THE LAW SOCIETY OF HONG KONG v. DAVID WAH TSANG CHAN

HCMP 79/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.  79 OF 2009

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BETWEEN

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D E C I S I O N

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1.  On 19 January 2009, I granted an interim injunction on a Notice of Originating Motion of the Law Society of Hong Kong (“the Law Society”) to restrain the respondent, David Wah Tsang Chan, from presenting a petition to wind up the Law Society on the ground that the Law Society failed to satisfy the respondent’s statutory demand served on it on 30 December 2008 or other demand in respect of the alleged debt. The injunction was to remain in force until the return date on 16 February 2009. The respondent is a solicitor. He acted in person throughout. He did not attend the hearing on 19 January 2009.

2.  On 30 January 2009, a consent summons signed by Messrs Boase Cohen & Collins (“BCC”), the solicitors for the Law Society, and the respondent was filed in these proceedings. The consent summons read as follows:

“(1) The Applicant’s application as contained in the Notice of Originating Motion dated 15 January 2009 be withdrawn;

(2) The hearing scheduled on 16 February 2009 be vacated;

(3) The Applicant’s costs of these proceedings be borne by the Respondent to be taxed if not agreed.”

3.  After the consent summons was signed and on the same day, the respondent wrote to the court stating that he agreed to paragraph 3 of the consent summons “only on the understanding that the Applicant’s costs must be a minimum bearing in mind the captioned action was categorically unnecessary and avoidable”.

4.  In view of his letter, this court wrote to both parties on 2 February 2009, seeking clarification what the respondent proposed to argue at the adjourned hearing on 16 February 2009.

5.  The respondent replied to the court on 6 February 2009, stating that the costs of BCC in these proceedings at HK$220,000 is both excessive and unreasonable, and alleging these proceedings were “unnecessary and could arguably be an abuse of the legal process”.

6.  That being his case, I made an order on 6 February 2009 to vacate the hearing of the originating motion on 16 February, gave directions for the filing of evidence in opposition and in reply, and adjourned the originating motion for argument with 2 hours reserved. On 10 February 2009, I ordered the interim injunction granted on 19 January is to remain in force until after the determination of the originating motion or further order.

7.  On 17 February 2009, BCC wrote to the court requesting to restore the originating motion for a short hearing to have the terms of the consent summons made an order of the court, in view of what transpired at a hearing before Master Hui in HCB No. 11530 of 2008 on 11 February 2009 and the order made by the Master that day. I will come back to the proceedings before the Master.

8.  On 24 February 2009, this court requested the respondent to give a clear answer to the court if he has agreed and accepted the terms of the consent summons in the injunction proceedings and that he does not dispute liability as to costs in these proceedings but only the quantum, before allowing the matter to be restored for making an order in terms of the consent summons.

9.  The respondent replied on 25 February 2009, stating that he signed the consent summons on “the clear understanding that the legal costs under the captioned action to be collected by Messrs Boase Cohen & Collins should be minimal to the extent of as if nominal”, that the “rationale for that the above understanding is that the captioned action was frivolous and vexatious which should be dismissed by this honourable court”.

10.  In view of his reply, I gave directions on 25 February 2009 that the earlier directions on 6 February 2009 would stand.

11.  The hearing today is the adjourned hearing of the originating motion.

12.  I will first make an order allowing the Law Society to withdraw its application in the Notice of Originating Motion. That is paragraph 1 of the consent summons. There is no or no conceivable opposition to this.

13.  The next matter is the costs of these proceedings.

14.  Both the respondent and the Law Society have filed evidence in opposition and in reply in March 2009. The respondent has served two submissions, running to 16 pages, closely typed. He lodged an additional hearing bundle of over 100 pages. It is clear from the respondent’s affidavit and his submissions that he is disputing liability to pay costs of these proceedings, contending for a variety of reasons that these proceedings should not have been brought and hence the Law Society is not justified to charge for any work done in the injunction proceedings at all as these proceedings were an abuse of process. The dispute he has raised could not, by any stretch of the imagination, be categorised as a dispute only as to quantum. He is challenging, root and branch, the entitlement of the Law Society to be paid its costs incurred in bringing these proceedings for an injunction.

15.  The Law Society’s position is that the respondent has unequivocally accepted to pay the costs of these proceedings, to be taxed if not agreed. He should not be permitted to renege on his agreement with the Law Society and the clear undertaking he gave to the court at the hearing before Master Hui on 11 February. Mr Cohen submitted the respondent should not be allowed to re-open the issue of liability on costs in these proceedings.

16.  This is the first matter I need to rule on.

17.  I have of course considered all the evidence adduced on both sides. For the purpose of ruling on whether the respondent should be allowed to argue on his liability to pay the costs incurred by the Law Society in bringing these proceedings for an injunction, these are the findings I make.

