A SOLICITOR v. THE LAW SOCIETY

CACV 279/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 279 OF 1998

(ON APPEAL FROM THE RULING OF
THE SOLICITORS DISCIPLINARY TRIBUNAL)

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J U D G M E N T

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Mortimer V-P:

1. On 23 June 1998 the appellant admitted seven complaints together with the facts and documents to support them in front of the Solicitors Disciplinary Tribunal which later censored the appellant and imposed a fine of $7,000 on each complaint. He was ordered to pay the costs on a full indemnity basis.

The complaints

2. Each complaint concerned the appellant acting for both vendor and purchaser on sales or other dispositions of land contrary to rule 5C(1) of the Solicitors Practice Rules Cap. 159. The offences were committed between March and August 1992.

3. These matters were originally reported to the Law Society in late 1992. Proceedings were started twice before the present ones which were begun in 1997. The appellant was represented by Senior Counsel throughout. On 22 June 1998 he applied to stay the proceedings but the next day he admitted the complaints in writing together with all the facts and documents. The admissions were signed by his Senior Counsel.

4. The Tribunal adjourned the case but on 10 July 1998 the appellant wrote that he was reconsidering his admissions and asked the Tribunal not to sit until he had taken further legal advice. On 24 September 1998 the appellant applied to withdraw his admission of breaches of the rule (not his admissions of the facts). But on 4 November 1998 his application was refused and the penalties were imposed.

The facts

5. The simple facts are these. Yanley Investment Ltd (Yanley) was a developer of the building in Cameron Road, Tsimshatsui, which did not require the consent of the Registrar General. Before the development was complete, Yanley sold the whole interest in the development, land and buildings to Grand Right Limited. The purchase was to be completed 14 days after the issue of the Occupation Permit. Grand Right became the confirmor-developer and the appellant acted for both Grand Right as vendor and the purchasers of the uncompleted units in the building.

6. In this way Grand Right was "confirmor" purchasing from the registered owner, Yanley, with a view to joining in the assignment of the units to the new purchasers on completion of the development by Yanley. Grand Right, therefore, was responsible for the division of the development into units by way of allocating undivided shares, and the drawing up of the sales agreements, the deed of mutual covenant, and the management agreement.

Relevant rules

7. The Solicitors Practice Rules provide that a solicitor shall not act for both a vendor and a purchaser on a sale or other disposition of land for value. See rule 5C(1). But there are exceptions provided by sub-rules (2), (3), (4) and (5). The submissions of Mr Philip Dykes SC (Mr Erik Shum with him), for the appellant, have focused upon the exemption to the general rule in s.5C(1) provided by s.5C(3). The rules provide:

"5C(1) Subject to subrules (2), (3), (4) and (5), a solicitor, or 2 or more solicitors practising in partnership or association, shall not act for both the vendor and the purchaser on a sale or other disposition of land for value.

...

(3) A solicitor, or 2 or more solicitors practising in partnership or association, may act for both the vendor and the purchaser in the sale and purchase of a unit or other interest in an uncompleted development in respect of which the consent of the Director of Lands is not required and also in the completion of such sale and purchase if and only if -

(a) he, or one of them, has deposited in the Land Registry or a District Land Registry a statutory declaration- (8 of 1993 s. 30)

(i) in such form, and setting forth such facts, as the Council may, subject to the prior approval of the Chief Justice, from time to time specify; and

(ii) annexed to which are such documents as the Council may, subject to the prior approval of the Chief Justice, from time to time specify as documents to be so annexed; and

(b) the agreement for sale and purchase to be entered into by the vendor and the purchaser contains such clauses as the Council may, subject to the prior approval of the Chief Justice, from time to time specify for mandatory inclusion in the agreement."

The issues

8. The questions which this Court must determine are:

(1) Whether the Tribunal ought in its discretion to have allowed the appellant to withdraw his admissions to the complaints.

(2) Whether, in the circumstances of the case, the appellant admitted acts amounted to the offences alleged.

(3) Finally, whether the breaches were only technical so that they ought not attract any penalty.

However, there is only one issue for practical purposes on the findings of guilt. The admission of the offences followed Senior Counsel's advice and was unequivocal. The only basis upon the Tribunal could have allowed a retraction was if it had been plainly demonstrated that on the facts and documents admitted no offence had been committed. If the appellant succeeds on the second issue, he will have shown that the Tribunal's exercise of its discretion not to allow a withdrawal was plainly wrong. The third issue goes to penalty only.

The second issue considered.

9. There is no dispute that when the appellant acted for both vendor and purchaser, he was in breach of rule 5C(1) unless he can bring himself within an exception. He concedes that he did not comply with the requirement to deposit a statutory declaration but he contends that rule 5C(3) gives him the right to an exemption of which he is deprived by the form of the statutory declaration specified by the Law Society Council and approved by the Chief Justice.

10. The argument is simple. The body of rule 3, it is said, provides a clear exemption to act for a vendor and purchaser in the sale and purchase of an uncompleted development in respect of which the consent of the Registrar General is not required, whereas the form of the statutory declaration limits this exemption so that it applies only when the vendor is the developer and not in the position of Grand Right, a developer-confirmor.

