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

CACV 188/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 188 OF 2008

(ON APPEAL FROM HCMP NO. 1752 OF 2007)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Saunders J given on 19 June 2008.  The matter before the judge was the hearing of an originating summons that sought an order that the defendant firm do deliver to the plaintiffs the defendant’s bill of costs for its legal costs and disbursements in respect of the joint sale of 10 units at Henredon Court, Shouson Hill, Hong Kong to Novel Joy Group Ltd pursuant to the Conditions of Sale by Tender concluded on 4 May 2007.  Further orders were also sought, they included a declaration that all costs and disbursements due or allegedly due to the defendant in respect of all businesses done by the defendant in connection with the sale of the properties were costs and disbursements of “non-contentious business done by solicitors” within the meaning of the Legal Practitioners Ordinance (“the Ordinance”) and were for that reason subject to the provisions of that Ordinance.  By his judgment the judge made the orders sought.

2.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

The issues in the case

3.  This case arises out of the sale of 10 flats in Henredon Court which were sold together in May 2007 for a total consideration of $710 million plus an additional sum of 1%.  The issue in this case is whether the defendant firm is entitled to 65% of the amount stated in the sale and purchase agreement namely:

“…the additional sum equivalent to 1% of the Purchase 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 sale of the Property including but not limited to all legal costs and expenses and estate agent’s commission.”

4.  It is the plaintiffs’ case that there was no concluded agreement that the defendant firm would be entitled to the amount claimed, although it is conceded that a Mr John Wan, who appears to have taken the lead in the negotiations on behalf of the vendors, had discussed remuneration of that amount with the solicitors.  Furthermore, it is said the defendant could not rely upon an oral agreement as to the fees because an agreement as to fees in relation to non-contentious business is only enforceable if it is in writing.  In the light of that it is also said that because the defendant firm was engaged as solicitors to do the solicitors’ conveyancing work, even if it undertook work in the nature of property consulting, all the work carried out by the firm had to be treated as non-contentious business and the costs were subject to taxation.

5.  The judge accepted that it was arguable that much of the work done by the defendant fell within the definition of “estate agency work”.  He also said that he proceeded on the assumption that the “Agreed Fee agreement” had been made as contended by the defendant.  However he went on to hold that in the absence of any written agreement as to the fees the defendant was bound, under the provisions of the Ordinance, to deliver a bill of costs if ordered by the court to do so in respect of non-contentious business where it had undertaken work: “which may be described as property consultancy work, as distinct from pure legal work, in circumstances where the solicitor has been retained as a solicitor to undertake pure legal work.”

The history behind the action

6.  Henredon Court consisted of 12 flats in Shouson Hill.  The owners had considered refurbishing the buildings but it became clear that the costs involved might not be justified.  Instead, it was considered that if all the flats were sold together to a developer each flat owner might be able to realise a price for the particular flat which would be well in excess of the then market value.  The lead in the matter was clearly taken by Mr Wan whose company owned one of the flats.  Indeed, it would appear that the idea of selling all the flats together probably came from him.  He was well acquainted with Mr Davison, who was a partner in the defendant firm.  After initial contact had been made, Mr Wan together with two ladies, who also owned flats in Henredon Court, met Mr Davison at the defendant’s offices towards the end of November 2006.  Initial advice was given that the sale of the flats en bloc would have to be delayed in view of the fact that one of the flats was in the course of being sold.  There was apparently also a meeting on 1 December 2006 at which representatives of the estate agents also attended.

7.  It suffices to say that at the early stages those involved agreed that the properties should be put on the market by way of tender to a limited number of parties, seemingly to avoid wide publicity.  It also appears to be the case that the estate agents that were involved had proposed a “one stop” service which would have entailed the conveyancing solicitors being selected by the estate agents.  That was not accepted.  According to Mr Davison, at the initial stages he agreed with Mr Wan that the defendant firm would take a leading role as property consultant in the sale by tender and that the estate agents would take a subsidiary one.  There was a meeting on 19 January 2007 following which the defendant firm wrote to Mr Wan and the two ladies in the following terms:

“Dear Mr. Wan, Mrs. Wong and Mrs. Wei,

Re : Henredon Court, No.8 Shouson Hill Road, Hong Kong (“Property”)

We refer to the meeting with you on 19^th January 2006 and confirm that you wish us to act for you in the following matters:-

1.         preparing an agreement between the co-owners of the Property for the sale of the Property as a whole by such co-owners;

2.         preparing tender document for the sale of the Property;

3.         attending all legal matters in relation to the completion of the sale of the Property;

4.         giving you advice and attending all meetings and correspondences in relation to the sale of the Property by tender; and

5.         liaising with the co-owners and the estate agent appointed by you in connection with the above matters.

