JOHNNY K K LEUNG & CO, SOLICITORS (a firm) v. LO MEI KIN STELLA

DCCJ 2008/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2008 OF 2010

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D E C I S I O N

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1.  The plaintiff solicitors firm (“JKKL”) commenced this action to recover legal fees owed by its former client, the defendant (“Lo”). Upon JKKL’s application for summary judgment, the master gave judgment on liability but conditional leave to defend in respect of the quantum. JKKL appeals.

BACKGROUND

2.  HCA 2682/2008 is an action involving the contest for the beneficial interest in the estate of Yuen Kiu Kwan, deceased, between its administratrix and his siblings of one part and Lo of the other.  The administratrix of the estate subsequently took out related miscellaneous proceedings against 8 companies, namely, HCMP 414/2009, to which Lo applied to be joined as a party.

3.  JKKL acted for Lo in both HCA 2682/2008 and HCMP 414/2009.  The hourly rates charged by JKKL and counsel were agreed in writing at the end of December 2008.  Lo terminated the retainer of JKKL and changed solicitors in late May 2009.

4.  For the professional fees and disbursement incurred on behalf of Lo, JKKL has issued and delivered to Lo the following 3 debit notes:

5.  In June 2010, JKKL commenced the present action claiming the above amount.  Lo filed her defence in the same month.  The hourly rates agreed with JKKL and counsel are not in dispute.  The payment of costs on account in the total sum of HK$201,600 is also not in dispute.  Nor is the receipt by Lo of the above debit notes.

6.  By summons filed on 22 July 2011, JKKL applied for summary judgment.  After hearing on 22 November 2011, the master entered judgment on liability against Lo; but gave leave to her to contest the quantum on condition that she paid into court a sum of HK$380,000 in 14 days.  Lo has complied with the condition.

7.  By notice filed on 6 December 2011, JKKL appeals against the decision of the master.  They maintain that there should be judgment against Lo.

8.  The appeal came before Deputy Judge Grace Chan on 12 January 2012 when the Deputy Judge adjourned the appeal pending Lo’s application to the High Court for leave to taxation out of time pursuant to section 67(2) of the Legal Practitioners Ordinance, Cap 159 (“the LPO”).

9.  Lo’s application was heard by the master of the High Court on 12 June 2012.  As she failed to satisfy the master that there was any special circumstance justifying the exercise of discretion to order taxation out of time, the master dismissed the application with costs.  There is no appeal against that decision.

10.  Now the appeal by JKKL is resumed before me.  I am rehearing the summary judgment application.  The question is whether the defendant succeeds in raising a credible defence or alternatively whether for some other reasons the case ought to be tried.  It is trite that for the purpose of determining the question, the court is not to embark on a mini-trial of the dispute on the affidavits.

DISCUSSION

11.  By pleading, Lo denies liability on the following grounds:

(1)  When the costs on account were exhausted, no further legal service retained should be rendered unless and until she made further payment.  She has never been notified of the exhaustion of the costs on account at any time prior to the termination of the retainer on 22 May 2009.  Further one counsel after the other was engaged without taking into account her wish.  Therefore all the costs in excess of those on account were incurred without her consent and for which she is not liable.

(2)  The application to be joined in HCMP 414/2009 under JKKL’s advice was found by the court to be misconceived.

(3)  The professional services and charges stated in the debit notes were excessive and incurred without her consent. 

Work done and costs incurred without consent?

12.  By letter dated 27 March 2009, JKKL informed Lo that substantial work had been done by them and counsel.  Her attention was drawn to the reminder from counsel (being the second one instructed so far) received on the same day for his fee note previously issued (on 6 March 2009).  According to the calculation in the letter, after taking into account the costs on account, the balance would not be much.  JKKL requested Lo to put them on fund in the sum of HK$300,000.

13.  The evidence shows that the above letter was sent by fax to Lo.  As noted in the letter, JKKL and Lo were to meet at that counsel’s chambers later on the same day regarding the forthcoming hearing of her application to be joined in HCMP 414/2009.  The hearing would be held in 3 weeks’ time.

