JIM CHIU YUEN v. C.L. CHOW & MACKSION CHAN (a firm) AND OTHERS

HCA 1113/2017

[2018] HKCFI 154

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1113 OF 2017

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D E C I S I O N

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INTRODUCTION

1.  The 1^st defendant is a law firm. This is the 1^st defendant’s application to strike out and dismiss the plaintiff’s claim against them. 

PLAINTIFF’S CLAIM

2.  The plaintiff is a private investor.  According to the plaintiff, since 8 October 2010, each of the plaintiff and his brother-in-law Lo Kin Man (“Lo”) has been the 50% registered shareholder of a BVI company, named Eagle Delta Investments Limited (“Eagle Delta”).  Since 19 October 2010, Eagle Delta has been the 100% registered shareholder of another BVI company, named Castle World Limited (“Castle World”).  The plaintiff alleges that he has since 19 October 2010 been the 100% beneficial owner of Castle World, and that prior to 19 October 2010, his mother-in-law, Madam Pang Wing Kie (“Madam Pang”), was the 100% shareholder of Castle World and used it as her investment vehicle.  The plaintiff further alleges that he acquired Castle World through the acquisition of Eagle Delta.

3.  At all material times, Castle World was and remains the holder of an investment account (the “Account”) with Goldman Sachs (Asia) LLC (“Goldman Sachs Asia”).  Castle World has entered into various derivative contracts connected to underlying securities, indices and commodities with Goldman Sachs International (“Gold Sachs International”).  The plaintiff alleges that he was at all material times the main operator of the Account, overseeing the investments therein, ordering transfers, purchases and sales of investments, and so on.

4.  The 1st defendant was and is a firm of solicitors in Hong Kong.  The 2^nd defendant was and is also a firm of solicitors in Hong Kong.  The 3^rd defendant is a practising solicitor in Hong Kong, being a consultant with the 1^st defendant until a certain date, a sole proprietor of the 2^nd defendant from 2 July 2011 to 27 April 2014, and a partner of the 2^nd defendant since 28 April 2014. 

5.  It is convenient to add here that in the original Statement of Claim, the plaintiff pleaded that the 3^rd defendant was a consultant with the 1^st defendant until 25 July 2011, and consistently, pleaded that the 3^rd defendant left the 1^st defendant on 25 July 2011.  However, as will be seen below, the 1^st defendant took it as a ground for striking out, given that the plaintiff’s complaint (to be set out below) took place after 25 July 2011, the plaintiff applied to amend the pleading to delete any reference to the leaving of the 3^rd defendant from the 1^st defendant on 25 July 2011.  The explanation proffered by the plaintiff on affirmation for the amendment is that he did not know the 1^st defendant would take this date as a ground to contend that the 1^st defendant did not act for the plaintiff anymore after that date, and thus he simply took this date as stated by the 1^st defendant in a letter sent by the 1^st defendant to him on 28 April 2016 as true.  I shall deal with this later in this Decision.

6.  On 4 July 2011, the Independent Commission Against Corruption (“ICAC”) arrested the plaintiff for suspected offences contrary to section 9(1)(a) of the Prevention of Bribery Ordinance (Cap 201) (the “PBO”) and section 25(1) of the Organized and Serious Crimes Ordinance (Cap 455).  On the same day, upon the ICAC’s application in HCCM 49 of 2011, Saw J granted a restraining order (the “Restraining Order”) pursuant to section 14C(1)(a) of the PBO restraining the plaintiff from dealing with monies and investments in the Account save in accordance with the court’s directions.

