ETC ENVIRONMENTAL TECHNOLOGY LTD v. ALVAN LIU & PARTNERS

HCMP1061/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1061 OF 2004

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J U D G M E N T

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1. In this action the applicant seeks taxation of three bills. These bills arose out of the applicant's abortive attempt to obtain a Growth Enterprise Market listing on the Hong Kong Stock Exchange.

2. By a mandate letter dated 21 March 2002 signed by the applicant, the applicant engaged the respondent to provide legal services in that connection. Clauses 3.1 and 3.3 of the mandate letter provide as follows :

"3. Billing Policies and Payment

3.1 We have quoted a fee of HK$1,200,000.00 (excluding disbursements) for our services. This does not include the fees payable to any foreign legal counsel you may request us to instruct. The fee will be payable:-

(a) as to HK$300,000 upon your acceptance of this mandate letter;

(b) as the HK$300,000 at the time the formal Listing Application (A1) is filed with the Stock Exchange; and

(c) as to the balance of HK$600,000, on the date when dealings in the Company's shares commence or if the transaction is aborted or postponed (and subject always to paragraph 3.3 below) on receiving an invoice from us for our outstanding fees.

...

3.3 If our engagement is terminated due to the termination of the transaction or otherwise, our fees will be based on the number of hours devoted to this engagement, up to a maximum amount not exceeding the amount of HK$1,200,000.00. Unless otherwise agreed, the transaction will be deemed to have been terminated if it is not closed within one year from the date of this letter."

The mandate letter went on to request the applicant to "sign .... a duplicate copy .... to signify your agreement to the terms therein?" That was duly done.

3. The 1st bill No. 4912 is dated 21 March 2002. It is stated to be in respect of "1st payment for the agreed legal costs of referred to in the retainer dated 21.03.2002" in the sum of $300,000.00.

4. This was paid on or before 6 May 2002.

5. The 2nd bill No. 5334 is dated 12 August 2002 and it is in the sum of $253,500.00. That was stated to be "2nd payment for the agreed legal costs referred to in the retainer letter dated 21.03.2002" in the sum of $250,000.00. The $3,500.00 was in respect of disbursements. It is the respondent's case that at the request of the applicant, the full amount of $300,000.00 which was payable under clause 3.1(b) was not billed at that time.

6. This was paid as to $125,000.00 on or about 12 August 2002 and as to the balance on or about 22 October 2002.

7. The 3rd bill for $652,000.00, $2,000.00 of which being disbursement, is dated 19 June 2003. This has not been paid. The 3rd bill is the subject of a District Court claim (Action No. 188 of 2004) brought by the respondent against the applicant, which was commenced on 13 January 2004.

8. On 26 February 2004, the respondent applied for summary judgment in the District Court. On 16 April 2004 the applicant sought taxation of the three bills in the District Court.

9. On 27 April 2004, this action was commenced by originating summons in the High Court supported by an affirmation of one Tsu Lung Sang Edmund also dated 27 April 2004. In para. 5 of this affirmation it boldly asserted :

"The Applicant challenges the said Bills and requires the same to be taxed by a Taxing Master of the High Court as per the manners as stated in the Originating Summons filed herein."

The respondent acknowledged service on 6 May 2004 and filed a substantial affirmation in opposition on 20 May 2004.

10. The matter went before the learned master for a 15-minute hearing. The parties agreed before the hearing that the matter should be adjourned to a date be fixed for argument and that the applicant should have leave to file affirmation in reply within 21 days.

11. The learned master, of course, was not bound by the agreement. He decided to dismiss the applicant's action on the basis that the applicant had no arguable case.

12. This is the applicant's appeal. In this appeal I have to consider the following issues :

(1) Was there a non-contentious business fees agreement within the meaning of section 56 of the Legal Practitioners Ordinance, Cap. 159?

Section 56 provides :

"(1) Whether or not any rules made under section 74 are in force, a solicitor and his client may, either before or after or in the course of the transaction of any non-contentious business by the solicitor, make an agreement as to the remuneration of the solicitor in respect thereof.

