A SOLICITOR v. LAW SOCIETY OF HONG KONG

CACV372/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 372 OF 2004

(ON APPEAL FROM THE FINDINGS OF THE SOLICITORS DISCIPLINARY TRIBUNAL,
 DATED 17^TH DAY OF AUGUST 2004, AND ORDER OF THE SOLICITORS DISCIPLINARY TRIBUNAL,
DATED 23^RD OF NOVEMBER 2004)

______________________

______________________

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Ma CJHC :

1. On 17 August 2004, a Solicitors Disciplinary Tribunal (“the Tribunal”) found the appellant solicitor (“the Appellant”) guilty of professional misconduct in that his conduct compromised or impaired, or was likely to have compromised or impaired, his own reputation or the reputation of the solicitors’ profession (Rule 2(d) of the Solicitors’ Practice Rules, Cap.159H).  On 23 November 2004, after hearing submissions on the appropriate penalty and costs, the Tribunal ordered that the Appellant: -

(1)	be censured;
(2)	be fined $100,000; and
(3)	pay the sum of $400,000 by way of contribution to the costs of the proceedings.

2. The Appellant appealed to this Court against all three orders under section 13 of the Legal Practitioners Ordinance, Cap.159 (“the LPO”).  Originally, the appeal was against both the finding of misconduct as well as the penalties imposed and the order for costs.  On 10 October 2005, the Appellant informed the Court that he no longer wished to appeal against the finding of misconduct but only against the fine and the award of costs.  There was no appeal against the censure.

3. After hearing submissions from counsel on 26 October 2005, we allowed the appeal with costs, substituting the fine of $100,000 with a fine of $5,000 and substituting the costs contribution of $400,000 with the sum of $75,000.  We also said that the reasons for judgment would be handed down in due course.

The facts

4. Section 8AA(1) of the LPO enables the Council of the Law Society (“the Council”) to appoint an inspector to assist it in verifying compliance by a solicitor with the provisions of the LPO or any practice direction issued by the Law Society (section 8AA(1)(a)) or in determining whether the conduct of any solicitor should be inquired into or investigated (section 8AA(1)(b)).  Such inspectors are given powers of questioning and can also require a solicitor to produce documents (section 8AA(b)).

5. On 20 June 2002, the Law Society who was the Respondent in this appeal (“the Law Society”) received an anonymous letter which made various serious allegations against the Respondent.  On 9 July 2002, the Council resolved to appoint four inspectors under section 8AA of the LPO to investigate the Appellant.

6. By a Notice for Inspection dated 15 July 2002 addressed to the Appellant under the Law Society’s letterhead, the Respondent was informed that in accordance with section 8AA(2)(b) of the LPO and “pursuant to a direction of the Council of the Law Society”, he was required to produce for inspection six classes of documents.  One of the inspectors signed the Notice for Inspection.  The Notice required the production of the documents “forthwith”.

7. Upon receipt of this Notice, the Appellant became somewhat suspicious of the Law Society’s motives having at that time just concluded another set of disciplinary proceedings brought against him by the Law Society.  He was in communication with the Law Society over the question of costs.  In these other proceedings (which reached the Court of Appeal), the Law Society had been subjected to strong criticism from the Court.  At the time he received the Notice for Inspection, the Appellant therefore viewed this as something more than just a coincidence.

8. The Appellant immediately sought leading counsel’s advice as to the validity of the Notice and also as to whether the demand for documents might somehow contravene the provisions of the Personal Data (Privacy) Ordinance, Cap.486.  The effect of counsel’s advice received by the Appellant is important.  In summary, the principal points of this advice were as follows : -

(1)	Leading counsel advised that as the Notice for Inspection had to be issued pursuant to a direction from the Council, the Appellant was entitled to have sight of the Council’s direction.  In the Note of Advice following a consultation with the Appellant, leading counsel said this :
	“	It is therefore my considered opinion that [the Appellant] is entitled to a copy of the direction.  In the unlikely event that there was no such a direction, the Notice would be a nullity.  On the other hand, if the Notice was issued pursuant to such a direction that was given in accordance with s.8AA, its validity may not be challenged.”
	As Mr Russell Coleman (for the Law Society) reminded the Court, counsel’s advice did state it was unlikely that such a direction did not exist, but the fact remains that his advice was firmly to the effect that the Appellant was entitled to see it.  This advice was later reconfirmed in an e-mail message dated 31 July 2002 from leading counsel in which it was said :
	“	My recollection of the provision under discussion is that a direction is necessary if an inspector is to exercise some of the more intrusive powers.  [The Appellant] is entitled to ask for sight of the direction before he complies with it in order to protect himself from a client who may say that his papers should not have been disclosed absent proof positive that the inspector was authorized to ask for the papers.”  (emphasis added)
(2)	It was also leading counsel’s advice that if the Law Society refused to provide the direction, judicial review was available as a remedy for the Appellant.
(3)	Separately, the Appellant sought the advice of junior counsel on, among other matters, whether any inspection of the documents identified in the Notice for Inspection might infringe the Personal Data (Privacy) Ordinance.  Counsel advised that there were potential problems under that Ordinance.

