DUNG JAK SANG v. K.K. AND WINSTON CHU

HEADNOTE

Solicitor's Negligence - Factual background must be examined - Breach of duty - Solicitors acting for more than one party - Client's consent.

Damages for mental distress arising from breach of contract - Court's approach.

IN THE HIGH COURT OF JUSTICE

HONG KUNG

ACTION NO. 3654 OF 1985

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JUDGMENT

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1. This is an action by the Plaintiff who in May 1982, was the owner of a shop; Shop No.5, No.71 Po Kong Village Road, Kowloon, and he brings the action against the Defendants, a firm of solicitors, claiming damages in negligence and/or breach of duty.

2. Shortly, the Plaintiff says that he wanted to sell his shop to a Mr. Leung and his son for some $2 million. He retained the Defendants as his solicitors and because of their negligence or. breach of duty, the sale fell through and he suffered damages amounting to some $900,000-odd, together with other heads of damage.

3. There have been cited to me, in the course of this case, a number of Authorities from which can be distilled certain legal principles. Most of these are well-known and are found in standard text-books, but it must be remembered that it is the factual background which is of importance. Each case in negligence depends on its own facts and it is necessary to discover what are the facts, before the legal rights and obligations need be examined. Many of the Authorities are merely examples of whether a given set of facts amounts to negligence or not.

4. In this case there have been a number of sharp conflicts of evidence. In many instances Judges can attribute it to poor or mistaken recollection but it occurred to me, after the first few days, that one of the parties was most probably deliberately distorting his evidence. One of the major areas of conflict was that the Plaintiff was claiming $900,000.00, being the difference between the price he wanted to sell his shop when he went to the Defendants in May 1982 and the price it was ultimately sold for in October 1982 for 1.1 million.

5. The Plaintiff, his son and daughter gave evidence categorically that the price agreed for the sale to the Leungs was $2 million. Mr. Leung said it was only $1.6 million, and the documents prepared by the Defendant firm also showed $1.6 million.

6. The Plaintiff was recalled after the Defendant's evidence to deal with a point which had arisen in the Defendant's case and he admitted that the price was $1.6 million. His daughter also admitted that she had given false evidence, saying that it was her duty to assist her father. The son, who was outside Court, would not be recalled, but it was obvious that he also had been lying in the evidence which had been given to the Court.

7. It was clear, therefore, that the Plaintiff and his children had quite deliberately sought to inflate the claim fraudulently by some $400,000.00. They are dishonest people but I should add that prior to this admission, I had formed the view that their evidence was unreliable and obviously rehearsed. On any matters of conflict, therefore, the evidence of the Defendant must be preferred to that of the Plaintiffs.

8. Furthermore, I have examined the background to the unusual story which emerged in evidence, and to the object of bringing this action. I shall deal with the matter in more detail but the conclusion I have reached is that this action is a deliberately engineered attempt to obtain money from a firm of solicitors whose sole objective was to help the Plaintiff.

9. Mrs. Clough, who has put forward every possible point on behalf of the Plaintiff, is forced to accept the dishonesty of her clients but nevertheless submits that, as she says, the Defendants are liable in law to the Plaintiff.

10. As I said earlier, before legal obligations are relevant there must exist a factual background from which the law then imposes on a party such legal obligations. I do not set out all the history of this unfortunate matter but I find the following facts. In so doing, I have had regard to all the evidence which has been given and the numerous documents before me.

11. In April 1982, the Plaintiff was in serious financial difficulties. The mortgagee of his shop, Wing Hang Bank was putting it up for auction on Tuesday, May the 4th. The Plaintiff was desperate to obtain a private buyer and he tried to sell it to the sitting-tenants for $2.5 million, as he says - the amount I do not accept - with a $1.6 million mortgage provided by the O.T.B.

12. On April the 26th, the Plaintiff's daughter telephoned Gordon Lau who is an experienced conveyancing clerk with the Defendants and had been known to the Plaintiff's son through being at school together. And she said that they - that is the Plaintiffs - wished to sell the shop and would Mr. Lau prepare the documents. The premises were mortgaged to Wing Hang Bank; the Deeds were with a firm of solicitors called Yu, Tsang & Loong. She said - and this is an important matter - that she had contacted O.T.B. and they had appointed the Defendants to do the mortgage, and if the shop was not sold by the 4th of-May it would be put up for auction. Mr. Lau said he would write to Yu, Tsang & Loong for the Title Deeds.

13. On the 27th of April at approximately 11 o'clock in the morning when it was received, O.T.B. gave a Letter of Instruction to the Defendants to prepare the mortgage - to be found at bundle 'C' page 173. The Defendants then - at E-139 - wrote to Yu, Tsang & Loong.

