MART TREASURE INVESTMENT LTD. v. DAI SHU SHING AND OTHERS

HCA 905/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 905 OF 2001

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J U D G M E N T

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1. This action concerns a claim against the 2nd and 3rd Defendants for payment of $4,100,000.00 being damages suffered by the Plaintiff as a result of the breach by the Defendants of their duty of care owed to it in contract and/or in tort. The Plaintiff says that this amount was paid out wrongly to the 1st Defendant, another person and the 2nd Defendant's wife.

2. The 1st Defendant has long since left Hong Kong. Judgement has been obtained against him by default. The 2nd Defendant, a principal of the 3rd Defendant, was at that time and, at present, is a practising solicitor.

The background

3. In 1993 the 1st Defendant assembled a group of investors to embark upon a scheme to develop a number of properties in Tsam Chuk Wan, Sai Kung. The project was to acquire a number of properties, situated close to one another, for development, involving the eventual construction of 10 village houses, of which five would be sold commercially. The 1st Defendant would act as co-ordinator of the project.

4. The 1st Defendant already had set up a company, Golden Figure Development Company. In January 1994 the 1st Defendant called upon the investors to contribute some cash towards the project. The moneys were paid to Golden Figure. The Plaintiff company was then acquired during January 1994 as the vehicle for the project. Golden Figure became a shareholder in the Plaintiff. The 2nd Defendant's wife, FAN May-yung, became a shareholder in the Plaintiff.

5. Upon the instructions of the 1st Defendant the 2nd Defendant caused to be executed an agreement between the Plaintiff and a number of the property owners in late January 1994. The following month, February 1994, the 2nd Defendant prepared and caused to be executed an agreement between the Plaintiff and two individuals who were willing to finance a significant portion of the project.

6. It is self-evident from this that, as early as January 1994, the 2nd Defendant was acting on behalf of the Plaintiff. In cross-examination he accepted this to be so.

7. At the end of January 1994 the 1st Defendant called upon the investors to contribute capital for the Plaintiff in accordance with their respective shareholdings. An aggregate amount of some $840,000.00 was paid into the account of the 3rd Defendant, the Plaintiff having no bank account at that stage. A document annexed to the "Third supplementary list of documents" filed by the Plaintiff is a copy of a fax which sets out payments made by the shareholders and the amounts. It was accepted by the 2nd Defendant during cross-examination. It shows, inter alia, that Golden Figure paid in an amount of $44,098.00 and, in return, received two payments, one of $392,040.00 as "purchase price paid to Lee Family" and one of $350,000.00 being "Consultancy Fee". It is not in dispute that this latter payment was made on 2 February 1994 by the 3rd Defendant on the instructions of the 2nd Defendant. The significance of this payment will become apparent.

8. Thereafter various payments were made which form the basis of the first claim against the 1st Defendant. The project remained incomplete. Insofar as the present action against the 2nd and 3rd Defendants is concerned little of significance, with the exception of one event in August 1997, happened until September 1997 when a meeting of shareholders was convened.

9. That one event relates to the supposed despatch of a fax (page 35 of the bundle of agreed documents) by the 1st Defendant to the 2nd Defendant. Although this event occurred prior to the meeting of shareholders on 23 September 1997, I shall return to it later when dealing with other evidence upon which I base my finding in respect of this communication.

Credibility

10. There are a number of specific issues of fact which I am to resolve. This involves a consideration of the credibility of the witnesses. Recollections of the three shareholders who testified are contradicted in many respects by the 2nd Defendant's version. A number of documents are incapable of being reconciled with his evidence.

11. For reasons which I will explain as I review the evidence, I accept the evidence of the Plaintiff's witnesses and reject that of the 2nd Defendant where it is inconsistent with their evidence. Each of the Plaintiff's witnesses gave his evidence in a straightforward, coherent and believable manner, presenting a credible and logical version of events. I found Mr CHEUNG particularly to be an impressive witness, making sensible concessions where one would expect and patently making no attempt to worsen the 2nd Defendant's position.

12. Conversely, and it is unfortunate that I find it necessary to say it of a practising solicitor, the 2nd Defendant is a witness to whom the concept of truth is a novelty. He has demonstrably lied on more than one occasion in these proceedings. He was evasive in the extreme during his testimony. Portions of his evidence were nothing short of nonsensical, bordering on the absurd.

23 September 1997 meeting of shareholders

13. A meeting of the shareholders of the Plaintiff was convened for 23 September 1997. It is not in dispute that the basic purpose of the meeting was to decide whether to sell the project in its unfinished state. What occurred during that meeting is fundamental to this action.

14. The first witness for the Plaintiff, HON Kit, did not attend that meeting: he was represented by a property surveyor whom he had consulted prior to making his investment in the Plaintiff. There is no evidence before me that the surveyor played an active role in the meeting. The second and third witnesses for the Plaintiff, HO Pui-shing and CHUENG Chor-wing, however, did attend that meeting. Their recollections substantially accord not only with one another but with two separate sets of minutes prepared after the meeting.

