LING YUK SING v. THE SECRETARY FOR THE CIVIL SERVICE AND ANOTHER

CACV117/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 117 OF 2008

(ON APPEAL FROM HCAL 92 OF 2007)

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BETWEEN

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J U D G M E N T

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Hon Cheung JA :

1.  The applicant is a civil servant. He was found guilty in a disciplinary proceeding in respect of an action he had carried out in the course of his duty as a civil servant. A punishment by way of a severe reprimand and a fine equivalent to reduction in salary by one increment for 12 months was imposed on him. He applied for judicial review against the punishment. The application was dismissed by Hartmann J (as he then was).

2.  The Judge ordered on a nisi basis the applicant to pay costs assessed at $25,000.  On the application by the respondents the Judge varied the costs to $100,000.  The applicant now appeals against the costs order pursuant to leave granted by the Judge.

Application to vary costs nisi

3.  The appeal against the final costs order by the applicant is on procedural grounds.  He submitted that the application to vary the costs order was not in accordance with the provisions of Order 42 Rule5B(6) of the Rules of the High Court.  This rule provides that :

‘ (6) Where a written decision is given pursuant to this rule the Court may make therein an order nisi as to costs and, unless an application has been made to vary that order, that order shall become absolute 14 days after the decision is pronounced.’

4.  Although no specific mode of application is prescribed by this Rule, Order 32, Rule (1) provides that every application in chambers (not made ex parte) must be made by summons.  In PCCW-HKT Telephone Ltd v. Telecommunications Authority (CACV 274/2003) this Court (Ma CJHC, Rogers VP and LePichon JA) per Ma CJHC held that under the rule, the application to vary the costs nisi should be made by summons or motion, and not informally such as by letter.  The reason for this requirement is to enable the other side and the Court to understand exactly the nature and extent of what is being asked for.  Otherwise, there is a danger that it becomes unclear just what is being sought from the Court, thereby allowing parties to ask for relief in a haphazard manner.

5.  PCCW-HKT was accepted by the respondent as the authority on the mode of application.  In the present case, the application was not by summons.  The Judge gave direction that the application was to be dealt with by way of written submissions.  However, after the parties had lodged their written submissions, the Judge was concerned that the applicant who was not legally represented might be placed at a disadvantaged position and he further directed that the application to vary be set down for hearing.  Despite notice of hearing being sent to the applicant, he did not attend the hearing when the final costs order was eventually made.

6.  The non compliance with the prescribed mode of application is at most an irregularity and does not render the proceedings a nullity : Order 2 Rule 1(1).  There is no need to set aside the final costs order as the applicant has not shown that he has suffered any prejudice by the mode of application that was adopted in the present case.  He had chosen not to avail himself of the opportunity to raise his objections in court.

7.  As to the costs order itself, Order 62 Rule 9(4)(b) provides that the Court may make a gross sum costs order in lieu of taxed costs.  This Court (Nazareth VP, Keith JA and Findlay J) in Fairview Park Property Management Ltd v. Sun Wai Chun [1999] 4 HKC 42 at 58 approved the view that the purpose of this rule is to avoid expenses, delay and aggravation involved in a protracted litigation arising out of taxation.  This is what the Judge has done in the present case.  As to the amount itself, I do not see the decision to be plainly wrong.  In my view there is no ground to interfere with the Judge’s discretion on costs.

Costs of Government lawyer

8.  The substantial argument in this appeal is on the issue of how the costs of government lawyer should be assessed.  While there were first instance decisions, there has been no Court of Appeal decision on this point so far.  The Court invited the parties to make submissions on this issue.  As the applicant was not legally represented, the Court appointed Mr. Jonathan Chang as Friend of the Court to assist the Court on this topic.  But as it turns out, Mr. Godfrey Lam S.C. and Mr. Clifford Tavares SGC had prepared a detailed submissions on the topic which were not challenged by Mr. Chang.

Principle of Indemnity

9.  The starting point in a party and party taxation is based on the principle of indemnity : an order for costs between parties allows the receiving party to claim from the paying party only an indemnity in respect of costs recovered by the order.  Receiving parties cannot therefore recover a sum in excess of their liability to their own solicitors.  Further, such costs are not imposed as a punishment to the party who pays them nor given as a bonus to the party receiving them : paragraph 62/App/2 of the Hong Kong Civil Procedure 2010.

