RE SOLICITORS

cacv 172/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 172 of 2005

(on appeal from THE FINDINGS OF THE
SOLICITORS DISCIPLINARY TRIBUNAL DATED
THE 15^TH DAY OF NOVEMBER 2004 AND THE REASONS AND
ORDER OF THE SOLICITORS DISCIPLINARY TRIBUNAL DATED
THE 4^TH DAY OF MAY 2005)

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J U D G M E N T

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Hon Rogers VP:

1.  These are appeals from the statement of findings and from the reasons and order of the Solicitors Disciplinary Tribunal (“the Tribunal”) dated respectively 15 November 2004 and 4 May 2005.  At the conclusion of the hearing of these appeals judgment was reserved which we now give.

Background

2.  The appellants were the first three respondents to the proceedings before the Tribunal.  They are all partners in the same firm.  Altogether there were 67 complaints which were heard by the Tribunal, many of those arose out of the same facts.  In the course of arguing this appeal the parties concentrated on three separate groups of complaints.  The first group related to payments out of the solicitors’ client account under file number 30089/99.  The second group of complaints related to payments into and out of the client account under file reference number 30383/99.  The final group of complaints related to a number of files where the Tribunal concluded that a bill should have been issued timeously pursuant to principle 4.09 of the Hong Kong Solicitors’ Guide to Professional Conduct.

Complaints 2 - 9

3.  These complaints related to payment out of the client account in relation to the solicitors file opened for client Allan Chung Yuk Yam (“Mr Chung”).  Mr Chung was the registered owner of a property in Tai Po.  He had mortgaged that property to Winland Finance Ltd to secure a loan where the outstanding sum was more than $2 million.  That mortgage was, of course, registered.  In July 1998 Mr Chung applied to the Po Sang Bank Ltd for a loan which would enable him to refinance the property at a lower rate of interest.  The Po Sang Bank Ltd then instructed the appellants’ firm to prepare a mortgage to secure a $2 million loan to Mr Chung.  As a result the firm opened file number 30089/99.  The matter was handled by a clerk, who was the fourth respondent before the Tribunal but is not an appellant in this court.  After the legal charge had been duly executed by Mr Chung, the fourth respondent wrote to the Po Sang Bank Ltd and asked for the release of the $2 million, undertaking to have the legal charge registered.  That money was released into the firm’s client account with the Po Sang Bank Ltd and Mr Chung deposited a further half million dollars into the same bank account.  Apparently, he had borrowed that further amount on overdraft in order to pay off the mortgage loan owed to Winland Finance Ltd.  However, the Winland Finance Ltd mortgage was not repaid immediately because the fourth respondent arranged for the money in the client account to be withdrawn and paid by four separate cheques to a Madam Chan.  Eventually the money was returned and the loan from Winland Finance Ltd was repaid.

4.  The first complaint before the Tribunal was that the payment out to Madam Chan had been contrary to the instructions received from the Po Sang Bank Ltd.  There is no appeal against the finding.  The 2^nd to 9^th complaints relate to the payments out of the client account which were authorised by the first and second appellants.  In respect of the 2^nd to 5^th complaints, it was that the payments out were made without verifying the purpose for the payment.  The 6^th to 9^th complaints relate to the payment out being contrary to Rule 7 of the Solicitors’ Accounts Rules. 

5.  The Tribunal held that the fourth respondent had wrongly procured the payments which were clearly not in accordance with Rule 7.  That rule, insofar as it could have applied to these payments, could only have authorised the payment out of the client account of money properly required for a payment to or on behalf of the client or money drawn on the client’s authority.

6.  The point taken on this appeal was that Mr Chung had authorised the payment out from the client account and had authorised the fourth respondent to use the money.  It was said that the money was repaid and that Mr Chung suffered no loss.  It was said that the only fault was a fault against the Po Sang Bank Ltd and that was covered by the 1^st complaint.

7.  In my view the argument is unsustainable.  The Tribunal held that it was not satisfied that Mr Chung had approved the use of the money in the way that had been arranged by the fourth respondent.  It referred to an affirmation made by Mr Chung, which had been prepared by the appellants’ solicitors, but the Tribunal pointed out that it was not clear if Mr Chung meant to say that he had authorised Madam Chan to take the money.  In any event it would seem that little or no reliance could have been made on Mr Chung’s affirmation.  The Law Society’s solicitors had served notice on the appellants that they required Mr Chung’s attendance for cross-examination.  Although it appeared that Mr Chung was out of Hong Kong as part of his employment at the time of the hearing and the notice requiring him to give evidence was short notice, no application was made for an adjournment in order to enable Mr Chung to give evidence orally.  In the absence of Mr Chung it appears to me that the Tribunal took the correct and only course which it could.

8.  Furthermore, it is quite clear that in signing the five chits which were presented to them by the fourth respondent, the first and second appellant’s had not made sufficient inquiry as to why the money was in the client account and where it was going to.  Had they done so they would have appreciated that that money should have been paid to Winland Finance Ltd and not to any other party.

9.  One can only conclude this aspect of the case with the observation that the appellants are indeed truly fortunate that the money was returned.  Nothing is known of Madam Chan or as to what she did with the money.  As explored in the course of argument, it would have been quite inconceivable for a solicitor to have advised a client to lend money which had been paid in by a bank for the purpose of discharging a mortgage in favour of another party.  The solicitor can be in no better position because he allowed his servant and agent to induce a client to allow such money to be used for some unknown purpose.