14.  On 15 April 2009, JKKL sent the 1^st debit note to Lo for work done in HCA 2682/2008 up to 9 April 2009.  Taking into account the costs on account and counsel fee payable (being 2 of them so far) as mentioned above, an amount of HK$423,340 was billed.

15.  Pausing here, I think it is apparent that Lo was informed of the costs situation and the exhaustion of the costs on account well before the hearing of her application in HCMP 414/2009.  The breakdown and amount of the bill were also made known prior to the conference with counsel in relation to the hearing.  There was no allegation of complaint or surprise about the bill.  Nor was there allegation of reservation about instruction to JKKL and counsel to continue acting for Lo at that stage.

Professional negligence?

16.  Lo’s application in HCMP 414/2009 was heard and dismissed on 17 April 2009.  On the same day, JKKL wrote to Lo explaining the court’s written decision; and advising that counsel opined that there was no ground for appeal.

17.  On 28 April 2009, JKKL sent to Lo the 2^nd debit note for work done in HCMP 414/2009.  Specifically Lo was advised that counsel had chased for payment. Hearing no reply, JKKL sent 2 reminders to Lo on 6 May 2009.  By them, JKKL advised that unless the 2 debit notes were settled in 5 days, they might have to apply to cease to act for her.

18.  Lo then terminated the retainer of JKKL and changed solicitors to Messrs Paul Kwong & Co (“PK”) on or about 22 May 2009.

19.  On 27 May 2009, JKKL sent to PK its final (the 3^rd) debit note for the work done in HCA 2682/2009 up to the termination of  the retainer; and requested settlement of the same by 8 June 2009.

20.  It was on 1 June 2009 when Lo, through PK, complained about 3 debits notes in writing for the first time.  Essentially, Lo blamed JKKL for the unsuccessful application in HCMP 414/2009.  JKKL were said to be professionally negligent in failing to advise Lo about the merits of the application at all.  On this basis, and also that the bills were excessive, PK on behalf of Lo claimed that the costs on account should be more than sufficient to discharge all liabilities Lo might have owed JKKL.

21.  The allegation that Lo had never been advised of the merits of the application in HCMP 414/2009 draws only scepticism.  The contemporaneous documents recorded that it was Lo who opted to oppose the adminstratrix’s application in HCMP 414/2009.  Messrs Stevenson, Wong & Co (“SW”) were then the solicitors for the 8 companies and respondents in HCMP 414/2009.  On 26 March 2009, SW wrote to JKKL advising that their clients would take a neutral stance in the administratrix’s application against them.  However, as Lo was minded to intervene and to oppose the application, it would be appropriate and necessary for her to apply to join in the proceedings.  Otherwise, the administratrix’s application would likely be allowed.  SW advised that their counsel shared the same opinion.

22.  JKKL immediately enclosed the above letter from SW to Lo; and advised that since Lo opted to oppose the application in HCMP 414/2009, she needed to provide instruction on the grounds of opposition.  Further, conference with counsel was arranged to be held on the following day in connection with that.  That was the conference with counsel again referred to in JKKL’s letter dated 27 March 2009 mentioned above.

23.  Of course, the letter from SW did not absolve JKKL from their duty to advise Lo, being their own client, on the merits of the intended intervention.  But the assertion that she had never been advised, notwithstanding the engagement of and conference with counsel specifically for such purpose, is too extreme to be credible.

24.  In any event, it is unclear how Lo or PW perceived that she is entitled to reduction of the amounts of JKKL’s bills because of their alleged professional negligence. The fact is that even after the close of pleading, there has never been counterclaim for damages for professional negligence that might have afforded Lo with the defence of equitable set-off against her liability to pay for the professional work done in connection with HCMP 414/2009.

25.  In his submission, Mr Tang for Lo apparently no longer pursued the contention of professional negligence of JKKL as a defence for this appeal.

Excessive bills?

26.  Through PK, Lo also complained that the bills from JKKL were excessive.  But exactly how each of the bills was allegedly so was not particularised.  It was said that the costs on account should be more than sufficient to settle the costs payable by Lo.  But there was no suggestion that that was the result of any calculation. It should be noted that by the time of PK’s letter dated 1 June 2009, it had already been 6 weeks since the 1^st debit note and 4 weeks since the 2^nd debit note was received by Lo.

