XCHRX L v. F

FCMC 5929/1998

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 5929 OF 1998

__________

____________________

JUDGMENT

____________________

1. It is unusual to give written reasons in taxation. However, the case reveals some mal-practice of solicitors in inflating bills of costs which eventually are taxed down to below the sum of $100,000. It is necessary to state the court's position regarding award of costs in taxation hearings.

The Facts

2. This matrimonial case involved issues over custody and ancillary relief. It was, in my view, a simple matter. The assigned solicitor ("S") represented the Petitioner throughout the proceedings. The Respondent was on legal aid on the questions of custody and ancillary relief. No counsel or expert was involved on either side. There was no trial. A social investigation report was called for and the matter was eventually settled by way of consent summons. The Respondent was ordered to pay only the costs of the suit. The Petitioner's costs of the whole proceedings (except one hearing before H.H. Judge Bruno Chan) were to be taxed in accordance with Legal Aid Regulations.

3. After the case was settled, S very properly prepared a bill on solicitor's letter head ("the Initial Bill") for the sum of $59,367.00 of which $21,234.00 was party-and-party cost. S sent it to the Director of Legal Aid ("DLA"), the Respondent's solicitors and subsequently, the Respondent directly. There was no offer for settlement. DLA instructed S to proceed to formal taxation. S then prepared the 4-column bill now before me ("the Formal Bill"). The total amount claimed on this bill was $101,980.00, 171% of the Initial Bill. Again, the Respondent made no offer on settlement. DLA told S that the question of common fund costs should be considered with party and party costs on taxation.

4. After taxation, I have allowed a total sum of $59,480.17. It was about $113.17 more than the Initial Bill. I have to decide:

(i) How much time to allow for drafting the Formal Bill.

(ii) Whether or not S should get the costs of the formal taxation.

(iii) Whether or not S should bear the costs of DLA for the formal taxation.

S was represented by a law costs draftsman ("the LCD") at the hearing. I stood the matter down for S and the officer of DLA in charge of this bill to appear personally before me to make submission on these issues.

The Cause Shown

5. At the outset, I have asked the law costs draftsman ("the LCD") to explain to me why S did not opt for fixed costs. He could not give any valid explanation. Be that as it may, it was S's right to opt for taxation instead.

6. I queried why the Initial Bill was $59,000 odd and yet the Formal Bill was for $100,000 odd. S explained that the Initial Bill was a rough estimate prepared with a view to settle with the Respondent at an early stage and was not as detailed as the Formal Bill. It was at a lower rate. It was not for taxation but just for the Respondent and DLA. When asked why couldn't he rely on the Initial Bill with a supplemental bill claiming additional items missed out from the Initial Bill and work done since then, S replied by saying it was DLA who asked him to go for taxation. He did extra work in expanding the Initial Bill from 6 pages to 29 pages for the Formal Bill. He had to add in items that have been missing from the Initial Bill. Prompted by his LCD, S relied on a circular of the Law Society which referred to the format of a 4-column bill normally used in taxation under the legal aid provisions where costs were to be recovered from another party. S also referred to a letter from the learned Registrar Betts dated 31st May 1991, stating that bills that did not comply with the 4-column format would be rejected. DLA, on the other hand, also supported the idea of having a 4-column bill, stating it has long been the "practice". I asked S 3 times as to whether or not he reasonably believed that he would receive something close to $100,000 upon taxation. It was after much hesitation that S said that he "hoped" to get as much as possible.

How Much Time to Allow for Drafting the Formal Bill

7. S charged 1-1/2 hours for drafting the Initial Bill. He also claimed a total of 4 hours for drafting the Formal Bill. The Initial Bill was in itself very detailed. I accept that he needed 1-1/2 hours for drafting. That bill was short and succinct. It presented the work done in chronological order. There was no need to cross-refer to other items. The reader did not have to worry about duplication in charging for the same piece of work. The bill set out clearly which items were party-and-party costs and which were common fund costs. Even DLA admitted that by a short glance one could identify which item was party-and-party cost and which was common fund cost. I share this view. I see no reason why S could not have relied on that bill and a supplemental bill for taxation. The reliance on the circular to state that if bills not in 4-column form will be rejected was taken out of context. Registrar Betts was not criticising draftsmen for failure to adopt a particular format. He was complaining about the contents of bills that gave a full list of the work done in chronological order without regard to the form and sections indicated by Scale 5 of the First Schedule to Order 62. There was no breakdown or sub-total of the time in preparing or considering any particular document.

8. If I am wrong and a 4-column bill is a necessity, I need to consider the additional costs for its preparation. The most difficult part of framing a bill was done when the Initial Bill was prepared. S only needed to mechanically transfer the contents to the 4-column bill. I accept that S, with an intention to settle and obtain early payment, might not have prepared a detailed bill. I would not be surprised if he had left out small items like mechanical preparation, a few letters or perhaps 1 or 2 conferences. He might put in supplemental items. But that was not the case here. The Initial Bill was not at a lower rate as claimed by S's LCD. The same hourly rates were charged in both bills. The inflation came in the form of claiming for costs which have not been ordered by the court and inflating the time spent. Here are a few examples:

(i) For the hearing on 23rd November, 1998, H.H. Judge Bruno Chan expressly ordered that there be no costs to S for failing to do the proper thing. However, the Formal Bill included costs for that occasion.

