CHAN CHUN CHUEN v. KAO, LEE & YIP (a firm)

HCA 597/2015

[2023] HKCFI 3009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 597 OF 2015

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D E C I S I O N

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A. Introduction

1.  This is the hearing of the Summons dated 28 June 2023 taken out by the Defendant (the “Summons”).

2.  By the Summons, the Defendant applies for wasted costs order in respect of its costs of this action against the former legal representatives of the Plaintiff (the “Respondents”).  

3.  The Respondents can be grouped into two camps:  The first camp is Messrs Cheung & Liu and the relevant handling solicitors at the time were Mr Cheung Wai Keung William and Mr Chan Yiu Pun Jimmy (the “C&L Camp”); and the second camp is Messrs. Bough & Co and the relevant handling solicitors at the time were Mr Bough Anthony Michael and Ms Chan Yuen Wah Kitty (the “B&C Camp”).

4.  At the hearing, the Defendant was represented by Mr Justin Lam and Mr Billy Liu, the C&L Camp was represented by Mr Ambrose Ho SC leading Mr Albert Chan, and the B&C Camp was represented by Ms Elizabeth Cheung and Mr Edward Tsui.

5.  This action was commenced on 23 March 2015 by C&L Camp on behalf of the Plaintiff.  C&L Camp acted as the Plaintiff’s solicitors in this action for two periods of time: the first period was between 23 March 2015 and 23 December 2015 and the second period was between 20 January 2016 and 22 December 2016.  B&C Camp also acted in that capacity for two periods of time: the first period was between 24 December 2015 and 19 January 2016 and the second period was between 23 December 2016 and 19 August 2021.

6.  On 12 August 2021, the Plaintiff was adjudged bankrupt in HCB 6563/2020. Upon the Defendant’s application made on 11 August 2022, this action was dismissed on 9 September 2022 by a Master “on the basis that the Joint and Several Trustees of the property of [the Plaintiff] will not adopt the present proceedings”.

B.  The Claim in this Action and the Procedural History

7.  In this action, the Plaintiff claims against the Defendant for damages / equitable compensation for breach of contract, breach of duty of care in tort, and/or breach of fiduciary duty.  The Plaintiff’s case is that in breach of its duties, the Defendant failed to forward to him some property tax and profit tax assessments sent to the Defendant’s office (the “Tax Assessments”), as a result of which the Plaintiff was deprived of the opportunity to raise his objection against those Tax Assessments.

8.  In relation to his claim for breach of contract, at the initial stage of this action, the Plaintiff alleged that an agreement was orally concluded in or around mid-1993, or was to be inferred from conduct between the parties since mid-1993, that the Defendant would bring to the Plaintiff’s notice those documents sent to the Plaintiff at the Defendant’s address.

9.  For the reasons explained in my decision handed down on 12 October 2017 (the “1^st Decision”), I ordered that the plea there was an oral agreement concluded in or around mid-1993 be struck out as an abuse of process.

10.  In simplest terms, I took the view that it is abuse of process for the Plaintiff to advance a case that there was the alleged oral agreement as such a case is “fundamentally inconsistent with and diametrically opposite to” the position adopted by the Plaintiff in HCAL 76/2010 (the “JR Proceedings”) in which he sought judicial review of the decision of the Commissioner of Inland Revenue in refusing granting extension of time for him to object to the Tax Assessments.

11.  That said, I did emphasise (at §30(3) of my 1^st Decision) that what constitutes an abuse of process may vary with circumstances of each case.  Thus, in deciding to strike out the plea of the alleged oral agreement, I (at §§67-76 of my 1^st Decision) examined the Plaintiff’s explanation for the inconsistency and concluded that such explanation is implausible and unsatisfactory such that it is an abuse of process for the Plaintiff to advance and rely on the alleged oral agreement in this action.

12.  Later on, the Defendant sought leave to appeal against my 1^st Decision.  In the application for leave to appeal, the Defendant sought to expand its striking out application to cover the Plaintiff’s case of “inferred agreement”.  

13.  For the reasons explained in my decision handed down on 27 August 2018 (the “2^nd Decision”), I refused to grant leave to appeal to the Defendant.  I held that it was not open to the Defendant to seek an order striking out the Plaintiff’s case of “inferred agreement” since it had not been the subject of challenge in the affirmation in support of the striking out application as well as at the hearing of the application.  I further observed (at §10 of my 2^nd Decision) that it was right that the Defendant’s Senior Counsel did not seek to strike out the plea of “inferred agreement” in view of the fact that the Plaintiff did make reference in the JR Proceedings to an “informal arrangement” whereby the Defendant would contact the Plaintiff’s agent when they received documents sent to the Defendant’s office for the Plaintiff’s attention.

