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HCMP 1569/2015
IN THE HIGH COURT OF THE

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HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1569 OF 2015

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IN THE MATTER of Messrs K&L

Gates, Solicitors

and

IN THE MATTER of the taxation of

cost under Section 67(2) of the
Legal
Practitioners
Ordinance
(Cap 159)

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BETWEEN

K&L GATES (A FIRM)

Plaintiff

and
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DING YU ()

1st Defendant

HONG KONG FIRST MAINLAND COMPANY

LIMITED ()
2nd Defendant
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Before: Hon Au-Yeung J in Chambers

Closing Date for Written Submission: 30 March 2016

Date of Decision: 27 June 2016

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DECISION
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1.

This decision should be read with the Decision dated

15 February 2016 (the KLG Judgment) and I adopt the same

abbreviations.

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2.

By the KLG Judgment, I set aside the retainer agreement

between KLG and HKF1. I made an order nisi for DY to pay the costs of
KLG and HKF; and for KLG to pay the costs of HKF with certificates for

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2 counsel.
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3.

This is KLGs application for:

(a)

A Sanderson order against DY;

(b)

An order that there should not be certificates for 2 counsel;

(c)

An order that there should be no order as to costs on an

abandoned issue; and

(d)

An order that there should be taxation of HKFs costs.

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4.

I have considered all the oral and written submissions.

I shall not set out every argument but will concentrate only on those that
are most important and decisive of the issues.

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A separate judgment dated 18 March 2016 entered judgment against DY in favour of KLG for the
billed amount without the need for taxation.

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Legal principles on award of a Sanderson order

5.

Under Order 62, rule 3(2) of the Rules of the High Court,

costs generally follow the event. But the court has discretion to make
a Sanderson order (the principles of which are not disputed) if the
circumstances warrant it. This type of order is not confined to personal

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injuries cases, as propounded by Mr Cheung.

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6.

Where a plaintiff sues a number of defendants, the court has

discretion to order an unsuccessful defendant to pay the costs of

a successful defendant:
(a)

by a Sanderson order2 whereby the unsuccessful defendant is

ordered to pay the costs of the successful defendant directly;

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or
(b)

by a Bullock order3 whereby the plaintiff pays the costs of

the successful defendant but is indemnified in respect of that
liability by the unsuccessful defendant.

7.

In deciding whether to exercise that discretion, the court

looks to see whether it was reasonable in all the circumstances of the case

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for the plaintiff to join the successful defendant in the action. See Chong
Ngan Seng v China Harbour Engineering Co Ltd & ors, CACV 54/2012,
25 September 2013, 5-6.

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Sanderson v Blyth Theatre Company [1903] 2 KB 533

Bullock v London General Omnibus Company [1907] 1 KB 264

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8.

The court must be careful not to lose sight of the

uncertainties surrounding the case before its conclusion: Fung Chun

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Man v Hospital Authority & anor [2012] 1 HKC 531, Bharwaney J, at 7.

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9.

In cases where the unsuccessful defendant is insolvent, the

question is how to distribute the hardship arising from his impecuniosity.

In balancing the hardship, the court must ensure fairness between the
parties in the circumstances of the case. In achieving the fairness, the

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parties conduct is plainly relevant: Standard Chartered Bank v Li Wai

Ping & ors, HCA 10587/2000 & HCA 3575/2003, 7 June 2011, at
27 & 28, Poon J (as he then was).

Whether joinder of HKF was reasonable

10.

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The KLG Judgment held that the retainer agreement (which

provided for joint and several liability on costs by DY, DXH and HKF)

was prima facie valid and enforceable against HKF (18). Viewed in that
perspective alone, joinder of HKF was reasonable.

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11.

However, 6 weeks before the present originating summons

was issued, HKF had, by its solicitors letter dated 12 May 2015, set out
its potential defences to KLGs demand letter. Those defences were

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accepted under sections E1 and E2 of the KLG Judgment.

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12.

