UNION (V-TEX) SHIRT FACTORY LTD v. UNION V-TEX REALTY LTD

[Headnote]

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

__________

Action No. 219 of 1976

______________

___________

JUDGMENT

___________

1. These are my reasons for making an order on the 30th October 1984 allowing the application of a solicitor Mr. Chu Ka Kim, the 5th Defendant in these consolidated actions, under Order 62 rule 35 for the review of the taxation of his costs by a taxing master and the allowance of certain items of those costs which had been disallowed by the master in the course of his review of his own taxation under Order 62 rules 33 and 34.

2. On the conclusion of a successful appeal to the Court of Appeal on the 30th June 1983 against the refusal by a judge at first instance of the 5th Defendant's and several of his co-defendants' applications for the dismissal of the Plaintiff's actions for want of prosecutions, the 5th Defendant had been awarded his party and party costs against the Plaintiff in respect of the proceedings at first instance and on appeal.

3. Several items to which this application for review relates had been disposed of by negotiation before the hearing of the application.  At the hearing the court only had to consider four items.  They related to the air fares and accommodation in Hong Kong of a leading counsel from London who had represented the 5th Defendant in the proceedings at first instanced and on appeal.

4. Items 768 and 769 related to the proceedings at first instance and amounted to a total sum of $37,433.50 comprising respectively $19,850 in respect of the London leader's first class return air fares between London and Hong Kong and the further sum of $17,583.50 in respect of his accommodation in a suite in a first-class hotel in Hong Kong. Items 133 and 134 related to the proceedings on appeal and amounted to a total sum of $53,069.70 comprising respectively $26,845 in respect of the London leader's first-class return air fares between London and Hong Kong and the further sum of $26,224.70 in respect of his accommodation in a suite in a first-class hotel in Hong Kong.

5. The question arising on the review was whether in all the circumstances the master was right in principle or whether he misdirected himself when disallowing these items of costs in the course of a party and party taxation. In such a taxation Order 62 rule 28(2) provides:-

"...... there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing on defending the rights of the party whose costs are being taxed."

6. This head of taxation is the least generous of all. As Sir Robert Megarry V.C. observed in relation to this head in E.M.I. Records v. Ian Wallace Ltd. [1983] 1 Ch 59 at p.63 F-G:-

"The essence of this head is thus what is 'necessary or proper' and this, of courses, is the strictest of the normal heads of taxation."

7. The circumstances are unusual. Both at first instance and on appeal the 5th Defendant was represented by junior counsel who was led by a Hong Kong leading counsel and the London leading counsel whose expenses were the subject of this review.  The consolidated actions had begun in 1976.  At that time the Hong Kong leader was still a junior and when he was retained the 5th Defendant contemplated retaining a particular London leader.  When the Song Kong leader took silk it was not considered that the trial would come on during his first year in silk and so a Hong Kong junior was instructed.

8. Both the Hong Kong leader and the Hong Kong junior agreed to accept instructions on a complimentary basis from the 5th Defendant.  They made no charge for their services.   For reasons that are not here material the London leader whom the 5th Defendant originally intended to retain could not act for him and so the 5th Defendant retained another London leader who also agreed to act on a complimentary basis as to fees but required payment of his first-class air fares and hotel expenses.  The 5th Defendant was therefore in the fortunate position of having the services of three counsel for the cost of only the London leader's travelling and accommodation expenses.

9. The hearing at first instance occupied eight days before a judge of the High Court in chambers who gave judgment on the 31st March 1983 in favour of the Plaintiff. The hearing of the successful appeal took up four days between the 27th and the 30th of` June 1983.

10. At first instance the Plaintiff was represented by a London leader and a Hong Kong junior.   The 5th Defendant was represented by his London leader and by his Hong Kong leader and junior.  The 3rd Defendant was represented by a Hong Kong leader and junior. Such of the other Defendants as had applied to have the actions dismissed were represented by their respective Hong Kong junior counsel. The brief fee of the 3rd Defendant's Hong Kong leader was $50,000 with refreshers of $10,000 per day for seven days of the eight days hearing. These fees have all been allowed in full.

