CHINA HEALTH GROUP LTD v. CHIU & PARTNERS (A firm)

HCA 891/2022

[2023] HKCFI 2995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 891 OF 2022

________________________

________________________

________________

DECISION

________________

1.  This is the Plaintiff’s appeal against the Order of Master Elizabeth Cheung (“Master”) dated 14 April 2023 (“Order”) by which the Indorsement of Claim (“IOC”) and the Statement of Claim (“SOC”) in this action were struck out pursuant to O.18, r.19, and the costs of this action together with the costs of the Defendant’s strike out Summons (for which a certificate for counsel was granted) were awarded against the Plaintiff on indemnity basis.

Issues

2.  The Defendant relies on the following grounds for its strike out application :

(1)  The quantum meruit claim referred to in the IOC discloses no reasonable cause of action.  The Plaintiff did not provide any service to the Defendant, there is no basis for the former to recover the reasonable amount of fees for services rendered (“QM Ground”);

(2)  The causes of action pleaded in the SOC are completely different from the one mentioned in the IOC, and do not fall within the purview of the IOC (“Purview Ground”);

(3)  The Plaintiff’s claims are time-barred.  On its case, the contract of retainer was terminated in June 2016, which was more than 6 years before the commencement of this action on 20 July 2022 (“Limitation Ground”);

(4)  The pleaded causes of action in this case and those of a later action brought by the Plaintiff against the Defendant, HCA 1148/2022 (“2^nd Action”), are the same.  This action is liable to be struck out on the ground of duplicity (“Duplicity Ground”);

(5)  It is vexatious and an abuse of process for the Plaintiff to pursue against the Defendant the claim regarding overcharging of legal fees in light of the taxation proceedings in HCMP 1636/2017 (“Abuse of Process Ground”).

3.  Apart from disagreeing with the Grounds, and technical arguments aside (which are of little merits), the Plaintiff seeks to answer the strike out application with a Summons filed on 4 November 2022 requesting that this action and the 2^nd Action be consolidated (with consolidated pleadings) and thereafter be carried on as one action, with the 2^nd Action being the lead action (“Consolidation Application”).

Background

4.  The Defendant was retained by the Plaintiff pursuant to (i) a mandate letter dated 3 December 2015 and (ii) a retainer mandate dated 4 December 2015.  In the course of acting as the Plaintiff’s solicitors, the Defendant had acted on its behalf in 8 sets of legal proceedings in Hong Kong and 1 set of proceedings in Bermuda (“9 Proceedings”).

5.  There is disagreement between the parties on whether litigation work was governed by any written retainer.  The Defendant’s evidence is that: “[b]oardly speaking, the contentious services provided by the Defendant are expressly covered in the Mandate Letter”.  The Plaintiff’s case is that: (i) the mandate letter did not refer at all to the provision of service over contentious matters; (ii) there was no express contract which governed such work; and (iii) the contentious service was governed by an implied contract which arose from the relationship of the parties and their conduct. 

6.  This controversy is not one which has to be resolved in this appeal.  However, insofar as the mandate letter is concerned, it is correct that it made no reference to any service for contentious matters.  The ambiguous suggestion in the Defendant’s evidence cannot be accepted at face value.

7.  The Plaintiff had settled all the bills issued by the Defendant for their legal services save for the last 2 bills (“Previous Bills”, “FB(1)” and “FB(2)”).  The Defendant’s evidence is that the Pervious Bills were settled before 27 May 2016.

8.  On 18 June 2016, the Plaintiff underwent a management change.  On 22 June 2016, the new board of directors of the Plaintiff appointed another firm of solicitors (“JYJL”) as its legal representatives in place of the Defendant.

9.  The Defendant issued FB(1) ( Bill No. 16-0475 dated 17 June 2016) and FB(2) (Bill No. 16-0555 dated 22 July 2016) which were delivered to the Plaintiff on respectively 25 July 2016 and 8 August 2016.

Taxation Proceedings

10.  On 20 July 2017, the Plaintiff issued an Originating Summons in HCMP 1636/2017 (“OS”) against the Defendant seeking an order for taxation of FB(1) and FB(2) (“Taxation Proceedings”). 

