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

HCMP 845/2021

[2021] HKCFI 2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 845 OF 2021

________________________

________________

___________________

J U D G M E N T

___________________

A.   Introduction

1.  These proceedings arise out of the Council of the Law Society of Hong Kong’s intervention (“Intervention”) into the practice of the solicitors firm Wong, Fung & Co (“Firm”).  The 1^st defendant (“Mr Ng”) and the 2^nd defendant (“Mr Yuen”) were the partners of the Firm.

2.  The Intervention is the largest intervention ever conducted in Hong Kong, and it has required an unprecedented commitment of time, resources and costs.

3.  The original resolution for the Intervention was on 23 December 2020. The actual process of the Intervention, commencing with seizure of the Firm’s files and documents and the taking over of the Firm’s bank accounts, commenced on 24 December 2020.

4.  On 20 January 2021, Mr Ng sought leave to apply for judicial review to challenge the Intervention decision, as well as to seek ‘interim interim’ interlocutory injunctive relief.  On 27 January 2021, I refused the Nr Ng’s application for ‘interim interim’ relief: see [2021] HKCFI 341.  By my Judgment dated 19 February 2021, I refused leave to apply for judicial review: see [2021] HKCFI 379.  A brief background of the matters leading to the Intervention can be found in that Judgment.

5.  The Intervention having proceeded, the Council now applies by Originating Summons dated 18 June 2021 for determination by the Court on certain questions and for directions pursuant to RHC Order 85 rule 2 and/or sections 6, 10 and 12 of Schedule 2 to the Legal Practitioners Ordinance Cap 159 (“LPO”).  The Originating Summons is in the Form 10 specified in Order 106 rule 5.

6.  The Originating Summons is supported by two affirmations of Mr Lau Wing Keung, partner of Chui and Lau (“CL”), the firm of solicitors appointed as the Intervention Agent for this Intervention.  Mr Lau has appeared as the advocate making the general submissions in support of the Originating Summons.  However, Mr Toby Brown of Counsel has been instructed (on limited instructions) to be the advocate in relation to paragraphs 5, 6, 7 and 8 of the Originating Summons.

7.  Mr Ng and Mr Yuen act in person, but until after the break in the hearing, neither had taken any part in the hearing.  As I indicated following the explanation given by Mr Lau this morning, I am satisfied that both Mr Ng and Mr Yuen were served with the Originating Summons, by registered post which triggers the deeming dates of service upon them.  Though the relevant time within which they might acknowledge service would otherwise expire on 8 and 10 July 2021, I am also satisfied that the effect of Order 28 rule 2(2) is to abridge time for acknowledgement of service so as to expire on the next day but one before the day fixed for the hearing, namely today, that date being shown on the face of the Originating Summons.  I have also taken into account that both Mr Ng and Mr Yuen are solicitors who remain on the Roll (albeit that, I think, neither currently has a practising certificate), and as solicitors and officers of the court would know of the need to come to court today to make any objection of any sort, if either of them had any such objection.  I would also point out that I have, in any event, taking into account what can be seen to be their stance in relation to certain issues on those matters which I need to canvas (see below).

8.  Mr Yuen appeared about 45 minutes late, after I had risen for a short break within which to consider the argument by then put forward.  I therefore reconvened the hearing and asked whether Mr Yuen had any submission to make.  Without the courtesy of offering any apology for his lateness, Mr Yuen said he would “insist” upon the return of HK$4 million to him.  But he said he had not yet read the papers served with the Originating Summons.  On that basis, I adjourned for a further 15 minutes to permit him some time to consider those papers and the stance being taken by the Council, as indicated also in Mr Brown’s skeleton argument.  Having taken that time, Mr Yuen confirmed he no longer insisted, and that he had no objection to the Council’s proposed way of dealing with this matter (see below).

9.  No other interested person has appeared.  However, I have received correspondence from someone who has remained anonymous – but is perhaps a Ms Tsang – who says she is a representative of a group identified as “affected clients of [the Firm]”.  I have also received a letter from CL dated 29 June 2021 responding to that correspondence.  In light of the matters canvassed below, I do not think I need further to consider those letters.  Instead, I will deal with the matter on the evidence filed and the submissions made.

