CHEUNG TAK MAN DESMOND AND ANOTHER v. LAM SIU SUN DENNIS AND ANOTHER

HCA 262/2019

[2020] HKCFI 381

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 262 OF 2019

________________________

________________________

________________________

D E C I S I O N

________________________

1.  The parties were two camps of the former partners of a solicitors’ practice in the name of Li, Wong, Lam and W I Cheung (“the Firm”) in Hong Kong. The Firm ceased practice on 15 February 2019. The plaintiffs commenced the present action against the defendants for injunctive relief in connection with the winding up of the practice. The plaintiffs applied for interlocutory injunction essentially in terms of those final injunctive relief claimed in the action. At the hearing of the interlocutory injunction, the parties managed to dispose of the application and effectively the action by way of undertakings by the defendants. The issue of costs of the action, including the interlocutory application, was adjourned for argument. Evidence has since been filed, and then the hearing before this court.

The Firm and the split

2.  The Firm was formed by the merger of two firms, Li, Wong & Lam and W I Cheung & Co, in 2008.  The Firm last operated at the address of 22^nd Floor, Infinitus Plaza, No 199 Des Voeux Road Central, Hong Kong (“the Office Premises”).  Between 1 September 2016 and 14 December 2018, the plaintiffs and the defendants were the only partners of the Firm.  In this decision, the parties will be referred to by their respective surnames.

3.  At least on its face, the split surfaced after Cheung’s revelation in mid-2017 of his treatment of 172 bills and the pre-merger account of W I Cheung in possible breach of professional conduct. According to Lam and Lee, the wrongdoing of Cheung was later discovered to have gone beyond that, which concerned his management of the Firm’s accounts after the merger.  Various other members of the Firm, qualified and not qualified, were implicated.  The mutual trust of the partners broke down irretrievably. They divided into two camps – Cheung and Chiu of one and Lam and Lee of another.

4.  By notice dated 11 September 2018, Cheung and Chiu sought to dissolve the partnership with effect on 14 December 2018 (“the Dissolution Notice”).

5.  Lam and Lee responded by commencing HCA 2413/2018 on 15 October 2018, claiming against Cheung and Chiu as well as 5 other former employees of the Firm for unauthorized transfers of the Firm’s funds, false accounting and making of secret profits.  They claim for, amongst other relief, delivery up of the Firm’s documents and accounts.  In their pleading, Lam and Lee also put in issue the attempt by Cheung and Chiu to dissolve the partnership by the Dissolution Notice.

6.  Apparently, the parties were well aware of the notification requirements prescribed by the Law Society for the cessation of solicitors’ practice in Hong Kong.  Whilst the Dissolution Notice fixed the date of dissolution at 14 December 2018, the parties were yet to comply with such requirements in order to cease the Firm’s practice.  The fact was that they could not even agree on the date of cessation of practice of the Firm.

7.  On the eve of the date of dissolution fixed by the Dissolution Notice, Lam and Lee took out an urgent ex parte application in HCA 2413/2018 for an order restraining Cheung and Chiu from taking any steps to cease the practice of the Firm until the notification requirements prescribed by the Law Society had been complied with.  Hon Chow J granted the order on the same day.

8.  Whilst, as mentioned, HCA 2413/2018 refers to the attempt of Cheung and Chiu to dissolve the partnership by the Dissolution Notice, it is silent on the cause and the relief sought in respect of such issue.  Indeed, the ex parte injunction mentioned in the preceding paragraph was granted upon the undertaking of Lam and Lee to perfect their substantive claim in respect of the dissolution of the partnership either by amending the pleading in HCA 2413/2018 or alternatively commencing a fresh action.  Lam and Lee opted for the latter, and hence their commencement of HCA 2928/2018 against Cheung and Chiu on 17 December 2018.

9.  The notification requirements mentioned above are prescribed by Law Society.  Essentially, a prescribed notice of cessation of practice should be submitted to the Law Society.  Solicitors should be appointed to act as agent to deal with the consequential matters arising out of the cessation of practice, commonly known as cessation agent.  Because of their disagreement, the two camps finally appointed their separate cessation agents. They agreed on the date of cessation of practice.  Upon that, they jointly submitted their notice of cessation of practice to the Law Society on 17 December 2018 (“the Cessation Notice”).  The parties and the cessation agents signed the notice.  The date of cessation of practice was fixed to be 15 February 2019 (“the Cessation Date”).

10.  In the circumstances, the return day for the application for interlocutory injunction in HCA 2413/2018 was dispensed with.  However, HCA 2413/2018 and HCA 2929/2018 are still pending.

The Cessation Notice

11.  Practice Direction D7 and Circular 17-269 (PA) dated 7 August 2017 of the Law Society govern the cessation of practice of solicitors.  They provide, amongst other things, that (i) the firm intending to cease practice must notify the Law Society in the prescribed form at least 8 weeks prior to the date of cessation[1]; (ii) the firm must appoint a firm of solicitors as its cessation agent[2]; and (iii) it is a mandatory requirement to store all the old physical files in Hong Kong for preservation and easy retrieval[3].

12.  The Guidance Notes on Cessation of Practice reiterates the cessation notice requirement[4]. Further, the notes provide that the firm must deliver its final accountant’s report within 6 months from the date of cessation of practice[5]. All the outstanding balances in the firm’s clients’ account must be transferred to the firm’s cessation agent[6].

13.  As to the outstanding balances in the firm’s clients’ account, an application for directions, which is incorporated in the prescribed form of the cessation notice, should be made for the Council’s approval to transfer the remaining balances in the firm’s clients’ accounts to the cessation agent as at the date of cessation[7]. If the cessation agent cannot obtain clients’ instructions in relation to any such balances after 6 months of the cessation of practice, the agent should apply to the Council for directions[8].

14.  The Guidance Notes also provide for the need to file a final employees’ return[9].

15.  There are also guidelines for the cessation agent.  They provide, amongst other things, that both the firm and the cessation agent must comply with Practice Direction D7, including signing the cessation notice[10].

16.  In line with the above Guidance Notes, subject to the direction of the Council, the firm will make arrangement to transfer all remaining balances in the firm’s clients’ account as at the date of cessation of practice to the cessation agent[11].  Any reconciliation statement to the firm’s final account should be prepared with the assistance of the cessation agent and submitted within 6 months of the cessation of practice[12]. As stated in the above Guidance Notes, the cessation agent will be responsible for tracing the firm’s former clients for instructions on the outstanding balances transferred from the firm’s clients’ account to the agent’s clients’ account.  In case of unclaimed balances, the cessation agent should apply to the Council for directions[13].

17.  For those former clients whom the firm has failed to reach before the cessation, the cessation agent should try to reach them to seek their instruction on the appointment of successor firm to handle their case[14]. The firm must provide the cessation agent with a comprehensive list of the firm’s current matters and the matter files[15].

18.  Regarding its old files, the firm must provide the cessation agent with comprehensive list of them in storage and the full details of their location.  The firm must maintain the storage or make satisfactory arrangement for that with the cessation agent[16].

