DESMOND YIU CHOWN LEUNG AND OTHERS v. CHOW WAI LAM WILLIAM AND ANOTHER

CACV 223/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 223 OF 2003

(ON APPEAL FROM HCA NO. 14712 OF 1999 AND
HCA NO. 14713 OF 1999)

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HCA 14712/1999

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment of Deputy Judge Muttrie given on 14 July 2003 following the trial of 2 actions that lasted approximately 7 days. The actions were brought by the plaintiffs against the same defendants in respect of losses incurred on loans that proved irrecoverable. The defendants were solicitors and the claims brought against them were based on both contract and tort. The judge dismissed the claims and this appeal has been brought against that dismissal. At the conclusion of the hearing of this appeal judgment was reserved which we now give.

The background

The loans

2. Although some of the basic facts are not disputed, facts that are crucial to questions of liability were in dispute at the trial and were the subject of this appeal. The key figure in the background of these cases was Mr Yan Kwok Kei, Gay ("Mr Yan"). He was of a member of the Yan family which used to, and may still, operate the business of Yan Chim Kee, a well known candy and ice cream maker in Hong Kong. As will transpire, Mr Yan did not give evidence. Doubtless, if he had, the experience would not have been particularly comfortable for him. The 1st plaintiff, Mr Leung Yiu Chown, Desmond ("Mr Leung"), referred to him as being dishonest. The full extent of his dishonesty may never be known.

3. The Yan family owned a company by the name of Chapol Limited of which Mr Yan was a shareholder and director. The Yan family used Chapol as the vehicle to develop a site in Aberdeen called Yan's Tower. Sometime in late 1994, a Mr Patrick Ngai, who was a stockbroker and a friend of Mr Yan, approached Mr Leung and told him that the Yan family were constructing a building in Aberdeen and needed money, approximately $5 million, for its completion. Mr Ngai asked Mr Leung whether he would be interested in making a loan. The loan was to be for a short term, at an attractive rate of interest. Mr Leung had been to the same secondary school as Mr Yan and the two of them had renewed their acquaintance in the 1980's. Mr Leung consulted his business partner, Mr Yip Sam Lo ("Mr Yip") and they agreed to loan the money. Mr Leung put up $500,000.00 and Mr Yip and his wife Madam Tai Ruth Fung ("Madam Tai") put up $4,500,000.00. This has been referred to as the first loan and was the subject of HCA 14713 of 1999.

4. There was a loan agreement in respect of the first loan. That was dated 31 December 1994 and was exhibit P1. The parties to the loan agreement were Madam Tai, who was named as the lender, and Chapol, which was named as the borrower. The loan was for a term of 6 months at 2.5% interest per month. Clause 9 of the agreement provided that in the event that the loan should become due and payable and remained unpaid then Chapol should sell the whole of the 17th floor of Yan's Tower to the lender at a price of $1,000 per square foot. The agreement was signed by Madam Tai and by Mr Yan on behalf of Chapol.

5. Madam Tai handed over a cheque for $5,000,000.00 to Mr Yan and in return received post-dated cheques for the principal sum and the 6 monthly interest payments. The cheques for the interest were presented and ultimately all but one were honoured.

6. There was then a supplemental agreement dated 30 June 1995. By that agreement the loan was extended by a period of 3 months and the price of the 17th floor was increased to $1,400.00 per square foot. This agreement was exhibit P2 and was referred to as "the 1st supplemental agreement". Again it was signed by Madam Tai and Mr Yan. Madam Tai received a number of cheques for the monthly interest but, this time, it appears that only one of them was honoured.

7. There was then another agreement between the same parties. This has been referred to as the 2nd supplemental agreement. It was dated 2 October 1995. By that agreement the period of the loan was extended for a further 10 months. The units that were to be regarded as security were changed to the whole of the 16th floor and the price was reduced back to $1,000.00 per square foot. This agreement was, again, signed by Madam Tai and Mr Yan and was exhibit P3. Finally, in respect of this loan it should be mentioned that there was a supplemental agreement made between Madam Tai and Mr Leung. That was dated 7 January 1995. It recorded the fact that a loan of $5 million had been made to Chapol and that of that amount $500,000 had been put up by Mr Leung. It provided that Madam Tai was to use her best endeavours to collect the interest payments and capital sum and to pay the 10 percent proportion of anything received to Mr Leung. That agreement was exhibited as exhibit P6.

8. There was then a second loan. That loan was the subject of HCA 14712 of 1999. Mr Yan had told Mr Leung that he needed another $3,000,000.00. This time, Mr Leung and his friend Mr Wong Wan Hay ("Mr Wong") put up the money; Mr Leung put up $2,500,000.00 and Mr Wong $500,000.00. They used Goodresponse Investments Ltd ("Goodresponse"), a BVI company, as the named lender. This loan was made by one cheque for $1,000,000.00 deposited into an account of Yan Chim Kee Company Limited on 19 October 1995 and one for $2,000,000.00 dated 2 November 1995 on which date the lenders acquired the BVI company. The latter cheque was deposited, again into the account of Yan Chim Kee Company Limited on 3 November 1995 (see Transcript 11 June 2003 page 139).

9. The written agreement in respect of this loan was dated 4 November, copies of it were exhibits P4A and P4B respectively. Mr Leung had kept one and Mr Ngai had kept the other. It is in similar terms to exhibit P1 save that the units that were to be sold on default were 3 units on the 2nd floor of Yan's Tower and the price was $800.00 per square foot. Mr Wong signed the agreement on behalf of Goodresponse and Mr Yan signed on behalf of Chapol. It is said that post-dated cheques for principal and monthly interest were handed to Mr Chow, the 1st-named defendant, but they have not been produced or otherwise accounted for.

10. It suffices to say that the loans were never recovered. Chapol was insolvent and wound up. The plaintiffs could not purchase the various units in Yan's Tower because there had been prior encumbrances on the title which made the agreements worthless. It may be noted, however, that according to Mr Leung's evidence, Mr Yan had told him that there had been no mortgages in respect of the property.

The involvement of the defendants

11. The 1st named defendant, Mr William Chow Wai Lam ("Mr Chow"), is a partner of the 2nd named defendant in the 3rd named defendant solicitors firm. Mr Yan and his siblings were all friends of Mr Chow; his father and their father were also friends. There is no dispute that Mr Chow witnessed all the signatures on the various agreements, indeed his chop appears below his signatures.

12. The plaintiffs' case is that they relied on Mr Chow as their solicitor to advise them and at their request to draw up the loan agreements and, in the case of the first loan, the two supplemental agreements and the P6 agreement. The claims are brought in both contract and tort. The plaintiffs' case is that in both instances, the liability in contract and tort co-existed, but in any event, even if there were no contract, for example because of the absence of consideration, then a liability in tort would still exist.

