LI CHIU WAH JOSEPH v. HONG KONG SOCIETY OF NOTARIES

CACV 394/2020, [2023] HKCA 809

On Appeal From [2022] HKCA 1482

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 394 OF 2020

(ON APPEAL FROM HCAL NO 2658 OF 2019)

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J U D G M E N T

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Hon Au JA (giving the Judgment of the Court):

A.  INTRODUCTION

1.  This court handed down judgment on 30 September 2022 (“the CA Judgment”)  dismissing the applicant’s appeal against a judgment of Alex Lee J (“the Judge”)  dated 30 July 2020 ([2020] HKCFI 1789)  (“the CFI Judgment”).  By the CFI Judgment, the Judge refused to grant leave to apply for judicial review (in part)  and dismissed the applicant’s application for judicial review (for the part in respect of which leave was granted)  following a rolled-up hearing on 24 April 2020.

2.  By a Notice of Motion filed on 28 October 2022, the applicant now seeks leave to appeal to the Court of Final Appeal (“CFA”)  against the CA Judgment.

3.  After reviewing the Notice of Motion and the written submissions lodged by the parties[1], we see no reason to deviate from the usual practice of considering this application on paper pursuant to paragraph 3 of Practice Direction 2.1.

B.  BACKGROUND

4.  The background leading to these proceedings has been summarised at [4] - [20] of the CA Judgment, and will not be repeated here.  Unless otherwise stated, we also adopt in this judgment the abbreviations used in the CA Judgment.

5.  To recap, these proceedings arose from the applicant’s application (“the 2019 Application”)  to the Society for a 2019 Certificate of Membership (“Membership Certificate”)  in order to be qualified to practise as a notary public in 2019.  In breach of the Undertaking previously given by the applicant, he failed to deliver a copy of his 2019 Solicitor Practising Certificate to the Society by the deadline on 11 January 2019 and only submitted the same on 14 January 2019.  As a result, the Society required him to pay HK$3,000 as the additional administrative charge (“the Late Charge”). The applicant applied to judicially review the Society’s decision not to waive the Late Charge and to impose certain conditions in the Membership Certificate in the event of its non-payment on the basis that the Late Charge was a penalty and therefore ultra vires, and the decision was in any event Wednesbury unreasonable, unlawful and tainted with procedural irregularity.

6.  By way of the CFI Judgment, the Judge refused to grant leave to apply for judicial view on all grounds except the “illegality ground”[2], in respect of which the substantive application for judicial review was dismissed on the merits.

7.  As we observed at [27] of the CA Judgment, the applicant then appealed to this court advancing three grounds of appeal[3], contending that the Judge erred in holding that (a)  the Society’s decision not to waive the Late Charge was not amenable to judicial review; (b)  the Late Charge was not a penalty and was a genuine administrative charge based on general approximation of the costs involved; and (c)  it was not arguable that the amount of HK$3,000 fixed for the Late Charge was Wednesbury unreasonable.

8.  By way of the CA Judgment, this court rejected all the above grounds of appeal as without merits for the reasons set out therein.

C.  THIS APPLICATION

C1.  The Notice of Motion questions

9.  Section 22(1)(b)  of the Hong Kong Court of Final Appeal Ordinance, Cap 484 (“the HKCFAO”)  provides that an appeal shall lie to the CFA at the discretion of this court or the CFA if the question involved in the appeal is one which, by reason of its great general or public importance (“GPI”), or otherwise, ought to be submitted to the CFA for decision.

10.  By way of his Notice of Motion, the applicant says the intended appeal involves the following four questions which by reason of their GPI, or otherwise, ought to be submitted to the CFA for decision:

(1)  Whether, and to what extent, notions of whether a straightforward damages clause in a “standard form” contract has a deterrent purpose or whether it is a genuine pre-estimate of loss would, in Hong Kong, be subsumed by the broader enquiry into the legitimacy of the innocent party’s interest that supports the impugned clause as stated by this court in Law Ting Pong Secondary School v Chen Wai Wah [2021] 3 HKLRD 185 applying Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis [2016] AC 1172 (“Question 1”);[4]

(2)  Whether the Late Charge is an unenforceable penalty (“Question 2”);[5]

(3)  Whether the decision of the Society as a whole (including the imposition of the Late Charge)  is amenable to judicial review (“Question 3”);[6] and

(4)  Whether the respondent should be allowed to argue a new case, which was not raised by the Society or supported by evidence before the Judge, but asserted only by counsel for the Society at the hearing of the appeal before this court, viz, that the Late Charge was imposed not as a “general approximation of the extra costs that would be incurred by the Society” (as argued before the Judge), but for the purpose of “ensuring the members’ compliance of the Undertaking” (“Question 4”).[7]

11.  In relation to these four Questions, it is worth noting that:

(1)  It is the applicant’s case that leave is sought for Question 1 on the basis that it is a GPI question; and Questions 2 to 4 on the “or otherwise” limb, although he accepts that Questions 2 and 3 stand or fall with whether or not leave is given for Question 1.[8]

(2)  These questions relate in substance to this court’s conclusion, in applying the principles derived from Cavendish and adopted in Hong Kong in Law Ting Pong, that the Late Charge is not a penalty as it serves “a legitimate purpose and the amount of $3,000 charged is plainly not out of all proportion to this purpose”.  See [45] - [51] of the CA Judgment.

12.  With these observations in mind, we will now consider these questions in turn.

C2.  Question 1

13.  As submitted by Mr Lee SC for the applicant, this question relates to what this court regarded as the principles derived from Cavendish in determining whether a subject clause amounted to a penalty.  We summarized those at [32] of the CA Judgment as follows:

“32.  It is common ground in this appeal that the applicable guiding principles in determining whether an impugned provision is in nature a penalty have recently been stated by this Court in Law Ting Pong Secondary School v Chen Wai Wah [2021] 3 HKLRD 185 at [69] - [71] per Chu JA, applying Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis [2016] AC 1172.  Relevantly for present purposes, they are as follows:

(1)  In determining whether an impugned provision is in nature a penalty, the true test is whether the provision is a secondary obligation that imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.

(2)  Applying this test, the Court should thus first identify the legitimate interest of the innocent party that is being protected by the clause, and then assess whether the measure adopted under the subject clause is out of all proportion to the legitimate interest by considering the circumstances in which the contract was made.

(3)  In this respect, an innocent party generally has a legitimate interest in the performance of the contract or some appropriate alternative to performance that goes beyond compensation.  Notions of whether the subject clause has a deterrent purpose or whether it is a genuine pre-estimate of loss as traditionally adopted by the Court to determine whether the impugned measures is a penalty would be subsumed by the above broader inquiry.”

14.  In relation to this, Mr Lee contends that this court is wrong in saying at [32(3)] that “[n]otions of whether the subject clause has a deterrent purpose or whether it is a genuine pre-estimate of loss as traditionally adopted by the court to determine whether the impugned measures is a penalty would be subsumed by the above broader inquiry.”

15.  The crux of Mr Lee’s argument is that, properly understood, a distinction is drawn in Cavendish as to the tests applicable to determine whether a subject contractual clause is a penalty or not.  In particular, counsel submits that Cavendish covers two different approaches for two types of damages clauses:

(1)  For straightforward damages clauses, the traditional approach of whether the subject clause represents a genuine pre-estimate of loss involving Lord Dunedin’s four tests as stated in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 “would usually be perfectly adequate”; and

(2)  For those “rare” and “more complex” damages clauses, the new approach based on inquiring whether the clause proportionately serves a legitimate purpose of the innocent party would apply.

16.  Mr Lee further submits that both approaches co-exist and that there is no holding or suggestion at all in Cavendish that the “traditional approach” would be or has been “subsumed” by the “new approach”.  Counsel says it is only the “traditional approach” that should be applied to the present case.  In support of this analysis, Mr Lee relies on the observation of the UK Supreme Court at [32] of Cavendish as follows:

“The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance. In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect that Lord Dunedin's four tests would usually be perfectly adequate to determine its validity. But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter's primary obligations. …” (emphasis added)

17.  Counsel therefore further says this question is a question of law and of GPI which relates to the proper understanding and application of the principles enunciated in Cavendish and adopted by this court (differently constituted)  in Law Ting Pong.  Leave to appeal should thus be granted.

18.  With respect, we are not persuaded by Mr Lee’s submissions.

19.  First, it is pertinent to note that it had always been common ground between the parties in the appeal before this court that the guiding principles applicable to this case in determining whether the Late Charge is in nature a penalty are the ones stated in Law Ting Pong at [69] - [71], per Chu JA, applying Cavendish.[9]  There were never arguments or suggestions advanced by the applicant in the appeal before us (as now advanced in this application)  that somehow under Cavendish there are two different approaches for two types of damages clauses and only the traditional approach applied to the present case.

