George Y. C. Mok & Co.

WASTED COSTS ORDERS

1. Introduction

The proper conduct of litigation, civil or criminal, by the legal profession is essential to the administration of justice. Over the past Century, there were, and still are, High Court (formerly Supreme Court) Rules governing the personal liability of a solicitor for costs in civil matters which are incurred improperly or without reasonable cause or are wasted by undue delay or by any other misconduct or default. The relevant provisions of the Rules which shall be examined more closely below, are set out in Order 62 Rule 8 of both the Hong Kong High Court and District Court Rules. Such Rules have been adopted from England originally. However, the old English Order 62 Rule 8 was revised and became Order 62 Rule 11 in the year 1986, but the Hong Kong Rule has not been changed and is still discriminatory against solicitors, since barristers remain immune from this kind of order. The English Order 62 Rule 11 omitted any reference to undue delay or any other misconduct or default and in replacement thereof, it referred to the failure to conduct proceedings with reasonable competence and expedition.

In the year 1990, the English position was further altered after the introduction of a new section 51 of the Supreme Court Act 1981 and section 19A of the Prosecution of Offences Act 1985 (analogous provision for criminal cases). The jurisdiction of the English Courts to make “wasted costs orders” against legal representatives under the said section 51 and the said section 19A in respect of “improper, unreasonable or negligent” acts or omissions applies to counsel as much as to solicitors. In the year 2004, the Court of Final Appeal in Ma So So Josephine v. Chin Yuk Lun Francis and Chan Mee Yee (FACV No. 15 of 2003) [2004] 3 HKLRD294, had given very useful guidance on application for wasted costs order under Order 62 Rule 8 which still has not, unfortunately, been extended to counsel. On 1^st March 2005, the new practice direction 14.5 relating to an application for wasted costs order under Order 62 Rule 8 came into operation, which would no doubt deter unscrupulous solicitors from making false claims for, or at the behest of, their clients or from incurring costs unreasonably or by misconduct or default.

2. Solicitor’s Liability for Costs

Under Order 62 Rule 8 of both High Court and District Court Rules, the Court may be asked to, or may on its own inherent jurisdiction, penalise the solicitor by ordering him to personally pay the costs improperly or wastefully incurred (see Re: A (a minor) [1988] 18 Fam. Law, 339, C.A.; Ho Lee Man v. Wong Wai Kai (no. 2) [1993] 1HKC193, C.A and Daly v. Hubner (wasted costs) [2002] Lloyd’s Rep. P. N. 461).

The Court may make against any solicitor whom it considers to be responsible whether personally or through a servant or agent, an order:-

a. disallowing the costs as between the solicitor and his client; and

b. directing the solicitor to repay to his client costs which the client has been ordered to pay to the other parties; or

c. directing the solicitor personally to indemnify such other parties against costs payable by them.

No order under this Rule shall be made against a solicitor unless he has been given a reasonable opportunity to appear before the Court and show cause why the order should not be made. Hitherto, there are only piece-meal wasted costs orders made by the Court against solicitors, although the Court has a right and a duty to supervise the conduct of solicitors as they are officers of the Court and to penalise them if their conduct tends to defeat justice. In the past, the Court considered that the following types of conduct of solicitors were inexcusable:-

a. oppressive conduct generally (see Wilkinson v. Wilkinson [1963] All E.R. 922 C.A.); and

b. want of authority where the proceedings were instituted without authority or the consent of the client (see Carl-Xeiss-Stifung v. Rayner and Keeler Ltd. (no. 2) [1965] 1 Ch. 596, 1 All E.R. 300, C.A.);

c. reliance on counsel when the advice was glaringly wrong (see Davy-Chiesman v. Davy-Chiesman [1984] 1 All E.R. 311, C.A.);

d. pursuing a hopeless case with no prospect of success (see Ho Lee Man’s case);

e. serious dereliction of duty (see Que Jocelyn Co. (T/A Scented Delights) v. Broadair Express Ltd. [1999] 3 H.K.L.R.D. 104);

f. making a false claim for, or at the behest of, a client (see Ma So So Josephine v. Chin Yuk Lun Francis and Chan Mee Yee [2004] 3 H.K.L.R.D. 294, C.F.A.).

However, in the case of AIE Co. Ltd. v. Kay Kam Yu [1995] HKLY 798, C.A., where the solicitor’s misconduct was committed in the course of a conveyancing transaction which led to civil proceedings for compensation against him at the suit of the party, the Court held that as the misconduct was not “in the course of a cause” it had no jurisdiction to order the solicitor to pay costs as he had not acted in the litigation. The reasoning was correct and tallied with the decision in Brendon v. Spiro [1938] 1 KB 176, as it was not misconduct in his capacity as an officer of the Court.

