ASIA-PAC INFRASTRUCTURE DEVELOPMENT LTD v. ING YIM LEUNG, ALEXANDER AND OTHERS

HCMP 196/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 196 OF 2011

(ON AN INTENDED APPEAL FROM HCA NO. 16778 OF 1999)

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BETWEEN

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JUDGMENT

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Hon Tang Ag CJHC:

Introduction

1.  This is the 2^nd Defendant’s application for leave to appeal so much of the order made by Stone J on 27 January 2011, said to be made by consent, that the Plaintiff’s claim against the 2^nd Defendant and the 2^nd Defendant’s counterclaim against the Plaintiff be withdrawn with no order as to costs save those already taxed and paid.

2.  In order to deal with this application it is necessary to state the background and events leading to the order in some detail.

3.  The Plaintiff is a limited company incorporated in Hong Kong in 1996.  The 1^st Defendant began working for the Plaintiff in May 1996 as its Senior Vice President, and the 2^nd Defendant in July 1997 as a Project Development Manager.  The Plaintiff was established to find and negotiate joint venture projects in the People's Republic of China (PRC) either as a vehicle for personal investment and/or with a view to packaging the assets for third-party investment.

4.  The 1^st to 4^th Defendants (the "personal defendants") were employed directly or seconded to work for the Plaintiff and it was the Plaintiff's case that they worked as a team.  It was also the Plaintiff's case that in October 1999, it became suspicious of the activities of the 1^st and 2^nd Defendants, and caused their offices to be searched following which on 24 October 1999, the Plaintiff obtained a Mareva injunction and an Anton Piller order against the 1^st to 9^th Defendants. 

5.  This search and the subsequent execution of the Anton Piller order disclosed documentation which showed, according to the Plaintiff, the 1^st and 2^nd Defendants' involvement in other companies inconsistent with their duties owed to the Plaintiff.  These other companies are the 5^th to 9^th Defendants ("the corporate defendants"). 

6.  The 1^st Defendant and his family members were the beneficial owners of the 5^th Defendant ("Fantastique"), a British Virgin Island ("BVI") company.  The 5^th Defendant and its associated companies, including the 6^th, 8^th, 9^th and 10^th Defendants, operated businesses competing with the Plaintiff.  The 7^th Defendant is not among the Fantastique group of companies and was separately represented in these proceedings.

7.  The Mareva injunction was continued by consent against the personal defendants, but had been discontinued against all the corporate defendants, except the 7^th Defendant, upon certain undertakings.  The Plaintiff had been ordered to deposit $5 million in an account with a bank to be maintained by the Plaintiff's solicitors as fortification of its undertaking to pay damages to the Defendants in respect of the Mareva injunction.

8.  The 10^th Defendant was added as a defendant on 22 February 2000.

9.  In Schedule II to the Re-amended Statement of Claim, the Plaintiff complained that the 1^st and 2^nd Defendants in the course of their employment with the Plaintiff and without its consent diverted business opportunities to the 5^th to 10^th Defendants and/or competed with the Plaintiff.  It is said that such conduct was in breach of certain non-competition and/or fidelity and confidence conditions and their fiduciary duties. 

The Trial

10.  Twelve years after the commencement of the action, the matter went to trial before Stone J which began on 5 January 2011. 

11.  At trial, Mr Patrick Szeto, appeared for the Plaintiff; Mr Jason Pow, SC, appeared for the 1^st, 6^th, 9^th and 10^th Defendants; Mr Jason Wong appeared for the 2^nd Defendant.  The claim against the 3^rd and 4^th Defendants had been discontinued.  The 5^th, 7^th and 8^th Defendants were unrepresented, and the trial was set down for 14 days.

12.  The trial continued until 20 January, the 11^th day of trial, when the Plaintiff concluded its case, and the Defendants were about to open their case.

13.  This is what the 2^nd Defendant said in his 2^nd affidavit affirmed on 10 February 2011 ("the affidavit"). 

"Mr. Szeto's offer made in open court

10. When the trial proceeded to its 11^th Day (i.e. 20/1/2011), at about 11:17 a.m., Mr. Szeto for the Plaintiff addressed to the Court in the following words:

'[My] Lord, between the plaintiff and the 1^st defendant, which also includes D6, D9 and D10, there is in principle an agreement on a without-prejudice basis. At this stage perhaps I need not address your Lordship as to what were the terms of that WP in-principle agreement. My Lord, however, whether or not the agreement between plaintiff and D1 could materialize would depend on whether or not D2 is also willing to cooperate in a broad sense. At this stage, there is still no favourable reply from 2^nd defendant. In such circumstances, my Lord, I'm instructed to make an open offer to the 2^nd defendant.'

Mr. Szeto, upon telling the Court and the other Defendants that there was an agreement on 'without prejudice' basis between the Plaintiff and the 1^st Defendant (without informing the Court and the other Defendants what the terms of the agreement were), went on to address the Court in the following words:-

'To settle this matter on a drop-hand basis. My Lord, I trust that if this offer is accepted by the 2^nd defendant, this matter can be resolved once and for all. However; if this offer is rejected, very unfortunately I think and I submit the agreement in principle between D1 and the plaintiff could not materialize and we will have to continue for the trial, and I would say, very unfortunately.'

Mr. Justice Stone later asked Mr. Szeto in the following words:-

'... or is it the position that the agreement with D1 necessarily is dependent upon agreement with D2 also?'

Mr. Szeto replied in the following words:-

'It would depend on - with the cooperation of D2 also because of the fortification of the injunction which relate also to D2.'

Mr. Justice Stone then said:-

'... I note that an open offer has been made in open court vis-à-vis the plaintiff and D2. You have not condescended, rightly in my view, to any detail of the terms between the plaintiff and D1, nor do I know what the relationship is between D1 and D2. And I do not know if there is room for manoeuvre in terms of D1 and D2 inter se between themselves. I'll leave you to think about that.'

