MA HOI KI v. LI CHI CHUEN AND ANOTHER

DCMP469/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 469 OF 2009

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REASONS FOR DIRECTIONS

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I.  Introduction

1.  The Plaintiff is a mentally incapacitated person. She commenced the present action by her father and next friend (“Next Friend”) by way of originating summons dated 11^th February 2009 to seek leave to accept a sum of HK$50,000.00 in full and final settlement of her claim for damages which she might have commenced against the 1^st and 2^nd Defendants as a result of personal injuries sustained a road traffic accident on 12^th July 2007.

II.  Supporting affidavit for Order 80 approval

2.  The Plaintiff filed the affirmation of the Next Friend dated 11^th February 2009 in support of the application for Order 80 approval of the proposed settlement.

3.  I have in So Long Him (a minor by So Chi Kwong his father and next friend) v Ho Kai Lun Ricky & anor DCPI1632/2008 (unreported, 10^th February 2009) explained why supporting material for Order 80 approval setting out a candid and realistic assessment as to whether the proposed settlement is fair and of benefit to the person under disability should remain confidential and not unnecessarily disclosed.

4.  Consequently, the Plaintiff’s solicitors wrote to the court on 16^th February 2009 to seek leave to treat the affirmation of the Next Friend as lodged (and not filed) on 11^th February 2009 and to apply for an order that such affirmation shall not be open to search by any party other than by the Plaintiff and/or her solicitors without leave of the court. On 18^th February 2009, I granted the directions sought by paper disposal.

5.  On 17^th February 2009, the Plaintiff issued an inter partes summons for amendment of a clerical error in the originating summons in respect of the name of the 2^nd Defendant. On 23^rd February 2009, the 1^st and 2^nd Defendants through their solicitors filed acknowledgment of service indicating that subject to approval of agreed settlement terms they would not contest the proceedings. On 27^th February 2009, I granted leave to the Plaintiff to amend the originating summons pursuant to a consent summons dated 26^th February 2009.

6.  On 5^th March 2009, the Plaintiff filed the affidavit of Chow Siu Yin (her solicitor) that essentially repeated what was set out in the affirmation of the Next Friend. Upon enquiry at the hearing on 19^th March 2009, I was informed that the purpose of Ms Chow’s affidavit was to verify the Amended Originating Summons. Given the nature of the amendment in respect of the originating summons which would not have affected the assessment of the prospects of the Plaintiff’s claim, Ms Chow’s affidavit is unnecessary, especially when Ms Chow also lodged a 9-page memorandum with 9 annexures for Order 80 approval. Had a further verifying affidavit been necessary (which I disagree), all that is required is for the Next Friend or for Ms Chow to crave leave to refer to and adopt the previous affirmation of the Next Friend.

7.  In light of the above, Ms Chow sensibly agreed there be no order as to costs of and occasioned by her affidavit and confirmed that the Plaintiff’s solicitors would not charge the Plaintiff for the costs and expenses in preparing and filing such affidavit.

III.  Order 80 approval

8.  After considering the relevant affidavit evidence and the memorandum for approval of settlement, I approved the proposed settlement.

9.  Here, the 1^st and 2^nd Defendants agreed to pay the Plaintiff’s costs of the action on District Court scale (including costs of and incidental to and occasioned by the Order 80 approval) on common fund basis to be taxed if not agreed. Further, the Plaintiff’s solicitors confirmed they would waive all costs beyond costs that will be recovered from the 1^st and 2^nd Defendants.

10.  In the course of dealing with the Order 80 approval in the present case, two matters in relation to inter partes costs arose which may be of general interest. Ms Chow and Mr Chan, solicitor for the 1^st and 2^nd Defendants, indicated they have no objection for me to hand down my observations (which do not touch on matters pertaining specifically to the Plaintiff in this case) in open court.

IV.  Reasonable costs

11.  The liability and quantum issues in the present case fall within a very small compass. It is inappropriate and unnecessary for me to discuss the particular circumstances of the present case, but the amount of the settlement sum speaks loudly of the simplicity of the factual or medical aspects of the case.

12.  In the District Court, where an originating summons is issued for Order 80 approval of a compromise reached prior to proceedings being commenced, more often than not the case involves clear evidence of liability on the part of the defendant (eg the defendant is convicted under a relevant summons/charge that evidences negligence) and minor injuries to the person under disability with minimal or nil loss of earnings and/or loss of earning capacity. In such kind of case, admission of liability is usually forthcoming at an early stage and the ensuing inter partes communications largely turn on the quantum of damages and negotiations on the settlement sum. In short, in this sort of case, it should be apparent from an early stage that the ultimate settlement sum (if the parties do reach compromise) will be relatively small.

