ZHANG LAN AND OTHERS v. HERBERT SMITH FREEHILLS (A FIRM)

HCMP 285/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 285 OF 2016

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REASONS FOR DECISION AND DECISION

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1.  This originating summons is about an application for taxation of the solicitors’ bills by their own clients under s 67 of the Legal Practitioners Ordinance, Cap, 159 (“LPO”).

2.  On 22 April 2016, Master Chow (“the Master”) ordered, amongst other things, that the bills in issue (“the Bills”) be referred to Taxing Master to be taxed on the condition that, within 21 days from the date of the Order, the Applicants pay: (a) by way of interim payment, 40% of the total sum of the Bills to the Respondent plus interest; and (b) by way of payment into court, 20% of the total sum of the Bills less the sum of HK$500,000 already paid by the Applicants as costs on account.  In addition, the Master ordered that, upon satisfaction of such payment condition, no action shall be commenced on the Bills, and any action already commenced be stayed, until the completion of the taxation.

3.  The Applicants lodged an appeal against the said Order (“the Master’s Order”) which was heard by me on 23 June 2016.  In the hearing, I denied the Applicants’ application for unconditional leave for taxation. However, I varied the payment condition such that the Applicants only had to make an interim payment, within 28 days, of 40% of the total sum of the Bills to the Respondent plus interest but less the sum of HK$500,000 already paid by way of costs on accounts.  I now give my reasons for such decision.

4.  Before I hand down the Reasons for Decision on the appeal, the Respondent took out another summons (“the Lifting of Stay Summons”) to lift the stay of the related arbitration proceedings so that the arbitrator can proceed to give the decision on costs.  The Lifting of Stay Summons was heard by me on 2 February 2017.  I now also give my decision on such application.

BACKGROUND

5.  The Applicants engaged the Respondent, a firm of solicitors, to handle their dispute with La Dolce Vita Fine Dining Group Holdings Limited and La Dolce Vita Fine Diving Company Limited (together referred to as “CVC”) relating to the sale of a restaurant business.  On 26 February 2015, CVC obtained injunctions in Hong Kong and Singapore freezing each of the Applicants’ assets up to the value of US$286 million (“the Injunctions”) and thereafter commenced 2 parallel CIETAC arbitrations on 5 March 2015, making serious allegations of fraud in relation to the sale of the restaurant business against the Applicants who were the sellers of the business.

6.  The Respondent was engaged by the Applicants in late April 2015.  The Applicants paid a sum of HK$500,000 as costs on account.

7.  The Respondent started to provide its service on 24 April 2015.  In the period from 29 May to 24 December 2015, the Respondent issued the 12 bills to the Applicants (the Bills) in the total amount of about HK$23.4 million.

8.  Apart from the costs on account, the Applicants have not paid the Respondent any of the fees charged in the Bills.  Since there is an arbitration clause in the engagement letter signed by the parties, the Respondent commenced an arbitration on 25 January 2016 for payment of the Bills (“the Arbitration”).  In response, the Applicants commenced the present proceedings on 4 February 2016 applying for taxation of the Bills out of time.

9.  On 22 April 2016, the Master granted conditional leave for taxation.  The Applicants lodged an appeal on 25 April 2016 against the Master’s Order and ask for unconditional leave for taxation.  On 26 April 2016, the Applicants also took out a summons applying for an injunction restraining the Respondent from proceeding with the Arbitration (“the Stay Summons”).  This was heard by L Chan J on 29 April 2016 who adjourned it to be heard together with the appeal against the Master’s Order.

10.  In this appeal, the Applicants argue that the fees charged by the Respondent are “astronomical” considering that the active period of engagement was only about 5 months.  The Applicants have also referred me to certain items in the Bills with a view to show that the fees charged by the Respondent are unreasonable and excessive.  Further, the Respondent had all along been prepared to offer substantial discounts to the Bills if the Applicants paid the discounted fees within certain times. According to the Applicants, this clearly showed that the Respondent had inflated their fees in the Bills.

