FULL COUNTRY DEVELOPMENT LTD. v. NG ARCHITECTS & ASSOCIATES LTD.

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 45
(Civil)

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J U D G M E N T

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Nazareth, V-P:

1. The question now before this Court is whether a wasted costs order under O62 r8 of the Rules of the High Court should be made against Mr Wilson Yeung of Ng, Yeung & Partners, formerly Wilson L Yeung & Co, the plaintiff's solicitors.

2. That question has arisen in the following way. The plaintiff in the substantive action below is a land development company which entered into an agreement with the defendant company for the latter to provide architectural services and advice on the development of land owned by the former. The plaintiff commenced its action in negligence for breach of a consultancy agreement subsequently entered into. On the second day of the trial, the plaintiff was granted leave to withdraw its claim and the trial proceeded solely on the defended counterclaim. Deputy Judge Gill who heard the matter in the Court of First Instance gave judgment against the plaintiff in the sum of $717,750 together with interest at 5% per annum and ordered the plaintiff to pay the defendant's costs upon the indemnity basis. In doing so, he referred to the plaintiff's "appalling conduct" including the not less than three unless orders made against the plaintiff. However, what is significant in the context of the present question is the following observation the judge made:

"Lest more is read into this than is intended I should mention that this criticism does not extend to the plaintiff's present solicitors or those briefed in the trial, who were instructed at a very late stage and forced to act in difficult circumstances."

3. Accordingly, as Mr Peter Ho who appeared for Mr Yeung on the question of a wasted costs order stressed, the latter had nothing to do with matters that had transpired before he came into the picture very late in the proceedings.

4. The judgment was handed down on 4 December 1997. On 13 February 1998 Mr Yeung took out a notice of appeal on behalf of the plaintiff, appealing to this Court against the order of Deputy Judge Gill on two grounds. First, that the judge erred in holding that the Building Plans in the appointment letter did not include other plans such as drainage, superstructure and piling plans. Second, that the judge erred in failing to apply the quantum meruit test to the claim of the defendant.

5. On 27 February 1998 the Clerk of Court wrote to the parties asking for representatives to be sent to his office on 9 March 1998 for the purpose of fixing the hearing date of the appeal. On 7 March 1998 Mr Yeung replied in the following terms:

"We refer to your letter dated 3 March 1998 and inform you that we are not in a position to fix the date for hearing as we are advised by our Counsel that the transcript of the trial before Deputy Judge Gill has not been ready. We shall therefore be obliged if you could cancel the date of fixing the appeal date until the trial transcript is available to us."

The plaintiff's solicitors did not attend on 9 March 1998, and no date was fixed. On 17 March 1998 the defendant's solicitors enquired of the plaintiff's solicitors whether they had applied for a transcript and if not, what the reason was for the delay. Ultimately, the parties attended on 7 April and the hearing of the appeal was fixed for 16 June 1998. By Thursday, 11 June, i.e. five days before the hearing date, court staff became concerned about whether the plaintiff would be proceeding with its appeal. They made several telephone calls to Mr Yeung's office on 11, 12, and 15 June. At first they were informed that there was some difficulty about getting instructions. Later they were told the client might not wish to proceed. On the morning of Monday, 15 June on telephoning, they were informed that the appellant wished to withdraw. They accordingly informed Mr Yeung that it was necessary to put in a consent summons for dismissal. This, they were told, would be done but in the event no consent summons was received in the course of the day. On the following morning, the day of the hearing, a bundle was received from the defendant's solicitor about 9.30 a.m.

6. When the appeal came on at about 11.15 a.m., Mr Yeung appeared and explained that his client wished to have the appeal dismissed with costs against the client but that he, Mr Yeung, was personally concerned as he had learnt that the defendant proposed to apply for the plaintiff's solicitors to be made personally liable for the costs upon an indemnity basis.

7. We accordingly dismissed the appeal. Mr Simon Chiu, for the respondent, applied for costs upon the indemnity basis and also for an order that the plaintiff's solicitors be ordered to meet them personally. His grounds, he said, were dereliction of duty by Mr Yeung in failing to obtain the transcript and yet allowing the appeal to be set down for hearing and to come on for hearing without applying for an adjournment. The defendant's solicitors, he said, enquired from Mr Yeung whether he had applied for the transcript and if so, when; but they had not received any reply. Mr Yeung, for his part, seemed somewhat evasive about this, saying that counsel had asked for a transcript. It appeared, however, that counsel had not been briefed and had only tentatively been approached. When the Court asked when precisely the transcript was requested, Mr Yeung appeared uncertain but thought it was 27 March 1998. This was subsequently agreed to be the earlier date of 25 March.

