Gotland Enterprises Limited v. Kwok Chi Yau and Others

HCMP 4550/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 4550 OF 2003

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D E C I S I O N  O N  C O S T S

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1.On 3 September 2013, with the greatest reluctance, the trial of this action was adjourned due to an amendment of the defence of the 1^st to 3^rd defendants (“D1-3”) made in the course of their opening (it was agreed that the trial should be opened by them). The costs of and occasioned by the adjournment was awarded against D1-3 on an indemnity basis (“Order”).

2.Both the plaintiff (“P”) and the 5^th defendant (“D5”) seek to have their costs assessed summarily.  Pursuant to the directions of the court, short written submissions have been filed by the parties (no one has appeared on behalf of the 4^th defendant).  In accordance with such directions, the summary assessment is to be conducted on papers.

3.Before dealing with the summary assessment, I should dispose of the question of certificate for two counsel.  When the Order was made, there was no application for such a certificate.  However, quite sensibly, it appears from the submissions that there is no argument that a certificate for two counsel should be granted in this case in favour of both P and D5 and I so order. 

4.Summary assessment of costs is conducted with a broad-brush approach.  However, there are 3 issues of principle raised in the submissions and they will be dealt with below.

Costs on indemnity basis

5.The applicable principles for taxation of costs on an indemnity basis are stated by theCourt of Final Appeal in Kennedy v Cheng (No 2) [2012] 6 HKC 440, paras 21-26, as follows:

“21. First, an award of costs on an indemnity basis is intended to allow for the payment of costs on a more generous level as compared to the case of costs awarded on a party and party or common fund basis. The object of such an order is to reimburse the winning party (the receiving party) ‘all (his) costs’ and to give him ‘a complete indemnity’ and ‘everything’,‘shorn only of’ or ‘except the unreasonable’ or ‘anything that is seen to be unreasonable’. However, as the Registrar rightly observed, this is not giving a blank cheque to the receiving party to recover all his costs without proper scrutiny by the court. This would defeat the very object of having a taxation.

22. Secondly, the receiving party is prima facie entitled to be paid all his costs, provided that they are ‘costs of and incidental to the proceedings’, subject only to the qualification that any particular item which has been unreasonably incurred or any particular amount which is unreasonable must be excluded. This means that all items incurred for the purpose of the litigation are included except that those items or amounts which the taxing master considers to be unreasonable would be taxed off. The receiving party does not have to show that his costs had been reasonably incurred or were of a reasonable amount, only that they are not unreasonable.

23. Thirdly, there is no question of the paying party having anyburden of proof since there are relevant materials including client’s instructions which are not available or discoverable to the paying party. So long as there are materials available to the taxing master, they can be considered by him. If necessary, he can ask the receiving party to produce them for the purpose of taxation.

24. Fourthly, the court only considers whether the costs were unreasonably incurred or of an unreasonable amount. (See Lord Woolf in Petrotrade.) The approach of the taxing master is to decide whether a particular item or particular amount which is being challenged is unreasonable. He is not required to go through the items and decide whether they are reasonable. He is required only to adjudicate on items or amounts which are said to be so unreasonable as to be excluded.

25. Fifthly, in the great majority of cases, this should not be difficult. The unreasonable items or unreasonable amounts would be easily identified or readily identifiable. It is only when it is not clear whether a particular item or amount is unreasonable, that is, where there is a doubt as to whether it is unreasonable, that the benefit of the doubt should be given to the receiving party.

26.  I should also add that in assessing what is unreasonable (as opposed to assessing what is reasonable), the court should bear in mind the practical reality that there are litigants who, being understandably more anxious than others to pursue or defend their rights, are willing to pay more than the normal average fees of counsel and solicitors. How much more such a litigant is prepared to pay over and above the normal average fees depends on a variety of factors including in particular, the complexity of the case and the importance of the case to him. In my view, it is not uncommon and certainly cannot be considered as unreasonable for a concerned litigant to adopt such an attitude. On a party and party taxation, it is likely that anything over and above the normal average fees would not be regarded by the court as reasonable and will be taxed off and the receiving party will have to shoulder the shortfall. But if the court, for good reasons, saw fit to award him his costs on a more generous basis (i.e. on an indemnity basis), I do not think it should be regarded as unreasonable to allow him to recover more than the normal average fees so long as they are not clearly excessive or, to use Megarry VC’s words, absurd or extravagant.”

6.With reference to the dicta contained in para 22 of the abovedecision, the present task is to assess the costs of and occasioned by the adjournment of the trial.  In simple terms, this court has to decide what costs have been wasted by the adjournment. 

