CATHAY PACIFIC AIRWAYS FLIGHT ATTENDANTS UNION v. CHEUNG & CHOY (a firm)

HCMP1863/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1863 OF 2007

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REASONS  FOR  JUDGMENT

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1. I gave judgment in this matter on 21 April 2010 with brief oral reasons.  These are my written reasons.

2. This appeal falls within a narrow compass.  The Master awarded costs of the taxation proceedings to the defendant to be taxed, if not agreed, on a solicitor and own client basis with certificate for counsel.  The plaintiff appealed and asserted that the proper order should be for the costs to be taxed on an indemnity, and not on a solicitor and own client, basis.

3. The plaintiff said, with some force, that although it was the former client of the defendant, the taxation proceedings arose from its dispute over the costs claimed by the defendant and the costs of those proceedings were costs inter partes, and not costs incurred by a solicitor for his own client.  The plaintiff accepted that it was right that it should be made to pay those costs on an indemnity basis but submitted, on the authority of the English Court of Appeal in EMI Records v. Ian Cameron Wallace Ltd [1983] Ch. 59, that it was wrong in principle to award those costs on a solicitor and own client basis.

4. I readily accept the submissions made on behalf of the defendant in Mr Robert Tibbo’s very detailed written submissions.  All those matters go to support an order for costs on the indemnity basis.  The plaintiff accepted that such an order was proper in the present case.  Therefore, I do not need to repeat the chequered history of these proceedings that have been undertaken by the plaintiff wholly without regard to and, I should say, with utter disregard of the underlying objective of the Civil Justice Reforms for proportionality.

5. Order 62 rule 29 (1) to (3) states :

“(1)     On the taxation of a solicitor’s bill to his own client (except a bill to be paid out of funds provided by the Legislative Council pursuant to section 27 of the Legal Aid Ordinance (Cap. 91), or a bill with respect to non-contentious business) all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred.

(2)       For the purposes of paragraph (1), all costs incurred with the express or implied approval of the client shall, subject to paragraph (3), be conclusively presumed to have been reasonably incurred and, where the amount thereof has been expressly or impliedly approved by the client, to have been reasonable in amount.

(3)       For the purposes of paragraph (1), any costs which in the circumstances of the case are of an unusual nature and such that they would not be allowed on a taxation of costs in a case to which rule 28(2) applies, shall, unless the solicitor expressly informed his client before they were incurred that they might not be so allowed, be presumed, until the contrary is shown, to have been unreasonably incurred.”

6. The plaintiff relied on the pronouncements of Sir Robert Megarry V.C. in EMI Records v. Ian Cameron Wallace Ltd [1983] Ch. 59 and, in particular, on the passages at pp. 64, and 72-74 where the Vice Chancellor stated :

“(4)     The solicitor and own client basis.  By r 29, provision is made for the taxation of a solicitor’s bill to his own client for contentious work, apart from legal aid cases.  Under r 29(1), on such a taxation, ‘all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred’.  This resembles the trustee basis in that it allows everything except any items which fall within the words of disallowance; but it differs from all the other three heads in that it is dealing with what a litigant must pay his own solicitor, and not what he must pay the other side.  The essence of the rule lies in the two phrases ‘unreasonable amount’ and ‘unreasonably incurred’; and these phrases are qualified by two presumptions made by other paragraphs.  First, by para (2), all costs incurred with the client’s express or implied approval are ‘conclusively presumed’ to have been reasonably incurred; and similarly as to amount, if the client has expressly or impliedly approved it.  Those conclusive presumptions, however, take effect subject to para (3).  Second, by para (3), there is a rebuttable presumption that any costs which in the circumstances are of an ‘unusual nature’, and would not be allowed on a party and party taxation, have been unreasonably incurred, unless the solicitor expressly informed his client before they were incurred that they might not be allowed.

… The client ought not to be allowed to complain about what he has authorised his solicitor to do, and his solicitor ought not to be allowed to claim payment for unusual items unless he has first given his client due warning of risk. Where, on the other hand, the costs are to be paid not by the client to his own solicitor but by another party to the litigation, these provisions seem entirely inappropriate. It would be monstrous if the loser could complain of nothing the winner has authorized… if an item is utterly unreasonable, why should the loser’s liability to pay for it depend on whether or not the winner authorised it?

