LAW WAN LAN v. WELL-BUILT DEVELOPMENT CO LTD AND OTHERS

IN THE COURT OF APPEAL

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J U D G M E N T

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Fuad, V.P.:

1. This is an appeal by the Plaintiff in this action against the decision of Godfrey J. who, on 15th March 1988, struck out her claim, and dismissed her action, as against the 3rd Defendant, a firm of Solicitors on the grounds that the Re-Re-Amended Statement of Claim disclosed no reasonable cause of action against them. The judge was dealing with an appeal from Master O'Donnell who had, on 9th February 1988, dismissed a summons taken out by the 3rd Defendant seeking such an order under R.S.C. O.18, r.19 and under the inherent jurisdiction.

2. The action was brought by Madam Law Won tan who is the daughter of the late Mr Law Ah Fuk ("the Deceased"). She is now the sole "executrix and/or personal representative" of the estate of the Deceased who died on 16th June 1977, her brother Mr. Lo Mok Sang, at one time a co-executor having himself died on 29th March 1985.

3. The action relates to part of the estate of the Deceased, a piece of land with a house upon it in Wo Fung Street, Fanling ("the Property") of which the Deceased had been the registered owner since 1964.

4. By the Re-Re-Amended Statement of Claim it is pleaded that in January 1981, Madam Law and her late brother, in their capacity as personal representatives of the estate of the Deceased entered into an agreement in writing with the 1st Defendant, Well-Built Development Co. Ltd., for the redevelopment of the Property by way of the erection of a new building. The essential terms of the redevelopment agreement are then set out and it is pleaded that the building plans were approved on 21st November 1981, and that the time for completion expired at the end of the year 1982.

5. The pleading goes on to aver that in April 1981 Madam Law and her brother signed an agreement for the sale and purchase of the Property to the 1st Defendant for $1.8 million, but that Madam Law had been induced to sign that agreement "on the basis and upon the understanding that [it] was for the redevelopment, but not for the sale of the said property." The effect of one of the clauses in the agreement is pleaded under which Madam Law and her brother, as trustees of the will of the Deceased were to have a certain option exercisable within two months of the issue of the occupation permit for the new building on paying $1.8 million. This agreement was registered in the Land Office.

6. The Statement of Claim then states that Madam Law's brother, acting in his own name and purporting to act also on her behalf, signed a second document "which purported to be an assignment of the said property to the 1st Defendant for $1.8 million" Despite what I will call the receipt clause, showing that the $1.8 million had been paid by the 1st Defendant to the vendors, in fact no money had changed hands, Madam Law's brother had acted under the authority of a power of attorney she had given him but, it is said, she executed it "on the basis and understanding that she would only authorise the redevelopment of the said property, but not the sale thereof."

7. The appeal bundle does not contain the earlier versions of the Statement of Claim, but it seems that the 3rd Defendant, Messrs. Chan & Lo, were brought into the case by amendments for which leave was given on 16th October 1987, the original Statement of Claim being dated 5th March 1986. As against them, the action is based upon the alleged conduct (or inaction) of one of their partners, Mr. Joseph Chan.

8. I think it is necessary to read the whole of para.15 of the Statement of Claim for it is the basis for the claim against the 3rd Defendant:

"15 (1)     In or about March 1982, Winnie Chow of the 1st Defendant together with Joseph Chan of the 3rd Defendant attended on the Plaintiff and invited the Plaintiff to sign on a document. Initially the Plaintiff refused to sign, Winnie Chow persuaded the Plaintiff to sign the said document by representing to the Plaintiff in the presence of Joseph Chan that redevelopment of the property into a new building required the execution of new title deeds.

(2) Joseph Chan did not explain the terms of the document to the Plaintiff and did not advise her to seek legal advice.

(3)     Acting on the representation of Winnie Chow, the Plaintiff signed the document. This document purported to be a confirmatory assignment of the said property to Well-Built and was dated 17th March 1982 (hereinafter referred to as the third document).

(4)     Joseph Chan signed on the third document as a witness to the Plaintiff's signature and the third document contained a statement or indorsement to the effect that the same was interpreted by Joseph Chan, which was not the case.

(5)     Joseph Chan knew or ought to have known at the time when he invited the Plaintiff to sign the third document:-

(a)     the contents and purported effect of the third document.

