NINEYOU INTERNATIONAL LTD AND OTHERS v. MESSRS. TROUTMAN SANDERS (a firm)

HCMP 697/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 697 OF 2009

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D E C I S I O N

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BACKGROUND

1. A group of companies, which is collectively described as Nineyou, engaged Messrs Troutman Sanders (“Troutman”), a firm of solicitors practising in Hong Kong, by an Engagement Agreement (in Chinese) dated 8 April 2008 (“the Engagement Agreement”) to provide services with its intended initial public offering (“IPO”) in Hong Kong.

2. Although counsel for Troutman has provided English translation in her skeleton submission for some of the terms of the Engagement Agreement, I will in this Decision quote the relevant terms in Chinese.  The relevant payment terms of the Engagement Agreement are as follows:

“  2.3  爲了與久游集團建立長遠合作關係，並建基於以下第2.9條之假設，長盛就向公司和上海久游提供作爲上市申請人的香港和美國律師一般需履行之有關上市法律服務而應收取的律師費用作如下安排：

2.3.1. 就一般香港上市項目和在美國144A規則下進行私募的目的履行本協議附件一所列出的工作收取律師費一百五十萬美元(US$1,500,000);

2.3.2 在公司成功上市時，公司和/或上海久游應考慮根據長盛之工作表現另行計發獎金；

2.3.3 如爲上市目的需成立離岸公司(如開曼群島公司或英屬維爾京群島公司)，或在香港註冊成爲海外公司，長盛將另外計算有關的律師費，並就每一家公司另行報價。

2.4 上述第2.3.1條下之律師費將分以下步驟由公司和/或上海久游支付：

2.4.1 在本協議簽署後七個工作日內支付百分之二十五(25%)；

2.4.2 在2008年7月1日或公司向香港聯交所提交上市申請A1表格當日(取兩者較早發生者)再支付百分之三十五(35%)；

2.4.4 在公司於香港聯交所上市當日再支付百分之四十(40%)。

3. The first payment under clause 2.4.1in the sum of US$375,000 (“the 1^st Stage Payment”) was made shortly after Troutman issued a revised invoice on 11 April 2008(“the 1^st Invoice”) for the sum of US$375,000.

4. On 2 May 2008, Nineyou gave notice to Troutman to terminate the Engagement Agreement and demanded for repayment of the 1^st Stage Payment.  It also refused to settle disbursements in the sum of US$7,120. Troutman had invoiced to Nineyou on 11 August 2008 (“the 2^nd Invoice”).

5. In the present proceedings, Nineyou asks for an order to refer the 1^st Invoice and 2^nd Invoice to taxation under s. 67 of the Legal Practitioners Ordinance, Cap.159 (“LPO”).

6. After the hearing, I declined to refer the 2^nd Invoice to taxation, and this Decision is the reserved judgment concerning with the 1^st Invoice only.

ISSUES

7. In the application by Nineyou to refer the 1^st Invoice for taxation, I need to consider the following issues:

(1)  Is the Engagement Agreement a non-contentious business agreement within the meaning of s. 56 of the LPO?

(2)  If not, whether there is any proper basis for this court to exercise a discretion under s. 67(2), LPO?

Issue (1): Is it a non-contentious business agreement?

8. S. 56 of the LPO provides:

“Agreement for remuneration for non-contentious business

(1)  … a solicitor and his client may, either before or after or in the course of the transaction of any non-contentious business by the solicitor, make an agreement as to the remuneration of the solicitor in respect thereof.

(2)  The agreement may provide for the remuneration of the solicitor by a gross sum, or by … percentage …

(3)  The agreement shall be in writing and signed by the person to be bound thereby …

(4)  The agreement may be sued and recovered on or set aside in the like manner and on the like grounds as an agreement not relating to the remuneration of a solicitor:

Provided that if on any taxation of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the taxing officer may inquire into the facts and certify them to the Court, and if on that certificate it appears just to the Court that the agreement should be cancelled, or the amount payable thereunder reduced, the Court may order the agreement to be cancelled, or the amount payable thereunder to be reduced, and may give such consequential directions as it thinks fit”.

