GABRIELLE MARIE HOTUNG v. SEAN ERIC MCLEAN HOTUNG AND ANOTHER

HCCT 76/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 76 OF 2004

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DECISION

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Introduction

1. The present suit, HCCT 76/2004 arose out of an arbitration brought by the 2^nd Defendant against his sister, the Plaintiff for recovery of money allegedly owed by her.  The Plaintiff fearing possible bias and a lack of impartiality objected to the engagement of their brother, the 1^st Defendant as arbitrator.  The 1^st Defendant did not stand down.  The Plaintiff therefore issued the present proceedings to remove him.  This she achieved on 30 June 2005 and in the process was awarded costs against both Defendants by Reyes J on 3 October 2005.  The solicitors handling the Plaintiff’s action were Messrs Stephenson Harwood & Lo (“SHL”).

2. The Defendants each sought to have the Plaintiff’s Bill of Costs dismissed at the commencement of taxation, asserting that as the costs or part thereof were in fact paid or settled by their father, Eric Hotung (“EH”) the indemnity principle had been breached.  There was no dispute that EH had paid some of the Plaintiff’s costs.

3. The 2^nd Defendant has additionally contended that the funding arrangement between the Plaintiff and EH regarding costs, allegedly so redolent of maintenance and champerty, rendered the claim for costs unenforceable on public policy ground.

The Indemnity Principle

4. It is instructive to revisit basic principles to better comprehend the parties’ respective positions.

5. The Indemnity Principle exists for a good reason.  It ensures that a successful litigant with a costs order recovers only an indemnity in respect of the costs covered by the order from the losing party.  Being an indemnity, the receiving party cannot recover a sum in excess of his own liability to his solicitors.  All this is patent from the authorities such as Gundry v Sainsbury [1910] 1 KB 99, Adams v London Improved Motor Coach Builders Ltd [1920] ALL ER 340, and The Building Authority v Business Right Ltd, unreported CACV 212 of 1993, May 1994.

6. Darling J in dismissing the appeal succinctly observed in Gundry v Sainsbury, supra at p. 101-102:

This is an appeal by the plaintiff from a decision of a county court judge giving judgment for the amount of the damages awarded by the jury, but without costs, on the ground that there was a verbal agreement between the plaintiff and his solicitor that the plaintiff should not pay him any costs, and that under the proviso to s.5 of the Attorneys and Solicitors Act, 1870, the plaintiff was therefore not entitled to recover from the defendant more costs than the plaintiff was liable under the agreement to pay his solicitor.  I am of opinion that there was evidence which, if believed by the county court judge, justified him in finding as a fact that there was an agreement such as I have stated between the plaintiff and his solicitor, for the plaintiff, in the course of his cross-examination at the trial, stated in plain terms that he had arranged with his solicitor not to pay him any costs…..

I have come to the conclusion that the judgment was right.

7. It matters not that a third party such as an employer, an insurance company, a trade union or another may have undertaken to pay or may have indeed paid the costs. The Indemnity Principle is not offended so long as the client is equally liable for those costs.

8. InAdams v London Improved Motor Coach Builders Ltd, supra at p. 343, Bankes LJ stated:

… once it is set up that the solicitor was acting for the plaintiff by his knowledge and with his assent, it seems to me that he became liable to the solicitor for costs, and that liability would not be excluded merely because the union also undertook to pay the costs.

It is necessary to go a step further and prove that there was a bargain, either between the Union and the solicitor, or between the plaintiff and the solicitor, that in no circumstances is the plaintiff to be liable for costs. 

and per Atkin LJ at p. 345a:

I think that it is highly probable, though the matter has not been discussed, that the solicitor had a personal right against the trade union to receive a proper remuneration for his services.  I say it has not been discussed, and we do not know the precise terms of the relation between the trade union and the solicitor, but I will assume that there exists such an obligation; nevertheless there is nothing inconsistent with that obligation co-existing with an obligation on the part of the real person, the actor, the plaintiff in the case, to remunerate the solicitor.  Naturally as a matter of business, when one came to consider to whom the solicitor would apply, the solicitor would apply, I have no doubt, in the first instance, to the trade union, as being the person ultimately liable to pay the costs as between all parties.  But that does not exclude the liability of the member, and it seems to me not in the least to affect the position that he may be liable, although there may be a third person to indemnify him. (emphasis supplied)

9. R v Miller (Raymond) and another [1983] 3 ALL ER 186 is another case in point.  In coming to his conclusion, Lloyd J remarked at p. 189g:

