TIANJIN TEXTILES (HONG KONG) LTD v. S. K. WONG & CO (a firm)

HCMP 2019/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2019 OF 2011

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BETWEEN

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D E C I S I O N

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Application

1.  This is an argument as to whether the bills issued by the solicitors to their client should or should not be referred to taxation.

Preliminary matters

2.  Parties had some disputes over the evidence to be deployed.  To avoid unnecessary adjournment of the hearing, I allowed all disputed evidence to be relied upon on a de bene esse basis.  Now, I will confirm such ruling formally as the bottom line is that parties are not prejudiced by the late evidence.  To sum up:

(a)       There is an order in terms of the summons filed on 19 June 2012 herein by the Defendant (seeking leave to adduce the 2^nd Affirmation of Or Yi Tung (“Ms. Or”)),

(b)       Leave is also granted to the Plaintiff to rely on (i) the 2^nd Affirmation of Yan Jin Wei (“Mr. Yan”) filed on 1 February 2012 herein, and (ii) a copy letter dated 5 September 2011 issued by Messrs. Tsui & Co. to Messrs. S.K. Wong & Co.

Background

3.  On 13 October 2011, the Plaintiff commenced the present proceedings against its former solicitors.  It asked the Court to tax 7 bills issued by the Defendant in the total sums of $2,198,810.

4.  Briefly, the Plaintiff hired the Defendant to commence and conduct legal proceedings (HCCT 52/2007) for the period from 7 August 2007 to 9 September 2011 against the former’s architect for breach of contract and/or negligence.  Interim bills were rendered and the final one was issued on 14 September 2011.  All of them were paid. 

5.  The Plaintiff nonetheless said that it was entitled to taxation of all the 7 bills because they were to be regarded as “one” and the present proceedings were also issued within 1 month from 14 September 2011.  In the event that “special circumstances” was required, the Plaintiff said that the costs charged were not fair, unreasonable and unfairly excessive, including those time recorded by the solicitors (Ms. Irene Kwan and Mr. S. K. Wong), having taken into account the substantial assistance by Counsel.  Further, no particulars as to the amount of fees charged for each item of work were provided.

6.  The Defendant opposed the application.  Ms. Irene Kwan deposed that:

(a) Costs of the 7 bills amounted to $1,438,250 only.  The disbursements should not be included.

(b) All the bills were settled and approved by Ms. Or who had the proper authority from the board of the Plaintiff.  It was believed that the present proceedings were only issued due to the deterioration of relationship between Ms. Or and Mr. Yan (another director of the Plaintiff).

(c) All the bills were issued in accordance with the terms as stated in the Retainer Letter dated 7 August 2007, including that each bill issued was treated as a final bill.  In the alternative, if time only ran from the issuance of the final bill, no special circumstances were established to allow the exercise of discretion to order taxation.

(d) HCCT 52/2007 involved claims concerning construction and design of a piece of land in Tianjin for fashion outlet with food and beverage and other ancillary facilities.  Counsel and expert were needed.  The Defendant did their job properly and completed everything before the matter was transferred to the new solicitors.

7.  Ms. Or was indeed a director of the Plaintiff up to 15 November 2010. She also prepared an affirmation to support the case of the Defendant. She deposed that Mr. Yan was a resident in PRC.  Both she and the business manager of the Plaintiff (Mr. Colin Chiu) were authorized to deal with the matter.  All the bills were agreed by them.  Apart from the final bill, there were discounts made by Defendant on each of the earlier bills.  She took the views that all bills were reasonable.  Finally, she added that the present proceedings were a deployment of personal vendetta by Mr. Yan against her only.

8.  Mr. Yan made a reply to both the affirmations of Ms. Or and Ms. Irene Kwan.  He maintained that the bills were excessive, unfair and unreasonable.  It was denied that the bills had been approved by the Plaintiff.  He also commented that the affirmation of Ms. Or was biased and /or constituted a revenge against him.  It was in no way made in the best interest of the Plaintiff.

