JOHNSON, STOKES & MASTER v. TREVOR ERNEST BOUCHER

Commercial law - contract - solicitor and client costs - whether plaintiff solicitors waived costs for unbilled work in consideration of defendant client paying billed work in full and not requiring prior bills to be taxed - whether plaintiff firm comprising more than 20 partners and unregistered under Societies Ordinance was an unlawful society - if so whether the contract for legal services was also illegal and the costs for legal services rendered irrecoverable - Held: 1. Defendant failed to prove that parties reached a compromise whereby fees for unbilled work waived; 2. The plaintiff being unregistered under the Societies ordinance was an unlawful society; 3. The contract for legal services was also illegal and as a consequence the costs rendered were irrecoverable; 4. Plaintiff solicitors claim dismissed; judgment for the defendant.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

HIGH COURT ACTION NO. 7056 OF 1986

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BETWEEN

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JUDGMENT

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1. The plaintiff acted as solicitors for the defendant and rendered a number of bills for professional services for the period from May 1982 to June 1985. The defendant during this period paid the plaintiff various sums by way of instalment leaving a balance of $209,054.93 unpaid. On 12th December 1986 the plaintiff commenced the present action to recover the unpaid balance of $209,054.93 plus interest and costs.

2. The defendant's Re-Amended Defence raised two principal defences. The first defence was in effect a plea of waiver founded on a meeting which took place on 9th July 1984 between the defendant and a Mr. Robin Peard, then a partner of the plaintiff. The defendant pleaded that in addition to the balance then owing for billed costs, the plaintiff estimated that the value of unbilled alleged work in progress amounted to $200,000.

3. According to the defendant, in consideration of payment forthwith of $300,000 and the defendant undertaking not to challenge two prior bills rendered by the plaintiff or apply to have them taxed, the plaintiff agreed not to bill the defendant for the unbilled work. It is common ground that on 9th July 1984 the defendant paid the plaintiff the sum of $300,000.

4. The remaining defence, based on illegality, was pleaded in these terms:

"12.     The plaintiff is an illegal organisation and by reason thereof no sum is recoverable from the defendant."

This defence arose from the undisputed fact that the plaintiff is a partnership but is not registered under the Societies Ordinance, Cap. 151. The defence was only re-amended during the hearing, to raise the issue of illegality now pleaded in paragraph 12. If the defence of illegality were to prevail, it would be fatal to the plaintiff's claim. In these circumstances it is convenient to consider the illegality issue first, before going on to consider the initial defence based on waiver.

5. The plaintiff is a partnership of solicitors first formed in 1890. By 1949 the plaintiff comprised 3 partners and in 1979 became a firm of more than 20 partners. From 1979 until today the plaintiff has continued to practice with more than 20 partners. In Hong Kong certain societies, including partnerships, are required to register under the Societies Ordinance.

6. The Ordinance has a twofold purpose. First, it provides for the registration or exemption from registration of lawful Societies. In this area it is the statutory equivalent of similar legislation for the registration or incorporation of lawful societies found in other common law countries. Secondly, it contains the penal and other provisions, which make Triad and unregistered or unexempted societies, unlawful. It is probably the latter provisions of the Ordinance which are better known. The importance of the Triad and other penal provisions is reflected in the fact that the Registrar of Societies is not the Registrar-General or a similar officer but instead the Governor has appointed the Commissioner of Police as Registrar.

7. Section 2(1) of the Ordinance defines a society as follows:

"'Society' means any club, company, partnership or association of persons, whatever the nature or objects, to which the provisions of this Ordinance apply;"

8. A "local society" means any society organised and established in Hong Kong or having its headquarters or chief place of business in Hong Kong. Section 5(1) requires every local society to apply for registration or exemption within 14 days after it is established or is deemed to be established. Under Section 5(2) the Registrar may exempt from registration religious, charitable, social, recreational and certain other societies. It is common ground that the plaintiff is not entitled to exemption under Section 5(2).

9. Section 2(2) provides that the Ordinance does not apply to any person listed in the Schedule to the Ordinance. The Schedule lists 15 types of societies to which the Ordinance does not apply including:

10. The carrying on of the profession of solicitors is a lawful business. Persons carrying on the business of solicitors solely or in partnership are required to obtain practising certificates under the Legal Practitioners Ordinance, Cap. 159 and be registered under the Business Registration Ordinance, Cap. 310. I hold that if solicitors partnerships are otherwise registrable under the Societies Ordinance, then if they consist of 20 or less partners, the Ordinance does not apply to their partnership, because of the provisions of Item (6) of the Schedule.

