THE INCORPORATED OWNERS OF PEARL ISLAND GARDEN v. HUI CHAN SOON HOY AND ANOTHER

HCMP 4791/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4791 OF 2003

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CACV 26/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL APPEAL NO. 26 OF 2004

(ON APPEAL FROM LDBM 110 OF 2003)

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BETWEEN

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(Heard together)

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J U D G M E N T

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1.  This is an appeal by the applicant against part of the order made by Master Ho on 23 March 2006, namely that the 1^st and 2^nd respondents do pay the applicant the costs of the taxation up to and including 22 November 2005 and thereafter no costs between the parties, and that they pay interest on the costs calculated up to that date.  The applicant seeks to have that part of the order set aside, and substituted by an order that the 1^st and 2^nd respondents pay the costs of the applicant up to and including the hearing on 22 March 2006, and interest on costs up to the date of payment. 

Background

2.  In Lands Tribunal case no. LDBM 110 of 2003, the applicant sought recovery of a maintenance contribution from the respondents.  I am told that the claim was for $4,669.  In any event, it was dismissed.  The applicant appealed to the Court of Appeal.  It applied for extension of the time to appeal, under HCMP 4791 of 2004, and succeeded, with costs in the cause of the appeal.  The appeal proceeded as no. CACV 26 of 2004 and was heard on 14 January 2005, when it was allowed with costs. 

3.  The applicant’s solicitors, Messrs Au Yeung, Cheng, Ho and Tin (“AY”) sent two bills of costs to the respondents’ solicitors, Messrs Christine F L Ip & Young (“IP”), one being for the costs of the applicant’s successful application for extension of time, HCMP 4791 and the other for the costs of the appeal itself, CACV 26. 

4.  The bills were sent on 2 March 2005.  The bill in HCMP 4791 shows total profit costs of $65,104.57 and disbursements of $63,845.00.  In respect of what now remains to be taxed, i.e. items 53 to 78, the profit costs are $4,957.90 and the disbursements $12,800.  On the bill for CACV 26 the profit costs are $116,921.57 and the disbursements $129,935.00.  The grand total was therefore $375,806.14.

5.  On receipt of the bills, IP asked for supporting documents including agreements with the client in respect of costs.  AY replied with documents on 24 May, and on 2 June 2005 IP wrote to AY, without prejudice save as to costs, to the effect that the figures AY had agreed with its client for legal costs and counsel’s fees came to only $232,045.00 which was much less than the total claimed.  They relied on the indemnity principle that a receiving party cannot recover a sum in excess of its liability to its own solicitors to argue that the bills should be revised down, and they also took issue with the amount of counsel’s fees.  They offered a total of $100,000 in full and final settlement.

6.  AY wrote on 11 July 2005, to the effect that their client would settle for $263,730, and giving a breakdown.  They said that this offer was based on the indemnity principle.  The actual costs were $233,130 and the balance was claimed in respect of preparation of the skeleton bill and negotiation.  IP replied to the effect that the total amount claimed of $233,130 was not far from their calculation and offered $185,000.

7.  In reply to this offer, on 16 September 2005 AY proposed that, as there was agreement on the majority of the costs, only the non-agreed costs, costs draftsman fees and counsel’s fees should be taxed.  On 21 September 2005 IP replied that their client had not agreed to pay any part of the applicant’s bill, any work done under any costs agreement with the client was still subject to taxation, and in any event their client not accept any partial settlement proposal.

8.  AY replied on 22 December 2005, effectively re-iterating their position, with figures.  To this letter IP replied on 28 December, maintaining the position taken earlier that costs should have been negotiated before any further costs were incurred in drawing up bills, and arguing further in respect of a fee of $25,000 charged by the applicant’s counsel, Mr Li, in respect of the appeal.  It appears that this dispute relates to whether the fee is in respect of a brief for opposing the respondent’s application for security for costs, which was withdrawn with no order for costs, or for perusal of papers and drafting the Notice of Appeal.  IP claimed that AY had originally agreed the fee with their client under the former head, but after the appeal, it had appeared in the bill under the latter, and claimed that it should be taxed.  They re-iterated their offer of $233,130 in full and final settlement.

