YEUNG PING HUNG t/a ALFRED YEUNG & CO v. HA CHIU PING AND OTHERS

Date of Hearing:  21 July 2006

Date of Decision:  21 July 2006

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D E C I S I O N

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The background

1.  The Plaintiff entered into a contingency fee agreement to provide professional accounting services to the Defendants as their tax representative in their tax dispute with the Inland Revenue Department which started since November 1996.  During the course of five and half years’ engagement, the Defendants were not satisfied with the Plaintiff’s services and engaged a solicitors’ firm, Messrs Kong & Tang, to replace the Plaintiff on 7 August 2002.  Messrs Kong & Tang brought the tax dispute to a conclusion within four months on 21 October 2002.  The Defendants refused to pay for the Plaintiff’s services.  The Plaintiff instituted the present action to recover his fees and the Defendants counterclaimed for breach of express or implied terms of the Plaintiff’s retainer and in negligence.

2.  Presumably acting under the belief that it was unprofessional or illegal to charge fees on a contingency basis and for tactical reasons, the Plaintiff launched his case on the basis of a retainer at an hourly rate of $3,500.  That evidence was disbelieved and I dismissed the substantial part of his claim, save for a claim of disbursement of $15,000 for counsel’s fee which was admitted by the 1^st Defendant in the course of his evidence and later confirmed by his counsel after taking full instruction. 

3.  The Defendants’ counterclaim is based on an implied duty in tort and in contract to take all necessary steps to reduce and mitigate the Defendants’ tax liability which included the duty to advise the Defendants to make available another sum of $7.5 million to purchase tax reserve certificates in payment of the additional tax instead of applying the $7.5 million deposit held by the Commissioner of Inland Revenue towards payment of the additional tax.  Tax reserve certificates are interest earning while the deposit held by the Commissioner of Inland Revenue is not.  Thus, in the event of a successful objection to the additional tax assessed, the excess tax paid by tax reserve certificates would be refunded with interest, while the excess tax paid by the deposit would not be refunded with interest.  I was satisfied that the 1^st Defendant was fully appraised of the situation and that the Plaintiff had made reasonable effort in the discharge of his duty within the very narrow time frame that was then available to him.  I dismissed the Defendants’ counterclaim on the basis that the Defendants failed to discharge their burden of proving that the Plaintiff was in breach of his duty.

4.  I entered judgment in favour of the Plaintiff’s claim and dismissed the Defendants’ counterclaim.  I made a costs order nisi that there be no order as to costs on the Plaintiff’s claim and that the Defendants shall pay the Plaintiff’s costs on the counterclaim, to be taxed if not agreed.  The Defendants filed a Notice of Appeal on 3 May 2006 to appeal against my decision in dismissing their counterclaim.  On 21 July 2006, Mr Alexander Wong, who represented the Defendants at the original trial, sought a review of my costs order nisi.  I did not feel I was precluded from reviewing my costs order nisi by reason of the Notice of Appeal having been filed against my decision and heard Mr Wong’s application.

The costs order for the Plaintiff’s claim

5.  The thrust of Mr Wong’s application is that the Plaintiff has recovered only a nominal sum of $15,000 not by merit but by concession from the Defendants at the outset.  He argues that the Plaintiff was unable to establish anything of the least value to him and should not be regarded as a successful plaintiff.  He submits that the Defendants should be treated as the successful party and should be awarded the costs of the claim.  In support of his argument, he quoted paragraph 62/2/6 of the Hong Kong Civil Procedure 2006 Vol 1 which reads:

“… Where plaintiffs in an action for breach of contract recover only nominal damages and do not established anything which is of the least value to them, they are not to be regarded as successful plaintiffs, and the court will normally treat the defendants as having succeeded and award the defendants the costs of the action, whether or not the defendants have at any stage made a payment into court of nominal damages (Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873; Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394)”

6.  I have no doubt that the statement of law quoted by the learned authors is correct and is supported by authorities.  However, Mr Wong is both wrong on the facts and on the law.  On the facts, the counsel’s fee was not admitted by the Defendants at the outset.  It was not admitted in the pleading and was never paid at all.  It was only admitted by the 1^st Defendant under cross-examination when giving evidence for the defence case.  It is also incorrect to argue that the counsel’s fee could not be proved by the Plaintiff and was given away the Defendants by way of admission.  The fee could not be disputed despite the unfavourable view I formed of the Plaintiff’s credibility.  On the law, the fee is not a nominal sum.  In Mediana [1900] AC 113, the Lord Chancellor, the Earl of Halsbury, held at 116:

“Nominal damages is awarded when the plaintiff or the claimant cannot prove any actual damages at all.”

The law presumes that damage is suffered in any breach of contract or in any tortious conduct.  If an injured party is unable to prove the quantum of loss suffered, a nominal award on an arbitrary basis is given to mark the infringement of the injured party’s right.  The counsel’s fee of $15,000 was a reimbursement and a quantified sum.  It was not a small sum or a token amount, though it was insignificant when compared with the amount claimed by the Plaintiff.  Even a small sum does not cease to be a sum of substance and becomes a nominal sum by reason only of its being small in absolute term or insignificant in relative term.

7.  Mr Wong further argues that the amount awarded was nominal in the sense that it was not for any damage suffered by the Plaintiff because it was counsel’s fee which would not really go to the pocket of the Plaintiff.  With respect, that argument is convoluted.  If the Defendants failed to reimburse the Plaintiff of his expenses, the Plaintiff suffered damage.  This is not the case that the Plaintiff could not quantify his damage which makes it necessary for the Court to arbitrarily award a nominal amount.  The amount is determined by the sum that the Plaintiff had paid or was obliged to pay counsel and is awarded on that basis.  I am firmly of the view that the award is not an award of nominal damages.

8.  Mr Yee, Counsel for the Plaintiff, refers me to my judgment in In re Kwan Kai Ming, HCMP 2996 of 1990, in which I adopted the principle in the English Court of Appeal in Ritter v Godfrey [1920] 2 KB 47.  But I do not think In re Kwan Kai Ming or Ritter v Godfrey are helpful to the Plaintiff or the Defendants.  The principle in Ritter v Godfrey is applicable only to the case of a wholly successful litigant.  Neither party to this litigation can be regarded as a wholly successful litigant.  Atkin LJ, as he then was, said at 60:

“It is not easy to deduce from these authorities what the precise principles are that are to guide a judge in exercising his discretion over costs.  And yet as the discretion is only to be exercised where there are materials upon which to exercise it, it seems important to ascertain the principles upon which a judge is to discern whether the necessary materials exist.  In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains.  These principles require further expansion.”

Furthermore, Ritter v Godfrey is of no assistance to the Plaintiff for the purpose of depriving the Defendants of their costs even assuming they were wholly successful, because the Defendants’ conduct fell outside the three categories of conduct defined by Atkin LJ.  The Defendants’ conduct was in breach of the retainer but it did not bring about the litigation in the sense as required by Ritter v Godfrey in that it has the effect of inducing a belief in the Plaintiff’s mind that he has a good cause of action.  The 1^st Defendant’s evidence was believed.  Accordingly, the Defendants have not done anything connected with the institution or conduct of the proceeding calculated to occasion unnecessary costs.  The Defendants were faced with a false case.  They defended by pleading the true facts.  They have not done anything wrongful in the course of the transaction of which the Plaintiff complains.

9.  Where neither party is wholly successful, the court has a much wider discretion as regards costs.  The court must first identify which is the successful party in the circumstances, i.e. the party who can be regarded as being overall successful.  The general rule then applies.  Costs should follow the event, unless where it appears to the court that in the circumstances of the case some other costs order should be made: Order 62 rule 3(2) of the Rules of the High Court.  The overriding principle is overall fairness in all the circumstances of the case.  Sometimes, the court would apportion the costs according to the extent to which the party is successful but having regard to the extent to which that party is not.

