ERIC CHAN & CO (a firm) v. WONG KWOK WANG WARREN

DCCJ 1155/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1155 OF 2008

----------------------

----------------------

----------------------

DECISION

----------------------

1.  This is an O. 14 application in respect of a claim of unpaid legal fees and disbursements.

2.  The hearing is conducted in Punti dialect.  However, since the parties tender their written submissions in English, I decide to hand down the Decision also in English.

Background

3.  The Plaintiff is a firm of solicitors with Mr. Eric Chan as the principal.

4.  The Defendant was one of the 2 defendants in a High Court criminal case, HCCC No. 321 of 2004 (“the Criminal Case”).  As Mr. Eric Chan was his old friend, the Defendant approached him for assistance in relation to his legal representation in the Criminal Case.  By that time, Mr. Eric Chan was working for the solicitors’ firm of Messrs. Au-Yeung, Cheng Ho & Tin (“ACHT”).  Later, Mr. Eric Chan left ACHT and joined Messrs. Huen & Partners (“Huen”), and the Defendant therefore retained Huen to represent him in the Criminal Case with Mr. Eric Chan as the handling solicitor.  The Defendant decided to engage both senior and junior counsel to represent him in the Criminal Case, and the Defendant also agreed the brief fees and the solicitors' fees with Mr. Eric Chan for the conduct of the whole trial in the Criminal Case.

5.  Ever since the Defendant was arrested in respect of the charges in the Criminal Case, his bank accounts were restrained.  Upon the Defendant’s application, a sum of $1,000,000 was released from his bank accounts and paid to Huen to cover the legal costs of the trial in the Criminal Case.  Out of such amount, a sum of $700,000 was intended to cover the legal fees of Huen in respect of the conduct of the trial.

6.  Shortly before the commencement of the trial, Mr. Eric Chan left Huen and rejoined ACHT.  On 16 October 2004, ACHT filed a Notice of Change of Solicitors in place of Huen in the Criminal Case, and the trial commenced 2 days later on 18 October 2004.  There was then a dispute over the sum of $700,000 paid by the Defendant to Huen, and Huen issued a fee note on 20 October 2004 purportedly to forfeit the whole sum of $700,000 under the retainer with Defendant.  By reason of such dispute, High Court miscellaneous proceedings, HCMP No. 2843 of 2004 (“the Taxation Case”), were taken out on 2 November 2004 in the name of the Defendant against Huen for the taxation of the bill of costs charged by Huen.

7.  After the trial in the Criminal Case, the Defendant was convicted of 9 counts of criminal charges on 12 January 2005 and he was sentenced to 7 years' imprisonment.

8.  Prior to the commencement of the Taxation Case, the Plaintiff claims that the Defendant had entered into a written retainer with ACHT dated 23 October 2004 for the latter to act for him in the Taxation Case (“the 1^st Retainer”).  Mr. Eric Chan later left ACHT and set out his own firm on 5 July 2005.  It is the Plaintiff’s case that the Defendant signed a new retainer dated 4 August 2005 engaging the Plaintiff to act for him in lieu of ACHT in the Taxation Case (“the 2^nd Retainer”).

9.  As Mr. Eric Chan had all along been the handling solicitor of the Defendant’s Criminal Case, whether he was working in Huen or ACHT at the relevant times, Huen complained that there would be a conflict of interest for the Plaintiff to act for the Defendant in the Taxation Case.  By reason of such concern, another firm of solicitors, Messrs. Tong and Tsoi (“TT”), was retained to act for the Defendant in the Taxation Case and the Notice of Change of Solicitors was filed on 5 September 2005 accordingly.

10.  The substantive hearing of the Taxation case was fixed before Master S. Kwang on 5 September 2005 with 2 days reserved.  As Mr. Eric Chan had all along been the handling solicitor of the Defendant’s Criminal Case, the learned Master granted leave to allow Mr. Eric Chan to be present in the hearings and to assist the court and the new solicitors, TT, in the conduct of the case and to explain various matters about the charging of legal fees in respect of the Defendant’s Criminal Case.

