Yeung Ping Hung t/a Alfred Yeung & Co v. Ha Chiu Ping and Others

HCA 4370/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4370 OF 2003

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BETWEEN

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Before: Deputy High Court Judge To in Chambers (Open to Public)

Date of Hearing:  21 July 2006

Date of Decision:  21 July 2006

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D E C I S I O N

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The background

1.The Plaintiff entered into a contingency fee agreement to provide professional accounting services to the Defendants as their tax representative in their tax dispute with the Inland Revenue Department which started since November 1996.  During the course of five and half years’ engagement, the Defendants were not satisfied with the Plaintiff’s services and engaged a solicitors’ firm, Messrs Kong & Tang, to replace the Plaintiff on 7 August 2002.  Messrs Kong & Tang brought the tax dispute to a conclusion within four months on 21 October 2002.  The Defendants refused to pay for the Plaintiff’s services.  The Plaintiff instituted the present action to recover his fees and the Defendants counterclaimed for breach of express or implied terms of the Plaintiff’s retainer and in negligence.

2.Presumably acting under the belief that it was unprofessional or illegal to charge fees on a contingency basis and for tactical reasons, the Plaintiff launched his case on the basis of a retainer at an hourly rate of $3,500.  That evidence was disbelieved and I dismissed the substantial part of his claim, save for a claim of disbursement of $15,000 for counsel’s fee which was admitted by the 1^st Defendant in the course of his evidence and later confirmed by his counsel after taking full instruction. 

3.The Defendants’ counterclaim is based on an implied duty in tort and in contract to take all necessary steps to reduce and mitigate the Defendants’ tax liability which included the duty to advise the Defendants to make available another sum of $7.5 million to purchase tax reserve certificates in payment of the additional tax instead of applying the $7.5 million deposit held by the Commissioner of Inland Revenue towards payment of the additional tax.  Tax reserve certificates are interest earning while the deposit held by the Commissioner of Inland Revenue is not.  Thus, in the event of a successful objection to the additional tax assessed, the excess tax paid by tax reserve certificates would be refunded with interest, while the excess tax paid by the deposit would not be refunded with interest.  I was satisfied that the 1^st Defendant was fully appraised of the situation and that the Plaintiff had made reasonable effort in the discharge of his duty within the very narrow time frame that was then available to him.  I dismissed the Defendants’ counterclaim on the basis that the Defendants failed to discharge their burden of proving that the Plaintiff was in breach of his duty.

4.I entered judgment in favour of the Plaintiff’s claim and dismissed the Defendants’ counterclaim.  I made a costs order nisi that there be no order as to costs on the Plaintiff’s claim and that the Defendants shall pay the Plaintiff’s costs on the counterclaim, to be taxed if not agreed.  The Defendants filed a Notice of Appeal on 3 May 2006 to appeal against my decision in dismissing their counterclaim.  On 21 July 2006, Mr Alexander Wong, who represented the Defendants at the original trial, sought a review of my costs order nisi.  I did not feel I was precluded from reviewing my costs order nisi by reason of the Notice of Appeal having been filed against my decision and heard Mr Wong’s application.

The costs order for the Plaintiff’s claim

5.The thrust of Mr Wong’s application is that the Plaintiff has recovered only a nominal sum of $15,000 not by merit but by concession from the Defendants at the outset.  He argues that the Plaintiff was unable to establish anything of the least value to him and should not be regarded as a successful plaintiff.  He submits that the Defendants should be treated as the successful party and should be awarded the costs of the claim.  In support of his argument, he quoted paragraph 62/2/6 of the Hong Kong Civil Procedure 2006 Vol 1 which reads:

“… Where plaintiffs in an action for breach of contract recover only nominal damages and do not established anything which is of the least value to them, they are not to be regarded as successful plaintiffs, and the court will normally treat the defendants as having succeeded and award the defendants the costs of the action, whether or not the defendants have at any stage made a payment into court of nominal damages (Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873; Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394)”

6.I have no doubt that the statement of law quoted by the learned authors is correct and is supported by authorities.  However, Mr Wong is both wrong on the facts and on the law.  On the facts, the counsel’s fee was not admitted by the Defendants at the outset.  It was not admitted in the pleading and was never paid at all.  It was only admitted by the 1^st Defendant under cross-examination when giving evidence for the defence case.  It is also incorrect to argue that the counsel’s fee could not be proved by the Plaintiff and was given away the Defendants by way of admission.  The fee could not be disputed despite the unfavourable view I formed of the Plaintiff’s credibility.  On the law, the fee is not a nominal sum.  In Mediana [1900] AC 113, the Lord Chancellor, the Earl of Halsbury, held at 116:

“Nominal damages is awarded when the plaintiff or the claimant cannot prove any actual damages at all.”

