ANDREW KO KAO aka KAO ANDREW KAO v. OLDHAM, LI & NIE, SOLICITORS (A FIRM)

HCMP 2129/2021

[2023] HKCFI 553

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2129 OF 2021

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DECISION

1.  This concerns the parties’ respective applications for varying the costs order nisi I made upon a hotly contested taxation hearing held on 6 September 2022 ordering the Plaintiff to pay the Defendant’s costs of taxation (“Costs Order Nisi”). By consent, these applications are dealt with by way of paper disposal.

2.  By his summons filed on 19 September 2022 (“Plaintiff’s Summons”), the Plaintiff asks for variation of the Costs Order Nisi to the effect that the Defendant do pay his costs up to 12 August 2022, being 14 days after the Defendant’s Sanctioned Offer dated 29 July 2022 (“Sanctioned Offer”) on the grounds that the Plaintiff has succeeded in having more than one-sixth of the claimed amount under the Defendant’s bill of costs taxed off.

3.  By its summons filed on 28 October 2022 (“Defendant’s Summons”), the Defendant asks for, inter alia, variation of the Costs Order Nisi to the effect that the Plaintiff do pay the Defendant its costs of taxation on an indemnity basis with enhanced interest thereon and costs of these proceedings and the Defendant’s Summons on an indemnity basis on the grounds that the Plaintiff has failed to beat the Sanctioned Offer.

4.  The Defendant formerly acted for the Plaintiff in his matrimonial proceedings against his former wife (“Matrimonial Proceedings”) and further represented certain companies of which the Plaintiff was a director and for which the Plaintiff gave instructions to the Defendant (“Commercial Proceedings”) for around 3 months up to 15 November 2021.

5.  Up till now, the Plaintiff still sees fit to describe what the Defendant was tasked with as being mundane in nature while not disputing the Defendant’s assertion that its fee earners had to review 39 lever arch files generated in the Matrimonial Proceedings to get to understand the history of the 6-year-old litigation and provide proper advice to the Plaintiff on various interlocutory matters with deadlines for compliance with certain court orders soon coming up.

6.  Disputing the Defendant’s invoices issued in the two sets of Proceedings, the Plaintiff commenced two sets of taxation proceedings in December 2021, namely, the present one in respect of invoices pertaining to the Matrimonial Proceedings and HCMP 2178/2021 on behalf of his companies in respect of invoices pertaining to the Commercial Proceedings.

7.  It is the Defendant’s case that prior to commencement of these taxation proceedings, the parties reached an agreement on 15 October 2021 for settlement of its fees, which the Plaintiff sought to re-negotiate a week later. The Plaintiff denied the same. For the present purposes, I am unable to rule on this factual dispute on affidavit evidence alone. In any event, the truth or otherwise of either party’s case carries no significant bearing on my ruling below.

8.  On 17 November 2021, the Plaintiff wrote to the Defendant to terminate its retainer, two days after his newly appointed solicitors filed and served a notice of change of solicitors. On the same date, the Defendant applied the Plaintiff’s (and his companies’) costs on account in partial settlement of outstanding fees and sent an email to the Plaintiff, which the Defendant describes as its open offer to the Plaintiff (and his companies) (“Open Offer”) for settlement of the outstanding fees in both sets of Proceedings. In its submission lodged for paper disposal, the Defendant says the Open Offer put the offered amount at HK$987,742, costs on account at HK$506,742 and net payable amount at HK$475,000.

9.  Disputing the Defendant’s entitlement to apply costs of account towards partial payment of outstanding fees, the Plaintiff sought clarification of the various figures set out in the Open Offer 2 days later. On record, the Defendant did not provide such clarification until filing affidavit evidence for the present purposes.

10.  In his affirmations filed for the present purposes, the Plaintiff adamantly asserts the Defendant’s failure to clarify how it arrived at the component figures comprised in the Open Offer, particularly the figure as to the costs on account which the Defendant had purportedly applied in arriving at the outstanding balance due from the Plaintiff (and his companies).

11.  On evidence, there is some truth in the Plaintiff’s complaint when the Defendant did not disclose in the Open Offer the fact that it had transferred part of the Plaintiff’s costs on account for the Matrimonial Proceedings to those of the Plaintiff’s companies for the Commercial Proceedings and such internal transfer was only revealed in its affidavit in reply filed for the present purposes.

12.  The Plaintiff did not accept the Open Offer and made via Messrs. Withers a counter offer on 8 December 2021 which, if accepted, would oblige the Plaintiff (and his companies) to pay nothing further, which counter-offer the Defendant naturally did not accept.

