CHUN FAI GARMENT FACTORY v. SEAGUIDE IMPORT AND EXPORT LTD

IN THE DISTRICT COURT OF HONG KONG

CIVIL JURISDICTION

T.W. ACTION NO. 525 OF 1990

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BETWEEN

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RULING

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Background

1. The action came before me for hearing on 27th and 28th May 1991. On the first day of the hearing, Miss Lisa Wong, counsel for the Defendant applied for a stay of the action on the ground that the Plaintiff, which was a partnership, had been dissolved. Miss Wong informed me that Cheng Oi King, one of the partners, would give evidence for the Defendant.

2. The action was commenced in the name of the partnership on 2nd February 1991. The partnership consisted of two persons, namely, Cheng Wai Jane and Cheng Oi King. Cheng Oi King was present in court at the hearing and she confirmed that the partnership had been dissolved. She informed me that she became aware of the present action in October 1990. She and her husband, who also took part in the partnership business, had never been approached by the Plaintiff's solicitors since the commencement of the action. She refused to give her consent to the action being continued in the name of the partnership and she also asked for an indemnity as to costs if her former partner insisted to sue in the name of the partnership.

3. Mr. Geoffrey Chang, counsel for the Plaintiff, confirmed that the Plaintiff's solicitors had never approached Cheng Oi King and her husband. He, however, submitted that the action could still be continued in the name of the partnership and that it was not necessary to give an indemnity as to costs to Cheng Oi King. He further informed me that his client would not be prepared to give such an indemnity nor would she consider joining Cheng Oi King as a defendant in the action.

4. I ruled against Mr. Chang's submission and found that the action was not properly constituted. Miss Wong, although initially applied for a stay of the action, later submitted (and this was supported by Mr. Chang) that I should, pursuant to Order 15 Rule 6 of the Rules of Supreme Court, substitute the name of the Plaintiff so that the action could continue in the name of Cheng Wai Jane. I agreed to this submission and substituted Cheng Wai Jane as the Plaintiff. As Mr. Chang had indicated that his client would not be prepared to join Cheng Oi King as a co-defendant, I made no order on the question of joinder. I further ordered that the Defendant was entitled to have the costs of the action to date and that the Plaintiff's solicitors would have to show cause why they should not be personally responsible for the costs.

Solicitor showing cause

5. Pursuant to my order, Mr. Chan Tong of Tong Chan & Co. attended before me on 8th August 1991. Cheng Wai Jane, who had since been acting in person, also appeared. Mr. Chan relied on his Affirmation in which he set out the reasons why his firm should not be responsible for the costs.

6. Mr. Chan has been operating as a sole proprietor. He was assisted by Mr. Luk Chi Keung ("Mr. Luk"), his litigation clerk, in the conduct of the action. His firm had in 1988 prepared a partnership agreement (the "Agreement") for Cheng Wai Jane and Cheng Oi King. Under Clause 5 of the Agreement, Mr. Lo Yiu Kuen ("Mr. Lo") who is Cheng Wai Jane's husband, was appointed as

"the permanent Manager and Agent of the partnership business with authority to sign, execute and do all cheques, notices, documents, agreements and other acts and things."

7. Clause 10(iv) of the Agreement further provided that,

"the control and management of the business of the partnership including engagement or dismissal of employees shall be conducted and all decisions with regard thereto shall be made by the said Lo Yiu Kuen solely or by both partners jointly."

8. Mr. Lo further informed Mr. Luk that he had in accordance with the Agreement been acting as the manager of the partnership business and looking after almost every aspect of the business.

9. In December 1989, Mr. Lo consulted Mr. Luk about the debt owing by the Defendant to the partnership. On 7th December 1989, a demand letter was issued to the Defendant by Tong Chan & Co. on behalf of the partnership. Solicitors for the Defendant by letter dated 13th December 1989, disputed the claim and alleged that payment had been made to Leung Biu who was Cheng Oi King's husband. Tong Chan & Co., on receipt of the letter, sent a copy of the letter to the partnership and asked for instructions.

