Izumo Mokko Co, Ltd and Another v. T. S. Lines Ltd

DCCJ 3707/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3707 OF 2005

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BETWEEN

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Coram : Registrar J. Ko in Chambers (open to public) 

Date of Hearing : 8^th January 2008     

Date of Handing Down Decision : 11^th January 2008 

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DECISION

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1.This is the application of the Plaintiffs/Paying Party to review my decision on the taxation of some of the items in the Defendant/Receiving Party’s bill of costs dated 16^th August 2007.

2.The Plaintiffs claim against the Defendant in this action for damage to the machinery that was shipped on board a vessel called “TS Osaka” under a bill of lading issued by the Defendant.  The Defendant denies liability.

3.By the summons dated 5^th July 2006, the Defendant applied for security for costs of the action.  The summons was argued before His Honour Judge Lok on 19^th April 2007, who ordered the Plaintiffs to give security in the sum of $180,000 and to pay the Defendant’s costs of the application.  Thereafter, the Plaintiffs thrice sought an extension of time to pay the security.  By consent of the parties, Master Pang made an order on 6^th June 2007 granting the third extension to the Plaintiffs and the costs of the application to the Defendant.

4.Thereafter, the Defendant commenced the taxation proceeding to tax its costs pursuant to the orders dated 19^th April 2007 and 6^th June 2007.  On 14^th November 2007, I taxed the Defendant’s bill. 

5.The Plaintiffs feel dissatisfied with my ruling on items 3, 4, 5, 12, 21, 58 (5.1), 58 (5.13), 58 (6.1), 58 (7) and 59-101 of the Defendant’s bill and apply for review.  The application is resisted by the Defendant.  At the hearing on 8^th January 2008, the Plaintiffs’ solicitor withdrew the application to review my ruling on items 12 and 58 (6.1) of the bill.

6.The Plaintiffs’ objections to my ruling on the remaining items raise 4 questions for determination:

(a)	Question 1 : Having ruled that it was neither necessary nor proper for the Defendant to instruct a law costs draftsman (“LCD”) to prepare the bill of costs in support of its application for security for costs, whether I should allow any costs claimed under items 3, 4, 5, 21 and 58 (5.1)?
(b)	Question 2 : Whether I should allow any costs claimed under item 58 (5.13) for preparing the skeleton bill used for negotiation?
(c)	Question 3 : Whether I should allow any costs claimed under item 58 (7) for researching and considering the relevant law?
(d)	Question 4 : Whether I should deprive the Defendant of or reduce its costs of taxation claimed under items 59-101, in view of the extent to which the Defendant’s costs claimed in the bill have been reduced on taxation?

Question 1

7.In support of its application for security for costs, the Defendant exhibited a skeleton bill of costs estimating the Defendant’s costs up to and including trial to be about $580,000.  Although the bill was called a skeleton bill, it was in fact a full bill of costs professionally drafted by an LCD and ran into 17 pages.

8.In the bill of costs that I taxed:

(a)	Under items 3, 4 and 5, the Defendant claimed the photocopying costs for, inter alia, the skeleton bill exhibited, a copy of the same to keep and another copy for service.
(b)	Under item 21, the Defendant claimed $8,000 being fee paid to LCD for drafting the skeleton bill.
(c)	Under item 58 (5.1), the Defendant claimed for the costs of 1 hour of work by the handling solicitor for considering and approving the skeleton bill.

9.At the taxation, the Plaintiffs objected to the above items.  The Plaintiffs submitted that it was neither proper nor necessary for an LCD to be instructed to prepare the detailed bill and that a simple skeleton would have sufficed.  The Plaintiffs cited Big Island Construction (HK) Limited v. Wu Yi Development Company Limited, HCA Nos.1957/2005, 2196/2006 & 886/2007, 26/10/07.  That is a decision on 3 applications for security for costs heard together and the facts of that case are not relevant to ours.  However, Chu J. has commented at paragraphs 46 and 47 of her decision on the inappropriateness of engaging an LCD to prepare a detailed bill of costs for the purpose of applications for security for costs.

10.After hearing submissions, I made the following rulings:

(a)	$36 (representing the photocopying costs of 12 pages) were deducted from each of items 3, 4 and 5.
(b)	$5,600 were deducted from item 21, thus allowing only $2,400 for drafting the skeleton bill.
(c)	40 minutes were deducted from item 58 (5.1), thus allowing only 20 minutes of work by the handling solicitor to consider and approve the skeleton bill.

