SINOSTATE ENTERPRISES AND OTHERS v. OLDHAM, LI & NIE, SOLICITORS (A FIRM)

HCMP 2178/2021

[2023] HKCFI 552

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2178 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 7 October 2022 ordering the Plaintiffs 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 21 October 2022 (“Plaintiffs’ Summons”), the Plaintiffs ask for variation of the Costs Order Nisi to the effect that the Defendant do pay their costs of these proceedings including taxing fee, costs of taxation and costs of the application on the grounds that the Plaintiffs have succeeded in having more than one-sixth of the claimed amount under the Defendant’s bill of costs taxed off, relying on s.67(5)(b) of the Legal Practitioners Ordinance, Cap.159 (“LPO”).

3.  By its summons filed on 3 November 2022 (“Defendant’s Summons”), the Defendant asks for variation of the Costs Order Nisi to the effect that the Plaintiffs do pay the Defendant its costs of taxation on an indemnity basis with enhanced interest thereon and costs of the Defendant’s Summons on an indemnity basis on the grounds that the Plaintiffs have failed to beat its sanction offer made on 13 September 2022 which was repeated on 6 October 2022 (“Sanctioned Offer”).

4.  The Defendant formerly acted for the Plaintiffs in their High Court action involving a commercial dispute (“Commercial Proceedings”) for around 3 months up to 15 November 2021. The Plaintiffs’ instructions to the Defendant came from their director Mr. Andrew Ko (“Mr. Ko”). During the same period, the Defendant also represented Mr. Ko in his matrimonial dispute with his former wife (“Matrimonial Proceedings”) from which the Commercial Proceedings had span off.

5.  Disputing the Defendant’s invoices issued in the two sets of Proceedings, Mr. Ko commenced two sets of taxation proceedings in December 2021, namely, the present one on the Plaintiffs behalf and HCMP 2129/2021 in respect of invoices pertaining to the Matrimonial Proceedings.

6.  It is the Defendant’s case that prior to commencement of these taxation proceedings, an agreement was reached with Mr. Ko on 15 October 2021 for settlement of its fees, which Mr. Ko sought to re-negotiate a week later. Mr. Ko 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.

7.  On 17 November 2021, Mr. Ko 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 Plaintiffs’ (and Mr. Ko’s) costs on account in partial settlement of outstanding fees and sent an email to Mr. Ko, which the Defendant describes as its open offer to the Plaintiffs (and Mr. Ko)(“Open Offer”) for settlement of outstanding fees in both sets of Proceedings. The total fee billed under the 2 invoices issued by the Defendant for the Commercial Proceedings stood at HK$378,766.67.

8.  Disputing the Defendant’s entitlement to apply costs of account towards partial payment of outstanding fees, Mr. Ko 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.

9.  In his affirmations filed for the present purposes, Mr. Ko 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 deducted in arriving at the outstanding balance due from the Plaintiffs (and himself).

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

11.  The Plaintiffs did not accept the Open Offer and made via Messrs. Withers (whom Mr. Ko had now engaged for the Matrimonial Proceedings) a counter-offer on 8 December 2021 for both sets of Proceedings which, if accepted, would oblige the Plaintiffs (and Mr. Ko) to pay nothing further, which counter-offer the Defendant naturally did not accept.

12.  Soon afterwards, the Defendant commenced recovery action in the District Court followed by the Plaintiffs’ commencement of present taxation proceedings in December 2021. The Defendant eventually filed a bill of costs claiming around HK$450,239.65 (“Bill of Costs”) to which the Plaintiffs filed a long list of objections.

13.  On 13 September 2022 (less than a month before the taxation hearing proper), the Defendant made a Sanctioned Offer to accept HK$269,937.76 (inclusive of costs of taxation) in full and final settlement of the Bill of Costs which the Plaintiffs did not formally respond to (or seek clarification thereof) even after the Defendant’s repetition of the same offer shortly before the taxation hearing proper. The matter proceeded to taxation hearing proper on 9 October 2022 whereupon I taxed down the Bill of Costs by more than 50% so that the Plaintiffs had succeeded in having the Bill of Costs taxed down by way more than one-sixth thereof

14.  It is the Defendant’s case that the Plaintiffs failed to beat the Sanctioned Offer which was inclusive of taxation costs. While its taxation costs claimed under Section C of the Bill of Costs stood at HK$58,606.33, the Defendant offered to receive HK$34,902.82 in the Sanctioned Offer.

15.  The Plaintiffs, however, argue that they had succeeded in beating the Sanctioned Offer if only the Defendant’s profit costs and disbursement under sections A and B of the Bill of Costs are taken into account, excluding the taxation costs in Section C.

16.  In support of their submission that the Defendant’s taxation costs should be excluded from the present consideration, the Plaintiffs rely on s.67(5)(b) of 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.  The Plaintiffs submit that since the Defendant shall have to pay the costs of taxation if more than 1/6^th of the Bill of Costs is taxed off and that the Defendant does not dispute their having succeeded in taxing off over 1/6^th of the billed amount, it follows that even when one is to compare the Sanctioned Offer and the amount allowed upon taxation herein (“Amount Allowed”), costs of taxation must be disregarded.

19.  In my view, the Plaintiffs have unjustifiably mixed up the question of instance of taxation costs under s.67(5)(b) of LPO with the arithmetical comparison of the Sanctioned Offer with the Amount Allowed.