Later, Mr. Wong addressed the Court, raising query as follows:-

'Why the global settlement has been dependent on the reaction of D2. I say this not in a sense to stir up any arguments but really to simply say that we weren't told why it was dependent on D2 in the first place.'

Mr. Justice Stone then said:-

'... Well, it seems to me, and commenting solely on what I have been told by counsel in open court - I'm restricting myself totally to that - that the stumbling block appears to be costs vis-à-vis P and D2.

……

Well, if that's the stumbling block, I'll have to leave you all to think about it. And also I repeat that I don't know what the situation is between D1 and D2.'

Finally, there were the following exchanges between Mr. Justice Stone and Mr. Szeto:-

'Mr. Szeto: Just one thing. If the open offer I just made is not accepted, I would also invite my learned friend Mr. Wong, if necessary, to make an open counteroffer to us to settle the matter. We would be very pleased if they can make an open offer to us. I want that to be, again, becoming part of the record if -

His Lordship: Well, I'm not sure why you do, but I've recorded it.

Mr. Szeto: But this is really an invitation only, an invitation. If our offer is not accepted, we invite them to make an open offer.

His Lordship: All right.

…

His lordship: -- which have elapsed, that this is a case which is, in my view, ripe for settlement. It always has been and nothing's going to change in terms of my view in that regard ..."

14.  Earlier on 19 January, the Plaintiff had written a "without prejudice" letter to the 2^nd Defendant's solicitors which is reproduced in full below. 

"We are instructed to repeat in writing the Plaintiff's offer made to your client through our Counsel to settle this Action on a 'drop-hands' basis. Your client's current position is, as we understand, that he is only prepared to settle if the Plaintiff pays him a lump sum of HK$1.8 million.

For the avoidance of doubt, the Plaintiff considers that your client's counter-offer is unrealistic and is hereby rejected.

We cannot understand your client's reluctance in accepting the Plaintiff's 'drop-hand's' offer. It is in our view a very generous offer which should be accepted by your client. We urge him to re-consider the offer overnight. To assist your client in properly re-considering the Plaintiffs settlement offer, we state our observations as follows:

l. Your client's purported defence in relation to the Plaintiff's falsified expenses claim (in particular the claim particularised in Appendix E2 of the Re-Amended Statement of Claim) is doomed to fail. A substantial amount of evidence in this relation can be found in Bundle C5 and C6, including documents signed by your client.

2. We do not see how your client, as the Plaintiff's employee at the material times, can justify his heavy involvement in various projects when he should have been discharging his duties to the Plaintiff as its employee. This shows your client was clearly in breach of his duty of fidelity owed to the Plaintiff. As an example, we refer to his investment, and role as a director, in the 6^th and 7^th Defendants. A substantial amount of evidence in this relation can be found in Bundles B6 to B13.

3. In the likely event that the Plaintiff concludes its settlement with the 1^st, 6^th, 9^th and 10^th Defendants, the Plaintiff will have no option but to proceed with its claim against your client if he insists on not accepting the 'drop-hands' offer. We are particularly confident that the Plaintiff will be successful in establishing liability against your client as outlined in (1) and (2) above. In that case, it is almost certain that a substantial adverse costs order will be made against your client.

4. Further, we do not see how your client can possibly be successful in claiming that he has suffered damages as a result of Mareva Injunction order made against him (as suggested in his witness statement and his 3^rd affirmation). For example, your client's witness statement states that he was not able to pursue a particular career because of the Action. Even if loss were established on this basis (which is not admitted), it is not loss that can be recouped from the Plaintiff, whose undertaking extends to loss caused by the injunction itself, not merely the proceedings (see paragraph 11.027 of Gee, Commercial Injunctions (5^th Ed)). Further and in any event, the alleged loss is purely speculative. Also, your client has a duty to mitigate, which includes a duty to seek variation of the injunction if appropriate. The latter would relate to the allegation of loss by way of interest on supposedly 'frozen' accounts.

5. Any damages enquiry proceedings commenced by your client will be vigorously opposed by the Plaintiff. It would be an up-hill battle for your client and substantial legal costs will be involved.

Finally, please note that if your client does not accept the Plaintiff's 'drop-hands' offer, our Counsel will repeat the offer in Open Court tomorrow."

15.  The 2^nd Defendant went on to say in the affidavit:

"12. … On the same day, just before rising for lunch, Mr. Justice Stone said;

'I think it's a pity if this whole global settlement goes off because of costs.'

I started to worry that Mr. Justice Stone was displeased at my refusal to accept Mr. Szeto's open offer.

Conference held among Mr. Justice Stone and the three Counsel inside the Judge's Chambers on 20/1/2011 shortly after 3:17 p.m.

13. On the same day, at about 3:17 p.m., Mr. Szeto concluded his re-examination of Mr. David Ho, a witness for the Plaintiff, and Mr. Justice Stone adjourned the Action for a short break. At that juncture, Mr. Justice Stone directed all Counsel for the parties to see him inside his Chambers. Mr. Justice Stone said:

'I'll see all counsel outside in one minute.'

14. What was said inside Mr. Justice Stone's Chambers was not known to me. It was only known to Mr. Justice Stone and the three Counsel before him. Solicitors (and their representatives) and the lay litigants (and their representatives) were not invited to Mr. Justice Stone's Chambers and were all waiting inside the courtroom. They did not know what was said inside Mr. Justice Stone's Chambers. They (and the general public) did not know who said to whom about what inside Mr. Justice Stone's Chambers. It was quite wrong for Mr. Justice Stone to convene a private (not transcribed) conference in the middle of an open trial, exclusive to himself and Counsel for the parties. Justice was therefore not seen to be done. I would mention that throughout the trial of the Action, Mr. Justice Stone had held similar meetings before, solely with Counsel for the parties in his Chambers, e.g. on 11/1/2011 (Trial Day 5 at about 11:27 a.m.).

