XCHRX MICHAEL SIVAN v. KWOK CHI KEUNG PAUL AND ANOTHER

HCA 8228/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8228 OF 1996

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REASONS FOR DECISION

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1. On 4 December 1998, Stone J after a trial made the following orders:

1) an account to be taken as to the monies received by the 1st Defendant, Mr Kwok from the 2nd Defendant, Leason Enterprises Limited ("Leason") arising out of a judgment in HCA No. 11029 of 1994 ("1994 action");

2) payment to be made from Mr Kwok to the Plaintiff Mr Sivan of such amount found to be due on the taking of the account as aforesaid less expenses properly incurred in the prosecution of the 1994 action.

2. On 2 November 1999, a Master of the High Court adjudicated that Mr Kwok received the sum of $787,000.00 from Leason in the 1994 action. She also found that only a sum of $2,250.00 should be deducted as expenses properly incurred in the prosecution of the 1994 action.

3. Mr Kwok considers the Master's decision to be erroneous. He now appeals against that decision, having earlier obtained from this Court leave to appeal out of time.

4. It may be necessary to briefly set out the history of this matter. Leason was set up by Mr Sivan and Mr Kwok who hold 45% and 55% of its shares respectively.

5. In 1994, Leason commenced the 1994 action against the partners of one Pilot Flight System Company ("Pilot") with the consent of Mr Sivan and Mr Kwok.

6. There appears to be no dispute that the Mr Kwok funded the litigation. There is the suggestion from Mr Kwok that Mr Sivan had initially contributed $6,000.00 but this sum was subsequently refunded by Leason to Mr Sivan.

7. In the 1994 action, summary judgment was sought by Leason against Pilot but that application was rejected by Master Woolley.

8. Cheung J allowed an appeal by Leason against the order of Master Woolley and granted judgment in favour of Leason against Pilot, for the sum of US$150,000.00 and HK$12,000.00, which was said to be travelling expenses incurred by Mr Kwok.

9. Pilot did not settle the judgment sums and one of its partners, a Mr Yu Kwok Nam, tried to dispose of his property which prompted Leason to take out an injunction application as well as bankruptcy proceedings against the partners of Pilot.

10. Eventually, after some negotiation Leason compromised with Mr Yu. A consent order was filed in the 1994 action on 26 June 1995. According to the consent order, Mr Yu agreed to pay Leason US$90,000.00, HK$12,000.00 and legal expenses of HK$300,000.00 in full and final settlement of the judgment granted against Pilot by Cheung J. The aforesaid judgment sums and costs were to be paid by instalments over a period of about 9 months.

11. Mr Kwok says that pursuant to this consent order the sum of $786,000.00 only was received on behalf of Leason from Pilot. In one of his earlier affirmations, the figure of $788,000.00 was added up as a result of mistake in the calculation.

12. He fails to understand why the Master could have come to the conclusion as she did that $787,000.00 was received but he does not wish to pursue this aspect and is happy to have the figure of $787,000.00 remained intact and not to be interfered with.

13. But it is Mr Kwok's contention that of the payment received from Pilot, the then solicitor for Leason deducted and kept $85,000.00 as partial payment of the legal fees. He paid a further sum of $230,000.00 to the solicitor as legal fees making a total payment of $315,000.00 of which about $85,000.00 was counsel's fee.

14. It is fair to say that at least at this stage that the payment for the legal fees is well documented with fee notes, receipts and bills of costs, although such documents were not available at the hearing before the Master.

15. There can be no dispute that Leason was legally represented in the 1994 action and counsel was instructed throughout the proceedings.

16. Indeed the consent order indicates that Pilot was prepared to pay an agreed legal costs of $300,000.00 to Leason as part of the settlement.

17. As I have observed in the course of parties' submissions, unless the solicitor was to do the job free of charge, the figure of $315,000.00 appeared not to be an unreasonable figure.

18. There might have been negligence or oversight on the part of Mr Kwok and his solicitor in not presenting before the Master the necessary documents to support the claim for the legal expenses, but it is difficult to understand how the Master could have concluded as she did that only $2,250.00 had been incurred as legal expenses in the prosecution of the 1994 action.

19. In the light of the undisputed fact that there had been prolonged proceedings and the fact that Leason had been represented by solicitor and counsel throughout the 1994 proceedings, the Master's conclusion in granting a figure of $2,250.00 only on the basis that there had been no document to support the claimed legal expenses perhaps was too harsh an approach to take.

20. In any event, Mr Kwok has now produced almost conclusive evidence to show that legal costs of $315,000.00 had indeed been incurred which figures are not really being challenged by Mr Sivan although he claimed not to have been fully informed at the material time.

21. On the only issue that I have to resolve, namely what is the expenses reasonably incurred in the prosecution of the 1994 action, I think justice demands that the aforesaid legal costs must be allowed to be deducted from the amount received by Mr Kwok from Pilot.

22. To insist on the strict rules of evidence and refuse to allow Mr Kwok to adduce the fresh evidence in support of his claim, in my view, would not achieve justice in the matter. This must not of course be taken as an encouragement for any party not to follow the rules of evidence.

23. On the issue that I have to resolve, I find that the expenses reasonably incurred in the prosecution of the 1994 action is a figure of $315,000.00 and that figure has to be deducted from the amount received from Pilot before distribution can be made to Mr Sivan in accordance with his shareholding.

24. The appeal is allowed and the order of the Master is set aside. I make an order in terms of para. 1, (a), (b), (c), (d) and (e) as set out in the Notice of Appeal with the amendment as indicated.