NEW MOON LTD AND OTHERS v. HAU, LAU, LI & YEUNG (a firm)

HCA 568/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 568 OF 2011

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J U D G M E N T

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1.  The 1^st Plaintiff (“New Moon”) was the registered owner of a shop known as Shop G on Ground Floor, 50 Wan Chai Road, Hong Kong (“the Wan Chai Shop”).  On 4 June 2008, the 3^rd Plaintiff (“Tse”), a director and the sole shareholder of New Moon, entered into a provisional agreement (“the Provisional Agreement”) on behalf of New Moon to sell the Wan Chai Shop to a purchaser (“the Purchaser”) at the price of HK$16,380,000.

2.  The Defendant was the solicitors instructed to act for New Moon in the sale of the Wan Chai Shop pursuant to the Provisional Agreement.

3.  In the conveyancing of the Wan Chai Shop, requisitions were made by the solicitors[1] (“H&M”) for the Purchaser including, among others, matters concerning a Warning Notice[2] issued by the Buildings Department in respect of certain illegal structures[3] (“the Illegal Structures”) in the Wan Chai Shop.

4.  On 27 August 2008, which was also the date stipulated for completion of the sale under the Provisional Agreement, the Purchaser issued a vender-purchaser summons[4] (“the VP Summons”) on the grounds that New Moon failed to answer requisitions on title.  The Defendant was also instructed to act for New Moon in the VP Summons.

5.  In settlement of the VP Summons, New Moon and the Purchaser entered into a cancellation agreement on 23 December 2008 whereby the sale of the Wan Chai Shop was cancelled with the deposits received by New Moon to be returned to the Purchaser, and New Moon was to pay a further sum of $35,000 to the Purchaser.

6.  On 24 March 2009, New Moon sold the Wan Chai Shop to another party for a lower price of HK$14,300,000.

7.  By this action, the Plaintiffs claim against the Defendant for professional negligence as solicitors acting for New Moon and Tse.

8.  The 2^nd Plaintiff (“Money Taker”) was a company beneficially owned by Tse as its sole shareholder.  On 16 July 2008, Money Taker agreed to purchase a shop situate at To Kwa Wan (“the TKW Shop”) and paid a deposit of HK$1,330,000 to the vendor.  It is the plaintiffs’ case that Tse and Money Taker failed to complete the purchase of the TKW Shop for lack of funds due to the cancellation of the sale of the Wan Chai Shop.  Tse and Money Taker claim against the Defendant for damages including the deposit forfeited by the vendor of the TKW Shop.

The Plaintiffs’ case

9.  The Plaintiffs’ case as pleaded in the Amended Statement of Claim (“ASOC”) is much wider than what was actually pursued at trial.

10.  In the ASOC, the alleged negligent acts committed by the Defendant are pleaded in multifold, which includes failure to satisfactorily answer various requisitions; failure to properly draft the formal Sale and Purchase Agreement; failure to advise or warn about the Warning Notice; failure to guard against the falling through of the formal Sale and Purchase Agreement; and also failure to advise regarding the VP Summons.

11.  At trial it became apparent that the Plaintiffs no longer relied on most of the complaints. In his closing submission, Mr Patrick Chong, counsel for the Plaintiffs, acknowledged that the only material issue remained was whether the Defendant has delayed in advising New Moon or Tse on how to deal with the Warning Notice, in particular, to remove the Illegal Structures.

12.  On the other hand, the Plaintiffs sought to introduce new complaints within the issue regarding the Warning Notice.  They alleged that the Defendant has delayed in advising to offer to stake-hold part of the purchase price pending demolition of the Illegal Structures and that the Defendant has without the Plaintiff’s instructions issued a letter to withdraw the request for extension of 14 days for completion.

13.  As submitted by Mr Frederick Chan, counsel for the Defendant, this court should not entertain such pleas as they are neither pleaded in the Amended Statement of Claim nor mentioned anywhere in Tse’s witness statement, who is the only witness for the Plaintiffs in this trial.

Defendant’s contentions

14.  The Defendant denies having delayed in giving advice to Tse or New Moon on the Warning Notice.  In particular, they have advised Tse or New Moon to demolish the Illegal Structures in good time before the scheduled completion.

15.  Moreover, the Defendant challenges Tse’s and Money Taker’s locus to sue as neither of them was the client of the Defendant.  Tse can also not claim against the Defendant for loss suffered by New Moon as its shareholder.

16.  Further, any loss as a result of the cancellation of the purchase of the TKW Shop was reflective loss of Money Taker which Tse or New Moon is not entitled to claim under the law.

17.  In any event, the complaints of the Plaintiffs against the Defendant are far short of what is required to constitute professional negligence in law.

Basic facts

18.  Tse was an experienced and active investor in landed properties in Hong Kong and had been a shareholder of an estate agency company[5] of some scale.  He was the registered owner of a number of properties and the director of not less than 5 other companies used for the sale and purchase of properties.

