Hong Kong court considers nature and arbitrability of lawyer-client fee disputes

In a decision dated 10 January 2018, the Hong Kong Court of First Instance (Court) stayed its proceedings in favour of arbitration under an arbitration agreement between a firm of solicitors and its former clients. The Court held that there is nothing in Hong Kong law or public policy to indicate that a dispute between a solicitor's firm and its client over fees is not arbitrable. Hong Kong law protects consumers from being forced into arbitration, but the law will consider the nature of the transaction to determine whether or not a claimant is truly acting as a consumer.

The decision relates to a dispute over fees between solicitors' firm Henry Wai & Co (Firm) and its former clients, businessman Fung Hing Chiu Cyril (CF) and Grandom Asia Holding Limited (GA). When the dispute arose, CF was 78 years old and a highly experienced businessman, who was acting as director of GA. The Firm and GA had signed a retainer agreement (Retainer Agreement), which contained an arbitration clause (Arbitration Agreement). The Court was asked to decide whether the Arbitration Agreement was enforceable, and whether the Court's proceedings should be stayed in favour of arbitration.

Grandom Asia Holding Ltd v. Henry Wai & Co (A Firm) [2018] HKCFI 31; HCMP 1700/2017 (10 January 2018)

The Firm issued various bills against two letters of appointment (Letters of Appointment). The Letters of Appointment were issued by CF and GA pursuant to the Retainer Agreement, instructing the Firm to act on their behalves in various ongoing court proceedings. In April 2017, the Firm commenced arbitration proceedings (Arbitration Proceedings) against CF and GA, seeking payment of fees it claimed were outstanding for the services it rendered as per the terms of the Letters of Appointment.

In August 2017, CF and GA commenced two simultaneous court actions (Proceedings) against the Firm, seeking a declaration that the Arbitration Agreement was void, that the bills issued by the Firm under the Letters of Appointment should instead be referred to a taxing master and be subject to the Court's taxation process, and that the Arbitration Proceedings be stayed. The Proceedings were purportedly issued under Sections 60 and 67 Legal Practitioners' Ordinance (Cap 159) (LPO).

In the Arbitration Proceedings, CF refused to submit to the jurisdiction of the arbitrator, while GA alleged that the Arbitration Agreement was invalid and/or unenforceable on the grounds that it contravened public policy. The Court dismissed the applications to stay the Arbitration Proceedings, on the basis that the Court has no power to intervene in arbitration proceedings under Hong Kong's Arbitration Ordinance (Cap 609).

Dealing as consumers

Contesting the validity of the Arbitration Agreement, CF and GA argued that they were "dealing as consumers" according to Section 4(1) Control of Exemption Clauses Ordinance (Cap 71) (CECO) when they engaged the firm to render legal services. Consequently, the Arbitration Agreement was unenforceable without the written consent of CF and GA, as required by Section 15 CECO, which imposes statutory control over arbitration clauses for the protection of consumers in their transactions. As against a person dealing as consumer, an agreement to submit future differences to arbitration cannot be enforced except with

• his written consent signified after the differences in question have arisen; or
• where he has himself had recourse to arbitration in pursuance of the agreement in respect of any differences.

Section 4 (1) CECO provides:

"A party to a contract 'deals as consumer ' in relation to another party if –

• he neither makes the contract in the course of a business nor holds himself out as doing so;

• the other party does make the contract in the course of a business;

• in the case of a contract governed by the law of sale of goods or by Section 12, the goods passing under or in pursuance of the contract are of the type ordinarily supplied for private use or consumption."

CF and GA alleged that the Arbitration Agreement was null, void, inoperative, or incapable of being performed.