13.  Soon afterwards, the Defendant commenced recovery action in the District Court which has been stayed in favour of the present taxation proceedings. The Defendant eventually filed a bill of costs claiming close to HK$1.3 million (“Bill of Costs”) to which the Plaintiff filed a long list of objections.

14.  On 9 July 2022 (slightly more than one month before the taxation hearing proper), the Defendant made the Sanctioned Offer to accept around HK$0.8 million (inclusive of costs of taxation) in full and final settlement of the Bill of Costs which the Plaintiff flatly rejected without seeking clarification thereof. On 2 September 2022 (4 days before the taxation hearing proper), the Plaintiff counter-offered to pay profit costs and disbursements at HK$570,000 with no order as to costs of taxation. The Defendant did not accept the same and the matter proceeded to taxation hearing proper on 6 September 2022 whereupon I taxed down the Bill of Costs by well over 20%.

15.  In a word, the Plaintiff failed to beat the Sanctioned Offer but otherwise succeeded in having the Bill of Costs taxed down by more than one-sixth thereof.

16.  In support of his summons for costs up to 14 days after the date of the Sanctioned Offer, the Plaintiff relies on s.67(5)(b) of the Legal Practitioners Ordinance, Cap.159 (“LPO”), which stipulates, inter alia, that unless the order for taxation otherwise provides, the costs of the taxation shall be paid according to the event of the taxation, that is to say, if one-sixth or more of the amount of the bill is taxed off, the solicitor shall pay the costs, but otherwise the party chargeable shall pay the costs.

17.  Section 67(5)(b) of LPO further provides that where any special circumstances relating to the bill or the taxation thereof exist, the Court may make any such order as it thinks fit respecting the payment of the costs of the taxation. I take the view that failure to beat a sanctioned offer in itself can constitute special circumstances for the purpose of this section, whether generally speaking or in the particular circumstances of a case.

18.  It is immediately clear that s.67(5)(b) of LPO has reserved to the taxing master unfettered discretion to make orders on taxation costs including whether the solicitor can be excused from having to pay the client’s taxation costs even if more than 1/6^th of the amount of his bill is taxed off.

19.  In this connection, it is pertinent to note that Order 62, rule 32A(1) of the Rules of the High Court provides that a party entitled to payment of any costs to be taxed is also entitled to his costs of the taxation except where any ordinance (here LPO) provides otherwise or the Court makes some other order in relation to all or part of the costs of the taxation. In deciding whether to make some other order, the Court shall have regard to the underlying objectives set out in Order 1A, rule 1 and all the circumstances, including the conduct of all the parties.

20.  In opposition to the Plaintiff’s summons (and in support of its own summons), the Defendant relies heavily on the Open Offer which it says the Plaintiff should have accepted to absolve the need for these taxation proceedings. The Defendant further argues that the Plaintiff did not obtain a deduction of more than 1/6^th of the Open Offer and only obtained 3.33% more than 1/6^th of the Bill of Costs.

21.  As shown in the above, the Open Offer was premised on the Plaintiff’s costs on account (together with those of his companies for the Commercial Proceedings) having been applied (on the Defendant’s own accord) to settle part of the outstanding fees but the Plaintiff had right from the beginning disputed the Defendant’s right so to do, hence the Defendant’s inclusion of all outstanding fees in the Bill of Costs. And the Plaintiff’s complaint about the Defendant’s failure to clarify the component figures comprised in the Open Offer appears to be justified. There is also substance in the Plaintiff’s submission that the Open Offer fails to beat the taxation result in terms of profit costs and disbursements with no account being taken of taxation costs as the offer was made before commencement of taxation.

22.  Assuming the Defendant is correct in saying that the Plaintiff has only succeeded in obtaining 3.33% more than 1/6^th of the Bill of Costs (with which the Plaintiff disagrees), the percentage is clearly anything other than de minimis and the instance of costs provided under s.67(5)(b) of LPO would apply unless the Court orders otherwise.

23.  As to the Defendant’s comparison of the Open Offer with the taxation result, it is plainly misconceived when s.67(5)(b) of LPO refers to the solicitor’s bill of costs for taxation purposes and nothing else.

24.  All in all, I do not find it unreasonable for the Plaintiff to reject the Open Offer so that it became necessary for him to commence taxation proceedings to resolve the parties’ dispute when the Defendant did not respond to his counter offer and instead commenced recovery action in the District Court.

25.  Having said that and for the following reasons, however, I find special circumstances to have existed here so that this Court should not order the Defendant to pay any of the Plaintiff’s taxation costs despite the fact that more than 1/6^th of the amount claimed under the Bill of Costs was taxed off.

