CHAN CHI MING v. BRILLIANT RISE CONTAINER DEPOT LTD t/a 逸昇重櫃場 AND ANOTHER

CACV 202/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 202 OF 2008

(ON APPEAL FROM HCA NO. 1110 OF 2003)

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J U D G M E N T

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Hon Stone J:

This appeal

1.  This is a “wasted costs” appeal.

2.  By Orders dated 24 December 2007 and 20 May 2008, Madam Justice Chu acceded to the plaintiff’s application, by summons dated 21 May 2007 taken out pursuant to the provisions of Order 62, rule 8 RHC, that the solicitors acting for the 2^nd defendant in this action, Messrs Ko & Chow, personally should pay the wasted costs incurred by the plaintiff in pursuing his claim against the 2^nd defendant during the period 17 September 2004 to 11 September 2006.

3.  The solicitors who thus were penalized are dissatisfied with this Order – hence this appeal.

The procedural background

4.  There is a somewhat tangled procedural history underpinning this appeal.

5.  This matter has its origin in a claim brought in HCA 1110 of 2003 by the plaintiff against the 1^st and 2^nd defendants for declaratory and injunctive relief, and damages, for trespass in respect of three lots of land in the New Territories.

6.  In her detailed judgment upon this primary action, handed down on 7 May 2007, Madam Justice Chu had found in favour of the plaintiff against the 1^st defendant, and had ordered that declaratory and injunctive relief should issue, in addition she made an award of nominal damages in the sum of $100.

7.  The significance of this judgment for present purposes was that, as the learned judge records (at paragraph 1):

“This Judgment only deals with the claim against the 1^st defendant.  The claim and the trial against the 2^nd defendant cannot be proceeded with as the 2^nd defendant was deregistered on 17 September 2004, a fact which was only made known to the plaintiff a few days before the trial.”

8.  The legally aided plaintiff – or more accurately, no doubt, those funding his action, who had caused monies to be expended in pursuing the claim against the de-registered corporate 2^nd defendant – were discomfited by the revelation as to this de-registration, and decided to proceed against Messrs Ko & Chow, the solicitors who had purported to act for the 2^nd defendant.  The facts establish the solicitors validly had been retained by one Mr Man, a director of the 2^nd defendant, prior to the de-registration, and thereafter, unknown to them, this de-registration of the 2^nd defendant had occurred shortly after the filing of the plaintiff’s claim; indeed, it appears tolerably clear that the de-registration, effected at Mr Man’s behest, was in direct response to the claim as mounted by the plaintiff.

9.  Hence the issuance of the plaintiff’s “wasted costs” summons dated 21 May 2007, which applied for an order that Messrs Ko & Chow do show cause why it should not personally be liable for the wasted costs incurred by the plaintiff in prosecuting the claim against the 2^nd defendant for the period from 17 September 2004 to 11 September 2006.

10.  In her careful and detailed Decision on this application, dated 24 December 2007, which was rendered consequent upon the filing of affidavit evidence, Madam Justice Chu reviewed the history of events, and concluded (at paragraph 52 thereof) that in her view the firm of solicitors – which had thought they had possessed valid authority to represent the 2^nd defendant but by reason of the intervening de-registration in fact did not, so that their continuation on the record constituted a breach of their warranty of authority so to act –personally should be liable for the wasted costs incurred by the plaintiff in the period 17 September 2004 to 11 September 2006.  The significance of this period is that this is the period between the formal de-registration of the 2^nd defendant, and the date upon which the solicitors for the 2^nd defendant, Messrs Ko & Chow, formally ceased to act.

11.  This decision of the learned judge, which if I may respectfully say so is conspicuous by the careful thought and reflection therein, speaks for itself, and for present purposes no necessity arises for further narration, save to refer to one particular matter which was decided by her Ladyship, the significance of which has figured large in argument upon this appeal. 

12.  It is this.

13.  On 26 November 2007 the solicitors in question, Ko & Chow, had sought to remedy the unfortunate situation in which they now, albeit unwittingly, had found themselves, and had issued HCMP 2370 of 2007, naming themselves as Applicant and the Registrar of Companies as Respondent, and wherein they had sought, at paragraph 1 of this originating summons, an order pursuant to section 291AB(2) of the Companies Ordinance “that the Registrar of Companies shall reinstate the registration of the Company [the 2^nd defendant] that was deregistered under section 291AA of the Companies Ordinance”.

