A SOLICITOR v. THE LAW SOCIETY OF HONG KONG

CACV 11/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 11 OF 2003

(ON APPEAL FROM THE FINDINGS OF THE SOLICITORS
DISCIPLINARY TRIBUNAL DATED THE 20TH DAY OF AUGUST 2002
AND THE ORDER AND FINDINGS OF THE SOLICITORS
DISCIPLINARY TRIBUNAL DATED 20TH DECEMBER 2002)

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J U D G M E N T

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Hon. Woo J.A. :

1. I agree with the judgment of Cheung J.A. and the orders he proposes.

Hon. Cheung J.A. :

The background

2. The appellant is a solicitor. Four disciplinary complaints were made against her. The Solicitors Disciplinary Tribunal ("the Tribunal") found the complaints proved. She now appeals against the finding and the sentence.

3. The complaints arise from an agreement in Chinese dated 1 December 1996 ("the agreement"). The appellant was asked by her client to witness the execution of the signatures by the parties to the agreement.

4. In November 1996, the appellant had just left the employ of her old firm and joined a new firm of solicitors ("the firm").

5. In early December 1996, one of her former clients in the old firm, Mr. Law of China Sheen Enterprises Limited ("China Sheen") told her that he would ask her to witness agreement to cause an amendment to be made to two letters of credit. Following this, Mr. Law informed her that he would come to her office with a director of a company called Hainan Changtai Building Material Co. Ltd. ("Hainan") to sign an agreement.

6. However, Mr. Law came alone. He told the appellant that the director of Hainan was in the Mainland. He suggested that he would sign the agreement in her presence and requested her to accompany him to the Mainland to witness the execution of the agreement by Hainan. The appellant refused. She told Mr. Law that Hainan's signature should be witnessed by a lawyer in the Mainland.

7. Later Mr. Law returned with the agreement bearing the signature of Hainan. It was not witnessed. The appellant was not very pleased with this. Nonetheless Mr. Law signed the agreement on behalf China Sheen and the appellant signed the name of the firm and put the firm's chop on the agreement.

The agreement

8. Although the appellant said she was asked to witness the signatures of China Sheen and Hainan, the agreement also expressly provided that the firm was a party to the agreement.

9. The agreement dealt with the amendment of two letters of credit drawn in favour of an Italian firm called CERMA S.R.L. ("CERMA"). China Sheen would arrange with the issuing bank to effect the amendment (Clause 1). China Sheen was required to send the "amended L/C contents and terms" to Hainan and CERMA by 2 December 1996. After they had signed and confirmed the amendment, China Sheen should arrange with the issuing bank to issue the amended letters of credit to CERMA's bank (Clause 2). CERMA would pay a processing fee of US$200,000.00 for this arrangement. The amendment was required to be completed within five days after the firm received the processing fee from CERMA through Hainan's arrangement (Clause 3). The firm shall pay China Sheen the processing fee after receiving CERMA's formal written notification of its receipt of the amendment (Clause 4). If China Sheen was unable to complete the amendment according to the agreement, the firm must refund the US$200,000.00 to CERMA within ten days.

Release of money

10. The firm duly received US$200,000.00 from CERMA.

11. On the same day or on the following day of the execution of the agreement, Mr. Law asked the appellant to release HK$1.4 million to China Sheen out of the US$200,000.00 received by the firm. By then the firm had not been notified by CERMA that it had received the amendment. Mr. Law assured the appellant that if the amendments were not made, he would personally arrange to refund the HK$1.4 million to the firm. As an assurance, he gave the appellant a guarantee letter and two personal cheques in favour of the firm for HK$700,000.00 each.

12. As the appellant did not have the authority to sign cheques on behalf of the firm, she told the partner of the firm of Mr. Law's request and handed him the file.

13. The appellant was told to complete the payment procedure. The partner signed the cheque and released the HK$1.4 million to China Sheen.

14. At the request of Mr. Law, two further sums of HK$10,000.00 and HK$18,000.00 were released by the firm to China Sheen out of the US$200,000.00.

