POON YIU CHEUNG v. WORLD MASTERY TECHONOLOGY LTD

DCCJ 632/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 632 OF 2005

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DECISION

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1.  This is an application for the review of taxation of a master pursuant to Order 62 rule 35 of the Rules of the District Court (“RDC”).

2.  The items I am asked to review included (1) the hourly rate of a solicitor in handling the case; (2) the brief of counsel to argue a summons for specific discovery; (3) counsel fees in drafting an opinion on liability, quantum and evidence; (4) brief of counsel in attending a 6 day trial; (5) the costs of the law costs draftsman in the preparation of taxation; and (6) the costs of the law costs draftsman in reviewing the files and preparing the taxation bundle.

Background

3.  After a 6 day trial before Deputy Judge R Yu (as he then was), the plaintiff won the case when he was awarded costs of the action. The costs incurred prior to 21 October 2010 was ordered to be taxed on a party and party basis.  For the costs incurred after 21 October 2010, it was ordered to be taxed on an indemnity basis.

4.  The plaintiff’s bill of costs was taxed before the taxing master on 9 April 2014.  Subsequently the plaintiff took out an application for the review of the taxation in relation to certain items and also the hourly rate of the handling solicitor FL.  The application for review was heard before the master on 21 July 2014.  She handed down the Reason for Decision of Review of Taxation (“Reasons for Decision”) on 7 August 2014.  Some of the items sought to be reviewed by the plaintiff were allowed by the master while the remaining items were not.

5.  Being dissatisfied with the decision of the master on the review, the plaintiff took out the present application.

The applicable principles

6.  It is not disputed by the parties that the court, on the second review of a taxing master’s decision, is not required to conduct a taxation de novo, but only considers the reasons for the taxing master’s decision to ascertain whether or not the taxing master erred in principle, took into account irrelevant matters or failed to take into account relevant matters: see Hong Kong Civil Procedure 2014 §62/35A and Yue Kwok Ying v Mak Shiu Tong, FACV 4/2004 at §9.

7.  In Nam Chun Investment Co. Ltd. v Director of Lands (2007) 10 HKCFAR 523, Riberio PJ stated the following at p 526 §7:

“Taxation is therefore essentially a matter for the discretion of the Registrar and it must be clearly understood that the Court (which as a rule exercises its jurisdiction on any such appeal through a single permanent judge) will refuse to interfere with a taxation decision unless it is shown to have been arrived at under a mistake of law or in disregard of principle; or under a palpable misapprehension as to the facts; or plainly in reliance on irrelevant matters; or to be such as to fall outside the generous ambit within which a reasonable disagreement is possible.”

Items under review

(1) FL’s hourly rate

8.  FL’s hourly rate was allowed at $2,400 at the taxation.  The master maintained the same rate upon her review.

9.  FL had 16 years of post-qualification experience (“PQE”) at the time when this action was commenced in 2005.  By the time of the trial in 2011, she had 22 years of PQE. The master rightly noted that the hourly rates applicable in the District Court for a solicitor of over 10 years’ experience were at $2,100 to $2,600. 

10.  In her Reasons for Review, the master noted that the receiving party raised the same arguments as they had at the taxation hearing and relied on the case of David John Kennedy v Kelly Cheng and Robert Yip, FACV 30 of 2008 and FAMV 33 of 2008.  No new arguments or evidence were advanced at the review hearing.

11.  At the original taxation hearing, the master took the view that the case was not complicated and did not justify FL charging an hourly rate higher than what would normally be allowed. She also mentioned the 3 issues in dispute at trial were those succinctly summarized by the trial judge in his judgment.  Another factor she took into account is that counsel had been involved in the case as early as the pleadings stage.  She also took into consideration the case of David John Kennedy, supra.        

12.  What is worthy to note is that, despite the trial judge had ordered costs to be taxed on 2 different basis at different stages of the proceedings, the receiving party claimed only one rate for FL’s involvement throughout the entire action.

13.  The master, after taking into consideration of the complexity of the case, the involvement of counsel at the early stages of the proceedings and that the hourly rate claimed was for both the party and party and indemnity basis, maintained the same hourly rate at $2,400.

