RONIA LTD v. WILLIAM CLARKE

HCA 3972/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3972 OF 2000

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J U D G M E N T

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Introduction

1.  The plaintiff commenced this action in April 2000 claiming the following sums in the statement of claim:-

(a)	HK$30,000 being wasted legal fees paid to Messrs. SY Chu & Co. for commencing HCA 1279/2000 against Messrs. Clarke & Kong;
(b)	HK$4,084,342.39 (the 1995 equivalent of DM740,000) being price of the plaintiff’s goods;
(c)	HK$165,000 being payment to a Mr. Law Kai Man (“Law”) as Law’s commission and co-operation fee;
(d)	HK$250,000 being storage charges for the plaintiff’s equipment stored in Wuhan for 4 years 2 months (para. 8(4), statement of claim), alternatively, for 50 months (para. 7(4), statement of claim);
(e)	HK$640,000 being the amount of legal fees obtained by a Mr. Tsang Chi Ming (“Tsang”) by deception;
(f)	HK$20,000 being legal fees for wasted legal services in relation to HCA 17330/1998;
(g)	HK$220,000 being travelling expenses incurred by Mr. Ng Shi Man of the plaintiff (“Ng”);
(h)	interest for item (b) at 6% per annum (total HK$980,242);
(i)	damages for mental distress: HK$19,918,753.41 (being 3 times of HK$6,639,584.47 (this was mistakenly said to be the total for items (a) to (h) above.  As a matter of arithmetic, the correct total sum is HK$6,389,584.39)).

(The grand total for the above is HK$26,308,337.88 (mistakenly pleaded to be HK$26,558,337.88)).  The plaintiff also asserts in the statement of claim its right to seek damages for its investment loss in the mainland as well as for its loss of customers there.

2.  Apart from the pleaded relief, the defendant’s final submissions also helpfully refers to the following claims put forth in a letter dated 17 April 2000 from the plaintiff to the defendant:-

(1)	nominal damages of HK$1.00 for the plaintiff’s loss of goodwill;
(2)	HK$10,150,820.42 being the amount of loss alleged to have been suffered by the plaintiff’s  customers in Wuhan.

These items, together with those set out in para. 1(a) to 1(i) above, make up a total claim of HK$36,459,159.30.

3.  In gist, the plaintiff’s pleaded case is that the defendant is liable for the above by reason that he wrongfully permitted his staff, Tsang, to cause loss to the plaintiff by failing to adequately supervise Tsang.

4.  It is undisputed at the relevant time the defendant was a solicitor practising in Hong Kong under the name and style “Clarke & Liu” (“the defendant’s firm”).  It is also undisputed Tsang was at the relevant time the chief clerk in the defendant’s firm.

The Plaintiff’s Pleaded Case

5.  Perhaps because the plaintiff has been acting in person (through Ng, its director), the plaintiff’s pleaded case is not precisely or indeed clearly set out.  The defendant has again helpfully identified the 3 causes of action apparently relied upon by the plaintiff:-

(1)	negligence (para. 5, statement of claim; para. 2, defendant’s final submissions);
(2)	vicarious liability (para. 5(F4), reply; para. 3, defendant’s final submissions);
(3)	breach of contract (para. 5(F5), reply; para. 4, defendant’s final submissions).

6.  According to the rules of pleading, causes of action must be pleaded in the statement of claim.  And a plaintiff can only adduce evidence in support of a case properly pleaded.  In this action, however, the defendant fairly accepts the plaintiff can also rely on the 2 additional causes of action set out in the reply (see sub-para. (2) and (3) above).

The Defence

7.  The defendant denies in his defence:-

(1)	that he was negligent or that he failed to adequately supervise Tsang;
(2)	that the plaintiff, as a limited company, was capable of suffering torture or pain, whether mental or otherwise;
(3)	the alleged loss and damage.  Further, the defence avers that any such loss and damage (if suffered) is irrecoverable (erroneously stated to be “recoverable”) from him: para. 8 thereof.

8.  Further, in the defendant’s final submissions, the defendant summarises his position regarding the above claims as follows:-

(a)	in relation to money paid by the plaintiff to Tsang by way of legal fees, the defendant is willing to repay it to the plaintiff, provided the plaintiff satisfies the court that alleged payments without receipt have in fact been made;
(b)	in relation to the plaintiff’s other claims (set out under “Introduction” above), they are denied and ought to be dismissed on the grounds that (1) they lack credible evidence in support, (b) there is no causation between them and the defendant’s acts or omissions, and/or (3) they are not foreseeable loss.

Background

9.  The matters set out under this heading, while not directly related to the issue of liability, may be relevant to the issue of quantum of damages.  Although they are set out under this heading, it should be noted some of the facts are not admitted by the defendant and need to be proved by the plaintiff.

10.  The plaintiff has been a Hong Kong company with mainland investment.  Its director, Ng, came to Hong Kong and has been living here since 1993.  Ng came to know Law in early 1995 and they discussed about supplying beer-brewing equipment to manufacturers in the mainland.  This resulted, at least at one stage in May 1995, in some kind of joint venture between the plaintiff and Law.  Law introduced the plaintiff to a German supplier which was a German company called “JAUST KEL-Anlagen GmbH” (“the German supplier” or “Jaust”).

