Mariner International Hotels Ltd and Another v. Atlas Ltd and Another

FACV No. 3 of 2006

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 3 OF 2006 (CIVIL)

(ON APPEAL FROM CACV NO. 291 OF 2004)

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Between:

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REASONS  FOR  REVIEW  OF  TAXATION

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1.The Appellants (“receiving party”) seek a review of taxation on 2 matters:

(A)     the amount of fees for London silk; and

(B)     that the costs for a senior handling solicitor to attend the taxation ought to be allowed.

(A)     Fees for London silk

2.Ms Yvonne Cheng (“Ms Cheng”) for the receiving party has very ably and fairly summarized the complex background of this case in her opening submission at the taxation.  A summary of key information was also presented to give me an idea of the amount at stake and volume of documentation involved.  All of these were not disputed.  There was no doubt that this appeal fell within the complex category. 

3.The Respondents (“paying party”) had actually conceded certificate for 4 counsel and the Court of Final Appeal (“CFA”) ordered accordingly.  At the taxation, it was not disputed that it was necessary and proper to engage London silk.  It was only a question of quantum of his fees.

4.The principles for award of counsel’s fees were not in dispute.  Every fee paid to counsel shall be allowed in full on taxation, unless the taxing master is satisfied that the same is excessive and unreasonable, in which event the taxing master shall exercise his discretion having regard to all the relevant circumstances and in particular to the matters set out in paragraph 1(2): Order 62, Schedule 1, paragraph 2(5) of the Rules of the High Court; Re Greater Beijing Expressways Ltd (No. 4) [2005] 2 HKC 185, per Barma J.

5.In Simpsons Motor Sales (London) Ltd v. Hendon Corp. (No.2) [1965] 1 WLR 112, it was said that,

“The measure of counsel’s fees is to be determined by estimating (on the basis of the court’s knowledge and experience) the fee to which a hypothetical counsel capable of conducting the case effectively would be content to take on the brief, bearing in mind that such hypothetical counsel does not insist on the particularly high fees sometimes demanded and obtained by ‘fashionable’ counsel.”

This was adopted in Re Greater Beijing Expressways Ltd, supra.

6.The receiving party’s London silk (“JS”) charged an astronomical fee of £900,000 (about HK$13.70 million[1]) just for the brief.  The paying party offered £350,000 (about HK$5.33 million), a fee charged by their own London leader.  Eventually I allowed the latter amount.  In so doing, I have given rather full reasons for decision (see pages 31-36 of the Review Bundle), which I adopt in entirety.  In summary, my reasons were that:

(a)  The fees of the hypothetical counsel must be those of a local counsel, but in this case, it was not just any Senior Counsel but one who was eminent and able to conduct the case effectively.

(b)  The fees stated in the commercial Guide to the Legal Profession were not admissible as being the opinion of solicitors and the writer, and was hearsay upon hearsay.  If anything, the Guide was precisely an indication that JS was a star in the London Bar whose fees were the high fees demanded by fashionable counsel within the meaning of Re Greater Beijing Expressways Ltd.

(c)  It was dangerous to refer to fees charged by other London counsel in non-local cases when the Hong Kong court was not familiar with the circumstances in a foreign jurisdiction.

(d)  Authorities said that the fees charged by counsel for the paying party were not normally relevant.  However in the context of the fees of a London silk, the fees charged by the paying party’s London silk might form one useful indicator of what a hypothetical counsel would be content to take on.

(e)  The paying party’s London silk (“NT”) was also an eminent silk and had been admitted to Hong Kong before, including a case in CFA.  He would have carried more or less the same responsibility as JS although NT was acting for the Respondent.  The pressure to win would be no less.  Notwithstanding any division of labour between silks on his side, he was yet content to take on a brief much less than JS’s.  Though it was not said that NT possessed special expertise in construction law, his eminence could not be underestimated.

(f)   It was best to approach the question of quantum of the London silk’s brief by asking what a local eminent silk, with special expertise in an area of law, able to conduct an appeal effectively, would be content to receive for a CFA brief.  (emphasis added)

(g)  The relevant year of work was 2006.  I adopted an hourly rate of HK$10,000 for JS (being HK$2,000 to HK$4,000 above the usual conference rate in 2006 for a local eminent silk).  JS quoted 1½ month for his work.  So I adopted 45 days less 6 Sundays, making 39 working days.  I used 12 hours per day as the base. (emphasis added)

(h)  HK$10,000 x 39 days x 12 hours = HK$4.68 million. (emphasis added)

(i)    JS was out of London for about 7-8 days and could not take up other cases or even hold conferences in the meantime.  However, to compensate for the loss of opportunity for London counsel was a solicitor-client element which ought not to be allowed in party-party taxation.

