WING MING GARMENT FACTORY LTD v. THE INCORPORATED OWNERS OF WING MING INDUSTRIAL CENTRE AND ANOTHER

HCA8805/1993
& CACV27/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8805 OF 1993

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JUDGMENT

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1.  Before the Court are two appeals from the orders of Master Hui made on 1 September 2011 dismissing the applications by the Plaintiff and the Third Party (for convenience I shall simply refer to both of them as “Appellants”) to strike out the 2^nd Defendant’s (“D2”) two Notices of Commencement of Taxation of Costs (“Notices”) dated 8 June 2011 filed in HCA8805/1993 and CACV27/2008 respectively, and extending time to commence taxation.

2.  In issue on this appeal is the Court’s approach in an application for extension of time to commence taxation proceedings made after the expiry of the 2-year period prescribed under RHC O.62 r.22(7) introduced by amendments made under the Civil Justice Reform .

Material facts

3.  The relevant facts are not in dispute.  The taxation arose from a High Court action (HCA8805/1993) and the ensuing appeal (CACV27/2008).

4.  On 20 December 2007, Reyes J dismissed the action and the Third Party’s counterclaim.  The Appellants were ordered to pay D2’s costs.  That costs order became absolute on 3 January 2008.

5.  The Appellants appealed against Reyes J’s judgment.  The Court of Appeal dismissed the appeal on 2 June 2008 with costs. The costs order in the Court of Appeal became absolute on 11 July 2008. 

6.  On 24 July 2008, the Appellants applied for leave to appeal to the Court of Final Appeal.  The leave application process took more than a year, involving a number of hearings before the Court of Appeal and the Appeal Committee.  It is unnecessary to go into the details.  In short, there were two unsuccessful applications for stay of execution and two

applications for leave to appeal to the Court of Final Appeal.  The last application ended on 16 September 2009, when the Appeal Committee granted the Plaintiff leave to appeal on one issue only.  In the process, a number of costs orders were made against the Appellants in favour of D2.

7.  However, on 3 November 2009, the Appellants abandoned the intended appeal.

8.  In the meantime, D2 did not take steps to have the costs orders in its favour taxed.  On 18 February 2010, D2’s solicitors (“W&C”) wrote to the Appellants’ (then) solicitors proposing a global settlement of all costs orders in favour of D2 in the total sum of $2.5 million.  No reply was given.

9.  The Appellants changed solicitors in March 2010.  The settlement proposal was repeated in W&C’s letter to the Appellants’ new solicitors on 26 March 2010.  Again, no reply was given. 

10.  In August and September 2010, the Appellants changed their solicitors to the firm now representing them (“OHS”).

11.  In November 2010, W&C on behalf of D2 instructed a law costs draftsman to prepare a formal bill of costs.  The formal bill was ready on 12 April 2011.  This was sent to OHS under cover of a letter dated 14 April 2011 from W&C, who stated that if the Appellants did not accept the bill within 14 days, D2 would proceed to taxation without further notice.  OHS replied stating that they were seeking instructions and requested W&C to withhold further action for 7 days.

12.  On 24 May 2011, W&C gave final notice to OHS to provide substantive reply to W&C’s letter dated 14 April 2011.  On 2 June 2011, OHS replied to W&C, raising the point that D2’s entitlement to commence taxation had been time-barred on 2 April 2011 under O. 62 r. 22(7).

13.  On 6 June 2011, D2 filed the Notices, which led to the Appellants issuing the strike out applications on 28 June 2011. 

14.  On 18 July 2011, D2 issued two summonses under O. 62 r. 16(1) seeking extensions of time to commence taxation.

The taxation provisions

15.  RHC O.62 r. 22(7), which was introduced as part of the CJR, provides that:

“A party is not entitled to commence taxation proceedings under rule 21 —

(a) after the expiry of 2 years from the completion date; or

(b) where the Court has extended the period specified in sub-paragraph (a), after the expiry of the period as extended,

whichever is later.”

