RAINGATE LTD. v. HA KAI CHEONG ANDREW AND ANOTHER

HCA479/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.479 OF 2002

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J U D G M E N T

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1) The plaintiff is suing the defendant firm of solicitors for breach of the implied term to exercise reasonable skill and care, and/or professional negligence. The 1st and 2nd named defendants are sued as the partners for the time being of the firm.

2) There are two applications before me :

(1) The plaintiff's application for summary judgment against the 1st named defendant; and

(2) The 2nd named defendant's appeal against summary judgment entered against him by reason of his failure to file any affirmation earlier.

3) The 1st named defendant was absent at the hearing. I was satisfied that he had notice of the hearing and I proceeded in his absence.

The facts

4) For the purpose of the present applications, the plaintiff relied on the following uncontroverted facts.

5) The plaintiff was the purchaser of property for $71.5 million under an Agreement for Sale and Purchase dated 6 November 2001 ("Agreement"). On 11 October 2001, the defendant firm was retained to act for the plaintiff. The 1st named defendant was the handling solicitor.

6) The relevant payment terms of the Agreement are as follows :

"2.(a) The purchase price is in the sum set out in the SECOND SCHEDULE hereto which shall be paid and satisfied by the Purchaser to the Vendor in the manner set out in the said SECOND SCHEDULE.

(b) In respect of each payment of the purchase price or any part thereof payable by the Purchaser hereunder, the Purchaser shall deliver to the Vendor either a cashier order issued by a licensed bank in Hong Kong or a cheque drawn on a licensed bank in Hong Kong issued by a firm of Solicitors in Hong Kong for the relevant amount.

(c) The Purchaser shall not be deemed to have discharged the obligation to make payment hereunder unless in making such payment the Purchaser shall also comply with the provisions of this Clause."

7) Under the Second Schedule of the Agreement, the plaintiff was to pay to the solicitors for the vendor a further deposit of 10% of the purchase price on or before 30 January 2002. The vendor's solicitors were Messrs Woo, Kwan, Lee & Lo ("WKLL"). The handling solicitor was Ms Dora Chan, assisted by her clerk Mr Sat Che Sang.

8) On 29 January 2002, the plaintiff deposited $7.15 million into the defendant firm's clients' account with the Hongkong Bank.

9) In the morning of 30 January 2002, the 1st named defendant was informed by his assistant that a fax was received from WKLL. The fax bore the machine imprint of WKLL and 10:28 at the top margin. It stated the following :

"We are instructed that the further part payment in the sum of HK$7,150,000.00 (to be paid by your client on or before 30th January 2002) shall be paid to us in cash.

Our partner, Mr. Lee Kwan Hung, Eddie will attend your office to collect the monies at a mutually convenient time."

10) The 1st named defendant checked that the name of Eddie Lee appeared as a partner on WKLL's letterhead. He considered the request for payment in cash an unusual one as such transactions were usually conducted by cheques, but he recalled he had handled like transactions in cash twice before. As WKLL's letter was copied to the plaintiff, he assumed such method of payment was to accommodate the vendor's request, and saw no reason not to comply. He was conscious that payment in cash was a variation of the terms of the Agreement on behalf of the vendor, but considered the defendant firm had authority to accept such proposed variation on behalf of the plaintiff.

11) Later, his assistant told him that someone from WKLL called to say a lawyer would be coming to his office at 4:30 p.m. At about 3 p.m., he drew a cash cheque for $7.15 million and went to the Head Office of the Hongkong Bank to obtain cash.

12) At 4:18 p.m., a man arrived at the defendants' office. He produced an ID card in the name of Lee Kwan Hung and a business card in the name of Eddie KH Lee, and a letter dated 30 January 2002 in WKLL's letterhead :

"Please release to the bearer of this letter, our partner, Mr. Lee Kwan Hung, Eddie, the further payment in the sum of HK$7,150,000.00 in cash."

