To Kan Chi and Others v. Miller Peart (A Firm)

HCMP 2111/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2111 OF 2005

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BETWEEN

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Before:  Mr Recorder Jat, SC in Chambers

Dates of Hearing:  21, 29 and 30 December 2006

Date of Handing Down Decision : 17 January 2007

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D E C I S I O N

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A. INTRODUCTION

1.The plaintiffs in this action are and were at all material times the Managers of the To Ka Yi Tso (“the Tso”).  They were claimants in a long and protracted litigation concerning the ownership of the temple Tsing Wan Kun (“the Temple”) and the assets standing in its name.  Such assets included land in the New Territories and funds in court (“the Funds”) representing the proceeds of sale of letters of land exchange entitlement issued by the Government to the Temple upon the resumption of land held in its name.

2.The protagonists in the litigation were the Tso and the To Clan (“the Clan”) on the one side and the Government (represented by the Secretary for Justice) on the other.

3.In around February 1996, 5 representatives (“the 5 Representatives”) of the Clan on behalf of the Tso and the Clan instructed Messrs Miller Peart, the defendant in this action, to be their solicitors in that litigation.

4.The Tso and the Clan succeeded in their claim before Yam J and the Court of Appeal.  The Government appealed to the Court of Final Appeal (“CFA”).  On 22 December 2000, the CFA dismissed the Government’s appeal.  The CFA confirmed the findings of the lower courts that the Temple and its assets including the Funds were owned by the t’ong Tsing Wan Kun, the members of which t’ong were the members from time to time of the Tso and the Clan.

5.The CFA also ordered the Government to pay the costs of the Tso and the Clan in the courts below and 80% of the costs in that court.  For these who are interested in the background, the CFA judgment is reported in [2000] 3 HKLRD 756.

6.Unfortunately, success in the highest court was not the end of litigation for the Tso and the Clan.  Rather, it heralded the beginning of other chapters of dispute, one of which is between the Tso and the Clan on the one hand and Miller Peart on the other over the latter’s solicitor and client costs.

7.On 3 October 2005, the Managers commenced the present action by issuing an Originating Summons for taxation of Miller Peart’s solicitor and client’s bills of costs, charges and disbursements delivered to the Managers on 26 June 2003 on a common fund basis.  At first sight, the taxation sought by the Originating Summons would appear to be odd, in that ordinarily costs and charges between a solicitor and his client should be taxed on the solicitor and own client basis: Order 62 r 29.  As will be explained presently, this unusual state of affairs arose because of certain costs order made by the CFA.

8.The present appeal by the plaintiffs is against the decision of Master Lung made on 8 September 2006 ordering, inter alia, that Miller Peart’s solicitor and client bills delivered in June 2003 be referred to taxation.

9.It is necessary to recount the events that took place since the CFA judgment in December 2000 in order to understand the context in which this appeal arose.

B.    THE CFA COSTS ORDER

10.At the hearing before the CFA, leading counsel for the Tso and the Clan sought an order that there be solicitor and own client taxation of their own costs, and that pending that taxation there be an immediate payment out of $40 million from the Funds to meet the legal costs of the Tso and the Clan. 

11.According to the transcript of the hearing, leading counsel for the Tso and the Clan submitted that the estimated total costs of the Tso and the Clan, on the solicitor and own client basis, was around $50 million, and he asked for $40 million to be paid out pending taxation.

12.The CFA said that it would accede to that application (see [2000] 3 HKLRD at 775B), but what it did order was not exactly what had been asked for.  In so far as material for present purposes, the CFA made the following costs order (“Costs Order”):

“(4) There be common fund taxation of all of the [Tso and the Clan’s] own costs, the costs so taxed to be paid out of the HK$40 million mentioned in item (5) below.

(5) … HK$40 million be paid out of the Funds forthwith to the [Tso and the Clan’s] solicitors on account of and for the purpose of meeting the [Tso and the Clan’s] own costs, taxed on acommon fund basis, pending recovery from the [Secretary for Justice].”(Emphasis added)

13.That Costs Order proved to be problematic, and gave rise to disputes between the Tso and the Clan and Miller Peart which have yet to be resolved to this day.  In short, the Managers took the position that because of the costs order made by the CFA, Miller Peart were only entitled to their costs to be taxed on the common fund basis.  Obviously, Miller Peart disagreed and insisted that their costs ought to be paid, and taxed if necessary, on the solicitor and own client basis.

C.    PAYMENT OUT AND DELIVERY OF MILLER PEART’S BILLS

14.Following the CFA judgment, $40 million was released from the Funds and paid to Miller Peart.

15.Pursuant to a written Costs Agreement made on 17 February 2001 between Miller Peart and the 5 Representatives, Miller Peart retained $20 million and the other $20 million was paid over to the 5 Representatives.  It was also agreed that Miller Peart would undertake the party and party taxation vis-a-vis the Government and would accept the sum recovered from that taxation in full and final settlement of their costs.

16.However, both sides before me confirmed that the Costs Agreement had been disavowed.  Hence, for present purpose, its relevance lies only in explaining as a matter of fact that Miller Peart obtained only $20 million rather than $40 million as originally provided under the Costs Order.

17.It is convenient at this juncture to mention the amount of costs actually received by Miller Peart.  Mr Roderick Miller, currently the sole proprietor of the firm, deposed that Miller Peart had received around $21 million from the Clan over the course of the litigation.  Out of this total, Miller Peart utilised $18.7 million for disbursements such as counsel and expert fees, leaving around $2.3 million towards Miller Peart’s own profits costs.  The sum recovered from the Government in party and party taxation was about $6m million.  Together with the $20 million received in circumstances mentioned above, Miller Peart received in total $29.3 million towards their own profits costs.  As will be seen later, Miller Peart are now claiming a further $33.3 million for their costs.

