HO MAN YU v. NGAI SHING SAU AND OTHERS

HCPI 332/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO.332 OF 2004

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REASONS for DECISION

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Background

1. Save where it is otherwise stated, the matters and events related under the heading “Background” in this Decision are common ground between the parties.

2. The plaintiff considered that these 3 defendants ought to be liable for damages for personal injuries that he suffered as a result of an accident that occurred on 9.5.01.

3. The plaintiff’s solicitors sent a letter before action to the 2^nd defendant (D2) dated 1.9.03. About 2 weeks later, D2’s solicitors replied asking the plaintiff’s solicitors for “any documentary evidence to prove your client was an employee of our client…”

4. On 18.9.03 the plaintiff’s solicitors responded by sending a copy of the Form 2 to the solicitors for D2. A copy of that Form 2 bears careful consideration (see page 94 of Bundle). It was prepared by the Labour Department on information supplied by, inter alia, the plaintiff himself.

5. It is now conceded by the plaintiff that all the details given in that Form 2 relating to the employer of the injured person relate to D1 in this action, save and except the name. It should be noted that the name of D1 and the name of D2 are identical, save and except for the word “Limited”. D1 traded under the name of “Shing Kee Engineering Company” whereas D2 is “Shing Kee Engineering Company Limited”.

6. Upon receiving the Form 2, D2’s solicitors wrote back to the plaintiff’s (P’s) solicitor on 24.9.03. In this letter, D2’s solicitors pointed out to P’s solicitors the following matters:

(1)	that D2 denied being the employer of P;
(2)	that the business address in the Form 2 was that of D1, not D2;
(3)	that the business registration number in the Form 2 was that of D1 and not D2;
(4)	that D2 never carried on business at the address stated therein;
(5)	that D2’s solicitors had conducted a business search, and the details given in the Form 2 matched those of D1;
(6)	in order to verify and support the allegations they had made about D1 being the employer of P, D2’s solicitors enclosed a copy of the Business Registration search they had conducted; and D2’s solicitors concluded this letter by warning P’s solicitors not to make unwarranted demands on D2.

7. After about 7 months, on 20.4.04, P’s solicitors filed and served the Writ, the Statement of Claim and a Statement of Damages on all 3 of the defendants herein.

8. On 2.9.05 P’s solicitors took out the present Summons under O21 r5 for leave to discontinue the action against D2. In addition, P asked for the costs of the action of P’s claim against D2 to be borne by D3.

Issues arising from the Summons

9. There are 2 issues arising :

(1)	Which party should bear the costs of P’s suing D2? P or D3?
(2)	Should the costs awarded to D2 be on Indemnity Basis?

Which party should bear the costs of P’s action against D2

10. This is a summary of P’s case why D1 should be liable. It was submitted that the lay client was unable to give clear instructions as to who employed him at the time. P knew D1 had a company called “Shing Kee”, but did not know whether it was a limited company or not. D1 had asked P to report to the site, and D1 also paid P his wages after the accident happened on 9.5.01. The Form 2 showed the employer was “Sing Kee Construction Company Limited”. The Form 2 also showed that 2 employees of “Sing Kee Construction Company Limited” had provided information to the Labour Department. In the circumstances P’s solicitors were placed in a dilemma, and decided to resolve it by suing both D1 and D2 “in the alternative with the expectation that the defences or discovery would resolve the matter”, see paragraph 6 of P’s skeleton submission dated 7.1.06.

11. This is a summary of P’s case against D3 in relation to costs. It is based on the Form 2. It was stated that the main contractor was responsible for the information provided to the Labour Department. Since   D3 had mistakenly given the Labour Department the information that D2 was the direct employer, instead of D1, then it would be reasonable and proper to award the costs against D3.

Ruling on the party that should bear the costs of P’s action against D2

12. In my view P should bear the costs of his action against D2. In my view the solicitor for P has an obligation to investigate into the circumstances of the accident in order to form a preliminary opinion of the prospects of an intended defendant being liable. The investigation of P’s solicitor as to the possibility of an intended defendant being liable to P should be as reasonably thorough as the circumstances will allow. If P’s solicitors can show that they had acted reasonably, but sued the wrong party, despite all reasonable steps being taken, the court should in those circumstances exercise its discretion as to costs in P’s favour.  