11. The crucial question is whether the Ordinance does apply to solicitors partnerships, consisting of more than 20 partners, into which category the plaintiff falls. This question has previously attracted the interest of commentators and a recent expression of academic opinion that solicitors partnerships of more than 20 persons are required to be registered under the Ordinance, appeared under the title of "Are Large Firms Legal?" in (1987) 17 HKLJ 188. I would also record that when during the initial hearing of this action the defendant applied to amend the defence to add, in terms of paragraph 12, the defence of illegality, the hearing was on the plaintiff's application, adjourned on 19th May 1988 until after the Summer Vacation in order that considered submissions could be advanced on the illegality issue.

12. In the intervening period the Legislature enacted the Societies (Amendment) (No. 3) Ordinance No. 71/88 passed on 20th July 1988 and assented to on 21st July 1988. Section 2 amended Item (6) of the Schedule, by repealing the words "consisting of not more than 20 persons,". The amending Ordinance further provided that subject to Section 1(3), the amendment was deemed to have come into operation on 7th July 1978. That was the same date in 1978 when the amendment to Section 345 of the Companies Ordinance Cap. 32 was enacted, which exempted solicitors, accountants, stock brokers and certain other professional partnerships of more than 20 persons, from the prohibition of carrying on business, unless registered as a company under the Companies Ordinance. The express retrospective effect of Section 1(2) of the Societies (Amendment) (No. 3) Ordinance back to 7th July 1978, does not dispose of the present dispute, for sub-section 3 provides:

13. No doubt the Legislature, aware of the unfair consequences which may follow from enacting retrospective legislation, sought to ensure, in accordance with principles of natural justice, that litigation already commenced at the date the retrospective legislative proposals were gazetted, would remain unaffected. I am satisfied that the saving provisions of sub-section(3), apply to the present proceedings. Accordingly I hold that the retrospective provisions do not apply to the present proceedings.

14. The defendant submitted that the Ordinance was deliberately widely drawn and that the definition of "Society" in Section 2, expressly included partnerships. Further, the Legislature was clearly alert to the practical effect of Ordinance for since 1964 it had, on numerous occasions, successively increased the number of persons to whom the Ordinance does not apply. Upon the plaintiff exceeding 20 partners there were, it was submitted, no practical difficulties which prevented the plaintiff registering under the Ordinance and maintaining that registered status until the recent Amendment.

15. In support of the defendant's submissions the judgment of the Full Court in Yim Wai-tsang v. Lee Yuk-har (1973) HKLR 1 was cited. The Full Court sat in 1972 in exercise of the then appellate jurisdiction of the Supreme Court, as the precursor of the present Court of Appeal, which was not established until 1976. As a matter of stare decisis I hold that the Full Court, as constituted in 1972, was exercising the equivalent jurisdiction of the present Court of Appeal. This Court is therefore bound by the Full Court's judgment.

16. In Yim Wai-tsang v. Lee Yuk-har the plaintiff as head of a Chinese money loan association, sued a member who in contravention of the rules of the association, owed $1,000. The association was not registered under the Societies Ordinance and the defendant took the point that the money due was irrecoverable as the association was an unlawful society. A considerable part of the judgments of the members of the Full Court are devoted to whether a Chinese money association was an entity which fell within the definition of "Society". I am not concerned with that part of the judgments, for Section 2 expressly includes partnerships within the definition of "Society".

17. The Full, Court, by a majority, Huggins, Leonard JJ., held that the Ordinance applied to all clubs, companies, partnerships and associations of persons, unless those entities were persons expressly excluded by the Schedule. The majority went on to conclude that as the claim was founded on the enforcement of the rules of an unlawful society, the money due was irrecoverable. On the application of the Ordinance I was referred to that passage of Huggins J., judgment at page 6 where he stated:

"It is contended on behalf of the respondent that the definition of "society" is so wide that if that interpretation be adopted there is practically no limit to the application of the Ordinance and that the simplest association of friends will be within its ambit. For myself I see no real difficulty here and I think the mischief to which the Ordinance manifestly aimed points to an intention to cast the net very wide... The vital elements are a combination and a common purpose and a common cause."

Leonard J., was of the same view and in construing the Ordinance also placed reliance on certain entities being excluded by the Schedule, observing at page 20:

"It seems clear to me that in excluding these bodies of persons from the ambit of the Societies Ordinance the legislature intends to indicate that all other 'associations' of persons are included."

18. In a dissenting judgment, McMullin J., arrived at the conclusion that the special nature of a Chinese money loan association resulted in it not being an association of the kind referred to in Section 2. McMullin J., did not agree that the Ordinance had the wide application upheld by the majority. Instead, because of the peculiar difficulties which faced the Legislature in relation to definition, he observed:

"I think that this is one of those comparatively rare instances in which the legislature might be said to have left something like an intentional vagueness in a definition, confiding the practical result to the commonsense of the public backed up by the ultimate arbitration of the courts."

