WOO HING KEUNG LAWRENCE v. CEF BROKERAGE LTD

HCCL39/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.39 OF 2004

(formerly High Court Action No. 7335 of 2000)

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REVIEW OF TAXATION

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I.     Background

1.  This is a review of taxation by the Plaintiff or Appellant or Paying Party (“Paying Party”).

2.  In this case, the Paying Party was a customer of the Defendant or Respondent or Receiving Party (“Receiving Party”), who was engaged in stockbrokerage business. The Paying Party claimed he sold 1,400,000 China Telecom shares through the Receiving Party in the “grey market”. It was expected that China Telecom shares would shortly be offered to the public for subscription and then publicly traded on the stock exchange. However, due to the Asian financial crisis, when China Telecom shares were formally traded, many of the buyers who had agreed to buy such shares from the Paying Party defaulted and refused to take up the shares. The Paying Party claimed that the Receiving Party as his stockbroker should be personally liable to honour the transactions or, to put it in another way, it was liable to cross the “grey market” trades on “opening day”.

3.  The Paying Party commenced HCCL39/2004 (“CFI Action”) against the Receiving Party. After an eight-day trial between 17 and 27 October 2006, Stone J rejected the Paying Party’s claim (“CFI Judgment”). The Paying Party appealed to the Court of Appeal (“Appeal Case”). At the appeal hearing on 6 March 2008, the Court of Appeal unanimously upheld the CFI Judgment and dismissed the appeal (“CA Judgment”). The Paying Party being dissatisfied with the result applied for leave to appeal to the Court of Final Appeal (“Leave Application”). At the hearing on 21 May 2008, the Court of Appeal dismissed the Leave Application.

4.  At the taxation hearing on 21 and 22 October 2009 (“Taxation Hearing”), the CFI Action and the Appeal Case came before me for taxation of two bills of costs filed by the Receiving Party (“Taxation Bills”) pursuant to costs orders granted by Stone J and the Court of Appeal in favour of the Receiving Party. The present application for review of taxation by the Paying Party is confined to certain items of counsel’s fees in the Taxation Bills that I have taxed at the Taxation Hearing.

5.  For easy reference, I shall refer to counsel for the Receiving Party and for the Paying Party as follows :

	Paying Party	Receiving Party
CFI Action	(1)   PF leading KYT(2) SW leading KP	(1) BY leading JST(2) AH leading GL
Appeal Case	SW	AH and GL
Leave Application	TC leading AL	AH and GL

Note : PF, SW, TC, BY and AH were at all material times senior counsel

and I shall further refer to the handling solicitors for the Receiving Party as follows : (a) CWH (admitted in 1976), (b) KW (admitted in 1992) and (c) CL (admitted in 2002). CWH was the overall supervising partner who played a limited role in the handling of the case. KW was the handling partner in charge of the case and CL was an assistant solicitor.

6.  In the Paying Party’s Supplemental List of Objections filed on 19 October 2009 (“SLOO”) and his solicitors’ written submissions dated 21 October 2009, a preliminary objection was taken as to the necessity, reasonableness and quantum of fees for instructing two counsel for the CFI Action, the Appeal Case and the Leave Application (collectively, “Legal Actions”). After hearing arguments by the parties’ respective law costs draftsman (“LCD”) at the Taxation Hearing, I ruled in favour of the Receiving Party for employing two counsel for the CFI Action.  In respect of the Appeal Case and Leave Application, the Paying Party’s LCD (“P’s LCD”) conceded and abandoned the objection to two counsel.

7.  By an Application for Review filed on 5 November 2009 (“Review Application”), the Paying Party raised objections to items 27, 39, 50, 104, 118, 132, 161, 240, 260, 295, 344, 422, 449, 476, 479, 482, 486, 490, 495, 498 and 500 of the Taxation Bill for the CFI Action (“CFI Bill”) and items 57 and 82 of the Taxation Bill for the Appeal Case and Leave Application (“CA Bill”), all of which items concerned counsel’s fees. By his Answer to the Paying Party’s Objections filed on 9 November 2009, the Receiving Party opposed all the above objections and abided by my rulings made at the Taxation Hearing.

II.   Principles for review of taxation

8.  The Paying Party’s application for review of taxation was made pursuant to Order 62 rule 33 of the Rules of the High Court (“RHC”). Under Order 62 rule 34(2) of the RHC, on review of any decision in respect of any item of costs, the taxing master may receive further evidence and may exercise all the powers which he might exercise on an original taxation in respect of that item, including the power to award costs of and incidental to the proceedings before him, and any costs awarded by him to any party may be taxed by him and may be added to or deducted from any other sum payable to or by that party in respect of costs.

III.  Basis of taxation

9.  Order 62 rule 28(2) of the RHC provides that costs allowed on a party and party basis are “all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed”.

10.  Hong Kong Civil Procedure 2009 Vol.1 para.62/App/28 at p.1010 provides as follows :

 “Subject to the provisions in O.62, counsel’s fees incurred in relation to contentious business are to be taxed in accordance with para. 2, Part II of the First Schedule: O.62, r.32(1). Under para. 2:

……

(4)  A refresher fee, the amount of which shall be in the discretion of the taxing master, shall be allowed to counsel, either for each period of five hours (or part thereof), after the first, during which a trial or hearing is proceeding or, at the discretion of the taxing master, in respect of any day, after the first day, on which the attendance of counsel at the place of trial if necessary.

(5)  Every fee paid to counsel shall be allowed in full on taxation, unless the taxing master is satisfied that the same is excessive and unreasonable, in which event the taxing master shall exercise his discretion having regard to all the relevant circumstances and in particular to the matters set out in paragraph 1(2). They are:

(a) the complexity of the item or of the cause or matter in which it arises and the difficulty or novelty of the questions involved;

(b) the skill, specialized knowledge and responsibility required of, and the time and labour expended by, counsel;

(c) the number and importance of the documents (however brief) prepared or perused;

(d) the place and circumstances in which the business involved is transacted;

(e) the importance of the cause or matter to the client;

(f)   where money or property is involved, its amount or value;

(g) any other fees and allowances payable to counsel in respect of other items in the same cause or matter, but only where work done in relation to those items has reduced the work which would otherwise have been necessary in relation to the item in question.” (my emphasis)

11.  In Re Greater Beijing Region Expressways Limited HCCW399/1999 (unreported, 12 May 2004), Barma J described the approach to be adopted in respect of party and party taxation of counsel’s fees as follows :

“15. …… Paragraph 2(5) of Part II of the First Schedule is a provision that is peculiar to Hong Kong. …… It has recently been described as “exceptional” by the Chief Justice’s Working Party on Civil Justice reform in its Final Report, since it provides a substantially more generous basis of taxation for counsel’s fees in party and party taxations (to which it applies by virtue of rule 32(1)) than for other items in such taxations. The question that is to be asked when considering counsel’s fees is whether such fees are “excessive and unreasonable” – if they are not, they are to be allowed in full on taxation. This wording is very different from the test of “necessary or proper” which applies to party and party taxations. It resembles most closely the wording of Order 62 rule 29(1), applicable to the taxation of costs between a solicitor and his own client, where all costs are to be allowed unless they are of an “unreasonable amount” or have been “unreasonably incurred”, and which is clearly a more generous basis of taxation than the party and party basis. Further, paragraph 2(5) provides that where the taxing master is satisfied that the fee is “excessive and unreasonable”, he should exercise his discretion having regard to all the relevant circumstances and in particular the matters set out in paragraph 1(2) of this Part of the Schedule. Paragraph 1(2) itself states that it is applicable to (inter alia) the exercise by a taxing master of his discretion under rule 32(2), which, as noted above, applies to solicitor and own client and trustee taxations. This is a further indication that a more generous basis than that applicable to a party and party taxation is to be applied to counsel's fees, whatever the basis of taxation.

……

20.    I therefore approach the question of quantum of counsel’s fees that are challenged on the basis that they are to be disallowed or reduced only if they are excessive and unreasonable, and that this requires the adoption of a more generous basis that would otherwise be applicable on a party and party taxation.” (my emphasis)

IV.  Two counsel for the CFI Action

12.  The Paying Party objected to the Receiving Party employing two counsel for the CFI Action. This was taken as a preliminary objection at the Taxation Hearing and as a general reason for review at the hearing of the Review Application on 23 November 2009 and 7 January 2010 (“Review Hearing”).

13.  However, the Paying Party’s written submissions dated 21 October 2009 for the Taxation Hearing conceded that the Receiving Party was entitled to senior counsel’s fees, so my ruling at the Taxation Hearing focused on the issue of whether it was necessary and proper to also employ a junior counsel (“Preliminary Ruling”). But in the course of the Taxation Hearing, notwithstanding the Paying Party’s concession as to the propriety of employing senior counsel, P’s LCD submitted that the Receiving Party was only entitled to recover hypothetical junior and not senior counsel’s fees for certain items of counsel’s fees in the CFI Bill.

14.  In respect of such preliminary objection, the Paying Party raised a number of arguments at the Taxation Hearing :

(a) Only the trial judge (and not the taxing master) could determine whether the case was fit and proper to be handled by two counsel, so the Receiving Party was not entitled to recover fees for two counsel when Stone J had not granted any certificate for two counsel.

(b)    Further and/or alternatively, the Receiving Party’s failure to apply to Stone J for certificate for two counsel amounted to an implicit concession that the Paying Party was only entitled to recover fees of one counsel.

(c)    JST was a senior counsel by the time he was instructed together with BY, and the Receiving Party should not be entitled to recover fees for two senior counsel.

(d)    The CFI Action was essentially a contractual dispute that fell within a small compass, so there was no need for two counsel which in any event was unnecessary and overly luxurious.

15.  A complete answer to the objection in paragraph 14(c) above can be found in JST’s two fee notes respectively dated 21 September and 25 October 2000, which plainly showed that he worked on the CFI Action before he was called to the Inner Bar in 2002. Indeed, both JST and GL were of the Outer Bar throughout their involvement in the CFI Action.

16.  In respect of paragraph 14(a)-(b) above, P’s LCD in fact conceded at the Taxation Hearing that on taxation of costs of the CFI Action the taxing master had discretion to determine whether to allow fees for two counsel even in the absence of any certificate for two counsel. Although the Paying Party attempted to resurrect the objection in paragraph 14(a) above at the Review Hearing, Mr Yeung, solicitor for the Paying Party, eventually conceded it was ultimately a matter of the taxing master’s discretion.

17.  The leading authority on the principles for the exercise of discretion for two counsel is Xinyuan Trading Co Ltd v NPH Petrochemical Limited HCA18159/1998 and CACV276/1998, Master Poon (as he then was) (unreported, 25 September 2000). Master Poon stated as follows :

“24.   After the abrogation of the two counsel rule, the client and his solicitor, when instructing counsel, have to decide whether to instruct a leader and if so, whether to instruct a junior also? Depending on the choice made, the client will be represented either by a junior counsel alone, or by leading counsel alone, or by both. On taxation, the taxing master has to determine whether or not the costs were necessary or proper and he must necessarily do so after the event, when leading counsel was in fact instructed. Because leading counsel can now accept instructions without a junior, the first step is to ask whether it was necessary or proper to instruct a leader, even if one counsel was required or actually briefed. In this connection, the following factors are relevant:

(1) the nature of the case;

(2) difficult questions of fact or law;

(3) the complexity, difficulty or novelty of the issues involved;

(4) the skill, specialized knowledge or expertise required for the case;

(5) where money or property is involved, its amount or value;

(6) the importance of the matter to client;

(7) the general importance of the case, for example as affecting other cases;

(8) if a junior counsel has already been instructed, the experience, competency and seniority of that junior;

(9) whether the other side has instructed a leader: see British Metals Corporation Ltd. v. Ludlow Brothers (1913) Ltd. [1938] Ch 774.

These above list is not exhaustive. Depending on the circumstances, other reasons why a leader is required may exist.

25. The next question is if a leader is instructed, should a junior be instructed also. Again, the taxing master will have to decide if the employment of the junior was necessary or proper in the circumstances. Particular reasons why a junior may be necessary or proper include:

(1) assisting with the proper preparation of the case, for example, when the case was complex or heavy documentation is involved;

(2) assisting with the court proceedings by, for example, examining or cross-examining some witnesses, or dealing with a certain part of the case, for example, expert evidence or damages, etc;

(3) carrying out legal research on difficult or novel questions of law.

Again, these reasons are not exhaustive. Other may exist. But I do not think that senior counsel’s own wish to have a junior to assist him is relevant. Instructing a junior is justified only if the interests of lay client require so: cf. para.3, Annex 6 of the Hong Kong Bar Code.

26.    Where a junior counsel has been instructed first and a leader is subsequently instructed, the same questions arise, namely, was it necessary or proper to instruct the leader and if so, was it necessary or proper to instruct or to retain the junior. The relevant factors are the same.”

18.  To better appreciate the parties’ respective arguments, it is necessary to briefly set out the relevant background. Upon commencement of the CFI Action, the Paying Party’s Statement of Claim endorsed on the Writ of Summons was signed by PF and KYT, so the Receiving Party instructed BY and JST to advise and to prepare the Defence. After the Defence was filed on 20 October 2000, the CFI Action became largely dormant until 6 February 2003 when the Paying Party filed the Notice of Intention to Proceed. By that time, the Paying Party employed SW and KP as counsel on the case. As for the Receiving Party, BY and JST were no longer available at that time, so AH and GL were instructed in their place.

19.  As discussed above, since P’s LCD conceded it was sufficient for the Receiving Party to employ a senior counsel without a junior, so I delivered the Preliminary Ruling on the basis of such concession and proceeded to adjudicate on the issue of whether it was necessary and/or proper to also employ junior counsel. So the taxation process was not engaged on the issue of whether it was necessary or proper to employ leading/senior counsel for the CFI Action in the original taxation, and consequently the Paying Party was not entitled to seek review on the same.

20.  But in case I am wrong, I shall first consider whether it was necessary and/or proper to employ senior counsel for the CFI Action before coming to the issue of junior counsel.

21.  The title of senior counsel signifies that counsel has reached a level of seniority, expertise and standing in the legal profession that merits the appointment to silk. Hence, the employment of senior counsel is often regarded as giving a party forensic advantage in more effective deployment of his case through senior counsel’s skill and experience. As to whether in a particular case it is appropriate to harness such benefits by employing senior counsel, the true question to be answered is whether it is necessary and/or proper for the relevant party (eg the Receiving Party in the CFI Action) to retain senior counsel and not whether junior counsel is capable of conducting the case on his own.

22.  I cannot agree with the suggestion made by P’s LCD at the Taxation Hearing and/or by Mr Yeung at the Review Hearing that the CFI Action was a simple case based on contract. The CFI Action involved what Stone J described in paragraph 8 of the CFI Judgment as “a significant sum of money”, ie approximately HK$9,000,000.00, and a host of complex issues of mixed fact and law. The trial itself lasted eight days and the CFI Judgment ran to 45 pages and 161 paragraphs.

23.  I need only refer to the opening paragraph of the CFI Judgment which succinctly captures the essential complexity and difficulty of the central legal issues that required determination by the court :

“This case raises an interesting, and apparently unsettled, question as to the legal obligation upon a stockbroker arising from the trading in Hong Kong of shares on the ‘grey market’ which, as at the date of such trading, have not been the subject of their initial public offering ……, and thus are not yet issued and available for trading upon the Hong Kong Stock Exchange.”

As is evident from the CFI Judgment, determination of the above legal issue required inter alia interpretation of the client agreement entered into between the parties, some consideration of the Stock Exchange Rules, and adjudication on what has since been described as the “section 76 defence” (ie the argument that trading of China Telecom shares in the “grey market” fell foul of section 76 of the Securities Ordinance Cap.333 so that any contract that purported to impose an obligation on the Receiving Party to cross the “grey market” trades on “opening day” was unenforceable). In my view, senior counsel’s involvement in rendering legal advice and appearing at trial was plainly called for in such context.

24.  Stone J also pointed out in paragraph 16 of the CFI Judgment that the factual background was also unclear and “the court must wrestle with the merits of competing factual assertions”. The Receiving Party’s then account executive and witness who gave oral evidence at the trial of the CFI Action, Mr David Wong (“Mr Wong”), and the Paying Party (being the other witness who gave oral evidence at the trial) firmly disputed what was said during their telephone conversations with regard to “grey market” trading in China Telecom shares. So if Mr Wong’s recollection were correct, then as a matter of contract the terms of agreement struck between the parties would result in finding that the Receiving Party was not liable to the Paying Party on the facts, and the legal issue would then fall away. Paragraph 57 of the CFI Judgment put the matter nicely when it stated that “there is a significant issue of fact at stake, the resolution of which may, or may not, be depositive of the current litigation between these parties; as [SW] sagely remarked during his final submission, if he should lose on the facts his client [ie the Paying Party] will lose this case, but if he should succeed on the facts in itself this does not mean that his client will necessarily win”.