11.  There was delay on the German supplier’s part to ship the equipment despite part payment having been made.  Parts of the equipment were however delivered to Wuhan in early 1996.  But the delivered equipment was defective and the plaintiff informed Law and the German supplier of this and sought compensation.

12.  Further, the plaintiff alleges that the German supplier used forged documents and misrepresentations to induce it to enter into a sale and purchase agreement.

13.  Discussions intended for settling the matter did not bear fruit.  In December 1996, Ng asked Tsang to help resolve the matter through legal action.  This led to the matters set out under the next heading below.

The Plaintiff’s Case on Liability

14.  Since July 1996, Ng started to enquire about the costs for commencing civil claims against Law and/or the German supplier.  By December 1996, he found the defendant’s firm and brought the necessary materials to the defendant’s firm where he met Tsang and a trainee solicitor, one Ms. Chan.  Tsang held himself out as a lawyer.  On 22 December 1996, Ng paid HK$20,000 to Tsang as legal fee.  From around that date to March 1999 (a period of more than 2 years), Tsang was paid an additional HK$640,000 by way of legal fees (on 10 different occasions).

15.  Tsang forged court documents on the following occasions:-

(a)	the acknowledgement of service of HCA 4978/1997 dated 18 April 1997 to mislead Ng to think that legal action has been commenced and that Law, the defendant therein, did not contest the action;
(b)	the judgment of HCA 3780/1997 dated 12 August 1997.  This made Ng believe that the plaintiff had won the claim;
(c)	the writ of HCA 3780/1998 dated 18 October 1998 which made Ng believe that the German supplier needed to be joined as the 2nd defendant.

16.  The plaintiff contends that:-

(1)	the defendant knew the conduct of Tsang;
(2)	the defendant failed to supervise Tsang as regards the plaintiff’s claims against Law and/or the German supplier.  This enabled Tsang to practise fraud against the plaintiff;
(3)	the defendant has placed excessive trust on Tsang.  This is evidenced by the defendant allowing Tsang to be addressed as “曾律師” (which means “lawyer Tsang” in English) in the defendant’s firm and Tsang having a room there as big as the defendant’s.  The defendant also failed to properly supervise the use of the chops, telephone and fax machine in his office;
(4)	the defendant failed to attend to the plaintiff directly as a client.  Tsang’s misdeeds were only unearthed after Ng had reported the matter to the police.

Undisputed Facts

17.  The following undisputed facts took place during the relevant period.

18.  As stated above, Tsang was the chief clerk of the defendant’s firm.  He was asked by the defendant to resign on 15 January 1999 due to poor performance.

19.  The defendant’s firm accepted instructions to act for the plaintiff in June 1997.  It opened a file in connection with the plaintiff’s claim on 14 June 1997.  Tsang brought Ng to a conference with counsel on 6 June 1997 (a few days before the said file was opened).  Counsel issued a fee note on 20 June 1997 for HK$12,000 for his work.

20.  The plaintiff paid Tsang HK$20,000 cash; a receipt of the defendant’s firm was issued to the plaintiff on 18 June 1998.  The defendant’s firm issued a cheque of HK$12,000 to settle counsel’s fee on 22 July 1998.

21.  HCA 17330/1998 was commenced by the defendant’s firm for the plaintiff against Law and the German supplier on 14 October 1998.

Credibility

22.  The following witnesses testified at trial:-

(1)	Ng;
(2)	the defendant;
(3)	Wong Chi Keung (“Wong”), a litigation clerk of the defendant’s firm;
(4)	Lee Chiu Ting Samuel (“Lee”), an assistant solicitor of the defendant’s firm;
(5)	Ms. Wong Mei Hung (“Ms. Wong”), an executive secretary of the defendant’s firm;
(6)	Chan Hoi Ching (“Chan”), a solicitor of the defendant’s firm at the relevant time.

Ng testified for the plaintiff while the others were defence witnesses.

23.  I do not doubt Ng is a truthful witness.  However, he appears to be prompt to jump to conclusions on slim (or even no) evidence in relation to many matters.  For this reason, I have reservations regarding his reliability.  This has been taken into account when I decide whether to accept Ng’s testimony as regards both liability and quantum.

24.  On the other hand, the defendant testified in a calm and composed manner.  His testimony is clear and organised.  This, however, does not necessarily mean his testimony is truthful or reliable.

25.  The most important matter over which the testimony of Ng and the defendant differs is whether the defendant adequately supervised Tsang.

26.  Save as to the matter set out in the next paragraph, the testimony of Wong, Lee, Ms. Wong and Chan is generally of little importance.  They all played little or no part in the dealings between Ng and Tsang/the defendant during the period from December 1996 to March 1999.  Chan recalls having met Ng in mid-1997.  Wong, Lee and Ms. Wong all said they met Ng in the defendant’s firm in February 1999 (twice in the case of Lee).  Wong has also seen Ng in the office a few times before then.  Ng told Chan he had paid about HK$600,000 to Tsang whereas Ng told Wong a few days earlier some HK$200,000 to 300,000 had been paid to Tsang.

