DCCJ 5354/2018
[2020] HKDC 176
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 5354 OF 2018
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| BETWEEN | | |
| | KWOK HONG YEE JESSE trading as | Plaintiff |
| | JESSE H.Y. KWOK & CO. | |
and |
| | TSO HON LEUNG | 1st Defendant |
| | NG LAI OI | 2nd Defendant |
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| Before: | Her Honour Judge Winnie Tsui in Chambers (Open to Public) |
| Dates of Hearing: | 15 November and 2 December 2019 |
| Date of Decision: | 3 April 2020 |
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DECISION
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INTRODUCTION
1. This is the 1st and 2nd defendants’ appeal against the decision made by Master B Mak on 19 August 2019, dismissing their summons dated 25 April 2019. In the summons, the defendants applied to set aside the default judgment entered against them on 19 March 2019 and the charging order nisi dated 22 March 2019, and to strike out the writ of summons and the statement of claim.
2. An appeal from a master to a judge under Order 58, rule 1(1) of the Rules of the District Court is by way of re-hearing. I should treat the summons as though it came before me for the first time: Hong Kong Civil Procedure 2020 at 58/1/2.
3. This action concerns the recovery of solicitor’s fees. The plaintiff is a solicitor practising as sole proprietor of a law firm. The firm was retained by the 1st and 2nd defendants to act in the High Court action numbered HCA 180/2011 from about February 2011 to May 2015. The plaintiff now claims against the defendants the sum of $589,000, which is the sum due on a bill of costs numbered 34918 and dated 8 January 2018 delivered in respect of the High Court action. I shall refer to the bill as “the second bill”, and the High Court action as “the original High Court action”, for reasons which will shortly become clear.
4. Although the defendants lodged an acknowledgment of service, they failed to file a defence. Judgment was entered in default of defence. Therefore, service of the writ is not in issue here. Instead, the defendants’ present application turns on merits. Their main contention is that the statement of claim ought to be struck out. Mr Tim Wong, counsel for the defendants, put forward three grounds:-
(a) The plaintiff was not entitled to deliver and rely on the second bill and hence his cause of action, which is based on that bill, must fail.
(b) Even if he was so entitled, he is barred from litigating on the second bill by cause of action estoppel or issue estoppel.
(c) Alternatively, his litigation based on the second bill constitutes an abuse of the process of the court.
5. There is no material dispute on the facts. If any of the above grounds succeeds, that would be a complete defence to the plaintiff’s claim. In that case, it ought to follow that the default judgment and its execution should be set aside, the writ of summons and the statement of claim struck out and the claim dismissed. Conversely, if none of the grounds succeed, the default judgment will stand.
FACTUAL BACKGROUND
6. The factual backdrop to the defendants’ contention stems from the original High Court action and another High Court action brought by the plaintiff against the defendants numbered HCA 2702/2015 to recover outstanding fees. I shall refer to the latter as “the second High Court action”.
The original High Court action
7. By letter dated 18 February 2011, the defendants retained the plaintiff as their solicitors in the original High Court Action. It contained the following provisions, among others, on fees and bills:-
“11. All out of pocket expenses, Court fees, expert fees (if any) and counsel fees (if any) shall be reimbursed by your company.
12. Our firm is entitled to issue interim bill(s) on our work done, counsel fees and other disbursements incurred at such interval from time to time as our firm may decide …”
8. Pursuant to the engagement letter, the plaintiff provided services to the defendants from February 2011 to May 2015. The plaintiff instructed two counsel to represent the defendants. In the end, the action was settled on the first day of the trial on 25 February 2014. The two counsel issued fee notes in the respective sums of $175,000 and $414,000 to the plaintiff which covered their briefs and unused refreshers, as well as the settling of translation and attending conference with clients. These two sums form the subject-matter of the present action.
9. On about 4 July 2015, the plaintiff issued a bill of costs numbered 32604 dated 26 June 2015 in the sum of just over $1,000,000 (after giving credit to payments held on account) to the defendants in relation to the services rendered throughout the original High Court action (“the first bill”). It covered works done from February 2011 (the issue of writ) to February 2014 (attending the trial). The two fee notes issued by counsel were included in the first bill as “Item 117” and “Item 120”. I shall refer to them as “the Two Items”.
The second High Court action
10. Notwithstanding repeated demands, the defendants failed to settle the first bill. The plaintiff commenced the second High Court action against them in November 2015, claiming the billed amount.
11. The defendants acknowledged service of the writ. No defence was filed. By summons dated 8 January 2016, they sought leave to tax the first bill, pursuant to section 67(2)(a) and (b) of the Legal Practitioners Ordinance, Cap 159, and Order 62 of the Rules of the High Court, Cap 4A.
12. The summons was heard by Master K Lo on 2 February 2016.
13. According to the transcript of the hearing, the defendants confirmed that they were not disputing the solicitor and client relationship or their duty to pay fees. In the course of submissions, parties consented to the bill being taxed, notwithstanding that the defendants’ application was out of time. (Under section 67(2)(a), leave is required to tax the bill if the application to tax is taken out one month after the delivery.)
14. Accordingly, master granted leave to tax the first bill and gave directions for that purpose. The order read:-
“1. The 1st and 2nd Defendants do have leave to tax the Plaintiff’s Bill of Costs as stated in the Statement of Claim herein;
2. The present Action be stayed;
3. The Plaintiff do revise the [first bill] in order to comply with the Practice Direction 14.3 within 28 days;
4. The 1st and 2nd Defendants do file and serve a List of Objections within 28 days thereafter;
… ”
15. On 1 March 2016, the plaintiff lodged a revised bill in compliance with para 3 of Master Lo’s order. The revised bill bore the same number as the first bill and was for the same amount. For present purposes, there appears to be no material difference between the two. That was followed by the filing of the defendants’ list of objections on 25 April 2016. In the list of objections, 10 preliminary arguments were raised.
