BUILDTECH LTD v. HUNG WAN CONSTRUCTION CO LTD

DCCJ 1385/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1385 OF 2008

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DECISION

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Introduction

1.  This is an appeal bythe defendant from the learned master’s refusal on 28 February 2013 to grant time extension for the defendant to set its bill of costs down for taxation.

2.  The plaintiff’s claim against the defendant in this action was dismissed on 30 April 2012 with costs to the defendant.

3.  The defendant filed and served a Notice of Commencement of Taxation (the “NOCT”) together with its Bill of Costs on 16 October 2012.  In the NOCT, it was stated that the plaintiff was required to file its List of Objections on or before 13 November 2012 and the defendant was to file its Application to Set Down a Bill for Taxation (the “Application”) within 28 days of the service of the List of Objections.

4.  The above timetable conformed to the provisions of Practice Direction 14.3 (“PD 14.3”).  Paragraphs 21 and 22 of PD 14.3 provides that:

“21. Unless the taxing Master directs otherwise, the following standard directions shall take effect:

(1) Within 28 days after service of the NOCT, the paying party shall file and serve a list of objections, failing which the receiving party may apply to the taxing Master for the bill to be taxed as drawn as provided for in paragraph 23 below.

(2) In the event that no settlement on the whole bill can be reached within 28 days after service of the list of objections, the receiving party shall file and serve an application in the form of Appendix E (“Application to Set Down a Bill for Taxation”).

22. If parties agree on directions which are not the same as the standard directions set out in paragraph 21 above, the parties shall file a consent summons to that effect. Any agreed directions will be treated as an important factor although the taxing Master retains a discretion and will consider all the circumstances before making an order.”

5.  After the filing of the NOCT, the parties made no application to the court for different directions.  Accordingly, the standard directions set out in paragraph 21 of PD 14.3 took effect.

6.  The plaintiff filed and served its List of Objections on 13 November 2012. According to the aforesaid standard directions, the defendant should have filed and served the Application by 11 December 2012.  The defendant had not filed or served the Application by 11 December 2012.  On 8 February 2013, the defendant took out a summons for extension of time for it to set down its bill for taxation (the “Summons”).  The Summons was dismissed by the learned master on 28 February 2013 on the ground that no good reasons was shown.  The defendant lodged this appeal.

Discussion and ruling

7.  From the transcript of the hearing before the learned master, it can be seen that the defendant put forward settlement discussion as the only reason for its time extension application.  In dismissing the Summons, the learned master had paragraph 24 of PD 14.3 in mind.

8.  Paragraph 24 of PD 14.3 provides that:

“24. The date for filing the Application to Set Down a Bill for Taxation, whether pursuant to the standard directions or otherwise, cannot be postponed without the approval of the taxing Master. The taxing Master will not grant an application for postponement without good reasons being shown to him. The assertion that the parties wish to discuss settlement will generally not be regarded as a good reason as they should have made use of the prior period to so discuss.”

9.  There was no dispute that the parties had been engaged in discussing the defendant’s costs since 28 May 2012 before the NOCT was issued.  It was not disputed that the discussion continued after the issue of the NOCT.  The last exchange being a letter from the plaintiff’s solicitors to the defendant’s solicitors dated 10 December 2012, ie one day before the due day for the defendant to file and serve the Application.

10.  There was also no dispute that the defendant’s solicitors had sent a draft of the Application to the plaintiff’s solicitors on 30 January 2013.  The defendant’s solicitors further sent a signed version of the Application to the plaintiff’s solicitors on 31 January 2013 for the plaintiff’s solicitors’ signing which the plaintiff’s solicitors did not sign.  The defendant then took out the Summons on 8 February 2013.

11.  Mr Niehorster representing the defendant submitted that the effect of the learned master’s order was to deprive the defendant of all its costs of the action.  He urged me to take into consideration the following matters and not to adopt the same course of action:

(1) the period of any delay was less than 2 months;

(2) the court was not bound to disallow any extension;

(3) by disallowing any extension, the plaintiff unreasonably realizes a windfall; and

(4) in the circumstances of this case, it was far from certain that the defendant had any remedy against its legal representative.

12.  Mr Chan representing the plaintiff submitted that PD 14.3 clearly stated that the Application should be filed by the due date and could not be postponed.  Any delay would require the approval of a taxing master with good reasons being shown.  It was also specifically stated in PD 14.3 that discussing settlement was not a good reason for delay in filing the Application.  At the hearing before the learned master, the defendant could not give any reason for its delay other than “settlement discussion”.

