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

HCA1110/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1110 OF 2003

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DECISION ON COSTS

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Introduction

1.  Upon the plaintiff’s application by summons filed on 21 May 2007 (“the plaintiff’s Summons”), Messrs Ko & Chow (“KC”) was ordered to show cause why it should not be liable personally 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, during which the 2^nd defendant was deregistered and KC was on the record representing the 2^nd defendant. 

2.  By my Decision handed down on 24 December 2004, KC was ordered to personally bear the wasted costs incurred by the plaintiff in pursuing the claim against the 2^nd defendant during the aforesaid period. The amount of the wasted costs was ordered to be taxed by the taxing master, if not agreed.

3.  Counsel for the plaintiff and KC had since put in written submissions relating to the costs of the application and proceeding on wasted costs order.

The parties’ case on costs

4.  The plaintiff’s position is that costs should follow event so that KC should be ordered to pay the plaintiff the costs of the wasted costs proceeding. The plaintiff further asks that the wasted costs as well as the costs of the plaintiff’s Summons be taxed on indemnity basis.

5.  On the other hand, KC’s position is that the plaintiff should only be entitled to the costs of the application up to 12 September 2007, and should pay the costs of KC incurred after 12 September 2007, relying on the fact that KC had made a “without prejudice save as to costs” offer, which was not accepted by the plaintiff.

The Calderbank offer

6.  In support of the argument, KC relied on a series of without prejudice correspondence it had with the plaintiff’s solicitors. The first is KC’s letter dated 30 June 2007 to the plaintiff’s former solicitors. The material part of it read:

“On without prejudice basis and without admission basis and with a view to settle the matter amicably, we hereby [sic] give the following offer for settlement of your client’s claim under the Summons dated 21-05-2007 in the following terms :-

(a)    a sum of HK$100,000.00 in full and final settlement of your client’s claim; and

(b)   the costs of the application of your [sic] summons to be paid by us to be taxed [sic] if not agreed.

Please be informed that this offer is open [sic] for your client’s acceptance within the next 5 days. Failing which the offer will be lapsed and we shall file and serve our affirmation to oppose [sic] your client’s application.

If the costs of your client’s Summons shall be in issue, we reserve our right to produce this letter to the Court for its consideration; in particular, if the costs is awarded in your favour but it is taxed below the aforesaid offered sum. Under that situation, we shall ask for the costs of your client’s Summons and the costs of taxation.” 

7.  The plaintiff’s current solicitors replied by letter dated 17 July 2007. The letter began by observing that it appeared that KC did not dispute personal liability for the plaintiff’s costs.  It went on to propose that KC agreed to an order being made along the terms of the plaintiff’s summons with costs to the plaintiff to be taxed if not agreed, and after the consent order was made, they could then negotiate on the amount of costs involved. The letter concluded by pointing out that the amount offered by KC was too low.

8.  KC replied by letter of the same date. The material part of it read:

“We reiterate that we dispute our firm’s personal liability to pay the costs after the de-registration of D2.

The offer to your client is on without prejudice and without admission basis save and except for costs and costs of taxation in order to settle the matter amicably.

Therefore, it is for your client to consider to accept it or not. If, which is denied, we were liable, the amount of the wasted costs is later taxed at below the offered sum, we shall apply to Court for the costs of the summons from the offer and the costs of taxation.”

9.  Then by letter dated 12 September 2007, the plaintiff’s solicitors informed KC that as a gesture of goodwill, the plaintiff was prepared to accept HK$500,000 as the costs incurred in prosecuting the 2^nd defendant. It stated that if KC did not accept this, it would be sensible to leave the matter to taxing matter. The letter further pointed out that it was unreasonable for KC to seek to show cause when the matter could have been disposed of by KC admitting liability and leaving the amount to be taxed.

10.  On 18 September 2007, KC wrote to reject the plaintiff’s offer. The letter went on to counter-offer HK$150,000 “in full and final settlement of [the plaintiff’s] claims.”

11.  Then by letter dated 1 December 2007, the plaintiff’s solicitors reiterated that the best course was for KC to agree to the costs to be taxed so as to dispense with the need of the substantive hearing of the plaintiff’s summons.

12.  It should be noted that during all this time, KC had not filed its affirmation to show cause, notwithstanding that the 28 days’ period for it to show cause had long lapsed. The affirmation was only served on 11 December 2007, 2 days before the substantive hearing scheduled for 13 December 2007.

13.  Upon receiving the affirmation of Ko Kok Fai, which raised for the first time KC’s application to reinstate the 2^nd defendant to the register of the Companies Registry under section 291AB of the Companies Ordinance, cap.32, the plaintiff’s solicitors wrote on the same day enquiring whether the previous offer of $150,000 was still open. KC replied on the same day, stating, inter alia, that the offer had lapsed “for want of acceptance and for the rejection of the same by you from time to time by your without prejudice letters inviting us to consent to the costs order against us with the amount of the costs order to be taxed such as your letter dated 1^st December 2007.”