19.  Prior to the purchase of the Wan Chai Shop, Tse had engaged the Defendant to represent him or his companies in at least 20 other conveyancing transactions.

20.  By a provisional agreement for sale and purchase dated 24 March 2005, New Moon purchased the Wan Chai Shop from Fortune Door Profits Limited (“Fortune Door”) and the Wan Chai Shop was assigned to New Moon under an assignment dated 28 June 2005.  New Moon was also represented by the Defendant in that transaction.

21.  On 21 September 2006, the Building Authority (“BA”) issued a warning notice[6] under section 24C(1) of the Buildings Ordinance, Cap 123 (“the Ordinance”),  requiring the demolition of the Illegal Structures.  Nevertheless, it was wrongly addressed to Fortune Door and was not registered in the Land Registry.

22.  On 2 October 2007, New Moon entered into a 3-year lease of the Wan Chai Shop to a meat company (“the Tenant”).  The Tenant was licensed by the Food and Environmental Hygiene Department to operate a shop to sell “fresh pork and prepackaged fresh pork”.

23.  On 20 February 2008, the BA issued the Warning Notice to replace the one issued on 21 September 2006 in respect of the Illegal Structures.  The Warning Notice imposed a deadline of 19 April 2008 for New Moon to demolish the Illegal structures.

24.  On 4 June 2008, New Moon signed the Provisional Agreement to sell the Wan Chai Shop to the Purchaser. The Defendant was named as the solicitors representing New Moon.

25.  On 11 June 2008, the Warning Notice was registered by the BA in the Land Registry against the Wan Chai Shop.

26.  On 14 June 2008, H&M requested the Defendant to provide copies of all building orders, compliance letters and warning notices concerning the Wan Chai Shop.  The Defendant sent 2 copies of the letters of compliance on building orders by fax on 18 June 2008 and provided a copy of the Warning Notice on 9 July 2008.

27.  Formal sale and purchase agreement for the sale of the Wan Chai Shop was signed on 11 July 2008.

28.  By a letter dated 16 July 2008, H&M raised various requisitions on the Wan Chai Shop.  On the same day, Money Taker signed a provisional sale and purchase agreement to purchase the TKW Shop.

29.  On 15 August 2008, the Defendant replied to H&M’s requisitions.  Thereafter, there were exchanges between the Defendant and H&M regarding the requisitions and answers which culminated into the VP summons taken out by the Purchaser on 27 August 2008.

30.  On 1 September 2008, the Defendant was retained to represent New Moon in the VP Summons.  

31.  On 23 October 2008, the BA issued a letter to New Moon to withdraw the Warning Notice and the letter was registered in the Land Registry on 22 December 2008.  It is the Plaintiffs’ case that the Illegal Structures were removed by the Tenant shortly before or after the scheduled completion date.  However, there is no evidence on the exact date.

32.  The purchase of the TKW Shop was cancelled on 28 November 2008.

33.  On 5 January 2009, New Moon concluded a compromise with the Purchaser under the VP Summons and called off the sale of the Wan Chai Shop.

34.  On 24 March 2009, New Moon sold the Wan Chai Shop at a lower price.

35.  On 31 March 2011, the Plaintiffs issued the present proceedings against the Defendant.

Evidence

36.  Tse is the only witness giving evidence for the Plaintiffs.

37.  There are altogether 6 witnesses for the Defendant, namely Chan Mei Har Miriam (“Miriam”), Mok Yau Sang Nelson (“Nelson”), Choi Ka Man (“Carmen”), Hau Wun Fai (“Hau”), Li Siu Fung (“Li”) and Yeung Wai Hung (“Yeung”).

38.  Hau, Li and Yeung are and were at the material times partners of the Defendant.  Li and Yeung were in charge of the litigation department of the Defendant and they were involved in handling the conveyancing of the Wan Chai Shop, albeit not as much as Miriam, Nelson and Carmen.  Hau was involved at a later stage when the Defendant was retained to advise Tse on the VP Summons.

39.  Miriam was a legal executive in the conveyancing department of the Defendant in the periods from 1992 to 1996 and from December 2000 to March 2010.  She was responsible for handling the conveyancing of the Wan Chai Shop.  At the time of this trial, she is no longer an employee of the Defendant.

40.  Nelson was a legal clerk employed by the Defendant during the period between February 2002 and June 2010.  His main duty was to liaise with clients and at the material times, he was the person responsible for liaising with Tse on behalf of the Defendant.

41.  Carmen was a trainee solicitor of the Defendant.  She assisted Miriam in handling the conveyancing of the Wan Chai Shop.  At the time of this trial, Carmen is employed as a solicitor by the Defendant.

