CHINA HEALTH GROUP LTD (formerly CHINA HEALTHCARE HOLDINGS LTD) v. CHIU & PARTNERS (A firm)

HCMP 1636/2017

[2020] HKCFI 319

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1636 OF 2017

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D E C I S I O N

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Factual Background

1.  The Defendant (“the Firm”) used to be solicitors for the Plaintiff (“China Health”) under a written Mandate dated 3 December 2015and an Annual Legal Consultancy Agreement dated 4 December 2015 (“the ALC Agreement”).  The Firm handled 9 pieces of related litigation for China Health and was retained as its solicitors for general advice and corporate services.

2.  The Mandate Litigation provided that the Firm could issue bills on a monthly basis and China Health had to settle them within 7 days of issue.

3.  The ALC Agreement provided that the Firm would charge a retainer fee of $600,000 per annum, payable by 2 instalments in advance: Clause 2.

4.  On 18 June 2016, China Health underwent a change in control as a result of resolutions passed at the SGM on that day.  The new board of China Health instructed Johnnie Yam, Jacky Lee & Co. (“JYJL”) to replace the Firm and gave instructions to JYJL to take over the relevant proceedings.

5.  Since accepting instructions, JYJL has received 2 more bills from the Firm:

(1)  Bill No. 16-0475 dated 17 June 2016 (“2^nd Last Bill”) for HK$104,424.48; and

(2)  Bill No. 16-0555 dated 22 July 2016 (“Last Bill”) for HK$90,948.

6.  China Health has not paid for them as it found them excessive. By this originating summons, China Health seeks taxation of 2 Bills.

7.  The originating summons was issued on 20 July 2017.  The date of issue was indisputably within 12 months of the Last Bill and China Health is entitled to an order for taxation of that Bill.  In issue are:

(1)  Whether the 2^nd Last Bill was delivered on 18 June or 8 August 2016;

(2)  Whether the 2^nd Last Bill was a periodic interim bill;

(3)  Whether or not the Firm was entitled to the full retainer fees of $300,000;

(4)  Whether or not the Firm should give a breakdown of the costs charged under each bill; and

(5)  Whether conditions should be imposed if an order for taxation is made.

Legal Principles Governing Taxation of Solicitor-Client Bills

8.  Sections 67(1) and 67(2) of the Legal Practitioners Ordinance (Cap 159) (“LPO”) provide as follows:

“(1) On the application, made within 1 month of the delivery of a solicitor’s bill ..., of the party chargeable therewith the Court shall, without requiring any sum to be paid into court, order that the bill shall be taxed and that no action shall be commenced thereon until the taxation is completed.

(2) If no such application is made within the period mentioned in subsection (1), then, on the application of the solicitor ….., or of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order –

(a) that the bill shall be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed:

Provided that –

(i)      if 12 months have expired from the delivery of the bill, or if the bill has been paid, … no order shall be made on the application of the party chargeable with the bill except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the taxation as the Court may think fit;

(ii)     if the bill has been paid, no order under this subsection shall be made where the application for the order is made after the expiration of 12 months from the date of payment of the bill.”

9.  As succinctly summarized by Recorder A. Ho SC in Lee Chi Enterprises Company Limited v K.C. Ho & Fong (a firm) (unrep, HCMP 61/2007, 13 September 2007) at §§4:

“The effect of the above provision was explained by Mr Recorder Jat SC in Re Miller Peart [2007] 3 HKLRD 125 at 139, which I quote as follows:

‘64. It is clear that the statutory scheme under s.67 is that:

64.1 within one month of the delivery of the solicitor’s bill, the client may apply to have the bill taxed as of right, and no term or condition will be imposed: s.67(1);

64.2 if the client does not apply for taxation within one month since the delivery of the bill, either the solicitor or the client may apply for taxation and the court may so order and impose any terms as it may think fit except terms as to the costs of the taxation: s.67(2);

64.3 if 12 months or more have elapsed since the delivery of the bill or if the bill has been paid, the client must show special circumstances to justify his application for taxation and the court may impose any terms including terms as regards the costs of the taxation: s.67(2)(i).’

