legislation with the English legislation, this fundamental difference stands out. The English legislation would, in the absence of a principle such as the Scherer principle, leave the dissatisfied party with no chance of redress whatsoever if the court or tribunal whose decision as to costs he seeks to have corrected on appeal withholds leave to appeal. Our legislation does nothing of the kind: for here such a party can seek leave from this Court, which can be granted by a single judge of this Court.

6. That provides a means of redress and, at the same time, a check upon misuse of the same.

7. The Court of Appeal in England, faced with legislation which did not confer upon it power to give leave, fashioned a means of redress in the form of the Scherer principle. Of course, it did not leave the matter there. It went on to lay down a procedure for preventing misuse of the means of redress which it had fashioned. That was done in Marshall v. Levine [1985] 1 WLR 814 in which Sir John Donaldson M.R. said this at p. 815:

"We have, however, been giving some thought to what is the best way in which to deal with such matters, and it seems to us that the proper course to adopt is for the registrar to allow such appeals to be entered but that, if it appears to him to be a case in which there is no prima facie right of appeal and in which, therefore, it would be unjust that the respondent should be troubled with the matter, it should be referred to the full court and the appellant should be told that he must satisfy the full court that there is an arguable case for hearing the appeal on the basis that the facts of the particular appeal might be brought within the Scherer principle. If the full court is satisfied that the matter is arguable, then it will order that the appeal be heard with the respondent present and, of course, the issue will then be whether or not it does fall within the exceptional Scherer doctrine. But if, on the other hand, the full court considers that the matter is not arguable, it will then dismiss the appeal on the grounds that it has no jurisdiction to hear it."

8. That procedure, as Lord Brandon said in Bankamerica Finance Ltd v. Nock [1988] 1 AC 1002 at p. 1008,

"was clearly designed to provide a filter for appeals of the kind here concerned, so as to eliminate unarguable cases at an early stage and by doing so save both time and costs".

9. So, by different routes - one laid down in plain terms by an Ordinance and the other fashioned by the courts within the broad framework of an Act - the courts here and in England have arrived at comparable but by no means identical results. Nothing further need to be said as to the differences in the two routes. As to the difference in their results, it suffices to quote this passage from the Supreme Court Practice, which immediately follows the passage therefrom which I have already quoted:

"To bring a case within the Scherer principle the appellant must show more than simply a ground upon which the Court of Appeal could, in an ordinary case, interfere with the exercise of a judge's discretion; the appellant must establish that the judge has not exercised his discretion at all or, if he has exercised it, that he has exercised it otherwise than judicially: Infabrics Ltd. v. Jaytex Ltd. [1987] F.S.R. 529".

10. There is no justification for importing - or smuggling - the Scherer principle or procedure into Hong Kong. There is simply no need. We have a different means of redress and a different check upon misuse. Both are laid down very clearly by statute. What is more, as we have seen, there are cases in which an appellate court could interfere in the ordinary way but which cannot be brought within the Scherer principle. So such importation would, quite apart from anything else, cut down access to this Court as provided by statute.

11. There is a decision of another division of this Court, Prudential Enterprises Ltd v. P.H. Shek Ltd [1990] 2 HKLR 79 where the appellant invoked the Scherer principle and the Court appears to have applied it without argument against that course since, it would seem, the respondent there was content that the appeal proceed on that basis because of the high threshold for interference which that principle carries.

12. The decision in Marshall v. Levine (supra) was not considered in the Prudential Case (supra) and the Court there did not proceed on the basis of the Scherer procedure. Since the principle and the procedure are inseparable components of the same practice, it is impossible to view the decision in the Prudential Case (supra) as any attempt to import either into Hong Kong.

13. I am bound to say that I was not surprised when we heard from Mr Thomas, who had not appeared below but appeared for the defendant before us, that in an unreported appeal in which he appeared subsequent to the Prudential Case (supra), a division of this Court, presided over by the judge who had presided in that case, dealt with the matter of leave in the way in which we are dealing with it in the present case rather than by reference to the Scherer practice.

