RE LUEN FORD INDUSTRIAL CO LTD

HCCW 354/2016

[2018] HKCFI 1772

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 354 OF 2016

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D E C I S I O N

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Introduction

1.  On 5 September 2016 the Petitioner, Fung, Wong, Ng & Lam LLP, issued a statutory demand for non-payment by the Company (“Luen Ford”) of a debt of HK$10,000,000.  The alleged debt arose from the dishonouring of three cheques for HK$6,000,000, HK$1,000,000 and HK$3,000,000 (“Cheques”). The first cheque was undated.  The second and third cheques were dated 30 July and August 2016 respectively.

2.  The Petitioner is a firm of solicitors and one of the shareholders of Luen Ford was a client.  The cheques were delivered to the Petitioner to settle legal fees and disbursements, although there is a dispute as to whether this was outstanding fees and disbursements or future fees and disbursements.  Luen Ford says there is a bona fide dispute about the amount, if anything, that the Petitioner is owed and that action for recovery cannot be taken until the fees and disbursements have been taxed.

3.  Understanding the circumstances in which Luen Ford came to provide the cheques and its reasons for countermanding them requires an examination of the work carried out by the Petitioner and counsel it retained.

Background

4.  Woo Koo Ping and his son Eric Woo (“Woos”) carried on a garment manufacturing business in Hong Kong and the Mainland.  In 2014 the companies through which they operated the business encountered serious financial difficulties.  In October 2014 the Woos caused petitions to be issued for the winding up of six companies (“Companies”).[1]  At the same time as the petitions were presented successful applications were made to me for the appointment of provisional liquidators over the Companies. The Companies were wound up on 31 October 2016.  Luen Ford is Eric Woo’s personal investment company.

5.  The reason why the provisional liquidations lasted so long was because attempts were made to restructure the debt of the Companies. I heard all hearings in the winding-up proceedings.  My impression was the Companies had been put into provisional liquidation specifically with a view to restructuring the debt: see [7] of my decision of 31 October 2016 in HCCW 297 to 301 of 2014.  Initially the attempts to restructure the debt was initiated by the Provisional Liquidators.  It was the evidence of the Woos filed in the winding-up proceedings that they became disillusioned with the Provisional Liquidator’s efforts and began themselves to formulate restructuring plans.

6.  The Woos instructed Wilkinson & Grist to issue the petitions to wind up the Companies and appointment provisional liquidators.  It would appear that when the provisional liquidations did not progress as the Woos anticipated they blamed Wilkinson & Grist for misleading them and replaced them with WMC Partners (“WMC”).  It was WMC who instructed Ms Priscilla Wong to represent the Companies and act for the Woos in various other litigation they were parties to.

7.  The Woos got into a dispute with WMC and between 12 July and 14 August 2015 the Woos transferred their various cases to the Petitioner in place of WMC.  It appears that it was Ms Wong who introduced the Woos to Mr Raymond Ng, the partner in the Petitioner who had conduct of the Woos various matters.

8.  It is Mr Ng’s evidence that he proposed to the Woos that the Petitioner charge them a fixed monthly fee of HK$280,000 for representing them in the litigation that had been transferred to the Petitioner.  Mr Ng says that this was agreed, although the Woos dispute this.  Nothing of significant turns on this.  It might be thought surprising that given the amount of work involved Mr Ng did not think it necessary to at least confirm the alleged agreement in writing.  It is, however, typical of what in my view was the totally unprofessional way in which Mr Ng dealt with fees. 

9.  The Petitioner obtained signed standard letters of engagement from the Woos for the various proceedings transferred to the Petitioner.  There is no evidence of Mr Ng ever providing any fee estimates to the Woos or obtaining their agreement to counsel’s fees.  Mr Ng says in [22] of his 3^rd affirmation that “I understand that Ms Wong’s hourly rate was agreed at the time when WMC engaged Ms Wong and we followed the arrangement with the Woos.”  I assume that by “arrangement” Mr Ng refers to Ms Wong’s hourly rate of HK$8,000.  There is no evidence of the Woos ever being asked to agree the brief fees included in the fee notes I refer to later in these reasons. 

