CAL-TRADE PRIVATE LTD v. MINDO COMMODITY TRADING CO LTD

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J U D G M E N T

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Clough, J.A.:

1. This is the judgment of Clough and Power, JJ.A.

2. This appeal is concerned with the amount of security ordered to be given by a foreign company in liquidation when pursuing a claim as the plaintiff in the commercial court in Hong Kong. Our initial impression was that the amount of security ordered to be given by the plaintiff was much too high. We have hesitated and reserved judgment to consider whether this is one of those rare cases where this court should interfere with the exercise of the discretion of the judge below under Order 23 rule l to order a plaintiff to give such security for the defendant's costs of the action as he thinks just. In the end we have felt constrained to conclude that no reasonable judge, properly directing himself, would have ordered the amount of security which was ordered to be given by the judge in this case.

3. Adopting the test adumbrated by Cumming-Bruce L.J. in Procon (Great Britain) Ltd. v. Provincial Building Co. Ltd. (1984) 1 WLR 557 (C.A.) at p.559E we feel compelled to answer in the negative the question:

"...... whether on the facts the security ordered by the judge was too much, on the ground that he did not take a sufficiently cautious view in order to protect the party against whom security was ordered, from the oppression of meeting security likely or liable to exceed the costs which the party seeking security had incurred or was likely to incur, when taxed on a party and party basis."

4. The plaintiff appeals against the order of Sears J. made on the 15th May 1989 requiring it to give security to the defendant company in the sum of $550,000. This sum was to be security for the defendant's costs in the action up to the time of discovery. The order awarded the defendant the costs of the application for security and included a certificate for two counsel appearing on the defendant's behalf before the judge in chambers. The sole issue is as to the amount of the security to be given by the plaintiff.

5. The plaintiff is a Singapore company which is insolvent and in liquidation. The action was instituted by a receiver appointed under a debenture issued by the plaintiff. The receiver claims to be entitled to sue in the company's name. The defendant is a Hong Kong company but its beneficial shareholders are mainly Indonesians. It is based in Hong Kong with an office in Singapore, and Jakarta and operates on an international basis. The claim against the defendant is for (U.S.) $1,847,500 being damages for alleged breach by the defendant of a contract to supply the plaintiff with palm oil.

6. The writ was issued on the 11th May 1988, indorsed with the points of claim which allege, in three paragraphs, the breach by the defendant of a contract, made by an exchange of telexes between the parties' Jakarta agents on the 6th and 10th January 1986, whereby the defendant agreed to supply the plaintiff with 3,000 metric tons of crude oil per month for one year from February 1986 in accordance with KPB/P.T.P. specification for crude palm oil exports at a pricing formula based on closing Rotterdam prices as reported by Reuters.

7. It is pleaded that the defendant performed the contract until August 1986 but failed to make shipments in September, October, November and December and wrongfully purported to terminate the contract on the 27th November 1986, whereupon the plaintiff, by a telex dated the 1st December 1986, declared the defendant in default in respect of the October, November and December 1986 and the January 1987 shipments. Damages are claimed on the basis of the difference between the market price on the 27th November 1986 and the contract price. The particulars also include a claim for (U.S.) $540,000 for Cancellation of freight contract for 12,000 metric tons at US$45 per metric ton"

8. By paragraph 5 of its points of defence filed on the 20th June 1988 the defendant alleges that the contract included implied or express conditions requiring the plaintiff to (1) nominate a vessel at least 20 days before the date of each monthly shipment (2) open a confirmed and irrevocable letter of credit in favour of the defendant in respect of the total price of each monthly shipment plus 5 per cent at least 30 days before the first day of shipment each month, and (3) sell or ship the oil purchased from the defendant to European countries only. In three schedules to the points of defence breaches of these conditions by the plaintiff are alleged. The defendant contends that by reason of those breaches it was entitled to terminate the contract and was discharged from further performance from September 1986 onwards. The first 12 paragraphs of the pleading are concerned with these matters.

9. In paragraphs 13 to 16 of the points of defence there is what seems to be intended to be an alternative plea that the parties had agreed on or about the 22nd September 1986 to cancel the outstanding shipments for the months of October, November and December 1986 under the original contract in consideration of the defendant supplying 3,000 metric tons of oil to the plaintiff in September 1986. The defendant pleads that it complied with its obligation under this agreement and was not therefore liable to make the October, November and December 1986 shipments under the original contract. In the alternative estoppel is relied upon.

