THE INCORPORATED OWNERS OF YAN'S TOWER v. HO KWAI YEE

[English Translation – 英譯本]
CACV 198/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 198 OF 2008

(ON APPEAL FROM DCMP 4124 OF 2004)

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Between

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JUDGMENT

Hon Cheung JA (giving the judgment of the Court):

Background of the case

1. The defendant is the registered owner of Unit G, 20^th floor, Yan’s Tower, 25-27 Wong Chuk Hang Road, Hong Kong (‘the unit’).  The plaintiff is the incorporated owners of the building, and Jones Lang LaSalle Management Services Limited (‘Jones Lang’) is responsible for the management of the building.

2. On 2 August 2000 the Lands Tribunal of Hong Kong (‘the Lands Tribunal’), after hearing an application made by Jones Lang, found that the defendant had failed to pay management fee of the building.  There was judgment for Jones Lang in the sum of $106,513.02, being management fee in arrears, together with further management fee at the rate of $2,531.70 per month from 1 May 2000 onwards.  The defendant was also ordered to pay interest on the outstanding sums and $500 costs.

3. On the basis of this order, the plaintiff registered at the Land Registry a charging order against the defendant’s unit, and on 7 February 2006, it obtained permission from District Judge Chow to sell the unit.  Judge Chow also ordered the defendant to pay the plaintiff’s costs of that application.  The two parties disputed over the method of calculating the costs, and the matter was heard before District Court Registrar Poon.

4. The dispute was whether the plaintiff had agreed with their solicitors Solomon C. Chong & Co. (‘the solicitors firm’) that the plaintiff was only required to pay the fees of the solicitors firm in the sum of $28,000, or whether they had agreed that the fees were to be charged on a time-cost basis.  The basis on which the fees were to be charged would have a direct bearing on how much the defendant was required to pay for the plaintiff’s costs.  The defendant asserted that she was only required to pay the plaintiff’s costs in the sum of $28,000.

5. The Registrar found that initially the plaintiff had agreed to pay $28,000 to the solicitors firm as fees for the application for the charging order and the application for the order for sale of the defendant’s unit by auction, but subsequently the method of calculating the fees was changed to be calculated on a time-cost basis.  The Registrar therefore held that the amount of the plaintiff’s costs which the defendant was required to pay should also be calculated on that basis.  The defendant appealed to District Judge Leung against the decision.  Judge Leung upheld the decision but granted the defendant leave to appeal to this Court.  We now deal with the defendant’s appeal.

Scope of the appeal

6. First of all, we must define the scope of this appeal.  The issue we are to deal with is whether it is correct for the District Court to hold that because the plaintiff was to pay the fees of the solicitors firm on a time-cost basis, the defendant had to pay the plaintiff’s costs on the same basis.  The scope of this issue is quite restricted.

7. The defendant has not lodged any appeal against the Lands Tribunal’s decision as to the management fee, nor did she appeal against the charging order or the decision about the sale of her property by auction; therefore the queries she raised about the correctness of these decisions are not issues to be dealt with in this appeal.  This Court will not accept any new evidence produced by the defendant relating to these matters.

The way the solicitors charged for their work

8. It was through tender that the solicitors firm was awarded the retainer for applying for an order for sale of the unit by auction.  The fees they charged were $28,000,details of which can be seen in a letter sent by Jones Lang to the plaintiff on 28 May 2004:

‘In the 4^th meeting of the management committee held on 19 March 2004, the committee members who were present unanimously agreed to take legal action against the owner of unit G on the 20^th floor, i.e. to sell the unit by auction so as to recover outstanding management fee owed by the owner and interest thereon.  It was also agreed that Solomon C. Chong & Co. would be instructed to carry out legal procedures for selling the unit by auction, the fee for which is HK$25,000, and to apply for a charging order against the unit before the auction, the fee for which is HK$3,000.  Our company, as requested by the committee, has obtained agreement from Solomon C. Chong & Co. that except the bailiff fee, watchman fee and fee for the valuation report on the unit, all other expenses are included in the quoted fees.  Basically, the above-mentioned management committee meeting had resolved to accept these fees.’

