CARGO CHANNEL SERVICES LTD (IN LIQUIDATION) v. HANJIN SHIPPING CO LTD

HCA 1919/2016

[2019] HKCFI 127

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1919 OF 2016

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J U D G M E N T

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1.  This is an appeal from a decision of Master J Wong dated 31 August 2018 dismissing the plaintiff’s application by summons dated 10 August 2017 for a wasted costs order against Messrs Brenda Chark & Co. (“BCC”), the former solicitors of the defendant (“Hanjin”). The plaintiff (“Cargo Channel”) made the claim on the ground that BCC did not have authority to act for Hanjin from 1 September 2016 onwards. I conducted the appeal by way of re-hearing.

The facts

2.  Ms Chark of BCC made a 3^rd affirmation to oppose the application.  Cargo Channel disputed many facts as put forward by Ms Chark in her affirmation.  But Cargo Channel did not want to cross-examine Ms Chark.  Hence, the facts contained in Ms Chark’s 3^rd affirmation are unchallenged.  I accept the facts as tendered by Ms Chark unless such facts are on incredible and unbelievable either on their own or when viewed against the prevailing circumstances and/or contemporaneous documents.

3.  BCC represented Hanjin in the defence of a claim brought by Cargo Channel.  Cargo Channel was wound up on 28 July 2016.  Its liquidator claimed Hanjin a sum of HK$1,083,963 for services of carriage of containers.  The claim was intimated initially by a demand letter dated 10 June 2016 from its solicitors, Hong Lee & Co (“HLC”) (VIII-1). 

4.  Hanjin then through its Manager of the Operation Department Mr Ng Hang Ching, Edgar instructed BCC on 29 June 2016 to dispute the claim (II-111, §9 of Chark’s 3^rd affirmation).

5.  BCC did so by a letter dated 27 July to HLC setting out the grounds of the dispute (VIII-1).  The grounds are that the party to whom the claim should be addressed to was Hanjin China which had entered into the relevant contract with Cargo Channel for the services of carriage of containers.  Hanjin China also had a counterclaim against Cargo Channel. 

6.  However, Cargo Channel had already issued a writ endorsed with a statement of claim against Hanjin on 23 July 2016 (I-1) and served it on Hanjin (II-112, §13 of Chark’s 3^rd affirmation).  BCC then took instructions from Hanjin and served a sanction offer dated 3 August on HLC saying that if Cargo Channel should withdraw the claim within 28 days, Hanjin would not seek costs against it (VIII-5).  BCC also wrote HLC on 4 August advising that BCC had filed an acknowledgement of service for Hanjin on 3 August and threatened Cargo Channel with security for costs (VIII-8).  HLC for Cargo Channel replied and disputed the demand for security for costs on 10 August 2016 (VIII-10). 

7.  BCC issued a summons for security for costs on 2 September 2016 (I-37).  The summons was supported by an affirmation of Mr Ng Hang Ching made on 1 September (II-73).  Mr Ng set forth in his affirmation the same grounds of defence that had been conveyed by BCC to HLC previously.  The summons and affirmation were served on HLC on 2 August (VIII-16).  The parties continued to correspond on the logistics for hearing the summons. 

8.  BCC filed a defence for Hanjin on 10 November 2016 (I-12).  There was no signature of BCC at the bottom of the defence (I-17).  The statement of truth was signed by BCC (I-17) as BCC at that time regarded that it was proper for them to sign the statement for Hanjin under O 41A r 3 of the RHC.  HLC issued a summons on 14 November to strike out this defence on the ground that the statement of truth was not signed by a person holding a senior position in Hanjin as required by O 41A r 3(2) of the RHC.  This summons was adjourned for argument with 1 hour reserved.  It was later argued and disposed of on 23 February 2017 (I-42).

9.  In the meantime, BCC and HLC agreed that BCC could refile and re-serve a fresh defence with its signature at the bottom.  That was without prejudice to HLC’s summons to strike out which was adjourned for argument on 23 February 2017.  Master S Lo on 25 November acceded to their consent summons, struck out the defence and gave leave to Hanjin to re-file and re-serve an identical defence but with the signature of BCC at the bottom of the document (I-34).  BCC then re-file and re-serve the defence with a signature at the bottom of the document (I-23). The statement of truth was still signed by BCC (I-25) because BCC took the view that this was in line with O 41A r 3 of the RHC.

10.  The parties continued to correspond on the logistics for the hearing of BCC’s summons for security for costs and HLC’s summons to strike out.  There was no question about BCC’s authority to act for Hanjin.