15. About 10 minutes later, Counsel for the parties left the Judge's Chambers. What transpired afterwards are set out in detail in a statement prepared by me ('my Statement'). My Statement can be found in Exhibits 'L-2' hereto. As I was not present inside Mr. Justice Stone's Chambers and as Mr. Wong was my Counsel, I did not doubt Mr. Wong, who relayed to me what was said by Mr. Justice Stone against me in his Chambers. Mr. Wong relayed to me Mr. Justice Stone said the following words: -

'If the big boys are settling, it would be annoying for the 2^nd Defendant not to settle. After all, it would be open to me to order no cost even if the 2^nd Defendant should win ...'

I was afraid that Mr. Justice Stone would not award costs to me if I won.

16. Later, the hearing resumed. At about 4:24 p.m. on the same day, the trial was adjourned to the following day. Then, there were a series of events as mentioned in my Statement took place. I would emphasize that the following words said by Mr. Wong to me disturbed me most. They are:-

'The Counsel fee for Jason Pow to attend court for one day might be more than HK$200,000 and you should be aware of the wasted costs for the attendance of all parties' legal teams on the following day.'

'It would be wise to settle the case at this moment without incurring further legal costs.'

'As Counsel and as friend, trust me and drop the case and end this matter.'

'I am 100% sure that the Judge will do what he has indicated in his Chambers.'

'Decide it now!'

17. As can be seen from my Statement, I was under undue influence and/or duress and/or coercion and/or misrepresentation from Mr. Szeto, Mr. Pow and Mr. Wong (who relayed to me what Mr. Justice Stone said against me) to make an instant decision there and then, to accept the said open offer."

16.  That same afternoon, Stone J's clerk was told that a settlement in principle between the parties had been reached.

17.  On the next day (21 February), when the court reconvened, Mr Pow told the court that the 2^nd Defendant had changed his mind about the settlement.  On the other hand, Mr Wong told the court that the parties were back because of a letter sent by his instructing solicitors who was sitting behind him which enclosed a draft consent summons with amendments suggested by his instructing solicitors; and that the main concern arising from the proposed amendments was that the 2^nd Defendant should be paid his costs.

18.  The narrative can be continued by quoting from the transcript of the proceedings on 21 January:

"Court: Well, I'm simply the judge. I am here to try the lis, L-I-S. There's no one even taking this down today but it's being recorded on the court system. I'm here just to try the lis. I do not know, until Mr Pow tells me and Mr Szeto tells me, what the situation is between P and D1. If the situation between P and D1 can be hived off - H-I-V-E-D - from P and D2, then I simply continue the trial with D2.

If it cannot be, then I've got to continue the trial. Although it may lead to an interesting costs order at the end, because I don't know what's going to happen. Now, Mr Pow, what do you say?

MR POW: My Lord, as far as, I believe, myself and my learned friend Mr Szeto is concerned, yesterday evening, an agreement has been struck between all three parties. And as far as myself and Mr Szeto are concerned, we are never in doubt about our terms of settlement. And it took time for the 2nd defendant yesterday, quite considerable time, to think about it and, eventually, my learned friend Mr Wong conveyed to us that his client agreed, on a drop-hand basis, to settle with the plaintiff.

It seems that now he is suggesting that there is a change of mind by his client, who is not present today, I don't know where he is. But the first thing that comes to my mind is an agreement has been struck.

COURT: Yes, so what you mean is, what you mean is that the original cause of action has merged into the agreement.

MR POW: Indeed, indeed.

MR SZETO: Precisely.

MR POW: And unless there are good reasons put forward by Mr Wong for the 2nd defendant to withdraw from a concluded agreement, the agreement has been concluded - had been concluded yesterday evening.

COURT: Now, I realise that a good deal is said orally, but until the magic initials are put on the magic piece of paper, can we be sure about that?

MR POW: My Lord, the agreement need not be necessarily signed, settlement agreement can be oral and enforceable. Especially, counsel has the authority, express authority to negotiate and then come up with a settlement.

COURT: Just a minute. Has the express authority. Mr Wong, can I ask you, as counsel, did you express agreement to - do you agree with Mr Pow you orally expressed agreement, on instructions?

MR WONG: I did.

COURT: You did?

MR WONG: Yes, I did.

COURT: Orally expressed agreement - I naturally accept what you say without question - on instructions. So you are actually quite embarrassed now, aren't you?

MR WONG: I can't say anything more than that.

COURT: No.

MR WONG: No.

COURT: So you orally expressed agreement on instructions and, thereafter, it was envisaged that the whole thing would be reduced into writing and either endorsed on counsel's brief or endorsed as a consent order.

MR POW: And more importantly, as far as D2 and the plaintiff is concerned, the settlement is very simply, drop-hand, full stop. The drafting requires some refinement only between ...

COURT: Between us. Now, Mr Wong …

MR POW: ... the plaintiff and D1.

COURT: ... Mr Wong, I presume you're agreeing with what Mr Pow is saying as a matter of fact, that you had instructions, you had authority to express agreement orally to drop hands.

MR WONG: Yes."

19.  The following passages from the transcript of the hearing on 21 January should also be noted:

"MR SZETO: So that is the basis of, in particular from our side, the basis of the agreement. So it will be utterly unfair to ask us to go back now to consider whether we should proceed any further with D2 or not. There was an agreement and the agreement was binding. This is our primary concern and our primary position. We struck the settlement agreement with all parties on the basis that this will be the end of this matter, finally, after 11 years.

COURT: I quite understand.

MR SZETO: Very well, my Lord.

COURT: Now, my question is this - and I confess, in 15 years, I've never come across this - assume, hypothetically, that I bless the oral agreement even though D2 hasn't signed off on it, but his counsel tells me he's agreed it with you. Question 1, do I have the power to do that? Because it's not as if a next friend or someone is signing on his behalf. Does...

MR SZETO: My Lord...

COURT: Listen to me, I'm thinking aloud.

MR SZETO: Very well.

COURT: There's four brains at work here. Does Mr Wong stay in the case, because he's embarrassed, because he's told me the truth and those instructions have changed and there's a global settlement which he feels he has to adhere to? Three, do I have the power to say, well, it just goes on then? Or do I hold - it's a repetition of 1 - do I hold D2 to what he allegedly said through his counsel last night, only to change his mind?