27.  The testimony of the above witnesses from the defendant’s firm is relevant to my consideration of the veracity and/or reliability of Ng’s testimony.  There are variances between him and those witnesses regarding several matters.  The first important matter is how often Ng has been to the office of the defendant’s firm.  The second important matter is whether the plaintiff has paid any sum(s) to Tsang and, if so, how much has been paid to him.

28.  Having considered all the materials before me, I make the following findings as regards the witnesses’ credibility and reliability.

29.  I find Ng to be truthful and reliable in relation to his claim that it was reasonable to think that Tsang was a solicitor in the defendant’s firm.  I accept Ng’s claim that Tsang was held out to be a solicitor by the other staff.  Tsang was admitted by the defence to have a room to himself in the office.  I also find Ng to be truthful and reliable in relation to:-

(a)	the defendant not having attended to him or the plaintiff’s case until after Tsang’s resignation;
(b)	how much money the plaintiff has paid to Tsang.

In relation to sub-para. (b) above, I prefer the testimony of Ng to that of Wong.  Ng has given a statement to the police in March 1999.  He already claimed the plaintiff had paid Tsang a total sum of around HK$600,000 then.  But I do not accept his assertion that the defendant knew of Tsang’s fraud at the time.

30.  The defendant has filed 2 witness statements.  In the supplemental witness statement, he asserts in effect that he has properly supervised Tsang’s work in relation to the plaintiff’s claim.  This, however, was not the impression given by a fair reading of his first witness statement.  There is a glaring absence of anything about supervising Tsang’s work in that document.  In any event, having considered the overall circumstance, I reject the defendant’s testimony in relation to any assertion that he has properly supervised Tsang at the relevant time.  However, I accept that the defendant knew of Tsang’s misdeeds only after the event.

Relevant Legal Principles regarding Liability

31.  In this action, it is not part of the defence that Tsang’s deeds were lawful (or otherwise justifiable).  This stance is indeed sensible in view that Tsang faced 9 charges in a criminal prosecution and pleaded guilty to 6 of them.  Two of the charges concerned his having received from Ng 2 respective sums of HK$20,000 and 30,000.  He denied, however, 3 charges of having deceived Ng 3 respective sums of HK$160,000, 240,000 and 110,000 (a total of HK$510,000).

32.  The essence of the defence in relation to liability is this.  The wrongful deeds of Tsang were his own “frolic”.  Unless:-

(a)	Tsang was acting within the scope of his authority, or
(b)	the defendant was aware of his deeds, or
(c)	the defendant turned a blind eye to them, or was negligent for not discovering them,

the defendant should not be held liable: p. 10, defendant’s final submissions.

33.  Lines of defence very similar to (if not the same as) that invoked by the defendant herein have been discussed in 3 relatively more recent authorities in Hong Kong.  None of them have been referred to by the parties herein.

34.  The first (in time) of the said 3 authorities was the court of appeal decision in Wong Wai Hing and another v. Hui Wei Lee [2001] 2 HKLRD 736.  The plaintiff in that case sued the defendant for trespass (assault) and intimidation.  The wrongful acts in issue were those of the agents (not employees) engaged by the defendant to recover a debt from the plaintiff.  The trial judge found as facts that the defendant specifically instructed her agents only lawful means should be used to collect the debt and that many debt collectors operated lawfully in Hong Kong.  The appeal court allowed the appeal and held the defendant liable nevertheless.

35.  Some of the legal principles stated in the judgment in Wong Wai Hing are relevant to this action:-

(a)	vicarious liability imposed upon a principal for the acts of an agent who is not an employee is only imposed in special circumstances.  This is because the agent’s work, though done at the principal’s request, is considered as the independent function of the agent: para. 41, Wong Wai Hing citing Colonial Mutual Life Assurance Society Ltd. v. The Producers and Citizens Co-operative Assurance Co. of Australia Ltd. (1931) 46 CLR 41, 48;
(b)	however, whether the agent is truly acting as independent of the principal, or whether his acts are so intimately representative of the principal that the latter cannot be divorced from them, is at the end a question of fact: para. 42, Wong Wai Hing;
(c)	one exception to the above is the vicarious liability of vehicle owners; he will be liable for the driver’s act if the latter was driving as his agent: para. 44 and 120, Wong Wai Hing;
(d)	just as a principal can be liable for the fraud of his agent in negotiating a contract, a principal can be liable for defamation committed by his agent in the course of negotiating contracts of insurance because that is not regarded as an independent act, but as an act representative of the principal: para. 61 and 121-4, Wong Wai Hing citing Colonial Mutual Life Assurance;
(e)	generally, a master is vicariously liable for every wrong of a servant which is committed in the course of his service (though not necessarily for the master’s benefit) even though there is no express command: para. 49, 50 and 101-2, Wong Wai Hing citing Dyer v. Munday [1895] 1 QB 742, 746, Lloyd v. Grace Smith & Co. [1912] AC 716 (at p. 725) and Koorangang Ltd. v. Richardson & Wrench [1982] AC 462, 472-3;
(f)	where there has not been “holding out” of the employee by the employer, and where the employee’s act is not authorised, the employer should not be held liable: para. 58, Wong Wai Hing citing Koorangang at p. 473C;
(g)	if an agent has been put in a position where a person dealing with him is entitled to treat the agent’s act as that of his principal, the agent is regarded as acting within his ostensible authority even though in reality he is acting for his own benefit: para. 51 and 52, Wing Wai Hing citing Mavarro v. Moregrand Ltd. [1951] 2 TLR 674, 679-80 and para. 118-9, Wong Wai Hing citing Armagas Ltd. v. Mundogas SA [1986] 1 AC 717, 781E-782E (in relation to fraud of the employee).  The above statement should, however, be understood in the context of a master and servant relationship: para. 56, Wong Wai Hing;
(h)	the difference in treatment by the law between pure agents and employees is related to the difference in the degree of control exercisable by a principal as opposed to an employer (usually the latter has greater control): para. 56, Wong Wai Hing.

