GAO HAIYAN AND ANOTHER v. C L CHOW & MACKSION CHAN (a firm)

HCMP 1741/2017

[2018] HKCFI 2832

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1741 OF 2017

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DECISION

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1.  The plaintiffs, Gao and Xie, apply for, amongst other things, an order that 2 bills for legal costs and disbursement issued by their former solicitors, the defendant, in January 2012 should be taxed out of time. The defendant opposes. The master dismissed the plaintiffs’ application with costs. The plaintiffs now appeal.

Background

2.  Since 2005, the plaintiffs have been involved in pieces of litigations with various parties arising out of the dispute concerning the control over various companies which indirectly held beneficial interest in a coal mine in the Mainland.  Their antagonist, for the present purpose, may be described as the Keeneye Group (of companies).  The plaintiffs retained the defendant in Hong Kong in May 2009 to handle the legal dispute.

3.  In June 2009, the plaintiffs commenced action against the Keeneye Group seeking to recover beneficial control over the companies in question (HCA 1315/2009).  The Keeneye Group countered by commencing arbitration proceedings against them in Xi’an, the Mainland, in July 2009.

4.  Amidst the battle, Ma Maogen (“Ma”) emerged in September 2009, who wanted to purchase the plaintiffs’ interest in their company then subject to the abovementioned litigations and arbitration.  In October 2009, the plaintiffs and Ma entered into a share transfer agreement (“STA”) to such effect.  Pursuant to the STA, Ma would be responsible for paying the plaintiffs’ legal costs in connection with the legal dispute with effect from 20 October 2009.

5.  The Mainland arbitration resulted in favour of the plaintiffs, and they obtained leave to enforce the arbitration award in Hong Kong.  Hence HCCT 41/2010. The Keeneye Group sought to challenge the arbitration award in the Mainland court as well as the enforcement proceedings in the Hong Kong court.

6.  Eventually the arbitration award was confirmed by the Mainland court, and leave to enforce the award in the Hong Kong court was also confirmed on appeal by the appellate court (CACV 79/2011). Attempt to bring the matter further to the Court of Final Appeal was also dismissed in March 2012.

7.  Both the plaintiffs and, pursuant to the STA, Ma have so far made payments towards the costs on account to the defendant.  However, Ma has stopped making any further payment since late March 2011.

8.  In January 2012, the defendant issued their first ever bill to the plaintiffs in respect of the costs and disbursement incurred during the period between May 2009 and 5 January 2012 (“the Original Bill”).

9.  At the request of the plaintiffs, the defendant split the Original Bill into two (“the 1^st Bill” and “the 2^ndBill” respectively) both dated 20 January 2012[1]. These are the two bills in respect of which the parties are in dispute as to whether they should still be taxed.

10.  The splitting of the Original Bill mainly served the purpose of identifying the parts of the bill that should fall into the responsibilities of the plaintiffs and Ma respectively towards the plaintiffs’ legal costs pursuant to the STA.  As mentioned, the STA took effect on 20 October 2009.  The 1^stBill covered the defendant’s services rendered up to 19 October 2009.  The 2^ndBill covered the defendants’ services rendered to the plaintiffs since that date.

11.  At the request of the plaintiffs, the defendant also by email dated 3 February 2012 provided the plaintiffs with the breakdown of the time spent and the work done recorded in the two bills.

12.  Two months after the issuance of the 1^st Bill and the 2^ndBill, another piece of litigation came about.  Ma commenced action against the plaintiffs for, amongst other things, specific performance of the STA (“HCA 466/2012”).  The plaintiffs put forward a counterclaim against Ma for his liability to contribute towards the plaintiffs’ legal costs in the Mainland and Hong Kong in the sums of RMB 18,000,000 and HK$10,000,000 respectively.

13.  HCA 466/2012 was tried together with HCA 1315/2009 before DHCJ To in January 2016.  The defendant stood as witness for the plaintiffs in relation to the plaintiffs’ counterclaim against Ma in HCA 466/2012, and therefore was not the plaintiffs’ solicitors on record.  The 1^stBill and the 2^ndBill were also produced as evidence in support of the plaintiffs’ counterclaim against Ma.

14.  Judgment in HCA 1315/2009 and HCA 466/2012 was handed down in August 2016.  DHCJ To found in favour of the plaintiffs.  On their counterclaim in HCA 466/2012, the court ordered Ma to pay damages representing the part of the plaintiff’s legal costs that he should have contributed pursuant to the STA.  In the absence of any positive case pleaded in respect of the plaintiffs’ pleaded quantum, the court entered judgment against Ma in the sum of RMB 1,800,000 and HK$10,000,000 as pleaded [2].

15.  In the same month, the defendant ceased to have instruction to advise or to act for the plaintiffs.

16.  Since the issuance of the bills in January 2012, the defendant has been demanding the plaintiffs for settlement of the legal fees, and the parties have ensued in correspondence.  The plaintiffs have made two further payments to the defendants in late 2012 and mid-2015 respectively, but no further.

17.  On 29 March 2017, the defendant issued the 3^rdBill, notably the last bill, to the plaintiffs.  This bill was revised on 5 May 2017.

