CHUA MING YUEN v. HENTRON INVESTMENTS LTD AND ANOTHER

HCA 3140/2002
HCA 2930/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3140 OF 2002

ACTION NO. 2930 OF 2002

____________

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_______________

J U D G M E N T

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1.  This is a consolidated action involving a sale and purchase transaction.  The parties to the first action were Ms Chua Ming Yuen (Ms Chua) the Purchaser who was the Plaintiff, Hentron Investment Limited (Hentron) the Vendor who was the 1^st Defendant and Kwan Lai Hung (Mr Kwan) the 2^nd Defendant who was the Solicitor representing Ms Chua.

2.  The parties to the second action were Mr Kwan as Plaintiff Rowland Chow, Chan & Co (R.C.C.) the Solicitor who represented Hentron as the Defendant and Hentron was joined as a Third Party.

3.  Hentron and Ms Chua entered into a Provisional Sale and Purchase Agreement on 7 May 2002 for the purchase of a flat in Hanking Court, Cloud View Road, Hong Kong (the property) for the sum of $6,980,000.  Ms Chua paid an initial deposit of $200,000.

4.  Pursuant to the terms of the Provisional Agreement a formal agreement (the Agreement) was concluded on 21 May 2002.

5.  The balance of the deposit of $498,000 was paid to Chan and partners who at that time was representing Hentron.  Shortly after this Hentron terminated its instructions to Chan and Partners and instructed R.C.C. to represent them on the sale.

6.  In the meantime Ms Chua entered into an agreement with the Industrial and Commercial Bank of China (ICBC) for them to advance to her $2 million secured by a mortgage on the property.

7.  It was provided in the agreement that completion should take place on or before 21 June 2002 and as is normally the case time was of the essence of the Agreement.

8.  On 17 June Miss Chua paid $4,312,960 to Mr Kwan’s firm (LHK) and executed an assignment in escrow.

9.  The Agreement provided for a paper completion according to the Law Society procedure which is based upon Solicitors undertakings.

10.  Put simply the way it works is that the Solicitors representing the vendor undertake to provide the duly executed assignment by their client within a stipulated period of time and also undertake within a slightly longer period to produce evidence that all the outstanding incumbrances have been discharged.  They also deliver the keys of the property to the Purchaser’s Solicitors.

11.  In exchange for this the Solicitors for the Purchasers are required to pay for the purchase by either Bankers Drafts or cheques drawn on the solicitors client account.  The amount is split up to enable the vendor at the same time to pay off any mortgage, pay any amount due to Estate Agents etc and for the balance to be payable to the vendor.

12.  Everything was put in hand in the usual way in anticipation of completion taking place at 5 pm on 21 June.

13.  It is the practice of ICBC not to release monies it is advancing on a mortgage until the actual date of drawdown namely of completion of the purchase.

14.  The monies are made available by way of a Bankers draft from 11.30 onwards on the day in question.

15.  There are various ways in which the money can be made available for the purchase.  One is for a direct transfer to be made to the vendors account.  Another is by inter Bank transfer and the third is for the Purchasers Solicitor to receive a Banker draft in the firms favour and for the Solicitor in turn to then draw a cheque on his client account in favour of the vendor.

16.  It was this third method which was adopted in the present case.

17.  It will be appreciated that although the payment is effected by a Banker’s draft it is still necessary for it to be subject to the inter Bank clearing process which on the evidence which was before the Court meant that a cheque could only be drawn on the account which received the funds on Monday 24 June.  It was this delay which was the main reason for the problems which were encountered in this litigation.

18.  Ms Chua gave evidence that she gave instructions to LHK for the purchase of the property.

19.  The lady she dealt with in the firm was Ms Kong.  Everything went according to plan and she was under the impression that the property had been purchased on 21 June and that all monies payable under the Agreement had been paid.

20.  She subsequently learnt that a problem had arisen.

21.  She was told that LHK’s cheque for $2 million representing the mortgage advance had been dishonoured by their Bankers, the Bank of East Asia (BEA) as ICBC’s Bankers draft had not been cleared in sufficient time for funds to be available to meet the cheque which had been drawn by LHK in favour of Hentron.

22.  She was informed that Ms Kong had made arrangements for an inter Bank transfer of $2 million to Hentron’s Bank, The Hang Seng Bank, when she had learnt that the cheque which had been drawn by LHK might be dishonoured on presentation.

23.  Notwithstanding this Hentron had not accepted the situation.  Their Solicitors Chan and Partners had on 24 June written to LHK in this form.

“	陳炳有．陳慶楷律師事務所
	CHAN & PARTNERS
	Solicitors
	Agents for Trademarks and Patents

Unit C & D, 7/F, China Overseas Building, 139 Hennessy Road, Wanchai, Hong Kong.	Partners 合夥人:	P.Y. Chan 陳炳有 H.K. Chan 陳慶楷	香港灣仔軒尼詩道一三九號 中國海外大廈七樓C, D室
Tel: 2892 0928			電話: 2892 0928
Fax: 2892 0810, 2892 0339	Consultant 顧問:	H. S. Ng, John 吳海生	圖文傳真: 2892 0810,   2892 0339
E-mail: chanp822@netvigator.com	Assistant Solicitor 助理律師:	S. Y. Chung 鍾思遠	電子郵箱: chanp822@netvigator.com
DX-225015 WANCHAI 1

Your Ref::
閣下檔案號碼：C287123	24th June 2002
Our Ref:
本行檔案號碼: PY-7228-2002	Please reply to: Mr. P. Y. Chan

Messrs. L. H. Kwan & Co.,	BY FAX (FAX No.2877 6738)
Solicitors,	AND BY HAND
Well On Commercial Building, Floors 1 & 6,
No. 600 Wellington Street,
Central, Hong Kong.

