OLDHAM, LI & NIE, SOLICITORS v. WONG LIN CHOOI

CACV 319/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 319 OF 2005

(ON APPEAL FROM DCCJ NO. 5076 OF 2004)

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J U D G M E N T

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Hon Woo V-P:

1.  I have had the advantage ofreading the judgment ofBarma J in draft and I entirely agree with it.

2.  I wish only to add the following observations.

3.  There was hardly any dispute that there are triable issues as to the quantum ofthe costs set out in the two bills ofcosts, the subject matter ofthe claim, although as pointed out in Barma J’s judgment, but for the presently identified triable issue on liability, leave to defend should be given only as to the items ofthe two bills that are actually challenged and particu1arised.

4.  The fact that there are triable issues on quantum is borne out by the statement ofbelief in Mr Odham’s affidavit filed on 20 December 2004 insupport ofthe plaintiff s Order 14 application that “I verily believe that there is no defence in his [sic] action, save as to the amount ofthe damages.”  The judge also appeared to accept that there are triable issues when he said in his judgment:

“5. The Defendant contended that there are triable issues in this case and attempted to show particulars ofhow unreasonable the alleged legal costs and disbursements were.  But all these matters should be dealt with by a taxing master if there were an application under section 67 [of the Legal Practitioners Ordinance, Cap 159], and such application were successful.  In order to have the bills taxed, the Defendant has to make an application to the High Court, and then the taxing master will deal with all the factual disputes. ...  Such issues can only become triable issues before a taxing master when section 67 is invoked, upon the necessary application ofthe party concerned.  In the absence ofsuch an application, the occasion to consider these matters simply does not arise. ... ."

5.  What went wrong in the passage cited above is that while the judge appeared to accept that there are triable issues on the quantum of the claim, he considered that because the District Court has no jurisdiction to tax solicitors’ bills such triable issues disappeared.  In my judgment, this view is plainly unsustainable.  The lack of jurisdiction in the District Court regarding taxation of bills of costs cannot support the ruling that there are no triable issues.  The lack of jurisdiction simply means that the District Court is not empowered to deal with the triable issues, it does not alter the character of the triable issues or obliterate them altogether: see Thomas Watts & Co v Smith [1998] 2 Costs LR 59, as cited in Turner & Co v O Palomo SA [2000] l WLR37, at p 49.

6.  The way to deal with this apparent conundrum is obvious.  As all parties were well aware, the taxation of the bills is within the jurisdiction of the Court of First Instance, and in particular, the taxing masters of that court possess the required expertise.  The judge should either on his own motion have had the matter transferred to the Court of First Instance or acceded to the application of the defendant for the transfer, so that all the disputes between the parties can be conveniently resolved.  Although the claim is within the District Court’s monetary jurisdiction, this cannot be a valid reason for refusing to transfer the case to the Court of First Instance for it to deal with the matter as a whole, especially where the District Court lacks jurisdiction to deal with the disputed quantum, an integral part of the claim.

7.  The defendant cannot be blamed for not having taken out an application in the Court of First Instance in accordance with section 67.  The plaintiff started the action in the District Court, which was obviously the plaintiff’s choice.  The writ in this action was issued by the plaintiff on 24 September 2004, well over one month after the delivery to the defendant of the bills dated respectively 12 January 2004 and 30 April 2004, and the time for the defendant to apply to the Court of First Instance for taxation under section 67(1) had already expired.  Thenceforth, the defendant was able to rely on section 67(2) to make an application to the Court of First Instance to have the costs taxed.  However, that would be tantamount to her admitting liability for the costs so taxed.  After the lapse of 12 months from the respective dates of the two bills, she was confronted with the situation either to apply for taxation pursuant to section 67(2) by showing “special circumstances” required under proviso (i) to that subsection, which may need strong arguments to establish, or alternatively to resist the plaintiff’s claim in the District Court.  In such circumstances, I do not consider that the defendant could be fairly criticised for taking the second alternative instead invoking section 67(2) in the Court of First Instance.

