XCHRX TAM KWOK KIT v. ADDCHANCE LTD.

DCCJ 12519/1997

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL JURISDICTION

ACTION NO. 12519 OF 1997

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REASONS FOR DECISION

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Introduction

1. This is an application by the defendant to set off its taxed costs against the plaintiff's taxed costs under Order 62 rule 18(a) of the Rules of the High Court or alternatively under the court's inherent jurisdiction. It is ordinarily not necessary to give written reasons in an application of this kind. However, after submissions, the parties invited me to do so on the basis that in Hong Kong, there is hitherto no authority on the questions arising from this application and the reasons of my decisions will assist the parties on the future conduct of the matter. My decision may also have a bearing on similar cases. It is therefore desirable, especially to the Director of Legal Aid ("the Director"), to have the reasons reduced into writing. Having regard to these factors, I agreed to take the unusual course of giving my decision and the reasons thereof in writing, which I now do.

2. The circumstances leading to this application may be stated briefly as follows. The plaintiff first commenced proceedings in the Labour Tribunal for, inter alia, unpaid commission and damages for wrongful dismissal under an employment contract. The action was transferred to the District Court. Legal aid was then granted to the plaintiff "for the purpose of continuing" the action: see the legal aid certificate dated 27th August 1997. The particulars of claim was filed on 4th September. The defendant filed a defence and counterclaim on 3rd October. In the counterclaim, the defendant claimed against the plaintiff for certain liquidated sums exceeding $400,000. After a 9 days' trial, the District Judge on 7th September 1998 gave judgment for the plaintiff on his claim for $14,467.6 with interest and judgment for the defendant on its counterclaim for $73,612 with interest. By a further order dated 20th November 1998, the District Judge ordered, inter alia, that:-

(1) the defendant do pay one-half of the plaintiff's costs of the claim to be taxed if not agreed with certificate for counsel and the plaintiff's own costs be taxed in accordance with the Legal Aid Regulations; and

(2) the plaintiff do pay the defendant two-thirds of the costs of the counterclaim to be taxed if not agreed with certificate for counsel and the plaintiff's own costs be taxed in accordance with the Legal Aid Regulations.

3. Taxation of the parties' costs eventually came before me on 4th November 1999. (As a High Court taxing master, I have the jurisdiction to deal with taxation arising from District Court actions: see section 14(4) of the District Court Ordinance, Cap.336.) The plaintiff and the Director raised a preliminary point that pursuant to sections 16C and 19 of the Legal Aid Ordinance ("the Ordinance"), neither the plaintiff nor the Director was liable for the defendant's costs of the counterclaim. At that hearing, I first taxed the plaintiff's costs at $133,403.82 and then adjourned the preliminary point and taxation of the defendant's bill of costs for further argument.

4. At the hearing now before me, the parties have agreed, for the purpose of this application, the defendant's costs of the counterclaim to be $ 98,700. The only questions outstanding are thus: (a) is the plaintiff or the Director liable for the costs; and (b) is the defendant entitled to a set-off.

5. I now turn to the parties' submissions.

The defendant's submissions

6. The primary submission of Mr. Hung for the defendant is that while the plaintiff was an aided person for his claim, he was not an aided person for the purpose of the counterclaim. His argument is this. A claim and a counterclaim are for all purposes (except execution) two independent actions: Stumore v. Campbell & Co. [1982] 1 QB 314. The legal aid certificate for the plaintiff's claim was granted before the filing of the counterclaim and had not been amended to cover the counterclaim. It could not have covered the counterclaim: R & T Thew Ltd. v Reeves [1982] 1 QB 172. According to counsel, this point had in fact been recognised by the plaintiff's solicitors. Mr. Hung is referring to a letter from the plaintiff's solicitors dated 25th May 1999 in which the plaintiff's solicitors, after denying liability on the defendant's costs of the counterclaim by relying on section 16C(1)(b)(ii), stated that they did not have instruction to act outside the scope of the legal aid certificate.

7. Mr. Hung goes on to submit that while section 16C(1) limits an aided person's liability of costs but under section 16C(2), subsection (1) relates only to costs arising in respect of proceedings to which, and during the period to which, a legal certificate relates, and nothing in subsection (1) shall otherwise affect the liability for costs of an aided person. Accordingly, the plaintiff remains personally liable for the defendant's costs of the counterclaim, which proceedings were not covered by the legal aid certificate.

8. In his written submission, Mr. Hung concedes that only judgements for costs in the same action or proceedings could be ordered to be set off under Order 62 rule 18 and the rule does not extend to cases in which the judgements for costs are in distinct and independent litigations: David v. Reevs [1904] 2 KB 435. However, relying on the principle of equitable set off, Mr. Hung submits that the defendant is entitled to set off his costs against the plaintiff's costs. In this connection, he relies on Reid v. Cupper [1915] 2 KB 147 and Edwards v. Hope (1885) 14 QBD 922.

