A SOLICITOR v. THE LAW SOCIETY OF HONG KONG

cacv 149/2008

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 149 of 2008

(on appeal from THE ORDER OF THE SOLICITORS
DISCIPLINARY TRIBUNAL
DATED 8^TH MAY 2008 AGAINST A SOLICITOR)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from the findings and order of the Solicitors Disciplinary Tribunal (“the Tribunal”) made on 6 February 2008.  The appellant had been found to have committed professional misconduct on 2 charges and in respect of 2 further charges the Tribunal had found that the case had not been proved.

2.  The Tribunal ordered that the appellant should be censured in respect of complaints 1 and 2.  It further ordered that the appellant should bear the costs of the application for specific discovery made by him and, subject to that, 70% of the costs of and incidental to the proceedings before it, including the costs of the prosecutor, the Tribunal Clerk and the costs of the Law Society’s prior enquiries and investigations in relation to the matters that were before the Tribunal.

3.  The appellant appealed against the findings of professional misconduct and against the order of censure and the costs order.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

4.  The appellant was, at the time of the matters relating to the complaints, a partner in a firm of solicitors that had specialised in dealing with the development of small houses in the New Territories.  Towards the end of December 1999, probably 21 December 1999, a Mr Chau of the complainant, Harvesty Developments Ltd, had contacted the senior partner of the appellant’s firm and arrangements were made for someone from the complainant to come to the appellant’s firm’s office.

5.  The complainant wished to develop small houses in the New Territories.  The senior partner of the appellant’s firm explained in his witness statement how, over the years, he had developed documentation in order to enable developers to proceed to have such houses built and sold to their commercial benefit.  There were 2 important aspects of the documentation which he had developed.  In the first place, care was taken to insert clauses that would protect the parties, in particular the developer, in case of various contingencies.  In the second place, the Government policy in relation to the development of small houses in the New Territories did not envisage development by property developers but was directed to providing a means for the indigenous inhabitants of the New Territories to be able to provide themselves with reasonable accommodation on their own land.  Because of this latter consideration, the documentation which had been developed within the firm had been carefully framed, although it was not certain that it would meet Government approval.  For those reasons, the policy of the appellant’s firm was that their documentation should be kept strictly confidential and not released even to the client.

6.  For the above reasons, the appellant firm had adopted a policy of insisting that their clients should agree that the documentation should be kept confidential and neither party to the transactions would be at liberty to obtain copies of the documents which were not meant to be registered.  In paragraph 40 of his witness statement the senior partner said:

“I have some recollection that there was a complaint against my firm to the Law Society by a lay client probably sometime in about mid-1980s but I can no longer identify or trace the relevant file.  So far as I can recall:-

40.1     it was a case in which the client had asked for a copy of the full set of small house development transaction documents executed at my firm but his request was refused;

40.2     my firm’s answer was to the effect that it was a condition of our retainer that the contents of the entire documentation were to be kept confidential and neither party to the transaction was at liberty to obtain copy documents not put to use and not meant to be registered;

40.3     the Conduct Section of the Law Society then asked if the condition was made or evidenced in writing; and my firm’s answer was that it was agreed upon orally;

40.4     eventually, my firm was informed by the Conduct Section of the Law society that the complaint was unsubstantiated.”

7.  It was against that background that the appellant requested Mr Ho to sign what have been called the Chinese Acknowledgements which form the kernel of the complaints.  The English translation of the material part of that reads:

“                                        LOT NO. 761B IN D.D. 453

To: Messrs. Wong, Hui & Co.

We execute the documents prepared by your firm in relation to the caption lot of land.  We agree, understand and undertake as follows:-

(1)        The copyright of those documents belongs absolutely to your firm.

(2)        Without the consent of your firm those documents must be kept by your firm and that we must not ask for those documents or copies thereof and may only inspect them in person subject to payment of a reasonable fee and by prior appointment with your firm;

(3)        We understand that the contents of all other documents to be signed by us in respect of the development of the lot of land must be strictly kept secret.  If there should be any breach (of such secrecy) we shall bear all loss sustained by your firm.