(ii) For perusal of papers and taking instructions from the Petitioner for drafting the Petition and relevant documents, the Initial Bill claims for 45 minutes but the Formal Bill claims for 1-1/2 hour.

(iii) For taking instructions with a view to prepare the Petitioner's affirmation in support of the summons returnable on 3rd February 1999, the Initial Bill claimed for 30 minutes' costs but the Formal Bill 45 minutes.

(iv) For attending conference with the Petitioner taking instructions on the affirmation of means of the Respondent and the Petitioner's financial status, the Initial Bill claimed for 30 minutes but the Formal Bill 1-1/2 hours

9. S was apparently trying to get as much as possible in the light of the refusal of the Respondent to settle. He did unnecessary work in preparing for the Formal Bill. S had eventually conceded not to charge the cost for preparing the Initial Bill but claimed 4 hours for drafting the formal Bill. I do not think that should be the end of the matter. I took into account that he had actually drafted the Initial Bill and it took 1-1/2 hours. He needed perhaps an extra hour to mechanically transfer the contents of that bill to the Formal bill. He needed another half hour to add in items he had honestly missed. In the end, I allowed him 2-1/2 hours for overall preparation of his bills of costs.

Whether or not S Should Get Costs of the Formal Taxation

10. I find it wholly incredible that a solicitor would honestly believe that his work done was worth $100,000 and yet issued a bill to the DLA for 41% less. It was equally incredible that S would say that the Initial Bill was not for taxation but just for the Respondent and DLA's assessment. The Initial Bill was not given to DLA or the Respondent on a without prejudice basis. It was intended to be acted upon. Had there been payment in settlement, the matter would not have come forth for taxation at all.

11. It is no defence that DLA authorised S to go for formal taxation. That may be inevitable because DLA could not consent to costs on behalf of the Respondent but taxation was not a licence to inflate the fees!

12. Considering all the circumstances, I find that S had no genuine belief that he would be entitled to anything close to $100,000 on taxation. The omission to claim $41,000 was not out of oversight. As he said, he was taking the chance of getting something more than he was entitled to. Had he prepared his bill reasonably, the necessary and proper amount claimed would have been close to $59,000, in any case much less than $100,000. The amount as taxed reflected the properly the value of work done in a case of this nature.

13. Bills below the amount of $100,000 should have gone for provisional taxation before the Chief Judicial Clerk ("CJC") pursuant to Order 62, rules 13 and 21(4). Attendance in court by either party and the DLA would have been spared. The bill could have been provisionally taxed within about a week of its submission, whereas in the present situation, taxation was not concluded until 6 weeks after the appointment to tax. The court's time was wasted. S could not get his costs earlier. The LCD submitted that if a bill involved party-and-party cost and common fund cost and the paying party was acting in person, the practice is that the bill must go to formal taxation. Like many of his suggestions on "practice", this assertion was completely without basis. There was no such practice and if there was, it was not supported by any rule in the Rules of the District Court. In fact, the CJC does a lot of provisional taxation of bills where the paying party is acting in person.

14. I therefore held that the proper order was to allow only the costs of taxation as if the matter had been done through provisional taxation. There shall be no order as to costs of and incidental to the formal taxation incurred since filing the Appointment to Tax.

Should S Bear the Cost of DLA's Attendance on the Formal Taxation?

15. Since DLA was unnecessarily dragged into a hearing, S should, prima facie, bear DLA's costs. I have, however, considered DLA's conduct in this matter. DLA has not made any assessment at all even on the common fund cost claiming the possibility of transfer from party-and-party cost to common fund cost. That may be so. But prior agreement will reduce the scope of dispute on common fund cost. In many cases, I have seen DLA agree common fund cost with the receiving party either (i) unconditionally; or (ii) subject to transfer from party-and-party cost. There was no reason why the same could not be done in this case. Most of the argument in this case turned on common fund cost. If assessment had been done earlier on, the time for taxation could have been shortened tremendously.

16. Further, I do not see why DLA should require S to prepare a Formal Bill when the Initial Bill was good enough in itself. Rigid application of rules and procedure is never in the interest of the legally aided person (against whose property the DLA may have a first charge) and the public (who has to bear the costs if the aided person cannot pay). Perhaps more objectionable is that DLA did not protest against the amount claimed by S in the Formal Bill. The course taken by DLA has created more work for S and the court.

17. Having considered all the circumstances, I find the conduct of DLA and S equally deplorable. I therefore did not require S to bear the costs of DLA for this hearing.

Conclusion

18. I held that:

(i) S should be given costs representing 4 hours work at $1,600 per hour for drafting his bills of costs.

(ii) S should not be given costs of the formal taxation.

(iii) S and DLA should each bear his own costs of the taxation.

19. It is not infrequent that Masters see bills for simple matrimonial cases claiming for costs well beyond $100,000 because solicitors simply inflate them when preparing for formal taxation. Such bills invite objection from the paying party and hence create further costs on taxation. If it is the receiving party's solicitors who created the situation, he or she should be prepared to bear the costs wasted.

20. I have the consent of S and DLA to release this judgment. The names of the parties should not be disclosed.