14.  Several points are clear from these without prejudice correspondence. First, KC had made two offers: The first is to pay the plaintiff $100,000 as the wasted costs plus the costs of the plaintiff’s Summons. The second is to pay the plaintiff $150,000 in full and final settlement of all the plaintiff’s claims. I shall refer to the offers collectively as the Calderbank offers.  Second, KC’s position throughout is that it disputes personal liability for the wasted costs. It therefore does not agree to a wasted costs order being made against it, leaving the amount of the wasted costs to be negotiated or taxed. Third, KC’s further position is that if it were found liable for the wasted costs and the taxed wasted costs were lower than the sum offered, then it would apply to the court for the costs of the plaintiff’s Summons as from the date of the making of the offer and the costs of taxation.   

The costs of the plaintiff’s Summons

15.  Costs is a matter of the court’s discretion. In general, costs should follow event. Given my decision that KC had failed to show cause why it should not personally bear the costs incurred by the plaintiff in pursuing the claim against the 2^nd defendant after the latter’s deregistration, the plaintiff had clearly succeeded on his summons. Prima facie, the plaintiff should be entitled to the costs of the application.

16.  The issue here is whether KC’s Calderbank offers should affect the plaintiff’s entitlement to costs after 12 September 2007. I note in passing that it is not altogether clear why KC chose 12 September 2007 as the cut-off date for determining the costs entitlement under the plaintiff’s Summons. 12 September 2007 is the date of the letter from the plaintiff’s solicitors indicating that the plaintiff was prepared to accept $500,000 as the wasted costs and proposing alternatively to leave the matter to the taxing master if KC did not agree to the sum proposed.  Neither of these proposals was taken up by KC. Furthermore, KC revised its offer to $150,000 by letter dated 18 September 2007. The chosen date of 12 September 2007 is inappropriate.

17.  That aside, it is trite that a Calderbank offer only influences, but does not govern, the Court’s discretion as to costs: McDonnell v. McDonnell [1977] 1 WLR 34 at 38. Where a Calderbank offer had not been accepted, the Court’s approach should be to ask whether the party to whom the offer was made ought reasonably to have accepted the proposal: Butcher v. Wolfe & Another {1999} 1 FLR 334 at 304B.

18.  In the present case, in considering whether the plaintiff has acted unreasonably in not accepting the Calderbank offers, the starting point is to note the nature and substance of the plaintiff’s Summons.  By the summons, the plaintiff sought an order that KC be required to show cause why it should not be liable personally for the wasted costs incurred by the plaintiff in prosecuting the claim against the 2^nd defendant after the latter became deregistered until KC ceased to act for it. In essence, the Court was asked to make a wasted costs order against KC. On the basis of the two-stage approach set out in Ma So So v. Chin Yuk Lun & Another [2004] 3 HKLRD 295, after the hearing on 7 June 2006, the issue to be decided by the court was whether it should make a wasted costs order against KC.  The court was not concerned with the amount of the wasted costs to be paid by KC. The amount of wasted costs is a separate matter to be decided by the taxing master after the court has ruled on the plaintiff’s Summons.  It has to be by way of a separate application to assess or tax the costs.

19.  Thus analyzed, the Calderbank offers did not relate to or address the application that was pending before the court. Despite making the offer, KC maintained that the summons should be decided in its favour. Therefore, insofar as the purpose of the Calderbank offers was to stop the costs of the plaintiff’s Summons from being continued in the plaintiff’s favour, KC’s offers did not serve the purpose at all. What is more, KC made it plain that the Calderbank offers were made on the basis that liability for the wasted costs continued to be disputed. With my decision that it should personally bear the wasted costs, the plaintiff has not been beaten by the Calderbank offers.

20.  Additionally, Mr Ng for the plaintiff pointed out that the letter dated 18 September 2007 containing the revised offer of $150,000, did not offer to pay the costs of the plaintiff’s Summons.  While KC’s first offer was to pay the sum of $100,000 plus the costs of the plaintiff’s Summons to be taxed if not agreed, the letter of 18 September 2007, in making the revised offer of $150,000, made no mention of the costs of the plaintiff’s Summons.  The duty is on the offering party to make a clear offer: see Cheung Yu Tin v. Ho Hon Ka [2006] 2 HKLRD 674 at para.22. If KC intended to pay the costs of the summons in addition to the revised offer of $150,000, it was under a duty to make it clear in the letter.

21.  In my view, the plaintiff cannot be said to have acted unreasonably in refusing to accept the Calderbank offers. On the contrary, the plaintiff had made a reasonable proposal when it suggested KC to consent to the summons and to have the amount of wasted costs to be determined by the taxing master. Had this course been adopted, much of the costs of the summons, including the costs associated with the reinstatement of the 2^nd defendant and the costs of the substantive hearing, would have been saved.

22.  As an alternative, Mr Lin for KC asked that the costs of the plaintiff’s Summons be reserved until after the taxation of the wasted costs. I do not agree that this is an appropriate course. As noted above, the plaintiff’s Summons relates to whether a wasted costs order should be made against KC. This had been determined in the plaintiff’s favour. The Calderbank offers made by KC fail to address the issue to be resolved under the plaintiff’s Summons. The offers only relate to the amount of wasted costs, which is to be determined by separate proceeding before the taxing master, if there is no agreement between KC and the plaintiff. There is no justifiable reason for denying the plaintiff’s entitlement to the costs of the plaintiff’s Summons.      

