C.L. CHOW & MACKSION CHAN, SOLICITORS (a firm) v. CHAN PUI FAT AND OTHERS

HCA 2461/2017

[2021] HKCFI 3086

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2461 OF 2017

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J U D G M E N T

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INTRODUCTION

1.  This is the Plaintiff’s action for recovery of professional fees and disbursements for legal services rendered to the 1^st to 8^th Defendants in respect of a commercial dispute under HCA 780 of 2015 (the “Action”).

2.  Mr Benjamin Chain appeared on behalf of the Plaintiff and Mr Jerome Liu (together with Mr Keith Cheung)  appeared on behalf of the Defendants.

3.  The Action was taken out by Cheer Signal Development Limited, which was a subsidiary of Zhuhai Duty Free, a PRC state-owned enterprise. For the sake of simplicity, the 1^st Defendant, Chan Pui Fat (“Chan”) was the owner and/or in control of the 2^nd to 8^th Defendants herein, which were the 4^th to 9^th Defendants and the 1^st to 3^rd Third Parties respectively in the Action. Chan and 2^nd to 8^th Defendants herein were referred as the “Chan Camp” in the Action.

4.  The other co-defendants in the Action included:

(a)  Miss Wong Siu Fan (“Wong”) and Mr Ling Man Sum (“Ling”), respectively the 1^st and 2^nd Defendants in the Action, who jointly operated a business consultancy service through one Orthodox Limited (the 5^th Defendant in the Action), collectively referred to as the “Consultancy Camp” in the Action.

(b)  Mr Mak Kam Fai (“Mak”), the 3^rd Defendant in the Action, who was an associate of Orthodox and allegedly installed by Wong as a Vice-President of Cheer Signal for the purpose of a Fraudulent Scheme perpetrated on Cheer Signal.

5.  Prior to the Action, Chan was involved in an immigration matter in April 2014 concerning the employment of illegal workers in respect whereof he was arrested. At that time, one Mr Samson Chan was an employee of Chan, who had previously worked as a clerk in a law firm and was acquainted with Mr Chow Cheuk Lap (“Chow”), a partner of the Plaintiff. Therefore, Mr Samson Chan introduced Chow to Chan to handle the immigration matter, which did not proceed any further. Hence, Chow did not charge anything for the brief advice given to Chan.

6.  In October 2014, the Chan Camp was in receipt of certain letters from Cheer Signal demanding payment for consignments of seafood, which were allegedly sold and delivered.  Apparently, the demand was not pursued by Cheer Signal after a reply was sent by the Plaintiff on behalf of the Chan Camp. 

7.  On or about 13 April 2015, the Chan Camp, the Consultancy Camp and Mak were notified of a Mareva injunction (the “Injunction”)  to the tune of HK$127m granted ex parte 10 April 2015 upon the application of Cheer Signal under the Action. Immediately, Wong, Ling and Chan sought advice and assistance from Chow of the Plaintiff’s firm.

8.  Due to potential conflict of interest, separate legal representation was needed for the different camps in the Action. Accordingly, while the Plaintiff’s firm was taking the lead in the preparation of the hearings and the defence pertinent to the Action, Chow introduced Messrs Samuel Yang & Co to act for the Consultancy Camp and Messrs Lawrence Chan & Co. for Mak.

9.  In the main, the dispute of legal fees herein concerns the services rendered by the Plaintiff’s firm to the Chan Camp in their (1) unsuccessful application made on the return day of 24 April 2015 to vary the Injunction by increasing the allowance for legal expenses wherein the Chan Camp was represented by Jonathan Wong of Counsel; and (2)  application to discharge the injunction, which was partially successful upon a hearing before Madam Justice Au-Yeung on 24 and 28 August 2015 wherein John Yan SC leading Tony Chow (“Tony”),  a son of Mr Chow, appeared for the Chan Camp.

10.  In a decision handed down on 26 October 2015 (the “Decision”), Madam Justice Au Yeung:

(a)  discharged the Injunction against Wong, Ling, Mak, Chan, Orthodox and Wing Sang (International)  Sea Products Company Limited (respectively D1, D2, D3, D4, D5 and TP3 in the Action)  on the ground of material non-disclosure on the part of Cheer Signal;

(b)  continued the Injunction against Chan’s group of companies, namely, the 2^nd to 5^th Defendants herein (ie D6 to D9 in the Action)  and the 6^th and 7^th Defendants herein (ie and TP1 and TP2 in the Action)  since Chan eventually said in his 3^rd Affirmation in the Action that he was holding those companies as nominee for Cheer Signal and therefore there would be no prejudice for the Injunction to continue;

(c)  ordered costs to be paid by Cheer Signal to the successful defendants referred to in (a)  hereinabove to be taxed forthwith if not agreed with certificate for one counsel for Mak (D3 in the Action)  and for 2 counsel for the other defendants including Chan (the 1^st Defendant herein and D4 in the Action)  and Wing Sang (International)  Sea Products Company Limited (the 8^th Defendant herein or TP3 in the Action);

(d)  ordered costs of the unsuccessful defendants referred to in (b)  hereinabove be Cheer Signal’s costs in the cause;

(e)  apportioned the costs referred to in (c)  and (d)  hereinabove be in the ratio of 70:30 (the “Costs Order”).

11.  In short, upon discharge of the Injunction, Chan was awarded 70% of his costs in engaging the Plaintiff’s firm (along with counsel)  to deal with the various applications arising from the Injunction against him and his companies.

12.  For the sake of completeness, costs were also incurred in the preparation of a defence for the Chan Camp, which was jointly settled by John Yan SC and Tony and filed on 19 October 2015. Further, costs were incurred to deal with Cheers Signal’s summons dated 9 November 2015 seeking leave to appeal against the Decision, which was dismissed by Madam Justice Au-Yeung by way of paper disposal on 13 January 2016.

13.  It is not disputed that Chan paid the Plaintiff costs of account in the sum of HK$50,000 in October 2014. After being served with the Injunction in April 2015, Chan paid various other sums as costs on account (ie HK$500,000 (cheque)  on 22 April 2015; HK$500,000 (cash)  on 20 May 2015; HK$1,000,000 (cash)  on 13 August 2015; and HK$136,000 (cheque)  on 28 October 2016)  totalling HK$2,136,000. These payments were clearly described as “costs on account” on the respective receipts.

14.  There was also HK$40,000 on account which was recovered from Cheer Signal on 18 February 2016 upon summary assessment of costs in favour of Chan Camp upon dismissal of the application for leave to appeal as aforesaid.

15.  It is also beyond dispute that the disbursement by way of counsel fees for dealing with the various applications pertinent to the Injunction (including Cheer Signal’s application for leave to appeal by summons dated 9 November 2015)  and filing of the Defence on 19 October 2015 came to about HK$1,614,300 (Exhibit CPF-21).

16.  With the consent of Chan, a sum of HK$200,000 out of the costs on account was transferred to Messrs Samuel Yang & Co on 15 May 2015. Likewise, five sums totalling of HK$170,000 were transferred by the Plaintiff to Messrs Lawrence Chan & Co between 2 October 2015 and 9 November 2016.

17.  Further, an advance partial payment of HK$96,000 was made to Mr Billy Chan (Law Costs Draftsman)  on 31 October 2016 for preparation of the taxation hearing pursuant to the Costs Order.

18.  On a rough-and-ready approach and leaving aside other minor disbursement(s)  for the time being, there was only about (HK$2,136,000 + HK$40,000)  – (HK$1,614,300 – HK$200,000 – HK$170,000 – HK$96,000)  = HK$95,700 to answer the Plaintiff’s profit costs.

19.  However, there is a dispute as to whether or not another sum of HK$200,000 in cash was paid as costs on account by Chan (accompanied by Wong and Ling)  when they met with Chow at the Plaintiff’s office on or about 14 April 2015 (see below).

