GAO HAIYAN and XIE HEPING v. C L CHOW & MACKSION CHAN (a firm)

HCMP 1741/2017

[2019] HKCFI 1001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1741 OF 2017

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D E C I S I O N

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1.  On 31 December 2018, I handed down my decision (“the Decision”) on the plaintiffs’ appeal against the master’s refusal to give them leave to tax two bills of costs[1] from their former solicitors, the defendant, out of time[2]. I allowed the taxation out of time subject to condition. Pursuant to the request of the parties during the hearing, I imposed the condition on a nisi basis, and there is now the application for variation. Upon further direction, and as confirmed by the parties in the subsequent correspondence, the application is now disposed of on paper.

The decision and order

2.  In my judgment, I exercised my discretion to allow the two bills in question to be taxed out of time pursuant to section 67(2) of the Legal Practitioners Ordinance, Cap 159. In exercise of my discretion, I imposed the condition that the plaintiffs pay to the defendant as interim payment 70% of the balance of the two bills in question and 20% of it into court pending the taxation.  As mentioned, the condition was nisi.

3.  The plaintiffs shall comply with the payment condition within 14 days after the condition has become absolute.  Upon such compliance, the plaintiffs shall take out taxation proceedings in respect of all three bills from the defendant.  In default, the two bills in question shall be barred from taxation, and the taxation will then cover the last bill only.  I also reserved costs to be determined on paper upon the above condition becoming absolute.

4.  The parties had 14 days to apply to vary the condition nisi in writing.

The application

5.  The following correspondence between the parties and to the court followed:

(1)  the plaintiffs’ letter dated 10 January 2019, enclosing their earlier letter to the defendant dated 5 January 2019;

(2)  the defendant’s letter dated 11 January 2019;

(3)  the plaintiffs’ letter dated 11 January 2019; and

(4)  the defendant’s letter dated 17 January 2019.

6.  Pursuant to the direction of this court dated 28 January 2019, the parties lodged their respective formal written submissions on 11 February 2019.

7.  By their application, the plaintiffs propose that this court makes the following order[3]:

(1)  HCB 4287/2017 and HCB 4288/2017 shall be dismissed with costs to the debtor, ie, the plaintiffs, and the costs of the Official Receiver be paid from the deposit paid by the petitioner, ie, the defendant.

(2)  Within 21 days after the dismissal of the above bankruptcy proceedings, the plaintiffs do pay 90% of the balance of the two bills in question (ie, HK$4,663,829.33 × 90% = HK$4,197,446.40) into court and the same shall be placed in an interest bearing account pending taxation of the bills.

(3)  After conclusion of the taxation, so much of the money to be paid by the plaintiffs into court shall be paid to the defendant in settlement of the balance of the costs due to the defendant, if any, as taxed together with interest earned thereon.

(4)  After settlement of the defendant’s costs as taxed, the balance of the money to be paid by the plaintiffs into the court together with interest earned thereon be released to the plaintiffs.

(5)  Within 28 days from the date of the plaintiffs’ compliance with (2) above, the defendant shall file and serve the notice of commencement of taxation and the bill of costs in respect of all billed items under the bills.

(6)  Within 28 days after the service of the notice mentioned in (5) above, the plaintiffs shall file and serve a list of objections.

(7)  In the event that no settlement can be reached within 28 days after service of the list objections, the defendant shall file and serve an application for the setting down of the taxation.

(8)  In default of (2) above, the two bills in question shall be barred from taxation.

8.  What the plaintiffs propose go beyond an application to vary the condition nisi in these proceedings.

The bankruptcy proceedings

9.  On the basis of statutory demands served by the defendant on the plaintiffs in respect of the bills that remain outstanding, the defendant has petitioned for the two plaintiffs’ bankruptcy, ie, HCB 4287/2017 and HCB 4288/2017 respectively.  Two questions are involved in the parties’ present argument:

(1)  The plaintiffs allege difficulty arising out of the encumbrance created by the registration of the petitions against their properties, whereas the defendant offers to withdraw the petitions only upon the defendant’s satisfaction of the paymentcondition mentioned above.  In other words,they are going directly opposite from each other.

(2)  The plaintiffs ask this court to dispose of the bankruptcy proceedings, whichever way they should be, on the basis that this court has jurisdiction.

10.  I refuse to accede to the plaintiffs’ request under §9(2) above.    It is not merely a matter of economy, but that this court should not lightly take upon himself the bankruptcy jurisdiction and to proceed in the absence of proper application within the bankruptcy proceedings.  I therefore shall confine myself to the disposal of the proceedings herein.

