Chen Fenglan v. Kao, Lee & Yip, Solicitors (A Firm)

DCCJ 217/2019

[2022] HKDC 1317

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 217 OF 2019

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Before:  His Honour Judge KC Chan in Court

Dates of Hearing:  5-7 September 2022 and 20 October 2022

Date of Judgment:  14 November 2022

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JUDGMENT

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1.In this action the plaintiff claims against the defendant firm of solicitors (“KLY”) based on professional negligence and breach of contract and seeks damages in the amount of the Buyer’s Stamp Duty assessed by the Collector of Stamp Revenue (“the Collector”) at HK$106,500 but netting the amount of the intention money of HK$2,500 paid to the Hong Kong Housing Authority (“HA”).

2.At trial, the plaintiff was represented by Ms Josephine Tjia and KLY by Mr Justin Lam, both of counsel. The plaintiff was the only witness for her case, while a partner of KLY, Ms Li Wing Yin Amy (“Li”), and a Legal Executive Ms Fung Pui Yee Judy (“Fung”) were witnesses for KLY.

The background, undisputed facts and facts I find

3.The following are undisputed or not seriously disputed, unless otherwise noted. As the disputes of fact are few, it would be convenient for me to indicate my findings along the way of the narrative.

4.In 1998, HA launched the Tenants Purchase Scheme (租者置其屋計劃)(“TPS”) providing an opportunity for public housing tenants to acquire their rented flats at affordable prices. TPS proceeded in phases.

5.In June 2005 and after a successful tender, KLY was appointed by HA to handle the conveyancing work for flats sold under TPS Phase 6B. The appointment, as things developed, also included handling the conveyancing work for flats in Tung Tau (II) Estate (“the Estate”) sold under TPS Phase 5.

6.On 26 October 2012, the Financial Secretary made an urgent announcement[1] (“the Announcement”) introducing a new round of property market demand side management measures which, relevant to this action, included the measure that residential property acquired by a Hong Kong non-permanent resident on or after 27 October 2012 would be chargeable, on top of the existing ad valorem stamp duty, with a Buyer’s Stamp Duty at the rate of 15% on the stated consideration or the market value of the property (whichever is higher) (“BSD”). It was also announced there that the necessary amendments to the Stamp Duty Ordinance would be introduced to the Legislative Council as soon as possible.

7.The Announcement was then widely publicized by the media in Hong Kong. I accept the plaintiff’s evidence, and find, that the plaintiff had not paid any attention to those media reports as she and her husband Mr Kwok Chiu Tung (“the Husband”) at the time were in no position financially to purchase any property.

8.By a letter of the same date, ie 26 October 2012 (“the IRD Letter”), the Inland Revenue Department wrote to the Law Society of Hong Kong setting out further details of the proposed amendments and procedures for stamping in relation to the announced BSD. Of note is that (a) it was said that in respect of chargeable agreement for sale executed between 27 October 2012 and the date the new legislation would be enacted, the payment of the BSD would only be required after, and specifically within 30 days, the new legislation had been enacted, and (b) a purchase of a public housing unit under TPS by a non-permanent resident was not among the list of exemptions. The Law Society forthwith circulated the IRD Letter to its members for their information, and KLY did receive the same.

9.However, the relevant legislative amendment, namely Stamp Duty (Amendment) Ordinance 2014[2], was enacted only a year and 4 months later on 27 February 2014.

10.In the meantime and in December 2012, the plaintiff’s family was allocated with a public housing unit, namely Flat No. 08, 3^rd Floor, Yat Tung House of the Estate (“the Flat”). The Husband was the tenant of the Flat, while the plaintiff and their two young sons were the family members registered to occupy the Flat with the tenant[3].

11.The plaintiff was born in the PRC in 1981 and was educated there up to secondary school. She was married to the Husband in 2004. She emigrated to Hong Kong to reunite with the Husband in 2010. The Husband has always been a Hong Kong permanent resident while the plaintiff at the material time was not.

12.Having learnt of TPS, and by a 認購申請書 in standard form in Chinese dated 17 October 2013[4] (“the Application Form”), the plaintiff as purchaser applied to HA to purchase the Flat under TPS. The plaintiff paid a sum of HK$2,500 as intention money. It is the plaintiff’s allegation that she and the Husband did enquire with a HA staff on that occasion as to whether there was a difference between naming her and naming the Husband as the applying purchaser, and she was told that there was no difference. The couple then decided to name the plaintiff as the purchaser. HA denied that its staff had so told the plaintiff in answer to the formal complaints lodged by the plaintiff later on[5]. As HA is not a party to this action and even though KLY did not (and could not) seriously dispute this allegation, I make no finding thereon.

13.By HA’s letter in Chinese dated 6 December 2013[6] (“the Acceptance Letter”), the plaintiff’s application to purchase the Flat under TPS was accepted. In the Acceptance Letter, it was expressly stated, among others, that

“在到律師樓簽立轉讓契據時，你需繳交下列款項：

樓價餘款： 港幣＄311,300

樓價餘款必須以本票繳付，受款人為「香港房屋委員會」。你亦需繳付印花稅，暫定為 [港幣$100] ，實際應繳款額以屆時稅務局印花稅署的徵收額為準。

如有上述查詢，請與本處職員聯絡。”

14.In paragraph 9 of her witness statement, the plaintiff did not dispute that she was made aware by the Acceptance Letter that the amount of HK$100 was the provisional sum for stamp duty and the actual amount of chargeable stamp duty would be the amount later assessed by the Collector. I so find.

15.The plaintiff then decided to also engage HA’s solicitors, namely KLY, instead of engaging another firm of solicitors, to act for her to complete the conveyance. By so doing, it would save her not insubstantial legal costs as KLY was bound by the term of engagement between HA and KLY to only charge the plaintiff profit costs at the standard rate, which was a fixed sum of HK$394[7]. It is not seriously disputed that at the time the plaintiff knew about the amount of the legal costs to be charged by KLY. The plaintiff then contacted Mr Ray Li, a clerk of KLY (“Ray”).

