GIBSON, DUNN & CRUTCHER (A FIRM) v. SUNSHINE SUCCESS GLOBAL INC. AND ANOTHER

HCMP 240/2024

[2025] HKCFI 4567

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 240 OF 2024

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J U D G M E N T

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A.  INTRODUCTION

1.  This is the hearing of the Originating Summons filed by the Plaintiff (“GDC”) on 9 February 2024 (“OS”) for (i) taxation of 5 bills of costs (“the 5 Bills”) and (ii) interim payment pending taxation.

2.  For 13 months between 16 May 2022 and 10 June 2023, GDC was engaged by D1 (“SSGI”) and D2 (“Ms Kam”) to provide legal services in connection with a dispute concerning an investment pursuant to an Engagement Letter dated 13 May 2022 (“Engagement Letter”).

3.  SSGI and Ms Kam (collectively, “the Defendants”) have already paid at least a total of US$50,000 and HK$8,165,845.48 to GDC. However, they refuse to pay the 5 Bills in the total sum of about HK$5.65 million (“the Outstanding Sum”), as listed out in Schedule 1 to the OS.

4.  Out of the 5 Bills, 44% of the costs relates to HCA 1289 of 2022 against Ms Kam and 56% relates to HCCT 85 of 2022 and other proceedings against SSGI.

5.  The Engagement Letter and the Terms of Retention referred to therein both contain an arbitration clause which provides for resolution of “any and all disputes, claims or controversies arising out of or relating to this agreement, our relationship, or the services performed or any other matter or thing” by way of HKIAC arbitration (“the Arbitration Clause”).

6.  Clause 15.8 of the Terms of Retention provides that, “Nothing in this paragraph shall displace any statutory provision for taxation of fees under the Legal Practitioners Ordinance and if there is any dispute regarding fees, you have the right to require fees to be taxed.”

7.  By the OS, GDC seeks:

(1)  An order for taxation of the 5 Bills;

(2)  Interim payment of 100% of the outstanding disbursements ($181,471.86) and 50% of the outstanding fees ($2,735,336.25) to GDC; and

(3)  Interim payment of 20% of the total outstanding fees ($1,094,134.50) into Court.

8.  The majority of the work rendered by GDC was to oppose an injunction application for and on behalf of the Defendants in HCA 1289/2022 and HCCT 85/2022 (“the 2 Cases”). Such work essentially consisted of: (a) preparing 2 affirmations of Ms Kam under HCA 1289/2022, one of 13 pages and the other 2; (b) attending a contested hearing before Anthony Chan J (as he then was); (c) filing a 2-page affirmation to make disclosure of Kam’s assets; and (d) engaging counsel to prepare the Defence. There was other miscellaneous work, which is not necessary to go into.

9.  GDC was solicitors on record in the 2 Cases for less than 7 months. The total legal fees charged by GDC (including the Outstanding Sum) were over HK$14 million, with about HK$8.5 million paid.

10.  The Defendants say that, whilst GDC devoted a significant portion of its skeleton to try to portray a negative picture of Ms Kam, they were clients who had a good track record of paying legal fees instead of seeking to evade payment. However, they felt let down by the services of GDC, which were later discovered to be negligently provided. The Defendants oppose the OS on 4 grounds, that:

(1)  Ms Kam and SSGI are severally liable to pay GDC’s fees (“Several Liability Ground”);

(2)  GDC is not entitled to any remuneration because of professional negligence (“Negligence Ground”);

(3)  The Bills do not conform with statutory formalities under LPO s.66 (“Statutory Formalities Ground”); and

(4)  Interim payment would stifle Ds’ ability to participate in taxation (“Financial Ability Ground”).

11.  The Defendants allege that GDC was negligent in advising and acting for the Defendants in the 2 Cases. In gist, GDC had failed to adduce more evidence, in the form of expert evidence and some documents which could have called into question a good arguable case that led to the grant of the injunctions. GDC have not provided any direct and/or meaningful factual answer to the Negligence Ground.

12.  By reason of the Negligence Ground, GDC should be deprived of part or all of their costs, or costs paid should be returned to the defendants. Such amount could well exceed the Outstanding Sum. With this complex issue, it is inappropriate for the 5 Bills to be immediately taxed without regard to the Negligence Ground.

13.  The Defendants thus pray that the OS/ taxation be stayed pending the resolution of the Negligence Claim (i) by turning the OS into a writ action; (ii) by trial of preliminary issues on negligence within these taxation proceedings or (iii) in arbitration.

14.  Further, the Defendants submit that no interim payment should be ordered against them but, if it is, each of them should only pay for the costs incurred for legal services rendered to them on a several basis.

B.  BACKGROUND

B1.  The Bills

15.  The background facts are not in dispute and I gratefully adopt the summary of Mr Joshua Chan and Ms Celeste Chan, counsel for GDC.

16.  GDC was first approached by Ms Kam in or around early May 2022. On 16 May 2022, she executed the Engagement Letter on behalf of the Defendants. The Engagement Letter provided that GDC was retained to provide legal services to SSGI in connection with a potential dispute involving BSADE and the operation of a Cayman Fund, including all related issues and matters.