14.  Such application was backed by an affirmation of Mr Ko Kok Fai, a partner of Ko & Chow; paragraph 8 of that affirmation is the key paragraph, and reads:

“As a result of the deregistration of the Company, we have to face the Plaintiff’s application for costs and feel aggrieved by the deregistration of the Company.  In the circumstances, we make this application to the Court for the reinstatement of registration of the Company under section 291AB(2) of the Companies Ordinance (Cap 32).  In reinstating the Company, we can bring the Company as a proper party before the Court so that the Court can adjudicate whether we should still be liable to pay the Plaintiff’s costs of the Action.”

15.  Such reinstatement of the 2^nd defendant duly was achieved. 

16.  By Consent Order of Mr Justice Poon dated 30 November 2007 it was recorded, at paragraph 1 thereof:

“The registration of the Company be reinstated to the register of the Companies Registry for a period of one year, subject to a further order by the court”

and by paragraph 2, the applicant was to deliver a sealed copy of the order of reinstatement within 7 days of the date of the Order to the Registrar of Companies for registration.

17.  Consequent upon such reinstatement, Madam Justice Chu was faced with an argument revolving around the effect of section 291AB(5) of the Companies Ordinance, which provides:

“A company reinstated under subsection (1) or (2) is taken to have continued in existence as if it had not been deregistered.”

18.  Counsel then acting for Ko & Chow, Mr Lin, had argued that section 291AB(5) had the effect of validating retrospectively all acts done by the solicitors in the name of or on behalf of the 2^nd defendant during the period between its deregistration and the reinstatement.

19.  To the contrary, counsel then, as now, acting for the plaintiff, Mr Lawrence Ng, had submitted that this was incorrect, and was to ignore the specific provision of section 291AB(3), which reads:

“If the court makes an order [for reinstatement] under subsection (2), it may –
validate anything done between the deregistration of the company and its reinstatement; and
make any other order that it considers appropriate.”

20.  Faced with these competing lines of argument, the learned judge preferred Mr Ng’s approach, observing (at paragraph 38) that the construction based on section 291AB(5) “would render subsection (3) superfluous and redundant”, and thereafter concluding (at paragraph 40) that:

“In my view, an order reinstating a deregistered company under section 291AB(2) will not automatically validate the things done by the company during its deregistration and reinstatement.  A separate order under subsection (3)(a) is required in order to bring about the effect of retrospective validation.”

21.  Having thus disposed of this construction argument, the learned judge rejected the further argument that the plaintiff had not proved its ‘wasted costs’ loss, and at the end of her judgment issued on 24 December 2007, she further ordered that written submissions on costs be filed.  In turn these submissions resulted in her Ladyship’s subsequent Decision on Costs dated 20 May 2008, paragraph 26 of which neatly crystallises the view of the learned judge on the point:

“In the circumstances of the present case, I am of the view that it is a proper exercise of the court’s discretion to order KC [Ko & Chow] to indemnify the plaintiff for the wasted costs on an indemnity basis.  There is nothing to justify a departure from the principle of compensating the plaintiff for the costs wasted as a result of KC’s acting without authority.”

22.  The judge’s Order of the same date reflected this view (at paragraph 1 thereof), and at paragraph 2 thereof she further ordered that:

“The costs of the plaintiff’s summons filed on 21 May 2007 be paid by Ko & Chow personally to be taxed on a common fund basis, if not agreed.”

Paragraph 3 further noted that the plaintiff’s own costs be taxed in accordance with the Legal Aid Regulations.

23.  By Notice of Appeal dated 23 July 2008, as subsequently amended, Messrs Ko & Chow appealed against these Orders of Madam Justice Chu, and requested that the ‘wasted costs’ order and the subsequent costs order be set aside, and further that the costs of the plaintiff’s summons filed on 21 May 2007 be paid by the plaintiff, to be taxed if not agreed.

