LAU YUE KUI AND OTHERS v. PHILIP CHAN & CO (A FIRM)

HCMP 593/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 593 OF 2007

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D E C I S I O N

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Background

1.  Taxation of a solicitor’s bill of costs in non‑contentious business is rare, but this is one of such few cases.  In fact, the animosity between the parties has made this case even more contentious than taxation of a normal case in contentious business.

2.  The 1^st plaintiff is the administrator of the estate (“the Estate”) of the late Mr Lau Wai Chau (“the Deceased”).  The respondent is the solicitors engaged by the 1^st plaintiff to handle the probate and administration of the Estate.

3.  The Deceased owned many pieces of land in the New Territories and passed away in August 1933.  The Government has resumed part of the Deceased’s land since 1980s and paid large sums of money to the Estate by way of compensation.  It is agreed between the parties that the gross value of the Estate is $1 billion.

4.  The Estate is to be divided amongst eight fongs of the Deceased.  The 2^nd to 6^th plaintiffs represent the 3^rd, 5^th, 6^th, 7^th and 8^th fongs.  The Court of Appeal (in CACV 120/2013) has affirmed the right of the 2^nd to 6^th plaintiffs to take part in these taxation proceedings.  The other three fongs are not involved as they have no dispute with the respondent’s remuneration.

5.  The respondent has rendered two bills to the 1^st plaintiff, namely Bill No 1 and Bill No 2.  Bill No 1 concerns the work for obtaining estate duty clearance and grant of letters of administration.  Bill No 2 concerns administration work after the 1^st plaintiff has obtained the grant but the work has not completed yet. The scope of administrative work is:‑

(1)  To check the devolution of title of each of the lots and/or portions of the lots of the Deceased’s land;

(2)  To ascertain particulars of the various lots comprised in the Estate; and

(3)  To instruct surveyors and other professionals to ascertain the sizes and areas of portions of the land agreed to be distributed to the beneficiaries under the Deed of Family Arrangement of 1946.

6.  Under each of the 2 bills, the respondent charged $20 million, net of disbursements and costs of taxation.  By recent amendments of the 2 bills, the respondent amended his costs by reducing the original sums to 5/8 and made it clear that the 2^nd to 6^th plaintiffs would be the ones paying these reduced costs.  However, the items comprising the 2 bills (as per the particulars provided) have not been reduced correspondingly in their respective amount.  Thus, it is still necessary to tax the 2 bills on the basis that each is for the sum of $20 million.  It is only when it comes to the time of certifying the costs payable by the 2^nd to 6^th plaintiffs, the taxed costs would be reduced to 5/8.

7.  The present proceedings were first started by the 1^st plaintiff against the respondent on 27 March 2007.  The 2^nd to 6^th plaintiffs then applied to join in these proceedings on 17 July 2007.  By the Order of Master de Souza dated 18 July 2007, these two bills were to be taxed on solicitor and own client basis, and on taxation, if it appears just to the court, the Taxing Master is to certify whether the whole or any part of the fee agreements made between the 1^st plaintiff and the respondent were fair and reasonable.

8.  Thereafter, there were many interlocutory applications and appeals going on between the parties, but it is not necessary for me to go into the details of these applications and appeals.  Suffice to say is that the parties finally agreed that the 2 bills are to be taxed without relying merely on the existence of the fee agreements made between the 1^st plaintiff and the respondent.

9.  The 1^st plaintiff passed away in August last year.  That, however, does not affect the taxation as the 1^st plaintiff has no dispute with the respondent on the 2 bills and his attendance has been excused by the order of Master K Lo dated 23 April 2013.  Moreover, the 2^nd to 6^th plaintiffs intend to pay the respondent’s taxed costs out of their own resources, and hence the taxation will not affect the 1^st plaintiff’s interest.

10.  The taxation of the 2 bills was fixed for a 6‑day hearing before me.  However, the parties took almost 5 days to make their opening submissions, and in the end, they invited me to determine the following preliminary issues first before proceeding to taxation:‑

(1)  For Bill No 1, when conducting a global assessment, what should be done in the examination of the time‑spent element without doing it item by item? (“Issue 1”);

(2)  Whether Bill No 2 is a gross sum bill or an itemized bill? (“Issue 2”); and

(3)  If Bill No 2 is an itemized bill, what should be done in the examination of the time-spent element without doing it item by item? (“Issue 3”).

