LO KA YING t/a LAWRENCE K.Y. LO & Co. v. LEE SZE KWONG WILLIAM AND ANOTHER

DCCJ 6390/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6390 OF 2003

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J U D G M E N T

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Background

1.  This is an action by a solicitor (“the Plaintiff”) against his clients (“the Defendants”) for legal costs for having represented them in High Court Action No 626 of 2003.  The costs claimed are in respect of two bills of costs: (1) in defending an Order 14 application against the Defendants (the “1^st Bill”) and (2) in preparing and filing the defence (the “2^nd Bill”).

2.  The two Defendants were executive directors of G-Prop (Holdings) Limited (“G-Prop”), which was a public company listed on the main board of the Hong Kong Stock Exchange.  On 18 February 2003, a Mr Choi issued a writ of summons against G-Prop and the two Defendants in High Court Action No. 626 of 2003.  That claim was in respect of three dishonoured cheques issued by G-Prop.  The two Defendants were sued for having endorsed the cheques and guaranteed their validity and/or full payment.  Mr Choi also made an application for judgment under Order 14 of the Rules of the High Court against G-Prop and the Defendants.  The application was listing for call over before a master in Chambers on 24 March 2003.  

3.  On or about 18 March 2003, the 1^st Defendant requested the Plaintiff for his services.  The Plaintiff had a meeting with the two Defendants in the office of G-Prop in Kwai Chung.  The 1^st Defendant told the Plaintiff that he had resigned as director of G-Prop, that the 2^nd Defendant was about to resign from his directorship as well and that G-Prop was on the brink of winding up and could not honour the cheques.  The 1^st Defendant said he understood it would be extremely difficult to defend the claim against G-Prop, but would like the Plaintiff to defend the action against them, i.e. the 1^st and 2^nd Defendants.  He also said the total sum represented by the cheques would be set off by the consideration to be offered in an arrangement to take over G-Prop.  There is no need to go into the details of that arrangement or the Defendants’ possible defence as endorsers of the cheques and guarantors.  The Plaintiff gave some preliminary advice including that he considered G-Prop had no defence but suggested counsel’s opinion to be sought.  The 1^st Defendant agreed and told the Plaintiff to send the quotation for his services to G-Prop as it would be easier for the Defendants to claim their legal fees back from G-Prop.  The Plaintiff understood by the end of the meeting that he was instructed to defend the Defendants and to wait for counsel’s opinion as regards whether to defend G-Prop.

4.  On 19 March 2003, the Plaintiff faxed a letter of quotation of $60,000 to G-Prop for the attention of the two Defendants.  The services to be undertaken were set out in the second paragraph of the quotation as follows:

“Further to the meeting last week, we write to confirm that we have instructed Miss Gloriane Hui of Counsel to take up the Order 14 matter of urgency.  We write to confirm that the legal costs involved HK$60,000.00 shall be including Counsel fee covering 2 conferences with your goodselves and Counsel, perusal of papers supplied by your goodselves, preparing and settling Affirmation of your goodselves, appearing at hearing before Master in Chambers on 24^th March 2003 and the adjourned hearing for argument before Master in Chambers with Miss Gloriane Hui of Counsel appearing for both of you.”

A deposit of $30,000 was to be paid.  At the bottom of the letter was a space with the names of the two Defendants for them to sign acceptance of the terms of the quotation. 

5.  Upon receipt of this letter of quotation, the 1^st Defendant consulted the vice chairman of G-Prop who was not satisfied that G-Prop was not going to be represented.  The 1^st Defendant reverted back to the Plaintiff.  As a result, a second letter of quotation was faxed to G-Prop in which the following words were added to the end of the second paragraph I quoted above:

“and regarding G Prop to consider the merit of its Defence if any”.

A space was also provided at the bottom of the letter for execution by G-Prop.  This letter of quotation was duly signed by the two Defendants and G-Prop and returned to the Plaintiff with G-Prop’s cheque for $30,000.