11.  However, HLC on 21 December 2016 wrote to BCC and advised that there were reports saying that Hanjin had filed for receivership in South Korea, its place of incorporation.  HLC asked BCC for information on who was then in charge of Hanjin and who was in a position to properly and validly give instructions to BCC for the conduct of the defence. One of the reports furnished by HLC to BCC was made by South African attorneys Messrs. Shepstone & Wylie.  It stated:

“The receiver appointed by the Korean court is the company’s CEO, Mr Tae Su Seok. In essence, the order provides for a stay of proceedings (whether already commenced or contemplated) against the company until at least 25 November 2016. 25 November is the deadline for the submission of a draft rehabilitation plan for the company. In the meantime, the company will continue to operate under the auspices of its current management team.” (VIII-54)

12.  As shown in a notarized copy of a decision dated 17 February 2017 of the Bankruptcy Court of Seoul, which declared Hanjin bankrupt and appointed a lawyer Mr Jin Han Kim as the trustee for Hanjin, and its English translation (“the Bankruptcy Decision”) which were disclosed by BCC to HLC on 5 April 2017, Hanjin had in fact applied for commencement of certain rehabilitation proceedings on 31 August 2016 because it had reached financial default due to serious lack of liquidity.  The Seoul Bankruptcy Court rendered the commencement order on 1 September 2016 (VIII-131 and 132).  Mr Seok (or Suk) seemed to have been appointed by the court as the legal administrator. Whether the appointment of Mr Suk is similar to an appointment of a receiver in Hong Kong is unknown.  So far, nobody has produced any evidence of Korean law to explain the nature of such order.

13.  However, from the report of Shepstone & Wylie (if it is accurate), the receiver appointed by the Rehabilitation Order of the South Korean Court appears to be a receiver and manager rather than a receiver.  I refer to Company Law in Hong Kong (Insolvency) 2019, Sweet & Maxwell at §11.001:

“A receiver is a person who is appointed to collect, protect and receive property and income from property. Receivers are generally concerned with debt enforcement. …

A receiver is distinct from a manager. A receiver does not manage the property “in the sense of buying or selling or anything of that kind”. If it is desired to continue the trade at all, it is necessary to appoint a manager, or a receiver and manager as it is generally called, who can buy and sell and carry on the trade. The appointment of a receiver as distinguished from a receiver and manager does not confer any power to carry on the business of the company. The receiver merely takes the income, and pays necessary outgoings, and the manager carries on the trade or business.”

14.  BCC replied to HLC on 10 January 2017 saying, among other matters:

“We have been receiving instructions from our clients.” (VIII-58)

15.  BCC’s summons for security for costs was heard on 13 January 2017.  Ms Chark of BCC advised Master J Wong at the hearing on her authority to act for Hanjin as follows:

“Ms Chark: …

And the second point the plaintiff took on is a very serious allegation of lack of authorities. The plaintiff relied on the press report about the defendants in receivership. As of today there is no record of the defendant filing any notice of ceasing to act or appointment of liquidation, nothing. It is not to my role to give evidence, but on 2 December I went to meet – to the principal place of business of the defendant in Hong Kong and meet with the authorised representative and the general manager as of …

Court: Well, technically speaking I should not consider all this because these are not affidavit evidence.

Ms Chark: Yes, I am grateful then because that’s a very serious allegation, but I have this correspondence with a whole list – this is privileged documents, but if the court requires to prove my authorities I have a whole list of my client’s in the mail list taking instructions. So this is a very serious allegation raised in the submissions.

Court: I will be dealing with the matter on the available evidence before this court, nothing more and nothing less.”
(IX-6 – 7)

16.  Master J Wong, after hearing submissions from both sides, allowed the application for security at HK$280,000 with costs to Hanjin assessed summarily at HK$67,200 (I-37).

17.  HLC then advised BCC on 13 February 2017 that news agencies reported that Hanjin was expected to be declared bankrupt by a South Korean court on 17 February 2017 (VIII-83). 

18.  There was a hearing on 17 February 2017 before Master J Wong in which HLC sought to strike out Hanjin’s defence on the ground that it had failed to pay two sums of costs at HK$4,000 and HK$800.  At the hearing, HLC also referred the master to press reports saying that Hanjin would be wound up.

19.  HLC advised BCC on 20 February 2017 that Hanjin was declared bankrupt on 17 February and that BCC should alert the court to this fact (VIII-92).  BCC replied on 21 February that they were taking instructions from Hanjin as to its trading status since 1 September 2016 to date.  BCC further said that if a winding up order had been made against Hanjin, then the hearing of the summons should be automatically stayed pursuant to s 186 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (“the Winding Up Ordinance”).  BCC further suggested to adjourn the hearing and enclosed a draft consent summons for such purpose (VIII-100). 

20.  HLC replied on 21 February that BCC had all along represented that they had authority to act for Hanjin which was in receivership since 31 August 2016 (should be 1 September).  It was then too late to vacate the hearing scheduled on 23 February and submissions of counsel for Cargo Channel had been served on 20 February (VIII-103).

