SUPER STRATEGY INVESTMENTS LTD AND ANOTHER v. KAO, LEE & YIP (a firm)

HCMP 1752/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1752 OF 2007

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REASONS FOR DECISION

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1.  The defendant applied by amended summons to:

(1)	strike out the proceedings as being:
	(a)	without reasonable cause of action;
	(b)	vexatious and frivolous; or
	(c)	abuse of process;
(2)	alternatively, stay the proceedings pending the determination of HCA 2153/2007 (“Related Action”) commenced by the defendant against Midland Realty International Limited (“Midland”).

2.  At the hearing, I dismissed both the application for striking out and the stay.  I now give my reasons.

Background

3.  The plaintiff commenced proceedings to order the defendant to deliver a solicitor’s bill of costs under s. 65 of the Legal Practitioner Ordinance (Cap. 159) (“LPO”).

4.  The plaintiffs were formerly the owners of two units in Henredon Court, Shouson Hill.  The defendant acted for the plaintiffs and 8 other owners in a joint sale of the property to the purchaser.

5.  On 30 March 2007, the 10 owners entered into the Owners’ Agreement.  Under the Owners’ Agreement:

(1)	the defendant were appointed as the solicitors for the owners  (“Appointed Solicitors”) (clause 1(c));
(2)	Midland was appointed as the estate agent (“Appointed Estate Agent”) (clause 1(h));
(3)	the Appointed Estate Agent’s commission shall be 1% of the purchase price minus the Appointed Solicitor’s costs and disbursement (clause 1(h));
(4)	in the event that the offer is not accepted by all the owners:
	(a)	the Appointed Solicitors’ costs and disbursement shall not exceed $250,000 (clause 1(g));
	(b)	the Appointed Estate Agent shall be paid the out-of-pocket expenses subject to a maximum of $200,000 (clause 1(h)).

6.  The Owners’ Agreement was prepared by the defendant, and Midland was not a party to the agreement.

7.  Tender documents were issued with a closing date of 23 April 2007.  No offer was accepted by the closing date.

8.  On 4 May 2007, all the owners contracted to sell their units to Novel Joy Group Limited for $710,000,000, and Novel Joy signed the Conditions for Sale by Tender.

9.  The Conditions for Sale by Tender contained the following clause:

“

24

(a)

On completion, apart from the balance of the Purchase Price and other monies payable by the Purchaser to the Vendor, the Purchaser shall pay to the Vendor’s Solicitors an additional sum equivalent to 1% of the Purchaser Price to reimburse the Vendor the professional and consultants costs and expenses incurred or to be incurred by the Vendor in relation to the tender and the sale of the Property including but not limited to all legal costs and expenses and estate agent’s commission.”

10.  In May 2007, Midland contacted the defendant at the request of the owners to obtain information on the defendant’s costs.  The defendant replied that their fees were a matter of client confidentiality, and the defendant’s costs and Midland’s costs were separate matters.

11.  On 12 June 2007, the owners demanded the defendant to deliver its bill of costs.

12.  On 15 June 2007, the sale was duely completed, and Novel Joy deposited $7,100,000 in an interest bearing account held by the defendant.

13.  On 24 July 2007, the Owners again demanded the defendant to deliver its bill of costs.

14.  On 27 July 2007, the defendant raised for the first time that an oral agreement was reached with Mr. John Wan, one of the owners, on behalf of all the owners that the defendant would be entitled to receive a consultancy fee in connection with the sale of the properties of 0.65% of the purchase price.

15.  The Mr. Wan and the owners denied any such agreement.  The defendant demanded the owners to withdraw their objection to the fee agreement, and threatened to seek a declaration against the owners in the Court.

16.  On 14 September 2007, the plaintiffs took out the Originating Summons herein requiring the defendant to deliver their bill of costs.

17.  On 11 October 2007, the defendant commenced the Related Action against Midland asking for:

(1)	a declaration that the defendant are entitled to deduct as property consultancy fees of $4,615,000 (being 0.65% of the purchase price) from the $7,100,000 paid by the purchaser under clause 24(a) of the Conditions of Sale;
(2)	alternatively, a declaration that the defendant are entitled to deduct such reasonable sum as quantum meruit for property consultancy services rendered.

18.  The Statement of Claim in the Related Action pleaded that the defendant acted as property consultant in the tender sale of the properties, and in or about January 2007, Mr. Wan, holding out to represent the vendors, orally assured, represented or promised Mr. Eric Davidson of the defendant that the defendant would receive 65% of the 1% property consultancy fee payable by the purchaser in addition to the purchase price.

Defendant’s grounds

19.  Miss Yiu, for the defendant, submitted that:

(1)	notwithstanding that the defendant acted as the solicitor for the vendors, they also acted as property consultant for the owners;
(2)	the defendant are not charging any fee qua solicitors, but claiming an agreed fee qua property consultant;
(3)	the consultancy fee is not taxable under the LPO;
(4)	the request of a bill is vexatious or frivolous and/or without reasonable cause of action as there can be no taxation under the LPO;
(5)	the present proceedings are an abuse of process as tainted by the ulterior motive of the plaintiffs’ fear of possible law suit by Midland for the estate agency fee;
(6)	the present proceedings should be stayed as the determination of the issues in the Related Action would make these proceedings academic.

