THE COUNCIL OF THE LAW SOCIETY OF HONG KONG v. YEUNG NORMAN MAN KIN (previously practising as a sole proprietor of Norman M K Yeung & Co)

HCMP 826/2025

[2025] HKCFI 3292

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 826 OF 2025

____________________

____________________

____________________

_______________

D E C I S I O N

_______________

A.  Introduction

1.  On 28 September 2023, the Plaintiff (“the Council”) resolved inter alia to intervene in the practice of Messrs Norman M K Yeung & Co (“the Firm”) and appointed Messrs Ronald Tong & Co (“RTC”) as the intervention agent.  On the same day, intervention in the practice of the Firm took place (“the Intervention”).

2.  The Defendant (“D”) was practising as a sole proprietor of the Firm at the time of the Intervention. Subsequently, a bankruptcy order was made against D on 25 March 2024 and the trustee of the property of D is currently the Official Receiver (“OR”). 

3.  This is the hearing of the Council’s Originating Summons dated 22 May 2025 (“OS”) pursuant to Schedule 2 of the Legal Practitioners Ordinance, Cap. 159 (“LPO”) and O.85, r.2 of the Rules of the High Court, Cap. 4A (“RHC”) for determination of the court on various questions and for directions.  Broadly speaking, the questions and directions relate to: (1) the distribution of monies held by the Firm; (2) giving of further notices; (3) disposal/destruction of the Firm’s documents; and (4) payment of RTC’s costs.

4.  I am satisfied from an affirmation of service filed that the OS and supporting affirmation of Lee Wun Chee (“the Supporting Affirmation”) have been served on D.  D has never filed any acknowledgement of service. 

5.  The OR has also been served a copy of the OS and the Supporting Affirmation.  By letter dated 25 June 2025, the OR has stated inter alia that it has received no response from D regarding the present application and indicated it takes a neutral stance and shall leave it to the Council to justify the orders/directions sought and did not propose to attend today’s hearing.  The OR has not attended today’s hearing.

6.  As D has been served notice of today’s hearing, and OR has separately confirmed that OR also informed D of the present application by letter dated 13 June 2025, I am satisfied that I should proceed to hear the OS in the absence of D under O.32, r.5 made applicable to originating summonses under O.28, r.1 of RHC.  Furthermore, in view of the materials placed before me and submissions made which are uncontested, it is appropriate to summarily dispose of the OS today.

7.  Ms Lee, a solicitor of RTC, appeared today on behalf of the Council.

B.  Verification of claims and claimants’ beneficial entitlement to the money in the Firm’s client accounts (para 4 of Draft Order)

8.  On 28 September 2023, the Council had resolved inter alia that in accordance with Schedule 2 to LPO, the client accounts, any positive balance of the office accounts of the Firm and all sums of money held by or on behalf of the solicitor(s) of the Firm or the Firm in connection with the practice of the solicitor(s) of the Firm or with any trust of which the solicitor(s) of the Firm are or formerly were a trustee, be vested in the Council. 

9.  Subsequently, two new office accounts (“Firm’s New Office A/C”) and one new client account (“Firm’s New Client A/C”) have been opened for holding: (a) the positive balance in the Firm’s office accounts (“Firm’s Old Office A/C”); and (b) money in the Firm’s client accounts (“Firm’s Old Client A/C”).

10.  As held by Queeny Au-Yeung J in Re Li & Associates (An Intervened Firm) [2023] 1 HKLRD 1096 at §7:

(1)  The Council shall hold the funds under statutory trust and to exercise in relation to them the powers conferred by Schedule 2 to LPO, including to determine the entitlement to the funds and to distribute to those identified as claimants to the funds;

(2)  That does not mean that the Council has a discretion as to who is beneficially entitled.  In taking steps to determine who is beneficially entitled, it must exercise the power in a way that is bona fide, rational, reasonable, that takes into account relevant considerations, and does not take into account irrelevant consideration; and

(3)  The exercise of the power would be subject to review on public law grounds.  So also the statutory power to distribute must be exercised in accordance with public law principles.

