THE LAW SOCIETY OF HONG KONG v. A SOLICITOR

CACV 496/2022

[2024] HKCA 133

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 496 OF 2022

(ON APPEAL FROM AN ORDER MADE BY THE SOLICITORS

DISCIPLINARY TRIBUNAL DATED 13^TH DAY OF SEPTEMBER 2021)

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REASONS FOR JUDGMENT

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Hon Yuen JA:

1.  I agree with the Reasons for Judgment of Barma JA.

Hon Barma JA:

2.  This was an appeal by the Law Society against the penalty imposed on the 1^st respondent solicitor (“the Solicitor”) by the Solicitors Disciplinary Tribunal (“the Tribunal”) in its Statement of Findings and Order dated 13 September 2021, in respect of certain complaints lodged against the Solicitor by the Law Society by a Complaint Sheet dated 22 June 2020.  Although there were a total of 7 complaints, the relevant complaints for present purposes were Complaint 1 and Complaint 3 (“the Complaints”) these being the complaints in respect of which the penalty was imposed.

3.  Complaint 1 alleged that the Solicitor failed to make enquiries of Mr Chong Hung Shek regarding Mr Chong’s criminal conviction record before employing him as a conveyancing clerk of Messrs S Cheng and Yeung (“the Firm”), allowing Mr Chong’s previous conviction for conspiracy to defraud to go undetected. Complaint 3 alleged a failure on the part of the Solicitor properly to supervise Mr Chong, enabling Mr Chong to exploit loopholes in the Firm’s accounting practices to misappropriate cheques totaling some HK$24,572,772 belonging to the Firm’s clients over a period of about 3 years.  It may be noted, however, that as explained below, at the end of the day the shortfall in client funds was some HK$5,071,007.83, an amount which may have been further reduced by the payment of a dividend in the Solicitor’s subsequent bankruptcy.

4.  The Solicitor pleaded guilty to the Complaints on the basis of a Statement of Agreed Facts dated 4 December 2020.  The Tribunal accordingly found the Complaints substantiated, and imposed the following sentence:

(1)  suspension from practice as a solicitor for a period of 30 months from the date of filing of the Suspension Order;

(2)  thereafter, a temporal restriction preventing the Solicitor from practicing as a partner or principal of a firm, and permitting him only to practice as an assistant solicitor under the supervision of a solicitor of not less than 15 years standing with no disciplinary record, such temporal restriction to be for a period of 3 years commencing when the Solicitor resumed practice as a solicitor.

5.  Dissatisfied with the sentence, the Law Society obtained leave to appeal from this court (Kwan VP and Chu VP) by an order dated 19 December 2022 pursuant to section 13(2A) of the Legal Practitioners Ordinance (Cap 159).

6.  By the appeal, the Law Society sought an increase in the period of suspension from practice of the Solicitor, contending that the period of suspension should be at least 60 months from the date of the order.  The Law Society contended that the period of suspension of 30 months imposed by the Tribunal was, having regard to the circumstances of this case, manifestly inadequate and clearly wrong.

7.  The appeal was opposed by the Solicitor.  The Solicitor offered certain further undertakings which were said to be intended to minimise the risk of a repeat of the offences, but made it clear that the offering of such undertakings was not to be taken as accepting that the sentence imposed was in any respect inadequate or wrong.

8.  We heard the appeal on 20 June 2023.  The Law Society was represented by Mr Vishal Melwani, solicitor advocate, and the Solicitor was represented by Ms Anita Yip SC and Ms Sally Wong (both of whom appeared pro bono).  At the conclusion of the appeal, we dismissed the appeal, accepted the further undertakings offered by the Solicitor, and ordered that the Solicitor’s costs of the appeal and the application for leave to appeal be paid by the Law Society.  We indicated that our reasons for doing so would be handed down in due course.  This we now do.

9.  The background to the disciplinary proceedings was not disputed and can be shortly stated:

(1)  The Solicitor was a partner of the Firm from 23 February 2002 until 2 September 2016 (when the Firm was the subject of an intervention by the Council of the Law Society).  Mr Chong was a friend or acquaintance of his, and had worked as a conveyancing clerk at various law firms since about March 1988.