11.  As to §9(1) above, the defendant points out that the plaintiffs lack evidence in support of their alleged difficulty.  The defendant also points out that a property of the plaintiffs, which is registered in the name of their wholly owned company, has not been encumbered by the bankruptcy petitions.  In my view, a proper application for validation order from the bankruptcy court to enable the plaintiffs to satisfy the payment condition mentioned above is not impossible.  Having said that, one may say the defendant’s insistence on the plaintiffs’ satisfaction of the payment condition prior to the removal of the petitions is harsh.  After all, the petitions were presented on the basis of the plaintiffs’ failure to satisfy their statutory demands, and such demands were served on the basis of the outstanding amount of the bills.  That the plaintiffs now have leave, albeit conditional, to have the bills taxed, means there is a genuine dispute as to the amount.

12.  In the circumstances, as the payment condition must be satisfied before the plaintiffs are entitled to exercise the right to taxation, there seems to be room for the defendant to consider either disposing of the petitions or alternatively consenting to a validation order applied for by the plaintiffs so as to enable them to satisfy the payment condition.  The latter of course could be subject to the views of the Official Receiver, who has within his concern the general creditors’ interest beyond that of the defendant.

13.  It is partly because of the above consideration that I come to make the order as set out at the end of this decision.

The payment condition

14.  There is no suggestion that having to make the payment will effectively frustrate the leave to taxation obtained. The major difference between the parties is whether the payment should take the form of an interim payment to the defendant, as ordered, or a payment into court.  The plaintiffs propose the latter form and to the extent of 90% of the outstanding balance of the bills in question.

15.  The basis for the plaintiffs’ reservation about interim payment is the uncertainty of the result of taxation.  They project the chance that the total taxed costs would fall short of the costs on account already paid (in the sum of HK$21.4 million).  Hence their proposal to make the payment into court instead.

16.  This is not the venue for the court to express any view on the likely outcome of the taxation.  Nor have I done so, save for the purpose of adopting a broad brush approach when fixing the amount of payment.  However, that this is going to be a solicitor-and-client taxation must be a relevant consideration.  The defendant also points out that substantial part of the disbursements went to fees of various counsel instructed on different occasions in an amount in excess of HK$16.6 million.  For the plaintiffs’ purpose, according to their quantification, it will take the court to tax off substantial part of the defendant’s profit costs to deprive the defendant of any part of the outstanding balance of the bills in question.

17.  As to the liquidity difficulty suggested by the plaintiffs as a result of the encumbrance on their properties by the bankruptcy petitions, my observation above refers.  There is no suggestion of real hardship, once the plaintiffs manage to regain their liquidity.  As mentioned, the difference between the parties lies not in the payment but the form of it.  Insofar as the form of interim payment is concerned, there is no evidence that the defendant would be unable to account for any overpayment, if this turns out to be the result of the taxation.

The taxation proceedings

18.  I agree with the defendant that the directions proposed by the plaintiffs in respect of how the taxation should proceed are matters that should be left to be dealt with in the taxation proceedings.

Conclusion and order

19.  All considered, I make the following absolute order in place of the order nisi made in the Decision:

(1)  The payment condition set out in §75 of the Decision is maintained.

(2)  The payment condition under (1) above shall be complied with within 14 days after the obtaining of an order in respect of the withdrawal or dismissal of the petitions, or alternatively a validation order, in HCB 4287/2017 and HCB 4288/2017 pursuant to application by either party herein, such application (if so advised) shall be made no later than 21 days from the date hereof.

(3)  Upon compliance with the payment condition under (1) above, taxation proceedings shall be commenced in accordance with the rules within 7 days.

(4)  In default of the above, the 1^st Bill and the 2^nd Bill in question shall be barred from taxation, and the taxation shall cover the 3^rd Bill only.

20.  In view of the extent of the variation that reflects the degree of success in this application, I make an order that the plaintiffs shall pay 90% of the defendant’s costs of and occasioned by this application, such costs shall be taxed, if not agreed.  In the absence of application in writing in 14 days to vary, this costs order shall become absolute without further order.

Costs of the appeal

21.  Pursuant to §77 of the Decision, upon the above condition precedent to leave to taxation out of time now being made absolute, I now also give my ruling on the costs of the appeal.

22.  Albeit subject to condition, which was the defendant’s secondary stance in the appeal, the plaintiffs managed to succeed on appeal and obtained leave to taxation.  On this basis, the plaintiffs should have their costs of the appeal.

23.  The plaintiffs are not entitled to taxation of the two bills in question as of right, and the failure of the defendant lied with its persistent opposition.  On this basis, the plaintiffs shall pay the defendant’s costs of the application up to the conclusion of the affidavit evidence, but the defendant shall pay the plaintiffs’ costs of the application thereafter, including the hearing before the master.  The costs order of the master is set aside.

24.  I make a nisi order as to the costs of the appeal and the application before the master in terms as mentioned above, and such costs shall be taxed, if not agreed.  The nisi order shall become absolute without further order, in the absence of application in 14 days to vary.  In the event of an application to vary the nisi order, the court will expect to dispose of the application on paper without an oral hearing, and for that purpose, the parties shall lodge agreed directions in respect of written submissions within 7 days of the application.