THE INCORPORATED OWNERS OF KIU SUN FACTORY BUILDING AND ANOTHER v. GREENSWOOD PROPERTY LTD

HCMP5020/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.5020 OF 2000

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J U D G M E N T

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1. The 1stand 2nd plaintiffs are appealing against the decision of the Master who dismissed their application by Originating Summons for the taxation of a bill of costs, chargeable on the defendant by the 2nd plaintiff on behalf of the 1st plaintiff, for the legal costs and disbursements incurred in connection with the complaint to the Law Society made by the defendant against the 2nd plaintiff dated 28 December 1999.

Background

2. The background of this case has been set out in the judgment of the Court of Appeal in the parallel proceedings of Greenswood Property Limited v. The Incorporated Owners of Kiu Sun Factory Building, CACV2266/2001 (dated 21 June 2002).

3. Briefly, the 1st plaintiff is the Incorporated Owners of Kiu Sun Factory Building. The defendant is the owner of 14 properties in the building. The defendant defaulted in payment of repair charges and management fees. On 5 May 1999, the Management Committee of the 1st plaintiff passed the following resolution ("the Resolution") :

"As regards the arrears in payment of management fees and other charges payable by each owner, which prompt the Incorporated Owners to retain a lawyer for issuing letter of warning to each defaulting owner, registering a charge in the Lands Registry and taking any legal action and issuing Writ/Summons in court proceedings, such defaulting owner shall bear all costs for registering and releasing the charges, solicitors' costs, court fees and miscellaneous expenses and disbursement arising therefrom on Full Indemnity Basis."

4. The 1st plaintiff instructed the 2nd plaintiff, a firm of solicitors, to register charges under section 19 of the Building Management Ordinance (Cap. 344) to enforce the payment of the arrears. On 27 August 1999, the 2nd plaintiff caused the registration of 14 Memoranda of Charge against the 14 properties of the defendant. The defendant soon paid up the arrears to the 1st plaintiff, but refused to pay the fees of the 2nd plaintiff. To date, charges are still registered against the 14 properties.

Compliant to the Law Society

5. On 23 November 1999, Messrs F. Zimmern & Co ("Zimmern"), solicitors for the defendant, wrote to the 2nd plaintiff stating, inter alia :

"We are of the view that your approach in registering 14 Memoranda instead of one is not a correct approach, which should be adjudicated by the Law Society. As our client has fully settled all outstanding charges, our client has the right of requesting your client to vacate the registrations upon agreeing to pay your client a reasonable legal charges."

6. On 29 November 1999 the 2nd plaintiff wrote to Zimmern stating that the 1st plaintiff agreed to have the bills adjudicated by the Law Society and/or taxed by the court. The 2nd plaintiff proposed the registration of 14 Memoranda of Release upon the defendant depositing the legal costs of $98,560 and $30,000 as security for costs into Zimmern as stakeholder pending adjudication or taxation.

7. On 24 December 1999, the 2nd plaintiff wrote to Zimmern stating that they were yet to receive a reply, and the 1st plaintiff would not allow the matter to drag on indefinitely and would consider taking proceedings for order for sale and possession against on or more of the defendant's properties.

8. On 28 December 1999, the defendant complained to the Law Society of misconduct by the 2nd plaintiff :

(a) deliberating incurring legal costs for services that was unnecessary;

(b) overcharging - charging for costs not in proportion to the skills and time involved; and

(c) refusing to register the releases after settlement of their costs.

9. In the complaint letter, the defendant referred to the background of non-payment of management fees and repairs costs, and its sale and purchase agreement for the 14 properties with the intended completion on 30 August 1999 whereupon the purchaser should be responsible for paying the sums. On the day before the 14 charges were registered, a staff member of the defendant had orally undertaken to settle the arrears should the purchaser failed to complete or to pay up. It felt severely aggrieved that while the arrears were only $161,000, the legal costs amounted to $98,560 (i.e. $7,040 x 14).

10. The defendant further alleged that :

(a) registering 1 memorandum against the 14 properties would be sufficient;

(b) the hourly rate of $3,800 for a partner of 10 years' standing was unreasonable;

(c) charging the same costs for the repetitive 13 memoranda was unreasonable; and

(c) it was entitled to the registration of the releases upon the payment of the arrears.

11. The defendant also stated that as they were minded to sell the properties in the near future, it was crucial for them to secure the registration of the releases as soon as possible. In the circumstances, they had no alternative but to seek the Law Society's direction as to whether the 2nd plaintiff had been acting improperly. They asked the Law Society to treat the complaint fairly and serious as it could adversely affect the integrity and reputation of the legal profession.