Plaintiff’s grounds

20.  Mr. Wong, for the plaintiff, submitted that:

(1)	the defendant were retained as the solicitor for the vendors;
(2)	its fees relating to the advice on the sale of the property are taxable under the LPO as:
	(a)	non-contentious business under the LPO;
	(b)	services rendered in the character of a solicitor and in connection with the profession of a solicitor.

Legal principles on striking out

21.  It is for the defendant seeking to strike out the plaintiff’s claim to show that it is clear and obvious that the claim was without reasonable cause of action and/or vexatious or frivolous.

22.  The principles relating to striking out as an abuse of the Court’s process, as summarized by Simon Brown LJ in Broxton v McClelland & anor [1995] EMLR 485, 497-8 are follows:

(1)	Motive and intention as such (save only where ‘malice’ is a relevant plea) are irrelevant.
(2)	The institution of proceedings with an ulterior motive is not of itself enough to constitute an abuse: an action is only abusive if the Court’s processes are being misused to achieve something not properly available to the plaintiff in the course of properly conducted proceedings in:
	(a)	the achievement of a collateral advantage beyond the proper scope of the action to secure to the plaintiff something he has no legitimate claim whatever;
	(b)	the conduct of proceedings not so as to vindicate a right but rather in a manner designed to cause the defendant the problems of expense, harassment, commercial prejudice or the like beyond those ordinarily encountered in the course of properly conducted litigation.
(3)	Only in the most clear and obvious case will it be appropriate upon preliminary application to strike out proceedings as an abuse of proce4ss so as to prevent a plaintiff from bringing an apparently proper cause of action to trial.

Discussion

23.  Miss Yiu properly conceded that there is an unresolved dispute of facts as to the alleged oral fee agreement of 0.65% with Mr. John Wan.

24.  Miss Yiu argued that the defendant is not charging any fee qua solicitors, and any consultancy fees charged are not taxable under the LPO.  Miss Yiu relied on Allen v Aldridge, in re: Ward (1884) 5 Beav 400 and In re Baker, Lees & Co [1903] 1 KB 189.

25.  In Allen v Aldridge, the plaintiff and the defendant in the cause presented a petition under 6 & 7 Vict, c. 73, s. 37 for the taxation of fees and charges of Mr. Ward, the steward of the manor of Cookham, who was a solicitor of the court.  The petition was dismissed with costs.  Lord Langdale, MR, said at p. 405 that:

“	The question is, whether the charges of the steward of a manor who happens to be a solicitor, but was not employed as such, and who acted only as steward of the manor on the occasions in question, are taxable under the statute, and I am of the opinion that they are not.
	The statute does not authorize the taxation of every pecuniary demand or bill which may be made or delivered by a person who is a solicitor, for every species of employment in which he may happen to be engaged.
	The business contained in a taxable bill may be business of which no part was transacted in any Court of law or Equity; but I am of opinion that it must be business connected with the profession of an attorney or an solicitor – business in which the attorney or solicitor was employed, because he was attorney or solicitor, or in which he would not have been employed, if he had not been an attorney or solicitor, or if the relation of attorney or solicitor and client had not subsisted between him and his employer.”

26.  In Baker, Lees & Co, the appellants were solicitors and parliamentary agents.  They had been instructed by the respondent to promote a bill in parliament.  They delivered a bill of costs related wholly to work done and expenses incurred as parliamentary agents, which were properly taxable under the House of Commons Costs Taxation Act, 1847 (UK). The respondent referred the bill for taxation under s. 37, Solicitors Act 1843 (UK).  The judge ordered that the bill should be so referred.  The English Court of Appeal allowed the appeal.  Collins MR said at pp. 195-6:

“

… where the bill of costs relates to work which may be done by a person who is merely a parliamentary agent, and which has been done by a person who is both a parliamentary agent and also a solicitor, one must look closely at the circumstances of the particular case in order to see what in truth was the relation between the parties; and, if one finds on the true view of the facts that the person doing the work was employed to do it merely as parliamentary agent, and not because he was a solicitor, the work being such as he might have done merely as a parliamentary agent, if he had not been a solicitor, then the mere fact that he happened to be a solicitor does not bring the case within the jurisdiction given by the Solicitors Act, 1843, s. 37; but otherwise the case comes within that jurisdiction  That appears to me to be the true principle which may be derived from the cases.”

27.  Mr. Wong submitted that Allen v Aldridge and Baker, Lees & Co are distinguishable in that the defendant were appointed solicitors for the vendors and not merely property consultant who happened to be solicitors.  The defendant were retained primarily to act as conveyancer, work within the monopoly of solicitors, who happened to provide advice related to the conveyancing.

28.  Under s. 56 of the LPO:

“	(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.”