6.  At the conference with Miss Gloriane Hui of counsel in which both Defendants attended, Miss Gloriane Hui advised that there was no defence at all for G-Prop.  The Defendants agreed.  The 1^st Defendant said he would inform G-Prop to send a representative to appear for G-Prop at the hearing on 24 March 2003.  The Plaintiff filed a notice to act in respect of the two Defendants but not G-Prop.  He also wrote to G-Prop in a letter dated 21 March 2003 as follows:

“…  Whereas the second and Third Defendants [i.e. the 1^st and 2^nd Defendants in this action] will have a good chance of success in establishing their respective arguable defence.

In view of the above, we shall act for the 2^nd and 3^rd Defendant and file their affirmations to Court this afternoon leaving the 1^st Defendant unrepresented.”

7.  At the call over hearing on 24 March 2003, the Plaintiff’s assistant solicitor appeared for the two Defendants.  No representative from G-Prop appeared and summary judgment was entered against G-Prop.  The application against the two Defendants was adjourned for full argument.  At the hearing on 26 May 2003, the Plaintiff successfully obtained unconditional leave for the Defendants to defend the action.

8.  On the following day, the Plaintiff rang the 1^st Defendant but the line could not get through.  He received a telephone call from the 2^nd Defendant who enquired about the result of the hearing.  The Plaintiff informed him of the result and chased for payment of the balance of his fees.  The 2^nd Defendant replied that he would ask the 1^st Defendant to settle it.  The Plaintiff also informed the 2^nd Defendant that the Plaintiff was in the process of preparing for the defence which would be charged according to his usual time costing basis.  The 2^nd Defendant agreed.  Since then, the Plaintiff lost contact with both Defendants.  On 16 June 2003, the Plaintiff filed a defence of plain denial.

The 1^st Bill

9.  The Defendants’ defence is that the Plaintiff did not act exclusively for the two Defendants but also for G-Prop and hence G-Prop was liable for payment of the Plaintiff’s fees.  The 1^st Defendant referred to the second letter of quotation signed by the Defendants and G-Prop and the payment of deposit in the amount of $30,000 by G-Prop as evidence that G-Prop was liable for payment of the Plaintiff’s fees.  He referred to the conference with counsel in which Miss Gloriane Hui advised that there was no defence at all for G-Prop as evidence that at one stage the Plaintiff represented G-Prop as well.  He also referred to the Plaintiff’s letter to G-Prop dated 21 March 2003 which was not addressed to the attention of the two Defendants as further evidence that the Plaintiff represented G-Prop and looked to G-Prop for payment.

10.  I do not think any of these matters referred to by the Defendants supports their case that only G-Prop was liable for the legal fees.  During the first meeting with the Defendants, the Plaintiff had given preliminary opinion and advised that G-Prop had no defence.  His understanding was that he was instructed to represent the two Defendants only.  He proceeded on that basis and sent them the first letter of quotation.  After consulting the vice chairman of G-Prop, the parties changed their position.  According to the second letter of quotation of the same date signed by the Defendants and G-Prop, the services were essentially to represent the two Defendants.  The services to be rendered to G-Prop were confined to consider the merit of G-Prop’s defence only if there was any defence.  If counsel advised that there was no defence, that would be the end of G-Prop’s engagement of the Plaintiff.  On the other hand, if counsel advised that there was a defence, it remained to be decided whether the Plaintiff was to represent G-Prop as well since the Defendants’ interest might conflict with that of G-Prop.  The Plaintiff considered G-Prop had no defence before counsel was instructed.  His opinion was confirmed by counsel during the conference.  The Defendants agreed with that advice.  The 2^nd Defendant must have attended the conference also in his capacity as executive director of G-Prop and agreed with that advice.  It having been agreed that G-Prop had no defence and would not be legally represented at the hearing on 24 March 2003, G-Prop’s engagement of the Plaintiff for the very limited purpose of considering whether there was any defence must have been determined by the end of that conference.