11.  It should be noted that in that case RTC was also appointed as the intervention agent.  RTC’s methodology in respect of verifying the 19 claims received in the present case has been set out in details in the Supporting Affirmation.  I am satisfied that they are substantially the same as that as summarized at §8 by the learned judge and was held as being a methodology which was bona fide, rational and reasonable in the public law sense at §11 of Re Li & Associates.

12.  My attention was specially drawn that two of the claims are for the return of estate funds and the following methodology was adopted by RTC:

(1)  The starting point is that the estate accounts and cash flow statements (if applicable) submitted by the Firm on behalf of its clients in the course of and/or as a result of the application for removal as the executors are meant to show the Court the estate money that was supposedly held (as opposed to factually held) by the Firm;

(2)  However, it is impossible to verify and check whether every alleged payment in and out of the Firm’s bank accounts were in fact made, or whether the estate accounts submitted are accurate or not because:

(a)  The underlying files are manifestly incomplete to evidence all transactions in and out of the Firm’s bank accounts.  Most of the estate accounts submitted by the claimants only showed a certain sum received by the Firm over a certain period of time;

(b)  The relevant ledgers of the Firm are either absent or unreliable and contains questionable “internal bills”;

(c)  For one of the claim, the administration of the estate commenced as early as 1999 yet the full set of bank statements retrievable by RTC only go up to as early as 30 November 2017. It is impossible to verify if any estate money was in fact paid into the Firm’s bank accounts; and

(d)  The claimants are not privy to the dealings by the Firm of the assets of the estate and therefore cannot provide much meaningful information other than the estate accounts submitted by the Firm during the removal applications;

(3)  Given the insufficient balance and legal costs implications involved if an extensive tracing and verification exercise to be undertaken which may not be possible, only the major transactions concerning the estates were verified (in particular incoming funds transaction) to make sure that those funds did actually go into the Firm’s bank accounts.

13.  Furthermore, in respect of refund of costs on account, the relevant methodology of RTC is that as summarized in Li & Associates at §§8(4), (5), 9-10.  However, in the present case, RTC drew attention to the fact that there are questionable internal bills allegedly issued by the Firm which has resulted in the Firm debiting client’s money.  The relevant claimants confirmed they had never received such internal bills and therefore RTC has ignored the internal bills when verifying the claims.  In another claim for refund of costs on account paid to the Firm for stamp duty of a substantial amount but on the evidence available, there was never any stamping or registration.  That claim was therefore accepted in full.

14.  I am satisfied that the above methodology of RTC is bona fide, rational and reasonable in the public law sense.

C.  Further notice to potential claimants (para 5 of Draft Order)

15.  On 24 November 2023, newspaper advertisements (on China Daily and Hong Kong Commercial Daily) and gazette notice (on the Hong Kong Government Gazette) were published to invite claimants of the Firm’s Old Client A/C (which was transferred to the Firm’s New Client A/C) to lodge claims by 23 February 2024.

16.  By the time of this hearing, more than 16 months have passed since the deadline to lodge claims and more than 20 months since the commencement of the Intervention.

17.  I take the view that sufficient notice has been given and it is unlikely for further potential claimants to come forward.  I therefore will not require a further round of advertisement or notice to be placed before distribution to save costs and avoid delay.

D.  Distribution of Client A/C Money (paras 1, 2, 3, 6 and 7 of the Draft Order)

18.  The last known balance of the Firm’s New Client A/C as at 3 July 2025 was HK$6,727,642.68.  As at 3 July 2025, RTC received 19 completed claims totalling HK$27,764,163.09.  The money available for distribution will not be sufficient to satisfy all the claims with a shortfall of HK$21,036,500.41.

19.  As mentioned, according to RTC there were various questionable internal bills.  There is prima facie evidence that money had been transferred from the Firm’s Old Client A/C to the Firm’s Old Office A/C which has now been transferred to the Firm’s New Office A/C.

20.  It is proposed that the monies deposited with the Firm’s New Office A/C together with any interest accrued thereon, excluding monies received by the Firm after the date of the Intervention (“Distributable Office A/C Money”) be distributed to the entitled claimants.  Even so, there will still be a shortfall of HK$20,919,583.52.