Master Chow’s ruling
16. The hearing of the preliminary arguments came before Master Chow, who delivered her oral decision on 22 December 2016. Of present relevance is her decision upholding the defendants’ objection raised in preliminary argument no 6, namely whether the Two Items concerning counsel fees had been paid by the plaintiff. Master found that they had not. Applying Mong Man Wai v HH Lau & Co [2003] 4 HKC 587, she held that these unpaid items did not count as “disbursements” and could not be included in the first bill. The outcome was that the plaintiff could not proceed to claim them.
17. As drawn up, the ruling read:-
“2. Preliminary argument 6 of the Objection:
a) …
b) has to be decided in favour of the Defendants in respect of items 117 and 120”
18. As we shall see, the defendants rely on this ruling in support of their estoppel and abuse of process arguments. (I should also point out that under preliminary argument no 4, the defendants queried whether the plaintiff was entitled to claim the unused refreshers of counsel, which formed part of the Two Items. Master said that having found against the plaintiff on preliminary argument no 6, the plaintiff was not entitled to claim the unused refreshers.)
19. The taxation hearing was fixed for 8 January 2018 before Master KW Wong.
Master Wong’s first ruling
20. In light of Master Chow’s ruling, the plaintiff took steps in an attempt to “salvage” the Two Items so that they could be taxed together with the rest of the first bill at the taxation hearing.
21. On 5 January 2019, the plaintiff paid the counsel’s fees under the Two Items. Counsel issued receipts on the same day.
22. Also, on the same day, the plaintiff filed an affirmation deposing to the payment and inviting the court to allow taxation of the Two Items at the upcoming taxation hearing.
23. At the taxation hearing three days later, the plaintiff invited master to “reinstate” the Two Items in the first bill. He urged the master to take into account the change of circumstances since Master Chow’s ruling. It was argued on his behalf that the proposed reinstatement would be in the interest of the just and expeditious disposal of the taxation.
24. On the other hand, Mr Wong, who also appeared for the defendants at that hearing, contended that the issue was res judicata and the plaintiff was estopped from raising it again because Master Chow had already ruled against the plaintiff on the Two Items. He further submitted that if there was a change of circumstances by reason of the subsequent payment, the plaintiff should have appealed against the master’s decision by adducing new evidence on the payment.
25. The transcript of that hearing shows that Master Wong expressed reservation about the res judicata point but he did not make a ruling on it. In the end, he took the view that the Two Items had already been disposed of on the previous occasion. He therefore refused to allow them to be “resurrected” in the taxation. He added, however, that if the plaintiff wanted to argue the Two Items, they would have to deliver another bill for that.
26. This is what master said:-
“All right. So I am not going to allow this to – to resurrect. It has been dealt with, then it has been dealt with. So – so if it has been paid now, right, a new circumstance, then – then I think there is nothing in my ruling today that bars you from issuing them another bill simply for that – for those two disbursement items.”
27. As drawn up, the order read:-
“Resurrection of item nos. 117 and 120 of the Plaintiff’s Bill of Costs filed herein on 1st March 2016 (the “Bill”) is not allowed”
28. The defendants will rely on the above ruling in support of their estoppel and abuse of process arguments. I shall call it “Master Wong’s first ruling”.
29. The taxation hearing then proceeded. I understood from counsel that the taxed sum has since been paid by the defendants.
Master Wong’s second ruling
30. Immediately after the taxation hearing, the plaintiff delivered to the defendants the second bill, which comprised only the Two Items.
31. Then, by summons dated 21 February 2018 taken out in the second High Court action, the plaintiff sought leave to tax the second bill. This was another attempt to recoup the counsel’s fees, which by then had been paid out of the plaintiff’s own pocket. The matter came before Master Wong on 23 May 2018.
32. The transcript of the hearing discloses the following. Master considered that there were two issues. First, when the plaintiff commenced the second High Court action by writ (under which his summons was taken out), the counsel’s fees were not yet paid and the second bill not yet delivered. The plaintiff only paid those fees subsequently. In such circumstances, could the plaintiff claim the Two Items under the second High Court action? Or must he commence a fresh action in order to claim them?
33. The second issue was the “one bill only” argument put forward by the defendants. The argument was that a solicitor could deliver one bill only in respect of services rendered, and, if he omitted an item from the bill, he was not allowed to issue a second bill in respect of the same services later to claim the omitted item.
34. Master Wong was of the view that the writ in the second High Court action could not cover the second bill as the cause of action arising from that bill accrued after the date of the writ. He expressed the view that the plaintiff would have to start a new action in order to recover the Two Items. For that reason, he dismissed the plaintiff’s summons. It was therefore unnecessary for him to decide the “one bill only” argument. In this regard, I should point out that Mr Wong’s written submission put forward before me that the “one bill only” argument was decided at the hearing is factually incorrect.
35. I shall refer to this ruling as “Master Wong’s second ruling”, which is also relied on by the defendants in support of his estoppel and abuse of process submissions.
THE PRESENT ACTION
36. Having suffered defeat under Master Chow’s ruling and Master Wong’s first and second rulings, the plaintiff commenced the present action in the District Court against the defendants in November 2018 to recover the Two Items.
37. As noted above, judgment was entered against the defendants in default of defence. Mr Jay Cheung, counsel for the plaintiff, submitted that there was inordinate delay in the taking out of the application to set aside the judgment, coupled with the lack of any explanation. He invited the court to take into account the delay.