8.  On the other hand, as stated in Mr Oldham’s statement of belief referred to above, the plaintiff obviously realised that there were triable issues on quantum, and yet they sought to amend their summons from seeking interlocutory judgment for damages and interest to be assessed to seeking a final judgment for the amount claimed with interest.  It was never expressly made known if the plaintiff had changed their belief in the absence of triable issues on quantum; and if there was such a change, the basis or explanation for such change had never been disclosed.

9.  For the reasons given by Barma J, this appeal must be allowed and the final judgment for the claim set aside.  The defendant should have unconditional leave to defend. I share his view that the action should be transferred to the Court of First Instance.  I also agree with his proposed orders as to costs.

10.  The money paid into court by the defendant to comply with Tang JA’s order dated 8 November 2005 should be released to her.

Hon Barma J:

11.  This is an appeal against an order of His Honour Judge Chow in the District Court dated 16 August 2005 refusing to set aside a summary judgment in the sum of HK$208,661 which had been entered by Master J Ko on 22 April 2005 in favour of the Respondent Plaintiff, Messrs Oldham, Li & Nie (“the Plaintiff”), against the Appellant Defendant, Madam Wong Lin Chooi (“the Defendant”).

12.  The Plaintiff is a firm of solicitors which, prior to about 14 May 2004, acted for the Defendant, her ex-husband Mr John Chan (“Mr Chan”) and companies associated with Mr Chan.  From at least about late 2002 until mid 2004, Mr Chan was imprisoned in Shek Pik prison.  During this period, instructions in relation to various matters being dealt with by the Plaintiff were obtained from both Mr Chan through visits to Shek Pik, and from the Defendant.  The Defendant accepts that she gave instructions to the Plaintiff from time to time, although it is said in the evidence filed on her behalf by her solicitor that such instructions were given on behalf of Mr Chan.

13.  Between October 2003 and April 2004, the Plaintiff delivered some 12 bills to Mr Chan and the Defendant.  Of these, ten were addressed to Mr Chan, and two (bills numbers 037/2004 and 463/2004) were addressed to the Defendant.  None of these bills were paid promptly.  There was much correspondence (most, if not all, of which was between Mr Chan and the Plaintiff) relating to such bills, in which various complaints were made as to the Plaintiff’s charges for its services.  Eventually, on 14 May 2004, Mr Chan wrote to the Plaintiff informing it that he would be instructing other solicitors to act in the various matters in future.  As the bills remained unpaid, the Plaintiff took out proceedings against both Mr Chan and the Defendant in the District Court seeking to recover the amount of the bills from them respectively.  In DCCJ 5075/2004, the Plaintiff claimed HK$352,548.33 from Mr Chan and in DCCJ 5076/2004, it claimed HK$208,661 from the Defendant.

14.  This appeal concerns only the Plaintiff’s claim against the Defendant.  However, as will become apparent, the claim against Mr Chan is of some relevance to this appeal as well.

15.  Having instituted the actions, the Plaintiff applied for summary judgment in the respective actions against Mr Chan and the Defendant.  This application came before Master J Ko on 22 April 2005.  At that hearing, at which both Mr Chan and the Defendant were represented by the same solicitors and counsel, it was apparently common ground that the claim against Mr Chan should be reduced to some HK$30,205.14, after, as the Master put it, “taking into account the amount paid by [Mr Chan’s wife - i.e. the Defendant] in November 2004”.  This was a reference to a payment of some US$40,000 which was regarded by the Plaintiff as costs on account which had been provided by the Defendant.

16.  In the event, the Master gave judgment against the Defendant, but gave unconditional leave to defend to Mr Chan, as one of the lines of defence put forward by Mr Chan (which had not been put forward by the Defendant) found favour with him.

17.  The Defendant appealed, coupling her appeal with an application for the proceedings against her to be transferred to the Court of First Instance of the High Court, perhaps on the basis that the issues which she raised as triable issues related principally to questions of the reasonableness of the bills which were the subject matter of the claim against her, something which raised questions akin to those which would be raised in a taxation as between solicitor and own client, a process which falls within the exclusive jurisdiction of the High Court under the terms of the Legal Practitioners Ordinance (Cap. 159) (“the Ordinance”).

