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K19.5. Costs orders in favour of the other side
| 599. | Many of the issues discussed in connection with solicitor and own client costs also bear on costs which may be payable to the other side. In some cases, the issues are not significantly different. Thus, benchmark costs and scale fees can provide guidance to the appropriate level of costs in either case. Other issues apply with some modification. Thus, while judicial intervention to cap or disallow costs as between a solicitor and his own client is currently exceptional and subject to a high threshold test, such judicial intervention in the form of taxing party and party costs is commonplace. In contrast, under the present rules, there is little or no transparency regarding the costs being incurred by the other side, a feature of litigation which introduces a potentially intimidating and uncertain financial exposure. |
| (a) | Transparency of the other side's costs |
| 600. | Lord Woolf recommended greater transparency regarding the costs incurred by both sides, the sums incurred and to be incurred being disclosed to the court :- |
| "On the multi-track I recommended that at case management conferences and pre-trial reviews, the information available for the hearing should include an estimate of the amount of costs already incurred and the costs which would be incurred if the case proceeded to trial." (Note 537) | ||
| 601. | He considered it important that a court should have this information to help it make cost-effective case management decisions. (Note 538) Such disclosures were also regarded as an important means of informing the clients on each side of their potential exposure in respect of the other's side's costs, reducing the uncertainty they face :- |
| "[To counter the uncertainty] I am recommending that clients should be present at case management conferences and pre-trial reviews, where the judge will be informed about the level of costs incurred to date and the likely amount of future costs that would be incurred by the programme of work that he is setting at the conference. The presence of the client should be a powerful incentive to adopt a realistic approach." (Note 539) | ||
| 602. | This has been implemented in the CPR by the Costs Practice Direction requiring the parties to file estimates of costs already incurred and likely to be incurred. (Note 540) This is done at the early, allocation questionnaire stage, (Note 541) again when filing a listing questionnaire (Note 542) and at any stage of the case, if so ordered. (Note 543) The precedent annexed to the practice direction indicates the detail which the estimate must contain.(Note 544) However, observance of the obligation plainly is not intended to undermine legal professional privilege and the details given can no doubt be presented in a manner consistent with protection of the privilege. |
| 603. | Tactical over-statements or under-statements of costs (particularly in the context of summary assessments) are discouraged by the provision that :- |
| "On an assessment of the costs of a party the court may have regard to any estimate previously filed by that party, or by any other party in the same proceedings. Such an estimate may be taken into account as a factor among others, when assessing the reasonableness of any costs claimed." (Note 545) | ||
| 604. | Readers are consulted as to whether provision should be made in Hong Kong to require the parties, periodically and as ordered, to disclose to the court and to each other best available estimates of costs already incurred and likely to be incurred in the case: Proposal 56. |
| (b) | Taxation of costs |
| 605. | Although in a taxation, the taxing master will often "tax down" and in that sense, moderate the costs claimable inter partes, the process of taxation itself is not one where the court seeks to regulate the level of the costs as a whole in a particular case or to regulate the level of costs charged generally. Lord Woolf put this in the following terms :- |
| "The function of taxation is not to undertake an independent assessment of the charges claimed as a whole but to resolve disputes over items between the paying and receiving party. The process therefore depends upon the paying party identifying those items on the bill which are capable of being challenged effectively. The taxing officer or Master does not give his opinion of the reasonableness of the bill as a whole. Thus there is no objective assessment of what would have been a reasonable sum for conducting a particular case; instead, it is a retrospective check on the reasonableness of the costs in fact incurred by a party over the course of the litigation. As long as a party, judged by the conventions of current practice, was acting reasonably in the way in which he conducted the case and the charges for the actual work done were reasonable in the circumstances, the taxing process does not intervene. The taxing system is therefore not a method of controlling costs absolutely but a safeguard against claims for costs which can be shown to be out of line with the norm. Taxation provides no encouragement to litigants to conduct litigation in the most economical manner."(Note 546) | ||
| 606. | Taxation is therefore the process whereby costs claimed by the winning side can be disputed by the losing side and assessed and regulated by the court. It remains an essential aspect of the civil justice system. If the cost-shifting rule is to operate fairly, the scope and quantum of costs recoverable by the winning party from the losing party must be subject to the court's supervision and, if necessary, moderation. Such judicial intervention is also necessary to promote equality of arms between parties of different financial resources. A winning party who chooses to incur costs extravagantly and unnecessarily cannot be stopped from so doing. However, his claim for costs against the losing party can and should be restricted to the costs it was reasonably necessary to incur (even if judged only against the prevailing norm). Otherwise rich parties could pose an oppressive litigation risk against the other side simply by running up disproportionately high costs. |
