THE LAW SOCIETY OF HONG KONG v. A SOLICITOR

cacv 62/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 62 of 2005

(on appeal from THE FINDINGS AND ORDER OF THE SOLICITORS
DISCIPLINARY TRIBUNAL DATED 31^ST JANUARY 2005)

______________________

J U D G M E N T

______________________

Hon Rogers VP:

1.  This was an appeal from the findings and order of the Solicitors Disciplinary Tribunal (“the Tribunal”) made on 31 January 2005 whereby the appellant was found to have been guilty of conduct unbefitting a solicitor by being in breach of the Solicitors (Professional Indemnity) Rules (“the Rules”) Cap. 159 in failing to make a payment of the sum of HK$25,575 to the Hong Kong Solicitors Indemnity Fund Limited (“the Company”) within 30 days of the issue of a written demand pursuant to paragraph 2(5)(a) of Schedule 1 of the Rules.  The appellant appealed against both the finding that he was guilty of conduct unbefitting and also against the fine of $3,000 and the order to pay one third of the costs of the proceedings including the costs of the Law Society, the prosecutor and the Clerk to the Tribunal.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

2.  The Rules provide for the Law Society to establish and maintain a fund, the Solicitors Indemnity Fund (“the Fund”), which will provide indemnity against losses that are mentioned in section 73A(1) of the Legal Practitioners Ordinance Cap. 159.  Under the provisions of Schedule 2 of the Rules the Fund is to be managed and administered by the Hong Kong Solicitors Indemnity Fund Ltd. (“the Company”).  All solicitors in Hong Kong are required to have compulsory insurance (“Indemnity”) under the terms of the Rules.  Under Rule 6 every solicitor is required to maintain Indemnity and failure to do so may lead to suspension and the person involved not being qualified to act as a solicitor.  Hence, Rule 12 provides that Indemnity, which is limited in accordance with the provision of Schedule 3 of the Rules, can only be provided out of the Fund.  Rule 12(2) provides that the Company shall have no obligation to provide any Indemnity save to the extent that the same can be provided out of the Fund.

3.  Prior to 2001 the Fund reinsured part of the liability in respect of claims which may be made against the Fund with HIH Casualty and General Insurance Ltd, FAI General Insurance Company Ltd and FAI First Pacific Insurance Company Ltd.  Those companies became insolvent in 2001.

4.  The Rules relating to contributions to the Fund are contained in Schedule 1.  The contributions to be made are set out as a proportion of the gross fee income of the solicitors’ firm involved.  Apart from the annual contribution that is payable to the Company on or before 30 September immediately preceding an Indemnity period, which runs from 1 October to 30 September each year, paragraph 2(5)(a) provides that:

“Notwithstanding anything to the contrary in this paragraph, the Company may, with the authority of a resolution of the Council, at any time during an indemnity period demand in writing from every principal who is required to make contributions in accordance with paragraph 1 at any time during the indemnity period when the demand is made such further sum as may be authorised by the Council to make up a deficit or anticipated deficit in the fund, and such principal shall be bound to pay such further sum to the Company within 30 days after the date of issue of such written demand.”

5.  On 11 March 2003, the Council of the Law Society resolved to authorise the Company to make two demands purportedly under the provisions of paragraph 2(5)(a) of Schedule 1: the first to be payable on or before 30 April 2003, the second to be payable on or before 31 July 2003.  In an explanatory note sent to members of the Law Society under cover of a letter from the President dated 29 March 2003 it was said that actuarial projections indicated that the reserves in the Fund would be exhausted by November 2004. 

6.  It is a matter of record that the course adopted by the Council did not meet with universal approval from all members of the Law Society.  Be that as it may, the appellant failed to pay the sum demanded by 30 April 2003 and seven days later a letter was sent by the Secretary General of the Law Society reminding the appellant that failure to pay was a breach of the Rules and would render the appellant not qualified to act as a solicitor and liable not only to disciplinary proceedings but prosecution.  The letter continued that the Council reserved its position regarding the appellant’s breach but carried on in the final paragraph:

“You are hereby required to pay the shortfall contribution of HK$25,575 by 5 p.m. on Monday, 12 May 2003, failing which the Law Society will take whatever actions it deems necessary without further notice.”

7.  The appellant paid the sum requested in good time before the deadline.  Nevertheless the Law Society saw fit to bring these disciplinary proceedings.  At this juncture I cannot but observe that the course of action in bringing these proceedings despite the payment within the extended deadline appeared to me when I first read the papers in this case to render these proceedings unfair and unnecessary, if not oppressive.  Mr Scott SC, who appeared on behalf of the Law Society on this appeal, valiantly tried to defend his client’s action in this respect.  My views remain the same.  The sense of oppression is only heightened by the matter in relation to costs which will be referred to below.

