A SOLICITOR v. THE LAW SOCIETY OF HONG KONG

CACV 181/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 181 OF 2003

(ON APPEAL FROM SOLICITORS DISCIPLINARY TRIBUNAL)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal by the 2nd respondent from an order of the Solicitors Disciplinary Tribunal, made on 16 June 2003, whereby, following findings dated 7 April 2003, the Disciplinary Tribunal made an order fining the 2nd respondent a sum of $20,000 and ordered the 2nd respondent to pay the costs of and incidental to the proceedings against him personally, on a full indemnity basis, the costs to include those which were incidental to the investigation by the Law Society, the costs of the Tribunal Clerk and the costs of the Prosecutor to be taxed, if not agreed. At the conclusion of the hearing of this appeal judgment was reserved, which we now give.

The events leading up to the preferment of the charges

2. At all material times the solicitor was a partner in private practice. The partnership had been formed in about 1989. At one stage there were three partners but one partner soon left the partnership. The partnership of two partners carried on until 1999 when there was a dispute, which has no bearing on this case other than the fact that the events which led up to the bringing of the professional misconduct charges against the 2nd respondent emerged because of the dispute.

3. The Tribunal found as a fact that the other partner in the firm, the 1st respondent in the disciplinary proceedings, had made an agreement with one of the employees of the firm, the 3rd respondent in the disciplinary proceedings, in respect of bonuses to be paid. The bonuses were to be paid in respect of files which the 3rd respondent handled which came from specific clients. Those clients were well-known companies which specialised in hire purchase and lease arrangements and the work involved was debt collecting on their behalf. The arrangement was said to encourage the 3rd respondent to use his best endeavours in respect of the files and to maintain good customer relations with the particular companies. The 3rd respondent was to be paid $500 in respect of each file handled. The Tribunal's finding was that "the true nature of the bonus payment is to assign a certain amount to the 3rd respondent out of the monies grossly received from a professional bill rendered to" the solicitors' clients. That arrangement continued for 10 years whilst the 1st and 2nd respondents remained in partnership.

4. It may also be mentioned that during that period the 2nd respondent was responsible for filing a statutory declaration each year in accordance with the Solicitors' Practice Rules relating to employees of the firm. In that return each employee of the firm was listed with information relating to his monthly salary and the bonuses which were paid. In none of those statements was information given as to the bonuses which were paid in accordance with the arrangement outlined above.

5. Although the 2nd respondent did not give oral evidence before the Disciplinary Tribunal there was a statement from him in which it was stated that:

"I was aware in a general sense of the terms upon which the 3rd Respondent was employed and understand that this included a salary, together with a bonus based upon the work undertaken by the 3rd Respondent. So far as I am aware this bonus was not paid out of any particular profit costs, rather it was paid from the firm's general revenues as part of the 3rd Respondent's salary."

6. It was in those circumstances that the 2nd respondent came to be charged that he had breached "rules 2 and 4 of the Solicitors' Practice Rules and principles 2.03 and 4.15 of the Hong Kong Solicitors' Guide to Professional Conduct Volume 1, 1st edition, in that he agreed to share and did share the firm's profit costs with a person who was neither a solicitor practising in Hong Kong, nor a solicitor or other duly qualified legal agents practising in the United Kingdom or in some other part of the Commonwealth." The particulars under the charge referred to the agreement in or about 1989 between the 1st respondent and the 3rd respondent that the 3rd respondent would be paid a commission from the profit costs of the firm. The second part of the particulars was that the 2nd respondent was a partner of the firm which paid the 3rd respondent the commission.

7. Further particulars were sought and in respect of the 2nd respondent's responsibility it was said:

"The 2nd respondent was a party to this agreement in at least two respects. First, the agreement was made by the two partner firm of which he was one of the partners. Secondly, by virtue of Principle 2.03 of the Hong Kong Solicitors Guide to Professional Conduct. These are the best particulars that the complainant can give prior to discovery and the exchange of statements and affidavits."

The issues before the Tribunal

8. The Tribunal was therefore faced with two issues to decide. The first was as to whether there had been an agreement to share the firm's profit costs. Obviously if there had been an actual sharing of profit costs that, too, fell within this category. The second issue was whether the 2nd respondent was responsible, as a matter of professional conduct, for any agreement or implementation thereof. In respect of both issues the Tribunal decided against the 2nd respondent.