14.  The Defendant renewed its application for leave to appeal to the Court of Appeal.  By its decision dated 15 February 2019 (the “CA Decision”), the Court of Appeal refused the Defendant’s application.

15.  In the CA Decision, the Court of Appeal agreed (at §12 of the CA Decision) that it was not open to the Defendant to seek to strike out the Plaintiff’s case of “inferred agreement” in light of the evidence and argument advanced by the Defendant in the court below.  More importantly, the Court of Appeal (at §§14-15 of the CA Decision) further held that there is no merit in the Defendant’s attempt to strike out the case of “inferred agreement” in light of reference to the “informal arrangement” in the JR Application.

16.  On 13 May 2020, the Defendant obtained leave to amend its Defence[1]. For the present purposes, it is only necessary to note that one of the amendments made by the Defendant was to answer the Plaintiff’s claim for damages pleaded at §25 of his original Statement of Claim, which remained unchanged in his Amended Statement of Claim dated 30 July 2019.  Under that paragraph, the Plaintiff claimed against the Defendant for 3 heads of losses. One head pleaded at §25.1 is that as a result of the Defendant’s breach of duties, the Plaintiff lost the opportunity to object to the profits tax assessments.  In answer to this particular head of loss, the amendment introduced by the Defendant (at §17 of the Amended Defence) was that the Plaintiff did carry on business by providing Fung Shui services as so found by Lam J (as he then was) and the Court of Appeal in an earlier probate action involving the Plaintiff, namely HCAP 8/2007 and CACV 101/2010 (the “Probate Proceedings”).

17.  Before this action was dismissed on 9 September 2022, this action had not progressed beyond disclosure of documents.  No witness statements had yet been exchanged between the parties.  Apart from the Defendant’s limited success in striking out part of the Statement of Claim, there had not been any determination of merits on any other issues of this action by the Court.

C.  Considerations for First Stage Hearing

18.  This is the first stage hearing of the Defendant’s application for wasted costs order against the Respondents.

19.  Pursuant to O.62 r.8B(1)(a) of the Rules of the High Court (“RHC”), at the first stage, the Court must be satisfied that:-

(1)  It has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(2)  The wasted costs proceedings are justified notwithstanding the likely costs involved.

20.  In relation to the approach of the Court at the first stage, Li CJ in Ma So So v Chin Yuk Lun (2004) 7 HKCFAR 300 had the following observations:-

“[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 [1994] Ch 205 at p.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, (unrep, 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.” (emphasis added)

21.  Thus, the main issues for this Court to consider for the purpose of exercising its discretion at this stage are: (1) whether a prima facie case for wasted costs order is made out and, if so, the strength of such a case; and (2) whether it is proportionate for the matter to proceed to the second stage.

22.  In doing so, this Court needs to bear in mind that the jurisdiction under the rule is “compensatory” and that “any order made is directed towards compensating the party concerned … for the costs incurred or wasted as a result of the solicitor’s conduct”: see Ma So So (supra) at §7.  Further, the jurisdiction is a “summary jurisdiction” and “should be strictly confined to questions which are apt for summary determination”: see Ma So So (supra) at §8.

23.  In exercising its discretion, this Court should approach the task with caution bearing in mind that there is tension between two important public interests, namely (1) that, on one hand, legal representatives should not be deterred from pursuing their clients’ interests for fear of incurring personal liability for costs to their clients’ opponents; and (2) that, on the other hand, litigants should not be financially prejudiced by unjustifiable litigation conduct of the legal representatives of their opponents: see Chiu Sui Ching v Cheng Kwai Hung [2023] HKCFI 1417 per Marlene Ng J at §39.

24.  Referring to the tension between these two important public interests, Sir Thomas Bingham MR (as he then was) in Ridehalgh v Horsefield [1994] Ch 205 (CA) at 226B-C warned that wasted costs orders “should not became a back-door means of recovering costs not otherwise recoverable against a legally-aided or impoverished litigant”.

D.  Has a Prima Facie Case been Made Out?

D1.  The Defendant’s Complaints and the Applicable Principles

25.  There is no dispute that the discretion to award a wasted costs order against a legal representative is not engaged unless there is a prima facie case that the legal representative was responsible for (1) acting improperly or without reasonable cause or (2) for undue delay or any other misconduct for default in any proceedings: see Ma So So (supra) at §6.