27.  Section 67 of the Legal Practitioners Ordinance, Cap 159 (“LPO”) provides that:

“(1) On the application, made within 1 month of the delivery of a solicitor’s bill …… , of the party chargeable therewith the Court shall …… order that the bill shall be taxed and that no action shall be commenced thereon until the taxation is completed.

(2) If no application is made within the period mentioned in subsection (1) above, then, on the application of the solicitor …… or 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 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 …… no order shall be made on the application of the party chargeable with the bill except in special circumstances and, if any order is made, it may contain such terms as regards the costs of the taxation as the Court may think fit;

(ii) [not applicable]

……”

28.  By the time of PK’s letter of complaint dated 1 June 2009, Lo has not exercised her right to seek taxation of the 1^st and the 2^nd bills under section 67(1) while she could still have applied to tax the 3^rd bill that was received just a few days ago.  Lo argued that it was JKKL’s duty to proceed to taxation.  This cannot be right.  Section 67(1) provides for the right of the party chargeable to apply for taxation within 1 month of the delivery of the bill.  Through PK, Lo must be taken to have known her right under the subsection.

29.  By letter dated 18 June 2009, PW asked JKKL to proceed with taxation of their bills.  By letter dated 24 June 2009, JKKL replied that they would do so. However the matter became idle until parties resumed correspondence in early 2010.  By letter dated 27 April 2010, JKKL informed PK that they opted not to proceed to taxation at their initiative.  PK were advised to either obtain an order for taxation (in the High Court, of course) or JKKL would commence legal proceedings to recover the outstanding legal fee.

30.  By the time of JKKL’s letter dated 27 April 2010, the 12-month period for taxing the 1^st bill had expired; and that for taxing the 2^nd bill was due to expire.  The period for taxing the 3^rd bill would expire in a month’s time.  It was argued that misled by JKKL’s representation that they would take the bills to taxation, Lo lost the chance to have the bills taxed within the 12-month period under section 67(2).

31.  That JKKL did not proceed with the taxation, contrary to their representation in June 2009, was undeniable.  However section 67(2) provides for the right of both the solicitors and the party chargeable to apply for taxation, notwithstanding the lapse of 1 month under subsection (1).  That JKKL had represented that they would proceed to taxation did not affect Lo’s such right to do so.  Nothing absolved Lo from her own responsibility for waiting and doing nothing notwithstanding JKKL’s inaction.

32.  More importantly, since late May 2009, PK had been engaged to advise Lo in relation to the dispute with JKKL.  The duty to advise Lo now rested with PK, not JKKL. It was unreasonable for Lo in the circumstances to stand by what JKKL had represented and to see time pass month after month.  The fact was that Lo still took no action even after JKKL’s letter dated 27 April 2010.

33.  After the last hearing before the Deputy Judge, Lo had the chance to apply for taxation of JKKL’s bills out of time pursuant to the proviso of section 67(2). As mentioned, the application was heard by the master of the High Court on 12 June 2012 when it was dismissed for the lack of special circumstances justifying the exercise of the court’s discretion.  In other words, the High Court has already refused to order taxation.

34.  Mr Tang for Lo seemed to suggest that the avenue for taxation of JKKL’s bills is still open.  He asked me to transfer the case to the High Court so that taxation could be ordered.  I cannot see how.  Acceding to the request will effectively be endorsing the intended circumvention of the decision of the High Court refusing to order taxation while there is no appeal from that decision.

35.  Much was said about the common law right of Lo as client to require JKKL as the solicitors to prove the reasonableness of the items of fees in the bills, notwithstanding the expiry of the time for taxation under the statute.  Mr Tang for Lo cited the case of Turner & Co v Palomo SA [2000] 1 WLR 37 in support.  Mr Wu for JKKL never sought to dispute that as a matter of principle.