7.  After the ICAC released the plaintiff, he consulted the 3^rd defendant (then of the 1st defendant). According to the plaintiff, he explained his instructions and concerns over the potentially drastic effect of the Restraining Order, given the volatility of the market.  He expressed his “wish to apply to vary the Restraining Order so that he would be vested with the right to liquidate the investments in the Account” (see paragraph 11(e) of the Statement of Claim) with “unfettered discretion” (see pleaded in paragraph 11(f) of the Statement of Claim), “willing to undertake not to withdraw any of the cash obtained as a result of any liquidation of the investments held in the Account (see paragraph 11(g) of the Statement of Claim).  The plaintiff retained the 1st defendant to apply for such variation.  This retainer is referred to as the “D1’s Retainer” in the Statement of Claim.  The plaintiff pleads that both of them understood that any variation would have a direct impact on Castle World’s interest in the Account.

8.  In paragraphs 13 and 14 of his Statement of Claim, the plaintiff pleads that the 1^st and 2^nd defendants owed to him an implied duty to provide the service with reasonable care and skill or a like duty of care in tort, with the following particulars:-

“(a) exercise reasonable care and skill in advising [the plaintiff] as to how to best achieve the Objectives [to vary the Restraining Order so that he could have unfettered discretion to realise the investments in the Account].

(b) exercise reasonable care and skill in connection with the application for variation of the Restraining Order so that Mr Jim was vested with the right to liquidate the investments [in] the Account.

(c) exercise reasonable care and skill in preparing all relevant documents to best present the case for Mr Jim in connection with the application for variation of the Restraining Order.

(d) exercise reasonable care and skill in obtaining court orders on favourable terms to Mr Jim to best achieve the Objectives, in particular enabling Mr Jim to dispose of the relevant investments in the Account at any time as he saw fit to maximize realisation.

(e) exercise reasonable care and skill in preparing any draft order so as to cater for the investments in the Account…

(f) advise Mr Jim fully and accurately Mr Jim of all aspects in connection with the applications for variation of the Restraining Order, including if and when it may be necessary to make further application to the Court to achieve the Objectives.”

9.  On 11 July 2011, the 3^rd defendant prepared a Summons and a supporting affirmation of the plaintiff for the application of the Restraining Order.  On 14 July 2011, Saw J granted an order to vary the Restraining Order (the “1^st Variation Order”).  As a result, the plaintiff was permitted to instruct Goldman Sachs Asia to dispose of the listed securities in the Account.

10.  On or around 28 July 2011, the 3^rd defendant prepared another summons and a supporting affirmation of the plaintiff for another variation.  A draft order was exhibited to this supporting affirmation, but according to the plaintiff, its terms were never explained to him, save and except the advice that the draft order closely resembled the terms of the 1^st Variation Order.  The plaintiff pleads that he reasonably understood this to mean that he would be permitted to instruct Goldman Sachs Asia to terminate and/or liquidate the remaining investments in the Account.

11.  The backsheet of this summons and that of the affirmation stated that the 1^st defendant were the solicitors for the plaintiff.  They were filed on 29 July 2011.  On the very same day, the plaintiff retained the 2^nd defendant in replacement on 29 July 2011.  This retainer is referred to as the “D2’s Retainer” in the Statement of Claim.  Also on the very same day, a Notice of Change of Solicitors was filed by the 2^nd defendant.

12.  On 3 August 2011, the court granted the second variation order (the “2^nd Variation Order”).  In essence, the 2^nd Variation Order ordered the plaintiff “do request” Goldman Sachs International to terminate each derivative covered thereunder (the “Derivative”) within 5 trading days from the date of the 2^nd Variation Order.  In respect of certain other investments in the Account, namely, the Bonds and Note Investment and the Funds, the plaintiff was permitted to terminate or dispose of certain investments in the Account within 5 trading days exclusive of the date of the 2^nd Variation Order.  After the grant of the 2^nd Variation Order, the 3^rd defendant gave some advice on the 2^nd Variation Order.  According to paragraphs 21-23 of the Statement of Claim, that:-

“21. Upon obtaining the 2^nd Variation Order on 3 August 2011, Mr. Tsui orally advised Mr. Jim that the 2^nd Variation Order required that all of the investments covered by it must be disposed of within 5 trading days of the order. Otherwise Mr. Jim would be in contempt of court.