18.A number of events took place in 2001 and 2002.  It is not necessary to mention all of them in detail.  Of particular relevance to the present appeal are the following.

19.First, in February 2002, the Managers made an application to Yam J for the release of the Funds remaining in court, then standing at $280 million.  On 28 June 2002 Yam J ordered that the Funds be deposited with a Custodian Trustee and that no further payment out should be made without an order of the court.  HSBC International Trustee Ltd was appointed Custodian Trustee in December 2002.  I have been given to understand that some payment out had been made for the maintenance of the Temple and other uses, so that the Funds stood at about $213.7 million as at the end of October 2006.

20.Secondly, in the course of the application to Yam J, it was revealed that on 3 January 2000, the Managers signed what has been called a “loan agreement” whereby the Managers agreed, inter alia, to repay those members of the Tso who had provided funds for the litigation 5 times the principal amount of the loan plus 20% interest from the Funds if the Tso and Clan should succeed in the litigation.  By letter dated 22 November 2002, a firm of solicitors on behalf of the “lenders” demanded payment of some $86 million plus interest under this “loan agreement”.  However, I have received no evidence on the further development of this claim.

21.Thirdly, in May 2002, Messrs Terry Yeung & Lai (“TYL”) took over from Miller Peart as solicitors for the Tso and the t’ong but Miller Peart were authorised to continue to undertake the taxation against the Government on behalf of the Tso and the Clan.  By a letter dated 17 June 2002, Miller Peart provided to TYL a breakdown of the monies received and disbursements paid to date, and sought confirmation from TYL whether they had instructions to accept service of Miller Peart’s solicitor and client bills.  By letter dated 2 July 2002, TYL acknowledged receipt of Miller Peart’s solicitor and own client bill in the Court of Appeal, and requested delivery of the solicitor and own client bills for the trial and the appeal to the CFA.

22.The dispute in relation to Miller Peart’s costs first came to a head in May 2003.  In a letter dated 9 May 2003, TYL on behalf of the Managers stated that the $40 million received by Miller Peart pursuant to the Costs Order should not be utilised for payment of Miller Peart’s costs until taxation.  Further, in a letter dated 10 May 2003, TYL asserted that Miller Peart were only entitled to their own costs to be taxed on a common fund basis.

23.On 26 June 2003, Miller Peart delivered to TYL 2 sets of bills: a set of common fund bills and a set of solicitor and own client bills (collectively “the 2003 Bills”).  On 22 July 2003, TYL acknowledged receipt of these bills but protested that Miller Peart were not entitled to serve the solicitor and own client bills because of the Costs Order.

24.On 13 August 2003, Miller Peart proposed to TYL and the Registrar of the CFA that the question of Miller Peart’s entitlement to their own costs be resolved at a hearing before the CFA.  TYL, however, disagreed and took the view that any dispute about the basis of taxation was for the taxing officer.  Thereafter, Miller Peart attempted to place before the CFA an opinion of leading counsel to the effect that the Costs Order could not affect the right of Miller Peart as against their own clients, but the Acting Registrar declined to receive the opinion in the absence of all parties’ consent.  Apparently nothing further was done thereafter.

D.    CONSENT ORDER AND CLARIFICATION FROM THE CFA

25.In April 2004, Messrs Dominic Y K Lai & Co (“DYKL”) replaced TYL as solicitors of the Managers.  On 24 May 2004, DYKL wrote to Miller Peart stating that 11 months had elapsed since Miller Peart delivered the 2003 Bills on 26 June 2003, and that if Miller Peart did not apply for taxation of the same by 8 June 2004, DYKL would do so.

26.Miller Peart did not apply for taxation of any the 2003 Bills before the expiry of 12 months from the date they were delivered, i.e. 26 June 2004.  Nor did the Managers purport to do so. 

27.On 23 July 2004, Miller Peart commenced proceedings in the High Court against the Managers (“HCA 1692/2004”) seeking $33.3 million in respect of outstanding solicitor and own client costs.

28.On 18 October 2004, the Managers applied to strike out the claim in HCA 1692/2004.  That application was successful before Master Lung, who struck out the claim on 24 February 2005.

29.Miller Peart appealed against that order to the Judge in chambers.  At the hearing of that appeal before Deputy Judge L Chan on 6 July 2005, a consent order was made in the following terms (“the Consent Order”):

“1.     The Appeal be allowed …

2.    Upon [the Managers’] undertaking through their solicitors to apply to the Court of Final Appeal within 28 days to clarify its order dated 22^nd December 2000 in terms to be agreed between [Miller Peart] and [the Managers] there be a stay of the action pending such clarification.

3.    If the Court of Final Appeal clarifies its Order such that [Miller Peart are] entitled to claim costs from the [Managers] on a solicitor and own client basis [Miller Peart] will not oppose an application for taxation by the [Managers] of the solicitor and own client costs provided that:-

(a)     the [Managers] do apply for taxation within 14 days of the Court of Final Appeal’s clarification.

(b)     the [Managers] do pay the taxing fee.

(c) …

4.    [Miller Peart’s] agreement not to oppose the [Managers’] application for taxation and the proviso under Paragraph 3 shall apply if the basis for taxation is clarified to be Common Fund.”

