SOUTH HORIZONS INTERNATIONAL PETROLEUM LTD. v. MESSRS CRUMP & CO. (a firm)

CACV 1691/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1691 OF 2001

(ON APPEAL FROM HCMP 2750 OF 2001)

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J U D G M E N T

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Hon Mayo VP (giving the judgment of the Court):

1. This is an appeal from a judgment of Kwan J who in turn was hearing an appeal from Master Jones.

2. Master Jones had ordered that the defendants, a firm of solicitors, should be required to refer a Bill of Costs which had been rendered to the plaintiffs to a Taxing Master for taxation. The rationale for this reference was for the Bill to be itemized so as to provide details of the work which had been undertaken by the defendants and determine who had done the work what were the hourly charges for it. Kwan J upheld the Master's order.

3. The reference had been made pursuant to section 67(2) of the Legal Practitioners Ordinance Cap. 159 (the Ordinance).

4. Section 67(1) and (2) provide as follows:

"67. Taxation of bills on application of party chargeable on solicitor or foreign lawyer

(1) On the application, made within 1 month of the delivery of a solicitor's bill or a foreign lawyer's bill, of the party chargeable therewith the Court shall, without requiring any sum to be paid into court, order that the bill shall be taxed and that no action shall be commenced thereon until the taxation is completed.

(2) If no such application is made with in the period mentioned in subsection (1), then, on the application of the solicitor or the foreign lawyer, or of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order-

(a) that the bill shall be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed:

Provided that-

(i) if 12 months have expired from the delivery of the bill, or if the bill has been paid, or if a verdict has been obtained or a writ of inquiry executed in an action for the recovery of the costs covered thereby, no order shall be made on the application of the party chargeable with the bill except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the taxation as the Court may think fit;

(ii) if the bill has been paid, no order under this subsection shall be made where the application for the order is made after the expiration of 12 months from the date of payment of the bill."

5. The Bill of Costs amounted to $210,000 and there were disbursements $3,351 making a total of $213,351.00. Had the application for taxation been made within one month of the date of the delivery of the Bill the defendants would have been required to tax the Bill by virtue of the provisions contained in section 67(1) of the Ordinance. However as the Bill was delivered on 25 July 2000 the plaintiffs could not avail themselves of the provisions contained in section 67(1). It should also be added for the sake of completeness that in effect the Bill was paid shortly after it had been delivered by virtue of the fact that the plaintiffs agreed to the defendants deducting the amount claimed in the Bill from the proceeds which had been remitted to the defendants by a firm of lawyers in Florida USA.

6. The nature of the work which had been undertaken by the defendants for the plaintiffs had been to advise them upon how to recover outstanding bunker fees amounting to US$242,100.00. This involved seeking to arrest the M.V. "Thiseas" which it was understood would be visiting Panama and Miami. There was litigation conducted in Panama and in Florida. The defendants liased with these lawyers.

7. The work was undertaken over a period of seven months commencing in January 2000. It was also accepted that some of the work which had been undertaken was of an urgent nature and that on account of the time difference between the east coast of the United States and Hong Kong it had been necessary on occasions for work to be performed almost around the clock.

8. What had been clear was that almost immediately after the defendants had rendered an interim Bill the plaintiffs had requested that it be itemized and that particulars be provided of the number of hours spent on the work and who had been performing it and what rate was charged per hour. This had been on account of the fact that the Bill which had been delivered by the defendants had been in narrative form and had simply arrived at a global amount.

9. The defendants declined to comply with this request which was repeated on several occasions.

10. On 14 August 2000 the plaintiffs lodged a complaint with the Law Society in relation to the Bill. An investigation was undertaken by the Law Society and it informed the plaintiffs on 2 February 2001 that it was satisfied that the defendants had not been guilty of any misconduct. It had only been on 18 May 2001 that the Originating Summons was issued which was eventually heard by Master Jones.

11. The main issue which had to be determined on the appeal before the Judge was whether the plaintiffs were able to establish that there were "special circumstances" as required in section 67(2). In this connection it will be appreciated that this involved the exercise of a discretion by the Judge. This being the case what this appeal is concerned with is whether the defendants have been able to demonstrate that the Judge was plainly wrong.

12. The Judge considered three matters which she regarded as constituting special circumstances.

13. The first was the fact that the plaintiffs had expressly reserved the question of costs.

14. Both sides attempted to place reliance upon Clayton Wong & Co. v. Springbok Shipping (HK) Ltd [1997] 3 HKC 710 in support of their respective contentions. While it may be the case that an express reservation of itself can be sufficient to amount to a special circumstance it is by no means certain that this will inevitably be the case. Much will depend upon the particular circumstances in each case.

15. In the present case the reservation was made at an early date and repeated in a letter dated 10 August 2000.

16. The final two paragraphs read:

"We further put on record that we have so far not yet received your remittance of the balance of the funds as agreed in 2nd paragraph of your letter dated July 28, 2000 (before our termination of your retainer).

