Cheung Tak Man Desmond and Another v. Ip Pui Lam Arthur and Others

DCCJ 2733/2021

[2025] HKDC 1001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2733 OF 2021

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JUDGMENT

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Ps’ claim

1.This is the 1^st and 2^nd Plaintiffs’ (“Ps”) claim for the outstanding legal fees of HK$2,196,478.52, and taxation fee of HK$48,100.00, totaling HK$2,244,578.52 owed by the 1^st Defendant (“D1”) to the firm Li, Wong, Lam & W I Cheung (“LWLWIC”) (now ceased practice).

The parties

2.The former partners of LWLWIC include the 1^st Plaintiff (“P1”), the 2^nd Plaintiff (from 1 September 2016 to 15 February 2019) (“P2”), the 3^rd Defendant (“D3”) and the 4^th Defendant (“D4”).

3.D1 were the joint and several trustees in bankruptcy of the estate (“the Estate”) of Ho Yuk Wah, David (“the Bankrupt”) from 2 August 2011 until D1 resigned on 9 January 2020. D1 retained LWLWIC for the provision of legal services relating to the investigation and proceedings for recovery of assets of the Estate. D3 was the handling partner of the case.

4.The claim against the 2^nd Defendant was discontinued by consent on 19 November 2021.

The dispute

5.LWLWIC issued a Revised Bill dated 6 December 2016 (“the Revised Bill”) to D1 for a sum of HK$5,634,080.06. D1, D3, and D4 (“Ds”) say that the Revised Bill was and is not due and payable because there was an arrangement (“Agreed Fee Arrangement”) made by D3, the creditors of the Bankrupt and D1, whereby any bills issued by LWLWIC would only be due and payable upon conclusion of recovery/litigation actions for the Estate. The recovery/litigation actions are ongoing and, hence, Ps are not entitled to demand the outstanding sum from the Revised Bill. Ps say that the Revised Bill was immediately due and payable and that they are entitled to be paid the remaining sum of HK$2,244,578.52 from D1.

The background

6.On 2 August 2011, Ho Yuk Wah, David was adjudged bankrupt by the Court upon his own petition in HCB 3819/2011.

7.By a general meeting of the creditors of the Bankrupt held on 30 September 2011, it was resolved, inter alia, that:-

(1)  D1 be appointed as the joint and several trustees in bankruptcy of the Bankrupt’s estate;

(2)  There be a creditors’ committee (“Creditors’ Committee”) pursuant to Section 24(1) of the Bankruptcy Ordinance, Cap 6.

8.By a unanimous written resolution of the Creditors’ Committee on 30 December 2011, it was resolved/approved/ratified, that D1 do engage LWLWIC to carry out investigation of the Bankrupt’s financial affairs.

9.Upon the engagement, LWLWIC opened a file bearing reference number 022/79162/11/COMM/U/022/022/127. Works had been carried out by LWLWIC. On 16 June 2015, LWLWIC issued to D1 a signed bill no B16120054 in the total sum of HK$5,851,580.16 for legal services rendered in respect of the File (“Bill”). By a unanimous written resolution of the Creditors’ Committee, the Bill was approved.

10.For the purpose of taxation, D1 provided a brief report setting out the background of proceedings involved and work done by solicitor/counsel and that D1 filed into Court a certificate certifying that “no special terms of remuneration regarding our employment of Messrs Li, Wong, Lam & W I Cheung have been agreed to” (the “2016 Certificate”).

11.On 14 November 2016, the Bill was taxed down by Master Hui by 5% on a global basis (“Taxation Order”). On or around 5 December 2016, 21 days thereafter, the Taxation Order became absolute.

12.On 6 December 2016, LWLWIC issued a revised bill in accordance with the Taxation Order (“Revised Bill”).

13.In around 23 March 2018, D1 filed into Court a further certificate in identical terms to the 2016 Certificate (the “2018 Certificate”).

14.Since the receipt of the Revised Bill, various payments were made into the client account in respect of the File:-

HK$1,531,101.02 was paid on 19 December 2016;

HK$16,710.00 was paid on 23 May 2017;

HK$25,963 was paid on 22 June 2017;

HK$362,247.46 was paid on 22 November 2018.

15.The outstanding balance in the Revised Bill (before interests) amounts to HK$2,196,478.52, and a taxing fee of HK$48,100 also remains unpaid (the Outstanding Fees).

16.In around 26 July 2018, a sum of HK$3,000,000 was paid into the client’s account of the File (“Client’s Account Money”). This amount was paid into the account pursuant to a funding agreement.

17.In January 2020, D1 resigned from the position as Joint and Several Trustees in Bankruptcy, to be replaced by a Mr Chen and Dr Chan.

18.In late 2020, Ps made various requests to LWL (D3/D4’s firm) requesting to apply the Client’s Account Money for the purpose of settling the outstanding fees. The Client’s Account Money have since been transferred to the client account of LWL.

19.This action was commenced in 2021 for the purpose of recovering the Outstanding Fees from D1.

20.The facts set out above are largely not disputed.

Ps’ witnesses

21.Ps called two witnesses, namely, Mr Cheung Tak Man, Desmond (“P1”) and Ms Fong Wai Yee, Kara. Both adopted the contents of their respective witness statement as their evidence.

Mr Desmond Cheung (P1)

22.P1 set out the brief history and terms of the partnership of LWLWIC which are largely undisputed. P1 confirmed that:-

(1)  Each partner had total discretion to agree the fees with client and there was no requirement to report to other partners about the fee arrangement;

(2)  Each partner is entitled to firstly 50% commission of the profit costs for the files he introduced to the firm and then the firm’s profit based on his equity ratio;

(3)  D1 were the auditors of the LWLWIC from at least 2011 to 2019. He had no problem with the auditing service of D1 and did not come across any problems with D1 as auditors;

(4)  The partnership ceased practice in February 2019.