36.  However, for the purpose of the summary judgment application, whilst it is the burden of JKKL as the plaintiff to prove their claim, it is the evidential burden of Lo as the defendant to raise triable issues.  In Turner & Co, the English Court of Appeal had the following to say (at 52D-E, per Evans LJ):

“…… the solicitor would normally be required to prove the reasonableness both of the number of hours spent and of the hourly rate which he has charged. When the hourly rate is agreed, he is left to prove the former but not the latter. There could, of course, be a case where the client agreed to pay for as many hours as the solicitor in fact worked, notwithstanding that he would or might devote more time to the matter than a reasonably competent solicitor would. However, that is not the present case, and in our judgment the deputy High Court judge was entitled to hold that a triable issue as to the reasonableness of the charged was raised by the defence evidence in the circumstances of this case.”

37.  It is useful to refer to what Evans LJ said about the defence evidence that sufficed in raising a triable issue as to the reasonableness of the solicitors’ charges (at 45C-E):

“(1) Arguable defence

…… It is whether Ms Francies’s evidence raises a triable issue, on the assumption that the client is entitled to put the solicitors to proof of the reasonableness of their charges.  Mr Downes submits that her evidence is not sufficient, because her complaint is not particularised in any way and it refers only to the total charges made.  The submission does not come easily from counsel for solicitors who refused Ms Francies’s request for sight of their papers and who have not provided to her or to the client, voluntarily or otherwise, a breakdown of their gross sum bills.  The bills do describe the work done, and in our judgment the client, through Ms Francies’s, is entitled to look at the total figures and, knowing the hourly rate which was agreed, calculate how many hours’ work has been claimed for.  She can then say whether that amount of time spent can reasonably be justified for contentious business of this sort.  If she had been given a breakdown of the total sum charged then the position would be different.  In the present case, however, we would reject this submission.”

38.  In Oldham Li & Nie Solicitors v Wong Lin Chooi, CACV 319/2005 (1 March 2006), the Court of Appeal allowed the appeal by the defendant client against a summary judgment in favour of her former solicitors for fees.  In arriving at the conclusion, the appellate court indeed found triable issue as to the identity of the client and the person chargeable in respect of the bills in question.  That alone would have afforded the client leave to defend.  Hence the appellate court also ordered the case to be transferred to the High Court when taxation could still be ordered.

39.  In those circumstances, the challenge against the reasonableness of the bills in that case was considered as one of the other issues.  Turner & Co (above) was referred to; and the court (Barma J, with whom Woo VP agrees) had this to say:

“40. Mr Chua also submitted, relying on Turner & Co …… that in any event, the court’s usual jurisdiction to decide contested questions in proceedings before it remained intact, notwithstanding the decision in Harrison v Tew. I did not understand Mr Coleman to dispute this – rather, he submitted that in such a case, it was for the client or party chargeable to at least identify with some precision the items which were disputed, so that the court could deal with the dispute in an appropriate manner. In this case, although the Defendant had, shortly prior to the hearing before the judge below, identified a number of items in the bills concerned in respect of which complaint was made, that would not have justified an order granting effectively a full scale taxation, still leave unconditional leave to defend.

41. For my part, I accept Mr Coleman’s submission.  While the court may well retain its normal jurisdiction to determine disputed issues, and to do so in the context of disputes as to the reasonableness of the quantum of a solicitor’s bill by referring the matter to a taxing master …… it seems to me that if a defendant to a claim by a solicitor on a bill wishes to have the bill formally taxed, it remains necessary for him to take the necessary proceedings under section 67(2) if he is able to do so. Where the dispute is narrower, as it may be in this case, I think that it must be for the client to identify the items in dispute, even if the onus of establishing the reasonableness of the particular charges may still rest with the solicitor.  In this case, complaints were made by Mr Chan in relation to some, but far from all, of the charges made.  In those circumstances, the appropriate course for the judge below to have taken would have been to have entered judgment for the undisputed amount, giving leave to defend as to the balance, or at best from the Defendant’s point of view, to have entered judgment on liability with quantum to be assessed.  It would not, however, have been appropriate to give unconditional leave to defend in relation to the entire claim, as sought by the Defendant.”

