INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ASIA) LTD v. MESSRS B C CHOW & CO

HCA 1792/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1792 OF 2001

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J U D G M E N T

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I. Background

A. Facts

1. In March 1996 Mr David Wong Chor Chiu ("Wong"), then trading as Hoi Choi Timber Company ("Hoi Choi"), applied to the Plaintiff ("the Bank") for general banking facilities. As security for the facilities Wong To Shiu Mui ("Mrs Wong"), Wong's wife, agreed to charge the property known as Flat E, 1st Floor, Block 2, Neptune Terrace, 11 Tai Man Street ("the Property"), which was registered in her name. Pursuant to the Bank's practice of requiring the provider of security to be personally liable as a borrower under the relevant loan contract, Mrs Wong also agreed to become a party to the proposed facilities agreement.

2. Accordingly, by a letter ("the 1st Facilities Letter") dated 21 March 1996 to Hoi Choi, the Bank agreed to provide banking facilities to Wong, "subject to availability of funds and periodic review and withdrawal at [the Bank's] sole discretion". More particularly, the letter offered to facilities on the following terms:-

" Facility I
Overdraft Facility	To the extent of HKD300,000.00 (Hong Kong Dollars Three Hundred Thousand Only)
Interest Rate	At 1.75% p.a. over Hong Kong Dollar Prime Rate, subject to fluctuation and amendment at our discretion.
Handling Charge	At 0.5% p.a. on HKD300,000.00 payable upon acceptance of this letter on or before 3rd April, 1996.
Repayment	On demand.
Cancellation Fee	1% on amount cancelled, payable upon cancellation of part or whole of the facility.
Facility II
Letters of Credit and Trust Receipts for 90 days	To the extent of HKD1,200,000.00 (Hong Kong Dollars One Million Two Hundred Thousand Only) within which 90-day Trust Receipts be limited to the extent of HKD800,000.00 (Hong Kong Dollars Eight Hundred Thousand Only).
Interest Rate for 90-day
Trust Receipts	At 1.5% over Prime Rate, subject to fluctuation and amendment at our discretion.
Opening Commission for Letters of Credit	Union Bank Standard Rates.
Repayment	On demand.
Handling Charge	At 0.25% p.a. on HKD1,200,000 payable upon acceptance of this letter on or before 3rd April, 1996.
Facility III
All existing facilities and/or modifications thereto and/or other facilities of whatsoever nature as we may hereafter grant to you from time to time at our discretion.
As collateral for all of the above banking facilities, we require the following:
(a) An all monies first legal charge on Flat E, 1/F, Block 2, Neptune Terrace, 11 Tai Man Street, Chai Wan, Hong Kong to be executed in our favour and registered. (b) All other existing securities as may be in force for the time being.
The above facilities are subject to a written valuation report addressed to us and prepared by our appointed valuer confirming that the open market value of the above property os not less than HKD1,880,000.00 and the valuation fee is to be borne by you.
...
Notwithstanding the foregoing, the banking facilities are subject to no adverse change in market conditions and the completion of documentations and formalities as and when required by us, and we reserve our right to require repayment and/or cash collateralization on demand of all amounts actually or contingently due to us.
Please sign and return the duplicate of this letter to signify your understanding and acceptance of the terms and conditions under which the banking facilities are granted. This offer will be available for acceptance until 3rd April, 1996 after which date it will be lapsed unless extended in writing by us."

Both Wong and Mrs Wong signed a copy of the 1st Facilities Letter to signify their understanding and acceptance of the terms and conditions therein.

3. By a standard form letter ("the 1st Instructions") also dated 21 March 1996 the Bank instructed the Defendant ("the Firm") to prepare, in the Bank's favour, a legal charge and other relevant security documents in respect of the Property. More specifically, the 1st Instructions stated as follows:-

" Upon production of the relative title deeds and satisfactory title investigation, please prepare a
x	First Legal Charge
...
and such other documents as you think fit in favour of our Bank to render additional security to our Bank based on terms outline below:
1.	PROPERTY: Flat E, 1/F, Block 2, Neptune Terrace, 11 Tai Man Street, Chai Wan, Hong Kong.
2.	CHARGOR: Ms Wong To Siu Mui
3.	PRINCIPAL PARTY (BORROWER): M//s Hoi Choi Timber Co.
	x Names of proprietor/owner Mr Wong Chor Chiu, David
	x B/R No. 18800565-000-01-95-6
4.	AMOUNT SECURED: To secure ALL existing and future General Banking Facilities to the extent of
	x an unlimited amount ...
	...
5.	REPAYMENT: On demand.
6.	INTEREST RATE: Current rate of interest, subject to fluctuations and changes at our discretion.
7.	...
8.	During the continuance of this security, the Chargor shall not execute or agree to execute any legal charge or further charge or to grant any lease or tenancy without written consent of the Bank.
9.	If there shall be default in repayment of the loan and other outstandings (whether actual or contingent) it shall be lawful for the Bank at any time thereafter to dispose of the charged property either by public auction or private contract without further consent on the part of the Chargor.
10.	The banking facilities are subject to written valuation report with Current Market Value of NOT less than HK$1,880,000.00 and no adverse change in market conditions.
...
13.	After execution of the Charge documents, you are kindly requested to confirm the Memorial No. of the Charge and keep us informed of the relevant title deeds and documents as soon as possible. All the deeds and documents sent for registration should be returned to us after registration.
...
18.	REMARKS:
	...
	d. In respect of title deeds, please note the following: ... x please refer to M/S Hua Chiao Commercial Bank who act for/ are the Chargor/ existing Chargee/ Vendor. ..."

4. Acting upon the 1st Instructions, on 22 March 1996 the Firm wrote to Hua Chiao Commercial Bank ("Hua Chiao") requesting copies of the title deeds of the Property in order to arrange for the discharge of the outstanding mortgage in the latter's favour. Hua Chiao had also registered a charging order absolute over the Property in March 1989.

5. By letter dated 28 March 1996 Messrs Chan and Cheng ("C & C"), Hua Chiao's solicitors, sent the requested deeds to the Firm. Among the title deeds sent was a certified copy of Conditions of Sale No. 11633 ("the Conditions") to which the Property was subject. The other documents sent by C & C to the Firm were as follows:-

(1) Certified copy of Modification Letter (Memorial No. 267897);

(2) Certified copy of Modification Letter (Memorial No. 2694334);

(3) Certified copy of Deed of Reassignment and Release (Memorial No. 2889518);

(4) Certified copy of Occupation Permit dated 31 December 1985 (Memorial No. 2976875);

(5) Agreement for Sale and Purchase dated 21 November 1985 ("the Agreement") (Memorial No. 2945782);

(6) Certified copy of Deed of Mutual Covenant and Management Agreement (Memorial No. 3007263); and,

(7) Assignment dated 17 March 1986 ("the Assignment") (Memorial No. 3029261).

6. By letter dated 1 April 1996 to Mr John Wan Yee Kim ("Mr Wan") of the Bank's Credit Administration Department, First Pacific Davies ("FPD") confirmed the current open market value of the Property as $1,880,000.00. FPD further stated:-

" V.	VALUATION AND COMMENTS
20	Marketability:
	The property has a reasonable marketability.
21.	General Comments:
	The property is one of the ten domestic units on the 1st floor of the building with a due east aspect facing buildings nearby.
	The interior of the property is finished with PVC tiled floor, painted walls and ceiling in the main living areas whilst the bathroom and kitchen are tiled.
	In or valuation, we assumed that the premium for removal of the non-assignment clause had been fully paid.
	The property is currently owner-occupied and we have valued the property on an open market value basis assuming sale with vacant possession. ..."

7. The reference to the "premiums for removal of the non-assignment clause" in FPD's letter related to the fact that the Property was a residential unit forming part of a Housing Authority development. Under the Housing Ordinance (Cap. 283) ("HO"), the sale or alienation (including by creation of a mortgage or charge) of such a unit requires the prior written consent of the Director of Housing and payment of a premium.

8. By a Consent Order dated 19 April 1996 the Firm obtained the release of the Property from Hua Chiao's charging order. On the same date the Firm caused Mrs Wong as mortgagor, Wong as borrower and the Bank as lender to execute a 1st Legal Charge ("the 1st Charge") over the Property in favour of the Bank. Mr Chow Bing Chiu of the Firm witnessed the signing of the 1st Charge by Wong and Mrs Wong.

9. Under cover of a letter dated 19 April 1996 to C & C, the Firm sent a cheque for the outstanding principal and interest due on Hua Chiao's mortgage.

10. By letter dated 11 April 1996 the Firm also informed the Bank that the 1st Charge had been executed. The Firm's letter then stated:-

"We confirm that all the title deeds and the various security documents are in order and the property is now being occupied by the Chargor.

The account of the Chargor [Mrs Wong] and the Borrower [Wong] may now be operated."

Later, on 12 June 1996, the Firm sent the title deeds to the Property (including the Conditions) to the Bank for safekeeping and retention as mortgagee.

11. Acting upon the Firm's letter of 11 April 1996, the Bank allowed Wong to draw on the facilities mentioned in the 1st Facilities Letter.

12. On 12 March 1997 Wong incorporated Hoi Choi's timber business as Ultra Success (Hong Kong) Limited ("Ultra Success"). At the same time he applied to the Bank for an increase in limits to the banking facilities originally provided.

13. On 25 April 1997 Mr Wan received an internal "Desk Basis Valuation Report for Mortgage Purpose" in respect of the Property. This report valued the Property at $2,450,000.00 assuming sale with vacant possession. However, the report remarks:-

"In our valuation, we have assumed that the premium required for removal of non-assignment clause has been fully settled and the subject building can be freely disposed on in the open market."