30.It was perhaps over-optimistic on the parts of the learned Deputy Judge and leading counsel for the parties that there would be agreement in relation to the terms of the clarification application to the CFA.  As things turned out, the parties could not agree and on 3 August 2005, DYKL on behalf of the Managers wrote to the CFA asking which of the following alternatives represented the true intention of the CFA:

“(a) That Messrs Miller Peart … should only be entitled to costs, fee and disbursement form [the Tso and the Clan] on a ‘common fund’ basis.

(b) That the Costs Order has no effect on [the Tso and the Clan’s] liability to pay costs of their own solicitors, it being provision of an indemnity taxed on a common fund basis to be paid from the funds of Tong Tsing Wan Kun towards the costs, fees and disbursements owed by [the Tso and the Clan], to their own solicitors on a solicitor and own client basis of taxation.”

31.By letter dated 26 August 2005, the CFA indicated that its order meant the first alternative stated in DYKL’s letter (“1^st Clarification”).

32.In response to the 1^st Clarification, Miller Peart, through their solicitors, Messrs Johnson Stokes & Master (“JSM”), gave notice to DYKL on 31 August 2005 that Miller Peart would apply to the CFA to set aside the Costs Order and the 1^st Clarification on the basis of irregularity, to the extent that the Costs Order affected the position of Miller Peart who were not parties to those proceedings.

33.On 4 October 2005, the Managers issued the present Originating Summons for taxation of Miller Peart’s bills on common fund basis.

34.On 13 October 2005, Miller Peart issued a summons in the CFA for further clarification or setting aside of the Costs Order and the 1^st Clarification on the ground of irregularity.

35.On 17 October 2005, the Acting Registrar of the CFA wrote to JSM giving the following reply from the court (“2^nd Clarification”):

“No hearing date shall be fixed for the summons as the Applicant is not a party to the appeal.  The appeal has concluded and the Court has given its interpretation to the costs order dated 22 December 2000.  The Applicant should pursue their rights through the appropriate avenue as they may be advised.”

36.The 2^nd Clarification prompted Miller Peart to issue a summons on 1 November 2005 for leave to be joined as a party for the purpose of clarification or setting aide of the Costs Order.  Pursuant to directions given by Chan PJ on 21 November 2005, written submissions were filed on behalf of Miller Peart and the Managers.

37.Eventually, by a decision rendered on 4 August 2006 (“3^rd Clarification”), the CFA confirmed that neither of the alternatives given in DYKL’s letter dated 3 August 2005 truly reflected the purpose and intent behind the making of the Costs Order (paragraph 7 of the decision).  The court further clarified that the Costs Order was:

“not intended to affect and did not affect any contractual obligations or entitlements of the [Tso and the Clan] and Messrs Miller Peart in relation to each other; nor the [Tso and the Clan’s] right to have Messrs Miller Peart’s bill of costs taxed …” (paragraph 13 of the decision).

38.Both sides now accept that the effect of the 3^rd Clarification is that taxation of Miller Peart’s costs should be on the solicitor and own client basis.

E. EVENTS AFTER THE CLARIFICATION LEADING TO THE PRESENT APPEAL

39.The 3^rd Clarification therefore cleared the way for taxation of Miller Peart’s bills on the solicitor and own client basis.  However, DYKL on behalf of the Managers wrote to JSM by letter dated 7 August 2006 stating that they intended to restore the hearing of the Originating Summons: in other words, they indicated that they would persist in taxation of Miller Peart’s costs on a common fund basis.

40.Miller Peart and JSM were naturally alarmed by that stance.  On 8 August 2006, JSM wrote to DYKL in the following terms:

“… in the light of the Court of Final Appeal’s Decision of 5 August 2006 … and the conclusion reached by the Court of Final Appeal at paragraph 13 of its Decision … our client is entitled to its costs on a solicitor and own client basis.  We take the view, therefore, [that] your client’s application by way of Originating Summons in these proceedings is now redundant.  Accordingly, we refer you to the provisions of paragraph 3 of the [Consent Order].

Our client is prepared to accept the 14 days referred to in paragraph 3(b) of [the Consent Order] will run from the date of the Court of Final Appeal’s 5 August 2006 Decision.  In the event your clients seek to apply for a solicitor and own client taxation then we would invite you to do so on or before 18 August 2006.”

41.DYKL on behalf of the Managers replied to JSM on the same date stating that their counsel took a different view in relation to the 3^rd Clarification, and reiterated that they intended to proceed with the current Originating Summons.

42.On 9 August 2006, DYKL informed JSM that the hearing of the Originating Summons had been fixed for hearing on 8 September 2006 before Master Lung.

43.On 10 August 2006, Messrs Cheung & Choy were instructed to take over from DYKL as solicitors for the Managers. Cheung & Choy filed their Notice of Change of Solicitors and informed DYKL of the same on 11 August 2006.  By a letter dated 11 August 2006, DYKL reminded Cheung & Choy that the Managers had to make up their minds on the basis of taxation by 18 August 2006.

44.It would appear from the correspondence between Cheung & Choy and DYKL after 11 August 2006 that Cheung & Choy disagreed with DYKL’s interpretation of the 3^rd Clarification, and took the view that Miller Peart were entitled to their costs on a solicitor and own client basis.

45.In a letter dated 15 August 2006, Cheung & Choy demanded DYKL to handover the 2003 Bills by close of business that day “as our client has to apply for a solicitor and own client taxation on or before 18 August 2006”.  The 2003 Bills were returned to Cheung & Choy on the same day.

