DOLPHIN ADVERTISING LTD v. TRONKEN ENTERPRISES LTD

   HCA2409/2006

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   ACTION NO. 2409 OF 2006

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BETWEEN

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DECISION ON COSTS

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1.  On 27 November 2009 I gave judgment in favour of the defendant in these proceedings and made a costs order nisi in its favour. On 8 December 2009 the defendant issued a summons seeking a wasted costs order against the plaintiff’s solicitors Szeto Virginia & Co.

2.  Sub-sections 52A(4) to (7) of the High Court Ordinance confer on the court the power to make a wasted costs order in the following circumstances:

“(4) In any civil proceedings before it, the Court of Appeal or the Court of First Instance may, in accordance with rules of court, by order disallow, or order the legal representative concerned to meet, the whole or any part of any wasted costs.  (Added 3 of 2008 s. 22)

(5) When determining whether or not to make an order under subsection (4), the Court of Appeal or the Court of First instance shall, in addition to all other relevant circumstances, take into account the interest that there be fearless advocacy under the adversarial system of justice.  (Added 3 of 2008 s. 22)

(6) In subsection (4), ‘wasted costs’ (虛耗訟費)means 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.  (Added 3 of 2008 s. 22)

(7) In this section, ‘legal representative’ (法律代表), in relation to a party to any proceedings, means a counsel or solicitor conducting litigation on behalf of the party.  (Added 3 of 2008 s. 22)”

3.  Order 62 rule 8B(1) of the Rules of the High Court requires the court to consider whether to make a wasted costs order in 2 stages. At the first stage the applicant has to satisfy the court that it has evidence before it or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and that the wasted costs order proceedings are justified notwithstanding the likely costs involved.

4.  Sub-rule 8B(3) requires that any evidence in support of the application must identify what the legal representative is alleged to have done or failed to do. Practice Direction 14.5 supplements this and provides that such an application should normally be made by inter partes summons (paragraph 14) and that the summons should be accompanied by particulars clearly specifying the conduct of which complaint is made.

5.  The defendant’s summons was amended on 14 December to comply with the Practice Direction and add particulars of the conduct complained of. I set out the particulars below. In order to make sense of the complaints it is necessary to read them in conjunction with the reasons for my judgment, which were given on 2 December 2009.

“(1)  Continuance of the action (amounting to an abuse of process), when it was known, or ought to have been obvious, to Messrs. Szeto Virginia & Co. (‘SVC’) at a very early stage of the proceedings that the Plaintiff had no chance of success, by reason of there being no evidence to suggest that Mr Chan King Ming had actual authority from the Defendant;

(2)  Continuance of the action (amounting to an abuse of process), when it was known, or ought to have been obvious, to SVC that the Plaintiff had no chance of success, by reason of there being no evidence to point to any act by a person duly authorized by the Defendant which might reasonably have been taken as representing that Mr Chan King Ming had the necessary authority to bind the Defendant when entering into the Licence;

(3)  Continuance of the action as aforesaid with grossly inadequate documentary evidence and a total lack of expert evidence to support the quantum of damages claimed, i.e. no proper thought having been given by SVC (as if should have been) to how the claimed damages were to be proved;

(4)  Continuance of the action as aforesaid with grossly inadequate documentary evidence and a total lack of expert evidence to support the quantum of damages claimed, i.e. no proper thought having been given by SVC (as it should have been) to how the claimed damages were to be proved, even though the Defendant had made a sanctioned payment of $800,000 and a ‘without admission of liability’ offer of $900,000, which sums would have grossly exceeded the level of damages that could conceivably have been awarded in light of the pleaded case and the evidence;

(5)  Continuance of the action as aforesaid against the wrong party when it was known, or ought to have been obvious, to SVC from a very early stage of the proceedings that the Plaintiff’s cause of action should have been directed against inter alios Mr Chan King Ming for inter alia breach of warranty of authority, and not against the Defendant;

(6)  Continuance of the action as aforesaid when it was known, or ought to have been obvious, to SVC that the Plaintiff would not have the means, or the intention, to meet any costs order that would be made against it in the event of its claim being dismissed;

