ARTIFICIAL LIFE, INC. v. KPMG (a firm) AND OTHERS

HCA 2168/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2168 OF 2011

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D E C I S I O N   O N

A S S E S S M E N T   O F   C O S T S

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1. At the hearing on 9 July 2013 (“Hearing”), I ordered inter alia that the plaintiffs shall pay the defendants’ costs of and occasioned by the defendants’ summons dated 26 June 2012 (“Summons”) to strike out parts of the plaintiffs’ Amended Statement of Claim to be summarily assessed and paid forthwith (“Costs Order”). Such Costs Order does not include the defendants’ costs of and occasioned by the second adjournment of the hearing of the Summons, which costs were subject to a costs order granted by Mimmie Chan J on 24 April 2013. This is the decision on summary assessment of costs under the Costs Order.

2. Two matters are of note. First, the initial call-over hearing was vacated and the Summons was adjourned for the first time by a Consent Summons dated 6 July 2012 (see the order of Master de Souza dated 6 July 2012). Secondly, the Hearing was not solely for the Summons. There were two other applications scheduled for substantive hearing on the same day, ie the defendants’ summons for withdrawal of the plaintiffs’ request for interrogatories (which was resolved by consent a few days before the Hearing on 4 July 2013) and the plaintiffs’ summons for leave to file and serve Re-Amended Statement of Claim. But costs of these applications fell outside the scope of the Costs Order.

3. The proper approach to summary assessment of costs has been laid down by the Court of Appeal in Poon Shu Fan v Wong Tin Yan [2012] 5 HKLRD 512. For present purpose, it is sufficient to refer to the useful summary in the headnote of the reported judgment at pp.512-514 as follows:

“(2) As in an ordinary taxation, under O.62 r.28(2) of the Rules of the High Court (Cap.4A) (the RHC), in a summary assessment, party-and-party costs were allowed only if they were “necessary or proper” for the attainment of justice or for enforcing or defending the rights of the receiving party. Pursuant to Practice Direction 14.3, the court adopted a broad-brush approach to ensure the final figure assessed was not disproportionate and/or unreasonable having regard to the nature and circumstances of the application or matter and the underlying objectives stated in O.1A of the RHC, even if there was no challenge to individual items. ……

(3) A summary assessment required a two-stage approach. If total costs claimed appeared proportionate, then all that was normally required was that each item should have been reasonably incurred and the cost reasonable. If the overall costs appeared disproportionate, then the court would have to be satisfied that each item was necessary and its costs was reaosnable. A sensible standard of necessity should be adopted allowing fully for the different judgments which those responsible for the litigation could sensibly come to as to what was required. While the threshold was higher than that of reasonableness, it should be achievable by a competent practitioner without undue difficulty. The conduct of the other party was relevant, since a cooperative party could reduce costs, but an uncooperative party could render necessary costs which would otherwise be unnecessary. ……

(6) Since Civil Justice Reform in 2009, taxation of counsel’s fees under a party-and-party taxation was no different from taxation of costs and expenses. The test of “necessary or proper” applied and must take into account the matters set out in para.1(2) of Part II of the First Schedule to O.62 of the RHC, as well as the requirement of reasonable proportionality. Accordingly, paras.62/App/28(5) (p.1172) and 62/App/28A of Hong Kong Civil Procedure 2012 (p.1172), which referred to the previous pre-CJR “excessive and unreasonable” test under the former para.2(5) of Part II of the First Schedule to O.62 of the RHC, should no longer be followed, ……”

4. Here, the defendants sought a total sum of HK$1,867,404.96 comprising solicitors’ profit costs and disbursements of HK$1,576,154.96 and counsel’s fees of HK$291,250.00. The plaintiffs suggested that HK$238,531.67 be allowed, ie solicitors’ profit costs and disbursements of HK$178,531.67 and counsel’s fees of HK$60,000.00.