21.  BCC then wrote on 22 February 2016 advising the clerk to Master J Wong that since HLC had at the hearing on 17 February 2017 referred to press reports saying that Hanjin would be wound up, BCC therefore took instructions from one Mr Kang Ho Jun, the authorized representative of Hanjin and one Mr Eric Chan, the Deputy General Manager of Hanjin on the matter.  Mr Kang was still verifying the matter with his colleagues at 21:50 hours on 21 February and 10:53 hours on 22 February.  BCC further advised the clerk to Master Wong that they had proposed to HLC to adjourn the hearing on 23 February, but HLC refused (VIII-104).  BCC also tried to confirm the status of Hanjin on 23 February with Mr Eric Chan, but Mr Chan was still unable to verify the same.

22.  At the hearing on 23 February, Master J Wong struck out the statement of truth signed by BCC verifying the truthfulness of Hanjin’s defence.  The master further ordered that unless Hanjin should file and serve a proper statement of truth in accordance with O 41A r 3(2) of the RHC on or before 9 March 2017, Hanjin’s defence filed on 2 December 2016 be struck out and Cargo Channel be at liberty to issue a summons for default judgment (I-42).  There is no appeal from this decision and I should not express any view on it save to say that the issue deserved an argument.

23.  BCC had checked Hanjin’s trading status as reflected in the returns it filed with the Companies Registry from time to time from 13 September 2016 to 28 February 2017.  They in particular conducted checks on 22 December 2016, 3, 5, 6, 23 and 25 January and 2, 17, 20, 21, 22, 23, 27 and 28 February 2017.  The returns were filed for Hanjin by Aries Corporate Services Ltd in February 2016 and by Hanjin itself in October 2016 (VI-257 and 268).  There was no further return filed with the registry since the return of change of director and company secretary filed on 17 October 2017 (VI-274 to 289).

24.  BCC then wrote to the clerk to Master J Wong on 3 March 2017 advising that a rehabilitation procedure was commenced by Hanjin on 1 September and Mr Tae-Soo Suk was appointed the receiver of Hanjin.  Such procedure was withdrawn on 17 February 2017 and a bankruptcy order was made against Hanjin with Mr Jin Han Kim appointed the trustee (liquidator) (VIII-122).

25.  HLC wrote on to BCC on 10 March and asked for documentary evidence of BCC’s authority to act for Hanjin since 31 August or 1 September 2016 when Hanjin was in receivership and since Hanjin’s bankruptcy on 17 February 2017 (VIII-123).

26.  Hanjin did not file any fresh statement of truth on or before 9 March 2017 and HLC issued a summons for default judgment on 15 March to be heard on 7 April 2017 (I-45 and VIII-126).

27.  BCC received the Bankruptcy Decision from the trustee Mr Kim on 16 March 2017.  BCC further received on 23 March from a Mr Baek a statement of truth signed by the trustee for the action and dated 23 March 2017 (II-120, §§43 and 44 of Chark’s 3^rd affirmation and VIII-137).  The trustee said in the statement that he believed that the facts stated in the defence re-served on Cargo Channel on 2 December 2016 were true.

28.  BCC wrote to HLC on 5 April 2017 and enclosed the Bankruptcy Decision.  BCC further advised HLC that BCC were appointed by the trustee to represent Hanjin (VIII-128).  BCC had also filed a notice of appointment of liquidator signed by the trustee with the Companies Registry on 30 March 2017.  BCC further enclosed for HLC a copy of the statement of truth signed by the trustee for Hanjin and said that they would apply for time to file the same (VIII-137). 

29.  Ms Chark of BCC made a verbal application at the hearing on 7 April for extension of time to file the statement of truth. Master S Lo did not accept the verbal application and allowed Cargo Channel’s summons for default judgment (I-45).

30.  BCC applied on 5 May 2017 for an order to cease to act for Hanjin.  The application was allowed by Master H Au-Yeung on 19 May 2017 (I-49).

31.  HLC took out the summons against BCC on 9 August 2017 for wasted costs of Cargo Channel to be paid by BCC (I-54).

Analysis of the plaintiff’s submissions

32.  Since Cargo Channel was applying for a wasted costs order against BCC, it is for Cargo Channel to show that BCC’s authority to represent Hanjin had ceased or terminated by the appointment of Mr Suk as the legal administrator or receiver on 1 September 2016 and/or by the bankruptcy order made on 17 February 2017 and that costs had been wasted by reason of BCC’s conduct in defending the action for Hanjin but without Hanjin’s authority.

33.  There is no dispute that the court has jurisdiction under s 52A (4), (6) and (7) of the High Court Ordinance and Order 62 rule 8 of the RHC to make wasted costs order against solicitors.  The parties also agree that there should be a 2-stage consideration under O 62 r 8A and that the Court of Final Appeal has held in Ma So So v Chin Yuk Lun & anor (2004) 7 HKCFAR 300 that there are three questions to be answered before a wasted costs order is made.