38. There was a delay of about three weeks. On the other hand, the defendants are contending that the plaintiff’s claim is liable to be struck out altogether. In my view, the delay factor does not carry much weight in the circumstances. My decision will turn on the merits of the defendants’ grounds of striking out.
DISCUSSION
39. The defendants have put forward three grounds in an attempt to strike out the plaintiff’s claim.
The first ground – the “one bill only” argument
40. There are two strands under this “one bill only” argument.
41. The first strand runs as follows. As a matter of law, a solicitor is bound by a bill of costs which he delivered to his client and is not entitled to deliver a further bill in respect of his services rendered in the same period. Mr Wong placed heavy reliance on the English Court of Appeal’s decision in Sadd v Griffin [1908] 2 KB 510. If this is correct, the plaintiff was not entitled to deliver the second bill. It follows that he cannot bring a claim on it. His present claim, which is premised on the second bill, is bound to fail.
42. The statutory regime governing solicitors’ bills is well-known. The framework is laid down in Part 6 of the Legal Practitioners Ordinance. Generally speaking, a solicitor cannot bring an action to recover costs from a client unless he delivers a bill of costs to the client and only after one month has elapsed: section 66. Within one month of the delivery of the bill, the client can ask for the bill to be taxed by the court. No leave is required. He does so as of right. Meanwhile the solicitor may not bring an action on the bill: section 67(1). If the client does not exercise his right within the one-month period, the court has a discretion to grant leave for the bill to be taxed. But where the client applies after 12 months from the delivery of the bill or he has already paid the bill, he will have to show special circumstances why taxation should be ordered. There is a final caveat that if the bill has been paid, no order would be made if the application is made 12 months after the date of payment: section 67(2).
43. Sadd v Griffin concerned section 37 of the Solicitors Act 1843, which is the equivalent of section 67 in Hong Kong.
44. In that case, a bill came before a taxing master. It included items in respect of counsel’s fees. Those fees had not been paid. The taxing master adjourned the taxation to give the plaintiff an opportunity of paying them, which he did. The master ultimately allowed the items. The defendant sought a review of the taxation on the ground that the items ought not to have been allowed. It was held by the Court of Appeal that unpaid counsel’s fees were not “disbursements” that could be included in a solicitor’s bill and that the plaintiff was bound by the bill as delivered. For these reasons, the items relating to counsel’s fees must be disallowed.
45. The “disbursements” principle was applied by Deputy High Court Judge A Cheung in Mong Man Wai (para 43). Indeed, it formed the basis underlying Master Chow’s ruling in disallowing the Two Items, since the fees of the two counsel had not been paid when the first bill was delivered.
46. As regards the “one bill” principle, which is now relied on by the defendants, Farwell LJ explained as follows:-
“The Act of 1843 imposes on a solicitor the duty of sending to his client a signed bill of his fees, charges, and disbursements. Until he has done this, and a month has elapsed, he can bring no action to recover them. If and when he does sue, he sues on the bill so delivered and no other. If the client pays without taxation, he pays the bill so delivered, and if he wishes for taxation before payment, it is the bill so delivered that is sent to taxation. There is but one bill, and its delivery is a condition precedent to payment.
…
… and it is settled beyond controversy that the solicitor is, for the purposes of taxation, bound by the billthat he has delivered and cannot alter it without the leave of the Court or the consent of the party.” (at 512)
“There is but one bill intended by the Act, whether for the purpose of payment without action or taxation, or for the purpose of action or for the purpose of taxation.” (at 513) (italics added)
47. As explained by his lordship, the rationale behind the “one bill” principle is to prevent any dishonest attempt made by solicitors to impose on clients, who did not know what the proper charges were, by sending in a bill which would not stand taxation, and then, when taxation was insisted on or threatened, sending in another bill which they knew could stand taxation (at 512, 513).
48. Farwell LJ emphasised that there was only one bill intended by the Act and that was the bill which the court would proceed to tax under statute.
49. Mr Wong’s submission was that in the present case, the first bill was the “one bill” intended by section 67. Applying Sadd v Griffin, the plaintiff is barred from delivering the second bill, which covered the same period to which the first bill related.
50. In modern times, instead of the “one bill” terminology, the courts often choose to call a bill which qualifies for taxation under section 67 a “final” bill. A “final” bill is one which covers all the items of works done during the period to which the bill relates: Chin Yuk Lun Francis v Messrs Lo & Lo (a firm) HCMP 1142/2005, 7 July 2006, para 11. It is to be contrasted with a mere statement of account issued while the litigation is still ongoing which shows how things are going and how far the expenses have gone up in the meantime. In such statement or intermediate bill, the solicitor asks for and takes payment on account and the matter is treated as one running account. It is therefore not a “final” bill which would qualify for a section 67 taxation: Re Romer & Haslam [1893] 2 QB 286, 294-295.
51. The rationale underlying the solicitor and client taxation regime embodied in section 67 is simple. It has been said that solicitors are experts in costs matters and clients are generally not conversant with them. The statutory regime gives recognition to this and confers a right on the client to have the bill taxed by the court. It is a protection afforded to the client against unreasonable or unnecessary charges. Under the regime, the client is given one month to consider whether to invoke the taxation mechanism. It is an opportunity for the client to consider his position, whether to pay the bill without protest, to negotiate it down, or to have it taxed by the court. For the regime to work effectively, it is important that the solicitor includes all the items of work done during the period to which the bill relates. It is only then possible for the client to come to an informed decision on what to do with the bill.