Dear Sirs,
Re:	Flat A on 2nd Floor and Car Park No.38 on Ground Floor of Hanking
	Court, 43-49 Cloudview Road, Hong Kong
We have instructions from Hentron Investments Limited (“our client”), to deal with the above property in the place and stead of Messrs. Rowland Chow, Chan & Co., Solicitors and are instructed by our client that cheque no.286630 (dated 21st June 2002) issued by your goodselves by First Pacific Bank Limited being part of the balance of purchase price payable on completion of the sale and purchase of the said property has been rejected for payment under the ground “drawn against uncollected funds”.  For your easy reference, your said cheque and unpaid item memo are hereto enclosed.
The failure in payment of the balance of purchase price amounts the breach of Clause 25 of the agreement for Sale and Purchase dated the 21st day of may 2002 duly signed by our respective clients.  In the circumstances, we are instructed by our client to inform you that our client hereby exercise its rights therefrom to forfeit all the deposits and part payments duly paid by your client under the relevant transaction in the total sum of HK$3,710,955.48 and demand the return of all the title deeds and documents as well as the keys of the said property forthwith.
Further, our client hereby reserved its rights to claim against you and/or your client for all losses and damages suffered by our client (including but not limited to the difference in resale of the said property, estate agency’s commission and solicitors’ costs).
Yours faithfully,
Chan & Partners
c.c. client
Messrs. Rowland Chow, Chan & Co., Solicitors (Ref. No. RC/19105/02/LMM)
Encl.
”

24.  Over and above this Hentron had kept all of the monies which had been received including the $2 million which had been transferred to them.  They were also demanding the return of the title deeds and the keys and refused to release the duly executed assignment of the property to LHK in accordance with the undertaking given for this to be done.

25.  She understood that part of the monies which they had received had been used to repay the outstanding mortgages on the property.

26.  Ms Chua gave evidence that she had attempted to mitigate the loss she had suffered by renting out the property.  She had been unable to do so on account of the unreasonable conduct of Hentron in not co-operating in any way in letting out the property.  On two occasions she had succeeded in finding prospective tenants who were prepared to enter into Tenancy Agreements.

27.  On each occasion negotiations had fallen down on the subject of renovation work which the tenants had required to be undertaken prior to their entering into the Tenancy Agreements.

28.  The problem which was encountered was that Hentron refused to agree to the renovation work being done.  This was even if the cost was borne by Ms Chua and was to be reimbursed from rent received from the tenants.

29.  The main line of cross examination of Ms Chua was directed towards the restriction in ICBC’s mortgage to the effect that the property was to be occupied by Ms Chua and not rented to other persons.

30.  Ms Chua explained that she was confident that if a tenant was found ICBC would agree to waive the provision and in all probability would charge a slightly higher rate of interest.

31.  Ms Chua issued the writ in 3140/2002 against Hentron as the 1^st Defendant and LHK as the 2^nd Defendant.  Her claim against Hentron was for specific performance of the Agreement and damages or in the alternative for the return of money she had paid together with consequential relief.

32.  The claim against LHK was for professional negligence and or breach of contract.

33.  LHK was the Plaintiff in 2930/2002.  The Defendnat was RCC and Hentron was added as a Third Party.

34.  The basis of LHK’s claim was the breach of RCC’s undertaking as Solicitors in relation to the completion and the joinder of Hentron is self explanatory.

35.  Mr Hui a Director of Hentron gave evidence on its behalf.  He said that he was the person in the company authorised to represent the company’s interests.

36.  Up until the date of completion everything went according to plan.

37.  He had been dissatisfied with the way in which RCC had represented his interests.

38.  They had not agreed to complete the transaction earlier in the day of 21 June as he had requested.  This had been a matter of concern to him as he had drawn a cheque for $4.7 million in favour of his step son Hui Kin Fei and feared that if he didn’t deposit the cheques receivable by Hentron on completion by the time his Bank closed his step son’s cheque might be dishonoured on presentation.

39.  He was also dissatisfied with the way in which RCC had deducted their charges and disbursements which he considered to be excessive.

40.  We then come to perhaps a rather unconvincing part of Mr Hui’s evidence.

41.  He said that he was in his office on Saturday morning 22 June.  He received a telephone call from Miss Law the clerk in RCC dealing with the sale of the flat.  She simply asked if he had deposited the cheques with the Bank which he had received on completion.

42.  He told her that that he had and that he had drawn a cheque which required the use of the funds the subject matter of the cheque.

43.  According to him nothing further was said.  He did not ask why she was telephoning or even whether there was any problem in relation to the cheque.  The explanation he gave for not being in any way concerned or asking why Ms Law had telephoned him was that the cheque he had received was drawn on a Solicitors account and he had had faith that it would be honoured on presentation.

44.  He denied that he had given particulars of his Bank account to Ms Law.

45.  He said that he had been informed on Monday morning 24 June that his Bank Manager Mr Au Yeung was in his office.  Mr Hui himself had been attending a business meeting.

46.  Mr Au Yeung had informed him that the Solicitors cheque for $2 million which he had deposited at his Bank the Hang Seng Bank had been dishonoured on presentation.

47.  Mr Hui had been disquieted by this information.  This was particularly the case having regard to the cheque he had drawn in his step son’s favour.

48.  This had necessitated his seeking temporary accommodation from Mr Au Yeung who had insisted that the matter be resolved during the course of the day.  That is 24 June.

49.  According to Mr Hui, Mr Au Yeung had with the exception of the lunch hour spent the whole working day at Mr Hui’s office.

50.  Mr Hui had immediately spoken to Ms Law of RCC and had remonstrated with her as to how she had allowed such a situation to arise and why his interests had not been better protected.

51.  Following this he had telephoned his former Solicitors Chan & Partners to seek advice on what his rights were in such situation and what action could be taken to protect his interests.

