LAU YUE KUI AND OTHERS v. PHILIP CHAN & CO (A FIRM)

HCMP593/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 593 OF 2007

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J U D G M E N T

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1.  This is an appeal against a Master’s decision striking out the names of the 2^nd to 6^th plaintiffs (“P2-6”) from the Originating Summons herein (“OS”) upon the application of the respondent (“R”). As a consequence of the strike out, no order was made in respect of a Summons taken out by P2-6 and filed on 12 December 2011 (“Summons”) for directions as to the further conduct of these proceedings.

Background

2.  There is a long history of litigations involving, inter alia, P2-6 and R.  For the present purpose, the material facts (which I adopt from the Skeleton Submissions of P2-6) are as follows^[1]. The 1^st plaintiff (“P1”) and P2-6 represent two factions of the beneficiaries to the estate of Lau Wai Chau (“Estate”).  The Estate is sizable and comprises mostly agricultural land in the New Territories.  The division of the Estate is governed by a Deed of Family Arrangement dated 20 March 1946 (“DFA”), whereunder the properties in the Estate were divided into 9 parts, 8 of which were allocated to each of 8 “fongs” (headed by the 8 sons of the deceased) and the 9^th part (“9^th Part”) is designated as common property for ancestral worship. 

3.  Dispute amongst the 8 fongs regarding the validity and effect of the DFA arose and proceedings were brought in 1995 and 1996, culminating in a decision by the Court of Final Appeal in Re Lau Wai Chau (2000) 3 HKCFAR 98 that the DFA was valid and no ancestral worship trust under Chinese customary law had yet been established. 

4.  By an order of Cheung J (as he then was) dated 24 January 1998, directions were given by the court, including one to P1 in his capacity as the administrator of the Estate, to set up a “tso” (failing agreement, the tso will be named Lau Wai Chau tso) pursuant to s.15 of the New Territories Ordinance, Cap 97 in connection with the 9^th Part.  Fourteen years have passed since that order but no tso has been established to date.

5.  R is a firm of solicitors.  It represented P1 in the DFA proceedings referred to above.  Upon conclusion thereof in 2000, P1 informed P2-6 that he, as administrator of the Estate, had entered into three fee agreements (“Agreements”) with R whereunder the latter would be paid just over HK$43 million by way of legal fees for (i) applying for estate duty clearance and letters of administration for the Estate and (ii) checking the title of all the properties in the Estate.  P2-6 considered such fees to be exorbitant and P4 and P6 then commenced HCAP 10/01 against P1 and R to seek to set aside the Agreements. 

6.  At the trial of HCAP 10/01, P1 and R argued, inter alia, that the complaint of exorbitant fees was completely met by the right of P4 and P6 to have R’s bills taxed under s.68(2) of the Legal Practitioners Ordinance, Cap 159 (“Cap 159”).  That argument was accepted by Chung J^[2] and the action was dismissed. 

7.  The matter then went on appeal (CACV 141/06).  On the second day of the hearing of the appeal, a settlement agreement was reached whereby R and P1 agreed to submit the two bills of costs which had been rendered by R under the Agreements (“Bills”) to taxation and not to insist that R’s fees were reasonable by reason of the mere existence of the Agreements (there was a concern by P4 and P6 that the right to challenge the Bills was restricted by the existence of the Agreements pursuant to s.56 of Cap 159).  A consent order dated 21 March 2007 (“Consent Order”) was accordingly made by the Court of Appeal containing, inter alia, the following undertaking:

“ UPON [R] undertaking to the Court and to the parties herein to agree to taxation of the bills rendered by him on 04 July 2005 & 06 March 2007 and any other bills (if any) for works done under, pursuant to or otherwise referable to the 1^st and/or 2^nd Fee Agreement dated 29 November 1994 & 07 November 1995 respectively hereafter delivered, being proceeded with, and that upon such or any related taxation proceedings [R] shall not rely upon the mere existence of the 1^st & 2^nd Fee Agreements to contend that the fees charged and the items of work alleged to have been done thereunder are reasonable or chargeable;”

8.  Within a matter of days after the granting of the Consent Order, the OS was taken out by P1 against R to tax the Bills.  There is no dispute that these proceedings were brought to put into effect the compromise embodied in the Consent Order.  In July 2007, P2-6 applied to be joined in the proceedings.  The application was not opposed by P1 or R.  On 18 July 2007, an order was made for P2-6 to be joined in these proceedings (“Joinder Order”). 

9.  For reason(s) which I need not adjudicated upon, no action has been taken by P1 for 4 years to have the Bills taxed.  In September 2011, P2-6 indicated that they would seek to have the taxation proceeded with and issued the Summons. 