22. In reliance of the said advice of Mr. Tsui of the 2^nd Defendant, Mr. Jim instructed [Goldman Sachs Asia] and [Goldman Sachs International] to arrange the premature disposal of the investments covered under the 2^nd Variation Order on 4 August 2011.

23. Pursuant to Mr. Jim’s said instruction in reliance of the said advice of Mr. Tsui of the 2^nd Defendant, [Goldman Sachs Asia] and [Goldman Sachs International] arranged to dispose of the relevant investments soon after the said instruction and booked the settlement revenue and deductions from the Account.”

13.  The plaintiff claims, in paragraph 24 of the Statement of Claim, without specifically distinguishing between the 1^st, 2^nd and 3^rd defendants that:-

“In the circumstances, the 1^st Defendant and/or 2^nd Defendant and/or [the 3^rd Defendant] were negligent and/or were in breach of the implied term by failing to exercise the care and skill to be expected of reasonably competent solicitors in performing their duties pursuant to D1’s Retainer and/or D2’s Retainer.

Particulars of Negligence and/or Breach of Implied Terms and/or Equitable Duty

(a) Failing to explain to Mr Jim, sufficiently or at all, the terms of the draft Order, in particular that the draft Order stipulated that Mr Jim must request [Goldman Sachs International] to terminate each Derivative as set out in draft Order within 5 trading days from the date of the Order…

(b) Wrongly advising Mr Jim that the terms of the draft Order were essentially the same as the 1^st Variation Order. This advice is wrong because the 1^st Variation Order provided that Mr Jim was permitted to instruct [Goldman Sachs Asia] to dispose of the listed securities in the Account as set out in the 1^st Variation Order, which conferred an unfettered discretion on Mr Jim as to whether and when to do so. But paragraph 2 of the 2^nd Variation Order provided that Mr Jim do request [Goldman Sachs International] to terminate each Derivative within 5 trading days from the date of the Order… which was mandatory and conferred no discretion on Mr Jim at all.

(c) Wrongly advising Mr Jim that the 2^nd Variation Order required that all of the investments covered by it must be disposed of within 5 trading days thereof, otherwise, Mr Jim would be in contempt of court.

(d) Failing to carry out the instructions of Mr Jim diligently.

(e) Failing to properly advise Mr Jim as to how to best achieve the Objectives.

(f) Failing to sufficiently bring to the court’s attention the fact that the relevant investments in the Account are subject to extreme fluctuation by virtue of market fluctuation.

(g) Failing to obtain a variation order which enable Mr Jim, as an authorised trading agent on behalf of [Castle World], be permitted to give instructions to [Goldman Sachs Asia] and [Goldman Sachs International] to dispose of the relevant investments at any time.

(h) Failing to pay sufficient heed to Mr Jim’s concern over the market volatility… by producing the Draft Order with unduly harsh term…

(i) Failing to pay sufficient heed to the market volatility… by advising Mr Jim to dispose of the relevant investments within 5 days of the 2^nd Variation Order.

(j) Failing to pay sufficient heed to Mr Jim’s concern over the market volatility… by not advising Mr Jim to seek further variation of the 2^nd Variation Order…”

14.  I pause to note that it is not clear what equitable duty the plaintiff refers to, as the plaintiff has pleaded neither any equitable duties or fiduciary duties.  I raised this matter with Mr Lawrence Ng (with Mr Kaiser Leung), counsel for the plaintiff.  He told me that he did not rely on any equitable duty.

15.  In paragraph 25 of the Statement of Claim, the plaintiff pleads as to causation.  It is useful to break down what are pleaded there:-

(1) “But for the breach of the 1^st Defendant and/or 2^nd Defendant and/or [the 3^rd Defendant], the 2^nd Variation Order would not have been granted with the aforesaid harsh terms, namely, requiring Mr Jim to dispose of the relevant investments within 5 trading days of the order”; and

(2) “But for the breach of the 1^st Defendant and/or 2^nd Defendant and/or [the 3^rd Defendant]… Mr Jim would have been able to dispose of the covered investments in more favourable terms at the appropriate time as he saw fit to maximize realization.”