(b) that the execution of the third document by the Plaintiff was necessary for clearing the doubt, over the validity of the power of attorney referred to in paragraph 14 hereinabove, so as to enable or facilitate the 1st Defendant to grant a mortgage of the said property to the 3rd Defendant,

(c)    that the representation made by Winnie Chow to the Plaintiff was untrue,

(d)     that the Plaintiff's interests or rights in the said property or the interest or rights of the estate of the deceased in the same was likely to be closely and directly affected by his acts or omissions, and that such interests and rights is likely to be injured by those acts or omissions. His acts are the witnessing of the Plaintiff's signature and his certification and statement that the third document was interpreted by him to the Plaintiff. His omission was his failure to advise the Plaintiff to take independent legal advice or to disabuse the Plaintiff or her belief induced by the said misrepresentation by Winnie Chow.

(6)     In the premises, the 3rd Defendant owed a duty to the Plaintiff:

(a)    to interpret the third document to the Plaintiff,

(b)    to explain the meaning and effect of the document to the Plaintiff fairly and properly and

(c)     to advise the Plaintiff to take separate and independent legal advice unless the 3rd Defendant was prepared to and was able to advise her himself, in which event the 3rd Defendant ought to have advised the Plaintiff that the confirmatory assignment was required to enable the 1st Defendant to obtain a mortgage loan and that the interests and rights of the Plaintiff or the estate of the deceased in the said property would be entirely unprotected.

(7)     If the 3rd Defendant had discharged its duty to the Plaintiff, the Plaintiff would not have executed the third document."

9. It is not necessary to review the rest of the Statement of Claim in any detail. It is pleaded. that the agreements which were signed were merely for carrying out the original redevelopment agreement. It had not been intended by the parties that the agreements evidenced by the later documents were to be in abrogation or in derogation of their respective rights and obligations under the redevelopment agreement. The pleading goes on to aver breaches by the 1st Defendant of the redevelopment. agreement, repudiation by, the Ist Defendant and acceptance of that repudiation by Madam Law.

10. It is then stated that none of the agreements had the effect of passing any title or interest in the Property to the 1st Defendant I will not refer to the rest of the Statement of Claim except to note that para.26 is in these terms:

"26. The Plaintiff's loss was caused, inter alia, by the breach of duty and/or negligence of the 3rd Defendant in failing to interpret the 3rd document or explain its effect to the Plaintiff and/or in failing to advise the Plaintiff to seek independent legal advice.",

and so far as the 3rd Defendant is concerned, damages are claimed against the firm.

11. In his judgment, the judge recounted the background and noted that it had not been suggested that the 3rd Defendant had been acting as Solicitors for either the Plaintiff or the 1st Defendant in the relevant transaction. The judge formulated the following proposition which would have to be good law if the action against the 3rd Defendant could succeed, a proposition accepted by Counsel for the 1st Defendant:

"Where a party's solicitor attends on an occasion when another party is unrepresented and witnesses a document signed by the unrepresented party but stays silent about the legal effect of the document, he must be taken to have assumed a duty of care to the unrepresented party, and a duty therefore to advise the unrepresented party to seek independent legal advice."

12. The judge expressed the view that the proposition went far too far and was wholly unarguable. He pointed out that there might be occasions upon which a solicitor acting for one party came under a duty to another party to the same transaction for example, when he expressly agreed to undertake that duty, or when, by reason of proximity, he must he taken to have owed that duty, knowing that a benefit was to be conferred on some other party. However, in the judge's view that was not this case. He remarked that as a matter of policy it would be quite impossible for solicitors to conduct business if the proposition were correct.

13. The judge went on to say that on the facts of this case, where all that could possibly be said in support of the alleged cause of action was that Mr. Chan had attended on the.material occasion and witnessed a document signed by an unrepresented party, this was nowhere near enough to justify the suggestion that the events gave rise to a cause of action in the Plaintiff.

14. It is, of course, well settled that the power to strike out a claim or part of a claim must only be used in plain and obvious cases. The applicable rules as well as the inherent jurisdiction of the Court, give the Court a discretionary jurisdiction - the power is permissive and not mandatory but it would clearly not be right to allow the case against the 3rd Defendant to go on with its attendant anxiety and expense, if the pleaded claim as against them is incontestably bad and is bound to fail.