19.  Cheung and Chiu appointed Herbert Tsoi & Partners (“HTP”) as their agent while Lam and Lee appointed Hobson & Ma (“HM”) as their agent.  The Cessation Notice, amongst other things, set out the following terms:

(1)  The Firm would cease business on 15 February 2015, ie, the Cessation Date.

(2)  The Firm’s closed files would be stored in specified warehouses in Hong Kong.

(3)  The Firm applied to the Council for directions to transfer on the Cessation Date all remaining balances in the Firm’s clients’ accounts to be held by the cessation agents.  The Firm would provide to the Law Society written notice of the amount so transferred and countersigned by the cessation agents within 7 days of the Cessation Date.

(4)  Any reconciliation statement that may be necessary would be delivered to the Law Society within 6 months from the Cessation Date.

(5)  The final employees’ return would be delivered to the Law Society on or before 15 March 2019.

20.  The Cessation Notice was in line with the terms of the Practice Direction and Guidance Notes mentioned above.

21.  On 18 December 2018, the Law Society responded to the Cessation Notice and directed the Firm to provide the full details of the unclaimed balance in the clients’ accounts or to confirm if there was no unclaimed balance.  The timetable for filing the following documents was fixed:

(1)  Final accountant’s report covering accounting period between 1 April 2018 to 14 February 2019 (the last day of business) by 14 August 2019;

(2)  2018 employees’ return by 31 January 2018; and final employees’ return from 1 January 2019 to 14 February 2019 by 28 February 2019; and

(3)  Cessation of practice (notification of changes to a practice) by 28 February 2019.

The present action

22.  While the clients and the public have been notified of the Cessation Date, the date passed admittedly without compliance with the partners’ obligations incidental to cessation of practice on that date.  Further, the landlord of the Office Premises also commenced action against the partners of the Firm for unpaid rent, possession and mesne profits.

23.  Cheung and Chiu blame that on Lam and Lee.  They contend that the partners owe to each other duties to take all necessary and proper steps to procure the cessation of practice and to enable the Cessation Agents to deal with the consequential matters arising from the cessation as well as to mitigate the liabilities of the partnership in connection with the cessation.  The discharge of such duties requires the co-operation of Lam and Lee in respect of (i) the storage of the files of the Firm on or before the Cessation Date; (ii) the transfer of all the remaining balances in the clients’ accounts of the Firm to the respective Cessation Agents; and (iii) the sharing of costs and expenses reasonably incurred in procuring the cessation of practice.  On the basis that Lam and Lee did, and still do, refuse and fail to so co-operate, Cheung and Chiu commenced the present action on 19 February 2019 for various injunctive relief.

24.  On the same day of issuing the writ, Cheung and Chiu also filed their summons.  Albeit for interlocutory injunction pending the determination of this action after trial, the terms of the interlocutory relief sought were essentially similar to the relief claimed in the action, except for one.

25.  The summons went before DHCJ Bruce SC on 22 February 2019.  As mentioned, the parties managed to dispose of the application, and effectively the substantive claim in the action, upon the undertakings by Lam and Lee, which will be set out in detail below. 

26.  Upon the above undertakings, the parties agreed that all further proceedings in the action were stayed, save for the purpose of enforcing the order and for the determination of costs.  Agreed directions for the filing of affidavit evidence were given, and the issue of costs (of the action, including the summons) was adjourned for substantive argument.

Matters of principle

27.  In principle each partner has the authority to bind the other partners vis-à-vis them and outside parties.  This is based on what underlies a partnership, namely their agreement and the good faith and honourable conduct due from a partner to his co-partner in performance of their agreement during the continuance of the partnership.  Such good faith and honourable conduct is equally due so long as the affairs of the partnership under dissolution remains unsettled: see Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 WLR 605 at 613, per Sir John Pennycuick V-C.

28.  The situation of the Firm by December 2018 was clear in that the mutual trust amongst the partners has irretrievably broken down.  Notwithstanding that, they should still act responsibly or else it would not be conducive to the proper winding up of the partnership.  In the process, the partners have no choice but to put aside any feeling of grievance or betrayal arising out of the alleged wrongdoings.  The partners, being legal professionals, are expected to know better than people in any other business partnerships.

29.  Likewise, they are expected to act accordingly.  There would be no question whether any partner was supposed to be in the driver seat or any partner was only under a reasonable duty to respond.  By agreeing on the Cessation Date, the partners commit with each other to shoulder equal responsibility to ensure that active steps would be taken by all of them towards the cessation of practice and the discharge of the incidental obligations on the agreed date.

Circumstances prevailing at the time of the Cessation Notice

30.  By the Dissolution Notice, Cheung and Chiu fixed the dissolution of the partnership to take effect on 14 December 2018. However, to cease practice, the Firm would have to comply with Practice Direction D7.  As mentioned, in giving the Dissolution Notice, Cheung and Chiu were aware of the prescribed requirements for the cessation of practice.

31.  Lam and Lee responded to the Dissolution Notice, and proposed the alternative date of 31 March 2019 for the cessation of practice.  That was rejected by Cheung and Chiu.  Further, the two camps had been unable to agree on the appointment of the cessation agent since late September 2018.  The approach of the two camps appointing their respective cessation agents came about only in late October 2018.  The proposed appointment did not proceed uneventfully, and was confirmed only in late November 2018.  At that point, even if a cessation notice were signed and filed, the date of cessation of the practice of the Firm, which would have had to be not less than 8 weeks later, could not align with the date fixed by Cheung and Chiu under the Dissolution Notice.

32.  The cessation agents did not come to sign the cessation notice, despite their meeting in early December 2018.  As mentioned, the Cessation Notice came to be devised and signed only after the commencement of HCA 2413/2018 and the ex parte injunction dated 13 December 2018.  The parties had to take into account the prescribed notice period in fixing the date of cessation of practice.  Hence 15 February 2019.

33.  However, at the time of the Cessation Notice, the Firm has become less than an operating concern.  Less than a fortnight after the Dissolution Notice in September 2018, and probably contemplating cessation of the Firm’s practice on 14 December 2018 as they intended, Cheung and Chiu had given notice:

(1)  to the landlord of the Office Premises that the Firm would surrender the Office Premises on that date;

(2)  to the staff that their employment would be terminated on that date; and

(3)  to the Firm’s bankers that all the bank accounts of the Firm would be closed on that date upon the transfer of all the balances to the cessation agent to be appointed.

34.  Whilst it became clear by late November 2018 that the practice of the Firm could not properly cease on 14 December 2018 pursuant to the Dissolution Notice, in the absence of compliance with the Law Society’s prescribed requirements, Cheung and Chiu nevertheless proceeded with the follows:

(1)  They requested all the staff of the Firm to remove their personal belongings from the Office Premises by 13 December 2018, failing which they would be regarded as abandoned and disposed of at the discretion of the landlord.