11.I respectfully agreed with the comments of Chu J. that it was generally not appropriate to engage an LCD to draft a skeleton bill for the purpose of an application for security for costs.  At the time when the summons for security for costs was taken out in this action, the pleadings in this action had just been closed and parties had only gone through the first round of discovery.  The steps so far taken could not have been substantial.  Furthermore, I did not consider it proper or necessary to engage an LCD, whose expertise is in drawing up bills of costs against historical record of work done, to speculate on future proceedings.  This should be within the expertise of the solicitors.  I therefore disallowed the engagement of an LCD to draft the skeleton bill.

12.Notwithstanding the above, however, I considered that the Defendant would still have to prepare a skeleton bill of costs to enable the court to take a broad-brush approach on the amount of costs to be ordered if necessary.  As such, I did not tax off all the costs claimed for preparing the skeleton bill but:

(a)	allowed 5 pages of photocopying costs for the skeleton bill which should have been prepared;
(b)	allowed $2,400 for drafting the skeleton bill in its proper format, representing about 1.5 hours of work by a solicitor of 3 years’ standing; and
(c)	allowed 20 minutes for the handling solicitor (with more than 10 years of experience) to consider and approve the skeleton bill.

13.The point now taken by the Plaintiffs is that all the costs claimed for the preparation of the skeleton bill should be taxed off once I have ruled that it was neither proper nor necessary to engage an LCD.  The Plaintiffs’ solicitor submits that the Defendant’s solicitors cannot charge its client for work (i.e. the preparation of the skeleton bill in its proper format) which they has not in fact undertaken.  As such, the Plaintiffs should not be liable for any costs by reason of the principle of indemnity.

14.I disagree.  Whilst I have disallowed the engagement of an LCD, I have accepted that it was still necessary to prepare a skeleton bill (in a proper format) in support of the application.  By disallowing the costs of LCD on a party and party taxation, the Plaintiffs (as the paying party) will not be liable for such costs, but that does not mean that the Defendant (who has agreed to instructing the LCD to draft the skeleton bill) does not have to pay the LCD.  The effect of my ruling is merely to reduce the costs of preparing the skeleton bill from a higher amount claimed to an appropriate amount.  The indemnity principle is not engaged, and the Plaintiffs’ argument must fail.

15.Nothing submitted by the Plaintiffs on review has caused me any doubt about my previous decision.  I therefore confirm my previous rulings on items 3, 4, 5, 21 and 58 (5.1).

Question 2

16.In item 58 (5.13) of the bill, the Defendant claimed 4 hours of work by the trainee solicitor and 15 minutes of work by the handling solicitor in preparing a skeleton bill for the purpose of negotiation.  This skeleton bill is concerned with the costs subsequently claimed in the bill dated 16^th August 2007.

17.At the taxation hearing, the Plaintiffs relied on an observation in Hong Kong Civil Procedure 2007 and argued that the Defendant should not be entitled to any costs associated with unsuccessful attempts to settle.  Alternatively, the Plaintiffs argued that there was duplication of work and that the time claimed was excessive.

18.The editors of Hong Kong Civil Procedure 2007 have indeed observed that generally costs incurred in connection with settlement are allowable only if the matter was eventually settled.  Be that as it may, Practice Direction 14.3 directs the parties at various stages of the taxation proceeding to discuss the items in issue and to negotiate a reduction of the items in issue.  This practice is aimed at facilitating early settlement or identification of areas of disagreement.  As I was informed at the taxation hearing that parties had in fact engaged in negotiation in accordance with the practice direction, I considered it proper for the Defendant to prepare the skeleton bill for such negotiation.  Having regard to the submission on duplication and excessiveness, I only allowed 2 hours of work by the trainee solicitor to draft the skeleton bill and 15 minutes by the handling solicitor to approve the same.

19.At the review, the Plaintiffs’ solicitor takes the point that the amount of costs estimated in the skeleton bill is $122,000 whereas the amount eventually claimed in the bill dated 16^th August 2007 comes to about $98,000 only.  He submits that the Defendant automatically gained a 20% reduction by not settling at that stage.

20.What the Defendant’s solicitor is really saying is that the skeleton bill, which was supposedly prepared for the purpose of negotiation, has not served its purpose.  Whilst I accept that it was necessary for the parties to enter into negotiation in view of the practice direction, that does not mean that all costs associated with such negotiation should be allowed.  I still have to consider whether the actual work done was necessary or proper for the purpose of negotiation.  I am persuaded that the skeleton bill in question was not conducive to negotiation at all.

