SIMMONS & SIMMONS SOLICITORS (a firm) v. THOMAS JOSEPH DILLON, JR.

HCA 2784/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2784 OF 2003

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J U D G M E N T

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Introduction

1.  This is an action instituted by a leading firm of solicitors (the “Plaintiff”), against its client (the “Defendant”) for recovery of outstanding professional fees in the amount of HK$1,590,212.40 for professional services rendered and disbursements incurred by the Plaintiff as the Defendant’s solicitors during the period from 22 November 2002 to 31 March 2003.  Eight invoices were issued by the Plaintiff to the Defendant between 22 November 2002 and 31 May 2003 in the total amount of HK$2,478,508.96 for legal fees and disbursements.  After applying various sums held on account for the Defendant in part-settlement of legal fees and counsel fees, the amount outstanding was HK$1,590,212.40. 

2.  The Defendant did not dispute that the eight invoices had been issued to him and that he had paid various sums on account as alleged by the Plaintiff.  He denied that the invoices were incurred at his request and put the Plaintiff to strict proof.  His specific defences were (1) that the amount invoiced represented over ten times the estimate of US$20,000 originally given in the Plaintiff’s retainer letter dated 31 July 2002 (the “Retainer Letter”); (2) The Plaintiff failed to follow explicit instructions to limit the number of solicitors working on the Defendant’s file; and (3) the work done by the Plaintiff was worth no more than the sum particularised in the Retainer Letter and he had applied to have the invoices taxed under section 67 of the Legal Practitioners Ordinance.  He also counterclaimed for breach of the retainer.   

3.  The Defendant was until 8 February 2006 represented by another firm of solicitors, Messrs Robertsons, in this action who have since ceased to act for him. The Defendant defaulted at the hearing.  The trial was conducted in his absence. 

4.  The issues raised in this action are:

(1)   whether there was a cap on the retainer to the amount of US$20,000 or whether there was any misrepresentation to that effect leading the Defendant to enter into the retainer;

(2)   whether the Plaintiff failed to follow the Defendant’s instructions to limit the number of solicitors to one; and

(3)   whether the Defendant is entitled to have the costs taxed under section 67 of the Legal Practitioners Ordinance if he was of the view that the fees were excessive?

5.  The Defendant had also filed a summons on 7 February 2006 seeking to amend its defence and counterclaim.  That summons was dismissed for want of prosecution.  The trial proceeded on the basis of the Defendant’s original defence and counterclaim without the proposed amendments.

The fact

6.  The Defendant is an American citizen resident in Georgia, USA.  He is a practising attorney and was at one stage a very successful product liability lawyer and in the USA.  In or about July 2002, his former partners brought an action against him under High Court Miscellaneous Proceedings No 1751 of 2002 (the “HCMP Action”).  He had engaged the services of Messrs Haldanes to protect his interest in Hong Kong.

7.  On 30 July 2002, the Defendant sought alternative advice from Ms Loughrey of the Plaintiff on the telephone.  He then sent further details of his case by e-mail to Ms Loughrey on 31 July 2002.  Ms Loughrey had a discussion with Mr Lewington, who is the head of the Plaintiff’s commercial litigation practice.  Mr Lewington suggested an estimate of US$20,000 as the costs for the initial work to be carried out for the Defendant.

8.  On 31 July 2002, the Defendant, Ms Loughrey and Mr Lewington had a telephone conference in which the Defendant gave further information about his case.  Mr Lewington told the Defendant that the Plaintiff’s estimate for reviewing his papers, giving oral and then written advice on the merits and advising on the issues of jurisdiction, lis alibi pendens and forum in relation to the HCMP action was US$20,000.

9.  Following that telephone conference, Ms Loughrey e-mailed a soft copy of the Plaintiff’s engagement letter to the Defendant setting out information on the Plaintiff’s costs and billing procedures.  The Retainer Letter stipulated:

(i)    the Plaintiff’s fees would be determined by the actual time spent on a matter.

(ii)   the Plaintiff estimated that its fees for a review of paper, oral then written advice on the merits, dealing with the Originating Summons in the HCMP Action, preparing correspondence with the Defendant’s former partner, assisting with the corporate issues relating to the transfer of shares would be in the region of US$20,000, an estimate based on the discussions held and the information made available to the Plaintiff thus far.

(iii)   the Plaintiff was requesting a payment on account of US$20,000.

(iv)  the Plaintiff would render bills on a monthly basis and expect bills to be paid within 14 days.

The Defendant signed and returned a copy of the Retainer Letter to the Plaintiff together with a letter dated 31 July 2002 to Ms Loughrey and Mr Lewington instructing the Plaintiff to handle his case (the “Letter of Instruction”).