(2)  They proposed to dispose of the assets of the Firm, including the computers by 13 December 2018.

(3)  They instructed the staff to pack all the files of the Firm for storage by 13 December 2018.

(4)  They came to an agreement with the landlord to surrender the tenancy of the Office Premises on 14 December 2018.

(5)  They refused the request of Lam and Lee to postpone the date of cessation of practice to 8 weeks after the appointment of the cessation agents.

35.  By mid-December 2018, most staff have left the Firm.

36.  The circumstances prevailing then were sufficiently apparent to the Cessation Agents.  By their letter dated 21 December 2018, HTP put on record the extent of consensus between them and HM during their first joint meeting on 20 December 2018[17]. As HTP noted in the letter, the partners were expected to be alert to the number of available working days until the Cessation Date, in view of the intervening Chinese new year holiday.

37.  HTP noted, amongst other things, that it was the partners’ duty to see that all the case files of the Firms would be dealt with in a timely manner before the Cessation Date.  The following agreed and proposed actions to be taken in anticipation of the cessation of practice of the Firm were set out:

(1)  Cheung and Chiu would provide a soft copy of the financial details of the Firm as at 14 December 2018.

(2)  The partners would arrange with the bankers to close all the Firm’s clients and office accounts and consolidate them to one clients account and one office account.  The bank mandate should be amended so that signatories of cheques would consist of one partner from each of the two camps.

(3)  The Firm’s accountant or account clerk should provide verifiable records from its accounting system to show that the funds match after the consolidation.

(4)  The partners should arrangement payment of the outstanding office rental let into arrears for 3 months as demanded by the landlord.

38.  The Cessation Agents also noted that it would be necessary to employ some ex-staff and additional staff on a short term or part time basis to assist in the preparation of the cessation, and various candidates preferred by the two camps respectively were named.

39.  HTP followed by setting out in the letter the further proposed actions to be taken by the two camps of partners:

(1)  Each camp should provide their lists of current active/inactive/unclosed case files under their care to their respective cessation agents.

(2)  Cessation notices of each camp to their respective clients should be prepared, and issued upon the Cessation Agents’ confirmation.

(3)  Outstanding unbilled services for clients should be billed.

(4)  Active case files and clients’ money should be transferred to the new solicitors’ firms taking over the case in accordance with the clients’ instructions.

(5)  Inactive case files should be closed and put in storage before the Cessation Date.  Lists of such old/closed files should be provided to the Cessation Agents.  There should be a weekly update from 1 January 2019 until the Cessation Date of the progress of the closing and storage of old case files.

(6)  All the case files should be removed from the Office Premises on or before the Cessation Date.

(7)  Notification of the cessation of practice should be given to the banks, profession, courts and relevant government departments.

40.  By committing themselves to the Cessation Notice, the partners were expected to attend to the abovementioned proposed actions, albeit in the circumstances then known to them.  The correspondence shows that Cheung and Chiu had been attempting to drive the partners towards preparing for the cessation of practice on the Cessation Date essentially in line with the abovementioned proposed actions.

From the Cessation Notice to Cessation Date

41.  At the end of December 2018 and the beginning of January 2019, Cheung and Chiu pointed out that the expenses of the Firm in the interim would need to be paid, but Lam and Lee allegedly backed out of the consensus in respect of changing the bank mandate reached during the joint meeting on 20 December 2018 as mentioned in the above letter from HTP.  Cheung and Chiu proposed a smaller office premises should be rented for the limited operation of the firm pending cessation and for mitigating loss.  There was apparently disagreement in respect of the candidates for re-employment of staff for preparing for the cessation of practice.  There was also complaint about Lam and Lee having removed the accounting records.

42.  By email dated 3 January 2019, Lam and Lee blamed it on Cheung and Chiu for having caused the banks to freeze the accounts of the Firm.  When trying to pay the landlord, they allegedly discovered that Cheung and Chiu, together with H Y Leung (with whom Cheung and Chiu intended to start a new practice), had tried to strike a secret deal with the landlord in respect of the Office Premises. They indicated their willingness to return the accounting records of the Firms but demanded Cheung and Chiu to return at the same time the alleged missing case files and records, which apparently form the subject matter of HCA 2413/2018.  They did not accede to the proposal to move to a smaller office premises or altering the bank mandate.

43.  On the same day, Cheung and Chiu served on Lam and Lee an action list for all the parties (“Action List”), which included proposed actions to be taken and their timetable towards the end of ceasing practice on the Cessation Date.  Amongst others, they put on record that the removal of the personal belongings of the ex-staff was only hindered by the security personnel placed there by Lam and Lee on 13 December 2018. They demanded that the staff should be allowed to collect their belongings from the Office Premises on a date to be appointed.  They also reiterated the need to change the bank mandate, in view of the serious dispute between the two camps of partners.

44.  On 7 January 2019, Cheung and Chiu updated the Action List.  Apart from the proposed actions mentioned above, they also proposed the timetable for the completion of the case file list and relocation of the case files.  They also proposed the timetable for agreement with the landlord for the surrender of the tenancy of the Office Premises as well as their agreement on the disposal of the office assets.  The Action List was further updated on 21 January 2019.

45.  So far, Lam and Lee had not responded to the Action List.  This caused Cheung and Chiu to send an email to Lam and Lee on 21 January 2019.  They reiterated that it would be in the interest of all the partners to vacate from the Office Premises on the Cessation Date, and they would proceed to negotiate with the landlord towards such end.  They also proposed that the staff be allowed to retrieve their personal belonging from the Office Premises on two specified periods by the end of January 2019.  They also proposed that all the furniture, computers and other partnership assets should be relocated and stored at the specified warehouse pending the partners’ agreement on their disposal.  They would also relocate the case files under their care to specified warehouse.

46.  The above proposal of Cheung and Chiu met with objection by Lam and Lee.  By their email dated 22 January 2019, Lam and Lee indicated that they had requested the landlord to liaise with Cheung and Chiu for payment of the rent in arrears. They were prepared to co-operate to re-activate the bank account of the Firm but on terms.  As to the proposed retrieval of personal belongings from the Office Premises, their stance was that all those left there after 13 December 2018 were treated as abandoned and could not be retrieved.  They proposed that the office assets had to remain for their preparing the accounts and case file list.  It followed from such reply that the attempt for the retrieval of personal belongings of the ex-staff from the Office Premises on the two occasions in late January 2019 as mentioned above also failed.

47.  Apart from further updating the Action List, Cheung and Chiu also put on record by their email dated 29 January 2019 that they were still awaiting the report of the accounting staff on the amount of funds of the Firm that could be used to settle the rent and management fees as well as the arrangement to change the bank mandate.  They reiterated their right to retrieve the personal belongings remaining at the Office Premises.  They also enquired what furniture and office assets Lam and Lee required to keep until 14 February 2019 for their preparation of the accounts and case file list.  However, nothing was heard from Lam and Lee to the Action List or the above email from Cheung and Chiu.