Ruling and Reasons

9.  Parties appeared before me on 11 July 2012 for the substantive argument of the matter. Ms. S. Tang of Messrs. Tsui & Co. appeared for the Plaintiff and Mr. Thomas Lai of Counsel represented the Defendant.  Upon consideration of all the evidence authorities and submissions from the parties, I have decided to allow the application partially.  My reasons appear in below.

A series of bills or 7 separate bills?

10.  The first question to be decided is whether the 7 bills are (a) a series of bills, the former 6 being interim bills with the last one being the final one, or (b) separate, distinct and treated as final on each of them. In this respect, paragraphs 62/App/61 and 62 at p. 1177 and 1178 of HKCP 2012 contain useful guidance.

“Interim bills - Where the bills delivered are interim bills constituting a series of bills, time for the purpose of section 67(1) and (2) does not begin to run until the last bill in the series or the final account is delivered (Wang Yoeh Yu Ruth v. Chan Victoria [1988] 1 H. K. C. 687). Interim bills refer to requests for payment of money on account. Final bill is one for the total amount of professional costs and disbursements together with any increase or reduction on the interim bills and giving credit for all payments received as a result of previous interim bills (Cobbett v. Wood [1908] 2 K.B. 420).”

“Separate bills - It is a question of fact whether there are natural breaks in the work done by a solicitor so that each portion of it can and should be treated as a separate and distinct part in itself, capable of and rightly being charged separately and taxed separately as final bills, or whether the bills are merely statements of accounts or portions of one entire bill… In Chin Yuk Lun, Francis v. Lo & Lo (unrep., HCMP 1142 of 2005 [2006] H.K.E.C. 1249, D.H.C.J. To held that a “final” bill is not necessarily the last bill sent to client, and that “final” in the context of a solicitor’s bill implied that the bill would not be changed and that it was self-contained…

Further, D.H.C.J. To held that in the absence of express consent to send a bill as a “final” bill, the solicitor must prove that the bill was rendered at a natural break in the litigation. A “natural break” refers to either a physical break in the litigation process of such a duration that would entitle the solicitor to say that the matter will be inactive for a substantial period of time in the nexus between one component matter and another in the litigation.”

11.  Further, D.H.C.J. To (as he then was) in the said case of HCMP 1142/2005 indeed elaborated that two questions needed to be answered.

“ 15. To determine whether a bill is a separate bill or one of a series of bills, the Court has to ask two questions: first, whether the solicitor has the power to send it in as a final bill and second, whether the bill has been delivered as a final bill. The answers to both questions must be in the affirmative if a bill among a number of bills is to be treated as a separate final bill of costs. The burden of proof in respect of both questions is on the solicitor.

16. The first question has always been regarded as a question of law, but in my view, it could be a mixed question of law and of fact. In the absence of any contractual provision in the retainer giving the solicitor the power to issue final bills, he has to prove that the bill was rendered at a natural break in the litigation ……

17. In my judgment, to constitute a natural break there must be either (1) a physical break in the litigation process of such a duration as would entitle a solicitor to say to his client that the matter is going to be inactive for an indefinite period or for a foreseeably long period that it is appropriate to square or finalise the account for the time being or (2) a break in the nexus between one component matter and another in the litigation. Thus, the conclusion of a distinct and separate matter in a litigation by itself is not a natural break. It may well mark the natural beginning of another distinct and separate matter. The conclusion of a distinct and separate matter in a litigation only makes a break natural if there is a break ……

 18. The second question is a question of fact.  There are two elements here.  The solicitor has to deliver the bill intending it to be a final bill and it is also intended and understood by the client to be a final bill.  This question has to be answered by looking at the intention of the solicitor and the client, their conduct, the reaction of the client upon receipt of the bill and the form the bill took.  No assistance could be derived from any decided case.”

12.  By applying the above principles and guidance to the present case, I find the answers to the above 2 questions against the Defendant.