36.  The second authority was another court of appeal decision in Tullett & Tokyo International Ltd. v. APC Securities Ltd., CACV 201/2000 (21 March 2001).  That decision was about a claim arising from two contracts for purchasing two lots of grey market shares.  One defence raised was that the supposed defendant’s agent was in fact not an agent, but was merely acting for his own benefit.  The defendant was held liable for the contracts.

37.  In dealing with the defendant’s argument that the agent was acting on his own behalf and for his own benefit, the court of appeal in Tullett & Tokyo International Securities said:-

“The underlying premise of Mr Tong SC's submission [for the defence] in this regard is that actual authority cannot extend to acts which an agent performs for his own personal benefit; that the two are mutually exclusive. As a general proposition, it would not appear to be correct. A similar submission had been made in Mackay v Commercial Bank of New Brunswick (1874) L R 5 PC 394. In that case the Privy Council had to consider the liability of a principal for the fraudulent acts of his agent "acting within the scope of his authority." The meaning of that expression i.e. the scope of the agent's authority was discussed and Sir Montague Smith observed (at 411) :

‘... it may be generally assumed that, in mercantile transactions, principals do not authorize their agents to act wrongfully, and consequently frauds are beyond 'the scope of the agent's authority' in the narrowest sense of which the expression admits. But so narrow a sense ... would be opposed as much to justice as to authority. A wider construction has been put upon the words. Principals have been held liable for frauds when it has not been proved that they authorized the particular fraud complained of or gave a general authority to commit frauds : at the same time, it is not easy to define with precision the extent to which this liability has been carried.’

Sir Montague Smith went on to say that the best definition of the expression is to be found in Barwick v English Joint Stock Bank (1867) L R 2 Ex 259 at 266 :

‘In all these cases it may be said, as it was said here, that the master had not authorized the act. It is true, he has not authorized the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which that agent has conducted himself in doing the business which it was the act of his master to place him in.’

It is also clear from the speech of Lord Macnaghten in Lloyd v Grace, Smith and Co. [1912] AC 716 that he agreed with the approach adopted by Sir Montague Smith in the Mackay case. He rejected the narrow interpretation put on the scope of an agent's authority and (at 736) accepted the observations Wilde B made in Udell v Atherton (1861) 7 H. & N. 172 at 180 to the effect that fraud itself could fall within the actual authority of an agent.

Lloyd v Grace, Smith and Co. itself was a case of actual authority. There the managing clerk was authorised to receive deeds and carry through sales and conveyances and to give notices on the defendant's behalf. He took advantage of the opportunities so afforded him to get the plaintiff to sign away the properties she owned and pocketed the proceeds. Liability for the fraud of the agent is not dependent on whether the agent had actual authority or only apparent authority. As stated by Earl Loreburn LC (at 725):

‘... If the agent commits the fraud purporting to act in the course of business such as he was authorized ... to transact on account of his principal, then the latter may be held liable for it. ...’” (para. 30 and 31).

The court of appeal, after also referring to Koorangang, disagreed with the defence argument and rejected it.

38.  The last authority was the court of final appeal’s decision in The Ming An Insurance Co. (HK) Ltd. v. The Ritz-Carlton Ltd. [2002] HKCFA 42.  A hotel was held liable for the negligent driving of its staff who worked as a “car jockey”.  At the time of the traffic accident, however, (as the trial court found as a fact) the staff was not driving as a “car jockey” but for collecting night snacks for consumption by other hotel staff.

39.  In discussing an employer’s vicarious liability for his employee’s acts, the court of final appeal said:-

“For a long time, the English courts applied, and the Hong Kong courts following suit likewise applied, the test commonly called the Salmond test. … The Salmond test operates thus. Employers are liable for torts committed by their employees in the course of their employment. And an employee's tort is deemed to have been committed in the course of his employment if it is either (a) something authorised by his employer or (b) an unauthorised mode of doing something authorised by his employer” (para. 14).

The court then referred to a new test adopted by the House of Lords in Lister v. Hesley Hall Ltd. [2002] 1 AC 215 (which the court called the “close connection” test):-

“Under this new test, the question is whether the employee's tort was so closely connected with his employment that it would be fair and just to hold his employer vicariously liable” (para. 15).

40.  The court then expanded on the “close connection” test:-

“… I do not find the "unauthorised mode" limb of the Salmond test easy to understand …

… By " close connection" is meant a connection between the employee's unauthorised tortious act and his employment which is so close as to make it fair and just to hold his employer vicariously liable. I consider close connection to be an intellectually satisfying and practical criterion for vicarious liability. It imposes vicarious liability when, but only when, it would be fair and just to do so. And it provides a workable concept, namely a sufficiently close connection, for determining in each case whether doing so would be fair and just. The case before us is of negligent driving by an employee … ” (para. 18 and 19).

