XCHRX THE BUILDING AUTHORITY v. BUSINESS RIGHTS LTD.

DCMP 940/93
HCMP 3805/93
CACV 212/93

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

DISTRICT COURT MISCELLANEOUS PROCEEDINGS NO. 940 OF 1993

HIGH COURT MISCELLANEOUS PROCEEDINGS NO. 3805 OF 1993

CIVIL APPEAL NO. 212 OF 1993

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J U D G M E N T

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1. This is a summons to review taxation. The issue in a nutshell is whether or not a lawyer employed by the Department of Justice can claim fees and refreshers for conducting litigation in court on the same basis as a self-employed barrister, or whether the costs of such representation in court should be calculated on an hourly basis in the same way that a solicitor would charge.

2. I will briefly set out the history of the matter. In 1993 and 1994 Mr Anthony Wu, who was then a Deputy Principal Crown Counsel and who is now a Deputy Law Officer (Civil), appeared on behalf of the Building Authority on three occasions. He appeared in the District Court in November 1993 and successfully conducted the litigation alone, in October 1993 when he again successfully resisted an application for leave to seek Judicial Review of the District Judge's decision and finally in May 1994 when he appeared with a member of the junior bar, Mr Philip Dykes, who successfully resisted an appeal in the Court of Appeal in the same case.

3. For every appearance by Mr Wu in court a brief fee plus refresher was claimed on the Building Authority's Bill of Costs. In the District Court hearing, the claim was for a fee of $30,000 plus four refreshers of $10,000 each plus a further $10,000 for a preliminary hearing. His brief fee for opposing the application for leave to seek Judicial Review was $25,000 plus a refresher of $10,000 and in the Court of Appeal his fees were $40,000 on the brief and refreshers of $12,000 and $6,000 plus a preliminary hearing fee of $15,000. Mr Wu had conduct of the case from the outset. Accordingly the Bills of Costs contained further claims, which were not contested, for work done "in house" similar to the work done by a solicitor before he sends out the brief to counsel, on an hourly basis. Work done by Mr Wu, as an advocate prior to the hearing, such as considering how to present the case, marshalling the facts, considering examination and cross-examination etc was not separately charged and was included in the brief fee.

4. Mr Wu's fees were disallowed on taxation and the allowable costs were calculated on an hourly basis for time spent in court at a level similar to those which a solicitor would have charged. The Master who made the order, Master Andrew Chung, was asked to review his decision. That review was heard on 17th December 1998 and in a carefully considered decision he refused to review his original order. I am now asked to review his refusal.

5. Mr Andrews who appeared for the Applicant, fairly stated at the outset that the purpose of this review was to establish a principle. If he were successful he would not seek costs of the review against the Respondent, and if unsuccessful, would not resist an order for costs. Both Mr Andrews (for the Applicant/receiving party) and Mr Clarke (for the Respondent/paying party) have been of considerable assistance. I have had the advantage of considering their succinct written submissions, their focussed oral submissions and a number of helpful authorities.

6. There has been one recent Hong Kong decision on the same or similar subject. In Building Authority v. Tam Chung Chin Dennis [1997] 3 HKC 260, Gall J stated :

" I accept that under the Legal Officers Ordinance, a legal officer has a right of appearance in all courts in the HKSAR. I hold therefore that in the circumstances where the same person acts as a solicitor in the preparation of a matter for trial in the [Department of Justice] and then proceeds to act as an applicant in the court in response to the instructions that he has prepared as a solicitor, Master Cannon was right in disallowing the brief fee and refreshers and replacing them with a proper measure of preparation as a solicitor and the proper measure of costs applicable for the attendance in court by a solicitor." (at pp. 263I to 264A)

However, he had earlier stated :

" There is no doubt that if one government lawyer performs of the preparatory work in respect of a matter to go before the court and then a second performs the entirely distinct and a separate role as counsel that the first would be chargeable in a bill of costs at the rate for a solicitor and that the latter could charge both a brief fee and the refreshers normally attributable to a barrister in private practice." (at p. 263C)

7. In a nutshell, therefore, the principle formulated by that decision was that a Government lawyer should charge on an hourly basis for his appearances in court when he has had conduct of the litigation throughout but where a new Government lawyer takes on the job of conducting the trial, an appropriate Brief fee may be charged.