42.  Tse and the Defendant’s witnesses gave different versions of facts in relation to the giving of advice on the Warning Notice by the Defendant.  Their evidence was different in respect of the time when Tse was informed of the existence of the Warning Notice and when he was advised to remove the Illegal Structures. 

43.  Miriam and Carmen produced a number of attendance notes allegedly recording the advice given to and the instructions received from Tse at the relevant time.  Tse contends that they are not genuine records and suggests that the attendance notes are recent inventions.

44.  In this judgment, I shall only set out those parts of the evidence which are material to resolving the issue on the Warning Notice.

Tse’s evidence

45.  According to Tse, he bought the Wan Chai Shop in the name of New Moon subject to the Tenant’s tenancy.  The Tenant had been very cooperative throughout in that in early 2008 he has once requested the Tenant to remove certain illegal structures in the Wan Chai Shop and the Tenant demolished it at his own expense.

46.  At the time of signing the Provisional Agreement, he was not aware that the BA had issued a warning notice on 20 February 2008 in respect of the Illegal Structures.  Should he or the Purchaser have had knowledge about the said warning notice they would have included it in the clause concerning illegal structures and building orders in the Provisional Agreement.

47.  In his witness statement, Tse stated that the first time he learnt about the Warning Notice was in about late July or early August 2008 when he was informed of the same by either Nelson or Carmen.  On that occasion he was not advised as to what he should do about it.  Nelson or Carmen just said they would deal with it and talk to the other side.  At that point of time Tse has never encountered a warning notice before.

48.  It was not until about 8 to 10 days before the scheduled completion date that Nelson called him and told him he should demolish the Illegal Structures as soon as possible.  He told Nelson that there might not be enough time to remove the Illegal Structures before completion and queried why Nelson gave this advice so late. Nelson told him to talk to the Tenant and liaise with the BA for removal of the Illegal Structures.

49.  After hearing Nelson’s advice, he immediately telephoned the BA to enquire whether the BA would be able to withdraw the Warning Notice if the Illegal Structures were to be removed immediately.  However, an officer of the BA replied that the BA could not do so given such a time frame.  He made an appointment with the BA to attend a site visit to confirm what exactly was required to be demolished.  He then contacted the Tenant and informed the Tenant about the appointment with the BA.  The Tenant was cooperative and expressed that he would demolish any illegal structure as directed by the BA.

50.  He then reported back to Nelson about his communication with the BA and told him the Tenant agreed to demolish the Illegal Structures.  He asked Nelson whether it would be possible to propose to the Purchaser that an amount of $20,000 to $30,000 of the purchase price be withheld by H&M pending removal of the Illegal Structures by the Tenant.  Nelson said he would ask H&M but to Tse’s surprise, as he later found out, that Nelson or anyone from the Defendant did not make the proposal to H&M until one day before the completion date.

51.  A few days later, Tse attended the Wan Chai Shop with an officer of the BA and the officer identified the Illegal Structures in the presence of the Tenant.  The Tenant agreed to demolish them but he needed some time to look for a contractor to carry out the works.  The officer mentioned that Tse could make another appointment with the BA for inspection once the demolition works were completed.  Tse reported what was happened to Nelson.

52.  On 27 August 2008, Nelson called Tse and informed him that the Purchaser challenged the title of the Wan Chai Shop and had commenced legal proceedings.  Tse was shocked as he thought the Defendant had sorted everything out for him.  He was asked to attend the Defendant’s office and there he met a number of persons from the Defendant including the partners.  That was the first time he met or heard from a qualified lawyer of the Defendant concerning this matter.

53.  On 1 September 2008 Tse met the people from the Defendant again and they explained to him about the proceedings brought by the Purchaser.  He was told that as long as one of the requisitions could not be satisfactorily answered he would lose the litigation.  Hau advised him that he should seriously consider settling the matter.

54.  On 12 September 2008 they met again and came up with proposals for settlement.  In the end, the Purchaser and New Moon settled the VP Summons with the terms as referred to in paragraph 5 hereinabove.

55.  Concerning the TKW Shop, as at 10 September 2008, Tse had altogether paid deposits of $1,330,000 to the vendor.  When he instructed the Defendant to act for him in this transaction, he has told Nelson that he would need the proceeds of sale of the Wan Chai Shop to complete the purchase of the TKW Shop.  As the sale of the Wan Chai Shop was aborted, he did not have sufficient money to complete the purchase of the TKW Shop and the deposits paid had been forfeited by the vendor.

Defendant’s evidence

56.  As mentioned, the conveyancing of the Wan Chai Shop was mainly handled by Miriam, Nelson and Carmen, with Li and Yeung supervising.

57.  Miriam was responsible for handling documentary works, Nelson was to liaise with Tse and Carmen was to deal with the requisitions.  Subject to a few minor points their evidence was on the whole consistent with each others. 

58.  There were however material differences between their evidence from that of Tse regarding the giving of advice on the Warning Notice.