7.With the above principles in mind, I reject P’s approach as being inconsistent with those principles.  It has been submitted that this court has to consider “what costs can undo the prejudicein terms of costs that P will suffer as a consequence, when the basis of allowing the amendment is that P will not suffer prejudice”. 

8.There is a conflation in P’s proposition. The issue of prejudice to it was relevant for the consideration of whether to allow the 11^th hour amendment.  The adjournment granted on its application goes some way to mitigate the prejudice.  The assessment in question deals with the costs which have been wasted by the adjournment.  The higher scale of taxation serves to compensate P for all its costs save for those which are unreasonable and, at least as a matter of reality, to penalise a party whose conduct is disapproved by the court.  What is suggested by P is that it should be given a blank cheque for the costs incurred by it.  That is impermissible.

Vine Formula

9.This first issue of principle which has to be decided is whether unused refreshers payable to counsel (often referred to as the Vine Formula) are recoverable under indemnity taxation.  Unused refreshers are claimed in respect of P’s senior counsel and both junior counsel for D5.

10.I start with the interesting history of the Vine Formula.  It appears to be an understanding reached between the Law Society and the Bar in the 1960s when Mr Peter Vine was the president of the former.  Hence the name given to the arrangement.  There is no such formula in England.  One who knows about the formula may venture to suggest that the very favourable treatment enjoyed by the Hong Kong Bar reflects the fact that it is relatively small and that the rule of supply and demand has worked in its favour.

11.The details of that formula can be found in an old circular of the Law Society (No 58/66) published on 21 December 1966:

“If a solicitor requests counsel to reserve five days or more fixed for the hearing of any proceedings, and counsel undertakes to appear during such days to conduct such proceedings, the solicitor agrees to pay counsel’s brief fee and half the unused refreshers in the event

(a) of the solicitor not releasing counsel at least 2 months before the first of the days so reserved, or where the long vacation of the Supreme Court intervenes, at least 2 months plus the length of the long vacation before the first of the days so fixed.

(b) of counsel informing the solicitor before the time stated in sub-paragraph (a) has arrived that the dates reserved are required for another case, and the solicitor requests counsel nevertheless to reserve such dates.

PROVIDED that such fees shall not be payable if days so reserved are not utilized for the hearing by reason of the proceedings being adjourned by the Court of its own motion or on account of illness of the lay client or the opposite party or a material witness (counsel having agreed to an adjournment on any such grounds or the Court granting the adjournment on the application of the opposite party notwithstanding opposition) or on account of some cause other than the default of lay client or the solicitor.”

12.In another circular (No 6/81) dated 19 January 1981, it was stated that the period of 2 months specified in the Vine Formula was reduced to 1 month pursuant to an agreement reached between the LawSociety and the Bar. 

13.It has been suggested that the Vine Formula has “fallen into desuetude and is no longer mentioned in the Law Society’s guidance notes on counsel’s fees”: see Hong Kong Civil Court Practice, vol 1(A),VII [1425].

14.Under those guidance notes (Notes for Guidance in Agreeing Fees with Counsel), it is suggested that prior agreement should be reached between the instructing solicitors and counsel in respect of various matters concerning refresher fees:

“(i) What constitutes a refresher? Is it payable only for a whole day in court or in full for part of a day?

(ii) Arrangements regarding lost days (eg when, during the course of the hearing, the case is adjourned due to the illness of one of the parties or their advisers). Is a refresher payable in such circumstances?

(iii) Clarify whether refresher fees are payable and at what rate in the event that the case is concluded in a shorter period than that originally reserved in counsel’s diary.

(iv) The arrangements for taking judgment. Will counsel be paid a refresher at the agreed rate or will special arrangements apply?

(v) Clarify whether any additional preparation fees will be charged if the hearing is adjourned part-heard for a substantial period of time.”

15.However, in the website of the Bar, the following informationconcerning the entitlement to refresher is provided:

“What about any entitlement to refresher fees if a case is settled or adjourned or if the hearing is shortened?

A barrister is only entitled to a refresher fee if he attends court on a subsequent day.  Any entitlement of a barrister to ‘unused’ refreshers would depend on the express agreement he has made with the solicitor. In a long case, it is not uncommon for a barrister to agree with the solicitor that a portion of the ‘unused’ refreshers is payable if the hearing collapses within a specified time of the delivery of the brief. This is to compensate the barrister for the lost opportunity of being available to take up other cases within the period reserved for the hearing.”