52.  Mr Hui said that later in the afternoon he had been informed by Mr Au Yeung that $2 million had been credited to his account.  As it transpired although this amount had been credited to his account a deduction of $10 had been made by the Bank for processing the transaction.

53.  In addition to this he claimed that he had had to pay interest charges on the accommodation which had been afforded him by his Bank and these charges had been in excess $1000.

54.  What is perhaps of most significance in relation to his testimony is that even after Chan & Partners sent the letter dated 24 June earlier cited in this judgment no attempt whatever was made to reimburse Ms Chua, any of the monies she had paid.

55.  Mr Hui was unable to give any plausible explanation for this.

56.  As will have been seen from the said letter Mr Hui refused to authorise the release of the assignment of the property which he had executed thereby depriving Ms Chua of title to the property.

57.  Mr Hui did not give any satisfactory explanation for not agreeing to work out a compromise which would permit the property to be let to tenants so that the loss which would accrue to the party which was unsuccessful in the litigation between the parties could be mitigated.

58.  He simply maintained that Ms Chua had the keys of the property and if any renovation or repairs needed to be undertaken to the premises she should bear the whole cost.  This seemed to be regardless of the nature of any repairs which prospective tenants indicated that they required before they were prepared to enter into a Tenancy Agreement.

59.  It was definitely my impression that Mr Hui was not a good witness.  He was very evasive and notwithstanding a number of requests to confine himself to relevant matters rambled on at great length on matters having little or no bearing on the issues involved.

60.  There was however one item of evidence which did ring true.  At one stage he said that he really thought in his heart that the property did belong to Ms Chua.

61.  This evidence was in conformity with the line of evidence to the effect that the reason he didn’t want to expend monies on renovation work for tenants was that Ms Chua would be the person who would benefit from this expenditure.

62.  Overall Mr Hui was an erratic witness who contradicted himself on numerous occasions.  I find that I can attach very little credence to most of his evidence.

63.  Over and above this it is difficult to discern any logic in the way that he has conducted himself.

64.  Realistic and generous open offers were made to settle the litigation and these appear to have been rejected out of hand.

65.  Ms Kong the next witness was a Conveyancing Clerk with LHK and was in charge of the relevant purchase under the supervision of Mr Kwan.

66.  It would appear that her actions on 22 June were undertaken mainly at the instigation of Mr Kwan.

67.  Be that as it may completion did take place shortly before 5 pm on 21^st and all the relevant cheques including the cheque for $2 million representing the mortgage advance were passed to the representative of RCC in exchange for the various undertakings and the keys to the property.

68.  On Saturday morning 22 June she received a telephone call from Ms Ada Chan of the Bank of East Asia.  Ms Chan advised her that there may be a problem in what she described as being the crossing of cheques.

69.  She understood this to mean that ICBC’s cashiers order or bankers draft had not been cleared in sufficient time for funds to be available to meet the cheques which had been drawn on LHK’s client account.

70.  Ms Chan suggested to Ms Kong that the CHATS System should be adopted to resolve the problem.  Ms Chan explained that this was an inter Bank procedure whereby one Bank could make an automatic transfer of funds to another Bank so that funds would be available to meet a cheque if it was re-presented.

71.  It would however be necessary to have particulars of the Bank and Branch and account number of the account into which the funds would be transmitted.

72.  It would also be necessary to secure the consent of the Drawee of cheque to the arrangement.

73.  Ms Kong reported this conversation and advice to Mr Kwan.  He instructed her to proceed accordingly.

74.  Miss Kong said that she had two telephone conversations with Ms Law of RCC and a further conversation with Ms Ada Chan.

75.  She claimed that in the first conversation with Ms Law, she informed her of the problem arising from the crossing of the cheques.  She went to explain to her the solution which had been proposed by Ada Chan and asked Ms Law to seek instructions from her client as to whether he would consent to Ms Ada Chan’s proposal and provide details of the account into which the cheque was being paid.

76.  Ms Law said that she would obtain instructions and telephone her back later in the morning.

77.  Later Ms Law did call back and gave particulars of the relevant account.

78.  She immediately informed Ada Chan of this and presented an application form to her to invoke the CHATS procedure.  She kept Mr Kwan informed of developments.

79.  On Monday 24 June Ada Chan telephoned her and told her that the CHATS System had been implemented and funds were being transferred to Hentron’s account.

80.  In the afternoon she became aware of the letter from Chan and Partners.  Also later in the afternoon she was informed that $2 million had in fact been credited to Hentron’s account.

81.  Ms Kong was cross examined at some length.  In particular she was asked questions concerning three attendance notes she claimed she had made contemporaneously with the conversations which had taken place on Saturday morning.

82.  These were very brief and did not go into any detail as to the subject matter of the conversations.  Also it definitely appeared that the date of at least one of the notes had been altered.

83.  In my view the best way of testing what was said between these two ladies is to attempt to reconstruct the overall situation.

84.  It is necessary to also consider her employer Mr Kwan’s evidence on this topic.

85.  It was definitely my impression that Mr Kwan hoped to overcome the difficulties he was facing on 21 and 22 of June by simply resorting to the CHATS formula which had been outlined to Ms Kong.  He appears to have been under the impression that all that was required was to obtain particulars of Hentron’s Bank account and that then all would be well.  This scenario is clearly borne out in the letter which LHK wrote to Chan and Partners on 24 June in response to the letter earlier referred to in this judgment.