13.  Mr Chan submitted that the defendant had breached paragraph 24 of PD 14.3.  He referred to Tong Yi Sang & Anor v Fung Law & Ng & Ors [1993] 2 HKC 665 to submit that the court would not tolerate a breach of the practice directions save in the most exceptional circumstances.

14.  Mr Chan further submitted that it was doubtful whether the “settlement discussion” relied on by the defendant was a genuine reason for its time extension application as the defendant made no reply to the plaintiff’s aforesaid letter dated 10 December 2012.

15.  Mr Chan submitted that under the civil justice reform (the “CJR”), delay in taxation was discouraged and a taxing master had the power to penalize delay in taxation or to prevent a party from commencing taxation where there was delay. He referred to various powers conferred to the taxing master by Order 62 rule 22 of the Rules of the District Court (the “Rules”).

16.  Mr Chan said that the defendant was unable to provide a good reason for its delay and had not shown exceptional circumstances to justify its breach of paragraph 24 of PD 14.3.  He submitted that the learned master’s decision was correct and in line with the CJR.

17.  Mr Niehorster submitted that paragraph 21(2) of PD 14.3 did not stipulate any deadline date for filing and service of the Application.  He submitted that this paragraph only required the defendant to file and serve the Application if no settlement on the whole bill could be reached within 28 days after service of the plaintiff’s List of Objections but the practice direction did not stipulate a time limit for the defendant to file and serve the Application.

18.  With respect, I do not agree.  PD 14.3 came into effect as part of the CJR.  It shall be construed and understood in the context of the CJR.  The underlying objectives of the CJR as set out in Order 1A rule 1 of the Rules include, inter alia, ensuring that a case is dealt with as expeditiously as is reasonably practicable (Order 1A rule 1(b)).  Order 1A rule 4 of the Rules provides that the court shall further the underlying objectives by active case management which includes fixing timetables or otherwise controlling the progress of the case (Order 1A rule 4(2)(g)).

19.  Provisions of paragraph 21(2) of PD 14.3 are meant to be standard directions to be adopted in the procedure introduced by the CJR for taxation proceedings in the absence of other directions to the contrary from the court.  These standard directions are part of the active case management of the court to fix timetables for taxation proceedings to further the underlying objectives of the CJR.  One of the directions is that the parties have to settle the whole bill or the receiving party has to apply to set down the bill for taxation within the prescribed time (ie 28 days after service of the list of objections).

20.  Mr Chan rightly pointed out that the defendant in the NOCT also stated that: “We [the defendant] will file an application for setting down for taxation within 28 days of the service of your [the plaintiff’s] list of objections on us”.

21.  If the defendant contends the otherwise, it would not have taken out the Summons in the first place as it was unnecessary and it would not have lodged this appeal as the Summons would have been rightly dismissed in any event for want of basis of application if not for no good reasons.  I have no hesitation in rejecting this contention of Mr Niehorster.

22.  Mr Niehorster said that paragraph 24 of PD 14.3 referred to postpone the date for filing the Application.  He submitted that as such, it contemplated a postponement sought prospectively to defer filing the Application and did not apply to a time extension application made after the due date.

23.  An application for time extension to file the Application is an application to postpone the date for filing the Application.  Whether the application for postponement is made before or after the due date makes no differences.  I see no merits in such argument.

24.  Mr Niehorster submitted that PD 14.3 did not have statutory effect and that if it was intended that paragraph 24 of PD 14.3 would have such draconian sanctions, it would have been spelt out in the Rules and/or spelt out in the most unequivocal terms in PD 14.3.

25.  I do not agree that paragraph 24 of PD 14.3 is equivocal.  It clearly states what it means.

26.  Although practice directions do not have statutory force, they shall not be taken lightly by the litigants and the practitioners.  It has been explained in paragraph PD/1 of the Hong Kong Civil Procedure 2013 Vol 1 at p 1591 that:

“In addition to the High Court Rules, the judiciary issue practice directions. Unlike the High Court Ordinance and the High Court Rules, the practice directions do not have statutory force. However, the judiciary expect litigants to comply with the practice directions and in appropriate cases may exercise its powers under the High Court Rules to compel compliance with them and penalise litigants who do not comply with them.

The primary function of practice directions is to identify detailed rules of procedure which are not to be found in the High Court Rules but which the judiciary expects litigants invariably to follow in appropriate circumstances. The practice directions tend to address matters of detail that it would be impracticable to incorporate into the High Court Rules themselves, but where the judiciary has determined that the matters of procedure in question are sufficiently important and sufficiently standardised to merit “codification”.”