16.In Chan Yin Na v Union Medical Centre Ltd, HCPI 804 & 805/2003, unrep, 5 August 2011, in dealing with a review of taxation it was said by the court:

“Personally, I am tempted to say, coming, as I do, to the Bench after many years of practice at the Bar, that I have the necessary knowledge and experience relating to the current level of costs, in general, and the current level of barristers’ fees, in particular, to deal with a review of taxation afresh. However, after the passage of some years, that knowledge and experience will become less and less relevant. Most, if not all High Court judges, unless recently appointed from the Bar or the solicitors’ branch of the legal profession, are likely to consider that they lack the necessary knowledge and experience of the current level of costs to deal with the matter of taxation of costs as a hearing de novo...”

17.I have left the Bar only recently and my experience is that the Vine Formula has not fallen into desuetude at all.  However, those who can take advantage of the arrangement are normally limited to some senior counsel and the busy juniors. 

18.That leads me to an inherent conflict in the Vine Formula.  It is designed to compensate counsel for lost opportunity which may result from taking on a case lasting 5 days or more.  However, the reality is that those counsel who have sufficient bargaining power to benefit from the Vine Formula are unlikely to suffer from lost opportunity when cases collapse.  This is especially so in respect of busy juniors who may make use of the opportunity to attend to outstanding paperworks.  There is a view that the Vine Formula constitutes a bonus to counsel and it is not difficult to understand why such view is taken.

19.As regards the case law, I start with John Asikas and Theofanis Davas v The National Insurance Co of New Zealand Ltd, HCA 742/1969, unrep, 15 August 1970.  That was a review of taxation where an action was dismissed with costs on a party and party basis.  The issue was the recoverability of unused refreshers under the Vine Formula.  The learned Assistant Registrar referred to the Vine Formula and said:

“7. The defendant's solicitors said that no English authorities are applicable as the Vine Formula is a local rule. An English case Macleod v Thrupp (1892) 37 Sol. Jo. 31 decided that refreshers and brief fees will not be allowed unless counsel attends court on the day applicable.

8. I have been asked by the defendant's solicitors to express my view as to whether or not the Vine Formula is optional. I consider that this issue is not relevant to my decision and it is therefore unnecessary for me to give an opinion.

9. Whatever agreement may have been made between the Bar Association and the Law Society with regard to the payment of counsel's fees is in no way binding upon the taxing master who has an unfettered discretion to exercise.

10. I refer to O62 Pat II 2(4) of the Rules of the Supreme Court 1967 which provides that:-

‘When a trial or hearing at which counsel appears lasts more than 5 hours there may be allowed a refresher fee or fees the amount of which shall be in the discretion of the taxing officer.’

11. This is taken verbatim from the equivalent English rule.

12. It is therefore abundantly clear that no refresher can be claimed unless the trial or hearing lasts more than 5 hours.

13. The so-called Vine Formula is not relevant to a party and party taxation for relying upon the English authorities which are embodied in our rules to which I have referred, refreshers cannot be charged where counsel has not appeared in Court…”

20.In Hong Kong Civil Procedure 2013, vol 1, 62/App/33 there is a reference to another authority:

“‘Vine Formula’ – Unused refreshers whatever the basis of the taxation is to be are not allowed on a taxation inter partes. The practice of payment of unused refreshers arises from an agreement between the Law Society and the Bar known as the Vine Formula has no basis in our law (Nan Siu Man v Sin Chung Wing, unreported, HCA No 9026 of 1992, Registrar Betts).”

21.I am unable to track down a copy of that decision but I have no reason to doubt the accuracy of para 62/App/33.

22.In The Administrator of the Estate of Lam Mau Wing deceased v The Owners of the ship “Magway”, HCAJ 14/1999, unrep, 8 May 2000, the court was called upon to make a gross sum assessment of the costs thrown away as a result of the vacation of a trial on a party and party basis.  One of the disputes concerned unused refreshers:

“…The counsel’s fees were sought in the total sum of $539,000, made up of Brief, Refreshers of counsel agreed on the special basis of the Vine Formula, Counsel’s fees for rendering advice on collision damage apportionment and Counsel’s fees for advising on and attending the hearing on 5 May. In my view, except for the counsel’s fees in respect of their advising and attending for the 5 May hearing amounting to $45,000, the rest is not a matter that should be recoverable or which can be said to be costs thrown away wholly as a result of the trial being vacated. So far as refreshers are concerned, I think it is the duty of solicitors to agree refreshers on use basis. To my knowledge, no Taxing Master has ever allowed taxation on the basis of Vine Formula. In any event, in the exercise of my discretion, I do not think it would be right on the gross sum assessment to order as against the plaintiff more than the sum of $45,000 for the counsel’s fees.”

23.In my view, unused refreshers should not be recoverable regardless of the basis of taxation.  It is an arrangement agreed to obtain the service of the most popular counsel but such a luxury ought not be paid by the other side.

