THE LAW SOCIETY OF HONG KONG v. A SOLICITOR

CACV 63/2022

[2023] HKCA 694

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 63 OF 2022

(ON APPEAL FROM AN ORDER MADE BY THE SOLICITORS DISCIPLINARY TRIBUNAL DATED 23^RD DAY OF APRIL 2021)

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REASONS FOR JUDGMENT
and
DECISION ON COSTS

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Hon Au JA (giving the reasons for judgment and decision on costs of the court):

A.  INTRODUCTION

1.  This is an appeal brought by the applicant, the Law Society of Hong Kong (“the Law Society”), from the order made by the Solicitors Disciplinary Tribunal (“the Tribunal”)  to impose, among others, a sentence of suspension from practice on the 1^st respondent by way of its Statement of Order (“Statement of Order”)  dated 23 April 2021.  Leave to appeal was granted by Yuen JA on 27 January 2022under CAMP 164/2021 with costs in the cause of the appeal.

2.  At the end of the hearing of the appeal on 1 November 2022,[1] we allowed the appeal, set aside the penalty of suspension and in substitution thereof, ordered that the 1^st respondent be struck off from the roll of solicitors with effect from 1 November 2022.  We further indicated that we would hand down our reasons for judgment and decision on costs in due course.  This is what we do now.

B.  RELEVANT BACKGROUND

B1.  The complaints against the 1^ST respondent

3.  The background relevant to this appeal can be briefly stated as follows.

4.  The 1^st respondent was the sole proprietor of a firm of solicitors (“the Firm”), which has been intervened by the Law Society since 28 September 2016.  He, together with another solicitor (“W”)  (who was a partner of the Firm from 1 September 2010 to 15 September 2016), faced a total of 11 complaints (“the 11 Complaints”)  laid by the applicant before the Tribunal.

5.  Broadly speaking, the Law Society’s case is that the 1^st respondent and W had committed various breaches of the Solicitors’ Accounts Rules, Cap 159F (“the SAR”), the Hong Kong Solicitors’ Guide to Professional Conduct Volume 1 (3^rd Edition)  (“the Guide”)  and the Solicitors’ Practice Rules, Cap 159H (“the SPR”). The 11 Complaints relate in substance to various and multiple unauthorized and improper withdrawals of client’s money in substantial amounts by the 1^st respondent and W over a period of a few years, their failure to keep proper accounts of the Firm and the 1^st respondent’s lack of proper supervision of the Firm.

6.  The 1^st respondent did not appear before the Tribunal at the hearings on 19 August 2019 and 29 October 2020.  However, he had by correspondence already admitted to all the 11 Complaints.  W pleaded not guilty and attended the hearings.  After hearing, the Tribunal found each of the 11 Complaints proved against the 1^st respondent and W.

7.  The underlying facts as found proved by the Tribunal in support of the 11 Complaints can be summarized as follows:[2]

(1)  The 1^st complaint: the 1^st respondent and W committed breaches of Rule 3 of the SAR in that he failed without delay to pay clients’ money into a client account.  The breaches involved 4 occasions that happened between 13 May and 14 September 2016 and a total sum of around $7,189,503.  These sums were never repaid to the clients nor distributed pursuant to their instructions.

(2)  The 2^nd complaint: the 1^st respondent and W committed breaches of Rules 3, 10(1)  and 10(2)  of the SAR, in that on multiple occasions, they had failed to (a)  pay clients’ money into client accounts; (b)  keep properly written up books and accounts in respect of clients’ money; and (c)  record all dealings with clients’ money in the Firm’s clients’ cash book and clients’ ledger within three working days after the date of such dealings.  The amount of clients’ money affected was over $15,965,470.

(3)  The 3^rd complaint: the 1^st respondent and W committed breaches of Rule 7 of the SAR, in that (a)  client money was improperly withdrawn from the Firm’s client accounts; and (b)  the money so drawn exceeded the total of the money held for the time being in such account on account of the respective clients.  The breaches occurred between 2013 and 2016 over 14 occasions, with sums aggregating in total to around $11,470,650, which were never paid out for their intended purposes nor returned to the client, and no longer held in the Firm’s client accounts.

(4)  The 4^th complaint: the 1^st respondent and W committed breaches of Rule 7 of the SAR and Principle 13.02 of the Guide, in that money drawn from the Firm’s client accounts exceeded the total of the money held for the time being in such client accounts on account of the respective clients, causing client account cheques issued by the Firm to be dishonoured upon presentation.  The total aggregated sum involved was around $36,646,632, relating to 35 cheques[3] issued between April 2015 and July 2016 and a cheque issued in September 2016.[4]

(5)  The 5^th complaint: the 1^st respondent and W committed a breach of Rule 7A of the SAR, in that money was drawn from the Firm’s client accounts other than with the authority of persons permitted under Rule 7A(1)  of the SAR, by a former unqualified staff member.

