A SOLICITOR v. THE LAW SOCIETY OF HONG KONG

CACV 83/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 83 OF 2008

(ON APPEAL FROM SOLICITORS DISCIPLINARY TRIBUNAL)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the reasons of Le Pichon JA.

Hon Le Pichon JA:

Introduction

2.  This was an appeal by the appellant from a decision of the tribunal dated 28 January 2008 and its order for fines and costs made on the 12 March 2008.  The tribunal found the complaint against the appellant established and imposed a fine and awarded costs against him in addition to making the appellant liable jointly and severally with the first and second respondents to satisfy any shortfall in payment by the fourth respondent of his costs in specified proportions.  At the conclusion of the hearing, the appeal was dismissed with reasons to be handed down which we now do.

3.  Four separate complaints were made in disciplinary proceedings of the Law Society against four respondents, alleging breaches by each of them of principles 2.03 and 5.12 of the Hong Kong Solicitors’ Guide to Professional Conduct and rule 2 of the Solicitors’ Practice Rules.  The appellant was the third respondent in those proceedings.

4.  The first and second respondents were partners in a firm (“the first respondent’s firm”).  The appellant was a partner in Messrs Philip Tsui & To (“the firm”).  The fourth respondent was employed by the first respondent’s firm as a clerk until February 1999 and from 1 March 1999 until December 2000 he joined the firm and became its senior conveyancing clerk.

5.  The complaint against the appellant was that he was in breach of the principles and rule referred to above in that (1) the fourth respondent was inadequately supervised by the appellant whilst employed by the appellant’s firm; and (2) the appellant wrongfully permitted Lok Po Chuen, a solicitor, simply to verify the signature of the fourth respondent in witnessing documents without the appellant himself exercising control over and personally supervising the execution of those documents.

Background

6.  The relevant background may be summarised as follows.

7.  Whilst in the employ of the first respondent’s firm, the fourth defendant had embezzled $10,000.  That had been a payment on account made in December 1998 by Lau Wing Kwong (“the complainant”), a client of the first respondent’s firm, for certain probate work in relation to the estate of his late mother (“the deceased”) who had died in 1990.  The fourth defendant left the first respondent’s firm two months later and moved to the firm, taking the probate work with him.

8.  A probate file relating to the estate of the deceased was opened at the firm on 29 March 1999, less than a month of the fourth defendant joining the firm.  A land search was carried out the following day in respect of a property.  The appellant was the supervising partner of the probate file and the fourth respondent was the unqualified staff member who handled that file.

9.  At a date unknown, the fourth respondent allegedly informed the appellant that the matter had “fallen through”.  The probate file was so marked and apparently “put away” in November 2001 when the firm moved to its present address.

10.  In May 2000, HSBC instructed the firm to prepare a mortgage in connection with the conveyance of a property from the deceased and the complainant’s wife (“the sellers”) to the complainant and the complainant’s wife (“the buyers”).  Nothing came of that transaction at the time since the lay clients were apparently still shopping around.

11.  Several weeks later, that transaction revived.  On 15 July 2000, the fourth respondent opened a conveyancing file.  The firm acted for both vendor and purchaser, the transaction being less than $1 million and involving only direct family members.  The fourth respondent forged a general power of attorney purportedly executed by the deceased in favour of the complainant’s wife.  The power of attorney was then used in a conveyancing transaction transferring the ownership of the property from the sellers to the buyers for $920,000.  A loan was obtained from the bank in the sum of $500,000 secured against the property.  There is a forged receipt for $10,000 from firm to the buyers as money on account for the conveyancing transaction.

12.  The fourth respondent never explained the nature of the documents to the buyers who had no knowledge of the forged power of attorney.  No solicitor witnessed the signatures of the buyers and sellers on the power of attorney or agreement for sale and purchase (executed on 19 July and dated 20 July 2000) or the assignment executed on 20 July dated 21 July 2000; rather, they were witnessed by the fourth respondent whose signature was subsequently verified by Lok.  The power of attorney and the assignment were registered at the Land Registry in August 2000.

13.  The fourth respondent’s fraudulent acts only came to light in July 2003 when the buyers attempted to raise further funds against the property and, in the process, discovered that their title was defective.

This appeal

14.  Although Mr Pow SC, who appeared for the appellant, raised no less than 10 grounds for reversing the tribunal’s decision on the substantive appeal, he acknowledged that the principal grounds were the first two set out in his written submissions.  Those two grounds were said to demonstrate fundamental errors in the tribunal’s approach to its fact-finding process.

