KAUR PARAMJIT v. LI ON NA t/a 新長發快餐 AND OTHERS

DCEC 1479/2012

[2020] HKDC 858

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1479 OF 2012

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DECISION

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A. Introduction: court’s power to make a wasted costs order

1.  Under O 62, r 8 of the Rules of the District Court^[1], a Court is empowered to make, whether on its own motion or on application(pursuant to sub-r 8A) a wasted costs order against a legal representative, only if:

“(a) the legal representative, whether personally or through his employee or agent, has caused a party to incur wasted costs as defined in section 53(5) of the [District Court] Ordinance; and

(b) it is just in all the circumstances to order the legal representative to compensate the party for the whole or part of those costs.”

Under O 62 r 8B:

“(1) The Court shall consider whether to make a wasted costs order in 2 stages—

(a) in the first stage, the Court must be satisfied that—

(i) it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(ii) the wasted costs proceedings are justified notwithstanding the likely costs involved; and

(b) in the second stage (even if the Court is satisfied under subparagraph (a)), the Court shall consider, after giving the legal representative an opportunity to give reasons why the Court should not make a wasted costs order, whether it is appropriate to make the order in accordance with rule 8.”

2.  On this court’s own motion, pursuant to O 62 r 8A, I directed Messrs Massie & Clement, the former solicitors (“Former Solicitors”) of the applicant, Mdm Kaur, to show cause why this court should not make a wasted costs order against them.

B.   Background facts

3.  The background facts leading to the direction for the making of a wasted costs order against the Former Solicitors have been stated in three separate decisions of this court.

4.  Briefly stated, Mdm Kaur met the subject accident whilst working as a dish washer in a restaurant in Shatin.  Based on the business registration searches the Former Solicitors conducted on “Sun Cheung Fat Fast Food” (“Business”), Li On Na (“Mdm Li”) trading as “Sun Cheung Fat Fast Food” was named as her employer when she instituted the employees’ compensation claim.  Mdm Li did not make any appearance or participate in the proceedings, which resulted to the entry of interlocutory judgment and a final judgment respectively on 15 February and 17 October 2013 (collectively “Default Judgments”).

5.  However, on the date of Mdm Kaur’s accident, Mdm Li had already transferred the Business to Mdm He Xiao Ying (“Mdm He”) but the business registration records were not updated. Hence, Mdm Li was still shown to be the registered owner of the Business.

6.  Consequently, on the application of Mdm Li, supported by the Employees Compensation Assistance Fund Board (“Fund Board”) (which was joined as the 2^nd respondent), this court set aside the Default Judgments on 28 September 2016 (“Decision 16”).

7.  After the Default Judgments were set aside, Mdm Kaur’s Legal Aid Certificate was discharged, and she was on and off privately represented.  She succeeded in joining Mdm He as the 3^rd respondent on 15 November 2018.  Upon being joined as the 3^rd respondent, Mdm He made a sanctioned payment.

8.  These proceedings were finally disposed of upon Mdm Kaur’s acceptance of the sanctioned payment and the discontinuance of the proceedings against Mdm Li and the Fund Board. By this court’s decision on 15 August 2019 (“Decision 19”), I ordered Mdm Kaur to bear the costs of the Fund Board and Mdm He.

9.  References should be made to Decision 16 and Decision 19 for more detailed background facts.

10.  Upon the conclusion of these proceedings, I was satisfied that there was sufficient evidence before this court indicating that the Former Solicitors had been at fault in bringing proceedings against Mdm Li, who was not the employer.  I was of the view that such conduct, if unanswered, would be likely to lead to a wasted costs order being made against them, in (a) disallowing 50 percent of the costs between the Former Solicitors and Mdm Kaur; and (b) ordering them to repay 50 percent of Mdm Kaur’s costs which Mdm Kaur has been adjudged to pay the Fund Board.

C.   The conduct complained of

11.  Overall, this court found evidence tending to show that the Former Solicitors had failed to make proper inquiries based upon the available documents that could have disclosed the identity of the actual employer before the commencement of and during the proceedings, particularly in respect of the following three matters:

C.1    Failure to make proper inquiries about the cheque payments

12.  It is not in dispute that Mdm Kaur received two periodical payments in the two months immediately after the accident in February and March 2012 by cheques (“Cheques”) drawn in the names of Mdm He and an unknown person, but not in Mdm Li’s name. The Former Solicitors had knowledge of these payments by Cheques as the Cheques were one of the items, Item 5, disclosed in the List of Documents filed on 21 March 2013.

