Mong Man Wai v. H H Lau & Co (A Firm)

HCMP003009/2002

HCMP 3009/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3009 OF 2002

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Coram: Deputy High Court Judge A Cheung in Chambers

Dates of Hearing: 13 February & 7 May 2003

Date of Judgment: 30 May 2003

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J U D G M E N T

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Facts

1.The Plaintiff is extremely successful with his business. But the same cannot be said in relation to his marriage. The scene was thus set for a very expensive divorce. Divorce proceedings were commenced in February 2001. The Defendant, a sole proprietorship of Mr H H Lau, solicitor, acted for the Plaintiff in the proceedings. In mid 2001, the Plaintiff's wife successfully obtained an injunction restraining the Plaintiff from disposing of any asset with a value in excess of HK$50,000.00 unless he had given his wife 7 days' prior notice of his intention to do so. An appeal was lodged to the Court of Appeal against the grant of the injunction. In August 2002, the District Court ordered that the divorce proceedings be transferred to the Court of First Instance. Between May 2001 and April 2002, the Defendant delivered to the Plaintiff altogether 9 "Interim Bills". On 7 May 2002, the Plaintiff changed solicitors and terminated the Defendant's retainer, and eventually his divorce proceedings were settled.

2.Under the 9 Interim Bills, a total sum of HK$3,377,600.00 was charged as the Defendant's profit costs. According to Mr H H Lau, on 21 June 2002, he orally agreed with the Plaintiff at a meeting to reduce the fees by HK$469,874.40. The profit costs (as reduced) became HK$2,807,725.60 in total. Eventually that amount, less a sum of HK$100,000.00, was fully paid to the Defendant by the Plaintiff through his new solicitors under protest.

3.Apart from the profit costs (and other miscellaneous disbursement items) paid by the Plaintiff to the Defendant, according to the Plaintiff, he has also paid a total sum of HK$4,962,500.00 to leading counsel engaged by the Defendant whilst it was acting as the Plaintiff's solicitors in the proceedings, as well as HK$3,181,000.00 to his junior (apart from an earlier junior who was retained at the initial stage of the proceedings) during the same period of time. Apart from the relatively minor exception in respect of the counsel's fees disbursed in the first 3 Interim Bills, all counsel's fees were paid directly by cheques issued by the Plaintiff in favour of counsel (or counsel's nominee). They were physically given to counsel through the Defendant, or sent to counsel directly by the Plaintiff; no money in respect of counsel's fees was ever paid by the Plaintiff to the Defendant, and the Defendant never drew any cheques of its own in favour of counsel for their fees. The Defendant only acted as a conduit pipe for those cheques that were given to it by the Plaintiff but were made payable to counsel, in forwarding the cheques to counsel. Some of the fees were in fact paid by the Plaintiff's new solicitors after the termination of the Defendant's retainer.

4.By these proceedings, the Plaintiff seeks an order for taxation of the 9 Interim Bills and consequential relief. By an amendment to the Originating Summons, the Plaintiff also seeks an order that the Defendant do deliver bills of costs in respect of all the fees of both leading and junior counsel and that there be a taxation of such bills once delivered. The significance of this subsequent amendment will be apparent in due course.

Legal Practitioners Ordinance

5.It is convenient to summarise the relevant provisions in the Legal Practitioners Ordinance (Cap. 159) here. The Ordinance deals with "Remuneration of solicitors" in Part VI. A distinction is drawn between "non-contentious business" and "contentious business". There is no dispute that the work done by the Defendant in the proceedings was contentious business. Nonetheless, it is useful to set out a section governing non-contentious business in Part VI before dealing with those provisions governing contentious business. Section 56 deals with an agreement for remuneration for non-contentious business. It reads as follows:

"(1) Whether or not any rules made under section 74 are in force, a solicitor and his client may, either before or after or in the course of the transaction of any non-contentious business by the solicitor, make an agreement as to the remuneration of the solicitor in respect thereof.

(2) The agreement may provide for the remuneration of the solicitor by a gross sum, or by commission or percentage or by salary, or otherwise, and it may be made on the terms that the amount of the remuneration therein stipulated for either shall or shall not include all or any disbursements made by the solicitor in respect of searches, plans, travelling, stamps, fees or other matters.

(3) The agreement shall be in writing and signed by the person to be bound thereby or his agent in that behalf.

..."

6.On the other hand, in relation to contentious business, the power to make agreements with clients is governed by section 58 of the Ordinance which reads:

"A solicitor may make with his client an agreement in writing as to his remuneration, in respect of any contentious business done or to be done by the solicitor for the client, which provides that the solicitor shall be remunerated either by a gross sum or by salary, or otherwise, and at either a greater or a less rate than that at which he would otherwise have been entitled to be remunerated."

7.Section 60 deals with the enforcement of such agreements in respect of contentious business. The leave of the court has to be sought, and the court has the power to declare the agreement void if it is of the opinion that it is in any respect unfair or unreasonable. But the Plaintiff has not relied on section 60 in these proceedings, and has only indicated its reservation of right in respect of it. I therefore need not dwell on section 60 of the Ordinance.