13.  However, it is the experience of this court that not infrequently counsel is instructed to advise on liability, evidence and quantum even in cases of the kind described in the above paragraph. Sometimes counsel is instructed where there is already an offer of a relatively small sum. This court has seen counsel’s opinion on reasonableness of settlement offers of and under HK$40,000.00. Sometimes counsel is instructed to advise on liability, quantum and evidence, and then later instructed again to advise on the reasonableness of a proposed settlement offer for a relatively small sum. At times, there may be further counsel’s opinion on revised offers for settlement. In some cases, though rare, counsel is instructed to attend the hearing for the Order 80 approval even though the facts of the case are straightforward and the settlement sum is relatively small.

14.  Let me hasten to say that courts have often expressed gratitude for the assistance rendered by counsel to enable the courts to discharge of their duty to protect persons under disability, and such expressions of gratitude are genuine indeed. However, at the eve of the implementation of the Civil Justice Reform, courts must also be vigilant to ensure that costs incurred by parties in legal proceedings are reasonable and proportionate to the needs of the case not only from the perspective of the person under disability but also from an inter partes perspective.

15.  Often disability settlements are reached on the basis that the defendant will pay the costs of the person under disability on common fund basis to be taxed if not agreed. This is a more generous basis than the party and party basis, and “a reasonable amount in respect of all costs reasonably incurred” is allowed (see Order 62 rule 28(4) of the Rules of the District Court (“RDC”)).

16.  The relevant principles are summarised by Master Poon (as he then was) in Ngan Wun Yeung v Lok Sin Tong Benevolent Society, Kowloon & ors [2000] 2 HKC 404, 413-414 as follows :

“  When taxing inter partes costs on a common fund basis, as is in the present case, the court will have regard to its definition in O 62 r 28(4) and the relevant principles which I have sought to summarise above. Reasonableness is always the starting point: there shall be allowed a reasonable amount in respect of all costs reasonably incurred. The basic questions are:

(1)  Are the costs to be taxed reasonably incurred?

(2)  If so, is the amount incurred reasonable, and if not, what is the reasonable amount?

In searching for an answer, the court shall have regard to all the relevant circumstances of the case, and in particular to:

(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, specialised knowledge and responsibility required of, and the time and labour expended by, the solicitor or 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 client;

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

(g)   any other fees and allowances payable to the solicitor or 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.

See para 1(2) of Pt II, First Schedule, O 62.

  Further, in connection with counsel's fees, the court will bear in mind para 2 in the same Pt II, in particular to sub-para (5) which provides: ‘Every fee paid to counsel shall be allowed in full on taxation, unless the taxing master is satisfied that the same is excessive and unreasonable, in which event 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).’

  Lastly, the benefit of doubt as to whether costs have been reasonably incurred or are unreasonable in amount are accorded to the paying party: EMI Records Ltd v Cameron Wallace Ltd. & Anor, supra, at p 989.”

17.  In addition, paragraph 2(2) of Part II, First Schedule of Order 62 of the RDC provides that no costs shall be allowed in respect of counsel appearing before the court unless (a) the court has certified the attendance as being proper in the circumstances of the case or (b) the amount recovered exceeds HK$150,000.00.

18.  In light of the above, even before the implementation of the Civil Justice Reform, in an application for Order 80 approval of a compromise reached prior to commencement of proceedings which turns on a narrow compass of straightforward facts/issues, the court may be called upon to consider whether counsel’s advice or attendance is reasonably incurred even on the basis of common fund taxation of costs. After 2^nd April 2009, such consideration will be emphasised by the underlying objectives in Order 1A rule 1 of the RDC, including inter alia (a) to promote a sense of reasonable proportion and procedural economy in the conduct of the proceedings and (b) to ensure fairness between the parties. Practitioners and next friends will do well to remember that these underlying objectives apply with equal vigour to Order 80 approval of compromise reached prior to proceedings being commenced.

19.  On another matter which may have impact on inter partes costs, I have in So Long Him discussed the circumstances where it may be necessary for legal representatives acting for persons under disability to prepare both affidavit and memorandum for Order 80 approval. However, practitioners should ensure there is no unnecessary duplication as a result of setting out the same information in and attaching the very same exhibits/annexures for both documents. If the primary information is set out in the supporting affidavit, then the memorandum should refer to the affidavit and set out a frank and realistic assessment of the key factors that affect the merits of the claim and the settlement offer. Unnecessary duplication, especially in simple and straightforward cases involving a relatively small quantum, is nothing but a regrettable exercise in costs. Whilst the court recognises that legal representatives acting for persons under disability should be jealous to uphold their duty to protect the interests of such persons, the expectation of receiving common fund costs payable by the defendant if settlement is approved does not excuse unreasonable costs that are disproportionate to the needs of the case.