13. Mr Chow denied having advised the plaintiffs, or having drafted the agreements. He said that he merely witnessed the parties' signatures on the documents. He said that he did that as a favour to Mr Yan. On any footing the first occasion on which Mr Chow had become involved was at a meeting on 28 December 1994 in his office. It would seem that Mr Yan had arranged it. Messrs Leung, Yip, and Yan attended at Mr Chow's office. The judge found as a fact that at that meeting Mr Chow was asked by Mr Yip and answered questions about the Moneylenders Ordinance and whether it was legal to charge the interest rate proposed. The judge said that he did not accept that Mr Chow gave any other advice. The judge found as a fact, and this was based on what Mr Chow said when giving evidence, that on 31 December 1994 Mr Chow did read through the agreement, one of the copies of which was exhibit P1, and commented that he had not made a land search. In summary, the judge's conclusion was that Mr Chow did no more than witness the parties' signatures on an agreement and the various supplemental agreements which he had not prepared.

14. In relation to the second loan Mr Leung gave evidence that sometime between 19 October 1995 and 2 November 1995 he telephoned Mr Chow and asked if there would be a problem using a BVI company as the lender. He said that Mr Chow had advised that there would not be any problem. Mr Chow's evidence was that he could not remember any such incident. As will be seen, the judge found as a fact that Mr Chow did no more than witness the signatures on the document.

The documents

15. Before turning to the specific allegations made by the plaintiffs it would be convenient to outline the state of the documents as they exist. In respect of exhibit P1, the defendants' firm's chop appears on the backsheet, and the pages have been tied together with ribbon at the top left corner and then sealed with sealing wax bearing the firm's seal. The signatures were witnessed by Mr Chow, whose chop appears below his signatures. The signatures on exhibit P6 were, again, witnessed by Mr Chow and his chop was affixed underneath his signature. However, although the defendants' firm's seal was affixed to the top left-hand corner of the document, there is no ribbon nor is the firm's chop on the backsheet. Exhibit P2 does not bear the firm's chop on the backsheet and there is no ribbon or wax seal. It was signed by Madam Tai and on behalf of Chapol, Mr Yan acting as a director for that purpose, Mr Chow witnessed those signatures. Again his solicitor's chop appears underneath his signatures. Exhibit P3 is in similar form to exhibit P2: Mr Chow signed as witness to the signatures of both Madam Tai and that on behalf of Chapol, with Mr Yan signing as director. Again Mr Chow's solicitor's chop appears but there is no chop of his firm on the backsheet, neither is there any ribbon nor wax seal.

16. The plaintiffs' case in the court below was that Mr Chow had acted for the plaintiffs. It was said that he had drawn up the various documents that have been referred to above at the specific request of the plaintiffs and that he had advised the plaintiffs in respect of the loan agreements into which they had entered. It was said that Mr Chow had assured the plaintiffs that their interests would be properly looked after and that in the event that Chapol failed to repay the loan as agreed the plaintiffs would be able to purchase the relevant properties. The alternative case put on behalf of the plaintiffs at trial was that even if, for any reason, there had been no contract of retainer, and in this respect specific mention was made of lack of consideration, because of the representations made by Mr Chow the plaintiffs were entitled to base their claim on the grounds of negligence (see for example paragraphs 50 and 51 of the opening on behalf of the plaintiffs.). Certainly the opening argument on behalf of the plaintiffs made no suggestion that the plaintiffs relied on anything other than direct oral representations and statements alleged to have been made by the 1st defendant.

17. In respect of the first loan Mr Leung said, in his witness statement, dated 12 May 2000, that the agreement for the loan had been reached by the parties at Mr Chow's office on 28 December 1994 and that Mr Chow had undertaken to draft the agreement document personally and that the plaintiffs' interests would be properly looked after. He also said that Mr Chow had said that in the event of a default by Chapol, the plaintiffs would be able to buy the property at the agreed price. Mr Leung went on to say that when the P1 document had been signed on 31 December, Mr Chow had advised the plaintiffs that their interests had been properly taken care of and that their right to purchase the property was secured. The statements of the two other plaintiffs in HCA 14713 of 1999, the action in respect of the first loan, confirmed what was said in Mr Leung's witness statement.

18. The witness statements filed on behalf of the plaintiffs in HCA 14712 of 1999 were to similar effect. Mr Leung, for example, said at paragraph 11 of his witness statement in that action that Mr Chow had produced the second loan agreement saying that it had been prepared in accordance with the plaintiffs' instructions and that the plaintiffs' interests under the agreement were sufficiently protected. Mr Wong said, at paragraph 9 of his witness statement, that Mr Chow had produced the loan agreement in respect of this loan and, again, that the plaintiffs' interests had been sufficiently protected under the agreement. He went on to say that he had asked Mr Chow to ensure that any dealings or alienation of whatsoever nature should only be done with the plaintiffs' knowledge and consent. Mr Wong said that Mr Chow had replied in the affirmative and it was on that basis that Mr Wong and executed the second loan agreement on behalf of Goodresponse.

19. At the start of the written closing submission on behalf of the plaintiffs it was said in paragraph 2:

"The key issue appears to be one of credibility. Given the time lapse between the relevant events and the relatively few relevant documents disclosed in this case, the inherent probability of the matter would play an important role in this issue."

20. This aspect was taken up in the judgment. In paragraph 53 the judge said:

"53. This is a case which hinges on the credibility of the witnesses. Since there are no contemporaneous documents against which the evidence may be tested, save for the disputed documents themselves, one has to rely on the inherent probabilities of the situation. The impression which the witnesses make is also to be taken into account but I remind myself that demeanour is a matter on which it is easy to be mistaken, and inherent probability is usually a better guide."

21. That said, however, it is clear that the judge did not rely on inherent probability alone. In fact, quite to the contrary. He referred to the absence of Mr Yan taking any part in the case but went on to indicate that he could not hold his absence against either side. The judge then referred to the possible motives that either side might have in the case. On the one side there might be the wish to recover from an insurance company that would be behind Mr Chow and on the other would be a wish not to be tarred with the brush of professional negligence. The judge found neither factor convincing.

22. Having reminded himself that demeanour was often an unreliable guide to the veracity of a witness's evidence, the judge then went on to consider the evidence of the witnesses. He said he did not find either Mr Leung or Mr Yip particularly impressive as witnesses. Mr Leung was quite evasive when asked about his education and experience; whilst the judge was prepared to discount that to a certain extent, it was, nevertheless, not a wholly insignificant point that part of the cross-examination revealed that Mr Leung was conversant with land deals in the Mainland and had even obtained an MBA. Clearly he was not ignorant of business deals.

23. There were more important aspects of Mr Leung's evidence in respect of which the judge was clearly entitled to take a dim view. For example the judge considered that Mr Leung's oral evidence of the first meeting was quite inconsistent with what he said in his witness statement. On the one hand it was clear that he had "agreed pretty well everything with Mr Yan before they went near Mr Chow" but the witness statement gave the impression that the details of the loan agreement were first discussed at the meeting on 28 December. Reference to prior discussions with Mr Yan was absent from anything coming from Mr Leung until he gave evidence. Nor did the judge find Mr Yip's evidence satisfactory.

24. The judge also expressed disquiet about a number of other matters arising from the plaintiffs' evidence. For example the divergence between the pleadings and the evidence as to what advice was given to Mr Yip and Mr Wong, the way in which the matter of repayment was dealt with in exhibit P1, the fact that Mr Leung's evidence as to reliance on Mr Chow's advice in respect of the second loan was at odds with the fact that, on his own evidence, he had issued at least the cheque for $1,000,000.00, without speaking to Mr Chow at all and before the BVI company was acquired and that Mr Wong's evidence in respect of the second loan seemed rather doubtful, a matter which the judge considered called into question the evidence that Mr Chow gave advice about the effectiveness of the security. A reading of the transcript, in my view, leads to the impression that judge was certainly not unduly critical of the plaintiffs' evidence - he might well have been far more scathing.