13) The 1st named defendant was satisfied that the ID card related to the bearer. He took photocopies of the ID card and the business card, and gave $7.15 million to the man. The man gave him a receipt with the chop of WKLL.

14) Later on the same day, the 1st named defendant received a phone call from Mr Wong Hing Sun ("Wong"), a director of the plaintiff. Wong said WKLL had not received the deposit. The 1st named defendant told Wong the deposit had already been handed to a representative of WKLL.

15) At 6:30 p.m., the 1st named defendant received a phone call from the estate agent that WKLL had not received the deposit. He told the agent that the deposit had already been handed to a representative of WKLL and asked him to follow up the matter.

16) On 31 January 2002, the defendant firm received a letter from WKLL that the plaintiff had failed to pay the deposit. Subsequently, the plaintiff paid $7.15 million to the vendor in respect of the deposit due on 30 January 2002.

17) The 1st named defendant was told by his solicitors that no request for payment in cash was ever sent out by WKLL, the ID card of Lee Kwan Hung did not relate to their partner Eddie Lee, the business card was not in the form used by their Eddie Lee, the receipt was not signed by their Eddie Lee and the chop did not belong to WKLL.

18) The plaintiff is suing for the missing deposit of $7.15 million. It is alleged that the 2nd named defendant was a partner of the defendant firm, and as such, was jointly and severally liable with the 1st named defendant. Alternatively, the 2nd named defendant has held out or suffered his name to be held out as a partner of the defendant firm, and the plaintiff has relied on such holding out in paying $7.15 million into the defendant firm's client account.

Defence of the 1st named defendant

19) The 1st named defendant in his affirmation submitted that there are the following triable issues :

(1) The facts raised by the plaintiff are in conflict with his version;

(2) The payment terms was plainly for the vendor's benefit which the defendant firm had implied authority to accept the variation;

(3) In any event, there are questions of law as to whether the variation constituted breach of the Agreement and of professional negligence; and

(4) The plaintiff failed to explain why the fax dated 30 January 2002 apparently bore the letterhead and fax imprint of WKLL, and why the receipt bore the chop of WKLL.

Defence of the 2nd named defendant

20) The 2nd named defendant was not the handling solicitor. He had no knowledge of the transaction. He denied liability as partner of the defendant firm on the following grounds :

(1) Although he was described as the salaried partner in the Partnership Agreement dated 30 May 2001, upon its true construction and in conjunction with the employment letter dated 30 May 2002, he was in truth an employee of the 1st named defendant as a sole proprietor;

(2) The reason of adding his name as a partner of the defendant firm was a mere formality for the defendant firm to have two partners instead of being a sole proprietorship in order to remain on the bank's lists of approved conveyancing solicitors and it was for the convenience of the 1st named defendant;

(3) There is no direct evidence that the plaintiff was aware that his name appeared on the letterhead of the defendant firm prior to the retainer on 11 October 2001; and

(4) There is no direct evidence that the plaintiff relied on his holding out as a partner of the defendant firm before giving credit to the defendant firm.

21) The 2nd named defendant said the name "Fung Wong & Ha" was in use before he joined the defendant firm, and he was not the "Wong" therein. Further, he had no access to the accounts or the cheques of the defendant firm.

Whether the 1st named plaintiff was negligent

22) Mr Reyes, SC for the plaintiff submitted that there are warning bells in the purported request for payment in cash :

(1) The 1st named defendant admitted that it was unusual to pay cash instead of by cheque;

(2) Eddie Lee was not the handling solicitor for the vendor;

(3) The 1st named defendant did not know Eddie Lee;

(4) The plaintiff shall not be deemed to have discharged the obligation to make payment unless it delivers to the vendor a cashier order or a cheque drawn by a firm of solicitors in Hong Kong under clauses 2(b) and (c) of the Agreement; and

(5) Payment in cash deprives the plaintiff of a paper trail of the movement of funds.