9. Both counsel ( Mr. Chan for Nineyou and Miss Chan for Troutman) have referred to me a number of cases on constructions of terms. I do no think they are of much assistance as the principles are already well established, and counsel also in fact has very little argument.

10. The actual meaning of the terms of each agreement should invariably depend on the wordings as well as the factual background of each case.  In the present case, I will consider the terms of the Engagement Agreement against the factual background.

Nineyou’s arguments

11. Relying on the judgment of Mr. Justice Tang J (as he then was) in the case of ETC Environmental Technology Limited v. Alvan Liu & Partners HCMP 1061/2004 (unreported, 7 July 2004)[1], Mr. Chan submitted that the Engagement Agreement was not a non-contentious business agreement because Clause 2.3.1 of the Engagement Agreement -  similar to ETC (op.cit) - only stipulated the maximum amount of  US$1.5 million to be charged, and that it only stipulated in clauses 2.1 and 2.2[2] the hourly rates for each category of fee earners without specifying who were to be involved with the works of the proposed IPO.

12. Mr. Chan also placed much emphasis on clause 2.14, which governs an event of termination. Clause 2.14 provides:

“2.14:      如果公司和/或上海久游，或長盛按照本協議的規定終止本協議，或公司和/或上海久游取消上市計劃，則公司和/或上海久游應在本協議終止或上市計劃取消(取兩者較早發生者)後三天內按照長盛已提供的服務工作時間和工作量支付長盛已發生的律師費及其他費用和支出。在此情況下，長盛可以參照上述第2.1條及2.2條所述之律師收費標準收取有關律師費用而無須受制於第2.3條和第2.4條所述之固定律師費。”

13. Mr. Chan submitted that the wordings of clause 2.14 make it clear that both parties, upon termination, have the right to adjust fees in according to the time having been spent and the services been rendered.

Troutman’s arguments

14. Miss Chan, on the other hand, contended that given the undisputed discount of 25% from the usual fee of about US$2 million charged by Troutman for IPO works by charging Nineyou instead a reduced fixed amount of US$1.5 million, and further that substantial services would have been required to be rendered within a very tight time schedule in the early stage of the IPO works, the fixed fee arrangement would have meant to offer protection to Troutman should the Engagement Agreement be terminated immediately or very shortly after the 1^st Stage Payment.  Clause 2.12[3] - which requires the 1^st Stage Payment to be paid within 3 working days of the signing of the Engagement Agreement as a result of the substantial amount of works to be involved in the initial stage- was clearly meant (contended by Miss Chan) to give little incentive to Troutman to exercise its right to terminate the Engagement Agreement prematurely.

15. In respect of the termination event clause provided in Clause 2.14, Miss Chan argued that the clause did not give Nineyou a right to adjust fees upon termination.  It only gave protection to Troutman by allowing it to bill and charge additional fees based on the time costs having been incurred in the event of termination.

Discussion

16. The Parties entered into the Engagement Agreement for the purpose of getting one of the companies (the 1^st Plaintiff) of Nineyou to be listed in the Stock Exchange of Hong Kong Limited.  The agreed payment for the services performed by Troutman was the fixed amount of US$1.5 million to be paid by 3 stages in accordance with clause 2.4.

17. In addition to the fixed sum of US$1.5 million, the Engagement Agreement also allows Troutman to charge Nineyou for disbursements and expenses (clause 2.5) or services to be performed outside Hong Kong (clause 2.7).

18. Further, the fee of US$1.5 million is subject to a rider in clause 2.9 that contains a number of assumed factual circumstances.  In the event that the factual circumstances do not turn out in the way clause 2.9 has assumed, Troutman would have the right to adjust the fees set out in clause 2.3 (clause 2.10).