(4)        We understand that your firm only represented the developer and does not represent both parties.

We understand that if we have not made the above undertaking in advance, your firm will not accept the appointment of the developer or provide those documents for us to sign.”

8.  The complaints made were as follows:

“                                          COMPLAINT SHEET

1.         That you, [the solicitor], a solicitor, committed professional misconduct by asking your client to sign two documents in favour of your firm which were contrary to the client’s interest in breach of Rule 2(a), (c) and (d) of the Solicitors’ Practice Rules and/or the Governing Principle in Chapter 7 of the Hong Kong Solicitors’ Guide to Professional Conduct Vol. 1 Second Edition (the “Guide”).

Particulars

            On 24th December 1999, you asked your client Harvesty Developments Limited (the “Complainant”) to sign two documents in Chinese copies of which are exhibited as “RAH-3” and “RAH-4” to the Affidavit of Robert Anthony Harrod dated [15 Feb 2005] (the “Chinese Acknowledgements”).  The terms of the documents are contrary to your client’s interest.

2.         That you, [the solicitor], a solicitor, committed professional misconduct by asking your client to sign two documents which restricted its freedom to instruct a solicitor of his choice in breach of Rule 2(b) of the Solicitors’ Practice Rules.

Particulars

            On 24th December 1999, you asked the Complainant to sign the Chinese Acknowledgements, which had the effect of restricting its choice of solicitors to replace your firm.

3.         That you, [the solicitor], a solicitor, committed professional misconduct by asking your client to sign two documents in favour of your firm without explaining the effects thereof contrary to Principle 5.12 (Commentary 4) and/or Principle 5.18 (Commentary 2) of the Guide.

Particulars

            On 24th December 1999, you asked the Complainant to sign the Chinese Acknowledgements without explaining to it the effects and implications thereof.

4.         That you, [the solicitor], a solicitor, committed professional misconduct by failing to return all papers and property to which your client is entitled upon termination of your retainer contrary to Principle 5.23 of the Guide.

Particulars

            In or about January 2004, the Complainant terminated your retainer in relation to the proposed development of Lot No. 761B and Lot No. 761 RP in DD 453 and requested you to deliver all documents, papers and correspondence in relation to the matter to its new solicitors.  However, you refused to do so despite repeated demands.”

9.  Both the senior partner and the appellant gave evidence before the Tribunal.  The appellant said that he had been told by the senior partner that the complainant may contact him in relation to the development of small houses and that the matter would be assigned to the appellant to handle.  The appellant explained how he would inform clients that the documentation which his firm used had been built up through years of practice and experience.  He would explain that the documents which the firm used would have to be “perfectly legal” and that he would tell the client that the documents had not been proved and had never been vetted by the Government or tested in court but that the firm believed that they were legal and achieved, as close as possible, the effect of the intended transaction.  He would explain that because the documents had been built up over the years, the copyright belonged to his firm.  He would emphasise the importance that they should be kept confidential.

10.  In relation to the Chinese Acknowledgement he said he would put it in front of the developer and the villager and that they could read it themselves as it was in Chinese.  He would ask them to read it and he would “read it pretty much verbatim”.  Whilst doing so he would emphasise that the documents would be released when their use was required.  If they were happy with the contents he would ask them to sign the documents.  The Tribunal noted that, in response to a question which the Tribunal itself had raised, the appellant had said that it would take roughly 2 to 3 minutes for him to go through the Chinese Acknowledgement with the villager and the developer including time for them to ask questions if any.  The Tribunal noted, in particular, that the appellant took the view that the Chinese Acknowledgement was a simple document and its contents were self-explanatory.