18.  On 15 May 2017, the defendant issued statutory demands to each of the plaintiffs in respect of the outstanding legal fees payable under the 1^stBill and the 2^ndBill.  The parties ensued in further correspondence.

19.  By email dated 1 June 2017, the defendant indicated that they would not entertain any further queries raised by the plaintiffs about the 1^stBill or the 2^ndBill. As regards the 3^rdBill, the defendant advised the plaintiff to seek independent legal advice as to whether to commence taxation proceedings.

20.  On 2 June 2017, the plaintiffs lodged a complaint against the defendant with the Law Society.  The Law Society advised that as far as the dispute as to the amount of legal fees was concerned, the plaintiffs should commence taxation proceedings.

21.  In June and July 2017, the plaintiffs, still acting in person, applied for taxation of the 1^st Bill and the 2^ndBill somehow in HCA 1315/2009. The applications were dismissed for, amongst other things, misconceived procedure.

22.  On 15 August 2017, the plaintiffs, represented by their present solicitors, commenced these originating proceedings, seeking the following relief:

(1)   a declaration that the plaintiffs have paid to the defendant during the defendant’s retainer a total sum of HK$26,552,139 being the costs on account for the matters referred to in the bills;

(2)   the three bills mentioned above shall be referred to taxation by the taxing master, and that the defendant do upon such taxation give credit for all the sums of money received from or on account of the plaintiffs, and refund within 21 days of service of an order what the plaintiffs may on such taxation appear to have been overpaid;

(3)   the taxing master do tax the costs of the reference and certify what shall be found due to or from either party in respect of the bills and the costs of the reference to be paid according to the event of the taxation;

(4)   the defendant do not commence or prosecute any other actions including HCB 4287/2017 and HCB 4288/2017 [3] on the bills until the taxation is completed;

(5)   upon payment by the plaintiffs of what may appear to be due to the defendant, the defendant do deliver up to the plaintiffs or as it may direct, all deeds, books, papers and writings in the defendant’s possession, custody or power, belonging to the plaintiffs; and

(6)   costs.

The amounts of the bills

23.  There was argument as to whether or not the amount as per the Original Bill aligned with the amounts as per the 1^st Bill and the 2^ndBill that came about by splitting the Original Bill.  Mr Chain, who appeared for the defendant, pointed out that the alleged discrepancy arose out of the plaintiffs’ misreading of the Original Bill whereas Ms Cheung, who appeared for the plaintiffs, attributed any misreading to the difficulty caused to the plaintiffs by the manner in which the defendant has rendered its bills and responded to the plaintiffs’ repeated requests for the relevant receipts.

24.  The Original Bill gave the following summary of the plaintiffs’ account up to 5 January 2012:

Total legal fees	HK$ 21,919,818.33
Total costs on account	HK$ 13,255,989.00
Outstanding	HK$ 8,663,829.33

25.  The Original Bill was split into the 1^st Bill and the 2^nd Bill, which, as the defendant explained, respectively gave the following summary of the plaintiffs’ account as at 20 January 2012:

(1)   The 1^st Bill (May 2009 to 19 October 2009)

Total legal fees	HK$ 10,339,986.18
Total costs on account	HK$ 6,040,000.00
Outstanding	HK$ 4,299,986.18

(2)   The 2^nd Bill (20 October 2009 to 5 January 2012)

Total fees	HK$ 11,579,832.15
Total costs on account	HK$ 7,215,989.00
Outstanding	HK$ 4,363,843.15

26.  As mentioned, the plaintiffs made two further payments to the defendant of HK$3,000,000 and HK$1,000,000 on 20 November 2012 and 29 May 2015 respectively.  These were treated by the defendant as partial settlement of the 1^stBill, and thus the amount received in the total sum of HK$10,040,000 and the outstanding amount of HK$299,986.18 under that bill.  The outstanding amount under the 1^stBill and the 2^ndBill is therefore HK$ 299,986.18 and HK$4,363,843.15 respectively (or in total HK$4,663,829.33).  These were also the amounts relied on in support of the statutory demands issued against the plaintiffs in May 2017 mentioned above.  On the contrary, the plaintiffs say the two payments in November 2012 and May 2015, as before, were payments of further costs on account.

27.  Whilst Ms Cheung maintained that the exact amount received by the defendant on her clients’ account should still be investigated and verified, she did not dispute that the defendant could apparently explain the arithmetic for the present purpose.  On this basis, the plaintiffs were also prepared to adjust the amount from HK$26,552,139 to HK$21,454,328 for the purpose of the declaration being sought.  In any event, if taxation of the 1^st Bill and the 2^nd Bill is ordered, together with the 3^rd Bill which will be taxed, a declaration in respect of the amount of payment received by the defendant on the plaintiffs’ account will be unnecessary.

28.  As to the 3^rdBill (6 January 2012 to March 2017), it may be summarized as follows:

Total legal fees	HK$ 8,849,806.60
Total costs on account	HK$ 4,198,339.00
Outstanding balance	HK$ 4,651,467.60

29.  By consent, the 3^rd Bill will proceed to taxation.  The question is whether the 1^st Bill and the 2^nd Bill should also do so.

This hearing

30.  Counsel referred extensively to the reasoning of the master.  Ms Cheung sought to show that the master erred, whereas Mr Chain invited me to seriously consider adopting the master’s reasoning.