| 607. | One specific instance within the existing HCR has attracted criticism because of its tendency to remove or dilute the court's power to keep to within reasonable levels the costs to be shifted by one party to the other. |
| 607.1 | Para 2(5) of Pt II of the 1st Schedule to Order 62 of the HCR, a homegrown provision, stipulates that "Every fee paid to counsel shall be allowed in full on taxation, unless the taxing master is satisfied that the same is excessive and unreasonable, in which event the taxing master shall exercise his discretion having regard to all the relevant circumstances ......" |
| 607.2 | In requiring the taxing master to approach counsel's fees paid with the presumption that they are not to be taxed down unless shown to be "excessive and unreasonable," this rule effectively adopts a "solicitor and own client" basis for a "party and party" taxation in relation to such fees. (Note 547) It is difficult to see any justification for this exceptional shift in basis. It may also encourage solicitors to pay counsel's fees without questioning them, on the footing that their clients are likely to recover such fees from the other side without their being taxed down. |
| 607.3 | Readers are consulted as to whether this exception should be deleted: Proposal 57. |
| 608. | Returning to the process of taxation in general, experienced court officers report that the process is beset by certain inter-related problems :- |
| * | The process itself appears disproportionately expensive. As Appendix B, Tables 1 to 5 show and as discussed in Section D5 above, the costs of taxation constitute a disproportionate cost when compared with amounts recovered and considered as an element of the total costs bill. | |
| * | Although the current Practice Direction (Note 548) on taxation requires the parties to aim at reaching "agreement either on the whole of the bill or on as many items as possible" before coming to court, experience suggests that this usually does not take place. Lists of objections to bills served are often not served beforehand but only produced at the hearing. | |
| * | Bills are presently prepared in a format that is cumbersome, expensive and potentially misleading. Officers with taxation experience have commented :- | |
| "Minor items like mechanical items and correspondence are generally listed individually and thus take up pages. For clarity and simplicity, they can be grouped together under convenient heads. On the other hand, costs incurred for major events are scattered in various places in the bill. It is difficult to apprehend the importance of information presented in such a way. For taxation purposes, it is desirable that the total costs for a particular event should be known and that items connected with that event are considered in context. This gives a sense of proportionality of the costs for an event and the distribution of costs in the bill. The present format also provides room for duplication of costs claimed for the same item of work." |
| 609. | These complaints indicate that reforms ought to be directed :- |
| * | at avoiding the need for taxation in as many cases as possible; | |
| * | where a taxation is needed, at streamlining the procedures; and | |
| * | at enforcing better standards of practice. |
| (i) | Avoiding taxations |
| 610. | The most satisfactory way of avoiding a taxation is for the parties to agree as to the quantum of costs payable. This Report has discussed ways in which the rules may encourage settlement generally. The same approaches apply to the settlement of a liability to costs. |
| 611. | At present, the HCR and related case-law provide for the use of Calderbank letters, that is, offers of sums by way of settlement made without prejudice save as to costs, in the context of taxations. (Note 549)Such an offer, made by the party liable to pay, can be taken into account in determining who should pay the costs of the taxation process itself if the receiving party does not do better than the offer. A similar provision is found in CPR 47.19. However, court officers report that the Calderbank procedure is insufficiently used. |
| 612. | A reform that appears worthy of consideration is the express application of CPR Part 36 offers to taxations. Either party may avail himself of that procedure. However, it enables, in particular, the party entitled to receive payment of the costs to take the initiative by making an offer to settle the costs liability, putting the other party at risk of the expense of the taxation if the offer turns out to be less than the amount he is ordered to pay after a taxation. A rule of this nature has been adopted in New South Wales. (Note 550) Readers are consulted as to the desirability of such a rule in the taxation context: Proposal 58. |
| 613. | Another means of avoiding a taxation process is use of the procedure for the summary assessment of costs. This procedure has been discussed above primarily in the context of providing effective sanctions against unnecessary interlocutory applications. However, summary assessments can effect savings in overall litigation costs. |
| 614. | Taxations would also be avoided if it were possible to prescribe fixed costs for certain specific categories of cases. It has been suggested, for instance, that fixed costs might be provided for mortgagee actions, uncontested winding-up and bankruptcy petitions and all types of charging orders. Indeed, as previously noted, in July 2001, an experimental voluntary scheme was introduced by the Registry whereby taxations might be avoided if parties accepted proposed sums by way of "lump sum assessment" for simple applications such as for charging orders nisi and absolute, mortgagee actions and garnishee proceedings. Parties are invited to adopt the figures and so avoid any taxation. If they choose not to do so, they may agree to a summary assessment but put forward alternative figures or they may opt for a full taxation. |
| 615. | Benchmark costs have been discussed above. If an effective scale of benchmark costs can be compiled, these could be used by taxing masters as representing the presumptive amounts allowable in taxations, departing from them only where some exceptional ground for doing so is made out. A rule could then be devised to deter unnecessary taxations by penalising in costs parties who pursue taxation of any item covered by a benchmark but fail to do better than the benchmark sum. Readers are consulted as to whether, contingent upon benchmark costs being successfully compiled, such a rule should be adopted: Proposal 59. |
| (ii) | Streamlining the process of taxation |
| 616. | If a taxation cannot wholly be avoided, it may be possible at least to avoid an oral hearing. A useful procedure presently applied in Hong Kong is for provisional taxations under HCR O 62 r 21(4) which provides as follows :- |
| "In proceedings for the taxation of costs of, or arising out of, a cause or matter in which the amount of the bill of costs does not exceed the sum of $100,000, the taxing master may by notice inform the party commencing the proceedings for taxation the amount which the taxing master proposes to allow in respect of the costs to be taxed and further, the taxing master shall not [give notice of an appointment for a taxation hearing] unless, within 14 days after serving notice of the amount he proposes to allow, any person entitled to be heard on taxation applies to the taxing master for an appointment to tax." | |
| 617. | A procedure extending the provisional taxation scheme to cover cases where bills of costs and objections to items in the bill have been filed merits consideration. The court, having studied the papers, could, at its discretion, decide to conduct a provisional taxation and to notify the parties of the result in the hope that this would be accepted and a hearing avoided. (Note 551) A party who did not accept the provisional taxation would be entitled to a hearing but might have to bear the costs if he failed to do better at the hearing. Readers are consulted as to whether some such procedure should be adopted: Proposal 60. |
| (iii) | Improving practice standards in relation to taxations |
| 618. | To make taxations - whether carried out on the papers or at an oral hearing - more cost-effective, rules may be needed requiring the parties to file documents in proper form, with bills of costs supported by and cross-referenced to a taxation bundle and any objections to items in such bills taken on grounds that are clearly stated. Such rules could provide for simpler and more coherent bills of costs following prescribed forms or precedents. |
| 619. | Specific costs sanctions could be designed to encourage such improvements. CPR 47.18 may serve as an example (referring to a full taxation as a "detailed assessment") as follows :- |
| "(1) | The receiving party is entitled to his costs of the detailed assessment proceedings except where - |
| (a) | the provisions of any Act, any of these Rules or any relevant practice direction provide otherwise; or | ||
| (b) | the court makes some other order in relation to all or part of the costs of the detailed assessment proceedings. |
| (2) | In deciding whether to make some other order, the court must have regard to all the circumstances, including - |
| (a) | the conduct of all the parties; | ||
| (b) | the amount, if any, by which the bill of costs has been reduced; and | ||
| (c) | whether it was reasonable for a party to claim the costs of a particular item or to dispute that item." |
| It could be made clear that "conduct" in such a rule would include any failure to provide proper information or documents so as to inhibit the court's ability to deal with the taxation on the papers. Readers are consulted as to the desirability of adopting rules appropriate to the aims discussed in this section: Proposal 61. |
Notes
| 537 | WFR, p 79 §7. <back> |
| 538 | WFR, p 85 §32. <back> |
| 539 | WFR, p 84 §29. <back> |
| 540 | 43PD §§6.1-6.6. <back> |
| 541 | White Book 26.3.4, 43PD §6.4(1). <back> |
| 542 | 43PD §6.4(2). <back> |
| 543 | 43PD §6.3. <back> |
| 544 | White Book Vol 1, p 949, Schedule of Costs Precedents, Precedent H. <back> |
| 545 | 43PD §6.6. <back> |
| 546 | WFR, p 87 §41. <back> |
| 547 | Order 62 r 29(1) prescribes as the solicitor and own client basis, the allowing of all costs "except in so far as they are of an unreasonable amount or have been unreasonably incurred." On a party and party basis, the costs which are allowed are those which "were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed", putting the onus on the party seeking such costs to justify them in the abovementioned terms (O 62 r 28(2)). <back> |
| 548 | Practice Direction 14.3. <back> |
| 549 | By O 22 r 14. See HKCP 2001 62/5/3 and 62/21/5. <back> |
| 550 | Supreme Court Rules, r 22.10. <back> |
| 551 | A similar proposal is made by the LRCWA, modelled on Order 62 rule 46 of the Federal Court Rules (Cth): WAR, Recommendation 136 and Final Report §16.31. <back> |
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