12. On 28 December 1999, Zimmern wrote to the 2nd plaintiff stating that the defendant had already lodged a complaint to the Law Society and they were instructed to withhold making application to the court pending the investigation and adjudication by the Law Society. But they have not yet received the instructions to accept service.

13. On 30 December 1999, the Law Society wrote to the 2nd plaintiff enclosing the complaint letter of the defendant, and requested the 2nd plaintiff to gave an explanation regarding the conduct of the matter.

14. On the same date, the Law Society wrote to the defendant stating that its Conduct Section could not give advice or directions on the matters raised in the complaint letter. If the defendant were not satisfied with the solicitor's bill, they were entitled to have the bill assessed by the court by taxation, and referred them to the Registry of the High Court.

15. On 7 January 2000, Zimmern wrote to the Law Society on behalf of the defendant stating that the defendant was dissatisfied with the summary manner the Law Society was dealing with the complaint, and pointed out that the Law Society regime was separate from the court's jurisdiction and they were not mutually exclusive, and asked the Law Society to re-consider the complaint.

16. On 10 January 2000, the 2nd plaintiff wrote to Zimmern reserving the right to hold the defendant liable for the costs incurred in dealing with the complaint as it pertained exclusively to the matter in dispute, namely, the registration of the Memoranda of Charge and the question of release thereof.

17. On 18 January 2000, the 2nd plaintiff submitted to the Law Society a Full Explanation on the complaint of 36 pages. At the last section of the Full Explanation, the 2nd plaintiff stated that :

"I believe that all the allegations made in the Letter of Complaints dated 28 December 1999 are unfounded, and the best venue for the parties to resolve the matter is for the Court to adjudicate on their respective legal rights and liabilities aforesaid, and most important of all, on the issue of our legal costs and disbursements in dispute, which forms the gist of argument between them. In fact, the I.O. (i.e. the 1st plaintiff) will shortly take out High Court Miscellaneous Proceedings against GPL (i.e. the defendant) for recovery of the same and for the enforcement of the Memoranda of Charge. I further submit that the Law Society is not the appropriate forum in determining their respective legal rights/entitlements and legal liabilities that are being involved in the disputes."

18. On 2 February 2000, Zimmern wrote a 10 page letter to the Law Society commenting on the Full Explanation, which stated, inter alia, that the Law Society might offer a more comprehensive solution to the problem as there was a serious question of professional ethics on top of taxation. The complaint focused on the amount of solicitors' costs chargeable in view of the services required. Any legal clerk with some experience could complete the 14 memoranda and it involved serious overlapping and repetition.

19. On 20 May 2000, the Law Society wrote to the 2nd plaintiff as follows :

"The Investigation Committee has considered the matter and it has been resolved: That in respect of (1) the reasonableness of the 14 Memoranda of Charges to be prepared and registered against the 14 properties in issue; (2) the reasonableness of costs charged by Messrs. Van Langenberg and Lau; and (3) the release of the relevant Memoranda of Charges, the Court is the appropriate venue to adjudicate the matters. Should the Court make any pertinent observations, Greenswood Property Limited can refer the matter to the Law Society and the matter can then be re-considered in the light of the new information."

20. On 14 June 2000, the 2nd plaintiff wrote to the Law Society seeking a direction or ruling on the costs incurred in giving answers and explanations occasioned by the complaint by the defendant.

21. On 15 June 2000, the Law Society wrote to the 2nd plaintiff stating that the costs to be borne by the parties in respect of the complaint, if any, was not an issue to be considered by the Investigation Committee.

HCMP No.2833 of 2000

22. On 12 June 2000, the defendant took out an Originating Summons against the 2nd plaintiff for :

"Leave be granted pursuant to section 67 of the Legal Practitioners Ordinance (Cap 159 of the Laws of Hong Kong) for the taxing of a bill chargeable on the Plaintiff (i.e. the defendant herein) by the Defendant (i.e. the 2nd plaintiff herein) for the legal costs and disbursements incurred in preparing and registering memoranda of charge and release against the title of 14 properties all owned by the Plaintiff as listed out in the Defendant's letter to the Plaintiff dated 27 August 1999 the original of which is enclosed herewith."

23. This bill of costs has been referred to as the 1st Bill in the proceedings herein.

Costs of the Complaint

24. The 2nd plaintiff has delivered a draft bill of costs in respect of the complaint to the Law Society ("the 2nd Bill"). Mr Brian Wong for plaintiffs said the 2nd Bill related to the dealing between the 2nd plaintiff and the Law Society. On the face of it, some items in the 2nd Bill relate to correspondence between the 2nd plaintiff and Zimmern. Mr Wong has agreed that the 2nd Bill is to be treated as relating entirely to the dealings between the 2nd plaintiff and the Law Society and there need not be any severance.