20.  Second, and more importantly, as we have set out at [52] of the CA Judgment, Lord Neuberger PSC and Lord Sumption JSC made the following observations in Cavendish at [31] and [32] as follows:

“31 In our opinion, the law relating to penalties has become the prisoner of artificial categorisation, itself the result of unsatisfactory distinctions: between a penalty and genuine pre-estimate of loss, and between a genuine pre-estimate of loss and a deterrent. These distinctions originate in an over-literal reading of Lord Dunedin’s four tests and a tendency to treat them as almost immutable rules of general application which exhaust the field. In Legione v Hateley (1983)  152 CLR 406, 445, Mason and Deane JJ defined a penalty as follows:

‘A penalty, as its name suggests, is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation …’

All definition is treacherous as applied to such a protean concept. This one can fairly be said to be too wide in the sense that it appears to be apt to cover many provisions which would not be penalties (for example most, if not all, forfeiture clauses). However, in so far as it refers to ‘punishment’ and ‘an additional or different liability’ as opposed to ‘in terrorem’ and ‘genuine pre-estimate of loss’, this definition seems to us to get closer to the concept of a penalty than any other definition we have seen. The real question when a contractual provision is challenged as a penalty is whether it is penal, not whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive categories. A damages clause may be neither or both. The fact that the clause is not a pre-estimate of loss does not therefore, at any rate without more, mean that it is penal. To describe it as a deterrent (or, to use the Latin equivalent, in terrorem)  does not add anything. A deterrent provision in a contract is simply one species of provision designed to influence the conduct of the party potentially affected. It is no different in this respect from a contractual inducement. Neither is it inherently penal or contrary to the policy of the law. The question whether it is enforceable should depend on whether the means by which the contracting party’s conduct is to be influenced are ‘unconscionable’ or (which will usually amount to the same thing)  ‘extravagant’ by reference to some norm.

32 The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance. In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect that Lord Dunedin’s four tests would usually be perfectly adequate to determine its validity. But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter’s primary obligations. This was recognised in the early days of the penalty rule, when it was still the creature of equity, and is reflected in Lord Macclesfield LC’s observation in the Peachy case 1 Str 447 (quoted in para 5 above)  about the application of the penalty rule to provisions which were ‘never intended by way of compensation’, for which equity would not relieve. It was reflected in the result in the Dunlop case [1915] AC 79. And it is recognised in the more recent decisions about commercial justification. And, as Lord Hodge JSC shows, it is the principle underlying the Scottish authorities.” (emphasis added)

21.  From these passages, it is clear that what we have set out at [32] of the CA Judgment is a correct and proper understanding and summary of the principles laid down in Cavendish.  As clearly stated by Lord Neuberger PSC and Lord Sumption JSC at [31] - [32] of Cavenish after looking at the underlying rationale and reasons of the authorities, in deciding whether an impugned provision is a penalty, the “real question” is whether “it is penal, not whether it is a pre-estimate of loss” and the “true test” is “whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.”  As submitted by Mr Yu SC for the Society, the UK Supreme Court does not propose that there are two separate tests applying to two different types of damages clause as contended by Mr Lee now.

22.  For these reasons, Question 1 is plainly not arguable.  No leave to appeal should be granted for it.

C3.  Questions 2 and 3

23.  On the applicant’s own case, whether leave should be granted for Questions 2 and 3 depends on whether leave is granted under Question 1[10].  As we have refused to grant leave under Question 1, no leave should be granted under Questions 2 and 3.

C4.  Question 4

24.  As mentioned, the applicant seeks leave to appeal under Question 4 on the “otherwise” basis.  It is not the practice of this court to grant leave under this ground but to defer to the views of the Appeal Committee of the CFA.[11]  We see no reason to depart from that practice in the present application.

25.  In any event, under this ground, the applicant mainly repeats arguments previously advanced before us[12], which had already been considered and dismissed: see [47] - [53] of the CA Judgment.  It is well established that the Court of Appeal will not allow an application of this nature to be deployed as an occasion for re-running the arguments which had already been canvassed at the appeal: Ho Sin Yingv Chan Yui Ling & Another (unreported, CACV 221/2013, 14 November 2014)  at [2] and [3].

26.  Further, the applicant now seeks to argue that the Society’s submission (which was accepted by the court)  that the Late Charge served the legitimate purpose in enforcing “the members’ compliance of the Undertaking” is circular, as its interest in enforcing the Undertaking was, according to the Society, to enforce the Undertaking (which itself was unilaterally imposed by the Society in a “standard form” contract)[13].

27.  However, the applicant’s argument of “circularity” also goes nowhere.  As we have already noted at [48] of the CA Judgment, the legitimate purpose as advanced by the Society arises objectively from common and commercial sense, and it must be plain and obvious that a charge so imposed would have the effect of encouraging compliance with the Undertaking by the members.  Moreover, we have explained at [49] of the CA Judgment why the purpose of ensuring compliance with the Undertaking is a legitimate one:

“49.  In our view, the Society’s purpose of ensuring compliance with the Undertaking is plainly a legitimate one:

(1)  As mentioned at [32(3)] above, the Court generally recognises that the innocent party has a legitimate interest in enforcing the contract.  The inquiry is only whether ‘the means by which the contracting party’s conduct is to be influenced are ‘unconscionable’ or (which will usually amount to the same thing)  ‘extravagant’ by reference to some norm.’

(2)  In the present case, a breach of an undertaking given in a professional context is clearly a serious matter, in particular, when the person giving the undertaking is a practising notary public and senior solicitor of at least seven years standing.  As recorded in the July 2016 Minutes, the Council had noted incidents of members breaching the Undertaking and not taking their undertakings seriously.  In these circumstances, it must a fortiori be legitimate for the Society as a professional body to ensure such compliance.

(3)  It is the practice and policy of the Society to deliver to its members their respective Membership Certificate in mid-December, about two weeks prior to the commencement of a new practice year, so that the members may perform notarial acts immediately upon the commencement of the practice year.  This practice is to facilitate the members’ practice as a notary public and thus for their benefit, and is built upon the trust that they would honour their Undertaking.  It is therefore plainly legitimate that the Society seeks to ensure such compliance.”

28.  There is nothing in the applicant’s present submissions to suggest why we are wrong on these points.

29.  The applicant then says (again)  the material issue under this question is rather whether it was open to and fair in all the circumstances for the Society to run a case on legitimate interest when all it had relied upon was that the Late Charge represented a “general approximation of the extra expenses incurred”[14].

30.  We have dealt with these complaints at [47] of the CA Judgment and rejected them for the reasons set out at [48] of the CA Judgment:

“47.  In relation to this, Mr Lee first objects that it is not open to the Society to advance this submission since:

(1)  This was not the case the Society had advanced in the Court below.  Its only case before the Judge and set out in its opposing affidavit is that the Late Charge is a genuine pre-estimate by way of general approximation of the extra expense to be incurred for the stated additional works that need to be undertaken by the Society in a late submission case.  The applicant will therefore suffer prejudice if the Society is allowed to raise it for the first time now; and

(2)  In any event, there is no evidence to support the so-called legitimate purpose.

48.  We reject Mr Lee’s objections:

(1)  Given Mr Lee’s acceptance that the relevant guiding legal principles as to whether a charge imposed on the breach of contract on the default party is a penalty are those now adopted in Law Ting Pong, it must be open to the Society to advance its case on what it says to be the legitimate purpose that the Late Charge is to serve. There is also no question that the applicant will be prejudiced by not having the chance to put forward any evidence in reply to this: Mr Lee has not been able to indicate and suggest what evidence the applicant might have been able to adduce to rebut this purpose if the Society had raised it in the Court below.

(2)  In any event, the legitimate purpose now advanced by Mr Yu arises objectively from common and commercial sense.  It must be plain and obvious that a charge so imposed would have the effect of encouraging compliance with the Undertaking by the members.” (emphasis added)

31.  As pointed out by Mr Yu, it is pertinent to note that even now, the applicant has not been able to suggest or indicate what evidence the applicant might have been able to adduce to rebut this purpose if the Society had raised it in the court below.