18.  The judge below dismissed her appeal, holding that no issue as to taxation of the bills in question arose as she had not taken out any application for taxation pursuant to section 67(2) of the Ordinance.  His reasoning was as follows:-

“The Defendant contended that there are triable issues in this case and attempted to show particulars of how unreasonable the alleged legal costs and disbursements were.  But all these matters should be dealt with by a taxing master if there were an application under section 67, and such application were successful.  In order to have the bills taxed, the Defendant has to make an application to the High Court, and then the taxing master will deal all the factual disputes.  Only under that situation then the taxing master will decide whether the Plaintiff’s charges are unfair and unreasonable as regards both the amounts [charged] and the items for which such charges are claimed.  Such issues can only become triable issues before a taxing master when section 67 is invoked, upon the necessary application of the party concerned.  In the absence of such an application, the occasion to consider these matters simply does not arise.  A District Judge or Master has no jurisdiction to look into these matters, as rightly submitted by the Defendant...”

19.  He noted that the Defendant had apparently given and subsequently withdrawn an undertaking to apply to the High Court for taxation of the bills pursuant to section 67 of the Ordinance.  He went on to dismiss the application for transfer to the High Court on the basis that the amount of the claim fell within the jurisdictional limits of the District Court.

20.  Before us, Mr Chua Guan Hock SC, appearing for the Defendant, submitted, in relation to the question of whether or not leave to defend should have been given, that:-

(1) on the evidence before the court below, there were triable issues of fact in relation to:-

(a)    the identity of the client in respect of the legal services provided by the Plaintiff which were the subject matter of the bills rendered to the Defendant;

(b)   the terms that had been agreed between the Plaintiff and its client under the retainer given by such client;

(c)   the reasonableness of the items and amounts charged for them in the bills in question; and

(2) such triable issues, including those as to the quantum of the bills, arose notwithstanding the absence of an application for taxation under section 67 of the Ordinance;

21.  On the question of whether or not the judge below was right to refuse to transfer the proceedings to the High Court, he submitted that the amount of the claim was not the only factor to be considered, and that other matters, such as the nature of the subject matter of the dispute, could also be relevant factors in the exercise of the court’s discretion as to whether or not to order such a transfer.

22.  Mr Chua also made the point, which he did not really press before us, that the Plaintiff had failed to follow the Hong Kong Solicitors’ Guide to Professional Conduct by failing to advise the Defendant and Mr Chan of their right to submit the bills to taxation, suing them on the bills while ignoring their requests for taxation and opposing taxation of the bills.

23.  Logically, the point raised by Mr Chua as to the identity of the client for the legal services rendered requires to be considered first.  If there is a triable issue as to whether or not the Defendant was in fact the client of the Plaintiff in respect of the legal services provided or was otherwise chargeable in respect of such legal services, this would require to be determined prior to questions concerning the amount of the bills in question.  This is because under section 67 of the Ordinance, only the party chargeable with the bills has standing to seek a taxation, whether as of right pursuant to section 67(1), or on satisfying the High Court that it should exercise its discretion to order a taxation pursuant to section 67(2).  If the Defendant were not the Plaintiff’s client in respect of the services covered by the bills on which she was sued, and was not otherwise chargeable in respect of them, she would not be entitled to seek taxation of the bills.

24.  Mr Coleman, appearing for the Plaintiffs before us, objected to this point being taken, saying (correctly) that it had not been raised in the Defendant’s Notice of Appeal, had not been argued in either of the courts below, and did not appear to have been raised in the correspondence between the parties prior to either of the hearings in the District Court, appearing for the first time in Mr Chua’s skeleton submissions for the appeal before this Court, which were provided about a week prior to the hearing of the appeal.  However, as Mr Coleman was ready and able to deal with the point, and did not wish to adduce further evidence in response to it, we allowed Mr Chua to take the point, subject to submissions (which we heard at the end of the hearing) as to the appropriate costs orders that should be made if we were to allow the appeal on this ground.

25.  Mr Chua developed this point by submitting that there was a triable issue in relation to this question.  In support of this submission, he drew our attention to the following matters:-

(1) The subject matter of the bills in question was described as “Singapore/Taiwan Matters”.  These related to issues arising out of the probate of the estate of Mr Chan’s late father.  It was, Mr Chua submitted, inherently likely that the client in relation to such matters would be Mr Chan, the son of the deceased, rather than the Defendant, who was the deceased’s former daughter-in-law.

