DONALD KOO HOI-YAN v. KAO, LEE & YIP (a firm)

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JUDGMENT ON COSTS

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Mr Justice Bokhary PJ :

1.  This is the Court’s judgment on costs.  It is to be read together with the judgment which the Court handed down on 25 June 2009 allowing the appeal in part so as to : (i) set aside some of the findings of contempt made against the appellant while affirming the rest of the findings of contempt made against him; (ii) set aside the penalty imposed on him; (iii) remit the question of penalty to the High Court; and (iv) deal with costs by providing as follows in para.76(5) :

“That there be an order nisi that the appellant bear the costs of and incidental to this appeal calculated on an indemnity basis and that the appellant be at liberty to file submissions in writing as to costs within 14 days of the date of this judgment and that any submissions in reply be filed within 14 days thereafter and in the absence of any such submissions that the order nisi stand as an order absolute without further order.”

2.  Relying or seeking to rely on para.76(5), the appellant asks that the order nisi be varied so that : (i) he should pay the costs here and below on a party and party basis rather than on an indemnity basis; (ii) there should be no order as to the costs thrown away by the adjournment of the appeal in May 2008; and (iii) he should have the costs of the proceedings relating to the making of the report by Reyes J to the Court on the further evidence adduced, alternatively, there be no order as to those costs.

3.  Resisting any variation of the order nisi, the respondent’s stance is that : (i) the liberty granted by para.76(5) does not cover the costs of the trial, the appeal to the Court of Appeal or the sentencing hearing; (ii) indemnity costs is appropriate in the present case; and (iii) the costs thrown away by the adjournment of the appeal in May 2008 and the costs of the reporting hearings before Reyes J should be borne by the appellant.

Scope of the liberty granted by para.76(5)

4.  The respondent’s point on the scope of the liberty granted by para.76(5) is plainly right.  This appeal was allowed only in part, and the extent to which it was allowed does not reach the orders as to costs made below.  As to the costs of and incidental to this appeal, an order nisi awarding them to the respondent on an indemnity basis was made.  The liberty granted by para.76(5) does not cover any costs other than those the subject matter of that order nisi.

Basis of taxation

5.  So the first of the questions which remain is whether those costs should be taxed on an indemnity basis (as the respondent asks) or on a party and party basis (as the appellant asks).  Neither side has suggested any basis of taxation in between those two bases.  Citing the decision of the New South Wales Court of Appeal in McIntyre v. Perkes (1988) 15 NSWLR 417, Mr Godfrey Lam SC for the appellant says that while there are certainly a significant number of cases where costs were awarded against a contemnor on an indemnity basis, there is no general principle that upon a finding of contempt costs should necessarily or even as a general rule be awarded on an indemnity basis.  In particular, Mr Lam draws attention to Samuels JA’s statement at pp 426G - 427B where he said this:

“I do not consider that any such rule or practice can be discerned in the Australian cases unless it be on occasions where no penalty by fine or by any other means is imposed.  In those cases it is certainly arguable that from time to time courts have made an order for costs on the solicitor and client basis on the footing that this order, which provides an indemnity or near indemnity to the successful moving party, represents sufficient recognition of the court’s disapproval of the contempt established.  Certainly, however, in cases where, as in the present one, a penalty, altogether apart from any order for payment of costs, has been imposed, there is no authority which supports the cross-appellant’s contention.”

6.  That statement, Mr Lam submits, is consistent with Warrington J’s approach in Stancomb v. Trowbridge Urban District Council [1910] Ch 190.  Stancomb’s case is one of the three cited in Borrie and Lowe : The Law of Contempt, 3rd ed. (1996) at p.640 for the proposition that

“the court may make a punitive order for costs by which the defendants pay costs as between solicitor and client, thereby affording the plaintiff an indemnity against the costs of his proceedings.  This procedure has been adopted in a number of cases where an action was brought against a corporation to enforce an order, and where the court allowed the writ of sequestration to issue but directed that it should lie in the office thereby giving further time for compliance.”

The other two cases so cited are Attorney General v. Walthamstow Urban District Council (1895) 11 TLR 533 and Lee v. Aylesbury Urban District Council (1902) 19 TLR 106.

7.  Mr Lam also cites the decision of the Federal Court of Australia in Construction, Forestry, Mining and Energy Union v. BHP Steel (AIS) Pty Ltd (2003) 196 ALR 350 where at p.352 Moore J said this :

“It is at least clear, following McIntyre v. Perkes … that there is no general principle or rule of law in contempt cases that a successful applicant or successful prosecutor is routinely awarded costs on an indemnity basis: see also to the same effect in this court, Adlam v. Noack [1999] FCA 1606; BC9907694 per Mansfield J at [29], LED Builders Pty Ltd v. Eagle Homes Pty Ltd [1999] FCA 1213; BC9905513 per Lindgren J at [64]-[65].  Indeed as is the conventional practice in most cases, costs are routinely awarded in contempt cases on a party and party basis.”