17.  Between May 2022 and June 2023, GDC provided legal services to the Defendants for (a) general advice mainly covering advice prior to the commencement of legal proceedings; and (b) work in relation to the 2 Cases, HKIAC/A22286 (being an arbitration by BSADE against SSGI) and HCA 581/2022 (being an action by another entity against SSGI).

18.  Between February and June 2023, GDC issued and delivered the 5 Bills:

Invoice No	Invoice Date	Fees	Disbursements	Total Unpaid
2023021275	20.02.2023	$2,474,144.85	$66,254.04	$2,540,398.89
2023030677	06.03.2023	$1,136,954.30	$115,171.82	$1,252,126.12
2023043213	20.04.2023	$556,286.40	$10.00	$556,296.40
2023045226	03.05.2023	$1,053,355.25	$1,052.00	$1,054,407.25
2023061072	09.06.2023	$249,931.70	($1,016.00)	$248,915.70
Total:		$5,470,672.50	$181,471.86	$5,652,144.36

19.  By correspondence, the Defendants indicated refusal to pay the Outstanding Sum (including the fees of counsel who were instructed on their instructions). Notably, they have never raised any of the grounds of opposition that they now rely upon, in particular, the allegation of professional negligence. Instead, they merely made generic assertions, like they had never agreed to GDC’s fees and that GDC had overcharged.

20.  GDC issued the OS on 9 February 2024, pursuant to section 67(2) of the Legal Practitioners Ordinance Cap 159 (“LPO”). The Defendants raise the 4 Grounds in opposition.

B2.  Background to the 2 Cases

21.  The background in relation to the dispute is set out in A Chan J’s Decision dated 13 January 2023 in HCA 1829/2022 (“the Injunction Decision”).

22.  The plaintiff in that action was BSADE, a PRC company which acted via Mr. Wang Guiwu (“Wang”).

23.  Sunshine Success International LLP (“SSI”) is an exempted partnership registered in the Cayman Islands on 6 July 2018. Its registered agent at the material time was Maples Corporate Services Ltd (“Maples”).

24.  SSGI (a company controlled by Ms Kam) was SSI’s General Partner since its registration and was in control of SSI at all material times.

25.  Allegedly relying on false oral representations made by Ms Kam on behalf of herself and SSGI to Wang, BSADE transferred a sum of HK$220,548,682 (“Sum A”) into SSGI’s bank account and another HK$32,500,000 (“Sum B”) to 2 other entities with a view to acquiring interest as a limited partner in SSI (§§20 and 22 of the Injunction Decision). Those 2 transfers took place on 1 November 2019 and 20 February 2020, respectively.

26.  Between 2020 and 2022, Wang repeatedly attempted to contact Ms Kam to seek (a) the executed contractual agreements in relation to the investment, (b) basic information about SSGI, and (3) the projects and value of SSI’s investment that were supposed to be in real estate projects in London, Japan and Australia (collectively, “Requests”), but to no avail (§§23-27, 29-32).

27.  A Norwich Pharmacal Order against Chiyu Bank revealed that Sum A had been transferred out of SSGI’s Chiyu Account (§§13, 28).

28.  In around September 2022, pursuant to a disclosure order made by a court in Cayman Isalnds, BSADE obtained a copy of the Register of SSI from Maples, which revealed that BSADE was never a limited partner of SSI: see §§6, 33-34.

B3.  Commencement of the 2 Cases

29.  Against the above background, on 5 October 2022, BSADE commenced:

(1)  HCA 1289/2022 against Ms Kam; and

(2)  HCCT 85/2022, against SSGI for a proprietary injunction to restrain it from dealing with Sum A pending resolution of an arbitration between BSADE and SSGI (i.e. HKIAC/A22286).

30.  On 6 October 2022, BSADE applied, in HCA 1289/2022 for a Mareva injunction to restrain Ms Kam from removing from Hong Kong any of her assets up to the value of HK$253,048,682 (i.e. the aggregate of Sum A and Sum B).

B4.  Kam Mareva Injunction and SSGI Proprietary Injunction

31.  On 13 January 2023, A Chan J granted the Mareva injunction sought against Ms Kam (“Kam Mareva Injunction”). He found, amongst others, that BSADE had shown a good arguable case that it was defrauded of Sum A and Sum B, taking into account inter alia (a) Ms Kam and SSGI’s refusal to provide the executed Partnership Agreement or information about the manner in which Sum A and Sum B were invested, (b) the inherent probabilities concerning BSADE’s factual case, and (c) questions as to the veracity of the version of the Register produced by Ms Kam (§§53-74). The whereabouts of Sum A and Sum B were unknown, and Ms Kam only had one identified property worth around HK$40 million in Hong Kong (§76). There was risk of dissipation of assets, having regard to (inter alia) Ms Kam’s stance in stonewalling BSADE (§77).

32.  A Chan J also made an ancillary disclosure order (“Ms Kam Disclosure Order”) requiring Ms Kam to disclose the whereabouts of Sum A, Sum B and their present equivalent (§82).

33.  On the same day, in respect of HCCT 85/2022, A Chan J also granted: (a) a proprietary injunction restraining SSGI from disposing of or dealing with Sum A (“SSGI Proprietary Injunction”); and (b) an order requiring SSGI to disclose the whereabouts of Sum A (“SSGI Disclosure Order”).

