CHUNG & KWAN, SOLICITORS (a firm) v. TSO MAN TSUN GORDON

DCCJ 970/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 970 OF 2012

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JUDGMENT

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Introduction

1. Messrs Chung & Kwan (“C & K”) is a firm of solicitors in Hong Kong and Mr Peter Chan (“Chan”) has been one of the partners of C & K. Chan on behalf of C & K previously provided legal services to Tso Man Tsun Gordon (“Tso”). C& K brings this action against Tso to recover outstanding legal fees in the sum of HK$156,170.00. For this amount, C & K issued a bill to Tso dated 9 February 2011 (“the Bill”) setting all the legal services rendered but Tso has refused to pay any part of the Bill.

2. The legal services covered by the Bill are all related to a District Court civil action under DCCJ 1981/2003 (“the Action”). With the assistance of C & K, Tso commenced the Action against an individual on account of his defamation. Since the Action has not been formally concluded, in this Judgment, I would say no more than necessary for the purpose of these proceedings about the Action and the communications between Chan and Tso in relation thereto.  

Background Facts

3. The following background facts are either undisputed or indisputable. They are largely evidenced by documentary evidence. Chan has been a practicing solicitor. He had provided legal services to Tso and his companies since about 1997. From 1997 to 2011, Chan handled more than 50 files of Tso and/or his companies including litigations in different levels of courts in Hong Kong.

4. Tso was once the chairman of the incorporated owners of a building known as Helena Garden from 1997 to 2002. In or about 2002, he and a resident of the said building (“the Resident”) had a dispute and Tso felt that the Resident defamed him. Tso sought legal advice from Chan.

5. On or about 11 February 2003, C & K issued two letters to the Resident and the Independent Commissioner Against Corruption on behalf of Tso. Only the letter to the Resident is made available to me and I can see that it was a standard cease and desist letter issued before a defamation action. It was unequivocally stated that legal proceedings would be issued against the Resident should the Resident not comply with the demand therein.

6. On or about 21 March 2003, C & K sent Tso two faxes. In the first fax (“the 1^st Fax”), C & K expressed their view on the intended action of Tso against the Resident and suggested that the intended action should be commenced in the District Court and the legal costs were estimated to be around HK$150,000.

7. The second fax came about seven hours later. Its content is identical to the 1^st Fax save that the estimate of the legal costs was revised to HK$100,000.

8. Apparently, the Resident did not reply to the cease and desist letter and Tso commenced the Action against the Resident by a writ of summons dated 7 April 2003.

9. Ms Wong, counsel for C & K, helpfully provided a chronology of the services rendered to Tso in respect of the Action with reference to the relevant documents in the trial bundle. It can be seen that the Action was proceeded to the advanced stage of exchange of witness statements in September 2005. The Action then became ready to be set down for trial.

10. On or about 22 August 2006, Tso had a conference with a practising barrister (“Counsel”) to review the Action at the suggestion of Chan. Counsel gave Tso a different perspective of the Action. On or about 5 September 2006, Counsel issued his fee note for his advice rendered in the said conference in the sum of HK$28,000. Up till then, Tso had never paid any costs on account for the Action despite the advanced stage the Action had reached. Chan duly asked Tso to pay.

11. Tso caused to be issued two cheques by a company known as Golden Sand (Holdings) Ltd in favour of C & K. One was dated 20 November 2006 in the sum of HK$10,000 and the other one was dated 7 February 2007 in the sum of HK$20,000. In total, Tso paid HK$30,000 and this was the only sum he paid C & K for the Action.

12. In 2008, the Resident passed away. In the result, Tso was not keen on pursuing the Action and in any event he did not give any instruction to proceed with the Action.

13. The relationship between Chan and Tso turned sour in 2010 because of a High Court action, to which Tso’s company known as Golden Sand Trading Limited was a party. Tso was angry with Chan’s handling of that action. Chan sensed that their business relationship could not be continued. 

14. On 9 February 2011, Chan on behalf of C & K issued the Bill to Tso. Tso did not make any payment. In or about mid August 2011, Tso made a complaint to the Consumer Council (“the Complaint”) over the phone to be followed up by his email dated 15 August 2011. The Consumer Council complied a complaint record and acknowledged receipt of the Complaint by a letter dated 18 August 2011. The Consumer Council turned to C & K and asked for explanation by way of a letter dated 22 August 2011.