The decision of the Tribunal

8.  The Tribunal heard the complaint on 8 September 2004.  The meeting was short and we have been provided with a transcript.  The Tribunal refused to consider the solicitor’s argument that the Council’s decision to call for a shortfall contribution was not valid under the Rules.  The Tribunal’s reason for such refusal was that other Tribunals had dealt with similar cases on the basis that the call had been legal.  The Tribunal considered that it was open to the solicitor to challenge the legality of the call in other ways.  It therefore did not even consider the point. 

9.  The Tribunal went on to hold that in failing to make the payment the solicitor’s conduct was unbefitting although it did not “always” justify a harsh penalty.  The Tribunal then went on to consider whether the letter of 7 May 2003 constituted a waiver and came to the conclusion that it did not.  When it came to imposing the penalty and deciding the question of costs the Tribunal said that it considered that there were more appropriate ways to deal with the matter than bringing disciplinary proceedings and for that reason only ordered that the solicitor should pay one third of the costs of the proceedings whilst at the same time limiting the fine to $3,000.

This appeal

10.  On this appeal Mr Dykes SC, who appeared on behalf of the solicitor, took as his first point the question as to whether the Tribunal should have considered the illegality issue.  Mr Scott, for his part, did not argue strongly against that.  He said that there were other alternative routes for the solicitor to challenge the legality of the calls which had been made, for example either through judicial review proceedings or by arbitration under Rule 13 of the Rules.  In relation to the second aspect, that Rule appears to me to be directed to disputes as to quantum.  Those are naturally the sort of dispute which lend themselves to resolution by arbitration.  The present dispute does not, in my view, fall within the ambit of that Rule.

11.  Neither do I consider that it is appropriate to suggest that the solicitor is unable to challenge the validity of the call made upon him simply because he might have bought judicial review proceedings.  This court should not encourage the bringing of judicial review proceedings in relation to the actions of bodies such as the Law Society.  Although that course might be open to the members of the Law Society, and that is not a matter which this court would decide at this stage, it is certainly preferable that other alternative ways of challenging the actions of bodies such as the Law Society should be taken by its members rather than judicial review proceedings which should be a matter of last resort.

12.  Mr Scott argued that this court was in as good a position as the Tribunal to decide the matter of the legality of the call under the Rules.  First of all, he drew this court’s attention to the opinions and advices which had been received by the Law Society from London Counsel.  He also directed our attention to the audited accounts for the year 2002-3 which are dated as having been signed off on 18 June 2004.

13.  Any advice or opinion which counsel renders is always dependent on the instructions upon which that advice or opinion is rendered.  In the present case counsel’s instructions have not been provided.  Hence any opinion expressed has to be looked at with that difficulty in mind.

14.  It is in this respect that some cause for concern as to the adequacy of the information available to this court arises.  It is clear that in order for the provisions of paragraph 2(5)(a) to apply the Council must have information available to it.  The first and most important matter which must be considered is what information was available to the Council as to the existence of a deficit or anticipated deficit at the time that it made its resolution.  The second matter which, in my view, calls for consideration is the meaning of “deficit” and “anticipated deficit” in the Rules. 

15.  In the joint opinion dated 18 December 2002 the view is expressed that deficit can only mean one perceived as already existing or anticipated to occur during the Indemnity year in question.  As a proposition on the meaning of paragraph 2(5), that is unexceptionable.  What, perhaps, causes more difficulty is as to how the deficit is calculated.  In the same joint opinion it is said that the “deficit” means a shortfall of assets over liabilities i.e. a “balance sheet deficit”.  Again that might be correct in so far as it goes but the question arises as to how the balance sheet is calculated. 

16.  The balance sheet of the Fund as at 30 September 2003 shows an outstanding claims provision of $657 million (no balance sheet as at 11 March 2003 has been exhibited).  But the question arises as to whether that is the appropriate figure to take.  There are several points here.

17.  Under the heading “Claims Handling Procedure” in the Annual Report of the Company it is stated:

“As for claims, a reserve is placed on the claim upon completion of a preliminary investigation.  Reserves are, therefore, funds set aside for unsettled claims and they represent the Fund’s potential liabilities.  The amount reserved is the estimated quantum of damages and costs (including defence costs) calculated on the assumption of full liability, taking into account the individual circumstances and the savings that might result from disputing either liability or quantum.  As the matter proceeds and further information comes to light, the amount of reserve is adjusted accordingly.”

18.  However, in the notes to the accounts under the heading “Provision for claims” it is stated:

“ Full provision is made for the estimated costs of claims notified but not settled at the balance sheet date and for the estimated cost of claims incurred but not reported by that date, after deducting the amount due from reinsurers.  Provision is also made for the estimated cost of servicing claims notified at not settled at the balance sheet date and to meet expenses on claims incurred but not reported at the balance sheet date.”