16.  In paragraph 26 of the Statement of Claim, the plaintiff then pleads the loss, being the difference between “the estimated return on date on which disposal would have taken place” and the values as at the actual termination.  The alleged loss amounts to US$2,588,368.39 and A$71,780.00.

GROUNDS FOR STRIKING OUT

17.  The 1^st defendant applied to strike out the claim against them.  Ms Audrey Eu SC (leading Mr Laurence Li and Mr Tony Chow) advanced four grounds for the striking out:-

(1) The plaintiff’s claims are for reflective loss not permitted in law.

 (a) By the time of the 2^nd Variation Order, which is the plaintiff’s complaint, the 1^st defendant was no longer retained by the plaintiff. 

(b) Moreover, the terms of the variation were necessary because Goldman Sachs had required termination or liquidation of the investments in the Account.

(2) The plaintiff deposed and expressly told the Court in HCCM 49 that Castle World belonged to Madam Pang and her estate.  Now, in the Statement of Claim here, the plaintiff pleads that Castle World belonged to him.  He must have lied to the Court either there or here, and thus his claim should not be heard.

(3) The plaintiff’s own evidence, including his affidavit evidence in HCCM 49, clearly disproves his own claim here.

I shall refer to these grounds as “Ground (1)”, “Ground (2)”, “Ground (3)” and “Ground (4)” respectively.

18.  Mr Ng contended that none of these grounds is valid. 

GROUND (1)

19.  In respect of Ground (1), there will be a hearing of the 2^nd and 3^rd defendants’ application for striking out on this ground alone on 30 January 2018.  In order to be fair to all the parties, I specifically directed that at the present hearing of the 1^st defendant’s application, the parties need not address me on this ground but if necessary, the 1^st defendant may attend the hearing on 30 January 2018.  I shall analyse the other grounds below.  As will be seen below, it is not necessary for the 1^st defendant to attend the hearing on 30 January 2018.

GROUND (2)(a)

20.  As regards Ground (2)(a), Ms Eu contended that on the plaintiff’s Statement of Claim, the 1^st defendant had ceased to act for the plaintiff by 25 July 2011 and in any event by the time of the 2^nd Variation Order.  Further, she referred to the evidence that the Notice of Change of Solicitors and the summons and the affirmation for the 2^nd variation were all filed on the same day, that is, 29 July 2011, although the backsheet of the summons and that of the affirmation stated that the 1^st defendant were solicitors for the plaintiff.  She also referred to a bill of costs issued by the 1^st defendant to the plaintiff which shows that the 1^st defendant billed up to 22 July 2011 only and transferred the costs on account to the 2^nd defendant on the same day.  She submitted that all this shows clearly that the 2^nd defendant replaced the 1^st defendant at the time of making the application and the plaintiff ceased to place any reliance on the 1^st defendant.

21.  Mr Ng relied on the very same documents (except the bill of costs) to say that the 3^rd defendant only acted for the plaintiff from 29 July 2011 onwards.  He further pointed out the undisputed fact that when the summons and the affirmation were being prepared, it was the 3^rd defendant of the 1^st defendant doing the preparation.  He thus contended that it was at least arguable that the 1^st defendant owed a duty of care to the plaintiff in respect of the 2^nd Variation Order.

22.  It is trite that mere negligence or breaches of such duties as pleaded in the Statement of Claim, without causation of loss, is insufficient to ground a cause of action, because they are not actionable per se: see Clerk & Lindsell on Torts (22^nd ed) paragraph 8-04 – 8-05.  In the present case, according to paragraphs 21-23 of the Statement of Claim, it is the disposal of the relevant investments in reliance on the 3^rd defendant’s advice rendered after the 2^nd Variation Order that caused the loss.  There is no dispute that at that time, the 3^rd defendant rendered the advice on behalf of the 2^nd defendant but not the 1^st defendant.  Thus, even on the Statement of Claim, the loss was caused by the mis-advice of the 3^rd defendant of the 2^nd defendant, but not of the 1^st defendant.