11.  On 15 March 2018, the Plaintiff took out a Summons for (i) amendment of the OS by seeking also taxation of the Previous Bills (“Amendment Application”) and (ii) discovery of the Previous Bills (“Discovery Application”).  The Defendant had refused to supply the new management with copies of the Previous Bills unless HK$50,000 was paid to them as costs on account by reason of the work involved in producing all the documents requested by the Plaintiff (including copies of the Previous Bills).  The Plaintiff did not make the payment demanded.

12.  On 24 January 2019, Au-Yeung J handed down a Decision dismissing the both Applications (“Decision (1)”).  I shall have to go into the ratio of this Decision when the Abuse of Process Ground is considered. For the present purpose, it should be noted that the Discovery Application was dismissed as a consequence of the dismissal of the Amendment Application.  The Plaintiff did not appeal against the Decision.

13.  On 11 March 2020, Au-Yeung J handed down her Decision on the OS upholding the Plaintiff’s request to have FB(1) and FB(2) taxed (“Decision (2)”).  Mr Nip SC, who appeared with Mr Chan for the Defendant, did not relying on Decision (2) for the Abuse of Process Ground.  It is therefore unnecessary to elaborate on it. 

The Actions

14.  On 20 July 2022, the Plaintiff commenced the present action against the Defendant with a general indorsement of claim.  The IOC :

(1)  referred to the mandate letter and the retainer mandate and alleged that there was “no retainer between the parties for any contentious / litigation-related legal services” (§1);

(2)  alleged that all bills issued by the Defendant preceding FB(2) formed “a series of periodic interim bills” and referred to the profit costs in the “entire series of periodic interim bills” in the total sum of at least around HK$26 million (§§2-3);

(3)  averred that the Defendant had “grossly and disproportionately overcharged the Plaintiff for the legal services rendered, and [the Plaintiff] claimed against the Defendant for recovery of / compensation for the excess fees overcharged based on quantum meruit in respect of the fair value of the legal services provided” (§3 and Prayer (1)).

15.  On 6 September 2022, the Plaintiff commenced the 2^nd Action against D with a general indorsement of claim.  In the IOC of the 2^nd Action :

(1)  the Plaintiff claimed against the Defendant “in the tort of negligence for its breach of duty of care in relation to its negligent handling of the actions involving the Plaintiff [including the 9 Proceedings]” (§§2-3);

(2)  the P further claimed against the Defendant for breach of fiduciary duties (§4);

(3)  in prayer (1) and (2), the Plaintiff claimed damages for breach of duty of care and equitable compensation for breach of fiduciary duties.

16.  On 4 November 2022, the Plaintiff filed identical SOC in both this action and the 2^nd Action.  In the SOCs :

(1)  the Plaintiff alleged that the Defendant was in breach of its tortious duty of care and fiduciary duties to the Plaintiff during the period when it acted as its legal representative (§§12 and 15);

(2)  the Plaintiff also alleged that the Defendant was in breach of an implied term in the retainer between the parties in having improperly and unnecessarily incurred legal fees in relation to the Plaintiff’s involvement in the 9 Proceedings (§§13, 14 and 16).

17.  On the same day (4 November 2022), the Plaintiff took out the Consolidation Application.  On 25 November 2022, the Defendant filed its Striking Out Summons.

18.  In respect of what had transpired prior to the hearing before the Master, it is worth noting that at the first call-over hearing of the Striking Out Summons on 16 December 2022, Registrar Kwang raised queries with the parties on the proper way forward.  One of the options raised by the learned Registrar was for the Plaintiff to amend the IOC in this action. The Striking Out Summons was then adjourned to a second call-over hearing “pending parties to reconsider their positions”.  Regrettably, the Registrar’s sensible suggestion did not bear fruit.

19.  On 3 February 2023, the Registrar made an Order, inter alia, that (i) the Consolidation Application be adjourned pending the determination of the Striking Out Summons (§1); and (ii) there be an interim stay of the 2^nd Action pending the determination of the Striking Out Summons (§3).

Principles on striking out

20.  The principles are trite.  It is only in plain and obvious cases that the Court should exercise its summary power to strike out the indorsement on any writ or any pleading under O.18, r.19: Hong Kong Civil Procedure 2023, vol 1, [18/19/4].