8.The effect of an agreement in respect of contentious business, subject to section 60 and other provisions, is set out in section 62 of the Ordinance as follows:

"Subject to the provisions of sections 59, 60 and 61, the costs of a solicitor in any case where any agreement has been made in pursuance of the provisions of section 58 shall not be subject to taxation, nor to the provisions of section 66 with respect to the signing and delivery of a solicitor's bill."

9.Section 63 of the Ordinance deals with the form of bills of costs for contentious business, whereas section 64 contains general provisions as to remuneration of a solicitor.

10.Section 65 of the Ordinance extends the jurisdiction of the court to make orders for the delivery by a solicitor of a bill of costs (and other matters) to cases in which no business has been done by him in the court. It should be noted that the jurisdiction of the court to order a solicitor to deliver a bill of costs is assumed under the section. Section 66 of the Ordinance deals with an action by a solicitor to recover any costs due under a bill after one month from the delivery of the bill, and the requirements for the recovery action.

11.Section 67 of the Ordinance is the all-important section for the purpose of the present proceedings. It reads as follows:

"(1) On the application, made within 1 month of the delivery of a solicitor's bill or a foreign lawyer's bill, of the party chargeable therewith the Court shall, without requiring any sum to be paid into court, order that the bill shall be taxed and that no action shall be commenced thereon until the taxation is completed.

(2) If no such application is made within the period mentioned in subsection (1), then, on the application of the solicitor or the foreign lawyer, or of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order

(a) that the bill shall be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed:

Provided that

(i) if 12 months have expired from the delivery of the bill, or if the bill has been paid, or if a verdict has been obtained or a writ of inquiry executed in an action for the recovery of the costs covered thereby, no order shall be made on the application of the party chargeable with the bill except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the taxation as the Court may think fit;

(ii) if the bill has been paid, no order under this subsection shall be made where the application for the order is made after the expiration of 12 months from the date of payment of the bill.

(3) Every order for the taxation of a bill shall require the taxing officer to tax not only the bill but also the costs of taxation and to certify what is due to or by the solicitor in respect of the bill and in respect of the costs of the taxation.

(4) If after due notice of any taxation either party thereto fails to attend, the taxing officer may proceed with the taxation ex parte.

(5) Unless

(a) the order for taxation was made on the application of the solicitor or the foreign lawyer, and the party chargeable does not attend the taxation; or

(b) the order for taxation otherwise provides,

the costs of the taxation shall be paid according to the event of the taxation, that is to say, if one-sixth or more of the amount of the bill is taxed off, the solicitor or the foreign lawyer, shall pay the costs, but otherwise the party chargeable shall pay the costs:

Provided that

(i) if, in the case of a bill for non-contentious business, not less than half of the amount of the bill before taxation consists of costs for which no scale charge is prescribed, for the reference in this subsection to one-sixth of the amount of the bill there shall be deemed to be substituted a reference to one-fifth thereof;

(ii) the taxing officer may certify any special circumstances relating to the bill or the taxation thereof to the Court, and the Court may make thereon any such order as it thinks fit respecting the payment of the costs of the taxation."

12.Instead of my making general comments and observations on the construction and effect of these relevant provisions, I would now turn my attention to the facts of the present case, and I will deal with the provisions in so far as they are relevant to my determination of the issues between the parties based on the facts of the present case. I am reluctant to express any general view on these provisions that is not required by the facts of the present case, as the law involved is, so it seems to me after hearing two days' arguments from learned counsel on the subject, rather complicated, and I am not sure, with respect to counsel and despite their diligence, if I have been referred to all relevant authorities and material pertaining to these provisions.

Unbilled counsel's fees

13.I shall now first deal with the question of counsel's fees. In none of the so-called Interim Bills (with the relatively minor exception of the first 3 Interim Bills) has counsel's fees been dealt with as an item of disbursement (or as any other item). The reason is that, as noted above, all fees payable to counsel were in fact paid directly (in the above sense) by the Plaintiff to counsel. No payment was made by the Defendant to counsel in respect of their fees, whether out of client's money deposited with the Defendant or out of the Defendant's own money in the absence of such client's money.

14.The first thing to note here is that in the absence of a bill of costs, section 67 which governs the ordering of a bill to be taxed on an application by the person chargeable with the bill under the circumstances set out in the section, is simply not engaged. Thus, as explained above, on the second day of the hearing, after this problem was first pointed out to counsel on the first day of the hearing, an application, which was not opposed, was made by the Plaintiff to amend the Originating Summons, for the purpose of seeking an order from the court that the Defendant do deliver bills of costs in respect of counsel's fees and that such bills, once delivered, be taxed.

Jurisdiction to order bill

15.As I mentioned above when I referred to the provisions in the Ordinance, the Ordinance does not specifically confer jurisdiction as such on the court to order a solicitor to deliver a bill of costs. Rather section 65(1), as noted above, assumes that such jurisdiction exists and sets out to "extend" the jurisdiction of the court to cases in which "no business has been done by [the solicitor] in the court".