11.  The case was therefore adjourned for me to deal with these preliminary issues first.

Issue 1

12.  It is clear that Bill No 1 is a gross sum bill of $20 million, even though the respondent has provided detailed particulars of the work done item by item.  It was issued pursuant to the 1^st fee agreement made between the 1^st plaintiff and the respondent on 29 November 1994 (“the 1^st Fee Agreement”), whereby the 1^st plaintiff agreed to pay the respondent’s legal costs (exclusive of disbursements) at 2% of the gross value of the Estate.  As the gross value of the Estate is agreed at $1 billion, the 2% legal costs is therefore $20 million.

13.  When Master De Souza ordered that the 2 bills be taxed on solicitor and own client basis, it is not clear whether he was stating the obvious as taxation in non‑contentious business is always between solicitor and own client, or whether he is referring to the taxation basis referred to in Order 62, rule 29 of the Rules of the High Court.  However, Order 62, rule 29 does not apply to a bill with respect to non‑contentious business.

14.  Nevertheless, in another case, Deacons v Wiseking Mining Investment Co Ltd, unreported, HCA 1221/2011, which concerned a bill of costs related to non‑contentious business, Master de Souza held that the conclusive presumptions in Order 62, rule 29 are inapplicable to a taxation of purely non‑contentious business.  On the other hand, he took the approach that all costs will be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred.

15.  The parties seem to agree that the above approach is the right approach and the burden is on the paying party, ie the 2^nd to 6^th plaintiffs, to prove whether there are items of an unreasonable amount or they have been unreasonably incurred.

16.  There is also no dispute that Rule 5 of the Solicitors (General) Costs Rules (Cap 159 Section 74) applies, which stipulates that costs in such a case of non‑contentious business shall be such sum as may be fair and reasonable, having regard to:‑

(1)  the complexity of the matter or the difficulty or novelty of the question raised;

(2)  the skill, labour, specialized knowledge and responsibility involved on the part of the solicitor;

(3)  the number and importance of the documents prepared or perused without regard to length;

(4)  the place where and circumstances in which the business or any part thereof is transacted;

(5)  the time expended by the solicitor;

(6)  where money property is involved, its amount or value; and

(7)  the importance of the matter to the client.

17.  The 2^nd to 6^th plaintiffs contend that the amount of $20 million charged under Bill No 1 is astronomical.  The respondent’s hourly rate of $5,500.00 is agreed, but the respondent could only bill no more than 450 hours of work according to the particulars provided for Bill No 1.  Even assuming all these items were fully allowed, he could receive no more than $2.5 million.

18.  On the other hand, if the 2^nd to 6^th plaintiff’s approach, as presented in their List of Objections, is adopted, then Bill No 1 should be worth no more than $1.25 million.  That is based on the assessment by reference to time‑spent (which leads up $935,000.00).  If one applies a percentage to this sum, and adopts 0.125% by reference to the value of the Estate as being fair and reasonable in all the circumstances, that explains how the sum of $1.25 million is derived.

19.  Thus, the 2^nd to 6^th plaintiffs contend that a somewhat detailed examination of the items is unavoidable even though it is a gross sum bill.  As there are only 595 items, it does not require too much time to go through the items.  The time spent is after all an important element in assessing the ultimate worth of the work under Rule 5 as aforesaid.  A preview of the bill is advised before conducting the taxation.

20.  On the other hand, the respondent contends that the time claimed in Bill No 1 should not be used as a foundation for determining whether it is fair and reasonable.  In Bill No 1, which is a gross sum bill, other factors should assume a much greater significance (see Treasury Solicitor v Regester & Anor [1978] 1 WLR 446; China Creator Estate Ltd v KC Ho & Fong,unreported, HCMP 2689/1997; Re Wing Fai Construction Co Ltd (Costs: Taxation) (2012) 15 HKCFAR 657; and the Court of Appeal decision in these proceedings (CACV 75/2014)).