10.  The only bills Mr Ng has been able to produce are dated 1 December 2015, 4 February 2016, 29 March 2016, 1 June 2016, and 30 September 2016.  They include the Petitioner’s own fees totalling HK$1,960,000 (which is seven months work) and Ms Wong’s fees of HK$7,538,425.  As will become apparent the Petitioner has never sent the Woos bills for a significant proportion of the disbursements (in the form of Ms Wong’s fees) that Mr Ng contends are payable and were intended to be settled by the three cheques. 

11.  Mr Ng has also not produced any receipts for payment other than for the amounts referred to in the fees notes dated 1 December 2015, 4 February 2016, 29 March 2016 and 1 June 2016 totalling HK$9,660,000.  Mr Ng has not produced any documents, or attempted to explain in his affirmations, how much Ms Wong has received other, presumably, for the sum referred to in the 4 February 2016 bill.  Even in his evidence Mr Ng has failed to calculate how much he says the Petitioner was owed by way of fees and disbursements at the time the Petitioner and Ms Wong ceased to act for the Woos in the middle of July 2016.

12.  Between 1 March 2016 and 14 July 2016 there were four hearings before me.  On each occasion the Companies were represented by Ms Wong. The applications all concerned the progress of the provisional liquidations and, in particular, attempts to restructure the Companies.  No other judge heard any applications in connection with the liquidations of the Companies. For reasons, which will become evident later in these reasons, it is helpful to detail the length of the hearings, which I have obtained from checking the court files:

(1)  21 September 2015: The hearing lasted 7 minutes.  Dismissal of the petition in HCCW 296/2014 which was unopposed.

(2)  1 March 2016: The hearing lasted 13 minutes.  Ms Wong’s skeleton arguments was eight pages and referred to no authorities.

(3)  11 April 2016:  The hearing lasted 52 minutes.  Ms Wong did not serve a skeleton argument or authorities.

(4)  30 May 2016:  The hearing lasted 10 minutes.  Ms Wong’s skeleton argument was two pages and referred to no authorities.

(5)  14 July 2016:  The hearing lasted 23 minutes.  Ms Wong’s skeleton argument was 2½ pages long.

13.  My impression from the evidence filed by the Woos and submissions made to me during the hearing by Ms Wong was the Woos had discussed the restructuring of the Companies’ debts with the Provisional Liquidators before the application to appoint them was issued.  During those discussions the Woos had formed the impression that the Provisional Liquidators would be able to restructure the debts of the Companies and that this was why they had applied to appoint them.  As matters transpired they quickly became disillusioned with the Provisional Liquidators attempts to do so and took it upon themselves to explore ways in which the debt could be restructured.  It would appear Ms Wong’s principal task was to advice on the restructuring, although as will become apparent later Ms Wong was also instructed on other matters.

14.  As I pointed out to Ms Wong at the first of the hearing on 1 March 2016, the Woos did not have the authority to act upon the Companies behalf and that any restructuring proposals would have to be put by them to the Provisional Liquidators for their consideration and implemented by the Provisional Liquidators.  This is a convenient point at which to make some general observations about Ms Wong’s involvement in the winding-up proceedings.  Before doing so I note that Ms Wong did not appear before me in the present Petition and has not had the opportunity to explain what work she did and explain how she felt able to charge the fees claimed in her various fee notes.  I shall, therefore, limit my comments to what I believe should be largely incontrovertible facts.

15.  As far as I am aware Ms Wong does not practice companies law and has no experience of corporate debt restructuring.  It was apparent both from her brief skeleton arguments and submissions before me that Ms Wong was not aware of the relevant law, practice or commercial considerations involved in corporate restructuring or the conduct of provisional liquidations.  I would have expected any solicitor, who was paying attention during the hearings to have noted my concern about Ms Wong’s lack of experience and way in which the Woos interests were being advanced.

16.  As I have mentioned Mr Ng has not included in his evidence an account of how much he says the Woos owed and how it was intended the cheques would be used to settle fees and disbursements.  It is necessary to analyse the bills and fee notes included in the exhibits to ascertain the amounts involved.