34.  The Defendants did not appeal against A Chan J’s orders in either of the 2 Cases.

B5.  Strike out application

35.  Instead, by a summons dated 20 November 2023, Ms Kam applied in HCA 1289/2022 to strike out the claim against her, or alternatively, to discharge the Mareva injunction granted by A Chan J. In support of her application, she adduced evidence, amongst others, of Cayman Islands law suggesting that BSADE had in fact become a limited partner in SSI upon execution of the Partnership Agreement, and hence was not defrauded. She contended that BSADE had no good arguable case for a Mareva injunction in the light of that evidence.

36.  On 30 May 2024, DHCJ KC Chan dismissed the strike out summons. In his Reasons for Decision given on 19 June 2024, DHCJ KC Chan specifically rejected the argument concerning the new evidence on Cayman Islands law, holding that:

(1)  Even taking into account Ms Kam’s expert evidence, there was still an arguable dispute as to whether SSGI had accepted BSADE as a limited partner of SSI. That was a question which would have to be resolved at trial: §§40-49.

(2)  Even taking Ms Kam’s case at its highest and assuming that BSADE had become a limited partner of SSI, that was only one of the issues. Other issues included misrepresentations as to the investments to be made with Sum A; and the information to be provided by Ms Kam. As of the date of the hearing, there was no evidence that any account has been prepared by Ms Kam, SSGI or SSI regarding the operation, assets and investments of SSI: §§64-76.

B6.  Kam Proprietary Injunction and Repatriation Order

37.  As mentioned above (in §§32 and 33), A Chan J made the Kam Disclosure Order and the SSGI Disclosure Order. In purported compliance with those Orders, Ms Kam and SSGI disclosed, by letter dated 17 January 2023, that:

(1)  HK$170,962,682 of Sum A was currently maintained in Ms Kam’s personal bank account in Singapore (“Ms Kam’s Singapore Account”);

(2)  HK$49,586,000 had been applied to cover the management fee paid by the Partnership [SSI] to SSGI; and

(3)  steps had been arranged for a sum of HK$49,586,000 to be transferred into [Ms Kam’s Account] shortly”.

38.  Upon the application of BSADE in HCA 1289/2022, DHCJ KC Chan granted, on 9 August 2024, an order:

(1)  restraining Ms Kam from dealing with Sum A and Sum B, including the sum of HK$170,962,682 in Ms Kam’s Singapore Account (“Kam Proprietary Injunction”);

(2)  requiring her to pay the same into Court within 7 days (“Repatriation Order”); and

(3)  requiring her to disclose the whereabouts of the sum of HK$49,586,000 within 7 days (“Kam Further Disclosure Order”).

B7.  Judgment in HCA 1289/2022

39.  Ms Kam failed to comply with the Repatriation Order by the deadline of 23 August 2024. Instead, she issued summonses seeking leave to appeal against and stay of the 9 August 2024 Order.

40.  On 26 August 2024, BSADE took out a summons in HCA 1289/2022 for an order that (inter alia) judgment be entered against Ms Kam unless she complied with the Repatriation Order in 3 days.

41.  On 12 September 2024, upon the application of BSADE, DHCJ KC Chan ordered that judgment be entered against Ms Kam unless she filed her evidence in opposition to BSADE’s summons by 17 September 2024.

42.  On 17 September 2024, Ms Kam filed a draft, undated and unsigned affirmation which alarmingly disclosed, amongst others, that the sum of HK$170,962,682 was no longer in Ms Kam’s Singapore Account. The purported reasons were that (a) the bank closed her Account, and (b) Ms Kam returned the sum to SSLP for whom she held on trust.

43.  On 27 September 2024, DHCJ KC Chan ordered, amongst others, that judgment be entered for Sum A unless Ms Kam complied with the Repatriation Order by 25 October 2024 (“Unless Order”). By his Reasons for Decision dated 1 November 2024, DHCJ KC Chan noted that:

(1)  Ms Kam’s breach of the Repatriation Order was “inexcusable, intentional and contumelious”. Her latest (undated and unsigned) evidence as to the whereabouts of the proceeds of Sum A was contrary to her repeated assurances to the Court that the proceeds were remaining and would remain in Ms Kam’s Account pending the outcome of HCA 1289/2022. Her explanation for the dissipation of those sums was “disingenuous and hardly believable” (§§22-32).

(2)  The Unless Order was appropriate given that Ms Kam had “been consistently employing her litigation gamesmanship requiring [BSADE] to expend much more time and costs than were otherwise necessary and reasonable in seeking its redress” and other proposed remedies (including contempt proceedings) would likely “end up as another fruitless but expensive chase on the side… of [BSADE]” (§50).

44.  Ms Kam failed to comply with the Unless Order. Accordingly, judgment was entered against her automatically for Sum A.

45.  Ms Kam’s application for leave to appeal against the Unless Order was dismissed by DHCJ KC Chan on 16 December 2024.

C.  LEGAL PRINCIPLES ON TAXATION

C1.  The 2 stages of taxation of a solicitor-client bill

46.  The general principles for taxation under s.67(2) of LPO are:

(1)  Broadly speaking, an application for taxation of a solicitor-client bill involves 2 stages: (1) making of an “order to tax” and (2) the taxation itself after an order to tax. Stage 1 determines issues of liability, while Stage 2 determines the quantum of costs: see §60.