15. C & K eventually made a substantive reply to the Consumer Council by their letter dated 14 October 2011. By a letter dated 10 November 2011 (“the Reply Letter”), Tso responded to the said letter of C & K.  I need to say no more about the Complaint. 

16. By a letter dated 31 January 2012, C & K demanded Tso to pay the Bill. Tso still refused to pay and hence these proceedings were commenced on 22 March 2012.

Parties’ respective case

17. The case of C & K is straightforward indeed. Chan testified for C & K. He contends that he, on behalf of C & K, has provided the services set out in the Bill. Tso does not dispute that such services were so rendered. Accordingly they should be paid. This sounds natural enough.

18. Tso made many accusations against Chan in his pleadings and witness statements. Very sensibly, Ms To, counsel for Tso, confines Tso’s challenges to three main fronts and this court is asked to rule on three issues. First, whether the present claim is time-barred by virtue of section 4 of the Limitation Ordinance, Cap. 347 (“the LO”). Second, whether Tso’s payment of HK$30,000 was in full and final settlement of the fees for the Action and lastly whether Tso consented or authorized the transfer of HK$7,000 from the file of C & K in respect of the Action to another file in respect of another application in the Labour Tribunal under LDBM 107/2004 involving Tso (“the Lands Tribunal Case”). As rightly pointed out by Ms To, the limitation issue is a matter of law whilst the latter two issues are purely factual and depend on my finding of the credibility of the witnesses.

19. On the issue of limitation, the pleaded case of Tso is that the cause of action of C & K has become time-barred since around 20 September 2011, counting six years from the date of the Resident’s supplemental witness statements in the Action filed on 20 September 2005. Ms To explains that it should be the natural break in the Action and C & K should be entitled to bill Tso there and then.

20. Tso alone testified for himself. He alleged that it was the tacit understanding between Chan and him that the payment of HK$30,000 was in full and final settlement of all the professional fees relating to the Action. He himself agreed that HK$20,000 of the said sum would be used to settle Counsel’s fee and the balance would be used to settled the document handling charges of C & K. He alleged that Chan promised him that he would not charge for the work he had done so long as their business relationship could be maintained.

21. In regard to the transfer of HK$7,000 to the Lands Tribunal Case, Tso insisted that he did not give his consent or authorization to such a transfer.

22. Chan’s case on the limitation issue is that the retainer was for the entire defamation proceedings against the Resident. Absent an agreement for interim bill, C & K could only charge Tso upon the conclusion of those proceedings or where a natural break appeared. As the Action was shelved only after the conference with Counsel in August 2006, when the claim herein was made in March 2012, it was still well within time.

23. C & K’s case on the HK$30,000 payment is that Chan has never reached any agreement or had any tacit understanding that it would be for the total costs of the Action and C & K would waive all the balance. As evidenced by the two receipts issued by C & K to Tso, the two payments amounting to HK$30,000 were paid as costs on account in the Action. HK$20,000 out of the said sum was paid to Counsel to settle partially his fee and HK$7,000 was transferred to the Lands Tribunal Case on 21 February 2007.

24. After the receipt of the Bill in early 2011, Tso and Chan had discussions about the same over the phone. Chan disclosed two contemporaneous telephone records. The first one was dated 29 April 2011 prepared by his secretary. There, it was mentioned that Tso had asked Chan to waive the fees under the Bill and Chan said it was impossible.

25. The next one was handwritten by Chan dated 17 May 2011. It can be seen that Tso offered HK$30,000 to settle the Bill. Chan rejected him flatly though this was not recorded.

26. For the transfer of the sum of HK$7,000 to the Lands Tribunal Case, Chan first asked Tso for HK$10,000 as costs on account in the Lands Tribunal Case in the letter dated 21 December 2006 but Tso failed to pay despite repeated requests. On 13 February 2007, Chan found out that there was a deficit of HK$1,340, as shown in the ledger report of the same date. Thus on 21 February 2007, Chan told Tso over the phone that he might transfer HK$7,000 out of the costs on account in the Action to the Lands Tribunal Case and Tso agreed. The sum was transferred as a result, as shown by a clients voucher dated 21 February 2007. With the fund, C & K settled the court fee of HK$1,850 and the law costs draftsmen’s fee of HK$3,800. 

Discussion and Findings

27. I shall first deal with the factual issues. Chan in all respects appeared to me to be a credible witness trying his best to tell the whole truth. Though understandably embarrassed by Tso’s criticisms of his professionalism, his evidence on crucial issues was clear and forthcoming. I have little difficulty in accepting his evidence in total.

