XCHRX GEORGE Y.C. MOK & CO. (a firm) v. TANG KWONG MING AND ANOTHER

HCMP7175/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 7175 OF 1999

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Reasons for Decision

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1. This hearing arises out of an order I made on 21 July 2000 ("the Order") whereby the proceedings herein were summarily determined and disposed of.

2. Briefly, the background leading to the making of the Order is this. The Applicant was appointed by the 2 Claimants as stakeholder to hold certain funds ("the Fund") on their behalf. It is the Applicant's case that differences had arisen between the 2 Claimants as to the application of the Fund. The Applicant therefore took out these interpleader proceedings seeking the Court's determination as to the application or disposal of the Fund.

3. The 1st Claimant initially opposed the Interpleader summons, alleging that the Applicant had colluded with the 2nd Claimant. Accordingly, the matter was ordered to be tried and directions for the trial had been given. The trial was scheduled for November this year. In the meantime, the 2 Claimants had reached settlement as to the apportionment of the Fund between them. A joint application was made by the Claimants for a summary determination and disposal of the Interpleader summons on terms as agreed between them.

4. The application came before this Court on 21 July 2000. The Applicant opposed the application principally on 2 grounds. Firstly, the Applicant insisted that the allegation of collusion should be withdrawn for the reason that the allegation may adversely affect the reputation of the Applicant, being a firm of solicitors. Secondly, the Applicant sought the costs of these proceeding on indemnity basis and also its costs for managing the Fund.

5. The 1st Claimant through counsel was prepared to withdraw the allegation of collusion made in his first affirmation. The Claimants were agreeable to bear the Applicant's costs. Eventually, the parties managed to agree on the amounts for the Applicant's costs herein and costs for managing the Fund. The Claimants also agreed for these costs to be deducted from the Fund.

6. On the basis of the agreement reached, I ordered in the Order that the Fund be apportioned and paid out to the Claimants through their respective solicitors in the amounts agreed between them, subject only to the deduction of the Applicant's costs of these proceedings and for managing the Fund as agreed.

7. Counsel for the Applicant then asked for 14 days to effect the payment out to the Claimants on the ground that the Applicant needed time to set-off against the money apportioned to the 1st Claimant, fees allegedly due from the 1st Claimant to the Applicant in respect of other matters. Counsel for the 1st Claimant raised objection to such set-off. I indicated that I had reservations as to the legal basis or propriety of the Applicant applying any set-off or lien against fund stakeheld by it and which forms the subject matter of an Interpleader summons took out by the Applicant. I therefore ordered that the Applicant should pay out the net balance of the Fund to the Claimants within 7 days.

8. Since the making of the Order, the Applicant had renewed the matter of set-off and solicitor's lien with the solicitors for the 1st Claimant. It was resisted by the 1st Claimant.

9. At this hearing, the 1st Claimant made 2 applications. The first is to amend an arithmetic error in the figure of the amount apportioned to the 1st Claimant. The second is for an order that the Applicant be ordered to pay to the 1st Claimant the apportioned amount without any set-off or deduction, other than the deductions allowed for under the Order.

10. There is no opposition to the first application to amend the arithmetic error, and it is therefore allowed. Paragraph 4 of the Order will be amended by deleting the figure "$8,667,503.74" and substituting it by "$8,657,503.74".

11. As to the second application, it was opposed by the Applicant on the basis that the Applicant had a common law lien over the amount apportioned to the 1st Claimant, and the Court has no jurisdiction to interfere with that common law right.

12. I do not consider that the orders requested for by the 1st Claimant in paragraphs 2 and 3 of the summons dated 25 July 2000 can and need be made by this Court for the following reasons.

13. So far as this Court is concerned, the Interpleader summons had already been determined and disposed of by the Order. Directions as to the apportionment and disposal of the subject matter of the proceedings had been given. The parties' entitlements and the extent of the entitlements had also been resolved. In this respect and so far as the question of the disposal of the subject matter of the Interpleader summons is concerned, this Court is functus. The additional or supplemental orders sought by the 1st Claimant are not in the nature of directions on the implementation or manner of carrying out the Order. They are therefore outside the ambit envisaged by Order 20 rule 5, Rules of the High Court and para. 20/11/7 The Supreme Court Practice 1999, vol. 1.

14. The effect of the Order is simple and clear. The fund is to be apportioned between the Claimants and, subject only to the deductions allowed for by the Order, be paid out to the Claimants. The Applicant's duty is clearly to apply and deal with the Fund as set out above. The Applicant's entitlement and power to deal with the Fund is limited therefore to keeping for itself the agreed costs of managing the Fund and the agreed costs of these proceeds. There is accordingly no necessity for the additional or supplemental orders now sought by the 1st Claimant.