21.  The respondent submits that the proper approach for taxation of Bill No 1 is to ascertain whether the 2% scale fee is unjustifiable, taking into account all the circumstances, and in particular the seven factors with appropriate weight under Rule 5. The time factor here for the work done, whether (in the respondent's case) 400 odd hours is reasonable, or (in the 2^nd to 6^th plaintiffs’ case) 100 odd hours is reasonable, are neither here nor there.  This is because Bill No 1 is a gross sum bill at the time when there was a minimum Probate Scale Fee imposed by the Law Society, in which the sum of fees has also been agreed, and that there has been no objection from the client himself.

22.  The respondent contends that the 2^nd to 6^th plaintiffs are bound to the estimates of the 1^st plaintiff in relation to the written estimates for fees.  They are as beneficiaries only entitled to challenge whether the sums demanded are fair and reasonable without resort to challenging whether time was actually spent.  In Barrett v Ruttfield [2004] EWHC 9012, the master held that the sole beneficiary was not entitled to require detailed assessments despite their applications to tax the bill delivered to the executor as paying parties.  The beneficiary's case that she was entitled to tax and conduct a detailed assessment as if she was the client (ie a quasi‑client) because she was the ultimate paying party was rejected.  The court held that there was no such class of persons as quasi clients and proceeded to assess whether the fees charged were fair and reasonable without a detailed item by item taxation (see also In Re Longbotham & Sons [1904] 2 Ch 152, Tim Martin v Akin Gump LLP [2012] 2 Costs LR 325 and CACV).

23.  Thus, the respondent submits that the 2^nd to 6^th plaintiffs are not entitled to a detailed assessment — but only entitled to challenge whether the gross sum bill was fair and reasonable, and that the time element in Bill No 1 is to serve as a reference and let the client know for which he is required to pay as required by law. It should therefore not be conducted as forensic analysis to assess the time by taxing item by item but to form a value judgment of the Taxing Master who has the expertise and experience in such matters (see Treasury Solicitor,supra).

24.  The respondent further submits that Bill No 1 is a case where the other factors under Rule 5 assume much greater importance, and the time element has already been subsumed into the other factors.  Using the approach of taxing each item by item, line by line would be a futile exercise and directly contradict the prime objectives of our Civil Justice Reform.

25.  In my view, the time-spent element is an important issue in this case.  It is one of the 7 factors in Rule 5 that I should take into account.  However, as the parties cannot agree on the reasonable amount of the time spent in carrying the work in question, I do not have an amount of time-spent that I can take into consideration.  In other words, the time‑spent is at the moment a variable.  I need to determine the reasonable amount of the time-spent first before I can take that into consideration.  I cannot say that 400 odd hours or 100 odd hours is the right time-spent at this stage.  I would not be able to say whether the overall charge is fair and reasonable without having this time‑spent element determined first.  So I disagree with the respondent that the amount of time‑spent is neither here nor there.  I also disagree that this time‑spent element is subsumed into the other factors, as this is a separate and distinct factor that I need to consider under Rule 5.

26.  However, I do not need to have an exact figure of the time‑spent.  After all, I am doing a global assessment for Bill No 1.  What I need is a more accurate figure for the reasonable amount of time-spent.  The difference between the parties of 400 odd to 100 odd is still substantial.  I need to have a more detailed examination of the items of work before I can determine the reasonable amount of time‑spent.

27.  In fact, the 2^nd to 6^th plaintiffs are not asking me to go through Bill No 1 item by item.  They are asking me to group the work into 3 different stages and 6 broad categories.  That gives rise to 18 “bigger items”.  In Lau Yu Shing & Another v Chan Wing Hung, HCMP 263/2010, the defendant rendered his bill for non‑contentious work.  It consisted of many minute items with a short summary.  Deputy High Court Judge Au‑Yeung (as she then was) held that “The argumentative and minute approach in Defendant’s written submissions is simply not conducive to the efficient disposal of the matter.  By far, the most useful piece of information is a one‑page summary ... which breaks down the costs claimed into 8 categories.” 

28.  I agree this is a sensible approach and should be adopted in our case.  In this way, I can decide on the reasonable amount of time-spent in a more accurate manner by reference to just 18 “bigger items”.  Judicial time can also be spent with economy on the one hand and a fair appreciation of the time‑spent can be achieved on the other hand.

