SKK (HK) CO LTD v. STRESS (FAR EAST) LTD

HCCT59/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 59 OF 2004

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R U L I N G

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1. By summons dated 15 August 2005, the Defendant sought a variation of the costs order nisi made on 1 August, the Plaintiff having failed to beat the Defendant’s Calderbank offer made on 25 February 2005.  This was the remaining or second application heard on 30 August 2005. 

2. At the conclusion of submissions, I indicated I would furnish reasons for my determination, which I now do.  I have previously heard and allowed with reasons furnished the Defendant’s application for review of the hourly rates of the Plaintiff’s solicitors in the Bill of Costs.  This first application is returnable on 12 September 2005 when further submissions will be taken following the anticipated introduction of documentation by the Plaintiff in support of the item. 

3. On the variation application, Mr Shaw for the Defendant contended that as a result of a series of exchanges between the solicitors for the parties, the Defendant has made a valid Calderbank offer to amicably settle the costs of the action at an amount which the Plaintiff has failed to meet following taxation.  Quite aside from the validity of the Calderbank offer, it was submitted that the Plaintiff was acting wholly unreasonably in not giving the Defendant’s offer serious consideration and in ultimately rejecting it.  As costs is beyond argument a matter for a taxing master’s discretion, Mr Shaw submitted that the Defendant should have the costs of the taxation as of the making of the Calderbank offer on 25 February 2005, an exercise that could well have been avoided.  Alternatively, the court was invited to consider no order for costs post item 100 of the bill. 

4. Mr Tsang for the Plaintiff accepted that the Plaintiff had failed to better the Calderbank offer which, being conditional in its wording, the Plaintiff was perfectly entitled not to accept.  By demanding proof of the hourly rates as a condition for making the offer to settle, Mr Tsang contended that no valid offer had been made by the Defendant which could or should have been accepted. 

5. Briefly stated, those are the conflicting positions. 

6. Turning to the facts, following receipt of the Plaintiff’s Bill on 28 January 2005, the Defendant’s solicitors wrote to the Plaintiff’s solicitors on 17 February 2005 under the caption of “Without Prejudice Save As To Costs of taxation” in these terms:

“After reviewing that bill of costs and in the hope of saving the time and cost of a taxation, our client is willing to pay your client HK$165,000 in full and final settlement of all your client’s claim for legal costs (including any interest thereto) against our client. 

As you know, the overriding principle in taxation is that the receiving party cannot recover a sum in excess of its actual liability to its own solicitors.  Therefore, this present offer is subject to the condition that you or your client provide an affidavit confirming that your firm has in fact charged and been paid by your client amounts totalling at least HK$165,000 for the items claimed in the bill of costs.  The affidavit also should confirm that your firm has in fact charged and been paid by your client at the hourly rates as claimed in the bill of costs. 

This offer is open for acceptance until 5 pm next Wednesday, 23 February 2005.”

7. This elicited a response and a counter-offer from the Plaintiff on 18 February 2005.  This communication, as indeed others that ensued, were all Without Prejudice correspondence.  The material aspect of the letter of 18 February 2005 stated:

“This said, with a view to putting an amicable and expeditious end to this matter, our client is prepared to accept HK$190,000 (inclusive of interest) in full and final settlement of our costs and disbursements on condition that payment is made to us on our client’s behalf on or before 28 February 2005.  This offer shall lapse if not accepted by 24 February 2005. 

On your proposed affidavit, we are unaware of any legal obligation on the part of our client/ourselves to provide the same.  Please enlighten us in this regard.  If you or your client would nonetheless wish to obtain such an affidavit, we are happy to supply the same provided that you pay us all incidental costs estimated to be in the region of HK$6,000.”

