FAMOUS INVSTMENT CO LTD AND OTHERS v. LAU WONG AND CHAN (sued as a firm)

PRACTICE AND PROCEDURE - SOLICITOR - WHETHER OR NOT MONIES HELD AS STAKEHOLDER

                A solicitor held monies, deriving from intending sub-purchasers, for a client pending that client's completion of an agreement for the purchase of a fleet of taxi-cabs. He made representations to the intending sub-purchasers, with his client's consent, that in the event of the sales falling through he would repay the appropriate sums to them directly. On the claims of the client and the sub-purchasers for interest on the monies earned after the agreements for the sales and sub-sales in question had irretrievably broken down. Held:

By the Trial Judge and by the Court of Appeal

1)    The client and intending sub-purchasers were entitled to the interest. Appeal dismissed in relation to interest.

By the Court of Appeal

2)    Indemnity costs should not be awarded because proceedings brought to clarify the law in the interests of a limited class have failed.

Appeal allowed in relation to costs.

IN THE COURT OF APPEAL

BETWEEN

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JUDGMENT

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Kempster, J.A. (delivering the judgment of the Court):

1. On 21st April 1983 the respondents to this appeal, Famous Investment Co. Ltd. (hereinafter referred to as "Famous"), a company of no great substance, concluded an agreement in writing for the purchase from three companies ostensibly carrying on business as taxi operators of their interest in 454 taxi-cabs together with licences as particularized for $80 million. We say "their interest" because at all material times the taxi-cabs in question remained the property of a finance company. The appellants, Lau Wong and Chan, a firm of solicitors (hereinafter referred to as "Lau") acted for both parties.

2. Pursuant to clause 3 of the agreement Famous made an initial payment of $500,000 to Lau to be held by them as stakeholders and, in the event of completion, clause 4(c)(ii) required that:

"The vendors and the purchasers shall jointly authorize the vendors' solicitors to release the deposit to the vendors or the vendors' nominee together with all accrued interest thereon. "

3. The object of the agreement was to secure a profit for Famous on the resale of the taxi-cabs and their respective licences to the vendors' drivers and employees who were interested in buying the taxis with the assistance of the finance company. Lau contend that, in order to protect the interests of such sub-purchasers, it was orally agreed between Famous and the vendors and Lau respectively and represented and promised by Lau to the sub-purchasers that monies paid by them to Famous would be deposited with Lau pending completion of the sub-sales. Famous were to identify details of the sub-sales to Lau so that Lau could repay the appropriate sums directly to sub-purchasers should the sub-purchase agreements not be completed.

4. While it is common ground that Famous deposited $4.5 million paid by intending sub-purchasers with Lau they assert that these monies were so deposited further on account of the price payable under the agreement of 21st April and as a demonstration of good faith towards the sub-purchasers. During June 1983 Messrs. John Yip & Co. were instructed by Famous to act on their behalf and Messrs. Herbert Smith & Co. to act on behalf of the vendors; both in place of Lau. None of the agreements was completed.

5. On 16th and 18th June respectively Famous, by Mr. Yip, demanded from Lau the return of the $4.5 million and of the $500,000 deposit and on the 21st complained to the Law Society of Hong Kong in relation to Lau's failure to return these monies to them. No issue remains as between the parties in relation to the $500,000 or to the $4.5 million but in June 1983 Lau were, they claim, concerned to fulfil and implement the promises made to the sub-purchasers. Lau placed the $5 million on special deposit and, believing their professional reputation to be at stake, on 23rd June commenced an action, of which the distinctive number was 7835 of 1983, against Famous claiming a declaration that they were, by agreement, entitled and bound to return the $4.5 million directly to the respective sub-purchasers who had paid such monies to Famous on account of the price of taxi-cabs. No claim was mde in relation to interest earned on the monies. The fact that, if they were in truth stakeholders, Lau might instead have issued an interpleader summons is neither here nor there.

6. On 24th June Famous issued an Originating Summons pursuant to Order 106 of the Rules of the Supreme Court claiming from Lau the $4.5 million and seeking an order that such monies should be paid into court. Having regard to the action already commenced by Lau the invocation of this summary procedure, which is only exercised with caution and in circumstances usually reflecting little credit on the solicitor, was unfortunate and has led to duplication, delay and unnecessary expense.

7. The propriety of the proceedings was open for consideration at the first hearing of the Originating Summons which took place before Jackson-Lipkin J. in Chambers on 14th July 1983. As appears from the terms of the Order which, unlike the subsequent formal judgment, does not recite a selective reading, and from the note which he made at the time, the learned judge had before him an affidavit form Mr. Lau, the partner who represented the firm throughout, and the writ in action No. 7835 of 1983 which was indorsed with the Statement of Claim. Paragraph 13 of the affidavit read:

"Finally I would also pray that the Plaintiff's application be dismissed with costs for the matter can be dealt with by the Defendant (Famous) by way of counterclaim in the High Court Action No. 7835 of 1983.'