23.P1 went on to describe how he discovered the outstanding bill relating to the File:-

(1)  On or about 13 July 2020, he received a letter dated 13 July 2020 from Ms Fong Wai Yee (“Kara”), a former senior associate solicitor of LWLWIC, addressed to him and other former partners claiming for outstanding wages and leave pay, and enquiring about the settlement status of various bills and whether any handling fee shall be due and payable to her in respect of those bills as set out in Appendix 3 of her letter (“Kara’s Letter”).

(2)  There is an outstanding bill which had been issued by LWLWIC with balance of unpaid costs in the sum of HK$2,196,478.52. The File bearing reference number of 022 (representing D3) is under the supervision of D3. He then checked the record of the File in the Libra accounting system which showed, inter alia, that

(i)  The Bill was outstanding with balance of unpaid costs in the sum of HK$2,196,478.52 (“Unpaid Costs”).

(ii)  On 21 March 2018, a taxing fee in the sum of HK$48,100 was advanced by LWLWIC in respect of the File (“Taxing Fee”).

(iii)  There was HK$3,000,000 in the client’s account of the File (“Client’s Money”).

(3)  On 21 August 2020, Ps issued a letter to D3 and D4 requesting them to confirm that the Client’s Money should be used to settle the Unpaid Costs and to arrange the amount of the Unpaid Costs to be paid by Messrs Hobson & Ma (“H&M”) so that handling commission could be paid to Kara. H&M were appointed by D3 and D4 to act as cessation agent for the files of LWLWIC bearing reference numbers of 022.

(4)  On 31 August 2020, a letter was issued by Messrs MinterEllison LLP (“Minter”) acting for D3 and D4 to Ps, alleging that the Client’s Money was set aside for a purpose designated by D1, and that D3 and D4 would not entertain his suggestion but without giving any further details or explanation.

(5)  Ps therefore issued a letter to D1 directly on 3 November 2020 informing them that LWLWIC intended to use the Client’s Money to settle the Unpaid Costs and requesting D1 to confirm if they had any objection to such arrangement. No reply was received from D1 in the 7-day period.

(6)  Subsequently, Ps received a letter from D1 dated 16 November 2020 objecting to LWLWIC using the Client’s Money to settle the Unpaid Costs but without giving any explanation and without confirming that they would settle the Unpaid Costs direct.

(7)  On 20 November 2020, Ps wrote to D1 stating that LWLWIC was entitled to use the Client’s Money to settle the Unpaid Costs having notified D1 of LWLWIC’s intention to do so. Ps also sought explanation from D1 for objecting to such arrangement within 7 days and informed D1 that if they did not receive their confirmation, they would proceed to use the Client’s Money to settle the Unpaid Costs.

(8)  On 27 November 2020, Ps wrote to D3 and D4 seeking their explanation for not using the Client’s Money to settle the Unpaid Costs and the Taxing Fee.

(9)  Ps then received a letter dated 25 November 2020 from D1 stating that there was an agreement that the Unpaid Costs would only be paid upon the conclusion of the litigation actions and if the bankruptcy estate had sufficient funds to do so (“Alleged Agreement”) and the Client’s Money was held for purposes other than settling the remaining balance of the Bill.

(10)  Having not received any further response from D3 and D4, Ps issued a letter to D3 and D4 on 9 December 2020 requesting them to confirm the whereabouts of the file records of the File and where they could inspect the File as LWLWIC might take recovery action against D1.

(11)  By a letter from D3 and D4 to Ps dated 10 December 2020, they alleged that the Client’s Money was held by LWLWIC for purposes other than settling the Unpaid Costs without further explanation or details.

(12)  On 28 May 2021, Ps issued a letter to D3 and D4 informing them that Ps intended to take recovery action against D1 and would join D3 and D4 as ex-partners of LWLWIC so that they would be bound by the judgment.

(13)  P1 also made the observation that in the Defence of D1 filed in November 2021 and the Defence of D3 and D4 filed in January 2022, they alleged an oral Agreed Fee Arrangement as defined therein (“the Agreed Fee Arrangement”) for the first time despite that the issue regarding the Unpaid Costs was raised in about August 2020. The terms of the Agreed Fee Arrangement is also different from those of the Alleged Agreement raised by D1 in his letter dated 25 November 2020.

Fong Wai Yee Kara

24.The relevant parts of Ms Fong’s evidence can be summarized as follows:-

(1)  She joined LWLWIC on 2 April 2012 and was promoted to senior associate solicitor on 1 June 2013. She worked in LWLWIC until 13 December 2018. She was assigned to assist D3 to handle the matters relating to the investigation of the financial affairs of David Ho and recovery of the Estate on behalf of D1. D3 was the handling partner supervising David Ho Case.

(2)  She was requested by D3 to be heavily involved in the day to day conduct of the David Ho Case. She worked closely with D3 and had frequent discussion with him on the David Ho Case, both face to face and by way of email. She also attended the meetings of the Creditors Committee held from time to time.

(3)  She had never heard of the Agreed Fee Arrangement as pleaded in the Defence of D1 and the Defence of D3 and D4. She had not seen any record of such fee arrangement.

(4)  Upon D3’s instructions given at a time before 16 June 2015, an interim bill (“Bill”) (consisting of costs totaling HK$4,350,000 and disbursements totaling HK$1,501,580.16) in the total sum of HK$5,851,580.16 was issued and sent to D1 for the services rendered in David Ho Case up to around July 2014.

(5)  At a meeting of all the creditors of the Creditors’ Committee on 16 June 2015, a copy of the Bill was tabled before the said meeting and the Bill was approved. D3 and she also attended the said meeting.

