LAU YUE KUI AND OTHERS v. PHILIP CHAN & CO (A FIRM)

CACV 75/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 75 OF 2014

(ON APPEAL FROM HCMP NO. 593 OF 2007)

________________________

________________________

________________________

REASONS FOR JUDGMENT

________________________

Hon Cheung JA :

1.  Philip Chan & Co (a firm) (‘the solicitors’), the respondent, had carried out work for Lau Yue Kui, the 1^st plaintiff, who is the administrator (‘the administrator’) of Lau Wai Chau, deceased (‘the deceased’). In 1994, the administrator, as the intended administrator of the estate, engaged the solicitors to obtain estate duty clearance and letters of administration of the estate. After the letters of administration were granted in mid-1995, the administrator entered into another fee agreement engaging the solicitors to carry out work concerning administration of the estate. In 2000, he entered into a third fee agreement with the administrator agreeing that the value of the estate should be $1 billion for the calculation of the 2% remuneration the solicitors would receive under the 1^st and 2^nd fee agreements respectively. The work is known in legal terms as ‘non-contentious business’. The solicitors seek to recover from the administrator fees in the sum of $40 million represented by two bills.

2.  The estate of the deceased which comprises large holdings of land in the New Territories is to be divided amongst eight fongs.  The 2^nd to 6^th plaintiffs represent the 3^rd, 5^th, 6^th, 7^th and 8^th fongs.  They have taken an antagonistic role towards the fees charged by the solicitors.  As a result of the compromise of an action brought by the 4^th and 6^th plaintiffs against the solicitors and the administrator (CACV 141/2006 on appeal from HCAP 10/2001), the solicitors agreed to submit the two bills rendered to the administrator for taxation.  This Court (CACV 120/2013 on appeal from HCMP 593/2007) affirmed the right of the 2^nd to 6^th plaintiffs to take part in the taxation proceedings.

3.  Bill No. 2 (then described as the 1^st interim bill for the sum of $22.7 million but with a cap at $20 million) was served on the 2^nd to 6^th plaintiffs and lodged in Court for taxation on 2 August 2005.  The 2^nd to 6^th plaintiffs had not lodged any list of objection to this bill until recently.

4.  Bill No. 1 (a gross sum bill of $20 million) was served on the 2^nd to 6^th plaintiffs on 6 March 2007. Again no objection was filed by them until recently.

5.  After further proceedings the nature of which I do not need to go into, the two bills were lodged for taxation on 14 March 2013.

6.  The solicitors then sought an interim payment of fees from the 2^nd to 6^th plaintiffs.  Master J Wong dismissed the application.  On appeal to Recorder Houghton SC, the solicitors obtained leave to amend his summons for interim payment so as to seek the payment from the administrator and not the 2^nd to 6^th plaintiffs.  The Recorder proceeded to hear the appeal based on the amendment and ordered $15 million be paid by the administrator as interim payment.

7.  The 2^nd to 6^th plaintiffs who are directly affected by the order appealed against the judgment of the Recorder. The administrator took a neutral stand in this appeal.  We dismissed the appeal at the conclusion of the hearing.

The plaintiffs’ case

1)    Objections

8.  Mr Albert Yau and Mr Leo Wong, counsel for the 2^nd to 6^th plaintiffs, objected to the interim payment on the following grounds :

1) The $40 million fee charged by the solicitors is excessive.

2) The solicitors had already received $10 million from the 1^st and 4^th fongs on account of the costs.

9.  Mr Albert Yau further submitted that at most the interim payment should be $2.9 million which is the amount assessed by the 2^nd to 6^th plaintiffs’ law costs draftsman.

2) New Evidence

10.  In support of the payment of $10 million as agreed costs, Mr Yau seeks leave to adduce evidence which was not before the Recorder who accepted the solicitors’ contention that the $10 million payment was paid on ‘personal basis’.  The solicitors objected to the new evidence on the ground that it does not conform with the Ladd v Marshall requirement.

11.  In my view this is not strictly a Ladd v Marshall situation.  The effect of the Recorder allowing the amendment and then proceeded to hear the appeal on the basis of the amendment means that he was dealing with, for the first time, a new case from the solicitors.  The 2^nd to 6^th plaintiffs had in fact asked the Recorder not to deal with the new case and to allow them an opportunity to put in new evidence.  The Recorder indicated that such chance would be given if he saw it necessary.