34.  Ms Gwilt, counsel for Cargo Channel made submissions on the legal principles that support this appeal in §§15 to 17 of her submissions.  She referred to paragraph 12.048 of Company Law in Hong Kong (Insolvency) 2015, Sweet & Maxwell:

“Irrespective of whether the foreign law provides for a vesting of assets in the foreign liquidator or similar officer (e.g. receiver, supervisor, administrator, examiner), such a person will, if the appointment was made with proper jurisdiction in the eyes of the Hong Kong court, be recognised in Hong Kong as being entitled to control of the assets in question and, if necessary, as having standing to sue in the Hong Kong court.” (Ms Gwilt’s emphasis)

35.  Ms Gwilt further referred to §§ 3.004 and 11.027 of Company Law in Hong Kong (Insolvency) and submitted that the appointment of a receiver and manager or liquidator by the court practically removes the conduct and guidance of the undertaking from the directors of the company and places it into the hands of a receiver and manager. 

36.  However, she has not explained why the appointment of Mr Suk as the legal administrator or receiver under the South Korean rehabilitation procedure had thereby terminated the retainer and agency of BCC which was undisputedly in place prior to 1 September 2016.

37.  There are many types of receivers appointed by the court.  The court may appoint a receiver of a company’s business and undertaking.  In this case, the powers of the directors to conduct the company’s business and dispose of its assets are in abeyance for the duration of the receivership.  However, the court may also appoint a receiver and manager of the company itself (as opposed to its undertaking).  In the former case, the receiver appointed cannot contract as agent for the company.  Such appointment would also effect a change in the personality of the company and hence operates to instantly dismiss the company’s employees. 

38.  This is not so in the latter case.  A receiver of the company (as opposed to its undertaking) is constituted as the managing agent of the company in place of its directors.  There is no change in the identity of the company.  The employees will not be dismissed by the appointment.  The receiver of a company has a continuing duty to preserve the goodwill of the company’s business for the benefit of all persons interested and should not disregard existing contracts.  It is his duty to carry into effect contracts entered into before his appointment.  Such contracts, unless they are contracts depending on personal relationships, remain valid and subsisting, notwithstanding the appointment of a receiver and manager.  Any breach of such contracts will render the company, not the manager, liable in damages, and will destroy the goodwill of the business.  (Lightman & Moss on the Law of Administrators and Receivers of Companies (6^th ed) §§29-006, 29-007, 10-18 to 10-20, 16-003 to 16-005 and 29-020(f), Kerr & Hunter on Receivers and Administrators (20^th ed) §§9-10 and 9-11 and Company Law in Hong Kong (Insolvency) 2019, §11.029)

39.  There is no expert evidence on the nature of the rehabilitation procedure and the status of Mr Suk.  However, if Mr Suk’s status as the legal administrator was equivalent to that of a receiver, the available evidence (the Bankruptcy Decision and report of Shepstone & Wylie) shows that it is more likely than not that he was appointed as a receiver of the company of Hanjin rather than just of its business and undertaking.  He was not appointed to take control of any asset of or collect any money from Hanjin to pay Hanjin’s creditor(s) but to rehabilitate Hanjin as a company.  He was to manage Hanjin as a whole and to propose a plan to navigate it out of financial trouble.  Hence, his appointment as the legal administrator would not have put an end to any ongoing contract that Hanjin had made with third parties prior to his appointment.  That would include the retainer of BCC to defend the action on behalf of Hanjin.

40.  Ms Chark of BCC had also told Master J Wong on 13 January 2017 that she had met the authorised representative of Hanjin, Mr Kang Ho Jun at Hanjin’s principal place of business in Hong Kong on 2 December 2016 and was given instructions there.  A return filed by Hanjin with the Companies Registry on 17 October 2016 shows that Mr Kang, who was then residing in Hong Kong, was appointed by Hanjin on 16 October 2016 to be its company secretary (VI-268 to 269). 

41.  In the premises, I hold that Cargo Channel has failed to show that BCC’s authority to represent Hanjin in this action had lapsed by virtue of the appointment by the South Korean Court of Mr Suk as the legal administrator or receiver in the rehabilitation procedure on 1 September 2016.

42.  I also note that the appointment of receiver or grant of a winding up (or bankruptcy) order by a South Korean court against Hanjin will not stay this action.  Only a winding up order made by this court against Hanjin can stay this action under s 325 of the Winding Up Ordinance.  Hence, if Hanjin did not agree to Cargo Channel’s claim, it’s receiver had to direct Hanjin’s lawyer through the staff of Hanjin to defend it.

43.  I now deal with the situation when Hanjin was declared bankrupt on 17 February 2017.  The making of a winding up order against a company does not put an end to its legal personality.  Winding up is a process of management of the company by which its liabilities are settled and assets distributed (Company Law in Hong Kong (Insolvency) 2019, §§12.005).  Ms Gwilt has not produced any authority to support her submission that the making of a winding up order would put an end to BCC’s retainer.