(6)  The 6^th complaint: the 1^st respondent and W committed breaches of Rule 10(1)  of the SAR, in that they failed to keep properly written up books and accounts in respect of clients’ money.  These related to many undocumented transfers of clients’ monies which occurred between July 2014 and April 2016, which involved a total sum of at least $19,385,468.68.  They included a series of “suspicious” transfers totalling $16,735,328.68 made from 40 unrelated client ledgers to cover debit balances appearing in the client account under the files of one “Miss Li” during this period.

(7)  The 7^th complaint: the 1^st respondent and W committed breaches of Rules 10(1)  and 10(2)  of the SAR, in that the Firm had failed to keep at all times properly written up books and accounts in respect of clients’ money to show the record of all clients’ money transactions and other money dealt through the client account within three working days after the date of dealings.  The period involved was between April 2015 and September 2016.

(8)  The 8^th complaint: the 1^st respondent and W committed breaches of Rule 10(3)  of the SAR, in that they failed to properly record non-client dealings relating to their practice as solicitors in an office cash book and ledger, and that the 1^st respondent also committed breaches of Rule 11 of the SAR, in that he failed to produce such office cash book and ledger for inspection.  The period involved was between April 2015 and July 2016.

(9)  The 9^th complaint: the 1^st respondent and W committed breaches of Rule 10A of the SAR, in that the Firm had failed to at least once a calendar month compare the balance shown on clients’ cash book, the balances shown on the statements and passbooks of all client accounts, and the balances shown in clients’ ledger in the form of reconciliation statements.  The 1^st respondent also committed breaches of Rule 11 of the SAR, in failing to produce such reconciliation statements for inspection.  The period involved was between April 2015 and August 2016.

(10)  The 10^th complaint: the 1^st respondent and W committed a breach of Rule 9A of the SAR, in that they had failed to rectify the above breaches of the SAR promptly upon discovery, including but not limited to replacing the respective sums as mentioned above which had been improperly withdrawn from the accounts of the Firm.

(11)  The 11^th complaint: the 1^st respondent and W committed breaches of Rules 2(a), 2(c), (d)  and (e)  of the SPR, in that their conduct in relation to the above breaches had compromised or impaired their independence or integrity, their duty to act in the best interests of the former clients of the Firm, their own reputation or the reputation of the profession, and a proper standard of work.

8.  It is also not disputed that the total amount outstanding which the 1^st respondent and W were demanded to replace involves at least $23 million and that the above breaches had occurred on multiple occasions involving many different clients over the period of three years from 2013 to 2016.

B2.  Penalties

9.  Based on its findings against the 1^st respondent, by its Statement of Order, the Tribunal imposed on the 1^st respondent the following penalties:

(1)  The 1^st respondent be censured and fined $30,000 for each complaint (ie, $330,000 in total).

(2)  The 1^st respondent be suspended from practice as a solicitor for a period of twenty four (24)  months from the date of the order and thereafter shall not practise as a sole practitioner, partner or consultant in a law firm in Hong Kong but may resume practice as a solicitor under the supervision of a solicitor who has practised continuously in Hong Kong for not less than 20 years (“the Suspension Sentence”)

10.  The Tribunal further ordered the 1^st respondent to pay 20% of (a)  the costs and disbursements of the Law Society which are allowed in full in the total sum of $118,415.06; (b)  the costs and disbursements of the prosecutor which are assessed to be $950,000; and (c)  the costs and disbursements of the Clerk to the Tribunal which are allowed in full in the total sum of $75,830.

C.  THIS APPEAL

C1.    Grounds of appeal

11.  By way of this appeal, the Law Society appeals against the Suspension Sentence only.  It asks this court to set aside the Suspension Sentence and substitute it with an order that the 1^st respondent be struck off from the roll of solicitors.  In support of the appeal, it has advanced essentially the following four grounds of appeal:

(1)  The Suspension Sentence imposed by the Tribunal was clearly wrong and manifestly inadequate in view of the seriousness of the 11 Complaints to which the 1^st respondent admitted. (“Ground 1”)

(2)  The Tribunal failed to consider the nature and gravity of the misconduct which would have shown that the 1^st respondent fell below the required standards of integrity, probity and trustworthiness as shown by various unchallenged evidence. (“Ground 2”)