However, the Court then becoming concerned at the way the matter was developing and also having regard to a request by Mr Yeung for an adjournment to enable him to be represented by counsel, the Court adjourned the matter to a date to be fixed, at the same time directing the defendant to communicate in writing to both the Court and Mr Yeung the grounds upon which they sought a wasted costs order against Mr Yeung; that the defendant did in the course of a few days. The adjourned hearing took place on 22 December when Mr Peter Ho appeared for Mr Yeung. The defendant's grounds and submissions as advanced by Mr Chiu broadly raised two points. First, that although Mr Yeung came to act for the plaintiff late in the proceedings below, he could not have been unaware of the delaying tactics it had employed in those proceedings. Four unless orders had been applied for and three secured to compel the plaintiff to proceed with the case during its interrogatory stages, and the court below had in the event ordered the costs of the action to be paid by the plaintiff on the indemnity basis together with substantial damages. The plaintiff then continued to pursue the same delaying tactics in the appeal. It instructed Mr Yeung to lodge a notice of appeal in February 1998 but it totally failed thereafter to brief counsel to advise let alone appear in the appeal. It instructed Mr Yeung not to enter an appearance before the Clerk of Court on 9 March 1998 for the fixing of a hearing date. It did not instruct Mr Yeung to obtain transcripts of the proceedings below or provide funds for that to be done. It instructed Mr Yeung to seek a vacation of the hearing set down for 7 April 1998. After the date of the appeal was fixed on 7 April 1998 it still did not instruct him to obtain a transcript, to lodge documents or retain counsel. Finally, it only instructed Mr Yeung to withdraw the appeal on 15 June 1998 with costs to the defendant, when, on Mr Yeung's admission, the plaintiff's company was completely out of funds to meet costs. In the absence of any explanation of the foregoing matter, Mr Chiu submitted that clearly there was never any serious intention on the part of the plaintiff to pursue its appeal against the defendant from the very start; that it must have known that legal expenses and costs would inevitably be incurred by the defendant; that it could not have been unaware that it was out of funds, and that the charging orders secured by the defendant on the plaintiff's properties were completely useless since they had all already been disposed of. In reliance upon Overseas Trust Bank Ltd v Coopers & Lybrand [1991]1 HKLR 177 he submitted there was a clear case against the plaintiff for costs upon the indemnity basis.

8. Turning to his second broad point, he made it clear that the defendant's application was made under O62 r8 of the rules of the High Court upon the basis that Mr Yeung had acted in serious dereliction of duty that he owed to the court and that this failure occasioned the wasted costs, which Mr Yeung should therefore be ordered to pay. He submitted that Mr Yeung's letter of 7 March 1998 particularly the sentence "we are advised by our Counsel that the transcript of the trial before Deputy Judge Gill has not been ready" clearly implied that:

(i) The plaintiff had retained counsel to advise when, on Mr Yeung's own admission, it had not; and

(ii) An attempt had been made to obtain the transcript when, again on Mr Yeung's admission, this was not done until 25 or 27 March 1998.

Further, Mr Yeung failed to attend before the Clerk of Court on 9 March 1998 without explanation or excuse. Despite a letter from the Clerk of Court on 10 March 1998 requesting Mr Yeung to inform the defendant when the appeal was ready for listing, Mr Yeung failed to answer the enquiries upon that matter made by the defendant in its letter of 17 March 1998 about the obtaining of the transcript. In a letter dated 3 April 1997 Mr Yeung informed the defendant's solicitors that he was "advised by the staff of High Court that the transcript of the trial ... is not available at the moment" when in fact, on his own admission, Mr Yeung had not at any time been put in funds by the plaintiff to obtain the transcript. Despite all of that Mr Yeung failed at any time thereafter to put right the false impression he had given the defendant's solicitors that he was seeking in earnest to obtain the transcript when clearly he was not.

9. After 7 April 1998, Mr Chiu's submission continued, Mr Yeung had in fact no instructions to proceed with the appeal but failed to withdraw his representation of the plaintiff which he clearly should have done at the latest by early June 1998. He continued to leave his firm's name on record as the plaintiff's solicitors in the appeal thus warranting the appeal as being on foot.

10. Finally, Mr Chiu submitted that Mr Yeung failed to keep this Court informed of the reasons why no documents were filed for the hearing and showed scant consideration for the Court's time that would be wasted in failing to point out to the defendant the need to vacate the hearing until the day before i.e. 15 June 1998.

