MA SO SO JOSEPHINE v. CHIN YUK LUN FRANCIS

FACV No. 15 of 2003

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 15 OF 2003 (CIVIL)

(ON APPEAL FROM CACV NO. 382 OF 2002)

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J U D G M E N T

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Chief Justice Li:

1.  The proper conduct of litigation by the legal profession is essential to the administration of justice.  This appeal concerns the position of solicitors.  They are officers of the court and owe duties to the court in the conduct of proceedings.  The court has an inherent jurisdiction to supervise their conduct and to impose sanctions where the solicitor concerned has acted in breach of his duties to the court.  The sanctions include ordering the solicitor concerned to be personally liable for the costs for which his client or an opposite party would have been responsible.  The jurisdiction to make such orders is commonly referred to as the wasted costs jurisdiction: Myers v Elman [1940] AC 282, Ridehalgh v Horsefield [1994] Ch 205 at 227B-E.

The rule

2.  The High Court’s wasted costs jurisdiction is regulated by O 62 r 8 of the Rules of the High Court Cap. 4 (“the rule”).  The rule provides:

“Subject to the following provisions of this rule, where in any proceedings costs are incurred improperly or without reasonable cause or are wasted by undue delay or by any other misconduct or default, the Court may make against any solicitor whom it considers to be responsible whether personally or through a servant or agent an order —

(a) disallowing the costs as between the solicitor and his client; and

(b) directing the solicitor to repay to his client costs which the client has been ordered to pay to other parties to the proceedings; or

(c) directing the solicitor personally to indemnify such other parties against costs payable by them.”

3.  The orders contemplated in (a) and (b) of the rule relate to the solicitor and his own client.  The order contemplated in (c) renders the solicitor liable to indemnify other parties to the proceedings against costs payable by them.  Before any order can be made, the solicitor must be given a reasonable opportunity to appear before the court and show cause why the order should not be made: Order 62 r 8(2).

4.  This appeal concerns the exercise of the jurisdiction under the rule.  The order made in this case was an order made against an opposite party’s solicitor under (c) of the rule.  It is appropriate to take this opportunity to lay down the principles which should guide the exercise of this jurisdiction, in relation to both a party’s own solicitor and an opposite party’s solicitor.  It is important to appreciate the purpose and nature of this jurisdiction as well as to recognise its limitations.  Whilst the rule provides the court with a useful and salutary sanction over solicitors, one must be careful not to allow the jurisdiction to give rise to costly satellite litigation.

In any proceedings

5.  The jurisdiction is only exercisable where the solicitor was responsible for conduct of the kind prescribed by the rule in any proceedings.  So, where the solicitor’s conduct complained of did not relate to any proceedings but related only to the conveyancing transaction which gave rise to subsequent proceedings, the jurisdiction was not engaged: AIE Co. Ltd v Kay Kam Yu [1997] HKLRD 161.  The rule is at present confined to solicitors, although its extension to barristers has been recommended.  See Recommendation 97 of the Final Report on Civil Justice Reform (March 2004) at 303.

The approach

6.  In considering the exercise of the jurisdiction under this rule, the court should approach the matter by dealing with the following questions:

(1)Whether the solicitor was responsible for (i) acting improperly or without reasonable cause or (ii) for undue delay or any other misconduct or default in any proceedings.

(2)Whether such conduct of the solicitor caused costs to be incurred or wasted.  This is a question of causation.  The causal link between the solicitor’s conduct and the extent of costs incurred or wasted must be established.

(3)Whether the court should exercise its discretion to make an order.

Compare Ridehalgh v Horsefield at [1994] Ch 205 at 231F.

Compensatory and punitive

7.  The jurisdiction is compensatory.  Any order made is directed towards compensating the party concerned, whether the solicitor’s own client or another party, for the costs incurred or wasted as a result of the solicitor’s conduct.  An order made under the rule could not exceed the amount of the costs so incurred or wasted.  But the jurisdiction should also be regarded as punitive.  In the absence of any order, the party concerned would be liable for the costs incurred or wasted and there would be no question of the solicitor being liable for such costs.  An order would, however, shift the burden of such costs from the party concerned to the solicitor.  To that extent, the order is in effect punitive.  See Harley v McDonald [2001] 2 AC 678 para 49, Davy-Chiesman v Davy-Chiesman [1984] Fam 48 at 61-2.

Summary jurisdiction

8.  It is fundamental to understand that the jurisdiction under the rule is a summary jurisdiction and should be strictly confined to questions which are apt for summary determination.  As Lord Hope pointed out in the Privy Council in  Harley v McDonald (at para 50):

“As a general rule allegations of breach of duty relating to the conduct of the case by a barrister or solicitor with a view to the making of a costs order should be confined strictly to questions which are apt for summary disposal by the court.  Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples.  The factual basis for the exercise of the jurisdiction in such circumstances is likely to be found in facts which are within judicial knowledge because the relevant events took place in court or are facts that can easily be verified.  Wasting the time of the court or an abuse of its processes which results in excessive or unnecessary cost to litigants can thus be dealt with summarily on agreed facts or after a brief inquiry if the facts are not all agreed.  Scope for the making of a costs order that will compensate as well as penalise is then likely to be found in making an order against the practitioner that will indemnify the opposing litigant against costs incurred as a result of the breach of duty that would otherwise not be recoverable.”

In that case, the Privy Council was concerned with the inherent jurisdiction of the courts of New Zealand which related to both barristers and solicitors.

9.  Questions which are apt for summary disposal are usually clear cases: Orchard v South Eastern Electricity Board [1987] 1 QB 565 at 572E.  As Lord Woolf observed in Wall v Lefever [1998] 1 FCR 605 at 614, it should be used where the need for such an order is “reasonably obvious”; when there is “a clear picture” of the fault of the lawyer.  In Ridehalgh v Horsefield [1994] Ch 205 at 238H, Sir Thomas Bingham MR (as he then was) observed that hearings under this summary jurisdiction should be measured in hours, and not in days or weeks and cautioned that the judges should be astute to control what threatens to become a new and costly form of satellite litigation.

10.  As the House of Lords observed in Medcalf v Mardell [2003] 1 AC 120 (at para 24) :

“Save in the clearest case, applications against the lawyers acting for an opposing party are unlikely to be apt for summary determination, since any hearing to investigate the conduct of a complex action is itself likely to be expensive and time-consuming .…”

Legal professional privilege

11.  Where a client applies for an order against his own solicitor, a waiver of privilege by the client in relation to all relevant matters will be implied by law: Medcalf v Mardell (at para 31); Yau Chiu Wah v Gold Chief Investment Ltd (No. 2) [2003] 3 HKC 91 (at para 40).  But where an order is sought by a party against an opposite party’s solicitor who would be the respondent, the position is fundamentally different.