29.  And under s. 2 of the LPO, “non-contentious business” is defined as including “any business connected with sales, purchases, leases, mortgages and other matters of conveyancing”.

30.  Mr. Wong submitted that all the heads of services listed out by the defendant in correspondence are services connected with matters of conveyancing, perhaps with the only borderline item of recommending a lists of developers to be invited to tender.  Be that as it may, such advice are still rendered by the defendant in the character of a solicitor in business connected with a solicitor.

31.  Mr. Wong submitted that the protection afforded to the client under the LPO cannot be so easily avoided by selecting a different label which prefers form over substance.

32.  I do not think that Allen v Aldridge and Baker, Lees & Co assist the defendant as the defendant were admittedly appointed as solicitors for the vendors in the present case, and not that they were engaged otherwise but fortuitously happened to be solicitor of the Court.  I do not consider that it is clear and obvious that their fees are not taxable.

33.  Mr. Wong also pointed out that as the sale to Novel Joy eventually was by private treaty rather than tender as it was after the close of the tender period, the defendant would be in breach of the provisions of the Estate Agent Ordinance (Cap. 511) in purporting to act as property consultant.

34.  Miss Yiu argued that the sale remained as a tender sale as Novel Joy had signed the Conditions of Sale as tenderer. 

35.  Be that as it may, this introduces another issue in dispute which makes the defendant’s assertion of success far from being clear and obvious.

36.  As to abuse of process, Miss Yiu submitted that the plaintiff was motivated by the fear of litigation by Midland over its share of the $7.71 million.

37.  Be that as it may, the plaintiffs are seeking to avail their right of solicitor and own client taxation under the LPO.  There is no clear and obvious case that they have been disavowed of that course by conduct or agreement.  They are not seeking any advantage beyond that by bringing the present proceedings.  Whatever fear or apprehension they may labour towards Midland is not relevant.

38.  As to the stay, Miss Yiu submitted that only Midland and the defendant were entitled to share the $7.71 million paid by the purchaser, and the resolution of the share between them would make the present proceedings academic.

39.  Mr. Wong submitted that the liability to pay the defendant and Midland rests with the plaintiffs (and the other owners).  The $7.71 million were paid by the purchaser to reimburse the owners, and belonged to the owners. 

40.  Mr. Wong pointed out that the defendant’ previous position was that the fees of Midland and the defendant were separate matters, and the owners would be sued if their objection to the 0.65% agreed fee were not withdrawn.  There is nothing to show how the defendant could retract from that position.  Further, the determination of the Related Action is not binding on the plaintiffs who are not parties thereto.  In fact, the determination of the fees chargeable by the defendant herein will determine the Related Action.

41.  I note that there was no clear and obvious indication that the liability of the  owners to Midland and the defendant would be limited to $7,71 million.  Hence, the question of the defendant’s fees is not a matter inter se the defendant and Midland vis-à-vis the $7.71 million.  The owners are necessary parties to the resolution of the issue.  Their absence from the Related Action means that no saving of costs or other convenience is achieved by staying the present proceedings pending the determination of the related Action.

42.  Miss Yiu made an impromptu application that the proceedings be ordered to continue as if begun by writ under O. 28, r. 8, RHC in view of the dispute of facts.  Mr. Wong submitted that the matter is essentially one on law as to the taxability of the defendant’s charges, and the defendant may bring a counterclaim to the Originating Summons under O. 28, r. 7, RHC, if so advised.  In view of the lack of notice and proper submissions on the point, I did not make the direction as sought.

Costs

43.  The plaintiff asked for indemnity costs upon the dismissal of the application.

44.  In Town Planning Board v Society for Protection of the Harbour Ltd (No. 2) (2004) 7 HKCFAR 114, the Court of Final Appeal held that:

(1)	The successful party should show that the case had special or unusual features for an order for indemnity costs to be made;
(2)	An award of indemnity costs was not confined to cases brought with an ulterior motive, for an improper purpose, or where there was some deception or underhand conduct on the part of the losing party;
(3)	The attributes of the parties and the character of the proceedings were not irrelevant to the exercise of the exercise of the discretion to award indemnity costs.  The grounds for making such an order must be connected with the case and might extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further.

45.  Mr. Wong’s ground is that the application for stay was brought for the ulterior motive of delay.  It was the defendant’s pervious position that a declaration would be sought against the owners on the fee agreement, but the Related Action lacked the necessary parties of the owners to schieve such resolution.  There is no attempt to explain why there was a change of position.  Hence, the inference of ulterior motive is to be drawn.

46.  The summons was first taken out on 11 October 2007 for the stay only.  On 9 January 2008, the defendant took out a summons for leave to add the striking out.  In refusing to strike out, I have not come to any definite determination on the merits, and I am not prepared to view the striking out as motivated by the ulterior motive of delay.  Then, whatever motive in the original stay application, the stay was subsumed under the striking out, and in fact had subsided as a fall back position, taking up only a fraction of the argument.

47.  Hence, I ordered order costs to be paid by the defendant on a party and party basis.

48.  I thank Mr. Wong and Miss Yiu for their helpful submissions.