10.  The Defendant and Ms Loughrey had further communication and correspondence and arranged for Messrs Haldanes to transfer the Defendant’s files to the Plaintiff after settling their fees in the amount of about US$25,253. 

11.  The Plaintiff provided legal services to the Defendant in connection with the HCMP Action.  By 23 September 2002 the Plaintiff had incurred HK$958,378 worth of time in acting for the Defendant.  Mr Lewington sent a letter to the Defendant by e-mail regarding the Plaintiff’s fees and disbursements incurred to date, including a detailed breakdown of the time spent on various items of their work.  He also explained the position by comparison with the initial fee estimate and proposed a very substantial reduction of the fees by about 40% to HK$495,478.04.

12.  The Defendant replied by e-mail on the following day.  He said while it had been communicated to him by telephone the previous week that the estimate had been exceeded, he said that he had not been made aware that the estimate had been exceeded by nearly four times and he must discuss the fees with the Plaintiff.

13.  On 5 October 2002, the Defendant paid the Plaintiff US$50,000.  He wrote to Mr Lewington in his e-mail on the same date that he paid at Mr Lewington’s request and before having reviewed the timesheet and he reserved his position to question the items of work, in particular as the fees were four times in excess of the estimate.

14.  On 30 October 2002, the Plaintiff sent the Defendant an invoice No 22090361 dated 30 September 2002 (the “1^st Fee Note”) for services performed during the period from 30 July 2002 to 17 September 2002 in the amount of HK$495,478.04, including time costs of HK$486,000 and disbursements of HK$9,478.04.  The 1^st Fee Note was settled and did not form part of the Plaintiff’s claim in this action.  Between 22 November 2002 and 31 May 2003, the Plaintiff issued the eight invoices for the total amount of HK$2,478,508.96 for legal fees and disbursements which formed the subject matter of this action. 

Issue (1) - Was there a cap on the retainer

15.  I have set out the contents of the Retainer Letter in paragraph 9 above.  Paragraph 1 of the Retainer Letter which provided for fees stated that the Plaintiff’s fees were determined by the actual time spent on a matter.  It then set out the hourly rate of Ms Loughley, Mr Lewington and associate solicitors.  In paragraph 2 of the Retainer Letter, which set out the system of billing, it was stated that the amount of US$20,000 was an estimate from the discussion with the Defendant and the information made available to the Plaintiff at that stage, i.e. 31 July 2002.  The word “estimate” was actually used.  It then requested a payment on account in the amount of US$20,000 and stated that bills would be issued on a monthly basis and were expected to be settled within 14 days.  If the estimate was intended to be a cap, there would be no need to demand a payment on account of US$20,000 as that would have been full payment and there would be no need to mention about monthly bills and settlement within 14 days.  There was nothing in the Retainer Letter which stated that the amount of US$20,000 was the ceiling of the fees to be charged.  It is clear from the Retainer Letter that the fee of US$20,000 was a qualified estimate only. 

16.  The Defendant also understood the amount of US$20,000 as an estimate.  In his Letter of Instruction dated 31 July 2002 returning the signed copy of the Retainer Letter, the Defendant wrote:

“I understand from our telephone conference today that this sum will suffice for the requisite familiarization with the matter, for correspondence with Dr Lungershausen as to her contentions with regard to the transfer of the PSC Trust and for at least the initial preparation of the defense of the claims filed against me for dissolution of the law firm.

  I understand that should the matter go to litigation before the courts it may be necessary to instruct a barrister …”

From the eight invoices, it is obvious that the matter did go beyond the above stage. 

17.  After Mr Lewington had informed the Defendant of the fees incurred on 23 September 2002, the Defendant replied by e-mail on the following day.  His e-mail included the following:

“This amount greatly exceeds the USD20,000 estimate.  The only warning I received that we were exceeding that estimate was the phone call, …

  To date we have completed the affidavit only.  But there has been no real movement forward on issues with regard to my rights with the service companies or the trust although there are significant positions in the fees for these items.  At this rate of progress, even if I am able to use the trust to pay your bills, it will be exhausted in very short order.”

The above passage is a clear acknowledgment that the amount of US$20,000 was an estimate and that further liability would be incurred.  More importantly, the Defendant promptly paid US$50,000, even before the 1^st Fee Note was actually sent on 30 October 2002.  It is clear from that invoice that the services encompassed was beyond the scope covered by the Retainer Letter and was beyond the estimate.  Mr Lewington had explained to the Defendant the reasons.  The Defendant did not protest about it then.  His complaint was that he should have had a better warning and that the fees ought to be discussed.  It is clear from the above that the Defendant understood from the very beginning that the quote was no more than an estimate in respect of the limited services stated in the Retainer Letter and that he would be charged at hourly rate depending on the services required and with that understanding he paid US$50,000 prior to receipt of that 1^st Fee Note.   