23.  Even taking that the loss was caused by the 2^nd Variation Order itself but not by the mis-advice rendered by the 3^rd defendant after the 2^nd Variation Order, in order for the alleged negligence and breaches of duties of the 1^st defendant to cause the 2^nd Variation Order, there must be reliance by the plaintiff on the advice and work done by the 1^st defendant at the hearing of the application for the 2^nd Variation Order on 3 August 2011.  In my judgment, on the Statement of Claim itself, I cannot see how the facts pleaded could give rise to any basis for saying that the plaintiff still relied on the 1^st defendant in obtaining the 2^nd Variation Order.  Further, in terms of evidence, the filing of the Notice of Change of Solicitors and the summons and the affirmation on the same day clearly means that the plaintiff ceased to rely on the 1^st defendant in respect of the application for the 2^nd Variation Order, and thus it cannot be in any way said that from that day onwards the plaintiff still relied on the advice and the work done by the 1^st defendant for the application for the 2^nd Variation Order.  

24.  Instead, whether on the Statement of Claim or in terms of evidence, it is plain and obvious that the plaintiff relied on the 3^rd defendant and solely on the 3^rd defendant in proceeding to pursue the application.  Whether the 3^rd defendant, being an independent firm, was negligent in adopting the allegedly negligent work from the previous firm is irrelevant to the issue of the plaintiff’s reliance.  In the circumstances, even assuming that the 1^st defendant did breach their duties to the plaintiff as pleaded, such breaches did not cause the alleged loss at all as there could not be any reliance placed by the plaintiff on the 1^st defendant when the alleged loss was incurred.  In other words, there was no causation.  Thus, there cannot be any reasonable cause of action against the 1^st defendant on the Statement of Claim, and when evidence is also considered, the plaintiff’s claim against the 1^st defendant is frivolous and vexatious, and abusive of process, in that it is bound to fail.

25.  In conclusion, on Ground (2)(a) alone, I am satisfied that the plaintiff’s claim against the 1^st defendant should be struck out.

26.  In reaching this conclusion, I have considered Mr Ng’s submissions that I have to look at the matters in a round, in particular, the summons and the affirmation for the 2^nd Variation Order were prepared by the 3^rd defendant of the 1^st defendant, and it was these summons and affirmation that “led” to the 2^nd Variation Order.  In my judgment, this just explains the background, but is not reliance by the plaintiff.  This is not a case like a personal injury case where the wrong would cause the injury without any need for the victim to rely on the tortfeasor.  In this context, as I explained above, to establish causation, there must be reliance.

PLAINTIFF’S APPLICATION TO AMEND STATEMENT OF CLAIM

27.  I have also considered that in the original Statement of Claim, the plaintiff pleaded that the 3^rd defendant left the 1^st defendant on 25 July 2011, and in the draft Amended Statement of Claim, which the plaintiff applies leave to file, he deleted all the references to 25 July 2011.  The significance of this date was thought to be that the summons and affirmation for the 2^nd Variation Order were prepared after 25 July 2011, and thus, the 1^st defendant contended that there was no way to argue that the 1^st defendant would be in any way liable.  As mentioned above, in his affirmation for the amendment application, the plaintiff explained that he did not know the 1^st defendant would take this date as a ground to say that the 1^st defendant would not be liable for act done by the 3^rd defendant after this date.

28.  Given my reasons for the conclusion above in relation to Ground (2)(a), whether this date was deleted or not, the amendment would not salvage the plaintiff’s claim in any event, because it is plain and obvious that no matter which date of departure of the 3^rd defendant from the 1^st defendant, there was no causation between the alleged negligence and breaches of duties of the 1^st defendant and the alleged loss arising from the 2^nd Variation Order.  Thus, I should dismiss the plaintiff’s application for the amendment. 