10.  The Department of Justice does not issue bill of costs for the legal services it rendered to government departments.  Further, government lawyers in the Department are paid monthly salaries.  The question that arises is whether a party to litigation, represented by government lawyer is entitled on a taxation to the same costs which would be allowed to a lawyer in private practice and who conducts his business in order to earn profit?

The historical perspective

11.  At one time the old common law rule was that the Crown neither paid nor received costs : Blackstone’s Commentaries on the Laws of England Book 3, page 400 and In re Karel Weiss (No. 2) [1956] HKLR 207.  This old rule was formally abolished in Hong Kong in 1957 by section 17 of the Crown Proceedings Ordinance (Cap. 300) which provided that

‘ In any civil proceedings or arbitration to which the Crown is a party, the costs of and incidental to the proceedings shall be awarded in the same manner and on the same principles as in cases between subjects, and the court or arbitrator shall have power to make an order for the payment of costs by or to the Crown accordingly.’

12.  Even before its formal abolition, inroads had already been made into the old rule.  The Legal Officers Ordinance (Ordinance No. 3 of 1950) (now Cap. 87) together with its subsidiary legislation the Legal Officer (Fees and Costs) Rules 1953 made provisions for the costs of a legal officer in the employ of the Government.  This Ordinance repealed the two earlier legislation dealing with the costs of legal officers : first, Crown Counsel’s Fees Ordinance (Ordinance No. 24 of 1903), where Section 2 dealt with counsel’s fees when the Attorney General appeared as counsel :

‘ 2. In any cause or proceeding before any Court or Tribunal in this Colony in which any party for whom the Attorney General appears as counsel obtains an order for costs against any other party and in which the Attorney General is not allowed to receive fees as counsel such costs shall nevertheless include counsel’s fees, which shall be taxed against the losing party in the same manner as if the Attorney General had been allowed to receive and retain fees as counsel. Such fees so taxed shall when recovered be paid into the General Revenue of the Colony.’

13.  Second, Crown Solicitors Ordinance (Ordinance No. 35 of 1912) where section 5 provided that :

‘ 5. If in any cause or proceeding before any court, tribunal, arbitrator or otherwise any party for whom any Crown Solicitor or Assistant Crown Solicitor appears or acts as solicitor obtains an order for costs against any other party such costs shall be taxed against and payable by the party against whom the order is made and when recovered shall be paid into the general revenue of the Colony.’

14.  Section 11 of Ordinance No. 3 of 1950 further provided that

‘ 11. (1) It shall be lawful for the Chief Justice to make rules providing either generally or specially for the fees and costs of legal officers in contentious and non-contentions matters:

Provided that no such rules shall be binding until the same have been approved by resolution of the Legislative Council and have been published in the Gazette.

             (2) Any costs and fees received by a legal officer hereunder shall be paid into the general revenue of the Colony.’

15.  The Legal Officers (Fees and Costs) Rules made pursuant to section 11 was approved by the Legislative Council on 7 October 1953 (now Cap. 87A).  Rule 2 provides that

‘ (1)	In any proceedings before any court or tribunal with regard to the matters referred to in section 4(1) of the Ordinance the fees and costs of and incidental to the conduct of such proceedings and the appearance of any legal officer shall be governed by Order 62 of the Rules of the High Court (Cap 4 sub. leg.).
(2)	For the purpose of the Rules of the High Court (Cap 4 sub. leg.), and in the application of any other legislative provision as to fees and costs or the practice relating thereto, a legal officer shall be deemed to have the status of a barrister and solicitor duly admitted under the Legal Practitioners Ordinance (Cap 159):
Provided that, in consideration of an item which in a bill rendered by or against a private party would—
	(a) consist of costs allowable to a solicitor solely in relation to employment of counsel; or (b) consist of fees payable to counsel solely in relation to his instruction by a solicitor; or (c) involve remuneration to both solicitor and counsel in respect of the same event,
the Registrar upon taxation shall be informed and shall take into consideration whether one or more legal officers were engaged upon preparation or upon hearing of the case.
(3)	If in any such proceedings the legal officer for the time being carrying out the duties of Secretary for Justice or Solicitor General appears before any court or tribunal, whether or not that legal officer is a Senior Counsel, the court or tribunal, or the Registrar upon taxation, may provide for such fees and costs as are consequent upon the appearance of leading counsel. (94 of 1997 s. 16; L.N. 362 of 1997).’

