Gain Global Corporation Ltd v. Fongs (A Firm)

HCA 2964/2017

[2024] HKCFI 894

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2964 OF 2017

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BETWEEN

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J U D G M E N T

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OVERVIEW

1.This is a professional negligence action brought by Gain Global Corporation Ltd (“plaintiff”) against Fongs (a firm) (“defendant”) arising out of a mortgage transaction in March 2016, by which the plaintiff advanced a mortgage loan to a borrower who is alleged to be an imposter of the real owner of the mortgage property.

2.The central plank of the plaintiff’s case rests on the argument that the defendant was under a duty of care, or the various iterations of that duty, to effectively prevent the identity fraud.

3.The defendant fundamentally denies owing such duties to the plaintiff. The defendant never undertook the responsibilities of verifying the borrower’s actual identity, and at no time did the defendant undertake to guarantee against any risk of identity fraud.

4.The defendant further contends that there was no breach of duty by the defendant, and the losses suffered by the plaintiff were not caused by the defendant. In any event, the plaintiff was guilty of contributory negligence and failed to mitigate its losses.

FACTUAL BACKGROUND

5.Unless otherwise stated, the following factual background set out in the defendant’s Closing is either undisputed or not seriously disputable.

6.The plaintiff is a Hong Kong company and a money lender licensed under the Money Lenders Ordinance (Cap 163). Its business includes mortgage lending.

7.Mr Peter Wong (“Peter”) was the plaintiff’s director at the material time. His subordinates were Ms May Lo (“May”), Mr Joel Wong (“Joel”) and Mr Franco Lam (“Franco”). They were responsible for sourcing clients and processing loan applications. They would also be financially rewarded whenever they successfully introduced new clients to the plaintiff. The reward would be paid to Global Hill Asia Finance Company Limited (“Global Hill”), a company they had set up.

8.The defendant is a firm of solicitors in Hong Kong. Ms Winnie Lo (“Winnie”) was a consultant at Fongs (a firm) in 2016. The defendant had worked with the plaintiff prior to March 2016.

9.At all material times, Mr Kuan Ian Leong Patrick (“Kuan”) was the registered owner of the property at Flat B, 23/F, Block 5, and car parking space No 98 on level CP3, Pacific View, No 38 Tai Tam Road, Hong Kong (the “Property”).

10.In March 2016, the plaintiff was allegedly introduced by Global Hill to a person claiming to be Kuan who wished to obtain a mortgage loan on the Property (the “Borrower”).

11.On 11 March 2016, May called Winnie requesting a quote for the preparation of a mortgage to secure a HK$10 million loan. A set of certified true copies of the title deeds for the Property were delivered to the defendant’s office on 12 March 2016.

12.On 14 March 2016 (at 10:27am), Winnie received an email from May in which the defendant was retained or instructed to investigate title of the Property (睇契), and to prepare a rental assignment (as well as a mortgage) in favour of the plaintiff (“Instructions Email”). May informed Winnie that the loan was for HK$10 million at an interest rate of 14% p.a. and to be drawn down on the following day (ie 15 March 2016).

13.May also provided Winnie with a copy of the Borrower’s HK Identity Card (“HKID”), water bills, rates demand, a land search, a stamped tenancy agreement, a draft facility letter, and a telephone bill.

14.A number of conversations took place between Winnie and May on 14 March 2016. The contents of the conversations are disputed. The defendant’s case is that, as recorded in the defendant’s contemporaneous attendance notes:

(1) Winnie informed May that the title deeds were not original and that the Borrower was suspicious. May said that the plaintiff knew that the Borrower had lost the title deeds when moving out from the Property, and that the Borrower had applied for certified copies of the title deeds from the Land Registry by himself.

(2) Winnie advised that a statutory declaration (“Statutory Declaration”) had to be made by the Borrower in order to proceed with the mortgage.

(3) Winnie further advised that May could ask the Borrower to apply for a certificate of registered particulars from the Immigration Department (“Certificate”)^[1] if the plaintiff was in doubt as to the identity of the Borrower, who might be misrepresenting himself as the owner of the Property. Winnie informed May that the process might take 25 business days. But May said that the plaintiff did not want to wait that long for the Certificate, and confirmed to proceed with the preparation of the mortgage and the Statutory Declaration.

