Hui (Annie) Guo v. Yuedong Xu and Others

HCCL 3/2019

[2022] HKCFI 2423

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 3 OF 2019

(TRANSFERRED FROM HIGH COURT ACTION NO 2404 OF 2018)

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BETWEEN

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Before:  Deputy High Court Judge Jonathan Chang SC in Chambers (by Paper Disposal)

Date of Written Submissions by the Plaintiff:  5 May 2022

Date of Written Submissions by the 1^st Defendant:  5 May 2022

Date of Decision:  9 August 2022

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DECISION

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1.This is the 1^st defendant’s application against the plaintiff for further security for costs up to and including trial. There is no dispute on liability. What divides the parties is the quantum of security. The parties have agreed that this application shall be dealt with on paper.

2.On 19 July 2021, the plaintiff was ordered to pay security for the 1^st defendant’s costs up to and including discovery in the sum of HK$1,600,000, which it had duly paid into court on 3 August 2021.  The 1^st defendant now seeks a further sum of HK$6,500,000 up to and including trial.  The plaintiff contends that a sum of HK$3,000,000 is sufficient.

3.The 1^st defendant’s application for further security is supported by a revised bill of costs dated 21 March 2022.  That bill was revised from a previous bill of costs dated 13 January 2022.  Both bills were prepared by law costs draftsman.  The original bill sought a total sum of HK$10,082,979.20 comprising HK$3,948,466.70 as profit costs and HK$6,134,512.50 as disbursements, a significant part of which caters for counsel fees (for both senior and junior counsel). 

4.According to the 1^st defendant’s handling solicitor Mr Janice Chew, the original bill was revised because it was prepared on the basis of the daily refresher of senior counsel being at HK$300,000 and junior counsel at HK$100,000, which she says were “at variance with the prevailing industry rates” and were therefore reduced to HK$120,000 and HK$50,000 respectively. She also took out some items which did not require input from counsel.  Most tellingly, she had “adjusted” the number of hours charged by her associate Mr Raymond Liu who had been working under her supervision to “reflect the allocation of work between the two fee earners in the proceedings”.  Mr Liu was named as one of the two fee earners in the original bill.  There is no suggestion that his hours were inadvertently left out from the original bill. How it was claimed only in the revised bill that he had incurred substantial hours which were not reflected in the original bill is highly questionable, and is a matter that I shall come back to in the latter part of this decision.

5.The revised bill sought a total sum of HK$10,569,312.50 comprising HK$6,073,000 as profit costs and HK$4,496,312.50 as disbursements.  The reduction in disbursements was largely the result of the reduction of counsel fees as explained above.  What troubles me is the increase in the profit costs claimed by over HK$2 million when the two bills are only two months apart.  A comparison of the two bills showed that for a number of items bearing the same description, Ms Chew’s hours have been increased and, significantly, hours for Mr Liu have been added.  For other items which have reduced Ms Chew’s hours, the inclusion of Mr Liu’s hours could not be explained by Ms Chew dividing up part of her work with Mr Liu to achieve better costs efficiency, when the aggregate sum under the item was in fact increased.

6.By way of illustration:

Attendance on client

(1)  Discovery

(a)  original bill: Ms Chew (6 hours);

(b)  revised bill: Ms Chew (20 hours), Mr Liu (60 hours);

(2)  Witness statements[1]

(a)  original bill: Ms Chew (30 hours);

(b)  revised bill: Ms Chew (20 hours), Mr Liu (60 hours);

(3)  Application for further security for costs

(a)  original bill: Ms Chew (15 hours);

(b)  revised bill: Ms Chew (15 hours), Mr Liu (40 hours);

(4)  Supplemental witness statements[2]

(a)  original bill: Ms Chew (20 hours);

(b)  revised bill: Ms Chew (15 hours), Mr Liu (40 hours);

Attendance on other party

(5)  Discovery

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (20 hours);

(6)  Plaintiff’s witness statements[3]

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (20 hours);

(7)  Plaintiff’s supplemental witness statements

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (20 hours);

(8)  Application for further security for costs

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (5 hours), Mr Liu (15 hours);

Attendance on senior counsel

(9)  Instructions to counsel to advise on merits and evidence

(a)  original bill: Ms Chew (15 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (35 hours);

(10)  Instructions to counsel to advise on and attend PTR

(a)  original bill: Ms Chew (10 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (25 hours);

Attendance on junior counsel

(11)  Instructions to counsel to advise on client’s supplemental witness statements

(a)  original bill: Ms Chew (8 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (30 hours);

(12)  Instructions to counsel to advise on merits and evidence

(a)  original bill: Ms Chew (10 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (30 hours);

(13)  Instructions to counsel to advise on and attend PTR

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (5 hours), Mr Liu (20 hours);

Preparing and considering court documents

(14)  Considering plaintiff’s witness statements[4]

(a)  original bill: Ms Chew (40 hours);

(b)  revised bill: Ms Chew (50 hours), Mr Liu (80 hours);

(15)  Considering plaintiff’s supplemental witness statements[5]

(a)  original bill: Ms Chew (20 hours);

(b)  revised bill: Ms Chew (20 hours), Mr Liu (60 hours);

Preparing for and attending court hearings

(16)  Security for costs

(a)  original bill: Ms Chew (15 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (30 hours);

(17)  Directions hearings and PTR

(a)  original bill: Ms Chew (30 hours);

(b)  revised bill: Ms Chew (25 hours), Mr Liu (40 hours).

