BAKER & MCKENZIE (A FIRM) v. THE GRANDE HOLDINGS LTD AND OTHERS

HCMP1971/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1971 OF 2010

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J U D G M E N T

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1. The plaintiff (“BM”) is a firm of solicitors seeking taxation of its bills rendered to the defendants (former clients), and interim payment pending taxation.  The defendants resist the application on the ground that BM had been negligent in the conduct of matters for which they were retained to act.  The defendants ask for these proceedings to be converted into a writ action.

UNDISPUTED FACTS

2. Invoices were rendered to the relevant defendants over a period of 10 months from 27.10.2008 to 25.08.2009 in respect of 4 categories of work:

(i)  Akai Holdings Ltd (In Liquidation) and Ors v. Ho and Ors, HCCL 37 and 40 of 2005 (“the Main Proceedings”);

(ii)  Advice on enquiries from the Stock Exchange (“HKSE Enquiry”)’

(iii)  Compliance with disclosure requirements of Listing Rules and general compliance (“Listing Rule and General Compliance Matter”);

(iv)  Advice on regulatory and other personal matters (“Personal Matter”).

3. The defendants have made part payment in the sum of $2,369,301.66 on around 17 February 2009 on account of counsel’s fees for the Main Proceedings; another $3,118,768 and US$35,719.77 on account of fees and settled one invoice to D11 for the Main Proceedings.  In the final notice dated 10.5.2010 before action, BM referred to a promise of Mr Ho in February 2010 to settle counsel’s fees in full by March 2010 and his further assurance in April that counsel fees would be settled in May 2010.  The amount now outstanding is in the region of HK$28.8 million and £98,864.

4. After the termination of BM’s retainer and up until early November 2010 the defendants had never denied liability to pay nor alleged that BM had been negligent.  All that the defendants did was to challenge the quantum as being inflated, ask for discounts and make promises to pay that were not honoured.

5. BM applies pursuant to section 67(2) of the Legal Practitioners Ordinance Cap 159 for:

(i)  An order that the invoices be referred to a taxing master for taxation on solicitor and own client basis;

(ii)  An order for interim payment of the total outstanding disbursements and 50% of the outstanding fees;

(iii)  An order for payment of 50% of the outstanding fees into court.

THE DEFENCE

6. The defendants dispute the claim, asserting:

(i)  That BM has been negligent in failing to advise or in giving wrong advice on the shareholdings of the 9^th defendant (Mr Ho) in the 1^st defendant (“Grande Holdings”).

(ii)  That BM’s retainer, which was an entire contract, was rendered valueless by BM’s alleged negligence.

Accordingly, BM is not entitled to recover or to retain any remuneration for the work in question.

7. The defendants say that there are triable issues concerning negligence.  The documents are voluminous, comprising 8 affirmations, over 7,350 pages of documents, all contained in 21 bundles before the Court.  Just BM’s affidavits and bundles comprise 15 bundles.  The case should thus be treated as if commenced by writ with directions for the filing of pleadings.

8. In addition, the defendants challenge the power of the Court to make an order for interim payment.

THE ISSUES

9. The issues are:

A.  Whether the originating summons procedure is suitable for this case;

B.  Whether BM had been negligent in the provision of its service ;

C.  Whether there are triable issues for each category of work;

D.  Whether interim payment should be ordered in favour of BM.

A.     WHETHER THE ORIGINATING SUMMONS PROCEDURE IS SUITABLE FOR THIS CASE

10. In accordance with O.28, rules 3 and 4, if the judge decides that the matter can be dealt with summarily, then an order disposing of the entire proceedings can be made. This is akin to an application for summary judgment under O.14, but with the difference that the burden is not cast upon the defendant, as in O.14.  Unlike O.14 applications, the plaintiff must first justify its entitlement to summary judgment in an application for summary determination in chambers, but once this was demonstrated prima facie on the evidence, the burden fell on the defendant to show that he had a defence to the claim.  Hong Kong Civil Procedure 2011, para 28/4/1.

11. Where massive documents are involved, the originating summons procedure may not be appropriate.  In Wing Hang Bank Ltd v. Crystal Jet International Ltd & ors, HCMP 5014 of 1999, 15.4.2000, Cheung J did not even decide whether there were any triable issues raised by the defendant when he was faced with massive evidence.

“5. What matters here is the fundamental question of how civil litigation should be conducted. It has to be borne in mind the originating summons procedure was invented for the purpose of quickly determining simple points without pleadings: paragraph 7/0/2 SCP. The emphasis is on simple points.

6. The parties in this case have filed a total of 19 affidavits and the documents prepared for the hearing consist of two large volumes with a total of 652 pages. In my view, it tantamounts to an abuse of process to require a judge in an originating summons proceeding to plough through 19 affidavits and voluminous exhibits in order to determine whether any triable issue exists between the parties. The absurdity of the situation is self apparent. The matter should never have been dealt with in this manner. This is particularly unacceptable when the Rules actually provide for directions and how they should be given for the future conduct of the case. Any attempt to persuade a judge to undertake the course suggested by the plaintiff should be strenuously resisted.”

Cheung J’s decision was affirmed by the Court of Appeal in CACV140 of 2009 on 9.6.2000.

12. The Court should consider whether the defendants’ assertions are believable: Re Safe Rich Industries Ltd, CACV81 of 1994, 3.11.1994, Bokhary JA (as he then was):

“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable. But it must be recognized – because failure to recognize it would create a debt-dodgers’ charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”

13. If the factual assertions of the defendant are simply unbelievable when taken against the indisputable background, the Court may dispose of the matter summarily.  In Ip Kam Wah & Anor v. Fair City Group Ltd [2005] 4 HKLRD 168,

“8. I accept that, unlike the plaintiff in an order 14 application, the plaintiff in an originating summons procedure bears the burden of proof. When faced with conflicting affidavits from both parties, the court will be failing in its duty if it should take the assertions in the affidavits on their face value in isolation and jump to the conclusion that there is a triable issue without first considering whether the assertions in the affidavits are believable. I bear in mind the test laid down by Bokhary JA (as he then was) in Re Safe Rich Industries Ltd, Civil Appeal No 81 of 1994 that whether the assertions are believable is a question to be answered not by taking the assertions in isolation but by taking them in the context of so much of the background as was either undisputed or beyond reasonable dispute. In an originating summons procedure, it is only when the court is satisfied after having undertaken that exercise that factual disputes could not be resolved on affidavit evidence that oral evidence or trial should be considered.”

