MUNG CHI KEUNG v. CHAN KAM WONG AND ANOTHER

cacv 374/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 374 of 2005

(on appeal from DCEC NO. 299 of 2005)

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J U D G M E N T

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1.  In this matter I made an order on 3 July 2006 that the solicitors (“the firm”) then acting for the applicant should cease to act as his solicitors but that within 21 days from the date of the judgment in the appeal they should make and file an affidavit, serving a copy on the applicant’s current solicitors, to show cause as to why all costs incurred by the applicant in relation to the appeal should not be borne by the firm.  A further affirmation has been filed and the parties appeared before me on the firm’s application to show cause.  At the conclusion of the hearing I reserved my decision which I now give.

2.  As a result of an accident, which he had suffered on 23 November 1999, the applicant made a claim under the Employees’ Compensation Ordinance in the District Court.  Judgment was given in the sum of $2,074,865.  It was held in those proceedings that neither the 1^st respondent, Wan Lam Kwan, nor the 2^nd respondent, Hua Xing Engineering Company Ltd (“Hua Xing”) was the applicant’s employer.  The employer had apparently been Chan Kam Wong, the 1^st respondent on this appeal, but he was not a party to the earlier proceedings.  The court however held that Hua Xing was liable to the applicant because it was the principal contractor.  Unfortunately, Hua Xing went into liquidation shortly after the judgment.  Consequent upon that, application was made to the Employees’ Compensation Assistance Fund Board (“the Board”) for payment of the compensation in place of Hua Xing.  The Board refused to pay compensation because Hua Xing was not the applicant’s employer.

3.  Following that, a different counsel was asked to advise first as to whether the applicant had a valid claim against the insurance company of Hua Xing and secondly as to whether the applicant was eligible to apply for payment of compensation from the Board under section 16 of the Employees’ Compensation Assistance Ordinance Cap. 365.  In January 2005 counsel advised that the applicant had no recourse against Hua Xing’s insurance policy and that, furthermore, the applicant could not claim against the Board.

4.  Counsel then went on to consider the matter under the heading “The way forward”.  Counsel referred to the fact that the applicant did not have a high degree of formal education.  I was informed in the course of the hearing that he had started his working life as a farmer in the Mainland.  Reference was made to the fact that any proceedings in negligence against his employer would have been statute barred.  Nevertheless it is clear from what is stated in the opinion that there had been some discussion between counsel and solicitors as to whether proceedings under the Employees’ Compensation Ordinance should be commenced against Chan Kam Wong, whom the judge had held had been the employer.  Counsel’s advice continued:

“32. Although the difficulty of commencing a fresh Application for an accident which took place in November 1999 is obvious the cost involved in making the Application would not be substantial.  It is worth a try because the alternative to this could well be a negligence claim.  I shall leave it to those instructing to work out the logistics of how to proceed.

33. Should the application to issue fresh proceedings fail there is a chance that the Applicant might have a claim in negligence against either his solicitor or Counsel or both.  There is insufficient information for me to advise one way or another.

34. The best way forward will be to try to issue fresh proceedings and if that fails, for those instructing to advise the Applicant that he should seek Legal Aid to look into the merits of a professional negligence claim.  As the amount involved is substantial and the reputation of professionals is at stake I would suggest that Legal Aid be granted to obtain an opinion from Leading Council so that all parties’ interest be adequately protected.

35. I apologise for being the bearer of such unwelcome tidings that would be failing in my duties to the Applicant if I did not advise him to look into the possibility of other claims.”

5.  It appears to me that, on the face of that, that it was abundantly obvious that counsel was saying that the applicant might well have a cause of action against his professional advisers.  In those circumstances the firm, and in particular the solicitor handling the matter, should have appreciated that there was a clear conflict of interest.  Thereafter, the firm should have so advised the applicant and I conceive the firm’s position in continuing to act on behalf the applicant has been virtually untenable.

