RE A FIRM OF SOLICITORS

                Circumstances when an agreement for costs for contentious business can be entered into by a solicitor - conditions which have to be complied with - circumstances when such an agreement can be set aside - right of client to require taxation of bill of costs - requirement for "special circumstances" - what constitutes "special circumstances".  In this case an order was made setting aside the contentious business agreement and holding that "special circumstances" did exist. An order made for a bill of costs to be prepared and taxed by the solicitors.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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JUDGMENT

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1. This is an appeal against the judgment of Master Betts who ordered that various bills which had been rendered by the defendants who are a firm of solicitors to the plaintiffs should be taxed. The background to this application is that Axona International Credit and Commerce Limited (Axona) was a deposit-taking company which experienced trading difficulties which eventually led to a petition being filed by its creditors for it to be compulsorily wound up. According to the affidavit evidence before me the directors of Axona were anxious to stave off their creditors and obtained as much time as possible so as to enable them to attempt to mount a rescue operation so that the company could continue with its business. For this purpose the defendants undertook a considerable amount of legal work and briefed three counsel to assist them in their endeavours and to represent the company in all of the litigation it was then involved in. The period when the legal work was undertaken was approximately from the beginning of December 1982 until February 1983.

2. After an order was made by the court for the appointment of a liquidator he examined the records of the company and decided that the legal expenses which had been incurred in respect of this work were excessive. The total amount payable under the bills of costs including disbursements and a retainer which was entered into amount to almost two million dollars.

3. It is apparent from the papers placed before me that at no time have the directors of Axona made any objection to the legal expenses which were incurred. The directors have not associated themselves with the attitude which has been adopted by the liquidator.

4. Mr. Edward Chan who was representing the defendants submitted that an agreement in writing existed in relation to all of the work which was undertaken and that the provisions contained in sections 58, 60 and 62 of the Legal Practitioners Ordinance Cap. 159 applied thereto. Put very simply if a solicitor complies with the various requirements which are laid down in these sections he is able to conclude an agreement in writing with a client to undertake contentious business for and on behalf of the client which can provide that the solicitor shall be remunerated either by a gross sum or by a salary or otherwise and at either a greater or lesser rate than that which he would otherwise have been entitled to be remunerated.

5. Section 60 contains the conditions which have to be complied with if the solicitor wishes to enforce the agreement. In particular section 60 sub-section 3 provides as follows:

"If the business covered by any such agreement is business done, or to be done, in any action, the amount payable under the agreement shall not be received by the solicitor until the agreement has been examined and allowed by a taxing officer of the court, and, if the taxing officer is of opinion that the agreement is unfair or unreasonable, he may require the opinion of the court to be taken threron and the court may reduce the amount payable thereunder, or order the agreement to be cancelled and the costs covered thereby to be taxed as if the agreement had never been made."

It is common ground between the parties that the defendants never submitted any of the bills of costs they prepared to a taxing officer for examination as is required by the sub-section. This is hardly surprising to me as I have never heard of any solicitor submitting any agreement relating to his proposed remuneration for contentious work to a taxing officer as is required by the sub-section. The wording of the sub-section adopts the wording of similar sections in English legislation which can be traced back to the 19th century. It is hard to see why any solicitor would consider it to be to his advantage to enter into any written agreement in relation to contentious business if he has to comply with the rigours of this sub-section. Mr. Bunting who was representing the liquidator argued that it did not matter what the solicitor may consider would be to his advantage or otherwise as the wording of the sub-section was clear and laid down a requirement which had to be complied with.

6. I think that Mr. Bunting may well be correct in his contention. However I am doubtful whether this is of much importance to the present case as there was agreement between the directors of Axona and the defendants that when the respective bills of costs were rendered to Axona the defendants should be entitled to transfer from their client's account movies they were holding on behalf of Axona in payment of the bills. As I read section 60(3) there is nothing to prevent a client from agreeing to make a payment to a solicitor if he wishes to do so. The consequence of non-compliance with the requirements of section 60(3) is that the solicitor has failed to comply with all of the conditions which are imposed on him to preclude the right of the client to demand that the bill should be taxed in the usual manner. If this is correct it is then necessary to have regard to section 67 of the Legal Practitioners Ordinance which provides for the circumstances when a client can require a solicitor to tax a bill of costs.

7. In the event I do not think that there is any great significance whether the bills of costs and the retainer agreement are governed by section 67 or by the provisions contained in section 60(4) of the Ordinance which goes on to set out the circumstances when an agreement for the payment of fees for contentious work can be taxed. In both cases it is provided that where the bill has been paid the client can require that the bill can be taxed within the next twelve months so long as he is able to establish that there are "special circumstances".

8. I think though that it is desirable that I should express a view as to whether these bills are governed by section 58 and the following sections or by section 67. I say this as it may affect the manner in which the bills of costs are prepared and the extent to which the taxing officer may feel himself to be bound by any of the terms of the agreements which have been concluded between the defendants and Axona. I accept that Mr. Bunting was correct in his submission that if the agreements are to be enforced there must be compliance with all of the conditions which are laid down in the Ordinance including the requirement contained in section 60(3) that before the bill is submitted to the client it should be submitted to the taxing officer. As there has not been such compliance the defendants cannot enforce the agreements which were entered into and section 67 applied.