31.  An appeal from the master under Order 58, Rules of the High Court is primarily a re-hearing of the plaintiffs’ application.  It is not an exercise of finding whether or not the master erred as suggested. Nor is my discretion fettered by the master’s decision and reasoning, though I may give weight tohis reasoning or even adopt it or any part of it, if appropriate.  See generally Hong Kong Civil Procedure 2018 (Vol 1) at §58/1/2.

Time for taxation

32.  Section 67 of the Legal Practitioners Ordinance, Cap 159 (“the Ordinance”) provides that:

“ (1) On the application, made within 1 month of the delivery of asolicitor’s bill … of the party chargeable therewith the Court shall, without requiring any sum of money 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 of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being a term 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 by stayed:

Provided that—

(i) if 12 months have expired from the delivery of the bill …, 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.

…”

33.  Effectively, section 67 created three regimes (as summarized in Re Miller Peart [2007] 3 HKLRD 125 at §64, per Recorder Jat SC):

(1)   Within one month since the delivery of the solicitor’s bill, the client may apply to have the bill taxed as of right, and no term or condition will be imposed (the 1^st regime).

(2)   If the client fails to apply for taxation within one month since the delivery of the bill, either the solicitor or the client may applyfor taxation and the court may so order and impose any terms as it may think fit except terms as to the costs of the taxation (the 2^nd regime).

(3)   If 12 months or more have elapsed since the delivery of the bill or if the bill has been paid, the client must demonstrate special circumstances to justify his application for taxation and the court may impose any terms including terms as to the costs of the taxation (the 3^rd regime).

34.  A solicitor’s bill may be an interim bill or a final bill.  For the purpose of section 67, time starts to run against a client if the bill is a final bill as opposed to a true interim bill pending final account: see Ding Xiaohong v King & Wood (a firm) [2013] 2 HKC 245 at §§7, 10 – 12.

35.  In Chin Yuk Lun Francis v Messrs Lo & Lo (a firm) HCMP 1142/2005 (7 July 2006), DHCJ To explained the applicable law in detail, which has since been often cited.  I find it necessary to set them out for the purpose of this decision:

“ 10. A retainer is normally an entire contract under which a solicitor is to do certain work for his client. In the absence of a contrary agreement, the solicitor is not entitled to be paid until the work has been completed or the retainer has been terminated. Thus, in a litigation which extends over a considerable period of time, the burden of financing the client’s litigation falls upon the solicitor. To mitigate this harshness, the principle of natural break was evolved under which the solicitor becomes entitled to bill his client when a natural break occurs in the course of protracted proceedings even though the matter for which he was retained has not been brought to a conclusion. Thus the question arises whether a number of bills issued in respect of a litigation are separate bills or whether they are a series of bills which together form one bill.If they are separate bills, the client has to demand taxation within a month of delivery of each of the bills on him. If they are a series which together formed one bill, his right to demand taxation on all the bills in the series is preserved as long ashe demands taxation within a month of delivery of the final account,i.e. the last bill of the series. Or, if he demands taxation within twelve months of delivery of the final account, the court may, in the exercise of its discretion, order taxation subject to terms. Thisconcept of treating a series of bills as a single bill was evolved for the purpose of overcoming statutory time-bars for taxation. In course of time, another practice has also developed under which the solicitor’s right to demand interim payment is written into the retainer. Thus, the approach nowadays is to look first at the retainer to see if the solicitor has the contractual right under the retainer to issue separate bills prior to conclusion of the matter for which he was retained. If he has no, he may only issue final bills at natural breaks in the matter.

…

13. If there is no authority under the retainer for the solicitor to issue final bills before the conclusion of the matter, then he would have to rely on the authority to issue final bills at natural breaks.If a number of bills have been issued, and the solicitor asserts that any one of those bills is a final bill, he has the burden of proving that bill is a separate and final bill and not one of a series of bills. Romer & Haslam [1893] 2 QB 286 is the leading authority on how a court should approach the question of whether the bills are separate bills or a series forming one bill. …

…

15. To determine whether a bill is a separate bill or one of a series of bills, the court has to ask two questions: first, whether the solicitor has the power to send it in as a final bill and second,whether the bill has been delivered as a final bill. The answers toboth questions must be in the affirmative if a bill among a numberof bills is to be treated as a separate final bill of costs. The burden of proof in respect of both questions is on the solicitor.

16. The first question has always been regarded as a question of law, but in my view, it could be a mixed question of law and of fact. In the absence of any contractual provision in the retainer giving the solicitor the power to issue final bills, he has to prove that the bill was rendered at a natural break in the litigation. There is an absence of authority as to what constitutes a natural break. In Romer & Haslam, Bowen LJ said such breaks could not and need not be defined. I certainly would not try to attempt to do what the distinguished judge did not do, but there are some features in such a break which could be identified. I think a natural break is not synonymous with the conclusion of a distinct and separate matter. A litigation involves many distinct and identifiable stages: pre-trial interlocutory stage, the trial itself, enforcement, execution and of course taxation of the successful party’s costs. It is never difficult for a solicitor to split up a litigation into separate and distinct matters or stages. He can even treat each interlocutory application, such as an Order 14 application or an interlocutory injunction as a separate and distinct matter. However, in reality when a client embarks on a litigation, he relies on his solicitor for the conduct of the litigation. A lay client has no idea about the niceties of distinct and separate matters or stages and the number ofmatters involved. He consults his solicitor and gives instructions to him as and when the need arises. He is more concerned if the litigation is on-going and if there are steps to be taken or if the litigation is going to be dormant. Usually, a client considers the litigation as just one matter starting with his first instruction to his solicitor and ending with his obtaining the fruits of the litigation or a confirmation that he has no right to enforce. In the absence of an agreement to the contrary or special circumstances, it cannot be right to treat these separate component matters of a litigation as distinct matters and to treat the conclusion of each of these distinct and separate matters as a natural break to entitle a solicitor to issue a final bill. In my view, the conclusion of a distinct and separate matter is but one feature of a natural break and not the sole determining feature.