26.  In gist, the Defendant’s complaints against the Respondents are two-fold:-

(1)  First, the Defendant complains that because of the diametrical inconsistency between the plea of the alleged oral agreement and the position taken by the Plaintiff in the JR Proceedings, perjury must have been committed by the Plaintiff and that the Respondents had lent their assistance to the Plaintiff by failing to advise the Plaintiff “not to commence or continue with the Action” or “otherwise withdraw from acting in the case” or “inform the Court at an appropriate juncture”[2] (the “1^st Complaint”).

(2)  Second, in relation to the alleged loss arising from the alleged deprivation of opportunity to object to the profits tax assessments, the Defendant complains that it is obvious that there were direct factual findings in the Probate Proceedings that the relevant payments related to the Fung Shui services provided by the Plaintiff and such findings run contrary to the purported ground of objection that the payments were not chargeable to profits tax.  Thus, the Plaintiff’s case on the alleged loss in this action amounts to a collateral attack against the findings in the Probate Proceedings and the Respondents effectively lent assistance to the Plaintiff’s abuse of court process[3] (the “2^nd Complaint”).

27.  Before addressing the 1^st and 2^nd Complaints, it is necessary to bear in mind the conduct of legal representatives that are capable of giving rise to a wasted costs order.

28.  In this context, as held by Marlene Ng J in Chiu Sui Ching (supra) at §42, “improper” connotes conduct which is regarded as improper according to the consensus of professional opinion, and “unreasonable” conduct connotes conduct which is vexatious or designed to harass the other side rather than to advance the resolution of the case.  Although it does not require proof of bad faith, the conduct must involve a failure on the part of the legal representative to fulfil his duty to the court and to realise his duty to aid in promoting in his own sphere the cause of justice.  The conduct must be inexcusable such as to merit reproof.  The test is whether the conduct amounted to a serious dereliction of duty.

29.  Further, there is also no dispute that the fact legal representatives act for a party who advances a hopeless case is not itself a ground for making a wasted costs order: see Chiu Sui Ching (supra) at §100.  The rationale for this was explained by Sir Thomas Bingham MR (as he then was) in Ridehalgh v Horsefield (supra)at 234C-D:-

“… Legal representatives will, of course, whether barristers or solicitors, advise client of the perceived weakness of their case and of the risk of failure. But clients are free to reject advice and insist that cases be litigated. It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. They are there to present the case; it is (as Samuel Johnson unforgettably pointed out) for the judge and not the lawyers to judge it.” (emphasis added)

30.  Accordingly, it is not sufficient for a party seeking a wasted costs order against the legal representatives of his opponent to show that his opponent’s case is hopeless.  In order to invoke the Court’s jurisdiction to make a wasted costs order, that party bears to burden to show (at the first stage, a prima facie case) that such legal representatives have committed some misconduct that justifies the Court imposing a wasted costs order against them.

D2.  Analysis of the 1^st Complaint

31.  The gist of the 1^st Complaint is that the Respondents lent assistance to the Plaintiff’s abuse of process by commencing or continuing the pursuit of this action against the Defendant based on the alleged oral agreement, with full knowledge that such a case is diametrically inconsistent with the Plaintiff’s case in the JR Proceedings.

32.  There is dispute about the point of time when each of the Respondents became aware of the Plaintiff’s position on this matter in the JR Proceedings. I do not think it is necessary for me to deal with such dispute at this stage. This is because it would have been apparent to the Respondents when they read the original Defence filed on 11 September 2015 that the Defendant challenged the Plaintiff’s case on the basis that there was a lack of reference to the alleged agency agreement in the JR Proceedings[4]. Hence, for the present purposes, I am prepared to accept (but without deciding) that the Respondents knew at some point of time that the Plaintiff’s case on the alleged oral agreement in this action could be inconsistent with his case put forward in the JR Proceedings.

33.  This in itself, however, is insufficient to show a prima facie case that the Respondents were guilty of some kind of misconduct that justifies the making of a wasted costs order against them.