15. They say that during the meeting the first mention of a purchase price was one of $8,000,000.00 which was put forward by the 1st Defendant. The 2nd Defendant, who was attending the meeting to represent his wife and, apparently, also in his professional capacity said that the potential purchaser had deposited an amount of $2,000,000.00 with the 3rd Defendant as earnest money. The 2nd Defendant also explained that there were certain difficulties with the development which made it less desirable, effectively endorsing the proposed selling price. One of the shareholders objected to this price and expressed the view that the minimum price should be $8,500,000.00. Following on discussions the 1st Defendant was urged to contact the potential purchaser: he went aside from the meeting, which was taking place in a recreation club, made a telephone call and then returned to announce that the potential purchaser had increased the offer to $8,200,000.00. The dissenting shareholder maintained his stance but the others passed a resolution accepting this figure.

16. In addition to the shareholders, a Ms SHUM was also present. It is not disputed that she was there and kept a minute: the 2nd Defendant said that she sat next to him during the meeting. It is significant to bear in mind that she was the secretary of the 1st Defendant. The minute appears at page 37/38 with a typed copy at page 39 of the agreed bundle. The terms of the resolution as recorded by Ms SHUM may helpfully be set out in full for it is behind this that the 2nd Defendant seeks to shelter:

"1. Each shareholder resolved to sell the land at Cham Chuk Wan, Sai Kung.

2. Each shareholder resolved to sell the aforesaid land at HK$8,200,00.00 exact shareholder Choi Kwok Chung objected.

3. Terms of payment roughly as follows: -

(i) purchaser should pay 20% of the selling price at signing the contract

(ii) purchaser should pay 35% of the selling price within 7 days after payment of administration fee

(iii) purchaser should pay 35% of the selling price within 12 months after the New Grant has been issued;

(iv) after issue of certificate of compliance pay 10%.

4. Authorised Mr Dai Shu Sing to deal with and coordinate all matters relating to the sale of the land with full power;

5. No other motions, meeting closed"

17. The 2nd Defendant says that although this was the final terms of the decision of the meeting the purchase price was arrived at in an entirely different manner to that related by the Plaintiff's witnesses. He says the offer announced to the meeting by the 1st Defendant was one of $10,000,000.00 not $8,000,000.00. He accepts that he told the meeting that $2,000,000.00 had been deposited with the 3rd Defendant. He says that the meeting then was told that the 1st Defendant required a "consultancy fee" of $2,000,000.00: the shareholders objected to this demand which, after negotiation, was reduced to $1,800,000.00. The Plaintiff's witnesses dispute that either the figure of $10,000,000.00 or a request by the 1st Defendant for a further consultancy fee was mentioned at any stage during this meeting.

18. The 2nd Defendant also says that the meeting then was told that a further amount would need to be paid to an intermediary who had located the potential purchaser but that that amount would be paid by the purchaser and not come out of the moneys due to the Plaintiff. The Plaintiff's witnesses dispute that commission payable to a third party, named or otherwise, was mentioned at any stage during the meeting.

19. After the shareholders meeting, the 2nd Defendant himself prepared a provisional agreement of purchase and sale (pages 43 to 49) between the Plaintiff and Paron Investment Limited in terms of which the Plaintiff sold, in effect, the project. That agreement was signed on 30 September 1997, seven days after the shareholders meeting. That agreement stipulated the purchase price to be the sum of $13,200,000.00 or exactly $5,000,000.00 more than the shareholders had agreed to accept as the purchase price. It was signed by the 1st Defendant on behalf of the Plaintiff. It purports also to include an acknowledgement that the first instalment of $3,500,000.00 had been paid as the initial deposit.

20. The 2nd Defendant says that the increase in price is due to the fact that Paron wished to pay $3,200,000.00 to one TANG Ka-hung. He drew the agreement based on this information which had been given to him by the 1st Defendant.

21. Also in the possession of the 2nd Defendant at this stage were two documents, a "consultancy agreement" and a "commissions agreement". Each is dated 26 September 1997, three days after the shareholders meeting. The former document authorises payment of $1,800,000.00 by the Plaintiff to Golden Figure: it is signed by the 1st Defendant on behalf of the Plaintiff and, apparently, by Ms SHUM on behalf of Golden Figure. The latter document authorises payment of $3,200,000.00 by the Plaintiff to "TANG Ka-hung or his nominees": it is signed by the 1st Defendant on behalf of the Plaintiff. The 2nd Defendant says that these documents were given to him by the 1st Defendant: whether that is true or not does not affect my decision.

22. I accept the version of the Plaintiff's witnesses and reject that of the 2nd Defendant as to what occurred during the meeting on 23 September 1997.

(1) It is inherently improbable that, if there had been agreement that the 1st Defendant would receive a payment of $1,800,000.00 consequent upon a resolution at the meeting, his own secretary would omit that fact from the minute which she prepared.

(2) It is also improbable that there would have been no mention of the fact that, although the selling price would be reflected as $13,200,000.00, $3,200,000.00 of that amount would not accrue to the Plaintiff.