8. Master Chung rightly decided that he was bound by this decision. However, he did not leave the matter there. He helpfully went on to give reasons why his decision would have been the same in any event. He decided that the application of the "indemnity principle" (to which I shall refer later in this judgment) resulted in a finding in the paying party's favour.

Stare decisis

9. It is trite to observe at the outset that this court is not bound by Gall J's decision. However it would be wrong to give an opposing judgment merely because this court held a different opinion. I refer to two short statements which amply clarify the position. Firstly from Denning J, as he then was, in Minister of Pensions v. Higham [1948] 2 KB 155, where he says :

"..... They [previous decisions] are not absolutely binding on the Superior Court itself or on the courts of co-ordinate jurisdiction but will be followed in the absence of strong reason to the contrary..."

and Lloyd LJ in R. v. Central Criminal Court ex p Francis & Francis (a firm) [1988] 2 WLR at p.633 :

" This court is always reluctant not to follow its previous decisions. But if we are persuaded that a previous decision is clearly wrong, we are bound to say so...."

The Indemnity Principle

10. Fundamental to the resolution of this matter is the indemnity principle. Both sides to this argument agree that the indemnity principle must apply. Both sides also agree that the fair costs payable to a Government lawyer in court must include a profit element. Where the parties disagree is that Mr Andrews contends that the payment of an equivalent barrister's brief fee does not offend the indemnity principle and the resulting profit element would be fair and reasonable, whereas Mr Clarke contends that such a method of costing would offend the indemnity principle and the resulting profit element would be unjustly high for the unsuccessful litigant to have to meet.

11. The principle is that costs as between party and party are given by the law as an indemnity to the person entitled to them; they are not imposed as a punishment to the party who pays them nor given as a bonus to the party who receives them. It is also usefully defined in a Practice Note in the 1998 Weekly Law Reports :

" The indemnity principle is as follows: an order for costs between parties allows the receiving party to claim from the paying party only an indemnity in respect of the costs covered by the order. Receiving parties cannot therefore recover a sum in excess of their liability to their own solicitors. On the taxation of a bill, the indemnity principle is to be applied on an item by item basis rather than on a global basis....."

12. The question to be answered is simply this, given that a Government lawyer's costs as the successful litigant should include a profit element and given that the indemnity principle must not be offended, is the proper method of charging the method used by barristers or the method used by solicitors?

The case for the Barrister's method

13. Mr Andrews submits that the Government lawyer when in court is performing the role of a skilled advocate. The specialist advocate is a barrister. A barrister's brief fee is intended to pay for three elements - firstly, his preparation for trial once instructed; secondly, his day in court and thirdly, his profit element. He submits the correct starting point is to acknowledge that the role of a Government lawyer when conducting litigation in court is directly comparable to a barrister doing the same job. If charging the unsuccessful litigation by way of "comparables" is right in principle, then Mr Wu was right to seek a brief fee in line with a brief fee that would have been made by a member of the bar because Mr Wu's preparation for trial, day in court and profit element should also be paid for.

14. In support of his submission that the "comparable" principle is the correct starting point, he referred the court to Lloyd's Bank Ltd. v. Eastwood (1975) 1 Ch. 112 (a case which was not cited in argument before Gall J in the Dennis Tam case, supra).

15. In Eastwood, where the issue was whether the rates for an independent solicitor could be charged when the work had in fact been done by a salaried "in-house" Government solicitor, it was decided :

"..... that the appropriate method of taxation of a bill of costs where a party was represented by a salaried solicitor was to treat it as though it were the bill of an independent solicitor, assessing the reasonable and fair amount of a discretionary item having regard to all the circumstances of the case and the principle that the taxed costs should not be more than an indemnity to the party against the expense he had incurred in litigation."

