XCHRX S.H. CHAN & CO. v. D.S. CHEUNG & CO.

HCA3312/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3312 OF 1998

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J U D G M E N T

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1. This is an appeal from Mr Registrar Betts who, on October 22nd 1998 ordered that final judgment be entered for the Plaintiff against the Defendant in the sum of HK$1,000,000 plus costs under O.14, r.3 of the Rules of the High Court.

2. Both the Plaintiff and the Defendant are firms of solicitors practising in Hong Kong. The Plaintiff's claim arises out of an undertaking contained in a letter sent to the Plaintiff from the Defendant firm dated February 7th 1998.

3. The letter is very brief. It states as follows :-

"Dear Sirs,

HK$1 Million Short Term Facility

We act for Mr Lai Sing Kai.

We are instructed by our client to write to confirm that our firm have arranged a short term loan in the sum of HK$1 Million to our client. We undertake to pay to your firm on behalf of our client the aforesaid sum by 12 February 1998.

We trust the above would be of assistance."

4. The Defendant argues that summary judgment should not have been entered because there are serious issues to be tried. The Defendant's arguments can be summarized as follows :-

(i) The jurisdiction being invoked by the Defendant is the inherent jurisdiction of the Court over solicitors and that before making an order for the enforcement of an undertaking by a solicitor the Court must be satisfied that by failing to perform the undertaking the solicitor has been guilty of professional misconduct or a serious dereliction of professional duty

(ii) Summary judgment ought not to be used unless the defence put forward by the Defendant is "frivolous and practically moonshine" (Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225).

(iii) The letter of February 7th 1998 was not issued by the Defendant firm as solicitors in the cause but by a consultant solicitor in its employ who was conducting his own dealings with Mr Lai, not the firms.

(The consultant in question is a Mr Thomas S.W. Ip who left the Defendant's employ in March 1998. He is now the subject of bankruptcy proceedings and is apparently in Taiwan. Thus the Defendant has no realistic hope of executing judgment against him.)

(iv) The personal dealings of Mr Ip with Mr Lai are of no concern to the Defendant and he had no actual or implied authority to give the undertaking contained in the letter of February 7th.

(v) The Plaintiff firm should, upon receipt of the letter, have realized that it was in an unusual form and that it was outside the scope of authority of a consultant and that they should therefore have made enquiries of the Defendant about the undertaking before placing reliance on it.

(vi) The Court should consider expert evidence about what undertakings can and cannot be given by solicitors in the course of their business in Hong Kong. Expert evidence should also be given about the form of this particular undertaking.

5. The arguments boil down to two fundamental issues :-

(A) Was the undertaking issued by the Defendant as solicitors in the cause?

6. Mr Godfrey Lam, on behalf of the Defendant, submits that it is at least arguable and therefore a triable issue, that the Plaintiff was aware of the nature of the relationship (or lack of it) between the Defendant and Mr Lai. Therefore the Plaintiff may have been aware that the Defendant firm did not act for Mr Lai and could not be bound by such an undertaking given by their consultant, Mr Ip.

7. In support he referred to extracts from the affirmations and affidavits and cited the case of Geoffrey Silver and Drake v. Baines [1971] 1 QB 396, in which the finding, on the particular facts of that case, was that :-

"The undertaking was in respect of a loan of money in no way given on behalf of the solicitor in his capacity as a solicitor and accordingly the court would refuse to try it under the summary jurisdiction."

8. In reply Mr Sakhrani, for the Plaintiff, simply points to the letter itself. It is written on the normal D.S. Cheung & Co. stationery. Thomas W.S. Ip is named as a consultant. It starts with "We act for Mr Lai Sing Kai" and contains a further seven reference to either "we" or "our firm" in the space of four lines.(emphasis added)

9. He further successfully distinguished the authority cited on the basis that the nature of the undertaking under consideration by the Court was wholly different.

