LegCo Paper No. CB(2)2405/96-97
(These minutes have been seen
by the Administration)
Ref : CB2/BC/47/95

Minutes of the Fifteenth Meeting of the Bills Committee
on the Legal Services Legislation (Miscellaneous Amendments) Bill 1996

held on Wednesday, 23 April 1997 at 12:30 pm
in Conference Room A of the Legislative Council Building

Members Present :

    Hon Fred LI Wah-ming (Chairman)
    Hon James TO Kun-sun
    Hon Howard YOUNG, JP
    Hon Andrew CHENG Kar-foo
    Hon Ambrose LAU Hon-chuen, JP
    Dr Hon LAW Cheung-kwok
    Hon Bruce LIU Sing-lee
    Hon Margaret NG

Members Absent :

    Hon Mrs Selina CHOW, OBE, JP (Deputy Chairman)
    Hon Ronald ARCULLI, OBE, JP
    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Dr Hon LEONG Che-hung, OBE, JP
    Hon Emily LAU Wai-hing
    Dr Hon Philip WONG Yu-hong
    Hon Christine LOH Kung-wai
    Hon Albert HO Chun-yan
    Hon IP Kwok-him
    Hon Mrs Elizabeth WONG, CBE, ISO, JP

Public Officers Attending :

Mr R C ALLCOCK
Deputy Law Officer
Attorney General’s Chambers (AGC)
Mr Wesley WONG
Senior Crown Counsel
AGC

Clerk in Attendance :

Ms Doris CHAN
Chief Assistant Secretary (2)3

Staff in Attendance :

Miss Flora TAI
Senior Assistant Secretary (2)3



I.Members’ discussion

Interest on solicitors’ clients’ accounts (clause 7)

Members noted the letter dated 22 April 1997 from the Law Society of Hong Kong (the Law Society) responding to the Administration’s comments on its Practice Direction which had been issued vide LegCo Paper No. CB(2) 1991/96-97. Members also noted the letter of the same date from the Law Society to the Chairman of the Bills Committee which was tabled at the meeting and subsequently issued to absent members vide LegCo Paper No. CB(2) 2005/96-97.

2. In response to a comment by the Chairman, Mr R ALLCOCK stressed that the Administration did not have any mistrust of solicitors. He explained to members that the position in relation to interest on solicitors’ clients’ accounts was quite different from that of clients’ account in other businesses. It was a common law principle that a client was entitled to all interest earned on the solicitors’ clients’ account. The Law Society also accepted that interest should be payable to clients when it was reasonable. The question was who should decide when it was reasonable to pay interest. The Administration took the view that the client had a legitimate stake in the issue and it was wrong in principle that one of the parties to the transaction, i.e. the solicitor, should determine whether interest should be paid and when a consumer’s right to interest should be denied. In addition, the practice direction issued by the Law Society might actually mislead clients into thinking that they were only entitled to interest in those specified circumstances. Mr ALLCOCK emphasized that relevant statutory rules in England had existed since 1965 and had not caused any problem. He pointed out that the Law Society’s practice direction only required a solicitor to pay interest in 4 specified circumstances. However, a client’s right to interest was a legal right which could only be taken away by way of legislation, but not by issuance of a practice direction. To protect consumer interests and to ensure a firm legal basis for the relevant rules, the Administration therefore proposed that the Law Society’s rules in respect of interest on solicitors’ clients’ account should be made statutory by way of subsidiary legislation and subject to the control of the Legislative Council (LegCo).

3. The Chairman then invited view from members. Mr Howard YOUNG asked whether it was possible to maintain flexibility if the relevant rules were made statutory and how these rules could deal with fluctuation of interest rate as well as administrative costs which might vary among solicitors’ firms. In response, Mr ALLCOCK said that it was possible to make these statutory rules sufficiently flexible to cater for practicalities. He informed members that the English Law Society was considering introducing an amendment to its rules to the effect that interest would be payable above a specified threshold. This would replace the current table which set out the minimum amount of money deposited and minimum period. The Law Society could act quickly to respond to a need to adjust the threshold from time to time which depended on the solicitors’ costs instead of the interest rate. Mr YOUNG further asked whether a statutory obligation could be imposed on the solicitor to pay interest to the client and the Law Society could determine the circumstances in which it was payable. Mr ALLCOCK responded these circumstance directly affected the financial interest of solicitors themselves. It was therefore necessary to have a mechanism, i.e. an independent body, for ensuring that consumer interests were properly considered. He stressed that it would be against all the principles of natural justice if the Law Society could solely determine the circumstances under which interest was payable. Mr YOUNG argued that Practice Direction issued by the Law Society was under public scrutiny and it could not ignore criticism entirely. He therefore would only support a proposal stipulating the general principle that a solicitor should pay interest which was earned on his clients’ account while leaving the rules governing the amount of interest payable to the Law Society.

4. In the light that the Administration had argued that conveyancing fees should be determined by market forces, Mr James TO asked about the Administration’s stance if the bargaining between the solicitors and the clients in respect of interest on solicitors’ clients’ accounts was left to the free competition principle. Mr ALLCOCK reminded members that ninety percent of the respondents in the Public Opinion Survey conducted by the City University of Hong Kong did not know that solicitors’ firms could only keep the interest on solicitors’ clients’ accounts with the clients’ approval. It was therefore improper to leave the matter to the free market if the consumers were not aware of their right to interest. In addition, the Law Society accepted in principle that solicitors should pay interest on money received or held on behalf of clients. The question was whether those rules governing the amount of interest payable should be made statutory. Mr TO remarked that it was a matter of public education to ensure that the consumers would be aware of their rights. He therefore was of the view that: (a) the Administration should leave the matter to the Law Society at the present stage and take action only if the Practice Direction issued was found to infringe the consumer rights; and (b) it was only necessary to stipulate in the legislation the general principle that a solicitor should be required to pay interest to clients in respect of clients’ money. Mr Bruce LIU also agreed that the matter should be dealt with by the Practice Direction of the Law Society.

