GEORGE Y.C. MOK & CO. (a firm) v. TRADE ADVISERS CO LTD Defendant

DCCJ18479/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 18479 OF 2001

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Between

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JUDGMENT

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1.   This is a bitter litigation between a firm of solicitors and its former client. The claim is only for a sum of $71,449.95 as unpaid legal fees, but it ends up in a litigation of nearly 9 years with a trial attended by 2 Senior Counsel.

2.   The facts of the present case, in particular the calculation of the various figures relating to the Defendant’s costs on account, are rather complicated. There are also various issues involved in the case, but the main ones are: (i) whether the fees charged by the Plaintiff in respect of certain “interim bills” are final?; (ii) whether the parties had made an oral agreement relating to the Plaintiff’s fees on 9 February 2000?; and (iii) if yes, whether such agreement is valid and enforceable?

Background

3.   The Plaintiff is a firm of solicitors with Mr. George Mok (“Mr. Mok”) as the senior partner.

4.   The Defendant is a company owned and managed by one Mr. Liu Tai Chuen (“Mr. Liu senior”) and his son Mr. Liu Wai Keung (“Mr. Liu junior”) which carries on the business of, inter alia, a real estate developer in the New Territories. In 1998, the Defendant had a dispute involving a right of way in one of the Defendant’s projects with its neighbour Silkart Limited (“Silkart”). In May that year, the Defendant engaged the Plaintiff as its solicitors in relation to that dispute.

5.   Regrettably, there was no written retainer between the Plaintiff and the Defendant. As there was no express agreement on the basis under which the Plaintiff’s fees would be charged, it is the Plaintiff’s case that it was entitled to charge the Defendant for the legal services provided on a solicitorandclient basis.

6.   Between 12 June 1998 and 20 November 1998, the Defendant made 3 payments to the Plaintiff in the total sum of $180,000 as costs on account.

7.   On or about 4 December 1998, the Plaintiff issued the 1^stbill (“Bill No. 1”) to the Defendant as “interim professional charges” for 2 High Court Actions: HCA No. 18001 of 1998 and HCA No. 20671 of 1998 (“the Silkart Action”). The work involved taking instructions and engaging senior and junior counsel culminating with a site inspection on 24 November 1998. The Defendant was charged the sums of $28,830 and $28,000 for disbursementsand the Plaintiff’s fees respectively. The following statement appeared in the bill: “Our costs on time charge basis are over $45,000. However, our costs are reduced to only $28,000”. The fees charged under Bill No. 1 were deducted from the costs on account of $180,000 leaving a balance of $123,170.

8.   On 9 February 1999, the Defendant obtained from Sears J an interlocutory injunction against Silkart. On the same day, the Defendant paid the Plaintiff a further sum of $100,000 as costs on account.

9.   On 13 February 1999, the Plaintiff issued the 2^ndbill (“Bill No. 2”) to the Plaintiff, which was said to be in respect of the Plaintiff’s “interim professional charges for services rendered in connection with [the Silkart Action]”. It covered preparatory work leading to the granting of the injunction on 9 February 1999, and the Defendant was charged the sums of $235,100 and $55,000 as disbursements and the Plaintiff’s legal costs respectively. The following statement appeared in the bill: “Our costs on time charge basis are over HK$85,000. However, our costs are reduced to only $55,000”. On or about 23 April 1999, the Defendant paid the Plaintiff the sum of $67,530 said to be due under Bill No. 2.

10.   In March 1999, there were allegations of breaches of the injunction order. The disputes between the Defendant and Silkart also resulted in 2 incidents on 27 & 29 April 1999. At about the same time, consideration was given to strike out the Defence and Counterclaim filed by Silkart.

11.   On 8 July 1999, the Plaintiff issued the 3^rdbill (“Bill No. 3) for “further interim professional charges for services rendered in connection with [the Silkart Action]” in the period between February to July 1999. For this bill, the Defendant was charged the sums of $5,000 and $60,000 as disbursements and the Plaintiff’s legal fees respectively. This time the following statement appeared in the bill: “Our normal fees on time-charge basis are about HK$85,000.00. However, our costs are reduced on complimentary basis to only HK$60,000.00”. The Defendant paid the sum of $65,000 due under this bill on or about 22 November 1999.

12.   There were then intense preparations for the trial of the Silkart Action in the second half of 1999. Lists of documents and witness statements were exchanged and a check-list hearing took place before Yeung J, as he then was, on 6 October 1999. Directions were then given for the Silkart Action to be set down for trial within 42 days.

13.   On 22 November 1999, the Plaintiff issued the 4^thbill (“Bill No. 4”) for “further interim professional charges” of the Plaintiff’s work in the period between July and November 1999. Under this bill, the Defendant was charged the sums of $57,500 and $50,000 as disbursements and the Plaintiff’s legal fees respectively. Similar statement about the charging of reduced fees on complimentary basis also appeared in this bill.

14.   Between 15 November 1999 and 27 January 2000, the Defendant made 3 payments to the Plaintiff in the total sum of $950,000 by way of costs on account.

15.   The Silkart Action came up for hearing before Deputy High Court Judge Z. E. Li on 25 January 2000. On 28 January 2000, the learned Judge ordered that there be specific performance against Silkart including preparation and execution of a Deed of Mutual Grant of Right of Way. Further, he ordered Silkart to pay half of the Defendant’s costs of the Silkart Action to be taxed if not agreed (“the 1^st Costs Order”).

16.   The Plaintiff claims that in a meeting between Mr. Mok and Mr. Liu senior on 9 February 2000, it was agreed between them that:

“The Plaintiff would charge the Defendant costs taxed on party and party basis in [the Silkart Action] instead of on solicitor and client basis. If the taxed costs on party and party basis in [the Silkart Action] were higher than the amount billed by the Plaintiff on the Defendant, the Defendant would have to pay the balance thereof to the Plaintiff.” (paragraph 2 of the Re-Amended Reply and Defence to Counterclaim)

The existence and the validity of such agreement (“the Agreement”) are 2 of the main issues in the present case.

17.   On 17 February 2000, the Plaintiff issued the 5^thbill (“Bill No. 5) in respect of the Plaintiff’s “interim professional charges” for the services provided in the period between 24 November 1999 and 11 February 2000. For this bill, the Defendant was charged the sums of $878,400 and $350,000 as disbursements and the Plaintiff’s legal fees respectively. A statement in different wording appeared in this bill: “Our usual costs on time-charge basis are well over HK$700,000.00. However, we reduced our costs to only HK$350,000 on our agreement that we would bill you later only the total taxed costs ([Silkart] will pay you 50% thereof), if the taxed costs are over and above that you have paid us.”

18.   On or about 8 May 2000, the Plaintiff sent a letter to the Defendant which set out, inter alia, the hourly rates of the relevant handling solicitors approved by the court and the proposed rates to be charged by the Plaintiff in respect of future interim bills, with a view “to avoid any misunderstanding” between the parties.

19.   On 23 May 2000, the Defendant paid the Plaintiff further costs on account in the sum of $500,000.

20.   The first appointment for taxation between the Defendant and Silkart pursuant to the 1^st Costs Order was fixed on 30 May 2000. An inter partes bill (“the 1^st Inter Partes Bill”) was prepared by Messrs. Stephen Lau & Co. who was the law costs draftsman engaged by the Plaintiff.

21.   On 21 June 2000, the Plaintiff issued the 6^th bill (“Bill No. 6”) to the Defendant in respect of the Plaintiff’s “further interim professional charges from 15 February 2000 to date”. For this bill, the Defendant was charged the sums of $96,322.75 and $90,000 as disbursements and the Plaintiff’s legal fees respectively. This time the following statement appeared in the bill: “Our usual costs on time-charge basis will be well over HK$135,000.00. However our costs are reduced to only HK$90,000”.

22.   Bill No. 6 was sent to the Defendant together with a Plaintiff’s letter dated 21 June 2000 which reads as follows:

“……… According to our Costing Department, our fees should be well over HK$135,000 for all the work done on your behalf during the past 4 months. However, we have reduced our fee to only HK$90,000, on condition that you would settle the enclosed bill within 14 days from today, since we have already settled and paid for Counsel’s fees and other disbursements on your behalf. As you know, it is a term of our retainer that if our bill is not paid within 14 days after presentation to you for settlement, we are entitled to charge interest at the rate of 3% over and above the prime rate of the Hong Kong Bank.