19.  The immediate point that arises is whether the method adopted for the calculation of the balance sheet of the Fund is appropriate when determining whether there is a deficit or anticipated deficit in the Fund.  It is noted that in accounts drawn up in accordance with the Tenth Schedule of the Companies Ordinance Cap. 32 “provision” would include not only liabilities which have actually been incurred but also disputed or contingent liabilities whether the quantum can be accurately calculated or not: see paragraphs 4(1) and 30(1)(a) of that Schedule and the definition of “liability” therein.  But the Tenth Schedule only applies to the Company accounts and not to accounts of the Fund.  The Note inserted by the auditors in the accounts might give the impression that that is how the “Outstanding claims provision” in the balance sheet of the accounts of the Fund was arrived at.

20.  There would appear to me to be here a substantial question as to whether the Rules should be interpreted as relating to a matter of cash flow of the Fund.  There would appear to be substantial arguments that this may be so particularly because, as is pointed out in the advices and opinions, the Rules relate to an Indemnity period and paragraph 2(5)(a) specifically refers to a deficit occurring in the Indemnity period namely the specific year.  Given the possibility of a speedy cash call which has to be answered within 30 days it can be argued that it is unnecessary for the Fund to maintain a significant cash balance to cater for liabilities payable in future years.  Specifically here it is noted in the documentation emanating from the Law Society that it was anticipated that the Fund would be depleted in November 2004 which was in the Indemnity period in the year following the calls; in other words it was not anticipated that there would be any cash deficit in the Fund (i.e. insufficient money in the Fund to meet claims) before November 2004: see paragraph 7.02 of the Explanatory Note sent with the President’s letter dated 29 March 2003.  Indeed there is no dispute that the money raised by the cash call answerable on 30 April was not needed or used until at least the next Indemnity period, if then.  The question then arises as to why it was necessary to raise money in the previous year and not in the Indemnity year in which the Fund was expected to fall into deficit.

21.  In my view the issues that arise raise sufficient unanswered questions and doubts that, at a minimum, call for the finding of the Tribunal to be set aside and for the matter to be remitted to the Tribunal for further consideration.  In this respect there was no substantial dispute between the parties that, if the Law Society chooses to proceed with the matter, it should be remitted to a differently constituted Tribunal and no doubt it will wish to call further evidence.

The involvement of the Clerk in the preparation of the findings

22.  As already noted, the Tribunal ordered that the solicitor should pay one third of the costs of the proceedings including the costs of the Law Society, the prosecutor and the Clerk to the Tribunal.  The bills of costs have shown that the professional charges of the Clerk has come to $154,280.  These include charges not only for the Clerk himself but for a trainee solicitor and a litigation clerk.  The Clerk charged $2,000 per hour for what was termed “ordinary work” and $3,000 per hour for “assisting in the preparation of the Findings and Order”.  The bill of costs shows that in respect of a number of items the charge rate of $3,000 per hour was used and it would appear under item 13 that it was probably used in relation to:

e. Sentencing Research sent under letter to the Chairman and Members;

f. in accordance with Tribunal’s instruction: assisting in preparing the format of the Findings of Fact;

g. in accordance with Tribunal’s instruction: assisting in preparing the format of the Reasons for Order;

23.  It is not altogether clear why the rate of $3,000 per hour was chosen in respect of the items in item 14 and in respect of item 16 there is a reference to:

“Attending conducting legal researches; considering relevant law, Ordinance, Authorities, Findings and Orders of previous cases in making reference to relevant rule of proceedings in the conduct of these proceedings including but not limited to (1) Legal Practitioners Ordinance; (2) Solicitors’ Disciplinary Tribunal Proceedings Rules; (3) Hong Kong Solicitors Guide To Professional Conduct; and (4) Decisions on various cases etc.”

24.  Two observations fall to be made in respect of this.  This court has on previous occasions emphasised the importance of the Tribunal itself writing its own decisions.  As was pointed out in the judgment of Le Pichon JA in The Solicitor and another v The Law Society of Hong Kong [2005] 3 KLRD 622 at paragraphs 17-23, the wording used in the articulation of reasons is often vitally important.  If others are allowed to take over the role of writing the decision, even the first draft, there is a danger that there could be thoughts and expressions which come into a decision which would not otherwise been there had the Tribunal itself written in its own decision. As was correctly pointed out by Mr Dykes, in so far as there is mention in the Solicitors Disciplinary Tribunal Proceedings Rules of the Clerk, it is in the context of the Clerk giving no more than administrative assistance to the Tribunal.  It is certainly not envisaged that the Tribunal should be able to co-opt what would, in effect, be an additional member who would seemingly have considerable influence on the contents of the decision.  There is no justification under the Rules for the appointment of a solicitor, let alone a partner.