14. In the present case, notwithstanding the volume of documents, counsel on both sides have very ably referred to the core documents in their respective skeleton submission. The rest of the materials, which I have also read, are to set those core documents against the proper background.  There is thus nothing to deter the Court from making a decision on merits if it finds it justified to do so.

B.    WHETHER BM HAD BEEN NEGLIGENT IN THE PROVISION OF ITS SERVICE

The Legal Principles Concerning Negligence of a Solicitor and Costs

15. If negligence is alleged against the solicitor, the client’s remedy lies in proceedings in negligence but not an order for retrial:

“… had there been any fault or blameworthiness on the part of YSLP in failing to call potential witnesses, his client’s remedy lay in proceedings in negligence against YSLP and not in an order for a retrial. The court system would grind to a halt if an unsuccessful litigant could obtain an order for a retrial on the basis that relevant evidence could have been obtained with reasonable diligence but had not been adduced at the trial, not to mention the injustice of depriving the successful party of a judgment in his favour after a full trial.”

Cheung Yiu Wing v. Celestial Asia Securities Holdings Ltd, CACV 254 of 2005, 22.6.2006.

16. Once negligence is established, the solicitor will be deprived of all his costs in relation to the relevant proceedings: Heywood v. Wellers [1976] QB 446:

“In the first place, the contract of the solicitors was an entire contract which they were bound to carry on to the end; and, not having done so, they were not entitled to any costs.

…

In the second place, the work which they did do was useless.  It did nothing to forward the object which the client had in view…. It being thus useless, they can recover nothing for it.”

17. The solicitor will also be unable to recover disbursements or has to repay any disbursements received from the client.  He may also have to bear costs of the other party: Ho Lee Man v. Wong Wai Kai (No.2) [1993] 1 HKC 193at page 202.

“The solicitors [so guilty of ignorance and incompetence as amounting to a gross dereliction of duty] must be held liable for all the costs. In other words, they cannot charge disbursements to the plaintiff; if these have already been charged, they must be repaid to the plaintiff. This includes counsel’s fees. Moreover, they must personally bear the defendant’s party-and-party taxed costs of the appeal.”

18. With these principles in mind, I now go to the background of the Main Proceedings which the negligence is said to relate. 

The Main Proceedings

19. The contest between the parties centred around the effect of the Ho Family Trust (“the Trust”) set up by Mr Ho in 1993 which BM allegedly failed to draw to the Court’s attention in the Main Proceedings.  The history of the Main Proceedings and the various judgments of Stone J leading to intervention of the trustee of the Trust, Accolade Inc (“Accolade”), have been set out in paragraphs 9-48 of the Court of Appeal’s judgment in Akai Holdings Ltd (in Compulsory Liqidation) & others v. Ho Wing On, Christopher and Accolade Inc, HCMP 1718, 1720 &1722/2009, 24.9.2009 (“the CA Judgment”).  I will highlight some salient facts below.

20. Under the Trust, Mr Ho, Mrs Ho and their daughter were potential beneficiaries.  The Trust was managed by its trustee Accolade. Mr Ho alleges that Accolade had discretion in deciding how the Trust assets were to be managed and invested and he did not control the Trust as a matter of law.  He was only one of the beneficiaries.

21. Mr Ho was the chairman and director of the 1^st defendant Grande Holdings Limited (“Grande Holdings”) in which the Trust had interest.

22. In about November 2007, the Liquidators (“the Akai Liquidators”) of 17 companies in the Akai Group of Companies (“the Akai Group”) commenced the Main Proceedings and claimed against 19 defendants including those in the present proceedings (“the Grande defendants”). The claim was for, amongst others:

(i)  Breaching their fiduciary duties when they acted as the shadow/de facto directors of the Akai Group;

(ii)  Conducting transactions between Grande Holdings (and its subsidiaries) and companies within the Akai Group which were voidable for want of authority;

(iii)  Equitable compensation in the range of US$1.2 billion.

23. The Consolidated Points of Claim were filed by the Akai Liquidators in March 2008.  It alleged that at all material times, Mr Ho beneficially owned a majority of the issued shares of and controlling interest in Grande Holdings.  Barrican Investment Corporation (“Barrican”) was the majority and controlling shareholder of Grande Holdings, holding over 60% shares as at 1999 and 2006.  Barrican was a wholly owned subsidiary of Grande International Holdings Ltd (“GIHL”).  Mr Ho held 100% beneficial and controlling interest in GIHL.

24. D11 (Mr Yuen) engaged BM as solicitors in December 2007.  Eleven months later, in November 2008, BM was instructed to take over the representation of the Grande defendants from another firm.  The agreed line of communication was such that Ms Felicity Porter and Ms Ruby Lee (in-house lawyer) were designated by the Grande defendants to provide instructions to BM and Mr Yuen would give instructions in his personal capacity.  On BM’s side, Ms Kareena Teh and Ms Emma Pelka-Caven were responsible for taking instruction.

25. In preparation for BM’s taking over of the representation, Ms Porter had emailed to BM her comments on the Consolidated Points of Claim and parts of the draft Points of Defence prepared by the then counsel.  Such comments contained admission about the beneficial ownership of Mr Ho in Grande Holdings:

(i)  Ms Porter had not denied the Akai Liquidators’ pleaded case that Mr Ho was the beneficial owner of a majority of the issued shares having controlling interest, and asserted that Mr Ho’s interest was even larger than as pleaded.

(ii)  In the draft Points of Defence, the plea in (i) was admitted that and it was asserted that Mr Ho in fact held 12.3% more of the issued capital than stated by the Akai Liquidators. Ms Porter never denied this draft plea.

26. Just 2 weeks after BM had received initial instructions, the 7^th Affidavit of Mr Borelli (“the 7^th Affidavit”) was served in support of the Akai Liquidators’ application for Mareva injunction.  The 7^th affidavit alleged that: (i) Mr Ho effectively owned approximately 69% of Grande Holdings indirectly through Barrican and Airwave Capital Limited (“Airwave”); (ii) the Trust was incorporated in the BVI.  Its sole shareholder was Accolade which held 100% shares in the Trust on trust for Mr Ho.  Mr Ho was the beneficiary and a director of the Trust.  Those allegations were consistent with BM’s instructions.  They were also supported by loads of public filings with the HKSE, Singapore Stock Exchange and the US Securities and Futures Commission. No contrary instructions were given by the defendants.  Mr Ho went through the drafts of his affirmations, made revisions and approved the final version before affirming the same.