12.  In respect of the $10 million, the Recorder referred to Chung J’s decision in HCAP 10/2001 that it was not part payment of fees and he further accepted the solicitors’ submission that the payment was not for the non-contentious work covered by these two bills.  Mr Yau said the Recorder was wrong in not taking into account the fact of payment or in apprehending the nature of payment.

13.  The new evidence includes an affirmation of the administrator in support of a 2001 application by the 1^st and 4^th fongs for payment out of compensation arising from resumption of the estate land that had been lodged in Court in 2001.  The administrator affirmed that $5 million out of the 1^st and 4^th fongs’ share of the resumption compensation sought to be released out of Court would be applied to pay to the solicitors as agreed legal costs under the fee agreements.  The work done under these fee agreements were itemised in the two bills of costs.  I (then sitting as a judge of the Court of First Instance in HCMP Nos. 3924/1995 and 3209/1996) ordered that the compensation monies to the said two fongs were to be released by cheques payable to the solicitors.

14.  The 2^nd to 6^th plaintiffs contended this evidence shows that the solicitors did receive part of his costs under the bills.  Hence, in the circumstances, the solicitors are not entitled to interim payment. 

3) Excessive charge

15.  In respect of the plaintiffs’ case on excessive charge, Bill No. 1 is a gross sum bill of $20 million.  In the breakdown of Bill No. 1, Mr Philip Chan of the solicitors claimed to have spent 448.9 hours and his clerk 23.3 hours for the work done.  The hourly rate claimed was $5,500 for Mr Chan and $1,000 for his clerk respectively.  At such rate, even if all the items are allowed on taxation, the work would only attract fees in the sum of about $2.49 million.

16.  Bill No. 2 relates to the work done by the solicitors under the 2^nd Fee Agreement.  Under that agreement, the solicitors were instructed to do three things at the hourly rate of $5,500, subject to a cap of $20 million :

1) checking the devolution of title of each of the lots comprised in the estate (and there are a total of 217 lots of land);

2) to ascertain their particulars; and

3) instructing surveyors and other professionals to ascertain the sizes and area of land to be distributed under the Deed of Family Arrangement (‘DFA’).

17.  Bill No. 2 consisted of 32 heads of work.  Heads 1 to 31 concern the solicitors’ work in reading and working on 31 items of documents. They account for about 40% of the amount claimed (i.e. $8,978,955 out of $22,753,255).  Head 32, which accounted for the remaining 60% of the total value of the bill, concerns work spent on checking the devolution of title of each and every piece of land covered by the DFA.

18.  Mr Yau submitted that the bill is highly repetitive and in respect of the largest head of items, templated.  It is artificially broken down into excessive and minute detail.

19.  Mr Yau argued that for the purpose of administration of the estate, the personal representative of the estate would only need to vest the relevant property in the name of the beneficiary according to the testamentary instrument.  He is not under any obligation, like a vendor in an ordinary conveyancing transaction, to make good title of the property to the beneficiary as if he were a purchaser.  It is doubtful if checking the devolution of title is necessary for the administration of estate.  In any event, most of the checking can be done through a conveyancing clerk.

20.  Further, as an experienced probate lawyer, Mr Chan had to work with reasonable skill, care and efficiency.  If the checking of one lot helped him to understand the situation which also applied to the other lots, he should have taken advantage of his learning curve and the foundation knowledge.

21.  In this case, all the title deeds of these 217 lots were lost.  So the only relevant documents of title, apart from the Block Government Lease, would be the DFA and the letters of administration.

22.  In this case, Mr Chan realized in as early as 1996, that owing to the nature of the exercise and for the purpose of saving expense, what was required was a vesting order for each fong of the lands which that fong was entitled to be distributed under the DFA.  This was achieved at the end of the trial in the 1995/96 proceedings.  The vesting orders were annexed to the Consequential directions granted by me dated 24 January 1998 in those proceedings.  So the checking of title must stop after obtaining the Consequential directions.  Nothing needed be done or could be done after that day.  But Mr Chan continued billing for checking title well beyond March 2000.  The litigation proceedings were then pending appeal and they were eventually heard by the Court of Final Appeal in March 2000.  The Consequential directions were affirmed.  Again nothing needed be done afterwards.

23.  In respect of Head 32, the solicitors conducted a template approach.  For each of the 217 lots of land which the solicitors allegedly checked the devolution of title, they billed the work in a form of template.  So that for instance, item 2 in respect of the first lot he checked was similar to item 2 in respect of the second lot and the many many lots under his examination.