10.  In response, R took out a Summons on 15 May 2012 to strike out the names of P2-6.  Its case was premised upon two grounds.  Firstly, P2-6 had no interest to take part in the taxation since R’s costs were to be paid out of the 9^th Part and P2-6 had no interest therein.  Secondly, R had reached an agreement with P1 on the costs payable under the Bills at a little over HK$40 million and thus taxation could be dispensed with (see also para 14 below).

The issues

11.  In response to the request by this court, Mr Chow SC, who appeared with Mr Yau for P2-6, has produced a list of issues (“List”).  Mr Wong, appearing with Mr Deng for R, agreed with the List.  It states as follows:

“1 Whether P2 to P6 are proper parties to these proceedings and entitled to participate in the taxation of the 2 Bills rendered by R dated 6.3.2007 and 27.3.2007 respectively by reason of:

(1) R’s undertaking and P1’s agreement as embodied in a Consent Order made in CACV 141/2006 dated 21.3.2007 [D/89-91];

(2) Master de Souza’s 2 Orders herein both dated 18.7.2007 that (a) P2 to P6 be joined as parties to these proceedings [A/13-14] and (b) the 2 Bills be taxed on solicitor and own client basis [A/10-11], in the absence of any appeal against those orders; or

(3) P2 to P6 being entitled or having a sufficient interest under s.68 of the Legal Practitioners Ordinance to have the 2 Bills taxed and/or the Court’s general powers as regards joinder of necessary parties.

2 If the answer to 1 is “yes”, what consequential directions should be given: see P2 to P6’s Summons dated 12.12.2011 [A1-3].”

12.  It can be seen from the List that the core issue here is whether P2-6 have sufficient interest to remain as parties in these proceedings.  I believe that the answer is, with respect, not a difficult one to reach and it is in the affirmative. 

13.  Before I deal with the 3 grounds which have been identified in the List as justification for P2-6 to remain as parties, I should point out that the latest position of R, made clear at the hearing^[3], is that the 9^th Part has a value in excess of HK$90 million and that its costs would only be paid out of the 9^th Part.  It would not look to P2-6 to pay for any part of its costs under any circumstances (the position previously was that R would look to P2-6 personally to bear such part of its costs which was attributable to them).  There is a letter of similar effect from P1’s current solicitors stating that the payment of costs to R would only be made from the 9^th Part.  Although I have some reservation as to the clarity of that letter, I am prepared to accept that P1’s position has been made reasonably clear and, if thought necessary, any ambiguity can be clarified between the parties. 

14.  Another point was advanced by Mr Wong at the hearing^[4]. He made it clear that notwithstanding the costs agreement between R and P1, R intends to apply for the Bills to be taxed.  I have been shown a draft Summons in that regard.  However, such a taxation will be one in which P2-6 are excluded and I do not believe that it answers the gravamen of this appeal.

Interest of P2-6

15.  First and foremost, the Consent Order embodied an agreement to have the Bills taxed.  Further, there is an undertaking to the court made by R to the same effect.  With respect, it is quite extraordinary for those promises to be completely by-passed with an agreement on the costs reached only between R and P1 and a promise to meet the costs out of Part 9.  I am simply unable to see any justification for depriving at least P4 and P6 (who were parties to the Consent Order) of their rights to ensure that the Bills are properly taxed.  Although the Consent Order did not explicitly spell out whether P4 and P6 have the right to participate in the intended taxation, I have no doubt that they must have sufficient interest to be joined as parties to the OS.

16.  Technically, P2, P3 and P5 were not parties to the Consent Order, but given that they are beneficiaries to the Estate and that P1 was acting as the administrator of the Estate in agreeing to the Consent Order, prima facie, they must have sufficient interest to be joined as parties to the OS as well.  Plainly, the Joinder Order was properly made and I believe that it was not opposed because both P1 and R recognised the interest of P2-6 to be joined. 

17.  A number of fairly technical arguments have been advanced by Mr Wong to resist this appeal.  With respect, I find much of these arguments difficult to understand or irrelevant.  The central theme of Mr Wong’s case is that there is a change of circumstances since the making of the Consent Order. 

18.  The position currently before this court is that R intends to apply for taxation and that the taxed costs will only be met with the 9^th Part.  It is said that the promise that the costs will only be met from the 9^th Part constituted a change of circumstances.  I shall deal with the issue concerning the interest of P2-6 in the 9^th Part below.  Without being unnecessarily cynical, this is a situation entirely engineered by R and P1.  Further, it is apparent that the point of the exercise is to exclude P2-6 from the taxation.  I agree with Mr Chow that given the agreement between P1 and R over the quantum of the Bills, it is very difficult to see the purpose of a taxation exercise without the participation of P2-6. 

