XCHRX LEUNG CHEUNG HONG v. GOLDEN POND RESTAURANT LTD.

1989, No.A5399

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This was an application for review of taxation under Order 62 r.35 of the Rules of the Supreme Court. Judgment was entered by consent on 18 February 1995. The defendant was to pay the costs of the plaintiff, to be taxed if not agreed. Being an aided person, the plaintiff's own costs were to be taxed in accordance with legal aid regulations. On 18 May 1995, appointment for taxation of costs was filed by the plaintiff. On 16 June 1995, the defendant's solicitors made a Calderbank offer to settle the plaintiff's costs at the sum of $550,000. This was rejected by the plaintiff's solicitors on 20 June 1995. On 6 July 1995, a sum of $600,000 was paid into court by the defendant purportedly to be in satisfaction of the plaintiff's costs in lieu of taxation. On 4 August 1995, the defendant's list of objections was served on the plaintiff. The call-over took place on 7 August 1995. The bill was taxed on 17 November 1995 but was part-heard adjourned. On 29 November 1995, a further sum of $30,000 was paid into court by the defendant, making a total of $630,000. Taxation of the bill was finalised on 8 March 1996. Taxed costs were allowed at $561, 342, less than the first amount paid into court. After an exchanged of correspondence between the solicitors, an amendment to the application for review and three hearings, review of the taxed bill was completed on 27 September 1996 when the master confirmed the taxed costs. On 9 October 1996, the defendant sought further review to a judge. That review was heard and the taxed costs were further confirmed on 20 January 1997 with reasons reserved. I now hand down the reasons therefor.

2. The issues to be determined on the review were : (1) Could Order 62 r.5 be activated by the defendant's payment into court of the sum of $630,000? (2) What would be, if any, the effect of the defendant's Calderbank offer on the taxation of costs, in particular, when the plaintiff (the recipient) was an aided person?

Order 62 Rule 5

3. Order 62 r.5 provides that the court shall take into account the specified offers and/or payments into court when exercising a discretion as to costs. The applicability of that provision to the determination of costs of substantive proceedings has never been doubted. It was however very much in contention if such a provision could also be applicable to the determination of costs in a taxation.

4. The offers specified in sub-paragraphs (a) and (c) of r.5 could not be relevant to the offers made by the defendant in respect of the costs of taxation herein. The defendant also conceded that sub-paragraph (b) had no application in that the purported payments totalling $630,000 were not validly made under Order 22. The concession was properly made for two reasons.

5. Firstly, as a matter of formal requirement the forms under which the purported payments were made were defective in that they were not in conformity with Form No.23 of Appendix A. Furthermore, no Order 22 payment into court could be made in respect of taxation proceedings.

6. What is the scope of operation of r.5(b)? It is clear that "payment into court" must necessarily be a reference to lawful payments into court. Payments into court could only be lawfully made pursuant to an order of court, or under the rules or practices of the court. Thought theoretically possible, I am unable to envisage any order outside Order 22 for making payment into court that could have any direct relevance to the question of costs of the proceedings. Apart from payment into court pursuant to an order of the court, litigant can only pay money into court if specifically authorised by the rules or practices of the court. I was not referred to, nor am I aware of, any inherent right of a litigant to make payment of money into court. The existence of such "right" could not be consistent with legal principles nor common sense. No person, let alone an officer of court, could be made an involuntary custodian or trustee of funds without some form of overriding authority or principle of law. The consequences and implications of an unrestricted and uncontrolled right of litigants unilaterally placing funds in court thereby conferring liability and duties upon an officer of court as custodian or trustee of such fund are wholly unacceptable. It has not been shown to me that such chaos and anarchy represented the correct position in law. In the premises, though r.5(b) made no specific reference to "payment under Order 22", the only reasonable construction of the provision would necessarily include such a reference. I am satisfied that the reason for not making express reference to Order 22 was because of the absence of such a need. For the above reasons, I hold that "payment of money into court" in r.5(b) is a reference to payment made under Order 22 of the Rules of the Supreme Court.

7. To bring Order 22 into operation, two conditions must first be satisfied. Firstly, the subject matter of the payment must be a "cause of action". Secondly, the cause of action must be in respect of "a debt or damages" in an action. A claim for costs of the proceedings is not a "cause of action in respect of which the plaintiff claims". The subject matter of a cause of action is the claim for which the proceedings were brought, and would not include a claim for expenses, to be incurred in future, consequential upon the bringing of such proceedings. A claim for costs is consequential and ancillary to the proceedings, not the purpose of those proceedings. Furthermore, costs could not be a debt or damages for which the proceedings were brought. A consideration of the format of the statutory form, Form No.23 in Appendix A, would also strengthen the conclusion that such form was never intended to be used in respect of liability for costs of the proceedings. In the premises Order 22 has no relevance to a taxation of costs.