52. In Cobbett v Wood [1908] 2 KB 420, Farwell LJ said:-
“The bill of fees, charges, and disbursements contemplated by s. 37 is, I think, a complete bill of the whole of the fees, charges and disbursements in respect of the particular business done.” (at 429) (italics added)
53. More recently, in Mong Man Wai, Deputy High Court Judge A Cheung said:-
“I take it as a basic right of a client that he should be supplied with a complete bill containing the whole of the fees, charges and disbursements, so as to enable him to check the bill and form a fair opinion.” (at para 49) (italics added)
54. It is in this sense that a bill which qualifies under section 67 is known to be a “final” bill. It is “final” because it sets out the solicitor’s complete account for the work which they did for the relevant period. It is not necessarily the last bill which the solicitor issued upon the completion of the entire litigation. Sometimes, a bill issued at a time when the litigation is not yet concluded may qualify as a “final” bill in respect of a certain stage of the litigation and hence is taxable under section 67: Chin Yuk Lun Francis at paras 11-12.
55. It has been said that a “final” bill has two features: it will not be changed, and it covers all professional services performed within a certain time: De Cotiis v Owen Bird [1998] 51 BCLR (3d) 272 at para 16, cited in Chin Yuk Lun Francis at para 11. In other words, the amount billed would not change and there would be nothing further owed for the services rendered during the time covered by the bill: De Cotiis at para 19. Deputy High Court Judge To remarked further:-
“Thus, in my view, “final” in the context of a solicitor’s bill of costs does not mean “last”. It means finality, i.e. it will not be changed and it implies self containment. It is final in respect of a certain stage defined in the retainer, whether by event or by time.” (at para 12)
56. The above authorities echo the “one bill” principle discussed in Sadd v Griffin. There is a general recognition that a “final” bill, once delivered, is not expected to be altered by the solicitor and no further bill is anticipated which would change the amount charged. This clearly accords with the purpose of the statutory regime of solicitor and client taxation. The client has one month after its delivery to consider the bill and decide what to do with it. If the solicitor is free to alter the bill at any time, the regime would not work smoothly and the protection afforded to the client would be undermined.
57. Mr Wong submitted that the first bill is a “final” bill. As such, once it was delivered, the plaintiff cannot subsequently alter it by adding further items of disbursement. If the plaintiff is allowed to send in the second bill which relates to the same period covered by the first bill, it will in effect be altering the first bill, which must be disallowed.
58. I agree with the characterisation that the first bill is a “final” bill in respect of all of the plaintiff’s works done in the original High Court action for section 67 purposes. Adopting the Sadd v Griffin terminology, it was the “one bill intended” by the Ordinance. Accordingly, I agree that prima facie the plaintiff is not entitled to alter it. By delivering the second bill, the plaintiff sought to add back in the Two Items in the first bill. This, in substance, amounts to an alteration of the first bill.
59. However, this is only the prima facie position. It is clear from Sadd v Griffin itself and subsequent cases that the “one bill” principle is not an absolute rule. In my view, it does not create an absolute bar against any alteration of a “final” bill, even after the commencement of the taxation proceedings. In the passage quoted in para 46 above, Farwell LJ made it clear that the solicitor cannot alter the bill “without the leave of the Court or the consent of the party”.
60. Mr Cheung referred me to a number of cases in which a solicitor was granted leave to withdraw a bill and deliver a fresh one after the taxation proceedings were commenced in order to rectify some procedural error. These cases concerned counsel’s fees which had not been paid when the solicitor’s bill of costs was delivered but were subsequently paid prior to the completion of the taxation. As pointed out in Mong Man Wai (para 43), the English position concerning unpaid fees is different from Hong Kong. Notwithstanding that, these authorities are still relevant in two ways.
61. First, they confirm the court’s jurisdiction to allow a solicitor to withdraw a bill and to deliver a fresh bill, even after taxation proceedings have commenced: Re a Solicitor [1948] 1 Ch 48 at 49; and, Polak v Marchioness of Winchester [1956] 1 WLR 818 at 822. In Polak, Jenkins LJ referred to the passage in Sadd v Griffin and went on to observe that “[the] reference to the leave of the court recognizes the existence of an inherent jurisdiction in the court to control these matters of taxation”.
62. Secondly, they illustrate the types of situation in which it would be appropriate to exercise the jurisdiction. Where a solicitor made a bona fide mistake in the bill by inadvertence, and there was no intention to do anything dishonest or to overreach the client in any way, the court might consider it appropriate to exercise its discretion to allow the solicitor to correct the mistake either by amending the bill or substituting it with a new one.
63. On the one hand, the court must view such carelessness strictly and solicitors are not to be under the impression that they can be careless or unbusinesslike in costs matters and then as of course apply for and receive the assistance of the court to rectify their careless mistakes. On the other hand, to disallow the solicitor to correct his mistake may lead to undue hardship, which might be an excess penalty for his carelessness. In cases of unpaid counsel’s fees, to disallow the solicitor to alter his bill so as to claim counsel’s fees which he subsequently paid would leave him out of pocket when the client had in fact had the benefit of counsel’s services: Polak at 827.
64. In Re a Solicitor, Uthwatt J allowed the solicitor to deliver a fresh bill to correct the mistake concerning counsel’s fees so that he could then have the item taxed. His lordship said:-
“The exact circumstances in which this bill came to be drawn … indicate no desire or intention on the part of the solicitor to trick the client or take advantage of him. There would certainly appear to have been stupidity and negligence on the part of the solicitor, and it might be suggested that the client’s opposition to this application shows cupidity, for he has got the benefit of payments made by the solicitor and is relying on a technical rule to prevent the solicitor from recovering those sums from him.” (at 49)
65. In the present action, the plaintiff seeks to recover the counsel’s fees based on the second bill. Applying Sadd v Griffin, the plaintiff was prima facie bound by the first bill, it being the “one bill intended” by the Ordinance or the “final” bill in respect of the original High Court action. The material question in the present action is whether the court should allow the plaintiff to effectively alter the first bill by the delivery of the second bill in the circumstances. As a matter of analysis, pursuant to Master Chow’s ruling, the Two Items were taken out from the first bill. The practical effect of the second bill, if allowed, would be to alter the first bill by adding back in the Two Items.