Indemnity costs

23.  The plaintiff’s submission for indemnity costs has two aspects. The first relates to the wasted costs and the second concerns the costs of the plaintiff’s Summons. I will deal with them in turn.

24.  In respect of the wasted costs, it is important to bear in mind that the wasted costs jurisdiction under Order 62 rule 8 is compensatory, apart from being punitive. It is directed towards compensating the party concerned for the costs wasted as a result of the solicitor’s conduct: Ma So So v. Chin Yuk Lun & Anor, op cit., at 300, para.7. For this reason, solicitor-own-client costs or indemnity costs would in general be appropriate.

25.  For KC, Mr Lin raised two arguments against awarding the wasted costs on indemnity basis. The first is that the basis for finding KC personally liable for the wasted costs was the want of authority occasioned by deregistration of the 2^nd defendant. It is said that the order was not based on serious dereliction of duty and is therefore not an order properly based on Order 62 rule 8. I do not accept that a wasted costs order arising out of want of authority on the solicitor’s part falls outside the scope of Order 62 rule 8 or that the application of Order 62 rule 8 is confined to misconduct or serious dereliction of duty on the part of a solicitor. In my view, the rationale of compensating the affected party for the costs wasted equally applies to a case like the present, where the wasted costs were occasioned by the want of authority on the solicitor’s part.

26.  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 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.

27.  The second argument advanced by Mr Lin is that the plaintiff should have asked for indemnity costs at the hearing. I do not accept that the plaintiff cannot raise the basis of taxation after it was decided that a wasted costs order should be made against KC. That aside, there is no irreparable prejudice to KC given that it had been afforded an opportunity to deal with the submission on basis of taxation.

28.  I turn now to deal with the basis of the costs of the plaintiff’s Summons. In Ma So So v. Chin Yuk Lun & Anor, op cit., at 322, para.95, Ribeiro PJ pointed out:

“The wasted costs order itself is the response (both punitive and compensatory) to the misconduct which attracted the disapproval. That disapproval cannot be allowed to spill over into the costs order made in the O. 62 r.8 proceedings where there has been no procedural or other impropriety justifying a special costs order in the latter proceedings”    

29.  Accordingly, whether the costs of the plaintiff’s Summons should be awarded on indemnity basis falls to be governed by the general principles relating to the award of indemnity costs. In Town Planning Board v. Society for Protection of the Harbour Limited (No.2) (2004) 7 HKCFAR 114, it was held that the court has a broad discretion to determine how costs should be paid and whether indemnity costs should be ordered. The Chief Justice (at paras.15-17) confirmed the principle that the successful party should show, in order to obtain an order for costs on an indemnity basis, that the case has some special or unusual feature. However, an award of indemnity costs order is not confined to cases brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party. It is undesirable to attempt to define the circumstances in which such order would be made, and the discretion was not to be fettered beyond the requirement that indemnity costs must be appropriate.           

30.  In the present case, the plaintiff contends that there has been procedural impropriety on the part of KC in dealing with the wasted costs proceedings such that an indemnity costs order should be awarded under the plaintiff’s Summons. Specifically, the plaintiff relies on the fact that there had been inordinate and inexcusable delay by KC in that, despite the Order dated 7 June 2007 directing the filing and service of evidence to show cause within 28 days, KC only filed the affirmation and an Order 3 rule 5 summons seeking extension of time, three days before the hearing.  Further, KC failed to comply with Practice Direction 5.4 and only served the submissions until the day before the hearing.

31.  In reply, KC argues that the late filing of affirmation and service of submissions had occasioned no prejudice to the plaintiff and that costs of the O.3 r.5 summons had already been awarded to the plaintiff.   

32.  In my view, the plaintiff’s complaints are not groundless.  After hearing KC, the Court directed that the evidence to show cause should be filed and served within 28 days from 7 June 2007. If more time is required, it is incumbent upon KC to seek an extension of time as soon as it realized that it could not meet the time limit. No explanation had been given for taking out the Order 3 rule 5 summons only 3 days before the hearing.  It is not open to a party, not to say an officer of the court, to assume that it does not have to adhere to the time imposed by the Court to act.  Further, the affirmation filed by KC was a substantial one. It raised for the first time the reinstatement of the 2^nd defendant, which was upon KC’s application. The affirmation showed that KC had been in communication with the Registrar of Companies for some time before the hearing. It is therefore quite possible for KC to make the Order 3 rule 5 application much earlier on. Insofar as the delay in filing the affirmation was said to be due to the reinstatement application, it has to be noted that when KC first wrote to the Registrar of Companies on this matter, the 28-day limit for filing evidence had long expired.

33.  As to the submission that the delay had occasioned no prejudice to the plaintiff, the fact is: until KC served the affirmation and the Order 3 rule 5 summons, the plaintiff was entitled to assume that KC would not adduce evidence to show cause and to prepare for the hearing on that basis.  Indeed, by the time KC’s affirmation was served, the plaintiff had already served and lodged with the court his counsel’s written submissions. Given that the affirmation raised substantial matters and that it was served so close to the hearing, it cannot be said that there was no prejudice at all. Plainly, additional time and costs have to be incurred to consider and deal with the new matters raised by the late affirmation.