34.  Whilst I ruled in my 1^st Decision that it is an abuse of process for the Plaintiff to advance a case based on the alleged oral agreement in this action, I also emphasised (at §68 of my 1^st Decision) that whether there is an abuse of process depends upon whether there is any explanation for the inconsistent cases advanced in the different sets of proceedings.  Having considered the Plaintiff’s explanation (at §70 of my 1^st Decision), I concluded (at §§71-73 of my 1^st Decision) that such explanation is implausible and unsatisfactory.  In other words, inconsistency between different sets of proceedings per se is not an abuse of process.  My conclusion that it is an abuse of process for the Plaintiff to plead and rely on the alleged oral agreement in this action is based on my rejecting his explanation for the inconsistency.

35.  As noted in The Hong Kong Solicitors’ Guide to Professional Conduct^[5], “[in] general, there is no duty upon a solicitor to enquire in every case where he is instructed as to whether his client is telling the truth and it will be for the court, and not the solicitor, to assess the truth or otherwise of the client’s statement” and “if, either before or during the course of the proceedings, a client makes statements to his solicitor which are inconsistent, this is not of itself a ground for the solicitor to refuse to act further on behalf of the client” (emphasis added).

36.  As astutely observed by Marlene Ng J in Chiu Sui Ching (supra) at §90, “no general obligation is imposed on the litigation solicitor to conduct pre-trial screen of his client’s case claim or defence. To require a litigation solicitor to conduct a pre-trial screen will put him in a position of conflict by making him a preliminary assessor or judge of the issue in dispute” (emphasis added).

37.  Further, citing (with approval) the decision of Sir John Donaldson in Orchard v. South Eastern Electricity Board [1987] QB 565, Marlene Ng J held in Chiu Sui Ching (supra) at §91 that “although a solicitor should not assist a litigant where prosecution of a claim amounted to an abuse of process it was not his duty to attempt to assess the result of a conflict of evidence or to impose a pre-trial screen on a litigant’s claim or defence; that such a charge of misconduct against a solicitor ought not to depend on inference without direct evidence” (emphasis added).

38.  In my view, the fallacy of the Defendant’s 1^st Complaint is that it ignores the fact that the striking out of the Plaintiff’s plea of the alleged oral agreement was based on this Court not accepting his explanation for the inconsistency.  It is for the Court, but not for the Respondents (who acted as the Plaintiff’s solicitors), to assess whether or not the Plaintiff’s explanation ought to be accepted. 

39.  It does not assist the Defendant to argue that because of the inconsistency, the Plaintiff must have been guilty of perjury. Even assuming (but without deciding) that the Plaintiff must have perjured because of the inconsistency, the Respondents had no duty to judge whether the Plaintiff had perjured in the JR Proceedings, or in this action, or in both sets of proceedings.  From the Respondents’ perspectives, it could well be the case that the Plaintiff is telling the truth in this action, and that there were some mistakes or miscommunications between the Plaintiff and his former legal representatives when the latter handled the JR Proceedings on his behalf.

40.  In this regard, I did not lose sight of the fact that C&L Camp did represent the Plaintiff when the JR Proceedings went before the Court of Final Appeal (“CFA”) in FAMV 23/2012.  However, by the time when C&L Camp was retained by the Plaintiff to handle the application for leave to appeal before the CFA, the focus of the case concerned some constitutional issues.  There is no evidence of the C&L Camp being privy to the communications between the Plaintiff and his former legal representatives in the JR Proceedings on any matters concerning the existence or non-existence of the alleged oral agreement.

41.  In my view, it would unjustifiably penalise the Respondents for presenting their clients’ case based on their clients’ instruction on the facts given to them in this action if they are to be held liable for costs under a wasted costs order in the circumstances.

42.  In this regard, Mr Ho SC drew my attention to the decision of Jacobs J in King v Stiefel [2023] Costs LR 559.  In that decision, Jacobs J observed that although Sir Thomas Bingham MR in Ridehalgh v Horsefield (supra) at 234D-F said that legal representatives should not lent assistance to proceedings which are an “abuse of process”, it does not necessarily follow that it would be improper or unreasonable for them to act in case which is liable to be held as an “abuse of process”.  At §§140-141 of the decision, Jacobs J had this to say:-

“[140] … The type of “abuse of process” discussed in Cockerill J’s judgment is usually referred to as Henderson v. Henderson abuse of process; in other words, failing to argue in earlier litigation a point which could and should have been argued in the earlier litigation, and then subsequently trying to argue the same point again. I agree with the respondents’ submission that the nature of the abuse of process addressed by Cockerill J was a very different species, or kind, of abse of process from the example given by Sir Thomas Bingham MR in Ridehalgh.

