LAM KIN CHUNG v. SOKA GAKKAI INTERNATIONAL OF HONG KONG LTD

HCMP 1002/2017

[2021] HKCFI 1724

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1002 OF 2017

_______________

_______________

BETWEEN

_______________

_______________

REVIEW OF TAXATION

_______________

Introduction

1.  This is a review of taxation.

Background

2.  The respondent (the “Company”) was and is a charitable company formed to promote Buddhism.  The applicant was at all material times a member of the Company.  By the present proceedings, the applicant sought leave to issue a statutory derivative action against a number of former and present members of the Committee of the Company. 

3.  Briefly, the applicant complained that, among others, in August 2011, the defendants, in breach of duty, caused the Company to enter into 2 conveyance transactions, causing it substantial loss.  

4.  On 31 May 2017, parties appeared before the Hon Mr Justice Harris when the learned Judge granted leave to commence the proceedings on an interim basis with costs reserved.  

5.  On 1 November 2017, parties again appeared before the Judge who delivered his decision next day and he ruled against the Company on a legal question posed by it with costs reserved. 

6.  On 14 March 2018, the Judge finally heard the matter substantially.  He also delivered his decision the next day and continued to rule in favor of the applicant with an order nisi (which later became absolute) that 95% of the costs of the originating summons be paid by the Company with a certificate for two counsel.  

7.  Pursuant to the costs order, the applicant filed his bill and it came before me for taxation on 12 January 2021. For the two hearings on 1 November 2017 and 14 March 2018 respectively, the applicant had a team of three counsel representing him, including two senior counsel.  Under the bill, the fees of the two senior counsel were claimed. 

8.  At the taxation, after consideration, in principle and in short, I did not allow the engagement of two senior counsel. I took the view that one senior counsel and one junior sufficed.  The applicant was aggrieved and took up the matter for review.  

Taxation

9.  In the present bill, a total of 4 counsel was engaged, 2 junior and 2 senior.  

10.  Their fees appear as follows. 

“ SECTION B: Disbursements

B.1 Counsel’s Fees

Item No. Description Senior Counsel (HK$) Junior Counsel (HK$)   [Junior Counsel I]     1. 4-6, 24-25 April, 13 June 2017 Perusal of documents and telephone conferences, review draft notice, Originating Summons, statement of claim and affirmation and settle affirmation in reply (agreed fee)   20,000.00 2. 11, 19-25 October, 20 November 2017 Reviewing documents regarding the upcoming EGM, preparation for and attendance at conferences, draft affirmation re: EGM and consider revisions (21.5 hours)   47,300.00   [Junior Counsel II]     3. 31 May 2017 Brief fee for  the hearing before Hon J Harris   30,000.00   [Senior Counsel I]     4. 8 June 2017 to 6 July 2017 Perusal of papers, conducting legal research, settling 2nd Affirmation of Lam Kin Chung and rendering Note of Advice dated 05.07.2017 240,000.00   5. 11 October 2017 Preparing for and advising in consultation (3 hours) 24,000.00   6. 21-25 October 2017 Drafting 3rd Affirmation of Lam Kin Chung (10 hours) 80,000.00   7. 1 November 2017 Brief fee for the hearing before Hon J Harris (inclusive of the consultation with Mr Wong Yan Lung SC on 20 October 2017) 120,000.00   8. 6 November 2017 Advising by email on draft 3rd Affirmation of Lam Kin Chung (1 hour) 8,000.00   9. 9 November 2017 Advising by email on the nature of Hon J Harris’s determination (3 hours) 24,000.00   10. 20 November 2017 Reviewing revised draft 3rd Affirmation of Lam Kin Chung and advising by email (0.5 hours) 4,000.00   11. 14 March 2018 Brief fee for attending hearing before Hon J Harris 120,000.00     [Senior Counsel II]     12. 1 November 2017 Brief fee for attending hearing before Hon J Harris 900,000.00   13. 14 March 2018 Brief fee for attending hearing before Hon J Harris 450,000.00     Total of B.1 (Counsel’s Fees): 1,970,000.00 97,300.00   95%: 1,871,500.00 92,435.00

”

11.  At the taxation, I allowed all fees of JC I.  I also allowed all fees of JC II.  I further allowed most of the fees of SC I, except by deducting a sum of $20,000 out of $120,000 (item no 7) from his brief for the hearing of 1 November 2017. 

12.  As to the brief fee of SC II on 1 November 2017 and 14 March 2018, I disallowed them.  I took the view that fee of JC I should be allowed under party and party taxation.  He charged at $2,200 per hour and I found that 40 hours of his work were justified.  I therefore awarded the sum of $88,000 for each of the hearings.