16.It is the plaintiff’s case, and agreed to by KLY, that the plaintiff has not engaged KLY to give any advice on the purchase, whether generally or specifically regarding any tax or stamp duty issues, or on any other matter. The plaintiff merely engaged KLY to complete the sale and the conveyance.

17.At this juncture, I would particularly note these two common grounds :

(a)  Pursuant to clause 6 of the Application Form, upon HA’s acceptance by the Acceptance Letter, a binding contract for HA to sell and for the plaintiff to purchase the Flat was already concluded (“the Contract”).

(b)  It is KLY’s contention, not disputed by the plaintiff, that upon the Contract being so concluded, the plaintiff was liable to pay BSD thereon.

18.On 13 December 2013, HA faxed to KLY the Daily Approved Offer Report as at 6 December 2013[8]. According to the evidence of Li and Fung, which I accept and find, (a) this report contained all the necessary information for the purpose of completing the sale and purchase of the Flat, such as the address, the initial market value, the list price and sale price of the Flat, the full name and HKID number of the plaintiff and such, (b) and this report was the only document HA sent to KLY regarding completion of this sale. The report also contained a column stating, among others, that “STAMP DUTY PAY. ($)” was “100”. It did not contain any information about whether the plaintiff was married, about whether she was the tenant of the Flat, about the Husband or about any family members (if any) that were residing with the plaintiff in the Flat.

19.To finance the purchase, the plaintiff took out a mortgage with Hang Seng Bank to be secured by a Legal Charge on the Flat. Regarding the Legal Charge, KLY acted for Hang Seng Bank only, and not for the plaintiff.

20.The plaintiff says that she and the Husband visited KLY’s office in about mid December 2013 and that in the visit Ray took a copy of the Husband’s HKID card. KLY disputes that and says that the plaintiff only visited KLY’s office once on 2 January 2014 to execute the Assignment and the Legal Charge.

21.Concerning this dispute, I accept the plaintiff’s evidence and find for her version for the following reasons :

(a)  According to Li and Fung, it was only Ray who liaised with the plaintiff by phone and did the preparation work concerning the Assignment and Legal Charge. Ray resigned from KLY in 2015. Li and Fung in fact have no personal knowledge on the matter and their evidence that there was no such visit was given based on the fact that there was no clear record of the visit on KLY’s case file. However, it was not entirely clear or sure that Ray would as a matter of course have made a record of every visit on the file.

(b)  As mentioned, KLY only received by fax from HA the Daily Approved Offer Report. It therefore seems to me highly probable that KLY, in acting for Hang Seng Bank, would require the plaintiff to bring along the documents sometime before the actual execution of the Legal Charge, for the purpose of processing and preparing it beforehand.

(c)  I think it highly improbable that the plaintiff would invent and lie about the existence of a visit that in fact never took place, as she would not have known what evidence KLY might or might not have to rebut it.

22.On 2 January 2014, the plaintiff attended KLY’s office to sign the Assignment and the Legal Charge. She was attended by Fung who explained the Assignment and the Legal Charge and witnessed their execution by the plaintiff

23.It is not disputed by KLY that upon being shown the plaintiff’s HKID card, Fung would have noticed that she was not a Hong Kong permanent resident and that according to the Announcement and the details given in the IRD Letter, BSD would be chargeable and this sale would not be exempted, and therefore the plaintiff would be liable to pay the same in due course.

24.It is also not disputed by KLY that neither Fung nor anyone from KLY has ever informed the plaintiff that BSD was chargeable and she would be liable to pay the same later on.

25.On that same occasion, Fung received various payments by the plaintiff, including HK$1,203.50 in settlement of KLY’s bill no 187227 regarding the Assignment (HK$394 profit costs, HK$479.50 for certified copies, HK$230 for registration fee and HK$100 for stamp duty) and HK$1,960 in settlement of KLY’s bill no. 187228 regarding the Legal Charge.

26.In paragraph 15 of the plaintiff’s witness statement, the plaintiff said that when she received KLY’s bill no. 187227 she asked Fung several times whether the stamp duty payable was HK$100 only, and that Fung answered her clearly that the stamp duty payable for the purchase of the Flat was only HK$100, thus

“… 那時，本人再三詢問印花稅是否只是港幣＄100 元，該馮小姐清楚告訴本人,購入該單位所涉及的印花稅為港幣$100元。…” (my emphasis)

27.By the part of the above quote I underline, the plaintiff now says that Fung gave clear advice or information that the final amount of stamp duty chargeable for the transaction was HK$100. This is disputed by KLY. Fung’s evidence was that the plaintiff had not specifically asked about the amount of stamp duty and indeed there was no conversation between them regarding stamp duty, except that she has explained to the plaintiff the contents of KLY’s bill no. 187227, and therefore that HK$100 was received by KLY for the purpose of paying the stamp duty, as provisionally assessed.

28.Evidently, there is a subtle but important distinction between Fung asking for and collecting HK$100 as payment for the provisional stamp duty and Fung so advising or informing the plaintiff in the manner the plaintiff is now saying.

29.Over this dispute of fact, I accept and find for Fung’s version for the following reasons :

(a)  In 2 letters written by KLY to the Law Society respectively dated 25 April 2014 and 27 May 2014 responding specifically to the plaintiff’s allegations and complaints, KLY said in very clear terms that the plaintiff had not raised any questions about stamp duty[9] . These letters have been copied to the plaintiff for comments and the plaintiff has not disagreed with KLY on this matter.

(b)  Such allegations were only first made in the plaintiff’s witness statement dated 4 November 2020. There is no evidence showing that such allegations have ever been made at all from March 2014 (when the plaintiff first made complaints) until then.

(c)  I agree with Mr Lam’s submission that had there been such repeated questions from the plaintiff and had there been such clear, but wrong, answers from Fung, KLY would have been clearly negligent in that Fung gave erroneous advice/information. Yet, factual allegations concerning these questions by the plaintiff and answers by Fung were not even mentioned, and allegations of giving erroneous advice/information were not made, in the Statement of Claim, which was settled by counsel. The only allegation made there was that KLY omitted to advise or inform the plaintiff about the Announcement or the liability to pay BSD.