(3) The 2nd Defendant repeatedly emphasised during his evidence that the sum of $8,200,000.00 was a fair market price for the project. He sets out detailed calculations in a "Second supplemental witness statement" explaining how this figure is achieved - yet nowhere in those calculations is there any provision for the notional "consultancy fee" of $1,800,000.00.

(4) His calculations make no sense when viewed in the light of his evidence that the purchase price said to have been offered at the meeting was $10,000,000.00. If the purchaser was purchasing this project to proceed with it, the fact that it was prepared to pay $1,800,000.00 in excess of the real market value (leaving aside a further increase of $3,200,000.00 at its own request) is nonsensical.

(5) A consultancy fee, in any event, had already been paid to the 1st Defendant in respect of this project by the 2nd Defendant through the 3rd Defendant in February 1994 (para. 7 supra). Not only does this militate against the 2nd Defendant's version of what happened during that meeting but it is another instance of his lack of truthfulness as, in paragraph 13 of his "Supplemental witness statement" dated 10 January 2002 he states "I had no knowledge that [the 1st Defendant] had received any money as consultancy fee at the beginning of the project."

(6) It is both noteworthy and illustrative of the 2nd Defendant's lack of consistency that in paragraph 18 of his first witness statement he says that the meeting was told that there would be paid "a certain commission to TANG Ka-hung" and that there would be a payment to "TANG Ka-hung as commission" yet, in response to a denial of this, accepts at paragraph 13 of his "supplemental" witness statement that the person's name was not mentioned at all.

(7) His subsequent conduct in making an undisclosed payment to his wife of a portion of the commission supposedly due to TANG is inconsistent with a claim that payment of that commission at the request of Paron was discussed during the meeting. There is simply no explanation why Paron would wish almost half a million dollars to be paid to the 2nd Defendant's wife.

The first payments

23. An "authorization" dated 3 October 1997 signed by the 1st Defendant and addressed to the 3rd Defendant purported to authorize payment to Golden Figure of the first portion of the "consultancy fee", in an amount of $800,000.00 (page 50). That payment was made is not in dispute: a voucher of the 3rd Defendant dated the same day relates to this payment (page 51).

24. A further "authorization" dated 6 October 1997 signed by the 1st Defendant and addressed to the 3rd Defendant purported to authorize payment to "TANG Ka Hung or his nominees" of the first portion of the "commission", in an amount of $1,500,000.00 (page 53). That payment was made is not in dispute: a voucher of the 3rd Defendant dated the same day relates to this payment (page 52).

The first visit to the 2nd Defendant's office

25. As a result of a telephone conversation between Ms SHUM and Mr HO, Mr HO became concerned about the amount of money said to have been paid to the 3rd Defendant pursuant to the agreement to sell the project for, he thought, $8,200,000.00. On 8 October 1997 he went to the 2nd Defendant's office with two other shareholders, Mr HON and one CHAN Ming. There they saw the provisional agreement for purchase and sale and became aware, they say, for the first time that the purchase price reflected in that provisional agreement was $13,200,000.00. They also saw for the first time the "consultancy" and "commission" agreements.

26. The 2nd Defendant makes no reference to this meeting in his witness statements, but accepted in cross-examination that this meeting occurred. Although Mr HON accepted that the three of them had not expressed disagreement with the documentation to the 2nd Defendant during this visit, he said that they had queried the new purchase price and additional agreements: Mr HO effectively confirmed this evidence, indicating that the meeting had been very brief. Both indicated that the 2nd Defendant had said, during this meeting, that he had followed the instructions of the 1st Defendant.

27. Alarmed by the discovery of the inflated purchase price and the two further agreements, Mr HO discussed the developments with Mr CHEUNG as well as other shareholders. At the suggestion of another shareholder, Mr HO drafted a more detailed minute of the discussions at the meeting on 23 September 1997 and a meeting was arranged for 11 October 1997 for the shareholders to consider that draft minute, with a view to a further visit to the 2nd Defendant's office.

28. The draft minute (pages 54 to 59) was considered and amended by those shareholders present at the meeting on 11 October 1997. It is correct, but hardly surprising in the circumstances, that neither the 1st nor the 2nd Defendant was present at this meeting. The 2nd Defendant does not challenge the accuracy of what does appear in this minute but contends that it is incomplete in that it omits reference both to the purchase price being $10,000,000.00 and to the necessity to pay a consultants fee and commission. He further disputes that there was discussion during the 23 September 1997 meeting, as recorded in paragraph 9 of that minute, to the effect that the Plaintiff would not pay "any other fees". Mr HO asserts in his evidence that this was discussed. I accept the evidence of the Plaintiff's witnesses that this minute accurately records what occurred during the meeting on 23 September 1997 and that it does so simply in more detail than the minute prepared by Ms SHUM. The value of the minute is that it acts as an aide memoire for, in particular, Mr HO.