15. As the release was without the authority of CERMA, it sued and recovered the US$200,000.00 from the firm. The firm then sought to be indemnified out of the Fund established under the Solicitors (Professional Indemnity) Rules. The claim was referred to arbitration. An arbitral award was made in favour of the firm.

16. The Law Society then proceeded against the appellant and the partner of the firm. The partner admitted the two complaints against him.

The complaints

17. The complaints against the appellant were :

1.	Breaches of principles 5.03, 5.12 and 6.01 of the Hong Kong Solicitors' Guide to Professional Conduct Vol. 1, 1st Ed. ("the Guide") and rule 2 of the Solicitors' Practice Rules ("the Practice Rules") in that she accepted instructions to witness a document written in a language she neither read nor understood adequately and then witnessed such a document and then indicated to the 1st respondent (i.e. the partner of the firm) that, contrary to the firm's obligations under the agreement, money could be paid out of the firm's trust account.
2.	Breaches of principles 5.02, 5.03, 5.12 and 6.01 of the Guide and rule 2 of the Practice Rules in that she signed an agreement as a witness, in circumstances where she had not seen either one or both of the other parties to the agreement execute it.
3.	A breach of rule 7 of the Solicitors' Accounts Rules ("Accounts Rules") in that her partner the 1st respondent signed cheques drawn on the firm's trust account on or about 6, 19 and 30 December 1996 in circumstances where the monies represented by the cheques were not properly able to be drawn from the firm's trust account.
4.	A breach of rule 2 of the Practice Rules in that her partner the 1st respondent paid out monies from the firm's trust account contrary to a stakeholder agreement to which the firm was a party.

The penalty

18. The Tribunal, apart from censuring the appellant, imposed the following penalties :

First complaint : Suspension from practice for two years. If she is to resume practice she is prohibited from practising as a sole proprietor or partner or manager of a solicitors firm for two years.

Second complaint : Fine of HK$30,000.00

Third and fourth complaints : Fine of HK$250,000.00

The appellant has not been practising as a solicitor since the order of suspension. The Tribunal did not stay the execution of the orders pending the appeal.

Complaints against the partner

19. The complaints against the partner of the firm were :

1.	A breach of rule 7 of the Accounts Rules in that he signed cheques drawn on the trust account of the firm, of which he was a partner, in circumstances where the monies represented by the cheques were not properly able to be drawn from the firm's trust account.
2.	A breach of rule 2 of the Practice Rules in that he paid out monies from the firm's trust account contrary to a stakeholder agreement to which the firm was a party.

The partner pleaded guilty. He was censured and fined HK$160,000.00.

The Guide, the Practice Rules and Accounts Rules

20. The relevant principles under the Guide are :

“5.02		A solicitor must not act or must cease to act where to do so would involve him in a breach of the law or in professional misconduct.
5.03		A solicitor must not act or continue to act in circumstances where he cannot represent the client with competence or diligence.
5.12		A solicitor who has accepted instructions on behalf of a client is bound to carry out those instructions with diligence and must exercise reasonable care and skill.
6.01	(a)	A solicitor owes his client a duty to be competent to perform any legal services undertaken on the client's behalf.
	(b)	A solicitor should serve his client in a conscientious, diligent, prompt and efficient manner."

The relevant rule under the Practice Rules is :

"Rule 2.	A solicitor shall not, in the course of practising as a solicitor, do or permit to be done on his behalf anything which compromises or impairs or is likely to compromise or impair --
	(a)	his independence or integrity;
	(b)	the freedom of any person to instruct a solicitor of his choice;
	(c)	his duty to act in the best interests of his client;
	(d)	his own reputation or the reputation of the profession;
	(e)	a proper standard of work; or
	(f)	his duty to the court."

