NGO TAI HONG v. JOHN DAVID ANDREW AND ANOTHER

HCA7988&7929/2000(Consolidated),
HCA 7927/2000,HCA7928/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. HCA 7988 & 7929 OF 2000 (Consolidated),
HCA 7927 OF 2000, HCA 7928 OF 2000

_______________________

_______________________

__________________

J U D G M E N T

__________________

1. This is an appeal from an order of Master Jack Wong made on 19 August this year whereby he gave the solicitors' firm Deacons leave to cease to act for the Defendants, who are also solicitors, in three related actions in which the Defendants are said to have acted negligently in the conduct of conveyancing instructions on behalf of the Plaintiffs in these actions.

2. This appeal raises an important and interesting point as to the true construction of Order 67, rule 6, Rules of the High Court. Mr Ismail, who appears for the Defendants, submits that the way the rule is designed to operate is that the solicitor first ceases to act and he then applies to the court to withdraw from the case by coming off the record. He gets support for this construction from a decision of the High Court of Australia in Plenty v Gladwin [1986] 67 ALR 26. This construction of the rule has been adopted in Hong Kong by Keith J, as he then was, in Aqua Leisure Industries Inc v Aqua Splash Limited No. 1 [1999] 3 HKC 338.

3. The rule, on its true construction, has no application to circumstances where a solicitor has not ceased to act but wishes to cease acting and so comes to court for leave to cease acting, as opposed to coming off the court record. To bring himself within the rule, a solicitor must demonstrate that he has in fact ceased to act by the time that he has issued his summons, and then appears before the court for leave to withdraw from the case.

4. The facts of Plenty v Gladwin do not matter, but the interpretation of Order 7 rule 7(1) of the High Court Rules in Australia, identical to Order 67 rule 6 in Hong Kong, is to be found at page 26, lines 20 to 50 of the report, which I should set out in full.

"In support of his appeal, which he argued in person, Mr Plenty emphasised that Order 7 rule 7(1) conferred a discretion on the court or a justice in determining whether or not to make the order sought and that the discretion must be exercised judicially. He submitted that the Acting Chief Justice ought to have declined to make the order because there had not been any good cause shown for the solicitor ceasing to act. He referred to the decision of the Court of Appeal in Underwood, Son, and Piper v Lewis [1894] 2 QB 306 as authority for the proposition that as a general rule, a solicitor should have good cause for withdrawing his services.

The fallacy in the above arguments flows from a misunderstanding by Mr Plenty of the operation of Order 7 rule 7(1). That misunderstanding would seem to have been caused by the citation of Underwood's case in the notes to the identical rule in England. See the Supreme Court Practice 1985 Volume 1, note 67/6/2 at 1025. In fact, although cited in the context of the relevant English rule, Underwood's case has nothing to do with the operation of the rule itself. It is concerned with discussing some of the incidents that generally pertain to the relationship of solicitor and client. The purpose of the rule is quite different. Its concern is with the record of the court and with the service of documents. It comes into play when, rightly or wrongly, a solicitor has ceased to act and the party has not given notice of change of solicitor or notice of intention to act in person. The solicitor may then take steps to have his name removed from the record. The first step is by applying to the court or a justice for an order declaring that the solicitor has ceased to be the solicitor acting for the party in the proceeding.

As we have noted, the court has a discretion whether or not to make the order, but unless there are special circumstances which render it expedient to retain the solicitor on the record, the order will generally be made as a matter of course upon proof that the solicitor has in fact ceased to act for the party and that no steps have been taken to take the solicitor's name off the record. Order 7 rule 7(4) makes it plain that an order made under the rule does not affect the rights or liabilities of a solicitor and a party as between themselves."

5. As I have already observed, Keith J agreed with this construction in Aqua Leisure 341B-F supra. Mr Ismail then seeks to underline the correctness of that interpretation by referring to the terms of the court forms in England, the Hong Kong rule being identical to that in England, in Atkins' Court Forms and in Chitty & Jacob's Queen's Bench Forms relating to the wording of a summons brought under Order 67 rule 6, which is predicated and drafted on the basis that the solicitor has ceased to act and now wishes to be removed from the record.

6. Mr Bowers, who appears for Deacons, has not really sought to argue for any other construction.

7. I am satisfied that the rule contemplates that the solicitor will have first ceased to act and that thereafter he will issue a summons under the rule and ask for leave to withdraw from the case. Mr Ismail is therefore correct in his submission.

8. From this, Mr Ismail has gone on to submit that when one considers the relevant correspondence, the summons and the affirmation in support, that Deacons had not ceased to act by the time that they had issued their summons, but what they in fact did was to apply to the court for leave to cease to act. That being the case, Mr Ismail then goes on to submit that they were not entitled to make such an application and the court did not therefore have jurisdiction to make the order that it did. Consequently, the Master was wrong to have entertained their summons, and his order should now be set aside.

