PROPERTY DYNASTY LTD v. HAN KUN LAW OFFICES LLP AND ANOTHER

HCMP 720/2023

[2025] HKCFI 5628

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 720 OF 2023

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REASONS FOR DECISION

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A.  Introduction

1.  This is an appeal against the Master’s decision to: (a) grant the Plaintiff permission to amend its Statement of Claim (“SOC”); (b) grant the Plaintiff permission to add Miao & Co (a firm) as the 2^nd Defendant; an (c) order the payment of indemnity costs in the Plaintiff’s favour.

2.  Following a hearing in which I was addressed by Mr Bernard Man SC and Mr Justin Lam for the Plaintiff and Mr Kwan Ping Kan for the Defendants, I dismissed the appeal in its entirety and set out the reasons for doing so ex tempore at the hearing. Those reasons are reproduced herein.

B.  Appeal against Application for Permission to Amend Statement of Claim

3.  Turning first to the appeal relating to the application for permission to amend the Statement of Claim, the principles applicable to amendment applications are helpfully summarised by Cheng J in Circuitronix LLC v Kingboard Chemical Holdings Ltd [2023] HKCFI 3359. The following principles are of particular relevance in this case:

(1)  It is well-established that, generally speaking, amendments ought to be made for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any error or defect in any proceedings (paragraph 18, citing the well-known decision of the United Kingdom House of Lords in Ketteman v Hansel Properties Ltd [1987] 1 AC 189).

(2)  In exercising its discretion, the court must have regard to the underlying objectives in the Rules of the High Court (“RHC”), O.1A, r.1, the primary aim of which is to secure the just resolution of disputes in accordance with the substantive rights of the parties, as per RHC O.1A, r.2(2) (paragraph 19).

(3)  Leave is readily granted to amend before trial unless it can be demonstrated that the new claim based on the proposed amendment is bound to fail (paragraph 25). When applying the ‘bound to fail’ test, the court will take the proposed pleaded case at its highest (paragraph 21).

(4)  Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice which cannot be compensated by for by appropriate orders as to costs (paragraph 24).

4.  The proposed amendments in this case can, in substance, be divided into four groups:

(1)  The inclusion of pleas that the 1^st and/or 2^nd Defendants’ conduct was: (a) in breach of its implied contractual duty to exercise reasonable skill, care and diligence; and (b) in breach of a duty of care arising in tort (draft Amended Statement of Claim (“ASOC”), paragraphs 4A, 4B, 4C and prayer (2)) (“Group 1”).

(2)  Further particulars of the 1^st and/or 2^nd Defendants’ alleged overcharging and negligence (draft ASOC, paragraph 11) (“Group 2”).

(3)  Quantum of loss said to have been suffered by the Plaintiff as a result of the 1^st and/or 2^nd Defendants’ breaches of implied contractual duty, negligence and/or fiduciary duty (draft ASOC, paragraph 19.1) (“Group 3”).

(4)  Further particulars concerning whether bills rendered by the 1^st and/or 2^nd Defendants were final or interim for the purposes of taxation (draft ASOC, paragraph 19.2(a)) (“Group 4”).

5.  Of these paragraphs, paragraphs 11 and 19 of the ASOC received the most attention in the course of oral submissions. Dealing first with the last of the four aforementioned groups, the Group 4 amendments do not appear to be resisted, whether seriously or at all. There can be no serious objection to them in any event as they simply provide particulars in respect of an issue that was canvassed in the original SOC and on which the parties have joined issue.

6.  As for the Group 1, 2 and 3 amendments, these can be dealt with compendiously and relate, in essence, to the inclusion of pleas which specifically refer to breaches of an implied contractual duty and/or negligence.

7.  It is important to place these new pleas in the context of the SOC as it was originally framed. Section E of the SOC sets out the purported breaches of duties on which the Plaintiff’s case is predicated:

(1)  Paragraph 11 (which is the first paragraph in Section E) of the original SOC sets up a case on breach that is premised on: (a) a breach of the engagement letter between the Plaintiff and Miao & Co signed on or about 22 March 2019 (the “Engagement Letter” or “EL”); and (b) a breach of fiduciary duty.