20.  At a glance, even if one is to (1)  treat the HK$50,000 paid in October 2014 as part of the costs on account for handling the Injunction and the Action; and (2)  take into account the disputed sum of HK$200,000, the total of HK$345,700 (HK$95,700 + HK$50,000 + HK$200,000)  after defraying counsel fees seems nowhere near sufficient to cover the Plaintiff’s profit costs in handling the various applications pertinent to the Injunction and preparing the Defence in the Action, which was a case of some complexity deserving leading and junior counsel.

21.  The foregoing sets the scene of the dealings between the Plaintiff and the Defendants in respect of the Injunction and the Action. The dispute herein arose after the taxation hearing before Master Chow on 10 and 11 July 2017 under the Costs Order upon a Bill of Costs (dated 6 July 2016)  rendered by the Plaintiff for the Chan Camp (as the receiving party)  to Cheer Signal (as the paying party)  claiming a total of HK$3,637,826.91 (being 70% of the costs and disbursements incurred by the Chan Camp in dealing with the various applications pertinent to the Injunction but excluding the Costs of Taxation claimed in the sum of HK$174,226).

22.  From the perspective of the Plaintiff (and the Chan Camp), the result of the taxation fell far below their expectation. Of the total sum of HK$3,637,826.91 claimed, only HK$712,864.60 was allowed for profit costs and HK$787,806.91 for disbursements including counsel fees (ie a total of HK$1,500,671.51), which is only 41.2% of the amount claimed (see Allocatur dated 21 August 2017).

23.  It is true that a further sum of HK$180,551 was allowed for Costs of Taxation and another HK$31,313.00 was allowed for taxing fee making a total of HK$1,712,535.51 on the allocator (the “HK$1.7m”)  but these 2 sums are not particularly relevant for present purposes.

24.  At a meeting at the Plaintiff’s office on 9 August 2017, Chow requested Chan to allow the HK$1.7m recovered (and to be received)  from Cheer Signal under the allocator be retained by the Plaintiff’s firm for defraying the Plaintiff’s profit costs for which a bill would be rendered. 

25.  A dispute arose since Chan, on his case herein, took the position that all money recovered from Cheer Signal under the Costs Order ought to be returned to him without any encumbrance since the Plaintiff (acting through Chow)  had:

(a)  agreed to handle the various items of work pertinent to the Injunction on the basis that Chan Camp would only need to pay the various sums by way of costs on account as demanded by Chow from time to time and such sums had in fact been paid by Chan Camp (see paragraph 13 above);

(b)  represented that the costs on account so paid would be sufficient to cover all items of work done (or to be done)  by the Plaintiff and counsel at every stage. 

26.  Shortly thereafter, Chan consulted Messrs. W. L. Lai & Co. (the firm now acting for Chan herein)  who filed a Notice of Change of Solicitor for Chan in the Action on 22 August 2017. After a query raised by Messrs. Li & Partners (for Cheer Signal)  as to the split of the taxed costs, another Notice of Change of Solicitors was filed on behalf of Chan’s companies (D6 to D9 and TP3 in the Action)  on 19 October 2017.  It is not disputed that the HK$1.7m in its entirety has since been received by Chan.

27.  Meanwhile, on 30 August 2017, the Plaintiff rendered an Office Bill to Chan totalling HK$6,948,879 consisting of profit costs of HK$5,098,530, photocopying HK$5,000 and other disbursements of HK$1,845,349 (inclusive of counsel fees totally HK$1,614,300).

28.  Notably, after being served with the Office Bill, Chan responded by instructing Messrs. W. L. Lai & Co to write to the Plaintiff on 8 September 2017 to request for all the documents. It was stated therein that without such documents the new firm of solicitors was not in a position to advise Chan whether the Office Bill was acceptable. The same was repeated in a subsequent letter dated 11 October 2017.

29.  The Writ of Summons herein was issued on 26 October 2017. By a Consent Order granted by Master Hui dated 20 July 2018, the action herein was stayed in favour of a taxation proceedings. In due course, taxation proceedings were commenced (under HCMP 1165/2018).

30.  However, in light of the numerous factual disputes, which otherwise would have to be dealt with by way of preliminary issues in the taxation proceedings, the parties agreed to proceed under this action to resolve these factual disputes whereupon the taxation proceedings were stayed by a Consent Order granted by Master Hui dated 31 August 2020.

31.  Understandably, with this peculiar procedural history, Master Hui ordered the witness statements served in the taxation proceedings (HCMP 1165/2018)  to stand as witness statements and evidence-in-chief in the action herein.

32.  The downside is that these witness statements were prepared for taxation proceedings, wherein the defendants embarked on a forensic exercise to compare and analyze the Taxation Bill and the Officer Bill. A vast number of schedules were produced, which may be more useful in the taxation proceedings but of marginal relevance to the action herein.

33.  At the beginning of the trial, Mr Chain and Mr Liu agreed that only 4 factual issues needed to be resolved in this trial and the rest of the disputes would be resolved, if necessary, by resumption of the taxation proceedings (under HCMP 1165/2018). The 4 issues are defined as follows:

(1)  Whether the Plaintiff and the Defendant entered into the Agreement (as pleaded in Paragraphs 9 and 33(a)  and (c)  of the Defence); or whether the Defendants are liable to pay all “costs reasonably incurred” by the Plaintiff?

(2)  Did Chan pay HK$200,000 in cash to Chow by way of costs on account of the Action on or about 14 to 16 April 2015?

(3)  Whether Chow informed Chan that Eric Chow (“Eric”), another son of Chow, who had been practising as a barrister since 2008 and joined the Plaintiff’s firm on or about 4 May 2015, would charge at the hourly rate of a paralegal and would adjust his rate to that of a solicitor after becoming qualified as such in July 2015?

(4)  Whether Tony was properly instructed with Chan’s consent as a junior counsel to Mr John Yan SC?

COMPLEXITY OF THE ACTION (under HCA 780 of 2015)

34.  In order to resolve the 4 issues and in my approach towards the competing factual evidence adduced by the Plaintiff and the Defendants, it is necessary to put things in proper context by referring to the salient features of the Action.

35.  For this purpose, I would gratefully adopt the admirable summary of Madam Justice Au-Yeung in the Decision.  In particular, the learned Judge described Cheer Signal’s case in the following terms:

“18. In mid-2011, Wong (D1)  and Ling (D2)  devised what turned out to be the Fraudulent Scheme whereby:

(a)  Cheer Signal would engage Orthodox (D5)  as consultant.

(b)  Cheer Signal would commence a seafood products business.

(c)  Golden Sea (D6), introduced by Wong (D1)  and Ling (D2), would be the upstream seller of seafood products.

(d)  One Ying Fai Fishery International Ltd (“Ying Fai”) would be the downstream buyer of Cheer Signal.

(e)  Ying Fai was later replaced by Riches Development (D7). D8 to D9 were later added as downstream buyers. They were all introduced by Wong (D1)  and Ling (D2). They were said to be experienced buyers with operating teams that have years of experience in the fishery trade and strong network of retail customers.

(f)  Cheer Signal would buy seafood products from the upstream seller on 3 days’ advance payment terms and in turn sell to the downstream buyers at a higher price on 30 days’ credit. The difference in price would represent Cheer Signal’s profits. The seafood products would be delivered by the upstream seller directly to the downstream buyers.

(g)  For the purpose of listing, Wong (D1)  and Ling (D2)  would arrange for Cheer Signal to eventually acquire the upstream seller and downstream buyers (“the acquisition”).

(h)  Mak (D3)  (originally staff of Orthodox (D5))  was engaged by Cheer Signal as Vice President to manage the seafood products business on a day to day basis. He was to work closely with Orthodox (D5)  to oversee that business.

19. The seafood products business had been run from about August 2011 to September 2013 with a purported sales volume of $970m and gross profit of $25m.

20. It is Cheer Signal’s case that the upstream seller and downstream buyers were introduced by Wong (D1)  and Ling (D2)  as independent entities when in fact they were secretly controlled by the 2 of them. Chan (D4), who was the husband of Wong (D1), was the common bank signatory of these corporate entities. Exploiting the time gap, monies paid to the upstream seller by Cheer Signal in advance would be routed to the downstream buyers to pay back to Cheer Signal on credit terms. Mak (D3)  was “deliberately planted” by Wong (D1)  and Ling (D2)  in Cheer Signal to facilitate such fraudulent flow of its funds out from one pocket to another under the illusion of sham transactions.