24.  Had the factual situation remained thus, doubtless this appeal would have taken a different course.  However, subsequent events have given the matter a different complexion.

Post judgment events: the ’validation order’

25.  Perhaps mindful of the observation of Chu J that a separate order under subsection (3)(a) is required in order to bring about the effect of retrospective validation, the solicitors, Ko & Chow, set about doing just that.

26.  By a further summons dated 27 November 2008 and issued in HCMP 2370 of 2007, wherein that firm of solicitors again was the applicant and the Registrar of Companies the respondent, Ko & Chow sought, inter alia, orders that first, the registration of the 2^nd defendant be reinstated to the register of the Companies Registry “for a period of two years from 30 November 2008, subject to further order of the court”, and second – and of particular importance in the context of the present appeal – an order that:

“All acts done by the Company during its prior deregistration for the period from 17 September 2004 to 30 November 2007, including all acts done and all instructions given by the Company in and for the conduct of HCA 1110 of 2003 from 17 September 2004 onwards, be validated with retrospective effect as if the Company had not been deregistered. “

27.  This application was backed by an affirmation of Mr Cyrus Tin of Deacons, the solicitor acting for Ko & Chow.  This affirmation condescends to some detail, setting out the background which had led to this application, including the fact that the deregistration of the 2^nd defendant company had been wholly unknown to Ko & Chow; paragraphs 6 (i)-(v) read as follows:

On 10 May 2004 and by a board resolution of the Company of even date, Ko & Chow was retained by the Company to defend the Action [HCA 1110 of 2003] on behalf of the Company.  Ko & Chow was earlier retained to act for the 1^st defendant Brilliant Rise Container Depot Limited.

However, on 13 May 2004 and unbeknown to Ko & Chow and any other parties, the Company made an application for deregistration under Section 291AA of the Companies Ordinance, and the deregistration took effect on 17 September 2004.

Despite the deregistration (which was unbeknown to Ko & Chow), instructions as to the conduct of the Action regarding the Company was given by and obtained from a Mr Man Yu Kam who was a shareholder and director of the Company.

It was not until 2 September 2006 (ie. about 2 years later and 9 days before the trial of the Action on 11 September 2006) that the Applicant was informed by Mr Man for the first time that the Company was deregistered.  In view of the deregistration, Ko & Chow had no alternative but to seek leave to cease to act for the Company on the first day of the trial.

It appears that when the Company made the application for deregistration, the Registrar of Companies had not been informed of the existence of the Action and the claim against the Company.  It also appears that the application for deregistration would not have been approved if the Registrar of Companies had been informed of these facts.  The Company should not have been allowed to be deregistered in the first place.”

28.  Having thus set the factual scene, the deponent then rehearses the application for an Order requiring Ko & Chow personally to pay the costs for the period from 17 September 2004 to 11 September 2006, and states that despite the Reinstatement Order for the 2^nd defendant which had been obtained in November 2007, Madam Justice Chu nevertheless had made the “wasted costs” order against Ko & Chow; the existence of the appeal against that order as had been lodged on behalf of the solicitors is also noted, the relevant Notice of Appeal being exhibited, together with a copy of Madam Justice Chu’s judgment dated 24 December 2007, and observations thereon.

29.  This affirmation also states (at paragraphs 11 and 12) that given the imminent expiry of the existing Reinstatement Order on 30 November 2008, and in light of the pending appeal, Ko & Chow wish to apply for an extension of the Reinstatement Order for a period of 2 years, and that in light of the judgment of Madam Justice Chu, “and in order to rectify and supplement the previous reinstatement”, Ko & Chow wished to apply to the Court for an additional order under section 291AB(3) of the Companies Ordinance in order to “expressly validate all acts done and all instructions given by the Company in and for the conduct of the Action during its deregistration from 17 September 2004 onwards (‘the Validation Order’)”.

30.  It also was stated that the Registrar of Companies had indicated that he had no objection to the application for the 2 year extension to the Reinstatement Order, and that the Registrar “takes a neutral stance” to the application for the Validation Order.

31.  I take the opportunity to quote parts of this affirmation, because it seems clear that relatively full (and in the circumstances entirely proper) disclosure was made about the object and purpose of the application, and its background.