10. The remainder of the points of defence is concerned with the further alternative pleading of a settlement agreement made between the parties on or about the 28th January 1987 in respect of the original contract. The defendant pleads that the terms of the settlement agreement were that (a) the defendant would pay to the plaintiff liquidated damages in the sum of (U.S.) $630,000 by six monthly instalments beginning on the 25th April 1987, all such instalments being in the sum of $100,000 except the last, being $130,000 payable on the 25th September 1987, and (b) the parties would enter into a new contract.

11. The defendant pleads that the new contract was made in writing between the parties on the l0th February 1987, providing for the purchase by the plaintiff from the defendant of 2,000 metric tons of oil per month in the months of April, May and June 1987 and 3,000 metric tons in July 1987 at Rotterdam prices quoted by Reuters at a discount of (U.S.) $32.50 per metric ton F.O.B. The new contract is alleged to have been subject to the same terms and conditions as are pleaded in paragraph 5 in respect of the original contract.

12. The defendant alleges that it paid $300,000 to the plaintiff pursuant to the new contract but that the plaintiff failed to pay for the April shipment of oil (leaving the defendant to recover the price from the plaintiff's purchaser) and thereafter failed to nominate vessels or open letters of credit for the subsequent shipments. By reason of these alleged breaches the defendant contends that it is discharged from the further performance of the new contract and not liable to pay any further instalments under the settlement agreement.

13. By its reply served on the 20th September 1988, which comprises four paragraphs, the plaintiff joins issue with the defendant upon its points of defence and (1) denies the cancellation agreement pleaded in paragraphs 13 and 14 of the points of defence, contending that the September 1986 shipment was made under the original agreement and, in the alternative, that the cancellation agreement is void for want of consideration; (2) contends that the settlement agreement provided that the plaintiff's claims for damages against the defendant would not be extinguish until the defendant had paid (U.S) $630,000 to the plaintiff; and (3) contends that the settlement agreement was ineffective to extinguish the plaintiff's claim in the action because the defendant failed to pay the plaintiff more than (U.S.)$300,000 under that agreement.

14. Further and better particulars of both the points of claim and defence had been served but they are not lengthy or complex.

15. We have set out the issues pleaded because it is clearly important, as Cumming-Bruce L.J. indicated in the Procon case at p.559F, to identify them with reasonable particularity in an application for security for costs. In our judgment the pleaded issues are not complex or difficult and the case is well within the compass of many junior counsel in Hong Kong. The amount clamed is however substantial.

16. The points of claim contained no indorsement of representative capacity under Order 6 rule 3. This was a matter of concern to the defendant's solicitor when, at an early stage,he became aware that the plaintiff was insolvent and in liquidation and that this was not liquidator's action. Correspondence between the 6th and 8th June 1988 between the parties' solicitors brought to light that the action was a receiver's action: c.f. the reference in the practice note to Order 6 rule 3 at paragraph 6/3/2 in the Supreme Court Practice Vol. 1 to Gough's Garages Ltd. v. Pugsley [1930] 1 K.B. 615 (C.A.).

17. In support of the defendant's, application for security for costs up to discovery its, solicitor Mr To Wai Keung, exhibited to his first affirmation a so-called skeleton bill of costs which consisted very substantially of fees and disbursements already incurred by or on behalf of the defendant. The total amount of the bill was $668,899.70. In his second affirmation Mr To exhibited a supplemental bill relating to disbursements and fees amounting to $63,000 arising from his visit to Singapore on the 2nd and 3rd June 1988 to confer with and take instructions from officers of the defendant. This made a total of $731,899.70.

18. The salient heads in the bill were (by reference to Mr Clifford Smith the plaintiff's counsel's analysis of the bill which may contain minor inaccuracies but accords reasonably closely with our reckoning) as follows

19. The plaintiff contended below through its solicitor, Mr Emmerson, that these costs and disbursements were wholly unreasonable and greatly excessive. The judge did not agree. After saying that he had regard to the principles set out in Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd.[1973] Q.B. 609 (C.A.) and Smith v. Buller (1875) L.R. 19 Eq. 473 he observed:

"I have a general discretion in this matter. I would indicate that the cost of litigation in Hong Kong is high; I see no reason why solicitors should not get the best advice possible insofar as commercial litigation is concerned. Mr Emmerson submitted that Rolls Royce treatment is inappropriate. That wording itself may be inappropriate, because in my judgment in commercial matters the parties are entitled to the best advice that they can get as long as it can not be castigated as unnecessary, or unreasonable or the luxury type of advice which bears no real relationship to the issues raised."