66. As seen above, the court has the power to allow such alteration. (And, if allowed, the first and second bills would together form the “final” bill.) The relevant question here is whether it should exercise the power.
67. Objectively speaking, when the defendants received the first bill, they were made aware that the plaintiff was seeking to recover the Two Items. The further objective facts are that the defendants had had the benefit of the counsel’s services in the original High Court action and the plaintiff did in fact (subsequently) settle counsel’s fees and is now out of pocket in the sum of $589,000. It is clearly a sizable sum for any solicitor to be out of pocket for.
68. There is no suggestion before me that the plaintiff had engaged in any improper, dishonest or questionable conduct in this matter. It would thus appear that the plaintiff should be allowed to recoup the counsel’s fees from the defendants, notwithstanding his earlier mistake. To disallow the plaintiff from delivering and claiming on the second bill would create an undue hardship on the plaintiff and unjustified windfall to the defendants, which is uncalled for in the circumstances.
69. It will be recalled that the rationale underlying the statutory regime is to give protection to a client against any improper conduct of his solicitor when putting together a bill of costs. It is to prevent the client from being exploited by giving him an opportunity to bring the bill under the oversight of the court. The regime is after all a means to achieve fairness between the two sides when it comes to costs matters. It should not be a regime to enable a client to gain a pecuniary advantage at the expense of his solicitor simply because the latter made a mistake in circumstances where no improper conduct was involved. That should not be the intention behind the statute.
70. In their striking out application, the defendants contend that the plaintiff’s claim is bound to fail by operation of the “one bill” principle. That contention is untenable. First, the “one bill” principle does not create an absolute bar against the second bill. Secondly, on the materials before me, it is (at least) arguable that there are sufficient grounds on which the court ought to allow the delivery of the second bill. Hence the claim is viable. The striking out application based on this ground must fail.
71. In their setting aside application, the burden is on the defendants to demonstrate that the “one bill’ principle has a real prospect of success as a defence. As noted above, on the materials before me, there is clearly ground to allow the delivery of the second bill. The burden is on the defendants to put forward materials now to demonstrate why they have a real prospect of success in persuading the court to disallow the second bill, in the special factual circumstances of the case. They have not discharged that burden. Their setting aside application based on this ground must also fail.
72. The above deals with the first strand under the “one bill only” argument. I now turn to the second strand.
73. Mr Wong contended that after the completion of taxation proceedings, a receiving party cannot issue a further bill in respect of the works rendered in the same period and seek to commence another taxation. He relied on the English decisions of In the Estate of Segalov, Deceased [1952] P 241 and Moat Housing Group-South Ltd v Harris (No 2) [2008] 1 WLR 1578.
74. Mr Wong submitted that the rationale is simple. A paying party should be able to treat its financial obligation arising from the litigation to have been fully satisfied after payment of the taxed costs. It would be against procedural fairness for the paying party to have to face subsequent taxation proceedings for any additional bills which the receiving party “suddenly thought of”. Here, the taxation of the first bill was completed in January 2018. Upon such completion, it is, Mr Wong contended, simply not open to the plaintiff to issue a further bill and ask for another taxation. He said that the plaintiff could not just come back again and again for the same thing.
75. Segalov concerned party and party taxation. The plaintiffs were granted costs of a probate action and they lodged a bill of costs. The bill was taxed and the plaintiff were paid the taxed costs. The bill did not however include certain items. The plaintiffs subsequently lodged further bills in respect of the omitted items. It was held that the plaintiffs were not entitled to a further order that these items be paid. The judge found that it was a deliberate decision of the plaintiffs’ solicitor to omit those items from the original bill. They were not omitted owing to any accidental slip or omission (at 246). The judge went on to hold (at 248):-
“I am clearly of opinion that the plaintiffs having submitted and obtained taxation – and incidentally payment – of their costs of action, were not entitled to tax, as between party and party, any further bill. It appears to me to be quite clear that a litigant in possession of a judgment against an opposite party to pay his taxed costs must lodge a bill for taxation which includes all the costs to payment of which, when taxed, the judgment entitles him. He is not, in my opinion, entitled to select a portion of the costs, submit that portion for taxation as his costs of the action recoverable under the judgment, and, after obtaining an allocator, make a selection of a further part of his costs and successfully apply for taxation of a bill for those further items as between party and party. Nor is he, having obtained taxation, entitled to an order to pay the amount of the allocator.” (original italics)
76. I accept as a general proposition that a receiving party ought to include all the items, which he intends to claim, in his bill of costs and he ought not to be allowed to submit further items after his bill is taxed and paid. This simply accords with common sense and the notion of procedural fairness and efficiency.
77. However, I do not consider that there is an absolute bar to the issuance of a further bill after completion of taxation, no matter what the actual circumstances are. Segalov is not authority for such a proposition. In fact, it is clear from the ruling that whether to allow a further taxation must depend on the specific facts of the case. The judge made a clear distinction between a deliberate decision to omit the items and an accidental omission or slip. While it was not made clear in the judgment whether leave to tax would be allowed in the latter scenario, it is tolerably clear that such a situation would warrant separate consideration which might lead to a different outcome.
78. Similarly, Moat Housing, which is also a case on party and party taxation, must be interpreted with regard to its specific factual situation.
79. Mr Wong relied on the ruling (at para 33) that if a receiving party fails to include an item (which in that case was the costs of his previous solicitor) and the costs judge completes his assessment of the costs without regard to that item and proceeds to a final certificate, the receiving party cannot “start again” by claiming a further assessment in respect of the item.
