Wharf Properties Ltd. and Another v. Eric Cumine Association

HCCL000017/1990

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Kaplan, J. in Chambers

Date of Hearing: 16 and 31 May 1991

Date of Delivery of Judgment: 15 July 1991

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JUDGMENT

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1. This is a review of a Taxing Master's review of a taxation of costs pursuant to the provision of Order 62 Rule 35 of the Hong Kong Rules of The Supreme Court. The taxation took place on the 22nd October 1990 and a 26 page judgment on the review was delivered by Master Yam on the 30th February 1991.

2. In November 1983 the plaintiff issued proceedings against 18 defendants. The claim arose out of the construction of the Harbour City Development.

3. The main contractor, John Lok & Co., immediately applied for and were granted a stay in favour of, arbitration (see 1984 HKLR). That arbitation was eventually compromised.

4. The 1st defendant (Cumine) was the architect who had no arbitration clause in their contract with the plaintiffs.

5. The original statement of claim was a massive document by any standard. The sum claimed was enormous. Following the compromise with Lok the proceedings were reconstituted as an action between Wharf and Cumine as sole defendant and on 11th March 1987 an amended substituted statement of claim was served. It is with this pleading that all courts have been concerned.

6. The part of the case with which I am dealing eventually went to the Privy Council and on the 25th February 1991 their Lordships tendered their advice. Lord Oliver in giving that advice dismissing that part said this about the reconstituted action.

"The amended substituted statement of claim, which is hereafter referred to simply as 'the statement of claim', is a document of immense length and complication, which, at the time when the matter came before the Court of Appeal in December 1988, extended to over 400 pages excluding the supporting schedules. The claim has since been slimmed down to embrace only phase 1 of the Harbour City Development but even in its attenuated form the pleading before their Lordships covers 155 pages, is divided into 22 sections and supported by schedules running to a further 330 odd pages. The difficulty of connecting allegations in the main pleading with the confusing welter of documents in the schedules, which involves constant reference to two and sometimes three, different documents at the same time is further compounded by the division of the pleading into what have been described as 'sections' - a word which is also used in the pleading itself to describe particular portions of the development. Whilst their Lordships are mindful of the difficulty in a case of this magnitude of keeping the pleadings within reasonable bounds, it nevertheless has still to be borne in mind that the purpose of a pleading is to indicate with clarity to the adverse party, and to the court, the case that the pleader is seeking to make. It is (Cumine's) complaint that the pleading, as it stands, not only does not do this but in fact discloses no reasonable cause of action."

7. As Lord Oliver pointed out the claim was divided into 3 sections. Parts 1-22 are the subject of this review. The Court of Appeal struck out these parts on the 23rd December 1988 and on the 22nd June 1989 ordered that Cumine's costs be taxed upon a common fund basis. That decision was appealed to the Privy Council who on the 25th February 1991 dismissed the appeal with costs.

8. Parts 23 - 27 were discontinued in about mid-1988. Part 28 was what has been termed the 'plot ratio' claim. After a long hearing the claim was dismissed by Godfrey J and he was upheld by both the Court of Appeal and the Privy Council.

9. Cumine has a substantal counterclaim for fees and this is due to be heard in 1992.

10. As I have said the Court of Appeal ordered Cumine's costs to be taxed on a common fund basis. This is provided for by Order 62 Rule 28(4) of the Hong Kong Rules of Supreme Court which provides as follows:

"(4).    On a taxation on the common fund basis, being a more generous basis than that provided for by paragraph (2), there shall be allowed a reaonable amount in respect of all costs reasonably incurred and paragraph (2) shall not apply; and accordingly in all cases where costs are to be taxed on the common fund basis the ordinary rules applicable on a taxation as between solicitor and client where the costs are to be paid out of a common fund in which the client and others were interested shall be applied, whether or not the costs are in fact to be so paid."

11. Paragraph (2) of Rule 28 of Order 62 provides as follows:

"(2).    Subject to the following provisions of this Rule, costs to which this rule applies shall be taxed on the party and party basis, and on a taxation on that basis there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed."