25.  Whilst the fact there were witnesses to be examined or cross-examined does not of itself obviously justify the employment of senior counsel, there is no denying that the credibility/reliability of the Paying Party and Mr Wong as factual witnesses had a crucial bearing on the CFI Action, especially when there were in evidence certain transcripts of taped recordings made by the Paying Party of some of his conversations with Mr Wong. In the circumstances, the CFI Action called for special expertise in examining and cross-examining witnesses. I therefore accept it was a proper precaution to employ senior counsel to ensure that the Receiving Party’s case was fully and properly presented to the court.

26.  Further, both parties anticipated the necessity for expert evidence in the course of the CFI Action to assist the court, especially expert evidence on securities trading and listing practices in relation to newly listed and/or about to be listed shares. The Paying Party had expert reports from Mr David White (“Mr White”) on the general issue and from Mr Wong Kam Wing on the quantum issue, and the Receiving Party had an expert report from Mr Clive Rigby (“Mr Rigby”). But after hearing arguments at trial Stone J delivered a ruling on the admissibility of expert evidence that resulted in the Receiving Party removing Mr Rigby’s expert report from the trial bundle and in the Paying Party adducing Mr White’s edited report without oral evidence. Mr Wong Kam Wing’s expert report became redundant following agreement between the parties on the calculation of the quantum of damages. In my view, dealing with such expert evidence called for special skill, knowledge and responsibility from experienced senior counsel.

27.  The matters in issue were of great importance to the Receiving Party financially (given the amount of the claim) and commercially (given its desire to vindicate its stance and thereby remove any tarnish to its standing as a reputable stockbrokerage firm). The CFI Action was also of general importance to stockbrokers and other players in the market who dealt in “grey market” trading. All these matters point to the necessity and propriety of instructing senior counsel.

28.  The next consideration is whether a junior should be instructed in addition to the employment of senior counsel. I accept that with the abrogation of the two counsel rule senior counsel can appear without a junior. But in my view the discussions above also lend justification to the employment of junior counsel for the CFI Action. Although I accept that both JST and GL were at the material times competent juniors in their own right, in view of the complexity and novelty of the legal issues and/or the importance of effective examination and cross-examination of the factual witnesses, I am of the view that it is necessary and/or proper to instruct junior counsel to assist senior counsel in legal research, effective preparation and at trial.

29.  It has been suggested that there was no need for two counsel because CWH, KW and CL as experienced solicitors were capable of giving comprehensive and competent instructions to counsel on all aspects of the case. In my view, this is not relevant to the question to be addressed. The reasons for engaging the services of senior counsel together with a junior are quite separate and distinct from the question of whether counsel is fully and properly instructed. Counsel and solicitors have different work to do and different functions to perform, and neither should take credit for the work done by the other (see Juby & ors v London Fire and Civil Defence Authority; Saunders v Essex County Council (unreported, 24 April 1990) QBD, per Evans J).

30.  As explained in Xinyuan Trading Co Ltd, the fact that the other side instructed two counsel is a relevant though not conclusive factor in determining whether the decision to instruct leading and junior counsel is appropriate. In the CFI Action, the Paying Party employed two counsel from the start, ie at first PF and KYT and then SW and KP. In my view, this case called for senior and experienced counsel/advocate with proper assistance by a junior in order to give weighty presentation of the parties’ respective case. The Paying Party no doubt recognised this when he employed two counsel. I am of the view that in the context of the CFI Action it was necessary for proper protection of the Receiving Party’s position that it should not have less assistance from counsel than that received by the Paying Party.

31.  I am therefore driven to the conclusion that it is necessary and/or proper for the Receiving Party to instruct both senior and junior counsel for the CFI Action. I confirm and maintain my Preliminary Ruling on the review of taxation.

V.   Two counsel for the Appeal Case and Leave Application

32.  Although P’s LCD and Mr Yeung eventually conceded and abandoned the objection to two counsel for the Appeal Case and Leave Application, I would like to take this opportunity to disabuse any misconception that there is no entitlement to fees for two counsel for proceedings in the Court of Appeal if there is no certificate for two counsel.

33.  In True Rank Holdings Limited & anor v Lam Ka Chung, William & ors CACV38/2004 and CACV184/2004, Roger VP said at paragraph 13 as follows :

“At the conclusion of the hearing when costs were discussed, Mr Chan, junior counsel on behalf of the plaintiffs, sought a certificate for two counsel.  This court explained that it was not prepared to give a certificate for two counsel because it considered that it in any matter before the Court of Appeal, whether in chambers or in open court and whether before a single judge or a full court, a party was entitled to be represented by leading and junior counsel.  As such, it has not been the practice of this court to grant certificates for two counsel and it would be undesirable for this court to do so.  Indication was however given to the parties that if there should be any difficulty on taxation in recovering the costs in respect of two counsel the matter could be referred back to this court for further directions and order.”

34.  In Cheung Sun Lam v Lai Kam Man [2008] 5 HKLRD 1, 3, Rogers VP reiterated as follows :

“5.   But when a matter comes to the Court of Appeal, this Court has consistently refused to give a certificate for two counsel. I think it is for the first time that I have the opportunity of saying so in a judgment and I do so. We have not done so because it is my considered view that parties who appear in front of the Court of Appeal are entitled to have two counsel and, for that reason, we do not give a certificate for two counsel because it sends the wrong message back, that in cases where no certificate has been given, taxation for two counsel should not be allowed. So that one approaches this case on the basis that the taxation should take into account two counsel.”

35.  Even after the implementation of the Civil Justice Reform (which period is irrelevant for the CA Bill), Rogers VP re-affirmed the above approach in UDL Holdings Limited & anor v Leung Yuet Keung & anor CACV356/2008 as follows :

“17. …… The amendment to the Rules of the High Court have included a provision in Part II, 1(3) of the First Schedule of Order 62 that no costs shall be allowed in respect more than one counsel appearing before the Court of Appeal unless the attendance is certified as being proper. In view of the fact that parties will frequently forget to request such a certificate and nearly every case in the Court of Appeal merits the attendance of two counsel, the practice of this court in respect of substantive appeals will be to grant a certificate unless the matter is raised specifically.”

This has been reiterated by Rogers VP as recently as in December 2009 in Cheung Cho Kam Sindy (appointed by Order dated 10 May 2005 to act as the representative of the estate of Madam Lau Mei Tai, the deceased) & anor v Cheung Yuet Ying Rose CACV178/2008 (unreported, 8 December 2009) :

 “12. We have generally adopted the approach that even if people do not ask for it, they wll be entitled to a certificate for two counsel into the Order. But we now will make it clear, as very often people forget to ask for it. In this Court we think that no case should come to this court unless it merits two counsel.”

36.  It is therefore plain from the above that a party is entitled to be represented by two counsel at the Court of Appeal, anda certificate for two counsel is not a prerequisite for claiming fees for two counsel for appeal proceedings. In my view, there is no merit to the Paying Party’s arguments in this respect.

VI.  Item 27 of CFI Bill

37.  Item 27 of the CFI Bill claimed counsel’s fees for consultation in the sums of HK$7,000.00 (BY) and HK$5,000.00 (JST). In item 13 of the List of Objections filed on 11 July 2009 (“LOO”), the Paying Party objected on the ground of “quantum excessive; suggest to reduce by $3,000.00 and $2,000.00 respectively”. At the Taxation Hearing, I reduced BY’s and JST’s fees by the sums of HK$3,500.00 and HK$2,500.00 respectively, which were more than the reductions suggested in the LOO.

38.  In the Review Application and the Reasons for Review filed on 23 November 2009 (“Review Reasons”), the Paying Party claimed that since I had allowed HK$28,000.00 for BY to peruse the papers and listen to the taped recordings and HK$10,000.00 for JST to peruse the papers, their fees for consultation were unreasonably excessive in all the circumstances. Mr Yeung referred me to Hong Kong Civil Procedure 2009 Vol.1 para.62/App/40 at p.1012 which provides as follows :

“Perusal for giving advice – A separate charge for perusing documents for the purpose of giving advice or conference in addition to the fees for the advice or conference is in principle not allowable (see The Lok Sin Tong case (above)). However, in cases where there are voluminous documents, different considerations apply.”

39.  BY and JST were instructed inter alia to advise and to prepare the Defence, and for such purpose they obviously had to peruse the papers that accompanied the instructions. Counsel’s fees under this item of costs were not for perusal of papers but for discussion (1 hour) between BY and JST (after their receipt of written instructions from the solicitors for the Receiving Party and after their perusal of the documents annexed thereto) on inter alia (a) the implications of some taped recordings of conversations between Mr Wong and the Paying Party and (b) the shape of possible legal defences that might be raised by the Receiving Party. Given the importance of the taped recordings to the factual disputes and to the credibility of witnesses, and further given the complexity of the case on matters of fact and law, I find it necessary and/or proper for senior and junior counsel to confer together in order to reach a common view on how the defence should run. In the circumstances, I do not see the relevance of the passage in Hong Kong Civil Procedure 2009 in paragraph 38 above. But bearing in mind that the exploration of possible defences at this stage was on a rather preliminary basis, I have on party and party taxation reduced the time required for the consultation.

40.  In any event, the Paying Party’s LOO did not challenge the necessity of item 27 of the CFI Bill but only raised objection as to the quantum of fees. At the Taxation Hearing, I have reduced the quantum of counsel’s fees under this head even more severely than sought in the LOO. In my view and given my ruling in Part IV above, counsel’s fees under this item of costs as allowed at the Taxation Hearing were not unreasonable or excessive. I confirm and maintain my ruling at the Taxation Hearing for this item of costs.

VII. Item 39 of CFI Bill

41.  Item 39 of the CFI Bill claimed for JST’s fees in the sum of HK$10,000.00 for advice on the “section 76 defence”. Under item 18 of the LOO, the Paying Party objected by proposing a reduction of HK$4,000.00. At the Taxation Hearing, I reduced counsel’s fees by the sum of HK$5,000.00, which was more than the reduction suggested in the LOO.

42.  In the Review Application and the Review Reasons, the Paying Party complained that JST’s fees allowed at HK$5,000.00 were excessive. It was said that these matters were within the competence and scope of CWH and KW, so counsel’s fees should be disallowed altogether. Mr Yeung referred me to Hong Kong Civil Procedure 2009 Vol.1 para.62/App/29 at p.1010 which provides as follows :

 “Work within the competency of solicitors – Counsel’s fees for work which is clearly within the competency of a reasonably competent solicitor having the conduct of litigation are not allowed (Cheng Ma Choi v Tai Fong Textile Finishing Work Ltd, unreported, PI No. 563 of 1995, Seagroatt J.).”

43.  I do not see how this argument can help the Paying Party. First of all, on the matter of quantum of counsel’s fees, the Paying Party can hardly be heard to complain that the fees allowed were unreasonable or excessive since I reduced counsel’s fees even more severely than as sugguested in the LOO.

44.  Secondly, the “section 76 defence” formed an integral part of the defences ran by the Receiving Party in the CFI Action, and in the written opening submissions of AH and GL for the trial 6 out of 28 pages were on this defence. The CFI Judgment also devoted 4½ pages (see paragraphs 143-153 therein) to the “section 76 defence”. I also agree with KW’s submissions that the “section 76 defence” was no easy subject. In my view, it is entirely appropriate to seek advice from counsel on such defence.

45.  Thirdly, even if I were wrong and counsel’s advice on the “section 76 defence” was within the competence of the handling solicitors, it is plain that upon any disallowance of counsel’s fees for this item of costs I should still allow notional solicitors’ profit costs for rendering the necessary advice on the “section 76 defence” and not just disallow the cost for such advice altogether. Given KW’s taxed hourly rate of HK$4,000.00, the sum of HK$5,000.00 I allowed for item 39 of the CFI Bill at the Taxation Hearing merely equated to 1 hour 15 minutes of KW’s time, which I find to be eminently appropriate notional time period for rendering advice on the “section 76 defence”.

46.  In reducing counsel’s fee by half for the purpose of party and party taxation, I have borne in mind the fact that there had been some preliminary discussion of the “section 76 defence” at JST’s conference on 10 August 2000 with the instructing solicitors and the Receiving Party (items 35-36 of the CFI Bill), and further discussion of such defence at the conference on 22 August 2000 attended inter alia by BY, JST, the instructing solicitors and the lay client (items 40-41 of the CFI Bill). It appears that after the consultation on 10 August 2000, the Receiving Party’s solicitors took further instructions and sent a fax to JST on 15 August 2000 setting out their views on the further instructions taken and seeking further advice from counsel. JST rendered the subject advice by fax on 18 August 2000, which therefore appeared to be a follow up opinion rather than full advice on a fresh subject matter. The conference on 22 August 2000 enabled BY (amongst other matters discussed) to further refine the advice on this defence.

47.  Upon considering the above matters and in light of the discussions in Part IV above, I confirm and maintain my ruling on this item of costs at the Taxation Hearing for the review of taxation.

VIII.    Item 50 of CFI Bill

48.  Item 50 of the CFI Bill claimed for JST’s fees for “settled letter, draft Defence and Joint note” on 29 August 2000 in the sum of HK$25,000.00. In item 25 of the LOO, the Paying Party objected on the ground of “quantum excessive; suggest to reduce $8,000.00”. In item 50 of the SLOO, the Paying Party suggested that this item be taxed off. At the Taxation Hearing, I reduced JST’s fees by HK$5,000.00 under party and party taxation to reflect disallowance of counsel’s fees for settling the letter to the Stock Exchange.

49.  Mr Yeung had no quarrel with my disallowance of JST’s fees for settling the letter to the Stock Exchange. But the Review Application and the Review Reasons asserted that the tasks of settling the Defence and preparing the advice by the Joint Note on 30 August 2000 was within the competence and scope of CWH and KW, so the entirety of JST’s fees under item 50 of the CFI Bill should be disallowed.

50.  I note the Paying Party did not seek review of taxation in respect of BY’s fees for preparing two Joint Notes and for settling draft Defence allowed in the sum of HK$40,000.00 under item 54 of the CFI Bill. In such circumstances, the Paying Party could not be heard to challenge the necessity or propriety of such items of work. But if it were argued that the handling solicitors could have drafted the Defence and the Joint Note for senior counsel (without a junior) to settle, I reject such contention.

51.  In my view, it is eminently appropriate to have both senior and junior counsel draft and settle the Defence and render the Joint Note of advice. As discussed in Part IV above, the complexity of the factual disputes and the novelty of the legal issues made it abundantly proper for two counsel to attend to such tasks. Even though such factor is not conclusive, the fact that PF and KYT drafted/settled the Statement of Claim also suggested it was necessary and/or proper to have two counsel draft the response thereto (ie the Defence) and to advise by the Joint Note.

52.  Even if I am wrong and these tasks were within the competence of the handling solicitors, it is plain that upon disallowing JST’s fees I still have to allow notional solicitors’ costs for drafting the Defence and the Joint Note of advice for senior counsel to settle. Given KW’s taxed hourly rate of HK$4,000.00, the sum of HK$20,000.00 I allowed at the Taxation Hearing for item 50 of the CFI Bill equated to 5 hours of KW’s time, which in my view is appropriate notional time for such task.

53.  Upon considering the above matters and the discussions in Part IV above, there is no merit to the Paying Party’s objections and I confirm and maintain my ruling for this item of costs at the Taxation Hearing for the review of taxation.

IX.  Items 104 and 118 of CFI Bill

54.  Item 104 of the CFI Bill claimed for AH’s fees for perusing documents on 18 June 2003 (1 day) in the sum of HK$56,000.00. In item 38 of the LOO, the Paying Party objected on the ground “the same should be covered by Brief, suggest this item be taxed off”. In item 38 of the SLOO, the Paying Party challenged “quantum and relevancy”. At the Taxation Hearing, I deducted the sum of HK$16,000.00 to reduce AH’s fees to HK$40,000.00 for the purpose of party and party taxation.

55.  Item 118 of the CFI Bill claimed for AH’s fees for perusing documents on 19 June 2003 (1 day) in the sum of HK$56,000.00. In item 40 of the LOO, the Paying Party objected on the ground of “duplication of item 104; suggest this item be taxed off”. At the Taxation Hearing, I deducted a sum of HK$31,000.00 to reduce AH’s fees to HK$25,000.00 for the purpose of party and party taxation.

56.  In the Review Application and the Review Reasons in respect of item 104 of the CFI Bill, the Paying Party argued that there was likely duplication of work due to change of leading counsel from BY to AH and such work had been previously charged by BY. The Paying Party referred to item 105 of the CFI Bill being “Preparing Note of Non-admission of documents” (which work was included in the main item for solicitors’ profit costs) and suggested that senior counsel’s fees under item 104 of the CFI Bill “seems [to be for] perusal for advice on “Notice of Non-admission of documents””. Mr Yeung also relied on Hong Kong Civil Procedure 2009 Vol.1 para.62/App/40 at p.1012 referred to in paragraph 38 above.