13. In the present circumstances, no investigation carried out at all. When asked by the court whether his firm investigated the allegations made by D2 in writing by letter dated 24.9.03, Mr Packwood frankly admitted that no steps were taken to verify the contents of that letter.

14. P’s solicitors also seemed to be content to launch an action against two possible employers in the alternative, hoping that the true identity of the employer would somehow be revealed in the pleadings or by process of discovery. I cannot see this as responsible behaviour. If reasonable steps could be taken to verify the true identity of P’s employer, they should be taken. Here, D1 and D2 bore the same name, except that D2 was a limited company, but D1 was not. This is not such an unusual phenomenon in Hong Kong, and the logical step would have been to check the details given in the Form 2. As submitted by Mr Chan for D2, the details of a company in the Companies Registry are analogous to the details in a person’s identity card, and if a check had been conducted, it would have revealed that the registration number and the business address were those of D1 and not D2. If P’s solicitors had taken reasonable steps to verify the intended action against D2, it would have been clear to P’s solicitors that this action should not have been commenced against D2. 

15. I do not think that D3 should bear the responsibility for the costs . In our adversarial system, the plaintiff chooses whom to sue and when to sue. I have not lost sight of the fact that D3 has conceded that it mistakenly provided the Labour Department with the information that D2 was the employer instead of D1. But the whole basis of P’s case against D3 on costs is that D3 made that one single mistake. Companies that bear similar names are common place in Hong Kong, therefore, a reasonable solicitor would have taken the simple step of verifying information which show more than one company could be liable.

Should the costs awarded to D2 be on Indemnity Basis?

16. The principles which apply to an award of costs on an indemnity basis are summarized in the Note to Order 62, 62/App/12 of Hong Kong Civil Procedure 2006. It states :

“The Court of Appeal in Choy Yee Chun (The Representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd [1997] HKLRD 1327, CA reviewed the cases and summarized the law as follows. A taxation of the successful party’s costs on an indemnity basis could properly be ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for the taxation of the successful party’s costs on the indemnity basis. However the circumstances in which an indemnity award might properly be made were not restricted to circumstances such as those described. The discretion was not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be appropriate.”

The question to be asked in present circumstances is whether it is appropriate to order costs on indemnity basis in favour of D2.

17. Counsel for the D2 relied on the case of Paul Ki Ping Ki v Oriental Daily Publisher Ltd & Ors CACV 201/1999, unreported, to show that indemnity costs were considered appropriate by the Court of Appeal where the plaintiff sued one of the defendants involved in that action “without a proper basis”. The Court of Appeal agreed with the trial judge’s view that the 6^th defendant in that action should be awarded costs on an indemnity basis because the 6^th defendant was forced to defend an action that Paul Ki should never have been launched against her.

18. In the present action, the plaintiff sued D2 after being informed that the real employer was “Ngai Shing Sau trading as Shing Kee Engineering Company” and not “Shing Kee Engineering Company Limited”, and after being provided with all the information referred to in paragraph 6 above. A Fortiori it was admitted by P’s solicitor that no investigation was carried out at all, in order to verify that he had sued the correct defendant. It was not disputed that a wholly innocent party was dragged into litigation. I can see no or no good reason why the innocent party in these circumstances should be put out of pocket in relation to costs. I am therefore satisfied that costs should be awarded to D2 against P on an indemnity basis. This order made nisi, to be taxed if not agreed. It is a matter between the plaintiff and his solicitor whether the costs will be borne by the client. The D2 is also awarded the costs of the hearing on 10.1.06 together with a certificate for counsel. As for D3, I find it appropriate to award D3 the costs of the hearing on 10.1.06 against P, on party and party basis, to be taxed if not agreed.

19.. Unless an application in writing made within 14 days of the handing down of this decision, the costs orders nisi in the paragraph above shall become absolute.