RE B F CONSTRUCTION CO LTD

HCCW 345, 346/2002 & 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS

NO. 345, 346 OF 2002 & 691 OF 2004

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D E C I S I O N

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Messrs. Stephenson Harwood & Lo (“the solicitor firm”), the solicitors instructed by the provisional liquidators of the above three companies to carry out legal work during the course of provisional liquidation apply to me to review the various items in the following bills that I have taxed:

HCCW 345 of 2002 – Maintain Profits Limited

HCCW 346 of 2002 – Myriad Gold Corporation

Bill No.	Period	Amount Claimed	Amount Allowed
No. 1 (56407A)	19.10.03-11.06.04	$919,163.90	$713,160.00

HCCW 691 of 2004 – B.F. Construction Co. Ltd.

Bill No.	Period	Amount Claimed	Amount Allowed
No. 10 (58280A)	12.06.04-25.09.04	$1,067,205.10	$817,219.10
No. 4 (58566A)	26.09.04-23.10.04	$69,520.24	$53,345.00
No. 3 (58974)	24.10.04-20.11.04	$327,087.00	$202,008.00
No. 2 (59346)	21.11.04-20.12.04	$458,118.00	$346,408.00
No. 5 (59754A)	19.12.04-22.01.05	$202,163.00	$123,742.00
No. 8 (60375A)	23.01.05-26.03.05	$141,483.96	$92,337.03
No. 16 (60568)	27.03.05-23.04.05	$130,008.00	$83,650.00
No. 17 (60923A)	24.04.05-21.05.05	$217,059.00	$145,527.00
No. 28 (61433a)	22.05.05-25.06.05	$105,227.00	$78,149.00

2. The three above-mentioned companies and a fourth company called Boldwin Construction Company Limited (HCCW 340 of 2002) were inter-linked and effectively controlled by Dr. Chan Shiu Chick (“Dr. Chan”) and Madam Law Wai Duen Nina (“Madam Law”).  The series of winding-up proceedings were the result of a matrimonial dispute between the two individuals.  The facts were almost the same and the issues are inter-related.  It is logical to have the same solicitor firm to handle all the proceedings.

3. I taxed the bills at different times.  The solicitor firm lodged their applications for review.  It was originally set down for hearing on 13 March 2006 but knowing that there will be a review of my decision on similar issues in HCCW 340/2002 I adjourned the hearing sine die with liberty to restore pending the outcome of the hearing before Madam Justice Kwan on 6 June 2006 as the judge’s decision will be binding on me.

4. The solicitors applied asking me to resume the hearing as they had raised new points not being considered by me in my earlier decision.  I acceded to their request.  Hence, the present review of the items I have decided in the 10 bills.

5. The main difficulty of this type of taxation or review is that I am totally unassisted.  The provisional liquidators seldom appeared and even if they ever appeared I doubt the assistance they could render on point of law.  Further, they are supposed to have considered the bills and have certified the fees to be reasonable before the bills are sent to me.  Their position does not fit in well into our adversarial system.

6. The items under review can be broadly divided into two main parts: (A) the hourly rates of certain fee earners viz. Mr. Kemp, the senior partner and Mr. Stranger, an associate solicitor of the firm and (B) the individual items of the different bills referred to in the following letters from the solicitor firm:

(a) Letter dated 15 February 2005 (“the 1^st letter”)

(b) Letter dated 7 March 2005 (“the 2^nd letter”)

I will also make reference to the letter dated 21 December 2005 (the 3^rd letter) in respect of an application for review in the case of Boldwin (HCCW 340 of 2002).  The solicitors are most anxious to obtain my view on the hourly rates, for which reason I deal with Part (A) first in this decision and leave Part (B) for another one which will come later.

Hourly Rates

7. Apart from the points that I have dealt with in my decision of the review raised in the 3^rd letter, the solicitor firm has raised completely new issues.  They rely on the decision in a leading case in the Queen’s Bench Division in the Supreme Court of England, Johnson v Reed Corrugated Cases Ltd [1992] 1 All ER 169 where at page 173 Evans J cited with approval what Kerr J said in Leopold Lazarus Ltd v Secretary of Stale for Trade and Industry [1976] SJ 268 how the hourly rate is arrived at:

“The assessment of the appropriate rate per hour would be based on the Taxing Master’s knowledge and experience of the average solicitor or executive employed by the average firm in the area concerned.”