13.  Since the drawers of the Cheques bore absolutely no connection with Mdm Li, the fact that the Former Solicitors had described in the List of Documents that the Cheques were “received by the Applicant as a periodical payment made by her employer” could not have possibly been from the information disclosed from the Cheques but must have only been from Mdm Kaur’s instructions.

14.  However, Mdm Kaur never stated that the Cheques were from Mdm Li.  She only made a vague reference that she received the Cheques from “a male employee” (Decision 19, §40).

15.  Since there is no evidence that can support the description of the Cheques in the List of Documents, the said description is, ex facie, erroneous.  I believe that the Former Solicitors had failed to make proper inquiries on the circumstances as how Mdm Kaur came by the Cheques.  Had the Former Solicitors taken proper instructions from Mdm Kaur, they would have little difficulty in finding out that Mdm Li was not the employer, and should not have been sued.

C.2    Mdm He’s letters to Mdm Kaur after the accident

16.  When deliberating upon Mdm Li’s application to set aside the Default Judgments, I gave some weight to the two letters by Mdm He to Mdm Kaur.  To put the matter into context, it is convenient to re-visit the contents of the letters which I discussed in Decision 16.

“[18] These two letters, one being hand-written in Chinese dated 31 May 2012; and another in English dated 11 June 2012, are both addressed to the applicant. The letters are stated to be from the person-in-charge of Loi Loi Hotpot Restaurant, which was stated to be the applicant’s employer. The contents of the letters seem to be an inquiry about the applicant’s injuries and an arrangement for her to be medically examined. The one thing that counsel suggested showed Mdm He to have likely been the applicant’s employer, rather than Mdm Li, was a contact telephone number stated in these letters, which is the same telephone number as that of Mdm He as recorded in the Agreement^[2].”

17.  In very similar fashion as the description given for the Cheques in the List of Documents, the Former Solicitors, when disclosing the English version of Mdm He’s letter, stated that the letter was issued by the “Respondent [Mdm Li] to the Applicant [Mdm Kaur]”.

18.  Again, the contents of the letter do not contain any information that could support the description that it was written, or “issued” (as the Former Solicitors described in the List of Documents) by Mdm Li.  Thus, for the Former Solicitors to have been able to give such information about the letter in the List of Documents, the Former Solicitors must have obtained the information from their client, Mdm Kaur.

19.  Mdm Kaur, on the contrary, had absolutely no clue as to the nature of the letters.  It is her evidence that since she did not know Chinese or English, she passed the two letters to the Former Solicitors for handling after she received them.  Mdm Kaur even alleged that when she gave the Former Solicitors the letters, she was advised not to reply to the letters^[3].

20.  Mdm Kaur had given the two letters to the Former Solicitors before the institution of this employees’ compensation application.  Thus, the Former Solicitors would have plenty of time to make investigation regarding the matters stated in the letters.  At the very least, they could have easily called the telephone number Mdm He gave.  The Former Solicitors inappropriately ignored them.  Had they carried out the necessary inquiries, the Former Solicitors would have had little difficulty in establishing that Mdm He, not Mdm Li, was the employer, and would have unlikely made the claim against Mdm Li notwithstanding the contrary information disclosed in the business registration records of the Business.

21.  It is clear that the Former Solicitors had no evidence to support the assertion that the letters were from Mdm Li.  The information they gave in the List of Documents is clearly a mis-description.  I tend to believe that they had deliberately ignored relevant evidence that would have alerted them to the apparent conflicts between the evidence they were in possession of and the information disclosed in the business registration records of the Business, which conflicts they were duty-bound to reconcile by undertaking proper scrutiny.

C.3    Frequent change of ownership

22.  In Mdm Kaur’s witness statement filed on 2 April 2013, Mdm Kaur already alluded to the frequent change of ownership of the restaurant before she met the accident. She mentioned that although the hot-pot restaurant in which she had worked intermittently as a dish washer bore a signage, “Loi Loi Hotpot Restaurant”, the same restaurant signage was still used despite the restaurant being “managed by … different people” from time to time.

23.  In light of Mdm Kaur’s evidence alluding to the frequent change of ownership in the witness statement prepared by the Former Solicitors, and the fact that there was no written employment contract, the Former Solicitors should have taken extra care in clarifying the identity of the employer from Mdm Kaur instead of solely relying on the information disclosed in the business registration records of the Business.