14. By a letter ("the 2nd Facilities Letter") dated 28 April 1997 the Bank agreed to make available increased banking facilities to Ultra Success, "subject to availability of funds and periodic review and withdrawal at [the Bank's] sole discretion". The relevant terms of the 2nd Facilities Letter were as follows:-

" Facility I
Overdraft Facility	To the extent of HKD500,000.00 (Hong Kong Dollars Five Hundred Thousand Only)
Interest Rate	At 1.75% p.a. over Hong Kong Dollar Prime Rate, subject to fluctuation and amendment at our discretion.
Handling Charge	At 0.5% p.a. on HKD500,000.00 payable upon acceptance of this letter on or before 12th May, 1997.
Repayment	On demand.
Cancellation Fee	1% on amount cancelled, payable upon cancellation of part or whole of the facility.
Facility II
Letters of Credit and Trust Receipts for 90 days	To the extent of HKD205,180.00 (Hong Kong Dollars Tow Hundred Five Thousand One Hundred Eighty Only). Such limit shall be increased to HKD1,500,000 (Hong Kong Dollars One Million Five Hundred Thousand Only) within which 90-day Trust Receipts be limited to HKD1,200,000.00 (Hong Kong Dollars One Million Two Hundred Thousand Only) upon full settlement of existing Letters of Credit and Trust Receipts outstandings under the account of M/s Hoi Choi Timber Co.
Interest Rate for 90-day Trust Receipts	At 1.5% over Prime Rate, subject to fluctuation and amendment at our discretion.
Opening Commission for Letters of Credit	Union Bank Standard Rates.
Handling Charge	At 1/4% p.a. on HKD1,500,000 payable upon acceptance of this letter on or before 12th May, 1997.
Repayment	On demand.
Facility III
All existing facilities and/or modifications thereto and/or other facilities of whatsoever nature as we may hereafter grant to you from time to time at our discretion.
As collateral for all of the above banking facilities, we require the following:
(a) An all monies second legal charge on Flat E, 1/F, Block 2, Neptune Terrace, 11 Tai Man Street, Chaiwan, Hong Kong to be executed in our favour and registered. Such property is to be occupied by the chargor/borrower throughout the loan period. (b) A Joint & Several Guarantee from Mr Leung Chi Chiu ["Leung"], Ms Wong To Shiu Mui and Mr Wong Chor Chiu David for HKD2,000,000.00. (c) All other existing securities as may be in force for the time being.
The above facilities are subject to a written valuation report addressed to us and prepared by our appointed valuer confirming that the open market value of the above property so not less than HKD2,450,000.00 and the valuation fee is to be borne by you.
...
Notwithstanding the foregoing, the banking facilities are subject to no adverse change in market conditions and the completion of documentations and formalities as and when required by us, and we reserve our right to require repayment and/or cash collateralization on demand of all amounts actually or contingently due to us.
Please sign and return the duplicate of this letter to signify your understanding and acceptance of the terms and conditions under which the banking facilities are granted. This offer will be available for acceptance until 12th May, 1997 after which date it will be lapsed unless extended in writing by us."

Both Wong and Mrs Wong signed a copy of the 2nd Facilities Letter to signify their understanding and acceptance of the terms and conditions therein.

15. By a letter ("the 2nd Instructions") also dated 28 April 1997 the Bank instructed the Firm to prepare, in the Bank's favour, a 2nd legal charge in respect of the Property. More specifically, the 2nd Instructions stated as follows:-

" Upon production of the relative title deeds and satisfactory title investigation, please prepare a
...
x	Other: Second Legal Charge
	and such other documents as you think fit in favour of our Bank to render additional security to our Bank based on terms outline below:
1.	PROPERTY: Flat E, 1/F, Block 2, Neptune Terrace, 11 Tai Man Street, Chaiwan, Hong Kong.
2.	CHARGOR: Ms Wong To Siu Mui
3.	PRINCIPAL PARTY (BORROWER): M/s Ultra Success (Hong Kong) Ltd.
...
4.	AMOUNT SECURED: To secure ALL existing and future General Banking Facilities to the extent of
	x an unlimited amount ...
	...
5.	REPAYMENT: On demand.
6.	INTEREST RATE: Current rate of interest, subject to fluctuations and changes at our discretion.
...
8.	During the continuance of this security, the Chargor shall not execute or agree to execute any legal charge or further charge or to grant any lease or tenancy without written consent of the Bank.
9.	If there shall be default in repayment of the loan and other outstandings (whether actual or contingent) it shall be lawful for the Bank at any time thereafter to dispose of the charged property either by public auction or private contract without further consent on the part of the Chargor.
10.	The banking facilities are subject to written valuation report with Current Market Value of NOT less than HK$2,450,000.00 and no adverse change in market conditions.
...
13.	After execution of the Charge documents, you are kindly requested to confirm the Memorial No. of the Charge and keep us informed of the relevant title deeds and documents as soon as possible. All the deeds and documents sent for registration should be returned to us after registration.
...
18.	REMARKS:
	...
	d. In respect of title deeds, please note the following: ... x they are enclosed herewith as per attached list. Kindly acknowledge receipt by signing and returning to us the duplicate of this letter. ..."

16. Pursuant to the 2nd Instructions, the Firm prepared a 2nd Legal Charge ("the 2nd Charge") over the Property. On 20 May 1997 the Firm wrote to the Bank that the 2nd Charge had been executed. The Firm further stated:-

"The accounts of the Chargor [Mrs Wong] and the Borrower [Ultra Success] with you may now be operated."

by letter dated 21 May 1997 the Firm also confirmed that "the title deeds and the various security documents are in order". The 2nd Charge (which is dated 26 May 1997) executed by Mrs Wong as Chargor and Ultra Success as Borrower was registered on 18 July 1997.

17. Acting upon the Firm's advice that the 2nd Charge had been executed and was effective, the Bank allowed Ultra Success to draw on the increased facility.

18. In 1998 Wong, Mrs Wong and Ultra Success defaulted in the repayment of amounts drawn under the facilities afforded by the Bank. Over $2 million was outstanding. Owing large debts, Ultra Success had ceased business. Wong and Mrs Wong had disappeared and Leung, who had guaranteed Ultra Success' facilities, could not be found.

19. On 4 November 1998 the Bank commenced HCMP No. 5861 of 1998 ("the Action") against Mrs Wong, Wong (Hoi Choi) and Ultra Success to obtain possession of the Property with a view to sale. In the absence of all 3 defendants in the Action, by an Order dated 15 April 1999 ("the Order") Master Cannon gave judgment in the Bank's favour:-

(1) against Mrs Wong, for a total amount of $2,514,177.54;

(2) against Wong (Hoi Choi), for $2,421.61; and,

(3) against Ultra Success, for a total amount of $2,511,755.93.

The Master also awarded interest. The Order further required Mrs Wong to deliver vacant possession of the Property to the Bank within 28 days.

20. On 17 June 1999 the Bank took out a Combined Writ of Possession and Fieri Facias in respect of the Property. In the course of his visits to the Property, the Court Bailiff found the same to be deserted. On 15 September 1999 the Court Bailiff recovered vacant possession of the Property.

21. The Bank then instructed Chung Sen Auctioneers Ltd ("Chung Sen") to sell the Property by public auction on 22 August 2000. At that auction, the Property did not meet its reserve price of $1,300,000.00 and was withdrawn. It was re-auctioned on 19 October 2000 at the same reserve, but was again unsuccessful and so withdrawn.

22. By letter dated 31 October 2000 Messrs K M Lai & Li ("KMLL"), the Bank's present solicitors, requested the Firm to advise:-

"whether or not premium had been paid pursuant to the Schedule to Housing Ordinance (Cap. 283) or consent to mortgage had been obtained from the Housing Authority before the aforesaid mortgages/charges [of the Property in the Bank's favour] were prepared."

On 3 November 2000 the Firm responded that "there is no record of premium having been paid pursuant to the Schedule to the Housing Ordinance". The Firm noted that there was no letter of consent from the Housing Authority in its file.

23. On 9 November 2000 the Bank employed Messrs Dun & Bradstreet (HK) Ltd, a debt collection agency, to attempt to recover the monies due to it from Hoi Choi and Ultra Success. This proved abortive.

24. On 9 November 2000 KMLL wrote to the Housing Authority in connection with the Property:-

"to enquire whether or not premium had been paid pursuant to the Schedule to Housing Ordinance (Cap. 283) or your consent to mortgage had been granted when the said mortgages/ charges were prepared. If the answer is in the affirmative, please send us the relevant document(s) evidencing the same.

If the answer is negative, we should be grateful if you would advise on any remedial actions to be taken so as to protect our client's interest."

25. The Housing Authority replied on 29 November 2000 as follows:-

"According to our records, no application for premium assessment has been received in respect of the above property. In addition, the owner has neither applied for nor obtained approval in respect of the Legal Charge and the Second Mortgage as mentioned in your letter.

Paragraph 1 of the Schedule to the Housing Ordinance provides that the purchaser shall not alienate convey or charge etc. the property which subject to the terms contained in the Schedule. Under section 17B of the Housing Ordinance, if any person, to whom the land is sold purports to mortgage or alienate the property in breach of the relevant terms and conditions, the transaction will be void. No doubt you are also aware of the provisions of section 27A of the Housing Ordinance.

The operation of Section 17B is a matter of law which is not subject to the determination of the Housing Authority. I trust you will be able to advise your client the status of the legal charge and the effect, if any, which the legal charge may have on the title of the property."

26. By letter dated 8 December 2000 KMLL asked the Housing Authority whether the situation could be remedied by payment of the premium at that stage with retrospective effect. However, the Housing Authority was not receptive to the suggestion. The Director of Housing answered on 13 December 2000:-

"I would reiterate that whether there has been any breach of the provisions of the Schedule to the Housing Ordinance is a matter of law, and the Housing Authority is not in a position to waive any breach, if such has in fact been committed. I can only confirm that it is not the prevailing policy of the Housing Authority to give retrospective consent for mortgage and/or charge."

27. On 23 January 2001 KMLL enquired whether the Housing Authority was prepared to buy back the Property. The Director of Housing responded on 30 January 2001 as follows:-

"Generally, flats in the captioned development being sold under Private Sector Participation Scheme now fall outside the 5-year alienation restriction period from the date of first assignment [Footnote: "For PSPS flats, the date of first assignment generally refers to the date of first deed of assignment of a particular flat from the developer to th purchaser nominated by the Hong Kong Housing Authority."] For the date of first assignment of the above flat, please refer to the relevant assignment of the property or by conducting search in the Land Registry.

Under the current policy, PSPS flats that have expired the 5-year alienation restrictions period would not be bought back by the Housing Authority but they can be sold in the open market subject to the payment of premium to the Housing Authority before assignment of the property, in accordance with the provisions of the Schedule to the Housing Ordinance.

An application for premium assessment can be made by the registered owner by submitting the enclosed application form, duly completed, together with a cheque/ cashier order for an administrative fee of $3,300.00 payable to 'Hong Kong Housing Authority' to this Section for processing. A copy of the first subject assignment should be submitted alongside the application.

Alternatively, the above property may be sold in the secondary market pursuant to paragraph 4(c) of the Schedule to the Housing Ordinance."

28. On 4 April 2001 KMLL wrote a letter before action to the Firm. The letter complained of the Firm's negligence in the preparation of the 1st and 2nd Charges. The letter stated:-

"Having obtained advice from Counsel, our client has been advised that failing on your part, as solicitors for our client, to obtain or procure the issue of the necessary prior written consent from the Director of Housing before causing and procuring our client to enter into the legal charge and the legal charge when you knew or ought to have known that the same was required to enable a valid and enforceable charge to be charged upon the said premises constitute negligence and/or breach of duty for which your are liable to our client for all loss and damages suffered by it."