For convenience, I will refer to them as the first, second and third regime.”

10.  For cases falling under the second regime, subject to any terms that may be imposed, the Court will generally be inclined to order taxation: Lee Chi Enterprises at §21.

11.  For cases falling under the third regime, the client will have to show special circumstances to justify taxation.

12.  It is China Health’s case that the Bills fall under the second regime.

Issue 1: Whether the 2^nd Last Bill was delivered on 18 June or 8 August 2016?

13.  Mr Chiu of the Firm deposed to that fact that he had personally delivered the 2^nd Last Bill to Mr Raymond Tsui, the Company Secretary of China Health, before the SGM on 18 June 2016.  This is disputed by China Health on 2 grounds:

14.  Firstly, Mr Chiu’s assertion was contradicted by the contemporaneous correspondence between the Firm and JYJL.

15.  Since 30 June 2016, JYJL had been asking the Firm to supply all of its bills of costs and disbursements.  The Firm delivered the Last Bill to China Health under cover of a letter dated 25 July 2016.  JYJL sent a chaser on 4 August 2016, again, for a copy of all the bills of costs and disbursements. 

16.  The Firm replied on 8 August 2016 (in which both Bills were enclosed), stating:

“Please accept our apology for not having replied earlier as the matter was overlooked when the correspondences came in during the midst of the time when the handling solicitor was on vacation. After our handling solicitor has returned from vacation we have since prepared and enclose herewith our bill nos. 16-0475 and 16-0555 on the above matter which are outstanding up to date. …” (emphasis added)

17.  The implication of that letter was that the 2^nd Last Bill was only prepared sometime after 4 August 2016 when the Firm’s handling solicitor returned from vacation.

18.  Mr Chiu pointed out that Mr Tsui had not filed any affirmation in rebuttal of his evidence on personal delivery. With respect, China Health had made enquires with Mr Tsui who had no clear recollection of whether he had received a copy of 2^nd Last Bill from Mr Chiu on 18 June 2016.

19.  The burden of proof as to delivery is on the Firm and the standard is one of balance of probabilities.  On the evidence before me, I am not satisfied that this burden has been discharged.  I find that the 2^nd Last Bill was delivered to China Health on 8 August 2016.

20.  Secondly, Mr Wong, counsel for the Plaintiff, submits that personal delivery of the bill to the company secretary did not constitute proper delivery to China Health.  This is because Clause 5 of the ALC Agreement provides that if it is necessary for the Firm to deliver any document to China Health in accordance with the provisions of the ALC Agreement, the Firm should send the document by fax and/or by post to the address at Room 801, 8^th Floor, China Insurance Group Building, 141 Des Voeux Road Central, Central, Hong Kong.

21.  I am unable to agree.  The whole purpose of delivery is to bring a document to the notice of China Health.  If Mr Chiu had really sent it by hand, China Health could not complain as it was a more certain mode of delivery.  The problem in this case was that Mr Chiu was not able to prove it in the eyes of the law that he had actually done so.

22.  For the reasons given in paragraphs 13-19 above, I find on balance of probabilities that the 2^nd Last Bill was delivered to China Health on 8 August 2016.  Accordingly, the originating summons was issued within 12 months of both Bills.  I am inclined to make an order for taxation.

Issue 2: Whether the 2^nd Last Bill was a periodic interim bill

23.  Mr Wong submits as an alternative argument that the 2^nd Last Bill was a periodic interim bill.  In view of my finding above, I only deal with this issue briefly.