19. With respect, that is a novel concept which falls far outside the settled principles of statutory interpretation and would in effect amount to a delegation by the Legislature, of its legislative powers to the public and ultimately to the Courts.

20. Counsel for the plaintiff submitted that Yim Wai-tsang v. Lee Yuk-har was distinguishable and that in any event the dissenting judgment of McMullin J., was to be preferred. The majority judgments, it was submitted, did not analyse the concept of illegality or its consequences but were content to hold that the Chinese money loan association was illegal. It was urged that an important factual difference was that the Chinese money loan association was attempting to enforce its illegal rules inter se while here the Court was not concerned with an inter se relationship for the partnership was suing a third party.

21. The plaintiff's primary submission was that the Ordinance does not apply to a partnership of solicitors with more than 20 partners. Certainly the Ordinance does not apply to partnerships of 20 partners or less. It was submitted that the history of the Ordinance since 1920, showed that it was concerned with public order and the purpose of the Ordinance was to prevent the establishment of Triad and other societies which fall within Section 6. The Ordinance was never intended, it was submitted, to include solicitors partnerships. If it did include solicitors the curious result was that they were not caught because of the nature of their business but only on the numerical ground that their partners exceeded twenty.

22. The legislative intent not to include solicitors partnerships, it was submitted, was confirmed by the position which has developed under the Companies Ordinance. Until 1978 the provisions of the Societies Ordinance and the Companies Ordinance were complementary. Under the Societies Ordinance solicitors partnerships not exceeding 20 persons were exempt from registration. Under Section 345 of the Companies Ordinance, partnerships of more than 20 persons were prohibited. Until 1978 there were no solicitors partnerships in Hong Kong which exceeded 20 persons. In 1978 the Companies Ordinance prohibition of partnerships with more than 20 members were, as already noted, relaxed. Section 345 was amended to provide that the prohibition of partnerships of more than 20 members, did not apply to solicitors, accountants, stock brokers and certain other professional partnerships.

23. In 1979 the plaintiff became the first solicitors partnership in Hong Kong to have more than 20 partners. The effect of the 1978 amendment to Section 345 was that the plaintiff was not in breach of any prohibition under the Companies Ordinance when in 1979 its partners exceeded twenty. However, the Legislature did not similarly amend the Societies Ordinance. It was submitted for the plaintiff that this was a legislative oversight and that it was open to the Court to deal with the difficult resultant statutory position, by a variety of methods. First, I was referred to Item (1) of the Schedule which provides that the Societies Ordinance does not apply to any company registered under the Companies Ordinance. It was submitted that by adopting a purposive construction, that exclusion could be widely interpreted to extend to any partnership not required to be registered under the Companies Ordinance. I am satisfied that to imply those substantial additional words, would go far beyond the limits so far achieved, by even the most creative purposive construction. I reject that interpretation.

24. Secondly, it was submitted, that the 1978 amendment of the Companies Ordinance had, by implication, repealed the limitation in Item (6) of the Schedule relating to partnerships of more than 20 persons. The Courts are properly slow to find that a latter enactment impliedly amends an earlier enactment. I was referred to Bennion 'Statutory Interpretation' page 422. But as Bennion points out, implied amendments are objectionable in principle and only arise when they become a logical necessity. The two Ordinances are also not in pari materia. Although they deal in part with related subject matter, the separate provisions can each be given full effect, without contravening the principle of contradiction. I reject the submission that the Societies Ordinance was in 1978 impliedly amended by Section 345 of the Companies Ordinance.

25. There are a number of English cases decided after the prohibition of partnerships of more than 20 members was introduced by the Companies Act in 1862, which considered the comparable illegality issue. One example is In re Thomas ex parte Poppleton (1884) 14 QBD 379 where an unincorporated association was formed early in 1881 with 7 members but later in that year increased to more than 21 members. It was submitted that the association was not illegal because, when formed, the number of members did not exceed twenty. Cave J. rejected that submission in these terms:

"This would make a laughing-stock of the Act altogether. In my view the moment the number amounted to twenty it became illegal for them to carry on business without registration."

