Smith Freehills (A Firm) v. Chen Te Kuang Mike and Another

HCA 3071/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 3071 OF 2015

_________________________

_________________________

AND

HCMP 1275/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1275 OF 2016

_________________________

_________________________

_______________

D E C I S I O N

_______________

1.This is a combined hearing of the solicitors’ application for summary judgment for unpaid bills (“O14 application”) in HCA 3071/2015, and the Clients’ application for leave to tax all the 9 bills presented by the solicitors (“taxation application”) in HCMP 1275/2016.  It is because at the hearing of the O.14 application, the solicitors agreed that the result of the O.14 application will affect the taxation application in that if this Court granted summary judgment to the solicitors, the taxation application will become otiose. On the other hand, if this Court allows leave for the taxation application, the O.14 application should not proceed as the quantum has to be taxed under section 67 of the Legal Practitioners Ordinance, Cap. 159 (“the Ordinance”).  This Court therefore ordered that the O.14 application should be heard together with the taxation application today.

2.I shall call the plaintiffs in the taxation application as “the clients” and the defendant as “the solicitors”, the same will apply to the action when they refer to the defendants and the plaintiff respectively.

3.It is obvious that the taxation application has to be considered first.

4.The parties are legally represented.[1]

5.The solicitors in the taxation application have set out the four categories under section 67 of the Ordinance, which the clients have no objection.  I shall set out the four categories below:

(a) Category 1 - If the bill has been paid, and the taxation application was taken out after the expiration of 12 months from the date of payment of the bill, no order for taxation shall be made: Section 67(2)(b)(ii);

(b) Category 2 - If 12 months or more have elapsed since the delivery of the bill[2] , the client must show special circumstances to justify his application for taxation and the Court may impose any condition including term as regards the costs of the taxation: Section 67(2)(b)(i):

(i) Conditions which the Court may impose include ordering the client to make interim payment to the solicitor firm, or make payment into Court for such sum as the Court thinks fit.

(c) Category 3 - If the client does not apply for taxation within 1 month after the delivery of the bill, either the solicitor or the client may apply for taxation and the Court may so order and impose any condition as it may think fit except condition as to the costs of the taxation: Section 67(2):

(i) Conditions which the Court may impose include ordering the client to make interim payment to the solicitor firm, or make payment into Court for such sum as the Court thinks fit.

(d) Category 4 - Within one month after the delivery of the solicitor’s bill, the client may apply to have the bill taxed as of right, and no term or condition will be imposed: Section 67(1).[3]

6.The solicitors submit that the nine bills should be categorized as follows:

(a) Bill 1 (HK$673,243) belongs to Category 1. The bill had been paid at the latest by 4 March 2015. More than 12 months had lapsed after the payment date by the time when the taxation application was taken out on 20 May 2016.

(b) Bills 2-7 belong to Category 2. The bills had been delivered to the clients for over 12 months when the taxation application was taken out. The clients must show special circumstances to justify the application for taxation and the Court may impose any terms before allowing the application.

(c) Bills 8-9 belong to Category 3. The bills had been delivered to the clients for around 11 months and 10 months respectively when the taxation application was taken out. The Court may order taxation and impose any terms as it may think fit except terms as to the costs of the taxation.

7.The clients argue that the first 8 bills are interim bills, with the last bill dated 21 July 2015 as the final bill.  With this final bill, a schedule of outstanding amounts is set out in the covering letter.[4]  They therefore argue that all the nine bills should be looked upon as one bill, the final one being the bill dated 21 July 2015.  If this is the case, the clients still have time to raise objection to the bills and ask the court to tax them under Category 4 and they are entitled to taxation of the bills without any condition.

8.The first question for this Court is whether the solicitors are right for the classification of the bills or the clients’ view are correct, treating the first eight bills as the interim bills and add them to the bill dated 21 July 2015 as the final bill.