Legal Practitioners Ordinance

25. Section 9A of the Legal Practitioners Ordinance (Cap.159) which deals with the complaint about the conduct of a solicitor contains no provision for costs. Under section 10(2)(e), the Solicitors Disciplinary Tribunal may order the payment by any party the costs of and incidental to the proceedings of the Tribunal and the costs of any prior inquiry or investigation in relation to the matters before the Tribunal.

26. The complaint was never referred to the Solicitors Disciplinary Tribunal under section 9B. There is no dispute that the Law Society has no power to deal with any costs unless that the complaint has been referred to the Solicitors Disciplinary Tribunal.

27. Section 67 of the Legal Practitioners Ordinance provides as follows :

" (1) On the application, made within 1 month of the delivery of a solicitor's bill or a foreign lawyer's bill, of the party chargeable therewith the Court shall, without requiring any sum to be paid into court, order that the bill shall be taxed and that no action shall be commenced thereon until the taxation is completed.

(2) If no such application is made with in the period mentioned in subsection (1), then, on the application of the solicitor or the foreign lawyer or of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order - (Amended 80 of 1997 s. 40)

(a) that the bill shall be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed:

Provided that-

(i) if 12 months have expired from the delivery of the bill, or if the bill has been paid, or if a verdict has been obtained or a writ of inquiry executed in an action for the recovery of the costs covered thereby, no order shall be made on the application of the party chargeable with the bill except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the taxation as the Court may think fit;

(ii) if the bill has been paid, no order under this subsection shall be made where the application for the order is made after the expiration of 12 months from the date of payment of the bill."

The plaintiffs' case

28. Mr Wong agreed that generally speaking, the court has no jurisdiction over the costs of a complaint to the Law of Society. However in the present case, such costs should be regarded as costs for registering and releasing a charge under the Resolution.

29. Mr Wong submitted that the defendant had admitted the liability to pay indemnity costs under the Resolution :

(1) by submitting the 1st Bill to taxation in HCMP2833/2000; and

(2) by admission to pay all reasonable legal costs in the letter from Zimmern to the 2nd plaintiff dated 2 February 2002 :

" Our client are at all material times willing and prepared to pay all solicitors' legal costs provided that they are reasonable. Such intention can be seen from our client's offer to pay HK$10,000 as stated in our letter dated 16 November 1999. The matter with which our client is at issue in lodging the complaint is the amount of legal costs chargeable, not the liability to pay reasonable amount of such costs. We are of the view that the sum of only HK$10,000 are reasonable in the circumstances."

30. As the above admission was made upon the Resolution was furnished by the 2nd plaintiff to Zimmern, the defendant had admitted liability of the costs arising from the Resolution.

31. Mr Wong submitted that the purpose of the complaint was two fold : (1) disciplinary; and (2) resolution of the dispute of the quantum of the legal costs by the Law Society. It was the defendant who initiated the alternative means of resolution of the dispute on the legal costs of registering and releasing the Memoranda of Charge by the Law Society. Notwithstanding that the Law Society was not the proper forum, as a matter of prudence, the 2nd plaintiff had no alternative but to advise the 1st plaintiff to go down this avenue and deal with the complaint as fully as possible in order to protect their security.

32. Mr Wong referred to Greenswood Property Limited v. The Incorporated Owners of Kiu Sun Factory Building, op. cit., where Rogers VP observed that the complaint had been driven by animosity; the complaint itself was expressed to have been made with the advice from the defendant's solicitors; it had the hallmarks of having been drafted by someone with some knowledge of the law and the legal profession; and how it could be suggested that one legal charge could cover 14 units was baffling (at p.8, para.15 O-T). Mr Wong submitted that the complaint was under the ulterior motive of attacking the Memoranda of Charge and evading the liability for legal costs under the Resolution. As stated in the complaint letter itself, the defendant was seeking a speedy resolution of the dispute in order to release the 14 properties for sale.

33. The position of the 1st plaintiff is akin to a mortgagee and it is entitled to defend its right and preserve the security and recover the mortgage debt, and is entitled to be reimbursed out of the mortgaged property of all costs, charges and expenses reasonably and properly incurred in defending or preserving the security even in the absence of a stipulation regulating the recovery of costs in the security document (see Fisher and Lightwood's Law of Mortgage, 11th edn, paras. 36.1 and 36.2).

34. As the complaint letter referred to matters before the 2nd plaintiff were retained, they had to take full instructions on the matter. The 2nd plaintiff had to make the fullest of submissions to the Law Society because :

(1) the Information Sheet of the Law Society relating to a complaint stated that in deciding whether or not a prima facie case has been made out, a Tribunal will not permit further representation to be made at that time. For that reason, the respondent should ensure that a full explanation was provided from the outset; and

(2) in subsequent proceedings concerning the charges and/or costs, res judicata might apply to matters which could and therefore should have been made in the earlier proceedings (see Yat Tung Investment Co. Lt. v. Dao Heng Bank Ltd & anor [1975] AC 581).