16. In further support of the argument Mr Andrews refers to s.17 of the pre-1997 legislation, the (Crown) Proceedings Ordinance, Cap.300, which provides that in civil proceedings in which Government is a party, costs should be awarded in the same manner and on the same principles as in cases between citizens.

17. I hope I do justice to Mr Andrews' submission when I summarize as follows. There is both authority and argument for the proposition that the work done by the Government lawyer when representing a party in court should be compared with the role of the barrister. The Costs Rules themselves make a distinction between barristers and solicitors. When the Government lawyer is doing the job of a barrister in court, that fact should be recognized and he should make similar charges. This should be the simple rule in all cases without further complications, provisos or exceptions.

The case for the Solicitor's method

18. Mr Clarke's submission boiled down to two areas of disagreement. Firstly, whilst he agreed the indemnity principle was at the forefront of the issue, a barrister's brief fee offended the principle. Secondly, whilst he agreed that the charges should include a profit element, a barrister's brief fee resulted in more than a reasonable profit and entered into the area of an unjustified bonus.

19. His concern at the end of the day, quite correctly, was for his client in this case. The taxing master had awarded a total of approximately $56,000 for all Mr Wu's appearances in court, whereas $194,000 was the total of the brief fees and refreshers claimed.

20. Mr Clarke did not necessarily argue that brief fees were wrong in principle provided they were much lower so as to reflect the true profit element. He preferred and advanced however, the hourly rate method as being more logical when applying the indemnity principle to the work of a salaried Government lawyer but nonetheless conceded that it might be fair and appropriate to charge higher hourly rates for work done in court as an advocate.

21. I have summarized Mr Clarke's submission very briefly. However, I will expand on it in the following section because I have come to the conclusion that the hourly rate method is the correct one in this case, where Mr Wu had conduct of the proceedings throughout and his appearances in court were a continuation of his work in representing his client.

Conclusion

22. For the following reasons I decline to vary the taxation order as made by Master Chung :

(a) The work actually done by Mr Wu when appearing in court in this particular case was more akin to the work of a solicitor acting as an advocate in court than that of a barrister acting as an advocate in court. Both solicitors and barristers can be competent and skillful advocates. In the District Court and when opposing the application for Judicial Review Mr Wu appeared alone. Had a barrister appeared he would have had to have appeared with his instructing solicitor. It is true that a Government lawyer need not have a solicitor sitting behind him. However, the reality of the situation was that Mr Wu had not been instructed by anyone else, he had instructed himself. A private solicitor could have appeared in those courts and, like Mr Wu, would have appeared alone.

The appearance in the Court of Appeal also supports Mr Clarke's submission. Mr Philip Dykes, who was then a junior counsel, was instructed to conduct the appeal. Mr Dykes, as a barrister, should have an instructing solicitor with him. Who was with him? Mr Wu was. In the Bill of Costs Mr Wu's name appears as the second or "junior" counsel. He sat alongside him and wore a wig. However, in my judgment, the reality of the situation was that Mr Wu was his instructing solicitor. There was no other solicitor there. Mr Wu had done all the prior solicitorial work and Mr Dykes took his instructions from him. A solicitor had no right of audience at that hearing.

(b) The profit element : In my judgment the profit element in a normal brief fee if paid to a Government lawyer would be greater than if paid to a private barrister. The increased profit element could only be regarded as a bonus and would therefore offend the indemnity principle. The "greater profit" becomes clear when one analyses what a normal brief fee is designed to pay for. A barrister is self-employed. He has greater expenses - his share of chambers' rent, his clerk's salary, secretarial and other office expenses, the cost of transport to and from court and so on. What is left after all his expenses have been paid represents his profit or taxable income. The Inland Revenue takes its share of his profit.