3. The Judgment in Ma So So’s Case

It was a unanimous decision of the Court of Final Appeal that the wasted costs order made by the trial judge against the solicitor who had the conduct of the proceedings be upheld, although the indemnity costs order was varied to party and party costs order.

In this case, the Court of Final Appeal has laid down very important guidelines for applications under Order 62 Rule 8 and they are briefly discussed below.

The Approach

In considering the exercise of the jurisdiction under this Rule, the Court should approach the matter by dealing with the following questions:-

a. 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.

b. whether such conduct of the solicitor caused costs to be incurred or wasted. This is a question of causation. The causal link between the solicitor’s conduct and the extent of costs incurred or wasted must be established.

c. whether the Court should exercise its discretion to make an order.

Compensatory and Punitive

The jurisdiction is compensatory and the order made under the Rule cannot exceed the amount of the costs so incurred or wasted. However, the jurisdiction can also be regarded as punitive, if the order for costs incurred or wasted against a party is shifted to the solicitor (see Harley v. McDonald [2001] 2 A.C. 678 and Davy-Chiesman’s case).

Summary Jurisdiction

The jurisdiction under this Rule is summary jurisdiction and any allegation of breach of duty relating to the conduct of a solicitor should be confined strictly to questions which are apt for summary disposal by the Court (See Harley’s case and Orchard v. South Eastern Electricity Board [1987] 1 Q.B. 565).

Legal Professional Privilege

Where a client applies for an order against his own solicitor, a waiver of privilege by the client in relation to all relevant matters will be implied by law (see Yau Chiu Wah v. Gold Chief Investment Ltd. (no. 2) [2003] 3 HKC 91). However, where an order is sought by a party against an opposite party’s solicitor who would be the respondent, the position is fundamentally different. In the absence of any waiver, the respondent solicitor would be unable to disclose what advice and warnings he had given to his client and what instructions were received from his client. Therefore, the respondent solicitor would find himself at a great disadvantage in defending the application. Where there is room for doubt, the respondent solicitor is entitled to the benefit of it.

Discretion

Summary jurisdiction under this Rule is discretionary. In exercising its discretion, the Court has to take into account the strength of the prima facie case shown by the applicant (the 1^st stage), and even if the Court is satisfied that the solicitor’s conduct was the kind prescribed in the Rule and had caused costs to be incurred or wasted (the 2^nd stage), the Court is not bound to make an order. However, if the Court declines in its discretion to make an order, it must give sustainable reasons (see Ridehalgh v. Horsefield [1994] Ch. 205).

Procedures

The detailed procedures are now set down in the new practice direction 14.5 which will be discussed later.

Burden of Proof

Where the Court, in exercising its discretion at the first stage, has decided that the application should be further proceeded with, the burden of proof does not shift to the solicitor. The burden remains on the applicant. It is for him to satisfy the Court that an order should be made. However, where the Court calls upon the solicitor to show cause, having satisfied itself that the applicant has shown a strong prima facie case, the evidential burden may, depending on the circumstances, shift to the solicitor (see Ridehalgh’s case).

The Present Case

The Court of Final Appeal had carefully considered the decisions of both the Court of First Instance and the Court of Appeal in ordering the solicitor to pay the costs so wasted, as well as further arguments advanced by leading counsel on “causation” and “the writ action was driven by client” etc; and had decided that such arguments were irrelevant, as a solicitor’s liability under Order 62 Rule 8 evolved out of the Court’s long-established common law summary jurisdiction to discipline solicitors as officers of the Count and, among other things, to order them personally to bear the wasted costs of proceedings incurred by the parties in consequence of a serious dereliction of duty on the solicitor’s part. The solicitor could not evade liability by showing that his misconduct occurred at the behest of the client. Accordingly, subject to varying the indemnity costs order in relation to Order 62 Rule 8 proceedings to party and party costs order, the appeal was unanimously dismissed.

4. New Practice Direction 14.5

The application should usually only be made and dealt with after the relevant proceedings have concluded, although the Court has power to make wasted costs orders at any time.

The application should initially be heard by the judge who dealt with the proceedings unless there are exceptional circumstances which render this inappropriate, e.g., where apparent bias is established. If the trial judge is disqualified, the Court will have to consider the likely increased costs, before exercising its discretion to allow or not to allow the application to proceed further before any other judge. The jurisdiction is intended only for clear cases, i.e., cases where there is prima facie liability unless the charge is answered. Basically, the procedures are (i) to issue inter partes Order 62 Rule 8 summons; (ii) the Court to decide at the 1^st stage hearing whether the proceedings should be proceeded further; and if so (iii) at the full substantive hearing, the Court to exercise the discretion in favour of, or against, making an order. If an order is made, the Court will consider the extent of the solicitor’s liability for the wasted costs.