48.  A joint meeting with the Cessation Agents was held on 30 January 2019.  Of the businesses set out in the agenda, Lam and Lee only confirmed that cessation notice had been sent to the Firm’s clients under their care, and the list of case files under their care as well as the balances of the clients’ money under those files would be provided to HM, their cessation agent, on 15 February 2019. They refused to go through the other businesses in the agenda on the basis that those did not form the business order of the Cessation Agents.  Those businesses included the handling of the accounting records, relocation of the furniture and assets of the Firm, retrieval of personal belongings remaining at the Office Premises and the surrender of the tenancy of the Office Premises.  This caused Cheung and Chiu to seek clarification by Lam and Lee of their stance in respect of those outstanding matters by separate email.

49.  By email dated 3 February 2019, Lee reiterated his stance that the personal belongings left at the Office Premises after 13 December 2018 were treated as abandoned, and that all the furniture and items in the Firm had to remain intact unless Cheung and Chiu returned the alleged missing files mentioned above.  On the same day, Lam also raised in his email the issue of the return of the missing files by Cheung and Chiu.  They continued to ignore the further updated Action List from Cheung and Chiu on 4 February 2019.

50.  On 4 February 2019, the landlord commenced action against the partners for rent in arrears, possession of the Office Premises and mesne profits (HCA 194/2019).  Cheung forwarded a copy of the writ to Lam and Lee.

51.  On 12 February 2019, Cheung and Chiu, through their then solicitors, sent a formal written demand to the solicitors acting for Lam and Lee.  Apart from stating their stance and the pressing need of Lam and Lee to cooperate in resolving the outstanding matters mentioned above, they proposed various steps in terms similar to the injunctive relief eventually sought in the present action, essentially to:

(1)  restrain Lam and Lee from:

(a)  hindering or obstructing the relocation of the case files, records, computers and furniture from the Office Premises to the specified warehouse on or before the Cessation Date;

(b)  hindering or obstructing the retrieval by employees/former employees of the Firm of their personal belongings from the Office Premises on or before the Cessation Date;

(c)  occupying the Office Premises after the Cessation Date;

(d)  holding themselves out as practising under the name of the Firm after the Cessation Date; and

(2)  compelling Lam and Lee to provide to Cheung and Chiu the accounting and human resources records on or before the eve of the cessation of practice.

52.  By the above formal demand, Cheung and Chiu also requested Lam and Lee, if they disagree, to propose reasonable alternative for vacating the Office Premises by the Cessation Date, and storage of the partnership assets pending the partners’ agreement or the final disposal of HCA 2413/2018 and HCA 2928/2018. In the event that Lam and Lee refused to co-operate to wind up and cease the practice of the Firm by the Cessation Date, appropriate action would be taken.

53.  On the same day, Cheung and Chiu provided their list of case files and their account of the clients’ money, and reminded Lam and Lee that the clients’ money had to be transferred to the Cessation Agents on the Cessation Date.

54.  On the eve of the Cessation Date, the Cessation Agents sent to the partners a letter reiterating their duties and thus expectation in respect of the progress of the handling of the case files and clients’ monies.  They set out their expectation that the following matters should be done at the close of business of that day or in the morning of the following day, ie, the Cessation Date:

(1)  The partners would provide to their respective agents their lists (hard and soft copy) of the case files (completed, not yet completed and closed) and the location of the box containing each file.

(2)  The partners would confirm that arrangement has been made with the storage companies that the Cessation Agents would have the right to call for the files of their respective appointing camps.  The Cessation Agents would not want to attend the Office Premises to search for the case files and would have no need to use the Office Premises.

(3)  The partners would make out their cheques to their respective agents for the amount of the clients’ monies attributable to the case files under their respective care, together with the relevant client audit list for such files.

(4)  To facilitate the Cessation Agents to verify the money transferred to them would tally with the clients’ monies on account of the individual case files in the Firm’s report to the Law Society within 7 days from the Cessation Date, and to provide the final accountant’s report to the Law Society within 6 months, the partners were required to: (i) continue to maintain the accounting system of the Firm and to pay for its maintenance; (ii) allow the Cessation Agents to have access to historical data of the Firm as at 14 February 2019; and (iii) provide printouts of various accounting records, bank account statements and miscellaneous documents.

55.  On the same day, Cheung and Chiu provided their updated case file list and account of the clients’ monies attributable to the case files under the care of the two camps respectively according to the Firm’s electronic accounting system. They invited Lam and Lee for comment, before transfer of the money to the Cessation Agents on the Cessation Date.  To prepare for the transfer, Cheung and Chiu also prepared and provided their draft authorization to the bank to Lam and Lee for comment.

56.  Later on the same day, Lam and Lee emailed to Cheung and Chiu stating that it would be unrealistic to proceed with the transfer without doing proper bank reconciliation. No proposal was put forward, notwithstanding that cessation of practice of the Firm would fall on the following day.

57.  On the Cessation Date, Cheung and Chiu requested Lam and Lee to provide the documents for preparing bank reconciliation statement, whilst complaining that the reconciliation should have been done by the accounting staff engaged by Lam and Lee.  At the same time, they also requested Lam and Lee to (i) comment on the other outstanding matters such as the draft authorization to the bank; (ii) consider relocating the hard copies of the all the accounting records of the Firm to storage at the specified warehouse under the joint names of the partners, with the Cessation Agents having the right to access to them; (iii) consider authorizing the provider of the electronic accounting system to provide the Cessation Agents with access to the system; (iv) consider giving joint instruction to the specified warehouses to enable the Cessation Agents to have access to the case files stored there.

58.  Cheung and Chiu also set out their last updated amount of clients’ monies attributable to the case files under the respective care of the two camps according to the accounting system as at the Cessation Date, namely HK$6,599,469.89 in respect of the files of Lam and Lee and HK$13,580,136.01 in respect of the files of Cheung and Chiu.  As it was discovered that the bank balance actually exceeded the Firm’s ledger balance, Cheung and Chiu proposed that the above balances would be transferred to the respective Cessation Agents while any remaining balances would be transferred to HM on trust for HM and HTP on 18 February 2019 pending adjustment.  Lam and Lee were requested to confirm by 16 February 2019 if they would agree or put forward any counter proposal.

59.  Meanwhile, Cheung and Chiu threatened to commence legal proceedings.  As it transpired, Lam and Lee did not respond to any of the above proposals from Cheung and Chiu made on the Cessation Date.

Commencement of the present action

60.  Cheung and Chiu eventually commenced the present action on 19 February 2019.  The relief claimed were effectively a combination of the terms of their formal demand dated 2 February 2019 and their proposals made on the Cessation Date.