15. It need hardly he said, too, that for the purpose of deciding the issue that arose between the parties, both the judge and this Court are obliged to treat the facts pleaded as being correct.

16. Mr. Shum for the Appellant referred' us to a number of well-known authorities. First there was Anns v. Merton London Borough Council [1978] A.C. 728 and the passage of the off-cited speech of Lord Wilberforce which begins at p.751. It is so familiar that I will not read it. It is only necessary to remark that Lord Wilberforce's speech must be read with the reservations expressed by different members of the House of Lords in cases such as Governors of the Peabody Donation Fund. v. Sir Lindsay Parkinson & Co. Ltd. [1985] A.C. 211; Leigh and Sillivan Ltd. v. Aliakmon Shipping Co. Ltd. [1986] A.C. 785 and Yuen Kun Yeu & Others v. The Attorney General [1987] H.K.L.R. 1154. In the last mentioned case, on appeal from Hong Kong, Lord Keith of Kinkel, giving the opinion of the Board, said at p.1171:

"    Their Lordships venture to think that the two stage test formulated by Lord Wilberforce for determining the existence of a duty of care in negligence has been elevated to a degree of importance greater than it merits and greater perhaps than its author intended.  Further, the expression of the first stage of the test carries with it a risk of misinterpretation. As Gibbs, C.J. pointed out in Sutherland Shire Council v. Heyman (supra) at p.570. there are two possible views of what Lord Wilberforce meant. The first view favoured in a number of cases mentioned by Gibbs. C.J., is that he meant to test the sufficiency of proximity simply by the reasonable contemplation of likely harm. The second view, favoured by Gibbs. C.J. himself is that Lord Wilberforce meant the expression 'proximity or neighbourhood' to be a composite one importing the whole concept of necessary relationship between plaintiff and defendant described by Lord Atkin in Donoghue v. Stevenson [1932] A. C. 552. 580. In their Lordships opinion the second view is, the correct one. As Lord Wilberforce himself observed in McLoughlin v. O'Brian [1983] 1 A.C. 410, 420, it is clear that foreseeability does not of itself and automatically lead to a duty of care. There are many other statements to the same effect. The truth is that the trilogy of cases referred to by Lord Wilberforce each demonstrate particular sets of circumstances; differing in character which were adjudged to have the effect of bringing into being a relationship apt to give rise to a duty of care. Foreseeability of harm is a necessary ingredient of such a relationship, but it is not the only one. Otherwise there would be liability in negligence on the part of one who sees another about to walk over a cliff with his head in the air, and forebears to shout a warning."

And I may mention that later at p.1173 Lord Keith said:

"In view of the direction in which the law has since been developing their Lordships consider that for the future it should be recognised that the two-stage test in Anns is not to be regarded as in all circumstances a suitable guide to the existence of a duty of care."

17. Of course, the judge, and now this Court, must decide as a matter of law whether or not in the particular circumstances pleaded a duty of care by the 3rd Defendant to the Plaintiff existed; if not the action must fail.

18. We were referred to Ross v. Caunters [1980] Ch. 297 where Sir Robert Megarry V.-C. held that a solicitor could be liable in negligence to his own client and to a third party where a prima facie duty of care to the latter could be established. The third party, a beneficiary under a will was clearly somebody whom the solicitors ought to have had in direct contemplation as being likely to be injured by the failure to carry out their client's (the testator) instructions. In our case the circumstances were different. It is not suggested that the 3rd Defendant had any instructions from anyone to do anything.

19. That case was followed in Al-Kaudari v. J.R. Brown & Co. [1987] 1 Q.B. 514. French J. held that where solicitors on the authority of their clients gave certain implied undertakings to take certain measures one of whose objects was the protection of known third-party; the solicitors owed a duty of care to that third party because it was reasonably foreseeable that the failure to implement the undertaking, was likely to cause the third party to suffer injury. Moreover, since the purpose of the undertaking was to protect the third party the solicitors were obliged to ensure that a failure to comply with or an agreed relaxation of the undertaking, did not cause the third party to suffer harm. Nothing of the sort happened in our case as the pleadings stand.