26. I was also referred to Shaw v. Simmons (1883) 12 QBD 117 where an unincorporated association was formed before the more than 20 members prohibition was enacted. After formation members left and new members joined but throughout total membership exceeded twenty. The question for the Court was whether the association could lawfully recover a debt due under a bill of exchange. Day J., on the special facts before him, was prepared to hold that as the association was formed before the Companies Act was amended, the prohibition did not apply, observing:

"The question, however, is not free from difficulty. No doubt this company looked at in the light of a partnership may be considered a new partnership every time that a change takes place in the members composing it by a new one being taken in or an old one leaving. The question is whether the Act should be read so as to give to the word "formed" - a company "formed" after the commencement of this Act - this strict technical meaning, or whether the word should be taken in its ordinary and popular sense. If, when the question is asked, 'When was this company formed?' we find, as we should, that the invariable reply would be, 'It was formed in the year 1861', why are we to say, on the contrary, that it was not then formed, but was formed when the last person who desired to borrow money from it became a member. It seems to me that this would be to put an unnatural and unduly strained construction on the Act, and that we ought to take the words in their popular meaning. If so this company was formed before the commencement of the Companies Act 1862 and is not illegal for want of registration."

I am well satisfied that because the association was first formed before the prohibition and in order to preserve its legality and entitlement to recover debts, Day J., was prepared to adopt a construction which would otherwise have been, at best, doubtful.

27. Counsel for the plaintiff went on to point out that it was wrong to apply a literal construction to the Societies Ordinance because of the consequeces and practical outcome of such a construction. Invoking other canons of construction, it was submitted that a literal construction would produce adverse consequences, absurdity and impractical inconvenient and futile results. The relevance of these factors in construing legislation is referred to by Bennion at pages 235, 330, 331, 332, 336, 675, 682 and 700.

28. Turning to the registration requirements and the Registrar's powers under the Ordinance, it was argued that these strongly supported the submission, that it was not the intention of the ordinance to require registration of solicitors partnerships of more than 20 partners. Rule 2 of the Societies Rules, prescribed pursuant to Section 41, requires applications for registration to be made in accordance with the statutory Form 2. A copy of the constitution or rules of the applicant, is required to be attached to the application. It was submitted that while the plaintiff has a deed of partnership it does not have a constitution.

29. The alleged impossibility of complying with this requirement, it was submitted, was highlighted by the plaintiff's attempt, after this hearing was adjourned on 19th May 1988, to obtain registration. On receipt of the plaintiff's application, the Assistant Registrar replied to the plaintiff on 30th May 1988, requesting that a copy of the plaintiff's constitution be supplied. The plaintiff's response was that its deed of partnership was a highly confidential document which could not be disclosed to the Registrar or third parties.

30. I was also referred to other provisions of the ordinance which, it was submitted, were inappropriate to solicitors partnerships. These included Section 8 which requires the prior approval of the Registrar to constitutional amendments; Section 9A which specifies requirements in relation to places of meeting and business; Section 10 which deals with cancellation of registration; Section 11 which prohibits branches being established without the prior approval of the Registrar; Section 15 which requires the disclosure of certain information; and the penal provisions of Sections 20 and 22.

31. Sections 31 and 33 which empower the Registrar and the Police to enter or search a society's premises were particularly drawn to the Court's attention. It was submitted these conflicted with fundamental principles relating to legal professional privilege. While these various provisions are material to the construction of the Ordinance, I am satisfied that if the plaintiff is otherwise registrable under the Ordinance, they do not make it impossible for the plaintiff to achieve registration. For example, while the plaintiff's concern to preserve confidentiality in relation to its deed of partnership is understandable, that right may always be overidden by the appropriate statutory provisions. If the plaintiff had submitted its deed of partnership or other constitutional document to the Registrar, the probabilities are that the Registrar would have granted registration.

32. I was also taken through the historical development of the Ordinance since 1920, and it was submitted that it was now impossible for the plaintiff to comply with the requirement under Section 5 to apply for registration within 14 days after it was established. The Section 5 requirement for a society to apply for registration "Within 14 days after it is established" was enacted on 18th June 1982. That was 92 years after the plaintiff was formed and more than 3 years after it increased to 21 partners. When in 1979 the plaintiff for the first time exceeded 20 partners, the equivalent provisions required application to be made within 14 days of "formation". In the plaintiff's submission this requirement equally could not have been complied with as the plaintiff was formed in 1890.

33. The plaintiff cited the alleged impossibility of complying with these registration requirements, as a strong indication that the Legislature never intended the Ordinance to apply to partnerships of solicitors. In my view the registration difficulties advanced are more apparent than real. They depend on a narrow literal interpretation of the Ordinance. The better construction to adopt is that the date the partnership increased to 21 partners, was the date that particular partnership, for the purposes of the Ordinance, was formed or established. The partnership deed was not produced nor was there any other evidence adduced, sufficient to displace that general principle of dissolution. I do not consider the reasoning of Shaw v. Simmons (supra) assists the plaintiff on this point, for it was a case decided on its own special facts. In my view the construction I have preferred, is the reasonable and proper construction to adopt. This construction defeats any submissions based on or related to impossibility.

