The Incorporated Owners of Yan's Tower v. Ho Kwai Yee

DCMP 4124/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 4124 OF 2004

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BETWEEN

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Coram:  His Hon Judge Leung in Chambers (open to public)

Date of hearing:  22 February 2008

Date of handing down decision:  21 April 2008

DECISION

1.Ho (the Defendant) owns a workshop inside a building in Aberdeen.  In 2000, she was sued in the Lands Tribunal (LDBM 161/2000) for, among other things, management fee in arrears.  Judgment was obtained against her in the same year.  Charge was registered against the workshop.  To enforce, the IO of the building (the Plaintiff) commenced the present action for an order for sale of the workshop.  The IO eventually obtained the order together with a costs order against Ho in February 2006.  In default of agreement, the IO proceeded to taxation.

2.The IO’s solicitors presented a bill of costs for about HK$200,000.  Ho argued that the IO and its solicitors had by agreement capped the costs at HK$28,000.  Therefore this should be the extent of her liability under the costs order.  Directions were then given for the determination of this dispute as a preliminary issue.

3.The preliminary issue was heard before the Registrar last December.  The Registrar found that when the HK$28,000 legal fee was agreed between the IO and its solicitors, a simple application for order for sale was contemplated.  He was satisfied that the IO subsequently agreed to pay for the work put in by the solicitors beyond the scope of work contemplated.  He found that the IO recognised or rectified the way the solicitors were to charge for such job.  The IO was accordingly awarded costs of the hearing (see p.115J-116M of the transcript of the hearing below).  Ho appeals.

4.Taken out as an appeal pursuant to O.58, r.1 of the Rules of the District Court, this should be a re-hearing of the preliminary issue.  During the hearing before the Registrar, the deponents of the affirmations filed on behalf of IO actually attended court for cross-examination.  Obviously, such oral evidence could not be re-heard live.  Parties expect this court to refer to the transcript of the hearing below for the record of the deponents’ oral evidence.

THE INDEMNITY PRINCIPLE

5.In determining whether the receiving party can recover costs from the paying party, the overriding principle is the indemnity principle.  The case of Lam Lai Wah Susanna v Pacific Century Insurance Company Limited, CACV 385/2002, 4 March 2003 (at paras.8-10) laid down the 3-step consideration in determining whether the receiving party has an obligation to pay costs to his solicitors; and therefore whether the paying party is under an obligation to indemnify the receiving party accordingly.  In the present case, there is no dispute that the IO is under an obligation to pay its solicitors.  It follows that there is no dispute that Ho is liable to indemnify the IO.  The dispute is on what basis and how much.  This has to do with the other facets of the indemnity principle.

6.The other facets of the indemnity principle are summarised in Hong Kong Civil Procedure 2008 at 62/App/3.  Essentially, the receiving party cannot recover a sum in excess of their liability to their own solicitors.  It follows that on the taxation of a bill:

(1) where the receiving party and his solicitors have made an agreement limiting the maximum hourly rates payable by the receiving party or limiting the costs of any other item, that agreement provides both a measure and a ceiling for the hourly rate or the other item in question;

(2) where the receiving party’ solicitors had agreed with their client that they would limit their charges to a certain sum, this ceiling is to be applied at the end of the taxation against the paying party and that the bill as drawn is not limited to this figure;

(3) where the receiving party has agreed with his solicitors on the amount of costs to be charged, that party is not entitled to recover upon taxation a sum larger that that agreed.

THE HK$28,000

7.The record of the HK$28,000 legal fee first appeared in the minutes of the IO’s management committee meeting in March 2004.  3 firms of solicitors submitted tenders.  Each of these tenders consisted of 2 items, namely, costs for the charging order and costs for the order for sale.  These 2 items quoted by the IO’s solicitors were HK$3,000 and HK$25,000 respectively, making the total sum of HK$28,000.  This was the lowest of the 3 tenders.  The minutes recorded the IO’s resolution to instruct the solicitors and its instruction to the manager to negotiate for the quoted fee to include the other incidental expenses as well.

8.The manager apparently reflected the IO’s such request to the solicitors.  This led to the solicitors’ final written quotation and the manager’s letter to the IO in May 2004 reporting the same.  In its letter, the manager recorded that the IO:

“同意聘用莊重慶律師事務以港幣$25,000進行拍賣該單位法律程序的費用，並在拍賣前將該單位進行扣押令，費用為港幣$3,000” (i.e., the IO agreeing to instruct the solicitors to apply for the orders at the fee quoted.)