“	L. H. KWAN & Co.,
	SOLICITORS
	~~~~~~~~~

Principal	Well on Commercial Building, Floors 1 & 6,		關禮雄律師行
KWAN LAI HUNG M.A., Ph D (London)	No. 60 Wellington Street,	盛安商業大廈一及六樓 香港中環威靈頓街六十號
China-Appointed Attesting Officer	Central, Hong Kong
關禮雄律師
中國委托公証人
Consultant	☎       (852)28779883
KWAN YEE KWONG BA (London), FCISA	FAX  (852)28776738
Notary Public
關義光律師
公証人

Your Ref.      PY-7228-2002
Our Ref.        C287123	Hong Kong     24th June 2002
Messrs. Chan & Partners,	BY FAX (No.28920810)
Units C & D, 7th Floor,	AND BY REGISTERED POST
China Overseas Building,
No.139 Hennessy Road,
Wanchai,
Hong Kong.
(Attn.: Mr. P. Y. Chan)

Dears Sirs,
Re:	Flat A on 2nd Floor and Car Parking Space No. 38 on Ground Floor,
	Hanking Court, Nos. 43-49 Cloud View Road, Hong Kong.
We are in receipt of your letter of 24th instant.  We are surprised at your allegations and demands/claims therein, which are totally unwarranted.
On the date of completion, that is, 21st June, 2002, funds for the payment of the balance of the purchase price, that is, $6,282,000.00, were made available and we, to suit the Vendor’s instructions on splitting of cheques, made out 6 cheques as per the schedule annexed hereto.
The transaction was duly completed on 21st June, 2002 with the deposit of the said cheques with the Vendor’s solicitors in return for the collection of keys to enable the purchaser to take possession of the property.
You have by your letter of 24th instant shown us the copy “Unpaid Item Memo” purporting to be from the paying bank to the collecting bank.  As neither we nor the purchaser were makers of this instrument, we are in no position to comment on the effect of Item No.3 therein.  Our general thinking through conveyancing practice is that when a paying bank marks such an item, it is not devoid of the fund as represented in the cheque.  However, regrettably this banking snag happened on a Friday/Saturday scenario where banks may be insensitive or over-sensitive on flow of funds.
When we realised from the paying bank that such a transitional period, be it in a matter of minutes or a couple of hours, we sought and obtained the consent of the Vendor’s solicitor relevant information on the Vendor’s collecting bank and bank account.  This was to forestall any risk of any banking procedure to hold up payment on the said cheque, especially in view of the imminent weekend.  On Saturday 22nd we immediately instructed our paying banker to remit by the CHATS system to the collecting banker to ensure that the fund should go to the ultimate destination account without fail.
The amount on the said cheque was long credited to Hentron Investments Limited on Account No.278-155288-001 with Hang Seng Bank Limited, the Vendor’s collecting bank.
We are convinced that the transaction was duly completed on 21st inst without appreciable mishap.  We would therefore refute your letter of 24th instant in its entirety.
Yours faithfully
L. H. Kwan & Co.
c.c.  client
M/s. Rowland Chow, Chan & Co.
DK/HK/ic
”

86.  There is no reference in this letter to an agreement being struck between the respective Law Clerks that the Hentron would accept an alternative means of payment.

87.  I was also concerned about the inconsistency of Ms Kong in making attendance notes.  Mr Manzoni for RCC was able to draw her attention to several important telephone conversations where she had not prepared attendance notes.

88.  Where there is a conflict of evidence between Ms Kong and Ms Law I much prefer the evidence of the latter.  She may have been somewhat vague but the fact of the matter appears to be that she was not particularly concerned with the position as she did not appear to take on board the fact that her firm may be facing a situation where a large part of the purchase moneys may be in default.

89.  The consequence of all of this is that I do not accept that there was any agreement express or implied that Hentron would accept an alternative mode of payment of part of the purchase price.

90.  Mr Kwan, a Solicitor with 20 years experience gave evidence of his involvement in this matter.

91.  Ms Chua had been his client for some time.  She gave instructions to him for the purchase of the property on 22 May 2002.  She had applied to ICBC for a mortgage loan of $2 million which they had agreed to.  He also received instructions from them to represent their interests in the matter.

92.  Mr Kwan said that he had not previously acted for ICBC and was not familiar with their practices and procedure.  He was however aware of the condition which they imposed that the drawdown of the advance would only be made on the day when completion of the purchase took place.

93.  Under the Agreement completion was to take place on 21 June 2002 and as was normally the case time was to be of the essence of the contract.

94.  Two matters are immediately apparent in relation to the conduct of this purchase.

95.  The first is that to a noticeable extent almost everything was left to the last moment.

96.  The second was that Mr Kwan delegated almost everything to his Conveyancing Clerk Ms Kong.

97.  Mr Kwan gave evidence that it was not until 20 June that he submitted the formal application and documentation to ICBC for the $2 million.

98.  Notwithstanding the fact the payment would not be made until 21 June he decided to opt for the payment to be made by a Banker draft drawn by ICBC in favour of his firm.

99.  This was a surprising decision as a Banker draft has to be cleared in a similar manner to a normal cheque.

100.  He agreed that he had not applied for a direct transfer of the moneys.

101.  The Bankers draft was received by his firm at about 12.40 pm on the 21^st and immediately was paid into his account at the Bank of East Asia.

102.  Mr Kwan said that he realised that there may be a problem in that if normal Banking practice was adhered to and the vendor of the property immediately presented a cheque drawn on his client account there may not be funds available to meet the cheque.

103.  He agonised over this problem for over an hour.  Notwithstanding this he did draw a cheque in favour of Hentron for $2 million on the client account.

