ONPRESS HOLDINGS LTD AND OTHERS v. STEPHENSON HARWOOD

HCMP650/2010 & HCA233/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 650 OF 2010

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J U D G M E N T

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Introduction

1.  The plaintiffs in HCMP650/2010 belong to the Onpress Group of companies (collectively called “the plaintiffs”).  The 1^st and 3^rd plaintiffs are the subsidiaries of the 2^nd plaintiff.  The 3^rd plaintiff is engaged in the sale and trading of printed circuit boards.

2.  The defendant in HCMP650/2010 is a firm of solicitors practicing in Hong Kong.

3.  By a letter dated 20 January 2009 drafted by the defendant (“the Engagement Letter”) and signed on behalf of the plaintiffs on 3 February 2009 accepting the written terms contained therein, the plaintiffs engaged the defendant to act for the plaintiffs in seeking to have the 1^st plaintiff admitted to the PLUS Quoted Market (“the PLUS Admission”), being a stock exchange in London, together with the simultaneous placing of up to US$5 million of new shares of the 1^st plaintiff upon the terms contained in the Engagement Letter.

4.  On 18 September 2009 the PLUS Admission still not having been achieved the plaintiffs instructed the defendant to terminate all further effort and to abort same.

5.  This dispute between the parties arises from the fees purported to be charged by the defendant as a result of the termination of the PLUS Admission by the plaintiffs.

6.  By Writ dated 12 February 2010 in High Court Action No. 233 of 2010, Stephenson Harwood sought to recover the sum of HK$1,740,869.87 as fees due and owing to them by Onpress.  An Order 14 application was also taken out by Stephenson Harwood which is now put on hold pending the direction of the court upon determination of the matter herein.

Order sought by the plaintiffs

7.  The plaintiffs, by Originating Summons dated 1 April 2010 seek the following orders :

(1)     a declaration to the effect that on the true construction of the clause 3.9 of the Engagement Letter would limit the chargeable fees of the defendant to HK$850,000 whenever the termination of the PLUS Admission may occur;

(2)     for taxation of the solicitors’ bills Nos 74181, 74366, 74545, 74884 and 76233; and

(3)     pending taxation, High Court Action No. 233 of 2010 be stayed, alternatively, directions be given as to the Order 14 Summons taken out by the solicitors in the said High Court Action No. 233 of 2010 under the order dated 21 April 2010.

Background facts

8.  The terms contained in the Engagement Letter was accepted and signed by Ngo Tai Tak, the Chairman of the Onpress Group on 3 February 2009. 

9.  The relevant part of the Engagement Letter is clause 3 thereof which provides for Fees and Disbursements and state as follows :

“3. Fees and Disbursements

3.1 Barring unforeseen circumstances that significantly increase our level of work, we estimate that our fees will range between HK$700,000 andHK$1,000,000 (exclusive of disbursements and VAT). For this engagement, we will agree to cap our fees at HK$1,000,000 (“Fee Cap”) plus disbursements which we will charge in accordance with section 3.7.

3.2 Our Fee Cap is based on the assumption that the PLUS Admission will be completed (i.e. admission on PLUS Quoted being achieved) on or before 30June 2009.

3.3 Any additional work carried out by us after 30 June 2009 will not be subject to the Fee Cap and will be based on such fees as agreed between us from time to time and, in the absence of an agreement, based on our time charge from time to time discounted by 20% (in each case exclusive of disbursements and VAT). Our current hourly charging rates are set out in section 3.5 below. Any disbursements incurred by us after 30 June 2009 will also not be subject to the cap set out in section 3.7 below but will be charged at cost.

3.4 Our Fee Cap is subject to the key assumptions set out in section 4 below. Should we form the view that there is a material deviation from the assumptions below, we will, of course, contact you as soon as possible to discuss how to deal with that situation.