28. Obviously Tso was not happy with Chan. He regrettably allowed his frustration to cloud his judgment. He sounded biased and even attempted, of course in vain, to argue against his own written testimony and documentary evidence. I have no confidence in his reliability at all and wherever his evidence is in conflict with those of Chan, I have no hesitation to prefer Chan’s evidence to his evidence.

The HK$3,000 payment

29. For the total payment of HK$3,000, I accepted the account of Chan and the payment was made as costs on account in the Action. Tso’s case was indeed developed in a haphazard manner and not supported by any documentary evidence.

30. First and foremost, the alleged agreement and/or understanding inexplicably did not feature in his pleadings and his witness statement. He did not make such allegations until his oral testimony. If there had been such an agreement and/or understanding between the parties, no doubt he would have raised the same with Chan immediately upon receipt of the Bill in February 2011. There was no evidence that he did so and he only made the Complaint to the Consumer Council after the lapse of six months. Still, inexplicably, in his email to the Consumer Council, the complaint record of the latter and his own Reply Letter, there was no mention about this important agreement and/or understanding. Tso sought to explain that he did raise the same over the phone to the Consumer Council but he did not know why his account did not make its way to the complaint record. For the Reply Letter, he thought he was asked to write additional matters though it was expressly stated to be made in response to the explanatory letter of C & K. I firmly reject Tso’s explanation and contention.  

31. I hence find that the Bill remains unsatisfied and Tso is prima facie liable to pay C & K the sum of HK$156,170 charged thereunder subject to the issue of limitation. The Bill was delivered late and whilst Tso’s complaint of its contravention of the relevant professional rules might be valid, the integrity of the Bill is above question.

Unauthorized Transfer of HK$7,000

32. As regards the allegation of unauthorized transfer of the sum of HK$7,000, I actually do not know how it could assist Tso. In any event, I accept the account given by Chan, which was not seriously challenged under cross-examination. All the documentary evidence points to the necessity of some costs on account in the Lands Tribunal Case and the transfer was a must. The transferred sum was duly utilized in the Lands Tribunal Case to settle Tso’s liability, which is an undisputed fact. I see no reason why Chan did not ask Tso before the transfer and why Tso could withhold his consent. I find Tso’s challenge to be frivolous and has no merit whatsoever.

Limitation issue

33. Both Ms Wong and Ms To agree that the claim of C & K being contractual, section 4 of the LO is applicable to the present case. The time limit should be six years and the issue is when the cause of action started to accrue.

34. Ms To helpfully draws my attention to the English Court of Appeal’s decision in Coburn v Colledge [1897] 1 QB 702. In that case, the issue was whether the Statute of Limitation began to run as soon as the work was completed or only until one month had elapsed from the delivery of a signed bill of costs. The Court of Appeal concluded the former was the correct position.

35. Lord Esher, M.R. first concluded that the cause of action in the Statute of Limitation was given, accrued, fallen or come the moment that the work which the solicitor was retained to do was completed.

36. The following dictum of Lopes L.J. is also apposite and instructive:

“There is nothing in the section, so far as I can see, inconsistent with the view that the cause of action arises when the work is completed. It was urged that, if this construction were adopted, a solicitor would have a shorter time during which he may abstain from bringing his action for work done than the rest of Her Majesty’s subjects. That may be so; but on the other hand, if the plaintiff’s contention is correct, the solicitor may abstain from delivering his bill for twenty years, and then at the end of that time he may deliver it and sue after the expiration of a month from its delivery. It seems to me that that would be a very anomalous and inconvenient result.”

37. This highlights the justification as to why the time under the Statute of Limitation starts to run from when the work is completed rather than the expiration of a month from the delivery of a bill despite section 37 of the Solicitors Act 1843[1].

38. The foregoing dictum of Lopes L.J. was cited with approval by Mortimer J.A. in China Light & Power Company Limited v See Kong Silk Limited [1994] 2 HKLR 334 at p. 339(10) though that case did not involve any solicitors’ bills.

39. Ms Wong does not seek to argue against these authorities despite her initial position. She however argues that the work in the present case means the entire Action. She first points out that there being no evidence of an agreement between Chan and Tso for interim payments, C & K can only charge and hence sue Tso upon the completion of the retainer. In this regard she relies on paragraph 4.08 of the Hong Kong Solicitors’ Guide to Professional Conduct.

