HO LEE MAN v. WONG WAI KAI

IN THE COURT OF APPEAL

1992, No. 183
(Civil)

Headnote

Solicitors' personal liability for costs - Summary process under Ord 62 r8(2) RSC - Solicitors lodging appeal to Court of Appeal as to costs only without seeking prior leave under s.14(3)(e) Supreme Court Ord Cap. 4 - Whether solicitors should be held personally liable for costs thrown away - Observations on the exercise of jurisdiction regulated by Ord 62 r8(2). Held : Solicitors personally liable for all the costs.

IN THE COURT OF APPEAL

1992, No. 183
(Civil)

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D E C I S I O N

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Litton, J.A., giving the decision of the court:

1. We are here concerned with the summary process of the court under Order 62 r.8(2) of the Rules of the Supreme Court. We said at the conclusion of the hearing on 7 May 1992 that, having regard to the general importance of this matter, we would hand down our decision in open court. We do so now.

History of the proceedings

2. On 6 May 1993 we dismissed an interlocutory appeal by the plaintiff without hearing full argument on its merits. In so doing, we ordered that all the costs incurred in the appeal should be taxed and paid forthwith by the plaintiff. That appeal concerned only a question of costs. The appeal was against that part of the judgment of Deputy Judge Gladys Li, QC, given on 24 September 1992, which only concerned itself a question of costs: by her judgment of that date, Deputy Judge Li had set aside an order of Master Yam made on 27 July 1992 whereby, at the "conclusion" of interlocutory proceedings for an account conducted under Order 43 rule 1, he had ordered that the plaintiff's costs of those proceedings should be borne by the defendant. I have put the word "conclusion" in quotation marks because those proceedings in fact reached no conclusion; they were aborted after a hearing lasting nine days. Deputy Judge Li, on an appeal under Order 58 r.1 lasting two days had, in the exercise of her own discretion, ordered that neither party should have their costs of those proceedings. She awarded the costs of the appeal before her to the defendant.

3. Deputy Judge Li's order was perfected on 2 November 1992. On 16 November 1992 the Notice of Appeal against her order was filed. No leave to appeal was sought by the plaintiff either from the High Court or this court.

4. Section 14 of the Supreme Court Ordinance, Cap. 4 governs appeals to the Court of Appeal in civil matters. It states:

"14(1) Subject to subsection (3), an appeal shall lie as of right to the Court of Appeal from every judgment or order of the High Court in any civil cause or matter.

(2) .........

(3) No appeal shall lie-

(e) without the leave of the High Court or the Court of Appeal from an order .....as to costs only which are by law left to the discretion of the court".

5. When counsel for the appellant sought to open the appeal before us on 6 May, we raised with him the question of leave to appeal. What transpired at that hearing is reflected in our judgment given upon the conclusion of those proceedings. In short, counsel for the appellant made an oral application for leave, which we dismissed. The outcome is that all the costs incurred in preparing the two appeal bundles, totaling 630 pages, and of preparation for an appeal fixed for two days, which on the defendant's side included the briefing of a Queen's Counsel as well as junior counsel, became totally wasted. As mentioned earlier, those costs were awarded to the defendant, the respondent to the appeal. At the conclusion of our judgment, we gave the solicitors for the appellant an opportunity to appear before us in chambers, to show cause why an order should not be made against them, under the provisions of Order 62 r.8(1), that they be personally liable for some or all of the costs of the aborted appeal.

Order 62 r.8(1)

6. Order 62 r8(1) provides as follows:

"(1) Subject to the following provisions of this rule, where in any proceedings costs are incurred improperly or without reasonable cause or are wasted by undue delay or by any other misconduct or default, the Court may make against any solicitor whom it considers to be responsible whether personally or through a servant or agent an order -

(a) disallowing the costs as between the solicitor and his client; and

(b) directing the solicitor to repay to his client costs which the client has been ordered to pay to other parties to the proceedings; or

(c) directing the solicitor personally to indemnify such other parties against costs payable by them."