15.It is notable that May said to Winnie that there was no need to obtain the Certificate because the plaintiff had no doubt as to the identity of the Borrower and wished to complete the transaction on the following day. This piece of evidence was not challenged in Winnie’s cross-examination, and Winnie repeated in her cross-examination in answer to another question that May had said to her that the plaintiff could not wait and had no doubts about the Borrower’s identity.

16.As recorded in the defendant’s attendance notes, on 15 March 2016, Winnie sought confirmation from May if the plaintiff had any doubts as to the identity of the Borrower. May said that it should be fine and instructed Winnie to proceed with the mortgage and the Statutory Declaration despite the loss of title deeds and the absence of the Certificate.

17.The defendant proceeded to prepare the Statutory Declaration, the mortgage (“Mortgage”) and the rental assignment (“Rental Assignment”).

18.On 15 March 2016, the Borrower attended the office of Messrs Tung & Associates. After Winnie had interpreted the contents of the Statutory Declaration to the Borrower, he countersigned the Statutory Declaration before Mr Au Wing Hang Alex, a solicitor at the firm. By the Statutory Declaration, the Borrower declared inter alia that he was the registered owner of the Property, and that the original title deeds had been misplaced and lost and could no longer be found.

19.On the same day, the Borrower signed the Mortgage and the Rental Assignment at the defendant’s office. He also acknowledged that he did not require legal advice.

20.The defendant’s total fees for its professional services were HK$19,470. Meanwhile, Global Hill received a commission of HK$100,000. The plaintiff claims that a sum of HK$9,873,630 was advanced to the Borrower.

21.The plaintiff alleges that, in around mid-May 2016, a cheque issued by the Borrower representing the payment of the second instalment of interest became dishonoured, and the Borrower could not be found.

22.On 31 May 2016, the defendant received a letter from Messrs Y L Leung & Co stating that they acted for Kuan, and that Kuan did not sign or execute the Mortgage or other documents including any application to the plaintiff. The matter was subsequently reported to the police.

23.On 22 July 2016, Kuan commenced HCA 1910/2016 against the plaintiff, seeking inter alia a declaration that the Mortgage and the Rental Assignment are null and void, and an order requiring the plaintiff to vacate or remove the Mortgage and the Rental Assignment from the Land Registry.

24.The proceedings were initially contested by the plaintiff, who filed a counterclaim against Kuan. The plaintiff and Kuan eventually reached a settlement. On 15 December 2017, Master M Wong granted a consent order inter alia that the registration of the Mortgage and the Rental Assignment be vacated from the Land registry, and that the plaintiff pay Kuan a sum of HK$40,000 in full and final settlement of Kuan’s claim in the action.

25.On 18 September 2018, the Commissioner of Police informed the plaintiff that two defendants, namely Mr Ivan Law Ka-yat (“Law”) and Au Yeung Mo-ling (“Au Yeung”), had been charged with money laundering offences in DCCC 517/2018 in connection with the Borrower’s mortgage loan transaction.

26.On 4 March 2019, the plaintiff commenced DCCJ 1075/2019 against Law and Au Yeung, claiming restitution of the sums they had received at the plaintiff’s expense.

27.On 17 June 2019, both Law and Au Yeung were acquitted in DCCC 517/2018 by HH Judge Casewell.

28.On 19 September 2019, the plaintiff discontinued DCCJ 1075/2019.

THE PLAINTIFF’S CASE

29.The plaintiff alleges that the defendant owed to the plaintiff, both as a matter of contract and tort, a duty of care to act with reasonable care and skill that was to be expected from a reasonably competent solicitor.

30.The plaintiff avers that the discharge of the duty required the defendant to: (1) satisfy itself that the Borrower had good title to and/or sufficient interest in the Property; (2) verify the identity of the Borrower; (3) exercise greater vigilance in checking all other available documents which might tend to indicate the Borrower’s good title to the Property or otherwise; and (4) ensure that the plaintiff could obtain a good title under the Mortgage.