9.There is no dispute that whether the bills are final bills on their own is a matter of fact to be found by the court.  The clients have submitted the authorities on how the court should determine the fact.  There is no dispute over these authorities:

(a) In Re Romer & Haslam [1893] 2 Q.B. 286: “... ...two points may be, and generally are, raised – one of law and one of fact. If the solicitor insists that one of these accounts was a final bill of costs, the question of law arises whether at the time when he assumes so to deliver it it could be delivered as a final bill. If a solicitor undertakes to carry through a legal transaction, the law is that he cannot send in a final bill of costs until that transaction is completed... But in equity the nature of many of the suits is such that they can be divided into stages, and the Court may treat the legal transaction as finished although the suit has not been carried to its final conclusion...”

(b) Ding Xiaohong v King & Wood [2012] HKEC 1779, adopting the legal principles in Chin Yuk Lun Francis & Another v Messrs. Lo & Lo (a firm) (unrep. HCMP 1142/2005, DHCJ To (as he then was) 7 July 2006 §12 “[Whether the bill has been delivered as a final bill] is a question of fact. There are two elements here. The solicitor has to deliver the bill intending it to be a final bill and it is also intended and understood by the client to be a final bill. This question has to be answered by looking at the intention of the solicitor and the client, their conduct, the reaction of the client upon receipt of the bill and the form the bill took.”

10.The clients therefore submits the following characteristics should determine whether the bills are the final bills:

(a) The bill is presented at the end of a matter or a stage of a matter, or when the matter reached a natural break;

(b) The bill is intended to be final and not subject to further changes;

(C)(c) The solicitor intended and the client intended and understood the bill to be final;

(d) It is a question of fact whether a bill is final.

11.I have reservation over the clients’ summary.  10.d is not a characteristic, but a conclusion instead.

12.It is quite clear that whether the bill is a final bill or an interim bill, as according to the above authorities, depends upon the intention of the solicitors as understood by the clients.  In ascertaining the parties’ intention and knowledge of such intention, the first aid should be the terms of the contract which should have the express intention of the parties.  To do otherwise would be tantamount to speculation without the fundamental facts in support.  Such speculation will not be reliable as it is subject to different interpretations.

13.Although the clients complained about the adding of contents in the retainer letter, it seems that they do not dispute the issue of the interim bills monthly and they are payable within 30 days after delivery and that if they are not paid, the solicitors can charge interest on them.  All of these are important terms for the parties.  If the clients did not accept these fundamental terms, it is difficult to understand the continuation of their relationship as solicitors and clients for the relevant period of time.  From Mr. Chen’s second affirmation dated 2 June 2016, it is clear that he is a acute businessman.  He would not have signed the retainer letter if he did not agree to those fundamental terms.  Even if he had signed it because of special circumstances as he said, I do not believe he would agree to continue the relationship with those unaccepted terms.  Therefore, the only reasonable inference to be drawn under the circumstances is that he had agreed to those fundamental terms himself.

14.With those agreed terms, it is apparent that the solicitors are entitled to issue monthly bills to the clients.  They expect those monthly bills to be paid within 30 days of delivery of the bills.  If the bills were not paid, the solicitors might suspend the work and they may charge interest on the unpaid amount.  The solicitors are also entitled to have custody of the files until the bills are settled by the clients.  They are also entitled to settle the bills with the money on account.[5]

15.The clients have raised no objections to those terms as according to Mr. Chen’s second affirmation.  He has therefore accepted those terms himself.

16.Under those circumstances, what other intention can the clients construe from the delivery of the bills by the solicitors?  The bills are simply payable within 30 days of their delivery.  If this is the clients’ understanding, they must treat each of the monthly bills as the final bills in their own right.

17.Of course, the clients are entitled to complain about the fees.  But they cannot say that the bills are only interim bills.

18.On those reasons above, this Court finds in favour of the solicitors’ views on the fact that each of the bills delivered is final bill.

