LAM ROGERIO SOU FUNG v. KU LING YU JOHN t/a MESSRS JOHN KU & CO

HCMP 1916/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1916 OF 2007

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J U D G M E N T

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Introduction

1.  This is an appeal from an order of Master de Souza dated 23 December 2009 relating to an application for a “wasted costs” order by Mr Rogerio Lam, as Plaintiff, against his solicitors, Messrs John Ku & Co., as Defendants.  The hearing before the Master and now on appeal before me has required an examination of the conduct of Mr John Ho who was Mr Lam’s solicitor in litigation against, in one instance, a company controlled by Mr George Tan Soon Gin and in the other against Mr Tan personally.

2.  The summons giving rise to the Master’s order is at A/19-20.  For present purposes all I need to do is to set out para.1 of the summons: 

3.  In a moment it will be necessary to examine firstly, and briefly, the nature of this appeal from the Master given the procedure employed before the Master and then, in a little more detail, the applicable principles that need to be applied when deciding whether to make a wasted costs order.

4.  Before that, it is helpful to describe how this application has come about.  Of the two actions to which I have referred only one of them relates directly to this appeal.  It is action HCA 2576/2005 which was a libel action brought by Mr Tan against Mr Lam.  The background to this is that Mr Lam had written to the international auction house Christie’s telling it that certain extremely valuable Chinese antiques that it had been instructed to auction for Mr Tan in fact belonged to him and that Tan had defrauded him. Once the contents of the letter came to the attention of Mr Tan he issued a writ for libel.  Mr Lam entered a defence.  He pleaded justification on the basis that what he had written was true and, alternatively, that the circumstances of the communication to Christie’s afforded him a defence of qualified privilege.  He also counterclaimed for the return of the antiques to him.

5.  In due course, Mr Tan discontinued the libel action.  Prior to doing so the parties had exchanged lists of documents.  Mr Lam’s list included two letters from Mr Graham Harris [SC as he now is] in the form of advice that had been sought from him.  The first dated 28 November 2005 is at C1/345 and the other, which is dated 1 December 2005 is at C1/402.  I will need to consider the contents of both of these letters presently.  Suffice it to say for the time being that both of these letters contained advice that was useful to Mr Lam in the conduct of his defence and counterclaim in that libel action.

6.  By listing these letters in his discovery Mr Lam had waived his privilege in them.  Mr Tan’s solicitors (Fred Kan & Co.) then sought further disclosure from Mr Lam of material referred to in Mr Harris’s letters.  This first of all resulted in a misunderstanding on the part of Mr Ho as to what was being asked for by Fred Kan & Co.  Subsequently the position was made clear to him.

7.  Two issues arise from this disclosure which has given rise to the first limb of the application for a wasted costs order.  Firstly, complaint is made by Mr Lam that Mr Ho never explained to him that the two letters were subject to legal professional privilege and need not have been disclosed and secondly, that as a result of that unnecessary disclosure further expense was incurred as Mr Ho had to field demands from Fred Kan & Co. for further disclosure of documents and material referred to in Mr Harris’s letters.

8.  The other aspect of the application for a wasted costs order relates to the circumstances in which Mr Tan’s discontinuance of the libel action were handled by Mr Ho.  The detail of which I will also refer to more fully presently.  Briefly, it arises in this way.  Fred Kan & Co. had intimated that Mr Tan was minded to discontinue the action.  What then exercised Mr Lam and Mr Ho, who was advising him, were two aspects.  Firstly, that a discontinuance as opposed to a dismissal of the action, meant that Mr Tan could come again and start a fresh action.  Secondly, there was the issue of costs, most particularly the basis of taxation of those costs, it being accepted by Fred Kan & Co. that Mr Lam’s costs would have to be borne by Mr Tan.