23) It is submitted that the 1st named defendant was guilty of the following omissions :

(1) He failed to contact the handling solicitor or clerk of WKLL to verify the fax dated 30 January 2002;

(2) He failed to confirm with the plaintiff whether there was an agreement to make payment in cash;

(3) He failed to ensure that the agreement of variation, if any, was formally recorded in writing;

(4) He failed to inform Wong and the estate agent the special circumstances of payment of cash but simply told them the deposit was paid to a representative of WKLL when they called to complain about the non-payment of the deposit; and

(5) He delayed in reporting the matter to the police until the following day.

24) As the plaintiff is relying on the version of facts proffered by the 1st named defendant, there is no dispute of facts.

25) I cannot see why the 1st named defendant should have implied authority to accept the purported variation of the payment terms. Payment by cheque or cashier order is a stipulated term of the Agreement and it gives the plaintiff the protection against the easy loss of cash, the paper trail of the movement of funds and the best evidence of payment. He should not have assumed it was to accommodate the vendor and deprived the plaintiff of such protection unless upon proper instructions.

26) It does not lie on the plaintiff to explain the letterhead, the fax imprint and the chop of WKLL. It is the duty of the 1st named defendant to verify their genuineness with the known contact at WKLL. It cries out for caution when Eddie Lee is not the handling solicitor and the 1st named defendant does not know him personally.

27) The circumstances of the case gave rise to a duty of care owed by the 1st named defendant to the plaintiff to ensure the payment terms of the Agreement be complied with, and that huge sum of cash is not handed to a stranger without proper verification and confirmation.

28) The 1st named defendant did not appear. Even if he had, I failed to see what explanation he could have given to his omissions. There is nothing left for investigation at the trial.

29) It is clear beyond doubt that the 1st named defendant is guilty of negligence and/or breach of the implied duty of reasonable skill and care expected of a competent conveyancing solicitor.

Whether the 2nd named defendant is a partner of the defendant firm

30) I shall presume all facts in favour of the 2nd named defendant. He needs only raise some triable issue.

31. Section 3(1) of the Partnership Ordinance (Cap.38) defines a partnership:

"Partnership is the relationship which subsists between persons carrying on a business in common with a view of profit."

32. Section 4(c)(ii) of Cap.38 is relevant to the position of salaried partners :

"A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits does not of itself make the servant or agent a partner in the business or liable as such."

33. Mr Reyes referred to Cordery on Solicitors (Issue 15) at para.363 which cited Stekel v. Ellice [1973] 1 WLR 191, per Megarry J :

"The term 'salaried partner' is not a term of art, and to some extent it may be said to be a contradiction in terms. However, it is a convenient expression which is widely used to denote a person who is held out to the world as being a partner, with his name appearing as partner on the notepaper of the firm and so on. At the same time, he receives a salary as remuneration, rather than a share of the profits, though he may, in addition to his salary, receive some bonus or other sum of money dependent on the profits. (198D-F)

... ...

I have found it impossible to deduce any real rule from the authorities before me, and I think that, while paying due regard to those authorities, I must look at the matter on principle. It seems to me impossible to say that as a matter of law a salaried is or is not necessarily a partner in the true sense. He may or may not be a partner, depending on the facts. What must be done, I think, is to look at the substance of the relationship between the parties; and there is ample authority for saying that the question whether or not there is a partnership depends on what the true relationship is, and not any mere label attached to that relationship. A relationship that is plainly not a partnership is no more made into a partnership by calling it one than a relationship which is plainly a partnership is prevented from being one by a clause negativing partnership. (191G-H)"

34. Cordery at para.368 submitted that the easiest solution is to look at the agreement which determines the relationship between the partners to discover the position of the salaried partner within the partnership.