Although our previous bill has not been settled by you, despite of many requests, we would nevertheless, at your request, allow the same to continue to be unpaid, since 50% of the legal costs to be paid [Silkart] in [the Silkart Action], as previously ordered by the learned Judge, would be sufficient to cover the same, after taxation by the court. We shall, of course, reserve our rights to re-consider our position on legal costs and disbursements, should the Taxing Master of the Court substantially reduce the fees or costs to be payable by the Defendants, as we would not know the intention of the Taxing Master until after taxation.

………”

23.   The 1^st Inter Partes Bill between the Defendant and Silkart was taxed by Master B. Kwan on 26 September 2000. The hearing was a contested one. According to the letter from Messrs. Stephen Lau & Co. to the Plaintiff dated 26 September 2000, the amount of the Plaintiff’s profit costs allowed by the learned master was $382,794.70.

24.   On 12 October 2000, the Plaintiff issued the 7^th bill (“Bill No. 7”) to the Defendant for “further professional charges for services rendered in connection with [the Silkart Action] up to the Order of Deputy Judge Z. E. Li dated 28 January 2000”. The following recital appeared in this bill:

“Further to the Order of Deputy Judge Li dated 28^th January 2000, Master B. Kwan on 26^th September 2000 taxed and allowed 50% of our costs at HK$382,794.70 (to be paid by [Silkart], as agreed by you) or HK$765,589.40, excluding counsel’s fees and our disbursements. Consequentially, in accordance with the professional practice rules, the minimum fees payable by you to us in respect of [the Silkart Action] up to 28^th January 2000 would be at HK$765,589.40.

According to our file records and previous interim bills issued to you ……… the total sum so far charged up to 28^th January 2000 was only HK$543,000.00. Consequentially, the balance of HK$222,589.40 is now payable by you.”

25.   On or about 13 October 2000, the Plaintiff received from Silkart the sum of $950,000 in payment of what was due under the 1^st Costs Order as assessed by Master Kwan on 26 September 2000.

26.   The second substantive hearing of the Silkart Action took place before Deputy High Court Judge S. Kwan, as she then was, on 16 October 2000. In that hearing, the learned judge directed that the plan annexed to a summons taken out by the Defendant be adopted in the Deed of Mutual Grant of Right of Way, while the issues relating to the form and the parties of that Deed be adjourned for argument on 7 November 2000. The learned judge also ordered Silkart to pay to the Defendant 75% of the costs of the application to be taxed if not agreed with certificate for 2 counsel (“the 2^nd Costs Order”). In the hearing on 7 November 2000, the draft Deed of Mutual Grant of Right of Way was submitted to the court for approval, and the learned judge ordered that the Defendant should have the costs of that hearing (“the 3^rd Costs Order”).

27.   On 14 November 2000, the Plaintiff issued the 8^th bill (“Bill No. 8”) to the Defendant for “further interim professional charges” of the work covered in the period from 21 June to 13 November 2000. In this bill, the Defendant was charged the sums of $485,000 and $188,000 as disbursements and the Plaintiff’s legal fees respectively. The following statement appeared in the bill this time: “Our usual costs on time-charge basis will be over HK$250,000.00. However, we reduced our costs to only HK$188,000.00 on our agreement that we would bill you later only the taxed costs ([Silkart] will pay you 75% thereof), if the taxed costs are over and above the costs that you have paid us”.

28.   Bill No. 8 was sent to the Defendant together with a Plaintiff’s letter dated 23 November 2000. According to the Statement of Account annexed to such letter, the Plaintiff used the money received from Silkart in the sum of $950,000 to settle the sums due to the Plaintiff under the previous bills leaving a credit balance of $163,187.85 in favour of the Defendant. The credit balance was later reduced to $151,487.85, as a sum of $1,200 was used to pay the fees under the 9^th bill and a further sum of $10,500 was used to settle the fees under the 10^th bill.

29.   The Defendant made an objection by way of letter on 24 November 2000. In such letter, the Defendant referred to the discussions “many times” between Mr. Liu junior and Mr. Mok “for discounting our payment of your legal costs and disbursements at 40-50%”. The Defendant further informed the Plaintiff that it had difficulty in understanding the details of the Plaintiff’s Bills and invited the Plaintiff to submit the bills in “modern form”.

30.   On or about 19 December 2000, the Plaintiff issued the 9^th bill (“Bill No. 9”) to the Defendant, charging a sum of $1,200 for the preparation of a statutory declaration as to the non-revocation of various powers of attorney used to support the execution of the Deed of Mutual Grant of Right of Way. The Plaintiff utilised the balance of the Defendant’s costs on account to settle this bill.

31.   A 2^ndinter partesbill (“the 2^nd Inter Partes Bill”) between the Defendant and Silkart was prepared by Messrs. Stephen Lau & Co. for taxation pursuant to the 2^nd and the 3^rd Costs Orders.

32.   The taxation of the 2^nd Inter Partes Bill was scheduled to be heard on 24 April 2001. Prior to the hearing, Silkart offered to settle the Defendant’s claim at $655,000. By a letter dated 23 April 2001, the Plaintiff advised the Defendant to accept the offer from Silkart based on several reasons, which included the points that “the time incurred for most items in the Bill had been inflated by about 20% for negotiation purposes” and “some of the items in the Bill are usually non-recoverable but had been included only for negotiation purposes”. The Defendant rejected the Plaintiff’s advice and proceeded with the taxation on 24 April 2001. In the hearing, Master H. C. Wong taxed the Defendant’s costs at a total sum of $657,029.30, of which the sum of $335,104.45 was for profit costs and the remaining balance of $321,924.85 was for disbursements.

33.   In the letter to the Plaintiff dated 7 July 2001, the Defendant complained that it had not received the breakdown of the Plaintiff’s legal costs as mentioned in the previous correspondence. The Plaintiff replied on 10 July 2001 that the breakdown had already been provided in the 1^st and 2^nd Inter Partes Bills prepared by the law costs draftsman. The Plaintiff further explained that they had only charged the Defendant the taxed costs as allowed by the taxing masters and they were not allowed by Principle 4.15 of the Solicitors’ Guide to Professional Conduct (“the Solicitors’ Guide”) to share their profits costs with any person other than a practising solicitor. By a letter dated 13 July 2001, the Defendant terminated the retainer with the Plaintiff and demanded the Plaintiff to refund the sum of $163,187.85 as the alleged balance due in favour of the Defendant in its costs on account.

34.   On 17 July 2001, the Plaintiff issued the final 2 bills, the 10^th and the 11^th Bills (“Bill No. 10” and “Bill No. 11”), to the Defendant.

35.   Bill No. 10 was unrelated to the Silkart Action. The Defendant alleged that Silkart had committed further acts of trespass. In providing legal services to the Defendant in respect of such new matter, the Plaintiff charged the Defendant $10,000 and $500 as “interim professional charges” and “disbursements” respectively.

36.   Bill No. 11 was issued for the Plaintiff’s “final professional charges for service rendered in connection with [the Silkart Action]” since the issuance of Bill No. 8. This bill had been amended once on 22 May 2002 (Bill No. 11a), and it sought to set out the final amount owed by the Defendant.

37.   In this bill, the Plaintiff charged the Defendant for 3 separate sums. The first sum of $134,522.80 is arrived as follows:

(i) the costs taxed by Master H. C. Wong on 24 April 2001 pursuant to the 2^nd Costs Order in the sum of $254,067.15 being 75% of the Plaintiff’s profit costs up to 17 October 2000, and the Plaintiff therefore says that the proper costs payable by the Defendant for such period should be:

$254,067.15 ¸ 75% = $338,756.20;

(ii) the costs taxed by Master H. C. Wong on 24 April 2001 pursuant to the 3^rd Costs Order in the sum of $73,766.60 being the Plaintiff’s profit costs from 18 October 2000 to 7 November 2000;

(iii) the sum of $134,522.8 is therefore arrived as follows:

$338,756.2 + $73,766.6 - $90,000 (profit costs charged under Bill No. 6) - $188,000 (profit costs charged under Bill No. 8) = $134,522.8

38.   The second sum was $35,000, which covered the services in connection with: (i) the dispute over the footpath and further breaches of the Deed of Mutual Grant of Rights of Way; (ii) the taxation proceedings before Master H. C. Wong on 24 April 2001; and (iii) the preparation of the certified copy of the Deed of Grant of Right of Way dated 23 November 2000.