The law presumes that damage is suffered in any breach of contract or in any tortious conduct.  If an injured party is unable to prove the quantum of loss suffered, a nominal award on an arbitrary basis is given to mark the infringement of the injured party’s right.  The counsel’s fee of $15,000 was a reimbursement and a quantified sum.  It was not a small sum or a token amount, though it was insignificant when compared with the amount claimed by the Plaintiff.  Even a small sum does not cease to be a sum of substance and becomes a nominal sum by reason only of its being small in absolute term or insignificant in relative term.

7.Mr Wong further argues that the amount awarded was nominal in the sense that it was not for any damage suffered by the Plaintiff because it was counsel’s fee which would not really go to the pocket of the Plaintiff.  With respect, that argument is convoluted.  If the Defendants failed to reimburse the Plaintiff of his expenses, the Plaintiff suffered damage.  This is not the case that the Plaintiff could not quantify his damage which makes it necessary for the Court to arbitrarily award a nominal amount.  The amount is determined by the sum that the Plaintiff had paid or was obliged to pay counsel and is awarded on that basis.  I am firmly of the view that the award is not an award of nominal damages.

8.Mr Yee, Counsel for the Plaintiff, refers me to my judgment in In re Kwan Kai Ming, HCMP 2996 of 1990, in which I adopted the principle in the English Court of Appeal in Ritter v Godfrey [1920] 2 KB 47.  But I do not think In re Kwan Kai Ming or Ritter v Godfrey are helpful to the Plaintiff or the Defendants.  The principle in Ritter v Godfrey is applicable only to the case of a wholly successful litigant.  Neither party to this litigation can be regarded as a wholly successful litigant.  Atkin LJ, as he then was, said at 60:

“It is not easy to deduce from these authorities what the precise principles are that are to guide a judge in exercising his discretion over costs.  And yet as the discretion is only to be exercised where there are materials upon which to exercise it, it seems important to ascertain the principles upon which a judge is to discern whether the necessary materials exist.  In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains.  These principles require further expansion.”

Furthermore, Ritter v Godfrey is of no assistance to the Plaintiff for the purpose of depriving the Defendants of their costs even assuming they were wholly successful, because the Defendants’ conduct fell outside the three categories of conduct defined by Atkin LJ.  The Defendants’ conduct was in breach of the retainer but it did not bring about the litigation in the sense as required by Ritter v Godfrey in that it has the effect of inducing a belief in the Plaintiff’s mind that he has a good cause of action.  The 1^st Defendant’s evidence was believed.  Accordingly, the Defendants have not done anything connected with the institution or conduct of the proceeding calculated to occasion unnecessary costs.  The Defendants were faced with a false case.  They defended by pleading the true facts.  They have not done anything wrongful in the course of the transaction of which the Plaintiff complains.

9.Where neither party is wholly successful, the court has a much wider discretion as regards costs.  The court must first identify which is the successful party in the circumstances, i.e. the party who can be regarded as being overall successful.  The general rule then applies.  Costs should follow the event, unless where it appears to the court that in the circumstances of the case some other costs order should be made: Order 62 rule 3(2) of the Rules of the High Court.  The overriding principle is overall fairness in all the circumstances of the case.  Sometimes, the court would apportion the costs according to the extent to which the party is successful but having regard to the extent to which that party is not.