Obviously, if Mr Wu were paid a brief fee no-one suggests it would be his money, it would be the Department's. Although the Department's expenses for the cost of and running the building in which they work and Mr Wu's secretary and so on have to be paid for, the reality is that they are paid for in any event. Furthermore, it is Mr Wu's salary which is taxed by the Revenue. The proposed brief fee would not be directly taxed by the Revenue in the same way (or at all) as the private barrister's fee.

A solicitor might often say to his client - if we employ a barrister there will be greater expenses. One of the reasons for the greater expenses is the cost of the barrister's self-employed status. The payment of a normal brief fee to a Government Department would result in a degree of undue enrichment over and above the barrister's profit element.

(c) Counsel's diary. An extension of the above point (b), is that if a case "goes short" in court for whatever reason, such as the case settles or has to be adjourned, the Government lawyer is required to return to his office to get on with other work. The barrister, however, had to set aside the whole day. The Government lawyer continues to earn his salary after an early return from court.

(d) In my judgment, the Eastwood case, upon which Mr Andrews relied, is not clear authority for the order he seeks and neither is it inconsistent with the stance adopted by Mr Clarke. As always, the facts are different but also the issue was not the same. It also supports the contention that a Government (employed) lawyer's costs should be the same as an independent solicitor's costs.

(e) The hourly rate method would more accurately reflect the true profit element. It is recognized that a successful party to litigation is entitled to a profit element in its costs. This applies equally to a Government Department. Anyone who goes to court risks losing and paying the other side's costs. If the Government were not entitled to some profit in their costs, the risk element would be less when the opposing party was a Government Department.

For the reasons already advanced profit is more logically and more fairly assessed by reference to an hourly rate. Mr Clarke concedes, and I do not disagree, that a brief fee method could be used but the level of the fee would have to be significantly less to ensure the bonus element in the profit was removed. It is not difficult to envisage practical difficulties in using a lower brief fee method. Such difficulties would not arise in a reasonable hourly rate method.

The Principle

23. Because the principle which this review was required to determine was whether the "brief fee" method was right or whether the "hourly rate" method was right, I do not propose to make any alterations to the costs as taxed. However, for the sake of completeness, I wish to make three final points :

1. The appropriate quantum for the hourly rate :

I wish to dispel any notion that this judgment suggests that the work of a Government lawyer appearing as an advocate is in any way routine and ordinary. All work in litigation is important from reading the writ when it first arrives to making legal submissions in the Court of Appeal. The work of the advocate conducting the case in Court is at the more important end. It requires special legal knowledge, forensic skills, competence, confidence and experience. It should be paid accordingly. It is at the cutting edge of litigation and should be paid the highest hourly rate regardless of who is appearing. The hourly rate should be equivalent to senior partner level for solicitors or even higher.

2. In addition, the Government lawyer should be able to make a separate charge for time spent in preparing how the case should be presented in court, that is work done by a barrister prior to going to court which is included in his brief fee. As a matter of interest, if Mr Wu (in 1993/4) had charged $3,000 an hour when in court plus preparation for court plus out of court work done during the trial (say, four hours before the District Court case plus one hour per day, three hours before the Judicial Review case and four hours before the Court of Appeal plus one hour per day) his total claim would have been (28 hours in court plus 16 hours out of court) $132,000. His brief fees totalled $195,000. The difference between the two is the unjust bonus.

3. This case has solely been concerned with a case where the same Government lawyer conducted the litigation from beginning to end. Gall J's decision states that if one Government lawyer instructs a second Government lawyer to be the advocate in court, the second lawyer can charge a brief fee. This decision does not suggest that the payment of a brief fee to a Government lawyer separately instructed as an advocate is incorrect provided that the quantum of the brief fee is proportionately lower than a normal brief fee so that the profit element in both is similar and thus the indemnity principle is not breached.

24. The costs of this review shall be the Respondent's.