39.   The third sum of $53,415 was for “disbursements”. According to the Plaintiff’s case, the final amount owed by the Defendant can therefore be calculated as follows:

$134,522.8 +$35,000 + $53,415 - $151,487.85 (being the credit balance in the Defendant’s costs on account as calculated in paragraph 28 above) = $ 71,449.95

The Plaintiff claims for such amount in the Writ.

40.   The total disbursements claimed under all 11 Bills amounted to $1,831,867.75 and there is no dispute between the parties about such amount. On the other hand, the total profit costs claimed under all the 11 Bills amounted to $1,233,112.20. However, for the reasons set out in the latter part of this judgment, the Defendant only admits the Plaintiff’s claim for profit costs to the extent of $876,000. As the Plaintiff had received direct payments in the total sum of $2,043,530 from the Defendant and a sum of $950,000 from Silkart, making up a grand total of $2,993,530, the Defendant claims that there should be a credit balance in the sum of $285,662.25 ($2,993,530-$1,831,867.75-$876,000) in favour of the Defendant in its costs on account. The Defendant therefore counterclaims for such amount.

41.   On 31 August 2001, the Defendant lodged a complaint with the Law Society against the Plaintiff for the over-charging of legal fees, and the latter instituted the present proceedings against the Defendant on 24 October 2001.

History of the litigation

42.   For the purpose of this judgment, I also need to set out part of the history of the present litigation relating to certain striking out applications and the Defendant’s application to tax the Plaintiff’s 11 Bills of Costs.

43.   In the original paragraph 6 and 7 of the Defence and Counterclaim filed on 10 June 2002, the Defendant made the following averments:

“6. ……… the Defendant believes and so avers that in the bills prepared for party and party taxation there were many instances of over charging for work mainly by charging for attendances stated to be by Mr. George Y. C. Mok which were actually attended by legal executives whose work should have been charged at lower hourly rates as a result of which the taxation bills were much inflated.

7. The Defendant also believes and so avers that in the bills prepared for party and party taxation the amounts claimed for certain items were more than the amounts actually billed by the Plaintiff to the Defendant.”

44.   The Plaintiff made an application to strike out these 2 paragraphs which was allowed by HH Judge B. Chan on 22 September 2003. According to the learned judge, the taxing masters had made final decisions about the propriety of the Plaintiff’s Bill of Costs in the taxation proceedings between the Defendant and Silkart. The raising of the defence in the 2 paragraphs therefore amounted to a collateral attack on the decisions of the taxing masters.

45.   Despite the decision by Judge Chan, one may still argue that as the Defendant had not appearedand was not separately represented in the taxation proceedings, the decisions made by the taxing masters should not be binding on the Defendant. Further, it is also arguable that, despite the existence of the Agreement, the Defendant’s right to challenge the Plaintiff’s Bills is expressly preserved by s. 67 of the Legal Practitioners Ordinance, Cap. 159 (“the LPO”, see the decision by Deputy High Court Judge To in Chin Yuk Lun Francis & anr. v Messrs. Lo & Lo (a firm), unreported, HCMP No. 1142 of 2005, decision on 7 July 2006, at para. 34). However, there was no appeal against the decision of Judge Chan.

46.   Subsequently in 2004, the Defendant applied by way of originating summons in the High Court for an order that the Plaintiff’s Bills of Costs be referred to a taxing master for assessment (HCMP No. 1578 of 2004). In refusing the application, Deputy High Court Judge Muttrie held that the dispute between the parties was, in substance, related to the contents of the agreement between the parties about the charging of professional fees and whether such agreement was a contingency fee arrangement. As these issues were not matters properly to be considered in taxation proceedings, the originating summons was dismissed. In dealing with the costs of the application, the learned judge held that the application was an indirect attack on the decision of HH Judge Chan on 22 September 2003, as the application would necessarily re-open the party and party taxationwhich Judge Chan considered was a final decision made by a court of competent jurisdiction. Judge Muttrie therefore ruled that it was unreasonable and unconscionable for the Defendant to bring the application, andthe Defendant was ordered to pay costs on an indemnity basis.

47.   Subsequently in the direction hearing of the present case before Registrar Ko on 27 August 2007, the Defendant made an undertaking to this court that it would not challenge the reasonableness of the items charged in the Plaintiff’s Bills. Apparently, over-charging was no longer an issue in the present case.

48.   The case first came before me for trial on 22 October 2007. In that hearing, the Defendant applied for leave to file a Rejoinder seeking to raise the following issues:

(i) the Agreement, if it existed, did not affect the bills issued to the Defendant prior to the making of the Agreement; and

(ii) the Agreement was void at common law as it was in fact a contingency fee arrangement.

For the reasons given on the same day, I allowed the application and adjourned the trial.

49.   The Defendant subsequently filed an Amended Rejoinder. In paragraph 6 of such pleading, the Defendant sought to raise the same defence that the Plaintiff had wrongfully inflated its profit costs in the 1^st and the 2^nd Inter Partes Bills of Costs. Not surprisingly, the Plaintiff applied to strike out such defence. Based on the reasons given in the hearing on 21 April 2008, I allowed the Plaintiff’s application and struck out paragraph 6 of the Amended Rejoinder. There was again no appeal against such decision.

Issues of the present case

50.   Based on the history of this case, it seems that the Defendant’s main complaint is that the Plaintiff had grossly inflated its profit costs in the 1^st and the 2^nd Inter Partes Bills of Costs. As the figures did not represent the true legal costs, the Defendant says that the Plaintiff cannot maintain the present claim for unpaid legal fees against the Defendant. As such defence is no longer available to the Defendant based on the reasons mentioned above, one may then wonder what is the real defence of the Defendant. With the assistance of the Defence Counsel at the trial, I start to have a better understanding of the defence case.

51.   The defence case first starts with the classification of the Plaintiff’s 11 Bills into the following 4 categories:

(i) final bills, which consist of Bills Nos. 1, 2, 3 and 4 for the period up to the 1^st Costs Order and Bill No. 6 for the period up to the 2^nd Costs Order;

(ii) bills issued after the making of favourable costs orders and were said to be subject to revision, which consist of Bill No. 5 for the period up to the 1^st Costs Order and Bill No. 8 for the period up to the 2^nd Costs Order;

(iii) revision bills which sought to adjust the Plaintiff’s profit costs after the party and party taxation proceedings against Silkart, which consist of Bill No. 7 adjusting the legal fees for the period up to the 1^st Costs Order and Bill No. 11a adjusting the legal fees for the period up to the 2^nd Costs Order;

(iv) bills unrelated to the Silkart Action but admitted by the Defendant, which consist of Bill No. 9 in relation to the preparation of the statutory declaration and Bill No. 10 in relation to further alleged acts of trespass on the part of Silkart.

52.   The defence case can then be summarised as follows. Firstly, there could be no revision of the amounts of profit costs charged in the final bills, Bills Nos. 1-4 and 6, as each of these bills contained a representation as to the finality of the amount charged. By reason of such representation, the Defendant was led to believe that the Plaintiff had been giving discounts about the charging of legal fees, and the Defendant had relied on such assurances to its detriment. Hence, the Plaintiff was not allowed to revise the costs in the relevant periods in the subsequent revision bills, namely Bills Nos. 7 and 11a. This was the case irrespective whether Mr. Mok and Mr. Liu senior had made the Agreement on 9 February 2000 or not.

53.   At the trial, the parties cannot supply the court with a figure as to the exact amount that should be deducted from the Plaintiff’s claim if I were to rule that Bills Nos. 1-4 and 6 are indeed final bills. The parties therefore agree that, in the case of a ruling in the Defendant’s favour on this particular issue, they may have to come back to court to make further submissions in this regard.