9. It is therefore necessary for me to examine this material with a view to deciding whether Deacons had ceased to act before the date of the summons. If they had not, the Master's order cannot stand and the appeal must be allowed. If they had, I must then go on to decide whether I should, as a matter of discretion, allow them to withdraw, or whether "there are special circumstances which render it expedient to retain the solicitor on the record..." to quote from the note to Order 67 rule 6/4.

10. A brief history will suffice. Once the Defendants had been served with the writs in the three actions, they informed the Hong Kong Solicitors' Indemnity Fund, who took over the conduct of their defences in these matters. The Fund, putting it shortly, appointed Deacons one of the panel of solicitors who act on its behalf in such matters. This was on 14 August 2000. Deacons' instructions were twofold: firstly, to represent the Defendants in these actions on behalf of the Fund; and secondly, to investigate whether the Fund had grounds to repudiate liability under the terms of the indemnity fund, they having reserved their position as to that.

11. Although nothing turns on this dual instruction for the purposes of deciding this appeal, I am bound to say that it did create a rather unfortunate state of affairs for Deacons, because on the one hand they were busy defending the negligence actions on behalf of the Defendants, whilst at the same time investigating the Defendants' conduct to see whether the indemnity fund might have grounds to repudiate liability under the terms of the indemnity policy.

12. They did both; and by October 2001 they had completed their report to the Fund on the aspect of whether there might be grounds justifying repudiation. Mr Bowers has explained that their report disclosed enough of a case to justify the Fund appointing other solicitors, Messrs Stephenson, Harwood and Lo (SHL), to carry out further investigations, leaving Deacons to concentrate on defending the actions for the Defendants.

13. SHL carried out those investigations from October 2001 until May 2002. In the meantime, the three actions progressed to an advanced stage, two of which were consolidated by an order of Master Mary Yuen on 2 April 2002. I am told that they have reached the point of being ready for setting down.

14. Then, on 30 May 2002, based on SHL's investigations and recommendations made by the managers of the Fund, the managers wrote to Deacons on behalf of the Fund informing them that indemnity had been refused. This was followed up by a further letter from the managers on 7 June 2002, confirming that indemnity be refused and that Deacons should inform the Defendants of that decision. This was done by Deacons by a letter dated 11 June 2002. (See pages 40 to 41 of the bundle). This letter, and the ones that immediately followed it, are of crucial importance in deciding whether Deacons had in fact ceased to act. I should recite the material parts of this letter, which is as follows:

"Those investigations have now concluded and a decision made by the Solicitors' Indemnity Fund Limited to refuse indemnity with respect to this claim. In accordance with that decision, Insurers are no longer in a position to cover my firm's costs in the conduct of your firm's defence of the above three actions. As such, I will be grateful if you could let me have your firm's urgent instructions with regard to the further conduct of the above three actions. Presumably, your firm will be instructing replacement solicitors to act on its behalf in its continued defence of the above three actions. In the meantime, please be informed that my firm has been instructed by insurers to refrain from taking further steps in the conduct of your firm's defence in any of the above three actions.

Whilst writing, I would highlight the fact that Insurers reserve their position generally with regard to the indemnity issue pending the completion of investigations into that issue. In my firm's letter to your firm of 18 August 2000, as stated above, those investigations have now been completed. I look forward to receiving your further instructions on the further conduct of the above three actions as a matter of urgency."

15. The Defendants then replied on 14 June 2002 (pages 43 and 44) perhaps, not surprisingly, rather angrily, with a strong rebuttal of the Fund's right to repudiate its liability to indemnify them. The letter ended as follows:

"In these circumstances, we are at a loss as to our insurer's attitude and position. In relation to our firm and in the absence of any valid and cogent reasons, we are of the view that the said decision is wholly unjustified and unwarranted. We would therefore kindly request our insurer to enlighten us as to its reasons for its said decision urgently within five days hereof. Please note that if no satisfactory response is received within the time stated, we would be left with no alternative but to consider bringing an action against our insurer and/or third party proceedings against our insurer for appropriate relief for indemnity in respect of the said claims and all attendant costs in the actions and the further litigation without reference to you or our insurer. We reserve the right to produce this letter to the court on the issue of costs."

16. Nevertheless, the letter did not respond to Deacons' request to give them "further instructions on the further conduct" of the actions. This letter of 14 June had been copied to the managers, who replied directly to the Defendants on 19 June, (pages 78 and 79), saying that it was not their policy to provide reasons for repudiating the indemnity policy and drawing attention to the arbitration provisions in the event of a dispute on such matters contained in the Professional Indemnity Rules.