(2)  The parties should identify the issues and provide the necessary information to assist the Court in determining how to deal with the matter at Stage 1: see §§61-69.

(3)  On the solicitors’ side, the solicitor would at least need to prove the existence of the retainer, the terms thereof and service of the bills of costs. The solicitors would also need to draw attention to any grounds of objection to payment that they are aware of: see §70.

(4)  On the other hand, it is for the client to raise issues for determination in his or her affirmation, including any vitiating factors that would affect the right to recover fees such as negligence: see §71.

(5)  Whether a master or a judge should deal with the issues, and how they should be dealt with, depends on the nature of the issues. There is no hard and fast rule: see §72.

(6)  Since pursuant to LPO s.67(2) no action shall be commenced on the bill until the taxation is completed, the Court concerned should exercise proper case management to ensure expeditious disposal of the OS and/or a writ action and prevent abuse by a party: see §74.

47.  As regards Stage 2:

(1)  After an order to tax is made, the taxation should be handled by a taxing master with all the powers under O.62. He/she may give directions as to how best to carry the taxation forward.

(2)  Where an order for taxation is made, any contention and dispute which should have been raised before the judge for substantive adjudication is not expected to be raised only or again in the taxation proceedings.

(3)  In taxation proceedings, the taxing master has jurisdiction to adjudicate issues including the terms and extent of the retainer or whether any work falls outside the scope of the retainer.

(4)  In the event that dispute before the taxing master is somehow allowed to develop into such nature and scale warranting the consideration of whether the order for taxation manages to stand, the parties should apply to the judge for setting aside of the order for taxation and re-opening of their dispute for adjudication by the judge.

See Sutherland v CRB (a firm) [2023] 1 HKLRD 1, §§60-75; Lee Choi Ho v Messrs. Collin Ng & Co., Solicitors [2024] HKCFI 3732 at §§10-18, 23-26.

D.  TAXATION BY COURT OR ARBITRATION?

48.  In view of the Arbitration Clause and Clause 15.8, there is a question as to whether taxation should be done by the Court or by arbitration.

49.  It is well established that certain types of statutory claims to which access to the courts is an inalienable right are not capable of being submitted to arbitration: Russell on Arbitration, 24^th ed, §2.085.

50.  In Fung Hing Chiu Cyril v Henry Wai & Co [2018] 1 HKLRD 808, §§20-26, Mimmie Chan J held that applications for taxation under the LPO are capable of being submitted to arbitration.

(1)  At §24 of her decision, Her Ladyship held that Assaubayev v Michael Wilson & Partners Ltd [2014] 6 Costs LR 1058.

“…was concerned with an application to stay taxation related proceedings in respect of a retainer letter signed by the appellant in the case to engage the respondent to act as its legal adviser. The Court of Appeal reviewed its supervisory jurisdiction over solicitors, and considered whether it would be contrary to public policy for matters relating to legal fees claimed to be decided in arbitration.”

(2)  At §25 of her decision, Her Ladyship treated Assaubayev as authority for the proposition that

“there was no public policy which prevents matters relating to legal fees of solicitors subject to the supervision of the courts from being decided by arbitration” (at §25).

51.  Without disrespect to Mimmie Chan J, I adopt the contrary view of Mr Joshua Chan in the present case. For that purpose, it is necessary to examine the reasoning in Assaubayev in a little more detail.

52.  Assaubayev involved unusual facts. The claim was by the clients (the family) against a BVI company (MWP) which pretended to be, but was not in fact, a solicitors’ firm (§§4-5). The family sought an order for setting aside the retainer with MWP, an order for delivery of a bill of costs and assessment (similar to our taxation) of MWP’s bill of costs. The claims were brought under 3 distinct legal bases, namely (a) Part III of the Solicitors Act 1974 (similar to Part VI of LPO on solicitor’s remuneration), (b) the court’s ordinary jurisdiction over parties to civil claims, and (c) the court’s supervisory jurisdiction over its officers (§§13-17).

53.  At first instance, Walker J struck out the claims under Part III of the Solicitors Act 1974 on the grounds that the Act was inapplicable because MWP was not a firm of solicitors. This was not challenged on appeal: see §18. More importantly, Walker J also held that the family’s claims based on the court’s supervisory jurisdiction over solicitors were not arbitrable. This was not challenged on appeal either (§19).

54.  What was in issue on appeal was whether the remainder of the claims against MWP (based on the court’s ordinary jurisdiction) should be stayed in favour of arbitration. The claims fell within the arbitration clause but it was argued that arbitration was inappropriate because (1) the court could also exercise supervisory jurisdiction over persons pretending to be solicitors such as MWP, and (2) in the circumstances the matter should be determined by the court rather than arbitrators: see §27.

55.  Both Walker J and the Court of Appeal ultimately held that even if the court had supervisory jurisdiction over such pretenders (which they did not decide upon), there was nothing to stop the remaining claims (based on the court’s ordinary jurisdiction) from being resolved by arbitration, as the arbitrator was not being asked to exercise the court’s supervisory jurisdiction. The fact that the claims in “ordinary jurisdiction” and “supervisory jurisdiction” might involve overlapping issues was not a reason to prevent the ordinary jurisdiction claims from being decided by the arbitrator: see §§57-70 particularly §§67-70.

