CHEUNG TAK MAN DESMOND AND ANOTHER v. IP PUI LAM ARTHUR AND OTHERS

DCCJ 2733/2021

[2026] HKDC 163

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2733 OF 2021

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DECISION

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Ds’ application

1.  This is the Defendants’ (D1, D3/D4) application for leave to appeal against my decision given at the hearing on 2 October 2025. The written reasons for my decision was handed down on 12 November 2025.

Background

2.  The 1^st and 2^nd Plaintiffs’ (“Ps”) claim is for the outstanding legal fees of HK$2,196,478.52, and taxation fee of HK$48,100.00, totaling HK$2,244,578.52 owed by the 1^st Defendant (“D1”) to the firm Li, Wong, Lam & W I Cheung (“LWLWIC”) (now ceased practice).

3.  The former partners of LWLWIC include the 1^st Plaintiff (“P1”), the 2^nd Plaintiff (from 1 September 2016 to 15 February 2019) (“P2”), the 3^rd Defendant (“D3”) and the 4^th Defendant (“D4”).

4.  D1 were the joint and several trustees in bankruptcy of the estate (“the Estate”) of Ho Yuk Wah, David (“the Bankrupt”) from 2 August 2011 until D1 resigned on 9 January 2020. D1 retained LWLWIC for the provision of legal services relating to the investigation and proceedings for recovery of assets of the Estate. D3 was the handling partner of the case.

5.  The claim against the 2^nd Defendant was discontinued by consent on 19 November 2021.

6.  The trial took place in February and March 2025. On 26 June 2025, I gave judgment to the Ps and ordered that:

(i)  The 1^st Defendant do pay Messrs Li, Wong, Lam & W I Cheung the outstanding legal fees of HK$2,196,478.52 and the taxing fee of HK$48,100.00, totaling HK$2,244,578.52 together with interest thereon at judgment rate from the date of the Writ of Summons (ie 11 June 2021) until payment; and

(ii)  There be a costs order nisi that the 1^st, 3^rd and 4^th Defendants do pay costs of the action, including any costs reserved, to the 1^st and 2^nd Plaintiffs, to be taxed if not agreed, with certificate for counsel. This costs order nisi shall become absolute unless the parties apply to vary the same by letter within 14 days from the date hereof.”

Ps’ sanctioned offer

7.  On 27 January 2023, Ps served a without prejudice letter titled Sanctioned Offer (“the Sanctioned Offer”) with the following material terms:

“Pursuant to Order 22 of the Rules of the District Court (Cap. 336H), the 1^st and 2^nd Plaintiffs hereby make a sanctioned offer to your clients that the 1^st and 2^nd Plaintiffs offer to accept HK$2,244,578.52 plus legal costs of the above Action, to be taxed if not agreed in full and final settlement of the 1^st and 2^nd Plaintiffs’ claims in the above Action.”

8.  On 10 July 2025, Ps, by letter, applied to vary the costs order nisi on the ground that D1, D3, D4 (“Ds”) failed to do better than the Sanctioned Offer in that Ps were also awarded interest on the said sum of HK$2,244,578.52 from the date of writ in the Judgment. Hence, Ps had done better in the Judgment. Ps asked for, inter alia, indemnity costs from 25 February 2023 onwards and enhanced interest at a rate of 5% above judgment rate from 25 February 2023 until date of judgment. Ds opposed.

9.  Ps’ application was heard on 2 October 2025. At the hearing, Mr Ho, counsel for Ds, argued, inter alia, that:

(1)  The Sanctioned Offer did not provide for any mechanism for the sum to be distributed to LWLWIC or D3, and D4;

(2)  The plain meaning of the terms is that if the Sanctioned Offer was accepted, the sum of HK$2,244,578.52 would go to Ps absolutely and immediately. Ps admit that they are not entitled to the whole of the sum of HK$2,244,578.52. Further, Ps are not at liberty to utilize the sum of HK$2,244,578.52. Hence, the Judgment is not more advantageous than the Sanctioned Offer.

10.  After hearing the parties’ submissions, I allowed Ps’ application on the ground that D1, D3, D4 (“Ds”) failed to do better than the Sanctioned Offer in that Ps were also awarded interest on the said sum of HK$2,244,578.52 from the date of writ in the Judgment. In respect of Ds’ arguments, I agreed with Mr Lam, counsel for Ps, that Ps’ claim was clearly for the benefit of the partnership and that if Ds accepted the Sanctioned Offer, Ps would still be obliged to hold the money for all the ex-partners of LWLWIC. This has now been referred to as “Ps’ Obligation” in Ds’ written skeleton submissions.