54.   Secondly, according to the Defendant’s case, there was in fact no agreement made between Mr. Mok and Mr. Liu senior on 9 February 2000. Even if the Agreement were to exist, the Agreement is unenforceable and void or had been avoided by the Defendant as:

(i) there was no informed consent from the Defendant as the Plaintiff had failed to provide proper advice to the Defendant regarding the alleged Agreement;

(ii) the Plaintiff was in a hopeless position of conflict of interest;

(iii) the Agreement is uncertain;

(iv) the Agreement violates the indemnity principle; and

(v) the Agreement violates the contingency principle.

55.   I will deal with these issues in turn. But before I do so, I have some difficulty in understanding the object of the Defendant’s challenge against the Agreement allegedly made on 9 February 2000. It is trite law that, in the absence of express agreement on the charging of solicitor’s fees as it was the case here, the Plaintiff was entitled to charge the Defendant for its profit costs on solicitor and client basis, as the Defendant had the right to apply to tax the Plaintiff’s bills of costs on such basis under s. 67 of the LPO. It is also common practice that costs allowed on solicitor and client basis are more generous than those allowed on party and party basis. On taxation on party and party basis, there shall be allowed only 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; whereas on taxation on solicitor and client basis, all costs between solicitor and his client shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred. Hence, by making the Agreement with the Defendant on 9 February 2000, the Plaintiff was, in substance, offering a discount or concession to the Defendant regarding the charging of legal fees, as the Plaintiff’s profit costs would be subject to a less generous basis for taxation. If the Agreement did not exist, the Plaintiff then, in all likelihood, would have been entitled to charge remunerations higher than those already charged in the Bills. In such circumstances, I cannot quite understand why the Defendant has to challenge the existence and the legal effect of the Agreement. Perhaps I would elaborate further on this issue when I deal with such defence in the latter part of this judgment.

Finality of the “interim” Bills

56.   I first start with the defence relating to the finality of the Plaintiff’s Bills. In the present case, the Plaintiff issued “interim” Bills to the Defendant under the retainer at various stages prior to the conclusion of the Silkart Action. Before I decide whether such Bills are final, I need to set out the law relating to the issuance of “interim” bills.

57.   A retainer is normally an entire contract under which the solicitor is to do certain work for his client. In the absence of a contrary agreement, the solicitor cannot seek any remuneration until that work has been completed or the retainer has been terminated in some other way. However, as litigation usually extends over a considerable period of time, the parties can agree for the solicitor to issue interim bills to cover the solicitor’s fee before the conclusion of a case. The solicitor is also entitled to issue interim bills when a “natural break” occurs in the course of protracted proceedings (Chin Yuk Lun Francis & anr. v Messrs. Lo & Lo (a firm), ibid., per Deputy Judge To in para. 10).

58.   According to Cordery on Solicitors 9^th ed., there are 2 kinds of interim bills. The first kind is called “interim statute bills”, which are so called because they comply with all the requirements of the Solicitors Act 1974 in England and the LPO in Hong Kong and result in all the consequences which flow from such compliance – the solicitor can enforce payment by suing the client, the client can obtain an order for taxation and the various time limits relating to the client’s rights to tax run from the date of their delivery. Although they are interim bills, they are also final bills in respect of the work covered by them. There can be no subsequent adjustment in the light of the outcome of the business. They are in effect complete self-contained bills of costs to date (see: Cordery on Solicitors, para. 305).

59.   The second kind is called “interim bills on account”. Such kind of bill is only a request for payment on account. If the client does not pay such bill within a stipulated or reasonable time, the solicitor can withdraw from the retainer. If the client regards the amount requested on account as excessive, he can invite the solicitor to render a statute bill which he may then have taxed. Bill on account is not the final quantification of all the work included in it, so that when preparing his later statute bill, the solicitor can assess a fair overall charge for all the work done since the commencement of the retainer in the light of the result achieved. It also does not limit any party and party costs recoverable in respect of this period to the amount of the bill on account (see: Cordery on Solicitors, paras. 308-320).

60.   The court had to deal with such distinction of the bills in the case of Chin Yuk Lun Francis & anr. v Messrs. Lo & Lo (a firm), ibid., in which Deputy High Court Judge To said the following:

“11. If there is authority in the retainer for rendering bills prior to the conclusion of the litigation, then it is a matter of construction of the retainer whether the bills, by whatever term they are called, though usually they are called ‘interim bills’, is a final bill or just a mere statement of how things were going on. For this purpose, I respectfully adopt the meaning of the word ‘final’ in the context of a solicitor’s bill of costs as defined by Cohen J in De Cotiis v Owen Bird [1998] 51 BCLR (3ed) 272. He held at 280:

‘Some support for the interpretation advanced by the defendants, namely that a ‘ final’ account need not be the ‘last’ account, or that there may be more than one ‘final’ account, may be found in the case law on the taxation of solicitors’ bills. In this context, a ‘final account’ has been defined as an account which has two features; it will not be changed, and it covers all professional services performed within a certain time ………

………

Nevertheless, while it is not unheard of for the court to construe periodic accounts as final bills, it has been said that the courts ‘should lean against’ doing so: [Robertson, Ward, Suderman & Bowes v BC Transit (1987) 19 BCLR (2d) 1 (BC CA), at p. 9]. The appropriate question to ask is ‘whether, having regard to the dealings of the parties and the circumstances, it can be concluded that the parties intended the accounts in question to be the law firm’s final account for the work they represented’: BC Transit at p. 10’

12. Thus, in my view, ‘final’ in the context of a solicitor’s bill of costs does not mean ‘last’. It means finality, i.e. it will not be changed and it implies self containment. It is final in respect of a certain stage defined in the retainer, whether by event or by time. As a matter of construction of contract, it is possible to arrive at a construction authorising the issue of a number of periodical final accounts under a retainer, but the court should lean against such an interpretation.

13. ……… Romer & Haslam [1893] 2 QB 286 is the leading authority on how a court should approach the question of whether the bills are separate bills or a series forming one bill. Lord Esher, MR said at 293:

‘………

……… But a solicitor cannot be said to have sent in a final bill if he has sent in something which neither party understood nor intended to be final. Whether in the case of a series of bills each bill has been sent in as a final bill, or whether they are mere statements of account shewing how far the expenses have gone up to the time of sending of sending them in, is a question of fact to be determined on the evidence in each case, and it is a question which cannot be determined in any case upon the finding of the Court in any other case. The Court cannot lay down rules as to what is conclusive evidence binding subsequent Courts in subsequent cases; neither in equity nor in Common Law Courts can one judge bind another on a question of fact, whether the facts may or may not look exactly alike.

……… A great fact in the case for our consideration is the nature of the bills sent in and the way in which they were treated by the parties.’”

61.   Hence, the distinction is all a matter of fact. The appropriate question to ask is, whether having regard to the dealings of the parties and the circumstances, it can be concluded that the parties intended the fee in the bill was final. If the solicitor sent in something which neither party understood nor intended to be final, it cannot be said to be a final bill.

62.   In each of the Bills Nos. 1-4 and 6, there was a statement to the effect that the Plaintiff’s “usual” and “normal” fee was a certain amount, but it was reduced, in some cases on “complimentary basis”, to a lesser amount as stated in the Bill. Further, there was also a statement that if the Bill was not paid within 14 days, the Plaintiff reserved the right to charge interest at the rate of 3% over the prime rate. The Defendant therefore says that any reasonable person reading these statements would readily construe that they were representations by the Plaintiff of binding concessions with respect to their charges for the respective period covered by the Bills. Thus the reductions were final. Further, the use of the words “reduced on complimentary basis” carries a strong favour of respect and goodwill intended to impress the client and reinforces the inducement to pay without demur, and the notion of charging additional fees at a later stage is contrary to the plain meaning of a “discount” given to the Defendant.

63.   These are strong arguments. However, whether the Bills were final is a matter of construction depending on the objective intention and the conduct of the parties. As I see it, the parties in the present case had, by their conduct, all along treated these Bills as not final, and such conduct speaks much louder than the aforesaid statements in the Bills.