26.  In arguing that he should be entitled to his taxation costs up to 14 days after the date of the Sanctioned Offer in reliance on s.67(5)(b) of LPO, the Plaintiff has apparently presumed that the Court should or would as a matter of course award him at least part of his taxation costs notwithstanding his failure to beat a sanctioned offer. This is a presumption he should not be making given the preservation of the taxing master’s wide discretion as to costs by the same section.

27.  In making the Sanctioned Offer, the Defendant had taken a rather exceptional step in lowering its claimed amount to around 62% of the Bill of Costs. Yet the Plaintiff was inexplicably ambitious and seemed to believe he could have the billed amount cut down by more than half upon taxation as demonstrated by his counter offer made 4 days before the taxation hearing, which incidentally suggests that the Plaintiff had no difficulty understanding the contents of the Sanctioned Offer or responding thereto. As it turned out, he failed by a wide margin.

28.  One may wonder if the said presumption on the Plaintiff’s part (probably reinforced by the steep reduction offered by the Defendant) might have instilled complacency on his part in rejecting the Sanctioned Offer. What is certain is that, as a result of what I would describe as a cavalier approach on the Plaintiff’s part, the Defendant (and the public purse in terms of judicial resources) was forced to spend more time and costs on the tortuous taxation process rather than focusing its attention on more meaningful and productive endeavours.

29.  If a plaintiff in such circumstances should as a matter of course be awarded his costs at least up to shortly after the date of a sanctioned offer which he failed to beat, he would have very little incentive to seriously consider a reasonable or even a more-than-reasonable offer to save time and costs on all parties’ part, especially if his taxation costs have been frontloaded (here the Plaintiff claims to have incurred over HK$220,000 by the time of the Sanctioned Offer, which is prima facie exorbitant when compared to the receiving party’s costs up to taxation hearing proper). This is clearly not in accord with the underlying objectives under Order 1A of the Rules of the High Court and should not be encouraged.

30.  I am therefore dismissing the Plaintiff’s summons.

31.  As to the Defendant’s summons, I would for the following reasons equally dismiss the same.

32.  For one thing and without meaning to discourage practitioners from making timely and reasonable sanctioned offers in solicitor-and-client (or indeed any other) taxation proceedings, I take the view that, by making an offer to accept around 62% of the billed amount and lowering its billed amount by way more than one-sixth, the Defendant had practically admitted to have significantly inflated its bill of costs for taxation purposes, which admission came only one month before the taxation hearing proper when substantial costs could have been incurred by both parties.

33.  For another, the Defendant had by the same offer tacitly accepted or should have envisaged the likely consequence of it having to bear the Plaintiff’s taxation costs should the offer be accepted in light of s.67(5)(b) of LPO.

34.  In this connection, one should note that the mechanism for deciding the instance of costs as provided under s.67(5)(b) of LPO serves the purpose of discouraging overcharging by legal practitioners. Taking into account the fact that taxation under s.67 of LPO is conducted on a solicitor and own client basis which is a very generous basis of taxation, I find s.67(5)(b) of LPO to have struck a fair balance between protecting the interest of users of legal services and legal practitioners’ entitlement to reasonable remuneration for their professional services.

35.  Now that I have disallowed the Plaintiff’s costs of taxation so that the Defendant has somehow averted what might turn out to be a dire cost consequence its belated sanctioned offer could have brought about, I take the view that justice would be amply served by maintaining the Costs Order Nisi without awarding anything further to the Defendant.

36.  The net result is neither party has succeeded in getting what they ask for in their respective summonses. I therefore make no order as to costs of either summons.

37.  As to the costs of the originating summons herein, paragraph 7 of the order of Master Hui dated 4 January 2022 provides that such costs shall be in the cause of taxation. Since I am making the Costs Order Nisi absolute, the Defendant shall have its costs of the originating summons.

38.  The Defendant had included in the Bill of Costs its costs of the originating summons as an item of taxation costs to be added at the taxation hearing proper but, quite rightly, withheld the same at the hearing for separate disposal. Such costs therefore remain to be dealt with. In light of the above, I see no basis for the Defendant’s costs of the originating summons to be assessed other than on a party and party basis.

39.  I can only hope that the parties can by now see sense and resolve this final chapter of their unfortunate dispute amicably rather than allowing their animosity to persist as demonstrated by their extensive affidavit evidence and submissions filed for the present purposes and by their further exchange of arguments by correspondence on the propriety of the Defendant’s filing of an affirmation in opposition to the originating summons herein which I need not deal with as the same should fall within the costs of the originating summons.

40.  In summary, I order as follows:

(1)  The Costs Order Nisi be made absolute;

(2)  The Plaintiff’s Summons be dismissed with no order as to costs; and

(3)  The Defendant’s Summons be dismissed with no order as to costs.