44.  In any event, even if BCC’s retainer had been terminated by the declaration of bankruptcy of the Seoul Bankruptcy Court against Hanjin on 17 February 2017, the work done by BCC purportedly on behalf of Hanjin since 17 February 2017 has been ratified by Mr Kim, the trustee for Hanjin.  The evidence of ratification is the provision by Mr Kim, the trustee of a statement of truth dated 23 March 2017 verifying the truthfulness of the facts pleaded in the defence filed by BCC for Hanjin on 2 December 2016 though Master S Lo did not allow Ms Chark’s verbal application made on 7 April 2017 for extension of time to file it. 

45.  Ms Gwilt also submitted that BCC did not produce any written authorization by Hanjin’s trustee.  But a retainer can be made orally and need not be in writing (Cordery on Legal Services §F-3153).  BCC have confirmed to HLC that BCC were appointed by the trustee to represent Hanjin (VIII-128).  The provision of the statement of truth dated 23 March 2017 is also sufficient evidence of such ratification.  Otherwise, I cannot see any purpose for Mr Kim to have provided that statement.

46.  Finally, I would hold that no costs have been wasted by BCC acting for Hanjin since 17 February 2017.  I have already held that the appointment of legal administrator or receiver for Hanjin on 1 September 2016 did not terminate BCC’s retainer.  BCC had also taken instructions from Mr Kang, Hanjin’s authorized representative in Hong Kong at Hanjin’s principal place of business in Hong Kong on 2 December 2016 to defend this action. Hence, BCC was properly authorized to act for Hanjin until 17 February 2017 when the declaration of bankruptcy was made in Seoul. 

47.  All the steps taken by HLC for Cargo Channel since 17 February 2017 were steps necessary to perpetrate the interests of Cargo Channel in the action.  The hearing on 17 February 2017 was for the summons taken out by HLC on 7 February 2017 to enforce costs orders.  The hearing on 23 February 2017 was for the summons taken out by HLC on 14 November 2016 to strike out the statement of truth signed by BCC for Hanjin.  The hearing on 7 April 2017 was for the summons taken out by HLC on 15 March 2017 for default judgment because Hanjin had failed to file a fresh statement of truth on 9 March 2017.

48.  Cargo Channel also relied on BCC’s breach of warranty of authority to seek an order that BCC do indemnify Cargo Channel for its wasted costs.  For the reasons given above, I hold that Cargo Channel cannot rely on this legal principle. 

Order

49.  In the premises, I dismiss Cargo Channel’s appeal with a costs order nisi that Cargo Channel do pay BCC the costs of this appeal to be assessed by me summarily.

50.  BCC do file and serve a bill of costs within 7 days from today.  HLC do file and serve a list of objections if any, within the next 7 days.  I will then assess the costs payable by Cargo Channel summarily.

HCA 1919/2016
[2018] HKCFI 1879

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1919 OF 2016

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DECISION

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Introduction

1.  This is an application for wasted costs order by the plaintiff against the defendant’s former solicitors under order 62 rule 8 of the Rules of High Court (Cap.4A) (“RHC”).  

Background

2.  On 23 July 2016, the plaintiff commenced the present proceedings against the defendant for freight and service charges in the sum of about $1 million together with interest and costs.

3.  The defendant contested the proceedings.

4.  On 2 September 2016, the defendant issued an application against the plaintiff for security of costs. I dealt with the application substantively on 13 January 2017 and allowed it. The plaintiff was in liquidation. Its’ financial position was not known to the court. There was no evidence that the plaintiff would be in a position to pay the defendant’s costs if the latter won the case at the end. In the exercise of discretion of the court, the costs position of the defendant should be protected. The plaintiff was ordered to pay security of $280,000 up to the stage of setting down, with costs to the defendant summarily assessed at $67,200.

5.  In the meantime, on 10 November 2016, the defendant also filed and served its Defence. It said, among others, that the plaintiff had sued the wrong defendant. It was “Hanjin China” who entered into the connecting carrier agreement dated 1 January 2014 with the plaintiff. Under the agreement, the dispute should be resolved by PRC law and in the China Maritime Court. In any event, it was the plaintiff who had failed to pay the terminals. To mitigate for its loss, Hanjin China paid various terminals the total sums of CNY 688,101 to get cargos released.

6.  There were quite some arguments between the parties regarding the Defence.  

7.  The plaintiff said that the Defence filed on 10 November 2016 was not supported by a verifying statement of truth.  Later, upon application of the plaintiff, on 25 November 2016, Master S. Lo expunged such Defence, with leave to re‑file and re‑serve another one.

8.  The ‘new’ Defence was re‑filed and re‑served on 2 December 2016. It was supported by a verifying statement of truth, signed by Ms. B Chark, the principle of the defendant’s solicitors, Messrs. Brenda Chark & Co. (“BCC”). The plaintiff took the view that it was still defective.  

9.  On 23 February 2017, I dealt with parties’ argument[1]. Upon consideration, I struck out the statement of truth for the ‘new’ Defence but allowed the defendant to remedy the defect with the imposition of an unless order for 14 days.

