Ho Yuen Yu Ivy v. Zhang Lihua

HCA 1789/2024

[2025] HKCFI 2461

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1789 OF 2024

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.The Plaintiff is a victim of internet fraud who transferred monies into various bank accounts held by different Defendants in this action maintained with different banks. D32 is a second-tier recipient of the money who maintained a bank account with the Bank of East Asia, Limited (“BEA”). The Plaintiff applied for and obtained an injunction against D32, and a disclosure order against BEA for information in connection with D32’s Account (“the Disclosure Order”). The Court ordered that costs and expenses incurred by BEA in that application for the Disclosure Order and in compliance with that Order be borne by the Plaintiff on a full indemnity basis, to be summarily assessed if not agreed (“the Costs Order”). BEA complied with the Disclosure Order and seeks legal costs of HK$65,220.00 and bank charges of HK$1,520. The Plaintiff challenges the quantum as excessive and counter offers HK$13,600.

2.Due to the peculiar circumstances under which BEA’s solicitor (“DeHeng”) presented its costs statements before issuing a bill to BEA, I directed that this oral hearing be held for DeHeng to show cause as to whether the indemnity principle (defined in Section D below) has been breached. Despite being given notice, BEA has not attended or made written representation.

B. BACKGROUND

B1. Background known to the Court before this hearing

3.As pleaded, the Plaintiff was a victim of fraud who transferred over HK$13 million to D1-D9 between 4 June and 16 August 2024. The monies were channelled further to bank accounts maintained by D10-D29. In particular, on 5 June 2024, a sum of HK$121,100 was transferred from D2’s Account to D32’s Account. On 4 September 2024, the Plaintiff commenced the present action.

4.On 25 November 2024, DHCJ Phoebe Man made the Disclosure Order and Costs Order with regard to D32.

5.In respect of the application for a Disclosure Order, DeHeng, solicitors for BEA, sought costs in the sum of $43,800 (“Application Costs”).

6.By a letter dated 30 December 2024, the Disclosure Order was complied with. The documents disclosed by BEA consisted of 22 pages including transaction summary and account opening documents of D32’s Account, as well as 6 sets of monthly statements.

7.In relation to complying with the Disclosure Order, BEA claimed for the following costs:

(1) Bank Charges of HK$1,520 (ie 22 pages x HK$50 per page + 6 sets x HK$70 per set of monthly statement); and

(2) Further legal costs for complying with the Disclosure Order (“Compliance Costs”) in the sum of HK$21,420.

8.Yan Lawyers (solicitors for the Plaintiff) and DeHeng failed to reach agreement over the amount of costs payable to BEA. By a letter dated 6 January 2025, DeHeng thus applied to DHCJ Phoebe Man for summary assessment of BEA’s costs. They submitted a statement of costs dated 20 November 2024 for HK$43,800 (“1^st Costs Statement”), and another dated 6 January 2025 for the sum of HK$22,940 (i.e. HK$1,520 + HK$21,420) (“2^nd Costs Statement”). The total came up to HK$65,220 + HK$1,520.

9.Both Costs Statements contained the certificate that the amounts claimed did not exceed the client’s liability for costs to the firm (“the Indemnity Certificate”).

10.On 20 January 2025, Yan Lawyers lodged and served the Plaintiff’s list of objections. They suggested that the Application Costs should be allowed at HK$8,890 and the Compliance Costs at HK$4,710, making a total of HK$13,600.

11.The matter was passed to this Court as DHCJ Phoebe Man has ceased sitting as a deputy judge. On 13 February 2025, this Court directed DeHeng, amongst others, to lodge (a) a copy of their retainer letter/agreement on fees given to BEA that set out e.g. the hourly rates and/or any agreed terms in respect of this case, and; (b) a copy of their bill of costs to BEA, for the purpose of proving that the “indemnity principle” has not been breached.