14. On the 27th of April, Tung Kit Chan who is the Plaintiff's son, telephoned the Defendants. He said the price was $1.4 million and named three purchasers. He asked Mr. Lau to put down $1.6 million. This was the first indication given that there was something unusual that was going on insofar as this sale was concerned. Mr. Lau said that he would have to consult a solicitor and was subsequently told that could not be done.

15. On the 28th of April, the Defendants received the Title Deeds in the afternoon and they were told that if the Plaintiff was unable to repay the loan to the Bank before the 3rd of May, the premises would be auctioned on the 4th of May, and obviously the Deeds had to be handed back. The Deeds were handed to Mr. Chan Chi-keung in the Defendant's firm and he noticed that there was a Power of Attorney within the documents and it appeared that there was a problem with that Power of Attorney.

16. On the morning of the 29th of April, the son had telephoned Gordon Lau and said the purchasers were now the Leungs, I shall refer just to Mr. Leung. The price was $1.6 million and Mr. Lau was not to tell O.T.B. that it was $1.6 million because, of course, that would be 100% of the purchase price. Mr. Lau said that there was a problem over the Power of Attorney and he said that he was afraid that his boss, one of the partners in the firm, would not handle the transaction. So firm an early time, the son - and as I hold the son acting at all times for his father - and the father knew that there was a potential problem insofar as this Title was concerned.

17. In the afternoon the son telephoned and enquired about the Deeds and he was told by Mr. Lau that Mr. Winston Chu, who is one of the senior partners, was still reading the Title Deeds.

18. On the 30th of April, Mr. Lau saw Mr. Winston Chu about the Deeds and he was still studying them. In the afternoon again he went in to see Mr. Chu with Mr. Jeff Tse, also a solicitor; and they had a discussion and it was clear that they had recognised a problem over the Power of Attorney. Mr. Chu asked Mr. Lau to get the Plaintiff to his office because he wanted to talk to him, face to face, on the following morning - that was the Saturday - so that he could tell him about this Power of Attorney. Mr. Lau telephoned the son and told him that there was still a problem and said that he should get also the purchaser to come along. In the meantime, various documents were being prepared and they are found in the bundle E-64 to 103.

19. On the 1st of May, a meeting occurred in the office. Before I turn to that, I find also these facts. At all material times, the Plaintiff knew that the Defendants were acting for O.T.B. Mr. Tang asked a specific questions:

And the answer I have recorded is that the Plaintiff then said:

Also, the Plaintiff told Mr. Leung that the Defendants would act for him. When Mr. Dung was being re-examined by Mrs. Clough, I put this question:

There was a subsequent question from Mrs. Clough when she said:

And the Plaintiff said, "No." I do not believe him when he gave that answer, but it is quite clear, in my judgment, that the Plaintiff at all times knew that the Defendant firm were acting for O.T.B. as well as himself.

20. I also hold that prior to the 1st of May, the Plaintiff either himself or through his son, knew that there was a problem over the Title Deeds.

21. On May the 1st a meeting occurred at the Defendant's office. The Plaintiff who said he was unwell, stayed outside. But the Leungs, the Plaintiff's son and daughter, Mr. Winston Chu, two solicitors, an articled clerk and Mr. Lau were there. The problem was explained and Mr. Leung (not known at the time by Mr. Chu that he was the purchaser,) heard this.

22. I do not repeat all the matters that took place at the meeting which was a relatively long meeting and dealt, if I may say so, with care by the Defendants, but further documents were obtained; a suggestion was made about having an Indemnity; and Mr. Chu decided to inform the Bank about the problem. Before the Bank had made any decision on the matter, Mr. Leung changed his mind about buying the property. The sale therefore fell through. As I have said, I have not set out in minutiae all the details of that meeting.

23. Before I turn to the issues, there are also these other important factual considerations. First, I hold that the Plaintiff was desperate to sell his property. He was devious and he misled Mr. Leung about the rent being received so that Mr. Leung thought he could make the mortgage repayment - that is the $1.6 million mortgage repayment - fairly easily. The sale was a deliberate ploy to avoid the auction. The Plaintiff was going to receive another $100,000.00 from Mr. Leung; and it may be - although I come to no concluded decision on this matter that there was no genuine bargain between the Plaintiff and the Leungs.

24. Secondly, Mr. Leung had no money. Unless he received $1.6 million from O.T.B. which was 100% of the purchase price, he could not buy the property. It was this factor, the 100% mortgage factor, which the son - the Plaintiff's son - wanted to be concealed from O.T.B.