17. In my judgment, to constitute a natural break there must be either (1) a physical break in the litigation process of such a duration as would entitle a solicitor to say to his client that the matter is going to be inactive for an indefinite period or for a foreseeably long period that it is appropriate to square or finalise the account for the time being or (2) a break in the nexus between one component matter and another in the litigation. Thus, the conclusion of a distinct and separate matter in a litigation by itself is not a natural break. It may well mark the natural beginning of another distinct and separate matter.The conclusion of a distinctand separate matter in a litigation only makes a break natural if thereis a break. For example, if after obtaining a quia timet injunction, the parties were satisfied with the status quo and did not progress further for damages or permanent injunction and the action went dormant for some time which was resurrected when another threatenact of infringement occurred, then one may say there was a natural break when the interlocutory injunction was granted. But, if the litigation progresses spontaneously with discovery and then progresses to trial, there is no break in the nexus between the interlocutory injunction and the trial. Under those circumstances, the interlocutory injunction and the trial are one matter despite theyare made up of two distinct and separate ones. While as Bowen LJ said a natural break may not be capable of precise definition, it certainly has either of the above features or a combination of the above features to various extent. That is why I consider the first question could be a mixed question of law and fact.

18.   The second question is a question of fact.  There are two elements here.  The solicitor has to deliver the bill intending it to be a final bill and it is also intended and understood by the client to be a final bill.  This question has to be answered by looking at the intention of the solicitor and the client, their conduct, the reaction of the client upon receipt of the bill and the form the bill took.  No assistance could be derived from any decided case.”         [underline added]

36.  The plaintiffs’ primary position is that the 1^st Bill and the 2^ndBill were interim bills.  Time for their taxation did not start to run until the 3^rdBill, which was the final bill, on 29 March 2017 (or 5 May 2017 when it was revised).  These proceedings were commenced on 15 August 2017, and the court should order them to be be taxed under the 2^nd regime of section 67.  The plaintiffs’ alternative position is that if the 1^stBill and the 2^ndBill were interim final bills, there exists special circumstances in the present case calling for their taxation under the 3^rd regime of section 67.

Interim or interim final bills

37.  As explained in Chin Yuk Lun Francis, the starting point is to look at the retainer.  However, it is common ground that there was no written retainer in the present case.  The affidavit evidence also did not suggest that there was any oral agreement between the parties prior to the very first bill issued by the defendant, ie, the Original Bill, that empowered the defendant to issue interim final bills.  In other words, the defendant had the power to issue interim final bill only at natural break of the litigation process in which they were instructed to handle.  This is the defendant’s burden of proof.

38.  It is also common ground that the master dealt with the defendant’s argument that the bills in question were delivered as interim final bills as well as received and understood as such by the plaintiffs, but he did not address the question ofnatural break in his reasoning.  Mr Chain submitted that the question of natural break was merely an alternative argument, which became unnecessary once the master concluded that there was agreement between the parties regarding the issuance of an interim final bill.  Insofar as this was the view taken by him and the master, I would disagree.

39.  It is clear from Chin Yuk Lun Francis (above) that to determine whether a bill is a separate bill or one of a series of bills, the court has to ask two questions: (1) whether the solicitor has the power to send it as a final bill; and (2) whether the bill has been delivered and received as a final bill.  DHCJ To made it clear that these are two questions that must be answered in the affirmative if the bill in question is to be treated as an interim final bill.  The two are not alternatives to one another.  We do not get to consider the second question, if the solicitor had no authority to issue an interim final bill at the time he or she did that in the first place.

40.  It does appear that the master and Mr Chain focused on the fact that the 1^stBill and the 2^ndBill were issued upon the request of the plaintiffs to split the Original Bill, and that this amounted to express agreement between the parties for the issuance of final bills.  I would however exercise caution in interpreting such episode.

41.  What caused the plaintiffs to request for the splitting the Original Bill into two must be considered from their perspective at the relevant time.  This was the very first bill.  As mentioned, the plaintiffs were concerned to know which part of the legal costs incurred by then fell into what Ma should be liable under the STA to contribute, notwithstanding the fact that the plaintiffs were primarily liable for all the costs to the defendant as its clients.  The request so made per se did not provide the answer to the second question to be asked according to Chin Yuk Lun Francis, let alone rendering the consideration of the first question unnecessary.