11.  The hearing could not be concluded within 2 days.  The Taxation Case was further adjourned to 10 January 2006 but the case remained part-heard after the adjourned hearing.  There was then negotiation between TT and Huen about the claim under the Taxation Case, and the case was finally concluded by way of a consent order dated 25 April 2007.

12.  In about March 2006, the Plaintiff entered into an agreement with ACHT whereby ACHT assigned their interest and entitlement to legal costs and disbursements in respect of the Taxation Case to the Plaintiff.

The Plaintiff’s claim

13.  On 4 July 2007, Mr. Eric Chan sent to TT a cover letter enclosing, inter alia, an itemized bill of costs (“the Plaintiff’s Bill Of Costs”) together with an authorization letter from ACHT confirming the assignment of all the interest of ACHT to the Plaintiff in respect of the legal fees chargeable under the Taxation Case.  The total amount due under the Bill of Costs was $711,511.  Later on 15 November 2007, the Plaintiff sent a fee note with the reference Bill No. 226 in the same amount of $711,511 to the Defendant (“the Plaintiff’s Fee Note”).  As the Defendant refused to pay the amount allegedly due under the Plaintiff’s Fee Note, the Plaintiff brought the present proceedings against the Defendant.  Giving credit to the refund of the deposit of the taxation fee by the court in the sum of $16,015, the balance of the Plaintiff’s claim amounts to $695,496.

14.  In the Plaintiff’s Bill of Costs, the Plaintiff has included the fees for the following works:

(i)    works done by ACHT when ACHT was acting for the Defendant in the Taxation Case;

(ii)  works done by the Plaintiff when the Plaintiff was acting for the Defendant in the Taxation Case; and

(iii)    assistance given by Mr. Eric Chan in the substantive hearings of the Taxation Case when TT was acting for the Defendant in these hearings.

15.   In support of the claim, the Plaintiff relies on the 1^st and the 2^nd Retainers signed by the Defendant authorising ACHT and the Plaintiff to act for him in the Taxation Case.  It is also the Plaintiff’s case that Mr. Eric Chan had explained the legal charges to the Defendant at the time of signing of the written retainers and the Defendant had given clear instructions to ACHT and the Plaintiff to act for him in the Taxation Case.  Hence, the Plaintiff argues that the Defendant is liable to pay for the legal fees due under the Plaintiff’s Fee Note.

The Defendant’s case

16.  The Defendant has filed 2 affidavits to oppose the Plaintiff’s claim.  According to him, Mr. Eric Chan was his old friend.  When he was charged in the Criminal Case, he engaged Mr. Eric Chan to act for him in the proceedings.  At first, Mr. Eric Chan was working for ACHT, then he switched to work for Huen before moving back to ACHT.  Through Mr. Eric Chan, the Defendant agreed the brief fees of his senior and junior counsel.  He also agreed to pay Mr. Eric Chan’s firm a sum of $700,000 as the solicitors’ fees for the handling of the Criminal Case until the conclusion of the trial.  Upon his application, a sum of $1,000,000 was paid to Huen from the Defendant’s bank accounts which were subject to a restraint order by that time.  The balance of the agreed legal costs was deposited into the account of ACHT on 15 October 2004 before the commencement of the trial in the Criminal Case.  Hence, the Defendant says that there was no outstanding legal fees remaining by that time.

17.  After the commencement of the trial, the Defendant had received a letter from Huen updating the fee status of the Defendant’s account, and he informed Mr. Eric Chan about the same.  On or about 23 October 2004, Mr. Eric Chan approached the Defendant and told him that Huen had treated all the parties unfairly.  He requested to use the Defendant’s name to sue Huen and advised the Defendant to sign a retainer authorising ACHT to represent the Defendant in such proceedings.

18.  Initially, the Defendant was reluctant to follow Mr. Eric Chan’s advice.  According to the Defendant, there was no point for him to take out any legal action against Huen as they had owed him nothing.    The issue over the costs on account was in substance a dispute among the lawyers.  If the Defendant won the legal proceedings, he would gain nothing as all the benefit would go to the lawyers.  On the other hand, the Defendant would have to bear all the legal costs if he lost.  However, Mr. Eric Chan assured the Defendant that he would take care of the case and no legal costs would be billed against the Defendant.  In addition, Mr. Eric Chan emphasised that Huen should be the guilty party responsible for not transferring the costs on account to ACHT.  At that time, the Defendant was in the middle of the trial of the Criminal Case.  He also did not want to upset Mr. Eric Chan who was his handling solicitor in the Criminal Case, and he therefore signed the 1^st Retainer.

