XCHRX STEVENSON, WONG & LAI (a firm) v. YUE FENG KNITTING FACTORY LTD.

HCMP 2470/00

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2470 OF 2000

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REASONS for DECISION

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Background

1. The plaintiff solicitors had acted for the defendant company, who had instructed the solicitors to commence High Court proceedings HCA 19783 of 1998 against Wah Sze Development Co Ltd.

2. The plaintiff said that their professional charges were clearly set out in their letter to the defendant dated 30 October 1998, referred to as the "engagement letter". Thereafter the solicitors performed professional services in accordance with the defendant's instructions.

3. The defendant was presented with an Interim Bill of Costs No.38704 dated 21 September 1999 for $68,520 relating to work done between 11 March 1999 and 8 September 1999. The defendant complained that the charges were excessive and did not pay.

4. The plaintiff sought, and was given leave to cease acting for the defendant.

5. The plaintiff presented another Bill of Costs No.39785 dated 15 December 1999 for $4900. The defendant did not pay this Bill either.

6. The plaintiff then applied, by way of Originating Summons for the 2 Bills of Costs to be taxed.

7. On 28 June 2000 Master Lung ordered inter alia that the 2 Bills be referred to a Taxing Master to be taxed, and that the costs of the application be reserved.

8. The 2 Bills were taxed by me on 1 December 2000. The hearing went on until after one o'clock, and, at the invitation of the Law Costs Draftsman, I made an order nisi in relation to the costs of the taxation.

The Costs of taxation

9. At the subsequent hearing on 26 February, a substantial period was spent on the "one-sixth rule". The one-sixth rule had been raised by the Law Costs Draftsman at the very end of the December hearing, but not discussed at all on that day as the matter had overrun.

10. The "one-sixth rule" referred to by the Law Costs Draftsman comes from the Legal Practitioners Ordinance, Cap 159, section 67(5) which provides :

" (5) Unless---

(a) the order for taxation was made on the application of the solicitor or the foreign lawyer, and the party chargeable does not attend the taxation; or

(b) 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 or the foreign lawyer, shall pay the costs, but otherwise the party chargeable shall pay the costs;

Provided that---

(i) if, in the case of a bill for non-contentious business, not less than half of the amount of the bill before taxation consists of costs for which no scale charge is prescribed, for the reference to this subsection to one-sixth of the amount of the bill there shall be deemed to be substituted a reference to one-fifth thereof;

(ii) the taxing officer may certify any special circumstances relating to the bill or the taxation thereof to the Court, and the Court may make thereon any such order as it thinks fit respecting the payment of the costs of the taxation."

11. Both sides attempted to put forward arguments on the provision quoted above, section 67 of Cap 159, without a clear understanding of the same.

12. I do not mean this in any sense as criticism of the parties. Neither representative was legally trained. In fact for a Law Costs Draftsman and a company director, they took great care over their preparations, and argued the matter with great vigour.

Why the one-sixth rule does not apply in these circumstances

13. The one-sixth rule referred to in section 67(5) does not apply in the present circumstances because Paragraph 6 of Master Lung's Order for taxation dated 28 June 2000 stated :

"6. Costs of the Application be reserved."

14. When he made that order for costs Master Lung clearly meant that the Taxing Master would have discretion over the costs. That costs order took the matter outside sub-section 5 (b).

15. In further fortification of the contention that the one-sixth rule does not apply, one only needs to consider the meaning of the phrase "costs reserved".

16. Except for proceedings in the Family Division, "Costs Reserved" means that the party in whose favour an order for costs is made at the conclusion of the cause or matter in which the proceedings arise shall be entitled to his costs of the proceedings in respect of which this order is made unless the Court orders otherwise. (See, Order 62 r3 page 1120 The Supreme Court Practice 1999)

17. Therefore, by reserving the question of costs, Master Lung left the award of costs to the discretion of the taxing master.

18. Moreover, the proviso to sub-section 5 of section 67 of Cap. 159 had preserved the right of the court to exercise its discretion in relation to costs by the words :

".....and the Court may make thereon any such order as it thinks fit respecting the payment of the costs of the taxation."

The Costs Orders made in relation to the costs of the taxation

19. On 26 February 2001, I made the following costs orders :

1. The costs of taxation up to and including the hearing on 1 December 2000 be to the plaintiff.

2. There will be no order as to costs of taxation for matters occurring after 1 December 2000.

20. For the information of the defendant, who was represented by a director Mr Chan Kam Hung, I should say a few words here about the principles to be applied when a court awards costs.

The principles

21. The court always has the full power to determine by whom and to what extent costs are to be paid. In other words, an award of costs is always at the discretion of the court. The discretion to award costs must be exercised judicially, in accordance with reason and justice. Under normal circumstances the judge will not order costs to be borne by the successful party except for some reason connected with the case, see Donald Campbell & Co Ltd v Pollack [1927] AC 732 at 812. When the court exercises its discretion as to the award of costs, it may take into account any conduct previous to, and affecting the action, see Harnett v Vise (1880) 5 Ex D 307, CA.

22. The reasons why the costs of taxation up to and including the hearing on 1 December 2000 were awarded to the plaintiff are as follows.

The substantive taxation hearing was concerned about how much costs the defendant was obliged to pay, it was not to decide whether or not costs were payable. The plaintiff had rendered professional services to the defendant which had not been paid for because the defendant disputed the fees. Even though the defendant as the paying party had a right to argue the amount payable, the exercise of that right is still subject to the payment of costs. After all, court time is spent on hearing and deciding on every item objected to. It was wrong to regard the situation as if a Calderbank offer had been made.

23. The basic reason why there should be no order for costs after the hearing on the 1 of December 2000 is simply that the Law Costs Draftsman should not have brought the one-sixth rule into the picture. By doing so, the substantial part of the hearing in February was spent on submissions on the one-sixth rule. The defendant should not be made to pay in those circumstances, it simply would not be fair.

24. Finally, the plaintiff should not be allowed any costs after the taxation hearing on 1 December 2000 because of the failure of the plaintiff's Law Costs Draftsman to record that one item of costs on page 17 had been deleted. This omission led to further dispute and acrimony between the parties, which would not have occurred but for that omission.

25. Those were the reasons why I made the costs orders relating to the taxation of the 2 Bills on 26 February 2001.