12. Following a taxation of costs a party who is dissatisfied may apply to the taxing master who originally carried out the taxation to review the taxation. The Taxing Master has the power to receive further evidence and he may exercise all the powers which he might exercise on the original taxation.

13. Order 62 rule 35 makes provision for parties dissatisfied with the decision of a Taxing Master to allow or to disallow an item in whole or in part on review under Rule 34 to apply to a judge for an order to review the taxation as to that item or part of an item.

14. Under Order 62 Rule 35(3) an application under this rule is to be made by summons and shall, except where the judge thinks fit to adjourn into court, be heard in chambers.

15. Under Order 62 Rule 35(4) the following is provided:

"Unless the judge otherwise directs, no further evidence shall be received on the hearing of an application under this rule and no ground of objection shall be raised which was not raised on the review by the taxing master but, save as aforesaid, on the hearing of any such application the judge may exercise all such powers and discretion as are vested in the taxing master in relation to the subject matter of the application."

Sub-rule 6 provides as follows:

"On an application under this rule the judge may make such order as the circumstances require, and in particular may order the taxing master's certificate to be amended or, except where the dispute as to the item under review is as to amount only, order the item to be remitted to the same or another taxing master for taxation."

16. In the taxation Cumine claimed the following costs which were objected to by Wharf: (I take this verbatim from page 5 of Master Yam's judgment).

Staff Costs

At the taxation on 22nd October last year, 20% was taxed off from item 1) and 1A) of the rental and 30% were taxed off from item 3) of the rental."

17. According to my calculations these items, after the reduction of 20% and 30% respectively, come to just in excess of 1.65 million dollars. The total costs in the case tax out at 5.85 million dollars. I am only concerned in this review with the rental and staff costs.

18. The first piece of evidence before the Master was an affidavit of Mr. Penman who was a partner in the firm of Cumine. In paragraph (3) of his affidavit sworn on the 18th October 1990 he said this:

"As regards our claim for rental and related expenses of the leased premises (as set out in page 109 of our bill of costs) I verify that all the space for which a claim has been made was used for storage of files, records, drawings and equipment and/or as working or office space for our parthers, staff and legal advisers in connection with the preparation of the sections 1-22 claims during the relevant periods. Apportionment has been made, so far as possible, to exclude the cost of such part of the leased premises which were used for other purposes not in relation to the said litigation. Hence although the total area of the leased premises on 2nd floor, 28 Yun Ping Road is approximately 5,642 sq.ft., we only claimed for the proportionate amount of costs for a space area of 4,660 sq.ft. as part of the 2nd floor leased premises was used during the relevant period by staff working on other projects. Similarly, only the cost of Room 301 (with an area of 866 sq.ft.) on the 3rd floor of 28 Yun Ping Road are claimed as the other room (i.e. Room 304) of the 3rd floor leased premises was used mainly for other purposes."

In paragraph 5 of the same affidavit he says this:

"In a nutshell, all the rental, staff and related expenses claimed under pages 109 and 110 of the Bill are attributable to the preparation of the sections 1-22 claims. The leased premises and the staff relating to which a claim has been made would not have been rented or employed but for the said litigations."

19. He then went on to produce audited profit and loss accounts of the firm for the year ended 31st March 1979 to 31st March 1989. Over 10 million dollars profit was made before litigation started but thereafter the firm incurred substantial yearly losses. During the relevant period under this particular bill the yearly loss increased to over 7 million dollars in the year 1985/86 and increased to 17 million in 88/89. He then went on to say this:

"The main reason is that ever since the litigation arose most of our manpower was diverted to the preparation of the litigation and so no substantive fee - earning work could be undertaken by my firm. Those staff relating to which a claim has been made here were indeed specifically retained to assist in doing certain manual and ground work such as collating, checking and paginating documents so that a lot of our lawyers' time and expenses could be saved. In other words, but for the employment of such staff our legal costs in relation to the said litigation would have been substantially higher."