59.  Firstly, according to Tse, the first time he learnt about the Warning Notice was about late July or early August 2008 when he was informed by either Nelson or Carmen.  On the other hand, in the evidence of Miriam and Nelson, Nelson had on 16 June 2008 telephoned Tse to discuss about the Warning Notice and in the conversation Tse said he would discuss the matter with the Tenant and the BA. 

60.  Secondly, it was Miriam, Nelson and Carmen’s evidence that Tse mentioned that the Tenant was unwilling to demolish the Illegal Structures.  Nelson said Tse told him about this in or before early July 2008 and Carmen said she asked Tse on 11 August 2008 whether the Tenant agreed to remove the Illegal Structures and Tse replied no.  On the contrary, Tse said in his evidence that the Tenant all along agreed to demolish it at his own expense.

61.  Thirdly, Nelson said he had advised Tse, as early as on 10 July 2008, that the Purchaser can refuse completion if the Illegal Structures were not demolished before completion. Carmen said she had in a telephone conversation with Tse on 11 August 2008 advised Tse that the Purchaser can refuse completion because of the Warning Notice but Tse did not agree.  In Tse’s evidence, it was not until about 8 to 10 days before the scheduled completion date that Nelson called him and told him that he should demolish the Illegal Structures as soon as possible.

62.  I shall resolve the above differences later in this judgment.  In my view, if the Defendant’s version of facts is to be preferred, the Plaintiffs shall fail to establish any negligent acts on the part of the Defendant.  

63.  It was also Miriam’s evidence that she had telephoned the BA on about 16 June 2008 to enquire about the Warning Notice.  In the telephone conversation, she was informed by the BA that the Tenant had approached them before to enquire whether the Illegal Structures should be removed.  The Tenant told them that he did not intend to remove the Illegal Structures as he was afraid that intruders would be able to enter the Wan Chai Shop easily had it been removed.  The BA said to Miriam that as they agreed with the Tenant’s security concern they decided only to issue a warning notice instead of a building order in respect of the Illegal Structures.

64.  Miriam produced a handwritten note dated 16 June 2008 recording the above conversations with the BA.  On the handwritten note, Miriam also wrote as follows:

“Actually, we had advised client to deal with the matter whether remove the same or not with the tenant and the purchaser together, in order to settle the queries from the purchaser’s solicitors.”

65.  Carmen also produced a notebook and the typed out attendance notes apparently recording the conversations between Tse and her during the relevant time.  In particular, the telephone conversation between her and Tse on 11 August 2008 mentioned above was recorded in some details.

Discussion on the evidence

66.  The Plaintiffs rely solely on the verbal evidence of Tse, which was originated from his memories. On the other hand, the Defendant has three witnesses giving similar evidence with contemporaneous records to support.

67.  Regarding Tse’s evidence, he did not impress me as a forthright witness as he appeared in the witness box.  Not infrequently, he altered his evidence in response to Mr Chan’s questions in cross-examination.

68.  Tse’s proposition is that Nelson did not tell him about the existence of the Warning Notice until at least late July and he was not advised of the necessity to demolish the Illegal Structures until 8 to 10 days before completion.  In my view, such proposition is in itself improbable.

69.  It was quite clear in the evidence that Miriam and Nelson learnt about the Warning Notice as early as on 16 June 2008 and there has been many communications between Nelson and Tse from then to late July.  There should be no reason why Nelson would choose to refrain from mentioning the Warning Notice to Tse, while in the mean time taking instructions from Tse regarding many other requisitions. 

70.  Tse agreed that Nelson has called him to ask for a number of documents and he has provided Nelson with a few documents on 17 June 2008.  Nelson contacted Tse as a result of the requests of H&M for a list of documents in relation to building orders and the Warning Notice which was specifically said to be registered in the Land Registry on 11 June 2008.  For what reason would Nelson tell Tse about the building orders only but not mention at all the Warning Notice in the telephone conversation on 16 June 2008, or the meeting on 17 June 2008? 

71.  Furthermore, Tse’s present position is contradictory to what his then solicitors (“Messrs Ivan Tang”) expressed in 2009.

72.  In a letter dated 29 September 2009, Messrs Ivan Tang wrote to the Defendant as follows regarding when Tse was informed of the existence of the Warning Notice:

“Our client instructed that at all the material times, except shortly prior to Completion, our client was not advised of the said Notice under the Buildings Ordinance, Cap. 123. It was only at a very late stage that our client was told by you that there has been such Notice and the then purchaser refused to complete on that ground.”