21. The relevant rule under the Accounts Rules is :

“ Rule 7. There may be drawn from a client account --

(a)	in the case of client's money --

(i)	money properly required for a payment to or on behalf of the client;
(ii)	money properly required for or towards payment of a debt due to the solicitor from the client or in reimbursement of money expended by the solicitor on behalf of the client;
(iii)	money drawn on the client's authority; and
(iv)	money properly required for or towards payment of the solicitor's costs where a bill of costs or other written intimation of the amount of the costs incurred has been delivered to the client and the client has been notified that money held for him will be applied towards or in satisfaction of such costs;

(b)	in the case of trust money, including money held by the solicitor as solicitor-trustee --

(i)	money properly required for a payment in the execution of the particular trust; and
(ii)	money to be transferred to a separate bank account kept solely for the money of the particular trust;

(c)	such money, not being money to which either paragraph (a) or (b) applies, as may have been paid into the account under rule 4(b) or (d); and
(d)	money which may by mistake or accident have been paid into the account in contravention of rule 6 :

Provided that in any case under paragraph (a) or (b) the money so drawn shall not exceed the total of the money held for the time being in such account on account of such client or trust."

Grounds of Appeal

22. Many grounds of appeal were relied upon by Mr. McGowan, counsel for the appellant. I do not intend to deal with them individually but will concentrate on the more relevant ones.

23. The first two grounds are that the Tribunal had not adopted the proper standard of proof and that it did not give adequate reasons for its decision.

24. It is a fact that the Tribunal did not specifically state what standard of proof it had adopted in assessing the case against the appellant. It merely stated that the complaints against the appellant had been proved. Mr. McGowan accepted that the relevant standard is the civil standard but with the requirement that a higher degree of probability is needed to prove the more serious allegations i.e. a civil standard commensurate with the gravity of the complaint. (See : Hornal v. Neuberger Products Ltd. [1957] 1 Q.B. 247, Dr. Lai Kin Shing v. Medical Council of Hong Kong [1996] 1 HKC 24 and A Solicitor v. Law Society of Hong Kong [1996] 1 HKC 256 and A.G. v. Tsui Kwok-leung [1991] 1 HKLR 40.)

25. In respect of the lack of reasons for the decision, the complaint is that the Tribunal did not resolve the conflict in the evidence of the appellant and the partner.

26. In my view it is not necessary for the Tribunal to state expressly what standard it had applied in assessing the case against the complaints. It is of course desirable to do so, so that its mind is focused on the issue. However, just to recite the formula would be meaningless if it did not in substance adopt such a standard. Ultimately one has to consider whether the evidence produced was capable of sustaining the complaints against the appellant.

27. In this case, serious complaints had been made against the appellant. If these complaints are proved, she would face serious consequence as shown in this case when she was suspended from practice for two years. Obviously a high degree of proof commensurate with such allegations must be required.

28. It is with this in mind that I turn to the individual complaints and the facts to see whether such a high standard of proof had been met in this case. As an examination of the matters will also touch on the complaint relating to the inadequacy of the reasons, I will also deal with the matter at the same time.

The First Complaint

29. The first complaint consists of three allegations against the appellant :

1.	She accepted instructions to witness a document written in a language she neither read nor understood adequately;
2.	She witnessed such a document;
3.	She indicated to the partner that, contrary to the firm's obligations under the agreement, money could be paid out of the firm's trust account.

30. The Tribunal stated that on the facts found by it the first complaint was proved. In its statement of finding, under the heading "The Facts", the Tribunal set out the history relating to the agreement.

31. In relation to the contents of the agreement, the Tribunal found the following facts :

“ the (appellant) gave evidence that she could read the names and the particulars of the parties named therein, but when she tried to read the text of the Agreement, she only found that she could not understand it. The (appellant) affirmed that although the Chinese language was her mother language and she had reached Form 5 standard in the subject, she did not like reading Chinese and was not confident what she read would be accurate. She also affirmed that she was not fully aware of the Firm's obligations apart as a witness under the Agreement though she knew that money was to be paid in and paid out. She also affirmed that she had no experience in matters relating to Letters of Credit and since the Agreement was neither drafted nor negotiated by her, she needed not know the contents in detail."