46.JSM were informed of the change of solicitors on 14 August 2006.  On 16 August 2006, 2 days before the “deadline” set by the Consent Order, Cheung & Choy wrote to JSM as follows:

“We refer to your letter of 8 August 2006 addressed to our client’s former solicitors …

In order to save costs and time of both parties, regarding applying for an order to tax your client’s solicitor and own client’s bill, we propose that we could just amend the present Originating Summons to that effect.  Enclosed please find the relevant pages with our amendments.”

The proposed amendments to the Originating Summons were in these terms:

“… that [Miller Peart’s] solicitor and client bills of costs, charges and disbursements delivered to the [Managers] on or about 23/6/03 be referred to the Taxing Master to be taxed on a common fund basis …”

47.JSM did not agreed with that approach.  By letter dated 18 August 2006, JSM replied to Cheung & Choy saying that:

“You do not expressly state it [sic] in your letter that your clients now accept the position as set out in our letter to [DYKL] of 8 August 2006.  Kindly confirm you now take a different view from that adopted by Counsel retained by [DYKL] regarding the effect and meaning of paragraphs 12 and 13 of the Court of Final Appeal’s 4 August 2006 Decision.

In the circumstances and in light of the above, we invite you to take whatever steps you think appropriate in relation to your client’s Originating Summons …”

48.It will be recalled that 18 August 2006 was the deadline provided under the Consent Order.  Unbeknown to Miller Peart at the time, Cheung & Choy purported to issue another Originating Summons in the late afternoon of 18 August, expressly for the taxation of Miller Peart’s solicitor and own client bills delivered on 26 June 2003 notwithstanding that 12 months had expired since their delivery.  This new action was HCMP 1665 of 2006 (“the 2006 OS”).

49.On 21 August 2006, without informing JSM and Miller Peart of the 2006 OS, Cheung & Choy took out a summons in these proceedings to amend the Originating Summons in the manner suggested in their letter dated 16 August 2006.

50.By letter dated 28 August 2006, JSM indicated to Cheung & Choy that the Managers were out of time to make any application for taxation of the 2003 Bills on any basis, and invited Cheung & Choy to withdraw the application to amend.

51.Cheung & Choy responded on 31 August 2006.  They referred to the Consent Order and contended that in compliance with that order, the Managers had lodged the present Originating Summons on 4 October 2005, hence the Managers had not made any application for taxation out of time.  The letter further went on to say that:

“In our letter to you dated 16 August 2006, 2 clear days before the supposed deadline for making an application for taxation of your client’s bills upon a further clarification by the Court of Final Appeal dated 4 August 2006, we have proposed to amend our client’s Originating Summons.

Amending the Originating Summons instead of reissuing a fresh Originating Summons was an attempt at saving time and further costs already incurred by both parties and to dispose of the matter quickly.

However, you have failed to reply to our proposed amendments until 12:58p.m. on 18 August 2006, to which you have not addressed your standing regarding the proposed amendments.  Our amendments appear blatantly obvious to any reader that we wish to amend the Originating Summons from a common fund basis to a solicitor and client basis.  We therefore do not see why we still ought to expressly reiterate the same….”

No mention of the 2006 OS was made in that letter.

52.The matter went before Master Lung on 8 September 2006.  I have been given to understand that at the hearing, the Managers contended that they had complied with the Consent Order, and Miller Peart contended otherwise.  No argument was heard in relation to the court’s jurisdiction to order taxation under section 67 of the Legal Practitioners Ordinance (“LPO”).  At the end of the hearing the Master gave leave to amend the Originating Summons and ordered that Miller Peart’s solicitors and own client bills be referred to taxation in accordance with the Originating Summons as amended.  Save for the costs of the amendment, costs were awarded to the Managers.  From that order Miller Peart appealed to this court.

53.I should add that by a summons issued on 17 November 2006, the Managers seek leave to re-amend the Originating Summons by adding the words “notwithstanding that 12 months has expired since it was delivered to the Plaintiffs” after the words referred to in paragraph 46 above.

F. HCMP 1665 OF 2006

54.The 2006 OS was never served.  Miller Peart came to know of it on or about 30 August 2006, when the Law Society notified the firm of the commencement of that action and made enquiries as to the nature of the proceedings.

55.Miller Peart conducted a search of the court file but could not locate a copy of the 2006 OS.  Enquiries with the Registry revealed that there was no copy of that Originating Summons in the court file.

56.On 1 September 2006, JSM wrote to Cheung & Choy enquiring about the 2006 OS and whether that action was related to the present one.  On 6 September 2006, Cheung & Choy replied to JSM, confirming that the Mangers did issue the 2006 OS on 18 August 2006 but they were instructed not to serve it, hence:

“it will not affect and does not concern your client”.

57.Eventually JSM obtained a copy of the 2006 OS from the Registry on 12 September 2006, after the hearing before Master Lung on 8 September.

58.The matter was left there until in an affirmation filed 2 days before the hearing of this appeal, the Managers referred to the 2006 OS and indicated that they would rely on it at the hearing.

59.That statement provoked Miller Peart to apply to strike out the 2006 OS as an abuse of process.  Despite possible theoretical difficulties about that application (since the 2006 OS had not even been served, and no application had been made pursuant to Order 12 r 8A for its service), I indicated to the parties at the outset of the hearing that I would deal with the strike out application as if it had been properly issued.