The ambit of the application of the “close connection” test was also discussed by the court:-

“…I note that the cases discussed in the speeches in Lister's case are by no means confined to cases of intentional wrongdoing. Certainly cases of vicarious liability for fraud (Lloyd v. Grace, Smith & Co. [1912] AC 716), theft (Morris v. CW Martin & Sons Ltd [1966] 1 QB 716) and misfeasance in public office (Racz v. Home Office [1994] 2 AC 45) are discussed. But so are cases of vicarious liability for negligence such as Canadian Pacific Railway Co. v. Lockhart [1942] AC 591, Ilkiw v. Samuels [1963] 1 WLR 991, Williams v. A & W Hemphill Ltd 1966 SC(HL) 31 and Rose v. Plenty [1976] 1 WLR 141” (para. 21).

41.  Finally, the court observed that the “close connection” test is inherently just and fair for all cases of tort committed by an employee while engaged in an act not authorised by his employer:-

“It would be odd if the employer ever escaped vicarious liability even though there was, or were ever fixed with vicarious liability even though there was not, so close a connection between the employee's tort and his employment as to make it fair and just to hold the employer vicariously liable. The concept is a simple one which ought not to be complicated by reading other requirements into it as a matter of law … the courts should openly confront the question of whether liability should lie against the employer, rather than obscuring the decision beneath semantic discussions of 'scope of employment' and 'mode of conduct'." The "close connection" test confronts that question in that way. There is no conclusive precedent to the contrary. And inadvertence cases, just as much as intentional wrongdoing cases, must not be obscured beneath semantics” (para. 24).

The court also gave the following caution:-

“I regard close connection as the basic criterion for vicarious liability in regard to all torts committed by an employee during an unauthorised course of conduct, whether intentional wrongdoing or mere inadvertence is involved. This is not to say that this criterion is to be treated like a statutory formula. Its application is always to be undertaken in context … ” (para. 25).

42.  There was also discussion of the application of the “close connection” test in an employment context:-

“Nowadays the concept of employment is not a narrow one, and it must be viewed broadly when applying the "close connection" criterion. As Lord Clyde said in Lister's case at p.234D, "in considering the scope of the employment a broad approach should be adopted". In regard to vicarious liability, the nature of the employment is not to be ascertained merely by attempting to tabulate the employee's duties. It is necessary to stand back to see how the employer's activities were actually carried out and how that exposed the public to the risk of tortious harm caused by the employee … ” (para. 27).

43.  The above legal principles, being pronounced by the higher courts, are of course binding.

Findings relating to Liability

44.  The improper conduct of Tsang relied upon by the plaintiff is as follows:-

(a)	Tsang wrongfully obtained HK$640,000 from the plaintiff for Tsang’s personal use;
(b)	in relation to HK$20,000 paid to the defendant’s firm through Tsang, Tsang wasted those costs by forging the related court documents;
(c)	not only did Tsang fail to properly conduct legal proceedings for the plaintiff, he used forged documents to deceive the plaintiff.

The gist of the plaintiff’s case on liability has been set out (at para. 5(a) to (c) above) above; namely, the defendant is vicariously liable; alternatively, he has failed to properly supervise Tsang, giving Tsang an opportunity to commit the above wrongful acts.

45.  There was a letter dated 24 November 1999 from the Law Society to the defendant.  The relevant part of this letter reads:-

“The Investigation Committee has considered [the plaintiff’s complaint] and it has been resolved … a letter of disapproval be sent to [the defendant] for lack of supervision over [Tsang], former clerk of the Firm, so that [Tsang] through deception and forgery obtained property from … [the plaintiff]”.

46.  A finding by the investigation committee of lack of supervision is of course not binding on this court.  It is in fact not even evidence of negligence, this being one of the ultimate questions which this court has to determine in this action.  Indeed, the defendant denied lack of supervision in his firm’s letter dated 10 December 1999 to the Law Society.

47.  However, what can assist the determination of liability in this action is (among other things) the letter dated 25 October 1999 (signed personally by the defendant) to the Law Society (“the defendant’s letter”).  The defendant’s letter was written in response to the plaintiff’s complaint to the Law Society and can be summarised as follows.

48.  It first refers to the plaintiff’s complaint and records that Tsang pleaded guilty to 6 charges and was sentenced to 2 years’ imprisonment.  The response to the plaintiff’s complaint was then set out.  The following are the parts relevant to this action:-

“[Tsang] has more than 25 years of experience as a solicitor’s clerk in Hong Kong.  He is very capable in certain areas of work.  As a result, I entrusted him with greater responsibility.  In particular, [Tsang] was permitted to conduct initial ‘filtering’ interviews with some prospective clients.  Thereafter, he was required to report to me and to seek my instructions as to whether the client would be accepted”;

“[Tsang’s] written work was always reviewed by me or … by another solicitor …  I have adopted a system whereby each morning I am given a copy of all outgoing correspondence from the previous day”;

“About once a month I give our filing clerk a list of files and ask her to bring them to me.  I review those files carefully. … ” (emphasis supplied).