The second visit to the 2nd Defendant's office

29. On 14 October 1997 a group of the shareholders descended upon the 2nd Defendant in his office. The occurrence of this meeting is not in dispute. The Plaintiff's witnesses assert that during this meeting the 2nd Defendant explained that he had known all along that the purchase price had been $10,000,000.00; that the additional $3,200,000.00 had been added to the purchase price at the purchaser's request conveyed to him by the 1st Defendant; that the purchase price fell to be reduced by the amount of the $1,800,000.00 consultancy fee; and that he, the 2nd Defendant, was simply following the instructions given to him to pay that amount to the 1st Defendant.

30. The 2nd Defendant does not dispute that this explanation was given. He went on to say in cross-examination that the shareholders did not complain about the payment of the consultancy fee, simply about the terms of such payment. He accepts, however, in paragraph 28 of his first witness statement that he was told by the shareholders to withhold any further payment to the 1st Defendant. He says that he later made payment of a portion of that further payment, despite the shareholders specific instructions, based on written instructions given to him by the 1st Defendant.

31. Both Mr HO and Mr CHEUNG said in court that, during this meeting, the 2nd Defendant was told that the 1st Defendant's mandate was terminated. The 2nd Defendant disputes that this was said at all.

32. It is correct that Mr HO did not make any mention of the termination of the mandate during this meeting in either of his witness statements and mentioned it, for the first time, during cross-examination. Conversely, Mr CHEUNG did deal with it in his witness statement. I accept Mr HO's explanation that this was simply an omission from his witness statements.

33. It may be pertinent to note that Mr CHEUNG was cross-examined about the fact that his witness statement says "Finally Chan Ming proposed that we should revoke Dai's authority to represent the Plaintiff and requested Peter Chan to withhold all payments of commission and consultancy fee...", the contention being that this was simply a proposal and not a direct instruction to the 2nd Defendant. Such a suggestion does the 2nd Defendant little credit: it is quite plain what Mr CHEUNG was saying both then and during his evidence. I am entirely satisfied that the 2nd Defendant was told, in terms, that the 1st Defendant's mandate was terminated.

The meeting on 1 November 1997

34. Consequent upon the second meeting with the 2nd Defendant a further meeting of shareholders was held on 1 November 1997. At that meeting a resolution was passed expressly instructing the 3rd Defendant to withhold any payments to the 1st Defendant or TANG out of the second tranche of the purchase price (page 66) payment of which was rapidly approaching. It is the evidence of both Mr HO and Mr CHEUNG that Mr HO was charged with arranging the delivery of a copy of that document to the 2nd and 3rd Defendants.

35. The 2nd Defendant denies having received the resolution. In the event, nothing much would turn on this but it is an issue which I should address.

36. Mr HO said that he had entrusted delivery to a subordinate who had delivered the resolution. He further said that he had been told that delivery had been effected and that he had seen a copy of that resolution which bore the chop of the 3rd Defendant. His evidence that that document had since gone missing (and the person who effected delivery had moved to Australia) caused me some concern as one would have thought that to be a significant document which would have been retained carefully. However, I am satisfied that the resolution was delivered to the 3rd Defendant following upon which it seems inevitable that it would have come to the attention of the 2nd Defendant.

37. I say this for two primary reasons apart from the general creditworthiness of Mr HO.

(1) Both Mr HON and Mr CHEUNG testified that Mr HO later told him this had been done. I accept this evidence, although of course it is hearsay. There is nothing to suggest that, eight years ago, Mr HO would have reported this to them if, in fact, it had not been done.

(2) The meeting on 6 November 1997, to which I will refer, is consistent with its delivery.

The final agreement of sale

38. On, it seems, 4 November 1997 the final agreement of sale and purchase between the Plaintiff and Paron was signed (pages 68 to 94). That agreement was prepared by a firm of solicitors other than the 3rd Defendant. It is striking that it makes no mention of payment of any commission to TANG or any other third party despite the fact that there are stipulations in regard to other payments, for example clauses 3.18 and 5.2. Moreover clause 16.6 expressly provides that the written agreement records the full agreement between the parties.

39. The 2nd Defendant's evidence was that he simply did not regard it as necessary to enquire of the solicitors who prepared this agreement for Paron either as to why the purchaser sought this escalation of $3,200,000.00 in the purchase price or why no mention of payment to TANG was contained in the agreement.

A draft resolution

40. Despite his stance that the 1st Defendant had "full authority" to dispose of the proceeds of the sale and that the 1st Defendant had provided written instructions to disburse moneys to himself and TANG, on 5 November 1997, the day after the agreement of sale and purchase was signed, the 2nd Defendant sent a fax to Mr HON to which was attached a draft resolution purporting to authorise the signature by him of an agreement which was annexed to that draft. The agreement authorised the payment of the "consultancy" fee to Golden Figure. He spoke to Mr HON telling him that the agreement would "solve" the position in regard to payment of the moneys. Mr HON discussed the documents with a fellow shareholder and decided not to sign them. He conveyed this by telephone to the 2nd Defendant some days later.

