WONG SIU MING JASON v. CHUNG MAN WAI REBECCA

CACV 237/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 237 OF 2012

(ON APPEAL FROM HCA NO 64 OF 2010)

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REASONS FOR JUDGMENT

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Hon Poon J (giving the judgment of the Court of Appeal) :

1.  This is the plaintiff’s appeal against the order of Chung J dated 30 August 2012, made after trial, dismissing his claims against the defendant for breach of professional duty and negligence as solicitor.

2.  On 26 March 2014, after hearing counsel, we dismissed the appeal.  We now hand down the reasons for judgment.

A.  SALES OF THE PROPERTIES

3.  The plaintiff inherited the following properties from his late mother in March 2002 (“the Properties” collectively) :

(1) Rear portion, Upper Ground Floor of No.8A, Mosque Street (“Property 1”);

(2) Flat F, 14/F, United Building, Nos.135-145, King’s Road (“Property 2”);

(3) Flat 7, 19/F, Wai Lee Buildings, No.997 King’s Road (“Property 3”); and

(4) Apartment D, 4/F, Ying Wong House, No.153C King’s Road (“Property 4”).

4.  By 4 formal sale and purchase agreements all dated 7 June 2004, the plaintiff agreed to sell Property 1 to Gain Bright Investment Limited for HK$500,000.00, Property 2 to Speedy Great Investment Limited for HK$1,200,000.00, and Property 3 and Property 4 to Super Warm Holding Limited each for HK$500,000.00.  The three purchasers are collectively referred to as “the Purchasers” below.  Completion of the transactions took place by way of 4 deeds of assignment all dated 23 July 2004.

5.  The defendant is a practicing solicitor since 1998.  She was instructed by the plaintiff to deal with the Properties.

B.      CORE ISSUE

6.  At the centre of the dispute is the core issue concerning the instructions that the plaintiff gave to the defendant regarding the Properties.

7.  The plaintiff’s pleaded case is that at a meeting in late May or early June 2004 he told the defendant :

“(i) The Plaintiff agreed to transfer [the Properties] to [the Purchasers] as suggested by Mr Lee Chun Kit, Mr Lee Kam Fat and/or Mr Chan Lung Tat (“Lee and the Others”) on the condition that they had to pay off the outstanding monthly mortgage instalments to GE Capital and in addition to the HK$400,000.00 previously paid to the Plaintiff, they had to pay Plaintiff HK$100,000.00 monthly for 23 months.

(ii) Upon receiving the total sums of $2,700,000.00 (“the Purchase Price”), the Plaintiff had the right to purchase back [the Properties] at a discount namely 80% of $2,700,000.00 from the Purchasers.

(iii) In case Lee and the Others defaulted in making the said monthly payments to the Plaintiff, the Plaintiff had the right to sell [the Properties] to repay the outstanding mortgage loan owing to GE Capital.

(iv) On top of the Purchase Price, Lee and the Others also undertook inter alia that they would pay the Plaintiff HK$20,000.00 monthly as compensation for loss and rentals suffered by the Plaintiff until [the Properties] (except [Property 2] …)

(v) The Defendant was retained and instructed by the plaintiff to [act as his solicitor] to draft legal documents to protect his interests in respect of the aforesaid agreements…”

8.  The plaintiff complained that the defendant had failed to protect his interest in that the conveyancing documents have not provided for:

“(i) the Plaintiff’s right to re-purchase any of [the Properties] at a discount;

(ii) Lee and the Others’ independent obligations to pay off the outstanding monthly instalments to GE Capital;

(iii) Lee and the Others’ and/or the Purchasers’ obligation to pay $100,000 monthly to the Plaintiff for 23 months;

(iv) the Plaintiff’s right to sell [the Properties] and recover the sale proceeds thereof in case Lee and the Others failed to pay the said $100,000 monthly to the Plaintiff; and

(v) Lee and the Others’ undertaking to pay the said HK$20,000 to the Plaintiff.”

9.  The defendant pleaded that the plaintiff only instructed her to act for him in the conveyancing transactions concerning the sale and purchase of the Properties.  He had not given her the oral instructions as alleged.

10.  At trial, only the plaintiff and the defendant gave evidence.  Although the plaintiff’s son had filed a witness statement, he was not called.