12.  The opposite party may be unwilling to waive privilege.  Indeed, as was pointed out by Ma JA in Yau Chiu Wah (at para 40), the opposite party may not even wish to spend time or money to seek advice on any request to consider waiver.  In the absence of any waiver, the respondent solicitor would be unable to disclose what advice and warnings he had given to his client and what instructions were received from his client.  So, the respondent solicitor would find himself at a great disadvantage in defending the application.  In these circumstances, the court must make full allowance for his inability to tell the whole story.  Where there is room for doubt, the respondent solicitor is entitled to the benefit of it.  Only rarely will the court be able to make full allowance or to conclude that there is no room for doubt.  Further, the court must satisfy itself that it is in all the circumstances fair to make the order.  These considerations lead to the position stated in Medcalf v Mardell (at para 23) that:

“Only exceptionally could these exacting conditions be satisfied.  Where a wasted costs order is sought against a practitioner precluded by legal professional privilege from giving his full answer to the application, the court should not make an order unless, proceeding with extreme care, it is (a) satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order and (b) that it is in all the circumstances fair to make the order.”

Discretion

13.  Ultimately, it is important to appreciate that the summary jurisdiction under the rule is discretionary.  The court may make an order.  It is not bound to do so and the aggrieved party has no right to an order.

14.  The court’s discretion operates at two distinct stages.  Taking them in the reverse order, at the second stage, even where the court is satisfied that the solicitor had committed conduct of the kind prescribed in the rule and that such conduct had caused costs to be incurred or wasted, the court is not bound to make an order.  But where it declines in its discretion to make an order, it must give sustainable reasons: Ridehalgh v Horsefield at 239E-F.

15.  But the court’s discretion also operates at an earlier stage.  Initially, the court is invited by the applicant to call on the solicitor to show cause as required by O 62 r 8(2).  The court should not proceed automatically.  It has a discretion whether to proceed further and may decline to do so: Ridehalgh v Horsefield at 239D. 

16.  In exercising its discretion at this first stage, the court has to take into account the strength of the prima facie case shown by the applicant.  Obviously, the stronger the prima facie case shown, the greater is the inclination to proceed.  But a most important matter the court has to consider is the proportionality of the exercise.  The rule enables an aggrieved party to obtain compensation from the solicitor concerned for costs incurred or wasted.  The court should compare (i) the costs likely to be incurred in litigating the application under the rule and (ii) the amount of the costs sought.  The likely costs to be incurred in litigating the application would depend on many matters including the nature of the allegations, the extent to which there are undisputed facts and the requirements of procedural fairness (see para 22 below).  If such costs are likely to be relatively high compared to the amount of costs sought, the court should give this matter great weight and in an appropriate case, it would be a proper exercise of discretion to decide not to proceed further.  This would be so whether or not the applicant has a separate cause of action against the solicitor in respect of the conduct in question.

17.  The case of Re Freudiana Holdings Ltd, The Times, 4 December 1995 provides an extreme example of the court exercising its discretion at the first stage not to proceed further.  There, an application for wasted costs required a full scale relitigation of the issues in the original trial before another judge as the trial judge had disqualified himself having regard to the findings he had made.  The judge’s decision not to proceed further was affirmed by the Court of Appeal.

18.  In considering the exercise of its discretion at the first stage, the court should give the solicitor an opportunity to be heard.  At this juncture, it is open to the solicitor to maintain that he should not be called upon to show cause.  The court would be assisted by what the solicitor has to say on matters such as the requirements of procedural fairness, the extent to which facts relied on by the applicant are disputed and the likelihood of obtaining a waiver of privilege from his client where that may be involved.

Procedure

19.  An application against a solicitor under the rule should usually be dealt with after the conclusion of the proceedings in question.  This would avoid any risk of disruption of the proceedings.  In relation to an application against an opposite party’s solicitor, this would also avoid any risk of the application being used as a means of intimidation: Ridehalgh v Horsefield at 237H-238C.  The application should usually be heard by the judge who dealt with the proceedings, unless there are exceptional circumstances which render this inappropriate; for example where apparent bias is established: Bahai v Rashidian [1985] 1 WLR 1337.  Where the trial judge is disqualified, in exercising its discretion whether the application should proceed further before another judge, the court would have to take into account the likely increased costs as the judge will be starting afresh without any knowledge of the proceedings.

20.  Applications may be made in a variety of circumstances and the court must decide the appropriate procedure to be followed to meet the requirements of the individual case.  The procedure must of course be fair.  But having regard to the nature of the jurisdiction, it should be as simple and summary as fairness permits.

21.  The solicitor concerned should be informed of the allegations made against him: the conduct complained of, how such conduct caused costs to be incurred or wasted and all other circumstances relied on.  Depending on the nature of the allegations made, further directions may have to be considered.  Elaborate pleadings should be avoided.  So should the formal process of discovery: Ridehalgh v Horsefield at 238G-H.  The judge would have to consider how to treat the findings of fact already made in his judgment, whether affidavits should be ordered, and whether oral evidence should be directed, including the possible recall of witnesses in the proceedings.  It would have to be borne in mind that the solicitor was not a party to the proceedings and did not have the right to cross-examine or call evidence: Bahai v Rashidian at 1343B and 1344C-F.

22.  The requirements of procedural fairness are relevant to the exercise of the discretion at the first stage when deciding whether the application should be allowed to proceed further (see para 16 above).  As has been stated, the procedure should be as simple and summary as fairness permits.  But where procedural fairness requires an elaborate procedure which is likely to lead to costly litigation, the court would have to give the risk of disproportionate costs great weight in deciding whether to proceed further.  As has been stated, questions apt for summary disposal are usually clear cases.  The more elaborate the procedure, the more likely it is that the court may conclude that the matter is not appropriate for determination in this summary jurisdiction: Harley v McDonald (at para 54).

Burden of proof

23.  Where the court exercises its discretion at the first stage deciding that the application should proceed further, the burden of proof does not shift to the solicitor.  The burden remains on the applicant.  It is for him to satisfy the court that an order should be made.  However, where the court calls upon the solicitor to show cause, having satisfied itself that the applicant has shown a strong prima facie case, the evidential burden may, depending on the circumstances, shift to the solicitor: Ridehalgh v Horsefield at 239B; Bahai v Rashidian at 1342H-1343B.