7.It is therefore no surprise that despite the significant reduction in disbursements, the total amount sought in the revised bill was still in the HK$10 million region and in fact exceeded that in the original bill.

8.One would expect all of Mr Liu’s involvement (whether past or projected)  to be reflected in the original bill which described him as one of the two fee earners. In such circumstances, the addition of Mr Liu’s hours in the revised bill could not have been an adjustment to “reflect the allocation of work between the two fee earners” as Ms Chew tried to explain in her affirmation.  What is clear is that the revised bill is a grossly inflated one which the court cannot safely rely upon in deciding quantum.  Indeed, the fact that the 1^st defendant is not claiming the full HK$10 million sought in the revised bill but the much lesser amount of HK$6.5 million is telling.  Such an extreme variance does not reflect the reasonableness in the quantum sought by the 1^st defendant, but rather highlights the grossly inflated nature of the revised bill.

9.Applicants for security for costs must be realistic in their costs estimates.  It is not the role of the court to undertake a mini-taxation and vet through each item in the bill of costs.  The court has to rely heavily on the applicants and those advising them for an accurate estimate.  There is no room for any practice of inflating a bill and then settling for less in anticipation of a broad-brush discount by the court.

10.In addition, given the 1^st defendant is seeking further top-up security against the plaintiff, it is incumbent on the 1^st defendant to explain how much of the previous security ordered against the plaintiff has been used up.  No such information has been provided by the 1^st defendant.  The revised bill made no apparent let alone clear distinction between costs already incurred, and projected future costs.

11.In such circumstances, the revised bill put forward by the 1^st defendant falls far short of providing any meaningful assistance to the court on the question of quantum of security. The court is left with no option but to apply common sense based on its experience in coming to an educated estimate of a reasonable sum.

12.Engagement of both senior and junior counsel by the parties is reasonable.  This action is of some complexity as reflected in: (i)  the trial estimated length of 10 days; (ii)  the plaintiff previously being ordered to provide security up to and including discovery in the sum of HK$1,600,000 for the 1^st defendant’s costs, and separately for the 4^th and 5^th defendants’ costs in the same amount; and (iii)  the plaintiff being ordered to pay HK$5,500,000 as further security for the 4^th and 5^th defendants’ costs up to and including trial.  Although the 1^st defendant has not identified the senior and junior counsel intended to be instructed (or whether any has been instructed by now), my estimate would be made on the basis that both senior and junior counsel would be involved.

13.On a broad-brush basis, I order the plaintiff to provide further security for the 1^st defendant’s costs up to and including trial in the sum of HK$4,600,000.  This is based on: (i)  HK$3,800,000 covering the costs for the preparation for and attendance at the PTR and trial by senior counsel,[6] junior counsel[7] and the 1^st defendants’ solicitors[8]; and (ii)  a lump sum of HK$800,000 covering costs incurred and projected to be incurred after discovery leading up to trial including preparation of witness statements (and supplemental witness statements, if any), obtaining counsel advice, any further interlocutory applications, and for the general care and conduct of the case.

14.The 1^st defendant seeks an order that in default of provision of further security, the plaintiff’s claim against the 1^st defendant be dismissed forthwith with costs without further order.  It is customary for such a self-executory order to be made. See for example Sunchase International Group (China)  Ltd v Vincor Group of Companies (Investment)  Ltd & Ors (FAMV 21/2004, 22 February 2005)  at [6].  Such an order was also included as part of the order directing the plaintiff to provide further security for the 4^th and 5^th defendants’ costs up to and including trial.  This is to save the time and trouble for the 1^st defendant to be put to wait for a sufficiently long period of time after the plaintiff has defaulted in providing security to apply to strike out the claim for want of prosecution, which is not an easy threshold to cross following the decision of the Court of Final Appeal in Wing Fai Construction Co Ltd v Yip Kwong Robert (2011)  14 HKCFAR 935.  There is no good reason to depart from the conventional practice and the previous order made by the court in this action.

15.I make the following orders:

(1)  The plaintiff do provide further security for the 1^st defendant’s costs in this action up to and including trial in the sum of HK$4,600,000 by payment into court within 28 days from the date of this Order, and in the meantime all further proceedings be stayed save for the performance of this Order; and

(2)  If the plaintiff fails to provide security in accordance with paragraph (1)  above, the plaintiff’s claim herein against the 1^st defendant be forthwith dismissed with costs to the 1^st defendant to be taxed if not agreed without further Order.

16.Given the sum ordered against the plaintiff is lower than the amount sought by the 1^st defendant but higher than the amount offered by the plaintiff, I make a costs order nisi that the costs of this application (including all costs reserved, if any)  be in the cause, and such order shall be made absolute in the absence of any application for variation by way of inter partes summons within 14 days from the date of this Order.

Written submissions by Mr Leon Ho instructed by K&L Gates, for the Plaintiff

Written submissions by JC Legal, for the 1^st Defendant