18.  On 13 January 2009, BCC made a without prejudice offer on behalf of the Law Society to the respondent in their letter of that date to settle the dispute between them on these terms:

(1) The respondent was to acknowledge that he was indebted to the Law Society of HK$922,212.71, being the debt set out in the bankruptcy petition presented against him in HCB No. 11530 of 2008, and that the amount he alleged as owed by the Law Society to him in his statutory demand served on 30 December 2008 had in fact been validly set off.

(2) The respondent was to agree to withdraw the statutory demand and not to take any further legal action on it including presenting a winding-up petition.

(3) Based on the above, the Law Society would accept HK$461,921.13 (“the Settlement Sum”) and waive the balance of its debt of HK$922,212.71, interests and costs. The Settlement Sum was to be paid by 24 equal monthly instalments of HK$19,246.70 each and the 1^st instalment should commence on 15 January 2009. Payments should be made by way of the respondent tendering to the Law Society no later than 5:00 p.m. on 14 January 2009 twenty-four post-dated cheques of HK$19,246.70 each drawn from his personal bank account in favour of the Law Society.

(4) If the terms in (1) to (3) were accepted by the respondent, the Law Society was prepared to dismiss or withdraw the bankruptcy petition against him with no order as to costs and would bear the costs of the Official Receiver.

19.  It was clearly stated in the letter that the offer was “final and non-negotiable” and if the Law Society did not have the respondent’s “unconditional written confirmation” that the above terms were acceptable together with the twenty-four post-dated cheques by 5:00 p.m. on 14 January 2009, the offer would lapse without further notice.

20.  I hold there was no valid acceptance of this offer and it had lapsed on 14 January 2009 5:00 p.m. I do not propose to recite the evidence filed as to what had happened between 13 and 16 January. I reject the respondent’s contention the offer was kept open beyond 14 January 2009 5:00 p.m. The clear evidence was all to the contrary. His subsequent acts in purportedly accepting the offer which had lapsed were wholly immaterial.

21.  On 16 January 2009, BCC wrote a without prejudice letter to the respondent making another offer to settle the dispute in the bankruptcy proceedings and the injunction proceedings which were issued on 15 January. I rule this was a new offer. The new offer was in these terms:

(1) the respondent was to accept unequivocally the terms in the letter of BCC dated 13 January; and

(2) the respondent was to confirm that he would enter into a consent order in terms in respect of the Notice of Originating Motion issued against him in these proceedings and be responsible for all costs incurred in these proceedings, and that such costs were to be agreed or to be taxed in the event of agreement not being reached.

22.  On 22 January 2009, the respondent replied to the said letter of BCC dated 16 January 2009 in these terms:

“I accept unequivocally the terms of your letter dated 13 January 2009.

I confirm that I will enter into a consent order in terms in respect of the notice of originating summons issued against me in HCMP 79 of 2009 and be responsible for all costs incurred in this matter. Such costs are to be agreed or to be taxed in the event of agreement not being reached.”

23.  I hold that an agreement was reached between the Law Society and the respondent by the exchange of correspondence on 16 and 22 January 2009 that the respondent was to be responsible for all the costs of the Law Society in the injunction proceedings, to be taxed if not agreed.

24.  On 30 January 2009, the respondent signed two consent summonses, in the bankruptcy proceedings and in the injunction proceedings. I have already set out the terms of the consent summons in the injunction proceedings.

25.  On 2 February 2009, the respondent received from BCC the draft bill of costs in the injunction proceedings, with a total amount of over HK$200,000.

26.  There followed the respondent’s letter to this court on 6 February 2009 and the directions I gave in the injunction proceedings on 6 February 2009, as already mentioned.

27.  On 11 February 2009, the consent summons in the bankruptcy proceedings came before Master Hui. According to the transcript, what happened was as follows.

28.  The solicitor of BCC, Ms Susan Cheung, initially asked the Master to adjourn the consent summons, as the liability for costs in the injunction proceedings would appear to be disputed by the respondent. This was opposed by the respondent, citing prejudice to him in any delay in withdrawing the bankruptcy petition. Having read the respondent’s letter to this court of 6 February 2009, the Master was of the impression that the respondent was trying to re-open the matter in relation to the liability for costs. In an attempt to resolve the dispute so that the petition might be withdrawn sooner rather than later, the Master clarified the position with the respondent. These were the exchanges:

“Court:      All right. Now, let’s resolve it. On record are you disputing liability under the MP as evidenced in the consent summons dated 30 January?

Defendant:   No, I am…

Court:          No, you are not disputing that. You accept the terms as agreed between the parties before.

Defendant:   Yes.

Court:          And of course as reduced into writing and evidenced in the consent summons dated 30 January this year in the MP. Am I right?