57.  In the Review Application and the Review Reasons in respect of item 118 of the CFI Bill, the Paying Party objected on the basis that there was duplication of work due to change of senior counsel and that the taxed amount was excessive. Alternatively, it was said that if AH’s perusal of documents was for advising on the witness statement of Mr Wong (see item 119 of the CFI Bill), such fees should be disallowed since such work should be within the competence of the handling solicitors. Still further or in the alternative, Mr Yeung submitted that any costs allowed for item 118 of the CFI Bill should be taken into account in assessing the quantum for AH’s brief fee for trial under item 476 of the CFI Bill.

58.  As explained above, there was a period of inactivity between 2000 and 2003 in respect of the CFI Action as a result of the Paying Party failing to take further action after the Receiving Party filed its Defence (see paragraph 18 above). When the case picked up speed at the beginning of 2003, BY and JST were no longer available and the Receiving Party employed AH and GL instead. As a result of change of counsel, Instructions to Counsel dated 14 May 2003 were sent to AH, and such instructions required AH to (a) peruse the annexed papers, (b) advise in conference on the strategy and further conduct of the case, and (c) refine on the areas to be covered by expert evidence. Item 104 of the CFI Bill referred to AH’s fees for perusal of about 600 pages of documents listed in the schedule to the Instructions (see item 95 of the CFI Bill).

59.  KW argued that quite a lot of documents were involved and that in such circumstances even the guidance in Hong Kong Civil Procedure 2009 Vol.1 para.62/App/40 at p.1012 (see paragraph 38 above) acknowledged that separate charge for perusal of papers might be considered.

60.  In respect of item 104 of the CFI Bill, I accept there must be some duplication in the documents perused by BY and AH (eg BY must have perused the Writ of Summons when he and JST drafted/settled the Defence, and BY must have perused some of the documents listed in the Receiving Party’s List of Documents sent to AH), but even ifthere had been no change of counsel it would still have been necessary and/or proper for the same team of counsel to review the earlier papers and to peruse any further documents supplied by the instructing solicitors upon revival of the case after dormancy for over two years. The Paying Party could not be heard to complain since he was the author of the delay.

61.  In respect of item 118 of the CFI Bill, AH had to peruse documents not previously seen by BY. On 14 May and 3 June 2003, the solicitors for the Paying Party served on the solicitors for the Receiving Party copies of discovered documents under their client’s List of Documents (see item 97 of the CFI Bill) and Supplemental List of Documents (see item 101 of the CFI Bill). At the Review Hearing, KW explained that the solicitors for the Receiving Party forwarded copies of these documents (which BY had not sighted) to AH for his perusal. As pointed out by KW, these documents included documents relating to the Paying Party’s statement of accounts, transaction records of the subject stock, and tables showing average share price of the subject stock at the relevant times, which were all documentary evidence having a bearing on the Paying Party’s case. I agree with KW that such perusal was certainly not for the purpose of advising on the “Notice of Non-compliance of documents” as suggested by the Paying Party.

62.  It is evident from the confidential documents produced by the Receiving Party for the review of taxation of the CFI Bill that the documents submitted for AH’s perusal under item 118 of the CFI Bill also included further documents from the Receiving Party that were relevant to the proceedings (eg comments from Mr Wong on his draft witness statement, notes of meetings between Mr Wong and the solicitors for the Receiving Party, and Mr Wong’s responses to the Paying Party’s pleaded allegations, all of which went to the make-up of the case of the defence).

63.  I cannot see how perusal of these documents constituted duplication of work carried out by BY or how such perusal related solely to advising on the witness statement of Mr Wong as suggested by Mr Yeung. In the letter of instructions dated 19 June 2003, AH was requested to advise on overall strategy and conduct of the case and on the issues to be covered by expert evidence in light of the court direction for exchange of expert reports by 28 July 2003. I cannot see how counsel could have properly advised on these matters without perusal of the relevant documentary evidence and/or without being informed as to the likely scope of the factual witness evidence.

64.  I find it is necessary and proper for AH to peruse the above documents, but on party and party taxation and upon taking into account the volume of the documents for perusal, I am of the view that such task should have takenless than two days. In reducing AH’s fees by the sums of HK$16,000.00 for item 104 of the CFI Bill and HK$31,000.00 for item 118 of the CFI Bill, I have taken into account any unnecessary duplication of work and considered the appropriate time required for perusal of the relevant papers.

65.  Mr Yeung next argued that the Paying Party should not be charged twice for perusal of papers (ie charge for perusal of papers included in AH’s brief fee under item 476 of the CFI Bill and a separate charge for such work under items 104 and 118 of the CFI Bill).

66.  But the trial only took place in October 2006, ie more than 3 years after item 104 of the CFI Bill. In this respect, I refer to the guidance Hong Kong Civil Procedure 2009 Vol.1 para.62/App/31 at p.1011 as follows :

 “What was necessary and incidental to the preparation at trial, and hence not chargeable separately, depended on the circumstances of the case. Where counsel has duly instructed to perform other work, in other words, work which was quite separate from the preparation for representation at trial and which was “necessary or proper” within the meaning of O.62, r.28(2), such work could be claimed as a separate and discrete item of costs. Counsel’s fees were plainly separate and discrete from the brief fee when they involved work done many months before the trial of the preliminary issue and the full trial. At that stage, it would not have been clear whether the matter was to go to trial at all. Such work, if properly done at an early stage was important for establishing the future direction and conduct of the case for the benefit of the party concerned. It was therefore quite necessary or proper to instruct Counsel to advise at that stage and for a properly itemized fee note to be presented for such work. (Yeung Shu & Another v. Alfred Lam & Co. (a firm) and Chang Pao Ching [[2000] 1 H.K.L.R.D. 231, CA]).” (my emphasis)

67.  If counsel is properly engaged to perform work prior to trial which necessarily requires perusal of papers, I do not see why he should not be entitled to charge for such perusal that is separate and distinct from his brief fee for trial (which trial may be years away or which may not happen at all). Mr Yeung eventually conceded he would not take his submissions that far and only urged me to bear in mind the quantum of fees in items 104 and 118 of the CFI Bill when considering AH’s brief fee for trial under item 476 of the CFI Bill.

68.  Taking the above matters into account, I am unable to accept the Paying Party’s objection to items 104 and 118 of the CFI Bill as allowed, and I confirm and maintain my ruling on these two items of costs at the Taxation Hearing for the review of taxation.

X.   Item 132 of CFI Bill

69.  Item 132 of the CFI Bill claimed for AH’s fees on 2 July 2003 for “settling draft Statement of David Wong (8 hours)” in the sum of HK$56,000.00. In item 47 of the LOO, the Paying Party objected on the ground of “quantum excessive; suggest this item be taxed off”. In item 47 of the SLOO, the Paying Party objected on the ground that the quantum was excessive. At the Taxation Hearing, I deducted the sum of HK$6,000.00 to reduce AH’s fees to HK$50,000.00 for the purpose of party and party taxation.

70.  In the Review Application and the Review Reasons, it was said that to allow AH’s fees of HK$50,000.00 for settling draft witness statement of Mr Wong was unreasonable and in any event too excessive. Mr Yeung submitted that such witness statement was purely factual in nature and could have been drafted by the handling solicitors, so there was no need to involve counsel at all. Mr Yeung referred me to Hong Kong Civil Procedure 2009 Vol.1 para.62/App/37 at p.1012 which provides as follows :

 “Drafting/Settling Witness Statement – A fee to counsel to settle a witness statements in simple cases should not be allowed as it is within the competency of an experienced solicitor having the conduct of the litigation. In more complicated cases, such a fee may be allowed if justified.”

71.  As explained above, the CFI Action was a far from simple case; indeed it could be said to be a complex case. I bear in mind the fact that Mr Wong’s evidence was of primary importance as reflected in the detailed analysis of his evidence and the relevant factual findings in the CFI Judgment (see pages 18-28 and paragraphs 71-105 therein). As explained above, if the trial judge accepted Mr Wong’s evidence, the legal issues would fall away and the Receiving Party would succeed at trial.

72.  I have read the documents in the confidential bundle lodged for the review of taxation, and am impressed by the diligent and thorough efforts of the solicitors for the Receiving Party in preparing various drafts of Mr Wong’s witness statement, in taking primary factual instructions from Mr Wong, and in making laborious cross-references to the documentary evidence, all of which no doubt enabled senior counsel to focus on the overall scope and thrust of the draft witness statement rather than the fine factual details. But it will be wrong to belittle the great benefit to the Receiving Party’s case in receiving senior counsel’s guiding hand on the presentation of the factual evidence from Mr Wong.

73.  Preparation of Mr Wong’s witness statement was also complicated by the fact that he was separately represented by a senior solicitor/partner from another firm of solicitors. Mr Wong’s precaution was understandable. After all, if the court eventually rejected his evidence and the Receiving Party lost the case, there was a real possibility that the Receiving Party might seek indemnity from him for any loss it might have suffered. Such considerations required the Receiving Party to approach the preparation of Mr Wong’s witness statement with care, sensitivity and fairness.

74.  In my view, the involvement of senior counsel was justified in the particular context of this case. Indeed, the guidance in Hong Kong Civil Procedure 2009 Vol.1 para.63/App/37 at p.1012 suggested that in more complicated cases counsel’s fees for settling witness statement might be allowed if justified. But bearing in mind that AH was tasked to give overall guidance on the scope and presentation of the evidence to be elicited from Mr Wong rather than on the fine factual details, I reduced his fees by HK$6,000.00 for the purpose of party and party taxation. I do not see any basis to further reduce or tax off this item of costs as suggested by the Paying Party. I therefore confirm and maintain my ruling on this item of costs at the Taxation Hearing for the review of taxation.

XI.  Item 161of CFI Bill

75.  Item 161 of the CFI Bill claimed for AH’s fees on 14 September 2003 for advice by email in the sum of HK$7,000.00. In item 54 of the LOO, the Paying Party objected on the following ground of “please produce the same for inspection; suggest to reduce $3,000.00”. At the Taxation Hearing, I reduced AH’s fees by the sum of HK$4,000.00 (ie more than the reduction sought by the Paying Party) to HK$3,000.00 for the purpose of party and party taxation.

76.  In the Review Application and the Review Reasons, the necessity of such email advice was put in issue. It was suggested that if such email advice was a continuation of AH’s advice on the draft witness statement of Mr Wong, it should be disallowed because counsel should not be so heavily involved in dealing with factual evidence. Mr Yeung submitted that given the seniority and experience of CWH and KW, neither senior nor junior counsel would have been required to render such advice by email.

77.  AH’s advice by email was not about further drafting or settling the witness statement of Mr Wong. The advice sought was premised on the comparative analysis of various previous statements given by Mr Wong on key topics prepared by the solicitors for the Receiving Party. In short, AH was asked to address on the forensic implications of such previous statements for the further conduct of the case as well as for the eventual trial (see items 154-160 of the CFI Bill). I consider such advice (which necessitated perusal of the relevant documents) to be crucial to an effective assessment of the intrinsic reliability or otherwise of Mr Wong’s evidence, which went to the heart of the factual dispute between the parties. In my view, this was a task that justified the involvement of senior counsel. However, in view of the concise nature of the advice by email, I have reduced AH’s fees by HK$4,000.00 for the purpose of party and party taxation, which was more severe than the reduction proposed by the Paying Party. In the circumstances, I confirm and maintain my ruling on this item of costs at the Taxation Hearing for the review of taxation.

XII. Items 240 and 260of CFI Bill

78.  Item 240 of the CFI Bill claimed for AH’s fees on 11 June 2004 for perusal of papers in the sum of HK$17,500.00. In item 68 of the LOO, the Paying Party objected by suggesting to reduce HK$5,000.00. At the Taxation Hearing, I reduced AH’s fees by the sum of HK$5,500.00 (ie more than the reduction sought by the Paying Party) to HK$12,000.00 for the purpose of party and party taxation.

79.  Item 260 of the CFI Bill claimed for AH’s fees on 19 June 2004 for “drafting Note of advice” in the sum of HK$14,500.00. In item 72 of the LOO, the Paying Party objected on the ground that “quantum excessive; Suggest to reduce $6,000.00”. At the Taxation Hearing, I reduced AH’s fees by the sum of HK$6,000.00 (ie the same reduction as suggested by the Paying Party) to HK$8,500.00 for the purpose of party and party taxation.

80.  In the Review Application and the Review Reasons in respect of item 240 of the CFI Bill, the Paying Party required the Receiving Party to justify the need to peruse papers which apparently related to preparation of the expert statement of Mr Rigby. Mr Yeung suggested that counsel should maintain forensic independence and not become involved in the preparation of expert opinion, and hence this item of costs should be disallowed. Mr Yeung referred me to Hong Kong Civil Procedure 2009 Vol.1 para.62/App/35 at p.1012 which provides as follows :

 “SettlingDocuments – A fee to counsel to settle an expert report should only be allowed in exceptional circumstances (Whitehouse v Jordan [1981] 1 All ER 267). ……”

Alternatively, Mr Yeung suggested that any costs allowed for perusal of papers under this item of costs should be taken into account in assessing AH’s brief fee for trial under item 476 of the CFI Bill.

81.  In the Review Application and the Review Reasons for item 260 of the CFI Bill, it was suggested that since item 262 of the CFI Bill was for attending checklist hearing before Master Lung on 23 June 2004, AH’s Note of Advice was apparently for the purpose of the checklist hearing for which counsel’s involvement was unnecessary. The Receiving Party was requested to justify the necessity of this item of costs. The Paying Party further complained that the amount of HK$8,000.00 as allowed was too excessive.

82.  These two items of costs should be put in their proper context. On 9 March 2004, the Paying Party issued a summons for directions for inter alia disclosure of expert reports on the issues as listed therein. Such summons was returnable for argument before Master A Ho on 17 June 2004. On 11 June 2004, the solicitors for the Receiving Party sent instructions to AH and GL for their advice on a number of matters, including the scope of the issues to be canvassed by the experts, specific discovery, etc. Conference was held with AH and GL on 15 June 2004 for verbal advice in advance of the substantive hearing of the aforesaid summons. With the benefit of such verbal advice and the written skeleton arguments prepared by AH, KW attended the substantive hearing of the summons on behalf of the Receiving Party, and KP of counsel appeared on behalf of the Paying Party. On 19 June 2004, AH rendered a formal Note of Advice pursuant to the consultation on 15 June 2004. The checklist hearing was held on 23 June 2004.

83.  Counsel’s perusal of papers under item 240 of the CFI Bill related to a table of transactions traded on the material dates prepared by the solicitors for the Receiving Party, a draft statement of Mr Rigby, and documents supplied by the Paying Party pursuant to specific discovery request (eg a table showing sale and purchase of the subject stock by the Paying Party on the material day and the relevant contract notes). KW explained that these documents (which went to show the volume of trading on the subject stock by the Paying Party with the Receiving Party and with other stockbrokers) were relevant to the question of whether the Paying Party were speculating on the subject stock at the material time. KW further argued (and I agree) that such documents were eventually deployed in evidence at the trial, so it was necessary and/or proper for senior counsel to review them.

84.  As regards item 260 of the CFI Bill, it was certainly justified for senior counsel to advise on the scope of issues to be canvassed in the expert report (which necessarily would have a material bearing on the eventual trial) in light of the preliminary draft statement of Mr Rigby and the imminent substantive hearing of the Paying Party’s summons for expert directions. AH was not asked to settle the statement of Mr Rigby under this item of costs. Further, it is a pertinent if not conclusive factor that the Paying Party saw fit to instruct KP to appear at the substantive hearing of the summons to address on the scope of issues to be covered by the experts.

85.  As regards the other matters raised in the letter of instructions, it is in my view justified for AH to give overall guidance onthe further conduct of the case before the checklist hearing. I also note with interest that the Paying Party did not seek any review of item 244 of the CFI Bill which covered counsel’s fees for inter alia discussion between AH and GL on the letter of instructions of 11 June 2004 and for the conference on 15 June 2004 for “general advice on the position of the case before the checklist hearing on 23.6.04” and for “drafting (1 hour)”. KW submitted that counsel’s fees for the drafting work under item 244 of the CFI Bill in fact related to the written skeleton arguments that in senior counsel’s view should be put forward at the substantive hearing of the Paying Party’s summons on expert directions (see paragraph 82 above). Indeed, the written skeleton arguments used at such hearing were signed by AH. In my view, there is no overlap with the drafting work in item 240 of the CFI Bill.

86.  In such circumstances, I am unable to say that perusal of papers under item 240 of the CFI Bill was not necessary or proper. However, having considered the volume of papers to be perused, I have reduced AH’s fees by HK$5,500.00 for the purpose of party and party taxation. In respect of item 260 of the CFI Bill, as explained above, the advice was sought on a number of matters including the scope of expert evidence and the further conduct of the case. In my view, it is proper for senior counsel to confirm and refine his verbal advice at the conference on 15 June 2004 by reducing it in writing, but taking into account the verbal advice rendered in conference, I have reduced AH’s fees by the sum of HK$6,000.00 for the purpose of party and party taxation.

87.  I do not see any basis for taxing off or further reduction of counsel’s fees allowed for these two items of costs. I therefore confirm and maintain my rulings at the Taxation Hearing on these two items of costs for the review of taxation.