34.  Mr Lin also submitted that it was not open to the plaintiff to complain about the delay in the filing of affirmation and serving of submission because had the plaintiff accepted the Calderbank offers, then it would not have been necessary to file the affirmation and hold the hearing. I do not agree. First and foremost, KC’s delay has nothing to do with the Calderbank offers, let alone the non-acceptance of them by the plaintiff. Further, as the discussions above show, the Calderbank offers are misconceived and the plaintiff did not act unreasonably in not accepting them instantly. On the contrary, but for KC’s insistence on disputing liability for wasted costs, the hearing of the plaintiff’s summons could have been dispensed with. It should also be noted that upon receipt of the affirmation, the plaintiff’s solicitors immediately enquired whether the revised offer was open, but was met with a negative reply from KC. 

35.  In short, KC’s conduct of the wasted costs proceeding is far from satisfactory. It is appropriate that the costs be awarded on a higher scale. Considering that the plaintiff is legally aided, I will order that the costs of the plaintiff’ summons be taxed on common fund basis.

Conclusion

36. For the above reasons, I order that:

(1)        The wasted costs be taxed on indemnity basis, if not agreed.

(2)        KC pays the plaintiff the costs of the plaintiff’s Summons, to be taxed on common fund basis, if not agreed.

(3)        The plaintiff’s own costs be taxed under the Legal Aid Regulations.

HCA1110/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1110 OF 2003

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Before : Hon Chu J in Chambers

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DECISION

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1.  This is the plaintiff’s application for wasted costs under Order 62 rule 8 of Rules of the High Court against the firm of solicitors who acted for the 2^nd defendant when the 2^nd defendant was deregistered.

Background

2.  On 26 March 2003, the plaintiff issued the writ herein claiming against the 1^st defendant for declaratory and injunctive relief and damages in trespass in respect of three lots of land in San Tin of Yuen Long, New Territories.  On 2 April 2004, the 1^st defendant filed the witness statement of Man Yu Kam, who was one of the two shareholders and directors of the 2^nd defendant. This witness statement was dated 13 February 2004. In it, Man Yu Kam alleged that the formation works on the three lots of land, being the act of trespass complained of, was carried out by the 2^nd defendant.

3.  In consequence, the plaintiff’s solicitors sent a letter of demand to the 2^nd defendant on 7 May 2004. On 22 May 2004, the plaintiff further applied to join the 2^nd defendant. The application was granted on 27 May 2004. The writ was amended on 28 May 2004. On 23 June 2004, the 2^nd defendant filed its defence. Since being added as a defendant, the 2^nd defendant was represented by Messrs Ko & Chow (“KC”), who also acts for the 1^st defendant.

4.  The action was set down for a five-day trial commencing on 11 September 2006. On 7 September 2006, counsel instructed by KC to act for both defendants put in a short note, informing the court that it had just come to KC’s notice that the 2^nd defendant had since 17 September 2004 been deregistered upon the application of its director dated 12 May 2004.

5.  In the afternoon of the first day of the trial, KC applied and was granted leave to come off the court record as solicitors for the 2^nd defendant. The trial against the 1^st defendant proceeded as scheduled while the trial against the 2^nd defendant was stayed. Man Yu Kam was called to, and he did, testify for the 1^st defendant.

6.  On 5 May 2007, I entered judgment for the plaintiff for declaratory and injunctive relief together with nominal damages.  I also made an order nisi that the 1^st defendant pays the plaintiff the costs of this action, to be taxed if not agreed. 

7.  By summons filed on 18 May 2007, the plaintiff applied to vary the costs order nisi for an order that the 1^st defendant also pays the plaintiff the costs of pursuing the claim against the 2^nd defendant. In essence, this is to do away with any argument for apportionment when taxing the plaintiff’s costs against the 1^st defendant.

8.  Further by summons filed on 21 May 2007, the 1^st defendant, who is legally aided, applied for an order requiring KC to show cause why it should not be liable personally 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. 

9.  After submissions, I ordered on 7 June 2007 that KC may file affirmation(s) to show cause within 28 days and the wasted costs application was adjourned for argument. On 15 June 2007, the adjourned hearing was fixed for 13 December 2007.

10.  As for the summons against the 1^st defendant for variation of the costs order nisi, it was adjourned sine dine with liberty to restore. Since then, the 1^st defendant has changed to be represented by another firm of solicitors.

11.  On 26 November 2007, KC commenced High Court Miscellaneous Proceeding No.2370 of 2007, applying under section 291AB(2) of the Companies Ordinance, cap.32 to reinstate the registration of the 2^nd defendant.  With the consent of the Registrar of Companies, an order was made on 30 November 2007 reinstating the registration of the 2^nd defendant to the register of the Companies Registry for one year.

12.  On 10 December 2007, KC filed the affirmation Mr Ko Kok Fai for the purpose of showing cause. Leave to file it out of time was granted at the hearing with costs to the plaintiff.

The application

13.  The plaintiff’s application against KC is made on the basis that upon the deregistration and dissolution of the 2^nd defendant, KC did not have authority to act for the 2^nd defendant. Notwithstanding that, KC had purported to act on behalf of and had taken a number of steps in this action. The steps taken included the filing of Man Yu Kam’s supplemental witness statements and checklists as well as the making of consent summonses and attending checklist hearings and pre-trial hearings. KC had therefore warranted that it had authority to act for the 2^nd defendant when in fact it did not have such authority. The wasted costs incurred by the plaintiff in pursuing the claim against the 2^nd defendant when it was deregistered should therefore be paid by KC personally.