25. The judge considered that Mr Chow made a rather better impression on him than did either Mr Leung or Mr Yip. He was straightforward, rather than evasive. Whilst Mr Chow had been criticised in submissions for having a selective recall, the judge considered that in view of the lapse of time, Mr Chow could not be expected to have anything but a patchy memory; importantly the judge considered that Mr Chow was not deliberately selective in what he could recall or not recall. The judge took into account that Mr Chow was a litigation solicitor and thus, arguably, not necessarily trained to observe and recall. However, that was outweighed by the fact that the case concerned not so much the question of whose memory was likely to be better, but who was telling the truth.

26. Turning to the matters which were not covered by the evidence, the judge took into consideration that there had been no evidence as to who had drafted the various agreements, if Mr Chow had not done so. These were legal documents drawn up by a lawyer, or someone who was legally trained or at least had access to precedents. The judge had well in mind the argument that "If Mr Yan had another lawyer who drew up the agreements, why would he not have taken the lenders to that lawyer, to get the agreements executed?"

27. One major argument taken on behalf of the plaintiffs on this appeal related to the fact exhibit P1 had been tied up with ribbon and had a wax seal with the defendants' firm's chop on the backsheet. Exhibit P6 also had a wax seal (without any ribbon) though it does not have the firm's chop on the backsheet. It was argued that because those items must have been put there by someone in the defendants' firm, on the inherent probabilities, it must have been the defendants' firm's documents. A similar point was taken because Madam Tai had been identified as the holder of a particular identity card in exhibit P1 in handwriting and in exhibit P2 in typescript. The judge was clearly not impressed by the latter point. I myself would add that it was, almost certainly, a bad point because the typescript relating to the Identity Card was a different typeface to that in the body of exhibit P2 (most clearly seen in the difference between the "g"s) and neither exhibit P6 nor P3 contained details of Madam Tai's identity card. In fact once it is appreciated that the typefaces were not only different sizes but different styles, the point undermines the plaintiffs' case rather than strengthens it.

28. The judge recorded that Mr Chow could not explain the appearance of the documents except by saying that it was possible that his staff must have made mistakes. The judge also went on to say that it was unfortunate that Mr Chow's secretary, Rachel, had not been called to give evidence and that in her absence there was no evidence that she could not remember anything. That she has not been called is, of course, relied on as going against Mr Chow's credibility. I will refer to the matter of the appearance of the documents below because it obviously forms a major plank of the plaintiffs' argument. It might be added for a different reason in the argument presented in the reply speech on this appeal than in the opening of the appellant's case on the appeal. In the opening the argument had been directed to showing that P1 and the other documents must have been prepared, i.e. drafted by Mr Chow. In the reply speech the argument was that the appearance of exhibit P1 must have led the plaintiffs to believe that it had been drafted by them.

29. In the court below and in this court it was argued that the existence of exhibit P6 destroyed the defendants' case. If Mr Yan had been using some other draftsman there was no reason for him or the plaintiffs to bring it to Mr Chow to be witnessed. The judge took into account the fact that Mr Chow could not give any reason for that, but he did not consider the matter conclusive.

30. One important matter which the judge took into consideration was that he found Mr Chow's evidence about his firm's system of typing the firm's name and address on the backsheet, and putting the file reference in the "footer" to be entirely credible.

31. The judge believed Mr Chow's evidence that he did not open any file for any of these "little favours" he did for Mr Yan. He discounted any notion that Mr Chow had been party to any fraud at the behest of Mr Yan and, indeed, that had not been a suggestion put forward on behalf of the plaintiffs. In the light of that the judge considered it inherently extremely improbable that, if Mr Chow had drafted these agreements, he would not have carried out a land search before and arranged for registration afterwards. This finding was juxtaposed with a reference to the argument that because Mr Chow was a solicitor with over ten years' standing, (after practising as a civil engineer) his clear record of no claims in negligence against him told in his favour. The most basic steps in dealing with any contract relating to land of carrying out a land search for encumbrances and then registering the contract were not carried out. The judge considered that Mr Chow would not have survived for ten years in practice if he had got that wrong.

32. The judge's conclusions as to the facts were as follows:

"78. Having seen and heard the witnesses and considered the inherent probabilities of their respective evidence I find that where there is a conflict, I prefer the evidence of Mr Chow to that of the plaintiffs.

79. It is clear that the first loan agreement was not made at the meeting on 28 December 1994 in Mr Chow's office. I accept that at that meeting, he was asked and answered questions about the Moneylenders' Ordinance and the legality of the interest rate but not that he gave any other advice. I am not satisfied that Mr Chow was instructed to draw up the first loan agreement, or that he agreed to do so, or that he or his firm drew it up. It must have come from Mr Yan; but who drew it up is not known. I accept that Mr Chow was not acting for Mr Yan in this matter except to the extent that he admits in evidence.

80. I am not satisfied that at the meeting on 31 December 1994 Mr Chow, did any more than witness the parties' signatures on the agreement. I am satisfied that he told the plaintiff's that he had not carried out a land search and may have suggested that they do so. I accept his evidence that they did not seem interested in the point, which is why he did not pursue the matter. I am not satisfied that at that meeting Mr Chow was instructed to draw up the agreement P6 or that he did so, or did anything else in connection with it save to witness the parties' signatures. The same applies to the 1st and 2nd supplemental agreements. I am not satisfied that on the occasions when they were signed Mr Chow made the representations averred.

81. So far as the second loan agreement is concerned I am not satisfied that Mr Chow or his firm drew it up or that he did anything in connection with it save to witness the parties' signatures. Nor am I satisfied that he made the representations averred.

82. It follows that there was no contract, or series of contracts of retainer between the plaintiffs and Mr Chow and through his partner and the partnership. The question remains whether he can be found liable to the plaintiffs in tort in either case."

This Appeal

33. On this appeal, Mr Warren Chan SC, who did not appear below, took up the theme of the inherent probabilities. He presented a case that relied only on what he argued were indisputable facts and a very few of the documents. His theme was that the judge's conclusion as to the facts must have been wrong.

34. There were essentially three points taken by Mr Chan. The first was that it was inherently probable that the plaintiffs would look to lawyers to prepare loan documents. This, Mr Chan argued, arose from the fact that the plaintiffs were not used to lending money and that they required legal advice. The second point was similar to the first, in that it turned upon the argument that the plaintiffs would naturally look to a lawyer in the preparation of the loan documentation and Mr Chow was the only lawyer known to be involved. There was no evidence of any mention having been made at the time that the plaintiffs had gone to any other lawyer. The third point was that the first loan agreement itself, exhibit P1, gave the appearance that Mr Chow's firm had prepared the document. Indeed, the argument went on, if the defendants' firm had not prepared the agreement there was no indication of which other firm had. Mr Chow had not given any evidence that he had asked Mr Yan who had drafted the agreement. Hence, the inherent probability was that Mr Chow's firm did act on behalf of the plaintiffs. Much turned on the argument that on the face of exhibit P1 it was a document of Mr Chow's firm: a solicitor's firm would only prepare a document like that with the presence of its seal if it were its own document. In summary, it was Mr Chan's argument that the balance of probabilities must be on the side of the plaintiffs.