49.  The undisputed facts show that Tsang in fact accepted the plaintiff as a client before this was known to the defendant; on 6 June 1997, he attended a conference with counsel and Ng.  For some unknown reason, the file in connection with the plaintiff’s claim was only opened on 14 June 1997.

50.  The defendant claims in his witness statement he was made aware of the conference by Tsang and he permitted Tsang to attend the conference:-

“in order [to] explore whether … [the defendant] should agree to accept a retainer” (para. 15, defendant’s witness statement).

According to the defendant, the next occasion on which he became aware of the plaintiff’s file was about half a year or more later: para. 19, defendant’s witness statement.  Even then, according to him, he only:-

“confronted Tsang and insisted that funds be obtained from the plaintiff to pay counsel’s fee”.

Thus, (implicitly at least) the defendant, through Tsang, accepted the plaintiff’s retainer.

51.  The first time the defendant personally arranged Ng to be attended to (other than by Tsang) was probably in February 1999 (in any event, after Tsang has been asked to resign).  It was from this, the defendant first became aware of Tsang’s dishonesty: para. 25, defendant’s witness statement.

52.  In view of the above circumstances, and for the following reasons, I am satisfied that the defendant should be held liable for Tsang’s wrongful acts both under the “close connection” test and the traditional Salmond test.

53.  First, Tsang has actual authority from the defendant to deal with the plaintiff.  As the defendant stated in his witness statement, Tsang at least has authority to conduct “initial filtering interviews with clients”.  However, Tsang in fact went further and opened a file on 14 June 1997 and continued representing the plaintiff in the legal action.  When the defendant discovered that about half a year later, according to him, he “insisted … funds be obtained … to pay counsel’s fee”.

54.  From these facts, and the fact that there was minimal supervision of Tsang (if any) in relation to the plaintiff’s file (until after Tsang’s resignation), I conclude that, at the time, Tsang was effectively authorised to represent the defendant in relation to the plaintiff’s litigation and all related matters, including demanding for legal fees.

55.  Alternatively, even if there had not been actual authority, by virtue of the same factual circumstances, there has been a “holding out” by the defendant so that the plaintiff was entitled to consider Tsang’s deeds were acts representative of the defendant.  Hence, it is just and fair the defendant be held liable for Tsang’s misdeeds.

56.  Similarly, for the same reason, applying the “close connection” test, this is a case where Tsang’s wrongful acts were so closed connected to his employment that it is fair and just to hold the defendant vicariously liable.

57.  In other words, I find the defendant liable on the grounds of vicarious liability and breach of contract: see para. 5(2) and 5(3) above.  The nature and extent of his liability under these grounds is very probably the same.

58.  In view of the above conclusion, it is unnecessary to consider the detailed heads of allegations put forth by the plaintiff (set out in para. 16 above) in support of his case in negligence.  Insofar as it may be necessary to make any finding on this issue, I am satisfied that there has been negligence on the defendant’s part on the basis that his supervision over Tsang has fallen below what one can expect from a reasonably prudent solicitor.  I so conclude taking into account, in particular, the lack of evidence on proper supervision by the defendant, for example, as regards the opening of client’s file and what work has been done and/or legal fees have been collected, in relation thereto, over a relatively lengthy time period (from about June 1997 to about February 1999).

59.  In short, I also find against the defendant as regards his liability for negligence: see para. 5(1) above.

Quantum of Loss

60.  The relevant legal principles relating to quantum of damages can be summarised as follows.

61.  In relation to damages recoverable for professional negligence, before considering questions of remoteness or causation, it is necessary to determine the scope of the duty which was breached: Jackson & Powell on Professional Negligence (2002) 5^th Ed., para. 3-02.

62.  A common feature of professional negligence litigation is that the court must determine what course events would have taken if the defendant had properly discharged his professional duty:-

“… If given competent treatment [by a medical practitioner], would the patient have recovered?  If given competent advice [by a professional adviser], would the client have taken the lease?  If proceeding had been started within the limitation period … , what damages would the claimant have recovered? … ” (Jackson & Powell, para. 3-05).

In this respect, the following general principles have been set out in Jackson & Powell:-

(a)	where the question is what the claimant would have done, if the defendant had given competent advice or had otherwise acted competently, this is determined by the court on the balance of probabilities.  Damages are then assessed on that hypothesis without any discount to reflect the possibility that the claimant might have acted differently;
(b)	where the question is what some third party would have done, if the defendant had performed competently, damages are assessed on a “loss of a chance” basis.  The court must consider what are the chances that the insurers would have paid out; or that the “other side” would have yielded; or that the judge in the original act would have found for the claimant on liability.  The damages must then reflect the value of this chance which has been lost;
(c)	the medical negligence cases fall into a different category;
(d)	the courts have not been entirely consistent in their approach to a claim for the refund of professional fees paid earlier when the professional person has been found negligent.  The first matter to consider is the nature of the contract between the parties.  A solicitor’s retainer to bring or defend an action is usually an entire contract.  In any event, Jackson & Powell opined that, where the negligence renders the professional services valueless, the fees should be refunded and vice versa.  The more problematic area is whether there is an intermediate band of cases and, if so, how they should be determined

(Jackson & Powell, para. 3-05 and 3-06 to 3-07).