34. The majority of the other submissions advanced for the plaintiff, were also relevant to the position of the Chinese money loan association in Yim Wai-tsang v. Lee Yuk-har but were rejected by the majority of Full Court. The status of the plaintiff as a partnership of solicitors, is the major distinction relied upon by the plaintiff, to distinguish the Full Court's judgment. In considering this issue I also take into account the defendant's submission that this Court is faced with a stronger factual position in favour of registration, than was the Full Court. For the Full Court had to deal with the arguable issue whether the peculiar constitutional nature of a Chinese money loan association, fell within the legal concept of an association as referred to in Section 2. In the present case the plaintiff is clearly, as a matter of law, a partnership and in Section 2 a partnership is expressly included within the definition of "society".

35. However, I recognise that there are other factors present which may result in the provisions of the Ordinance applying less comfortably to a partnership of solicitors, than to a Chinese money loan association. These include the wide powers under the Ordinance to enter and search a solicitors premises compared, on the other hand, to the legal professional privilege of solicitors. However, it is not uncommon for conflicts to arise between statutory provisions and fundamental and other common law rights. When those conflicts do arise, they are capable of being resolved by the Courts, on a case by case basis.

36. The plaintiff's submission on the penal nature of the Ordinance as an anti-Triad measure, would have had greater force, if the present Ordinace had remained unaltered since 1920 when that was its sole purpose. I accept that solicitors partnerships in addition to being lawful businesses, are themselves subject to disciplinary and other strict controls, under the Legal Practitioners Ordinance, Cap. 159. But the Societies Ordinance has, as a result of a succession of amendments since 1920, changed its character. The Ordinance is now more than ever before, a Societies Ordinance and not merely an Unlawful Societies Ordinance. It has at least the two major purposes earlier mentioned. First, to provide for the registration of lawful societies. Secondly, to provide penalties for unlawful societies.

37. A substantial part of the Ordinance is concerned with the registration of lawful societies. The only societies which may be registered are lawful societies. This wider and changed nature of the Ordinance, was largely ignored in the plaintiff's submission. An example of the Legislature's wide approach is to be found in Section 5(2) which empowers the registrar to exempt from registration religious, charitable, social, recreational and certain other types of societies. The scheme of the Ordinance clearly is that but for that exemption, those obviously lawful religious, charitable, social, receational and other societies, would require to be registered.

38. After considering all these factors I am satisfied that none of the arguments advanced by the plaintiff enables this Court to distinguish these proceedings from the position which arose in Yim Wai-tsang v. Lee Yuk-har. I hold that the principles enunciated by the majority judgments in that case, apply in the present case. Accordingly, the plaintiff, when its partnership increased to 21 partners, was obliged to become registered under the Societies Ordinance. The plaintiff failed to become registered. Until the enactment of the Societies (Amendment)(No. 3) Ordinance the plaintiff, since 1979, was an unlawful society.

39. The retrospective effect of the Amendment, as a matter of law, legitimises the plaintiff's acts since it increased in size in 1979 to 21 partners, for all purposes, except litigation of the kind specified in Section 1(3) of the Amendment. The present proceedings are, I understand, the only instance of any litigation falling within Section l(3). If this is the position then, of course, the illegality issue, is only of relevance between the present parties for the purpose of these proceedings. Any other potential difficulties adverse to the plaintiff, have been retrospectively cured by the Amendment. The very limited consequences of the failure to register, except for the present proceedings, will merely be of historical interest.

The contractual consequences of illegality

40. The plaintiff for the purposes of these proceedings, being an unlawful society, it is necessary to go on and consider the effect that unlawful status has on the right of the plaintiff to sue the defendant for fees, under a contract for legal services. The plaintiff submitted that a contract for legal services is lawful and that the Societies Ordinance does not expressly or impliedly prohibit such a contract. According to the plaintiff, the contract was not contrary to public policy; involved no moral turpitude; any illegality arose accidentally on the part of the Legislature and the plaintiff; it was not an affront to justice; the Government had not prosecuted for any statutory breach; and that if the illegality led to unenforceability of a claim for fees, it would have a consequence far in excess of the gravity of the offence.

41. Counsel for the defendant submitted that as the plaintiff failed to register under Section 5 it became an unlawful society under Section 18. Since the existence of the plaintiff was at the material time unlawful the present, contract was illegal. The object of the plaintiff was to carry on the profession of solicitors. The sole cause of action is founded on a contract for the provision of legal services by a partnership which was illegal. The provision of legal services was central and not merely incidental to the plaintiff's unlawful existence.