25. Thirdly, the sale had to be completed by at least May the 3rd - the Monday - because the auction was due to take place the next day, so that, in this matter there was an enormous urgency. In my judgment, those three factors are most important factual considerations when one examines the issues which are raised.

26. Mrs. Clough puts the case in two main ways. She says first, the solicitors were negligent in forming the view that the Title had a potential defect. Alternatively, she says, if they were not negligent they should have taken steps to protect the Plaintiff's interest.

27. Secondly, she says they were in breach of their duty to the Plaintiff by informing O.T.B. and /or the Leungs of the problem over the Title.

28. Now, in my judgment these issues depend upon two matters: a) whether the Plaintiff retained the Defendant and for what purpose; and b) if they were retained, the factual background against which the Defendants were retained and their relationship with O.T.B. and/or the Leungs.

29. As I have said earlier, the citation of cases does not necessarily assist. There are instances where Judges have found that the relationship of solicitor/client created certain obligations which either were or were not breached on the particular facts. Nevertheless, it is now settled by Authority what the standard of care which solicitors together with other professional men, should achieve in their professional employment. See Charlesworth on Negligence pp570 - 590.

30. As to a) - Mr. Winston Chu whose evidence I fully accept, all along thought that he - and that includes of course the members of his firm - were acting only for O.T.B. from whom he had received written instructions. A file had however been opened for the Plaintiff, and Mr. Robert Tang has in my judgment, very properly conceded that the Defendant would be estopped from denying that the Defendant ever acted for the Plaintiff in connection with the Assignment. The concession is on a Note I have marked WC-1. The Defendants were therefore retained by the Plaintiff but I find that the retainer was to act for the Plaintiff in the Assignment and at the same time act also for O.T.B. and possibly, for the Leungs.

31. As to b) - the factual background was an urgent sale to a man who had no money, with a mortgage being obtained from O.T.B. whom the Plaintiff knew was also using the Defendants as their solicitors.

32. With these facts in mind, were the Defendants negligent? Mr. Winston Chu gave evidence, which I do not repeat but I fully accept, as to the standard of care with which he approached the matter. Powers of Attorney are powerful and essential documents in tracing Title and his firm had recognised the problems which can occur in not advising clients on the risk they run with a potentially defective Title. His firm are experienced conveyancers and they had, as one would expect, all the necessary legal books, Law Society Circulars, Decisions - for example the Ma Chun Man v Yung, Yu, Yuen Case⁽¹⁾ (1979 HKLR 26) and interoffice directions on which to base their judgment. He had experienced staff, obviously well-trained and disciplined. He, himself, I find entirely conscientious and meticulous in his approach. The only criticism I have of him is as a witness. He tended to argue his case and lecture the Court, but this is understandable in view of his academic background and the natural concern he has with an action of professional negligence hanging over his, and of course his firm's head.

33. He examined the Title Deeds on behalf of O.T.B. and he had no doubt that the unusual Power of Attorney and other documents, raised a problem which he himself should raise with O.T.B.

34. It is odd to find therefore, that a responsible solicitor, experienced in these matters, addressing his mind to the legal problems which can arise with a dubious document, and exercising his judgment on a cautious approach, should be considered incompetent.

35. Mrs. Clough's basic submission is that in Law - as she says the Title Deeds to the shop disclose a good Title. With the greatest respect, that is not the issue I try. The allegation is one of negligence. Unless she can say that the Defendant was so incompetent and their doubts were so fanciful, then this allegation does not even qualify for consideration.

36. I find that the standard of care they utilised on this occasion was of the highest order. It is not suggested that they failed to have regard to some relevant factor, or did not know what the General Law was. I also find that the conclusion they came to was one which any reasonably competent solicitor addressing his mind to the relevant considerations would have come to. It is not necessary to set out the reasoning behind this conclusion. First, because Mrs. Clough accepts that at the end of the day their view may not have been negligent at first sight but, as she says, they should have taken some further steps.

37. Secondly, the Plaintiff has issued a writ against another firm of solicitors; Yung, Yu, Yuen, his previous solicitors, also claiming damages for negligence.

38. Basically, the problem was over the Power of Attorney. I do not set out the background details insofar as the purchase by the Plaintiff is concerned. That is found in the documentation.

39. In the Power of Attorney Ordinance there are some obstruse sections - Section 5.4 for example. In this case the Donor was Chan Chi Keung; the Donee Best Homes Limited; and "that person" also Best Homes. Section 7 is also a relevant section insofar as the consideration for the validity of Powers of Attorney.