24.This view is consistent with Kennedy, supra.  In that case, the CFA disallowed the claim of 2 additional refreshers paid to London senior counsel in respect of the travelling to and from Hong Kong – para 48:

“…The Registrar disallowed this claim. He considered that this was in the nature of compensation for loss of opportunity to earn during the time required for travelling and that this was unreasonable. I agree. There is nothing to suggest that counsel would have earned other briefs or refreshers during those two days and even if this might or could have happened, this could have been taken into consideration in fixing the Brief fee. I find it difficult in principle to justify this claim. It was rightly refused by the Registrar.”

25.Although it may be argued that the above dicta has left thedoor open for payment to London senior counsel (as part of the brief) in respect of travelling time, there is a distinction to be drawn between such travelling time when counsel can at most carry out some paperwork and a normal working day.

26.There is another reason to reject the claim for unused refreshers made in respect of P’s senior counsel.  The brief fee charged is HK$700,000, which translates to almost 9 refreshers at HK$80,000 each.  As a comparison, the brief fee charged by the senior of the two juniors instructed on behalf of D5 equates to 4 refreshers.  The complexity of this case does not, in my view, justify 8 days of preparation (brief fee includes attending the first day of trial).  It does not follow, however, that the brief fee should not be allowed in full after trial on indemnity taxation. On the other hand, to charge for unused refreshers in light of a rather generous brief fee is, with respect, extravagant.

27.For completeness, I have some reservation as to whether any unused refresher is payable in this case, when the adjournment was occasioned by a late amendment to the case of an opponent, under the Vine Formula as defined (see para 11 above).  It may be said that the formula is not applicable because the adjournment was on account of “some cause other than the default of [P] or [its solicitors]”.  However, this point has not been taken by D1-3, and it is unnecessary to determine the same in light of the view stated above.

Wasted counsel’s fees

28.The second issue of principle concerns the amount of counsel’s fees payable under the Order.  Here, both the receiving parties are arguing that the entirety of the fees charged by counsel (brief plus unused refreshers) should be paid and the payers contend that only 2 refreshers (the trial was adjourned on the 2^nd day) can be allowed.

29.First and foremost, I cannot see how it can be said that the entire brief fee is wasted by reason of the adjournment.  Such a fee normally covers all the pre-trial preparation by counsel, with the possible exception of conference(s).  Plainly, by reason of the adjournment much of such work has yet to be carried out, eg, the cross-examination of witnesses.  If P ultimately succeeds in this action, counsel’s brief fee will be a legitimate item to be claimed as part of the costs of the successful litigant.

30.Further, there is no suggestion that the service of the same counsel will not be retained for the resumed hearing.  Normally, counsel is expected to fully discharge his duties under the brief which must include attending a resumed hearing.

31.However, it is not disputed that the adjournment is most likely to be lengthy given the estimated duration of the trial (12 days).  I can see that there is a question of counsel being entitled to additional fees by reason of the lengthy adjournment.

32.On that issue, I start with the authority of Onway Engineering Ltd v Chinney Construction Co Ltd, HCCT 10/2002, unrep,17 January 2008.  In a review of taxation, the court had to consider whether additional fees charged by counsel for refreshing his memory and for re-reading the papers by reason of an adjournment of 2½ months in respect of a part-heard trial is recoverable under party and party taxation[1]:

“15. The master considered that the matter was part-heard and that there was a time gap of about 2½ months. In the interim there were new expert reports namely, the defendant’s supplemental expert report dated 26 August 2005 and the second supplemental expert report dated 2 September 2005. There is no dispute that these reports were necessary and proper for the trial but they only arose much later well into the trial.

16. The master considered that it was not proper forMr Clayton to charge separately for closing submissions and reduced the item from $180,000 to $100,000. However, the master considered that Mr Clayton should be given some time for refreshing his memory.

17. From the reason for objection lodged by the defendant at page 27 of the defendant’s bundle before me, it is made clear that counsel was charging for time to re-read all the papers and for preparation for the resumed hearing due to the adjournment which lasted for more than 2½ months since June 2005. This was included in the global figure of $180,000 which was not broken down.

18. I consider that the fees for consideration of the supplemental expert reports and the conference with the expert on 30 August 2005 and 2 to 7 September 2005 were proper as these were matters which were not anticipated at the time of the delivery of the brief.

19. However, I do not consider that it was proper for counsel to be paid a fee for refreshing his memory and for re-reading the papers because there was a time gap.  Time gaps are frequent in litigation especially heavy litigation where cases do overrun and mattes are part-heard.  I do not think that it was proper for a separate fee to be paid to counsel for re-reading the papers in the time gap.”