32.  Mr Lee however submits that the question is not so much on whether the applicant was prejudiced by not being able to file reply evidence. In support, he relies on Lehmanbrown Ltd v Union Trading Holding Inc (HCMP 977/2015, 17 June 2015)  at [10], which states as follows:

“10.  Whilst the Court of Appeal obviously has power to entertain new points in an appeal, it is also clearly and firmly established that new points which are fact sensitive or otherwise affect the course of evidence or conduct of the case at the hearing below should not be allowed. Though this principle is usually applied in situations where the new points necessitate further evidence to be adduced, it is not confined to such scenarios. Very often, the raising of new point by one party may lead to the other party raising counter arguments and the consideration of such counter arguments may involve factual assessment in a different light from that undertaken by the court below. Sometimes, it may involve a different weighing of factors in the exercise of discretion. Alternatively, the other party may embark on a different course of forensic conduct if the new point were taken earlier. The appellate court, in considering whether the new point would be entertained, is entitled to take these matters into account in order to avoid unfairness to the other party.” (emphasis added)

33.  In our view, the reliance on Lehmanbrown does not assist Mr Lee.  As stated at the end of the above quoted paragraph, the ultimate question that the appellate court needs to consider in deciding whether to entertain a new point is, after taking into account all matters, whether unfairness will be caused to the other party.  In the present case, Mr Lee has simply failed to show what other material unfairness the applicant had suffered in the circumstances if the “new” point was allowed to be argued.

34.  In his reply submissions, Mr Lee further argues that this court “eschewed the traditional penalty vs genuine pre-estimate of loss approach” and “did not invite the applicant to address this new approach which was clearly not adopted at the CFI”.[15]  Given our analysis above under Ground 1, this argument is equally misplaced. In any event, there is plainly no merit for counsel to now contend that there was unfairness to the applicant as the court did not “invite” counsel to address what he now asserts to be “the new approach” in Cavendish when (a)  throughout the hearing of the appeal before us, it was plain that the bone of contention before this court was whether the Late Charge proportionately served the legitimate interest of the Society, and substantive arguments were raised as to what the legitimate interest was and whether there was evidence in support of that, and (b)  as mentioned above, Mr Lee never advanced any submissions at the hearing on the “two approaches” that he now says could be derived from Cavendish.  In any event, we do not think counsel needed any “invitation” from this court to advance any such legal arguments if he had had those points in mind and thought them to be pertinent to the appeal.

35.  In the premises, Question 4 is similarly without merits.  We will not grant leave under this question on the “otherwise” limb in any event.

D.  DISPOSITION AND COSTS

36.  For all the above reasons, we refuse to grant leave to the applicant to appeal to the CFA and dismiss his application.

37.  There is no reason why costs should not follow the event.  We further make an order nisi that costs of this application be to the applicant with certificate for two counsel, which is to be assessed summarily.  For that purpose, the Society has lodged its Statement of Costs dated 25 November 2022 seeking a total sum of HK$157,448.  Having considered the Statements of Costs and the nature of this matter, we are of the view that the costs as sought by the Society are reasonable and thus assess them to be HK$157,448 on a nisi basis.

Mr Martin Lee SC and Mr Geoffrey Yeung, instructed by Joseph Li & Co, for the Applicant

Mr Benjamin Yu SC and Ms Bonnie YK Cheng, instructed by Boase, Cohen & Collins, for the Respondent

CACV 394/2020

[2022] HKCA 1482

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 394 OF 2020

(ON APPEAL FROM HCAL NO 2658 OF 2019)

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_______________

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J U D G M E N T

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Hon Au JA (giving the Judgment of the Court):

A. INTRODUCTION

1.  This is the applicant’s appeal against the judgment of Alex Lee J (“the Judge”) given on 30 July 2020 (“the Judgment”), whereby the Judge refused to grant leave to apply for judicial review (in part) and dismissed the applicant’s application for judicial review (for the part in respect of which leave was granted) following a rolled‑up hearing on 24 April 2020.

2.  The impugned decision concerned a charge of $3,000 (“the Late Charge”) levied on the applicant by the Hong Kong Society of Notaries (“the Society”) for his late submission of his 2019 Solicitor Practising Certificate for the renewal of his Certificate of Membership for the practice year 2019 (“the 2019 Membership Certificate”) to practise as a notary public and the Society’s refusal to waive that charge.

3.  At the end of the hearing, we reserved our judgment to be handed down.  This is what we do now.

B.  BACKGROUND

4.  The background facts have been comprehensively summarised by the Judge at [8] ‑ [27] of the Judgment.  It suffices to highlight the following for the purpose of this appeal.

5.  The applicant has been a practising solicitor in Hong Kong since 1987 and a practising notary public since 1995.  He has also been a member of the Society since 2005.  The Society is a company limited by guarantee and incorporated in Hong Kong in 1977 with Articles of Association (“the Articles”).

6.  In Hong Kong, pursuant to sections 40D(1)(d) and 40D(2) of the Legal Practitioners Ordinance, Cap 159 (“the LPO”), in order to be qualified to practise as a notary public, a person must either:

(1)  hold a current Practising Certificate as a notary public from the Society; or

(2)  hold a current Certificate of Membership (“Membership Certificate”) from the Society and a current practising certificate as a solicitor issued by the Law Society (“Solicitor Practising Certificate”).

7.  Pursuant to sections 40A(1)(a)(i) and 40A(1)(a)(ii) of the LPO, for a person to be qualified for appointment as a notary public, his/her name must have been on the roll of solicitors continuously for the whole of the period of 7 years immediately before the date of his application for appointment and he/she must have practiced as a solicitor for a period or periods in aggregate of not less than 7 years.

8.  On 19 November 2018, following the “Guidelines on Application for 2019 Certificate of Membership and Application for 2019 Practising Certificate as a Notary Public”[1] issued by the Society on 19 September 2018, the applicant applied for the renewal of his Membership Certificate for the practice year 2019.

9.  He paid the membership subscription fee of $9,000 and submitted a completed application form[2], in which he agreed to honour a standard undertaking (“the Undertaking”) that he would deliver a certified true copy of his Solicitor Practising Certificate for the practice year 2019 (“the 2019 Solicitor Practising Certificate”) to the Secretary General of the Council on or before 12noon on Friday, 11January 2019.

10.  On 14 December 2018, the Society sent his 2019 Membership Certificate to the applicant, together with an “Important Notice” reminding each member to honour the Undertaking, failing which he/she would have to pay the additional administrative charge and may further be subject to disciplinary proceedings.

11.  The applicant however failed to deliver a copy of his 2019 Solicitor Practising Certificate to the Society by 11 January 2019.

12.  On 11 January 2019, the Society informed the applicant by post and email that he had breached the Undertaking and was required to deliver a certified true copy of his 2019 Solicitor Practising Certificate and to pay $3,000 as the additional administrative charge (ie, the Late Charge) on or before 4pm on 21January 2019.

13.  On 14 January 2019, the applicant submitted a copy of his 2019 Solicitor Practising Certificate to the Society together with a letter.  In the letter, he apologised for his delay, stating that he was away on holiday and had inadvertently missed the deadline.  The applicant further sought a waiver of the Late Charge on the basis that his delay of one working day did not cause any prejudice and he had not performed any notarial acts in the interim.

14.  On 13 February 2019, the Council of the Society (“the Council”) met and discussed the applicant’s said letter dated 14 January 2019 and his application for waiver.  By a letter dated 25 March 2019, the Society informed the applicant that his application for waiver was refused, and he should pay the Late Charge to the Society soon as it was already more than two months since it had become payable.

15.  On 10 April 2019, the applicant wrote to the Society claiming that there was conflict of interest between himself and three members of the Council, namely Mr Andrew Hart, Mr Jesse Kwok Hong Yee and Mr Kenneth Sit (then President of the Society) because of his various on-going and past dealings with them respectively.  He therefore asked for the three members to be recused from the decision-making process and requested a fresh and impartial panel of the Council to be constituted to review the refusal decision.

16.  On 8 May 2019, the Council met to discuss the applicant’s letter dated 10 April 2019 and resolved to set up an ad hoc committee (“the Ad Hoc Committee”) comprising of Mr Kenneth Sit, Ms Au Miu Po (the then Vice President of the Society) and Mr Andrew Hart to consider the applicant’s refusal to pay the administrative charge of $3,000 upon the breach of the Undertaking[3].  The Ad Hoc Committee met on 17 May 2019.  The Ad Hoc Committee recommended that a draft letter to the applicant based on its discussion be prepared by Mr Sit for Council’s approval at the next Council meeting[4].

17.  On 12 June 2019, the Council met again to discuss the applicant’s case.  The Council resolved to approve (subject to certain revisions) the draft letter prepared by the Ad Hoc Committee to the applicant. By a letter of the same date, the Council informed the applicant, among others[5], its decision (“the Decision”) as follows:

“Having given due consideration to the points in our said letter, the Council maintains the position that your application for waiver of the additional administrative charge be refused. Please be advised that if you do not pay the additional administrative charge of HK$3,000 by 12:00 noon on 28^th June 2019, without further notice, the Council will, pursuant to Article 6(5) of the Articles of Association of the Society (copy enclosed), amend your Current Certificate of Membership (i.e. your Certificate of Membership for the 2019 Practice Year) by imposing a condition that payment of the additional administrative charge of HK$3,000 be made by 5^th July 2019. And if you fail to observe the said condition, the Council will consider revoking your Current Certificate of Membership in which event you will no longer be qualified to practise as a notary public.”