(d)  In cross-examination, the plaintiff said for the first time that she had a conversation about stamp duty with a staff of HA, one Mr Choi, who replied that the HK$100 stamp duty was only “symbolic” (象徵式) and that if she had queries, she should inquire with her lawyer. Later on, she also said for the first time that Fung also said that the amount of HK$100 was “symbolic”. She then went on to explain in some length that the property purchase price of HK$1 million was the cut-off point, within which only “symbolic” stamp duty would be charged. When asked by the court whether the characterization of “symbolic” was what she thought in her mind and “symbolic” (象徵式) was not the actual word said by Mr Choi or Fung, she instinctively and quickly said “yes”, but then recanted. In all, I find her such evidence unsatisfactory and unreliable. My clear impression was that these alleged conversations were afterthoughts made, in her eagerness to advance her case, to buttress and embellish her evidence.

(e)  I am favourably impressed with Fung as an honest and reliable witness. She was evidently an experienced and careful Legal Executive. She knew that the final amount of the ad valorem stamp duty would await further assessment. I find it very inherently improbable that she would make a representation to the plaintiff that the final amount of the stamp duty was HK$100, as the plaintiff is now saying by her allegations.

30.On 6 January 2014, HA executed the Assignment.

31.On 28 February 2014, the Stamp Duty (Amendment) Ordinance 2014 was gazetted.

32.On 12 March 2014, KLY by letter informed the plaintiff that BSD was chargeable at a flat rate of 15% unless a claim for exemption was lodged in time. The plaintiff was surprised as she had not been informed by the HA or KLY about the BSD. By letter dated 24 March 2014, KLY informed the plaintiff that the value of the Flat had been assessed at HK$710,000 for the purpose of BSD and the BSD had therefore been assessed at 15% thereof at HK$106,500 and asked the plaintiff to pay the same.

33.The plaintiff around that time wrote to certain Legislative Council member and District Council member for assistance. She also complained to the Ombudsman and the Law Society. The plaintiff relies on the following response from HA and the Law Society :

(a)  HA by its letter dated 16 June 2014[10] expressed its view that HA as seller had no duty to advise the plaintiff on stamp duty matters, while the legal services provided by KLY should have included advising on matters relating to stamp duty.

(b)  By letter dated 17 July 2015[11], the Law Society informed the plaintiff that it resolved to, and did, issue 2 letters of regret (“the Letters of Regret”). One to Fung for her breaches of Principle 5.12 of the Hong Kong Solicitors’ Guide to Professional Conduct in that she has failed to inform the plaintiff of the introduction of BSD, and the other to Li for her breach of Principle 2.03 of the Hong Kong Solicitors’ Guide to Professional Conduct in that Li has failed to properly supervise her staff to inform the plaintiff of the introduction of BSD.

34.On 15 January 2019, the plaintiff commenced this action.

35.Eventually and upon the plaintiff’s representations, the Collector allowed the plaintiff to pay the HK$106,500 BSD by 12 instalments, which the plaintiff paid off around November 2020. It is the plaintiff’s case and evidence that she was not required to pay any penalty for late payment of the BSD, and that she has not suffered any loss other than the payment of the BSD.

The plaintiff’s case on why the defendant is liable for this specific item of loss (ie. the amount of the assessed BSD) if negligence and/or breach of implied duty of care under contract were established; and KLY’s response

36.The plaintiff’s case is that had she been advised/informed of the Announcement or her liability to pay BSD in the tune of 15% of the consideration before the completion of the sale and purchase of the Flat, the following would have happened :

(a)  She would have decided, and then proceeded, to repudiate the Contract, as she had been given to understand by the following paragraph in HA’s [購買樓宇須知] that she could do so and would only suffer the consequence of being forfeited the intention money of HK$2,500 :

“戊. 撤銷認購或更換購買人

購買人在房委會接纳其認購申請後，若要求撤銷認購或加/減/更換購買人，房委會會沒收其已繳付的意向金。但購買人可重新提出認購申請。”.

(b)  After the Contract was cancelled by her repudiation, the Husband would have applied in his name for the purchase of the Flat under TPS.

(c)  HA would have accepted his application. The Husband would have purchased the Flat. She and her family would have been able to continue to occupy the Flat. She would not have to pay the BSD.

(d)  Even though stamp duty (including BSD) was payable by the plaintiff and even if it were indeed paid, the plaintiff could and would have obtained a refund of the same from the Collector upon cancellation of the Contract.

(the above collectively, “the Would-Haves”)

37.The plaintiff contends that therefore it is a plain case that she suffered a loss of HK$106,500 net the intention money of HK$2,500 (which would have been forfeited upon her repudiation of the Contract), therefore at HK$104,000, which the plaintiff would not have suffered but for KLY’s negligence or breach.

38.The plaintiff contends that all these were foreseeable by KLY and the loss is not too remote because :

(a)  The Application Form contained the information that the plaintiff was married to the Husband and (at the time) had 2 sons.

(b)  By having obtained a copy of the Husband’s HKID card in mid December 2013, KLY knew that the Husband was a Hong Kong permanent resident.

(c)  Or alternatively, by the eligibility criteria for obtaining public rental housing (which KLY ought to have known), namely and specifically, that at least half of the family members included in the application for public housing must have lived in Hong Kong for 7 years (which is said to be identical to one of the criteria of eligibility of right of abode in Hong Kong), KLY ought to have known that there was someone in the plaintiff’s household living in the Flat that was a Hong Kong permanent resident who would have been eligible in the plaintiff’s stead to apply for purchase of the Flat under TPS, and who in turn would not be liable to pay BSD.