(7)  Continuance of the action as aforesaid even though the Defendant had made a sanctioned payment of $800,000 and a ‘without admission of liability’ offer of $900,000, which sums would have grossly exceeded the level of damages that could conceivably have been awarded in light of the pleaded case and the evidence, and when it was known, or ought to have been obvious, to SVC that the Plaintiff would not have the means, or the intention, to meet any costs order that would be made against it in the event of its claim being dismissed; and/or

(8)  Failure to plead a case of ‘apparent authority’ until the trial had commenced, when it had been known to SVC for nearly 2½ years that the Plaintiff had absolutely no case based on ‘actual authority’—this being the Plaintiff’s sole case throughout the course of the proceedings.”

6.  We are at the first stage of the procedure and I am considering whether on the material before me I am satisfied that if unanswered any of the aforesaid complaints would justify a wasted costs order. As paragraphs 8 and 12 of the Practice Direction remind me a wasted costs order is only for clear cases suitable for summary decision and the court should be cautious of allowing such applications to grow into expensive satellite litigation.

7.  The gravaman of the Particulars is that the solicitors were at fault in continuing to prosecute the action once it should have been obvious to them that it was bound to fail. It seems to me that the complaint as formulated in the Particulars is misconceived. There is nothing to suggest that the solicitors were assisting in advancing a case that either they or their client thought was misconceived or for any ulterior motive. What is of concern about the solicitors’ conduct is the level of competence that they brought to the task of preparing their client’s case. My own concern is that the plaintiff may have been prejudiced as a result of the advice it received rather than that the defendant has had its time and money wasted. It is understandable that the defendant is unhappy that it has easily succeeded in defeating the plaintiff’s claim and, so it believes, will be unable to recover its costs because the defendant is impecunious, but it would be inappropriate to try and remedy this problem by imposing a wasted costs order on the solicitors on what in my view would in the present case be the artificial ground that they should have realised that given the poor job they had done in preparing the plaintiff’s case it was bound to fail and that it was improper and unreasonable of them to continue to act once they should (but probably did not) realise this. The then Master of the Rolls Sir Thomas Bingham M.R. said in Ridehalgh v Horsefield [1994] Ch 205 at page 226B-C “wasted costs orders should not become a back-door means of recovering costs not otherwise recoverable against impoverished litigants”. It is also well established that the fact that legal representatives act for a party who advances a hopeless case is not of itself a ground for making a wasted costs:Ridehalgh, Lord Bingham at 233F-234F; Medcalf v Mardell [2003] 1 AC 120, Lord Hobhouse at 143H. Therefore even if the solicitors did think that the plaintiff’s case was hopeless unless there is evidence, which there is not, that they were assisting in the continued prosecution of the action for some ulterior motive this would not be a ground for making a wasted costs order.

8.  As I have already indicated in my view the central issue in this case concerns the competency of the conduct of the action by the solicitors and whether the relevant conduct could, if unexplained, justify a wasted costs order. I accept that prima facie there appears to have been a failure by the solicitors to bring the care and judgment, which was to be expected of them to almost every stage of the proceedings: the formulation of the pleaded case, a consideration of the extent of the discovery that was required from the defendant and the compilation of evidence to deal with both liability and quantum. In other words there appears to be a prima facie case that the solicitors conduct of the case was negligent or incompetent. Can this be a ground for imposing a wasted costs order?

9.  If we were in England the answer would be yes, because this is specifically provided for in sub-section 51(7) of the English Supreme Court Act 1981, which defines wasted costs to mean:

“(7) In subsection (6), ‘wasted costs’ means any costs incurred by a party—

(a)  as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative; or

(b)  which, in the light of any such act or omission occurring after they were incurred, the court considers it is unreasonable to expect that party to pay.”

10.  The omission of negligence from our equivalent section (section 52A) was not inadvertent. It is clear from paragraphs 546 to 554 of the Final Report of the Chief Justice’s Working Party on Civil Justice Reform that consideration was given to “lowering the threshold for liability to encompass cases where wasted costs are incurred as a result of negligence which does not itself amount to a species of misconduct, along the lines adopted in England and Wales”: see paragraph 548(a) of the Report. The proposal was rejected.