27. On 18.12.2008, an unsworn copy of the 9^th affidavit of Mr Borrelli (“the 9^th Affidavit”) was served.  It was contended therein that Mr Ho was a “prince maker” who had at various times been virtually the only buyer in the market for the shares of Grande Holdings.  The grant of Mareva injunction would have little impact on Grande Holdings’ shareholders.  The Akai Liquidators’ ex parte application for Mareva injunction was heard on 18.11.2008 and was dismissed.

28. Over the next few days, BM sought instructions from Ms Porter and Ms Ruby Lee.  Such effort only yielded 2 emails from Ms Porter on 22.12.2008 just before the hearing of the inter parte application was due to start.   The first was a list of top 10 shareholders of Grande Holdings with Barrican holding about 67.58%.  The second was that “Mr Ho [was] the ultimate beneficial owner of the Barrican shares”.

29. The Akai Liquidators’ ex parte application for Mareva injunction was heard on 18.11.2008 and was dismissed. 

30. The inter partes application was set down for hearing on 22 to 23.12.2008.  It was adjourned part-heard and the learned judge granted an interim injunction against Mr Ho over the adjournment.  The matter was due to resume for hearing on 19 to 21.1.2009.

31. During the adjournment, the defendants continued to provide instructions to BM.  Such included 2 emails from Ms Porter dated 7 and 8.1.2009 attaching 2 announcements filed by one Lafe Corporation Ltd (“Lafe”) in 2008, which stated that Mr Ho was a director and controlling shareholder of Lafe, a director of the Trust and that Accolade held the Trust as trustee for the benefit of Mr Ho.

32. Latest by 15.1.2009, Mr Anthony Poon of BM had been given a copy of the trust deed of the Trust (“the Trust Deed”).  However, the fact that the Trust might be a discretionary trust was not brought to the attention of Stone J when the hearing resumed on 19.1.2009.

33. By a judgment dated 9.2.2009 (“the Mareva Judgment”), Stone J imposed a Mareva injunction only on Mr Ho to the extent of US$200 million, the learned judge being disinclined to make a Mareva injunction against a publicly listed company. Against Mr Ho and Grande Holdings, he made asset disclosure orders.  The Mareva injunction was made on the basis that Mr Ho was beneficially entitled to the Trust which was held by Accolade.  Stone J said, “It was common ground that Mr Ho was the beneficial owner of 69/70% of Grande [Holdings] and thus if he so wishes ultimately is able practically to ensure that Grande follows whatever course he may desire.” 

34. On 17.2.2009, after a hearing before Stone J, the terms of the Mareva injunction (“the Mareva Order”) were settled with the agreement of the parties.  Schedule 3 of the Oder included the particular assets of Mr Ho that were subject to the Order.  Those assets included the Trust (100%), Accolade (100%) and shares in Grande Holdings (69%).

35. Mr Ho (but not Grande Holdings) lodged an appeal on 5.3.2009, which was eventually abandoned before it was due to be heard on 21.7.2009.

36. An application to stay execution of the disclosure order and to clarify the Mareva Order was refused.  In purported compliance with the disclosure order, Mr Ho filed an affirmation setting out, amongst others, his assets “that are owned by a trust of which [he was] a named discretionary beneficiary”.

37. The disclosure was considered inadequate, so the Akai Liquidators issued a summons for discovery which was granted by Stone J on 1.6.2009 (“the Discovery Order”).

38. On 22.6.2009, BM’s retainer was terminated. Messrs Huen Wong & Co came on record.

39. On 15.7.2009, the Akai Liquidators sought discovery from Grande Holdings regarding disposal of the Grande Building in Singapore and for an order that Mr Ho do provide an urgent affidavit providing with full particularity details of all dealings by him with his assets (as defined in the Mareva Order) since 19.11.2008.  In that application, Mr Ho for the first time in his 5^th Affirmation refuted the suggestion that he was a beneficial owner of about 70% of Grande Holdings’ shareholding.  He blamed the erroneous information on the negligent oversight by professional advisers (BM being amongst them) and that Mr Ho was wholly unaware of the misrepresentations made in his name.  His evidence was supported by the affirmation of Mr Ma, CEO of Grande Holdings, who asserted that in actual fact, Mr Ho did not have any shareholding in Grande Holdings.  Stone J summed up Mr Ho’s “wholesale change of position” as follows:

“59. Accordingly, the position now taken by Mr Ho may, I hope not unfairly, broadly be summed up thus: that in this litigation to-date his legal representatives fundamentally had misunderstood his position, and in turn have misrepresented that position to the court, and that the documents of public record as filed by his legal representatives with market regulators, the content of which demonstrate a picture wholly contrary to that now sought to be portrayed, were and are attributable to filing errors/misunderstandings on the part of Baker & McKenzie, to an erroneous understanding of Stock Exchange Codes (Code 205 having been mixed up with Code 210) and perhaps, also, can be explained by a ‘deeming provision so that, as he now put it, “I am nevertheless deemed to have such interest [in Grande] given that I am a beneficiary under a discretionary trust and by virtue of the relevant statutory provisions of the SFO, but solely for satisfaction of the statutory disclosure obligations to the public investors only” (Ho 5^th, para 22).”

Akai Holdings Ltd (in Compulsory Liquidation) & others v. Ho Wing On Christopher and others, HCCL 37 & 40/2005, 23 July 2005, at para 59.

40. Not surprisingly, Stone J accorded no credence to Mr Ho and Mr Ma’s evidence.  He continued to hold the firm belief expressed in the Mareva Judgment that,

“Mr Ho remained the person who stood at the apex of the opaque worldwide corporate pyramid which he has established in order to hold and to exercise his wealth, and through which he exercises an wholly dominant influence over all commercial activities as are undertaken by such companies/entities within that complex structure, which clearly he has been at great pains to set up.”

Akai Holdings Ltd (in Compulsory Liquidation) & others v. Ho Wing On Christopher and others, HCCL 37 & 40/2005, 23 July 2005, at para 66.