Effect of the provisions

16.  Government lawyers are Legal Officers.  Under Rule 2(1) their costs are to be governed by Order 62 of the Rules of the High Court.  It is clear from a combined reading of the Legal Officers (Fees and Costs) Rules and Order 62, the costs of government lawyers who are treated as barristers and solicitors for the purpose of fees and costs are to be taxed on the same basis as private practitioners.

17.  Order 62 does not have a separate category of rules for the costs of government lawyers.  Hence Order 62 Rule 28(2) which provides that costs are to be assessed on party and party basis are also applicable to the costs of government lawyers.  Rule 32 provides that the scale of costs containedin the First Schedule to Order 62, shall apply to taxation of legal costs in contentious business.  It has been the general practice to apply the hourly rates of solicitors published by the Law Society to the ‘General Item’ (Item 5) in the First Schedule.  The bills rendered by the Department of Justice identified the hourly charge of government lawyer according to his/her seniority in line with the rates prescribed by the Law Society.

Legislative intent

18.  The legislative intent of the Legal Officers (Fees and costs) Rules was supported by the speech of the Attorney General when he moved for the approval by the Legislative Council (Hong Kong Hansard : 7/10/1953)

‘ These rules provide in effect that in such cases the fees and costs shall be governed by the rules applicable as between private parties, but because legal officers may act as both solicitors and barristers, provision is made for this to be taken into account on taxation.’

The Hong Kong approach

19.  There had been a number of first instance decisions in Hong Kong which held that the costs of government lawyers are to be taxed on the same basis of private practitioners : R v. Lo Sau King and Others (No. 2) [1962] HKLR 300 (Blair-Kerr J); Building Authority v. Tam Chung Ching Denis [1997] 3 HKC 260 (Gall J); Building Authority v. Business Rights Ltd [1993] 3 HKC 247 (Burrell J); Wong Yu Cho Rolly v. Ho Chi Sum (HCA 2132/2005, 21/1/2009) (Sakhrani J) and 林哲民經營之日昌電業公司訴曾蔭權(香港特別行政區行政長官) (Master Ko), HCA 2260/2005 dated 2 March 2009.

Rationale for uniform treatment

20.  While the statutory provisions provide the juridical basis for a uniform approach to taxation of government lawyers’ costs on the same basis as private practitioners, the rationale to this approach can be gleaned from the authorities.

21.  In The Attorney General v. Schillibeer (1849) 4 Ex 606, an issue was raised on the justification of Crown solicitor who received fixed salary to claim costs as between subject and subject.  Parke B held that

‘ It is perfectly clear that the Crown incurred expenses about this suit, and that, unless the Crown is compensated by payment of the ordinary costs, there would be no mode of compensation; because it is impossible to say what proportion the expense of conducting this particular suit would bear to the entire salary for the year, until the end of the year, when all the suits are known, and when the expense of each can be calculated.’ (emphasis added)

22.  This approach was followed in Lord Advocate v. Stewart (No. 2) (1899) 63 JP 473; Henderson v. Merthyr Tydfil Urban District Council [1900] 1 QB 434 and R v. Burt ex parte Presburg [1960] 1 QB 625.

In re Eastwood deceased

23.  This issue was then fully discussed in In re Eastwood, deceased [1975] 1 Ch 112.  The issue was in respect of the ‘care and conduct’ item of a bill rendered by the Attorney General in respect of his costs in legal proceedings.  The costs was reduced on taxation to disallow the ‘profit costs’ on the basis that the Crown was not represented by an independent solicitor but by the Treasury Solicitor and his department.  While the reduction was upheld in the first instance, the English Court of Appeal firmly rejected this approach.  Its judgment referred to the conventional ‘AB method’ of taxation which is made up of two items, Item(A)is the cost per hour of the time spent having regard to a reasonable estimate of the overhead expenses of the solicitors’ firm including (if the time spent is that of an employee) the reasonable salary of the employee or (if the time spent is that of a partner) a notional salary and Item(B) which is an additional sum over and above Item (A) by way of further profit costs. 

24.  Russell LJ (as he then was) stated the following principles at 132 :

‘ (1) It is the proper method of taxation of a bill in a case of this sort to deal with it as though it were the bill of an independent solicitor, assessing accordingly the reasonable and fair amount of a discretionary item such as this, having regard to all the circumstances of the case.

(2)   There is no reason to suppose that the conventional A B method is other than appropriate to the case of both independent and employed solicitor.

