Stop resisting! Solicitors must deliver up the client files of its former insolvent client to the liquidators.

In what can only be described as a regretful sequence of events, a firm of solicitors was ordered to pay indemnity costs for unreasonably refusing to deliver up its former client’s files to the liquidators where no lien was claimed.  Legal practitioners should bear in mind that upon the making of a winding up order, pursuant to s. 197 of Cap. 32, a liquidator shall take into his custody all the property and things in action to which the company is or appears to be entitled and they should also bear in mind their professional obligations to former clients under the Hong Kong Law Society Circular 12-475 and the Hong Kong Solicitors’ Guide to Professional Conduct (the “Guide”).  A copy of the decision of Re Yes! E-Sports [2024] HKCFI 1197 can be accessed here.

Last week Deputy High Court Judge Le Pichon, in Re Yes! E-Sports, admonished the conduct of a firm of solicitors which refused to deliver up its former client’s files to court appointed liquidators because it claimed that an unspecified number of the documents were confidential to the former directors of the company (an argument that was rejected on legal and factual grounds by the Court). 

Her Ladyship held that without proper legal justification, a firm of former solicitors cannot seek to impose conditions upon a former client retrieving its client files and practitioners should observe their obligations to former clients as set out in the Guide.  The Court observed that “repetitive posturing and needless vitriol in correspondence serve no useful purpose other than to antagonise the opponent” and that the former solicitors’ conduct throughout was not “conducive to furthering the objectives of the CJR.” 

By advancing and maintaining an untenable position throughout, the former solicitors’ conduct was held to have been unreasonable as it caused the liquidators to incur substantial costs by leaving them with no other option but to seek an order for the production of documents from the former solicitors pursuant to s. 286B of Cap. 32. 

To compound matters, in response to the liquidators’ application under s. 286B of Cap. 32, the former solicitors filed an application for security costs whereby HK$1.2 million was sought as security for its professional time costs to review the files and extract the documents being sought by the liquidators, keeping in mind the liquidators only wanted delivery up of the company’s client files that had already been paid for by the company. 

Her Ladyship held that the former solicitors’ application for security for costs was without precedent or jurisdictional basis and that they had, by their unreasonable and continued resistance, forced the liquidators to seek production of documents under s. 286B of Cap. 32.  On that basis, the Court awarded indemnity costs against the former solicitors for both summonses. 

Finally, a fundamental point considered by the Court was that former solicitors are not entitled to charge a former client for professional fees or time costs to deliver up the client files or comply with a summons issued under s. 286B of Cap. 32.  Rather former solicitors can only charge the reasonable costs of compliance e.g. copying charges / retrieval of files from off-site storage.  This is in line with and reinforces the principles set out by The Honourable Madam Justice Linda Chan in her judgment in Re Bridge Global [2024] HKCFI 1160 at [39], handed down just 4 days before the judgment in this case.

Tanner De Witt acted for the successful liquidators in both Re Yes! E-Sports and Re Bridge Global.    

James Wood, Barrister, Denis Chang Chambers appeared for the Liquidators in Re Yes! E-Sports [2024] HKCFI 1197. 

Troy Greig and Natalie Lam

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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. This article was last updated on 6 May 2024.