CHINA RICH HOLDINGS LTD. v. DEACONS

HCMP 1079/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1079 OF 2002

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(Heard together)

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D E C I S I O N

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1. These are six applications by the plaintiffs for orders that various bills of costs delivered to them by the Messrs Deacons, the defendant or, in some of the proceedings, the 1st defendant, be referred to the Taxing Master for taxation, and for consequential orders, pursuant to section 67 of the Legal Practitioners Ordinance, Cap. 159, and the inherent jurisdiction of the court.

2. All the plaintiffs are, or were at one time, part of the same group of companies under the umbrella of China Rich Holdings Ltd (China Rich), their holding company which is listed on the Hong Kong Stock Exchange. The members of the group have instructed Deacons in numerous different matters, including litigation, conveyancing, and trade mark matters, since 1997, and, until 2001, they worked together harmoniously, with Deacons submitting bills of costs from time to time which were, again until 2001, paid, usually by way of lump sums which were applied by Deacons to reduction of the sums owed. Problems regarding payment appear to have arisen in 2001, whether through unwillingness or inability to pay is not clear, and relations soured between the group and Deacons, leading to them ceasing to act for them, and, in February 2002, commencing proceedings to recover their unpaid costs. In March 2002 these applications were taken out.

3. The invoices the subject of these applications fall into three groups: those delivered less than one month before the application was made; those delivered more than one month but less than 12 months before; and those delivered over 12 months before or for which the solicitors have obtained a judgment. In respect of the first group Mr Shaw for Deacons concedes that the paying party is entitled as of right to taxation. In respect of the second group the court may order taxation upon such terms as it thinks fit, and in respect of the third may also order taxation, but only in special circumstances. Mr Lam for the plaintiffs contends that there is a genuine dispute as to all the bills and, for those under 12 months old, although it is in the discretion of the court, the usual order is for taxation, and that for the bills over 12 months, there are special circumstances here.

4. In support of the applications Mr Lam puts forward four main grounds which he says entitle the plaintiffs to taxation. The first of these is that there have been disputes about the bills since the year 2000 as a result of what he describes as a bill checking exercise which commenced that year. I have to say immediately that the evidence does not support his claim of disputes. From the correspondence it is clear that what the plaintiffs sought was only clarification of some items in the bills, which they received from Deacons. Having received clarification, those items were not mentioned again, until now. There is certainly no evidence of any dispute over any of the items, nor complaints of overcharging. Any complaints were only from Deacons seeking payment of long overdue bills.

5. At the time the procedure for checking bills for payment came into effect in 2000, the group legal counsel of China Rich was a Miss Lee Lai Ling, also known as Amy Lee, a qualified solicitor, who had been admitted in 1995, and worked for various firms of solicitors before being recruited by China Rich in February 2000. It may well have been her idea to have a system for checking that the bills were in order, but as the plaintiffs have chosen not to file any evidence from her, although she was still on their employment until June of this year, albeit on maternity leave for some time, her views as to these bills are not available. What cannot be in dispute is that it was Amy Lee who liaised with Deacons in both giving instructions on behalf of members of the group, and corresponding with them when there were queries about items in the bills. That the bill checking exercise was thorough is clear from copies of those bills sent to the plaintiffs which show from marks on them, principally ticks and crosses, that they have been carefully scrutinised, and any item they wished to clarify, often because they had nothing on their own files to show what had been done, they referred back to Deacons. The only evidence I have is that such clarification was always given, and no disputes arose out of them, indicating to me that, after such careful checking, the plaintiffs' own in-house lawyer was satisfied. There was no complaint, and no request for any bill to be taxed.