27.  Matters covered by the practice directions are not matters of less important than those covered by the Rules.  They are covered by the practice directions instead of the Rules because it would be impracticable to incorporate them into the Rules.  The court may and will exercise its powers under the Rules to compel compliance with the practice directions and penalize litigants who do not comply with them.  Sanctions imposed for breach of the practice directions are not necessarily less draconian than sanctions imposed for breach of the Rules. Kaplan J had in the case of Tong Yi Sang at 666 reminded “all those who practice in these courts that Practice Directions are to be complied with, and that the required procedural steps cannot be ignored with impunity.”

28.  However, I do not take this case as a case of patent breach of PD 14.3.  PD 14.3 sets out the standard directions in paragraph 21 and provides in paragraph 24 that the date for filing of the Application cannot be postponed without the approval of the taxing master.  The defendant took out the Summons to seek approval from the taxing master to postpone the filing date for the Application.  Mr Niehorster rightly pointed out that under Order 62 rule 16 of the Rules a taxing master was empowered to extend the time for doing anything in taxation proceedings and such power could be exercised upon application made even after the expiration of the period concerned.  The defendant in taking out the Summons was acting in accordance with PD 14.3 and the Rules, only that it failed to persuade the learned master to grant the extension requested.        

29.  Mr Niehorster submitted that there was no absolute rule that the wish of the parties to discuss settlement could not be a good reason to extend the date of filing of the Application.  He agreed that the without prejudice discussion between the parties’ legal representatives on the defendant’s bill was the principal reason for any delay.  Mr Niehorster did not specify the other reasons on top of this principal reason.

30.  I agree that paragraph 24 of PD 14.3 only states that the parties wish to discuss settlement “will not generally be regarded as a good reason” for postponing the filing of the Application.  This is not an absolute rule.  Whether extension of time will be granted is at the discretion of the court.  I do not think that PD 14.3 intends to take away or has the effect of taking away the discretion of the court.  However, the guidelines set out in the practice direction will certainly be taken into account by the court in dealing with the relevant application.

31.  The starting point is that “the parties wish to discuss settlement will not generally be regarded as a good reason.”  This does not mean that if the only reason put forward in support of the time extension application is “the parties wish to discuss settlement”, the court will invariably dismiss the application.

32.  In Wing Ming Garment Factory Limited v The Incorporated Owners of Wing Ming Industrial Centre and others (unrep., HCA 8805/1993 & CACV 27/2008, 29 December 2011, Mr Recorder Jat SC) the plaintiff applied to strike out the 2^nd defendant’s two NOCTs on the ground that they were filed substantially later than the expiry of the 2-year period prescribed under Order 62 rule 22(7) of the Rules of the High Court.  The issue before the court in that case was the court’s approach in an application for extension of time to commence taxation proceedings made after the expiry of the prescribed time in the post-CJR era.  The learned Recorder stated in paragraphs 33 and 34 of his judgment that:

“33. The gravamen of Mr Barlow’s [the plaintiff’s counsel] submission is that absent a good explanation, the Court should not exercise its discretion to extend time under O.62 r.22(7). In my judgment, it is too extreme a position to take.

34. In my view, the Court must take into account all relevant circumstances of the case, rather than being bound by a strait jacket.  The absence of a good reason is a relevant consideration, may be even a compelling reason, why indulgence should be refused.  The Court must also give effect to the underlying objectives [of the CJR].  However, it is wrong in principle for the Court to ignore other relevant circumstances in the exercise of its discretion under O.62 r.16.” 

33.  When dealing with a time extension application for taking steps in proceedings after the prescribed time, the court has to look into all circumstances of the case.

34.  In the Wing Ming Garment Factory Limited case, the plaintiff’s counsel submitted that Order 2 rule 5 of the Rules of the High Court (which is identical to the same rule in the Rules), applied to that case as the effect of non-compliance with Order 62, rule 22(7) was that a “sanction” – in the form of loss of right to commence taxation – automatically followed.  The learned Recorder had considerable doubt as to whether Order 2 rules 3 to 5 of the Rules of the High Court had any direct application to that case.  He nevertheless considered the application before him in the context of Order 2 rule 5(1) and concluded at paragraph 36 of his judgment that: “It is not the case that the absence of a good explanation automatically debars relief.”

35.  I share the doubt of the learned Recorder but nevertheless am of the view that the circumstances stipulated in Order 2 rule 5 of the Rules provide good guidance and starting point for considering a time extension application for non-compliance of an order or a direction which has a sanction effect like the one before me.