3.5 For your information, the current hourly rate for each member of our core team is set out below:

                 [hourly rate of different team members set out]

3.6 Whenever practicable, we will advise you prior to performing any services which fall outside the scope of work of this letter agreement. If you wish, we would also be happy to agree on a fee arrangement with you before performing any services outside the scope of work.

3.7 Our fees are exclusive of disbursements (such as third party fees, travel, accommodation, courier fees and bulk photocopying), all of which are charged at cost. For this engagement, we will agree to cap our disbursements at HK$50,000. However, any disbursements incurred by us after 30 June 2009 will not be subject to this cap but will be charged at cost, as mentioned in section 3.3

3.8 Please also refer to the enclosed Terms on our practice regarding fees, disbursements, billing and bill collection.

3.9 We are mindful that an undertaking such as the PLUS Admission is a complex one and that there are many reasons why, despite your best efforts and those of your advisory team, the transaction may not come to fruition.

In light of this, it is our policy, where possible and within reason, to share some of your risks with you. In the event that we commence work and, for some reason, the PLUS Admission does not proceed to completion we would be prepared to agree and abort fee in relation to the PLUS Admission of the lower of (a) our actual time costs expended on the PLUS Admission prior to its abortion, and (b) 85% of our Fee Cap.

3.10 Forthwith upon your confirmation of acceptance of this letter agreement and the enclosed Terms, you will pay us money on account of HK$200,000 which we will use to cover our initial costs and disbursements.

In addition, we will bill you HK$200,000 per month at the beginning of each month, starting 1 February 2009.

If completion of the PLUS Admission occurs before we have billed you for the entire amount of the Fee Cap, the balance of our fees shall be payable upon the completion of the PLUS Admission.

3.11   In connection with this letter agreement, Onpress International Limited and Onpress Printed Circuits Limited hereby jointly and severally agree to guarantee the entire payment obligations of the Company under this letter agreement and further agree that no variation to the terms of this letter agreement between the Company and ourselves would affect the validity, enforceability or amount of this guarantee.”

10.  Clause 4 of the Letter of Engagement sets out the ‘Key Assumptions’ to which the Fee Cap is subject.  The relevant one to this dispute is 4.9 being the key assumption that the PLUS Admission will be completed by 30 June 2009.

11.  The defendant commenced work on the PLUS Admission of the 1^st plaintiff. The PLUS Admission was not achieved by 30 June 2009.  Thereafter work by the defendant on the PLUS Admission continued until on 18 September 2009, when the PLUS Admission still had not been achieved, instructions were given to the defendant to discontinue working on the PLUS Admission and to abort same.

12.  For the work carried out by the defendant, the defendant billed the plaintiffs as follows :

(a)     Bill No. 74181 dated 31 January 2009 for $400,000 (of which $200,000 being costs on account and $200,000 being the 1^st installment fees).  This bill was paid by the plaintiffs on 13 March 2009.

(b)     Bill No. 74366 dated 27 February 2009 for $200,000 (being 2^nd installment fees) plus disbursements of $19,749.  This bill was settled by the plaintiffs on 20 May 2009.

(c)      Bill No. 74545 dated 31 March 2009 for $200,000 (being 3^rd installment fees) plus disbursements of $359.75.  This bill was also settled by the plaintiffs on 20 May 2009.

(d)     Bill No. 74884 dated 30 April 2009 for $200,000 (being 4^th installment fees) plus disbursements of $657.61.  This bill has not been settled by the plaintiffs to date.

(e)      Bill No. 76233 dated 28 September 2009 for $1,500,000 (being additional fees) and additional disbursements of $40,212.26.  This bill also had not been settled by the plaintiffs to date.

13.  After receipt of Bill No. 76233 from the defendant, the plaintiffs queried the additional costs charged by the defendant in their final bill and discussion between them followed.  In the course of that discussion, Ms Hilda Chiu of the defendant, by email dated 2 October 2009, provided two lists for the purpose of helping the plaintiffs understand the additional costs charged.  The first list related to additional work done for the period from 1 July 2009 to 18 September 2009.  The second list showed additional work done between 19 January 2009 and 18 September 2009 but which was outside the scope of work of the Engagement Letter.  Both lists were in the form of bullet points without any breakdown as to time spent or which lawyer was involved in the work.

