Introduction

The question that is often asked by litigant(s) is whether they can get back the legal costs incurred if they are successful. Often times, the answer is no.

As a general rule, the court is obliged to order party to party costs on a standard basis. This is provided for under Order 59 rule 16(2) of the Rules of Court 2012 (“RC 2012”). The court, however, has the discretion to order costs to be determined on an indemnity basis if it appears to the court to be appropriate to do so.

To give a brief summary of the 2 bases of assessment:

1. 1) on an assessment of costs on the standard basis, the court will usually allow a reasonable amount in respect of all costs incurred; whereas

1. 2) on a determination of costs on the indemnity basis, the court will allow all costs unless they are unreasonable or have been unreasonably incurred.
3. (refer to Order 59 rule 16(3) and (4) of RC 2012)
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Standard Basis or Indemnity Basis

In applying the assessment of costs on the standard basis, it is not unusual for courts to award minimal costs of RM3,000.00 or RM5,000.00, even after a (full) hearing in the High Court. Hence, if the standard basis of assessment is adopted, the winning party will not usually be able to recover the fees it may have paid its lawyer.

When then can courts award costs on an indemnity basis? The authorities have made it clear that the courts’ discretion to award costs on an indemnity basis is unfettered, but courts will usually require there to be “some conduct or some circumstances which takes the case out of the norm” (see Fiona Trust & Holding Corporate and ors v Yuri Privalov and ors [2011] EWHC 664).

In the Federal Court case of Takako Sakao (F) v Ng Pek Yuen (No 2) [2010] 2 MLJ 181, Gopal Sri Ram FCJ referred to the English High Court case of Macmillan Inc v Bioshopsgate Investment Trust plc and other (No 3) [1995] 3 All ER 747, whereby Millet J (later Lord Millet) held:

“The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win. Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be ‘appropriate’.”

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Some instances where the courts have awarded costs to be determined on the indemnity basis are:

1. 1) Fradulent misrepresentation – Yap Boon Hwa v Keewah Soong [2020] 1 MLJ 37 (CA);
2. 2) Unreasonable refusal to discontinue an action notwithstanding a concession made – Prestig Mega Construction Sdn Bhd v Personal Representative of Estate of Vinayak Pradhan Prabhakar (Deceased) & Ors and other cases [2021] MLJU 60; and
3. 3) Including various unmeritorious defences – Mirzan Bin Mahathir v Star Papyrus Sdn Bhd [2000] 6 MLJ 29.
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Claim for Legal Charges

But it must be borne in mind that just because the court awards costs on the indemnity basis, this does not guarantee the winning party its full legal costs. A litigant may, however, seek to recover legal charges as special damages particularly in a fraud / fraudulent misrepresentation case. This is because in fraud, the defendant is bound to make reparation for all the actual damage directly flowing from the fraudulent inducement (see Doyle v Olby (Ironmongers) Ltd [1969] 2 All ER 119).

This issue is recently discussed at length in the High Court case of Ling Peek Hoe & Anor v Ding Siew Ching & Ors [2022] MLJU 157. In Ling Peek Hoe, the plaintiffs commenced a legal action premised on fraud, and obtained a judgment for special damages, general damages as well as punitive and exemplary damages to be assessed. One of the 2 main issues before the High Court on assessment of damages was whether a party who has suffered a civil wrong be entitled to claim for the legal charges incurred as special damages incurred to redress the wrong. In coming to the decision that the plaintiffs are entitled to claim legal charges, the Learned High Court Judge addressed, among others, the sub-issues of (i) whether the plaintiffs can claim special damages for losses that were not specifically pleaded; and (ii) whether legal fees are claimable.

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Claim for special damages for losses that were not specifically pleaded

1) The special damages claimed by the plaintiffs during the assessment included legal fees of RM2,918,000.00. The defendants’ contention is that the plaintiffs failed to particularise their special damages, besides a general prayer for special and general damages to be assessed. Whilst the High Court recognise the established principle that parties are bound by their pleadings, the High Court concluded that substantive justice will not be served to have the claim for special damages dismissed purely on the pleading point.

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2) One of the reasons given by the High Court is the fact that the defendants have never raised this pleading issue during trial, which they ought to have done. In addition, the High Court found that the judgment given is clear on what damages were awarded for purposes of assessment.

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3) One other reason given by the High Court was that the exact particulars and amounts sought by way of special damages were set out in the plaintiffs’ affidavits which was filed before the assessment of damages. Documents were also bundled and exchanged. Thus, the defendants had the opportunity to respond to the claims.