9. The effect of counsel’s advice is critical to the determination of the present appeal.  We are not concerned with whether counsel’s advice was correct (indeed the correctness of the advice given was in my view highly questionable but it is not necessary to decide this) but on the effect it had on the Appellant and his conduct after receiving such advice.  It was the Appellant’s position, not contradicted by the Law Society nor disbelieved by the Tribunal, that he relied on counsel’s advice.

10. Upon receipt of the advice, the Appellant then wrote to the Law Society on 16 July 2002 stating that counsel had advised him he was entitled to see the Council’s direction authorizing the Notice for Inspection.  Mention was also made of potential problems under the Personal Data (Privacy) Ordinance.  The letter also informed the Law Society that he was at that time personally locating the documents requested but as certain files dated back to 1998 and 1999, time was required to locate them.  The Appellant continued in the letter :

“I can give no firm time estimate at this stage but will, subject to any advice from Counsel, produce the files and papers as soon as possible.”

In a separate letter, also dated 16 July 2002, the Appellant complained to the Law Society about a letter that had been sent to him earlier that day in which it was stated that an inspection would be carried out at 11:00 am the next day and that the Appellant had already failed to comply with the Notice for Inspection (which, as will be recalled, required the production “forthwith” of the documents requested).

11. In a reply dated 17 July 2002, the Law Society stated that the Appellant’s letter dated 16 July 2002 would be placed before the Council at a meeting that was to be held on 23 July 2002 and that meanwhile the inspectors would not be attending the Appellant’s offices that day.  On 18 July 2002, the Appellant informed the Law Society that he would prefer to be present at the Council meeting and have the opportunity to make submissions.  He ended the letter by saying this :

“Surely it would fairer if I was directly addressed with any concerns that the Society may have about me. I am very willing to co-operate and answer any questions the Council or Conduct Section might reasonably have of me”.

12. The Council meeting took place on 23 July 2002 but without the attendance of the Appellant.  It was resolved that none of the documents that had been requested by him (which of course included the Council’s direction referred to earlier) would be provided to him.  The Appellant was informed of this in a letter from the Law Society dated 31 July 2002 and also warned that if he failed to comply with the Notice for Inspection, this would amount to a disciplinary offence.  In another letter that day from one of the inspectors, the Appellant was told that the inspection would now take place on 6 August 2002.  By a letter dated 2 August 2002, the Appellant requested again that the Council’s direction be provided to him.  In a reply dated 6 August 2002, the Law Society urged the Appellant to comply with the Notice for Inspection, but the direction was not provided.

13. On 6 August 2002, the inspectors arrived at the Appellant’s offices and were told that no documents would be handed over that day.  In an affidavit served in the disciplinary proceedings, the Appellant said this : 

“I accept that I had, in the view of the Law Society, not complied with the notice but I believe that the notice was not valid having taken Senior Counsel’s advice specifically on this point and believing his advice to be correct.”

The disciplinary proceedings below

14. By a Complaint Sheet dated 6 February 2003, the Appellant was charged with a breach of rule 2(d) of the Solicitors’ Practice Rules, this being the alleged failure to produce documents to the inspectors on 6 August 2002.

15. The Tribunal having been set up under section 9B of the LPO, it heard the complaint on 14 and 15 June 2004.  Previous to this substantive hearing of the complaint, there had been some directions hearings and two other interlocutory hearings (a discovery application for counsel’s written advices and an application for recusal).