11.  Mr Leung submitted that it would be an erroneous approach to consider whether or not the conduct with which we are concerned was prima facie negligent and if I concluded that it was to find that section 52A did not apply because the Report indicated that it was intended to be excluded from the ambit of this section. He argued that I should not have regard to evidence of the intention of the legislature unless there is some ambiguity in the wording of the section under consideration, which there is not; and that even if I did the Report refers to negligence simpliciter, which suggests that the observations were not directed to examples of gross negligence, which Mr Leung suggests is the type of conduct that we are concerned with in the present case. The correct approach was to ask whether, so Mr Leung argued, there is prima facie evidence of conduct that was improper or constituted an unreasonable act or omission or misconduct or default. If there is the section is engaged even if the conduct in question called also be described as negligent.

12.  In my view the position is not that simple. The meaning of the language used in the section has to be considered in its intended context. The then Master of the Rolls observed in Ridehalgh at page 233E when considering the meaning of “improper”, “unreasonable” and “negligent”: “We were invited to give the three adjectives… specific, self-contained meanings, so as to avoid overlap between the three. We do not read these very familiar expressions in that way. Conduct which is unreasonable may also be improper, and conduct which is negligent will very frequently be (if it is not by definition) unreasonable. We do not think any sharp differentiation between these expressions is useful or necessary or intended”. Conversely in my view conduct, which could fairly be described as a matter of general English usage as, for example, unreasonable does not automatically engage section 52A. To assess whether or not it does requires a consideration of how the court’s have characterised such behaviour in the past in order to determine whether or not it can properly be characterised as unreasonable in the context of wasted costs orders.

13.  If a party faces a claim, which he considers hopeless he will normally have other remedies to address the problem such as applying to strike out the action. As I have already demonstrated the authorities establish that advancing a hopeless case does not justify the imposition of a wasted costs order and is not unreasonable conduct. Where the conduct complained of includes something that goes beyond the presentation of a hopeless case in an otherwise acceptable manner and involves lending assistance to an abuse of process or improper time wasting the court’s power to make wasted costs orders in engaged: see the discussion in the judgment of Peter Gibson LJ in Persaud v Persaud [2003] P.N.L.R 519 at pages 526 to 527 considering Ridehalgh and the judgment of Lord Hobhouse in Medcalf at paragraph 56.

14.  It may be unusual for a case to become hopeless because of the way in which it is prepared and presented rather than because it is inherently misconceived, but in my view it makes no difference to the way in which the conduct of the solicitors should be approached. An error of judgment by solicitors or a failure to apply any judgment at all to a case for which they are responsible, which renders a weak case hopeless is in my view not the type of conduct, which section 52A is intended to address. As Mr Smith, SC, who appeared for the solicitors with Jonathan Chang, pointed out there is an irony in a complaint that the incompetence of the plaintiff’s solicitors made it easier for the defendant to win than might otherwise have been the case. The defendant cannot expect to recover costs that it would otherwise not have been able to recover as a consequence of the failure of its security for costs application, because the plaintiff’s solicitors have done a particularly poor job. So far as the plaintiff is concerned it has other possible remedies against its solicitors for any loss it feels it has suffered as a result of the advice it has received and the solicitors’ conduct of the litigation on its behalf.

15.  I, therefore, decline the defendant’s application for a wasted costs order.

16.  So far as the costs of this application is concerned Mr Smith, SC, sought an order if he were successful that costs should follow the event. Mr Leung suggested that if I refused his application no order as to costs would be more appropriate as the plaintiff’s solicitors have brought the application upon themselves and that such an approach would be consistent with that taken by Deputy High Court Judge To (as he then was) in Pine Enterprises Ltd v Cyber Strategy Ltd & others, HCA1221/2006. I have some sympathy for the suggestion that the plaintiff’s solicitors have invited this application, but the fact remains that I have dismissed it at the first stage and in my view having done so it would be inappropriate to penalise the solicitors by depriving them of their costs. I am, however, of the view that there is prima facie evidence that the solicitors conduct of this action fell materially below the standard to be expected of them and they should not read this decision as in anyway vindicating their conduct.