35. Mr Reyes referred to the following provisions in the Partnership Agreement and submitted that the relationship between the 1st and 2nd named defendants was in truth a partnership :

(1) The 1st named defendant was the only Equity Partners [sic] and the 2nd named defendant was the only Salaried Partner;

(2) "The partnership" means "the business carried on by the Partners in partnership under the Business Name" (clause 1);

(3) The Equity Partners and the Salaried Partner are together called "the Partners" (clause 2.1);

(4) The Salaried Partner's job title is Partner under the Employment Particulars (Second Schedule);

(5) The name of the Salaried Partner shall be shown on all note paper of the firm (clause 11);

(6) The Salaried Partner shall be entitled to receive (i) a monthly salary of $18,000 and (ii) 50% of the profit costs received on his own files (Second Schedule);

(7) The Salaried Partner shall not be entitled to attend or vote at meetings of Partners during a period of suspension insofar as he may otherwise be entitled to (clause 8.4);

(8) The Equity Partners may require that the Salaried Partner ceases to be held out as a Salaried Partner during the period following the date of service of notice terminating the Partnership and employment of the Salaried Partner (clause 7.3); and

(9) In the event of conflict between the Employment Particulars and the Partnership Agreement, the provisions of the Partnership Agreement shall prevail (clause 13.1).

36. Mr Reyes also referred the negative covenant in clause 6.4 that unless otherwise agreed by the Equity Partners, the Salaried Partner shall not lend money or give credit on behalf of the Partnership to or have any dealings with any person firm or company whom the Equity Partners have previously instructed the Salaried Partner not to treat or deal with. It means that unless previously instructed by the Equity Partners, the Salaried Partner may so do.

37. On the other hand, the 2nd named defendant referred to various restrictions on him under the Partnership Agreement :

(1) The Salaried Partner shall serve the Equity Partners in accordance with the arrangements set out in the Employment Particulars (clause 3.1);

(2) The Salaried Partner shall perform duties assigned by the Equity Partners (clause 3.2);

(3) The Salaried Partner shall obey all lawful directions and orders given by the Equity Partners (clause 3.3);

(4) The legal and practical control of the firm and its affairs will remain with the Equity Partners but without prejudice thereto the Salaried Partner shall be called into consultation with the Equity Partners from time to time on matters affecting the general welfare of the firm (clause 10);

(5) The restrictions such as not to employ or dismiss any other employee of the Partnership, pledge the credit of the Partnership, buy order or contract for any goods articles or property on behalf of the Partnership (clause 6);

(6) The employment of the Salaried Partner may be terminated by notice or summarily with cause (clauses 7.1 & 7.2); and

(7) It shall be competent for the Equity Partners to decide without specifying any reason that the Salaried Partner be suspended by being excluded from attending to the business and affairs of the Partnership (clause 8.1);

(8) The Salaried Partner is subject to the restraint of trade clause (clause 9.3).

38. There is no provision in the Partnership Agreement dealing with capital of the partnership, but there are mutual indemnity clauses between the Equity Partners and the Salaried Partner :

(1) The Salaried Partner shall duly and punctually pay and discharge his separate and private debts and keep the property of the Partnership and the Equity Partners indemnified from all actions proceedings costs claims and demands in respect thereof (clause 5.3);

(2) The Equity partners agree with the Salaried Partner to pay and discharge all liabilities of the firm and to keep the Salaried partner indemnified against all claims proceedings costs demands and expenses in respect thereof other than any liabilities arising from the act or default of the Salaried partner (clause 11).

39. Mr. Reyes submitted that the indemnity clauses are matters inter se the 1st and 2nd named defendants and shall not affect third parties.

40. The 2nd named defendant also referred to the letter of employment dated 30 May 2001 which list out his duties and causes for summary dismissal. The fact that he was an employee was recognized in the Partnership Agreement itself. He was treated like an employee rather than a partner as he had no management power of the firm. The sharing of profit costs is common to employed solicitors in Hong Kong and does not necessarily infer a partnership. And even holding out as a partner on the letterhead does not necessarily infer a partnership. He submitted that while in name he was a partner, in substance he was an employee.

