POWER PRINTING PRODUCTS LTD v. THE CREATIVE STUDIO LTD

DCCJ 2921/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2921 OF 2014

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JUDGMENT

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1.  The plaintiff is a company carrying on business of printing services including printing of books. The defendant is a company carrying on trading business for overseas customers. It would get orders from overseas customers and then place orders with the plaintiff. The disputes in these proceedings arise from some purchase orders for the printing of some books placed by the defendant with the plaintiff.

The agreed issues

2.  In the pre-trial review, the parties agreed that the issues set out in the plaintiff’s statement of issues in dispute dated 9 February 2017 (“the List of Issues”) are issues to be determined in this trial, which are as follows:-

(1)   Regarding 75,000 copies under purchase order no. 13060713 dated 7 June 2013:-

(a)   whether the defendant affirmed the contract between the plaintiff and the defendant by accepting the delay in respect of the 75,000 copies on the part of the plaintiff;

(b)   if the answer to the above is in the negative, whether the defendant suffered any loss because of the delay; and if so, whether the plaintiff is liable to pay the defendant any damages;

(c)   whether the defendant is liable to pay the plaintiff the outstanding sum of US$57,717.12 due under invoice no. 032901 dated 26 September 2013.

(2)   Regarding the remaining 5,500 copies under purchase order no. 13060713, whether the defendant is liable to pay the plaintiff the outstanding sum of US$11,833.04 due under invoice no. 033929 dated 17 January 2014.

(3)   Under purchase order no. CJP-012049 dated 25 April 2012, whether the defendant is liable to pay the plaintiff the outstanding sum of US$59.24 due under invoice no. 030796 dated 17 August 2012.

(4)   Whether the plaintiff is liable to pay the defendant the commission fee of US$6,040.00 by reason of the alleged introduction of Minor International Public Company Limited from the defendant to the plaintiff.

(5)   Regarding purchase order no. 140111611 dated 16 January 2014:-

(a)   Whether US$47,900.00 (“the US$47,900.00”) was an advance payment paid by the defendant to the plaintiff;

(b)   Whether the plaintiff is liable to refund the US$47,900.00 to the defendant;

(c)   Whether the defendant suffered any loss in relation to this purchase order; and if so, whether the plaintiff is liable to pay the defendant any damages.

(6)   Regarding the production of the book titled “My First Turn and Learn”:-

(a)   whether US$3,492.00 (“the US$3,492.00”) was an advance payment paid by the defendant to the plaintiff;

(b)   Whether the plaintiff is liable to refund the US$3,492.00 to the defendant.

(7)   Whether the plaintiff has the right to retain the digital book files of the “Where's the” series. If the answer is in the negative, whether the defendant suffered any loss because the plaintiff retained the said digital book files; and if so, whether the plaintiff is liable to pay the defendant any damages.

3.  Issues nos 1-3 are issues raised in the plaintiff’s claim, and issues nos 4 to 7 are issues raised in the defendant’s counterclaim.  I will deal with these issues in turn in the paragraphs below.

The evidence

4.  Each side called one factual witness.  The plaintiff’s factual witness is Mr Anthony Lai (“Mr. Lai”), who was the senior sales and marketing manager of the plaintiff from 1 August 2011 to 31 October 2015.  The defendant’s factual witness is Madam Lau Kai Man (“Madam Lau”), who is a director of the defendant.  Madam Lau also represents the defendant in these proceedings.

5.  Mr Lai impresses me as a straightforward witness.  His evidence is cogent and clear.  I accept his evidence.

6.  An example illustrating that Mr Lai is a candid witness with nothing to hide is his evidence on the US$47,900.00.  The plaintiff’s case is that these sums are paper costs paid by the defendant and has been used to purchase papers, and hence it would not be possible to refund these sums to the defendant.  The defendant’s case is that these sums are advance payments paid by the defendant to the plaintiff under the relevant purchase orders, and should be refunded to the defendant since the relevant purchase orders have been cancelled.

7.  Under cross-examination, Mr Lai frankly admitted that the papers purchased had never been delivered by the plaintiff to the defendant.  He explained in re-examination that it was because of the restriction imposed in Mainland China.  The factory in Mainland China was not allowed to transfer imported goods (in this case, papers) to other factory without paying a 17% tax.  Since the defendant was not willing to bear the tax, the plaintiff refused to deliver the papers to the defendant unless the defendant agreed to bear the tax.  However, at a later time, the plaintiff agreed to bear the tax anyway to avoid further argument and asked the defendant to go to the factory in Mainland China to take up the papers.  However, the defendant did not do so.

