POON SHU FAN v. WONG TIN YAN AND ANOTHER

CACV 81/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 81 OF 2012

(ON APPEAL FROM HCA 1143/2011)

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REASONS FOR JUDGMENT

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Hon Cheung CJHC:

The facts

1. On 25 September 2012, we allowed an appeal from the summary assessment of costs made by Yam J on 21 February 2012 following the judge’s discharge with costs of a Mareva injunction against the defendants.  We set aside the judge’s assessment and summarily assessed the costs payable by the defendants at $422,200 (together with interest from 22 November 2011 until payment).  We awarded the costs of the appeal, summarily assessed by us at $105,900, to the plaintiff.  We also ordered the release of the money paid into court by the plaintiff as security for the costs of this appeal (together with any accrued interest thereon) to the plaintiff.  We now give our reasons.

2. The defendants are husband and wife.  Their daughter (Joey) and the plaintiff used to be very close friends.  The plaintiff claims that she and the defendants orally agreed to invest jointly in a property.  Under the oral agreement, she was to contribute most of the downpayment and mortgage payments; the property would be held in the name of the defendants only; and when the property was sold, the plaintiff would receive back her money plus 50% of the profit.  The plaintiff complains that without her knowledge, the defendants sold the property in November 2010 but did not pay any part of the sale proceeds to her.  The plaintiff also claims that the 2^nd defendant allowed her to use a bank account held in the 2^nd defendant’s name.  After a falling out, the 2^nd defendant abruptly cut off the plaintiff’s access to the account which had her money inside.  The plaintiff has two further claims based on the 2^nd defendant’s use of borrowed credit cards and a loan of $140,000.  But these claims did not feature in the Mareva injunction.

3. On 7 July 2011, the plaintiff obtained a Mareva injunction freezing the defendants’ assets up to the sum of $3,749,000 and a disclosure order in aid of the injunction.  The writ was formally issued on the following day.  On 11 and 19 July 2011, the plaintiff issued summonses to continue the injunction and to inspect bank documents.  On 21 July 2011, the defendants took out a summons to vary the Mareva injunction (pending the substantive inter partes hearing) to include provision for payment of ordinary living expenses and for legal expenses.  The defendants also asked for an interim stay of the disclosure order pending the determination of the plaintiff’s summons to continue the injunction.

4. At the return date on 22 July 2011, Deputy Judge Mayo continued the injunction pending substantive argument, but varied it to provide for living and legal expenses.  The court also granted an interim stay of the disclosure order.

5. Prior to the substantive hearing, two rounds of evidence were filed (in fact Joey filed three affirmations altogether).  At the substantive hearing on 22 November 2011, Yam J discharged the injunction with costs to be summarily assessed.  In his reasons for decision handed down on 16 March 2012, the judge explained that he discharged the injunction on the ground of material non‑disclosure.  For reasons he gave, he refused to grant a fresh injunction.

6. The defendants’ statement of costs submitted for the purposes of summary assessment amounted to $653,800 in total.  The costs claimed comprised $206,600 for solicitors’ communications (57 hours in total); $184,000 for solicitors’ work (47 hours in total), $246,000 for counsel’s fees; $3,500 for manual work and $13,700 for miscellaneous disbursements.  Despite the plaintiff’s objections, the judge made only minor adjustments to the costs claimed by the defendants.  He arrived at an assessment of $614,800, after deducting 10 hours of solicitors’ work.  He made no deduction from counsel’s fees claimed.

7. Aggrieved by the summary assessment made by the judge, the plaintiff appealed (with leave granted by Tang VP).

The arguments

8. Mr Wilson Leung, appearing for the plaintiff, essentially took four points.  First, he complained that the judge failed to pay proper regard to the fact that the matter was straightforward and involved a very limited number of issues. Further, the amount at stake was modest.  The total costs assessed was disproportionately high and unreasonable.  Secondly, Mr Leung contended that the judge failed to make any apportionment between costs relating to the injunction specifically and those relating to the action generally.  Thirdly, Mr Leung submitted that the judge failed to give any consideration as to whether it was proportionate or necessary to have two solicitors substantially involved in every item of work.  Finally, counsel submitted that the judge erred in making no deduction at all to counsel’s fees, which were, counsel argued, plainly excessive.