10.  As this is an application by a trustee for directions relating to the administration of a trust, not all beneficiaries need to be joined as parties to these proceedings: see Order 85 rule 3(2).  Nor does Schedule 2 to the LPO provide for joinder of parties.  Nevertheless, the Council has taken steps to give notice of the present application to all claimants to funds held by the Firm.

B.   Progress of the Intervention

11.  At the date of the Intervention on 24 December 2020, the Firm conducted its business from four offices, (1) in Central (“Central Office”), (2) in Kowloon (“Kowloon Office”), (3) in Tsuen Wan (“Tsuen Wan Office”), and (4) in Yuen Long (“Yuen Long Office”).

12.  Such was the task faced on the Intervention that three further firms of solicitors were appointed as solicitors for CL to provide assistance to CL relating to its work as the Intervention Agent.  Two of those firms originally appointed have, upon their resignation, subsequently been replaced.  A yet further firm of solicitors was also appointed specifically to assist in handling the collection of claims, and the relevant completed statements of truth and declaration forms, as well as to handle related enquiries.

13.  I accept that the process on this Intervention was daunting, because of the sheer volume of transactions in process by the Firm, exacerbated by the fact that the Firm did not have a systematic method for keeping files and documents.  Significant progress has been made by the Intervention Agent and its assisting solicitors in the past six months or so (though perhaps not at the speed which all clients of the Firm felt fast enough).  Up to the date of Mr Lau’s first affirmation on 18 June 2021, a total of 5,794 files of the Firm had been returned to its former clients.  In addition, numerous enquiries were fielded (though, again, I accept perhaps not to the thorough satisfaction of the clients).  The Council and the Law Society also say they have taken various steps seeking to mitigate the hardship and difficulties faced by the Firm’s clients.

14.  In any event, the position has been reached where the Council thinks it appropriate to seek the determination on certain questions and various directions as sought by the Originating Summons.

15.  During the Intervention, and upon investigation of the documents obtained, CL discovered that the Firm appeared to have 33 bank accounts with 19 banks in Hong Kong.  After the Intervention, four new bank accounts (“New Accounts”) were opened, essentially for ‘client funds’ and ‘office funds’, with one savings and one current account for each.  Except for the sum of HK$8,492,401.60, which has remained in the Firm’s Standard Chartered Bank account, all other funds have been transferred to the New Accounts.  Also, a small amount of cash was seized at the Central Office.  The total amount of client’s money of the Firm now available for potential distribution to entitled clients is HK$379,999,714.16.

16.  CL and the Law Society caused two notices to claimants of monies held in any bank accounts of the Firm to be published in the South China Morning Post and Sing Tao Daily on 1 February 2021 and 15 March 2021, and in the Gazette on 5 February 2021 and 19 March 2021, inviting them to register their claims. 

17.  As at the date of Mr Lau’s 2^nd affirmation on 30 June 2021, CL had received a total of 637 claims, aggregating in total claims for HK$367,956,625.23.

18.  In his affirmations, Mr Lau has identified the process of and the methodology for verification of claims.  Each claim was reviewed by reference to the statement of truth and declaration form, supporting documents submitted by the claimants and (where available) the relevant files.  Sometimes further enquiries were made of the individual claimant.  Historical bank statements of the accounts of the Firm were also obtained to facilitate the verification of claims.  As money in the bank accounts of the Firm was held by the Firm, and is now held by the Council, on trust for the persons beneficially entitled to them, once satisfied that the claims were genuine and the alleged payments had in fact been deposited into the Firm’s bank accounts and the entirety of the amount claimed should be accepted, that is the proposed resolution.  If a claimant wished to claim on any other basis, such as damages for breach of duty or additional legal costs incurred in engaging new solicitors’ firm, those claims would be rejected.  CL has also proceeded on the basis that for uncompleted cases, where there was no retainer letter nor any other basis upon which to issue an interim bill, the Firm would not be entitled to receive any payment of costs and, subject to deduction of any disbursements properly paid out, the claimants should be entitled to full refund of the costs on account paid by them.