64.   My reasons are simple. If the Defendant regarded those Bills as final, it should have raised the objection immediately after the Plaintiff sought to revise its fees in the revision bills, namely Bills Nos. 7 and 11a. Yet the Defendant had made no such complaint. In particular, the Defendant, after receiving the revision Bill No. 7 in October 2000, did not raise the complaint about the finality of the Bills in its letter dated 24 November 2000. Quite on the contrary, the Defendant asked the Plaintiff to present the Bills in “modern form” so that it could assess whether there was any overcharging of fees on the part of the Plaintiff. The Defendant also had not raised such complaint in its subsequent letter dated 7 July 2001.

65.   What is more surprising is that the Defendant did not raise the issues of finality of Bills and “double charging” when it made a complaint to the Law Society against the Plaintiff on 31 August 2001. In such complaint letter, the Defendant only mentioned the following:

“ ………the accuracy of sequence and attendance of the reported events of the taxed bill is not exactly as they were. In short, we strongly believe that the set of bills does not reflect the true picture of the whole process of the case. As a matter of fact, [Mr. Mok] might have misled the Court or, if we can put it, shall be held as Contempt to Court in his conduct.”

66.   It is also difficult to explain why the Defendant had not raised such defence in the legal proceedings until at a very late stage. The Defendant had not raisedthe issue about finality of the Bills in the Defence and Counterclaim filed in June 2002, and such defence was only raised for the first time 5 years later in the Defendant’s Amended Defence and Counterclaim dated 1 June 2007. Neither had the Defendant raised the finality issue in the application for taxation of the Plaintiff’s Bills under s. 67 of the LPO (ie. HCMP No. 1578 of 2004). In fact, if the fees under Bill Nos. 1-4 and 6 were final and the Defendant accepted those fees (according to the evidence of Mr. Liu junior, he said he was satisfied with the discounts given in the alleged final bills), it was not necessary for the Defendant to apply to the High Court to tax those Bills. Hence in my judgment, the Defendant’s conduct clearly shows that it did not regard the fees charged in Bills Nos. 1-4 and 6 as final, and I accept the submission of Mr. Fung SC, counsel for the Plaintiff, that such defence was only an afterthought on the part of the Defendant.

67.   Mr. Mok, in his testimony, says that discounts were only given in the Bills to reduce the burden on the part of the Defendant to pay interim costs on account, and the fees were subject to revision at a later stage. This was his understanding. However, by reason of the conduct on the part of the Defendant as mentioned above, I accept that both parties did not regard the fees charged under Bills Nos. 1-4 and 6 as final and not just the Plaintiff.

68.   In making the decision, I have also considered the possibility that the Defendant, being a layman with perhaps little experience in dealing with solicitor’s bills of costs, might have been confused by the contents in the Bills, and as a result it did not know how to make the appropriate objection to the Plaintiff’s claim. However, the evidence shows that prior to the Silkart Action, the Defendant had experience of dealing with other civil actions. Further, Mr. Liu junior had some friends who were lawyers in 2000, and he had consulted them when the Defendant wrote to the Plaintiff on 24 November 2000 requesting for the latter’s bills to be presented in “modern form”. In addition, the Defendant was formally represented by other firms of solicitors after terminating the Plaintiff’s retainer on 13 July 2001, and so I cannot possibly understand why the Defendant had not raised the finality defence earlier. In fact, if the Defendant truly regarded those Bills as final, it did not require a lawyer to tell the Defendant that this was the case.

69.   Finally, as dealt with in the latter part of this judgment, I find that the parties did make the Agreement on 9 February 2000. As the Agreement covered all the costs in respect of the Silkart Action, the parties could not have intended the fees under Bills Nos. 1-4 and 6 as final. Further even if such was the intention, which I do not find it to be the case, it did not prevent the parties to agree another basis of charging by way of the Agreement made on 9 February 2000. In other words, the Agreement supersedes any original intention that the parties might have had that the Bills should be final.

70.   In support of his submission that the Bills are final, Mr. Wong relies heavily on the statements in the Bills relating to the provision of discount and the reservation of the Plaintiff’s right to charge interest. However in my judgment, the conduct of the parties should carry more weight in the construction exercise. In fact, Deputy Judge To in Lo & Lo had no difficulty in finding that the “interim bills” involved in that case were not final despite the fact that it was specifically provided that “interest will be charged on the outstanding amount from the date of the bill until payment in full at the rate of 2% over the prime lending rate” (see paras. 41 and 42 of the judgment).

71.   If one looks at the issue from the other side of the coin, such finding may actually benefit the Defendant under certain circumstances. Assuming that Bills Nos. 1-4 and 6 were indeed final bills, that would mean that the time for the Defendant to apply for taxation of the Bills under s. 67 of the LPO (ie. 12 months from the delivery of the bill) would have run at earlier times. This would certainly be against the interest of the Defendant, and that is also why Deputy Judge To in Lo & Lo held that the court should lean against finding that these “interim bills” are indeed final bills.

72.   Mr. Wong contends that if the Bills were only interim bills on account, the Plaintiff should have used the standard formula suggested in Cordery on Solicitors in the Bills:

“There is statutory provision for various discretionary factors to be taken into account when calculating solicitors’ fees, some of which cannot b assessed until all the work I completed; these will be taken into account in our final bill when we shall be able to make an overall evaluation of the matter.”(para. [310])

73.   I agree that such formula is useful in clarifying the effect of an interim bill sent to the client before the conclusion of a court case and to avoid misunderstanding between the parties. However, as I find that the Defendant did not at the relevant time understand that the fees charged in Bills Nos. 1-4 and 6 were final and the present case was not one involving a misunderstanding between the parties, I do not find that the absence of the suggested formula in the Bills can in any way assist the Defendant’s case.

74.   Hence, I rule against the Defendant on the first issue and find that Bills Nos. 1-4 and 6 were not final bills. In other words, the Plaintiff was entitled to revise its fees in the subsequent revision Bills.

Existence and validity of the alleged Agreement on 9 February 2000

75.   The second line of defence relates to the existence and the validity of the alleged Agreement made on 9 February 2000. As I have mentioned above, in the absence of express discussion between the parties on the charging of legal fees, the Plaintiff was entitled to charge the Defendant its professional fees on a solicitorandclient basis. The offer to adopt an alternative basis of charging under the Agreement was therefore, in substance, a discount given to the Defendant, and so I do not understand how such line of defence can assist the Defendant’s case. However, as the parties have devoted considerable time at the trial to address these particular issues, I feel obliged to deal with them as well.

(i) Existence of the Agreement

76.   The first issue is whether the Agreement in fact existed. At the trial, Mr. Mok testifies that during the progress of the Silkart Action, the Defendant had repeatedly asked the Plaintiff to provide discount in the payment of solicitor’s fees. In a meeting between Mr. Mok and Mr. Liu senior in the Plaintiff’s office on 9 February 2000, Mr. Mok eventually agreed with Mr. Liu senior that instead of charging the Defendant for solicitor’s fees in the Silkart Action on solicitor andclient basis, the Plaintiff was prepared to charge such fees on a less generous party and party basis. Mr. Mok also understands the Agreement to mean that the Defendant was bound to pay whatever amounts taxed by the taxing masters in the inter partes proceedings between the Defendant and Silkart, as the Inter Partes Bills which contained the Plaintiff’s profit costs were also taxed on the same basis. By so doing, Mr. Mok believed that the Plaintiff was in effect offering a discount of about 40% to the Defendant. After the meeting, Mr. Mok made a record of the Agreement in the attendance note of that meeting. Further, the Plaintiff referred to the Agreement in Bills Nos. 5 and 8 issued after the making of the Agreement, and the fees in Bills Nos. 7 and 11a were calculated in accordance with the provisions of the Agreement. Due to an oversight, the Plaintiff did not refer to the Agreement in Bill No. 6, but the Plaintiff did mention about the Agreement in its letters to the Defendant dated 21 March 2001, 10 July 2001 and 17 July 2001.

77.   On the other hand, both Mr. Liu senior and Mr. Liu junior testify at the trial denying the making of the Agreement. According to both Mr. Lius, the Silkart Action was abouta dispute of the right of way in respect of one of the Defendant’s real estate developments in the New Territories. For such kind of project, Mr. Liu senior was mainly responsible for the building and the construction aspects of the project, whilst Mr. Liu junior took care of the other work including marketing the units and handling the relevant legal proceedings. He was also responsible for negotiating the fees of the legal action concerned. In such circumstances, it was not possible for Mr. Mok to have made theAgreement relating to the payment of legal fees with Mr. Liu senior. Mr. Liu junior, however, agrees that the Defendant retained the Plaintiff to handle the Silkart Action by reason of the previous connection between Mr. Mok and Mr. Liu senior. By that time, Mr. Liu senior told his son that the Plaintiff would charge the Defendant at very favourable rates and that was why the Defendant engaged the Plaintiff to act for it in the Silkart Action.