25.  In my view, one who has stood trial before a disciplinary body is entitled to have the body’s reasons for the decision and not the reasons drafted by some other person.  If it were otherwise the right of appeal and review would be illusory.  As O’Leary J said in Bernstein and College of Physicians and Surgeons of Ontario 15 OR (2d) 447; 1977 Ont. Rep. LEXIS 286 (Steele J, concurring):

“In my view it is an unusual and improper practice for counsel to write the reasons for the Discipline Committee even if the chairman or some member of the Committee has drafted rough reasons to guide him. One who has stood trial before a disciplinary body is entitled to have that body’s reasons for its decision and not the reasons the prosecutor composes for the decision. If the Committee has made an error in arriving at its conclusion the one who has stood trial, in fairness, should learn of it.”

26.  In this case the difficulties which might arise of a person making suggestions to the Tribunal in secret which are referred to in paragraph 22 of Le Pichon JA’s judgment would appear to be relevant.  The Clerk had admittedly conducted legal research and communicated that to the Tribunal.  We were informed that the solicitor was neither told of the research, nor of the results of it, nor the fact that it had been communicated to the Tribunal.  This, in itself, must be clearly wrong.  At the time that must have happened the Clerk was a partner of the then President of the Law Society, thus unfortunately, and doubtless unintentionally, the impression might be given that independence was jeopardised.

27.  An affirmation by the Clerk was prepared shortly before the hearing of this appeal.  No specific leave was given to use it, nevertheless its contents have been considered.  The affirmation does not deal with the matter of the legal research other than to say that the Clerk was asked to assist with it.   As regards the preparation of the written decision, the affirmation raises more problems than it solves.  It is couched in language which by use of the word “direct” just prior to “dictate” begs the question as to exactly what the Clerk did which justified his spending so long at the higher rate of charging.  It certainly does not dispel the notion that the Clerk was responsible for the wording of the decision.  I would add that it is highly undesirable for this court to be requested to consider such affirmations for the purpose of justifying the Clerk’s actions in communicating with the Tribunal and involvement in the written decision.  If there is a doubt, the solicitor, who stands in the position of the accused, is entitled to the benefit of it and not to the benefit of this court’s assessment of an untested affirmation from a party interested in justifying his or her own actions.  This Court is concerned with examining the Tribunal’s reasons for the decision and not with assessing the affidavit evidence of someone who may have added to, refined or subtracted from those reasons.

28.  In coming to these conclusions I have not overlooked the case of Spring v Law Society of Upper Canada 50 DLR (4th) 523 relied upon by Mr Scott.  However all the judgments affirmed the correctness of the above principles which had been enunciated in cases such as Re Sawyer and Ontario Racing Commission (1979), 99 DLR (3d) 561, Re Bernstein and College of Physicians & Surgeons of Ontario and Re Emerson and Law Society of Upper Canada (1983), 5 DLR (4th) 294.  The majority were able to distinguish them on the basis of the facts of the case.  Trainor J, in a judgment which set out the legal principles, was not.

29.  I would also draw attention to the fact that the course adopted by the Tribunal in appointing its own clerk and having the Clerk produce what has been referred to as the format of the decisions involves not only the Tribunal delegating part of its own function to somebody who is not the Tribunal appointed under the statute but by ordering the solicitor to pay even part of the costs of the Clerk is foisting on the solicitor the costs involved in the Tribunal appointing others to do its own work.

30.  I would also mention the costs that have now been incurred in this case.  Despite the fact that was only a $3,000 fine, the costs added together come to more than $350,000.  The costs of the prosecutor excluding disbursements were put at $164,987.50.  Measured against that the costs of the Clerk were $154,280 excluding disbursements.  It can only give pause for thought as to how the Clerk’s fees were justifiable.  One can have some confidence that it is unlikely that any expenses have been overlooked, the disbursements in the Clerk’ bill of costs even includes the cost of a copy of the Legal Practitioners Ordinance.  I cannot conclude this judgment without observing that those involved in solicitors’professional disciplinary matters would appear to approach the matter with a view to self protection and the notion, which not so long ago prevailed, that it is part of the privilege of having a self regulating profession that the profession is under an obligation to provide their services selflessly in aid of that regulation, has disappeared.

Hon Le Pichon JA:

31.  I agree.

Hon Lunn J:

32.  I agree with the judgment of Rogers VP.

Hon Rogers VP:

33.  This appeal will therefore be allowed.  The order of the Tribunal will be set aside and the matter remitted to reheard by a differently constituted Tribunal.  There will be an order nisi that the solicitor should have his costs here and before the Tribunal.