9. According to the affidavit of Mr. Lau Chung Hon (劉中翰) of Jones Lang, with regard to the fees to be charged by the solicitors firm, the plaintiff was informed by the firm and agreed to the following 3 points:

1)       The original fees $28,000 quoted during the tender were no longer applicable;

2)       Owing to the defendant’s behaviour, the costs of the applications increased substantially; and

3)       The solicitors firm would charge their fees on a time-cost basis.

10. Mr. Lau said that in the plaintiff’s management committee meetings held on 24 May, 29 July, 28 September 2005, 2 March 2006 and 21 June 2006, May Tam, a solicitor of the solicitors firm, had informed the management committee about the variation of the costs to be charged.  Besides, the solicitors firm had informed Mr. Lau on the phone about this matter.

11. The evidence of Mr. Lau at the hearing before the Registrar was that Ms. Tam did not discuss with him personally how to charge on a time-cost basis, but in June or July 2005 when he took over the management of the building, his superior Cherry Ko told him that the solicitors firm would charge on a time-cost basis.  Subsequently, this matter was mentioned during meetings and telephone conversations.  Furthermore, in August 2007 the plaintiff paid $80,000 to the solicitors firm as part of the costs charged by the plaintiff’s solicitors firm.

12. Mr. Cheung Chi Yin (張子賢), chairman of the management committee of the plaintiff, also confirmed in his affidavit that Ms Tam had informed the management committee of this matter.  Mr. Cheung maintained that the plaintiff agreed to and accepted the variation of the basis on which the costs were charged.  On 21 June 2006 he signed on a letter dated 2 June 2006 from the solicitors firm to the management committee, signifying his endorsement of the new charging method of the solicitors firm.

Indemnity principle

13. The liability of the paying party is determined by the indemnity principle, i.e. the costs recoverable by the receiving party are limited to those which he is liable to pay to his own solicitor, subject to the limitation that they were reasonably incurred and were reasonable in amount: see The General of Berne Insurance Co. v. Jardine Reinsurance Management Ltd. [1998] 1 WLR 1231, at 1234.

Our opinion

14. In our judgment, to resolve the issue in this appeal, we must proceed from the basic principle. The defendant’s liability to pay the plaintiff’s costs originated from the order made by Judge Chow on 7 February 2006. If the charging method then in existence which was agreed between the plaintiff and the solicitors firm was such that the plaintiff was only required to pay $28,000 as the fees of the solicitors firm, then, applying the indemnity principle, this was the only sum which the defendant was required to pay. After this day, even if the plaintiff and the solicitors firm varied the agreed charging method, that would not oblige the defendant to pay the plaintiff’s costs on the basis of the new charging method: see Kenneth L Kellar and Another v. Stanley A. Williams (Privy council Appeal No. 13 of 2003). Mr. Wilson Chan, who acts for the plaintiff, accepts this principle.

15. The Registrar found that the plaintiff had agreed to vary the method of calculating costs, but he made no finding as to the day on which the plaintiff agreed to that. In making the finding that the plaintiff had agreed to vary the charging method, the Registrar used the words ‘recognized’ and ‘ratification’ (The word appearing in the transcript of the Registrar’s decision, which was given in English, is ‘rectification’. We think that it is a typing error and that the correct word should be ‘ratification’).

16. Among the meetings referred to by the plaintiff, the minutes of the meetings held on 24 May, 29 July and 28 September 2005 made no mention of the fact that the plaintiff had agreed to the variation of the charging method. The minutes of the meeting held on 2 March 2006 states:

‘    Jones Lang reported that the court had made an order that unit 20G be sold by auction and that the owner of the unit was to pay all the costs and expenses of the hearing. Jones Lang said that after judgment was given, the owner of the unit had paid the outstanding management fee and interest in the total sum of HK$320,987.52, and that she requested for discharge of the charge. Ms. Tam, solicitor for the Incorporated Owners, advised that since the judge ordered that the owner was to pay all the costs of the proceedings, it was not necessary to discharge the charge before the costs were paid. In addition, Ms Tam said that the court had not yet given directions as to how the money was to be used after the auction or as to any detailed arrangements, therefore she would go to court at 11 o’clock on 3 March to seek directions.