40. Ms Wong further relies on the definition of “retainer” and “natural break” of DHCJ To (as he then was) in Chan Yuk Lun Frnaces & Anor. v Lo & Lo, unreported, HCMP 1142/2005, 7.7.2006. The deputy judge first observed (at §10) that a retainer is normally an entire contract under which a solicitor is to do certain work for his client. In the absence of a contrary agreement, the solicitor is not entitled to be paid until the work has been completed or the retainer had been terminated unless there is a natural break.

41. On the notion of “natural break”, the deputy judge had this to say at §17:

“In my judgment, to constitute a natural break there must be either (1) a physical break in the litigation process of such a duration as would entitle a solicitor to say to his client that the matter is going to be inactive for an indefinite period or for a foreseeably long period that it is appropriate to square or finalise the account for the time being or (2) a break in the nexus between one component matter and another in the litigation. Thus, the conclusion of a distinct and separate matter in a litigation by itself is not a natural break. It may well mark the natural beginning of another distinct and separate matter. The conclusion of a distinct and separate matter in a litigation only makes a break natural if there is a break. For example, if after obtaining a quia timet injunction, the parties were satisfied with the status quo and did not progress further for damages or permanent injunction and the action went dormant for some time which was resurrected when another threaten act of infringement occurred, then one may say there was a natural break when the interlocutory injunction was granted. But, if the litigation progresses spontaneously with discovery and then progresses to trial, there is no break in the nexus between the interlocutory injunction and the trial. Under those circumstances, the interlocutory injunction and the trial are one matter despite they are made up of two distinct and separate ones. While as Bowen LJ said a natural break may not be capable of precise definition, it certainly has either of the above features or a combination of the above features to various extent. That is why I consider the first question could be a mixed question of law and fact.”

42. Ms To does not argue that C & K could have issued interim bills. She in fact also relies on the foregoing dictum of DHCJ To (as he then was). She merely argues that the natural break appeared after the Resident filed his supplemental witness statements in September 2005 and hence the claim of C & K was time-barred six years afterwards. I cannot accept her submission. Clearly the Action was on foot when Chan and Tso instructed Counsel to review the Action in August 2006.

43. I have no doubt that the retainer means the Action in its entirety. Tso in his testimony agreed that he instructed Chan to handle the defamation proceedings from start to finish. It is common ground that the Action has not yet been formally concluded. The Action seems to have been shelved indefinitely after the conference with Counsel and this could be taken to be a natural break when no further instruction was given to proceed with the Action. Alternatively, the death of the Resident in 2008 provides a natural break in the Action since the cause of action against him in the Action could not survive: section 20 of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23.

44. Therefore, there can hardly be any dispute as to the entitlement of C & K to issue the Bill and hence their professional fees rendered relating to the Action in February 2011. This action was commenced well within six years after the appearance of the natural break, be it August 2006 or 2008.

45. In any event, my view is that C & K could also pray in aid section 23 of the LO. Tso’s payment of HK$30,000 in two instalments can be taken as part payment. It was paid to settle the legal fees of the retainer and time should start to run from the last date of such a payment, i.e. 7 February 2007.

46. In the premises, I conclude that Tso fails to establish any defence under the LO and the claim of C & K was not time-barred when it was made in March 2012.

47. Lastly, Ms To urges me to consider taxation of the Bill pursuant to section 67(2) of the Legal Practitioners Ordinance, Cap. 159, there being special circumstances. She submits that overcharging constitutes special circumstances, relying on Re a firm of solicitors [1984] HKC 346.

48. There is no counterclaim for an order for taxation and no formal application has been made under the said provision. I doubt if such an application could be made orally in the closing submission at trial. In any event, there was no suggestion let alone evidence of overcharging on the part of C & K. This allegation was never put to Chan. Ms To submits that the resultant costs shown in the Bill far exceeded the estimate in the second fax of C & K dated 21 March 2003. Be that as it may, underestimation cannot be equated with overcharging and I see no special circumstances here to justify an order for taxation of the Bill.  

Conclusion and Orders

49. Tso has no defence to the claim of C & K. I enter judgment against Tso in the sum of HK$156,170. I disallow any pre-judgment interest on account of the delay of the presentation of the Bill.

50. There is no reason why costs should not follow the event. I make a costs order nisi that Tso should pay C & K costs of this action with certificate for counsel.

51. I am impressed by the industry of both counsel and I thank them for their able assistance.