The opposition

14.  KC opposed the application. In brief, the affirmation of Ko Kok Fai and the submissions of Mr Lin raise three arguments as follows:

(1)     When KC was retained to act for the 2^nd defendant, it was furnished with a board resolution of the 2^nd defendant passed on 10 May 2004, authorising the appointment of KC to act for it in this action. KC received instruction from Man Yu Kam. All along, KC acted for the 2^nd defendant in the belief that it was subsisting and was not aware of its deregistration.    It was on 2 September 2006 during conference with counsel that Man Yu Kam disclosed that the 2^nd defendant had been registered.

(2)     By the Order of 30 November 2007, the 2^nd defendant has been reinstated to the register of the Companies Registry.  It is taken to have continued in existence as if it had not been deregistered. As such, the plaintiff no longer has basis to seek wasted costs against KC personally.

(3)     The plaintiff has not shown any loss.

The deregistration of the 2^nd defendant

15.  The application for deregistration of the 2^nd defendant was made under section 291AA of the Companies Ordinance. Under section 291AA(1), either the company or one of its director or member may make the deregistration application. Section 291AA(2) further provides that:

“An application to deregister a private company can only be made if -

(a)          all the members of the company agree to the deregistration;

(b)         the company has never commenced business or operation, or has ceased to carry on business or ceased operation for more than 3 months immediately before the application; and

(c)     the company has no outstanding liabilities.”

16.  The deregistration application was signed by Man Yu Kam and dated 12 May 2004, five days after the plaintiff’s letter of demand and two days after the board resolution appointing KC as its solicitors to act in this action. The application stated, inter alia, that the 2^nd defendant had no outstanding liabilities and had ceased to carry on business or ceased operation for more than three months immediately before the application. The former statement is clearly incorrect in light of the plaintiff’s letter of demand. The latter statement is also a direct contradiction of Man Yu Kam’s assertions that the container depot on the three lots of land has all along been operated by the 2^nd defendant.

17.  I pause here to note that before making the deregistration application, the 2^nd defendant had on 18 March 2004 written to the Inland Revenue Department seeking its consent to the deregistration application. This can be seen from the Inland Revenue Department’s letter of reply dated 27 April 2004. As pointed out above, the witness statement of Man Yu Kam, which eventually led to the addition of the 2^nd defendant as a party, was dated 13 February 2004, but was only filed on 2 April 2004. Hitherto, the 1^st defendant had filed the 1^st witness statement of its shareholder and director, Yuen Kam Man Terence, in which nothing was said about the formation works done to the land in question, let alone who caused the works to be done. As said in my earlier Judgment, the application to deregister the 2^nd defendant is no doubt a planned move calculated to defeat the plaintiff’s claim.    

18.  Notice of the intended deregistration of the 2^nd defendant was gazetted on 28 May 2004. As no objection was received by the Companies Registrar, the 2^nd defendant became deregistered and was dissolved on 17 September 2004 pursuant to section 291AA(9) of the Companies Ordinance.

The authority of KC

19.  With the deregistration and dissolution of the 2^nd defendant, there can be no doubt that KC could not have authority to act for it and to take step on its behalf in this action.

20.  In Yonge v. Toynbee [1910] 1 KB 215, a case on the personal liability of a solicitor who acted in good faith and without knowledge that the client was of unsound mind, Buckley LJ, after examining the relevant authorities, stated as follows (at 227):

“The result of these judgments, in my opinion, is that the liability of the person who professes to act as agent arises (a) if he has been fraudulent, (b) if he has without fraud untruly represented that he had authority when he had not, and (c) also where he innocently misrepresents that he has authority where the fact is either (1.) that he never had authority or (2.) that his original authority has ceased by reason of facts of which he has not knowledge or means of knowledge. Such last-mentioned liability arises from the fact that by professing to act as agent he impliedly contracts that he has authority, and it is immaterial whether he knew of the defect of his authority or not.”

21.  In Swinfen Eady J’s judgment, the position where the solicitors once had authority to act, but it was determined without their knowledge was considered. It was stated that (at 231):

“Where an agent represents that he has authority to do a particular act, and he has not such authority, and another person is misled to his prejudice, the ground upon which the agent is held liable in damages is that there is an implied contract or warranty that he had the authority which he professed to have. It would seem to follow from this, in principle, that, where the authority upon which an agent is to act is a continuing authority, there is a continuing representation by him that he has authority to do the series of acts, and an implied contract, or warranty that he possesses such authority.”

After referring to earlier cases, Swinfen Eady J continued (at 232):

“Now this principle is, in my judgment, equally applicable whether the authority which tea genet assumes extends to one act only, or to a series of acts; and, in the latter case, if some only of the acts are unauthorised by reason of an authority having determined, there is no reason why the principle should not extend to those, The fact that the earlier acts of the series were without the authority should make no difference as regards the later unauthorized acts.” 

22.  The same point was made by Buckley LJ where he said (at 226):

“ The question is not as to his honesty or bona fides. His liability arises from an implied undertaking or promise made by him that the authority that he professes to have does in point of time exist. I can see no difference of principle between the case in which the authority never existed at all and the case in which the authority once existed and has ceased to exist.”