6. Which brings me to the second ground put forward by Mr Lam. This is that Deacons never advised the plaintiffs of their right to have the bills taxed and are accordingly in breach of their professional duty to their client. There is no dispute that such advice was not given, but whether this is sufficient to entitle the client to taxation at a later stage, or to amount to special circumstances is another matter. It is stated in Wilkinson and Sandor's The Professional Conduct of Lawyers in Hong Kong, at page 151, that the duty to inform the client of the right to apply to have the bill taxed is activated upon a query about the bill, and certainly upon any dispute as to its contents. What is meant by "query"? It cannot be a simple enquiry such as when it should be paid, or to whom a cheque should be sent. It must be something more. It seems to me that the query should be in the nature of a complaint before this duty arises. Indeed, in the same work referred to above the authors go on to say:

"Some solicitors in Hong Kong have been known to have failed in the past to inform clients who complained about their bills of their right to have the bill taxed. Now if they fail to do so this will be a disciplinary matter."

This seems to confirm that it is a complaint which gives rise to the duty, not an innocent enquiry short of a complaint. In the correspondence I have seen, there was only one instance of a charge being queried on the basis that it should not have been made because of an agreement. Deacons immediately offered to withdraw it, provided the balance was paid. It never was.

7. I do not here have to decide whether Deacons were in breach of their professional duty, although from what I have said above I think it is clear that it is unlikely, but whether this should affect the exercise of the discretion of the court in these applications. Before considering this, there is another, and in my view more important, matter to consider. This is that the "client" in the person of the member of staff of China Rich with whom the solicitors almost exclusively dealt, was Amy Lee, herself a solicitor who had been in private practice. Mr Lam has said it makes no difference, as that the right was absolute and it is not up to a solicitor to consider whether the client ought to have known about his right. In general terms I would agree with that, but not where the solicitor knows that the client is aware of the right. This must be the case where the client is also a solicitor, or the person handling the matter for the client is a solicitor. The court must assume that all solicitors are aware of the duties imposed on them and other solicitors, and the rights of a client, and while failure to advise in accordance with their duty may be technically a disciplinary matter between a solicitor and the Law Society, it would in my view defy common sense to hold that such a breach of duty, which has no effect on the client who is well aware of his right, should entitle that client to a taxation as of right. It follows that, in the circumstances here, I do not find that this is a ground to which I should give particular weight.

8. The next matter on which Mr Lam relies is the opinion of a law costs draftsman instructed by the plaintiffs to examine some, but not all, of the bills now in dispute. This appears in two letters, in March and June 2002, from the law costs draftsman, whose principal concern is the lack of information as to individual items in the bills which makes it difficult to see whether they have been properly charged. However, it is also apparent that the law costs draftsman was not supplied with all the information available to the plaintiffs, and queried items for which explanations had already been given by Deacons to Amy Lee, with no further action thereon, from which one is entitled to assume that the explanations were accepted. It is also interesting that, in his last letter, although he refers to the complaints of the plaintiffs being threefold, namely unidentifiable work, and charges being either excessive or wrongly charged, his conclusion is only that they should seek justification of the charges or, failing that, to apply for taxation. As justification for insufficiently described items has largely been dealt with in the plaintiffs' own bill checking process, and without knowing what information was supplied to the law costs draftsman, his opinion is hardly overwhelming evidence.

9. The last matter put before me is that a number of the bills were sent to the wrong company in the group to be charged. There are two points to consider here. The first is that it is clear from the correspondence that most of the instructions came from China Rich, even when it was work exclusively for another company in the group, and the evidence from Deacons, which appears reasonable, is that they billed the party who gave them instructions, unless requested otherwise, which sometimes happened. This system operated for a long time with no complaints from any of the plaintiffs. Why they seek to raise the matter now I will consider shortly when looking at the allegation by Deacons of bad faith. The other point is that, even if bills were wrongly addressed, this is not something which needs a taxation to remedy. Indeed, I fail to see how it can be an argument for taxation in itself. It may well be a defence to an action on the bill, but nothing more.