78.   The Plaintiff tries to impress upon me that Mr. Mok is a creditable witness, as he holds a number of public offices, including sitting as the chairman of the Solicitors’ Disciplinary Tribunal, chairman of the Appeal Tribunal (Buildings), adjudicator of the Immigration Tribunal, chairman of the China Appointed Attesting Officers Disciplinary Tribunal and honorary judge of the Hong Kong Jockey Club during race meetings. On the other hand, the Defendant tries to attack the creditability of Mr. Mok by relying on the observations made by judges in other cases about the creditability of Mr. Mok as a witness including the following:

“Mr. Mok struck me as a businessman rather than a lawyer. Instead of the expected selfless assistance to the court as an officer of the court and as a former lawyer to the joint-venture, Mr. Mok’s primary interest was to extract the maximum amount of payment from whatever quarter he could obtain from for coming to court to give evidence.” (per. Waung J in Tang Pak Hung v Tam Ngak Chou Simon & anr., unreported, HCA Nos. 2768/2003 and 743/2004, decision on 9 May 2006, at para. 53)

79.   However in my judgment, the court should assess the evidence based on its observation of the witnesses and their testimonies in the witness box and the facts and the documents of the case, rather than to rely on the number of public offices held by a particular witness or the observations made by my learned brothers or sisters in other cases.

80.   Having carefully considered the evidence, I prefer to accept the testimony of Mr. Mok regarding the making of the Agreement. Firstly, Mr. Mok made a contemporaneous attendance note recording the Agreement. To me, it was quite improbable for Mr. Mok to have taken the risk to forge the attendance note to support the Agreement which he considered, and was in substance, a concession given to the Defendant for the charging of legal fees. Further, the amount at stake was relatively small. Secondly, the Plaintiff did refer to the Agreement in Bills Nos. 5 and 8 and the various letters dated 21 March, 10 July and 17 July 2001, and this supports the existence of Agreement. Thirdly, if there was no Agreement, one would expect the Defendant to have made enquiry with the Plaintiff about the Agreement after receiving the said bills and letters, and yet the Defendant had not done so in the present case.

81.   On the other hand, in order to distance himself from the Agreement, Mr. Liu senior maintains that he was only responsible for the construction work of the Defendant’s project whilst Mr. Liu junior was responsible for negotiating the legal fees with Mr. Mok. However, the evidence shows that the Defendant had, prior to the Silkart Action, been involved in other legal actions, and the Defendant retained the Plaintiff to act for it in the Silkart Action by reason of the previous connection between Mr. Mok and Mr. Liu senior and the favourable rates offered by the Plaintiff in the past litigations. In such circumstances, I have grave reservation whether Mr. Liu senior, being an experienced businessman, would simply have left all the discussion about the legal fees to his son. Hence, I prefer to accept Mr. Mok’s evidence on the balance of probabilities.

82.   In challenging the Plaintiff’s evidence, Mr. Wong relies on the fact that no reference was made to the Agreement in Bill No. 6 which was issued after the alleged meeting between Mr. Mok and Mr. Liu senior on 9 February 2000. Further, there is an issue as to how the Agreement worked in practice as some of the items charged in Bill Nos. 11a, ie. $35,000 for the various services mentioned in paragraph 38 above, were actually costs of the Silkart Action but which had not been taxed in the inter partes taxation proceedings, and Mr. Wong submits that Mr. Mok is evasive when he is cross-examined on this particular issue. The Defendant also challenges that the contents of the attendance note do not support the terms of the Agreement as alleged by the Plaintiff.

83.   I reject these arguments. Firstly, I accept that the absence of the reference to the Agreement in Bill No. 6 was only an oversight on the part of the Plaintiff. As the Plaintiff did refer to the Agreement in the earlier Bill No. 5, the omission in Bill No. 6 could not have been anything other than a genuine oversight on the part of the Plaintiff. In fact, Bill No. 6 was delivered together with the Plaintiff’s letter dated 21 June 2000, which made it clear that the Plaintiff reserved the right to review the fees in the interim bills in light of the outcome of the taxation proceedings.

84.   Secondly, the Agreement, as I see it, actually consisted of the following 2 parts: (i) the Plaintiff’s fees would be charged on a party and party basis; and (ii) the Defendant was obliged to pay whatever amounts taxed in the inter partes taxation proceedings as the Plaintiff’s profit costs would also be taxed on the same basis. In this regard, I agree with Mr. Fung that the first part was the crux of the Agreement, as it was the basis upon which the parties agreed for the charging of legal fees. On the other hand, the second part only provides a scenario of how the Agreement was to operate. In fact, the court would not recognise the second part of this Agreement because, according to the judgment of Deputy Judge To in Chin Yuk Lun Francis & anr. v Messrs. Lo & Lo (a firm), ibid., such agreement seeks to override the Defendant’s right to tax the Plaintiff’s Bills under s. 67 of the LPO. The Plaintiff also accepted that, otherwise it would not have repeatedly invited the Defendant to tax the Bills in the early stage of the dispute. In such case, the Agreement could still work, so long as the court would adopt the same party and party basis in assessing the Plaintiff’s profit costs in the inter partes proceedings between the Defendant and Silkart and in the taxation proceedings taken out by the Defendant under s. 67 of the LPO. I also do not find that Mr. Mok is evasive when he is asked about such issue.

85.   Finally, one cannot expect Mr. Mok to have recorded every detail of the Agreement in the attendance note. As such note broadly supports the terms and the existence of the Agreement, I find that the parties did make the Agreement on 9 February 2000.

86.   The Agreement was made orally by the parties in Cantonese, and I note that Mr. Mok, in his testimony, cannot tell the court the precise Cantonese words that he had used to describe the concept of party and party taxation in the conversation on 9 February 2000. Despite that, there could have various possible ways for Mr. Mok to explain such concept to Mr. Liu senior without using the exact literate Chinese translation of the phrase “party and party taxation”. So long as Mr. Liu had the idea of how the concept worked in practice, it should not affect the validity of the Agreement. Further, the evidence shows that both Mr. Lius were experienced businessmen and the Defendant was a long standing customer of the Plaintiff and had previously retained the Plaintiff on a number of litigation matters, hence both Mr. Lius should have had a fair understanding of the various matters concerning litigation, including the payment of legal fees and the taxation of costs. Further, it seems that both parties accept that there had not been much discussion between them about the charging of the Plaintiff’s legal fees up to that particular time. As the Defendant obtained the 1^st Costs Order in its favour on 28 January 2000, it would only have been sensible for the parties to come together to discuss the implications of the various costs issues by that time. In fact, I would find it most surprising if the parties had not done so. Hence, I find that the parties had made the Agreement on 9 February 2000 as alleged by the Plaintiff.

(ii) Informed consent

87.   Then I turn to the various issues which may affect the validity of the Agreement.

88.   The Defendant’s first argument is about the lack of informed consent regarding the making of the Agreement. According to the Defendant, a solicitor owes a duty to his client to inform him various matters about the charging of legal fees. Further, any fee agreement between a solicitor and his client is in effect an agreement whereby the solicitor seeks his client’s approval to the solicitor’s charges incurred or to be incurred, and informed approval is therefore, says the Defendant, a prerequisite to the enforcement of such agreement.

89.   The Defendant claims that the Plaintiff had failed to advise the Defendant the meanings of the 2 different bases for taxation, namely party and party basis and solicitor and client basis. Further, Mr. Mok’s explanation of giving a 40% discount to the Defendant by adopting the party and party taxation is wholly misleading. The Defendant also says that the Agreement envisaged a “head I win, tail you lose” situation, as there was no provision requiring the Plaintiff to refund the excess if the costs taxed on party and party basis were less than the amounts already billed. The implication of this had not been explained to the Defendant. In such circumstances, there was no informed consent on the part of the Defendant which is a prerequisite to the enforcement of the Agreement.