English authorities

24.  It should be noted that English authorities have been extensively cited.  Originally, the English rule was the same as our rule.  In 1986, the English O 62 r 8 became O 62 r 11.  This rule omitted any reference to undue delay or any other misconduct or default.  Instead, it referred to the failure to conduct proceedings with reasonable competence and expedition.  In 1990, the English position was further changed with the Courts and Legal Services Act substituting a new s. 51 of the Supreme Court Act 1981.  The reach of this provision is much wider than our rule.  It covers not merely solicitors but any legal or other representative which in relation to a party is defined to mean any person exercising a right of audience or right to conduct litigation on his behalf.  Further, the definition of wasted costs covers any negligent act or omission on the part of the legal or other representative, in addition to any improper or unreasonable act or omission: See Ridehalgh v Horsefield at pp. 229-231 where the history of the English position is traced.  Although the reach of the English provision is much wider than our rule, the nature of the jurisdiction as a summary one is essentially similar.  This renders the English authorities of assistance notwithstanding the different English provision.

The present case

25.  Having considered the principles that should guide the exercise of the jurisdiction under the rule, one can turn to the present case.  The case against the solicitor, Ms Josephine Ma So So (the respondent to the application and the appellant in this appeal) was that she acted for the purchaser in pursuing a claim which she knew was false.  The order made against the solicitor by the Judge was affirmed by the Court of Appeal.  I have read the judgment of Mr Justice Ribeiro PJ and I agree with that judgment.

Mr Justice Bokhary PJ :

26.  I agree with the judgments of the Chief Justice and of Mr Justice Ribeiro PJ.

Mr Justice Chan PJ :

27.  I agree with the judgment of the Chief Justice and the judgment of Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ :

28.  The issues which arise in this appeal concern the scope and extent of a solicitor’s personal liability for the costs of proceedings under O 62 r 8 of the Rules of the High Court. 

29.  I have had the advantage of reading in draft the judgment of the Chief Justice.  I respectfully agree with it and gratefully adopt the legal principles formulated for application in this judgment.

The underlying transaction and the Writ Action

30.  The O 62 r 8 proceedings (or “wasted costs proceedings”) in this case arise in connection with an action instituted after failure of a property transaction.  The Respondents, a married couple, owned a flat on the Redhill peninsula which, on 4 October 1997, they contracted to sell to a company called Plus Lucky Limited (“the purchaser”).  The sale price was $15.1 million, of which $2,265,000 was paid by way of deposit.  Completion was agreed to take place before 5.00 pm on 20 March 1998 at the offices of the Respondents’ then solicitors, Messrs Poon and Cheung (“Poon & Cheung”).  The purchaser was part of a group of companies controlled by Mr Kwan Kwok Wah (“Mr Kwan”) and Mr Tong Sik Kan (“Mr Tong”).  The Appellant, Ms Josephine Ma, was at the time a solicitor with Messrs Ng and Shum (“Ng & Shum”), acting for the purchaser.  She left that firm and joined another in May 1998.

31.  As the contractual completion date approached, the Hong Kong property market fell sharply, with the value of the flat falling by at least $3 million.  Four days before completion was due, the purchaser requested what has been called “a formal completion”, as opposed to the far more usual “Hong Kong style completion”.  Although the parties duly met at the offices of Poon & Cheung on 20 March 1998, completion did not take place. 

32.  The significance of the request for a formal completion and the reasons why the transaction failed will require discussion in more detail later.  Broadly, the Respondents alleged that the deal fell through because the purchaser’s representatives refused to allow them or their mortgagee’s solicitor to inspect the original cashier orders required to be tendered in payment, offering instead a purported composite photocopy of the five instruments; and that the purchaser’s representatives then abruptly left the meeting, stating that the time for completion had expired.  On the other hand, the purchaser alleged that the true reason for the transaction’s failure was the Respondents’ unwarranted insistence on taking the cashier orders (which, according to the purchaser, they had duly been allowed to inspect) out of the room.

33.  Four days later, on 24 March 1998, the Appellant issued a Writ on the purchaser’s behalf, claiming the return of the deposit and reimbursement of sums paid by the purchaser by way of estate agent’s commission and stamp duty.  I shall refer to this as “the Writ Action”.  Ng & Shum, acting through the Appellant, were the solicitors on the record for the purchaser. 

34.  On 6 May 1998, the Respondents filed a Defence and Counterclaim denying the claim.  They alleged that they had always been ready, willing and able to complete and that it was the purchaser who had repudiated the contract by failing or refusing to pay or tender the balance of the purchase price.  They counterclaimed damages under various heads.

35.  On 19 May 1998, the Appellant amended the Statement of Claim to add a claim for certain costs and disbursements.  Then on 28 May 1998, Ng & Shum came off the record in the Writ Action, with Messrs C W Heung & Partners taking over as solicitors for the purchaser.  The Appellant, had therefore acted as the purchaser’s solicitor in the Writ Action for just over two months.

36.  In June 1998, the Respondents sold the flat to a different purchaser for $8.8 million.  They sought to recover by their Counterclaim the difference between the proceeds of that sale and the contract price. 

37.  The Writ Action came on for trial before Deputy High Court Judge Woolley (HCA 4645/1998).  On 10 August 2001, he dismissed the purchaser’s claim and gave judgment for the Respondents on their Counterclaim in the sum of $6,610,855.42 (of which $2,265,000.00 represented the forfeited deposit already in their hands) with costs.  The purchaser’s appeal to the Court of Appeal (Mayo VP, Cheung JA and Sakhrani J; CACV 2167/2001) was unanimously dismissed on 11 March 2002.

38.  The Respondents have been unable to recover either those damages or their costs from the purchaser.  One of the purchaser’s directors, Mr Vincent Lau Kwok Wai, had earlier stated on affirmation when resisting the Respondents’ application for security for the costs of the trial that the purchaser owned a mainland property giving a rental income and that it was believed to be able to meet the Respondents’ costs if they succeeded in their defence.  However, the purchaser was wound up in January 2003 and the first progress report in the liquidation casts serious doubt on whether the company has any realisable assets beyond an insignificant sum of cash in a bank account.

The wasted costs proceedings

(a)The basis of the claim

39.  Order 62 r 8 materially provides as follows :

(1) Subject to the following provisions of this rule, where in any proceedings costs are incurred improperly or without reasonable cause or are wasted by undue delay or by any other misconduct or default, the Court may make against any solicitor whom it considers to be responsible whether personally or through a servant or agent an order –

      ......

(c) directing the solicitor personally to indemnify such other parties against costs payable by them.

(2) No order under this rule shall be made against a solicitor unless he has been given a reasonable opportunity to appear before the Court and show cause why the order should not be made ......”