10. On 19th December 1989, Mr. Lo informed Mr. Luk that the partnership had not received any payment from the Defendant and that the payment was made in respect of the other business operated by Cheng Oi King. Mr. Lo further instructed Mr. Luk to ask for the receipts of the alleged payment. Tong Chan & Co. duly made the demand and later received the cheques and receipts from the Defendant's solicitors.. On 15th January 1990, the documents were sent to the partnership and instructions were sought.

11. On 17th January 1990, Mr. Lo informed Mr. Luk that he had spoken to Leung Biu who admitted that he had received the payment but he did not confirm whether he had received the payment on behalf of the partnership or not.

12. Mr. Lo further informed Tong Chan & Co. that,

13. Mr. Chan submitted that the action was properly instituted by the authority of Mr. Lo who had express authority to act on behalf of the partnership. He said Cheng Oi King had full knowledge of the action and that prior to the hearing before me she had not raised any objections to the action. He said Cheng Oi King had a duty to contact his firm.  He said it might be imprudent not to ask for the views of Cheng Oi King but a failure to do so was not a breach of duty on the part of his firm.

14. Cheng Wai Jane submitted that Tong Chan & Co. should be responsible for the costs. She said that she, as a lay person, left the matters in the hands of her professional advisers she said that in January 1990, after she received the copies of cheques from Tong Chan & Co., Mr. Luk asked her husband to confirm with Cheng Oi King and Leung Biu that the payment made by the Defendant had nothing to do with the partnership. Her husband informed Mr Luk that since they i.e. Cheng Oi King and her husband had received the money from the Defendant, they would not be testifying at the hearing. In February 1990, she further wrote to Cheng Oi King asking her to confirm that the payment she received from the Defendant was for her personal use and had nothing to do with the partnership. A copy of the letter was also supplied to Tong Chan & Co. She said Tong Chan & Co. had never taken instructions from Cheng Oi King. She said that she and her husband only met Mr. Chan for the first time after the hearing in May 1991. Before that, she and her husband were only attended by Mr. Luk.

15. In reply, Mr. Chan confirmed that his firm had been supplied with a copy of letter written by Cheng Wai Jane to Cheng Oi King but he maintained that he did not consider it to be important because as he said it was a matter between the partners. He further confirmed that he only met Cheng Wai Jane and her husband for the first time after the hearing in May 1991. He, however, said that he had supervised Mr. Luk in the conduct of the action. He further submitted that if his firm had to bear any costs then it should be confined to the costs of the last hearing in May 1991.

The law

16. In Yonge v. Toynbee [1910]. 1 K.B.215, a firm of solicitors were instructed by a client to conduct his defence to an action which was then threatened and was afterwards commenced against him. Before the commencement of the action the client became, and was certified as being, of unsound mind. In ignorance of his unsoundness of mind, and of his being so certified, the solicitors entered an appearance for him in the action, and delivered a defence, to which the plaintiff replied, and other interlocutory proceedings took place in the action. Subsequently, the action not then having come to trial, the plaintiff's solicitor was informed that the defendant had been certified as being of unsound mind; and an application was made on behalf of the plaintiff for an order that the appearance and all subsequent proceedings in the aciton should be struck out, and that the solicitors who had assumed to act for the defendant should be ordered personally to pay the plaintiff's costs up to date, on the ground that they had so acted without authority.

17. The Court of Appeal held that the solicitor was liable for the costs. Buckley L.J. held that,

"The question is not as to his honesty or bona fides. His liability arises from an implied undertaking or promise made by him that the authority which he professes to have does in point of fact exists. I can see no principle between the cases in which the authority never existed at all and the case in which the authority once existed and has ceased to exist ....(the) liability arises from the fact that by professing to act as agent he impliedly contracts that he has authority, and it is immaterial whether he knew of the defect of his authority or not."

18. Swinfen Eady J. further held that previous decisions which drew a distinction between the period before and after the date at which the solicitor knew, or by the exercise of due diligence might have known, of the revocation of the authority, was no longer valid. He held that,

".... in the conduct of litigation the Court places much reliance upon solicitors, who are its officers, it issues writs at their instance, and accepts appearances for defendants which they enter, as a matter of course; and without questioning their authority; the other parties to the litigation also act upon the same footing, without questioning or investigating the authority of the solicitor on the other side; and much confusion and uncertainty would be introduced if a solicitor were not to be under any liability to the opposite, party for continuing to act without authority in cases where he originally possessed one.”

