THE COUNCIL OF THE LAW SOCIETY OF HONG KONG v. LI HOI KWONG (previously practising as a sole proprietor of Li & Associates)

HCMP 1616/2022

[2023] HKCFI 263

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1616 OF 2022

____________

____________

____________

_________________

J U D G M E N T

_________________

A.  INTRODUCTION

1.  On 23 November 2021, the Council of the Law Society of Hong Kong (“Plaintiff”) resolved to intervene (“Intervention Resolutions”) in the practice of Messrs. Li & Associates (“the Firm”) and appointed Messrs. Ronald Tong & Co (“RTC”) as the intervention agent. The intervention in the practice of the Firm (“Intervention”) took place on 25 November 2021, pursuant to section 26A of the Legal Practitioners Ordinance, Cap 159 (“LPO”).

2.  Mr. Li Hoi Kwong (“Defendant”) was practising as a sole proprietor of the Firm at the time of the intervention.

3.  This is the hearing of the Plaintiff’s originating summons filed on 18 October 2022 (“OS”) pursuant to Schedule 2 to the Legal Practitioners Ordinance, Cap. 159 (“LPO”) for various directions concerning disposal of the Firm’s money and files.

4.  I am satisfied from reading the affirmations of Lee Ho Wan that the OS and the supporting affirmation of Lee Wun Chee dated 17 October 2022 (“LWC-1^st) and the further affirmation of Lee Wun Chee dated 18 January 2023 (“LWC-2^nd”) have been served on the Defendant. The Defendant has never filed an acknowledgement of service by the due date (ie. 8 November 2022). The Plaintiff has also served the notice of hearing, skeleton submission and hearing bundle on the Defendant but received no response. I therefore proceeded to hear the OS in the absence of the Defendant. The Plaintiff has prepared a draft order and I shall analyze the terms sought.

B.  VERIFICATION OF CLAIMS AND CLAIMANTS’ BENEFICIAL ENTITLEMENT TO THE MONEY IN THE FIRM’S CLIENT A/C (§§1-3 OF THE DRAFT ORDER)

5.  Section 2 of the Schedule to LPO provides that:

“(1) Without prejudice to section 1 if the Council passes a resolution to the effect that any sums of money to which this section applies, and the right to recover or receive them, shall vest in the Council, all such sums shall vest accordingly (whether they were received by the person holding them before or after the Council’s resolution) and shall be held by the Council on trust to exercise in relation to them the powers conferred by this Schedule and subject thereto upon trust for the persons beneficially entitled to them.

(2) This section applies—

(a) where the powers conferred by this section are exercisable by virtue of section 26A of this Ordinance, to all sums of money held by or on behalf of the solicitor or his firm or the foreign lawyer or his firm in connection with his practice or with any trust of which he is or formerly was a trustee;

(b) where they are exercisable by virtue of section 26B of this Ordinance, to all sums of money in any client account;

…”

6.  The Plaintiff resolved in the Intervention Resolutions (§5) that the client accounts of the Firm (“Firm’s Client A/C”), among others, be vested in the Plaintiff, who holds the same as trustee.

7.  As such a trustee,

(1)  The Plaintiff shall hold the funds under statutory trust and to exercise in relation to them the powers conferred by Schedule 2 to LPO, including to determine the entitlement to the funds and to distribute to those identified as claimants to the funds;

(2)  That does not mean that the Plaintiff has a discretion as to who is beneficially entitled. In taking steps to determine who is beneficially entitled, it must exercise the power in a way that is bona fide, rational, reasonable, that takes into account relevant considerations and does not take into account irrelevant considerations; and

(3)  The exercise of the power would be subject to review on public law grounds. So also the statutory power to distribute must be exercised in accordance with public law principles.

See Re Ahmed & Co (a firm) and others [2006] EWHC480 (Ch), §§113, 114, 119 and 120, Collins J.

