Yau Chung Wo Jeremiah v. The Law Society of Hong Kong

HCMP425/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 425 of 1999

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J U D G M E N T

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1. This is an appeal by the appellant against the refusal by the respondent ("the Society") to issue a practising certificate to him.

The statutory provisions

2. Under the statutory scheme for the regulation of solicitors, the Society is vested with the power to issue practising certificates. They are usually issued for a period for one calendar year from 1 January. Sec 6 of the Legal Practitioners Ordinance, Cap.159 ("the Ordinance"). To qualify to practise, a solicitor must hold a current certificate. Sec 7(c). The Society may refuse to issue a practising certificate on such grounds as may be prescribed by the Chief Justice. Sec 6(5)(a). The grounds as so prescribed in the Practising Certificate (Solicitors)(Grounds for Refusal) Rules ("the Rules") are as follows :

"(a) the applicant has failed or refused to give to the Society a satisfactory explanation of any conduct which is, in the opinion of the Society, unbecoming of a solicitor;

(b) the applicant is, by reason of his financial position, mental capacity or otherwise, unfit to practise as a solicitor."

Rule 2. In this case, the Society refused on the ground of financial position in (b). Before refusing, the Society has to give notice to the applicant that consideration is being given to such refusal and inviting him to make representations within 14 days. Rule 3. If it refuses, it shall state its reasons in writing to the applicant. Rule 4.

3. Against any refusal, the solicitor may appeal against the decision to the Chief Justice who may affirm the decision or direct the Society to issue the certificate free from or subject to conditions. Secs 6(9) and 6(11).

The facts

4. The appellant was admitted as a solicitor in March 1991. In November 1996 he became a partner of Steven Wong Kam Shan ("Wong") in the firm of Steven Wong, Yau & Co. A few days before 24 February 1998, Wong disappeared, allegedly taking clients' monies. On that day, the Council of the Society ("the Council") appointed an accountant under sec 8AA of the Ordinance to inspect the firm's files and ledger cards for the last six months and to ascertain any deficiency in the client account in breach of the Solicitors' Accounts Rules.

5. On 3 March, the Council considered whether to intervene in the firm and decided to defer the matter to 6 March to enable discussion to take place between its inspecting accountant and the firm's auditors.

6. At a special meeting on 6 March, the Council decided to intervene in the firm in the exercise of its powers under sec 26A and Schedule 2 of the Ordinance on the grounds that it had reason to suspect dishonesty on the part of Wong and was satisfied that both he and the appellant had failed to comply with the Solicitors' Accounts Rules. When making this decision, the Council was advised that the appellant had been aware of the deficiency on client account since October/November 1997, that he had put up $5 million of his own money to cover losses caused by Wong and that there was little likelihood of the appellant being able to pay any more monies towards the deficiency. At a meeting which must have taken place prior to the Council meeting, the appellant had informed Robert Harrod, the Society's Director of Compliance, that he had put up the $5 million and "there was little likelihood of him being able to pay any more monies towards the deficiency." The Council appointed a solicitor to conduct the intervention and resolved that the firm's client account should be vested in the Council. By letter of 6 March, the Council informed the appellant of its decision to intervene with a certified copy of the resolution, prohibited him from making any payment of any money held in connection with the practice and ordered him to produce the firm's documents.

7. On 12 May 1998, the Council was advised that preliminary investigation by the inspecting accountant showed a deficiency of approximately $20 million on the client account and that investigations were continuing.

8. From March to July 1998, the Society, alerted by the list of writs published in the media, wrote to the appellant concerning five High Court actions which had been commenced against him.

9. One of these actions was High Court action No.8060 of 1998 instituted by Yelsen International Holdings Limited claiming the sum of $1,416,700 from the appellant under a guarantee ("the Yelsen action"). On 21 May 1998, the Society asked the appellant to confirm that he is the defendant in this action. On 24 June 1998, the appellant replied that he had not received the writ and could not supply any information. Eventually on 11 December 1998, the appellant informed the Society that although he had not received any documents, default judgment had been entered; however, his application to set aside will be heard on 5 February 1999 and that his counsel is confident that such application would succeed as there was impropriety in the manner of service and impropriety on the part of the plaintiff in handling the loan documents which were not in compliance with the Money Lenders' Ordinance.