XIII.    Item 295of CFI Bill

88.  Item 295 of the CFI Bill claimed for GL’s fees on 11 March 2005 for conference in the sum of HK$7,000.00. In item 81 of the LOO, the Paying Party objected on the ground that “quantum excessive; propose to reduce $3,000.00”. It was suggested that since item 294 of the CFI Bill was for solicitors’ costs incurred by KW (2 hours) and CL (2 hours) for attending conference with GL for listening to the taped recordings (in respect of conversations between the Plaintiff and Mr Wong) and reviewing evidence, there was no need for GL to listen to the taped recordings and item 295 of the CFI Bill should be disallowed altogether. However, at the Taxation Hearing, I have taxed off item 294 of the CFI Bill and reduced GL’s fees under item 295 of the CFI Bill by the sum of HK$3,000.00 (ie the same reduction as suggested by the Paying Party) to HK$4,000.00 for the purpose of party and party taxation.

89.  In the Review Application, it was again suggested that listening to the taped recordings were within the scope of work of solicitors and there was no need for GL to listen to the same because he could simply refer to the transcription of the taped recordings. It was further argued that in any event GL’s fees allowed at HK$4,000.00 for such exercise was too excessive.

90.  I cannot see how the objection to this item of costs by the Paying Party can stand given that item 294 of the CFI Bill has been taxed off. I have carefully studied the supporting attendance note in the confidential bundle submitted for the review of taxation. Bearing in mind that the taped conversations between Mr Wong and the Paying Party were part of the key evidential material relied on by the Paying Party at the trial, and further given the further progress of litigation which made it important to review such taped conversations in the context of the documentary and witness evidence as disclosed and/or filed up to that stage, it was necessary and proper for junior counsel to listen to the taped recordings and to advice on follow up action upon such review.

91.  But even assuming that Mr Yeung’s argument were correct in that listening to the taped recordings was within the competence of the handling solicitors, such exercise would still have taken KW an hour or so, and at his taxed hourly rate of HK$4,000.00, his notional costs would have been the same as (if not more than) the sum of HK$4,000.00 I have allowed for GL’s fees. There is no merit to the Paying Party’s objection, and I confirm and maintain my ruling on this item of costs at the Taxation Hearing for the review of taxation.

XIV.    Item 344of CFI Bill

92.  Item 344 of the CFI Bill claimed for AH’s fees on 7 July 2005 for “perusal of Clive Rigby’s statement and advice by email” in the sum of HK$12,000.00. In item 87 of the LOO, the Paying Party objected by suggesting reduction of HK$5,000.00. At the Taxation Hearing, I reduced AH’s fees by the sum of HK$5,000.00 (ie the same reduction as suggested by the Paying Party) to HK$7,000.00 for the purpose of party and party taxation.

93.  In the Review Application and the Review Reasons, it was suggested that counsel should not have advised on the expert statement of Mr Rigby in order to maintain forensic independence, so AH did not have to render the advice by email and the Paying Party should not be made liable to pay for the same. Mr Yeung referred me to Hong Kong Civil Procedure 2009 Vol.1 para.62/App/35 at p.1012 (see paragraph 80 above).

94.  KW informed the court that after crosschecking the confidential primary documents lodged for the review of taxation, the description for item 344 of the CFI Bill was clerically incorrect. Although AH’s fee note dated 2 June 2006 did refer to “perusal of Clive Rigby’s statement and advice by email” on 7 July 2005, such email in fact only advised on the following matters : (a) whether the Receiving Party should amend the Defence to plead certain arguments in the alternative, (b) whether amendments should be made to certain paragraphs of the Defence to make the pleaded defences more prominent, and (c) the estimated length of the trial. By that time Mr Rigby’s statement had already been filed, so the reference to such statement in the instructions was merely to keep senior counsel up to date on the status of the litigation and for seeking senior counsel’s advice on the conduct of the case.

95.  Mr Yeung pointed out that ultimately there were no amendments to the pleadings of the Receiving Party, and in any event costs for considering potential amendment of pleadings should not be visited on the Paying Party.

96.  In my view, there can be no doubt that it was necessary and proper for AH (whom the Receiving Party intended to brief for the trial) to advise on the estimated length of the trial. As regards the advice on potential amendment of pleadings, I accept it should not have been laid at the Paying Party’s door, and the quantum should properly reflect this. However, I bear in mind that at the Taxation Hearing I have reduced AH’s fees by HK$5,000.00 which is the same as the reduction suggested in the LOO. But since I have disallowed counsel’s fees for advice on potential amendment of pleadings under party and party taxation, I am prepared to further reduce AH’s fees by the sum of HK$1,000.00 to give a final sum of HK$6,000.00 on review of taxation for this item of costs.

XV. Item 422of CFI Bill

97.  Item 422 of the CFI Bill claimed for GL’s brief fee for attending the Pre-Trial Review (“PTR”) hearing before Stone J on 1 September 2006 in the sum of HK$35,000.00. In item 99 of the LOO, the Paying Party objected by suggesting reduction by HK$10,000.00. At the Taxation Hearing, I reduced GL’s fees by the sum of HK$5,000.00 to HK$30,000.00 for the purpose of party and party taxation.

98.  In the Review Application and the Review Reasons, it was said that all along CWH and KW handled the case with the benefit of counsel’s advice, so the handling solicitor should attend the PTR hearing before the trial judge. It was also argued that in any event the fees allowed in the sum of HK$30,000.00 were excessive.

99.  Counsel and not handling solicitors had conduct of the trial. The Receiving Party submitted (and I agree) that it was proper and customary for trial counsel to attend the PTRhearing before the trial judge. Further, although it is a pertinent but not conclusive factor, the Paying Party also instructed KP to attend the PTR hearing before Stone J.

100.  I note from the written record of the hearing kept by CL that the issues canvassed at the PTR hearing essentially focused on the readiness of the case for trial, eg the disputed matters that required adjudication at trial, the status of the pleadings, the factual and expert evidence that might impact on the trial, the preparation of the trial bundle, the language of the trial, the transcription of the proceedings, the preparation of opening submissions etc. It is therefore plain that GL should attend the PTR hearing.

101.  Given GL’s seniority at the material time and the nature of the hearing which required attending counsel to assist the trial judge by being fully familiar with the case, I am unable to say that counsel’s fees allowed in the sum of HK$30,000.00 was unreasonable and excessive. I therefore confirm and maintain my ruling in respect of this item of costs at the Taxation Hearing for the review of taxation.

XVI.    Item 449of CFI Bill

102.  Item 449 of the CFI Bill claimed for GL’s fees for conference with the solicitors for the Receiving Party and Perry Luk (“Mr Luk”) on 3 October 2006 in the sum of HK$6,000.00. In item 109 of the LOO, the Paying Party objected on the ground “quantum excessive; suggest to reduce $4,000.00”. At the Taxation Hearing, I reduced GL’s fees by the sum of HK$2,000.00 to HK$4,000.00 for the purpose of party and party taxation.

103.  In the Review Application and the Review Reasons, the necessity of such conference with GL was challenged. It was suggested that such conference concerned factual witness evidence that was within the competence of the handling solicitors. Mr Yeung submitted it was unnecessary for counsel to be involved, and in any event the sum of HK$4,000.00 allowed was excessive. Mr Yeung also referred me to Hong Kong Civil Procedure 2009 Vol.1 para.62/App/29 at p.1010 (see paragraph 42 above).

104.  The trial was scheduled to start on 17 October 2006. Solicitors for the Receiving Party had had various conferences with Mr Luk for preparation of his witness statement filed on 12 July 2005. Counsel was not involved in drafting or settling Mr Luk’s witness statement and had not met Mr Luk. But since Mr Luk was a witness as to fact for the Receiving Party who might have to give oral evidence and the trial was due to start, it was necessary and proper for junior counsel who had conduct of the trial to meet Mr Luk to see for himself how such witness would have fared when he gave evidence on the key topics.

105.  As regards quantum of counsel’s fees, I consider the sum of HK$4,000.00 for a 1½ hour conference both reasonable and appropriate. I reject any contention that such charges were unreasonable and/or excessive. I therefore confirm and maintain my ruling on this item of costs at the Taxation Hearing on the review of taxation.

XVII.  Item 476of CFI Bill

106.  Item 476 of the CFI Bill claimed for AH’s and GL’s brief fees for the trial in the sums of HK$490,000.00 and HK$240,000.00 respectively. Initem 116 of the LOO, the Paying Party objected on the ground “quantum excessive; suggest to reduce the sums by $200,000.00 and $100,000.00”. At the Taxation Hearing, I reduced AH’s and GL’s fees by the sums of HK$90,000.00 and HK$40,000.00 respectively for the purpose of party and party taxation.

107.  In the Review Application and the Review Reasons, the Paying Party challenged the necessity for two counsel, but in Part IV above I have found against him on this issue. The Paying Party complained that prior to being briefed for trial (ie since mid-2003) AH and GL had already charged total sums of HK$370,000.00 and HK$148,250.00 respectively, hence their brief fees allowed at HK$400,000.00 and HK$200,000.00 were excessive.

108.  Hong Kong Civil Procedure 2009 Vol.1 para.62/App/31 at pp.1010-1011 provides as follows :

 “Brief fee – A proper measure for counsel’s fees was to estimate what fee a hypothetical counsel, capable of conducting the case effectively, but unable to unwilling to insist on the high fees sometimes demanded by counsel, of pre-eminent reputation, would be content to take on the brief; but there was no precise standard of measurement, and the taxing master or the judge, must, using their knowledge and experience, determine what was the proper figure ……

 ……

In assessing counsel’s fee it is always relevant to take into account what work the fee, together with any refreshers, has to cover. The brief fee covers all the work dne by way of preparation for representation at the trial and attendance on the first day of the trial: Loveday v. Renton (No.2) [1999] 3 All E.R. 184, per Hobhouse J., followed in Yeung Shu & Another v. Alfred Lam & Co. (a firm) & Chang Pao Ching (third party) [2000] 1 H.K.L.R.D. 231, CA).

Preparation by counsel of his examinations-in-chief and cross-examinations and of his final submissions is an ordinary part of his conduct of a trial on behalf of his client being all part of the work which counsel accepts an obligation to perform by accepting the brief and for which he is remunerated by the brief and the refresher. They also cover:

(a)   Preparation work before the delivery of the brief on the faith of a solicitor’s statement that it will be delivered;

(b)  Preparatory work in counsel satisfying himself that he should accept the brief;

(c)   Evening preparation;

(d)  Any consultations between members of the team of counsel;

(e)   Advising experts at weekends;

(f)    Conferring with experts without separate instructions;

(g)   Lost opportunities;

(h)   Chronologies, etc;

(i) Skeleton arguments;

(j)    Dramatis personae;

(k)  Opportunities to prepare further when the court is not sitting;

(l) Preparation of draft terms of collateral agreements.

(See Loveday v. Renton (No.2) (above))

Counsel is not normally entitled to be remunerated separately for necessary work which is an incident of the proper representation of the client; rather, in a privately funded case a barrister must negotiate a brief fee sufficient to cover such work while in legal aid work the barrister may, on the legal aid taxation, require that the brief fee and the refresher rate properly reflect the amount of work that actually had to be done (Din (Tai) v. Wandsworth LBC (No.3) [1983] 1 W.L.R. 1171; Loveday v. Renton (No.2) (above)).

……”

109.  I rely on but need not repeat here the discussions above on the array of complex and challenging issues of fact and law in the CFI Action that fell outside the scope of normal litigation over contractual disputes, the involvement of expert evidence, the substantial amount of the claim and the importance of the case to the parties and to the stockbrokerage market. It is obvious that counsel handling the trial would be required to possess and display familiarity with a specialised field. Leading counsel had to prepare a substantial amount of material and to undertake complex cross-examination that required specialised skill. AH and GL prepared 28 pages of written opening submissions (in 12pt font and single spacing) together with a bundle of authorities, and perused and considered the written opening submissions of SW and KP that ran to 26 pages as well as their bundle of authorities.

110.  In my view, under item by item taxation, it is not correct to assess counsel’s brief fees by considering what fees had been globally allowed to counsel for past work, which fees must have been allowed on the basis that the work previously performed were necessary and proper and that the level of fees allowed for such work were not unreasonable or excessive. In assessing the appropriate measure of counsel’s brief fees, the taxing master should take into account the work generally remunerated by brief fees (see paragraph 108 above) and the special factors in the particular case that impact on counsel’s brief fees (see paragraph 109 above for the CFI Action).

111.  The test posited for counsel’s brief fees envisaged a hypothetical solicitor determining a proper and reasonable fee for a hypothetical counsel competent to do the case and not being in a position to expect a fashionable fee. Since I have concluded that two counsel was appropriate for the CFI Action, the hypothetical solicitor could not have ignored the status of senior counsel that brought with it not only the ability to be instructed in more complex cases but also the ability to demand higher fees. In my view, taking into account the circumstances in the paragraph 109 above and further taking into account the scope of work covered by the refresher and non-refresher fees discussed in Part XVIII below, it could not be said that the brief fees as allowed under the original taxation, ie HK$400,000.00 and HK$200,000.00, were unreasonable or excessive from the perspective of a reasonably careful and prudent solicitor under the test posited above. I therefore confirm and maintain my ruling on this item of costs at the Taxation Hearing on the review for taxation.

XVIII. Items 479, 482, 486, 490, 492, 495, 498 and 500of CFI Bill

112.  Items 479, 482, 486, 490, 492, 498 and 500 of CFI Bill claimed for AH’s and GL’s refresher fees for the trial on 18-20, 23-25 and 26-27 October 2006 in the respective daily sums of HK$70,000.00 and HK$35,000.00. Although the CFI Judgment omitted reference to 26 October 2006 as a sitting day (item 498 of the CFI Bill), the court records showed that it was a full-day sitting day. Item 495 of the CFI Bill was said to be AH’s and GL’s fees in the respective sums of HK$70,000.00 and HK$35,000.00 for preparation of closing submissions on a non-sitting day (ie 25 October 2006).

113.  The Paying Party’s stance is somewhat confusing :

(a) Initems 118 and 129 of the LOO, the Paying Party objected to items 479 and 498 of the CFI Bill on the ground “quantum excessive; suggest to reduce by $30,000.00 and $15,000.00 respectively”.

(b)    In items 120, 124 and 126 of the LOO, the Paying Party objected to items 482, 490 and 492 of the CFI Bill on the ground “quantum excessive; suggest to reduce by $20,000.00 and $10,000.00 respectively”.

(c)    In items 127 and 131 of the LOO, the Paying Party objected to items 495 and 500 of the CFI Bill on the ground that “quantum excessive; Suggest to reduce $30,000.00 from [AH] and $10,000.00 from [GL]”.

(d)    There is no objection in the LOO or the SLOO in respect of the quantum of counsel’s fees in item 486 of the CFI Bill.

114.  At the Taxation Hearing, I allowed (a) AH’s and GL’s daily refresher fees under items 479, 482, 486, 490, 498 and 500 of the CFI Bill, and (b) their non-refresher fees for item 495 of the CFI Bill as claimed for the purpose of party and party taxation.

115.  In the Review Application and the Review Reasons, the Paying Party claimed that the fees in the above items of costs (without distinguishing between refresher and non-refresher fees) were excessive given that AH and GL had been involved at all stages of the proceedings. The Paying Party also relied on the same grounds as his objection to the brief fees under item 476 of the CFI Bill.

116.  Although the Paying Party objected to the involvement of junior counsel, I have already ruled in favour of two counsel for the CFI Action in Part IV above. Once such objection against two counsel was removed, there was in fact no complaint from the Paying Party as to the necessity and/or propriety of these items of refresher and non-refresher fees, and the compliant was merely restricted to the matter of quantum.

117.  The Paying Party has not explained why his proposal for reduction of the amount of the refresher fees varied from day to day (eg from HK$20,000.00 to HK$30,000.00 and from HK$10,000.00 to HK$15,000.00), and why he did not object to the quantum of the refresher fees for item 486 of the CFI Bill in the LOO and the SLOO. For example, on 23 and 26 October 2006 (items 490 and 498 of the CFI Bill – see paragraph 113(a) and (b) above), the sitting hours were quite similar (10:15am – 4:09pm and 10:15am – 4:36pm) and yet the reductions of counsel’s refresher fees proposed by the Paying Party varied from HK$30,000.00 to HK$20,000.00 and from HK$15,000.00 to HK$10,000.00.

118.  Since a refresher fee is an amount allowed to counsel for necessary attendance at a hearing after the first day during ordinary court hours, the Paying Party’s proposed variable reductions of refresher fees are perplexing, and they immediately raise query as to the underlying rationale for the Paying Party’s objection.