C.  EVIDENCE

C1.  The plaintiff’s evidence

11.  The plaintiff’s evidence is, in gist, this.

12.  His son participated in a winter clothing business with Lee and the Others.  In about September 2002, his son told the plaintiff that the business had liquidity problem.  He asked the plaintiff to in effect lend money to the business.  The loan was HK$2.1 million repayable in 8 to 9 months but the total amount repayable was a much higher sum of HK$3.4 million. After discussing with Lee and the Others, the plaintiff mortgaged the Properties to a Wa Lee Finance Co Ltd (“Wa Lee”) to obtain a HK$2.1 million loan for the use of the clothing business.  The monthly instalments were to be repaid by Lee and the Others.  But they defaulted and made no repayment.  In September 2003, the tenants of the Properties began to complain to the plaintiff that debt collectors turned up at their units.

13.  About one year later, the plaintiff managed to get Mr Chan Lung Tat to sign a note dated 24 September 2003 whereby Mr Chan agreed to be responsible for the instalment payments and promised to pay the plaintiff living expenses for August and September 2003 (“Mr Chan’s Note”).

14.  The problem nevertheless persisted.  In the end all the tenants left the Properties.  The plaintiff then had a meeting with Lee and the Others in mid or late February 2004.

15.  At that meeting, Lee and the Others suggested to the plaintiff that he should replace Wa Lee with GE Capital, a financer which could lend more on the strength of the Properties and at a lower interest rate.  The new loan could be used for the clothing business and paying off Wa Lee’s mortgages.  Lee and the Others also agreed to the arrangement as set out in the instructions the plaintiff later gave to the defendant in late March 2004.  Controlled by Lee and the Others, the Purchasers were used to operate the clothing business.  According to the plaintiff, the arrangement was supposed to give him greater security for Lee and the Other’s payment promises.

16.  In the event, the plaintiff took out mortgages with GE Capital in January 2004 for HK$2.7 million to replace the mortgages of Wa Lee.

17.  The plaintiff relied on a number of documents as evidence of the above arrangement regarding the Properties :

(1) A memorandum dated 27 February 2004 signed by Mr Lee Chun Kit on behalf of purchasers to be nominated, promising to purchase the Properties from the plaintiff for a total of HK$2.7 million (“the Feb Memo”);

(2) 4 provisional sale and purchase agreements in respect of the Properties dated 2 March 2004 signed by the plaintiff as vendor and Mr Lee Kam Fat on behalf of Gain Bright as purchaser (“the Provisional Agreements”);

(3) A memorandum dated 2 March 2004 signed by Mr Lee Kam Fat on behalf of Gain Bright promising to allow the plaintiff, if he so requested within a reasonable or normal time and upon both parties’ consent, to buy back the Properties, at a discount of the prevailing market price (“the Mar Memo”);

(4) Two payment guarantees both dated 2 March 2004 signed by Mr Lee Kam Fat guaranteeing the payment of the outstanding balance of the purchase price payable by the Purchasers (“the Guarantees”).

18.  It is common ground that at the meeting with the defendant in late March 2004, the plaintiff showed Mr Chan’s Note, the Feb Note, the Provisional Agreements, the March Note, the Guarantees, 4 facilities letters dated 12 January 2004 issued by GE Capital to the plaintiff; and a power of attorney dated 1 May 2004 signed by the plaintiff in favour of Mr Lee Chun Kit.

19.  The plaintiff said after giving the above documents to the defendant, he gave her the oral instructions as pleaded.

20.  He went on to say that after the meeting, he only attended the defendant’s office once to sign the conveyancing documents.  The defendant had not advised him about their contents or legal effect before he signed them.

21.  The plaintiff reiterated that he never intended to sell any of the Properties.  He had only agreed to mortgage the Properties to obtain a loan of HK$2.1 million for his son’s use in the clothing business.

C2.  The defendant’s evidence

22.  The defendant disagreed.  She said in her witness statement :

“15. During the aforesaid meeting held on 27th May 2004 in the offices of my Firm, the Plaintiff told me, inter alia, as follow : -

(a) He was the registered owner of [the Properties].

(b) Due to his failure and inability to make repayments under a mortgage loan (the ‘Mortgage Loan’) granted by [GE Capital], [GE Capital] had threatened to foreclose the mortgage loans and take possession of [the Properties] imminently if his failure should persist.

(c) The [Purchasers] were indebted to the Plaintiff.

(d) The Plaintiff did not have the means to settle the Mortgage Loan in any event. He would only be able to pay the Mortgage Loan if the [Purchasers] repaid him the existing debt owed to him. Unfortunately, the [Purchasers] did not have the money to repay the Plaintiff causing him to fall behind the monthly instalments repayment schedule under the Mortgage Loan.