10.Mr Wong reminds me of the various parts of my judgment in which I criticised the Plaintiff’s credibility and for launching a case not in accordance with the true facts.  He submits that in that light and having regard to the amount awarded as compared with the amount of the claim, the Plaintiff should not be regarded as even a partially successful litigant.  The Plaintiff has his penalty for launching a false case.  He has in reality substantially lost.  But his claim for the reimbursement is genuine and incontrovertible whether he was retained at an hourly rate as he alleged or on the basis of contingency fee as the Defendants alleged.  He has obtained an award.  The award, as I have held, is not one for nominal damages.  On the other hand, the Defendants were resisting the entirety of the Plaintiff’s claim including that reimbursement until the 1^st Defendant was being cross-examined when giving evidence as part of the Defendants’ case.  The Plaintiff could not have recovered the reimbursement had he not instituted this action.  He could not be treated as having wholly lost in the action.  Had he pleaded his case properly and given evidence according to the true facts, he could have succeeded at least on a quantum meruit basis.  I think it is more appropriate to treat the Plaintiff as one who is overall successful, though only to a small extent.

11.Thus the general rule that costs to follow the event should apply unless fairness in all the circumstances requires a different order to be made.  In terms of quantum, the amount awarded is only a small fraction of the amount claimed.  Similarly, the time spent by the Plaintiff in proving the reimbursement is also negligible when compared with the time spent in proving the retainer on an hourly basis.  But having regard to all the circumstances of the case, including in particular, the extent to which the Plaintiff is successful and the extent to which he is not, I think overall fairness requires not only that I should not apportion any costs to the Plaintiff but I should deprive him of his costs altogether.  Accordingly, I confirm my cost order in respect of the Plaintiff’s claim.

The costs order for the Defendants’ counterclaim

12.As for the Defendants’ counterclaim, the Plaintiff is wholly successful while the Defendants are wholly unsuccessful.  The general rule that costs to follow the event is applicable.  Mr Wong seeks to persuade me to depart from that general rule for the following three reasons.  Firstly, he refers me to my finding of fact that it was unrealistic to expect the Defendants as laymen would give specific instructions in respect of each and every aspect of the work to the Plaintiff as a professional adviser, that the Defendants have provedan implied duty in tort and in contract to take all necessary steps to reduce and mitigate the Defendants’ tax liability, and that the 1^st Defendant was fully appraised of the situation.  Then he argues that in that light, I have criticised that the Plaintiff’s advice, though adequate, could have been made more explicitly. Secondly, he argues that the Plaintiff succeeded merely because the Defendants failed to discharge the burden of showing that Plaintiff’s discharge of duty was below the standard of a reasonably competent accountant.  In my view, it is always incumbent upon the plaintiff to prove his claim.  If a plaintiff could not prove his case even by a small margin, he has failed.  The usual consequence of costs follows unless there are exceptional circumstances.  That he is almost successful is not an exceptional circumstance and cannot mitigate his costs consequence.

13.Mr Wong’s third and major argument is that the evidence in respect of the counterclaim is mostly intertwined with the evidence of the Plaintiff’s claim.  Hence he argues that there should be no order as to costs on the counterclaim or as a fall back that the Plaintiff should only have half of the costs of the counterclaim.  If indeed the evidence in respect of the counterclaim and the Plaintiff’s claim is mostly intertwined, it could have an impact on the costs order.  However, on the Plaintiff’s claim and the Defendants’ counterclaim as summarised in paragraphs 2 and 3 above, it is obvious that the issues for the two cases are very distinct and clearly defined.  The issue in the Plaintiff’s case is about the retainer while the issue in the Defendants’ counterclaim is about one specific advice.  The evidence of the two cases is not intertwined.

14.In respect of the costs of the counterclaim, the Plaintiff is wholly successful and there are no special circumstances to justify a departure from the general rule that costs to follow the event.  Accordingly, I affirm my costs order nisi in respect of the counterclaim.

Conclusion

15.For the above reasons, I affirm my costs order nisi that there be no order as to costs on the Plaintiff’s claim and that the Defendants shall pay the Plaintiff’s costs on the counterclaim, to be taxed if not agreed.  The Defendants shall also pay the Plaintiff’s costs of this application to vary my costs order nisi.

Mr Kent Yee, instructed by Messrs King & Co., for the Plaintiff

Mr Alexander Wong, instructed by Messrs Y.C. Lee, Pang & Kwok, for the Defendants