21.  The burden is on the defendant as the applicant to show it is plain and obvious that the claims are unsustainable and impossible to succeed.  Disputed facts are to be taken in favour of the plaintiff.  Where the Court comes to the conclusion after full argument in the face of all relevant information that the case is plainly and obviously one for striking out, it should not decline to do so on the grounds that the issues arising are difficult or complicated: Lee Siu Hong v The Law Society of Hong Kong & Ors, CACV 155/2014, unrep, 7 April 2016 at [35].

22.  In an appropriate case, the court ought not to be slow to exercise the power to strike out in order to dispose of proceedings which are hopeless and without foundation in law.  In those cases, such power is required by the very essence of justice to be exercised, so as to prevent the defendant from being harassed and put to expense by frivolous, vexatious or hopeless claims: Hong Kong Civil Procedure 2023, vol 1, [18/19/15].

Evidential objection

23.  The Plaintiff takes issue with the admissibility of paras 12-16 of the first affidavit of Mr Leo Chiu filed by the Defendant.  It is appropriate to deal firstly with this objection.  The objection is based on O.18, r.19(2) which provides that no evidence shall be admissible on an application under para (1)(a) of O.18, r.19.

24.  However, as stated in para 1 of the Strike Out Summons, the Defendant is relying upon 3 limbs of O.18, r.19(1), namely, O.18, r.19(1)(a) (no reasonable cause of action); O.18, r.19(1)(b) (frivolous or vexatious); and O.18, r.19(1)(d) (abuse of process). 

25.  The Defendant’s position is that the IOC in this action discloses no reasonable cause of action as a matter of law.  The Court will be able to reach this conclusion upon reviewing that document and the SOC without considering the underlying evidence.  Hence, the Defendant does not fall foul of the requirement under O.18, r.19(2).  I agree.

26.  The requirement under O.18, r.19(2) has no application to the Defendant’s arguments under the O.18, r.19(1)(b) and O.18, r.19(1)(d) limbs.  In other words, the Defendant was entitled to file evidence in support of those limbs.

The QM Ground

27.  The Defendant’s argument is quite simple.  It runs as follows.  The only cause of action mentioned in the IOC is quantum meruit.  The Plaintiff seeks “recovery of / compensation for excess legal fees overcharged on quantum meruit basis to be assessed” (prayer (1)).

28.  The reference to quantum meruit as a cause of action is incomprehensible because the Plaintiff had not provided any service to the Defendant.

29.  Quantum meruit is one of the old forms of action to recover the value of services received by the defendant: Goff & Jones on Unjust Enrichment, 10^th edn, [1-18].  Quantum meruit can be used in two different contexts.  It can refer to either (i) claims to enforce a contractual obligation to pay the reasonable value of services or (ii) claims in unjust enrichment for restitution of their value: Goff & Jones, supra, [1-38]; Benedetti v Sawiris [2014] AC 938, [147].

30.  In awarding a quantum meruit for a benefit, the court is essentially deciding how much is deserved for the conferment of that benefit.  The literal translation of quantum meruit is “as much as he deserves”: Benedetti, [178].

31.  It is not part of the Plaintiff’s case, whether under the IOC or the SOC, that the Defendant had received any service from it. The Plaintiff is simply not in a position to recover any amount from the Defendant based on quantum meruit, whether under contract or unjust enrichment. 

32.  It was admitted in the skeleton arguments (§32(4)) of Mr Barlow SC, who appeared for the Plaintiff with Mr Wong, that the reference to quantum meruit in the IOC is “confusing”. 

33.  In my view, the intended meaning of the IOC is tolerably clear.  Quantum meruit was used in a poor attempt to convey the proposition that the Defendant, acting as the Plaintiff’s legal representative, was only entitled to be paid the reasonable value of its services.  Undoubtedly, the proposition was improperly formulated, but I do not believe that, per se, it is a good reason to strike out the IOC.  The defect in question can be cured by appropriate amendment.    

Purview Ground

34.  It is clear from the contents of the IOC and the SOC as summarized above that there is decoupling between the two.  That is impermissible under the rules and case law. 