Now, I'm not sure of the answers to those and, obviously, I've got to act fairly and jurisprudentially and judicially. Were I to enter a settlement on the basis that you say has been agreed, Mr Pow says has been agreed, and D2's counsel says has been agreed, but not subsequently initialled, or prepared to be initialled on paper by the 2nd defendant who, for some reason, is not here, then do I have the power simply to enter a settlement in those terms and leave D2 to seek his remedy against his solicitor and his barrister?

MR POW: My Lord, my recollection is that - and I stand corrected after checking the authority - is that your Lordship can, because if there is a finding that there was a binding settlement agreement, the court can act on the binding agreement.

COURT: Yes.

MR POW: Now, I remember, if we are given a short moment to check on Bowstead on Agency, I remember there is actually a section dealing with counsel's authority to bind a client in the course of litigation through certain ...

COURT: Certainly, Mr Pow, there is jurisprudence on this.

MR POW: Yes, yes. I want to check.

COURT: And I am in the happy position of having entirely straight and truthful counsel for D2 because the temptation of obfuscate must have been enormous, but he, Mr Wong, has told me that, ‘Yes, I did say that's the agreement,’ then it was going to be reduced into writing and now his client will not sign it.

MR POW: Right.

COURT: So I will rise for a bit. I want to know, Mr Wong – will you take instructions - where is your client?

MR WONG: Instructions were the client is now in Singapore but he'll be back tomorrow.

COURT: Now in -- what's he doing in Singapore? He's in the middle of a trial, which hasn't settled.

MR SZETO: Because of him.

MR WONG: My Lord, I'm afraid I -- you realise ...

COURT: Mr Wong, I'm not getting at you, just relax.

MR WONG: No, no.

COURT: You just sometimes have to strap on your codpiece and take ...

MR WONG: I can't say anything more is what I'm trying to say.

COURT: Client in Singapore, back tomorrow. Well, I'm very sorry, gentlemen. My guts tell me - Megarry said never underestimate the stomach of a commercial silk - my guts tell me that I cannot enter the global settlement, which you maintain has been agreed this afternoon, in the absence of D2. I have no idea - can you get instructions - why he went to Singapore.

MR WONG: My Lord, really to tend to his own family, after having spent in Hong Kong for so long.

COURT: Well, that's nonsense. He's in the middle of a trial. He can only have gone to Singapore on the basis the case is settled. How then, Mr Wong, take instructions, was it communicated to you that he was going to initial? Was it going to be done by fax?

MR WONG: My understanding, is there was a direct phone call between the local solicitor and the Singaporean solicitor.

MR POW: So even your solicitor didn't directly talk to your client? Are you saying that?

COURT: Yes.

MR POW: And how can he be sure that he has -- instructions changed?

COURT: Well, Mr Pow, I've heard all that - because it was sotto voce - and I agree with you. But I'm telling you, gentlemen, that in this totally unique situation, I am not prepared, in that circumstance, to enter a global settlement, although, almost certainly, one exists, in the complete absence of D2, when it appears, from the instructions taken by Mr Wong, that there's merely been a conversation between a Singaporean solicitor and Mr Lee's Hong Kong solicitor.

That is not to say I am not prepared to do something on Monday. But I'm very sorry, whilst I know you are concerned about costs - as indeed have I been from the beginning - there is a limit to what I think I can fairly do. It may be that the costs of Monday will all be thrown onto D2's head anyway because there's no way in the -- when was he going to come back?"

20.  The parties then returned to court on Tuesday, 25 January 2011, when, a different counsel, Mr Li, appeared on behalf of the 2^nd Defendant.  The other counsel in court were Mr Jason Wong, Mr Szeto and Mr Pow.

21.  Mr Jason Wong told the court that he had not been fired but he was

"... simply not instructed to make any submissions on the oral settlement agreement".

22.  I quote from the transcript of the hearing on 25 January 2011:

"HIS LORDSHIP: I am going to read this letter into the record now, Mr Pow, if you would like to sit down.

It is a letter of 21 January, which I assume is Friday.

MR SZETO: Indeed.

HIS LORDSHIP: Attention Twinky Lo, who is my clerk, it's come through on the fax dated 20 January:

'Dear Madam

HCA 16778 of 1999

Asia-Pac Infrastructure Development Limited v Ing Yim Leung, Alexander and others'.

I will now read the letter:

'We are pleased to inform the court that the parties have reached settlement in principle. We have prepared and have circulated a draft consent summons for the defendants' legal teams' comments. The parties anticipate that a signed consent summons will be available by 11.30 pm for his Lordship's consideration and approval.

With a view to saving costs, the parties respectfully propose that the hearing originally fixed for not before 11.15 am today' -- that is the Friday - 'be further adjourned to 2.30 pm today.'

I interpose that I granted that.

'The parties' respective counsel/solicitors will be on standby in their respective chambers/offices in any event. If his Lordship wishes counsel of the parties to address the court on the consent summons or any other issue, they shall be available at short notice.

Please note that the contents of this letter have been agreed by Keith, Lam Lau & Chan (acting for the 1st, 6th, 9th and 10th defendants). Up to now, we have not been able to obtain a confirmation from Tai, Tang & Chong (acting for the 2nd defendant) that they agree with the contents of this letter.

We shall be grateful if you would place this letter before his Lordship for his consideration. Please contact our Norman Hau if you have any queries.

Yours faithfully'.

Then that is signed off by Messrs Tanner de Witt, who are the solicitors for the plaintiffs.

My memory of what happened then is that I waited in my chambers for the consent summons that was said to be coming through. I naturally did not wish to leave court or the court environs until this consent summons came through, but again my memory may be slightly imperfect but round about noon or 12.15, I asked my clerk to telephone Tanner de Witt -- I don't know who she did telephone, she will tell me, but anyway the parties' solicitors -- to find out the state of play. I was told that there was a hitch with the consent summons. I then said to her, as I remember, 'In that case, I won't hang around; I will cause the parties to come back at 2.30 and I will shortly go to lunch', and that is what happened.