60.However, before the conclusion of the hearing, the Managers served notice to discontinue the 2006 OS pursuant to Order 21 r 2.  That being the case, the strike out summons fell by the wayside, save that by reason of Order 62 r 10, Miller Peart are entitled to their costs of the action which would include the costs of and occasioned by the strike out application: see Trend Publishing (HK) Ltd v Vivien Chan & Co [1996] 2 HKLR 227, Keith J.  Indeed, Ms Alice Mok SC, counsel for the Managers, did not dispute that proposition.  Accordingly, I need not be further troubled by this episode, although I shall have to return to it later on in this judgment.

G. PARTIES’ CONTENTIONS IN A NUTSHELL

61.On behalf of Miller Peart, Ms Liza Jane Cruden contended that the order of the Master should be set aside because the Managers did not make an application for taxation within the deadline set by the Consent Order, or within 1 month of the delivery of Miller Peart’s solicitor and own client bills, hence they were out of time for an “automatic” order and must demonstrate special circumstances to justify the court’s exercise of the discretion under LPO section 67 to order a special taxation.  Further, they have failed to show any special circumstances justifying taxation after 12 months.  In any case, so Ms Cruden contended, if taxation were to be allowed, it should only be on strict terms that there be an interim payment of a substantial part of the amount claim by Miller Peart, with the balance of the amount claimed paid into court pending the taxation.

62.Ms Alice Mok SC, on behalf of the Managers, supported the Master’s order by contending that the Managers had complied with the Consent Order by issuing the Originating Summons on 4 October 2005, or by applying to restore the hearing on 9 August 2006.  Alternatively, Ms Mok contended that time could be extended under the Consent Order, and the Managers had applied to amend the Originating Summons on 21 August 2006, only 3 days after the “deadline” of 18 August 2006.  Finally, Ms Mok submitted that if the Managers could not come within the terms of the Consent Order, nevertheless there were special circumstances which justified taxation in this case, without imposing any conditions.

H. THE LAW

63.Taxation of solicitors’ costs is governed by LPO section 67, which provides that:

“(1)   On the application, made within 1 month of the delivery of a solicitor's bill …, of the party chargeabletherewith 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 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 … 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;

….”

64.It is clear that the statutory scheme under section 67 is that:

64.1     within 1 month of the delivery of the solicitor’s bill, the client may apply to have the bill taxed as of right, and no term or condition will be imposed: section 67(1);

64.2     if the client does not apply for taxation within 1 month since the delivery of the bill, either the solicitor or the client may apply for taxation and the court may so order and impose any terms as it may think fit except terms as to the costs of the taxation: section 67(2);

64.3     if 12 months or more have elapsed since the delivery of the bill or if the bill has been paid, the client must show special circumstances to justify his application for taxation and the court may impose any terms including terms as regards the costs of the taxation: section 67(2) proviso (i).

65.In Clayton Wong & Co v Springbok Shipping (HK) Ltd [1997] 3 HKC 710 at 713C-I, the Court of Appeal held that “special circumstances” for the purpose of section 67(2)(i) must be something out of the ordinary, something serious justifying not only an ordinary taxation but a special one.

66.Although that case concerned a case where the client has paid the bill, in my judgment the above statement of principle must apply to the instant case as well.

67.Also, it is not disputed that in addition to the statutory jurisdiction under section 67, the Court retained the “ordinary jurisdiction” in dealing with contested claims for solicitors costs: see Re Park [1889] 41 Ch D 326 at 332 per Stirling J; Harrison v Tew [1990] 2 AC 523, HL; Turner & Co v O Palomo SA [2000] 1 WLR 37, CA.  This jurisdiction is recognised in LPO section 66.  Hence, when a solicitor sues a client for outstanding costs, the client is entitled to challenge the reasonableness of the sum claimed in the ordinary way.

68.Ms Cruden very fairly accepted that if taxation of Miller Peart’s solicitor and client bills as sought by the amended Originating Summons were refused, HCA 1692/2004 would proceed (if necessary, upon lifting of the stay under paragraph 1 of the Consent Order), and that there would in all probability be a trial to determine quantum.  She acknowledged that the process would not be the same as a formal taxation, and that a trial of quantum by a judge might well take materially longer than taxation by experienced taxing masters.

I. COMPLIANCE WITH CONSENT ORDER

69.Once the rather convoluted facts are properly looked at, the answer to this question is relatively straight forward.

70.The terms of the Consent Order are clear: what was required was an application for taxation of Miller Peart’s solicitor and own client costs made within 14 days of the clarification of the Costs Order.  There is no dispute that the effective clarification is the 3^rd Clarification.  That was delivered on 4 August 2006; and there is no dispute that the deadline was 18 August 2006.  Thus what the Managers had to do was to make an appropriate application on or before 18 August 2006.

(A)   No effective new Originating Summons issued

71.There can be no doubt that issuing a new Originating Summons on or before 18 August 2006 seeking taxation of Miller Peart’s 2003 solicitor and own client bills would comply with the Consent Order.  In my view, the Originating Summons need not spell out the basis of taxation, because in the absence of any other stated basis, such taxation must be on the solicitor and own client basis: Order 62 r 29.

72.The Managers did issue the 2006 OS on 18 August 2006.  Leaving aside possible arguments that the 2006 OS was not in fact issued on 18 August because it was filed after 4 pm on that day (which in the event did not have to be considered), the 2006 OS would have complied with the Consent Order.  However, for unexplained reasons, the Managers chose to discontinue that action.

73.It is perplexing why the Managers and Cheung & Choy issued the 2006 OS but deliberately did not serve it.  It is even more difficult to understand why Cheung & Choy represented to Miller Peart and JSM that the 2006 OS did not concern Miller Peart.  That statement was obviously wrong, and potentially misleading, although one may justifiably question whether Miller Peart or JSM could possibly have been misled into thinking that proceedings issued against Miller Peart were of no concern to the firm.

