DECOLLIN INTERNATIONAL LTD v. KENPARK INTERNATIONAL LTD AND ANOTHER

DCCJ 20/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 20 OF 2008

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D E C I S I O N

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1.  On 18 January 2008 I made an order discharging an ex-parte injunction granted on 3 January with costs, on the basis that the action commenced in the name of the Plaintiff (“Decollin”), on 3 January 2008, and in which the injunction was granted, was not properly authorized by Decollin.  The resolution of a purported meeting of the Board of Directors of Decollin was not, on the evidence produced after the grant of the injunction, valid.  Notice of the meeting had not been served on Mr Kong, one of the directors entitled to receive notice of the meeting, and there was a lack of quorum.

2.  I also ordered that Decollin’s solicitors show cause as to why they should not personally bear the costs of the action, the application for injunction and the summons issued on 4 January for continuation of the injunction.  This was pursuant to Order 62 Rule 8(1) of the Rules of the District Court.

3.  Pursuant to the order to show cause, an affidavit was filed by Mr Lam of the firm instructed by Decollin.

4.  The principles for the exercise of the court’s jurisdiction over solicitors in relation to the costs of legal proceedings have been summarized by both counsel for Mr Lam and counsel for the Defendants in this action.

5.  The mere fact that there was an error of judgment, even an error that was of an order which constituted or was equivalent to negligence is no reason for invoking the jurisdiction of the court.  There has to be something which amounted to a serious dereliction of duty: Ho Lee  Man v Wong Wai Kai [1993] 1 HKC 193, adopting Orchard v South Eastern Electricity [1987] 1 QB 565.

6.  The initiation or continuation of an action which had no or substantially no chance of success might constitute such serious misconduct (Ho Lee Man, supra).

7.    Although Order 62 Rule 8 is cast in wide terms, “misconduct or default” is not so wide as to encompass mere incompetence or negligence.  There must be something more (Re a firm of solicitors unreported, 19 March 1997, CCAV 190/1996.)

8.  In all cases, it has been emphasized that the jurisdiction of the court should be exercised with care and discretion and only in clear cases.

9.  However, the courts have also highlighted the fact that the sphere of a solicitor’s duty in promoting the cause of justice is very different when it comes to an ex-parte application to the court.  Where an ex-parte application is for relief in an extreme form such as Anton Pillar and Mareva orders, the duty of the solicitor is even higher.  Since a Mareva Injunction is made ex-parte, the judge hearing the application necessarily relies upon the integrity and good sense of the solicitor acting for the applicant, who carries the “most serious responsibility”.

10.  On the facts of the present case, Decollin’s solicitors were, in my opinion, negligent in failing to give regard to how the interests of Decollin should be protected against the alleged breaches of fiduciary duties of Mr Kong as a director of Decollin.  As deposed to in the affidavit of Mr Lam, he had known from the initial instructions received from Mr Shek, the other director of Decollin, that Mr Kong was a director and 50 per cent shareholder of Decollin.  Mr Lam failed to check the quorum requirement for directors’ meetings under the Articles of Decollin, despite advising on the preparation of the board resolution and the board meeting to authorize the commencement of legal proceedings in the name of Decollin against Mr Kong.  As a result, no notice of meeting was given to Mr Kong and a meeting attended by 2 directors instead of 3 as required was held to authorize the commencement of the action by Decollin.

11.  The lack of quorum was raised with Mr Lam by the Defendants’ solicitors on 10 January 2008 after the proceedings and the ex-parte injunction order were served.  Mr Lam made an error of judgment after examining the Articles of Decollin for the first time.  He advised Mr Shek that the action was properly constituted despite Mr Kong’s absence at the board meeting.  He continued to pursue the action and the Summons which led to the adjournment of the hearing from 11 to 18 January 2008. 

12.  Clearly, a solicitor cannot abdicate his professional duties to his client by simply seeking and relying on the advice of counsel, as Mr Lam proceeded to do on 16 January 2008.

13.  The facts of the present case, which involved a Mareva injunction sought and obtained on an ex-parte urgent basis, are distinguishable from the case where a solicitor took unnecessary steps as in Smart Crown Investment Limited cited (unreported, 3 June 2003, HCA 3367/2001),or failed to advise the client on the prospects of success or the utility of his case (as in Re a firm of solicitors (supra)).

14.  However, I consider that although there was negligence and error of judgment, in all the circumstances of this case, Mr Lam’s conduct does not amount to such a serious dereliction of duty to justify the exercise of the court’s jurisdiction under Order 62 Rule 8.  The authorities show that incompetence and negligence is insufficient.

15.  Decollin’s solicitors having shown cause, no order will be made against them to bear the costs of the Defendants in the action.

16.  Since the court cannot make an order of costs against a person not a party in the action, the order for costs I will make are that the costs of the injunction and the Summons are to be paid by the Plaintiff to the Defendants on an indemnity basis, to be taxed, if not agreed.  It will be for the Plaintiff, Decollin, Mr Shek or Mr Kong to seek such necessary and appropriate relief as is available against any other party liable for such part of its costs as appropriate. 

(Discussion on costs)

17.  In relation to the costs of today, I think that in all the circumstances of this case, particularly in view of the fact that I consider the solicitor’s conduct to be coming very close to serious dereliction of duty, the appropriate order, in my discretion, would be that the costs of today should be borne by the solicitor.  Costs of today and of showing cause be paid by the solicitor to the Defendants and to the Plaintiff, to be taxed on a party and party basis, with certificate for counsel.