[141] I also agree with their submission that it is not improper, unreasonable or negligent for a legal adviser to act for a client in a case in which a lawyer realises might be held to be an abuse of process, in the Henderson v Henderson sense. Otherwise, parties who are defending Henderson v Henderson points might find that solicitors will not act for them, for fear of those solicitors having to pay wasted costs for having lent their assistance to an abuse of process by the court. Further, cases where Henderson v. Henderson abuse is raised can give rise to very substantial and respectable arguments, on each side, as to whether the principles in that case apply on the facts of a particular case. The fact that (as here) the judge decides that they do apply does in itself provide the basis for a wasted costs argument. Indeed, in the present case, Cockerill J recognized that there were substantial arguments relating to abuse of process, in the Henderson sense…” (emphasis added).

43.  Although Jacobs J’s observation was made in the context of a case involving Henderson v Henderson abuse[6], his reasoning in my view is also applicable to other forms of “abuse of process” the determination of which require the Court to weigh various factors and balance the interests of the litigants before it as well as the other interests involved in the administration of justice.  In my view, the specie of “abuse of process” involved in my decision to strike out the Plaintiff’s plea of the alleged oral agreement is one of such forms of “abuse of process”.

44.  Thus, in order to make out a prima facie case for wasted costs order against the Respondent, it is simply insufficient for the Defendant to point out to the fact that the Respondents were aware of the Plaintiff’s position in the JR Proceedings at some stage, and that the Plaintiff’s plea of the alleged oral agreement was struck out as an abuse of process as a result of such position previously taken by the Plaintiff.  The fact that the Plaintiff’s case was only (partially) struck out by me after some serious arguments demonstrates that, short of direct evidence of misconduct, the Respondents should not be held liable for any wasted costs order.

45.  It follows from the above analysis that I must reject Mr Lam’s one-step-further argument that the Plaintiff’s position taken in the JR  Proceedings “also renders [his] alternative pleaded case of inferred agreement wholly untenable, as any inferred agreement by conduct cannot be established irrespective the objective circumstances if the proponent subjectively knew that there was no agreement”[7].

46.  Further, I would also respectfully adopt what was said by the Court of Appeal in the CA Decision in rejecting the Defendant’s attempt to expand the scope of the striking out to cover the Plaintiff’s plea of “inferred agreement”.  At §15 of the CA Decision, Kwan JA (as she then was) held that:-

“[15] Mr Lam submitted that the Informal Agreement cannot amount to an agreement as pleaded because the plaintiff is bound by his position in the JR Application that there was “no retainer”. We do not think it is plain and obvious, as a matter of law, an assertion that there was no retainer must mean that there was no agreement of any kind, notwithstanding the reference to the Informal Arrangement (which was supported by evidence) in the JR Application. Besides, as rightly pointed out by Ms Po Wing Kay, the existence or lack of an agreement between the plaintiff and the defendant was just not the focus of the JR Application. The plaintiff’s position was quite simply that the Informal Arrangement did not result in his receiving the notices of tax assessment. We think there is much to be said for Ms Po’s submission (and reject Mr Lam’s submission to the contrary) it was not argued by the plaintiff in the JR Application that the Informal Arrangement did not amount to any agreement.” (emphasis added)

47.  For the above reasons, I am not satisfied that the Defendant has made out a prima face case against the Respondents based on the 1^st Complaint.

D3.  Analysis of the 2^nd Complaint

48.  As to the 2^nd Complaint, the Defendant’s case is that there were direct findings in the Probate Proceedings that the money received by the Plaintiff related to his Fung Shui services, and that such findings run contrary to the alleged ground of objection, which the Plaintiff said he could have raised but for the alleged breach of duties on the part of the Defendant.  Thus, the Defendant argues that the head of loss pleaded by the Plaintiff at §25.1 of the original Statement of Claim, which is maintained in the Amended Defence, is not only hopeless, but also a collateral attack of the findings made in the Probate Proceedings.

49.  My first observation is that in the original Defence, the Defendant in answer to this head of loss did not make any reference to those factual findings made in the Probate Proceedings.  Indeed, such reference was only added by the Defendant when it amended its Defence almost 5 years later in May 2020.  Thus, it would not be unfair to say that the point that the Plaintiff’s case on this head of loss being contrary to the findings made in the Probate Proceedings and amounting to an abusive collateral attack of the same is not an obvious point to take.  This factor militates against the Defendant’s case that the summary jurisdiction to award wasted costs order should be invoked against the Respondent.