Concerning the costs of the proceedings, Ms Tam said that she would sort them out after the judge had given directions on the following day, and would issue an itemized bill to the owner of the unit within one week. The costs payable were in the region of 200,000. The chairman and the secretary remarked that the costs payable were more than those budgeted, and asked whether there was room for negotiation. Ms Tam said that at the present stage the amount of the costs was only an approximate figure, and that only after directions were given on the following day could a complete picture of how much costs were incurred be given. When the first bill, the itemized bill, has been sent to the solicitor of that owner, it will be clear whether there can be room for negotiation on costs. If the opposite party is willing to negotiate after they receive the first bill, the itemized bill, there may be room for downward adjustment of the costs. But if the opposite party does not make any response, the second bill, the taxation bill will be issued and the costs will be higher than those on the first bill, the itemized bill. If the opposite party does not pay the costs, auction will be carried out as ordered by the court. Ms Tam said that the above-mentioned procedures were normal legal procedures and that the case should be dealt with according to legal procedures.’

17. It was recorded in the minutes that the amount of the costs, namely $200,000 was higher than the budgeted amount, but there was no mention of the plaintiff’s agreement to the variation of the charging method. In a meeting document about the meeting held on 21 June 2006, there is the following record about costs:

‘Furthermore, the owners also pointed out that under the contract made by Ms Tam with the Incorporated Owners, the solicitors fees should be HK$28,000, not the present disputed amount. Ms Tam’s explanation was that the initial quoted price of HK$28,000 only included the expenses for making a non-contentious application to the court for selling the unit by auction. Owing to the fact that in the course of the hearing of the case the owner in question unreasonably lengthened the time for hearing the case, Ms Tam had to apply to the court for costs calculated on a time-cost basis. The management company and the Incorporated Owners had been informed of this charging method on different occasions.

The committee said that it understood Ms Tam’s situation and that in order to help Ms Tam to explain to the court, it would sign the relevant letter to signify its confirmation.’

18. Mr. Cheung signed a letter dated 2 June 2006 issued by the solicitors firm, the content of which is:

‘We refer to the previous telephone conversations between your Mr. Charles Lau and our Ms. May Tam and the various committee meetings whereby our Ms. May Tam has informed your Mr. Charles Lau and the committee members that the tender price quoted by our firm covers a non-contentious application for order for sale. In this case, the Defendant has unnecessarily and unreasonably prolonged these proceedings thereby aggravating the costs substantially in this action. In the circumstances, we have to charge on time costs basis as stipulated in the appointment to tax, a copy of which has been sent to you previously. We are confident that the taxed costs will be fully recovered from the Defendant. But in the unlikely event that the taxed costs for whatever reason could not be recovered from the Defendant, the Incorporated Owners would ultimately be liable to settle the said taxed costs.’

Our opinion

19. Although in this letter dated 2 June 2006 it was mentioned that the solicitors firm had on different occasions informed the management company and the Incorporated Owners that their costs would be charged on a time-cost basis, in the meeting document dated 21 June 2006 there was no record that any resolution was passed about the plaintiff’s agreement to the variation of the charging method.  According to the minutes disclosed by the plaintiff, the plaintiff had passed resolutions in respect of other topics, but no resolution was passed about the topic of variation of the fees charged.  Section 10(2) of the Composition and Procedure of Management Committee laid down in Annex 3(sic) of the Building Management Ordinance reads: ‘All acts, matters or things authorized or required to be done by the management committee may be decided by a resolution passed by a majority of the votes of members of the management committee present at a meeting of the management committee.’

20. Mr. Cheung claimed that in the meeting the plaintiff had signified its agreement to the variation of the charging method, but he could not provide any reasonable explanation as to why the plaintiff’s decision was not recorded in the meeting document.  The meeting document in question is a document entitled ‘Classified Annex’ by the management committee. Our view is that even though it is a classified annex, if a resolution had indeed been adopted by the plaintiff in respect of this topic, why is there no record in the document about the resolution?  Mr. Cheung said that there was room for improvement in the way in which the plaintiff handled minutes and meeting documents.  However, as stated above, the plaintiff did record resolutions about (other) topics on quite a number of occasions.