8. The Defendant replied on 25 February 2005.  The offer was increased to $175,000 but the earlier rider continued to feature prominently.  The relevant passage reads:

“In the continued hope of saving the time and cost of a taxation, our client is willing to pay your client HK$175,000 in full and final settlement of all your client’s claim for legal costs (including any interest thereto) against our client.  This offer remains subject to the condition that you or your client provide a brief affidavit confirming that your firm has in fact charged and been paid by your client amounts totalling at least HK$175,000 for the items claimed in the bills of costs.  The affidavit -  which need not be a long and complicated document - also should confirm that your firm has in fact charged and been paid by your client at the hourly rates as claimed in the bill of costs. 

This present offer which is a Calderbank offer, remains open for acceptance until 5 pm next Tuesday, 1 March 2005.” 

9. A somewhat piqued response offering to settle at HK$180,000 from the Plaintiff resulted.  No compromise was possible and the taxation became inevitable. 

10. Calderbank offers encourage settlement of disputes and free up valuable judicial resources and time.  A recipient of such an offer is firmly put on notice that if he does not achieve more in litigating, a costs penalty normally visits.  The offeror is thus protected as to costs from the date of the offer.  It is a matter which will be taken into consideration in the exercise of the court’s unfettered discretion on costs at the end of the day.  However, for a Calderbank offer to come into play, it must be unambiguous, clear and unconditional.  A conditional offer to settle on terms, which is what Mr Tsang says of the 25 February 2005 offer of the Defendant, can be disregarded with no attendant risk.  The offer, he said, quite correctly in my considered view, was conditional upon the Plaintiff’s solicitors filing an affidavit deposing to matters previously referred to in the letters quoted above and, in so doing, incurring additional costs. 

11. In advancing his arguments, Mr Tsang referred to two decisions, Chan Yiu Chau v Fong On Construction and Engineering Company Limited, HCPI 753 of 2000 and Lee Sau Ngo v Lau On Lai, DCPI 235 of 2002.  The facts of the cases are not particularly helpful but they offer a useful restatement of the principle relating to Calderbank offers.  In both decisions, the offers were considered conditional in nature.  I have no hesitation in holding that the Defendant’s offer was similarly conditional and the Plaintiff was accordingly entitled to reject it.  For this reason alone, it can have no impact on the costs of taxation. 

12. Mr Shaw’s fall-back position is that the Plaintiff could easily have furnished a short affidavit to satisfy his client’s concern on the issue of hourly rates.  By failing to do so and ultimately not accepting their higher offer, the Plaintiff had acted unreasonably.  Such unreasonable behaviour, it is submitted, is a relevant factor to be taken on board when considering the costs of the taxation. 

13. I do not find that the Plaintiff through Mr Tsang had acted unreasonably in the manner complained of or otherwise.  There was no obligation to furnish the affidavit sought.  As for the taxed costs being lower than the Defendant’s offer, one must remember that it was following sensible negotiations between the Law Costs Draftsmen at the taxation hearing that many items were compromised and reduced.  Failing compromise, the taxation could have gone either way.  The Bill of Costs had not been so unrealistically and optimistically cast as to have been obviously unachievable and unsustainable on taxation. 

14. Accordingly, the Defendant’s alternate argument also fails.  The order nisi for costs of the taxation shall be made final. 

15. I shall hear the parties on the costs in relation to this application in due course. 

(Discussions re costs)

16. The application for a review on the hourly rates of Mr Tsang and Miss Lui is refused on merits. 

17. On taxation and, for that matter, on review, it is the court which has to be satisfied on the issues that are contentious.  What proof has to be adduced to satisfy the concerns of the court is a matter for the parties to submit, but ultimately for the court to determine. 

18. I have been supplied with two documents today dealing with the substance of the review itself.  One is an attendance note dated 13 August 2004.  It was recorded by BL, presumably Miss Becky Lui.  Aside from dealing with certain issues which are irrelevant to the taxation matter before me, it states quite categorically and clearly that the hourly rates have been confirmed on the telephone with lay client and the rates are as stated and charged in the bill with which we were seized in these proceedings. 

19. The second document handed up is a letter from lay clients dated 31 August 2005.  This was addressed specifically to me.  It says:  “To the Learned Master, High Court, Hong Kong” and it confirms that the agreed hourly rates were as stated in the Bill of Costs as well. 

