THE LAW SOCIETY OF HONG KONG v. A SOLICITOR

CACV 2/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 2 OF 2004

(ON APPEAL FROM SOLICITORS’ DISCIPLINARY TRIBUNAL)

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J U D G M E N T

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Hon Tang JA (giving the judgment of the Court):

1.  This is the Law Society’s appeal against the dismissal by the Solicitors’ Disciplinary Tribunal (“the Tribunal”) of 4 complaints laid against the solicitor by the Law Society.  Leave to appeal was given by the Chief Judge High Court on 3 January 2004.

2.  The complaints are:

“	1ST COMPLAINT
	That on or about 24th November 1998, the Respondent being the Principal of Messrs. Hermes W.K. Lui & Co. (“the Firm”) acted in such a way as to deceive or mislead the Court by instituting an action under HCA 20044/98 (“the 1st Action”) by issuance of a Writ of Summons (“the 1st Writ”) on behalf of Dragon Life Finance Limited (“the Finance Company”) (as Plaintiff) against Hsu Hsi Yen (“the Complainant”) (as Defendant) for a purported loan of HK$544,000.00 allegedly due to the Finance Company, when the Respondent knew or ought to have known that there was no cause of action against the Complainant at the material time before or when the 1st Writ was issued, which said act had compromised or impaired or was likely to compromise or impair his integrity and his duty to the Court, contrary to Rules 2(a) and 2(f) of the Solicitors Practice Rules.
	PARTICULARS OF COMPLAINT
	On or about 24th November 1998, the Firm instituted the 1st Action on behalf of the Finance Company by issuance of the 1st Writ against the Complainant for a purported loan of HK$544,000.00 allegedly due to the Finance Company. In fact, the Respondent knew or ought to have known that there was no cause of action against the Complainant at the material time for the purported loan of HK$544,000.00 as no such loan had actually been advanced to the Complainant before or when the 1st Writ was issued.
	2ND COMPLAINT
	That on or about 28th November 1998, the Respondent being the Principal of the Firm acted in such a way as to deceive or mislead the Court by indorsing on a Consent Summons dated 27th November 1998 on behalf of the Finance Company in the 1st Action for an application to enter judgment against the Complainant for a purported loan of HK$544,000.00 allegedly due to the Finance Company, when the Respondent knew or ought to have known that no such loan had actually been advanced to the Complainant at the material time before or when the 1st Writ was issued, which said act had compromised or impaired or was likely to compromise or impair his integrity and his duty to the Court, contrary to Rules 2(a) and 2(f) of the Solicitors Practice Rules.
	PARTICULARS OF COMPLAINT
	On or about 28th November 1998, a Consent Summons dated 27th November 1998 was endorsed by the Firm on behalf of the Finance Company and then filed with the Court by the Firm in the 1st Action for an application to enter judgment against the complaint for a purported loan of HK$544,000.00 allegedly due to the Finance Company. In fact, the Respondent knew or ought to have known that no such loan had actually been advanced to the Complainant at the material time before or when the 1st Writ was issued.
	AMENDED 3RD COMPLAINT
	That on or about 24th December 1998, the Respondent being the Principal of the Firm acted in such a way as to deceive or mislead the Court by filing with the Court an Affirmation of Joseph Leung Kwok Kin (its then Trainee Solicitor) in support of an application on behalf of the Finance Company for a Charging Order against the Complainant’s property known as Flat 15, 18th Floor, Block A, Yau Hong House, Tin Yau Court, No. 1 Tin Shing Road, Tin Shui Wai, Yuen Long, New Territories, Hong Kong (“the Property”) on the basis of a Consent Judgment obtained in the 1st Action and dated 14th December 1998 (“the Consent Judgment”) for a purported loan of HK$544,000.00 allegedly due to the Finance Company, when the Respondent knew or ought to have known that no such loan had actually been advanced to the Complainant at the material time before or when the 1st Writ was issued, which said act had compromised or impaired or was likely to compromise or impair his integrity and his duty to the Court, contrary to Rules 2(a) and 2(f) of the Solicitors Practice Rules.
	PARTICULARS OF COMPLAINT
	On or about 24th December 1998, the Firm filed an Affirmation of Joseph Leung Kwok Kin (its then Trainee Solicitor) with the Court in support of an application to impose a Charging Order on the Property in favour of the Finance Company on the basis of the Consent Judgment for a purported loan of HK$544,000.00 allegedly due to the Finance Company.  In fact, the Respondent knew and or ought to have known that no such loan had actually been advanced to the Complainant at the material time before or when the 1st Writ was issued.
	4TH COMPLAINT
	That between August and October 1999, the Respondent being the Principal of the Firm acted in such a way as to deceive or mislead the Court by issuance of an Originating Summons under HCMP 5073/99 on 19th August 1999 on behalf of the Finance Company against the Complainant and by filing with the Court on 7th October 1999 an Affirmation of Woo Cheung Lun Johny of the Finance Company in support of an application for an order for possession and sale of the Property on the basis of the Consent Judgment for a purported loan of HK$544,000.00 allegedly due to the Finance Company and the subsequent Charging Order Absolute against the Property, when the Respondent knew or ought to have known that no such loan had actually been advanced to the Complainant at the material time before or when the 1st Writ was issued, which said act had compromised or impaired or was likely to compromise or impair his integrity and his duty to the Court, contrary to Rules 2(a) and 2(f) of the Solicitors Practice Rules.
	PARTICULARS OF COMPLAINT
	(a)	On or about 19th August 1999, the Firm on behalf of the Finance Company proceeded to enforce the Consent Judgment and sought an order for possession and sale of the Property subsequent to a Charging Order Absolute against the Property dated 2nd March 1999 by issuance of an Originating Summons under HCMP 5073/99.
	(b)	On or about 7th October 1999, the Firm filed the Affirmation of Woo Cheung Lun Johny of the Finance Company in support of the said application under HCMP 5073/99.
	(c)	The Originating Summons and the supporting Affirmation under HCMP 5073/99 were issued and filed with the Court respectively on the basis of the Consent Judgment for a purported loan of HK$544,000.00 allegedly due to the Finance Company and the subsequent Charging Order Absolute against the Property. In fact, the Respondent knew or ought to have known that no such loan had actually been advanced to the Complainant at the material time before or when the 1st Writ was issued.”