(a) Two leaders, in my view, would be outside the scope of party and party costs.  The common approach of one senior counsel leading one junior would be appropriate in the circumstances, bearing in mind, among others, the complexity and novelty of issues involved.   

(b) I decided to allow fees of SC I because he was the one who had been involved from the commencement of the proceedings.  Throughout the same, from time to time, he was instructed to conduct legal research, settling affidavit evidence, advising by note/e-mails and in conference. He also levied his charges separately on these items of work.   

(c) Privileged correspondence between SC I and instructing solicitors was produced to try to show that SC I had made different quotes of his brief fee upon different scenarios.  I however was not impressed and still took the view that only his fees together with those of JC I fell within party and party costs.  They were competent to handle the matter without a second leader.  It was neither necessary nor proper to bring in SC II.  SC II was brought in because of his seniority and pre-eminent reputation.  His involvement amounted to conducting litigation in a luxurious manner.

13.  With the above decision, a fortiori, I also taxed off all the correspondence between SC II and the instructing solicitor under item 76.8.  At the same time, I allowed all the correspondence between JC I and the instructing solicitor in full without any deduction[1] at item 76.9. 

Review

14.  At the review, on top of the two experienced law costs draftsman (“LCDs”) appearing at the taxation, I also had the benefit of two counsel assisting me, Mr Justin Lam for the applicant (receiving party) and Mr Michael Yin, for the Company (paying party).  

15.  Mr Lam advanced two main reasons for the review. 

16.  First, the issue was not whether SC I was capable of conducting the case on his own without SC II, but whether it was necessary and/or proper to engage SC II in addition to SC I by reason of the nature and complexity of the issues raised in the proceedings.  The court should consider the 7 factors referred to in the authority of Bond Speed (unrep, CACV 90/2010, 11 January 2012).  The present proceedings concerned with an application for leave to commence derivative action on behalf of a charitable corporation.  Complex and novel issues of law were not previously considered in any case.

17.  Second, in any event, the fees quoted by SC I were clearly quoted on the basis that SC II had already been engaged and he would not act as the advocate at the hearings but only as a de facto junior.  The court’s attention was specifically drawn to a number of privileged communications between SC I and the instructing solicitors.  Briefly, SC I said that $120,000 was a special concessionary fee quoted on the basis that a junior counsel would be retained for preparation of the hearing.  If it would not be the case, he would charge $180,000.  

18.  Mr Yin disagreed.  He said that on both hearing dates, the applicant instructed a team of 3 counsel, SC II, SC I and JC I.  At the end of the hearings, the Judge decided to give a certificate for 2 counsel only.  When submitting the bill, the applicant made a tactical decision to include fees to SC II and SC I without mentioning those paid to JC I. 

19.  Mr Yin also said that the authority of Bond Speed did not assist the applicant.  SC II was the third counsel retained by the applicant to represent him and the Judge did not certify a case fit for 3 counsel.  Unless it could be said that SC I together with JC I would not be able to provide the level of representation which was necessary or proper for attainment of justice or for enforcing or defending the applicant’s rights, there could be no justification for allowing fees of SC II in addition to what was paid to SC I.  

20.  Further, because of the indemnity principle as laid down in Gundry v Sainbury [1901] 1 KB 745, it would be irrelevant that the fees charged by SC I might be less than what he would have charged had SC II not been instructed.  In any event, even if brief fees of SC II were to be allowed (for sake of argument), they far exceeded what a hypothetical senior counsel, capable of conducting the case effectively but unable or unwilling to insist on the high fees sometimes demanded by counsel of pre-eminent reputation, would be content to take on the brief.  Hence, one way or another, the review should be dismissed.  

Discussion

21.  I agree with Mr Lam to the extent that the “necessary or proper” test is to be applied.  The factors mentioned in Bond Speed shall no doubt be considered.  Indeed, it was precisely what had been done at the taxation.  The following extract from our White book could not have escaped the attention of the two experienced LCDs and this court.  

“(5) Since the Civil Justice Reform amended the wording of paragraph 2(5) of Part II of the First Schedule to Order 62, counsel’s fees under party and party taxation is no different from taxation of other costs and expenses – the test of “necessary or proper” is applicable (Poon Shu Fan v Wong Tin Yan [2012] 5 HKLRD 512). In applying that test the taxing master shall exercise his discretion having regard to all the relevant circumstances and in particular to the matters set out in paragraph 1(2). They are:

(a) the complexity of the item or of the cause or matter in which it arises and the difficulty or novelty of the questions involved;

(b) the skill, specialized knowledge and responsibility required of, and the time and labour expended by, counsel;

(c) the number and importance of the documents (however brief) prepared or perused;

(d) the place and circumstances in which the business involved is transacted;

(e) the importance of the cause or matter to the clients;

(f) where money or property is involved, its amount or value;

(g) any other fees and allowances payable to counsel in respect of other items in the same cause or matter, but only where work done in relation to those items has reduced the work which would otherwise have been necessary in relation to the item in question.”