10.  Mr Wong reminds me of the various parts of my judgment in which I criticised the Plaintiff’s credibility and for launching a case not in accordance with the true facts.  He submits that in that light and having regard to the amount awarded as compared with the amount of the claim, the Plaintiff should not be regarded as even a partially successful litigant.  The Plaintiff has his penalty for launching a false case.  He has in reality substantially lost.  But his claim for the reimbursement is genuine and incontrovertible whether he was retained at an hourly rate as he alleged or on the basis of contingency fee as the Defendants alleged.  He has obtained an award.  The award, as I have held, is not one for nominal damages.  On the other hand, the Defendants were resisting the entirety of the Plaintiff’s claim including that reimbursement until the 1^st Defendant was being cross-examined when giving evidence as part of the Defendants’ case.  The Plaintiff could not have recovered the reimbursement had he not instituted this action.  He could not be treated as having wholly lost in the action.  Had he pleaded his case properly and given evidence according to the true facts, he could have succeeded at least on a quantum meruit basis.  I think it is more appropriate to treat the Plaintiff as one who is overall successful, though only to a small extent.

11.  Thus the general rule that costs to follow the event should apply unless fairness in all the circumstances requires a different order to be made.  In terms of quantum, the amount awarded is only a small fraction of the amount claimed.  Similarly, the time spent by the Plaintiff in proving the reimbursement is also negligible when compared with the time spent in proving the retainer on an hourly basis.  But having regard to all the circumstances of the case, including in particular, the extent to which the Plaintiff is successful and the extent to which he is not, I think overall fairness requires not only that I should not apportion any costs to the Plaintiff but I should deprive him of his costs altogether.  Accordingly, I confirm my cost order in respect of the Plaintiff’s claim.

The costs order for the Defendants’ counterclaim

12.  As for the Defendants’ counterclaim, the Plaintiff is wholly successful while the Defendants are wholly unsuccessful.  The general rule that costs to follow the event is applicable.  Mr Wong seeks to persuade me to depart from that general rule for the following three reasons.  Firstly, he refers me to my finding of fact that it was unrealistic to expect the Defendants as laymen would give specific instructions in respect of each and every aspect of the work to the Plaintiff as a professional adviser, that the Defendants have provedan implied duty in tort and in contract to take all necessary steps to reduce and mitigate the Defendants’ tax liability, and that the 1^st Defendant was fully appraised of the situation.  Then he argues that in that light, I have criticised that the Plaintiff’s advice, though adequate, could have been made more explicitly. Secondly, he argues that the Plaintiff succeeded merely because the Defendants failed to discharge the burden of showing that Plaintiff’s discharge of duty was below the standard of a reasonably competent accountant.  In my view, it is always incumbent upon the plaintiff to prove his claim.  If a plaintiff could not prove his case even by a small margin, he has failed.  The usual consequence of costs follows unless there are exceptional circumstances.  That he is almost successful is not an exceptional circumstance and cannot mitigate his costs consequence.

13.  Mr Wong’s third and major argument is that the evidence in respect of the counterclaim is mostly intertwined with the evidence of the Plaintiff’s claim.  Hence he argues that there should be no order as to costs on the counterclaim or as a fall back that the Plaintiff should only have half of the costs of the counterclaim.  If indeed the evidence in respect of the counterclaim and the Plaintiff’s claim is mostly intertwined, it could have an impact on the costs order.  However, on the Plaintiff’s claim and the Defendants’ counterclaim as summarised in paragraphs 2 and 3 above, it is obvious that the issues for the two cases are very distinct and clearly defined.  The issue in the Plaintiff’s case is about the retainer while the issue in the Defendants’ counterclaim is about one specific advice.  The evidence of the two cases is not intertwined.

14.  In respect of the costs of the counterclaim, the Plaintiff is wholly successful and there are no special circumstances to justify a departure from the general rule that costs to follow the event.  Accordingly, I affirm my costs order nisi in respect of the counterclaim.

Conclusion

15.  For the above reasons, I affirm my costs order nisi that there be no order as to costs on the Plaintiff’s claim and that the Defendants shall pay the Plaintiff’s costs on the counterclaim, to be taxed if not agreed.  The Defendants shall also pay the Plaintiff’s costs of this application to vary my costs order nisi.

Mr Kent Yee, instructed by Messrs King & Co., for the Plaintiff

Mr Alexander Wong, instructed by Messrs Y.C. Lee, Pang & Kwok, for the Defendants

Dates of Hearing:  6-9 December 2005 and 20 February 2006

Date of Judgment:  21 March 2006

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J U D G M E N T

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The background

1.  This is an action for damages for breach of contract in which the Plaintiff, a professional accountant, claims professional fees for his services rendered to the Defendants as their tax representative during the period between January 1997 and January 2003.  The Defendants counterclaim for breach of express or implied terms of the Plaintiff’s retainer and in negligence.  The 1^st Defendant (“Mr Ha”) and 2^nd Defendant (“Ms Leung”) are husband and wife and partners in the 3^rd Defendant (“Kent Industrial”).  They and their four children are partners in the 4^th Defendant (“Haworth Trading”).  Mr Ha was effectively the person who had control and management of Kent Industrial and Haworth Trading.

2.  On 22November 1996, officers of the Inland Revenue Department (“IRD”) conducted a field audit on the accounts of Kent Industrial and Haworth Trading at their office premises in the presence of Mr Ha and his then tax representative, Mr Ronald Ng.  At the field audit, Mr Ha agreed to pay a sum of $10 million as deposit for any additional profits tax and/or penalty which may be levied against the Defendants for the six years of assessment from 1990/91 to 1995/96.  The said sum was to be paid by three instalments on 25 November, 6 December and 20 December 1996.

3.  After the first two instalments in the sum of $7.5 million were paid and before the third instalment was due, IRD officers conducted a simultaneous house search of Mr Ha’s residence and office premises of Kent Industrial and Haworth Trading on 16 December 1996.  The books and accounts of Kent Industrial and Haworth Trading were seized.  Mr Ha was obviously very dissatisfied with the unexpected house search and refused to pay the third instalment.  Presumably because of that incident he became dissatisfied with the services of his then tax representative, Mr Ronald Ng.  The above background is not in dispute. 

4.  It was against this background that Mr Ha was introduced by his friend to the Plaintiff to deal with the IRD as his tax representative. 

5.  There is no dispute that the Plaintiff had a meeting with Mr Ha and the Defendants’ then accountant, Ms Mandy Choi, at the Plaintiff’s office on 15 January 1997 and that on the following day, Ms Choi prepared three appointment letters in respect of Ms Leung, Kent Industrial and Haworth Trading which were then duly signed by the respective Defendants and forwarded to the Plaintiff.  The appointment letters were prepared according to the draft provided by the Plaintiff.  It is common ground that the Plaintiff was appointed as the Defendants’ tax representative in respect of the Defendants’ tax objections for the years of assessment from 1990/91 to 1995/96. 

6.  The central issue in dispute between the parties is about the terms of payment of the Plaintiff’s fee under the retainer.  According to the Plaintiff, the meeting on 15 January 1997 was the first meeting he had with Mr Ha and it was agreed at that meeting that he would be remunerated at the rate of $3,500 per hour.  However, according to Mr Ha, there was yet another meeting between him and the Plaintiff one or two days before 15 January 1997 in which it was agreed that the Plaintiff would be remunerated on a contingency fee basis being 50% of the difference between a base figure of $10 million and the total of all reasonable disbursements and additional tax assessed.  Incidentally, the base figure was the amount of deposit which Mr Ha was required by the IRD to pay.

The subsequent events

7.  The Plaintiff’s intercession on behalf of the Defendants with the IRD was never smooth.  The tax objections were not concluded after more than five years and Mr Ha was prosecuted in the meantime.  I say this just as a factual observation and attribute no fault to the Plaintiff.  From the events which unfolded, the inference could be drawn that the IRD was unduly aggressive and unreasonable in its investigation, prosecution and handling of the Defendants’ tax matters.  Hereunder is a chronology of events leading to the dispute between the Plaintiff and Defendants.  These events are not in dispute, though the Defendants query the propriety of the Plaintiff’s conduct in these events as their tax representative.