9.  The first aspect was resolved by agreement and without complaint from Mr Lam.  Mr Tan agreed to discontinue the action with an undertaking that he would not start another one based on the same cause of action.  When it came to costs he refused to bear these on a common fund basis which is what Mr Ho was asking for on behalf of Mr Lam.  There was a contested summons over this issue.  Mr Tan was represented by Senior Counsel and a junior, and Mr Lam by an experienced junior, who had been instructed on his behalf from the start, leading another junior.  The point appears to be that costs on a common fund basis will only be ordered if there is some special or unusual feature about the case which justifies such a course [see OTB Ltd v Coopers & Lybrand & Ors [1991] 1 HKLR 177].

10.  At the hearing before Master Kwang, the Master said that he could discover no such special or unusual features and directed a party and party taxation.  He awarded the costs of the summons and of the hearing before him to Mr Tan with certificate for two counsel.  This was an expensive failure for Mr Lam.  I am told that Mr Tan’s costs may be as much as $1 million and Mr Lam’s, which he will have to bear, will be $500,000.  Mr Lam’s complaint against Mr Ho is that he never advised him about the requirement of having to show, a “special or unusual feature”, nor of the risks of not being able to do so, nor of the relatively small difference between a common fund and a party and party taxation, so as to enable him to make a properly informed decision as to whether to press on or accept a party and party taxation.

11.  As will be seen in a moment, Mr Ho says that in every respect, Mr Lam was given appropriate advice and made his decisions accordingly.

The Hearing Before the Master

12.  The Master directed a preparation of a list of issues to be determined and ordered that Mr Lam and Mr Ho should appear at the hearing of the wasted costs summons to be cross-examined on their affirmations.  The summons was heard over two days and the Master gave a reasoned decision finding in favour of Mr Lam’s contentions.

13.  The Master’s Decision is at A22-38 and the orders that he made were as I have set them out at para.2 above.

The Nature of the Appeal

14.  This aspect has prompted some discussion between counsel and myself.  This being an appeal from an order of the Master to a Judge the appeal would be constituted as a complete re-hearing.  The judge would approach the matter as if the particular summons was before him de novo [see RHC Order 58 r.1].  He is unfettered by the Master’s ruling even if it involved the exercise of discretion by the Master.  Usually, the evidence before the Master would be restricted to evidence on affirmation or affidavit.  The judge is able to form his own independent view of that evidence and arrive at his conclusion of what is the correct outcome.  On occasions he has before him affirmation evidence which is additional to what had been deployed before the Master but in this case the nature of the hearing below was different in that the Master heard live evidence from witnesses who were cross-examined.  He arrived at a reasoned Decision based on that evidence.  I have a transcript of it.

15.  I think counsel are agreed that, although this appeal remains a hearing of the matter de novo as with all such appeals, I should give substantial weight to the Master’s findings of fact save where I consider any findings to have been plainly wrong, in which case I should ignore them.  Essentially, I need to have regard to the transcribed oral evidence as I must to the affirmation evidence which is also before me as well as having regard to the Master’s findings of fact unless any are plainly unsustainable and, thereafter, arrive at my own conclusions on all of this material

16.  This is the course that I intend to adopt, which I think properly accommodates the fact that the Master had taken oral evidence and arrived at a reasoned Decision on that evidence, in circumstances where I myself have not seen or heard the witnesses and nobody has suggested that I should hear them all over again.  The important matter to bear in mind is that I will approach the application afresh and reach my own view on the basis of all of the evidence both written and oral, as reflected in the transcript, and have regard to the Master’s findings of fact in the way that I have indicated.

When Should a Wasted Costs Order be Made?

17.  It is convenient to now set out the legal principles which need to be applied when such an application is made by a party, as in this case, against his own solicitor or, by the court of its own motion against a practitioner appearing before it.  In both situations the considerations are the same.