(a) (i) The retainer dated 7 August 2007 gives no power to the Defendant to issue interim bill as a final one.  While interim bills would be delivered at intervals, they were used to assist cash flow of the Defendant and allow the Plaintiff to keep an eye on costs having been spent.

“3. Accounts And Payment

We may ask you to provide us with a sum of money on account. All disbursements will be deducted directly from this account, but before we deduct any fees, we will deliver a bill to you. When this account falls below a certain level, we may ask you to replenish it.

We shall deliver bills to you at regular intervals, usually on a monthly basis.  Our bills are due upon presentation.  This assists our cash flow and allows you to have control over your budget.”

(ii) The bills were not rendered at the natural break in the litigation at all. 

Bill	Date	Months covered (About)	Major services involved
1	16.11.07	3.5	Commencement of proceedings, preparation of statement of claims and questionnaires (for expert evidence)
2	30.5.08	6.5	Preparation of the questionnaires continued, perusal of Defence and Counterclaim, issuing request for further and better particulars, preparing Reply and Defence to Counterclaim
3	30.10.08	5	Preparation of expert report, Continuation on pleadings and their amendments, consideration of further and better particulars of Defence and Counterclaim
4	31.10.09	12	Commencement of discovery, including preparing and perusal various list of documents and drafting witness statements
5	29.4.10	5	Preparation of expert report(s) and joint expert statement, dealing with request for interrogatories, working on mediation
6	30.4.11	13	Revising statement of claim, preparation of witness statements and mediation continued
7	14.9.11	4	Dealing with request for interrogatories and expert report continued

Instead, they tended to show that the costs on account had been running out and as such, asked the Plaintiff to make further payment of such. 

(b) On balance, I do not find the bills (no. 1 to 6) sent to the Plaintiff were intended to be final by the Plaintiff and so understood by the Defendant. Bill no. 6 contains a fatal clause to the Defendant.

“There are various factors we need to take into account when calculating our fees, some of them can only be assessed upon conclusion of the matter. We shall do an overall assessment and evaluation in our final bill.”

The said clause carries more weight than the written testimony of Ms. Or to the effect that all the bills had been accepted and agreed to be final.

13.  Having ruled that the 7 bills are a series of bills, I now move to the relevant legislation.

Section 67 LPO

14.  There is no dispute between the parties that their argument turns on interpretation of section 67 Legal Practitioners Ordinance (Cap. 159) (“LPO”) and its application to the present case.

15.  The relevant provisions are found in section 67(1) and (2) LPO:

“ (1) On the application, made within 1 month of the delivery of a solicitor’s bill or a foreign lawyer’s bill, of the party chargeable therewith the Court shall, without requiring any sum to be paid into Court, order that the bill shall be taxed and that no action shall be commenced thereon until the taxation is completed.

(2) If no such application is made within the period mentioned in subsection (1), then, on the application of the solicitor or the foreign lawyer, or of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order— (Amended 80 of 1997 s 40)

(a) that the bill shall be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed:

Provided that—

(i) if 12 months have expired from the delivery of the bill, or if the bill has been paid, or if a verdict has been obtained or a writ of inquiry executed in an action for the recovery of the costs covered thereby, no order shall be made on the application of the party chargeable with the bill except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the taxation as the Court may think fit;

(ii) if the bill has been paid, no order under this subsection shall be made where the application for the order is made after the expiration of 12 months from the date of payment of the bill.

(3) ……”

Paragraph 62/App/60 of HKCP 2012 at page 1177 helps us to understand that 4 categories of bills can be identified.