The agreement to share profit costs

9. There is no definition of profit costs. However, it may be assumed that profit costs mean the charges raised by solicitors' firms in respect of their services. That would be in contrast to items of disbursement which relate to costs and charges incurred by the solicitors' firms on behalf of their clients. Reference in this regard might be made to rule 10(4) of the Solicitors' Accounts Rules. That provides that a solicitor shall keep a record of all bills of costs, distinguishing between profit costs and disbursements.

10. The rules regarding the professional conduct of solicitors in relation to the sharing of profit costs are strict. Rule 4 of the Solicitors' Practice Rules provides that:

"A solicitor shall not share or agree to share with any person not being a solicitor practising in Hong Kong his profit costs in respect of any business whether by way of paying or agreeing to pay a commission on business introduced by any such person not being a solicitor, or otherwise:"

11. There are exceptions, which are contained in that rule, but they are irrelevant to the issues arising in this case. Paragraph 4.15 of the Hong Kong Solicitors' Guide to Professional Conduct provides that:

"Subject to the exceptions set out in r 4 of the Solicitors' Practice Rules, a solicitor shall not share or agree to share his profit costs with any person other than a practising solicitor."

12. The effect of rule 4 encompasses the situation of a solicitor factoring his book debts. The rule prohibits that. Furthermore, as was discussed in the course of the hearing, a specific exception had to be introduced to enable solicitors to receive credit card payments for their bills because credit card companies invariably deduct a percentage from the amount credited to the payee.

13. The Tribunal appeared to place little weight on the assertion made by the 1st respondent that he would have paid the 3rd respondent $500, whether payment had been received in respect of the file or not. This may well be because, given the particular clients involved, the likelihood of the firm not being paid by the particular clients whose files were subject to the agreement, was remote. Further, the evidence before the Tribunal showed that in respect of most payments to the 3rd respondent, they were made very soon after the clients made payment to the firm. The evidence regarding the rest of the payments was incomplete. Be that as it may, there is no doubt in my mind that the agreement to pay the 3rd respondent $500 in respect of each file of particular clients was an agreement to share profit costs in respect of that business. Quite simply the payment was directly related to a particular item of work for which the firm received payment from its relevant client, for the work carried out by the firm. On the facts of this case there is no reason to suppose that anything remotely approaching touting or corruption was involved. Indeed, the penalty imposed by the Tribunal reflects the fact that it considered that what had happened was comparatively innocent, if misguided.

Did the 2nd respondent have sufficient knowledge?

14. The remaining question is, however, more difficult. The Tribunal posed itself the question "Did the 2nd respondent know or was he somehow involved in the 'bonus' arrangement based on the information before the Tribunal?". Mr Carolan, on behalf of the 2nd respondent, did not seek to argue that that was not the correct question to pose. Indeed, he referred this court to the decision of this court in A Solicitor v The Law Society of Hong Kong [1996] HKCA 291 where at page 36 of the report, Litton VP, as he then was, drew the distinction between conduct that would give rise to civil liability on the part of a solicitor and conduct that would constitute professional misconduct. This was relevant because of the reliance by the complainant upon the provisions of paragraph 2.03 of the Hong Kong Solicitors' Guide to Professional Conduct. That reads:

"A sole practitioner and each partner is prima facie responsible for the acts or omissions of his firm and this extends to the acts or omissions of his partners and staff."

15. As Litton VP pointed out, there is a clear distinction between civil liability which will arise as a result of agency and partnership and liability in respect of professional misconduct which is quite a separate matter.

16. The Tribunal found that the 2nd respondent "did have knowledge or was involved in the 'bonus' arrangement after considering the following" three "factors." Those factors were as follows:

(1) The 2nd respondent had made the Statutory Declarations, to which reference has been made above. Based on that, the Tribunal reasoned that because the 2nd respondent was an experienced solicitor it was his duty to check and inspect the accounts and money payment arrangements of the firm carefully. The findings of the Tribunal went on:

"The Tribunal believes that the 2nd Respondent in fact had at all material times done the checking and inspection job in relation to these payments, especially in the light of the contents of his witness statement dated 17th June 2003. Therefore it is our finding that the 2nd Respondent knew the nature of the bonus arrangements with the 3rd Respondent."