(d)  Further, KLY ought to have known :

(i)  that the plaintiff was entitled to repudiate the Contract with little consequence;

(ii)  that the Husband or someone in the household living in the Flat would have been eligible to apply for the purchase of the Flat as above said;

(iii)  that HA would have accepted the Husband’s application, or the application of whoever that was eligible;

(iv)  that the plaintiff herself, or her household, was of limited financial means such that had she been advised/informed of the Announcement or the liability to pay BSD, she would have done the above to avoid paying BSD; and

(v)  the plaintiff would have been able to obtain a refund of the BSD, even if it were paid, upon the cancellation of the Contract.

(collectively, “the 5 Imputed Knowledge”)

39.KLY’s responses are :

(a)  [購買樓宇須知] was in its nature a private communication between HA and prospective purchasers. It had not been given a copy of it and it had no knowledge of its contents. It accepts that Clause 15 of 租者置其屋計劃買賣條款, which formed part of the Contract pursuant to paragraph 6 of the Application Form, stipulated in gist that in the event that the purchaser was unable or unwilling to complete within 21 days after a notice to complete was given, HA has a right to terminate the contract, in which case, in addition to being forfeited the HK$2,500 intention money, the purchaser would be liable to compensate HA for certain costs wasted or incurred consequential upon the termination.

(b)  Whether HA would have accepted the Husband’s “re-application” was a matter entirely within the discretion of HA. There is no evidence before the court that HA necessarily would.

(c)  Whether the Collector would refund the BSD paid upon the cancellation of the Contract would not be as straightforward as the plaintiff alleged.

(d)  Those said, I understand KLY does not seriously contest that the plaintiff could have repudiated, the Husband could have successfully “re-applied” in the normal course of event, and would have obtain a refund of the BSD even if paid.

(e)  KLY disputes that it ought to have known the 5 Imputed Knowledge and/or ought to have connected them together to “foresee” the Would-Haves. These matters were never relevant to the task it was engaged to perform, and therefore never within its scope of duty to find out or to consider.

(f)  KLY says that it was engaged merely to complete an otherwise most straight forward conveyancing transaction to convey the Flat to its client, namely the plaintiff, pursuant to the Contract. It was never its scope of duty to advise/inform the plaintiff on her stamp duty position, or to advise her on how to improve the over-all financial position of her household insofar as this transaction was concerned. KLY further emphasizes that the occurrence of the Would-Haves meant that the plaintiff forwent the opportunity to acquire a real property at a substantial discounted price (at HK$311,300 which was about 16% of the Initial Market Value at HK$1,991,600), which would not be in the interest of the plaintiff. Further, each household had its own reasons for deciding which particular member was named as the applying purchaser to own the property in his/her name. The Contract having been concluded as it was, with the plaintiff’s family having decided to name her as the purchaser, it was outside the scope of KLY’s duty to enquire, consider or advise on matters pertaining to that already-made decision.

(g)  KLY hotly contends, in proper analysis, that the answers to “the scope of duty question”, “the duty nexus question” and “the legal responsibility question” are against the plaintiff’s claim.

(h)  In the case that KLY is liable for the claimed loss, the plaintiff is also liable for contributory negligence.

Legal principles

40.Mr Lam cited the cases of Meadows v Khan [2022] AC 852 and Manchester Building Society v Grant Thornton UK LLP [2022] AC 783. Both are UK Supreme Court cases. They were heard by the same expanded panel of 7 judges and the judgments in both cases were delivered on 18 June 2021. In both cases, Lord Hodge DPSC and Lord Sales JSC delivered a joint judgment which was agreed to by Lord Reed PSC, Lord Kitchin JSC and Lady Black. In the majority judgment in Manchester Building Society, it was expressly stated by way of introduction that the reason the 2 appeals were heard together by the same constitution of the court was “to provide general guidance regarding the proper approach to determining the scope of duty and the extent of liability of professional advisers in the tort of negligence. It is therefore desirable that the judgments in the two appeals should be read together as reflecting and supporting a coherent underlying approach” (at p.790A-B). The quotes from the 2 cases in this section are passages from the joint majority judgments.

41.Mr Lam submitted that the principles and guidance given in the 2 cases are applicable, and particularly, that the 6 questions formulated in the 2 judgments (see below) should be adopted as the framework for determining the present dispute. He further cited the recent case of Aurium Real Estate London Ultra Prime Limited v Mishcon De Reya LLP [2022] EWHC 1253 (Ch) as an example in which the same principles and the 6 questions were expressly applied to a claim against solicitors for negligent advice. Ms Tjia did not dispute the principles and analysis set out in the 2 cases as correct and generally applicable to this case. I accept Mr Lam’s submission.

42.In both judgments, it was held and re-affirmed that “on a claim in negligence a defendant was only liable in damages in respect of losses of a kind which fell within the scope of his or her duty of care”[12].

43.It was further held that the relevant analysis

“… consists of asking six questions in sequence … :

(1) Is the harm (loss, injury and damage) which is the subject matter of the claim actionable in negligence? (the actionability question)

(2) What are the risks of harm to the claimant against which the law imposes on the defendant a duty to take care? (the scope of duty question)

(3) Did the defendant breach his or her duty by his or her act or omission? (the breach question)

(4) Is the loss for which the claimant seeks damages the consequence of the defendant’s act or omission? (the factual causation question)

(5) Is there a sufficient nexus between a particular element of the harm for which the claimant seeks damages and the subject matter of the defendant’s duty of care as analysed at stage 2 above? (the duty nexus question)

(6) Is a particular element of the harm for which the claimant seeks damages irrecoverable because it is too remote, or because there is a different effective cause (including novus actus interveniens) in relation to it or because the claimant has mitigated his or her loss or has failed to avoid loss which he or she could reasonably have been expected to avoid? (the legal responsibility question)”
(§28 at p.864B-E of Meadows v Khan and §6 at p.791F-792A of Manchester Building Society)

44.Also relevant to the facts of the present case are the following observations in both judgments :

(a)  The same principles and analysis by asking the 6 questions in sequence also apply to cases where a claimant seeks to establish liability arising from a defendant’s omission (§37 at p.867G-H of Meadows v Khan).