11. On appeal the representation was as follows.  The Plaintiff was represented by the same London leader and Hong Kong junior as at first instance.  The Defendant company in the first of the consolidated actions was represented by a London leader who had been brought in for the appeal and by the Hong Kong junior who had appeared at first instance.   The 5th Defendant had the same representation as he had at first instance and all the other individual Defendants who were appellants were represented by a London leader and a Hong Kong junior. The last mentioned London leader's brief fee was £6,500 and this fee was allowed in full on taxation.

12. The taxing master disallowed the relevant items of the 5th Defendant's costs when he reviewed his taxation. Mr. Tang, counsel for the 5th Defendant informed the court that pursuant to Order 62 rule 34(4) the master was asked to state his reasons for decision on review and on the 25th of October 1984 his client was informed that the master's reasons were recorded in the column of master's answers to the 5th Defendant's objections.

13. At the hearing of the application for review there was produced to me a slip of paper on which some words had been typed.  Both sides informed me that these words expressed the master's relevant answers.  The answers were said to relate to items 133 and 134 but clearly items 768 and 769 are of similar character and have to be considered in accordance with the same principles. The relevant words were:-

"Consistent

Compare Hypothetical Counsel in HK Diff. to compare when Lond. Counsel generous to point of complimentary Even if point novel to HK not mean no HK capable of arguing."

14. Mr. Burns the solicitor for the Plaintiff rightly stressed in the course of his able argument that the court should not on review interfere with the discretion of a taxing master except where he has erred in principle.  He also stressed that extensive argument had been presented to the master on his review and that the decision of Rhind J. in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. [1982] HKLR 387 had been cited to him.

15. For my part I feel constrained to indicate in robust terms that I find the taxing master's reasons for decision perfunctory and inadequate. The importance of the requirement under Order 62 rule 34(4) of a statement of reasons for the master's decision and of any special facts or circumstances relevant to the decision is stressed by rule 35(1) which precludes a party from applying to a judge for review of the master's decision if he has not first applied for a statement of reasons under rule 34(4).

16. The intention behind these rules is obvious but was rightly stressed by Sir Robert Megarry V.C. in In re Gibson's settlement Trusts [1981] Ch 179 at p.191 G-H where he observed in relation to the corresponding Order 62 rule 34(4) in the English Rules of the Supreme Court:-

"The duty to give reasons is plainly most important.  The reasons are needed initially to enable the unsuccessful party to decide whether to carry matters further.  If he does bring the taxation before a judge for review, the reasons are needed to enable the parties to know what propositions they have to attack or defend, and also to enable the judge to understand why the taxing officer did what he did. All this, of course, is obvious."

17. As to the manner in which the master's reasons should be expressed I respectfully adopt the modest requirements of Sir Robert Megarry V.C. expressed as follows in In re Gibson's Settlement Trusts at p.192 C-D:-

"I am certainly not saying that there is any duty for them to write lengthy and detailed expositions of their thoughts, or that such expositions would be desirable. The question is whether their answers will fairly reveal to those who are reasonably skilled in these matters the process of reasoning whereby the objection in question was allowed or disallowed, together, where appropriate, with a statement of the matters in question that were taken into account or disregarded in the process; and in most cases it should be possible to do this with reasonable brevity, without descending into prolixity."

18. In this case the master's reasons are wholly inadequate to convey to the judge or the parties what his process of reasoning was in arriving at his decision and what special facts or circumstances were treated by him as relevant to his decision.  All I am able to glean from the cryptic words intended to serve as reasons in that the master found difficulty in applying, and presumably rejected the "hypothetical counsel" test in this case because counsel's actual fees were not charged and he did not consider that the argument of the matters arising in the proceedings in question were beyond the capabilities of Hong Kong counsel, presumably the Hong Kong leader who represented the 5th Defendant.

19. Doing the best I could when presented with such reasons it seemed to me that the fairest course was to approach the review on th basis that the master must have accepted arguments along the lines or at least some of the lines being advanced before me by Mr. Burns for the Plaintiff.

20. Mr. Burns' argument included the contention that the "hypothetical counsel" test was not appropriate in the circumstances of this case and also the proposition that there was no necessity for the 5th Defendant to be represented by his London leader because, as Mr. Tang, counsel for 5th Defendant had conceded, a local silk capable of conducting the case in fact represented the 5th Defendant.  These arguments seem to me be within the compass of the words intended to serve as the master's reasons. For the reasons given below I concluded that these reasons and the other arguments advanced on behalf of the Plaintiff were wrong in principle and that accordingly the master's discretion had been exercised on an erroneous basis.