17.  The majority of the fees consist of Ms Wong’s charges.  According to the fees notes and bills adduced in the exhibits they were as follows:

(1)  The Petitioner’s bill dated 4 February 2016 headed for the period from 13 August 2015 to 12 September 2015 includes an item for Ms Wong’s fees of HK$7,538,425, to which I referred in previous paragraphs, relating to various legal proceedings including the winding-up proceedings.  Twenty‑five proceedings are referred to in the heading of the bill, but it is not clear to which proceedings Ms Wong’s fees relate.  Neither a break down nor fee notes appear to have been included with the bill.

(2)  Exhibit “NNMR–4” consists of a series of Ms Wong’s fees notes relating to 16 proceedings including the winding-up proceedings.  The fees notes relating to the winding-up proceedings are for the period 28 July 2015 to 11 November 2015 and total HK$3,562,450. There are fee notes for a further HK$4,174,775 relating to the other proceedings for the period commencing in the middle of June 2015 through to the middle of January 2016.  The total fees recorded in the fee notes for this six‑month period is HK$7,737,225.

(3)  In addition in exhibit “NNMR–12” there are further fee notes submitted by Ms Wong.  Amongst them is a fee note dated, oddly, 11 October 2016 for the winding-up proceedings for the period 15 December 2015 to 14 July 2016 totalling HK$7,825,575.

(4)  It appears from the fees note dated 11 October 2016 that Ms Wong charged HK$440,000 for the 2^nd to 5^th of the five hearings described in [12] above.  There is no evidence of the Woos ever being asked to agree these brief fees.

(5)  In addition “NNMR–12” includes fee notes totalling HK$1,786,050 in relation to other proceedings most of it also attributable to the period from January to July 2016.

18.  Ignoring the item for HK$7,538,425 in respect of Ms Wong’s fees in the bill dated 4 February 2016, which may have been attributable to the winding-up proceedings, Ms Wong sent fee notes totalling HK$11,388,025 to the Petitioner for work done in connection with the winding-up proceedings between 28 July 2015 to 14 July 2016.

19.  The fees recorded in the fees notes in evidence record Ms Wong charging HK$17,348,850 for all cases for the 13‑month period from the middle of June 2016 to the middle of July 2017.

20.  As I have mentioned in [12] HCCW 296/2014 was dismissed by me on 21 September 2015.  The call-over had taken place before the Master the previous Wednesday, 16 September 2015.  Ms Wong charged brief fees for both hearings of HK$88,000.  In addition the fee notes record 16 short hearings before various masters and judges in the other proceedings.  There is no evidence of the Woos ever being asked to agree briefs for those hearings.

21.  As I have already explained, in addition the Petitioner billed HK$1,960,000 for the period 13 August 2015 to 12 February 2016 plus various disbursements excluding Ms Wong’s fees.  There is a dispute about whether these bills were delivered before October 2016, as the Woos suggest, or about the time they are dated, as Mr Ng deposes in his evidence.  The fact that there is a dispute about this at all arises in large part because Mr Ng did not, as one might expect, either send the bills or hand them to the Woos with a covering letter.  This kind of sloppiness seems typical of the way in which Mr Ng dealt with billing.

22.  I have already detailed the length of hearings at which Ms Wong appeared before me and the brevity of such skeleton arguments as she served.  There was no evidence before me during the winding‑up proceedings that Ms Wong or the Petitioners ever produced written advice concerning the restructuring of the Companies or draft restructuring agreements or schemes of arrangement.  None have been produced in these proceedings and it would appear from the, albeit very brief, narratives to Ms Wong’s fee notes and the Petitioners own bills and evidence in these proceedings that none were produced.  It would appear that nearly all the fees charged by Ms Wong and the Petitioner are attributable to meetings and telephone conversations, which produced little in the way of concrete work products other than a number of affirmations.  The only restructuring plans that were adduced in the winding-up proceedings were drafted by Deloitte.  Even assuming that the Woos were demanding clients, who requested frequent conferences with counsel it is very difficult to see how fees of the amount Ms Wong has charged could ever be justified.