The first and second allegations

32. On these facts the first allegation in the first complaint was clearly established. What the appellant said about the knowledge of the Chinese language only supports the complaint against her.

33. Likewise as the Tribunal also found that the appellant signed the agreement in the name of the firm, the second allegation was also established.

The third allegation

34. In the first affirmation of the partner he stated that the appellant "told me we could release the money in our account to Mr. Law's company". He said he did not look at the substance of the agreement. In his oral evidence he also said he had asked the appellant if it was all right to release the money and she replied yes.

35. In the facts found by the Tribunal, it was stated that :

“ (The appellant) denied that she ever made any representation to the (the partner) that it was all right for the money to be released.

The appellant did not ask the partner to find out for himself whether the payment of HK$1.4 million should be made nor did she tell him that the payment should not be made nor did she tell him that she did not know whether the payment should be made."

36. The Tribunal stated that :

"	Having considered carefully all the written documents produced, the oral evidence of both (the partner) and (the appellant)....the Tribunal finds that :

"on the basis of the facts found :

(a) the particulars in (the 1st complaint) against (the appellant) have been proved." "

37. The Tribunal did not expressly find that the appellant had indicated to the partner that, contrary to the firm's obligations under the agreement, money could be paid out of the firm's trust account.

38. In my view, even without an express finding that the appellant had told the partner it was all right to release the money, her conduct must constitute an "indication" to her partner that it was all right to release the money.

39. The matter has to be viewed in its proper perspective. The appellant was a solicitor qualified in 1988. Although she did not immediately practise after her admission, by the time she joined the firm she had five years of actual practice dealing with matrimonial and litigation work. She was not, for example, an inexperienced trainee solicitor who was seeking the advice of the principal whether the money should be released or not. She handled this case right from the beginning. Mr. Law gave her a guarantee and two postdated cheques in order for the money to be released. She approached the partners to sign the firm's cheque to release the money. She did not ask him for approval. She did not tell the partner that the condition for the release had not been fulfilled.

40. While the partner may be negligent in not ensuring himself that the condition for the release of the money had been met, the appellant by her conduct must have indicated to him that it was all right to release the money when it was in fact contrary to the terms of the agreement. This must be so irrespective of whether she actually believed or could not be bothered to find out whether it was all right to release the money.

Competence

41. The breach under the first complaint is in respect of principles 5.03, 5.12 and 6.01 of the Guide and Rule 2 of the Practice Rules.

42. The gist of these principles and rules is that a solicitor must discharge his duty with competence. The agreement was in Chinese. The appellant had admitted her inadequacy in the language. She was not able to understand the terms of the agreement. Her role was more than a witnessing solicitor. It is clear from the agreement that obligations were imposed on the firm towards the other parties. She clearly was not able to discharge her duties with competence.

43. In my view, even bearing in mind the high degree of proof that is required, the evidence in this case amply sustains the third allegation in the first complaint against the appellant. The inadequacy in the finding of the oral discussion does not affect the soundness of the decision on the third allegation in the first complaint.

44. The first complaint was proved.

Second Complaint

45. The appellant had witnessed the execution of the signature when the person who signed it was not present in front of her. This cannot be described as a proper standard of work. It is a clear case of incompetence and such an act compromised the reputation of the legal profession. This complaint has been proved.

46. One member of the Tribunal who dissented on the second complaint stated that the appellant did not sign the agreement as a witness. I disagree. By the appellant's own admission, she was asked to witness the signatures of the parties. Her conduct was consistent with this role. Although the firm was also a party to the agreement in terms of obligations, there is no doubt that the appellant also signed the agreement as a witness as well.

47. Grounds 1 and 2 of the grounds of appeal are not relevant for these complaints.

The Third and Fourth Complaints

Partnership

48. The third and fourth complaints can be dealt with together. An essential element of these two complaints depends on the appellant being a partner of the firm. Specifically, in relation to Rule 2 of the Practice Rules it refers to the solicitor doing "or permit to be done on his behalf anything which compromises....".