11.  It is not unusual for a third party to make payment on behalf of one party to a contract.  In the circumstances of this case as G-Prop requested for specific advice on its defence, it is a reasonable inference to draw that it assumed liability to pay at least some of the legal fees for the purpose of obtaining that advice.  It is also reasonable to infer from the circumstances under which the Defendants attracted the alleged liability in the High Court action, namely the Defendants endorsing on the cheques and guaranteeing their payment, that G-Prop would indemnify them of the legal costs in contesting that liability which arose out of their employment with G-Prop. That was a matter between G-Prop and the Defendants as its employees, but that could not affect the Defendants’ obligation to pay under a contract of retainer between the Defendants and a third party to that employment relationship, namely the Plaintiff.  I do not think G-Prop’s payment of the deposit conclusive that the parties agreed that G-Prop alone was to be liable for the legal fees. 

12.  The letter of 21 March 2003 was to confirm to G-Prop the decision reached at the conference that G-Prop had no defence, will not be legally represented by the Plaintiff at the hearing and would allow judgment to be entered against it by default.  It was prudent for the Plaintiff to have so informed G-Prop in writing.  That letter was not copied to the Defendants, obviously because it was not necessary as the Defendants were at the conference, the 2^nd Defendant as G-Prop’s executive director consented to the course to be adopted and most importantly the decision not to represent G-Prop did not affect the Defendants.  I do not think the Plaintiff’s failure to address this letter to the attention of the Defendants or to send them a copy reflected any agreement that G-Prop only was to be liable for the Plaintiff’s fees and the Defendants were not so liable.

13.  The 1^st Defendant referred to his affirmation used in defending the Order 14 application drafted by the Plaintiff in which the Plaintiff wrote on the 1^st Defendant’s behalf that the High Court Action No. 626 of 2003 “arose entirely from liability incurred by [G-Prop]” and to a similar passage in the 2^nd Defendant’s affirmation.  He argued that it was difficult to understand how on the one hand the Plaintiff argued for the Defendants in that High Court action that as employees they were not liable for payment of the dishonoured cheques but are liable for the legal fees in defending that action.  I think the 1^st Defendant was deliberately mixing up the two issues.  The two Defendants were sued in their personal capacity along with G-Prop.  The fact that they had an arguable defence in that action or putting that even higher that they were not liable for payment of the dishonoured cheques is a different issue from their liability to their solicitor for defending that action on their behalf.  The fact that they were not liable in that action does not mean that they do not have to pay for the services of their solicitor engaged by them to contest that liability.

14.  The 1^st Defendant also argued that the High Court Action against them was aborted suggesting that the Defendants should not be held liable.  That was a decision of Mr Choi.  Whether the Defendants were liable to Mr Choi in that High Court Action is again a separate issue from the question whether they were liable to the Plaintiff for his services in defending them in that Action. 

15.  Pursuant to the decision reached at the conference, the Plaintiff filed a notice to act only for the two Defendants and not G-Prop.  I therefore find that at the visit on or about 18 March 2003 the Defendants and the Plaintiff entered into an oral agreement to retain the Plaintiff to represent them in High Court Action No. 626 of 2003.  The second letter of quotation was a fee agreement under the oral retainer in respect of the services to be rendered under the 1^st Bill.  Pursuant to oral retainer and the letter of quotation the Plaintiff prepared affirmations, appeared at the call over hearing and the subsequent full hearing. All these services were rendered for the benefits of the Defendants.  The Defendants and G-Prop signified their agreement to the legal fees by signing the second letter of quotation.  They agreed that the Plaintiff was to be retained for the purpose of defending the Defendants and that so far as G-Prop was concerned the Plaintiff was engaged to consider the merit of G-Prop’s defence only.  As it was agreed that G-Prop had no defence and would not be further represented by the Plaintiff, the retainer so far as G-Prop was concerned was terminated.  All the services to be rendered thereafter were to the benefit of the Defendants who were the parties left to be liable under the retainer.  The Plaintiff had performed his obligation to earn his fees under the terms of the second letter of quotation.  The Defendants had the benefit of the Plaintiff’s services in that unconditional leave was obtained for them to defendant High Court Action No. 626 of 2003.  The fact that G-Prop paid the deposit is not conclusive that it was the intention of the parties that G-Prop was liable for the legal fees to the exclusion of the Defendants, especially as it had the benefit of counsel’s advice that it had no defence.  I find that the Defendants and G-Prop are jointly liable to pay the balance of the legal fees under the second letter of quotation.