(6)  The Bill was lodged in Court for taxation by LWLWIC on behalf of D1. Under Rule 34 of the Bankruptcy Rules (Cap 6A), before taxing the bill or charges of any solicitor employed by the trustee, the taxing officer shall require a certificate in writing, signed by the trustee, to be produced to him, setting forth whether any, and if so what, special terms of remuneration have been agreed to. Pursuant to this Rule, D1 signed a certificate certifying that no special terms of remuneration regarding the employment of LWLWIC had been agreed to (“2016 Certificate”) which was also lodged in Court for the taxation of the Bill.

(7)  On or around 14 November 2016, the Bill was taxed by Master Hui of the High Court (“Taxation Order”). On or around 5 December 2016, the Taxation Order became absolute.

(8)  On or around 6 December 2016 after the Taxation Order was made absolute, LWLWIC issued to D1 the Revised Bill. The Revised Bill was approved at a meeting of all the creditors of the Creditors’ Committee on 16 March 2017 which was recorded in a written resolution passed by all the creditors in the Creditors’ Committee dated 16 March 2017.

(9)  Subsequently, there were various partial settlements of the Revised Bill leaving an outstanding balance of unpaid costs in the sum of HK$2,196,478.52 (“Unpaid Costs”) as at 13 December 2018 when her employment with LWLWIC ceased.

(10)  In or about 2018, a 2^nd taxation bill was lodged in Court to tax further costs and disbursements of LWLWIC incurred for D1 in the David Ho Case. A certificate of the same contents as the Certificate was signed by D1 and lodged in Court in 2018 for the taxation of such 2^nd taxation bill.

(11)  Under the employment contract with LWLWIC, she was entitled to receive 5% of the costs received by LWLWIC for files handled by her as handling fee. She did receive 5% of those parts of the costs of the Revised Bill partially settled by D1.

(12)  On 13 July 2020, she issued a letter to the then partners of LWLWIC at the time of dissolution of LWLWIC claiming for outstanding wages and leave pay and enquiring about the settlement status of various bills including the Unpaid Costs of the Revised Bill so as to ascertain whether any handling fee shall be due and payable to her. D3 and D4 instructed Minter to reply on their behalves in this matter but they have not given any reply regarding the Unpaid Costs.

(13)  She understood that there was HK$3,000,000 in the client’s account of the File (“Client’s Money”) as at the time when her employment with LWLWIC ceased. The said sum was paid into the client’s account of the File pursuant to a Funding Agreement dated 17 July 2018 for D1 to discharge all the legal costs and disbursements incurred by D1 and D1’s solicitors in relation to and incidental to David Ho Case.

(14)  On 17 September 2020, she issued a letter to Minter requesting D3 and D4 to confirm whether the Unpaid Costs under the Revised Bill had been settled by the Client’s Money or otherwise and asking them to explain the reason therefor if the same had not been settled. She had not received any reply thereto from either Minter, D3 or D4.

Ds’ witnesses

25.Ds called three witnesses, namely, Mr Arthur Ip Pui Lam of D1, Mr Dennis Lam Siu Sun (D3), and Mr Moses Lee (D4). Ds did not call Mr Cheng of New Legend to testify. Mr Ho, counsel for Ds, agrees that in that event the Court does not have to consider the contents of Mr Cheng’s witness statement.

Mr Arthur Ip of D1

26.Mr Arthur Ip adopted the contents of his witness statement as his evidence in chief. The relevant parts of his statement are summarized as follows,

(1)  He is a partner of D1. D1 was appointed as the joint and several trustees of the Estate in the General Meeting of Creditors of the Bankrupt held on 30 September 2011.

(2)  D1 then engaged LWLWIC to carry out the investigation of the Bankrupt’s financial affairs and the engagement was approved and ratified at the General Meeting of Creditors of the Bankrupt held on 30 December 2011 (“30 Dec 2011 Meeting”) by the creditors’ committee of the Bankrupt’s estate (“Creditors’ Committee”). D3 was LWLWIC’s partner-in-charge of the litigation/recovery actions by the Estate (“Recovery Actions”).

(3)  It was revealed in the investigation that the Bankrupt was likely to have retained an interest in a Hong Kong listed company, Dan Form Holdings Company Limited (“Dan Form”), a property project in China and a professional negligence claim against 2 international law firms and their partners in HCA 806/2006. However, since the Estate’s only available asset in Hong Kong was only a bank balance of HK$37,364.85, it did not have sufficient fund to support the Recovery Actions. At 30 Dec 2011 Meeting, D1 informed the Creditors’ Committee of the situation.

(4)  D1 understood from D3 that New World Group/Sun Legend agreed to provide funding to the Estate on the condition that LWLWIC’s professional fees would be deferred and only be due and payable upon the conclusion of the Recovery Actions (“Agreed Fee Arrangement”). D3 confirmed to D1 that LWLWIC had agreed with the Agreed Fee Arrangement as requested by New World Group, as they were their major client. D1 also agreed as it would enable them to commence the Recovery Actions for the Estate.

(5)  D1 and LWLWIC had all along acted in accordance with the Agreed Fee Arrangement. Mr Ip stressed that it was not part of the terms of their agreement with/engagement of LWLWIC through D3 that D1 was required to settle the Taxed Bill. As the joint and several trustees of the Estate, D1 did not have personal interest or benefit from the Recovery Actions. If there were no Agreed Fee Arrangement with LWLWIC through D3, it would have made no sense for them to commence any legal actions for the Estate as they would be personally liable for the legal costs and expenses. LWLWIC was well aware of the Agreed Fee Arrangement, and, therefore, neither D3 nor LWLWIC had ever sent D1 any reminders chasing for the settlement of the Taxed Bill.