11. The crux of Mr Chiu's submission were that Mr Yeung knew that the plaintiff had no funds to satisfy costs orders let alone the judgment. As the solicitor for the plaintiff in the court below at the time the costs order was made against it, Mr Yeung knew about the admonition and displeasure of the court below against the oppressive manner in which the plaintiff had conducted its case. Notwithstanding all the foregoing Mr Yeung nevertheless still allowed his continued representation of the plaintiff to exacerbate the defendant's costs up to the day before the hearing while he could not have been unaware that the bulk of the defendant's legal costs in the appeal could have been avoided had it been timeously withdrawn or even if the defendant had been timeously informed that it was to be withdrawn.

12. In response to Mr Chiu's submissions, clearly disclosed by the defendant's grounds submitted to the Court and the plaintiff's solicitors on 17 June 1998, in response to the Court's direction given on the day before, Mr Ho made the following submissions. He accepted, first of all, the test to be applied to a wasted costs order is contained in the following words of Lord Lane CJ in Holden & Co v C.P.S. (CA) [1990]2 WLR 1137; 1141:

"We would define the conduct which gives rise to this jurisdiction as any conduct of a solicitor which involves a serious dereliction on the part of the solicitor of his duty to the court."

However, he stresses that Lord Lane went on to state that:

"That formulation takes account of the dictum of Lord Denning MR in R.T. Thew Ltd v Reeves (No.2) (Note) [1982]1 QB 1283, 1286:

'The cases show that [the jurisdiction] is not available in cases of mistake, error of judgment or mere negligence. It is only available where the conduct of the solicitor is inexcusable and such as to merit reproof.'"

The emphasis he placed upon Lord Denning's dictum, which he amplified by reference to other authorities to which I do not find it necessary to refer, foreshadowed his submission that Mr Yeung was only guilty of an error of judgment or was merely negligent, and that a wasted costs order against him was not warranted.

13. Mr Ho sought to make good that contention by contending first of all that the words "the transcript ... has not been ready" in Mr Yeung's letter of 7 March 1998 was simply "inelegant language". The rest of Mr Yeung's correspondence, it has to be said, does not betray that sort of inelegance. Nor, when it was quite apparent to him that the defendant's solicitors had construed the letter to mean that the transcript had been sought but could not be obtained, he did nothing whatsoever to clarify the position or indeed to terminate the continued subsistence of the appeal or his representation upon the unsatisfactory basis that by then should have been perfectly clear to him. On his own admission, he had been acting for the plaintiff in other matters and knew something of their circumstances, so he must have been aware of their financial situation.

14. Mr Ho's next point is that Mr Yeung should be judged in the context of the particular circumstances. He was under considerable pressure from his clients to pursue the appeal, it seemed to him that there was something in the appeal and that the efforts of his clients to find funds might meet with some success and that he was concerned that he should not deny the clients their opportunity to appeal. All of that, he submitted, was in the nature of an error of judgment or mere negligence. Having regard to the points made by Mr Chiu, which I do not find it necessary to repeat or to canvass, I cannot accept that Mr Yeung's conduct amounted merely to an error of judgment or mere negligence. He should first of all have been alive to what the plaintiff can now clearly be seen to have been doing, i.e. delaying matters and pursuing an appeal which it had no real prospects of sustaining financially or indeed in terms of merit. The only grounds mentioned in the latter regard disclosed no merit nor was any attempt made to suggest that they did. Mr Ho contended that Mr Yeung owed no duty to the defendant. It does not seem to me that the order sought requires any support in that way. It seems to me that Mr Yeung was clearly in serious dereliction of his duty to the Court in not bringing the appeal to a very much earlier end or at least in terminating his association with it which would have had the same effect. In reaching that conclusion, I do not find it necessary to rely upon his letter of 7 March 1998, notwithstanding the serious view I take of it. That is quite sufficient to warrant an order that the defendant's costs upon the indemnity basis be paid by Mr Yeung. It is an aggravation of that dereliction of duty that when court staff sought to obtain clarification of the position, with the hearing of the appeal less than a week away, Mr Yeung was unhelpful, and more to the point, failed to take appropriate steps that might have saved the costs of the hearing or a substantial part thereof.

Causation

15. Mr Ho submits that even if there were a serious dereliction of duty, such dereliction must have caused the waste of costs. He relies upon the dictum of Bingham MR (as he then was) in Ridehalgh v Horsefield [1994]3 WLR 462, 482:

"As emphasised in In re a barrister (Wasted Costs Order) (No. 1 of 1991) [1993]1 QB 293 the court has jurisdiction to make a wasted costs order only where the improper, unreasonable or negligent conduct complained of has caused a waste of costs and only to the extent of such wasted costs. Demonstration of a causal link is essential. Where the conduct is proved but no waste of costs is shown to have resulted, the case may be one to be referred to the appropriate disciplinary body or the Legal Aid authorities, but it is not one for exercise of the wasted costs jurisdiction."