3.  Rules 2(a) and 2(f) of the Solicitors Practice Rules provide as follows:

“A solicitor shall not, in the course of practicing as a solicitor, do or permit to be done on his behalf anything which compromises or impairs or is likely to compromise or impair:
(a)	his independence or integrity; …
(f)	his duty to the court.”

4.  The complaints were laid as a result of complaints made by a complainant to the Law Society.  At the time covered by the complaints, the solicitor was a sole proprietor, practising in the name of Hermes W K Lui & Co. (“the Firm”).

5.  The complainant was the owner of a flat under the Home Ownership Scheme. Under the Housing Ordinance, Cap. 283, any purported alienation of the property would be void unless the Director of Housing had given his consent and a premium paid.

6.  The background to these complaints can be taken from the findings of the Tribunal:

“	14.	The picture that emerged was that Mr Hsu wanted to borrow between HK$150,000 to HK$200,000. The only asset he had, and he realized that he needed to give it up as security, was a flat in Tin Tsui Wai. This had been bought under the Home Ownership Scheme (“HOS”). He approached his then mortgagee Hang Seng Bank.  They told him the flat couldn’t be used as security: there was a statutory prohibition prohibiting further loans without the consent of the Housing Authority.
	15.	He saw an advertisement in the Oriental Daily News for a company Dragon Life Finance Ltd (“Dragon Life”), a licenced money lender, offering to make loans. He phoned them up and went to see a Mr Woo.
	16.	There was some discussion about security. Mr Woo was told the property was subject to the HOS. He asked for the mortgage repayment schedule.
	17.	The next day Mr Hsu returned and he reached the following agreement with Dragon Life. Mr Woo would lend HK$400,000, which would also redeem the Hang Seng Mortgage. The interest would be 36% per annum, or HK$12,000 per month. There would be further deductions for lawyers’ fees, tea money and interest. The title deeds would remain with the finance company or the lawyers and he would need to go to the lawyers “to do the procedure”. Mr Hsu would get the money “one or two days after it was judged by the High Court”. That is, he would have to go to Court, admit he owed the money and once the Court adjudged that he owed the money it would then be advanced.
	18.	Mr Woo spoke to a Ms Lau over the phone but Mr Hsu did not hear what was said. Mr Woo then sent Mr Hsu to the Respondent’s solicitors’firm’s office where he met Ms Lau. She explained to Mr Hsu the procedure as follows:-
		a.	That he would borrow HK$400,000;
		b.	That the mortgage to Hang Seng Bank would be paid off;
		c.	That he would have to pay interest of 36% per annum. (HK$12,000 per month); and
		d.	That there would also be deducted the solicitors’ charges and “tea money” of HK$1,000 for Mr Woo.
	19.	A few days later Mr Hsu returned to the Respondent’s office.  He met Ms Lau who wrote down the details concerning the loan as previously discussed, the charges and the net amount Mr Hsu would get.  She then introduced Mr Hsu to Leung Kwok Kin.  Mr Leung was at the time an articled clerk.
	20.	Mr Leung gave Mr Hsu four sets of documents to sign.  He explained that if he wanted the money, he had to go to the High Court and admit that he owed the finance company HK$544,000. This was the loan in the principal sum of HK$400,000, a year’s interest at 36% per annum and some expenses.  Once judgment was entered, the loan could be made.  He was told that Dragon Life would keep the deeds and if Mr Hsu did not repay the loan, the property would be foreclosed.
	21.	Mr Hsu went to Court on 14th December 1999 and confirmed to the Court that he owed the money claimed.  That afternoon he went to Dragon Life’s office and was sent to the Respondent’s office.  There he saw Ms Lau.  She said that for the cheque he would need to see the Respondent in person.  This was the only time that Mr Hsu saw the Respondent.
	22.	The Respondent told him that borrowing the money was not involuntary. If he was willing he should sign, otherwise not. Mr Hsu said “well, I have to borrow the money”. The Respondent then gave him the cheque.