20. The judge went on to say that, having regard to all Mr Emmerson's points, he considered certain elements in the plaintiff's skeleton bill of costs to be open to some doubt but that he did not doubt that it had not been deliberately inflated or made a form of oppression. He added:

"All that has happened is that the solicitors concerned, who have some experience over a number of years, decided from the outset to employ counsel to advise on a case of this type. Because of the large sum being claimed, counsel was used on more occasions than might be the case, in other forms of liquidation. [sic] In my judgment, that does not demonstrate that the Defendants were using some form of luxury treatment, what it does involve, however, is that it may well be that there are items of duplication, in the various heads."

21. For the reasons given below we consider that the judge was here adopting a wholly wrong approach to the circumstances of this case. Be that as it may, he went op to reduce all the salient items of costs mentioned above by what he regarded as appropriate amounts. He began with head (1), reducing the number of hours from 124 hours to 100 hours. As to the rate of $2,000 per hour charged by Mr To for his services the judge said:

"It is asserted that on a party-and-party basis the solicitors would obtain $1,500.00; that does not accord with my experience of this field I do not consider that $2,000.00 per hour is an unreasonable amount for this particular solicitor engaged on this case."

22. Order 62 rule 28(2) provides that on a taxation on a party and party basis "there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed". The current guide to practising solicitors issued by the Law Society in Circular to Members No.32/85 dated the 11th February 1985 regarding the hourly rates appropriate to be allowed on a party and party taxation for work done by a solicitor in contentious matters in the High Court, indicates that, until such time as the range is changed, taxation will be in the range of $800 to $1,500 per hour depending upon, inter alia, the seniority and experience of the solicitor required to do the work in question.

23. This guide had the approval of the Registrar of the day and we have been informed by the present Registrar that it is currently regarded by taxing masters as a guide to the range to be accepted, with exceptions up or down where appropriate. It may be that the time has come for an increase in the maximum rate, but our experience is that in applications for security for costs leading firms are still adhering to the maximum rate of $1,500 per hour. Furthermore, with due respect, Mr To's experience as a solicitor enrolled in Hong Kong began on the 8th March 1980. He is listed in the Law Society's List as the sole practitioner in his firm of W.K. To & Co. in which he employs three assistant solicitors.

24. In our judgment there is nothing about Mr To's standing in the profession or about the issues in this case which justify his being entitled to exceed the current maximum norm for the Hourly rate of costs by $500.

25. As regards the heads of costs at (1), (2) and (3) above, the judge considered that regarding the preparation of the defence there may well have been some duplication of work and unnecessary work. On that basis he reduced counsel's fees by $40,000 and Mr To's fees by $35,000. As regard's head (4) above (relating to Mr To's trip to Singapore for two days) the judge reduced the number of hours claimed to 16 but upheld the rate of $2,000 per hour in the Tight of the fact that Mr To was out of his office for two days. He reduced the disbursements under this head from $15,000 to $10,000. He also deducted $11,000 from head (5) (fees paid to Mr To's professional agents for legal advice on Singapore law applicable to the plaintiff in liquidation and its receiver), being in no doubt that the defendant's solicitor was justified in obtaining advice from its agents but considering that he ought to make some deduction.

26. As to the fees incurred by the defendant in the application for security, the judge made only one reduction. He considered the defendant was only entitled to "a standard type of Q.C. fee" and reduced leading counsel's fee of $50,000 to $35,000, giving a certificate for two counsel in respect of the hearing in chambers.

27. The main thrust of Mr Smith's attack on the defendant's bill of costs was rightly directed to heads (1) (2) and (3) which generated fees amounting to almost $500,000 ($499,080). Given that, as in many commercial cases, there was substantial documentation to peruse, and given that the claim was substantial, we nonetheless consider that these fees are redolent of excess and would not begin to stand up to proper taxation on a party and party basis.

28. All that has been achieved by the work is the settling of pleadings followed by discovery in what seems to us to be a case which involves no legal complexity. In his skeleton bill of costs Mr To asserted that he instructed leading and junior counsel because "the case possesses a combination of commercial importance, pecuniary magnitude, bulk and complexity both as to law and facts." In our respectful opinion it does not say much for Mr To's professional experience that he regarded the case as one of legal complexity. It clearly is not.