16.The jurisdiction of the court to order delivery by a solicitor of a bill of costs cannot be doubted. The jurisdiction of the High Court to make such an order rests in the inherent jurisdiction of the court over its own officers: see Storer v. Johnson (1890) 15 App Case 203; Re Thomas [1894] 1 QB 747; Re Foster, Barnato v. Foster [1920] 3 KB 306, 314; Butterworths Costs Service (loose-leaf edition) vol. 2 para. L [115]; Halsbury's Laws of England (4th ed. re-issue) vol. 44(1) paras. 200 and 203.

17.So far as counsel's fees and their taxation are concerned, generally speaking, once paid, they are considered as "professional disbursements", and therefore fall within the definition of "costs" in section 2 of the Ordinance which includes "fees, charges, disbursements, expenses and remuneration". In this regard, it is useful to note that disbursements have been defined as "such payments as the solicitor in the due discharge of his duty is bound to make (whether his client furnishes him with the money for the purpose or with money on account or not) as for example, court fees, counsel's fees, expenses of witnesses, agents, stationers or printers": Re Remnant (1849) 11 Beav 603, 611; see also Re Buckwell and Berkeley [1902] 2 Ch 596; Butterworths at para. L [106]; Cordery on Solicitors (loose-leaf edition) vol. 1 para. L [458]; Halsbury's at para. 191.

18.Therefore in short, there can be no objection in principle to the court ordering, in appropriate circumstances, the delivery by a solicitor of a bill of costs in respect of counsel's fees as disbursements, in the exercise of its inherent jurisdiction. And once such a bill of costs is delivered, then pursuant to section 67, the party chargeable under the bill in respect of counsel's fees may apply to the court for an order of taxation of the bill, in accordance with the requirements set out in that section.

Taxation of own counsel's fees

19.Mr Chong, counsel for the Defendant, raises a number of objections to this part of the Plaintiff's application. First, he argues that unlike a party and party taxation of one's opponent's bill of costs, in the taxation of one's own solicitors' bill of costs, the fees of one's own counsel cannot be taxed.

20.I have no difficulty in rejecting this argument. None of the provisions in the Ordinance, particularly those referred to me by counsel or those extracted by me specifically above, contains such a restriction. Mr Chong has not been able to cite to me any authority in support of his rather surprising assertion. In fact, a quick review of Order 62 of the Rules of the High Court (Cap. 4A), governing the taxation of costs, would immediately reveal the fallacy of the argument. Order 62 rule 29 deals with costs payable to a solicitor by his own client, and makes provisions for the taxation of the solicitor's bill. Order 62 rule 32 provides that the scale of costs contained in the First Schedule of Order 62, together with the notes and general provisions in that Schedule, shall apply to the taxation of costs incurred in relation to contentious business. Rule 32(2) and (3) makes it amply clear that rule 32 applies to the taxation of a solicitor's bill to his own client referred to in rule 29. Paragraph 2 in Part II of the First Schedule deals specifically with the taxation of fees paid to counsel. Paragraph 2(2) clearly implies that the provisions in that paragraph apply to taxation of fees of one's opponent's counsel, as well as taxation of fees of one's own counsel. Nothing in the annotations regarding taxation of counsel's fees contained in Hong Kong Civil Procedure 2002 vol. 1 pages 899 to 903 suggests that there can be no taxation of one's own counsel's fees.

21.As I said, I do not accept Mr Chong's argument.

Contentious business agreements

22.Mr Chong further argues that taxation of counsel's fees in the present case is precluded by two agreements. I have already referred to an oral agreement reached between the parties on 21 June 2002. Under that agreement, apart from dealing with the outstanding fees of the Defendant under the 9 Interim Bills (which, apart from the first 3, did not deal with counsel's fees), the then outstanding counsel's fees were also dealt with. According to the agreement, the Plaintiff would personally discharge the outstanding counsel's fees.

23.The second agreement was in fact an earlier agreement. It was contained in a letter dated 15 January 2002, which reads as follows:

"Dear Dr. Mong,

Re: HCMC 3 of 2001

The divorce proceedings will start next week for 5 days and the Appeal for the Injunction will be heard a few days after the main action.

You have agreed the fee with [Leading Counsel] and have paid the fee. The fees for Junior Counsel, ... for the main action and for the Appeal hearing have also been agreed and paid.

Our fees for the hearing for 5 days and for the Appeal have not yet been discussed or agreed with you. We propose that:-

1. We will have the same fee as to the Junior Counsel for the 5 days hearing, but

2. We will only have half of the fee charged by [Junior Counsel] for the Appeal.

3. The hourly rate for our Mr. H. H. Lau will remain as HK$4,000.00 despite the importance of the case, the amount involved, and the responsibility you put on our Mr. H. H. Lau, and

4. the hourly rate for our solicitor, Ms. Emy Ng will be HK$2,000.00.

Should you like to discuss our proposal and agree the fee, please feel free to do so at any time.

24.In relation to the earlier agreement, Mr Chong argues that it is an agreement within the meaning of section 58 of the Ordinance. According to section 62, the agreement therefore excludes taxation, there being no application to avoid the agreement pursuant to section 60 of the Ordinance.

25.Mr Chong makes a similar argument in relation to the later agreement made in June 2002. In relation to this later agreement, Mr Chong argues in the alternative that if it does not satisfy the requirements of section 58, it is nonetheless a settlement agreement and just like any settlement agreement, it has the effect of compromising and settling the parties' respective rights and obligations under law. Therefore there is no question of re-opening the matter whether by way of delivery of bills or taxation.