18.  The jurisdiction to make such an order is regulated by RHC, O.62 r.8.  For the avoidance of doubt it is the version of the rules that were in force at the time of the hearing before the Master that apply on this occasion.  These are to be found in the 2009 edition of the White Book.  The relevant parts of the old RHC, O.62 r.8 are the following:

“Personal liability of solicitor for costs (O.62 r.8)

	8.	(1)	Subject to the following provisions of this rule, 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 —
			(a) disallowing the costs are between the solicitor and his client; and
			(b) directing the solicitor to repay to his client costs which the client has been ordered to pay to other parties to the proceedings; or
			(c)   directing the solicitor personally to indemnify such other parties against costs payable by them.”
		(2)	No order under this rule shall be made against a solicitor unless he has been given a reasonable opportunity to appear before the Court and show cause why the order should not made …”

19.  There has been argument between counsel as to whether the new rule and the previous rule under which I must, as the Master did, decide this matter contain any substantive differences.  I am satisfied that the discussion of the principles in the authorities decided in the pre-CJR era continue to hold good and must provide me with guidance as to how I should approach the evidence, but it is also clear that these older authorities continue to retain currency in the post-CJR period as is made plain by the fact that they have been cited with approval in the post-CJR authorities.

20.  Notwithstanding the argument between counsel, largely prompted by the fact that Mrs Remedios, on behalf of the Defendant, has cited the new RHC, O.62 r.8 in her skeleton, I think they are now in broad agreement that the criteria which bear on this jurisdiction as to when a wasted costs order may be made remain the same as they were under the old rule. Consequently, the cases to which I have been referred, some under the old rule and some under the new rule equally provide the help and authority that I require and must apply in this appeal.

How And When is This Jurisdiction to be Exercised?

21.  It seems to me that the locus classicus as to how this jurisdiction operates and when it is to be exercised is the judgment of Sir Thomas Bingham MR (as he then was) in Ridelagh v Horsefield [1994] Ch 205.  It has since been repeatedly approved and applied both in England and Wales and in Hong Kong.  This is what occurred in the Court of Final Appeal in Josephine Ma So So v Chiu Yuk Lunn and Chan Mee Yu [2004] 3 HKLRD 294.  Helpfully, Mrs Remedios has extracted the relevant principles from that decision.  At para.6 of the judgment of the Chief Justice (p.300) he set out the three questions that the court was required to address.  Firstly, 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 proceedings. Secondly, whether such conduct of the solicitor caused costs to be incurred or wasted.  This is a question of causation.  A causal link must be established between the solicitors’ conduct and the extent of costs incurred or wasted. And thirdly, whether the court should exercise its discretion to make an order.

22.  Insofar as this may be relevant to this appeal, the jurisdiction is compensatory and the amount ordered should not exceed the amount of costs either incurred or wasted.  It is punitive only in the sense that payment of these costs is shifted from the client to his legal representative.

23.  What I think needs to be emphasised is that the jurisdiction is summary and should only be engaged where the need for such an order is reasonably obvious and in a clear case. [See paras.8-10, page 301]

24.  The use of the jurisdiction by the court is a discretionary one.  The court is not bound to exercise it [paras. 13-18].

25.  In exercising this jurisdiction the court embarks on a two stage process.  Firstly, the court will give the legal representative an opportunity to say why an order should not be made [see O.68 r.8(2) supra].  Secondly, even if a case has been made out for an order to be made, the court then has to decide whether to go on and make the order. This was considered by the Chief Justice at para.16 of his judgment in Ma So So’s case ibid.

26.  In deciding whether to go on with the application the court needs to consider a number of factors in what is, after all, a summary procedure.  If the issues involved are likely to require any sort of prolonged enquiry resulting in the expenditure of considerable time and costs, the court may well conclude that it would not be appropriate to use this procedure to resolve the issues involved which may well result in a disproportionate amount of costs to be expended in relation to the issues and the quantum of the costs expended or thrown away in the first place.

27.  Connected to these factors may be the need to embark on a procedure that takes the enquiry outside the parameters of what is intended to be a summary process.

28.  In this particular case the Master thought it right, no doubt to be fair to everybody concerned and especially the Defendant, to direct that a list of issues be drafted and he decided that there should be an oral process which lasted two days involving examination and cross-examination of witnesses as well as a consideration of a number of affidavits.

29.  One of the matters that I will have to consider is whether the need to proceed with what was in fact a trial process makes this a case suitable to the summary procedure contemplated by O.62 r.8.  The Chief Justice also considered these factors in paras.19-22 of his judgment.  What he determined was that the more elaborate the procedure which needs to be employed to fairly dispose of the application the more likely it is that it will not be appropriate to have it determined in this way.