I do, however, note that this case involved novel points of

law affecting solicitors practice. The joinder of HKF cannot be said to

be unreasonable.

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13.

KLG has advanced further grounds which were directed at

the findings in the KLG Judgment. They included the applicability of the

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Yuanta Securities principle, whether HKF was a nominal party in the

underlying action, whether KLG (through Mr Ngo) had knowledge that
the underlying action concerned a dispute between DY and DG only and

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when KLG started and ended its work for HKF.

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14.

In considering whether to vary a costs order nisi, the court

will not revisit the substantive decision it has made: Hong Kong Civil
Procedure 2016, Vol 1, 42/5B/1.

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15.

I therefore would not consider the arguments in paragraph

13. Those points should, if necessary, be addressed in an appeal.

16.

I just wish to point out a factual error of KLG. KLG kept

submitting that the Action also involved various claims against DG for
misappropriation amounting to about HK$300 million and so HKF was a

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proper party. With respect, the pleaded counterclaim in respect of the

misappropriation was made by DY, not HKF. That was precisely why
paragraphs 118-119 of the Judgment in the Action held that the

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counterclaim contravened the reflective loss principle. The fact that DY

would, in honour of his fiduciary duties as a director of HKF, disgorge
any damages recovered from DG to HKF, did not undermine the fact that
the real dispute in the Action was between DY and DG.

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Financial condition of DY

17.

KLG pointed out that there was no evidence that DY had

ever defaulted in payment of any costs order. This might be true in the
past but now there is an outstanding allocatur of $31.49 million against
DY for costs in the Action.
18.

DYs appeal against the final judgment in the Action has

been outstanding for over 2 years.

He has been absent in various

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proceedings subsequent to the Trial:

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(i)

Taxation proceedings in the Action;

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(ii)

Proceedings wherein King & Wood sued DY for its fees;

(iii)

HCMP 1480/2015 wherein Dexter Lam & Co withdrew its

claim against HKF but obtained judgment against DY on

16 June 2016 for costs under a retainer agreement for
$13,576,115; and
(iv)

Proceedings where HKF and Macau First enforced DYs

undertaking given when the court made a receivership order

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in the Action, and obtained judgment on 21 June 2016 for

over $8 million.

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19.

DYs present whereabouts are unknown, probably because

he is wanted by the interpol.

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Balancing the interests of KLG, HKF and DY

20.

In view of HKFs clear statement of defences before the

originating summons, it would not be fair to leave HKF to recover costs

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from DY who has not met huge judgment debts and cannot be located. It
would be more appropriate to make a Bullock order.

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Certificate for 2 counsel

21.

KLG sought to recover costs of $2.15 million under the

retainer agreement against HKF.

However, the statement of costs

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tendered by LCP sought grossly disproportionate costs of $1.36 million.

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22.

The facts in this originating summons were virtually

undisputed (except on the abandoned issue) and did not involve lengthy
legal arguments. The hearing was originally set down for 1.5 hours but
only half of the time was spent.
23.

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The need to scrutinize the bills could be dealt with by junior

counsel (not a trainee solicitor as suggested by KLG). That scrutiny

would require him to deal with matters of liability instead of going into
the minute details on quantum. Mr Cheung (not a trainee solicitor as
suggested by KLG) who had appeared at the Trial was capable of doing

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so. It was not necessary to involve the same team of 4 counsel who were
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involved at the Trial.

24.

The case involved a novel issue and would have been

important to KLG (or solicitors) in setting a precedent.

KLG had

engaged one counsel (an SC).

25.

On the other hand, no setting of precedent was required for

HKF. The KLG Judgment did cause Dexter Lam & Co to withdraw

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HCMP 1480/2015 against HKF. However, in my view, the circumstances

in both cases were different since Dexter Lam & Co was the firm of

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solicitors on record at the Trial and new to the case, quite unlike KLG
which was another firm behind the scene. (See the decision in HCMP
1480/2015 dated 27 June 2016).
26.