41. By a summons dated 28.7.2009, the Akai Liquidators applied for the appointment of receivers over the assets of Mr Ho.  In that application, Accolade applied for (i) joinder; (ii) adjournment of the receivership summons pending final determination of Accolade’s application to vary the Mareva injunction and the Discovery Order; and (iii) variation of the Mareva injunction to permit funds to be released to Accolade for the provision of legal fees.  Stone J acceded to applications (i) and (iii) but proceeded to hear the receivership summons.  He granted a receivership order on 1.9.2009 (“the Receivership Order”), stating that it was a “paradigm case” of good reason to believe that Mr Ho controlled the assets in the Trust and the dispersion of those assets.

42. Mr Ho and Accolade sought leave to appeal against the Receivership Order but the application was dismissed by the Court of Appeal on 24.9.2009: see the CA Judgment.

43. On 3.10.2009, Grande Holdings entered into a Settlement Agreement with the Akai Liquidators, agreeing to pay a sum up to a maximum of US$125 million.  Accolade was committed to assist in financing Grande Holdings to meet that obligation. 

Allegations of Negligence

44. In the present proceedings, the defendants contend that BM had been negligent:

(i)  In advising on filings made by Grande Holdings with the HKSE and on information to be included in Grande Holdings’ 2007 Annual Report (“Alleged Negligence on Filing”);

(ii)  In conceding and failing to challenge allegations made by the Akai Liquidators in the Main Proceedings that Mr Ho was the beneficial owner of about 70% shares in Grande Holdings (“Alleged Negligence in Conduct of the Main Proceedings”); and

(iii)  In failing to advise Grande Holdings of its right to appeal against the Mareva Judgment and allowed the appeal period to lapse (“Alleged Negligence in Failing to Advise on Appeal”).

45. BM denies these allegations as being unsupported by evidence and asserts that it had all along acted on instructions.

Alleged Negligence on Filing

46. The public filings were those made with HKSE, US Securities and Futures Commission and Singapore Stock Exchange.

47. With regard to the filings with HKSE, the defendants had not produced proof that it was BM who had advised them on the relevant filings made by Grande Holdings and on the relevant information to be included in Grande Holdings’ 2007 Annual Report.

48. Mr Ho only alleged in his reply affirmation that he had provided a copy of the Trust Deed to Mr Lawrence Lee of BM well before a meeting on 8.5.2007.  That meeting was also attended by Ms Christina Lee of BM and Ms Bianca Leung (who handled Grande Holdings’ filings with the HKSE).  Mr Ho alleged that at that meeting Mr Lawrence Lee had advised that there should not be any amendment to the then existing filings of Grande Holdings (including disclosure forms) with the HKSE.

49. Mr Ho was contradicted by the contemporaneous emails. On the day following the 8.5.2007 meeting, Ms Bianca Leung sent an email to Ms Christina Lee referring to the meeting and attaching documents showing the movement of Barrican’s shareholding in Grande Holdings from 2003 to 2007 and filings which had been made in October to December 2006.  Those filings showed that Mr Ho held substantial shareholding in Grande Holdings indirectly through GIHL which in turn held interests in Barrican and the shareholding in Grande Holdings.

50. Ms Christina Lee replied on the same day asking Ms Bianca Leung for “relevant information regarding the trust entity which you mentioned last evening, its nature, the holding structure and details of the beneficiaries … etc for the purpose of this analysis.”

51. Ms Bianca Leung did not provide the information about the Trust requested by Ms Christina Lee. Instead she replied stating that:

“The shareholding I know is only up to the level of Mr Ho as reported in the DI, i.e. Barrican is 100% holding by GIHL and Mr Ho has 100% deemed beneficial interest in GIHL. During the conversation yesterday, I believe Mr Ho already got the answer he wants. … We now focus on the level from Barrican to Mr Ho. I propose we make a filing in same format of what we done previously when there is changes, then file every require DIs in future.”

52. Two days later, Ms Christina Lee by email advised Ms Bianca Leung how Mr Ho, Barrican and GIHL should make their disclosures to the HKSE.  In particular she advised that,

“Mr Ho is required to disclose information of any trust through which he holds his interest in the Company in Box 22 of the Form 3A … He must give details of any shares of the Company which Mr Ho is interested in through a trust in Box 22 every time a Form 3A is filed with the Exchange and the Company.”

She even attached to her email an extract from the general notes for Form 3A published by the SFC, highlighting the relevant parts thereof.  She further cautioned that the email was not meant to be a comprehensive advice in relation to the reporting obligations but was “meant to only deal with specific issues raised by you in our meeting on Tuesday evening.”

53. Such evidence suggested that the Trust Deed was not produced at the meeting on 8.5.2007 for otherwise Ms Christina would not have asked for details.  Apparently, instead of seeking advice, Ms Bianca Leung’s side had decided to maintain the existing filing.

54. Far from being negligent, Ms Christina Lee had given correct advice.  Such advice was not heeded and Box 22 of Form 3A was not filled in or on behalf of Mr Ho 1 ½ years later by 3.11.2008. 

55. Similarly, in the Forms 2 filed on behalf of Barrican and Airwave, Box 24 for the purpose of providing information about trusts was not filled in, another fact relied on by the Akai Liquidators. 

56. The filings with the United States Securities and Futures Commission by the Grande Group was in relation to its shareholding in Emerson Radio Corp.  It stated that the Trust was the sole owner of GIHL; and Mr Ho was the sole beneficiary of the Trust. 

57. The other announcements were made by Lafe at the Singapore Stock Exchange.  They stated that Accolade was the sole shareholder of the Ho Family Trust Ltd who held all shares on trust for Mr Ho.  Mr Ho was the beneficiary under a trust of all those shares and was a director and controlling shareholder of Lafe.

58. Those filings with the US SFC or Singapore Stock Exchange were not the subject of BM’s advice. So Mr Ho alleged, for the first time, in his reply affirmation, that those US and Singapore filingswere “based on the filings of Grande Holdings (including disclosure forms, announcements and annual reports)” with the HKSE.

59. That allegation could not be true.  The disclosure forms did not make any reference to the Trust or any trust, or that Mr Ho was the sole beneficiary or to Accolade holding on trust for him.  The alleged announcements were not produced in evidence.  The annual reports only stated that Mr Ho had a 100% deemed beneficial interest in GIHL which in turn owned ordinary shares in Grande Holdings through Barrican but did not refer to any trust or state that Mr Ho was the sole beneficiary of the Trust.