8.  The detailed procedures and RTC’s general methodology in respect of verifying of the claimants’ claims have been fully set out in §§25-35 of LWC-1^st. In essence:

(1)  Two rounds of newspaper advertisements and gazette notice have been published to invite claimants of the Firm’s Client A/C to lodge their claims (§§25-26);

(2)  Efforts were also made to invite the submission of claims form and distribute the claim forms to the former clients of the Firm (§§27-28);

(3)  Each claimant shall complete and sign the claim form before a Commissioner for Oaths or a notary public and produce documentary evidence to support his or her claim (§32);

(4)  In verifying the claims, RTC would first ascertain whether the amounts claimed were in fact paid to the Firm’s Client A/C;

(5)  RTC would then ascertain the nature of the funds and whether such funds were properly applied or paid out subsequently (§33.4). For such part which should have been or had been applied for settlement of legal costs and/or disbursements for the work rendered by the Firm, claim for such amount would be rejected (§33.5); and

(6)  The claimants would be informed of the intention to reject the claim together with reasons for rejection, and the claimants would be afforded 14 days to provide further written submissions and/or supporting documents (§33.7).

9.  In respect of interim bills the Plaintiff adopted this principle: if a solicitor wishes to render interim bills, he must have the agreement of his client. Without such agreement, a solicitor cannot sue for his profit costs until the work which is the subject of the retainer is completed and a bill rendered. If he has no contractual right to issue interim bills, he may issue final bills at natural breaks in the matter. (Chin Yuk Lun Francis and Another v Messrs Lo & Lo (A Firm) HCMP 1142/2005, 7 July 2006, DHCJ To (as he then was). An agreement for interim payments should be evidenced in writing: Principle 4.08 of the Hong Kong Solicitors’ Guide to Professional Conduct (Volume 1, Third Edition).

10.  In the present case, 11 out of 13 claims submitted were for refund of costs on account. RTC would additionally (on top of the general methodology above) review the file to see if there was any signed written retainer.

(1)  If there wasn’t or the retainer did not allow the Firm to render interim bills before completion of the matter, upon being satisfied that the work had not been completed, RTC would allow the claim (subject to deduction of disbursements) on the basis that the Firm should not be entitled to payment of profit costs (§35.2); and

(2)  If the work had already been completed prior to the Intervention, or the Firm was entitled to render interim bills which have been issued, RTC would wholly or partially disallow the claimant’s claim in respect of such costs on account, as the Firm would have been entitled to profit costs for such work done (§35.3).

11.  In my view, the above methodology was bona fide, rational and reasonable in the public law sense. I therefore grant an Order in terms of §§1-3 of the draft order so that the claimants (if verified and accepted by RTC) shall be paid in full from the Firm’s Client A/C.

C.  FURTHER NOTICE TO POTENTIAL CLAIMANTS (§4 OF THE DRAFT ORDER)

12.  On 7 January and 13 May 2022, two rounds of newspaper advertisements and gazette notice have been published to invite claimants of the Firm’s Client A/C to lodge their claims. The deadline for submission of claim in the last round of advertisements and gazette notice was stated to be 13 June 2022.

13.  By now, 7 months have elapsed. Further, it has been 14 months since the commencement of Intervention. As it is unlikely for further potential claimants to come forward, I would not require a further round of advertisement or notice to be placed before distribution to save costs and avoid delay.

D.  DISTRIBUTION OF CLIENT A/C MONEY (§§5-6 OF THE DRAFT ORDER)

14.  The last known balance of the Firm’s Client A/C as at 30 September 2022 was HK$563,166.90. There is no further update to the aforesaid balance as at 31 December 2022.

15.  By the time of this hearing, RTC has received 12 completed claim forms, and the total claimed amount verified by RTC and potentially payable to those claimants (“Entitled Claimants”) are HK$469,764.54. Two days before this hearing, there was another claim from a former client of the Firm (“the 13^th Claimant”) for refund of costs on account of HK$10,000, which is pending verification by RTC. The money available for distribution will be sufficient to satisfy these amounts.