10. He further points to the affirmation of Mr D.S. Cheung, the Defendant's principal solicitor, who states that his firm had acted for Mr Lai on many previous matters and all the firms files relating to Mr Lai's business were being handled by Mr Ip.

11. The argument that, in this particular transaction, Mr Ip was not acting in his capacity as a solicitor with D.S. Cheung & Co. is simply unsustainable.

12. If any further support is needed, it can be found in the letter from the Defendant Company to the Plaintiff dated February 19th 1998 in which an extension of time to pay is requested until February 25th 1998. This letter contains file references from both firms. Again it is written in the first person phural.

(B) Did Mr Ip have authority to give such an undertaking?

13. The Plaintiff does not contend that Mr Ip had actual authority. The question is whether Mr Ip had implied or ostensible authority.

14. Mr Lam contends that if the Court heard expert evidence it could conclude that Mr Ip had no authority to give the undertaking. He argues that because Mr Ip was a "mere" consultant and because of the unusual form in which the letter was written, the Plaintiff should have been put on notice that the undertaking was made without authority and therefore unenforceable. He further relies on his contention that this letter "came out of the blue", thus adding fuel to his argument that it was unusual and the Plaintiff should have been wary of it.

15. In dismissing this appeal, I am fully satisfied that the Plaintiff has given a complete answer to this point. Mr Sakhrani makes the following compelling points :-

(i) The use of the expression "we confirm ...." is indicative of at least some prior communication between the parties about which the letter was the written confirmation.

(ii) The undertaking given is unequivocal and unconditional. It is not a case of an undertaking being given which is impossible to perform or which is dependant on the actions of a third party.

(iii) The fact that Mr Ip did not have actual authority is irrelevant. The rules which regulate solicitors' conduct are understandably stringent. Cordery on Solicitors states :-

"However, a solicitor is responsible for honouring an undertaking given by any member of his staff, whether admitted or not ... an undertaking given by a member of the solicitor's staff in the course of employment and with the ostensible authority of the employee's principal will nevertheless bind the solicitor even if the undertaking has been given in breach of the employee's actual authority."

(iv) The solicitor was not pledging his own credit. It was clearly stated that funds were available to honour the undertaking. Accordingly the two requirements laid down by Staughton L.J. in United Bank of Kuwait Ltd. v. Hammond [1988] 1 WLR 1063 were satisfied :-

"(a) First, in the case of an undertaking to pay money, a fund to draw on must be in the hands of, or under the control of, the firm; or at any rate there must be reasonable expectation that it will come into the firm's hands. Solicitors are not in business to pledge their own credit on.

(b) Secondly, the actual or expected fund must come into their hands in the course of some ulterior transaction which is itself the sort of work that solicitors undertake. It is not the ordinary business of solicitors to receive money or a promise from their client, in order that without more they can give an undertaking to a third party. Some other service must be involved."(emphasis added)

(v) To suggest, as Mr Lam does, that the undertaking was "unusual" due partly to its lack of detail is untenable. Its lack of detail is not a feature which makes it unusual, it is a feature which demonstrates its unequivocal simplicity.

(vi) In matters of honouring undertakings, solicitors, by the nature of their profession, are in a position which is peculiar to themselves. The words of Hamilton J. uttered in 1910 in the case of United Mining & Finance Corporation v. Becher [1910] 2 KB 307 have withstood the test of time :-

"It seems to me that the part which solicitors are nowadays well known to play in elaborate negotiations, which constantly have to be embodied at various stages in legal forms of a highly technical character, constantly involves for the purpose of facilitating the business the giving of subsidiary undertakings for the payment of money and of a similar character, and that those undertakings are given in their capacity as solicitors, and money is entrusted to them under those undertakings largely because they are solicitors and are deemed therefore, and found to be, especially worthy of trust."

16. I am satisfied that there is no defence to the claim and that summary judgment was properly entered by the learned Registrar.

17. I dismiss the appeal with costs.