18.  Not only that the Defendant settled the 1^st Fee Note, which did not form part of the present claim, he made payments over and above what he now called the estimate.  He paid US$75,000 on 12 February 2003 and wrote to his accountant on 3 December 2002 asking for US$75,000 to meet his legal costs.  Even as late as 11 March 2003, his trustee was still seeking to get US$200,000 for the Defendant to pay “defense costs”.   On 31 March 2003 and 31 May 2003, the Defendant also paid further sums of HK$234,000 and HK$82,500 for counsel’s fees. 

19.  Though not specifically raised in his pleading, the Defendant suggested in his witness statement that Ms Loughrey had indicated to him that the Plaintiff would “fight the battle” in a competent and more cost-efficient way than Messrs Haldanes for less than half of the sum estimated by Messrs Haldanes, i.e. less than half of US$70,000.  Ms Loughrey denied making that representation.  There was no evidence from the Defendant in support of the alleged representation at the hearing as the proceedings were conducted in his absence.  I accept Ms Loughrey’s evidence.

20.  It is amply clear from the Retainer Letter signed by the Defendant, his Letter of Instruction, his conduct in paying the 1^st Fee Note and in part paying some of the invoices and even his own complaint about the level of the fees that the amount of US$20,000 stated in the Retainer Letter was just an estimate of the likely fees in respect of the limited scope of work stated in the Retainer Letter and based on the information supplied by the Defendant as at 31 July 2002 and not a cap on the amount of fees to be charged or an agreed fee for the entire conduct of the litigation in the HCMP Action.  His defence that the total fees which the Plaintiff may charge were subject to a cap of US$20,000 was not a genuine defence and unsupported by any evidence.  I reject this defence of the Defendant.

Issue (2) – Plaintiff failed to limit the number of solicitors

21.  The next defence was that there was a duplication of work by solicitors of the Plaintiff. The evidence on this issue was that the Defendant wrote to Mr Lewington on 13 March 2003 by e-mail requesting that only a single lawyer should work on his file together with the barrister involved, Mr Barlow.  At that time, five invoices had been issued without any subsequent complaint about the number of solicitors being engaged.  Mr Lewington replied on 24 March 2003 that as far as the jurisdiction dispute was concerned, Ms Cheng could, with some supervision from himself, work on the matter with counsel but as far as the claim for shares of the company was concerned, either Ms Cheng or a more junior solicitor, Mr Gray, could work with counsel.  He pointed out that the respective hourly rates of Ms Cheng and Mr Gray were at that time HK$3,150 and HK$1,800 and that Mr Gray would require more supervision by Mr Lewington, suggesting more supervision costs. He requested the Defendant to discuss the matter with him.  But the Defendant did not respond.  Subsequently, Mr Gray wrote to the Defendant by e-mail on 16 May 2003 asking for his confirmation as to whom he wished to be involved in the preparation for the forthcoming hearing.  Again the Defendant did not respond.  Mr Lewington said the Plaintiff continued to work in what he considered to be the most cost effective manner from the Defendant’s point of view. 

22.  According to the Defendant’s witness statement, he had orally indicated to Mr Lewington he had decided to select Mr Gray and that this was done prior to Mr Gray’s e-mail on 16 May 2003 and as such he saw no need to respond to Mr Gray’s e-mail.  Again there was no evidence from the Defendant to support the above allegation.  But according to Mr Lewington’s evidence, he received no response from the Defendant.  I accept Mr Lewington’s evidence.  The Defendant did not respond by giving firm instruction.  Mr Lewington had to carry on the conduct of the litigation in what he thought was in the Defendant’s best interest and in the most cost effective manner.  The saving in having Mr Gray to work on the matter instead of Ms Cheng may be more than off-set by the cost in the time Mr Lewington had to incur in supervising Mr Gray.  This defence is unsustainable.

Issue (3) – whether to order taxation

23.  In view of the above conclusion, the Defendant is liable.  The question is quantum.  The Defendant’s position was that the Plaintiff was not entitled to claim the sum of HK$1,590,212.40 but in the event that the Court found that the Plaintiff is wholly or partly successful in its claim, he would request that the fee notes be taxed.

24.  A litigant is entitled to have his bill taxed under section 67 of the Legal Practitioners Ordinance (Cap 159).  Under section 67(1), the Court shall order taxation if an application is made within one month of the delivery of the bill.   Failing that the Court has discretion under section 67(2) to order taxation on such terms as it thinks fit if an application is made within 12 months of delivery of the bill.  Of the eight invoices, the first one was dated 22 November 2002 and the last one was dated 31 May 2003.  The Defendant issued a summons dated 15 October 2003 to have these bills taxed.  In the present case, all the invoices had been delivered more than one month prior to the application. There was an apparent suggestion by the Defendant that a notice of intention to challenge the invoices would suffice if given within one month of delivery would be sufficient to bring the bill within section 67(1).  The provision of that sub-section is unequivocal.  The Court’s power to order taxation under section 67(1) may only be invoked on an application made within one month of delivery of the bill.  A notice of intention or a complaint does not qualify as an application.  Certainly, the fact that such a notice or complaint has been given is a factor to be taken into account by the Court in exercising its discretion under section 67(2).  In the circumstances, all the eight invoices fall under section 67(2), being delivered more than one month but less than twelve months. 