7. The source of the jurisdiction over solicitors in relation to the costs of legal proceedings, as regulated by Order 62 r8(1), is the inherent jurisdiction of the court to exercise control over its own officers, including solicitors. As Sir John Donaldson MR reminds us in Orchard v. South Eastern Electricity Board [1987]1 QB 565 at 569-B, solicitors are admitted as "Solicitors of the Supreme Court".

8. In England, the provisions of Order 62 r8(1) have been replaced by Ord. 62 r.11 pursuant to the enactment of the Supreme Court Act 1981, section 51(6), which conferred statutory authority on the court to make legal representatives generally liable for the costs of proceedings. In Hong Kong, the position has remained unaltered.

The principles involved

9. Although this inherent jurisdiction to make solicitors personally liable for the costs of proceedings has existed for a very long time, it has been seldom exercised. This can be seen from the rarity of authorities. The reason is obvious. In litigation, there is almost invariably a winner and a loser. The losing party often feels disgruntled - sometimes against his own solicitors. In the course of civil litigation, there are usually many interlocutory steps - sometimes too many. The outcome cannot be always predicted with accuracy. If a solicitor should run the risk of being personally liable for the costs every time his client takes a wrong step, this would have a profoundly harmful effect upon the normal conduct of civil litigation. A solicitor, instead of doing his best in the circumstances for his client, would tremulously be looking to his own pocket, fearful of the consequences if he loses. Such an attitude would also have a harmful effect upon the organisation of the profession. Often, litigation is put in the charge of an employed solicitor. It would be a most unfortunate development if firms, in employing young solicitors, should adopt a practice of requiring an indemnity from the young solicitor to cover the situation where the firm might incur liability for costs as a result of some erroneous step taken in litigation. It is probably for reasons such as these that Sir John Donaldson MR in Orchard v. S.E. Electricity Board (supra) at 572 cautioned against an over-zealous use of the jurisdiction under RSC Order 62 r8(1). In that passage the Master of the Rolls referred to the judgment of Sachs J in Edwards v. Edwards [1958] p235 and said:

"Sachs J examined the authorities and stated that it was axiomatic that the mere fact that the litigation failed was no reason for invoking the jurisdiction, nor was an error of judgment, nor even the mere fact that an error was of an order which constituted or was equivalent to negligence. There had to be something which amounted to a serious dereliction of duty: see p.248. The decision of this court in Davy-Chiesman v. Davy-Chiesman [1984] Fam 48 was to the like effect. The jurisdiction could only be invoked in the case of serious misconduct and the initiation or continuance of an action when it had no or substantially no chance of success might constitute such misconduct: per Dillon LJ at p.67".

10. Sir John Donaldson MR went on at 572-E to emphasise that the jurisdiction had to be exercised with care and discretion, and only in clear cases:

"..... it must never be forgotten that it is not for solicitors or counsel to impose a pre-trial screen through which a litigant must pass before he can put his complaint or defence to the court".

11. It is with these important principles in mind that we now turn to examine the circumstances of the present case.

The solicitors' case

12. Miss Cissy K.S. Lam of counsel appeared before us on 8 May, representing the firm, to show cause why no order should be made under Order 62 r8(1) against the firm personally for the costs. She argued her case cogently and attractively, urging us not to take an over-perfectionist view of the matter. In the course of argument she told us that, in view of the circumstances of the matter, the firm was not proposing to charge any profit costs against the client, but was proposing to charge the disbursements, including the cost of preparing the bundles and of briefing counsel. At issue therefore are the following costs:

(a) The firm's disbursements, including photocopying charges for the appeal bundles and counsel's fees;

(b) the party-and-party costs of the defendant on the appeal, which we had ordered to be taxed and paid forthwith by the plaintiff.