73.  By a letter dated 15 October 2009, the Defendant gave a rather detailed reply on this particular point, stating that they have informed Tse about the Warning Notice as early as on 16 June 2008:

“3. On or about 16 June 2008 we called Mr. Tse of New Moon Limited and informed him about the request of Messrs. Hobson & Ma. We asked Mr. Tse of New Moon Limited whether he had in his possession the Notice. Mr. Tse said that he did not receive the Notice. We suggested to Mr. Tse that as the Building Authority’s notice should normally be delivered to the Property’s address, he should contact the tenant of the Property to confirm whether the Notice was sent to them. We also advised Mr. Tse that as the Notice had not been mentioned in the Provisional Agreement, Mr. Tse should discuss with the tenant of the Property and the Building Authority to confirm how to deal with the Notice. Mr. Tse said he would contact the tenant and the Building Authority.”

74.  On 23 November 2009, Messrs Ivan Tang faxed an undated letter to the Defendant and admitted therein Tse has been informed of the Warning Notice as alleged by the Defendant:

“In respect of Paragraph 3 of your letter, Mr. Tse of our client confirmed that your esteemed firm has notified him regarding the existence of the Notice, Mr. Tse of our client informed Mr. Nelson Mok of your esteemed firm that he was unaware of such Notice. According to our client’s record, at that stage there is no enlightenment from you regarding the whereabouts of the Notice, in particular, your asserted advice to contact the tenant.”

75.  When confronted with these letters in cross- examination, Tse appeared to be surprised and said he did not personally know what Messrs Ivan Tang said to the Defendant on his behalf. This explanation is hardly convincing.

76.  Regarding the attendance notes of Miriam and Carmen, Mr Chong suggested that they are recent inventions.  This is a serious allegation against legal professionals.  It is trite that this court should not lightly accept this kind of allegations without the backing of cogent evidence.

77.  Mr Chong submitted that it is unnatural for Miriam to use the word “Actually” in the second paragraph of her attendance note, bearing in mind that at that initial stage there was no concern that the transaction might fall through.  Further, some of the matters she said Nelson has told her was not recorded in the attendance note.  And more importantly, Miriam’s evidence on when she made the attendance note is contradictory to Nelson’s evidence as Nelson said he did not tell her about his conversation with Tse until 17 June 2008 and as such, the attendance note could not have been made on 16 June 2008 as testified by Miriam.

78.  With respect to Mr Chong, I do not find the above sufficient to persuade me Miriam has fabricated the attendance note.  The difference in Nelson’s and Miriam’s evidence may due to a mistake made by either one.  It is not unusual that not all contents in a conversation are included in an attendance note.  Also, the choice of the word “Actually” can show nothing more than the author’s style.  When weighing these suggested imperfections against the improbability that Miriam, a legal executive who was responsible only for the documentary works in the transaction (and now not in the employment of the Defendant), would risk herself to the dire consequences for fabricating evidence in a litigation which she has no direct interest in, the balance obviously tilt to the attendance notes being genuine.

79.  Mr Chong spent considerable time in cross-examining Carmen on her notebook and the corresponding typewritten attendance notes.  According to Carmen, the notes recorded on her notebook are contemporaneous records of telephone conversations and conference minutes and she typed out those records in 2009 and 2011 respectively as the attendance notes.

80.  The main thrust of Mr Chong’s cross-examination is on some handwritten words jotted down by Carmen on a letter from H&M dated 23 August 2008, which read as follows:

“talked to client on Thursday.

client is arranging BA officer to go to the site (together with Tenant) to identify the works to be done to comply.”

81.  It is Carmen’s evidence that those words (together with other notes written on the same letter) were put down in the course of her preparation of a reply letter to H&M, which was later sent out on 25 August 2008.  It is therefore Mr Chong’s submission that Tse must have informed Carmen or Nelson before 25 August 2008 that the Tenant agreed to demolish the Illegal Structures, otherwise Carmen would not have noted down that Tse was arranging the BA officers to go for a site visit together with the Tenant.  As such, the purported telephone attendance note dated 26 August 2008 must be a fabrication in that it recorded that the Tenant has agreed to remove the Illegal Structures and according to Carmen that was the first time she learnt about the agreement of the Tenant to demolish the Illegal Structures.

82.  Besides, in Carmen’s evidence the “Thursday” referred to in the handwritten words was 21 August 2008.  Mr Chong submitted that the purported telephone attendance note dated 21 August 2008 must not be genuine as it did not record anything about Tse arranging the BA officer to go for a site visit together with the Tenant. Instead, it was recorded on the 25 August 2008 attendance note and that attendance note must also be fabricated.  On that particular attendance note, it also does not show any record about the request of a 14 days’ extension for completion and its subsequent withdrawal, which was admittedly a very important piece of information which should not have been omitted should the attendance note be a genuine one. 

83.  The attack by Mr Chong against the integrity of the attendance notes (and the Defendant’s witnesses) is on the face of it not without attraction.  As a result of Mr Chong’s forensic examination there are indeed areas which Carmen has difficulties to fully explain.  However, if we look at Mr Chong’s theory more closely and from a broader point of view, we may find the proposition of Mr Chong not as attractive as it appears to be.

