Re M/S Iu, Lai & Li, A Firm of Solicitors

HCMP002633/1983

1983 No. 2633 M.P.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

__________

__________

BETWEEN

Coram: Master J .Betts

Date of Hearing: 16th &17th December 1983

Date of Judgment: 13 January 1984

___________

JUDGMENT

___________

1. Before being put into liquidation the plaintiff (Axona) was represented by the defendants (the solicitors). Bills of costs were rendered and settled out of funds held on account by the solicitors. Axona now applies to have those costs taxed and to have refunded to it any sums found by the Taxing Master to be excessive.

2. The Originating Summons was issued on 21st November this year and being estimated not to exceed half a day came before me on 16th December. It was quickly apparent that the estimate was totally unrealistic but by continuing for one further half day I have been able, thanks to the very clear arguments by both counsel, to decide the matter on a single point.

3. The single point is that it is conceded on behalf of the solicitors that Axona is entitled to what it asks if there are special circumstances. I found there are and undertook to give my reasons in writing.

4. What happened was that towards the end of 1982 Axona was in deep economic trouble. Many creditors were pressing and eventually many issued writs. One obtained a 'Mareva' injunction and Axona was helpless.

5. The then directors decided that, even at that stage, if time could be bought there remained a possibility of saving the company. That time could only be bought by defending all proceedings and for that purpose money was required. The solicitors were consulted and applications made as a result of which the injunction was varied by releasing some $2 million to the solicitors to be used for legal costs. In the next two months it was spent; and the circumstances call for some consideration.

6. The costs fall into two distinct parts; the solicitors own profit costs on the one hand and disbursements, including counsel's fees, on the other.

7. The directors of Axona included a local solicitor and the company also employed the services of a Mr Crichton, an Australian solicitor (unqualified in Hong Kong) as what was described as an "independent adviser". They agreed with the solicitors a scale of rates; so much per day in Court, so much per hour for the work of a partner, so much per hour for the work of an assistant solicitor, surcharges for urgent work or work done outside normal hours and so on. Subject to a few minor matters Mr Bunting, for Axona, mounts no serious attack on either the rates or the hours charged for. His attack is reserved for the only substantial disbursement : Counsel's fees.

8. The choice of Counsel was not made by the solicitors. It was made by the directors in consultation with Mr Crichton before the solicitors were instructed. The solicitors were directed that particular counsel was to be instructed and at what rate his fees would be charged. It is all set out in an affirmation by a then director filed on behalf of the solicitors. In paragraph 5 Mr Dick S.T. Yiu says ".........prior to the appointment of Mr William Waung as Axona's counsel, the Directors were told by Mr Crichton of the charging rate of Mr William Waung including in particular his hourly conference rate of $2,000 which would be adjusted upwards for urgent matters which required his service outside normal business hours and his fees for drafting affirmations and pleadings and giving opinion and written advice which are chargeable in addition to any brief fee and refreshers". In a further paragraph he affirms: "to the best of my information, knowledge and belief, the Directors as well as Mr Crichton were of the view that Mr Waung's aforesaid rate and that of Messrs Iu, Lai & Li's were both reasonable considering the volume, complexity and urgency of the work involved."

9. Quite rightly, in these circumstances, Mr Bunting makes no suggestion that the solicitors in any way acted with impropriety or abused their position to take advantage of a weak client. That distinguishes this case from the majority of the decisions to which I was referred.

10. After this agreement had been reached the solicitors and Mr Waung set to work in accordance with the directions of Axona well summarised in a letter to the solicitors dated 6 December 1982 which said, inter alia, "You are to act in our best interest in defending all or any actions which may be instituted against us as a result of the present situation in which our Company finds itself. In doing this you are to consider all and any defences which we may have against any Plaintiffs, whilst at the same time seeking to delay actions against us to enable us to come up with proposals for our creditors."

11. There were, in fact, some 40 actions brought against Axona, there were summonses for judgment under 0.14, there were appeals, there was a very spirited rearguard action fought with great vigour by the solicitors and Mr Waung. At regular and proper intervals the solicitors submitted accounts showing their fees and those of counsel. They were approved and appropriate transfers made from the funds held by the solicitors.

12. Eventually the defences crumbled, Axona was put into liquidation and the liquidators reviewed the position. They considered the legal fees paid and brought these proceedings.

13. In considering whether there are special circumstances enabling the Plaintiff to suceed both sides have marshalled an impressively long list of precedents; some from the last century but none based on facts even remotely similar to the present.