Date	Event
31.01.1997	IRD issued additional tax assessments to the Defendants for $15,107,374
05.02.1997	Plaintiff filed notices of objection
25.02.1997	IRD reduced the additional tax assessments to $14,711,374 with $3,221,374 being held over unconditionally
10.03.1997	Mr Ha met with IRD and agreed to apply the deposit of $7,500,000 towards payment of the revised additional tax assessed to $11.49 million
04.04.1997	Plaintiff confirmed on behalf of Defendants to pay the balance of $3.99 million by tax reserve certificates
May 1999	IRD instituted criminal prosecution against Mr Ha
22.02.2000	Criminal prosecution was permanently stayed by HH Judge Sweeney of the District Court
11.08.2000	Plaintiff suggested to IRD to reduce the additional tax
08.11.2000	Plaintiff suggested to IRD to reduce the additional tax
22.01.2001	IRD made counter proposal to Defendants
07.03.2001	Defendants rejected IRD’s counter proposal
10.12.2001	Plaintiff and Mr Ha met with IRD claiming deduction of expenses of $46 million from profits of Defendants
09.01.2002	Plaintiff wrote to the IRD to abandon the claim for deduction of expenses of $46 million
April 2002	Plaintiff informed Mr Ha of prospect of recovering about $4,000,000 refund from the IRD
06.06.2002	Plaintiff informed Mr Ha of IRD’s refusal to refund and investigation of the Defendants’ tax matters for the years of assessment from 1996/97 to 2000/01

8.  Subsequent to the Plaintiff taking over as the Defendants’ tax representative, the IRD issued additional tax assessments against the Defendants on 31 January 1997 in the total sum of $15,107,374.  The Plaintiff filed notices of objection on 5 February 1997.  On 25 February 1997, the IRD reduced the revised additional tax to a total sum of $14,711,374 with $3,221,374 being held over unconditionally.  On 10 March 1997, the Plaintiff and Mr Ha had a meeting with Mrs Lai, Senior Assessor, and Mr Cheung, Assistant Assessor, of IRD during which Mr Ha agreed to apply the deposit of $7.5 million in payment of the revised additional tax of $11.49 million, while the objections to the revised additional assessments were being processed.  Three days later, the Plaintiff confirmed the above agreement in writing.  On 4 April 1997, the Plaintiff forwarded four tax reserve certificates in the total sum of $3.99 million in settlement of the outstanding balance of the additional tax.  The tax reserve certificates were interest bearing in the event that the tax demanded were found to be excessive at the conclusion of the tax objection proceedings.  Mr Ha now complains that the Plaintiff should have advised him to convert the deposit of $7.5 million into tax reserve certificates instead of applying the deposit in payment of the additional tax.  The mechanism would involve advising the Defendants to pay the additional tax of $11,490,000 by tax reserve certificates and then apply for the same to be held over pending determination of the objections and to have the deposit of $7.5 million released to the Defendants.  In this way, the deposit of $7.5 million thus replaced by tax reserve certificate would have earned substantial interest for the Defendants during the six years as the Defendants were eventually successful in the tax objections.

9.  While the objections were still being processed, the IRD instituted prosecution against the Defendants in the District Court in May 1999.  The Plaintiff introduced Mr Tang of Messrs Au Kong & Tang to Mr Ha to represent the Defendants in place of Messrs Woo, Kwan Lee & Lo who was originally instructed by Mr Ha.  The Plaintiff also attended conference with counsel and provided his expert opinion as accountant.  On 22 February 2000, HH Judge Sweeney ordered the prosecution to be permanently stayed.  

10.  The Plaintiff resumed negotiation for reduction of the additional assessments on 11 August 2000 on the basis that certain purchases and sub-contracting charges incurred by Kent Industrial and Haworth Trading had been negligently omitted from their accounts.  On 22 January 2001, the IRD made a counter proposal of charging Kent Industrial $6,153,247 and Haworth Trading $1,688,977 additional tax, which would result in a tax refund of about $3.5 million.  That proposal was rejected by the Defendants on 7 March 2001.

11.  On 10 December 2001, the Plaintiff and Mr Ha had a meeting with Mr Chan and Mr Cheung of the IRD to discuss the Defendants’ claim for deduction of expenses in the sum of $46 million.  At the conclusion of the meeting, Mr Chan intimated to Mr Ha that if the Defendants’ objection was unsuccessful, the Defendants might be liable to criminal prosecution and penalty equivalent to three times the additional tax assessed.

12.  On 9 January 2002, the Plaintiff wrote to the IRD to abandon the Defendants’ claim for deduction of expenses of $46 million and proposed to settle the objection by accepting the IRD’s assessment of additional tax for Haworth Trading in the amount of $1,688,977 but requesting reduction of the assessment for Kent Industrial to $2,962,567.  Some time in April 2002, the Plaintiff informed Mr Ha that the IRD would refund about $4 million to the Defendants.  However, on 6 June 2002, the Plaintiff informed Mr Ha that the IRD would not be making the refund of $4 million as the Defendants were being investigated for their tax liabilities in respect of the years of assessment from 1996/97 to 2000/01.  Mr Ha became very upset and instructed Messrs Kong & Tang to assist the Defendants in their negotiation with the IRD in July 2002. 

13.  On 1 August 2002, Mr Tang of Messrs Kong & Tang prepared a letter addressed to the Plaintiff setting out the Defendants’ stance and observation in respect of the Defendant’s tax objections and sent it under cover to the Plaintiff requesting the Plaintiff to forward it to the IRD.  That might have been for comity or tactical reasons.  However, it was not taken by the Plaintiff as such.  Instead, the Plaintiff took exception to paragraph 10 of that letter which reads:

“Full and frank disclosure, explanations, co-operation, payment, provision of receipts, loss of legal costs, consideration of face of I.R.D., no complaint to the press, no private prosecution, and the retention of your services are all proved useless.  The I.R.D. still keep the deposit and refuse to refund the same to our clients.”

In that letter, Messrs Kong and Tang set out the anxiety suffered by Mr Ha as a result of the IRD’s conduct in relation to the Defendants’ tax matters and the prosecution, the costs incurred in defending the prosecution and the objective fact that the work of the Plaintiff had proved fruitless.  It is apparent from the content of the letter that Mr Tang took a different approach.  Instead of arguing for dollars and cents, I think the purpose of the letter was to remind the IRD of its excessiveness in handling the Defendants’ tax matters and to imply a polite threat that the Defendants could have taken various forms of actions, legal and non-legal, against the IRD such as complaints to the Chief Executive and to the press which they had so far forebear in favour of an amicable settlement.  The Plaintiff refused to forward the letter as he thought paragraph 10 critical of his services being useless. 

14.  On 7 August 2002, Mr Ha arranged a dinner with the Plaintiff and Mr Tang with a view to ease the Plaintiff’s displeasure about the letter.  But the Plaintiff refused to send the letter for the reason that it was not his letter.  On 9 August 2002, Messrs Kong and Tang sent the letter direct to the IRD.  Thereafter, Messrs Kong and Tang took over the conduct of the tax objection of the Defendants. A factual dispute between the parties is whether the Plaintiff’s retainer was terminated at the conclusion of the dinner on 7 August 2002. 

15.  On 21 October 2002, Mr Ha, Mr Tang and their counsel Mr Omar attended a meeting with Mr Cheung and Mr Chan of the IRD.  At the meeting, Mr Ha with the assistance of his solicitor and counsel reached settlement with the IRD.  The Plaintiff’s earlier agreement to abandon the claim for deduction of expenses of $46 million was revoked.  The compromise was reached by the IRD allowing Haworth Trading’s claim for expenses in the sum of $32.6 million while Kent Industrial abandoned its claim for deduction of expenses in the sum of $13.4 million.  This represented a further reduction in tax liability in the amount of about $4.8 million other than that obtainable through the efforts of the Plaintiff.  It is not known what the lawyers had done to bring about a softening of the attitude of the IRD in substantially allowing the claim for deduction of expenses of $46 million and discontinuing the investigation of the Defendants’ tax matters for the years of assessment from 1996/97 to 2000/01.  Probably, they succeeded in exerting pressure on the IRD by reminding the IRD of its excessiveness and by using the threats contained in the letter of 1 August 2002 which the Plaintiff refused to forward to the IRD.  There is no need for me to speculate.  The fact was that the tax objections for the years of assessment 1990/91 to 1995/96 were brought to a conclusion by the efforts of Messrs Kong &Tang instead of by the Plaintiff. 