A draft Statement of Claim was appended to the letter.

29. On 21 April 2001 the Bank commenced the present action against the Firm for the negligent preparation of the 1st and 2nd Charges. The Bank says that, contrary to the Firm's obligation to ensure that the 1st and 2nd Charges were effective, by negligently failing to obtain the Director of Housing's consent to the 2 charges or to advise the Bank of the need for such consent, the Firm caused the Bank to enter into charges which were void, illegal and wholly unenforceable or inoperative.

B. The Property and the HO

30. It is convenient at this stage briefly to consider some of the history of the Property, a few relevant terms contained in the various title deeds and documents relating to the Property and some applicable provisions of the HO.

31. By a Tender Form dated 10 September 1982 Billion Town Company Limited ("Billion") offered to purchase Chai Wan Inland Lot No. 106, Lok Man Road, Chai Wan ("the Site") (on which the Property is now situated) for $90,300,000.00 subject to the Conditions.

32. The following Conditions are noteworthy:-

(1)	Special Condition ("SC") (14):-
	"For the purposes only of Special Conditions Nos. (8)(c), (8)(d), (15), (17), (18), (19), (20), (21)(c) and (22) hereof:-
	...
	(b)	'home-owner' means a person nominated by the Hong Kong Housing Authority under Special Condition No. (18)(a) hereof;
	(c)	'the Purchaser' means only the person or company executing this Agreement and his personal representatives or his or its successors, but not his or its assigns;
	(d)	'unit' means a flat or unit ... designed or intended to be used for residential occupation by a home owner in the building or buildings erected or to be erected on the lot or any part thereof, and does not include car parking spaces.
(2)	SC (15):-
	" (a)	Except as hereinafter provided in this Special Condition, the Purchaser shall not assign, charge, mort[g]age, demise, underlet, part with the possession of or otherwise dispose of the lot or any part thereof or any interest therein or any building or part of any building thereon, or enter into any agreement so to do.
	(b)	The Purchaser may assign or agree to assign a unit or units but only:-
		(i) with the prior consent in writing of the Registrar General (Land Officer)... (ii) in accordance with a scheme of conveyancing and management control... (iii) to the Hong Kong Housing Authority or a home-owner or a nominee of the Government; (iv) at a sales price per unit which shall be fixed by the Director of Housing... (v) on terms which, inter alia, require payment of the purchase price by way of a deposit of an amount equal to 10% of the purchase price...
	..."
(3)	SC (20):-
	"The sale of units by a home-owner and any alienation or conveyance or purported alienation or conveyance by a home-owner or by a mortgagee of a unit shall be subject to the terms covenants and conditions relating thereto mentioned in the Housing Ordinance and any amendments thereto."

33. Billion's tender was successful. On 21 October 1982 the Government entered into a Memorandum of Agreement with Billion for the development of the Site subject to the Conditions. As part of the development, Billion built the Property on the Site.

34. By the Agreement Billion agreed to sell the Property to Mrs Wong for $291,800.00. The following were material terms of the Agreement:-

(1)	Preamble:-
	"In this Agreement the following expressions shall have the following meanings except where the context otherwise permits or requires:-
	...
	(f)	'the said Crown Grant' means the Crown Grant document or documents of title setting forth the rights and entitlements granted by the Crown to the Vendor or his predecessors in title in respect of the land and in particular the lease term entitlement; namely Conditions of Sale No. 11633 as modified by two Modification Letters dated the 3rd date of September 1984 and the 27th day of October 1984 and registered in the Land Office by Memorial Nos. 2676897 and 2694334 respectively under which the Vendor is (subject to the Certificate of Compliance) entitled to a Crown Lease of the land for the term of 75 years from 21st October 1982 renewable for a further term of 75 years."
(2)	Clause 8:-
	"The said premises are sold subject to and with the benefit of the said Crown Grant and the term (if any) created thereby and with any right of renewal thereby granted. ..."
(3)	Clause 30:-
	"Notwithstanding anything to the contrary hereinbefore contained, it is hereby expressly agreed and declared that the Assignment in respect of the premises hereby agreed to be sold shall contain a statement to the effect that it is subject to the terms covenants and conditions mentioned in the Housing Ordinance (Cap. 283) an any amendments thereto."
(4)	Clause 32:-
	"It is hereby agreed and declared by the parties hereto that the full market value of the said premises as at the date of sale is $376,400.00."

35. The Property was assigned to Mrs Wong on 17 March 1986 by the Assignment. The Assignment provided thus:-

(1)	Clause 2:-
	"In consideration of the Purchase Price paid by the Purchaser [Mrs Wong] to the Vendor [Billion] (receipt whereof is acknowledged) the Vendor as beneficial owner ASSIGNS to the Purchase [the Property] TO HOLD the same unto the Purchaser ... Subject to the payment of the due proportion of the yearly Crown rent reserved by and the covenants conditions and provisos contained in the Crown Lease and Subject also to the terms covenants and conditions mentioned in the Schedule to the Housing Ordinance (Cap. 283) and any amendments thereto..."
(2)	Clause 5:-
	"The Purchaser [Mrs Wong] hereby further covenants with the Vendor [Billion] as follows:-
	(1)	That the Purchaser will observe and perform the said terms covenants and conditions mentioned in the Schedule to the Housing Ordinance (Cap. 283) and any amendments thereto and will indemnify the Vendor against all actions suits expenses claims and demands on account of or in respect of the non-observance or non-performance thereof. ..."

36. Mrs Wong bought the Property with a mortgage from Hua Chiao. Hua Chiao's legal charge dated 17 March 1986 stipulated as follows:-

(1)	Preamble (3):-
	"This legal charge is subject to the provisions of the Housing Ordinance (Cap. 283) and any amendments thereto."
(2)	Clause 7:-
	"IT IS HEREBY AGREED AND DECLARED as follows:-
	...
(c)	In the event of the Lender exercising the power of sale upon its having arisen the Lender shall be entitled to exercise such power in accordance with the terms upon which this security has been agreed or approved by the Hong Kong Government whether upon a Deed of Guarantee with a bank or deposit-taking company or otherwise and in that event the Borrower shall not raise any objection thereto or make any claim in respect thereof or to or of the calculation of the price payable or the difference between the said price and the full market value of the Property upon such sale.
..."

37. It is apparent from all the terms reproduced above that the Property is covered by the Government's HOS/PSPS (Home Ownership Scheme/ Private Sector Participation Scheme) programme.

38. Relevant provisions of the HO governing units subject to the HOS/PSPS programme are as follows:-

(1)	s. 2:-
	"In this Ordinance, unless the context otherwise requires:- 'Authority' means the Housing Authority established under section 3;
	...
	'estate' means any land vested in the Authority or the control and management of which has been vested in the Authority under section 5 or under a deed of mutual covenant or otherwise;
	..."
(2)	s. 17A:-
	(1)	Subject to the conditions of the Government lease in respect of any land in an estate, and subject to the payment of such purchase price and such terms and conditions of payment as the Authority may determine with the prior approval of the Chief Executive, the Authority may sell or otherwise dispose of any such land.
	..."
(3)	s. 17B:-
	" (1)	Where:-
		(a)	(i)	land in estate is sold under section 17A; or
			(ii)	land in respect of which the Authority is authorized to nominate purchasers is sold and the person selling the land acts without the written permission of the Authority; and
		(b)	the person to whom the land is sold purports to mortgage or otherwise charge the land or to assign or otherwise alienate it; and
		(c)	that person acts in breach of:-
			(i)	any term or condition of the agreement for sale and purchase or any covenant in the deed of assignment relating to the land; or
			(ii)	in the case of such a mortgage or other charge, any term authorized under paragraph 4(a) of the Schedule as regards the mortgage or other charge,
	the purported mortgage, other charge, assignment or other alienation, together with any agreement so to mortgage, charge, assign or otherwise alienate, shall be void.
	..."
(4)	s. 27A:-
	"Where:-
	(a)	a person whether as lender, borrower or otherwise purports to create a mortgage of or otherwise charge land or to assign or otherwise alienate land or to enter into an agreement which relates to land; and
	(b)	the purported mortgage or other charge or the purported assignment or other alienation or the purported agreement is void by virtue of section 17B,
	the person commits an offence and is liable to a fine of $500,000.00 and to imprisonment for 1 year."
(5)	Schedule §1 (as replaced by LN 189 of 1997):-
	"Subject to paragraph 4 of this Schedule, the purchaser shall not at any time alienate, convey, charge or part with possession or purport to alienate, convey, charge or part with possession or enter into any agreement to alienate, convey, charge or part with possession of the land sold other than to the Authority, or such person as the Authority may nominate, unless:-
	(a)	either:-
		(i)	a period of 5 years has elapsed from the date of first assignment of the land:-
			(A)	from the Authority to any purchaser; or
			(B)	to any purchaser nominated by the Authority,
			whichever is the earlier; or
		(ii)	before that period has elapsed, the purchaser has offered to assign the land to the Authority and the Authority or its nominee (other than a prescribed nominee) has declined to accept the assignment; and
	(b)	the purchaser has first paid to the Authority the amount of the premium calculated under the following formula:-
	Premium = (Prevailing Market Value x (Initial Market Value - Purchase Price)) / Initial Market Value
	Where:-
	'Premium' means the amount payable;
	'Prevailing Market Value' means, subject to paragraph 6 of this Schedule, the market value of the land assessed by the Director of Housing ('the Director') as at the time when the purchaser pays the Premium;
	'Initial Market Value' means the market value of the land assessed by the Director as at the time of purchase and as specified in the last assignment of the land:-
	(a)	from the Authority to any purchaser; or
	(b)	to any purchaser nominated by the Authority (other than a prescribed nominee),
	whichever is the later.
(6)	Schedule §4 (as replaced by LN 189 of 1997):-
	"Notwithstanding that the purchaser had not paid the premium mentioned in paragraph 1 of this Schedule, he may, in relation to the land:-
	(a)	mortgage or charge the land with the prior approval of the Director and on such terms as are authorized by the Director in writing; or
	..."

39. Since the premium specified in HO Schedule §1 has never been paid by Mrs Wong and the Director of Housing never consented to the mortgage of the Property on the terms of the 1st and 2nd Charges, it follows from HO s. 17B that the 1st and 2nd Charges are void. Further, in consequence of entering into the 1st and 2nd Charges, the Bank and Mrs Wong (whether advertently or not) also became liable for an offence under HO s. 27A.