16.  In view of §13 above, it is appropriate to grant a distribution order in terms of §§5-6 of the draft order. The Plaintiff has agreed to provide the undertakings as stated in draft order.

17.  In gist, the Plaintiff proposes, that:-

(1)  The Entitled Claimants and the 13^th Claimant (and those who may have lodged claims before the date of the Court order but are still in the process of verification at the date of the Court order) shall be entitled to distribution from the Firm’s Client A/C after they have been duly verified and accepted. Such claimants shall be distributed in full without setting aside any part thereof to allow for the possibility of future claims which may be made by late claimants (if any);

(2)  The Plaintiff shall continue to receive and verify such claims filed for another period of 12 months after the date of the Court order. Such late claimants whose claims will be duly verified and accepted will be repaid on a first come first served basis in full;

(3)  After distribution to the existing claimants, late claimants shall only be repaid from the surplus balance in the Firm’s Claimants A/C (ie. Client A/C money after payment of the costs in §§12 and 15 of the draft order) to the extent sufficient to cover such late claims;

(4)  Once the surplus balance is depleted, the subsequent late claimants would not be entitled to any distribution even if their claims are verified and accepted; and

(5)  When distribution is made, the claimant shall sign a release in the prescribed form.

18.  The Court accepts these proposals, which are bona fide, rational and reasonable in the public law sense.

E.  DISPOSAL OF THE FIRM’S DOCUMENTS (§§7-11 OF THE DRAFT ORDER)

19.  Pursuant to the Intervention Resolutions (§9), all documents in the possession of the Firm in connection with the Firm’s practice have been seized by RTC.

20.  Section 7(11) of the Schedule 2 to the Ordinance provides that:

“Without prejudice to the provisions of Part IIA of this Ordinance and this Schedule, the Council may apply to the Court of First Instance for an order as to the disposal or destruction of any documents in its possession by virtue of this section or section 8.”

E1.  Files (except Excluded Files) (§§7-8 of the Draft Order)

21.  Among about 855 files seized by RTC, about 168 files are conveyancing files, about 8 files are tenancy files, about 602 files are general files, and about 77 files are criminal files.

22.  As of the date of this hearing, about 90 former clients have retrieved their files from RTC. The remaining files are currently in either the Law Society’s possession or in RTC’s office.

23.  The Law Society of Hong Kong’s circular 12-475 (PA) dated 25 June 2012 relating to the storage and destruction of old files (“Circular”) provides, at §2, that the minimum retention periods of old files are as follows:-

(1)  Conveyancing files: 15 years from the date of closing the file;

(2)  Tenancy files: 7 years from the expiration of the Tenancy Agreement;

(3)  General files: 7 years from the date of closing the file; and

(4)  Criminal files: 3 years from the expiration of any appeal period

24.  I am satisfied that the proposed destruction of files (except Excluded Files) in §7 of the draft order meets the criteria set out in the Circular. §8 of the draft order is a “rolling destruction order” which permits destruction of the remaining files of the Firm as and when they satisfy the criteria set out in the Circular: The Council of The Law Society of Hong Kong v. Tang Ming Fai Joseph previously practicing as Joseph Tang & Co (an intervened firm) [2020] HKCFI 2992, §12, Au-Yeung J.

25.  Where the closing dates have not been recorded or are not apparent from the files themselves, the closing date shall be deemed to be the commencement date of the Intervention (i.e. 25 November 2021), as the files have not been active since then.

E2.  Excluded Files

26.  With regard to files containing original title deeds and documents (which have been separately indexed), attempts have been made to contact the former clients (insofar as contact details are known) for them to retrieve the files, but in vain. These files will not be destroyed but will remain in the Plaintiff’s possession.