19.  The Council proposes that the individual solicitors who have conducted the claims investigations – and who would be individually named in any order to be made – should be authorised by the Court to process the claims received for the purpose of determining whether and to what extent claims concerned are genuine and proper and are thus qualified for distribution.  It is further proposed that the Council should be at liberty to apply for any further directions, in case of any genuine doubt in its verification or determination.

20.  The amount of claims accepted, partially accepted, rejected and still in the process of being verified stand at HK$310,494,691.50, HK$17,013,029.68, HK$7,506,453.38 and HK$32,942,450.67 respectively.  Deducting from the amount of claims accepted, partially accepted, or still in the process of verification the amounts relating to overlapping or competing claims (see below) leaves a balance of HK$349,945,813.85.

21.  As can be seen on the arithmetic, if the claims of the claimants, whose statements of truth and declaration forms were received before the date of this hearing, were to be paid in full, there would be a surplus fund of not less than HK$30,053,900.31 (which sum might be available for further distribution in future).

C.   Specific Claims subject to Specific Directions

C.1  Claim 558

22.  Claim 558 is relevant to paragraph 5 of the Originating Summons.  This is one of the paragraphs on which Mr Brown has addressed me. 

23.  As is identified in my previous Judgment, the sum of HK$23,087,319.85 (“Sum”) was required to be protected by a deposit, as a result of the Law Society’s calculation of a shortfall in clients’ money held by the Firm (“Shortfall”).

24.  Accordingly, the Sum was paid into the client account of the Firm by Mr Ng and Mr Yuen, in two tranches: (1) the sum of HK$15,087,319.95 paid by Mr Ng on 11 December 2020, and (2) the sum of HK$8,000,000 paid by Mr Yuen on 14 December 2020.

25.  Though it was originally suggested that the Sum to cover the Shortfall had been provided from their own resources, Mr Ng and Mr Yuen have subsequently admitted that at least HK$20 million was borrowed from finance companies.

26.  It now transpires that the $8 million second tranche payment was entirely borrowed (“Loan Sum”) by Mr Ng and Mr Yuen from Sino Resources (Hong Kong) Ltd (“SRHK”) pursuant to a loan agreement dated 10 December 2020 (“Loan Agreement”).  The Loan Agreement provided that payment fell due on 10 June 2020 (six months after the Loan Sum was advanced).  There was also supposed to have been monthly interest paid, but it seems that interest has not in fact been paid.

27.  In Claim 558, made within the Intervention, SRHK seeks repayment of the HK$8 million lent to Mr Ng and Mr Yuen, and then paid by them into the Firm’s client account.  Although the Loan was made to Mr Ng and Mr Yuen personally (and not to the Firm), SRHK claims that it is the beneficial owner of the Loan Sum and the interest owing, together totalling HK$8,288,000.  The Intervention Agent’s initial indication was that the claim would be rejected, on the basis that SRHK might have a personal claim against Mr Ng and Mr Yuen, but there was no basis on which to assert beneficial ownership.

28.  On 16 June 2021, SRHK issued a generally endorsed writ in HCA 926/2021 (“SRHK Action”).  The claim made against Mr Ng and Mr Yuen in the SRHK Action seeks (1) rescission of the Loan Agreement, alternatively (2) a declaration that Mr Ng and Mr Yuen hold the sum of $8 million on trust for SRHK, and that it was a sum for the purpose of providing evidence to the Law Society that the Firm has sufficient monies to make up the Shortfall from its own funds, or (3) a declaration that Mr Ng and Mr Yuen hold the Loan Sum on constructive and/or resulting trust for SRHK.

29.  Paragraph 5 of the Originating Summons poses the question as to whether the claim by SRHK should be accepted and as a result whether the HK$8 million (or HK$8,288,000) should be paid to SRHK.