12.By a letter dated 20 February 2025, DeHeng responded that:

(1) Due to their firm’s long-standing relationship with BEA, they would not separately enter into a retainer with BEA for each of these similar cases.

(2) DeHeng only informed BEA by email on the day before the letter that in accordance with DeHeng’s long-established arrangement with BEA, DeHeng’s “works done in discovery cases …are charged on actual time spent basis by reference to” the fee-earners’ current hourly charge-rates set out in that email.

(3) As at the date of receiving this Court’s directions on 13 February 2025, DeHeng had not issued any bill of costs to BEA yet because the matter had not been concluded “pending Yan Lawyers’ payment of BEA’s costs of the disclosure application and compliance with the order”. It was upon receiving the Court’s letter that DeHeng issued a bill dated 19 February 2025 and numbered 250246 for their work during the period from 1 November 2024 to 31 January 2025 for the sum of HK$65,220 (“the Bill”).

(4) The Bill provided that the invoice would be due on presentation, and that 1% per month (12% per annum) would be charged from the invoice date on accounts more than 7 days overdue.

13.DeHeng’s response triggered more queries from Yan Lawyers as stated in a letter dated 26 February 2025:

(1) DeHeng did not provide any general retainer letter or agreement with BEA as to how legal costs were to be charged in respect of this matter.

(2) The Bill was not issued until 19 February 2025, which likely meant that DeHeng’s claimed costs under the 1^st and 2^nd Costs Statements were not brought to BEA’s attention at the time, much less approved or agreed by BEA, or settled. There was also no breakdown of work done at all in the Bill, thus BEA could not assess the reasonableness of the amount claimed by DeHeng at all. Yan Lawyers queried whether the indemnity principle was breached.

(3) BEA’s costs were excessive. In a similar discovery application against Bank of China (Hong Kong) Limited (“BOC HK”), who was represented by another law firm, involving 8 Defendants and 12 bank accounts in this action. BOC HK only claimed HK$11,300 for its application costs (which parties finally agreed at HK$10,000) and HK$15,954 for its compliance costs, subject to parties’ further negotiation.

14.On 6 March 2025, for considering whether the indemnity principle was breached, this Court directed DeHeng to provide (a) evidence that BEA has agreed with their solicitors on the amount of costs to be charged, and; (b) documentary evidence that BEA has settled the Bill.

15.By a letter dated 12 March 2025, DeHeng submitted a copy of BEA’s email to their firm dated 10 March 2025, which stated that BEA agreed with what DeHeng charged as per the Bill.

16.On 24 March 2025, this Court made, amongst others, the following observations and directions:

(1) Given: (a) the absence of a separate retainer in respect of the Disclosure Application; (b) that the Bill was only issued on 19 February 2025; (c) the only evidence indicating BEA’s agreement with the amount of costs in the Bill was the ex post facto email from BEA dated 10 March 2025; and (d) there being no documentary evidence of BEA paying the Bill, the Bill apparently did not reflect costs agreed in advance with BEA. Instead, DeHeng appeared to only have issued the Bill on a quantum meruit basis and was simply seeking to recover maximum costs from the Plaintiff. As such, it brought into doubt whether the Indemnity Principle was breached.

(2) There be an oral hearing for DeHeng to show cause as to whether the indemnity principle has been breached and whether costs should be assessed on a quantum meruit basis.

17.By a letter dated 1 April 2025, DeHeng informed this Court that BEA has settled the Bill in full on 26 March 2025, supported by documents. By BEA’s email dated 10 March 2025 and the settlement of the Bill, it was proved that BEA’s liability for costs to DeHeng was HK$65,220. There was no breach of the indemnity principle. It was a general practice for DeHeng that in straightforward matters, they would normally issue bills of costs to clients after the matter had fully concluded. This was why the Bill was not issued earlier.