21. For the 5th Defendant Mr. Tang relied on the decision of Rhind J. in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. [1982] HKLR 387.   That case was a test case concerned with the taxation of costs where a London leader appeared in a case in Hong Kong and was paid, in addition to his brief fee and refreshers, sums representing respectively fees for two days travelling, his first-class travelling expenses and the cost of his first-class hotel accommodation.

22. Junior counsel of standing (one of whom was Mr. Tang) in that case both agreed that the decision of Pennycuick J. in Simpsons Motor Sales (London) Ltd. v. Hendon Corporation (No. 2) [1965] 1WLR 112 correctly laid down the measure for determing whether the disputed items of expenditure were "necessary or proper" for the purposes of Order 62 rule 28(2). That measure, as succinctly defined by Rhind J. at p.389 H in the Tai Hing case is determined:-

".....by estimating what a hypothetical counsel capable of conducting the case effectively would be content to take on the brief. This hypothetical counsel does not insist upon the particularly high fees sometimes demanded by fashionable counsel. In making its estimate, the court has to rely on its knowledge and experience."

23. Rhind J. accepted that all the items of costs were of a type and at a level almost invariably, if not invariably incurred when London leaders appeared in Hong Kong courts. He also accepted that first-class air travel and accommodation in a suite in a first-class hotel in Hong Kong were both what London leaders were accustomed to and also befitting to their rank.

24. However, in the circumstances of that case, applying the hypothetical counsel test, Rhind J. concluded that the relevant leading counsel with the necessary capabilities was available at the Hong Kong Bar and that he would be more than content to accept the brief fee of $60,000 paid to the London leader. The hypothetical Hong Kong leading counsel would not need to be paid anything for travelling time, air fares or accommodation. Rhind J. therefore held that there was no conceivable basis on which the losing party could be asked to pay anything in respect of the disputed items because they were well outside the range of what it would cost for the hypothetical counsel.

25. Rhind J. went on in his judgment to make some helpful observations obiter including the following at p.392 G:-

".......if it turned out in a particular case that the combined costs of brief fee, and expense of travelling time, air fares and accommodation were about the same for London counsel as for the hypothetical Hong Kong counsel's brief fee alone, then I would regard it as proper to allow London counsel's expenses. On the view I take, it is artifical to consider overseas counsel's brief fee in isolation from the other items of expenditure involved in getting him here. The court should look at the global figure of overseas counsel's brief fee and other expenses for the purpose of comparing the price of overseas counsel with the hypothetical counsel."

26. Mr. Tang relied on this dicta of Rhind J.  The substance of his argument was that the global approach adopted by Rhind J. in relation to the hypothetical counsel measure of costs was right and that the court should look at the entire package to see what was the cost to the client and measure that cost against the costs nationally to be attributed to the hypothetical counsel. To distinguish in the field of taxation between counsel's actual fee on the one hand and his expenses on the other hand was, he contended, wrong.  He contended that it made no difference if the client's counsel charged no fee but only expenses.

27. On the figures, comparing the amounts paid, and allowed on taxation, to leading counsel for the 3rd Defendant in the proceedings at first instance ($50,000 brief fee and seven days refresher at $10,000 per day) the expenses of the 5th Defendant's London leading counsel amounting to $37,433.50 were, Mr. Tang contended, necessary or proper for the purpose of Order 62 rule 28(2). He made the same submission in relation to the relevant figures for the appeal where the brief fee paid, and allowed on taxation to the London leader representing some of the Defendants was £6,500 (then representing over H.K. $65,000) and the expenses of the 5th Defendant's London leading counsel amounted to $53,069.70.

28. In my judgment these arguments are right and the principles laid down by Rhind J. obiter in the Tai Hing case are applicable notwithstanding the fact that the costs incurred in respect of the London leader representing the 5th Defendant were not described as fees and were incurred by a client who had the benefit of representation by a Hong Kong leader fully capable of handling the case in question.