(j)    The fees (£350,000) suggested by the paying party was quite generous and I allowed it for JS’s fees.

The Review

7.In this review, it is submitted that there was insufficient basis to hold that as much as 61.6% of JS’s fees were excessive and unreasonable.  The arguments of Ms Cheng on this issue can broadly be categorized as follows:

(a)  that I have erred in the approach to identifying the hypothetical counsel as local instead of London leading counsel;

(b)  that it was not unreasonable or excessive to engage counsel at the summit of his profession;

(c)  that JS’s fees were not out of line with fees charged by other London silk in other cases conducted in Hong Kong;

(d)  that fees of the opponent’s London silk were irrelevant and I have erroneously taken them into account;

(e)  that in mentioning the brief fee of £350,000, the paying party’s law costs draftsman (“LCD”) wrongly informed the Court that it included preparation of the Respondent’s printed case;

(f)   that it was appropriate to take into account the element of lost opportunity;

(g)  that I have failed to include fees for the first day of hearing;

Identifying the Hypothetical Counsel

8.Ms Cheng submits that Re Greater Beijing Expressways Ltd does not turn on where the case is to be conducted.  Rather, the issue for the Court is to identify the general class of counsel who would be capable of conducting the case effectively, and then, to consider the fee which such hypothetical counsel would require to accept the brief. 

9.I agree.  It does not matter that the work is not done in Hong Kong.  (For example, the London silk might have written an advice or did a site visit outside Hong Kong.)  However, it will still be the fees of a hypothetical counsel practising in the jurisdiction of Hong Kong that will be considered.  This is because the London silk is admitted as a Hong Kong counsel to conduct a Hong Kong case. 

10.Moreover, Re Greater Beijing Expressways Ltd permits the taxing authority to tap on its knowledge and experience.  It is the fees of local counsel that the taxing authority will have much more experience and knowledge of. 

11.Ms Cheng suggests that if the case, as this one, is one which calls for counsel of skill and ability which cannot be found in Hong Kong, then it must follow that the hypothetical counsel cannot be Hong Kong counsel.  If the hypothetical counsel is London counsel, then consideration has to be given to what fee he would require in order to be willing to take on the case.  It cannot be assumed that the fee with which Hong Kong counsel might be content would be similar to the fee with which London counsel might be content.  Reference is made to Interlego AG v. Tyco Industries Inc, HCA 4231/84, unreported, 22.12.1989, wherein Master Perrior stated:

“When Rhind J delivered his decision in Tai Hing Cotton Mill in 1982 in Hong Kong Courts were readily accessible to leaders from London.  However, within a year or two of that decision it became increasingly difficult for London leaders to gain admission to appear in the Hong Kong Courts and that is the situation which prevails today.

Simultaneously with this the financial rewards available to specialist London leaders have improved immeasurably.  Hence, the simple fact of the matter is that, if in respect of an action being maintained in the Hong Kong Courts, a specialist London leader is required the Hong Kong solicitors must be able to put an attractive financial proposition to the leader’s clerk otherwise they will be unable to persuade the leader to come.”

12.With respect, that the legal expertise required in this case could not be found in Hong Kong rendering it necessary to engage London silk is one thing.  Assessing his fees based on those of a hypothetical counsel is another.  It is not as if Hong Kong has no senior counsel with expertise at all to make reference to in determining the fees. 

13.The hypothetical leading counsel whom I have chosen has been described in paragraph 6(f) above.  That choice contained elements of leadership, eminence, capability, special expertise, and jurisdiction of practice. 

Not Unreasonable or Excessive to Engage Counsel at the Summit of Profession

14.Ms Cheng submitted that it was not unreasonable or excessive to engage counsel at the summit of his profession.  She suggested that “the level of fees must, to a very large extent, be a reflection of his skill and experience, rather than mere fleeting fashion: counsel who did not have the ability to handle complex and difficult cases with distinction would simply not be able to command this level of fee.” 