16.  At about the same time in October 2002, the Plaintiff asked Mr Ha for $1,500,000.  Mr Ha refused.  According to the Plaintiff, the money was demanded as payment on account for his services, while Mr Ha said that the Plaintiff was asking him for a loan to enable him to purchase his existing office.

17.  On 21 November 2002, the revised additional tax assessments were issued which resulted in a refund of about $8 million to the Defendants inclusive of interest.  On 11 December 2002, the IRD wrote to the Plaintiff in connection with the property tax of the Defendants.  The Plaintiff sought instructions from Mr Ha over the telephone.  Mr Ha replied by fax asking for a copy of the letter from the IRD and informing him that he would be contacted in due course.  On 8 January 2003, the Plaintiff contacted Mr Ha again but was told that his services were not required.  On 10 January 2003, the Plaintiff wrote to Mr Ha confirming that he no longer acted as his tax representative.

18.  On 12 April 2003, the Plaintiff issued his fee note to Mr Ha and Ms Leung trading as Kent Industrial and Haworth Trading.  The Defendants declined liability saying that the fees charged were not in accordance with the retainer.  On 9 June 2003, the Plaintiff’s solicitors issued a demand to the Defendants for payment of the fees.  Mr Ha gave a similar reply and referred to the Plaintiff’s attempt to borrow $1.5 million from him as evidence that the Plaintiff knew he was not entitled to be paid any fees.  Save for some differences between the Plaintiff’s and Mr Ha’s evidence already identified, the above factual background is not in dispute.

The issues

19.  The Plaintiff’s case is that he was retained at the hourly rate of $3,500.  In addition, the Plaintiff pleaded an alternative claim that in the absence of any fee agreement he was to be remunerated a reasonable fee for his services in accordance with section 7 of the Supply of Services (Implied Terms) Ordinance, Cap 457.  The defence is that the Plaintiff was not entitled to any fee under the contingency fee agreement as he had not completed his task for which he was retained.  In addition, the Defendants counterclaimed for breach of an express or alternatively an implied term of the retainer or for negligence in failing to give proper advice to the Defendants and in failing to try or to try hard enough to negotiate with the IRD for the release of the deposit of $7.5 million held by the IRD by having it replaced by tax reserve certificates of the same amount.

20.  It would appear from the above background that the Plaintiff’s assistance provided to counsel in defending the prosecution of Mr Ha was not covered by the retainer as tax representative for the Defendants whether on hourly rate or contingency fee basis and the Plaintiff would in any event be entitled to recover on hourly rate basis if I accept his evidence or on quantum meruit basis or under section 7 of the Supply of Services (Implied Terms) Ordinance if I do not.  However, having made the above indication, Mr Yee, counsel for the Plaintiff, confirmed after seeking instructions from the Plaintiff that the assistance was within his retainer. In the circumstances, it is not open to me to explore that avenue.

21.  Thus the issues raised in this case are reduced to:

(1)   whether the Plaintiff was engaged under a retainer on an hourly rate of $3,500 or on a contingency fee basis;

(2)   if the Plaintiff was retained on an hourly rate basis, what was the amount of fee due to the Plaintiff;

(3)   was it an express or implied term under the Plaintiff’s retainer that the Plaintiff shall advise the Defendants of the prospect of having the $7.5 million deposit released by replacing them with tax reserve certificates and to negotiate with the IRD for that purpose and/or was the Plaintiff under a similar duty of care to the Defendants;

(4)   if it was, whether the Plaintiff was in breach of the express or implied term or duty of care; and

(5)   if the Plaintiff was in breach, what damages flow from that breach?

When was the retainer terminated

22.  Before turning to the terms of the retainer, it would facilitate my finding as to the terms of the retainer if I first make a finding as to when the retainer was terminated whatever its terms.  It should be recalled that the Plaintiff, Mr Ha and Mr Tang of Messrs Kong & Tang had a dinner on 7 August 2002 to discuss about the request of Messrs Kong & Tang to the Plaintiff to send their letter to the IRD.  At that stage, the IRD indicated that the Defendants would be refunded about $4 million, but later the Plaintiff informed Mr Ha that the refund would not be made as IRD was going to investigate into the Defendants’ tax matters for the years of assessment from 1996/97 to 2000/01. 

23.  It was against the above background that Mr Ha sought the assistance of Mr Tang.  According to Mr Ha, he had much more confidence in Mr Tang who was introduced to him by the Plaintiff than in the Plaintiff as Mr Tang was successful in defending the prosecution against him.  He wanted Mr Tang to help the Plaintiff in processing his tax objections.  But the Plaintiff refused saying that Mr Tang was good for the law but not for tax or accounting matters.  Somehow, Mr Ha sought Mr Tang’s assistance and Mr Tang prepared a letter to the IRD.  Mr Tang did not want to by-pass or pre-empt the Plaintiff and hence asked the Plaintiff to forward the letter to the IRD.  The Plaintiff refused.  Thus Mr Ha arranged the dinner on 7 August 2002 with a view to iron out the differences between Mr Tang and the Plaintiff.  However, the Plaintiff refused to have Mr Tang’s assistance or to forward the letter.  Then Mr Ha told the Plaintiff that if he would not do so, Messrs Kong & Tang would take over the tax objection matters from the Plaintiff.  That meeting concluded unhappily with the Plaintiff obstinately refusing to send the letter for the reason that it was not his letter.  Then Mr Ha told the Plaintiff that Messrs Kong & Tang would take over the tax objection matters from him, in other words, the Plaintiff’s retainer was terminated. 

24.  The Plaintiff denied that his retainer was terminated under the circumstances as described by Mr Ha.  His evidence was that he took exception to Mr Tang’s saying in the letter that “the retention of your (the Plaintiff’s) services are all proved useless.”  He refused to send the letter as it was not his letter.  According to the Plaintiff, Mr Tang accepted his views and promised to amend the letter before sending it to the IRD.  But Mr Tang did not honour his promise and sent the letter as it was without amendment to the IRD on 9 August 2002. 

25.  I think it could not be doubted that Mr Ha was getting very concerned at that stage.  Hardly had the nightmare of the previous prosecution been over was he finding himself jumping from one frying pan into another, if not into the fire.  It appeared that the nightmare was going to repeat itself if something effective was not done in time.  I have no doubt that Mr Ha had much more confidence in Mr Tang than in the Plaintiff. I have no doubt that Mr Ha was trying to strike a balance by having Mr Tang’s services but without pre-empting or by-passing the Plaintiff as Mr Tang was introduced to him by the Plaintiff.  Mr Tang had carefully drafted the letter in such a format as to dress it up as a complaint against the Plaintiff but implying the excessiveness of the IRD, indirectly reminding the IRD of its Waterloo before HH Judge Sweeney and suggesting the possible action which Mr Ha, who then had legal advice, could have taken.  The dinner was arranged for the purpose of convincing the Plaintiff to forward the letter to the IRD.  In the circumstances, it is incredible that the meeting could have concluded amicably with Mr Tang agreeing to amend and send the letter as alleged by the Plaintiff.  It was only too obvious that Mr Ha had become so anxious with the matter hanging over his head for almost six years with the threat of yet another prosecution that if the Plaintiff was not going to comply with his instruction, he was going to instruct Messrs Kong & Tang to take over the negotiation with the IRD.  I accept Mr Ha’s evidence that he had told the Plaintiff in unequivocal terms that if the Plaintiff refused to forward the letter to the IRD, he had no alternative but to transfer the case to Messrs Kong & Tang.  Though the word “dismissal” or “termination” was not used; the meaning was unequivocal.  The Plaintiff’s refusal to send the letter was clear acceptance of the termination of his retainer and the retainer was terminated at the conclusion of the dinner on 7 August 2002.