74.Be that as it may, since the 2006 OS has been discontinued without leave, the Managers could not rely on it.

(B)  No application to amend within time

75.I am also prepared to accept (without deciding) that an application to amend the current Originating Summons by deleting the words “on common fund basis” would suffice.  I say this because the Consent Order does not require the Managers to apply for taxation on the solicitor and own client basis; what paragraph 3 says is that Miller Peart “will not oppose an application for taxation by the [Manager] of the solicitor and own client costs”.  The Originating Summons, when amended (and I cannot see any reasonable ground for objection), would achieve the result intended by the Consent Order.

76.However, the Managers did not apply to amend the Originating Summons to delete the words “on a common fund basis” on or before 18 August 2006.  They only did so on 21 August 2006, 3 days after the agreed deadline.

77.Ms Mok forcefully submitted that on any reasonable reading of Cheung & Choy’s letter dated 16 August 2006, including the proposed amendment to delete the words “on common fund basis”, it must have been abundantly clear to any reasonable person that the Managers acknowledged that the taxation should be on solicitor and own client basis.  Ms Mok may well be right on this point, but it does not avail her clients: the fact remains that they did not take out an application for amendment on or before 18 August 2006.

(C)    Managers’ argument untenable

78.Ms Mok in a beguiling submission contended that the application contemplated in paragraph 3(a) of the Consent Order could be made before or after the clarification.  She submitted that a compliant application had been made by the issue of the present Originating Summons on 4 October 2005, or by the application to restore the hearing of the Originating Summons on 9 August 2006.  In support of that argument, Ms Mok further contended that there was no requirement to state the basis of taxation in the Originating Summons, hence the inclusion of the words “on common fund basis” did not matter.  It was argued that at the taxation hearing, the basis of taxation would be determined by the Master.

79.I cannot accept that submission.

79.1     First, even if the application could be made at any time before 14 days after the relevant clarification, it is in my view clear that an application made expressly for taxation on common fund basis could not be compliant with the Consent Order.  It is right that the basis of taxation does not have to be identified in the Originating Summons; but when the Originating Summons expressly seeks taxation on a common fund basis, it is wrong to suggest that those words could be ignored.  For the same reason, the application to restore the hearing of the Originating Summons does not assist the Managers.

79.2     Secondly, the argument also runs against what I consider to be the clear spirit and intent behind the Consent Order, namely, that the basis of taxation be clarified by the CFA so as to enable any ensuing taxation to be carried out without dispute on the appropriate basis.

80.Nor am I persuaded that I could extend the time under the Consent Order.  In my judgment, the Consent Order does express the entire agreement between the parties on the subject and time was clearly of the essence: see Leung Yee v Ng Yiu Ming [2001] 1 HKLRD 309, CA, at 321H-322B per Woo JA.

81.In the circumstances, it is in my judgment clear that the Managers have failed to comply with the Consent Order and could not take advantage of Miller Peart’s “concession” not to oppose the application for taxation.  That, of course, only means that Miller Peart would be entitled to object to the making of an order for taxation on whatever grounds open to them.  It is therefore necessary to consider whether there are special circumstances which would justify ordering taxation despite the elapse of more than 12 months after the delivery of Miller Peart’s solicitor and own client bills in June 2003.

J.     SPECIAL CIRCUMSTANCES

82.Ms Cruden’s primary submission was that there was no special circumstance justifying a special taxation.  There was, she submitted, by reference to words used by Deputy Judge Woolley in Greater China Herbs.Com Ltd v Deacons, HCMP 1079/2002 at p 3: “nothing here but the ordinary dealing between a solicitor and clients, who, well aware of their rights, chose to do nothing in respect of taxation of their bills” until long after the 12 month period had expired.

83.Ms Cruden further submitted that there was no bona fide dispute about the items in the bills, as seen by the lack of any query or objection taken in relation to the bills until very recently.

84.Ms Mok, on the other hand, relied on a number of matters as being sufficiently out of ordinary, either by themselves or cumulatively, to justify taxation.

(A)   Size of the bills and over-charging

85.Ms Mok very fairly accepted that the size of the bill was not by itself a special circumstance.  In the circumstances of the litigation which gave rise to the dispute in this case, I am inclined to agree with her, although I should not be taken to suggest that the size of the bill is never relevant in any case: each case must depend on its own facts.  (For the sake of completeness, I should add that Ms Mok originally relied on In re A Solicitor [1961] 1 Ch 491, a decision of Cross J, to support a submission that the size of the bill could be a special circumstances.  The headnote of that case may lend support to such an argument, but a careful reading of the case shows that Cross J did not say what the headnote seems to suggest.  On the facts of that case, the size of the bills was relevant to explain why the client had paid it in the first place: see pp 505-506.)

86.However, Ms Mok relied on possible overcharging.  It is well established that overcharging is a special circumstance which could justify taxation: see Re a Firm of Solicitors [1984] HKC 346, Mayo J; Wang Yoeh Yu Ruth v Chan Victoria [1988] HKC 687, Mayo J; Krajl v Birkbeck Montagu’s, unrep, English CA, 18 February 1988; Mong Man Wai v H H Lau & Co, unrep, HCMP 3009/2002, Deputy Judge A Cheung at para 55.

87.In this connection, Ms Mok relied on the fact that in the party and party taxation of the Tso and the Clan’s costs in the CFA, Miller Peart’s profits costs were cut down by almost 80%, from $8.1 million to less than $1.8 million.  Ms Mok found support in the Krajl case, in which the Court of Appeal took into account similar heavy reduction in party and party taxation.