10. On 4 June 1998, the Society sent to the appellant the interim bill of the solicitor appointed to conduct the intervention amounting to $793,383 and demanded payment within 7 days under Schedule 2 para 10 of the Ordinance.

11. Applications for practising certificates for the ensuing year are made in November. Sec 6(1). In early November 1998, the Society sent out the forms for application. On 10 November, at the suggestion of the Director of Compliance, the Council considered a number of solicitors whose application, if made, might be problematic. In the case of the appellant, the Director of Compliance referred to him being the subject matter of disciplinary proceedings in respect of matters revealed by the investigations into the circumstances surrounding the intervention and his failure to pay the intervention costs. The Council resolved that if he applied, he should be advised that the Council was minded to refuse to grant his application on the ground that by reason of his financial position, he was unfit to practise.

12. On 30 November 1998, the appellant applied for a practising certificate which would be for 1999.

13. By letter dated 7 December 1998, the Society gave notice to the respondent that consideration was being given to refusing to issue him with a practising certificate on the ground set out in rule 2(b) of the Rules. The letter continued :

" ... The reasons for the refusal would be by virtue of your financial position. Specifically, you were, by a letter dated 4 June 1998, requested to discharge the costs of the intervention into the firm of Steven Wong, Yau & Co., including accountant's fees, of a sum in excess of HK$1.1 million and have failed to do so. Further, it is understood that you may be the defendant in High Court action No.8060 in respect of a claim in excess of HK$1.4 million."

The appellant was invited to make representations within 14 days. It should be noted that there is a discrepancy between the figure of over $1.1 million in this letter and the sum of $793,383 the appellant had earlier been asked to pay. The reason was that certain fees incurred in the intervention had not been taken into account in the earlier figure.

14. In response, the appellant made written representations in a letter dated 18 December ("the appellant's representations"). As regards the High Court action, that is, the Yelsen action, he repeated that his application to set aside the default judgment would be heard on 5 February 1999 and that his counsel is confident that there is good merit in defending the action. As regards the intervention costs, he maintained that he should not be liable for the whole sum and that the sum should be apportioned as between Wong and himself to reflect the causes leading to the intervention and the amount of work in the intervention relating to their respective practices. He also complained in effect that the Society was acting unfairly in forcing him to pay the intervention costs.

15. On 22 December 1998, the Council considered the appellant's written representations and a report by the Director of Compliance. That report set out the events but only as from 10 November. After discussion, the Council resolved not to issue a practising certificate to him "by reason of his financial position which rendered him unfit to practise as a solicitor". The appellant was so informed by letter dated 22 December.

16. It is against this decision that the appellant is appealing. I shall refer to it as "the decision".

The appeal

17. This is not a judicial review challenge and the criteria for such a challenge are not appropriate. The appellant is exercising a statutory right of appeal. On his appeal, the question is whether the Society erred in its decision.

18. In Re Alexander Adamovich, a solicitor [1983] HKLR 270, the applicant exercised a statutory right of appeal to the Chief Justice against a decision of the Council not to exempt him from the requirement of practising for two years as an employee before he could practise on his own account or in partnership as it considered that he had not acquired substantial experience in the law in Hong Kong or the United Kingdom over a considerable period of time. In the absence of the Chief Justice, Sir Alan Huggins VP dealt with the appeal and rejected it. The test he applied was that he should interfere with the Council's decision only if persuaded that it was one which could not reasonably be reached on the evidence (see p.273J - 274A). If he were applying the judicial review test of irrationality, that would, in my view, be an incorrect test on a statutory right of appeal. But if he meant only that on appeal, the Chief Justice should accord proper weight to the decision of the regulatory body, that would be unexceptional and appropriate.