When I returned to court at 2.15, and robed to come in at 2.30, there was a hold-up, I remember, of which I am not critical in any way, because Mr Wong, counsel for D2, was not present, nor were his solicitors, I think; is that right?

MR SZETO: Yes.

HIS LORDSHIP: I naturally perceived a difficulty was arising, but not knowing what it was, and waited for Mr Wong to come, and I think he came at about 3 o'clock, apologising profusely because, as he told me, he didn't know he was required to come until 10 minutes before, so he rushed over to court.

I believe at that stage also those instructing him were sitting behind him.

MR POW: No, he came later.

HIS LORDSHIP: Later. Thank you.

At this stage, Mr Wong was good enough to tell me -- no, at this stage I heard from Mr Szeto and Mr Pow, who told me that on the previous evening an agreement had been reached amongst all counsel to settle the case. I was not told anything about the arrangements in Tomlin form between P and D1, but I was told, I believe, and the record will reflect this when it becomes available, because of course the professional transcribers who are here today were not there because they had been told the case had settled, presumably -- I was told that the case against D2 had settled on a drop-hands basis. I believe that came from Mr Szeto or Mr Pow, I can't remember, maybe both.

Mr Wong for D2 then stood up and reiterated that fact. He told me that at the previous evening an agreement had been reached and he had gone across to counsel for plaintiff and D1 and said, 'We agree to settle on a drop-hands basis.'

My memory is, and I again hope that the transcript will bear this out -- this is the DARTS transcript -- that I asked Mr Wong what was the problem and where his client was. Please will counsel stand up and correct me if I'm misremembering?

Mr Wong's reply was two-fold. Firstly, his client was not present, to which I asked, 'Where is he?', and I was told he had flown to Singapore. I was not, I admit, best pleased by his unavailability, but never mind. I did not know why he had flown to Singapore, although Mr Wong's instructions were he had gone to see his family. I then asked Mr Wong to take instructions from the solicitor instructing him, who was by that stage sitting behind him, and who sits behind him today, to find out what had happened.

To cut a long story short, and please will counsel correct me if I misremember, it transpired that the 2nd defendant's solicitor in Hong Kong -- and I must be careful here -- had received a telephone call from a Singapore solicitor, but not from the 2nd defendant himself, to say that he no longer wished to abide by the agreement that had been reached the previous evening.

At this stage, I asked Mr Wong again whether an agreement had been reached, and Mr Wong again reiterated that it had.

At this stage, Mr Pow got up and asked that the agreement be executed. Mr Pow also commented -- and the precise sequence of events may be slightly off, because I can't remember precisely but this is the essence -- that it appeared from Mr Wong's instructions taken from his solicitor that in fact there had been no direct client-to-solicitor contact, D2 to his Hong Kong solicitor contact, and that the only contact had been made from a Singaporean solicitor to D2's Hong Kong solicitor, so that in fact it could not even be said that D2 had been spoken to directly.

At this stage, Mr Wong had helped me all he could, and he had been a great help, and if I may add, had acted totally honourably, in the best traditions of the bar. At this stage, both Mr Szeto and Mr Pow urged me to enter a consent order not only in terms of their agreement, of which I then had and still have no knowledge, but also in terms of the agreement that Mr Wong had assured me had been indicated by him to counsel for the plaintiff and the 1st defendant on the Thursday evening, namely the case between P and D2 had been settled on a drop-hands basis.

At this stage, I ruminated for some time, and ultimately I declined the invitation of Mr Pow and Mr Szeto simply to conclude the matter there and then. Rightly or wrongly -- we all have the benefit of hindsight -- I vaguely remembered, but had not had the chance to look it up, a passage in Bowstead about counsel conveying instructions to other counsel, and an agreement not necessarily having to be in writing, but I had not checked it, nor had Mr Pow had a similar recollection.

I was also concerned by the revelation that no one had actually spoken to D2 personally, and the revelation that he no longer wished to be bound by the prior agreement had only come through a third party who had nothing to do with this case hitherto, namely a Singaporean solicitor, the name of whom I know not.

In the circumstances, I took the view that tempting though it was, the correct course would be to adjourn the matter to Monday, which is this morning, in order to find out more precisely the position before I made any order. I did so with hesitation, but I felt that was the right thing to do, even though it would result, inevitably, in the increased costs that Mr Pow had been trying to avoid when he spoke to my clerk at about 5.15, he tells me, on Thursday evening to say the case had been settled, there would be a consent order and therefore no need for parties to attend court on Friday. In fact they did attend court on Friday at 2.30, I commenced the hearing when Mr Wong arrived at 3 o'clock, but I have dealt with that.

Gentlemen, is that summary -- and you can see I'm reaching a little bit into the recesses of my memory -- a correct representation of what occurred?

MR SZETO: Precisely the case.

MR POW: With just one additional matter. I remember distinctly that Mr Wong indicated that his client will be flying back --

HIS LORDSHIP: You are quite right.

MR POW: -- on Saturday.

HIS LORDSHIP: You are quite right.

MR POW: That's why your Lordship considered we could all come back on Tuesday, because I was unavailable.

HIS LORDSHIP: You are quite right. Let me add this to the record. It was in my mind during the course of my little speech, which I am putting down on the record for obvious reasons. I enquired when D2 would come back and I was told he would be back on the Saturday, and I confess that I thought privately then, although it doesn't much matter, that there would then be room between the Saturday and the Monday to iron things out. But yes, I was told that D2, Mr Lee, would return on the Saturday. I don't know whether he did or when he came back, but I agree with Mr Pow's recollection.

Mr Szeto, you agree with all that?

MR SZETO: Yes, indeed.

HIS LORDSHIP: Mr Pow, you agree with all that?

MR POW: Indeed.

HIS LORDSHIP: Mr Wong, you agree with all that?

MR WONG: I do, yes.