On 25th July, in the context of the Originating Summons, the learned judge ordered Lau to give further and better particulars of the Statement of Claim in that action.

8. When giving judgment on 15th and 19th June 1984, following the final hearing of the Summons, Jackson-Lipkin J. said:

"No mention was made to me at the hearing (on 14th July 1983) of the pending High Court Action, nor was my attention drawn to Exhibit LSW-1 of Mr. Lau's affidavit of the 13th of July. (The writ) Otherwise I would most certainly have ordered an interim stay of the Originating Summons proceedings, pending applications either for consolidation of the two sets of proceedings or a permanent stay, so that the Court could decide what should be done to avoid a duplicity of proceedings. - Back the matter came to me on 28th February (1984) - in the matter and not in the action of which I was still unaware. "

His recollection was at fault. On 14th July 1983, following certain undertakings to one of which we will in due course refer, and subsequently, with notice of the existance of action No. 7835 of 1983, he gave a number of orders for directions. Lau did not appeal. For the rather unhappy mechanics of this litigation overall the parties must, under our adversarial system, accept much of the responsibility. We cannot but remark, however, that Lau would have been well advised to have instructed counsel.

9. Pleadings in action 7835 of 1983 were exchanged during the currency of the Originating Summons proceedings. The $4.5 million were subsequently ordered to be paid into and out of court and on 27th July 1983 Famous were given leave both to claim interest on that sum earned after 16th June 1983 and to add the sub-purchasers, of whom 242 subsequently provided the necessary authority, as parties. They appear on the record as plaintiffs. The counterclaim of Famous in action 1983 No. 7835 also sought interest on the $4.5 million as from 16th June 1983. On 23rd December 1983 Lau were given leave to file an affidavit of "counterclaim" in the Originating Summons by which, for the first time, interest was formally claimed by them. '

10. The Originating Summons having come on for hearing between 12th and 15th June 1984 it appears from the learned judge's note that action No. 7835 of 1983 was also listed for mention on the 14th. When giving judgment he recited that:

"I have already discussed, in the judgment in the Originating Summons, action No. 7835 of 1983. By consent the claim and counterclaim will be dismissed with no order as to costs. "

Lau were ordered to pay to Famous and the sub-purchasers, who had made common cause with them, interest earned on the $4.5 million both while on deposit in the name of Lau from 15th to 29th July 1983 and while in court. Interest had become the only live issue.

11. On 31st July 1984 Lau filed a Notice of Appeal and on 2nd August sought from the court a copy of the transcription of the judgment which had been given orally and recorded. On the following day Lau were informed that the learned judge was abroad but that the matter would be drawn to his attention immediately upon his return. Meanwhile the appeal was fixed for hearing on 28th, 29th and 30th days of November of this year. By 2nd October, nothing further having been heard, Lau wrote to the court again for the judgment. On 5th October the clerk to the judge wrote to say that the judgment was already in the hands of the typing pool and that a copy would be supplied as soon as it was ready. On 18th October Lau wrote to the judge's clerk again; expressing some surprise that the judgment was still not to hand. On 22nd October the judge's clerk said that the surprise of Lau was exceeded by that of the learned judge. It was not stated what had occasioned his surprise. Be that as may at this late stage some of the tapes were apparently missing and copies of notes of the judgment contem-poraneously made by the parties were sought by the learned judge and furnished. The transcription finally became available on about 22nd November; some 5 months after its delivery and a week before the hearing of the appeal.

12. We have recounted these administrative details because they reinforce our view that in order to avoid the risk of tapes going astray and such unacceptable delays as occurred in this instance all judges should adhere to the usual practice of reducing long and important oral judgments to typescript at an early stage, obviously prior to protracted absences from Hong Kong, and sending copies to the parties.

13. The trial had been conducted, by consent, on the footing that Lau's case, as contained in the sworn evidence, should be accepted as the basis for legal argument. That is why, we assume, part of the formal judgment reads:

"And upon reading the agreed parts or portions of the affidavits and affirmations sworn and affirmed herein on behalf of the parties respectively. "

In his affidavit sworn on 13th July 1983 Lau deposed to the truth of the indorsement on the writ in action 7835 of 1983. Paragraphs 8, 9 and l0 of the Statement of Claim so indorsed read:

And paragraph 14:

"The sale and purchase of the 454 taxis were not completed on 18th May 1983 under clause 4 of the said agreement. "