84.  If Mr Chong is right, Miriam, Nelson, Carmen and the three partners of the Defendant are perpetuating a conspiracy to forge false documents to pervert the course of justice, and such conspiracy started early from 2009 when the Defendant issued their reply to Messrs Ivan Tang’s accusations of professional negligence.  As a matter of common sense, this theory must be premised on the fact that all of them have the view that Tse has a very strong case against them.  Otherwise, they would not have considered such a desperate attempt in order to strengthen their case.

85.  As I mentioned earlier in this judgment, the Plaintiff’s case rests solely on Tse’s own verbal evidence from his memory without the aid of any contemporaneous record. Besides, the case as put forward by Tse is not in itself a most convincing one.  In my view, even without the attendance notes, the Defendant still have a fair chance to succeed. 

86.  Hau, Li and Yeung are experienced solicitors.  It would be too unsophisticated for them to design a conspiracy, in a case like the present one, but in the mean time allow such blemish to be easily found in Carmen’s evidence.

87.  In my view, the inconsistencies as appeared between the attendance notes are results of genuine mistakes made by Carmen, either as to the exact day when she made the records, or the exact day when she had the telephone conversations with Tse.

88.  Regarding the “Thursday conversation”, as submitted by Mr Chan, the handwritings of Carmen on the H&M letter were not supposed to be attendance records.  There is no basis to assume what Carmen had written down necessarily referred to what was said in the telephone conversation on Thursday, albeit the second sentence was written in a position just beneath the phrase “talked to client on Thursday”.

89.  Reading the contents of the attendance notes as a whole, I am not persuaded that they are inventions for the purpose of the present proceedings.  On balance I would find they are genuine contemporaneous records.

90.  To conclude, I find as facts that the Defendant has, through Nelson, informed Tse the existence of the Warning Notice on or about 16 June 2008 and advised Tse on numerous occasions in July and August the Purchaser’s right to insist on his demolition of the Illegal Structures; and that Tse should try to sort out the matter with the Tenant, the BA and the Purchaser.  On 11 August 2008, Carmen has also specifically advised Tse that the Purchaser can insist not to complete if the Illegal Structures are not demolished before completion.

91.  I find that the Tenant was initially unwilling to demolish the Illegal Structures because of security concern.  As at 11 August 2008 the Tenant has not yet agreed to demolish the Illegal Structures.

92.  There has been no delay whatsoever on the part of the Defendant in giving advice to New Moon or Tse in relation to the conveyancing of the Wan Chai Shop, in particular, the effect of the Warning Notice and the need to demolish the Illegal Structures. 

93.  I have considered the answers given by the Defendant to H&M’s requisitions and I find no impropriety or inadequacy in them.  I find no breach of duty of care on the part of the Defendant as solicitors acting for New Moon or Tse in conducting the conveyancing of the Wan Chai Shop.

94.  I also find no breach of duty of care on the part of the Defendant as solicitors acting for New Moon or Tse in the VP Summons.

95.  In considering whether there is any breach of duty I have applied the legal principles regarding solicitors’ duty as I set out below in this judgment.

Law on professional negligence solicitors

96.  In Foshan Hua Da Industrial Co v Johnson, Stokes & Master (a firm)[7], Stock J (as he then was) set out a useful summary:

“The following principles of law are particularly germane:

(1) A retained solicitor owes a duty to his client, both in contract and tort. There arises, when a solicitor is engaged for reward, a contractual duty to exercise skill and care on behalf of his client. A solicitor is not expected or bound to know all the law, nor is he to be judged according to the standard which might be demonstrated by ‘a particularly meticulous and conscientious practitioner’. (See Midland Bank v. Stubbs & Kemp [1979] Ch 384, at 403.)

(2) The duty of a solicitor is ‘to exercise that reasonable degree of skill and care to be expected of a competent and reasonably experienced solicitor’ (Clerk and Lindsell on Torts, 17th Ed., para 8-81). ‘The test is what a reasonably competent practitioner would do having regard to the standard normally adopted in his profession.’ (See Midbank Bank, supra, at page 403.)

(3) ‘If in the course of taking instructions a professional man like a solicitor learns of facts which reveal to him as a professional man the existence of obvious risks then he should do more than merely advise within the strict limits of his retainer. He should call attention to and advise upon the risks.’ (per Lawton LJ in Boyce v. Rendells [1983] 268 E.G. 268 at 272.)

(4) Where a solicitor is asked to advise upon one matter then, as a general rule, he is not obliged to advise on different points though related, unless the connection is so close and reliance placed in the solicitor to advise generally so obvious, that advice on related points may be required. (Clerk & Lindsell, supra, para 8-89.)