HIS LORDSHIP: We now move to this morning, and I have received, before I came into court at 10 o'clock, a skeleton submission by Mr Szeto which is entitled, 'Skeleton submissions for the plaintiff on the 2nd defendant's attempt to repent' -- I think probably 'to resile from' would be better – 'a settlement agreement reached amongst counsel', and at my invitation Mr Szeto has, as the record will reflect, read the first paragraph of what is on that summary.

I ought to mention for the record that in addition to Mr Szeto, Mr Pow and Mr Wong, who were the counsel in this case throughout the past 14 or 15 days, I think -- I have lost count --

MR POW: It is now Day 13.

HIS LORDSHIP: Okay, the past 12 days -- it is now Day 13 -- the court has been joined by Mr Tony Li, that's L-I, of counsel, who has been instructed in addition, Mr Wong tells me, to make arguments on the settlement; Mr Wong, who remains in court, naturally feeling embarrassed because although he has told me factually what occurred, he now feels, understandably, I must say, in difficulty in making any representation that the settlement is not binding. I apprehend that I will hear Mr Li in due course, who has been sitting here listening to me recount the factual situation.

After putting down the factual events on the record, because it is at least conceivable that this matter will go further, and after having obtained from Mr Szeto and Mr Pow SC and Mr Wong respectively their affirmation that what has been said represents the absolutely correct factual sequence, what I intend now to do, before I hear from Mr Li, who is standing in for Mr Wong to make arguments, Mr Wong having confirmed what he told me last Friday afternoon, I will now hear arguments from all three counsel as to the juridical position.

At the outset, I ought to say that my instinct, although I listen to argument with an open mind, is that agreement having been reached between counsel in that form but not yet committed to paper does not lessen the validity of the agreement, and that conceptually, if indeed there is an agreement, which factually appears to have been the case, albeit not reduced into writing, then such causes of action as there were between the plaintiff and D1 and the plaintiff and D2 must thereafter necessarily have merged into the causes of action. The causes of action of the plaintiff against D1 and D2 must necessarily have merged into the settlement agreement, as a matter of law, so that were there to be any breach, we would not be harking back to the original causes of action prosecuted in the first 12 days of this trial but, we would be looking at the terms of the settlement agreement, if there was any breach.

So the cause of action then for the plaintiff, were the 1st defendant or 2nd defendant to be in breach of the settlement agreement, his cause of action would no longer be his original cause of action for wrongful abstraction of business opportunities, if I can put it generally, but would be for breach of contract, the contract in question being the settlement agreement.

Now, that was my instinctive reaction. I now wish counsel to address me."

23.  Later in the transcript, the learned judge was recorded to say:

"Certainly the fact that you might win a case - - it's well known, the fact that you might win a case, if the court thoroughly disapproves of your behaviour but can't see any causative loss accruing to the plaintiff, he might win a case but not get awarded costs, everybody knows that, because costs are ultimately in the discretion of the court." Page 52.

"I also make the point that whatever was said, either in open court or otherwise, I accept Mr Wong's assurance that nothing was repeated about what had passed between the judge and counsel in private conversation, but the fact remains that I have no idea about the situation with the plaintiff and D2, save for the documents I have been shown by the plaintiff's counsel, which were the product of the Anton Piller seizure, and which to say the least strongly suggested implication by Mr Lee in a rather greater sense than merely as a financial analyst acting under the orders of Mr Ing." Page 53.

24.  At page 54, Stone J said the case of the 2^nd Defendant was that:

Transcript page 54 Line 23

"... he was merely a subordinate acolyte who didn't know what was going on, and was acting on instructions.

All I would say to that -- and again, without having the advantage of seeing D2, one has to keep an open mind -- is that I think he would have had a fairly difficult time in the witness box with some of those documents. That's all I'm prepared to say."

25.  In this context, I note that Deputy Judge To (as he then was), in his judgment of 15 March 2000, in connection with the Plaintiff's application to continue the Mareva injunction granted on 24 October 1999 against the 7^th Defendant and the 7^th Defendant's application to discharge that injunction,

"Mr Bleach SC, has helpfully referred me to numerous incidents disclosed in the affirmations of David Ho and contrasted them with those of the 1st and 2nd defendants and the uncontroverted documentary exhibits. He has demonstrated convincingly that what the 1st and 2nd defendants say in their affirmations is incredible and that they, in particular the 1st defendant, have prima facie diverted businesses or business opportunities which should have been acquired by them for the plaintiff. These opportunities include investing in LPG gas, power and energy industries, telecommunication, and purchase and sale of aircraft parts and an entire fleet of aircraft as pleaded in the statement of claim. In addition to their personal capacities and as directors of these corporate defendants, the 1st and 2nd defendants are also directors of the 7th defendant represented by Mr Chaine. Mr Chaine, very rightly, does not seek to contest what Mr Bleach SC has clearly demonstrated, but submits that even if these defendants were in breach of their fiduciary duties owed to the plaintiff, that is irrelevant as regards the case against the 7th defendant. For the purpose of the proceedings against the 7th defendant, I find that the 1st and 2nd defendants are incredible and I treat their affirmations with the greatest caution."

26.  It is important to note, however, that neither the 1^st nor the 2^nd Defendant took part in the proceedings which led to the making of the above remarks by Deputy Judge To.  Deputy Judge To had made clear in the same judgment, his critical comments about the 1^st and 2^nd Defendants were made without the benefit of hearing their side of the story and therefore could not be binding on them.

27.  I mention Deputy Judge To's remarks to show that Stone J's remarks that the 2^nd Defendant "would have had a fairly difficult time in the witness box with some of those documents", could not be taken as evidence of bias by Stone J against the 2^nd Defendant.

28.  Continuing with the transcript of 25 January at page 57:

"HIS LORDSHIP: I can't go into that, can I? I can't go into that, can I, as a matter of strict analysis?

It was obvious from the beginning, frankly, that this case was ripe for settlement, and I think you will find on record from the beginning me saying that in open court, largely because I'm an old dog and I've been doing the commercial list for many years, and frankly the more I saw of the Anton Piller documents the more, putting it at its lowest, I expected the cross-examination of Messrs D1 and D2 to be far-reaching.