36.  Adopting the matters referred to in Order 2 rule 5(1) of the Rules to the context of this case, the court will have to consider the  following matters:

(a)   the interests of the administration of justice;

(b)   whether the time extension application has been made promptly;

(c)   whether the failure to comply with the standard direction was intentional;

(d)   whether there is a good explanation for the failure to comply;

(e)   the extent to which the defendant has complied with other rules and court orders;

(f)    whether the failure to comply was caused by the defendant or its legal representative;

(g)   whether the hearing date or the likely hearing date can still be met if extension is granted;

(h)   the effect which the failure to comply had on each party; and

(i)   the effect which the granting of extension would have on each party.   

37.  In this case, the costs order was made on 30 April 2012.  According to the chronology prepared by the plaintiff (the “Chronology”), the defendant sent its claim for costs to the plaintiff on 28 May 2012, ie within one month of the costs order.  Since then, the parties had been engaged in settlement discussion.  The NOCT was filed and served on 16 October 2012.  The parties continued their discussion after the filing of the NOCT.  On the last day before the Application was due for filing, ie 10 December 2012, the plaintiff sent a further without prejudice letter to the defendant.  The defendant had not replied to this latest without prejudice letter and did not take any action in the taxation proceedings until 30 January 2013 when the defendant sought the plaintiff’s agreement to sign the Application.  There was a gap of 50 days when nothing happened.

38.  From the Chronology, it can be seen that both parties took time to consider proposals made by the other side.  It took the defendant 48 days to respond to the plaintiff’s letter dated 14 June 2012 before the defendant replied on 2 August 2012.  It then took the plaintiff 102 days up to 13 November 2012 to respond to the defendant’s letter dated 2 August 2012.  The plaintiff also did not respond to the defendant’s letter of 21 November 2012 until 10 December 2012, ie the last day before the due date for filing of the Application.  The defendant’s solicitors no doubt would need time to take instructions from the defendant on the plaintiff’s settlement proposal made on 10 December 2012.  This would more likely than not take the matter beyond the due day for filing of the Application.

39.  Paragraph 24 of PD 14.3 specifies that an “assertion that the parties wish to discuss settlement” will generally not be regarded as a good reason for postponing the filing of the Application.  The reason for this, as set out also in the same paragraph, is because the parties “should have made use of the prior period to so discuss.”  In this case, there was not only an assertion of intention to discuss settlement.  The parties did engage in settlement discussion and they did make use of the period prior to the due date for filing of the Application to discuss.  In fact, the discussion had been started within a month of the costs order before the filing of the NOCT and continued until at least the last day before the due date for filing of the Application.  This is different from the scenario cited in paragraph 24 of PD 14.3.

40.  It should be noted that paragraphs 4 and 5 of PD 14.3 have imposed a positive duty on the parties to attempt for settlement in a costs claim.  Paragraphs 4 and 5 of PD 14.3 provide that:

“4. The parties have a duty to discuss the items of costs objected to and to try to reach an amicable settlement, narrow down the items in dispute and consider making offers pursuant to Order 62A.

5.    In case of failure to observe any of the directions herein, the taxing Master may make the party and / or the practitioner responsible for such failure personally liable for costs.”

41.  I also bear in mind that the underlying objectives of the Rules as set out in Order 1A rule 1 which include, inter alia, the follows:

(1) to increase the costs-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court (sub-paragraph (a));

(2) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings (sub-paragraph (c)); and

(3) to facilitate the settlement of disputes (sub-paragraph (e)).

42.  In the premises, I do not consider the non-compliance of the standard direction to file the Application in time by the defendant in this case as “intentional and contumelious”.

43.  Other than missing the due date for filing of the Application, the defendant had all along been complying with the provisions of the Rules and PD 14.3 in handling these taxation proceedings.  When the defendant knew on 31 January 2013 that the plaintiff was not agreeable to sign the Application, it took out the Summons on 8 February 2013.  There was no further delay in making the time extension application.

44.  Mr Niehorster submitted that in this case it was far from certain that the defendant would have any remedy against its legal representative as there were uncertainties as to whether there was breach of PD 14.3.  He further submitted that even if the filing of the Application was the responsibility of the defendant’s solicitors, any potential remedy against the same would be insufficient justification to disallow an extension of time.  He referred to the remarks of the learned Recorder made in the Wing Ming Garment Factory Limited case at paragraph 44 of his judgment when the learned Recorder said that:

“44. Mr. Barlow [representing the paying party] submits that D2 [the receiving party] has a remedy against W&C [the receiving party’s solicitors] for negligence, and its claim would probably be amendable [sic] to summary judgment. In my view, although D2 appears to have a good case against W&C for loss of its right to taxation, to force D2 to sue W&C for its loss serves to transfer the burden to pay D2’s costs from the Appellants to W&C. It would also result in further proceedings and further use of the Court’s and parties’ time and resources. There is insufficient justification to do so.”