14. In the result, we this morning invited counsel for the plaintiff to make an application to us for leave to appeal. On any view, that put him in a better position than letting him proceed or attempt to proceed on the basis of the Scherer practice with the higher threshold which that course carries. And, without abandoning his argument on the applicability of the Scherer practice, counsel for the appellant made such application.

15. I turn now to the merits of the application for leave. It is necessary that I be circumspect in what I say since, regrettably, we are still at the interlocutory stage in this piece of litigation commenced as long ago as 1989, and the matter has yet to go to trial, which trial must not be trammelled by any observations made this afternoon unnecessary to what we have to decide.

16. The plaintiff and the defendant used to be partners. They are now in bitter dispute; and the dispute extends to the scope of the partnership business and the partnership's duration.

17. On February 17 last year, Master Yam commenced an account-taking exercise. Grave difficulties arose at once. The hearing before the Master reached its 6th day on June 26 last year, over four months after it commenced. On that day, the defendant asked the Master to adjourn the hearing, to order the plaintiff to serve a notice of his objections to the accounts furnished by the defendant, and to give the defendant an opportunity to serve a reply to such objections. The Master refused to do that. And the defendant brought an appeal against such refusal. That appeal came before a judge in chambers (myself as it happens) on July 8 last year, between the 8th and 9th day of the hearing before the Master. I dismissed the appeal, saying that I was not wholly at ease with what was going on before the Master but that more harm than good would come from intervening at that stage.

18. So matters resumed before the Master. But - not to any great surprise on my part I must confess - by July 27 last year, the 10th day of the hearing before the Master, everybody was agreed, for one reason or other, that such hearing had to end and that everything had to be adjourned to the judge before whom the action would eventually be heard. And the Master so ordered.

19. As to the costs, the Master awarded the plaintiff the costs of the abortive account-taking exercise.

20. That order as to costs was taken by the defendant on appeal to a judge in chambers. That appeal came before Deputy Judge Li, before whom it was argued on September 21 and 22 last year. On September 24 last year, the learned Deputy Judge delivered judgment, allowing the appeal and leaving each party to bear his own costs of the abortive account-taking exercise.

21. The plaintiff before us seeks restoration of the Master's award of costs in his favour. The order by which the account-taking exercise was constituted, namely Master Woolley's order dated May 2, 1991, was viewed by the learned Deputy Judge as "the source of most of the problems which ensued"; and she said that the parties bore equal responsibility for the form of the order. I entirely agree. As she pointed out, when the parties came before Master Yam he had at once to invite the parties to agree issues. That initiative, coming as an invitation only, for it could be nothing else in the circumstances, and coming at the account-taking exercise itself, hardly sits well with the established procedure summarised in this passage in paragraph 14 in Vol. 1 of the latest edition of Atkin's Court Forms dealing with accounts:

"When the issues between the parties become clear it can be decided how best to resolve them. The trial of specific issues may be ordered, perhaps even on pleadings, or the parties may proceed to a hearing before the master, or, rarely, before the judge, for him to resolve the outstanding questions and make the appropriate order."

22. Eventually, the learned Deputy Judge said this:

"What then is the fair and just order for costs to make in the circumstances? The Defendant clearly made several vain attempts to have the issues defined in greater detail but only at the hearing. If that had been done before it would have avoided the waste of so many days of hearing. In the circumstances, it seems to me that both parties are equally to blame."

I wholly agree. It seems to me that these parties, hand-in-hand, rushed in where angels would fear to tread. And I do not see that it would be fair that either of them should have the costs of that against the other. Far from thinking that there is some basis for arguing that the learned Deputy Judge plainly went wrong, I think it is plain that her approach was sensible and that the result at which she arrived is just.

23. In my judgment, leave must be refused and therefore the appeal, as incompetent, must be dismissed.

Litton, J.A.:

24. The history of this case is appalling. A great deal of the court's time and legal costs have been unnecessarily incurred. The writ was issued nearly four years ago in May 1989 and yet in May 1993 here we are, in the Court of Appeal, dealing with an interlocutory order concerned purely with legal costs.