21. In December 2012, Cheer Signal changed its top management. Sometime in September 2013, as the management of Cheer Signal decided to supervise Cheer Signal’s business more closely, the 3 downstream buyers suddenly stopped paying. It left Cheer Signal out of pocket in the amount of about $120m in terms of advance payments to the upstream seller. The seafood products business came to a halt.

22. Not being aware of the fraud, Cheer Signal paid Orthodox (D5)  monthly consultancy fees for 2014 for it to assist in recovering monies from the downstream buyers.

23. Separately, Cheer Signal demanded for payment from D7-9 directly, only to meet with the response that they had never received any goods from Cheer Signal.

24. The Fraudulent Scheme “came to light” in October 2014 upon Cheer Signal’s investigation. The matter was reported to the police. Having been informed by the police that it would soon take steps against the Defendants, Cheer Signal commenced the present action. So far, no charge has been laid against anyone.

25.   It is Cheer Signal’s case that Wong (D1), Ling (D2)  had exploited its trust and confidence in them. Viewed as whole, each of the Defendants acted in furtherance of a common design.  Cheer Signal seeks a declaration that each of the Defendants holds the HK$127m (including HK$7.41m consultancy fees)  on constructive trust for it, alternatively for damages for deceit or conspiracy to defraud or to injure.”

36.  As for the case of the co-defendants in the Action, the learned judge expressed her concerns arising from Chan’s change of the stance in his evidence as follows:

“108. [Moreover], Chan (D4)  has advanced an inconsistent case on affirmation. . . Initially, his 1^st and 2^nd affirmations (for disclosure of assets)  stated that he was 100% beneficial shareholder of D6-D9 and TP1 to TP3. In Chan (D4)-3^rd, he claimed to indirectly hold 100% interest in those entities (but not TP3)  as nominee for Cheer Signal. Such inconsistencies spoke of dishonesty and even concoction of defence. I note, however, that there is no evidence of the Consultants and Mak (D3)  joining in asserting these inconsistent cases.

. . .

111. The case against entities in the Chan (D4)  camp is different. On Chan (D4)’s latest version, as nominal holder, there is a good arguable case of constructive trust against those entities (except TP3 discussed in paragraphs 121-124 below). He would have a duty to account to Cheer Signal anyway, although the question of whether Cheer Signal had been “defrauded” remains.” (my emphasis)

37.  In the end, although the learned judge found an arguable case of fraud against Consultancy Camp and constructive trust against Chan, the Injunction against Wong, Ling, Mak, Chan, Orthodox and Wing Sang (International)  Sea Products Company Limited (ie D1, D2, D3, D4, D5 and TP3 respectively in the Action)  was discharged primarily on the ground of material non-disclosure on the part of Cheer Signal.

38.  In particular, the learned judge considered that Cheer Signal’s claim of ignorance of the fraud and the existence of Chan amounted to material non-disclosure, which had misled the ex parte judge into believing that Cheer Signal was a victim (see Para. 46 of the Decision).

39.  However, the Injunction against the group of Chan’s companies (ie D6-D9, TP1 and TP2 in the Action or the 2^nd to 7^th Defendants herein)  was continued since it was Chan’s latest stance that he was holding those companies as nominee of Cheer Signal (see Paras 131 and 143(1)(b)  of the Decision).

40.  Not surprisingly, the learned Judge repeatedly observed that both Cheer Signal and the co-defendants in the Action (including Chan)  had only presented half truths to the Court (see Paras 109 and 132 of the Decision).

41.  The salient facts of the Action summarised hereinabove and the observations of the learned Judge demonstrate that quite apart from the voluminous documents involved, which was said to run to some 4,000 pages before the Court at its inception and probably a lot more screened by the legal team during preparation for the hearings, the Injunction and the underlying claim of Cheer Signal were complicated, if not convoluted, by any measure. 

THE LAW

42.  I have been helpfully reminded by Mr Liu of the modern approach of the Court towards assessment of credibility in light of the proliferation of documents so that the demeanor of witnesses have relegated to a place of lesser importance. A good summary of exposition of the law can be found in the judgment of DHCJ ML Liu in Progetto Jewellery Company Limited v. Lau Chiu Ying & Ors., HCA 2548/2014; [2020] HKCFI 209, 22 January 2020 (at paragraphs 28 to 30).

43.  The case of Progetto Jewellery (supra) is also apt as a reminder that issues in a litigation are defined in the pleadings and one cannot slip in an unpleaded issue by saying that there is evidence on the issue (see DHCJ MK Liu (at para. 26)  citing Ma CJ in Kwok Chin Wing v. 21 Holdings Ltd (2013)  16 HKCFAR 663).

44.  As to the approach towards resolving the dispute over the terms of a retainer, Warrington J in Re Paine (1912)  28 T.L.R. 201 adopted the received wisdom from Vice Chancellor Turner in Grossley v. Crowther (9 Hare 384)  that:

“…where there was a conflict as to authority between the solicitor and client. Without further evidence, weight must be given to the affidavit against, rather than to the affidavit for the solicitor…”

45.  Likewise, Lord Denning LJ (as he then was)  said in Griffiths v Evans [1953] All ER 1364 (at 1369)  that:

“…On this question of retainer, I would observe that where there is a difference between a solicitor and his client upon it, the courts have said, for the last 100 years or more, that the word of the client is to be preferred to the word of the solicitor, or, at any rate, more weight is to be given to it (see Grossley v. Crowther, per Turner V.-C, and Re Paine, per Warrington J.). The reason is plain. It is because the client is ignorant and the solicitor is, or should be, learned. If the solicitor does not take the precaution of getting a written retainer, he has only himself to thank for being at variance with his client over it and must take the consequences.” (emphasis added)

46.  In his closing submissions, Mr Liu would characterise the foregoing principles as giving rise to a presumption of fact in favour of the client in the event of a dispute with his solicitors over the terms of a retainer. Mr Chain has no serious dispute with this proposition subject to the caveat that it is only a starting point and the presumption is clearly a rebuttable one.

47.  Mr Liu himself drew attention to Manches LLP v Green [2008] 6 Cost LR 881 wherein Underhill J, after reciting the Lord Denning in Griffiths v. Evans (supra), observed (at 893)  that:

“I do not read that as propounding a rule of law that the word of a client must always be preferred but there is obvious justice in the proposition that in applying the (flexible)  civil standard of proof I should take into account the fact that the primary responsibility for spelling out the terms of the retainer must be on the solicitor.”

48.  More recently, the same principle found expression in Wong & Fok (a firm)  v Ronstar Asia Limited, HCA 1476/2009, unrep., 23 August 2010, Mr Recorder Ambrose Ho SC (at §§29-30).

49.  However, there is also a sound principle that where there is a retainer but no fee has been agreed, a term is to be implied by operation of law that the client is to pay reasonable remuneration. In short, there needs not be an express term for the client to be liable to pay reasonable renumeration to the solicitor. The rest is a matter for taxation.

50.  In Adams v. London Motor Coach Builders, Limited [1920] 1 KB 495 (at 501), Bankes LJ said:

“. . When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent, it seems to me that he became liable to the solicitors for costs. . .”

