CHINA CREATOR ESTATE LTD. v. K C HO & FONG

HCMP 2689 of 1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2689 OF 1997

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J U D G M E N T

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1. This is an appeal by the Defendants, a firm of solicitors, against an unless order made by Master Betty Kwan on 3 November 1999 in connection with a solicitor and own client taxation of their bill rendered in respect of certain non-contentious business. The dispute arises as follows.

The engagement of the Defendants

2. In September 1992, the Plaintiff instructed the Defendants to provide professional services in connection with its proposed purchase of a property at 134-136 Kennedy Road, Hong Kong. The Defendants allege that this engagement developed into a close working relationship spanning a period in excess of four years. They say that during this time they provided legal advice and assistance in relation to (i) the Plaintiff's purchase of the property for $123 million; (ii) the implications of a High Court action between the Incorporated Owners of that property and the intended vendors; (iii) the proposed re-sale by the Plaintiff of the property as a whole; (iv) the proposed re-sale of the property as individual units; (v) an application for modification of the Government lease; and (vi) sale of the shares in the Plaintiff (which owns the property) to new owners.

3. It appears that during the whole of this period, no interim fee-notes were rendered by the Defendants. After the transactions came to a conclusion with the sale of the Plaintiff company to new owners, the Defendants rendered two fee-notes covering the whole of the work done. The first fee-note (No A4464), dealing with transactions (i) to (v) mentioned above, comprised profit costs of $2.2 million and disbursements totalling $11,860.00. The second fee-note (No A4467), which dealt with transaction (vi), was for profit costs of $500,000 and disbursements of $1,380.00. The total amount of the two fee-notes was $2,713,240.00.

4. It appears that part of the deal was for the Plaintiff, under its new owners, to be responsible for the Defendants' fees. Under such new management, the Plaintiff objected to the fee-notes rendered. As payment was being withheld, the Defendants asserted their lien over the Plaintiff's papers.

5. The Plaintiff was now represented by different solicitors, namely, Messrs Chan, Wong & Lam ("CW&L"). They informed the Defendants that it was intended to start proceedings for a solicitor and own client taxation of their bills. To enable the papers to be released so that the Plaintiffs could deal with the property if desired, an agreement was reached between CW&L and the Defendants whereby, in consideration of the Defendants agreeing to the extinguishment of their lien and releasing the papers, the Plaintiff paid the entire sum of $2,713,240.00 into an account maintained by CW&L against CW&L's irrevocable undertaking to the Defendants to hold such sum as stakeholders pending the outcome of the intended taxation.

Taxation proceedings commenced

6. Accordingly, in February 1997, the Defendants released the documents and, some six months later, on 21 August 1997, the Plaintiff issued an Originating Summons seeking a taxation of the two fee-notes. This came before Mr Registrar Betts on 18 September 1997 and he ordered that the fee-notes (referred to as the "two Bills of costs") be "referred to the Taxing Master to be taxed, the Defendant giving credit for all sums ....... received ....... from or on account of the Plaintiff, and refunding what may appear on such taxation to have been overpaid." The latter words are presumably intended to take into account the sums held in escrow by CW&L. Mr Registrar Betts also made provision for the costs of the taxation. However, no time limits were imposed, nor did the Order specify who was to have carriage of the proceedings.

7. Almost a year passed without the matter being taken any further. It seems that there may have been some difference of opinion between the parties as to who had the carriage of the proceedings and neither side took the initiative of bringing on the taxation.

8. At the hearing before me, Mr Jat Sew Tong, appearing for the Defendants and Mr Ashok Sakhrani, appearing for the Plaintiff, both sought to rely on provisions of Order 62, in particular, rules 21 and 22, as supporting their respective contentions that it was for the other side to progress the taxation. However, in my view, those provisions provide neither side with assistance since Order 62 rule 2 makes it clear that those rules do not apply to non-contentious matters. The language of both rules 21 and 22 is apt to deal with party and party, rather than solicitor and own client, taxations.