25. My Lord, Mr Justice Bokhary, has dealt with the background leading to this application now before us.

26. The application is by the plaintiff for leave to appeal against Deputy Judge Li's order of September 24, 1992, whereby in the exercise of her discretion she substituted her own order for costs in place of that of Master Yam. This was after two full days of argument following nine days of hearing before Master Yam. If the plaintiff's legal advisers had, after Deputy Judge Li had given judgment, paused in their tracks and asked themselves the simple question "would it be right, as a matter of common sense, to subject the parties to further substantial costs in the Court of Appeal on a pure question of costs?", I would have hoped that the answer would have been "no".

27. Section 14(3)(e) of the Supreme Court Ordinance is in clear terms. It aims to protect parties from the burden of costs and requires a proposed appellant to have the leave either of the court appealed against or of this Court before an appeal on a pure question of costs can be lodged. Everyone knows that once an appeal is on foot, then further substantial costs must necessarily be incurred in the preparation of the appeal bundles and later in briefing counsel. To protect parties from such burdens, a filtering process is introduced by statute. This appellant, doubtless upon legal advice, has simply bypassed the statutory process. Mr Yuen of counsel on his behalf says he is entitled to do this. The statutory filter can be bypassed, he says, because the so-called Scherer principle renders it unnecessary for the proposed appellant to seek leave before he lodges his appeal. This refers to Scherer v. Counting Instruments Ltd [1986] 1 WLR 615, to which my Lord, Mr Justice Bokhary has referred, as approved in Bankamerica Finance Ltd v. Nock [1988] 1 AC 1002.

28. Under the English statutory scheme embodied in the Supreme Court Act 1981 a party is permitted to appeal against an order for costs without leave in exceptional circumstances. Under the English statutory scheme the Court of Appeal is not itself empowered to give leave. Section 18(1)(f) of the Supreme Court Act 1981 confines the power of giving leave to the tribunal appealed against; and to prevent injustice in instances where such tribunal has gone hopelessly wrong - as where, for instance, it purports to exercise a discretion as to costs but in truth has not done so at all - the English courts have construed s. 18(1)(f) as permitting an appeal on costs in such instances without leave.

29. Our s. 14(3)(e) is differently worded. It empowers us to grant leave without any fetter as regards exceptional circumstances. Why the appellant in this case should have wished to squeeze through the narrow door opened, as Mr Yuen says, under the English statutory scheme by invoking the so-called Scherer principle when our own statute empowers this Court to grant leave on a broader basis has never been explained. Mr Yuen, it would appear, eventually perceived the logic of this point, and this morning sought leave from us to appeal, but not before the costs of a full-blown appeal have been incurred.

30. Looking at the judgment of the Deputy Judge, it seems to me wholly unarguable that she had acted without jurisdiction or had exercised her judgment erroneously. In the court below it was common ground that the appeal before her under Order 58 of the Rules of the Supreme Court was by way of a re-hearing and she was entitled to discharge the Master's order as to costs and exercise her own discretion if the facts before her so warranted. She took the view that the source of the problems before Master Yam stemmed from Master Woolley's order which was made on the plaintiff's application. Master Woolley's order was made some 21 months after the writ was issued. The pleadings had long since closed.

31. The plaintiff was, in his claim, saying in effect that the defendant had concealed the profits on nine transactions, the so-called "nine heads of production", which he ought to have disclosed and accounted for. These nine transactions were set out in an affirmation of the plaintiff's wife dated November 20, 1989, at paragraph 8, and incorporated in the statement of claim by reference. (I cannot understand why the pleader did not simply set out his averment in the body of the statement of claim rather than to incorporate, as he has done, parts of an affirmation in his pleading.) This averment was denied by the defendant.

32. Master Woolley's order of May 2, 1991, as relevant was to this effect:

"1. Hearing on determination of the account lodged by the defendant be restored before a master in an open court to the estimated length of hearing be five days".

The so-called "account lodged by the defendant" referred to in the order did not include the nine heads of production. On an objective reading of Master Woolley's order, I would have thought that the so-called "determination of the account lodged by the defendant", whatever that expression may mean, would not have included a determination of the issues raised in the pleadings, namely whether the defendant had concealed profits on nine transactions which he ought to have revealed in the partnership accounts lodged. And yet when counsel for the plaintiff embarked upon his cross-examination of the defendant, many of the questions were aimed at eliciting from the defendant information concerning the so-called "nine heads of production".