23.  I note that in [15] of his 4^th affirmation Mr Ng says in his view Ms Wong’s fees were not excessive.  I find this extraordinary. It seems to me that certainly in the case of the winding-up proceedings with which I have considerable familiarity there is compelling evidence of extreme over-charging and a manifest failure by the Petitioner to properly advise the Woos and ensure that suitable counsel was instructed and fair fees negotiated.  It is clear that the Legal Practitioners Ordinance, Cap 159 (“Ordinance”), creates a statutory regime which prohibits a solicitor suing for his fees and disbursements until his client has been given the opportunity to have them taxed.  It is difficult to imagine a case that more obviously cries out for taxation.  However, it is the Petitioner’s case for the reasons discussed in the following section of this decision that as they are proceeding by petition against the drawer of a cheque rather than suing their client for unpaid fees, the statutory regime has no application.

Recovery of Legal Fees

24.  Section 64(2) of the Ordinance permits a solicitor to take security from his clients for his fees.  Mr Coleman argued before me that the cheques were provided as security.  This is difficult to reconcile with the Petitioner’s case as it is put in the Petition and Mr Ng’s evidence.

25.  In [5] of the Petition, to which Mr Ng has deposed the truth, it is asserted that the cheques were provided for the purpose of settlement of the Petitioner’s legal costs and disbursements from December 2015 to mid-June 2016.  Mr Ng’s emails speak in terms of the cheques, which were post-dated, being for costs incurred up to mid-June 2016 and this is how he describes them in [14] of his 4^th affirmation.  His basis for doing so is an acknowledgement that Eric Woo signed dated 19 July 2016. It seems to me clearly arguable that the cheques were not security for the purposes of s64(2) and there is a bona fide defence to any claim based on the cheques being security.

26.  On the assumption that the cheques were security Mr Coleman argued that the Petitioner was fully entitled to enforce the security.  This argument relies heavily on the decision of Nigel Davis J in Ring Sights Holding Co Ltd v Lawrence Graham.[2]  The client had in that case provided to his solicitors a post-dated cheque for GBP£50,000 drawn on a company as a result of a request by the solicitors for payment of outstanding fees or the provision of security.  Amongst a number of applications the court had to determine was an application to set aside a statutory demand served on the company based on the cheque, which was dishonoured.  The company argued, relying on the decision of the Court of Appeal in Ray v Newton,[3] that a solicitor could not avoid the statutory scheme for the taxation of bills prior to suing for recovery of fees by taking a bill of exchange and suing on the bill.  After a review of the authorities Davis J concluded as follows:

“In my view, the decision in Ray v. Newton and the decision in Martin Boston & Co. v. Levy are not to be taken as establishing an invariable rule that a solicitor who has received a cheque from his client on account of costs can, by reason of s.69 or otherwise, never, in any circumstances, sue on that cheque in the absence of a valid bill of costs having first been delivered and (if taxation is duly sought) having been taxed. If Warner J. was seeking to suggest the contrary — and I am not sure that he was — then I must respectfully disagree. There are, indeed, examples in the authorities (admittedly on a previous legislatory regime) where payment of solicitors’ costs has been enforced even though no bill has been delivered; for example, in cases of settled accounts: see Turner v. Willis [1905] 1 K.B. 468 .

It seems to me that everything depends on the circumstances in which the cheque is provided. In the present case, there is no suggestion that here there is some failure (total or partial) of consideration; nor is there any suggestion of duress, undue influence, misrepresentation, or any other defence under the Bills of Exchange statutes or the general law. It is not suggested, as I have said, that the sum of £50,000 was not a reasonable sum to require. In particular, in my view, it is to be borne in mind that, unlike the position in Ray v. Newton , and unlike the position in the Martin Boston case, the cheque was offered by the company in respect of and on account of costs incurred and to be incurred, and in order to induce Lawrence Graham to continue to carry on acting. Had such cheque not been proffered, Lawrence Graham would not have carried on acting as they did.