So I'm not at all sure Mr [Li] has got the right end of the stick.

MR LI: My Lord, I regret to say I was just acting on this information.

HIS LORDSHIP: Mr Li, I was just trying to help you. If one is to look at it in strict terms, I don't feel I have exerted any pressure, although doubtless some of the comments I have made in open court might lead some people to think that I think the case is ripe for settlement, but I make no apology for that because it was and is.

Put absolutely bluntly, as a matter of hard legal analysis, I certainly do not think that Mr Wong has, in the terms in which he's expressed himself, any remedy save against his legal advisers, and I doubt very much whether he's got a remedy against them.

But what I look at in this affidavit is, 'I agreed to settle', so he did, and now he doesn't want to, which is what they say.

So I'm not sure, sympathetic though I am to his emotions, as someone tasked with applying the law -- I had no idea what I was going to do on costs. I had no idea of what I was going to make of Mr Wong in the witness box. I had no idea what the result of the case was going to be. But it did seem to me that a lot of the Anton Piller documents were quite interesting, to put it at its lowest.

So I regret that I don't think I can give you an adjournment. I think it will just prolong the agony and I can't be subject to this sort of affidavit, I think. I believe Mr Wong has told me the truth, as I would expect nothing less. He has been consistent in maintaining all the way through that there was an agreement. Since that is the case, any cause of action the plaintiff has is merged into that agreement.

So, for example, if Mr Lee decided to apply to set aside the consent order, he would have to deal with the opposition of the plaintiff, who has effected a global settlement against both D1 and D2. It's a most unusual situation.

I think you can't have an adjournment. I think that's not fair.

MR LI: My Lord, before this matter is finally dealt with today, may I also say a few points?

HIS LORDSHIP: Yes, of course.

MR LI: To me, these depositions in this paragraph 5 show at least something, of course subject to the final adjudication, if this court is minded to have an adjudication on the facts, that this compromise was entered into with duress or coercion.

HIS LORDSHIP: At whose behest?

MR LI: Of course, according to this paragraph, it's from Mr Wong, and there's nothing said here that those pressures were given by other parties to this settlement."

29.  Following the hearing, the learned judge made a consent order dated 27 January 2011 as follows:

"1. the Plaintiff's claim against the 2^nd Defendant and the 2^nd Defendant's counterclaim against the Plaintiff be withdrawn with no order as to costs save those already taxed and paid;

2. the Third Party Notice Claiming Contribution and Indemnity issued by the 2^nd Defendant against the 1^st Defendant and dated 3^rd November 2010 be withdrawn with no order as to costs;

3. the Mareva Injunction Order granted by the Honourable Mr. Justice Yam herein on 24^th October 1999 as continued by the Order of the Honourable Mr. Justice Yeung herein on 29^th October 1999 and as further continued by the Order of Deputy High Court Judge To herein on 9^th February 2000 ('Mareva Injunction Order') (together with the Plaintiff's and its solicitors' undertakings as stated therein and in the Order made by the Honourable Mr. Justice Yam dated 16^th March 2006 ('16^th March 2006 Order')) be discharged;

4. the Plaintiff's and its solicitors' undertakings as stated in the Anton Piller Order granted by the Honourable Mr. Yam herein on 24th October 1999 as continued by the Order of the Honourable Mr. Justice Yam dated 29th October 1999 ('Anton Piller Order') be discharged;

5. the sum of HK$5 million paid by the Plaintiff into an account controlled by Herbert Smith pursuant to the undertaking given to the Court by the Plaintiff in Schedule 2 of the Mareva Injunction Order and Schedule 3 of the Anton Piller Order and then transferred from Herbert Smith to Allen & Overy pursuant to the 16^th March 2006 Order be released forthwith together with any interest accrued thereon to Tanner De Witt, solicitors for the Plaintiff;

6. there be no enquiry as to damages in respect of the Mareva Injunction Order and the Anton Piller Order;

7. as between the Plaintiff and the 1^st, 6^th, 9^th and 10^th Defendants, all further proceedings be stayed upon the terms of settlement agreed between them as set out in the Schedule attached hereto except for the purpose of carrying the Order to be made herein and the terms set out in the Schedule into effect for which purpose the parties are to be at liberty to apply; and

8. for the avoidance of doubt, there be no residual liability on the part of the 2^nd Defendant in this Action even in the event that the 1^st Defendant fails to comply with the terms set out in the Schedule."

30.  In this Court, the 2^nd Defendant asked for leave to:

"… be granted directly by the Court of Appeal under O. 59 r. 2B(4) of the Rules of the High Court for the 2^nd Defendant to appeal against the Order of the Honourable Mr. Justice Stone made herein on 27 January 2011."

Application for leave

31.  The application for leave was heard by us on Friday, 8 April 2011.

32.  At the hearing, the 2^nd Defendant appeared in person, so did the 1^st Defendant. The 1^st Defendant also represented the 6^th, 9^th and 10^th Defendants.  The Plaintiff was represented by Mr Patrick Szeto.

33.  Mr Szeto submitted that the 2^nd Defendant did not dispute that he had, on 20 January 2011, in the presence of his solicitors' representative, instructed his counsel Mr Wong to accept a "drop-hand" offer made by the Plaintiff in open court.  Nor that Mr Wong had confirmed in open court that upon those instructions from the 2^nd Defendant, he informed counsel for the Plaintiff that the 2^nd Defendant accepted the Plaintiff's offer to settle on a "drop-hand" basis.  That acceptance was made in the presence of the 2^nd Defendant's personally, and also the 2^nd Defendant's solicitor's representative and senior counsel for the 1^st, 6^th, 9^th and 10^th Defendants.  A settlement agreement was thereby reached between the Plaintiff and the 2^nd Defendant at that time.  Mr Wong's confirmation is binding on the 2^nd Defendant.  It appeared that the 2^nd Defendant changed his mind because his wife was very upset by the news of the settlement because they would not be able to repay their debts and has threatened to commit suicide.