9.  The applicant had already applied in early October for an appointment to tax the bills.  On 14 November 2005, the respondents filed Preliminary Grounds of Objection, in which they raised a preliminary issue that the applicant was claiming costs in excess of the costs agreements it had made with its solicitors.  Under the indemnity principle mentioned above, the respondents sought to have what it regarded as excess costs deleted from the bills.

10.  The call-over hearing on 22 November 2005 was adjourned to a date to be fixed for determination of the preliminary issue, and the taxation of the two bills was adjourned pending the outcome of that determination.

11.  The preliminary issue came on for hearing before Master Ho on 23 March 2006.  He ordered that by consent, the respondents pay $208,130.00 to the applicant, being the agreed costs and disbursements incurred up to 14 January 2005 under both HCMP 4791 and CACV 26, and that the items from no. 53 onwards in the bill in HCMP 4791 (i.e. costs and disbursements of the taxation) proceed to taxation before a Taxing Master.  He then ordered the matter adjourned for taxation along with the bill in CACV 25 before himself, and made the costs order which is the subject of this appeal.  The effect of the order is to restrict the plaintiff’s costs on the taxation up to the date of the call-over.

12.  There is no dispute that the figure of $208,130.00 which the Master ordered to be paid as the agreed costs and disbursements incurred up to 14 January 2005 under both bills, is the figure of $233,130 originally suggested by AY, and obviously later accepted by IP, minus the disputed counsel’s fee.  In fact this matter gave rise to an application before me by Mr Poon for the respondents that I should refuse to hear Mr Li, who appeared for the applicant, on the ground that he was a potential witness at the eventual taxation.  I could see no basis for that application, and I refused it.  

13.  The net result seems to be that the only matters for taxation, in respect of HCMP 4791, are the figures claimed in respect of the preparation of the bill and the taxation itself, and in respect of CACV 26, the disputed counsel’s fee of $25,000 plus, presumably, although the order does not show it, the figures claimed in respect of the preparation of the bill and the taxation itself. 

The applicant’s case

14.  The applicant’s case is that although the Master did not specifically rule on the preliminary issue, the applicant effectively succeeded on it and therefore should have the costs to the date of the hearing.  As to the interest the applicant says that there is no reason why it should stop at the date of the call-over, particularly since some of the costs are still to be taxed.

The respondent’s case

15.  The respondent’s arguments, as they appear in counsel’s written submissions, are rather diffuse but there is a general complaint that while the respondents have been trying to settle the matter, the applicant has insisted on proceeding and in escalating costs.  I will deal with the various points as necessary below.  But the more important point raised is one of principle, namely that the Master’s decision was discretionary, and should not be interfered with unless it can be shown that the discretion was exercised wrongly.

Principles on appeal on costs

16.  These are conveniently and compendiously set out by Deputy Judge Cheung, as he then was, in Man Fong Hang v Man Ping Nam & Ors., [2002] 4 HKC 534 at 544 :

“The circumstances under which a judge sitting in chambers on appeal may disturb an order as to costs made by a master are limited.  He or she may only do so if the master’s order was unreasonable; if the order made erred in law; if the master failed to take into account proper matters; or if he or she took into account matters that should not have been taken into account.  See Hoddle v CCF Construction Ltd [1992] 2 All ER 550; Lessy SARL v Pacific Star Development Ltd [1996] 2 HKC 326; China Venturetechno International Co Ltd v New Century Chain Development Co. Ltd (Civ App 20/1996, 3 July 1996, unreported); Hon Kwok Lun Wilson v Shin Pok Lai Alvin (HCA 10334/1998, Suffiad J, 8 March 1999, unreported); Honnin Development Ltd v Ho Ming (HCA 16376/1999, Deputy Judge Poon, 14 December 2000, unreported); Hong Kong Civil Procedure 2002 Vol 1, para 62/2/11.”