It was argued in Davies v Taylor (No 2), as it has been argued here, that no costs had been incurred by the successful defendant, as he was insured, and the insurance company was bound to pay his costs.  The argument was rejected.  After citing Adams v London Improved Motor Coach Builders Ltd, Lord Dilhorne said ([1973] 1 All ER 959 at 962, [1974] AC 225 at 230):

In this case the solicitors, no doubt first instructed by the insurance company, were the solicitors on the record as the solicitors for the respondent.  They acted for him, and in the absence of proof of an agreement between him and them or between them and the insurance company that he would not pay their costs, they could look to him for payment for the work done and his liability would not be excluded by the fact that the insurance company had itself agreed to pay their costs.  In my opinion, the costs incurred were incurred by the respondent in the sense in which those words are used in the Legal Aid Act 1964.

and at p. 190g:

It follows that I reject the main argument of counsel for the Lord Chancellor that ‘costs incurred by’ means ‘costs paid by’.  I would hold, following Adams v London Improved Motor Coach Builders Ltd and the other cases I have mentioned, that costs are incurred by a party if he is responsible or liable for those costs, even though they are in fact paid by a third party, whether an employer, insurance company, motoring organization or trade union, and even though the third party is also liable for those costs.  It is only if it has been agreed that the client shall in no circumstances be liable for the costs that they cease to be costs incurred by him, as happened in Gundry v Sainsbury [1919] 1KB 645.

and finally at p. 191e:

The question is not who was primarily liable for the costs, whether Mr. Tikkoo or Mr. Glennie.  The question is whether it was agreed that Mr. Glennie should not be liable for those costs under any circumstances… The fact that Globtik had agreed had agreed to pay the costs, and that it was 99% certain that they would pay the costs, may make them primarily liable, in the sense that the solicitors would look to them in the first place.  But that, as I have said, is not the question.  The same was true in Adams v London Improved Motor Coach Builders Ltd and the other cases I have mentioned.  In my judgment the evidence falls short of establishing that Mr. Glennie was not to be liable in any circumstances. ( emphasis mine)

10. The decision in Lam Lai Wah v Pacific Century Insurance Co Ltd, unreported, CACV No. 385 of 2002, 18 February 2003 follows a similar vein.  Yuen JA remarked at para 17:

The fact that a third party had already paid costs on account does not, by itself, preclude recovery by the winning party of the costs from the losing party, short of a binding agreement by the winning party’s solicitors referred to in paragraph 10(3) above.  An example can be found in Lewis v Averay (No.2) where the Automobile Association had already paid the appellant’s costs to his solicitors.

and very helpfully set out the correct approach to such disputes at para 10:

In determining whether a claiming party (“the winning party”) can recover costs against the other party (“the losing party”), the steps for consideration can be summarized as follows:-

(1)   The first question to be asked is:- did the winning party employ the solicitors in the action?  In answering this question, it matters not that the solicitors were chosen or appointed for the winning party by a third party on his behalf, so long as they acted for him with his knowledge and assent.

(2)   If the answer is “Yes”, it is presumed that the winning party had a prima facie obligation to remunerate the solicitors, because that would be the ordinary basis on which a professional person is employed to represent a party.

(3)   It is for the losing party to rebut that presumption.  The presumption is not rebutted simply by evidence that a third party had also undertaken to pay the solicitors’ costs.  However, the presumption would be rebutted if there were evidence of an agreement made by the solicitors with the winning party, or with the third party, that that under no circumstances would the winning party be liable to them for the costs of the litigation incurred on his behalf.

11. So guided, I turn then to address the evidence.

The Evidence

12. It is important when evaluating the evidence not to lose sight of the fact that the taxation concerns a bill of costs relating to one action and one action alone, namely HCCT 76 of 2004.  The bill stems from the suit to dislodge the 1^st Defendant as arbitrator.  The present suit is totally divorced from HCA 571 of 2003, proceedings instituted by EH against the Plaintiff, the 1^st and 2^nd Defendants amongst others for a declaration that the trust in their favour was invalid, and other related actions.  Much mileage was sought to be made out of the funding arrangement in relation to these other proceedings and its impact on the present action.

13. Mr. Toms for the Plaintiff contended that the previous arrangement regarding the costs of the other suits was irrelevant.  With that I am in complete agreement, but as counsel for the 1^st and 2^nd Defendants have expended considerable time and energy on their arguments, I feel I should address the issue fully yet as briefly as is possible.