(5) The duty of a solicitor might be affected by the experience or inexperience of the client[8], in the sense that a client inexperienced in the field in which he seeks advice is ‘entitled to expect the solicitor to take a much broader view of the scope of his retainer and his duties than will be the case with an experienced client.’ (See Carradine Properties Ltd. v. D.J. Freeman & Co. (1985) 1 P.N. 41.)

(6) ‘The standard of care to be expected of a professional man must be based on events as they occur in prospect and not in retrospect.’ per Simon Brown LJ in Martin Boston v. Roberts and others, The Times, 17 March 1995, who then cited Duchess of Argyll v. Beuselinck [1972] 2 Lloyd's Report 172 at 185:

‘In this world there are few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone of negligence.’

(7) A solicitor is not, in the absence of unequivocal instructions and acceptance by him to do so, expected to advise upon the commercial good sense of a business proposition, whether he should or should not, as a matter of commercial advantage, proceed with a transaction, whether a transaction is or is not good business or prudent, although where it is evident that a client relies on the solicitor for more than legal advice, the solicitor may be under a duty to refer the client to an appropriate source or sources of information. (See Yager v. Fishman & Co. [1994] 1 All ER 552; Reeves v. Thrings & Long [1996] PNLR 265; Clark Boyce v. Mouat [1994] 1 AC 428). Indeed, ‘it is in general the client’s privilege if he so wishes to mismanage his affairs. He is entitled ... to lend on insufficient security, or to enter an unwise bargain if he so chooses. The solicitor has a duty to advise on the legal hazards of the transaction, but no more:

‘It was the duty of the solicitor to inform and advise, ensuring that the information and advice was understood by the client. It was not part of his duty of care to force his advice on the client.’

If that advice is disregarded he must carry out the client’s instructions or else determine the retainer’. (Jackson & Powell on Professional Negligence, 4^th Ed., para 4-92, citing Duytfield v. Gilbert Stephens and Sons [1988] 18 Fam Law 473.)

(8)   ‘The onus of proving professional negligence over and above errors of judgment is a heavy one.’  (See Rondel v. Worsley [1969] 1 AC 191.)”

97.  As submitted by Mr Chan, the test of competence was not one of counsel of perfection but whether in the entire circumstances of the case, the plaintiff (the ex-client) has discharged the burden of proof of a serious allegation that the solicitors in question had failed to demonstrate reasonable standard of care and competence.

98.  In the present case, on the basis of my factual findings above the Plaintiffs have clearly failed to discharge such burden.

99.  I failed to see what more the Defendant could do to advise New Moon or Tse in the conveyancing of the Wan Chai Shop, not to mention any error the Defendant has committed which was below the standard of a competent and reasonably experienced conveyancing lawyer. 

100.  The Defendant has given timely advice to Tse on the effect of the Warning Notice and to demolish the Illegal Structures or to come up to a solution with the Tenant, the BA and the Purchaser.  The Defendant should not be blamed if Tse did not act on the Defendant’s advice or the advice given could not be carried out because of commercial difficulties.

Can Tse and/or Money Taker sue?

101.  As pleaded in the ASOC[9], the cause of action relied on by Tse is the alleged professional negligence of the Defendant as his solicitors, arising out of both contract and tort.

102.  Under Paragraph 5 of the ASOC, it is pleaded that “it was a term of the Defendants’ retainer to exercise all proper skill and care, diligence and competence as solicitors in and about the sale and/or conveyancing of the Property [the Wan Chai Shop]”. Carry on with this it is pleaded under Paragraph 6 that “Further or alternatively, the Defendant owed a like duty in tort independent of and additional to the said duty in contract.” (my emphasis)

103.  It is clear from the above that the pleaded case of Tse on tort against the Defendant stems from the Defendant’s alleged duty of care arising from the relationship as the solicitors of Tse, and not otherwise.

104.  Therefore, in order to establish his locus to sue the Defendant Tse must prove that he was a client of the Defendant in this particular transaction, that is, the sale and conveyance of the Wan Chai Shop. 

105.  The legal owner of the Wan Chai Shop was New Moon, not Tse.  The vendor under the Provisional Agreement was New Moon and the Defendant was named as the solicitors acting for the vendor.  Tse only signed the Provisional Agreement on behalf of New Moon as its director.  There is nothing in the Provisional Agreement indicated that Tse intended or any party intended Tse to assume personal liability in it.  There was no retainer signed by Tse retaining the Defendant as his solicitors.

106.  Mr Chong submitted that Tse trusted Nelson and there were a number of previous instructions by Tse or his companies to the Defendant before the present one.  Tse also instructed Nelson to carry out the conveyancing for the TKW Shop.  Besides, Nelson knew that Tse would use his own name or his corporate vehicles to enter into various transactions with outsiders.  It is Mr Chong’s submission that given the personal relationship, Tse must be the client.

