CHINA PROPERTY DEVELOPMENT (HOLDINGS) LTD v. MANDECLY LTD AND OTHERS

HCMP 436/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 436 OF 2005

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s application for review of taxation by a judge relying on RHC Ord. 62 r. 35(1).  It was taken out on 17 March 2008.

2.  The plaintiff earlier sought a review of the master’s taxation.  The written judgment of the master on review was handed down on 31 December 2007.  With the parties’ agreement, this is treated as the decision prescribed by Ord. 62 rr. 34(4) and 35(1).

3.  This review is (and the master’s review was) opposed by the 4^th defendant, who will be called “the defendant” below for convenience.

Background Facts and Earlier Proceedings

4.  The plaintiff entered into a written agreement on 9 August 2004 (“the said agreement”).  In essence, it was an agreement for the sale and purchase of 20% of the shares in one World Pacific Ltd.  The part of the price payable by the plaintiff thereunder, and which is relevant for present purpose, was RMB12 million.

5.  However, various parties claimed that they were the ones rightly entitled to such payment.  Initially, the plaintiff attempted settlement without litigation.  Negotiation among the parties was carried on from about January to February 2005; but that did not succeed and the matter became hostile.

6.  The plaintiff considered it necessary to take out an interpleader proceeding for the rivalry claims to be resolved.  An interpleader summons was finally taken out on 14 March 2005.

7.  However, the plaintiff also considered the defendants to have acted in breach of the terms of the said agreement.  Instead of paying into court the whole sum payable under the said agreement, the plaintiff considered it was entitled to retain part of it by reason of the breach.  Consequently, on 4 May 2005, the plaintiff only paid into court RMB7,489,133.84 on the ground that this sum was:-

“… so much of a debt as [the plaintiff] admits … ”

(Hong Kong Civil Procedure 2008, Vol. 1, para. 17/1/3).

8.  By way of background, the disputed amount is now the subject-matter of an on-going arbitration proceeding.

9.  By an order dated 5 May 2005, where the plaintiff’s further attendance was dispensed with, the plaintiff’s involvement in the interpleader proceedings came to an end (save as regards its entitlement to costs).

10.  On 12 December 2005, the master ordered (among other things) that:-

“… the costs of and incidental to [the interpleader proceedings] including all costs reserved … be to the Plaintiff … ”.

The subject-matter of the review before me (“this review”) concerns the costs taxed pursuant to the above order.

11.  Those costs were taxed by the master on 12 February 2007 (the Allocatur was dated 14 March 2008) and reviewed by him on 1 June and 13 November 2007 (his decision on review was handed down on 31 December 2007, as stated above).

Issues in the Review

12.  A total of 12 items of objection appear in the schedule of objections attached to the review summons.  They are numbered 1 to 3, 9, 12 to 15, 21, and 27 to 29.

13.  The plaintiff helpfully clarifies its case in relation to those 12 items as follows:-

(a)     the master erred in disallowing 7 items as a matter of principle (namely, objection Nos. 1 to 3, 12 to 13, and 27 to 28) (“objections as a matter of principle”);

(b)    the master erred in reducing the quantum of 2 items of costs (namely, objection Nos. 14 to 15) (“objections as to quantum”);

(c)     in relation to the remainder, the master erred in both disallowing them as a matter of principle as well as reducing the quantum of costs (namely, objection Nos. 9, 21, and 29) (“objections to both”).

These will be dealt with under separate sub-headings below.

(a)     Objections as a Matter of Principle

14.  The cost items which fall under this sub-heading are all incurred for ascertaining the amount which the plaintiff wanted to retain (pending the outcome of the arbitration).

15.  The master’s written judgment sums up the plaintiff’s case:-

“Mr. Horace Wong, senior counsel for the Plaintiff, … submitted that … [the] amount to be interpleaded was closely related to the amount of deductions which the Plaintiff was entitled to make, and the grounds for making the said deductions were in serious dispute between the parties. … ” (emphasis supplied) (para. 10 thereof).

It is to be noted that the amount in “serious dispute” is the amount of “deductions”.  As will be explained below, counsel was entirely correct not to contend that any dispute can be raised as to the amount to be interpleaded.