"Remuneration"

26.This brings me to the true construction of section 58. Section 58 refers to an agreement between a solicitor and his client "as to his remuneration". "Remuneration" is not defined in the Ordinance. But as mentioned above, in the definition of "costs", remuneration, like disbursements, is referred to as falling within the meaning of costs. This would, indirectly, suggest that there is a distinction between remuneration and disbursements (and therefore counsel's fees). In other words, one possible reading is that remuneration only refers to the profit costs of a solicitor, but does not include his professional disbursements such as counsel's fees. But a cursory reading of the whole Ordinance, particularly the various headings, would suggest that the word "remuneration" is used very loosely (although of course, the headings have no legislative effect and cannot "vary, limit or extend" the interpretation of the Ordinance: section 18(3), the Interpretation and General Clauses Ordinance, Cap. 1). Further, sections 59, 60, 62 and 64, which all make references to section 58, appear to regard a section 58 agreement as covering a solicitor's "costs" (instead of merely "remuneration" in the narrow sense of the word). In any event, there is authority to suggest that "remuneration" in section 58 simply means "costs": see Halsbury's at para. 181.

27.I need not express a definite view on this point, although I am inclined to think that as a matter of principle, there is no reason why an agreement under section 58 cannot be allowed to cover disbursements, apart from the profit costs of the solicitor.

28.I am prepared to assume this point in favour of Mr Chong.

Agreement in writing

29.But the next hurdle is this: section 58 refers to "an agreement in writing". The origin of section 58 can be traced to (at least) the Attorneys and Solicitors Act 1870. By way of contrast, it should be remembered that in relation to non-contentious business, the agreement between solicitor and client has to be "in writing and signed by the person to be bound thereby or his agent in that behalf": section 56(3). The origin of that requirement can be traced to (at least) the Solicitors' Remuneration Act 1881, section 8.

30.Initially, Mr Chong contended, by contrasting the wordings used in section 56(3) and section 58, that an agreement under section 58 need not be signed by anybody - neither the solicitor nor client, whereas an agreement in respect of non-contentious business need be signed by the person (or his agent) who is sought by his opposite contracting party to be bound by the agreement.

31.After further research, the position has become clear: initially, the English courts construed the formality requirement of a contentious business agreement strictly. Both the solicitor and client had to sign the agreement, otherwise it would be invalid: see Re Lewis (1875-76) 1 QBD 724; Re Raven (1881) 45 LT 742; Pontifex v. Farnham (1892) 62 LJQB 344. Subsequently, a line of cases appeared which relaxed the strict formality requirement: only the party (or his agent) sought to be bound by the contentious business agreement must have signed the agreement in writing: Re Thompson [1894] 1 QB 462; Re Jones [1895] 2 Ch 719; Bake v. French (No. 2) [1907] 2 Ch 215. See also the modern case of Chamberlain v. Boodle & King [1982] 1 WLR 1443, 1445D; Butterworths at paras. L [502] & L [506].

32.Regardless of whether the stricter view or the more flexible view represents the correct construction of section 58, the signature of the Plaintiff (or that of his agent's) on the alleged agreement is necessary in the present case. In relation to the earlier agreement set out in the Defendant's letter of 15 January 2002, the letter was no doubt signed by the Defendant. But it was never countersigned by the Plaintiff. There is no dispute that an agreement within section 58 need not be contained in one document, but in the correspondence exhibited, I can find no unequivocal letter or document signed by the Plaintiff or on his behalf expressing agreement to the terms set out in the Defendant's letter dated 15 January 2002 relating to counsel's fees.

33.In my judgment, that is a fatal objection to the Defendant's reliance on the 15 January 2002 letter as a section 58 agreement in the present context. I need not deal with the other objections raised by Mr Harris, appearing for the Plaintiff, regarding the Defendant's argument. In particular, I need not express a definite view on Mr Harris' argument that section 58 only envisages an agreement covering the entire costs or remuneration of the solicitors in relation to a piece of litigation work, in contra-distinction to ad hoc agreements covering specific items of work and related fees, given the conclusion that I have reached in relation to Mr Chong's argument based on section 58, save to say that as presently advised, I can see no real warrant for reading such a restriction into the wording of section 58. But as I said, I need not express any definite view on this point.

34.As regards the subsequent so-called settlement agreement reached on 21 June 2002, it was an oral agreement. The terms were never reduced to writing. Although there was a subsequent letter from the Plaintiff signed by him referring to the oral agreement, it did not set out the terms of the oral agreement. In my judgment, that is not sufficient to constitute an agreement in writing within section 58 of the Ordinance. In other words, that is the end of the matter for the oral agreement in June 2002 insofar as it is sought to be argued that the agreement is an agreement within section 58 of the Ordinance.

Settlement agreement independent of s. 58?