18.  Thus, by the Decision, the Council decided:

(1)  to maintain the decision to refuse the applicant’s waiver application of the Late Charge; and

(2)  if he still did not pay the Late Charge by 28 June 2019, to amend the applicant’s 2019 Membership Certificate by imposing a condition that the payment of the Late Charge had to be made by 5 July 2019, failing which the Council will consider revoking his Membership Certificate.

19.  On 27 June 2019, the applicant paid the Late Charge “under protest”.

20.  On 11 September 2019, the applicant filed his application for leave to apply for judicial review to challenge the Decision.  On 11 March 2020, the applicant filed his Amended Form 86.  The applicant’s main grounds in the Amended Form 86 can be summarized as follows:

(1)  The Decision is ultravires as:

(a)  the Late Charge was in substance a penalty and not a genuine estimate of the Society’s administrative costs in dealing with his late submission.  As such, the Society has no power under either the Articles or the LPO to impose such a penalty.

(b)  The Society’s attempt or threat to impose conditions on the applicant’s practising certificate under sections 40E(5) and or (6) of the LPO is an abuse of power for improper purpose and/or outside the statutory purpose of its power.

(2)  The Decision is Wednesbury unreasonable as the Late Charge is arbitrary and it applies across the board irrespective of the length of the delay.

(3)  The Decision is unlawful as the Council had fettered its discretion by rigidly adhering to the Late Charge without taking into account the individual circumstances of the applicant’s case.

(4)  The Decision was tainted with procedural irregularity for actual/apparent bias due to the involvement of certain members of the Council in the decision-making process.

C.  THE JUDGMENT

21.  On 24 April 2020, the Judge held a rolled-up hearing of the application for leave to apply for judicial review.

22.  In the Judgment, the Judge first treated the Decision as consisting of the following two parts[6]:

(1)  Part (1) of the Decision:

(A)  The applicant’s application for waiver of the Society’s “additional administrative charge” of $3,000 (ie, the Late Charge) be refused;

(2)  Part (2) of the Decision:

(B)  If the applicant did not pay the Late Charge by 12 noon on 28 June 2019, then the Society would without further notice amend the applicant’s 2019 Certificate of Membership by imposing a condition that the charge be made by 5 July 2019; and

(C)  If the applicant failed to observe the said condition, the Council would consider revoking the applicant’s Current Certificate of Membership in which event the applicant would no longer be qualified to practice as a Notary Public.

23.  Regarding Part (1) of the Decision, the Judge concluded that it was not amenable to judicial review as it did not have a sufficiently weighty public law element.  This is so as the power to impose the Late Charge came from the Articles and was contractual in nature and a matter of the Society’s internal management.  The Society was not exercising any of its statutory regulatory functions in levying and refusing to waive the Late Charge.  He therefore refused to grant leave to judicially review this part of the Decision.  See [39] ‑ [40] of the Judgment.

24.  As to Part (2) of the Decision, the Judge considered it to be substantive in nature and amenable to judicial review as it had and was intended to have legal effect in terms of authorising and causing the initiation of the process of revoking the applicant’s membership.  See [41] ‑ [52] of the Judgment.

25.  However, the Judge refused to grant leave to the applicant to apply for judicial review to challenge this part of the Decision under the following grounds:

(1)  The part of the illegality ground based on the contention that the Society had no power to link the payment of the “additional administrative charge” to the Membership Certificate:  The Judge ruled that this contention raised in the applicant’s written submissions was not pleaded in the Amended Form 86 and, in any event, the LPO did not expressly or by necessary implication override, prohibit or deprive the Council of its clear and pre-existing contractual power under the Articles to amend a member’s certificate of membership.  This ground of challenge was therefore not reasonably arguable. See [54] ‑ [68] of the Judgment.

(2)  The Wednesbury unreasonableness ground: The Judge considered that there was a sufficiently objective basis for the level of the charge fixed and that the amount of $3,000 as a general approximation was not unreasonable.  As such, it was not arbitrary and not one which could be said to be so absurd or irrational as to be Wednesbury unreasonable.  This ground was therefore also unarguable.  See [86] ‑ [90] of the Judgment.

(3)  The bias ground: The Judge concluded that there was no evidence that Mr Hart or Mr Sit would disregard proper professional standards and approach the applicant’s arguments with a closed mind.  This ground similarly was not reasonably arguable.  See [92] ‑ [113] of the Judgment.

26.  On the other hand, the Judge granted leave to the applicant to apply for judicial review under the other parts of the contentions in support of the illegality ground but refused the judicial review application on substantive merits[7]:

(1)  After a detailed examination of the affirmation evidence, the Judge observed that the Society in its 2019 Circular to the members clearly distinguished between the payment of the “additional administrative charge of HKD 3,000” and “disciplinary proceedings for breach of undertaking”.  The Late Charge had consistently been referred to as an “administrative charge” in all the internal minutes of the Ad Hoc Committee and the Council as well as the Society’s correspondence with the applicant.  There was nothing in the evidence to suggest that the Council had treated the levying of the Late Charge as a disciplinary action.  See [81] of the Judgment.

(2)  Moreover, the Judge accepted the Society’s evidence on the list of a series of administrative work that would be required to be done before a demand letter could be issued.  The Judge accepted that the amount of extra administrative work that needed to be undertaken would not depend on the length of the delay in the sense that the same steps would have to be followed once there was a failure to provide the necessary certificate by the deadline.  The amount of $3,000 would unlikely have any deterrent effect on notaries practising in Hong Kong.  Hence, after considering the evidence, the Judge concluded that the Late Charge was not a penalty in disguise but was a genuine administrative charge based on a general approximation of the costs involved.  See [82] ‑ [85] of the Judgment.

D.  THIS APPEAL

27.  In support of his appeal against the Judgment, the applicant in the Amended Notice of Appeal (“the ANOA”) advanced the following four grounds of appeal:

(1)  The Judge erred in separating the Decision into two different parts and erred in holding that Part (1) of the Decision was not amenable to judicial review on the basis that it lacked a sufficiently weighty public element.  Instead the Judge ought to have held the Decision as a whole had a sufficient public element and was amenable to judicial review.  Alternatively, the Judge ought to have held that Part (1) of the Decision itself had a sufficiently weighty public law element to be amenable to judicial review (“Ground 1”)[8] ;

(2)  The Judge erred in holding that the illegality ground in the contention that the Society had no power to tie the payment of the “additional administrative charge” to a Membership Certificate was not properly set out in the Amended Form 86. In any event, the Judge erred in holding that the applicant failed to show the legislative intent of the LPO was for the Society to be deprived of the power to make the Decision.  Alternatively, the LPO impliedly prohibits the Society from imposing the Late Charge and enforcing it by amending or revoking a Certificate of Membership and the Decision was thus ultra vires and illegal (“Ground 2”)[9];

(3)  The Judge erred in holding that the Late Charge was not a penalty in disguise and that it was a genuine administrative charge based on a general approximation of the costs involved (“Ground 3”)[10];

(4)  The Judge erred in holding that it was not arguable that the amount of $3,000 fixed for the Late Charge was Wednesbury unreasonable (“Ground 4”)[11].

28.  The applicant no longer pursues Ground 2.[12]  In the premises, this appeal is only concerned with Grounds 1, 3 and 4.

29.  The Society also filed a Respondent’s Notice of Additional Grounds (“the Respondent’s Notice”) seeking to affirm the Judgment on the additional ground that Part (2) of the Decision is not amenable to judicial review, as the Judge ought to have held that it was an “intermediate step” and not an ultimate decision with substantive legal consequences[13].

30.  For the purpose of this appeal, the applicant has also filed a summons on 30 September 2021 (“the Further Evidence Summons”) seeking leave to rely on the extracts of three minutes of the Council respectively dated 13 July 2016, 10 August 2016 and 9 November 2016 (collectively “the 2016 Minutes”) in relation to the Council’s decision to impose the Late Charge at $3,000.  We have indicated that the evidence would be first considered on debeneesse basis in the appeal.

E.  DISCUSSION

31.  As accepted by Mr Lee SC (together with Mr Dykes SC and Mr Yeung) for the applicant[14], in our view, the success of this appeal turns essentially on the question of whether the Late Charge is in substance a penalty as contended by the applicant (ie, Ground 3).  This is so as Ground 1 would not assist the applicant if he fails under Ground 3, and Ground 4 is effectively the flip side of Ground 3.  We will therefore first consider Ground 3.