40. Finally, in this section, I set out the terms of Circular 94-157 (PA) ("the Circular") dated 16 May 1994 issued by the Law Society of Hong Kong. The Circular reproduces Circular Memorandum No. 6 issued by the Legal Advisory and Conveyancing Office of the Director of Lands on 11 May 1994. The latter document is entitled "Mortgage or Charge of Flats under the Home Ownership Scheme/ the Private Sector Participation Scheme". It is addressed to all solicitors and states:-

"Further to Legal Advisory & Conveyancing Office Circular memorandum No. 5, I wish to remind solicitors of the restrictions on the mortgaging or charging of flats acquired under the Home Ownership Scheme (HOS) and the Private Sector Participation Scheme (PSPS).

HOS/PSPS agreements for sale and purchase and deeds of assignment incorporate the Schedule to the Housing Ordinance (Cap. 283) ('the Schedule'). Paragraph 1 of the Schedule prohibits (subject to the Schedule) the mortgaging or charging by an HOS/PSPS flat purchaser of his flat prior to the expiry of a period of 10 years from the date of the assignment to him coupled with the payment of a premium calculated in accordance with the Schedule.

Under paragraph 4 of the Schedule, an HOS/PSPS flat purchaser is permitted to mortgage or charge his flat only with the prior approval of the Director of Housing ('the Director') and on such terms as are authorized by the Director in writing. Any mortgage or charge of a flat which has not been approved by the Director or does not comply with the terms on which the Director has signified his approval is to be regarded as unauthorized and in breach of the Schedule.

Any breach of the Schedule will necessarily be a breach of the terms and conditions of the HOS/PSPS agreement for sale and purchase and deed of assignment, for breach of which action may be taken against the HOS/PSPS flat purchaser.

It is important to ensure, when dealing with mortgages or charges of flats under the HOS/PSPS, that they are first approved or authorized by the Director and comply strictly with all the terms imposed by him.

HOS/PSPS mortgages or charges are authorised by the Director under and by virtue of Deeds of Guarantee entered into between the Hong Kong Housing Authority and participating lending institutions and therefore must not differ from the prescribed form.

If any variation from the prescribed form is required to meet the circumstances of a particular case the approval of the Director to the variation must first be obtained. If this approval is not obtained, the mortgage or charge will not have the benefit of the relevant Deed of Guarantee. HOS/PSPS mortgages or charges authorized by the Director otherwise than by the Deeds of Guarantee, should be first approved by the Director."

Discussion

A. Liability

41. In my view there can be no doubt that the Firm was negligent.

42. The Bank's instructions for the preparation of the 1st and 2nd Charges were handled by Mr Chow Bing Chiu ("Mr Chow") on the Firm's behalf. Although Mr Chow prepared a witness statement, ultimately he was not called to give evidence at trial. Where a defendant does not call evidence on crucial issues, a Court is "entitled to be bold" (Insurance Commissioner v. Joyce (1948) 77 CLR 39, at 49 (Rich J), cited with approval in SS Pharmaceutical Co. Ltd and another v. Qantas Airways Ltd [1991] 1 Lloyds Rep 288, at 293 (col. 1) (Gleeson CJ and Handley JA)). In such case the Court "draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold" (British Railways Board v. Herrington [1972] AC 877, at 930 (Lord Diplock)).

43. In preparing the 1st and 2nd Charges, Mr Chow would have had to peruse the documents forwarded to the by C & C on 28 March 1986. I assume in Mr Chow's favour that he did so. It would have been negligent of him not to have done so, as he cannot have prepared any effective charge if he was unaware of the terms under which Mrs Wong held the Property evidenced by the title deeds.

44. Had Mr Chow examined the title deeds, he should have noticed the provisions from the Conditions, Agreement and Assignment which I have copied in Section I.B of this Judgment. It would have been evident from those provisions that the Property was subject to a covenant restricting the alienation (including mortgage) thereof without the Director of Housing's consent. It would also have been obvious that the Property was governed by the HO, in particular the terms and conditions stipulated in the Schedule to that ordinance. If Mr Chow had somehow missed those terms, he would again have been negligent as he cannot have been reading the documents with any attention or care to their detail.

45. Having (as I again assume in Mr Chow's favour) noticed the terms in the title documents expressly subjecting Mrs Wong's ownership of the Property to the HO and its Schedule, Mr Chow ought to have realised that there was a problem. Under the HO, the 1st and 2nd Charges would be void and illegal under the HO unless the Director of Housing's consent was procured. At this point, Mr Chow ought at least to have advised the Bank that no effective charge of the Property could be created without the Director of Housing's consent. Mr Chow did not do so. Instead, in the cases of both the 1st and 2nd Charges, he negligently told the Bank that its security documents were "in order" and the Bank could safely loan monies to Hoi Choi and Ultra Success respectively. That was simply wrong advice.

46. Mr Ng (appearing for the Firm) suggests that the Firm was not liable for one or more of the following reasons:-

(1) Before the grant of the 1st and 2nd Charges the Bank had already respectively agreed to grant Hoi Choi and Ultra Success loan facilities.

(2) The Bank itself must have known that the Property was a PSPS unit. But the Bank did not inform the Firm accordingly. In particular, Mr Ng submits that the Bank "did not send the Valuation Report dated 1/4/1996 to the Defendant (which would have revealed that the Property was a Home Ownership Scheme unit".

(3) The Bank never instructed the Firm to obtain the Director of Housing's consent to the 1st and 2nd Charges.

There is no merit in any of the foregoing submissions.

47. While it is correct that by the 1st and 2nd Facilities Letters the Bank offered to provide loan facilities to Hoi Choi and Ultra Success respectively, the terms of those letters make it clear that the Bank was only prepared to grant such facilities on condition that effective collateral was provided. Mr Ng seems to be suggesting that, by the 1st and 2nd Facilities Letters as accepted by Hoi Choi and Ultra Success, the Bank was bound to provide loan facilities regardless of whether a proper 1st and 2nd Charge could be created over the Property. That is not what either the 1st or 2nd Facilities Letters say. The offers advanced in both letters was conditional on the fulfilment of certain terms.

48. It is true that the valuations of the Property provided to the Bank by FPD on 1 April 1996 and by the Bank's internal valuation department on 25 April 1997 refer to a "non-assignment" clause. But the Bank was entitled to rely on its solicitors to advise on all steps necessary to effect an operative charge over the Property. That was the Firm's job. The mere fact that someone in the Bank knew about HOS/PSPS units cannot of itself absolve the Firm from doing a proper job.

49. Indeed, Mr Wan who was the sub-manager handling the Hoi Choi and Ultra Success account on behalf of the Bank was himself not legally qualified. Why should he not be able to rely on the Firm's advice that the 1st and 2nd Charges were "in order"? It is ironical and unacceptable for solicitors to blame a client for failing to have regard to something which the solicitors should themselves have addressed of their own motion.

50. Mr Ng says that the Bank failed to forward the 1 April 1996 valuation to the Bank. There is no evidence that the Bank did not do so. But, whether or not the Bank did, it ought to have been apparent from the Conditions, Agreement and Assignment that the Property was subject to restrictions under the HOS/PSPS programme. Whether or not he received the April 1996 report, Mr Chow ought to have spotted the problem under the HO, if he had performed his work properly.

51. Finally, on this point, the allegation that the Bank did not instruct the Firm to seek the Director of Housing's consent to the charge is groundless. The 1st and 2nd Instructions expressly asked the Firm to prepare charges and "such other documents as you think fit in favour of our Bank to render additional security to out Bank ..." Further, by their §12, both Instructions request the Firm "to confirm that the ... various security documents are in order before the banking facility(ies) become operative/available and advise us if you see anything disadvantageous to our Bank". A prudent solicitor reading such Instructions, especially in light of the Circular (of which I presume Mr Chow was aware), ought to have appreciated the need to advise the Bank of the Schedule to the HO and the steps that needed to be taken to make the 1st and 2nd Charges valid.

52. I note that the 1st Instructions required the Firm to take steps to deal with Hua Chiao's legal charge. Had Mr Chow read Hua Chiao's legal charge (which was registered), he would have seen references therein to the HO and to the security having been approved by the Government (including mention of the provision of a Deed of Guarantee as stated in the Circular). That by itself should have alerted Mr Chow to the need to make provision for the requirements of the HO in preparing the 1st Charge.

53. For all the above reasons, I conclude that the Firm acted negligently and in breach of its obligations to the Bank.

B. Quantum

B.1 The Bank's primary case and a point of pleading

54. The primary case of Mr Chong (appearing for the Bank) on quantum of damage is that, had the Bank known that the 1st and 2nd Charges were invalid, the Bank would not have lent any money to Hoi Choi or Ultra Success. Accordingly, Mr Chong argues that the Bank is entitled to claim the total amount (with interest) loaned to Hoi Choi and Ultra Success under the 1st and 2nd Facilities Letters. By reference to the Order, Mr Chong quantifies this amount as $2,514,177.54 plus interest.

55. On the 1st day of trial Mr Ng objected to Mr Chong's primary case on the ground that the same constituted special damages which ought to have been (but which has not been) pleaded in the Amended Statement of Claim ("AMSOC"). Mr Ng claimed that the Firm was prejudiced by the late introduction of Mr Chong's primary case.

56. In support of his argument, Mr Ng relied on the following passage from the judgment of Lord Donovan in Pestrello e Companhia Limitada v. United Paint Co. Ltd [1969] 1 WLR 570, at 579C-580D:-

"There is plenty of authority for the proposition that a plaintiff need not plead general damage; but since the expressions 'special damage' and 'special damages' are used in such a wide variety of meanings it is safer to approach this question by considering what a plaintiff is required to plead rather than what he is not.

The Rules of the Supreme Court are no direct assistance. Ord.18, r.7, requires that every pleading shall contain a summary of the material facts and by Rule 12 'every pleading must contain the necessary particulars of any claim. ...' By Rule 15 'a statement of claim must state specifically the relief or remedy claimed. It follows that the necessity of pleading 'damage' (meaning injury) or 'damages' (meaning the amount claimed to be recoverable), if it arises at all, does so as an example of the general requirement of any statement of claim that it shall 'put the defendants on their guard and tell them what they have to meet when the case comes on for trial' (per Cotton LJ in Philipps v. Philipps (1878) 4 QBD 127, 139).

Accordingly, if a plaintiff has suffered damage of a kind which is not the necessary and immediate consequence of the wrongful act, he must warn the defendant in the pleadings that the compensation claimed will extend to this damage, thus showing the defendant the case he has to meet and assisting him in computing a payment into court.