56.  Importantly, the English Court of Appeal affirmed Walker J’s holding, commenting that,

“The jurisdiction of the court over solicitors is a jurisdiction which belongs to it alone. No arbitrator can exercise it; nor can anyone other than the court.” (§19)

57.  The policy reason is that that supervisory jurisdiction serves a disciplinary and punitive function. See Assaubayev, §§19-20; 30-31:

“30. The jurisdiction is ‘indeed extraordinary, being based upon the right of the court to see that a high standard of conduct is maintained by its officers acting as such… It is, in a sense, a domestic jurisdiction to which solicitors are only amenable because of their special relationship with the court and it is designed to impose higher standards than the law applies generally.’

“31. Although it may have a compensatory aspect, the jurisdiction is essentially ‘punitive and disciplinary’ in nature… It is for the court to decide whether and, if so, when to exercise the jurisdiction and how to do so.”

58.  Similarly, in Jones v Richard Slade & Co [2023] 1 WLR 383, at §20, Johnson J explained that,

“… Solicitors are court officers. Historically, the court had an inherent supervisory jurisdiction in respect of the conduct of solicitors. This included an inherent jurisdiction to tax a solicitor’s bill…”

59.  Accordingly, and by analogy, Assaubayev actually stands for the proposition that the applications for taxation of costs under Part VI of LPO and the Court’s supervisory jurisdiction over solicitors cannot be resolved by arbitration.

60.  Mr Vincent Chen and Mr Timothy Lam, counsel for the Defendants, disagree with Mr Joshua Chan’s views without giving any reasons. Anyhow, they acknowledge that Clause 15.8 has not displaced LPO.

61.  Therefore, I adopt the approach of Assaubayev. Subject to any questions of liability to be resolved in Stage 1, taxation of the 5 Bills should be done by the Court instead of being referred to arbitration.

62.  I now turn to the individual grounds of opposition.

E.  SEVERAL LIABILITY GROUND

63.  Whether a retainer is joint or several is a matter of contractual interpretation. It is only where a solicitor is acting for joint litigants that the retainer is presumed to be joint until the contrary is shown: Hotung v Ho Yuen Ki [2009] 1 HKC 377, §38, Deputy Judge Mayo.

64.  The evidence shows that HCA 1289/2022 was brought only against Ms Kam, whereas HCCT 85/2022 and related proceedings were brought only against SSGI. Separate costs orders were made by A Chan J for HCA 1289/2022 and HCCT 85/2022. The Engagement Letter made it clear that “each of [SSGI] and Kam” were clients of GDC. There is no clause which refers to joint and several liability. Ms Kam appended 2 separate signatures on the Engagement Letter, one in her personal capacity and the other as authorized representative of SSGI.

65.  GDC accepts that the Several Liability Ground raises a dispute that falls within the scope of the Arbitration Clause. I agree that this Ground is arguable and should be referred to arbitration.

F.  NEGLIGENCE GROUND

F1.  Legal principles on determining solicitor’s negligence

66.  In determining whether the solicitor has exercised reasonable skill and care, he should be judged in the light of the circumstances at the time; hindsight is no touchstone of negligence: Million Honour Trading Ltd v Mak Lai Hing Daisy (unrep., HCA 1852/2009, 8 May 2014), §121, Anthony Chan J.

67.  A solicitor would be considered negligent if he fails to collect essential evidence and to do so on time: Feakins v Burstow [2006] PNLR 6, §§78-79.

(1)  The legal burden lies on the client to prove that in losing the opportunity to pursue his claim (or defence to counterclaim) he has lost something of value i.e. that his claim (or defence) had a real and substantial, rather than merely a negligible, prospect of success.

(2)  The evidential burden lies on the solicitors to show that despite their having acted for the client in the litigation and charged for their services, that litigation was of no value to their client, so that he lost nothing by their negligence.

(3)  If and insofar as the court may now have greater difficulty in discerning the strength of the client’s original claim (or defence) than it would have had at the time of the original action, such difficulty should not count against him, but rather against his negligent solicitors.

(4)  If and when the court decides that the client’s chances in the original action were more than merely negligible it will then have to evaluate them. That requires the court to make a realistic assessment of what would have been the client’s prospect of success had the original litigation been fought out. Generally speaking, one would expect the court to tend towards a generous assessment given that it was the solicitor’s negligence which lost the client the opportunity of succeeding in full or fuller measure.

F2.  Impact of negligence on a claim under a bill of costs

68.  If negligence is established, the solicitor would be deprived of some or all his costs in relation to the relevant proceedings. The solicitor would also be unable to recover disbursements or have to repay any disbursements received from the client. He may also have to bear costs of the other party. See Sutherland v CRB, §47.

F3.  Case management of taxation proceedings where solicitor’s professional negligence is alleged

69.  In Sutherland, I have already set out the procedure of identifying the issues on liability first before making an order to tax. Whether the issues on liability should be determined by a judge or the taxing master depends on the nature of the issues.