Failure to make findings on each and every particular alleged in the complaint

15.  The penultimate paragraph of the decision reads:

“Further, the Tribunal has not dealt with each and every particular alleged in the Complaints in its decision.  It is suffice to state that in each Complaint, the Applicant has discharged the burden of proof.”

16.  In the amended complaint, the appellant was said to have misconducted himself in breach of the principles in the Guide and the Rules in two respects: (1) the fourth respondent was inadequately supervised by the third respondent while employed by the firm; and (2) the third respondent wrongfully permitted an assistant solicitor to verify the fourth respondent’s signature in certain conveyancing documents.  “Particulars” were then given, consisting of 27 paragraphs, running to almost 3 pages.  These were essentially a chronological account of events, for the most part uncontroversial and admitted as facts.

17.  Mr Pow submitted that it was incumbent on the tribunal to make findings in respect of each of the particulars appearing in the complaint.  While accepting that the tribunal did make certain findings of fact, he reasoned that without knowing which of the particulars had not been found, the court would not be in a position to assess how those matters would impact on the tribunal’s overall conclusion of inadequate supervision.

18.  Mr Pow referred to the allegation that the fourth respondent was appointed the “handling clerk” of the [firm’s] probate file and “given free rein to handle this probate”.  The applicant’s case was that the fourth respondent “by himself” had met the clients in the probate matter.  The tribunal made no specific findings as to whether or not the fourth respondent was allowed to interview clients alone.  It was said that whether or not this particular allegation was or was not proven would have a bearing on the tribunal’s overall conclusion that there was a lack of supervision by the appellant over the fourth respondent.

19.  I find little merit in this ground of appeal.  Solicitors’ disciplinary proceedings are not criminal proceedings.  I agree with Mr Cooney who appeared for the applicant that there is no requirement that the reasons must address every single issue that arises.  If the issues that arise for serious consideration (which were clearly stated in the first paragraph of the decision under the heading “Complaint against the 3^rd Respondent”) have been addressed by the tribunal and the reasons are not defective in substance, they should not be considered inadequate.

20.  In any event, little mileage is to be gained by the appellant from the specific example given by Mr Pow, a matter more appropriately considered under the next ground.

Inadequate supervision

21.  Mr Pow took issue with the following passage in the decision which he submitted demonstrated another fundamental error on the part of the tribunal in its fact-finding process:

“It is fair to assume that in view of the long friendship between the two (i.e. the [appellant] and the 4^th Respondent which stretched back to 1986, some 13 years, the [appellant] naturally placed implicit faith in the 4^th Respondent’s integrity and there was no oversight of this work and that the Assistant Solicitors of [the firm] apparently felt they should not interfere with the 4^th Respondent’s affairs.”

22.  It was submitted that the passage showed that the tribunal made an unwarranted and impermissible assumption at the outset (that the appellant exercised no oversight at all) which tainted its evaluation of the evidence.  I disagree.  Fairly read and put in its proper context, I do not consider that any assumption of guilt was being made.

23.  The appellant’s case own case was that the appellant allowed the fourth respondent to open the probate file on 29 March 1999, conduct a land search the following day and when, in early April, the appellant asked the fourth respondent to arrange an interview with the lay client, the fourth respondent told the appellant that the probate file had “fallen through” as the lay client had recently instructed the firm not to proceed further.  Believing that the retainer had ended, the appellant instructed the fourth respondent to close the file.

24.  In evaluating this evidence, the following findings of fact should be borne in mind: the fourth respondent had little or no working knowledge of probate matters; there existed a long friendship of some 13 years between the appellant and the fourth respondent; the lay client was known to the fourth respondent but not the appellant.

25.  Throughout the period the probate file remained open, whatever its length, there was no communication or contact whatsoever between the appellant and the lay client.  The appellant never met the client.  He never tried to contact him by telephone.  But for the land search to be conducted, there had to have been some instructions from the lay client to someone in the firm.  The only candidate to whom those instructions could have been given would appear to be fourth respondent alone and no one else.  Although the form of communication is unclear from the evidence, whatever form it took, it did not involve the appellant but only the fourth respondent.