The limits of this requirement are not dictated by any preconceived notions of what is general or special damage but by the circumstances of this particular case. 'The question to be decided does not depend on the words, but is one of substance' (per Bowen LJ in Ratcliffe v. Evans [1892] 2 QB 524, 529.

The same principle gives rise to a plaintiff's undoubted obligation to plead and particularise any item of damage which represents out-of-pocket expenses, or loss of earnings, incurred prior to the trial, and which is capable of substantially exact calculation. Such damage is commonly referred to as special damage or special damages but is no more than an example of damage which is 'special' in the sense that fairness to the defendant requires that it be pleaded.

The obligation to particularise in this latter case arises not because the nature of the loss is necessarily unusual, but because a plaintiff who has the advantage of being able to base his claim upon a precise calculation must give the defendant access to the facts which make such calculation possible.

The matter is clearly stated in Mayne and McGregor on Damages, 12th ed. (1961), p. 813, para. 970, where the editors say:

'Special damage consists in all items of loss which must be specified by [the plaintiff] before they may be proved and recovery granted. The basic test of whether damage is general or special is whether particularity is necessary and useful to warn the defendant of the type of claim and evidence, or of the specific amount of claim, which he will be confronted with at the trial.'

The claim which the present plaintiffs now seek to prove is one for unliquidated damages, and no question of special damage in the sense of a calculated loss prior to trial arises. However, if the claim is one which cannot with justice be sprung upon the defendant at the trial it requires to be pleaded so that the nature of the claim is disclosed. As Lord Dunedin said in The Susquehanna [1926] AC 655, at p. 661: 'If the damage be general, then it must be averred that such damage has been suffered, but the quantification of such damage is a jury question.'

What amounts to a sufficient averment for this purpose will depend on the facts of the particular case, but a mere statement that the plaintiff claims 'damages' is not sufficient to let in evidence of a particular kind of loss which is not a necessary consequence of the wrongful act and of which the defendant is entitled to fair warning.

Not only was there no mention at all of loss of profits in the statement of claim in the present case but, as has been pointed out, the case pleaded was inconsistent with such a claim. We agree with the view of the trial judge that the plaintiffs were not entitled without amendment to lead evidence of this loss."

57. I rejected Mr Ng's objection. I did so because it seems to me that Mr Chong's primary case was nothing more than a submission of what Mr Chong regarded as "the necessary and immediate consequence of [the Firm's] wrongful act". Mr Chong is saying that, but for the Firm's negligent statement that the 1st and 2nd Charges were operative, no monies would have been lent to Hoi Choi or Ultra Success. The "necessary and immediate consequence" is therefore that the Bank lost all the monies lent. Whether that is or is not a correct analysis, is something which I shall examine in a moment. But that is essentially Mr Chong's proposition and I believe that the same is more akin to a claim for general rather than special damage.

58. Further, Mr Chong's primary is implicit in AMSOC and the Bank's Amended Reply ("AMREP"). See, for example, the following:-

(1)	AMSOC §5:-
	"[T]he Defendant accepted the Plaintiff's following instruction for ... the preparation of all necessary documents to effect a valid legal charge upon the said premises as security for repayment of all sums as might be due and payable upon the Plaintiff granting banking facilities to the said registered owner:-
	...
	(b)	After investigation of the relevant title deeds of the said premises, to advise the Plaintiff that the title ... as well as the legal charge ... are in order before the general banking facility becomes operative.
	..."
(2)	AMSOC §8:-
	"The Plaintiff instructed the Defendant, matters referred to in Paragraphs 5(a)-5(c) above for the preparation of all necessary documents to effect a further legal charge on the said premises as security for repayment of any principal and interest upon the Plaintiff granting banking facilities to the said Ultra Success ..."
(3)	AMSOC 13A:-
	"Instead, the Defendant advised the Plaintiff:-
	(a)	in its letter of 19th April 1996 that the title deeds of the said premises and, inter alia, the legal charge thereon were in order; and
	(b)	by its letter of 21st May 1997 that the title deeds of the said premises and, inter alia, the further legal charge thereon were in order thereby implying tat the legal charge and the further legal charge were lawful, valid and enforceable charge against the said premises.
	And the Defendant further advised the Plaintiff that the latter might grant the general banking facilities and allowed the same to be used."
(4)	AMREP §4:-
	"In the premises, it was an express term of the Defendant's retainer and/or engagement that the Defendant would:-
	...
	(b)	confirm with the Plaintiff that the title deed and the various security documents were in order before the banking facility become available and to advise the Plaintiff if the Defendant see anything disadvantageous to the Plaintiff."

The tenor of the foregoing pleas is that the grant of monies by the Bank was conditional on there being valid 1st and 2nd Charges. Without such, no monies would have been granted. I accordingly do not think that it can be said that the Firm has been taken by surprise in Mr Chong's assertion of his primary case.

59. Nor was I persuaded by the prejudice alleged by Mr Ng. The example of prejudice cited by him related to monies which the Bank allowed Hoi Choi to withdraw by way of "unauthorised overdraft" after the loan facilities granted by the Bank were switched from Hoi Choi to Ultra Success. Mr Ng argued that, had the Firm known about Mr Chong's primary case, the Firm would have asked for further discovery on the amount of "unauthorised overdraft" since the Firm should not be responsible for any overdraft beyond that allowed by the 1st or 2nd Facilities Letters. Further discovery on the point could (Mr Ng suggested) held the Firm assess a proper amount to pay into Court.

60. In fact the amount of "unauthorised overdraft" by Hoi Choi following the switch of facilities to Ultra Success was relatively small, in the order of the $2,421.61 (plus interest) awarded by the Order to the Bank against Hoi Choi. The Firm would have been fully aware of this at all times, since the Firm was the solicitor which on the Bank's instructions handled the Action leading to the Order. There were numerous documents in the trial bundle referring to the unauthorised drawing by Hoi Choi, including several recovery letters which the Firm itself wrote to Mrs Wong, Wong, Ultra Success and Leung. I note that the overdraft, far from being outside the terms of the 1st Facilities letter, was covered by Facility III under that letter.

61. In any event, I do not accept Mr Ng's logic. If the amount of overdraft was genuinely a sticking point on the Bank's primary case, it would have equally been so on the Bank's fall-back position. By way of secondary case, the Bank claims the value of the Property on certain alternative dates. The highest specific valuation pleaded is $2,450,000.00 as at 26 May 1997 when the 2nd Charge was made. If the Firm actually thought that there were amounts which the Bank should on no account be allowed to claim, the Firm would long since have sought discovery on any disputed items to assure itself that the Bank's alternative claim by no means exceeded the amount properly due and owing under the 1st and 2nd Facilities Letters. But the Firm did not do so.

62. For the above reasons, I rejected Mr Ng's pleading objection. For the purposes of the trial, the immediate consequence of my ruling was that I allowed the Bank to adduce a Supplemental Witness Statement from Mr Wan. That stated (and Mr Wan confirmed during his examination-in-chief) that: "Had the [Bank] known the 1st and 2nd legal charges would be void without obtaining prior consent from the Housing Authority, the Plaintiff would not have granted the general banking facilities to the Borrower."

B.2 The Bank's primary case and causation

63. Mr Ng says that Mr Chong's primary case is wrong. His Skeleton submits as follows:-

"11.	... [T]he Plaintiff's claim for the whole amount of the loan also offends the general rule that the wrongdoer should not be liable for all the consequences of his wrongful conduct. The law limits liability to those consequences which are attributable to that which made the act wrongful. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate: per Lord Hoffmann in [South Australia Asset Management v. York Montague Ltd [1997] AC 191 ('SAAMCO')] at p. 213C-D.
12.	The Plaintiff's starting point of the whole amount of the loan is not fair. Under the Plaintiff's calculation, the solicitor bears the whole risk of the transaction which, but for his negligence, would not have happened. He is therefore liable for all the loss attributable to the fall in the market. This was the approach of the English Court of Appeal in Banque Bruxelles SA v. Eagle Star. But the Court of Appeal's approach was expressly rejected by the House of Lords in SAAMCO: per Lord Hoffmann at 20F-G at p. 212G; see also Bristol & West Building Society v. Fancy & Jackson (a Firm) [1997] 4 All ER 582 at p. 620-c-e per Chadwick J.
13.	Further, the Plaintiff's claim is based on a distinction between 'no transaction' and 'successful transaction'. However, the distinction between the 'no transaction' and 'successful transaction' cases is quite irrelevant to the scope of the duty of care. The distinction is not based on any principle and should be abandoned: per Lord Hoffmann in SAAMCO at p. 218C-D and p. 218G."

64. SAAMCO was a case involving negligent over-valuations of premises. Following default by the borrowers, the lenders who had advanced money in reliance on those inflated valuations discovered that they were under-secured. In the meantime, the property market had collapsed and each of the lenders sought to recover the full amount of their loss against the negligent valuers. In those circumstances, the House of Lords held that the correct approach was to limit the valuers's liability for damages to the consequences directly attributable to the provision of inaccurate information, rather than all the consequences flowing from the valuers' conduct.

65. At SAAMCO 214C-F Lord Hoffmann stated:-

"I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore in appropriate either as an implied term of a contract or a tortious duty arising from the relationship between them.

The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong."

66. The present case is not about the provision of information. Nor is it strictly a case of a lender finding that it has a less valuable security that it thought. The Firm was instructed to prepare effective 1st and 2nd Charges and to advise the Bank that everything was in order in relation to such charges so that the Bank could safely lend money on the strength of such security. As a result of the Firm negligently advising the Bank that it could lend on the strength of the 1st and 2nd Charges, the Bank not only found that it held 2 void and illegal charges, but also that (contrary to the Bank's intention) it had released monies to Hoi Choi and Ultra Success without any operative security. Insofar as Lord Hoffmann draws a distinction, the present case appears closer to the situation where a person is asked to advise on a course of action (for example, the need to obtain certain clearances before an operative charge could be created and monies lent) rather than one where a person is requested to provide information on the basis of which (among other factors) someone will decide whether a cause of action is appropriate.

67. In SAAMCO, if the valuation information originally provided had been correct, all but one of the relevant lenders would still have made a loss because of the collapse in the property market. The House of Lords held that the lender who would not have made a loss if the valuation had been accurate, ought to be compensated for his loss in full. On the other hand, as Lord Hoffmann pointed out, it would be odd if the lenders who would nonetheless have made the loss even if the valuers had not been negligent, should now be in a better position and compensated for all the loss sustained, including that wholly attributable to a fall in the market. That sort of consideration is absent from the present case.

68. Mr Wan (who struck me as wholly honest and straightforward) said that the Bank would not have lent anything to Hoi Choi or Ultra Success without any effective security. I accept that evidence without hesitation.