15.In Tai Shun Investment Co. v. CIR [1969] HKDCLR 65, Deputy Registrar Oliver stated:

“… I am of the opinion that a losing party faced with an order to pay costs on a party and party basis is only liable for those costs of counsel which can be described as necessary or proper or to put it in another form to pay the reasonable costs of employing counsel of average ability for the work which has been performed.  Subject however to the proviso that if a case is of quite exceptional complexity or importance as opposed to average complexity or importance it might in those circumstances be reasonable to employ a counsel right at the summit of his profession. ” (emphasis added)

16.It was also submitted that Barma J was not addressing his mind to this kind of case in Re Greater Beijing.  Where a case (as here) is of exceptional complexity and importance, it is neither excessive nor unreasonable for the paying party to bear the costs of engaging counsel of exceptional skill and experience to deal with the case.

17.I note that the case of Tai Shun Investment Co. v. CIR is a District Court case decided in 1969.  That was a time when the number of counsel, let alone experienced counsel, was more limited than in 2006 when costs of the present taxation were incurred.  It was also less difficult then to engage London silk than in 2006. 

18.In my view, the hypothetical counsel principle has been confirmed in Re Greater Beijing and has been consistently applied by taxing masters in taxation, be it for junior or senior counsel’s fees.  If the fees of the hypothetical counsel cannot be those of “fashionable” counsel, I fail to see how his fees could be those of “star counsel at the summit of his profession”.

19.From experience in taxation, I see that counsel commonly charges briefs in 2 ways:

(i)    In the form of one lump sum; or

(ii)  In the form of a daily rate, some with reference to refreshers, some to hourly rates.

20.With regard to paragraph 19(i), at the taxation, I have stated that I usually allowed brief fees of HK$250,000 to HK$500,000 for an appeal in CFA which lasted for 1-2 days.  The HK$5.33 million I have allowed to JS was more than 10 times those taxed lump sum fees. 

21.With regard to paragraph 19(ii), the formula which I have adopted in paragraphs 6(g) and (h) have reflected substantial increase to the usual fees of eminent local silk.

22.I wish to emphasize that HK$5.33 million was not a brief fee I would have allowed on my own volition.  However, the taxing authority encourages parties to agree costs and figures suggested by a paying party is always taken by me into account.  In this case, that suggested amount was generous but regrettably was refused by the receiving party.

JS’s Fees Not Out of Line with Other London Silk’s Fees in Other Cases Conducted in Hong Kong

23.By affirmation, the receiving party has tendered information concerning the briefs of some London silk conducting civil cases in CFA and the Court of First Instance in 2006-2007.  It shows that JS’s fees were not out of line with the fees charged by those London silk.

24.For a start, I question the admissibility of such evidence.  The figures presented were for briefs charged.  It is not clear whether they have been the subject of taxation.  Nor is it clear what was included in the brief fee.

25.Further, as pointed out by Ms Jaime Lam (“Ms Lam”) for the paying party, there are only 3 sets of brief fees for 4 cases.  Such scanty information cannot provide any proper basis for comparison.  Investigation into such briefs will generate satellite litigation on counsel’s fees, which is undesirable.

26.Moreover, I ask rhetorically, if the fees charged by the opponent’s counsel are irrelevant, how can the fees of counsel in other cases that have not apparently been the subject of taxation be relevant?

27.Even if I am wrong, given the astronomical briefs set out in the affirmation, I entertain doubt as to whether the taxing authority in those cases would depart from the hypothetical counsel principle and be prepared to allow anything close to those briefs.

Fees of Opponent’s London Silk Irrelevant

28.It is well established that on taxation, no comparison between the fees charged by counsel for the opposing party should be made: Ngan Wun Yeung v. Lok Sin Tong Benevolent Society, Kowloon & ors [2002] 2 HKC 404.  This is to avoid the situation where the lowest counsel’s fees in any case will serve as a benchmark of the standard of reasonableness, which cannot be right. 

29.Ms Cheng submits that it was erroneous as a matter of principle and also in the circumstances of the case for me to allow the brief fees at the same rate as NT’s fees:

(i)    There was a division of responsibility in the conduct of the Defendant’s case, with the paying party’s local silk presenting their case on title so that the responsibility of the London silk and workload was significantly different to that of JS.