42.  Mr Chain then argued that the Original Bill (and the 1^st Bill and the 2^nd Bill as its derivatives) was also issued at a natural break of the litigation in the present case, the break being the conclusion of CACV 79/2011.  He described that as a significant milestone in the dispute between the plaintiffs and the Keeneye Group.  By then, the Xi’an arbitrationaward was confirmed by the Mainland court while the leave to enforce it inHong Kong was confirmed by the Hong Kong Court of Appeal.  On the contrary, Ms Cheung disagreed, saying that the timing of issuing the bills was random and arbitrary.

43.  Considering the ongoing legal dispute surrounding the plaintiffs at the time, I agree with Ms Cheung. DHCJ To in Chin Yuk Lun Francis made it clear that whilst natural break could not be of precise definition, its features in such a break were identified.  The conclusion of a distinct and separate matter or a particular stage in litigation is not equivalent to a natural break or even a determining feature of natural break.  The learned deputy judge specifically explained with reference to the spontaneous progress of the litigation after the conclusion of a particular matter or stage, which he would describe as parts of one matter.  Even for CACV 79/2011, the proceedings did not actually end with the appellate court’s substantive decision but the further application for leave to appeal to the Court of Final Appeal, which was eventually dismissed in March 2012.  It was unclear how it could be treated as a natural break in all the ongoing litigious matters which the defendant was instructed to advise on and to handle, including HCA 1315/2009, but yet to conclude[4].  There was certainly not the kind of break as explained by DHCJ To in §17 of the judgment of Chin Yuk Lun Francis (above).  Whilst this mightappear to be convenient timing for the defendant to issue a bill, especially when no billing had been done for 3 years since 2009, that in my view was not a natural break in the litigation progress that would have empowered the defendant to issue such bill as an interim final bill.

44.  Even assuming that we are to consider the second question, then as discussed above, the fact that the plaintiffs requested for the Original Bill to be spilt per se did not answer the question in the affirmative, if we consider the plaintiffs’ perspective in making the request as opposed to the probable intention of the defendant as to the issuing of a final bill for settlement.  All those must be considered against the background that there were various complex litigious matters going on, and that was the very first bill.

45.  Concerning the plaintiffs’ reaction to the bills, certain other observations were made by counsel, and some by the master as well, including:

(1)   that the plaintiffs made further payments to the defendant after the 1^st and the 2^nd Bills;

(2)   that the solicitor-client relationship between the parties continued, notwithstanding the plaintiffs’ failure to settle the bills; and

(3)   that the 1^st Bill and the 2^ndBill were produced as evidence in support of the plaintiffs’ counterclaim against Ma in HCA 466/2012.

46.  As to (1) above, the plaintiffs made further payments of HK$3,000,000 and HK$1,000,000 in late 2012 and mid-2015 respectively to the defendant.  Insofar as these payments were said to be settlement of the bills, it was at least equally real that they were paid as further costs on account from time to time, as in any given case, and which the solicitors could appropriate towards the settlement of the costs and disbursement incurred.  These were also sums paid in round figures.  Further the fact that the plaintiffs acknowledged their liability to settle their legal costs was not necessarily acceptance of the bills in their entirety.

47.  As to (2) above, the plaintiffs questioned why the defendant did not stop providing service to the plaintiffs in the absence of settlement ofthe two bills, if the bills were final bills.  Much was said about the master’s reasoning by reference to what was believed to be the defendant’s concern about maintaining the client relationship.  Ms Cheung criticized that as unsupported by any affidavit evidence, whereas Mr Chain argued that it was an inference that the master was entitled to draw.  A realistic view of the matter caused me to believe that this was probably a neutral factor.

48.  The fact was that both sides were apparently minded to maintain the solicitor-client relationship.  The defendant continued to provide professional service to the plaintiffs while they continued to resolve their differences in respect of the legal costs.  As mentioned, the litigation involving the plaintiffs continued, and new litigation (HCA 466/2012) also arose.  As the correspondence revealed, the parties have maintained a fairly tolerating attitude until after the handing down of the judgment in HCA 46/2012 in August 2016.

49.  As to (3) above, the use of the 1^stBill and the 2^nd Bill as evidence in support ofthe plaintiffs’ counterclaim against Ma in HCA 466/2012, in my view, could not be overly emphasized.  Again, what is in issue is the intention and understanding of the plaintiffs at the time when they received the Original Bill (or the 1^st Bill and the 2^ndBill as its derivatives).  The use of the bills as evidence has not come about at that time.  When the bills came to be produced subsequently as evidence, the focus of the parties herein was not on the acceptance of the entirety of the bills as a matter between them but on the bills as documentary evidence in support of the claim against Ma, which was in dispute.

50.  All considered, I do not find that the two relevant questions as explained by DHCJ To in Chin Yuk Lun Francis and mentioned above could be answered in the affirmative.  As such, the Original Bill, as well as the 1^stBill and the 2^ndBill as its derivatives, were interim bills.  It follows that the time limit for their taxation did not start to run until the final account represented by the 3^rdBill issued on 29 March 2017 (and revised on 5 May 2017).  They may be taxed under the 2^nd regime of section 67.

Special circumstances

51.  In the event that I am wrong above, and that the defendant had the power to issue, and the 1^st Bill and the 2^nd Bill so issued were, interim final bills, I proceed to consider for completeness what the plaintiff relied on as special circumstances justifying taxation of the 2 bills under the 3^rd regime of section 67.