61.  By summons taken out on the same day, Cheung and Chiu applied for interlocutory injunction.  Except for an injunction restraining Lam and Lee from holding themselves out as practising under the name of the Firm, which did not feature in the relief claimed in the statement of claim, the interlocutory injunction sought was essentially in terms of the relief claimed in the action, namely:

(1)  an injunction restraining Lam and Lee from doing or continuing to do any acts preventing, obstructing, hindering or interfering with:

(a)  the retrieval by the former employees of their personal belongings from the Office Premises;

(b)  the relocation of assets of the Firm to the warehouses;

(c)  the storage of assets of the Firm at the warehouses pending the agreement of the partners or the final disposal of HCA 2413/2019 and HCA 2928/2018;

(d)  the delivery of vacant possession of the Office Premises with fixtures to the landlord;

(2)  an order that upon the relocation and storage of the case files, the Cessation Agents be allowed to inspect the case files upon giving prior notice;

(3)  an order that Lam and Lee forthwith take steps and execute documents that may be necessary to procure the transfer of the balances of the clients’ accounts mentioned above to the Cessation Agents;

(4)  an order that Lam and Lee forthwith provide the accounting and human resources records to Cheung and Chiu as well as the Cessation Agents;

(5)  an order authorizing Cheung and Chiu to negotiate with the landlord for early termination of the tenancy of the Office Premises on behalf of the partners.

Offer of undertakings by Lam and Lee on 20 February 2019

62.  Lam and Lee responded to the claim through their solicitors on 20 February 2019.  After stating their stance, they offered the undertakings in disposal of the summons for interlocutory injunction as mentioned earlier in this decision.  The undertakings differed from what Cheung and Chiu sought in the following terms:

(1)  The former employees may only retrieve their personal belongings upon prior appointment and under supervision as well as subject to verification of the property retrieved by Lam and Lee or their representatives.

(2)  Vacant possession of the Office Premises would be delivered in a bare-shell condition to the landlord on 28 February 2019.

(3)  Whilst they agree to the transfer of the balances of the clients’ accounts to the Cessation Agents as proposed, Lam and Lee did not confirm the amounts mentioned above.

(4)  Instead of providing the accounting and human resources records of the Firm, Lam and Lee proposed to allow Cheung and Chiu as well as the Cessation Agents to inspect such records upon prior notice to them.

(5)  They disagreed that Cheung and Chiu should have authority to negotiate with the landlord on behalf of all the partners.

(6)  They saw no basis for suggesting that they had intention to hold themselves out as practising under the name of the Firm in the future, and therefore disagreed with the injunction sought in that respect.

Undertakings at the hearing on 22 February 2019

63.  At the hearing on 22 February 2019, Lam and Lee gave their undertakings:

(1)  not to prevent, obstruct or hinder: -

(a)  the retrieval by employees and former employees of their personal belongings from the Office Premises during office hours on 25 and 26 February 2019 provided the parties or their representatives may verify that the property retrieved does not contain those of the partnership; and any disputed items would be treated as partnership assets for relocation provided under (b) below;

(b)  the relocation of the partnership assets, including the accounting and human resources records as well as the computer records in the LIBRA system from 2010 onwards, furniture, computers and the case files from the Office Premises to the specified warehouses;

(c)  the storage and retrieval of the partnership assets and the case files pending the agreement of the parties and/or the final disposal of HCA 2413/2018 and HCA 2928/2018;

(d)  the delivery of vacant possession of the Office Premises with fixtures (in accordance with the tenancy agreement) to the landlord on 28 February 2019 in accordance with the offer of the landlord dated 21 February 2019, and Lam and Lee further undertake to sign a consent summons or any other document as may be reasonably necessary for effecting a full and final settlement of the landlord’s action in HCA 194/2019;

(2)  to allow the respective cessation agents to inspect, access to and deal with the case files (in terms of their joint letter dated 14 February 2019) upon prior notice to the parties, after the case files have been relocated to the warehouses as aforesaid;

(3)  to forthwith take all steps and to execute all documents necessary to procure the transfer of the funds in the clients’ accounts of the Firm mentioned above to the cessation agents respectively in the manner set out in the order;

(4)  to allow the cessation agents and/or Cheung and Chiu to inspect and make copies of the accounting and human resources records and the LIBRA records upon giving prior notice to the parties for the preparation of the final accounts of the Firm by an accounting firm.

64.  The consideration of the respective responsibility of the two camp of the partners in not being able to prevent the present action and the summons and/or the hearing of the summons would very much turn on the above differences between them.

The Cessation Date

65.  Lam and Lee suggested that the present action and the summons were premature and unnecessary.  It was submitted on their behalf that the Cessation Notice signified the agreed date for cessation of practice of the Firm and nothing more, let alone dissolution of the partnership.  It was also submitted that the practice had to be wound up orderly and properly.

66.  Dissolution of partnership is governed by the common law rules as modified by the Partnership Ordinance, Cap 38, while cessation of practice is a state of affairs dictated by the solicitors’ practice rules and the prescribed requirements of the Law Society.  Nothing in principle prevents the cessation of practice of the Firm to fall at the same time when the partnership is dissolved.  However, the two may not coincide in reality, though it is unlikely to be acceptable that the partnership is dissolved whilst the legal practice that exists in the form of such partnership somehow is yet to cease.

67.  That said, when the partners came to agree on the Cessation Date and filed the Cessation Notice, the requirements prescribed by the Law Society mandated what the partners must do towards the end of ceasing practice on that date.  The Cessation Agents indeed set out the steps that the partners of the Firm were expected to take towards such end.  Whether or not the partnership must be dissolved on the Cessation Date, what was expected to happen on the Cessation Date was not merely the Firm ceasing practice but also the discharge of the incidental obligations of the partners on that date.  There was no question of unreasonably rushing to a result in the circumstances, as and when the partners agreed on the Cessation Date in such circumstances known to them.

Transfer of the balances in the client’s accounts

68.  The requirements and directions of the Law Society were clear.  So were the actions expected by the Cessation Agents in this respect.  All the case files not taken over by other solicitors’ firms or closed were expected to be put in storage, and case file lists and the balances in the clients’ accounts attributable to the case files under the care of the respective camps of the partners were expected to be transferred to their respective Cessation Agents on the Cessation Date.  The Cessation Agents expected to assume their duties in handling those files and clients’ monies from that date.

69.  As mentioned, the bank accounts of the Firm would have to be re-activated after the steps previously taken by Cheung and Chiu with a view to ceasing practice by mid-December 2018. Accounting staff would also have to be employed after most of the staff had left the Firm.  These were the circumstances prevailing at the time when the Cessation Notice was filed.  Nonetheless, it remains the fact that the partners chose to agree on the Cessation Date in these circumstances and thus the discharge of their obligations incidental to cessation of practice on that date.

70.  In their letter to HM after their meeting on 20 December 2018, HTP indeed pointed out the available time for the partners to discharge their obligations, in view of the intervening Chinese new year holiday.  The partners are not expected to have neglected that, when fixing the Cessation Date.  Albeit understandable, the possible practical difficulty in terms of time and steps to be taken that the partners might be faced with in the circumstances could not really excuse the failure to discharge such obligations by the Cessation Date of their choice.