35. As a subsidiary argument Mr Chan, in opening the appeal, argued that Mr Chow should have informed the plaintiffs if he were not acting for them as their solicitor. In the opening, the argument based on tortious liability was very much a subsidiary argument.

36. It was not until the afternoon of the hearing of this appeal, when Mr Chan commenced his reply speech, that he focused on what by then had seemingly become his primary argument, namely, tortious liability as opposed to contractual liability. Reliance was then put on passages taken from the speeches in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 at for example 835F where it was said:

"The touchstone of liability is not the state of mind of the defendant. An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff. Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene. Subject to this qualification the primary focus must be on the exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff. Sometimes such an issue arises in a simple bilateral relationship. In the present case the triangular position is under consideration: the prospective franchisees, the franchisor company, and the director. In such a case where the personal liability of the director is in question the internal arrangements between a director and his company cannot be the foundation of a director's personal liability in tort. The inquiry must be whether the director, or anybody on his behalf, conveyed directly or indirectly to the prospective franchisees that the director assumed personal responsibility towards the prospective franchisees."

37. Mr Chan produced a separate skeleton at the commencement of his reply speech in which he set out 12 points which were said to be objective facts which were relevant to this consideration. The nub of the case was as follows. That the lenders were looking for legal advice and during the meeting on 28 December 1994 Mr Chow became aware of the substance of the loan transaction and gave advice to the lenders in connection with it. Again when the parties came back to his firm on 31 December Mr Chow also answered questions about the loan agreement. In none of this did Mr Chow tell the lenders that he was not acting for them as their solicitor, despite the fact that he told them he had not carried out a land search. There then followed the points in relation to the appearance of the documents, in particular exhibit P1, with the wax seal and the ribbon and the firm's chop on the backsheet.

38. In my view, the plaintiffs have come nowhere near being able to displace the findings of fact by the judge. Quite apart from the fact that the judge had the benefit of seeing the witnesses in reaching his conclusion, I see no basis for interfering with his findings. As I have already indicated, his decision was not based simply on the question of what was inherently probable. The witnesses' evidence and his assessment of it formed an important part in reaching his decision. Moreover, once the judge had accepted Mr Chow's evidence that the documents had not been prepared by his firm, acceptance of the evidence from the plaintiffs' witnesses became even more problematic. In this respect one telling feature, which the judge accepted, was Mr Chow's evidence as to the format which documents prepared within his firm would take. Moreover, the insertion in typescript in exhibit P2 demonstrates that the insertion is hardly likely to have been done on the same word processor as produced the document.

39. Reference has already been made to the question of the seal, which appeared on two of the documents, and the ribbon, which appeared on only one. Great play was made of these features on this appeal. However superficially attractive Mr Chan's bald assertion may seem, these are not trappings of a firm that prepares a document so much as of a firm where a solicitor has witnessed it. Whenever a document is signed in front of a notary these items are attached to that document. The notary might be, but in many cases is not, the person who prepared the document. The notary's primary function is to witness and thus authenticate a document. Documents are signed or sworn in front of the notary for certification purposes. This is a common occurrence. Every day the Registrar of the High Court authenticates some 30 to 40 notarised documents. These all have ribbons and seals of the notary's firm, not of the firm that prepared the document. The ribbons and seals of notarised documents are in the same form as P1. Once it is appreciated that the attaching of a ribbon and the fixing of a firm's seal are something commonly done by a witnessing or authenticating solicitor, the supposed significance of these facts in this case evaporates.

40. The plaintiffs' evidence, that they had asked Mr Chow to draft the agreements and that he had agreed to do so and had done so, was rejected by the judge. The consequence of that is that either the plaintiffs knew full well that Mr Chow had not drafted the agreements and therefore that, even if they had been aware of the seals, the affixing of the ribbon on P1 and the seals on P1 and P6 was part of the witnessing process or, putting the best complexion on the matter from the point of view of the plaintiffs, they had been duped by somebody other than Mr Chow, namely, perhaps, Mr Yan. That would have been a matter that could not be laid at Mr Chow's door. But even that does not explain the plaintiffs' evidence of directly asking Mr Chow for advice.

41. Sight should also not be lost of the fact that the condition of exhibits P1 and P6 does not appear to have formed any part of the plaintiffs' case until well after the trial started. Discovery of the original of exhibit P1 was only given on the first day of the trial, 10 June 2003, and of exhibit P6 some 3 days later. The reference in paragraph 60(1) of the re-re-amended statement of claim in HCA 14713 of 1999 to P1 having been sealed by the defendants' firm's seal was something that was added without the plaintiffs' leading counsel's knowledge. The transcript at pages 62-3 shows the plaintiffs' leading counsel apologising for having said that there were only typographical changes to the amendments that had been proposed the previous day i.e. on the first day of the trial. Although there was the briefest of references to it in the closing written submissions on behalf of the plaintiffs, it was not until this appeal that any real reliance was sought to be put on the appearance of these 2 documents.

42. The only matter that I would comment on is that I would not myself, have placed reliance on the fact that Mr Chow had not in his 10 years' practice been the subject of negligence proceedings. Nevertheless, the judge no doubt had in mind the clarity of Mr Chow's own evidence when he said that if he had been acting for the plaintiffs the thing he would have done was to make land company searches.

Tortious liability

43. Mr Chan's change of tack in his reply speech in this appeal in seeking to rely on tortious liability rather than contractual liability was doubtless a recognition of the fact that by then it appeared that his primary case on the appeal was likely to fail. The argument was presented on the basis that an objective assessment would lead to the conclusion that Mr Chow had indirectly conveyed to the plaintiffs that he assumed personal responsibility in respect of giving advice on the loan agreements to the plaintiffs. Such an argument must be assessed in the light of the facts found by the judge. Sight, however, must not be lost of the plaintiffs' evidence and the judge's rejection of it. Once the plaintiffs' evidence had been rejected, the plaintiffs' case on tortious liability has to be viewed in the light of the fact that they had tried to construct a case of specific requests to and reliance on drafting by and assurances from Mr Chow, which the judge had held was not true. The plaintiffs' evidence was thus more than mere embellishment and exaggeration. The judge found it to be false.