19.  In the premises, I do not agree that the so called change of circumstances justifies the removal of P2-6 from these proceedings. 

20.  For completeness, Mr Wong relies heavily upon the authority of In re Griffith, Eggar and Griffith (1891) 7 TLR 269 in support of an argument that P2-6 have no right to insist on taxation once R has confirmed that its costs will only be met from the 9^th Part.  I agree with Mr Chow that In re Griffith is a very different case to the one before the court.  In that case, the solicitor waived the remainder of his fees so that the subject matter of taxation became extinct.  I do not see how that authority assists R here. 

21.  I turn to the arguments concerning s.68 of Cap 159.  Mr Chow has fairly conceded that in light of the assurance that the costs will only be met from the 9^th Part, he can no longer rely upon s.68(1).  The arguments therefore focused upon s.68(2) which provides as follows:

“(2) If a trustee, executor or administrator has become liable to pay a bill of a solicitor or of a foreign lawyer the Court may, upon the application of any person interested in any property out of which the trustee, executor or administrator has paid, or is entitled to pay, the bill, and upon such terms, if any, as it thinks fit, order the bill to be taxed, …

Provided that in considering any such application the Court shall have regard to-

…

(b) the extent and nature of the interest of the applicant.”

22.  Section 68(2) mandates the court to consider the “extent and nature” of the interest of the applicant.  That proposition suggests, in my view, that the issue is not to be decided on any hard and fast rule but rather on the circumstances of the case (assuming of course that the applicant has some kind of interest in the property in question).  The purpose of the sub-section is to allow a person interested in the property to be used to pay the legal costs to have the bill taxed.  The purpose of taxation is to ensure that the fees are reasonable.  A beneficial interest in the property clearly suffices for the purpose of invoking the sub-section.  However, there is no limitation or parameters prescribed in s.68(2) in respect of the interest which the applicant must have.  Instead, the matter is left to the court.  The reason for so doing, I believe, is that the circumstances of each application will be examined to meet the justice of the case. 

23.  There is no dispute between the parties that the 9^th Part will be used to set up a tso.  Given the value of the same, there is no real risk that there will be nothing left after the payment of the Bills and other expenses with which to set up the tso.  There is also agreement between the parties that as descendants of Lau Wai Chau, P2-6 will become members of the tso.  They will be entitled to distribution of surplus income of the tso and, subject to the unanimous agreement of all the members, to the distribution of assets of the same.  There is disagreement whether unanimous agreement will be required for the distribution of surplus income.  I do not believe that it is important to resolve the point.  However, my understanding of the customary law in this regard is consistent with the position maintained by Mr Chow that no such agreement is necessary.  No contrary authority has been cited by Mr Wong to support his contention.

24.  There is no controversy that as beneficiaries under the Estate, P2-6 have no beneficial interest in the assets being administered – see Re Yuen Kiu Kwan [2009] 3 HKLRD 371 at 377, para 29. 

25.  However, I agree with Mr Chow that the interest required under s.68(2) needs not be a beneficial interest.  That must follow from the fact that the sub-section covers situations involving executors and administrators.  Indeed, on the terms of s.68(2), prima facie, a beneficiary of an estate has sufficient interest to apply for taxation. 

26.  Mr Wong has characterised the interest of P2-6 in the 9^th Part as “contingent life interest” and too remote to come within s.68(2).  I disagree.  Firstly, even if there is no immediate entitlement to any payment under the 9^th Part, on the terms of s.68(2), P2-6 are entitled to apply for taxation.  Secondly, if I were wrong, I would have no hesitation in holding that as members of the tso to be set up, P2-6 have sufficient financial interest to qualify under the sub-section.  Thirdly, financial interest aside, I take the view that as members of the tso, there is every interest on their part to see to it that the assets of the tso are preserved for purpose of ancestral worship, and such interest would meet the threshold under the sub-section.  In other words, I do not believe that the qualifying interest must be financial. 

27.  In light of the above, I also agree with Mr Chow that, apart from s.68(2), P2-6 have sufficient interest to be joined in these proceedings pursuant to the general power of the court on joinder of necessary parties. 