8.  The last case cited by Mr Lam is that of the High Court (sitting in a division composed of Hartmann and Suffiad JJ) in Secretary for Justice v. Choy Bing Wing, HCMP No. 4694 of 2003, 12 December 2005 (unreported).  In particular, Mr Lam draws attention to the High Court’s statement in para.32 that “[c]ontempt proceedings do not by their nature alone [attract] indemnity costs”.

9.  Ms Audrey Eu SC and Mr Isaac Chan for the respondent cite Ebewe Arznemittel GESmbH v. Lai Shu Lam, HCA No. 16387 of 1998, 5 July 1999 (unreported) and Lau Yee Ching v. Wong Tak Kwong, CACV No. 385 of 2005, 3 March 2006 (unreported).  They point to the Ebewe Arznemittel case as an example of a non-contumelious party being ordered to pay costs on an indemnity basis, drawing particular attention to Yeung J’s statement (at p.15) that :

“The Defendant could have committed the contempt of court due to his ignorance and lack of education.  Perhaps he did not receive the sort of legal advice that he could reasonably [be] expected to get as alleged by him.”

10.  As for Lau’s case, they draw particular attention to the fifth and sixth paragraphs of Rogers VP’s judgment where this is said :

“I have to say that it is, in my experience at any rate, a normal order on contempt proceedings that costs are ordered on an indemnity basis.  It has to be borne in mind that the complainant in committal proceedings stands to gain very little other than the enforcement of the order which is the subject of the committal proceedings; he stands to gain no damages because of the breach of that order or any other material benefit.

Hence, the bringing of a contempt proceedings is, in itself, an expensive exercise but it is for the benefit of the court because the court’s orders are enforced and adhered to.  This is a matter which the courts naturally bear in mind when coming to a conclusion as to what penalty to impose and the courts are alive to the fact that an order for indemnity costs is, in itself, a penalty.  In those circumstances, the court will adjust the other penalties that are imposed to take that into account and, in one respect, that is what has happened here.  It has given rise to this situation that has enabled Mr Allan to say, ‘Well, if you compare the $10,000 for the 1^st respondent and the $5,000 for the 2^nd respondent and compare that to the $700,000-odd which the bill of costs has apparently come to on an indemnity basis, the matter is disproportionate.’  Well, it may look disproportionate but what one has to bear in mind is that it is a global penalty, the indemnity costs being part of the penalty which is imposed and imposed, in my view, for sound reasons.”

11.  Those observations by Rogers VP, they submit, echo two observations by Rogers A-JA in McIntyre’s case.  Of these, the first is at pp 434G-435B and reads :

“Nonetheless, as a broad generalization, I must say that, for myself, I have never been able to understand why a litigant who is forced to come to court and successfully vindicates his rights, should be left substantially out of pocket.  It is commonly accepted that the difference between the costs recovered on a party and party taxation and the costs payable by a person to his own solicitor, even if taxed on a solicitor and own client basis, will be approximately one-third of the total costs.  In some cases, that can be a substantial amount indeed.”

And the second is at p.436B and reads :

“As well as enforcing his own right, the party bringing proceedings for contempt is, at the same time, vindicating the order of the court and ensuring that its infringement does not go without scrutiny and, if appropriate, punishment.  There is a public, as well as a private, interest in proceedings for contempt.  The proper administration of justice requires that orders of the court should be obeyed.”

12.  The making of an indemnity costs order is a matter of judicial discretion calling for the evaluation of all the relevant circumstances including the need to bring proceedings to force compliance with the court’s order, the contemnor’s persistence in non-compliance, the conduct of the litigation and the penalty, if any, which the court has imposed.  The exercise of the discretion, whether for or against the making of an indemnity order, may be difficult to challenge on appeal if the court below has properly engaged in the evaluation of the relevant circumstances.  There is jurisdiction to award indemnity costs against a contemnor, and whether or not it is appropriate to do so in any given case depends on an exercise of judicial discretion in all the circumstances of that case

13.  Mr Lam puts forward the following factors as noteworthy ones which, he submits, militate against an order for costs on an indemnity basis and indicate that the appellant should only be ordered to pay costs on a party and party basis, at any rate in relation to the appellate proceedings : –

(1) The contempt of which the appellant was found by this Court to be guilty was not contumelious or contumacious:

(a) In respect of the 1994 order, non-compliance had stemmed from the bona fide conclusion reached with legal advice (albeit now proved erroneous) that the continued preparation of the books and financial records of the firm would be proper performance of the order. There was no intention to flout the order.