44. The judge rejected the plaintiffs' evidence that they had sought and obtained assurances from Mr Chow. He found as a fact that Mr Chow was witnessing their signatures to documents which had been produced to him. The plaintiffs had asked Mr Chow specific questions. Those had related to whether they could charge a high interest rate, whether they would have to be registered as moneylenders and whether they could use a BVI company as a lending vehicle. But he did not accept the plaintiffs' further allegations. It may be that Mr Yan had previously, or at some other time, told the plaintiffs that Mr Chow would be looking after their interests. But that cannot give rise to a tortious liability on the part of Mr Chow. As Lord Steyn said, the primary focus must be on things said or done by the defendant or on his behalf. It has not been suggested that anything Mr Yan might have said not in Mr Chow's presence was said on behalf of Mr Chow. Nor, in my view can it be right to impose tortious liability on Mr Chow simply because he did not say that he was not acting on behalf of the plaintiffs when they had come for the purpose of having documents witnessed. It is not for this court to uphold the judge's conclusion as I have outlined but then to invent some scenario different to that put forward by the plaintiffs, let alone the findings of fact by the judge, that would give rise to the conclusion that an objective observer would suppose that Mr Chow had undertaken to advise the plaintiffs and that the plaintiffs had relied on that to their detriment, when their evidence had been that they had relied on their own requests and the defendants' alleged positive responses but had not been believed in that respect.

45. The fact that Mr Chow read the documents and even, for example, explained the first loan agreement to Madam Tai does not indicate that he was acting as her or the plaintiffs' solicitor. It is a very different thing for a person before whom a document is signed to have explained to him exactly what it is that he is signing and, on the other hand, a solicitor, who was acting for that person, advising the person as to what his legal rights are and as to what steps he should take to protect himself. In this respect I would refer to the fact that the reason that an affidavit must be sworn in front of somebody other than that party's own solicitor is for the very reason that the person swearing the affidavit should understand what he is swearing: see for example what was said by Kay J in his judgment in Bourke v Davis (1889) 44 Ch D 110 at p 126:

"The commissioner's duty before he administers the oath is to satisfy himself that the witness does thoroughly understand what he is going to swear to; and he should not be satisfied on this point by any one but the witness himself. For this reason it has been the rule since Lord Hardwicke that the Court does not accept an affidavit sworn before the solicitor in the cause, nor his clerk, although he may be a commissioner."

46. In this respect I would also draw attention to the fact that Mr Chan's first point that the lenders were looking for legal advice in connection with the making of the loan is a somewhat ambiguous point. It was certainly not the finding of the judge that the plaintiffs had made clear to Mr Chow they wished to received general advice in respect of all matters relating to the loan agreements. Neither were the plaintiffs the commercial innocents that Mr Chan tried to paint them. For example, Mr Leung was cross-examined into admitting that he had an MBA. As such he might not have been familiar with land sales in Hong Kong but he might be expected to know when and how to take legal advice. His evidence that he did so was rejected by the judge. That must have repercussions on the alternative argument now advanced on his behalf that the circumstances were such that he thought he was being given legal advice and that he relied on it to his detriment.

47. I have already referred to the fact that the question of the appearance of the exhibits played no part in the plaintiffs' case in the lead up to the trial. The only mention in the pleadings was in respect of exhibit P1 which only came into the pleadings on the second day of the trial and even then without leading counsel's knowledge. This, indeed, seems to have been a proper reflection of the fact that the plaintiffs' own evidence shows that these were not matters which had any effect on them at the time. The only reference in the plaintiffs' evidence to the appearance of these documents that I have been able to discover is in the course of the cross-examination of Mr Leung. He was asked about the seal on exhibit P.1. The exchange was:

"Q. And did you notice at any time that the first agreement had a seal on it but none of the others did?

A. No, I didn't. Moreover, these documents were all kept by Ruth.

(Tr. p. 127B)"

48. Madam Tai and the other witnesses gave no evidence that the appearance of the documents had any effect on her or them. In the light of all this one can only conclude, therefore, that the appearance of these documents had no impact whatever on the plaintiffs and certainly there was no evidence that it led them to believe that the 1st defendant was acting as their lawyer and giving them legal advice on the agreement and looking after their interest generally.

49. The belated attempt to construct an argument of tortious liability in the reply speech of the appeal, not based on an express agreement and positive acts such as drafting the documents, but based on the assumption of responsibility was a forensic manoeuvre. Untrammelled by any constraint that would arise from having appeared at trial, counsel was able to put forward an argument that lacked the necessary evidential basis, to put it at its mildest.

Causation

50. One of the important questions which arises specifically in relation to a claim made in tort is the question of causation. Even if it might be argued that the circumstances were such that it would have appeared to an objective observer that the defendants had been acting in a way that the plaintiffs were entitled to rely on him, the plaintiffs still have to show that they did rely on what the defendants did or should have done. The plaintiffs' case was that they requested Mr Chow to draft the documents and that they had sought assurances from him and been given them. That was rejected. It would be a step too far for this court now to hold that nonetheless the plaintiffs had justifiably considered that Mr Chow had been giving them advice and looking after their interests.

51. In relation to the second loan the matter is, if anything, worse for the plaintiffs. The judge held at paragraph 90 of the judgment that because the first payment of $1 million in respect of the second loan had been made on 19 October 1995 without any reference to Mr Chow, nothing that Mr Chow had done could have caused any loss. In opening the appeal Mr Chan's submission might have deflected attention from this aspect since it was merely said that the plaintiffs accepted the exclusion of the $1 million as a matter of quantum. This was not a mere matter of quantum, it was a question of the plaintiffs' case failing in this regard. It appears that the matter was not the subject of full argument in the court below because the same reasoning on the judge's findings of fact would apply to the remainder of the second loan. The second cheque was dated 2 November 1995 and had been paid into Yan Chim Kee Company Limited's account the next day. On the judge's finding of fact, Mr Chow had done nothing until 4 November.

52. When this point was put to Mr Chan in the course of argument his first response was that the cheque could have been stopped. Clearly that argument was an adventurous argument not founded on any document or reference to the evidence. The documents that were referred to in the transcript at page 139 were not exhibited and were not part of the appeal documents. One can only take it, therefore, that what Mr Leung had agreed to in that passage was correct. Not surprisingly, Mr Chan fell back on the argument that the point had not been raised in the notice of appeal. That, however, was a sterile point. The argument presented no difficulty as regards any finding of fact nor did it take the plaintiffs by surprise to the extent that they could not raise whatever arguments were open to them. In those circumstances, had it been relevant, that would have been an additional ground which would have debarred the plaintiffs recovering in respect of the second loan.

53. In the circumstances I would therefore dismiss this appeal with an order nisi of costs in favour of the defendants.

Hon Le Pichon JA:

54. I agree that this appeal should be dismissed with an order nisi that costs be in favour of the defendants for the reasons given in the judgment of the Vice President. I would only add the following brief observations to underline what I perceive to be a major difficulty in the way of the appeal.

55. The plaintiffs' case, whether in contract or in tort, was based on a common set of facts. The positive case put forward on behalf of the plaintiffs in the appeal from HCA 14713 of 1999 ("the plaintiffs") was conveniently summarised by the judge in paragraph 16 of his judgment. Importantly, the plaintiffs sought to found a cause of action based upon factual allegations that at the first meeting on 28 December 1994, Mr Chow had agreed that he would personally draw up the loan documents, that the loan would be secured by the property, that he would look after the interests of the plaintiffs and that the documents to be drawn up by him would enable the plaintiffs, in the event of default, to buy the property at the agreed price; that at a further meeting on 31 December 1994 attended by the plaintiffs, Mr Yan and Mr Chow, Mr Chow produced the written agreement and made representations that the interests of the plaintiffs had been properly taken care of. For convenience, these allegations together constitute what is hereafter referred to as "the plaintiffs' positive case".