33. When the matter went before the Deputy Judge on appeal, the plaintiff's counsel appears to have backtracked. Leading counsel is recorded as saying that the plaintiff was not seeking to allege any "breach of duty" although he was seeking to establish the "true scope of the partnership business". These two propositions seem to me to amount to the same thing. By seeking to determine the "true scope" of the partnership business, the plaintiff was in effect saying that the full scope of that business, as operated by the defendant, had been concealed from the plaintiff, in other words, a breach of fiduciary duty by the defendant had occurred.

34. The same inconsistent stance was maintained in this Court in the course of Mr Yuen's argument this morning.

35. Order 43 rule 1 is plainly not designed to deal with disputes concerning the scope of a partnership business nor its duration. Until these matters are resolved at trial, it was wholly premature to embark upon an accounting exercise under that order and rule, as the plaintiff has sought to do.

36. Far from being satisfied that the Deputy Judge had or might have acted arbitrarily or erred by taking into account irrelevant considerations, as counsel for the plaintiff contends, it seems to me that the judge was right and had taken a robust common sense view of this case.

37. I say nothing about the behaviour of the defendant as a partner of the plaintiff liable to account for profits made by the partnership or by the use of partnership property. That is for the trial which, sad to say, is still to take place. But as a litigant, the defendant has been ill-used. He was subjected to days upon days of cross-examination before the Master on ill-defined issues on a summons which ought never to have been taken out. The judge took the view that for the abortive and unnecessary proceedings before the Master both parties were to blame.

38. Mr Yuen, in argument before us this morning, said in effect: but we managed to extract from the defendant information concerning transactions we knew nothing about. That, in my view, does not justify those proceedings. The summary process under Order 43 rule 1 is not designed as an instrument for specific discovery. The judge concluded in the exercise of her discretion that neither party should have their costs before Master Yam. That seems to me wholly within her discretion under Order 58.

39. I would therefore dismiss this application for leave to appeal.

40. Given the way the matter has been put this morning, it is, in my judgment, unnecessary for us to decide whether the so-called Scherer principle or, more accurately put, the practice developed by the English Court of Appeal to fill a lacuna in their law, is part of the laws of Hong Kong. But I observe that in Prudential Enterprise v. Shek [1992] HKLR 79 the division of this Court which dealt with the so-called Scherer principle did not seem to have had full argument on the point and, as my Lord, Mr Justice Bokhary has observed, the practice of the English court as set out inMarshall v. Levine was not referred to in that judgment. For my part, I find it impossible to see how the so-called Scherer principle can sit comfortably with s. 14(3)(e) of the Supreme Court Ordinance, which enables a litigant to seek leave from us if the court below should refuse leave. There is no lacuna in our law as there is in s. 18(1)(f) of the Supreme Court Act 1981. Nor can I see what advantage the grafting of the so-called principle onto our law gives the Hong Kong litigant, unless it be right that he should be entitled to vex the other side with a full-blown but hopeless appeal on a pure question of costs which is left to the discretion of the court below.

41. As to the costs in this Court, plainly the respondent, having been dragged here as the respondent to a full-blown appeal, must have all his costs. What concerns me is whether it be right that the plaintiff should personally be saddled with all the costs on both sides. If the plaintiff had taken the simple step of an application in writing in accordance with Order 59 rule 14(2)(b), renewed if necessary ex parte in open court under paragraph (2A), all the costs of preparing the bundles of documents, all the costs incurred by the defendant including the costs of briefing leading and junior counsel would have been avoided. Have these costs not been unnecessarily incurred and are those costs not wholly the responsibility of the plaintiff's solicitors? In my judgment, this is a case where this Court should require the solicitors to show cause why some such order for costs, as envisaged in Order 62 rule 8(1), should not be made against them.

Sears, J.:

42. The parties to this action, started nearly four years ago, were entitled to have the issues in their litigation decided by the court in a manner which is both expeditious and did not expose them to unnecessary financial penalties for their legal representation. This important principle appears to me to have been denied them by the actions of their lawyers. I also agree that this application for leave to appeal should be dismissed.

Litton, J.A.:

43. The application for leave to appeal and the appeal itself are therefore dismissed.