29.  It remains for me to add that the explanation for the amendment is deplorable.  The burden lies on the plaintiff to plead all the necessary elements for his own claim, and when the plaintiff signed the statement of truth, he should not sign it just assuming that some of the facts would not be disputed and thus there was no need for him to treat the statement of claim seriously.  Equally deplorable is that on such assumption, he thought that he could then come back later to say that actually he did not mean to verify all the facts therein.  Further, when the plaintiff was claiming against the 1^st defendant, he must have been aware that the date of departure of the 3^rd defendant from the 1^st defendant must bear significance.  Hence, in any event, due to absence of any good reason for this significant proposed amendment, I would still dismiss the plaintiff’s application for amendment.

30.  Although it is not necessary for me do so, I shall briefly deal with Grounds (2)(b), (3) and (4) relied upon by the 1^st defendant. 

GROUND (2)(b)

31.  In respect of Ground (2)(b), the 1^st defendant submitted that the terms of the variation as in the 2^nd Variation Order were necessary.  Whether they were necessary is pertinent to the question of the standard of care and would involve some value judgment.  I do not think that I can summarily decide this question at this stage.  Thus, I reject this ground.

GROUND (3)

32.  As regards Ground (3), in essence, the 1^st defendant said that the plaintiff affirmed on oath a story in the criminal proceeding diametrically opposite to the story now he was advancing before me, and thus any right to have his claim determined should be forfeited by reason of his lie to the Court.  The 1^st defendant refers me to a wealth of authorities on the proposition that it would be an abuse of process if a party knowingly raises two inconsistent stories in separate proceedings: see Chan Chun Chuen v Kao, Lee & Yip (a firm), HCA 597/2015, unreported, 12 October 2017; Masood v Zahoor [2010] 1 WLR 746.  I accept this proposition as the law, but I emphasise the word “knowingly” because this would have significant bearing in the present context.

33.  In the present context, the plaintiff explained on oath the reason for the diametrically opposite stories in the two proceedings, namely, that he was not proficient in English, that the 3^rd defendant did not explain the affirmation in the criminal proceeding to him, and that the 3^rd defendant did not take accurate instructions from him properly.  In essence, he said that he did not know what he was affirming on oath.  I must say that such explanation is on the face of it very unpalatable, but at this stage, however unpalatable it is, I cannot rule out summarily that this explanation is or is not true.  This is not a case like Chan Chun Chuen, supra, where Mr Chan therein knew at the time of the first story what he was advancing.  In the present case, if the plaintiff’s explanation is true, it would mean that the diametrically opposite stories raised in the two proceedings were not known to the plaintiff but were due to the 3^rd defendant’s fault, the result of which the plaintiff should not be made to bear.  All these would mainly depend on the credibility of the plaintiff and the 3^rd defendant.  At this stage, I cannot rule finally, without a trial, that the plaintiff must have lied.  Thus, it is not appropriate for me to strike out the plaintiff’s claim on this ground.

GROUND (4)

34.  Ground (4) is a variant of Ground (3).  In respect of Ground (4), Ms Eu submits that the affirmations in the criminal proceeding have disproved the plaintiff’s claim here.  Ms Eu also refers to the plaintiff being an experienced investor and the inordinate delay of the plaintiff’s current complaint, to show that the plaintiff’s case simply is unbelievable.  Again, I cannot determine this question finally at this stage without a trial.  Thus, similarly, it is not appropriate for me to strike out the plaintiff’s claim on this ground.

CONCLUSION

35.  In the circumstances, I make the following order:-

(1) The plaintiff’s claim against the 1^st defendant be struck out on the ground that it discloses no reasonable cause of action, and it is frivolous and vexatious, and abusive of process.

(2) The plaintiff’s claim against the 1^st defendant be dismissed.

(3) The plaintiff’s application by Summonses dated 14 November 2017 and 17 January 2018 for leave to amend the Statement of Claim be dismissed.

36.  I shall hear submissions on costs.