35.  O.18, r.15(2) provides that :

“A statement of claim must not contain any allegation or claim in respect of a cause of action unless that cause of action is mentioned in the writ or arises from facts which are the same as, or include or form part of, facts giving rise to a cause of action so mentioned; but subject to that, a plaintiff may in his statement of claim alter, modify or extend any claim made by him in the endorsement of the writ without amending the endorsement.”

36.  A plaintiff cannot, without amending the writ, completely change the cause of action indorsed on the writ: Hong Kong Civil Procedure 2023, vol 1, [18/15/8].

37.  In Frank Lee & Anr v HSBC [2022] HKCFI 3680, Au-Yeung J held, that the causes of action in the draft amended statement of claim did not fall within the purview of the indorsement of claim ([58]).  The following principles were set out by the learned Judge :

(1)  In determining whether an indorsement on a writ is adequate, it is necessary to bear in mind the 3 functions served by an indorsement.  First, it informs the defendant of the nature of the claim made and the relief sought so as to enable the defendant to determine whether to enter an appearance.  Second, it enables the determination, for the purpose of limitation, of whether a cause of action is contained in the writ.  Third, it sets out the metes and bounds within which the statement of claim must be framed [37];

(2)  The indorsement is not a pleading.  It suffices if it conveys that information generally and without particularity save where and to the extent to which particularity is indispensable to notify the required elements of the indorsement.  The indorsement determines the essential nature of the action [38];

(3)  Generally, if a plaintiff seeks to make any claim in contract, it would be necessary for it to be able to identify the particular contract and the alleged breach.  In the case of any breach of tortious duty, it would be necessary for the plaintiff to be in a position to identify the essential acts or omissions which constituted the breach of duty, negligence or negligent misstatement.  If the plaintiff was not in a position to do this, it was not in a position properly to issue a claim, since it could not have proceeded properly to plead particulars of claim without the off-chance occurring that something would turn up [40];

(4)  If at the time of issuing its writ, the plaintiff was not in a position to do the minimum necessary to set out the nature of the claim it was making, it would be seeking an illegitimate benefit, namely, the prevention of further time running under the limitation statute for a claim which it could not properly identify or plead, and that would be an abuse of the process of the court [42].

38.  There is no proper answer to this Ground apart from the Plaintiff’s Consolidation Application, which I shall come to in dealing with the next Ground.

Duplicity Ground

39.  It is uncontroversial that the SOC in the 2^nd Action is identical to the one in this action.  Both SOCs were filed on 4 November 2022. 

40.  Mr Nip had referred this Court to the following authorities :

(1)  It is prima facie an abuse of the process of the court to bring two actions against the same defendant in respect of the same cause of action.  The public interest in avoiding any possibility of two courts reaching inconsistent decisions on the same issue is undoubted and this alone would suggest that two actions based on the same cause of action should never be allowed: Choi Gain Chee v Kowloon Development Co Ltd, unrep, CACV 371/2005, 13 June 2006, [65];

(2)  The rule against multiplicity of proceedings in respect of a single cause of action is soundly based on considerations of public policy designed to prevent the harassment of litigants by exposing them to the anxiety and expense of unnecessary legal proceedings: Upper Like Investments Ltd v Sino-Rank International Ltd, unrep, HCA 17637/1999, 19 November 2012, [28];

(3)  Although it is normally the case that the later action is liable to be struck out, the Court had also struck out an earlier action in circumstances where the commencement of the earlier action was inappropriate: Lam Pak Cheung v Lin Zhen Lue [2009] 1 HKLRD 35, [56]-[59].

41.  Again, there is no proper answer to this Ground, save for the Consolidation Application.  There was an attempt by the Plaintiff to explain the duplicitous actions, namely, “to preserve the claims [of this action] and avoid running into any potential disputes over limitation periods”. Quite rightly, Mr Barlow did not attempt to defend the explanation.  It simply cannot get off the ground when the Plaintiff had failed to pay heed to the Registrar’s suggestion that the IOC be amended (see para 18 above).  Even without the prompting, the Plaintiff could and should have amended the IOC to introduce the causes of action advanced in the 2^nd Action, which would have avoided the present problem.  

