SINCERE'S KNITTING MILLS LTD AND ANOTHER v. CHEONG PUI FAN t/a S.K. WONG & LEE

CACV 292/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 292 OF 2005

(ON APPEAL FROM DCCJ 52/2005)

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REASONS FOR JUDGMENT

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Hon. Yeung JA:

1.  I agree with the reasons given by Yuen JA for the orders we made as set out in paras. 37-40.

Hon. Yuen JA:

2.This is an appeal from a decision of Judge Sweeney given on 7      September 2005 dismissing the Plaintiffs’ summonses:

(i)   issued 4 May 2005 - for judgment on admissions, alternatively for summary judgment, in the amount of $222,526 together with interest ("the summons for judgment"); and

(ii)  issued 5 September 2005 - for an order that upon judgment on admissions being entered for the amount of $222,526, the Plaintiffs have leave to wholly discontinue the action, and that the Defendant pay the Plaintiffs the costs of the action ("the discontinuance summons").

Background 

3.The Plaintiffs are former clients of the Defendant, a firm of solicitors.  The Plaintiffs had previously instructed the Defendant to act for them in two consolidated High Court actions.

4. The Plaintiffs had paid certain sums to the Defendant as costs on account.  The Plaintiffs’ case is that one day before they terminated the Defendant’s retainer on 25 November 2004, the Defendant had orally confirmed that an amount of $250,000 would be refunded to them as the credit balance on the account. 

5.Accordingly, on 25 November 2004, the Plaintiffs terminated the Defendant’s retainer in writing and demanded the refund of $250,000.  A Notice of Change of Solicitors in the two High Court actions was filed on 1 December 2004 by the Plaintiffs’ new solicitors.

6.However the Defendant did not refund any amount to the Plaintiffs.

Proceedings

7.On 5 January 2005, the Plaintiffs issued a writ in the District Court for the amount of $250,000.

Defendant’s letter

8.On 22 January 2005, the Defendant wrote an open letter to the Plaintiffs saying that they have a cheque payable to the Plaintiffs, but only in the amount of $142,526 "being the balance of the money on account refunded to you" with particulars set out in a final bill which was annexed. 

Defendant’s bill

9. The Defendant accounted for the difference of $107,474 (the difference between the allegedly promised refund of $250,000 and the amount of $142,526 in their open letter) in the bill, which actually showed $284,602 in the Plaintiffs’ credit, but the Defendant had deducted:

-	$5,529 as disbursements,
-	$56,547 as their profit costs, and
-	$80,000 as an amount which the Defendant said it was
	holding in respect of an invoice which an expert witness had issued for his services in the High Court actions.  The Defendant indicated that upon the expert confirming that "our bill has been settled" (presumably meaning that the expert would not be looking to the Defendant for payment), the sum of $80,000 would also be refunded to the Plaintiffs.

Expert’s confirmation of cancellation of invoice

10. On 5 February 2005, there was a written confirmation from the expert that he had cancelled the invoice (although the cancellation chop on the invoice indicated that the invoice was issued and cancelled on the same day - 14 September 2004).  Be that as it may, this meant that the amount of $80,000 was also available for refunding to the Plaintiffs.  That reduced the difference to $27,474.

Difference between the parties

11. In other words, it came down to what the Defendant could keep as their charges:

-	in their bill (raised on 22 January 2005), the Defendant was charging profit costs and disbursements totalling $62,076, but
-	if they were to be kept to the alleged oral promise (on 24 November 2004) to refund $250,000 to the Plaintiffs, the profit costs and disbursements they would receive would be restricted to $34,602 ($284,602 balance on account, less $250,000 allegedly promised refund).

12. There was also of course the interest earned on the amount retained by the Defendant since 25 November 2004.

Payment in

13. On 7 February 2005, the Defendant paid the sum of $222,526 ($142,526 + $80,000) into court "in satisfaction of all causes of action in respect of which the Plaintiffs claim and ... inclusive of interest" (emphasis added).

14. If the Plaintiffs accepted the payment in, that would have meant that they would not be able to hold the Defendant to the alleged promise to refund $250,000, and arguably they might even be precluded from applying for taxation of the Defendant’s bill under s.67(2) Legal Practitioners Ordinance Cap.159.  I shall discuss this aspect again later. 

Defence

15. On 12 February 2005, the Defendant filed a Defence which, given the above facts, can only be said to be astonishing.  It was a blanket denial of everything, even the fact of the former solicitor-client relationship and the fact of the written demand for refund of the balance of the costs on account.  Coming from solicitors, I have to say it was unhelpful, bordering on the irresponsible.

