In re A FIRM OF SOLICITORS

IN THE COURT OF APPEAL

1996, No. 190
(Civil)

- Headnote -

Costs - Whether costs wasted by misconduct or default on the part of solicitors in terms of Order 62 r8 Rules of the Supreme Court - "Misconduct or default" encompasses more than mere incompetence or negligence - The test "gross dereliction of duty" in Ho Lee Man v. Wong Wai Kai (No. 2) [1993] 1 HKC 193 adopted.

Held (Court of Appeal): The solicitors having shown cause, no order will be made against them.

IN THE COURT OF APPEAL

1996, No. 190
(Civil)

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J U D G M E N T

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Litton, V.-P.:

Introduction

1. On 6 December 1996 we gave judgment on an appeal brought by the plaintiff SA Development Ltd. against an order of Yeung J dated 21 August 1996 discharging ex parte leave granted on 1 August for contempt proceedings to be brought against "The officers of the Wing Hang Bank - San Po Kong Branch". At the same time we exercised our powers under Order 62 r8 of the Rules of the Supreme Court and directed the firm of solicitors now before us to show cause why (i) all or part of the costs as between them and their own client (the plaintiff in the action) should not be disallowed and (ii) they should not bear all or part of the indemnity costs we awarded to the Wing Hang Bank against the plaintiff at the conclusion of the hearing of the appeal.

2. There was, originally, another firm involved. They were the solicitors for the plaintiff from the beginning and acted throughout in that capacity until August 1996 when the bank made its application to discharge the ex parte leave.

Background facts

3. To appreciate the issues now before us something of the background facts need to be stated.

4. The plaintiff was at all times an unsecured creditor of Fair Fashion Co. Ltd., against whom it obtained a Mareva injunction. The Wing Hang Bank was a secured creditor. By 27 May 1996 the sale of the company's property (the flat at Seaview Garden, Tuen Mun) by the bank as mortgagee in possession had been effected: A sale which was perfectly lawful: No suggestion to the contrary has ever been made. The bank was, of course, entitled to have the company's debts satisfied out of the proceeds of sale, holding the balance (after deduction of all expenses) in trust for the company. If there had been any surplus, the effect of the Mareva injunction would, of course, have been to restrain the bank from disposing of that. But there was none. So, realistically, the Mareva injunction served no purpose as far as the flat was concerned. One thing is sure: The injunction obtained by the plaintiff could never have converted the plaintiff into a secured creditor of the company, ranking equally with or in priority to the bank.

5. So what did the plaintiff hope to gain from launching proceedings in contempt against "The officers of the Wing Hang Bank, San Po Kong Branch"?

The firm's role

6. The firm was in an uncomfortable position. It was brought in late, after the motion for contempt had already been launched by the first firm. The firm only came into the picture because the original solicitors felt there was a conflict of interest in acting against the Wing Hang Bank. There was no time for the firm to evaluate the situation before the bank's summons was heard by Yeung J on 21 August 1996.

7. If there has been "misconduct or default" in terms of Order 62 r8, it must be because of its actions after 21 August 1996 when Yeung J acceded to the bank's application to discharge the ex parte leave and awarded costs against the plaintiff.

"Misconduct or default"

8. It is not, in my view, helpful to generalise as to what might constitute misconduct or default in terms of Order 62 r8, as the circumstances may vary infinitely. The rule itself is cast in wide terms: though, as counsel Mr Bunting rightly submits, not so wide as to encompass mere incompetence or negligence. There must be something more: Were it otherwise the amendments to the English Rules, effected in April 1986, would not have been necessary: Amendments which Hong Kong has not followed.

9. The conduct which led to the order being made against the solicitors in Ho Lee Man v. Wong Wai Kai (No. 2) [1993]1 HKC 193 was characterized, cumulatively, as "gross dereliction of duty": see p202 of that report. Has something like that occurred in this case?

10. The following factors are relevant:

(1) The solicitors were not in overall charge of the case on the plaintiff's behalf. There was, throughout, the first firm of solicitors in the background, and the client appears to have reposed considerable confidence in that firm: based, presumably, on a long-standing relationship. The firm now before us was only brought in because of the perceived conflict, and was in charge only of the contempt proceedings.

(2) The first time the solicitor-in-charge (I shall call him Mr G) met the lay client was on 23 August 1996 (two days after Yeung J's judgment) and this took place in the first solicitor's office. The original solicitor expressed the opinion that there was arguably a case of contempt against the bank officers. Mr G said there might have been a technical breach, but it was extremely unlikely that a court would send the bank officers to prison. But the first solicitor said that an appeal was the appropriate course because of the costs order made by Yeung J on 21 August 1996 against the plaintiff.

(3) On 28 August 1996 - when Mr G was on leave - the first solicitor phoned an assistant at the firm and said that the client wanted to lodge an appeal on the basis of a draft notice of appeal which was then sent over. This was the notice of appeal which was subsequently lodged - but, because of a slip-up over the heading, was late by one day.

(4) Thereafter the solicitors gave advice to the plaintiff that the appeal had little prospect of success - and, in effect, the most that could be hoped for was that Yeung J's costs order might be over-turned. It is not clear from the material before us whether the client fully realised the futility of the entire exercise: that the contempt proceedings were not going to help them one bit to recover any money. It would appear that, somewhere along the line, the original purpose of the plaintiff's action - to recover the proceeds of two dishonoured cheques - was lost sight of, and by October 1996 attention was focussed purely upon the costs order made by Yeung J on 21 August 1996.

(5) The client was insistent that the appeal should go ahead. Of significance is a letter from the plaintiff to the solicitors dated 11 October 1996 which in part reads:

"At this point in time, as advised to the undersigned, please concentrate on the strategies and tactics to win over the case with the Bank. Please conduct a thorough review and discussion with the counsel/[the original firm] for the hearing scheduled now on 6th of December. Should we win the case against the bank, we do not have to consider about the taxation matter.

Mr Yamane once again requests that [the firm] put in all your efforts to win the case against the bank."

The "taxation matter" referred to in that letter is the taxation of the bank's costs arising from the hearing before Yeung J.

(6) After counsel had been briefed for the appeal, the solicitors advised the client again in strong terms that the prospects of success on appeal were slim.

Conclusion

11. The problem, as I see it, is that the conduct of matters on behalf of the plaintiff was fragmented and the solicitors before us were not in over-all charge of the case. They ought, perhaps, to have advised the plaintiff concerning the futility of the entire exercise. They ought also to have warned the plaintiff in clear terms that they risked pouring good money after bad: Having lost before Yeung J they risked having to pay out more costs if they failed on the appeal. But, as this court said in Ho Lee Man at 202:

"The courts do not demand perfection from solicitors ...."

12. It is easy to be wise after the event. The consequences for the plaintiff arising from these proceedings are unfortunate and I imagine that the solicitors themselves regret the outcome, as anyone would. But there has not been, in my judgment, such dereliction of duty by the solicitors as could amount to "misconduct or default" in terms of Order 62 r8.

13. The solicitors having shown cause, I would make no order against them.

Godfrey, J.A.:

14. I agree.

Liu, J.A.:

15. I also agree. I only wish to add that the solicitors in question have throughout conducted themselves properly.