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20 March 2018
In Lam and Lai (Solicitors) v Ho Chun Yan Albert(1) the Court of Appeal took the opportunity to clarify the lower courts' role when reviewing disputes over taxed costs. In doing so, the Court of Appeal appears to have come to a sensible compromise in allowing some costs that had been approved by the taxing master but disallowed by the judge on review.
The underlying dispute followed some high-profile court proceedings in which the plaintiff solicitors assigned two partners to assist the defendant. A number of barristers also assisted the solicitors. Later on, the parties appear to have been unable to agree on the costs to be paid by the defendant to the solicitors. Therefore, the solicitors commenced taxation (assessment) proceedings pursuant to Section 67 of the Legal Practitioners Ordinance (Cap 159) (a 'solicitor and own client' taxation).
According to Order 62, Rule 28(2) of the Rules of the High Court, the test for reasonableness on a standard taxation of costs is that "there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed".
The taxing master made an award of costs favourable to the solicitors. Most notably, the solicitors were permitted to recover costs for 64 items of work to which both partners attended without the express or implied approval of the defendant client (including consideration of letters, legal submissions and authorities, court documents, judgments, conferences and attending counsel in court).
Dissatisfied with the outcome, the defendant applied to the taxing master to review the costs. The primary challenge was that there had been a 'duplication of work' in instances where both partners had allegedly done the same work on the case for the defendant.
In undertaking the review, the master considered the complexity, urgency and importance of the case and reached the conclusion that the two partners' involvement on the disputed items was neither unwarranted nor unreasonable. As such, the master declined to disallow the so-called 'duplicate' fees charged by the two partners. The number of barristers also involved in the case appears to have been instrumental in the decision.
The defendant applied for a review of the taxing master's certificate by a judge.
From the judge's perspective, the starting point for the taxation of the solicitors' bill was the rebuttable presumption in Order 62, Rule 29(3) of the Rules of the High Court, which provides:
"any costs which… are of an unusual nature and such that they would not be allowed on a taxation of costs… shall, unless the solicitor expressly informed his client before they were incurred that they might not be so allowed, be presumed, until the contrary is shown, to have been unreasonably incurred."
The judge scrutinised the work undertaken by both solicitors (partners) and was unable to identify any good reason for the two solicitor partners to have done the same items of work. Accordingly, the judge concluded that the duplication of work was unnecessary and the solicitors' bill was taxed down to allow the time claimed for one partner only.
The solicitors lodged an appeal (as of right) to the Court of Appeal in effect to restore the taxing master's decision.
At the outset, the Court of Appeal clarified that a judge's review of a taxing master's certificate was not in the nature of a new hearing – rather, the judge's role was primarily to review whether the taxing master had (among other things) erred in principle. There appeared to be contrasting legal authorities on this point. In fairness, there was no suggestion that the judge had got the legal approach wrong in this regard.
The Court of Appeal was then left with the tricky decision of what to do with the actual costs disallowed by the judge. Given that the taxing master was the primary decision maker, the question arose of whether the judge had erred in disallowing one of the partners' time.
In short, the Court of Appeal concluded that the judge had erred in taxing off the costs of one partner without taking sufficient account of alternative options. In particular, the Court of Appeal considered that the judge had failed to consider whether it would be reasonable and proper for two fee earners to be engaged in the case – for example, not necessarily two partners or senior solicitors, but a senior solicitor and a junior solicitor.
Order 62, Rule 35(6) of the Rules of the High Court gives the reviewing judge a wide discretion, expressly providing that "the judge may make such order as the circumstances require".
Having decided that the judge had erred in discounting one of the solicitor partners' time, the Court of Appeal was entitled to exercise the discretion afresh (or remit the matter back to the taxing master).
The Court of Appeal considered that the nature of the proceedings (ie, their complexity, urgency and importance) out of which the costs dispute arose was such that a senior solicitor would have been justified in engaging a junior solicitor to assist with various items of work, such as reviewing submissions, affirmations and skeletons.
Ultimately, therefore, the solicitors' appeal was allowed and the Court of Appeal ordered that the costs of one partner and those of a 'notional' junior solicitor, equivalent to half of the costs of a partner, be allowed on taxation in respect of the costs items in dispute.
The Court of Appeal's judgment has attracted some attention in Hong Kong because of the background to the case and, possibly, because of some of the individuals involved. The Court of Appeal's approach to a judge's review of a taxation master's review, pursuant to Order 62, Rule 35 of the Rules of the High Court, is not only interesting but has resulted in a pragmatic outcome in this case.
In a law firm setting, it is not unusual for different fee earners engaged in contentious cases to cooperate in relation to similar items of work (with appropriate supervision by senior lawyers) in order to discharge their professional duties to commercial clients. This is particularly true of more complex court proceedings, while allowing for the circumstances of the case and issues such as reasonableness and proportionality. On the facts of this case, the judge's complete disallowance of a second solicitor's costs appears to have been a somewhat harsh outcome.
The case is also a useful reminder that solicitors may have difficulty in rebutting the presumption (on a 'solicitor and own client' costs challenge) that 'unusual' items of costs may be regarded as unreasonable unless they have informed their clients in advance that such costs may be unrecoverable on a taxation as between the parties in dispute.
For further information on this topic please contact Mark So or David Smyth at RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
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