51.  In the same case, Atkins LJ said (at 503)  that :

“. . .If they were so acting, they did so upon the ordinary terms applicable to a person who employs a professional man to do professional work on his behalf – namely, that he shall remunerate him. That is the prima facie obligation which at once emerges when the employment is proved. . . “

52.  In R v. Miller [1983] 1 WLR (at 1061-1062)  Lloyd J held:

“. . . Once it was shown. . . that Mr [X] was indeed the client, then a presumption arose that he was to be personally liable for the costs. That presumption could, however, be rebutted if it were established that there was an express or implied agreement, binding on the solicitors, that Mr [X] would not have to pay those costs in any circumstances. . . Unless those facts establish a clear agreement, expressed or implied that in no circumstances will the solicitor seek to obtain payment from their client, then the basic presumption stands, and reasonable costs must be allowed on a taxation. . .” (emphasis added)

53.  A failure to comply with The Hong Kong Solicitors’ Guide to Professional Conduct (the “Guide”)  pertinent to client care, in particular, the recommended use of a written retainer with specific terms as to the fees to be charged, will not without more deprive the solicitors of his right to receive reasonable remuneration. In The Education Group (HK)  Limited v. Deacons, HCMP 2138/2008, 11 May 2009, Master C Chan said:

“15. According to the Guide to Professional Conduct Volume 1 Chapter 4 section 4.03:

‘4.03 PROVIDE DETAILS OF FEES

If no fee has been agreed or estimate given, a solicitor should tell his client how the fee will be calculated, for example, whether on the basis of an hourly rate plus any mark-up, a percentage of the value of the transaction or a combination of both, or any other proposed basis. The solicitor should tell his client what other reasonably foreseeable payments he may have to make either to his solicitor or to a third party and the stages at which they are likely to be required.’

16. It is quite clear Mr. [x] had not followed that Guide. He had not done what he should have done according to the professional Guide.

17. From the facts before me, on balance of probabilities I come to the conclusion that there was no agreement as to the hourly rate.  I have to assess what is reasonable.”

54.  There is no doubt that where the remuneration of a profession rendering service under a retainer has not been not expressly agreed or provided for, the law would imply a term for payment of reasonable charge. Section 7 of Supply of Services (Implied Terms)  Ordinance, Cap. 457 provides that:

“(1)  Where, under a contract for the supply of a service, the consideration for the service is not determined by the contract, is not left to be determined in a manner agreed by the contract or is not determined by the course of dealing between the parties, there is an implied term that the party contracting with the supplier will pay a reasonable charge.

(2)   What is a reasonable charge is a question of fact.”

55.  Lastly, there is no dispute that whether there was an Agreement (as alleged in Paragraph 9 of the Defence)  is to be assessed by the Court adopting an objective approach, taking into account all evidence in light of all relevant circumstances (see Lord Clarke in RTS Flexible Systems Ltd v. Molkerei Alois Muller GmbH & Co. KG [2010] 1 WLR 753 at para. 45).

DISCUSSION

Issue 1 – Whether Agreement reached

The pleaded case

56.  In the Statement of Claim, the Plaintiff’s case is simply pleaded as follows:

“3. On or about 13 April 2015, the 1^st Defendant, in his personal capacity and on behalf of the Companies, agreed to engage and retain the Plaintiff for legal services and to act for the Defendants in High Court Action no. 780 of 2015 (the “Action”).

4. The Plaintiff duly rendered legal services to the Defendants in the Action, including but not limited to assisting in the successful discharge of the Mareva Injunction against the Defendants by the decision of the court dated 26 October 2015.

5. On or about 22 August 2017, Messrs. W.L. Lai & Co. (“WLL”)  filed a Notice of Change of Solicitors to act on behalf of the 1^st Defendant in place of the Plaintiff in the Action effectively terminating the 1^st Defendant’s engagement of the Plaintiff.

6. On or about 19 October 2017, WLL filed a Notice of Change of Solicitors to act on behalf of the Companies in place of the Plaintiff in the Action effectively terminating the Companies’ engagement of the Plaintiff.

7. By reason above, the Defendants were and are liable to settle the costs reasonably incurred by the Plaintiff for all associated works and expenses in connection with the Action for the duration of the respective retainer.” (emphasis added)

57.  The existence of an oral (non-written)  retainer between the Plaintiff and the respective Defendants is not disputed. However, the desirability of a written retainer as recommended under the relevant provisions in the Guide concerning client care and proper records for civil cases cannot be over-emphasized.

58.  It is astonishing that Chow, a seasoned solicitors of some 40 years’ standing, claimed ignorance of such provisions in the Guide.  I am of the view that he was just saying whatever was convenient in an attempt to explain away his blatant non-compliance thereof. The blasé or even cavalier attitude displayed by Chow towards client care and keeping of proper records is nothing short of being deplorable.

59.  Having said that, it does not detract from the fact that the issues herein are to be decided on a proper assessment of all the evidence before the Court.  Mr. Liu, as I understand, took a pleading or preliminary point in that:

(a)  Chow’s assertion on the evidence was that he had mentioned repeatedly to Chan that hourly rate(s)  would be charged by various fee earners, which was vigorously disputed by the Defendants throughout, did not form part of the Plaintiff’s pleaded case; 

(b)  upon Chow’s admission in cross-examination that he might not have mentioned to Chan (or any of the Defendants)  that the Plaintiff would charge reasonable fees, the Plaintiff’s pleaded case of “costs reasonably incurred” was doomed to fail.

60.  With respect, there is no substance in this argument.  First and foremost, it was the Defendants’ position and it was repeatedly put to Chow in cross-examination that he had never mentioned charging by hourly rate(s)  in all his dealings with Chan (ie ever since April 2014 in the unrelated immigration matter).

61.  The first part of the pleading point would only be relevant, if I were to find that the parties did agree on hourly rate(s), which somehow the Plaintiff failed to plead. However, for the reasons set out hereinbelow, I have no hesitation in finding that no hourly rate(s), whether by description or by reference to the actual monetary figure(s), were agreed upon for handling the Injunction and the Action. This is also the position taken by the Defendants. Hence, this part of the pleading point has fallen by the wayside.

62.  As to the second part of the pleading point, the Statement of Claim can be criticized as being imprecise as to whether the “costs reasonably incurred” is meant to be an express or implied term amidst the factual matrix that has been pleaded. On the face of it, it can be either express or implied for which no request for further and better particulars was sought.

63.  The admission of Chow that he might not have mentioned charging reasonable costs would go to demonstrate that there was no express term. However, upon my finding, in line with the Defendants’ position, that no hourly rate had ever been agreed, the pleadings in the Statement of Claim would admit a construction that there was an implied term for reasonable remuneration by operation of section 7 of Cap. 457 (see paragraph 54 above).

64.  In contrast, the defence case was purely pleaded on the basis of the Agreement which, I am afraid, is not the easiest to follow.

65.  By way of background, the Defendants first referred to the sums of HK$50,000 paid in October 2014 and the HK$200,000 allegedly paid on in April 2015[1] in paragraph 5 of the Defence. Thereafter, it is pleaded in the Defence as follows:

“(8)  Shortly before 22^nd April 2015, the Plaintiff requested the 1^st Defendant to pat a further sum of $500,000 and to hold a conference at the Plaintiff’s office.

(9)  [Chow] of the Plaintiff then orally represented, offered, and assured, and the 1^st Defendant, amongst others, accepted and agreed, inter alia, that:

(a)  the pre-paid HK$250,000 had mostly been paid or used up after settling all previous advice and services provide by the Plaintiff, although there were still some money held in the Defendants’ client account;

(b)  similar arrangement to the previous pre-payments of HK$50,000 and HK$200,000, would be engaged so that the Defendants would have to make further different pre-payments;

(c)  in the future, before any pre-paid sum would soon be used up for settling the Plaintiff’s costs and reimbursements, or if reimbursement (such as counsel fee)  would be required, the Plaintiff would inform the Defendants of such, and the Plaintiff would then request the Defendants to put up another pre-payment to the Plaintiff before the Plaintiff would provide any further service to the Defendants;

(d)  The amount of funds, which the Plaintiff would request the Defendants to pre-pay would depend how much advice or services which the Plaintiff, would expect to provide to the Defendant in the near future;

(e)  The Plaintiff would not work without pre-payment when Mareva injunction was in force against the Defendants, and the Plaintiff would not work (or incur charges)  beyond the Defendant’s pre-paid costs;

(f)  With such arrangements, both the Plaintiff and the 1^st Defendant, amongst others, could have the peace of mind throughout the proceedings. The Plaintiff further explained that the arrangement would be fair and would protect the interest of the Plaintiff and the Defendants because the Plaintiff would be secured by the Defendants’ pre-payment as sufficient costs on account, particularly when the Mareva Injunction was in force. On the other hand, if it turns out at any stage in the future that the Defendants are not satisfied with the amount and quality of services which the Plaintiff has provided after receiving any pre-payment, the Defendants could always terminate the Plaintiff’s service immediately and look for another legal representative without making any further payment to the Plaintiff. The Plaintiff would also deduct the costs of advice and services provided since the last pre-payment, and then the Plaintiff would return any outstanding sum to the Defendants;

(g)  [a plea of wavier which has since been abandoned in the Defendants’ opening submission.]