13. Miss Lam put before us an affidavit of Mr. Wong Wing Cheung, Chief Litigation Clerk of the firm, who has been employed in that capacity for more than five years. At the time when the interlocutory proceedings which gave rise to the appeal on costs took place, a solicitor Mr. Lo was in charge of the litigation. Mr. Lo had taken over the conduct of the litigation from another solicitor at the end of March 1992. However, Mr. Lo has not made an affidavit in this matter.

14. The stark fact which emerges from Mr. Wong Wing Cheung's affidavit is this: despite the fact that the appeal before Deputy Judge Li was itself on a question of costs, and the appeal against her exercise of discretion was only on a question of costs, no one in charge of the litigation was aware of the provisions of section 14(3)(e) of the Supreme Court Ordinance until 15 April 1993, some three weeks before the appeal itself was due for hearing. The broad question before us is therefore this: Does the conduct of the firm, having regard to all the circumstances, amount to such a serious dereliction of duty as justifies the exercise of the unusual jurisdiction under Order 62 r8(1)?

Entitlement as to costs

15. The object of section 14(3)(e) of the Supreme Court Ordinance is plain. Costs are very much in the discretion of the court which hears the matter. Every litigation solicitor knows this. When a party engages the services of lawyers to conduct litigation, he cannot expect as of right that those costs will be borne by the other side: not even when he wins. Order 62 r3(1) states:

"Entitlement To Costs

When costs to follow the event

3(1) Subject to the provisions of this Order, no party shall be entitled to recover any costs of or incidental to any proceedings from any other party to the proceedings except under an order of the Court."

Background facts

16. The appeal heard by Deputy Judge Li under Order 58 r1 resulted in her discharging Master Yam's order as to costs, leaving it to the parties to bear their own costs. But as the defendant had, in effect, won the appeal before her, she gave the costs of that appeal to the defendant. This is in accordance with the provisions of Order 62 r3(2) which states:

"(2) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings, the Court shall, subject to this Order, order the cost to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs".

17. At the appeal before Deputy Judge Li, both parties were represented by leading and junior counsel. After a hearing lasting two days, in the course of which extensive references were made to the 100 pages of transcript of the proceedings before Master Yam, she concluded that both parties were equally to blame for the debacle.

18. As to the conclusion reached by Deputy Judge Li that the costs of nine days of hearing before Master Yam were largely wasted, this could hardly be faulted. The proceedings reached no conclusion. They were aborted.

19. Deputy Judge Li had plainly been unimpressed by the quality of the legal representation before Master Yam. In the course of her written judgment she referred to the "sorry corpse of the proceedings for the taking of an account". Having ourselves looked at the transcript, we do not think that this was an exaggeration. The plaintiff embarked upon an interlocutory application for "the determination of the account lodged by the defendant" without any clear idea what that meant. The ambit of the inquiry was not defined. The plaintiff was alleging "a diversion of business away from the partnership" and yet "conflict of interest" was supposedly not included in the "issues" to be determined. "Agreed" issues turned out not to have been agreed by the other side. Who was to blame for this? Did the plaintiff's solicitor not, at least, have some responsibility? Looking at the matter broadly and objectively, how could Deputy Judge Li have been faulted?

20. It has now emerged from Mr. Wong Wing Cheung's affidavit that, shortly after Deputy Judge Li's written judgment was received by the solicitors, on about 13 September 1992, Mr. Ronny F.H. Wong Q.C. was approached with instructions to conduct the appeal but he declined and gave "a rather adverse comment on the case".

21. Mr. Wong Wing Cheung's affidavit said that sometime between 13 September to 20 October 1992 the plaintiff indicated to him over the telephone that he intended to appeal Deputy Judge Li's judgment. The written judgment is in English. Nowhere in Mr. Wong's affidavit does he say that he, or the solicitor Mr. Lo, or any one else in the firm had explained the contents of that judgment to the plaintiff: in particular, those portions of the judgment where the conduct of the case was criticised, expressly or by implication. Nor does he say that Mr. Ronny Wong QC's "rather adverse comment on the case" was conveyed to the plaintiff.