104.  He said that he assumed that as his firm had been a customer of the Bank for 15 years the Bank would alert him if there were insufficient funds and give him an opportunity to make good his firm’s cheque.

105.  Completion took place on the basis of Solicitors undertakings shortly after 4.30 pm.  It has to be said that if completion had been delayed until almost 5 pm, the time stipulated in the Agreement, it is possible that Mr Hui would have been unable to present the cheque on 21 June and this whole problem might have been avoided.  However it wasn’t.

106.  Mr Kwan came into the office on Saturday morning.

107.  At about 9.50 am he was informed by Ms Kong that there might be a problem in relation to the $2 million cheque due to what she described as being crossing cheques over the weekend.  Ms Ada Chan of BEA had suggested that one solution to the problem would be to invoke the CHATS procedure which was a scheme whereby inter Bank transfers could be made.  For this to be done it was necessary to provide details of the Bank account of the Transferee of the payment.  Clearly also the consent of the Account holder would also be required.

108.  Very surprisingly Mr Kwan did not himself attend to this serious problem.  He told Ms Kong that he agreed to the CHATS System being adopted and instructed her to take the necessary action to obtain the requisite details and lodge an application with BEA.  As has been made clear in Ms Kong’s evidence she had the relevant conversations with Ms Law at RCC and Ada Chan.  He was unable to give any first hand account as to what exactly was said and done.

109.  As I have already indicated I do not believe that the consent of RCC was ever obtained to any alteration of the payment requirements laid down in the Agreement.

110.  It may well be the case that on account of the clear terms of the Agreement Mr Kwan was reluctant to make a request of this nature to RCC feeling that they may refuse and that this could lead to further problems.  It may be that he just hoped that Hentron would accept the position when the transferred funds found their why into their account.

111.  A further important matter was that Mr Kwan did not keep Ms Chua informed of developments thus depriving her of herself taking remedial measures to rectify the situation.  She had given credible evidence that in all probability she could have done so.

112.  For the reasons which will be given later in this judgment I have no doubt that Mr Kwan was guilty of professional negligence.

113.  Ms Law a Conveyancing Clerk with RCC gave evidence on her Employer’s behalf.

114.  She was the Clerk in charge of the Conveyancing transaction for the sale of the property on behalf of Hentron.

115.  She said that at about 10 am on Saturday 22 June she received the telephone call from Ms Kong the Clerk acting for the Purchaser of the property.

116.  She told her that there was a problem in relation to crossing cheques.  As a consequence of this the cheque for $2 million which LHK had given to the vendor the previous afternoon may be dishonoured on presentation.

117.  Ms Kong suggested that if this happened the cheque should be represented for payment and in such an event the cheque would then be honoured.  She did not however specifically suggest that she should seek instructions from her client.

118.  Later on Saturday morning there was another telephone call from Ms Kong.  This time she asked for particulars of the account number of her client.  The reason she gave for making this request was that she wanted to monitor the progress of the cheque.  Ms Law said that she would seek her client’s instructions on this.

119.  She did this.  She informed Mr Hui that she had received the telephone call from the Solicitors representing Ms Chua and that there were some problems in relation to the cheque for $2 million which he had received yesterday.  The clerk wanted to know into which Bank he was depositing the cheque and the account number so that LHK could monitor the progress of the cheque.

120.  She asked if he had deposited the cheque in the same account as had been used previously and he answered in the affirmative.

121.  He went on to request her to follow the matter up as he had already drawn cheques on his account which was based on the assumption that the cheque would be met.

122.  She had reported this back to Ms Kong and asked her to follow the matter up as Mr Hui had drawn cheques to a third party on the assumption that the moneys were in the account.

123.  She gave the account number to Ms Kong.

124.  When she heard on 24 June that the cheque had bounced and Mr Hui was complaining about the matter she suggested that he should speak to her Boss Ms Bella Cheung.

125.  She was cross examined at some length on all of this.  She insisted that at no time was the question of CHATS or special clearance of cheques discussed with Miss Kong.  Also there was no question of her being asked to seek the client’s consent to any arrangement.

126.  Although she was a rather vague lady it was definitely my impression that she was an honest witness.  I do not think that she had thought matters through but I believe that there were no discussions about alternative measures being taken.  I also believe that Mr Hui did authorise her to give Ms Kong particulars of his Bank account.

127.  Ms Bella Cheung who was a Solicitor with RCC gave evidence.  Her evidence was largely in conformity with Ms Law’s.

128.  It was my impression that she was a rather “hands off” supervisor of Ms Law and left her mainly to her own devices.

129.  She remembered being told by Ms Law of the problems which might arise in relation to the cheque.  She was not perturbed by the fact that Ms Law had given Mr Hui’s Bank account particulars to Ms Kong as Mr Hui had authorised this.

130.  She does not appear to have been much concerned by the situation and when it became apparent that litigation was likely to ensue she had passed the file to the litigation department.

131.  Approximately 6 months after the events in question she had left RCC’s employment and was now working as an In House Lawyer with a company.