42. The defendant further submitted that the plaintiff was suing as a partnership and under Section 36 of the Partnership Ordinance, Cap. 38 the partnership was dissolved upon it becoming illegal. Where illegality is due solely to one partner failing to renew his practising certificate it was held in Hudgell Yeates & Co v. Watson (1978) 1 QB 451 that while the partnership is dissolved by operation of law, the remaining partners thereupon, if they carry on business, constitute by conduct a new partnership and can recover fees. Here, it was submitted, the whole partnership was illegal.

43. I hold that the Societies Ordinance does not expressly prohibit or declare illegal, any contracts entered into by an unlawful society. The remaining question is whether any prohibition is implied. To answer that question it is necessary to ascertain whether the object of the Ordinance is to prohibit such contracts. For this purpose, the law has developed a variety of tests but no one test is decisive. As is so often the case, it is necessary to consider the purpose of the Ordinance in the light of all the relevant facts and circumstances. The proper approach is usefully set out at length, in the judgment of Devlin J., in St. John Shipping Corporation v. Joseph Rank Ltd. (1957) l QB 267. In fact the propositions advanced by the plaintiff, in an attempt to separate its own illegal status, from the alleged legality of the contract, were largely based on the statements of principle enunciated by Devlin J., in that judgment.

44. The cases reveal a general reluctance of the Courts to brand contracts illegal, if that course can properly be avoided. The position was summed up by Devlin J. at page 288 in these words:

"If a contract has as its whole object the doing of the very act which the statute prohibits, it can be argued that you can hardly made sense of a statute which prohibits an act and yet permits to be made a contract to do it; that is a clear implication. But unless you get a clear implication of that sort, I think that a court ought to be very slow to hold that a statute intends to interfere with the rights and remedies given by the ordinary law of contract. Caution in this respect is, I think, especially necessary in these times when so much of commercial life is governed by regulations of one sort or another, which may easily be broken without wicked intent."

45. In St. John Shipping Corporation v. Joseph Rank Ltd. the lawfully incorporated plaintiff sued for the amount owing under a contract for the carriage of goods by sea. During the course of the voyage, the plaintiff had been convicted for overloading its lawfully registered vessel. The defendant shipper refused, on the ground of illegality, to pay that part of the freight costs apportionable to the illegal overloading. The illegality, defence was rejected on a number of grounds, including the finding that the right to recover freight charges under the contract was not directly connected with the overloading offence.

46. The many cases on whether illegality may be implied can broadly be divided into two categories based on proximity. First, where the illegality is central to the formation or carrying out of the contract, the sums payable thereunder are generally irrecoverable. Secondly, where the illegality is merely peripheral to the contract, contractual rights may still be enforced. Under the latter category, in addition to St. John Shipping Corporation v. Joseph Rank Ltd. other cases cited included Thackwell v. Barclays Bank (l986) 1 All ER 676, Saunders v. Edwards (1987) 2 All ER 651 and Euro-Diam Ltd. v. Bathurst (1988) 2 All ER 23. Geismar v. Sun Alliance and London Insurance Ltd. (1977) 3 All ER 570 is an example of the first category where the contract is also illegal. On this issue I have also considered the statements of principle in Bowmakers Ltd. v. Barnet Instruments Ltd. (1945) 1 KB 65 and Archbolds (Freightage) Ltd. v. S. Spanglett Ltd. (1961) 1 QB 374.

47. I am satisfied that the provision of legal services was more closely related to the illegality of the plaintiff, than the more remote connection between the contract and the particular species of illegality, which respectively arose in St. John Shipping Corporation v. Joseph Rank Ltd., Thackwell v. Barclays Bank, Saunders v. Edwards and Euro-Diam Ltd. v. Bathurst. However, the facts are not so clearly at the other end of the illegality spectrum, as were those which arose in Geismar v. Sun Alliance and London Insurance Ltd.

48. After reviewing the nexus between the illegal status of the plaintiff and the contract for legal services on which the present cause of action is based, I find that relationship to be direct rather than peripheral. The rendering of legal services for profit, was the fundamental purpose of the unlawful society. Accordingly the rendering of those services was central and not incidental to the plaintiff's unlawful existence. I also hold that the various other grounds advanced by the plaintiff do not, in the present circumstances, enable the contract for legal services to be isolated from the plaintiff's illegal status and enforced on any of those grounds.