56. It was common ground between the parties that at the first meeting Mr Chow was asked and answered questions concerning that the Moneylenders Ordinance and the legality of the interest rate. So far as the plaintiffs' positive case outlined above was concerned, that was rejected by the judge. I agree with the Vice President that the plaintiffs have not made out a case for displacing the findings of fact so made. Based on those findings, there was no question of the plaintiffs succeeding on their case based on contract. But the rejection of the plaintiffs' positive case has other ramifications relevant to the alternative claim in tort. It led inexorably to the conclusion that the plaintiffs knew that Mr Chow had not drafted the loan agreement.

57. The plaintiffs' alternative case in tort was put on the basis that even if there had been no contract of retainer for any reason, for example, through lack of consideration, the defendants would still liable in tort on the basis of assumption of responsibility. (See paragraph 50 of the opening submissions of the plaintiffs' counsel at the trial below.) The alternative case was therefore based on the same, rather than a different, set of facts. The rejection of the plaintiffs' evidence of their having instructed Mr Chow to draw up the first loan agreement or that he had agreed to do so or that he or his firm had drawn it up, assumes considerable significance in the context of the question of assumption of responsibility on the part of Mr Chow. Unless the facts as found warranted the inference that he had assumed responsibility vis-à-vis the plaintiffs in respect of the loan transaction, the claim in tort would also fail.

58. Mr Chan SC sought to argue that Mr Chow had put himself in a position where the plaintiffs might have supposed that he was acting for them. Thus, it was said that the first loan agreement gave the appearance that the defendant firm had prepared the document. I do not propose to dwell on the question of the appearance of the loan document which bore the firm's chop on the backsheet, the firm's seal and the ribbon. Suffice it to say that I share the view of the Vice President that these trappings have little significance. But, in my view, once the plaintiffs' positive case has been rejected, the ramifications flowing from that rejection sit uncomfortably with the factual matrix required to support the inference of an assumption of responsibility on the part of Mr Chow. In other words, it necessarily affects the "relevant contextual scene" mentioned by Lord Steyn in his speech in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 at 835F. Given that the plaintiffs' positive case that Mr Chow was acting for them and looking after their interest was disbelieved, I fail to see how it could be said that, viewed objectively, the plaintiffs were led into supposing that Mr Chow was acting for them from things said or done by Mr Chow.

59. It would have been very different if, for example, the plaintiffs' claim had arisen in respect of specific advice concerning the Moneylenders Ordinance given by Mr Chow to the plaintiffs. In that scenario, assuming that no claim existed in contract because of an absence of consideration, there would have been scope for a claim based on the assumption of responsibility. But that is not the present case.

Hon Yuen JA:

60. The factual background of this case has been set out in detail in the judgment of the Vice-President. I agree that on any view, the appeal of the plaintiffs in HCA 14713 of 1999 (the lenders of the 2nd loan) must be dismissed, because the money was lent before Mr Chow's involvement in respect of that loan.

61. However, in respect of the appeal of the plaintiffs in HCA 14712 of 1999, the lenders of the 1st loan (referred to below as " the lenders"), I consider that the appeal should be allowed on the ground that, even on the undisputed facts, Mr Chow is liable to them in tort by reason of his assumption of responsibility.

62. Before turning to that discussion, I should say a few words about the judge's rejection of the lenders' primary case vis-a-vis their alternative case based on assumption of responsibility. The judge rejected the lenders' evidence that there had been an express oral retainer and assurances by Mr Chow that he would look after their interests. However the judge did accept that they were innocent victims who consulted Mr Chow only and no other lawyers, parted with $5,000,000 on the strength of documents such as "P-1", and who suffered loss when the loan was not repaid and they could not obtain the property as provided for under the documents.

63. Thus the fact that the judge disbelieved the lenders' evidence of express retainer and assurances does not inexorably discredit their alternative case based on Mr Chow's assumption of responsibility and their reliance on it. They may not have received the express assurances from him that they alleged, but it does not follow that Mr Chow's acts, viewed objectively in the context of previous words and acts, and their effect should be ignored. So long as the component features of the alternative case are not refuted by the findings of fact made by the judge, liability is still established. In my view, on an analysis of the facts, undisputed or found, and the components of the duty in tort, the lenders are entitled to judgment on the basis of assumption of responsibility.

Undisputed facts

64. The undisputed facts showed that Mr Chow had, in a professional capacity, advised the lenders on certain legal aspects of the proposed loan (viz. the legality of the interest rate and the applicability of moneylending legislation) when he was aware of the proposed security arrangement (that in default of repayment, the lenders were to acquire certain property at a given price). Four days later, the lenders saw him at his office again. A Loan Agreement (which appeared to have been prepared by his firm) was produced for the lenders to sign. Mr Chow explained the terms of the Loan Agreement, which purported to provide the lenders with the security discussed at the earlier meeting.

65. In my judgment, a duty of care arose when (1) Mr Chow assumed a responsibility towards the lenders by holding himself out as advising them on the legal aspects of the proposed loan and putting through the transaction and (2) as Mr Chow knew or must have known, the lenders reasonably relied on his professional skill as a lawyer and proceeded with the loan.

66. That duty of care was breached when Mr Chow failed to inform the lenders that, contrary to their expectations, the Loan Agreement was not effective in law in putting the security arrangement into place. Nor did he inform the lenders that, contrary to the appearance of the Loan Agreement, his firm had not drawn up the Agreement. The lenders received no suggestions that they might wish to consult another legal adviser before they parted with their money in Mr Chow's office.

67. It was common ground that the lenders suffered loss when, in default of repayment by the borrower, they had no recourse to the property.

No liability in contract

68. The liability in tort is separate and distinct from liability under contract. On the findings of fact made by the judge, there was no express retainer. Nor, in my view, could there be an implied retainer, because the judge found no evidence that Mr Chow's firm had intended to accept any consideration from any party and thereby to enter into any contractual relationship.

(1) Duty of care - from assumption of responsibility

69. However, the undisputed facts show a clear case of assumption of responsibility which, coupled with knowledge of reasonable reliance, gave rise to a duty of care. The principle of assumption of responsibility is now settled as a result of three House of Lords cases, starting with Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.

- Hedley Byrne v Heller

70. In Hedley Byrne, the House of Lords held that a duty of care may exist in respect of words (as well as acts) and liability may arise in negligence in respect of pure economic loss (not parasitic upon physical damage), where a party seeking information or advice from a party possessed of a special skill trusts him to exercise due care, and the latter party knew or ought to have known that reliance was being placed on his skill.

71. The House of Lords held that the duty to take care applies not only to fiduciary relationships, but to all special relationships where the above circumstances exist. The categories of special relationships are not closed (486). A special relationship (or more precisely, a relationship in which there is a special duty of care) arises when the defendant has assumed a responsibility towards the plaintiff. In Hedley Byrne, the bank would have been held liable for an incorrect credit reference about its customer given to a third party, had it not been for an express disclaimer of responsibility.

72. Lord Morris held (502-3):

"I consider that ... it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise".

Lord Devlin used the term "assumption of responsibility" in the following passage (528-9):

"I think therefore that there is ample authority to justify your Lordships in saying now that the categories of special relationships which may give rise to a duty to take care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty, but include also relationships which in the words of Lord Shaw in Nocton v Ashburton are 'equivalent to contract', that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract".

