K&LGATES (A FIRM) v. DING YU AND ANOTHER

HCMP 1569/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1569 OF 2015

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D E C I S I O N

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1.  This decision should be read with the Decision dated 15 February 2016 (“the KLG Judgment”) and I adopt the same abbreviations.

2.  By the KLG Judgment, I set aside the retainer agreement between KLG and HKF[1]. I made an order nisi for DY to pay the costs of KLG and HKF; and for KLG to pay the costs of HKF with certificates for 2 counsel.

3.  This is KLG’s application for:

(a)   A Sanderson order against DY;

(b)   An order that there should not be certificates for 2 counsel;

(c)   An order that there should be no order as to costs on an abandoned issue; and

(d)   An order that there should be taxation of HKF’s costs. 

4.  I have considered all the oral and written submissions.  I shall not set out every argument but will concentrate only on those that are most important and decisive of the issues. 

Legal principles on award of a Sanderson order

5.  Under Order 62, rule 3(2) of the Rules of the High Court, costs generally follow the event.  But the court has discretion to make a Sanderson order (the principles of which are not disputed) if the circumstances warrant it.  This type of order is not confined to personal injuries cases, as propounded by Mr Cheung.

6.  Where a plaintiff sues a number of defendants, the court has discretion to order an unsuccessful defendant to pay the costs of a successful defendant:

(a)   by a Sanderson order[2] whereby the unsuccessful defendant is ordered to pay the costs of the successful defendant directly; or

(b)   by a Bullock order[3] whereby the plaintiff pays the costs of the successful defendant but is indemnified in respect of that liability by the unsuccessful defendant. 

7.  In deciding whether to exercise that discretion, the court looks to see whether it was reasonable in all the circumstances of the case for the plaintiff to join the successful defendant in the action.  See Chong Ngan Seng v China Harbour Engineering Co Ltd & ors, CACV 54/2012, 25 September 2013, §§5-6.

8.  The court must be careful not to lose sight of the uncertainties surrounding the case before its conclusion: Fung Chun Man v Hospital Authority & anor [2012] 1 HKC 531, Bharwaney J, at §7.

9.  In cases where the unsuccessful defendant is insolvent, the question is how to distribute the hardship arising from his impecuniosity.  In balancing the hardship, the court must ensure fairness between the parties in the circumstances of the case.  In achieving the fairness, the parties’ conduct is plainly relevant: Standard Chartered Bank v Li Wai Ping & ors, HCA 10587/2000 & HCA 3575/2003, 7 June 2011, at §§27 & 28, Poon J (as he then was).

Whether joinder of HKF was reasonable

10.  The KLG Judgment held that the retainer agreement (which provided for joint and several liability on costs by DY, DXH and HKF) was prima facie valid and enforceable against HKF (§18).  Viewed in that perspective alone, joinder of HKF was reasonable. 

11.  However, 6 weeks before the present originating summons was issued, HKF had, by its solicitors’ letter dated 12 May 2015, set out its potential defences to KLG’s demand letter.  Those defences were accepted under sections E1 and E2 of the KLG Judgment.

12.  I do, however, note that this case involved novel points of law affecting solicitors’ practice.  The joinder of HKF cannot be said to be unreasonable.

13.  KLG has advanced further grounds which were directed at the findings in the KLG Judgment.  They included the applicability of the Yuanta Securities principle, whether HKF was a nominal party in the underlying action, whether KLG (through Mr Ngo) had knowledge that the underlying action concerned a dispute between DY and DG only and when KLG started and ended its work for HKF. 

14.  In considering whether to vary a costs order nisi, the court will not revisit the substantive decision it has made: Hong Kong Civil Procedure 2016, Vol 1,§42/5B/1.  

15.  I therefore would not consider the arguments in paragraph 13.  Those points should, if necessary, be addressed in an appeal.

16.  I just wish to point out a factual error of KLG.  KLG kept submitting that the Action also involved various claims against DG for misappropriation amounting to about HK$300 million and so HKF was a proper party.  With respect, the pleaded counterclaim in respect of the misappropriation was made by DY, not HKF.  That was precisely why paragraphs 118-119 of the Judgment in the Action held that the counterclaim contravened the reflective loss principle. The fact that DY would, in honour of his fiduciary duties as a director of HKF, disgorge any damages recovered from DG to HKF, did not undermine the fact that the real dispute in the Action was between DY and DG.

Financial condition of DY

17.  KLG pointed out that there was no evidence that DY had ever defaulted in payment of any costs order.  This might be true in the past but now there is an outstanding allocatur of $31.49 million against DY for costs in the Action.

18.  DY’s appeal against the final judgment in the Action has been outstanding for over 2 years.  He has been absent in various proceedings subsequent to the Trial:

(i)   Taxation proceedings in the Action;

(ii)   Proceedings wherein King & Wood sued DY for its fees;

(iii)   HCMP 1480/2015 wherein Dexter Lam & Co withdrew its claim against HKF but obtained judgment against DY on 16 June 2016 for costs under a retainer agreement for $13,576,115; and

(iv)   Proceedings where HKF and Macau First enforced DY’s undertaking given when the court made a receivership order in the Action, and obtained judgment on 21 June 2016 for over $8 million. 