(2)  In January 2007, Mr Chong was convicted of one count of conspiracy to defraud, and was sentenced to a term of 4 months’ imprisonment.

(3)  Following his release from imprisonment, on 30 August 2007, Mr Chong was employed by the Firm as a conveyancing clerk.

(4)  Section 53(3) of the Ordinance provides that no solicitor shall in connection with his practice as a solicitor, without written permission from the Law Society, employ or remunerate any person who, to his knowledge has been convicted of a criminal offence involving dishonesty.

(5)  When the Solicitor employed Mr Chong to be a conveyancing clerk, he did not make any enquiries with Mr Chong as to whether or not he had a criminal record.  He said that he simply presumed that Mr Chong had no criminal record as Mr Chong was not on the Law Society’s list of staff who were prohibited from employment. The Solicitor admitted, however, that some years later (precisely when is not clear), he did become aware of Mr Chong’s conviction, but nonetheless continued to employ him at the Firm without seeking the Law Society’s permission to do so.  It was accepted that at least from this point in time, the Solicitor was in breach of section 53(3) of the Ordinance.

(6)  Moreover, the Solicitor failed to supervise Mr Chong in his work, thereby enabling Mr Chong to embezzle funds belonging to the Firm’s clients, by improperly depositing into his personal account some 85 cheques belonging to 47 individual clients with a total value of HK$24,572,772.00.

(7)  Mr Chong’s fraudulent scheme came to light in August 2016.  Thereafter, on 2 September 2016, the Firm was the subject of an intervention by the Council of the Law Society.

(8)  The Solicitor was adjudged bankrupt on 13 December 2016.

(9)  Mr Chong was convicted (upon his plea of guilty) of three counts of fraud in connection with his embezzlement of client funds, and was sentenced to an aggregate term of imprisonment of 8 years (this total period of imprisonment was left undisturbed despite an appeal against sentence being allowed (see [2019] HKCA 451)).

(10)  The Intervention Agent appointed by the Law Society in respect of the Firm adjudged the total amount of valid claims by clients of the Firm to be HK$7,746,738.47.  After some HK$2,675,730.64 standing to the credit of the Firm’s client account was distributed amongst the affected clients, there remained a net deficit of HK$5,071,007.83.

10.  Much of the background set out above was the subject of the Statement of Agreed Facts placed before the Tribunal.  Having considered the Statement of Agreed Facts, the evidence before it, and the Solicitor’s guilty plea, the Tribunal found the Complaints substantiated and imposed the sentence set out in [4] above in respect of the Complaints.  A censure and fines were imposed in respect of the other 5 complaints against the Solicitor, but these are not in issue in this appeal.

11.  When sentencing the Solicitor, the Tribunal had regard to the principles applicable to sentencing for disciplinary misconduct by solicitors set out by this court in A Solicitor v The Law Society of Hong Kong [2015] 2 HKLRD 802 (“the 2015 case”) at [69]:

“1. An order that the solicitor be struck off the Roll of Solicitors is appropriate where dishonesty is involved.

2. Although a striking off is almost invariably the penalty for dishonesty, there may be cases where a suspension is the appropriate penalty when dishonesty is involved.

3. Where a solicitor has not acted dishonestly but has fallen below the required standards of integrity, probity and trustworthiness, then suspension is the appropriate sentence.

4. It is only in the most exceptional cases that orders other than suspension should be imposed in cases covered by paragraph 3 above.

5. The rationale for these heavy sentences is four-fold:

(a) To punish the solicitor.

(b) To deter others from acting in the same way.

(c) To ensure that the offender will not have the opportunity to repeat the offence.

(d) To maintain the reputation of the profession and to sustain public confidence in the integrity of the profession.

6. If suspension is the appropriate remedy then it will not be an objection to impose it even though the solicitor may be unable to re-establish his practice when the period of suspension is past.

7. Each case has to be determined on its own facts.  The professional body entrusted with the task of professional discipline is in a uniquely advantageous position to discharge its duty.”

12.  The Tribunal also referred to the decision of this court in Re A Solicitor [1999] 4 HKC 455, where it was held (at [10]) that the Tribunal’s orders were not primarily punitive in nature, but served the purpose of ensuring that the offender did not have the opportunity to repeat the offence, and to maintain the reputation of the solicitors’ profession.