23.  It is therefore clear that the liability of the solicitors who acts without authority to pay costs personally is unaffected by the fact that the authority once existed but was ceased to exist. Nor is the fact that he acts in good faith and in reasonable reliance upon instruction or that he has no knowledge of the lack or cessation of authority: see also Babury Limited v. London Industrial PLC & Another, QBD, 13 October 1989, Steyne J.

24.  The basis of the solicitors’ personal liability for costs is the breach of warranty of authority: Jingjin Shipping Co Ltd v. The Owners of the Ship or Vessel “Tian Xiang 2 Hao” (PRC flag) & Another, CACV 327/2003, unreported, at para.14. As pointed out by Swinden Eady J in Yonge v. Toynbee, at 233:

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

25.  In the present case, to the extent that KC says that it had reasonably relied on the Board resolution of the 2^nd defendant and the instruction of Man Yu Kam, that it did not know of the 2^nd defendant’s deregistration, none of them amounts to good or sufficient cause why KC should not be liable for wasted costs incurred by the plaintiff in the claim against the 2^nd defendant. The first argument therefore fails.

The reinstatement of the 2^nd defendant

26.  The application by KC to reinstate the 2^nd defendant to the register of the Companies Registry was made under section 291AB(2) of the Companies Ordinance, which reads:

“The court may order that the Registrar reinstate the registration of a company that was deregistered under section 291AA if-

(a)     an application for reinstatement is made to the court within 20 years of the deregistration by a person who feels aggrieved by the deregistration; and

(b)    the court is satisfied that it is just that the registration of the company be reinstated.”

27.  Section 291AB(3) provides that:

“If the court makes an order under subsection (2), it may-

(a)     validate anything done between the deregistration of the company and its reinstatement; and

(b)     make any other order it considers appropriate.”

28.  Section 291AB(5) further provides that:

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

29.  Mr Lin, who appeared for KC, argued emphatically that section 291AB(5) had the effect of validating retrospectively all acts done by KC in the name of or on behalf of the 2^nd defendant during the period between its deregistration and the reinstatement. In advancing this argument, he relies heavily on Tyman’s Ltd v. Craven [1952] 2QB 100 and Steans Fashions Ltd v. Legal & General Assurance Society Ltd [1995] 1 BCLC 332.

30.  In Tyman’s Ltd v. Craven, the English Court of Appeal held that an order made under section 353(6) of the 1948 Companies Act, restoring to the register a company dissolved under section 353(5) and declaring that the company shall be deemed to have continued in existence as if its name had not been struck off, was effective to validate retrospectively all acts done in the name or on behalf of the company during the period between its dissolution and the restoration of its name to the register.

31.  Tyman’s Ltd v. Craven was considered and followed by our Court of Appeal in Joint United Industrial Co v. South Union Chemical Engineers Ltd, CACV12/1970, unreported, 27 October 1970 at pp.12-14. More recently, Tyman’s Ld v. Craven was also applied by Kwan J in El Vince Ltd v. Wu Wen Sheng [2001] 3 HKLRD 445.

32.  In Tyman’s Ltd v. Craven, the Court was concerned with the construction of section 353(6) of the 1948 Companies Act. Under Section 353(1) to (5), the registrar of companies may strike the name of a company off the register if he has reasonable cause to believe that a company is not carrying on business or in operation, and after sending letters of inquiry to the company and giving notice in the Gazette and to the company that the name of the company will be struck off unless cause is shown to the contrary within three months. Section 353(6) enables the company or its member or creditor who is aggrieved by the striking off, to apply to the court to restore the name of the company to the register. Upon hearing the application, the court may “if satisfied that the company was at the time of the striking off carrying on business or in operation or otherwise that it is just that the company be restored to the register, order the name of the company be restored to the register”.  Section 353(6) further provides that “upon an office copy of the order being delivered to the registrar for registration the company shall be deemed to have continued in existence as if its name had not been struck off; and the court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off”. 

33.  The argument of the respondent in Tyman’s Ltd v. Craven is that in section 353(6), the words “the court may by the order give such directions and make such provisions …” substantially qualify the effect of the phrase that precedes it (namely, the company shall be deemed to have continued in existence as if its name had not been struck off) so that the effect of the preceding phrase is only to preserve the continuance of the company without validating the acts done in the name of the company during the period of its dissolution: see p.106. This argument was rejected by the majority of the Court of Appeal. Evershed MR said (at 111):

“In my judgment, the final words of the subsection can properly and usefully be regarded as intended to give to the court, where justice requires and the general words would or might not themselves suffice, the power to put both company and third parties in the same position as they would have occupied in such cases if the dissolution of the company had not intervened. More generally, the final words of the subsection seem to me designed, not by way of exposition, to qualify the generality of that which precedes the, but rather as a complement to the general words so as to enable the court (consistently with justice) to achieve to the fullest extent the ‘as-you-were’ position, which, according to the ordinary sense of those general words is prima facie their consequence.”

34.  Section 353 of the 1948 Companies Act (see Tyman’s Ltd v. Craven at 101-102, footnote 1) is the equivalent of section 291 of our Companies Ordinance. Section 33(6) is equivalent of section 291(7), which was the provision considered by the Court of Appeal in Joint United Industrial Co v. South Union Chemical Engineers Ltd.