41. The 2nd Defendant says that he prepared these documents too on the instructions of the 1st Defendant who had told him that he had discussed the variation of the terms of payments with other shareholders.

42. The obvious difficulty with this is that the 2nd Defendant's contention has been, throughout the proceedings, that he had at all times been dealing with the 1st Defendant who was the authorised representative of the Plaintiff and that, in particular, the resolution of the meeting on 23 September 1997 vesting the 1st Defendant with "full power" authorised the 1st Defendant to dispose of any amounts over $8,200,00.00 as he saw fit. It is hard to reconcile such an attitude with the need to secure the execution of the draft resolution and agreement sent to Mr HON.

The third visit to the 2nd Defendant's office

43. Both Mr HON and Mr HO testified as to the occurrence of a meeting at the 3rd Defendant's premises on 6 November 1997, albeit that Mr HON said it occurred on either the 5th or 6th. Mr HO says that the meeting was convened, that day, by the 1st Defendant. Their evidence concerning the meeting was substantially the same: that both the 1st and 2nd Defendants had been present and that the 2nd Defendant, in particular, had insisted that payments of the consultancy and commissions fees had to be effected as, if they were not, the Plaintiff would be "in breach" of the agreement with Paron and may face litigation. There is, of course, no mention in the agreement with Paron of payment of these two amounts which makes comprehension of the 2nd Defendant's advice somewhat difficult.

44. In cross-examination, it was suggested to each that no such meeting had occurred. Each disputed this suggestion. I accept that it occurred as they say. The fact that this unscheduled meeting occurred only three days after the day when the Plaintiff says the resolution of 1 November 1997 prohibiting further payments to the 1st Defendant and TANG and only one day before those payments nevertheless were made, strongly supports the evidence that the resolution had been delivered to the 2nd and 3rd Defendants.

Payments

45. It is not disputed that payments were made from the 3rd Defendant's bank of $400,000.00 to Golden Figure and $1,400,000.00 to TANG "or nominee" on the following day, 7 November 1997. In cross-examination the 2nd Defendant said that the reference to "or nominee" insofar as payments to TANG were concerned meant to "someone related to him".

46. Payment of the "commission" said to be due to TANG was made by way of four cheques:

(1) $419,500.00 by cheque 990924 payable to TANG (page 226);

(2) $419,500.00 by cheque 990926 payable to TANG (page 228);

(3) by cheque 990928 payable to TANG (missing); and

(4) $455,500.00 by cheque 990927 payable to FAN May-yung (page 230).

47. FAN May-yung, it will be recalled, is the 2nd Defendant's wife. He accepted during cross-examination that she is not related to TANG. He accepted that the voucher of the 3rd Defendant relating to these payments (page 96) reflects only payment to TANG and makes no mention of the payment to his wife. He accepted that he had not disclosed, at any stage, the fact that the "commission" was being shared with his wife to the Plaintiff.

48. His denial that he had deliberately concealed the payment to his wife from his client constituted the nadir of his evidence.

49. The remaining proceeds of the part payments made by Paron were disbursed to the various shareholders by cheques drawn on the 3rd Defendant's bank account. The cheques were given to Mr HO who distributed them. Each of the Plaintiff's witnesses testified that he was aware, when he received payment, that the consultancy and commission fees had already been deducted from the moneys received.

50. Payments to the shareholders were made in accordance with a schedule sent by fax to the 2nd Defendant by the 1st Defendant on 7 November 1997. The 2nd Defendant accepts receiving this fax and making payment in terms of its contents. The fax appears at pages 233 and 234: the cheques paid out in accordance with it, at pages 238 to 246 and 248 to 251.

The fax of 20 August 1994

51. I indicated earlier (paragraph 9 supra) that I would deal with the issue of whether the 2nd Defendant had received a fax dated 20 August 1997 from the 1st Defendant. This appears to be the appropriate point to do so.

52. The importance of the fax of 20 August 1997 is in the paragraph which reads as follows:

"(3) Mart Treasure Ltd Whole Project to be sold

Selling price: HK$10,000,000.00

Asking price: HK$12,000,000.00. The difference in price will be split between you and me as consultancy fee in equal shares."

53. The fax is expressed to be "To: Solicitor Chan" and "From: Dai Shu Sing Golden Figure". The identification information on the top of the page shows the fax as being sent "From: abc To: Fax# 27643118" followed by the date and time. The Plaintiff's case is that this is a document which emanated from the 1st Defendant, was sent to the 2nd Defendant and evidences an agreement between them, prior to the meeting on 23 September 1997, to share any amount that could be obtained additional to the selling price accepted by the Plaintiff. It is self-evident that the Plaintiff is unable to establish by direct evidence that the document did emanate from the 1st Defendant, was received by the 2nd or 3rd Defendant or even was despatched.

54. The 2nd Defendant says, simply, that he had not received this document at any stage and that it first came to his knowledge during the course of these proceedings. He says, and there is no evidence to the contrary, that the fax number to which the document is said to have been despatched is not his and is unknown to him.