(b)  “[T]he distinction … between “advice” cases and “information” cases has not proved to be satisfactory” (§18 at p.796A of Manchester Building Society) and that “for the purpose of accurate analysis, rather than starting with the distinction between “advice” and “information” cases and trying to shoe-horn a particular case into one or other of these categories, the focus should be on identifying the purpose to be served by the duty of care assumed by the defendant … . Ascribing a case to one or other of these categories seems to us to be a conclusion to be drawn as a result of examination of that prior question.” (§19 at p.796D-E of Manchester Building Society)

45.Therefore, in this judgment, this court does not seek to distinguish or analyze on the basis that (a) this is a case where liability was said to arise from omission as opposed to from negligent advice, and (b) this is an “advice” rather than “information” case, or vice versa.

46.It was further observed there that:

“In such cases [where advice was given pursuant to contract], there is a parallel duty of care in tort and contract. The extent of the responsibility assumed by the professional adviser, and the extent of their liability if they fail to act with reasonable care, is the same in tort and in contract. … The scope of the parallel duty of care in contract depends on the same factors.” (§2 at p.790 Manchester Building Society)

47.Therefore, my discussion and determination below relate to both the plaintiff’s cause of action based on negligence as well as that based on a breach of KLY’s implied duty of care under contract.

The scope of duty question

48.The scope of duty is to be determined thus :

“13. The scope of the duty of care assumed by a professional adviser is governed by the purpose of the duty, judged on an objective basis by reference to the reason why the advice is given (and as is often the position, … , paid for.) …

14. The other leading authorities confirm that this is the proper approach. All the speeches in Caparo [1990] 2 AC 605 emphasised that the scope of the auditor’s duty of care in that case was to be derived from an examination of the purpose served by the duty to audit the accounts of the company. This observation by Lord Roskill is representative (p 629B): “before the existence and scope of any liability can be determined, it is necessary first to determine for what purposes and in what circumstances the information in question is to be given.” See also, in particular, p 627C-D per Lord Bridge: p 652 (“In seeking to ascertain whether there should be imposed on the adviser a duty to avoid the occurrence of the kind of damage which the advisee claims to have suffered … [one] must … ask, in what capacity was his interest to be served and from what was he intended to be protected?”; “ Before it can be concluded that the duty is imposed to protect the recipient against harm which he suffers by reason of the particular use that he chooses to make of the information which he receives, one must… first ascertain the purpose for which the information is required to be given” … “ (p.794B-H Manchester Building Society)

49.On the facts, it is clear beyond dispute that KLY was engaged by the plaintiff for the purpose of completing the sale and the conveyance of the Flat to the plaintiff.

50.The plaintiff contends that KLY’s scope of duty was the same as that of a solicitor acting for a purchaser in a normal purchase of residential flat. The plaintiff then uses that as a plank to argue that the item of loss the plaintiff now claims was a risk within KLY’s duty to take care.

51.In this regard, I do not accept the plaintiff’s said contention that this was a normal purchase of property and accept KLY’s contention that, in view of the unique circumstances in a sale by HA of a unit under TPS, the tasks to be performed by KLY in acting for the purchaser in a sale under TPS were, and also its scope of duty towards him was, comparatively much more limited than otherwise would have been under a normal purchase of a residential flat. I accept that the unique circumstances include :

(a)  There was no issue that the title of HA on all of those units was good.

(b)  KLY did not need to consider or advise on issues such as whether there were illegal structures affecting the unit as the tenant of the unit would himself sign a declaration that there was no such illegal structure.

(c)  There would be no issue concerning, like in normal cases, as to whether the estate agent or the vendor had made the correct representation as to the area of the unit or other matters concerning the physical state of the unit.

(d)  There would be no issue concerning the terms of the formal sale and purchase agreement and the assignment, as they had all been set out per the standard forms of HA and had been agreed to by the purchaser.

(e)  The limited nature of KLY’s tasks and duty was reflected in the very small and fixed amount of profit costs HA bound KLY contractually to charge, namely HK$394 only.

52.Though accepting KLY’s scope of duty was relatively limited compared to that under a normal sale, I do not accept KLY’s further submission that KLY’s role was so limited as to confine to only executing the conveyancing documents, and did not include attending to the stamping and then registration of the Assignment, and therefore KLY had no duty to give information to the plaintiff pertaining to the amount of stamp duty she might be liable to pay.

53.Firstly, paragraphs 21 and 24 of Procedures for Conveyancing for Tenants Purchase Scheme Phase 6B[13] (which, according to KLY’s own case, was the documents governing, among others, what services it was to provide) expressly obligated KLY to attend to matters pertaining to the stamping and registration of the Assignment, thus :

“ 21. If a purchaser has obtained mortgage finance which is handled by another solicitors, the Solicitor shall, within 21 days of the date of Assignment or within such time as agreed with the lender’s solicitor, deliver the stamped Assignment together with the related Memorial and other title documentation and registration fees to the lender’s solicitor.

…

24. The Solicitor must ensure that stamping and registration of the Assignment will be completed within one month of the date of the Assignment. In case of separate representation and/or where the purchaser has obtained mortgage finance, the Solicitor shall impose relevant undertakings on the solicitor acting for the purchaser or the mortgagee to ensure that stamping and registration to be completed by such solicitor within one month. Notwithstanding the above, the Solicitor should always endeavour to register the Assignment as soon as possible, in particular for transactions which are completed close to the first meeting of owners for appointment of management committees.”

For the purpose of the above 2 paragraphs, it is to be recalled that KLY also acted as the solicitors for the mortgagee Hang Seng Bank.

54.Secondly, even without those express provisions and in my judgment, the duty of KLY to complete the sale and the conveyance for the purchaser must include

(a)  the duty to duly register the Assignment in the Land Office, thereby to properly and duly complete the entire process of passing the title to the Flat to the plaintiff, because if the plaintiff’s Assignment were not registered, her title to the Flat would be at risk in that, for instance, subsequent but registered encumbrances would have gained priority over and therefore encumbering her title in the Flat. In this regard, it is undisputed that before the Assignment could be registered, it must first be duly stamped; and

(b)  the duty to ensure that the Assignment was duly stamped because under the Stamp Duty Ordinance, instruments not duly stamped will not be received in evidence or will not be available for any other purpose.