8.  Mr Lai also frankly admitted that it was once agreed that the US$47,900 could be used in another purchase order, but that purchase order was later cancelled.  Since it was cancelled, the US$47,900 remained as payment for paper costs.

9.  I find that Mr Lai is an honest and reliable witness.

10.  On the other hand, Madam Lau is not a reliable witness.  She is evasive, and is unwilling or unable to offer explanations on some essential issues. 

11.  Madam Lau said that the defendant had partially settled invoice no 032901 was not an admission made by the defendant as to the liability to pay under that invoice.  However, at the same time, she conceded that she did not know what was going on between the “bosses” of the two companies.

12.  Madam Lau said that by the operation of the penalty clause on the purchase order no 13060713, the plaintiff was liable to pay damages to the defendant as a result of the delay in delivering the 75,000 copies to the defendant. However, Madam Lau said that she could not tell what should be the amount of the damages, for the plaintiff refused to discuss this with the defendant. With respect to Madam Lau, this explanation is unsound.  Whether the defendant has suffered any loss and damage as a result of the delay in delivery is something within the defendant’s knowledge, and the defendant would be able to particularize the loss and adduce evidence on this issue.  Indeed, the defendant is required to do so in order to claim damages against the plaintiff.  The defendant would not be absolved from this obligation even if the plaintiff refuses to discuss with the defendant on this question.

13.  Mr Stephen Wong (who is the accounting/financial staff member of the defendant), in his email to Mr Lai dated 20 February 2014, clearly and unequivocally stated that the US$47.900.00 and the US$3,492.00 were paper costs.  Counsel for the plaintiff, Ms Rachael Siu, put this email to Madam Lau in cross-examination.  Madam Lau tried to blame Mr Stephen Wong for not knowing the “exact situation” between the companies and claimed that it was impossible for the staff to know everything.  Clearly, this is not a satisfactory explanation at all.

14.  In her own letter to the plaintiff’s solicitors dated 6 June 2014, Madam Lau proposed to set off the payments due to the plaintiff against the paper costs. This is evidence showing that the US $47,900.00 and the US$3,492.00 are paper costs and not advance  payments as alleged by Madam Lau.  Ms Siu put this letter to Madam Lau in cross-examination.  Madam Lau offered no explanation about what she wrote but simply disagreed that it was an admission of liability to pay.

15.  When Madam Lau was asked whether the claim by the plaintiff is to be set off by the payments for paper costs, or the payments for paper costs should be refunded to the defendant, Madam Lau did not give an answer.

16.  Madam Lau also gave evidence about the counterclaim for return of digital files.  Madam Lau stated that the files were created by the defendant’s designer and the files were to be uploaded to a FTP portal.  The plaintiff was given access when an order was placed.  The plaintiff would then download the files and made revision and print the books.  Madam Lau admitted that the defendant and the designer would also have a copy of the digital files uploaded.  She also agreed that when other printers “return” the files by sending them back digitally or burning them into a disc, the printers would still have a copy. 

17.  I find that Madam Lau is not a satisfactory witness. 

18.  Wherever there is conflict between Mr. Lai’s evidence and Madam Lau’s evidence, I prefer Mr Lai’s evidence.

Issue No 1

19.  In her final submissions, Madam Lau on behalf of the defendant concedes that the defendant is liable to pay the outstanding balance of invoice no 032901 to the plaintiff, but Madam Lau submits that the following sums should be deducted from the outstanding balance:-

(a)   US$6,040.00;

(b)   US$47,900.00;

(c)   US$3,492.00;

(d)   damages for the delay in delivering the 75,000 copies to the defendant.

20.  The US$6,040.00 is the subject matter in issue no 4.  Ms Siu in her opening submissions have conceded that the plaintiff should pay this sum to the defendant.  In these circumstances, a credit of US$6,040.00 should be given to the defendant.

21.  The US$47,900.00 and the US$3,492.00 are the subject matters in issues nos.5 and 6.  For the reasons set out below, I hold that the defendant is not entitled to have these sums.  Accordingly, there should be no deduction of these sums from the outstanding balance.