(b) In the case of paragraph 1(2)(c) of the 2003 order, non-compliance was caused by an error on the part of the appellant, again acting under legal advice, in appreciating what was required of him in verifying an account. There was absolutely no contumacy towards the court's order. Instead, as Reyes J found, the appellant did what he thought was the utmost that he could do.

(2) The appeal to the Court of Appeal was not brought by the appellant.  He had been acquitted by Reyes J of contempt, and acted properly in opposing that appeal, doing so in a way which cannot be regarded as an affront to the court.

(3) The appeal to this Court was not frivolous and involved arguable points of great general and public importance for which leave was given by the Appeal Committee.

(4) The institution of the appeal was in particular justified by the fact that the Court of Appeal had convicted the appellant on the basis of a mistaken view of the facts, namely, that no file description existed in relation to some 700 files as set out in a forensic schedule. That assumption was incorrect, as was known to the respondent who was then appealing and who was in possession of the appellant’s 19th affirmation exhibiting the corrected schedules filed some three months before the appeal. The finding by this Court of breach of the 1994 order was reached on an entirely different basis from the reasoning of the Court of Appeal.

(5) It would be harsh and disproportionate to require the appellant to pay all the costs on an indemnity basis given the offence did not involve any contumelious breach of the court's orders. An indemnity costs order is punitive and in the present context the penalty inflicted by the costs orders would be out of proportion to the breaches found, especially in comparison with the fine previously assessed at $135,000.

14.  The arguments put forward by Ms Eu and Mr Chan in favour of indemnity costs are as follows : –

(1) The appellant was at all material times a practising solicitor. Other than vindicating the order of the court, the present contempt proceedings serve an additional public interest, that is to facilitate the court’s supervision of its officers. Any acts of contempt committed by a solicitor should be met by the strongest disapproval of the court. Applying Rogers VP’s observations in Lau’s case and Rogers A-JA’s observations in McIntyre’s case, costs on indemnity basis is an obviously appropriate order for the present appeal.

(2) As Deputy High Court Judge Carlson stated in his reasons for sentence, there has been a catalogue of delay and insufficient compliance with these orders.  The appellant had frustrated the court’s expectations and its duty to do justice.  His acts of contempt are serious.  As stated in para.75 of this Court’s judgment handed down on 25 June 2009, the elimination of the appellant’s liability for contempt on two of the counts charged makes only a minor difference to his overall culpability

(3) Even though there is no finding of contumacy, being a solicitor himself, the appellant should not hide behind other solicitors who gave wrong legal advice.  He ought in all the circumstances to have formed an independent view by himself.  Furthermore, the courts have ordered costs on an indemnity basis against a non-contumelious parties, as in the Ebewe Arznemittel case.

(4) The primary concerns of this Court in ordering costs ought to be the seriousness of the appellant’s contempt, the public interest in vindicating court orders and the need to redress the injustice of the respondent having been rendered substantially out of pocket.  It was right for the respondent to appeal against Reyes J’s decision and none of the appeals would have been necessary if the appellant had not been in contempt in the first place.

(5) Whether it be DK-8 relied upon in the Court of Appeal or DK-23 relied upon in this Court, they do not show compliance with the 1994 Order.  Hence the appellant’s intention to discharge the Court of Appeal’s conviction of contempt for the breach of the 1994 Order by adducing DK-23 cannot be the basis for depriving the respondent of any part of its costs.  Both exhibits were prepared by the appellant who was the party to account.  As found by Reyes J, the appellant himself was negligent, and more importantly, this was indicative of his cavalier attitude to compliance with court orders.  An indemnity costs order is appropriate in the circumstances.

(6) The fine previously assessed by Deputy High Court Judge Carlson was imposed after he had taken into account the indemnity costs ordered by the Court of Appeal and by him in respect of the sentencing hearing.  As explained by Rogers VP in Lau’s case, the indemnity costs order and the fine form a global penalty.  Therefore, it is misleading to argue that the costs are disproportionate to the fine.  Whether the High Court varies the amount of fine in the light indemnity costs ordered in the present appeal is within its own discretion.  But this Court should not be affected by the potential amount of the fine when ordering costs.

15.  It should be remembered that, as was said in the judgment which we handed down on 25 June 2009, “[t]he requirement that the account be maintained until trial and not merely constructed after trial was essential to ensure that, in the business of a solicitor’s practice, relevant facts would be recorded before inevitably risking their being lost or overlooked.”  Upon a consideration of the rival arguments, to the importance of compliance with court orders and bearing in mind having regard to the circumstances set out in the judgment which we handed down on 25 June 2009, we are of the view that the costs awarded to the respondent against the appellant should be taxed on an indemnity basis.  In order to avoid the risk of prejudicing the penalty hearing  which has been remitted to the High Court, we refrain from saying anything more about why we award indemnity costs.