71.  Objectively, it was not that this could not be done.  The consensus reached during the meeting on 20 December 2018 in respect of the re-activation of the bank accounts of the Firm with alteration of the bank mandates, in view of the split of the partners, were set out in the letter of HTP dated 21 December 2018. So was the proposed employment or re-employment of accounting staff.  Whilst Lam and Lee did engage their accounting staff, they, according to Cheung and Chiu and as apparent from the subsequent correspondence, became not agreeable in respect of the change of bank mandate.

72.  The above account of the lack of response or constructive counter proposal from Lam and Lee to the Action List prepared by Cheung and Chiu from time to time refers.  As mentioned, the Cessation Agents reiterated on the eve of the Cessation Date their expectation in respect of the transfer of the clients’ monies.  Yet it was only on the same day that Lam and Lee for the first time sounded out their view that it was unrealistic to proceed with the transfer of the balance in the clients’ accounts without doing bank reconciliation.  Cheung and Chiu responded by asking Lam and Lee to provide the documents necessary for the reconciliation, but not without criticism.

73.  Again, the objective difficulty arising out of the circumstances prevailing at the time of the Cessation Notice, including the partners’ dispute in respect of the accounts, per se would not excuse the discharge of their obligations incidental to ceasing practice on the Cessation Date of their choice.  Transferring the balances of the clients’ accounts to the Cessation Agents must be among the most important of such obligations.

74.  By the Cessation Date, Cheung and Chiu relied on the balances of the clients’ accounts in respect of the case files under the respective care of the two camps as the Firm’s Libra accounting system suggested.  Cheung and Chiu acknowledged the need for reconciliation, as the bank balance does not align with the ledger balance.  In view of that, they proposed to transfer the balances to the respective Cessation Agents while any remaining balances would be transferred to the agent of Lam and Lee on trust for both Cessation Agents on 18 February 2019 pending final adjustment.  Lam and Lee did not respond to the proposal.

75.  Lam and Lee offered their undertaking in respect of the transfer of the balances in the clients’ accounts to the Cessation Agents in line with the above proposal of Cheung and Chiu after the commencement of the present action and their taking out of the summons.  However, Lam and Lee did not accept the accuracy of the figures, and such stance was reflected by the lack of reference to those figures in their undertaking.  They eventually did but only at the hearing on 22 February 2019.

76.  Notwithstanding the dispute in respect of the accounts and the practical difficulty in the accounting task, the partners were expected to transfer the balances of the clients’ accounts to the Cessation Agents on the Cessation Date, and the Firm must issue confirmation of the same to the Law Society, countersigned by the Cessation Agents, within 7 days of that date.  Reconciliation statement, if necessary, could be delivered to the Law Society within 6 months from the Cessation Date.  These were all known to the partners when signing the Cessation Notice.  Upon that, the Law Society also directed that the final accountant’s report of the Firm should be delivered in 6 months from the Cessation Date.  The circumstances were not such that Lam and Lee could reasonably insist on reconciliation prior to any transfer.  Nor were they shown to have been reasonably proactive or responsive to the proposed steps by Cheung and Chiu towards discharging such obligation incidental to ceasing practice on that date prior to the commencement of the present action.

Relocation and storage of assets of the Firm

77.  The assets of the Firm included the case files, accounting records, as well as furniture and equipment.

78.  Apart from the requirements prescribed by the Law Society in respect of the handling and storage of case files, the Cessation Agents, as mentioned above, had since their joint meeting on 20 December 2018 also set out the actions that the partners should take in respect of the case files on or before the Cessation Date.  This was reiterated by the joint letter of the Cessation Agents on 1 February 2019, whereby the partners were reminded that all the case files that had not been taken over by other solicitors’ firms would have to be passed to the Cessation Agents for handling on the Cessation Date.  Associated with that was the transfer of balance of the clients’ accounts to the Cessation Agents on that date discussed in the preceding section.  This was last repeated by the joint letter of the Cessation Agents on the eve of the Cessation Date.

79.  As mentioned, Cheung and Chiu have been attempting to drive the partners to prepare for the cessation of practice essentially in line with those actions proposed, beginning with the Action List.  Whilst Lam and Lee seemed to acknowledge in the joint meeting on 30 January 2019 their obligation to provide the case list to his Cessation Agent, they had not been heard to be constructive about the proposed relocation and storage of the case files even after the formal demand of Cheung and Chiu on 12 February 2019 or the Cessation Date.  Their offer of undertaking in this respect came only after the commencement of the present action.

80.  How the furniture and other assets of the Firm should be handled or disposed of was entirely a matter to be decided amongst the partners.  Whilst they always intended to tie this in with the Cessation Date, Cheung and Chiu did not fail to acknowledge the need for the Firm to somehow operate during the time between the Cessation Notice and the Cessation Date.  Hence their original proposal in the joint meeting on 20 December 2018 to move to a smaller office premises for such purpose.  Since then, Cheung and Chiu have been including in the Action List the proposal to relocate from the Office Premises and to store at warehouse the furniture and assets of the Firm pending disposal.  As mentioned, Lam and Lee have not responded to that.

81.  In late January 2019, Cheung and Chiu were seen still proposing to relocate and store the furniture and asset of the Firm pending the partners’ agreement on their disposal.  Lam and Lee opposed that, and insisted that the office assets had to remain in the Office Premises for their preparing the accounts and case file list.  However, when Cheung and Chiu enquired at the end of January 2019 what furniture and office assets Lam and Lee required to keep until the Cessation Date for their purpose, no response was received.  That continued to be the case, notwithstanding the joint meeting on 30 January 2019.  In early February 2019, Lee stated his stance that all the furniture and items in the Firm had to remain intact, but somehow as a pretext for his demand for the return of the alleged missing files by Cheung and Chiu.

82.  On 12 February 2019, Cheung and Chiu made it one of their formal demands that Lam and Lee should stop hindering or obstructing the relocation of case files, records, computers and furniture from the Office Premises to specified warehouses on or before the Cessation Date.  Lam and Lee were invited to come up with reasonable alternative proposal in this respect.  Nothing constructive in this respect has been heard from Lam and Lee until after the commencement of the present action.

83.  The undertaking offered by Lam and Lee on 20 February 2019 in this respect was actually conditional.  Whilst they offered the undertaking not to hinder or obstruct the relocation and storage of the furniture and assets of the Firm, they were prepared to do so on condition that the accounting records would not be included but instead relocated to a temporary office premises with proper office equipment and facilities to enable their accounting staff to complete the accounting work for the dissolution.

84.  As can be seen, eventually the conditional undertaking given by Lam and Lee in this respect was replaced by an unconditional undertaking, and specifically the access to the accounting records to the partners and the Cessation Agents upon prior notice was ensured.  This however happened only at the hearing on 22 February 2019.

Retrieval by the former employees of their personal belongings

85.  Like the removal and storage of the furniture and assets of the Firm, other than case files, the issue of retrieval by the former employees of their personal belongings from the Firm does not necessarily have to tie in with the cessation of practice on the Cessation Date.

