Action to Recover Legal Fees by Winding-up Petition

Action to recover costs – “Subject to the provisions of this Ordinance, no action shall be brought to recover any costs due to a solicitor until 1 month after a bill thereof has been delivered in accordance with the requirements of this section …” [66(1) of the Legal Practitioners Ordinance (Cap. 159)]

Liability of Solicitors for Barristers’ Fees – “In the absence of reasonable excuse a solicitor is personally liable as a matter of professional conduct for the payment of a barrister’s proper fees. Failure to obtain funds on account of a barrister’s fees shall not of itself constitute reasonable excuse.” [Solicitors’ Guide to Professional Conduct, Volume 1, Principle 12.04]

In Re Luen Ford Industrial Co. Ltd [2018] HKCFI 1772, the petitioner was a firm of solicitors who issued a statutory demand for alleged non-payment of legal fees and disbursements (principally, it appears, barrister's fees) arising out of their engagement in contentious proceedings. An interesting issue arose as to whether the solicitors' firm was entitled to issue a winding-up petition with respect to a balance of fees claimed from the company, although bills did not appear to have been rendered for those fees.

The company had given the solicitors three cheques to settle certain fees, although a dispute arose as to whether the cheques were delivered to the solicitors with respect to outstanding or future fees and disbursements. The three cheques do not appear to have been honoured.

On the face of it, the three cheques represented security for the solicitors’ fees and no issue of failure of consideration, duress or undue influence arose such as to afford the company a defence. The solicitors’ firm was of the view that by proceeding with a winding-up petition against the drawer of the cheques, rather than (so the argument went) seeking to recover unpaid fees, the statutory regime set out in s. 66 of the Legal Practitioners Ordinance (Cap. 159) did not apply.

The Companies Court judge noted that a cheque (being a bill of exchange) given to a solicitor to settle liability for costs was not payment per se; rather, it was a conditional payment and, in the court’s opinion, could only be sued on (once presented and dishonoured) if a solicitor has complied with the statutory regime set out in the Ordinance – including, the delivery of a bill (s. 66 of the Ordinance).

The court was also of the view that s. 66(1) of the Ordinance was intended to apply to proceedings commenced to recover fees whether by a writ action or by issuing a winding-up petition. Therefore, even assuming that the cheques were security for the solicitors’ fees, to allow enforcement by issuing a winding-up petition before delivery of a bill (and, if required, a solicitor/client taxation) was inconsistent with s. 66(1) of the Ordinance.

Nothing in the judgment detracts from a solicitor’s ability to obtain payment on account of his fees or to accept security for payment. However, in that event, the court was of the view that a client’s right to delivery of a bill is preserved. Issuing a winding-up petition did not change the position. As the judgment notes, although a creditor issuing a winding-up petition to recover a debt (rather than a writ) is exercising a “class right”, the purpose is the same; namely, to recover a debt.

In Re Luen Ford Industrial Co. Ltd, the winding-up petition was dismissed as an “abuse of process” and, as is the norm in such cases, the solicitors’ firm (as petitioner) was ordered to pay the company’s costs on an indemnity basis.

For solicitor practitioners, there is the point that it is good practice to get cleared funds on account of barristers’ fees and to keep the client regularly informed of such costs (Guide to Professional Conduct, Volume 1, Principles 4.01, 4.06 and 12.04); particularly, where the barrister’s fees are substantial and make-up a majority of the legal fees to be incurred. Solicitors should not be (in effect) “underwriting” such fees.

Jurisdictions: 

Partner, RPC

Senior Consultant, RPC