14.  The plaintiffs then approached a different firm of solicitors for legal advice on the matter, and on 11 February 2010, these solicitors acting for the plaintiffs wrote to the defendant requesting taxation of all the five bills.

15.  On 12 February 2010, the defendant issued High Court Action No. 233 of 2010 for the outstanding/unpaid amounts in the last two bills.  The defendant further issued Order 14 proceedings therein for summary judgment.

16.  The Originating Summons herein was issued by the plaintiffs on 9 March 2010.

Plaintiffs’ contention

17.  Two main points are contended for by the plaintiffs, namely :

(a)     Upon the proper construction of clause 3.9 of the Engagement Letter, in the event of termination of the PLUS Admission, the profit costs fee chargeable by the defendant may be less but could not be more than 85% of the Fee Cap of HK$1,000,000 irrespective of when that termination took place, whether before or after 30 June 2009 (“the Construction Point”).

(b)     That the five bills from the defendant should be taxed as one single bill for one single piece of work done, namely the PLUS Admission, but divided into parts and which is subject to adjustments to be made to the installment amounts already paid by the plaintiff after taxation of the five bills have been completed (“the Taxation Point”).

18.  Insofar as the Construction Point goes, the main thrust of the plaintiffs’ argument is that there is no time limit stated in clause 3.9 of the Engagement Letter beyond which the “abort fee” would not apply.  Therefore on a proper reading of clause 3.9, the “abort fee” would apply upon the abortion of the PLUS Admission, whenever that abortion took place.

19.  On the Taxation Point, it was submitted by the plaintiffs that an order should be made for the five bills of the defendant to be taxed as one single bill under section 67(2) of the Legal Practitioners Ordinance (“the LPO”), and depending on the outcome of the taxation, it could be less, but cannot be more than the “abort fee” of $850,000 by reason of the Construction Point argued by the plaintiffs above.

20.  It was contended by the plaintiffs that the five bills, being all for the same piece of work, the first four of which (apart from the $200,000 costs on account and disbursements) were mainly for the monthly installment payment of $200,000 and not based on actual work done, should therefore be looked at as one single bill divided into parts.  Moreover the payments already made by the plaintiffs on the first three bills ought to be subject to final adjustment after taxation and be counted as part of the final bill.

21.  The plaintiffs are entitled to know the actual time spent by the lawyers on the work done, but the two lists provided by the defendant in October 2009 contain neither breakdown of time spent nor the lawyer doing the work.

22.  The profit costs charged by the defendant in the 5^th bill which is for additional work after 30 June 2009 is $1,500,000 and added to the Fee Cap of $1,000,000 brings the total profit cots charged to $2,500,000 which far exceeds the original estimate given.

23.  The application for taxation by the plaintiffs is made bona fide, and although the application was made more than one month of the delivery of the bill, it is still within the 12 months provided by section 67(2) (on the basis that all five bills are to be treated as one single bill).

24.  If the court exercises its discretion to order taxation of the five bills (as being one single bill), it follows that staying of the High Court Action taken out by the defendant is mandatory under section 67(2).

Defendant’s contention

25.  On the Construction Point, the argument of the defendant runs as follows :

(a)     The construction contended for by the plaintiffs that the “abort fee” provided for in clause 3.9 of the Engagement Letter would apply in the event of termination of the PLUS Admission, whenever that termination should occur, brings about an absurd result.

(b)     The absurdity of such construction contended for by the plaintiff is immediately obvious since, on that construction, even if the project had gone on for another two years (or even 10), then if the project is ultimately aborted, the defendant’s fees will be capped at ‘85% of the Fee Cap’.