41. The 2nd named defendant referred to Kao, Lee & Yip (A Firm) v. John Richard Edwards [1994] 1 HKLR 232. The defendant there was a former salaried partner of the plaintiff firm. A clause in the Salaried Partnership Agreement restrained him for a period of five years from soliciting or doing work with a person who was a client of the firm within three years immediately preceding termination. The plaintiff sought an injunction to enforce the clause and damages for breach of contract. The trial judge held that the covenant was unreasonable both as to area and as to time and was void in law. The plaintiff appealed. The 2nd named defendant relied on the dictum of Litton, JA (as he then was) at p.235:

"The peculiar feature of the arrangement, however, is this. The defendant was held out to the outside world, and apparently to the staff members of the firm itself, as a partner. His name appeared in the firm's letterhead as a partner, and he was introduced to clients of the firm, and attended social functions, as a partner. The result of this contractual arrangement was that, in law, the defendant would have been liable for the firm's debts as a partner by virtue of the holding out, but he enjoyed none of the benefits of partnership except, possibly, the 'prestige' which attended his status. Because of the potentially unlimited liability which he would have incurred as a result of the holding out, the agreement of 28th June 1989 provided for a full indemnity against all loss and liability from the equity partners. In so far as it is relevant to place this contract into any particular category, in my judgment, it is plainly an employment contract and the judge was correct in having so described it."

42. I bear in mind the descriptions of partner or partnership are mere labels. But it is important to note that prior to the entering into of the Partnership Agreement, the 1st named defendant was a sole proprietor. During the subsistence of the Partnership Agreement, there is no other partner than the 2nd named defendant. If it is the intention of the 1st and 2nd defendants that the defendant firm shall be a partnership as opposed to a sole proprietorship in order to remain on the banks' lists of approved conveyancing solicitors, the 2nd defendant must in truth be a partner, albeit a salaried partner. That is entirely consistent with the terms of the Partnership Agreement. I cannot see why it was a matter of mere formality as opposed to a matter of substance. I also cannot see why it was for the convenience of the 1st named defendant only as the 2nd named defendant must have benefited from the agreement in having a more creditable practice as he was entitled to a 50% share of profits on his files.

43. The 2nd named defendant referred to clause 11 which provided that his name be shown on all paper used in the firm. He submitted hat if he were a real partner, there was no need to state the obvious. He also referred to clause 7.3 which required him not to hold out as a Salaried Partner after the service of notice terminating the Partnership and the employment. He submitted that it indicated he was not a real partner. On the contrary, it required him not to hold himself out as a partner after the termination of the partnership.

44. Under clause 11, the 1st named defendant agreed to indemnity the 2nd named defendant against liabilities of the firm. It referred to liabilities of the firm as opposed to liabilities of the 2nd named defendant in holding himself out as a salaried partner. It must have been envisaged that 2nd named defendant may be held liable qua partner as opposed to qua holding out.

45. Granted the Partnership Agreement refers to the employment of the 2nd named defendant, however, clause 13.1 provides that in the event of conflict between the Employment Particulars and the Partnership Agreement, the provisions of the Partnership Agreement shall prevail.

46. The Kao, Lee & Yip case is concerned with the validity of a covenant in restraint of trade. It is not concerned with the liability of a salaried partner.

47. All the matters are squarely before me and there is no outstanding issues left for investigation at the trial. In all the circumstances, I am satisfied that the 2nd named defendant is carrying on business together and hold that the 2nd named defendant is a partner of the 1st named defendant.

48. My decision is sufficient to dispose of the appeal of the 2nd named defendant. I shall nevertheless consider the point on holding out on the basis that the 2nd named defendant is not a partner of the defendant firm.

Whether the 2nd named defendant is liable as being held out as a partner

49. Under section 16 of the Partnership Ordinance :

"Persons liable by 'holding out'

Every one who, by words spoken or written or by conduct, represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm is liable as a partner to any one who has, on the faith of any such representation, given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made."

50. Section 16 extends the liability to persons who are not in fact partners but who can be identified in the representation as holding themselves out or being held out as partners.

51. It has not been argued that the deposit of $7.15 million did not amount to giving credit to the defendant firm.

52. The 2nd named defendant cannot seriously deny that he has been held out as a partner of the defendant firm, such as in the letterhead of the firm. He argued that there is no direct evidence of knowledge and/or reliance on the holding out on the part of the plaintiff before giving credit.