Costs thrown away by the May 2008 adjournment

16.  The May 2008 adjournment was necessary for these reasons.  When the appellant sought to rely on fresh evidence contained in affirmations, the respondent wanted to cross-examine the appellant on such fresh evidence if the same were admitted.  And we considered it necessary to remit the matter to Reyes J for him to receive the appellant’s oral evidence and report to us on its veracity.

17.  In submitting that there should be no order as to the costs thrown away by the May 2008 adjournment, Mr Lam has argued along the following lines.  The fresh evidence went primarily to the matter of the 700 files without descriptions in the schedule DK-8.  Such evidence was directed to demonstrating that the respondent had prosecuted its appeal to the Court of Appeal on a false basis and that the appellant had been convicted by that court on that false basis.  Although this Court sustained the conviction on a different ground, the appellant should not have to bear the costs thrown away by an adjournment necessitated by the respondent’s challenge to the veracity of the evidence concerned.  This is because : (i) that evidence was adduced to correct the erroneous factual basis on which the Court of Appeal found contempt proved; (ii) a substantial part of that evidence was in the respondent’s possession prior to the Court of Appeal hearing; and (iii) that the evidence was found by the reporting judge (Reyes J) to be essentially truthful.

18.  Ms Eu and Mr Chan point to para.35 of the judgment which we handed down on 25 June 2009 where it is said that DK-23 “does not show compliance with the first order [and, indeed,] demonstrates the contrary”.  And they submit that the respondent should not be deprived of the costs thrown away by an adjournment necessitated by the appellant’s request to adduce fresh evidence which has not resulted in avoiding a finding of contempt.

19.  As this Court said in Tripole Trading Ltd v. Prosperfield Ventures Ltd (No.2) (2006) 9 HKCFAR 172 at p.173H, courts dealing with costs begin by looking at the realities and asking themselves “who really won?”  And as this Court said in Mariner International Hotels Ltd v. Atlas Ltd (No.2) (2007) 10 HKCFAR 246 at p.251A, a party seeking to displace the rule that costs should follow the event naturally bears the burden of showing that the circumstances justify the exceptional course of such displacement. 

20.  In our view, Ms Eu and Mr Chan’s submission as to the costs thrown away by the May 2008 adjournment is well-founded.  The respondent is the real winner, because it has established that the appellant did not comply with what the court ordered him to do for its protection.  And the circumstances do not justify any course different from the normal one that costs follow the event.  The costs awarded in favour of the respondent should include the costs thrown away by the May 2008 adjournment.

Costs of the reporting proceedings

21.  Mr Lam submits that since the reporting judge found the fresh evidence essentially truthful, the appellant was successful in respect of the event which occasioned the costs of the reporting proceedings.  So, Mr Lam submits, the appellant should be awarded the costs of that discrete event or, at least, that those costs should not be awarded against him.

22.  Ms Eu and Mr Chan submit the costs awarded in favour the respondent should include those of the reporting proceedings.  They so submit for the following reasons.  The appellant’s inability to adduce the information of DK-23 at the trial was, as the reporting judge noted, caused by his own incompetence as a solicitor.  Had the 19th and 21st affirmations and DK-23 been put before the Court of Appeal, the respondent would have been entitled to cross-examine the appellant as to the truthfulness of them, with the costs of the adjournment and the relevant hearings being paid by the appellant.  The fact that the reporting hearings were ordered by this Court instead of the Court of Appeal provides no logical justification for a different treatment of costs, especially when the evidence concerned has not resulted in a finding of contempt.

23.  In our view that submission of Ms Eu and Mr Chan’s, too, is well-founded.  Quite simply, the respondent won and there is no good reason why costs should not follow the event.  The costs awarded in favour of the respondent should include the costs of the reporting proceedings.

Conclusion

24.  For the foregoing reasons, the order nisi is made absolute.  So the order absolute is that the appellant bear the costs of and incidental to this appeal, including the costs thrown away by the May 2008 adjournment with the costs of the reporting proceedings, to be taxed on an indemnity basis.

25.  The costs to be paid by the appellant to the respondent will include the costs of the written submissions on costs.  Such costs should be paid by the appellant because he has failed in his effort to obtain a variation of the order nisi.  And they should be taxed on an indemnity basis because they stand, as far as the appropriate basis of taxation is concerned, on the same footing as the rest of the costs of and incidental to this appeal.  We conclude by thanking counsel on both sides for their assistance.