NICHOLAS TIMOTHY CORNFORTH HILL v. ALVAREZ & MARSAL ASIA LTD

HCA 56/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 56 OF 2007

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RULING ON COSTS

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Background:

1.  On the first day of the trial in this matter an issue arose as to whether or not a subpoena, served by the plaintiff, Mr Hill, upon a solicitor, Mr Robertson, should be set aside, on the application of Mr Borrelli and Mr Flynn, on the grounds that the evidence that would be given by Mr Robertson was protected by legal professional privilege.

2.  In a ruling delivered by me on 19 September 2008, I held that the circumstances in which Mr Robertson had been instructed were circumstances in which the instructions came not only from the Mr Hill, but also from Mr Borrelli, Mr Flynn and Mr Poole[1], and that the retainer was subsequently joined by A&M Asia, effectively the defendant in the proceedings. The retainer was a joint retainer from those five parties.

3.  In those circumstances no legal professional privilege arose. The law is that no legal professional privilege arises between those engaged in a joint retainer. Mr Borrelli, to this day apparently, rejects that conclusion. He was denied leave to appeal in the course of the trial. He chose not to pursue an appeal in any way. He must accept the judgment. He was not entitled to assert, as he did in an affidavit in these costs proceedings, that he believes the judgment was wrong. It was quite wrong for those assisting him in the preparation of his affidavit to include that assertion in the affidavit.

4.  An application to set aside the subpoena was also made by Mr Robertson. That too failed.

5.  All questions of costs on the applications to set aside were reserved. Mr Hill has compromised the question of costs with Mr Robertson. Mr Hill now seeks costs against Mr Borrelli and Mr Flynn on the application to set aside the subpoena.

6.  Mr Maurellet does not take issue with the usual rule that costs follow the event, but says that in the particular circumstances of the case, in the exercise of the discretion to award costs, either there should be no order for costs, or that the costs should be significantly discounted.

7.  To justify that submission, I have been referred to a number of letters exchanged between the parties’ solicitors prior to the trial. On the basis of this correspondence, Mr Maurellet says that there was, at the least, an understanding, and at best an agreement, between the parties that if a joint waiver of privilege could not be obtained, then the solicitor would not be called. Thus, he says Mr Borrelli and Mr Flynn were entirely justified in not having made an early application to set aside the subpoena.

The correspondence:

8.  The trial was due to commence on 16 September 2008. Sensibly, well prior to that date, in March 2007, the solicitor for Mr Hill had met with Mr Robertson, to discuss with him the possibility of swearing an affidavit in the action. I have no doubt at all that Mr Robertson duly informed his clients, including Mr Borrelli and Mr Flynn, that that approach had been made. Mr Borrelli and Mr Flynn consequently knew, at least 18 months before the date of the trial, that there was a risk that Mr Robertson might be called to give evidence, and that there would be potentially an issue of legal professional privilege.

9.  The subpoena was issued on 17 July 2008, and was served on 23 July 2008, nearly 2 months prior to the commencement of the trial. On 29 July 2008, Mr Robertson wrote to the solicitors for Mr Hill. The letter contained the following statements:

“As I have mentioned to you previously, I am concerned that I will be constrained in the giving of evidence by legal professional privilege.  At the time of the matters which are the subject of the above action, my clients were the four individuals, Mr Hill, Mr Borrelli, Mr Poole and Mr Flynn.  Any communication which I had with each and any of those individuals is therefore prima facie covered by legal professional privilege and I do not see how I can answer any questions or give evidence about matters which might constitute a breach of privilege.

The privilege is of course not mine: it belongs to the individual clients.  I therefore propose to write to each of the four individuals advising of the issue of the subpoena and asking if they are prepared to give a blanket waiver of privilege to me as and when I give evidence.  If one or more of the individuals is not prepared to give such a waiver, then, when I am called to give evidence, I will have to explain to the court the difficulty which I face.”

10.  Mr Robertson wrote to the four individuals on 4 August 2008. He said:

“At the time of the matters which are the subject of the trial, I was retained by you as your solicitor.  Any communications between us, therefore, are potentially the subject of legal professional privilege.  I write to enquire whether you are prepared to grant to me a blanket waiver of solicitor-client privilege so that at the trial, I can answer any question which is put to me without being concerned that, by so doing, I may infringe your right of privilege.”