E1.    Ground 3 – Whether the Late Charge is a penalty

32.  It is common ground in this appeal that the applicable guiding principles in determining whether an impugned provision is in nature a penalty have recently been stated by this Court in Law Ting Pong Secondary School v Chen Wai Wah [2021] 3 HKLRD 185 at [69] - [71] per Chu JA, applying Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis [2016] AC 1172.  Relevantly for present purposes, they are as follows:

(1)  In determining whether an impugned provision is in nature a penalty, the true test is whether the provision is a secondary obligation that imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.

(2)  Applying this test, the Court should thus first identify the legitimate interest of the innocent party that is being protected by the clause, and then assess whether the measure adopted under the subject clause is out of all proportion to the legitimate interest by considering the circumstances in which the contract was made.

(3)  In this respect, an innocent party generally has a legitimate interest in the performance of the contract or some appropriate alternative to performance that goes beyond compensation.  Notions of whether the subject clause has a deterrent purpose or whether it is a genuine pre-estimate of loss as traditionally adopted by the Court to determine whether the impugned measures is a penalty would be subsumed by the above broader inquiry.

33.  With these principles in mind, we now turn to consider the contentions raised under this ground.

34.  Mr Lee’s submissions that the Late Charge is a penalty in nature can be summarised as follows.

35.  First, he submits that from the Council’s discussions relating to the need to impose the Late Charge as recorded in the minutes dated 13 July 2016, it is clear that they intended to use the Late Charge to “punish” and therefore “deter” the members from failing to honour the Undertaking.  This is further reflected in the respective minutes of the Council and the Ad Hoc Committee in 2019 when the Council members discussed the applicant’s case. These plainly show that the Late Charge is and is intended to be a penalty in nature[15].

36.  Second, the only case that the Society has advanced in the evidence and in the Court below is that the sum of $3,000 represents a general approximation of the extra costs that would be incurred by the Society in undertaking the eight categories of work said to be necessitated by a late submission of a copy of the Solicitor Practising Certificate.  Ms Margaret Lau (the General Secretary of the Society) explains this at paragraph 25 of her 1^st affidavit as follows:

“25. The Society does not impose ‘fixed penalties’. The Administrative Charge of HK$3,000 is a reasonable fee which is a general approximation of the extra expense required to process all events in that category of work, without having to do an exact and unique calculation each time an event occurs. Indeed, it would be unfeasible and unrealistic for the Society to justify the Administrative Charge on an actual time and cost expended basis each time a member is in breach of his Undertaking. Amongst other things, the scope of the administrative work undertaken by the Society in the event of a breach of the Annual Undertaking includes (as was performed in the Applicant’s case): -

(1) checking by the Secretary General of the Society as to the names of those members who had failed to submit a certified true copy of his/her relevant Practising Certificate as a Solicitor by the 2^nd Deadline;

(2) arranging for the relevant information from the database record for report to the Council;

(3) seeking instructions from the Chairman of the Standards and Development Committee as to the date and time when the defaulting member must deliver a certified true copy of his/her Practising Certificate as a Solicitor;

(4) preparing and sending individual letters to inform each defaulting member of their breach of the Annual Undertaking;

(5) attending to all follow-up attendances, correspondence and telephone conversations with the defaulting member (with each case being different);

(6) giving instructions to deposit the cheque (for payment of the Administrative Charge) and prepare a formal receipt with the Society’s official chop for payment for posting to the defaulting member;

(7) giving instructions to file the certified true copy of the defaulting member’s Practising Certificate as a Solicitor in his/her individual file with the Society and reporting the same to Council; and

(8) preparing notes and papers for the various Council Meetings and Ad Hoc Committee Meeting (as necessary) and the follow up thereof.” (emphasis added)

37.  Mr Lee thus submits that it has never been the Society’s case that the imposition of the Late Charge is to serve any legitimate purpose.  As such, there is no evidence of such purpose and the burden is on the Society to show and prove a legitimate purpose.  The applicant must therefore succeed on this basis alone as the Late Charge is imposed for no legitimate purpose.  It is by default a penalty.

38.  Third, in any event, the Society has failed to show by proper evidence that the $3,000 is a general approximation of the extra expense to be incurred for the additional works to be undertaken by the Society when there is a late submission of the certificate by a member as asserted:

(1)  Ms Lau’s claims in her affidavit that those identified categories of work would need to be undertaken are not based on facts, but are at best only a mere expression of an opinion by herself.  While Mr Lee accepts that it would be infeasible and unrealistic for the Society to justify the administrative charge on an actual time and cost expended basis each time a member is in breach of the undertaking, he submits that to qualify as proper evidence, the deponent should have at least stated, for example, who had undertaken the exercise to estimate the alleged time cost and on what basis the estimation was done if such an exercise had ever been carried out in 2016.  However, none of this has been deposed to.  In the premises, these statements are not in the nature of proper evidence and the Judge erred in accepting them.

(2)  In further support, Mr Lee has drawn our attention to the 2016 Minutes to show that there is nothing in them to show any discussions as to how the amount of $3,000 was arrived at when the Council decided to impose the Late Charge.

(3)  In the circumstances, there is simply no or no admissible evidence to support the Society’s claim that the sum levied represents a genuine and general approximation of the extra cost to be incurred.

(4)  Mr Lee further points out that the fixed charge applies across the board irrespective of the length of the delay and is thus clearly arbitrary.  He also says it is difficult to see how the alleged extra time and expenses to be incurred by the Society for the stated additional works could come even close to $3,000 as they are all simple and clerical in nature, and that the Society would have to do some of the items in that list in any event even if there are no defaulting members in a given year.  He further draws our attention to the fact that the $3,000 levied is even higher than some statutory fines.[16]

(5)  In the premises, the Society’s case that the Late Charge is a “genuine administrative charge” being “a general approximation of the extra expense required” must fall apart.[17]  The sum charged is therefore also out of all proportion to any legitimate interest the Society may have (if any) in charging any late delivery fee.

39.  With respect to Mr Lee, we are not persuaded by his submissions.

40.  First, we do not accept that the Late Charge was intended to be imposed by the Council as part of the disciplinary regime to punish and deter its members as submitted by Mr Lee. 

41.  The Council agreed to impose an administrative charge (ie, the Late Charge) on members who had breached the Undertaking at its meeting held on 13 July 2016. The relevant discussions and decisions were recorded at paragraph 92 of the minutes (“the July 2016 Minutes”)[18] as follow:

“92. REVIEW OF 2017 RENEWAL OF MEMBERSHIP PROCEDURE

Council considered the issues relating to Article 6(5) raised by the Standards and Development Committee.

Article 6(5), inter alia, provides –

‘The Council is entitled to prescribe conditions to a Certificate of Membership or amend a Current Certificate of Membership by imposing conditions to it. The Council is entitled to revoke the Current Certificate of Membership of a Member on the ground that he has acted in breach or failed to observe the conditions to his Current Certificate of Membership.’

Council was invited to consider—

(1) Whether the requirement to honour the undertaking given by a member to the Society in his/her application when he/she has elected Option B should be made a condition for issue of the Certificate of Membership to him/her.

The undertaking in Paragraph 1(b) of Part B of the current Application for 2016 Certificate of Membership Form reads—

‘(b) I undertake to deliver to the Secretary General of Hong Kong Society of Notaries by Monday 11 2016 a copy of my Practising Certificate as a Solicitor issued by The Law Society of Hong Kong for the 2016 Practice Year certified as a true copy by another Hong Kong solicitor.’

(2) Whether revocation of a Certificate of Membership already issued should be automatic in the case of a breach of the above-said undertaking.

It was thought that late submission of a certified true copy of a member's current Law Society Practising Certificate as a Solicitor (‘Law Society PC’') per se would not be material to the qualification to practise as a notary public.

When a member has given an undertaking, the breach of which could lead to disciplinary proceedings.

Although the Articles of Association provides that singular includes plural, the said provision in Article 6(5) is in singular and there should be caution when exercising this power to a general class of members.

It was noted that usually members will not get their Law Society PCs until the end of December.

Council thought that if revocation of a Certificate of Membership were automatic in the case of a breach of undertaking, the status of the notarial acts which had been performed might be at issue.

Suggestion was made to impose an administrative charge on members who have breached their undertakings.

Members could be informed that breach of undertaking would lead to disciplinary proceedings.

Council was of the view that members have not taken their undertakings seriously enough in the past. There should not be any individual reminder letter.