88.Mr Miller explained in his affidavit that the reduction was largely due to the fact that the profits costs claimed were based on 4 fee earners, with 2 partners and 2 paralegals, but the Registrar only allowed 1 fee earner in the party and party taxation.  Further, reliance was placed on the fact that Mr Edward Chan SC, one of the leading counsel in the team of 4 counsel acting for the Tso and the Clan, took the unusual step of providing a letter to the Registrar explaining that due to the complexity of the case, the involvement of 4 fee earners from Miller Peart was in his view necessary.

89.Ms Mok also took me to a number of items of alleged overcharging.  I have myself quickly gone through the solicitor and own client bills, which run into over 650 pages.

90.While giving due weight to the complexity of the case as well as the views of Mr Edward Chan SC and Mr Miller’s explanation, I am satisfied that even on a solicitor and own client taxation, there is a real possibility or probability of the bills being substantially taxed down.

91.For obvious reasons I should refrain from going into any details in this judgment.  As an example only, I have observed that in addition to the items referred to by Ms Mok, there are a large number of items for which more than 1 or 2 fee earners have been charged for, when the tasks involved would not seem to warrant more than 1 or at most 2 fee earners.  These may of course all turn out to be complex tasks fully justifying attention of all the fee earners, but on the basis of the materials before me I will not be surprised that the amounts claimed are substantially taxed down even on a solicitor and own client basis.

(B)  Unusual circumstances of the case

92.Another factor that I would take into account is the rather unusual history of the case.  In particular, I have in mind the events leading to the Consent Order, and the 3 excursions to the CFA.

93.In short, this is not a case of the client doing nothing after Miller Peart’s bills have been delivered.  The history of the case shows that the Managers were always disputing Miller Peart’s costs and the basis of taxation of those costs.  They have since 2003 been asking for the supporting documents but, for one reason or another, have not been given access.  The fact that it has taken 6 years for the matter to have progressed so little was largely due to a number of extraneous matters, in particular the need to seek the CFA’s clarifications, rather than attributable to either side’s fault or neglect.  I am satisfied that there is no inordinate or unreasonable delay on the Managers’ part.

K.    TAXATION ORDERED UNDER SECTION 67(2)

94.Taking into account all the matters mentioned above, in my judgment there are sufficient special circumstances justifying an order for taxation of Miller Peart’s solicitor and own client bills pursuant to Section 67(2).

95.I would therefore uphold paragraphs 1 to 5 of the order of Master Lung save that in relation to paragraph 1, the words “solicitor and own client” should be added between the words “Defendant’s” and “bills”.  For the avoidance of any possible doubt, the taxation of Miller Peart’s solicitor and own client bills delivered on 26 June 2003 shall be on a solicitor and own client basis.

96.I do not think the proposed re-amendment to the Originating Summons is necessary.  I therefore make no order on the Managers’ summons dated 17 November 2006.

L.    TERMS TO BE IMPOSED

97.I turn to the question of what, if any, terms or conditions should be imposed.

98.Ms Cruden asked for 4 things:

98.1     the Managers to pay the taxing fee;

98.2     there be an interim payment of $20 million or a substantial amount pending the taxation;

98.3     the balance of the total amount claimed be paid into Court;

98.4     the Managers should pay the costs of the taxation in any event.

99.Ms Mok did not dispute that the taxing fee should be paid by the Managers.  Indeed, the Managers had agreed to pay those fees in the Consent Order.  I therefore turn to consider the other 3 conditions.

(A)   Interim payment

100.The total amount of the solicitor and own client costs claimed in the bills is over $81.5 million.  Taking into account the $48.2 million already received, the outstanding amount claimed is $33.3 million.  On top of that, interest is claimed from 26 June 2003 to 21 July 2004 amounting to $2.86 million.  Further interest at $10,098.29 per day is also claimed.

101.I am given to understand that the $33.3 million claimed is predominantly profits costs.  About $3 million out of that $33.3 million represent disbursements Miller Peart have or will have to discharge: $2 million for costs of the law costs draftsman and $1 million for outstanding counsel fees, some of which have been outstanding for many years.

102.There is unanswered evidence that the Managers should have at their disposal (i.e. without having to seek payment out from the Funds) about $20 million.  Miller Peart therefore seek an interim payment of this amount, or failing that, a substantial amount nonetheless.

103.However, the first question that has to be addressed is whether the court has power, under section 67, to impose interim payment as a term.

104.Ms Cruden submitted that the court had such power under section 67.  She relied on the very wide terms of sub-section (2): “the court may, upon such terms, if any, as it thinks fit”.  She submitted that the provisions of Order 29 rr 11 and 12 and the authorities in relation to interim payment under those rules could apply by analogy.  Authorities relied on by Ms Cruden include Stringman v McArdle [1994] 1 WLR 1653, CA, and Sun Jianqang v Chan Tak Kau [2001] 2 HKLRD 435, Suffiad J.

105.Ms Mok submitted that despite the general words of section 67(2), the court has no jurisdiction to order interim payment.  It was said that the provisions under Order 29 rr 11 and 12 were specifically designed for the types of cases provided for, and could not simply be applied by analogy.

106.The authorities relied on by Ms Cruden do not appear to be helpful to the question before me.  However, as far as counsel’s research goes, no case has been found either in Hong Kong or England in which the court has imposed interim payment as a term in granting taxation.