9. Ms Gekko Lan, for the defendants, took issues with all these points and submitted that this court should not disturb the summary assessment made by the judge, who gave no reasons for the assessment.

The general principles

10. The circumstances under which this court will interfere with the exercise of a judge’s discretion in the award of costs have been clearly stated in Hong Kong Civil Procedure 2012, Vol 1, para 62/2/11 (page 1097).  Ms Lan has also drawn our attention to the Court of Final Appeal’s approach in relation to an appeal against the decision of the Registrar of that court on taxation.  That is, the court 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 : Nam Chun Investment Co Ltd v Directors of Lands (2007) 10 HKCFAR 523 (para 7).

11. I see no reason why this court should not adopt the same approach in this type of appeal.

12. As regards summary assessment, where, as here, costs are awarded on the party and party basis, only such costs as were “necessary or proper” for the attainment of justice or for enforcing or defending the rights of the receiving party are allowed in a summary assessment, as they are allowed in an ordinary taxation : Order 62, rule 28(2), the Rules of the High Court (Cap 4A).  This is unaffected by the broad‑brush approach that the court will take in a summary assessment procedure : see Practice Direction 14.3, para 13, which also points out that the court will not embark on a mini‑taxation in the summary assessment procedure.

13. However, as has also been pointed out in the same Practice Direction, para 14, the court will, so far as possible, ensure that the final figure of assessment is not disproportionate and/or unreasonable having regard to the nature and circumstances of the application or matter and the underlying objectives stated in Order 1A.  Paragraph 14 goes on to say that the court will retain this responsibility notwithstanding the absence of challenge to individual items in the make‑up of the figure sought.  The fact that the paying party is not disputing the amount of costs can however be taken as some indication that the amount is proportionate and reasonable.  The court will therefore intervene only if satisfied the costs are so disproportionate that it is right to do so. All this, it should be added, is as true with a summary assessment as with an ordinary taxation of costs.

14. In this regard, it is helpful to remind ourselves that Order 1A, rule 1 provides that the underlying objectives of the rules are, amongst other things, to increase the costs effectiveness of any practice and procedure to be followed in relation to proceedings before the court; and to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings.

15. Whilst there are obvious differences between our post Civil Justice Reform rules and the English rules under the Woolf’s Reform, the approach in England, as explained by Lord Woolf CJ in Lownds v Home Office [2002] 1 WLR 2450, nonetheless provides valuable guidance in this area.  In paragraph 31, Lord Woolf spelt out a two‑stage approach :

“ In other words what is required is a two‑stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which CPR r 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This [in] turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.”

16. The judge then went on to emphasise that “a sensible standard of necessity” has to be adopted (para 37) :

“ Although we emphasise the need, when costs are disproportionate, to determine what was necessary, we also emphasise that a sensible standard of necessity has to be adopted. This is a standard which takes fully into account the need to make allowances for the different judgments which those responsible for litigation can sensibly come to as to what is required. The danger of setting too high a standard with the benefit of hindsight has to be avoided. While the threshold required to meet necessity is higher than that of reasonableness, it is still a standard that a competent practitioner should be able to achieve without undue difficulty. When a practitioner incurs expenses which are reasonable but not necessary, he may be able to recover his fees and disbursements from his client, but extra expenses which results from conducting litigation in a disproportionate manner cannot be recovered from the other party.”

17. The judge then explained how the conduct of the paying party may affect what is and what is not necessary (para 38) :

“ In deciding what is necessary the conduct of the other party is highly relevant. The other party by co‑operation can reduce costs, by being unco‑operative he can increase costs. If he is uncooperative that may render necessary costs which would otherwise be unnecessary and that he should pay the costs for the expense which he has made necessary is perfectly acceptable. Access to justice would be impeded if lawyers felt they could not afford to do what is necessary to conduct the litigation. Giving appropriate weight to the requirements of proportionality and reasonableness will not make the conduct of litigation uneconomic if on the assessment there is allowed a reasonable sum for the work carried out which was necessary.”