(2) The evidence filed on behalf of the Defendant (in the form of an affidavit made by her solicitor on the basis of instructions from her) to the effect that she gave instructions in relation to the matters which were the subject of the bills in question for and on behalf of her ex-husband, Mr Chan.

(3) Notwithstanding repeated requests for copies of the appointment letters or retainers in respect of the various matters being handled by the Plaintiff, which would have provided clear evidence as to who was the client or party liable on the bills, no such appointment letters or written retainers had been disclosed by the Plaintiff.

(4) The contemporaneous correspondence, including a number of letters written by the Plaintiff to Mr Chan between about September 2003 and June 2004, made it clear that the probate matters concerned his father’s estate, and appears to treat him as the client - such letters were, by contrast, neither addressed to nor copied to the Defendant.

(5) The contents of the bills in question (particularly the first, of 12 January 2003) appear to suggest that Mr Chan and not the Defendant was the client - there are references to visiting the client in Shek Pik (at item 44), references to the Defendant as Mrs Chan rather than as the client (such as in item 49), and an item for writing to the client and to Clara (the Defendant) which appears to treat them as different persons (item 68).

(6) All of the correspondence in relation to all the bills was, from the client’s side, written by Mr Chan rather than the Defendant, including correspondence in which queries were raised by Mr Chan as to the items in the two bills addressed to the Defendant.

(7) The decision to cease instructing the Plaintiff to act, and to instruct new solicitors, appears to have been taken by Mr Chan alone, who informed the Plaintiff of the decision in his letter to the Plaintiff of 14 May 2004.

(8) In relation to the US$40,000 costs on account which had been provided by the Defendant, and applied towards bills addressed to Mr Chan, it was odd that this amount should have been applied as it was rather than towards the bills addressed to the Defendant.  This suggested that Mr Chan and not the Defendant was the person responsible for the bills addressed to the Defendant, as one would expect the Defendant to insist on such funds being applied for her benefit if she regarded herself as liable for the bills in question.

26.  In response, Mr Coleman suggested that these points were mere afterthoughts ingeniously devised by Mr Chua, which should be viewed with a healthy degree of scepticism.  He submitted that this was appropriate because:-

(1) The Defendant’s pleaded Defence, fairly read, could only be taken as admitting that she was the client in respect of the bills addressed to her.

(2) It was notable that the Defendant had not herself gone on affidavit to state her defence, leaving the matter to be dealt with by her solicitor on instructions.

(3) The point had never been raised prior to the service of Mr Chua’s skeleton submissions in support of his client’s appeal.

(4) The earlier suggestions that the bills should be taxed, and an undertaking initially given, but later withdrawn, that the Defendant would apply for taxation of the bills, amounted to an acceptance that she was liable on them, since only a party chargeable with the bills can apply for taxation pursuant to section 67 of the Ordinance.

(5) The existence of the US$40,000 costs on account showed that the Defendant was in fact a client of the Plaintiff.

(6) There is, in any event, a distinction to be drawn between the person for whose benefit legal services are rendered and the person chargeable in respect of such services.  It is entirely possible for one person (in this case the Defendant) to take on the responsibility for paying for services performed for the benefit of another (i.e. Mr Chan).

27.  In my view, the facts identified by Mr Chua clearly disclose the existence of a triable issue as to the identity of the client and the person chargeable in respect of the bills which are the subject matter of these proceedings.  Although the Defendant may ultimately be found to be liable to pay such bills after trial, it cannot be said at this stage that the material before us does not disclose the existence of a defence of sufficient substance as to merit the proceedings being taken to trial by the Defendant.  I do not think that the points made by Mr Coleman are sufficient to overcome this.

28.  So far as the point on the pleadings is concerned, while it is fair to say that in alleging that the Defendant was a client of the Plaintiff, and that the bills were rendered to her in respect of legal services provided at her request, the Plaintiff must be taken as alleging that she was the client in respect of such services, it is to be noted that the Defendant’s Defence, while admitting that she was a client of the Plaintiff, expressly denies the allegation in relation to the provision of legal services.  Although no positive case is put forward by the Defendant as to the identity of the client or person chargeable in respect of such services, I see no reason why she should not be permitted to run such a case on the basis of the material (which in many cases came into existence broadly contemporaneously with the bills in question) identified by Mr Chua.