(2) The agreement may provide for the remuneration of the solicitor by a gross sum, or by commission or percentage or by salary, or otherwise, and it may be made on the terms that the amount of the remuneration therein stipulated for either shall or shall not include all or any disbursements made by the solicitor in respect of searches, plans, travelling, stamps, fees or other matters.

(3) The agreement shall be in writing and signed by the person to be bound thereby or his agent in that behalf.

(4) The agreement may be sued and recovered on or set aside in the like manner and on the like grounds as an agreement not relating to the remuneration of a solicitor:

Provided that if on any taxation of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the taxing officer may inquire into the facts and certify them to the Court, and if on that certificate it appears just to the Court that the agreement should be cancelled, or the amount payable thereunder reduced, the Court may order the agreement to be cancelled, or the amount payable thereunder to be reduced, and may give such consequential directions as it thinks fit."

(2) If not, whether taxation should be ordered having regard to section 67 and, if so, on what terms?

(3) If there was an agreement under section 56, whether, on the facts of this case, taxation should nevertheless be ordered.

13. The first issue requires a consideration of the mandate letter.

14. Miss J. Cheung, who appeared on behalf of the respondent has argued that there was a non-contentious business fees agreement in relation to each of the payments covered by clause 3.1, and that each of the fee notes should be considered separately and not as "one bill, divided into separate parts." Miss Cheung also submitted that only clause 3.1(c) is qualified by clause 3.3, but not clause 3.1(a). She contended that if the applicant had paid the $300,000.00 on the signing of the mandate letter but decided not to proceed on the next day, then even if no work had been performed by the respondent in the mean time or at all, the $300,000.00 was not refundable.

15. In response to a query from me, she contended that, in relation to clause 3.1(b), even if work had been done by the respondent in excess of the $300,000.00 paid under clause 3.1(a), provided that the applicant terminated its application prior to the filing of the formal listing application, no fee was payable because clause 3.3 did not apply to the fee payable under clause 3.1(b), and that under clause 3.1(b), the $300,000.00 was only payable "at the time the formal Listing Application (A1) is filed with the Stock Exchange."

16. As for clause 3.1(c), Miss Cheung was not prepared to concede that fees had not been agreed even when clause 3.3 was applicable.

17. In Chamberlain v. Boodle &King [1982] 3 All ER 188 which concerns contentious business (but which I believe to be applicable by analogy), the headnotes of the report state :

"(a) An agreement by letter could only amount to a contentious business agreement if it was specific in its terms and signed by the client. The defendants' letter to the plaintiff and his reply could not constitute such an agreement because the defendants' letter was imprecise as to the amount for which the plaintiff might expect to be liable ..."

(b) Whether successive bills of costs were to be regarded as instalments of single bill or as separate bills depended on whether there were natural breaks in the work done by the solicitor so that each portion of the work could and should be treated as distinct from the rest. Since the defendants were engaged on the litigation for under six months and since the bills were expressly delivered as part of a running account, they were to be to be regarded as a single bill divided into parts. Accordingly the plaintiff was entitled to have the whole bill taxed."

18. In my opinion, under clause 3.1(c), on termination of the application, the respondent was entitled to be paid on a time basis and there is no fees agreement under section 56. What Lord Denning MR said in Chamberlain at page 191 is instructive :

"... Further the agreement must be sufficiently specific, so as to tell the client what he is letting himself in for by way of costs. It seems to me that the letters in this case do not give the client the least idea of what he is letting himself in for. As counsel for Mr Chamberlain said to us, there is a broad band of many uncertainties. Take, for instance, the rate. It certainly seems high enough to me. It is ￡60 to ￡80 an hour. What rate is to be charged? And for what partner? Of what standard? Then ￡30 to ￡45 an hour for associates who may be involved. Which legal executives? Of what standard? Which associates? Does it include the typists? That is one of the broad bands which is left completely uncertain by this agreement. Then there is the hourly rate. That must depend on the skill and expertise of the individual partner or associate. A skilled partner can do the work in half the time of a slow partner. Is the client to be charged double the rate because a slow partner has been put on the case? These rates per hour are over a pound a minute. It would seem that there must be a very good system of timing, almost by stopwatch, if that is to be the rate of payment.