That passage has to be understood with reference to the relevant statutory provision there. This was s.51 of the Supreme Court Act 1981 which in subsection (6) provided that "'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 ...". The Hong Kong provision i.e. O62 r8 provides in paragraph (1) that:

"... 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-

...

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

Notwithstanding the different provisions, it seems to me that even here a causative link between the serious dereliction of duty and the costs wasted is necessary. Mr Ho submits that no causative link has been established since there is no evidence that the plaintiff would not have gone on with its appeal even if Mr Yeung had withdrawn. That submission is misconceived. Upon the wording of O62 r8(1) it seems to me that the necessary causative nexus is amply established by Mr Yeung keeping the appeal on foot from the very outset and this being a significant causative factor in the costs wasted by the appeal.

Ulterior motive

16. By reference by Symphony Group Plc v Hodgson [1993]3 WLR 830, 842 Mr Ho submitted that the judge should have been alert to the possibility of the defendant's application being motivated by resentment caused by an inability to obtain an order for costs that would be likely to be recovered. He submits that although the plaintiff is not legally aided, there may be a danger enforcing the costs order against the plaintiff. Having considered that danger, it does not seem to me to be good cause in the circumstances here not to enforce the order. Mr Ho also made other submissions of legal nature concerned with the necessity for direct evidence on a charge of misconduct against a solicitor, that solicitors do not owe a duty to the opposing party, and that solicitors do not warrant the solvency of their clients. I do not find it necessary to address those submissions as they do not seem to me to have any significant application here.

17. Mr Ho also submitted , in reliance of Ho Lee Man v Wong Wai Kat (No. 2) [1993]1 HKC 183, 196 that it would be an unfortunate development if firms employing young solicitors should adopt a practice of requiring an indemnity from such young solicitors to provide against liability for costs as a result of some erroneous step they may take in the litigation. If that authority or the assistance sought to be derived from it, is of any value in the present context, it must lie in eliminating what can only an irresponsible act in the part of Mr Yeung in assigning the matter to a newly qualified solicitor. I do not find the authority or more particularly the use to which it is sought to put it, of any assistance at all.

Status of the defendant

18. Mr Ho's last point concerned a matter that apparently escaped the attention of the directors of the defendant and its advisers (as it did the attention of the plaintiff's advisers). The returns that had to be made by the defendant under the Companies Ordinance and like formalities were entrusted to a junior partner who failed to make certain annual returns. In consequence the defendant was struck off the Register of Companies on 29 August 1997. Accordingly, Mr Ho submitted, it had no capacity to make any application for costs. Mr Chiu's response was that the point had also been overlooked on the defendant's side but that the directors had since applied for the registration to be restored, explaining the technical oversight. The Registrar of Companies had at that time yet to deal with the application. Mr Chiu therefore applied for an adjournment. It seemed to the Court that the restoration of the defendant to the Register of Companies would retrospectively restore the position of the defendant and furthermore that there was good reason why the defendant should be allowed an adjournment of a reasonable period. We accordingly adjourned the matter despite Mr Ho's objections and submissions.

19. Before the resumed hearing on 25 February 1999, it became clear from the material submitted that the defendant company had been restored to the Companies Register on 22 January 1999. The result, it is not disputed, is that envisaged before the adjournment i.e. that the company has in effect been retrospectively restored to the Register for the entire period it was struck off.

20. During the period of the adjournment, Mr Yeung lodged a notice of motion for leave to adduce a second affirmation. At the resumed hearing, we were told by Mr Kenneth Kwok SC, who then appeared for Mr Yeung, that the purpose of the further affirmation was to apologise yet again to the Court and to provide further explanation of the circumstances. The submissions of counsel having already been completed at the previous hearing of 22 December, it was only with reluctance that we granted leave for the second affirmation to be admitted in evidence. But we did not permit further submissions.

21. It remains then to assess the effect of the period of de-registration, in particular upon the foregoing conclusions. It seems to me that this can perhaps most effectively be done by reference to the 3 stage test that is commended in paragraph 62/11/3 of Volume 1 of the 1999 edition of the Supreme Court Practice:

"(a) Had the legal representative of whom complaint was made acted improperly, unreasonably or negligently?

(b) If so, did such conduct cause the applicant to incur unnecessary costs?