20. Mr. Penman in another affidavit dated 8th January 1991 in relation to the premises conceded that it was true that some of the documents stored at the premises were referred to or used in connection with the other heads of claim. However he pointed out that most, if not all, of these documents were relevant also to the section 1-22 claims. So, as he put it, "these common documents would in any event need to be retained and stored at the said premises even without the presence of other heads of claim."

21. He went on to make the important point that "in order to avoid any element of double charging the plaintiffs, the 1st defendant did not claim any part of their rental costs during the relevant period under the bill of costs relating to other heads of claim."

22. He also went on to confirm that the whole of the Fu Ming Street premises were used during the relevant period for storage of documents solely relating to the sections 1-22 claim.

23. I should have pointed out that the premises of 28 Yan Ping Road were Cumine's head office for some 20 years. Later they moved to 1 Hysan Avenue, their present offices. The premises at Fu Ming Street were ancillary premises for storage purposes.

24. In relation to the staff costs of Mr. Mottram, Mr. Penman points out that he was specifically employed for and was fully engaged on the Harbour City litigation from November 1983 to November 1989. However they were only claiming his wages for the months of January 1988 to April 1988 and October 1988 to June 1989 because he was doing work in relation to the other heads of claim during the other months.

25. As to Mr. Mottram's salary he deals with this in more detail in paragraph 6 of his January 1991 affidavit.

"Mr. Mottram was originally employed by the 1st Defendants as a Mechanical Engineer specifically for the Harbour City Project. But for the Wharf litigation, the 1st Defendants would have terminated Mr. Mottram's employment when his then existing contract with the 1st Defendants expired on 6th September 1984 as the construction work for Phase IV of the Harbour City Project (the last phase which the 1st Defendants worked as an architect for the plaintiff) was already completed in early 1984. At that time, however, the 1st Defendants were facing huge claims from the plaintiffs, in particular under sections 1-22 (over HK$317m exclusive of interest) and under section 28 (around HK$2 billion). As the claims are both complicated and involved multitudinous issues and massive documentations of a highly technical nature, it became apparent to both the 1st Defendants and their legal advisers that full time assistance from someone with an engineering and/or architectural background for providing technical support, conducting case investigations and inspecting and evaluating documents was an essential feature for the conduct of the defence. It was then decided that Mr. Mottram was the most suitable person to be retained for the purpose indicated. Further, the costs of retaining Mr. Mottram would be very much less than those of engaging outside expert consultant(s). I therefore discussed the matter with Mr. Mottram who kindly agreed to stay on as a Consultant to the firm and who acted as a Consultant on the case until he left in the end of November 1989."

26. Mr. Mottram also swore an affidavit on the 8th January 1991 in which he pointed out that he was a Marine Engineer by profession who arrived in Hong Kong in August 1971 and worked as Project Manager/Chief Engineer for the construction of the Lee Gardens Hotel followed by the Mandarin Hotel in Manila. He was engaged by Cumine on the 5th January 1978 as an Mechanical Engineer specifically for the Harbour City Project. His duties during the course of the project covered, inter alia, the attendance at all site meetings with the main contractor and sub-contractors either on his own or with the members of Cumine's site or design team. He also confirms that but for the litigation his employment with the 1st defendant would have been terminated when his then existing contract expired on 6th September 1984. He confirms that Mr. Penman specifically request him to stay to assist Cumine and their legal advisers in providing technical assistance and support for the legal defence of the plaintiff's claim. He was thus further retained by Cumine solely as a consultant on the case until the end of 1989. He confirms that he was paid the emoluments as set out in the bills. He specifies two aspects to his work. Firstly, assisting the 1st Defendants legal advisers mainly in technical analysis and case investigation in relation to the multitudinous allegations raised under sections 1-22 of the Plaintiffs' pleadings and secondly assisting the 1st Defendants legal advisers in inspecting, examining and evaluating the Plaintiffs' documents disclosed in relation to the sections 1-22 claim. "Because of my engineering background and my special awareness of what had been going on between the parties from my previous involvement in the Harbour City Project, I was able to perform the tasks probably more knowledgeably and in a more costs effective manner than an outside team of expert."