19.  After Mr. Eric Chan left ACHT, he asked the Defendant to sign the 2^nd Retainer as a matter of formality, and he also assured the Defendant that he would take care of the Taxation Case and the Defendant did not need to pay any legal costs for the proceedings.  By reason of such assurance, he had not paid Mr. Eric Chan any costs on account for the Taxation Case and he had not received any bills or fee notes from Mr. Eric Chan until November 2007.  The Defendant therefore contends that he is not liable to pay any legal fees to the Plaintiff or ACHT for the conduct of the Taxation Case.

Whether the Defendant has established a meritorious defence?

20.  In my judgment, the Defendant’s account is certainly one that is capable of being believed at the trial.  According to the evidence, Mr. Eric Chan left Huen and joined ACHT shortly before the commencement of the trial in the Criminal Case on 18 October 2004.  Before that, the Defendant should have paid Mr. Eric Chan all the legal fees that would be charged by Mr. Eric Chan’s firm for the conduct of the case.   Hence, so far as the Defendant was concerned, he had already discharged his obligation about the payment of solicitors’ fees.  When Mr. Eric Chan left Huen and joined ACHT, Huen indicated that they would forfeit the whole sum of $700,000 to cover their legal fees, and so there would be no money left for the legal fees of ACHT.  In the eyes of the Defendant, this was very much a dispute between the lawyers.  As Mr. Eric Chan had all along been his handling solicitor, he should be responsible for sorting out the matter for the Defendant.  In such circumstances, the Defendant should have been very reluctant in commencing the Taxation Case against Huen, and there was simply no reason for him to get involved in a separate legal action.  Even if he won, he would not obtain any additional benefit as the money would only be transferred to ACHT to cover the latter’s legal fees for the conduct of the trial in the Criminal Case.  On the other hand, the Defendant would have to bear the legal costs of his own lawyers and Huen if he lost the case.  Hence, unless Mr. Eric Chan assured him that Mr. Eric Chan’s firm would not charge him for the legal costs of the Taxation Case, the Defendant should have been very reluctant in commencing the legal proceedings against Huen.

21.  Obviously, Mr. Eric Chan could not commence legal proceedings himself to resolve the dispute between Huen and ACHT about the payment of legal fees.  Legal proceedings had to be brought in the name of the Defendant, and that was why he required the authorisation of the Defendant in commencing the Taxation Case against Huen.  Mr. Eric Chan therefore obtained the authorisation by asking the Defendant to sign the 1^st and the 2^nd Retainers.  Further, as the Defendant had already paid the solicitors’ fees for the trial in the Criminal Case, Mr. Eric Chan should regard himself as the person responsible for sorting out the matter for the Defendant.  In such circumstances, it was not surprising that Mr. Eric Chan   had given the assurance as alleged by the Defendant.  In fact, in the eyes of the Defendant, it would only have been sensible for Mr. Eric Chan to make the assurance about the non-charging of legal fees in respect of the Taxation Case.

22.  By reason of the aforesaid, there is certainly some degree of truth in the Defendant’s allegation about Mr. Eric Chan’s assurance of not charging the legal fees for the Taxation Case.  The Defendant has managed to establish a meritorious defence and I therefore grant him unconditional leave to defend the Plaintiff’s claim.

Concern over the conduct of the case by Mr. Eric Chan

23.  Apart from the aforesaid ruling, I have grave concern as to how Mr. Eric Chan had handled the case on behalf of the Defendant.