60. Further, in his 6^th affirmation filed in 2009 for use in the Main Proceedings, Mr Ho said he could not recall the circumstances in which various public statements which attributed to him the majority shareholding of Grande Holdings were produced.: Akai Holdings Ltd (in Compulsory Liquidation) & others v. Ho Wing On Christopher and others, HCCL 37 & 40/2005, 23 July 2005, at para 58.  However, in filing the reply affirmation for use in the present proceedings, Mr Ho first alleged that those documents were based on the filings in the HKSE.  What had jogged his memory was entirely unclear.

61. I find no substance in this head of alleged negligence.

Alleged Negligence in Conduct of the Main Proceedings

62. The allegation of negligence was that BM had conceded and failed to challenge the allegation of the Akai Liquidators in the application for Mareva injunction that Mr Ho was the beneficial owner of about 70% shares of Grande Holdings.  It is the defendants’ case that after reading the Trust Deed and the Memorandum of Wishes, any lawyer with reasonable experience would get the impression that the trust was a discretionary trust and Mr Ho did not control the Trust as a matter of law.

63. It is also the defendants’ contention that but for BM’s negligence, Stone J would not have granted the Mareva injunction and eventually the Receivership Order.  There was likely to be another Mareva injunction in September 2009.  It was difficult to raise funds for legal costs to defend the Main Proceedings.  With no alternative, so they say, the defendants entered into the Settlement Agreement.

64. BM’s case was that there had been no “concession” made; that they had acted on instructions and that they had advised Mr Ho on the discretionary nature of the trust.

65. The “concession” was recorded in the Mareva Judgment.  However, Messrs Huen Wong & Co (then solicitors for the defendants) confirmed that all written submission for the relevant hearings did not contain any alleged concession.  They have checked with BM who categorically denied that there had been any alleged concession made on behalf of Mr Ho.  BM told Messrs Huen Wong & Co that:

“(i) Our express written instructions, given to us in December 2008, were that Mr Ho is the ultimate beneficial owner of the Barrican shares.

(ii) In the hearing in January a document summarizing shareholdings in Grande and Lafe attributable to Mr Ho, which was based on public disclosures and prepared with the assistance and instructions of Ms Lee and Ms Porter or Grande, was handed up to the Court in the course of argument.

(iii) In the hearing in March to clarify the disclosure orders, as well as the hearing in May, it was submitted on Mr Ho’s behalf that the corporate structure, which included a trust, meant that Mr Ho was not the owner of assets held by entities within that structure. Ultimately, that was not accepted by Stone J, consistent with his finding in paragraph 66 of the Judgment of 23 July 2009.

(iv)    We also suggested to your clients ahead of the March hearing that the trust should be separately represented and appear, neither of which occurred in the events.” 

66. The evidence before Stone J was overwhelming in favour of granting a Mareva injunction even without the alleged concession.  I do not think the absence of a concession would have turned the tide.

67. BM had all along acted on instructions.  From inception of BM’s involvement in the Main Proceedings, they had been instructed that Mr Ho was the beneficial owner of the majority shares and had controlling interest in Grande Holdings.  See e.g. Ms Porter’s email dated 22.12.2008 to Ms Pelka-Caven of BM: 

“I can tell you that Mr Ho is the ultimate beneficial owner of the Barrican shares. Aside from HSBC, the remaining top 10 shareholders hold less than 5% of the GHIL shares.”

68. In December, in preparation for the inter parte hearing of the application for Mareva injunction, BM had been trying to seek instructions.  The London silk’s request for information on 20.12.2008 as to ownership of the remaining 30% shareholding in Grande shares not owned by Mr Ho and how frequently those minority shareholders traded in Grande’s issued shares over the last 12 months was met with the unhelpful attitude of Ms Ruby Lee who was extremely upset about being bothered on a Saturday.  The answer came only on the 1^st day of the hearing.  Ms Porter queried why the Akai Liquidators need to know the expense of Mr Ho and why the unsworn 9^th Affidavit needed to be answered. It was Mr Anthony Poon who impressed upon Ms Porter that they could not afford to be too technical and that if the defendants did not want to risk a Mareva injunction against the Grande companies, Ms Porter would have to deal with those points.  In the end, the affirmations filed by Mr Ho to resist the Mareva injunction were, in the words of Stone J, “‘thin’ and unsubstantiated by relevant contemporaneous documentation; perhaps the fairest and most objective comment [was] that they [did] nothing to inspire confidence.”  The failure to challenge the Akai Liquidators’ allegations was therefore due to the lack of instructions.

69. As to challenging the effect of the Trust, the issue was when BM knew or ought to have known that the Trust was a discretionary trust.  The defendants suggested 2 possible dates:

(i)  Before the meeting on 8.5.2007; and

(ii)  15.1.2009 at the latest, during the adjourned period of the inter parte hearing of the Mareva injunction.

70. I reject the first possible date.  The analyses under paragraphs 49-54 above in relation to alleged negligent filings are relevant.

71. As to the 2^nd possible date, this cannot be denied by BM.  Latest by 15.1.2009, Mr Anthony Poon had got a copy of the Trust Deed and Memorandum of Wishes, which he forwarded to Mr Lawrence Lee.  After reviewing those documents, on the same day, Mr Pierre Chan sent a memorandum (“the Memorandum”) to Mr Anthony Poon.  Mr Chan pointed out that Mr Ho was one of the discretionary beneficiaries and that the Trust Deed appeared to be a standard one used commonly for estate duty and succession planning in the 80’s and early 90’s.  He also pointed out that some information was missing, e.g. whether there was real settlement of initial monies into the Trust, whether title to further properties passed to the Trustee, whether the Trust had been administered by the Trustee strictly in accordance with its terms and whether the Trust was entirely independent from Mr Ho.  He pointed out that the common bases for attacking a discretionary trust by a creditor was to allege that it was a sham, or varied by conduct or that the Memorandum of Wishes was in fact a contract between the Trustee and the settlor.  He also pointed out that,

“If the Trust is properly constituted and administered pursuant to the terms of the Trust, and if the trust funds are properly settled and held by the trustee, Christopher Ho, technically, would not have any beneficial interest in the trust funds during the trust period unless and until the trustee has exercised its discretion to appoint the trust funds for his benefit.”