“11. … After consideration of the matters put before the court and discussions with Ms Gwilt and Ms Chark, I take the view that the subject statement of truth is defective. The defendant is a corporation. Its statement of truth must be signed by a person holding a senior position in the defendant under Order 41A, Rule 3(2), Rules of the High Court. In my view, Order 41A, Rule 3(1)(b)(ii) is not applicable to corporations and cannot be relied upon by Ms. Chark.

12. I say so for two reasons. First, I agree with Ms Gwilt that as a matter of drafting and understanding, we start with the general provision and then specific ones. In our case, Order 41A, Rule 3(1) is the general provision and sub‑rule 2 the specific one. The specific provision is made specifically for corporations so on and so forth. So there is no way that a statement of truth involving a corporation can escape from such requirement.

13. Second, as I have spent some time discussing with the parties at the hearing on the legislative intention of statement of truth, it aims at making parties serious about the pleadings and similar documents filed in court proceedings.  If the documents will contain any false or untrue statements, the maker is liable for contempt proceedings.  That is exactly why the CJR final report spent quite some paragraphs on identifying the right person to sign the statement of truth for corporation in order to get that person responsible and liable for making the representations to the court.  If a legal representative will be allowed to do so for his corporation client and without identifying who is making the factual representation to the court, the purpose of the statement of truth will be collapsed completely.”

(Decision dated 23 February 2017 from DARTS transcript)

10.  BCC wrote to the court on 3 March 2017.

“We have just been notified that the former Authorised Representative of the Defendant that:

(1) On 1 September 2016, a Rehabilitation Procedure was commenced by the Defendant with Mr Tae-Soo Suk of the Defendant being appointed as the Receiver;

(2) On 17 February 2017, the Rehabilitation Procedure was withdrawn and a Bankruptcy Order was made against the Defendant. Mr Jin Han Kim has been appointed as the Trustee of the Defendant.

We would grateful if you could place this letter to the Learned Master J. Wong for his review.”      

11.  This court then replied.

“It appears that there is nothing for the court to “review”. You will be in a better position to advise your client what should be done in light of the development made known.”

12.  The defendant failed to comply with the unless order. After the deadline, the plaintiff applied for default judgment. It was only until 23 March 2017 that BCC managed to get the trustee to sign on the statement of truth. Parties thereafter argued the matter on 7 April 2017 before Master S. Lo who ruled in favour of the plaintiff, because among others, there was no summons taken out by the defendant to extend time imposed by the unless order.  

13.  A notice of appeal was thereafter filed by the defendant on 21 April 2017 against the entering of the default judgment. However, the appeal was not pursued. On 5 May 2017, BCC applied for cease to act under order 67 rule 6 RHC.  The application was allowed by Master Au-Yeung on 19 May 2017 and the process was completed by the subsequent filing of certificate of service on 21 June 2017.

14.  In the meantime, on 23 May 2017, Master S. Lo also ordered the payment into court of $280,000 as security for costs be refunded to the plaintiff.   

15.  On 10 August 2017, the plaintiff issued the present wasted costs order application against BCC.  

16.  In a nutshell, the plaintiff complained that the defendant went into receivership on 1 September 2016.  BCC should not have acted for the defendant after the date without the knowledge and/or authority from the receiver of the defendant.  BCC tried to delay and indeed delayed the proceedings. As a result, the plaintiff incurred more legal costs because of the conduct of BCC.

17.  BCC argued that it conducted the proceedings with proper instructions from the defendant at all times.  In any event, the trustee rectified the instructions to BCC.  There was no improper conduct on its part.  It did not hide anything from the court and caused no loss to the plaintiff.  There was also no expert evidence on the law of Korea regarding rehabilitation and bankruptcy.  As a matter of discretion, court should dismiss the application.

The applicable principles

18.  The applicable principles relating to o.62 r.8 RHC (Cap. 4A) are not disputed.  It states that:

“8. (1) The Court may make a wasted costs order against a legal representative, only if —

(a) the legal representative, whether personally or through his employee or agent, has caused a party to incur wasted costs as defined in section 52A (6) of the Ordinance; and

(b) it is just in all the circumstances to order the legal representative to compensate the party for the whole or part of those costs.

(2) A wasted costs order may —

(a) disallow the costs as between the legal representative and his client; and

(b) direct the legal representative to —

(i) repay to this client costs which the client has been ordered to pay to other parties to the proceedings; or

(ii) indemnify other parties against costs incurred by them.

(3) The Court shall give the legal representative a reasonable opportunity to attend a hearing to give reasons why it should not make the order.

(4) When the Court makes a wasted costs order, it shall—

(a) specify the amount to be disallowed or paid; or

(b) direct a master to decide the amount of costs to be disallowed or paid.

(5) The Court may give directions about the procedure that should be followed in each case in order to ensure that the issues are dealt with in a way that is fair and is as simple and summary as the circumstances permit.