Ds’ application for leave

11.  By summons dated 16 October 2025, Ds apply for leave to appeal my decision made on 2 October 2025. There is no dispute that the Defendants have to show that the appeal has a reasonable prospect of success: see s 63A(2)(a) of the District Court Ordinance, Cap 336.

12.  In Ds’ draft Notice of Appeal, the grounds of appeal are set out as follows:

(1)  The Judge erred in finding that the 1^st and 2^nd Plaintiffs did better in the Judgment than the sanctioned offer dated 27 January 2023 addressed to the 1^st, 3^rd and 4^th Defendants (“the Sanctioned Offer”).

(2)  If, contrary to (1) above, the 1^st and 2^nd Plaintiffs did better in the Judgment than the Sanctioned Offer, the Judge ought to have declined to make the orders under Order 22, rule 23(2) – (4) of the Rules of the District Court (Cap 336H), because it was reasonable for the 3^rd and 4^th Defendants not to accept the Sanctioned Offer, in that if the Sanctioned Offer was accepted, then the 3^rd and 4^th Defendants would be handicapped in disputing the beneficial ownership of the funds to be paid to the 1^st and 2^nd Plaintiffs.     

13.  In respect of Ground 1, Ds did not set out what the “error” was in the draft Notice of Appeal. The “error” only appeared in Ds’ written submissions. Mr Lam, counsel for Ps, indicated that he would not take issue with that.

14.  In Ds’ written submissions, Mr Ho formulates his arguments for Ground 1 as follows:

(1)  It is plain and obvious that “Ps' Obligation” is not an express term in the Sanctioned Offer, while the sum awarded under the Judgment is expressly subject to Ps’ undertaking;

(2)  Since “Ps' Obligation” is not an express term in the Sanctioned Offer, the issue before this Court was why “Ps' Obligation” could be read into the Sanctioned Offer in the absence of any express terms. For this Court to find that "There is no ambiguity on that", either the Court took the view that “Ps' Obligation” was part of the Sanctioned Offer because it goes without saying, or that when the Sanctioned Offer was read together with paragraphs 16, 17, 21 of the Amended Statement of Claim, Ds should understand that “Ps' Obligation” was part of the material term of the Sanctioned Offer. Either way is wrong:

(a)  To say that “Ps’ Obligation” was implied into the Sanctioned Offer is to say that terms can be implied into a sanctioned offer. This is inconsistent with  “Ashai Iwasawa & Associates Management Consultants Limited v Shibakawa (Hong Kong) Limited [2023] HKCFI 2340 (“Ashai Iwasawa") that O.22 of the RDC is noncontractual in nature;

(b)  To say that the Sanctioned Offer should be construed with reference to paragraphs 16, 17, 21 of the Amended Statement of Claim is to expect the Court to "'ascertain the parties’ intention, taking into account considerations such as “common sense” and "unconscionability", which is the approach rejected in “paragraph 30 of Ashai Iwasawa”. In any case, a construction exercise at most enables a contractual party to argue that a particular interpretation should be adopted for a word that has more than one possible interpretation. It is not possible to introduce “Ps’ Obligation” into the Sanctioned Offer by construing any of the words in the material terms of the Sanctioned Offer.

(3)  Since “Ps’ Obligation” is not part of the material term of the Sanctioned Offer, plainly Ps had not done better in the Judgment than the Sanctioned Offer.

15.  In respect of Ground 2, Mr Ho sets out his arguments in his written submissions as follows:

(1)  It was submitted to the Court on 2 October 2025 that when the Sanctioned Offer was made, there was no undertaking, and no mechanism on how any sum paid under the Sanctioned Offer would be further distributed. Further, if the Sanctioned Offer was accepted without any express reference to “Ps' Obligation”, D3 and D4 would be handicapped in proposing any further distribution of the sum. Thus, even if the Court found that Ps had done better in the Judgment than the Sanctioned Offer, Ds could not be criticized for not having accepted the Sanctioned Offer.

(2)  It is clear from the Reasons for Decision that in the exercise of the discretion of costs, this Court did not consider the issue on whether it was reasonable for Ds not to accept the Sanctioned Offer in the absence of any undertaking, and any agreed or proposed arrangement on how the sum (if any) would be distributed among the partners of LWLWIC. The discretion on costs was therefore exercised without taking into account a relevant consideration.