Costs of non-contentious business

24.  Section 56(1) of the Legal Practitioners Ordinance (‘LPO’) (Cap 159) allows a solicitor and his client to make an agreement as to the remuneration by the solicitors of any non-contentious business to be undertaken by the solicitors.  The remuneration may be by ‘gross sum, or by commission or percentage or by salary, or otherwise’ (section 56(2)). 

25.  Rule 5 of the Solicitors (General) Costs Rules (‘the Rules’) (Cap 159 sub leg G) provides that the costs for non-contentious business 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.

26.  In this case, the solicitors had agreed not to rely on the terms of the fee agreements he had entered with the administrator in respect of the two bills of costs.

Power to order interim payment

27.  This Court has held that the power to order interim payment of costs is found in section 67(2) of the LPO in respect of the words that the Court may, upon such terms, if any, as it thinks fit, order, amongst other things taxation of the bill : Baker & McKenzie v Grande Holdings Ltd [2013] 1 HKLRD 63, paragraph 7.

Principles on interim payment

28.  Mr Alexander Wong and Mr Earl Deng, counsel for the solicitors, have referred to a number of authorities such as Mars UK Ltd v. Teknowledge Ltd [2000] FSR 138, Re Miller Peart [2007] 3 HKLRD 125, Re Hawkins Development Ltd. [2010] 1 HKLRD 535 and Tim Martin v Akin Gump [2012] 2 Costs L.R. 325 from which they extracted principles relevant to interim payment of costs.  These authorities are mainly concerned with costs of contentious business but the principles are also applicable to that of non-contentious business subject to modifications.  I will adopt the formulation of some of these principles with modifications :

1) A party who has been awarded costs should receive those costs as soon as possible and pending detailed assessment, there should be an interim payment in general.  Jacob J in Mars at page 153 explained :

‘ …… Where a party has won and has got an order for costs the only reason that he does not get the money straightaway is because of the need for a detailed assessment. Nobody knows how much it should be. If the detailed assessment were carried out instantly he would get the order instantly. So the successful party is entitled to the money. In principle he ought to get it as soon as possible. It does not seem to me to be a good reason for keeping him out of some of his costs that you need time to work out the total amount. A payment of some lesser amount which he will almost certainly collect is a closer approximation to justice.

 This is likely to have practical advantages in another way.  The motive for trying to prolong a detailed assessment, namely putting off the evil day when payment has to be made, will be considerably reduced when he who has to pay can only put off the evil day in respect of a considerably reduced sum.’  (emphasis added)

2) The financial position of the parties is a relevant consideration.  If there are disposable funds where trustees are concerned, the Court should be more inclined to grant interim payment, see Recorder Jat SC in Re Miller Peart, at paragraph 102.

3) The consideration of hardship is not relevant in the exercise of discretion but whether the grant of interim payment would stifle the paying party’s ability to appeal may be a factor in assessing quantum and the method and time of payment.

4) The approach to assessing the quantum of the interim payment is to use the ‘rough and ready’ approach to ensure a ‘close approximation of justice’ as set out by Jacob J in Mars.  This approach is analogous to the one Kwan JA adopted in Re Hawkins, where Kwan JA held that the Court should consider what amount could be reasonably taxed off as the basis for interim payment.

5) In respect of costs of non-contentious business the factors set out in rule 5 of the Rules would be relevant.

6) Analogy may be drawn on the principles in third party taxation under section 68(2) of the LPO where the amount to be taxed off should only come from the portions which the third parties are likely to ultimately have to bear : See Tim Martin at §96.  In that case, the mortgagee bank instructed solicitors to enforce a mortgage against the mortgagor.  The bank included in the borrowers’ liability the legal costs payable by the bank to the solicitors.  Lloyd LJ considered the applicable principles in respect of the equivalent of our section 68(2) of LPO which enables a third party to require the bill to be taxed or assessed.  At paragraph 95, he held that the costs judge cannot reduce the quantum of any item which is properly included in itself, but for which he considers that the charge made is excessive, unless he could have done so as between client and solicitor on an assessment under section 70.  [i.e. section 67 of LPO].