40.  Accordingly, as the Chief Justice has pointed out (and as the Court of Appeal had held in AIE Co Ltd v Kay Kam Yu [1997] HKLRD 161), the court’s discretionary power to make a wasted costs order is circumscribed by the words “in any proceedings”.  The wasted costs in question must be incurred in respect of legal proceedings as a result of a solicitor’s default or misconduct, etc, in relation to those proceedings.  As Godfrey JA pointed out in the AIE case, the common law rule had been the same.  Contrasting misconduct in a conveyancing transaction with misconduct “in the proceedings” his Lordship stated :

“The misconduct (if any) of the solicitor here was misconduct in the course of the conveyancing transaction, leading perhaps to civil proceedings for compensation against him at the suit of the vendor (or even the purchaser); but it was not misconduct ‘in the course of a cause’ (cp Stephens v Hill (1842) 10 M & W 28) and accordingly not misconduct in his capacity as an officer of the court (see Brendon v Spiro [1938] 1 KB 176).  It is not enough that a solicitor's general conduct for a client has been improper; in every case where a solicitor has been made to pay costs, he has been proved guilty of misconduct ‘in the matter itself’ (emphasis added) : see In re Gregg (1869) LR 9 Eq 137 per Lord Romilly MR at p 141. And there is, so far as I am aware, no modern case to the contrary effect : all the cases in which solicitors have been ordered to pay costs personally have been cases in which they were acting as solicitors in the litigation in which the costs were incurred.”  (at p 163)

41.  This does not appear to have been appreciated by the Respondents’ legal advisers when they launched the O 62 r 8 proceedings on 1 November 2001.  The Particulars of the complaint, dated 21 November 2001, are in many respects misconceived.  Many of the complaints listed are merely criticisms of the way the conveyancing transaction had been conducted, for instance, that the Appellant had advised and called for a formal completion at short notice knowing that the purchaser did not intend to complete; or that she had behaved unreasonably at the completion by turning up late, by asking unnecessary questions, and so forth.  These charges do not relate to costs wasted in any proceedings and fall outside the ambit of O 62 r 8.  Furthermore, the Particulars erroneously include complaints about the Appellant’s conduct, not as solicitor, but as a witness testifying in the Writ Action, well after she had ceased acting as solicitor in those proceedings.  None of what is said here is intended to suggest that the events occurring before and after the Appellant’s involvement as the purchaser’s solicitor in the Writ Action are irrelevant.  On the contrary, some of those facts are important because of their bearing on relevant conduct, but they cannot be put forward as independent grounds of complaint under O 62 r 8.

42.  At the wasted costs hearings before Deputy Judge Woolley (HCA 4645/1998, 12 July 2002) and in the Court of Appeal (Woo JA, Yam and Stone JJ; CACV 382/2002, 21 June 2003), the arguments became more focussed.  And at the hearing before this Court the basis of the case against the Appellant had narrowed down to the complaint that, acting as solicitor for the purchaser, she had commenced and had assumed the conduct of the Writ Action, knowing that the claim was false.  The contention is that the Appellant, having been present at the completion meeting on 20 March 1998, knew that the purchaser had wrongfully refused to allow inspection of the cashier orders and that this was why the deal had fallen through, but that she nevertheless commenced the Writ Action on behalf of the purchaser knowing that the case being advanced was false.

43.  If such a case can be made out against a solicitor, misconduct sufficient for the purposes of O 62 r 8 would be established.  To start an action knowing it to be false is an abuse of the process.  It may also involve knowingly attempting to mislead the court.  As Sir Thomas Bingham MR put it in Ridehalgh v Horsefield [1994] Ch. 205 at 234:

“It is ...... one thing for a legal representative to present, on instructions, a case which he regards as bound to fail; it is quite another to lend his assistance to proceedings which are an abuse of the process of the court. Whether instructed or not, a legal representative is not entitled to use litigious procedures for purposes for which they were not intended, as by issuing or pursuing proceedings for reasons unconnected with success in the litigation or pursuing a case known to be dishonest, nor is he entitled to evade rules intended to safeguard the interests of justice, as by knowingly failing to make full disclosure on ex parte application or knowingly conniving at incomplete disclosure of documents. It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it.”  (Italics supplied)

Although that case was brought under a different version of the wasted costs rule then in force in England and Wales (RSC O 62 r 11), the differences do not affect what was said on this point.

44.  After stripping away misconceived and irrelevant matter, a complaint on the abovementioned basis was in fact included in the Particulars.  They alleged that the Appellant :

“...... never produced the cashiers’ orders for appropriate inspection, which she must have known that the Defendants’ solicitors would require such, given the split of payments”. [sic]

The Particulars charged her with :

“Issuing proceedings for breach of contract and return of the deposit paid, when she knew that the claim was false; and/or when she knew she would be a material witness in the proceedings.”

(b)The decisions on O 62 r 8 below

45.  Both Deputy Judge Woolley and the Court of Appeal held in favour of awarding wasted costs against the Appellant.  They awarded the Respondents the entire costs of the Writ Action on a solicitor and own client basis, although in the Court of Appeal, Stone J dissented to the extent of holding that such costs ought to be limited to those incurred by the Respondents during the short period when the Appellant had conduct of the Writ Action.  The Appellant was also ordered by the Judge to pay the costs of the O 62 r 8 proceedings on an indemnity basis.  The appeal to this Court is against those decisions.

(c)The issues addressed by the Court

46.  Notwithstanding the existence of the relevant complaint in the Particulars it was a matter of concern in this Court whether, given the confused nature of that document and of the initial approach of the Respondents’ lawyers, the Appellant had received a fair trial in the wasted costs proceedings.  There was concern that the complaint may have been so submerged in irrelevant matter that issues relevant to that charge may not have been properly ventilated and the requirements of procedural fairness may not have been met.

47.  Implicit in the relevant complaint are the following propositions: (i) that the Judge’s finding in the Writ Action that the original cashier orders had never been tendered for inspection meant that the purchaser’s case, supported by the Appellant’s evidence, was deliberately false and not merely mistaken (“Issue 1”); and (ii) that at the time of commencing the Writ Action, the Appellant knew that the question whether the original cashier orders had been tendered was a crucial issue in the action (“Issue 2”).

48.  The Court therefore invited the parties and the amicus, Mr Thomas Au (whose able assistance I wish to acknowledge), to address the Court on whether the propositions in Issues 1 and 2 had properly been established in the courts below.  Additionally, they were invited to make submissions on whether, for the purposes of the O 62 r 8 proceedings, the procedures adopted had afforded the Appellant a fair opportunity to show cause why an order should not be made against her (“Issue 3”). 

(d)Issues 1 and 2

49.  Issues 1 and 2 are closely related and can conveniently be dealt with together. 

(i)Formal completion

50.  One begins with the fact that the purchaser, through the Appellant, demanded a “formal completion”.  This is important because it made inspection of the cashier orders at the completion meeting on 20 March 1998 crucial.

51.  The so-called “Hong Kong style completion”, used in almost every local conveyancing transaction, involves the purchaser’s solicitor handing over the purchase monies in ready funds (often in the form of cashier orders) to the vendor’s solicitor against the latter’s undertaking to deliver up the title deeds within a stated period.  Where, as is usually the case, the sale property is mortgaged, this style of completion allows the vendor to use the purchase monies to redeem the mortgage and then to deliver a clean title to the purchaser.  This practice is designed to be speedy and convenient, especially in times of market volatility and where transactions involve a chain of sub-sales and sub-purchases.