AGREED that:-

(i)there should be no automatic revocation of a Certificate of Membership already issued to a member in the case of a breach of undertaking by that member to provide his/her certified true copy current Law Society PC by the deadline;

(ii)the circular on renewal of membership procedure should state to the effect that –

– an administrative charge would be imposed on members who have breached their undertakings

– members who have breached their undertakings might be subject to disciplinary proceedings; and

(iii)no individual reminder letter be sent.” (emphasis added)

42.  It is pertinent to note that in the above minutes:

(1)  It recorded the discussion that: “Suggestion was made to impose an administrative charge on those members who have breached their undertaking”.

(2)  This must be read in contrast with what follows in the discussion that: “Members could be informed that breach would lead to disciplinary proceedings”.

(3)  The Council then agreed, inter alia, that in future, the circular on renewal of membership procedure should state to the effect that (a) “an administrative charge would be imposed on members who have breached their undertakings”, and (b) “members who have breached their undertakings might be subject to disciplinary proceedings”.

43.  When these are read objectively and in its proper context, in particular the way that the imposition of an administrative charge and the possibility of taking out disciplinary proceedings against a member were recorded to be discussed and considered separately, it is clear to us that:

(1)  The Council recognised that there were incidents of breach of the Undertaking by members who had failed to submit the Solicitor Practising Certificate by the deadline.

(2)  To address the problem, the Council first discussed and decided that an administrativecharge should be imposed when such circumstances arose.  By the use and reference to the words “administrative charge”, it is objectively plain that the charge was intended to be imposed to cater for the need to carry out extra administrative works by the Society to deal with a late submission of the Solicitor Practising Certificate.  In this respect, it is simply common sense that additional out of the routine works would need to be undertaken by the Society whenever there is a late submission of certificate.

(3)  Further, separately and independently, the Council also discussed and recognised that disciplinary consequence might be imposed on a member who had breached the undertaking.

(4)  The Council then agreed separately (a) to impose the administrative charge, and (b) to inform a defaulting member of the possibility of disciplinary proceedings being undertaken against him or her.

44.  In the premises, it is objectively plain to us that the imposition of the Late Charge as an administrative charge was not intended by the Council to be part and parcel of the disciplinary regime undertaken against a member who is in breach of the undertaking. 

45.  Second, in considering whether the Late Charge is a penalty, adopting the approach as set out in Law Ting Pong, the Court should first identify the legitimate interest of the Society in imposing the Late Charge of $3,000.

46.  When asked about this at the hearing, Mr Yu SC for the Society submits that the purpose of the Late Charge is to ensure the members’ compliance of the Undertaking.

47.  In relation to this, Mr Lee first objects that it is not open to the Society to advance this submission since:

(1)  This was not the case the Society had advanced in the Court below.   Its only case before the Judge and set out in its opposing affidavit is that the Late Charge is a genuine pre-estimate by way of general approximation of the extra expense to be incurred for the stated additional works that need to be undertaken by the Society in a late submission case.  The applicant will therefore suffer prejudice if the Society is allowed to raise it for the first time now; and

(2)  In any event, there is no evidence to support the so-called legitimate purpose.

48.  We reject Mr Lee’s objections:

(1)  Given Mr Lee’s acceptance that the relevant guiding legal principles as to whether a charge imposed on the breach of contract on the default party is a penalty are those now adopted in Law Ting Pong, it must be open to the Society to advance its case on what it says to be the legitimate purpose that the Late Charge is to serve. There is also no question that the applicant will be prejudiced by not having the chance to put forward any evidence in reply to this: Mr Lee has not been able to indicate and suggest what evidence the applicant might have been able to adduce to rebut this purpose if the Society had raised it in the Court below.

(2)  In any event, the legitimate purpose now advanced by Mr Yu arises objectively from common and commercial sense.  It must be plain and obvious that a charge so imposed would have the effect of encouraging compliance with the Undertaking by the members. 

49.  In our view, the Society’s purpose of ensuring compliance with the Undertaking is plainly a legitimate one:

(1)  As mentioned at [32(3)] above, the Court generally recognises that the innocent party has a legitimate interest in enforcing the contract.  The inquiry is only whether “the means by which the contracting party’s conduct is to be influenced are ‘unconscionable’ or (which will usually amount to the same thing) ‘extravagant’ by reference to some norm.”[19]

(2)  In the present case, a breach of an undertaking given in a professional context is clearly a serious matter, in particular, when the person giving the undertaking is a practising notary public and senior solicitor of at least seven years standing.  As recorded in the July 2016 Minutes, the Council had noted incidents of members breaching the Undertaking and not taking their undertakings seriously.  In these circumstances, it must a fortiori be legitimate for the Society as a professional body to ensure such compliance.

(3)  It is the practice and policy of the Society to deliver to its members their respective Membership Certificate in mid‑December, about two weeks prior to the commencement of a new practice year, so that the members may perform notarial acts immediately upon the commencement of the practice year.[20]  This practice is to facilitate the members’ practice as a notary public and thus for their benefit, and is built upon the trust that they would honour their Undertaking.  It is therefore plainly legitimate that the Society seeks to ensure such compliance.

50.  Further, the sum of $3,000 is clearly not “extravagant” and “out of all proportion” to the Society’s said legitimate interest:

(1)  The amount should be assessed by reference to the exclusive group of persons against whom the Late Charge is levied.  They are all senior practising solicitors of at least seven years standing, and as notaries public charge not insignificant professional fees for their services.  Objectively viewed in this context, the amount of $3,000 can hardly be said to be “extravagant” or “out of all proportion”.

(2)  The amount of the Late Charge has been repeatedly published and highlighted to the members in the annual circulars and application forms issued by the Society since 2016.[21]  There is no evidence that prior to 2019, there had been any complaints or challenges made by any members that this amount was unreasonable or too high.  Other than the applicant, members who had breached the Undertaking in relation to their applications for the 2019 Membership Certificates had all promptly and unconditionally paid the Late Charge.[22]  The fact that no other members had complained or objected to this charge, on the basis that the amount levied was far too much, since its implementation until now objectively lends support to show that the amount of the Late Charge is not outrageous, “extravagant” or “out of all proportion”. Cf: Cavendish at p.1227C.

(3)  Moreover, the present case itself also serves as a good example to underline why the amount of $3000 levied as an additional administrative charge cannot be regarded as extravagant or out of all proportion.  The applicant had engaged in various correspondence with the Society between 11 January and 27 June 2019 in relation to his breach of the Undertaking.  The matter had to be dealt with and attended to by Council members, who themselves are senior legal practitioners, at length.  See [11] - [17] above.   It must thus be obvious that extra time-cost so incurred by the Society in dealing with the applicant’s case must by any account be substantially more than $3,000.  Therefore, the $3,000 levied as a fixed administrative charge to cater for all events arising from a breach of the Undertaking by members cannot in any view be said to be extravagant or out of all proportion to the Society’s purpose in enforcing the Undertaking.

51.  In the premises, applying the principles in Law Ting Pong, we are satisfied that the Late Charge serves a legitimate purpose and the amount of $3,000 charged is plainly not out of all proportion to this purpose.  It is therefore not a penalty in nature.

52.  Given the above conclusion, it is unnecessary to deal with the issue of whether the $3,000 charged represents “a general approximation of the extra expense required to process all events in that category of work”, as this exercise has been subsumed into the question of whether the sum itself is so extravagant and out of all proportion to the legitimate purpose it is to serve.  See: Law Ting Pong at [70] per Chu JA.  As Lord Neuberger PSC and Lord Sumption JSC observed in Cavendish at [31] as follows:

“… The real question when a contractual provision is challenged as a penalty is whether it is penal, not whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive categories. A damages clause may be neither or both. The fact that the clause is not a pre-estimate of loss does not therefore, at any rate without more, mean that it is penal. To describe it as a deterrent (or, to use the Latin equivalent, in terrorem) does not add anything. A deterrent provision in a contract is simply one species of provision designed to influence the conduct of the party potentially affected. It is no different in this respect from a contractual inducement. Neither is it inherently penal or contrary to the policy of the law. The question whether it is enforceable should depend on whether the means by which the contracting party’s conduct is to be influenced are ‘unconscionable’ or (which will usually amount to the same thing) ‘extravagant’ by reference to some norm.” (emphasis added)

53.  Accordingly, the Judge was correct in holding that the Late Charge is not a penalty.

54.  We therefore reject Ground 3.

E2.    Ground 4 – Whether the Late Charge is Wednesbury unreasonable

55.  Given our analysis under Ground 3, this ground must also fail.

56.  For the same reasons as explained in [50] above, the amount of $3,000 as levied on the applicant was plainly not so unreasonable that no reasonable decision maker would arrive at the same conclusion.  Equally, adopting a fixed sum to be applied across cases is also far from being Wednesbury unreasonable as discussed under Ground 3 above.