(3)   It is a sensible and reasonable presumption that the figure arrived at on this basis will not infringe the principle that the taxed costs should not be more than an indemnity to the party against the expense to which he has been put in the litigation.

(4)   There may be special cases in which it appears reasonably plain that that principle will be infringed if the method of taxation appropriate to an independent solicitor’s bill is entirely applied: but it would be impracticable and wrong in all cases of an employed solicitor to require a total exposition and breakdown of the activities and expenses of the department with a view to ensuring that the principle is not infringed, and it is doubtful, to say the least, whether by any method certainty on the point could be reached.  To adapt a passage from the judgment of Stirling J. in In re Doody [1893] 1 Ch. 129, 137, to make the taxation depend on such a requirement would, as it seems to us, simply be to introduce a rule unworkable in practice and to push abstract principle to a point at which it ceases to give results consistent with justice.’

My view

25.  I agree with the approach of In re Eastwood.  The principle of indemnity must be applied flexibly and reasonably.  Starting from the basis that the costs of government lawyer are to be taxed on the same basis of private lawyer,the uniform approach is one that commends simplicity.  It has not been shown that this approach has caused any significant injustice in taxation of costs which is generally based on reasonable approximations only.  Any contrary approach in terms of trying to calculate the actual costs by reference not only to a proportion of the government lawyer’s salary but also to the overhead costs of his office and the supporting staff is unworkable in practice and may not necessarily produce a more accurate result.  In my view Hong Kong has correctly adopted the uniform approach.

Subsequent decisions

26.  In re Eastwood has been applied in the following subsequent cases : Leopold Lazarus Ltd v. Secretary of State for Trade and Industry, Times Law Report, 8 April 1976 (Kerr J); Portman Building Society v. Bevan Ashford (2000) 80 P & CR 239 at 252-253; Cole v. British Telecommunications Plc [2000] 2 Costs LR 310 at para. 8; Re Minotaur Data Systems Ltd [1999] 3 All ER 122, 131.

Common Law jurisdictions

27.  The In Re Eastwood approach was also adopted in the following common law jurisdictions :

Australia :

In New South Wales : Commonwealth Bank of Australia v. Hattersley (2001) 51 NSWLR 333, 340; in Victoria : Maher v. Commonwealth Bank of Australia [2008] VSCA 122 at §§96-103; in Queensland: Nolan v. George [1959] QdR 315, 321; in South Australia : Lenthall v. Hillson [1933] SASR 31, 36;

New Zealand :

Henderson Borough Council v. Auckland Regional Authority [1982] 2 NZLR 751;

Ireland :

Bank of Ireland v. Lyons [1981] IR 295;

Canada :

Canadian Indemnity Co v. British Columbia Hydro and Power Authority (1975) 62 DLR (3d) 524, 530 (Supreme Court British Columbia); Re Bell Canada and Canadian Radio-Television and Telecommunications Commission (1983) 147 DLR (3d) 37, 52-54 (Federal Court of Appeal).

Conclusion

28.  Accordingly the appeal is dismissed.

Costs

29.  As the applicant had failed in this appeal, he must bear the costs of the appeal.  However, since the substantive part of the appeal which was concerned with the proper mode of assessment of the costs of government lawyer was not raised by him but by the Court, he should not be responsible for the whole of the costs of the appeal.  I would order the applicant to pay ¼ of the respondents’ costs on a provisional basis.  This Court intends to make a gross sum costs order.  The Court directs the respondents to lodge its bill of costs within seven days and the applicant to respond to it seven days thereafter.

30.  In line with the tradition of the Bar to provide public service, Mr. Chang has generously agreed to accept the appointment without charge of which the Court is grateful.  The Court also wishes to express its gratitude to all counsel for their detailed research and submission on this topic.

New Evidence

31.  Other than the Explanatory Note to the Legal Officers (Fees and Costs) Rules 1953, this Court had refused the respondents’ application to adduce new evidence in the form of correspondence exchanged between the Legal Department and the Judiciary on this topic as we did not consider that they are proper materials that may assist the Court in understanding the legislative intent of the relevant rules.

32.  I will make no order (also on provisional basis) as to costs on the respondent’s application to adduce new evidence as I have taken this into account when I made the ¼ costs order on appeal.

Hon Kwan JA :

33.  I agree with the judgment of Cheung JA.

Hon A. Cheung J :

34.  I agree.