30.  In his submissions, Mr Brown recognises that the Intervention Agent is not privy to the dealings between SRHK and Mr Ng and Mr Yuen.  But, he identifies what he says are certain obvious difficulties with the relief sought in the SRHK Action.  For present purposes, I do not think I need to address those suggested difficulties, but it is correct that the claim in the SRHK Action is fundamentally different from the other claims advanced by the Firm’s clients for the return of funds paid directly by those clients to the Firm.

31.  It seems to me that the proper place for the resolution of SRHK’s claim is in the SRHK Action.  Therefore, I agree that the Intervention Agent should not accept the claim at this stage.

32.  But, as Mr Brown identifies, that gives rise to a further question as to whether the Loan Sum (with or without added interest) should be included in the funds available for payment of claims that are accepted or, if not, what should CL do with the Loan Sum pending resolution of the SRHK Action.

33.  In circumstances where there is no need – at least at this stage – to have recourse to the amount of the Loan Sum to settle clients’ claims which have been accepted, Mr Brown suggests it would be prudent that the amount is set aside and ‘ring-fenced’ in an interest-bearing account under control of CL (or the Court).  The relevant amount to be ‘ring-fenced’ would be the Loan Sum (and not any interest).  I agree that this is the sensible course.

C.2  Claims 564 and 615

34.  These two Claims arise on paragraphs 6 and 7 of the Originating Summons, and can be taken together. 

35.  Claim 564 is brought by Mr Yuen, and seeks the return of HK$4 million being his ‘share’ of the Loan Sum paid by him to the Firm in relation to the Shortfall.  This is the sum which Mr Yuen originally “insisted” be returned to him.  Claim 615 is brought by Mr Ng, and seeks the return of HK$19,087,319.85, comprised of the sum of HK$15,087,319.85 and HK$4 million being his payment of the first tranche and his ‘share’ of the second tranche paid in relation to the Shortfall.

36.  This, of course, means there is an overlap between these two claims and the claim made by SRHK, and indeed a competition between the claims.

37.  The position adopted by Mr Ng and Mr Yuen is that the total Sum was not a payment of the Shortfall, but was paid as security pending the determination as to whether or not there was in fact a Shortfall, and that it is now been resolved that in fact there was no Shortfall.

38.  In response, the Council says that the Sum was paid in rectification of the Shortfall (and not as security for it) and, in any event, Mr Ng and Mr Yuen have not established that there was/is no Shortfall.  The materials lend some force to that position, but I do not think I need to resolve the issue for present purposes.  Suffice it to say that the Sum was clearly paid (however one prefers to describe it) so as to make up the Shortfall, and the Council has not yet accepted that there is no Shortfall.  The Intervention and the relevant investigations continue, and the full reconciliation apparently previously offered by Mr Ng and Mr Yuen has not yet been provided by them.  Further, there is the competing claim to beneficial ownership made by SRHK to HK$8 million out of the Sum.

39.  In the circumstances, I agree with Mr Brown that the appropriate course to adopt is as follows.  On the basis that the Sum was paid in respect of, and to make up, the Shortfall, it ought to remain potentially available to settle any further claims as might be brought by clients of the Firm in any extended period permitted for that purpose (as to which see below).  Leaving aside the sum of HK$8 million claimed by SRHK, the remaining HK$15,087,319.87 should be kept available to meet any such future claims.

40.  As Mr Brown submits, there is no prejudice to Mr Ng or Mr Yuen in adopting this course.  If there is a Shortfall, then it is entirely appropriate that it is rectified, so that the funds are used to settle claims.