50.  Second, as pointed by both Mr Ho SC and Ms Cheung in their submissions, the Defendant in any event had never sought to strike out this head of loss claimed by the Plaintiff on the basis that such a claim would amount to an abusive collateral attack.

51.  Ms Cheung brought my attention to the decision of DHCJ Kenneth Wong in Yap Michael v. Lai Yip Dyeing Factory Ltd [2023] 3 HKLRD 1013 in which the learned deputy judge held (at §§11-12) that the party seeking a wasted costs order against his opponent’s legal advisers should not be allowed to pursue such an order on the basis that his opponent’s case is liable to be struck out if he himself has not previously sought to strike out his opponent’s case summarily by way of summary judgment and/or striking out applications.

52.  Even though I have some hesitation to go so far to say that an application for wasted costs order against the opponent’s legal advisers on the basis that the opponent’s case is liable to be struck out must always preceded by a successful striking out application, I agree that what was said by DHCJ Kenneth Wong in Yap Michael (supra) must be generally correct.  In the present case, I cannot see why I should invoke the summary jurisdiction to allow the Defendant’s application for wasted costs order to proceed with when the Defendant, having raised the point in its Amended Defence, chose not to make any striking out application.

53.  In this regard, I note that the Defendant did not offer any explanation for not attempting to strike out the Plaintiff’s claim for this particular head of loss, other than simply stating that there is no such requirement[8]. In my view, the fact that the Defendant failed to offer any credible explanation for not attempting to strike out militates strongly against its suggestion that the Plaintiff’s claim is clearly liable to be struck out and that the fault of his legal advisers are so obvious and clear that warrants this Court exercising its summary jurisdiction against them.

54.  Third, in his oral submissions, Mr Lam fairly accepted that before this Court can make any wasted costs order against the Respondent, it must be satisfied in the first place that this particular head of loss claimed by the Plaintiff amounts to a collateral attack.

55.  In this regard, both Mr Ho SC and Ms Cheung argued that there is no collateral attack.  They emphasised that the main issues in the Probate Proceedings related to the authenticity and validity of the alleged will sought to be propounded by the Plaintiff in respect of the estate of the late Nina Wang (“Wang”)[9]. The observations or findings made by the Court that Wang made the relevant payments to the Plaintiff in respect of the Fung Shui activities carried out by him are collateral, but not fundamental, issues determined in the Probate Proceedings.

56.  Mr Ho SC drew my attention to the passages at §§8.01 and 8.23 of Spencer Bower and Handley: Res Judicata (5^th Ed) and at §59 of the recent decision of Au Yeung J in Chu Kong v. Lau Wing Yan & Ors [2023] HKCFI 2703 to support the proposition that the doctrine of issue estoppel applies only to fundamental (as opposed to collateral) issues determined in an earlier proceeding which formed the basis of the judgment, but not to evidentiary facts found in the course of determining the affirmation or negative effect of an issue.  If there is a distinction between fundamental issue and collateral issue in the application of the doctrine of issue estoppel, the same distinction should be applicable to the doctrine of collateral attack.

57.  Mr Ho SC, as well as Ms Cheung, also stressed that the factual findings made in the Probate Proceedings were made for the purposes of determination the issues concerning the authenticity and validity of the alleged will sought to be propounded by the Plaintiff, and that it could be different from the questions that one has to look into for the purpose of deciding whether the payments received by the Plaintiff are chargeable to profits tax.

58.  As emphasised by the Court of Appeal in the recent decision of Lo Kai Shui v. HSBC International Trustee Limited & Ors [2023] HKCA 983 (at §117): “It is not in every instance in which a collateral attack is mounted on a final decision that the subsequent proceedings would be regarded as an abuse of process.  And not all relitigation constitutes a collateral attack”.  In China North Industries Investment Ltd v Chum [2010] 5 HKLRD 1, the Court of Appeal (at §§52-54) held that the burden of establishing an abusive collateral attack rests on the party who relies on the earlier decision, and the power of the court to strike out based on such abuse of process requires “a scrupulous examination of all the circumstances”.

59.  For the present purposes, it is not necessary for me to decide whether or not the head of loss in question claimed by the Plaintiff amounts to an abusive collateral attack of the factual findings made in the Probate Proceedings.  What I can say at this stage is that I can see some serious arguments that may be advanced on behalf of the Plaintiff to defend an application to strike out had such application been made by the Defendant.  It is far from plain and obvious that it is an abuse of process for the Plaintiff to advance a claim for such loss.