24.  Mdm Kaur did not appear to be a consistent witness, is amplified by her recent allegations that it was the Former Solicitors who told her the name of “Loi Loi Hotpot Restaurant” (Decision 19, §37).  In light of the poor quality of Mdm Kaur’s evidence, it was the duty of the Former Solicitors, in my view, to take appropriate steps to clarify Mdm Kaur’s case on who the actual employer was.

D.  The reasons given by the Former Solicitors

25.  The Former Solicitors show cause by the filing of the affidavit of Richard Clement, the Legal Aid assigned solicitor for Mdm Kaur, and an affirmation of Khangura Javtej Singh, the litigation clerk assisting Mr Clement in these proceedings.

26.  Mdm Kaur and the Director of Legal Aid, despite having been given notice of the hearing, did not participate in these wasted costs order proceedings.

27.  In his affidavit, Mr Clement maintained that the bringing of the proceedings against Mdm Li was reasonable, as it was well supported by Mdm Kaur’s unequivocal instructions and the relevant business registration documents.  Despite the availability of the evidence that might have led to his discovery of Mdm He as the employer, Mr Clement stood by his decision in having advised Mdm Kaur to bring the claim against Mdm Li, who, Mr Clement stated, would have been a proper party to the proceedings as an undisclosed principal.

28.  Mr Clement admitted that he was indeed provided with the Cheques 3 days before the institution of the proceedings but he found nothing unusual despite the names of the drawers not bearing Mdm Li.  Mr Clement stated: “[a]t the time we had no idea of anyone called Ms He, so her being one of the two signatures on the cheque raised no concerns” (Mr Clement’s affidavit, §14).

29.  Similarly, for the two letters Mdm He sent to Mdm Kaur, the Former Solicitors also admitted having taken no action about them.  The reason for the inaction is that Mr Clement assumed that the letters were from Mdm Li.  Based on this assumption, the Former Solicitors therefore described the English version of the letter in the List of Documents as letter from the employer.

30.  Mr Clement maintained that the essential part of Mdm Kaur’s instructions that she was re-employed by Mdm Li, albeit her references to the frequent changes of ownership before the accident, were clear and unequivocal.  Mr Clement averred that it was not until he had sight of the business transfer agreement by Mdm Li allegedly transferring the Business to Mdm He at a much later stage after the final judgment was obtained against Mdm Li, the Former Solicitors had knowledge of the transfer of ownership of the Business.

31.  Supplementing Mr Clement’s explanation, Mr Singh, who speaks Urdu, Punjabi, English and Chinese, stated that since Mdm Kaur was not conversant in either Cantonese or English, the instructions were mostly from her Cantonese-and-English-speaking son.

32.  The Cheques and Mdm He’s two letters were given to Mr Singh by Mdm Kaur’s son on date(s) that Mr Singh could no longer recall.  However, based on the date of the letter the Former Solicitors wrote to Mdm Kaur on 2 August 2012 (in which she was asked for the provision of documents to enable the Former Solicitors to institute proceedings) and the filing date on 21 March 2013 of the List of Documents (in which these documents were disclosed, see §12 and §17 above), Mr Singh believed that the Former Solicitors received these documents during this period. Assuming the letters were from Mdm Li, Mr Singh therefore had not called the number Mdm He provided in the letters.  Mr Singh admitted that it was an oversight on his part in ignoring the contents of the letters, but explained that by the time he received these letters, the scheduled medical appointment date stated in Mdm He’s letters had long expired.

33.  Mr Singh also admitted that the Former Solicitors had received Mdm Li’s Chinese letter dated 28 July 2013, informing them that her restaurant business had been transferred to Mdm He.  Although Mdm He’s name and the same mobile phone number Mdm He provided in the said two letters were also stated in Mdm Li’s letter, Mr Singh said he took no steps to verify the information in Mdm Li’s letter in view of the repeated unsuccessful services of the documents on the addresses the Former Solicitors found from the business registration records of the Business.

E.   Discussion

E.1   Criteria for the making of the order

34.  As discussed at the outset of this Decision, a wasted costs order against a legal representative should only be made if the circumstances provided in O 62, r 8 are satisfied.

35.  “Wasted Costs” as defined in s 53(5) of the District Court Ordinance referred to in O 62, r 8 are:-

“any costs incurred by a party as a result of-

(a) an improper or unreasonable act or omission; or

(b) any undue delay or other misconduct or default,

on the part of any legal representative, whether personally or through an employee or agent of the legal representative.”