E3.    Ground 1 – Amenability of the Decision

57.  Given our above conclusion that the Late Charge is neither a penalty nor Wednesbury unreasonable, it is unnecessary for this Court to go into the issue of the amenability of the Decision or whether the Decision should be separated into two parts, as the applicant will fail in this appeal in any event.

58.  However, for completeness, we would deal with this ground briefly.

59.  The main argument raised by Mr Lee in support of this ground is that the Decision should be read and understood as a whole as the imposition of the Late Charge is part and parcel of the entire disciplinary regime adopted by the Society to “punish” or “penalise” a member who has defaulted in submitting the certificate in time.  It is thus not only artificial but also wrong in principle to separate the Decision into two parts as adopted by the Judge.  Counsel emphasizes that, in this respect, the levying of the Late Charge must be considered together with the imposition of the condition in the Membership Certificate and the threat of revoking the certificate upon the failure to pay the Late Charge by the time stipulated.

60.  For the same reasons set out at [40] ‑ [44] above, we reject this contention as it is clear to us the imposition of the Late Charge is not and is not intended by the Society to be part of the disciplinary regime concerning a member’s breach of the Undertaking.

61.  We will therefore also dismiss Ground 1.

E4.    Respondent’s Notice

62.  Given that the applicant has failed in all his grounds of appeal, it is unnecessary for us to deal with the Respondent’s Notice.

E5.    The Further Evidence Summons

63.  There is no dispute that the 2^nd Affidavit of Lau Suk Ying Margaret (“Margaret Lau’s 2^nd Affidavit”) exhibiting the 2016 Minutes was filed by the Society in order to correct its written submissions lodged on 11 August 2021 in opposing the applicant’s summons filed on 13 July 2021 to re-amend the Notice of Appeal.  That summons was dismissed by this Court by the Amendment Judgment.[23]  As such, as submitted by Mr Yu, the 2016 Minutes were, strictly speaking, not produced for the purpose of the present appeal.

64.  Accordingly, for the applicant to rely on the 2016 Minutes which were not produced before the Judge, the three conditions set out in Ladd v Marshall [1954] 1 WLR 1489 must be satisfied, namely:

(1)    The further evidence could not have been obtained with reasonable diligence for use at the trial;

(2)    The further evidence is such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(3)    The evidence is such as is presumably to be believed.

65.  On the other hand, it is also well settled that in the context of public law proceedings, “some flexibility” from the strict requirements of Ladd v Marshall may be allowed where the “interests of justice” so requires, and while those principles “… remain the starting point, but there is a discretion to depart from them in exceptional circumstances”: see E v Secretary of State for the HomeDepartment [2004] QB 1044 per Lord Phillips of Worth Matravers MR; Dr Kwok-Hay Kwong v The Medical Council of Hong Kong (CACV 373/2006, unreported, 5 September 2007) per Ma CJHC (as he then was) and A Solicitor v The Law Society of Hong Kong [2021] 5 HKLRD 445 per G Lam JA.

66.  Bearing the above legal principles in mind, we are of the view that the unique circumstances of the present case satisfied the Ladd v Marshall rules, and in any event, for the interests of justice, we will grant leave for the applicant to rely on the 2016 Minutes for the following reasons:

(1)  Although the 2016 Minutes could arguably have been obtained for use at the rolled-up hearing by the applicant by say applying for discovery, it is pertinent to note that even on the Society’s own evidence, up to 1 September 2021, it had always been its mistaken belief that there was no document relating to the imposition of the Late Charge by the Council in 2016.[24]  Given these circumstances, we do not think it is unreasonable for the applicant not to have applied for discovery of such documents against the Society prior to the rolled-up hearing.  To look at it in another way, even if the applicant had so applied for discovery, given the Society’s above own evidence and position, its response would likely have been that there was no such documentation.  In the premises, we accept that the 2016 Minutes could not have been obtained by the applicant before the rolled-up hearing even with reasonable diligence.

(2)  The 2016 Minutes are plainly credible.

(3)  More importantly, the 2016 Minutes are also plainly relevant to the important issue as to whether the Late Charge is a penalty as they reflect the reasons and basis upon which the Council considered it necessary to impose the Late Charge in the first place in 2016.  For the same reason, it would also be wholly unrealistic and unjust for the Court not to look at them in seeking to resolve the issue.  Indeed, as is evident above, we have taken into account the 2016 Minutes in our analysis when dealing with Grounds 3 and 4.

67.  We therefore allow the Further Evidence Summons and grant leave for the applicant to rely on the 2016 Minutes as evidence in the present appeal.

F.  DISPOSITION

68.  For all the reasons set out above, the applicant fails on all his grounds of appeal, and we dismiss the appeal.

69.  As to costs, we see no reason why costs should not follow the event.  Accordingly, we make the following orders:

(1)  Costs of the Further Evidence Summons be to the applicant with certificate for two counsel, to be taxed if not agreed.  In this respect, for taxation purpose, it should be noted that effectively no time was spent at the hearing on this summons as we had indicated that the evidence would be dealt on de bene esse basis. 

(2)  Costs of the appeal be to the Society with certificate for two counsel, to be taxed if not agreed.

CACV 394/2020

[2021] HKCA 1270

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 394 OF 2020

(ON APPEAL FROM HCAL NO 2658 OF 2019)

________________________

________________________

____________________

JUDGMENT

____________________

Hon Yuen JA (giving the Judgment of the Court):

1.1.  There is before this court the Applicant’s summons filed on 13 July 2021 (“the summons”) for leave to re-amend the Notice of Appeal by adding a new ground in his appeal from the Judgment of Alex Lee J (“the judge”) given on 30 July 2020 (“the Judgment”)¹.

1.2.  The appeal has been fixed to be heard on 29 October 2021.  On 14 July 2021, a single judge of this court gave directions for the summons to be dealt with on paper, and written submissions were filed by both parties. 

1.3.  Judgment on the summons was scheduled to be handed down on 2 September 2021, but on 1 September 2021, the Respondent’s solicitors wrote to the court saying that it wished to file an affidavit to correct its submissions.  That afternoon, the Respondent filed the 2^nd affidavit of Lau Suk Ying Margaret (“Lau II”), and the court gave leave to the Applicant to file a response, which he did on 3 September 2021 together with an additional statement of costs (for extra works and costs incurred since 18 August 2021).

Background

2.  The Applicant is a notary public who was required by the Respondent, the Hong Kong Society of Notaries (“the Society”), to pay $3,000 as an additional administrative charge (“the charge”) for his late submission of a supporting document for the renewal of his Certificate of Membership for 2019. The decisions to impose the charge and to fix it at $3,000 had been made in 2016 (“the 2016 Decisions”), with members being notified in two circulars².

3.1.  All members of the Society were reminded of the requirement to submit the supporting document by (a) a circular issued in September 2018; (b) a circular issued in October 2018³; and (c) an “Important Notice” sent in December 2018 reminding members that they needed to honour the undertaking to submit the supporting document⁴. 

3.2.  As the Applicant failed to do so, on 11 January 2019 the Society informed him that he was in breach of the undertaking, and that (among other things) he was required to pay the charge⁵.

Application for waiver of the charge and Respondent’s decisions thereon (the 2019 Decision)

4.1.  The Applicant applied for a waiver of the charge.  On 25 March 2019, the Respondent refused to waive the charge⁶.  On 12 June 2019 (“the 2019 Decision”), the Respondent decided again to refuse to waive the charge (referred to in the Judgment as “Part 1") and formulated certain consequences in the event of non-payment (referred to in the Judgment as “Part 2”)⁷.   

4.2.  On 27 June 2019, the Applicant paid the charge under protest.

Proceedings

5.  On 11 September 2019, the Applicant made an application for leave to commence judicial review to challenge the 2019 Decision.  Directions were given on 12 September 2019 for a “rolled-up hearing”, i.e. the hearing of the application for leave to apply for judicial review, and in the event that leave was granted, the substantive judicial review application.

6.1.  On 24 October 2019, the parties filed a Consent Summons for directions on the filing of evidence.  The Respondent through its Secretary General, Lau Suk Ying Margaret filed an affidavit on 9 December 2019 (“Lau I”), in which she:

(a)  exhibited documents including the two circulars issued in 2016 in respect of the charge⁸; and

(b)  explained that the figure of $3,000 was a “general approximation of the extra expense required to process all events”, listing the “scope of the administrative work undertaken by the Society” when the supporting document is not submitted⁹. 

6.2.  The Applicant did not request further documents, or make any application for discovery under the rules of court, or seek to cross-examine Ms Lau at the hearing¹⁰.

