Ying Ho Co. Ltd. v. Man Kwok Leung t/a David K L Man & Co. (A Firm)
Read the full judgment text of CACV 84/2000 on BabelCite. This Court of Appeal judgment was delivered on 17 July 2000.
1. The appellant MAN Kwok-leung trading as David K. L. MAN & Co. ("Man & Co.") is a firm of solicitors. In 1993, the respondent Ying Ho Company Ltd ("the Company") agreed to purchase Letter A Land Exchange Entitlement of DD 453 Lot 231 S.A.R.P. ("Letter A") from a vendor who purported to be one POON Sik-on, the registered owner of the Letter A. Man & Co. acted for this vendor in the transaction.
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CACV000084/2000 CACV 84/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 84 OF 2000 (ON APPEAL FROM HCA No 3070 of 1998) ______________________________________
_____________________________ Coram: Hon Mayo VP and Leong JA in Court Date of Hearing: 28 June 2000 Date of Judgment: 17 July 2000 ______________ J U D G M E N T ______________ Hon Leong JA (giving the judgment of the Court): 1. The appellant MAN Kwok-leung trading as David K. L. MAN & Co. ("Man & Co.") is a firm of solicitors. In 1993, the respondent Ying Ho Company Ltd ("the Company") agreed to purchase Letter A Land Exchange Entitlement of DD 453 Lot 231 S.A.R.P. ("Letter A") from a vendor who purported to be one POON Sik-on, the registered owner of the Letter A. Man & Co. acted for this vendor in the transaction. 2. The transaction was to be completed in the Hong Kong style of completion which has been developed as a substitute for and to avoid the inconvenience of, a physical completion. This contemplates the sending of the legal documents for approval by each side and thereafter the documents would be executed by the parties before their respective solicitors in the absence of each other. The purchase money would then be sent to the vendor's solicitor for release to the vendor on the personal undertaking of the vendor's solicitor as to the proper identification of the vendor, the due execution by the vendor of the legal documents and the delivery of such documents to the purchaser's solicitor. 3. On 13 December 1993 Fred Kan & Co. solicitors acting for the Company delivered to Man & Co. a letter ("undertaking letter") enclosing a cashier order of HK$10,665,000.00 for the balance of the purchase price to complete the purchase. This letter reads as follows:
4. Earlier, a draft of this undertaking letter together with the draft Assignment had been sent to Man & Co. for approval and they were returned to Man & Co. on 11 December 1993, approved and without amendment. 5. Man & Co. after receiving the cashier order and the undertaking letter, released the money to the vendor in full. As it later turned out, the vendor was not the registered owner POON Sik-on who was never aware of the transaction. The imposter vendor was arrested in the event and he was convicted of fraud and was sentenced to imprisonment. Of the sum of HK$10,665,000.00 collected by the imposter, only HK$4,911,194.93 was recovered. The Company then commenced an action against Man & Co. claiming the balance in the sum of HK$5,743,805.07 and legal costs of HK $311,530.00. 6. The Company obtained summary judgment in the sum claimed on the ground of breach of an absolute undertaking by Man & Co. 7. In the proceedings below, there was no dispute that the undertaking was the personal undertaking of Man & Co. The dispute was on the construction of the undertaking letter. 8. The Company's argument was that Man & Co. had undertaken to deliver an Assignment duly executed and attested by the vendor which had the legal effect of passing title of the Letter A to the Company free from encumbrances. It was an absolute undertaking. Man & Co. would be liable for breach even without fault. Since the Assignment was executed by the imposter, it had no legal effect and was incapable of passing title to the Company. Man & Co. was therefore in breach. 9. Man & Co. on the other hand argued that on a true construction of the undertaking letter, the obligation undertaken by Man & Co. was no more than to take all reasonable care to ascertain the identity of the vendor and to see that the vendor execute the Assignment and Statutory Declaration. This was duly done by Man & Co. and there was no breach of undertaking. 10. The Judge below concluded the cashier order was delivered to Man & Co. in exchange for the undertaking to deliver an Assignment passing title of the Letter A to the Company free from encumbrances. He also found that if the undertaking were to require Man & Co. to take reasonable care to ensure the identity of the vendor, the business efficacy of property transaction would not have been maintained. In other words he found the undertaking was an absolute obligation not only to deliver the legal documents but also to ensure the Assignment pass title to the Company. 11. The question that falls for a decision in this appeal is what is it that Man & Co. had undertaken to deliver to the Company in exchange for the release of the balance of the purchase money to the vendor. Is it merely delivery of the legal documents or what in fact is an Assignment effecting the transfer of title to the Company? If it is the latter, is this obligation an absolute one where Man & Co. would still be liable for a breach even without fault or a qualified one where failure to perform the obligation may not be a breach if Man & Co. had taken reasonable care to make sure that the vendor was the registered owner. 12. Before us, that the undertaking is clear and unequivocal is not an issue. But Mr Bunting SC for Man & Co. submits that Man & Co. has not committed a breach of undertaking. His primary argument is that on a true construction, the undertaking is to deliver the legal documents specified in the undertaking letter duly executed by the proper vendor and attested and not as to the legal effect of the documents delivered. The undertaking is no warranty of title to the Letter A and it was never the intention of the parties that Man & Co. should act as insurer of the transaction. Alternatively, he argues that if the undertaking is more than merely delivery of documents, it is no more than an undertaking to exercise reasonable skill and care to see that the Assignment has the legal effect of passing title. 