Ng Wing Hung v. The Council of the Law Society of Hong Kong

HCAL 70/2021

[2021] HKCFI 341

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 70 OF 2021

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Before:  Hon Coleman J in Chambers (Open to Public)

Date of Hearing:  27 January 2021

Date of Judgment: 27 January 2021

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J U D G M E N T

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1.These proceedings are commenced by the applicant who, from 2017, was the managing partner and, I think, the sole equity partner of a firm of solicitors, Wong Fung & Co (“the Firm”). There is one other partner, a salaried partner of the Firm, a Mr Yuen. The proceedings are in the form of an application for leave to apply for judicial review, seeking to challenge four decisions made by the putative respondent, the Council of the Law Society of Hong Kong (“the Law Society”), primarily flowing from its decision made on 23 December 2020 to intervene in the practice of the Firm, and the three subsequent decisions not to accede to the applicant’s or the Firm’s request to deal with the concerns that the Law Society has expressed in some other way, perhaps some other less apparently draconian way.

2.The Form 86 application for leave to apply for judicial review is dated 20 January 2021.  On the same date, the applicant issued a summons seeking interim relief.  In light of those matters and the degree of interest shown by clients of the firm and other members of the public in these proceedings, it seemed to me to be appropriate to call on this case at relatively short notice and I set today’s date for that hearing.

3.I have been greatly assisted by the written skeleton submission material that, despite the short notice, the parties have managed to file.

4.The applicant is represented by Mr Patrick Chong, together with Mr Terrence Tai of Counsel and the Law Society is represented by Mr Abraham Chan, Senior Counsel, leading Mr Justin Ho of Counsel.

5.The interest of clients and some other members of the public is perhaps made most evident by a letter that has been handed up to me this morning which is signed by a significant number of clients of the firm who describe themselves as being among the over 900 clients who have been devastated by the Law Society’s intervention in the Firm on 24 December 2020.  Those clients, understandably, express concerns and frustrations, describe their world as having been turned upside down, complain about what they see as an excessive use of power by the Law Society, lack of transparency and a conflict of interest and, in particular, their concerns about the delay that the intervention is causing to their ordinary business of buying and selling properties.

6.I note that the amounts of funds frozen strongly indicate that most of these clients are engaged in the sale or purchase of residential or small commercial premises, which transactions are, unfortunately, interrupted, at least to some extent, by the intervention.

7.At this morning’s hearing, Mr Chong has made what he describes as an application for interim interim relief in the form of a draft order which he attached to his skeleton argument.  On the basis of certain undertakings that would be offered, he seeks an order today that pending the full determination of his summons seeking interim relief, the Law Society and its agents should be restrained from taking any steps pursuant to the resolution dated 23 December 2020 to intervene in the practice of the Firm and requiring the Law Society to take all necessary steps to release and/or procure the release of all the funds representing the monies held by the Firm which vested in the Law Society on 23 December 2020 and to release them to a Mr Simon Lee Po-wing, a solicitor, to allow him to operate the Firm’s bank accounts.

8.The proposed order also is to require the Law Society and its agents to take all necessary steps to release and/or procure the release of all documents in their possession which are necessary to facilitate the completion of the conveyancing transactions of the clients of the Firm for the months of December 2020, January 2021 and February 2021.

9.Mr Lee, I think, is prepared to act by this form of assistance on a pro bono basis, and Mr Chong informs me this morning that he would be assisted by approximately 90 per cent of the clerks of the firm who have also agreed to provide that assistance on a pro bono basis.

10.Mr Chong says that the proposed interim interim order is an attempt to fashion a practical short-term solution to facilitate completion of the clients’ conveyancing transactions and to secure the release of those funds to the clients and he poses in simplified form the question which he says falls for resolution on this morning’s hearing, namely, whether there is real evidence of any current shortfall in the firm’s accounts or any other reason to keep the clients from their money.

11.The principles applicable on an application for interim relief in public law cases are well-settled.  In short, the usual principles for the grant of an interim injunction apply, albeit with necessary modifications to take into account the public law context.  It is also settled that it would only be in an exceptional case, exceptional circumstances, that interim relief would be granted if leave to apply for judicial review has not yet been obtained.

12.There can be no doubt that the courts have previously repeatedly emphasised that the modified usual principles give rise to a stringent application in the public law context where interim relief is sought against the public authority and includes when there is a proposal to interfere with the functions of a statutory regulatory body such as the Law Society in this case.

13.It is also settled that where the form of interim relief sought is or is in part mandatory in nature, then the court will give greater scrutiny to the merits of the underlying challenge and the court will rarely and not lightly second-guess regulatory judgments and arrangements made in the public law context.

14.As Mr Chan submits, when it comes to proposed relief that would have the effect of stalling or, indeed, going in contrary directions to what the primary authority in a given regulatory domain has established in good faith based on their assessment of the public interest, the court will be exceptionally slow to intervene by way of interim relief.