52.  A formal completion, such as that demanded in the present case, follows the practice commonly encountered in England.  As Lord Brightman explained in Edward Wong Finance Co Ltd v Johnson, Stokes & Master [1984] 1 AC 296 at 303 :

“The normal method of completing a contract for the sale of land in England is for the purchaser's solicitor to deliver to the vendor's solicitor a draft for the balance of the purchase money in exchange for an executed grant of the land or interest in land contracted to be sold; if the property is subject to a mortgage, the mortgagee will either be a party to the grant and receive the whole or part of the purchase money by way of redemption; or he will execute a separate release of his charge in return for the redemption money; if the property purchased is to be financed by a new mortgage, the loan will be made against delivery of the executed grant and instrument of charge. In other words, the payment of money and perfection of title are simultaneous transactions.”

53.  In the present case, once it was decided to have a formal completion, the tender of cashier orders which were complete and regular on their face and made out in the correct amounts and to the correct payees became the central act of performance required of the purchaser at the completion meeting.  As the Judge and the Court of Appeal held in the Writ Action, part of this process had to involve tender of the originals to permit the cashier orders to be checked by the Respondents.  There is authority of this Court in support.  In Twinkle Step Investment Ltd v Smart International Industrial Ltd (1999) 2 HKCFAR 255 at p 257, referring to the underlying obligation to cooperate in such contracts, Litton PJ stated :

“......  the contract would not work unless there was some give and take on both sides: On the part of the purchaser: that he would give to the vendor a reasonable opportunity to count the money, making sure that the balance of the purchase money was indeed the consideration provided for in the contract: This right of the vendor’s flows from the very nature of the contract itself.  It need not be expressed.”

54.  In the present case, on 17 March 1998, the Respondents, as they were contractually entitled to, communicated to the Appellant a requirement that the balance of the purchase monies should be split into five cashier orders, payable as follows : (i) to Sin Hua Bank for the account of the Respondents in the sum of $4,772,581.05 (being the mortgage redemption monies); (ii) to the Respondents in the sum of $8,038,576.95; (iii) to Poon & Cheung in the sum of $21,092.00; (iv) to the mortgagee's solicitors in the sum of $2,300; and (v) to the HKSAR Government in the sum of $450.  These were the instruments that would have to be tendered at completion.

55.  Plainly, any refusal by the purchaser to permit inspection of the cashier orders at the completion would have been highly controversial and become the focus of attention.  Such a refusal is unlikely to leave much scope for misunderstanding or faulty recollection.

(ii)The letter before action and Poon & Cheung’s reply

56.  Several hours after the abortive completion meeting ended, the Appellant faxed a letter before action dated 20 March 1998 (mis-typed as 1997) to the Respondents, blaming them for the transaction’s failure and demanding return of the deposit and payment of other sums.  The letter stated:

“The intended mortgagee ...... arrived at your office at 4:47 pm bringing along five cashier orders pursuant to your instruction dated 17^th March 1998.  ...... Our Ms Josephine Ma then tendered to your Mr Siu and Mr Tang and put on the table the duly executed and attested Assignment together with the five cashier orders representing balance of the purchase price and requested for your client’s presence for completion of the property.” 

The letter later continued :

“Despite the fact that the duly executed Assignment and the balance of purchase price were tendered to you and put on the table in your office ...... your client refused or failed to execute the Assignment ......”

             The purchaser’s right to bring a claim against the Respondents was expressly reserved.

57.  Poon & Cheung replied on 24 March 1998, setting out what had taken place at the meeting in minute detail.  They made it clear that the Appellant’s account of what had happened was not accepted, stating :

“To our surprise and without having asked us in advance, Mr Tong used without our authority our firm’s time-marking machine placed at the reception over to mark on a copy document which we suspect to be a copy of some instruments which looked like cashier orders (‘Purported Cashier Orders’) which he carried in his hand firmly throughout the time when he was present in our office; indeed he was never seen to have parted with the Purported Cashier Orders for a single moment while we were present.” ......

“Despite that Mr Tong was holding the Purported Cashier Orders in his hand, he declined to release them to us for inspection despite we made such request to Miss Ma which in our view was necessary and reasonable for formal completion purpose.”

58.  These letters are significant.  Both sides immediately focussed on the tender of the cashier orders.  Her letter before action shows that the Appellant fully appreciated, just before issuing the Writ, the importance of such tender as part of the completion process.  She was alleging not only that the cashier orders had been tendered but that she had personally put the documents on the table at the completion meeting. 

(iii)The Statement of Claim

59.  The Appellant drafted the Statement of Claim (as well as the first amendment, which adds nothing material for present purposes).  It was in a very general form, referring to the non-completion as follows :

“During the material time within the contractual completion hours on the completion date, the plaintiff was ready willing and able to complete, but the 1st and 2nd defendants in breach of the contract were unable or unwilling to complete or execute any assignment to convey the property to the plaintiff.  The 1st and 2nd defendants thereby repudiated the contract.”

60.  While this does not condescend to any particulars, it makes it clear that the basis of the purchaser’s action is that itwas ready to complete and that it was the Respondents who had repudiated the contract, consistent with what had been said in the letter before action.

(iv)The Appellant’s witness statement

61.  The Appellant gave evidence that she provided the solicitors replacing Ng & Shum with a file note about the failed transaction.  That note was not available to the court.  However, her account of events was later set out in a witness statement which she provided for use in the Writ Action.

62.  In that document, she gives a detailed account of the completion meeting.  She says that Mr Tong gave her the cashier orders when he arrived, that she checked them and found them in order.  She says that she then asked Mr Kwan to execute a counterpart of the legal assignment and continues :

“After execution, I put it on the conference table with the 5 cashier orders so we were ready, willing and in a position to complete the transaction.  I therefore asked Mr Tang to inspect the cashier orders and the counterpart assignment and asked for completion.” 

It is of interest to note that here she equates being ready, willing and able to complete – the general allegation in the Statement of Claim – with tendering the cashier orders. 

63.  The witness statement alleges that Mr Tang, a partner in Poon & Cheung, insisted on taking away the cashier orders, to which she and Mr Tong objected.  It continues:

“I reiterated that the cashier orders would be released against presentation of an assignment executed by the vendors and it was the parties’ simultaneous obligations.  As we had got little time left I warned in clear terms that the cashier orders were now on the table and the purchaser was ready, willing and able to complete.  Mr Tang said that since I did not let him take away the cashier orders and the counterpart assignment executed by the purchaser for completion there was nothing he could do.” 