9. In the course of oral submissions, Mr. Hung develops an alternative argument to address the possible scenario where the plaintiff is an aided person for the purpose of the counterclaim. He first refers to section 19 of the Ordinance which provides that the court may make a costs order against an aided person but the order can only be enforced against the Director and the aided person to the extent as permitted by section 16C. He then submits that on a proper construction, section 16C only applies to the enforcement of the costs order. As taxation of the defendant's bill is not enforcement of the costs order, he argues, section 16C(1) does not apply. By virtue of the costs order of the District Judge, which is permissible under section 19, the plaintiff remains personally liable for the defendant's costs of the counterclaim and the defendant is entitled to a set-off.

The plaintiff's submissions

10. Mr. Lam, for the plaintiff and the Director, argues that the plaintiff was an aided person for the entire action, including the counterclaim. He distinguishes R & T Thew Ltd. v Reeves on the basis that there the counterclaim arose out of an entirely separate transaction which had no connection with the claim and that the legal aid certificate stated unequivocally that its purpose was to defend proceedings only. Here, the counterclaim arose out of the same transactions of the plaintiff's claim. In the circumstances, an amendment of the legal aid certificate pursuant to Regulation 6A of the Legal Aid Regulations to expand its scope to cover the counterclaim was not necessary. Accordingly, under section 16C(1)(b)(ii) of the Ordinance, both the plaintiff and the Director are not liable for the defendant's costs of the counterclaim. Consequently, the defendant is not entitled to set off.

Was the plaintiff an aided person for the purpose of the counterclaim?

11. As seen above, this is the very question at the heart of the parties' contention. I have no hesitation to conclude that he was.

12. An aided person is a person to whom has been granted a legal aid certificate under section 10 of the Ordinance which is still in force: see section 2. Whether the plaintiff was an aided person for the counterclaim depends on the term of the certificate. And the term was clear: "for the purpose of continuing with the action". By necessary implications, it covered all the steps taken in the action subsequent to the issue of the certificate, including the counterclaim which arose out of the same transactions. This is clearly the position. Otherwise, the parties would not have conducted the entire action, claim and counterclaim included, on the footing that the plaintiff was legally aided. Further, in my view, whether in law the counterclaim is an independent action is irrelevant. For the counterclaim was clearly part and parcel of the entire action covered by the legal aid certificate. I also agree with Mr. Lam that an amendment to the legal aid certificate was clearly not necessary.

13. The letter of 25th May 1999 relied on by Mr. Hung does not have the effect as contended. It was not a concession that the legal aid certificate did not cover the counterclaim. What the plaintiff's solicitors did was to point out to the defendant's solicitor that the plaintiff was not liable for the costs of the counterclaim and that accordingly, they would not entertain the defendant's bill of costs because doing so would bring them outside the scope of the legal aid certificate.

14. Accordingly, Mr. Hung's primary submission fails.

Is the plaintiff or the Director liable for the costs of the counterclaim?

15. On this question, I have no hesitation either. My view is neither the plaintiff nor the Director is liable.

16. The liability of an aided person and of the Director for costs is determined by section 16C(1). For present purposes, it is not necessary to set out all the subsections in full. Their cumulative effect relevant to the present application, in short, is this. When an aided person is a defendant to a counterclaim, neither the Director nor the aided person shall be liable for the costs of the counterclaim unless a contribution is payable by the aided person. It is common ground that no contribution is payable by the plaintiff. As I have already ruled against Mr. Hung on his primary submission and held that the plaintiff was a defendant to the counterclaim, section 16C(1)(b)(ii) applies. Neither the Director nor the plaintiff is liable for the defendant's costs of the counterclaim. Section 16C(2) does not assist the defendant because the costs of the counterclaim were costs arising in respect of proceedings to which the legal aid certificate in question related.

17. I also reject Mr. Hung's alternative submission on liability. Section 16C itself does not confine its application to enforcement as contended. Nor does section 19 have such a restrictive effect. Section 19 does no more than enabling the court to, inter alia, make a costs order against an aided person in the same manner and to the same extent as it may make an order of costs against any other person. But it also makes it clear that enforcement of a costs order is subject to the determination of liability under section 16C. Determination of liability affects enforcement, and not the other way round.

Is set-off available?

18. Set-off, whether under Order 62 rule 18 or in equity, is permissible only if the plaintiff is liable for the defendant's costs of the counterclaim. As he is not liable, the defendant is not entitled to any set-off.

Conclusion

19. For the above reasons, I dismiss the defendant's application with costs and a counsel certificate for the hearing before me.