15.I agree, and I note that the court will also give particular weight to the relevant authority’s assessment of the impact of the potential interim stay on the public interest where it relates to a specialist area where that public authority has or can be expected to have the relevant expertise.

16.In this case, the form of the interim interim order proposed, which I have already identified, is in the nature of seeking a mandatory injunction.  In short, it might be described as not simply requiring the Law Society to stop its intervention, but also to undo the steps so far taken in the intervention and it would necessarily impact on what must be the involved and rather complicated process which is ongoing relating to the undertaking to return files to clients of the firm, as well as to investigate the irregularities which gave rise to the intervention in the first place.

17.I do not think it unfair for Mr Chan to have described the proposed orders as being effectively to sidestep the Law Society’s investigations at this stage.  There is also some force in the submission made by Mr Chan which says that the proposed interim interim order even goes further than the relief sought in the Form 86 and is akin to the grant on an interim interim basis of what is effectively final relief. Those matters seem to me properly to require the heightened scrutiny of the application and its context.

18.Mr Chong submits that the point relating to the public interest requires little, if any, elaboration.  He points to the decision to intervene in the Firm’s practice as having caused immense hardship to clients of the Firm.  The letter to which I have made reference from some of those clients also makes the same point with understandable force.  The effect is on clients seeking to purchase property, clients who have sold their properties or clients who are in the process of selling their properties. There is little reason to assume other than that those clients are innocent of any wrongdoing, but, unfortunately, are caught up in the present situation.

19.Mr Chong goes on to submit that here there is no real allegation of dishonesty against the partners of the firm and that notwithstanding the investigations which began in around June 2020 and lasted for around six months before the date of the decision to intervene in the firm’s practice, and notwithstanding the passage of a further month of that intervention process, the Law Society’s investigations essentially reveal only two major issues:

(1)  the possibility of a shortfall of $23 million in the clients’ accounts, and;

(2)  that a former clerk was involved in the theft of client funds to the tune of around $6 million, albeit some 18 months or so before the intervention in around the middle of 2019.

20.As to the shortfall, Mr Chong identifies that at the request of the Law Society itself, the Firm’s partners have deposited the relevant $23 million odd figure from their own resources into an escrow account on their undertaking not to deal with that sum, at least for a period of some six months or so, without permission from the Law Society.

21.As to the theft by the Firm’s former clerk, Mr Chong makes the points that the clerk deceived the client to issue a number of blank cheques onto which he later put his name, but those steps did not affect the integrity of the Firm’s bank accounts and the money was not, in fact, stolen from the Firm’s bank accounts.  Mr Chong also says that where that clerk left the Firm in 2019, his dishonesty could not possibly affect the interest of the present clients.

22.That may be right, although it seems to me that there are some odd features of that theft which may require further exploration and investigation.  In particular, the theft was not reported by the Firm, either to the police or to the Law Society, in circumstances where one might think those reports were the obvious things to have done and where the fact that that was not done cries out for investigation.

23.In any event, Mr Chan says that these two points are not the only two points of concern for the Law Society and they may be indicative of the tip of the iceberg of possible problems rather than the entirety of those possible problems.  As he put it, the accounts and the system of the accounting within the firm appear to be in complete disarray, which would certainly wholly justify, he says, an intervention of the sort that has been undertaken.

24.Mr Chong’s response is to accept candidly that the Firm may well have been disorganised, but it and its partners were not dishonest.  Mr Chong also says there is really no risk of dissipation or absconding or destruction of documents against the chronology of ongoing investigations since June of 2020 and that the picture which has been presented publicly thus far by the Law Society is not a fair painting of the full story.

25.But to be fair to the Law Society, it has not yet been required, nor had the opportunity, to put what it says is the full story arising from its investigation, certainly not yet before this court.  It might be said that ventilating arguments through means of press releases or other public statements is not the best way for anyone to gauge the real merits in the steps that are being taken by the body statutorily charged with regulating solicitors and solicitors’ firms in Hong Kong.

26.Though Mr Chong submits that the partners of the firm have fully cooperated with the Law Society’s investigations, it seems to me that the correspondence from the Law Society, which I have seen exhibited by the applicant to the materials leading the underlying challenge, show that the Law Society does not necessarily accept that it has been provided with all the disclosure and all of the answers to the questions and concerns it has raised.

27.But the core point made by Mr Chong is that there would have been other alternative and less drastic measures that might have been taken by the Law Society as opposed to actual intervention in the firm, yet, Mr Chong says, none of those options were apparently explored by the Law Society, let alone taken.

28.From the Law Society’s point of view, Mr Chan submits that the application today is wholly premature in at least two fundamental respects.

29.First, he says that there can be no fair determination on interim relief unless and until the Law Society has been given time to file evidence in response to the application and that evidence filed by the applicant.  The court at present, says Mr Chan, only has a one-sided picture presented by a Firm which, in the Law Society’s considered assessment is, at minimum, starkly unreliable.