42.  As regards the Consolidation Application, although it is not presently before this Court (see para 19 above), I am unable to accept that it is a good answer to the strike out.  First, apart from the Duplicity Ground, the IOC and the SOC are liable to be struck out under the Purview Ground.  There is no substance left in this action when the Plaintiff’s complaints are in truth encapsulated by the causes of action advanced, and could only be advanced, in the 2^nd Action which has a much wider IOC.

43.  Second, I consider it wrong in principle to allow 2 sets of identical proceedings to exist.  There is no justification for the costs and trouble in consolidating the proceedings just to preserve what should not be allowed to continue.

44.  In the premises, I see no proper reason not to strike out the IOC and the SOC in this action on the Purview Ground and/or Duplicity Ground.

45.  Although it is not strictly necessary to deal with the other 2 Grounds, I shall do so succinctly.  Both of them raise complicated legal issues.  It is convenient to deal firstly with the Abuse of Process Ground.

Abuse of Process Ground

46.  The Defendant says that it is vexatious and an abuse of process to allow the Plaintiff to pursue this action concerning overcharging of legal fees in light of the Taxation Proceedings, in particular Decision (1).

47.  As stated above, the Plaintiff commenced Taxation Proceedings against the Defendant seeking an order for taxation of FB(1) and FB(2).  The Plaintiff’s Amendment Application seeking an order for taxation of the Previous Bills was dismissed under Decision (1).  The Court also made an order under Decision (2) referring the profit costs of FB(1) and FB(2) to taxation.  There was no appeal by the Plaintiff against either Decisions.

48.  As to the Previous Bills, Mr Nip submitted that the substance of the alleged overcharging in relation to the fees charged thereunder was destroyed by Decision (1) by which the Amendment Application was dismissed.  Notwithstanding this Decision, the Plaintiff saw fit to re-open this issue by commencing a separate action against the Defendant.  In pursuing this alleged overcharging claim against the Defendant, the Plaintiff is in effect asking the Court to tax the Previous Bills through the back door.

49.  Mr Nip relies on the following principles on collateral attack as an abuse of process :

(1)  An action by a party, who as claimant was unsuccessful or substantially so in earlier proceedings, in which he had a proper opportunity of being heard, may be dismissed or struck out as an abuse of process where the action is a collateral attack on the earlier decision, especially if there are aggravating features such as ulterior purpose, prejudicial delay, or the absence of fresh evidence: Spencer Bower and Handley: Res Judicata, 5^th edn, [26.16];

(2)  Two facets of public interest are engaged.  The first relevant public interest is finality in litigation.  The second relevant public interest is the principle of abuse of process by which a court will not countenance the pursuit of an action which amounted to a collateral attack on an earlier decision of a court of competent jurisdiction binding on the same parties and their privies, as this would bring the administration of justice into disrepute: Nowodzelski v Director of Immigration [2018] 4 HKLRD 780, [35]-[36];

(3)  It is not material that the form and nature of the proceedings, the claims and remedies sought in the two sets of proceedings brought by the plaintiff are different.  The difference in the remedies sought in the two sets of proceedings is not of much relevance in the overall assessment as to whether the subsequent civil claims are abuses of the process: Nowodzelski, [37].

50.  In order to analyse the substance of the Defendant’s complaint, the ratio of Decision (1) must be properly understood.  It was a relatively straightforward decision by the Court based on the following 3 reasons as per paras 17 to 20 of Decision (1) :

(1)  The Court would not grant a wholesale order to tax an unknown number of unidentified bills;

(2)  Without knowing anything about the bills, the Court was unable to judge if the bills were separate final bills or a series of bills which together formed one composite bill[1];

(3)  All the Previous Bills were paid more than 12 months prior to the issuance of the Amendment Application.  No taxation might be ordered under proviso (ii) of s.67(2) of the Legal Practitioners Ordinance, Cap. 159.

51.  It is reasonably clear that the Defendant’s refusal to provide copies of the Previous Bills to the Plaintiff was a fundamental hindrance to the Amendment Application.  It is lamentable that professionals who stood in a fiduciary relationship with their lay client should resist providing copies of their previous bills to the latter.