6.  Despite that, an application was made for an extension of time to pursue a claim against the 1^st respondent.  That application was refused at first instance on 14 September 2005.  It appears that immediately following that the applicant was advised to apply for legal aid to appeal against that decision.  The solicitor who was handling the matter on behalf of the firm does not give any indication that, even by that time, the applicant was advised that he should consider what rights he might have against the legal advisers.  Rather he was advised that a further, different, counsel should be retained and he was asked to sign a simple retainer retaining the solicitors with a view to appealing against the decision refusing to extend time.

7.  The application for legal aid was first refused on 17 October 2005 following which the applicant was advised to appeal against the refusal of legal aid.  On 10 November 2005 the counsel who had now been brought into the case advised that the applicant had a good arguable ground of appeal in respect of the refusal to extend time.  On the strength of that the solicitor advised the applicant that the firm would invite Department of Legal Aid to reconsider the applicant’s application for legal aid in respect of the proposed appeal and that the firm would be submitting grounds of appeal to the Department of Legal Aid, who might contact the applicant directly.  The firm then filed the notice of appeal on 14 November 2005.

8.  Although the applicant did make a further application to the Department of Legal Aid it was not until the middle of February 2006 that that application was refused.  In the meantime, if not before, the applicant had made clear to the firm that he did not wish to proceed with the appeal without legal aid.  The solicitor handling the matter suggested that the firm should continue to act for the applicant on a private client basis and that although the written agreement would entail that the applicant would be responsible for the firm’s charges, the firm itself would in all eventuality not seek costs from the applicant as he was on welfare and that the partners’ approval would be sought to waive the firm’s fees.  It was also suggested at some stage that it was unlikely that costs would be sought against the applicant by a successful party on the appeal since the chances of recovery would be slender, at best.  Despite the fact that the applicant signed the documents prepared by the solicitor acknowledging his willingness to proceed with the appeal and his liability as to costs, it is quite clear even from the solicitor’s affirmations that the applicant was apprehensive.

9.  It was only at this stage that the solicitor handling the matter, apparently, mentioned to the applicant the possibility of his seeking further advice from other solicitors and that she recommended another firm.  As it transpired the applicant was granted legal aid on 28 April 2006 to enable him to obtain advice as to the possibility of bringing a professional negligence action against the firm.  It was in those circumstances that in June 2006 the applicant’s present solicitors wrote to the firm complaining, amongst other things, that the applicant had been put in a position where he was liable in respect of costs of the appeal.

10.  It was in those circumstances that the application was made by the firm to cease to act for the applicant in the appeal against the judge’s ruling not to extend time to bring proceedings against the 1^st respondent.  On that application the applicant was represented by counsel who opposed the application and in the alternative asked that it be on conditions.  In the circumstances it appeared to me that the firm’s position was quite untenable and that it could not represent the applicant properly.  It was also apparent that it would be invidious to enquire into the circumstances of the matter prior to the hearing of the appeal and, hence, although there were clearly indications that the appeal had been brought in the interests of the firm and not in the interests of the applicant, that was a matter which had to be dealt with later.

11.  Having had the benefit not only of further affirmations filed by the solicitor handling the matter on behalf of the firm but also of argument by counsel, it is apparent that from the advice given by counsel which I have quoted above, the solicitor and the firm must have known that they had a severe conflict of interest and, although counsel had suggested an appeal as a last-ditch effort, the lay client should have been advised that he had an alternative course of action namely to seek advice as to whether he could claim in negligence against his professional advisers.  Despite that, the course was taken to advise the applicant to appeal, to seek legal aid to appeal and, even after that refusal, to encourage the applicant to appeal with vague promises that he might not be liable for costs should the appeal fail.  In summary, the appeal was launched without giving the applicant proper advice, in circumstances where the firm was well aware of what advice should be given to the applicant and of the risks involved in that advice.  The firm had a clear interest in encouraging the applicant to pursue an appeal rather than to take advice as to the possibility of suing the firm itself. 

12.  In my view there is only one answer to the matter and that is the view which became apparent when the application by the firm to discharge itself as the applicant’s solicitors was made, namely that the firm should bear all costs incurred by the applicant in the appeal was the correct order.  The firm has not shown cause that the firm should not pay those costs.  There shall be an order accordingly.