55. The overwhelming probabilities are, and I find, that this document was faxed to him and received by him.

(1) His suggestion that it could have been sent to anyone, there being a number of solicitors Chan in Hong Kong, is less than realistic. It ignores entirely the fact that his evidence is that he was the only person acting on behalf of the Plaintiff in respect of this project. It ignores entirely the fact that the document also refers to other companies, involved in similar developments, in which the 1st Defendant was interested, for which the 2nd Defendant was acting at that time. It ignores entirely the fact that the fax he acknowledges having received from the 1st Defendant is also addressed simply to "Solicitor Chan".

(2) The fact that the unchallenged evidence is that this document was found in the possession of Ms SHUM at her residence contradicts the 2nd Defendant's tentative suggestion that it may have been created by the Plaintiff.

(3) The 2nd Defendant said that he had no idea of the identity of "abc" shown in the header of the fax of 20 August 1997. However, he accepts that the fax of 7 November 1997 was sent to him by the 1st Defendant: that fax also shows "abc" in the header.

(4) The 2nd Defendant accepts that he said at the meeting in his office on 14 October 1997 that he knew that the purchase price was supposed to be $10,000,000.00. I have found as a fact that this was not disclosed at the meeting on 23 September 1997 by him or the 1st Defendant. Such non-disclosure is consistent with the arrangement set out in the fax of 20 August 1997.

(4) Generally, it is significant that the 2nd Defendant denies receipt of each material document which is adverse to his interests in one way or another. He denies receiving the fax of 20 August 1997. He denies receiving the resolution of 1 November 1997. He denied, in earlier interlocutory proceedings, receiving copies of cheques from two banks: this denial was demonstrated comprehensively to be untruthful: his attempts in cross-examination to justify his position in regard to those cheques were as fanciful as they were patently untruthful.

Subsequent events

56. After the flurry of activity in September to November 1997 matters became dormant. During the latter portion of 2000 the original landowners became restive. It seems that proceedings were instituted against the Plaintiff although particulars of those proceedings have neither been made known to me nor would appear to be relevant. The 2nd Defendant suggested engaging the services of TANG who, he said, may be able to mediate. A meeting was held on 28 September 2000 in the offices of the 3rd Defendant at which this possibility was discussed with TANG (page 209). He demanded a "consultancy fee" of $30,000.00. Although no decision to engage TANG's services was taken during that meeting, the 3rd Defendant was subsequently authorised by the Plaintiff to enlist his assistance but the 2nd Defendant was required to negotiate terms of payment of the fee involved (pages 199 and 212).

57. It has been submitted that the engagement of TANG at this stage indicates that there was no disagreement with him and no disquiet on the part of the Plaintiff's shareholders over the earlier payment of the commission. In my view, on the evidence as a whole it is quite plain that the shareholders simply were attempting to save whatever they could from the project and exploring every avenue open to them.

58. The project is still incomplete, the properties, according to the evidence, being "covered in weeds".

The 12 January 2001 meeting

59. A meeting of directors of the Plaintiff was convened on 12 January 2001 for the purpose of considering action to be taken against the Defendants. The 2nd Defendant was present at that meeting. The evidence is, and the 2nd Defendant does not dispute this, that the outcome of the discussions was that he would purchase all of the shares in the Plaintiff, thereby acquiring the project, for an agreed price of $4,100,000.00. The method of payment agreed upon is set out in a minute of that meeting (page 108) which was prepared there and then and signed by all present including the 2nd Defendant.

60. Despite this agreement on 19 January 2001 the 2nd Defendant forwarded to Mr HON a document (pages 117/118) in which he purported to agree to purchase all of the shares in the Plaintiff at the reduced figure of $2,000,000.00 with the rider that if the project were sold within six years a further $2,100,000.00 would be payable to the Plaintiff.

61. The evidence of Mr CHEUNG is that during the meeting on 12 January 2001 the 2nd Defendant expressed his regret for all that had happened and "asked for a chance". He was specific in cross-examination that during this meeting the 2nd Defendant had admitted fault. Mr HO says that during this meeting the 2nd Defendant "begged" those present not to take any action against himself or his firm. Although Mr HON confirms the meeting and the offer by the 2nd Defendant to purchase the shares, he is silent as to whether the 2nd Defendant admitted fault. He goes on to say that when the 2nd Defendant was approached for the first payment in terms of the agreement concluded on 12 January 2001, he said that he was unable to make payment as someone in his office had stolen money from him.

62. In cross-examination, the 2nd Defendant says that he made no admission of fault. He says that he offered to pay $4,100,000.00 for the shares solely to protect the good name and reputation of his firm. He accepted that the amount he had offered to pay represented the moneys that he had paid out to the 1st Defendant, TANG and his wife during October and November 1997. He also said he was unable to make payment due to an employee having embezzled funds.

63. The 2nd Defendant's offer of payment of these moneys is powerful evidence in considering his recognition of his liability, whatever his present position may be.

