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When is a hole not a hole?

2 May 2024  |  Author: Ling Chun Wai

What should happen to something provided to fill an apparent hole, when it subsequently transpires that there was in fact no hole? In his recent decision in Council of the Law Society of Hong Kong v Ng Wing Hung [2024] HKCFI 946, Coleman J had to grapple with an intriguing and unprecedented problem arising in the aftermath of the well publicised intervention in the practice of Messrs Wong, Fung & Co. The question arose because the partners were required by the Law Society to replenish an apparent shortfall in the firm’s client accounts. What should happen to the money subsequently found to be a surplus? Should it be returned to the partners? Should the Law Society be allowed to use it to recoup its intervention costs?

The Law Society of Hong Kong (LSHK) is the statutory body charged with supervisory and disciplinary duties in respect of practicing solicitors in Hong Kong.  The powers and duties of LSHK are detailed in the Legal Practitioners Ordinance, Cap 159 (LPO), and an array of subsidiary legislation including the Solicitors Accounts Rules, Cap 159F (SAR).  The case is noteworthy because it is the first case in Hong Kong that deals with the intersection between (a) the power of the LSHK to demand the principals of a firm to replace missing or misapplied funds under r 9A of SAR; (b) the trusts upon which clients’ monies are placed upon intervention of the firm under Schedule 2 to the LPO; and (c) the court’s power to direct the distribution of monies so held on trust under the Schedule.

In the first place, Coleman J held that Rule 9A of SAR is a remedial provision.  It is aimed at restoring funds that have been misapplied or improperly withdrawn from a firm’s client accounts.  Ordinarily, the funds advanced by a principal pursuant to LSHK’s exercise of its power to demand restoration would be client money.  On this basis, the Judge considered that if there was in fact no shortfall that justified the demand, then the funds should be returned to the principal after the period of intervention.  He was however at pains to emphasise that the demand was properly made pursuant to Rule 9A.

This appears to be a commonsensical approach, and one which is founded on the Court’s discretion under section 6 of Schedule 2.  The wide and general nature of the discretion might have obviated the need to identify a specific ground of restitution, i.e. an unjust factor.  Coleman J could have applied by analogy the unjust factor that justifies the recoupment of (excessive) taxes unlawfully levied by a public body under the doctrine in Woolwich v IRC [1993] AC 70.  In this case LSHK is no doubt a public body exercising public functions with respect to client monies held by intervened firms.  With respect, such a line of reasoning would have provided a surer legal and juridical foundation for the decision.

A further interesting aspect of the decision is found in the Court’s treatment of “undistributable funds”.  Such funds represent monies that appear to belong to the firm’s clients (as opposed to office money) who cannot, despite reasonable efforts, be contacted or specifically identified.  In this case the amount of such undistributable funds exceeded $20 million, which may be explained by the fact that the intervened firm had a long history of conveyancing practice.  What should be done with the funds at the end of the intervention?

Drawing on the English case of Re Ahmed & Co (a firm) [2006] EWHC 480 (Ch), Coleman J held that the undistributable funds should be made available to LSHK to recoup part of its intervention costs.  He held that the power to reimburse could be derived from the general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred in connection with the administration of the property.  Once again, the learned Judge took inspiration from section 6 of Schedule 2.

Rather counter-intuitively, it was argued by counsel for the partners’ creditor that the reasoning of the English case did not apply in Hong Kong, precisely because of the existence of section 6, the equivalent of which was not found in the UK legislation.  Thus, counsel argued that unlike in the UK, there is no need in Hong Kong for the courts to find an implied power to deal with the undistributable funds in the suggested manner.  However, as with any exercise of judicial discretion, it has to be carried out fairly and reasonably.  It is respectfully suggested that the logic of the English authorities is still useful in informing the exercise of the statutory discretion.  In particular, they provide a sound and solid legal basis for allowing the LSHK to have recourse to client monies for reimbursement of its costs.


The full judgment is available at


Mr Ling Chun Wai, instructed by Chui and Lau, acted for the plaintiff