49. In the context of this case, the appellant could only permit the partner to release the money if they were partners. It would be straining the words of Rule 2 to say the appellant would "permit" the sole proprietor of the firm to pay out the money.

50. This is the finding of the Tribunal :

“ The (appellant) joined the Firm on or about 20 November 1996 and left the Firm on 23 December 1996. By a Notification of Changes to a Practice of 3 December 1996, the (partner) notified the Law Society that the (appellant) joined the Firm on 2 December 1996 as a partner. By a Notification of Changes to a Practice of 6 January 1997, the (partner) notified the Law Society that the (appellant) left the Firm on 23 December 1996. There is a dispute as to the capacity in which the (appellant) joined the Firm. The (partner) said that the (appellant) joined the Firm as a partner. The (appellant) said that she joined the Firm as a consultant. The (appellant) did not deny that she was invited by the (partner) to join the Firm as a partner. She also did not deny that she realized her name was put as a partner on the letterhead of the Firm. But she did not stop the (partner) putting her name as a partner of the Firm on the letterhead. Furthermore, on divers occasions, the (appellant) signed letters on behalf of the Firm and on the letterhead of those letters signed by the (appellant), the name of the (appellant) appeared as a partner of the Firm."

The Tribunal found that the appellant was a partner from 2 to 23 December 1996.

Actual partnership required

51. There is no doubt that the appellant had allowed the partner to represent her as a partner of the firm. She said she realized that she was named as a partner in the letterheads of the firm but she was not able to stop this from being done.

52. From the Statement of Finding, the Tribunal seemed to make its decision on the basis of the holding out of the appellant as a partner. In my view this is insufficient and what is important in this case is whether the appellant was in fact a partner as she denied she was a partner. In my view the Tribunal has failed to resolve this dispute satisfactorily.

53. It is the appellant's case that she was only a consultant in the firm. She received a commission on the fees earned on the files she worked on. She was not prepared to take on the liabilities of a partnership. Her evidence was that the partner had prepared a written partnership agreement which she was not prepared to sign. The arbitral award also referred to this partnership agreement. The arbitral award was part of the evidence disclosed at the hearing. The partner maintained it was an oral partnership arrangement between them.

54. This is not a case where the appellant and the partner had known each other well or for many years. In a legal practice, one would expect details concerning partnership to be reduced into writing. The partner's claim that the arrangement between them was a simple one and did not require a written agreement sounds hollow. Even if the appellant would not receive a profit, questions such as sharing of liability and indemnity of liability would still have to be resolved. The partner actually required his assistant solicitors to sign written contracts.

Principal

55. Mr. Cooney, counsel for the respondent, relied on the definition of 'principal' in section 1A of the Practice Rules which includes any solicitor who is held out or holds himself out as a partner or sole practitioner of the firm. He argued that it would be sufficient for the complaints if the appellant was held out to be a partner.

56. This definition does not assist the respondent. The word 'principal' appears in different sections of the Practice Rules. Rule 2 is not one of them. One just cannot make use of this definition when Rule 2 does not refer to a 'principal'.

57. One must bear in mind that the partner was also subject to disciplinary complaints by the Law Society. It cannot be ruled out that it would be to his interest to minimize his role in this case so that the penalty may be reduced. The fact that he sent the notification to the Law Society and printed the appellant's name as a partner is some indication of an actual partnership but it is not conclusive. His evidence was that he wished to have a partnership because "it would be a better appearance to bankers or to the clients".

58. In my view the Tribunal has failed to satisfactorily resolve the conflict of evidence on the issue of actual partnership. It is not a case where this Court can step in and make a finding on this issue. Credibility is in issue and the court did not have the benefit of observing the demeanour of the witnesses in giving evidence.