22.  As to the delay in delivering the 75,000 copies to the defendant, the plaintiff admitted the delay in its statement of claim.  In Mr Lai’s evidence, Mr Lai told this court that the plaintiff should deliver the 75,000 copies to the defendant on 27 August 2013, but the plaintiff only delivered the first batch to the defendant on 29 August 2013, and managed to deliver all the 75,000 copies to the defendant by 26 September 2013.

23.  The amount due for these 75,000 copies, which is US$184,890.00, has been partially settled by the defendant by 3 payments:-

(a)   US$ 35,000 paid on 1 Aril 2014;

(b)   US$50,000 paid on 22 February 2014;

(c)   US$42,172.88 paid on 24th February 2014;

The outstanding balance is US$57,717.12.

24.  By accepting the delivery and making the aforesaid partial payments without reserving any right, the defendant has waived its right to require delivery within the fixed period.  See Chitty on Contracts – Hong Kong Specific Contracts, 5^th Ed, §20-339:-

“Although the contract may stipulate a time for delivery, the buyer’s right to require delivery within a fixed period may be deemed waived by his conduct. In Hartley v Hymans, where the buyer continued to demand and accept deliveries long after the stipulated delivery date and then alleged that the contract had been breached by the seller’s failure to deliver punctually, the court held that the buyer, by his demands after the stipulated date, had waived his right to insist that the period of delivery terminated on the original stipulated date. The buyer was also by his conduct estopped from alleging that the period for delivery terminated on the date stipulate in the contract.”

25.  In fact, the position adopted by Madam Lau in the trial is that damages for the delay should be deducted from the outstanding balance, not that the defendant is not liable to pay the balance because of the delay.

26.  Madam Lau relied upon the following provision in the purchase order no 13060713 to support the defendant’s claim for damages:-

“Supplier must follow customer’s shipping instruction strictly otherwise penalty will incur.”

27.  In relation to the delay, the defendant made the following averment in its defence:-

“9. Further, the Defendant avers that as a result of the undue delay as admitted by the Plaintiff in paragraph 7, the Defendant received vigorous complaints from its customer in respect of Purchase Order No.13060713. The sales volume with the said customer dropped tremendously in subsequent years. In the circumstances, the Defendant has suffered loss and damage as a result of the Plaintiff’s breach of contract as pleaded in paragraph 8 hereinabove.”

28.  Madam Lau in her final submissions claims that the defendant should be awarded of damages of US$15,000.00 for the delay in delivering the 75,000 copies.  In the absence of any particulars of loss and damage suffered by the defendant as a result of the delay and any reliable evidence on loss and damage, I refuse to accede to this claim.

29.  In my judgment, there is no reliable evidence before me proving this averment.  Accordingly, the claim for damages as a result of the delay in delivering the 75,000 copies is not established.  That being the result, there should be no deduction of any damages from the balance claimed by the plaintiff under this head.

Issue No 2

30.  The parties agreed that the US$11,833.04 have been paid by the defendant. I have no need to make a judgment on this issue.

Issue No 3

31.  In respect of invoice no 030796, the defendant has almost settled the whole invoice.  The outstanding balance is a tiny sum, ie US$59.24.  The defendant refuses to pay this sum because, according to Madam Lau, some copies on this invoice are samples, which should be provided to the defendant free of charge.  The plaintiff denies this.

32.  Madam Lau submits that according to the terms on the purchase order no CJP-012049, the samples provided by the plaintiff to the defendant should be free of charge.  Madam Lau says that the said terms can be found on pages 2 and 3 of the said purchase order.  However, the copy of the said purchase order contained in the trial bundle is a document of 1 page only.  The said purchase order is a document disclosed by the defendant.  I ask Madam Lau whether she has tried to find the said pages 2 and 3, she replied that she has tried to do so but she is unable to locate these 2 pages.

33.  I have to proceed on the basis of the evidence before the court.  There is no reliable evidence before the court showing any contractual terms between the parties exempting the defendant from paying the US$59.24.  I also note the point made by Madam Lau in trial, ie there are terms on pages 2 and 3 of the said purchase order stipulating that samples would be provided by the plaintiff free of charge, has never been raised by the defendant on its pleading.