31.The case for the plaintiff is that Winnie was negligent. First, she failed to advise the plaintiff the need to obtain the Certificate and advise the plaintiff the risk of not obtaining it. Second, she failed to exercise reasonable care checking the purported tenancy. At the plaintiff’s Opening, the plaintiff alleged omissions on the part of Winnie in checking other documents and inspecting the Property. At the plaintiff’s Closing, the plaintiff was content to confine the complaint to just failure to check the purported tenancy.

32.The plaintiff claims damages against the defendant for a total sum of HK$10,101,763.33 and interest, comprising: (1) HK$9,873,630 being the actual sum released to the Borrower; (2) HK$40,000 being the legal costs paid to the real owner of the Property in HCA 1910/2016; (3) HK$73,500 being the legal costs of the plaintiff’s own legal team in HCA 1910/2016; and (4) HK$231,300 being the legal costs of the plaintiff’s own legal team in respect of the criminal investigation and subsequent prosecution in DCCC 517/2018 and the civil action in DCCJ 1075/2019; less (5) HK$116,666.67 being the repayment of the first instalment of interest on the principal of the loan.

THE DEFENDANT’S CASE

33.The defendant was instructed by the plaintiff to investigate title of the Property, and to prepare the Mortgage and Rental Assignment of the Property. In doing so, the defendant owed a duty to exercise the standard of care and skill to be expected of a reasonably competent conveyancing solicitor in carrying out its duties, which was fully discharged by the defendant.

34.The defendant denies that the discharge of its duty required it to take the steps pleaded by the plaintiff in ASOC §13. The defendant also denies breaching any duties owed to the plaintiff as pleaded or otherwise. Specifically, the defendant denies that the Borrower was its client, or that it had to verify the identity of the Borrower, or that it was instructed to investigate the occupancy of the Property. The defendant avers that it had duly advised the plaintiff that a Certificate should be obtained from the Borrower to remove any doubt over his identity.

35.The defendant denies that the plaintiff’s alleged loss and damage was caused by any breach of duty by the defendant.

36.If the plaintiff suffered any loss and damage by reason of any act or omission of the defendant, the plaintiff was guilty of contributory negligence. The plaintiff likewise failed to mitigate its losses.

ISSUES TO BE TRIED

37.The plaintiff submits that four issues fall to be determined by this court:

(1) Issue 1: What duties were owed by the defendant to the plaintiff?

(2) Issue 2: Did the defendant breach any of the duties owed to the plaintiff?

(3) Issue 3: If Issues 1 and 2 are answered in the affirmative, did the defendant’s breach result in the losses alleged by the plaintiff?

(4) Issue 4: If Issues 1 and 2 are answered in the affirmative, (a) was the plaintiff contributorily negligent, (b) did the plaintiff mitigate its losses, and (c) are the plaintiff’s losses too remote?

ASSESSMENT OF EVIDENCE

38.The court’s approach to the assessment of witness evidence is well-established and not in dispute. See Tam Sui Lim William v Fung Ho [2023] HKCFI 1583 at §23 (Ng J):

(1) Contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility.

(2) In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events.

(3) In determining a witness’ credibility, it is also important to have regard to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence, which is to be tested by a comparison between the witness’ oral testimony and his witness statement.

39.Peter and Joel’s evidence have limited relevance in the present case except that they clarified the plaintiff’s general due diligence process in loan transactions as well as the background concerning the execution of the transaction documents in this case.

40.On topics such as whether they had heard about the Certificate and the risk of granting the subject loan to the Borrower, their evidence is largely irrelevant as Winnie communicated all her advice to the plaintiff through May and not through them.

41.Lau Sai Kit (“Lau”) had no first-hand involvement in processing the Borrower’s mortgage loan. He confirmed in cross-examination that (1) he never took part in the loan transaction in March 2016, which was not handled by him; (2) he was not “in charge” of the loan back in March 2016; and (3) the contents of his witness statement were based on his reading of the documents in the file as well as discussions with Peter and Simon Ng after March 2016 or conversations with the plaintiff’s lawyers.