I am satisfied that I should only grant certificate for one

counsel in this case. The costs order should be varied accordingly.

Costs on the abandoned issue

27.

For non-interlocutory proceedings (of which this case is

one), the relevant rules are Order 62, sub-rules 3(2), 5 and 7. Costs to

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follow the event is a starting point from which the court may readily
depart. The court has a broad discretion on costs. It is entitled to look at,
amongst others, the degree of success of the parties on their claims, the

outcome of specific issues raised, conduct before and during the

proceedings. The court can also have regard to the amount of time or
costs attributable to specific issues. See Wing Ming Garment Factory Ltd

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v The Incorporated Owners of Wing Ming Industrial Centre, HCCT

60/2006, 24 November 2014, G Lam J; following Pfeiffer GmbH v
Cheung Hay Kit trading as Sun Wai Construction, CACV 245/2013, 29

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October 2014, Kwan JA, 7-10.

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28.

In defence to the originating summons, HKF raised issue on

interpretation of a consent order dated 9 July 2010 in 2 different aspects:

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(i)

Whether the consent order imposed a cap of $10,000 per

week for legal expenses of HKF (paragraph 7(2) of the KLG

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Judgment); and
(ii)

Whether such legal expenses should be subject to

reasonableness.

29.

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Issue (i) was distinct. It involved a substantial amount of

affirmation evidence and written submission. HKF went to the extent of

trying to ascertain from his former solicitors (Iu, Lai & Li) and DY and
HKFs former solicitors (King & Wood) how the consent order dating
back 5 years came to be drafted. HKF initially advanced an interpretation
which would have added a not to a positive term in the consent order.
In the end the issue was abandoned.

That approach in producing

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evidence and the interpretation to the consent order were hopelessly bad
and would have failed before me.
30.

Issue (ii) was crisp.

It did not involve much time in

argument or written submission. This court simply relied on sections E1,

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E2 and E5 of the KLG Judgment (at 44) to find that incurring legal
expenses on KLG was not reasonable.

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31.
issue (i).

I apportion 25% of HKFs overall costs for the abandoned

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Taxation
32.

Under Order 62, rule 9C(1)(a), a paying party can contest

summary assessment by showing substantial grounds for disputing the

sum claimed for costs.

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33.

Where the costs as a whole appear disproportionate, the

court will need to be satisfied that each item was necessary. In this
regard, a sensible standard of necessity must be adopted this requires

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the need to take into account the different judgments of those responsible
for litigation as to what is required. Hong Kong Civil Procedure 2016,
Vol 1, 62/9/10.
34.

The substantial grounds put forth by KLG (certificate for

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2 counsel and disallowing costs on an abandoned issue) have been dealt

with as matters of principle. I see no justification for taxation just on
questions of quantum.

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35.

KLG was concerned that the work of LCP might have been

replicated in HCMP 1480/2015, with court documents double counted.

I have little worry over these issues. Being in charge of both cases, I am
better placed than a taxing master to do appropriate apportionment or

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reduction in costs for duplicated work or photocopying.

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Conclusion
36.

I decline to make a Sanderson order but would make

a Bullock order. The costs order nisi is varied to the extent that there
should be certificate for one counsel and that KLG should only bear 75%

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of HKFs costs in relation to the originating summons. I summarily

assess costs of HKF and allow 75% at $90,000.
37.

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As for this summons for variation of costs order nisi, it

involved principally legal arguments and no affirmations were filed.

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HKF successfully resisted the application for Sanderson order and

taxation, but failed on the issue of certificate for 2 counsel and costs in
relation to the abandoned issue. Taking all circumstances into account,

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I make no order as to costs on the variation summons.

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38.

I thank Mr Cheung and Mr Ngo for their assistance.

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(Queeny Au-Yeung)
Judge of the Court of First Instance
High Court

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Mr Samuel Ngo, of K & L Gates, for the plaintiff

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The 1st defendant was not represented and did not appear
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Mr Lawrence Cheung, instructed by LCP, for the 2 defendant

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