The IO’s solicitors formally quoted their fees in writing as follows:

“	1.	Application for order for sale – HK$25,000 (inclusive of court fee and bailiff deposits (refundable) but not inclusive of disbursements (bailiff fees and watchman fees, etc – non-refundable) for sale of chattels in the Property;
	2.	Application for charging order/memorandum of charge – HK$3,000 (inclusive of court fee as described above).”

9.In June 2004, the then chairman of the IO signed the quotation, signifying agreement to the above terms on behalf of the IO.

10.In my view, there could be little doubt that the HK$28,000 was the agreed lump sum to be charged by the IO’s solicitors for the application including the obtaining of the order.  In the absence of subsequent agreement, this agreed fee would be the costs liability of the IO to its solicitors.

11.The IO says that HK$28,000 was the agreed fee on the basis that the application would be non-contentious.  No tender document is available for verification.  No such basis was mentioned in the quotation either.  However, if the HK$28,000 was indeed agreed on the basis of a non-contentious application, properly understood, one would expect the fact that the application became contested would immediately give rise to the concern that the agreed fee might not longer be applicable.  One would also expect that the IO’s solicitors would take instruction from the IO for variation of the basis or the amount of their legal charges once this became clear to them.

12.The fact was that by her solicitors’ letter one week after the IO have instructed its solicitors to apply for the order for sale, Ho already made it clear that she would strenuously resisted the application.  The application for order for sale was filed in November 2006, some 4 months afterwards.  By late May 2005, the IO was already informed that a 3-hour hearing has been fixed for argument in the application.  Report of this was recorded in the minutes of the IO’s meeting dated 24 May 2005.

13.After several hearings, the court granted the order for sale together with the costs order in question against Ho on 16 February 2006.  The record of proposed deviation from the agreed fee started to appear in the documents afterwards.  In their letter dated 2 June 2006, the IO’s solicitors explained to the IO:

“…… the tender price quoted by our firm covers a non-contentious application for order for sale.  In this case, the Defendant has unnecessarily and unreasonably prolonged these proceedings thereby aggravating the costs substantially in this action.  In the circumstances, we have to charge on time costs basis as stipulated in the appointment to tax……”

14.The minutes of the IO’s meeting on 21 June 2006 also recorded the solicitors’ explanation contained in this letter.

15.Judging from the sequence of events, as evidenced by the contemporaneous documents, I doubt whether the HK$28,000 fee was really agreed on the basis that the application for order for sale would be uncontested.

16.Having said that, I do not doubt that when the HK$28,000 was quoted and agreed, the application might be thought to be a simple and straightforward one.  This might be the case whether the application was going to be contested or not.  In his affirmations, Lau indeed stated to that effect.  Though I am not bound, I am at liberty to take notice of the Registrar’s explanation of the usual costs fixed by the court for an application for an order for sale without contention (p.115M-O of the transcript of the hearing below).  There was no suggestion in the court below or before this court that the Registrar’s such observation is incorrect.

17.The IO’s solicitors might have second thought about their legal charges, after what they have eventually done in handling the contested application.  The IO’s solicitors did explain that the agreed fee could not be adhered to because Ho has unnecessarily and unreasonably prolonged the proceedings.  Ho disputes she has done so.  In support, Miss Wong for her also referred to the time spent on and submission of the IO’s solicitors in the various hearings.

18.In my view, the question now is not whether the IO’s explanation to the IO was correct or whether the IO ought to have accepted such explanation.  The question is rather whether the IO in fact agreed to deviate from the original agreed fee upon its solicitors’ such explanation.  Regarding whether more work or time was in fact necessitated by Ho’s conduct of these proceedings, the court would have to scrutinise the items of work done and the reasonableness of the legal charges for them as contained in the bill of the IO’s solicitors during the actual taxation in any event.

VARIATION

19.If the solicitors intended that the agreed fee, for whatever reason, should not be adhered to, the variation can only be effected by way of agreement.  Whether the IO agreed to the variation is a matter of fact and inference from the circumstances.

20.The first document revealing that the charges would no longer be the HK$28,000 agreed fee was the minutes of the IO’s management committee meeting in March 2006.  This was two weeks after the judgment and the costs order against Ho has been handed down.  Apart from noting that the HK$200,000 charges substantially exceeded the original quotation and enquiring whether there would be room for negotiation, the IO did not query this as a mere fact of deviation from the agreed fee.  Miss Wong for Ho queried why the bill was not sent to the IO but to Ho.  She suggested that that reflected the solicitors’ expectation that Ho was already bound by the costs order to pay.