(c)      The term “Fee Cap” is defined in the Engagement Letter.  Clause 3.3 thereof states that additional work carried out after 30 June 2009 will not be subject to the Fee Cap and nothing in the Engagement Letter says that clause 3.3 is to be read subject to clause 3.9.  Therefore it is clear that the Fee Cap only applies to work carried out before 30 June 2009.  This is also consistent with the provision that the Fee Cap was based on the key assumption that the Listing project would be completed by 30 June 2009.

(d)     As for the contra proferentem rule relied on by the plaintiffs, that rule is to be applied only in cases of ambiguity and where other rules of construction fail.  Thus in the present case, if the construction suggested by the plaintiffs results in obvious absurdity and has to be rejected in favour of the construction put forward by the defendant, then the contra proferentem rule can have no application here since there would be no ambiguity.

26.  On the Taxation Point, it was submitted by the defendant that pursuant to section 67 of the LPO, if taxation is applied for within one month of the delivery of the bill, then taxation is entitled as of right.  Where the application is made between one and twelve months of the delivery of the bill, then the court has a general discretion to order taxation.  But if the application is made only after 12 months, no order shall be made unless “special circumstances” are shown. 

27.  As for the first three bills, it was submitted by the defendant that the application for taxation was made more than 12 months after delivery of these three bills, and in any event, these first three bills have already been paid by the plaintiffs, therefore no taxation should be ordered for them.

28.  The defendant further submits that bills in the present case should be viewed as separate bills and not part of one single bill albeit that they relate to one single piece of work (which is the only reason put forward by the plaintiffs for treating them as one single bill).

29.  It was submitted that there was a clear agreement between the parties in clause 3.10 of the Letter of Engagement that the defendant would charge a monthly fee of $200,000 and the bill would be sent at the beginning of each month starting from 1 February 2009.  Such an express agreement would displace the entire contract rule.  The court should therefore infer that each bill are to be treated as separate and final bill.

30.  The express agreement in clause 3.10 of the Letter of Engagement overrides paragraph 7 of the Standard Term relied on by the plaintiffs to say that the defendant’s fees are based primarily on the time spent.

31.  Since it is open for the parties to agree a lump sum monthly fee, it does not help the plaintiffs to say that the monthly fee note failed to particularize each item of work.

32.  Even the plaintiffs regarded the first three bills as having been finally settled when they were paid in their solicitors’ letter of 18 January 2010 to the defendant.

33.  In the absence of any ‘special circumstances’ (and none has been argued by the plaintiffs) no order for taxation should be made in respect of the first three bills.

34.  As for the 4^th and final bills, it is accepted by the defendant that the court has a general discretion to order taxation.  However, it was submitted by the defendant that the plaintiff ’s request for taxation of these two bills were only an afterthought with a vague complaint that the fees were “too high”.

35.  In that sense, the defendant submits that the request for taxation was made to delay payment and not made bona fide.  Therefore the court should not exercise its discretion to order taxation.

Decision

36.  Dealing first with the Construction Point, I make some initial observations.  Firstly, clause 3 of the Letter of Engagement deals with Fees and Disbursements. 

37.  On the one hand, in the event of completion of the PLUS Admission, clauses 3.1, 3.2 and 3.4 caters to where the completion of the PLUS Admission takes place on or before 30 June 2009 while clause 3.3 deals with where there is additional work carried out after 30 June 2009 when the Fee Cap will not apply to such additional work.

38.  On the other hand, it is only clause 3.9 alone which deals with how fees are to be calculated if the PLUS Admission is aborted.

39.  It must therefore have been well within the contemplation of the parties that although it was hoped (thus the key assumption in 4.9) that the PLUS Admission will be completed before 30 June 2009, it was also recognized that there was a possibility that the PLUS Admission may not be completed by 30 June 2009 and that the work may have to go beyond that date, thus the provisions in clause 3.3 of the Letter of Engagement for fees in relation to additional work beyond that date.