16.  In this review, the plaintiff in effect repeats the above argument: see para. 5 to 6, 11 to 16 and 23, plaintiff’s skeleton submissions used in this review.  Because of that, it is contended:-

“[the] whole exercise in ascertaining, quantifying and justifying the deductions were fundamentally a part of and solely for the purposes of the interpleader proceedings … ” (para. 16, plaintiff’s written submissions).

The calculation exercise is also described therein as “a crucial step”.

17.  To find out whether the above argument has merits, it is necessary to examine the purpose of an interpleader proceeding.

18.  Hong Kong Civil Procedure 2008 says:-

“Interpleader is a proceeding by which a person, from whom two or more persons claim the same property or debt, and who does not himself claim the property or dispute the debt, canprotect himself from legal proceedings by calling upon the two claimants to interplead, that is to say, claim against one another … ” (emphasis supplied) (Vol. 1, para. 17/0/2).

19.  The mode of application prescribed by RHC Ord. 17 r. 3 is consistent with the said purpose of providing the stakeholder of a disputed property or debt (other than a bailiff) with a relatively simple mechanism to stay out of the dispute.  The application must be made by originating summons, and the supporting evidence needs only set out the matters referred to in Ord. 17 r.3(4).

20.  Various options are open to someone who happens to hold, say, a sum of money over which two or more individuals lay claim to that sum.  For example, the stakeholder can:-

(1)     commence an interpleader proceeding and pay the sum into court;

(2)     pay the sum to one of those claimants (at the risk of being sued by the others);

(3)     hold on to the sum, whether on his own behalf or behalf of one of those claimants (again at the risk of being sued).

21.  But whatever option is chosen by the stakeholder, Ord. 17 (or the other rules) does not impose a duty on him to interplead (let alone interplead part of the sum he holds).  The legal consequence of failing to do so (if any) lies elsewhere at law.

22.  In other words, the propriety of a decision not to interplead, or not to interplead the whole of the disputed sum (or property) cannot be adjudicated within the context of an interpleader proceeding.  The court hearing such application has no power to so adjudicate (see Ord. 17 r. 5).  Nor is it appropriate for any of the claimants to raise any issue about this.

23.  In this review, the costs incurred by the plaintiff were incurred because the plaintiff considered itself entitled to a portion of the sum (see para. 7 and 14 above).

24.  The actual amount interpleaded is slightly less than RMB7.5 million.  But, as explained above, whether that is the “correct” amount to be interpleaded cannot be adjudicated by the master who heard the interpleader application; the plaintiff could just as well interplead a larger or smaller sum.

25.  The plaintiff’s above argument is therefore unmeritorious.

26.  The fact that the costs order was “costs of and incidental to” the interpleader application cannot advance the plaintiff’s case.  That kind of order can cover costs both in the proceedings as well as those incurred prior to, and in preparation for, the proceedings: Re Gibson’s Settlement Trusts [1981] 1 All ER 233, 237-240; Hong Kong Civil Procedure 2008, Vol. 1, para. 62/3/6.  But those costs must still be necessary or proper before they are allowed on taxation: Ord. 62 r. 28(2); Hong Kong Civil Procedure 2008, Vol. 1, para. 62/App/6; Re Gibson’s Settlement Trusts, at pp. 238-9.

27.  In fact, the plaintiff’s skeleton argument for the master’s review (written by the law costs draftsman) effectively adopted a similar approach:-

“Calculating the amount payable under [the said agreement] was relatively straightforward.  However as explained there were a number of disputes with the Defendants which resulted in the Plaintiff being able to deduct amounts in dispute … The assessment of the Defendant’s liability and the quantum of these claims involved complex issues of law and detailed factual analysis …

… the parties had agreed to resolve the matter through Arbitration so it was important when setting out the reasons for the deductions that Counsel did not prejudice the Plaintiff’s position in the forthcoming arbitration … ” (emphasis supplied) (para. 7 and 9 thereof).