19.The clients submit that the solicitors have no power to issue monthly final bills or to treat the monthly interim bills as the final bills.  They refer to Re Romer & Haslam.  This case does not assist them because they had agreed to give such power to their solicitors under the letter of retainer, a contract which is binding upon them under the law.

20.I shall now consider the nine bills.

21.The first bill was issued in November 2014, which the solicitors said that it had been paid. But the clients said that they did not agree to the sum though there had been costs on account of $250,000 and further payments.  Having considered the contents of the correspondence between page 548 and 558 of the exhibit bundle 3, it has become clear that the clients had challenged this bill.  However, I was referred to the evidence where after the clients had raised objections to the first bill, the solicitors had given a very detailed explanation to the clients by a letter of 29 January 2015.  On the same day, the clients had written to the solicitors saying that that he was “actually quite happy where we are.”.  I have explored with counsel for the clients. She has not raised any evidence to show that the clients remain unhappy with the first bill, with reasonable reference to any part of the first bill.  The obligation of the solicitors to advise clients on taxation simply does not arise.  The solicitors had in the subsequent correspondence with the clients informed the clients that money paid by the clients had been transferred to settle the first bill.  It is not disputed that time for the clients to raise objection to the first bill which has been paid has exceeded 12 months.  Therefore, this Court has no power to allow the clients to tax the first bill and so I decide.

22.The clients’ application to tax the first bill is refused.

23.As to the 2^nd to the 7^th bills, the situation is different.  The clients had raised objection to them, in particular, the costs for service out of the jurisdiction.  Such disagreement resulted in the solicitors advising the clients to tax the bills in the email dated 19 June 2015 in Bundle B, page 804.

24.Chapter 4.12 of the Code of Conduct mandates: “if a dispute arises on a bill or a query is raised about a bill the client must be told, preferably in writing, of his right to apply to have the bill taxed.”[6]

25.The Court has to consider whether failure of the solicitors to inform clients to tax the bills amount to special circumstances.  There is no dispute over the solicitors’ responsibility under Chapter 4.12 of the Code of Conduct.  If the solicitors have not complied with such code of conduct, I consider that this will amount to special circumstances for the clients’ application.  However, the fact that if the clients have the special circumstances, the Court has to consider whether under those circumstances leave should be granted because the solicitors now say that the application is not a bona fide application.  This will have to be considered together with the 8^th and the 9^th bills.

26.The solicitors agree that these two bills are under Category 3, which the Court has the discretion.  But they ask this Court not to exercise the discretion to give leave to the clients to tax the bills on the ground that the present application was not taken out bona fide, but only for the purpose of delaying payment of the legal costs as they have always been doing to other bills in many other cases.  They refer to other actions not relevant to this case.  This is not permissible as held in Sun Legend Investments Ltd. v Ho Yuk Wah David and Others (2011) 14 HKCFAR 541 at §58 by Litton NPJ:

“ 57. ......A civil case is a trial of the issues as put before the court. It is not a trial of the character of the parties. This is a matter beyond the scope of analysis in a court of law.

58. ......Generally speaking evidence of facts and circumstances to show the disposition of a party is inadmissible: see Sankey LJ in Hobbs v. Tinling [1929] 2 KB1 at 50. Far less is it permissible to have the labels “devious character” “coward” etc. created in unrelated proceedings attached to the parties before the court.”

27.I will therefore ignore all those comments.

28.It is admitted fact that the clients only took out the application for taxation after the solicitors had taken out the O.14 application in their action against the clients.

29.The solicitors refer me to the authority which provides the guidelines for this Court to exercise the discretion.  In that case, the court took into consideration that the solicitors had provided a detailed bill, which the client did not raise specific objection to any of the items.  The court concluded to be a delaying payment tactic.  This case has a different scenario.  The clients had specifically challenged the items on costs for application for service outside the jurisdiction to be excessive.