60.  Applying the observations of Jacobs J in King v Stiefel (supra)as set out in paragraph 42 above, I am of the view that even assuming that the Respondents appreciated that the Plaintiff’s claim for loss under this head might be liable to be struck out, there is no basis to suggest that the Respondents were guilty of improper or unreasonable or any other misconduct warranting an application for wasted costs order against them.

61.  For the above reasons, I am also not satisfied that the Defendant has made out a prima face case against the Respondents based on the 2^nd Complaint.

E.  Is a Wasted Costs Order Proportionate?

62.  In light of my conclusion that the Defendant fails to make out a prima facie case against the Respondent based on the 1^st and/or 2^nd Complaints.  It appears to me that I should exercise my discretion against allowing the Defendant to take this application to the next stage.

63.  That said, out of abundance of caution, I would consider the question of proportionality on the assumption (which is contrary to my conclusion) that the Defendant has made out a prima facie case for wasted costs order.

64.  The major consideration, as stated at §9 of Ma So So (supra), is to “compare (i) the costs likely to be incurred in litigating the application under the rule and (ii) the amount of the costs sought”.

65.  As to the amount of costs sought:-

(1)  This Court ascertained from Mr Lam, who fairly confirmed to this Court that the Defendant had already received the taxed costs of its successful striking out application from the Plaintiff.  Given that the jurisdiction to make wasted costs order is “compensatory” (at §7 of Ma So So (supra)), there is no need for this Court to invoke such jurisdiction to compensate the Defendant of its costs incurred in relation to its successful application to strike out the Plaintiff’s plea of the alleged oral agreement.

(2)  With regard to the Plaintiff’s claim against the Defendant based on the alleged “inferred agreement”, the Court of Appeal made it clear at §§15-16 of the CA Decision that the “inferred agreement” claim cannot be struck out based on what was said by the Plaintiff in the JR Proceedings. Thus, I am satisfied that such a claim would have proceeded to trial but for the bankruptcy of the Plaintiff.

(3)  In this application, it is the Defendant’s position that all the costs incurred in this action are wasted and, on that basis, the Defendant claims that the “wasted costs” are HK$2,366,851.68 (being legal costs of PC Woo acting as the Defendant’s solicitors in this action) and HK$6,043,635 (being the Defendant’s own internal legal costs), totalling about HK$8.3 million[10].

(4)  The upshot of my conclusion that the Plaintiff’s “inferred agreement” claim would have proceeded to trial is that at least a substantial part of the costs said to have been incurred by the Defendant in this action cannot be said to be “wasted costs” arising from the alleged misconduct on the part of the Respondents.  

(5)  In this regard, Mr Ho SC drew my attention to the fact that despite the observation made by the C&L Camp in its affirmation in opposition of the bills or statements of costs supporting the Defendant’s claim for the wasted costs are relevant for the first stage enquiry[11], the Defendant refused to produce the same[12]. Mr Ho SC then brought my attention to the decision of Kwan J (as she then was) in Kwok Chin Wing v Kao, Lee & Yip,HCCW 743/2002, 18 July 2007 (unrep) in which the learned judge held (at §§37-38) that “the onus is on the applicant to satisfy the court at the first stage hearing the costs likely to be incurred in litigating the application are not likely to be out of proportion with the amount of the costs that are at stake” and that it is incumbent upon the applicant to provide “a credible figure of the amount of wasted costs likely to be at stake”.

(6)  In light of my conclusion that a substantial part of the costs cannot be “wasted costs”, the Defendant’s refusal to produce statements of costs to show a breakdown of its incurred costs prevent this Court from making an informed view of the amount of wasted costs likely to be at stake.

(7)  Furthermore, there is a dispute between Mr Ho SC and Mr Lam as to whether, having instructed PC Woo and counsel (both leading and junior) to represent and advise it in this action, the Defendant is entitled to claim its internal legal costs.  Mr Ho SC referred to the decision of HKSAR v. Chan Pak Lin Perry [2020] 1 HKLRD 628 (at §§25-26) to support his argument that the Defendant is not entitled to such costs; whereas Mr Lam referred to the decision of Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd & Anor [2006] EWHC 90069 (Costs) (at §43) to support his argument that there is nothing in principle to prohibit recovery of costs by a litigant of its in-house staff even where solicitors are retained by such litigant.

