BANK OF CHINA (HONG KONG) LTD v. WELL LOK PRINTING LTD AND OTHERS

HCMP 3925/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3925 OF 2002

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D E C I S I O N

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Application

1. The paying party (“the Bank”) raised a preliminary issue in a taxation.  It argued that the costs arrangement between the receiving party (“the Wife”) and her solicitor was:

(a)	against the rule of maintenance and champerty,
(b)	a contingency fee agreement, and/or
(c)	in breach of the indemnity principle.

Background

2. On 26 September 2002, the Bank commenced the present mortgagee action against the Defendants.  The 1st Defendant (“the Company) was the borrower and owned by the 2nd Defendant (“the Husband”).  He and the Wife were sued as mortgagors under the transactions.

3. Default judgment was entered against all the Defendants in January 2003.  The Bank repossessed and sold the mortgaged properties.  However, there was still a deficit owing to the Bank.

4. The Wife then went to Messrs. Chan & Associates (“C&A”) who took up the matter for her.  Based on undue influence of the Husband over the Wife, on 26 January 2004, C & A successfully obtained an order from Master Charles Wong to vary the default judgment to the extent of absolving the Wife’s liability.  The Bank appealed against it but was dismissed by Deputy High Court Judge Saunders (as he then was) on 4 June 2004.  Costs of the application and appeal were made in the cause.

5. Thereafter, C&A continued to act for the Wife until 24 May 2006.  She decided to act in person because she could not put sufficient costs on account to cover the Counsel fee for trial of 3 days in August 2006.  On 5 September 2006, Mr. Recorder A.Chan, SC granted the relief sought by the Wife and ordered costs in her favour.

6. The Bank is now appealing against the Judgment to the Court of Appeal.  However, on 10 April 2007, C&A lodged its bill seeking to recover those costs against the Bank during the period when it acted for the Wife.

7.  On 5 June 2007, Master Ho heard the call-over of the bill.  The Bank raised the question of indemnity principle and the learned Master then, ordered, inter alia, C&A to file and serve an affirmation to deal with the same.  Mr. Sun of C&A did so.  He filed his affirmation on 20 June 2007 explaining the arrangement and exhibiting all contemporaneous attendance notes and records.  The Bank was not satisfied with the explanation and hence the parties appeared before me on 3 October to argue on the same.  Mr. Ng of Messrs. K.W. Ng & Co. acted for the Bank and Mr. Sun of C&A represented the Wife.  Having heard from them, I reserved my decision to be handed down.

The Fee Arrangement

8. The fee arrangement between the Wife and C&A is summarized in the followings.

(a)	No written retainer has been signed.
(b)	When C&A started to act for the Wife, there was an oral agreement.
	“	2.	孫律師當時有告訴我貴所的一般收費，是大約依據法院訟費評估用的標準。我記得他有提過他自己的收費是約每小時三仟元，但我不能記起他提過的其他收費的細則。我當時同意這收費標準。”
			(Acknowledgment by the Wife on 13 June 2007)
(c)	On 31 January 2003, C&A issued an interim bill to the Wife, covering the proceedings herein as well as HCB 13436/2003.  A 24% discount was offered in respect of profit costs.
(d)	A&S wrote to the Wife on 2 February 2004:
	“	…我們在電話中已同意，你不必現在支付欠額，我行可以待你的申請有結果及法院對訴訟費有判決時再與你商量如何處理。”
(e)	After Deputy Judge Saunders (as he then was) dismissed the Bank’s appeal, the Wife met with C&A on 26 January 2004.  It was discussed, among others, that:
	“	- If the proceedings would continue, and if trial result in our favour, there would still be the risk of plaintiff appealing.  Separate decision then but costs would be more contained (est 1 day’s counsel fee + sol fee)
		- If the trial result would be unfavorable would consider giving up.  We would consider remission of our fee if required.”
(f)	A&S continued to prepare the case for the Wife before the trial.  No further bill was issued.
(g)	The Wife could not put up funds to cover costs of counsel fee for the trial.  Hence, in early 2006, she filed a notice of acting in person. By an acknowledgment dated 24 January 2006, the Wife agreed that:
	“	3.	我同意如果此案我答辯得直，我會立刻通知貴司，安排計算之前已付及未計算的法律費用，向原訟人索償。”
	Further, on 13 June 2007, the Wife confirmed that:
	“	6.	我確認我與貴所的協議，是貴所會押後向我發帳單收費，待雙方同意終止訴訟或法院作出裁判後再處理，而貴所並未有同意豁免對我的收費。”

9. So, in summary, C&A would charge the Wife on time basis, subject to discretionary discount.  Due to the financial position of the Wife, C&A agreed that she did not have to pay the interim bill right away.  Further, it was to be reviewed later.  No further bill was issued.  The question would be further discussed after settlement or determination of the Wife’s case at trial.