42.Given his lack of first-hand involvement in the loan transaction, he was not in a position to, for example, dispute what Winnie wrote in her attendance notes.

43.The main witness in respect of whom a determination of credibility has to be made is of course Winnie.

44.The plaintiff’s attack on the evidence of Winnie is firstly based on the differences between her Attendance Notes, the Statutory Declaration, and her Witness Statement.

45.According to Winnie in her witness statement, she told May to obtain the following information from the Borrower for the purpose of helping her to prepare the Statutory Declaration: (1) when he obtained the original title deeds; (2) where he stored them; (3) the circumstances in which he discovered the original title deeds had been lost; (4) the efforts he had made to search for or recover them; and (5) whether he had pledged them to others: see §18 of her Witness Statement. In §19 of her Witness Statement, Winnie said this:

“Eventually, after several further rounds of communications with May (who was liaising with the Borrower, since the Borrower was her client), May furnished the following explanation to me:

(a) By an assignment dated 30 August 2011 and registered in the Land Registry by Memorial No.11090502000064, the Borrower became the registered owner of the Property;

(b) The Borrower obtained the original title deeds to the Property from Messrs. Y.L. Yeung & Co., the solicitors who acted for him when he acquired the Property;

(c) After the Borrower acquired the Property, he kept the original title deeds at the Property;

(d) In June 2015, the Borrower moved to the Borrower’s Residence with a view to renting out the Property;

(e) Before renting out the Property, the Borrower packed all of his belongings (including the original title deeds) into boxes for moving to the Borrower’s Residence and commissioned renovations to the Property.

(f) Immediately after the renovations to the Property, the Borrower discovered that the original title deeds had gone missing.

(g) As the Borrower had no plans to borrow money until the present time, he only applied for certified copies of the title deeds to the Property a short while before applying for a loan from the Plaintiff in March 2016 after undertaking an exhaustive search for the original title deeds.

(h) The Property (without the Carpark) was rented out in around November 2015.

(i) The original title deeds had not been deposited with a third party to secure loans or debts.” (Emphasis supplied)

46.The Attendance Note of 14 March 2016 has been quoted in full in the plaintiff’s Closing:

“14/3/2016

[Winnie] informed May that the title deeds are not original, not as mentioned to [Winnie] by May earlier and therefore the Borrower is suspicious

May said that they knew the Borrower has lost the title deeds and that’s why the Borrower has applied for a set of certified copies from the Land Registry. [Winnie] informed May that [Winnie] needs to know how the title deeds were lost and a Statutory Declaration has to be made by the Borrower in order to proceed with the mortgage.

May informed [Winnie] that the Borrower had lost the title deeds when he moved out from the property in November for the purpose of renting out. Before renting out, the Borrower renovated the property and packed all his belongings in boxes. However, the Borrower discovered he lost his title deeds immediately after renovation. The Borrower only applied for certified copy title deeds a short while ago because he never has the thought of borrowing money beforehand. The Borrower applied to the Land Registry himself and has not asked for assistance from a lawyer and that the dates of application are shown on the certified copies

[Winnie] advised May that they can ask the Borrower to apply for a Certificate of Registered particulars from the Immigration Department if they are in doubt of the identity of the Borrower who may be misrepresenting himself as the owner of the property. Though experience is it takes 25 business days. May said they do not wish to wait that long.

May confirmed to proceed with preparation of the mortgage and the Statutory Declaration.” (Emphasis supplied)

47.Under cross-examination, Winnie was taken to the said §§18-19 of her Witness Statement and then the Statutory Declaration as to the loss of title deeds. Paragraphs 3 to 5 of the Statutory Declaration are in these terms:

“3. In around October of 2011, after completion of all the formalities for stamping and registration, I received the title deeds relating to the Property from Messrs. Y. L. Yeung & Co., Solicitors, the then Solicitors acting for me in the purchase of the Property and safekept the title deeds at my residence, that is the Property since then.

4. In around June 2015, I wished to rent out the Property. I vacated from the Property and moved all my belongings to Flat A, 10^th Floor, Tower 8, Park Avenue, No.18 Hoi Ting Road, Kowloon, Hong Kong (“my new residence”).