18. In my view, these passages provide valuable guidance on how, in Hong Kong, costs may be assessed, by reference not only to what is “necessary or proper” but also to what is proportionate and reasonable, in order to give effect to the underlying objectives in Order 1A.  For the sake of completeness, one should emphasize that all this constitutes “guidance and not tramlines”: R v Wakefield Metropolitan District Council, ex parte Pearl Assurance Plc [1997] EWHC (Admin) 228, para 9, per Jowitt J (a public law case).  The bottomline, it should be added, is that costs are in the discretion of the court but that discretion, though wide, must still be exercised in a judicial manner.

Global sum disproportionately and unreasonably high

19. I now turn to the instant case.

20. I agree with the submission of Mr Leung that the global amount assessed by the judge was disproportionately high and unreasonable.  In this regard, it should be noted that the injunction froze the defendants’ assets only up to around $3.8 million.  The legal principles involved were not in serious dispute.  The arguments focused on factual matters, that is, whether the plaintiff had sufficient evidence to show that the transfers she made to the 2^nd defendant were for mortgage payments rather than inventory purchases.  This went to whether the plaintiff was able to demonstrate a good arguable case on the evidence to support the Mareva, and also to the question of material non‑disclosure.  It is true that three box files of documents of over 1,300 pages were involved, but nearly half consisted solely of repetitive inventory invoices or receipts, which went to the factual issues described above – whether the transfers were for mortgage repayments or for inventory purchases.  Peripheral issues were involved, particularly at the initial stage, namely, variation of the injunction to provide for living and legal expenses, inspection of bank documents and staying the disclosure order. They were fairly standard matters that are regularly dealt with before the summons judge on a return day.  The present case is no exception.

21. Ms Lan contended that the discharge of the freezing order was of utmost importance to her clients and they were given very little time to respond, particularly at the initial stage.  Both counsel and solicitors were called upon to defend the defendants’ position on a very urgent basis.  The many tables annexed to her written submission which counsel painstakingly prepared were of a great help to the judge at the substantive hearing.

22. I have no difficulty in appreciating all this.  But the question remains, that is, whether, on the facts of the present case, the judge’s global figure of over $600,000 was a proportionate and reasonable figure.  In this regard, an appellate court must allow a lot of leeway to the judge doing the summary assessment and should be very slow to interfere.  However, in the present case, I take the view that the global figure is disproportionate and unreasonable, bearing particularly in mind that the basis of taxation is that of party and party.

The solicitors’ costs and disbursements

23. On the individual items, I have no difficulty with the fee earners’ rates of charges, that is $4,000 per hour for Mr Tang and $3,000 for Mr Chung.

24. Manual work (item B) is charged at $3,500 and disbursements (item F) are charged at $13,700.  I have no difficulty with these figures.

25. For the solicitors’ communications including conferences, telephone calls and letters (item C), I would only allow 25 hours for Mr Tang and 15 hours for Mr Chung.  That would produce a figure of $145,000 ($206,600 was claimed).

26. As for the solicitors’ professional work (item D), I would allow 24 hours for Mr Tang and 9 hours for Mr Chung, thereby giving a total of $123,000 ($184,000 was claimed).

27. In relation to these two items (C and D), I have taken on board Mr Leung’s argument that it was not proportionate or necessary to have two solicitors substantially involved in every item of work.  I have also borne in mind Ms Lan’s argument that the involvement of a more junior solicitor was justified and it actually reduced costs in that if all work had been done by the more senior solicitor, higher costs would have been incurred.

Counsel’s fees

28. As for counsel’s fee (item E), I would allow a brief fee of $30,000 for the return day, $80,000 for the appearance before the judge and another $27,000 for conferences and approving three affirmations in opposition.  That gives a total of $137,000 (down from the total of $246,000 actually incurred).  Ms Lan argued that her fees were not unreasonable for counsel of her seniority (15 years’ call as at 2011).  I do not quarrel with that and I mean no disrespect to counsel.  But what she said begged the question of whether it was proportionate and reasonable to instruct counsel of such seniority (and thus commanding such fees) to do the case.  I need not repeat what has been said about this case and the injunction.  I simply note, additionally, that Ms Lan’s opponent was only called in 2008.