22.  To apply them in the present case, I find the followings.   

(a) It was not disputed or was indisputable that there were complex issues of law involved. 

(b) It was suggested that SC II had held an official position closely connected to the government’s exercise of jurisdiction over charities.  However, with the evidence before me, I was not persuaded.  

(c) There were about 1,200 pages of documents in 6 bundles (Bundle A – court documents, Bundle B 1 to 4 – exhibits and Bundle C – correspondence).  

(d) All transactions appeared to take place in Hong Kong. 

(e) The applicant was and is a member of the Company.  He took the matter very serious. 

(f) Substantial amount of money was involved.  The applicant complained, inter alia, that the Company sold a property for $80 million which was worth at least 127 million. It was also said that another property was purchased at 23.8 million when it was worth no more than 18.5 million.   

(g) SC II charged 2 brief fees only when both SC I and JC I had levied separate charges from time to time. 

23.  Mr Lam stressed factors (a) and (f).  I have no quarrel with him on the former.  As to the latter, one has to bear in mind that the applicant is only one of the members within the Company.  

24.  Further, in my view, factor (b) does not justify the involvement of SC II at all.  I remain of the view that engagement of SC II was neither necessary nor proper for a party and party taxation.  

(a) In April 2017, JC I was instructed to prepare the papers to commence the proceedings.  JC II was asked to attend the first hearing next month in May.  Then, in the next 5 months from June to October, SC I rendered his services, including conducting legal research, rendering a Note of Advice and drafting/settling affirmations of the applicant. JC I also provided assistance to SC I. 

(b) After the hearing on 1 November 2017, SC I further charged on 3 occasions advice by email and revising affirmation of the applicant. JC I again also helped in these tasks.  

(c) However, as to SC II, he only levied 2 briefs for the hearings on 1 November 2017 and 14 March 2018.  From the correspondence among the legal team, he started to work on the matter in late October 2017.  He of course took a leading role in the strategy and preparation for hearing.  However, it did not appear to me that SC II had shown any skill, specialized knowledge and responsibility required of.  Further, time and labour expended by SC II were not impressive. 

(d) Among the said correspondence, I could locate an email written by SC II to those instructing him on 31 January 2018, mentioning, inter alia, that in the interest of the applicant and in terms of costs, SC I and JC I might be instructed to do the case as they were most familiar with the case and the law.

25.  Factor (g) also made me believe that only SC I together with JC I (but not SC II and SC I or SC II and JC I) fell within the proper or necessary test.  SC I was much more involved in the matter than SC II.  As said, he levied different and separate charges from time to time throughout the proceedings.  He charged an hourly rate of $8,000.  Hence, from items 4, 5, 6, 8, 9 and 10 under section B of the bill, his charges amounted to $380,000.  In terms of hours, it would be 24.5 hours of work.  As to JC I, apart from the actual brief fees received (amounts of which were not known for the purpose of the taxation and review), he took a total sum of $67,300 ($20,000 agreed fees and $47,300 time costs).  His hourly rate was at $2,200 and as such he had spent not less than 30 hours in the relevant tasks. 

26.  As to the argument that SC I only quoted his fees as a de facto junior, I think that Mr Yin provided a good answer why it did not matter at all for our purpose.  The overriding principle in taxation inter parte, namely, indemnity principle, kicks in.  It is to be applied on an item by item basis (paragraph 62/App/3, HKCP 2021 at p1350).  Once the court has decided to pick SC I, it is his brief fees to be considered.  In any event, as said above, in assessing brief fees of SC I, the said 24.5 hours of work spent was taken into account.

Conclusion

27.  To conclude, the review is dismissed.  

Costs

28.  I see no reason why costs should not follow event.  For the purpose of finalizing the matter before me, I will make an order nisi (to be made absolute after 14 days from the date hereof) that costs of the review, including certificate of counsel for hearing on 24 May 2021 and costs reserved, be borne by the applicant to the Company, to be summarily assessed by me. If applicable, for such purpose, I will give the following directions.   

(a) The Company do lodge and serve a statement of costs within 21 days from today. 

(b) The applicant do lodge and serve his objection within 7 days thereafter.  

(c) The Company do lodge and serve its reply within 7 days thereafter.  

29.  Last but not least, it remains for me to express my gratitude towards the assistance from both counsel and the 2 LCDs.