GTE DIRECTORIES (HK) LTD v. HONG KONG CULTURAL SERVICE LTD

HEADNOTE

Courts Practice and Procedure - District Court - Costs - express agreement for costs on solicitor and own client basis - judgment in default.  District Court Civil Procedure (General) Rules, rule 22 - District Court Civil Procedure (Costs) Rules, Rule 3(2).

 Held:   Where a plaintiff claims a debt or liquidated demand and costs on a solicitor and own client basis under an express contractual provision, a judge of the District Court has a wide discretion as to costs and is not bound by the fixed costs set out in Part II of the Second Schedule to the Costs Rules.

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

ACTION NO. 2410 OF 1986

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 BETWEEN

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BETWEEN

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REASONS FOR DECISION

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1. In each of these actions the plaintiff, as assignee, seeks to recover sums which the defendant agreed to pay to the Hong Kong Telephone Company for advertisements in the Business Telephone Directory. The contract contained an express term whereby the defendant agreed to pay to the Telephone Company in the event of non-payment of charges:-

"all costs, charges and expenses including legal charges on a solicitor and own client basis incurred by the company in recovering payment."

2. The defendants failed to file any defence. In one case (2483) the plaintiff applied for judgment under Rule 22 of the District Court Civil Procedure (General) Rules (Cap. 336) for (i) the amount claimed plus interest and (ii) costs on a solicitor and own client basis.  The deputy registrar notified the plaintiff's solicitors that only fixed costs could be awarded in default of defence and referred them to Part II of the Second Schedule to the District Court Civil Procedure (Costs) Rules. The plaintiff’s solicitors thereupon took out summonses in each action seeking judgment under Rule 22 of the General Rules.

3. In the past it was the practice of the plaintiff ( and some credit card companies) to claim costs on this basis by describing them as unliquidated damages in the prayer for relief. This form of pleading led to very real practical problems as a result of the decision of the Court of Appeal in United Merchants Finance Ltd. v. Tong Sang & others (Civil Appeal 172 and 174 of 1984; 21st December 1984), where it was held that interlocutory judgment in default of defence could not be entered in respect of a claim for unliquidated damage if it was joined or mixed with a claim for a debt or liquidated demand. That meant that the plaintiff would have to suffer the further delay and expense of applying for a date to be fixed for trial before a judge in order to prove its contractual claim for costs. This particular difficulty does not arise in proceedings in the High Court, because Order 13, r. 5 of the Rules of the Supreme Court expressly provides for mixed claims. I am told that the plaintiff then began starting proceedings in the High Court to avoid these problems, but this practice caused some judicial eyebrows to be raised.

4. The validity of the contractual provision referred to above was considered and upheld by the Court of Appeal in GTE Directories (HK) Ltd. v. Mo Yung Kwok Wah trading as Sun Hing Co. (Civil Appeal No. 155 of 1985; 10th January 1986);  where it was also pointed out that the prayer for unliquidated damages in the form of costs should be amended to reflect that they were the subject of a contractual claim. In the two actions before me, the prayers for relief contain no reference to unliquidated damages. In addition to the liquidated amounts and interest, they simply sought costs on a solicitor and own client basis, under the paragraph of the Particulars of Claim where the contractual provision is pleaded.

5. When the summonses came before me, it seemed to me that I had no jurisdiction to deal with them. Rule 22 has not been amended as a result of the decision in United Merchants Finance Co. Ltd. v. Tong Sang, supra, it does not allow for mixed claims and appears to be limited to (1) possession of land; (2) the return of a specific chattel; (3) debt or liquidated demand (Rule 22(1)); and (4) a claim for unliquidated damages (Rule 22(6)).  Claims for repairs to, and for loss of use of, vehicles in negligence actions are deemed to be liquidated demands for the purpose of the rule.  A contractual claim to costs to be assessed on a particular basis does not fall into any of those categories or descriptions.

6. In an attractive argument, Mr. Kelly submitted that costs should be treated separately from the main claim. Whilst it may be the case that the Registrar can only award fixed costs in accordance with Part II of the second schedule to the costs rules, he contended that a judge has a wide discretion to award costs. I would respectfully agree with these contentions. Rule 22(4) provides that the Registrar may refer any application under paragraph (1) to a judge "who may make such order thereon as the justice of the case may require". (It seems that the Registrar cannot refer an application under paragraph (6) to a judge!) Rule 3(2) of the Cost Rules provides:

“3(2) The. Second Schedule hereto shall have effect for the purpose of showing the total amount of costs which shall, in the several cases to which that Schedule applies, be allowed to the solicitor for the plaintiff or judgment creditor without taxation, unless the judge otherwise orders."

7. In my view, the effect of these various provisions in the rules is to give to a judge a fairly wide discretion as to costs. In the present case the parties have expressly agreed that costs should be recovered on a solicitor and own client basis. It is the duty of the courts to uphold the bargains of parties, unless they offend any of the rules of public policy. The contractual provision in this case does not so offend. In my view, "the justice of the case" requires that the discretion be exercised in the manner sought by the plaintiff in these actions. I do not think that a judge can only exercise the discretion after a reference by the Registrar. The defaulting defendant can suffer no prejudice by an application direct to a judge. Indeed, he gains something which he does not receive in a normal application under Rule 22, viz. notice of the plaintiff's intention to apply for judgment in default. He can always attend and make representations before judgment is entered against him.

8. For these reasons I made the orders sought in the two applications before me. Of course, as Mr. Kelly openly acknowledged, the Court still contains some control, in the sense that the costs are still subject to taxation.