Discussion

16.  In respect of Ground 1, Mr Ho accepts that according to Ps’ pleaded claim, Ps’ claim is for the benefit of the partnership. It has been clearly pleaded in paragraphs 16 and 17 of the Amended Statement of Claim that the moneys were owed by D1 to the partnership, P1, P2, D3 and D4 and that D1 was liable to repay P1, P2, D3 and D4. The moneys belonged to the partnership and Ps’ claim was for the benefit of the partnership LWLWIC. It has also been clearly pleaded in paragraph 21 of the Amended Statement of Claim that D3 and D4 were joined as the defendants in these proceedings so that they could be bound by the result of this action. D3 and D4 filed their own Defence resisting Ps’ claim. In the course of the trial, Mr Ho also accepted that in the event that the Court were to hold in favour of Ps, D3 and D4 (together with D1) should also be liable to pay Ps’ costs of the action.

17.  There cannot be any dispute that Ps’ claim is for the benefit of the partnership. Ps’ pleaded case is clear and unambiguous. “Ps’ Obligation” is based on Ps’ pleaded case. If Ds accepted the Sanctioned Offer and paid over the money in settlement of Ps’ claim, it is quite clear to me that Ps would be obliged to hold the money for all the ex-partners of LWLWIC. I reject Mr Ho’s submission that the money would go to the 1^st and 2^nd Plaintiffs absolutely and immediately on the basis of the terms of Ps’ Sanctioned Offer in the present case.

18.  In respect of the undertaking relating to the custody of the money in the event that the Court were to hold in favour of Ps, it was a matter I raised in the course of the trial. As a result, both Ps and D3/D4 had voluntarily given their respective undertakings as to the custody of the money in that event. After I had held in favour of Ps, I also accepted Ps’ undertaking as to the custody of the money. I do not agree with Mr Ho’s submission that the sum awarded under the Judgment is expressly subject to Ps’ undertaking. Firstly, the entirety of my judgment is not contingent or subject to the giving of the undertaking. Secondly, given the nature of Ps’ claim, Ps would still be, with or without the undertaking, obliged to hold the money for all the ex-partners of LWLWIC in any event.

19.  As regard Ds’ argument that there was no mechanism on how any sum paid under the Sanctioned Offer would be further distributed, it is clear that this is not an issue the present action is concerned with. The Court does not need to deal with how the sum for the now-dissolved partnership should be distributed amongst the partners. This point has no merits whatsoever.

20.  In respect of Ground 2, Ds seek to contend that even if the Court found that Ps had done better in the Judgment than the Sanctioned Offer, the Court ought to have considered, in the exercise of its discretion, the issue whether it was reasonable for Ds not to accept the Sanctioned Offer and hence the discretion on costs was therefore exercised without taking into account a relevant consideration.

21.  I agree with Mr Lam that this goes directly against what Ds had expressly confirmed and accepted at the hearing on 2 October 2025. Mr Ho submitted at that hearing that

“...if the court is not with [the Ds] on the understanding of the sanctioned offer, then indemnity costs would follow..., [Transcript at 31/187K-L].”

“And [Ds’] complaint is only on whether the enhanced interest rate is... 5 percent or 1 per cent... and [the period of enhancement]. [Transcript at 31/187M-S]”

22.  Mr Ho told the Court specifically that it was a matter of interpreting the Sanctioned Offer as of 2023 and it was not a matter of discretion. Mr Ho repeated his position that it was a matter of understanding the terms based on that time frame and that if the Court was not with Ds on this argument Ds would not oppose indemnity costs [Transcript at 31/197T – 198D].

23.  I agree with Mr Lam that in such circumstances it is not open to Ds to contend that if, contrary to Ground 1, Ps did better in the Judgment than the Sanctioned Offer, the Court ought to have considered, in the exercise of its discretion, the issue whether it was reasonable for Ds not to accept the Sanctioned Offer and therefore the discretion on costs was exercised without taking into account a relevant consideration.

24.  However, insofar as it is necessary and for the sake of completeness, even if I were to consider the issue whether it was reasonable for Ds not to accept the Sanctioned Offer, I would hold that in the circumstances of the present case, it would be unreasonable for Ds not to have accepted the Sanctioned Offer at the time for the reasons discussed under Ground 1 herein.

25.  In the circumstances, I am not satisfied that Ds’ appeal has a reasonable prospect of success. Accordingly, Ds’ application is dismissed. I shall make a costs order nisi that Ds do pay costs of the application to Ps, with certificate for counsel, on party to party basis to be taxed if not agreed which shall become absolute unless the parties apply to vary the order by summons within 14 days from the date hereof.

26.  Lastly, I thank both counsel for their helpful submissions.