The judge’s Judgment

7.  The hearing took place on 24 April 2020, at which the Applicant was represented by senior counsel.  The judge gave Judgment on 30 July 2020. 

-  In relation to Part 1, the judge refused leave to apply for judicial review.

-  In relation to Part 2, he refused leave on all grounds except for what was called the “illegality ground” based on contentions (b) - (d), as set out in §53 of the Judgment¹¹.  However, on this ground, the substantive application for judicial review was dismissed on the merits.

Notice of Appeal

8.  The Applicant filed a Notice of Appeal on 19 August 2020 which was amended by consent on 14 January 2021.  The appeal was set down on 5 March 2021.

Summons to re-amend to add Ground 6A

9.1.  On 13 July 2021, the Applicant filed a summons to re-amend the Notice of Appeal. Grounds 4 and 5 were deleted, to which the Respondent has no objection, and there is an amendment to correct a typographical error in Ground 7. 

9.2.  However, the Applicant also wished to add a new ground, viz. Ground 6A.  In brief, the Applicant asserts under this ground that:

(1)    the Respondent had a duty of candour to the court and to him;

(2)    the Respondent has breached that duty in that it had failed to produce documents regarding the Council’s 2016Decisions to impose the charge and to fix it at $3,000 (“the2016 documents”), which he says are relevant to the “question of whether the [charge] was imposed as a disguise for a penalty for the alleged breach of undertaking, as well as whether the sum of the [charge] was irrational ...”; and

(3)    as the Respondent had failed to produce such documents at the hearing before the judge, adverse inferences should drawn against it. 

9.3.  The summons was supported by an affirmation of the Applicant (Li III) in which he said that the “main reason” for introducing Ground 6A was that he has engaged a new leading counsel for the appeal, who wished to add this new ground of appeal.  Pausing here, it should be noted that the Court of Appeal has made it clear that the instruction of a new legal team (or, in this case, a new member) is not a good ground for raising a new issue on appeal¹².

9.4.  The Respondent filed submissions on 11 August 2021 opposing the new ground on the basis that it had not been argued below.  Nevertheless, in the submissions, it also said that “if the Society is given an opportunity to explain (as it would have been if the matter was raised in the Court below), the Society would have adduced affidavit evidence to the effect that the requested documents do not exist, and there would be no credible basis for the Applicant to argue a breach of the duty of candour or to draw any adverse inference against the Society” (emphasis added).

9.5.  However, on 1 September 2021, the Respondent’s solicitors wrote to the court saying that “it has come to the Respondent’s attention that there are matters in the Respondent’s Written Submissions filed herein on 11 August 2021 requiring correction” and asking that the handing down of the judgment be deferred. Nothing was said about the nature or content of the correction.  As mentioned earlier in this judgment, the court gave leave to the Respondent to file an affidavit that day, with leave to the Applicant to file a response (if any) on 3 September 2021.

9.6.  The Respondent then filed Lau II, which said (among other things) the following:

“18. Following receipt of the Applicant’s draft Re-Amended Notice of Appeal, wherein he raises the New Argument [i.e Ground 6A] for the first time, I did a quick check of the Society’s files and records and at that time did not locate any documents relating to the imposition of the charge in the first place and the general fixing of the charge at HK$3,000. The Society therefore informed its solicitors that there were no documents relating to the imposition of the charge in the first place or the general fixing of the charge at HK$3,000.

19. On review, I found that there are in fact minutes for three Council meetings held on 13 July 2016, 10 August 2016 and 9 November 2016 which relate to the imposition of the charge in the first place or the general fixing of the charge at HK$3,000. Unfortunately, due to the Society’s inadvertent omission, these minutes were not retrieved before the filing of the [Respondent’s submissions] on 11 August 2021, and the Society was then under the mistaken belief that these documents did not exist. These minutes were only retrieved by the Society after it had filed its Written Submissions in Opposition”.

9.7.  Before discussing the merits of the summons, this court must express its dissatisfaction with the Respondent’s conduct in the preparation of its submissions.  Irrespective of the issue whether the Applicant should be allowed to argue Ground 6A, or whether the Respondent should have included in its submissions the matters set out in para. 9.4 above, it is most regrettable that a litigant (and particularly a professional legal body) had adopted such a careless attitude (performing only a “quick check”) before giving instructions for the preparation of submissions.  Lau II did not state when the 2016 minutes were retrieved, other than to say that it was after 11 August 2021, but since the Respondent considered it necessary to do a “review”, it should have done so promptly after that date. Yet it was not until 1 September 2021, the eve of handing down, that it informed the court of the need to correct submissions. As a result, the court has had to revisit the papers and reconsider the judgment which had been made ready for handing down.  The court’s dissatisfaction with this conduct will be reflected in the costs order set out later in this judgment.       

Discussion

10.  Coming back to the merits of the arguments over the summons, the Applicant accepts that Ground 6A had not been argued before the judge.  He asserts that it raises “a pure point of law which can and should be decided by the Court without regard to any new evidence at all”. 

11.  Having considered the documents filed by both parties, it is clear that the new ground is not a pure point of law, and that it would be contrary to the Flywin¹³ principle for the ground to be raised only now on appeal.  This principle prohibits new points on appeal unless “there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side [the Respondent] if the point had been taken at the trial”.

12.  First, it is difficult to see how the Applicant can say that this new ground can be decided now “without regard to any new evidence”.  The fact that the Respondent has now exhibited the 2016 documents does not change the issue, which is whether the Applicant should be permitted on appeal to argue a new point which had not been canvassed before the judge below.      

13.  It is important in legal proceedings to take a principled approach.  The Applicant is now asserting that the 2016 documents are relevant to his argument that the 2016 Decisions imposing the charge and fixing it at $3,000 are a “disguise” for a penalty and are “irrational”.  However, it is clear from his amended Form 86 that these 2016 Decisions were not the decisions that he sought to challenge by way of judicial review.  The decision he sought to challenge was the 2019 Decision in which the Respondent refused to waive the charge and formulated certain consequences in the event of non-payment.

14.  In any event, if the Applicant considered that the 2016 documents were relevant to his “illegality” argument on the 2019 Decision, he could and should have asked for them, or sought discovery of them prior to the rolled-up hearing¹⁴. Lau I had exhibited the two circulars informing members of the 2016 Decisions.  Circular No.11/2016/C referred¹⁵ to the decision to impose an additional administrative charge, and Circular No.19/2016/C referred to the decision to fix it at $3,000.  The Applicant did not apply for discovery of any documents leading to those circulars.

15.  If the Applicant had argued at the hearing before the judge that the 2016 documents should have been produced as being relevant to the 2019 Decision, the Respondent would have been able then to argue their relevance (irrespective of whether it was prepared to produce them). The judge would then have been able to decide on their relevance, and if found to be relevant, to consider the impact of this evidence on the issues before him.  It is inappropriate for this to be done for the first time at the appellate stage.  It is well-established that it is for a judge of first instance, not a 2-3 judge appellate court, to determine evidentiary disputes.  An appeal is not the time for a second round of evidence in respect of a point that the Applicant accepts he failed to take at first instance.

16.  As the Court of Appeal held in Lehmanbrown Ltd v Union Trading Holdings Inc¹⁶ at §10 and repeated in Re Qin Jun, the material concept in considering whether to allow a new point to be taken on appeal is one of fairness. 

“30. This concept of fairness in assessing whether a new point should be permitted to be taken on appeal was further explained in Lehmanbrown Ltd v Union Trading Holdings Inc ... at [10]:

Whilst the Court of Appeal obviously has power to entertain new points in an appeal, it is also clearly and firmly established that new points which are fact sensitive or otherwise affect the course of evidence or conduct of the case at the hearing below should not be allowed. Though this principle is usually applied in situations where the new points necessitate further evidence to be adduced, it is not confined to such scenarios. Very often, the raising of a new point by one party may lead to the other party raising counter arguments and the consideration of such counter arguments may involve factual assessment in a different light from that undertaken by the court below. Sometimes, it may involve a different weighing of factors in the exercise of discretion. Alternatively, the other party may embark on a different course of forensic conduct if the new point were taken earlier. The appellate court, in considering whether the new point would be entertained, is entitled to take these matters into account in order to avoid unfairness to the other party”. (Emphasis added).

Order

17.  For the reasons above, it is not appropriate to permit the Applicant to add Ground 6A only now at the appellate stage.  This summons is therefore dismissed.  As for costs, we would make a costs order that the Applicant is to pay the Respondent’s costs summarily assessed at $60,600.  This represents a reduction from the assessment in the original draft of this judgment and reflects the court’s dissatisfaction with the Respondent’s conduct set out in paras. 9.5 – 9.7 above which also added to the Applicant’s costs.