11.  In relation to the question as to the circumstances in which the appellant’s firm would be prepared to release the documents, the Tribunal noted that the senior partner had said that they would be released “upon being satisfied that the need for use of such documents has arisen.”  The Tribunal considered that it remained unclear as to the circumstances in which the firm would be prepared to release the documents.  The Tribunal pointed out that the appellant himself was not clear as to the circumstances because he said that he would need to consult the senior partner.  The Tribunal came to the conclusion that it was the firm’s intention that not all documents would be released to a client and that the client or a representative would have to attend its offices to inspect the documents.  In relation to the first complaint the Tribunal came to the following conclusions:

“74.      We are of the view that the Chinese Acknowledgements prejudice the client’s interests.  A basic requirement in order for a client to enjoy the benefits of documents prepared for it by a solicitor is that the client needs to have the documents or a copy of them.  It does not, for example, seem possible to construct a document without having a copy to consider.  One cannot be expected to memorise all the contents of a document at the time of signing or some months or years thereafter.  The inconvenience in having to attend Wong Hui’s office every time it is necessary to refer to, review or consider the documents is substantial and unusual.  The new solicitor or counsel would need not only to inspect the documents at the Respondent’s office, but actually to do the work there, as he would have not the documents after leaving the Respondent’s office.  Such attendances on more than a few occasions and over a period of time would probably be impracticable.  We are of the view that a lay client may not appreciate the difficulties which may arise from being denied access to even a copy of the documents.  While a solicitor is entitled to protect his intellectual property, the Chinese Acknowledgements are not a permissible way to achieve this.  We are of the view that the Chinese Acknowledgements compromise or impair or are likely to compromise or impair the solicitor’s duty to act in the best interests of his client as well as his own reputation and the reputation of the profession.  Seeking to impose the Chinese Acknowledgements on a prospective client would be “inexcusable and such as to be regarded as deplorable”.

  75.     It is a question whether a solicitor may be permitted to impose something like the Chinese Acknowledgements on a prospective client after full and frank disclosure and ample time for the client to reflect on and consider the proposal.  A conflict of duty could be waived by the client’s informed consent.  If a client developer has given its informed consent, it may be that there would be no concern that or reputation of the solicitor or that of the profession would be compromised or impaired.  In this matter, we find that insufficient explanation of the effects of the Chinese Acknowledgements has been given to the client by the Respondent.  We also find that it is inexcusable and deplorable for a solicitor to seek to impose the Chinese Acknowledgements on a prospective client at least without full and frank disclosure including that it is unusual for a client to be denied copy of the documents and of all the disadvantages which the client may suffer by reason of the Chinese Acknowledgements.  Therefore, we find that Complaint 1 is substantiated.”

12.  Given the findings in relation to Complaint 1 and what was said, in particular, in paragraph 74 the Tribunal was clearly, almost certainly, bound to find Complaint 2 proved.  In relation to Complaint 3 the Tribunal held that Principal 5.12 and 5.18 did not apply because at the time relevant to the Complaint that the complainant was not the appellant’s client.  In relation to Complaint 4 the Tribunal was not prepared to hold that the Chinese Acknowledgements were contrary to public policy or fell foul of the Control of Exemption Clauses Ordinance or that they were tainted by undue influence.  The Tribunal went on to say that in the absence of a finding that the appellant knew it was improper to impose the Chinese Acknowledgements on the client or that his lack of such knowledge was inexcusable and deplorable (which was not a case put forward by the Law Society) it did not consider that it would be justified to add a finding of misconduct solely by reason of the earlier findings of misconduct.

13.  In addition to the censure, the Tribunal ordered that the appellant should pay 70% of all costs of and incidental to the proceedings including the costs of the prosecutor, the Tribunal clerk and the costs of the Law Society’s prior enquiries and investigations in relation to the matters before the Tribunal.  This court enquired as to what those costs were and were informed that the prosecution costs were $518,944, the clerk’s costs were $236,301 and the Law Society’s investigation costs were $56,841.