35.  In El Vince Ltd v. Wu Wen Sheng, the court was concerned with the now repealed section 290A. Under section 290A, the Companies Registrar may strike off a company who had failed to file an annual return in two consecutive years and after giving notice of the failure to the directors and secretary by letter and after publishing notice of intention to strike off in the Gazette. Section 290A(6), which was the subject matter of Kwan J’s decision, provided that the Companies Registrar may, on the application of the company or its member, director or creditor, if satisfied that it was just to restore it to the register and on payment of a fee, publish a notice to that effect in the Gazette. As in the case of section 353(6) and section 291(7), section 290A(6) further provided that “upon the notice being published the company shall be deemed to have continued in existence as if its name had not been struck off; and the Registrar may in the notice give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.”    

36.  Section 291AB of the Companies Ordinance, with which the present case is concerned, is however differently worded from section 353 of the 1968 Companies Act.  Both sections 291AA and 291AB were added in 1999. Unlike section 291 and the repealed section 290A, section 291AA is not dealing with the striking off of a company, but a deregistration of a private company. The power is not exercised at the instance of the Companies Registrar, but is initiated by an application from the company or its member or director. The consent of all the members of the company to the deregistration is required. Further, the application for reinstatement under section 291AB is, unlike section 291 or the repealed section 290A, not limited to the company of its member, director or creditor, but is extended to any person aggrieved by the deregistration.

37.  Given the differences as analysed, it will not be right to assume that the interpretation of section 353(6) of the 1948 Act in Tyman’s Ltd v. Caven and of section 291(7) and the repealed section 290A(6) of the Companies Ordinance in Joint United Industrial Co v. South Union Chemical Engineers Ltd and El Vince Ltd v. Wu Wen Sheng will automatically extend to section 291AB(5).  In my view, there are two reasons why section 291AB(5) should receive a different construction.

38.  First, section 291AB (3)(a) specifically empowers the court, when ordering the reinstatement of the company, to make a separate order validating anything done between its deregistration and instatement.  This provision only applies to a reinstatement made under section 291AB(2), namely, as ordered by the court on the application of a person aggrieved by the deregistration.  It does not extend to a reinstatement under section 291AB(1), which is at the instance of the Companies Registrar.  By contrast, subsection (5) which deems the company to have continued in existence applies to companies reinstated under subsections (1) and (2).  Given this structure, there is no justifiable basis for construing subsection (5) as having the effect of validating retrospectively all acts done in the name of and on behalf of the company between its deregistration and reinstatement.  Such a construction would render subsection (3) superfluous and redundant.  It would also render unnecessary the restriction of subsection (3) to reinstatement ordered by the court. Additionally, there would be no difficulty for the draftsman and the legislature to adopt the drafting in section 291(7) if the effect of reinstatement under section 291AB were intended to be the same as restoration under section 291. Mr Lin argued that subsection (3) had to be limited to a reinstatement ordered by the court under subsection (2) because for a reinstatement by the Companies Registrar, there was no occasion for the court to make the additional order. I do not agree. Under the repealed section 290A(6), the power of the court to give directions under section 291(7) was given to the Registrar. It is therefore possible for the legislature to confer on the Registrar the court’s power of retrospective validation under section 291AB(3) if that was the statutory intention. 

39.  Second, the deregistration under section 291AA, with which section 291AB is concerned, is pursuant to the application of the company or its member or director and had been agreed to by all the members. This is unlike a striking off under section 291 or the repealed section 290A, which is at the instance of and a regulatory act of the Companies Registrar. As such, there is good reason for not making retrospective validation an automatic consequence of reinstatement. In considering the application of the aggrieved person, which may include the member or director of the company, the court ought to be more vigilant and will examine the circumstances before deciding to validate the things done by the company between its deregistration and reinstatement.

40.  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.

41.  As for the case of Steans Fashions Ltd v. Legal & General Assurance Society Ltd, the plaintiff company was struck off the register and dissolved for failure to deliver annual returns pursuant to section 652 of the 1985 Companies Act. Being not aware of the striking off, the plaintiff acting by solicitors commenced the action against the defendant for payment under an insurance policy.  On the first day of the trial, the defendant discovered the striking off as a result of a company search. The plaintiff immediately applied to the court to restore its name to the register, which was subsequently granted. In the meantime, the defendant applied for judgment on the claim and counterclaim on the basis that the plaintiff had ceased to exist. The defendant also applied for an indemnity costs order against the plaintiff’s solicitors on the ground that they had acted without authority. The trial judge refused the plaintiff’s application to adjourn the defendant’s application pending the restoration application. Judgment was given for the defendant with costs up to the date of the plaintiff being struck off the register, to be taxed on standard basis.  The judge further ordered the plaintiff’s solicitors to pay the defendant’s costs incurred from and after the date of the plaintiff being struck off, to be taxed on indemnity basis.

42.  On appeal by both the plaintiff and its solicitors, the Court of Appeal held that the proper procedure would be to stay the proceedings pending the application to have the plaintiff restored to the register.  It allowed both appeals, set aside the orders of the trial judge and made a joint and several order against the plaintiff and its solicitors for payment of the defendant’s costs thrown away, to be taxed on the standard basis. 