9. I will now consider whether the liquidator can succeed under section 67 to require the defendants to tax the bills which they have rendered to Axona. As I have already indicated it is incumbent upon the liquidator to establish that there are "special circumstances".  Mr. Edward Chan referred me to a number of cases in the 19th century where this point had been considered. These included Re Browne ⁽¹⁾, Re Barrow⁽²⁾, Re Abbott⁽³⁾, Stedman v. Collett⁽⁴⁾, Re Robinson⁽⁵⁾ and Re Boycott ⁽⁶⁾.  All of these cases tended to indicate that overcharging by itself was not sufficient to constitute special circumstances unless the overcharging really amounted to fraud on the part of the solicitor. There must also be some other circumstances which were germane to the relationship between the solicitor and the client to establish "special Circumstances".  I do not agree with this contention. The position appears to be much more satisfactorily dealt with in Re Norman ⁽⁷⁾.  At page 675 of the report Lord Esher states:

"I think that the legislature has adhered to the view that 'special circumstances' may arise from time to time, as to which a judge is entitled to use his discretion whether a bill of costs is to be taxed, and I think that he may exercise that discretion, whether the bill of costs has or has not been paid.   Bowen, L.J., seems to me to be quite right, when he says in In re Boycott⁽⁶⁾ at page 579: 'Special circumstances, I think, are those which appear to the judge so special and exceptional as to justify taxation. I think no Court has a right to limit the discretion of another Court, though it may lay down principles which are useful as a guide in the exercise of its own discretion.'"

Lord Justice Lindley and Lord Justice Lopes both accepted the view that the discretion which was exercised in this connection was a wide one and a liberal interpretation should be given to the words. I am satisfied that this is the case. I also have no doubt that the liquidator has amply demonstrated that special circumstances existed in this case. Mr. Bunting took me through the various bills of costs which were exhibited to the papers and it is apparent to me that the amounts which have been charged by the defendants and by counsel are redolent with the possibility or indeed the probability of overcharging. This of itself would justify my ordering that all of the bills should be taxed.

                It is also necessary for me to consider the surrounding circumstances of this matter. It is clear to me that when the directors gave instructions to the defendants to undertake the work they did it was evident that there was definitely a possibility that Axona was insolvent and might be wound up by creditors. Indeed on the 2nd December 1982 Mr. Justice Hunter granted one of the creditors a Mareva injunction and a great deal of work appears to have been undertaken in obtaining a variation of the order which was made which enabled the defendants to obtain a further million dollars for the purpose of conducting the extensive litigation in which Axona was involved. Following this extensive efforts were made to attempt to buy time for the company. It may well be the case that it was not in the interests of the company or certainly creditors of the company that this action was taken. It is also necessary to have regard to the terms of the retainer agreement which was entered into between Axona and the defendants. This agreement is recorded in two letters written by the defendants dated 27th January 1983 and 8th February 1983. The letters read as follows:

                "                                                  Date:    27th January 1983

 

Dear Sirs,

 

                At your request, we hereby confirm your Retainer with us at a monthly retainer fee of $570,000.00, such Retainer shall cover and include all consultations and general advice during the period of one month and our acting on your behalf in all litigation (including any winding-up petition) brought against your Company in Hong Kong, and also the fees of ......, but will not cover certain fees such as conveyancing matters, trade marks and other matters where solicitors are bound by a scale of charges prescribed by the Hong Kong Law Society.

 

                It is understood that this Retainer is renewable monthly upon payment of the aforesaid monthly retainer fee, which is payable in advance on the 27th of each month, and is non-refundable in the event that you should decide to cancel or revoke such retainer during any retainer period. This Retainer is revokable by either party by one week's notice.

 

                    It is also understood that under your Retainer, we would not act for any person against you so as to preserve confidentiality of any information gathered in the course of our operating under the Retainer.

 

                Please confirm the above arrangement by signing and returning to us a copy of this letter.

 

                                                Yours faithfully,

 

                                                8th February 1983

Dear Sirs,

 

                We refer to our letter of 27th January, 1983 concerning your monthly retainer with us and would confirm our agreement reached on 31st January 1983 to increase the retainer fee from $570,000 to $600,000 so as to cover the fees of .....

 

                                                        Yours faithfully,"

These letters were written shortly before the winding up petition was lodged with the court. Having regard to the contents of the letters questions must arise as to what was in the contemplation of the defendants and counsel and whether they were attempting to avoid making any application to the court for authority to pursue any legal action regarding the company's affairs.  It is possible that the defendants and counsel were attempting to circumvent the provisions contained in section 182 of the Companies Ordinance in this respect. There is also the question that in as much as the retainer agreements included provisions for work being undertaken by counsel there may have been contraventions of rules 120 and 121 of the Code of Conduct for the Bar of Hong Kong. There is also the question of the different view that the liquidator has taken to the litigation to the view taken by the directors. Also there is the fact that the directors had much to gain and virtually nothing to lose by launching expensive legal action which if unsuccessful the cost would fall on the unsecured creditors. All of these matters seem to me to be "special circumstances".  I am satisfied that Master Betts was indeed right to make an order that the defendants should be required to render bills of costs for taxation. I will hear the parties as to costs and the exact form of the order.

(1)    (1851) 15 Beavers 61.

(2)    (1853) 17 Beavers 547.

(3)    (1854) 18 Beavers 393.

(4)    (1854) 17 Beavers 608.

(5)    (1867) Volume 3 Exch, 4.

(6)    (1885) 29 Ch. D. 571.

(7)    (1886) Volume 16 Q.B.D. 673.