132.  The next matter which has to be considered is whether on the evidence as I have found it the completion which took place at 4.30 pm on Friday 21 June was an effectual completion of the transaction.

133.  Mr Manzoni directed my attention to a succinct and relevant commentary on the legal effect and consequences of payments made by cheque in the reference work by Brindle and Cox ‘Law of Bank Payments’ 3^rd Edition London Sweet and Maxwell 2004.

134.  At p.623 it has this to say

“(4)   When is the underlying debt owed by the debtor to the creditor discharged?

The question is when the payment of the debt due from debtor to creditor by means of a cheque is final.  As will be seen there is a difference between the actual date when the payment becomes final, and the date with effect from which the payment is recognised as final.

Generally speaking all questions relating to payment of a sum of money in pursuance of a contract depend on the construction of the terms of the contract.  In the context of payment by cheque there are four main principles of central importance.  First, the payment must be by the debtor or someone (a paying bank) authorised on his behalf.  Secondly, the payment must be to the creditor or someone (a collecting bank) authorised to receive payment on his behalf.  Thirdly, the payment must be unconditional.  Fourthly, although payment of the cheque is not final until it clears (or is otherwise paid), provided it does so it is recognised as final from the date the cheque was delivered or accepted.”

135.  It goes on on the next page to say

“(c)   Was payment by the paying bank to the collecting bank unconditional?

There is usually no guarantee that a cheque will be paid on presentation.  As a result the courts are reluctant to conclude that before learning the fate of the cheque the drawer has agreed with the payee to discharge the underlying debt.  Accordingly where a debtor submits a cheque for the amount of the debt to the creditor, payment (in the sense that the obligation of the collecting bank, after collecting the proceeds of the cheque, to the creditor is accepted in substitution for the debt owed by the debtor) will not generally occur unless and until the cheque has been cleared.  Indeed, there is a presumption to this effect.

Further, if the cheque is not honoured, the creditor will have a claim on the cheque in addition to the claim for payment under the original contract.  Generally speaking, the claim on the cheque will be more useful since it is not open to the debtor to raise a counterclaim and set off based on breach of the underlying contract as a defence to such a claim on the cheque.  It is possible to rebut the presumption and to show that the cheque was submitted as absolute payment so that the payee took the risk of the cheque not being met on presentment.  Clear terms of the contract would probably be needed for such a conclusion.”

136.  I accept that this is a correct statement of the Law.  I also accept that it is necessary to have regard to the terms and conditions stipulated in the Agreement.

137.  Clause 2 of the Agreement provides for this and is in this form.

“CONSIDERATION

2.(a)    The purchase price shall be such sum (“the Purchase Price”) and shall be paid and satisfied by the Purchaser in such manner as set out in Schedule 5 and such payment shall be effected by cashier order(s) issued by a licensed Bank in Hong Kong or cheque(s) issued by a solicitors’ firm in Hong Kong in favour of the Vendor (or as he may direct) for the relevant amount.”

138.  The operative words here are “and satisfied”.  There can be no doubt that the mere tendering of a cheque was not sufficient to discharge this obligation.  It was also necessary that the cheque should be honoured on its presentation.

139.  The consequence of this is that I find that completion did not take place according to the terms of the Agreement.

140.  The Court of Appeal considered the mechanics of a completion in Plus Lucky Limited v Chiu Yuk Lun and Another 2002 3 HKLRD 199.  Mayo VP and Sakhrani J had this to say at 203.

“26.   Sir John Swaine, who represented the plaintiff, informed the Court that he was not seeking to reverse any findings of fact which had been made by the Judge.  What he was seeking to do was to demonstrate that upon the findings of the Judge, the appeal should be allowed.

27.    Sir John placed heavy reliance upon the case of Edward Wong Finance Co Ltd v Johnson Stokes & Master [1984] AC 296 in support of the proposition that there must be mutuality on a completion.  Put another way it was not open to a party to demand that the other party should perform its obligations under the contract before doing so itself.

28.    In the context of the present case, he argued that while it was true that the Judge had found that Ms Ma had never produced any of the original cashier orders and had placed reliance upon Photostat copies, the defendants’ solicitors should not have made the demand they had without at the same time tendering to Ms Ma a duly executed assignment of the property together with any other relevant title deeds.

29.    It was submitted that the defendants had founded their defence on a false premise.

30.    They had proceeded upon the basis that cl.5 of the sale and purchase agreement should be interpreted literally without regard to the legal principles propounded in Edward Wong Finance Co Ltd v Johnson Stokes & Master [1984] AC 296.  The relevant clause in the agreement in that case was similar to cl.5.

31.    Clause 5 reads:

On payment of the whole of the purchase price at the time and in manner aforesaid, the vendor as beneficial owner shall execute a proper assignment to the purchaser or his nominee(s) or sub-purchaser(s) subject only as hereinafter mentioned but otherwise free from incumbrances.

32.    We have no doubt that Sir John’s analysis of the law as set out about is correct.”

141.  Mutuality in the context of the present case means that the undertakings which were given by RCC on completion were discharged by LHK’s failure to make payment of the purchase price as stipulated.  Incidentally it is apparent from the undertakings themselves that they are dependant upon the purchase price being paid.

“	L. H. KWAN & Co.,
	SOLICITORS
	~~~~~~~~~