29. Furthermore Mr To seems to have substantially abdicated from the proper role of a solicitor for the defendant in the initial stages of litigation which is to take instructions and instruct counsel with the necessary relevant documentation to advise and settle pleadings. He evidently preferred to adopt the course of engaging leading and junior counsel in a succession of conferences in which he presented them with his client's documents and took part in what amounted to a succession of committee meetings, beginning with Sunday the 5th June 1988 when he conferred and consulted with both counsel for 7 hours 15 minutes and charged fees amounting to $14,332 for his services and incurred fees of $17,166 in respect of the services of his junior counsel (who was called to the bar in 1984) and $18,000 in respect of leading counsel's fees. Thereafter until the 20th June 1988 when the points of defence were finally served, and between the 15th July and the 18th October the succession of conferences and perusal fees continued, resulting in a monumental build up of costs to which Mr To added his fees for 120 hours of additional work at $2,000 per hour. There is not one item relating to written instructions to counsel.

30. In our judgment this method of conducting the initial stages of a defence case, whilst permissible if the client will pay for, it was wholly unjustified in the context of what is reasonably necessary for the purposes of a claim for party and party costs to be born by an unsuccessful plaintiff at the conclusion of the action. The judge misdirected himself in failing to appreciate this and in accepting the skeleton bill of costs as a realistic and reliable guide which merely required trimming down here and there.

31. Once the skeleton bill of costs has been demonstrated to be wholly unreliable as a guide to the measure of security required in respect of heads (1), (2) and (3) it must be abandoned, because any trimming operations on a grossly inflated bill of costs can only result in an order for excessive security which is oppressive.

32. Mr Smith for the plaintiff stressed that the costs incurred by the plaintiff down to the close of pleadings amounted to only $140,000 solicitors costs and counsel's fees of $6,300. He rightly pointed out that the modest amount of counsel's fees (for drafting the points of reply, settling further and better particulars of the points of claim and settling the request for further and better particulars of the points of defence) reflected the adequacy of the instructions provided to him.

33. Whilst we accept that the costs reasonably required to be incurred by the plaintiff in this case are not to be equated to those reasonably required to be incurred by the defendant, we consider that the striking contrast between the amount of fees incurred by the respective parties speaks for itself.

34. Being unable to rely on the defendant's skeleton bill in respect of heads (1), (2) and (3) above, we can only consider, by adopting the approach of Pennycuick J. in Simpsons Motor sales (London) Ltd v. Hendon Corporation [1965] 1 WLR 112 at p.118, the fees that might reasonably be charged to do all work reasonably necessary on behalf of the defendant in this action down to discovery by a hypothetical solicitor and counsel capable of conducting the case effectively but unable to insist on the particular high fee sometimes demanded by a solicitor or counsel of pre-eminent reputation.

35. Mr Smith submitted that the work done on behalf of the defendant up to the close of pleadings could have been accomplished by conferences with junior counsel for a total of five hours, 16 hours of perusal time by junior counsel and 60 hours of Mr To's time. On the basis that the maximum hourly rate allowable on party and party taxation in respect of both counsel and solicitor for 86 hours would be $1,500 per hour and that a total of $15,000 had been charged for counsel's drafting, Mr Smith contended that the defendant should be permitted no more than $144,000 on taxation in respect of the relevant items.

36. Bearing in mind that the plaintiff is an insolvent company and that the defendant should be adequately protected from the consequential jeopardy regarding costs if it is successful in the action, we agree that this is a realistic estimate, but we would round it off to $150,000 and add $20,000 to allow for consultation with leading counsel (but not constant involvement) in the early stages of an action in which the defendant faces a substantial claim.

37. Mr Smith concedes, and we agree, that the following items in the defendant's skeleton bill of costs should also be allowed as security:

38. A further 29 small items are conceded and should be allowed. They amount to $3,777. This produces a total so far comprising: 

39. We can see no reason to interfere with the amounts of $42,000 which the judge allowed for Mr To's work in Singapore in respect of the claim for $63,000 under this head. Likewise we can see no ground for interfering with the discretion of the judge in allowing security in the amount of $40,771 to the defendant in respect of legal disbursements incurred in fees to Mr To's professional agents in Singapore. We emphasise that we have the gravest doubts whether the amounts allowed would stand up to party and party taxation but we decline to substitute our opinion for that of the judge who has exercised his discretion. The total amount of security including the two Singapore items is therefore $314,319 which we round off to $315,000.