35.In respect of Mr Chong's fall-back argument in relation to the oral agreement of June 2002 that it was simply a settlement agreement compromising and settling the parties' respective rights and obligations in respect of counsel's fees, thereby precluding the re-opening of the matter whether by way of taxation or otherwise, it seems to me that the matter turns on whether section 58 provides the only or exclusive statutory escape from the right to taxation provided under section 67 of the Ordinance. I am reluctant to express a definite view on the matter as I am not sure if I have been referred by counsel (with due respect to them) to all relevant authorities touching on this rather important point. I need not do so, in view of what I am going to say about the facts, although as presently advised, I am more inclined to the view that given the legal framework regulating solicitors' remuneration under Part VI of the Ordinance, and the peculiar position of a solicitor, Part VI comprises an exclusive and self-contained regime (as supplemented by the court's inherent jurisdiction over its own officers) regulating the right to taxation of solicitors' costs. In other words, I am inclined to the view that if the so-called settlement agreement does not fall within section 58, the client's right to taxation cannot be excluded. (In any event, it should be remembered that apart from a section 58 agreement, Order 62 rule 29(1) to (3) sets out another method by which a solicitor can protect himself (upon taxation) regarding counsel's fees, namely by seeking the express or implied approval of those fees by client and by expressly informing his client before the fees are incurred that they may not be allowed on an inter partes taxation of costs.)

36.The answer to Mr Chong's argument is that Mr H H Lau of the Defendant does not, in his three affirmations filed in these proceedings setting out his case, actually assert that the settlement agreement unconditionally compromised and settled the parties' respective rights and obligations. Rather he contends that the so-called settlement agreement is a "conditional" agreement subject to three conditions (paragraph 26 of his 1st Affirmation). It is his case that the Plaintiff has only complied with two conditions, leaving the third condition not fully complied with. In those circumstances, it is his case that notwithstanding the "conditional agreement", his firm is entitled to claim the balance of the full amount of his firm's bills (paragraph 35 of his 1st Affirmation). It should be remembered that under the oral agreement, he gave a discount regarding his firm's outstanding fees to the Plaintiff. He therefore claims for an order that the Plaintiff do pay to his firm the outstanding amount of HK$569,874.40 (paragraph 66, sub-paragraph 1(b) of his 1st Affirmation), and that the Plaintiff do pay all outstanding counsel's fees. On the Defendant's own case, in my judgment, the so-called settlement agreement, even if it could take effect independent of section 58 of the Ordinance, cannot have the effect of barring taxation under section 67.

Counsel's fees paid by client direct

37.A much more difficult objection raised by Mr Chong is based on the fact that the Defendant never paid the counsel's fees. As explained above, counsel's fees may be included in a solicitor's bill of costs as disbursements. But the problem in the present case is that (subject to the above-mentioned exception) the counsel's fees in question were never paid by the Defendant to counsel. The payments were never made by the Defendant. They were made by the Plaintiff directly. To be sure, some of the cheques were given to the Defendant for onward transmission to counsel. But it is not suggested, nor can it be done, that that would be sufficient to constitute the making of payment by the Defendant of those fees to counsel. According to Halsbury's at para. 191, a solicitor's professional disbursements are "those made by the solicitor in his professional capacity which must be included in the bill of costs", as opposed to "payments made by him merely as agent or on behalf of the client which must be inserted in a separate cash account, and not in the bill of costs".

38.If payment of counsel's fees was "made" by the solicitor, the fees became disbursements, and must be included in a bill of costs. But in the present case, as I said, no such payment was made.

39.There is authority to the effect that if a solicitor makes no claim for costs, he will not be ordered to deliver a bill of costs: Re Griffiths (1891) 7 TLR 269; Re Landor [1899] 1 Ch 818; Halsbury's at para. 200. In Re Landor at page 820, North J said:

"But in my opinion the common order to tax does not involve the taking of an account of all monetary transactions between the solicitor and his client independently of costs due from the client. If an affidavit is made by the solicitor to the effect that no costs are due to him by the client, and that he has not paid himself any costs out of his client's monies, no order will be made, except that the solicitor do pay the costs of the motion."

40.In the present case, the Defendant never included counsel's fees in the last 6 bills. The Defendant does not intend to do so, and indeed there is no apparent need for him to do so, for the simple reason that counsel's fees have all been discharged by the Plaintiff directly (in the above sense). No money is due to the Defendant by way of counsel's fees that have been paid by the Defendant on behalf of its client. Nor does the Defendant maintain that it has recouped any counsel's fees that it has paid on behalf of its client from money deposited by the client.

41.The problem faced by the Plaintiff in relation to his application may be further considered by reference to the peculiar nature of counsel's fees. In Sadd v. Griffin [1908] 2 KB 510, a solicitor included as a disbursement item fees payable to counsel that had not been paid before the delivery of the bill. The Court of Appeal held that such counsel's fees were not "disbursements" that could be included in a solicitor's bill. Farewell LJ, in delivering the judgment of the Court of Appeal, said, on page 512 thus:

"The Act requires the bill to include "disbursements," that is (I quote the Oxford English Dictionary, edited by Murray, vol. 3, p. 409), "That which has been disbursed: money paid out: expenditure." It is clear that the money must have been paid in order to support an action on the bill. See Holmes v. Penney, where Parke B. says: "We never entertained any doubt that an attorney cannot charge for counsel's fees which have not been paid. In point of law they are gratuities; and as he has not paid them, with respect to them he is not a farthing out of pocket." It is equally clear that a solicitor cannot properly accept payment of the bill unless he has paid the alleged disbursements, and, if he did so, he would run considerable risk of being struck off the rolls: see In re A Solicitor; and it is settled beyond controversy that the solicitor is, for the purposes of taxation, bound by the bill that he has delivered and cannot alter it without the leave of the Court or the consent of the party."