107.I therefore turn to the wording of the section.  In my judgment, the jurisdiction conferred under section 67(2) is wide enough to enable the court to impose as a term for ordering a special taxation the making of an interim payment in such amount as the court may consider just.  I do not see any reason in principle why the court should not have such power in view of the wide wording of section 67(2).  Nor do I see any conceptual difficulty in ordering an interim payment to be made.  Just like the case of a claimant whom the court thinks is likely to recover substantial damages, or one in favour of whom a judgment has been entered with damages to be assessed, if the court considers that a solicitor is likely to recover a substantial amount after taxation, why should the court be powerless to impose such a term in an appropriate case when section 67(2) gives the court a wide jurisdiction to impose whatever terms the court thinks fit?  The same rationale for making an interim payment must apply in all these cases.

108.I therefore proceed to consider whether I should impose such a term in the circumstances of this case, and if so, the amount of such interim payment.

109.Mr Miller referred in his 6^th affidavit that the long delay in the settlement of his firm’s fees or taxation has caused great hardship to him personally and professionally.  In particular, Mr Miller placed emphasis on the departure of his erstwhile partner Mr Peart in November 2004, leaving Mr Miller as sole proprietor of the firm.  Mr Miller deposed to the difficulties he would have to face in dealing with this unavoidably complicated and tedious taxation, and running his practice at the same time.

110.I can see the serious hardship that Mr Miller will have to overcome in dealing with the taxation.  But that would be the case had the Managers complied with the deadline of 18 August 2006 under the Consent Order.  Although the Managers failed to comply with it, in practical terms the current state of affairs is not significantly different from what would have obtained had they complied with it.

111.I am also unable to put much weight on the departure of Mr Peart.  He resigned in November 2004, well after both Mr Miller and Mr Peart realised or should have realised that the Managers were disputing their costs: it will be remembered that Miller Peart’s bills were delivered on 23 June 2003; the Managers made it clear quite shortly thereafter that they dispute Miller Peart’s claim; and HCA 1692/2004 was commenced in July 2004.  So Mr Peart left at a time when both he and Mr Miller knew or at least ought to have known that in all probability they were facing considerable resistance to their claim.  There is, in any case, no evidence from Mr Peart that he would have remained in the firm had he known that the Managers wanted the bills to be taxed.

112.Looking at the matter in the round, I do consider that it is just and fair that some interim payment should be made.  In the exercise of my discretion I would order an interim payment in the sum of $10 million.  This is made up of $3 million which Miller Peart have incurred or will have to incur in reimbursement, plus a sum of $7 million on account of further profits costs which I consider to be appropriate in the circumstances of this case. 

113.I will order that the sum of $10 million be paid within 21 days of the delivery of this judgment.  Needless to say, since the sum is paid by way of interim payment, in the event that the final amount certified to be due to Miller Peart after the taxation falls short of that sum, Miller Peart must repay the balance to the Managers.

(B)  Payment into court

114.There is no dispute over the court’s jurisdiction to order payment into court.

115.Ms Cruden submitted that in practice, payment into court is routinely made a condition of any taxation.  But she has not provided any authority in support of that bold submission.

116.In my view there is no sufficient reason for ordering any payment into court in this case.  There is at present a sum of $213 million being held by HSBC.  No payment out could be made without an order of the court.  Although there is evidence of various claims to those Funds, I have seen nothing to suggest any risks that those Funds will be exhausted within a short time.  I do not see why Miller Peart should be allowed, in effect, to have security for their claim.

117.What I would order is that the Managers should forthwith notify Miller Peart of any application for payment out of the Funds which would result in the Funds being reduced to less than $20 million.  That should be sufficient to allow Miller Peart to consider their position, and if necessary, to make representations to the court.

(C)  Costs of taxation

118.The normal rule is that costs of the taxation should follow the event, which means taxing off one-sixth or more of the amount of the bill: see LPO section 67(5).

119.I see no reason in this case why I should impose a condition that the Managers should pay the costs of the taxation in any event.

M.   DISPOSAL OF APPEAL

120.I propose to make the following orders on the substantive appeal:

120.1     Paragraphs 1 to 5 of the order of Master Lung made on 8 September 2006 are affirmed, save that in relation to paragraph 1 the words “solicitor and own client” should be inserted between the words “Defendant’s” and “bills”.

120.2     HCA 1692/2004 be stayed pending completion of the taxation.

120.3     The Managers do within 21 days of delivery of this judgment make an interim payment on account of Miller Peart’s solicitor and client costs in the sum of $10 million.

120.4     The Managers shall give Miller Peart written notice of any application for the payment out of the Funds or any part thereof which would have the effect of reducing the total balance of the Funds to $20 million or less, within 3 working days of being notified of any such application.

N.    COSTS

121.Although I have affirmed the order of Master Lung ordering the taxation of Miller Peart’s solicitor and own client bills, I have come to that decision on different grounds.  It seems to me that Miller Peart have substantially succeeded on this appeal, and they have had to come to this court to get an interim payment.  Had the Managers taken the fairly simple steps to comply with the Consent Order, two very expensive hearings, and a few months’ delay, could have been avoided.

122.In the circumstances, I would make a costs order nisi that Miller Peart shall have the costs of this appeal and of the hearing before Master Lung.  Given that the taxation is likely to take a considerable time, I think they should have those costs taxed (unless agreed) and paid forthwith, on the party and party basis.

Ms Alice Mok, SC, leading Ms Shannon Leung, instructed by Messrs Cheung & Choy for the Plaintiffs

Ms Liza Jane Cruden, instructed by Messrs Johnson, Stokes & Master for the Defendant