40.  Once that premise is reached, it must follow that there was always the possibility (for whatever reason) of the PLUS Admission being aborted either before or after 30 June 2009 and that this must have been within the contemplation of the parties.

41.  If therefore clause 3.9 of the Engagement Letter was intended by the parties to be restricted in its application to cover only the period before 30 June 2009, one would have expected clear express wording to that effect to be included to indicate such intention.  It is common ground that there was no such wording restricting the application of clause 3.9 to any specific period of time.

42.  It was submitted by the defendant that because reference had been made to the phrase “Fee Cap” at the end of clause 3.9 of the Letter of Engagement, and nowhere in the Engagement Letter says that clause 3.3 (which provides for additional work beyond 30 June 2009 not being subject to the Fee Cap) is to be read subject to clause 3.9, an absurd result would follow if clause 3.9 was construed as being applicable when the PLUS Admission was aborted after 30 June 2009, the longer after that date, the more absurd the result of such construction.

43.  I am not persuaded by that submission from the defendant for two reasons.

44.  First, the reference to the Fee Cap at the end of clause 3.9 is a reference to :

“… the lower of(a) our actual time costs…, and (b) 85% of our Fee Cap” [Emphasis added]

45.  It can immediately be seen that the reference to “Fee Cap” at the end of clause 3.9 is a reference to the amount of the Fee Cap, and not the key assumption of the PLUS Admission being completed by 30 June 2009 to which the Fee Cap was subject since clause 3.9 was not concerned with completion of the PLUS Admission, but dealt with its abortion.

46.  Secondly, the defendant being reputable and experienced solicitors dealing with listing work, the fact that it could come to an estimate that the PLUS Admission ought to be completed by 30 June 2009 goes a long way to show that even if it overran the estimated time, the period of overrunning should not be of any great length.

47.  Moreover, the defendant stated in clause 3.9 that they were prepared to agree an “abort fee” with the plaintiffs for the expressed reason that it was their policy to share some of the risks with the plaintiffs in the event that the PLUS Admission did not proceed to completion.  There is nothing to suggest that such a stated policy of the defendant would only be applicable where the abortion took place before 30 June but not thereafter, since in either case, the plaintiffs could not achieve that which it set out to achieve in the first place when the defendant was engaged for that purpose.

48.  To construe clause 3.9 of the Engagement Letter in the way suggested by the defendant would be to effectively read into the Engagement Letter or into clause 3.9 thereof words which are not there.

49.  In my view, the proper construction of clause 3.9 of the Engagement Letter is that it is applicable once the PLUS Admission does not proceed to completion.  That would be the normal reading of clause 3.9 since the only qualification stated in clause 3.9 to apply is that if the PLUS Admission “does not proceed to completion” without any qualification as to time.

50.  If I am wrong in such construction, then it follows that clause 3.9 of the Engagement Letter must be ambiguous in that there is no clear words to indicate whether that paragraph is applicable only when the PLUS Admission is aborted before 30 June 2009 or whether it will still apply if aborted after 30 June 2009.

51.  In such circumstances, where there is ambiguity, the contra proferentem rule can assist the plaintiffs in that it ought to be construed against the interest of the party drafting the Engagement Letter, namely the defendant.

52.  In this respect, I find the words of Lord Mustill in Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd [1966] 2 BCLC 69 to be apposite, where he said at page 77 :

“A person who puts forward the wording of a proposed agreement may be assumed to have looked after his own interests so that if the words leave room for doubt about whether he is intended to have a particular benefit there is reason to suppose that he is not.”

53.  In the earlier clauses of 3.1, 3.2, 3.3 and 3.4 clear words were used such that there can be no doubt that the Fee Cap only applied if the PLUS Admission was completed on or before 30 June 2009.  Any additional work beyond that date would not be subject to the Fee Cap.