(1) “… Section 67(1) of the LPO provides that the Court shall, upon the application of the client made within one month of the delivery of the solicitor’s bill, order that the bill be taxed …”

(2) “… Under section 67(2) of the LPO, if an application for taxation is made by either the client or the solicitor more than one month from the delivery of the bill, the Court may order the bill be taxed upon such terms as it thinks fit …”

(3) “… Where 12 months have expired from the delivery of the bill or where the bill has been paid, no order for taxation will be made upon application by the client except in special circumstances (section 67(2)(b)(i) of the LPO) …”

(4) “… Where 12 months have expired from the delivery of the bill and the bill has been paid, no order for taxation can be made (section 67(2)(b)(ii) of the LPO) …”

16.  Briefly, in the submission of Ms. Tang, once I found that the 7 bills was a series of bills, her client would be entitled to taxation as of right because they belonged to category (1).

17.  Mr. Lai disagreed and submitted that, even if the 7 bills would be counted as a series, the Plaintiff’s case still fell within category (3), not (1) because all of them had been paid.

18.  Upon thought, I agree with Mr. Lai.  One should not forget about the phrase of “… without requiring any sum to be paid into Court …” under section 67(1) LPO.  It will render the clause odd if Ms. Tang’s interpretation is to be adopted.  Moreover, on a second look at category (3), one of the criteria is only “… where the bill has been paid”. 

19.  In the circumstances, even the 7 bills are to be regarded as a series of bills, the Plaintiff has to establish “special circumstances” in order to persuade the Court to order the bills for taxation because the bills have been paid.

Special circumstances?

20.  Again, HKCP 2012 provides some useful information.  Paragraph 62/App/63 at page 1178 thereof states:

“Special circumstances—There is no hard and fast rule as to what constitutes special circumstances as justifying taxation of a bill which has been paid or which has been delivered for more than 12 months. Misconduct or fraud on the part of the solicitors, or pressure accompanied by overcharge or overcharges so gross as to amount to fraud have been accepted as special circumstances (In Re Boycott (1885) 29 Ch. 571). Bills which are redolent with overcharges and without sufficient explanation for the amounts claimed may also give rise to special circumstances (Wong Yoeh Yu Ruth v. Chan Victoria (above)).”

21.  Useful interpretation can also be located at paragraph 21 of South Horizons International Petroleum Ltd v Crump & Company CACV 1691/2001 [2002] 2 HKLRD 187.

“ 21. The test for establishing that special circumstances are applicable would appear to be stringent one. Mortimer VP had this to say at p. 713H in Clayton Wong:

 “Bearing in mind those principles – which I find of great help – it seems to me that the special circumstances which must be found by a judge must be something which is out of the ordinary.  There must be something which is serious and which justifies not only an ordinary taxation but a special one.”

  22. We think that this must be right ……”

22.  With these principles in mind, the Plaintiff has only been able to persuade me to accept that “special circumstances” exist in the last 2 bills, but not the first 5 of them.

(a) Paragraph 12 of the Affirmation of Mr. Yan dated 14 November 2011 set out the proposed special circumstances.  In short, all the bills were excessive and unreasonable.

(b) The following may be extracted from the skeleton submission of Ms. Tang.

“ 8. No evidence to show Or had approved and/or endorsed the said bill of costs (all payments by set-off against costs on account).

9. Or is no longer a director of P and her affirmation shall not be taken into account as she has conflict of interest in the present application as there are serious disputes between Or and Yan in the management of a number of companies by Or which involve a number of litigations in Hong Kong (e.g. HCCT 52/2007 and HCA 1767/2011) (1^st Yan Affirmation dated 14/11/11/HB 68-69, Or Affirmation dated 1/12/11 – HB/12).

 10. Even if Or had approved/endorsed the said bill of costs, Or was negligent and/or had breached her fiduciary duties owned to the Plaintiff in handling the said bills of costs.”

(c) At the hearing, upon being questioned, Ms. Tang, other than repeating the above, added that there were 2 fee earners (duplication of charges).