13.  The Tribunal made it clear that it regarded the misconduct of the Solicitor in relation to the hiring of Mr Chong, and adopting seriously unsatisfactory accounting practices without adequate supervision, which persisted over a long period, as serious matters that warranted proportionately serious penalties. Against these considerations, the Tribunal noted that the Solicitor had pleaded guilty at the first opportunity, and that there was no suggestion of dishonesty.  It is also clear from the agreed facts that the Tribunal was aware of the considerable period of time during which the deficiencies persisted, and of the number of clients and amount of client funds affected.  Having regard to all of these matters, the Tribunal passed the sentence that it did.

14.  As noted above, the Law Society contends that the sentence was clearly wrong and manifestly inadequate.  However, it does not take issue with the imposition of a suspension as opposed to striking off.  It suggests that a substantially longer period of suspension of 60 months rather than 30 months would have been appropriate.  Nor does the Law Society take issue with the temporal restriction on practice requiring the Solicitor to practise under supervision for a period of three years after resumption of practice.

15.  The grounds of appeal can be grouped into two main areas of complaint, which Mr Melwani agreed were the focal points of the Law Society’s appeal.

16.  First, it was argued that the Tribunal erred in failing to regard the Solicitor’s misconduct as dishonest, and thereby significantly downplayed the nature of the misconduct, leading it to impose a clearly insufficient sentence in terms of the length of suspension.

17.  Second, it was argued that in any event, the sentence was manifestly inadequate and hence clearly wrong, having regard to (1) the seriousness of the impact of the Solicitor’s misconduct on the Firm’s clients – emphasis was particularly placed on the length of time over which defalcations by Mr Chong took place (some 3 years), the total number of clients affected (some 47 clients) and the amount of client funds affected (some HK$24.5 million); and (2) the fact that the Solicitor had a disciplinary record consisting of the issue of five previous sanction letters, two of which related to breaches of the Solicitors’ Accounting Rules, and Hong Kong Solicitors’ Guide to Professional Conduct relating to failures to supervise clerks.

18.  The first argument can be briefly disposed of.  It is clear from the material in relation to the Tribunal hearing, and was fairly acknowledged by Mr Melwani, that dishonesty formed no part of the Law Society’s case before the Tribunal. That being so, it is clearly not open to the Law Society to put forward such a case for the first time on appeal (see e.g. Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356).  Had such a case been run before the Tribunal, the Solicitor’s approach to the hearing below would almost inevitably have been very different – for example, there may have been no plea of guilty and admission of the charges, and there might have been no agreement as to the facts to be placed before the Tribunal.  It would clearly be prejudicial to the Solicitor to permit such a case to now be run for the first time.  In fairness to Mr Melwani, he did not pursue this ground of appeal upon the court making its concerns known to him, and it is therefore not necessary for us to deal with it further.

19.  This left the second argument, which was that the sentence passed by the Tribunal was manifestly inadequate and clearly wrong.  It was common ground between the parties that this was the appropriate standard for intervention by this court. As noted in [17] above, Mr Melwani’s agreement had two aspects to it, the first focusing on what he said was the seriousness of the impact of the Solicitor’s misconduct on the Firm’s clients, and the second having regard to the Solicitor’s record of prior disciplinary action against him, some of which related to similar defaults.

20.  In relation to the first aspect, both parties cited a number of previous Tribunal decisions in relation to similar types of default in supervision by solicitors.  Mr Melwani submitted that in terms of the impact of the Solicitor’s misconduct on the Firm’s clients, this case was at the very top end having regard to the number of clients affected, the number of individual incidents in which cheques were mishandled, the overall amount of funds misappropriated by Mr Chong, and the period of time over which Mr Chong’s defalcations took place.

21.  At the hearing, Mr Melwani drew our attention to a recent decision of this court (differently constituted) in Law Society of Hong Kong v A Solicitor [2023] HKCA 694 (“the 2023 case”), in which a sentence of 24 months’ suspension, with temporal restrictions of a similar nature to those in the present case, imposed by the Tribunal was substituted with an order that the Solicitor in that case be struck off the Roll of Solicitors.  Mr Melwani submitted that the extent of the impact on clients in that case was very similar, and indeed almost indistinguishable to the present case, in that the amount of client funds affected, the number of clients affected, and the period over which the misconduct took place were almost identical to those in the case now under appeal.