24.  Firstly, it was quite surprising that Mr. Eric Chan switched from one firm to another within such a short period of time, and as a result it caused a lot of inconvenience to his clients like the Plaintiff.  From the existing available evidence, it seemed that Mr. Eric Chan had not clarified the position of the Defendant’s costs on account before leaving Huen, and consequentially the Defendant was dragged into the dispute over the costs on his account.  As Mr. Eric Chan had all along been the handling solicitor of the Defendant’s Criminal Case, he certainly owed a duty to the Defendant to resolve the matter.  Further, if Mr. Eric Chan had kept proper documentation about the Defendant’s costs on account, I do not think that Huen could just simply issue a fee note forfeiting the whole sum of $700,000 and there had to be numerous hearings in the Taxation Case to resolve the matter.  As I see it, the Defendant has a legitimate grievance about the quality of legal services provided by Mr. Eric Chan.

25.  Secondly, the Plaintiff has included in the Plaintiff’s Bill of Costs for works done by Mr. Eric Chan when he was no longer the solicitor representing the Defendant.  In the hearing before Master Kwang, despite that the Defendant was represented by TT at the relevant time, the learned Master granted leave to Mr. Eric Chan to appear with a view to offer assistance to the court and to explain various matters relating to the charging of legal fees in respect of the Defendant’s Criminal Case.  For such time spent in the hearing, Mr. Eric Chan was charging the Defendant at an hourly rate which was the same as that charged by a practising solicitor.  In other words, the Defendant had to pay 2 sets of legal costs for one single hearing.  This is grossly unfair on the Defendant.  Obviously, Mr. Eric Chan was appearing in the hearing as a possible witness and not as a solicitor acting on behalf of the Defendant.  In such circumstances, Mr. Eric Chan should not be allowed to charge for his service at the same rate of a practising solicitor or at all.  Further, so far as the Defendant was concerned, he had already paid the solicitors’ fees for the conduct of the trial in the Criminal Case.  The dispute over the sum of $700,000 was caused solely by the movement of Mr. Eric Chan from one firm to another, and he should therefore be responsible for assisting the Defendant in resolving the dispute.  Rather than offering assistance to the Defendant, Mr. Eric Chan was charging the Defendant for 2 sets of legal costs for one single hearing.  In my judgment, such conduct is totally unacceptable.

26.  Thirdly, it was clear from the outset that Mr. Eric Chan played a key role in the dispute between Huen and ACHT over the sum of $700,000 as he was the handling solicitor working for these 2 firms at the relevant times.  In such circumstances, Mr. Eric Chan should have been sensitive about the issue of conflict of interest if he continued to act for the Defendant in the Taxation Case.  Unfortunately, the evidence of the present case suggests that Mr. Eric Chan was not aware of such issue until shortly before the commencement of the substantive hearing of the Taxation Case on 5 September 2005, and he had not advised the Defendant about the implication of such issue earlier.  As a result, legal representation had to be changed at the last minute which in turn affected the progress of the Taxation Case.  Hence, I am deeply disappointed by the degree of professionalism demonstrated by Mr. Eric Chan in the handling of the case.

27.  Further, one of the interesting features in this case is that ACHT had assigned their interest in the legal costs of the Taxation Case to the Plaintiff.   In tendering the Plaintiff’s Bill of Costs to the Defendant, the Plaintiff has therefore included the legal fees and disbursements for the works done by ACHT when the latter was acting for the Defendant in the Taxation Case.  In the hearing, I have expressed query whether such kind of practice is permissible.  After the hearing, Mr. Eric Chan submitted a further written submission referring me to s. 65 of the Legal Practitioner Ordinance, Cap. 159 (“the LPO”) and the case of Ingle v M’Cutchan (1884) 12 QBD 518, which support the proposition that a person to whom a solicitor has assigned his costs may sign and deliver a bill of costs under s. 66 of the LPO.  As the handling solicitors’ firm is responsible for the conduct of the case on behalf of its client, I find it strange that someone other than the handling solicitors’ firm is able to issue a fee note to the client.  However, with the authorities provided by Mr. Eric Chan and in the absence of contrary argument, I am prepared to accept the Plaintiff’s proposition at this stage.

28.  By reason of the aforesaid, I grant the Defendant unconditional leave to defend the Plaintiff’s claim.  I also make an order nisi that the costs of the O. 14 summons be costs in the cause of the action, which shall be made absolute 14 days after the handing down of this Decision.