5. In March 2016, I wished to apply for a mortgage on the Property in favour of Gain Global Corporation Limited (“the Mortgagee”). I searched the title deeds of the Property at my new residence but to no avail.” (Emphasis supplied)

48.When it was pointed out to Winnie that paragraph 5 of the Statutory Declaration was different from what was recorded in the Attendance Note of 14 March 2016, she first gave the answer that:

“Yes I see there are discrepancies. Because at the time, my decision that those didn’t have to be included in the Statutory Declaration.”

49.With the view to further explaining the discrepancies, she revealed for the first time the episode in Tung & Associates’ office. She said, on 15 March 2016, when she actually met the Borrower in person at Tung & Associates’ office, the Borrower mentioned to her that he searched the new residence again for the original title deeds in March 2016. In light of this new piece of information, Winnie, who had brought with her an USB memory stick containing the word file of the draft Statutory Declaration, used the computer at Tung & Associates, and revised the previously prepared version (which was based on the Attendance Note) there and then.

50.The plaintiff complains that this episode of correcting the Statutory Declaration at Tung & Associates’ office was not mentioned anywhere in the bundle. On the pleadings and her Witness Statements, what happened at Tung & Associates’ office was uneventful.

51.Further, regarding this point, towards the end of cross-examination in relation to the Statutory Declaration, Winnie was asked by the court whether her account in §19 of her Witness Statement was based on her own memory or by referring to some documents. The following is the record which the plaintiff’s legal team managed to keep in relation to the questions and answers between the court and the witness:

“Court: In order for me to understand the evidence, need to ask you Ms. Lo, in drafting witness statement – now contained in paragraph 19 (a) to (i) – what was the process? Did you do it from memory or consult any documents?

Winnie: I did refer to documents.

Court: If you read the plain terms of paragraph 19–second line says May furnished the following explanation to me – so this purports to set out in some considerable detail the information or the explanation provided by May to you. You said you referred to documents – what documents did you refer to?

Winnie: I referred to e.g. contents of Statutory Declaration. Mainly contents of Statutory Declaration.

Court: So process of reverse engineering – in other words, you look at what is in Statutory Declaration and work backwards – that is what is provided to you by May in paragraph 19.

Winnie: Yes.

Court: So apart from consulting documents, did you do it from memory?

Winnie: I made this statement after some time – so to a large extent I relied on documents.”

52.This draws a further criticism by the plaintiff that the answers are not truthful: namely, Winnie must have also relied on the Attendance Notes of 14 March 2016 (see: §35 of the plaintiff’s Closing).

53.Further, the plaintiff’s attack on the evidence of Winnie is also based on the draft witness statement prepared by Winnie for May, and the WhatsApp communication on 18 December 2017 and 19 December 2017.

54.Winnie recounted in her Supplemental Witness Statement dated 29 April 2021 that in November 2017, her firm received the letter before action. It was considered by the defendant’s management that Winnie should approach May with a view to preparing a draft witness statement from May for the latter to sign.

55.Winnie agreed in cross-examination that, in that draft witness statement, there was no reference to Winnie giving advice to May to obtain the Certificate on 14 March 2016. There was however a statement to the effect (at §10) that it seemed to May that on 15 March 2016 Winnie had advised her that she could bring the Borrower to the Immigration Department to apply for the Certificate.

56.During cross-examination, Winnie was asked to explain why the account was different from the Attendance Note of 14 March 2016. She gave these replies.

57.She first said that there were communications over the phone between her and May leading up to the draft she prepared. She described these communications as taking place on the same day the draft was sent ie on 19 December 2017 (and she re-affirmed that position a number of times). Later, she changed the date of the communications and said it took place on the evening of 18 December 2017. She went on to say that the contents of the draft witness statement were based on May’s own account conveyed to Winnie during the communications. According to Winnie, Winnie stated her own version to see if May agreed or not. May then said she could not remember Winnie’s advice to her on 14 March 2016 but it seemed that she gave such advice on 15 March 2016. So the draft was prepared in terms of paragraphs 9 and 10 therein.