(6) …”

19.  Section 52A (6) High Court Ordinance (Cap.4) further states wasted costs means:

“… any costs incurred by a party as a result of —

(a) an improper or unreasonable act or omission; or

(b) any undue delay or other misconduct or default,

…”

20.  Li, CJ (as he then was) said in Ma So So v. Chin Yuk Lun & Solicitors (2004) 7 HKCFAR 300 at p.309 that:

“The approach

6. In considering the exercise of the jurisdiction under this rule, the court should approach the matter by dealing with the following questions:

(1) Whether the solicitor was responsible for (i) acting improperly or without reasonable cause or (ii) for undue delay or any other misconduct or default in any proceedings.

(2) Whether such conduct of the solicitor caused costs to be incurred or wasted. This is a question of causation. The casual link between the solicitor’s conduct and the extent of costs incurred or wasted must be established.

(3) Whether the court should exercise its discretion to make an order.”

21.  To have a further and better understanding of the rule, paragraph 62/8/1 at P.1236 of Hong Kong Civil Procedure 2018 provides:

“Wasted Costs – Rule 8 was largely replaced under the Civil Justice Reform. … It was further explained in the Working Party’s Final Report that:

“The first principle, reflected in the italicised words (Ridehalgh v. Horsefield [1994] Ch 205 at 239), is that any risk of a wasted costs claim being disproportionately costly should be treated as an important negative factor in the court’s first stage decision as to whether the lawyer in question should be invited to ‘show cause’ under O.62 r.8(2).

Secondly, the cases have stressed that the wasted costs jurisdiction should only be invoked and orders made in clear cases.

(a) As Lord Woolf stated in Wall v. Lefever [1998] 1 FCR 605: ‘It must be used as a remedy in cases where the need for a wasted costs order is reasonably obvious.’ It is a summary remedy and only to be used where there is wasted costs order is to be invoked and orders made in clear cases.

(b) The need to restrict the exercise of such power to cases capable of summary treatment was also emphasised in Harley v. McDonald [2001] 2 AC 678, in relation to the New Zealand courts’ inherent jurisdiction to order barristers and solicitors to pay costs unnecessarily incurred. The Privy Council commented:

‘As a general rule allegations of breach of duty relating to the conduct of the case by a barrister or solicitor with a view to the making of a costs order should be confined strictly to questions which are apt for summary disposal by the court. Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples. The factual basis for the exercise of the jurisdiction in such circumstances is likely to be found in facts which are within judicial knowledge because the relevant events took place in court or are facts that can easily be verified. Wasting the time of the court or an abuse of its processes which results in excessive or unnecessary cost to litigants can thus be dealt with summarily on agreed facts or after a brief inquiry if the facts are not all agreed.’

…

The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error or judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor’s duty to ascertain with accuracy will suffice. It need not involve personal obliquity. The term of professional misconduct has often been used to describe the ground on which the court acts. It would perhaps be more accurate to describe it as conduct which involves a failure on the part of the solicitor to fulfill his duty to the court and to realise his duty to aid in promoting in his own sphere the cause of justice.”

22.  O.62 r.8B RHC also stipulates that the court shall consider the application in 2 stages:

“(a) In the first stage, the court must be satisfied that-

(i) It has before it evidence or other materials which, if unanswered, would be likely to lead to a wasted costs order being made; and

(ii)The wasted costs order proceedings are justified notwithstanding the likely costs involved; and

(b) In the second stage (even if the court is satisfied under sub-paragraph (a)), the Court shall consider, after giving the legal representative an opportunity to give reasons why the Court should not make a wasted costs order, whether it is appropriate to make the order in accordance with rule 8.”

23.  Last but not least, PD14.5 also regulates how application for wasted costs orders are to be pursued.

Application of the principles

24.  Applying the above principles to the present case, I have decided to dismiss the summons.

25.  First, the matter cannot be resolved in a simple and summary way.  Ms. Gwilt, counsel for the plaintiff, raised 3 questions for the court’s determination:

“50 …

(1) Whether BCC had the actual authority to act for the Defendant since 1 September 2016; and/or whether BCC has received proper instructions from the Defendant to act on its behalf during its receivership and after its liquidation;

(2) Whether BCC and/or the Solicitor had made reasonable enquiries to the relevant persons of the Defendant of its trading status in South Korea, especially before the Defendant’s winding‑up; and

(3) Whether BCC and/or the Solicitor knew and/or ought to have known the Defendant’s trading status when BCC made such representations in their correspondence with HLC and when Ms. Chark made such representations in Court.”

26.  Ms. Chark, appearing for BCC, further raised a number of issues, including the lack of expert evidence on Korean law and causation.    

“15. P has adduced no expert evidence on the effect of the rehabilitation proceedings from 1 September 2016 to the Bankruptcy Order made on 17 February 2017 other than relying on press reports.”