35. The Full Explanation was a reasonable step taken by the 2nd plaintiff in the defence of the Memoranda of charge and the legal costs. They were taken with instructions from the 1st plaintiff. Hence, the 1st plaintiff is primarily chargeable for those costs, and a rightful party to these proceedings. And the 1st plaintiff has an interest to recover those costs from the defendant.

The defendant's case

36. Mr Sanjay Sakhrani for the defendant submitted that section 67(2) of the Legal Practitioners Ordinance is only concerned with the taxation of a solicitor's bill. The 2nd plaintiff must first establish that the defendant was liable as the party chargeable for those costs.

37. The Law Society was conducting an independent enquiry on the complaint of overcharging. The costs of dealing with the complaint in the 2nd Bill were personal costs of the 2nd plaintiff and they had nothing to do with the 1st plaintiff. They were not costs incurred in either the registering or releasing the Memoranda of Charge. The fact that the subject matter of the complaint was concerned with the Memoranda of Charge is neither here nor there.

38. There is no common law right of recovery of costs incurred in the complaint against a solicitor to the Law Society otherwise than under the Legal Practitioners Ordinance, and the 2nd plaintiff has not demonstrated any such cause of action.

39. The admission of liability by the defendant related only to the 1st Bill but not the 2nd Bill. The defendant is not a party to the Resolution. The admission of liability of the 1st Bill did not amount to admission of the Resolution.

40. Mr Sakhrani also pointed out that the 1st plaintiff were not liable to the personal costs of the 2nd plaintiff either, and they had no locus standi in the present proceedings.

Whether costs of registering and releasing the charge?

41. Mr Wong has laid much emphasis on the point that the liability or chargeability of the defendant stems from its admission of the Resolution. I find that the point is neither necessary nor sufficient.

42. As observed by Rogers VP in Greenswood Property Limited v. The Incorporated Owners of Kiu Sun Factory Building, op.cit., a person entitled to register a legal charge has a basic entitlement to recover the costs, charges and expenses incurred in relation that charge (at p.10, para.20-K). I find that such entitlement exists regardless of any admission of the Resolution.

43. On the other hand, assuming one is relying on the Resolution, the Law Society enquiry does not fall within any of the proceedings referred to therein. The enquiry was directed at the 2nd plaintiff personally and the 1st plaintiff was not a party thereto.

44. Mr Wong submitted that it was prudent for the 2nd plaintiff to make the fullest submissions to the Law Society in order to defend the charges, lest the Law Society was to make findings which might adversely affect the security of the 1st plaintiff. However, Mr Wong conceded that the Law Society had no power to make any declaration on the validity of the charge, nor any power to order the registration of the release. Further, Mr Wong agreed that the Law Society had never indicated to the 2nd plaintiff that it would be adjudicating on the quantum of the legal costs.

45. The Law Society enquiry was neither court proceedings nor was the 1st plaintiff a party thereto. The Law Society is an independent body and its acts are neither imputed to nor binding on the 1st plaintiff. I fail to see why any issue as to res judicata could arise.

46. The 2nd plaintiff clearly knew that the Law Society was not the proper forum to resolve the quantum of the legal costs or the release of the charges. It was ill-advised to involve the 1st plaintiff in the enquiry (albeit anonymously). Instructions taken and explanation given on matters prior to and/or beyond the terms of the retainer, actual services rendered and fees charged are irrelevant and unnecessary, and hence also such costs incurred. I doubt the 1st plaintiff's liability to the 2nd plaintiff for such costs as it must have been incurred on the misconceived advise of the 2nd plaintiff.

47. I am not for one moment saying that the motive of the defendant was proper or commendable. But it is neither here nor there as the 1st plaintiff could not be affected by the enquiry of the Law Society. And it did not become relevant just because it was the defendant who had suggested the alternative adjudication by the Law Society, nor because it was forewarn of the consequence of costs in dealing with the complaint.

48. I agree with Mr Sakhrani that the Law Society complaint is personal to the 2nd plaintiff. The way the 2nd plaintiff had chosen to deal with it did not alter its nature. Hence, the costs of the complaint are personal to the 2nd plaintiff and are not the costs properly and reasonably incurred in registering or releasing the 14 Memoranda of Charge.

Conclusion

49. In the premises, I shall dismiss the appeal. I make an order nisi that the 2nd plaintiff shall bear the costs of the appeal.