It seems to me that, in taking such a cheque, Lawrence Graham were not evading the provisions of the Solicitors Act 1974 ; on the contrary, they were availing themselves of the right available to them under s.65 of that Act which allowed them to seek security or money on account. Mr. Flack — and indeed the company — were free not to offer a cheque; but having chosen to do so, I do not see why all the usual consequences applicable to dishonoured bills of exchange should not apply or why the sole remedy for the solicitors should be to withdraw from the retainer.

Nor do I think that such a conclusion means that the Solicitors Act had been evaded in any other way. Mr. Flack (and the company to the extent that it can rely on s.71 of the 1974 Act) would still, in my view, notwithstanding they had tendered a cheque, be entitled, under the legislation — and indeed under the inherent jurisdiction of the court over solicitors — to seek delivery of a bill, and indeed they could seek from the court an order for taxation of such bill if so delivered.

In my view, therefore, Lawrence Graham were entitled to issue a statutory demand based on the dishonoured cheque, and bring an action on the cheque; and such a course does not involve an evasion of the Solicitors Act 1974 .”

27.  It is not clear from this passage whether or not it was crucial to the Judge’s analysis that the cheque was security.  In my view, it does not make a difference to the correct analysis, which, with respect, in my view is different from that found by Davis J.

28.  In Ray v Newton Farwell LJ says this at 255–256:

“Under the statutory jurisdiction the solicitor is bound to render a bill of costs to his client, and his client is entitled to have the bill delivered under the common order to tax; no special circumstances are required. The solicitor may avoid the stringency of that liability in various ways; and one is by taking payment from his client. A bill of exchange is not payment; it is only conditional payment. The solicitor cannot in my opinion escape from the Act by taking a bill of exchange from his client. The bill of exchange is simply a means of giving him a summary remedy under the Bills of Exchange Act. But the substance underlying the bill of exchange is left untouched, and that in this case is the solicitor’s bill.”

29.  I agree.  The consequence in my view is this: A bill of exchange given to a solicitor to settle a liability for costs can only be sued on if presented and dishonoured if a solicitor has complied with the requirements of the Ordinance in respect of suing for recovery of fees and disbursements. 

30.  On the Petitioner’s evidence the cheques were provided in order that outstanding fees and disbursements could be paid once the dates on which the cheques could be presented fell due.  See s66(1) of the Ordinance provides that no action shall be brought to recover any costs due to a solicitor until one month after the bill has been delivered that complies with sub‑s(2).  It seems to me clear that no bill has been served, to which it can sensibly be suggested the cheques relate primarily because the Petitioner has not seen fit to deliver a bill in respect of Ms Wong’s unpaid fees.  The only bill in respect of those disbursements is that of 4 February 2016 and those disbursements were paid.  Bills were not rendered for the balance of the fees Ms Wong claims, which make up the majority of the outstanding fees and disbursements.  It follows that the Petitioner even now could not satisfy s66(1).

31.  As I explain in my decision in Lasmos Ltd v Southwest Pacific Bauxite (HK) Ltd [4] although a creditor who issues a winding-up petition, rather than a writ to recover a debt, is exercising a class right his purpose is ultimately the same as if he issues a writ: the recovery of his debt.  Section 66(1) is clearly intended to prohibit a solicitor from commencing legal proceedings to recover his fees until after a bill is rendered and possibly taxation completed.  Although I agree with Davis J that by accepting a post-dated cheque a solicitor would not be evading the statutory scheme, because the right to require taxation would be retained, it seems to me that to allow enforcement by issuing a petition prior to delivery of a bill and, if required by the client, taxation would clearly be inconsistent with s66(1).

32.  It also seems to me that the requirement of s66(1) that action cannot be taken until a bill is delivered necessarily means that by implication that presentation of the cheque is conditional on a bill being delivered and that delivery of the bill was in escrow until the condition was satisfied, which it was not.

Conclusion

33.  I will dismiss the Petition.

Costs

34.  It seems to me that issue of this Petition was an abuse of process and that the Petitioner has conducted itself in a manifestly unprofessional manner.  I, therefore, make a costs order nisi that the Petitioner pay the Company’s costs of the proceedings on an indemnity basis with a certificate for two counsel.