21. Mr. Lau and Mr. Cheung stated in their affidavits that the plaintiff agreed to the variation of the charging method, and they quoted contents of some minutes and contents of some telephone conversations to support their case; but they did not say in Court on which day the plaintiff agreed to the variation of the charging method.  In his evidence, Mr. Lau did not use the word ‘agreed’.  His wording was that the plaintiff ‘understood’ the amount of the costs was more than $28,000.  Mr. Cheung even said this in his evidence: ‘When he signed the letter they (the management committee) had not indicated whether they agreed or did not agree.  They just said that they understood the situation.’

22. It is not necessary for this Court to rule on the question of whether the management committee had resolved to agree to the variation of the fees charged.  Looking at what happened in this case as a whole, even if the plaintiff did agree to the variation of the charging method, this decision was made only after Judge Chow made the costs order.  Neither the Registrar nor Judge Leung made any finding that on 7 February 2006, the day on which the order was made, the charging method had already been changed to charging on a time-cost basis.  We are of the view that this supports the defendant’s contention, because on that day the only fee charging agreement in existence was the agreement for $28,000.

23. The argument put forward by the plaintiff is that because the plaintiff had ‘ratified’ the variation of the charging method, the defendant’s liability to pay costs on 7 February 2006 should also be assessed on a time-cost basis.  Mr. Chan submitted that Mr. Lau and Mr. Cheung, as the agents of the plaintiff, agreed that the plaintiff should pay the solicitors firm fees on a time- cost basis, therefore when the plaintiff ‘ratified’ this agreement, it could be backdated to the original fee charging agreement made between the plaintiff and the solicitors firm on 19 March 2004 for the amount of $28,000.

24. We do not agree with this argument.  First of all, judging from the findings of fact made by the Registrar and Judge Leung, they had never found that Mr. Lau and Mr. Cheung had, in the capacity of the plaintiff’s agents, entered into any agreement with the solicitors firm; therefore in this case the scenario that the plaintiff ratified the agreement made by its agents on its behalf with the solicitors firm does not exist.  Moreover, if, before 7 February 2006, the plaintiff and the solicitors firm had already agreed on the variation of the fees charged, then the plaintiff simply did not need to ‘ratify’ this agreement.  Thus, it shows that on the day in question there was no legally binding agreement which had the effect that the plaintiff’s costs which the defendant had to pay were required to be calculated on a time-cost basis.

25. In our judgment, the facts do not show that there was any agreement about variation of the fees charged in existence before 7 February 2006, therefore the ‘ratification’ was in reality only the plaintiff’s agreement after 7 February 2006 to the variation of the charging method of the solicitors firm.  In these circumstances, the argument that ‘ratification’ produces ‘retrospective effect’ is unsound.  The doctrine of ‘ratification’ is applicable only under the precondition that the interests of any third party will not be adversely affected, see Bowstead & Reynolds on Agency , paragraphs 2-087 and 2-088, and Smith v. Henniker-Major & Co. [2003] Ch 182 (paragraph 71).  In the present case, the interests of the defendant arose on 7 February 2006.  If Judge Chow had assessed the costs on that day, the plaintiff’s costs which the defendant was required to pay would have been only $28,000.  That being so, this Court should not require the defendant to be liable for the time-cost on the basis of the plaintiff’s ‘ratification’, because this will substantially and adversely affect the defendant’s interests.

26. In accordance with the indemnity principle, the defendant is required to pay the plaintiff only $28,000.

Conclusion

27. We hold that the defendant is required to pay the plaintiff costs in the sum of $28,000 only.  We therefore allow the appeal and reverse the decision of the District Court.

28. We order that the plaintiff shall pay the defendant’s costs of this appeal and in the District Court.

29. We need to emphasize that, as stated above, we made this decision on the assumption that the plaintiff agreed that the solicitors firm could calculate the fees on a time-cost basis.  We did not and have no need to rule on the issue of whether the plaintiff itself should pay the solicitors firm fees on a time-cost basis.