34.  In my judgment, the defendant has no defence in this issue, and I hold that the defendant should pay the US$59.24 to the plaintiff.

Issue No 4

35.  The plaintiff has conceded in this issue.  I hold that the plaintiff should pay US$6,040.00 to the defendant.

Issue No 5

36.  There is ample evidence showing that the US$47,900 are paper costs and not advance payment:

(a)   As recorded in the relevant invoice, ie invoice no 032869 dated 21 August 2013, the US$47,900 was a payment for “paper cost for balance 60,000 copies”.  It was not recorded as an advance payment.  Madam Lau in her evidence said that it was recorded as such because it was not known how they should name the payment at that time.  I refuse to accept Madam Lau’s evidence.  I hold that the record on this invoice correctly shows the nature of this sum.

(b)   In an email by from Mr Lai to Madam Lau dated 11 December 2013, Mr Lai referred to invoice no 032869 and said:-

“…… Though the paper cost would be deducted on the coming PO ……”

This is also evidence showing that the US$47,900 are paper costs.  Mr Lai said in his evidence (which is accepted by this court) that the US$47,900 could be deducted from a purchase order 14011611, but this particular purchase order was cancelled. 

(c)   In the defendant’s payment slip dated 20th January 2014, the US$47,900 paid to the plaintiff was marked for invoice no. 032869 and with a handwritten note “paper cost” on it.

37.  Although the plaintiff has agreed that the payment for paper costs could be deducted in a particular purchase order, when there was no further purchase order, or when that purchase order was cancelled, the payment of the US$47,900 remained as a payment for papers.  As agreed by Madam Lau during cross-examination, if there is no further order, the costs of paper have to be paid and the paper should be given to the defendant.  The relevant question and answer in cross-examination are as follows:-

Question： “咁如果冇新嘅PO 咁點呀?”

Answer： “咁就要俾囉, 但啲紙要俾我地囉”

38.  On the basis of Mr Lai’s evidence, I find that the US$47,900.00 has been used to purchase papers, and the defendant can make arrangements to collect the papers.

39.  I hold that the plaintiff has no obligation to refund the US$47,900.00 to the defendant.

40.  The defendant in its pleadings claims that the plaintiff had used the wrong paper to produce the mocked up sample of the end product in relation to the purchase order no 140111611 and provided the wrong sample to the defendant’s customer, leading to the cancellation of the said purchase order. As a result, the defendant has suffered loss and damage.  In my judgment, there is no reliable evidence before me supporting this claim.  I dismiss this claim.

Issue No 6

41.  There is clear evidence showing that the US$3,492 are paper costs.

(a)   In invoice no 031210 dated 13 December 2012, it is stated that a sum of US$3,600.00 was charged against the defendant as payment for papers.  The description of this item on the said invoice is as follows:-

“The unit price exclude the additional charge for 5,000 cps x 1 title paper cost, extra cost for already buying the additional paper, we have to charge the remained material at sum@USD3,600”

So the US$3,600.00 is the cost for papers already purchased by the plaintiff.

(b)   There is a payment slip dated 15 May 2013, which is a payment slip recording that the defendant transferred US$3,492.00 to the plaintiff on 15 May 2013 and in the item “My Notes”, it was marked as “Payment for paper cost”.

(c)   In the email correspondence passing between Mr Lai on the one hand and Mr Stephen Wong & Madam Lau on the other hand from 7 May 2013 to 15 May 2013, one can see that Mr Lai demanded payment from Madam Lau, and Mr Stephen Wong replied with a request for discount on paper costs.   Mr Lai replied and agreed to give a 3% off on paper costs, and hence the paper costs would be (US$3,600.00 x 97%) = US$3,492.00.  Later, on 15 May 2013, Mr Stephen Wong emailed Mr Lai with the aforesaid bank payment slip attached. 

42.  I hold that the sum of US$3,492.00 is paper costs as contended by the plaintiff, and not advance payment as suggested by the defendant.  The defendant has not put forward a valid basis justifying a claim for the return of the US$3,492.00.

Issue No 7

43.  In the trial, Madam Lau on behalf of the defendant claims damages in the amount of US$60,000.00 as a result of the plaintiff’s failure to return the digital files.