16. At the hearing, the Appellant contested the charge.  In a Statement of Findings dated 17 August 2004, the Tribunal found the complaint proved, accordingly finding the Appellant guilty of misconduct.  This was notwithstanding the fact that he had all along relied on counsel’s advice.  It had been the Appellant’s evidence that had the Law Society disclosed to him the Council’s direction at the relevant time, he would have complied with the Notice.  In view of the abandonment by the Appellant of that part of the appeal dealing with the finding of misconduct, it is unnecessary to deal at length with the Tribunal’s reasons for its finding that the charge was proved.  However, the following matters are of note : -

(1)	The Tribunal was of the view that there was no justification for the Appellant to demand sight of the Council direction.  Regarding the contention that the Appellant relied on counsel’s advice, the Tribunal noted that while honest and reasonable belief might be a factor going towards mitigation, it was not relevant to a finding of misconduct.
(2)	However, when properly read, it is clear from the Statement of Findings that the Tribunal did not take this factor (of the Appellant’s reliance on counsel’s advice) much into consideration at all.  The Tribunal was of the view that leading counsel had not actually advised the Appellant to refuse to comply with the Notice for Inspection.  In any event, counsel had advised him that judicial review may be a remedy if the Law Society refused to provide the direction and in the present case, the Appellant had not instituted any judicial review proceedings.
(3)	The Tribunal rejected the Appellant’s contention that a refusal to comply with the Notice for Inspection was justified on the basis of his concerns regarding the Personal Date (Privacy) Ordinance.

17. Having found the Appellant guilty of misconduct, the Tribunal then proceeded to consider the appropriate penalty.  Following a hearing on 21 October 2004, the Tribunal made the orders referred to in paragraph 1 above.  Its reasons (dated 23 November 2004) were essentially as follows : -

(1)	Although it was accepted that the Appellant had honestly, albeit misguidedly, acted on counsel’s advice, this did not excuse him from compliance.
(2)	The Tribunal also accepted that the Appellant did not deliberately try to hold up the inspection process since he was not aware of the true nature of the complaint that had been made against him.  However, the Appellant’s actions had held up the investigation for more than two years.
(3)	As for his testimony that had he been provided with the direction, the Appellant would have complied with the Notice for Inspection, the Tribunal was sceptical of this saying :
	“	The Tribunal finds it hard to accept Mr Blanchflower’s submission that had the Applicant [the Law Society] produced the Council’s direction leading to the Notice of Inspection, the Respondent [the Appellant] would have complied with the Notice of Inspection and these proceedings could have been avoided.  There was no reason for him to doubt that the inspector was acting without proper authority and the rules do not require the Applicant [the Law Society] to produce the Council’s direction.  However, the Tribunal accepts this was not a case of fraud or dishonesty that would militate a sentence at the higher end of the scale”.
(4)	On costs, the Tribunal accepted the principle that the amount of costs payable should bear some proportion to the gravity of the misconduct concerned and the level of penalty imposed.  It also accepted that although the Appellant had failed in some interlocutory applications, it did not consider that the proceedings had been prolonged by any unreasonable tactics on his part.  Having been provided with estimated costs of $1.2 million on the part of the Law Society, the Tribunal came to the view that the proper contribution that the Appellant should make was $400,000.

18. As stated above, it is the fine and the costs order against which the Appellant in the end appealed.  The appeal against the finding of misconduct was abandoned on the basis of the decision of this Court in A Solicitor v The Law Society of Hong Kong, unreported, CACV246/2004, 9 June 2005, in which it was decided on the facts of that case that the following of legal advice (which, unlike the present case concerned foreign law from a foreign lawyer and did not pertain to the obligation of the solicitor to comply with a Notice for Inspection under Hong Kong law) did not provide a defence to charge of misconduct (in that case also a failure to comply with a Notice for Inspection).  In view of the abandonment of the appeal against the finding of misconduct, I say no more about that case except to make the point that reliance on counsel’s advice may in some circumstances amount to a defence to a charge of misconduct.  The case is not authority for any contrary view; it was a case decided merely on its own facts.

Reasons for decision

19. I have gone through the facts in some detail in order to highlight the following features that in my view assume importance in this appeal : -