30.  The burden of proof remains on the applicant to satisfy the court that an order should be made against the legal representative [para.23 in Ma So So].

31.  The nature of the jurisdiction and of the enquiry was set out in the speech of Lord Hope in the case of Harley v McDonald [2001] 2 AC 678 at para.50 and referred to by Li CJ at para.8 of his judgment in Ma So So.  Lord Hope said this:

“As a general rule allegations of breach of duty relating to the conduct of the case by a barrister or solicitor with a view to the making of a costs order should be confined strictly to questions which are apt for summary disposal by the court. Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples. The factual basis for the exercise of the jurisdiction in such circumstances is likely to be found in facts which are within judicial knowledge because the relevant events took place in court or are facts that can be easily verified. Wasting the time of the court or an abuse of its processes which results in excessive or unnecessary costs to litigants can thus be dealt with summarily on agreed facts or after a brief inquiry if the facts are not all agreed. Scope for the making of a costs order that will compensate as well as penalise is then likely to be found in making an order against the practitioner that will indemnify the opposing litigant against costs incurred as a result of the breach of duty that would otherwise not be recoverable.”

Is This Dispute Suitable for Summary Disposal?

32.  This is a fundamental issue in this appeal.  It requires me to consider the nature of the complaints made by the Plaintiff and the evidence in support of these complaints as well as the evidence in response.  Clearly, the Master took the view that this required him to concentrate the parties minds by calling for a list of issues to be prepared [A11-14] and then to embark on a two-day examination of the witnesses together with the written evidence followed by a reserved and reasoned Decision.

33.  If the court decides not to exercise this jurisdiction then the applicant will be left to bring an action against his solicitor and/or counsel in negligence in order to obtain redress.

34.  Notwithstanding the nature of the hearing before him, which I have just described, the Master must have considered that he could dispose of these issues within the exercise of this jurisdiction.  Now on appeal before me I have to confront the same question.

35.  In deciding whether to engage the jurisdiction it is helpful to begin by looking at the list of issues.

36.  One only needs to read this detailed list once to see that this was certainly not a matter amenable to a summary jurisdiction of the kind referred to by Lord Hope in Harley v McDonald [see para.31 above].  This carefully and well-drafted list of issues was an invitation to the Master to embark on a trial which is precisely what happened.  It is a very strong thing indeed to charge a professional man with negligence in the conduct of his practice.  To then employ a summary jurisdiction to decide 18 separate points contained in the list of issues is simply not right.  Whilst the Master was very mindful of the fact that the Defendant solicitor should have every opportunity to be heard, with him giving live evidence before the Master, this was never going to be an adequate substitute for a high court action for professional negligence with all the procedural and evidential safeguards that the trial process demands when compared to the type of summary hearing before the Master.

37.  For my part, I am convinced that these complaints, set out in the list of issues, are not suitable for a RHC, O.62 r.8 disposal.  At the risk of over-elaboration on my part, this jurisdiction is one reserved for usually short, clear-cut complaints which can be disposed of summarily with the court tailoring its procedure to ensure a fair hearing for all the parties, particularly the legal representative whose conduct is being called in question.

38.  Once the court has to call for issues to be listed out that should be enough to tell it that the application is one that is not suitable for decision under this jurisdiction.  The production of the list in this case should have provided ample confirmation of this fact.  What it did of course was to require a two-day “trial” with a consideration of the live evidence of the main protagonists and of the substantial evidence on affidavit.

39.  For my part, I am satisfied that I should not exercise this jurisdiction and neither should have the Master, who in his anxiety to ensure fairness to everybody was then obliged to hold, by the standards of a RHC, O.62 r.8 procedure, a lengthy hearing.  This was a misuse of the jurisdiction and the Master should have refused to engage it.  On this ground alone, the appeal must be allowed and the Master’s orders must be set aside.