42.Similarly in Re Taxation of Costs, Re A Solicitor [1936] 1 KB 523, the court had the occasion to deal with section 65(1) and section 66(1) of the Solicitors Act 1932 (the predecessors of our section 66(1) and section 67(1) of the Ordinance). In delivering the judgment of the court, Scott LJ said on page 530 as follows:

"By the definition contained in s. 8I. sub-s. I, the words "fees, charges and disbursements" are to be read into the word "costs" wherever it is used in the Act; and the substantive enactment of s. 65, sub-s. I, runs as follows: "Subject to the provisions of this Act, no action shall be brought to recover any costs due to a solicitor until one month after a bill thereof has been delivered in accordance with the requirements of this section." Having regard to the definition, the phrase "costs due to a solicitor" must in the case of disbursements be interpreted as meaning disbursements due from the client to the solicitor. If so the section has precisely the same wording as s. 37 of the Act of 1843, or indeed as s. 23 of the Act 2 Geo. 2, c. 23, which s. 37 of the Act of 1843, so far as relates to this point, re-enacted, and the Act of 1932 has therefore made no change in the law. A "disbursement" charged by a solicitor against his client for counsel's fees must always have meant a disbursement actually made money paid out of the pocket of the solicitor since ex hypothesi counsel's fees, being in law mere gratuities, and not constituting a debt from the solicitor to the barrister, cannot be "due" from the client to the solicitor until the latter has actually paid counsel. That this was so under the wording of the Act of 1843 was made perfectly clear by the judgment of this Court in the case of Sadd v. Griffin; and since the words "costs due to a solicitor" in s. 65 have the same meaning, a solicitor is still prohibited from putting into his "bill thereof" any "disbursement" in respect of counsel's fees which he has not already paid, or at any rate unless at latest he pays it before delivering his bill to his client."

43.To complete this story, the position in England was subsequently changed by section 67 of the Solicitors Act 1974, so that nowadays a solicitor's bill of costs may include costs payable in discharge of a liability properly incurred by the solicitor on behalf of his client (including counsel's fees) in his bill notwithstanding that those costs have not been paid before the delivery of the bill, provided that certain requirements are satisfied. Section 67 of the 1974 Act has not been followed in the local Ordinance. In other words, in the local context, the position remains as that stated in the earlier English cases, namely, that unless counsel's fees had been paid prior to the delivery of the bill, they could not be included in the solicitors' bill of costs as disbursements (or otherwise) and no claim for such not-yet-paid counsel's fees would be allowed. See also paragraph 2(1)(b) of Part II of the First Schedule to Order 62.

44.Of course, the fees in the present case have been paid. But this does not meet the real objection to the Plaintiff's application given the peculiar nature of counsel's fees and given the definition of "disbursements" as explained in the above Court of Appeal cases in England. Disbursement, in the present context, refers to money that has been paid out. Furthermore, it is still true in Hong Kong that there is no legal (as opposed to professional) obligation on the part of an instructing solicitor to pay counsel's fees. Still less is there any legal obligation on the part of a lay client to pay counsel's fees. Counsel cannot sue his instructing solicitor or his lay client for his unpaid fees. Until and unless they are paid by the solicitor to counsel, nothing is really due from the client to his solicitor in terms of reimbursement. If a solicitor chooses to pay the counsel's fees, his client will be under an obligation to reimburse him. Put another way, in that case the solicitor has a disbursement to claim from his client. It would seem to follow that if the solicitor never pays the counsel's fees, so far as he is concerned, there is never any disbursement to claim from his client. So far as he (the solicitor) is concerned, there is no disbursement to talk about. This in essence represents the gist of the objection raised by the Defendant to this part of the Plaintiff's application.

45.However, further research reveals the fallacy of the above analysis. The above analysis assumes that payment by the client to counsel direct is payment made by the client, not his solicitor. According to Butterworths (at para. L [116]), this is wrong:

"Even though the client may himself pay some of the disbursements (for example counsel's fees) these should nevertheless be included in the bill with the necessary credit in the cash account, the client being treated as having paid them on behalf of his solicitor."

46.Butterworths refers to Re Osborn & Osborn [1913] 3 KB 862 for its proposition. In that case, the English Court of Appeal was concerned with the contents of a bill of costs sent by a solicitor to his client, there having been an inter partes taxation of a bill of costs. In the course of his judgment, Buckley LJ said (on page 869):

"Even if the client had himself paid counsel's fees, the amount of those fees would be properly charged as between solicitor and client as forming part of the "demand" of the solicitor against the client, and credit would be given for the amount in the cash account. The client would for this purpose be treated as having paid the sum on behalf of his own solicitor."