27. Both Mr. Penman and Mr. Mottram gave oral evidence before the Master and were cross-examined by the plaintiffs. Mr. Lewis has accepted before me, as he said he accepted before the Master, that both these gentlemen gave true and honest testimony.

28. Wharf contend that these rental costs are irrecoverable as a matter of general principle on a common fund taxation. Mr. Lewis asks how can Cumine recover rental costs for their present or past head office. Reliance was placed on Re Nossen's Patent 1969. In that case the applicant issued a writ against the Atomic Energy Authority for infringement of letters patent. The proceedings were discontinued. On the taxation of costs the Authority claimed the costs of research and experiments conducted partly at their own research premises. At pages 778/9 Lloyd Jacob J. said this:

"No part of the Authority's expenditure on overheads was occasioned by this litigation and it would be unreasonable to transfer to the applicant the burden of meeting some part of it by reason only of the Authority's decision to prefer the services of their own staff to those of independant experts. ... When it is appropriate that a corporate litigant should recover on a party and party basis a sum in respect of expert services of a character performed by its own staff the amount must be restricted to a reasonable sum for the actual and direct costs of the work undertaken."

29. Apart from the fact that in the present case I am dealing with a common fund taxation and Lloyd J. was dealing with a party and party taxation, the main distinction between the two cases is that in Nossen the receiving party was continuing with its business so that its overheads would continue to be incurred whereas on the evidence in this case, accepted by the Master, Cumine would not have continued leasing these premises but for the litigation. I have little doubt that Lloyd Jacob J. was correct in Nossen but I fail to see how what he said could rise to the point of principle contended for by Wharf.

30. On a party and party taxation "there should be allowed all such costs as were necessary or proper for the attainment of justice..."

31. On a common fund taxation "there shall be allowed a reasonable amount in respect of all costs reasonably incurred...."

32. Thus, in a common fund taxation the costs have to be reasonably incurred and reasonable in amount. No challenge is made to the reasonableness of the rental charges.

33. So the issue is whether they are reasonably incurred. Mr. Lewis reminded me that the Yan Ping premises had been Cumine's head office for 20 years but of course they are only claiming rental for these premises for the specific periods claimed and in the circumstances that then existed. It seems to me that it would be absurd if Cumine could have asked J.S.M. to hire extra space to store these documents and be able to charge Cumine and recover this sum on taxation but not to be able to recover the item when they incur the expense themselves. It is true that disbursement are payments made by solicitors on behalf of clients but I do not consider that this case has to be decided simply on the basis that this item is irrecoverable because it was incurred by Cumine.

34. As to the question of disbursements I was referred to the Hong Kong Court of Appeal decision in Tse Ming-Cheung, Alexander v. Wilkinson and Grist 1991 1 HKLR page 30. In that case the appellant was a litigant in person who had in 1986 retained the defendant firm. He challenged two bills sent to him by them and had them taxed. He acted in person on the taxation and travelled from America to attend court. He then prepared his own bill of costs and a Taxing Master allowed him profit costs, disbursements and a taxing fee. The disbursements constituted travelling and hotel expenses incurred by the plaintiff in travelling to Hong Kong to attend court. The defendant objected to this item alleging the plaintiff was not entitled to any costs which would not have been allowed if he had been represented by a solicitor and they relied upon Order 62 Rule 28(a). The Court of Appeal overruled the judge and in paragraph 3 of the headnote said:

"In treating every item of expenditure as a disbursement literally caught by paragraph 1 of the rule it overlooked the broad definition of costs in Order 62 Rule 1 as including 'fees, charges, disbursements, expenses and remuneration'. It was both permissible and proper to regard travelling expenses as 'costs' or 'expenses' within paragraph 4 of the rule and not necessarily as disbursements within paragraph (i) Law Society v. Norman Ernest Persaud The Times 10th May 1990 applied."

35. Mr. Ismail for Cumine relied upon this case and whilst admitting that staff and rental costs could not be claimed as disbursements submitted that they did come within the broad definition in Order 62 Rule 1 of "fees, charges, expenses and remuneration".