52.  In this regard, DHCJ Lok (as he then was) in Ding Xiaohong (above) summarized the principles as follows (at §32):

“ As regards what constitute special circumstances, the following legal principles are relevant:

(i) they are something out of the ordinary, something serious to justify not only an ordinary taxation but a special one (see: Re Miller Peart [2007] 3 HKLRD 125 at §65, per Recorder Jat SC);

(ii) the discretion to extend the limitation is a wide one and a liberal interpretation should be given to the words ‘specialcircumstances’ (see: Re Solicitors [1984] HKC 346 at 349I, per Mayo J);

(iii) each case will depend on its own facts (see: Re Miller Peart, supra, at §85);

(iv) overcharging and false charging are well-established special circumstances (see: Re Miller Peart, supra, at §86, Re Solicitors, supra, at 349D–I, Wang Yeoh Yu Ruth v Chan Victoria [1988] 1 HKC 687 at 690I–691E, In Re Norman (1886) QBD 673 at 676 and Re A Solicitor [1961] 1 Ch 491); and

(v)   lack of particularity in the bill also constitutes a special circumstance (see: Springbok Shipping (HK) Ltd v Clayton Wong & Co [1998] 1 HKLRD 225 at 227E–F).”

53.  In the passage cited above, (i) explained the pre-requisite nature of special circumstances.  (ii) and (iii) above set out the approach of the court in each case.  (iv) and (v) above were instances of special circumstances, which, pursuant to (ii) and (iii), were not exhaustive.

54.  The circumstances relied on by the plaintiffs may be grouped as follows:

(1)   To begin with, there was no written retainer or record of provision of the costing information to the plaintiffs until the issuance of the Original Bill (and the 1^st Bill and the 2^nd Bill as its derivatives) in January 2012 and the provision of the breakdown in February 2012.  The defendant also failed to keep the plaintiffs informed at the material time of the fees being incurred until some 3 years after the commencement of the provision of professional service.[5] The timing of and the manner in which the bills were rendered to the plaintiffs created tremendous difficulty and confusion on the part of the plaintiffs in understanding them.  Therefore, whilst the defendant could apparently explain the arithmetic for the purpose of this hearing, the exact amount of costs on account received by the defendant should still be investigated and verified[6].

(2)   There were instances of potential overcharging[7].

(3)   The defendant failed to advise the plaintiffs in respect of their right to seek taxation of the defendant’s bills until June 2017.  Upon knowing their right, the defendants have acted promptly seeking taxation[8].

(4)   It will be grossly unfair for the court’s hands to be tied, if it is not allowed to look into the 1^st Bill and the 2^nd Bill during the taxation of the 3^rd Bill, while they represented the different stages and works in connection with the same dispute[9].

55.  As to (1) above, there was no written retainer.  Nor was there evidence of documentary costing information from the defendant to the plaintiff.  The plaintiffs were given a first bill for work done over 3 years in respect of admittedly complex multiple litigations in Hong Kong and the Mainland.  By the time of the Original Bill, over HK$21,000,000 costs on account have been paid by the plaintiffs, which, according to the defendant, fell short of what had allegedly been incurred.  From the plaintiffs’ perspective as well as objectively, the bill could not be said to have come promptly.

56.  A solicitor should deliver a bill of costs to his client within a reasonable time of the conclusion of the matter to which the bill relates.  The Hong Kong Solicitors’ Guide to Professional Conduct of the Law Society of Hong Kong (“Professional Guide”) says so at §4.09.  Mr Chain might be right in saying that the present application is not about finding any professional misconduct on the part of the defendant. However, the guide remains relevant as a reliable measure of what the generally accepted professional duty of a solicitor in this respect is.

57.  As to the complaint about failure to keep the plaintiffs fully abreast of the legal fees to be incurred at the material time of the fees being incurred, Ms Cheung criticized the master for somehow finding that the plaintiffs must have been informed of the work done and costs incurred from time to time, when there was lack of affidavit evidence in support.  Mr Chain defended the master’s reasoning as a matter inference that he was entitled to draw in the circumstances.

58.  In my view,whilst it may sound safe to suppose, or even infer if the evidence in hands allow, that the plaintiffs must have somehow been informed of what steps were to be taken and what work needed to be done as well as the further costs that they needed to put the defendant on account from time to time, the reality of the matter was that the circumstances like those in the present case left room for questioning how exactly the client was being charged in connection with the steps or work that the solicitor might have described to them.  This was especially true, when the plaintiffs were faced with charges for millions of dollars for over 1,000 hours of work done from May to October 2009, and the breakdown provided in February 2012 highlighted the reality of the matter.

59.  Whilst Ms Cheung accepted for the present purpose that the defendant apparently managed to explain the arithmetic, she maintained that consideration should still be had of the need to investigate and to verify the amount of legal costs received by the defendant on the plaintiffs’ account.  The plaintiffs also took issue as to the treatment of HK$3,000,000 and HK$1,000,000 paid in November 2012 and May 2015 respectively.  They were received after the two bills have been issued, and were treated by the defendant as partial settlement of the 1^st Bill, contrary to the plaintiffs’ case that they were paid, as previously, as further costs on account in round sums.