33.Next, in Chan Yin Na, supra, it was said in para 65:

“The parties only settled the action 3 days before the resumed trial. Senior and junior counsel had spent 8 days, and 5 days, respectively in the preparation of the case for the resumption of trial and charged $640,000 and $175,000 for such preparation. The learned master allowed 14 hours of work to each counsel as being reasonably sufficient to enable them to be properly prepared for the resumed hearing. He had regard to the substantial involvement and expertise of senior and junior counsel in coming to this assessment. I am not persuaded by Mr Leung that the 8 days of work charged by senior counsel and the 5 days of work charged by junior counsel to prepare for the resumption of trial was reasonable. I am not persuaded that the assessment of the learned master, that it was reasonable for each counsel to take 14 hours to prepare for the resumption of trial, was plainly wrong such that I ought to intervene with that assessment. In allowing fees that he did, the learned master was making an exception to the general rule that preparation for the trial (including any preparation for the resumption of an adjourned trial) is normally covered in the brief fee. However, in complex and weighty cases, such as the present one, it is proper, as the learned master did in this case, to allow counsel’s fee for work done to prepare for the resumption of trial, and to assess a reasonable amount of time that counsel ought to have taken for such preparation, particularly where there is a long period of time between the adjournment and the resumption.”

34.The two authorities cited in the preceding paragraphs are not inconsistent.  Normally, additional fees of the nature in question will not be recoverable on party and party taxation.  That general rule is subject to exceptions as explained in Chan Yin Na.

35.If this were a case of party and party taxation, I would be inclined to allow additional fees to counsel to prepare for the resumed hearing for two reasons.  Firstly, the adjournment is likely to be in excess of 6 months. Secondly, this case, whilst not very complicated, will turn upon the credibility of the defendants and therefore the task of cross-examination is highly important and that is a task requiring a good deal of preparation.

36.A fortiori, such additional fees should be allowed in this case given the more generous taxation.  I have not been given any estimate of such fees.  Doing the best I can, I allow two additional refreshers to reflect the additional work.  In other words, I disallow the claims for brief fee and in substitution I allow a total of 4 refreshers for each of the two counsel instructed by P and D5.

37.It follows from the above analysis that the conference charges of counsel as per item E2 of D5’s statement of costs are disallowed.

38.I also decline the claim by P for the fees of a third counsel in respect of the hearing on 3 September 2013 as being extravagant.

Costs of summary assessment

39.P has made a claim for the costs of summary assessment of nearly HK$60,000.  The recoverability of such costs is the third issue of principle here.

40.First of all, such costs are at least partly attributable to the fact that P (and D5) had failed to comply with para 8 of Practice Directions 14.3:

“Subject to other Practice Directions, the statement of costs should be lodged and served on any party against whom summary assessment is sought together with the skeleton argument for the substantive application.”

41.The non-compliance meant that the summary assessmentcould not be disposed of in the course of the aborted trial.

42.Secondly, para 13 of Practice Directions 14.3 provides that:

“A broad-brush approach will be taken by the Court in the summaryassessment procedure. The Court will not embark on amini-taxation. Prolixity in contents of a statement of costs is therefore not acceptable. Costs for gathering information and drafting of these statements will generally not be granted.”

43.It is right to say that the parties were directed to provide short written submissions in respect of the summary assessment (P’s claim is made up of the fees charged by senior and junior counsel in respect of its submissions). However, there is no provision in either the Rules of the High Court or any Practice Direction for allowing the costs of summary assessment[2].

44.I believe that the court has the power to award costs of the summary assessment.  However, such power must only be exercised in exceptional circumstances because summary assessmentis intended to be conducted swiftly and with minimal costs.

45.In these circumstances, I reject P’s claim for the costs of summary assessment.

Solicitors’ costs

46.It follows from the above analysis that the conferences and trial preparation carried out by D5’s solicitors (there is no similar claim by P’s solicitors) cannot be allowed.  That covers items C1, C2 and D3 of D5’s statement of costs.

Conclusions

47.In conclusion, P’s costs are assessed at HK$475,500 and those of D5 at HK$213,000.

Mr Chan Chi Hung SC, Ms Vivian M F Yeung, Mr Liu Cheong Wang Jerome and Mr Ng Ho Fung, instructed by Kao, Lee & Yip, for the plaintiff

Mr Erik Shum and Ms Yvonne Chiu, instructed by Yip, Tse & Tang, for the 1^st to 3^rd defendants

Mr Tommy Lo and Mr Yan Kwok Wing, instructed by Wong & Associates, for the 5^th defendant