(2)  Paragraph 11 in its revised form in the draft ASOC makes it plain that the pleas of breach of implied contractual duty and/or negligence are granular manifestations of the overarching claim for breach of the Engagement Letter. Paragraph 11 of the draft ASOC says this:

“In breach of the Engagement Letter (in particular the Implied Contractual Duty), the Duty of Care and/or the Fiduciary Duty owed to the Plaintiff, the 1^st and/or 2^nd Defendants hasve negligently handled the HCCL Action and/or grossly, unreasonably and disproportionately charged the Plaintiff for their alleged legal services, for which to the knowledge of the 1^st and/or 2^nd Defendants, such charges against the Plaintiff have been grossly unreasonable, disproportionate and excessive.”

8.  Mr Kwan opposes the proposed amendments on a number of grounds, the gravamen of which is that they would impermissibly circumvent s.67 of the Legal Practitioners Ordinance (Cap 159) (“LPO”). I agree with Mr Man SC that the Defendants have the burden of proving that the proposed causes of action in contract and/or in tort are impossible or barred as a matter of law. The onus is thus on the Defendants to satisfy me that the proposed amendments are bound to fail. Despite Mr Kwan’s able submissions, I am not satisfied that this high threshold is met.

9.  In particular, I do not regard the Plaintiff’s submission that s.67 LPO does not exclude claims for damages against solicitors for breach of fiduciary duty, contract and negligence as being bound to fail, especially against the backdrop of the passage in Jackson & Powell on Professional Indemnity, 9^th edn (2021) at [11-334] to which my attention has been drawn:

“Where the solicitor’s services are valueless as a result of his breach of duty, the client is entitled to recover any sum which he has paid to the solicitor by way of costs.[1] This may be regarded either as damages for wasted expenditure or as repayment of a sum for which the consideration has wholly failed. Thus, if the solicitor for a claimant sues in the wrong court, or commits some other error which renders the whole proceedings useless, he will be debarred from recovering his costs and ordered to repay any costs which he has received. The same principle applies if the client brings a futile action as a result of negligent advice (or negligent lack of advice) by his solicitor. Similarly, if the solicitor for a defendant allows proceedings to go by default, he forfeits his entitlement to remuneration. Where part only of the solicitor’s services are rendered valueless by his breach of duty, he may still be entitled to remuneration for the remainder of his services.”

10.  During the course of the hearing, my attention was drawn to a number of authorities, in particular, Harrison v Tew [1989] QB 307 at 325D-E, in which the English Court of Appeal had to grapple with the effect of s.50 of the English Solicitors Act 1974 (which is the equivalent of s.67 LPO), and in respect of which it was said as follows (per Dillon LJ):

“The disciplinary powers of the court are indeed preserved by section 50 of the Act of 1974, but that, on the express wording of section 50(2), D is ‘subject to the provisions of this Act,’ and those provisions include section 70(4).

  This does not mean that the court is bereft of all power to inquire, either in disciplinary proceedings or in an action by the client or anyone else against the solicitor, into the question whether the solicitor has been guilty of serious professional misconduct by gross overcharging or fraud, if the solicitor’s bill has been paid more than 12 months before the relevant application to the court was made. It merely means that the route of an order for taxation of the bill is not available as the route for making that inquiry.”

11.  Similar observations were made by Sir Frederick Lawton at p.337D-F:

“If an allegation of serious professional misconduct based on excessive and dishonest overcharging is made, the appropriate tribunal, be it The Law Society’s disciplinary tribunal or the court, exercising its inherent jurisdiction over solicitors, might have to find out what was the amount of the excessive overcharge. It could do so in whatever way it thought appropriate; and, as a matter of convenience, it might refer the bill in question to a taxing master. Such a reference would be a step in the inquiry about alleged serious professional misconduct, but not an application for taxation pursuant to section 70 of the Solicitors Act 1974. It follows, in my judgment, that the solicitor whose conduct was being examined could not plead that there could be no inquiry as to the amount of the alleged excessive overcharge because that bill had been paid more than 12 months before disciplinary proceedings were started against him.”

12.  Similar observations were also made in the House of Lords by Lord Lowry in Harrison v Tew [1992] 2 AC 523 at 538B-D:

“As indicated when I reviewed the appellants’ arguments, they would have had a more attractive looking case if it were made to appear that, in the absence of inherent jurisdiction, a client who had been grossly overcharged would have no remedy once he had been careless or unfortunate enough to fall foul of the 12-month time limit.”