Heads of Claim

63.  The plaintiff’s claim has been summed up in para. 1 (a) to 1(i) and 2(1) and 2(2) above.

64.  The gist of its claim is as follows.  The heads of loss set out in para. 1(b) to 1(d), 1(i) and 2(1) and 2(2) above are suffered because the plaintiff’s right to litigate has been delayed for 26 months (from 22 December 1996 to 2 March 1999).  As a result:-

(a)	Law emigrated to the US in September 1997 and he transferred or sold his assets before he did so;
(b)	the German supplier was declared bankrupt in December 1997 because it owed the government tax in the sum of DM800,000.

Consequently, the plaintiff is now prevented from successfully recovering its various losses from Law and/or the German supplier.

65.  The heads of claim set out in para. 1(e) and 1(f) above relate to sums paid to Tsang earlier by way of legal fees should be repaid to the plaintiff because no services have been rendered by the defendant.

66.  The loss summed up in para. 1(g) above (HK$220,000) is said to be expenses incurred for Ng’s 11 trips to Germany.

67.  The plaintiff suffered the loss set out in para. 1(a) above because the defendant’s firm changed its name to Messrs. Clarke & Kong and another legal action has to be commenced naming the new firm as the defendant therein.

68.  The above heads of claim will be discussed under separate sub-headings below.

(a)  The Plaintiff’s Commercial Loss

69.  Included under this head are:-

(a)	price of goods (HK$4,084,342.39): para. 1(b) above;
(b)	payment to Law as Law’s commission and co-operation fee (HK$165,000): para. 1(c) above;
(c)	storage charges for equipment stored in Wuhan (HK$250,000): para. 1(d) above.

70.  This head of claim is in the nature of economic loss.  Further, the plaintiff could have sought these sums from Law and/or the German supplier, based on the various allegations against them including breach of the sale contract and misrepresentation.

71.  As stated above, the basis of this part of the plaintiff’s claim is that the defendant’s negligence (and/or Tsang’s wrongful acts) resulted in a delay in the commencement of its legal action against Law and/or the German supplier.  The delay was allegedly about 26 months (up to March 1999).

72.  The defendant argues that this loss was rather caused by the plaintiff’s unwise action or inaction in not pursuing its claim against Law and/or the German supplier to the end.  With respect, I disagree with this argument.  From the time when Law emigrated and Jaust became bankrupt, it would not be reasonable to expect the plaintiff to continue legal action against them.  This is because, in all probabilities, such course would (at the most) only result in an empty judgment.

73.  This loss is not based on the loss of an opportunity to bring legal proceedings as a matter of law (for instance, a failure to commence legal action within the limitation period).  It is rather based on the disappearance of Law and the German supplier: Law emigrated in September 1997; the German supplier was declared bankrupt in December 1997.  What the plaintiff is in effect asserting is, as a matter of practicality, it is impossible to recover the sums claimed herein from Law or the German supplier.

74.  In relation to Law, the plaintiff contends that the period of delay should run from December 1996, when he first paid Tsang.  Even if that contention be accepted, the period of delay was about 9 to 10 months up to Law’s emigration in September 1997.

75.  No doubt it is within the defendant’s scope of duty to commence and pursue legal actions for the plaintiff in a timeous manner.  However, in the factual context of this action, I cannot be satisfied that a delay of about 9 to 10 months was the effective cause of the plaintiff’s inability (as a matter of practicality) to seek damages from Law.  Law would very probably still have emigrated in September 1997 even if the defendant had performed his professional duty to commence and continue the legal action.  It is unlikely the litigation could be ended before then.

76.  The same reasoning applies to the claim against the German supplier (although the bankruptcy of Jaust took place slightly later than Law’s emigration).  In addition, I agree with the further argument that the plaintiff was (or, at least, should reasonably have been) aware that no legal action had been commenced in Hong Kong against Jaust by December 1997.  It can be inferred that the plaintiff had no complaint against this at the time.  In any event, the plaintiff could have taken (but did not take any) alternative courses of action; for example, engaging another solicitors firm to commence legal action either in Hong Kong or in Germany.

77.  Quite some time has been spent by the defendant in cross-examination and final submissions on the strength of the plaintiff’s intended claim against Law and the German supplier.  In short, the defendant contends that the plaintiff’s intended claim against them is unlikely to succeed.  Because of the conclusion reached above, I do not find it necessary to deal with this aspect.

78.  For the reasons set out above under this sub-heading, I am not satisfied that Tsang’s misdeeds and/or the defendant’s negligence was/were the effective cause of the plaintiff’s loss relating to the amount of loss allegedly suffered by its customers in Wuhan (HK$10,150,820.42): para. 2(2) above.  The same comment applies to the plaintiff’s alleged investment loss and loss of customers in the Mainland.

79.  The plaintiff’s claim set out in para. 1(b) to 1(d), the last sentence of para. 1 and 2(2) above are therefore dismissed.

80.  In relation to the claim for nominal damages for the plaintiff’s loss of goodwill (para. 2(1) above), it is unclear if that loss is said to arise from Tsang’s misdeeds per se, or whether it is said to arise in the same way as that set out in para. 1(b) to 1(d) and 2(2) above.