20.  For one thing, there is nothing in s.67(5)(b) of LPO which suggests that, in considering whether a bill of costs is taxed down by 1/6^th or otherwise, one should confine his attention to profit costs and disbursement and should exclude taxation costs which by convention would form an intricate part of a solicitor’s bill of costs for taxation purposes.

21.  For another, the possibility that a solicitor may (subject always to the taxing master’s unfettered discretion on the instance of costs) have to bear the paying party’s taxation costs would simply have no bearing on the entirely different question as to whether the receiving party’s taxation costs should be taken into account when comparing a sanctioned offer with the amount allowed upon taxation.

22.  In the instant case, the Defendant had set out in the Sanctioned Offer its individual offers in respect of profit costs, disbursements and taxation costs. At the time of the Sanctioned Offer, it must be within the Plaintiffs’ contemplation that the Defendant had by then incurred at least the taxation costs as listed out in the first 12 items of Section C of the Bill of Costs (up to the time for obtaining an appointment for fixing a date for taxation). In the circumstances, there is simply no good reason to disregard taxation costs when comparing the Sanctioned Offer with the Amount Allowed.

23.  This position should be contrasted with that in Singh Gorinder Bal v Chan Nga Kai [2011] 3 HKC 411 in which Mr. Recorder A Chow SC (as he then was), when considering whether a Calderbank offer has or has not been beaten, finds it artificial to take into account the taxing fee where no taxing fee has been paid as at the time of the offer and the parties can reasonably contemplate that no taxing fee would be payable in the event of the offer being accepted, thereby avoiding the need for any taxation.

24.  For what it is worth, the Defendant’s taxation costs as claimed under the first 12 items of Section C of the Bill of Costs were, according to my reckoning, taxed down to around HK$36,000, which is higher than the sum of HK$34,902.82 the Defendant offered to accept in the Sanctioned Offer.

25.  The Plaintiffs’ argument must therefore be rejected and the Plaintiffs have indeed failed to beat the Sanctioned Offer but otherwise succeeded in having the Bill of Costs taxed down by way more than one-sixth thereof.

26.  In the circumstances, one has to consider whether the Plaintiffs should in light of s.67(5)(b) of LPO be entitled to their costs at least up to expiry of the time allowed for accepting the Sanctioned Offer, as Mr. Ko argues in the parallel taxation proceedings in respect of the Matrimonial Proceedings.

27.  In answering this question, one would recall that s.67(5)(b) of LPO has in clear terms reserved to the taxing master unfettered discretion to make orders on taxation costs, including whether the solicitor should be excused from having to pay the paying party’s taxation costs notwithstanding that more than 1/6^th of the amount of his bill of costs is taxed off.

28.  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.

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

30.  As shown in the above, the Open Offer was premised on the Plaintiffs’ costs on account (together with those of Mr. Ko for the Matrimonial Proceedings) having been applied (on the Defendant’s own accord) to settle part of the outstanding fees but the Plaintiffs via Mr. Ko had right from the beginning disputed the Defendant’s right so to do, hence the Defendant’s inclusion of all outstanding invoices in the Bill of Costs. And the Plaintiffs’ complaint about the Defendant’s failure to clarify the component figures comprised in the Open Offer appears to be justified.

31.  As to the Defendant’s comparison of the Open Offer with the Amount Allowed, 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.

32.  All in all, I do not find it unreasonable for the Plaintiffs to reject the Open Offer so that it became necessary for them to commence taxation proceedings to resolve the parties’ dispute when the Defendant had commenced recovery action in the District Court.

33.  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 Plaintiffs’ taxation costs despite the fact that more than 1/6^th of the amount claimed under the Bill of Costs was taxed off.

34.  To start with, I would say that, given the preservation of the taxing master’s wide discretion as to costs by s.67(5)(b) of LPO, a paying party should not presume that the Court should or would as a matter of course award him at least part of his taxation costs if he succeeds in having a solicitor’s bill of costs taxed down by more than 1/6^th thereof but otherwise fails to beat the latter’s sanctioned offer.

35.  In making the Sanctioned Offer, the Defendant had taken a rather exceptional step in cutting down by more than half its claim under the Bill of Costs. Yet the Plaintiffs were inexplicably ambitious and seemed to believe they could have the billed amount cut further down. As it turned out, they failed. Since the Plaintiffs did not seek clarification from the Defendant, I have no reason to believe the Plaintiffs had any difficulty understanding the contents of the Sanctioned Offer.

36.  One may wonder if the said presumption on the Plaintiffs’ part (probably reinforced by the steep reduction offered by the Defendant) might have instilled complacency on their part in making no response to the Sanctioned Offer. What is certain is that, as a result of what I would describe as a cavalier approach on the Plaintiffs’ 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.

37.  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. 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.

38.  I am therefore dismissing the Plaintiffs’ summons.

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

40.  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 less than half 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.

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

42.  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.

43.  Now that I have disallowed the Plaintiffs’ 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.

44.  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.

45.  For completeness sake, I note that, paragraph 8 of the order of Madam Justice Cheng dated 9 February 2022 provides that the costs of the originating summons herein 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.

46.  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.

47.  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.

48.  In summary, I order as follows:

(1)  The Costs Order Nisi be made absolute;

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

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