19.  DY’s present whereabouts are unknown, probably because he is wanted by the interpol.

Balancing the interests of KLG, HKF and DY

20.  In view of HKF’s clear statement of defences before the originating summons, it would not be fair to leave HKF to recover costs from DY who has not met huge judgment debts and cannot be located.  It would be more appropriate to make a Bullock order.

Certificate for 2 counsel

21.  KLG sought to recover costs of $2.15 million under the retainer agreement against HKF.  However, the statement of costs tendered by LCP sought grossly disproportionate costs of $1.36 million.

22.  The facts in this originating summons were virtually undisputed (except on the abandoned issue) and did not involve lengthy legal arguments.  The hearing was originally set down for 1.5 hours but only half of the time was spent.

23.  The need to scrutinize the bills could be dealt with by junior counsel (not a trainee solicitor as suggested by KLG).  That scrutiny would require him to deal with matters of liability instead of going into the minute details on quantum.  Mr Cheung (not a trainee solicitor as suggested by KLG) who had appeared at the Trial was capable of doing so.  It was not necessary to involve the same team of 4 counsel who were involved at the Trial.

24.  The case involved a novel issue and would have been important to KLG (or solicitors) in setting a precedent.  KLG had engaged one counsel (an SC).

25.  On the other hand, no setting of precedent was required for HKF.  The KLG Judgment did cause Dexter Lam & Co to withdraw HCMP 1480/2015 against HKF.  However, in my view, the circumstances in both cases were different since Dexter Lam & Co was the firm of solicitors on record at the Trial and new to the case, quite unlike KLG which was another firm behind the scene.  (See the decision in HCMP 1480/2015 dated 27 June 2016).

26.  I am satisfied that I should only grant certificate for one counsel in this case.  The costs order should be varied accordingly.

Costs on the abandoned issue

27.  For non-interlocutory proceedings (of which this case is one), the relevant rules are Order 62, sub-rules 3(2), 5 and 7.  Costs to follow the event is a starting point from which the court may readily depart.  The court has a broad discretion on costs.  It is entitled to look at, amongst others, the degree of success of the parties on their claims, the outcome of specific issues raised, conduct before and during the proceedings.  The court can also have regard to the amount of time or costs attributable to specific issues.  See Wing Ming Garment Factory Ltd v The Incorporated Owners of Wing Ming Industrial Centre, HCCT 60/2006, 24 November 2014, G Lam J; following Pfeiffer GmbH v Cheung Hay Kit trading as Sun Wai Construction, CACV 245/2013, 29 October 2014, Kwan JA, §§7-10.

28.  In defence to the originating summons, HKF raised issue on interpretation of a consent order dated 9 July 2010 in 2 different aspects:

(i)   Whether the consent order imposed a cap of $10,000 per week for legal expenses of HKF (paragraph 7(2) of the KLG Judgment); and

(ii)   Whether such legal expenses should be subject to reasonableness.

29.  Issue (i) was distinct.  It involved a substantial amount of affirmation evidence and written submission.  HKF went to the extent of trying to ascertain from his former solicitors (Iu, Lai & Li) and DY and HKF’s former solicitors (King & Wood) how the consent order dating back 5 years came to be drafted.  HKF initially advanced an interpretation which would have added a “not” to a positive term in the consent order.  In the end the issue was abandoned.  That approach in producing evidence and the interpretation to the consent order were hopelessly bad and would have failed before me.

30.  Issue (ii) was crisp.  It did not involve much time in argument or written submission.  This court simply relied on sections E1, E2 and E5 of the KLG Judgment (at §44) to find that incurring legal expenses on KLG was not reasonable.

31.  I apportion 25% of HKF’s overall costs for the abandoned issue (i).

Taxation

32.  Under Order 62, rule 9C(1)(a), a paying party can contest summary assessment by showing substantial grounds for disputing the sum claimed for costs.

33.  Where the costs as a whole appear disproportionate, the court will need to be satisfied that each item was necessary.  In this regard, a “sensible standard of necessity” must be adopted – this requires the need to take into account the different judgments of those responsible for litigation as to what is required.  Hong Kong Civil Procedure 2016, Vol 1, §62/9/10.

34.  The substantial grounds put forth by KLG (certificate for 2 counsel and disallowing costs on an abandoned issue) have been dealt with as matters of principle.  I see no justification for taxation just on questions of quantum. 

35.  KLG was concerned that the work of LCP might have been replicated in HCMP 1480/2015, with court documents “double counted”.  I have little worry over these issues.  Being in charge of both cases, I am better placed than a taxing master to do appropriate apportionment or reduction in costs for duplicated work or photocopying.

Conclusion

36.  I decline to make a Sanderson order but would make a Bullock order.  The costs order nisi is varied to the extent that there should be certificate for one counsel and that KLG should only bear 75% of HKF’s costs in relation to the originating summons.  I summarily assess costs of HKF and allow 75% at $90,000.

37.  As for this summons for variation of costs order nisi, it involved principally legal arguments and no affirmations were filed.  HKF successfully resisted the application for Sanderson order and taxation, but failed on the issue of certificate for 2 counsel and costs in relation to the abandoned issue.  Taking all circumstances into account, I make no order as to costs on the variation summons.

38.  I thank Mr Cheung and Mr Ngo for their assistance.