27.  However, the files containing the original of the following documents only (without other types of original documents) will be destroyed:

(1)  Original duplicate of relevant sale and purchase agreement or sub-sale and purchase agreement where the Firm had acted for a vendor or confirmor: LWC-1^st; but LWC 2^nd confirmed that there were no such documents;

(2)  Original tenancy agreement or lease that have expired for more than 7 years; and

(3)  Sealed copy or copy of court pleadings, as such documents should have already been filed into court and kept in the court files.

28.  I agree with these proposals of the Plaintiff.

E3.  Accounting Documents (§§9-10 of the Draft Order)

29.  Rule 10(6) of the Solicitors' Accounts Rules, Cap. 159F provides that:

“Every solicitor shall preserve for at least 6 years from the date of the last entry therein all books, accounts and records kept by him under this rule.”

30.  Section 51C of the Inland Revenue Ordinance, Cap. 112 (“IRO”) provides that sufficient records of a person’s income and expenditure of his profession or business shall be kept for not less than 7 years after completion of the transactions to enable the assessable profits to be readily ascertained.

31.  §9 of the draft order meets these 2 statutory requirements. §10 of the draft order is again a “rolling destruction order” of the documents referred to in section 51C IRO. I agree with these proposed terms.

E4.  Miscellaneous Documents and Items (§11 of the Draft Order)

32.  RTC has seized other miscellaneous documents and items relating to the practice of the Firm, including but not limited to name chops, compliment slips, unused blank file covers, letterhead, vouchers, bills receipts, envelopes, etc. I agree that such items be destroyed forthwith as suggested in §11 of the draft order.

E5.  Intervention Costs (§12 of the Draft Order)

33.  Section 10 of the Schedule 2 to the Ordinance provides that:-

“Subject to any order for the payment of costs that may be made on an application to the Court under this Schedule, any costs incurred by the Council for the purposes of this Schedule, including, without prejudice to the generality of this section, the costs of any person exercising powers under this Schedule on behalf of the Council, shall be paid by the solicitor or foreign lawyer or his personal representatives and shall be recoverable from him or them as a debt owing to the Council.”

34.  In accordance with usual practice, I order the Defendant to pay the Plaintiff’s costs of and occasioned by this application and the Intervention on a solicitor and client basis to be taxed if not agreed, and that the same be recoverable from the Defendant as a debt owing to the Plaintiff: The Council of The Law Society of Hong Kong v. Ng Wing Hung (previously practising as a Partner in Messrs. Wong, Fung & Co.) and another [2021] HKCFI 2000 (“Wong Fung”) in §50 and The Council of the Law Society of Hong Kong v Tai Sze Wa formerly practising as S. W. Tai & Co., §26.

E6.  Application of Money in the Firm’s Accounts towards Payment of the Plaintiff’s Intervention Costs (§§13-15 of Draft Order)

35.  As at 31 December 2022, the last known balance of the Firm’s Office A/C was HK$400,057.88.

36.  Rule 2 of the Solicitors' Accounts Rules, Cap. 159F provides that “office money” means “money held or received by a solicitor which is not client’s money, and to which the only person entitled is the solicitor himself or herself or, in the case of a firm of solicitors, one or more of the partners in the firm”.

37.  I agree that the costs ordered shall be paid out of money in (or money to be received) such Office A/C as proposed in §§13-14 of the draft order to the extent sufficient to cover such costs. See eg The Council of the Law Society of Hong Kong v Cheung Kam Min Mickey (previously practicing as sole proprieter of Messrs. K. M. Cheung & Co., Solicitors), [2021] HKCFI 776, Coleman J, §5(13) and Wong Fung, §51.

38.  I also agree that, as proposed in §15 of the draft order, the money kept in the Firm’s Client A/C after distribution to the claimants entitled shall be applied towards the payment of the Intervention costs to the extent sufficient to cover such costs.

F.  CONCLUSION

39.  For the foregoing reasons, I grant an order in the terms of the draft order. I also give liberty to apply.

40.  I thank Ms Lee for her assistance.