16.  Since both the costs orders at first instance and in the Court of Appeal were made before the commencement of O. 62 r. 22(7), by virtue of O. 62 r. 22(8) & (9), the “completion date” under r. 22(7)(a) is taken to be the commencement date of the rule, i.e., 2 April 2009. There is no dispute that the 2-year period expired on 1 April 2011.

17.  O. 62 r. 16 gives the taxing master power to extend time to commence taxation proceedings.  Rule 16, in so far as material, provides as follow:

“(1) A taxing master may—(a) extend the period within which a party is require by or under this Order to begin proceedings for taxation or to do anything in or in connection with proceedings before that master …

(3) A taxing master may extend such period as is referred to in the foregoing provisions of this rule although the application for extension is not made until after the expiration of that period.”

18.  Hence, as Mr Paul Lam (appearing with Miss Kay Seto) correctly submitted on behalf of D2, the Court has jurisdiction to extend time to commence taxation.  The real issue is whether the Court should exercise its discretion to extend time in the circumstances of this case.

19.  Moreover, O. 62 r. 22(5) gives the taxing master very wide powers in cases of undue delay:

“On the taxation of a bill of costs, whether or not an order has been made under paragraph (3), the taxing master, if he is satisfied that there has been undue delay in commencing taxation proceedings or in proceeding with the taxation –

(a) may make such order as he thinks fit as to the costs of any application or as to the costs of the taxation;

(b) may disallow any part of the costs to be taxed pursuant to the costs order;

(c) may, in relation to the taxed costs or any part of those costs, disallow interest or reduce the period for which interest is payable or the rate at which interest is payable.”

Reasons for the delay

20.  It is perhaps fair to say that the only reasons advanced for the delay were two-fold.  First, D2 and its solicitors did not want to incur time and costs to proceed to taxation pending the intended appeal. Secondly, D2’s solicitors attempted to interest the Appellants in agreeing to the amount of costs, but did not realise the “time limit” introduced by O. 62 r. 22 (7).

21.  I note, for the record, that Mr Lam very fairly disavowed any suggestion that the Appellants or their solicitors are to blame for the delay.

Grounds of Appeal and Submissions

22.  Mr Barrie Barlow SC, counsel for the Appellants, drew my attention to the “new culture” under the CJR, as exemplified by the underlying objectives enshrined in O. 1A rr. 1-2.  He relied on the well-known judgment of Fok J (as his Lordship then was) in Top One International (China) Property Group Co. Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at paras 35, 31 and 55 and submitted that the CJR amendments mandated a more disciplined approach to time extensions.

23.  Mr Barlow impressed upon the Court that O. 62 r. 22(7) imposes a 2-year “limitation period” for commencing taxation, which should be strictly enforced unless there are genuine and compelling mitigating circumstances for non-observance.  Mr Barlow submitted that without more rigorous discipline, the new r.22(7) introduced by the CJR amendment would be no different from the pre-CJR regime and would not be effective to further the underlying objectives provided in O. 1A rr. 1 - 4. 

24.  Mr Barlow contends that on the facts, there is no special or compelling reason justifying extension of time.  In particular, he submitted that D2 has its remedies against W&C, which militates against extension of time.

25.  Mr Lam on his part agreed that the Court must construe O. 62 r. 22(7) in a way that would give effect to the underlying objectives under O. 1A r. 1: see O. 1A r. 2(1).  The Court must strive to give effect to the underlying objectives but must also take into account all relevant circumstances of the case.  He emphasised that in giving effect to the underlying objectives, the primary aim in exercising the power of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties: O. 1A r. 2(2).

26.  Mr Lam submitted that the 2-year period is not a “limitation period” which operates in the same way as limitation periods under the Limitation Ordinance. 

27.  On the facts of this case, Mr Lam submitted that the delay was just over 2 months, and not substantial when viewed against the long procedural history of the proceedings. The delay was not due to any default or misconduct on the part of D2.  The forbearance to proceed to taxation in view of the pending appeal, and thereafter applications for leave to appeal, was sensible and understandable. 