26.  The Plaintiff argued that he did not consider his retainer was terminated on 7 August 2002 and that he considered his retainer was terminated in January 2003 when he confirmed to Mr Ha his termination in writing.  The basis of his argument was that he continued to receive letters in connection with the Defendants’ tax matters from the IRD after 7 August 2002.  He said that he only considered his retainer was terminated when Mr Ha told him that it was not necessary for him to deal with the Defendants’ property tax in January 2003.  That the IRD kept on sending the Plaintiff letters in connection with the Defendants’ tax matters was neither here nor there.  The Defendants’ property tax matter had nothing to do with his retainer to deal with objections to profits tax for the six years of assessment from 1990/91 to 1995/96. 

27.  It is not disputed that on 20 October 2002 the Plaintiff was informed by Mr Ha that Mr Ha was going to attend a meeting with the IRD on the following day with Mr Tang and his counsel but the Plaintiff’s presence was not required.  The Plaintiff must have known that his retainer was terminated if not at the dinner meeting on 7 August 2002 at the latest by the time he was informed that his presence was not required at the meeting with the IRD on 21 October 2002.  I accept Mr Ha’s evidence and find that Mr Ha had terminated the Plaintiff’s retainer at the conclusion of the dinner on 7 August 2002.  Whether that gave the Plaintiff any remedy is beyond the scope of the pleading and has not been argued by counsel. 

Terms of the retainer

28.  I now turn to consider the terms of the retainer.  According to Mr Ha, two or three days prior to 15 January 1997, he attended the office of the Plaintiff.  He briefed the Plaintiff about the background of his case.  The Plaintiff told Mr Ha that he had experience in handling such kind of tax matters and suggested Mr Ha to pay the balance of $2.5 million as deposit and to produce trading receipts of the 3^rd and 4^th Defendants in China for the years of 1990/91 to 1995/96 as evidence of the Defendants’ expenses so as to reduce the Defendants’ tax liabilities.  He said that the Plaintiff gave him confidence by telling him that the Plaintiff knew many officers in the IRD, that he had confidence in recovering the $10 million deposit and that prosecution was unlikely.  On the question of the Plaintiff’s fees, Mr Ha said that the Plaintiff suggested to charge contingency fee calculated at 50% of the difference between a base figure of $10 million and the total of all reasonable disbursements to be incurred in relation to the case and the additional tax assessed for the six years of assessment.  The Plaintiff also said 「各安天命」, meaning that both parties would be bound by the eventuality, i.e. if the additional tax assessed and expenses exceeded $10 million, the Defendants had to pay whatever additional tax assessed and the Plaintiff would receive no reward; if the tax liabilities were significantly reduced, the Defendants and the Plaintiff would share the saving equally.  Mr Ha said they agreed to the contingency fee agreement.  He was happy with such an agreement as the $10 million was already out of his pocket anyway「已出之物」and he was willing to take a gamble. The Plaintiff denied that there was such a meeting and agreement.

29.  Then according to Mr Ha, two or three days later, he and Ms Choi, had a meeting with the Plaintiff at the Plaintiff’s office to discuss about the Defendants’ tax matters. The Plaintiff’s evidence was that he met Mr Ha and Ms Choi for the first time on 15 January 1997 when Mr Ha related to him the whole incident about the searches by IRD, the demand for payment of $10 million deposit and so on.  Then they reached an oral agreement for the appointment of the Plaintiff as the Defendants’ tax representative at an hourly rate of $3,500.  At the second meeting on 21 February 1997, Mr Ha offered him a bonus according to the formula in the above paragraph.  The Plaintiff made no response as he did not take the offer seriously and he considered his retainer at the hourly rate of $3,500 adequate. Even if Mr Ha was very optimistic about the Plaintiff’s chance of success in substantially reducing his tax liabilities, the offer of double reward, i.e. hourly rate and bonus, simply does not make sense.  Mr Ha would be getting only half of what he would be paying for with the Plaintiff getting the lion’s share of the saving.

30.  Ms Choi’s evidence was that the question of the Plaintiff’s fees was never discussed at the first meeting with the Plaintiff, which was probably the meeting on 15 January 1997 and at the two or three similar meetings thereafter.  However, she confirmed that after the first meeting, she was told about the contingency agreement by Mr Ha.  On the following day, she prepared appointment letters in respect of the Plaintiff’s appointment as tax representative of the 2^nd, 3^rd and 4^th Defendants.  The content of those letters was provided by the Plaintiff.  Ms Choi is no longer in the employ of the Defendants and could be considered as a non-interested witness.  The significance of her evidence is that she heard nothing about the hourly rate agreement mentioned by the Plaintiff on the meeting on 15 January 1997 or the bonus offer by Mr Ha at the second meeting mentioned by the Plaintiff.  If the Plaintiff was telling the truth, it is most unlikely that Ms Choi would have failed to recollect either the Plaintiff mentioning the hourly rate of charge or Mr Ha’s offer of the bonus.  Furthermore, unless Ms Choi deliberately lied, it was impossible that the question of fee was not raised at the very first meeting between an accountant and his client if 15 January 1997 was their first meeting.  Had that been raised, it must have been discussed at some length, for example, the number of hours the work would likely take and whether a ceiling would be imposed etc.  Such discussion could not have escaped Ms Choi’s ears and left her memory.  That meeting which lasted for three and half hours was worth $12,250 at the hourly rate charged by the Plaintiff.  If that was the first meeting between an accountant and a prospective client who was a total stranger, it is incredible that the accountant would not have mentioned his rate of charge before incurring further time with this stranger.  Ms Choi’s evidence points to the existence of the meeting two to three days prior to 15 January 1997 between Mr Ha and the Plaintiff alone when the two of them had reached the contingency fee agreement.  That explains why she had never heard about the fee arrangement, whether on an hourly basis or on contingency fee basis.  I accept Ms Choi’s evidence that the question of the Plaintiff’s fee was not discussed at the meeting of 15 January 1997 and thereafter.

31.  The letters of appointment were in similar terms.  The one in respect of the 2^nd Defendant reads:

“I take pleasure to invite your company to be my tax representative at a fee to be agreed upon at a later date.

Please confirm your acceptance of the above appointment in due course.”

In this and the other appointment letters, it was expressly stated that the Plaintiff’s fee was to be agreed upon at a later date.  There was no dispute that the content of the letters was provided by the Plaintiff.  If the Plaintiff was retained at an hourly rate, why was that not specified in the letters?  The Plaintiff said that he did not wish to disclose his fee to the IRD.  That may be plausible, but that does not explain why he chose to use obscure language such as “fee to be agreed upon at a later date” which according to his case was untrue.  He could have kept silent as to his fee.  In addition, he could also have prepared a file copy for his and Mr Ha’s eyes only stating that he was to be paid at the hourly rate of $3,500 for his own protection.  On the other hand, it could be argued that the letter was not consistent with Mr Ha’s case of contingency fee.  If there was this contingency fee agreement, the Plaintiff should have asked for that to be stated in the letter.

32.  I think it would be more realistic to look at the letters in this way.  Mr Ha was the client and he trusted the Plaintiff.  He was the passive party and signed whatever his advisor prepared for him.  On the other hand, what the Plaintiff did had to be understood in the light of what was in his mind. As was said by the Plaintiff in his witness statement, he had all along thought that it was against the rules governing accountants to charge contingency fee.  It also appeared that it was not until his business partner was cross-examined that he came to realise that it was permissible to charge contingency fee in relation to this type of work.  The inference to be drawn from the false statement in the letters of appointment is that the Plaintiff was hiding what he thought was an improper contingency fee agreement.

33.  There was a slight inconsistency between Ms Choi’s evidence and Mr Ha’s.  According to Ms Choi, she said that Mr Ha said nothing when she handed the letters of appointment to Mr Ha for signature.  However, according to Mr Ha, after Ms Choi explained the content of the letters to him, he reckoned the letters were not in accordance with his agreement with the Plaintiff and he told Ms Choi that he would make enquiries with the Plaintiff.  I consider the inconsistency a failure of memory on the part of Ms Choi.  It has no impact on her credibility.  I prefer the evidence of Mr Ha as he was more actively involved in the discussion of the terms of the retainer than Ms Choi.     