I do not have any dispute on this general statement.  In fact, Hong Kong system is in its own way operating under this general concept.

Hong Kong Scale

8. In point 2 of the 1^st letter, the solicitor firm states that “the hourly rates prescribed in the scale were set by the court rather than the Law Society”.  It seems to argue that the scale does not truly represent the hourly charge of an average solicitor in an average firm.

9. I do not agree with such statement.  The scale was not set by court.  As far as I understand through my own personal involvement in the subject in different capacities during the last twenty years, the scale was set by the Law Society.  On every occasion, before the scale was set, the Law Society instructed a reputable consultancy firm to do a survey of the cross-section of the whole profession and to find out the reasonable charges for an average firm.  Then, the consultancy firm set the scale for the Law Society Council to consider and approve.  Thereafter, it was brought to the attention of the Registrar who discussed it with the other Masters.  The Registrar would express their view.  For the past 20 years, I have not learnt of a case where the Registrar did not accept the scale as a good reference point.

10. I also do not consider whether the general statement is relevant to the issue.  Even if it were, any person who considers that the scale does not truly represent the hourly rates of the average fee earner in an average firm is entitled to bring in evidence to challenge the scale as well as its basis.  That is what has been done by the solicitor firm.

Average Solicitor in Average Firm

11. The solicitor firm submitted that the scale as contained in Law Society Circular 97-234(PA) “was set nearly 9 years ago and does not truly reflect the fees charged by ourselves or that of our competitors” (point 4 of the 1^st letter).  In a separate letter dated 11 March 2006 he quoted the hourly rates claimed to be charged by 3 other solicitor firms, I believe, “its competitors”.  I summarise them together with the rates claimed by the solicitor firm and the Law Society scale in the following table:

Firm A*	$2,650 (2 years standing)	$3,450 (5 years)	$4,800 (partner)
Firm B*	$2,000 to $2,500 (0-5 years)	$3,000 (5 to 10 years)	$4,000 (partner)
Firm C*	$2,500 (0-5 years)	$3,500 (5 to 10 years)	$4,500 (10 years plus)
The solicitor firm	$2,400 (2 years)	$2,900 (5 years)	$4,800 (senior partner with 20 years)
The scale	$2,000 - $2,500 (2-4 years)	$2,400 - $3,000 (5-6 years)	$3,200 - $4,000 (over 10 years)

(*I am not certain whether the firms which have volunteered the information wish to be named in a decision so I retain their anonymity.)

12. The rates that were claimed by the solicitor firm in the bills and those allowed by me are set out below:

	Rates Claimed in the bills	Rates Allowed
Mr. Kemp (Senior partner with more  than 25 years experience)	$4,632	$4,200
Mr. Stranger (admitted in September 2004)	$2,904	$2,100
Ms. Chong (admitted in 2003)	$2,100	$2,100

Even with the figures supplied by the other solicitor firms the rates that were claimed by the solicitor firm are above the average.  The firm B is in general adopting the Law Society scale.  The above figures do not assist the applicant in this review.

13. I accept that Hong Kong economy has gone through a lot of changes, ups and downs, since 1997 when the scale was set.  The same applies to the legal profession: it is within the public knowledge that during the years of 2003/2004 Hong Kong after SARS had gone through a very severe time.  The subject bills covered the period from 19 October 2003 to 25 June 2005.  I do not consider that the Hong Kong economy during that time returned to its prime years in 1996 and 1997 when the scale was set.  For the year 2003 and 2004 I would have adjusted the average rate downward.

14. I have not overlooked the fact that at the material times not many practitioners practised in the area of insolvency law.  I have given my view in paragraphs 8 and 9 of my decision in the case of Pro KTA Limited (HCCW 71/1995) on 1 September 2004, unreported.  I am prepared to give some credit to those who practise in that area slightly higher rate.

Paragraph 2 of Part II of the First Schedule to Order 62

15. In fixing the rates of the fee earners in each taxation, it is submitted that I must take into consideration the seven factors as set out in the said paragraph 2.  I have no dispute about that and in fact I have done so.  The seven factors are similar to those as set out in Paragraph 1 of Part 1 of Appendix A to Order 62 of the Rules of the Supreme Court in England.  But, its application is different.