86.  The correspondence since the end of 2018 shows that Cheung and Chiu repeatedly complained that they and some employees of the Firm were denied entry to the Office Premises for the purpose of retrieving their personal belongings.  The repeated response of Lam and Lee was that (i) they were abandoned; and (ii) some of the items in the possession of Cheung, Chiu and some employees were not truly personal belongings but assets of the Firm.  Lam and Lee maintained such stance in their solicitors’ letter dated 20 February 2019.

87.  Lam and Lee sought to refer to the earlier notice of Cheung and Chiu to the staff of the Firm back in late 2018, whereby the staff was advised to remove their personal belongings by 13 December 2018, and anything left behind would be treated as abandoned and disposed of by the landlord of the Office Premises.

88.  In my view, it is unattractive for Lam and Lee to somehow hold Cheung and Chiu to such notice. First, that notice was issued on the basis that the practice of the Firm was first expected by Cheung and Chiu to cease on 14 December 2018, when the tenancy of the Office Premises would also be surrendered to the landlord. Secondly, the advice of Cheung and Chiu then appears to reflect primarily the stance of the landlord vis-à-vis the Firm instead of that of the Firm vis-à-vis its employees.  When it became clear that the tenancy was yet to come to an end after 14 December 2018, the response of Lam and Lee with reference to the purported effect of the earlier notice of Cheung and Chiu in this respect was more difficult than cooperative.  Even assuming that any staff for some reason requested to retrieve his or her personal belongings after any deadline posted, response such as that of Lam and Lee would have been unnecessary.

89.  There seems to be no dispute that Lam and Lee put in place contractors to guard the access to the Office Premises on the eve of the date of dissolution of the partnership pursuant to the Dissolution Notice.  That, Cheung and Chiu complained, was why the staff were prevented from retrieving their personal belongings by 14 December 2018, instead of the staff abandoning them.  Objectively, irrespective of whether Lam and Lee had cause for concern about the possible removal of the assets of the Firm disguised as personal belongings, the standstill situation could and should have been resolved by retrieval of the personal belongings upon appointment and under monitor.  Since January 2019, Cheung and Chiu have made proposals along that line.  Lam and Lee consistently rejected them until only after the commencement of the present action.

Early termination of the tenancy of the Office Premises

90.  As mentioned, soon after the service of the Dissolution Notice back in September 2018, Cheung and Chiu had proceeded to notify the landlord of the Office Premises of the cessation of practice and the surrender of the tenancy on 14 December 2018.  Whilst Cheung and Chiu took upon themselves to liaise with the landlord regarding the surrender, it transpired, and has since become no secret, that Cheung and Chiu planned to start their new practice with H Y Leung at the Office Premises immediately after the cessation of practice of the Firm.  The correspondence in November 2018 reveals that Cheung and Chiu might have reached some kind of terms with the landlord.  In their formal demand dated 12 February 2019, the solicitors for Cheung and Chiu also made no secret about such intention and plan on their part.

91.  With the commencement of HCA 2413/2018 and the ex parte injunction dated 13 December 2018 as well as the subsequent signing of the Cessation Notice, the practice of the Firm was not to cease until 15 February 2019.  The Cessation Notice also mandated what needed to be done by the Firm in compliance with the prescribed requirements and direction of the Law Society.  The reality was that the Firm still had to operate at least for such purpose during this period.

92.  However, the situation at the time was that (i) there was the ongoing argument in respect of the removal of the assets of the Firm and the staff’s personal belongings out of the Office Premises; (ii) pending (i) and otherwise agreement with the landlord, the obligations and liabilities of the partners under the tenancy agreement, including that to pay rent, would have to continue; and (iii) yet the Firm’s bankers had already been informed by Cheung and Chiu of the closure of all the bank accounts by mid-December 2018, which gave rise to the practical difficulty in arranging rental payment.  The letter from HTP on 21 December 2018 after the first joint meeting mentioned above recorded that rent had been let into arrears for 3 months by then.

93.  In the circumstances, after the signing of the Cessation Notice, Cheung and Chiu proposed towards the end of December 2018 that a smaller office should be rented for the limited operation of the Firm and to reduce expenses.  They also proposed either to change the bank mandate or to jointly contribute funds to facilitate the discharge of liabilities, including rental payment.

94.  As mentioned, Lam and Lee rejected the proposal to relocate to a smaller office premises.  Since then and throughout January 2019, Cheung and Chiu were seen putting forward in the Action List proposals with a view to surrendering tenancy on the Cessation Date, and for such purpose, proposals and timetable in respect of relocating of assets of the Firm to storage pending agreement in respect of their disposal as well as re-activation of the Firm’s bank accounts and change of bank mandate. On 21 January 2019, Cheung and Chiu reiterated that it would be in the interest of all partners to vacate from the Office Premises on the Cessation Date.  Seeing no response or counter proposal from Lam and Lee so far, Cheung indicated that he would negotiate with the landlord for early termination of the tenancy without compensation.

95.  Whilst Lam and Lee apparently expressed no objection to Cheung and Chiu liaising with the landlord for continuing to pay rent, the fact remained that the Firm’s bank accounts were then yet to be re-activated.  Lam and Lee also opposed any removal of office furniture or assets from the Office Premises, claiming that those had to stay for their preparing the account and case file list.  As mentioned, Lam and Lee did not respond to the further enquiry by Lam and Lee as to what furniture and office asset that Lam and Lee intended to keep at the Office Premises up to 14 February 2019 for their purpose of preparing the accounts and case file list.  Nor did they respond to the Action List in respect of the surrender of the tenancy.  In early February 2019, Lam made it clear that all furniture and items in the Office Premises had to remain intact.

96.  Dragging on the dispute between the two camps in respect of the tenancy matter, the partners were eventually faced with the action by the landlord for arrears of rent, possession and mesne profit (HCA 194/2019) commenced on 4 February 2019.

97.  For the purpose of proper dissolution of the partnership, it must in principle be in the interest of the partners to see that the tenancy of Office Premises could be surrendered by agreement with the landlord with minimal resultant liabilities.  That would be so, irrespective of the plan of Cheung and Chiu to start their own practice at the Office Premises immediately upon cessation of the practice of the Firm. In principle, there may be the concern about conflict of interest on the part of Cheung and Chiu to negotiate with the landlord in their capacity as both the outgoing tenant and incoming tenant.  However, such conflict could have been resolved by proper disclosure.  In reality, that the Office Premises would be taken up with no gap could be an advantage to the landlord, which could in turn be translated into an advantage to the partners when negotiating for an early surrender.  Eventually that was indeed the terms on which the partners would proceed with the surrender of the tenancy to the landlord.

