Re Luen Ford Industrial Co Ltd
Court of First Instance
Companies (Winding-up) Proceedings No 354 of 2016
Harris J
27 July 2018

Company law - winding-up - petition - dishonoured cheques given by company to solicitors' firm in settlement of fees - whether bona fide defence to debt - whether cheques given as security for fees - whether solicitors' firm subject to statutory regime governing recovery of legal fees - whether requirements complied with - Legal Practitioners Ordinance (Cap.159) ss.64(2), 66(1)

Legal profession - solicitors - recovery of legal fees - cheque given to solicitor to settle liability for costs dishonoured - solicitor could only sue on dishonoured cheque if first delivered compliant bill - Legal Practitioners Ordinance (Cap.159) s.66(1)

S, a firm of solicitors, issued a statutory demand for non-payment by C, a company, of an alleged debt of $10 million based on three dishonoured cheques to settle outstanding legal fees and disbursements incurred by its clients, W. C was the personal investment company of one of those clients. The fees related to work concerning winding-up proceedings/corporate restructuring of the debts of companies through which W operated; and most of the fees consisted of counsel's charges. S did not provide any fee estimate to W, or send counsel's fee notes to W or ask them to agree her brief fees. The statutory regime under the Legal Practitioners Ordinance (Cap.159) prohibited a solicitor from suing for his fees and disbursements until his client had been given the opportunity to have them taxed. S argued that the statutory regime did not apply because it was proceeding against the drawer of a cheque, not suing W for unpaid fees. S also contended that, as permitted by s.64(2), it took the cheques as security for its fees and was entitled to enforce it. Under s.66(1), no action shall be brought to recover any costs due to a solicitor until one month after a compliant bill had been delivered.

Held, dismissing the petition, that:

(1) There was compelling evidence of extreme overcharging and a manifest failure by S to properly advise W and ensure that suitable counsel was instructed and fair fees negotiated. It was difficult to imagine a case that more obviously cried out for taxation. (See para.23.)

(2) On the evidence and S's case, it was clearly arguable that the cheques were not security for the purposes of s.64(2) so that there was a bona fide defence to any such claim. (See para.25.)

(3) A bill of exchange given to a solicitor to settle a liability for costs could only be sued on if presented and dishonoured, if the solicitor had complied with the requirements of the Ordinance in respect of suing for recovery of fees and disbursements (Ray v Newton [1913] 1 KB 249 applied; Ring Sights Holding Co Ltd v Graham (Ch D) (Companies Court), 8 October 2001) not followed). (See paras.28-29.)

(4) S could not satisfy s.66(1). No bill had been served to which the cheques could relate, primarily because S had not delivered a bill for counsel's unpaid fees. To allow enforcement by issuing a petition before delivery of a bill and, if required by the client, taxation, would be inconsistent with s.66(1). Further, the requirement of s.66(1) that action could not be taken until a bill was delivered necessarily implied that presentation of the cheque was conditional on a bill being delivered and that delivery of the bill was in escrow until the condition was satisfied which, here, it was not (Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 applied). (See paras.30-31.)

(5) The issue of the petition was an abuse of process and S's conduct manifestly unprofessional. Accordingly, S was to pay C's costs on an indemnity basis. (See para.34.)

Petition

This was a petition by a firm of solicitors to wind up the subject company based on an unsatisfied statutory demand for non-payment of outstanding legal fees and disbursements. The facts are set out in the judgment.

Jurisdictions: 

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