14. The cost indemnity agreement entered into between the Plaintiff and EH dated 21 May 2004 by EH and signed and accepted by the Plaintiff on 9 July 2004 appears at pages 4 and 5 of Tab 10 of the Bundle Of Documents For Taxation Hearing (“the bundle”).  It is headed “Re: HCMP No. 5851 of 2001; HCMP No. 2031 of 2002; HCMP No. 2820 of 2002; HCMP No. 4511 of 2002; HCMP No. 4815 of 2002; and HCA No. 571 of 2003 (“the Actions”).  It is pertinent to note that it made no reference to the arbitration or to HCCT 76 of 2004 both of which came about later in time.  In return for certain detailed undertakings from the Plaintiff, EH agreed to bear all her legal costs in the Actions as previously defined and to indemnify her and not to seek any damages from her in respect of any of the named actions.  EH also undertook to handle any attack on the Plaintiff’s behalf from Sean Hotung and Anthony Hotung, the latter name being added by hand.

15. It was contended that EH’s obligation extended beyond the named suits to the 2^nd Defendant’s arbitration, the subject matter of these proceedings.  I fail to comprehend how that can be so on a fair and true construction of this clear and unambiguous indemnity agreement.  Had the arbitration and the present action been contemplated as falling within the terms of the agreement, doubtless reference would have been made to them either expressly or by necessary implication.  This EH and the Plaintiff have chosen not to do.  I therefore find that this prior agreement is irrelevant for present purposes.

16. However, even if I were wrong to come to such a conclusion, the Indemnity Principle requires considerations along the lines of the authorities previously cited.  If the Plaintiff’s arrangement with SHL continues to impose a legal obligation upon her to settle outstanding fees not met by EH for any reason, the Bill of Costs would be unassailable on this ground alone.

17. The Plaintiff wholly accepts that she had entered into a funding arrangement with EH over her conduct of this action in her Fourth Affidavit.  She described the arrangement in these terms.

Para. 8

This was a private arrangement between my father and I whereby he agreed to financially support me in this litigation.

Para. 9

In circumstances where my father was financially supporting me through this action and had much greater experience of litigation than I did, I had no objection at all to receiving (and in fact welcomed) his input regarding the courses of action which were recommend (sic) by my solicitors, Stephenson Harwood & Lo (“SHL”).  This made perfect sense, insofar as it also afforded him the opportunity of keeping an eye on the fees that were being incurred, being fees that he agreed he would pay on my behalf.

18. The quoted passages would explain EH’s active participation in the arbitration and in this action as is evident in the exchanges between himself and SHL.  The relevant correspondence appears at Tab 10, pages 19 to 23 of the Bundle.  That EH had assumed a direct role in steering the litigations and was keeping a close eye on costs was perfectly understandable, given his involvement at the behest of the Plaintiff.  His was a financial stake that had to be closely watched and was akin to the interests of the funding parties in the insurance cases that I have mentioned.  The allegation that EH had because of his active role somehow taken over the proceedings qua plaintiff simply does not sit well with the evidence.

19. Reverting to Yuen JA’s guideline in Lam Lai Wah v Pacific Century Insurance Co Ltd, supra, and posing the first question “did the winning party employ the solicitors in the action?”, paragraphs 10, 11 and 12 of the Plaintiff’s Fourth Affidavit provide the necessary answer.

Para. 10

Bearing in mind the fees arrangement, I agreed that although they would be representing me in this action (as solicitors on record for me as plaintiff), I had no objection at all to SHL making recommendations as to the conduct of the action both to my father and to myself and/or seeking confirmation from my father regarding proposed courses of action.

Para. 11

That did not mean that I ever relinquished control of the action and at all times it was quite clear that SHL were looking after my interests, rather than merely doing as my father recommended.

This situation was of course entirely consistent with the fact that SHL had a professional obligation to act in my best interests and to provide impartial advice to me, whilst being willing to keep my father informed, in circumstances where I was expecting him to pay my fees.

Para 12

I note from SHL’s letter dated 24 December 2004 to EH (at page 30 of exhibit “SEMH-2” to the 1^st Defendant’s affidavit) that SHL have specifically said that:

“Your second requirement to await written authority before taking any action, places us in a difficult position, as we are appointed to act on Ms Gabrielle Davidson’s account, not Mr Hotung’s.

We do need to be able to respond quickly to continue to take the initiative in this matter, and it would be very difficult for us to wait for written instructions to do something if such written instructions are either contrary to Gabrielle’s interest or take a long time in coming”.

This is entirely consistent with the fact that whilst SHL might have sought confirmation of my instructions from EH, it was me they were representing and whose interests they were protecting.