98.  Lam and Lee indicated their willingness to vacate from the Office Premises and to surrender the tenancy only after the commencement of action.  Even then, they requested for the relocation to a smaller office premises, an idea which they used to reject.  The purpose, according to Lam and Lee, was to complete their accounting work.  However, the partners were supposed to have stored all the case files and provided their case file lists to the Cessation Agents on the Cessation Date.  At the same time, all the balances of the clients’ accounts under those files were supposed to have been transferred to the Cessation Agents.  The Cessation Agents made clear that they did not intend to attend the Office Premises for access to the files, nor would they require to use the Office Premises in their work.  The remaining work that was supposed to be done would be reconciliation and non-client related accounting work, if any.  Even assuming that such work entailed the need for office space for proper working, that ought not to have been contemplated as a ground for resisting the joint effort of the partners to seek to terminate their obligations and liabilities in connection with the tenancy of the Office Premises by the Cessation Date, as far as it was practicable.

99.  It was argued on behalf of Lam and Lee that they should not criticized for being not responsive or un-cooperative in respect of the surrender of the tenancy of the Office Premises.  In particular, they referred to the revision of offer by the landlord only on 21 February 2019, which they readily agreed to at the hearing on the following day.  In my view, one must view the whole picture inclusive also of the stance taken by Lam and Lee as mentioned above in respect of the assets of the Firm and the personal belongings of the ex-staff at the Firm.  Immediately prior to the commencement of HCA 194/2019 by the landlord, the stance of Lam and Lee was that such asset had to remain intact in the Office Premises.  After the landlord has sued, Cheung and Chiu, through solicitors, made their formal demand that Lam and Lee refrained from hindering and obstructing the delivery of vacant possession of the Office Premises to the landlord on the Cessation Date, and that either of Cheung and Chiu be authorized to negotiate with the landlord for surrender of the tenancy.  The present action was commenced for, amongst others, relief in connection with the Office Premises similar in terms to those proposed by the formal demand.  Indeed, Cheung and Chiu also sought to restrain Lam and Lee from preventing the delivery of vacant possession with fixtures.  However, the actual terms of the surrender of tenancy were always to be negotiated even up to that stage.  Hence also the order sought to authorize them to negotiate with the landlord.

100.  There was no reason why an offer of undertaking in terms as proposed by Cheung and Chiu above could not have been given, even assuming that they were ever to intend that any negotiation with the landlord for the terms of surrender had to be conducted by consent of all the partners.  The offer of undertaking in this respect first came from Lam and Lee only after the commencement of the present action.  It was their offer of undertaking that sought to accede to the terms of the offer of the landlord dated 15 February 2019, which proposed delivery of vacant possession in bare shell condition.  Their explanation that the partners could not agree to delivery of vacant possession with fixtures because that differed from the landlord’s offer is difficult to understand, when, as mentioned, the terms of the surrender were then to be negotiated.  From the practical perspective, it is also difficult to see how it would be more beneficial to the partners to deliver vacant possession in bare shell condition, which would entail re-instatement, than with fixtures.  As mentioned, the concern about benefiting Cheung and Chiu, who might want to start their own practice at the Office Premises immediately after the surrender of the Firm’s tenancy, should have been addressed by negotiation amongst the partners as to the terms for the effective takeover of the fixtures.  Whether or not it was because of the further negotiation between Cheung and Chiu with the landlord, the landlord revised its offer to agree to delivery of vacant possession with fixtures just before the hearing on 22 February 2019.

101.  Considering the entire picture, I am not impressed that attributing to the apparently late revision of the landlord’s offer really helps demonstrating the alleged reasonableness of Lam and Lee in this respect.

Accounting and human resources records

102.  Cheung and Chiu has since the end of December 2018 complained about the removal of accounting records of the Firm by Lam and Lee.  On the other hand, Lam and Lee have been adamant about their right to check the accounts particularly in view of the alleged misconduct of Cheung in respect of the Firm’s funds.  On the face, they had no objection to joint inspection of those documents.

103.  By their formal demand dated 12 February 2019, the solicitors for Cheung set out the accounting and human resources records that have been withheld by Lam and Lee, and explained how each of them would be necessary for the preparation of specific final accounts and returns incidental to the cessation of practice on the Cessation Date.  He demanded such records to be provided by the eve of the cessation of practice.  It should be noted that the Cessation Agents equally reiterated, amongst other things, that they expected to have access to the historical data of the Firm as at the eve of cessation and copies of the printouts of the various accounting records, bank statements and miscellaneous documents.

104.  In the present action, Cheung and Chiu sought an order compelling Lam and Lee to provide those documents to them as well as the Cessation Agents.  The undertaking that Lam and Lee offered after that remained that the records could be inspected by Cheung and Chiu as well as the Cessation Agents upon prior notice.  In other words, they maintained that they would hold onto those documents.  It was only at the end of the hearing on 22 February 2019 that Lam and Lee finally agreed to the relocation of those documents, together with the other assets of the Firm, to storage while inspection and copying of those documents by the partners and the Cessation Agents could be arranged upon prior notice.  It should be noted that by the terms of their undertaking, Lam and Lee now acknowledged that those documents would be necessary for the preparation of the final accounts of the Firm, which Cheung and Chiu as well as the Cessation Agents had indicated earlier.

Holding out as practicing under the name of the Firm

105.  Whilst this was at one point indicated, there was no evidence to found any real concern that somehow Lam and Lee somehow intended to hold themselves out as practising under the name of the Firm, ie, implicating Cheung or Chiu.  As mentioned, no order was sought in the pleading but in the summons for interlocutory injunction.  However, this eventually did not form part of the undertakings extracted from Lam and Lee, as, according to counsel for Cheung and Chiu at the present hearing, this was not pursued.

Conclusion

106.  Both sides cited authorities in support.  I also bear in mind the relevant circumstances under O62, r5 of the Rules of the High Court.  Each case turns on its own facts when it comes to the exercise of discretion as to costs.    Suffice it to say that all the circumstances must be taken into account, which I did (including those specifically discussed above).  The consideration of the respective responsibility of the two camp of the partners in not being able to prevent the present action and the summons and/or the hearing of the summons turns on the above differences between them.  All considered, I prefer the argument on behalf of Cheung and Chiu to that of Lam and Lee that it was reasonable for the former camp to commence the present action and to take out the summons, which could have been prevented had Lam and Lee acted more proactively and reasonably in response to the need for joint effort of the partners to resolve the differences arising out of the cessation of practice on their chosen date.

107.  I do not agree that it would be fair in the circumstances to make no order as to costs between the two camps, as proposed on behalf of Lam and Lee.  I therefore order that Cheung and Chiu shall have the costs of this action including the summons and the hearing of the summons.  I do not lose sight of the once contention of Cheung and Chiu in respect of the alleged holding out of practice of Lam and Lee in the name of the Firm beyond the Cessation Date.  Only that the materials do not suggest that that was ever a substantial contention in the action or the hearing of the summons.  I therefore refrain from ordering any deduction of costs on such account.

108.  In view of the above result, I see no reason why the costs of the hearing as to costs before this court ought not to follow the above costs order.  I so order in this respect.

109.  Costs shall be taxed, if not agreed, with certificate for two counsel.