20.  According to Halsbury’s Laws of Hong Kong 2006 Reissue Vol.5(2) para.90.1261 at p.1718, “[on] the approval of a settlement of a claim by or on behalf of a person under disability under RHC Ord 80 r11, the usual practice is to award costs on the common fund basis, the plaintiff’s solicitor waiving any claim to further costs: see Tai Chau Yung (intended administratrices of the estate of the estate of Kiung Kar Woo, the deceased) v Ng [1999] 2 HKLRD 449 ……; Lily Tse Lai Yin v Incorporated Owners of Albert House (unreported, 2000; HCPI 828/1997) ……; Wai Yin Wa (by her next friend Choi Siu Yick) v Laminate Enterprises Ltd (unreported, 1999; PI 514/1997) ……”

21.  I agree with the views expressed in Hong Kong Civil Procedure 2009 Vol.1 para.80/12/14 at pp.1178-1179 as follows :

“  A compromise of a claim on behalf of a minor or an infant has to include an agreement in respect of costs. Without such agreement it is not a full compromise to put before a court for its approval. The court is asked to approve a fixed sum of money as reflecting a proper settlement. If there is any uncertainty as to whether the proposed settlement figure may be reduced by any liability for costs, it may not be approved. In any event, the solicitors representing the plaintiff will be required to explain such potential liability fully. In normal circumstances, where the settlement provides for costs on a common fund basis, solicitors will be expected to waive any claim for further costs. This is because the basis for common fund costs is a reasonable amount in respect of all costs reasonably incurred. The corollary is that any costs not recoverable from the defendant on this basis are deemed to be not reasonable and not reasonably incurred. The court is then likely to take the view that they should not be payable out of a plaintiff’s damages, and should not be recoverable out of the Legal Aid Fund.

  Solicitors therefore should be wary of agreeing common fund costs with the defendants in the hope of having any costs which it does not have to recover from the defendants allowed on taxation of Legal Aid costs. With a waiver by the plaintiff’s solicitors of any costs over and above common fund costs it is only in rare circumstances that a Legal Aid Taxation will be necessary. (See also paras 80/12/17-80/12/18.)

  In simple cases the court will proceed in the interests of a plaintiff under disability to assess gross sum costs under O.62, r.9(4)(b). See Ma Ka Lui v. Katafygiotis Lampros, unreported, HCPI No. 982 of 2001, January 21, 2003, [2003] H.K.E.C. 109.” (my emphasis)

22.  The above is echoed in paragraph 17.6 of the current version of Practice Direction 18.1 (which becomes paragraph 196 of the new Practice Direction 18.1 that will become effective on 2^nd April 2009) :

“In the event of a Solicitor for a plaintiff seeking to charge against a plaintiff's damages, costs and disbursements which he considers he will not recover from the Defendants, he must produce at the hearing for approval a statement of the maximum amount of such costs and disbursements and will be required to justify them. The Plaintiff and/or the next friend must have been advised in writing of the estimate of the amount of costs and disbursement in question, and any consent thereto must be in writing and produced to the Court. The written advice must set out clearly why those costs and disbursements have been incurred and why it is considered that they are not recoverable from the Defendants. A general undertaking to be responsible for costs signed by the client will not be sufficient for these purposes.

The proposed direction set out by the Plaintiff's Solicitors pursuant to 17.4 should also set out how the balance of the amount of the said costs and disbursements after deduction of the taxed costs payable to them should be applied towards the Plaintiffs.

No approval will be given to any settlement unless the court can be told with reasonable accuracy, the maximum amount it is sought to be deducted from the Plaintiff's damages. If the court is not satisfied with the maximum amount as put forward by the Plaintiff's Solicitors as being necessary, the court may whilst granting an approval of the settlement figure, give such directions for dealing with the application for approval of the distribution of the award as it thinks fit, including a speedy taxation of all the costs and disbursements.” (my emphasis)

23.  The above considerations are of particular relevance to disability settlements reached prior to proceedings being commenced with applications by originating summons to the District Court for Order 80 approval. As discussed above, these cases often involve relatively small settlement sums and straightforward facts with fairly little disputes on liability and medical issues and/or limited or nil claims for loss of earnings. Legal representatives acting for the person under disability in such cases have a duty to advise the next friend of the implications of incurring costs unreasonably and of the possibility of being called upon to justify why counsel’s involvement is reasonable in all the circumstances. Counsel instructed to advise and give opinion and/or to the attend the hearing of the originating summons in such cases also have a duty to consider and advise on costs implications before taking up such instructions. Ultimately, the court will need to be satisfied whether the interests of the persons under disability are sufficiently protected in deciding whether to approve the proposed settlement.