107.  With respect to Mr Chong, the fact that corporate vehicles have been used reflected Tse’s intention not to assume personal liabilities in these transactions.  Tse must also have known the legal implication as such given his extensive experience in property investments.  Although Tse was the person giving instructions to Nelson or the Defendant but that does not make him a client to the Defendant. The obvious intention between all parties would be that Tse was giving instructions on behalf of the particular company Tse used for a particular investment.  In the present case, Tse was giving instructions on behalf of New Moon.

108.  In my view, the evidence clearly shows that New Moon was the client but not Tse.

109.  Mr Chong sought to argue that the Defendant owes a duty of care to Tse as a director or shareholder of New Moon.  Mr Chong relied on the decision of Staughton J in R P Howard Ltd v Woodman Matthews & Co[10] and submitted that a solicitor could owe a contractual duty of care not only to the company which retained his services but also to the principal shareholder in the company where it was clear that the shareholder also relied on the solicitor to protect his interests; and a duty could be owed in tort where it was foreseeable that the shareholder would be injured by negligent advice given to the company.  A passage of Staughton J was quoted by Mr Chong to support his argument[11]:

“In my judgment, in the circumstances of this case, Mr Witchell as well as the Company, was the client of Mr Mason. That seems to me to reflect the reality of the situation. Mr Mason knew that Mr Witchell, apart from matters such as tax and the claims of creditors, was the Company. He probably knew that Mr Witchell derived his livelihood and some profit from the Company, and was vitally concerned in its well-being. Mr Witchell had first been his personal friend, and had then come to him in connection with other matters for legal advice, both as the representative of the Company and in a personal capacity. When Mr Witchell sought his advice on the Mobil notice relating to Baddow Road, Mr Mason owed a contractual duty of care both to the Company and to Mr Witchell.” (Emphasis in bold added)

110.  I do not agree this decision laid down a principle as suggested by Mr Chong.  Staughton J has at the outset of his judgment[12] stated that His Lordship’s task was to determine “whether, in this instance, he [the solicitor] was instructed by the Company or by Mr Witchell [the shareholder of the Company] or by both.”  In the above paragraph quoted by Mr Chong, Staughton J has clearly found that the shareholder was the client of the solicitor.  It was with this finding that the solicitor was held liable to the shareholder of its company client.

111.  In any event, as submitted by Mr Chan, this kind of alleged duty of care owed to the shareholder of company client has not been pleaded in the ASOC and should not be entertained.

112.  In my view, what is in fact claimed by Tse against the Defendant is the mere reflective loss of Tse out of the alleged loss of his two companies, that is, New Moon and Money Taker.  Be it under whatever disguise, it is not allowable under the existing law.

113.  Mr Chong referred to the House of Lords’ decisions in Johnson v Gore Wood [13] trying to argue that in the present situation the “no reflective loss principle” should not be engaged.  In particular, it is Mr Chong’s submission that the present situation is covered under small paragraph 3) of Lord Bingham’s judgment[14]: 

“1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder’s shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company’s assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. …

2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. …

3)    Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinctfromthat suffered by the companycaused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other.  I take this to be the effect of Lee v. Sheard, at pages 195-6, Heron International, particularly at page 262, R.P. Howard, particularly at page 123 ...”

114.  As explained by Barma J (as he then was) in Waddington Ltd v Chan Chun Hoo, the loss claimed by the shareholder in this situation is simply not reflective loss[15]:

“This relates to the situation where the loss suffered by the shareholder is separate, distinct and additional to that suffered by the company. Again, in such a situation, the shareholder’s loss is simply not ‘reflective’ of any loss suffered by the company.”

115.  In my view, Mr Chong’s argument is a non starter.  The situation referred to by Lord Bingham and Barma J is where the loss suffered by the shareholder is separate, distinct and additional to that suffered by the company caused by breach of a duty independently owed to the shareholder.  These are the very factors that Tse has failed to prove in the present proceedings.

116.  As regards Money Taker, it has not even been identified anywhere in the ASOC the cause of action it has against the Defendant. 

117.  In his submission, Mr Chong merely said that it is the position of the Plaintiffs that they do not concern who will be awarded the damages, whether Money Taker or Tse, so long as the damages are awarded to either or both of them jointly and/or severally. 

118.  Money Taker has clearly no legal basis whatsoever to claim against the Defendant in the present proceedings.

Dispositions

119.  For the above reasons, the Plaintiffs’ claims against the Defendant must fail and shall be dismissed.

120.  I make a cost order nisi that costs of these proceedings be to the Defendant to be taxed if not agreed on party and party basis.  This order nisi shall become absolute upon the expiration of 14 days from the date of the judgment.

121.  I understand that it is the Defendant’s submission that they should be awarded costs on indemnity basis but in my view, the conduct of the Plaintiffs is not grave enough to justify such an order.

122.  It remains for me to thank counsel for their able assistance.