21.The IO’s solicitors never concealed the fact that they so expected.  In their letter dated 2 June 2006 mentioned above, the IO’s solicitors explained to the IO that they were confident that the taxed costs would be fully recovered from Ho.  But the significance of this letter lies in that they also made it clear that:

“…… in the unlikely event that the taxed costs for whatever reason could not be recovered from the Defendant, the Incorporated Owners would ultimately be liable to settle the said taxed costs.”

22.Cheung, the chairman of the IO, signed the above letter signifying the IO’s endorsement of its content.  Miss Wong for Ho submitted that the signing of this letter could not have the effect of an agreement to the terms contained therein.  She referred to the evidence of Cheung during the cross-examination before the Registrar.  She submitted that his evidence showed the lack of certainty in the cancellation of the original agreed fee, the lack of agreement on the hourly rate to be charged by the IO’s solicitors and the endorsement of the letter not being to signify the IO’s agreement but merely its understanding of the solicitors’ situation.

23.In my view, the question has to be determined on the balance of probabilities with reference to all the evidence as a whole.  The fact was that the IO was asked and it also paid to its solicitors interim costs in the sum of HK$80,000 in August 2007.  There is no reason why the IO would meet the solicitors’ demand just like that, if it did not agree to it.  In the hearing below, counsel then appearing for Ho suggested the possibility of concoction between the IO and its solicitors (p.113T-U of the transcript).  While this suggestion was not explicitly repeated before this court, Miss Wong for Ho still queried why the IO’s solicitors never made any interim demand for payment; yet they decided to do so only after the present preliminary issue was raised by Ho.  This query leads to nowhere; unless I am satisfied that the payment was in fact a false pretence.  I am not so satisfied.

24.Miss Wong for Ho submitted that even assuming Cheung’s endorsement of the 2 June 2006 letter signified the IO’s agreement to the terms contained therein, this did not constitute a legally binding agreement for non-compliance with the building management rules.  She argued that the agreement was not made pursuant to a resolution of the management committee of the IO or the general meeting of the owners.  The IO’s solicitors, in their capacity as such, ought to have known and therefore could not enforce the agreement either.  She relied on Equal Property Management Limited v the Incorporated Owners of San Po Kong Mansions, DCCJ 14835/2000, 17 September 2001 at paras.10-11; 18.

25.In the San Po Kong Mansions case, the chairman of the IO signed a management contract with the plaintiff company.  The issue was whether the chairman had ostensible authority to bind the IO to this contract with the plaintiff company as a third party.  The peculiar fact, which gave rise to this issue, is that the IO actually refused to accept the management contract so signed by its chairman.  In other words, the IO disputed its chairman’s authority.  Hence the plaintiff company’s claim against the IO.

26.In the present case, there is indeed no evidence of a resolution by the management committee of the IO to agree to the variation of the solicitors’ legal charges.  However, by the time when Cheung signed the 2 June 2006 letter, the variation of the solicitors’ charges was revealed at least during the meetings of the management committee in late May and June 2006.  The content of the letter was actually explained by the IO’s solicitors during the meeting on 21 June 2006; at the end of which the management committee resolved to sign such a letter.  On the same day, Cheung appended his composite signature, i.e., as chairman for and on behalf of the IO together with the IO’s stamp, on the letter.  The stance of the management committee cannot be clearer when the interim payment of HK$80,000 was later made, though in the following year.  The scenario of the IO disputing its chairman’s authority to bind it to a contract with a third party in the San Po Kong Mansions case simply does not exist here.

27.In my judgment, while the paying party under a costs order is not liable to indemnify the receiving party for any sum in excess of the receiving party’s liability to his own solicitors, this does not mean that the paying party may dispute his liability by seeking to show that the receiving party ought not to have accepted, or ought to have disputed, his liability to his own solicitors, even when he in fact accepted the liability.  One exception is perhaps collusion (or concoction, as suggested by previous counsel for Ho) between the receiving party and his solicitors with a view to aggravating the liability of the paying party under the costs order.

ORDER

28.Considering all the circumstances, I dismiss the appeal with costs including any costs reserved.  Costs shall be taxed if not agreed.  This costs order is nisi and shall become absolute in 14 days in the absence of appointment to argue.

Representation:

Miss May Tam of Messrs Solomon C Chong & Co for the Plaintiff

Miss Catherine K K Wong instructed by Messrs Yip & Co for the Defendant