9. As the parties did to some degree seek to blame each other for such lack of activity, it is possible that the Master may have been persuaded that this initial period of delay was in some sense blameworthy, contributing to the making of the unless order. However, it appears to me that both parties share in the responsibility for the lack of progress. In my view, they should not have wasted time in debating who had carriage of the matter. Any doubt could have simply been resolved by either party issuing a summons to the master for directions compelling the taxation to proceed.

10. Indeed, on 4 September 1998, something along those lines finally happened. The Plaintiff issued a summons before the Master for an unless order requiring the Defendants to proceed with the taxation within 14 days, failing which, the stakeholder's undertaking given by CW&L should be released and the money refunded to the Plaintiff. Given the financial position, it is a little surprising that some such initiative had not been taken sooner. The Plaintiff had $2.7 million tied up in the CW&L deposit and the Defendants had not been paid. One would have thought that both parties would have wanted the matter brought to a head.

11. On 7 October 1998, the matter came once more before Mr Registrar Betts. He made an order by consent that the Defendants should within 56 days file "a detailed itemised Bill of Taxation in respect of the two Bills of Costs". This means that the Plaintiff did not press for its proposed unless order and agreed instead that the Defendants should be given 8 weeks to provide the document. As the Order was made by consent, it does not appear that there was any argument or that any considered view was then expressed by the Court as to the adequacy of a bill in the form of the fee-notes rendered (although the Plaintiff had taken exception to such form in correspondence).

12. The last day for complying with the consent order was 2 December 1998. However, the Defendants failed to comply. On 3 February 1999, CW&L wrote protesting and threatening that if a bill was not served within 5 days, the Plaintiff would renew its application for the release of the money held by CW&L as stakeholder. When, almost a month later, a bill was still not produced , the Plaintiff took out a summons on 2 March 1999 seeking an order for the release of CW&L's undertaking and for the money deposited to be refunded to it. On 15 March 1999, the Defendants took out a summons for a further 21 days to file the "detailed itemised Bill of Taxation" referred to in the consent order.

13. When the matter came up for hearing on 19 May 1999 before Master Sweeney, the matter was again dealt with by consent. On the Defendants undertaking "to comply with the Order of Mr Registrar Betts dated 7 October 1998 within 14 days from the date [of that order] the Plaintiff's summons filed herein on 2 March 1999 be vacated." So, once more, with commendable reasonableness, the Plaintiff agreed not to pursue the release of the undertaking and to give the Defendants more time to provide the bill of taxation.

The Bill of Taxation

14. On 4 June 1999, in fact about 2 days after the additional 14 days provided for, the Defendants took out an appointment to tax their fees, annexing a Bill of Taxation ("the Bill"). This consists of a 49 page document listing 215 items of work for fee-note A4464 and 51 items for fee-note 4467. The amounts claimed are the same as in the original fee-notes. The Bill is more complete in that it begins with work done on 26 September 1992, whereas fee-note A4464 had begun with an item dated 24 September 1993 (and had been marked "Second Bill", without a "First Bill" in evidence). Otherwise, however, the format is the same. Whereas a detailed description of the nature of the work done on specified dates is set out in each item, the Bill does not identify the persons doing such work, how long it took or what charge is attributable to that particular item. A gross sum fee is shown.

15. It appears that the appointment to tax was fixed for 10 August 1999 (which may, however, have been a date merely intended for mention). On 7 August 1999, the Plaintiff filed a list of objections. It complained that a Bill in such form did not comply with the orders requiring a "detailed and itemized Bill of Taxation". It identified as part of this objection, the fact that no fee-earners were identified and that no hourly rates were given.

The unless order

16. In pursuit of its objections, on 1 November 1999, the Plaintiff issued a summons for an Order that unless within 21 days, the Defendant "files into Court in compliance with the Order of Mr Registrar Betts dated 7th October 19998 a detailed itemised Bill of Taxation in respect of the two Bills of Costs, ....... (a) the Defendant be debarred from filing such detailed itemised Bill of taxation; (b) the taxation proceedings ....... be stayed; and (c) the undertaking of [CW&L] ....... be released immediately and the Plaintiff be entitled to the refund of [the money] ....... forthwith."