22.  Mr Melwani suggested that this authority showed that a sentence of 30 months’ suspension here (6 months more than the 24 months’ suspension originally imposed in the 2023 case) was clearly wrong and obviously inadequate.

23.  With respect, in making this submission Mr Melwani overlooked a very important distinguishing feature between the 2023 case and the present case.  In the 2023 case, it is clear that there was dishonesty involved on the part of the solicitor concerned, who had diverted client funds to himself.  By contrast, in our case, the Solicitor derived no benefit from the defalcations of Mr Chong, and as we have already noted, there was no suggestion of dishonesty on his part at the hearing below.  Having regard to those differences, we do not think that the 2023 case affords a sound basis for Mr Melwani’s submission that the penalty here was clearly wrong and obviously inadequate.

24.  Indeed, it is notable that the Law Society does not take issue with the nature of the penalty – i.e. a suspension, and contends only that the suspension imposed was not long enough.  As to this, we would observe that the length of suspension imposed on the Solicitor is the longest in the authorities to which our attention has been drawn, and is on any view a very substantial period of suspension.  We do not think that it can be said that it was manifestly inadequate or clearly wrong.  While the solicitor might have had scant ground for complaining had a somewhat longer term of suspension been imposed, we are satisfied that the suspension of 30 months is within the range of sentence that could properly have been imposed by the Tribunal.

25.  As to the second aspect, while it is fair to say that the Tribunal did not specifically refer to the previous disciplinary record of the Solicitor, this was a matter that had been clearly raised before the Tribunal, and there is no reason to think that the Tribunal would have overlooked it in passing sentence.  In any event, it seems to us that given the absence of dishonesty on the Solicitor’s part, the sentence imposed was within the acceptable range, even taking account of those prior warnings.

26.  For the Solicitor, Ms Yip suggested that some credit should be given for the fact that the Solicitor’s half share in a flat co-owned with his wife was realised and applied to reduce the deficit of some HK$5 million identified by the Law Society’s Intervention Agent as being the net amount of unsatisfied claims by clients of the Firm.  However, bearing in mind that the realisation only came about by reason of the Solicitor’s bankruptcy, a matter over which he would appear to have had little control, and the lack of solid evidence as to the actual extent to which such deficit was reduced, we do not think that this is a matter which has any material impact on the appropriate range for sentencing purposes.

27.  As noted in [7] above, the Solicitor offered certain undertakings and terms to provide further comfort that such incidents would not recur after he resumed practice after the suspension, which we accepted, as these would seem to be conducive to preventing a recurrence of similar incidents in the future.  These undertakings were:

(1)  the period of the temporal restriction on practising as a partner or a principal should be 5 years (instead of the 3 years required by the Tribunal);

(2)  during such period, the Solicitor would practise under the supervision of a solicitor of not less than 15 years’ standing with no disciplinary record (this was the same requirement as imposed by the Tribunal);

(3)  during such period, the Solicitor’s work would be limited to civil litigation work (this was an additional restriction);

(4)  during such period, the Solicitor would not sign any outgoing letters or documents on behalf of the firm by which he was employed (also an additional restriction);

(5)  during such period, the Solicitor would not handle monies in the client account of the firm by which he was employed (also an additional restriction).

28.  We therefore dismissed the appeal, but having regard to the Solicitor’s undertakings, we varied the length of the temporal restriction on practice during which the Solicitor may only practice under the supervision of a solicitor of 15 years’ standing with no disciplinary record, following the period of suspension, to 5 years and accepted the further undertakings mentioned in [27(3)] to [27(5)] above.

29.  As the appeal was dismissed, we ordered that the costs of the appeal, including the costs of the application for leave to appeal, should be paid by the Law Society to the Solicitor, to be taxed on the party and party basis if not agreed.  As noted in [8] above, Ms Yip and Ms Wong appeared for the Solicitor pro bono, so that such costs will be limited to those of the solicitors acting for the Solicitor in this appeal.

Hon Chow JA

30.  I agree.