22. Mr. Wong, in his affidavit, goes on to say that at a conference on 20 October 1992 junior counsel advised the plaintiff to seek the written opinion of a Queen's Counsel "on the feasibility of the appeal", but this was not pursued on account of the costs involved. In the course of the hearing before us an attendance note of that conference was produced. It included with this sentence: "Being instructed by client Mr. Ho that he would appeal if there was a chance of 1%".

23. On 14 November 1992 the solicitors received the draft Notice of Appeal from junior counsel and this was filed in court on 16 November. There were no less than 14 separate grounds of appeal. They are remarkable for their prolixity. In many instances they are virtually repetitions of the same proposition. For instance, paragraphs 4 and 5:

"4. The learned appeal Deputy Judge failed to give due weight to and due consideration for the background and reasons for the termination of the proceedings before Master Yam as found by Master Yam;

5. The learned appeal Deputy Judge failed to give due weight to and due consideration for the background, reasons and basis of Master Yam's awarding costs of the hearing before him to the Plaintiff".

24. Some of the "grounds of appeal" are not grounds at all. They smack of attempts to justify the conduct of the case on behalf of the plaintiff before Master Yam. For instance, grounds 7 and 8:

"7. The learned appeal Deputy Judge erred in treating the transcript of the proceedings before Master Yam as an accurate record of what took place .....when there are challenges and doubts on the completeness of the transcript particularly as to the Defendant's alleged objections to some of the questions in cross-examination of the Defendant and the results of such alleged objections;

8. The learned appeal Deputy Judge erred in assuming, apparently in reliance on the accuracy and completeness of the said transcript, that the Plaintiff has not through his counsel disavowed any intention on the part of the Plaintiff to allege or to rely on any breach of duty or conflict of interest on the part of the Defendant... when there are challenges and doubts as to the accuracy and completeness of the transcript particularly on that area as aforesaid".

25. How any solicitor could have thought that these were proper matters for determination by the Court of Appeal defies imagination.

26. We pause here to make this observation. It would appear that by the time this Notice of Appeal was filed, the legal representatives had totally lost sight of what the litigation was all about. If, as a matter of case management, they had stopped in their tracks and reflected upon the matter, they would have seen that, after the pleadings had closed in June 1990, the way forward for the plaintiff would have been to comply with the Rules of the Supreme Court. Order 24 r1(1) provides that after the close of pleadings in an action begun by writ there shall be discovery by the parties to the action of the documents relating to matters in question. The plaintiff was alleging that there were nine transactions properly belonging to the partnership which were not accounted for by the defendant. This the defendant generally denied. These nine transactions were therefore matters in dispute. If the defendant should fail to make proper discovery, the court is empowered under Order 24 rule 7(1) to order the defendant to make an affidavit stating whether any of the documents relating to these transactions, for instance purchase orders, invoices and other commercial documents, have been in the defendant's possession custody or control. These are elementary steps in commercial litigation. Upon inspecting these documents, if they exist, the plaintiff would have been able to see whether his suspicions were correct that these transactions had been suppressed.

27. Instead of proceeding in the normal way, the plaintiff had sought a "hearing" under Order 43 rules 3, 4 and 5 "on the determination of the account lodged by the defendant". No one has explained what "the determination of the account" means. It is not surprising that, in these circumstances, the proceedings before Master Yam were inconclusive. Whilst it is true that Deputy Judge Li did not (using her own words) carry out a "full scale post-mortem", she did entertain extensive arguments concerning those proceedings over two days. How can it be suggested that she went wrong in concluding that the defendant should not be responsible for the plaintiff's costs of those proceedings?

28. Reverting to the history of the matter as set out in Mr. Wong Wing Cheung's affidavit, it appears that a brief to counsel was delivered to Mr. Edward Chan QC on 18 November 1992 for him to act for the plaintiff on the appeal. Under the heading "Remark" the back-sheet said: "this case had been set down pending the fixing date of hearing by the court". The accompanying letter said that counsel was retained to represent the plaintiff "in the captioned appeal". A large number of documents were sent to counsel including a bundle of pleadings and "notes of proceedings". Mr. Edward Chan QC was not asked to advise on the merits of the appeal.