Where the plaintiff went wrong in the said skeleton argument is the part which asserted that:-

“In this case the Plaintiff not only had to explain the issues surrounding the Plaintiff’s liabilities but in addition the Plaintiff’s Affirmation had to explain and justify the deductions made” (emphasis supplied) (para. 8 thereof).

28.  Apart from Re Gibson’s Settlement Trusts, the plaintiff also refers to other authorities, such as Societe Anonyme Pecheries Ostendaises v. Merchants’ Marine Insurance Co. [1928] 1 KB 750.

29.  Without disrespect to counsel’s industry, I do not propose to discuss them in detail save to say that, while the principles propounded therein are sound, none of them can advance this aspect of the plaintiff’s case.  Quite different facts were involved in those cases.

30.  The plaintiff also relies on the defendant’s repeated service of statutory demands as a ground for justifying the costs falling under this sub-heading.

31.  The defendant’s service of the statutory demands (which the plaintiff considers to be totally unreasonable) might have put pressure on the plaintiff to commence the interpleader application sooner.

32.  But I do not consider this should somehow provide a valid basis for turning the costs now claimed by the plaintiff into “necessary or proper” costs for the purpose of the interpleader proceeding.

33.  The master is thus entirely correct in deciding against the plaintiff regarding this aspect.

(b)     Objections as to Quantum

34.  Before discussing the individual cost items, the legal principles applicable in a review by the judge should be stated.

35.  They can summed up as follows.  The starting point is:-

“… the court will not generally interfere with the decision of a taxing master on a question relating to fact or to the amount of costs … ”:

Halsbury’s Laws of Hong Kong (2006 Reissue) Vol. 5(2), para. 90.1275.1.  The exceptions are:-

(a)     some question of principle is involved;

(b)    the taxing master has not had reasonably sufficient material before him;

(c)     he has taken into account irrelevant matters;

(d)    he has not taken into account relevant matters; or

(e)     he has acted upon a wrong principle or adopted the wrong approach.

It has also been said a judge may review a taxing master’s decision where he has given incorrect reasons.  But this is likely to be a different way of stating sub-para. (c) to (e) above: Halsbury, Vol. 5(2), para. 90.1275.1, especially n. 7.

36.  The two cost items which fall under this sub-heading relate to the costs of a “without prejudice” meeting between the plaintiff and the 3^rd defendant.  The master allowed most of the fees for attendance of one fee-earner but taxed off those of another fee-earner.

37.  The master taxed off the fees of the second fee-earner because he regarded her attendance to be unnecessary.  The fees of the first fee-earner were reduced.

38.  I agree with the defendant that the master was quite entitled to so decide in the factual context.  There is nothing to show that any of the above exceptions is applicable.

(c)     Objections to Both

39.  Because I have decided against the plaintiff as a matter of principle (see para. 14 to 33 above), it is strictly unnecessary to consider the objections relating to quantum.  I shall do so for completeness.

(a)     Objection No. 9

40.  The first cost item relates to the fees for drafting the originating summons and the supporting affirmation.  I have already alluded to the statutory requirements (see para. 18 and 19 above).  In view of the nature of an interpleader application, I agree with the defendant that the master was entitled to disallow the costs for engaging counsel to perform such work.

41.  Similarly, the master’s disallowance of part of the solicitors’ fees does not fall within any of the above exceptions.

(b)     Objection No. 21

42.  This item is concerned with the fees for drafting an affirmation.  The main complaint is that the master completely taxed off the fees of the second fee-earner.

43.  In short, I do not find any valid basis for reviewing what essentially was a matter of discretion for the master.

(c)     Objection No. 29

44.  Here the fees for drafting a list of questions to be answered by lay client were taxed off for being unnecessary costs.  The list was needed:-

“… to take instructions on the different heads of deductions … ” (para. 34, plaintiff’s skeleton submissions).

45.  I only need to repeat para. 14 to 33 above.

Conclusion

46.  By reason of the matters set out above, I do not consider there to be any valid ground for interfering with the master’s discretion.

47.  This review is therefore dismissed.

Costs Order Nisi

48.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this review be paid by the plaintiff to the defendant to be taxed if not agreed.