21.I therefore review my decision on item 58 (5.13) of the bill and disallow all the costs claimed thereunder.

Question 3

22.The Defendant claimed under item 58 (7) 1.5 hours of work by the trainee solicitor for researching and considering the relevant law and provisions on the mode of security varied by the Plaintiffs.  The Plaintiffs objected to this item at taxation on the ground that the costs of researching on procedural issues should not be allowed.  I was told that the research had been prompted by the Plaintiffs’ request to give security by way of an undertaking by their insurer.  In the end, I allowed 20 minutes of work by the trainee solicitor for the research.

23.At the review, the Plaintiffs’ solicitor submits that the burden rests on the Defendant to prove that the research conducted was necessary or proper having regard to the Defendant’s request.  Since the nature of the research has not been identified on the bill and that research on general law and procedure is not recoverable, the Defendant should not be entitled to any costs.

24.The nature of the research conducted has not been identified on the bill.  From the documents submitted for my reference at the review, it appears that the trainee solicitor conducted research on the consequence of refusing the Plaintiffs’ request.  Solicitors are expected to be conversant with the general law, practice and procedure and no costs for doing research on these areas should be allowed: see Hong Kong Civil Procedure 2008, para.62/App/21.  The LCD representing the Plaintiffs is understandably unable to elaborate further.  The Defendant has failed to satisfy me that the research was beyond the sphere of general law, practice and procedure.

25.I therefore review my decision on item 58 (7) of the bill and disallow all the costs claimed thereunder.

Question 4

26.Items 59-101 of the bill cover the costs of the taxation proceeding.  The Plaintiffs object to my decision on the ground that the Defendant ought either to be deprived of its costs or to have its costs significantly reduced in view of the extent to which the costs claimed in its bill have been reduced.  It is said that the bill dated 16^th August 2007, like the skeleton bill put forward in support of the security for costs application and the skeleton bill put forward for negotiation, was exaggerated and oppressive.

27.At the review hearing, I invited the Plaintiffs’ solicitor to specify the legal basis for depriving the Defendant of its costs of taxation or to reduce its costs on account of the extent to which its costs have been taxed down.  He relies on the general discretion of the court on costs. 

28.The present Order 62 of the Rules of the District Court does not empower a taxing master to do what the Plaintiffs have asked me to do.  There is no allegation of delay in the filing of the bill for taxation and so Order 62, rule 22 is not engaged.  The closest authority one can find in support of the Plaintiffs’ stance is Order 62, rule 8(7), but that provision only applies to taxation of costs to be paid out of a fund other than legal aid taxation.  We are here dealing with party and party taxation.

29.It is always open to a paying party to protect himself from an exaggerated and oppressive bill by making a reasonable Calderbank offer: see Wong Wai Chun v. Christine Lewin, DCCJ 6612/1998, 6/12/1999, per Master Poon (as he then was) at para.12.  The Plaintiffs’ solicitor frankly admits that a Calderbank offer was in fact made but beaten.  In seeking to deprive the Defendant of its costs of taxation, the Plaintiffs are in effect attempting a second bite on the cherry.  This is not envisaged in the present rules and the application must be refused.

30.It may be of interest to note that in future, the court will be empowered to have regard to some underlying objectives of the rules (including costs-effectiveness and proportionality) and the amount by which the bill has been reduced when dealing with the costs of the taxation: see Order 1A and Order 62, rule 32A(2) in the draft Rules of the District Court in the Revised Proposals for Amendments to Subsidiary Legislation under the Civil Justice Reform.

Conclusion

31.For the above reasons, I dismiss the Plaintiffs’ application to review my decision on items 3, 4, 5, 21, 58 (5.1) and 59-101 of the Defendant’s bill and review my ruling on items 58 (5.13) and 58 (7) to the extent mentioned above.

32.Five points were taken in the Plaintiffs’ notice of review.  One was withdrawn at the hearing and the Defendant succeeds in two out of the remaining four.  The final savings from the Plaintiffs’ point of view out of this review comes to about $2,700 only.  In all the circumstances, a fair order for the costs of the review is that each party should bear its own costs and I so order.

Representation:

Mr. Kerry, of Messrs. Crump & Co., for the Plaintiffs

Mr. Adrian Wong (Law Costs Draftsman), of Messrs. Dibb Lupton Alsop, for the Defendant