8. For the above reasons, I am of the opinion that there is no provision in the rules and practices of the court for making payment into court in respect of costs of taxation hearings. In the premises, if a payment into court was made purportedly in respect of such costs, it would not be made under Order 22 nor could it bring Order 62 r.5(b) into operation. That does not, of course, mean such payment in should be a wholly irrelevant consideration in the exercise of the taxing officer's general discretion over costs of taxation.

General Discretion

9. Though our Rules of the Supreme Court do not provide for similar provisions as Order 62 r.27(1) and (2) of the English rules, I have no doubt that our taxing officers have similar general discretion over costs of taxation. Before the English rules were revised, their Order 62 were in identical terms as our current Order 62. It has never been doubted that under the old English rules and our current rules, a taxing master has a general discretion over costs of taxation similar to that of any other kind of hearing before a master.

10. The basis for taking into account a reasonable offer or payment of money in lieu of a hearing in the determination of costs of that hearing, is the undoubted moral obligation of a litigant to avoid incurring wholly unnecessary wastage of time, costs and public resources. Order 22 renders such a moral obligation a legal one in respect of a cause of action. I fail to see why the same rationale should not apply to taxation of costs in the exercise of the taxing officer's general discretion on costs.

11. It was submitted by the defendant that, in the exercise of his discretion, the taxing master ought to have taken the first payment of $600,000 into account and disallowed the costs of taxation as against the plaintiff after the date of payment in. The master refused to accept the validity of that submission and allowed full costs of the taxation to the plaintiff. In answer to the review, the master ruled that notwithstanding the payment in it was impossible for a taxation to be avoided.

12. He rightly pointed out that whatever was disallowed from the party to party costs in favour of the aided person, his solicitors would request to be transferred to the common fund costs of the aided person (i.e. that part of the costs of the aided person's solicitors that would be paid by the Director of Legal Aid and/or the aided person). He considered such a common fund taxation to be indispensable and inevitable. He further observed there would often be requests to have items in the common fund costs transferred to party and party costs. He then concluded that as a result of the uncertainty created by the eventuality of such requests for mutual transfers, a taxation of aided person's costs is inevitable. In the premises, he said the plaintiff had no choice but to proceed to taxation even if he considered the defendant's offer acceptable. Consequently, he was saying in effect the payment in was an irrelevant consideration in taxation of an aided person's costs.

13. Is taxation of costs in favour of an aided person inevitable? Pursuant to reg.15 of theLegal Aid Regulations, Cap.91, all judgment and final orders shall provide for a direction for taxation of the aided person's own costs. However, there is nothing in that regulation requiring anyone from proceeding to a taxation of the aided person's own costs in all cases. To the contrary, Legal Aid (Scale of Fees) Regulations suggest otherwise. Regulations 4 and 5, making provisions respectively for payment by the Director of Legal Aid of aided person's counsel fees and solicitors costs (disbursement and profit costs), expressly cater for a default in taxation of such costs. The scale of such fees can be fixed by the Director in default of a taxation. The amount to be fixed is determined by the amount as in the opinion of the Director would have been allowed under a taxation. There is no right of appeal against such a determination. In the premises, I cannot agree with the master's reasoning that a taxation of the aided person's own costs is inevitable.

14. I do not accept the possibility of transfers between party to party and common fund costs would necessarily render a taxation inevitable in all cases. I accept the master's observation that it was the practice of the Director that he would normally request a taxation instead of fixing the amount personally. However, it is not acceptable that such a situation, created by the Director's refusal to exercise his statutory power, should be to the detriment of the payer of the aided person's costs. Such a payer is entitled to expect the Director to act responsibly and would, to save costs of a taxation, sanction a reasonable offer for payment of the aided person's party to party costs. All the Director needs to do is to take a view on the bill of the aided person and come to a view on the amount in excess of the offer to be allowed to the aided person's legal representatives on the common fund costs. Solicitors and counsel of the aided person, and if necessary, the aided person if he is liable to contribute, could then be consulted on the Director's suggestion. If the assigned solicitors and counsel and the aided person accept the Director's suggestion, or if an agreement can be reached after debate, there would be no question of any request for transfer of costs between the party to party side and the common fund side. Pursuant to such agreement, the Director can fix the amount of common fund costs without taxation pursuant to reg.4 of theLegal Aid (Scale of Fees) Regulations. The Director and the aided person can then agree to the offer. If that occurs, no taxation, be it party to party costs or common fund costs, would be required. In the premises, though probably rare, it is possible for taxation of common fund costs be dispensed with.

15. A taxation would be inevitable only if either or both solicitors or counsel of the aided person, or the aided person, so required. As there can be no appeal from the Director's determination under reg.4, in all fairness, the Director would probably be required to first seek the views of the assigned solicitors and counsel, and the aided person who is liable to contribute, on the suggested amount before he makes the determination under the said regulation. This would give the assigned solicitors and counsel and/or the aided person the opportunity to demand a taxation. Though there is no specific statutory provision providing for such a right, it would appear from the statutory scheme that a right to taxation of the common fund costs must exist. If a demand for taxation materialised, taxation would, as suggested by the master, become truly factually inevitable.