44.  The only evidence in support of this claim is Madam Lau’s evidence summarized in paragraph 16 above.  Even if I accept that evidence, it is difficult to see how the defendant can claim damages against the plaintiff under this head.  Although the defendant has provided the digital files to the plaintiff, the defendant still keeps those digital files.  At all times, the defendant is having the digital files.

45.  I dismiss the defendant’s claim under this head.

The outcome

46.  For the reasons above, the net result would be that the defendant has to pay to the plaintiff (US$57,717.12 + US$59.24 – US$6,040.00) = US$51,736.36

47.  I order that the defendant shall pay US$51,736.36 to the plaintiff.  I further order that there be interest on the aforesaid judgment sum at 1% over the HSBC prime rate from the date of the writ until the date of this judgment, and thereafter at the judgment rate until payment.

48.  I dismiss the defendant’s counterclaim as set out in issues nos 5, 6 and 7 in the List of Issues.

49.  I have heard submissions on costs.  In my judgment, the general rule of costs following the event should apply.  I note that although the plaintiff succeeds in its claim against the defendant, the defendant also partially succeeds in its counterclaim in claiming US$6,040.00 against the plaintiff.  I am of the view that the plaintiff’s claim and the defendant’s counterclaim are closely intertwined.  In these circumstances, following the approach in Able Contractors Ltd v Wui Loong Scaffolding Works Co Ltd (HCA 2587/2008, 16 July 2012), for the purpose of facilitating taxation, I would make a costs order awarding the plaintiff the costs of the action, which would cover both the claim and counterclaim, with a reduction reflecting the defendant’s success in counterclaiming for the US$6,040.00. 

50.  During the trial, the time spent on the defendant’s claim for the US$6,040.00 is minimal, for the plaintiff has conceded this claim at the beginning of the trial.  Having said that, the concession was offered at the beginning of the trial but not at an earlier time in these proceedings.  Taking all these into account, I am of the view that a 10% discount should be given to the defendant to reflect its success on the claim for the US$6,040.00.

51.  I order that the defendant should pay the plaintiff 90% of its costs of the action (including all costs reserved, if any), with a certificate for counsel.

Wasted costs order

52.  The trial lasted for 3 days.  Due to numerous mishaps concerning the trial bundles prepared by the plaintiff’s solicitors, day 1 of the trial is almost entirely wasted, and the morning of day 2 is also wasted.

53.  By the order made in the pre-trial review held on 15 February 2017 (“PTR Order”), the plaintiff’s solicitors are required to prepare the trial bundles in accordance with PD 5.6.  Unfortunately, the plaintiff’s solicitors have failed to pay heed to the requirements set out in PD 5.6.  When the trial bundles reached me, it consisted of 1 lever-arch file and a pile of papers. The lever-arch file was obviously overfilled, containing more than 400 pages. Further, some essential documents could not be found in that lever-arch file, including the List of Issues, and the sealed copy of the PTR Order.  The copies of the pleadings provided in the lever-arch file were only barely legible and without colours showing the amendments.  I have asked my clerk to notify the plaintiff’s solicitors to require them to rectify all these problems before the commencement of the trial.

54.  Just before the commencement of the trial, I was provided with another set of trial bundles containing 3 lever-arch files (“the Old Bundles”).  Not all the problems had been rectified, for example, the List of Issues was not yet in the bundles, and coloured copies of the pleadings were still missing.  Ms Siu told this court that the plaintiff’s solicitors would follow up and would update the bundles to rectify all the problems.  With this assurance, I started the trial.

55.  Ms Siu made a brief opening speech and then called Mr Lai to give evidence.  At that moment, Ms Siu discovered that the plaintiff’s solicitors had not prepared another set of bundles to be used by the witness.  Ms Siu asked for a short adjournment to give some time to the plaintiff’s solicitors to prepare an extra set of the bundles.  I reluctantly granted the adjournment, for it would not be possible to allow the witness to give evidence without placing a set of the trial bundles before him.  After an adjournment for about 30 minutes, I resumed the trial.  Madam Lau complained that some of the documents disclosed by the defendant had not been included in the trial bundles.  I asked Ms Siu, and Ms Siu confirmed that Madam Lau was correct.  I asked Ms Siu how much time the plaintiff’s solicitors would need to find the missing documents and to include them in the bundles, and Ms Siu said that the plaintiff’s solicitors would rectify these “within today”.  It appears that the plaintiff’s solicitors have never discussed with the defendant as to what should be included in the trial bundles.  Since Madam Lau might use the missing documents in cross-examining Mr Lai, the trial simply could not proceed before the plaintiff’s solicitors finding out those missing documents and putting them into the trial bundles.  With no other alternative, I adjourned the trial to day 2.  At that time, I have already told the plaintiff’s solicitors that I may make a wasted costs order in respect of the costs of the preparation of the trial bundles and the costs of day 1 of the trial.