(1)	First, the reason for the Appellant’s failure to comply with the Notice for Inspection was that he had taken counsel’s advice and leading counsel was of the view that he did not have to comply until he had sight of the Council’s direction authorizing the Notice.  This was no attempt to be difficult or obstructive.  The Appellant evidently had genuine misgivings about revealing to the Law Society inspectors documents that affected third parties; hence his seeking counsel’s advice on the Personal Data (Privacy) Ordinance.  It is to be noted that in his affidavit dated 31 October 2003 served in the disciplinary proceedings, he said :
	“	I wanted to be assured that this inspection was properly authorised and was not being carried out for any ulterior motive and also  that it was lawful for me to comply with the notice given that one of solicitors in my firm had objected to me providing details of his employment and salary records to the Law Society on the basis that it was a breach of his right to privacy.  A solicitor, I understand, should not part with his clients documents or other confidential documents unless he is completely satisfied that he is lawfully entitled to do so.  I was not so satisfied and was fortified by counsels advice in such belief”.
(2)	Secondly, the Appellant had at all times cooperated with the Law Society.  He had taken steps to gather the relevant documents after receiving the Notice for Inspection notwithstanding counsel’s advice, he had offered to address the Council as well and in evidence he said that if he had been provided with the Council’s direction, he would have allowed the inspectors access to the documents sought in the Notice for Inspection.  Mr Coleman reminded us that although the Council’s direction was in fact exhibited to an affidavit dated 6 February 2003, the Appellant did not then disclose the required documents but instead waited until after the disciplinary proceedings were over before doing so.  This was to put into proper perspective, so Mr Coleman contended, the Appellant’s stance that had he seen the direction at the relevant time, he would have allowed the inspectors access to the documents.  In my view, the disclosure of the Council’s direction came only in the course of the disciplinary proceedings that had already been instituted against the Appellant and he could perhaps be forgiven for not reacting to it in the way that Mr Coleman suggested he ought to have.  Besides, no renewed request for the documents came from the Law Society after the service of the affidavit exhibiting the direction.

20. The two features I have just referred to should have assumed a greater importance when the Tribunal came to consider the appropriate penalty than they did and this is where in my opinion the Tribunal erred : -

(1)	Where advice is sought from counsel (all the more so when leading counsel is instructed) and a solicitor follows that advice, and has acted at all time reasonably, honestly and in good faith, any professional misconduct committed on his part (if any) would, as in the present case, largely fall under the lowest end of the scale of culpability.  Such misconduct should merit no more than a minimal, if not nominal, fine.  In some cases, this may even afford a defence to disciplinary proceedings but it is neither necessary nor desirable to elaborate further on this aspect in the present case given the abandonment by the Appellant of this part of the appeal.
(2)	Mr Michael Blanchflower SC (who acted for the Appellant) referred us to an unreported decision of the English High Court in Foster v Alfred Truman (a firm) [2003] EWHC 95 in which Simon J dealt with the trial of a preliminary issue in an action where a claim had been made by a client against a solicitor for breach of duty.  At paragraph 38 of the judgment, the learned judge said this :
	“	So far as relevant to this case, the principles are as follows.  (1) In general a solicitor is entitled to rely on the advice of counsel, properly instructed.  (2) For a solicitor without specialist experience in a particular field to rely on counsel’s advice is to make normal and proper use of the Bar.  (3) A solicitor must not, however, blindly follow the advice of counsel.  He must exercise his own judgment.  If he reasonably thinks counsel’s advice is obviously or glaringly wrong, it is his duty to reject it.  (4) The more specialised the field in which the advice of counsel is given, the more likely it is that it is reasonable to accept and act on it.”
	Though said in the context of an action against a solicitor by a client, it is apposite in setting out the duties of a solicitor when he has instructed counsel to advise.
(3)	It is useful to make the same point from another angle.  As I asked Mr Coleman in the course of his submissions, how many solicitors would act contrary to counsel’s advice and in particular advice from leading counsel?  I accept immediately that where counsel’s advice can be seen to be suspect or where the solicitor is not acting reasonably, honestly or in good faith, it may be different but that is not the present case.  In my view, the Appellant acted reasonably, honestly and in good faith in seeking and then following counsel’s advice (albeit that the advice may have been wrong).
(4)	Instead of fully taking into account the above matters, the Tribunal was not sufficiently impressed with the fact that the Appellant had sought and followed counsel’s advice (see paragraph 16(2)) above.  I deal with these points shortly.  First, leading counsel was advising that the Appellant could refuse to comply with the Notice for Inspection unless he had sight first of the Council’s direction.  This is clear from the extracts from leading counsel’s advice which I have set out in paragraph 8(1) above.  Next, while counsel had mentioned the possibility of judicial review, this was by no means an exclusive remedy.  In my view, in taking the point (about being entitled to see the Council’s direction) at the time of the inspection rather than by means of an application for judicial review, the Appellant was no less relying on counsel’s advice than if he had instituted such proceedings.  In other words, he was not acting unreasonably in not instituting judicial review proceedings.
(5)	As to the fact that the Appellant had at all time cooperated with the Law Society, this is clear on the papers before us.  The Tribunal was sceptical of this but it had no real reason to be of this view.  While it could be said that the Appellant was being adamant in insisting on his rights (as he was advised by counsel), so was the Law Society.  Rather than engage the Appellant in a dialogue to clear up the differences between them, and this could easily have been done since in essence it was really the issue of the production of the Council’s direction that separated the parties, the Law Society remained implacable, became somewhat aggressive and itself ignored the point that all the Appellant was doing was following counsel’s advice.