36. Having considered all of Wharf's arguments, I agree whole-heartedly with the conclusion reached by Master Yam. The Master was obviously influenced by the enormity of this litigation and although I think one has to be very careful of making special rules for large cases the court cannot, and should not, shut its eyes to the awful predicament into which Cumine was placed by having to deal with this huge piece of litigation. I think that the rental costs were reasonably incurred and are reasonable in amount and I would uphold the Master on this point.

37. I now turn to the staff costs of Mr. Mottram. Here Mr. Lewis's main argument was that the matter was covered by authority which I should follow. He relied upon the case of Richards & Wallington v. A. Monk & Co. Ltd. - an unreported decision of Bingham, J. (as he then was) dated 11th June 1984. That case was also a review of a Taxing Master's decision but it was, unlike the present case, a taxation on a party and party basis.

38. It is clear from the judgment that the two gentlemen whose fees featured largely in the review of taxation joined the Plaintiff company for "the purposes of helping the management of that company with a number of different problems which were facing them, including a problem concerning this by-pass".

39. At page 4 of the judgment, the learned judge said this:

"The work which the two men did is not easy to categorise but can, I think, be fairly described in this way. Mr. Kottler was concerned with the overall presentation and formulation of the claim. He was deciding how it should be put, how it should be presented and what information was needed in order to present the claim and formulate it in accordance with his decisions. Mr. Atkinson was performing a subsidiary role, in effect, of digging out the information which was necessary in order to put flesh on the skeleton delineated by Mr. Kottler; he was going into the papers and searching and excavating in order to find the factual material necessary to present the claim in accordance with Mr. Kottler's decision."

40. Counsel for the Plaintiff conceded in the course of his argument that the evidence which these two gentlemen were to give was not strictly expert evidence, and indeed no leave had been given to call them as experts. Counsel for the Defendant submitted that these two gentlemen were concerned not with providing expert evidence relating to the claim but more with the provision of factual material with which to prove it. At page 6 of his judgment, the learned judge said this:

"The dividing line between expert and factual evidence is never an easy one but it is relevant that the expert instructed on behalf of Richards & Wallington is Mr. Quinlan and essentially what Mr. Atkinson and Mr. Kottler were doing, as I understand it and as I think the Master understood it, was to dig out the basic factual material which was necessary to prove the claim and on which Mr. Quinlan's expert evidence was to rest. I have no doubt that a great deal of work needed to be done, part of this perhaps being attributable to the difficulties of proof in which Richards & Wallington found themselves and various problems that they had to overcome. But essentially, I think, these two gentlemen were engaged on a factual exercise; they were certainly not independent experts; they were not, in truth, acting as experts at all and, in my judgment, these costs fall within the ordinary costs that a litigant must bear of digging out his own factual material, through his own employees, to prove his own case. Had outside experts been introduced to carry out this work then it by no means seems to me to follow that it would in any event have been recoverable as a cost of the litigation."

41. On the facts of the present case, I do not propose to take the same line as Bingham, J. On this common fund taxation, I agree with the Master's approach. Mr. Mottram's role was essential and I do not think that it can be equated merely with the digging out of information. Cumine's solicitors clearly relied on Mr. Mottram extremely heavily and if Cumine had engaged expensive experts, even they would have relied upon him and charged accordingly to the detriment of the plaintiff.

42. At the end of the day, I, like the Master, have to be satisfied that this sum is reasonable in amount and reasonably incurred. Quantum has not been challenged. On the facts of this case, without attempting to lay down any precedent for future cases, I think that this item was reasonably incurred in all the circumstances. Mr. Mottram's work was "essentially work of an expert character" and a case such as this certainly justified the engagement of an expert within the architectural and engineering field to assist Cumine's solicitors in the process of examination and evaluation of the various materials in this case.

43. I have not referred to all the cases cited by Counsel in both their written and oral submissions as it seems to me that the two cases I have cited are at the very core of their submissions.

44. I, therefore, agree with the Master and dismiss this application. There will be a costs order nisi against the Plaintiff.

Representation:

Kevin Lewis inst'd by McKenna & Co. for the Plaintiffs.

Anthony Ismail inst'd by J.S.M. for the Defendant.