Principal	Well on Commercial Building, Floors 1 & 6,		關禮雄律師行
KWAN LAI HUNG M.A., Ph D (London)	No. 60 Wellington Street,	盛安商業大廈一及六樓 香港中環威靈頓街六十號
China-Appointed Attesting Officer	Central, Hong Kong
關禮雄律師
中國委托公証人
Consultant	☎       (852)28779883
KWAN YEE KWONG BA (London), FCISA	FAX  (852)28776738
Notary Public
關義光律師
公証人

Your Ref. RC/19105/02/LMM
Our Ref. C287123	Hong Kong    21st June 2002
Messrs. Rowland Chow, Chan & Co.
15th Floor, Wing Lung Bank Building,
No.45 Des Voeux Road Central,
Hong Kong.	(Attn.: Ms. Esther Law)

Dear Sirs,
Re:	Flat A on 2/F. and Car Parking Space No.38 on G/F.,
	Hanking Court, Nos.43-49 Cloud View Road, H.K
	On behalf of our client and in order to complete the purchase of the above property today, we enclose herewith the cheque(s) for the total sum of HK$6,282,000.00 representing the balance of the purchase money as set out in the Schedule attached hereto payable to complete the purchase of the said property and to obtain possession thereof.
1.	The said cheques are sent to you against your firm’s personal undertaking (which is however subject to the usual Law Society qualification) :
2.	To send to us within seven(7) working days after the date of your receipt of this letter:-
	(a)	The enclosed Assignment of the above property duly executed by your client, the Vendor (who must be properly identified) and attested; and
	(b)	If the Assignment is executed by the Vendor otherwise than in accordance with Section 20 of the Conveyancing and Property Ordinance, a certified copy of the Vendor’s Board Resolutions authorizing the execution of the Assignment and specifying the mode of execution.
2.	To send to us within 21 days from the date of your receipt of this letter:-
	(a)	(If applicable) An apportionment account in respect of the above property showing the balance due from or payable to our client an in the event of any money being payable by your client to our client as per such apportionment account to arrange a remittance of the amount so payable to us.  Conversely should there be a balance payable by our client to your client subject to the apportionment account being verified and agreed we will arrange a remittance of the amount so payable to you or your client;
	(b)	Mortgage Memorial No.5750057 and Second Legal Charge Memorial No.6264559;
	(c)	Discharge(s)/Release(s) of the existing Mortgage and Second Legal Charge together with the Memorials thereof duly completed and signed and the registration fee therefore (together with the signed memorandum of satisfaction or the said Discharge(s)/Release(s);
	(d)	If the said Discharge(s)/Release(s) is/are to be executed by an attorney a certified copy of the relevant Power of Attorney and if such Power of Attorney is given more than 12 months ago, a Statutory Declaration by your client pursuant to Section 5(4) (b) of the Power of Attorney Ordinance or a Confirmation Letter from the Mortgagee confirming that the said Power of Attorney was valid as at the date of the said Discharge/Release;
3.	To deliver to bearer hereof forthwith the keys of the above property or necessary written authority to collect the keys so that possession can be taken without delay.
4.	To be responsible to pay to us any additional registration fee which may be imposed should the said Discharge(s)/Release(s) sent to us for registration as aforesaid be stopped or withheld from registration for any reason whatsoever.
	As the undertaking follows strictly the draft form of undertaking approved by you and the amount sent is exactly as per your letter your undertaking will be deemed given.
	In the meantime and subject as aforesaid you may present the said cheques for payment.
	Kindly acknowledge receipt by signing and returning to us the attached duplicate of this letter.
Yours faithfully,
L.H. Kwan & Co.
Encl.
HK/ic
S c h e d u l e
1.	HK$1,269,044.52 in favour of Hang Seng Finance Limited for the account of Hentron Investments Limited being redemption money;
2.	HK$50,000.00 in favour of Ricacorp Properties Limited being their commission;
3.	HK$2,325.41 in favour of Chua Ming Yuen being settlement of the apportionment account;
4.	HK$8,595.00 in your favour being your costs and disbursements; and
5.	HK$4,952,035.07 in favour of Hentron Investments Limited being balance of purchase price.

142.  Also I am satisfied that at approximately 11 am on 24 June it was open to Hentron to repudiate the contract.  As will have been seen this is what they did.

143.  However $2 million was credited to Hentron’s account at the Hang Seng Bank sometime in the afternoon of 24 June.

144.  Notwithstanding repeated requests Hentron have failed to return these moneys to either Ms Chua or LCK.

145.  Having considered the evidence of Mr Hui and in particular having regard to the fact that no plausible or convincing justification has been advanced to justify the retention of all of the moneys I have come to the conclusion that Hentron did affirm the contract.  This is also consistent with Mr Hui’s evidence to the effect that in  his heart he knew that Ms Chua had bought the property.

146.  The only other matter in this connection is the alleged shortfall of ￡10 in the amount received by Hentron.

147.  The answer to this is simple.  $2 million was paid into the account.  The Hang Seng Bank who were Hentron’s Bankers made the deduction for the services they had rendered.  This was not a matter which affected LHK.

148.  Ms Chua is entitled to specific performance of the Agreement and I so order.

149.  Hentron’s failure to furnish Ms Chua with the duly executed assignment constitutes a breach of contract for which damages are payable.

150.  It was Ms Chua’s intention all along to rent the property for investment purposes.  Her attempts to do so were frustrated by Mr Hui’s intransigence.

151.  Miss Lisa Wong who represented Ms Chua has helpfully set out in her submissions the damages which should be payable which I agree are reasonable.

152.  Hentron has agreed that the open market rental value of the property in June 2002 was $27,000 per month.  The said market value in July 2004 was $33,700 both exclusive of managements fees and rates.

153.  Assuming the property was rented out in September 2002 for 2 years at $27,000 and that the Tenancy was renewed in September 2004 at $33,700 per month, the total rent which would have been received by Ms Chua would have been $782,800. ($27,000 x 24 + $33,700 x 4)

154.  The Tenants would have paid $61,600 by way of management fees and $30,378 by way of rates and Government taxes leading to a total of $91,978.  Ms Chua is entitled to damages of $782,800 and $91,978.

155.  Ms Chua is also entitled to interest at the rate of 1% above prime lending rate on these amounts from 1 September 2002 up to the date of this judgement and thereafter interest at the judgment rate until payment.

156.  Hentron’s counterclaim is dismissed.

157.  The next matter to be considered is the claim being made by LHK against RCC in action number 2930/2002 for non compliance with the undertaking s RCC gave on completion.

158.  Hentron was joined as a Third Party.  RCC complained that it was as a consequence of the activities of Hentron that they were unable to implement the undertakings.

159.  In a similar manner a 4^th party notice was issued by RCC against Hentron in 3140/2002.

160.  It is implicit from my earlier findings in this judgment that the undertakings fell away consequential upon the failure of LHK to pay the purchase price as stipulated in the Agreement.  RCC was accordingly justified in the stance they took that it was not incumbent upon them to implement the undertakings.

161.  As a result of the finding that Hentron affirmed the contract RCC must deliver the title deeds including the duly executed assignment to Ms Chua or her present Solicitors.

162.  As the reason for the failure to deliver the assignment to Ms Chua flowed from the wrongful instructions of Hentron the 3^rd and 4^th party proceedings issued by RCC were well founded and they are entitled to relief which they were seeking and namely an indemnity for any loss or damage they suffered as a result of Hentron’s action.  In the circumstances of this litigation this may be limited to costs which have been incurred.