I only make those observations because it seems to me that this is not an agreement as to remuneration at all. It is simply an indication of the rate of charging on which the solicitors propose to make up their bill. It is by no means an agreement in writing as to the remuneration....

We discussed in the course of the argument the sort of method of remuneration which could be covered by a contentious business agreement. Such as whether an hourly rate would come within it. I need say nothing as to that. Also, whether it should be such as to say whether it is the higher or lower rate of remuneration. I say nothing as to that either. Because, to my mind it is plain that this agreement was not a contentious business agreement in writing such as to satisfy the statute. For this reason I would agree with the judge that it is not a case in which the client loses his right to taxation. Nor is it necessary to go into the question of whether it is fair and reasonable, in which case, of course, it would be set aside. For the purposes of this case, it is sufficient to say that this is not a contentious business agreement such as to deprive the client of his right to taxation."

19. An hourly rate agreement could fall within section 56, for example, an agreement to pay a named solicitor an agreed hourly rate to attend a company meeting for the duration of that meeting. Here the agreement is completely silent on the hourly rate. It is also silent on the number of hours likely to be incurred or the person or persons who might be providing the services. The only certainty is that the maximum fee payable by the applicant was $1,200,000.00. As I read clause 3.3, it provided for a maximum, namely, $1,200,000.00, but no minimum. Having regard to clause 3.3, I do not believe that in the event of a termination of the application there was a non-contentious business fees agreement within the meaning of section 56. I do not see why the burden should be on the applicant to show that the hourly rate charged, the number of hours spent, or the seniority of the person engaged is unfair or unreasonable when there was no agreement on the hourly rate, the number of hours to be spent, or the persons to be engaged.

20. But does clause 3.3 applies to clause 3.1(a) and (b)? I am of the view that it does. I have noted the fact that clauses 3.1(a) and (b) do not in terms refer to clause 3.3. But I would also make the point that clause 3.3 is not in itself qualified in any way. Nor is there any indication that the fees under clauses 3.1(a) or (b) once paid was not recoverable. To construe it in the way Miss Cheung suggested would be unfair to the applicant if he changes his mind soon after the mandate letter and before substantial or any work was performed by the respondent. On the other hand, it would be unfair to the respondent if, as suggested by Miss Cheung, that in the event that the listing is aborted before the formal listing application is filed then no matter how much work the respondent might have done in the meantime he was not entitled to be paid under clause 3.3. In other words, the maximum liability on the part of the applicant would be $300,000.00 paid on the signing of the mandate letter.

21. I would read clause 3.3 as providing for a maximum in the event the application was aborted, but no minimum. The actual amount would depend on the work done by the time of the termination of the listing agreement.

22. Having regard to this view, it is also my opinion that the bills are not separate but should be considered as one bill being divided into separate parts. Lord Denning in Chamberlain, at page 191j, said :

"The next point in the case is whether the bills were four separate bills or whether they were one. If they were four separate bills, the client would have to demand taxation of each within a month of receipt. If they were one bill, divided into separate parts, as long as he demands taxation within a month of the final account, then he has a right to taxation."

23. Whether bills are in fact separate or one is a question of fact. Here if I am right that in the event of termination the applicant is only liable to pay for actual services rendered under clause 3.3, subject to a maximum of $1,200,000.00, I believe the correct view to take of these bills is that they are not separate bills but one bill in separate parts. If by the time the application was terminated the applicant had already paid $600,000.00 under clauses 3.1(a) and (b) but the actual amount of the work done only amounted to say, $200,000.00, I believe the applicant would be entitled to a refund. If, by the time the formal listing application was ready to be filed, nearly $600,000.00 costs had been incurred, I see no reason why the respondent should not be paid on a time basis for work done even if the applicant were to terminate the application before the formal listing application was filed. In my opinion these bills were part of a series of bills in respect of a possible lump sum fee so they were not in fact separate bills but were one bill divided into separate parts. Payment of the 1st and 2nd bills were on account of the final bill which in the case of termination of the application was to be charged on a time basis for work actually done. So time runs for the purpose of section 67 from the date of the 3rd bill, namely, 19 June 2003.