25.  It is impossible to list all the factors that the Court should consider whether to exercise its discretion under section 67(2) and the terms on which such discretion is to be exercised.  But, the intention of the applicant, whether he was aware of his right to taxation, the timing of the application and whether on the face there is any suggestion of over-charging are obvious factors to be considered.  In general, the discretion should be exercised in favour of taxation unless the application is an abuse of proceedings or not bona fide made.  Usually, the more important question is on what terms such discretion should be exercised so that it is fair to all parties concerned and that the solicitors are not being delayed of the fruit of their labour.

26.  The Defendant is a practicing lawyer himself.  I have rejected his defences of a capped fee and of misrepresentation.  These defences stood no chance of success even assuming he were able to give evidence in Court along the lines of his witness statement.  Such evidence is inherently incredible and incapable of belief in the light of incontrovertible documentary evidence.  He had shown no good faith in contesting the Plaintiff’s claim.  He was represented in this action by another firm of reputable solicitors until a week before trial.  Then he absented himself at the hearing. 

27.  The Defendant has been informed of his right to have the invoices taxed.  The invoices were very detailed and sent to him on a monthly basis.  They provided a clear summary of how many hours each fee earner had spent and the time he had spent.  Though he made some complaint about the level of the fees, he never identified any particular item that he considered excessive and the reasons.  There was no evidence from any law costs draftsman that the fees incurred were in any way excessive. He pleaded there was duplication.  That allegation was never substantiated.  On the face, there is nothing to suggest the fees charged in the eight invoices were excessive.

28.  Yet it was only at the very last minute that the Defendant claimed there was effectively either a cap or an agreed fee of US$20,000.  He had kept the Plaintiff in the belief that its fees would be paid from funds which were forthcoming.  He is a practicing lawyer.  In that light, his conduct in paying some of the invoices and in not applying for taxation promptly was inconsistent with someone who had a genuine dispute about the bill.  He has already kept the Plaintiff out of money for three years.  This case bears all the hallmarks of a person delaying payment.  His application for taxation is not a genuine one.

29.  The Defendant had shown no genuine intention to defend this action.  He had no reasonable defence to the action.  He had no genuine intention to have the bills taxed. The invoices were highly itemised with summaries and sent on a monthly basis.  The Defendant was aware of his right to have the bills taxed well before the invoices were delivered.  He had not identify any item which he thought were excessive.  There is no evidence or suggestion of over-charging by way of evidence from law costs draftsman.  The application for taxation is not a genuine but a delaying tactic to keep the Plaintiff out of its money.  Taxation is just a waste of time and an abuse of proceedings.  In the circumstances, I refuse to exercise my discretion to have the bills taxed.

30.  In addition, in respect of the first invoice being challenged, it has been substantially paid, leaving a sum of HK$95,345.44 outstanding out of an invoice of HK$667,142.  If a bill has been paid, the Court will not exercise its discretion unless there are special circumstances, in other words, something which is out of the ordinary, something which is serious, which justifies not only an ordinary taxation but a special one.  The mere fact that a party has reserved his right would not ipso facto constitute special circumstances: per Mayo VP in South Horizons International Petroleum Limited and Messrs Crump & Co (a firm), CACV 1691 of 2001 (unreported dated 6 March 2002).  On this ground alone, I am prepared to exercise my discretion to have this invoice taxed.

Conclusion

31.  I am satisfied that the Plaintiff has proved its claim against the Defendant.  In coming to this conclusion, I have duly considered the Defendant’s pleaded defence and his allegations in his witness statement.  I have rejected them. Accordingly, I enter judgment in favour of the Plaintiff in the sum of HK$1,590,212.40 together with interest thereon at the rate of 8% per annum from 28 July 2003 to the date hereof and thereafter at judgment rate until payment.  The Defendant’s counterclaim is dismissed for want of prosecution.  The sum of HK$795,600.00 now in Court standing to the credit of this action together with interest accrued thereon be paid out to the Plaintiff in part satisfaction of the judgment debt.  The Defendant shall pay the Plaintiff’s costs, to be taxed if not agreed.  The application of the Defendant by summons filed on 7 February 2006 to amend the Defence and Counterclaim was dismissed for want of prosecution with costs.