28.  Moreover, Mr Lam argued that on the facts, it was not the case that D2 did not intend to give up its rights to costs.  Rather, D2 intended to proceed as demonstrated by its repeated attempts to interest the Appellants in agreeing to an amount without taxation, and then instructing the law costs draftsman to prepare a formal bill.  It is regrettable that the bill was not ready until after 1 April 2011, and W&C did not realise that time limit.  But once D2/W&C realised that time had expired, an application was made quickly for extension of time.

29.  In this connection, Mr Lam referred me to a number of authorities in England and Hong Kong in which the courts have held that lack of an acceptable explanation for delay is not by itself a sufficient reason to refuse to extend time: see Toniello v Top Deck Ski Ltd, The Times 7 December 1998 (CA) per Auld LJ (with whom Judge LJ agreed); London Borough of Southwark v Nejad [1999] 1 Costs LR 62 (CA) at 64 per Waller LJ (with whom Roch LJ agreed); Hong Kong Housing Society v Tang Kar Hung CACV153/1999, 9 November 1999, at p. 6 per Keith JA (extension of time to file affidavit in summary judgment application).

30.  Finally, Mr Lam emphasised that there is no prejudice to the Appellants which could not be properly addressed by an appropriate order under O. 62 r. 22(5).  To disallow the time extension would be to give the Appellants an unjustified windfall, and would be a wholly disproportionate penalty to D2 in the circumstances of this case.

2-Year limitation period?

31.  Mr Barlow’s submission that the 2-year period under O. 62 r. 22(7) is a “limitation period” may have been inspired by the notes in the current edition of Hong Kong Civil Procedure 2012 at para 62/22/6.  However, as Mr Lam quite rightly pointed out, the 2-year period under r.22(7) is not analogous to “limitation periods” as that terms is normally understood in the technical sense.  Here, although the effect of failure to comply with the 2-year period is that the right to tax is “lost”, there are 2 critical differences between r.22(7) and limitations under the Limitation Ordinance:

32.1   First, as a general rule and subject to specific exceptions, limitation periods under the Limitation Ordinance are not capable of being extended.  On the other hand, the period under O. 62 r. 22(7) can be extended under O. 62 r. 16.

32.2   Secondly, under the Limitation Ordinance, once time runs out, the cause of action will be barred.  There is no power to resurrect it.  In contrast, O. 62 r. 16(3) expressly permits retrospective extension of time to commence taxation proceedings.

32.  Thus, although it may be a convenient way to describe the 2-year limit under O. 62 r. 22(7) as a “limitation period”, such usage is potentially misleading.  It is probably better to avoid using the term to describe the time limit under r. 22(7).

No good explanation for default

33.  The gravamen of Mr Barlow’s submission is that absent a good explanation, the Court should not exercise its discretion to extend time under O. 62 r. 22(7).  In my judgment, it is too extreme a position to take.

34.  In my view, the Court must take into account all relevant circumstances of the case, rather than being bound by a strait jacket. The absence of a good reason is a relevant consideration, may be even a compelling reason, why indulgence should be refused.  The Court must also give effect to the underlying objectives.  However, it is wrong in principle for the Court to ignore other relevant circumstances in the exercise of its discretion under O. 62 r. 16.

35.  Mr Barlow submitted that O. 2 r. 5 (application for relief from automatic sanctions) applies in the current situation because the effect of non-compliance with O. 62 r. 22(7) is that a “sanction”—in the form of loss of the right to commence taxation—automatically follows.  Hence, Mr Barlow submitted, O. 2 r. 5 applies in the determination of D2’s application for extension of time.

36.  I have considerable doubt as to whether O. 2 rr. 3-5 have any direct application to this case at all.  But even if those rules apply, O. 2 r. 5(1)(d) makes it clear that whether there is a good explanation for the failure to comply is a factor to be taken into account.  As Fok J pointed out in the Top One case, the Court in considering whether to grant relief from sanction should consider all relevant circumstances including those listed in r. 5(1)(a)-(j).  It is not the case that the absence of a good explanation automatically debars relief.

Exercise of discretion

37.  I therefore proceed to consider whether I should exercise my discretion to extend time in the circumstances of this case.

38.  In my judgment, to refuse the extension of time sought would be a disproportionate penalty to D2’s delay.  I have come to this conclusion taking into account the following factors.