36.  The applicable principles are stated in Ma So So v Chin Yuk Lun & Anor [2004] 3 HKLRD 294, in which the Court of Final Appeal propounded (at §6) that before making a wasted costs order, a court should consider:-

“(1) Whether the solicitor was responsible for (i) acting improperly or without reasonable cause or (ii) for undue delay or any other misconduct or default in any proceedings.

(2) Whether such conduct of the solicitor caused costs to be incurred or wasted. This is a question of causation. The causal link between the solicitor’s conduct and the extent of costs incurred or wasted must be established.

(3) Whether the court should exercise its discretion to make an order.”

37.  The Hong Kong Civil Procedure (2020), Vol 1 (“HKCP”) also provides a detailed summary of the proper approach to be adopted:-

“The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error or judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor’s duty to ascertain with accuracy will suffice. It need not involve personal obliquity. The term of professional misconduct has often been used to describe the ground on which the court acts. It would perhaps be more accurate to describe it as conduct which involves a failure on the part of the solicitor to fulfill his duty to the court and to realise his duty to aid in promoting in his own sphere the cause of justice. (Myers v. Elman, [1940] A.C. 282; KB Chau & Co. (a firm) v. China Finance Trust & Investment Corp. & Another [1995] 2 H.K.L.R. 567, CA). The conduct must be inexcusable and such as to merit reproof (J v. C & Another [1995]1 H.K.L.R. 19). The test was whether the conduct amounted to a serious dereliction of duty (Que Jocelyn Co. (t/ a Scented Delights) v. Broadair Express Ltd [1999] 3 H.K.L.R.D. 104)” (HKCP §62/8/1).

38.  As to what constitutes “an improper act” under s 53(5)(a), HKCP (at §62/8/3) states as follows.

“It was not enough that a solicitor’s general conduct for a client had been improper; in every case where a solicitor had been made to pay costs, he had been proved guilt (sic) of misconduct a client had been improper…The jurisdiction is only exercisable where the solicitor was responsible for conduct of the kind prescribed by the rule in any proceedings.”

39.  An “unreasonable act” is referred to conduct:-

“In United Kingdom… which is vexatious, designed to harass the other side, rather than advance the resolution of the case, and it makes no difference that the conduct was the product of excessive zeal and not improper motive. In order for a wasted costs order to be made under the CPR, any impropriety should be very serious and there had to be something more than negligence. There had to be something akin to abuse of process. It is a necessary requirement of any wasted costs order that there should be a breach of the lawyer’s duty to the court, there must be something more than mere negligence for the wasted costs jurisdiction to arise … In cases where the allegation is that the legal representative has pursued a hopeless case, the question is whether no reasonably competent legal representative would have continued with the action. This question could not be answered affirmatively unless the representative also acted unreasonably which is akin to establishing abuse of process… Under the CPR, unless an applicant for a wasted costs order can establish that the legal representative acted in a way that was not only“improper, unreasonable or negligent” but was also in some way in breach of any duty to the court, the court cannot make a wasted costs order…The jurisdiction could only be invoked in the case of serious misconduct and the initiation or continuation of an action when it had no or substantially no chance of success might constitute such misconduct (Orchard v. South Eastern Electricity Board [1987] 1 Q.B. 565; Ho Lee Man v. Wong Wai Kai (No. 2) [1993] 1 H.K.C. 193, CA)…Acting on instructions is no answer to a charge of abuse of process and breach of duty to the court…”(HKCP§62/8/4).

40.  In his written submissions, Mr Clement also quoted the English Court of Appeal decisions of Ridehalgh v Horsefield^[4] and Myers v Rothfield^[5].

41.  Myers was a 1936 case, which was  overturned by a further appeal to the House of Lords in Myers v Elman^[6].  Notably, when Myers was decided, the court's wasted costs jurisdiction in the UK was not regulated by the English Rules of the Supreme Court.^[7]

42.  In the circumstances, and in view of the fact that references have been made to Ridehalgh and Myers in Ma So So, I do not think it is necessary to refer to the passages Mr Clement quoted in his written submissions of these two English cases.

E.2   Is sufficient cause shown?

43.  The basis upon which this court ordered the Former Solicitors to show cause is that the Former Solicitors had not taken reasonable steps to properly investigate the identity of the employer when there were still 17 months for the 24 months’ limitation period to run when commencing the proceedings against Mdm Li (Decision 19, §43).