We hereby give you notice that unless we do not receive the said remittance and details as to your costs by close of business on Friday, the 11th day of August 2000, we will take all necessary and proper steps including referring the same with chronology of events to The Law Society of Hong Kong, in which event we will hold your liable to indemnity all incidental costs and expenses."

17. The second special circumstance referred to is what has been described as the section 63 point. Here reference is being made to section 63 of the Ordinance which reads:

"63. Form of bill of costs for contentious business

Where the remuneration of a solicitor in respect of contentious business done by him is not the subject of such an agreement as is mentioned in section 58, the solicitor's bill of costs may at the option of the solicitor either contain detailed items or be for a gross sum:

Provided that-

(a) at any time before service upon him of a writ or other originating process for the recovery of costs included in a gross sum bill and before the expiration of 3 months from the date of the delivery to him of the bill, the party chargeable therewith may require the solicitor to deliver to him in lieu thereof a bill containing detailed items, and the gross sum bill shall thereupon be of no effect;

(b) where an action is commenced on a gross sum bill, the court shall, if so requested by the party chargeable therewith before the expiration of 1 month from the service on that party of the writ or other originating process, order that the bill shall be taxed;

(c) if a gross sum bill is referred to taxation, whether under this section or otherwise, nothing in this section shall prejudice any rules of court with respect to taxation, and the solicitor shall furnish the taxing officer with such details of any of the costs covered by the bill as the taxing officer may require"

18. Mr Lam for the plaintiffs submitted that this was a clear reservation of the plaintiffs' rights and a wide and liberal interpretation should be given to what might constitute a special circumstance.

19. On the other hand Mr Graham for the defendants submitted that this was not a case which could be regarded as a special circumstance. He pointed out that his clients had on 10 August 2000 well within the prescribed period referred to in section 67 made it abundantly clear that it was not their intention to provide the plaintiffs with the detailed Bill they were seeking and that if they were not satisfied with the position they could arrange for the Bill to be taxed. Their letter of 10 August 2000 is in these terms:

"10 August 2000

South Horizons International Petroleum Ltd.
Room 501, East Town Building
41 Lockhart Road
Wanchai
Hong Kong

Attn: Mr Ricky Tang

Dear Sirs,

Re: M/V "THISEAS"

We refer to your letter dated 10 August 2000.

We have already provided a detailed breakdown of the costs in our Fee Note dated 25 July 2000. We are not prepared to provide any further breakdown. If it is your intention to have our costs taxed, please say so and we shall make the necessary arrangements.

For the reasons already given, we are not prepared to remit the balance of the funds received from Panama to you until our final invoice (which will be forwarded to you today and which will include our Miami correspondent's Fee Note dated 1 August 2000 as a disbursement) has been settled.

In addition, we reserve the right to retain funds which we are holding on your behalf as security for our liability to our Miami correspondents in relation to the arrest costs which you were ordered to pay and for which our Miami correspondents are personally liable. This problem can, of course, be alleviated by your new Hong Kong solicitors simply providing the undertakings which we have requested.

Yours faithfully,

Sd. Crump & Co."

20. From this it can be seen that the plaintiffs were made aware well within the one month time limit of their right to tax the Bill and did not avail themselves of this opportunity.

21. The test for establishing that special circumstances are applicable would appear to be a stringent one. Mortimer VP had this to say at p. 713H in Clayton Wong:

"Bearing in mind those principles - which I find of great help - it seems to me that the special circumstances which must be found by a judge must be something which is out of the ordinary. There must be something which is serious and which justifies not only an ordinary taxation but a special one."

22. We think that this must be right. It would also appear that there would be few occasions when the mere fact that a party had attempted to reserve its rights would be sufficient to establish this. As was pointed out by Mr Graham it cannot be the case that a party can be entitled to reserve its rights beyond a time limit which is prescribed by statute. Section 67(1) provides that the application must be made within one month of the Bill being delivered. A party cannot derogate to itself a right to waive this requirement.

23. A further factor which has to be borne in mind is that as has already been indicated this Bill was paid within the one month period. This is a further good reason why this matter should not be reopened.

24. It is also apparent from the observations made by the Judge that there was no obvious evidence that the amount claimed in the Bill was excessive. There was only a possibility that this might be the case.

25. Bearing in mind all of these matters it is not possible to say that the test outlined by Mortimer VP has been met.

26. For section 63 to "bite" it is necessary to establish that the work which was undertaken by the defendants was "contentious" business.

27. Mr Lam called in aid the English Court of Appeal case Re A Solicitor [1955] 1 WLR 1058 in support of his contention that the test to be adopted is the nature and quality of the work done rather than whether legal proceedings have been commenced in Hong Kong.

28. Mr Lam placed particular reliance upon the passage at p. 1060 of the judgment of Denning LJ:

"There is a great difference for solicitors between 'contentious business' and 'non-contentious business'. A bill for contentious business must be made out item by item, with a separate charge against each item; but a bill for non-contentious business can be charged by a lump sum. The difference in the method of charging leads to a difference in the amount which the solicitor receives. Non-contentious business is, I believe, more remunerative than contentious business.