69. Faced with such evidence from Mr Wan, there was no cross-examination by the Firm as to what the Bank would have done if it had been told that the Director of Housing's permission was required for the mortgage and that the Bank may have to provide a Deed of Guarantee (as stated in the Circular). Nor was there any exploration in cross-examination as to whether the Bank would still lend money to Hoi Choi or Ultra Success if the Bank had been advised by the Firm of a possible need to pay premium as a pre-condition to the exercise any rights of sale arising under the 1st or 2nd Charges even though approved by the Director of Housing. It was not even suggested to Mr Wan in cross-examination that, contrary to his evidence, the Bank would have advanced money to Hoi Choi and Ultra Success despite the lack of effective security.

70. Given the foregoing, I do not see how it can be said that, if the Bank had been properly advised of the situation, it would have still proceeded with the loans so that at the end of the day its actionable damages should be no higher than the market value of the Property (ascertained as at some date after the borrowers' default) on the assumption that the Director of Housing had approved of the 1st and 2nd Charges.

71. I am strengthened in my conclusion by reference to cases involving negligent solicitors decided after SAAMCO.

72. Bristol and West Building Society v. Fancy & Jackson (a firm) and other actions [1997] 4 All ER 582 involved 8 different actions against solicitors. Chadwick J states at 619d-e:-

"In summary, therefore, in four of the cases before me -- Fancy & Jackson, Steggles Palmer, Cooke & Borsay and Colin Bishop -- the [building] society has satisfied me, but for the defendants' breach of duty (or, in the case of Cooke & Borsay, breach of warranty of authority), it would not have made the advance; and so would not have suffered the loss which it did suffer. I am not satisfied that the advance would not have been made in the other four cases: Read & Rogers, Baileys Shaw & Gillett, Clearys and Moroneys. It follows that, in those four cases, the society has not established that it has suffered loss which it would not have suffered but for the breach; and it can recover no more than nominal damages."

Thus, in 4 of the 8 cases, Chadwick J found that, as here, the plaintiff would not have lent money but for the relevant solicitor's breach of duty. The question then becomes how one assesses quantum in those 4 cases. Chadwick J carries out this exercise at 622b-623d.

73. Three of the situations do not seem analogous to the action here. In Fancy & Jackson Chadwick J finds that the loss which the building society sustained was not caused by the defendant's breach because "[t]he title to the property taken as security was not, in fact, defective". In Colin Bishop the judge concludes that, had the building society been fully apprised of the facts, it would merely have wanted to obtain a further valuation. If the premises were overvalued, the position would be indistinguishable from SAAMCO and the defendant solicitors would only be responsible for the loss suffered by the society taking a security which was less valuable than it thought. Cooke & Borsay on the other hand was a case for breach of warranty of authority. The measure of damages there is clearly "the difference between the position which the society would have been in if the authority had been as warranted and the position that it is in in the absence of authority".

74. It is Steggles Palmer which is of interest. There Chadwick J comments as follows (at 622b-f):-

"I have held that the defendants were in breach of duty in failing to notify the society that th transaction was by way of sub-sale; in failing to notify the society that they could not confirm that the borrower was to pay the balance of the purchase moneys from his own resources; and in breach of duty in failing to tell the society that they were also acting for the vendor. I have also held that if the society had known of those matters it would not have made the advance. But that is not, in my view, because the society would have been unwilling to lend what it did lend on the security of that property. In deciding how much to lend on the security of the property the society was relying on its own valuation; and there is no evidence that the valuation was wrong, or that it would have been affected by knowledge of the sub-sale or the relationship between vendor and purchaser. The reason why the society would not have made the advance is, in my view, because the society would have been unwilling to lend to that borrower in order to fund a purchaser from that vendor. If the society had known what it should have known, it would [have] decided that Mr Whittaker was a borrower to whom it did not wish to lend. In those circumstances it seems to me fair, and in accordance with Lord Hoffmann's test, that the defendants should be responsible for the consequences of the society not being in a position to take the decision which is would have taken if the defendants had done what they should have done. That is to say, the defendants should be responsible for the loss suffered by the society as a result of lending to Mr Whittaker. That, subject to questions of mitigation and contributory negligence, is the whole lose arising from the advance."

75. Likewise in the present case, it is not a question of valuation. The Bank had valuations provided to it by FPD and its own internal valuers on the assumption that the non-assignment restrictions were inapplicable. Here the loss to the Bank arose from the Firm failing to do what it was supposed to do, namely, advise the Bank that to have an operative security for its proposed loans certain pre-requisites would have to be met. As a result of the failure, the Bank was not in the position to refuse (as I found that it would have refused) to release monies to Hoi Choi and Ultra Success.

76. In Portman Building Society v. Bevan Ashford (a firm) and others [2000] 1 EGLR 81 the borrowers obtained a 1st mortgage from the building society to cover 75% the ￡218,000.00 purchase price of the property. Upon default by the borrowers, the property was sold for ￡110,000.00. The defendant solicitors negligently failed to tell the building society that the borrowers were taking out a 2nd mortgage as security for ￡50,000.00 of the purchase price. Longmore J found that, had the building society known the true facts, it would have not advanced money as the borrowers would not have been persons to whom the society would want to make a loan. The building society was held entitled to recover its entire loss.

77. At 85 (col. 1) - 86 (col. 2) Otton LJ said:-

"I consider that the answer to this issue is to be found in the particular facts of this case. As a result of the negligence of the firm, PBS believed that there was no second charge, and indeed, that the Goffs [the borrowers] were providing the balance of the purchase price from their own resources. In fact, there was a substantial second charge of ￡50,000.00. The Goffs had no personal equity in the property, and they had fraudulently deceived the society when they signed the offer of advance. Accordingly, the society believed that only ￡163,500.00 was being advanced on mortgage. The maximum sum that the society considered could be serviced by their joint income of ￡62,000.00 was ￡170,500.00. In fact, however, the Goffs were taking on combined loans of ￡213,500.00, well in excess of the maximum sum that the society considered could properly have been serviced on their stated joint income. Thus, the consequence of the information provided by the solicitor being wrong was that:

1.	The society thought that the transaction was viable whereas, if it had been correctly advised, it would have concluded that the transaction was in fact not viable.
2.	The society thought it had the covenants of honest solvent borrowers, whereas it had the covenants of people guilt of fraud.

Longmore J found in terms:

'I accept ... that if (Mr Ostime) had known that there was a proposal for a second mortgage to the vendor, he would not have authorised the loan to be made.'

These are findings of fact that were based on solid evidence of Mr Ostime, which was not challenged, nor could it be. Thus, I am satisfied that, in these circumstances, PBS was rightly held by Longmore J to be entitled to recover the whole of its loss. Longmore J was correct to follow the reasoning of Chadwick J in the application of the SAAMCO principle, which has the effect that where a negligent solicitor fails to provide information tha shows the transaction is not viable or tends to reveal an actual or potential fraud on the part of the borrowers, the lender is entitled to recover the whole of its loss. In other words, the whole of the loss suffered by the lender is within the scope of the solicitor's duty and is properly recoverable.

I am also satisfied that far from being an incorrect application of the SAAMCO principle, the decision of Chadwick J [in Bristol & West Building Society] is a proper application of the principle. If he whole of the loss suffered by the lender is within the scope of the relevant duty, he should be entitled o recover the whole of the loss.

On this analysis, I do not consider it necessary to consider whether BA gave advice rather than information."

78. At 87 (col. 2) Schiemann LJ stated:-

"This solicitor was under an obligation to draw to the attention of the lender a matter that cast doubt upon the reliability of the borrowers. The reason why this duty is imposed upon it is to protect the lender against greater exposure to risk of damage, occasioned by the failure of the borrowers to honour their covenants to repay, than it would willingly have assumed, in any event at the rate at which it lent. Any lender is exposed to a risk that the borrower will default. Its willingness to expose itself to that risk in return for a particular consideration depends on its assessment of the chance of the borrower defaulting. In part that assessment depends on the borrower's financial situation and honesty. In the present case, the financial situation and honesty of the borrowers were misrepresented to the lender due to the negligence of the solicitors. The lender clearly would not have lent had the borrowers' true situation been made clear to it. It is right that, in those circumstances, the solicitor should pay for the damage resulting from the fact that the lender made a loan that otherwise it would not have made."

79. Analogously in the present case, by reason of the Firm's negligence, the Bank was unaware that, without the Director of Housing's consent, the 1st and 2nd Charges were inoperative and the pre-condition to the release of loan monies to Hoi Choi and Ultra Success had not been met. The resultant loss to the Bank from the release of monies to Hoi Choi and Ultra Success was thus within the scope of the Firm's duty.

80. In Crosse and Crosse v. Llodys Bank plc [2001] EWCA Civ 366 the defendant solicitors ("CC") negligently failed to inform the plaintiff bank that property was subject to 2 restrictive covenants whose effect was substantially to limit the developable area of a plot of land. The bank took the plot as security without being aware of the restrictive covenants and, when the borrowers defaulted, sustained a large loss on the sale of the plot.