He would normally review all documents relating to the establishment and administration of a trust and the Trust assets before he could offer a more detailed analysis on the position of the Trust. 

72. Having identified the issue of discretionary trust, there is a dispute as to what BM did next.

73. BM claims that a meeting (“the Meeting”) was held, attended by Mr Lawrence Lee, Mr Ho and Mr Herbert Tsoi (a director of Accolade).  At the Meeting, Mr Lawrence Lee passed a copy of the Memorandum to Mr Ho and told Mr Ho and Mr Tsoi to the effect that in order to usefully introduce the existence of the Trust into the Main Proceedings, Mr Ho and the trustee had to provide evidence of its operation and implementation, such as accounts and the vesting of relevant trust assets and that the trustee had been running the trust independently.  Mr Lawrence Lee’s view was that it would be best for the trustee to challenge the allegations of the Akai Liquidators and the interim injunction because the trust property was affected (which was what eventually happened a few months later).  Mr Ho and Mr Tsoi informed Mr Lawrence Lee that Accolade had never made any filing of its interest with the HKSE, had never prepared any accounts nor had any directors’ meetings.  Mr Tsoi also expressed his concern about any liability because he was at that time a director of the trustee company.  It was agreed at the Meeting that if Mr Ho and the trustee wanted to challenge the injunction based on the trust, it would be best for the trustee to intervene and Mr Tsoi would consult his counsel to take legal advice.  Mr Lawrence Lee learnt from Mr Anthony Poon several days later that Mr Tsoi had consulted a senior counsel and obtained legal advice on these issues.

74. Mr Ho claims he could not remember the meeting but was silent about the telephone call Mr Anthony Poon made to Mr Tsoi.  Mr Tsoi deposed that he did not recall attending any meeting with Mr Lawrence Lee in January 2009.  It has always been his practice to record all his appointments in his electronic diary but, having checked, his electronic diary for January 2009 did not show that he had any meeting with Mr Ho and Mr Lawrence Lee.

75. There is thus a dispute on the facts as to whether the Memorandum had been given to Mr Ho and whether failure to mention the discretionary nature of the Trust had an impact on the Mareva application..

76. It was Mr Anthony Poon who asked Mr Pierre Chan to analyze the trust documents.  It would be totally illogical, in my view, for him not to discuss them with Mr Ho and seek instructions. However, Mr Chan SC queried whether or not the Memorandum had been given to Mr Ho as alleged.  This is because the Memorandum was marked with these words:

“This Memorandum format is to be used only for communication within B&M offices. It is not to be used for communicating with clients – use letterhead for that purpose.”

77. The invoice issued to Mr Ho charged him for the work done by Mr Anthony Poon and Mr Pierre Chan over the review of the trust documents plus 2 attendances with counsel on Mr Ho.  There was, however, a lack of attendance note over the Meeting.

78. If the Meeting had taken place and yet Mr Ho had not provided further details to BM before the resumed hearing for the Mareva injunction (as was BM’s case), no negligence could be established.  If, however, there had been no such Meeting despite identification of the issue of discretionary trust, what would have been the impact on the Mareva injunction application?

79. In a subsequent application by the Akai Liquidators, the defence that Mr Ho was not the beneficial owner of the Trust was rejected by Stone J in his judgment dated 23.7.2009.

80. The Court of Appeal, in dealing with the application for leave to appeal by Mr Ho and Accolade against the Receivership Order and Discovery Order, considered its assertion that apart from a few items listed under Clause 1 of Schedule 3 to the Mareva Order, all of the assets listed thereunder were trust assets belonging to either the Trust or subsidiary companies held under Accolade.  The Court of Appeal said that the evidence from Accolade (on the same front as Mr Ho on the question of discretionary trust) raised more questions than it purported to answer:

“48. However, for the present purposes, it is sufficient if there is good reason to suppose that Mr Ho has substantive control over the Ho Family Trust Assets. The nature and degree of control may have to be investigated in due course. (Mr Kosmin [London counsel for the Akai Liquidators] suggested as a possibility, in execution of judgment.) It is sufficient for the present purpose that for all intents and purposes, Mr Ho has represented to the whole world that he was the beneficial owner of the trust. Also notwithstanding the assertion that Accolade and its directors actually managed and controlled the trust, there has been no explanation how it was that the trust was silent all these years about Mr Ho’s representation that he was the beneficial owner of the trust. These may have to be properly investigated in due course.”

…

52. However, Dr Ho (director of the Trustee) also said:

‘24. In or about March 2009, Mr Ho briefly mentioned to me a court order against him in favour of Akai's liquidators for disclosure of his assets. However, he did not touch upon the details. He asked me not to worry and he would take care of his own matters. He also mentioned that the order did not involve the Family Trust. I trusted that he would be able to handle the matter and did not follow up with it further.

25.  In early May 2009, the Family Trust received a letter from Mr Ho dated 30 April 2009 asking for release of information on virtually all of the assets owned by the Family Trust. I was surprised and pressed Mr Ho for details. He then explained the background and provided me with a copy of the February 17 Order; and urged the Family Trust to assist in releasing the information as sought. Afterwards, the Family Trust sought legal advice. Following the views of Senior Counsel, the Family Trust then decided not to accede Mr Ho's request and refused to release the information as sought. Now produced and shown to me marked ‘SH-4’ are copies of Mr Ho's letter to the Family Trust dated 30 April 2009, his written reminder dated 7 July 2009; and the reply from the solicitors for the Family Trust to Mr Ho dated 15 July 2009. However, given the privileged nature of the relevant Senior Counsel's views, I am not prepared to disclose the details. For the avoidance of doubt, nothing herein should be construed as a waiver on my part or on the part of the Family Trust of the privilege regarding the Senior Counsel's views.’

53.  Accolade’s position is that the February order and June orders should not have covered the trust assets of the Ho Family Trust and that is why they asked that those orders be varied.