34.  The Plaintiff argued that he could not have agreed to the contingency fee agreement for the following reasons.  He had no idea how much would be owed by the Defendants to the IRD by way of additional tax and how much IRD would impose by way of penalty.  He had no idea how long the case would take and that was a matter beyond his control.  He had no opportunity to read any accounting documents of the Defendants and assess the case of the Defendants.  The Plaintiff said that he had never charged contingency fee before.  These considerations weigh in favour of the Plaintiff’s case that he had not agreed to charge contingency fee.

35.  On the other hand, it is extremely strange if not suspicious that no deposit on account had ever been demanded or paid in respect of a task which at its inception was likely to take a couple of years to complete and that for a period of over six years, not a single invoice or interim bill had ever been issued against the Defendants in respect of the continuous services rendered and for the disbursements incurred between 15 January 1997 and April 2003.  The Plaintiff said that this was due to his neglect and further explained that even for a case lasting five to ten years his firm would not issue any interim bill.  I find his explanations perplexing.  However, there is no dispute that the Plaintiff invoiced the Defendants promptly in respect of other secretarial services rendered for the Defendants and in respect of the Defendants’ objections to the additional assessments for the years 1997/98 to 1998/99 and the Defendants promptly settled those invoices.  When the Plaintiff’s billing practice in relation to the Defendants’ pre-1997 tax matters is contrasted with those in respect of the post-1997 tax matters, the Plaintiff’s case of hourly rate agreement is incredible.  I consider the Plaintiff’s explanation of neglect too simple and convenient to be a genuine explanation for an inexplicable situation.  The total absence of payment of deposit on account and interim bill for a period of over six years in contrast with his billing practice in relation to the Defendants’ post-1997 tax matters could only reasonably be explained on the basis of the existence of a contingency fee agreement as alleged by Mr Ha.

36.  It was after almost six years since he was retained that the Plaintiff demanded payment for the first time. The Plaintiff and Mr Ha differed as to the surrounding circumstances of the demand.  The Plaintiff said he was asking Mr Ha for payment on account.  According to Mr Ha, the Plaintiff telephoned him and asked for a loan to finance the purchase of his office premises.  Mr Ha replied that he had no money and the Plaintiff said “that’s fine” and hung up.  The Plaintiff said Mr Ha’s allegation could not be true as he had already arranged a mortgage to finance his purchase of the office.  The issue here is not whether the Plaintiff needed the loan to finance the purchase of his office.  The issue is whether he asked for a loan or he demanded payment on account.  That was not the first time that Mr Ha mentioned about the Plaintiff requesting for a loan.  He had given a similar account in reply to the Plaintiff’s solicitors’ demand for payment in June 2003 (see Paragraph 40 below).  I accept the evidence of Mr Ha.  Had the Plaintiff not asked for the loan, there was no way Mr Ha could have known about the request by the Plaintiff’s landlord to the Plaintiff to purchase of his office premises.  Having accepted Mr Ha’s evidence, I further find that the Plaintiff’s request for the loan was a convenient cover up of his demand for payment of contingency fee which the Plaintiff all along thought was improper. 

37.  The timing of the Plaintiff’s demand also coincided with the conclusion of the Defendants’ tax dispute with the IRD on 21 October 2002. Mr Wong, counsel for the Defendants, suggested that the demand at that particular time was consistent with the Plaintiff demanding pursuant to a contingent fee agreement as he knew the tax objections had been concluded.  On the other hand, Mr Yee, counsel for the Plaintiff, argued that it was not until 21 November 2002 that Mr Ha was informed of the refund of about $8 million in tax and interest by the IRD and hence the Plaintiff could not have known about the refund.  I think one need not be too precise about the date.  There is also no need for me to speculate when and how the Plaintiff came to know of the $8 million refund.  All those matters may be irrelevant.  The fact is that the Plaintiff was aware of Mr Ha’s meeting with the IRD on 21 October 2002.  He was aware that through his effort, the IRD had agreed to refund about $4 million in tax.  If he considered that was what he had achieved by August or October 2002, $1.5 million would be the approximate amount he would be entitled under the contingency fee agreement regardless of the consequence of the intervention by Messrs Kong & Tang.  Holding over the refund by the IRD pending investigation of the Defendants’ tax matters for the years of assessment 1996/97 to 2000/01 did not affect the Plaintiff’s entitlement under his retainer for the years of assessment before 1996/97.  I find the demand consistent with a contingency fee agreement.

38.   The Plaintiff said he did not consider his retainer was terminated on 7 August 2002 or on 20 October 2002.  The Plaintiff was either not telling the truth or was naïve and obstinately refusing to accept the reality that his services had long been terminated.  I think he was not telling the truth rather than he was naïve or obstinate.  He did so in order to avoid having to explain why he did not invoice the Defendants when he knew his retainer was terminated if he was not employed under a contingency fee agreement but waited until the conclusion of the tax objection. 

39.  Then half a year later, on 12 April 2003, the Plaintiff issued his invoice to the Defendants.  That was more than six years after he was first retained on these matters and eight months after the unpleasant dinner with Mr Ha and Mr Tang on 7 August 2002.  Even on his account, that was four months after his resignation as tax representative of the Defendants in January 2003.  Such delay is inexplicable unless on the basis of a contingency fee agreement.  However, upon receipt of the invoice, Mr Ha promptly replied on 22 April 2003 pointing out that the hourly rate charged was not in accordance with what had been agreed and that the fee was a concoction, though he did not refer to the contingency fee agreement.  The Plaintiff did not respond in writing.  He explained that he was advised by his solicitors not to respond.  But on the other hand, he said he had called and spoken to Mr Ha.  This was not mentioned in his witness statement and was inconsistent with his own evidence.  Mr Wong submitted that the Plaintiff’s lack of response was consistent with the contingency fee agreement.  On the other hand, Mr Yee submitted that had there been a contingency fee agreement, the Plaintiff would have conveniently demanded payment on contingency fee basis.  However, Mr Yee overlooked the fact that not until pointed out by Mr Wong during cross-examination of the Plaintiff’s business partner during this trial the Plaintiff was of the belief that it was not proper to charge contingency fee for this type of work.  He would not have wished to make such a demand, not at least in writing and probably not verbally in view of the strained relationship between him and Mr Ha.

40.  The facts repeated themselves when the Plaintiff’s solicitors issued a letter of demand to the Defendants.  Mr Ha made a similar reply, though he did not mention the contingency fee agreement.  He suggested the Plaintiff’s solicitors to seek detailed instructions from the Plaintiff and to give the Plaintiff legal advice in accordance with the facts.  Mr Ha also quoted the incident in October 2002 when the Plaintiff sought a loan of $1.5 million from him as evidence that the Plaintiff had no legal basis to demand for his fee.

41.  In conclusion, I consider the Plaintiff’s evidence inconsistent and incredible while Mr Ha’s evidence was consistent in itself and with the contemporaneous documents and his contemporaneous conduct.  I accept Mr Ha’s evidence and reject the Plaintiff’s.  The incontrovertible evidence is overwhelmingly in support of Mr Ha’s case.  All my finding of facts and credibility are resolved against the Plaintiff: the meeting before 15 January 1997, the dinner on 7 August 2002, the Plaintiff’s request for a loan of $1.5 million from Mr Ha.  The letters of appointment drafted by the Plaintiff did not disclose the true agreement between the parties.  The fact that the Plaintiff never demanded any payment on account before or soon after he commenced working for the Defendants, that no interim bill was ever issued over an extended period of six years, that the final bill was not issued until after the tax objections were concluded and the timing when the Plaintiff made the demand are inconsistent with the Plaintiff’s case of a retainer on an hourly fee basis.  These facts all point to a contingency fee agreement.  Accordingly, I find that during the first meeting between the Plaintiff and Mr Ha two or three days prior to 15 January 1997, they had reached an agreement that the Plaintiff was to be appointed as the Defendants’ tax representative in respect of the years of assessment from 1990/91 to 1995/96 to reduce the Defendants’ tax liabilities in respect of those years of assessment and to be remunerated on a contingency fee basis calculated at 50% of the difference between a base figure of $10 million and the total of all reasonable expenses and the amount of additional tax assessed.