Defendant:   Yes.

Court:          At the most, from what you have written to Madam Justice Kwan, you are arguing on quantum.

Defendant:   That’s right.

Court:          And that would be a question of taxation…

Defendant:   Indeed.

Court:          … if you cannot reach any agreement as to quantum with the other side. Am I right?

Defendant:   That’s right. And I am trying to do it now.

Court:          All right. Now, you abide by what you have said?

Defendant:   Yes.

Court:          You can’t reopen anything in the future.

Defendant:   No.

Court:          All these are recorded. All right. And Ms Cheung, you are happy with that?

Ms Cheung: Master, we still would request that the matter be adjourned until the determination of this matter.

Court:          For what?

Ms Cheung: As Mr…

Court:          The parties have come to agreement.

Defendant:   Yes.

Court:          Mr Chan has signed the consent summons, also signed the consent summons in the MP. There may be some confusion as to Mr Chan’s stance concerning the question of costs. Now he made it clear at the most he is disputing the quantum.

Ms Cheung: Right.

Court:          That’s fine. That’s a matter as agreed between the parties. If the parties cannot agree in relation to quantum, then the matter should be taxed.

Ms Cheung: Right.

Court:          Am I right?

Ms Cheung: Yes, Master.

Court:          Then why should the matter be adjourned further?

Ms Cheung: Well, as the letter from Madam Justice Kwan has suggested, she takes the view that Mr Chan is taking issue on the liability of quantum.

Court:          Yes. When one reads Mr Chan’s letter one would form the impression that Mr Chan is disputing liability. Maybe that was his stance at the time when he wrote that letter, but now I believe he has already confirmed, no matter what he has stated in his previous letter and no matter what stance he adopted previously, from now on he is not disputing liability. He is only disputing quantum. Am I right, Mr Chan?

Defendant:   Yes. Yes, indeed.”

29.  It is clear from the above that the respondent had informed the court unequivocally he would not argue on his liability for costs in the injunction proceedings, at most he would be disputing quantum, and that would be a question of taxation.

30.  Towards the end of this hearing, there were these important exchanges:

“Ms Cheung:  Yes, Master. Sorry, Master, if you could just bear with us. And, Master, and if the court is minded to grant a withdrawal of the bankruptcy petition then we would like the comfort of an undertaking from Mr Chan to this court that he confirms and agrees to the terms of the consent summons filed in HCMP 79/2009 proceedings and that he is not disputing the liability of the costs in those proceedings but only the quantum, which should be dealt with by way of taxation hearing if parties can agree…

Court:          You confirm that, Mr Chan?

Defendant:   Yes, indeed I can.

Court:          All right.

Defendant:   It’s also my position, Master.

Ms Cheung: So we have that as an undertaking from Mr Chan to the court?

Defendant:   Yes, indeed.”

31.  There was a clear undertaking of the respondent to the court that he agreed to the terms of the consent summons in the injunction proceedings, and he was not disputing liability of the costs herein but only the quantum which should be dealt with by taxation.

32.  It was upon the undertaking to the court that an order was made upon the consent summons in the bankruptcy proceedings by Master Hui, thereby giving leave to the Law Society to withdraw the petition against the respondent, that no order as to costs in the bankruptcy proceedings would be made against the respondent, and that the Official Receiver’s agreed costs would be borne by the Law Society.

33.  An undertaking to the court is a serious matter. As a solicitor and an officer of the court, the respondent should be fully aware of the effect and consequence of an undertaking to the court.

34.  I see no reason why the respondent should be released from his undertaking to the court in the bankruptcy proceedings, having reaped part of the benefit of the global settlement in that an order was made by the Master upon his undertaking.

35.  I rule that the respondent is not permitted to re-open the question of his liability for the Law Society’s costs in these proceedings.

36.  That is sufficient to dispose of the respondent’s arguments.

37.  For completeness, I should mention that even if the respondent were to be allowed in arguing his liability for costs, I would reject all his arguments, which are wholly without merit. I do not accept it was unnecessary for the Law Society to issue these proceedings against the respondent for an injunction on 15 January. Counsel for the Law Society submitted before me at the hearing on 19 January 2009 that notwithstanding a notice of withdrawal of his statutory demand served by the respondent on the Law Society on 16 January, the Law Society still wished to seek an interim injunction against the respondent as, given the history of the disputes between them, the Law Society had a genuine concern that the notice of withdrawal might be retracted at any time. In the light of the respondent’s subsequent behaviour in seeking to re-open his liability for costs notwithstanding agreement was reached and his clear undertaking to the court, I think it is entirely reasonable for the Law Society to have sought protection in an interim injunction.

38.  I order the respondent to pay all the costs incurred by the Law Society in these proceedings, including the hearing of today, to be taxed if not agreed.