(ii)  The Defendants had been successful in both lower courts so that their task was simply to defend the judgments.

(iii)  The paying party’s London silk appeared at the trial so that he was familiar with the documents and the oral evidence which the witnesses had given.

(iv)  It could not be assumed that the paying party’s London silk would have been willing to conduct the Plaintiff’s case on the same terms as he was willing to conduct the Defendant’s.

(v)  The paying party’s LCD misstated that NT’s brief of £350,000 was inclusive of drafting the Defendant’s printed case. 

30.Without disrespect, this line of submission shows a misreading of my reasons.  The formula I have adopted for determining fees was the one in paragraphs 6(g) and (h).  It was only because the paying party’s suggested figure was more generous than my calculation that I have adopted the same fee as charged by their leading counsel.

Misstatement that NT’s Fees Included Drafting of the Respondent’s Case

31.The Plaintiff’s solicitors discovered after the taxation that NT charged separately for preparing the printed case (plus travel and ancillary expenses and for advising on 2 occasions).  In comparison, JS only charged about half of NT’s fees with regard to these items.

32.As can be seen from the formula in paragraphs 6(g) and (h), I have not been affected by the misrepresentation.  I have separately allowed JS fees for settling the Appellant’s printed case.

Element of Lost Opportunity

33.I took the view that the loss of opportunity was a solicitor and own client element, not to be allowed on a party and party taxation.  In Loveday v. Renton [1992] 3 All ER 184, 194F, Hobhouse J sitting with 2 assessors had this to say,

“But the brief fee can only remunerate counsel for the work done on the brief delivered and lost opportunities can only be taken into account as a general background fact to the level of barristers’ fees overall in the same way as their overhead expenses and lost time.  It is however legitimate for counsel, once his brief has been delivered and accepted, to point to the commitment of time that it involves both for preparation and in the reservation of time for the trial.  In assessing the brief fee one also has to take into account what will be earned by way of refreshers and what will be the totality of the work that will be required from counsel in the proper discharge of their obligations to protect the interests of their client and the extent to which that work will not be separately remunerated.”

34.I cannot see, upon a reasonable reading of that passage, that the learned judge was saying that extra fees should be allowed for lost opportunity suffered by counsel.  Even if it does, in my view, the $5.33 million would have sufficiently compensated counsel for any lost opportunity.  If a party wants to pay more to secure fashionable counsel of his own liking, that is an expenditure on a luxury which he cannot pass on to the paying party.

First Day of Hearing

35.The brief fee includes all work done by way of preparation for representation at the trial and attendance on the first day of the trial: Loveday v. Renton & another (No.2) [1992] 3 All ER 184.  Ms Cheng submits that I might have omitted to provide for the first day’s appearance.

36.With respect, when the clerk of JS quoted the brief fee for 1½ month’s work, he did not say a separate fee would be charged for the first day of appearance.  The 1½ months’ work was clearly to equip JS to enable him to appear on the first day.  I adopted exactly 1½ months in my formula.

37.Even if I am wrong, the amount of HK$5.33 million less the base figure of HK$4.68 million gave rise to a difference of HK$650,000.  By any standard, this amount would have adequately covered the 5 hours’ hearing on the first day, plus all the work stated in parenthesis in paragraph 31 and any lost opportunity.  (Note that this HK$650,000 would have been sufficient to brief 2 eminent local silks in 2006 to conduct 2 separate appeals in CFA.)

38.In summary there is in my view absolutely no room for revising the taxed brief of JS upwards.  This part of the review is thus dismissed.

(B)     Attendance of the Senior Solicitor at the Taxation Hearing

Amount Claimed and Allowed On Taxation

39.The bill claimed a total of 21 hours 6 min for each of the partner (Mrs Tong) and assistant solicitor’s attendance, making a total of $158,250.  This taxation clearly warranted the presence of a solicitor, apart from the LCD.  At the taxation, I have only allowed the attendance of the assistant solicitor at 17 hours, i.e. $51,000.  That was on the basis that the assistant solicitor could have presented the Plaintiff’s case on taxation with an experienced LCD present.  In fact that was what happened with the paying party.  I therefore allowed Mrs Tong some fees for taking the overall charge and giving directions but allowed only the costs of the assistant solicitor for the taxation hearing.