“2.9  上述第2.3條下的律師費是根據下列的假定計算的：

2.9.1 久游集團經由國際認可有資格在香港執業的會計師事務所按照香港的通用會計準則編制經審計的財務報表，並且沒有與上市有關的重大或不尋常的會計問題;

2.9.2 長盛無須就香港與中國以外之法域的問題對久游集團及其附屬公司進行或協助盡職審查(長盛在其他法域聘用的負責履行與中國或其他法域有關之問題的工作的律師事務所所出具的賬目將按照第2.7條進行結算)；

2.9.3 如果上市産生的某些特別事項需要大量服務，並將大幅增加長盛的工作量，長盛可能會對第2.3條下的律師費上限進行調整；

2.9.4     如果需要長盛履行的工作不是由上市公司律師在香港一般上市項目中一般須履行的工作，或因在上市過程中出現異常或複雜情況(包括但不限於知識産權，物業産權、稅務、訴訟等方面)而引起額外工作，或長盛的任何服務超出附件一所述的範圍，長盛將會計收額外費用；

2.9.5 久游集團將在二零零八年十二月三十一日或以前上市。長盛有權就在此時限後進行的法律服務收取第2.3條下之律師費上限以外的額外律師費用；

2.10 如上述的任何假定沒有達到或久游集團的上市計劃受到任何重大、複雜或不尋常情況的影響或因任何其他情事導致長盛之工作量大幅增加，長盛有權改變第2.3條下之律師費上限。”

19. From the provisions above, I am of the view that the Engagement Agreement only provides for an agreement for a fixed remuneration so long as it leads to the successful listing, in which event, Nineyou would have paid- in additional to any extras mentioned in paragraph 17 above - the last stage payment of 40% of the agreed sum of US$1.5 million.

20. Thus analyzed, I am of the opinion that the provisions in clauses 2.1 and 2.2 that set out the hourly rates for the different categories of fee earners would not be engaged had there been a successful listing because by which stage the final stage payment of 40% would have become payable without any need to consider the actual time spent or the hourly rates charged by the persons involved with the works.

21. However, the problem facing the parties in the present case is that of premature termination. Hence, I will next consider whether the terms of Engagement Agreement also provide for an agreement for a fixed fee upon termination.

22. Apart from clause 2.14 set out in paragraph 12 above, and clause 4.1, there are no other provisions dealing with parties’ agreement in the event of termination.

“4.1   公司和/或上海久游以及長盛均有權通過向對方發出不少於十天的事前通知終止本協議。在此情況下，公司和/或上海久游應付清所有累積而未付的費用、開支和墊付款；在長盛獲得該等付款之前，長盛將有關保管和控制所有文檔和文件。”

23. Clause 4.1 deals with the required notice period for termination and the obligation of Nineyou to settle all outstanding payments. Hence, the only relevant clause for the present consideration is clause 2.14.  Both counsels have also alluded to the same clause. Miss Chan contended that because of the words “可以” appearing in the last sentence of clause 2.14, it provided an option to Troutman to charge the actual time having been spent upon termination, but it gave no right to Nineyou to adjust fees as Mr. Chan had submitted.

24. Miss Chan’s said argument however seems to have overlooked the part immediately preceding the last sentence of clause 2.14 that provides:

“則公司和/或上海久游應在本協議終止或上市計劃取消（取兩者較早發生者）後三天內按照長盛已提供的服務工作時間和工作量支付長盛已發生的律師費及其它費用和支出” (Emphasis added)

25. According to the said part of the provision, Nineyou is obliged upon termination to pay Troutman legal fees according to the actual time having been spent and other charges that have actually been incurred.