The 2^nd Bill

16.  The Plaintiff’s case in respect of this bill of costs is that after the hearing on 26 May 2003, he proceeded with drafting and preparation of the defence by referring to the documents supplied by the Defendants previously, the statement of claim of the plaintiff, the affirmations filed for the Order 14 hearing and counsel’s opinion.  He lost contact with the Defendants and could not seek their confirmation of the draft defence.   He was running out of time for filing defence.  Then at the brink of judgment being entered against the Defendants, the Plaintiff filed a defence of plain denial instead of the draft defence he prepared as confirmation from the Defendants was wanting.

17.  The Defendants argued that the Plaintiff had not obtained their written consent or instruction for performing the services in respect of the 2^nd Bill.  They argued that as the Plaintiff had difficulties in collecting the outstanding payment under the 1^st Bill, he should have ensured that he had proper instructions before rendering the further services charged under the 2^nd Bill.

18.  In my view, except in the case of a limited retainer, if a solicitor is retained for a litigation he has the conduct of the litigation until its conclusion or until his retainer is terminated.  Once litigation is on-going, proceedings will progress according to a tight schedule.  Documents, statements, affirmations etc will have to be served and filed within time limits.  Solicitors representing the parties have to seek directions from the court and to attend to interlocutory applications from time to time.  It would create tremendous amount of procedural difficulties if a solicitor is to be retained in respect of each individual proceeding in a litigation separately.  It would be chaotic, for example, if a solicitor is retained for one proceeding and has no authority to receive service of other documents or summons in respect of the next proceeding in the same litigation.  Hence in the absence of express agreement to the contrary, a retainer is presumed to be a general one in respect of the entire litigation and not a limited one.  Once retained, a solicitor must not terminate his retainer except for good reason and upon reasonable notice or with the client’s consent.  But if a client puts himself beyond the reach of his solicitors whether for the purpose of avoiding payment of fees or for the purpose of giving instructions as to the further conduct of the litigation, a solicitor has good reason to terminate his retainer and seek leave of the court to remove himself as solicitor on the court record.  But until he does so or if he chooses not to terminate the retainer, he has to continue to act for his client and to take such steps as are reasonably necessary to protect his client’s interest in the litigation for which he has been retained.

19.  As I have found, the Plaintiff was retained under an oral retainer to represent the Defendants in the entire litigation while the second letter of quotation was only a fee agreement as to part of the services to be rendered under the oral retainer.  There is nothing in this case to suggest that the Plaintiff was retained for the limited purpose of contesting the Order 14 application only.  The Plaintiff obtained unconditional leave for the Defendants to defend.  The Defendants were ordered to file defence within a limited time, presumably within 21 days.  The Plaintiff was obliged to prepare a defence for the Defendants.  The 2^nd Defendant was informed of the result.  At least, he agreed to remunerate the Plaintiff on the usual time costing basis for preparing the defence.  However, thereafter both Defendants deliberately evaded contact with the Plaintiff and stalled payment of the outstanding legal fees under the 1^st Bill.  Time was running out for the filing of the defence.  The Plaintiff had good reason to terminate the retainer.  He chose not to and he had to take such steps as are reasonably necessary to protect the Defendants’ interest. 