- Henderson v Merrett

73. In Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, the House of Lords held that managing agents may have assumed a responsibility giving rise to a duty of care towards both direct and indirect Lloyds Names, even though there was in place a contractual "chain" structure between Name and members' agent, and between members' agent and managing agent, with contractual constraints in each part of the chain.

74. Lord Goff, who gave the leading speech, unreservedly acknowledged that the principle of assumption of responsibility gave rise to a duty of care. He held that within the Hedley Byrne principle, a duty of care arises from (1) an assumption of responsibility and (2) knowledge of reasonable reliance; and (3) when loss results, there is no requirement for the court to embark on a further enquiry whether it is "fair, just and reasonable" to impose liability for economic loss (181D cf Caparo plc v Dickman [1990] 2 AC 605, 633B).

75. It was held that the liability is not confined to statements, but may apply to any assumption of responsibility for the provision of services, and that an assumption of responsibility by a professional person may give rise to liability in respect of negligent omissions as much as negligent acts of commission (181F).

- Williams v Natural Life

76. In Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, the House of Lords applied the principle of assumption of responsibility to find a director of a company personally liable to the plaintiff for the misstatement of the company. Lord Steyn, giving the leading speech, referred to "the assumption of responsibility principle" enunciated in Hedley Byrne as extended in Henderson v Merrett, and in answer to some academic criticism, re-affirmed it on the ground that there was "no better rationalisation for the relevant head of tort liability" (837).

77. In Williams, the parameters of the principle were stated in the following passages:

"The touchstone of liability is not the state of mind of the defendant. An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff. Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene. Subject to this qualification, the primary focus must be on exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff. ... The inquiry must be whether the [defendant] or anybody on his behalf conveyed directly or indirectly to the [plaintiff] that the [defendant] assumed personal responsibility towards the [plaintiff]" (835)(emphasis added).

"If reliance is not proved, it is not established that the assumption of personal responsibility had causative effect" (836).

"The test is not simply reliance in fact. The test is whether the plaintiff could reasonably rely on an assumption of personal responsibility by the individual who performed the services ..." (837).

78. I now turn to the application of that principle to the undisputed facts in this appeal, focussing on Mr Chow's words or conduct as they appeared objectively to the lenders at the time, and not on what his explanations for those words or conduct were at trial.

Professional setting

79. The first meeting between Mr Chow and the lenders was held at his office, not in a social setting or on an informal occasion. Indeed all subsequent meetings were held in a professional setting at his office (Henderson v Merrett, 179D, 181E).

Giving legal advice

80. At the first meeting, there were discussions of a legal nature which were pertinent to Mr Chow's professional skill. The proposed loan transaction, including the security arrangement, was known to him (Chow, transcript p.248 H-K). It is notable that in paragraph 7.3 of the Re-Re-Amended Defence, it was pleaded by Mr Chow that

"Mr Yan's only purpose in arranging the Meeting had appeared to be for him to elicit from the 1st Defendant [Mr Chow] a general view as to whether an agreement of the type already reached could have legal effect ..." (emphasis added).

The lenders made some inquiries about the law relevant to the specific transaction proposed, i.e. the legality of the actual interest rate and whether a licence was required for them as individuals to lend money. Mr Chow gave them legal advice. He was there (or more precisely, the lenders were at his office) for no other purpose. He never advised them to consult other lawyers or even asked if they had other lawyers. The objective impression given to the lenders must have been that he was there providing professional service to the parties on the proposed loan transaction.

81. As noted above, the security for the loan, which was in the form of the right to acquire property at a stated price, was discussed at the meeting (Chow, transcript p.284 I-K). It was thus obvious to all present (including Mr Chow and the lenders) that the lenders were looking to the property effectively as security for the loan.

Loan Agreement

82. A few days later, the lenders were asked to attend Mr Chow's office again for the purpose of executing a loan agreement. Even though the judge did not accept the lenders' evidence that they had expressly instructed Mr Chow to draft document "P-1", he found (paragraph 79, judgment) that the document "must have come from Yan", in other words, not from the lenders who were presented with a document which on its face indicated that it had been produced by Mr Chow's firm. There was no finding that in law, Mr Chow could not have provided service for both the borrower and the lenders in the drawing up of a loan agreement. It was a commercial document where both parties' interests converged in a loan being provided on terms agreed between them. In any event, even if Mr Chow could not have acted for both parties, there was no evidence that the lenders knew or would have known of such a restriction.

83. When the Loan Agreement was produced in Mr Chow's office for execution by the parties, it would have reasonably appeared to the lenders that this was intended to put into place, amongst other things, the security discussed a few days before. Why else would such a document, expressed in legal language and containing all the trappings of a legal document, be produced for the parties' execution at Mr Chow's office, if not to make the agreed arrangement effective in law?

Appearance of Loan Agreement

84. The Loan Agreement which the lenders were given at Mr Chow's office had the trappings of a document prepared or adopted by that firm. The document was bound by a ribbon affixed with the firm's wax seal. The document was not notarized, so that would not have been the reason for the affixing of the firm's seal (even as a substitute for the notary's personal seal). More importantly, the firm's name was on the backsheet which, on Mr Chow's own evidence, indicated the firm that had prepared the document (Chow, transcript p.253U - 254A). The document with the backsheet attached was produced in court as one document and it was never put to Ruth Tai Fung the signatory that the backsheet was added only after execution. There was no evidence that it was added afterwards and the court should not act on Mr Chow's speculation when he gave evidence in defence (Chow, transcript p.254).

85. I am not prepared to assume, and there was no evidence to the effect, that a solicitor who had merely witnessed a document would put the name of his firm on the backsheet. The act of witnessing the execution of a document is performed by the solicitor as an individual. His firm has nothing to do with that act.

86. The impression given to the lenders was therefore that Mr Chow's firm had drawn up the Loan Agreement. The judge did not make any findings of fact that any of the lenders did not believe this to be the case. Even if the evidence were to show a mistake on the part of Mr Chow's staff in affixing the firm's seal and firm's name on the document, Mr Chow would have to be vicariously responsible for their actions. In any event, the lenders could hardly be expected to know of any mistake and there was no evidence at all that they knew of any mistake.

Explaining the terms

87. Mr Chow's own evidence was that he had explained the terms to Madam Tai including clause 10 which as worded gave the impression that the property was not mortgaged. Mr Chow was not asked to interpret it because Madam Tai could read English (Tai, transcript p.210 J-K). There was no interpretation clause in the Loan Agreement, which confirms that what Mr Chow did was not to interpret the terms but to explain them (Chow, transcript p.252 F-J). By explaining the terms, he went beyond what a solicitor merely witnessing a document is bound to do (Law Wan-lan v Well-Built Development Co Ltd [1988] 2 HKLR 435, 442E).

88. Most importantly, he did not tell the lenders that, even though he had given them legal advice on the same matter only four days earlier, and even though the Loan Agreement looked to all intents and purposes as if it had been prepared by his firm, his only role now was to merely act as witness to the execution.