14. Lau sought both a declaration that Famous was bound by the agreement alleged and an order for lists of sub-purchasers so that they might effect direct repayment. It follows that Lau's case was that if not from 18th May certainly from 14th July 1983, when all hope of renegotiating the agreements had gone, they were liable to repay the $4.5 million directly to the sub-purchasers; not to Famous. Sub-sales could hardly be implemented after the principal sale upon which they depended had fallen through. From that it follows that Lau, at least, were not entitled to interest on such sum as from the latter date and have no grounds for complaint at the relevant terms of the Order appealed against. The counterclaim for interest thereafter, which was made in Mr. Lau 's affidavit of 21st January 1984, is unsupported by evidence. An academic question, which we shall not seek to answer, remains as to entitlement to interest on the $4.5 million between the various dates in April and May 1983 when payments amounting to that figure were made by Famous to Lau and 14th July 1983. It is academic because Famous initially made no claim to interest before 16th June 1983, as recorded in an Order of Mr. Commissioner Chang Q.C. dated 27th July 1983, and at trial neither they nor their allied sub-purchasers sought to recover interest earned prior to 15th July 1983. But we agree with the learned judge that Lau in any event held the $4.5 million not as stakeholders which, it is conceded, would prima facie have entitled them to interest, but on behalf of Famous to whom they were bound as agents. Lau did not rely on any objection by the vendors; to whom they claimed also to be so bound. No agency subsisted between Lau and the sub-purchasers or any of them. A potential liability in tort or under the disciplinary jurisdiction of the court over its officers does not suffice albeit Lau might have been in an analogous position: Ex parte Hales ⁽¹⁾.

15. The Order made on 14th July 1983 recited an undertaking given by Lau in these terms:

 

"Not to claim any entitlement to any interest on monies deposited in their name. "

Amendments retrospectively made did not alter the purport. At a late stage in the trial Famous contended that Lau had thereby abandoned any claim to interest accrued or thereafter accruing on the sum of $4.5 million. That contention is certainly correct with regard to interest accruing after the date of the Order. Expressed in the terms of an undertaking, which could render Lau liable for contempt, the words are unambiguous and binding unless and until Lau are released from it.

"If the litigant has given an undertaking and desires tube released from that undertaking, the application should be an application for release, and an application supported by evidence showing why the litigant should be released from the undertaking which he has given. - Litigants are not ordered to give these undertakings; they choose to give them - "

Per Morton, L.J. in Cutler v. Wandsworth Stadium, Ltd. ⁽²⁾. at p. 105. It is not like an admission which can readily be withdrawn save in the rare instances where costs do not make good the prejudice to the other party.

16. At trial and on the basis of assertion rather than evidence Lau sought release from their undertaking and were refused. It is said that the parties had pursued the proceedings on the convention or shared assumption that the undertaking would not be relied upon by Famous so as to bring the matter within the principles explained by Brandon L.J. (as he then was) in Amalgamated Property Co. v. Texas Bank ⁽³⁾ at p. 130, and that therefore there was an improper exercise of discretion. We cannot accept this submission. The terms of Consent Orders or the fact that, in his affidavit sworn on 27th February 1984, Mr. Ip, for Famous, merely denied Lau's late claim to interest rather than specifically referring to the undertaking did not demonstrate an attitude approximating to a waiver of the right to enforce it nor could Lau raise a promissory estoppel against Famous. A waiver or related promise must be unambiguous. Neither was anything done by Famous to render it unconscionable further to rely upon the undertaking within the principles explained by Oliver J. (as he then was) in Taylor's Fashions Ltd. v. Liverpool Trustees ⁽⁴⁾. No evidence was led to the effect that Famous had led Lau to accept any assumption in this regard within the similar principles explained by Lord Denning M.R. in Moorgate Mercantile Co. Ltd. v. Twitchings ⁽⁵⁾ at p. 241.

17. For these reasons the appeal against the order made in respect of interest must be dismissed.

18. The learned judge awarded Famous three fifths of their costs on the footing that two days of the hearing, prior to argument based on the undertaking, was wasted. We are not disposed to interfere with this exercise of discretion; particularly as we are not asked so to do by Famous. But the learned judge went on to order that the costs should be taxed on an indemnity basis. Serious cases of contempt apart this is a most unusual provision albeit intra vires EMI Records Ltd. v. Wallace ⁽⁶⁾ per Megarry V-C The order was made because the learned judge thought Famous had been put to expense in order to establish principles of interest only to solicitors. He did not expressly, take into account, and the transcription omits the reference apparently made earlier in his judgment to, Lau's concern for their good name. Much litigation is contested for reasons of principle and reputation and we do not think that unsuccessful parties deserve condign treatment in the realm of costs as a result. The learned judge exercised his discretion on an erroneous principle. No departure from the norm was, in our view, warranted.

19. It follows that the appeal against the order for taxation of costs on an indemnity basis succeeds. An order for taxation of the plaintiffs' costs on a party and party basis will be substituted.

(1)    [1907] 2 K.B. 539

(2)    [1945] 1 All E.R. 103

(3)    [1982] Q.B. 84

(4)    [1982] Q.B. 133

(5)    [1982] Q.B. 225

(6)    [1983] 1 Ch. 59