(6)  Despite that the Taxed Bill was partially settled by using the recovered sums of the Estate, which included the recovered proceeds of HK$1,275,146.45 from Sun City Holdings Limited, the recovered costs of HK$51,198.20 from Joseph Li & Co, HK$204,756.37 from JBPB & Co, HK$16,710 from Joseph Li & Co, HK$25,963 from ONC Lawyers and Anthony Siu & Co and HK$433,088.46 from ONC Lawyers, it did not mean the outstanding balance of the Taxed Bill was due and payable and D1 was required to settle it.

(7)  D1 received an upfront fund of HK$3 million pursuant to a funding agreement between Sun Legend as funder and D1 on 18 July 2018 (“Funding Agreement”), and the purpose of which was to address the fortification demand by Grassmere Services Limited (“Grassmere”) (the 3^rd Defendant in HCA 2587/2017).

Mr Dennis Lam (D3)

27.D3 adopted the contents of his witness statement as his evidence in chief. The relevant parts of his statement are summarized as follows,

(1)  He had been a partner of Messrs Li, Wong & Lam (since its inception until it ceased its legal business in September 2008) and subsequently LWLWIC (since its inception in April 2008 until it ceased its legal business in February 2019).

(2)  He had known Mr Cheng Kar Shing of New World Group (“Mr Cheng) for a long time and had provided professional legal services to New World Group. The New World Group companies including Sun Legend Investments Limited (“Sun Legend”) had given a significant amount of business to LWLWIC including the David Ho Actions (as defined hereinbelow) and other legal matters, eg Dongguan New World Garden and Beijing New World Centre, etc.. The New World Group companies were one of the biggest clients of his and LWLWIC.

(3)  He was the sole partner-in-charge of the New World Group cases, including Sun Legend’s claims against David Ho Yuk Wah and others under action nos. HCA 1212/2002, HCA 2915/20-2, FACV 14/2010 and HCB 3819/2011, HCA 2587/2017 and CACV 242/2019 (collectively called “David Ho Actions”) since 2002.

(4)  The David Ho Actions started in around 2002. David Ho Yuk Wah lost his appeal in the Court of Final Appeal in 2010 and declared himself bankrupt in 2011. Since the Bankrupt owed judgment debts to New World Group and Sun Legend, they became one of the largest creditors of the Bankrupt’s estate.

(5)  New World Group and Sun Legend intended to join the creditor’s committee of the Bankrupt’s estate. He introduced D1 to Sun Legend and recommended D1 to be the trustees of the Bankrupt’s estate. At the General Meeting of Creditors of the Bankrupt held on 30 September 2011, D1 was formally appointed as the joint and several trustees of the Estate.

(6)  Since D3 had been the partner of LWLWIC solely in charge of Sun Legend’s claims against David Ho since around 2002, Mr Cheng requested him to work with D1 in respect of the investigation/recovery works on the Estate so as to wrap up the David Ho Actions. Mr Cheng agreed that Sun Legend would advance funding for investigation/recovery works, on the condition that LWLWIC’s professional fees would be deferred upon conclusion of recovery/litigation actions for the Estate (“Agreed Fee Arrangement”). Given his longstanding relationship with Mr Cheng and New World Group companies and that they were his biggest client, he agreed with the Agreed Fee Arrangement. He had also told D1 of the Agreed Fee Arrangement and D1 agreed to engage LWLWIC to carry out the investigation of the Bankrupt’s financial affairs and provide legal services on this basis.

(7)  The Plaintiffs had never been involved in the David Ho Actions nor the discussion about the Agreed Fee Arrangement.

(8)  The bill dated 6 December 2016 issued by LWLWIC (“Taxed Bill”) is part of the David Ho Actions. The issuance of the Taxed Bill by LWLWIC did not mean that it was due and payable. In accordance with the Agreed Fee Arrangement, the settlement of the invoices of LWLWIC would be deferred and would only be due and payable upon conclusion of recovery/litigation actions for the Estate. Therefore, D3 did not instruct anyone in LWLWIC to send any reminders to D1/Sun Legend/New World to chase for the settlement of the Taxed Bill.

(9)  D3 himself was the largest beneficiary in LWLWIC if the Taxed Bill was paid. According to LWLWIC’s partner drawings formula, he was entitled to 50% commission of the profit costs for the files that he introduced to the firm and then the firm’s profits based on his equity ratio. If the Taxed Bill were due and payable, he would not have had any reason not to chase for its settlement.

(10)  Between 2015 and 2018, LWLWIC received the partial settlement of the Taxed Bill from D1. In accordance with the Agreed Fee Arrangement, after conclusion of various recovery actions, the recovered sums were used to partially settle the Taxed Bill. The recovered sums included recovered proceeds of HK$1,275,146.45 from Sun City Holdings Limited, the recovered costs of HK$51,198.20 from Joseph Li & Co, HK$204,756.37 from JBPB & Co, $16,710 from Joseph Li & Co, HK$25,963 from ONC Lawyers and Anthony Siu & Co and HK$433,088.46 from ONC Lawyers. He had also accordingly received his 50% commission thereof. However, the partial settlement of the Taxed Bill did not mean the outstanding balance of the Taxed Bill was due and payable as the biggest recovery action was on the injuncted assets of HK$55 million. The Creditors’ Committee and LWLWIC are fully aware that it is still on-going for the Estate.

Purpose of the Funding Agreement

(11)  LWLWIC was the solicitors for D1 who was the plaintiff in HCA 2587/2017, one of the recovery actions commenced by D1 for the Estate.

(12)  At the Creditors’ Committee Meeting at 11 June 2018, D1and D3 informed the Creditors Committee that Grassmere (the 3^rd Defendant in HCA 2587/2017) took out a summons on 4 May 2018 to seek leave to appeal against the Decision of Deputy High Court Judge Kent Yee dated 20 April 2018. In addition to seeking D1’s continuation summons be set aside, Grassmere also sought an order for fortification in the sum not less than HK$10 million.