5. I bear in mind the two-stage approach required for summary assessment. Having considered the nature and scope of the application under the Summons, the affidavits filed in support and in opposition of the Summons, the skeleton submissions and list of authorities, what transpired at the Hearing, the involvement of senior counsel in this matter, the matters noted in paragraph 2 above, and considering all circumstances, I find that the overall costs claimed by the defendants under their statement of costs appeared to be disproportionate on party and party basis. It is therefore necessary to consider each item to be satisfied whether or not it “was necessary and its costs reasonable” on the sensible standard of necessity as explained by the Court of Appeal.

Hourly rates

6. The defendants claimed that hourly rates for MS (partner admitted in the United Kingdom in 1996 and in Hong Kong in 1997), HL (assistant solicitor admitted in 2007), JT (assistant solicitor admitted in 2008), EY, PC, AJ and CS (“TS1”), and AL and JA (“TS2”) were HK$7,260.00, HK$5,300.00, HK$5,300.00, HK$2,652.00 and HK$2,212.00 respectively. The plaintiffs contended that the respective hourly rates for MS, HL, JT, TSI and TS2 should be HK$4,000.00, HK$3,000.00, HK$3,000.00, HK$1,300.00 and HK$1,300.00.

7. I am not persuaded that on party and party basis, the defendants are entitled to the hourly rates as claimed. Having carefully considered all the circumstances, including the matters referred to in paragraph 5 above, I consider that appropriate party and party hourly rates for MS, HL, JT, TSI and TS2 should be HK$4,100.00, HK$3,100.00, HK$3,100.00, HK$1,300.00 and HK$1,300.00 respectively.

8. The plaintiffs argued that only one fee earner for each piece of work should be allowed (HK$4,000.00 for MS) under rule 3 of the General Rules of Taxation in Hong Kong Civil Procedure 2013 Vol.1 para 62/App/21 at pp.1178-1179 and as a matter of general principle. However, the above passage in the learned text also envisaged there will be occasions in which a junior solicitor will handle the work under the supervision of a partner, and it will be necessary to bear in mind the time spent by the solicitor and the partner respectively and the overall costs incurred. Taking into account these matters, in assessing costs for a piece of work, the quantum of costs may have to be adjusted to take into account whether such work should notionally be done either by junior fee earner(s) under the supervision of a senior fee earner or by one fee earner of appropriate seniority alone. In principle, there may be situations where the involvement of more than one fee earner may be appropriate even on party and party basis, and much depends on the particular circumstances of each case.

9. For the purpose of the summary assessment herein, I shall adopt a broad-brush approach pursuant to paragraph 13 of Practice Direction 14.3 as it is inappropriate to conduct any mini-taxation.

Items B1

10. The defendants claimed that the relevant hearing bundle in respect of the Summons comprised 907 pages whilst the plaintiffs said that only 655 pages were attributable to the Summons. Having considered the hearing bundle, bearing in mind that some documents (eg affidavits) therein deal with other applications and matters extraneous to the Summons but taking into account the supplemental hearing bundle before me, I consider that about 750 pages of the hearing bundle were pertinent to the Summons.

11. There is no dispute over the cost per page for the first and other sets of the hearing bundle. The disagreement turned on the number of other sets. I agree with the defendants that on party and party basis three further sets for counsel, own use and service would be necessary or proper.  In the circumstances, the amount allowed for Item B1 should be HK$5,250.00 being 750 pages x HK$4.00 = HK$3,000.00 and 750 pages x HK$1.00 x 3 = HK$2,250.00, and not HK$9,549.00 as claimed by the defendants.

Item B2

12. Under this Item, the defendants claimed for attendances by the litigation clerk in the total sum of HK$1,840.00 for fixing dates (HK$110.00 x 2 times), filing/collecting documents (HK$110.00 x 12 times) and attendance on counsel (HK$50.00 per time x 6 times). The plaintiffs did not dispute the number of trips or the cost per trip save to say that only ⅓ of the total sum claimed should be allowed because three  applications (one of which was the Summons) were handled at the same time and only the costs of the Summons were recoverable under the Costs Order. I agree and allow a sum of HK$613.33 under this Item.