21.  Traditionally, where there is a deficiency, the starting point would be the “first in, first out” Clayton’s Case.  However, it has been held that it takes only a very small counterweight to displace the rule.  In most intervention cases, a pari passu approach is the usual solution.  See: e.g. Re Ahmed & Co (a firm) and others [2006] EWHC 480 at §§120, 131-138; The Council of the Law Society of Hong Kong v Cheng Chun Chong & Anor [2018] 4 HKLRD 728 at §§31-33 and The Council of the Law Society of Hong Kong v Cheung Kam Min Mickey (previously practising as Sole Proprietor of Messrs K. M. Cheung & Co. Solicitors [2021] 2 HKLRD 386, §25.

22.  In the present case, the Council has proposed a pari passu distribution of the Firm’s New Client A/C and the Distributable Office A/C Money because:

(1)  Payments into the Firm’s client accounts by their very nature do not generally get paid out and are not expected to be paid out in the same sequence;

(2)  It is difficult to reconstruct all ledgers and accounts and hence difficult to allocate the deficit on “first in, first out” basis; and

(3)  Identification of all the misappropriation from the Firm’s Old Client A/C is necessary but would be extremely onerous, expensive and impracticable given RTC only has the Firm’s bank statements for the past 7 years.

23.  In gist, it is proposed by the Council that:

(1)  All claimants whose claim forms were physically received by the Law Society or RTC before the date of court order (including those claims lodged before the date of court order but are still in the process of verification as at the date of court order) shall be entitled to distribution from the Firm’s New Client A/C and Distributable Office A/C Money after they have been duly verified and accepted.  The claims of the verified claimants shall be distributed without setting aside any part thereof to allow for possibility of future claims which may be made by late claimants (if any);

(2)  Any claims filed with the Council or RTC on or after the date of court order shall not be entitled to distribution of the Firm’s New Client A/C and Distributable Office A/C Money;

(3)  The pari passu method be adopted in distributing the Firm’s New Client A/C and the Distributable Office A/C Money; and

(4)  When the distribution is made, the claimant shall sign a release in the prescribed form.

24.  I accept in the circumstances of this case, the above proposal is bona fide, rational and reasonable in the public law sense.

E.  Disposal/destruction of the Firm’s documents (paras 8-11 of DraftOrder)

25.  Pursuant to the resolution of the Council, all documents in the possession of the Firm in connection with the Firm’s practice were seized by RTC.

26.  Among about 778 files of the Firm taken during the Intervention, around 167 files are conveyancing files, 4 files are tenancy files, 582 are general files and 25 are criminal files.

27.  As at 3 July 2025, about 71 former clients have retrieved their files from RTC.  The remaining files are either in the Law Society’s possession or in RTC’s office.

28.  The Council’s proposal to dispose of these files are essentially the same as that described and approved in Li & Associates, §§23-32 as meeting the relevant statutory rules and Law Society’s Circular on the minimum retention period of old files.  I also agree with these proposals.

F.  Intervention Costs (paras 12-13 of Draft Order)

29.  Section 10 of Schedule 2 to LPO provides that subject to any order for costs that may be made by the court, any costs incurred by the Council shall be paid by the solicitor concerned as a debt owed to the Council.  However, as D has been adjudged bankrupt, there is no real prospect of recovery by the Council from him, thus the Council proposes that the office money payable to and received by the Firm after 28 September 2023 (the commencement of the Intervention) and any further office money of the Firm received after the date of the Supporting Affirmation be applied towards payment of the costs of the Intervention to the extent sufficient to cover such costs.  The OR had confirmed it had no in-principle objection to the costs of the Intervention and this application be paid out of the trust assets held by the Council.  Similar costs order has been made in previous cases: see e.g. Law Society of Hong Kong v Cheng Chun Chong, §35 and The Council of the Law Society of Hong Kong v Ng Wing Hung (previously practising as a partner in Messrs Wong, Fung & Co.) and another [2024] HKCFI 946 at §79.

30.  I will so order. 

G.  Disposition and Order

31.  For the foregoing reasons, I grant an order in terms of the Draft Order as amended by me.  There is liberty to apply as provided for in para 14 of the Draft Order.

32.  Lastly, it remains for me to thank Ms Lee for her assistance in this matter.