11.  The solicitors for Mr Hill replied promptly on 7 August 2008. They agreed to a blanket waiver of privilege. The relevant part of the letter is in the following terms:

“We write to confirm on behalf of our client that he agrees to a blanket waiver of any solicitor-client privilege that may exist in respect of your firm’s retainer to act on his behalf and on behalf of Cosimo Borrelli, Kevin Flynn and Neill Poole in connection with a client’s exit from the business of RSM Nelson Wheeler Corporate Advisory Services Ltd during 2005.”  (My emphasis)

12.  It is to be noted that the letter does not concede that legal professional privilege existed in the circumstances, (see the words emphasised). The letter was copied to Mr Borrelli, Mr Flynn and Mr Poole.

13.  It was not until 18 August 2008, that the solicitors for Mr Borrelli and Mr Flynn responded. Their letter simply confirmed that Mr Borrelli and Mr Flynn did not waive solicitor-client privilege. Although the letter purported to be copied to Mr Hill, at his solicitors, it was not so sent.

14.  On 3 September 2008, with the trial date only 13 days away, and having had no response to their letter of 7 August 2008, nearly a month earlier, Mr Hill’s solicitors wrote to both Mr Borrelli and Mr Flynn referring to the previous correspondence and saying:

“Seeing as our client has agreed to a blanket waiver of the privilege referred to in JSM’s letter of 4 August 2008 and as Neill Poole of Alvarez & Marsal Asia Ltd has done the same (upon the basis that you also agree), there should be no reason why you should not do the same.

Seeing as the trial of the above two actions is now less than two weeks away, we would be grateful if you could confirm to JSM as soon as possible that you also agree to a blanket waiver of the privilege referred to in JSM’s letter dated for August 2008.”

15.  On 4 September 2008, the solicitors for Mr Borrelli and Mr Flynn sent to Mr Hill’s solicitors a copy of their letter to JSM of 18 August 2008.

16.  On 11 September 2008, there was a telephone conversation between the respective solicitors. The solicitors for Mr Borrelli and Mr Flynn were informed that it was intended that Mr Robertson would be examined at the trial, pursuant to the subpoena. The next day they wrote in the following terms:

“As you are aware the retainer of Mr Robertson and his firm was a joint one between your client (Mr Hill); our clients; and Mr Neill Poole.  On being served with the subpoena, Mr Robertson promptly asked whether the privilege which attaches to the information he holds is to be waived in order that he can answer questions put to him trial.  In order to that privilege to be waived, Mr Robertson is required to obtain a waiver from all four of Mr Hill; Mr Borrelli; Mr Flynn; and Mr Poole.  That is recognised by Mr Robertson and, we believe, accepted by you.  Mr Hill has waived privilege but there is no waiver from the remaining three individuals.  There is, therefore, no waiver of privilege.

(Paragraph omitted)

Please therefore now confirm that Mr Robertson will not be called.  Alternatively, we suggest that before commencement of the trial proper on Tuesday (16 September 2008), the Learned Judge be asked to consider this issue in Chambers, with our clients being represented.”

17.  This letter brought a response from Mr Hill’s solicitors on the next day:

“Thank you for your letter of yesterday in connection with the evidence to be given by Mr Martin Robertson of JSM at the trial of the above action pursuant subunit dated 23 July 2008.  Our response to the points made in your letter in relation to legal professional privilege are as follows:-

1.  Mr Robertson was the subject of a joint retainer by each of Nicholas Hill, Neill Poole, Kelvin Flynn, Cosimo Borrelli, LAIL and the company (NewCo) that subsequently became the Defendant, Alvarez & Marsal Asia Limited.

2.  It is settled law that there is no privilege between those who are the subject of a joint retainer and that if they subsequently fall into dispute and commence proceedings against each other, they are not able to claim privilege as between themselves.

3.  The litigation is between parties that were the subject of the joint retainer.

4.  No question of legal professional privilege arises.

5.  Our client does not accept Mr Robertson’s evidence will be the subject of legal professional privilege, whether in relation to matters between the parties who were the subject of joint retainer or to matters only between Mr Robertson and Mr Hill.

6.  Our client will not be withdrawing the subpoena requiring Mr Robertson to attend the first day of trial on 16 September 2008.”

18.  On advice, Mr Borrelli and Mr Flynn rejected this position and proceeded to challenge the subpoena. At the end of the day the legal position as stated in Mr Hill’s solicitors letter of 13 September 2008, was found to be correct. The challenge to the subpoena consequently failed.