90.   As I have mentioned above, I prefer to accept the Plaintiff’s version of the events as to what happened in the meeting on 9 February 2000, and I therefore find that the Plaintiff had fully explained the various matters relating to the Agreement to Mr. Liu senior. As the Plaintiff had reduced the burden of the Defendant in paying the costs on account by charging lesser fees in the interim bills, it would only have been natural for the Plaintiff to ignore the possibility that the costs taxed on party and party basis were less than those already billed. In any event, there is nothing to prevent the Defendant to apply to tax the Plaintiff’s Bills under s. 67 of the LPO and to ask for a refund if taxed costs were less than those already billed. Hence I do not find that the failure on the part of the Plaintiff in mentioning such scenario would affect the validity of the Agreement.

91.   Further, as there was no prior express agreement between parties about charging of legal fees, the Plaintiff was entitled to charge its fees on a solicitor and client basis. By agreeing to charge the Defendant on a party and party basis, the Plaintiff was in substance offering a discount to the Defendant. Even assuming that the Plaintiff had not explained the details of the different bases for taxation, which I do not find it to be the case, I do not see how it can affect the validity of Agreement the effect of which was to benefit the Defendant. This is very different from the case of MacDougall v Boote Edgar Esterkin (a firm) [2001] 1 Costs L. R. 118, in which the solicitor was seeking to rely on an agreement with the client to recover legal fees charged at a hourly rate higher than the usual solicitors’ rate. Hence, I reject the Defendant’s argument about the lack of informed consent.

(iii) Conflict of interest

92.   It is common ground that solicitor owes a duty to his client to avoid conflict of interest and to advise its client if such a situation occurs.

93.   The Defendant claims that Mr. Mok had failed to advise the Defendant that the Plaintiff would be personally interested in the outcome of any taxation between the Defendant and Silkart and that such interest of the Plaintiff would conflict with that of the Defendant because the more the amount of costs allowed in the taxation proceedings, the more the Defendant had to pay as the Defendant still had to pay 50% of its taxed costs under the 1^st Costs Order and 25% of its taxed costs under the 2^nd Costs Order. Given such conflict, the Defendant says that the Plaintiff had failed to advise the Defendant to seek separate representation in the taxation proceedings between the Defendant and Silkart to take care of the interest of the Defendant. Further, the Defendant alleges that the Plaintiff had failed to advise the Defendant that the practical effect of the Agreement was to make the Defendant to pay for whatever which could not recovered from Silkart.

94.   However, the evidence of the present case shows that it was Messrs, Stephen Law & Co, who was an independent law costs draftsman engaged by the Plaintiff with the consent of the Defendant, who prepared the 1^st and the 2^nd Inter-Partes Bills. Further, I agree with Mr. Fung that any of such conflict and any consequence flowing from such conflict would have been cured by the Defendant’s right to apply for taxation of the Plaintiff’s Bills under s. 67 of the LPO. As held by Deputy Judge To in Chun Yuk Lun Francis v Messrs. Lo & Lo, ibid., the Agreement does not have the effect of overriding or excluding the client’s right to tax the solicitor’s bill under s. 67. In such taxation, any complaint by the Defendant as to the inflation of the 1^st and 2^nd Inter-Partes Bills could be dealt with, and the court would not simply adopt the outcome of the inter partes taxation between the Defendant and Silkart. The right of taxation therefore protects the Defendant’s interest and the Agreement does not prejudice the Defendant’s right or position in any way.

95.   Despite the Plaintiff’s repeated invitations contained in the Plaintiff’s letters dated 14 November 2001, 29 December 2001 and 4 January 2002, the Defendant did not proceed with s. 67 taxation. By that time, the Defendant had already been represented by another firm of solicitors, Messrs. Weir & Associates, and so there was no reason why the Defendant did not proceed with the taxation within the 12 months’ time limit, though the Defendant did make an application much later in 2004 which was dismissed by the High Court in HCMP. No. 1578 of 2004. As the right to taxation would have cured any conflict of interest existed in the inter partes taxation between the Defendant and Silkart, and the Defendant lost such right due to its own decision not to proceed with the taxation within the time limit, I do not find that the Defendant can rely on such complaint to set aside the Agreement.

96.   Another ground in support of the conflict of interest argument is that the Defendant was not advised that the Agreement’s practical effect was to make the Defendant to pay for whatever which could not be recovered from Silkart. However, prior to the making of the Agreement, the Defendant, being a company involved in litigations before, should have known that they had to pay the Plaintiff its legal fees whether there was any subsequent costs order in favour of the Defendant. Obviously, the concession given by the Plaintiff to charge the fees on a basis more favourable to the Defendant did not affect the Defendant’s obligation to pay the Plaintiff 50% of the costs not recoverable under the 1^st Costs Order and 25% of the costs not recoverable under the 2^nd Costs Order. Further, the respective statement in Bills Nos. 5 and 8 clearly indicated that the Defendant would have to pay the Plaintiff the taxed costs not recoverable from Silkart. Hence, I see no merits in the Defendant’s conflict of interest argument.

(iv) Certainty of terms

97.   No substantial argument has been advanced by the Defendant as to why the Agreement should be regarded as void for lack of certainty of terms, and I also cannot think of any reason why such defence should succeed.

(v) Indemnity principle

98.   It is the Plaintiff who first raised the issue about indemnity principle. However at the trial, the Defendant is also seeking to rely on the same principle to set aside the Agreement. As the Defendant’s argument relates to the validity of the Agreement, I will deal with such argument first.

99.   The parties have no disagreement about the law. Firstly, the indemnity principle ensures that a receiving party with a costs order recovers only an indemnity in respect of the costs covered by the order from the paying party. Being an indemnity, the receiving party cannot therefore recover a sum in excess of his own liability to his solicitors (see: Gundry v Sainsbury [1910] 1 KB 99, The Attorney General v Leung Ka Ki [1997] HKLRD 52, at p. 54J-55B, per Sears J and Hong Kong Civil Procedure 2009, vol. 1, pp. 1004-1005).

100.   Secondly, on the taxation of a bill, the indemnity principle is to be applied on an item-by-item basis rather than on a global basis. If the receiving party and his solicitors have made an agreement limiting the maximum hourly rates payable by the winning party or limiting the maximum costs of any other item, that agreement provides both a measure and a ceiling of the hourly rate or the item concerned (see: s. 59(1)(a) of the LPO, General of Berne Insurance Co. v Jardine Reinsurance Management Ltd. [1998] 1 WLR 1231 and Bailey v IBC Vehicles Ltd. [1998] 3 All ER 570.

101.   The Defendant’s argument then runs as follows. The Plaintiff had put forward 2 Inter Partes Bills for the purpose of the taxation proceedings between the Defendant and Silkart. In each of such Bills, the Plaintiff claimed in relation to the work of Mr. Mok at an hourly rate of $4,000. However, the fact was that the services of Mr. Mok had never been charged at $4,000 an hour. In the absence of express agreement on the hourly rate, the taxing master would have to assess the appropriate rate in accordance with what he considered fair and reasonable in the circumstances. He might adopt the rate of $4,000 or he might reduce it to say $3,000. On the basis of the alleged Agreement, this resultant figure would be the true liability of the Defendant towards the Plaintiff. Hence through this process, Silkart had been defrauded from inception by the Plaintiff’s representation that the hourly rate of Mr. Mok was $4,000. By allowing the Plaintiff to recover the legal fees based on the costs allowed in the inter partes taxation is therefore a violation of the indemnity principle.

102.   I disagree. Although there was no express discussion on the rates charged by the Plaintiff in the conduct of the Silkart Action, the Plaintiff was entitled to charge the Defendant at rates generally accepted in taxation on solicitor and client basis. By way of the Agreement, the Plaintiff agreed to reduce the rates to ones generally allowed on party and party taxation. So far as I understand it, for a solicitor of more than 10 years’ experience such as Mr. Mok, the hourly rate generally allowed, according to the correspondence between the Registrar of the High Court and the Law Society, would be $4,000 for both party and party taxation and solicitor and client taxation in respect of High Court actions. Although the suggested hourly rates are not binding on the taxation masters, there was nothing wrong for the Plaintiff to regard the suggested hourly rates as applicable in preparing the bills for the Defendant. Except as varied by the taxing master, the Plaintiff was entitled to charge the Defendant at such rates and there was no impropriety on the part of the Plaintiff in using such rates in the inter partes taxation between the Defendant and Silkart. In such circumstances, Silkart had not been defrauded.