(h)  Finally, the 1^st Defendant shall pay a third pre-payment in the sum of HK$500,000 to the Plaintiff (the “Agreement”).”

66.  In the remainder of the Defence, the Agreement was relied upon as the basis for the further prepayments (ie another HK$500,000 on 20 May 2015; HK$1,000,000 on 13 August 2015; and HK$136,000 on 28 October 2016). It is alleged that the same representation was made on each occasion.

67.  In Paragraph 33(a)  and (c)  of the Defence, a plea of estoppel was added, which, Mr Chain submitted, did not add anything to the Agreement and Mr Liu readily accepted such proposition.

68.  In a rather lively manner, Mr Liu would draw an analogy between the Agreement with a pre-paid Octopus Card or SIM card for mobile phone. I find the analogy rather inapposite since no further ride or service would be possible by design of the device once the pre-payment has been exhausted in the case of an Octopus Card or SIM card. 

69.  With no disrespect to Mr Liu, the provision of legal services, in particular, in handling a highly contentious matter such as the Injunction and the Action cannot be meaningfully compared with machine-oriented Octopus Card or SIM Card.

70.  It is not difficult to imagine the volume of documents, in the region of 25,000 to 30,000 pages as discernible from the Taxation Bill and Office Bill, which needed to be analysed and cross-checked by the Plaintiff’s team together with counsel, just to understand the alleged Fraudulent Scheme, now helpfully distilled and summarised by the learned Judge in the Decision.

71.  No doubt, the fact that both Cheer Signal and the co-defendants in the Action (in all the camps)  were seeking to present half truths to the Court, dictated that a considerable amount of time and effort would be needed to map out the best path for Chan Camp. This is borne out by Chan’s change of stance necessitating the filing of the 3^rd Affirmation of Chan (see paragraph 36 hereinabove).

72.  The upshot is that Chan’s change of stance prompted a late application on the part of Cheer Signal by summons dated about 18 August 2015 to seek leave to file further affirmation to assert a proprietary claim, which was dismissed by the learned judge at the hearing on 24 August 2015 (see paras 4 to 8 and 135 to 142 of the Decision).

73.  These peculiar features of the Injunction and the Action speak of a rather fluid situation dictating that the evolving evidence had to be scrutinised, cross-checked or re-visited from time to time by the Plaintiff’s team along with counsel.

74.  The Defendants herein (along with the Consultancy Camp and Mak)  were at the receiving end of an Injunction in the Action for a substantive claim of HK$127m. By any measure, it was a highly contentious matter and no reasonable lawyers representing Chan (and the Defendants)  would take a bullish view as to prospect of success.

75.  Importantly, unlike a commercial dispute with a cross-claim (whether by way of original claim or counterclaim)  with a significant amount to be recovered, the best the Defendants could hope was to discharge the Injunction and successfully ward off Cheer Signal’s claim.

76.  For the sake of completeness, the only discussion about a possible counter-claim was the loss that might have been caused by the Injunction, which had since been discharged (see attendance note dated 9 August 2017). However, that was way after filing of the Defence on 19 October 2015. In any event, no counterclaim was contemplated or pleaded in the Defence.

77.  In this scenario, it was highly unlikely that the Plaintiff, or any firm of solicitors in the Plaintiff’s position, would agree to conduct the defence case on the basis of contingency fee. In any event, Mr Liu confirmed to the Court that there was no agreement or understanding for the Plaintiff to be remunerated on a contingency basis.

78.  By the same token, the lack of sufficient costs on account to cover profit costs aside, it is highly unlikely that the Plaintiff (acting through Chow)  would have accepted a remuneration arrangement, which would have the effect of the firm underwriting the risk of the litigation by way of profit costs incurred in handling the Injunction and/or conducting the case for the Defendants.  This would be the effect of the Agreement contended for by the Defendants.

79.  With no disrespect, one cannot fail to notice the air of artificiality surrounding the Agreement as pleaded in the Defence. While not in the mood of criticizing, I am of the view that the Agreement was a monumental afterthought, albeit innocent, formulated with the input of the Defendants’ lawyers.

80.  In this respect, I am not impressed by the corresponding evidence contained in paragraph 19 of the Witness Statement of Chan (dated 25 June 2019)  which is a regurgitation of Paragraph 9 of the Defence save that it was expressed in the first person.

81.  Whichever way one looks at it, all that Chan was told was that because of the Injunction, the legal team would not commence work without costs on account and the Defendants would have to come up with advance payment from time to time which “would depend how much advice or works which the Plaintiff would estimate and expect to render to [Chan] in the near future” (see paragraph (19)(d)  of Chan’s Witness Statement).

82.  Objectively, the term “costs on account” has its special meaning in the conduct of a solcitor’s practice. It connotes pre-payment on account of a retainer or instruction, which will be subject to adjustment upon a bill being rendered. Taking the Defendants’ case at its highest, there is no evidence that Chan (or Wong or Ling for that matter)  was ever told by Chow that after putting up the various sums by way of costs on account, the Defendants would have no obligation to make any further payment whatsoever when a bill was rendered in due course.

83.  I have no hesitation and I find that Chan (along with Wong and Ling)  convinced himself that the effect of the Agreement was such that he was free from any obligation to make further payment, only after it had been made known that the costs recovered from Cheer Signal under the Costs Order fell far short of their expectation.

84.  Most probably, and I so find that, Chan formulated his position now pleaded in the Defence with subsequent input of his lawyers. Quite apart from the striking similarity between the pleading and his witness statement as aforesaid, it is telling that:

(a)  Chan portrayed that the very reason for the change of solicitor on 22 August 2015 was because of the dispute with Chow at the meeting on 9 August 2015 wherein Chow demanded to keep the HK$1.7m to cover profit costs, whereas he insisted that the full sum should be paid back to him since he had no obligation to make any further payment by virtue of the Agreement.

(b)  In the circumstances, it is extraordinary that the Agreement and/or the objection to make any further payment was not even mentioned in any of the letters from Messrs. W. L. Lai & Co to the Plaintiff, in particular, the earlier ones dated 8 September 2017 and 11 October 2017.

(c)  Quite to the contrary, it was suggested therein that Messrs. W.L. Lai & Co was not in a position to advise Chan whether to accept the Office Bill, rendered by the Plaintiff on 30 August 2017, before they had sight of all relevant documents. One would expect the Agreement to have been relayed to the new solicitor and found its way into the correspondence if it were true.

(d)  In the text messages between Chan and Eric after the meeting on 9 August 2015, nowhere was the Agreement mentioned. Nor was there any hint to the effect that Chan did not expect to have to pay anything further by reason of some representation previously made by Chow.

(e)  Wong readily accepted in cross-examination that she could not recall verbatim. Very fairly, she accepted that when Chow was asking for costs on account, he did not say he would only start to work upon receiving “full payment” (我會收足錢先做嘢)  and that was only her interpretation or expression.

(f)  Remarkably, Chan alleged (in Paragraph (55)  and (56)  of his witness statement)  that after Cheer Signal’s application for leave to appeal was dismissed in January 2016, Chow and Eric re-assured him that there was still some “costs on account” and between January 2016 and August 2017, he repeatedly requested for a bill from the Plaintiff so as to “further re-assure” himself that “[he] would not be charged further”.

(g)  Nowhere was it suggested in Chan’s evidence that the Plaintiff (acting through Chow)  had subsequently agreed to waive any costs chargeable to the Defendants. Hence, it is not surprising that the original plea of wavier under Paragraph 9(g)  of the Statement of Claim was abandoned by Mr Liu in his opening submission.