13. On his primary argument, Mr Bunting submits that the giving of an undertaking by a vendor's solicitor in the Hong Kong style of completion is to put the purchaser in as good a position as it could have been in a physical completion. In the case of a physical completion, the purchaser's solicitor has the burden to ensure that the Assignment is proper and title passes before he parts with his money whereas the vendor's solicitor has no such obligation. That being the case, it is difficult to see why the vendor's solicitor would have given an undertaking which includes such obligation. In his submission, Mr Bunting refers to paragraph 1 of the Law Society Circular 91/82 which draws to the attention of its members paragraph 2.15 of The Hong Kong Solicitors' Guide to Professional Conduct. This states that a solicitor should not give an undertaking which he is unable to implement. Having regard to this, Mr Bunting submits, it would be unlikely that Man & Co. would give an undertaking to ensure title passed to the Company since Man & Co. would not be in a position to implement it. 14. On his alternative argument, Mr Bunting submits that even if the business efficacy of the transaction requires the obligation of the vendor's solicitor to include passing title, it would not be an absolute obligation. If it is intended that it should be an absolute obligation, that should be expressed in clear terms in the undertaking. 15. Mr Martin Lee SC for the Company argues that the undertaking was clear and unambiguous. This requires Man & Co. to send an Assignment duly executed by the vendor and attested, having the legal effect of passing title. This is an unqualified obligation. Man & Co. failed to send over a document with such legal effect, because it was signed by an imposter with no title. This was contrary to the strict obligation which Man & Co. had undertaken. Mr Lee refers to Zwebner v Mortgage Corporation (unreported) 18 June 1998, where the English Court of Appeal held a solicitor's undertaking that all appropriate documents "would be properly executed on or before completion" was an undertaking as to matters of form as well as to legal efficacy and the solicitor had broken this undertaking when one of the signatures on a mortgage deed executed by the proposed mortgagors was a forgery. Mr Lee submits the court should follow Zwebner and find Man & Co. was in breach of their undertaking. 16. In our view, given the undertaking is to facilitate completion dispensing with the physical attendance by the parties and that on the strength of the undertaking by the vendor's solicitor in respect of the legal documents, the purchase price or the balance of it is sent to the vendor's solicitor for release to the vendor, the purchaser would not have regarded the mere delivery of the legal documents sufficient to complete the purchase unless the documents are capable of having the legal effect of passing title to him. 17. Be that as it may, it could not be the case that the vendor's solicitor would have given a promise to answer for the fraud of an imposter even if he could not be detected despite the exercise of reasonable care by the vendor's solicitor. The reason is the vendor's solicitor in a Hong Kong style completion would not have undertaken more than he would have in a physical completion and would normally not have entered into an undertaking which he would not be able to implement. 18. In Midland Bank PLC v Cox McQueen [1999] 1 FLR 1002, the bank lent money to a customer on the security of a house in the name of the customer's wife and the bank retained solicitors to obtain the signatures of the customer and his wife to the documents relevant to the transaction. The documents were duly signed but the bank later discovered one of the signatures was forged. The English Court of Appeal held that the retainer could not have the effect of an absolute liability on the part of the solicitors to answer for the fraud of the customer. Lord Woolf MR said at p.1010: "If commercial institutions such as banks wish to impose an absolute liability on members of a profession, they should do so in clear terms so that the solicitors can appreciate the extent of their obligation which they are accepting." Later on the same page, he said "Unless the language used in a retainer clearly has this consequence, the court should not be ready to impose obligations on solicitors which even the most careful solicitor may not be able to meet." 19. In our view, the undertaking is more than to supply the legal documents and to see they were duly executed by the vendor and attested and the vendor properly identified. It includes an obligation to see that the documents are capable of passing title. But this is not an absolute one which guarantees against the risk of fraud in the transaction. The undertaking letter follows closely the form set out in the Solicitors' Guide and this does not make it an absolute undertaking. It is improbable that Man & Co. would have promised more than to take reasonable care to ensure that the documents were executed by the owner of the entitlements when they entered into the undertaking. If it were the intention of the parties that this should be absolute, the language in the undertaking would have clearly stated so. 20. We conclude that the undertaking is not absolute and Man & Co. would only be liable if they failed to take reasonable care. Whether they had failed to do so is a question of fact which has to be investigated. This is not a case for summary judgment. The appeal is allowed and the summary judgment set aside. The case is remitted to the court for trial.
Representation: Mr Martin Lee, SC & Miss Po Wing-kay, instructed by Messrs Ford Kwan & Co. for the plaintiff Mr Michael Bunting, SC, instructed by Messrs Herbert Smith for the defendant |
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