(13)  If D1’s continuation summons be set aside, a sum of HK$55 million being the disposal proceeds of the Bankrupt’s interest in Dan Form Holdings Limited (“Restrained Asset”) kept in the escrow account of Messrs Stephenson Harwood would be discharged and returned to the Bankrupt’s nominee. Therefore, D1 and D3 discussed with the Creditors’ Committee about the fortification demand by Grassmere. Sun Legend agreed to provide funding to address the fortification demand and the Creditors’ Committee resolved on 11 June 2018 that one or more creditors attending the meeting could enter into a funding agreement with D1 investing not less than HK$10 million in the proceedings relating to the Bankrupt.

(14)  Before the conclusion of the funding agreement between Sun Legend and D1, Mr Cheng emphasized to D3 that the funds provided under the Funding Agreement would not be for the settlement of the legal costs of LWLWIC. D3 agreed and on this basis, D1 and Sun Legend entered into the Funding Agreement and the upfront part of the fund of HK$3 million was deposited to the clients’ accounts of LWLWIC.

(15)  As such, the HK$3 million fund has never been used to settle the Taxed Bill nor has LWLWIC chased for the alleged outstanding balance of the Taxed Bill before it ceased its legal practice in February 2019.

Mr Moses Lee (D4)

28.D4 was also called to testify. He confirmed that he did not have any knowledge or involvement in David Ho’s case. Mr Lee testified on the terms and drawing formula of the partnership which are really not in dispute.

Discussion

29.D1’s pleaded defence is largely identical as that of D3 and D4. Ds’ pleaded case does not dispute the Outstanding Fees, it is their case that they are not yet due. Ds’ pleaded case is that “prior to the engagement of LWLWIC, D3 on behalf of LWLWIC, D1, and the creditors of the Bankrupt reached an oral agreement with the following material terms”,

(1)  Any bills issued by LWLWIC would be subject to taxation under section 86 of the Bankruptcy Ordinance (Cap. 6);

(2)  The bills would only be due and payable upon the conclusion of recovery/litigation actions for the Estate (the “Agreed Fee Arrangement”);

(3)  It was only on the basis of the Agreed Fee Arrangement that an oral agreement was reached between D1 and LWLWIC on 28 November 2011 that LWLWIC would be engaged by D1 to provide legal services in relation to recovery proceedings and investigations in respect of the Estate;

(4)  On 30 December 2011, a written resolution of the Creditors’ Committee was passed in which it was noted inter alia that D1 had engaged LWLWIC to carry out investigation of the Bankrupt’s financial affairs and that the appointment of LWLWIC was thereby approved and ratified.

30.Counsel for Ds, Mr Ho, agrees that in the present case Ds bear the burden to prove the existence of the Agreed Fee Arrangement.

31.Mr Ho submitted that had it not been for the existence of the Agreed Fee Arrangement, it would not have made any commercial sense for D1 to take on the position as the trustee and to incur legal costs to commence proceedings to recover against the Bankrupt given that the Estate had negligible assets when D1 was appointed.

32.Mr Ho invited the Court to consider the salient points he highlighted to better appreciate the context of the present dispute, including:-

(1)  The Estate had negligible assets and around HK$160 millions liability;

(2)  D1 charged a sum of HK$30,000 per year as trustee fee of the Estate which is a nominal sum relative to the amount in the Revised Bill and that D1 had no personal benefit in any litigation/recovery actions by the Estate;

(3)  No cost on account was provided by D1; issuing only one fee note more than 3 years after LWLWIC conducted investigation and recovery work in relation to the Estate;

(4)  LWLWIC did not issue any reminder to chase D1 for the outstanding fees in the Revised Bill. LWLWIC also did not issue any further bills to D1;

(5)  Although HK$3,000,000 was paid to the client’s account of LWLWIC on around 26 July 2018 by way of a cheque issued by Sun Legend Investments Limited (“Sun Legend”), a creditor of the Estate, D3 did not apply the sum to settle the Revised Bill;

(6)  D3 was entitled to 50% commission on profit costs for the files introduced by D3 to LWLWIC, in addition to D3’s share of profit as an equity partner of LWLWIC. In other words, D3 would be entitled to over half of any profit costs for his cases. D3 would have more incentive than Ps to ensure that all the payable bills of his case would be settled promptly;

(7)  Persons who had personal knowledge to the Agreed Fee Arrangement, namely, D1, D3, and Cheng Kar Shing (“Cheng”), a director of Sun Legend, confirmed the existence of the Agreed Fee Arrangement;

(8)  The Creditors agreed to resolve that D1 be released from their obligations and liabilities as joint and several trustees.

33.Regarding the assessment of witnesses’ testimony, it would be helpful to recite the observations summarised by DHCJ Herbert Au-Yeung (as he then was) in Hu Lan v David Golden [2023] HKCFI 873:

“36. When I consider the credibility of various witnesses who had given evidence in court, I shall take the following matters into account:

(1) Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) Importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) The court will also attach importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement;

(4) The court should consider a witness’ motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest;

(5) It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie;

(6) On the other hand, where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility;

(7) While the court is entitled to take demeanour into account when assessing testimony, it should be borne in mind that demeanour can be deceptive and is therefore to be approached with care.”

34.I shall bear in mind the above observations in assessing the evidence of the witnesses in the present case.

35.Dealing first with Mr Ho’s submission that had it not been for the existence of the Agreed Fee Arrangement, it would not have made any commercial sense for D1 to take on the position as the trustee and to incur legal costs to commence proceedings. Mr Ho submitted that D1 only received a fixed sum of HK$30,000 a year for its services and that D1 did not have any personal interest or benefit from the recovery actions.