17. On 3 November 1999, after hearing argument, Master Betty Kwan made an unless order in the above terms, as sought by the Plaintiff. The present appeal is an appeal against such order.

The appropriate approach

18. Assuming that the Plaintiff successfully pressed the same objections before the Master as had been set out in its List of objections, the unless order was apparently obtained on the basis that (i) the Bill as filed on 4 June 1999 did not comply with the Mr Registrar Betts' October 1998 Order in that it was not sufficiently detailed to constitute the required "detailed itemised Bill of taxation"; and (ii) it was in the circumstances appropriate that an unless order should be made containing the abovementioned sanctions for default.

19. One can readily understand how the Master may have taken a dim view of the prior default on the Defendants' part, especially against the background of the undoubtedly leisurely pace of progress in the taxation. However, in my judgment, the unless order was not the appropriate order in the circumstances and is open to challenge on two grounds.

20. In the first place, the unless order was not made in the course of a taxation and can only have resulted from the Master being persuaded that the Plaintiff's objections to the Bill were good in principle. However, with respect, I do not consider that the objections identified by the Plaintiff necessarily make it a Bill which is not "detailed and itemized" or render it deficient for the purposes of conducting a taxation. The missing information may or may not have this effect, depending on a close scrutiny of the Bill in the course of taxation.

21. As indicated above, it is a Bill which is detailed and itemized at least to the extent that it identifies the nature of some 266 specific items of work done on named dates. Certainly, it lacks information as to who was actually engaged on each item of work and as to how much was being charged for each such item. However, a gross sum bill, which lacks such information, is not in itself bad and time charges, while generally useful as a check on the overall fee, are not the indispensable and overriding basis upon which charges for professional services must be levied: Treasury Solicitor v Regester [1978] 1 WLR 446.

22. Where, as in the present case, the solicitor's remuneration for non-contentious business has not been the subject of a fee agreement and the work in question does not fall within the provisions for scale-fees, the governing provision is rule 5 of the Solicitors (General) Costs Rules. This provides as follows:-

"In the case of any non-contentious business to which neither the First or Second Schedule nor any other rules apply ......., costs shall be such sum as may be fair and reasonable, having regard to all the circumstances of the case and, in particular to -

a. the complexity of the matter or the difficulty or novelty of the questions raised;

b. the skill, labour, specialized knowledge and responsibility involved on the part of the solicitor;

c. the number and importance of the documents prepared or perused without regard to length;

d. the place where and circumstances in which the business or any part thereof is transacted;

e. the time expended by the solicitor;

f. where money or property is involved, its amount or value; and

g. the importance of the matter to the client."

23. Accordingly, the governing objective is to establish what amount would be a "fair and reasonable fee, having regard to all the circumstances of the case" and having regard to the stated factors. Time charges are but one such factor. They may be overshadowed by other considerations and the failure of the Bill to set these out does not mean that the taxation is rendered impossible. Thus, in some cases, the value to the client of the solicitor's work may plainly be in the provision of his particular skill, labour or specialized knowledge in relation to an especially complex and difficult matter raising novel questions and requiring the solicitor to undertake an onerous responsibility in relation to the client's transaction or business. In such a case, the precise number of hours spent may be an insignificant indicator of what would constitute a fair and reasonable fee.

24. Even in cases where it would be useful to have time charges, in the absence of such information, the master has several options. He may of course disallow the item or reduce the overall bill. Or he may take the view that, although time charges would be a useful measure, there is sufficient other information to gauge the appropriate fee. He may also decide that in the absence of the information, he should reduce the amount allowable to a justifiable minimum, or he may give the solicitor an opportunity to provide more information on specific matters, if available.

25. The approach of leaving it to the master to seek more information if required is provided for in the taxation of bills in contentious matters (where the taxation may need to be conducted on a more minute basis than for solicitor and own client taxation). Thus, a gross sum bill in such cases is in principle acceptable: Legal Practitioners Ordinance (Cap 159), s 63. However, the Ordinance provides that within a stated time limit, the client may require provision of a detailed bill and also that "if a gross sum bill is referred to taxation, whether under this section or otherwise, ....... the solicitor shall furnish the taxing officer with such details of any of the costs covered by the bill as the taxing officer may require." Although no similar express provision for non-contentious business appears in the legislation, I can see no reason why the master should not adopt the same methods according to the exigencies of a non-contentious taxation.

