MA SO SO JOSEPHINE v. CHIN YUK LUN FRANCIS AND ANOTHER

Court: Chief Justice Li, Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ and Sir Ivor Richardson NPJ

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R U L I N G

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Mr Justice Ribeiro PJ :

1.  This is the Ruling of the Court.  On 16 September 2004, the Court handed down judgment dismissing the appellant’s appeal against a wasted costs order made pursuant to O 62 r 8 against her at first instance and upheld in the Court of Appeal: see [2004] 3 HKLRD 294. 

2.  In so doing, the Court varied the costs order made by the judge at first instance in relation to the wasted costs proceedings.  In place of his order that the respondents should pay such costs on an indemnity basis, an order for those costs to be paid on a party-and-party basis was substituted (see paras 95-97). 

3.  The relevant judgment stated :

“For the foregoing reasons, it is my view that the Judge was entitled, in the exercise of his discretion under O 62 r 8, to order the Appellant to indemnify the Respondents for the entire costs of the Writ Action on a solicitor and own client basis and that the Court of Appeal correctly upheld that order.  The appeal must therefore be dismissed, subject to the question of the costs of the O 62 r 8 proceedings before the Judge.” (para 94)

4.  It is evident that in disposing of the appeal, the Court did not focus on or deal specifically with the orders which the Court of Appeal had made.  That court had in fact varied the judge’s orders in two important respects. 

(a) First, by paragraph 2 of its order dated 21 June 2003, the Court of Appeal excluded from the recoverable wasted costs, certain items of costs incurred in the Writ Action (including in particular, the costs of a failed application by the respondents for security for the costs of the appeal).  Woo JA stated:

“I think it is correct to say that the misconduct of JM could only be related to costs of the action insofar as the costs were incurred for the reasonable defence of the action by the vendors, but it cannot reasonably be assumed that her misconduct had given rise to or caused the steps taken by the vendors that were held to fail and for which the vendors were ordered to bear the costs or pay the costs related thereto to the purchaser (‘failed costs’). Such failed costs therefore should not be borne by JM. I consider that the judge's order should be varied to reflect this. Such failed costs include the costs that the vendors were ordered to bear themselves, the costs that they were ordered to pay to the purchaser, and the costs that they had incurred (solicitors' and counsel's) for those steps taken in the course of the proceedings of the action resulting in the failed costs orders. All these should be excepted from the order of the judge.” (CACV 382/2002, §47)

(b) Secondly, in consequence of the abovementioned variation of the judge’s order, it was ordered that the [appellant] “have one-quarter of the costs of this appeal and the [respondents] do have three-quarters of the costs of this appeal, both on a party and party basis”.  Woo JA stated:

“In view of the very limited success on the part of JM in this appeal resulting in the variation of the judge's order, I consider that the appropriate order for costs is that JM do have one-quarter of the costs of the appeal and the vendors do have three-quarters of the costs of the appeal, on a party and party basis.” (§48)

5.  The respondents had in fact taken issue with these aspects of the Court of Appeal’s decision in their printed case.  However, these matters were not addressed in oral argument.  In the result, there is undoubtedly an ambiguity in the judgment of this Court as to whether it was upholding the orders simply as they had been made by the judge (subject only to the party-and-party variation mentioned above), or upholding the orders as varied by the Court of Appeal. 

6.  Thus, §94 cited above states on the one hand, that “the Judge was entitled, in the exercise of his discretion under O 62 r 8, to order the Appellant to indemnify the Respondents for the entire costs of the Writ Action on a solicitor and own client basis”, thereby indicating that the judge’s pre-variation orders without extracting any “failed costs” were the orders being endorsed.  But on the other hand, the paragraph states that the Court of Appeal “correctly upheld that order” which, of course, it only did on the basis of variations it had imposed.

7.  In those circumstances, the Court gave the parties leave to address this issue in written submissions prior to perfection of the Court’s order disposing of the appeal. 

8.  Both parties have lodged such submissions.  Having given them due consideration, our ruling is that on a proper understanding of the Court’s judgment, the orders which were upheld by the Court are the orders made by the judge, and not as varied by the Court of Appeal. 