29.  In the circumstances, in respect of Issue 1, I rule that when conducting a global assessment for Bill No 1, I should group the items as suggested by the 2^nd to 6^th plaintiffs in the examination of the time-pent element without doing it item by item.

Issue 2

30.  As to Bill No 2, it is clear to me that the respondent delivered it as a gross sum bill for the sum of $20 million with particulars of the work done provided.  Bill No 2 was issued pursuant to the 2^nd fee agreement between the 1^st plaintiff and the respondent made on 7 November 1995 (“the 2^nd Fee Agreement”), whereby the maximum amount of legal costs (exclusive of disbursements) was capped at 2% of the gross value of the Estate, ie $20 million.

31.  However, the 2^nd Fee Agreement is different from the 1^st Fee Agreement in that the 2^nd Fee Agreement stipulates an hourly rate of $5,500.00 for the respondent from 1 April 1992 up to the conclusion of the matter subject to a maximum amount of 2% as aforesaid.  Thus, it is also clear to me that the respondent should have charged his work at the hourly rate of $5,500.00 subject to a cap of the maximum amount.

32.  According to the respondent, as the charge for the work done so far has reached the maximum amount, Bill No 2 was issued for the maximum amount of $20 million.  So the intention of the respondent in issuing Bill No 2 is clear.  It is for a lump sum of $20 million being the maximum amount that he could charge the 1^st plaintiff.

33.  With such an intention in mind, Bill No 2, apart from its form, was clearly intended to be a gross sum bill, even though particulars of work done were provided.  By providing the particulars, it would not change a gross sum bill into an itemized bill.

34.  The 2^nd to 6^th plaintiffs submit that there was no difference in substance between Bill No 2 and the 1^st interim bill produced to Chung J in HCAP 10/2001 and Chung J referred to it as an “itemised interim bill”.  Be that as it may, it does not mean that the respondent is now bound by the previous interim bill and cannot issue a gross sum bill any more.

35.  Although the particulars given consist of many items and the respondent has requested the 2^nd to 6^th plaintiffs to file an item‑by‑item List of Objections, it still will not turn a gross sum bill into an itemised bill.

36.  Thus, for Issue 2, I rule that Bill No 2 is a gross sum bill.

Issue 3

37.  Since I rule that Bill No 2 is a gross sum bill, Issue 3 is no longer a live issue.

38.  However, I still need to determine whether the amount charged under Bill No 2 is fair and reasonable.  Similar to Bill No 1, the time‑spent factor in Rule 5 is still an important element that I need to determine first.  In fact, this factor is even more important for Bill No 2 than for Bill No 1. According to the 2^nd Fee Agreement, the respondent should in fact charge the 1^st plaintiff on an hourly basis, although it is subject to a maximum cap.  Thus, one has to know whether the time spent would allow the respondent to charge the maximum amount of $20 million at an hourly rate of $5,500.00.

39.  The 2^nd to 6^th plaintiffs submit that Bill No 2 can be grouped into 33 heads of work just like the 1^st interim bill.  In respect of Head 32, the 2^nd to 6^th plaintiffs also submit that a sample lot can be taxed first as the work under this head consist of similar items for each of the many pieces of land in question.  Once one lot is determined, they can resolve the rest by adopting a similar approach to the other lots.  The respondent has in fact no objection to the grouping, but makes some suggestions to the way the objections of the 2^nd to 6^th plaintiffs in respect of these heads of work should be dealt with.

40.  As I am only dealing with the 3 preliminary issues agreed by the parties at this stage (which were formulated after almost half a day’s arguments) and the 2^nd to 6^th plaintiffs have not submitted on the suggestions made by the respondent, I will not deal with the respondent’s suggestions now.

Conclusion

41.  I have determined the 3 preliminary issues as aforesaid.  As it is necessary to assess the time-spent to some degree, the taxation will take some days.  The respondent estimated that it will take about 10 days.  I therefore order that the taxation of the 2 bills be fixed for another hearing with 10 days reserved and with consultation of counsel’s diaries.

42.  I will reserve costs for the preliminary issues at this stage.