	23.	What was apparent from the evidence was that Mr Hsu knew that the property could not be remortgaged due to its HOS status. He nevertheless wanted to borrow HK$150,000 to HK$200,000 and knew he needed to give security and the property was the only security he could give. He understood and agreed to borrow HK$400,000 so as to pay off the Hang Seng Bank mortgage loan. He knew and agreed the deductions that would be made and how much of the loan amount he would eventually receive. He knew and agreed the rate of interest at 36% per annum (or HK$12,000 per month).
	24.	This all appears not to have concerned him as he told us that he intended to sell the property and could then pay off the loan. Unfortunately, it later transpired that nobody wanted to buy it. He knew and understood that the deeds would be kept by the finance company or their lawyers and that if he did not repay the loan he would risk losing the property. It also appears that Mr Hsu had no particular difficulty in going to Court to confirm to the Master that he owed HK$544,000 when, as we find, he had not at the time borrowed any money. We do not take the view that Mr Hsu has been exploited in this transaction. He fully understood the bargain he reached and the consequences of default.”

7.  The Tribunal concluded in para. 43 of its Statement of Findings:

“

43.

Weighing the evidence in the balance, we are however not satisfied that it is established beyond reasonable doubt that the Respondent himself knew at the material times that the first loan was fictitious. We therefore dismiss the 1st to 4th Complaints.”

8.  The material times covered by the four complaints are:

(1)	1st complaint on or about 24 November 1998
(2)	2nd complaint on or about 28 November 1998
(3)	3rd complaint on or about 24 December 1998
(4)	4th complaint between August and October 1999.

9.  The solicitor did not give evidence before the Tribunal.

10.  The Law Society’s case has been encapsulated in para.1 of the Notice of Appeal.

“	(1)	The Tribunal erred in finding (paragraph 43) that it had not been “… established beyond reasonable doubt that the Respondent himself knew (emphasis added) at the material times that the first loan was fictitious.” In particular the Tribunal failed to take proper account of the individual and collective impact of the following facts established by the evidence:
		(a)	The sequence of events described in the 1st – 4th Complaints were part of an elaborate scheme (“the scheme”) designed to circumvent the perceived complications of the Complainant’s property having been purchased under the Home Ownership Scheme and thereby being subject to the restrictions imposed by S. 17B(2) of the Housing Ordinance, Cap. 283.
		(b)	An integral part of the scheme was that before the Complainant signed a Loan Agreement and was provided with the loan moneys, he was required to consent to a Court judgment on the basis of a loan previously advanced to the Complainant which was, in fact, fictitious.
		(c)	As a sole practitioner, and the handling solicitor who had previously acted for the Finance Company which purportedly advanced the loan to the complainant, the Respondent must have been aware of the scheme. In this particular respect it is to be noted (inter alia) that:
			(i)	The Respondent signed a Statement of Claim – on which the judgment was based – the contents of paragraphs 2 and 3 of which were proved to be untrue;
			(ii)	Although the Statement of Claim stated – paragraph 3 – that a letter of demand had been sent on 18th November 1998, the records of the Respondent’s firm indicated that the Complainant’s file was not opened prior to the 19th November 1998; furthermore the lack of a signature on the copy letter of demand found in the Respondent’s file – in contrast to other copy letters all of which contained his signature – suggested that no such letter was sent;
			(iii)	Although the Respondent was found to have known that the Finance Company was a “Moneylender”, the Writ (filed with the Statement of Claim) failed to comply with the mandatory provisions of Order 83A of the Rules of the High Court;
			(iv)	Paragraph 5 of the Statement of Claim was untrue in that it stated that “repeated requests and demands” had been made; in fact, no such requests and demands had been made;
			(v)	The sequence of events alleged in the Statement of Claim covered an unusually short period of time;
			(vi)	The Respondent signed the Consent Summons on which the Judgment of the Court was based; and
			(vii)	Within 9 days of advancing the proceeds of the loan to the Complainant, the Respondent filed an affirmation in support of an application for a charging order (as alleged in the3rd Complaint).”

