XCHRX TSO WING YU, ANITA v. LAU SIU FAN AND ANOTHER

1993, No. A6928

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is an application under Order 62 rule 35 for the review of a decision of a taxing master. Because of the considerable interest in the point at issue, this judgment is published with the agreement of all parties.

2. The point at issue is whether a taxing master, in awarding the costs of taxation, should take into account a Calderbank offer made by the paying party where the receiving party is legally aided. The point has, in fact, been previously decided by Jerome Chan J. in Leung Cheung Hong v. Golden Pond Restaurant Limited 1989, No. A5399 in a judgment handed down on 21st March 1997 but unreported. In that case, a payment had been made into court by the paying party. The taxing master took the view that, because the plaintiff was legally aided, a taxation was inevitable because of the scheme of the Legal Aid Ordinance (the Ordinance). Upon review of the taxing master's decision, the judge upheld the decision but on other grounds. He concluded that a taxation where the receiving party is legally aided is not inevitable. The Director of Legal Aid (the Director) in consultation with the aided person has the power to and does settle costs without resort to taxation. A taxation is not therefore inevitable. The judge decided, however, that there is no provision for the paying party to make a payment into court and that, in any event, it would not be right to require the Director and the aided person to form a view on the reasonableness of any payment into court. The payment was, therefore, not a matter for the taxing master to take into consideration.

3. The judge went on to hold that, by parity of reasoning, a written offer in respect of an aided person's costs is also not a relevant consideration in the determination of the costs of taxation.

4. It is the contention of the defendants that the judge was wrong. I am invited to reach a different conclusion. Before I go on to consider the position, however, it might be useful to deal with certain matters which are either not in issue or no longer relevant. It is not in dispute that a taxing master should take into account all relevant factors when exercising his discretion as to awarding the costs of taxation. It is also not in dispute that an aided person's costs are settled without recourse to taxation by the Director in exercise of his powers under regulations 4 and 5 of the Legal Aid (Scale of Fees) Regulations. These regulations permit the Director in default of taxation to fix the fees and costs payable to counsel and solicitor respectively. This power was no doubt conferred in order to mitigate the provisions of regulation 15 of the Legal Aid Regulations which require any judgment or final order to contain a direction that the costs of an aided person shall be taxed. This power does not, in my judgment, permit the Director to force his determination as to what the fees or costs should be upon an unwilling counsel or solicitor. Counsel or solicitor or both can, if they are dissatisfied with the amount fixed by the Director, require a taxation as directed by the court.

5. It was acknowledged on behalf of the Director that this power is used by him. Jerome Chan J, therefore, was wrong when he said that it is "probably rare" for taxation of common fund costs to be dispensed with.

6. In England, the point has been expressly dealt with in the Rules of the Supreme Court. An amendment to Order 62 now provides in Rule 27(5) that no offer to pay a specific sum in satisfaction of costs may be made where the recipient is an assisted person. On the one hand, that amendment might suggest that previously it had been open for a taxing master to take an offer into account when deciding upon the costs of a taxation. On the other, the amendment may have been introduced to resolve conflict. There appears to be some support for the latter view because, among the documents before me, were indications that English taxing masters did take opposing views. The English legal aid provisions are, however, different from those in Hong Kong. In the absence of any affidavit evidence to explain the relevant provisions and how they work in practice, it was agreed that I should disregard the English rules and practice.

7. Turning then to the decision of Jerome Chan J., the judge having found that a taxation is not inevitable and having observed that, where assigned by the Director, solicitors and counsel may not be those of the aided persons' choice, the judge continued

"Recovery of costs of fees by the assigned solicitor and counsel is on the basis of those recoverable as between solicitor and client where costs are to be paid out of a common fund in which the client and others are interested. Though it is more restrictive than that of between solicitor and own client, it is more generous than on party and party basis. The scale of fees charged by the assigned solicitors and counsel might therefore affect the liability of the Director, and an aided person liable to contribute, for the excess of the common fund costs over the party and party costs recoverable from the other side. Though it is possible for the Director to reach an agreement with the assigned solicitors and counsel pursuant to the said reg. 4 to fix their costs and fees thereby dispensing with a taxation; it is impossible for an aided person to reach any agreement directly with his assigned solicitors or counsel on their fees and costs, such being prohibited by s.22 of the Ordinance. The amount of the aided person's contribution is determined by the provisions of s.32 of the Ordinance. Though the Director can waive the whole or part of such contribution, he can only do so on grounds of serious hardship and if it is in all the circumstances just and equitable to do so. In the premises, the absolute freedom of a private litigant to negotiate and agree the amount of costs with his solicitors and counsel is absent in the case of an aided person."