17. The next matter that occurred was that on 8 July 2002, Deacons then took out the summons in this matter which is now said to be a nullity. (See pages 1 and 2.) It seeks "an order that the said Deacons do cease to act on behalf of the Defendants in this action..." The affirmation in support (which starts at page 5) sets out the history of the matter. Paragraph 13 refers to Deacons' letter of 11 June 2002 which I have previous recited, and Mr Tsui, an associate of Deacons, who drafted the letter and made the affirmation, refers to the fact that in this letter that he was "seeking their (the Defendants') agreement for my firm to cease acting for them..."

18. Having set out the history of the matter, he then concludes his affirmation as follows:

"In light of the ongoing dispute on the issue of indemnity between the Fund and the Defendants which is now being dealt with directly between the parties, I reasonably believe that it would be improper for my firm to continue its representation of the Defendants in the action herein. In light of the potential conflict of interest and the irretrievable breakdown in solicitor/client relations between my firm and the Defendants, my firm cannot reasonably act in the interests of both the Fund and the Defendants.

In such circumstances, I humbly pray this Honourable Court to make an order declaring that Messrs Deacons do cease to act on behalf of the Defendants in this action."

19. What then followed, on 27 July, was an affidavit from Mr Willis, partner of the Defendants, setting out his firm's position (page 45). On 29 July 2002, Mr Bowers then wrote a letter to the Defendants which was very constructive (see pages 94 to 96). In the letter he very fairly set out the history of the matter. He says that he had been expecting the Defendants to have replied to his letter of 11 June and "its request for urgent instructions upon the further conduct of your firm's defence". The concluding parts of the letter are important and therefore bear repetition here:

"I have also reviewed Ernest Tsui's three affirmations filed and served in the above three actions on 8 July 2002. Notwithstanding the grounds upon which my firm relies in making this application for orders declaring that it cease to act on your firm's behalf in the above three actions as set out in Ernest Tsui's three affirmations, I an writing now to clarify my firm's position that notwithstanding the company's decision to refuse indemnity on this claim and the instructions subsequently given to my firm by managers to make the necessary application to come off the court record as acting on your firm's behalf in its defence of the above three actions, and despite my considerable concerns over the matters raised by Ernest Tsui in his three affirmations, my firm would be prepared to enter into a separate retainer with your firm to act on its behalf in its continued defence of the above three actions, but only upon the following conditions:

(i) that your firm provides my firm with costs on account of future fees (inclusive of counsel's fees) in the above three actions in the sum of $350,000; and that

(ii) payment on account of future fees referred to in paragraph (i) above be paid within 14 days from the date of this letter (i.e. by close of business on Monday, 12 August 2002).

In circumstances where the company has refused indemnity on this claim and where managers have confirmed that they will no longer be responsible for paying my firm's fees for acting on your firm's behalf in its defence of the above three actions, and in the light of your reaction to these latest developments, I am left with no alternative but to impose these conditions upon my firm's continued representation of your firm in the above three actions.

I trust you will understand my firm's position in circumstances where it has been instructed by managers not to act for the company in relation to this claim involving the above three actions, and where it has no instructions whatsoever from your firm in relation to the future conduct of the above three actions.

I believe my request for a payment on account by your firm in the sum of $350,000 to be entirely reasonable, bearing in mind that HCA7929/2000 has recently been consolidated with HCA7988/2000, and where a substantial amount of work will have to be carried out by my firm and counsel leading up to and during the trial of this consolidated action.

My firm has been waiting for your firm's further instructions upon the conduct of your firm's continued defence in the above three actions since 11 June 2002. My firm has no intention of being dragged into the dispute which has now arisen between your firm and the company over the refusal of indemnity on this claim, a dispute which will have to be resolved by way of arbitration proceedings between your firm and the company.

Please do not hesitate to call me if you have any questions. I look forward to hearing from you as soon as possible."

20. This was followed by a further letter the following day indicating the charge-out rates for himself and for Mr Tsui (page 97). Although these letters follow the issue of the summons, they indicate Deacons' view of how they saw their status vis-à-vis their representation of the Defendants when they issued the summons, and for this reason they are of much assistance in my decision as to whether Deacons had in fact ceased to act for the Defendants when the summons was issued.

21. Mr Bowers submits that on this evidence, once the managers had informed them of the decision to repudiate liability, his firm were bound to cease acting, which they did. Up to the time that liability was repudiated, their fees were being paid by the Fund. Once the Fund, who had appointed them to represent the Defendants, dropped out of the matter, Deacons' mandate came to an end.