40. The Law Society of Hong Kong has recognised the problem over Powers of Attorney and has obtained the Opinion of an English Queen's Counsel, Mr. Paul Baker on this matter, who has given two opinions.

41. Mr. Winston Chu considered these matters and he also examined the Sale & Purchase Agreement - E20 - where certain inconsistencies are found. In his evidence he deals in detail with that and I do not repeat it.

42. Mrs. Clough however, submits and helpfully puts it in a written form, that the solicitors' doubts, in her view, were not correct. I hope I will not be considered discourteous if I do not set out the conflicting points of view which are put forward by Mr. Tang and Mrs. Clough on this particular aspect. If anything, they go to show that a prudent solicitor would have recognised that there was a potential problem and so advised his client. The issue is an Issue of negligence and it is submitted by the Plaintiff that to err on the side of caution is negligence.

43. Mrs. Clough further said that the solicitors should have conducted further research and taken Counsel's opinion; ascertained whether Best Homes could trace Chan Chi Keung. I reject that submission. The Defendants' role was to act for the Plaintiff against the factual background I have found. I can find no obligation on them to do other than what they were retained for. I therefore reject the allegations of negligence which have been made. I find that the Defendants throughout acted reasonably, diligently and competently.

44. The second Issue is that the Defendant 'disclosed' the problem to O.T.B. when acting for both parties, and also to the Leungs. It is again trite law that a solicitor owes a fiduciary duty to his client. This arises from the confidential relationship of   solicitor and client. I was referred to Taylor & Blacklow ⁽²⁾ (1836) 3 BING 235 for Authority to support the general proposition that the fact of disclosure creates a liability in the solicitor. With respect, I do not agree with that submission. The case of Taylor & Blacklow decided in 1836, is a decision on its own facts and should be examined in detail really to discover. what it does say. It is merely an example where a Court has held that it was the duty of a solicitor to keep the secrets of his client.

45. Chief Justice Tyndal expressly recognised that there can be, as he called it, 'waiver'. This is more commonly called today, the 'client's consent' whether express or implied.

46. In this matter the Plaintiff knew that the Defendants were acting throughout for O.T.B. and he must have known that any defect in the Title had to be communicated to them. It must be remembered that the factual context in which this strange sale was to take place was that Mr. Leung, who had no money, was to be provided with 100% of the purchase price by a mortgage. The Plaintiff, it is clear, particularly from the fact of trying to prevent O.T.B. knowing what the true purchase price was, recognised that unless O.T.B. was satisfied, there could be no sale. Further, before the meeting of October the 1st, the Plaintiff knew that there was a problem and he must have recognised that O.T.B. also would know about this,

47. Moody v Cox and Hatt ⁽³⁾ (1917) 2 Ch. 71 was also referred to. This was a case involving a conflict of interest between a solicitor and his client and the judgments deal in extenso with that matter, the ratio of the case deals with that point; but in the course of his Judgment, Lord Justice Scrutton - and this is no part of the ratio - put the case, at page 91, of a solicitor acting for vendor and purchaser who knows of a flaw in the Title and either discloses or fails to disclose that flaw to one of the parties, and he deals with that proposition. The flaw however, in this Title, was known by reason of the Defendants acting for the mortgagee and not the vendor. Furthermore, it is important to recognise that in Hong Kong these Deeds are public documents open to examination by virtue of them being registered - and that is found at E140. I find therefore, that there has been no disclosure of confidential information. On the facts of this case, there has been no breach of duty by the Defendant.

48. Although there is no need therefore to deal with the issue of damages, I shall do so.Even if I had found that there had been any breach of duty, I would only have awarded the Plaintiff nominal damages of $20.

49. The Plaintiff says that he became ill when told of the flaw in the Title. I do not believe him. There are agreed medical reports before me and they show a pre-disposition in the Plaintiff to some illness in the time of stress. I find that the Plaintiff readily accepted the position and that it was only later that the chance of obtaining compensation, on the Monday, made him visit the doctor. It was on this same Monday that a very strange incident occurred, in that the son presented himself at the firm of solicitors saying that he wanted to pay the bill. Mr. Winston Chu said he had never come across this in his long experience, and it is most odd that on this self-same Monday, not only did the Plaintiff go to visit the doctor, but his son goes to the solicitors to try to pay the bill. As I have said, I find that this was all part and parcel of a deliberate attempt to obtain compensation.