40.  If confirmation of this view is required, I need only refer to the nature of the evidential contest raised in the list of issues.  The Defendant’s case is that the Plaintiff had provided himself with a “shadow team” of lawyers to act as a sounding board and to give him a second opinion as to what he should do.  The Defendant says that the Plaintiff had installed himself as the “supreme commander” in the conduct of his litigation with his long-time adversary Mr George Tan.  Whilst I appreciate that much of this was canvassed with the Master in the course of the hearing it was being canvassed within a proceeding which should never have been permitted to take place.  The evidence before the Master, now reproduced in the transcript before me and in the affidavits reveals a complex professional relationship between the Plaintiff and the Defendant.  If these complaints are to be persisted in then they will have to be ventilated by means of an action by writ for professional negligence.

41.  The complex relationship between these two men was subjected to a procedural and evidential short-cut by the employment of a jurisdiction that was never intended to address this depth of evidential and indeed legal contest.

A Consideration of the Factual Disputes

42.  (a)     Disclosure of Mr Harris’s advices

These advices were brief and to the point, contained in two letters [C482 and C483].  They were put into the Plaintiff’s list of documents in the libel action.  How this came about has been carefully analysed by Mrs Remedios in her skeleton at pages 22-26.  It is quite clear from a reading of the references in the evidence that the inclusion of the advices and, how these advices could be deployed against Mr Tan in the overall strategy of the litigation, that the Plaintiff had been very closely involved in that decision.  This is the sort of detail which a judge in a professional negligence action would need to carefully attend to.  The O.62 r.8 procedure is not designed nor intended to be used in this way.  I am satisfied that the Plaintiff was an integral part of the planning of this strategy.  It is very difficult to see how the court can properly address these details on an application such as this, which all points to a decision not to engage this jurisdiction.

(b)    Costs on discontinuance

The point on this is that the Defendant followed the advice of experienced counsel in pursuing a common fund taxation after Mr Tan had discontinued the libel action.  It really is no part of this jurisdiction for a court to go into this sort of enquiry which should be examined in a conventional trial.  Wasted costs orders are reserved for clear-cut cases of professional default or misconduct. It is not appropriate to enquire into the propriety of the Defendant’s conduct in such circumstances by using this jurisdiction following advice obtained from counsel.  Whilst this may not always be an answer to an action for professional negligence, it is certainly not an occasion to employ O.62 r.8 to found a basis for redress by a dissatisfied client.  The point does not admit of resolution by what is intended to be a summary process even if the Master looked at the matter with great care.  This in itself shows that, if anything, the procedure employed by the Master was enlarged so as to conduct a hearing which fell outside the scope of the jurisdiction.

43.  This being my view and the appeal having been allowed, the Plaintiff must be left to pursue any redress that he seeks from the Defendant by way of a writ for professional negligence.

Miscellaneous

44.  For the sake of completeness I should mention that there was an issue relating to a Yuan Dynasty Hand Scroll but I have been told that this is not a matter that I need to attend to and consequently I will make no reference to it.  There is also one other particular matter which Mr Douglas Lam has raised in responding to the appeal which is based on a decision of Morland J in Hoddle v CCF Construction Ltd [1992] 2 All ER 550 in which the judge held that in general the judge in chambers should not allow an appeal from an order for costs made by a Master unless it can be shown that the order was unreasonable or that the Master had committed an error of law or took matters into account that he should not have done or left out of account matters which he should have taken into account.  This was a case in which the Master, on an interlocutory hearing, had ordered costs against the Plaintiff.  That situation was so far removed from this specific jurisdiction under O.62 r.8 that I am dealing with so that it can have no possible bearing on this appeal.  I propose therefore to say nothing further about it.

Costs

45.  This will be an order nisi.  Where I have found that the Plaintiff has brought a misconceived application in the sense that he had asked the Master to resolve these issues by means of an inappropriate jurisdiction, it seems to me that costs will need to follow the event both here and below.  These costs will be to the Defendant to be taxed on the party and party basis with certificate for counsel before the Master. Before me there is no need for such a certificate but insofar as I assume the Defendant seeks a certificate for two counsel I will refuse to so certify. This matter did not require the instruction of two counsel for the Defendant.