Other issues

64. The 2nd Defendant accepted in cross-examination that he had not obtained from the Plaintiff, at any stage, any resolution, express or implied, to pay either the consultancy or commission fees, representing some 37% of the overall selling price, but contended that the phrase "with full power" in the resolution of 23 September 1997 meant that the 1st Defendant was able to disburse any amount in excess of $8,200,000.00 in any manner he saw fit. Such an interpretation is without any sensible foundation.

65. He contended that the Plaintiff's interests were protected in that the shareholders had agreed to accept $8,200,000.00: so long as this amount was received by the shareholders the 1st Defendant was at liberty to do as he liked with any surplus.

66. Perhaps his attitude is best evidenced by his response during cross-examination that "The company had already obtained more than it deserved for the property."

The nature of the duty owed to the Plaintiff

67. Having considered the evidence and made such finding of facts as are immediately necessary, I turn to the nature of the duty of a solicitor towards his client.

68. The standard of care is expressed by Oliver J in Midland Bank v Hett, Stubbs & Kemp [1978] 3 All ER 571:

"Now no doubt the duties owed by a solicitor to his client are high, in the sense that he holds himself out as practising a highly skilled and exacting profession, but I think that the court must beware of imposing on solicitors, or on professional men in other spheres, duties which go beyond the scope of what they are requested and undertake to do. It may be that a particularly meticulous and conscientious practitioner would, in his client's general interests, take it on himself to pursue a line of enquiry beyond the strict limits comprehended by his instructions. But that is not the test. The test is what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession..." (emphasis supplied)

69. That it is now settled that liability may arise in both contract and tort is illustrated by Lord Bridge of Harwich in Caparo Industries plc v Dickman [1990] 1 All ER 568 at 574 who, when considering liability of auditors, said:

"In advising the client who employs him the professional man owes a duty to exercise that standard of skill and care appropriate to his professional status and will be liable both in contract and tort for all those losses which his client may suffer by reason of any breach of that duty."

and Sir Thomas Bingham MR in Banque Bruxelles Lambert SA v. Eagle Star Insurance Co. Ltd [1995] QB 375, who, when dealing with an issue of valuation, expressed it thus:

"In the absence of special conditions, and whether the duty is contractual or tortious, [the] duty...is the same: to take reasonable care... In each case the duty is to exercise a reasonable standard of professional care in the circumstances, no more and no less."

Did either Defendant breach that duty?

70. From my review of the evidence the facts that I have found may be summarised thus:

(1) the 1st Defendant sent the fax of 20 August 1997 to the 2nd Defendant suggesting that they share between them any excess over the selling price;

(2) at the meeting on 23 September 1997 the 1st Defendant represented the selling price to the shareholders as being $8,200,000.00;

(3) at that meeting the 2nd Defendant commended to the shareholders the sale at that price;

(4) seven days after that meeting the 2nd Defendant drew an agreement in which the selling price was reflected as $13,200,000.00;

(5) the 2nd Defendant did not at any stage disclose this increased purchase price to the shareholders prior to that agreement purportedly being signed on behalf of the Plaintiff by the 1st Defendant;

(6) he disbursed a substantial proportion of the initial moneys received to the 1st Defendant and TANG on the purported authority of the 1st Defendant;

(7) when the shareholders found out about the inflated purchase price the 2nd Defendant represented to them that, to his knowledge, the purchase price had all along been $10,000,000.00 and that the remaining additional amount had been added at the request of the purchaser;

(8) at the meeting in the offices of the 3rd Defendant on 14 October 1997 the 2nd Defendant was informed that the mandate of the 2nd Defendant was terminated;

(9) on 3 November 1997 a copy of the resolution of the meeting of 1st November 1997 prohibiting any further payments to the 1st Defendant or TANG was delivered to the 3rd Defendant and, thus, the 2nd Defendant; and

(10) in direct contradiction of those instructions further payments were made to the 1st Defendant, TANG and the 2nd Defendant's wife.

71. On those facts, simply to pose the question "Did the 2nd Defendant and, through him, the 3rd Defendant exercise the reasonable standard of care appropriate to his professional status?" is to answer it in the negative.

72. Moreover, the reasonably prudent solicitor when instructed to disburse a substantial portion of the proceeds of a sale to one of the shareholders of his client company, but not to the distribute it amongst all shareholders, would make enquiries of the client company as to the authenticity of those instructions, irrespective of his previous dealings with that shareholder.

Ostensible authority

73. It is the 2nd Defendant's position that he, and thus the 3rd Defendant, acted at all times on the instructions of the 1st Defendant who was in "overall control" of the project: it was the 1st Defendant who initiated the project; it was the 1st Defendant who arranged the acquisition of the company which became the Plaintiff; it was the 1st Defendant who thereafter carried out all the negotiations; it was the 1st Defendant who relayed to him, the 2nd Defendant, the purported decisions of the Plaintiff.

74. He says, further, that at the outset of the project there was an informal meeting when it became apparent that the shareholders present, representing more than 50% of the total shareholding, were quite content to leave day to day matters to the 1st Defendant.