54.  Therefore if it was intended by the parties that the “abort fee” provided for in clause 3.9 was to apply only if the project was aborted before 30 June 2009,one would have thought that the defendant, when drafting the Engagement Letter would have similarly used clear words (as it did in the earlier parts of clause 3) to make that sufficiently clear so as to protect its own interests.

55.  In the absence of any such clear words to that effect, the only proper construction to be placed on clause 3.9 is that submitted by the plaintiffs, namely that the abort fee is to apply upon the PLUS being aborted, whether before of after 30 June 2009.

56.  As for the taxation point, and given the decision above on the Construction Point, there can be no doubt in my mind that all the bills have to be looked at as one single bill for one piece of work since at the end of the day, if the PLUS Admission was aborted, then there must be adjustment to the amount of the fees already paid by the plaintiffs by way of monthly installment.  That adjustment depended on the lower of either the time cost or 85% of the Fee Cap.

57.  I do not accept that the $200,000 monthly payment was an agreed monthly lump sum fee as suggested by counsel for the defendant, albeit that for the five months from 1 February to 30 June 2009, the monthly installment payment of $200,000 each month would have totaled to the amount of the Fee Cap.

58.  The reason is that the Fee Cap is not an agreed lump sum fee, but only, as the name suggests, a cap on the fees that the defendant can charge if the PLUS Admission could be completed before 30 June 2009.  Therefore whilst the defendant’s fees cannot exceed the amount of the Fee Cap, if the project completed before 30 June 2009, it can, theoretically be lower than the amount of the Fee Cap.

59.  In the case of abortion of the PLUS Admission after 30 June 2009, and if the plaintiffs had paid more than what the defendant would be entitled by way of fees in the manner in which the agreement between the parties as to fees had been construed above, then there obviously need to be an adjustment to the fees already paid.

60.  It can therefore be seen that until the final bill is prepared and delivered, there can be no finality as to the fees to which the defendant can ultimately be entitled to.

61.  Therefore where there are dispute between the parties as to the ultimate fees which the defendant may be entitled to all five bills will need to go for taxation and to be looked at as a single bill and for the taxing master to determine the ultimate entitlement of the defendant as to their fees.

62.  This is all the more so since clause 3.9 states that the abort fee is the lower of (a) the defendant’s actual time costs expanded on the PLUS Admission prior to its abortion, and (b) 85% of the Fee Cap.

63.  In view of the fact that the fourth and final bills were within the 12 months period prescribed in section 67 of the LPO, and that all five bills ought to be looked at as for a single piece of work, I am prepared to make an order that the five bills from the defendant be taxed before a taxing master.

64.  I am also satisfied that when taxed, the plaintiffs will be in a position to make payment to the defendant and I do not see any need for imposing any conditions in so making the order for taxation.

The Order

65.  I will make the following orders on the Originating Summons :

(a)     a declaration that on the true construction of clause 3.9 of the Engagement Letter the fees chargeable by the defendant should not exceed $850,000 whenever the termination of the PLUS Admission may occur;

(b)     an order for taxation of the solicitors’ bills Nos 74181, 74366, 74545, 74884 and 76233 delivered by the defendant to the plaintiffs; and

(c)      pending the aforesaid taxation, High Court Action No. 233 of 2010 and the Order 14 application taken out thereunder be stayed.

Costs

66.  The defendant has seen fit to oppose the application by Originating Summons taken out by the plaintiffs and has been wholly unsuccessful in their opposition.

67.  In the circumstances, costs ought to follow the event. 

68.  There will be a costs order nisi that the costs of and incidental to this application by Originating Summons and of the hearing be paid by the defendant to the plaintiffs.

69.  There will also be a costs order nisi that the costs of the Order 14 Summons taken out by the plaintiff in HCA233/2010 (being the defendant herein) be paid by the defendant herein to the plaintiffs herein. This further costs order nisi arises since the costs of the Order 14 Summons was reserved to the judge dealing with this Originating Summons.