26.  In any event, in my view, there was more than sufficient evidence to justify the tribunal’s overall conclusion of inadequate supervision.  In respect of the probate file, apart from the matters mentioned in the preceding paragraphs, as Mr Cooney pointed out, the appellant never wrote to the lay client either to confirm his instructions or to confirm the end of the retainer.  Moreover, the following exchange between a member of the tribunal and the appellant is particularly telling:

“ MEMBER BURNS: Indeed I do, this exactly.  “The 4^th respondent asked for my authorisation to open a fresh probate file”, which is an indication you did entertain some discussion over probate matter with R4, right?

  A.    No.  What it is, is that some client want to -- want firm to act for them in a probate case.  I just told him, “Then you just do the normal work job first, just to do the conduct the land search.  Then I will meet the client subsequently.”

It was thus open to the tribunal to draw such inferences as it saw fit from that piece of evidence.

Other grounds (rejection of the appellant’s evidence)

27.  As earlier noted, while numerous other grounds (relating to the manner in which the tribunal dealt with the evidence) were also advanced, they all flow from the second ground.  In essence, what was said that the tribunal’s alleged assumption of guilt had tainted its analysis of various aspects of the evidence.  Given that I have rejected the second ground, I do not consider it necessary to address the additional grounds individually or in detail.  All of them relate to the rejection of the appellant’s evidence in respect of (1) the probatefile and (2) the conveyancing file and were very much subsidiary points.

(1) the probate file

28.  The criticism appeared to be that because the appellant had provided a detailed account concerning the opening and closing of the probate file and the fourth respondent had admitted and confirmed the accuracy of that account, there was no basis for the tribunal not to accept his evidence.  The fourth respondent’s ‘evidence’ in this regard consisted of an unsworn letter addressed to the firm referring, inter alia, to the appellant’s affirmation and stating that

“I confirm that the contents thereof so far as the same or related to me are true and correct.”

29.  I need say no more than that having regard to paragraphs 23to 26 above, it was plainly open to the tribunal to conclude that there was inadequate supervision and so reject the appellant’s evidence.  Moreover, the weight to be attached to the fourth respondent’s ‘evidence’ was a matter for the tribunal and the tribunal’s failure to mention the existence of that evidence or that it had been considered is not a sufficient reason to vitiate its decision.

(2) the conveyancing file

30.  Before its repeal in January 2002, Practice Direction A.1(2) required that unless it was “impracticable”, documents such as powers of attorney, sale and purchase agreements and assignments must be witnessed by a solicitor.  The issue for the tribunal was whether impracticability had been established for the execution of the power of attorney and the sale and purchase agreement on 19 July 2000 at the home of the deceased and the execution of the assignment on 20 July 2000 at the firm’s office.

31.  The appellant’s explanation was that the appointments with the lay client for the execution of conveyancing documents on 19 and the 20 July 2000 were deliberately engineered by the fourth respondent to take place at a time and place when the appellant and his assistant were “otherwise engaged”.  The tribunal rejected the appellant’s evidence.  As regards the appointment on 19 July, the tribunal found that there was no explanation or creditable evidence as to why it was impracticable for a solicitor to attend.  As regards the appointment on 20 July, the tribunal found that there was no evidence of impracticability.

32.  Mr Pow criticised the tribunal for failing to provide any reason for rejecting the appellant’s explanation.  But the appellant’s explanation was nothing more than accepting, at face value, the fourth respondent’s statement that there was no mutually convenient time for an attendance.  The tribunal could not be faulted for considering that insufficient to establish impracticability.  No independent evidence was proffered (such as the appellant’s diary) to establish impracticability.  Nor did the tribunal have the benefit of the evidence of Lok, since the appellant decided at the trial not to call him as a witness although a witness statement had been filed.

33.  As regards the suggestion that it was pointless to call Lok given that the tribunal had rejected the evidence of a witness called by the first respondent because he was in the employ of first respondent, the full reasons for the rejection of that evidence appear in the following passage of the decision:

“   The Tribunal places little or no weight on the witness’s evidence as to the practice of the firm or the roles played by the 1^st and 2^nd Respondents not only from his demeanour observed whilst being cross-examined, but also from the fact that Mr. Lai is in the employ of the 1^st Respondent under a new firm which renders his testimony suspect in any event.”

The tribunal’s view of the evidence of the first respondent’s witness would not have been known at the time when the decision whether or not to call Lok had to be made.  In my view, there is no basis for the suggestion that Lok’s evidence would be rejected simply because he was employed by the firm. 