29. I find Ms Lan’s reliance on what was said by Barma J in Re Greater Beijing Expressways Ltd (No 4) [2005] 2 HKC 185 and on the commentary found in paragraph 62/App/28A of Hong Kong Civil Procedure 2012, Vol 1, to be misplaced.  In Re Greater Beijing, Barma J observed that the then paragraph 2(5) of Part II of the First Schedule to Order 62 which was unique to Hong Kong, laid down a special test for taxing counsel’s fees.  Paragraph 2(5) stipulated that “every fee paid to counsel shall be allowed in full on taxation, unless the taxing master is satisfied that the same is excessive and unreasonable …” This was very different from the test of “necessary or proper” which applies to a party and party taxation.  Barma J took the view that the then paragraph 2(5) indicated and required “a more generous basis than that applicable to a party and party taxation” when taxing counsel’s fees.  Those comments were summarized in paragraph 62/App/28A in the 2008 edition of Hong Kong Civil Procedure, Vol 1. The same paragraph has since appeared in every subsequent edition of Hong Kong Civil Procedure, including the current one.

30. However, the wording of paragraph 2(5) was changed in 2009 following the introduction of the Civil Justice Reform : LN 152 of 2008.  The present paragraph 2(5) simply reads :

“The amount of fees to be allowed to counsel is in the discretion of the taxing master who shall, in exercising his discretion, have regard to all relevant circumstances and in particular to the matters set out in paragraph 1(2).”

31. The previous anomaly in relation to taxation of counsel’s fees, pointed out by Barma J in Re Greater Beijing, was therefore removed.  Since 2008, taxation of counsel’s fees under a party and party taxationis no different from taxation of other costs and expenses.  The test of “necessary or proper” is applicable.  In applying that test, one must take into account the matters set out in paragraph 1(2) of Part II of the First Schedule to Order 62, as well as the requirement of reasonable proportionality described above.

32. Unfortunately, paragraph 62/App/28A still remains in the current edition of Hong Kong Civil Procedure.  It should no longer be followed.  In fact, paragraph 62/App/28, sub‑paragraph (5) (p 1172), also requires updating as it still refers to the old test of “excessive and unreasonable”.

Apportionment of costs?

33. On the other hand, I do not accept Mr Leung’s argument that there should be an apportionment of the solicitors’ costs and counsel’s fees as some of them are referable to the defendants’ preparation of their defence of the plaintiff’s claim.  It is true that some of the works done in resisting the Mareva injunction would subsequently be useful for the preparation of the defence.  However, as a matter of fact, the costs of those works were incurred at the time by the defendants in opposition to the Mareva injunction.  So long as it was necessary or proper for the defendants to incur them in opposition to the Mareva, they formed part of the defendants’ party and party costs of opposing the Mareva.  Of course, if, subsequently, the defendants are entitled to the costs of their defence of the action or any part thereof, any savings in costs due to the work that has already been done at the stage of Mareva must be taken into account in taxing those subsequent costs.  But that is looking into the future.  As a matter of principle, I reject Mr Leung’s argument.

Outcome

34. For these reasons, the defendants’ costs were assessed by this court at $422,200 ($3,500 + $13,700 + $145,000 + $123,000 + $137,000).

Costs of the appeal

35. As for the costs of the appeal, there have been “without prejudice save as to costs” correspondence between the parties.  It is not necessary to go into the correspondence in any detail.  Suffice it to say, at one stage, the plaintiff was prepared to settle the appeal for $400,000.  On the other hand, the lowest figure that the defendants were prepared to come down to was $450,000.  It is true that after the plaintiff obtained leave to appeal, she did not enter into further negotiations with the defendants.  But there was nothing to stop the defendants from improving on their last offer (of $450,000).  The fact remains that, although the difference was relatively small, the defendants’ best offer of $450,000 was still greater than the amount eventually assessed by this court.

36. All things considered, the plaintiff should have her costs of the appeal and we have so ordered.

Summary assessment of the plaintiff’s costs of appeal

37. As for the summary assessment of those costs, the total amount claimed was $141,580.  We were only prepared to award $105,900. For item C (communications), $24,000 was reduced to $16,000.  For counsel’s fees (item E), the amount claimed, $87,680, was reduced to $60,000.  No deduction was made to item B (manual work : $3,900) or item D (professional works : $26,000).

Hon Kwan JA:

38. I agree with the Reasons for Judgment of the Chief Judge.