5. Mr Andrew CHENG said that he failed to see the need to legislate in respect of interest on solicitors’ clients’ accounts on the grounds that: (a) there was no strong demand from the public; (b) the LegCo and the Administration should respect the Law Society as a professional body in issuing an appropriate practice direction in this respect; and (c) consumers in Hong Kong generally were very sensitive to price and would be aware of their monetary rights. Mr Ambrose LAU shared the same view. He further asked whether the Administration considered the Practice Direction issued by the Law Society to be unclear to the public or would the public only be aware of their right by way of legislation. Mr ALLCOCK reiterated that the fundamental questions were: (a) whether the Law Society, which had a direct financial interest, should make rules in respect of interest payable unilaterally; and (b) whether it was fair if consumers were deprived of their lawful right to interest by a Law Society’s directive. In this connection, Miss Margaret NG asked and Mr ALLCOCK explained that the Practice Direction purported to say that a solicitor was only required to pay interest under limited circumstances and therefore it purported to deprive clients of their legal entitlement to all interest earned on the solicitors’ clients’ account. Miss NG argued that the effect of the practice direction had not actually deprived the consumer’s right to interest as the administration cost for payment of interest might well be greater than the interest payable. The Consumer Council or other concern groups could be relied on to monitor the situation in order to avoid any wrongdoing provided the consumers were fully aware of their rights. Miss NG said that it was not a good way to spend legislative time scrutinizing a practice direction on interest. Although it was important to safeguard consumer interests, time should be allowed to see whether the Practice Direction could be a feasible solution in ensuring payment of interest to client in a fair manner before legislative intervention was considered. Mr ALLCOCK contended that the example in England should be followed in order to ensure that the legal right of the client as well as the solicitor would be set out clearly in legislation.

6. Mr Ambrose LAU sought clarification of the Administration’s interpretation of proposed section 8C(4)(a) of the Bill. Mr ALLCOCK responded that the provision was to ensure that a solicitor could not contract out his liability to pay interest. Mr LAU argued that such a provision would take away the client’s common law right to freedom of contract. He stressed that the matter should be looked at from the consumer’s point of view so that the client could refuse payment if the administration cost incurred was greater than the amount of interest payable. He therefore concluded that the matter should be left to the Law Society as such a proposal might not be to the consumer’s advantage. In addition, Mr LAU cautioned that utmost care should be taken if the common law right to interest was to be made statutory. To ensure that a proper balance had been struck by the Practice Direction issued by the Law Society, Mr Bruce LIU suggested that the Clerk should obtain information from the Law Society comparing the administration cost for each of the specified circumstances listed in the Table in paragraph 2 of the Practice Direction with the corresponding amount of interest payable.

Clerk

7. With reference to paragraph 21 of the Solicitors’ Account Rules 1991 in England (Annex 2 to the letter dated 14 April 1997 from the Deputy Law Officer issued vide LegCo Paper No. CB(2) 1844/96-97) which had listed circumstances under which interest was payable, Miss Margaret NG asked for clarification of the difference between that and the Practice Direction issued by the Law Society. Mr ALLCOCK explained that the main differences were: (a) the English rules were statutory rules subject to the approval of the Master of the Rolls; and (b) they were more comprehensive in the sense that in addition to particular circumstances under which interest was payable, a general principle was included to the effect that interest was payable in other situations in which it was reasonable to do so. Miss NG further asked and Mr ALLCOCK responded that the Administration’s reservation on the practice direction had been set out in his letter dated 14 April 1997. He stressed that the Administration was not alleging that the rules made by the Law Society were unfair. However, it was the position of the Administration that the fairness of these rules should be monitored by a mechanism in which consumer interest was represented.

8. In the light of members’ views expressed, the Chairman asked the Administration to consider the way forward on the matter carefully. In this connection, Mr ALLCOCK suggested that members of the Bills Committee present should declare their interests in the matter for record purposes. Miss Margaret NG stressed that members of the Bills Committee who were solicitors had already clearly indicated so during their deliberation of the Bill. To her understanding, a declaration of interest only meant to disclose one’s interest and did not mean that the view of a person who had an interest in the matter should not be accepted. The Chairman said that it was at the discretion of a committee’s chairman to decide whether or not to propose the question upon a motion to disallow a member’s vote on the ground of his direct pecuniary interest. To safeguard members’ integrity, members suggested and the Chairman undertook to discuss with the Legal Adviser on the most appropriate way to deal with voting in respect of the Bill in the Bills Committee, the House Committee, and in the sitting of LegCo.

Chairman

II.Date of next meeting

9. The Chairman reminded members that the next meeting would be held on Friday, 9 May 1997 at 12:30 pm to continue discussion on other outstanding topics.

10. Due to the lack of a quorum, the meeting ended at 2:05 pm.

LegCo Secretariat
22 May 1997

Last Updated on 27 October 1997