…

“61. As soon as Mr Kang confirmed to BCC on 3 March 2017 that a Bankruptcy Order was made in Korea against D, BCC immediately notified this Court and HLC. There may be a gap between the Bankruptcy Order made on 17 February 2017 and the letter to the Court on 3 March 2017, there is no undue delay on the part of BCC in notifying this Court and P of D’s latest status.

62. Despite the notice given by BCC on 3 March 2017, L chose to issue a summons on 15 March 2017 for entering judgment against D.  In the circumstances, D’s trading status or BCC’s conduct of these proceedings was not a factor that would affect L’s decision as to whether to proceed with these proceedings or not.”

27.  All the issues raised by the parties are relevant and they involve substantial factual disputes and/or argument or interpretation on foreign law.

28.  Second, in a nutshell, the major complaint of the plaintiff is that BCC should not have defended the proceedings as she did so because either she knew or should have known that there was no authority to do so.  Regarding this, to sum up the answers and evidence (of which, I accept on balance) provided by Ms. Chark: 

(a) The defendant was incorporated in South Korea (Hanjin‑Korea) and registered in Hong Kong (Hanjin‑HK) as a non‑Hong Kong company.

(b) BCC was instructed by the manager (Mr Edgar Ng) of the operating Department of Hanjin‑HK to defend the proceedings.  At all material times, she contacted different officers to take instructions and to report progress (Mr. Kong – the Authorized Representative of Hanjin‑HK, Mr Eric Chan – the Deputy General Manager of the Operation & Logistics Department of Hanjin‑HK and Ms. Joanne Lam, the Deputy Manager of the Human Resources & Corporate Administration).

(c) Having being doubted of her authority to act for the defendant in late 2016 or early 2017, she did try to verify the situation by contacting the said officers who also agreed to check from the Korean office.

(d) While she was waiting for the verification, parties could not agree on withholding the proceedings in the meantime.

(e) On 3 March 2017, Mr. Kong confirmed with her that the defendant did commence a rehabilitation procedure on 1 September 2016 and a bankruptcy order was made on 17 February 2017.  Mr. Jin Han Kim was then appointed trustee of the defendant.  She immediately informed the court accordingly.

(f) She also contacted with the trustee who instructed her to continue defending the proceedings.

(g) Unfortunately, the court refused to allow the defendant to file its statement of truth (signed by the trustee) out of time, leading to the default judgment.

(h) Last but not least, for reasons she was not in a positon to disclose, BCC ceased acting for the defendant and a certificate was filed on 21 June 2017.

29.  With the above, I do not consider there has been any improper or unreasonable act or omission on the part of BCC.  I am also not satisfied that undue delay or other misconduct or defendant has been proved. It has taken BCC and the officers of the defendant in HK for some 2 months’ time to confirm the position with the head office of the defendant in Korea.  I do not find it amounting to total unreasonable or undue delay. In any event, the trustee did confirm and/or rectify the act of BCC.

30.  Third and finally, Ms. Gwilt suggested that with the evidence before the court, the plaintiff had satisfied both test in the first stage and second stage.  BCC was also given reasonable opportunity to give reasons why the wasted costs order should not be made, including the filing of an affidavit in opposition.  She reminded me of the matters about the statement of truth as aforesaid. In short, she submitted it was a telling sign of BCC’s lack of authority because no senior member of the defendant was willing to sign the Defence at the material times.  There was also denial by BCC of the allegations of lack of authority.  It was a clear attempt of BCC to delay the proceedings.

31.  I decline to accept the submissions of Ms. Gwilt.  As a matter of procedure, it appears that parties did not have the 2-stages test clearly in mind in pursing and defending the application.  However, for the present purpose, it does not make much difference.  In my view, parties were still in the first stage as appearing before me as there was no direction or order from the court that the plaintiff had satisfied its burden at the 1^st stage. In the present hearing, the plaintiff has failed to do so.  Alternatively, if it happened that parties had already entered into the second stage, BCC also showed cause to my satisfaction that the wasted costs order should not be made in the circumstances.  Apart from the finding of facts as in paragraph 28 above, I specifically decline to accept the submission that I could draw a bad inference upon BCC from the conduct of Ms. Chark when she argued that she could sign the statement of truth for her client. Although I did reject her argument and/or interpretation of O.41A r.3 RHC, it does not necessarily mean that she took it to delay the proceedings. Without more, a simple rejection or non-acceptance of a legal argument put forward by a legal representative shall not be taken as that he or she is advancing such argument with bad intention.         

Costs

32.  As to costs, I do not have the benefit of the parties of their argument.  However, it appears to me that no order as to costs appear to be the appropriate one in the circumstances.  The suspicion on the part of the plaintiff’s solicitors turns out to be true. It has triggered the investigation on the part of BCC. The trustee did rectify, if necessary, the action of BCC. Without it, the question whether BCC did act, at some point in time, with or without authority could become more complicated.   

Conclusion

33.  To conclude, the summons is dismissed with an order nisi of no order as to costs.