119.  In any event, even if the level of refresher fees as claimed should be reduced for the purpose of party and party taxation (which I disagree), in my view it is not appropriate to reduce such fees at variable rates. Indeed, refresher fees are charged on a daily basis and do not depend on the burden of a particular day. Inevitably there will be some hard days and some easy days during a trial, but such factor is in-built into the going rate. There is no justification for the taxing master to tinker with the daily rate unless it is plainly and obviously demonstrated that a particular day is easier than other days or vice versa. Here, the Paying Party failed to so demonstrate.

120.  In taxation, the amount of a refresher fee is always in the discretion of the taxing master (see paragraph 10 above). In my view, the hypothetically reasonable solicitor who is expected to know the going rate for the hypothetical senior and junior counsel capable of conducting the CFI Action effectively would not have balked at or, in other words, would have offered daily refresher fees of HK$70,000.00 and HK$35,000.00 for AH and GL under items 479, 482, 486, 490, 492, 498 and 500 of CFI Bill. In coming to such view, I take into account the usual work undertaken on sitting days for which refresher fees were charged and the special factors discussed in paragraph 109 above (including arguments on admissibility of expert reports and extensive cross-examination of the Paying Party at trial). I confirm and maintain my ruling on these items of costs at the Taxation Hearing for the review of taxation.

121.  Item 495 of the CFI Bill concerned counsel’s fees for preparation of written closing submission on a non-sitting day. As explained in paragraph 116 above, the Paying Party merely challenged the quantum but not the necessity of this item of costs.

122.  But in case I am wrong and for the sake of completeness, I refer to the passage cited from Hong Kong Civil Procedure 2009 in paragraph 108 above, which seems to suggest that Loveday v Renton (No.2) [1992] 3 All ER 184 supports the proposition that preparation of written submissions that are necessary for the proper presentation of a party’s case to the court should be remunerated through the medium of the brief and refresher fees. However, this was not a point taken by the Paying Party at either the Taxation Hearing or the Review Hearing. In such circumstances, there is no need for me to deal with such objection, but in case I am again wrong, I will deal with this briefly for the sake of fairness.

123.  In my view, the decision of Loveday is of limited assistance because it dealt with taxation of costs of an unsuccessful plaintiff who was legally aided and the taxation was legal aid taxation. Hobhouse J also recognised that although work necessary for the proper presentation of the party’s case to the court would be remunerated through the medium of the brief and refresher fees, such conclusion “does not mean that counsel should not be remunerated for necessary work which is an incident of the proper representation of their client. It means that in a privately funded case a barrister must negotiate a brief fee that is sufficient to cover such work (or make some other special agreement for the delivery of supplemental instructions and/or the agreement of an additional fee ……” (pp.190-191).

124.  Since written submissions are necessary work incidental to the proper representation of the client, counsel in a privately funded case should usually be remunerated for such work. But if work which is normally rewarded as part of the brief and refresher fees is taken out and charged as a separate item, I accept it must impact on the brief and refresher fees and cannot add to the overall quantum of counsel’s fees. However, any objection in principle against allowing proper remuneration to counsel for written closing submissions is not sustainable.

125.  In the CFI Action, the taking of evidence was completed by the 6^th day of trial (24 October 2006). Counsel for both parties had the following day for preparing written closing submissions and they returned to court on 26 October 2006 to make their final submissions. Stone J directed that each party would have a day for their final submissions and that any prolix submissions beyond such deadline would be “guillotined”. I believe a reasonably careful and prudent hypothetical solicitor would be aware of the importance of written submissions having regard to such directions and of the burden on counsel in having to reduce closing submissions to a written form in light of such expectation. The speaking notes for closing submissions by AH and GL comprised 24 pages (104 paragraphs) in single spacing of analysis on the legal issues and discussion of the factual evidence (with extracts from transcriptions of witness evidence during the proceedings and cross-references to the documentary evidence). In the particular circumstances of the CFI Action, I consider that the hypothetical solicitor would recognise that a day spent on the written closing submissions fairly represented the time and effort in producing them.

126.  I now turn to the issue of quantum of counsel’s fees for item 495 of the CFI Bill, which is the true objection raised by the Paying Party. In my view, the hypothetical solicitor would have offered the sums of HK$70,000.00 and HK$35,000.00 as AH’s and GL’s fees for such work which I have found would reasonably have taken a day. Even if I have to consider the impact on counsel’s brief fees in respect of the allowance of counsel’s fees for a non-sitting day to prepare written closing submissions, I have already reduced AH’s and GL’s brief fees by HK$90,000.00 and HK$40,000.00 respectively at the original taxation. Given the nature of the case and the issues involved (especially after vigorous cross-examinations of both the Paying Party and Mr Wong) and upon overall consideration of all the elements including the brief and refresher fees and this non-refresher item, and considering the matter afresh, I am persuaded that a reasonably careful and reasonably prudent solicitor upon selecting counsel competent in the field of work to which such fees relate would regard the fees allowed at the original taxation as proper and reasonable. I maintain and confirm my ruling for these items of costs at the Taxation Hearing on the review of taxation.

XIX.    Item 57of CABill

127.  Item 57 of the CA Bill claimed for AH’s and GL’s brief fees for the Appeal Case in the respective sums of HK$500,000.00 and HK$240,000.00. Initem 11 of the LOO, the Paying Party objected on the ground “quantum excessive; propose the Brief fee of [AH] be reduced by $150,000.00 and [GL] in $240,000.00 be taxed off”. At the Taxation Hearing, I reduced AH’s and GL’s fees by HK$100,000.00 and HK$40,000.00 respectively for the purpose of party and party taxation.

128.  In the SLOO, the Paying Party added that “For items …… 11 …… of the [LOO], they all relate to the issue of necessity, reasonableness and quantum of instructing two Counsel; it was too luxury for [the Receiving Party] to charge [the Paying Party] for engaging 2 Counsel for conducting the appeal”. However, as explained above, the Paying Party conceded the necessity of two counsel,so I need not consider this ground of objection.

129.  In the Review Application and the Review Reasons, the Paying Party argued that the Appeal Case turned purely on matters of law and merely required submissions without any need for cross-examination of witnesses. Further, AH and GL being trial counsel in the court below should be familiar with the case, and hence their brief fees for the Appeal Case were excessive.

130.  I bear in mind that in most cases (including the Appeal Case) the level of the brief fees at the trial would be a helpful guide to the appropriate level of the brief fees at the Court of Appeal. Sunnucks v Smith[1950] 1 All ER 550, which case was not cited by KW or Mr Yeung, was a case where the taxing master awarded a lower fee for the appeal, but on a summons to review taxation Vaisey J said at p.552as follows : 

“    Having regard to the grounds stated by the taxing master, I think that the general rule that the fee should be the same ought to prevail. I have seen no reason whatever for reducing the fee in the court below ……

It seems to me very difficult indeed on these grounds to suggest that the fee in the Court of Appeal should be any less than the fee in the court below, and I propose to restore the fee of thirty guineas which was marked on the brief. I wish to make it perfectly clear for the master's guidance that although there is a prima facie rule that the fee should be the same in both courts, it is a rule to which there may be many exceptions, and, if the taxing master finds that there are valid grounds for regarding the work as of less value in the Court of Appeal than in the court below, it is open to him, and it is within his discretion, to proceed accordingly. In the present case I find no suggestion that the master has applied his mind to that kind of consideration which would have justified a lower fee.” (my emphasis)

131.  AH had separately charged for considering the Paying Party’s Notice of Appeal and the Receiving Party’s Respondent’s Notice (item 7 of the CA Bill) and for having conference with the Receiving Party and his solicitors (item 9 of the CA Bill). Likewise, GL had separately charged for the conference and for drafting the Respondent’s Notice (item 10 of the CA Bill). The Paying Party did not seek to review the sums allowed for these items of costs at the original taxation.

132.  The brief fees for the Appeal Case covered perusal of documents, drafting skeleton arguments, and preparation for and attendance at the appeal hearing. The written skeleton arguments of AH and GL consisted of 13 pages (12pt font and single line spacing) together with a bundle of authorities. The written skeleton arguments of SW (which AH and GL had to peruse and consider) for the Paying Party consisted of 10 pages again with a bundle of authorities.

133.  In my view, the task of senior and junior counsel in the Appeal Case was different from, but no less onerous than, their task in the CFI Action at the court below. Even though they appeared for the Receiving Party in the court below, the resistance to the Paying Party’s appeal was not easy. It is evident from the CA Judgment that SW elaborated the points made by the Paying Party in a new light. As pointed out by Cheung JA, the Paying Party built his case for the appeal on the basis that the Stock Exchange Rules required the Receiving Party “to input the transaction into the AMS and this triggered a corresponding obligation to make good any default by the purchaser”. Hence, the applicability and interpretation of the Stock Exchange Rules were canvassed at length at the appeal, but it was not a subject that the trial judge analysed in any great detail in the CFI Judgment. This new twist in the appeal involved greater work than simply putting forward submissions to uphold the CFI Judgment. I bear in mind the prima facie rule in Sunnucks that counsel’s fee should be the same in both courts above and below, but onthe particular circumstances of the Appeal Case and quite irrespective of Sunnucks, I am unable to find any cogent basis for regarding that the work was of less value in the Court of Appeal than that in the court below, especially when the appeal was heard almost 1½ years after the trial.

134.  Mr Yeung argued that the work required for the Appeal Case, eg perusing Notice of Appeal, drafting Respondent’s Notice and attending the appeal hearing, did not justify global fees for counsel of HK$600,000.00. However, Barma J in paragraph 23 of his judgment in Re Greater Beijing Region Expressways Limited said he did not “consider that it is appropriate to aggregate the fees charged by leading and junior counsel and ask whether the total of their fees can be regarded as “excessive and unreasonable””. In that case there was certificate for two counsel, and in the Appeal Case the necessity and propriety of two counsel was conceded.

135.  Having re-considered the matter, I am satisfied on the objective test of a hypothetical solicitor briefing hypothetical senior and junior counsel competent to take on the Appeal Case that the brief fees of HK$400,000.00 and HK$200,000.00 for AH and GL respectively allowed under the original taxation were not unreasonable or excessive. I therefore confirm and maintain my ruling on this item of costs at the Taxation Hearing for the review of taxation.

XX. Item 82 of CA Bill

136.  Item 82 of the CA Bill claimed for AH’s and GL’s brief fees for the Leave Application in the sums of HK$125,000.00 and HK$80,000.00 respectively. Initem 13 of the LOO, the Paying Party objected on the ground “quantum excessive; propose the Brief fee of [AH] be reduced by $40,000.00 and as to [GL], the fee of $80,000.00 be taxed off”. At the Taxation Hearing, I reduced AH’s and GL’s fees by HK$25,000.00 and HK$10,000.00 respectively for the purpose of party and party taxation.

137.  In the SLOO, the Paying Party objected to two counsel. But, as explained above, the Paying Party eventually abandoned this ground of objection.

138.  In the Review Application and the Review Reasons, it was argued that the Leave Application turned on even more limited points of law than the Appeal Case without any need for cross-examination of witnesses. Since the same trial counsel handled the Appeal Case and Leave Application, they should be well familiar with the arguments, and hence their brief fees were excessive. Further, it was said that conference with counsel had been charged elsewhere in the CA Bill.

139.  AH’s and GL’s written skeleton submissions comprised 4 pages and a small bundle of authorities. Although they appeared on behalf of the Receiving Party at the trial in the CFI Action and the appeal in the Appeal Case and were arguably familiar with the various contentions of the parties, it does not mean there was no new work in their preparation for the Leave Application.AH’s and GL’s skeleton arguments were concerned with the principles applicable to an appeal to Court of Final Appeal and for extension of time to comply with statutory limits, and the applicability of such principles to the circumstances of the present case. These are plainly new matters not canvassed in the previous hearings. Further, AH and GL also had to peruse the skeleton submissions (14 pages) and authorities (14 cases) prepared by senior and junior counsel for the Paying Party. I am not persuaded that on the objective test the fees of HK$100,00.00 and HK$70,000.00 allowed at the original taxation for AH and GL were unreasonable or excessive.

140.  Mr Yeung again argued that the limited work required for the Leave Application did not justify global counsel’s fees in the total sum of HK$170,000.00. I reject this argument for the same reasons as set out in paragraph 134 above. I therefore confirm and maintain my ruling on this item of costs at the Taxation Hearing for the review of taxation.

XXI.    Conclusion

141.  In short, on the Paying Party’s review of taxation, I confirm maintain the amounts allowed under my original taxation of the Taxation Bills save and except for item 344 of the CFI Bill which I shall allow at HK$6,000.00 instead of K$7,000.00.

142.  There is no reason why costs should not follow event. The Paying Party has materially failed in the review of taxation, and the further reduction for item 344 of the CFI Bill took up minimal time at the Review Hearing. In the circumstances, I grant a costs order nisithat the Receiving Party do pay the costs of the review of taxation in respect of item 344 of the CFI Bill and the Paying Party do pay to the Receiving Party costs of the remaining balance of the review of taxation together with any costs reserved all to be summarily assessed. To assist the parties, I apportion 15 minutes of the hearing time of the Review Hearing for item 344 of the CFI Bill.

143.  In respect of the summary assessment of the above costs, I hereby grant the following directions :

(a) if no application is made to vary the costs order nisi in paragraph 142 above within 14 days from the date hereof, the parties do within 21 days from the date hereof respectively lodge and serve statement of costs pursuant to Practice Direction 14.3 and within 7 days thereafter lodge and serve succinct summary of objections in bullet-point form of not more than half page in respect of the other party’s statement of costs (“Objection Summary”), and the solicitors for the Receiving Party do within 21 days from the date hereof fix a date with the Listing Clerk for an appointment before me in chambers (open to the public) for summary assessment of costs with half an hour reserved;

(b)    if application is made to vary the costs order nisi in paragraph 142 above within 14 days from the date hereof, both parties do within 21 days from the date hereof respectively lodge and serve his/its statement of costs pursuant to Practice Direction 14.3 and do within 7 days thereafter lodge and serve their respective Objection Summary to the other party’s statement of costs, and such summary assessment of costs shall be heard at the same time as the hearing for the variation of the costs order nisi.

144.  Last but not least, I thank both solicitors for their assistance to the court in the review of taxation.

HCCL 39/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 39 OF 2004

(formerly High Court Action No.7335 of 2000)

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Before : Hon Stone J in Court

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J U D G M E N T

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Introduction

1. This case raises an interesting, and apparently unsettled, question as to the legal obligation upon a stockbroker arising from the trading in Hong Kong of shares on the ‘grey market’ which, as at the date of such trading, have not yet been the subject of their initial public offering (‘IPO’), and thus are not yet issued and available for trading upon the Hong Kong Stock Exchange.

2. The subject-matter of the present case involves the purported trade, in late September 1997, of 980,000 soon-to-be-issued shares in China Telecom (Hong Kong) Ltd, (‘China Telecom’), a stock which first was listed on the Hong Kong Stock Exchange on 23 October 1997, its first day of official trading, or ‘opening day’.

3. The protagonists in this action are the plaintiff, Lawrence Woo Hing Keung, a trader and speculator, and the defendant, CEF Brokerage Ltd, the employer of Mr Woo’s then broker (and erstwhile friend), one Mr David Wong, an account executive with CEF with whom Mr Woo maintains he effected a binding trade in such shares.

4. In essence, Mr Woo’s case is that, in light of the agreement reached with his broker, Mr Wong, the defendant brokerage personally must honour the ‘grey market’ deal as was struck through its agency, notwithstanding that such putative trade in this China Telecom stock went off by reason of the default of the intended counterparty buyer – a fact which Mr Woo maintains is of no concern to him.

5. For its part the defendant brokerage disagrees. 

6. The brokerage maintains that, as agent, it has no personal liability in the circumstances, and that any such trade on the ‘grey market’ does not embrace the characteristics of normal trading in currently-listed stocks, whereby the rules and regulations of the Hong Kong Stock Exchange apply to govern the rights and obligations thus arising; accordingly, in the circumstances of this case it denies that any binding contract(s) for purchase of ‘grey market’ shares were entered by the defendant personally with Mr Woo, or that it bears any personal responsibility for the failure of such transactions arising by reason of the putative buyer declining to complete.

7. This case, therefore, requires resolution of these diametrically opposing contentions. 

8. The plaintiff’s claim in this action involves a significant sum of money – in the particular case the sum of approximately HK$9 million, plus interest – the basis for this claim being formulated in terms of the difference between the sale price of the China Telecom shares that Mr Woo says were sold through the defendant broker, and the market price of the stock on opening day, 23 October 1997, on which date the price of this stock was very substantially lower.

9. This is a case of some age. 

10. This litigation was commenced by writ issued on 21 July 2000 in HCA No 735 of 2000, and was transferred to the Commercial List in 2004, hence its present action number.

11. Nor is this the first occasion upon which Mr Woo, the present plaintiff, has been before this court in such a case. 

12. A strikingly similar claim, in HCCL 38 of 2004, was brought by Mr Woo against another Hong Kong brokerage with regard to a similar ‘grey market’ trade in the soon-to-be-issued China Telecom shares.  This was heard, in part, in April 2006 prior to being settled – on terms endorsed on counsels’ brief – on the 3^rd day of that trial.  As a consequence there was no opportunity then for this court to consider the virtually identical questions as were raised in that litigation.