The Plaintiff’s claim

42.  I have found that the Plaintiff was retained on a contingency fee basis.  Contrary to what he believed, that contingency fee agreement was neither improper nor unlawful.  The prohibition against contingency fee under Statement 1.208 Professional Ethics on Fees of the Hong Kong Institute of Certified Public Accountants does not apply to the type of work for which the Plaintiff was retained.

43.  The Plaintiff’s pleaded case is that he was retained at an hourly rate.  Thus the above finding of fact landed the Plaintiff in a peculiar and difficult position.  My finding of fact accords with the Defendants’ pleaded case but not with the Plaintiff’s.  But, if I am to award the Plaintiff anything for his sweat and labour, I can only do so on being satisfied that he has proved his case as pleaded.  The Plaintiff now finds himself stuck with a pleaded case which he could not prove.  He has failed to discharge the burden of proof. 

44.  The Plaintiff has pleaded an alternative claim by praying in aid of section 7 of the Supply of Services (Implied Terms) Ordinance, Cap 457.  That section provides:

“(1)   Where, under a contract for the supply of a service, the consideration for the service is not determined by the contract, is not left to be determined in a manner agreed by the contract or is not determined by the course of dealing between the parties, there is an implied term that the party contracting with the supplier will pay a reasonable charge.

(2)   What is a reasonable charge is a question of fact.”

45.  Mr Yee rightly submitted that the term to pay a reasonable charge may be implied if there was no consensus reached as to the basis of the Plaintiff’s professional charges between the Plaintiff and Mr Ha for the whole retainer or any part of it.  The section may be invoked if the Plaintiff's fee for his service was not determined by the retainer, was not left to be determined in a manner agreed by the retainer or was not determined by the previous course of dealing between him and the Defendants.  On the fact, the Plaintiff was not putting forward a case in which there was no consensus as to the basis of his charges.  He put forward a positive case that he would be remunerated at the rate of $3,500 per hour.  On the other hand, on the fact as I found them, there was a meeting of minds in that the Plaintiff and Mr Ha agreed that the Plaintiff would be rewarded on contingency fee basis and they agreed to the formula for determining the fee.  Thus section 7 of the Supply of Services (Implied Terms) Ordinance is inapplicable to the facts of this case.  The Plaintiff’s alternative claim is also bound to fail.

46.  Should the Plaintiff go empty handed despite his effort during the five and half years?  It could fairly be said that he had laid the ground work so far as the accounting side of the tax objections were concerned which made it easy for Messrs Kong & Tang to add the finishing touch.  On my finding of facts, had the Plaintiff’s case been properly pleaded and argued he might have a valid claim.  However, it is not open to me now to take a hybrid approach by awarding the Plaintiff on the basis of the defence case.  The Plaintiff could not succeed by merely pleading the contingency fee agreement for the fact remains that he had never completed his task.  His retainer was terminated by Mr Ha at the dinner of 7 August 2002.  Even if it had not been terminated on that occasion, the Plaintiff had abandoned his work which was taken over by Messrs Kong & Tang.  To succeed, the Plaintiff had to plead in addition to the contingency fee agreement, for example, an implied term that the Defendants would not terminate his retainer until conclusion of the tax objections procedure or an implied term that he would be paid on a quantum meruit basis should the Defendants chose to terminate his retainer prematurely.  None of those matters have been pleaded and argued.  It is therefore not open to me to take the hybrid approach I mentioned earlier.  The Plaintiff chose not to put in another alternative case by affirming the contingency fee agreement. He had understandable difficulties.  He did not do so before trial because it was not until his first witness was cross-examined did he come to realise that the contingency fee agreement was not unlawful.  He could not amend his pleading at that stage as it would require a complete overhaul of his pleaded case and he may be liable for all costs thrown away as a result of any adjournment which would be occasioned.  He could not amend his pleading after the conclusion of his case as the amendment would be inconsistent with his evidence and he could not amend his evidence.  In any event, the Plaintiff’s claim must be dismissed.  He only had himself to blame for pleading and putting forward a case which is untrue.

The Defendants’ counterclaim

47.  Mr Wong has reasonably reduced the scope of the Defendants’ counterclaim to just one item, i.e. the Plaintiff’s handling of the Defendants’ deposit of $7.5 million held by the IRD.  The Defendants pleaded that the Plaintiff was in breach of express or implied term of his retainer and was in breach of his duty of care as a professional accountant.  Nine implied terms had been pleaded but Mr Wong only sought to rely on the one pleaded in paragraph 9(b) of the defence and counterclaim, i.e. it was an implied term under the retainer that the Plaintiff would exercise all reasonable care and skill as a professional accountant to advise the Defendants and to cause the $7.5 million deposit already paid to the IRD to be replaced by purchasing tax reserve certificates issued under the Tax Reserve Certificates Ordinance (Cap 289) which would be interest bearing.  The Defendants’ case on the counterclaim is that the Plaintiff was in breach of his duty for failing to advise the Defendants to pay the full amount of tax demanded in the sum of $11.49 million by tax reserve certificates and to obtain the release of the deposit of $7.5 million or for his failing to try or to try hard enough to negotiate with the IRD for that purpose.

48.  There is no evidence as to the express terms of the retainer, especially as regards the deposit.   The Defendants’ counterclaim would have to be argued on the basis of implied term and duty of care.  Counsel have no dispute that the burden of proving an implied term rests on the party relying on the implied term, i.e. the Defendants in this case.  In Kensland Realty Ltd v Whale View Investment Limited & Anor  [2002] 1 HKC 243, the Court of Final Appeal adopted Lord Simon of Glaisdale’s speech in the Privy Council case of BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26 on the requirements for implying a term in a written contract.  These requirements are:

(1) It must be reasonable and equitable;

(2) It must be necessary to give business efficacy to the contract;

(3) It must be so obvious that ‘it goes without saying’;

(4) It must be capable of clear expression;

(5) It must not contradict any express term of the contract.

I think these requirements are equally applicable for implying a term in an oral contract.  Mr Wong submitted that all the implied terms pleaded by the Defendants satisfied all the above requirements.  But Mr Yee submitted that it did not.  I only need to concern myself with the implied term I mentioned in Paragraph 47 above. 

49.  I think it could hardly be argued otherwise that a professional engaged under a retainer is under an implied duty to exercise all reasonable care and skill in the performance of the work for which he is engaged as such a professional.  A similar duty of care also exists in tort.  The question here is what was the scope of the duty.  Mr Yee argued that there was no evidence that it was an express term of the retainer that the Plaintiff should secure the greatest refund of the deposit because under the contingency fee agreement the parties were to share in the saving equally.  Though that argument was raised in relation to another implied term which is not relied on by the Defendants, that implied term has some bearing on the one in issue.  With respect to Mr Yee, I think it was difficult for the parties to set a target in monetary terms as to the amount of saving the Plaintiff should secure but it goes without saying that the Plaintiff as the Defendants’ tax representative was retained for the purpose of securing as much saving in tax as possible.  That in effect is the same as securing the greatest refund of the deposit.

50.  Furthermore, a layman expects his professional adviser to assist and advise him on all aspects of the work under the retainer entrusted to his expertise, including those which are reasonably incidental to the work.  It is unrealistic to expect a layman to give specific instruction in respect of each and every aspect of the work including those which are reasonably incidental or to ask the professional adviser for advice in respect of each and every possible contingency.  It must therefore be an implied term of the Plaintiff’s retainer that he should take all steps necessary to reduce and mitigate the Defendants’ tax liability.  This includes, in a case of tax objection, advising the Defendant and taking necessary steps to have the additional tax assessed held over pending resolution of the objection and if payment of tax pending resolution was required to advise on ways which will enable the Defendant to mitigate his liability by use of interest bearing tax reserve certificates, so that in the event of a successful objection the overcharged tax paid by tax reserve certificate will be interest earning.  A lay client may not even know of such possibilities.  These are precisely matters which a professional accountant is expected to be conversant with and to give his client appropriate advice.  I am satisfied that term as pleaded by the Defendants satisfied the requirements in Kensland Realty Ltd v Whale View Investment Ltd & Anor and may be implied into the Plaintiff’s retainer.