19. If the solicitor has been purporting to act for a plaintiff the order will direct him to pay the plaintiff's costs on a common fund basis and also all costs which the plaintiff may have been ordered to pay to the defendant and the defendant's additional cost on a common fund basis (Fricker v. Van Grutten [1896] 2 Ch. 649 and Para 115 of Vol.44 of Halsbury's Laws of England).

Issue

20. The issue I have to consider is whether:

21. Mr. Chan relied on the authority given by Mr. Lo to his firm for the commencement of the action.  Mr. Lo's authority was found in the Agreement and also by the fact that he had acted on behalf of the partnership. I am satisfied that the two partners had authorised Mr. Lo to act as the manager and agent of the partnership. The instructions given by Mr. Lo to Tong Chan & Co. were pursuant to that authority and the litigation was in respect of a matter connected with the partnership business. I am satisfied, with the information disclosed by Mr. Chan ,that his firm had the authority to commence the proceedings on behalf of the two partners.

22. Cheng Oi King informed me at the hearing that the partnership was dissolved in July 1990. However, in her Defence filed in the action (she was joined as a defendant after the hearing), she claimed that she had retired from the partnership on 30th October 1990. Cheng Wai Jane, on the other hand, now claimed in her Amended Particulars of Claim and in the Reply, that Cheng Oi King is still a partner. It would not be possible for me at this stage, without hearing evidence, to determine the exact day of the dissolution of the partnership or whether, as Cheng Wai Jane claimed, the partnership is still in existence. One thing, however, is abundantly clear : by the time. of the last hearing i.e. 27th and 28th May 1991, Cheng Oi King had revoked her authority given to Tong Chan & Co. to represent her. She said and this was accepted that she had never been approached by Tong Chan & Co. and she clearly indicated that she would not consent to the action being continued in the name of the partnership. The authority of Tong Chan & Co. to represent her was revoked by her refusal to continue with the action. Notwithstanding such clear and express indication, it was still argued at the hearing that the action could be continued in the name of the partnership which in fact was just a convenient way of describing Cheng Oi King and Cheng Wai Jane. I find Tong Chan & Co. had no authority to act for Cheng Oi King as from 27th May 1991 and I rule that Tong Chan & Co. is responsible for the Defendant's costs incurred in respect of the hearing of 27th and 28th May 1991. Such costs are to be taxed on a common fund basis. I shall vary the order I had previously made as to costs at the hearing by ordering that the Defendant shall be entitled to the costs incurred in respect of the hearing on 27th and 28th May 1991. Such costs shall be paid personally by Tong Chan & Co.

23. As Tong Chan & Co. had no authority to represent Cheng Oi King at the hearing, they shall further pay Cheng Oi King costs of the hearing of 27th and 28th May 1991. Such costs are to be taxed on a common fund basis.

24. I would further, pursuant to Order 62 Rule 11 of the Rules of Supreme Court, disallow the costs which Tong Chan & Co. may charge Cheng Wai Jane for the hearing of 27th and 28th May 1991 and if such costs had been paid by Cheng Wai Jane to Tong Chan & Co., I order that such costs shall be forthwith returned to her. I do not accept that Tong Chan & Co. was under no obligation to seek the views of Cheng Oi King. The firm appeared on record to act for two persons and it was duty bound to take instructions from Cheng Oi King, particularly in view of the nature of the defence. It was not sufficient for Tong Chan & Co. to rely on the steps taken by Mr. Lo. Had they approached Cheng Oi King before the hearing of 27th May 1991, her attitude concerning the action could well be ascertained in advance. I fail to see how Mr. Chan could exercise any effective supervision over the case when he only saw his client for the first time after the hearing in May 1991. The aborted hearing of 27th and 28th May 1991 was directly attributed to the failure of Tong Chan & Co. to make the necessary inquiry with Cheng Oi King and they are not entitled to charge their client for the hearing.