13. In contrast to that earlier action, however, this particular case has gone the distance, and accordingly this judgment represents the court’s concluded view upon the arguments variously raised by the parties as to the obligations arising from such ‘grey market’ trading activity.

14. More precisely, this court is required to determine if the plaintiff correct in his primary contention that in terms of the obligations upon a broker a ‘grey market’ transaction is no different from a ‘normal’ transaction on the stock market save andexcept that the obligation to cross the transaction on the market, and subsequently to deliver the shares, does not arise until the first day of public trading in such shares, which in the instant case was 23 October 1997. 

15. This fundamental proposition lies at the heart of this case. 

The factual background

16. Although the central issue thus raised is crystal clear, the factual background is less so, and this is one of those instances in which the court must wrestle with the merits of competing factual assertions.

17. Essentially introductory matters, however, are not in dispute.

18. Mr Lawrence Woo is a share trader and speculator.  He describes himself as an ‘investor’.  He struck me as a clever and perceptive man, and he has, I apprehend, to-date enjoyed considerable success in his speculative activities on the local share market.

19. The present story begins with the imminent launch of the China Telecom IPO in late October 1997.  

20. It is not in dispute that this IPO was then the largest such offering in Hong Kong’s history; history will record, also, that this was the first IPO in Hong Kong to perform so poorly, largely as the result of the onset and impact of that which now is commonly referred to as the ‘Asian financial crisis’.

21. It is fair to say that the two years prior to October 1997 had witnessed a hugely buoyant market in IPO’s, which in turn had stimulated a significant volume of ‘grey market’ trading, wherein there was an active unofficial market in the particular share issue prior to its formal ‘opening day’. 

22. This had been the more so for initial public issues with a China PRC theme or interest; many such offerings had been heavily oversubscribed, and the result of the euphoric atmosphere thus created was that ‘China-related IPO’s’ had traded ‘off-market’ well above the anticipated price at which the share was likely to be brought to market on its first day of official trading.

23. In September 1997 it was perceived that the forthcoming China Telecom IPO would be no different. 

24. One ‘investor’, however, who did not share the general euphoria as to the assured success of this new public issue was Mr Woo, the plaintiff herein.

25. He declined to jump on the bullish bandwagon, taking the view that this issue was too highly-priced, and would not sustain its projected level.  Mr Woo told the court that although the market generally was of the view that this China Telecom issue would be as oversubscribed as the recent Beijing Enterprises float, to the contrary, he considered that with a far greater quantity of shares available this IPO would be far less oversubscribed, and that any analogy with Beijing Enterprises was misplaced; in the circumstances he thought that there was ample scope to make some money by betting against the prevailing sentiment.

26. Accordingly, Mr Woo decided that a potentially highly profitable gamble effectively was to ‘short’ the market, and to sell in the ‘grey market’ a quantity of China Telecom shares which, at the time of entering into such ‘grey market’ trade he then did not possess, believing that subsequently he could purchase/obtain such shares the subject of these sale transactions at a lower price, whether in terms of an allotment within the IPO or by purchasing such shares within the market on opening day; his projected profit, therefore, would be the difference between the ‘sale’ price achieved per share, and the significantly lower actual cost of purchasing such shares in order to complete the bargain as had been struck.

27. This, then, is the immediate background to the disputed transaction(s) with the defendant broker which form the focus of this litigation.

28. On 30 September 1997, some 23 days prior to the China Telecom ‘opening day’ – which was to be its first as a publicly issued share on the Hong Kong market – Mr Woo had a telephone conversation with his old friend, David Wong, then a senior account executive with CEF Brokerage Ltd.

29. It is disputed that there were two such conversations on the telephone on 30 September 1997 (although ultimately I do not think that the precise date or dates of these telephone calls much matters), and that which ultimately was agreed between these two men, when and in what capacity, in due course will require specific findings of fact by this court.

30. For present purposes, however, suffice to say that in the first Woo/Wong telephone conversation of that day Mr Woo placed a ‘sell order’ with Mr Wong for 1 million China Telecom shares at $20 per share, which as far as Mr Woo then knew represented the prevailing ‘grey market’ price of these shares.

31. It is asserted that later on the same day Mr Wong telephoned Mr Woo and reported that he had managed to locate purchasers to buy a total of 400,000 China Telecom shares at HK$20 each, and 1 million shares at HK$19.00 per share.

32. Whenever such subsequent call in fact took place, it is common ground that Mr Woo agreed with these figures, in terms of numbers and price per share, and accordingly he says that, whilst he had no idea of (and indeed had no interest in) the identity of the individual counterparty purchasers who had been lined up by Mr Wong, there thus were in place binding transactions (which the brokerage was bound to honour in the case of counterparty default) whereby he was to sell a total of 1.4 million China Telecom shares on the ‘grey market’, with delivery of such shares to take place on ‘opening day’ or within one day thereafter (‘T+1 settlement’).

33. So far, so good.  Had the China Telecom public float proceeded in like successful fashion to other public issues of that period, no doubt these particular transactions would have proceeded in normal course, and the present case would not have seen the light of day.

34. History records, however, that this did not happen.

35. In or about mid-October 1997, the contagion from the ‘Asian financial crisis’ began to bite in Hong Kong, and the ‘grey market’ price of China Telecom shares began to drop quickly and significantly, initially from around HK$20 to around HK$15 per share, although subsequently it went considerably lower.

36. The result of this is that purchasers of China Telecom shares who had agreed to buy in the then-prevailing, and highly bullish, ‘grey market’ began to run for cover – indeed, many ultimately were to default, rather than to proceed with the pre-listing deals as struck, and thus to assume crystallized losses – and on 20^th October 1997 Mr Wong called Mr Woo and informed him that it might not prove possible to procure all the intended purchasers to complete the ‘grey market’ agreements which had been struck on Mr Woo’s behalf, although Mr Wong emphasized that he would press such purchasers to complete these transactions.

37. That which in fact occurred was that on the ‘opening day’ of formal public trading in China Telecom stock, on 23 October 1997, out of the projected sale by Mr Woo of 1.4 million China Telecom shares, the sale of only 420,000 such shares successfully was achieved at a price of HK$19.00 per share.

38. The end result, so far as Mr Woo was concerned, was that a significant proportion of the deals which he believed had been entered into for him by Mr Wong of CEF Brokerage had not been honoured; his case is that the ‘flopped deals’ in question were those relating to the ‘grey market’ sale of 400,000 China Telecom shares at HK$20.00 per share, and the balance of 580,000 China Telecom shares at HK$19.00 per share.

39. Given that it is asserted that the likely cost to Mr Woo in the open market of 980,000 China Telecom shares would, on average, have been HK$10.0836 per share, and after taking into account all necessary disbursements and expenses which it would have been necessary to have incurred in such sale (ie. commission, stamp duty, SEHK levy and CCSS fee), Mr Woo estimates his ‘loss’ – in truth, his failure to gain – as the result of these events as HK$9,018,164.85, which is the sum, together with interest and costs, which now is claimed in this case against the defendant brokerage.

40. When, subsequent to these defaults, Mr Woo was informed by Mr Wong that, as a matter of policy that CEF Brokerage did not recognize any ‘grey market’ deals, and also declined to disclose the identities of the defaulting purchasers, Mr Woo decided to stand upon that which he perceived were his rights in this matter, and began to contemplate litigation.

41. To this end, there is in evidence certain transcripts of tape recordings covertly made by Mr Woo of certain of his conversations with Mr Wong, and on 13 November 1997 he instructed his solicitors to issue a formal demand for compensation to CEF Brokerage.

42. Upon the refusal by the defendant so to compensate him, Mr Woo commenced this action by the issue of the writ herein on 21 July 2000.

The issue of principle for decision

43. Although this case will decide upon the specific liability of the defendant brokerage, CEF, to its client, Mr Woo, arising from his failure to gain the profit which he maintains should have enured from the transactions entered into by CEF on his behalf, the underlying issue of principle requiring decision may be formulated thus :

In situations wherein transactions entered into on the ‘grey market’ are dishonoured by the default of counterparty purchasers, does the brokerage which arranged such transactions on behalf of its client bear the responsibility of formally ‘crossing’ such ‘grey market’ transactions on the market on ‘opening day’, and thus, by virtue of such ‘crossing’, incur personal liability to its client under the prevailing rules of the Hong Kong Stock Exchange regarding the trading of listed stocks?

44. It is important to isolate and to identify this underlying issue at the outset.  Nor is there any question but that this represents the required approach in the circumstances; in his helpful final written submission (at paragraph 52 thereof), Mr Westbrook SC, who, with Mr Patterson, appears for the plaintiff, agrees with the necessity to focus on the “critical obligation” to cross the trades on opening day, because, as he put it, “it is this that triggers the personal liability of the stockbroker.”

45. It is also equally useful to identify the arguments as to liability which the plaintiff does not raise in this litigation.

46. It is not contended, for example, that such ‘grey market’ transactions as were entered into by CEF on behalf of Mr Woo were binding on the brokerage ‘come what may’.

47. If, for example, the onset of the Asian financial crisis had impacted on Hong Kong somewhat earlier than in fact was the case, and if this had resulted in the China Telecom IPO being withdrawn by its underwriters prior to ‘opening day’, it is not asserted otherwise than that these purported transactions necessarily would have fallen to the ground, with no liability enuring therefor; in principle, therefore, the plaintiff accepts that such ‘grey market’ deals were no more than ‘conditional contracts’, subject to a ‘condition subsequent’, which was that the relevant public listing would in fact proceed upon the due day.

48. Nor is it said that there is or was a particular ‘custom and practice’, or ‘market convention’ within the Hong Kong share market that a brokerage such as CEF, which is participating in ‘grey market’ trading on behalf of its clients, ultimately bears personal liability to such clients should such transactions go off and be dishonoured by the counterparty’s failure to complete.

49. In this regard Mr Westbrook SC also expressly disavows any such argument.

50. Nor is it said that in Hong Kong there is in place any specific regulatory framework – whether of the HK Stock Exchange or of the Securities and Futures Commission – which expressly governs the factual situation whereby ‘grey market’ trades are dishonoured, and which delimits who shall be liable to whom, when and why.

51. To the contrary.  It is accepted that there is no such relevant regulatory regime applicable to the ‘pre-listing’ market – unlike, for example, the situation in London, wherein there are specific rules and regulations as to the rights and obligations arising from the trading of IPO stocks in the ‘grey market’, also known as ‘the when issued market’, such term implying that trades which are made prior to listing day are to be governed by the rules of the exchange “when issued”.

52. Nor, finally – and in my view significantly – is any alternative case now sought to be made by the plaintiff to the effect either that in terms of the ‘grey market’ transactions in question that the defendant brokerage acted qua principal to those transactions, or that in such share allocation as did take place there had been any breach of fiduciary duty on the part of CEF, or that there had been negligent conduct of the defendant brokerage, for example in failing to retain any or any proper records or ‘paper trail’ of such failed ‘grey market’ transactions, thereby resulting in the plaintiff’s ‘loss of the chance’ successfully to pursue the defaulting purchaser in the ‘grey market’ trade in question; initially I had thought that such ‘loss of chance’ contention would be prayed in aid as part of the plaintiff’s argument in this case, but in response to queries from the Bench Mr Westbrook SC once more disavowed reliance upon such argument. 

53. In short, therefore, the plaintiff’s analytical case wholly is premised upon the perceived obligation of the broker, in this instance CEF Brokerage Ltd, to honour the ‘grey market’ bargain it earlier had purported to enter on behalf of its client, Mr Woo, by ‘crossing’ the putative transaction on ‘opening day’, the first day of trading of the listed stock – notwithstanding that it was known that such transaction would be dishonoured by the counterparty – and thereby to incur personal liability to the client seller, Mr Woo, by reason of the operation of the existing rules of the Hong Kong Stock Exchange regulating the trading of listed stocks; these rules lay down that all trades have to be settled through Hong Kong Clearing and Settlement procedures, thereby guaranteeing that clients remain at ‘arms length’ from each other, and within the Clearing House system which is in place in order to provide certainty of settlement between market participants.

The issue of fact for decision

54. The foregoing formulation of the issue of underlying legal principle with which this court must grapple in order to decide this case proceeds on the assumption that the plaintiff’s factual case has been made out on the balance of probabilities.

55. However, whilst there is indeed a significant amount of common ground within the factual matrix raised by this case, this is not all one-way traffic, and the defendant brokerage, in the person of its account executive, Mr David Wong, firmly disputes certain aspects of Mr Woo’s account of what was said between them during their telephone conversations with regard to such ‘grey market’ trading in China Telecom shares.

56. It follows, therefore, that if Mr Wong is correct in his recollection of that which transpired between them, the importance of any decision in principle falls away because, as a matter of contract, the terms of the agreement thus telephonically struck between Mr Woo and Mr Wong on or after 30 September 1997 would, on the defence case at least, inevitably result in the finding that the defendant brokerage was not liable to Mr Woo on the facts, thereby removing the necessity to consider as ‘live’ the fundamental issue as has been invoked in this case.

57. There thus is a significant issue of fact at stake, the resolution of which may, or may not, be dispositive of the current litigation between these parties; as Mr Westbrook sagely remarked during his final submission, if he should lose on the facts his client will lose this case, but if he should succeed on the facts in itself this does not mean that his client necessarily will win.

The evidence : factual and expert

58. I should at this stage indicate the ambit of the viva voce evidence which was led before the court at trial.

59. For the plaintiff but one factual witness was called, namely Mr Lawrence Woo himself.

60. For the defendant, Mr David Wong, now a former employee of the defendant brokerage, also was the sole factual witness to give evidence to the court.

61. During the preparation for this case it had been anticipated by both parties that there would be a necessity for expert evidence to assist the court in its deliberations.

62. In this regard, on behalf of the plaintiff expert reports were prepared by two experts : Mr David White, on the general issue, and by Mr Wong Kam Wing, whose views sounded solely to the issue of quantum of damage.

63. For the defendant but one expert report was prepared, namely that of Mr Clive Rigby.

64. In the event none of these experts went into the witness box, although the report of Mr White, in substantially edited form, was placed before the court on behalf of the plaintiff.

65. For present purposes there is, I think, no necessity to go into the detail of the argument mounted by Mr Huggins SC, who appeared with Mr Lam on behalf of the defendant, regarding the admissibility of substantial parts of Mr White’s report, and supplemental report, much of which debate centered upon what had, or had not, been pleaded, the issues thereby perceived to be ‘live’ at this trial, and thus that which was permissible to be advanced in terms of expert opinion.

66. Suffice to say that after entertaining Mr Huggins’ objections at the conclusion of the factual evidence, and upon Mr Westbrook clarifying his position in terms of relevant issues, the court was persuaded (contrary to its usual practice) to give an immediate ruling as to admissibility – the terms of which appear upon the trial transcript – the end result of which was that parts only of Mr White’s report and supplemental report survived, and thus formally were admitted into evidence.

67. In light of this ruling, Mr Huggins did not seek to pursue the evidence of his own expert, Mr Rigby, and he called no such expert evidence on behalf of the defendant; in fact, he suggested that the report of Mr Rigby could be removed from the trial bundle.

68. The overall result, therefore, was that in evidential terms this court heard but two witnesses of fact, Mr Woo and Mr Wong, who were the two persons most directly concerned with the trades in question, and in addition, consequent on its ruling upon the admissibility objections raised, the court also received in evidence the edited (and very substantially reduced) expert report of Mr White, who by consent was not required to go into the witness box for cross-examination upon such parts of his report as remained available for scrutiny by the court.

69. As to the issue of quantum – which is put on the basis of the difference between the sale price of 30 September 1997 and the market price on ‘opening day’, 23 October 1997, of a total of 980,000 China Telecom shares – in the event that it became necessary to assess quantum, it was accepted by Mr Huggins that the plaintiff’s disavowal of the ‘loss of the chance’ argument greatly simplified matters, and that for this purpose the court could work on the basis of ‘Method 2’ within Section D of the plaintiff’s Schedule of Damages [at Exhibit P1], the calculations therein producing a figure, before interest, of HK$8,913,837.40, and that interest thereon, if relevant, should run from the date of the writ, 21 July 2000, at the rate of 1% over US dollar prime.

70. It followed, therefore, that if and in so far as it became necessary to fix upon a quantum figure, that the foregoing would represent the agreed sum (or, more accurately, perhaps, the sum to which no objection would be taken), absent the need for further evidence on the point.

Factual determination : the telephone conversations of on or around 30 September 1997

71. Almost every case requires specific determination of some facts, and this is no exception, albeit in this instance the ambit of such factual dispute is within relatively small compass.

72. The central factual disagreement in this case goes to that which actually was said in the telephone call, or calls, between Mr Woo, the plaintiff, and Mr Wong, his then friend and broker, on 30 September 1997.