Summons for judgment

16. On 4 May 2005, the Plaintiffs issued the summons for judgment for the amount of $222,526.  The affirmation in support referred to the Defendant’s open letter and the expert’s confirmation I have referred to above.

17. The Defendant’s affirmation in opposition advanced only procedural arguments on the Plaintiffs’ affirmation and offered no substantive points in defence.

18. In the meantime, there was correspondence between the parties which I shall refer to later.

Discontinuance summons

19. On 5 September 2005, the Plaintiffs issued the discontinuance summons.  No affirmations were filed by either party in respect of this summons. 

Parties’ respective positions before the judge

20. The Plaintiffs’ skeleton submission before the judge sought:

-	judgment on admissions in the amount of $222,526,
-	interest on that amount from 1 December 2004 at the latest,
-	costs of the action on the ground that the judgment would be for over 90% of the claim, and
-	leave to discontinue the action "as the costs involved would be out of proportion to the balance of the sum to be claimed".

21. The Defendant’s skeleton submission before the judge stated that:

-	they have since the date of payment in (7 February 2005) been prepared to refund the amount of $222,526,
-	they have since 6 August 2005 consented to partial judgment being entered in that amount,
-	the Plaintiffs were intending to pursue the balance of $27,474 in the Small Claims Tribunal,
-	accordingly they opposed the Plaintiffs’ application for costs of the action and submitted that the costs issue should be determined only after adjudication of the claim for the balance.

It is to be noted that the Defendant did not dispute the Plaintiffs’ application for judgment on admissions, nor did they object to leave to discontinue.  The only dispute, as Mr Chan of the Defendant fairly informed the judge (transcript p.2 I-K), was over costs.  As such, it was legitimate for the parties to refer the judge to the payment in, and before this court Mr Lam for the Plaintiffs withdrew the ground of appeal challenging the judge’s reference to the payment in.

Judge’s decision

22. The judge held first (paras. 7-8) that the Plaintiffs’ intention to pursue the claim for the balance in the Small Claims Tribunal was "wholly at odds" with the application for leave to discontinue the action.  He was of the view (paras. 9-10) that the Plaintiffs wished

"to accept the defence lodgment of $222,526 without suffering the cost consequence of late acceptance".  He considered that were he to "countenance such behaviour by the plaintiffs, it would render the effects of the 14 days rule useless.  It would mean that no plaintiff would ever accept such a payment if he believed that he could come back at a later time and claim the said sum that had been paid into court as ‘partial payment’ and thereby seeking all of his (unnecessary) costs incurred since the 14 days had expired."

The judge then dismissed both summonses of the Plaintiffs.

Discussion

23. The judge’s order was made in the exercise of his discretion.  It is well-established law that an appellate court should not interfere with the exercise of a judge’s discretion unless it is satisfied that the

judge has erred in law or in principle, or he has taken into account some matter which he should not have taken into account, or has left out of account some matter which he should have taken into account, or the decision was so plainly wrong that it must have been reached by a faulty assessment of the weights of the different factors which have to be taken into account (Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, applied in Lakhan v Wu Wing Tat [1987] 3 HKC 54).

24. In this case the judge, with respect, had erred in principle when he held that the Plaintiffs’ intention to pursue the balance in the Small Claims Tribunal would be "wholly at odds" with their application for leave to discontinue the action in the District Court. 

25. First, there is no objection in principle to a party seeking leave to discontinue an action with the intention of instituting a fresh action subsequently.  Order 21 rule 4 of the Rules of the District Court (which is identical to the Rules of the High Court)  provides:

"subject to any terms imposed by the Court in granting leave [to discontinue] under rule 3, the fact that a party has discontinued an action ... shall not be a defence to a subsequent action for the same, or substantially the same, cause of action". 

A party is thus at liberty to discontinue an action, and then to issue a fresh action. 

26. Secondly, there was a legitimate ground for the Plaintiffs’ application for leave to discontinue the action in the District Court.  They were applying to enter judgment for 90% of their claim without opposition, and the amount of the balance was suitable for adjudication in the Small Claims Tribunal (it being in the interest of both parties for less costs to be incurred). 

27. Thirdly, even if the judge considered that in all the circumstances, it would be unjust for the Plaintiffs to pursue the balance in the Small Claims Tribunal, then the proper order would have been to grant leave to discontinue on terms that no other action shall be brought (as in Trend Publishing (HK) Ltd v Vivien Chan & Co [1996] 3 HKC 433).  Or if the judge thought that the Defendant was in effect the victor in the District Court action because of the payment in (which is discussed later in this judgment), then the proper order would have been to grant leave to discontinue on terms that the Plaintiffs bear all or part of the Defendant’s costs. 