29. One can readily imagine that leading counsel, faced with a big pile of papers, would not have immediately set about the task of reading and absorbing it, particularly as the dates for the appeal had not yet been fixed.

30. The hearing dates were fixed by the court on 11 December 1992, and both leading and junior counsel were informed of this fact. On 13 March 1993 Mr. Edward Chan QC was asked by the solicitors if additional documents were required to be lodged and whether amendments to the grounds of appeal were necessary. A reminder was sent on 25 March 1993.

31. On 13 April 1993 Mr. Edward Chan QC told the solicitors on the telephone that the chances of a successful appeal were low and on 15 April 1993, in a written advice of that date, declined to act for the plaintiff; and, notwithstanding that the brief had been delivered, offered to waive the brief fee. In his advice, Mr. Edward Chan QC made two points which, in summary, were:

(1) The appeal had no merits. The discretion as to costs was well within the jurisdiction of Deputy Judge Li who had not, in any way, acted wrongly.

(2) Section 14(3)(e) of the Supreme Court Ordinance required the leave either of the judge or of the Court of Appeal before the appeal could be entertained. He did not see any chance of such leave being granted.

32. Now, for the first time, the solicitors became aware of the requirement for leave. Even at this stage, all might perhaps not have been lost if the solicitors had acted with some degree of humility and commonsense. They could, for instance, have availed themselves of the summary procedure under Order 59 rl4(2), to apply for leave in writing. They could have attempted to find out from the other side whether briefs to appear at the hearing had been delivered to counsel, warning them that it might be better not to deliver briefs until the question of leave had been sorted out.

33. They did none of these things. Instead, as we have explained in the judgment given on 6 May 1992, they continued charging ahead hoping some-how to squeeze through the narrow "Scherer principle" door (which they believed to exist in Hong Kong) spurning the wider and, in truth, only door available to them, namely, the discretionary one under section 14(3)(e).

34. In the course of argument, Miss Lam submitted that the client was extremely insistent upon appealing. Apart from the attendance note referred to earlier, there is little evidence to support this proposition. Firstly, the inherent probabilities go the other way. Where two Queen's Counsel have already refused to act on the ground of lack of merit, it would be a very odd thing indeed if the client, fully aware of all the circumstances, should nevertheless insist on pushing ahead, incurring yet more costs, particularly on something as elusive as an order for costs. Secondly, there has been placed before us a letter dated 22 April 1993 written by the plaintiff's wife but signed by the plaintiff, where it shows plainly that the plaintiff was concerned about the outcome: he asked whether the "failure of the last appeal" was "the fault of me, the negligence of your firm or the wrong decision made by the judge?"

35. The reply, dated 28 April 1993 was unhelpful. It said in part:

"As was fully explained in the meeting, we wish to point out that the case has been conducted properly by your solicitors and Counsels and we are of the view at variance with the judgment of the Deputy Judge G. Li Q.C. as clearly mentioned in the Notice of Appeal filed on your behalf on 16th November 1992.

In any case, you are entirely free to seek further independent advice should you have cause to doubt the conduct of this case."

36. By this time the solicitors knew of the provisions of s.14(3)(e). Yet there is no suggestion that anyone warned the client of the danger of pressing ahead, relying upon the "Scherer principle".

Conclusion

37. The courts do not demand perfection from solicitors but they do expect reasonably high standards of professionalism and almost invariably these are attained. In this case, there has been such ignorance and incompetence that it amounts to gross dereliction of duty by the solicitors. An application for leave would have cost very little. This would have obviated all the costs incurred in the appeal. In our judgment the solicitors must be held liable for all the costs. In other words (a) they cannot charge disbursements to the plaintiff; if these have already been charged they must be repaid to the plaintiff. This includes counsel's fees. (b) They must personally bear the defendant's party-and-party taxed costs of the appeal.