The Court held that there is nothing in the Arbitration Ordinance or in the LPO which either prohibits such a dispute from being referred to arbitration, or reserves such disputes for resolution by the Courts. Rejecting the arguments made by CF and GA, and relying on Section 3 of the Unconscionable Contracts Ordinance (Cap 458), the Court held that a "consumer" is defined "by virtue of the specific transaction in question" and whether he can, for the specific transaction in question, satisfy the terms of Section 4 CECO. The Court suggested that an individual client instructing solicitors to prepare a will, or to act in divorce proceedings, may be dealing as a consumer in respect of these specific transactions, but that does not imply that he will be treated as dealing as a consumer in respect of all transactions with solicitors, irrespective of the nature of the transaction. In this case, CF was a highly experienced businessman and it was common practice for him and GA to engage solicitors and legal professionals in the course of their business. The Court dismissed CF and GA's suggestions that they were vulnerable consumers and had no bargaining power whilst dealing with the Firm. The Court held that GA established contractual relations with the Firm in the course of its business and was not dealing with the Firm as a consumer,  The evidence submitted by the Firm clearly established that CF was a prudent businessman who was given sufficient time to review the provisions of the Letters of Appointment.

The Court differentiated between a client who may not have had the reasonable opportunity to read and comprehend the contractual provisions, and one who may not have been aware of the provisions owing to his indifference and lack of interest in understanding the ensuing consequences, despite being given a reasonable opportunity to do so.

Rejecting all the submissions made by CF and GA, the Court held that the control set out in Section 15 of CECO does not apply to the Arbitration Agreement, and that it may not be important to consider whether the written-consent condition under s.15 had been met.

Public policy

CF and GA also claimed that it is contrary to public policy to enforce a provision which seeks to limit the supervisory powers of the Court over solicitors, who are officers of the Court, and which seeks to remove the disciplinary powers of the Law Society or the Court in respect of a solicitor's breach of the Solicitors' Code of Conduct (Code). CF and GA relied on principles 5.15, 4.12 and 4.13 of the Code.

Dismissing these arguments, the Court held that the taxation procedure under Cap 159 and references to taxation identify just one of the many methods of assessing the reasonableness of fees payable by a client to its solicitor. The Court declared that the existence of the taxation procedure under Cap 159 does not mean that disputes between the client and the solicitor as to the latter's fees may not be submitted to arbitration, nor that upholding arbitration agreements between a solicitor and client would be so repugnant to fundamental notions of morality and conscience as to render it contrary to public policy to enforce an otherwise valid arbitration agreement. The Court highlighted that it was equally important, from the public policy point of view, not to permit parties to retract a clear written arbitration agreement, signed by them, and to uphold its obligations under international conventions to enforce arbitration agreements.

Considering all the evidence submitted by the Firm and CF and GA, the Court held that there was, prima facie, a valid arbitration agreement signed between the Firm and GA, represented by CF. In such circumstances, it was mandatory for the Court to stay the Proceedings to arbitration under Section 20 of the Arbitration Ordinance.

The summonses in the Proceedings were dismissed, and the Court ordered that all outstanding issues be argued before the appointed arbitrator in the Arbitration Proceedings.

As is usual in respect of an unsuccessful arbitration-related application before the Hong Kong Court, Chan J made a costs order against CF and GA on the indemnity basis.

Comment

The decision of the Court establishes that a dispute between a solicitor and its client is prima facie, arbitrable, and no provisions of Hong Kong law or public policy suggest otherwise. This decision will be welcomed by law firms, including international firms, which frequently include arbitration agreements in their retainers with clients.

Moreover, while Hong Kong law protects consumers from being forced into arbitration, the protection is available only to genuine consumers. The courts will look critically at the nature of a dispute (and the underlying transaction), to determine whether a claimant is a consumer under Section 4 (1) of CECO. No party should be allowed to take advantage of statutory protections to avoid an agreement to arbitrate to which it has previously consented.

Once again, the Hong Kong Court has reiterated that a party challenging the validity of an arbitration agreement must approach the courts only in exceptional situations. If parties take the risk of challenging an arbitration agreement, they must be prepared to bear the financial brunt, including payment of indemnity costs if their challenge fails.