29.  Again, while it is fair to say that the Defendant has not herself gone on affidavit to make this point, it seems to me that this criticism has rather less force in a case, such as the present, in which the point is made on the basis of largely contemporaneous documents and material.

30.  So far as the lateness with which the point is raised is concerned, having regard to my view that the point is one which is clearly open to the Defendant on the available material, I think that this is a point which goes more to the question of costs than to the question of the genuineness of the defence put forward.  I note in this context that Mr Chua was not involved in the matter previously, and while it might be thought surprising that the point now made should have escaped the attention of those handling the matter up to now, I do not think that this weakens the point to such an extent as to justify its rejection.

31.  The point as to the offers to have the bills taxed stands in much the same position, as such offers were made at a time prior to this point being taken.

32.  In my view, the existence of the US$40,000 costs on account, and the manner in which it was utilised, is a factor that weighs in favour of the Defendant rather than the Plaintiff, for the reasons indicated in paragraph 16(8) above.

33.  Finally, as to Mr Coleman’s last point, while it is of course possible that one person might agree to be responsible for the costs of legal services provided to another, it is at least as possible that the person for whose benefit the services are provided is the person responsible for them.  This is a matter on which more light might be thrown by any instructions or retainers (whether written or otherwise) that might exist, details of which the Plaintiff has not so far seen fit to disclose to the Defendant or her legal representatives.  At this stage, however, it seems to me that the second of these possibilities is at least arguable, and should be permitted to be pursued by the Defendant at a trial of these proceedings.

34.  It therefore seems to me that the Defendant should be given unconditional leave to defend these proceedings.  I have little doubt that, had the point been taken before the judge below, he would have come to the same conclusion.  On this ground alone, the appeal must be allowed, and the order of the judge below set aside.

35.  I turn now to consider briefly the other points made by Mr Chua in relation to quantum and taxation (which will only arise in the event that the Defendant fails in the argument considered above), as these may have a bearing on the costs order that should be made by this court.

36.  Mr Chua submitted that notwithstanding that no application for taxation had been taken out pursuant to section 67(2) of the Ordinance, the question of the reasonableness of the charges by the Plaintiff remained matters which the court could and should consider, either under its inherent jurisdiction to order a taxation of costs as between a solicitor and his client, or under the normal jurisdiction of the court to deal with contested claims.  Mr Coleman, however, contended that the inherent jurisdiction to order a taxation of costs between solicitor and his client was excluded by implication by the provisions of section 67 of the Ordinance, relying on the decision of the House of Lords in Harrison v Tew [1990] 2 AC 523.

37.  Section 67 of the Ordinance provides, so far as material:-

“(1) On the application, made within 1 month of the delivery of a solicitor’s bill or a foreign lawyer’s bill, of the party chargeable therewith the Court shall, without requiring any sum to be paid into court, order that the bill shall be taxed and that no action shall be commenced thereon until the taxation is completed.

(2) If no such application is made within the period mentioned in subsection (1), then, on the application of the solicitor or the foreign lawyer, or of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order –

(a) that the bill shall be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed:

Provided that –

(i) if 12 months have expired from the delivery of the bill, or if the bill has been paid, or if a verdict has been obtained or a writ of inquiry executed in an action for the recovery of the costs covered thereby, no order shall be made on the application of the party chargeable with the bill except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the taxation as the Court may think fit;

(ii) if the bill has been paid, no order under this subsection shall be made where the application for the order is made after the expiration of 12 months from the date of payment of the bill.”

38.  In Harrison v Tew, the House of Lords held that the provisions of section 70(4) of the Solicitors Act 1974 (which corresponds to proviso (ii) under section 67(2) of the Ordinance) impliedly excluded the court’s inherent jurisdiction to order such a taxation where 12 months had passed since a bill had been paid.  Mr Coleman submitted that the same reasoning applied to the situation arising under proviso (i), so that no taxation could be ordered other than in accordance with that provision in this case.  To do otherwise, he said, would enable the Defendant to escape the consequences of her delay, which would otherwise have required her to demonstrate the existence of special circumstances justifying an order for taxation.  This would circumvent the scheme of section 67, which was to impose a sliding scale by which a client’s right to seek a taxation of a bill delivered to him by his solicitor was progressively circumscribed, depending on the length of delay on his part in seeking taxation.