60.  However, one point that the plaintiffs took in this respect may not be significant.  The defendant’s receipts in respect of the two sums mentioned above referred to them as partial settlement of the defendant’s bill numbered 35402.  This bill number was questioned, as the bills issued to the plaintiffs did not bear such number.  In my view, this may actually be a matter of red-herring.  None of the 3 bills, as the only bills, issued to the plaintiffs bore any bill number, but they did contain the same reference number, which matched the one stated in both receipts.  The possibility of misallocation of the 2 sums paid to some other cause or matter unrelated to the plaintiffs is not real.

61.  Mr Chain emphasized the complexity of the legal dispute and the volume of work done as the reason for the difficulty of the defendant in billing and as the answer to the plaintiffs’ complaint about the lack of explanation of the legal costs with respect to the individual cases or pieces of litigation.  Apparently the master accepted such argument, for which Ms Cheung also criticized on the ground of lack of actual assertion or evidence by the defendant to that effect.

62.  I have no intention of under-estimating the difficulty, including that in billing all the work and time spent with reference to the respective pieces of litigation, when they were indeed all related.  However, it was such circumstances that made the defendant’s discharge of its professional duty in rendering its bill both clearly and timely all the more important.  With greater complexity of the dispute, and thus substantial work to be done by the solicitor in connection with it, comes the need for higher sensitivity in the discharge of the solicitor’s duty to render bill to the client properly and timely.  Otherwise, any resultant difficulty or confusion upon the receipt of the bill, in my view, should not be for the client to bear entirely.  That the defendant somehow chose to allow the matter to proceed and to develop the way it did gave rise to risk of argument with client.  As DHCJ To expressed in Chin Yuk Lun Francis, that became primarily a risk that the solicitor is expected to undertake in such circumstances.

63.  As to (2) above, the plaintiffs alleged various instances of potential overcharging:

(1)   The defendant was suspected to have overcharged for general care and conduct by substantial overlap for the time billed.  According to the marked-up invoices provided by the defendant relating to work covered by the 1^st Bill, the defendant has set out a description of work done with the time spent by its solicitors that were billed on an hourly basis.  Charges includedthose for attending meetings with clients as well as with clientsand counsel.  Doubt was raised as to how the legal team of the defendant came to charge for over 325 hours for general care and conduct on top of the charges for attending those meetings during February to October 2009.

(2)   In respect of the 1^st Bill, queries were raised as to the reasonableness of the fees incurred by solicitors over the five months covered by this bill (HK$5,127,625) relative to counsel’s fees (HK$1,407,870) for five counsel including one Senior Counsel involved since the early stage.  Potentially excessive solicitors’ charges were suggested.

(3)   Disbursement for travelling expenses was questioned.  They included, in the 1^stBill and the 2^nd Bill, total travelling expensesin the sum of HK$42,000 as well as airfare and accommodation expenses in the total sum of HK$100,000.  The query was raised on the basis that the accommodation has been arranged and paid for by the plaintiffs at the request of the defendant.  An example of the relevant email correspondence was referred to in support.  The query was not put to rest without a view of the relevant invoice or receipt.

(4)   Question was also raised as to the propriety of the defendant’s charges for acting as witness in litigation on behalf of the plaintiffs.

64.  The master considered that the above complaints were too general to be concrete.  While Mr Chain referred to Ding Xiao Hong (above) and Johnson Stokes Master v Jackin Total Fulfilment Services Ltd [2007] 4 HKLRD 336 at §39[10] in this respect, he acknowledged that each case turns on its own facts .  His point was really that a stringent test ought to be adopted before complaint about specific items in the bill would be accepted as giving rise to special circumstance.

65.  The specificity of the client’s complaint about items of the bills is certainly important.  However, as what amount to special circumstances for the present purpose are not exhaustively defined, it is important to consider the specificity of the client’s complaint against the client’s ability and effort in scrutinizing the bills in the circumstances of the case.  The volume of the bills, the number of items, the nature of the items and the manner in which the bills were rendered to the client relevant. Against these circumstances in the present case as discussed above, the plaintiffs’ complaint may not be as specific as that in Ding Xiao Hong but was apparently not as generalized as that in Johnson Stokes Master v Jackin Total Fulfilment Services Ltd. Whether complaints as such could be said to be sufficiently specific for constituting special circumstances for the present purpose perhaps ought not be dismissed immediately.

66.  As to (3) above, the defendant was under the professional duty to advise the plaintiffs as to their right to seek taxation, if they objected to any part of the bill received[11].. This is beyond dispute.  Mr Chain referred to Greaterchinaherbs.com Ltd v Deacons, HCMP 1079/2002 etc (6 August 2002) per DHCJ Woolley, where various plaintiffs applied for the bills issued by the defendant firm to be taxed.  The learned DHCJ explained[12] that it had to be a complaint or objection to the bill instead of an innocent enquiry or query before the duty to advise the client as to his or her right to seek taxation arose.  I see no argument against that.  However, in the present case, I do not think that the plaintiffs merely raised a casual or innocent query about a single item of the bills.  The DHCJ also explained[13] that it would defy common sense to hold that a breach of such duty, which would have no effect on the client who was well aware of his right, should entitle that client to a taxation as of right.  Again, I do not see argument against that.  However, what caused the court in that case to say that was that the client in that case was represented by its group legal counsel who was a qualified solicitor.