40.  This approach was reiterated in Johnson Stokes & Master v Jackin Total Fulfilment Services Ltd [2007] 4 HKLRD 336 (at 346, per Deputy Judge Muttrie):

“38. It cannot be right that the effect of this judgment [i.e., Turner & Co] is to give the client an absolute right to taxation; if that were so the statutory provisions referred to below would be otiose. It is no doubt right that the common law right to taxation of a challenged bill remains, but this does not mean that a simple challenge is enough to raise a triable issue on an O.14 application in respect of an itemised bill. At p.363, para.37, Evans LJ approved the approach of giving leave to defend in respect of disputed items of an itemised bill without embarking on a full-scale taxation or inquiry into the whole bill, but noted that the solicitors, as they were entitled to, had delivered a gross sum bill and the most the defendant could be expected to so was to challenge the reasonableness of the total sum claimed. The Hong Kong Court of Appeal followed this approach with regard to itemised challenge in Oldham Li & Nie v Wong Lin Chooi (unrep., CACV No.319 of 2005 [2005] HKEC 1769).

39. Here we have itemised bills. Although there is a generalised challenge to them, there is no specific challenge to any individual item. I do not think it enough for Mr Kat to call into question, from the bar table, the hours charged by individual solicitors, and in any event when those are examined, as Mr Huggins examined them, they seem not unreasonable for the periods concerned.

40. Insofar as Jackin seeks to rely on the challenge as raising a triable issue for the purpose of O.14, I cannot see that it does.  Everyone thinks his solicitor is overcharging him and a challenge on that sort of basis is no better than a bare denial.  I do not accept that Jackin has a right to taxation or that the best that JSM can have is an order for taxation.”

41.  In the present case, there is no issue as to the hourly rate of solicitors and counsel, which Lo has agreed in writing.  What JKKL supplied to Lo were not gross sum bills describing merely the work done.  The breakdown and number of hours spent on each item of work were set out in detail in the bills.  The circumstances are the opposite of those in Turner & Co.

42.  As mentioned above, when and even after her first written complaint through PK on 1 June 2009, Lo had not particularised her objection notwithstanding the provision of the bills between March and May 2009.  Nor has she done so by way of pleading after the commencement of the present action in June 2010.

43.  In her affidavit filed for the purpose of resisting the summary judgment application, Lo hardly spelt out with precision whether the amount of time spent on particular items of work done can reasonably be justified or not.  Nor did she point out if any item of work said to be done was in fact undone.

44.  Lo has changed solicitors from PK in November 2011 and last in July 2012 to those acting for her now.  Only when it came to Mr Tang’s submission were JKKL and the court provided with the itemised objections to JKKL’s bills (in the form of Annex 4 to counsel’s submission).  Nevertheless the annex so provided only relates to the 1^st debit note; and still none relating to the 2^nd and the 3^rd debit notes.  Mr Tang acknowledged that.

45.  In respect of the 1^st debit note, 4 items are under attack:

(1)   Preparing and drafting pleading (billed for about HK$145,000);

(2)   Correspondence by letter and telephone (billed for about HK$48,000);

(3)   Preparing and drafting affidavit (billed for about HK$20,000); and

(4)   Work done in relation to companies of which Lo was a shareholder instead of Lo (billed for about HK$14,000).

46.  Of course, JKKL cannot be expected to respond by evidence to any of these challenges that are raised only now.  More fundamentally, as compiled by counsel, the list of objections lacks actual evidence in support.  Neither is it actually stated by way of affidavit evidence that the list was Lo’s idea.  Nor is any document relating to the items of work under challenge adduced to illustrate the alleged unreasonableness of the fees charged for the work done.  What does counsel measure reasonableness by?

47.  As said in Johnson Stokes & Master (at §39) above, it is not enough for counsel to call into question from the bar table the hours charged by the solicitors.  I am effectively asked to somehow form my view on whether the particular item of work was necessary or whether the time spent was reasonable, yet only by reference to the nature of the work as described and without any clue about its actual content and substance.  I say this particularly in respect of objection items (1) and (2) above.

48.  In relation to objection item (3) above, Mr Tang stated in the annex to his submission that his client disputes having ever filed any affidavit in HCA 2682/2008. This is tantamount to evidence from the bar table that was never mentioned in Lo’s affidavit; and is therefore objectionable in the additional respect.