103.   The Plaintiff also tries to rely on the indemnity principle although in a different context. According to the Plaintiff’s case, when the Defendant was asking the Plaintiff to reduce its costs to a level which was below those allowed in the inter partes taxation, the Defendant was in substance demanding for a “rebate” from the Plaintiff. The Agreement was reached on 9 February 2000 that the Plaintiff would charge legal costs for acting on behalf of the Defendant in the Silkart Action on the basis of costs to be taxed on party and party basis instead of solicitor and client basis. The first taxation of costs by Master Kwan took place on 26 September 2000 and Silkart settled such costs in the sum of $950,000 on 13 October 2000. Thus, says the Plaintiff, any subsequent request by the Defendant for a reduction of costs to a level below the inter partes costs assessed by the taxing master as between the Defendant and Silkart would amount to a fraud on Silkart.

104.   In this regard, the Plaintiff is relying on Principle 4.15 of the Solicitors’ Guide, which states that a solicitor shall not share or agree to share his profit costs with any person other than a practising solicitor.

105.   By reason of the decisions that I have made in respect of the other issues, it is not necessary for me to deal with this particular complaint. However, my preliminary view is that the Defendant was only asking the Plaintiff to offer discount and not rebate in respect of the payment of legal fees. In fact, the Defendant was, under the retainer, obliged to pay the Plaintiff for its fees to be assessed on solicitor and client basis which was reduced to party and party basis under the Agreement. The Plaintiff therefore proceeded to prepare the 1^st and the 2^nd Inter Partes Bills based on the contractual liability on the part of the Defendant to pay such costs. In such circumstances, there was no fraud involved. After the costs were taxed, there was certainly nothing wrong for the Plaintiff, based on all sorts of different reasons, not to insist on its contractual right and to agree with the Defendant to accept a lesser sum. In my judgment, this is only a discount given by a solicitor to his client for the payment of legal fees, and this is very different from the scenario where a solicitor receives his professional fees and then pays a rebate to a third party for say introducing the client to his firm.

106.   Based on the aforesaid, indemnity principle is a non-issue in the present case.

(vi) Contingency fee arrangement

107.   The Defendant further argues that the Agreement was in fact a contingency fee arrangement. As I understand it, this argument is based on the terms of the Agreement as pleaded in paragraph 2 of the Re-Amended Reply and Defence to Counterclaim which is set out in paragraph 16 above.

108.   According to the terms of the Agreement as then pleaded, Mr. Wong submits that the Plaintiff was entitled to an uplift and to increase its legal fees beyond those already billed by the Plaintiff if the Defendant won against Silkart resulting in an order for taxation of the items in the Defendant’s Inter Partes Bills to Silkart. As the Plaintiff was entitled to uplift its bills if the Defendant succeeded in the Silkart Action, this was a contingency fee arrangement.

109.   With respect, I cannot accept such argument. It has all along been the Plaintiff’s case that, under the retainer with the Defendant, the Plaintiff was entitled to charge its legal fees on a solicitor and client basis. At various stages of the proceedings, the Plaintiff issued interim bills to the Defendant the fees of which were subject to revision at a later stage (see the law relating to the issuance of interim bills on account as mentioned in paragraph 59 above). After the Defendant succeeded in the first round of the trial in the Silkart Action and obtained a favourable costs order, though only to the extent of 50% of the costs, against Silkart, the Plaintiff agreed to offer a discount to the Defendant by charging the fees on party and party basis. As I see it, there is nothing in the Agreement to show that the Plaintiff could obtain more costs in the case that the Defendant succeeded in the Silkart Action. In fact, the Defendant had already won in part and succeeded in getting the 1^st Costs Order against Silkart when the Agreement was made on 9 February 2000.

110.   I agree with Mr. Fung that the Defendant’s submission is based on a somewhat unjustifiably technical reading of paragraph 2 of the Re-Amended Reply and Defence to Counterclaim. The part relied on by the Defendant is only the second part of the paragraph which is only an illustrative example or scenario of how the Agreement was to operate. It does not define the terms of the Agreement. I accept that what the pleader is saying in the said paragraph is that in accordance with the Agreement to charge for the whole Silkart Action on party and party basis, if the taxed costs allowed on inter partes taxation were higher than the amounts already billed in the interim bills on account, the Defendant would need to pay the balance. This was not a contingency fee arrangement.

111.   I note the comment made by Deputy High Court Judge Muttrie in HCMP No. 1578 of 2004 (the Defendant’s application to tax the Plaintiff’s Bills of Costs) that the arrangement between the parties might amount to a contingency fee arrangement. However, as the issue of contingency fee was not required to be decided in that particular case and the issue might not have been fully canvassed before the learned judge, I prefer to make my own decision in this regard. I therefore also reject the Defendant’s argument relating to the contingency fee arrangement.

Conclusion

112.   Based on the aforesaid rulings, it is not necessary for me to consider the other outstanding issues such as whether the Defendant’s counterclaim was lodged outside the limitation period.

113.   There is no dispute that the Plaintiff had rendered professional services to the Defendant in respect of the conduct of the Silkart Action. As the Defendant has lost the right to tax the Plaintiff’s Bills of Costs and fails in all of the defences raised in the present action, I grant judgment for the Plaintiff for the outstanding legal fees in the amount of $71,449.95 as pleaded in the Amended Statement of Claim and dismiss the Defendant’s counterclaim.

114.   I also make the following order nisi:

(a) there be interest on the said judgment sum at the rate of 8% per annum, which is the existing judgment rate, from 24 October 2001 (the date of the writ) to the date hereof and thereafter at judgment rate; and

(b) the costs of the action be to the Plaintiff with certificate for 2 counsel.

The order nisi shall be made absolute 21 days after the date of the handing down of this judgment.

115.   I have a few more observations to make before leaving this case.

116.   Firstly, it is certainly regrettably that the Plaintiff had not asked the Defendant to sign a written retainer listing out the Plaintiff’s rates for the charging of legal fees. As the Defendant was a long standing customer and had previously retained the Plaintiff on a number of litigation matters, the Plaintiff might not have considered it necessary to do so. Nevertheless, a written retainer can save a lot of arguments in the present case.

117.   Secondly, the Defendant’s way of conducting the present litigation is somewhat strange. At the early stage of the dispute, it seemed that the Defendant’s main complaints against the Plaintiff were overcharging of legal fees and inflation of bills of costs. However, despite various invitations sent to the Defendant, the Defendant did not apply to tax the Plaintiff’s Bills of Costs until much later in 2004 which was dismissed by the High Court. The Defendant also tried to include the defence of overcharging and inflation of bills in the Defence and Counterclaim. After the court struck out such defence in 2003, the Defendant did not lodge an appeal, but somewhat surprisingly, the Defendant sought to introduce the same line of defence in the Amended Rejoinder filed in 2008 which again was unsuccessful. Whilst everyone thought that this was the Defendant’s main defence, the Defendant sought to introduce another defence of finality of bills much later in 2007. As I see it, this was somewhat inconsistent with the Defendant’s earlier stance, as it would not have been necessary to apply to court in 2004 to tax Bills Nos. 1-4 and 6 if the Defendant accepted the fees in those “final” bills. The Defendant’s conduct in the present litigation, therefore, undermines the creditability of its own case.

118.   Thirdly, it is also regrettable that the parties have not had the good sense of trying to resolve their dispute by a more cost-effective means. The costs of this case over 9 years far outweigh the amount at stake, and yet the parties have chosen the most expensive way to resolve their dispute. One of the objectives of the civil justice reform is to promote mediation as a means of alternative dispute resolution. I am quite sure that with a skilful mediator assisting in the negotiation between the parties, it would have had a much better prospect of success resulting in substantial saving of legal costs in the present case.

119.   Finally, I would like to express my gratitude to all the counsel for the valuable assistance that they had rendered to this court.