13.  The trio of observations made by the two members of the English Court of Appeal and Lord Lowry in the House of Lords persuades me that the claim made by the Plaintiff is not bound to fail.

14.  In addition, I am comforted by the following observations made by the United Kingdom Supreme Court in R (Child Poverty Action Group) v Secretary of State for Work and Pensions [2011] 2 AC 15 at [33] and [35], per Dyson JSC:

“33. If the two remedies cover precisely the same ground and are inconsistent with each other, then the common law remedy will almost certainly have been excluded by necessary implication. To do otherwise would circumvent the intention of Parliament. A good example of this is Marcic, where a sewerage undertaker was subject to an elaborate scheme of statutory regulation which included an independent regulator with powers of enforcement whose decisions were subject to judicial review. The statutory scheme provided a procedure for making complaints to the regulator. The House of Lords held that a cause of action in nuisance would be inconsistent with the statutory scheme. It would run counter to the intention of Parliament.

34. The question is not whether there are any differences between the common law remedy and the statutory scheme. There may well be differences. The question is whether the differences are so substantial that they demonstrate that Parliament could not have intended the common law remedy to survive the introduction of the statutory scheme. The court should not be too ready to find a common law remedy has been displaced by a statutory one, not least because it is always open to Parliament to make the position clear by stating explicitly whether the statute is intended to be exhaustive. The mere fact that there are some differences between the common law and the statutory provisions is unlikely to be sufficient unless they are substantial. The fact that the House of Lords was divided in Total Networks SL [2008] AC 1174 shows how difficult it may sometime be to decide on which side of the line a case falls. The question is whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme and therefore could not have been intended by (sic) to coexist with it.

35. I agree with Lord Brown of Eaton-under-Heywood JSC that, for the reasons he has given, section 71 was intended to be an exhaustive code. Some of the difficulties that he has highlighted at para 14 of his judgment are similar to those mentioned by Lord Neuberger in Total Network SL. As Lord Millett put it in Unisys [2003] 1 AC 518, at para 80 of his speech, “the coexistence of two systems, overlapping but varying in matters of detail … would be a recipe for chaos”. That is a powerful reason for supposing that Parliament intended the statutory code contained in section 71 of the 1992 Act to be exhaustive.” (emphasis added)

15.  There is nothing express in the wording of s.67 LPO which displaces the availability of common law claims by clients against solicitors and, based on the above line of authorities, I am thus unable to conclude at this stage that the Plaintiff’s causes of actions in contract or negligence are bound to fail.

16.  Mr Kwan makes a separate complaint about the quantification of damages for breach of implied contractual duty and/or negligence (i.e. Group 3 amendments). Paragraph 19.1 of the ASOC sets out a table which makes it clear that the Plaintiff claims the difference between what was billed and what should have been billed as damages for its new pleas. Mr Kwan says that this is, in substance, the relief that would be obtained through taxation or assessment and that, in essence, this is yet another indicia of the Plaintiff trying to get around s.67 LPO by a sidewind and that it is thus not damages. However, I do not consider the fact that the quantification of damages for breach of implied contractual duty and/or negligence to be assessed in a manner similar to taxation would necessarily lead to the conclusion that it is a method of quantification that is bound to fail.

17.  There is a further but related complaint that Mr Kwan makes in this regard, namely that allowing the amendments would deprive his clients of their ability to take the point they wish to make about s.67 LPO and that this therefore would cause them prejudice. Mr Kwan goes so far as to say in paragraph 32 of his skeleton submissions that: “If the amendments are allowed, that entire limitation defence disappears”. I am unable to accept this argument. As Mr Man SC and Mr Lam have pointed out, the issue concerning s.67 LPO is and will remain a ‘live’ issue as it had already been canvassed in the earlier round of pleadings and on which the parties have joined issue. This cuts across the concerns Mr Kwan has expressed as to prejudice.

18.  Indeed, this all stacks up with the fact that, as I have already observed, the pleas of implied breach of contractual duty and/or negligence are pleaded as granular manifestations of the claim for breach of the EL. The issue concerning s.67 had already arisen in the earlier round of pleading and the proposed amendments do not alter that state of affairs.

19.  So far as timing is concerned, I note that no trial dates have been fixed as yet and allowing the amendments at this stage would not cause the 1^st and/or 2^nd Defendants to suffer irremediable prejudice that cannot be compensated in costs.