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Whether legal charges are claimable

4) With regard to the legal charges claimed, the defendant challenged, among others, that the quantum was excessive and unforeseeable, as well as there being no evidence that the fees have all been paid. However, the High Court found that the challenge was without merit. The legal proceedings for the dispute actually went on for about 15 years, due to the many appeals and reviews filed by the defendants all the way to the Federal Court, which were wholly without merit. The High Court was of the view that the defendant could have saved all parties, including themselves, the costs and huge amount of time from undertaking the transactions which were found to be fraudulent, null and void.

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5) As regards the defendant’s argument that the plaintiffs must prove that the legal fees were incurred and paid before they can be awarded the damages claimed, the High Court held that an order for damages to be assessed is wider than an order for costs. As this was an assessment of damages for fraud, the High Court held that all losses are claimable on the basis of full indemnity. Hence, the plaintiffs are entitled to the legal fees and expenses on a full indemnity basis.

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6) As for the argument that the plaintiffs have not paid the legal fees in full, the High Court found that although the legal charges have not been paid in full, they have been incurred pursuant to the various agreements entered into between the plaintiffs and their solicitors. As such, the defendants are liable to indemnify the plaintiffs for the same.

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In the Learned High Court Judge’s grounds of judgment, His Lordship also compared legal fees with the following types of costs which are often claimed on an indemnity basis as special damages (see paras [99] to [101]):

• 1) costs incurred to seek medical care, for example, in road accident or medical negligence cases;
• 2) costs incurred to undertake forensic accounting, for example, in cases involving breach of trust or fiduciary duties;
• 3) costs incurred to engage architects, engineers and quantity surveyors to assess and advise on structural damage and mode of rectification, for example, in construction cases;
• 4) costs incurred to engage surveyors to carry out survey of boundaries, for example, in cases of trespass; and
• 5) costs incurred to pay contractors to make good repairs for damage done by the party committing the wrong.

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However, take note that legal fees have been found in earlier cases to not be claimable as general damages. For example, in the High Court case of Lau Yang Kim v Rescom Australia Sdn Bhd & Anor [2020] MLJU 105, the plaintiff obtained a judgment from the High Court for the rescission of an agreement on the ground of fraudulent misrepresentation. The Learned Judge ordered, among others, general damages to be assessed. The Learned Deputy Registrar then assessed and awarded a sum of RM127,002.80 as general damages. This amount was made up of RM177,002.80 as the legal fees the plaintiff had paid her solicitors less the costs of RM50,000.00 awarded by the Learned Judge. The defendant then filed an appeal to the Judge in Chambers against the decision of the Learned Deputy Registrar. In essence, the defendant contended that legal fees cannot constitute special damages or general damages as legal fees are governed by the rules of court governing the award of costs. The High Court allowed the appeal and held, among others, as follows:

1. 1) The plaintiff is entitled to plead and claim all actual damage directly flowing from or caused by the entering into the agreement induced by the fraudulent misrepresentation.
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3. 2) However, the Learned Judge had made an order of costs on the ‘standard basis’. The Learned Deputy Registrar’s decision to allow the plaintiff’s claim to be indemnified in full for the legal fees as general damages thus rendered the Learned Judge’s final order of costs ineffective or redundant.
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5. 3) In any event, legal fees fall within the meaning of special damages. To be entitled to an award of special damages, the items constituting special damages must have been expended before the trial begins since special damages must be pleaded. It is for this reason that there is a mechanism for a successful litigant to claim legal fees expended in the form of costs (as opposed to damages).
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Conclusion

A successful litigant will, in most situations, be awarded costs. As provided under Order 59 rule 16(2) of the RC 2012, the courts will generally assess costs on the standard basis, and will only assess costs on an indemnity basis if there are “some conduct or some circumstances which takes the case out of the norm”. But even if cost is awarded on an indemnity basis, one will have to bear in mind that this does not mean that the successful litigant will be able to recover all the legal costs expended. It is only in exceptional circumstances, for example, in a claim premised on fraud, where the successful litigant may be able to recover the full legal costs expended. However, litigants must bear in mind that in such circumstances, legal costs are claimed as special damages which will have to be pleaded.

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This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.

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About the Author

Amy Hiew Kar Yi

Partner

Harold & Lam Partnership

amy@hlplawyers.com