55.Regarding the BSD, though it was not payable until the relevant amendment to the legislation was passed such that apparently conveyancing documents could in the meantime still be registered upon having paid only the ad valorem stamp duty, KLY must have foreseen and contemplated that if BSD were not paid later on when due, there would be consequences imposed that are similar to those mentioned in the preceding paragraph that would affect the plaintiff’s full interest in the Flat.

56.Indeed, as enacted by Stamp Duty (Amendment) Ordinance 2014 and then by Stamp Duty (Amendment)(No.2) Ordinance 2014, and under the combined effect of section 15 and section 15A, an instrument which has not been duly stamped with BSD will not be received as evidence in any proceedings except in civil proceedings before a court if (a) for a conveyance on sale—it is produced in evidence by a person who is not the transferee under the instrument; or (b) for an agreement for sale—it is produced in evidence by a person who is not the purchaser under the instrument. In other words, not having been duly stamped by the payment of BSD, the plaintiff would not have been able to produce the Assignment of the Flat in evidence in any court proceedings.

57.Therefore and in my judgment, it is very clear that it was within the scope of KLY’s duty for the reason and purpose of properly completing the conveyance of the Flat to the plaintiff to inform the plaintiff that she was liable to pay BSD on top of the ad valorem stamp duty.

58.I come to the above conclusion without even the need to consider the Letters of Regret, the probative value of which was very much debated by the parties. Ms Tjia on behalf of the plaintiff also argued extensively in the Closing Submissions that KLY’s scope of duty included informing the plaintiff of her liability to pay BSD. Without disrespect to counsel, I do not refer to them in any length here as I am able to come to a clear holding by reason of the matters expressed above.

59.The other more contentious matter is, as implicit in the plaintiff’s case, that KLY’s scope of duty included the duty to take care that the plaintiff would not suffer the specific harm for which she now claims redress. That contention would be better addressed in the next section.

The duty nexus question and the legal responsibility question

60.I think these two questions can be appropriately and conveniently discussed together in this section.

61.Regarding the duty nexus question, Mr Lam submitted and highlighted the following :

(a)  That “a defendant is not liable in damages in respect of losses of a kind which fall outside the scope of his duty”. (§36 at p.867D of Meadows v Khan). “The fact that the defendant owes the claimant a duty to take reasonable care in carrying out its (the defendant's) activities does not mean that the duty extends to every kind of harm which might be suffered by the claimant as a result of the breach of that duty.” (§8 at p.792C-D of Manchester Building Society)

(b)  “The scope of duty question may also arise in relation to the extent of damage. There may be elements of loss which the claimant has suffered as a consequence of a defendant's acts or omissions which are within the defendant's duty of care, and elements which are outside the scope of that duty…” (Mr Lam’s emphasis)(§49 at p.871D of Meadows v Khan).

(c)  In determining whether the loss claimed falls outside the scope of duty, “one looks to see what risk the duty was supposed to guard against and then looks to see whether the loss suffered represented the fruition of that risk” (Mr Lam’s emphasis)(§17 at p.795H of Manchester Building Society).

(d)  That the duty nexus question is not the same as the question of causation and that “the scope of duty principle has nothing to do with the causation of loss as that expression is usually understood in the law” (§40 at p.869B of Meadows v Khan; and see further §39 of Meadows v Khan and §5 at p.791B-D of Manchester Building Society).

62.Ms Tjia submitted that the duty nexus question is not engaged at all. She said in paragraph 79 to 83 of the Closing Submissions, thus :

“D3.  The so-called “duty nexus” issue

79.  Once the Plaintiff’s case on the scope of duty and the loss suffered as analysed hereinabove is properly understood, this issue simply does not arise. With respect, the Defendant’s reliance on the whole line of authorities on this issue is plainly misconceived in the particular circumstances of this case, primarily due to its misunderstanding of the Plaintiff’s claims.

80.  There is no dispute that the “duty nexus” question is not a question on causation. This is a principle that “a defendant is not liable in damages in respect of losses of a kind which fall outside the scope of his duty of care”. See Meadows v Khan [2022] AC 852, 867D-E at §36 [D#1].

81.  Accordingly, in dealing with this question correctly, one must first correctly identify (a) the scope of duty and (b) the losses claimed, before proceeding to analyse whether there is a sufficient “nexus” between them.

82.  As submitted hereinabove, the scope of duty owed by the Defendant was to inform the Plaintiff about BSD for the purpose of warning her against such liability. On the other hand, the loss claimed by the Plaintiff was the BSD paid by her (minus the amount of the Intention Money). It is not a case where the Plaintiff has claimed any other loss irrelevant to BSD but having been incurred as a result of her completion of the purchase, such as a drop in the property value.

83.  In such circumstances, it is submitted that this is in fact a straightforward case in which the question of “duty nexus” should not have arisen at all. … .” (all emphases are mine)

63.I accept Mr Lam’s submission that the correct and relevant principles and the utility of the analysis through asking the duty nexus question were clearly explained and set out in the cases of Meadows v Khan and Manchester Building Society. This court respectfully follows them. With respect, I am far from being persuaded by Ms Tjia that the question is not engaged, particularly

(a)  I do not accept that KLY’s scope of duty “was to inform the Plaintiff about BSD for the purpose of warning her against such liability”. By so saying, Ms Tjia seemed to be viewing the matter from the perspective as if KLY had been engaged prior to the conclusion of the Contract to advise the plaintiff/her household on matters pertaining to their intended purchase of the Flat. Such was not the factual situation here. As I held above, KLY was under a duty to inform the plaintiff of her liability to pay BSD for the reason and purpose of properly completing the conveyance of the Flat to the plaintiff.

(b)  Ms Tjia seemed to suggest that insofar as the loss is not “irrelevant to BSD”, the duty nexus question is not engaged. I do not accept that such is the relevant test or the correct law.