(e) After various rounds of negotiation with the [Purchasers], the Plaintiff and the [Purchasers] had agreed that [the Properties] were to be sold by the Plaintiff to the [Purchasers] so that the burden of settling the Mortgage Loan would be shifted to them and the Plaintiff would not be demanded by [GE Capital] to repay the Mortgage Loan. Against this background, the Plaintiff and the [Purchasers] executed [the Provisional Agreements].

(f) The Plaintiff instructed me to deal with the sale of [the Properties] as soon as possible so that he could get some deposits from the [Purchasers] and avoid [GE Capital’s] taking possession of [the Properties]. He also told me that he and [his son] would deal with the rest of the matters, including but not limited to the payment of the existing debt and the balance of the purchase price with the [Purchasers] directly as they were in a very close relationship.

(g) The Plaintiff told me that the [Purchasers] had failed to make payments on time in accordance with their agreement previously reached. The Plaintiff asked me to incorporate a term of penalty for late payment into the agreement for sale and purchase.

PLAINTIFF’S INSTRUCTIONS TO SELL THE PROPERTIES

16. Regarding the debts owed by the [Purchasers] to the Plaintiff, I advised the Plaintiff of taking a civil action for debt recovery against the [Purchasers] instead of proceeding with his proposed sale of the Properties. I further told the Plaintiff that there was no need at all for him to sell [the Properties] to the [Purchasers]. I also explained to him that once he sold [the Properties] to the [Purchasers], his interest in [the Properties] would pass to the [Purchasers] and he would not be able to get them back in future.

17. Having heard what I said, the Plaintiff’s eyes shifted from my side to [his son] and [Lee Chun Kit] and said that he was so stupid to consent to selling [the Properties] to the [Purchasers] and that the [Purchasers] should pay him back the existing debt owed to him instead. Then the Plaintiff, [his son] and [Lee Chun Kit] had a brief discussion on this matter, the contents of which I cannot recall now. However, I remember that after their short discussion, the Plaintiff, [his son] and [Lee Chun Kit] confirmed that the sale of [the Properties] was necessary in any event.

18. I explained to the Plaintiff again that once [the Properties] were sold, he would no longer have any interest in [the Properties] and the [Purchasers] could sell [the Properties] at any time.

19. Despite my advice, the Plaintiff confirmed his instructions to sell [the Properties] and instructed me to prepare the necessary documents for completing the sale of [the Properties]. The Plaintiff and [his son] told me that they would have their own means to recover the existing indebtedness from the [Purchasers].

20. The Plaintiff further instructed me to act for him in place of Messrs Victor Chiu, Tsang & Partners, who had been acting for him in the sale of [the Properties]. I therefore arranged for an authorization letter of change of solicitors to be signed by the Plaintiff.

PLAINTIFF’S BRIEF INSTRUCTIONS ON HIS DOCUMENTS

21. I had a quick glance of the documents provided by the Plaintiff.  I spotted a term in [the March Note] that the Plaintiff would have the right to buy back [the Properties] at a discount.  The Plaintiff briefly explained the circumstances leading to the execution of the said document.  He told me that : (1) the document was previously signed when negotiating with the [Purchasers] at an early stage; (2) the circumstances had changed after signing of the agreement; (3) the Plaintiff and the [Purchasers] had reached other agreements; and (4) save and except for [the Provisional Agreements], the rest of the documents… are for my background information only.”

23.  The defendant then prepared the conveyancing documents and dealt with the conveyancing procedure in the usual manner. Completion was later brought forward from 6 June 2005 to 23 July 2004. According to her, what transpired on completion is this :

“38. On 22^nd July 2004, my Firm received from WFC (acting for the Purchasers) their draft Assignment and undertaking for my Firm’s approval and they also asked my Firm to advise on how the balance of the purchase monies should be split for completion.

39. My Firm made some amendments to the draft Assignment and draft completion undertaking and duly approved the same as amended. My Firm then duly sent the amended draft documents to WFC by fax and by hand on the same day. We also gave a breakdown to WFC and advised them on how the cheques for completion should be split.

40. On 21^st July 2004 after 4:00 p.m., [GE Capital] informed my secretary over the phone the total outstanding balance of [the Properties] due to [GE Capital]. I noticed that the balance of the sale price of the Properties payable by the [Purchasers] was not sufficient to repay the outstanding balance due to [GE Capital]. I called [the plaintiff’s son] in the late afternoon on 21^st July 2004 or in the morning on 22^nd July 2004 and informed him of the matter.