30.Secondly, he emphasises the legal principle I have already mentioned, that it would only be in exceptional circumstances that applications for interim relief would be granted in a judicial review case if leave to apply for judicial review has not yet been obtained.

31.Mr Chan also makes the point that, to the extent that the application asserts that it is being made in the interests of the public or of particular clients of the Firm, the reality is that from the Law Society’s point of view, it is precisely the same concerns about clients and the wider public that should push strongly against any attempt to draw the court now into the path of interim judicial intervention against the Law Society’s intervention.

32.Mr Chan also says that the court could consider today simply dismissing the application for leave to apply for judicial review and so with it the proceedings as a whole.  He says the position is that there has been a failure to engage in what Mr Chan describes as the exclusive statutory remedies in respect of a challenge to the Law Society’s intervention decision where it is a fundamental rule that an application must generally exhaust all available effective alternative remedies before seeking intervention by way of judicial review.

33.Here, Mr Chan points out, there is no challenge to the legality of the primary legislation under which the Law Society is exercising its regulatory powers and Mr Chan submits it is fundamental that the court in its supervisory jurisdiction should be concerned to uphold rather than to override or circumvent lawful governmental or regulatory schemes and their effective implementation.

34.Now, I do not think that for today’s purposes, I need to resolve the question as to whether or not leave to apply for judicial review should be granted.  I will, however, fix an early date for the argument on leave.  But I see at least real force in the submissions made that the relevant statutory regime specifically provides for a rapid and limited by time opportunity for the firm affected by an intervention to apply to this court for an order directing the Law Society Council to withdraw the relevant intervention notice and that if such an order for withdrawal is made, the court has the power to make such other orders with respect to the matter as it may think fit.

35.The explanation thus far offered by the applicant for not taking that step is, if I might respectfully say so, thin. But Mr Chong says there is at least good authority to suggest that the route of an application for judicial review remains open to him and, in any event, that would appear to be the only basis of seeking to review the second, third and fourth decisions identified in the Form 86.

36.I take into account in my decision this morning, the various points that can be made as regards leave and the real merits that there appear to be that leave or the grant of leave is certainly at least not a foregone conclusion.

37.On the materials currently before the court, it seems to me to be rather difficult for the court to second-guess or place itself in the position of the Law Society and to work on the assumption that the applicant’s proposed changes to the intervention arrangements would necessarily help rather than hinder or even potentially further harm the interests of clients as a whole and the public in its wider sense.

38.Clearly, the Law Society’s intervening agents have taken some steps to minimise what they recognise must be the impact that the intervention has, in particular on a significant number of the firm’s clients engaged in the conveyancing processes I have described.

39.I am not persuaded that seeking to reverse this process at this stage on the material that I have would not be the wrong thing to do and would not lead to significant wastage of time and costs.

40.I see the real force from the clients’ point of view that they are less concerned with a wider investigation into the accounting irregularities of the Firm or what may or may not have been the circumstances of an earlier theft of different clients’ funds from the Firm now some 18 months or so ago and that the current clients’ individual concerns will be as to their ability to recover their funds or to complete their particular transactions.

41.In those circumstances, I certainly would encourage the Law Society to do all in its powers to assist those clients, recognising that the identification of the interests of the clients as a group should not mean that one loses sight of the interests of members of that group as individual clients.  But, on balance, applying the usual test as to where it seems to me the greater risk of injustice might lie, depending upon the grant or refusal of the application at this stage should it turn out that that decision was wrong, points firmly in favour of refusing the interim interim relief. I would mention one other point, which is the criticism by Mr Chan of the applicant’s failure to have offered any cross-undertaking in damages, which Mr Chan says would leave the Law Society potentially exposed, I think, to a number of possible claims.  I do not take that factor as being significant in my decision this morning, but it might be something to consider on any further or renewed application for interim relief.

42.Though I had previously thought that it might be appropriate in the circumstances of this case to seek to bring the matter back to court on what is called a rolled-up hearing dealing with both the application for leave to apply for judicial review and the substantive application for judicial review should leave be granted, I now think, in the light of the submissions by Mr Chong and Mr Chan, that it is more appropriate to proceed along the conventional route of dealing with the leave application first.

43.I will fix that application for 10.30 am on 11 February 2021, with one day reserved.  On the same occasion, I will deal with any renewed application made on the 20 January 2021 summons for interim relief, and I will leave to that hearing the setting of any date for any subsequent hearing of an application for judicial review itself, should I grant leave.

44.But I would urge the parties not to ignore all preparation of evidence as might be required, should leave be granted, because I would expect to hold the substantive hearing, if one is required, in pretty short order after 11 February and to give a timetable for the filing of evidence accordingly.

Mr Patrick Chong and Mr Terrence Tai, instructed by Paul Kwong & Co, for the applicant

Mr Abraham Chan SC, leading Mr Justin Ho, instructed by Dentons Hong Kong LLP, for the respondent