51.  On the facts, the Defendants paid $7.5 million as deposit into the account of the IRD before the Plaintiff was retained.  Subsequent to the Plaintiff’s engagement, on 31 January 1997 the IRD issued additional tax assessments against the Defendants in the total amount of $15,107,374.  The Plaintiff gave notice of objections on 5 February 1997.  That involved nothing but giving of a notice of objection.  No grounds had to be advanced and nothing had to be argued.  The IRD reduced the tax assessment to a total of $14,711,374.  It issued thirteen revised additional tax assessments in the total amount of $14,711,374 but tax in the amount of $3,221,374 was unconditionally held over, with tax in the total amount of $11.49 million due to be paid on or before 14 March 1997.  On 10 March 1997, the Plaintiff accompanied Mr Ha to attend a meeting with Mrs Lai, Senior Assessor, and Mr Cheung, Assistant Assessor, of the IRD.  The Plaintiff asked Mrs Lai if the whole amount of $11.49 million in tax could be held over.  Mrs Lai refused.  Mrs Lai suggested to Mr Ha to utilize the deposit of $7.5 million held by the IRD in part payment of the $11.49 million tax due.  Mr Ha turned to the Plaintiff for advice.  The Plaintiff advised that if Mr Ha did not agree to the suggestion, he had to make available another sum of $7.5 million, that was $11.49 million in total to pay the additional tax.  Then he advised Mr Ha to accept Mrs Lai’s suggestion.  Mr Ha accepted the suggestion as advised.  After the meeting, the Plaintiff further advised Mr Ha to pay the balance of $3.99 million by tax reserve certificates pending resolution of the tax objections as the tax reserve certificates were interest bearing, but that the $7.5 million deposit could not be converted into tax reserve certificates. Mr Ha agreed. On 13 March 1997, the Plaintiff wrote to the IRD requesting the IRD to apply the deposit towards payment of the tax.  On 4 April 1997, the Plaintiff wrote to IRD confirming payment of the balance of $3.99 million by tax reserve certificates.  These were the background circumstances leading to the counterclaim in issue.

52.  On the issue whether the Plaintiff was in breach of his duty to give proper advice to the Defendants, there is no dispute that the Plaintiff knew the Defendants could mitigate their tax liability by paying the total amount of tax due by depositing tax reserve certificates pending resolution of the tax objections so that in the event of a successful objection the tax overpaid would be interest earning if paid by tax reserve certificate but not if paid by cash or by applying the deposit in payment.  He advised Mr Ha to purchase tax reserve certificates in payment of the balance of $3.99 million.  That was good and proper advice.  The issue here is whether the Plaintiff was in breach of duty for failing to advise the Defendants to pay the full amount of tax demanded by tax reserve certificates.  It should be recalled that at the meeting on 10 March 1997, the Plaintiff had told Mr Ha that if he did not agree with Mrs Lai’s suggestion, he would have put up another $7.5 million.  Impliedly, Mr Ha would not.  So when the Plaintiff discussed with Mr Ha after the meeting about paying the balance of $3.99 million by tax reserve certificates, Mr Ha must have known that if he could put up with another $7.5 million, he may pay the entire amount of tax demanded by tax reserve certificates and have the deposit of $7.5 million released and the amount of tax overpaid by the tax reserve certificates would also be interest earning if the tax objections were successful.  On the other hand, it would be reasonable for the Plaintiff to assume by reason of Mr Ha’s agreement at the meeting and in the light of the advice he gave after the meeting that Mr Ha did not intend to put up with another $7.5 million.  I think Mr Ha was fully appraised of the situation.  In all the circumstances, I consider the Plaintiff’s advice adequate, though it could have been made more explicitly.

53.  On the second issue of whether the Plaintiff had tried or tried hard enough to persuade the Commissioner, it must be borne in mind that the Commissioner has discretion under section 71(2) of the Inland Revenue Ordinance (Cap 112), to order the payment of tax or any part thereof to be held over pending the result of an objection or an appeal either conditionally by purchasing a certificate issued under the Tax Reserve Certificate Ordinance (Cap 289), or by furnishing a banker’s undertaking or unconditionally.  Whether to grant any holding over and the amount of tax to be held over and whether to impose any condition on the holding over are matters entirely for the discretion of the Commissioner.  Tax was due on 14 March 1997, four days after the meeting.  In view of the pending tax objections, I think it makes no difference to the Commissioner if the tax due was paid in cash or held over conditionally by the Defendants depositing tax reserve certificates.  Mr Ha was not going to put up with another $7.5 million for paying the tax due.  Thus the question here is not whether the Plaintiff had tried or tried hard enough to persuade the Commissioner to exercise her discretion in holding over the entire amount of tax due conditionally by depositing tax reserve certificates but whether the Plaintiff had tried or tried hard enough to persuade the Commissioner to convert the deposit of $7.5 million into tax reserve certificates and to apply the tax reserve certificates in payment of the tax due. 

54.  Mr Wong argued that the Plaintiff had not tried or had not tried hard enough and submitted to the pressure of the IRD.  He relied on the minutes of the meeting on 10 March 1997 which showed that the Plaintiff had put forward no argument for the Defendants.  According to the minutes of the meeting, it could not be argued that the Plaintiff’s presence was anything other than passive.  However, what the Plaintiff did must be considered within the very narrow time frame when the breach was said to have occurred, i.e. between 15 January 1997 when the Plaintiff was retained and 13 March 1997 when the Plaintiff confirmed Mr Ha’s agreement to apply the deposit in payment of the tax demanded.  In less than two months, the Plaintiff could not have mastered this complicated case involving mainland profits and mainland expenses over a period of six years of assessment.  He could not have put up any vigorous or meaningful arguments.  On the face, the Plaintiff had made a reasonable endeavour.

55.  The Plaintiff’s evidence was that to his knowledge the deposit held by the IRD could not be converted into tax reserve certificates.  On the face, that must be correct as the deposit was money in the account of the Commissioner of Inland Revenue as a security for the Defendants’ tax liability.  Given the rigidity of governmental procedure, it was unrealistic to expect the IRD would release the deposit, apply it in the purchase of tax reserve certificates for the Defendants and apply them in payment of tax due.  Indeed the Plaintiff had applied for the entire amount of tax to be held over but his application was rejected forthwith by Mrs Lai.  Any attempt, however hard, was an attempt of the impossible which was destined to fail.

56.  The burden is on the Defendants to show that the Plaintiff’s discharge of duty was below the standard of a reasonably competent accountant.  The Defendants adduced no expert evidence to show what a reasonably competent accountant would have done which the Plaintiff had failed to do.  In the circumstances, the counterclaim must fail. 

Conclusion

57.  Thus save for the $15,000 disbursement in counsel’s fee which was admitted by the Defendants during the course of the trial, the Plaintiff’s claim is dismissed.  Technically, the Plaintiff is entitled to judgment in that sum.  Accordingly, I enter judgment in favour of the Plaintiff in the sum of $15,000 with interest from the date of the writ.  The Defendants’ counterclaim is dismissed.  I make a costs order nisi that there shall be no order as to costs on the Plaintiff’s claim and that the Defendants shall pay the Plaintiff’s costs on the counterclaim, to be taxed if not agreed.

Mr Kent Yee, instructed by Messrs King & Co., for the Plaintiff

Mr Alexander Wong and Mr Omar, instructed by Messrs Y.C. Lee, Pang & Kwok, for the Defendants

Appeal dismissed: see CACV160/2006 dated 19 December 2006