28.  For completeness, I take the view, and it is conceded by Mr Wong, that there is an issue estoppel against R for arguing, at least against P4 and 6, that they do not come within the ambit of s.68(2).  R took the opposite position in HCAP 10/01 and won on that issue before Chung J (see para 6 above).  It is estopped from arguing an entirely inconsistent case in these proceedings.  Mr Wong tried to argue that the estoppel does not apply given the special circumstances constituted by the change of circumstances (see para 18 above).  With respect, I do not begin to see how the so called change of circumstances can amount to an exception to the application of the rule – see Res Judicata by Spencer Bower & Handley, 4^th ed, paras 8.31 to 8.35. 

29.  It may be said that technically the issue estoppel can only apply to the case of P4 and 6 because the others were not party to HCAP 10/01.  However, there may be a question of abuse of process on the part of R if it seeks to take that position.  Given that the issue estoppel point is one raised by this court and the parties may not have been able to deploy their submissions in full on the same, it would not be appropriate to adjudicate on it, especially when it is unnecessary to do so. 

30.  In the premises, I am unable to see any legitimate reason for the removal of P2-6 from these proceedings.

31.  I shall deal with Mr Chow’s case based on the Joinder Order briefly.  It is submitted that the Joinder Order has not been appealed and the strike out of P2-6 is inconsistent therewith.  In my view, parties who have been properly joined in proceedings may nevertheless be removed therefrom subsequently on proper grounds (see O.15, r.6(1), Rules of the High Court), eg, one of the parties has been paid in full so that his cause of action is extinguished.  The real issue here is whether there is any such ground.  There is none. 

Conclusions

32.  For these reasons, the appeal is allowed.  I grant the orders and directions sought as per paras 1 to 5 of the Notice of Appeal. 

Breach of Practice Directions on filing of skeleton arguments

33.  I regret to say that the Practice Directions on filing of skeleton arguments (“S/A”) were breached by R’s side which adversely impacted upon the preparation for this hearing by the court.  The relevant events are as follows. 

34.  R’s S/A should have been filed by 10:00am on Tuesday, 5 February 2013.  The document was only sent to the court by facsimile at 5:45pm on that day.  The lateness meant that the time allocated for preparation of this appeal (afternoon of the 5 February 2013) was not properly utilised.  In the event, the S/A was not seen by me until the morning of the 6 February 2013.  Finding the time to read and digest the S/A on that day required putting back and compacting other tasks which had to be carried out. Much to my dismay, after having read, digested and made notes on the S/A, another S/A was served on the court with a compliment slip marked “Please replace it to (sic) the Skeleton that we sent you this morning”.  There was no indication as to what had been changed in the fresh S/A and I was left with the disconcerting feeling that some of the preparation work might have been a waste of time.  Judges cannot be expected to have the luxury of time to carry out a comparison exercise to see what has or has not been changed in a fresh S/A. Shortly before the hearing on the next day, the court was served with yet another S/A described as a “Supplemental Speaking Note”. 

35.  There is no acceptable explanation for the lateness of R’s S/A.  It must be remembered that the Practice Directions provide for the latest time when S/A should be served.  Parties are free to agree to or to seek directions on earlier filing of S/A.  A respondent does not have to wait until seeing the other side’s S/A before filing his.  For anyone who decides to leave things to the last minutes, he will only have himself to blame if anything goes wrong.  As regards the “replacement” S/A, it turned out that a very minor amendment was made in the S/A and the secretary who helped to produce that document then decided to send a fresh S/A to the court.  Quite apart from the lamentable waste of resources, this is a lesson for exercising proper supervision over one’s staff. 

36.  The purpose of setting out the events is to demonstrate that there are good reasons for the filing of S/A in good time.  It is not merely for the convenience of the court.  Advocates are duty bound to ensure that their case is properly understood by the court.  Filing their S/A in good time serves to do so.  Further, disruption to the court’s work is unfairness to other litigants and has a negative impact upon the quality of the court’s work. 

37.  The consequences for non-compliance of the Practice Directions have been set out in no uncertain terms (see Hong Kong Civil Procedure 2013, vol 1, PD5.4/30 at p 1693).  Yet, not infrequently those Directions are breached.  I regret to say that unless the Directions are enforced, breaches will continue.  I see no reason why the court should continue to tolerate breaches of the Practice Directions.  From now on, practitioners can expect to be penalised for non-compliance, especially if such non-compliance has adversely impacted upon the work of the court.

38.  Finally, I wish to make two further points.  Firstly, the Practice Directions provide for what are required in a S/A (see Hong Kong Civil Procedure 2013, vol 1, PD5.4/7 to PD5.4/9 at p 1690-1).  There is no room for paying lip service to the Directions so as to avoid the consequences of breach.  Secondly, sometimes it is helpful to the court to receive a further short S/A even shortly before the hearing if, eg, it seeks to narrow down the issues.