70.  In the UK, a distinction is made between “wholesale” allegations of professional negligence and a “contained” allegation of negligence: Jones v Richard Slade & Co [2023] 1 WLR 383, §41. Johnson J held that:

“The professional negligence cases are valuable in indicating a principled approach to the limits of section 70. They show that “wholesale” allegations of professional negligence may not be determined when assessing costs. Such allegations are simply not relevant to the exercise of assessing costs. On the other hand, a discrete and contained allegation of negligence (what Mr Williams termed “localized” negligence) may be relevant to the question of whether particular items of costs were reasonably incurred…”

71.  For wholesale allegations of negligence (or the question of whether an agreement on fees had been reached as a result of undue influence or economic duress in Jones v Richard Slade), the client is usually left to advance his or her claim by way of a separate and independent civil action. This is because the allegations may affect whether the client is ultimately liable to pay costs, but they do not affect the Court’s assessment of the reasonableness or unreasonableness of the individual cost items. For contained allegations of negligence, the costs judge can deal with them.

72.  Mr Joshua Chan cited various authorities wherein the taxing master or costs judge in UK declined to inquire into the question of negligence: The Papa De Rossie (1878) 3 PD 160; Re Massey v Carrey (1884) 26 Ch D 459; and Nicholas Drukker & Co v Pridie Brewster & Co [2006] 3 Costs LR 439.

73.  I note, however, that in those cases, the issues of negligence were raised when the cases were already in the hands of the taxing master or costs judge. They are distinguishable from the present case where the issue of negligence is raised before an order to tax is made.

74.  Whether an issue in negligence should be determined by a taxing master or judge really depends on complexity. Whether an issue of negligence is wholesale or contained is a matter of degree. By way of example, if it was due to negligence of the solicitor’s filing clerk that an unless order is not complied with and the client has to apply for relief against sanction, this may be decided by a taxing master. On the other hand, a negligence issue that involves filing of pleadings, substantial investigation on fact and law should be hived off to a judge or, in this case, to arbitration. By way of example, in Sutherland, the issue of solicitor’s negligence was hived off to a writ action in the District Court (at §§79-80).

F4.  Defendants’ case on negligence

75.  The Defendants have advanced 4 limbs of professional negligence against GDC:

(1)  In the 2 Cases , failure to advise the Defendants to adduce legal opinion on Cayman Islands law (“1^st Limb”);

(2)  In the 2 Cases, failure to identify the irregularities in the Purported Maples’ 2022 LP Register and how it was obtained (“2^nd Limb”);

(3)  In the 2 Cases, wrongly advising the Defendants that there was no need to adduce various voice recordings which would show that SSGI never made the alleged Oral Representations (“3^rd Limb”); and

(4)  In HCCT 85 of 2022 and its related proceedings, failure to advise the Defendants to procure a PRC legal opinion which would show that BSADE had no entitlement to any proprietary claim in respect of Sum A. (“4^th Limb”).

76.  The expert evidence subsequently obtained by the Defendant stated that (i) BSADE did, as a matter of Cayman Islands law, obtain an interest in SSI as a limited partner and (ii) the Purported Maples’ 2022 LP Register was not conclusive proof on whether BSADE did become a limited partner of SSI and was irregular.

77.  The Defendants contend that the legal opinion on Cayman Islands law could have affected how A Chan J assessed (i) whether BSADE had shown a good arguable case on fraud that it did not obtain any interest in SSI as a limited partner; and (ii) whether there was any risk of dissipation. It is not necessary for the Defendants to show that they must have succeeded in resisting the Injunctions, but the legal opinion would help the Court in assessing the likelihood of success in the Negligence Claim.

78.  DHCJ KC Chan was arguably influenced by the prior Mareva Decision, as he enquired and Senior Counsel for Ms Kam then accepted that “since the Plaintiff’s case of fraud over Sum A has been adjudged by A Chan J as having reached the threshold of “good arguable case”, it would mean that the claim has been adjudged to be “more than barely capable of serious argument, and yet not necessarily one that the judge believes to have a better than 50% chance of success”, and that such level of merits of the claim logically speaking is one that has already overcome the “bound to fail” threshold”. Ms Kam was specifically prevented from re-arguing the matters canvassed before A Chan J, but had to assert a change of circumstances.

79.  With regard to the WeChat voice recordings, the Defendants say that they would have contradicted BSADE’s case on the alleged oral representations. Notably, GDC has neither challenged their relevance or probative value, nor disputed the fact that the Defendants’ suggestion to adduce the WeChat voice recordings as evidence was dismissed by GDC.

80.  With regard to HCCT 85/2022, GDC and the Defendants hold different views as to whether Hong Kong or PRC law, respectively, applied.

81.  Insofar as constructive trust is concerned, it has been stated in Dicey, Morris & Collins on the Conflict of Laws (16^th Ed., 2022), §§29R-80 to 29-089, 29R-001, that:-

(1)  The law applicable to a cause of action or issue determines whether a person is required to hold property on constructive or resulting trust.

(2)  Where the law applicable to a cause of action or issue requires a person to disgorge a benefit but does not know the concept of a constructive or resulting trust, the court may nonetheless regard that person as holding on a constructive or resulting trust, provided that no other relevant instrument requires otherwise.

82.  Mr Vincent Chen contends that BSADE is a PRC company and the alleged fraud was substantially committed in the PRC. Arguably any cause of action in tort against the Defendants and reliefs should be governed by PRC law. If anything, GDC’s current contention reinforces that it previously did not take heed of the principles in the preceding paragraph and this is a matter which must go to trial.