(h)  Further, Ling also gave evidence that in about December 2015, he reminded Wong and Chan to ask for a bill[2] from the Plaintiff for the profit costs incurred so that they could be sure that nothing further was due or payable.

85.  The foregoing illustrates, and I so find, that there was no Agreement to the effect that after paying the various sums by way of costs on account, Chan and the Defendants could not be required to make any further payment in any event at any rate. At best, such was the wishful thinking harboured or interpretation of the situation adopted by Chan, which he knew or suspected was too good to be true. That is the reason why Ling reminded Chan as to the need for a bill from the Plaintiff to confirm.

86.  It is also pleaded that Chan had relied on the Agreement and assurance by Chow that there was still some costs on account left (Exhibit CPF-21)  at every stage when further pre-payment was made so that he did not (1)  seek to bargain for more items of work to be include in the following pre-payment; (2)  think about exercising his option of changing to a cheaper firm of solicitors.

87.  I find the alleged reliance by Chan on the Agreement as aforesaid contrived and unrealistic. In this respect, there is some grains of truth in Chow’s evidence that the time and energy of the entire legal team were channelled towards preparation of the various applications to vary or discharge the Injunction. By the same token, Chan must also be anxious at the material time to have the Plaintiff’s legal team handling the Injunction and the Action with full vigor along with counsel. In the premises, I disbelieve Chan in his alleged reliance on the Agreement and in his assertion that he would have bargained for more items to be included in each advance payment or changed to a cheaper firm of solicitors.

88.  In short, no presumption of fact in the sense argued by Mr Liu arose on the Defendant’s own evidence (see paragraph 46 above). Alternatively, such presumption was rebutted by circumstantial and other evidence as identified hereinabove.  

89.  On this finding, it is not strictly necessary for me to deal with the numerous criticisms levelled by Mr Liu against the lack of credibility of Chow’s evidence. That said, I have the distinct impression that Chow adopted a rather relaxed attitude towards client care and keeping of proper record. Such attitude does not do any credit to the legal profession, the Plaintiff’s firm or himself as a qualified solicitor.

90.  I cannot help but observe that Chow is prepared to say whatever was convenient when he was in a tight corner in cross-examination. However, his lack of credibility in some (but not all)  the aspects identified by Mr Liu does not affect my finding on the non-existence of the Agreement as alleged by the Defendant.

91.  With no disrespect to Mr Liu, I would only deal with the salient points on credibility very briefly hereinbelow. Firstly, it is argued that it was not believable that Chow would not secure sufficient costs on account to cover all the costs and disbursement and instead “extended credit” to Chan and the Defendants by only asking for costs on account to cover counsel fee and not profit costs.

92.  I find nothing in this argument. I am of the view that the thinking of Chow at the time was that Chan was a person of substantial means since he was somehow supported by Zhuhai Duty Free, a powerful state-owned or state-operated consortium. Therefore, since the claim against Chan under the action was some HK$120m, it would be unlikely that Chan would be prepared to go bankrupt just to avoid paying legal fees, which was relatively modest in the circumstances.

93.  Mr Liu relied on Chow’s colloquial expressions that he was “letting out a long line to catch a big fish” (放長線釣大魚)  or that he knew the “art of seeking payment of money” (攞錢的藝術)  by asking for a small sum of costs on account and gradually increased it.  

94.  While these expressions are less than elegant in professional parlance, it is, at best, neutral and it does not make it more likely that Chow was prepared to agree to conduct the case for Chan and the Defendants almost on a shoestring in terms of profit costs (ie whatever is left in the costs on account after defraying disbursement including counsel fees).

95.  I find that Chow was prepared to “extend credit” to Chan and the Defendant so long as the costs on account would cover all counsel fees. He was prepared to adopt a “wait-and-see” attitude depending on the result of the application to discharge the Injunction.

96.  To put it mildly, the litigation under the Action involved a complicated set of facts. It was highly contentious and laden with risks. I do not believe Chow (representing the Plaintiff’s firm)  was prepared to underwrite the risk of the litigation by way of the profit costs to be incurred. No reasonable solicitor in the position of Chow would have undertaken such a risky endeavour on a relatively new client such as Chan.

97.  That said, I would make clear my grave reservations as to whether Chow in fact (1)  mentioned to Wong and Ling[3] after the Decision was handed down an estimate of profit costs in the region of HK$4m to $5m from previous experience; (2)  requested for more costs on account on 8 to 10 occasions after the Decision but did not insist due to Chan’s tight cashflow.

98.  By the same token, I am not impressed by Chan’s attempt to take moral high ground claiming that he was a person of substantial means so that it was odd for Chow not to ask for more costs on account after the Decision but in the same breath seeking to buttress his case on the existence of the Agreement by asserting that all along he believed that he would be able to recoup the money to be recovered from Cheer Signal upon taxation under the Cost Order so that he could repay his creditors.

99.  Secondly, Mr Liu submitted that Chow was not being truthful in his evidence that he had informed Chan that (1)  the fee earners described as Solicitor, Assistant Solicitor, Trainee Solicitor and paralegal would charge by hourly rates; (2)  their hourly rate would be that of the High Court Scale as allowed by the Court upon taxation.

100.  While I need not make a specific finding on it, I think it may well be plausible that when Chow first met Chan for the immigration matter in April 2014 that his hourly rate was $5,000 and that the rate of his Assistant Solicitor, Mr Alexander Kwok, was $4,000. That is as far as the evidence goes. Nothing was billed on that occasion and it does not afford evidence of a course of dealing.

101.  I have no doubt that Chow did not mention to Chan his own hourly rate or that of any of the fee earners in the team at any time upon and after inception of the Cheer Signal claim in October 2014. One cannot fail to notice that at one stage Chow shifted his evidence from allegedly mentioning to Chan his own hourly rate of HK$5,000 to the High Court Rates upon taxation without specifying any figure.

102.  When being further cross-examined that the maximum hourly rate allowable for solicitors of his seniority was only HK$4,000 according to the relevant Law Society Circular, he then said he quoted HK$4,500 per hour instead.

103.  Upon being challenged that he ought not have charged for HK$5,000 in the Taxation Bill against Cheer Signal and the Office Bill, Chow then suggested that an uplift was added due to complexity of the case. However, there was not a shred of evidence that Chan of the Defendants had agreed on any uplift. 

104.  Lamentably, I have come the view that Chow was making up his evidence as he went along in the witness box and in fact he had not agreed with Chan to charge by hourly rate(s)  whether by description or by reference to any fixed figure(s). 

105.  That said, I would observe that the hourly rate(s)  published in the Law Society Circular were not set in stone either. As a matter of fact, upon taxation under the Costs Order, Master Chow allowed an hourly rate of HK$4,300 for the work of Chow (see email of Mr Billy Chan, Law Costs Draftsman, to Eric dated 12 July 2017).

106.  Thirdly, Mr Liu criticised the lack of contemporaneous time sheets kept by the Plaintiff’s firm. Chow explained that there was no time sheet apart from Excel file, which was updated from time to time by Elaine Ng (Trainee Solicitor)  upon information given by the various fee earners as to the time spent. While this is far from being satisfactory, I am of the view that any discrepancy between the actual time spent (as evidenced by the attendance notes)  and the time and costs charged can only be assessed properly in the taxation proceedings.

107.  Pausing there, Mr Liu also invited an adverse inference to be drawn against the Plaintiff by its failure to call evidence from Florence Chau (Assistant Solicitor), Eric, Elaine Ng and Billy Chan.  I agree with Mr Chain that no such adverse inference ought to be drawn since there was no suggestion that any of these persons was involved in negotiating with Chan the terms of the retainer.  It has to be borne in mind that this is not a hearing of the taxation proceedings.

108.  Fourthly, Mr Liu was critical of Chow in breaching or failing to comply with the relevant provisions pertinent to client care and keeping of records as recommended in the Guide. Without being exhaustive, these include Rule 4.01 – Inform client about costs; Rule 4.03 – Provide details of fees; and Rule 4.04 – oral estimates; Rule 4.05 – Limit on costs may be set; Rule 4.06 – Regular information; Rule 4.08 – Interim Bill; and Rule 4.09 – Deliver of bill of costs promptly.