… In fact, an order for solicitor and own client costs seems to be not only the most stringent order that can be made but also an order which, by virtue of r 29(2), is capable of being severely penal in its effect.  Those who seek such an order should realize that they are asking that the other side should pay not only all their costs which are not unreasonable, but also all their other costs, however unreasonable or extravagant they are, so long as their clients approved them; and well might they hesitate if they were required to seek such an order in terms.  In most cases of contempt I would have thought that an order for costs on an indemnity basis would be both adequate and also more appropriate than an order for solicitor and own client costs, with the uncertain and unforeseeable operation of r 29(2) and (3).  Indeed, I cannot see that it would be any great loss if orders for solicitor and own client costs disappeared altogether inter partes, and were confined to their own proper sphere as between solicitors and their own clients.”

7. In Ronald Li Kai Chu v. Deacon Te Ken Chiu CACV199/1985, Fuad JA agreed (at #137) with the observations of Sir Robert Megarry V.C. in the EMI Records case.  He also welcomed the disappearance of the solicitor and own client basis of taxation as between opposing litigants.

8. I agree with those observations.  Underpinning the difference between the indemnity basis of taxation and taxation on the solicitor and own client basis is the court’s recognition of the freedom of parties to make their own contract.  To that extent, the court will not intervene in respect of unreasonable costs if they have been expressly or impliedly approved by the client or if the solicitor has expressly informed his client, before they were incurred, that they might not be allowed.  Is there any reason why the court should abdicate its jurisdiction to intervene in respect of unreasonable costs and order taxation on a solicitor and own client basis in an inter partes situation?

9. Mr Tibbo submitted that this is a case where such an order was appropriate.  He submitted that the law, as it now stands, allows the court in Hong Kong the discretion to award solicitor and own client costs and that even Sir Robert Megarry accepted (at p. 75) that such an order might be made in wholly exceptional circumstances.  In a forceful and eloquent submission, Mr Tibbo stated that the present case was a wholly exceptional case and fell within that very narrow category of cases where the court should still allow solicitor and own client costs.

10. I listened carefully to Mr Tibbo’s submissions in relation to the plaintiff’s totally disproportionate conduct, its wholly unrealistic sanctioned cost offers, and its refusal to give credence to relevant authority on point, such as In Re Hellard [1896] 2 Ch. 229 and The Educational Group(HK) Ltd v. Deacons HCMP2138 of 2008.  I also considered his submissions in relation to what he said was the oppressive and malicious conduct of the plaintiff.

11. I am not entirely persuaded that the plaintiff’s wholly misguided and clearly disproportionate conduct should be classified as oppressive and malicious, but I do take into account the fact that, clearly, the plaintiff simply refused to accept what was a binding ruling of the High Court in the decision of Deputy Judge Au, as he then was, and unreasonably persevered in its campaign, which resulted in the taxation proceedings lasting some two years and seven months as compared to a norm of probably no more than six months.

12. I also took into account Mr Tibbo’s point that the affidavit of Miss Becky Kwan contained a false statement and that contributed to the way in which these proceedings progressed and to its length, and that it was only under cross-examination that she conceded that there was in fact an agreement in relation to costs.

13. Notwithstanding these submissions, I cannot conclude that the present case falls within the category of wholly exceptional circumstances. I am not persuaded that I should exercise my discretion to order costs to be taxed on a solicitor and own client basis in this case.  Clearly, there are degrees of conduct, and perhaps this case falls within the high end of that range of conduct which justifies an order for costs on an indemnity basis but, having said that, I find the statements of principle by Sir Robert Megarry V.C. to be compelling and quite logical in the sense that I cannot perceive of any reason why a party that is involved in proceedings which are wholly inter partes should be forced to accept costs and made to pay costs which are, on the face of it, unreasonable and extravagant, simply because the other side has authorised those costs to be incurred. That, to me, is the heart and crux of the statement of principle under consideration.

14. I conclude that the proper order to be made in this case is the order sought by the plaintiff, namely, that costs of the taxation proceedings be to the defendant to be taxed, if not agreed, on an indemnity basis with certificate for counsel.  I set aside the order of the Master and I so order.

[Submissions on Costs]

15. Notwithstanding the plaintiff’s past wrongs in these taxation proceedings, the plaintiff was right to bring this appeal and has succeeded on a point of principle.  The plaintiff should have the costs of the application to vary the costs order nisi of the Master and of this appeal, to be taxed on a party and party basis, if not agreed.