19. The Council exercises the statutory powers vested in the Society. The statutory ground for refusal in question was that the appellant was, by reason of his financial position, unfit to practise as a solicitor. On this appeal, I shall first consider what the Council in fact assessed his financial position to be and whether the Council erred in this regard. I shall then consider whether the Council erred in deciding that he was unfit to practise as a solicitor by reason of his financial position.

Council's assessment of his financial position

20. Mr Joseph Fok SC, for the Society, submits that when making the decision, the Council assessed the appellant's financial position to be as follows. He had substantial liabilities and he was not in a position to satisfy them. Indeed, he had put in $5 million to cover the firm's deficiency and he was unlikely to be able to put up any more. The substantial liabilities he faced were : (1) The substantial deficiency in client account for which the appellant as a partner is jointly and severally liable. At that stage, it was considered to be well over $10 million. (2) The intervention costs of $1.1 million for which he is liable under Schedule 2 para.10 of the Ordinance. (3) The default judgment for $1,416,700 in the Yelsen action although the Council would have borne in mind that he was applying to set this aside and that his counsel was confident of success in this application and in his defence. As regards the other High Court actions against the appellant, Mr Fok submits that in so far as they represented claims for the liabilities in (1), those liabilities were taken into account under (1). But he accepts that those actions were not otherwise taken into account. He contends that the affidavit evidence established that the Council assessed his financial position to be as submitted. Further, he argues that such assessment was a proper one.

21. For completeness, I note in relation to (1) above, that the latest position, as set out in the letter dated 3 June 1999 from the solicitor appointed to conduct the intervention, is that quantified claims amount to $4 million but that there are also general claims. Further, I note in relation to (3) above, that eventually by May 1999 the appellant had fully satisfied the judgment and costs.

22. Mr Lawrence Lau for the appellant challenges Mr Fok's submission, with the following arguments. (1) First, the affidavit evidence did not establish that the Council took into account the substantial liabilities on client account. (2) Secondly, it was not proper for the Council to take into account the intervention costs. The Council has a financial interest as creditor and this rendered the decision unlawful. In any event, the appellant should not be liable for the entire intervention costs but only for part thereof appropriately apportioned. (3) Thirdly, the Council had to be satisfied that the appellant was unable to discharge his liabilities.

23. As to argument (1), in his affidavit filed for this appeal, Mr Anthony Chow, the Society's President, set out the history of the matter starting from February 1998 when the Council was first concerned with the firm following Wong's disappearance and deposed that the Council was aware of there being a substantial deficit on client account when it made the decision. His affidavit provided direct evidence that in making the decision, the Council took into account the substantial liabilities on client account. Mr Lau submits that this evidence should not be accepted as there was no reference to such liabilities in the contemporaneous documents, namely the report of the Director of Compliance placed before the Council, and the minute of the decision. But that report only set out events as from 10 November 1998 and was to bring the Council up to date. And the Council's minute of the decision must be considered in the context of previous events. Having regard to the history and the previous documents, including minutes of the Council from February 1998, I find that the Council must have had in mind, as Mr Chow deposed, the substantial liabilities on client account. This was the very problem which had led the Council to be concerned with the firm in the first instance, to appoint an inspecting accountant and then to intervene.

24. As to argument (2), Schedule 2 para.10 provides :

"10. Subject to any order for the payment of costs that may be made on an application to the Court under this Schedule, any costs incurred by the Council for the purposes of this Schedule, including, without prejudice to the generality of this section, the costs of any person exercising powers under this Schedule on behalf of the Council, shall be paid by the solicitor .... and shall be recoverable from him .... as a debt owing to the Council."