80. This proposition clearly reflects common sense. But, again, it is wrong for Mr Wong to simply lift out this paragraph from the judgment and elevate it to the status of an absolute rule, without paying due regard to the specific factual situation to which the ruling was applied. In that case, the parties had in fact reached a settlement on the amount of the receiving party’s costs. Clarke J held, at para 35, that if the receiving party has left out of his bill part of what he should have claimed and there has been a settlement of the bill, he cannot recover more than the amount agreed. The omission is his misfortune. This is to be contrasted with the situation where in the settlement, the receiving party had made clear that the amount claimed was only part of their claim to costs and that they would be claiming later in respect of some other part and at the same time the paying party recognised that that other part was still to be dealt with. Clarke J said that in such a case, the receiving party:-
“… would not, in my judgment, be prevented from making a claim in respect of those costs. There would have been a failure to comply with the practice direction. But, subject to any sanction that the court thought fit to impose, there would be no reason in principle why the court should not assess the remaining costs in dispute. The bills of costs already submitted could be amended.” (para 34)
81. It is thus clear that whether to allow a further taxation must depend on the circumstances of the case. The general point that one can derive from the authorities is that as a starting point, there should be no “re-opening” of the taxation. But if a party wishes to have a further bill taxed, it is for him to justify.
82. The relevant factual circumstances of the present case are set out in paras 67-68 above. On the materials before me, there are sufficient grounds to allow taxation (if applied for) of the second bill. I reject the second strand of the “one bill only” argument.
The second ground – cause of action or issue estoppel
83. The second striking out ground is based on estoppel. Even if the plaintiff was entitled to deliver and rely on the second bill, he is, contend the defendants, barred from litigating on it by operation of cause of action estoppel or issue estoppel.
84. I shall first deal with cause of action estoppel.
85. Mr Wong submitted that the cause of action in the present action is exactly the same as that in the second High Court action. This is because both causes of action arise out of the same factual matrix with the same parties. In both actions, the claim is for the reimbursement of the Two Items as disbursements and the plaintiff and the defendants are respectively the receiving party and paying party. In the second High Court action, Master Chow made the factual finding in respect of the Two Items against the plaintiff. The cause of action in that action failed on its merits by reason of that ruling. This therefore raises a cause of action estoppel against the plaintiff in the present action.
86. Mr Wong’s submission is, in essence, straightforward. Previously, the plaintiff sued on the Two Items and lost in the second High Court action. Now, the plaintiff sues on the very same Two Items in the present action. They must be barred from doing so.
87. Broadly speaking, once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. This is “cause of action estoppel”. This kind of estoppel precludes a party from challenging the same cause of action in subsequent proceedings: Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2014] AC 160 at para 17, per Lord Sumption JSC. The term “cause of action estoppel” was coined by Diplock LJ in Thoday v Thoday [1964] P 181, 197-198: “If the cause of action was determined to exist i.e., judgment was given upon it, it is … merged in the judgment… If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam.” See also Spencer Bower and Handley: Res Judicata (5th ed) at para 7.02.
88. Here, the plaintiff was unsuccessful in recovering the counsel’s fees under the Two Items in the second High Court action. At first blush, therefore, he should not be allowed to assert the same claim again in the present action. He should be estopped per rem judicatam. However, on closer scrutiny, the cause of action estoppel argument faces two difficulties.
89. The first difficulty lies in the fact that, strictly speaking, there was no formal judgment entered or formal order made in respect of the cause of action in the second High Court action. Does this preclude the cause of action estoppel from arising in the first place?
90. The second High Court action was an action commenced by writ. The plaintiff’s cause of action was defined by the facts pleaded in the statement of claim. It will be recalled that no defence was filed. Master Lo granted leave to the defendants to tax the first bill. In that hearing, she ordered that “[t]he present Action be stayed”. Interpreted literally, pursuant to that order, no proceedings should be carried out at all under that action. Nevertheless, Master Lo at the same time gave directions for the taxation proceedings. As a matter of fact, the taxation proceedings continued under the second High Court action. Hence, in its proper context and taken as a whole, Master Lo’s order must be understood to mean that the proceedings in the action, such as service of pleadings and discovery etc, be stayed save for the taxation proceedings.
91. In the end, Master Wong completed the taxation. But no order was ever made or judgment entered for the taxed sum in favour of the plaintiff. Technically speaking, therefore, it may be said that there was no formal determination of the cause of action in the writ action. However, at a practical level, it would appear that the parties had treated the action as concluded (save for the plaintiff’s failed attempt to tax the second bill).
92. It is helpful to refer to the discussion of this topic in Atkin’s Court Forms (2nd ed). Its earlier issues, eg, the 1997 Issue of Volume 36, suggest that where a solicitor commences a writ action against his client for fees and applies for summary judgment and the client disputes the amount of the bill, an order on that summons should be made to direct that the bill be referred to the taxing master and that the solicitor be entitled to sign judgment for the costs, as taxed, together with the costs of the action: para 30 on p319. According to Form 91 which specifies the form of the summons to tax the bill after an action was brought on it, the following orders, among others, should be sought:-
(a) The bill be referred to the taxing officer to be taxed;
(b) The taxing officer do certify what upon the reference shall be found due to or from either party in respect of the bill and the costs of the reference pursuant to the Solicitors Act 1974;
(c) The plaintiff be restrained from prosecuting the action touching the demand pending the reference; and
(d) Upon payment of what (if anything) may appear to be due thereon to the plaintiff together with the costs of the action to be also taxed and paid, all further proceedings be stayed.