(a) As pointed out in §6 of the judgment, it is necessary in wasted costs proceedings to establish a causal link between the solicitor’s misconduct and the wasted costs in question.  As stated in §88: “One must identify the misconduct or default which triggers the liability and then ask what costs were incurred by the Respondents in consequence.”

(b) The relevant analysis is at §89 and §90 in the following terms :

89. Here, the misconduct was the abuse of bringing the Writ Action on a basis known to be false.  Prima facie, since the falsity was fundamental to the dispute between the parties, it was responsible for causing the Respondents to incur all the costs of the proceedings.  Unless there was some intervening event which should be regarded as severing the causal connection with any part of those costs, the court was entitled to exercise its discretion accordingly.  The fact that the Appellant only had charge of the proceedings for about two months does not mean that the wasted costs order must be limited to the costs incurred during that period.  The causal potency of knowingly commencing the false claim was not exhausted at the end of that period. The evidence plainly shows that the Appellant handed over the reins to another firm for the Writ Action to be continued on the same false basis, founded on the Appellant’s purported first-hand account of the events at the completion meeting.

90. There may be cases, for instance, where after the criticised solicitor drops out, the replacement solicitor quite independently causes wasted costs to be incurred, for instance, by incurring them unreasonably or by opening up wholly different and unjustified litigation issues, and so forth.  There is no trace of such a causal severance in the Writ Action.

9.  It is plain from these paragraphs that the Court was proceeding on the footing that there was nothing in the way of unreasonably incurred costs resulting in a causal severance in the Writ Action, so that the prima facie position, attributing all the costs of those proceedings to the misconduct in question, was maintained. 

10.  Having given further consideration to the question in the light of the parties’ written submissions, we remain of that view.  The causal potency of the appellant knowingly commencing the false claim, as described in §89 cited above, extended to causing the respondents to be faced with an appeal by the purchaser in the Writ Action and their making an application for security for the costs of that appeal.  The fact of the matter is that such application was resisted by the purchaser on a basis that has proved to lack foundation.  The respondents have not been able to recover any of the costs of that appeal from the appellant’s clients notwithstanding their representation to the court that the purchaser company had ample means to meet any adverse costs order.  There was certainly nothing unreasonable about the respondents trying to secure themselves against such an eventuality – a predicament they would not have found themselves in but for the appellant’s misconduct.  The Court of Appeal does not appear to have gone beyond the fact that some adverse costs orders were made against the respondents in those proceedings.  That is an insufficient basis for denying them due compensation if, as we have held, the costs they incurred were nonetheless causally attributable to the misconduct in question.  The Court of Appeal’s variation of the orders made by the judge must therefore be set aside.

11.  Since the Court of Appeal’s costs order was consequential on the variations which have now been set aside, that order cannot stand and we substitute an order that the respondents have all their costs in the Court of Appeal on a party-and-party basis.

12.  Accordingly, subject to receipt of confirmation in writing by Messrs Lo and Lo of the undertaking referred to in paragraph 13 below, the order of the Court is that the appeal be dismissed subject to the following variations to the orders made below, namely:

(a) That the judge’s order for the costs of the O 62 r 8 proceedings be paid on an indemnity basis be varied to the extent that such costs be paid on a party-and-party basis;

(b) That paragraph 2 of the Court of Appeal’s order dated 21 June 2003 excluding certain items of costs from the wasted costs order be set aside;

(c) That the Court of Appeal’s order as to costs in its aforesaid order of 21 June 2003 be varied so that all the costs in that court be paid by the appellant to the respondents on a party-and-party basis; and,

(d) That the appellant pay to the respondents the costs of the appeal including any costs incurred in relation to the present ruling.

13.  The respondents have represented to the Court in correspondence that Messrs Lo and Lo are prepared to extend their undertaking set out in the said order of the Court of Appeal dated 21 June 2003 in respect of any monies which may be received from the liquidators of the plaintiff company to cover all sums additionally payable to the respondents by virtue of this ruling.  The respondents should accordingly procure confirmation in writing from Messrs Lo and Lo of such extended undertaking to be delivered to the Court and copied to the appellant’s solicitors, pending receipt of which, the orders made herein may not be perfected or enforced. 

14.  The parties have liberty to apply in writing in connection with implementation of the orders of the Court.