B2. Background known to this Court after this hearing

18.DeHeng disclosed during this hearing that they had circulated the draft Costs Statements to BEA before issuing them to the Plaintiff. Subsequent to the hearing but on the same date, DeHeng produced to this Court two emails from DeHeng to BEA respectively on 14 November and 24 December 2024 (“Two Emails”). Those Emails each enclosed, amongst others, a draft 1^st Costs Statement and 2^nd Costs Statement (without BEA’s bank charges) for BEA’s review. DeHeng asked BEA to let them know of any administrative charge which the Plaintiff was to pay for. The Two Emails gave deadlines for BEA to reply by 15 November and 30 December 2024, respectively, after which DeHeng would proceed to issue the Costs Statements to Yan Lawyers.

C. ISSUES

19.There are two issues at this hearing:

(1) Did the 2 Costs Statements breach the indemnity principle? (“Indemnity Principle Issue”)

(2) Are the costs set out in the 2 Costs Statements recoverable on indemnity basis under the Costs Order? (“Quantum Issue”)

D. LEGAL PRINICPLES

D1. Indemnity Principle

20.An overriding principle in taxation inter partes is the indemnity principle. Under this principle:

(1) The costs recoverable by the receiving party is limited to those which he is liable to pay his own solicitor on the date of the costs order, subject to the limitation that they were reasonably incurred and were reasonable in amount: Incorporated Owners of Yan’s Tower v Ho Kwai Yee [2010] 1 HKLRD 930, §§13-14, Hon Cheung JA.

(2) Thus, “… costs are not imposed as a punishment to the party who pays them nor given as a bonus to the party receiving them”: Ling Yuk Sing v Secretary for the Civil Service & Another [2010] 3 HKLRD 722, §9, Hon Cheung JA.

(3) In a case where the paying party’s liability to pay the receiving party originates from a costs order, then the receiving party may only recover costs pursuant to the method of calculating fees agreed between the receiving party and its solicitor as of the date of the costs order. Thus, even if the receiving party and its solicitor agreed to change the method of calculating fees after the costs order, the paying party is not obliged to pay the receiving party’s costs on the basis of the new charging method: Incorporated Owners of Yan’s Tower (supra), §§13-14.

D2. Costs on indemnity basis

21.Taxation on an indemnity basis gives the receiving party complete indemnity of costs, short only of anything that is unreasonable; it does not give the receiving party every penny asked for, however absurd, extravagant or unreasonable. Waddington Ltd v Chan Chun Hoo Thomas [2019] HKCA 604, §§84, 87-88, Hon Lam VP.

22.An order for costs on an indemnity basis in favour of a party does not mean a blank cheque so that he/she can recover all the costs claimed in the bills without proper scrutiny: Hong Kong Civil Procedure 2025, Vol. 1, §62/28/2.

23.The exception against recovery of unreasonable costs should equally apply to a costs order granted on a “full indemnity basis”, as the contrary would clearly be against public policy. As stated in GE Capital (Hong Kong) Ltd v Lo Wai Man & Another (HCMP 1249/2009, 23 February 2016), at §§21-24, DHCJ Paul Lam SC, an agreement for the borrower to pay or reimburse the lender all legal costs on a “full indemnity basis” did not include reimbursing the lender for unreasonable legal costs.

D3. Summary Assessment of Costs

24.The legal principles on summary assessment have been set out in Suzanne Ruth Henderson v Scott Henderson [2019] HKCFI 299, §§4-6, Au-Yeung J.

(1) The Court will take a global approach to see if the total sum claimed is or appears disproportionate. If the costs as a whole are not disproportionate, then all that is required is that each item of cost should be reasonably incurred. Where the costs as a whole appear disproportionate, the Court will need to be satisfied that each item was necessary.

(2) Although summary assessment is not mini-taxation, the usual solicitors’ hourly rates would apply as for a taxation. The court considers the same factors as a taxing master would when deciding whether to allow or disallow a set of costs.

25.The Indemnity Principle applies equally to summary assessment. Accordingly, the solicitor for the party seeking costs shall provide an indemnity certificate: Practice Direction 14.3, §10.