41. At about 4 p.m. of 22^nd July 2004, the Plaintiff, [his son] and [Lee Chun Kit] attended the offices of my Firm for completion purpose.

42. During my meeting with them, I told the Plaintiff that : (1) I had obtained the figures of the outstanding balance due to [GE Capital] in respect of [the Properties]; (2) the total outstanding balance of [the Properties] as at 23^rd July 2004 was HK$2,383,010.22; (3) the balance of the sale price of [the Properties] payable by the purchasers was in the total sum of HK2,300,000 which was not enough for repaying the outstanding amounts due to [GE Capital].

43. I advised the Plaintiff that the completion might not be possible unless the Plaintiff could fund the deficit. However, the Plaintiff told me that he had no money for paying the shortfall.

44. At this juncture, [the plaintiff’s son] and/or [Lee Chun Kit] immediately walked out of the conference room where we were having our meeting to ring up the [Purchasers] or their representative to discuss the situation. I saw that they stayed outside the main door and talked on the phone. During this period, the Plaintiff remained inside the conference room with me.

45. After a while, [the plaintiff’s son] came back into the conference room and told me and the Plaintiff that : (1) the [Purchasers] had agreed to pay the deficit in addition to the balance of the purchase price of [the Properties]; and (2) the parties had agreed to postpone the completion to the following day on 23^rd July 2004.

46. The Plaintiff then told me that he would not be in Hong Kong on the following day on 23^rd July 2004 and could not attend the offices of my Firm to execute the Assignments on 23^rd July 2004. I told him that if everything had been settled, he could execute the Assignments in escrow so that he would not be required to attend the offices of my Firm again to execute the Assignments on 23^rd July 2004. I then contacted Ms. Betty Lai of WFC and requested for the Assignments. I received or collected from her the engrossed copies of the 4 Assignments in the evening of 22^nd July 2004 instead of 23^rd July 2004 as stated in the letter of WFC to my Firm dated 23^rd July 2004. Upon receipt of the 4 Assignments from WFC, I immediately arranged the same to be executed by the Plaintiff in the same evening of 22^nd July 2004.

Execution of Assignments by Plaintiff in Escrow on 22^nd July 2004

47. Prior to execution, I explained the purpose, nature and the contents of the Assignments to the Plaintiff. The Plaintiff agreed to the contents and signed the documents accordingly. Thereafter, I gave the Plaintiff/Joewin the bill of costs of my Firm for HK$12,000, being the agreed costs.

…

Completion on 23^rd July 2004

49. Completion took place on 23^rd July 2004 before 12:00 noon where, amongst other things, four solicitors’ cheques for payment of the balance of the purchase price in the total sum of HK$2,300,000.00 and another cheque for the sum of HK$83,010.22 (for covering the deficit) were sent to my Firm by WFC.

50. On the same day, my Firm sent these cheques together with Receipts on Discharge of Charge to [GE Capital] in discharge of the Legal Charges of [the Properties].

51. The four Assignments were returned to WFC on the same day for their handling.”

D.  CHUNG J’S JUDGMENT

24.  As rightly observed by Chung J, the case essentially turned on the credibility of the parties.  After analyzing his evidence, the Judge rejected the plaintiff’s testimony for lack of credibility.

25.  He first found the plaintiff’s case inherently implausible.

26.  On the plaintiff’s case, Lee and the Others had already obtained HK$2.1 million from the plaintiff through the Wa Lee mortgages in September 2002.  They had made no repayment for this loan.  With the transfer of the mortgage to GE Capital, a loan of HK$2.7 million would be obtained by them.  Part of that loan would have to be used to discharge the Wa Lee mortgages.  Proceeding on the assumption that Lee and the Others had received the full amount of HK$2.7 million without reduction, they would have to pay to GE Capital the whole of the mortgage loan with interest; to the plaintiff a total of HK$2.7 million (HK$400,000.00 deposit plus HK$2.3 million being the monthly instalments of HK$100,000.00 for 23 months) and loss of rental of HK$20,000.00 per month.  Based on such liability towards GE Capital and the plaintiff, the Judge then did some calculation to assess the interest Lee and the Others would have to pay for obtaining loans from the plaintiff.  The interest ranged from 82.54% to 92.86% with an additional interest ranging from 10.43% to 19.32% : see paragraphs 29 to 34 of his judgment.  According to the Judge, that did not make any commercial sense.