And later:

“The 5 cashier orders were made available and were put on the conference table for inspection by Mr Tang and Mr Siu or Ms Lo acting for the existing mortgagee.”

(v)The Appellant’s testimony

64.  The conflict of evidence between the parties’ witnesses became even more pronounced as a result of the Appellant’s testimony in the Writ Action.  It suffices to set out the following exchange in the course of the Appellant’s cross-examination :

Q.       I suggest to you, you just handed the photocopy to Mr Siu and Mr Tong held the original cashiers orders in his hands.

A.  No, no.  it’s impossible.  The cashiers orders originals were lying up – lying up on the table, one, two, three, four, five, like this.  And then after Mr Kwan has signed the assignment, I put it next to the cashier order, and then I requested for formal completion.  That’s the truth.

Q.       I suggest to you that didn’t happen at all.

A. That has happened.

Q.   Mr Tong held on to the cashiers orders …

A.That’s the truth.  In fact, my – the truth is that the cashier orders, the original, was put on the table.  I put it on the table.

Q.All in one pile or?

A.  No.  One, two three, four, five, here, like this.  And then the assignment is like this.  Put – facing that side.  And then I invited Mr Tang to inspect the original cashier orders.  I told him that, ‘As the photocopy has already been given to you, you can now inspect the original and also the original assignment.’  And then he asked me whether he – he told me that he wanted to take it away.  I said, ‘No, you can inspect here.’  As you have got the copy of it, the cashier order already, but you cannot take it away.

It was later put to the Appellant that she was lying about allowing the Respondents to inspect the cashier orders, which she naturally denied.

65.  The Appellant was now not merely saying that she had put the cashier orders on the table, she was saying that she had lined up each of them separately on the table to make the point that this allowed inspection of the details of each separate instrument.  In stark contrast, the evidence of the Respondents’ witnesses was that the instruments did not leave Mr Tong’s hands and were never produced to them.  That evidence was given by Mr Tang and two of his conveyancing department staff at Poon & Cheung, as well as by Miss Carrie Lo, a partner in Messrs Chow, Griffiths & Chan, who was present at the meeting representing Sin Hua Bank, the Respondents’ mortgagee. 

66.  The Appellant was cross-examined on this topic in connection with an attendance note which she had prepared in relation to that meeting.  She admitted that the attendance note did not state either that she had placed the cashier orders on the table at the meeting, or that Mr Tang had demanded to take them out of the room.  It was put to her that this showed that her version of events was a lie.

67.  The importance of this conflict did not escape the Judge.  After her examination by both counsel, he questioned the Appellant about the size of the table and the seating arrangements, no doubt with a view to placing the Appellant’s evidence as to lining up the cashier orders on the table in context. 

(vi)The findings of Deputy Judge Woolley and the Court of Appeal in the Writ Action

68.  In the Writ Action, the Appellant was obviously not on trial.  The Judge’s findings were directed at resolving the dispute between the purchaser and the Respondents.  However, since the Appellant elected not to adduce any fresh evidence and not to recall any witnesses from the Writ Action for the purposes of the O 62 r 8 application, the Judge proceeded in the wasted costs proceedings on the basis of the evidence which he had heard and the unchallenged findings he had made against the purchaser in the Writ Action, drawing inferences relevant to the Appellant’s liability for wasted costs.

69.  The findings which the Judge made in the Writ Action which are important for present purposes include the following :

(a)that he generally accepted the Respondents’ evidence and preferred it where it conflicted with evidence for the purchaser;

(b)that, unlike the Respondents, the purchaser had every reason not to complete to avoid financial loss, an attitude consistent with the tactics adopted in relation to completion, including the demand for formal completion, late arrival at the offices of Poon & Cheung and their conduct during the meeting;

(c)that the Respondents’ witnesses gave honest and consistent evidence which his Lordship accepted on “the most important aspects of this matter”, including evidence “that the original cashier orders were not produced, and certainly not laid on the table for inspection as Miss Ma claims”;

(d)that the independent evidence of Ms Lo, the mortgagee’s solicitor, confirming that the cashier orders had never been produced for inspection was to be given particular weight.

70.  The Judge’s focus was therefore clearly on the question whether the cashier orders had been tendered and he found that they had not, rejecting the highly specific first-hand evidence of the Appellant to the contrary.  The Judge went further, indicating that he thought it probable that the Appellant had been complicit with the purchaser in a deliberate and dishonourable scheme to avoid completion.  He stated :

“As opposed to this, the behaviour of the plaintiff’s representatives, and, I regret to say their solicitor, bears all the hallmarks of an arrangement to delay and obfuscate the proceedings to engineer a situation where they can claim time has expired and they have no need to complete ......”  (Italics supplied)

71.  The Judge was on strong ground when he rejected the purchaser’s case that it was always willing to complete and that it was the Respondents who had sabotaged the transaction.  The probabilities were overwhelmingly against that suggestion.  Given that the purchaser stood to make an immediate loss of at least $3 million if completion took place, he was entitled to view the alleged willingness to complete with scepticism.  There was nothing unreasonable about his finding that the purchaser’s behaviour involved a stratagem to avoid completion and that the purchaser’s case was wholly incredible.  This is especially so placing that evidence against the evidence of the Respondents’ witnesses who impressed the Judge, including the evidence of an independent solicitor acting for Sin Hua Bank and against the backdrop of the Respondents having every commonsense reason to complete. 

72.  That evidence and those findings in the Writ Action had serious adverse implications for the Appellant in the wasted costs proceedings.  She had made repeated assertions in support of the purchaser’s disbelieved case, starting with the letter before action and reflected in the Action she commenced.  She had, moreover, put forward those assertions on the basis that the facts were within her own knowledge.  A rejection of the purchaser’s basic case in the Writ Action necessarily meant that the Judge found that what the Appellant had said to be within her personal knowledge was false.  It inescapably follows that she must have known that the case was false. 

73.  That finding was not challenged by the purchaser who merely advanced legal arguments in the Court of Appeal.  Moreover, the Court of Appeal confirmed what they took to be the Judge’s finding regarding the Appellant’s participation in a deliberate scheme of sabotage :

“...... that Mr Tong and Ms Ma had deliberately contrived to delay the completion so as to enable them to claim that the defendants had not complied with their contractual obligations by 5.00 pm.” (Italics supplied)

They added :

“We share the view of the Judge that Ms Ma’s conduct was deplorable.  There was ample evidence for the Judge’s findings.  She is an officer of the court.  It was highly reprehensible for her to lend herself to a scheme to attempt to defeat the rightful claims of the defendants.”