109.  Chow claimed that it was his practice not to use a written retainer. He also claimed ignorance of most of these rules in the Guide but commented that they were too “fictitious”, which I think he meant “artificial” or “contrived”. 

110.  While the non-compliance on the part of Chow (or the Plaintiff)  with the various rules under the Guide may well be valid grounds for the complaints to be lodged to the Law Society, it is not necessary and it is not appropriate for me to rule on these side issues.

111.  Lastly, Mr Liu attacked the Plaintiff’s case on the discrepancies between the Taxation Bill and the Office Bill. In gist, it was suggested that the Plaintiff “cheated” on Cheer Signal by inflating the Taxation Bill on the one hand and overcharged the Defendants in the Office Bill on the other.

112.  With respect, I agree with Mr Chain’s observation that in so far as it is alleged that there was a “fraud” perpetrated on Cheer Signal, it has not been pleaded and that it would have been up to the Defendants to bring it to the attention of Cheer Signal, which the Defendant has hitherto not done. The obvious reason is the risk that Cheer Signal may seek to clawback on the $1.7m already paid to the Chan. Therefore, I am not impressed by the sanctimonious stance the Defendants now seek to take.

113.  In this connection, Mr Liu also referred to Chan’s evidence that Chow had told him that the Plaintiff would claim costs against Cheer Signal more than what the Defendants had paid, although he had never agreed to it (see Paragraph (85)  of Chan’s witness statement).

114.  In so far as Chow is taken to mean that the Taxation Bill would be more than the costs on account paid by the Defendants, there is nothing sinister in what Chow allegedly told Chan since the costs on account would only be sufficient to cover disbursement and nowhere near enough to cover the full profit costs even on a rough-and-ready estimate.

115.  In so far as it is suggested that Chan understood Chow to mean that he would claim extra costs against Cheer Signal based on a wrongfully inflated bill (ie over and above what was due and payable by the Defendants), it would only make sense if it was also a mutual understanding (between Chan and Chow)  that the costs so recovered from Cheer Signal could be retained by the Plaintiff in its entirety or would be split between the Plaintiff and the Defendants. 

116.  Otherwise, there would simply be no incentive for Chow to inflate the Taxation Bill if the understanding was that the whole sum so recovered would be paid back to the Defendants and the Plaintiff would have no recourse to it.

117.  In this connection, whilst it is not necessary for me to make any finding, it would be surprising that there was no discussion between Chan and Chow prior to the taxation hearing on 11 and 12 July 2017 about how the costs recovered might be utilised.

118.  There might well be a change of stance on the part of Chow after handing down of the Decision on 26 October 2015, along with it came the favourable Costs Order against Cheer Signal. Chow readily admitted that he would want to have the “fruit of the success”.

119.  Naturally, any solicitor in Chow’s position would jump as high as he could to recoup as much costs as possible from the paying party (ie Cheer Signal). However, it does not detract from the fact that any costs so recouped still belonged to the client (ie Chan and the Defendants)  unless there was consent from the client to utilise it to defray the legal costs owed to the Plaintiff’s firm.

120.  In all circumstances, it was only natural that Chow might want to see how much could be recouped from Cheer Signal before rendering a bill to Chan and the Defendants. For the sake of completeness, Chow might well be correct that in the absence of a written retainer, there was no right to render an interim bill.

121.  As to the discrepancies, the high watermark of Mr Liu’s submission was that under Item 1 on the Taxation Bill (as drafted), it was originally stated inter alia, 11 hours were incurred by Florence Chau (Assistant Solicitor)  and 22 hours by a Trainee Solicitor. However, it was subsequently swapped to become 22 hours attributed to Florence Chau and 11 hours by the Trainee in the Taxation Bill (as filed). 

122.  When being cross-examined, Chow explained that the staff felt that the “one fee earner” rule upon taxation was so unfair and they consulted the Law Costs Draftsman, which resulted in the change in the Taxation Bill.

123.  Mr Liu also pointed to the fact that 303 hours were charged for work done by Florence Chau on the Taxation Bill and only 233 hours were shown in the Office Bill, which suggested “cheating” on Cheer Signal.  Reference was also made by Mr Liu to the certification contained in the Taxation Bill that:

“We certify that the amount in this bill does not exceed the 4^th , 6^th to 9^th Defendants and the 3^rd Third Parties’ liability for costs to out firm in this action”.

124.  As said, this is not the taxation proceedings. While I find that the change between the Taxation Bill (as draft)  and the Taxation Bill (as filed on 6 July 2016)  against Cheer Signal would require a good deal of explaining, I shall leave it in the able hands of the taxing master to deal with the apparent practice of the Law Costs Draftsman to regroup the hours incurred by members of the legal team apparently in an attempt to achieve a “fairer” result.

125.  Importantly, the certification on the Taxation Bill is to give effect to the indemnity principle so that a successful litigant (or receiving party)  should not be allowed to make a “profit” out of a favourable costs order against the paying party.

126.  Since there is no evidence that total amount claimed on the Taxation Bill was more that the total costs liability of the Defendants towards the Plaintiff’s firm, it would not be necessary nor appropriate for me to make any finding. Therefore, I decline to make any finding of “cheating” on Cheer Signal as advocated by Mr Liu.

127.  The next complaint of Mr Liu is that the profit costs on the Office Bill rendered on 30 August 2017, after the relationship has turned sour, was to the tune of HK$5,098,530 which far exceeded the amount claimed on the Taxation Bill (ie HK$3,736,100 on the basis of 100% or HK$2,615,270 on the basis of 70%).

128.  Further, Mr Liu also drew attention to the minor discrepancies between the time documented in the attendance notes for the meetings held on 8 May 2015, 1^st June 2015 and 25 June 2015 and that shown on the Taxation Bill as well as the Office Bill. I do not find these discrepancies to be of such significance as to displace my view as to the respective credibility of the Plaintiff’s and the Defendant’s case on the main issues, in particular, my finding that there was no Agreement as argued by the Defendants.

129.  I accept Mr Chain’s submission that the Office Bill was not a Taxation Bill. If the matter proceeds further, there may well be some adjustments to be solicitor-and-client bill presented for taxation.

130.  Further, the Taxation Bill (against Cheer Signal)  was prepared on party-and-party basis, which generally would be lower than the fees on a solicitor-and-client taxation. Still further, the Office Bill covered work outside the applications to vary and discharge the Injunction and included work done for preparation of the Defence. These are some of the plausible reasons for the variation between the Taxation Bill and the Office Bill.

Issue 2 – Pre-payment of HK200,000

131.  On this issue, the Court is faced with the competing oral evidence of Chow on the one hand and that of Chan (along with Wong and Ling)  on the other. This is a rather discrete issue and I do not think my findings on Issue 1 above and the credibility (or the lack of it)  of the respective witnesses in respect thereof should dictate my finding on Issue 2.

132.  On the balance of probabilities and for the reasons set out hereinbelow, I find that Chan did make a payment of HK$200,000 (by cash)  on 14 April 2021, which has not yet been accounted for by the Plaintiff’s firm.

(a)  It was Chow’s practice to accept large amount of cash for payment of costs on account.  On his own evidence, he had costs on account in some other files handled by the Plaintiff’s firm, which went back many years.

(b)  Chow said he had even forgotten about the HK$50,000 paid by Chan in October 2014 and it was Florence Chau who reminded him when it came to make advance payment to the Law Costs Draftsman, presumably in 2016.

(c)  Chan’s evidence is corroborated by that of Wong and Ling, whom I found to be generally reliable. In this connection, I have taken into account the fact that Wong is the ex-wife of Chan and apparently still on good terms with him. Hence, less weight should be given to her evidence.

(d)  The banking records show that Chan and Ling in fact happened to have such extraordinary amount of cash (HK$100,000 each)  around the time of receiving the Injunction.