My view

1) Appeal from discretion

29.  This is an appeal from the exercise of a discretion and the established principles clearly only allow the appellate court to interfere where there is an erroneous exercise of the discretion where, for example, the judge has taken irrelevant matters into account or ignored relevant matters or misdirected himself.  Lord Hoffmann observed in Piglowska v Piglowski [1999] 1 WLR 1360 at page 1372 :

‘ An appellate court should resist the temptation to subvert the principle that they should not substitute their own discretion for that of the judge by a narrow textual analysis which enables them to claim that he misdirected himself.’

2) The two objections

30.  In my view the Recorder had not erred in the exercise of his discretion.  I do not consider the two factors relied upon by Mr Yau would assist him.  In terms of the payment of $10 million, this is not an appropriate proceeding to ascertain the true nature of the payment particularly when Chung J had expressed a view on its nature.  But even accepting that they were payment of costs on account by the 1^st and 4^th fongs, it must not be forgotten that each of the eight fongs are liable for ⅛ of the costs of $40 million or $5 million each.  The payment of $10 million cannot be a complete answer to a claim for interim payment of the two bills of $40 million.

31.  In respect of excessive charges, again it must not be forgotten that the agreement of the parties (as embodied in the Consent Order of Master de Souza dated 18 July 2007) is that the taxation of the two bills are to proceed on solicitor and own client basis.  This means all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred : Order 62, rule 29(1). Further for the purposes of rule 29(1), all costs incurred with the express or implied approval of the client shall, subject to exception, be conclusively presumed to have been reasonably incurred and, where the amount thereof has been expressly or impliedly approved by the client, to have been reasonable in amount : rule 29(2).

32.  The estate is a huge one worth over $1 billion.  With hindsight it is easy to criticise the two bills as excessive but one must look realistically at the position when the solicitors were first instructed to carry out the work twenty years ago.  Mr Chan had to gather information pertaining to the administration afresh.  The complexity of the matter can, in a certain way, be gleaned from the complex issues that were canvassed in the trial concerning the division of the estate to the eight fongs that took place in 1997 (HCMP Nos. 3924/1995 and 3209/1996) and appeals to the Court of Appeal and Court of Final Appeal which affirmed the first instance decision.  It must also not be forgotten that in 1994 and in the years leading to the reunification, Hong Kong had a rosy outlook of its future and the property market was extremely robust with high valuation of land holding.  The Court at this stage is not concerned with detailed assessment of the costs but to adopt a rough and ready approach to ensure a ‘close approximation of justice’.  This is more so drawing on the analogy of third party taxation under section 68(2) of the LPO, that a deduction can only be allowed if it is not permissible on the solicitors and own client basis.  In the present case the parties have expressly agreed to taxation on the solicitor and own client basis.

3) Other factors

33.1  The solicitors had not been paid by the estate the fees under the two bills for over 20 years.  Substantial interests had already accrued and will accrue on the fee of $40 million. The two bills were served on the 2^nd to 6^th plaintiffs in 2005 and 2007 respectively.  They only served the objections after a delay of nine years.  The taxation is likely to be a long and drawn out matter.

33.2  The 2^nd to 6^th plaintiffs are financially well off from the distribution of the compensation received from the Government on the resumption of the land in the estate.  They have already received the following amount :

	Million
2nd plaintiff	$2
3rd plaintiff	$10
4th plaintiff	$39
5th plaintiff	$3.5
6th plaintiff	$90

33.3  In addition, large size land will be distributed to them.  The joint accounts of the eight fongs has a current balance of about $13.5 million and there will be a further $6.48 million to be paid into this joint account from further compensation for land resumption.  There is no need to liquidate any assets to effect interim payment.

33.4  The administrator, who is the client and the paying party, is in favour of paying the fees to avoid interest at judgment rate on the bills from accruing to the detriment of the estate.  The remaining three fongs (i.e. those other than the five fongs represented by the 2^nd to 6^th plaintiffs) have expressed their agreement to the bills. 

34.  As this is only an interim payment, any excess payment to the solicitors would have to be refunded after the bills have been taxed.  There is no prejudice arising from the payment.

Conclusion

35.  In my view the Recorder has properly exercised his discretion both to the payment and its amount.

36.  Accordingly the appeal is dismissed with costs of the appeal to be paid by the 2^nd to 6^th plaintiffs to the solicitors with a certificate for two counsel.  There will be no order as to costs in respect of the application to adduce new evidence. 

Hon Kwan JA :

37.  I agree with the Reasons for Judgment of Cheung JA and his order as to costs.

Hon Chu JA :

38.  I agree.