23.  In respect of the above, I say the followings.

(a) The “special circumstances” stated in the Affirmation of Mr. Yan are nothing more than his opinion on the bills. They are bare allegations without particulars. On balance, the complaint of excessiveness and/or unreasonableness of the bills can hardly be established. More important, one also has to bear in mind that the taxation to be done, if any, is one between solicitor and his own client, as distinguished from party-to-party.  The test is therefore not “necessary or proper” but:

“Solicitor and own client basis (O.62 r.29)—On the taxation of a solicitor’s bill to his own client (except a bill to be paid out of funds provided pursuant to section 27 of the Legal Aid Ordinance, or a bill with respect to non-contentious business) all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred. For the purposes of r.29(1), all costs incurred with the express or implied approval (emphasis added) of the client shall, subject to r.29(3), be conclusively presumed to have been reasonably incurred and, where the amount thereof has been expressly or impliedly approved by the client, to have reasonable in amount (r.29(2)). For the purposes of r.29 (1), any cost which in the circumstances of the case are of an unusual nature and such that they would not be allowed on a taxation of costs in a case to which r.28 (2) applies, shall, unless the solicitor expressly informed his client before they were incurred that they might not be so allowed, be presumed, until the contrary is shown, to have been unreasonably incurred (r.29 (3)).

It is almost wrong to order costs inter partes to be paid on the solicitor and own client basis (EMI Records Ltd v. Ian Cameron Wallace Ltd & Another [1982] 2 All E.R. 980 at 991).  This is because on a taxation inter partes on the solicitor and own client basis the paying party will be required to pay not only a reasonable amount for costs reasonably incurred but any costs, however unreasonable they are, which the receiving party would be obliged to pay to his own solicitor (Cohen v. Cohen [1905] 2 Ch. 137; Re Kingsley Deceased, The Times, June 17, 1978).”

With the evidence and stance taken by Ms Or, as demonstrated from her affirmations, I am of the view that an order taxation of the first 5 bills will only generate further unnecessary costs.

(b) There is clear evidence from Ms. Or that she had agreed and approved the bills and the statement of accounts.  The voluminous evidence touching on the “disputes” between Ms. Or and Mr. Yan are indeed irrelevant for the present proceedings. They not only cannot be resolved on affidavit evidence, but also have to be disputed elsewhere.  In the present case, as long as I can be satisfied that Ms. Or did have the proper authority to bind the Plaintiff at the material times, it suffices.

(c) The argument of 2 fee earners can only be a non-starter as the retainer clearly allows the same to be done.

“2. Our Fees

Our fees will normally be calculated on a time basis.  The hourly rates of our solicitors and paralegals vary in accordance with the seniority and experience of the person performing the work.  Additionally, the amount charged may be adjusted in accordance with the size, complexity and urgency of the matter.  As a general guidance, our present rates for solicitors range from $2,000.00 to $4,500.00 an hour, and for trainee solicitors and paralegals are at $1,200.00 to $1,500.00 an hour.  Other factors like magnitude of the claim and its complexity are also taken into account.  Your case will be primarily handled by our partner, Mr. S.K. Wong, who will charge at HK$4,500.00 per hour and assisted by our solicitors, Miss Irene Kwan, who will charge at HK$3,000.00 per hour.”

(d) Nonetheless, having stated the above, the circumstances regarding the last 2 bills are quite different. By the time when these bills came into place, Ms. Or had already resigned from her directorship with the Plaintiff. She should no longer be in a position to agree and approve them. 

(e) Last but not least, when the 1^st 5 bills had been issued and paid for years, the last 2 were only came within the same year during which the Plaintiff applied to this Court for an order of taxation.

Conclusion

24.  To conclude, I will make the following orders.

(a)  Subject to further directions to be given as to the conduct of the taxation, including the format of the bills, the 2 bills issued by the Defendant dated 30 April 2011(no.06556) and 14 September 2011 (no.06913) respectively be referred to taxation by the taxing master.

(b)  The Plaintiff’s application for taxation of the other 5 bills is dismissed.

(c)  There be an order nisi that each party bears its own costs in relation to the present application and hearing before me, including all costs reserved.