36.Firstly, the term of D1’s appointment as recorded in the written resolution of the creditors’ committee dated 30 December 2011 stated that remuneration to the Trustees is at a reasonable fee based on the amount of time spent. When being cross-examined, Mr Ip sought to explain that HK$30,000 was in fact the amount he worked out roughly the time D1 needed to spend on the case per year. Irrespective of whether D1’s agreed fee was HK$30,000 per year or that it is at a reasonable fee based on the amount of time spent which D1 worked out to be HK$30,000 a year, there is no dispute that the remuneration was agreed by D1. Insofar as it is necessary to make a finding, I find that D1’s term of remuneration is at a reasonable fee based on the amount of time spent as so approved and recorded in the said written resolution. If it had worked out badly for D1 in that the amount of time spent by D1 only amounted to HK$30,000, this was the bargain they had struck and D1 would be bound by it.

37.Secondly, the alleged Agreed Fee Arrangement as pleaded would not have protected D1 from liability to pay but might only delay it. Had the Agreed Fee Arrangement existed, D1 would still have been liable to pay at the end of the day.

38.Thirdly, as Mr Lam, counsel for Ps, pointed out, even if one looks at “commercial reality”, it simply does not require absolving of personal liability of trustee (as Mr Arthur Ip now alleges) or support any versions of the alleged Agreed Fee Arrangement. The mere fact that Sun Legend agreed to provide funding to the trustees is sufficient, and this does not alter the legal obligations of the trustees as against their lawyers.

39.In the circumstances, I do not agree with Mr Ho’s submission that had it not been for the existence of the Agreed Fee Arrangement, it would not have made any commercial sense for D1 to take on the position as the trustee and to incur legal costs to commence proceedings.

40.Moreover, there is evidence that the parties involved believed that David Ho had hidden assets. According to D3, it was Mr Cheng of the New World Group who told D3 that the Bankrupt had hidden assets. It later transpired that the Bankrupt did hide away some valuable assets.

41.According to Ms Fong Wai Yee, she was assigned to work on the case of Mr David Ho when she joined LWLWIC in April 2012. Their preliminary investigation revealed that David Ho had substantial assets, for example, an interest in the Asia-Pac group of companies including the company “APIDL” which was valued at over HK100 million and some BVI companies. Legal action was taken and an interim injunction was obtained on 1 June 2012. The details had been set out in the Brief Report dated 11 October 2016.

42.According to Mr Arthur Ip of D1, their subsequent investigation revealed that the Bankrupt was likely to have retained an interest in a Hong Kong listed company, Dan Form Holdings Company Limited, a property project in China and a professional negligence claim against 2 international law firms and their partners in HCA 806/2006.

43.Although, there is no clear evidence as to how much or how substantial the assets the Bankrupt had hidden, it is clear from the evidence that at the material time the Bankrupt was suspected to have hidden some valuable assets and that Mr Cheng of the New World Group intended to pursue after David Ho. No doubt, the participants would appreciate that it would involve risk of not being able to recover sufficient assets to compensate their efforts and expenses. As to how much risk they each perceived they would be exposed to and how much risk they were willing to take, it is really not a matter the Court can objectively determine. It all depends on the individuals involved. As to how best to protect themselves against any such risk, it is again a matter for the individual participant to decide. Those parties who were willing to take part in such venture would have their own considerations. I will certainly bear in mind the background of the present case in assessing the evidence but I will refrain from speculating as to how much risk anyone of them would or would not take, or how well they should have protected themselves.

44.In respect of Ds’ case that there was no costs on account for this File, no reminders having been issued, issuing only one fee note more than 3 years after LWLWIC conducted investigation and recovery work in relation to the Estate; it does not necessarily show that there was the existence of the alleged Agreed Fee Arrangement. There is no dispute that D3 had complete discretion on these matters. D3’s relationship with both D1 and Mr Cheng, respectively, was said to be very close. Further, there were rather substantial partial payments made after the issue of the Revised Bill. There is nothing unusual or unreasonable for D3 not to ask for costs on account and not to issue reminders.

45.As regard Ds’ argument that it would be against D3’s own interest to contend that the Revised Bill was not due and payable because D3 would personally benefit from an early settlement of the Revised Bill, it is important to look at the circumstances in which Ps discovered the File and the outstanding unpaid costs thereof. The fact that D3 had not informed Ps of the existence of the File at the time of the cessation of the partnership or thereafter until P1 discovered through Kara’s enquiry does raise the question as to how D3 might have intended to deal with the Client’s Money and the outstanding unpaid costs if P1 had not discovered it. In light of that, the Court should not assume without more that D3 must have intended to share it with other former partners and that the reason for not having an early settlement of the Revised Bill must be the existence of the alleged Agreed Fee Arrangement. The Court will look at and consider all the circumstances in the present case.

46.In respect of the existence of the alleged Agreed Fee Arrangement, I shall firstly consider whether there is independent evidence in support. As Ps pointed out, the Agreed Fee Arrangement was not to be found in any of the contemporaneous documents, for example:-

(1)  It was not mentioned in the written resolution of the Creditors’ Committee on 30 December 2011 where it was resolved/approved/ratified, that D1 engaged LWLWIC to carry out investigation of the Bankrupt’s financial affairs;

(2)  On 16 June 2015, LWLWIC issued to D1 the Bill in the total sum of HK$5,851,580.16 for legal services rendered in respect of the File. Despite the pleaded defence that the Bill was issued based on and subject to the Agreed Fee Arrangement, there was no mention of the alleged Agreed Fee Arrangement in the Bill;

(3)  Pursuant to rule 34 of the Bankruptcy Rules (Cap 6A), D1 was required to state whether any special terms of remuneration in relation to the engagement of LWLWIC had been agreed to, there was no mention of the alleged Agreed Fee Arrangement in the 2016 Certificates which was submitted to Court for the purpose of taxation;

(4)  After the Bill was taxed by Master Hui, LWLWIC issued the Revised Bill. Despite the pleaded defence that the Revised Bill was issued on 6 December 2016 based on and subject to the Agreed Fee Arrangement, there was no mention of the alleged Agreed Fee Arrangement in the Revised Bill.