21. For the above reasons, I am of the view that while there was misconduct (since this was conceded), this was misconduct at the lowest end of the scale of culpability and not just the lower end as the Tribunal thought.  It was therefore appropriate to reduce the fine to one of only $5,000.

22. I now move on to the question of costs.  The power to order costs by a Solicitors Disciplinary Tribunal is set out in section 10(2)(e) of the LPO which states : -

“	10.	Powers of a Solicitors Disciplinary Tribunal
		(2)	Subject to the provisions of this Ordinance, on completion of its inquiry and investigation, a Solicitors Disciplinary Tribunal shall have power to make such order as it thinks fit and any such order may, in particular, include provision for all or any of the following matters -
			(a) – (d) …
			(e)	payment by any party of the costs of and incidental to the proceedings of the Tribunal and the costs of any prior inquiry or investigation in relation to the matters before the Tribunal, to be taxed by a Master of the High Court on a full indemnity basis, or payment of an amount that the Tribunal considers is a reasonable contribution towards those costs;
			(f) – (m) …”

23. Two options are therefore open to a Solicitors Disciplinary Tribunal : either ordering that costs be taxed or ordering a fixed sum that the tribunal considers is a “reasonable” contribution towards those costs.  Where the tribunal considers that taxation is appropriate, although express reference is made to costs being taxed on a full indemnity basis in section 10(2)(e), the tribunal is entitled to order a different basis of taxation :- see A Solicitor v The Law Society of Hong Kong, unreported, CACV302/2002, 18 February 2004.

24. In determining the question of costs, a Solicitors Disciplinary Tribunal must take into account the nature and seriousness of the conduct found to be proved, the circumstances of the breach and other relevant circumstances : - see Solicitor v Law Society of Hong Kong & Secretary for Justice (Intervener), (2003) 6 HKCFAR 570, at 597-8 (at paragraph 93) per Chan PJ.  Among the circumstances which a tribunal can fairly take into account are the conduct of the parties and in particular the level of penalty or penalties imposed on the solicitor : - see A Solicitor v The Law Society of Hong Kong, CACV302/2002 at paragraphs 122-124 per Woo VP.  In particular, it is important to bear in mind a sense of proportion between the blameworthiness of the solicitor, the penalty imposed and the amount of costs that the relevant solicitor found guilty of misconduct would have to pay : - see A Solicitor v The Law Society of Hong Kong, CACV302/2002 at paragraphs 126-134; A Solicitor v The Law Society of Hong Kong/The Solicitors Disciplinary Tribunal, unreported, CACV221 & 254/2003, 11 November 2003 at paragraph 114 (per Stone J).  I also agree with the observations with Rogers VP in the latter case (at paragraph 128) that figures should be given to a tribunal when it is considering the question of costs so that it is able to assess the likely impact of an order for costs on the solicitor and have a sense of proportion.

25. In the present case, the Tribunal was entirely correct to take the view that the Appellant should be required to make a contribution to costs rather than order a taxation.  The figure that was provided to the Tribunal by the Law Society was in the region of $1.2 million.  The Tribunal must have regarded that figure, as do I, as being quite excessive.  Applying the principles I have referred to earlier, the Tribunal arrived at the figure of $400,000 as representing what it regarded was a reasonable contribution.  I see nothing wrong with the Tribunal’s approach but in view of my earlier conclusion on the issue of the appropriate level of fine, the figure of $400,000 is disproportionate.  It is true that the Appellant contested the disciplinary proceedings and in the end the charge made against him was proved.  For that, it is right that he should pay a part of the costs.  However, given the level of fine we have imposed and the other circumstances of the case earlier referred to, a reasonable contribution is $75,000 and this is the order we made at the conclusion of the hearing.

Hon Le Pichon JA :

26. I agree.

Hon Suffiad J :

27. I agree.