49. This conclusion is reinforced by the majority judgments in Yim Wai-tsang v. Lee Yuk-har. Both Huggins and Leonard JJ., were of the view that not only was the Chinese money loan association unlawful but contracts entered into during the course of its primary business were also illegal and could not be sued upon. Counsel for the plaintiff attempted to make the factual distinction that the Full Court was concerned with a claim made inter se on behalf of the unlawful society against one of its members, while here an unlawful society was making a claim against a third party.

50. After considering that submission, I am satisfied that while the factual distinction exists, for present purposes, it does not result in any different legal consequences. I am satisfied that the judgments of Huggins and Leonard JJ., cannot be distinguished. I hold that the contract entered into by the plaintiff was illegal and the plaintiff is therefore unable to recover any fees due under that contract.

Waiver

51. The finding on illegality in favour of the defendant, is fatal to the plaintiff's claim. However, as I heard lengthy evidence on the alternative defence of what was broadly described as waiver, it is proper that I should briefly record my findings on that evidence.

52. The defendant admitted that the plaintiff had rendered the bills for legal services pleaded. These bills, for a gross sum of $1,100,776.40, included both profit costs and disbursements. The disbursements were substantial. In fact one of the bills contributing towards that gross sum, dated 9th May 1984 for $466,128.15 was wholly made up of disbursements, including the sum of $370,363.75 being the fee of Mr. Joseph Jackson Q.C. who was brought out from London to appear for the defendant in his divorce proeedings. After instalment payments and other credits are taken into account, the balance claimed of $209,054.93 is arithmetically not in dispute.

53. The defendant as a result of his divorce proceedings, by early 1984 faced substantial financial obligations. These involved the transfer of assets or payment in cash to his former wife of amounts exceeding $8 million, the payment of her legal costs of over $1 million and his own solicitors costs and disbursements which were also to exceed $1 million. There were several requests by the plaintiff for payment and the defendant recognised that the time given for payment by the plaintiff was generous. Initially there was obviously considerable goodwill between the parties with the plaintiff addressing the defendant by his first name in formal correspondence. I also record that the parties Kowloon offices were in the same building.

54. Both parties witnesses at times had difficulties in recollecting precisely what occurred, in relation to several material incidents, due to the passage of time and the failure to take contemporaneous records. The position was also affected by the fact that the defendant dealt with more than one solicitor among the plaintiff's partners and staff. From the evidence it appears that an assistant solicitor, a Mr. Harris, was involved with much of the divorce work and he was supervised by Mr. Taylor. At that time Mr. Peard was the partner in charge of litigation and he became involved when bills rendered against the defendant were overdue. In turn the plaintiff's Finance Committee, assumed final responsibility and later instructed Mr. Whyte to commence the present action. During material periods Mr. Peard was out of Hong Kong while at other times Mr. Boucher was not available. During their absences persons junior to them became involved in correspondence and other oral communications.

55. On 15th June 1984 the defendant attended at the plaintiff's offices and discussed with Mr. Peard the then demand for payment of $400,000 on account. The defendant agreed to pay $l00,000 and indicated that he was negotiating the sale of his shares in the Spaghetti House to his partner Mr. S. Walker, when he expected a further $300,000 to become available. The defendant stated that at this meeting Mr. Peard also mentioned unbilled work which was a surprise to the defendant for he believed all work had been billed. I record that so far as the divorce proceedings were concerned, the plaintiff ceased to act for the defendant on 14th December 1983 after which the defendant appeared in person on the taxation of his wife's solicitors bills and incidentally became aware of a client's right to apply to the Registrar for taxation of his own bill of costs. The plaintiff only issued its final bill for the previously unbilled work on 25 July, 1985.

56. The $100,000 the defendant agreed to pay at the 15th June 1984 meeting was in fact, paid on 28th June 1984. Shortly afterwards, on 9th July 1984, the defendant again attended on Mr. Peard but this time in the company of Mr. Walker. At this meeting Mr. Walker handed over his cheque for $300,000 to the defendant who endorsed the cheque and handed it on to Mr. Peard. During this meeting both Mr. Peard and the defendant agreed that the question of the unbilled work was discussed. According to the defendant, he proposed that in cosideration of payment of the bills rendered to that date and the defendant not proceeding to taxation, the plaintiff would not claim for unbilled work. The defendant's evidence was that Mr. Peard replied that he would "arrange that". The defendant stated that he understood Mr. Peard's reply to mean, that he would arrange to have unbilled charges cancelled. On this representation, the defendant asserted, he made the remaining payments and now because of the expiration of time limits, had lost his right to have the bills taxed.