25. As the appellant was informed at the time, the Council intervened on the grounds that it had reason to suspect dishonesty on the part of Wong and was satisfied that both he and the appellant had failed to comply with the Solicitors' Accounts Rules. And the intervention was into the practice of the firm. In these circumstances, the appellant is, in my view, a solicitor within this provision who is liable for the intervention costs. It is true that the Society, as a creditor, has a financial interest in their recovery. In view of this, the Council must, in my view, exercise caution when deciding whether to refuse to issue a practising certificate to the appellant. But in assessing his financial condition, his liability for the intervention costs was relevant and the Council was acting properly in taking it into account. It should be borne in mind that this liability did not arise out of a commercial relationship. The Society had intervened in discharge of its regulatory responsibilities vested in it under the statutory scheme.

26. As to argument (3), the appellant had not placed any materials before the Council to show that he would be able to satisfy his liabilities. Mr Lau complains that the Society's letter dated 7 December 1998 inviting representations did not ask for such materials. But this letter gave notice that the Council was considering refusal on the ground of his financial position and then specifically identified the intervention costs and the Yelsen action. The appellant must have been aware that his financial position was in issue but he placed no materials before the Council on his means. Indeed, he has placed no such materials before the court on this appeal. The Council was aware that the appellant had put up $5 million to cover the firm's deficiency on client account and had informed the Director of Compliance that there was little likelihood of his being able to put up any more monies. In these circumstances, the Council quite properly could not have been satisfied of his ability to satisfy his liabilities.

27. In the result, I find that the Council assessed the appellant's financial position to be that as submitted by Mr Fok SC and that such assessment was a proper one.

Unfit to practise

28. Having regard to the Council's assessment of his financial position, did the Council err in deciding that the appellant was, by reason of his financial position, unfit to practise as a solicitor and accordingly in refusing him a practising certificate?

29. The power to refuse to issue a practising certificate on the prescribed grounds would affect the livelihood of the person concerned. But having regard to the duties and responsibilities of a practising solicitor which are of a fiduciary nature and the trust and confidence which members of the public are entitled to repose in a practising solicitor, the statutory scheme vests this power in the Society as the regulatory body so that the interests of the members of the public could be protected.

30. The Council had properly assessed that the appellant had substantial liabilities and he was not in a position to satisfy them. Having regard to this, the Council, in my view, did not err in deciding to refuse him a practising certificate on the ground that by reason of his financial position, he was unfit to practise as a solicitor.

Observations

31. I must make two observations on the way the Society handled this application. First, the Society should set out fully its concerns regarding an applicant's financial position in the letter inviting representations. Although in the present case, the appellant must have been aware of its concerns, the letter of 7 December 1998 was less than satisfactory. Secondly, when refusing a certificate, the Society has a duty to state its reasons. Rule 4. The letter of 22 December 1998 informed the appellant of the Council's decision to refuse by reason of his financial position. Again, although its reasons were evident from previous events and correspondence, this letter as a statement of reasons was not satisfactory. In dealing with these matters, the Council must be conscious that the exercise of its regulatory powers would affect an applicant's livelihood.

Appeal to the Chief Justice

32. Under the relevant statutory provisions, appeals against the Society's decisions in relation to practising certificates are to the Chief Justice. As are appeals against its decisions whether to waive the two years employment requirement before a solicitor could practise on his own account or in partnership. The power to admit solicitors is vested in the Court of First Instance of the High Court. That being so, I believe that these appeals should be to the Chief Judge of the High Court instead of the Chief Justice. The relevant statutory provisions should, in my view, be amended accordingly. In relation to powers on appeal, it would be useful to add the power to remit the matter to the Society in addition to the present powers in sec 6(11) of affirming its decision or directing it to issue subject to or free from conditions.

33. At the same time, a review of other provisions in the Ordinance and rules made thereunder should be conducted to identify whether the powers now vested in the Chief Justice should instead be vested in the Chief Judge of the High Court. Broadly, I think the power to approve rules under the Ordinance should be vested in the Chief Justice. Otherwise, the powers should be vested in the Chief Judge unless there is justification for any of these powers to remain with the Chief Justice.

Conclusion

34. Accordingly, the appeal is dismissed with costs.