Although the difference is so important to solicitors, there is no clear guidance to be found anywhere to enable the profession to distinguish between contentious business and non-contentious business. The Solicitors Act, 1932, evades the issue. In section 81 it says, what is obvious, that 'contentious business' includes business in court, and that 'non-contentious business' includes conveyancing business; but this does not help to decide difficult cases. The section does not say what 'contentious business' means or what 'non-contentious business' means.

We are- thus left to find out for ourselves. Sir Hartley Shawcross asked us to draw a clear line for the guidance of the profession. We should have liked to accede to his request if we could. It seems to me that if a clear line is to be drawn there is only one possible place for it, namely, the issue of the writ or other originating process in the courts of law. All business before that date could be said to be non-contentious, and all business afterwards to be contentious. It would be very convenient if we could draw that line, but I do not think we are at liberty to do so, for the simple reason that it is not the line drawn by Parliament. The statutory distinction depends on the nature of the business - contentious or non-contentious - not on the time at which it is done.

Let me test the position by taking a case where a client asks his solicitor to bring an action. The solicitor thereupon instructs counsel to draft the writ and the statement of claim to be served with it. If the action goes for trial, the costs of that work are recoverable as costs in the action. They are not disallowed simply because the work was done before the writ was issued. It is clearly contentious business. Now suppose that in that very case the solicitor had to take statements from witnesses so as to enable counsel to settle the statement of claim. If the action goes for trial, the cost of that work would also be recoverable as costs in the action: see Societe Anonyme Pecheries Ostendaises v. Merchants Marine Insurance [1928] 1 KB 750; 44 TLR 270 and Frankenberg v. Famous Lasky Film Service [1931] 1 Ch 428. It would also be contentious business.

Now suppose that after the solicitor had done all that work, but before the writ was actually issued, the case was settled by the defendant paying the claim. Does the work take on a different character simply because the case was settled? Surely not. If it is contentious business when the case goes for trial, it is also contentious business when the case is settled before the writ is issued. The issue of the writ does not alter the nature of the business; nor should it alter the method or amount of the solicitor's charges. He should get the same reward for the same work, no matter whether the case goes for trial or is settled the moment before writ issued or the moment after it."

29. Mr Graham contended that the matter had to be considered at large. He submitted that "court" was defined in section 2(1) of the Ordinance as meaning the Court of First Instance.

30. In a similar manner the definition of "court" in the Interpretation and General Clauses Ordinance Cap. 1 was confined to courts of the HKSAR of competent jurisdiction.

31. Order 62 rule 1 of the Rules of the High Court which defines the scope of the order also limits itself to proceedings which are conducted in the courts of Hong Kong.

32. Assistance can also be derived from the commentary in Cordery on Solicitors, London Butterworths 2001 in section 1 which is in these terms:

"Section 1 Contentious and non-contentious business defined

'Non-contentious business' is defined by the Solicitors Act 1974 as 'any business done as a solicitor which is not contentious business' whilst 'contentious business' is defined as being 'business done whether as solicitor or advocate in or for the purposes of proceedings begun before a court or before an arbitrator appointed under the Arbitration Act 1950 other than non-contentious probate business'. The key word here is 'begun'. If instructions are taken for divorce proceedings but, before a petition is presented, the parties are reconciled, that, contrary to all the appearances, is non-contentious work. Similarly, debt collection is non-contentious business if payment is secured without instituting proceedings. Another trap for the unwary is that industrial tribunals and all other tribunals except the Lands Tribunal are classified as non-contentious business, even though an appeal from an Employment Tribunal to the Employment Appeal Tribunal takes its rightful place as contentious business."

33. With respect none of this is inconsistent with the observations which were made by Denning LJ. The critical point to note is that his observations appear to be predicated upon a premise that at some juncture legal proceedings are contemplated. In the present case no legal proceedings were contemplated in Hong Kong. This would appear to be an important distinction.

34. If the nature of the work which was undertaken by the defendants is carefully scrutinized it is apparent that they were not themselves directly involved in the litigation which was conducted in Panama or Florida.

35. We have come to the conclusion that the Judge was in error when she decided that the work which had been undertaken by the defendants was contentious work. The consequence of this is that section 63 has no application to the present case and the refusal of the defendants to comply with the terms of the section cannot amount to a special circumstance.

36. There is the additional point that as we have found the Judge to be in error it is open to us to exercise the discretion reposed in her ourselves.

37. The third matter relating to special circumstances considered by the Judge was the possibility that the Bill might include items which were excessive.

38. We have already considered this aspect of the matter in connection with the first issue namely whether it was open to the plaintiffs to reserve their rights. All that needs to be said here is that in our view there was insufficient material before the Judge to constitute a special circumstance in this connection.

39. For the reasons we have given we are of the view that this appeal should be allowed and we set aside the Judge's order. We also make an order nisi that the defendants are to have their costs before us and in the court below.