8. I note that s.18 of the Ordinance provides for contribution. S.32 relates to the supplementary legal aid scheme.

9. I agree that an aided person does not have the same freedom as a private litigant. A private litigant can of course agree with his solicitor what costs he should pay after the event. He can also reach agreement with his solicitor before litigation commences on matters such as the solicitor's hourly charging rate for work carried out. That does not mean, however, that an aided person cannot sit down with his assigned solicitor to discuss costs once litigation is over and a bill has been drawn up. Indeed, it is right that the aided person, either by the assigned solicitor or by the Director or both, is made aware of the impact which costs will have upon any award made in the aided person's favour, the Director having a first charge for common fund costs on any money or other property recovered from the aided person's opponent. It seems to me, therefore, to be not impossible, if an offer in respect of party and party costs is received from the paying party, for there to be discussions between the aided person, the assigned solicitor and the Director as to whether that offer might be acceptable, having regard to the need to keep common fund costs as low as possible.

10. In my judgment, section 22 of the Ordnance does not inhibit such discussions. It reads

"22. Prohibition against taking fees from aided person

(1) Subject to the provisions of section 18, no person who, pursuant to any reference under this Ordinance, makes any investigation or report or gives any opinion or certificate or who acts for an aided person, shall take or agree to take or seek from an aided person any fee, profit or reward (pecuniary or otherwise) in respect thereof."

11. Subsection (2) makes contravention of subsection (1) a criminal offence. Section 22 is clearly designed to prevent a solicitor or any other person from obtaining money from an aided person other than through the channels prescribed by the Ordinance and its subsidiary legislation. In simple terms, any payment for services rendered to an aided person will be made by the Director and not by the aided person or any one else. There is no inhibition, as Jerome Chan J. seemed to think, on discussion about costs between the assigned solicitor and the aided person's with a view to reaching an overall agreement thereon. Any agreement would be implemented by an appropriate payment to the solicitor by the Director.

12. Jerome Chan J. then continued

"The duty owed by the assigned solicitors and counsel to the Director to protect the public fund is clear upon a consideration of the provisions under reg.9 to 15 of the Legal Aid (Scale of Fees) Regulations. However, such duty would inevitably conflict with their self-interest when they bill the Director for their costs and fees. The duty of the Director towards preservation of public funds is beyond peradventure. Save in the clearest of cases, such duties could not be properly discharged without an independent assessment of the claim for the common fund costs but the judicial process of taxation."

13. I am not sure that a reference to regulations 9 - 15 is particularly helpful. They certainly require the assigned solicitor to safeguard the interest of the fund and to this end provide for an assigned solicitor to do everything that is appropriate on taxation and, in a proper case and with the approval of the Director, seek a review of taxation. But these requirements do not, for reasons which I have already set out, inhibit what I might call the legal aid team (consisting of the aided person, the Director, the assigned solicitor and counsel), reaching an overall agreement on costs so that further expenditure of time and money is saved.

14. The judge then went on

"In view of the above features of the legal aid scheme, the Director and the aided person could not reasonably be placed under any obligation to consider the reasonableness of the amount of money paid into court in lieu of a taxation. They are entitled, like the assigned solicitors and counsel, to have their liability for common fund costs determined by a taxation in accordance with the Ordinance, It would be wholly inequitable to require them to come to a decision on the payment into court, and to be penalised for an inaccurate decision. They have a statutory right to a taxation of the common fund costs, and such a right cannot be consistent with an obligation to consider a waiver of such right."

15. I have some sympathy with this passage. A lump sum payment into court in respect of party and party costs gives rise to real difficulties on the part of the legal aid team. There would be no indication as to how this sum should be assigned to profit costs, counsel's fees and other disbursements. No doubt there would be questions of transferring certain party and party items either in whole or in part to the common fund. With a very great deal of goodwill all round and much hard work, a resolution of these problems might be achieved. Like Jerome Chan J., however, I am satisfied that the legal aid team should not be put to such trouble.