81. In his judgment, Jonathan Parker LJ stated:-

" 99.	Thus, Chadwick J's conclusion in Steggles Palmer was that the consequence of the solicitor's failure to advise the society that the transaction was proceeding by way of subsale was that the society entered into the transaction when, had it known the true position, it would not have done so. In effect, Chadwick J equated the position of the solicitors in Steggles Palmer with the adviser whose duty it is to advise as to what course of action should be taken (see the distinction referred to by Lord Hoffmann in SAAMCO at p. 214E-F of the former report, quoted earlier).
100.	How, then, do the relevant principles apply in the instant case?
101.	As noted earlier, the stating-point is the overall loss. But CC will only be liable for the entirety of the overall loss if (as the judge concluded) the instance case is in the Steggles Palmer category. If, on the other hand, on a true analysis CC's position is to be equated with a valuer who has overvalued a security (ie. if it is a case in the Colin Bishop category), then in SAAMCO principles, CC will only be liable for so much of the overall loss as is attributable to the particular breach of duty in respect of which damages are claimed. So the crucial question is whether the instant case is a Steggles Palmer case or a Colin Bishop case.
102.	I begin with the scope of CC's duty of care, and with the particular breach of that duty in respect of which damages are claimed. As noted earlier, under its retainer CC was required (among other things) to report whether SDL had a good and marketable unencumbered title and whether the necessary searches disclosed any matters which could affect the value or saleability of the Plot. That was the obligation which CC negligently failed to discharge by failing to disclose the restrictive covenants. The relevant question, therefore, is: What loss was caused by that breach of duty?
103.	In addressing that question, two factors in particular must be borne in mind. In the first place, it is not suggested that the existence of the restrictive covenants rendered the Plot valueless as at March 1989. The Bank's expert valuer valued it at ￡45,000.00 subject to the restrictive covenants; CC's valuer valued it at ￡95,000.00 on the same basis. Secondly, the evidence of Mr Lamb to whom I referred earlier in this judgment was not to the effect that had it known of the restrictive covenants the Bank would have made no loan to Mr Sharland on the security of the Plot; his evidence was that in the first instance the Bank would have invited Mr Sharland to try to negotiate a reduced price, and that depending on the outcome the Bank might have lent a lesser sum. Nor could it be said that Mr Sharland (or SDL) was a borrower to whom the Bank was unwilling to lend. Indeed, it is common ground that the Bank continued to provide SDL with overdraft facilities after completion of the 1989 transaction.
104.	Taking these factors into account, I conclude that the instant case dies not fall within the Steggles Palmer category. In my judgment, the fact that had the existence of the restrictive covenants been known the 1989 transaction would not have taken place is not, on a true analysis, the consequence of CC's breach of duty. In arguing the contrary Mr Berry is, in my judgment, seeking in substance to resurrect the 'no transaction/ successful transaction' approach rejected by Lord Hoffmann in SAAMCO. Applying SAAMCO principles, the court has to determine what are the consequences to the Bank of having lent without knowing the true facts, not what would have been the consequences had the true facts been disclosed. Mr Berry's argument seems to me to be addressed to the latter question.
105.	In my judgment, CC was in all relevant respects in the same position as a valuer, in that the breach of duty in respect of which damages are sought is the failure by CC to draw the attention of the Bank to matters which affected the value and saleability of the Plot. By reason that breach of duty, the bank took a security which it believed to be more valuable than in fact it was. I would therefore regard the instant case as falling into the Colin Bishop category."

82. There is much to distinguish Crosse from the present case. There was no suggestion made in cross-examination of Mr Wan that the Bank would have lent a lesser sum had it realised that the 1st or 2nd Charges were void and illegal. The evidence was unequivocal and unchallenged that the Bank would not have allowed the facilities to be drawn upon if it had been advised that the 1st and 2nd Charges were ineffective. It is not the situation of the Bank finding that it held land as security which was less valuable than supposed, but the Bank discovering that it had no valid security at all over land which had value. The Bank's anomalous position was purely and wholly the consequence of the Firm failing to do what it had been retained and instructed by the Bank to do.

83. Finally, I refer to National Commercial Bank Ltd v. Albert Hwang, David Chung & Co. [2002] 2 HKLRD 408. There, in a detailed and wide-ranging judgment, Deputy Judge Lam first considered the House of Lords affirmation of the SAAMCO principle in the recent case of Aneco Reinsurance Underwriting Ltd v. Johnson & Higgs Ltd [2002] 1 Lloyds Rep 157. Judge Lam then continued (at §58):-

"On the facts of the present case, there is ample evidence before me to justify a finding that, had the plaintiff been informed about the lack of verification as to the authority of the signatory of the sale and purchase agreements, it would not regard it as prudent to finance the transactions without further inquiries. ... I am wholly satisfied that, had the plaintiff been properly advised by the defendants, it would not regard the transactions as viable due to the doubts as to the effectiveness of the equitable mortgages. In the circumstances, given the understanding of Chung as to his obligation as stated in paras. 18 and 19 above, the defendants plainly undertook a duty towards the plaintiff to advise them whether the mortgage money should be released in view of the effectiveness of the security. Applying the test of Otton LJ in Portman Building Society v. Bevan Ashford [2000] PNLR 344 and Evans LJ in Aneco Reinsurance Underwriting Ltd v. Johnson & Higgs Ltd [2002 1 Lloyds Rep 157 (endorsed by the majority in the House of Lords), the defendants should be liable to the plaintiff for the whole loss arising from the release of the mortgage monies in these transactions. Such loss fell within the scope of the duty undertaken by the defendants. This conclusion is reinforced by the Scottish case of Bristol and West Building Society v. Rollo Steven & Bund [1998] SLT 9, in which Lord Maclean held that a solicitor in a similar position as the defendants were not simply providing advice, it was in effect advising the plaintiff to take a certain course of action, namely to lend a certain sum to the borrower on the security of the property. To the same effect, is the decision of Rimer J, in the case of Gerson v. Haines Watts (unrep., 14 December 2001)."

84. I think that Judge Lam's conclusion nearly applies word-for-word in the present case. For "mortgage" in National Commercial Bank simply substitute "1st and 2nd Charges". For "mortgage monies" in Judge Lam's dictum read "loan monies" in this case. I gratefully adopt Judge Lam's analysis of the scope of the SAAMCO principle.

85. In his closing submissions Mr Ng referred to Lord Hoffmann's criticism in SAAMCO of a "no-transaction"/"successful transaction" approach to damages. Mr Ng suggested that Mr Chong's primary case was simply a manifestation of that dubious methodology.

86. Sir Thomas Bingham MR described the "no-transaction"/ "successful transaction" distinction in Banque Bruxelles Lambert SA v. Eagle Star Insurance Co. Ltd and others [1995] 2 All ER 679 (the name by which SAAMCO was known at Court of Appeal level) as follows (at 840h-i):-

"In Hayes v. James & Charles Dodd (a firm) [1990] 2 All ER 815, at 818-819 Staughton LJ distinguished two methods of assessing loss. One he called the 'no-transaction method', the other the 'successful transaction method'. The first method applies in cases where, if the professional adviser had not advanced negligently, there would have been no transaction whether because the buyer would not have bought or the lender would not have lent or because the seller would not have sold or the borrower have borrowed. The second method applies in cases where, if the professional adviser had not advised negligently, there would have been a transaction but on different terms: there would still have been a sale or a loan but at a lower price or of a smaller sum."

87. In SAAMCO Lord Hoffmann said of the approach (at 218C-D):-

"The distinction between the 'no-transaction' and 'successful transaction' cases is of course quite irrelevant to the scope of the duty of care. In either case, the valuer is responsible for the loss suffered by the lender in consequence of having lent upon an inaccurate valuation. When it comes to calculating the lender's loss, however, the distinction has a certain pragmatic truth. I say this only because in practice the alternative transaction which a defendant is most likely to be able to establish is that the lender would have lent a lesser amount to the same borrower on the same security. If this was not the case, it will not ordinarily be easy for the valuer to prove what else the lender would have done with his money. But in principle there is no reason why the valuer should not be entitled to prove that the lender has suffered no loss because he would have used his money in some altogether different but equally disastrous venture. Likewise the lender is entitled to prove that, even though he would not have lent to that borrower on that security, he would have done something more advantageous than keep his money on deposit: a possibility contemplated by Lord Lowry in Swingcastle Ltd v. Alastair Gibson [1991] 2 AC 223, 239. Every transaction induced by a negligent valuation is a 'no-transaction' case in the sense that ex hypothesi the transaction which actually happened would not have happened. A 'successful transaction' in the sense in which that expression is used by the Court of Appeal (meaning a disastrous transaction which would have been somewhat less disastrous if the lender had known the true value of the property) is only the most common example of a case in which the court finds that, on the balance or probability, some other transaction would have happened instead. The distinction is not based on any principle and should in my view be abandoned."

88. I understand Lord Hoffmann to be rejecting the calculation of quantum by reference to a "no-transaction"/"successful transaction" analysis because such distinction proceeds on a wrong legal basis. It has no theoretical underpinning. The correct starting point is rather an analysis of the scope of a defendant's duty, followed by an assessment of the specific loss which is attributable to the breach of that duty. As is evident from the survey of cases undertaken above, in some situations it is possible that on analysis a plaintiff's entire loss is directly attributable to the breach of the relevant duty. The present case strikes me as such an example. I accordingly do not regard Mr Chong's primary case on quantum as resurrecting the "no-transaction"/"successful transaction" distinction which Lord Hoffmann laid to rest in SAAMCO.

89. Mr Ng attempted to distinguish Steggles Palmer, Portman and national Commercial Bank by suggesting that these cases involved "dishonest borrowers". I do not understand why that should be a distinguishing feature. Lord Hoffmann does say in SAAMCO (at 215F-216D) that exceptionally the whole risk of loss (whether or not directly attributable to the relevant breach) may be visited on a fraudulent person as a deterrent against dishonest conduct. However, there is no suggestion that a negligent, but innocent, solicitor should be penalised for fraud perpetrated by a third party. None of the judges in Steggles Palmer, Portman and National Commercial Bank identify Mr Ng's proposed distinction as the rationale for their decision. Instead, all judges stress that they are simply applying SAAMCO analysis.

90. I now deal briefly with subsidiary points argued by Mr Ng against Mr Chong's primary contention.

91. In his Skeleton §9 Mr Ng submits:-

"Consistent with Lord Hoffmann's [in SAAMCO] and Lord Nicholls of Birkenhead's principle [in Nykredit Mortgage Bank plc v. Edward Erdman Group Ltd [1997] 1 WLR 1627 (HL)] that a defendant is not liable for consequences which would have arisen even if the information had been correct is the principle that the normal rule in assessment of damages in negligence claim is the date when a plaintiff first suffered loss: Portman Building Society v. Bevan Ashford (a Firm) [2000] 1 EGLR 81, per Otton LJ at 83J. In this case, the Plaintiff suffered no loss at the time when the 1st Legal Charge and the 2nd Mortgage were entered into because there will be no certainty that the Plaintiff will actually lose any of his money: the borrower may not default. Financial loss is not certain. Indeed, it may not even be likely. The Plaintiff first suffered loss when the borrowers defaulted and then when it sought to enforce the 1st Legal Charge and the 2nd Mortgage by sale. As submitted above, if the agreement to mortgage contained in the 1st Legal Charge and the 2nd Mortgage were valid, when the Plaintiff sought to enforce the 1st Legal Charge and the 2nd Mortgage on 31/12/1999, the Plaintiff could only have recovered HK$1,622,500.00."

I disagree with the submission.

92. First, what Otton LJ actually says in the passage cited by Mr Ng is that:-

"Counsel [for the defendant] developed this argument in a skilfully crafted skeleton argument and an attractive submission. The normal rule, in both contract and negligence, is that damages are assessed as at the date on which the wrong was committed. ... He [that is, counsel for the defendant] acknowledged that the court may depart from the normal rule, and fix some other date as may be appropriate, where the normal rule would cause injustice. ... Thus, there was no reason for departing from the normal rule that damages are assessed at the date the wrong was committed."