44.  Chief in the court’s criticisms of the Former Solicitors’ conduct is the commencement of the proceedings against the wrong party, Mdm Li, by careless disregard of the documents that would have led them to find out Mdm He as the employer liable to make payment of compensation to Mdm Kaur.  By having brought the proceedings against Mdm Li, I find that extra costs have been incurred as a result of the conduct complained of, which falls within s 53(5)(a) - “improper or unreasonable act or omission”- and s 53(5)(b) - “misconduct or default” on the part of the Former Solicitors.

45.  After having considered the explanation given by the Former Solicitors (by the affidavit of Mr Clement and the affirmation of Mr Singh), I do not accept Mr Clement’s submission that it was reasonable for the Former Solicitors to have pursued Mdm Li on the strength of the business registration records. From the discussion above, it is abundantly clear that as a result of the Former Solicitors’ failure in undertaking proper scrutiny of the documents in their possession, the evidence on which Mdm Kaur relied on against Mdm Li was largely based on assumptions and guesswork by the Former Solicitors.  The descriptions the Former Solicitors gave in the List of Documents in relation to the Cheques and Mdm He’s letter clearly epitomize the attitude the Former Solicitors took in this case.

46.  In this case, I find it most unsatisfactory that Mr Clement, despite having been assigned by the Director of Legal Aid as the assigned solicitor handling Mdm Kaur’s employees’ compensation claim, seemed to have left a large chunk of the work to Mr Singh. Given that Mr Singh spoke the same language as Mdm Kaur and her son, I believe that Mr Singh’s involvement was necessary.  The unacceptable conduct, in my judgment, lies in the failure of Mr Clement to properly supervise Mr Singh, leaving Mr Singh to tend to Mdm Kaur or her son.  Given the difficulty the Former Solicitors had encountered with the service of the documents on Mdm Li when the action was commenced, and in particular the peculiar transitory nature of ownership of the restaurant where Mdm Kaur worked (see §22 above), the Former Solicitors, in my view, were duty-bound to take extra care in this case. They failed to do so.

47.  It is beyond dispute that before and after the commencement of this claim, the Former Solicitors were in possession of evidence, such as Mdm He’s letters to Mdm Kaur and Mdm Li’s letter to the Former Solicitors referred to in §16 and §33 above, that would have reasonably required the Former Solicitors to undertake a chain of inquiries, and had they been done, it would have likely led to the successful tracing of the actual employer, Mdm He.  The Former Solicitors however have unreasonably ignored the various strands of highly probative and relevant evidence by dismissing them out of hand.

48.  Worse still, despite having received information from Mdm Li about the transfer of ownership of the Business to Mdm He in the letter Mr Singh admitted having received, the Former Solicitors made no effort at all to either contact Mdm He at the number given in the letters or to make inquiries to verify the validity of the alleged transfer of business. Instead, the Former Solicitors proceeded to trial to obtain a final judgment against Mdm Li, ignoring their duty of frank disclosure to court on the possibility (as disclosed in Mdm Li’s letter) that the employer might have been someone else other than Mdm Li.

49.  The Former Solicitors’ blaming of Mdm Li in having failed to update the changes on the business registration records, in my view, does not excuse the Former Solicitors.  Mdm Li, as I have found in Decision 19, was at fault in having failed to update the business registration records.  She had paid for the price of the default in having incurred costs and expenses to defend these proceedings.

50.  From the analysis stated above, I consider that as a result of the cavalier attitude of Mr Clement in the handling of this claim, the Former Solicitors had caused costs to have been unreasonably incurred.  It was more than an oversight that Mr Singh admitted in his affirmation.

51.  In conclusion, I am not satisfied that sufficient cause was shown.

E.3   Should a wasted costs order be made?

52.  To make a wasted costs order against the Former Solicitors, I need to be satisfied that the misconduct in this case is of sufficient seriousness in the sense that it constitutes gross neglect.  I bear in mind that the procedure in the present wasted costs proceedings is summary in nature. Thus, the Former Solicitors have not been able to cross-examine Mdm Kaur on the number of allegations Mdm Kaur made against the Former Solicitors (see §19 and §24 above). In the circumstances, I should give full allowance for the inability on the Former Solicitors to tell the whole story, and therefore give them the benefit of doubt in inferring instead, that the default might have been due to the fault of Mdm Kaur.

53.  In the circumstances, I believe it is not just in all the circumstances to make a wasted costs order against the Former Solicitors.  I decline to do so.

54.  I will ask my clerk to serve a copy of this Decision on Mdm Kaur as well as the Director of Legal Aid as this Decision will have a bearing on Mdm Kaur’s costs whilst she was an aided-person.

55.  Lastly, I thank Mr Clement for his assistance in this matter.