20. I consider that, of the two documents, the first in time is the more probative, in my view.  Having looked at it, even though no invoices  have been produced in this case, I am quite satisfied that the hourly rates have been correctly stated. 

(Discussion re costs on both applications)

21. I make an order that the receiving party shall have their costs of the application, that is, on the Calderbank issue, taxed if not agreed. 

(Discussion re costs of review)

22. The fair order, in my view, is that there should be no order for costs on the review application itself.  I so order. 

(Discussion re gross-sum assessment)

23. I do not think so.  I now say no because unless there is agreement, I do not wish to embark on yet another contentious matter.

HCCT59/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 59 OF 2004

_________________

_________________

____________

R U L I N G

____________

1.  There are two applications before me this afternoon.  They were both brought by Mr Shaw for the paying party, the Defendant in this case.

2.  The parties fully addressed me on the second application which is the application by Mr Shaw for his client for a review on a single item.  That appears in the table set out on page 4 of the bundle that he has very usefully provided to me.

3.  The reasons for objection read as follows:

“The Master should have required the receiving party to produce the invoices of its solicitors and receipts of payment of legal fees to establish that the hourly rates of JT and BL, because such rates should be no higher than those actually billed by the solicitors and actually paid by the receiving party.”

4.  When the matter first came up for taxation, Mr Shaw had addressed me quite fully on this issue and, essentially, his points made then were no different from those made today, which is that the issue as to the hourly rates of Mr Joseph Tsang (JT) and Miss Lui Pui-wah Becky (BL) can quickly be put to bed if the solicitors for the receiving party had provided a very brief affidavit setting out the hourly rates that have been charged to their clients billed and paid.

5.  The matter was fully canvassed then and I took the view on the last occasion that, accepting that the burden of proof of breach of the indemnity principle rests on the person making it, in that case, the Defendant, the paying party, until sufficient evidence was before the court of a prima facie case of a likely breach of the indemnity principle, the Plaintiff, the receiving party, did not have to rise to the challenge and did not have to produce contrary proof.

6.  On that occasion also, to circumvent the absence of an affidavit, Mr Tsang, for the Plaintiff, as an officer of the court, indicated for the record that he and his colleague, BL, would only charge the Plaintiff client the agreed rate, and the agreed rate was as stated in the Bill of Costs.

7.  The matter then proceeded eventually to taxation and the bill was finally taxed.

8.  On this occasion, one has had the benefit of further argument on this point.  I think it is important to draw a distinction between the burden of proof, on the one hand, and what has normally to be established in taxation.  Mr Shaw is very right to say that he is not, in fact, rehashing the argument that there has been a breach of the indemnity principle.  Whether or not it has been raised on evidence or otherwise, in every case of a bill up for taxation, unless items are agreed, it falls squarely upon the receiving party to demonstrate that items in the bill have been incurred or are properly chargeable, of course, subject to reasonableness and to the scale of costs that applies to the taxation.  In this case, I agree that we are not concerned with the indemnity principle. 

9.  The Plaintiff, the receiving party, was requested in the Reasons for Objection in this review to produce documentation to the court, such as invoices and receipts, to satisfy the court that the agreed rates between the Plaintiff’s solicitors and the Plaintiff were as stated in the Bill of Costs.

10.  I do not consider that the matter can be simply argued on the basis that if there are no invoices and no receipts, then that would be the end of the matter.  In this case, if there were no invoices or bills or receipts in respect of the hourly rates, surely, on the understanding as given by Mr Tsang that there was an agreed rate and that they would charge an agreed rate, there must be some documentation to that effect, be it a letter of confirmation or a telephone note or what have you.

11.  In this case, I am going to accede to the review because it is incumbent on the Plaintiff in every case unless there is agreement to provide proof and, in this case, I will reopen that issue and the Plaintiff will have to supply documentation on the hourly rate.  What documents they have, I do not know.

(Discussion re costs)

12.  I will reserve costs on the review.