14.  I cannot find any flaw in the first 2 reasons relied on by the master on this item.  First, I agree with the master that this is not a complicated case. Despite a lot of “peripheral issues” raised by the defendant at the trial, I concur with the master that the core issues are those as summarized by the trial judge in the judgment.  Having read the judgment itself, I do not think one can say this is a complicated case at all.    Second, I also note the early involvement of counsel in the case which was from the time when the Amended Reply and Amended Defence to Counterclaim was prepared.  In a civil case, this usually means the counsel would take a leading role and the solicitor would take a secondary role in the preparation of the trial.  The subsequent active and heavy involvement of counsel throughout the proceedings up to the time of trial, as revealed by the rest of the bill of costs, confirmed the master’s observation is correct.

15.  It is on the third reason that I find myself disagreeing with the master.  The receiving party, instead of claiming a different rate for the costs allowed on a party and party basis (before 21 October 2010) and on an indemnity basis (after 21 October 2010), was contended to claim the same rate at $2,600 for the entire duration of the case. 

16.  I note that the rates for solicitors on a “party and party taxation” were agreed by the masters and the Law Society back in 1997:  (See Law Society Circular 97-234 (PA) dated 21 July 1997).  In my view, they are clearly out of date and do not reflect the current levels of office rentals and salaries paid by solicitors to their supporting staff.  They also may not reflect the actual amounts paid by a receiving party to his solicitors.  At the time of the decision of David John Kennedy, supra by the Court of Final Appeal, the results of the survey conducted by the Law Society in April 2011 were still not available.  However, at this hearing, the receiving party produced a report by KPMG prepared on behalf of the Law Society dated 27 March 2013 recommending that the District Court rates for a solicitor of over 15 years of PQE should be revised to $3,667 to $4,000: (See §7.1.16 of the Report). 

17.  In my view, until the 1997 rates are revised and agreed between the taxing masters and the Law Society, they have to be followed.  However, I agree with Chan PJ in David John Kennedy, supra. that while one should not completely ignore the 1997 rates, taxing master should not feel constrained to start with figures higher than those rates: (See §13 of  David John Kennedy, supra).

18.  What is significant in this case is that as a result of the defendant not able to beat the sanctioned offer made by the plaintiff on 22 September 2010, the trial judge awarded costs on an indemnity basis after the expiry of the 28 day period from the date of the offer, i.e. from 21 October 2010 onwards.  In my view, the receiving party should be entitled to enjoy the fruits of the effective sanctioned offer made by him.

19.  It is trite that costs taxed on an indemnity basis means that “all costs shall be allowed except insofar as they are of an unreasonable amount of have been unreasonably incurred”.  In David John Kennedy, supra, Chan PJ cited Sir Robert Megarry in EMI Records v Wallace [1982] 2 All ER 980 at 989f where he said this:

“The indemnity basis, as I would construe it, is the other way round. Everything is included unless it is driven out by the words of exclusion, namely, ‘except in so far as they are of an unreasonable amount or have been unreasonably incurred’”.

20.  By following the applicable principles laid down by Chan PJ in David John Kennedy, supra., (See §§21 to 30), I am of the view that a distinction should be made for those costs which have been awarded on an indemnity basis as contrast to those which have been awarded on a party and party basis.

21.  I agree with Chan PJ in David John Kennedy, supra. that the Law Society’s suggested rates are more reflective of the rates allowable on a party and party taxation rather than on an indemnity taxation where a different approach is to be adopted.  I further agree with the learned judge that the Law Society’s hourly rates should be applied with flexibility bearing in mind the appropriate approaches to be adopted in different types of taxation.  Further, for taxation on indemnity basis, it would not be considered unreasonable for the receiving party to have engaged solicitors who charged more than the average hourly rates unless they are excessive: (see §§34, 36 & 37 of David John Kennedy, supra).  Therefore, it is my view that the receiving party could have made a claim for an hourly rate over and above the $2,600 allowed by the 1997 rates for costs taxed on an indemnity basis so long as they are not clearly excessive, absurd or extravagant. However, they did not do so and was contented with claiming the same rate throughout the action.

22.  In the circumstances, I am of the view that it would not be unreasonable for a solicitor who had 16 years of PQE at the commencement of the action to charge $2,600 per hour during the period when the costs were allowed on an indemnity basis.  Had the receiving party made a claim over and above the average hourly rates referred to in the 1997 rates for costs allowed on an indemnity basis, so long as they are not clearly excessive or unreasonable, I certainly would have allowed them. 

23.  Thus, while I see nothing wrong in the master in allowing $2,400 as hourly rate for FL for work done prior to 21 October 2010 when the costs were allowed on a party and party basis, for costs allowed on an indemnity basis after 21 October 2010, I consider that, as a matter of principle, the receiving party should be allowed at a higher rate as long as they are not unreasonable.  In this regard, I do not consider $2,600 per hour for a solicitor of 16 year PQE is at all unreasonable.