75. It is the 2nd Defendant's position further that the resolution of 23 September 1997, with which I have already dealt, confirmed the 1st Defendant's general authority. The 2nd Defendant accepts that he received no other resolution from the directors or shareholders of the Plaintiff nor did he, at any stage, seek confirmation from the Plaintiff as to whether the 1st Defendant in fact did have any authority from the Plaintiff, and, if so, the scope of such authority. He relied solely on what he was told by the 1st Defendant.

76. The 2nd Defendant does not seek to suggest that the Plaintiff in any way held out to him that the 1st Defendant was duly authorised by it to act on its behalf in regard to the conclusion of the consultancy and commission "agreements" or in regard to the disbursement of the moneys pursuant to those "agreements". He accepts that all such representations came from the 1st Defendant himself. Absent any representation from the Plaintiff, there could have been no ostensible authority: see Freeman & Locker v Buck Hurst Park Properties (Mangal) Ltd [1964] 1 QB 480.

77. Where no representations had been made by the client company as to the authority of the shareholder concerned but had come solely from that shareholder the reasonably prudent solicitor would be expected to confirm those instructions with the client. Not to do so would be negligent.

The payments on 3 and 6 October 1997

78. Even if I err in finding that the 2nd Defendant received the fax of 20 August 1997, the 2nd Defendant and through him the 3rd Defendant were still in breach of the duty.

79. A reasonably prudent practitioner would have communicated the fact of the inflated sale price to his client.

"A solicitor must put at his client's disposal not only his skill but also his knowledge, so far as it is relevant; and if he is unwilling to reveal his knowledge to his client, he should not act for him. What he cannot do is to act for the client and at the same time withhold from him any relevant knowledge that he has."

per Megarry J, in Spector v Ageda [1971] 3 All ER 417 at 430g.

80. Moreover, the 2nd Defendant became aware of the fact that the sale price was to be reflected in the provisional agreement of sale as $13,200,000.00 without any reference to payment to TANG. The only purported authority upon which he relied was that of the 1st Defendant, from whom the instructions to inflate the purchase price and to disburse the moneys to himself, the 1st Defendant, and TANG had emanated.

81. The 2nd Defendant took no steps to clarify the position with the solicitors acting for Paron either before or at the time of the conclusion of the final agreement of sale.

82. The 2nd Defendant was aware that the 1st Defendant was a shareholder in and de facto director of the Plaintiff and thus owed the Plaintiff a fiduciary duty. The reasonably prudent solicitor would have communicated the fact of the increased purchase price and the proposed payments to the Plaintiff.

The payments on 7 November 1997

83. Even if I err in finding that in the meeting on 14 October 1997 he was told that the 1st Defendant's mandate was terminated and in finding that he did receive the resolution of 1 November 1997, the 2nd Defendant and through him the 3rd Defendant were still in breach of the duty.

84. The 2nd Defendant was fully aware of the dissatisfaction of the shareholders in regard to the non-disclosure of the inflated purchase price and payments to the 1st Defendant and TANG expressed during the meetings in the offices of the 3rd Defendant on 8 and 14 October 1997. During the meeting on 14 October 1997 the 2nd Defendant, even on his own version, had been told that further payment to the 1st Defendant was not to be effected. In regard to the payment to the 1st Defendant, he prepared the draft resolution and agreement which he forwarded to Mr HON for signature on 5 November 1997 and which Mr HON declined to sign.

85. In these circumstances the reasonably prudent solicitor would have sought specific instructions from the Plaintiff other than via the 1st Defendant prior to making further payments. The 2nd and 3rd Defendants did not do so thereby creating an unnecessary risk.

Conclusion

86. I am consequently satisfied that the Plaintiff has established, on a balance of probabilities, that the 2nd and 3rd Defendants were in breach of their duties to it as set forth in the Statement of Claim and that such breach caused loss and damage to the Plaintiff in the sum of $4,100,000.00. There will be judgement for the Plaintiff against the 2nd and 3rd Defendants, jointly and severally, for payment of that sum.

Interest

87. Interest is to be paid on the sum of

(1) $800,000.00 from 3 October 1997

(2) $1,500,000.00 from 6 October 1997

(3) $1,800,000.00 from 7 November 1997

to date of judgement at 1% over prime rate prevailing from time to time and thereafter at the prescribed judgement debt rate to date of payment.

Costs

88. I have a discretion whether to order costs to be paid on other than the party and party basis. The mere fact that the 2nd Defendant is a solicitor would not alone be justification for ordering other than party and party costs where he simply fails in litigation. However, the 2nd Defendant's conduct of this action has been an affront to the Court. It is a matter in which an order for costs on the indemnity basis is justified.

89. The Defendants are to pay the Plaintiff's costs, as taxed or agreed, on the indemnity basis.

Other matters

90. The orders in respect of interest and costs shall be orders nisi: either party has liberty to restore for argument within 21 days.

91. I direct that a copy of this judgement be sent to the Law Society.