54.  But I have to say that her assertions raised more questions than they purported to answer.  For example, when did Accolade become aware of Mr Ho’s public assertion that he was the beneficial owner of the shares in Grande Holdings?  Ms Christine Asprey was a director of Grande Holdings as well as Accolade.  Didn’t she know?  Did she tell her husband or her sister?  What about Ms Eleanor Crosthwaite?  Did she know?  Was any action taken to correct Mr Ho?  If not, why not?  Since Dr Ho was provided with a copy of the Mareva order in May 2009, why was no application made to vary that order?  Did their lawyers not find out how it was that the Ho Family Trust Assets become subject to the Mareva order?  Why was there no application at the time for a variation of the Mareva injunction? 

55.  The evidence also showed that between 14 July 2003 and 14 July 2009, the holding in Grande Holdings had increased from 302,067,713 shares to 317,303,800 shares, namely from 65.63% to 68.94%.  The shareholders’ shareholding disclosure of interest filed with the Hong Kong Exchanges and Clearing Limited up to and including 23 March 2009 described Mr Ho as the controlling shareholder of the relevant control corporation Airwave Capital Limited and his control was stated to be 100% and that the number of shares involved in a long position were 321,569,822.  At that time they were reporting a purchase of 166,000 shares and that the relevant code describing the capacity in which the shares were held was 205.  The next time shares were purchased appeared to be 30 April 2009.  On this occasion, however, the name of the control corporation was stated to be the Ho Family Trust Limited and the controlling shareholder Accolade and that the long position was stated to be 321,581,822 shares.  The purchase was reported on 30 April 2009.  There was no evidence to show who supplied the money for the purchase of all these shares.  Nor who decided on the purchases.

56.  On an interlocutory basis, there is ample reason to suppose that the trust assets were at least in the control of Mr Ho.”

(See CA Judgment)

81. The Court of Appeal was of the view that the case cried out for the appointment of receivers and refused leave to appeal.

82. The comments of the Court of Appeal was not just directed at the reaction of Accolade on receipt of notice of Stone J’s judgments, but also the state of public statements as to Mr Ho’s beneficial ownership under the listing rules before the Main Proceedings commenced.  As Mr Yan SC for BM pointed out, the Court of Appeal relied on more public listings than those referred to by Mr Ho in the defence to the present proceedings.  The totality of the evidence was such that the assertion of the discretionary nature of the Trust would have little impact on the grant of the Mareva injunction and Receivership Order.

83. Furthermore, it was clear that the day after the Mareva Judgment was handed down, BM and counsel had in a meeting (10.2.2009) considered the discretionary trust issue and advised Mr Ho of the way forward.  It was the view of Mr Snowden QC that Mr Ho should make it clear to the Court that the Trust was a discretionary one and that he was not its beneficial owner; that the trustee should say to the Court that there was no order against them and therefore they would not disclose the trust assets.  Mr Ho agreed to consult a specialist trust lawyer to look closely at the Trust.  Given this advice, I find it surprising that Mr Ho would have told his sister Dr Ho (director of the Trust) in March 2009 that there was no need to worry; that he would take care of “his own matters”, and that the Mareva Order did not involve the Trust (see CA judgment, para 52 above).

84. The purported defence by raising negligence is moonshine.

Alleged Negligence in Failing to Advise on Appeal

85. This allegation was effectively a lie.  It was starkly against all contemporaneous records which showed that Mr Ho had been advised on merits of the appeal but decided that only he, but not Grande Holdings, would pursue it.  The very day (9.2.2009) when the Mareva Judgment was handed down, BM emailed Ms Ruby Lee, attaching a copy and summarizing the orders granted.  On the following day, Mr Ho was engaged in a meeting with BM (attended by Mr Lawrence Lee, Mr Anthony Poon, Ms Teh and Mr Tsien) to discuss the Mareva Judgment and the possibility of an appeal (and the discretionary trust).  Mr Snowden QC, Mr Godfrey Lam SC, Ms Ruby Lee and Ms Porter participated by telephone.  In response to Mr Ho’s query as to whether it was worth an appeal, Mr Snowden QC advised that whereas he did not think an appeal would lead to an entire dismissal of the orders against Grande Holdings and Mr Ho, but overall, it was worth an appeal.

86. Two days later, Ms Teh of BM asked Ms Ruby Lee and Porter if Grande Holdings or Mr Ho wished to appeal and to apply for a stay of the Mareva injunction and the disclosure orders.

87. On 24.2.2009, Ms Ruby Lee instructed BM not to pursue an appeal for Grande Holdings but do so only for Mr Ho and to apply for a stay of execution of the disclosure order. The draft notice of appeal sent to Ms Porter for her approval indicated clearly that the appeal was only lodged on behalf of Mr Ho and Ms Porter did approve it on 5.3.2009. 

88. Accordingly, BM had acted in accordance with instructions and had not allowed the appeal period for Grande Holdings’ appeal to lapse.  There is no merit in this allegation of negligence.

C.     WHETHER THERE ARE TRIABLE ISSUES FOR EACH CATEGORY OF WORK

Category A Fees: Main Proceedings

89. Notwithstanding that the defendants are able to point to some triable issues of fact, those could not bear scrutiny when considered in the light of contemporaneous documents and the views of Stone J and the Court of Appeal.  Prior to 15 January 2009, BM had clearly been acting on instructions.  By 15 January 2009, they came to know of the possible discretionary nature of the Trust.  Disclosure of the discretionary trust would have little impact on the grant of the Mareva injunction in view of the overwhelming evidence.  BM and counsel had not overlooked the possibility of introducing the discretionary trust in the Main Proceedings and had advised Mr Ho on what to do.  No instructions or details of the Trust were given by Mr Ho.  I cannot see any arguable point for this category of fees. 

Category B Fees: HKSE Enquiry

90. No defence on liability has been put forward.

Category C Fees: Listing Rules and General Compliance Matters

91. No defence on liability has been put forward.

Category D Fee: Personal Matter

92. Under this category, Mr Ho engaged BM to advise him on personal matters of him and his family and to deal with the regulatory authority.  He requested BM to find a suitable counsel to advise the relevant party. 

93. Mr Chan SC submits that as there is evidence showing that at all times BM had been labouring under its own mistake that Mr Ho had an interest in the Trust, it was incumbent upon BM to prove that its advice on regulatory and personal matters pertaining to the Trust was not useless and valueless so as to entitle them to remuneration. This, in my view, is an attempt to reverse the burden of proof.  Mr Anthony Poon has already deposed that the services were not related to the Trust.  The defendants have failed to put forth any arguable defence on liability.