24.  The principles for distinguishing a final bill from an interim one have been summarized in Li Shu Chung v Stevenson, Wong & Co (a firm) [2018] HKCFI 2372 by DHCJ Le Pichon, at §14, following Chin Yuk Lun Francis v Lo & Lo (unrep, HCMP 1142/2005, 7 July 2006) at §§10-18).  The court has to ask 2 questions: whether the solicitor had the power to send it as a final bill and whether it had been delivered as a final bill (Li Shu Chung, at §14).  The court has to determine whether the bills were issued at natural breaks. As a matter of law and policy, the court should lean against an interpretation that authorizes the issuance of a number of periodic final accounts under a retainer (Chin Yuk Lun §§11‑12).

25.  Mr Wong advances 3 arguments in support of his view that the 2 Bills were interim bills:

26.  Firstly, the 2^nd Last Bill was for work from 1 June 2016 to 17 June 2016 and the Last Bill was for work from 18 June 2016 to 8 July 2016.  Mr Wong submits that the 2^nd Last Bill was a periodic interim bill and since the Last Bill in a series of interim bills were delivered within the 12-month period, the 2^nd Last Bill was also subject to taxation. 

27.  Secondly, as shown in the two Bills and as stated by Mr Chiu, China Health had been simultaneously involved in 9 sets of interrelated legal proceedings commenced by China Health, the investors, Chung Ho (the director who was in the old and existing board) in Hong Kong and Bermuda during the relevant period from December 2015 to July 2016.  A number of those legal proceedings related to the power struggle within China Health that led to the change in control on 18 June 2016.  Hence, given the interrelationships of the various proceedings and the way in which the bills were designed to be issued periodically as shown in the 2^nd Last Bill and the Last Bill, there could not be any “natural break” in the litigation upon which the Firm could be said to have issued any of the Bills as a final bill.

28.  Thirdly, the Bills issued by the Firm were subject to change.  Note 2 in the footnote of the Bills expressly stated, “Our firm reserves the right to issue further bills of costs in respect of any expenses which had not been accounted for.”  Hence it was clear that those were periodic bills which did not necessarily cover all professional services performed within the period specified in the bills and were subject to change. In fact, one could see from the 2^nd Last Bill that it contained fees for work done prior to 1 June 2016.  Hence, the bills were actually subject to subsequent adjustments.  That being the case, such bills could not be considered as, and were not intended by the parties to be, “final” bills.

29.  I agree with Mr Wong save as to the fees under the AJC Agreement.  The retainer fee under the ALC Agreement was charged as a lump sum in the 2^nd Last Bill.  Insofar as the retainer fee was concerned, that part of the Bill was final.  The rest of the 2^nd Last Bill was referable to the Mandate and was an interim bill.  The monthly payment provision was to ensure that the Firm got paid regularly when the proceedings progressed and was not meant to authorize the Firm to issue periodic final bills.  With so many pieces of litigation ongoing, there could hardly be any natural breaks and Mr Chiu had not identified any.

30.  I therefore hold that the part of the 2^nd Last Bill relating to the retainer fee was a final bill whilst the rest of the 2 Bills were interim bills.

Issue 3: Whether or not the Firm was entitled to the full retainer fees of $300,000 for the year 2016

31.  The Firm billed China Health $300,000 as the second instalment of service fees pursuant to Clause 2.2 of the ALC Agreement. As stated in Clause 2.4, the total service fees under Clause 2.2 were for service to be provided from 4 December 2015 to 31 December 2016. 

32.  Mr Wong submits that it was unjustified for the Firm to receive the entire second instalment when it had at most rendered service for only 14 days, from 4 to 18 June 2016, when China Health stopped using the Firm’s services after the SGM.

33.  With respect, the second instalment was a payment in advance.  There was no provision for pro-rata payment.  It was precisely because of the difficulty in billing for individual pieces of work over the next 6 months that the retainer fee was in the form of a lump sum rather than a monthly or piece-rated payment.

34.  Further, Clause 4.1 of the ALC Agreement provided that 90 days’ notice could be given to terminate the retainer. No such notice was given.  Even if given, it would not have changed the nature of the lump sum.

35.  I hold that the $300,000 was not refundable and not taxable.  The rest of the 2^nd Last Bill is subject to taxation.