For the sake of good record, please sign the attached duplicate of this letter.  As agreed, we will let you have our fee quotation on the above matters in a separate letter.”

8.  I am unable to discern from the terms of that letter that the defendant firm was to be engaged in anything other than solicitor’s work.  It has not been suggested that there was a separate letter with a fee quotation.  What is accepted by the plaintiffs is that there was a telephone conversation between Mr Davison and Mr Wan on or about 25 January when the defendant firm’s fees were discussed.  Mr Wan has filed an affidavit in which he says that Mr Davison asked for his opinion as to whether the defendant firm should charge half or more of the so termed “contingency fund” which was to be 2% of the total selling price.  Mr Wan says that he had replied that he thought the fee could be about 65% of half the contingency fund i.e. 65% of 1% of the selling price.  It would be noted that at this stage there is no suggestion that the other 7 flat owners had been involved or that Mr Wan was in a position to commit the other 7 flat owners to any particular fee.

9.  Within not too long a time the owners of the 10 flats that were ultimately sold signed an owners agreement dated 30 March 2007.  By clause 1(c) the defendant firm was appointed as solicitors by the owners.  The other relevant clauses in that agreement were clauses 1(g)-(j) which read as follows:

“(g)  Subject to sub-clause (i) of this clause, all costs and disbursements payable to the Appointed Solicitors in relation to the preparation of this Agreement and in relation to the sale of the Properties (“the Appointed Solicitors’ Costs and Disbursements”) shall be borne by the Owners in accordance with the Relevant Percentage set out in the Fourth Schedule hereto provided that if the offer to purchase the Properties referred to in clause 1(b) hereof is not accepted by all the Owners, the amount of the Appointed Solicitors’ Costs and Disbursements shall not exceed a sum of HK$250,000.00.

(h)  The Owners agree to appoint Midland Realty International Limited (“Appointed Estate Agent”) as their estate agent for the sale of the Properties.  The Appointed Estate Agent shall only be entitled to charge commission (“Appointed Agent’s Commission”) on the condition that the completion of the sale and purchase of the Properties pursuant to the terms of the Tender shall have taken place on or before 15^th June 2007.  The Appointed Agent’s Commission shall be an amount equivalent to 1% of the Purchase Price minus the Appointed Solicitors’ Costs and Disbursements.  The Owners agree that if the offer to purchase the Properties referred to in clause 1(b) hereof is not accepted by all the Owners, the Owners shall pay a sum to the Appointed Estate Agent in an amount equivalent to the total amounts of the out-of-pocket expenses incurred by the Appointed Estate Agent in relation to the sale of the Properties subject to a maximum of HK$200,000.00.  Such sum shall be borne by the Owners in accordance with the Relevant Percentage set out in the Fourth Schedulehereto (sic).

(i)  The Owners acknowledge that according to the terms of the Tender, the successful tenderer is required to pay, apart from the Purchase Price, the Appointed Solicitors’ Costs and Disbursements and the Appointed Agent’s Commission in the total sum equivalent to 1% of the Purchase Price.  Notwithstanding the aforesaid, the Appointed Solicitors and the Appointed Estate Agent shall only act for the Owners, and not other persons, in relation to the sale of the Properties.

(j)  For the avoidance of doubt, all Owners are required to pay the Appointed Solicitors’ Costs and Disbursements in the manner provided in this Agreement irrespective whether or not they also appoint their own solicitors to advise them in relation to this Agreement or the sale of the Properties.”