53. Mr Reyes relied on the documents to infer knowledge and reliance on the part of the plaintiff. The letter dated 30 October 2001 by the defendant firm to WKLL raising requisitions on the title deeds was enclosed for the reference of the plaintiff on 31 October 2001. The letter was on the letterhead of the defendant firm, and the 1st and 2nd named defendants' names were described as the two partners of the firm.

54. Mr Reyes submitted that although the said letter was after the retainer on 11 October 2001, it was before the plaintiff gave credit by depositing $7.15 million into the defendant firm's clients' account. The plaintiff was dealing with the defendant firm and must have relied on the representation of the persons described as partners on the letterhead.

55. The 2nd named defendant referred to Nationwide Building Society v. Lewis & anor [1998] 3 All ER 143 (CA). The issue was can a salaried partner, who is in truth only an employee of a firm and allows his name to go on the firm's note paper in a way which does not differentiate between him and the true principal or partners and so is held out to be a partner in that firm, be held liable to another, who has dealt with that firm, for the negligence or breach of contract by it in the absence of direct evidence of actual reliance by that other on the holding out.

56. The facts are as follows. Lewis, a sole principal, invited Williams to join as a "salaried partner" in his firm of solicitors. Williams accepted the offer and his name was added to the firm's notepaper under "B Lewis & Co.". He was a "salaried partner" and was not entitled to a share of profits. In April 1991, one Cliff applied to the plaintiff for a mortgage loan. In the application form, Cliff put down "B Lewis & Co." as his solicitor, and "Mr B Lewis" against "Contact". In all subsequent communication with Cliff, the plaintiff referred to the "solicitor" acting for him and the name of the firm as "Ref : Mr B Lewis". On 8 May 1991, the plaintiff decided to retain the firm to act for it as well. On 9 May, the plaintiff issued the "Instructions to solicitors" addressed to "Ref : Mr B Lewis". On 10 May, the firm sent a letter signed "Bryan Lewis & Co." enclosing an unqualified report on title, which was received by the plaintiff on 13 May. Subsequent communications from the plaintiff to the firm was addressed either to "Re : Mr B Lewis", or "B Lewis & Co." or "Bryan Lewis Solicitors", but all commenced with "Dear Sir". On 24 May, the plaintiff sent the cheque for the mortgage loan to the firm. The plaintiff's internal documents authorising the cheque mentioned examination of the report but no reference was made to the letter of 10 May. Cliff fell into arrears. The plaintiff alleged negligence and breach of contract on the part of the firm in failing to disclose there had been a simultaneous transaction entered into by Cliff.

57. At the trial of the preliminary issues, Rimmer J held that reliance might be presumed in some circumstances. The judge referred to the purpose of the instructions as being to obtain advice from the firm and said the advice came with the letter of 10 May and the enclosed report. The judge said at [1997] 3 All ER 498, 505 :

"But the letter was a response from what was apparently a two-partner firm, enclosing that firm's report on title. Correspondingly, the plaintiff was entitled to regard the enclosed report being the advice of that two-partner firm. I find no difficulty in presuming in its favour that it relied on it being a report which carried with it the imprimatur of both partners. If reliance of this sort was not precisely what Mr Lewis and Mr Williams intended by putting the latter's name on the notepaper, I cannot see why they did it."

Accordingly, the judge held that Williams was estopped from denying responsibility for it.

58. Williams appealed on two grounds : that there was no act by the plaintiff which could amount to the giving of credit, and there is no evidence that the plaintiff did anything on the faith of, or in reliance on the representation that he was a partner. The point on giving credit was not seriously argued as the plaintiff also relied on estoppel.

59. Peter Gibson LJ held that in order to establish liability under section 14(1) of the Partnership Act (c/f section 16 of Cap.38), the plaintiff must prove (1) holding out; (2) reliance thereon, and (3) the consequent giving credit to the firm. Knowledge is a precondition of reliance, not that it is sufficient in itself.