59. The parties have since the hearing of the appeal submitted fresh materials on the role of the Clerk of the Tribunal. Nothing turns on these materials in respect of the merits of the appeal. These two complaints should be quashed. It is not necessary to deal further with the question of standard of proof and adequacy of reason in respect of these two complaints.

The penalty

60. Counsel for both parties have very helpfully referred to a number of decisions on the penalty to be imposed in respect of striking off and suspension from practice. These cases are : Re A Solicitor's Clerk [1978] HKLR 160, A Solicitor v. The Law Society of Hong Kong Civil Appeal No. 2 of 1993, Bolton v. Law Society [1994] 2 All ER 486.

The principle

61. The following principles can be stated from these decisions :

1.	An order that the solicitor be struck off the Roll of Solicitor is appropriate where dishonesty is involved.
2.	Although a striking off is almost invariably the penalty for dishonesty, there may be cases where a suspension is the appropriate penalty when dishonesty is involved.
3.	Where a solicitor has not acted dishonesty but has fallen below the required standards of integrity, probity and trustworthiness, then suspension is the appropriate sentence.
4.	It is only in the most exceptional cases that orders other than suspension should be imposed in cases covered by paragraph 3 above.
5.	The rationale for these heavy sentences is four-fold :
	1) To punish the solicitor.
	2) To deter others from acting in the same way.
	3) To ensure that the offender will not have the opportunity to repeat the offence.
	4) To maintain the reputation of the profession and to sustain public confidence in the integrity of the profession.
6.	If suspension is the appropriate remedy then it will not be an objection to impose it even though the solicitor may be unable to re-establish his practice when the period of suspension is past.
7.	Each case has to be determined on its own facts. The professional body entrusted with the task of professional discipline is in an uniquely advantageous position to discharge its duty.

Suspension for two years

62. A suspension of practice for two years is an extremely heavy penalty. In imposing this penalty the Tribunal had considered the position taken by the appellant that it was not wrong for her to accept the instructions in regard to the agreement despite her lack of proficiency in the Chinese language. The Tribunal said that her lack of appreciation of this issue was a serious concern because it may have a far-reaching effect on her performance of her work as a solicitor. By imposing this penalty, it hoped that the appellant would realize the seriousness of the complaints which should not be taken slightly nor be repeated by her.

63. I agree with the concern of the Tribunal. On the basis of what the appellant had said about this case, she obviously had not realized the serious implication of her inadequacies. We recognize that the Court should not lightly interfere with the finding by a professional body on the appropriate professional standard and penalty to be imposed on the members. However, in this case there is no allegation of dishonesty against the appellant. She also did not benefit from the wrongful release of the stakeholder money. If either of these two elements was present then obviously a suspension of two years should not be interfered with. Re A Solicitor's Clerk [1978] HKLR 160.

64. This is not a case with such elements present. The fact that she was motivated by a large fee and future work from Mr. Law is not sufficient. Even if she had fallen below the required standard of integrity, probity and trustworthiness, a suspension of two years in this case is manifestly excessive. It should be adopted in a more serious case. Obviously, even when an action falls below the required standard, one still need to consider the nature and severity of the failure. We will substitute the suspension to one year suspension and restrict the condition imposed by the Tribunal to one year.

65. The fine of HK$30,000.00 for the second complaint is appropriate and should not be disturbed.

Conclusion

66. Accordingly I would allow the appeal and make the following orders :

1.	The penalty for the First Complaint is quashed and substituted by a one year suspension with the condition that when the appellant resumes practice after the suspension she is prohibited from practising as a sole proprietor or partner or manager of a solicitors' firm for one year.
2.	The findings of the Third and Fourth Complaints are quashed and the penalties are set aside.

Costs

67. The parties agreed to reserve their arguments on costs pending the decision of this Court in another case namely Civil Appeal No. 302 of 2002. This will include questions of indemnity costs and the costs of the clerk to the tribunal in the "review of evidence" for the Tribunal to prepare its statement of findings. That matter is accordingly adjourned to a date to be fixed.

Hon. Burrell J. :

68. I agree.