This appeal

14.  On this appeal, Ms Li SC, who appeared on behalf of the appellant, reminded the court that the Chinese Acknowledgements had been in use for a long time in the appellant’s firm, that not only had there been no previous complaint in respect of them but that the senior partner had given evidence as to what had transpired in the 1980s.  Ms Li emphasised that a solicitor, as indeed any other person, was at liberty to negotiate terms of contract with a potential client that would be advantageous to it.  She emphasised that the terms of the Chinese Acknowledgements were there to protect the firm’s copyright in the documents.  The potential client was at liberty to accept or refuse the terms offered and it was said that in the absence of any overriding considerations of public policy there was nothing wrong with a solicitor exercising such freedom of contract.  Underlying the submissions was the argument that the complainant was not a client at the time that it agreed to the retainer, it only became a client once the retainer had been accepted.  For that reason it was said that many of the governing principles relied upon, in particular in the Hong Kong Solicitors’ Guide to Professional Conduct, did not apply because at the relevant time the complainant was not a client.

15.  In my view, the terms of the Chinese Acknowledgements were unclear, oppressive and went far further than were necessary to protect the legitimate rights of the firm.  The stipulation, for example, in paragraph (2) of the Acknowledgements that the client must not ask for the documents is, quite simply, something which a court could not even contemplate regarding as legitimate.  It would follow, in those circumstances, that paragraph (2) would be regarded as improper.  Neither does it serve to ameliorate the matter that the senior partner might be prepared to waive any restriction on obtaining any of the documents if he saw fit.  By insisting that a potential client should sign and be bound by the Chinese Acknowledgement, the firm and the appellant were forcing the client into a position where its interests may well be harmed, if for no other reason the client would find it almost impossible to engage any other lawyer in relation to the matter.

16.  In relation to the point taken that at the time the Chinese Acknowledgements were signed, the complainant was not a client of the firm, it seems to me that it must be the case that a solicitor who has before him a client who has just signed such an Acknowledgement would be duty bound to advise the client as to the exact position under the circumstances which prevailed.  It is, therefore, a technicality as to whether the complainant was strictly speaking a client at the time that the Acknowledgement was signed.  The solicitor owed a duty to the client to explain to the client exactly what the position was and if that duty, technically, arose as the pen finished its final stroke, it nevertheless arose.

17.  Even on the basis that the provisions of a documents such as the Acknowledgements could be enforceable, the approach of the Tribunal in paragraphs 74 and 75 would appear to be unimpeachable.  In my view, there is no basis upon which this court could interfere with the findings of fact in relation to complaints 1 and 2.

18.  I find it difficult to leave this matter without adding that the admitted wish expressed by the senior partner and the appellant that some at least of the documents should be kept secret so that the Government should not see them, if not disreputable in itself, does no credit to those involved.  It would seem an inevitable conclusion that the documents have been framed in a way which flouts Government policy, if not the letter of the law.

19.  In relation to the imposition of a censure, it has to be noted that a censure would appear to be the minimum penalty that can be imposed save for simply ordering that a person found guilty of professional misconduct should pay costs.  Given what was said by the Tribunal in paragraph 75 of the findings, with which this court has had no cause to disagree, the imposition of a censure was inevitable.

20.  Turning to the costs, it would seem that the total costs of something over $812,000 in respect of a two-day hearing, on a matter of which there was almost no factual dispute, would seem extremely high.  This court has had occasion previously to comment on the high costs of disciplinary proceedings.  On this occasion, the breakdown of the costs was only given to this court at the end of the hearing following a request from the court.  The costs involved would appear high.  This court would again query why it is necessary to have a solicitor of 10 years’ experience acting as the clerk.  The clerk to the Tribunal should only be engaged in what are strictly clerical functions.  In my view, it would be necessary to provide sufficient justification for the employment of anybody other than someone who was an unqualified clerical or secretarial person to undertake the duties of the clerk.  It would be appropriate for those responsible in vetting the recoverable costs to satisfy themselves as to why a qualified solicitor was engaged.  In the circumstances of this case I consider that an imposition of costs before the Tribunal limited to $400,000 in total including the discovery application would be far more appropriate.  I would vary the order below accordingly.  I would make an order nisi that the appellant pay 50% of the Law Society’s cost of the appeal.

Hon Le Pichon JA:

21.  I agree.

Hon Poon J:

22.  I agree with the judgment of Hon Rogers VP and have nothing to add.