The Opening Ceremony of the Legal Year held on 9 January was very well attended. The Law Society had the honour of hosting, jointly with the Bar Association, a series of programmes for the large delegation of overseas guests comprising presidents and representatives of 28 law societies and bar associations outside Hong Kong, spanning across the United States, Europe, Australia and Asia. This excellent participation from diversified jurisdictions around the world strongly demonstrates Hong Kong’s unique role as a legal services hub in Asia and its attraction as a legal services market in the international arena. 

However, the rapid internationalization has not been well supported by the necessary modernization in the legal infrastructure. In my speech, at the Opening Ceremony of the Legal Year on 9 January, I highlighted the importance of shaping a sustainable future for our profession and briefly alluded to the disappointing progress of the proposed introduction of limited liability partnerships (LLPs). Let me provide a more detailed update here.

To refresh your memory, the Law Society proposed LLPs in 2004, and the Legal Practitioners (Amendment) Bill 2010 (‘the Bill’) introducing LLPs for solicitors was gazetted in June 2010. In late-May 2011, the Administration made some fundamental changes by way of Committee Stage Amendments (CSAs) to the Bill. Looking at the overall LLP model, it has been distorted to a point where it no longer achieves the objectives for which LLPs were initially introduced. 

The major issues relate to the introduction of the provisions regulating the liability of a ‘designated partner’ and the provisions on a six-year claw back of partnership distributions. 

Under the ‘designated partner’ proposal, in respect of every client matter, all LLPs are required to issue a notice to inform the client the identity of a designated partner. If a partner is named as the designated partner at the time of default, he/she cannot claim LLP protection unless he/she proves that the default was by another partner or by an employee, agent or representative under the supervision of another partner at the time of default. 

Based on the latest proposed CSAs, the situations whereby a partner in an LLP will lose LLP protection are as follows:  

(a) the partner knew of the default at the time it occurred and failed to exercise reasonable care to prevent it;

(b) the default was committed by the partner him/herself or by someone under his/her supervision;
(c) the partner is a designated partner unless he/she proves that the default was committed by another partner or by someone under the supervision of another partner; 
(d) the default occurred at a time when there was no designated partner for that matter; or
(e) no proper designated partner notice has been served on the client or the client had no actual knowledge of any partner acting as a designated partner and of the effects of an LLP on its partners’ liabilities.

Further, partners receiving a partnership distribution are liable to return it if, at the time of distribution, the firm is unable to pay its debts as they become due or the value of partnership property is less than the partnership obligations. A claimant may enforce such a liability against a partner within six years from the date of distribution. A defence is available to the partner if he/she can prove that a reasonable assessment had been made immediately before the distribution showing that the financial position after the distribution will not result in the firm’s inability to pay its debts or the partnership property is less than the partnership obligations.

In our submission in June 2011, we made our position clear that we cannot support the Bill unless the outstanding issues are resolved. To progress the matter, we have made some proposed amendments to the Bill. 

Since our last submission in June 2011, nearly six months have lapsed before we received the revised draft in late-December 2011. In the latest revised draft under discussion with the Administration, none of the Law Society’s suggestions in our June 2011 submission have been accepted. Instead, a new ‘defence’ has been added providing that LLP protection will extend to a designated partner if he/she can prove that the default was by another partner or by an employee, agent or representative who was supervised by another partner.

I do not see how anyone will want to be a designated partner who will not only be the scapegoat but who will have to bear, on behalf of the claimant, the burden of proving who committed the default. 

The Law Society was told that to pass the Bill, it must be finalized within February 2012. We do not pass the Bill for the sake of passing it. It must serve the purpose for which it is introduced or else all effort will be wasted. Time is running out and there is uncertainty as to whether a mutually acceptable model can be reached within such a tight time frame. Members’ feedback is most welcome. 

Junius Ho