20.  In the circumstances of the case, the Plaintiff could either file a defence or seek extension of time for filing defence from the opposite party or from the court.  A solicitor may only file a defence, if he has clear instructions from his client for his client would be bound by the defence.  Any subsequent amendments as a result of any misunderstanding on his part of his client’s instructions would result in unnecessary costs and expose his client to prejudicial comments.  Filing a general denial has a even more adverse result and should always be avoided.  It is liable to be struck out and would occasion extra costs.  It invites critical comments. 

21.  The Plaintiff chose to prepare a defence based on the statement of claim, the Defendants’ affirmation, counsel’s opinion and other instructions he received for the purpose of defending the Order 14 application.   It was expedient to do so in the circumstances so that he would have a ready draft to work on once he was able to receive instructions from the Defendants.  He could not be criticised for that and should be remunerated for his time.   But instead of properly seeking an extension of time, he filed a defence of general denial.  This is not a course which I would have approved, but this is besides the point.  The Plaintiff now claims for his costs in preparing the draft defence which he has not filed and for which he claims $30,000.  The Defendants dispute both liability and quantum.

22.  In paragraph 4 of his statement of claim, the Plaintiff pleaded as follows:

“Having finished the work stated in paragraph 3, the Plaintiff rendered and delivered a Bill of Costs to the Defendants for settlement, which was not paid.  Thereafter on the instructions of the Defendants, Defence was prepared and settled by Counsel and was subsequently filed in compliance with the Court Order.  A second Bill of costs was rendered for the sum of HK$30,000.00 making a total outstanding of HK$60,000.00.”

23.  This pleading does not tally with the evidence.  The Plaintiff pleaded that he filed the defence on the instructions of the Defendants, whereas his evidence is that he lost contact with the Defendant and could not seek their confirmation of the draft defence.  Assuming that the instructions he was referring to was the implied authority to file a defence, the defence filed was just a general denial.  According to the Plaintiff, the defence filed was neither prepared nor settled by counsel.  There is also no evidence that the draft defence, which has not been filed, was prepared and settled by counsel.  I am not satisfied that the work the Plaintiff charged has been incurred.  The Plaintiff has failed utterly to prove what he has pleaded.  I dismiss his claim under the 2^nd Bill.

Mitigation

24.  The Defendants argued that even if they were liable to pay the Plaintiff to certain extent, the Plaintiff was under a duty to mitigate his loss by pursing the course of actions under the schemes of arrangement made by creditors of G-Prop.  The administrator of the scheme had sent the Plaintiff a copy of the scheme and necessary documents for the Plaintiff to file his claim against G-Prop but the Plaintiff declined to file the claim on the basis that he did not consider himself ever acting for G-Prop.  Had he accepted the arrangement, the Plaintiff would have received a negligible fraction of his fees by way of an option which was worthless at the time of the arrangement.  In view of the amount of the Plaintiff’s claim, it was not worth his effort to file a claim under the scheme of arrangement.  Furthermore, the Plaintiff was entitled to immediate payment and should not be forced to mitigate by receiving what in reality was a long term speculative chance of being paid an uncertain amount in the event of a speculative appreciation in the value of the option.  In respect of the services rendered under the 1^st Bill, G-Prop was jointly liable with the Defendants to the Plaintiff for the balance of his fees.  The Plaintiff has the option of deciding against whom to enforce payment of the balance of his fees.  Suing the Defendants is probably the more preferable option.  I do not think the amount recoverable by the Plaintiff should be reduced by any value of the option which he could have received from the scheme of arrangement.   In any event, it was fair not to enforce the payment against G-Prop as the majority part of the services were rendered to the Defendants and not to G-Prop and G-Prop had already paid a deposit representing 50% of the fees which far exceeded its share of the services provided by the Plaintiff.

Conclusion

25.  In the circumstances, I allow the Plaintiff’s claim under the 1^st Bill but dismiss his claim under the 2^nd Bill.  Accordingly I enter judgment in favour of the Plaintiff against the 1^st and 2^nd Defendants in the amount of $30,000.  I also make an order nisi that the Defendants shall pay the Plaintiff 50% of his costs in this action.