16. There was, therefore, no basis for holding that, as a fact, taxation would be universally and necessarily inevitable in all cases involving an aided person. It was unknown to me if the Director was ever consulted on the defendant's offer, and if so, what was the result. In the premises, the master's reason for his conclusion on the inevitability of taxation has not been established.

17. However, for different reasons, I would confirm the master's conclusion that payment into court of money in respect of an aided person's costs could not be a relevant consideration for the determination of the costs of the taxation that ensued upon a failure to accept such payment in. The factor that marks an aided person apart from the ordinary situation of a litigant in this respect is the particularities unique to the legal aid scheme in the choice of legal representatives and the payment of their fees.

18. Unless the Director acts for the aided person, solicitors would have to be assigned. Solicitors and counsel are assigned from a panel kept pursuant to the Ordinance. Subject only to the restrictions prescribed by s.4 of the Ordinance, any solicitor or counsel is entitled to have his name included on the panel. High scale of fees charged by the solicitor or counsel is not a ground for excluding that solicitor or counsel from the panel. In any event, assigned solicitors and counsel can only recover such fees and costs as may be prescribed by the Ordinance (see s.20). A right to be placed in the panel carries an implied right to be assigned work by the Director save in exceptional circumstances, e.g. lack of special expertise in the specific area of law required or dissatisfactory performance. Therefore, it is expected that, subject to special considerations, work would be assigned by the Directors fairly and equitably amongst all solicitors and counsel on the panel. Though an aided person may select a solicitor or counsel of his choice from the panel, it does not appear from s.13(1)(b) of the Ordinance that the Director must accept his choice. However, probably the Director would not refuse the aided person's choice without good reasons. Nevertheless, it is apparent from the above that it is possible that the assigned solicitors or counsel might not be the preferred choice of the Director or the aided person.

19. 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.

20. For the above reasons, the Director's and the aided person's right to have their legal representative's costs taxed is very different from a private litigant's ordinary right to a solicitor and own client taxation under the Legal Practitioners Ordinance, Cap.159. The only protection the Director and an aided person who is liable to contribute have against the excess amount of common fund costs over the recoverable party to party costs comes in the form of a taxation. The Director and the aided person have no like freedom of a private litigant to determine and control the costs and fees of their legal representatives. It is not possible for the Director or an aided person who is liable to contribute to pre-determine their liability for common fund costs by entering into any agreement on the quantum or scale of fees with the assigned solicitors or counsel. The payment of fees to the assigned solicitors and counsel, and the Director's and aided person's liabilities to such fees are prescribed by statute to the exclusion of their wishes. They are to a large extent beyond the control of the Director and the aided person.

21. 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 by the judicial process of taxation.

22. 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.

23. Without having the common fund costs determined, it would be wholly unreasonable to require the Director and the aided person to come to any view on the reasonableness of the payment into court. It would be wrong for the court to consider solely the position of the Director or the aided person vis-à-vis the defendant in isolation of their liability towards their assigned solicitors and counsel under common fund costs. It would likewise be wrong for the court to require the assigned solicitors and counsel, as well as the Director and an aided person who is liable to contribute, to waive taxation of the common fund costs in order to facilitate a payment into court made with a view to dispense with taxation of the party to party costs. An exercise of discretion to require the assigned solicitors and counsel, and the Director who is under a duty to protect public funds and an aided person who is liable to contribute, to agree to dispensation of taxation of common fund costs would be a wrongful exercise of a judicial discretion in law. Could the common fund costs be taxed immediately upon the making of a payment in to enable the Director and the aided person to consider the offer? Arrangement for an immediate taxation of the common fund costs upon the making of a payment into court in respect of costs is wholly impracticable, if not impossible, in the light of the listing system and the diary of the masters.

24. For the above reasons, I was satisfied that the master had come to the correct conclusion, albeit for different reasons.

Written Offer

25. I was not assisted on the reasons for the change in the English practice, pursuant to Order 62 r.27(3) and (4) of the English rules, in allowing Calderbank offers to be made in respect of taxations. I was not referred to the debates that led to the said change in England. However, notwithstanding that such a change took place over 10 years ago in England, there was no attempt to bring about similar change to our rules.

26. Furthermore, even under the English rules the provisions relating to written offers have no application to taxation of an aided person's costs (O.62 r.27(5)). I was again not assisted on why it was thought in England that such an exception should be provided. It may well be for similar reasons I have considered above in respect of payments into court.

27. For reasons similar to that of payments into court, I am of the view that a written offer, albeit a reasonable one, made in lieu of taxation of an aided person's costs is not a relevant consideration in the determination of the costs of taxation that ensued consequential upon a rejection of that offer.

28. In the premises, the defendant's review of the master's determination on costs of taxation of the plaintiff's costs failed and the master's decision was confirmed. Costs of the review were ordered against the defendant.