49.  As to objection item (4) above, the descriptions of the works in the bill are reproduced as follows:

(1)  Drafting and engrossing the minutes of board meeting for 9 companies for 40 minutes (on 15 or 16 December 2008);

(2)  Preparing the engagement letters for 9 companies for 20 minutes (on 17 December 2008);

(3)  Perusing the various accounts of Asian Power Limited for 40 minutes (on 19 December 2008);

(4)  Conducting the company search against HKC Nominees and perusing the same for 15 minutes (on 23 December 2008);

(5)  Telephone conversation with Ms Jolene Chung and asking her the details of 2 Asian Powers Limited for 10 minutes; sorting out the shareholding of 6 companies for 40 minutes (on 4 February 2009).

50.  It was pointed out that those were work done in relation to companies in which Lo was a shareholder.  Mr Tang argued that there is therefore triable issue as to whether it should be those companies referred to that should be chargeable.  He referred to Oldham Li & Nie (above) where, as mentioned, the Court of Appeal found such a triable issue in that case.  In my view, reliance on Oldham Li & Nie is misplaced.

51.  First, in Oldham Li & Nie, the solicitors acted for both the defendant and her ex-husband, who was in prison.  There was abundant evidence filed on behalf of the defendant to suggest that instructions were given by the defendant for and on behalf of her ex-husband (see the judgment at §§25; 27).  The triable issue of the identity of the client chargeable was clearly disclosed by the facts known.  In the present case, Mr Tang only has the descriptions of the work done in the debit note.

52.  Second, the triable issue of the identity of the client chargeable in Oldham Li & Nie was one of liability of the defendant there.  In the present case, Lo has not lodged any appeal against the master’s decision and is now not in a position to impeach the judgment on liability entered against her.  The fact is there is no denial that the works were done pursuant to Lo’s instruction.  Therefore, whether there may be basis for JKKL to also hold any of those companies referred to responsible for the fees, Lo remains primarily chargeable.  There is no issue of liability arising out of the dispute as to the identity of the client.

53.  Third, there is no allegation and, more importantly, evidence that the works done bear no connection whatsoever with Lo’s conduct of her litigation.  In his submission, Mr Tang sought to borrow assistance from what was said by the High Court master in his written decision refusing to order taxation out of time.  I do not see how he is assisted.  Quite to the contrary, I say.

54.  Before the High Court master, Mr Tang did not really argue that the work was done in relation to the companies and therefore the companies instead of his client should be chargeable.  Instead, Mr Tang argued that the works were not done in HCA 2682/2008 but in HCMP 414/2009 (see the decision at §§25 and 26).  As the master noted, Mr Wu (who also appeared for JKKL at that hearing) then submitted that JKKL, who indeed acted for Lo in both actions, had not double-charged Lo. As far as the present claim for a civil debt pursuant to the debits notes for work in both sets of proceedings is concerned, whether an item should have been charged under one debit note instead of the other does not suffice in giving rise to a triable issue in respect of the quantum.

55.  During the hearing, I asked and Mr Tang confirmed that as far as the itemised objections are concerned, his client’s case at its best entails the consideration of the above 4 items under attack amounting to a total of about HK$227,000.  But then these items of work must somehow be paid for.  Part judgment in favour of JKKL should be considered.  However, having considered JKKL’s appeal fully, I do not think even that would be right.

56.  I conclude that there should be judgment as claimed.

ORDER

57.  The order of the master dated 22 November 2011 is set aside; I order that judgment be entered against Lo in the sum of HK$638,140 with interest thereon at 1% above HSBC prime rate from the date of writ until today and thereafter at the judgment rate until full payment.

58.  During the hearing, Mr Wu indicated the intention to apply for payment of the sum in court paid by Lo pursuant to the master’s order out to his client in satisfaction of any judgment.  I leave that to the time when the court is indeed asked to decide such an application.

59.  In view of the event of this appeal, I order that Lo shall pay JKKL’s costs of this action, including those of and occasioned by the application before the master and this appeal.  Costs shall be taxed, if not agreed.  For the avoidance of doubt, I certify the engagement of counsel.  This costs order is nisi; and shall become absolute in the absence of application in 14 days to vary.