(vii)The basis of the wasted costs order

74.  In substance, Deputy Judge Woolley’s wasted costs order was made on the basis of the complaint as discussed above.  The Judge referred to his finding in the Writ Action that “the original cashier orders were never produced for the vendors’ solicitors’ inspection” and recalled his criticism of the Appellant in the passage which I have cited at paragraph 70 above.  He added :

“It is apparent from this that I found the plaintiff’s solicitor Miss Ma was a party to an arrangement to try to abort the completion to enable the plaintiff to avoid a transaction which had become financially undesirable as a result of the dramatic fall in property prices.  Her part in this and her behaviour throughout these events was clear from the evidence and deserves the harshest criticism.”

75.  Crucially for present purposes, the Judge found in the O 62 r 8 proceedings that :

“Following the failed completion, Miss Ma then commenced these proceedings on behalf of the plaintiff.  She must have known that it was her client that was in breach of the agreement, and that she would be a witness at the trial, and that there was a strong possibility that her client would be found to be in breach.”

76.  The Judge was therefore correctly centring on the Appellant’s conduct “in the proceedings”, involving her commencement of an action known to be false.  He held, again correctly, that her pre-Writ conduct was relevant to establishing her knowledge of the falsity of the case, and concluded:

“In commencing these proceedings, in the knowledge of what had gone before, I have no difficulty in finding that Miss Ma was guilty of conduct justifying an order for costs against her.” 

(viii)The Court of Appeal’s decision

77.  The Judge’s conclusions of fact and law were upheld (subject to Stone J’s dissent as to the extent of the wasted costs recoverable).  Woo JA described the relevant misconduct as “bringing forward a contrived case as the basis for a claim against the vendors.”  This had occurred against the background of the Judge’s finding that :

“She had taken part in engineering the situation to frustrate the completion and in the making of a contrived case that it was the vendors’ fault that caused the failure to complete.  She followed this created situation to issue the writ for the purchaser to claim for the return of deposit and damages, based on the contrived case.” 

The Court of Appeal was therefore clearly approaching the complaint on the basis that it involved the Appellant issuing proceedings known to be false.

(ix)Conclusion as to Issues 1 and 2

78.  In my view, it is clear that the propositions contained in Issues 1 and 2 were made good in the courts below.  The record also makes it clear that Appellant knew full well throughout that the false allegations regarding tender of the cashier orders formed a crucial part of the purchaser’s case in the Writ Action.

(e)Issue 3: Procedural fairness

79.  As the Chief Justice has emphasised, the types of cases which can appropriately be dealt with by the summary procedure under O 62 r 8 are necessarily limited.  But where, at the first stage of an application, the court does decide to allow the matter to proceed, having taken into account the relevant discretionary considerations, it should give directions aimed at ensuring procedural fairness for both the solicitor and the complainant.  It is in particular necessary to ensure that the requirements of natural justice are satisfied.

80.  The concerns regarding the adequacy of the Particulars served in the present case have already been mentioned.  The Particulars were plainly flawed.  They exhibited a misconception as to what matters properly fell within the ambit of O 62 r 8 and listed a catalogue of criticisms instead of making a straightforward and plainly stated complaint.  Such an approach is generally unacceptable.

81.  However, in the exceptional circumstances of this case described above, despite the shortcomings of the Particulars, the record shows that the Appellant was fully aware of the nature and basis of the complaint which she was facing.  The Particulars did in fact charge her with commencing the Writ Action knowing that the claim was false.  She was plainly in no doubt as to what the central bone of contention was in the Writ Action.  She knew that her testimony, concerning her participation in the completion meeting, had been crucial in that regard and that her evidence had been challenged on the basis that she was lying.  She obviously knew that the Judge had rejected her evidence and went on to criticise her for being party to a deliberate and dishonourable scheme to evade completion of the contract, findings which were not challenged by the purchaser in the Court of Appeal.  It was against that background that she and her legal advisers must have approached the Particulars.

82.  On 26 November 2001, after a hearing at which the Appellant was represented by counsel, the Judge gave directions for the wasted costs hearing, including an order permitting the Appellant to file evidence.  The substantive hearing was held on 25 June 2002 after a substantial delay to allow the appeal from the Judge’s decision in the Writ Action to be disposed of.  In its judgment dated 11 March 2002, the Court of Appeal described the Appellant’s conduct as “deplorable”.  And on 24 June 2002, the day before the substantive hearing, counsel for the Respondents served a skeleton argument submitting, among other matters, that :

“This litigation should never have been commenced at all, and certainly not by the [Appellant] or her firm, when she well knew that it was her purchaser client [who] was in breach.”

83.  At the hearing, the Appellant elected not to file any evidence and not to appear personally.  Counsel instructed by her took no procedural objections and stated that the Appellant did not challenge the court’s findings.  Her counsel was primarily concerned to argue, on the basis of AIE Company Ltd v Kay Kam Yu [1997] HKLRD 161, that the court had no jurisdiction to make a wasted costs order.  She also sought to argue that the evidence and findings made in the Writ Action were insufficient to support the inference that she had known that the claim was false.  The third main argument advanced was that, in any event, the court could not or, if it was able to, should not, make the Appellant liable for any costs beyond the costs incurred by the Respondents during the two month period when she had conduct of the Writ Action on behalf of the purchaser.  Procedural unfairness was therefore not the basis of any objection. 

84.  Procedural unfairness was not a ground of appeal.  The arguments were essentially the same as those advanced before the Judge, the main focus being on jurisdiction and causation.  In any event, Woo JA was plainly satisfied that the Appellant had been given every opportunity to show cause against a wasted costs order.  Pointing out that she had been represented by counsel His Lordship stated :

“...... the vendors had served a list of particulars in support of their application which set out the basis on which their application was made and such particulars were based on the findings of fact made by the judge.  Ample opportunity was given by the judge to JM [the Appellant] to answer the particulars raised by the vendors, and doubtless, JM and her legal representatives including counsel must have familiarised themselves with the judgment of the judge dated 10 October 2001 and the judgment of the Court of Appeal dated 11 March 2002 ......  She knew that the judge made findings criticising her, and two of the judges in the Court of Appeal stated that there was ample evidence for those findings ...... and commented that her conduct was deplorable.  She had chosen to file no evidence and offer no explanation as to her conduct that was complained of and failed to present herself before the judge to testify or explain.” (at §38)

85.  It was only in this Court that, for the first time, the Appellant alleged that the wasted costs proceedings had involved procedural unfairness.  In the light of the way in which those proceedings had in fact progressed, as described above, I am satisfied that the Appellant was afforded a fair opportunity to show cause why an order should not be made against her and that there was no breach of natural justice.

(f)Jurisdiction and adequacy of the evidence

86.  The Judge and the Court of Appeal were correct to reject the jurisdiction argument.  The AIE case is obviously distinguishable since there, the solicitor who was criticised was not involved in any legal proceedings whatsoever.  Here, the Appellant commenced the action and had conduct of the proceedings, albeit for the short period of two months or so.  As indicated above, on the assumption that it could be shown that such proceedings were brought knowing that the claim was false, the court plainly had jurisdiction to act within O 62 r 8.  There is of course a question of causation, addressed below, as to what wasted costs flowed from such misconduct.  But that is a question which arises on the footing that jurisdiction exists.