47.In the normal course of event, the Bill would become payable after taxation (unless there is an appeal or review application). The terms in the alleged Agreed Fee Arrangement are clearly quite unusual/special in that the taxed costs would only be due and payable upon the conclusion of recovery/litigation actions for the Estate. Ds’ argument that there was no duty or obligation for D1 to record the Agreed Fee Arrangement in these documents is neither here nor there. If the parties did agree such term, there was really no reason why it should not have been stated in any of the afore-mentioned documents. One very good reason for properly recording such agreement is to avoid any dispute like the one we are dealing with.

48.In the case of Miss Fong, there is no dispute that she would be entitled to 5% of the costs received by LWLWIC for the files handled by her as handling fee. If she was not told about the alleged Agreed Fee Arrangement, there was likely a dispute as to when her handling fee should be payable. They are all professional men who would appreciate the necessity or advantage of properly recording the terms of their agreement so as to avoid any potential dispute in the future. It is rather remarkable that if there were such Agreed Fee Arrangement, D1 and D3 would not have recorded it in any of those documents referred to hereinabove and not told Miss Fong about it throughout the relevant period.

49.In addition, there are different versions of the alleged Agreed Fee Arrangement. By letter dated 25 November 2020, D1, in response to the Plaintiffs’ letter before action, stated that “It was agreed that settlement of the remaining balance of the bill in question would only be made upon the conclusion of the litigation actions and if the bankruptcy estate had sufficient funds to do so”. There are two conditions for payment. This is very different from the terms of the alleged Agreed Fee Arrangement as pleaded in Ds’ Defence.

50.In cross-examination, Mr Ip sought to explain that under the arrangement D1 did not have to pay the legal fees. He did state something along this line in his witness statement. This appears to be yet another version of their agreed fee arrangement which is different from the one pleaded in their defence.

51.Regarding the meaning of the material term of the alleged Agreed Fee Arrangement, namely, “The bills would only be due and payable upon the conclusion of recovery/litigation actions for the Estate”, there is some serious dispute over it. A plain reading of this term suggests that the legal fees incurred would only be due and payable when all the recovery/litigation actions for the Estate had been concluded. On the basis of such interpretation, counsel for the Ps submitted that the partial settlement of the Revised Bill between the period of December 2016 and November 2018 goes to contradict the existence of such a term. However, both D1 and D3 gave evidence to the effect that the partial settlements were in accordance with the Agreed Fee Arrangement, namely, the legal fees would become due and payable if and when there were moneys recovered from the recovery/litigation actions.

52.In his closing submissions, Counsel for Ds submitted that the proper interpretation of the term should mean “when proceeds were recovered from any of the concluded recovery action or litigation action (as opposed to conclusion of all actions as suggested by Ps), the proceeds would be used to settle the outstanding legal fees”. He went on to say “This also accords with commercial reality, as there was no point for funds to be kept in the Estate.” It appears to me that if that was what the parties had agreed, it could easily have been expressed in the way Mr Ho had formulated. Further, as pointed out by Ps’ counsel, D3 testified that it was a term of the Agreed Fee Arrangement that recovered funds to the Estate would be used to “offset” LWLWIC’s legal fees. D3 did not say it had to be from a concluded recovery/litigation action. It is not entirely clear what the alleged agreed fee arrangement really is. It is ambiguous. On Ds’ own evidence, there are several different versions of the alleged agreed fee arrangement.

53.Mr Ho also criticized the Plaintiffs’ interpretation of the term in that there might not be a conclusion if the Trustees continued to commence recovery action and, in that event, the legal fees would never become due. Firstly, the Trustees can only continue to commence recovery action if the evidence shows there are valuable assets worth pursuing. In the absence of such evidence, there will be no basis for the Trustees to continue. There should be an end to it. Secondly, one should bear in mind that it is the Ds who pleaded the terms of the alleged Agreed Fee Arrangement. Ds should be responsible for such formulation. The burden rests squarely on Ds to formulate and to prove the existence and the exact terms of their agreement.

54.Insofar as it is necessary to make a finding, I agree with the Plaintiff that on a proper interpretation of the alleged term as pleaded in the Defence, it means that the legal fees incurred in the investigation of the financial affairs of the Bankrupt would only be due and payable when all the recovery/litigation actions for the Estate had been concluded.

55.In respect of the HK$3,000,000 in the Client’s Account, there is some dispute as to whether it could be used to settle the Taxed Bill. There does not seem to be any dispute that the Funding Agreement and the deposit of HK$3,000,000 were arranged for the purpose of addressing the fortification demand by Grassmere in HCA 2587/2017. The terms of the Funding agreement did state that all or any part of the Fund shall be used only for the purpose of pursuing the Actions and that the “Actions” included the actions covered by the Taxed Bill. But according to paragraph 2 of the Funding Agreement, D1 have the sole discretion as to the use of the Fund in respect of the Purpose. The fact that D1 decided not to use the HK$3,000,000 to settle the Taxed Bill is perfectly within its discretion. I do not see the relevance of the disputes surrounding the terms of this agreement. The parties agree that I do not have to make a finding on the aforesaid question in the present action and I shall refrain from doing so.

56.In respect of the existence of the alleged Agreed Fee Arrangement as pleaded in Ds’ defence, I reject the evidence of D1 and D3. The alleged Agreed Fee Arrangement had not been stated in any of the contemporaneous documents. D1 went as far as to state in the 2016 Certificate (which was submitted to Court for taxation purpose) certifying that no special terms of remuneration regarding the employment of LWLWIC had been agreed to. Both D1 and D3 have not been able to provide any satisfactory explanation in this regard.