34.  Mr Szeto submitted that the court has power to endorse a party's settlement agreement in the form of a consent order when:

1. There is a binding settlement agreement;

2. The parties' agreement / intention was to embody the settlement agreement into a consent order. See The Law and Practice of Compromise, 7^th Edition at 104 to 110.

35.  He also submitted that the meaning of a "drop-hand" settlement is clear.  Indeed there is no suggestion that the 2^nd Defendant did not understand what it meant.  It was not "too vague to be a conclusive settlement agreement" as the 2^nd Defendant suggested.

36.  I turn to deal with the 2^nd Defendant's submissions.

37.  First, he complained that he was not aware of the terms of the settlement between the Plaintiff and the other Defendants, in particular, the 1^st Defendant.

38.  But that was not an obstacle to the 2^nd Defendant entering into a binding agreement with the Plaintiff. Of course, he could have refused to settle except upon disclosure to him of the terms of settlement between the Plaintiff and the other Defendants.  But that was not what happened.  Indeed, it appears from the 2^nd Defendant's oral submission to us at the hearing that he was aware that the agreement between the Plaintiff and the other Defendants involved payment by the 1^st Defendant to the Plaintiff, although he did not know the exact amount.

39.  The 2^nd Defendant also complained of bias, both real and perceived, on the part of Stone J.

40.  The 2^nd Defendant referred to the fact that the learned judge had said more than once in the course of the trial, that the case was ripe for settlement.  Having gone into the history of the proceedings, I cannot say that the learned judge was not entitled to say that the case was ripe for settlement. Moreover, if the remarks by the learned judge that the case was ripe for settlement had exerted any pressure at all, it was pressure which was applied to all the parties to the proceedings. 

41.  Had the judge applied undue pressure on the 2^nd Defendant after the open offer was made? I do not believe so. 

42.  The 2^nd Defendant relied, in particular, on what his counsel, Mr Wong told him about the conversation with the learned judge in Chambers.  It is important to bear in mind that the conversation took place in the privacy of the judge's Chambers, and he was speaking to counsel on a "between counsel" basis.  In such circumstances, a judge might speak plainly.  So that if a judge should say to counsel that even if his client should succeed, it would not follow that he would be given costs, the judge might not think it necessary to remind counsel that, his observation was subject to persuasion by counsel to the contrary.  Mr Wong was a counsel of over 10 years' experience.  He was conducting a case in the commercial court.  He would know that even when a judge had expressed himself forcefully, or made a point forcefully, he was open to persuasion to the contrary.  It is an everyday occurrence for judges to modify their views after hearing submissions from counsel; and judges would expect counsel to correct them if they are wrong.  Indeed, judges welcome such corrections.

43.  There is a conflict between what the 2^nd Defendant claimed Mr Wong to have told him and what Mr Wong said he had told the 2^nd Defendant.  Mr Wong had stressed that he had made his own analysis and advised the 2^nd Defendant accordingly.  To be fair to Mr Wong, having regard to Deputy Judge To's remarks quoted in para 25 above, Mr Wong could reasonably take the view that the 2^nd Defendant's success on liability could not be taken for granted.  But that does not matter.  Even on the basis of the 2^nd Defendant's allegation, I do not believe that there is any basis to undo the agreement between the Plaintiff and the 2^nd Defendant.

44.  As for the open offer in court, the 2^nd Defendant submitted that it was sharp practice for a party to make an open offer to settle proceedings.  I do not agree.  I can see no reason in principle why an open offer may not be made.

45.  The 2^nd Defendant also complained that the effect of the consent order was that the fortification money of $5 million would be released to the Plaintiff.  But so far as the 2^nd Defendant was concerned, he would have no claim to the fortification money after the settlement. 

46.  He also complained that the settlement was conditional upon the 1^st Defendant's payment to the Plaintiff and that he had not agreed to that.  But the consent order made by the learned judge was not conditional in any way.  As Mr Szeto had told Stone J the Plaintiff would simply sue the 1^st Defendant on the settlement.

47.  To conclude, I am of the view that Stone J acted properly in making the consent order as the following passage from The Law and Practice of Compromise shows:

"… a court would have jurisdiction to make an appropriate consent order giving effect to a previously concluded compromise notwithstanding the lack of formal consent to the making of the order by one of the parties, provided there was an express or implied term in that agreement that the order should be made. The court would find the consent to the order or judgment in the original agreement, a consent which, having regard to the implied term as to co-operation referred to previously, is to be regarded as irrevocable." Para. 5-58

48.  I should also add that after the conclusion of the hearing and without the leave of the Court, the 2^nd Defendant submitted further written submissions.  There is nothing in the written submissions which requires further comment.

49.  At the conclusion of the oral hearing, we asked the parties to prepare a Statement of Costs for gross sum assessment.  The Plaintiff has prepared a statement dated 11 April 2011, giving as their total costs and disbursements the sum of HK$140,875, which included counsel's fee for the hearing before us of HK$60,000.  The 1^st Defendant has also submitted a statement of costs totaling $107,400.  The 1^st, 6^th, 9^th and 10^th Defendants had been represented until 7 March 2011.  Having regard to the amounts involved and the costs of taxation, I would make a summary assessment of costs and order the 2^nd Defendant to pay the Plaintiff's costs in the sum of $80,000, and the 1^st, 6^th, 9^th and 10^th Defendants' costs in the sum of $50,000.  On taxation, it is unlikely that less would be awarded.

50.  I would dismiss the 2^nd Defendant's application, and order the 2^nd Defendant to pay the costs of the Plaintiff in the sum of $80,000 and the 1^st, 6^th, 9^th and 10^th Defendants in the sum of $50,000.

Hon Yuen JA:

51.  I agree.

Hon Tang Ag CJHC:

52.  The 2^nd Defendant's application is dismissed.  The 2^nd Defendant to pay the Plaintiff costs in the sum of $80,000 and the 1^st, 6^th, 9^th and 10^th Defendants costs in the sum of $50,000.