56.  On day 2, the plaintiff’s solicitors replaced the Old Bundles with another set of trial bundles (“the New Bundles”).  The Old Bundles contain 661 pages, while the New Bundles only consist of 403 pages.  I asked Ms Siu why there was such a difference between the 2 sets of bundles.  Ms Siu replied that there were many duplications in the Old Bundles.  All the duplications have been removed in the New Bundles.  Ms Siu said that all the documents in the Old Bundles could be found in the New Bundles.  Madam Lau told me that she had made some notes by using the page references in the Old Bundles.  I told Madam Lau that in cross-examining Mr Lai and in making submissions, Madam Lau might mention the page references in the Old Bundles, and I would request Ms Siu to provide the corresponding page references in the New Bundles.  After these discussions, Ms Siu called Mr Lai to give evidence.  Only the New Bundles were provided in the witness box.  After the evidence-in-chief, Madam Lau started the cross-examination.  Madam Lau asked Mr Lai to read the emails on pp 624 and 625 of the Old Bundles.  I asked Ms Siu to provide the corresponding pages in the New Bundles so that the witness could read the documents.  After a long pause of more than 10 minutes, Ms Siu told this court that these 2 pages could not be found in the New Bundles.  Ms Siu apologized to this court and told me that what she had submitted a moment ago was incorrect, and not every document in the Old Bundles could be found in the New Bundles.  I required the plaintiff’s solicitors to immediately bring back the Old Bundles and to provide the same to the witness.  Ms Siu asked for a short adjournment.  I granted the adjournment.  After the adjournment, Ms Siu told me that the plaintiff’s solicitors could not bring back the Old Bundles, for the set in the plaintiff’s solicitors’ office had been dismantled.  I asked Ms Siu that she should have another set.  Ms Siu confirmed this, but the plaintiff’s solicitors would need time to reproduce another set.  I therefore adjourned the hearing to 2:30 pm on day 2.  I told the plaintiff’s solicitors that I might make a wasted costs order in respect of wasting 1½ days of the court time.  I also required the plaintiff’s solicitors to show cause as to why a wasted costs order should not be made, and I would hear the plaintiff’s solicitors on day 3 after hearing the final submissions.  

57.  The plaintiff’s solicitors provided 2 letters to this court on day 3, one is the letter of the law firm and the other is a letter of a paralegal (“the paralegal”) working in the firm.

58.  The law firm in their letter offered apologies to the court.  As the handling solicitor, Mr AM Mui, was out of town, the law firm offered an explanation in writing.  The gist of the explanation is that all the problems were caused by a clerk (“the clerk”) of the law firm, who has tendered her resignation on 13 April 2017.  Notwithstanding the repeated and continuous reminders given by the handling solicitor, the clerk still committed all the mistakes. 

59.  The paralegal in her letter also offered apologies to the court.  She said that after the hearing on day 1, she and her 2 other colleagues working in the law firm until about 5:30 am on day 2 to try to rectify all the problems. They have tried their best to solve the problems.

60.  The principles concerning wasted costs orders have recently been summarized by HH Judge Andrew Li in Mir Moazzam v SJ for and on behalf of Director of Immigration, Subhan v SJ for and on behalf of Director of Immigration, Rana Shahzad Ahmed v SJ for and on behalf of Director of Immigration, Ahmed Zaheer v SJ for and on behalf of Director of Immigration, and Dhiman Jasvir v SJ for and on behalf of Director of Immigration (DCCJ 4591/2014, DCCJ 4751/2014, DCCJ 327/2015, DCCJ 341/2015, DCCJ 1616/2015, 24 August 2016), in which the learned judge said:-

“15. The jurisdiction of the court to make wasted costs orders can be found under s 53 of the District Court Ordinance, Cap 336 (“DCO”), which is equivalent to s 52A of the High Court Ordinance, Cap 4. “Wasted costs” is defined in s 53(5) of the DCO as “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 the legal representative, whether personally or through an employee or agent of the legal representative”. S 53(6) further defines “legal representative”, in relation to a party to any proceedings, to mean a counsel or solicitor conducting litigation on behalf of the party.