26. Unfortunately, it appears that in the present case, the parties became entangled in a semantic dispute as to whether the Bill filed did or did not constitute "a detailed itemised Bill of Taxation". The approach should instead have been pragmatic, with a view to ascertaining the "fair and reasonable" fee to allow on taxation. The Defendants continue to argue that a taxation can quite properly be conducted on the basis of the present Bill (although at the hearing before me, they sought to reserve the right to supplement it if required by the master or of their own volition prior to the hearing). Accordingly, the proper approach would have been to put the Defendants' reliance on the Bill to the test by allowing the matter to proceed to taxation. If, as the Plaintiff contended, the Bill was deficient, the Defendants would run the risk of the taxing master disallowing items or reducing the sum allowed for lack of information. Instead, in my view, erroneously, the unless order compels the filing of, as it were, a further and better bill of costs and, in default, stays the taxation altogether and effectively disentitles the Defendants to any fees whatever for work which they were retained to do, which they undoubtedly performed and which was clearly substantial. This was not the correct approach since it may well have been open to a taxing master to determine that, even without the information in question, a taxation, yielding a fair and reasonable result in the given circumstances, was possible.

27. The second ground on which the unless order may be challenged relates to the purported release of CW&L's undertaking as one of the prescribed consequences of default. In my judgment, the irrevocable undertaking to hold the deposited sum as stakeholders pending determination of the taxation, given by CW&L in consideration of the Defendants extinguishing its lien and releasing the papers to the Plaintiff was contractual in nature. It was not an undertaking given to the Court. Accordingly, I cannot see any basis for the Court exercising a jurisdiction to relieve CW&L of its contractual and irrevocable obligation as a sanction for the Defendants not delivering a more detailed Bill. Since the obligation was to endure pending taxation, the desire to bring such obligation to an end should have propelled the parties towards securing an early taxation instead of towards an unless order backed by a stay of the taxation.

28. I have accordingly come to the conclusion that the appeal must be allowed and that the unless order must be set aside with directions aimed at bringing on the taxation with expedition. I therefore make the following orders:-

(1) The Order made by Master Betty Kwan on 3 November 1999 be set aside.

(2) The Defendants do, within 14 days from the date that this Judgment is handed down, obtain an appointment for taxation by the taxing master of the Bill of Taxation filed by them in Court on 4 June 1999 in relation to their Bills of Costs numbered A4464 and A4467 respectively, such taxation not to take place before 14 February 2000 but subject thereto, to be fixed for an early date.

(3) The Defendants be at liberty to serve on the Plaintiff by no later than 4.00 p.m. on 21 January 2000, a fresh version of the said Bill of Taxation containing such further information as the Defendants may wish to rely upon at the said taxation, no further supplementing of such Bill to be allowed thereafter without the leave of the Court, subject always to the taxing master retaining in full, all powers to request or require further information from either party for the purposes of the taxation and/or in the course of the taxation hearing.

(4) By way of an order nisi, there be no order as to costs in respect of the costs of this appeal and of the application before Master Betty Kwan.

(5) Liberty to apply.

29. Although the Defendants have succeeded in the appeal, I have decided that no order as to costs is appropriate by way of an order nisi. This is because the Plaintiff seems to me to have been quite justified in pressing for progress in the light of the Defendants' dilatoriness and failure to comply with Order of Mr Registrar Betts dated On 7 October 1998 as well as the Order of Master Sweeney, despite having consented to both Orders. On the other hand, it appears to me that in pursuing an unless order with the abovementioned consequences, the Plaintiff adopted the wrong approach. The interests of fairness and, indeed, the financial interests of both parties demanded that appropriate directions for the progress of the taxation be sought from the Court, making this appeal necessary. In my view, a neutral costs order is therefore appropriate.