94. There being no defence on liability, it is not necessary to order the originating summons to be continued as if begun by writ.  The defendants’ summons is dismissed.

ORDER FOR TAXATION

95. The other defences concern the quantum of BM’s fees, e.g. excessive number of fee earners (more than 10), excessive hours spent, whether sufficient breakdown of the costs has been given and whether it was appropriate to use the electric document handling system. Only 4 affirmations and one set of Points of Defence and Counterclaim were filed on behalf of Mr Ho.  The fees of $28 million for solicitors for about 10 months’ work looked exorbitant.  Questions of quantum should be dealt with under the taxation procedure.  I order taxation of BM’s bills.

D.    WHETHER INTERIM PAYMENTSHOULD BE ORDERED IN FAVOUR OF BM

96. Mr Chan SC points out that the Originating Summons does not seek payment after taxation.  He challenges the procedure taken by BM.  Although the Court has power to order interim payment under Order 29, rule 11 or 12, the correct procedure is to take out a summons for interim payment after the writ has been served and the time limited for acknowledgement of service has expired: rule 10.  Under that rule, the Court may order interim payment against the defendant if it is satisfied that if the action proceeded to trial, the plaintiff will (not likely to) obtain judgment for substantial damages or a substantial sum of money apart from damages or costs against the defendant.  In the present case, the application for interim payment was made in the originating summons itself.

97. Any failure to issue a sommons is but a procedural defect that is not incurable, especially since there is no defence on liability.  Under section 67(2) of the Legal Practitioners Ordinance Cap 159,

“If no such application is made with in the period mentioned in subsection (1), then, on the application of the solicitor or the foreign lawyer or of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order-

(a) that the bill shall be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed:

... .”

98. In To Kan Chi & Ors v. Miller Peart (a firm), Recorder Jat SC held that there was power to order interim payment:

“107. I therefore turn to the wording of the section.  In my judgment, the jurisdiction conferred under section 67(2) is wide enough to enable the court to impose as a term for ordering a special taxation the making of an interim payment in such amount as the court may consider just.  I do not see any reason in principle why the court should not have such power in view of the wide wording of section 67(2).  Nor do I see any conceptual difficulty in ordering an interim payment to be made.  Just like the case of a claimant whom the court thinks is likely to recover substantial damages, or one in favour of whom a judgment has been entered with damages to be assessed, if the court considers that a solicitor is likely to recover a substantial amount after taxation, why should the court be powerless to impose such a term in an appropriate case when section 67(2) gives the court a wide jurisdiction to impose whatever terms the court thinks fit?  The same rationale for making an interim payment must apply in all these cases.”

99. Mr Chan SC sought to distinguish To Kan Chi's case wherein it was the client who sought taxation.  It was reasonable, so he submitted, for the Court to impose a condition for the client to make some payment before letting him proceed to taxation.  It would not make sense for the Court to impose a condition for the client to make some payment where it was the solicitor who sought taxation; otherwise it would mean that if the client did not fulfil the condition of payment, the solicitor would be barred from proceeding to taxation.

100. With respect, I cannot see any difference in principle where it is the solicitor who is seeking taxation.  Section 67(2) contemplates a solicitor initiating the taxation.  The wording in section 67(2) is such that the Court can impose “any term as it thinks fit”.  It does not state that the term to be imposed has to be in the nature of a condition for commencing taxation.  It would work injustice towards a solicitor if, as in this case, the contest can only be one of quantum.

101. Clearly BM will be able to recover a substantial sum after the taxation. 

102. In addition, there was evidence as financial difficulty of the defendants. Grande Holdings’ own announcements showed that the defendants had to rely on Accolade to meet its obligation under the Settlement Agreement of the Main Proceedings.  Though Mr Ho claimed that Grande Holdings’ financial conditions remained secure due to Accolade’s alleged commitment to provide it with financial assistance, that was at best an intention to provide continuous financial support in funding Grande Holdings’ “working capital” but not the legal costs owed to BM.  It would thus be fit to order the defendants to make interim payment. 

103. The defendants do not dispute that all the disbursements for counsel fees have been incurred on their instructions.  There was no reason why they should not be required to pay them.  The only item of disbursements that warrants a different treatment was the fees of the law costs draftsman.  As the invoices might be taxed down, so may the fees for drawing up the bills.

104. As for the solicitors’ profit costs, they should be subject to taxation.  Given that only about 10 months’ work was involved in the Main Proceedings, it is in my view reasonable to ask the defendants to pay only 50% of the profit costs as interim payment to BM.  In respect of the rest of the 50% and all other items for which I have not specifically mentioned, I do not think it is appropriate to order payment into Court pending taxation.

CONCLUSION

105. Notwithstanding the bundles were numerous, the core documents and the issues to be determined are confined.  There are no issues which warrant a trial.  The allegations of negligence against BM in the conduct of the Main Proceedings, the appeal and filings with HKSE are unsubstantiated.  No other defence has been put forth for other categories of fees.  I find that the purported defences are but moonshine and reflect an attempt to evade liability on payment.  The invoices should be put to taxation and there should be interim payment of fees.

ORDER

106. I order as follows:

(i)  The bills as outlined in the Schedule to the originating summons and delivered to the defendants by the plaintiff be referred to a taxing master to be taxed on a solicitor-client basis;

(ii)  There be interim payment of the disbursements in respect of  counsel’s fees (including those of the London counsel) but not the fees of the law costs draftsman;

(iii)  There be interim payment of 50% of the profit costs of BM as billed;

(iv)  The application for payment of the rest of the costs into court is dismissed. 

(v)  The defendants’ summons is dismissed.

Parties should set out the amount under items (ii) and (iii) in the draft order for approval.

107. I also make consequential directions nisi that:

(i)  The Taxing Master do tax the costs of the reference, and certify what shall be found due to or from either party in respect of the invoices and of the costs of the reference, to be charged (if payable) according to the event of the taxation, pursuant to the statute.

(ii)  BM do not commence or prosecute any cause or matter touching the demand pending the reference.

108. I make an order nisi that:

(i)  Costs of the Originating Summons and the defendants’ summons be to the plaintiff with certificate for senior counsel to be taxed if not agreed;

(ii)  Costs of the call over before Master Ko on 9 November 2010 be to the plaintiff without certificate for counsel.

109. I thank counsel for their able assistance.