(c)  I do not agree that this is a straightforward case, such as in a personal injury claim, where the particular element of harm, like loss of income due to absence from work as a result of the injury, has a more than sufficient nexus with the subject matter of the defendant’s duty of care.

64.I turn next to look closely to understand and identify the particular element of the harm for which the plaintiff now seeks damages to be compensated from.

65.The particular element of harm suffered by the plaintiff was, I understand, said to be the extra amount she paid for the Flat as a result of KLY’s negligence, thus:

“… here, the Plaintiff is similarly claiming only the difference between the total amount paid by her as a result of the negligence (i.e., the balance of the purchase price plus BSD) and the actual value of the Property under the TPS (i.e., the discounted price), which [difference] is the same as the amount of BSD deducting the Intention Money. …” (§78(g) of the plaintiff’s Closing Submissions)

66.On the facts, I find this description and characterization of the particular element of harm suffered by the plaintiff inaccurate and problematic.

67.Firstly, the harm was expressed as a difference between the amounts paid by the plaintiff to acquire the Flat in 2 scenerios, namely, the one without KLY’s negligence and the one with KLY’s negligence. However, it is all along the plaintiff’s case that in the scenario without KLY’s negligence (ie., had KLY informed her of the liability to pay BSD), she would have repudiated the Contract, and therefore she would not be acquiring the Flat. Unless and until she repudiated the Contract, she would have to pay the BSD with or without KLY’s negligence. This brings me to the second matter.

68.Secondly, KLY’s negligence did not result in the plaintiff acquiring the Flat at a higher cost. As is common ground, the liability to pay BSD for the plaintiff to purchase the Flat was already incurred at the time when the Contract was concluded which was the time when HA accepted the plaintiff’s application to purchase the Flat under TPS, and therefore at a time prior to KLY was even engaged. In other words, the plaintiff’s liability to pay BSD was not caused by any of KLY’s negligent act or omission.

69.As this court has canvassed with Ms Tjia in final submissions, it seemed to me that the plaintiff was describing an element of harm to her household as opposed to her personally. In other words, she was saying that “my household could have bought the Flat without paying the BSD”, in that had she been informed of the liability to pay BSD, the Husband would have arranged to be the purchaser; in which case the total outlay of the household for purchasing the Flat would have been reduced by the amount of the BSD. It seems to me that underpinning the plaintiff’s case is the unspoken but important premise that the plaintiff treated the purchase of the Flat by the Husband as the same thing as the purchase of the Flat by her – her household would have acquired the Flat. While this perspective of viewing the purchase as a purchase by the household as a unit speaks well for the marriage dynamics of the plaintiff, the plaintiff’s case cannot ignore or side-step the important distinction, in law and for the present purposes, between the plaintiff as the purchaser and the Husband as the purchaser, and between the plaintiff as the client of KLY and “the household” as the client of KLY.

70.In this regard, I reiterate that it is common ground that KLY was not engaged to advise the plaintiff whether prior to the conclusion of the Contract or then after on the commercial merits of her purchase of the Flat, KLY was not engaged to act for “the household” (or the plaintiff and the Husband) for whatever matter, particularly KLY was not engaged to advise the household on how to best arrange the purchase of the Flat to achieve a better financial position. Rather, as I found above, KLY was engaged after the conclusion of the Contract between HA and the plaintiff to complete the conveyance of the Flat from HA to the plaintiff.

71.Ms Tjia argued strenuously that, as conveyancing solicitors acting for the plaintiff, KLY’s scope of duty was wide and even “unlimited” because there was no express retainer limiting the scope of KLY’s services. I accept the argument to the extent that KLY’s scope of duty to complete the conveyance would include informing the plaintiff her liability to pay BSD (as I found above). However, I do not understand Ms Tjia to thereby argue, and if she did, then I do not accept such argument, that KLY’s scope of duty as conveyancing solicitor, simply because there was no express retainer, would be so “wide” or “unlimited” as would extend to having a duty of care to cover matters beyond those concerning the completion of the conveyance to include protecting the household from the afore-said particular element of harm.

72.In oral closing, Ms Tjia essentially submitted that by reason of possessing the 5 Imputed Knowledge, KLY was thereby under a duty to protect the plaintiff from the extra expenses of paying BSD.

73.I do not accept that submission.

74.Firstly and importantly, and as above set out, the principle is that “The scope of the duty of care assumed by a professional adviser is governed by the purpose of the duty, judged on an objective basis by reference to the reason why the advice is given”. The scope of duty is therefore not governed by the amount of imputed knowledge that the professional adviser might have. Ms Tjia has not cited any authority in support of her proposition.

75.Secondly and as said above, BSD should and could not be regarded as “extra expenses of the plaintiff”. The plaintiff’s liability to pay BSD was not caused, and did not result from, KLY’s negligence and was incurred by reason of her purchase of the Flat. BSD might be regarded as “an extra expense” from the perspective of “the household” as I have explained above.

76.Ms Tjia cited in support of the plaintiff’s claim a number of cases in which the solicitors were found negligent in connection with conveyancing transactions and were found liable for the loss. They are :

(a)  Hurlingham Estates Ltd v Wilde & Partners [1997] STC 627. There, the defendant solicitors’ defence that there was an agreement to limit their duties was rejected on the facts and it was held that a reasonably competent solicitor practicing in the field of conveyancing or commercial law would be expect to be aware of the concealed trap in s.34 of the Income and Corporation Taxes Act 1988 which the defendant has failed to advise the plaintiff about and in effecting the transactions in a structure that exposed the plaintiff to taxes charged under s.34.

(b)  Stanley Kenneth Oates & Others v Anthony Pitman & Co. [1998] PNLR 683. It was an assessment of damages cases in which the defendant solicitors had admitted liability in being negligent in failing to find out that there was no planning permission granted for the use of the property as holiday flat-lets. The defendant was instructed by the plaintiff to buy a property that could be so used. Damages to compensate the diminution of value at GBP36,000 and the costs for obtaining certain planning permission in the sum of GBP1,480 was awarded.