V.  Summary assessment of costs

24.  In the present case, Mr Chan asked for gross sum assessment of the inter partes common fund costs in favour of the Plaintiff. However, the Plaintiff did not prepare a costs schedule for such purpose, and I directed taxation of costs in the usual manner if the amount thereof could not be agreed. However, the future approach bears consideration.

25.  Order 62 rule 9(4)(b) of the current version of the RDC provides inter alia as follows :

“The Court in awarding costs to any person may direct that, instead of taxed costs, that person shall be entitled …… to a gross sum specified in lieu of taxed costs, ……”

Order 62 rule 9(4)(b) of the RDC that will come into effect on 2^nd April 2009 provides inter alia as follows :

“The Court in awarding costs to any person may direct that, instead of taxed costs, that person shall be entitled …… (b) to a sum of money summarily assessed in lieu of taxed costs”.

26.  Order 62 rule 9C(1)(c) goes on to provide inter alia that :

“No direction or order may be made under rule 9(4)(b) or 9A(1)(a) or (b) …… for the payment of a sum of money if …… (c) the receiving party is a person under disability as defined in Order 80, rule 1, and the legal representatives (or the next friend or the guardian ad litem) acting for the person under disability has not waived the right to any further sum of money in respect of the costs of the interlocutory application.”

27.  I note that the new provision in Order 62 rule 9(4)(b) of the RDC that will come into effect on 2^nd April 2009 as distinct from Order 62 rule 9A(1)(a) or (b) is concerned with non-interlocutory applications. Since Order 9C(1)(c) of the RDC applies to both Order 62 rule 9(4)(b) and Order 62 rule 9A(1)(a) or (b) (ie to both non-interlocutory and interlocutory applications), the waiver referred therein should not be confined to “costs of the interlocutory application” but to “costs of the application, cause or matter” as provided in paragraph 9 of Practice Direction 14.2.

28.  In my view, in the District Court where an application is made by originating summons for Order 80 approval of a compromise reached before the commencement of proceedings, and where the legal representatives or the next friend acting for the person under disability waives the right to any further sum of money beyond, say, common fund costs which the defendant is prepared to pay, there is every advantage in adopting gross sum assessment of costs or summary assessment of costs (as it will be called after the implementation of the Civil Justice Reform) pursuant to the practice set out in paragraphs 7-15 of Practice Direction 14.3 which will come into effect on 2^nd April 2009.

29.  Even though there may be a history of evidence gathering and negotiations between the parties, such originating summons for Order 80 approval usually involves a single hearing and limited documentation filed/lodged with the court. Further, for summary assessment of costs, the court will so far as possible ensure that the final figure is not disproportionate and/or unreasonable having regard to the nature and circumstances of the application, matter or cause and the underlying objectives stated in Order 1A of the RDC (see paragraph 14 of Practice Direction 14.3). This echoes and complements the discussion on proportionate and reasonable costs in paragraphs 11-23 above. Indeed, it is not unusual even now for the courts to proceed with gross sum assessment of costs of the action upon infant compromises reached at the court door (see Ma Ka Lai by the mother and next friend Ho Mei Chun v Katafygiotis Lampros HCPI982/2001, Seagroatt J (unreported, 21^st January 2003). For gross sum assessment of costs after acceptance of payment into court at the court door, see Poon Yat Lam Ilum v Chan Chi Wai HCPI462/2003, Saunders J (unreported, 15^th September and 2^nd November 2006).

30.  In the circumstances, after the implementation of the Civil Justice Reform, legal representatives acting for a person under disability for Order 80 approval in the District Court in respect of compromise reached before proceedings were commenced should consider seeking summary assessment of costs of the proceedings by way of originating summons (unless such legal representatives and/or the next friend are not prepared to waive the right to any further sum of money in respect of the costs beyond what the defendant is prepared to pay) or be prepared to justify why such procedure is inappropriate. Where the aforesaid waiver by the legal representatives and/or the next friend is not forthcoming (and this is a matter for them), the court will need to be satisfied that the settlement remains beneficial to the person under disability and should be approved (see paragraphs 20-23 above). But it is of course for the judge hearing the originating summons to decide whether summary assessment of costs is appropriate in all the circumstances.