The Review

40.The receiving party claims that it was necessary and proper for 2 solicitors to attend the taxation; and that if only one solicitor’s costs would be allowed, it should be Mrs Tong’s.  In summary, Ms Cheng’s arguments can be categorized as follows:

(i)    Mrs Tong was the primary solicitor in charge of handling the conduct of the plaintiff’s case.

(ii)  The Court accepted that it was proper for Mrs Tong to have taken charge of handling the conduct of the plaintiff’s case (rather than to leave this to be done by an assistant solicitor).

(iii)  The proper person to justify the work done at the taxation hearing was therefore primarily Mrs Tong.

(iv)  The bill involved a substantial amount of over $23 million, for which the paying party sought a reduction of 64.4%, i.e. to tax off $15 million. 

(v)  The taxation exercise might involve determination of issues of principle which could have an impact on the taxation of costs at the Court of Appeal and Court of First Instance level.

41.I agree with Ms Cheng that taxation is not a second class, inferior issue.  Lawyers are tasked not only to win the appeal but also to recover costs.  However, as a starting point, it must be remembered that taxation is often a matter concerning facts and documents, the presentation of which is well within the ability of an LCD.  The amount claimed in the bill does not necessarily reflect the complexity of the issues in taxation.  Much depends on the grounds of objection raised.  In this case, the grounds of objection did not disclose any issues of law.  The issue on counsel’s fees, however, could have an impact on the taxation of costs of the Court of Appeal and Court of First Instance bills that will follow.  I therefore considered that it was appropriate for the assistant solicitor, who has been following through the whole case, to handle the taxation.

42.Having said that, on reflection, I have placed too little weight on the fact that as the taxation turned out, the paying party virtually objected to every item.  They often raised issues (many of which turned on the way the appeal was prepared for) that took the receiving party by surprise.  Mrs Tong was asked to justify the fees spontaneously.  The facts could not have been better presented than through the handling solicitor who had direct knowledge of the whole appeal.  With hindsight, it was wise of the Plaintiff to have Mrs Tong present.

43.In addition, I have placed too little weight on the fact that this was the first of 3 bills to be taxed by me.  Although there were no arguments on principles of law but only application of established principles, the ruling in this bill might have an impact on how parties should go about the other 2 bills. 

44.I accept Ms Cheng’s arguments and am persuaded to allow the costs of Mrs Tong for attending taxation for this bill.  Given that there was eminent junior counsel to deliver the opening submission and a very experienced LCD present throughout to handle the documents, I do not consider it appropriate to award costs for the assistant solicitor’s attendance.

45.The next question is what is the rate to be allowed for Mrs Tong’s attendance.  For the appeal itself, I have allowed her $4,500 per hour to reflect the complexity of the appeal and her experience as a commercial litigation lawyer.  When it comes to taxation, however, the considerations are different.  There were no difficult of issues involved that would justify charging a rate over what is allowed for party and party costs.  In the premises, I allow her a rate of $4,000 per hour.

Conclusion

46.I dismiss the review insofar as fees of the London silk is concerned.  I allow the review with regard to the costs of the senior solicitor in attending the taxation to the extent of substituting Mrs Tong for the assistant solicitor and at the rate of $4,000 per hour.

47.As regards costs of this review, the receiving party has lost on the first issue and won on the second issue with a reduced hourly rate for Mrs Tong.  Most of the time was spent on argument of the first issue.  The amount involved on the second issue was insignificant in the context of this bill.  On a nisi basis, the paying party should have 80% of the costs of the review to be assessed on a gross sum basis.  To avoid satellite litigation on costs, I direct that:

(i)    Any application for variation of the cost order nisi should be made on 25 August 2008 at 10 a.m.  Notice of such application should be given at least 7 days beforehand with brief reasons.

(ii)  The parties shall endeavour to agree the quantum of costs, failing which the assessment will be done on 25 August 2008, in which event, the statement of costs should be served at least 7 days beforehand.

48.Finally, I thank both sides for their able assistance in this review.

Ms Yvonne Cheng and Mr Alfonso Fung (LCD) instructed by Messrs Deacons, for the appellants (receiving party)

Ms Jaime Lam of Messrs JSM and Mr Philip Chu (LCD) instructed by Messrs JSM, for the respondents (paying party)

[1]    In this judgment, the exchange rate of £1 to HK$15.2322 is adopted.