24. I turn to consider the second issue namely, whether under section 67, taxation should be ordered and, if so, on what terms. Now, the application for taxation was made more than one month after the delivery of the bill but before the expiration of 12 months. So the matter is governed by section 67(2). In such circumstances, the court may "upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order -

"(a) that the bills should be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed;"

25. Miss Cheung has suggested that I should order payment into court of the outstanding fees as a condition for taxation, because of delay in the application for taxation, and because the applicant may be insolvent.

26. So far as the delay is concerned the 3rd bill was dated 19 June 2003 and the applicant did not seek taxation in this court until 27 April 2004, so there has been substantial delay. But has the respondent been prejudiced by the delay? This is not a case where because of the delay, the respondent would be unable to produce proper bills for taxation. The respondent has produced a copy of its internal time record bill dated 19 June 2004 so there is no difficulty on that score.

27. As for the alleged insolvency of the applicant, it seems quite clear from the evidence available to me that the applicant is in financial difficulties. Indeed, by their letter dated 25 January 2004 to the respondent they claimed that the company was heavily indebted and suggested a 50% discount and payment by 24 instalments.

28. Counsel has not referred me to any authorities on how the discretion under section 67(2) should be exercised. Under section 67(1) if taxation is sought within a month of the delivery of the bill, taxation is as of right. If taxation is sought, e.g. more than 12 months after the delivery of the bill, there should be no taxation unless there were special circumstances. See the proviso to section 67(2). In the case where taxation is sought within one year of the delivery of the bill it seems that prima facie there should be taxation but the court has a discretion to impose terms.

29. Mr David Hui who appeared on behalf of the applicant has referred to me to the internal time record bill of the respondent and he has made the point that the total bill which amounted to $1,267,710.00 is made up of over 550 hours of work, in particular 330.3 hours by Mr Alvan Liu at $3,200.00 an hour making a total of $1,056,960.00, and that much of time spent were in the perusal and drafting of documents. No description or particulars have been given of the documents which were perused or drafted in relation to which substantial fees were charged. Using common sense, I have to say that on the face of the time record bill, one cannot say that it is unlikely that it would be taxed down. More importantly, it is not one in relation to which it would not be reasonable for the clients to say to the solicitors : "Please tell me what were the documents that you perused or drafted in relation to which over 550 hours were charged? Please also explain why so much time was taken."

30. So, in all the circumstances, I believe that I should not impose any terms. I should add that there is clear indication that the applicant is in financial difficulty. I would not, in any event, have imposed terms which the applicant would be unable to meet.

31. I turn to consider whether if there had been a fees agreement under section 56 taxation might nevertheless be ordered. Section 56 is based on section 57 of the Solicitors Acts, 1957. Cordery on Solicitors, 5th edn, dealing with the relevant provision has this to say at 244 :

"The agreement is subject to the ordinary law of contract: either party may invoke that law and bring an action to enforce or set aside the agreement. There is no provision corresponding to s. 63 relieving the solicitor from the necessity of delivering a bill and from taxation, but the client has not an unqualified right to demand a bill 'his right to require a bill is limited to cases where he can show, on the facts of the particular case, to the satisfaction of the Court that there is something which as a matter of general principle or private right, or both, the Court ought to look into'"

32. The applicant's supporting affirmation is woefully inadequate. However, it wants time to put in an affirmation. I have a discretion in the matter. In all the circumstances, had it been necessary, I would have given leave to the applicant to file an affirmation. I am influenced by the fact that the parties agreed before the learned master that the applicant should have 21 days to file an affirmation in reply. Although the applicant could have asked for leave to file an affirmation in this appeal, I think they should be given a chance even now to do so. But I would have ordered them to pay the costs of the necessary adjournment forthwith. But this is academic having regard to my views on the first and second issues.

33. The appeal is allowed. I make an order nisi that the applicant is to have the costs of this appeal as well as the costs of the hearing before the learned master, to be taxed if not agreed. The parties are to make written submissions on further directions to be given within the next 21 days.