(8)  For the present purposes, I do not think it is necessary for me to decide on this question of principle.  Even assuming (but without deciding) that Mr Lam’s submission is correct, it is clear from the decision of Ultraframe (UK) Ltd (supra) at §§43(ii)-(iii) that the Defendant is not entitled to such costs which represent duplication of works done by its legal advisers.

(9)  It is unrealistic to assume that there was no duplication of works at all.  In fact, there is no evidence to support such assumption.  In the absence of any evidence from the Defendant of any breakdown of the costs incurred by PC Woo (as its solicitors on record) and the costs incurred by it internally, this Court cannot form any view on the extent of duplication of works (if any) between PC Woo and the Defendant.  

(10)  For the above reasons, I am of the view that the Defendant fails to discharge its onus to provide this Court with a credible figure of the amount of wasted costs likely to be at stake.

66.  As to the costs likely to be incurred in litigating the application under the rule:-

(1)  It is presently unclear as to what would happen at the second stage hearing. 

(2)  Whilst Mr Lam claimed that he would not need to cross-examine the deponents of the Respondents insofar as they only rely on the existing evidence, he however also made it clear that he would need to reconsider the position if the Respondents are to file further evidence for the second stage hearing.  On the other hand, both Mr Ho SC and Ms Cheung informed this Court that they might have further evidence if this Court is to allow the matter to go to the second stage.  Thus, I cannot at the moment exclude the possibility that the matter can be turned into a trial involving cross-examination of witness(es), particularly when there are disputes as to the knowledge and intent on the part of the Respondents.

(3)  Further, it appears to me that if the matter is allowed to proceed to the second stage, there would be serious arguments on the question as to whether the Plaintiff’s first head of claim for loss amounts to an abusive collateral attack of the factual findings made in the Probate Proceedings.  Plainly, such arguments would require the judge presiding over the second stage hearing to delve into the background of the Probate Proceedings and to make assessment as to whether the Plaintiff’s claim for loss would in all the circumstances constitute an abuse of process.

(4)  Furthermore, I can also envisage that there would be substantial arguments on issues of quantum such as (i) whether and, if so, which part of the costs incurred by the Defendant were caused by the misconduct of the Respondents; (ii) whether the Defendant having retained lawyers to advise and act on its behalf in this action is as a matter of law entitled to seek its internal costs and, if so, whether and to what extent the internal costs claimed by the Defendant overlap with those costs incurred by its legal advisers.  In relation to these issues, Mr Ho SC submitted that it would be for this Court (as opposed to a taxing master) to decide at the second stage hearing the exact amount of costs that should be awarded to the Defendant in the event of this Court considering it appropriate to make a wasted costs order.  Whilst I do not think it would be necessary for me to decide at this stage the exact scope of issues that have to be determined at the second stage hearing, I must bear in mind the possibility that there are serious disputes on the issues of quantum that may to be resolved at that stage.

(5)  In his written submissions[13], Mr Ho SC estimated that the second stage hearing would be nothing short of a full trial of no less than 8 days.  I tend to think this estimate is on the high side.  However, given the fluidity of the current state of affairs, I consider that it would not be unrealistic for me to estimate that the second stage hearing, if there is one, would take at least 3 to 4 days.  In fact, even for this first stage hearing, the parties had already used a whole hearing day in their oral submissions.  Thus, it appears strongly to me that the costs likely to be incurred in litigating the application are very substantial, and that it is not unlikely that such costs may exceed the amount of wasted costs that this Court may ultimately award in favour of the Defendant.

67.  In light of the above matters, even if (contrary to my conclusion) that the Defendant has made out a prima facie case in respect of its 1^st and 2^nd Complaints, I take the view that the Defendant has failed to discharge its onus to satisfy this Court that it is proportionate to allow this application to proceed to the second stage hearing.

F.  Disposition and Costs

68.  In light of my views set out above, I do not consider it necessary for me to resolve the dispute as to whether there was undue delay on the part of the Defendant to take out this application for wasted costs order.  Even assuming (but without deciding) that the Defendant took out the Summons without any undue delay, I would in any event exercise my discretion against allowing the matter to proceed further to the second stage.

69.  I would for the reasons explained above dismiss the Defendant’s Summons.

70.  As far as costs are concerned, I would make a costs order nisi that the costs of the Summons (including any reserved costs) be paid by the Defendant to the C&L Camp and B&C Camp with certificate for two counsel, to be taxed if not agreed.

71.  I wish to take this opportunity to thank all counsel for their most helpful submissions.