10. Bearing all this in mind, I have to look first at the bills over 12 months old and consider whether special circumstances exist here to order taxation. The meaning of special circumstances was considered by Mortimer J in Clayton Wong & Co. v. Springbok Shipping (HK) Ltd [1997] 3 HKC 710, where, at page 713 he had this to say:

"Bearing in mind those principles - which I find of great help - it seems to me that the special circumstances which must be found by a judge must be something which is out of the ordinary. There must be something which is serious and which justifies not only an ordinary taxation but a special one."

In this case I can find nothing so serious that it deserves the description of special circumstances. There is nothing here but the ordinary dealing between a solicitor and clients, who, well aware of their rights, chose to do nothing in respect of taxation of their bills until this year, after those solicitors had had to cease to act for them. There can be no reason now to allow taxation of bills about which they have done nothing for over a year.

11. The bills less than 12 months old fall into a different category where the court has a completely unfettered discretion. Mr Lam asks for what he describes as the "usual" order for taxation. While I accept that the court's discretion will usually be exercised in favour of the solicitor's client, this is far from being a "usual" case. The main difference is that, as I have observed above, the "client", in the person of the one who was giving instructions and scrutinising the bills, was herself a solicitor, well aware of the duties of solicitors and the rights of a client. While a lay client might be forgiven for some delay in challenging a bill they were unhappy with, the same cannot be said of another solicitor, who knows that, if there is a genuine dispute over a bill, has the right to taxation within a month.

12. The other matter which Mr Shaw submits should be taken into account is what he claims is bad faith on the part of the plaintiffs, who, far from having a genuine dispute over the bills, are seeking to delay or avoid payment for other reasons. In support of this he points to the rapid reduction in size of the group in the early months of this year, having disposed of several of the companies within the group to third parties, and two of those are now in provisional liquidation pending hearing of petitions for winding up. China Rich itself was briefly in provisional liquidation in Bermuda until security for a debt was provided. There is more than a suggestion, he says, that financial difficulties are behind the applications.

13. A more telling point is the bill checking exercise referred to above, carried out by Amy Lee and, no doubt, staff under her instruction. In April 2000 she described this process as "reviewing and verifying", and in May 2001 as "the approval process of the same". It is also obvious that the annotations by Miss Lee or her staff on the invoices largely consist of ticks, clearly indicating approval of those items ticked, many of which are now challenged. There is accordingly evidence which indicates that these bills had been checked and, subject to queries made to Deacons in some cases which were apparently satisfactorily answered, approved. This shows, submits Mr Shaw, that there is no genuine dispute, that the plaintiffs are raising matters, such as the wrongly addressed bills, and items not fully described, which have always been within their knowledge and not raised before, or raised and dealt with to their satisfaction. He adds to this the instructions to the law costs draftsman where, in at least one instance, information appears to have been withheld from him.

14. I am bound to say that these matters do cause considerable disquiet. I have the gravest suspicions that this exercise is not bona fide, but an attempt either to delay or to just muddy the waters. I am well aware that I am not dealing with an ordinary solicitor and client situation, and that no evidence has been produced from the one person who could have shed most light on the dealings between the parties, Amy Lee, with no good explanation why not. Having said that, and conscious as I am that these raise suspicions rather than proof, that the court should lean towards an order for taxation rather than otherwise, and that the solicitors' position can be protected by an appropriate order for payment in, I am prepared to allow taxation of those bills less than 12 months old.

15. There will accordingly be an order for taxation in terms of the originating summons in each case in respect of all bills not delivered more than 12 months before the commencement of these proceedings, with the usual consequential orders as to pending actions on the bills and delivery up by Deacons of items belonging to the plaintiffs upon payment of what is found to be due. This order however is subject to payment into court within 21 days of the whole amount apparently outstanding on the bills between 1 and 12 months old at the commencement of proceedings, such payment to be placed in an interest bearing account pending conclusion of the taxations. There will be liberty to apply, and I will hear the parties as to what they consider is an appropriate order for costs of these proceedings.