45.  I agree that there are uncertainties as to whether the defendant will have recourse against its solicitors if the defendant is prevented from filing the Application and accordingly unable to proceed further with these taxation proceedings.

46.  Mr Niehorster said that by disallowing the time extension, the plaintiff unreasonably realized a windfall as the refusal to the time extension requested would in effect deprive the defendant of its costs.  He submitted that this was wholly disproportionate.  Mr Niehorster further submitted that a more appropriate exercise of discretion would be to disallow interest for the period of any delay found by the court.  In this respect, Mr Niehorster was referring to the following powers conferred to the taxing master by Order 62 rule 22(5):

“(5) On the taxation of a bill of costs, whether or not an order has been made under paragraph (3), the taxing master, if he is satisfied that there has been undue delay in commencing taxation proceedings or in proceeding with the taxation ─

(a) may make such order as he thinks fit as to the costs of any application or as to the costs of the taxation;

(b) may disallow any part of the costs to be taxed pursuant to the costs order; and

(c) may, in relation to the taxed costs or any part of those costs, disallow interest or reduce the period for which interest is payable or the rate at which interest is payable.”

47.  Mr Chan replied that it did not necessarily follow that the defendant would not recover any costs if the time extension was refused as the parties might still continue their discussion on the defendant’s costs claim and resolve the claim without taxation proceedings.

48.  Although the standard directions set out in paragraph 21 of PD 14.3 are not peremptory orders, they do have the effect of peremptory orders on the defendant if its time extension application is refused.  In my view, it is over optimistic, to say the least, to expect the plaintiff to pay the defendant’s costs if the defendant is barred from proceeding with this taxation.

49.  By refusing the defendant’s time extension application, the court will in effect deprive the defendant the whole of its costs in this action.  This is not proportionate to the nature and extent of non-compliance concerned and the plaintiff will realize a windfall.  Let us not forget Order 1A rule 2(2) of the Rules which provides that:

“(2) In giving effect to the underlying objectives of these Rules, the Court shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.”

50.  No hearing date has been fixed for the taxation of the defendant’s bill.  No milestone date will be disturbed by granting the extension requested.  Bearing in mind the wide discretion conferred on the court by Order 62 rule 22(5) of the Rules to deal with delay in proceeding with taxation, the plaintiff will not suffer any prejudice if the time extension requested is granted save that the plaintiff will not get the aforesaid windfall.  In the circumstances of this case, to deprive the defendant of its whole costs in this action will not be in the interests of administration of justice.

51.  After considering all the circumstances of this case, I exercise my discretion to grant the time extension requested but on an unless order basis.  I order that unless the defendant files and serves the Application within three days from the date of this decision, the defendant be debarred from filing or serving the Application. 

52.  Mr Chan urged me to impose sanction under Order 62 rule 22(5) of the Rules in the event that I was minded to grant the time extension requested.

53.  As this is an appeal from the decision of the taxing master, I am satisfied that I may also impose the sanctions made available to the taxing master by Order 62 rule 22(5) of the Rules.  I am satisfied that a delay of 50 days without doing anything was an undue delay and this is an appropriate case where sanction shall be imposed to ensure that litigants and practitioners will not have any mistaken belief that non-compliance of practice directions will be ignored with impunity.  I further order that the defendant be disallowed interest on the taxed costs for the period from 12 December 2012 to the date of filing of the Application.

Costs

54.  As the defendant has not complied with the standard direction stipulated in PD 14.3 to file the Application in time and is seeking indulgence fromthe court for its non-compliance, the defendant shall pay the plaintiff’s costs for the defendant’s time extension application.  As such, I will not disturb the costs order made by the learned master on 28 February 2013.

55.  An appeal from the master to the judge in chambers is dealt with by way of an actual rehearing of the application concerned and the judge treats the matter as though it came before him for the first time. (see paragraph 58/1/2 of the Hong Kong Civil Procedure 2013 Vol 1 at p 1018)  As I only grant the time extension requested upon my exercise of the court’s discretion afresh, I also exercise my discretion on costs to make an order nisi that there be no order as to costs for this appeal.

56.  The above costs order nisi shall become absolute after 14 days from the date of this decision unless application to vary the order nisi is received from any party within this 14 days period.

Summary

57.  I set aside paragraph 1 of the learned master’s order dated 28 February 2013 and substitute it with an unless order that unless the defendant files and serves the Application within three days from the date of this decision, the defendant be debarred from filing or serving the Application.  I further order that the defendant be disallowed interest on the taxed costs for the period from 12 December 2012 to the date of filing of the Application.  I make an order nisi that there be no order as to costs for this appeal.