10. Applying the above costs arrangement to the complaints made by Mr. Ng.  I do not find it contrary to the rule of maintenance and champerty.  However, it is contingent.  Further, I am not satisfied that the indemnity principle has not been breached in the circumstances.

Maintenance and Champerty?

11. The law of maintenance and champerty has been recently and thoroughly considered by the Court of Final Appeal in Siegfried Adalbert Unruh v Hasn-Joerg Seeberger (unrep., FACV Nos. 9 and 10 of 2006, [2007] HKEC 268)).  Four points were stated to highlight the current approach of this principle.

(a)	An agreement to share the spoils of litigation encourages the perversion of justice.  Gambling the outcome of the litigation endangers the integrity of judicial process.  These traditional legal policies underlying maintenance and champerty continue to apply.
(b)	However, one has to examine the totality of the facts to see if the ends of justice is or is not undermined.
(c)	In so doing, modern public policies should be taken into account, including ensuring the poor to give fair access to justice.
(d)	The law of maintenance and champerty should not be relied too readily to strike down arrangements attempting to achieve justice.  Other public policies may be relied upon instead, like unconscionable contract and contingent fee agreement.

12. In my view, under the present costs arrangement, C&A was not funding the Wife’s litigation.  Mr. Sun was not trying to share in the spoils of litigation to the exploitation of the vulnerable Wife.  Indeed, he did all he possibly could in the circumstances for the Wife.  Only when he could not taken up the personal risk of liability to pay counsel fees, he then quitted.  There is no risk to the integrity of the court’s process.  Quite to the contrary, Mr. Sun tried to help to Wife to obtain justice.

Contingent fee agreement?

13. Contingency fee agreement is not allowed under our system.  Wallersteiner v Moir (No. 2) [1975] QB 372, 402 was referred to by the said case of Siegfried Adalbert Unruh at paragraph 104.

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Under a contingency fee agreement the remuneration payable by the client to his lawyer in the event of his success must be higher than it would be if the lawyer were entitled to be remunerated, win or lose: the contingency fee must contain an element of compensation for the risk of having done the work for nothing.  It would, it seems to me, be unfair to the opponent of a contingency fee litigant if he were at risk of being ordered to pay higher costs to his opponent in the event of the latter’s success in the action than would be the case if there were no contingency fee agreement.  On the other hand, if the contingency fee litigant were to lose the action, his opponent’s right to recover costs against him should not in fairness be affected by the fact that the former party has a contingency fee agreement.  Consequently under our system of what are sometimes called indemnity costs a contingency fee litigant would in the event of success have to bear a heavier burden of fees, irrecoverable from his opponent, than he would otherwise do, while remaining exposed to the risk of being ordered to pay his opponent’s taxed costs in the event of his failure.  The arguments in favour of a contingency fee system are accordingly a good deal less cogent here than they are in the United States of America.”

14. After thought, I reluctantly find that, by the very nature of the arrangement, Mr. Sun charged the Wife a contingent fee.  Interim bill was issued.  He said that “if the trial result would be unfavorable ……  We would consider remission of our fee (emphasis added) if required.”  The liability of the interim bill is therefore not finalized, but to be determined and dependent on the trial result.  Similar arrangement was made for work done not yet billed.  While agreeing that C&A has not yet issued the final bill nor agreed to waive any of the fee, I can be certain, on balance, that the remuneration of C&A depends on the trial result.  Indeed, Mr. Sun confirmed with me at the hearing that, by “再與你商量如何處理”, he meant a reduction or waiver of the fee in the event that the Wife lost her case at trial.  Mr. Sun told me that “We can’t squeeze blood out of the stone”.

15. I can appreciate the lenience of Mr. Sun, but such fee agreement is not allowed under our costs system.

Indemnity Principle?

16. Once I have concluded that the fee is contingent and therefore unenforceable, it is not necessary for me to go further to the indemnity principle.  Nonetheless, for completeness sake, I should also briefly discuss it.

17. Indemnity principle in the context of taxation requires that the receiving party cannot recover a sum in excess of his liability to his own solicitors.  Then, what exactly is the liability of the Wife towards C&A?  A definite answer is unavailable because it is “variable” depending on the trial result.  Will the answer of “the amount of costs I recover from the other side will be the costs charged by me” help Mr. Sun?  I do not think so because such arrangement has been held by Mr. Registrar Chan under Holiday Resorts (Management) Co. Ltd v Chan Yuk Yan & another, judgment dated 2 May 2001, as “so vague and uncertain” that the liability of the client towards his client was not known.  I agree with such observation.

Order

18. In conclusion, I find that the subject costs agreement is contingent and therefore unenforceable.  The Wife is therefore not entitled to recover her costs incurred by C&A from the Bank.

Costs

19. I do not have the benefit from the parties on the question of costs.  However, I believe that no order as to costs appears to be appropriate in the circumstances and I so make such an order nisi accordingly.