39.  Mr Chua submitted that Harrison v Tew could be distinguished from the present case because it dealt with the situation arising under the equivalent of proviso (ii) under our section 67, and not that arising under the equivalent of proviso (i), which is the applicable proviso here.  I can see no basis for drawing such a distinction.  Given the structure of the provisions set out above and the language of the section, it seems to me that the court’s inherent jurisdiction is also impliedly circumscribed (although in a different way) by proviso (i).

40.  Mr Chua also submitted, relying on Turner & Co. v O Palomo S.A. [2000] 1 WLR 37, that in any event, the court’s usual jurisdiction to decide contested questions in proceedings before it remained intact, notwithstanding the decision in Harrison v Tew.  I did not understand Mr Coleman to dispute this – rather, he submitted that in such a case, it was for the client or party chargeable to at least identify with some precision the items which were disputed, so that the court could deal with the dispute in an appropriate manner.  In this case, although the Defendant had, shortly prior to the hearing before the judge below, identified a number of items in the bills concerned in respect of which complaint was made, that would not have justified an order granting effectively a full scale taxation, still less unconditional leave to defend.

41.  For my part, I accept Mr Coleman’s submission.  While the court may well retain its normal jurisdiction to determine disputed issues, and to do so in the context of disputes as to the reasonableness of the quantum of a solicitor’s bill by referring the matter to a taxing master (who will have greater experience of the taxation process in which such questions commonly arise), it seems to me that if a defendant to a claim by a solicitor on a bill wishes to have the bill formally taxed, it remains necessary for him to take the necessary proceedings under section 67(2) if he is able to do so.  Where the dispute is narrower, as it may be in this case, I think that it must be for the client to identify the items in dispute, even if the onus of establishing the reasonableness of the particular charges may still rest with the solicitor.  In this case, complaints were made by Mr Chan in relation to some, but far from all, of the charges made.  In those circumstances, the appropriate course for the judge below to have taken would have been to have entered judgment for the undisputed amount, giving leave to defend as to the balance, or at best from the Defendant’s point of view, to have entered judgment on liability with quantum to be assessed.  It would not, however, have been appropriate to give unconditional leave to defend in relation to the entire claim, as sought by the Defendant.

42.  I turn next to the question of whether the action should be transferred to the High Court.  As I have concluded that the Defendant should be given unconditional leave to defend, it remains for consideration whether the action should proceed in the District Court, or in the High Court.  While a trial in the District Court would be likely to involve somewhat lower costs, it should also be borne in mind that taxing masters of the High Court are well-experienced in dealing with solicitor and client taxations.  In all of the circumstances, while it would be possible for the action to proceed as to liability in the District Court, with the question of the appropriate court for quantification of the claim if liability were established left over for later determination, I think on balance that it would be preferable for the whole matter to be dealt with in a single court, and I would therefore make an order transferring the matter to the High Court, notwithstanding that the amount claimed does fall within the District Court’s jurisdiction.

43.  I would therefore allow the appeal, give the Defendant unconditional leave to defend, and transfer the proceedings to the High Court.

44.  So far as costs are concerned, having heard the respective parties’ submissions, having regard to the late stage at which the point on the basis of which the appeal was allowed was raised, and to the fact that but for this point, it would not, in my view, have been appropriate to give the Defendant unconditional leave to defend, I do not think it would be right to award the costs of the appeal to the Defendant.  That said, however, it is also the case that the Plaintiff continued to resist the appeal, and in the circumstances, I think that the appropriate costs order would be to make no order as to the costs of the appeal, and to order that the costs in the court below in relation to the Plaintiff’s applications for summary judgment, and the Defendant’s applications to set aside the summary judgment awarded against her and to have the action transferred to the High Court should be costs in the cause.  So far as the costs of the Defendant’s applications for leave to appeal and stay of execution are concerned, I think that the appropriate course would be to make no order as to costs.

45.  I would also order that the money paid into court by the Defendant pursuant to the order of Tang JA dated 8 November 2005 be paid out to her.