60. His Lordship pointed out that the judge accepted that there was no evidence of reliance either on 8 or 10 May, but said reliance might be presumed in some circumstances. His Lordship stated at p.150C :

"Given that reliance is a necessary requirement, it is not obvious that there should be a presumption in favour of the person who claims reliance and is in a better position to know whether he did rely on the holding out and who should thereby be able to prove it. The person held out, who is not in fact a partner, may well have difficulty in proving the negative, that the other person did not rely on the holding out. Of course, there may be circumstances from which it would be appropriate for the court to infer that there was reliance on a holding out. As is stated in Spencer-Bower and Turner on Estopped by Representation (3rd ed, 1977) pp 114-115 :

'Though on questions of fact the onus will be upon the representee, it may happen that the probability of inducement from a given set of facts is so great, or in other words the materiality is so plain and palpable, as to justify a finding of the inducement itself merely from the circumstantial context ... but it must be remembered that the inference so made is one of fact and not of law.' "

61. On the point that the report was signed in the firm's name, his Lordship said at p.150j :

"To my mind that is not sufficient to establish the fact of reliance. There is no evidence that anyone in the plaintiff noted from the letter that Mr. Williams' name appeared as a partner, still less that it was relied on by the plaintiff. It was not suggested that there was some personal characteristic of Mr. William that would bring him to the attention of the plaintiff. It is merely that fact that Mr. Lewis had a partner that is said to be significant. I have to say that this seems to me unrealistic. It did not matter to the plaintiff whether or not Mr Lewis was the sole principal when the plaintiff retained the firm. Why should it matter to the plaintiff whether or not Mr Lewis was the sole principal less than a week later when it received the letter of 10 May and the report on title?"

62. On the point that the report was intended to convey the imprimatur of two partners, his Lordship said at p.151e :

"...There is no evidence that Mr Williams had ever done any work for the plaintiff. It would be astounding if the significance of Mr Lewis having partner has ever crossed the mind of anyone in the plaintiff.

As for the judge's assertion that Mr Lewis and Mr Williams intended the report prepared by Mr Lewis to convey that imprimatur, I find that difficult to accept. The judge sought to justify that assertion by saying that otherwise he could not see why the firm's notepaper should carry both names. I would respectfully suggest that a reason might be that it was to lend authority to Mr Williams in his communications with clients of the firm. Not being a partner but a mere employee, he was to be made to appear to be on a par with Mr Lewis. It does not follow that anything which Mr Lewis did on his own for clients was intended to have the authority of Mr Williams. Mr Patten submitted that there would be some clients who would be impressed by the fact that Mr Lewis had a partner. If this was really a matter of significance, there should have been evidence on the point. In my judgment, the judge was not justified in making his assertion without evidence and, I repeat, the plaintiff called no evidence at all.

We are left only with the documents and what can be inferred from them. I, of course, accept that the plaintiff did rely on the report on title and the representation contained in it that the title to the property to be mortgaged was sound. I does not follow from that that the plaintiff relied on the suggestion representation that Mr Williams was a partner giving his authority to that report.

In my judgment, therefore, the circumstances are simply not such as to justify the judge's conclusion that there has been reliance by the plaintiff on the holding out..."

63. Sir Christopher Slade stated at p.152h :

"For reasons explained at the beginning of this judgment, an employee who, in order to enhance his apparent status, allows his name to appear on the firm's notepaper as an apparent partner exposes himself to peril. Let there be no doubt about that. I would accept that, on the particular facts of some other cases, even in the absence of explicit evidence of reliance, the court might readily infer that persons dealing with the firm had done so in reliance on the representation that the employee was a partner, particularly, for example, if all their dealings had been with the employee himself. On the particular facts of this case, however, there is no evidence that Nationwide, when it acted on the report as to title, had had any dealings with Mr Williams or indeed even knew of his existence. There is no evidence that it noticed or paid any attention to the presence of Mr Williams's name on the firm's notepaper when, or at any time after, it received the letter of 10 May 1991 and the accompanying report on title. In these circumstances, in agreement with Peter Gibson LJ, I feel unable to presume or infer that Nationwide relied in any way on the representation made in the firm's notepaper when it acted on the report as to title.