(c)  Dymocks Franchise Systems (China) Limited v Norton Rose Fullbright Hong Kong [2019] 3 HKLRD 742. There, the defendant solicitors were engaged by the plaintiff to advise on “unexpected problem” in their intended take-over of a franchise. The defendant was held liable for having failed to advise the plaintiff the potential application of Transfer of Business (Protection of Creditors) Ordinance Cap. 49 under which the plaintiff incurred liability. Damages in the sum of HK$4.3 million odd was awarded under various heads of loss proved by the plaintiff.

77.All three cases are thus merely cases in which the defendant solicitors were found liable, while acting in conveyancing matters, for negligence in respect of tax or other commercial matters, and were found liable for the loss suffered by the respective plaintiffs. There is no dispute that a solicitor could be so liable where the facts of the case support it. With respect, the facts in these 3 cases are obviously distinguishable from those in the present case. I do not find them helpful at all.

78.In my view, once the scope of KLY’s duty has been properly analysed and clearly defined and the element of harm to the plaintiff (as opposed to the household) closely looked at and correctly understood, the answer to the duty nexus question is straightforward.

79.KLY was under a duty to inform the plaintiff about the BSD for the purpose of completing the conveyance of the Flat to the plaintiff. Within the context of completing the conveyance of the Flat to the plaintiff, (a) the plaintiff was bound to pay BSD with or without KLY informing her of that liability, and (b) the failure by KLY to inform her about her coming liability to pay BSD might have caused loss, say, resulting from cash flow problem to her who might be caught by surprise by the demand to pay and therefore had to incur high interest payment or expenses to seek an urgent loan; or loss similar in that nature. However, that is not the element of harm for which damages is claimed here. Once the claimed loss is said to have arisen, as is the plaintiff’s case here, because the plaintiff would have repudiated the Contract, ie. not completing the conveyance, in my judgment, the nexus is lost between the scope of KLY’s said scope of duty and the claimed element of harm.

80.Not only that, as set out earlier, the plaintiff’s particular loss was said to be incurred upon the cumulative happening of the other Would-Haves, with the result that the very substantial advantage obtained under the Contract (namely owning the Flat by paying only a small fraction of its market value) being acquired by the Husband rather than by the plaintiff. The fact that the claimed loss would be incurred only after the cumulative happening of all these other contingencies further disconnect the nexus between the said scope of duty and the claimed loss.

81.I also find the case of Bartter v Gambrill (1932) 76 Sol Jo 868 cited by Mr Lam supports the above conclusion. In that case, the plaintiff agreed with another to exchange parcels of land and instructed the defendant solicitor to execute a deed carrying out the exchange. Before that was done the plaintiff regretted because by the exchange the value of that other person’s land increased in excess of the value of the land he gave to the plaintiff for exchange and the plaintiff thought the other person should have paid her another GBP50 in addition to the land. The plaintiff sued the defendant for negligence for the omission of not having informed her that the agreement she signed was not a good memorandum within s.40 of the Law and Property Act 1925 and she was therefore not bound by it. Luxmore J held clearly and succinctly that

“a solicitor was not obliged to point out to the person instructing him that he was not legally bound to carry out his bargain. … [The defendant] prepared the deeds considering, like the others concerned, that it was to the plaintiff’s advantage. There was no ground for suggesting that he failed in his duty to her as a solicitor”.

82.In my view, this case held, put in the language of the modern analysis, that the scope of duty of a solicitor instructed to carry out a transaction does not include considering or advising the client the merits of the transaction, or the means to get out of it, or whether the client could have gotten out of it. A fortiori, such a solicitor’s scope of duty does not include protecting the client from risk of harm which occurred because the client could have gotten out of the transaction, but because of an omission by the solicitor, the client did not do so as he was not so informed/advised.

83.By reasons expressed above, I thus answer the duty nexus question in the negative.

84.I would also answer the legal responsibility question in the negative, considering particularly (a) that the claimed loss occurred through the cumulative happening of the Would-Haves, (b) the tenuous nature of the 5 Imputed Knowledge, and to connect these 5 Imputed knowledge so that KLY would “foresee” the Would-Haves, KLY would have to consider the matter from the perspective of the household’s interest (and not the plaintiff’s) when the household was not its clients, and (c) as held in Bartter v Gambrill, that it was not within the scope of KLY’s duty to consider the matter from the perspective of the plaintiff getting out, or being minded to get out, or would have gotten out, of the sale.

85.In the premises, I hold that KLY is not liable to compensate the plaintiff the loss she now claims.

Contributory negligence

86.Had I otherwise held that KLY were liable for the claimed loss (which I do not), I would not have held that the plaintiff was contributorily negligent, considering all the circumstances.

Conclusion and disposal

87.At the conclusion of the closing submissions, this court asked, and counsel indicated that they have agreed, that as damage is an element in the cause of action of negligence and if this court were to hold against the plaintiff in her claim for such loss, this action should be dismissed, rather than considering whether it would be appropriate to award nominal damages. I also consider counsel’s agreement right as the alternative contract claim rises and falls based on the same factors and considerations as in the case of negligence, and particularly, in this alternative claim the plaintiff all along has been specifically claiming the same amount of damages based on the same basis as in her tort claim.

88.In the premises, I dismiss the plaintiff’s action, and order on nisi basis that the plaintiff do pay the defendant its costs of this action, including all costs reserved and with certificate for counsel, to be taxed if not agreed; and the plaintiff’s own costs be taxed according to Legal Aid Regulations. This costs order nisi shall become absolute within 14 days unless any party apply to vary by summons.

89.As I have expressed at trial, I am not unsympathetic towards the plaintiff having a sense of grievance that she found her purchase of a public housing unit from HA under TPS caught unwarily by this demand side management measure of BSD. Its redress however and as I adjudged above does not lie in KLY’s liability to pay for it.

90.Lastly, I thank counsel for their assistance.

Ms Josephine Tjia, instructed by Sammy Ip & Co, Solicitors, assigned by the Director of Legal Aid, for the plaintiff

Mr Justin Lam, instructed by Kao, Lee & Yip, for the defendant