81.  Insofar as the loss set out in para. 2(1) above is said to arise in the same way as that set out in para. 1(b) to 1(d) and 2(2) above, it is dismissed for the same reasons set out under this sub-heading.

82.  Insofar as that loss is said to arise from Tsang’s misdeeds per se, I agree with the defence that this is an untenable claim and it is dismissed for that reason.

(b)  Payments to Tsang on Account of Legal Fees

83.  This head of claim includes:-

(a)	legal fees paid to Tsang during the period from December 1996 to March 1999 (HK$640,000): para. 1(e) above;
(b)	legal fees paid to Tsang in relation to HCA 17330/1998 (HK$20,000): para. 1(f) above.

84.  The defendant handed in a document headed “Position Statement of the Defendant” at the beginning of the trial (“the position statement”).  He states therein that he accepts responsibility for repaying to the plaintiff payments actually made by the plaintiff to Tsang: para. 1 to 3 and 5 thereof.

85.  The total sum which the plaintiff claims has been received by Tsang is HK$660,000.  It is unclear from the position statement the precise extent of the defendant’s accepted responsibility.  The defendant appears to accept responsibility for HK$20,000 (for which a receipt has been issued).  He says in the position statement:-

“… [the defendant] accepts responsibility for such amount of payments as the Plaintiff can prove to the satisfaction of this Court … ” (para. 5 thereof) .

But, in relation to the remaining HK$640,000, the position statement also states:-

“Tsang had admitted taking only two sums of HK$20,000 [responsibility for which has been accepted (see above)] and HK$30,000 and a sum of not more than HK$80,000 from [Ng]” (para. 3(b) thereof).

86.  It would therefore appear, out of the total claim of HK$660,000 under this heading, the defendant admits a total of HK$130,000 has been received by Tsang (and therefore his firm).  I will treat the remaining HK$530,000 (660,000 – 130,000) to be a disputed claim.

87.  As stated above, I accept Ng’s testimony is truthful and reliable in this respect.  I am satisfied that the plaintiff has paid the sums claimed to Tsang, as the defendant’s agent.  Even if the defendant had in fact only admitted liability to repay HK$20,000 (and no more), by virtue of the above finding of fact, I would still have found him liable for the whole sum claimed by the plaintiff.

88.  In the defendant’s final submission, it is stated that:-

“… The $20,000 consisted of $12,000 being disbursement of counsel’s fees and $8,000 being the firm’s fees for work done … [The plaintiff] does not seem to dispute that such fees were [proper] … ”: para. 7 thereof.

89.  It is unclear if the defendant is asserting that, since the sums were properly incurred, the plaintiff is not entitled to recover them.  By virtue of the position statement, I do not think he is making that assertion.  In case he is, I find that the services rendered were valueless.  The sums should be recoverable by the plaintiff.

90.  Accordingly, judgment in the sum of HK$660,000 is entered against the defendant.

(c)  Ng’s Travelling Expenses

91.  This head of claim is set out in para. 1(g) above (HK$220,000).  This is said to be expenses for Ng’s 11 trips to Germany to pursue the plaintiff’s claim against Jaust.

92.  I do not consider there is any valid basis for seeking this sum from the defendant.  First, there is no causal link between the need to incur this sum and Tsang’s misdeeds and/or the defendant’s negligence.  Moreover, in all probabilities, this sum will need to be incurred in any event.

93.  The claim set out at para. 1(g) above is dismissed.

(d)  Mental Distress

94.  This is the claim for HK$19,918,753.41: para. 1(i) above.  I agree with the defence that the plaintiff, being a limited company, is incapable of suffering from mental distress.  There is also no evidence to show that medically diagnosable mental distress has been suffered.

95.  The claim set out in para. 1(i) above is consequently dismissed.

(f)  Legal Fee paid to Messrs. SY Chu & Co.

96.  This is a claim for HK$30,000: para. 1(a) above.  I agree with the defence that the wasted legal fee could not be attributed to the defendant.  The defendant could decide the manner in which he should carry on his practice.  There is no evidence that the change(s) in the firm name was/were intended to confuse or mislead the plaintiff.

97.  It is therefore the plaintiff’s own fault in erroneously commencing HCA 1279/2000 against Messrs. Clarke & Kong.

98.  This head of claim is dismissed.

(g)  Interest

99.  It appears quite arguable interest on the judgment sum should run at least from the date of writ to the date of judgment at judgment rate.  I will make an order to this effect if none of the parties applies within 14 days from the date of judgment for some other basis for calculating interest.

Other Matters

100.  Perhaps it is due to the plaintiff acting in person through Ng, a lot of matters which are irrelevant to the issues in this action have been raised in various documents and at trial.  Although these matters have not been expressly referred to above, I have considered them.  Some of these matters are contained in a Chinese document supplied by the plaintiff headed “Opening”.  Further, some of the matters stated in that document have not been pleaded by the plaintiff.  Objections have been raised by the defence as a result.  The plaintiff very sensibly agreed at the beginning of the trial not to pursue the matters objected to by the defence.

Costs Order Nisi

101.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this action be paid by the defendant to the plaintiff to be taxed if not agreed.