Item C1

13. Under this Item, the defendants claimed HK$236,031.95 being 43.6 hours for attendance on client.  The plaintiffs claimed this was excessive, and suggested that I allow MS 5 hours to take instructions on the application to strike out the plaintiffs’ pleadings and another 10 hours at MS’ rate for taking instructions and obtaining approval for the two supporting affidavits.

14. In my view, attendance on client would not be limited to the two pieces of work referred to in the above paragraph. There would be necessary liaison between the defendants and their solicitors to report on counsel’s advice on the merits and litigation strategy in respect of the subject application.  There would also have been communications for taking instructions on the affidavits in opposition and for preparing the response thereto.  Taking all these matters into account, but considering the nature and scope of the subject application, I agree that 43.6 hours of work under this Item are excessive. On party and party basis, I allow HK$75,000.00 for this Item.

Item C2

15. The defendants claimed for attendance on the other side being 40.4 hours of work in the sum of HK$206,987.89. The plaintiffs said  only costs of inter partes correspondence being items 43-45 of the hearing bundle could be recovered for this Item under the Costs Order, and suggested that the defendants be allowed 3 hours of MS’ time.

16. In my view, items 43-45 of the hearing bundle are merely selected inter partes correspondence that were materially relevant to the disputed issues under the Summons. It does not necessarily follow that they were the only communications between the parties in respect of the Summons. Indeed, there would have been correspondence concerning service of documents, fixing of dates and the usual correspondence one would expect in dealing with a contested application, but these matters should not require any substantial time. In the circumstances, I would allow HK$20,000.00 under this Item. In my view, 40.4 hours for inter partes communications in respect of the Summons, especially when all correspondence leading to and/or concerning the second adjournment of the Summons was outside the Costs Order, is not necessary, proper or proportionate in the present context.

Item C3

17. The defendants claimed 43.7 hours on attendance on counsel in the sum of HK$243,892.94. The plaintiffs said it was excessive and suggested allowing 3 hours at MS’ rate for instructions to advise on the striking out application and to consider senior counsel’s advice, and a further 2 hours at MS’ rate for miscellaneous attendance on senior counsel leading to the attendance of the substantive hearing.

18. I bear in mind that senior counsel drafted/settled the Amended Defence of the defendants and the Counterclaim of the 1^st defendant filed on 16 May 2012 quite shortly before the Summons was issued on 29 June 2012.  In the circumstances, senior counsel would have been well familiar and up to date with the background of this case. Hence, any instructions for senior counsel to advise on the striking out application would not be lengthy or complicated, but appropriate time should be allowed for considering the advice and for seeking/considering senior counsel’s further advice as and when affidavits in opposition were filed.  There would, of course, be other miscellaneous attendances as acknowledged by the plaintiffs.  But I am not persuaded that on party and party basis, conference with counsel is justified as being necessary or proper. In the circumstances, I allow HK$50,000.00 under this Item.

Item D1

19. The essential documents under this Item are the Summons, the two supporting affidavits and a court order.  I have reviewed those documents, and find the defendants’ claim for 63.4 hours of work in the sum of HK$287,103.74 excessive, especially when there is also a claim for senior counsel’s fees for drafting work in the sum of HK$103,125.00. The plaintiffs suggested HK$37,000.00 being 1 hour of MS’ time for preparing the Summons, 5 minutes for the court order, and 8 hours for the two supporting affidavits.

20. In my view, given the ambit and nature of the application, the fact that senior counsel was already involved in the case on behalf of the defendants (eg having drafted/settled the defendants’ pleadings), and further given senior counsel’s legal arguments for the purpose of the Summons (as evident from his written skeleton submissions), there is much to be said for involving senior counsel to settle (but not draft) the supporting affidavits in the particular circumstances of the Summons so that focused factual material would be presented to support senior counsel’s legal arguments for the Summons. Bearing in mind the above considerations and senior’s counsel’s involvement, I  find 63.4 hours of drafting work excessive on party and party basis, and I allow HK$60,000.00 under this Item.