(2) Item 158: Brief to opposite defendant’s summons for specific discovery

24.  This item is taxed on a party and party basis.     

25.  The receiving party claimed a sum of $35,000 as counsel brief to attend the hearing for a summons for specific discovery on 11 March 2010.  The summons originally was taken out by the paying party on 21 December 2009 seeking (1) specific discovery against the receiving party and (2) security for costs against the receiving party.

26.  9 days after the summons was issued, on 30 December 2009, part (2) of the summons in relation to the security for costs has been dealt with by consent with no order as to costs. 

27.  3 days before the hearing for part (1) of the summons, namely, on the specific discovery issue, the parties sought to put in a consent summons for the further filing of evidence without the leave of the court.  This is contrary to the Order made by Master B Mak on 30 December 2009 when he specifically ordered that no further evidence be filed without leave of the court. 

28.  On 9 March 2010, Master C Lee sent a note to the parties where he asked the parties to provide reasons why the consent summons cannot be dealt with at the hearing on 11 March 2010 and asked the parties whether the consent summons application would affect the discovery application.       

29.  At the hearing of the summons on 11 March 2010, Master C Lee adjourned the case for 8 weeks for the parties to conduct mediation / negotiations for settlement.  In the event that the mediation is unsuccessful, the receiving party was directed to take out a summons before 20 May 2010 in the proposed directions as to the future conduct of the proceedings including the consent summons dated 8 March 2010.  Costs for that hearing was reserved.  The case management summons fixed for 22 March 2010 was vacated.

30.  The parties could not settle the case through mediation or negotiations.  The hearing for the discovery summons was restored.  On 8 July 2010, after hearing the substantive arguments for the summons, Master KK Pang ordered the receiving party to make and file an affidavit to provide the documents sought by the paying party with “costs of this application be in the cause, to be taxed if not agreed, with certificate to counsel.”      

31.  At the original taxation hearing, the master disallowed the entire brief fee at $35,000.  Upon review, the master allowed half of the fee at $17,500.  Her reason is that paragraph (1) of the summons dealing with the specific discovery issue has been provided for and that she should review her decision to allow the costs in respect of the application for specific discovery.  For paragraph (2) of the summons dealing with security for costs issue, there was no order dealing with those costs, she therefore considered those costs were lost and not recoverable from the paying party.

32.  I agree with the paying party counsel’s submission that the master has fully explained her reasons making such a decision in her Reasons for Review (See §§20-24).  I further accept the well established principle that “costs reserved” means that the costs will be lost and will not be allowed on taxation unless the court makes a specific order dealing with them at the conclusion of the proceedings (See 62/1/3 sub-para (5) of Hong Kong Civil Procedure 2014).  I am of the view that the master has applied the correct legal principle when making the decision at the review hearing and the apportionment she made was well within her discretion. I would not disturb the order made by the master on this item.

(3) Item 163: Opinion on Evidence, Liability and Quantum dated 12 November 2010

33.  This item is allowed on indemnity basis.  The receiving party’s counsel charged a sum of $50,000 but the master only allowed a sum of $22,500 at the original hearing. She maintained that amount on review. 

34.  I would refer to the principles I have cited in §§16-21 above in relation to indemnity costs.

35.  I agree with the master that the hourly rate charged by the counsel at $4,500 was much higher than that would normally be allowed to a barrister of the same seniority at the Bar.  Given the fact that he had only 6 years call at the time of trial (despite the fact that he was admitted as a solicitor in 1989), I would consider that an hourly rate at $3,000 per hour would be more appropriate.  Nonetheless, the master assessed counsel’s fees at an hourly rate at $4,500 “to take into account that most of his fees were to be assessed on an indemnity basis and that his post-qualification experience as a solicitor should not totally be disregarded”.  While I consider the master was right to remind herself that when assessing the counsel’s fees, the test is “what fee a hypothetical 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” (see §62/App/31 of Hong Kong Civil Procedure 2014), I consider that, as a matter of principle, it would not be right to base the fees at $4,500 per hour as the master did.  In my view, the fee should be based on that of a “hypothetical counsel” with similar experience and seniority referred to above.  To my mind, such hourly rate for a counsel of 6 years call (even taking into account some of his PQE as a solicitor) in a District Court case is clearly excessive and unreasonable. 