10.  From that it can be determined that should the sale not go through the defendant’s costs and disbursements were not to exceed HK$250,000.  There is no sum stated as payable to the defendant firm in the event of a successful sale.  When fairly read, this agreement does not give any indication that the defendant firm would be undertaking any other work than work of a solicitor engaged in conveyancing work.  In particular there is no suggestion that the solicitors would be engaged to carry out work of an estate agent since there was a separate party referred to as the Appointed Estate Agent.

11.  Furthermore, the conditions of sale by tender, which ultimately governed the sale of the properties provided in paragraph 24(a) that the purchaser would pay:

“an additional sum equivalent to 1% of the Purchase Price to reimburse the Vendor the professional consultants costs and expenses incurred or to be incurred by the Vendor in relation to the tender and sale of the Property including but not limited to all legal costs and expenses and estate agent’s commission.”

12.  Although a bill had been requested previously, it was not until 27 July 2007 that the defendant firm claimed in a letter to the plaintiffs that it was entitled to a consultancy fee equivalent to 0.65% of the purchase price of the flats.  In a letter dated 15 October 2007 to the Law Society the defendant firm categorised the amount claimed as being the property consultancy fee.  It is fair to say that probably the dispute in this case revolves around the question of how the 1% of the sale price, namely the $7.1 million, is to be divided between the solicitors and estate agent.

The relevant provisions of the Ordinance

13.  There is no dispute between the parties that under the provisions of section 56(3) of the Ordinance a solicitor may only rely upon an agreement made with the client as to fees in respect of non-contentious business if that agreement was made in writing.  It is clear beyond doubt on the present evidence that there was no such written agreement upon which the defendant firm could rely.  In those circumstances work which the defendant did as solicitors in relation to the sale of the 10 flats clearly came within the definition of non-contentious business under section 2(1) of the Ordinance.  It is therefore the plaintiffs’ case that the court has jurisdiction under section 65(1) to order the delivery by the defendant firm of a bill of costs.  In my view that submission is correct and it is inevitable that if the defendant firm wishes to charge in relation to the work as solicitors that was carried out when the 10 flats were sold the court may order the delivery of a bill of costs which would be subject to taxation.

14.  The defendant firm seeks to avoid delivering a bill of costs on the basis that it is prepared to waive any work as a solicitor and treat it as having been done for free on the basis that it could charge in respect of having worked as a property consultant.

15.  Given the terms of the owners agreement dated 30 March 2007 it is clear that the defendant firm was employed as solicitors and would be claiming costs and expenses.  Mr Sussex SC, who appeared on behalf of the plaintiffs, argued that in those circumstances the provisions of the definition in relation to non-contentious business namely that it “includes any business connected with sales, purchases…. and other matters of conveyancing” meant that everything that the defendant firm did would have constituted non-contentious business.  He argued that if the defendant firm wished to charge in respect of that, it would have to include it in its bill of costs and have it subject to taxation.  Mr Sussex relied in particular upon cases such as Re Osborne 25 Beav. 353 for the proposition that it was not open to any solicitor who was engaged as a solicitor in non-contentious business to charge separately for work done not as a solicitor in relation to the same matter.

16.  In my view having considered the authorities which were drawn to this court’s attention I would leave open the question as to whether a solicitor could make a contract with a client that he would undertake non-contentious business within the meaning of the Ordinance but at the same time and separately provide other services which would be treated as something distinct from the services as a solicitor.  Nevertheless, short of doing that, if a solicitor is engaged as a solicitor in relation to a sale or other conveyancing matter unless there were a clear agreement as to other fees or charges, the definition of non-conveyancing business clearly includes any business which is in some way connected with the sale or other conveyancing matter.

17.  In my view, however, even taking the most favourable view of the facts, the defendant is simply not able to make out a viable case either that it had contracted for a fixed fee or that it had contracted to act other than as a solicitor or on the basis that any work it carried out that might be considered as estate agent’s work would be treated separately or independently from its work as a solicitor.  The evidence filed on behalf of the defendant firm does no more than make unparticularised assertions that Mr Wan had said from time to time that he thought the defendant firm would be entitled 0.65%.  Not only is there no written record to support the defendant’s argued case, which goes much further than such an assertion, but the note made by the assistant solicitor in or around 18 May 2007, exhibited EJD-27, shows that what was under discussion was a fee of 0.5%, not 0.65%.