11.  The Applicants also complain that the Bills are not itemised without the provision of a breakdown of the services provided.  They say that this would also be a ground for the court to carry out serious investigation about the propriety of the Bills.[1]

12.  The Respondent puts forward various reasons to justify the fees charged by them.  The Applicants had instructed the Respondent to undertake extensive works in multiple jurisdictions including the Mainland, Hong Kong, Singapore and Cayman Islands.  CVC were parties with substantial financial resources who were prepared to pursue their claims in a vigorous manner.  The conduct of the litigations required different tasks and substantial time for fact-finding, legal research, review and preparation of the voluminous documents and affidavits.  It also required the Respondent to contact and liaised with the various other legal firms engaged by the Applicants.  The Applicants were well aware of the size and complexity of the litigations.  Further details of the works undertaken by the Respondent can be found in the Affidavit of Julian Mark Copeman made on 7 March 2016.

13.  According to the Respondent, the Applicants did raise concern about the amounts of the fees.  Every now and then there were discussions between the parties, and the Applicants offered to pay upon the giving of certain discounts by the Respondent.  However, the Applicants did not honour their promise even to pay the discounted fees. 

14.  As the parties agree that the court should not conduct a microscopic examination of the Bills at this stage, I do not propose to address in details the merits of the complaints by the Applicants.  At this stage, it is suffice for me to say that, bearing in mind the length of the time for the provision of the legal services, the fees charged by the Respondent in the Bills deserve serious investigation by the court.

15.  Under s 67 of the LPO, the client has the right to tax his own solicitors’ bill if the application is made within 1 month of the delivery of the bill.  If the application is made after 1 month but less than 12 months, which was the case here, the court can impose condition for the bill to be taxed.  The discretion to impose condition is an unfettered one[2], but the Court of Appeal has provided some guidance for the exercise of such discretion in Lau Yue Kui v Philip Chan & Co[3].

16.  Both in the hearings before the Master and in this appeal, the Respondent does not seriously oppose the taxation of the Bills. The only issue is whether the taxation should be allowed on condition.

17.  The Applicants oppose the imposition of any condition for taxation.  They argue that any payment condition would curtail the Applicants’ right to taxation.  The Applicants’ assets have been frozen by the Injunctions and so it would be very difficult for them to obtain fund to satisfy any payment condition.

18.  Further, the Applicants argue that the Respondent is now estopped from opposing their application to tax the Bills unconditionally.   According to the Applicants, the Respondent had all along advised them unequivocally of their right and entitlement to apply to the court for taxation of the Bills.  The Respondent had not advised them of any time limit for making such application.  Under such circumstances, the Applicants should be allowed to proceed on the assumption that they can apply to tax the Bills any time as of right, and so the court should not impose any condition when ordering the taxation of the Bills.

19.  In my judgment, this is an appropriate case for the court to impose payment condition when ordering the Bills to be taxed. Under the engagement letter, the Applicants agreed to pay the Bills within 30 days.  In such circumstances, it is only fair for the Applicants to make an interim payment of a lesser amount pending a detailed assessment of the Bills at a later stage.  This would remove the motive for trying to prolong a detailed assessment or “putting off the evil day for payment”.  Looking at the correspondence between the parties, the Applicants had all along agreed to pay discounted amounts of the legal fees.  As the Respondent has not acted promptly in asking the court to tax the Bills within the 1 month’s period, the court should do justice between the parties by imposing payment condition.  In particular, the Respondent may have difficulty in enforcing the payment under the Bills as the 1^st Applicant resides out of the jurisdiction and the 2^nd and 3^rd Applicants are both offshore holding companies incorporated in BVI.

20.  I also do not accept that the payment condition would curtail the Applicants’ right to taxation.  There are about HK$6 million worth of assets (valued at 31 March 2016) sitting in the 1^st Applicant’s account in the private bank of Safra Sarasin (“the Sarasin Account”).  Though the assets in the Sarasin Account are subject to the Injunctions in favour of CVC, there is a legal expenses exception in the Injunctions which entitles the Applicants to obtain fund from the Sarasin Account to satisfy any payment condition.

21.  More importantly, facing the restriction of the disposal of assets under the Injunctions, the 1^st Applicants indicated in her letter to the Respondent dated 15 September 2015 that she would pay some other Bills of the Respondent “separately via legally valid means”.  By that time, the Respondent had already issued some of the Bills charging substantial fees to the Applicants, and yet the 1^st Applicant informed the Respondent that the Applicants had the means to pay the legal fees.  It is common ground that the 1^st Applicant has real properties in Beijing.  Further, the Applicants had been paying the other legal firms engaged by them without using the fund in the Sarasin Account.  The court therefore has reasons to believe that the Applicants would have some other sources of fund to pay the Bills, and it is an exaggeration for the Applicants to say that a payment condition which requires them to pay a modest percentage of the total fees would stifle their taxation claim.