5. Counsel’s Liability for Costs

The Court’s compensatory jurisdiction, exercisable in accordance with Order 62 Rule 8 of both the High Court and the District Court Rules, applies only to solicitors, and the inherent jurisdiction of the Court does not extend to making wasted costs orders against counsel (see Orchard’s case). In other words, both the High Court and the District Court have no power to order counsel to pay wasted costs personally. However, in criminal proceedings, the Court may order the legal or other representative (barrister or solicitor) concerned to meet the payment of any wasted costs under section 18 of the Costs in Criminal Cases Ordinance (“CCCO”). Unfortunately, this piece of legislation was badly drafted in 1996 and the Court of Appeal has strongly criticised the worthless sanction for wasted costs under sections 2 and 18 of CCCO on several occasions (see CACC 269/2000, CACC 400/2002 and CACC 32/2003), as it is limited to failure to appear or the lateness of advocate at the hearing. The Court remains powerless to make wasted costs orders against barristers/solicitors for other misconduct.

As the jurisdiction of the English Courts to make “wasted costs orders” under section 51 of the High Court Act 1981 and section 19A of the Prosecution of Offences Act 1985 covers both barristers and solicitors, it is considered that our current Order 62 Rule 8 is an unfair discrimination against solicitors who have wasted costs orders made against them but not against “their” counsel, if the counsel is equally negligent with his/ her advice. The writer cannot see any good or logical reason for continuing to afford barristers immunity from wasted costs orders in Hong Kong, as similar rules in other common law jurisdictions have changed more than a decade ago. Anyway, it is pleasing to see that the final report on Civil Justice Reform in Hong Kong has now included a recommendation that barristers should not be given total exemption from liability for wasted costs incurred as a result of their misconduct.

6. Implications of Wasted Costs Order

The matter will not end, so far as the solicitor is concerned, after the making of a wasted costs order against him by the Court, as in most cases the Court would have directed the clerk to lodge a complaint or send a copy of such order or the judgment of the trial judge, to the Law Society for the purpose of investigation into the misconduct. As an officer of the Court, a solicitor appearing before a Court must never knowingly attempt to deceive or withhold information which he knows the Court is entitled to. This extends to bringing to the notice of the Court any relevant decisions, whether or not they assist the solicitor’s own case. If the wasted costs order is made due to serious dereliction of duty or negligence on the part of the solicitor, the Council of the Law Society can refer the complaint to the Solicitors’ Disciplinary Tribunal Convenor for further action. Generally speaking, gross negligence may amount to unbefitting conduct, if the conduct is dishonourable to the solicitor as a man and dishonourable in his profession, or such as to be regarded as deplorable by his fellows in the profession.

The solicitor concerned may have to answer one or more of the following charges or complaints at the Solicitors’ Disciplinary Tribunal:-

a. Rule 2 of the Solicitors’ Practice Rules which provides that “A solicitor shall not, in the course of practising as a solicitor, do or permit to be done on his behalf anything compromises or impairs or is likely to compromise or impair-

i. his independence or integrity;

ii. ….…;

iii. …….;

iv. his own reputation or the reputation of the profession;

v. a proper standard of work; or

vi. his duty to the Court”;

b. Principle 1.02 of the Solicitors’ Guide to Professional Conduct (“the Guide”), which provides that “ A solicitor is an officer of the Court and should conduct himself appropriately in professional and private matters”;

c. Principle 10.03 of the Guide which provides that “A solicitor must never knowingly attempt to deceive or participate in the deception of a tribunal”;

d. Principle 10.18 of the Guide which provides that “A solicitor must inform his client if a proposed or continuing action has no prospect of success as a matter of law”.

7. Conclusion

It seems that it is against public interest and public policy to shield barristers from wasted costs orders in Hong Kong, as Order 62 Rule 8 applies to solicitors only and hence is, prima facie, discriminatory. It is, therefore, hoped that both the High Court and the District Court Rules, as well as the provisions of the Costs in Criminal Cases Ordinance be amended, the sooner the better, to bring the same into line with other common law jurisdictions, such as Order 62 Rule 11 and section 19A of the Prosecution of Offences Act in England and Wales, in order to deter or punish unscrupulous barristers and solicitors.

The applicability of wasted costs orders (“wco”) is briefly shown on the chart appended hereunder.

George Y.C. Mok

Chairman/Member of the

Solicitors’ Disciplinary Tribunal