36.  In my opinion, a hypothetical counsel of similar seniority at the Bar, capable of conducting the case effectively, would be content to charge much less than $4,500 per hour to draft the Opinion.  In my view, such hypothetical counsel of 6 years call would be content to charge at $3,000 per hour.  Further, I consider that it would require a counsel no more than 10 hours to provide such an opinion on liability, quantum and evidence.  Given the fact that this item is awarded on an indemnity basis, I would consider that a sum of $30,000 would not be unreasonable.  I therefore would set aside the master’s assessment at $22,500 and substitute that with a sum of $30,000 for this item.

(4) Item 166: Brief to attend trial

37.  This item again is taxed on an indemnity basis. 

38.  Receiving party’s counsel charged a brief fee of $95,000 for a 6 day trial while the master allowed a sum at $60,000 at the original taxation hearing.  She maintained the same amount at the review hearing.

39.  In arriving the figure of $60,000, the master has taken into account (1) the seniority of the counsel at the Bar; (2) that it is a not a complicated case at the District Court which lasted 6 days; (3) counsel had previously involved in the case extensively for which he was remunerated for various work carried out; as such he did not have to prepare the case “from scratch”; and (4) the brief fee is excessive if calculated on a $4,500 per hour basis which represents more than 20 hours of work.

40.  In working out the figure of $60,000, the master estimated that counsel would require about 10-11 hours of preparation time and about 2 hours of pre-trial conferences.  Hence her assessment was based on 13 hours of work at $4,500 per hour.  However, what she has failed to take into account is the time counsel spent in court on the first day of trial (approximately 5.5 hours) which should be included as part of the brief. 

41.  As said, in my view, a hypothetical counsel of 6 years’ standing, capable of conducting the case effectively, would be willing to work a lot less than $4,500 per hour for the brief.  Allowing a total of 20 hours for preparing the case (including 12 hours of preparation and 2 hours for pre-trial conferences) and the first day of attendance at trial (approximately 5.5 hours), I am of the view that a sum of $60,000 is not unreasonable.  Thus, I would maintain the master’s assessment on the brief fee at $60,000 albeit based on different reasons.

(5)& (6): Items 178 & 191: commencement of taxation and reviewing files and preparing taxation bundles

42.  In my view, these 2 items, which are allowed on an indemnity basis, should be considered together.

43.  I agree with the master that in effect the receiving party is claiming 64 hours for the law costs draftsman to do the following works:-

(1) reviewing 6 files, various hearing bundles and some loose leaf papers;

(2) drafting the bill of costs (including its schedule and making calculation);

(3) drafting the NOCT; and

(4) reviewing files and preparing taxation bundle.

44.  I agree with the master that it is clearly excessive if not exaggerated that any competent and reasonable law costs draftsman would charge a total of 64 hours for the above works.  She allowed 18 hours for the item 178 and 3 hours for item 191, respectively in the sum of $28,800 and $4,800 at the original taxation.  She maintained those figures at the review hearing.  

45.  Even on an indemnity basis, it is my opinion that it would be unreasonable for a competent and reasonable law costs draftsman to spend a total of 64 hours for the works mentioned. 

46.  On these 2 items, I consider that the master had not erred in principle, took into account irrelevant matters or failed to take into account of relevant matters.  As to her quantitative assessment of 18 hours and 3 hours respectively for those 2 items, I cannot find any flaw in that.  Hence, I would maintain the assessment at $28,800 and $4,800 respectively for those 2 items.    

Conclusion

47.  In conclusion, based on the reasons set out above, I would allow the following amounts for the items which the receiving party are seeking to review before me:-

(1) FL’s hourly rate:

(i) at $2,400 per hour for costs incurred before 21 October 2010; and

(ii) at $2,600 per hour for costs incurred on or after 21 October 2010.

(2) Item 158: $17,500

(3) Item 163: $30,000

(4) Item 166: $60,000

(5) Item 178: $28,800

(6) Item 191: $ 4,800

Costs

48.  In respect of the costs of this application, given the fact that I have upheld most of the master’s assessment at the review (4.5 out of 6 items), it effectively means that the receiving party has failed in most of his application before me.  In the circumstances, I consider that a fair and just order to make is for the receiving party to pay the paying party 75% of its costs of the review application, with certificate for counsel.

49.  I shall therefore make such an costs order nisi accordingly and the same will become absolute 14 days after the handing down of this decision unless the party applies to vary the same.

50.  I would also order that such costs be summarily assessed.  The paying party is directed to lodge its statement of costs within 7 days from the date of the order being made absolute and the receiving party to lodge its statement of objection within 7 days thereafter for my assessment.