16. Such power of the court to make wasted costs orders against solicitors is founded on the solicitor’s breach of his duty to the court as an officer of the court which has a duty and right to supervise the conduct of its solicitors . The CFA has given guidance on applications for wasted costs orders in Ma So So v Chin Yuk Lun Francis and Chan Mee Yee [2004] 3 HKLRD 294, which was recently applied in Lau Kwai Kiu v Bian Xintian & Anor [2012] 2 HKLRD 954.

17. The CFA in Ma So So held at §6 that:-

“In considering the exercise of the jurisdiction under this rule [ie O 62, r 8], the court should approach the matter by dealing with the following questions:-

(1) Whether the solicitor was responsible for (i) acting improperly or without reasonable cause or (ii) for undue delay or any other misconduct or default in any proceedings.

(2) Whether such conduct of the solicitor caused costs to be incurred or wasted. This is a question of causation. The causal link between the solicitor’s conduct and the extent of costs incurred or wasted must be established.

(3) Whether the court should exercise its discretion to make an order.”

See: Chan Wai Tung v Tang Kwok Kwong & Ors, unreported, DCPI 1503/2007, 20 October 2010; Yau Chiu Wah v Gold Chief Investment Ltd [2003] 3 HKLRD 553; Ma So So v Chin Yuk Lun Francis and Chan Mee Yee, supra; Lau Kwai Kiu v Bian Xintian & Anor, supra.

18. The jurisdiction should be invoked in clear cases, but it does not depend on dishonesty, personal obliquity or behavior such as would warrant disciplinary action being taken, and that while mere mistake or error of judgment may not necessarily be enough, “misconduct, default or even negligence which is serious and gross” may be sufficient.  It may be conduct which involves a failure on the part of the solicitor to fulfill his duty to the court and to realize his duty to aid in promoting in his own sphere on the cause of justice.  The conduct must be inexcusable and such as to merit reproof.  The test is whether the conduct amounted to a serious dereliction of duty.  See: Chan Wai Tung v Tang Kwok Kwong & Ors, supra; Yau Chiu Wah v Gold Chief Investment Ltd, supra; Hong Kong Civil Procedure 2016, Vol 1, pp 1184-5, §62/8/1.

19. When exercising its discretion as to costs, including a wasted costs order, according to O 62, r 5(1)(aa) of the Rules of the District Court (“RDC”), the court should also take into account the underlying objectives set out in O 1A, r 1 of the RDC.  The underlying objectives include:-

“(a) to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the court.

…

(d) to ensure fairness between the parties.

…

(f) to ensure that the resources of the court are distributed fairly.”

20.    In terms of procedure, under O 62, r 8B of the RDC, there are two stages.  In the first stage, the court must be satisfied that it has before it, evidence or other materials which, if unanswered, would be likely to lead to a wasted costs order being made.  In the second stage, the court shall consider the reasons given by the legal representative when deciding whether it is appropriate to make a wasted costs order.”

61.  I would add that the court is also required to consider in the first stage that the wasted costs proceedings are justified notwithstanding the likely costs involved.  See Rules of the District Court, Order 62 rule 8B(1)(a)(ii).

62.  I am of the view that, in the circumstances described above, a wasted costs order with the following terms (“the Wasted Costs Order”) is justified in the absence of any satisfactory explanation from the plaintiff’s solicitors:-

(a)   the costs of the preparation of the Old Bundles be disallowed as between the plaintiff’s solicitors and the plaintiff;

(b)   the costs of the hearing on day 1 of the trial be disallowed as between the plaintiff’s solicitors and the plaintiff;

(c)   the costs of the hearing on the morning on day 2 of the trial be disallowed between the plaintiff’s solicitors and the plaintiff;

(d)   the costs of one refresher for retaining the counsel for the plaintiff be disallowed between the plaintiff’s solicitors and the plaintiff; and

(e)   the plaintiff’s solicitors shall indemnify the defendant against the costs incurred by the defendant in relation to the hearing on day 1 and the hearing on the morning of day 2 of the trial.