20. The uncontroverted evidence of the Plaintiff, consistent with the whole of the evidence before me, demonstrates that SHL were acting for the Plaintiff with her knowledge and assent throughout.  EH’s funding, direct input and even instructions given on the Plaintiff’s behalf to SHL with her knowledge and consent cannot alter this fact.  Neither can the fact that at one stage EH had contemplated replacing SHL with another firm of solicitors.

21. On the issue of liability for payment of SHL’s fees, the Plaintiff had this to say in the same affidavit.

Para 18

I see that the 1^st Defendant has not exhibited any copy invoice to his affirmation.  This is perhaps because he did not want to reveal that none of the invoices issued by SHL in respect of this matter were addressed to my father.  All of them were addressed to me, which is of course not surprising bearing in mind that it was me who instructed them to act on my behalf and me who would ultimately be responsible for their fees if my father reneged on his agreement to assist me (as ultimately he did).  [The Plaintiff then exhibits one such invoice] (parenthesis mine)

Para 19

I further confirm that even though the 1^st Defendant has exhibited copies of letters sent by SHL to my father enclosing various invoices, the original invoices were also sent to me and ultimately it was me who would be responsible for payment if my father did not pay.  Naturally, as a matter of business efficiency, there was nothing unusual for SHL to firstly ask my father for payment in accordance with his agreement, but that does not exclude my own liability.

Para 22

Without waiving privilege on this email, I also attach at page 2 of GMH-17 a copy of an email from Mr Malcolm Kemp (of SHL) sent to me on 4 August 2004 wherein he states quite clearly that:

“I would (gently) repeat what I have said yesterday, which is that you should be aware that if for any reason your father is not or cannot be held liable for the costs/expenses incurred, you would be the person who has ultimate responsibility to pay these costs”.

22. There is evidence that a number of invoices issued by SHL have not been settled by EH although he has paid others.  The reality is that the Plaintiff is and continues to be liable to SHL for any unpaid fees, and her evidence that “SHL are now pressing me for full payment” remains wholly unchallenged.

23. Reverting once more to the 3^rd step in Yuen JA’s formulation, how then can it be said the Plaintiff by dint of the funding regime is under no circumstances liable to SHL for the costs of the litigation incurred on her behalf?

24. In my considered judgment, both Defendants have failed to demonstrate a convincing case that the Indemnity Principle has been breached in the circumstances of the case.

25. Before leaving this issue, I should mention that criticism was also directed at the actual billings of SHL.  Allegations of incorrect billing, over-payment, settlement at discount, etc are matters falling properly within the purview of the taxation proper and they will no doubt be vigorously ventilated then.

Maintenance and Champerty

26. Mr. Egan, counsel for the 2^nd Defendant very helpfully provided a working summary of the law on maintenance and champerty.  I do not propose to repeat all those principles and underlying cases as all the parties were agreed that the law had been succinctly and accurately encapsulated.  Suffice it to state for the present exercise that unlawful maintenance is the improper stirring up of litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse: see Re Trepca Mines Ltd (No.2) [1963] 1 Ch 199 at 217 and champerty involves the concept of division of the spoils of litigation: see Cannonway Consultants Ltd v Kenworth Engineering Ltd [1995] 2 HKLR 475.

27. Mr. Egan contended that the funding arrangement between the Plaintiff and EH amounted to a ‘cold blooded arm’s length transaction’ of a kind uncommon to a father and daughter relationship.  Its alleged purpose was ostensibly to subvert his client’s legitimate interest and position in the running feuds within this family.  The evidence, however, in my opinion does not begin to support such a submission.

28. As I have found, the Plaintiff has had to turn to EH for funding for the reasons she offered to drawn upon his experience in litigation in seeking to remove the 1^st Defendant as arbitrator.  EH’s intervention was legitimate and had been actively sought out by her.  There is nothing untoward in a father stepping in to assist his child or even to fund litigation as EH plainly has in part as it turned out.  An exception to maintenance is close family ties: Hutley v Hutley (1873) LR 8 QB 112.  I can find no conduct on the part of EH that can remotely be described as maintenance or ‘champertous maintenance” as Mr. Egan would have it.  That being so, this alternative challenge also fails.

Conclusion

29. The applications of the 1^st and 2^nd Defendants having failed are dismissed.

30. On the question costs, not having heard the parties, I propose to make an order nisi that the Plaintiff shall have the costs of the applications, such costs to include any costs that may have been reserved in respect thereof.  The parties may wish to address me on this matter after the handing down of this judgment today or within 14 days hereof.