17.  Mr Li, having originally suggested that I could substitute my own discretion for that of the Master, because the appeal is by way of re-hearing, later took the position that the Master’s order is obviously unreasonable.  Reliance seems to be placed on the lack of any transcript to show the Master’s reasoning.  Of course a Master is not required to set out the reasons for his decision, and I am not prepared to assume, in the absence of reasons, that a Master must have exercised his discretion wrongly.  I accept, however, that it may be possible to say that a costs order is so obviously wrong that the discretion must have been wrongly exercised. 

Discussion

18.  What came before the Master on 23 March 2006 was the preliminary issue, but by that time, it had ceased to have any prominence as between the parties.  What separated them, had separated them since December 2005, if not earlier, and still separates them was the costs of preparation of the bills, negotiation and taxation, as well as counsel’s fee of $25,000.

19.  The applicant’s offer of 11 July 2005 was based on the indemnity principle.  Thereafter there was no real dispute about it.  It is true that there was some quibbling on the part of IP about the production of office bills and payment evidence but I cannot see how that would have taken the matter further.  What matters is the costs agreement.

20.  To that extent, by 22 November, the preliminary issue was out of the picture.  There was no need for it to be listed for hearing.  Indeed, by then the parties had substantially reached the agreement on the basis of which the first part of the order of 23 March 2006 was made.

21.  At the hearing before me, Mr Poon indicated that Master Ho had reprimanded the parties, and said that they should have reported to Master Hui at the call-over hearing that there was agreement about the figure of $233,130.  Mr Li did not agree that that was what Master Ho had said.  I myself said that in the absence of any transcript or agreement, I would have to guess at what the Master said.  However, whether it was said or not, I would certainly agree that the parties should have told Master Hui at the call-over that there was substantial agreement of a figure on the basis of the indemnity principle.  If they had done so the matter could simply have been sent for taxation on the outstanding issues.

22.  To the extent that both parties contributed to the setting down of an unnecessary hearing, an order restricting costs up to the date of the call-over, so that thereafter the parties bear their own costs, seems reasonable enough.  I am not therefore prepared to interfere with the Master’s discretion.

Interest

23.  Interest on costs is payable from the date of the judgment; see the Hong Kong Civil Procedure 2006, paragraph 62/2/17 and the cases there cited.  It should normally run until the date of payment.  Interest is a matter of discretion, as are costs.

24.  The effect of the order appears to be that the respondents are to pay interest on all the costs, i.e. the agreed costs of $208,130 plus the costs of taxation up to 22 November 2005, from the date of judgment until 22 November 2005.  The respondents then have seven days from the date of the order to pay the agreed costs, and if they do not, they will be liable for interest at the judgment rate until payment.

25.  Mr Li argues that there is no rhyme or reason for an order restricting interest up to 22 November 2005.  I confess I have some difficulty in understanding why interest should not run until the date of payment.

26.  I note that there is reference to a skeleton bill to be provided for gross sum taxation.  The taxation of the outstanding matters on the bills is reserved to Master Ho, so presumably he will, at the same time, deal with this gross sum taxation.  It may be that the Master contemplated making some order for payment, and interest in default of payment, similar to that already made in respect of the agreed costs, once the gross sum had been considered and ordered.  It would still, I think, be open to the Master to do that.  The matter is not closed.

27.  In the circumstances, I cannot simply regard the order on interest as being unreasonable or otherwise made in a wrong exercise of discretion, and therefore I will not interfere with it.

Result

28.  The appeal against the Master’s order is dismissed.

Costs

29.  The respondents have succeeded and should therefore have their costs.  However, half an hour of the hearing was wasted on the argument that the applicant’s counsel should not be heard, and the applicant has succeeded on the minor limb of the appeal relating to interest.  The applicant should have the costs of that part of the hearing.  However, it is time this matter is brought to a conclusion without further argument and expenditure, so rather than making some order which will require that, I will simply reduce the costs payable by the applicant.

30.  In the circumstances, I will order that the applicant pay the respondent 80% of the costs of the appeal, to be taxed if not agreed.

31.  Since this judgment is to be handed down, my costs order in respect of the appeal is nisi.