Item D2

21. The defendants claimed 40.5 hours for perusal of documents (essentially court order and affidavits in opposition) in the sum of HK$176,418.45.  I am not persuaded that such exercise required 40.5 hours. On party and party taxation basis, I allow HK$27,000.00 for this Item.

Items D3

22. The defendants claimed HK$389,014.99 being 86.6 hours for preparation for hearing.  There was only one substantive hearing attended by senior counsel since the initial call-over hearing was vacated by consent (see paragraph 2 above).  I am unable to see how such intensive preparation at a cost that was more than double senior counsel’s brief fee as claimed can be justified as being necessary or proper, or indeed proportionate.  In my view, necessary or proper costs for review of the file to refresh, perusal of skeleton submissions for both sides and list of authorities and cases therein would be HK$20,000.00.

Item D4

23. The defendant claimed for 1.8 hours’ time for the hearing of the Summons (including call-over-hearing) in the sum of HK$25,316.00. However, the call-over hearing scheduled on 11 July 2012 was in fact vacated by consent (see paragraph 2 above).  The Hearing lasted from 10:03 to 11:07 am. I allow 1.1 hours at MS’ rate in the sum of HK$4,620.00.

Item E1

24. As explained above, I consider it appropriate to allow senior counsel’s fee for settling (but not drafting) the two supporting affidavits (see paragraph 20 above). But I agree that written skeleton submissions would be part and parcel of the brief fee, and there should not be a separate charge. The defendants claimed HK$103,125.00 under this Item. I am prepared to allow HK$40,000.00 under this Item.

Item E2

25. The defendants claimed counsel’s fee for conference in the sum of HK$28,125.00.  As explained in paragraph 18 above, senior counsel was well familiar with and up to date on the developments on this case.  Further, a substantial part of the striking out application under the Summons turned on legal arguments.  I do not consider that conference with senior counsel is justified as necessary or proper on party and party basis, and I disallow this Item.

Item E3

26. The plaintiffs asked for HK$160,000.00 for senior counsel’s brief fee. The defendants argued that it was excessive for a 1-hour hearing, and the brief should be apportioned since the Hearing covered two applications and only the costs in respect of the Summons were recoverable forthwith. They suggested allowing HK$60,000.00.

27. The following matters are of note. First, since the defendants’ solicitors had certified that the statement of costs did not exceed the defendants’ liability for costs to their firm in respect of the Summons (excluding the costs order for the second adjournment of the Summons), the defendants’ claim for counsel’s brief of HK$160,000.00 referred to a sum apportioned for the Summons and not any other application. But one cannot lose sight of the fact that senior counsel was actually briefed to deal with all applications returnable at the Hearing, and only the defendants’ application for withdrawal of the plaintiffs’ request for interrogatories was resolved just shortly before the Hearing by consent summons dated 4 July 2013. The apportioned brief fee for the purpose of the Summons should be viewed against such background and context. Secondly, although the actual hearing time for the Hearing was 1.1 hours, the anticipated length of the hearing was more than that when senior counsel was instructed.

28. In light of the above, I consider that senior counsel’s brief fee as apportioned for the Summons in the sum of HK$160,000.00 is excessive. I allow HK$120,000.00 under this Item as being necessary or proper on party and party basis.

Conclusion

29. The total costs of the defendants on their statement of costs are assessed at HK$422,483.33 (being HK$5,250.00 (B1) + HK$613.33 (B2) + HK$75,000.00 (C1) + HK$20,000.00 (C2) + HK$50,000.00 (C3) + HK$60,000.00 (D1) + HK$27,000.00 (D2) + HK$20,000.00 (D3) + HK$4,620.00 (D4) + HK$40,000.00 (E1) + HK$120,000.00 (E3)). I therefore order that the plaintiffs shall forthwith pay costs in the sum of HK$422,483.33 to the defendants.