Complaints 10 - 31

10.  These complaints relate to deposits and withdrawals from the client account in respect of the file number 30383/99.  That file had been opened in August 1999 for a client, Many Chain Ltd, in relation to its property namely a flat in South Horizons.  The solicitors’ file is missing and hence it is not known exactly what it was that the firm undertook in relation to Many Chain Ltd.  Nevertheless, it is clear that payments were made into the account which had nothing to do with Many Chain Ltd.  Those payments appear to have been used, for the most part, to repay the Winland Finance Ltd mortgage owed by Mr Chung.  The bulk of the money which was so used came from a Mr Chow who was, apparently, the brother-in-law of the fourth respondent.  Another substantial payment into and out of that account related to a sum of $800,000 which was obtained on loan from General Credit by Madam Chan, that money was immediately removed from the account and paid to Mr Chow.  There was a further payment in of $760,000 from an unknown source which, again, was removed and paid to Mr Chow.  At the end of August there was a payment of $16,328.80 to General Credit.  In early September there was a payment into the account of $200,000 which was then removed and paid to Madam Chan.  A few days later a total of $350,000 was deposited into the client account and a receipt was issued to Madam Chan and there was a payment on the same day of the like amount to Mr Chow.  On 21 September there was a total payment of $300,000 into the firm’s account with the Hongkong Bank and on the same day there was a payment of $300,000 to General Credit.

11.  Before the Tribunal, the appellants had relied as a defence upon the fact that they had been deceived by the fourth respondent who had been working for the firm for over 26 years; he had been the managing clerk of the firm since 1988.  The Tribunal recorded that in relation to these complaints the appellants had agreed that the payments were wrong and that during the investigation stage they had admitted that the firm had wrongly received money into the account under file reference number 30383/99 and that had the appellants known about the fourth respondent’s activities they would not have allowed the wrongful payments out to take place.  Thus before the Tribunal the point that was taken by the appellants was simply that they had been duped by the fourth respondent who had hitherto been a responsible employee.  The Tribunal did not accept this and held that the appellants had placed unreasonably heavy reliance and trust on the fourth respondent and that that had created a flaw in the firm’s accounting system which had resulted in the fourth respondent being able to manipulate the accounts as he wished.

12.  On this appeal it was said that there was no evidence to suggest that either Madam Chan or Madam Ngan, who was a director of Many Chain Ltd, had not authorised the payments into and out of the account.  It was stressed that no complaint had been made by those persons and that it was by no means clear that Madam Chan was not in a position to give instructions on behalf of Many Chain Ltd.

13.  In my view it is too late for the appellants to take the points which they have sought to do on this appeal.  Apart from anything else the points which they have sought to take are unsupported by any evidence that the payments had been authorised.  On the face of the matter there were payments into and out of the account which, as previously observed, were directed to channelling money which was eventually used to replace the Po Sang Bank Ltd money which had been siphoned off for some unexplained and, at any rate so far as the bank was concerned, unauthorised payments.  These payments seemingly had nothing whatsoever to do with Many Chain Ltd.

Complaints 32, 40, 49, 60, 62, 63 and 65

14.  These complaints related to failure to deliver various bills of costs to the firm’s clients within a reasonable time after the conclusion of the various matters.  The files in question had been provided to the Law Society as a result of inquiries by the Law Society.  It was said that they had to be found from a number of places including storage and locked cabinets.  Before the Tribunal the point taken on behalf of the appellants was that they had been deprived of access to the files and, as a result, they had been unable to render the bills.  It was made clear before the Tribunal that that was the only issue before the Tribunal.

15.  On this appeal Mr Neoh SC has sought to argue that it had not been established that the matters had been concluded and that, in those circumstances, the obligation to issue bills had not been shown to have arisen.  Under principle 4.09 of the Hong Kong Solicitors’ Guide to Professional Conduct the requirement to deliver a bill only arises once the matter has been concluded.

16.  In my view the points sought to be taken on this appeal must clearly not be open to the appellants.  Having conceded that the only issue before the Tribunal was as to access to the files, it is now too late to reopen the facts which were conceded.  In this regard I do not consider that any injustice has been done to the appellants.  The Tribunal did examine each case separately and did make observations that bills should have been rendered.

Penalties

17.  The penalties imposed by the Tribunal ranged from $80,000 in respect of the first complaint to $40,000 in respect of the 2^nd to 5^th complaints and in relation to the 18^th to 24^th complaints.  The less serious offences were meted with a fine of $20,000 and in respect of the failure to deliver bills in a timely fashion the fines were $5,000.  In respect of the individual amounts I do not consider that those sums could be considered to be in any way excessive.  However, when the total amounts are considered, the first appellant was ordered to pay a total fine of $635,000 the second respondent $150,000 and the third respondent $200,000,  The question then arises as to whether these global amounts might be considered to have been excessive.  However, the Tribunal noted in paragraph 22 of the reasons and order that appropriate adjustments had been made to the amounts on account of the totality and proportionality of the fines awarded.  The Tribunal went on to observe that the appellants had misconducted themselves in an appalling fashion.  By reason of its specialised knowledge and experience, the Tribunal is particularly suited to assess these matters and the question of penalty.  This court, and appeal courts in other jurisdictions, have observed in the past that the penalty to be imposed by disciplinary tribunals is very much a matter for the tribunals themselves.  In those circumstances I would not interfere with the penalties imposed.

18.  I would therefore dismiss these appeals and make an order nisi of costs in favour of the Law Society to borne equally by all appellants.

Hon Le Pichon JA:

19.  I agree.

Hon Sakhrani J:

20.  I also agree.