57.In respect of D1, there appeared to be several versions of the alleged agreed fee arrangement. The one pleaded in the Defence is that the bills would only be due and payable upon the conclusion of recovery/litigation actions for the Estate. In D1’s letter dated 25 November 2020, D1 stated that “It was agreed that settlement of the remaining balance of the bill in question would only be made upon the conclusion of the litigation actions and if the bankruptcy estate had sufficient funds to do so”.

58.In the evidence of Mr Ip, he testified that D1 did not have personal responsibility to pay for the legal fees incurred but such a term cannot be found in any contemporaneous documents including the written resolutions of the creditors committee and the certificates submitted to Court for taxation purpose. And most importantly, D1’s allegation that they did not have to pay the legal fees was totally contradicted by D1’s own pleaded defence that the bills would only be due and payable upon the conclusion of recovery/litigation actions for the Estate.

59.Similarly, D3’s case revealed several versions of the alleged agreed fee arrangement. In D3’s Defence, it was pleaded that the bills would only be due and payable upon the conclusion of recovery/litigation actions for the Estate and that it was agreed amongst D1, D3 and the creditors of the Bankrupt prior to D1 retaining LWLWIC for its legal services, and, it was only on the basis of the Agreed Fee Arrangement that an oral agreement was reached between D1 and LWLWIC on 28 November 2011 that LWLWIC would be engaged by D1 to provide legal services. When D3 testified, he alleged for the first time:

(1)  that D3 and Mr Arthur Ip agreed sometime prior to 30 September 2011 that D1’s appointment would be “conditional” on it instructing LWLWIC for legal services.

(2)  that the Agreed Fee Arrangement was reached between him and Mr Cheng (representing Sun Legend and Beijing Chongwen) although his pleaded case states that it was reached amongst D3, D1 and “the creditors of the bankrupt”. As indicated by the Official Receiver’s Proof of Debt Index, there are 7 creditors of the bankrupt.

(3)  that it was a term of the Agreed Fee Arrangement that recovered funds to the Estate would be used to “offset” LWLWIC’s legal fees.

60.The above matters go to contradict Ds’ pleaded case on the terms of the alleged Agreed Fee Arrangement, the parties involved and the circumstances in which the alleged arrangement came to be agreed by the parties.

61.In the circumstances, I hold that Ds have failed to prove on a balance of probability that there existed the Agreed Fee Arrangement as pleaded in the Defence of D1 and D3/D4 respectively.

Taxing fee

62.There is no dispute that LWLWIC had paid the taxing fee of HK$48,100 on D1’s behalf for the purpose of taxation.

63.Ds object to the HK$48,100 taxing fee on the basis that no bill was delivered to D1 before suing on it (as required by section 66(1) of the Legal Practitioners Ordinance (Cap 159)). Ds’ case is that a bill must be issued (citing provisions presuming the taxing fee to be a “disbursement” and therefore liable to being taxed).

64.Ps disagreed and referred to the judgment of Hon Cheung J (as he then was) in Lam Chi Sheung v Kin Wah Engineering Co & Another (unrep, HCPI 596/1997, 2 June 2000) in which it was held at §21 and §23 that:-

“Taxing fee is prescribed in Rule 19 of the High Court Fees Rules. These are fees payable to the court on taxation. Rule 19 sets out the scales of the fee. Because the exact fee would depend on the taxed costs, it is not quantified in the bill of costs. The practice of the High Court Registry is to require the party applying for taxation to make a deposit on account of the fee. The excess is later returned after taxation…

… If a bill has to be taxed, then the taxing fee has to be incurred. But irrespective of whether the receiving party will be entitled to the taxing fee at the end of the day, the bill of costs does not quantify the taxing fee. The taxing fee is not an item that requires taxation…”

65.I agree with Mr Lam, counsel for Ps, that the taxing fee is not an item that requires taxation and that there is no requirement that a bill for the taxing fee has to be issued before suing on it. I hold that D1 is liable to repay Ps the taxing fee of HK$48,100.

Conclusion

66.I give judgment to Ps and hold that D1 is liable to pay LWLWIC the outstanding legal fees of HK$2,196,478.52, and taxation fee of HK$48,100.00, totaling HK$2,244,578.52 with interest thereon at judgment rate from the date of writ until payment.

67.Mr Ho agrees that if the Court were to give judgment in favour of Ps, costs should follow the event and that all Ds (D1, D3 and D4) should be liable for costs. I shall make an order nisi that D1, D3 and D4 do pay costs of the action, including any costs reserved, to the Plaintiffs, to be taxed if not agreed, with certificate for counsel, which shall become absolute unless the parties apply to vary the same by letter within 14 days from the date hereof.

68.LWLWIC had already ceased practice. Upon the Plaintiffs’ giving the following undertaking to Court

“Upon receipt of judgment sums per paragraphs (1) and (2) of the Prayer to the Amended Statement of Claim dated 13 December 2024, the 1^st and 2^nd Plaintiffs undertake to the Court to place the same in a designated bank account in the names of the 1^st and 2^nd Plaintiffs for and on behalf of the former partners of Messrs. Li Wong Lam & W.I. Cheung to be dealt with in accordance with the consent of the 1^st and 2^nd Plaintiffs and the 3^rd and 4^th Defendants, pending finalization of the final accounts of Messrs. Li Wong Lam & W.I. Cheung.”

I order that the Judgment sums together with interest be paid by D1 to the Plaintiffs.

69.Lastly, I thank both counsel for their helpful assistance.

Mr Benjamin Lam, instructed by Paul C K Tang & Chiu, for the 1^st & 2^nd Plaintiffs

Mr Leon Ho, instructed by Lee, Wong & Lam, for the 1^st, 3^rd & 4^th Defendants