18.  Whilst, therefore, coming to the conclusion that the judge arrived at the right decision I do so on the basis that it is not arguable on the facts that the defendant has a defence to the plaintiffs' claim that it should deliver a bill of costs.  I would therefore dismiss this appeal with an order nisi of costs in favour of the plaintiffs.

Hon Barma J:

19.  I agree.

Hon Wright J:

20.  I agree with the Vice President that this appeal should be dismissed upon the ground that it is simply not arguable that the defendant has a defence to the plaintiff’s claim.  As the inherent improbability of the defence raised disposes of the appeal, I regard it as unnecessary to go into the other issues considered by the judge.

21.  The following appear to me to be of particular significance:

the letter dated 25 January 2007 from the defendant was addressed only to Mr Wan and Mesdames Wong and Wei and none of the remaining eventual vendors: this is understandable in the light of Mr Wan’s evidence that, at that stage, the remaining owners/eventual vendors had not agreed to participate in the sale;

that letter made no reference to the defendant acting in any capacity other than as solicitors;

that same letter indicated “As agreed, we will let you have our fee quotation on the above matters in a separate letter” which, on the evidence before us, was not forthcoming;

an agreement drafted, apparently by 2 February 2007, by the defendant for signature by owners recruited to participate in the sale provides,

in paragraph (g):

“The Owners agree to appoint Kao, Lee & Yip (“Appointed Solicitors”) as the solicitors for the sale of the Properties”;

in paragraph (i):

“The owners agree to appoint Midland Realty International Limited (“Appointed Estate Agent”) as the estate agent for the sale of the Properties….  The Appointed Agent’s Commission shall be an amount equivalent to 1% of the purchase price minus the Appointed Solicitors Costs and Disbursements”;

and in paragraph (j):

“The Owners acknowledge that according to the terms of the Tender, the successful tenderer is required to pay, apart from the purchase price, the Appointed Solicitors Costs and Disbursements and the Appointment Agent’s Commission in the total sum equivalent to 1% of the purchase price.”;

the “Explanatory Notes” which accompanied that draft agreement represented to potential vendors, in paragraph 4, that:

“Mr Wan and a small group of owners have instructed Kao, Lee & Yip… to prepare the necessary tender documents and an agreement between all the owners to proceed with the tender…”

and emphasise, as one of “the main points of the agreement”, that

“The owners appoint Kao, Lee & Yip as their solicitor…”;

the Explanatory Notes go on to state:

“If a tender is accepted, professional fees 1% of the sale price (payable by the successful tenderer) will be paid to Kao, Lee & Yip and Midland”;

that draft agreement, in an amended form, was then signed by the owners and dated 30 March 2007 in terms which are set out in paragraph 9 supra;

in May 2007 Midland Realty International apparently raised a query with the defendant in response to which the defendant expressed the view that there appeared to be “some misunderstanding” concerning the question of its fees but declined to elaborate to discuss this issue on the basis that do so “without proper client consent is a breach of the law governing solicitor-client confidentiality”: there is no suggestion that the defendant sought such consent from any of the vendors; and

the very first occasion upon which anything appears in writing claiming that any amount other than normal professional fees and disbursements is payable to the defendant is in a letter dated 27 July 2007 in which the defendant contends that there was a specific agreement on 25 January 2007 between it and Mr Wan “on behalf of the owners concerned” in terms of which the defendant would be entitled to a consultancy fee of 0.65% of the purchase price of the properties.

22.  It seems to me that, given the lengths to which the defendant went, in all of the documents generated by it, to describe itself as solicitors or “Appointed Solicitors” and to ensure that it was abundantly clear that its “Costs and Disbursements” would be payable out of the additional 1% to be paid by the successful tendered, any suggestion that there was an agreement as to a “consultancy fee” is unworthy of belief.

23.  Had such an agreement in fact existed it is implausible that the defendant would have failed to record this fact in earlier correspondence but would have resorted to it, as an explanation, only when, at a late stage, it was requested to prepare a Bill of Costs.

Hon Rogers VP:

24.  The appeal will therefore be dismissed and there will be an order nisi of costs in favour of the plaintiffs.