29. Mr. Burns for the Plaintiff attacked the authority of the Tai Hing case root and branch. It seemed to me that he was fully entitled to do this because Rhind J. applied the "hypothetical counsel" measure of costs, derived from the Simpsons Motor Sales case (Supra), without argument and by concession of counsel.

30. Mr. Burns rightly pointed out that in the Simpsons Motor Sales case Pennycuick J. was concerned with the taxation of counsel's fees only, whereas in the Tai Hing case the travelling and hotel expenses were not fees. Mr. Burns contended that Rhind J. was therefore wrong to invoke paragraphs 1(2) and 2(5) of Part II of the First Schedule to Order 62.  This is an important point because the combined effect of those provisions is to provide guidance regarding particular factors material to the exercise of the taxing master's discretion when taxing counsel's fees on the footing that such fees are to be allowed in full on taxation unless the taxing master is satisfied that the fees are "excessive and unreasonable".

31. In my judgment this argument is bred of a misunderstanding of Rhind J.'s approach in the Tai Hing case.  He seems to me to have regarded the Simpsons Motor Sales case as authority for the application of the "hypothetical counsel" measure of costs test when the English equivalent of Order 62 rule 28(2) provides that the appropriate allowable measure of costs are such costs as were "necessary or proper" for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed.  That is the overriding measure permitted on party and party taxation.

32. In my judgment he necessarily referred to paragraph 1(2) and 2(5) of Part II of the First Schedule to Order 62 because he had to go through the exercise of assessing first whether the brief fee of $60,000 paid to the London leader in question was more or less than a hypothetical Hong Kong counsel (whom he presumed to be a leader) capable of handling the case effectively would be content to accept. Only if he had assessed the hypothetical Hong Kong leader's fee at a figure in excess of the $60,000 fee paid to the London leader would Rhind J. have considered there was any basis for allowing arty part of the additional items which were the subject of the review before him.

33. For the purpose of comparing the London leader's actual brief fee with the notional fee of a hypothetical Hong Kong leader Rhind J. considered at some length the nature and complexity of the litigation involved and the calibre of the counsel required to do it. These are surely matters which are within the ambit of the Scheduled provisions. Rhind J. also derived guidance from the actual fees paid to other counsel but, with respect, I consider that he rightly had regard to the Scheduled provisions when assessing the likely fees that a Hong Kong leader would require for the relevant work.

34. As to the acceptance by Rhind J, albeit as a result of concessions of the Simpsons Motor Sales case as providing the measure (by reference to the "hypothetical counsel" test) for determining whether the disputed items of expenditure were "necessary or proper", I regard the concession as rightly made.  It seems to me that in determining for taxation purposes whether or not the items now in question are costs which it was "necessary or proper" for the 5th Defendant to incur in defending his rights in the relevant proceedings it would be wholly artificial to treat travel and accommodation costs which are virtually invariably incurred in getting a London leader to appear in a Hong Kong court as required to be treated on a different basis from his acvual fees.

35. Mr. Tang gave me a number of examples to illustrate the practical absurdity of so doing. Thus, assume that for a particular case a hypothetical Hong Kong leader would be content to require a fee of $50,000. If London leader "A" required a fee of $50,000 but no travel or accommodation expenses his fee would be allowed on taxation. However if London leader "B" of the same standing as "A" re-quired a fee of $30,000 and travel and accommodation expenses amounting to $20,000 his client would be taxed down to $30,000. Such a result turning on artificial niceties is not, in my judgment, sustainable in the context of the "necessary or proper" measure of party and party costs.

36. This was clearly the view of Rhind J. in the Tai Hing case in the passage of his obiter dictum cited above and I respectfully agree with him.

37. Mr. Burns argued that the relevant items of costs were not necessary or proper and there was no need to apply the hypothetical Hong Kong counsel test because, as Mr. Tang had conceded, the 5th Defendant had already the benefit of a Hong Kong leader fully capable of conducting the case.  The fact that both the Hong Kong leader and his junior gave their services gratuituously did not, Mr. Burns argued, alter the fact that it was not necessary or proper under the circumstances to retain a leader from London. Furthermore, he contended, that fact that the Plaintiff benefited from the waiver of fees by the 5th Defendant's counsel did not mean that the Plaintiff should have to pay costs which he would otherwise not have to pay if the London leader had not been rought in.