43.  Two points have to be made on this case. First, the statutory provision that was engaged (i.e. section 653 of the 1985 Companies Act) is similar to the repealed section 290A and the power of restoration is the same as that under section 290A(6) and section 291(7). The reference to retrospective validation and the case of Tyman’s Ltd v. Craven has to be read and understood in this light. Second, not only did leading counsel for the plaintiff and the solicitors readily conceded that the plaintiff and the solicitors should bear the costs thrown away by reason of the aborted trial, but Nourse LJ (with whom the other members of the court agreed) also took the view that generally speaking, the appropriate course was to stay the action pending the restoration application, subject always to proper provision for costs for thrown away (at 335a-b and i). The concession by the solicitors’ counsel and the joint and several costs order against the solicitors were made notwithstanding it was said that the effect of section 632(3) of the 1985 Act was to retrospectively cured the solicitors’ lack of authority.  

44.  In the present case, when KC applied to reinstate the 2^nd defendant, it did not seek an order and no order was made under section 291AB(3) validating the things done by the 2^nd defendant during its deregistration. Having regard to the discussions above, I do not agree that the reinstatement of the 2^nd defendant per se is good or sufficient cause for not ordering KC to be personally liable for the wasted costs incurred by the plaintiff. The second ground of opposition fails.

Any wasted costs incurred by the plaintiff?

45.  The last argument advanced on behalf of KC is that the plaintiff has not shown any loss arising out of the deregistration of the 2nd defendant. Essentially, it is said that the plaintiff’s claim against the 2^nd defendant has yet to be adjudicated and that in light of the evidence and the findings in my earlier judgment, the claim against the 2^nd defendant is unlikely to succeed. It is further said that the plaintiff’s preparation and conduct of the case would be the same whether it was against the 1^st defendant or against both defendants.  

46.  Mr Lin had also argued that the plaintiff should not have joined the 2^nd defendant at all. Probably it was because Mr Lin was not involved in the trial that this was said. As the sequence of events outlined above shows, no fault can be attributed to the plaintiff for having joined the 2^nd defendant.

47.  As to the point that the claim against the 2^nd defendant has yet to be adjudicated and that it is unlikely to succeed, it should be noted that in entering judgment against the 1^st defendant, I had only rejected the 1^st defendant’s defence that the site clearance and formation work was done solely at the 2^nd defendant’s instance and it had nothing to do with it. It is not my finding that the 2^nd defendant was not involved in the acts of trespass. Even if the plaintiff could not prove his claim against the 2^nd defendant, it may not be determinative of the plaintiff’s entitlement of the costs incurred in pursuing the claim against the 2^nd defendant, having regard to what Man Yu Kam had volunteered in his witness statement filed on 2 April 2004 that led to the addition of the claim against the 2^nd defendant.

48.  In any event, what the plaintiff is seeking by this application is the wasted costs incurred in pursuing the claim against the 2^nd defendant during its deregistration, up to the time when KC ceased to be its solicitors. The fact that the plaintiff might succeed in obtaining a costs order against the 2^nd defendant does not mean that KC should not be made liable for the wasted costs. The joint and several costs order made by the Court of Appeal in Steans Fashions Ltd v. Legal and General Assurance Society Ltd is an illustration in point.

49.  As to whether there is any additional or wasted costs incurred by the plaintiff consequent upon the deregistration of the 2^nd defendant, Mr Ng pointed out that the 1^st defendant had indicted an intention to seek an apportionment of the plaintiff’s costs to reflect that there are two defendants in the action. That may well mean that if an apportionment was ordered, part of the plaintiff’s costs will not be met. That does not necessarily amount to wasted costs.

50.  I am, however, not prepared to accept that there are no wasted costs at all. Among other matters, although the defences of the 1^st and 2^nd defendants are almost the same, the 2^nd defendant has an additional defence of estoppel based upon an oral confirmation and the Chinese agreement dated 14 May 2002. Further when Man Yu Kam made his third witness statement in May 2005, he continued to assert that the container business on the lands in question was controlled and operated by the 2^nd defendant. Had it been known then that the 2^nd defendant was deregistered in 2004 for having ceased business or operation, the plaintiff would, to say the least, be put to a lesser burden of meeting this assertion. 

51.  In short, I am not persuaded that it can be said that the plaintiff has not proved his loss. The third argument also fails.              

Conclusion

52.  For the above reasons, I consider that KC has failed to show cause why it should not be ordered to bear the wasted costs incurred by the plaintiff in pursuing the claim against the 2^nd defendant during the period from 17 September 2004 to 11 September 2006. Accordingly, I make an order that KC is personally liable for the wasted costs incurred by the plaintiff in pursuing the claim against the 2^nd defendant during the period from 17 September 2004 to 11 September 2006. The amount of the costs to be paid shall be taxed by the taxing master, if not agreed.

53.  At the request of counsel, the costs of the present application is reserved pending counsel’s written submissions. The written submissions on costs are to be lodged with the court and served on the other side by 11 January 2008.

Mr Lawrence Ng instructed by Messrs C Y Tsang & Co for the plaintiff.

Mr Kenny C P Lin instructed by and appeared on behalf of Messrs Ko & Chow.