D4. Implied retainer

26.If there is a retainer but no fee has been agreed, a term is to be implied by operation of law that the client is to pay reasonable remuneration: C.L. Chow & Mackson Chan, Solicitors (a firm) v Chan Pui Fat & Ors [2021] 5 HKLRD 179, §49.

27.If no fee has been agreed or estimate given, a solicitor should tell his client how the fee will be calculated, for example, whether on the basis of an hourly rate plus any mark-up, a percentage of the value of the transaction or a combination of both, or any other proposed basis. The solicitor should tell his client what other reasonably foreseeable payments he may have to make either to his solicitor or to a third party and the stages at which they are likely to be required. See Section 4.03 of the Law Society’s Guide to Professional Conduct, Volume 1.

E. INDEMNITY PRINCIPLE ISSUE

28.It cannot be disputed that there was a solicitor-client relationship between BEA and DeHeng. BEA passed on the draft disclosure order to DeHeng for handling urgently. I do not see any error in principle for DeHeng to provide legal service to BEA based on a set of current hourly rates as understood by the parties. It did not fall foul of the Law Society’s Guide set out in paragraph 27 above. However, the same cannot be said of DeHeng’s Indemnity Certificates. As observed in the Court’s letter dated 24 March 2025, when BEA was not yet billed or there was no sign of BEA’s consent to the figures in the Costs Statements, there was no bases for DeHeng to give the Indemnity Certificates.

29.It was regrettable that despite the long series of correspondence between the parties themselves and the Court, copies of the Two Emails were only mentioned at this hearing and produced afterwards. The authenticity of those Emails can hardly be challenged. They were weighty evidence in showing that BEA was informed by DeHeng of the legal costs they intended to charge BEA. BEA had tacitly agreed to those costs as they had not raised objection before the deadline set by DeHeng. BEA was billed for and had paid DeHeng the exact amount of costs which the latter claimed from the Plaintiff.

30.By reason of paragraph 29, I find that the Indemnity Principle was not breached.

F. QUANTUM ISSUE

31.There are a few matters of principle peculiar to costs of banks in similar situations:

(1) The duty of care required of a bank in handling a disclosure order (whether pursuant to Norwich Pharmacal principles or s.21 of the Evidence Ordinance) is the same, regardless of the amount of money that the victim of the fraud had deposited into a defendant’s account with that bank. The bank’s duty may, however, be more onerous when, for example, there was more than one deposit from the same victim to a defendant or to different accounts of that defendant or other defendants.

(2) The victim’s money would usually have stayed in the defendant’s bank account for only a short period before an injunction takes effect to freeze the account. Accordingly, the scope of discovery required of the bank would be limited.

(3) There is nothing sinister in the bank’s solicitors issuing a bill to the bank only after compliance with a disclosure order as an order similar to the Costs Order obviously anticipates application costs and compliance costs. It is just that the bank’s agreement to the quantum of costs must precede the indemnity certificate to the paying party.

(4) Fraud cases involving bank transfers are on the increase in recent years. Victims often have to apply for disclosure orders against banks to identify the wrongdoers and to trace their assets. They have to race against time. It would be most unfortunate for those victims to have to expend significant good money in an attempt to chase after bad money. In Hwang Joon Sang v Golden Electronics Inc (No 2) [2021] 2 HKLRD 87, §§26-27, Coleman J had this to say:

“26. Relevantly for today’s purposes, I also expressed the view – which I maintain – that I do not think it is part of the profit making of a bank to charge for compliance with orders for disclosure on a basis greater than the actual reasonable costs of compliance. Indeed, the whole point of ordering the costs of providing disclosure to be paid on an indemnity basis, against the applicant’s undertaking to do so, is to ensure full (but no more than full) compensation for the costs of complying with the order.