20. I now turn to Wilson and Another v. Bromfield and Another (1979) 123 Sol. Jo 860. That was an appeal from the County Court which refused to strike out relevant parts of the particulars of claim against solicitors. The Court of Appeal dismissed the appeal holding that the question of law was fairly arguable. Briefly, it was pleaded that by an answer to certain enquiries before contract, the solicitors' clients had represented that they were not aware of any boundary disputes at any time relating to the land; that that representation was untrue; that the solicitors had completed the enquiries before contract and the requisitions on title; that they knew the plaintiffs were placing reliance on the accuracy of the answers; that therefore the solicitors owed a duty of care to the plaintiffs; and that the solicitors were aware or ought to have been aware of the boundary dispute but had nevertheless put their name to the untrue answer. In our case there is no suggestion that Mr. Char of the 3rd Defendant did anything more than witness the Plaintiff's signature; nor that any reliance was being placed upon anything, that he did or did not do.

21. In Cornish v. Midland Sank plc. [1985] 3 All E.R. 513 the Court of Appeal held that where a bank chose to advise a customer as to the nature and effect of a mortgage in favour of the bank before the mortgage was executed the bank was under a duty not negligently to mistake the effect of the mortgage. The Court was there applying Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 where there was a voluntary assumption of responsibility which established a special relationship which in turn gave rise to a duty of care.

22. Mr. Shum submitted that the 3rd Defendant's involvement in this case as pleaded could be summarised in this way:

(i) they had acted as solicitors and agents of the 2nd Defendant (the Overseas Trust Bank Ltd.) in respect of the mortgage and related transactions;

(ii) their Mr, Joseph Chan knew that a confirmatory assignment was required to clear a doubt concerning the power of attorney given by the Plaintiff to, her brother. The assignment had been drafted by their firm;

(iii) Mr. Chan had taken the initiative to accompany Ms. Winnie Chow of the 1st Defendant to visit the Plaintiff and had invited her (being unrepresented) to sign the confirmatory assignment needed before a mortgage drawn up by the firm in favour of the 2nd Defendant could be executed;

(iv) a misrepresentation had been made by Ms. Chow as to the nature of the document before Mr. Chan and he had taken no steps to correct it or to advise the Plaintiff to seek independent legal advice;

(v) Mr. Chan had signed as a witness on the confirmatory assignment and had purported to have interpreted the contents to the Plaintiff. who was of advanced age and illiterate.

23. In answer to a question from a member of this Court Mr. Shum made it clear that the claim against the 3rd Defendant was not based on misrepresentation - in effect that he had "gone along" with Ms. Chow's own misrepresentation about the nature of the document the Plaintiff was to sign. He relied heavily on the fact that Mr. Chan had signed the document in question after witnessing the Plaintiff's signature once more after the words: "Interpreted by:". I am unable to accept his submission that by having so signified (the averment being that he had not in fact translated the document to the Plaintiff) he was giving some sort of implied undertaking, that he would do so, so that in failing to interpret the document, Mr. Chan had been in breach of his duty to the Plaintiff. In my judgment it has not been shown, on the facts pleaded that Mr. Chan owed a duty to the Plaintiff to undertake the task of translating the document for her. Whether or not Mr. Chan should have foreseen that his failure to do so would result in damage to the Plaintiff does not of itself give rise to a duty of care.

24. I am bound to say that I find no difficulty in holding that on the pleaded facts no duty of care was owed by the 3rd Defendant to the Plaintiff. All Mr. Chan was doing was to witness the Plaintiff's signature. If he had any duty at all it was to ensure that she signed before him. He was not acting for her (or for the 1st Defendant). He was not bound to explain the document to her or to correct Ms. Chow or to advise her to seek legal advice. There was no special relationship between them of the kind recognised in Hedley Byrne or Junior Books v. Veitchi Co.Ltd. [1983] AC. 520 and no voluntary assumption of responsibility as in Cornish v. Midland Bank.

25. It seems to me that Mr. Chan was in a position no different from any other person witnessing someone's signature unless he was a party to the alleged misrepresentation. In the circumstances shown by the material facts pleaded it made no difference that he happened to he a solicitor. or whether he did or did not translate the relevant agreement to the Plaintiff.

26. In my judgment Godfrey J. came to the right conclusion. The action as against the 3rd Defendant was wholly misconceived and was bound to fail.

27. I would dismiss the appeal.

Rhind, J.:

28. I agree.

Jones. J.:

29. I am in entire agreement with my Lord.