163.  Finally there is the question of the claim which Ms Chua is making against LHK for professional negligence.

164.  I accept that the classic formulation of the test for determining whether or not a Practitioner has been guilty of professional negligence is the test laid down in Midland Bank Trust v Heet Strubbs and Kemp 1979 CH 384.  I agree with the submission made by Miss Lisa Wong that this boils down to a duty which LHK owed to Ms Chua to exercise that reasonable degree of skill and care to be expected of a competent and reasonably experienced Solicitor.  This is equated to what a reasonably competent practitioner would do having regard to the standard normally adopted in his profession.

165.  While the focus of the complaints made by Ms Chua relate to what LHK did or did not do on 21 and 22 June 2002 it is necessary to also consider briefly the context of the dilemma Mr Kwan found himself in on 21 June.

166.  I have no doubt that these difficulties were largely attributable to his leaving important matters outstanding until a very late stage.

167.  No satisfactory explanation was forthcoming as to why the outstanding matters required by ICBC were not dealt with much earlier on.  LHK had received their instructions from ICBC almost a month earlier.

168.  If Mr Kwan was unfamiliar with ICBC’s requirements he had more than ample opportunity of seeking and obtaining clarification on any requirement which may have occasioned him difficulty.

169.  It must have been transparently obvious to Mr Kwan in the afternoon of 21 June that in the circumstances which prevailed there was a grave and unacceptable risk that if he drew a cheque for $2 million on his firm’s client account funds would not be available to meet the cheque and that it might therefore be dishonoured.

170.  It must also have been obvious to Mr Kwan that the consequences of the cheque being dishonoured may be disastrous for his client.

171.  He must be deemed to be aware of the terms of the Agreement and in particular clause 2.

172.  If the cheque was dishonoured it would almost certainly be the case that the payment requirements contained in clause 2 would not have been complied with thus giving Hentron the opportunity if they wished so to do to repudiate the contract.

173.  In passing it only needs to be said that in numerous cases parties to Conveyancing transactions have seized upon much more slender pretexts to attempt to absolve themselves from engagements they have come to rue.

174.  In this situation it was imperative that Mr Kwan should take whatever action was open to him to prevent a situation arising where Ms Chua would be placed at the mercy of Hentron.

175.  There were a number of possible solutions to the dilemma Mr Kwan found himself in.

176.  Perhaps the most simple would have been a telephone call to Ms Ada Chan of BEA requesting her to provide temporary accommodation to enable the cheque on the client account to be cleared.  After all according to Mr Kwan his firm had been a customer of the Bank for 15 years.  Over and above this Ms Ada Chan could have been informed that he had lodged ICBC’s Bankers draft for $2 million on that day.

177.  Mr Kwan also gave evidence that he has personal resources which would have enabled him to transfer the necessary funds to BEA should his request to Ada Chan have been unavailing.

178.  Also of course if he had applied any foresight he could have forestalled the whole situation if he had requested ICCB to arrange for a inter Bank transfer in the first place.

179.  Over and above all of this he could have acquainted Ms Chua of the situation he had found himself in thus providing her with the opportunity of herself taking whatever remedial measures may be required to ensure that clause 2 of the Agreement was complied with.

180.  The fact of the matter is that Mr Kwan did none of these things.

181.  He might also have been able to alleviate the situation by instructing his staff not to attend at RCC’s offices until shortly before 5 pm thus reducing the likelihood of Hentron presenting the cheque for payment to their Bankers on 21 June.  It is true that this might not have saved the situation.

182.  The situation went from bad to worse on the morning of 22 June.

183.  When he was informed that there might be a problem with the cheque Mr Kwan made the disastrous decision to go along with Ms Ada Chan’s proposal to instigate the CHATS procedure involving an inter Bank transfer.

184.  Even at this late stage it would have been open to Mr Kwan to request Ada Chan for the necessary temporary accommodation but he did not do so.

185.  What is perhaps even more surprising is that when faced with this serious situation he placed reliance upon his Conveyancing Clerk Ms Kong to liase with RCC to obtain the necessary particulars of Hentron’s Bank account.

186.  As a consequence of his decision to delegate this responsibility to Ms Kong he was in no position to have first hand knowledge of what was or was not agreed by RCC or whether their client had agreed to a variation of the payment requirements under the Agreement.

187.  As I have indicated earlier in this judgement I do not accept that there was any discussion between Ms Kong and Ms Law on the question of the variation of the terms of the Agreement.

188.  I have no doubt when considering overall what Mr Kwan did and did not do on 21 and 22 June 2002 the standard of skill and care exercised by him fell woefully short of the standard required of a reasonably competent solicitor.  This being the case Ms Chua has succeeded in proving that LHK is guilty of professional negligence.

189.  The damage which Ms Chua has suffered was reasonably foreseeable and is thus recoverable.

190.  There is a further element here which has to be considered.

191.  During the course of Mr Hui’s cross examination it became clear that Hentron is just a shell company and that it has now divested itself of any substantial assets.  This being the case it is almost certain that any judgment or order made against the company will be unenforceable.

192.  CW Dixey & Sons Ltd v Parsons unreported being 192 EG197 1964 EGD 454 being a case heard in the Queens Bench Division in London is authority for the proposition that a solicitor should save his client from the obvious risk of litigation.

193.  I am of the view that the interests of justice require that if Ms Chua is unable to satisfy the judgment in her favour LHK should indemnify her for the loss she incurs and I so order.

194.  This leaves the question of costs.  I make an order nisi in HCA 3140/02 that Ms Chua is to have her costs which will be borne by Hentron.  This includes the cost of the counterclaim.  In the event that she is unable to recover these I order that LHK is to make good any shortfall there may be.

195.  I make an order nisi in 2930 of 2002 that RCC will have their costs and these will be borne by LCH.  The rationale for this being that LCH commenced this action against RCC.

196.  In conclusion I would like to express my appreciation for the very considerable assistance I received from all counsel.