11. Mr Dykes submits that the statutory declaration is repugnant to the exemption provided in s.5C(3). There is no power, he says, given to the Law Society to reduce the scope of the exemption by the terms of the statutory declaration.

12. I accept that it is necessary for the court to be vigilant to ensure that such a statutory declaration fulfils the legislative intent and does not restrict it.

13. The intention under rule 5C(3) is to give an exemption to the general rule in very limited circumstances. The purpose is to give necessary protection to members of the public when solicitors seek to act for both vendor and purchaser. The rule provides that the solicitor may do so "if and only" he deposits the statutory declaration. The contents of the statutory declaration are settled by the Law Society and approved by the Chief Justice.

14. The declaration provides important safeguards for purchasers of units in uncompleted developments. Note for example the necessity for the solicitor to make a declaration about the financing of the balance of the development costs by the owner under clause 6, and the provision in clause 7(a) that if the solicitor becomes aware of any reason to doubt the financial information no further units are to be sold until a further declaration has been made.

15. Note also the necessity for the solicitor to exhibit to the statutory declaration the forms of sale and purchase agreement and deed of mutual covenant and for the solicitor to declare that the agreements contain all the clauses required by rule 5C(3)(b).

16. The appellant was unable to comply with these provisions which are there solely for the purpose of protecting the purchasers of the uncompleted units.

Is the statutory declaration repugnant to rule 5C(3)?

17. Far from being repugnant to the rule, in my judgment, the statutory declaration provides a necessary protection for the purchaser within the intention of the body of the rule. The intention is that the exemption should be limited in a manner acceptable to the Law Society as the governing body of the profession and approved by the Chief Justice. The appellant was unable to comply with the rule so as to bring himself within the exception. He was clearly in breach.

18. That is enough to answer Mr Dykes's main submission but it is also to be noted that the agreement for sale and purchase of the uncompleted units did not contain all the clauses required by the Council under rule 5C(3)(b). The consequence was that the purchasers were required to pay costs against which the Law Society's model would have protected them.

Conclusion

19. It follows that the appellant was in clear breach of rule 5C(1) and that he could not bring himself within the exemption provided in rule 5C(3). The admission he made to the breaches upon advice was correct. It follows that the Tribunal was also acting within its discretion when it refused to allow the appellant to withdraw those admissions.

20. Finally, the purchasers did not receive the protection to which they were entitled, these were not technical breaches. On these grounds, I would dismiss the appeal on "conviction".

The penalties

21. Having reached the conclusion which I have upon the nature of the breaches, the penalties imposed by the Tribunal for breaches of a rule which is intended to protect the public were modest. They certainly were not either manifestly excessive or wrong in principle which the appellant would normally be required to show before we would intervene.

22. For these reasons I would dismiss the appeal.

Godfrey JA:

23. I agree.

24. I propose to add only a few words of my own, on the subject of the representation of both vendor and purchaser by the same solicitor in transactions such as those we have had to consider here.

25. This case demonstrates yet again just how unsatisfactory it is that purchasers of units in uncompleted developments (whether under the "consent scheme", or "non-consent scheme", as they are called) are expected to enter upon their purchases without the assistance of any lawyer properly qualified to protect their interests. The vendor's solicitor is certainly not so qualified; he is retained to protect the vendor's interest. No-one can serve two masters; and in a legal system with any proper regard for professional ethics, no lawyer will accept a retainer for a client whose interests conflict with that of another client. He is disqualified from doing so. For one solicitor properly to protect the interests of both vendor and purchaser is impossible; and, if it be argued that these Hong Kong "schemes" provide all the protection the purchaser needs, I can only say, first, that case after case has proved that proposition to be false; and, second, that, if that truly be so, then the purchaser needs no solicitor at all and certainly ought not to be expected to pay the costs (even half the costs) of a solicitor who has nothing to do on his behalf and has indeed placed himself in a position of conflict of interest and duty. For a solicitor to take 150 per cent of his proper charges for doing that is nothing short of scandalous. The Consumer Council has made these points, time and again; the Government has apparently accepted them (see its 1995 Consultation Paper on Legal Services, Part 4); even an Ad Hoc Committee of the Law Society has done so (see its Report of 6 March 1978). Yet this disgrace continues to disfigure our legal system; because the Law Society continues to permit, even encourage, its members, every day, to place themselves in a position of conflict of interest. One cannot escape the conclusion that the only real reason for this is the concern the Law Society feels, not for the public interest, but for the financial interest of its members. It is no wonder that the public's opinion of Hong Kong lawyers is hardly favourable. If the Law Society will not step in to do its duty by the public now, the sooner the legislature does so, the better.

Rogers JA:

26. I agree that this appeal should be dismissed for the reasons given by Mortimer V-P.

Mortimer V-P:

27. The appeal is dismissed with an order nisi that the appellant will pay the costs of the appeal to be taxed if not agreed.