57. Mr. Walker died some time after the 9th July 1984 meeting and before the present hearing. As to what occurred at the meeting I also had the evidence of Mr. Peard. Mr. Peard recollected the defendant at the prior meeting on 15th June 1984 expressing surprise that there was still an account to be prepared for work in progress and that he also requested that the plaintiff write off remaining unbilled work. Mr. Peard stated that at the subsequent meeting on 9th July 1984 he mentioned that the defendant would have to come up with a proposal for payment of the balance but that as Mr. Walker was present no detailed discusson was held. Mr. Peard denied this was only a reference to the balance of work already billed. Mr. Peard also denied that he agreed to waive payment for the then unbilled work in consideration of the defendant making the now undisputed other payments and not challenging the prior bills.

58. In addition to the $100,000 payment made on 28th June 1984 and the $300,000 paid on 9th July 1984, a further $200,000 was paid in 4 instalments of $50,000 on 31st August 1984, 1st October 1984, 9th January 1985, and 8th March 1985. These payments were principally applied to earlier billed work. There is evidence coming from the plaintiff's own witnesses, that consideration was given to accepting in full settlement, a lesser sum than the balance owing.

59. On 8th August 1984 Mr. Whyte sent an internal memorandum to Mr. Taylor, in which he stated that he could not make demand for the then estimated work in progress of $150,000 as it had not yet been billed. The plaintiff's internal memorandum goes on to record that Mr. Peard had indicated to Mr. Whyte that provided disbursements were settled, the plaintiff would consider a reasonable offer of settlement for the balance owing. Mr. Peard stated that Mr. Whyte's memorandum was correct but that a lesser sum was never accepted in full settlement, because the defendant never made a reasonable offer. He pointed out that the then remaining balance of billed work was only paid over a period by the 4 instalments of $50,000. Mr. Peard did not deal with these payments, as they were agreed to by Mr. Whyte on behalf of the plaintiff.

60. Under cross-examination Mr. Peard denied that his several references during June and July l984, both orally and in writing, to the balance owing, was merely a reference to the balance then owing of billed work and did not extend to unbilled work. Mr. Peard agreed that the plaintiff at times does compromise fees due by clients and that the defendant was in billing terms a substantial client. I record that the plaintiff also acted for the defendant on certain commercial transactions.

61. Mr. Peard agreed that the plaintiff's willingness to compromise fees, would be influenced by other work also being done for a client. Mr. Peard also agreed that when in 1985 the unbilled work was eventually billed, the period it was expressed to cover namely from March 1983 to June 1985, was inaccurate but asserted that there was unbilled work down to December 1983. Unfortunately, the plaintiff had not caused any note to be taken of the two important meetings Mr. Peard had with the defendant on 15th June and 9th July 1984. Finally, although cross-examined at length on the issue, Mr. Peard was emphatic that the defendant never raised the possibility of any bills being taxed at either of those meetings.

62. I am satisfied that the defendant and Mr. Peard were honest witnesses who gave their evidence to the best of their recollection. The defendant's allegations, taken by themselves, were credible. At least the possibility of a compromise was considered by Mr. Peard although he stated he never conveyed that possibility to the defendant. Certainly he denied that any compromise was reached.

63. After the account for unbilled work was sent on 25th July 1985, the defendant's records, including notes to his own staff, promptly disputed payment and refer to the alleged agreement reached more than 12 months earlier with Mr. Peard. On the other hand, Mr. Peard was sure taxation of the prior bills was never raised and that he would only have agreed to a compromise after a reasonable offer, approved by the Finance Committee, was made. I accept as evidence of the defendant's good faith that when the plaintiff eventually sent its final bill for $209,054.93, he forwarded his cheque for $9,054.93. Throughout his assertion was that the agreement reached on 9th July 1984 was only in respect of final unbilled work amounting to $200,000.

64. The defendant having admitted that the bills rendered represented work done, the burden rests on him to prove that a compromise waiving payment of the final $200,000 was reached. I confirm that any findings on this issue are made the more difficult by the lengthy period of time which has elapsed, the at times limited recollections of the principal witnesses, the lack of contemporaneous written records and the relatively large number of persons involved. There remains credible evidence which points both ways. After reviewing the whole of the relevant evidence, I find, on the balance of probabilities, that the defendant has failed to discharge the burden placed on him of establishing that the parties reached agreement on the alleged compromise. If I had not come to my earlier determination on the illegality issue, the plaintiff would therefore have been entitled to judgment.

Conclusion

65. The defendant having succeeded on his plea of illegality, it follows that the plaintiff's claim must be dismissed. There will therefore be judgment for the defendant. There will also be an order nisi pursuant to RSC Order 42 Rule 5B(6), that the plaintiff pay the defendant's costs to be taxed if not agreed; the order to become absolute if an application to the contrary is not made within 14 days. Liberty to apply is reserved on any other consequential matters.