27.  Further, by late May or early June 2004, the plaintiff was already aware of the default in payment by Lee and the Others in April and May 2004.  Despite their failure to keep their promises, the plaintiff claimed that he gave instructions to the defendant as he did.  The Judge found it incredible that the plaintiff would in effect agree to “perfect” the Purchasers’ title by transferring to them the legal title in the Properties despite his knowledge of their breach.

28.  The Judge next found that there was no documentary evidence to support the plaintiff’s case that Lee and the Others agreed to pay him HK$3.4 million after 8 or 9 months from September 2002 and HK$2.3 million in addition to paying the GE Capital mortgage instalments and/or rental loss at HK$20,000.00 per month.

29.  Finally, the Judge noted that the pre-action letters of demand, including the one dated 27 July 2009 that accused the defendant of fraud resulting in the loss of the Properties, were not entirely consistent with the plaintiff’s case at the trial.

30.  On the other hand, the Judge found the defendant an honest and reliable witness that stood up to the plaintiff’s cross-examination reasonably well, and that any unsatisfactory feature in her testimony only concerned some of the conveyancing documents showing a mild degree of sloppiness.

31.  The Judge found that the plaintiff’s instructions to the defendant were as those related by the defendant, namely to effect a sale of the Properties to the Purchasers.  He therefore dismissed the plaintiff’s claims with costs.

E.  DISCUSSION

32.  The plaintiff raised a total of 14 grounds of appeal.  It is not necessary to detail them here.  They all seek to challenge the Judge’s crucial factual finding on the plaintiff’s instructions to the defendant in different ways.

33.  The approach to an appeal such as the present is well settled.  As Bokhary PJ put it in Ting Kwok Keung v Tam Dick Yuen & Others (2002) 5 HKCFAR 336 at para 42 :

“42. Where the judgment turns on an issue of fact, the Court of Appeal must have regard to the nature of that issue of fact. And it must have regard to the advantages enjoyed by a trial judge who received the evidence on such an issue at first-hand, in other words, in whose presence the whole of the evidence unfolded in its living state. Such advantages can be, as Lord Shaw of Dunfermline put it in Clarke v. Edinburgh Tramways [1919] SC (HL) 35 at p.36, ‘sometimes broad and sometimes subtle’. The question for the Court of Appeal is whether, even though it does not enjoy the advantages enjoyed by the trial judge who received the evidence at first-hand, it is nevertheless satisfied that his conclusion on the facts is plainly wrong. The Court of Appeal should intervene if so satisfied. But if not so satisfied, the Court of Appeal should defer to the trial judge’s conclusion even if in some doubt as to its correctness.”

34.  Having carefully considered the evidence and the Judge’s analysis and reasoning, we are not persuaded by the submissions of Mr Chiu, counsel for the plaintiff.  We are unable to accept that the Judge’s finding is plainly wrong.  Quite to the contrary, we are firmly of the view that on the evidence before him, the Judge was entitled to come to the finding as he did.  We can see no basis to disturb his finding at all.

35.  We will only add a couple of points.  By signing the Provisional Agreements, the plaintiff had already committed to sell the Properties to Gain Bright.  None of the Provisional Agreements contained any “buy-back” provision.  This does not sit well with the plaintiff’s case that he did not intend to sell the Properties.  Further, in light of the Provisional Agreements, it would not have been possible to insert any “buy-back” provision in the formal sale and purchase agreements absent any further agreement by the plaintiff and the Purchasers.  Mr Chiu argued that the parties could have conducted further negotiations.  But it is mere speculation without any evidence in support.  In such circumstances, the plaintiff’s alleged instruction to the defendant is something that could not be carried out.  It is inherently implausible that the defendant would have accepted such instruction from the plaintiff.

36.  Even assuming that the Judge was wrong and that the plaintiff did give the alleged instruction to the defendant and the defendant was in breach of his instructions, as rightly submitted by Ms Lau, counsel for the defendant, there was this hurdle of causation that the plaintiff could not possibly overcome.  In order to succeed in his claim for loss and damage, the plaintiff would need to show that he would not have suffered the alleged loss but for the defendant’s breach.  In that regard, he had to prove that had the conveyancing documents contained the provisions according to his instructions, the Purchasers would have agreed to them and signed the same; and Lee and Others would have abided by the agreements as evidenced by those provisions.  But there is simply no evidence to show that the Purchasers would have agreed to those provisions or that Lee and Others would have complied with the alleged agreements at all. The plaintiff’s claim against the defendant is in any event bound to fail.

F.  CONCLUSION

37.  It is for the above reasons that we dismissed the plaintiff’s appeal with costs.