Rimer J said ([1997] 3 All ER 498 at 505, [1997] 1 WLR 1181 at 1187) : 'It may be that any presumption that Nationwide so relied on the title report is rebuttable and that it could be shown that it in fact relied on it only as being the advice of Mr Lewis.' With respect to Rimer J, I think this sentence indicates where he erred in his approach to this case. No presumption of reliance on the representation made in the firm's notepaper in my judgment arose. In cases such as this, though the plaintiff on the particular facts may be able to persuade the court to infer reliance, the burden of proof, in my judgment, must always rest on him. I do not think that any authority to the contrary has been cited to us. In the present case that burden has not, in my judgment, been discharged."

64. The Court of Appeal held that Williams was not liable on the basis that he was held out as Lewis' partner.

65. The 2nd named defendant also referred to the decision of the Full Court of the Supreme Court of South Australia in Duke Group Ltd (In Liq) v. Pilmer & ors (1999) 31 ACSR 213. In 1988, the plaintiff retained the first defendants, Nelson Wheeler Perth (NWP), a firm of accountants in Perth, to prepare a report to comply with the relevant Listing Rules. In 1992, the plaintiff sued NWP for negligence and breach of contract. The plaintiff also sued the 5th defendants, alleging that they were partners of a national partnership known as Nelson Wheeler to which NWP belonged, or alternatively, liability by reason of representation or holding out. On the issue of representation (at p.417 et seq), the plaintiff's case was that the relevant representation was contained in the report and the annexure. The Supreme Court accepted that persons who practised under the name of Nelson Wheeler permitted themselves to be held out as partners of each other. But the Court held that although the plaintiff might well have given credit when it commissioned NWP to write the report, reliance on the report by the plaintiff, its directors or shareholders did not constitute any giving credit for the purpose of section 14 of the Partnership Act. The Supreme Court held that there was no evidence that the directors or any of them had seen, let alone relied on, the NWP letterhead at the time NWP was first engaged. Not only was there no evidence on which any such finding could properly be based, the Court accepted the trial judge's finding which would suggest that there was no such reliance.

66. I find that the facts in the present case are different from Nationwide Building Society in the following regards :

(1) The business name of "Fung Wong & Ha" prima facie suggests the firm to be a partnership as opposed to a sole proprietorship;

(2) Although the 2nd named defendant is not the "Wong" in "Fung Wong & Ha", the coincidence (also in the Chinese character) is liable to mislead; and

(3) The intention of holding the 2nd named defendant out as a partner of the firm was not simply to lend authority to him in dealing with the client of the firm, but instead to lend authority to the defendant firm in dealing with more substantial conveyancing matters.

67. The facts in Duke Group Ltd (In Liq) are also different. There was no relevant giving of credit after the holding out in the report.

68. Notwithstanding that there is no direct evidence on knowledge and reliance, I am satisfied without further enquiry that the plaintiff has discharged the burden of proof of an inference as such against the 2nd named defendant. I infer that the plaintiff did have knowledge of the holding out by the 2nd named defendant upon the receipt of the copy of the letter dated 30 October 2002 to WKLL, and the plaintiff did rely on the holding out in paying the deposit of $7.15 million into the clients' account of the defendant firm. As such, the 2nd named defendant is also liable for the negligence and/or breach of contract by the 1st named defendant.

Conclusion

69. Judgment in the sum of $7.15 million together with interest thereon at judgment rate from the date of the writ is entered against the 1st named defendant with costs to the plaintiff to be taxed if not agreed.

70. The appeal by the 2nd named defendant is dismissed with costs to the plaintiff to be taxed if not agreed. The Order of Master B. Kwan dated 13 May 2002 do stand.

Remarks: