BANK OF CHINA (HONG KONG) LIMITED v. CHOI LAI LAR HCMP 3925/2002

S’s words:-

I was not a party or any legal representatives in the action. Mr. Ng for the Bank did quite a good job in the application hereinbelow mentioned. The legal principles regarding the rules of maintenance and champerty and also contingency fee agreement have been considered. The Bank was not required to pay for the costs when the Wife did have legal representatives due to the so-called contingency fee agreement between the Bank and her former solicitors.

However, if the Wife was not asked to act for herself shortly before the trial, I would have some hesitations as to whether the Bank could establish a prima facie case of any breach of the indemnity principle.

Thus, with very much reluctance, I have to agree with the learned Master for his comment that “I can appreciate the lenience of Mr. Sun, but such fee agreement is not allowed under our costs system.”

--- quote from judgment ---

Date of Decision : 7 November 2007

The paying party (“the Bank”) raised a preliminary issue in a taxation. It argued that the costs arrangement between the receiving party (“the Wife”) and her solicitor was:

(a) against the rule of maintenance and champerty,
(b) a contingency fee agreement, and/or
(c) in breach of the indemnity principle.

So, in summary, C&A would charge the Wife on time basis, subject to discretionary discount. Due to the financial position of the Wife, C&A agreed that she did not have to pay the interim bill right away. Further, it was to be reviewed later. No further bill was issued. The question would be further discussed after settlement or determination of the Wife’s case at trial.

Applying the above costs arrangement to the complaints made by Mr. Ng. I do not find it contrary to the rule of maintenance and champerty. However, it is contingent. Further, I am not satisfied that the indemnity principle has not been breached in the circumstances.

Maintenance and Champerty?

The law of maintenance and champerty has been recently and thoroughly considered by the Court of Final Appeal in Siegfried Adalbert Unruh v Hasn-Joerg Seeberger (unrep., FACV Nos. 9 and 10 of 2006, [2007] HKEC 268)). Four points were stated to highlight the current approach of this principle.

(a) An agreement to share the spoils of litigation encourages the perversion of justice. Gambling the outcome of the litigation endangers the integrity of judicial process. These traditional legal policies underlying maintenance and champerty continue to apply.
(b) However, one has to examine the totality of the facts to see if the ends of justice is or is not undermined.
(c) In so doing, modern public policies should be taken into account, including ensuring the poor to give fair access to justice.
(d) The law of maintenance and champerty should not be relied too readily to strike down arrangements attempting to achieve justice. Other public policies may be relied upon instead, like unconscionable contract and contingent fee agreement.

In my view, under the present costs arrangement, C&A was not funding the Wife’s litigation. Mr. Sun was not trying to share in the spoils of litigation to the exploitation of the vulnerable Wife. Indeed, he did all he possibly could in the circumstances for the Wife. Only when he could not taken up the personal risk of liability to pay counsel fees, he then quitted. There is no risk to the integrity of the court’s process. Quite to the contrary, Mr. Sun tried to help to Wife to obtain justice.

Contingent fee agreement?

Contingency fee agreement is not allowed under our system. Wallersteiner v Moir (No. 2) [1975] QB 372, 402 was referred to by the said case of Siegfried Adalbert Unruh at paragraph 104.

“ Under a contingency fee agreement the remuneration payable by the client to his lawyer in the event of his success must be higher than it would be if the lawyer were entitled to be remunerated, win or lose: the contingency fee must contain an element of compensation for the risk of having done the work for nothing. It would, it seems to me, be unfair to the opponent of a contingency fee litigant if he were at risk of being ordered to pay higher costs to his opponent in the event of the latter’s success in the action than would be the case if there were no contingency fee agreement. On the other hand, if the contingency fee litigant were to lose the action, his opponent’s right to recover costs against him should not in fairness be affected by the fact that the former party has a contingency fee agreement. Consequently under our system of what are sometimes called indemnity costs a contingency fee litigant would in the event of success have to bear a heavier burden of fees, irrecoverable from his opponent, than he would otherwise do, while remaining exposed to the risk of being ordered to pay his opponent’s taxed costs in the event of his failure. The arguments in favour of a contingency fee system are accordingly a good deal less cogent here than they are in the United States of America.”

I can appreciate the lenience of Mr. Sun, but such fee agreement is not allowed under our costs system.

Indemnity Principle?

Indemnity principle in the context of taxation requires that the receiving party cannot recover a sum in excess of his liability to his own solicitors. Then, what exactly is the liability of the Wife towards C&A? A definite answer is unavailable because it is “variable” depending on the trial result. Will the answer of “the amount of costs I recover from the other side will be the costs charged by me” help Mr. Sun? I do not think so because such arrangement has been held by Mr. Registrar Chan under Holiday Resorts (Management) Co. Ltd v Chan Yuk Yan & another, judgment dated 2 May 2001, as “so vague and uncertain” that the liability of the client towards his client was not known. I agree with such observation.