(2) The Tribunal secondly referred to the fact that the 2nd respondent had admitted that he had knowledge of the bonus arrangement in a general sense. As part of this factor, the Tribunal referred to the fact that, whether deliberately or otherwise, the 2nd respondent had not listed any bonus payments in respect of the 3rd respondent in the statutory declarations.

(3) Finally, the Tribunal referred to the fact that the 1st and 2nd respondents' firm was only a two partner firm. From that the Tribunal deduced that major decisions would have been made by the partners in consultation with each other. From that the Tribunal went on to deduce that it was unlikely that the 2nd respondent was not involved in or knew the details of the management and accounts of the firm at the material time.

17. In my view, neither taken separately nor together can these three factors establish the requisite knowledge or involvement in the bonus arrangement to constitute the 2nd respondent guilty of professional misconduct. As regards the first factor, for example, the fact that it was the 2nd respondent's duty to check and inspect the accounts does not mean that he actually did so nor that he failed to do so in a culpable manner. Again, there may be cause for complaint that the 2nd respondent made statutory declarations which were inaccurate but that does not mean that there is cause for complaint that he was involved in an arrangement to share profit costs. Lastly, the mere fact that the firm in question was a two-partner firm did not mean that all decisions were taken by the two partners together. Indeed, there are indications in this case which would lead to the contrary. It would appear that the 3rd respondent was very much working for the 1st respondent and the impression left is that the 3rd respondent was under the supervision of and working for the 1st respondent almost exclusively.

18. In those circumstances, I consider that the conclusion of knowledge or complicity on the part of the 2nd respondent in the irregular bonus payments cannot be deduced to the requisite standard which would be appropriate in respect of charges of professional misconduct. Indeed, although it did not form part of any major argument during the course of the hearing, it seems to me that the finding in the alternative of either "knowledge" or "involvement" is itself something which would undermine the decision. Whereas, of course, someone who was a party to a decision would have the requisite knowledge, it is quite possible that somebody would have relevant knowledge without being a party to the decision. It thus becomes unclear as to precisely what the Tribunal did find. The finding in the alternative is not one which commends itself to me.

Costs

19. In view of the conclusion to which I have come it is unnecessary to consider the matters which would arise under the question of costs. It might be observed however, that although the 2nd respondent was ordered to pay a fine of $20,000, the effect of the order in respect of costs was that it seemed likely that the total costs which the 2nd respondent would have been called upon to pay would have been in the region of $800,000. Mr Cooney, who appeared on behalf of the Law Society, volunteered that, in the light of recent decisions of this Court relating to the basis on which cost can be ordered by the Tribunal, an appropriate order would have been that the question of costs be remitted to the Tribunal to consider the basis upon which costs should be ordered.

20. There are other matters, however, which also call for comment. It appears from the bill of costs which was delivered on behalf of the Clerk to the Tribunal that a claim was being made in respect of costs for drafting the Findings. I consider it unnecessary to repeat what was said by this court in the case of Au Wing Lun, William v The Law Society Disciplinary Tribunal and the Law Society of Hong Kong CACV 4154 of 2001. I would, however, repeat that I consider it wrong for the findings of the Solicitors Disciplinary Tribunal to be drafted by the Clerk to the Tribunal. Although, in this case, the court does not know exactly what did take place, it is clear that charges are raised by the Clerk for drafting the findings in respect of dates that were before the Tribunal had given its decision and made its order. If the Clerk did draft the findings in those circumstances, that, for the reasons previously expressed by this court, is not an appropriate course. If such course is taken it can have two effects. The most severe effect could be that the findings would have to be set aside as being unsafe. Secondly, the justification for the costs of the Clerk undertaking work that he should not have done would appear obscure.

Conclusion

21. In my view this appeal must be allowed. The finding of professional misconduct against the 2nd respondent should be set aside. There should be an order nisi of costs in favour of the 2nd respondent in this court and in the Tribunal.

Hon Yuen JA:

22. I agree.

Hon Hartmann J:

23. I agree.