41.  Mr Brown also submits that if it turns out that there is no Shortfall (or a lesser amount of shortfall), Mr Ng and Mr Yuen nevertheless remain liable to pay the intervention costs (see below).  That may be so, but I do not think that automatically translates into the ability for the Council to look in payment of the intervention costs to funds originally provided to make good the Shortfall, if there is in fact no Shortfall (or a lesser amount of shortfall).  As I understand the provisions in Schedule 2 to the LPO, the intervention costs become a debt owed by the solicitor into whose practice the intervention has taken place.  But I do not think that necessarily entitles the Council to either security or priority in settlement of the debt. In any event, on the proposed form of the order I am invited to make this morning, that is a point which need not be resolved.  Should it turn out that there was no Shortfall (or a lesser amount of shortfall), it seems to me it will then be open to the Council or to Mr Ng and/or Mr Yuen to come back to this Court under the proposed liberty to apply provision, to seek the appropriate directions as to what should happen to those funds.

42.  The above points also address paragraph 8 of the Originating Summons.

D.   Other Matters

D.1  Late Claims

43.  Mr Lau says that, from his experience in other intervention cases, claimants sometimes lodge their claims at a very late stage, even one or two years after the date of intervention.  Therefore, he suggests that the Court might permit a further period within which any further claims might be lodged for consideration by the Intervention Agent, and he suggests a suitable period would be 12 months.  I agree.  At the end of that 12-month period, the Council will be in a position to make an application for such further directions as may seem appropriate at that time.  I also agree that no further advertisements in newspapers or the Gazette or other notice need be effected before distribution of funds to the claimants who have already advanced their claims.  But it would be appropriate for the Council to give notice that it will continue to collect claims for another 12 months.

44.  I also agree that the possibility of catering to late claims should not, in the circumstances I have described above, in any way hold up or delay payment to clients of claims already made and verified.

D.2  Time for Distribution

45.  In his 2^nd affirmation, Mr Lau has stated that the Council intends to distribute the clients’ money to entitled claimants as soon as possible.  However, he says there are some necessary logistics to be done first.  One thing is to transfer the money now held in the savings account (for the purpose of earning interest) to a current account to permit drawing of cheques to effect payment.  I doubt that would take long.  There is also the need carefully to update and confirm the list of claims and the result of verification of claims.

46.  What is not necessary is any calculation of a percentage payment on each claim.  Though I had raised this is a possibility to alleviate the adverse impacts on clients, it is already possible for clients whose claims have been accepted to be paid now in full (see above).  Therefore, no time need be spent on calculations or splitting cheques and the like.

47.  Mr Lau says the Council would start the distribution of cheques as soon as possible, and in any event within two weeks from the order to be made.  But when the distribution exercise might be completed is not entirely within the Council’s control.  I agree that the time when any individual claimant may come to collect the relevant cheque is within the control of the claimant, rather than the Council, nevertheless it seems to me that a deadline should be set for the availability of all distribution cheques.

48.  On the basis that the distribution of cheques will start as soon as possible and in any event within two weeks from today, I would have thought that the Council should be able to make available all distribution cheques within 28 days, namely by 4 August 2021.  I so direct.

D.3  Costs

49.  Under paragraph 10 of Schedule 2 to the LPO, any costs incurred by the Council for the purpose of the Schedule, including the costs of any person exercising powers under the Schedule on behalf of the Council, shall be paid by the solicitor against whom the Council exercised the powers conferred, and shall be recoverable from him as a debt owing to the Council.

50.  I see no reason why Mr Ng and Mr Yuen should not be jointly and severally liable for the costs of and occasioned by the Intervention, including the costs of the Originating Summons, to be taxed on a solicitor and client basis.  I so order.

51.  I also accept Mr Lau’s submission that the office money of the Firm in the aggregate sum of HK$713,623.22, together with any interest on it, shall be applied towards part payment of such costs to the extent sufficient to cover those costs.  Any further office money of the Firm received may also be applied in the same way.

52.  As I have also already indicated, whether any other sums not being office money, held by the Council, might become available to the Council to be applied towards part payment of such costs of the Intervention as have not otherwise been paid, is a matter which might be dealt with under the liberty to apply provision.

E.   Result and Order

53.  In the circumstances, and in the exercise of my discretion on the evidence and submissions, I am satisfied that it is appropriate to make an Order in the form of the version of the draft order provided to me, and which I have amended and initialled.