73. The plaintiff, Mr Woo, says that on 30 September 1997 he called his old friend David Wong at CEF Brokerage and asked if he would look for potential purchasers interested in buying China Telecom shares on Listing Day.  In that initial conversation Mr Wong had asked Mr Woo for the number of shares he was wishing to sell, and at what price, and Mr Woo had said words to the effect of 1 million shares at $20 per share.

74. Subsequently Mr Woo says that David Wong had called him back and informed him that he could only match, in total on two separate deals, some 400,000 shares at $20 per share.

75. However, Mr Woo further says that later that same day, 30 September 1997, David Wong had called him when Mr Woo was in the Pacific Place Mall, and that during that conversation he had asked Mr Woo if he would be willing to sell another 1 million shares at $19 per share.

76. Mr Woo said that at this juncture he had responded “yes”, and that both men then had uttered the hallowed phrase “Done deal”.

77. It was at that point that Mr Woo maintains that he believed that he had a binding agreement, achieved through Mr Wong, for the sale and purchase of these shares, which deal CEF Brokerage was bound to complete on opening day, and which including ‘crossing’ these trades on the Stock Exchange via the Automated Matching System or ‘AMS’.

78. In his evidence Mr Woo strongly denied that David Wong had given him a warning of any kind that CEF would not accept any risk of default, nor had he said that there would be no binding agreement unless the purchaser duly confirmed and executed the deal on Listing Day; nor, or that matter, had any other stockbroker – and he had been dealing with several within the context of the forthcoming China Telecom public issue – given him any such warning.

79. Mr Woo said that it was only as ‘opening day’ approached for the China Telecom listing that various brokerage executives, including David Wong, had indicated to him that some purchasers were going to walk away from and default upon their ‘grey market’ deals, and it was at this stage, therefore, that he had begun to take legal advice, and had begun the covert recording of telephone conversations, including those that he had had with David Wong.

80. Mr Woo left the court in no doubt but that he had been ready, willing and able to complete his ‘grey market’ trades on opening day, and that against his wishes (and contrary to his view of what was proper and correct in terms of binding obligation) David Wong – with whom sadly he now had broken off his long friendship – and CEF had completed only on 420,000 shares, and that this was solely by reason of the refusal of CEF personally to underwrite all the deals which had been struck when the erstwhile purchasers had refused to complete the transactions in question.

81. For his part, Mr David Wong said that he had been a stockbroker for only about 21 months, and had done only about 5 ‘grey market’ deals before the China Telecom issue.

82. His version of events was that Mr Woo, whom he had known and with whom he had been friends since their schooldays, had telephoned him at the end of September 1997 and had requested that he look for potential purchasers of China Telecom shares. 

83. During that conversation Mr Wong said that he had told Lawrence Woo that he would conduct a “sounding out exercise” on a “best efforts” basis, and that this could amount to no more than “mere talking” at this stage.  Mr Wong further said that he had reminded Mr Woo that CEF as a brokerage would not recognize any ‘grey market’ trades unless such trades were recorded on ‘Listing Day’.

84. Mr Wong said that a few days later, in early October, he had reported to Lawrence Woo that there was sufficient buying interest for 1 million China Telecom shares at HK$19 and for 400,000 at HK$20 per share.  Mr Wong added that he had stopped accepting ‘sale requests’ from Mr Woo at this stage because that which was in place already exceeded the defendant brokerage credit limit of HK$25 million which was available to Mr Woo, and at this point, in what was a then rising market, he was more concerned with the seller’s potential ability to complete.  He says again that he specifically reminded Mr Woo that these arrangements were no more than “mere talking” (口噏噏) or, in transliterated terms, “hau ngap ngap”.

85. This then, is the ambit of the disagreement about the sequence and content of the telephone conversations between these two men.

86. Thereafter, the story once more attains common ground.  Mr Wong says that in mid-October 1997, in the wake of the burgeoning Asian financial crisis, the market turned, and prices began to collapse; in this context the forthcoming China Telecom float was a conspicuous victim.

87. Mr Wong related that in the circumstances then prevailing the Managing Director of the defendant, CEF, had instructed all brokerage staff that specific approval from him was required before any ‘grey market’ trades were to be ‘crossed’ through the market by CEF, and, further, that all sales staff and directors handling such trades were to be held individually liable by CEF in the event of default by customers – a directive that Mr Wong said was an entirely new policy for CEF solely resulting from the contemporary collapse in the China Telecom ‘grey market’ prices.

88. Mr Wong said that during the run-up to ‘opening day’ for the China Telecom listing that his brokerage had contacted potential purchasers to see if they were willing to honour the ‘grey market’ positions they had taken, and that the result of his inquiries/efforts in this regard was that eventually he was able to confirm the purchase from Lawrence Woo of 420,000 China Telecom shares only at HK$19 per share, an outcome with which, he says, Lawrence Woo earlier had indicated that he would be content.

89. During his evidence about the reaction to the sharply-dropping ‘grey market’ in China Telecom, Mr Wong also said that within the defendant brokerage that potential buyers and sellers had been “pooled”, and that on ‘opening day’ those trades in China Telecom as did go through were allocated to his customers at his discretion, in a manner akin to a ‘placement’ exercise; however, as earlier observed, no case on breach of fiduciary duty is mounted by the plaintiff by reason of such exercise, Mr Westbrook expressly having disavowed any argument that, for example, Mr Wong should have allocated to Mr Woo a greater proportion of the entire tranche of 700,000 shares that BNP then was willing to take up.

90. From discovery on the part of the defendant immediately pre-trial it appears that of the actual trades done by CEF on ‘opening day’ that the 420,000 share sale which went through on behalf of Lawrence Woo formed part of a larger ‘buy’ order of 700,000 shares which then was being honoured by BNP.

91. Mr Wong further said in cross examination that he had destroyed all his contemporaneous rough notes relating to the transactions with Lawrence Woo because no immediate formal complaint had been lodged, and that, so far as he was concerned, Lawrence Woo, subsequently the only one of his clients to complain, had told him that he was “happy” with the result achieved for him by David Wong.

Factual determination

92. There is something strikingly artificial in the court attempting to make a finding of fact relating to undocumented broker/client telephone calls of almost a decade ago, not least because, in the fetid ‘bull market’ atmosphere of late September/early October 1997, the overwhelming probability is that the telephone conversations in question – now so carefully isolated, dissected and purportedly recalled for the purpose of this litigation – were part and parcel of tens, perhaps even hundreds, of daily calls which I surmise were made both by Mr Woo and by Mr Wong during the hectic ‘grey market’ trading days of that particular pre-listing period.

93. Nor is this process assisted by the fact that both witnesses of fact made a not-unfavourable impression upon the court, and I certainly did not form the view that either Mr Woo or Mr Wong was attempting positively to mislead, nor to do other than to attempt to recall that which had happened which, from a stock market trading perspective, had occurred several lifetimes ago.

94. Equally, however, it was very obvious to me that each of these gentlemen was acutely conscious of the relevance and effect of their evidence to the desired result of this case, and, as is not unusual in such cases, it struck me that in certain instances evidence of what should have been said may well have seamlessly ‘morphed’ into what must have been said, and thence to what positively was said.

95. Leading counsel on each side persuasively has pressed upon the court the obvious veracity of their respective witnesses. 

96. For his part Mr Huggins has stressed the potential pot of gold waiting for Mr Woo at the end of this litigation rainbow should his account be believed, suggesting strongly that financial motive within commercial litigation generally successfully overwhelms any innate instinct for veracity, and that it is incredible that Mr Woo could purport to recall events of 9 years ago with the sort of detail which did not even find its way into his pleadings. 

97. On the other hand Mr Westbrook has submitted that Mr Wong is not to be believed in his account of events, in particular in his assertions that he repeatedly had emphasized to Lawrence Woo that their conversations amounted to no more than “non binding expressions of interest” or “mere talking”, without any obligation on the part of CEF to complete these ‘grey market’ transactions unless there was confirmation of and acceptance by the “indicative prices” by the buyer on ‘opening day’; he further points out that in the 78 pages of tape transcript that have been placed before the court that not once does Mr Wong suggest to Mr Woo that which now is being suggested to the court on his behalf, and that throughout these transcripts Mr Wong’s tone is apologetic, in effect pleading with Mr Woo for understanding of CEF’s position.

98. At the end of the day the court has to grasp what is a very prickly nettle, and I confess that in the circumstances I have not found it an easy task.  I should say, also, that I have not been greatly assisted in my conclusions by the content of the tape transcripts; whilst perhaps of some use in terms of their overall tenor, save and except when something is said in express terms, I have an instinctive resistance to according particular weight to inferences sought to be drawn by the plaintiff from covert tape recordings wherein the recording process was known to the plaintiff only.

99. In the event, having had the opportunity to see and hear the witnesses, and having reflected for some time upon the evidence and – not least – upon that which I perceive to be the commercial probabilities arising in the overtly ‘bullish’ market atmosphere prior to the market ‘turn’, and the consequent marked reversal of investor sentiment, I have concluded that the sequence of events in terms of the timing of the telephone calls at the end of September 1997 in all probability took place as the plaintiff, Lawrence Woo, has recounted.

100. It strikes me as difficult, if not impossible, to divine exactly what was said, in terms of the precise words used, between the two men at the time – whether, for example, the term ‘done deal’ featured as prominently, or indeed at all, as Mr Woo now insists, is moot, or indeed whether the term “hau ngap ngap” was used by either, and I cannot fairly do so.  However, I have no difficulty in believing, and I so find, that the overwhelming probability is that conversations of this nature between these two men, who at the time knew each other well both personally and professionally, must have been couched in the normal broker/client argot customarily in use between them, absent the necessity for the relatively formal recitation of warnings/qualifications which Mr Wong now insists that he gave.

101. Equally, whatever form of words in fact was used, there is no doubt in my mind, and I so find, that whilst agreement was reached between these two gentlemen as to numbers and price per share of the China Telecom shares at issue, by the same token I do not believe that at that time it would have crossed (or indeed did cross) the mind either of Mr Woo or of his friend Mr Wong that the conversations between them, without more, could or would constitute a contractual obligation potentially binding on the defendant brokerage in the event of default, and enforceable at the behest of Mr Woo, wherein such obligation was to crystallize with the brokerage having to ‘cross’ these ‘grey market’ transactions on the opening day of the listing; whilst I tend to doubt that the words “mere talk” (“hau ngap ngap”) actually were said, I take the view that this sentiment is precisely what both parties would have thought of the point had it then been canvassed.  And certainly (and for the avoidance of doubt) I reject any contention to the effect that in this telephone conversations Mr Wong accepted, or otherwise indicated approval of, the concept of the brokerage’s personal liability in the event of any default in the ‘grey market’ trades which Mr Woo then was instructing Mr Wong to enter upon his behalf.

102. In reaching this conclusion, however, and in broadly preferring the recollection of Mr Woo to that of Mr Wong, I do not say that I am imputing to the latter gentleman any specific intention to mislead; to the contrary, faced with a situation of a telephone call which occurred many years ago, I simply take the view that in the circumstances it is more likely than not that Mr Woo’s evidence on the issue is broadly the more accurate, and I so find.

103. I would also add that I have come to this conclusion notwithstanding my further view that Mr Woo was at the very least disingenuous when, in being cross-examined upon a collateral matter relating to an incident involving mutual friend, one Victor Tung – whom, it seems, had not honoured earlier ‘grey market’ dealings with Mr Wong/CEF – Mr Woo disavowed any knowledge of this particular incident, nor of the fact that when Mr Wong had asked him for help in sorting out the matter (since it had been Mr Woo himself who had introduced Mr Fung, his friend, to Mr Wong), that Mr Woo himself had dismissively categorized such ‘grey market’ trading as “hau ngap ngap”, and, as such, non-binding.

104. The result of preferring Mr Woo’s denial of the existence of warnings being given in his telephonic exchanges with Mr Wong is that this case is unable to be decided on its facts alone – as would have been the situation if and in so far as the court had concluded, on the facts, that the Woo/Wong exchanges as to the relevant ‘grey market’ deals in China Telecom were girt about with the potentially exculpatory warnings and qualifications which, Mr Wong now suggests, were understood and accepted by Mr Woo – and thus it is necessary to move to the second stage, wherein consideration is required of the arguments put forward by the plaintiff in terms of that which earlier I have described (at paragraph 43 herein) as the issue of underlying principle raised in this case.

105. In other words, having accepted that CEF was instructed, through Mr David Wong, to enter into ‘grey market’ contracts on behalf of the plaintiff, the question is whether this provides any basis for asserting that CEF had personal liability thereunder in the event of counterparty default.

The legal obligation to cross on ‘opening day’?

106. In answer to this issue the plaintiff’s position is clear : on Mr Woo’s behalf Mr Westbrook says, in terms, that the defendant brokerage’s obligation to cross the ‘grey market’ trades on opening day constituted the “critical obligation” which triggers the personal liability of the stockbroker, “without which the plaintiff cannot get home in this case.”

107. Is this contention correct as to the obligation of the broker in such circumstances?  If not, as Mr Westbrook has accepted, the plaintiff’s case, as run at this trial, must fall.

108. As a matter of principle, an agent is not normally liable upon contracts entered into by principals through him : see, for example, The “Santa Carina” [1977] 1 Lloyd’s Rep 478 (CA).  See also Wilson v. Avec Audio Visual Equipment Ltd [1974] 1 Lloyd’s Rep 81, at 83, wherein Edmund Davies LJ (as he then was) observed :

“It requires clear and precise evidence of a very special relationship before an agent can be rendered personally liable in respect of a contract entered into on behalf of his principal.”

109. The juridical basis for saying that the defendant brokerage, CEF, ultimately incurred personal liability in the situation revealed on these facts is, if I may say so, less than obvious; as Mr Huggins commented, the bald assertion, without more, that there is a ‘duty to cross’ does not take the analysis very far, and it is common ground that once a trade actually is ‘crossed’ on listing day, the broker then becomes personally liable under the existing rules of the Stock Exchange even if the counterparty defaults.

110. Nor, as earlier observed, is it presently contended that trading in ‘to-be-listed’ securities on the ‘grey market’ on behalf a client transmutes into personal liability on the part of the broker agent by reason of any express rule to that effect, or by reason of prevailing custom or practice within the brokerage industry in Hong Kong, whilst I have also found, as a fact, that there was no acceptance of putative personal liability on the part of the broker by reason of the content of the telephone conversations between Mr Woo and Mr Wong.  Nor is any breach of fiduciary duty arising out of the agency alleged, and in any event, absent any independent source (for example, in contract) sounding to personal liability, mere invocation of the concept of fiduciary duty seems to me to add nothing; unless as a matter of law personal liability is incurred by the agent, merely to assert the existence of any agent’s fiduciary duty not to act other than in the best interests of his principal takes the argument no further.

111. Against this somewhat unpromising backdrop, therefore, Mr Westbrook is obliged to rely upon the fact that Clauses 1 and 6 of the Client Agreement entered into between Mr Woo and CEF refer to, and “import”, the Rules of the Stock Exchange.

112. Mr Westbrook submits that it is a fundamental part of the plaintiff’s case that he was dealing with, and through, a stockbroker, and hence that the rules of the Hong Kong Stock Exchange and the Regulations and Codes of Conduct of the Securities and Futures Commission apply to the contract, “with such modifications as are required to reflect the fact that completion was necessarily to be delayed until Opening Day.”

113. He noted the terms of the Client Agreement entered into between the plaintiff and CEF, in particular clause 6 thereof ,which provides :

“All transactions in Investments made for or on my behalf in Hong Kong shall be subject to the relevant provisions of the constitution, Rules, regulations, bye-laws, customs and usages of The Stock Exchange of Hong Kong Limited (“the Exchange”) and the Hong Kong Securities Clearing Company Limited (“HKSCC”) and of the Laws of Hong Kong as amended from time to time.  The Rules of the Exchange and HKSCC, in particular those rules which relate to trading and settlement, shall be binding on both yourself and myself in respect of transactions concluded on my instructions…”

114. It is not disputed, said Mr Westbrook, that ‘grey market’ trades fall within the definition of ‘Investments’, as found on the opening page of the Client Agreement, whilst he noted, further, that ‘grey market’ trading clearly is within the definition of “securities” and “dealing in securities” within the Securities Ordinance, Cap 333, which then was in force.

115. Against this background the Mr Westbrook contended that clause 6 of the Client Agreement necessarily “imported” into the contractual relationship between client/broker the Stock Exchange requirement, pursuant to Rules 526 and 544, that on listing day, that the defendant broker was obliged to cross all ‘grey market’ trades on the market – and thus, Mr Westbrook contended, triggered a corresponding obligation to make good any default by buyer or seller, as the case may be.

116. This argument is ingenious and was persuasively mounted, but, with respect, I doubt that that the conclusion thus sought to be drawn is correct, nor am I convinced that the Rules invoked in aid of the argument enable Mr Westbrook to reach the position that he wishes now to reach in order to get home in this case.  In my judgment, it is tolerably clear that that which Clause 6 of the Client Agreement does not do is to modify the wording of the Rules so that a rule which otherwise on its terms does not apply to a particular transaction somehow becomes implicitly modified and applicable.