28. However the judge dismissed the discontinuance summons and the summons for judgment, with the effect that the parties were left with the action in the District Court still extant, an action which neither party by that stage wished to pursue in the District Court and had in fact agreed to dispose of, subject only to the issue of costs of the hearing before the judge and the Defendant’s opposition to the Plaintiffs’ retention of their right to proceed in the Small Claims Tribunal for the balance. 

29. Further, in dismissing the summons for judgment because of costs ramifications consequent to the Defendant’s payment in, the judge, with respect, failed to appreciate the benefit to the Plaintiffs of entering judgment on admissions, as opposed to accepting payment in.  The payment in was in these terms:

"in satisfaction of all causes of action in respect of which the Plaintiffs claim and ... inclusive of interest".

If the Plaintiffs had accepted the payment in, they would have given up their rights to challenge the Defendant’s claim to profit costs and disbursements of $62,076 instead of only $34,602 (or at least there was a serious risk that they will be taken to have done so).  The Plaintiffs’ application for judgment on admissions did not prejudice their claim for the balance and did not expose them to any risk.

30. In any event, the payment in was inadequate because the Defendant had not provided for the interest element of the claim.  Whatever may have been the position as regards the date when the amount of $80,000 was first available for refund, interest on the undisputed amount of $142,256 was payable and was claimed, but the Defendant failed to provide for it in the amount paid in. 

31. Moreover even if the judge had considered that the Plaintiffs could have applied earlier to enter judgment on admissions, that was a position which he could have expressed in an appropriate costs Simply dismissing the Plaintiffs’ application for judgment on admissions, when that was justified and unopposed, was incorrect.

Consent of parties to judgment and interest and some costs

32. At the hearing before us, and perhaps being aware of some or all of the points made above, the parties consented to judgment being entered in favour of the Plaintiffs in the amount of $222,526 together with interest at judgment rate from the date of writ to judgment (i.e. the date of the hearing before this court). 

Costs of the action

33. It was clear to us that the Defendant was also liable for costs of the action.  First, they had omitted to top up the amount of $222,526 with interest when they made payment in, so the payment in was obviously insufficient to beat the partial judgment.  Mr Collins for the Defendant said it was an oversight.  It may well have been so but Order 22 rule 1(8) of the Rules of the District Court clearly reminds litigators of the need to include an appropriate amount as interest when making payment in, and such is the consequence of payment in that such oversights may prove very costly. 

34. Secondly, Mr Collins asked that the Defendant be relieved of the liability to pay the costs of the hearing before the judge, referring us to the offers made by the Defendant in August and September 2005.  We have considered the correspondence.  It shows that the Defendant offered to concede judgment, interest (at an undisclosed rate) and costs, but subject to the Plaintiffs’ agreement not to pursue the balance in the Small Claims Tribunal (see Defendant’s letters dated 10 August 2005, 20 August 2005 and 2 September 2005). 

35. As for Mr Collins’ submission that the Defendant’s draft Consent Summons of 30 August 2005 did not expressly include the condition that the Plaintiffs should not pursue the balance, that draft was in any event deficient because the interest rate was not stated, and when the Plaintiffs reverted with their own draft, the Defendant reiterated that the discontinuance should be of the whole "case absolutely", which we understand to mean without allowing recourse to the Small Claims Tribunal for the balance. 

36. We did not consider that the Plaintiffs were obliged to so agree.  Of course if they do pursue the balance in the Small Claims Tribunal and they ultimately fail, they will have to take the consequences as far as those costs are concerned, but there was no reason in the circumstances of this case to impose as a term of the summons for judgment or the discontinuance summons that no fresh action should be brought.

Order

37. For these reasons the appeal was allowed and we set aside the judge’s order on the summonses.  

38. We entered judgment by consent for the Plaintiffs against the Defendant in the amount of $222,526 together with interest at judgment rate from the date of writ to date.

39. We made an order that the costs of the action and the costs of the appeal be paid by the Defendant to the Plaintiffs to be taxed if not agreed.  We did not certify that the hearing before the judge was fit for counsel.

40. Finally we gave leave to the Plaintiffs to discontinue the action without prejudice to the Plaintiffs claiming the balance of $27,474 in the Small Claims Tribunal.