30.In the solicitors’ application for O.14 judgment, the solicitors ask this Court to assess the quantum as for general civil litigation.  However, when the Court assesses the bill of costs, it has to refer to the legal principles for taxation.  In fact, we have a situation where this is a solicitor and own client bill, which Order 62 provides the special standard of proof for taxation, which should be applied here.  This standard is obviously to the solicitors’ benefit.

31.I also accept counsel for the clients who submits that the clients might have taken all the bills into consideration when they applied for taxation of the bill.

32.I do not have evidence of the clients not making the application bona fide. Under such circumstances, I consider that leave should be given to the clients to tax the 8 bills.

33.The solicitors urge this Court to impose stringent conditions on the clients if leave is granted to them for taxation of the bills in terms as follows:

(a) Within 14 days from the date of the Order granting leave, the clients do pay the full amount of the bills to be taxed into Court, or alternatively such sum as the Court thinks fit as interim payment to the solicitors, together with interest thereon at the rate of 8% per annum charged daily from the date of each of the bills to the date of the payment;

(b) Unless the clients comply with the conditions set out above, they are debarred from taxing any of the bills;

(c) Within 7 days from the clients’ compliance with the conditions set out above, the solicitors do file and serve on the clients a Notice of Commencement of Taxation, and if so, the bills do stand as itemized bills of costs for taxation;

(d) The clients do within 21 days thereafter file and serve on the solicitors a List of Objections.

34.It should be for the solicitors to explain to this Court why those conditions for payments should be imposed, particularly when an “unless order” is suggested.  That the solicitors say that the clients are trying to delay payment of the legal costs is not sufficient for such stringent conditions.  There is no evidence to show that the clients will not be able to pay if the court taxes the bills

35.I consider that the most effective solution for the solicitors’ claim for legal costs will be a quick taxation of the bills.  So I order.

36.I shall adopt the solicitors’ proposal on the procedure for taxation.

37.I shall hear the parties on the conduct of the O.14 application as I have only dismissed taxation for the first bill.  But as stated in paragraph 1, O.14 application should not proceed.  As the first bill is not one of the bills under the Action, the Action should not proceed as the other eight bills are to be taxed.

38.As to the costs of the Originating Summons and the costs of the O.14 application, the solicitors submit that they should have 50% of the costs for both the O.14 application and for the Originating Summons for taxation.  The clients disagree and say that they should have 8/9 of the costs of the Originating Summons and the whole costs of the O.14 application.  It is not in dispute that the application for taxation was taken out after the solicitors had taken out the O.14 application.  It is also not in dispute that the clients’ solicitors had suggested to stay the action and the O.14 application pending taxation of the 8 bills, which suggestion the solicitors rejected.  The result of today’s hearing show that the action should be stayed for the 8 bills to be taxed first. In the last hearing, the solicitors agreed that the result of the O.14 will affect the application for taxation.  I therefore find that the solicitors should not have proceeded with the hearing of the O.14 application when there is suggestion to stay the action pending taxation.  As such, I award costs to the clients for the O.14 hearing for the last occasion.  As to the Originating Summons for taxation, although the clients have failed on the 1^st bill, the time for discussion of the facts of the 1^st bill has taken up much part of the proceedings today.  The costs for the Originating Summons should follow the event, taking the 1^st bill into consideration, I order the solicitors to pay 60% of costs for the Originating Summons to the clients.

39.The costs are now to be assessed summarily under O.62, r.9A at $128,000 to be paid by the solicitors to the clients to be set off against the costs owed to the solicitors after taxation.

Ms. Sabrina Ho, instructed by Herbert Smith Freehills, for the Plaintiff in HCA 3071/2015 and for the Defendant in HCMP 1275/2016

Ms. Ifan Chan, instructed by Hart Giles, for the Plaintiffs in HCMP 1275/2016 and for the Defendants in HCA 3071/2015