34.  Exception was also taken to the tribunal’s characterisation of the appellant’s version of events as “hazy to say the least” and that he was “evasive” under cross-examination.  But the first matter to note is that the quality of the evidence is a matter for the trier of fact rather than for an appellate court.  That said, some insight into the quality of the appellant’s evidence in general might usefully be gleaned from the following response to a question put to the appellant by a member of the tribunal:

“ MEMBER BURNS: “Then I told R4 to open a probate file and …”

  A.    So, there’s nothing mentioned about the probate, nothing about the particulars of probate, nothing; there’s nothing.  If I talk to him, he does not understand, I don’t think.  There’s no …”

35.  A further point made was that the tribunal failed to give reasons for considering that the appellant had not been sufficiently vigilant in the context of a case in which the firm was permitted, under the exceptions, to act for both parties.  As the tribunal noted, the object of the restrictions was to clamp down on fraud.

36.  Not only did the tribunal give reasons, it is also clear that the tribunal was concerned about the lack of extra scrutiny in respect of attempts to fix appointments at times that would have been practicable for a solicitor to attend to the clients.  That is apparent from the following passage of the decision:

“   But despite this, the 3^rd Respondent allowed the 4^th Respondent to witness the alleged execution by the victim’s late mother at her home and no explanation or creditable evidence came forth as to why it was impracticable for him or a solicitor from the firm of P T & T to attest the execution.

    Similarly, other than speculations advanced by the 3^rd Respondent, he was unable to explain why no qualified staff was in the office when the victim and his wife went there to execute the relevant documents.  Where is the evidence to show “impracticability”.  The 3^rd Respondent did not call witnesses to bolster his defence on this point in spite of the fact that he had indicated in the pre-trial proceedings that he would do so.”

37.  In conclusion, in relation to the substantive appeal, none of the additional subsidiary grounds has any merit.

Penalties

38.  The appellant was fined $250,000.  The reasons are stated in paragraph 3 of the tribunal’s order:

“… It is so apparent that he did not supervise the 4^th Respondent despite his admission that the conveyance in question requires special attention.  It is about time that Solicitors should be made to aware that any lack of supervision of staff which results in commission of fraud would not be tolerated.  This is a leading example to practicing Solicitors of what not to follow.”

39.  Mr Pow argued that the penalty imposed was as a “deterrent penalty” for cases involving the lack of supervision of staff which result in the commission of a fraud.  He relied on criminal cases for the proposition that, in general, a deterrent penalty is inapt for a person with a clear record.

40.  In my view, the cases relied on do not assist since this is not a criminal matter.  Rather, we are concerned with disciplinary proceedings for professional misconduct.  The appellant’s breach of the practice direction (in circumstances where he accepted that the transaction required special vigilance) facilitated the perpetration of the fraud by the fourth respondent on the lay clients who ended up with a defective title for the property.  A loan application made by them was refused on that basis, costing them time and money.  What had occurred was a fraud on members of the public which would not have occurred had there been proper scrutiny and supervision.

41.  The prevalence of such situations involving fraud would justify the imposition of a penalty having a deterrent element.  The language used by the tribunal suggests this to be the case.  I therefore see no basis for interfering with the penalty imposed.

Costs

42.  The tribunal capped the overall costs at $450,000, including disbursements.  It apportioned those costs as follows: the first respondent to pay $100,000; the second respondent to pay $50,000; the appellant to pay $200,000; the fourth respondent to pay $100,000 in default of which the first and second respondents and the appellant were to bear any shortfall jointly and severally in the proportions 40:10:50.

43.  The criticism made of the order was that it allegedly lacked proportionality between the appropriate level of fine and the contribution to costs.  The appellant had no previous record and was a first offender, whereas the first respondent had previous records.  Yet, the appellant faced an exposure of $450,000 compared to the first respondent’s exposure of only $300,000.  Further, the appellant was made to bear a greater proportion of the costs ordered against the fourth respondent in the event of his default.  It was said that such disparity in monetary terms was unjustified having regard to the respective culpability of the first respondent and the appellant.

44.  A crucial factor on which the appellant’s submissions did not focus was the fraud practised on the clients as members of the public and its consequences.  That fraud was facilitated by the appellant’s lack of proper supervision of his staff and wrongly permitting an assistant solicitor to verify the signature of the fourth respondent.  In all the circumstances, I fail to see any good reason for disturbing the costs order made.

Hon Reyes J:

45.  I agree.