27. If banks were to engage in a practice of levying extravagant photocopying or administrative charges, rather than seeking genuinely to provide for full (but not more than full) compensation for the costs of complying with the order, victims of fraud may face a significant dilemma. Either they are stuck with a ‘take it or leave it’ situation and have no choice but to accede to the bank’s demanded charges, or they may have to chance the costs of an argument at a contested hearing, where the only contest is as to the proper or reasonable charge for compliance with the order for disclosure. An even worse alternative would be for the victim not to pursue the disclosure at all, as in some cases it may appear commercially not worthwhile to do so.”

Coleman J was talking about excessive bank charges. However, his comments should equally apply to legal costs. The present case is not one where a bank should expect to “profit” from. A bank which leaves its solicitors to charge anything (which might have been “usual” in ordinary commercial litigation) without check and balance is not properly discharging its obligation to combat financial crimes in Hong Kong, an international financial centre.

(5) Excessive bank charges and legal costs would likely defeat the victims’ claim against the fraudster. In the present case, one can imagine the sense of injustice to the Plaintiff in tracing her own money if she has to pay more than HK$60,000 for each disclosure order against 39 Defendants.

32.In the present case, Mr Cheung of DeHeng describes the work done as including perusal of the Plaintiff’s affirmation in support, consideration of the draft disclosure order that BEA passed to him at the ex parte on notice stage, proposed amendments to the draft order, verification of the sealed order, reviewing documents to be disclosed by BEA to ensure compliance with the Disclosure Order, ensuring that BEA would not breach its other duties as a bank and giving advice to the Bank. I find all of such work to be necessary and proper. The fact that only a sum of $121,000 was deposited into D32’s account at BEA would not have saved any of such work.

33.The work was handled by Mr Cheung, a partner with over 11 years’ post-qualification experience, charging $7,000 per hour; and an associate who was freshly admitted in 2024, charging HK$3500 per hour. Whilst I find nothing objectionable in this combination of personnel, I find the hourly charges to be, without disrespect, excessive in the light of the principles in paragraph 31 above. As fairly admitted by Mr Cheung, handling disclosure orders was an ordinary type of bank’s work with no complexity in this case. The urgency was nothing extraordinary either.

34.The law is pretty settled as far as the terms of the disclosure order and a bank’s duties are concerned. In my view, BEA or DeHeng could have developed checklists, training materials or standard terms for disclosure to enhance the efficacy of the solicitors’ work in a similar situation. This would enable a junior solicitor to handle the work effectively under supervision of a partner.

35.Ms Pan of Yan Lawyers refers this Court to costs charged by BOC HK in this case. I decline to take that into account without affirmation evidence in support. What other banks actually charged may also be fact sensitive.

36.Applying a broad-brush approach, I consider costs in the range of $15,000 to $30,000 for a similar situation (i.e. one defendant, one deposit and one bank account) to be reasonable on full indemnity basis. The actual quantum to be charged would depend on the complexity of the work. A bank may, of course, be able to justify costs beyond this range in an appropriate case.

37.In the present case, the complexity is at the lowest end. I accordingly order the Plaintiff to pay HK$15,000 for BEA’s legal costs.

38.As for administrative costs of HK$1,520 for compliance, there is no serious challenge from Yan Lawyers. I allow the same.

G. CONCLUSION

39.There was no breach of the indemnity principle. On quantum, I summarily assess BEA’s costs on full indemnity basis as HK$15,000 + $1,520, to be paid by the Plaintiff.

40.Ms Pan and Mr Cheung have kindly indicated during this hearing that they would not apply for costs in respect of this exercise for summary assessment. Yan Lawyers also gave an undertaking not to charge the Plaintiff for the same. I therefore make no order as to costs of this summary assessment.

41.I thank Ms Pan and Mr Cheung for their assistance.

Ms Chris Pan, of Yan Lawyers, for the Plaintiff

Mr Stan Cheung, of DeHeng Law Office (Hong Kong) LLP, for BEA