83.  The Defendants’ case is that GDC’s negligence has led to their failure to resist (or at least a substantial diminution of their chance of success in resisting) the application for injunctive reliefs by BSADE in the 2 Cases. If established, the Defendants should not be liable for costs under the Bills and all costs previously paid should be returned to them.

84.  GDC has attempted to combat the Negligence Ground by

(i)  pointing out that the Defendants are abusing the process and making collateral attacks on the Decisions of DHCJ KC Chan (which had specifically addressed the Cayman Islands legal opinion) in the strike-out application on the basis of the exact same arguments and evidential materials which the Court has already considered and ruled upon; and

(ii)  addressing the apparent merits (or lack of it) of the various Limbs of negligence, e.g. GDC submits that the WeChat recordings could at most provide ammunition for cross-examination at trial. They fell far short of conclusively demonstrating that Kitty Kam did not make the oral representations. Further, the Defendants have conflated the cause of action and the proprietary consequences of the cause of action: Xiamen Xinjingdi Group Co Ltd v Eton Properties Ltd (2020) 23 HKCFAR 348 at §§174-176, Ribeiro PJ. The law of the debt would actually be Hong Kong, as the balance of Sum A owed by Chiyu Bank to SSGI, and (b) Chiyu Bank were actually in Hong Kong. Even if BSADE’s tort claim is governed by PRC law (and that was certainly open to doubt), the question of whether BSADE had a proprietary right over the funds in the form of a constructive trust would still have been governed by Hong Kong rather than PRC law. Expert evidence on PRC law would not have made any difference to the result.

85.  However, as Mr Vincent Chen has pointed out, GDC has provided no meaningful facts in their affirmation to answer what appears to be an arguable case of negligence. Rather, GDC accepts that the Negligence Ground raise disputes which fall within the scope of the Arbitration Clause. (§§83-84, 99 of GDC’s submission).

86.  In my view, it is not appropriate to resolve the Negligence Ground summarily. The 4 Limbs of negligence could, arguably, individually or collectively, have an impact that was more than negligible on the hearing before A Chan J as to (i) whether there was a good arguable case of fraud, (ii) whether the oral representations had ever been made; and (iii) whether there was risk of dissipation. The fact that the legal opinion on Cayman Islands law was adduced before DHCJ KC Chan may not undermine the Defendants’ position before A Chan J as the tests for granting an injunction and that for striking out are different. These should be resolved at a trial, when it can also be decided if any or part of the 5 Bills (or costs received) were properly incurred.

F5.  Proper venue for litigating the Negligence Claim

87.  What divided the parties is whether the arbitration should go in parallel with the taxation. GDC says yes; the Defendants say “no”, but that it should be litigated in court in Stage 1.

88.  Mr Joshua Chan submits that the taxation and the claim in negligence can be conducted in parallel, as they involve separate and distinct issues. The Defendants can seek to set off the amount of their claim against any legal fees held to be recoverable after taxation or recover paid fees by way of restitution.

89.  On the other hand, Mr Vincent Chen submits that the natural and ordinary meaning of paragraph 15.8 of the Terms of Retention is clear in preserving the Court’s jurisdiction in taxation matters. The determination of the impact of any allegation of negligence is part and parcel of the determination of Stage 1 in taxation as observed in Sutherland. Of the 3 options set out in paragraph 13 above, Mr Vincent Chen invites the Court to either turn the OS into a writ action or try the Negligence Ground as a preliminary issue.

90.  In my view, the Defendants’ allegations in negligence are “wholesale” (that go to “the heart of the retainer”) rather than “contained”: Jones v Richard Slade. It would require proper pleadings, witness statements and cross-examination to resolve, which are wholly unsuitable for a taxing master.

91.  In accordance with the agreement of the parties and spirit of Clause 15.8, the Negligence Ground can only be dealt with by arbitration; but taxation is to be done by the Court for the reasons given in Section D.

G.  STATUTORY FORMALITIES GROUND

92.  It is not in dispute that the 5 Bills were only sent to Ms Kam by way of email. The Defendants contend that this did not comply with section 66(2)(b), which provides for the mode of delivery in the case of an action to recover costs by a solicitor:-

“...the bill must be delivered to the party to be charged therewith, either personally or by being sent to him by post to, or left for him at, his place of business, dwelling house or last known place of abode.”

93.  Whilst section 67 does not expressly provide for the same, Mr Vincent Chen submits that the meaning of “delivery” must be the same as set out in section 66(2)(b), given that there is a presumption that where the same words are used in an Ordinance, they have the same meaning: Deutsche Bank AG v Sebastian Holdings Inc and another [2024] KB 804, §11(2). Further, given that an action for recovery of costs and the present application for taxation are both brought by a solicitor for the substantive purpose of recovering costs, there should not in principle be any difference in the requirement of delivery, which apparently serves to protect the client or the person to be charged.

94.  There is no express provision enabling the parties to agree on a mode of delivery not set out in the LPO.

95.  GDC submits that, (i) under Hong Kong Civil Procedure 2025, Vol 1, §10/1/11, it is possible for the parties to agree on service by email even for court documents; (ii) even if formalities were not fully complied with, that is not an absolute defence to the action for recovery of unpaid fees. The Court may allow the solicitor to rectify the irregularity by withdrawing the bill and delivering a new one: Winston & Strawn v Tai Ding Century Ltd [2018] HKCFI 2506, §§51-55.