39.  First, in my view, the delay is substantial.  Although the time to commence taxation only expired on 1 April 2011, this was only because of the operation of O. 62 r. 22(8).  On the facts, Reyes J made the costs order in D2’s favour in January 2008.  The appeal to the Court of Appeal was dismissed in June 2008.  The delay in relation to the costs order made by the Judge is over 3 years and that in relation to the Court of Appeal is almost 3 years.

40.  However, I must also take into account the long procedural history of these proceedings.  Although I accept that D2 and W&C did not proceed to tax in order to avoid wasting time and costs should the Appellants succeed in their appeal, D2 could have protected its position on costs by securing their consent to a moratorium.  If no consent were forthcoming, D2 should have proceeded to taxation.  It has not done so and must bear responsibility for the delay. 

41.  On the whole, I would consider the delay to be substantial and this is a factor against D2.

42.  Secondly, I agree with Mr Lam that the delay was not due to any deliberate conduct or fault on the part of D2.  It was caused by W&C’s oversight.  This is a factor to be taken into account. 

43.  That said, W&C’s oversight is not a good reason for the default.  This must be a weighty factor against D2. 

44.  Mr Barlow submits that D2 has a remedy against W&C for negligence, and its claim would probably be amendable to summary judgment.  In my view, although D2 appears to have a good case against W&C for loss of its right to taxation, to force D2 to sue W&C for its loss serves to transfer the burden to pay D2’s costs from the Appellants to W&C.  It would also result in further proceedings and further use of the Court’s and parties’ time and resources.  There is insufficient justification to do so. 

45.  Mr Barlow referred me to the Court of Appeal’s decision in Cheung Yiu Wing v Celestial Asia Securities Holding Ltd CACV254/2005, 22 June 2006, at para. 8 where Le Pichon JA said (with the concurrence of Rogers VP and Stone J):

“… [counsel for the appellant] seemed quite unable to grasp the elementary principle that had there been any fault or blameworthiness on the part of [the appellant’s former solicitors] in failing to call potential witnesses, his client’s remedy lay in proceedings in negligence against [the solicitors] and not in an order for a retrial.”

46.  However, that case concerned an appeal seeking a re-trial on the ground that the solicitors failed to call certain witnesses.  Le Pichon JA continued to say, immediately after the quote cited by Mr Barlow, that:

“The court system would grind to a halt if an unsuccessful litigant could obtain an order for a retrial on the basis that relevant evidence could have been obtained with reasonable diligence but had not been adduced at the trial, not to mention the injustice of depriving the successful party of a judgment in his favour after a full trial.”

47.  The Cheung case is plainly distinguishable and Le Pichon JA’s observations must not be taken out of context.

48.  Thirdly, I take into account the fact that the delay has caused no prejudice to the Appellants.  Indeed, as Mr Lam has pointed out, to deny the extension of time would mean that the Appellants would get a windfall.  This factor was considered to be weighty in the two English Court of Appeal decisions cited above, i.e. Toniello and Southwark LBC, in a relevantly similar context (both cases concerned extension of time to commence taxation under the County Court Rules, which were similar to our scheme under O. 62 r. 22 (7) but the time limit there was 3 months).  In my view, this factor weighs in favour of D2.

49.  Finally, I agree with Mr Lam that there is sufficient flexibility given to the taxing master under O. 62 r. 22(5) to impose whatever “penalty” that the master may consider to be appropriate in the circumstances of this case.  Such power includes depriving the receiving party a portion of the costs so taxed, or to deprive him of all or part of the interest.  Mr Lam submitted, and I accept, that it should be up to the taxing master to deploy this built-in mechanism in light of the circumstances of the case to achieve a just result.

50.  Taking into account the above considerations, in my judgment the Court should exercise its discretion to extend time to commence taxation proceedings.  To refuse the extension would, in my judgment, be a wholly disproportionate penalty.

Result

51.  The appeals are therefore dismissed.  Counsel agreed that costs should follow the event, and I order that D2 shall have its costs of these appeals.

52.  Lastly, I thank counsel for their able assistance.