14. Certain principles, however, have been shown to run through them. One is that the court will not easily be persuaded to find special circumstances. In general they have only been found where there has been a combination of extortionate fees resulting from improper pressure by a solicitor on his client. The absence of any such pressure has already been dealt with. Mere overcharge, says Mr Chan quite rightly, is not of itself sufficient, but is one element only. Looking at the disbursement in the solicitor's bills, and from my experience as a Taxing Master, I find the element of overcharging is prima facie present; but none of the other elements set out in authorities put before me. One other principle, however, also runs consistently through those decisions and that is that, like classes of negligence, classes of special circumstances are never closed. Mr Bunting submitted seven circumstances which, he claimed, were special. I will deal with each in turn.

1.	The company was itself special as the public was invited to entrust its money to it. Mr Chan's response was that there was no evidence before me to support the proposition. As part of the costs incurred were for representation before the Commissioner of Deposit Taking Companies I think that is a little ingenuous and requires me, without evidence, not to know what a deposit taking company is. However I do not consider that is a special circumstance such as should affect the director's powers of dealing with the company's solicitors.
2.	At the time Axona was hopelessly insolvent. Again Mr Chan challenges whether there is any evidence to support the proposition at any time prior to the winding up order. Even if it were so the company was entitled to spend money in a rescue attempt. This is a matter to which I will return after dealing with the remaining propositions.
3.	In reality the application for taxation is made by the liquidators, not by the company. Mr Chan replies that would put the liquidators in a better position than the company itself and would have the effect of making the solicitors the victim of disagreement between them and the former directors. I agree, it would make matters virtually impossible for solicitors acting for any company that might fail.
4.	Much more was spent than at first envisaged and than was at first released from the Mareva injunction. There is a suggestion of non-disclosure to the Judge. I cannot say the evidence before me supports that and if it did I am not satisfied that the orders sought would be the proper way of dealing with it.
5.	The client had no chance to scrutinise the bill before the money was appropriated. Mr Chan's response is that the directors knew the rates at which the company would be charged, were quite content then, and still are, with the amounts charged and that time for scrutiny would have made no difference at all. Clearly he is right.
6.	The charges were prima facie excessive. Not so, says Mr Chart, but even if they are they are not so excessive as to demand explanation or go to fraud. This must be a matter of judgment based on experience and I have already expressed my view.
7.	Public policy and possible fraudulent preference under the Companies Ordinance. Mr Chan simply, and in my view rightly, says that if there are matters to be dealt with under the Companies Ordinance then they may be so dealt with. They do not constitute special circumstances for these purposes and are, in any event, not presently matters of evidence but merely of suggestion.

15. What I find to be special circumstances are these. At the time these fees were incurred Axona was insolvent; although I accept for present purposes the directors may have thought rescue to be not impossible. A Mareva injunction was obtained and in the normal course of events the assets so frozen would have been available to creditors. A large amount of money was unfrozen for use in what turned out to be an unsuccessful attempt to stave off liquidation. The money, therefore, was not simply Axona's money but money that had already come within the grasp of creditors. That circumstance added to charges I find to be prima facie excessive in my judgment, amount to special circumstances enabling the liquidators to call for taxation.

16. There is one further matter raised by Mr Chan that has caused me considerable anxiety and that is that no order should be made if the parties cannot be restored to their previous positions. In this case, he says, the principal complaint is that counsel's fees were excessive. They have been paid out as a disbursement by the solicitor with the clients' approval. If they are reduced on taxation the solicitor cannot recover from counsel and will have to repay the amount disallowed out of his own pocket. Particularly as counsel and his rate of charging were imposed on the solicitor by Axona such a conclusion would be quite unjust. That is certainly so but, in my view, is itself a matter to be dealt with in the taxation (possibly as a preliminary point). What I have decided is whether the bills, as a whole, should be subject to taxation, there being special circumstances, and not whether the Taxing Master, in the event will or will not find himself empowered to interfere with disbursemements made at the specific behest of the client.

17. There will accordingly be an Order in the terms of the Originating Summons as amended.

18. There will be an order that costs of the Originating Summons and affidavit in support to be costs in the taxation but costs of and occasioned by opposing this application to the plaintiff .There will be a certificate for counsel and leave to appeal the order for costs. Time for appeal is to run from the date of delivery of this written judgment.

Representation:

Mr Michael Bunting instructed by Messrs Wilkinson &Grist for Plaintiff.

Mr Edwad Chan instructed by Messrs W.I. Cheung & Co for Defendant.

Date of Hearing : 16th &17th December 1983