50. I also find that such damages - even if he had genuinely suffered them, were too remote. This contract was not one which had a personal flavour - (See Hardwick v Spence Robinson⁽⁴⁾ (1975) HKLR 425) and the judgment of Lord Justice Bridge as he then was in Heywood v Wellers⁽⁵⁾ (1976) 1QB, page 463 (H) to which Mr. Tang has kindly drawn my attention, is also of importance and relevance in this matter. The learned Judge said:

51. In my judgment, I would gratefully accept these words as the correct approach to make when damages for mental distress are being sought in cases of breach of contract.

52. On the facts of this case, even if the Plaintiff did suffer any rental distress, it was an incidental consequence of the Defendant's conduct. Insofar as that head of damage is concerned therefore, I find that: a) no damages were suffered; b) they were too remote and irrecoverable.

53. As to the claim for $900,000.00 I find that from May the 1st the Plaintiff, together with his children, embarked on a campaign aimed at achieving compensation from either the Defendants or some other firm of solicitors. I find their conduct reprehensible. They were offered assistance by the Law Society and they spurned it. They thought everyone was cheating them. In reality the sale to the Leungs was likely not to be completed. The Plaintiff had lied about the rent, and the whole arrangement was speculative.

54. Further, the Plaintiff to bolster his claim, probably spread rumours about the defect in Title being worse than it was. I find that the Plaintiff made no attempt to sell his property and that the value in or about May was $1.6 million.

55. I also find, as Mr. Tang graphically described it, that the Plaintiff thought that he was on to a good thing, and this in my judgment is all part and parcel of a deliberate strategy he was putting forward to obtain compensation. It is, in my judgment, reinforced by his dishonest approach when giving evidence in this Court.

56. I express my strongest disapproval of the Plaintiff and his family's actions. They have sought dishonestly, to obtain something - some sums of money - from one or more firms of solicitors.  I note that there is another writ issued against another firm and in due course I intend to direct that this Judgment be given to the Legal Aid Department for their consideration with regard to the funding of another action against another firm of solicitors.

57. The Plaintiff also claims consequential loss which is either too remote or not attributable to any breach. I reject the claim for damages.

58. The conclusions I reach, therefore; are that the Defendants were not negligent; were not in breach of any duty; and the Plaintiff, at any rate, has never suffered any damage.

59. There are three other matters I mention before I leave this case. First, I express my gratitude to Counsel for the help given and care taken in this difficult case, and providing me with numbers of cases very conveniently photocopied, and written submissions. I hope they will forgive me if I have not dealt with all of the various points which they have raised before me.

60. Secondly, this case involved potentially, the problems arising from solicitors acting for two parties; that is generally vendors and purchasers. The practice in Hong Kong is different from the practice in England and I am told that the Law Society of Hong Kong is examining the position with regard to solicitors acting for more than one party, where a oconflict of interest naturally arises, and where the duties to their respective clients may be complex. It has been recognised for many years that when a solicitor acts for two or more parties there arises a risk; the Law Society of Hong Kong, I am told, is examining that matter.

61. Mr. Winston Chu says that he himself would prefer an approach more on the lines of the English practice, when only in specified examples will a solicitor act for both parties. I do not think it is really necessary for me to say anything about that matter because the Law Society of Hong Kong has very experienced solicitors within it. I would only reiterate, that when solicitors do act for more than one party then serious problems can be caused. It may well be, therefore, that the time has come when the practice in Hong Kong should be put more on a par with the practice in England.

62. Finally, I mention this matter. The Defendants are, in my judgment, a highly reputable and experienced firm of Hong Kong solicitors. They have had hanging over them for a number of years, an allegation of professional negligence, which in one sense means really, professional incompetence. I am quite sure that that has caused concern both to Mr. Chu and also his firm. As I have said, I find that they have done nothing wrong whatsoever insofar as this transaction is concerned. On the other hand I find, that their approach to this problem was based on a desire to serve the public insofar as the Plaintiff was concerned. He is an elderly person. He is, perhaps, of limited education; although I think he is by nature devious and cunning. Nevertheless, Mr. Chu and his firm could have quite easily dismissed him and not assisted him, but they arranged to meet him so that the matters could be explained in detail to him. They have throughout treated the family with great courtesy. I would merely say this, that I wholeheartedly acquit them of any form of behaviour which fell beneath the normal high standards of solicitors practising in Hong Kong.

63. I find Mr. Winston Chu's approach to this whole matter has been meticulous, and has been based on a desire to serve the public, as solicitors, on occasion, do have to do. The monetary reward for this sort of transaction was minimal. Nevertheless, they approached the matter, in my judgment, in a most responsible manner.

(1) (1979) HKLR 26

(2) (1836) 3 BING 235

(3) (1917) 2 Ch. 71

(4) (1975) HKLR 425

(5) (1976) 1 QB 463 (H)