63.  My reasons for the Wasted Costs Order are as follows:-

(a)   In any trial, there should be one and not two sets of trial bundles. Having two sets of trial bundles here is due to the carelessness of the plaintiff’s solicitors in the preparation of the trial bundles.  In these circumstances, the plaintiff’s solicitors should be disallowed of having the costs of the preparation of the Old Bundles.

(b)   In the circumstances described above, the first 1½ of the trial have been wasted due to the chaotic situations created by problems of the trial bundles prepared by the plaintiff’s solicitors.  If the trial bundles have no problem at all, the trial can definitely be finished within 1½ days.  In other words, half of the time in the trial has been wasted.

(c)   I note that some of the time in day 1 was taken by Ms Siu for making the opening speech.  However, that opening speech was very brief.  Further, if no time has been wasted, even including the time for the opening speech, the trial can still be finished within 1½ days.

(d)   Accordingly, the plaintiff’s solicitors should not be entitled to charge the plaintiff for the costs incurred in day 1 and in the morning of day 2.

(e)   Similarly, the costs incurred by the defendant in relation to the hearing on day 1 and the hearing in the morning on day 2 are costs wasted as a result of the improper preparation of the trial bundles by the plaintiff’s solicitors.  The plaintiff’s solicitors should therefore indemnify the defendant against these costs.

(f)   If no time is wasted, the plaintiff would only need to pay the brief fee and one refresher for retaining counsel.  As a result of wastage of time caused by the improper preparation of the trial bundles by the plaintiff’s solicitors, there need to be one more refresher paid to counsel.  The plaintiff’s solicitors should not be allowed to charge the plaintiff for this refresher. However, that does not mean that counsel cannot get this refresher.  As said by Seagroatt J in Cheng Ma Choi v Tai Fong Textiles Finishing Work Ltd. (HCPI 563/1995, 1 March 1999) on p 10, “[i]t must be remembered that counsel’s fees are incurred by the solicitors who instruct them and there lies the primary and only responsibility.”  The effect of my order is that the plaintiff’s solicitors have to personally bear and pay this refresher to counsel.

64.  I am of the view that the impropriety in the preparation of the trial bundles by the plaintiff’s solicitors is clear and indisputable, and is definitely a serious problem.  I have offered an opportunity to the plaintiff’s solicitors to show cause, and the plaintiff’s solicitors have offered written explanations.  The costs involved in the wasted costs order proceedings are minimal.  I am satisfied that the wasted costs proceedings here are justified notwithstanding the likely costs involved.

65.  I have considered the explanations offered in the law firm’s letter and the paralegal’s letter.  I am not persuaded that the Wasted Costs Order should not be made because of these explanations.

(a)   The handling solicitor, being the partner and sole proprietor of the law firm, is responsible for the acts and omissions of all his staff.  In the Hong Kong Solicitors’ Guide to Professional Conduct published by the Law Society of Hong Kong, it is expressly provided in §2.03 that: “A principal is prima facie responsible for the acts or omissions of his firm and this extends to the acts or omissions of his partners and staff.”  Commentary No 1 under that paragraph provides: “A principal cannot escape responsibility for work carried out in the course of his practice by leaving it to his staff, however well qualified.”

(b)   The handling solicitor puts the blames on the clerk who is leaving the law firm.  However, even if all the problems are caused by the clerk, the handling solicitor himself cannot escape responsibility, for the clerk is assisting him.  The handling solicitor should be responsible for all the acts and omissions of the clerk in the preparation of the trial bundles.

(c)   The paralegal said that she and her colleagues had tried to rectify the problems concerning the trial bundles after the hearing on day 1 and they had tried their best.  However, it should be the handling solicitor taking all the necessary steps to ensure that all the trial bundles are prepared properly at a time reasonably before the trial, including deploying sufficient manpower and entrusting the task to the experienced staff.

(d)   Notwithstanding the explanations offered, I am of the view that the handling solicitor should personally be responsible for the wasted costs as provided in the Wasted Costs Order.

66.  Having considered all the circumstances, I come to the conclusion that the Wasted Costs Order should be made.

Conclusion

67.  I make the orders as set out in paragraphs 47, 48, 51 and 62 above.

68.  I thank Ms Siu and Madam Lau for the assistance given to this court.