26. Apart from stipulating Nineyou’s obligation, clause 2.14 in the last sentence further sets out the mechanism on how the fees and charges are to be determined, which would be calculated according to the actual time having been spent with reference to clauses 2.1 and 2.2 without Troutman being bound by the fee stated in clause 2.3.1. While I accept that the words “可以” imports an option, however I am unable to find any words anywhere in the Engagement Agreement that excludes the parties’ right from having the fees to be determined according to the actual time having been spent upon termination.

27. I am further driven to this view because of the lack of specificity provided in clauses 2.1 and 2.2, which have the similar pitfalls as pointed out by Tang J (as he then was) in ETC.  In ETC, the agreement also did not specify the number of hours likely to be incurred, or the actual person who would be providing the services. In the present case, the only reference in clauses 2.1 and 2.2 is the provision for the range of fees to be charged by each category of fee earners, which in my view can hardly be regarded as sufficiently specific.

28. Concerning Miss Chan’s argument regarding clause 2.12, I think the clause is a red herring for it seems that the clause had been inserted in the Engagement Agreement for the purpose of explaining the reason behind the stage payments.  However, it would have little relevance once the Engagement Agreement was terminated. 

29. Hence, upon termination there is no fees agreement under s. 56 of the LPO, Troutman is entitled to be remunerated on a time basis.

30. Concerning the nature of the 1^st Stage Payment, while Miss Chan agreed with Mr. Chan that it was not to be regarded as “costs of account”, she however contended that it was consistent with the parties having reached an agreement for payment of a fixed sum.  I am unable to accept this argument because I am of the view that clause 2.4 should be qualified by clause 2.14 upon termination especially when there is no provision excluding any refund of the fees having been paid under clause 2.4.  For the same reasons stated by the learned judge in ETC (op.cit. at para.23), I, too, am of the view that the 1^st Stage Payment should be on account of the total lump sum payment.

31. I would further add that – different to the agreement in ETC, which provided for only a maximum amount of fee to be paid- clause 2.14 does not appear to impose any restriction on the actual amount of fees – be it minimum or maximum  – to be charged upon termination.  The actual amount would be determined according to the work having been done by the time of the effective termination of the Engagement Agreement (although the effective date of termination is likely to be disputed).

32. In conclusion, therefore, I find that the Engagement Agreement does not fall within the meaning of s. 56, and it is not an agreement for fixed remuneration upon termination.

Issue (2): whether the court should exercise discretion?

33. The 1^st Invoice was rendered to Nineyou on 11 April 2008, and the Originating Summons of the present action was issued on 8 April 2009.  Hence, the application for taxation was made within 12 months of the bill rendered, and it falls with s. 67(2) of the LPO, which provides,

“Taxation of bills on application of a party chargeable on solicitor

(1)  On the application, made within 1 month of the delivery of a solicitor’s bill … of the party chargeable therewith the Court shall, without requiring any sum to be paid into court, order that the bill shall be taxed and that no action shall be commenced thereupon until the taxation is completed …

(2)  If no such application is made with in the period mentioned in subs. (1), then, on the application of the … party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order –

(a)      that the bill shall be taxed;

(b)     that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed..”

34. Miss Chan urged me not to exercise my discretion to order taxation on three grounds:

(i)   the application was made in the last minute;

(ii) Nineyou already obtained substantial services rendered by Troutman; and

(iii)  The fee chargeable by Troutman for the works done, according to the breakdown it has provided to Nineyou, is almost equivalent to the 1^st Stage Payment.

35. In considering whether to exercise the discretion under s. 67(2), the Court will consider factors such as the intention of the applicant, whether he was aware of his right to taxation, the timing of the application and whether on the face there is any suggestion of over-charging.  Generally, the discretion should be exercised in favour of taxation unless the application is an abuse of proceedings or not bona fide made (see Simmons & Simmons Solicitors (a firm) v Thomas Joseph Dillon, JR, HCA 2784 of 2003, Deputy Judge A. To, at para. 25).