38. In my judgment these arguments are not sound if the hypothetical Hong long counsel test is applied, as I consider it should be, as the measure of the maximum costs to be allowed as necessarily or properly incurred on a party and party taxation under Order 62 rule 28(2).  As Mr. Tang pointed out, the purpose of party and party taxation is not to protect the Hong Kong Bar from the inroads of the London Bar, it is to protect an unsuccessful litigant from being required to pay more costs to the successful party than have been necessarily or properly incurred by the suceessful party.

39. In a case of minimal difficulty and importance a wealthy client may retain the most expensive and pre-eminent leader he chooses at whatever fee the leader demands but, if successful in the proceedings, the client may only recover on a party and party taxation arty sum in respect of the leader's fees which is not in excess of the fee which a hypothetical counsel capable of conducting the case in question effectively and unable or unwilling to demand a pre-eminent leading counsel's fee would be content to accept. In such a situation it could be said that it was unnecessary to retain a pre-eminent leader but, in my judgment, there would be nothing improper in doing so.  It is not the propriety of retaining the leader that is in question for taxation purposes but the propriety of the amount of his fee which the unsuccessful client is required to pay on a party and party basis.

40. In the circumstances of the present case it seems to me that once it is accepted, as Rhind J. accepted in the Tai Hing case and I have done in this case, that for the purposes of consideration of what costs have been necessarily or properly incurred the relevant items are to be considered in the same way as fees, then the amounts attributable to the London leader's travelling and accommodation expenses, being the only costs claimed by the 5th Defendant on taxation in respect of all his counsel, represent costs properly incurred by the 5th Defendant in his defence.  The relevant amounts are appreciably less than the fees that would be charged by a hypothetical Hong Kong leader for the case even if the additional fees of his hypothetical junior are ignored.

41. The fact that the actual Hong Kong leader and junior representing the 5th Defendant acted gratuituously put their client in the position where, in my judgments, it was proper for him to retain the London leader provided the costs involved for which the Plaintiff was to be liable on a party and party basis did not exceed the amount measured in accordance with the hypothetical counsel test. In this case that test is fully satisfied because the case was suitable for both leading and junior hypothetical counsel.

42. Then it was contended by Mr. Burns that there had only been a certificate for two counsel in the first instance proceedings before a judge in chambers and this meant as a matter of common sense that the costs attributable to the London leader would have to go.

43. This point relates only to the costs incurred at first instance. Paragraph 2(3) of Part II to the First Schedule to Order 62 provides as follows:-

44. Assuming for the purposes of Mr. Burns' argument that the items of costs in the present case are to be treated as within the ambit of Paragraph 2(3), I was not persuaded that that provision should be interpreted narrowly as excluding the costs attributable to the senior of three counsel where the other two counsel have acted gratuituously.

45. In my judgment a more liberal interpretation is required because paragraph 2(3) does not in terms require the costs attributable to any particular counsel to be disallowed but merely produces the result that the amount of costs allowable to the 5th Defendant on taxation is limited to one junior counsel and one leader.  If the only claim for costs on a party and party taxation is in respect of one leader I can see no reason why such costs should not be allowed, to the extent permitted by the measure of hypothetical counsel, when the case has been certified fit for two counsel.

46. As to quantum, Mr. Burns accepted Rhind J.'s view that it was in keeping with the standing of London leaders that they should travel first-class and enjoy first-class hotel accommodation in Hong Kong but he finally contended that for purposes of party and party costs the expenses incurred in respect of such travel and accommodation should be cut down to an amount appropriate to "economy" air travel, hotel room and reasonable food and laundry expenses.  Having followed the global figure approach of Rhind J. in relation to the fees and travel and accommodation expenses of London leaders appearing in Hong Kong courts I am unable to accept Mr. Burns' final argument which conflicts with the obiter dictum of Rhind J. cited above with which I respectfully agree.

47. However as there were evidently some items, such as charges for telephone calls, in the relevant hotel bills which Mr. Burns said he could not accept without further enquiry as being accommodation expenses I directed, when allowing the application for review, that, if the quantum of the relevant items could not be agreed within fourteen days, the question of quantum was to be remitted to another taxing master.  The reason for remission to another taxing master was solely that the taxing master previously concerned is now a District Judge.