20.  Thus, in all the circumstances and having regard to the underlying objectives in RHC, I dismiss the appeal from the Master’s decision to allow the amendments to the SOC.

C.  Appeal against Application to Add Miao & Co as a Defendant

21.  Turning next to the application to add Miao & Co as a Defendant, I am of the view that Miao & Co should be joined as the 2^nd Defendant. I would thus dismiss the appeal from the Master’s decision in relation thereto.

22.  The general approach on joinders is set out in the decision of Andrew Cheung J (as he then was) in Ng Chiu Wing v Yip Hoi Ching (CACV 362/2008, 29/6/2009) at paragraph 15:

“A plaintiff is entitled to choose the person against whom to proceed. It is for the plaintiff to decide whom he wishes to sue. He may or may not be successful in his claim. The fact that the court allows a plaintiff to join a person as an additional defendant does not mean that the court takes the view that the plaintiff is bound to succeed against that additional defendant. That is a matter for trial. At the joinder stage, unless the court takes the view that the intended claim against the person sought to be joined is bound to fail or unless there are other special circumstances, the court should normally allow the plaintiff to choose his defendant.”

23.  Mr Kwan has two principal submissions on this topic:

(1)  First, Mr Kwan makes the point that a partnership can only be sued if two or more partners were involved in the matter. Mr Man SC and Mr Lam point out that the assertion that such a numerical threshold exists cuts across ss.11 and 12 of the Partnership Ordinance (Cap 38). They go on to submit that where any partner(s) commits a wrongful act or omission in the ordinary course of the business of the firm, then all of the other partners are jointly and severally liable and it matters not whether the wrongful act or omission was the fault of one or more partners. For present purposes, I do not consider the Plaintiff’s arguments to be bound to fail.

(2)  Secondly, as for Mr Kwan’s point that Miao & Co’s rights and obligations under the engagement with the Plaintiff were novated to the 1^st Defendant after Miao & Co ceased practice, again it cannot be said that the Plaintiff’s response to this point is such that it is bound to fail.

24.  Further, it was explained by Mr Man SC and Mr Lam during the hearing that the need for Miao & Co to be joined comes from the fact that the Defence avers at [72] that: “On 28 November 2022, Han Kun HK acted as the solicitors for the Plaintiff in the Mis-selling Action in place of M&C with the terms of the Engagement Letter continued to apply as between the Plaintiff and Han Kun HK” whilst it is averred at [146] that “the Plaintiff has no claim or cause of action against Han Kun HK in respect of Bill Nos. (1) to (6) and (8)”.

25.  Against the backdrop of all the relevant circumstances, I cannot conclude that a claim against Miao & Co is bound to fail.

D.  Appeal against the Order for Indemnity Costs

26.  I would also dismiss the appeal against the Master’s decision to order indemnity costs. I do not consider his decision to be either unreasonable or to be based on an error of law.

27.  One of the features of the hearing before the Master, which he considered to be sufficiently unusual so as to warrant an order for indemnity costs, was the reliance by the Defendants on a voluminous amount of material (in particular nearly 800 pages of affirmation evidence). There was nothing unreasonable or erroneous about the approach he took in this regard.

E.  Costs of the Appeal

28.  There are two points of principle that I have been asked to decide, namely: (a) whether to grant a certificate for one or two counsel; and (b) whether costs should be assessed on the standard or indemnity basis.

29.  Turning to the first of these, I order that there be a summary assessment of the costs of the appeal, with a certificate for two counsel.

30.  As for the second, I do not consider the position that the Defendants have adopted in the hearing before me to be so unreasonable as to take it out of the norm, so as to warrant an assessment of costs on the indemnity basis. There was a considerable amount of intellectually stimulating discussion about whether common law claims against solicitors in contract and/or in tort are in line with s.67 LPO. This was a complex topic which persuaded me to grant a certificate for two counsel and the position which the Defendants took on this topic was not one which warranted an assessment of costs on the indemnity basis. In that regard, Mr Kwan took a sensible at the hearing before me and no reliance was placed on the voluminous 800-page affirmation evidence that had been placed before the Master – to my mind this is the distinguishing feature between the proceedings before me and those before the Master.

31.  Finally, it remains for me to thank counsel on both sides for their helpful submissions in assisting the court in relation to these proceedings.