32.  In the event, this application was granted on 10 December 2008 by Deputy Judge To; not only was the reinstatement of the 2^nd defendant extended for 2 years as from 30 November 2008, but, crucially, paragraph 2 of the Deputy Judge’s Order of that date is in the following terms:

“All acts done by the Company during its prior deregistration for the period from 17 September 2004 to 30 November 2007, including all acts done and all instructions given by the Company in and for the conduct of HCA 1110/2003 from 17 September 2004 onwards, be validated with retrospective effect as if the Company had not been deregistered. [emphasis added]”

33.  As will shortly be seen, the existence and content of this Order has figured large in the present appeal.

Summons to admit ‘new evidence’

34.  Clearly the ‘validation order’ as granted by Deputy Judge To on 10 December 2008 was a post-judgment event of significance which the solicitors were keen to bring to the notice of this appellate court.

35.  Accordingly, by summons dated 27 May 2009, Messrs Deacons on behalf of Ko & Chow sought to move the court to adduce at the appeal “the following new evidence, namely, the enclosed sealed copy of the Order of Deputy High Court Judge To made on 10^th December 2008 in HCMP 2370 of 2007”.

The argument

36.  Detailed and helpful skeleton arguments, accompanied by copious authorities, were received from both sides: from Mr Maurellet for the appellants, Ko & Chow, and from Mr Ng for the legally-aided plaintiff, and I mean no disrespect to their efforts if I do no more than summarise the main planks of each side’s submission.

37.  For the solicitors Mr Maurellet contended that the validation order effectively had repaired the position, provided that the court was prepared to take it into account.

38.  Alternatively, and even were the validation order not to be taken into account, his position was that Madam Justice Chu had been in error in failing to give to subsection 291AB(5) the wide significance it imported, and submitted that on that ground alone the “wasted costs” order should be set aside.

39.  For the respondent plaintiff, Mr Ng most tenaciously argued that the Order of Deputy Judge To should not be taken into account, and further that the reasoning of Madam Justice Chu to the effect that a validation order was necessary in addition to mere reinstatement order was unimpeachable, and thus should be upheld.

Decision

40.  I turn first to the issue of the admission of the so-called ‘fresh evidence’, although for my part I was by no means convinced that this was fresh evidence in the usually accepted sense, since the ‘evidence’ in question was no more than an Order of this High Court in HCMP 2370 of 2007, albeit obtained subsequent to the judgment of Madam Justice Chu.

41.  In opposing its introduction, Mr Ng noted that “inequitable conduct is plainly relevant to the exercise of the court’s discretion”, and that by reason of the belated application by the solicitors for the validation order as eventually obtained, it would be “highly unfair” to the plaintiff to permit this to be adduced at this late stage, noting the undesirability in principle of admitting fresh evidence on appeal and that “there ought to be finality in litigation”.  He noted, further, the lack of any explanation for the delay of more than 5 months in filing the summons in question.

42.  There is no doubt that Mr Ng said all that could have been said, and possibly more, on the issue of whether the court should take into account the lately-obtained validation order in the terms stated on the face of Deputy Judge To’s order, but for my part I would have found it wholly artificial to proceed with this appeal without taking account of this order.

43.  In my view it would have been an affront to common sense if the court had elected to proceed with this appeal on the basis that the ‘validation order’ did not exist, and it remains an inescapable fact that this Order of Deputy Judge To never has been challenged by the plaintiff, so that the Order remains extent and on the record.

44.  True it may be, as Mr Ng observed, that the plaintiff was not served with the ‘validation application’, but the court was informed that at the hearing before Deputy Judge To the instructing solicitor for the plaintiff had been present in court qua observer, so there is no question of the plaintiff not knowing about what had been happening.

45.  Yet despite the vigorous objections now raised by Mr Ng, the hard fact is that the plaintiff to-date had taken no steps to upset or otherwise to vary that Order, and whilst at an early stage in this appeal Mr Ng had indicated that if the Order was to be ‘admitted’, he had instructions to ask for an adjournment of the appeal in order to challenge the Order out of time, nevertheless by the end of the proceedings he was kind enough to clarify to the court that, upon reflection, his client did not wish to proceed in this manner, and accordingly that he would seek redress in the form of costs – in my view an entirely sensible and the practical attitude to adopt.