87.  The courts below also correctly rejected the contention that the evidence was insufficient to make good the complaint.  As discussed above, the evidence, unchallenged and unsupplemented by the Appellant, wholly justified the inferences reflected in the propositions set out in Issues 1 and 2 above and provided the basis for the finding of misconduct. 

(g)Causation

88.  As noted by the Chief Justice, it is necessary to establish a causal link between the solicitor’s conduct and the incurring of the wasted costs in question.  One must identify the misconduct or default which triggers the liability and then ask what costs were incurred by the Respondents in consequence. 

89.  Here, the misconduct was the abuse of bringing the Writ Action on a basis known to be false.  Prima facie, since the falsity was fundamental to the dispute between the parties, it was responsible for causing the Respondents to incur all the costs of the proceedings.  Unless there was some intervening event which should be regarded as severing the causal connection with any part of those costs, the court was entitled to exercise its discretion accordingly.  The fact that the Appellant only had charge of the proceedings for about two months does not mean that the wasted costs order must be limited to the costs incurred during that period.  The causal potency of knowingly commencing the false claim was not exhausted at the end of that period. The evidence plainly shows that the Appellant handed over the reins to another firm for the Writ Action to be continued on the same false basis, founded on the Appellant’s purported first-hand account of the events at the completion meeting.

90.  There may be cases, for instance, where after the criticised solicitor drops out, the replacement solicitor quite independently causes wasted costs to be incurred, for instance, by incurring them unreasonably or by opening up wholly different and unjustified litigation issues, and so forth.  There is no trace of such a causal severance in the Writ Action.

91.  Mr Edward Chan SC, leading for the Appellant, argued that the Court ought to regard causation as not established on the basis that the Writ Action would in any event have been commenced.  He contended in the first place, relying on Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, that the Respondents would have had to establish that they were entitled to forfeit the deposit which, in the present case, represented 15% of the purchase price and hence exceed the conventional deposit of 10%.  Secondly, he submitted that the Writ Action was driven by the purchaser, that is, by the client, rather than the Appellant, so that, whether or not the Appellant was involved, the Writ Action would have been started and pursued against the Respondents anyway. 

92.  I am unable to accept either of these arguments.  It is true that the deposit in this case exceeded the conventional 10% so that its forfeiture was susceptible to judicial scrutiny, if so required by the purchaser.  But any proceedings concerning the Respondents’ entitlement to the deposit would, of course, have been very different from the Writ Action which involved five witnesses for the Respondents and three for the Appellant and took 7 days to try.  Indeed, any argument as to the Respondents’ entitlement to a deposit exceeding the conventional amount would have been rendered academic after the Respondents crystallized an undoubted loss exceeding the deposit amount when they sold the property for $8.8 million in June 1998.  As this Court pointed out in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234, a party who has taken a deposit in an amount exceeding the conventional 10% is entitled to have recourse to it in satisfaction of its right to damages for any actual loss suffered as a result of the other party’s breach.  It is therefore highly unlikely that any question regarding the right to forfeit the deposit would have led to any proceedings at all, let alone a full blown trial.  And even if a trial did eventuate, it would have involved narrow and self-contained issues taking little time to try.  This argument therefore gives no realistic basis for a finding that the causal connection should be regarded as severed or overridden.

93.  The argument that the client would have gone ahead anyway is in principle not relevant.  A solicitor’s liability under O 62 r 8 evolved out of and reflects the court’s long-established common law summary jurisdiction to discipline solicitors as officers of the court and, among other things, to order them personally to bear the wasted costs of proceedings incurred by the parties in consequence of a serious dereliction of duty on the solicitor’s part.  That jurisdiction therefore imposes liability on the solicitor because he or she is an officer of the court and cannot be evaded by showing that the solicitor’s misconduct occurred at the behest of the client or by suggesting that the client would, if faced with a refusal to act, probably have gone ahead anyway or prevailed upon some other solicitor to commit the breach of duty.

Conclusion and costs

94.  For the foregoing reasons, it is my view that the Judge was entitled, in the exercise of his discretion under O 62 r 8, to order the Appellant to indemnify the Respondents for the entire costs of the Writ Action on a solicitor and own client basis and that the Court of Appeal correctly upheld that order.  The appeal must therefore be dismissed, subject to the question of the costs of the O 62 r 8 proceedings before the Judge.

95.  The Judge ordered the Appellant to pay those costs on an indemnity basis.  No reasons were given although one surmises that this must have been a demonstration of the disapproval he had forcefully expressed regarding the Appellant’s conduct.  In my view, that is not a sufficient justification.  The wasted costs order itself is the response (both punitive and compensatory) to the misconduct which attracted the disapproval.  That disapproval cannot be allowed to spill over into the costs order made in the O 62 r 8 proceedings where there has been no procedural or other impropriety justifying a special costs order in the latter proceedings.  It is important that the right of a solicitor faced with an application under O 62 r 8 to mount a defence is not undermined. 

96.  There was no apparent reason in the present case for making an indemnity costs order.  Indeed, the procedural difficulties which I have discussed were attributable to the Respondents’ legal advisers’ initially flawed conception of their case rather than to anything done on the Appellant’s behalf in the wasted costs proceedings.  Her decision not to give evidence or to recall witnesses in fact enabled the complaint to be dealt with summarily at a hearing lasting one day.  I therefore consider the indemnity costs order unjustified.  It is of interest to note that on the appeal to the Court of Appeal, the costs order made was on a party and party basis even though the wasted costs order was upheld.

97.  Accordingly, subject to varying the costs order made by the Judge in relation to the O 62 r 8 proceedings to an order for such costs to be paid on a party and party basis, I would dismiss the appeal.  I would also make an order nisi that the costs of this appeal be paid, again on a party and party basis, by the Appellant.  I would direct that any submissions which the parties may wish to make regarding this costs order nisi should be made in writing, filed and served on the other side within 14 days from the date of the handing down of this judgment, with any written submissions in reply filed and served within 14 days thereafter; and that, in the event that no such submissions are filed within the time limited, the order for costs should become absolute without further order.

Sir Ivor Richardson NPJ :

98.  I agree with the judgments of the Chief Justice and of Mr Justice Ribeiro PJ.

Chief Justice Li:

99.  The Court unanimously varies the costs order made by the Judge in relation to the O 62 r 8 proceedings to an order for such costs to be paid on a party and party basis and, subject to that, dismisses the appeal.  And the Court makes the order nisi on costs set out in the concluding paragraph of the judgment of Mr Justice Ribeiro PJ.