22.  I also reject the Applicants’ argument on estoppel. Even if the Respondent might not have advised the Applicants of the different time limits in s 67 of the LPO, it would be absurd for the Applicants to say that they were entitled to assume that their rights to tax the Bills were unrestricted in term of time.  The Applicants had received the Bills in various times in 2015, with some of them in the 1^st half of the year.  They were supposed to pay the Bills within 30 days.  In such case, why did the Applicants not apply to the court to tax the Bills within the 30 days’ period? No explanation has been given by the Applicants for the delay to tax, and they only made the application after the Respondent had commenced the Arbitration proceedings against them.  In any event, the Applicants have failed to point to any reliance or detriment necessary to establish the principle of estoppel, and so I reject such argument by the Applicants.

23.  For the quantum of the payment condition, the Respondent has referred me to various decisions such as Lau Yue Kui v Philip Chan & Co[4], Re Miller Peart[5], Baker & McKenzie v Grande Holdings Ltd[6] and Lee Chi Enterprises Co Ltd v K C Ho & Fong[7], whereas the courts imposed conditions requiring the clients to make interim payments of part of the total fees in the region from 50% to 70%.

24.  Undoubtedly, the quantum of the payment condition is fact-sensitive depending on the circumstances of each individual case.  Taking into account the duration for the provision of the legal services and the quantum of the legal fees charged by the Respondent, I am of the view that 40% would be a more appropriate percentage in the present case.  I must also point out here the 1^st Applicant had indicated in her emails dated 6 July and 15 September 2017 that the Applicants were willing to pay 40% and 60% respectively of the legal fees then charged by the Respondent, and so the Applicant should not now complain that 40% is an excessive percentage.  I therefore varied the payment condition imposed by the Master by ordering the Applicants to pay 40% of the total fees charged in the Bills to the Respondent.

Lifting of Stay Application

25.  I then turn to the Lifting of Stay Application heard by me on 2 February 2017.

26.  Both parties did not pursue the Stay Application in the hearing on 23 June 2016.  Hence before satisfying the payment condition imposed by me on 23 June 2016, there was no stay of the Arbitration proceedings.

27.  The substantive hearing of the Arbitration was fixed earlier to be heard on 27 June 2016.  As the Applicants had not by then satisfied the payment condition, the hearing proceeded on 27 June 2016.

28.  The parties made their submissions in the hearing.  But in view of my decision on 23 June 2016, the parties would like to wait to see if the Applicants would satisfy the payment condition.  If the condition was satisfied, the arbitrator and the Respondent took the view that the only outstanding matter in the Arbitration would be costs.  Now that the Applicants have satisfied the payment condition, the Respondent takes the view that it would be much more desirable for the arbitrator to give his decision on costs and to conclude the Arbitration proceedings, rather than to wait indefinitely for the result of the taxation of the Bills.  Hence, it asks for the stay of the Arbitration be lifted which is opposed by the Applicants.

29.  I do not agree that the court should now disturb the stay of the Arbitration proceedings.  First, the arbitrator should have more flexibility to deal with the issue of costs after looking at the result of the taxation proceedings.  Depending on the degree of the taxing down of the Bills (if any), the arbitrator may take different view as to who should bear the costs of the Arbitration proceedings.  Second, it may not be right for the Respondent to say that the only outstanding matter in the Arbitration proceedings is costs.  If the Applicants still refuse to pay the taxed fees after taxation, the Respondent may still have to proceed with the Arbitration to compel the Applicants to pay the taxed fees.  In my judgment, it would be more prudent for the parties to conclude the Arbitration after the taxation proceedings.  Third, I understand that the parties will soon fix the dates for the taxation hearing, and so it may be an exaggeration to say that the arbitrator would have to wait indefinitely for the result of the taxation of the Bills.  For these reasons, I reject the Lifting of Stay Application.

30.  I make the following costs order nisi:

(i)     the Applicants do pay to the Respondent 75% of the costs of the appeal against the Master’s Order;

(ii)    the costs of the Stay Summons be to the Respondent; and

(iii)   the costs of the Lifting of Stay Summons be to the Applicants with no certificate for counsel.

31.  The order nisi shall be made absolute 14 days after the date of the handing down of this Reasons for Decision and Decision.