93. Here, in their summons, the defendants did not follow what was suggested in the above precedent. As a result, as far as I can tell from the materials before me, no judgment was ever signed for the taxed amount in the second High Court action. There is therefore doubt as to whether Master Chow’s ruling on the preliminary arguments in itself, now relied on by the defendants, is capable of raising a cause of action estoppel in the first place.
94. In his written submissions, when dealing with the abuse of process ground, Mr Cheung made the submission that the second High Court action had not been concluded but stayed pursuant to the order made by Master Lo. Hence, there was, he submitted, no final conclusion of that action.
95. Counsel did not make any detailed submission on this issue. In any event, it is unnecessary for me to make a ruling because even if I decide the point in favour of the defendants, I am of the view that they cannot surmount the second difficulty and hence their cause of action estoppel argument must fail.
96. The second difficulty is this. Mr Wong’s analysis is a literal application of the general definition of cause of action estoppel to the broad outline of the present case. But the law of res judicata requires a more nuanced approach. Relevantly, it draws a distinction between an earlier judgment allowing the plaintiff’s claim and one dismissing it.
97. Where a plaintiff recovers judgment, it almost necessarily follows that all the issues raised by the defendant have been determined in the plaintiff’s favour. A judgment may, however, have been passed in favour of the defendant on dilatory grounds, or on one only of many alternative defences, and circumstances may have arisen entitling the plaintiff to judgment which were not in existence when the first claim was brought. The burden is on the defendant to show that the judgment relied on was obtained upon grounds or in circumstances which afford him a defence to the subsequent claim. Where a defendant relies on an earlier judgment dismissing the plaintiff’s claim to raise an estoppel by res judicatam, it is therefore necessary to look into the nature and effect of the earlier judgment. If the ground for determination in the earlier judgment had ceased to operate at the time of the subsequent litigation, no cause of action estoppel would arise: Total Lubricants HK Ltd v De Chanterac (No 2) [2013] 2 HKLRD 838 at paras 17-21, per Kwan JA.
98. Here, the plaintiff effectively failed in his claim to recover the Two Items in the second High Court action. It is clear from Master Chow’s reasoned decision that the Two Items were not recoverable as the counsel’s fees had not been paid by the plaintiff. That was the ground for her decision. It is plain and clear that that ground has ceased to exist and no longer applies in the present action, since the plaintiff had settled the counsel’s fees subsequent to Master Chow’s ruling. Applying Total Lubricants, the ruling did not raise a cause of action estoppel in the present action so as to bar the plaintiff from recovering the Two Items.
99. I now turn to issue estoppel.
100. The defendants say that even if there is no cause of action estoppel, it is clear that by reason of Master Chow’s ruling and Master Wong’s first and second rulings, an issue estoppel arises which would bar the plaintiff from pursuing his claim on the second bill. Mr Wong’s submissions were as follows:-
(a) Master Chow found that the plaintiff had not paid the Two Items. This was an essential step to her ultimate ruling to exclude the Two Items. The plaintiff should therefore be estopped from claiming the same items here.
(b) At the hearing on 8 January 2018, the fundamental issue before Master Wong was whether the plaintiff was entitled to the Two Items. It is substantively the same issue as the one in the present action. Master refused the plaintiff’s application to “resurrect” the Two Items. Hence, the plaintiff is estopped from making a claim on them again.
(c) Mr Wong did not make any specific submission in respect of Master Wong’s second ruling. However, in his written submissions, he also relied on it to raise issue estoppel.
101. A decision will create an issue estoppel if it determined an issue in a cause of action as an essential step in the reasoning. Issue estoppel applies to fundamental issues determined in an earlier proceeding which formed the basis of the judgment: Spencer Bower at para 8.01. The principle of issue estoppel applies even where the cause of action is not the same in the later action as it was in the earlier one. Some issue which is necessarily common to both and was decided on the earlier occasion is binding on the parties: Virgin Atlantic at para 17.
102. As regards Master Chow’s ruling, as noted above, she decided that the Two Items were not recoverable because the counsel’s fees had not been paid by the plaintiff. Plainly, this is not the same issue which falls to be decided in the present action. This is because the counsel’s fees have since been paid. What the trial judge will have to decide is whether on the factual premise that the counsel’s fees were settled, they are recoverable from the defendants. There is no room for issue estoppel to arise.
103. As regards Master Wong’s first ruling, it is true that by then the counsel’s fees had been paid by the plaintiff. Nonetheless, master refused to add back the Two Items in the first bill because they had already been disposed of on the previous occasion. He also added that if the plaintiff wanted to argue the Two Items, they would have to deliver another bill for that. He then proceeded with the taxation of the first bill. Master Wong’s first ruling was made in the overall context of managing the taxation proceedings before him. It was a procedural decision. He clearly did not rule that the plaintiff could never claim the Two Items. In fact, he expressly contemplated that the items could be dealt with on another occasion but a fresh bill would have to be delivered first.
104. The issue before Master Wong does not arise in the present action. The plaintiff has since delivered the second bill and is now claiming the Two Items under the second bill in the present action. There is no common issue. Issue estoppel does not arise by reason of Master Wong’s first ruling.
105. As regards his second ruling, it is notable that by the time it was made, the plaintiff had already issued the second bill. Hence, the factual matrix as existing at that time is the same as when the present action was commenced. It is therefore necessary to scrutinise the reasoning of the ruling.
106. Master was of the view that the writ in the second High Court action could not cover the second bill because the cause of action in respect of that bill only accrued after the date of the writ. He expressed the view that the plaintiff would have to start a new action in order to recover the Two Items. He therefore dismissed the plaintiff’s summons to tax the second bill.