96.  In my view, the whole purpose of the procedure on service of a bill is to ensure that the right person receives it. Delivery of a bill is a prerequisite to a solicitor’s recovery action, not a step in an action. Accordingly, the Rules of the High Court on service do not apply to delivery of a bill of costs. I do not even think that the Defendants’ consent to service by email is required, as it was not the first time GDC sent documents to the Defendants by email and the Defendants have not objected in the past.

97.  I do not think the Court has power to retrospectively direct GDC to redeliver the Bill after the parties have already filed their evidence to contest the OS. In any case, there was no prior notice of and no summons seeking such a direction. Consequently, the Defendants have not been given a fair opportunity to respond to the same.

98.  However, no prejudice to either Ms Kam or SSGI was shown to have arisen out of service by email. Both of them are legally represented and have had full opportunity to advance their case under the OS.

99.  For the reasons given in this Section, I am satisfied as to delivery of the 5 Bills on the Defendants. The Statutory Formalities Ground is not established.

H.  FINANCIAL ABILITY GROUND

100.  This is only relevant to the claim for interim payment, dealt with in the next Section.

I.  INTERIM PAYMENT

101.  The power to order interim payment of costs before taxation comes from LPO s.67(2) rather than Order 29 of the RHC. Under that provision, the Court has a wide jurisdiction to order taxation “upon such terms, if any, as it thinks fit”. It is an “unfettered discretion”: Baker & McKenzie v Grande Holdings Ltd [2013] 1 HKLRD 63 at §7, Baker & McKenzie v Grande Holdings Ltd [2011] 3 HKC 510 at §§96-104.

102.  If the Court considers that a solicitor is likely to recover a substantial amount after taxation, interim payment may be ordered: Baker & McKenzie (a firm) v The Grande Holdings Ltd [2011] 3 HKC 510, §§98-101. The consideration of hardship is not relevant in the exercise of discretion but whether the grant of interim payment would stifle the client’s ability to have the bill(s) taxed is a factor in assessing quantum and the method and time of payment: 麥家榮 v 鍾氏律師事務所 [2023] HKCFI 1041, §82(3), H Au-Yeung J.

103.  In Lau Yue Kui v Philip Chan & Co (unrep., CACV 75/2014, 29 December 2014) §28, Cheung JA laid down, amongst others, the following guidelines which are relevant to the exercise of the discretion:

(1)  interim payment represents a closer approximation to justice where the receiving party is likely to recover some costs, but time is needed to work out the amount;

(2)  interim payment reduces the incentive for the paying party to delay the proceedings;

(3)  the consideration of hardship is not relevant in the exercise of discretion, but whether the grant of interim payment would stifle the paying party’s ability to participate in the proceedings may be a factor in assessing quantum and the method and time of payment; and

(4)  the approach to assessing the quantum of the interim payment is to use a ‘rough and ready’ approach to ensure a close approximation of justice.

104.  The Defendants assert that they are in financial difficulty, which they say was acknowledged by GDC in its letter dated 26 March 2023. An order for interim payment may stifle their ability to pursue their Negligence Claim. This Ground has no merits as the Defendants have simply failed to produce any evidence as to their financial condition

105.  On the one hand, the Courts in HCA 1289/2022 have repeatedly criticized Ms Kam for engaging in “gamesmanship” with the aim of making it difficult for BSADE to recover the sums owed by the Defendants to it; that she has even gone so far as to engage in “inexcusable, intentional and contumelious breach” of the injunctive relief granted by the Court, and the associated disclosure orders, in order to frustrate the legal actions against her.

106.  Against that background, it is highly likely that the Defendant would engage in similar gamesmanship and delay tactics in these proceedings in order to frustrate GDC’s claims for unpaid legal fees and disbursements. An interim payment order would reduce the incentives for the Defendants to engage in delay tactics, and diminish the injustice to GDC if Ds do engage in such tactics.

107.  On the other hand, the Defendants’ case cannot be said to be totally unmeritorious. The outcome can potentially cause GDC to have to repay all costs already received from the Defendants. There is no informed basis for the Court to assess that GDC can still recover a substantial amount claimed, after already receiving the equivalent of HK$8.5 million for an interlocutory matter.

108.  Considering all circumstances, I decline to make an order for interim payment.

J.  STAY OF THE OS

109.  Given the need for arbitration, it is not desirable to make an order for taxation now. However, only the Defendants have cause to go to arbitration. The Negligence Claim has already been framed, with details, in the affirmations for this OS. Therefore, to prevent delay, the Defendants shall commence arbitration as soon as possible.

110.  Accordingly, I order that there be a stay of the OS pending resolution of the Several Liability Ground and Negligence Ground, provided that the Defendants do commence arbitration within 21 days from the date of the handing down of this judgment. Should the Defendants fail to do so, the Plaintiff is at liberty to restore this OS for hearing before this Court.

111.  On costs, the affirmations filed are necessary in view of the need to identify the issues in Stage 1. GDC does have a sense of grievance with these clients who may be playing tactics in order to avoid payment. However, GDC’s insistence on parallel taxation proceedings lengthened the arguments. In my view, the costs of this hearing, with certificates for 2 counsel, shall be the Defendants’ costs in the cause of the arbitration, and I make an order nisi accordingly.

112.  I thank counsel for their able assistance.