11.  It is clear from documents signed by the solicitor that by the time the writ and statement of claim were issued, the solicitor was aware that the redemption of a property was involved.  On 19 November 2003, the letter to the Hang Seng Bank for the purpose of redemption was signed by the solicitor.  This is to be considered together with what the solicitor said in para.6 of his affirmation on 19 March 2003.  He said:

“

6.

When I returned to office after the daily Court’s hearing, I was informed by my staff that instructions were received from Mr Johny Woo Cheung Lui of Dragon Life Finance Limited (“Dragon Life”) to issue proceedings against the Complainant for a sum of HK$544,000.00 due to Dragon Life and upon obtaining Judgment on the said sum, a further sum of HK$400,000.00 would be advanced to the Complainant by Dragon Life.”

12.  The solicitor was there referring to the period between 17 November 1998 and 19 November 1998.  Hence, by 24 November he knew that he was acting for a money-lender to sue the complainant for $544,000.  According to the Statement of Claim, the complainant had, despite repeated requests, failed and/or refused to pay, yet, the money-lender, instead of applying for a charging order against the flat for the loan of $544,000, was supposedly prepared to lend an extra $400,000 to the complainant.  Moreover, the complainant, far from being unco-operative, actually requested the solicitor to help redeem the flat.  The writ and statement of claim are the subject of the 1^st complaint.

13.  Thereafter, the solicitor signed a consent summons dated 27 November 1998, for judgment against the complainant in HCA 20044/1998.  This is the subject of the 2^nd complaint.

14.  On 15 December 1998, the solicitor signed the cheque for the net proceeds of the $400,000 loan to the complainant.  Moreover, the calculation written out by the solicitor showed that legal fees of $17,165 were to be deducted. 

15.  The application for the charging order was made on 24 December 1998, supported by an affirmation of a trainee solicitor.  This is the subject of the amended 3^rd complaint.

16.  The solicitor also signed the bill of costs dated 15 December 1998, under which the complainant was required to pay $9,000 for obtaining a charging order in respect of the judgment in HCA 20044/1998, and where the court fee in HCA 20044/1998 of $1,045 was disguised as stamp duty. 

17.  Hence, there was an obvious connection between the charging order in HCA 20044/1998 and the loan of $400,000.  Moreover, although there was supposed to be a loan of $400,000 of which $225,876.45 was to be used to redeem the property, there was no charge or mortgage in respect of this loan. 

18.  We have no hesitation in concluding that by the time of the amended 3^rd complaint and hence the 4^th complaint, the solicitor must have been aware that the loan of $544,000 was fictitious and that the purpose of HCA 20044/1998 and the charging order obtained thereunder were for the purpose of circumventing the Housing Ordinance.  Thus, the Tribunal should have found those complaints established.

19.  As for the 1^st and 2^nd complaints, although they were concerned with an earlier time, namely, 24 November 1998 and 28 November 1998 respectively, on the evidence (see paras. 10, 11 and 12 above), we are also of the view that the Tribunal ought to have found that the solicitor had the requisite knowledge.  We find that the inference that he knew was irresistible.

20.  This is a case where we are satisfied that the Tribunal’s decision was plainly wrong so that we are entitled to interfere. 

21.  Accordingly, we would allow the appeal and hold that the 1^st to 4^th complaints have been proved.  We remit the matter to the Tribunal to be dealt with under section 10 of the Legal Practitioners Ordinance, Cap. 159.

22.  The Law Society is to have the costs of this appeal, to be taxed, if not agreed.