No sufficient disclaimer

89. Of course, a duty of care would not arise if there was a suitable disclaimer of responsibility. Mr Chow's evidence at trial was that he said to the signatory Madam Tai that he had "not done a search on the property". He was "not all that sure" that he said to her that she should do one (Chow, transcript p.251 E-G). Of course the evidential burden was on him to prove that he had said anything more than that he himself had "not done a search on the property".

90. Even though Mr Chow's evidence was that he had spoken to Madam Tai, it was never put to her during cross-examination that Mr Chow had ever said anything about a land search to her. In any event, there was no evidence that Madam Tai (whose evidence was not criticized by the trial judge) knew what a land search was. There was no cross-examination about whether she knew or should have known the effect of Mr Chow's not having done one on the transaction being concluded by the execution of the Loan Agreement.

91. Mr Chow said in his evidence at trial that he considered that that "should have told Ruth and Yan that I was acting for neither of them because in conveyancing matters the first thing that any solicitor would do ... is to run a land search" (Chow, transcript p.251 I-K). In my judgment, that is not a reasonable inference to draw, and particularly so when Madam Tai had not been cross-examined on this point. Doing a land search is technical work done by lawyers, and doing one, or not doing one, or when to do one, is a decision made within a lawyer's professional expertise. For a lawyer to simply say to a lay person that he had "not done a search of the property", without explaining the significance of it (Chow, transcript p.300L), is not a sufficient disclaimer of responsibility.

92. To draw an analogy in a different profession, it is as if a doctor said to a patient in the middle of treatment that he had not taken a swab. What is the patient to make of it? The patient hearing that statement would simply expect the doctor to deal with it, as it was a technical matter within the doctor's professional knowledge and expertise. It is not surprising that Mr Chow's evidence was that he received no reaction from Madam Tai to his comment (Chow, transcript p.251S-T). Mr Chow said (in the judge's words) "no one seemed to be interested in this so he assumed that they either did not know of any prior mortgage or did not care about it", so he said no more. First, if the lenders did not know of any prior mortgage, then there was all the more reason why they should have been alerted to the possibility of one. Secondly, as to not caring whether there was a prior mortgage, it would be extraordinary for private individuals lending a substantial sum of money for the first time on security not to care if the security was effective. If security did not matter, why have it at all? Why would they have needed to attend his office on New Year's Eve to sign a document which was not worth more than the paper it was written on?

93. If Mr Chow had been trying to exempt himself from liability, in the light of the legal advice he had given the lenders four days before, and given the appearance of the Loan Agreement, he should have put that message across in clear and unequivocal terms, e.g. by saying that the Loan Agreement had not been drawn up by him, or that he was there to witness the execution of the document only, or that the lenders signed the document at their own risk, etc. He did none of the above, and the lenders cannot reasonably be expected to second-guess what he was trying to say from a vague statement referring to what would appear to a lay person to be a matter of technical procedure.

Statement as confirmation of role

94. Indeed, the statement in my judgment has objectively the effect of confirming his involvement with the Loan Agreement otherwise than as a mere witness. Why would a mere witness to the execution of a document have to do a land search, or say that he had not done one?

95. In my judgment, the objective facts listed above show clearly that after Mr Chow met the lenders and advised them as a lawyer on aspects of the proposed loan transaction, and followed that four days later by explaining the terms of the legal document that purported to put through the transaction (a document that bore his firm's name), he had objectively conveyed to the lenders that he assumed a responsibility towards them in providing his professional services to put the proposed transaction into legal effect.

Trial judge's rejection of assumption of responsibility

96. The trial judge however held that there was no assumption of responsibility because he accepted Mr Chow's evidence that he was only acting as a witness. He likened Mr Chow's position to that of the solicitor in Law Wan-lan whose only participation was to act as witness to a document. In my view, Law Wan-lan was entirely different because the solicitor in that case had not given prior legal advice to the plaintiff on the matter, thus establishing a relationship of trust.

97. Based on his view that Mr Chow was only acting as a witness, the judge held (judgment para. 86):

"to say that he must have expected them to think he had drafted the documents and therefore had a duty to warn them that he had not, and also that they were at risk, would put his duty far too high; it would produce the sort of situation where no solicitors could undertake the most trivial or casual matter without being at risk himself".

98. With respect, given the appearance of the Loan Agreement, an objective observer would reasonably have thought that Mr Chow's firm had drafted the document. Further, I would not characterize Mr Chow's participation at the first meeting at his office as being "trivial or casual". A substantial sum was involved, serious matters were being discussed in his professional law offices and he was there to render professional service to lay persons.

Knowledge of reasonable reliance

99. The trial judge did not reject the alternative case on any other grounds and there has been no respondent's notice. Accordingly in my judgment, that is enough to allow the appeal of the plaintiffs in HCA 14712/1999. In any event, it is clear from the evidence that Mr Chow knew or ought to have known that the lenders reasonably relied on his professional skill. They were private lenders. Mr Chow admitted in evidence that it was obvious to him that they had not lent money before (Chow, transcript p.285 Q-R). They asked him for advice about the legality of the interest rate and licensing requirements, and Mr Chow admitted in cross-examination that he knew his advice would be relied upon (Chow, transcript p.287 I-J). They asked for the terms of the Loan Agreement to be explained. They would not have done that if they had other lawyers on whom they relied or could rely. Having shown caution asking about specific legal concerns, it was unlikely that they would have risked their money in the transaction had they known that their interests were not protected after all.

100. Applying the principles established in the three House of Lords cases discussed above, it is clear in my view that a duty of care had arisen from Mr Chow's assumption of responsibility in the knowledge of the lenders' reasonable reliance on his professional skill.

(2) Breach of duty of care

101. I then turn to the breach of that duty of care. It was not disputed (in the pleadings or at trial: Defendants' counsel, transcript p.239 F-H) that the Loan Agreement did not have the effect of providing the lenders with the security they had bargained for. However, despite having explained the terms to them, Mr Chow did not warn the lenders that the effective security they expected and was ostensibly given may not have been put in place. In law, it matters not that the breach of duty arose from a failure to inform. That failure was a negligent omission on the part of a professional person (Henderson v Merrett 181F). After the Loan Agreement was signed and the sum of $5,000,000 changed hands, the lenders' fate, as it were, was sealed. The subsequent agreements were along the same lines. It was not suggested by the defendants that anything the lenders did, or did not do, after the execution of the Loan Agreement and the payment of the sum, contributed to or exacerbated the loss.

(3) Loss

102. The trial judge accepted that the lenders suffered loss when the borrower proved to be worthless (judgment, paragraph 1). The judge did not find that the lenders were in collusion with the borrower to obtain money from Mr Chow's firm or their insurers 5 years after the events took place. The judge did not find that the transaction was not genuine, nor did he find (despite using the term "disputed documents") that the documents were not authentic or anything other than what they purported to be. The fact that the lenders had suffered loss as a result of the breach of duty is therefore clear.

Order

103. By reason of the above, I would dismiss the appeal of the Plaintiffs in HCA 14713/1999 with costs to the Defendants, but I would allow the appeal of the Plaintiffs in HCA 14712/1999 and order that they have the costs here and below.

Hon Rogers VP:

104. There will therefore be an order as set out in paragraph 53 above.