22. The terms of Mr Tsui's letter which asked for further instructions as to the further conduct of the action was a professional and courteous way of dealing with the Defendants, for whom they had acted for the previous 22 months. The letter of 29 July is to be viewed as a constructive attempt to negotiate new instructions from the Defendants.

23. Once the Fund dropped out, rightly or wrongly, then Deacons must be taken to have ceased to act. What followed was an unsuccessful attempt by Deacons to get new instructions from the Defendants, who continued to insist that the Fund had no right to repudiate and that the Fund should continue to represent them.

24. That most attractive submission by Mr Bowers is countered by Mr Ismail, who points to a defective summons pleaded on the basis that Deacons are continuing to act and are applying to the court to cease to act. In an affidavit in support to the same effect, Mr Ismail submits that such an approach is not recognised by Order 67 rule 6, and that even if I were to allow Mr Bowers leave to amend his summons, that cannot avail him because I could hardly allow an amendment to Mr Tsui's affirmation in support of the summons.

25. What has happened, says Mr Ismail, is a mistake commonly made by solicitors who wish to come off the record when they are without fees or without instructions. They all too often fail to understand the nature of Order 67 rule 6, which requires a solicitor to cease to act first and then to apply to withdraw and come off the record.

26. I am bound to say that this has also been my experience hearing such applications. Practitioners erroneously hold the view that they need to come to court for leave to cease to act, and then, if successful, are given leave to cease to act and to withdraw from the record. That is not the process which is operated under the Order.

27. That having been said, a case should not stand or fall on mere semantics. I need to consider the substance of the matter, having regard to all the relevant circumstances, including, of course, the language used in the relevant correspondence which I have referred to, as well as the summons and the affirmations.

28. My view of this is that by the time that they had issued this summons, Deacons had come to the view that they had still not ceased to act. The matter remained in the air so far as they were concerned. They wanted to hear from the Defendants, which of course was fair enough, as they had represented them for very nearly two years; and Mr Bowers' letter of 29 July demonstrates, to my mind, that he would have been content to go on, provided agreement could be reached on fees.

29. I regret to say that the construction now put on the matter by Mr Bowers really amounts to an ex post facto rationalisation where, for the first time at this hearing, he has been confronted with a proper argument on how Order 67 rule 6 is intended to operate. This, I am told, was not the way the matter had been argued before the Master, who was only addressed on the discretion and as to whether proper reasons existed for Deacons to come off the record.

30. I find as a fact that they had not ceased to act at the time that they issued the summons because there had been a misunderstanding by them of their position. They considered that they required the court's leave to cease to act. They felt that they had good reasons to obtain such an order, but the appropriate mental process was not gone through.

31. The result, therefore, must be that where they had not ceased to act, they could not ask the court to make any order under Order 67 rule 6. Unfortunately, the Master was not addressed on this basis.

32. In these circumstances, this appeal must be allowed. What is regrettable about this is that, in my view, the Defendants have only succeeded in achieving a hollow victory. I say that because, had Deacons decided that they had in fact ceased to act, rather than coming to the court for that order as part of the process of the application to the court, I have no doubt that there were and are no special circumstances which require Deacons to remain on the record.

33. Whilst Mr Ismail has pointed to a number of features relating to the pivotal role of the Fund in this dispute, the fact is that the Defendants refused to pay Deacons' fees to continue representing them. They can hardly insist that the Fund should pay Deacons' fees where the Fund declines to do so.

34. I would have thought that all that Deacons need to do is to now make clear to the Defendants that they have ceased to act for them, and then take out a fresh summons which, in my view, must be unanswerable.

35. The Defendants must now, I fear, decide how best to deal with the Fund. There are mandatory arbitration provisions which they will need to invoke to have that dispute resolved and also decide how best to represent themselves in these actions.

36. I regret that this matter has turned on a technical point, but these rules are there to be observed. Non-observance has meant that the summons has failed in limine, the court not having jurisdiction to entertain it before a solicitor has ceased to act.

(Discussion re costs)

37. The usual order, of course, is that costs follow the event, but that is not an immutable rule. One has to look at the substance of the matter. It seems to me, as I indicated in the course of my judgment, that the Defendants have really had an arid or hollow victory, whichever way one wishes to characterise it. It is easy for the court perhaps to be wise after the event on behalf of the Defendants, but I really can see no useful purpose in mounting this appeal. They had got an order from the Master and it is something that they could easily have worked around and moved on with the matter in their own way, rather than bringing this appeal and, at the end of the day, achieve what I am afraid is an unproductive, technical victory.

38. I think that the real merits are reflected by my saying that there should be no orders for costs both here and below.