(e)  Chow’s intention was to get costs on account at least to cover counsel’s fees before any substantive work would be undertaken. I accept Mr Liu’s submission that between 13 April 2015 and 22 April 2015, a fair amount of work had to be been done by way of perusal of papers, conference with clients, giving instructions to counsel (Jonathan Wong)  and joint conference with counsel for the other camps.

(f)  Although it was likely that the fees of Paul Lam SC and Jeffrey Chau (instructed for the Consultancy Camp)  for preparation of the joint conference on 17 April 2015 was subsequently paid through Messrs Samuel Yang & Co, it is likely that Chow would have wanted to have some costs on account at the inception of the retainer on 13 April 2015.

(g)  The minor discrepancy in the oral evidence as to whether Chan paid Chow, who then handed over the cash of HK$200,000 to a staff, or that Chan handed over the cash directly to the staff is insignificant.

(h)  The Defendants’ witness statements gave a non-definite date (ie between 14 and 16 April 2015)  in respect of the time of this pre-payment. However, in oral evidence, the defence witnesses postulated that it must have been on 14 April 2015, when they met up at a car park to pool the money together before going up the Plaintiff’s firm to make the payment before commencement of a conference.

(i)  The fact that there was a meeting on 14 April 2015 at the Plaintiff office was not disputed. It is also the date on which Chow arranged for service of the Injunction by Messrs Li & Partners (acting for Cheer Signal)  on Ling at the Plaintiff’s office.

(j)  Despite the fact that the unaccounted for HK$200,000 was first raised in the Defence and the details (as summarised in sub-paragraph (h)  above)  was missing from the witness statements of the Defendants, I do not find that these discrepancies are sufficient to displace my finding that Chan, Wong and Ling are basically truthful in their evidence on this issue. 

(k)  It is highly unlikely that Chan, Wong and Ling had mixed up putting up cash on another occasion since the next pre-payment for HK$500,000 on 20 May 2015 was made by cheque as opposed to cash.

133.  While there is no need for me to make any finding, I find it extraordinary Chow took the lead in the litigation to the extent that he initially sought to exercise control over payment to the ally solicitors’ firms. Apparently, such arrangement was only curtailed after an argument between Chow and representative(s)  of Messrs Samuel Yang & Co in a meeting.

134.  In the circumstance, there is a distinct possibility that Chow might have forgotten about the HK$200,000 since a similar amount was transferred from the Plaintiff’s firm to Messrs Samuel Yang & Co  thereafter on 15 May 2015.

Issue 3 – The charging rate of Eric

135.  It is not disputed that Eric was called to the Bar in 2008 and had been practising as a barrister until about May 2015, when he took steps to embark on a career as a solicitor.  On about 4 May 2015, he joined the legal team of the Plaintiff to work on the Injunction and the Action for the Defendants. In an email from Eric to John Yan SC dated 6 May 2015 (Exhibit CPF-3), Eric described himself as a paralegal.

136.  Although that particular email was not copied to Chan, a few other emails in the series were copied to Chan including one dated 8 July 2015.  It would appear that Eric first appeared as “Assistant Solicitor” in an email dated 12 August 2015, which was copied to Chan (see Annex 7 to the Statement of Chau Ka Yee (or Florence Chau)).

137.  There is no dispute that Eric was admitted as a solicitor in July 2015 and Chan probably knew about that since Eric was also helping Chan in handling another case at around that same time.

138.  Chow asserted that he had told Chan at the inception of the Action that (1)  Eric would charge as at the rate of an Assistant Solicitor; and (2)  by reason of his previous qualification as a barrister, it would be good value for money.

139.  Given the blasé or cavalier attitude adopted by Chow, while it is likely that Chow, as a proud father, might have introduced Eric as his barrister son, I find that Chow did not mention whether Eric would charge as a paralegal or as an Assistant Solicitor.

140.  The net effect is that the taxing master will have a free hand to decide what the reasonable remuneration would be for the work actually undertaken by Eric. Pausing there, I note that while Eric might be involved in assisting Tony in preparing the 3^rd Affirmation of Chan in the Action, the same was settled by the end of June 2015 (ie prior to Eric being admitted as a solicitor).

Issue 4 – The brief of Tony

141.  To some extent, this issue is academic since Chan (and the Defendants)  accepted that he had to pay Tony’s fee to be assessed at the taxation hearing (see paragraph (7)  of the Supplemental Witness Statement of Chan).

142.  However, Chan’s complaint is that Chow never informed him of Tony’s fees for his appearance before Madam Justice Au Yeung at the hearing on 24 August 2015 (HK$160,000)  and his refresher on 28 April 2015 (HK$45,000).

143.  Chan alleged that he was told by Chow that Tony was an “assistant” to John Yan SC, and his fee, if any, would be included in the agreed fee of John Yan SC in the sum of HK$500,000[4]. I find this assertion inherently improbable.  While I find that Chow had not specifically informed Chan of Tony’s brief and refresher, it is unlikely that Chow would describe Tony as “an assistant” as opposed to “a junior counsel”. I have no doubt that such was embellishment on the part of Chan.

144.  Further, since Tony was heavily involved in drafting and settling the 3^rd Affirmation of Chan in the Action, it is highly likely that Chan knew about at least the name of Tony. As a matter of fact, Tony’s name also appeared as a junior counsel to John Yan SC in the Defence filed on 19 October 2015 which had been approved by the Chan, who signed the Statement of Truth.

145.  In all the circumstances, I find Chan’s evidence that he did not even know the name of Tony as the “assistant” to John Yan SC until after receiving Cheer Signal’s summons for leave to appeal unbelievable. Accordingly, I find that Chan was aware that Tony was to be retained on his behalf as a junior counsel to John Yan SC, although no specific fee had been agreed with him.

SUMMARY OF FINDINGS

146.  Before summarising my findings on the 4 issues, I would make clear that I have taken into account the wide array of factual disputes and matters touching upon credibility of the witnesses raised by Mr Liu in his closing submission.

147.  With no disrespect, I do not see the need to dwell on each and every aspect of the factual disputes since the determination of the 4 issues herein is not a substitute for the taxation hearing. Nor should the proceedings herein be allowed to digress into a disciplinary enquiry against Chow.

148.  I would however observe that the Court does not take any pleasure in resolving disputes on fees between a solicitor and his client. This case is a timely and solemn reminder to legal practitioners, in particular, Chow of the Plaintiff that winning a case for a client is not everything. Proper advice to the client as to method and rate of charging supported by contemporaneous documents is the accent of modern practice in terms of client care.

149.  Lamentably, Chow has fallen far short of what was expected and required of him as a solicitor, whether under the recommendations contained in the Guide or as a sheer matter of propriety. That said, any remedy arising from Chow’s shortcoming would lie elsewhere.

150.  To conclude, my findings on the 4 issues are as follows:

(a)  Issue 1 – There was no Agreement as alleged by the Defendants and therefore the costs payable by the Defendants to the Plaintiff should proceed to taxation under HCMP 1165/2018.

(b)  Issue 2 – The Defendants did pay a sum of HK$200,000 on 14 April 2015 by way of costs on account which has not yet been receipted or accounted for by the Plaintiff.

(c)  Issue 3 – Chow did not inform Chan (or the Defendants)  as to the rate at which Eric’s work in respect of the Injunction and the Action would be charged so that the assessment of the value of the work undertaken by Eric is a matter for taxation.

(d)  Issue 4 – Chow did inform Chan that Tony would be engaged as a junior counsel (as opposed to an assistant)  to John Yan SC for the hearing before Madam Justice Au Yeung on 24 August 2015 although Tony’s fee had not been agreed with Chan. Chow did not represent to Chan that Tony’s fee, if any, would be absorbed in the agreed fee charged by John Yan SC. Therefore, the Defendants are liable to pay reasonable fee incurred for instructing Tony to be assessed at the taxation hearing.

COSTS

151.  As requested by the parties, I would reserve costs.

152.  Parties are hereby directed to serve and exchange written submission on costs, each limited to 5 pages, within 14 days from the date hereof. No further submissions are to be lodged without leave of the Court.

153.  Unless otherwise directed by the Court, the issue of costs will be dealt with by paper disposal.