15. For the avoidance of doubt and to dispel any misunderstanding of the Order and the decision I made today, I wish to point out that, in my view, there is no room for applying any set-off or solicitor's lien to either the Fund as a whole or that part of the Fund as apportioned to the 1st Claimant, unless the 1st Claimant consents or unless there is an order sanctioning it. The authorities cited by the Applicant in its letter dated 25 July 2000, rather than supporting its claim to set-off or lien, are supportive of this proposition of law.

16. Halsbury's Laws of England (4th Edition Re-issue) vol. 44(1) para. 245 states: "Where ... money is paid to the solicitor for a particular purpose so that he becomes a trustee of the money, no lien arises over those documents or that money unless subsequently left in the solicitor's possession for general purposes." The case of In re Mid-Kent Factory [1896] 1 Ch 567 was cited in the footnote to this passage.

17. Snell'sEquity (2000 edition) para. 28-07 says that the extent of a solicitor's lien "is confined to property which has come into the solicitor's hands in his character of solicitor and not otherwise".

18. In the case of In re Mid-Kent Factory, supra, a company deposited money with its solicitors for the purpose of settling the claims of its creditors. The company subsequently went into liquidation. The solicitors sought to set-off its legal costs against the balance of the money deposited by the company. The liquidator was not aware that the balance of the money was held by the solicitors. It was held that where the money was paid to the solicitors for specified purposes, and after those purposes are satisfied, the solicitors cannot set-off against the balance a debt due by the company, unless the balance was retained by the solicitors with the consent of the company

19. In this case, the Fund was deposited by the Applicant in a fixed deposit bank account. Clause 2(b) of the Deed dated 20 March 1998 made between the parties provides that the Fund will be stakeheld by the Applicant "for the payment of existing mortgage loans due to Banks, professional fees, stamp duties and other expenses in relation to this Deed or incidental matters". Counsel for the Applicant submitted that the Fund was therefore for general purposes. I cannot agree. The Fund was for the purposes specified in the Deed. The purposes set out in clause 2 are well defined and in no way extend to matters unrelated to the Deed. Certainly, the Fund was not for other legal costs or debt which may be owed by the 1st Claimant to the Applicant.

20. The Applicant emphasized that it was merely a stakeholder, hence an agent of the Claimants and not a trustee. In my view, this is irrelevant. What is paramount is the nature of the Fund. The Fund is money had and received by the Applicant for specified purposes. As such, the money is trust property and has to be accounted for, and any balance of it has to be returned to the Claimants upon the fulfilment of the purposes or upon the requests of the Claimants.

21. The Applicant's case for arguing a set-off and lien is that the deposit account into which the Fund was deposited had since the making of the Order been uplifted, and the Fund was transferred from the account into the Applicant's client account. As such, the Applicant said that the Fund now standing in the client's account became available for general purposes, so that a set-off and a lien could be applied to it. This argument can only succeed if the Fund was transferred from the deposit account to the client's account with the consent of the Claimants. In the case of In re Mid-Kent Factory, supra, Vaughan Williams J said (at p. 570):

"Prima facie, the money having been, admittedly, paid to the solicitors to be applied for specific purposes, it would continue in their hands for those purposes, and their duty would be to return the balance. The onus is on the solicitors to shew the company's consent to the money remaining in their hands; and I fail to find that the consent was given, or that the solicitors ever communicated to the company that they had the balance in their hands. ..., and nothing happened to change the original purpose for which the money was paid. That being so, I cannot accede to the argument that the solicitors are entitled to a set-off."

The analysis applied with full force to this case. The Applicant had not sought to argue that the Claimants or the 1st Claimant had agreed to its act of transferring the Fund from the fixed deposit account into the client's account. Indeed, the Applicant did not even suggest that either or both of the Claimants had been made aware of such transfer. The unilateral decision and act of the Applicant to transfer the Fund into the client's account cannot have the effect of putting an end to or changing the purposes for which the Fund was settled unto the Applicant. Neither can it render the Fund a general fund or a fund available for general purposes.

22. The Applicant contended that the Fund had to be transferred into the client's account as a matter of accounting practice. I cannot accept that. I can see no reason why, when the fixed deposit account was closed, the Applicant could not have arranged for the bank to split the Fund into 3 cashier orders payable to the Applicant, the 1st and the 2nd Claimants in accordance with their respective entitlements. It would then be a matter of simple book keeping or accounting to record that the Fund had been paid out to the 3 parties. If the Fund were not to be paid out to the Claimants forthwith, then, as counsel for the 1st Claimant submitted, the proper practice under the Solicitors Account Rules would be for the Fund to be transferred into another special or designated account, instead of being mingled with the other money in the client's general account.

23. In summary, there can be no doubt that the Fund cannot be applied for any set-off nor can it be subject to any solicitor's lien. It can only be applied and dealt with as provided for by the Order. Nevertheless, for the reasons previously indicated, this Court cannot and needs not make the orders sought in paragraphs 2 and 3 of the 1st Claimant's summons. As the Applicant and the 1st Claimant are contented with no order as to the costs of this hearing, there will accordingly be an order to this effect.