(3)  Further or alternatively, the 1^st respondent’s culpability for the proven complaints is not in any way diminished or ameliorated by any valid explanation or any mitigating circumstances.  (“Ground 3”)

(4)  Further or alternatively, the Tribunal failed to give any reasons at all for the Suspension Sentence imposed by it. (“Ground 4”)

C2.  Legal principles

12.  This court will generally give recognition and attach great weight to a penalty imposed by a disciplinary tribunal.  However, the scope for intervention is no longer restricted to those where “a very strong case” for doing so is established.  Where the penalties imposed by the Tribunal were clearly wrong, it is open to the court to interfere: A Solicitor v Law Society of Hong Kong [2015] 2 HKLRD 802, per Lam VP (as he then was)  at [67] - [68].

13.  Further, the principles relevant to the consideration of imposing penalties of striking off or suspension in solicitor disciplinary matters are well-settled and had been concisely set out in The Law Society of Hong Kong v Wai To Tsuen Hagon [2019] HKCA 618 at [10] as follows:

(1)  Where a solicitor has acted dishonestly, an order of striking off should generally be imposed, although there may be exceptional cases where suspension may suffice.

(2)  Where a solicitor has not acted dishonestly but has fallen below the required standards of integrity, probity and trustworthiness, suspension is generally the appropriate sentence although in an appropriate case, an order of striking off may be called for.

(3)  It is only in the most exceptional cases that orders other than striking off or suspension should be imposed in cases covered by sub-paragraphs (1)  and (2)  above.

(4)  The rationale for these heavy sentences is four-fold:

(a)  to punish the solicitor;

(b)  to deter others from acting in the same way;

(c)  to ensure that the offender will not have the opportunity to repeat the offence;

(d)  to maintain the reputation of the profession and to sustain public confidence in the integrity of the profession.

(5)  If suspension is the appropriate remedy, then it will not be an objection to impose it even though the solicitor may be unable to re-establish his practice when the period of suspension is past.

(6)  When considering the appropriate penalty, emphasis should be placed on the need to protect the public and maintain public confidence in the profession.

See also: A Solicitor v Law Society of Hong Kong [2004] 2 HKLRD 490, per Cheung JA at [61]; as modified in A Solicitor v Law Society of Hong Kong, supra, per Lam VP (as he then was)  at [70] - [79], in particular [78] - [79].

14.  Bearing those principles in mind, we will now turn to look at the grounds of appeal.

C3.  Grounds 1 and 2

15.  Grounds 1 and 2 can be conveniently considered together as, in our view, the crux of these grounds boils down to the question as to whether the Suspension Sentence imposed by the Tribunal was manifestly inadequate and clearly wrong.

16.  For the following reasons, we are of the view that the Suspension Sentence was clearly inadequate to reflect the very serious nature of the 1^st respondent’s conviction of the 11 Complaints, and to maintain the reputation of the profession and sustain public confidence in the integrity of the profession.

17.  First, according to the findings made by the Tribunal, there is no doubt that the 1^st respondent had committed persistently very serious and flagrant breaches of his professional duties in major aspects of his conduct as a solicitor on repeated occasions over a long period of time (between 2013 and 2016).  As submitted by Mr Ling for the applicant, this is underlined by the following special and particular features of the breaches:[5]

(1)  The magnitude in financial terms of the rampant misappropriation and mishandling of clients’ monies and the failure to keep proper records of clients’ monies in excess of $23 million;

(2)  The significant volume and frequency of improper withdrawals of clients’ money from 41 client files to cover the debit balance of certain files in the name of “Miss Li” including transfers in excess of $16 million, allowing overdraft balances in client accounts up to $17 million, and misappropriation of clients’ monies on 13 occasions in a total amount exceeding $11 million;

(3)  The sheer number and amount of 35 dishonoured cheques issued from client accounts in excess of $36 million between April 2015 and July 2016;

(4)  The admitted abdication of responsibility for the Firm’s accounting matters in favour of an unqualified member of staff who was allowed to sign cheques;

(5)  The systemic failure to keep properly written up books and accounts in respect of at least $19 million of clients’ money over a period of two years;

(6)  The systemic failure to prepare complete clients’ cash books and ledgers between April 2015 and September 2016;

(7)  The serious failure to produce complete office ledgers (April 2015 to July 2016)  and cash books (April 2016 to July 2016)  for inspection;

(8)  The persistent failure to prepare and produce for inspection reconciliation statements of client accounts between April 2015 and August 2016; and

(9)  The failure to rectify the accounting breaches by replacing vast amounts of missing funds in excess of $22 million belonging to 25 identifiable clients.