16. In England at that time, according to Part II of Appendix 2 to Order 62 of the Rules of Supreme Court all taxation bills were to be drawn under the following items:

1. Interlocutory Attendances

2. Conferences with Counsel

3. Attendance at Trial or Hearing

4. Preparation

5. Taxation

Also in accordance with paragraphs 3 and 4 of the Practice Direction 1986 each chargeable item is divided into 2 parts: the first part relating to direct costs and the second part about enhancement to be assessed in accordance with the 7 factors contained in the said Paragraph 1.

17. The following is an extract of the relevant parts of paragraph 3 and 4 of the Practice Direction 1986:

“3. ………… Each chargeable item will be the subject of a discretionary allowance which should be shown in two parts, the first representing the direct costs of the work properly itemized and the second the appropriate allowance for care and conduct.

4. The allowance for care and conduct is intended to reflect all the relevant circumstances of the case and in particular the matters set out in paragraph 1(2) of Part I of the new Appendix.  It is also intended to reflect those imponderable factors, for example general supervision of subordinate staff, for which no direct time charge can be substantiated, and the element of commercial profit.  Accordingly the allowances to be made for different items may, in the discretion of the taxing officer, be allowed at different rates.  In particular it is anticipated that, save in unusual circumstances, the rate appropriate to items 1, 2, 3 and 5 for care and conduct will be less than the rate appropriate for item 4 for general care and conduct.”

It is noted from the quoted passage that there are different rates applicable for different types of work.  The direct costs in the 1^st part of the costs for each item are comparatively much lower than those in Hong Kong.  The 2^nd part shall be assessed according to the 7 factors.  This is quite different from the application of the 7 factors in Hong Kong.

18. Such arrangement in England has been confirmed by judicial authority as summarized in the case of Leopold Lazarus Ltd (at 601) repeated in the case of Johnson v Reed Corrugated Cases Ltd [1992] 1 All ER 169 at 174d:

“… a solicitor’s remuneration should consist of two elements: first, a sum computed on the basis of an hourly rate which represents the “broad average direct cost” of undertaking the work; and second, a sum, usually expressed as a percentage mark-up of the broad average direct cost, for care and conduct.”

19. In Hong Kong the 7 factors have been applied in a different way.  We fix a charging rate for each fee earner for the taxation of the whole bill and in this case the ten bills.  We make no distinction between the different kinds of work within the bill, to which the hourly rate applies.  We consider all the works covered by the bills as a whole.  We take a global approach and draw no distinction between reviewing the file or drafting a simple letter and the preparing a petition which forms the subject matter of the proceeding.  We use the seven factors to determine the hourly rates of the fee earners involved applicable to all the bills in the taxation.

20. As rightly pointed out by Evans J at page 178d of his decision in Johnson v Reed:

“The decision in any particular case must always depend upon the circumstances of that case and upon the knowledge and experience of the registrar.”

I accepted that the cases concerned involved complicated facts and substantial sums.  The provisional liquidators faced the challenges of the different parties.  However, the issues raised were not uncommon, mainly misfeasance and misappropriation.  The main bulk of works was carried out by Mr. Kemp and Mr. Stranger.  It was intended to be a division of labour between them: Mr. Stranger did the ground work and Mr. Kemp supervised him.  The situation did not seem to be so.  Take the example of Bill No. 1 (56407A): Mr. Kemp claimed 67 hours 25 minutes and Mr. Stranger 171 hours 10 minutes.  Mr. Kemp spent a time more than one-third of Mr. Stranger’s time.  Mr. Kemp had hand on everything and examined and reviewed every minor detail.  Effectively, two persons did the same job.  Only on very few occasions e.g. attending meeting by both of them I have not allowed the time of two solicitors working on the same job.  I do not find the setting Mr. Kemp’s fee at $4,200 per hour as inappropriate.

21. As to Mr. Stranger, he was not admitted as a solicitor in Hong Kong until 24 September 2004.  During the most part of the different periods covered by the bills Mr. Stranger worked as a paralegal.  I take a global approach and having taken into his previous experience I fix it at $2,100 per hour.  I am not convinced that I should review his rate.

22. Accordingly, I refuse the applications for review of the charge-out rates of the two fee-earners.  I reserve the costs of the review until I have made my decision on other items.