Issue 4: Whether or not the Firm should give a breakdown of the costs charged under each bill

36.  It is not the norm for the court to order a firm of solicitors to give a breakdown of its bill.  Much depends on the details already disclosed and information available to the client.

37.  With regard to the Last Bill, the amount of profit costs sought to be taxed is HK$87,000 and only 2 fee earners are involved.  Their respective unit rates and time units are specified.  Brief description of the nature of work done is given.  It is much like a costs statement for summary assessment.  I see no reason for ordering further breakdown.

38.  The 2^nd Last Bill is different. It has a one-page summary of the total billable hours of 5 fee-earners [B1/1/12].  The work involved 6 pieces of litigation, corporate work and liaison with regulators. The amount of profit costs involved is $1,755,769.24 before set-off against the costs on account.  It would be difficult for the taxing master to assess the reasonableness of one lump sum without a breakdown as to the costs.  It is also unreasonable to expect China Health to go through 59 boxes of documents, unaided, to ascertain what actually was done to justify that lump sum.

39.  In the course of the submission, Mr Chiu informed the court that he was the team leader doing most of the work.  The other 4 fee earners did company secretarial work, litigation, corporate service and one trainee solicitor was there to assist. 

40.  I consider such a narrative statement to be very helpful in enabling the court (and hopefully, the client) to understand what type of work was done, whether some was clerical in nature, which category of work justified using a fee earner with lower unit rates, which part of the work was contentious business and which part was not.

41.  I therefore direct the Firm to provide a narrative statement along the lines of paragraphs 39-40 and to breakdown the fees of those fee earners involving fees of over $50,000.

Issue 5: Whether the court should impose conditions for taxation

42.  Mr Wong points out that the Firm charged a total of $1,755,769.24 for legal services rendered in just a 17-day period from 1 June to 17 June 2016.  There may arguably be a question of overcharging.

43.  Further, the 2 Bills together involve HK$1,842,769.24 profit costs.  After setting off against the costs on account, only a net amount of $195,372.48 remains unpaid.  It is a relatively small amount in view of the fact that China Health has already paid about $23,000,000 for about 5 months’ service.  There is nothing to show that China Health is unable to pay the unpaid part.

44.  For the reasons given in paragraphs 42-43 above, I decline to impose conditions for taxation.

Conclusion

45.  The originating summons was issued within 12 months of delivery of both bills.  I order as follows:

(1)  The profit costs in the sum of HK$1,755,769.24 of the Defendant’s office bill no. 16-0475 and the profit costs in the sum of HK$87,000 in the sum of the Defendant’s office bill no. 16-0555 be referred to the Taxing Master to be taxed, and that the Defendant do give credit for all sums of money received by them from or on account of the Plaintiff and refund what (if any) they may on such taxation appear to have been overpaid.

(2)  Within 14 days of the handing down of this judgment, the Defendant shall, in respect of the office bill no. 16-0475, file and serve a narrative statement giving a breakdown of the work of those fee earners involving fees of over $50,000, including details such as the type of work was done, whether some was clerical in nature, which category of work justified using a fee earner with lower unit rates, which part of the work was contentious business and which part was not.

(3)  In respect of the Defendant’s office bill no. 16-0475, no order for taxation shall be made in respect of the amount of $300,000 payable pursuant to the ALC Agreement.

(4)  The Taxing Master do tax the costs of the reference and certify what upon such reference shall be found due to or from either party in respect of the bills in paragraph (1) and the costs of the reference shall be reserved to the Taxing Master.

(5)  Until taxation is completed, no action shall be commenced on the bills.

(6)  On, a nisi basis, costs of the originating summons be reserved to the Taxing Master.

46.  As I have indicated to the parties at the hearing, this is a case that involves money judgment only.  The parties should actively consider the use of sanctioned offers, failing which the ultimate winner may not get costs.  The parties should, of course, bear in mind the amount at stake and the costs to be incurred for the taxation should be proportionate.

47.  I thank Mr Wong and Mr Chiu for their assistance.