67.  In the email to the plaintiffs dated 3 February 2012, with which the defendant attached the breakdown of the work done charged under the 1^stBill and the 2^ndBill, the defendant advised that if the plaintiffs took the view that they were overcharged, they should refer the matter “to the Law Society for assessment”.  Precisely how the defendant came to give such advice and what was intended by advice in those terms remain vague.  Suffice it to say that such advice was on its face misleading.

68.  The master considered the misleading advice to be insignificant because had the plaintiffs acted on such advice, albeit incorrect, they would probably have found out about their right to seek taxation.  And if the plaintiffs did not act on such advice, it would not matter whether the advice was correct or misleading.  I share Ms Cheung’s reservation about such view.  I think it would be unsafe and unfair to speculate how the plaintiffs would have acted, had the correct advice been given at the time as to not only the right to taxation but also the time limit for taxation.

69.  The 3^rd Bill was issued on 29 March 2017 and revised on 5 May 2017.  The further demand by the defendant to settle the bills included its email dated 1 June 2017.  It was in this email that the defendant for the first time mentioned to the plaintiffs their right to seek independent legal advice as to whether or not to seek taxation of their fees, though, I understand, the defendant was referring to the 3^rdBill only.

70.  The plaintiffs, still in person, acted without delay.  They complained to the Law Society immediately.  They also, though wrongly in terms of procedure, applied for taxation of the bills in HCA 1315/2009 within the same month, which was eventually dismissed.  The proceedings herein were commenced shortly afterwards in August 2017.  The defendant’s complaint about having been vexed more than once in respect of the question of taxation should perhaps be viewed against the above background.

71.  As to (4) above, Ms Cheung argued that since the court will be taxing the 3^rd Bill in any event, it would be grossly unfair to the plaintiffs if the court finds that there is any instance of overcharging or false charging for the items in the 3^rd Bill, the court is not allowed to investigate the propriety of the fees charged in the earlier bills and to adjust the figures accordingly.  It was submitted that on this ground alone, the 1^st Bill and the 2^nd Bill ought to be included in the taxation exercise.  She also referred to what the DHCJ said[14] in Ding Xiao Hong (above) for support.

72.  I have reservation about such argument.  If the previous bills are barred from taxation indeed for valid reasons, the parties and the court will have to take them as they were when proceeding with the taxation of the remaining bills.  That does not mean that the previous bills could not be referred to in the taxation of the remaining bills.  If the nature and amount of any items in the previous bills has bearing on the assessment of the reasonableness of the items in the remaining bills, the court would, and probably should, take those into account, albeit as they were.  As to Ding Xiao Hong (above), there were detailed evidence from the bills, as the court there observed, to found special circumstances justifying an order for taxation out of time in the first place.  It was in such circumstances that the court made the comment that Ms Cheung now cited in support.

73.  The requirement of special circumstances should receive liberal interpretation, and the existence or not of such circumstances varies with the facts of each individual case.  A realistic view of the facts of each case must be taken before concluding whether the relevant legal principles operate to call for taxation in the case.  All considered, it could not be said that the basis for ordering taxation in respect of the 1^st Bill and the 2^ndBill, if they were interim final bills, under the 3^rd regime of section 67 is lacking.

Condition

74.  When ordering taxation under the 2^nd or the 3^rd regime of section 67, the court has discretion to impose terms, except terms as to the costs of the taxation.  Unlike an application for summary judgment, imposition of condition does not come into consideration as a result of a skeptical view of the merits of the defence.  It is mainly consideration of fairness between the parties.  In view of the nature of what is expected of the exercise being sought by the plaintiffs, the plaintiffs should expect to be liable to pay to the defendant part of the amount in question at the end of the exercise.  I also bear in mind the terms of the order being sought.  Mr Chain indeed proposed an order that the plaintiffs pay 70% of the amount of the balance of the 1^stBill and the 2^ndBill to the defendant and the remaining balance into court pending the taxation.  At the end of the hearing, counsel agreed that the court may, if so minded, impose condition on a nisi basis, so that the parties may apply to argue in respect of that, if so advised.

75.  I find it fair to order the plaintiffs to pay to the defendant as interim payment 70% of the balance of the 1^st Bill and the 2^ndBill in question and 20% of it into court pending the taxation.  The condition is imposed on a nisi basis, which shall become absolute in the absence of application in writing in 14 days to vary.

Disposition

76.  I allow the appeal and set aside the order of the master.  Except for the declaration sought mentioned above, which is not necessary, I give the order sought by the plaintiffs upon the following conditions:

(1)   compliance by the plaintiffs with the payment condition set out in §75 above within 14 days after the condition has become absolute;

(2)   taking out of taxation proceedings by the plaintiffs in respect of the 3 bills within 7 days after compliance with (1) above;

(3)   in default of the above, the 1^st Bill and the 2^nd Bill shall be barred from taxation, and the taxation shall cover the 3^rd Bill only.

77.  Unless agreed between the parties, order as to the costs of this application and appeal shall be given in writing by the court upon the above conditions becoming absolute.