47.In my judgment, that concludes the matter in argument. Given the solicitor's (as opposed to his client's) professional obligation to settle counsel's fees, if the solicitor asks his client to settle the counsel's fees direct (which thus discharges his outstanding professional obligation to pay them), it would indeed be easy for one to conclude that the client makes the payment for his (the solicitor's) benefit and thus on his behalf. This analysis also avoids the obviously unjust consequence of Mr Chong's argument that if for whatever reasons (for example, convenience), the client chooses to write his cheque in favour of counsel instead of his solicitor in making payment of counsel's fees, he loses his right to taxation thereby.

48.In those circumstances, I conclude that there is no sustainable objection to the Plaintiff's application for delivery of a bill covering counsel's fees (that have not been covered in the first 3 Interim Bills), with the ultimate view of taking the bill to taxation.

Order

49.I now turn to the merits of the application. I take it as a basic right of a client that he should be supplied with a complete bill containing the whole of the fees, charges and disbursements, so as to enable him to check the bill and form a fair opinion: see Butterworths at para. L [116]. Furthermore, a huge amount of counsel's fees is involved in the present case. I also bear in mind the provisions in Order 62 rule 29(2) & (3): I have reservation regarding whether the counsel's fees involved in the present case would be allowed on a party and party taxation, and I note that on the material before me, there is nothing to say that the Defendant has expressly informed the Plaintiff before the counsel's fees were incurred that they might not be so allowed. On the other hand, I have borne in mind the fact that the fees have been paid for some time, and the fact that actually some of the fees were paid after the change of solicitors by the Plaintiff's new solicitors. Bearing all this as well as the general circumstances of the case in mind, in the exercise of my discretion, I order that a bill of costs in respect of all counsel's fees incurred whilst the Defendant acted for the Plaintiff in the divorce proceedings (that have not been included in the first 3 Interim Bills) be delivered by the Defendant to the Plaintiff within 28 days after this judgment is handed down. I need not (and indeed cannot now) order that the bill, once delivered, be referred to taxation pursuant to section 67(1) of the Ordinance, because an application for taxation may only be made "within one month of the delivery of a solicitor's bill", in which case taxation is as of right (and no "special circumstances" - see below - need be shown). I would simply give the Plaintiff liberty to apply to refer the bill, once delivered, to taxation, and no doubt the Plaintiff will make his application promptly in accordance with the provisions in section 67(1). I see no reason why in due course this cannot be disposed of by way of a consent summons.

Profit costs

50.Turning to the solicitors' profit costs, the Plaintiff's complaint is that the Defendant has grossly overcharged him in respect of its service. The profit costs charged and actually paid can be divided into two groups, namely, those costs charged according to time spent at the rate of HK$4,000.00 or HK$2,000.00 per hour; and three lump sums of HK$450,000.00, HK$100,000.00 and HK$50,000.00 respectively based on a certain formula which I will shortly refer to. These profit costs were indeed contained in the 9 Interim Bills. I can quickly dispose of several side matters.

51.First, on the facts, in my judgment, there was no natural break between the bills. The 9 bills were in respect of one continuous dealing, and the bills were delivered as a running account, and therefore should be treated as one bill: Wang Yoeh Yu Ruth v. Chan Victoria [1988] HKC 687. In the circumstances, there is no question of the Plaintiff's application for taxation of any of the 9 bills being made out of time (i.e. after the expiry of 12 months from payment in respect of some of the earlier bills: see section 67(2) proviso (ii)).

52.Secondly, although they were called "Interim Bills", in my judgment, on the facts, the bills were eventually regarded as final bills without any adjustments. There is therefore no question of the Defendant delivering a final bill of costs. The Plaintiff only seeks taxation of the 9 bills pursuant to section 67.

53.Thirdly, in relation to the Defendant's similar reliance on the letter of 15 January 2002 and the oral agreement reached on 21 June 2002 as agreements falling within section 58 of the Ordinance (thereby barring taxation) or as a settlement agreement in relation to the oral agreement, for the reasons given above, I reject the argument.

Special circumstances - overcharging etc.

54.Free of these side issues, I can now turn to section 67 of the Ordinance in relation to the Plaintiff's application regarding the Defendant's profit costs. I have already concluded that since the 9 bills should be regarded as one single bill, there is no question of the Plaintiff's present application being brought out of time (section 67(2) proviso (ii)). Nonetheless, it was brought after the bills had been paid (subject to the discount and subject to the withholding of the sum of HK$100,000.00, which but for the commencement of the present proceedings, the Defendant would be quite content to forego). Under section 67(2) proviso (i), in those circumstances, no order for taxation shall be made except in "special circumstances".

55.Mr Chong for the Defendant does not seriously contest that gross overcharging is a special circumstance justifying an order for taxation even though payment has been made. In any event, this would seem to be the modern approach: see Wang Yoeh Yu Ruth (supra); Clayton Wong & Co. v. Springbok Shipping (HK) Ltd [1997] 3 HKC 710; Re a Solicitor [1961] 1 Ch 491; Butterworths at paras. L [633] L [637]; Halsbury's at paras. 211 and 214, although Mr Chong also rightly reminds me of the general presumption regarding the reasonableness of a bill if the same has been delivered some while ago without objection, and that payment of a bill is generally an admission by conduct that the same is reasonable.