117. Rule 526 of the Stock Exchange Rules (1997 edition) deals with the rules relating to ‘direct business transactions’ – defined as business transacted by a member of the exchange who acts both for buyer and seller, whether as principal or agent – and, in particular, when details of such transactions are to be input into the Automatic Matching System installed and operated by the Exchange for securities trading.

118. Rule 544, entitled ‘Transactions Not Recognised’, has as its focus the point at which the Exchange will recognize securities transactions conducted on the Exchange. 

119. It lays down, at subrule 544(1), that the Exchange will only recognize “those transactions which are duly recorded or concluded through the System within the trading hours stipulated” in the rules, whilst 544(2) requires that, save for direct business transactions, that “members shall cause transactions in securities listed on the Exchange…to be input into the System at the earliest opportunity” and that any transactions not so recorded “shall not be recognized”.

120. Subrule 544(3) is significant in the present context.  It provides that “Any transaction relating to any dealing in any securities the subject matter of a new issue…shall not be recognized until such securities have been granted a listing by the Exchange”, whilst 544(4) states that “The Exchange will not entertain disputes between Members…in connection with or arising from any transactions that are not recognized.”

121. With respect, I am unable to read into Rule 544, in particular subrule 544(2), whether taken in conjunction with Rule 526 or on its own, the requirement that a transaction in securities not so listed on the Exchange at the time of such transaction, albeit ‘to-be-listed’, must be input into the System, that is, ‘crossed’ by the broker at the earliest opportunity. 

122. To the contrary.  It seems to me that all that this particular rule is doing, and all that it seeks to do, is to delimit the precise moment when the Exchange assumes a regulatory jurisdiction, whereby it will entertain disputes which have arisen between Members in relation to such ‘crossed’ transactions in listed shares.

123. However, what this rule does not achieve, in my view, is to impose upon a Member who has engaged in a ‘grey market’ transaction in a then-unlisted security the personal obligation subsequently to input that transaction into the System upon that security formally being listed, and thereby to ‘cross’ it on the market, notwithstanding that that by that stage the Member well knows that the trade in question will be dishonoured.

124. Mr Westbrook suggests that these Rules are not to be approached as if they were legislation, and accordingly that a “more liberal” construction is required.  I can appreciate why he says this, but I do not think that these Rules are susceptible to such a strained interpretation. 

125. That Mr Westbrook may be correct in further suggesting that in terms of ‘grey market’ trading there effectively exists “a legislative and regulatory black hole” also is nothing to the immediate point.  It might be thought that the authorities seized with overseeing the operation of our share market should enact rules relating specifically relating to the “when issued” market, but the fact remains that thus far they pointedly have not chosen to do so, and I do not regard it as the function of the Commercial Court to purport to fill any such legislative lacuna because in the circumstances of any particular case the court might take the view that justice in any particular case might be served in so doing.

126. Although far from conclusive on the point, I further note that such information as has been publicly promulgated by the Stock Exchange tends to suggest that in the view of the Exchange the Rules of the Exchange have no applicability to ‘grey market’ trading.  In this connection the website of the Exchange expressly states (at Q&A 34 in ‘Frequently Asked Questions’) :

“Investors should note that the legal enforceability of a grey market trade comes merely from the agreement between the parties.  They are advised to seek legal opinion in advance to understand fully their rights and obligations.”

127. As Mr Huggins observed, this does not sit comfortably with the suggestion as now is advanced that the Stock Exchange Rules import a general and overriding legal duty to cross ‘grey market’ trades or the Exchange on ‘opening day’, and thus incur personal liability upon the particular brokerage.

128. Accordingly, at the end of the day (and after some reflection), I reject the fundamental premise upon which the present case as to liability is based, and I do not conclude, on the particular facts as found by this court, that David Wong/CEF Brokerage Ltd was under any obligation to execute the ‘grey market’ sales agreed by Mr Woo, its client, by subsequently ‘crossing’ the full 1.4 million China Telecom shares on the first day of listing, that is, 23 October 1997.

129. True it is that, of the anticipated 1.4 million shares, 420,000 shares were so ‘crossed’ by this brokerage at the behest of David Wong, whom, it seems to me, in the difficult and wholly unanticipated circumstances then prevailing, had gone out of his way to try and secure the best result for his old friend, Lawrence Woo; in this regard the evidence is that, as per the instructions of his Managing Director, David Wong personally had countersigned the relevant slip, so that if (which in fact did not occur) the particular counterparty had not honoured the trade in 700,00 such shares (of which the 420,000 represented a designated tranche) Mr Wong personally would have had to have underwritten the entire transaction.

130. Clearly, however, the fact that indeed some 420,000 shares successfully went through does not, in itself serve to constitute the plaintiff’s case, nor does it exemplify or establish the proposition as to the defendant’s personal obligation to ‘cross’ the complete 1.4 million shares, such as now is advanced on the plaintiff’s behalf.

131. I agree with the submission of Mr Huggins that, were this to be the legal position, all brokers who participate in ‘grey market’ transactions would be regarded as ‘on the hook’, and thus personally bound to remedy any counterparty default from the moment that any such ‘grey market’ deal purportedly is done, which effectively would mean that the brokerage industry (no doubt unwittingly) would be underwriting millions of dollars in ‘grey market’ trades, and thus would be assuming personal liability for any subsequent default, in instances in which any such default may not occur for days, or perhaps even weeks, from the date of the ‘grey market’ trade in question.  I further accept the proposition that, if the plaintiff now were held to be correct, such brokerages would appear so to have acted without (as the instant case exemplifies) having obtained any security prior to the entry into such ‘grey market’ trades – an eventuality which moved Mr Huggins rhetorically to ponder how such a conclusion appropriately would ‘fit’ within the requirements of the Financial Resources Rules, as imposed by legislation upon brokerages which trade in our markets, which Rules are strictly enforced by the Securities and Futures Commission.

132. It follows that I have come to the view that the plaintiff’s thesis relating to the broker’s implicit underlying obligation to cross, and thus the consequent incursion of personal liability on the part of that broker – a thesis which in terms did not see the light of day either in the pre-litigation solicitors’ correspondence or (save by generous implication) within the existing pleadings – has emerged during the course of this case; more accurately, perhaps, the germ thereof first saw the light of day at the beginning of the previous trial, in HCCL 38 of 2004, albeit this earlier dispute was settled before the full implications of the proposition were argued out, as now they have been in the present case.

133. Nor do I find persuasive the argument, adumbrated by Mr Woo in his evidence in response to a question in cross-examination, and adopted in submission, to the effect that if he were not to be correct in his contention as to the legally binding nature of ‘grey market’ transactions, and the obligation thereby imposed upon participating brokers, that it would make “no commercial sense” for anyone to trade on the ‘grey market’ in the manner as now so obviously occurs.

134. Whilst forensically attractive, I do not consider that argument founded upon the concept of that which is perceived as ‘commercial sense’ inevitably is reflective of underlying legal obligation. 

135. The short point is that, as a matter of fact, some ‘grey market’ transactions are honoured and some are not, but that some deals go through successfully in my view does not, and cannot, mean that this represents acceptance by any particular broker of a legal obligation to honour the trade ‘come what may’. 

136. It is obviously fair comment that different people may have differing perceptions as to the obligations arising from such trading, and equally clearly, in any given instance much depends upon what is, or is not, specifically agreed/said between broker and client; there is, it must be recognised, a far greater risk of default in instances of ‘grey market’ trades wherein bargains relating to the to-be-issued share are struck days, or perhaps even weeks, in advance of ‘opening day’. 

137. As earlier observed, the fact that in many instances (as, indeed, with the transaction in the 420,000 China Telecom shares as was honoured in the instant case) specific deals do indeed go through successfully is not indicative per se of the legal obligation so to complete.  It may, for example, be indicative of punters not wishing to be seen to compromise their trading reputation, lest they be denied future opportunities to trade in the ‘grey market’; alternatively, it may be the case (as, I suspect, may have been the situation in terms of the 700,000 shares which on the instant facts were taken by BNP at HK$19 per share) that a seeming ‘loser’ on one ‘grey market’ transaction may in fact be a net ‘winner’ if account is taken of other transactions completed by the same player, perhaps through another broker or brokers.

138. Accordingly, the short point requiring emphasis is that in this area specific instances are not to be regarded as probative or otherwise indicative of an immutable underlying principle; as a matter of practical politics there may be differing and perfectly valid explanations for any particular course of conduct.

139. On the facts of the present case, therefore, I have concluded that there is no liability to the plaintiff on the part of the defendant broker.  I have arrived at this view because, in the absence of an express Stock Exchange rule binding upon brokers which imposes personal liability upon such broker in instances of ‘grey market’ trading (and there is none), and in the absence of any agreement by the broker with its client in any particular instance of ‘grey market’ trading as to assumption on the part of the broker of contingent personal liability (and there is none), and in the yet further absence of any evidence of market practice or convention governing personal liability of the broker in instances of ‘grey market’ trading (and there is none), it seems to me that no proper analytical basis exists to underpin the plaintiff’s contention regarding the alleged personal liability of the defendant brokerage in this case.

140. If this be correct, it follows that, on these particular facts, the plaintiff’s case must fail, and I so hold.

141. In so holding, I naturally do not purport to make any general findings as to the enforceability of all ‘grey market’ trades, and I have attempted solely to base my decision on that which I consider represents the correct response to the particular arguments mounted within the present factual matrix.

142. Should I be wrong in the conclusion I have reached, however, I now move to a discrete legal argument mounted by the defendant which, it further is said, is sufficient in itself to negate any finding of personal liability against the brokerage in the present case.

The ‘section 76’ argument

143. The defendant brokerage says that, by virtue of the operation of the then existing section 76(1)(b) of the Securities Ordinance, Cap 333, the trading in the ‘grey market’ of China Telecom securities fell foul of, and is prohibited by this legislation, and that by virtue of section 76(4), a contract entered into in contravention of section 76(1) shall not be enforceable by, inter alia, the other contracting party.

144. Section 76 of the Securities Ordinance, as it then existed, provided :

“(1)      Except as provided in regulations, a dealer (including an exempt dealer) shall not transact in Hong Kong, or hold himself out as being prepared to transact in Hong Kong –

(a)        any dealing whereby the dealer confers on any person an option to purchase from or sell to the dealer any securities listed on the Unified Exchange; or

(b)       any dealing in any such securities which is completed later than the end of the next trading day after the dealing was entered into.

(2)       Any dealer who contravenes subsection (1) shall, subject to subsection (3), be guilty of an offence and shall be liable on conviction to a fine of $5000.

(3)        It shall be a defence to any criminal proceedings brought under subsection (2) in respect of a dealing mentioned in paragraph (b) of subsidiary (1) for the accused to prove that he took all reasonable and practicable steps to secure completion of the transaction within the period permitted by that paragraph.

(4)       A contract entered into in contravention of subsection (1) shall not be enforceable by either the dealer or the other contracting party.”

145. Mr Huggins further points out that, in relation to “dealing in securities”, section 2(1) provided :

“dealing in securities, in relation to any person (whether acting as principal or agent), subject to section 3(1), means making or offering to make an agreement with any person, or inducing or attempting to induce any other person to enter into or offer to enter into any agreement –

(a)   for or with a view to acquiring, disposing of, subscribing for or underwriting securities:

(b)   the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of the securities.”

whilst section 2(2) further provided, in relation to the meaning of “securities”, that :

“(2)    In this Ordinance a reference to securities of a corporation is a reference to securities –

(a)   issued, made available, or granted by the corporation;

(b)   proposed to be issued, made available, or granted by the corporation;

(c)   proposed to be issued, made available, or granted by the corporation when it is formed.”

and, in relation to the word “listed”, section 2(3) also provided :

“(3)   In this Ordinance a security is regarded as listed on the Unified Exchange when the Exchange has, on the application of the company which issued the security, or on the application of any holder of the security, agreed to allow, subject to the requirements of the Ordinance, dealings in that security to take place on the Unified Exchange.”

146. Against this statutory backdrop, Mr Huggins argued that, on the facts of the plaintiff’s present case, the prohibition within section 76(1)(b) plainly applied, and hence, pursuant to section 76(4), any contract was unenforceable. 

147. His argument proceeded thus :

a.       there was here a dealing in securities because, on the plaintiff’s case, CEF, acting as agent, made an agreement with the purchaser; similarly, CEF, acting has agent, had made an agreement with the plaintiff as seller;

b.       this agreement was for, or with a view to, acquiring securities (on the part of the purchaser) and disposing of such securities (on the part of the seller);

c.       the purpose of the agreement was to secure a profit to the purchaser or to the plaintiff as seller, as the case may be, by reference to fluctuations in the value of such securities;

d.       the dealing was a dealing in listed securities because the agreement was made for, or with a view to, acquiring and disposing of listed securities, being China Telecom shares after they could be traded on the Exchange; and

e.       the dealing was entered into on 30 September 1997, whilst the next trading day was 6 October 1997; however, on the facts, the dealing in the present case was not to be completed until 27 October 1997, which plainly was later than the next trading day after the dealing was entered into.

148. I do not consider that this discrete ‘section 76’ argument succeeds.

149. The very short point upon which I decide this issue is that in my view section 76 does not sound to a dealing in unlisted, as opposed to listed, securities, and in the present case of China Telecom shares there is no question but that there was no such ‘listing’ until 23 October 1997, well after the so-called ‘dealing date’ in question in this case, which was 30 September 1997.

150. Nor do I consider that the fact that these China Telecom shares were ‘soon-to-be-listed’ securities affects the analysis; this listing could have come off – indeed it may well have come close to being pulled by the underwriters given the rapid onset of the ‘Asian financial crisis’ – and it seems to me that until such listing on the Main Board in fact takes place, the trading in the ‘grey market’ of the China Telecom shares simply does not fall within the ‘listed’ rubric required for section 76 to ‘bite’.

151. I therefore reject this argument on this basis alone, and in so doing echo the like point which was made by Mr Westbrook in trial submission.

152. If, as I believe it to be, it is correct to say that in the particular circumstances section 76 is not engaged, this view is consistent with the defendant’s alternative argument, which I accept, to the effect that ‘grey market’ trading in unlisted securities is not the same as, and for all purposes is not to be equated with, the normal (and regulated) trading on the Exchange in listed securities.

153. In arriving at this conclusion I should add that I have not been greatly assisted by two decisions which have been referred to during the course of this argument : first, the decision of Waung J in Tullett &Tokyo International Securities Co. Ltd v. APC, unreported, HCA 12467 of 1997, judgment dated 27 April 2000 (wherein the learned judge appears to have rejected the point taken on section 76(1)(b) principally on the ground that the plaintiff in Tullett had the benefit of the professional exemption in terms of trading as principal provided for in section 3(1) of the Securities Ordinance); and second, by an earlier decision of this court in IBI Asia (Securities) Limited v. Bank of Credit and Commerce Hong Kong Limited (in liquidation), unreported, HCCL 249 of 1995, judgment dated 15 September 1999, wherein the securities in question in fact were listed, but were suspended at the material time.

Decision

154. It follows from the foregoing that although the defendant fails in its ‘section 76’ submission, nevertheless it prevails against the plaintiff in terms of the plaintiff’s case as founded upon the implied obligation of the defendant subsequently formally to ‘cross’, on the first day of listing, the relevant ‘grey market’ trades as struck by the brokerage as agent for and on behalf of the plaintiff.

155. The fact that, on the basis of the case as now mounted against this defendant, this court has held that the plaintiff does not succeed against the defendant brokerage does not mean, however, that conceptually the plaintiff is left without recourse.

156. Not only would he have an action in contract against the defaulting counterparty, but it seems to me that an investor in a situation such as the plaintiff may in appropriate circumstances also have a remedy against a brokerage for failing adequately to document the ‘grey market’ trades in question, thus leading to the argument that by reason of such negligence/contractual breach, the actions of the brokerage have resulted in loss of the chance successfully to pursue the defaulting counterparty for breach of any such ‘grey market’ bargain.

157. Whether on the present facts either course is, or was, open to this plaintiff is not for me to speculate; suffice it to say that, on the basis of the present case advanced by this plaintiff against this defendant, in my view, for the reasons given herein, the plaintiff does not succeed.

158. Accordingly, the plaintiff’s action against the defendant is dismissed, and I so order. 

159. As to costs, I make an order nisi that the costs of this action are to follow the event, such costs to be taxed if not agreed.

160. I further make an order that the reserved costs referable to the defendant’s specific discovery application, which was mounted very shortly before trial and which was dismissed by this court, are to be to the plaintiff, to be taxed if not agreed.

161. I thank counsel for their assistance.

Mr Simon Westbrook SC, leading Mr Kevin Patterson, instructed by Messrs Kenneth Sit, for the plaintiff

Mr Adrian Huggins SC, leading Mr Godfrey Lam, instructed by Messrs Woo, Kwan, Lee & Lo, for the defendant

Appeal dismissed: see CACV148/2007 ated 19 March 2008