46.  Hence, notwithstanding Mr Ng’s protestations, in the exercise of its discretion the court received this new ‘evidence’, and thereafter proceeded on that basis.

47.  This being so, there seemed to be no logical answer – as indeed Mr Ng ultimately appeared to accept – to Mr Maurellet’s submission that the validation order as made by Deputy Judge To thus had removed the basis upon which Madam Justice Chu had made the order for ‘wasted costs’, wherein she had held that a reinstatement order on its own did not solve the problem, and that section 291AB(5) did not have the widespread curative effect for which the counsel for the solicitors then had contended, and that a section 291AB(3) validation order (which of course subsequently was obtained) was required.

48.  Thus, said Mr Maurellet, even if the learned judge below indeed was correct in her view as to section 291AB(5), Cap 32, by reason of Deputy Judge To’s Order, which was retrospective in effect, the solicitors now cannot be said to have acted without authority, and thus the ‘wasted costs’ order, which was made against them on that specific premise, must be set aside.

49.  For my part I accepted this submission, and in my view this appeal must be allowed on this basis alone.

50.  This then left for debate the ‘construction issue’, that is, the interpretation of section 291AB, Cap 32, upon which the court entertained a degree of spirited argument, including reference to a number of Australian authorities, albeit based upon a slightly different form of statutory wording.

51.  In light of the fact that this appeal has been allowed on the basis of the existence of this ‘validation order’, this court did not have finally to decide this point, and indeed I do not purport to do so, although I would venture the observation, albeit on the basis of limited argument – which was aimed as much to the general issue of costs than anything else – that in my view Madam Justice Chu’s analysis of the position appears to me, with great respect, to be both sound and analytically correct.

52.  However, a final appellate decision on the point must await another day.

Order

53.  By reason of the foregoing, therefore, in my judgment the substantive appeal herein should be allowed, and that the ‘wasted costs’ order as made at paragraph 1 of the Order of Madam Justice Chu dated 24 December 2007, and paragraph 1 of the Order of Madam Justice Chu dated 20 May 2008, is to be set aside.

Costs

54.  This leaves extant the thorny issue of costs, on occasion an aspect of a case which proves more difficult than resolution of the substantive issue.

55.  Although this court indicated that it would make an order nisi as to costs, at the conclusion of argument upon this appeal counsel for each party was invited to give their preliminary view were this appeal to be resolved by reference to the Order of 10 December 2008.

56.  For his part Mr Ng submitted, as I understood it, that as to the costs of this appeal there should be no order as to costs, and that the order as to costs made by Chu J below, at paragraphs 2 and 3 of her Order dated 20 May 2008 should stand, namely that the costs of the plaintiff’s summons filed on 21 May 2007 be paid by Ko & Chow personally, such costs if not agreed, to be taxed on a common fund basis, and that the plaintiff’s own costs were to be taxed in accordance with Legal Aid Regulations.

57.  Mr Maurellet took the view that were his clients to be successful on this appeal, then the costs thereof should follow the event, but that there should be no variation to the costs’ order as made below by Madam Justice Chu.

Order nisi as to costs

58.  After some reflection, and after taking into account all the circumstances of this case, I would be minded to make an order nisi as to costs in the following terms:

(i)      that the order as to costs made by Madam Justice Chu in her Order dated 20 May 2008 do stand;

(ii)     that there be no order as to costs of this appeal; and

(iii)    that the plaintiff’s own costs be taxed in accordance with Legal Aid regulations.

59.  I would further order that order nisi as aforesaid is to become absolute unless within 21 days of the date hereof either party files with the court a written submission seeking to vary such order nisi.

Hon Hartmann JA:

60.  I concur with the very full judgment of Stone J, both as to his disposition of the appeal and his orders as to costs.

61.  The appeal is therefore allowed in accordance with paragraph 53 of this judgment.  As to costs, there will be an order nisi in accordance with paragraphs 58 and 59 of this judgment.