19.  Mr Maurellet says that the assertion in Mr Hill’s solicitors letter of 13 September 2008, that the instructions were not only given by the four former partners, but also by A&M Asia, amounted to a “U-turn”. The position taken was, he said, a resiling from a previous arrangement that had been made that if a blanket waiver of privilege from the four former partners could not be obtained, Mr Robertson would not be called to give evidence.

20.  In those circumstances, he says, it is entirely understandable that Mr Borrelli and Mr Flynn should not have earlier made an application to set aside the subpoena. Consequently, he says, they should not be held liable for any wasted time in the course of the trial, and that any costs payable should be greatly discounted.

Discussion:

21.  It is not possible to discern from the correspondence any agreement, let alone even an “understanding”, between Mr Hill on the one part, and Mr Borrelli and Mr Flynn, on the other, that if there was to be no joint waiver of privilege, Mr Robertson would not be called. In fact, Mr Borrelli and Mr Flynn’s solicitors letter of 11 September 2008, indicating, as it does, that if Mr Robertson was to be called, application should be made to the judge to consider the issue in Chambers, is a clear assertion that directly contradicts any suggestion that there might have been some agreement, or even an understanding.

22.  It is right that it was suggested that privileged be waived. The suggestion of a waiver of privilege, while unnecessary in the circumstances because no privilege existed, was simply a practical solution to the issue. It recognised the parties then mistaken belief that there was privilege. From the moment Mr Borrelli and Mr Flynn determined not to waive privilege, a decision that was plainly made virtually as soon as the issue was raised, they should have applied to set aside the subpoena.

23.  Belatedly, those advising Mr Hill recognised the true legal situation, a recognition that was vindicated by the decision given on 19 September 2008. That was not a “U-turn”, but a recognition of the true legal situation following the refusal by Mr Borrelli and Mr Flynn to resolve the matter by a sensible and practical, if unnecessary, course.

24.  The fact that that recognition on the part of those advising Mr Hill came late does not detract from the failure of Mr Borrelli and Mr Flynn to move promptly to set aside the subpoena. It does not in any way justify a departure from the usual rule, properly recognised by Mr Maurellet, that costs must follow the event. Neither does it justify any discount on the cost that should be awarded.

25.  I am firmly of the view that the proper course to have been taken was for Mr Borrelli and Mr Flynn to immediately file a summons under O 38 r 19 to set aside the subpoena. In the circumstances of this case, that application should have been made to the trial judge: see Hong Kong Civil Procedure, 2010, para 38/19/12.

26.  A situation such as this is clearly a situation where the application must be made immediately, and discussions to see if agreement can be reached should take place in the intervening period between the filing of the summons, and the summons being brought on for hearing, if necessary, before the judge. It must have been abundantly plain to those advising Mr Borrelli and Mr Flynn that if the subpoena was not set aside prior to the commencement of the trial, and Mr Hill persisted in the subpoena, the question of setting aside would have to be considered during the course of the trial, and that would have an impact on the duration of the trial.

27.  I am satisfied that this is a proper case in which to award costs on the dismissal of the summons to set aside the subpoena to Mr Hill. As Mr Hill has succeeded also on the application for costs, he is entitled to costs for that argument.

The quantum of costs:

28.  This is plainly a case for an award of gross sum costs. Those advising Mr Hill have put before me a calculation of the costs incurred, both for the argument leading to the dismissal of the summons to set aside, and the argument in respect of costs.

29.  As part of sum sought on the argument leading to the dismissal of the summons, a total of $251,000 was attributable to “Lost and Wasted Time at Trial”. In the course of argument, Mr Lee, eventually recognising that in the context of this case, as Mr Hill had been entitled to costs for the days by which the trial was extended, and accordingly the concept of wasted costs was inappropriate, reclassified this amount as time spent by the solicitors and counsel in preparation for, and engagement in, the argument on setting aside of the subpoena. I am satisfied that a sum should be allowed under that category, but not to the extent that claimed.

30.  Looking at the matter broadly, as is appropriate in a gross sum assessment, I fix the gross sum costs to be paid by Mr Borrelli and Mr Flynn on the application to set aside the subpoena in the sum of $200,000, to be apportioned as to counsel, $125,000, solicitors $75,000.

31.  As to the costs on the costs argument, the approach adopted by Mr Borrelli and Mr Flynn to that argument involving as it did the filing of extensive affidavits on their part, necessarily necessitated more work by both solicitors and counsel than would normally be the case on a costs argument. That must be reflected in the ultimate order.

32.  There will be an order nisi that Mr Borrelli and Mr Flynn must pay Mr Hill’s solicitors costs in the sum of $100,000, and counsel’s fee of $75,000.