16. There seems to me, however, to be no reason in principle why a proper offer by a paying party should give rise to the same problems. The intention of the Ordinance, as I understand it, is to ensure that an impecunious litigant is not disadvantaged by his lack of funds. It was not the intention, I am satisfied, that an opponent of an aided person should be disadvantaged in some way in the absence of clear provision to that effect. The costs of taxation and the taxation fee can often be considerable. The question posed to me is why a paying party should not be able to mitigate this expense by making a suitable offer. One answer put forward is that an aided person should not have to pay, by deduction from his contribution or any property recovered, the cost of taxation where the offer has not been beaten. The reason behind such answer is based upon the decision of Jerome Chan J to the effect that it would be unfair to expect the Director to grapple with the difficulties of recognizing the competing the interests of the legal aid team and forego his right to taxation.

17. These difficulties can be much reduced if a proper offer to pay party and party costs is made. In the present case, the defendants' offer was made in 3 parts: profit costs which were in the event agreed and paid; counsel's fees which were not agreed and which, upon a subsequent taxation, failed to beat the offer and give rise to this review; and finally other disbursements, the bulk of which were agreed but the modest fees of 3 experts had to go to taxation.

18. The difficulties inherent in a lump sum payment were thus eliminated. Party and party profit costs were agreed. The real difficulty arose out of counsel's fees where counsel was not initially prepared to accept any reduction. The subsequent taxation largely revolved around counsel's fees. In the event, counsel was awarded less than the amount offered. Why, therefore, should the Defendants have to pay the considerable costs and taxing fee involved in having the bill taxed when the aided person obtained no benefit from the exercise? An answer to that is that the aided person has no control over the matter and should not be penalized because counsel exercises his right to a taxation. It must be remembered that counsel cannot negotiate fees with solicitors assigned for an aided person in the same way as he can with a private litigant or that litigant's solicitors. And at present in Hong Kong, there is no provision for making counsel liable for the costs of such a taxation.

19. It seem to me that there are very good reasons for allowing a Calderbank offer to be taken into account by a taxing master on a legal aid taxation. As Mr. Bharwaney for the defendants urged upon me, it is in the interests of everyone to encourage compromise in litigation wherever possible. If no effect is given to a Calderbank offer, compromise is discouraged with the result that there will be a substantial increase in the volume of taxations. Payment or at least payment in full of any award of damages to an aided person will be delayed and interest charged on the costs will be unnecessarily increased to the benefit only of the legal aid fund. Mr. Bharwaney submitted that, if a proper Calderbank offer is not beaten, the party whether or not he is an aided person who insists upon taxation should pay for that privilege. He said that there is no reason to impose a penalty on the paying party because of internal difficulties within the legal aid team.

20. I recognize that consideration of a properly formulated Calderbank offer is not as straightforward for the legal aid team as it is for a private litigant and his solicitors. But I do not see that there are any unreasonable demands being made in asking the legal aid team, led by the Director, to consider such an offer. A certain amount of compromise might be necessary and it might be appropriate for the Director to agree that some part of the shortfall in one or more of the areas can be properly absorbed by the common fund. The aided person will have to have explained and accept the consequences to him. If no agreement can be reached, the aided person's bill will have to be taxed in its entirety. If the offer is not beaten in one of the distinct areas, the taxing master upon being made aware of the offer could, if he saw fit, deprive the aided person of an appropriate portion of the costs of taxation and taxing fee, or even make an order in favour of the paying party. If the only area of disagreement is, for example, counsel's fees, the bill can be submitted with all other items deleted so that the taxing fee at least will be much reduced. Again, depending upon the outcome of the taxation, the taxing master can make the appropriate order.

21. I come to the conclusion, therefore, that a proper Calderbank offer in respect of an aided person's costs is a matter which a taxing master may properly take into account when considering an order for the costs of taxation. To be effective, the offer must be divided at least into offers for: profit costs; counsel's fees; and other disbursements. It may well be that the particular circumstances of a case will call for further divisions.

22. The taxing master having understandably misdirected himself, I allow the review. I set aside the order for costs in favour of the plaintiff made by the taxing master on 6th June 1997. In all the circumstances of the case, I am satisfied that there should be no order as to costs between the parties in respect of the taxation.

23. I do not disturb the order of the taxing master made upon review on 25th June 1997. Several issues were canvassed on that occasion which have not been pursued before me.

24. I make an order nisi that the defendants should have the costs of this review.

25. The plaintiff's own costs are to be taxed.

(N. J. Barnett)

Judge of the Court of First Instance