56.Apart from the alleged overcharging, I also take into account the fact that in relation to the payment made by the Plaintiff's new solicitors on the Plaintiff's behalf in respect of part of the outstanding fees, that was done under protest, to avoid adverse publicity, and with the reservation of right to taxation. None of this is a sufficient special circumstance of itself, but they are factors to be taken into account in considering how the court's discretion should be exercised.

57.I will first deal with those fees charged according to time at the rate of HK$4,000.00 (or HK$2,000.00) per hour. The Plaintiff does not dispute the reasonableness of the hourly rates. Nor does the Plaintiff really suggest (in any event no particulars whatsoever have been supplied) that the time charged in the bills has been grossly inflated. The burden is clearly on the part of the Plaintiff to establish special circumstances.

58.Bearing everything in mind, in relation to these items of profit costs, I can find no or no sufficient special circumstances to justify re-opening the matter by way of taxation.

59.Turning to the three lump sums in question, they were charged in accordance with the formula set out in the Defendant's letter dated 15 January 2002 already extracted above. In other words, the Defendant charged the same fees as junior counsel for the divorce petition hearing (subject to a subsequent 10% discount as per the oral agreement) and he charged half of the fees charged by junior counsel for the appeal relating to the injunction. That resulted in three sums of money, namely, HK$450,000.00 for the divorce hearing (comprising three hearings and two conferences), HK$100,000.00 for the appeal hearing fixed on 29 January 2002 and HK$50,000.00 in respect of the hearing of various summonses taken out by the Petitioner, the Defendant having waived the formula in respect of some other hearings.

60.According to the evidence filed by the Defendant, the only justification for so pegging the Defendant's fees to junior counsel's fees (which apparently were in turn proportionally pegged to leading counsel's fees) is Mr H H Lau's belief that it represented "the custom and practice" apparently of the solicitors profession. Paragraph 9 of Mr H H Lau's 1st affirmation contained the only direct explanation for this peculiar formula:

"My hourly rate of HK$4,000.00 per hour was charged and for the hearing in Court, I charged the same as the Junior Counsel when a Leading Counsel is retained. It is the custom and practice, and the Plaintiff agreed the terms with me."

61.I do not accept that there is or was such a custom or practice. Put at the lowest, no such evidence has been placed before me, and to be fair, Mr Chong does not seek to uphold the alleged custom and practice.

62.I have borne in mind the sums involved; I have borne in mind the time that the Defendant may reasonably be expected to have spent on preparing for and actually attending the hearings in question. I have also borne in mind the general circumstances of the present case, including the means of the Plaintiff, the amount at stake, the importance of the hearings, the settlement amount that one is talking about here, the profit costs charged by the Defendant on a time basis, and the costs that he said he was entitled to charge but did not charge. I have also borne in mind, of course, all the matters and circumstances that I have mentioned above, as well as the general circumstances of the present case, including the submissions of both counsel whether made orally or in writing. In my judgment, there is a prima facie case of gross overcharging in relation to the three sums. That fact, together with all the other relevant circumstances, are sufficient to constitute the special circumstances required for the court's exercise of discretion under section 67.

63.I have specifically considered the Plaintiff's application in relation to taxation of the Defendant's profit costs by reference to those costs charged on a time basis and by reference to the three lump sums respectively, as well as globally. I have come to the conclusion that special circumstances only exist in relation to the three lump sums, and as I said, in the exercise of my discretion, I am prepared to order the taxation of those three sums only.

Billed counsel's fees

64.I would now, for the sake of completeness, revert to the counsel's fees that have been included in the first 3 Interim Bills. They have been paid. Unlike those counsel's fees that have not been included in the Interim Bills, special circumstances are required for the taxation these counsel's fees in the Interim Bills. I do not find any or any sufficient evidence of overcharging in respect of these counsel's fees. No or insufficient special circumstances can be identified. I refuse to order taxation of these counsel's fees.

Order

65.In conclusion, I make an order that the relevant bills of costs containing the three sums of profit costs in question be referred to taxation in respect of those three sums (only). I dismiss the rest of the Plaintiff's application. I give the Defendant liberty to apply (if no agreement can be reached by the parties) for directions relating to any counterclaim that he may wish to make against the Plaintiff given the above results, as intimated in paragraph 66 of the Defendant's 1st Affirmation, as I have not heard real arguments in relation to those matters in question.

66.I also order that the Taxing Master to tax not only the relevant bills in question but also the costs of taxation, and to certify what is due to or by the solicitor in respect of the bills and in respect of the costs of the taxation in accordance with section 67(3) of the Ordinance.

Costs

67.As regards costs, given the slightly mixed result, I make a costs order nisi that the Defendant pay to the Plaintiff 75% of the costs of these proceedings, such costs to be taxed if not agreed; and that as regards the remainder of the costs, each party bear its own costs. Unless either party applies to vary the costs order nisi within 14 days after this judgment is handed down, it shall become absolute.

68.It only remains for me to thank counsel for their helpful assistance.

Representation:

Mr Jonathan Harris, instructed by Messrs Hampton, Winter & Glynn for the Plaintiff

Mr K M Chong, instructed by Messrs Dissanayake & Associates, for the Defendant