36. According to the facts of the present dispute, Nineyou demanded Troutman to refund the 1^st Stage Payment when terminating the Engagement Agreement.  When Troutman refused to refund any payment having been received, and further alleged that the amount of fees for services having been rendered to Nineyou came up to be around US$368,000 - which would have been nearly equal to the full amount of the 1^st Stage Payment-  Nineyou demanded Troutman in September 2008 to provide for a breakdown of the works done.

37. After the breakdown of the estimated fees of US$368,000 was sent to Nineyou, Nineyou disputed the calculation of fees, and demanded a refund on 10 November 2008 of US$247,497.50 (after having deducted from the amount Nineyou allegedly to be liable from the 1^st Stage Payment).

38. When Nineyou’s requests for refund were not met, it complained the matter to the Law Society on 3 December 2008.

39. It was upon a reply on 8 December 2008 from the Law Society informing Nineyou that it could apply to the court to have the fees taxed that Nineyou consequently commenced the present proceedings on 8 April 2009.

40. From the above chronology of event, I am unable to say that there had been delay on the part of Nineyou in instituting the application for taxation.  A period of 4 months between the time of Nineyou having become aware of a right to apply for taxation and the commencement of proceedings cannot- in the context of s. 67(2)- cannot, in my view, be regarded as an unreasonable delay.

41. The time breakdown Troutman has provided to Nineyou also shows that it has kept very detailed time records.  There will not be in my view any injustice to Troutman should taxation be proceeded with.

42. Further, as there is no agreement on matters such as who and how many of them had been involved in providing the services to Nineyou, it would not be possible for Nineyou to know if the fees that are allegedly to be of the similar amount as the 1^st Stage Payment have been fairly and reasonably incurred.  As Tang J (as he then was) pointed out in ETC (at para.19), the burden is not on the applicant (Nineyou in the present case) “to show that the hourly rate charged, the number of hours spent, or the seniority of the person engaged is unfair or unreasonably when there was no agreement on the hourly rate, the number of hours to be spent, or the persons to be engaged.”

43. For these reasons, therefore, I would order the 1^st Invoice to be referred to taxation in accordance with s. 67(2).

COSTS

44. As Nineyou has been successful in its application, I grant a costs order nisi that Nineyou shall have the costs of the Originating Summons, including costs reserved and a certificate for counsel.

45. I further order under Order 62 rule 9 of the High Court Rules that the costs shall be summarily assessed in lieu of taxed costs.

46. Upon the costs order becoming absolute, and should the costs not be agreed, the Plaintiff shall fix a hearing before me for summary assessment of costs with ½ hour reserved.  The Plaintiff is to lodge and serve a statement of costs 7 days before the hearing for summary assessment of costs, and the Defendant shall likewise lodge and serve his list of objections 3 days before the hearing.

[1] Approved by the Court of Appeal, in ETC Environmental Technology Limited v. Alvan Liu & Partners [2005]1 HKRLD787

[2] 2.1  長盛一般根據每一位為此案工作之合夥人、 高級顧問、 律師和法律助理的每小時收費標準對其服務進行收費 。該每小時收費標準按照參與工作之專業人員的資歷和經驗水平而有所不同， 而且會不時（一般在年底）予以調整。

2.2. 目前適用於此案之長盛的香港和中國合夥人、 高級顧問、 律師和法律助理的每小時收費標準為：法律助理由115美元至240美元、律師由195美元至425美元及合夥人及高級顧問由450美元至695美元（供公司和上海久游參考， 作為本所的高級合夥人，李倩薇律師的現時每小時收費標準為695美元）。長盛之收費標準在香港是具競爭能力的。長盛有權按年對第2.2條下的律師費標準進行調整。

[3] 2.12     由於長盛可能需用相當多的時間協助久游集團進行前期工作並草擬與上市和重組有關的大量文件 ，故公司和/或上海久游應在本協議簽署後三個工作日內，向長盛按第2.16條所述之方法支付以上第2.4條所述之首期費用。