18.  Second, those relevant rules that were breached under the 11 Complaints are all with the aim of, among others, protecting the interest of clients who have placed trust in solicitors in placing substantial sums of money in their hands.  Public interests involved to protect the public and maintain public confidence in the profession as a whole clearly call for the 1^st respondent to be struck off from the roll of solicitors in the present case.

19.  Third, it is important to note that the impugned conduct of the 1^st respondent was not a one-off incident, but lasted for a protracted period of over three years with repeated breaches of the most serious nature affecting multiple and a large number of clients.  In our view, these clearly show that there had been a wholesale and persistent disregard by the 1^st respondent of his professional duties as a solicitor, the relevant rules, and the interests of his clients.  The 1^st respondent as a professional had clearly fallen way below the required standards of integrity, probity and trustworthiness and his conduct has brought serious disrepute upon the profession.  The 1^st respondent is demonstrably unfit to practise as a solicitor.

20.  Fourth, the effect of the Suspension Sentence is that the 1^st respondent could continue to practise as a solicitor again, albeit under the supervision of a solicitor with not less than 20 years standing, after being suspended for 24 months.  Given the above-mentioned magnitude, manner and persistency of the 1^st respondent’s professional misconduct over a period of three years, the substantial amount of clients’ money involved, and the blatant disregard of clients’ interests, this sentence is plainly inadequate to serve as a punishment of the 1^st respondent and a deterrent to others from acting in the same way.

21.  In arriving at the above conclusion, we are fully conscious of the fact that the Tribunal as an expert and informed tribunal is well placed to assess what sanctions are appropriate and required to deal with a defaulting solicitor and to protect the public interests.  We have also paid considerable respect to its sentencing decision.  That said, after considering the circumstances of the present case and for the reasons explained above, it is plain to us that the Suspension Sentence imposed on the 1^st respondent was manifestly inadequate and thus clearly wrong, justifying this court’s intervention.

22.  In the premises, the applicant succeeds under Grounds 1 and 2.  Accordingly, we allowed the present appeal and made the order as we did at [2] above.  It is therefore also unnecessary for this court to further consider Grounds 3 and 4.

D.  COSTS

23.  As to costs, we see no reason why it should not follow the event.

24.  In this respect, there are two sets of costs before this court.

25.  The first relates to the application for leave to appeal in CAMP 164/2021.  The Law Society in its statement of costs claims a total sum of $198,375.  This includes:

(1)  Under Parts C and D, professional costs of solicitors for a total sum of $118,540 (for work done by Mr Glenn Haley (partner)  and Mr Ian Cheng (associate), respectively for 11.5 hours and 16.3 hours); and

(2)  Counsel’s fee of $75,000 (for a total of 15 hours for perusal of papers, legal research, drafting of Notice of Appeal and the written statement in support of the leave application).

26.  In light of the limited amount of papers involved in the leave application, we find the total of 27 hours incurred by two solicitors for the preparation of that application (where counsel was also instructed)  to be excessive, in particular when the same firm of solicitors and Mr Haley were already involved in the disciplinary proceedings.  We globally reduce the total sum to $60,000.  We therefore summarily assess the costs of the leave application under CAMP 164/2021 to be $139,835[6], rounded up to $140,000.

27.  The second set of costs concerns the appeal proper. The Law Society in its statement of costs claims a total sum of $214,675.  This includes:

(1)  Under parts C and D, solicitors’ professional costs of a total sum of $128,680 (a total of 9.8 hours for Mr Haley and 22.8 hours for Mr Cheng); and

(2)  Under part E, counsel’s fee of $85,000 (for perusal of papers, legal research and attendance of hearing).

28.  As pointed out during the hearing, we note that the documents involved in the appeal proper are substantially the same as those in CAMP 164/2021.  Further, the actual hearing duration of the appeal was 30 minutes instead of three hours as originally fixed.  Accordingly, we find the time spent for a total of 25.6 hours by the solicitors for professional work (which included preparation and perusal of documents, and attending the hearing)  in Part D to be excessive.  However, as submitted by Mr Ling, we accept that the solicitors would have to spend some more time for those purposes as 18 months had passed between the leave application and the hearing of the appeal.  We will globally reduce the professional costs under Parts C and D to $80,000.

29.  In the premises, we summarily assess the costs in the appeal to be $165,995[7], rounded up to $166,000.

30.  We therefore further make an order that the 1^st respondent shall pay the applicant (a)  costs of CAMP 164/2021 summarily assessed at $140,000; and (b)  costs of the appeal summarily assessed at $166,000.