40. There remains leading counsel's fee of $50,000 for the hearing of the application for security which the judge reduced to $35,000. Mr Smith contended that no fee should be allowed. We agree. We cannot comprehend on what basis the judge considered otherwise and granted a certificate for two counsel under order 62, First Schedule, Part II paragraph 2(3). Under that provision a certificate should not be granted for the attendance of two counsel before a judge in chambers unless he considers the attendance of two counsel to be proper in the, circumstances of the case.

41. The application in question was not one involving particular expertise or difficult questions of law. Indeed matters of costs are usually better handled by solicitors whose practical experience of such matters is inevitably more extensive than that of counsel. In the present case the plaintiff was adequately represented by a solicitor. We do not consider that any reasonable judge properly directing himself would have contemplated granting a certificate for two counsel in this case.

42. We were faced with the unedifying spectacle of leading counsel, who had appeared below, having to take refuge in the fact that no leave had been applied for under section 14(3)(e) of the Supreme Court Ordinance (Cap.4) and Order 59 rule 14(2) to appeal against the granting of the certificate. However the plaintiff's notice of appeal had sought an order that the whole of the judge's order granting the certificate be set aside and the allowance of leading counsel's fee was clearly and rightly attacked by Mr Smith in his submissions on appeal. The necessary implication can only be that the certificate was being impugned and understood by Mr Tang to be impugned. That is why he took the point he did.

43. In our judgment, the matter having been effectively argued on appeal, this is a case where this court should eschew technicality and do justice by invoking Order 2 rule l (l) and grant the plaintiff leave to appeal out of time against so much of the judge's order as granted a certificate for two counsel in chambers, dispensing with the requirement of a pro forma application.

44. Accordingly we would allow the appeal and reduce the amount of security to be given to the defendant by the plaintiff to $315,000. We would make an order nisi awarding costs of the appeal to the plaintiff, leaving the order for costs below undisturbed save as to the certificate for two counsel.

45. Finally, we emphasise that we would only allow this appeal because we consider the order made by the judge to have been manifestly erroneous and oppressive. We are mindful of the comments of Cumming-Bruce L.J. in the Procon case at p.569C and emphasise that appeals against the exercise of judicial discretion in interlocutory proceedings will not succeed in this court except in exceptional cases. This is such a case.

Jones, J.:

46. I am in agreement with the judgment of my Lords Clough and Power with the exception of the amount that should be awarded by way of security.

47. Cumming-Bruce, L.J. in Procon (Great Britain) Ltd v. Provincia1 Bui1ding Company Ltd [1984] 1 W.L.R. 557 to which my Lord has already referred, said at page 567B "... the security should be, such as the court thinks in all the circumstances of the case is just."

48. The judgment of Griffiths, L.J. in the same case is relevant when he was dealing with the practice of the two-thirds estimate for an award. At page 571A he had this to say:-

"I can see no sensible reason why the court should not order security in the sum which it considers the applicant would be likely to recover on taxation upon a party and party basis if the court considers it just to do so. This, as I understand it, is the practice of the judges in the Commercial Court and it is a practice that ought also to be followed in the rest of the Queen's Bench Division. It is, of course for they party seeking an order for security, to put before the court material that will enable the court to make an estimate of the costs of the litigation. In the normal course of things it is to be expected that the court will, to some extent, discount the figure it is asked to award. Allowance will have to be made for the unquenchable fire of human optimism and the likelihood that the figure of taxed costs put forward would not emerge unscathed after taxation."

49. With regard to certain sums that have been claimed by the defendant as security, the majority have expressed the gravest doubts whether they will be allowed on a party and party taxation, but have, nevertheless, declined to substitute their opinion for that of Sears J. In my judgment, as we are interfering with the discretion of the judge, those sums should be discounted if they are not likely to be allowed on taxation. Taking those deductions into account and despite the concessions made by counsel for the plaintiff, the amount of $315,000 to be ordered as security is too high. Having regard to all the circumstances, I consider that the appropriate amount to award as security is $150,000.

Clough, J.A.:

50. Accordingly in handing down these judgments we give leave to the plaintiff to appeal out of time against so much of the judge's order as granted a certificate for two counsel in chambers, we allow the appeal and reduce the amount of security to be given by the plaintiff to $315,000 and make an order nisi that the defendant must pay the plaintiff's costs of the appeal. We leave the order for costs made below undisturbed.