52.  However, Decision (1) was a determination on the Amendment Application, which was inaptly made when the Previous Bills were unavailable.  It was not a determination on the merits of the taxation of the Previous Bills.  Indeed, it was implicit in the Decision that had the Previous Bills been available, it might be seen that they or some of them might be subject to taxation upon the Plaintiff’s application.

53.  As regards proviso (ii) of s.67(2), Mr Nip acknowledged that it was at least arguable that even if paid more than 12 months before application for taxation, the Previous Bills might still be subject to taxation if they were part of one composition bill ended with FB(2).

54.  Finally, Mr Nip also very fairly accepted that he was unable to contradict Mr Barlow’s submission, based on Sutherland v CRB [2023] 1 HKLRD 1 that the Plaintiff is, subject to the Court’s management, entitled to pursue in parallel taxation of the Defendant’s bills and its common law causes of action.  I accept the Plaintiff’s submission bearing in mind that this is a strike out application. 

55.  In the premises, I am unable to agree with the Abuse of Process Ground.

Limitation Ground

56.  One must start with the causes of action relied upon by the Plaintiff, namely, tort and contract (see para 16 above).  Hence, the Plaintiff’s reliance on s.20 of the Limitation Ordinance, Cap 347 (“Ordinance”) is misplaced.  S.20 is concerned with recovery of trust property.  There is no such plea. 

57.  In respect of both breach of contract and tortious liability, Mr Nip relies on the usual 6 year limitation period counting from the date on which the causes of action accrued: s.4(1)(a) of the Ordinance. 

58.  For a breach of contract claim, the cause of action accrues when the breach of contract takes place, not when the damage occurs or is discovered: Chitty on Contracts, 24^th edn, vol 1, [3-008]. 

59.  Mr Nip submitted that on the Plaintiff’s case the Defendant’s retainer was terminated on 18 June 2016.  Therefore, there could not have been any breach of contract on the part of the Defendant after that date when the contractual relationship was terminated.  This action was taken out on 20 July 2022, more than 6 years after the termination of the retainer. 

60.  With respect, whilst attractive, this is an over simplistic analysis.  First, as pointed out by Mr Barlow, the contract in question, at least on the Plaintiff’s case, was not governed by the retainer. 

61.  Second, there is at least reasonable scope for argument that the alleged breach of contract by way of overcharging only took place when the bills were rendered.  Further, if the bills were not separate final bills, it is arguable that the breach only took place when FB(2) was delivered on 8 August 2016.  This action was issued within 6 years of that date.

62.  In the premises, I am unable to come to the view that this argument is sufficiently clear cut to justify a strike out of this action.

63.  For completeness, it must be said that there is some force in Mr Barlow’s Key Reply Points, paras 8, 9, 12 and 13.  It is however unnecessary to deal with them in this succinct treatment. 

64.  Mr Nip’s submissions under this Ground did not deal with the Plaintiff’s tortious claim, for which the cause of action would only accrue when damage occurs.  There is a respectable argument that damage would not have occurred until the bills were paid, and of course the separate final bill point mentioned above would also be applicable. 

65.  For these reasons, I am unable to agree with the Limitation Ground.

Disposition

66.  For above reasons, the Purview Ground and the Duplicity Ground are established.  The IOC and the SOC were rightly struck out.  This appeal is accordingly dismissed.

67.  I see no reason to disturb the costs order below.  As for the costs of this appeal, there is no apparent reason to justify a departure of the general rule that they follow the event.  I make an order nisi that the costs of and occasioned by this appeal be paid by the Plaintiff, with a certificate for 2 counsel, to be taxed if not agreed. 

68.  I decline the Defendant’s request to award costs on indemnity basis given that (a) the strike out is only upheld on 2 of the 5 Grounds; and (b) it is quite possible that the dispute would have been confined to matters of taxation had the Defendant not adopted an entrenched adversarial stance and refused to provide the Previous Bills to the Plaintiff. 

69.  Although the Consolidation Summons is not before this Court, there is no longer any purpose for it to serve.  The parties must act sensibly and have it disposed of by consent.  Failure to do so may result in adverse costs order, including wasted costs.

70.  Last but not least, I am grateful to counsel for their assistance.