(c) If so, was it, in all the circumstances, just to order the legal representative to compensate the applicant for the whole or part of the relevant costs?"

As to the first question, for my part, I cannot see how the conclusion that Mr Yeung was in serious dereliction of his duty, or to put it in another way, grossly negligent, can be undermined or affected by the de-registration of the defendant company or, indeed, its lapse which had that result, even if negligent. Certainly I see little room for the misconduct or negligence of Mr Yeung to be offset by the negligence of the defendant's solicitors; the latter is relatively minute and in any case balancing the comparatively negligence would be misconceived.

22. Turning to the second question, the wasted costs must be those that were unnecessarily incurred by the defendant by reason of Mr Yeung's misconduct or negligence. As already indicated, it seems to me that all the costs incurred by the defendant following the time when it must have been apparent to Mr Yeung that the plaintiff could not fund even counsel's brief fees, are wasted costs unnecessarily incurred by the defendant and caused by Mr Yeung's conduct.. This would, of course, straddle the period of de-registration. However, I cannot see that the de-registration in fact prevented the defendant incurring costs which would have been avoided by the timeous termination of the appeal. That the defendant company was de-registered does not affect that view, a fortiori, given the retrospective of the restoration of registration. In any case, there is no suggestion that any costs were incurred by the defendant during that period. As to whether those unnecessary costs were caused by the offending conduct, there seems to me to be no doubt about that since the appeal would otherwise have terminated and those costs thereby avoided.

23. As to the third question, I have to say that in my view, in all the circumstances, it would have been just to order Mr Yeung to compensate the defendant for that part of the relevant costs that his conduct caused.

24. For my part therefor, I would make the wasted costs order sought, but only to the limited extent to which those costs were caused by Mr Yeung's conduct.

Liu, JA:

25. I gratefully adopt the outline facts set out in the judgment of the Vice-President. Adverse findings of professional neglect must be supported by clear and cogent evidence. The plaintiff's solicitor would seem to be guilty of conduct serious enough to be mulcted in costs as from the date when he could have entertained no real hope of retaining counsel for prosecuting the appeal, but one must not wholly lose sight of reality. The defendant was at the material time struck off the Companies Register. But for their oversight, solicitors for the defendant could not have claimed to represent the defendant limited company. At the hearing of this appeal, they would have had to seek an adjournment with costs to the plaintiff for making an application for restoring the defendant to the register, however neglectful or dilatory the plaintiff's solicitor had been. With the revelation of the plaintiff's stance in the appeal, before a resumed hearing subsequent to the defendant's restoration to the Register of Companies the proceedings could have been disposed of by consent without further court attendance. Therefore, by the time the defendant company had itself reinstated for a resumed hearing, the complaints against the neglect on the part of the plaintiff's solicitor would have become stale and its wasted-costs effect spent.

26. The impact of reality was best felt at the last hearing to show cause when solicitors and counsel who had thitherto purported to represent the defendant merely sought only to act for the architects, not the defendant company. The architects were not themselves parties to this appeal. The hearing had to be ultimately deferred, awaiting the outcome of the defendant's pending application for restoration.

27. Strictly as a matter of procedure, but for their inadvertence which could easily have been avoided with due diligence, solicitors and counsel for the defendant would not have held themselves out to be acting for the defendant which was defunct. Solicitors and counsel inadvertently purported to act for the defendant which had been struck off and in that capacity they sought costs against the plaintiff's solicitor. At the time they had no locus standi, albeit the restoration is retrospective. Legal advisers of the defendant were at least as imperfect as the solicitor for the plaintiff. The conduct of both suffered from neglect of a procedural nature, and it is difficult to judge whose conduct was more culpable.

28. The charge against the solicitor for the plaintiff would seem to be grave, but unless a case could be clearly made out in favour of the defendant whose legal representatives were likewise neglectful, this court should not have been invited by those purporting to act for a company struck off the register to invoke O. 62 r. 8(1). Neither of the legal advisers could be said to be wholly blameless. Both were at fault. These are proceedings for wasted costs, not an inquiry with a view to making a complaint to the Law Society. In the final analysis, it would only be fair, in my view, to make no further order as to costs apart from those already awarded.

Mayo JA:

29. In my view conduct of the nature complained of and substantiated would normally justify an order being made against a solicitor pursuant to Order 62 Rule 8(1).

30. The solicitor can consider himself fortunate that through inadvertence the Defendant had been struck off the Register. I accept that in the particular circumstances of this case that no further orders should be made for costs.

Nazareth V-P:

31. By a majority, therefore, the appeal is dismissed with no order as to costs.