107. An issue estoppel created by a dismissal is limited to the actual ground upon which the existence of the right was negatived: Spencer Bower at paras 2.28 and 8.02. Master Wong’s refusal to tax the second bill was based on a purely procedural ground. This ground no longer applies. When the present action was commenced, the second bill had already been issued. Therefore, no issue estoppel arises out of Master Wong’s second ruling.
108. In summary, the defendants’ second ground fails.
The third ground – abuse of process
109. The defendants contend that even if there is no estoppel, the plaintiff is barred from bringing the present action as it amounts to an abuse of process of the court.
110. In gist, Mr Wong submitted that the abuse arises in that it was entirely within the plaintiff’s control to ensure disbursements were paid before issuing the first bill so that taxation could have been determined and settled once and for all. However, the plaintiff had failed to do so. He should not be allowed to re-litigate the matter. There is, Mr Wong argued, also a wider public policy consideration. Should the plaintiff be allowed to re-litigate the matter in the present case with no repercussion, it can be envisaged that in the future other solicitors may be more lax in issuing their bills of costs with the assurance that they have full liberty to issue a further bill whenever they please. This will significantly hamper the administration of justice.
111. The general principles governing the doctrine of abuse of process are well-known.
112. The essence of the doctrine is that a party ought generally not to be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings. The starting point is to recognise that the doctrine is founded on an abuse of process. It ought only to be applied when the facts are such as to amount to an abuse; otherwise, there is a danger of a party being shut out from bringing forward a genuine subject of litigation. It is essential when striking out a claim under this doctrine that an abuse is found to exist in such a situation: Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72, paras 82-83. The same point is stressed in Virgin Atlantic. The underlying purpose is to limit abusive and duplicative litigation. It is to prevent abuse of process. Where the conduct is not abusive, the doctrine does not apply: para 25.
113. When examining whether there is abuse, the court is concerned with balancing interests: not just those of the litigants before it, but also taking into account the other interests involved in the administration of justice. The court is required to assess a number of factors and balance competing interests: Ko Hon Yue at para 83. It involves a broad, merits-based judgment on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before: Johnson v Gore-Wood & Co [2002] 2 AC 1, 31, cited in Chiang Lily v Secretary for Justice [2009] 6 HKC 234 at para 57 and Virgin Atlantic at para 24.
114. Here, I find it difficult to conclude that the plaintiff’s bringing of the present action amounts to abuse in the proper sense of the word.
115. In the second High Court action, the plaintiff had made repeated attempts to try to recover the Two Items. When he commenced that action, the Two Items were included as part of the first bill. Hence, from the very beginning, those items formed part of the claim. Master Chow ruled that the Two Items ought to be excluded because they had not been paid. In order to rectify his mistake, the plaintiff paid the Two Items before the taxation hearing before Master Wong. He applied to the master to reinstate the Two Items. It is his second effort to claim for the Two Items. His application failed. Master Wong commented that if he wanted to pursue the claim, he should deliver a fresh bill. This the plaintiff promptly did. He then sought leave to have that bill taxed. This is his third attempt to recover the Two Items. That application failed too, this time on a procedural ground. To rectify that, the plaintiff commenced the present action to claim the Two Items.
116. According to this chronology, this is hardly a case in which the plaintiff is making a claim in a later action which he could and should have raised in earlier proceedings but did not. On the contrary, as a matter of fact, prior to the present action, he took multiple steps to recover the Two Items at different stages of the second High Court action. But each time he failed for a different reason.
117. In Henderson v Henderson (1843) 3 Hare 100, Wigram VC said:-
“… the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.” (at 114-115) (italics added)
118. Here, it is not the case that the plaintiff failed to bring forward his whole case in the three hearings before masters. In my view, on each occasion, he did bring forward and present to the court his whole factual case as it existed at the time. But each time the factual case was not good enough to support his application which therefore failed. At the hearing before Master Chow, he was bound by the factual case that he had not yet settled counsel’s fees. At the first hearing before Master Wong, the plaintiff brought forward his whole factual case and there was nothing further which he might have put forward in order to persuade the master to reinstate the Two Items in the first bill. At the second hearing before Master Wong, again, he brought forward his whole factual case but was defeated by a procedural point, which he could not have rectified in the same action.
119. In my view, therefore, the present action cannot be characterised as a misuse or an abuse of the court’s process.
120. In any event, I repeat what I have said in paras 67-68 above. The plaintiff has a genuine claim and there is no reason why he should now be shut out from pursuing it. His conduct is not abusive throughout. In fact, the crux of the defendants’ complaint here is that the plaintiff should have settled the Two Items before delivering the first bill but he did not. On this point, there is no doubt that the plaintiff had made a mistake. But it can be said that the plaintiff had already “paid the price” for that mistake. Much time had been spent by him to recover the Two Items. For his two failed applications before Master Wong, costs orders were made against him, which in aggregate amounted to over $51,000. In the circumstances, the plaintiff should be allowed to pursue the present action. The third striking out ground therefore fails.
CONCLUSION
121. None of the striking out grounds put forward by the defendants are made out. There being no other defence to the claim, there is no reason to set aside the default judgment. I dismiss the 1st and 2nd defendants’ appeal.
122. At the hearing, the defendants agreed that the plaintiff should have costs of the appeal should their appeal be dismissed. I therefore order accordingly and grant a certificate for counsel. I have heard submissions on quantum. I order that the plaintiff’s costs be summarily assessed in the sum of $155,000, payable by the defendants within 14 days of the handing down of this decision. In arriving at that figure, I have taken into account the further research undertaken by counsel, and the extended written submissions made, as directed by the court, after the first day of the hearing.
| ( Winnie Tsui )
District Judge |
Mr Jay Cheung, instructed by Rowdget W Young & Co, for the plaintiff
Mr Tim Wong, instructed by Wong, Fung & Co, for the 1st and 2nd defendants