It is apparent that in the passage cited Otton LJ was simply summarising counsel's argument. Even then counsel was not saying that damages are ascertained as at the date when loss is first suffered. Counsel for the plaintiff in fact agreed with the statement of the normal rule by his opponent, but suggested that the normal rule "should not be applied 'mechanistically' in circumstances where assessment at another date more accurately reflects the overriding compensatory principle". Otton LJ's own conclusion appears at 84B-C where he says:-

"Damages are generally (but not invariably) assessed at the date of breach: see Miliangos v. George Frank (Textiles) Ltd [1976] AC 443 at p. 468, per Lord Wilberforce."

Otton LJ accepts that the normal rule should not be applied mechanically without consideration of the justice of a particular case.

93. Second, if one were to apply the normal rule here, the dates of the Firm's breaches would be when it told the Bank that the 1st and 2nd Charges respectively were operative and monies could be advanced. At that stage the Bank sustained loss by enabling the borrowers to drawn on the loan facilities when the Bank would not have otherwise allowed them to do so. The loss continued as the Bank permitted the facilities to be further used by Hoi Choi and Ultra Success. I see no difficulty in applying the normal rule here as an indication to the quantum of the Bank's damages.

94. At Skeleton §15 Mr Ng argues:-

"That the Plaintiff's calculation is not fair or reasonable is demonstrated by the fact that if the Plaintiff had lent $10 million to Hoi Choi Timber and/or Ultra Success (HK) Ltd and if the Plaintiff's calculation were correct, then the Defendant is liable to the Plaintiff for the whole HK$10 million. That cannot be a fair or reasonable way of measuring damages."

The submission elides the issue of the Firm's negligence with that of the Bank's contributory negligence (if any).

95. If the Bank lent money imprudently (for example, a $10 million loan on $2.5 million security), it might be that the Bank has only itself to blame, following the borrowers' default, for loss up to at least the difference between the monies loaned and the value of the Bank's security at the time of the loan. The Bank's negligence constitutes a supervening event which should not be visited on the negligent Firm. Loss arising from the Bank's negligence would not, in SAAMCO terms, be loss within the scope of the duty undertaken by the Firm. But there is no allegation here that the Bank was contributorily negligent or guilty of imprudence. That was not even suggested in cross-examination. Consequently, I do not think that Mr Ng's suggested absurdity advances his case.

96. For the above reasons, I conclude that Mr Chong's primary case gives rise to the correct measure of damages. I thus think that, subject to the question of mitigation, the $2,514,177.54 awarded by the Order represents the appropriate quantum of the Bank's loss.

B.3 The Bank's fall-back position

97. Given my conclusion on the Bank's primary case, it is not necessary for me to consider its alternative line of argument.

98. I should, however, record here that the parties agreed the value of the Property as at certain dates on the assumption that there was no restriction to the Property's alienation and any necessary premium had been paid. The result of this agreement was that it was unnecessary to call valuation evidence and counsel were left to argue as to which valuation date was relevant for the assessment of the Bank's damages.

99. The agreed market valuations were as follows:-

(1) As on 31 December 1999: $1,622,500.00 (open market); $1,400,000.00 (secondary market).

(2) As on 19 October 2000: $1,386,500.00 (open market); $1,268,500.00 (secondary market).

(3) As on 23 February 2001: $1,470,000.00 (open market).

(4) As on 19 July 2001: $1,298,000.00 (open market); $1,209,500.00 (secondary market).

100. Valuation dates were chosen on the following bases:-

(1) 31 December 1999 was assumed to be the earliest time when the Bank could have sold the Property after taking possession on 15 September 1999, had everything gone smoothly.

(2) 19 October 2000 was the date of Chung Sen's re-auction of the Property.

(3) 23 February 2001 was assumed to be the date when the Bank could have sold the Property, had the Housing Authority accepted the Bank's proposal to pay premium with retrospective effect.

(4) 19 July 2001 was proposed by the Firm as the date when the Bank could have sold the Property after obtaining a charging order based, not on the 1st and 2nd Charges, but on the borrower's personal covenants to repay monies advanced to them. On this issue, see further below.

101. The Bank's alternative position was that damages should be calculated on the basis of the Property's open market value on 31 December 1999 or (if that alternative failed) 19 October 2000 or (if the latter two alternatives failed) 23 February 2001.

B.4 Mitigation

102. The Firm argued that the Bank had failed to mitigate loss. The Firm suggests that, even if the 1st and 2nd Charges were void and illegal, nothing prevented the Bank from obtaining a personal judgment against Mrs Wong for breach of her personal covenants under the 1st and 2nd Charges to repay loans made by the Bank. The Bank could then enforce the personal judgment by applying for a charging order against the Property under High Court Ordinance (Cap. 4) ("HCO") s. 20.

103. In support of its submission on mitigation, the Firm relied on Konew Finance Ltd v. Wong Kai Ming (No. 2) [2001] 4 HKC 218 (District Court). There Konew lent monies to various borrowers on the security of equitable mortgages arising from the deposit with Konew of the title deeds of Home Ownership Scheme property. The Director of Housing's consent was not obtained for the mortgages. Judge Lok pointed out that there were 2 components to the loan agreements concerned:-

(1) an agreement to repay monies loaned; and,

(2) an agreement to provide security for the loans by the creation of an equitable charge.

The Judge held (in my view rightly) that HO s. 17B did not avoid the 1st component, but only nullified the charges purportedly created over the HOS properties pursuant to the 2nd component. Konew was thus entitled to judgments against the borrowers for breach of their personal agreements to repay the loan monies.

104. I do not think that Konew advances the Firm's case on mitigation. Assume that the Bank sought to enforce a personal judgment against Mrs Wong (such as that obtained under the Order) by applying for a charging order against the Property. The Court could not grant a charge over any greater interest than that which Mrs Wong herself had in the Property. Since Mrs Wong could not alienate (including mortgage or charge) the Property without the Director of Housing's consent, any charge imposed by Court order would have to be conditional on the Director of Housing's approval. I doubt that one can get around the restrictions imposed by the Schedule to the HO simply by seeking a charging order from the Court.

105. Mr Ng cites Union Finance Ltd v. Leung Wai Ling and another [2000] 2 HKC 821 as an example of a case where the Court granted a charging order over a HOS unit. But in Union the judge's attention does not appear to have been drawn to HO s. 17B and its Schedule. The effect of the HO was not argued at all. Further, it is just possible that in Union prior approval had been obtained from the Director of Housing. The report does not say whether it was or was not, so that the possibility cannot be ruled out. For these reasons, I do not regard Union as authority that a person in the Bank's position can obtain a charging order over an HOS/PSPS unit as a matter of course.

106. What Union does make clear is that the grant of a charging order is matter of the Court's discretion. HCO s. 20(3) requires the Court to consider all circumstances including the debtor's personal circumstances and whether any creditor is likely to be prejudiced by the making of a charging order. Even if I am wrong in my view that any charge imposed by the Court would be subject to the restrictions in the HO, it is not clear to me that, having regard to the Schedule of the HO, the Court would grant a charging order in the face of the Director of Housing's objection. Nor is it self-evident, given that Wong and Mrs Wong seem to have disappeared as a result of mounting debts, creditors (apart from the Bank) would not be unduly prejudiced by the grant of a charging order.

107. Mr Ng notes that, at the bottom of the Housing Authority's standard form "Application for assessment of premium" pursuant to HO Schedule §1, the following note appears: "Please attach copy of authorization letter/ power of attorney/ order for sale". Mr Ng reasons that the words "order for sale" imply a tacit acceptance by the Housing Authority that the Court can impose an effective charging order regardless of the terms of the HO. In my judgment, the cryptic note at the bottom of the Housing Authority's form provides no basis at all for me to construe the ambit of the HO and the Court's power to grant charging orders over HOS/PSPS units.

108. Mr Ng argues that it should be possible to impose a charging order because Hua Chiao held one over the Property. It is true that Hua Chiao had a charging order absolute. But it is also clear from Hua Chiao's charge that it had initially received the Director of Housing's consent. The existence of Hua Chiao's legal charge does not then assist Mr Ng.

109. Nor can one lose sight of the fact that mitigation only requires a plaintiff to act reasonably to reduce his loss. A plaintiff is not obliged to engage in uncertain litigation to mitigate his loss. Without evidence from the Firm that the Director of Housing's permission would be forthcoming if the Bank sought a charging order from the Court and in light of the evidence that the Housing Authority was not receptive to the Bank's approaches on premium, I do not find that the Bank acted unreasonably in preferring to sue the Firm rather than chance its luck on applying for a charging order under HCO s. 20.

110. Without any effective charging order under the 1st or 2nd Charges or HCO s. 20, the Bank cannot sell the Property. I accordingly reject the Firm's submissions that the Bank did not mitigate its loss by selling the Property at some time or another.

111. I note that, having paid damages to the Bank, the Firm would become subrogated to the Bank's rights against the borrowers. It would be open to the Firm at that stage, if it believed that an effective charging order could be obtained from the Court, to apply for one in the way that it has proposed at trial. The Bank offered by letter dated 25 August 2001 from KMLL to the Firm's solicitors to assign the benefit of the Order to the Firm in return for the payment by the Firm of the Bank's loss. The Bank suggested that the Firm could seek to translate the rights arising under the Order into whatever enforcement action the Firm thought possible. The Firm apparently did not reply to this offer.

III. Conclusion

112. There will be judgment for the Bank against the Firm in the sum of $2,514,177.54. Interest will run on that amount from date of writ until date of judgment at 1% over Hong Kong prime and thereafter at the judgment rate.

113. I make an Order Nisi that, save for the costs incurred in relation to the evidence of Mr Lee Yee Hung ("Mr Lee"), the Bank is to have the costs of this action, such costs to be taxed if not agreed.

114. By Order dated 16 October 2002 Master Levy reserved for the trial judge's determination the costs incurred in connection with the calling of Mr Lee and the makers of FPD's report dated 1 April 1996 and the Bank's internal valuation dated 25 April 1997.

115. I doubt that Mr Lee's evidence on Hong Kong solicitors' practice in the preparation of mortgages over HOS/PSPS units was properly a matter for expert evidence. Expert evidence relates to matters of fact. The Court's task is to determine what the Firm was in fact engaged to do and whether the Firm performed such work negligently as a matter of law. I do not believe that evidence as to what solicitors normally do in handling HOS/PSPS unit mortgages is strictly relevant to the Court's determination as a matter of law (rather than fact) whether the Firm performed its retainer negligently.

116. On the other hand, I believe that the Bank was entitled to call the makers of the 2 valuation reports to speak to the same.

117. For those reasons, I have in my Order Nisi excluded costs incurred in connection with Mr Lee, but allowed costs incurred in connection with calling the makers of the valuation reports.