58.The plaintiff submits that Winnie’s above account is contradicted by her Supplemental Witness Statement (see §42 of the plaintiff’s Closing).

59.More importantly, the spontaneous response May gave in the WhatsApp communications, which has been adduced by way of hearsay notice, serves as cogent evidence that May did not agree with the reference in the draft witness statement that she seemed to have been advised about the Certificate by Winnie.

60.In the final analysis, the plaintiff submits that Winnie’s account cannot not be believed, in particular matters relating to her advice given to May about the Certificate.

61.The defendant has given a comprehensive response to the plaintiff’s various criticisms of Winnie’s evidence, which I think should be quoted in full as follows.

62.There is no basis for the plaintiff’s allegation that Winnie was “casual about the truth and about what actually happened”.

(1) That Winnie did not mention in §26 of her WS that she had made corrections to the draft Statutory Declaration at the office of Tung & Associates is beside the point. Neither the contents of the Statutory Declaration, the manner in which the Statutory Declaration was finalised, nor the date of when the Borrower searched for the original title deeds, was a pleaded issue in this action. The purpose of her WS §26 was simply to say the Borrower had executed and confirmed the contents of the Statutory Declaration on 15 March 2016 before an independent solicitor of Tung & Associates.

(2) Winnie’s evidence that she had had telephone conversations with May before sending over May’s draft statement is also by no means inconsistent with her Supplemental Witness Statement §16. Winnie’s Supplemental Witness Statement §16 does not say that she prepared the draft statement based solely on her recollection of events with reference to contemporaneous documents. Given that the draft statement contained various details that would be known only to May (such as May’s career history, how she knew Law, her work in the Gain Global Corporation Ltd etc), the fact that Winnie had conversed with May before sending over the draft statement is not in the least surprising. See Winnie’s WhatsApp message to May on 18 December 2017, for example, where she expressly invited May to call her if there was anything May did not understand. The preparation of the draft statement was clearly understood to be a collaborative process between the two.

63.The defendant further submits that Winnie answered questions fairly, as is consistent with how she conducted herself generally. For example:

(1) When preparing the draft statement for May, she took care not to put words into the statement with which May would not agree. When messaging May on WhatsApp about May’s draft statement, Winnie also did not think it is necessary to be confrontational or to pressurise May to sign anything, but instead showed understanding of May’s difficulties and worries.

(2) When asked why her police statement did not contain details about her advice on the Certificate, she answered fairly that the purpose of a police statement was not to prove that she had given the correct advice to the plaintiff.

64.It is the defendant’s case that Winnie did advise May that a Certificate should be obtained from the Borrower to remove any doubt over his identity. The defendant invites the court to find the following as facts.

(1) On 14 March 2016, Winnie advised May that the plaintiff should obtain a Certificate of the Borrower issued by the Immigration Department for the purposes of verifying the Borrower’s identity, and that the average processing time for such a certificate would be around 25 business days.

(2) In a later telephone conversation on 14 March 2016, May indicated to Winnie that the loan transaction was urgent, there was no need to obtain the Certificate, and the plaintiff had no doubt has to the identity of the Borrower. May confirmed that the plaintiff wished to complete the transaction on the following day.

(3) In the morning of 15 March 2016, Winnie called May again to confirm that the plaintiff was satisfied with the identity of the Borrower and still wished to proceed with the loan transaction. May confirmed that the plaintiff would still proceed with the transaction despite the loss of the original title deeds and the absence of a Certificate.

65.As Winnie explained in her Witness Statement §§10(b) and 17, due to competition in the non-bank lending market, money lender clients generally want to complete a loan transaction within 2 or 3 working days. In Winnie’s experience as a conveyancing lawyer representing money lenders, in almost each of the cases where the borrower had lost the original title deeds the money lender did not wait for the Certificate as advised because they wanted to complete the loan transaction urgently. In the present case, May instructed Winnie on 14 March 2016 that the drawdown should be on the next day on 15 March 2016. It was therefore the plaintiff’s calculated commercial decision not to wait 25 business days to get the Certificate, which would expose the plaintiff to the risk of losing the client given the considerable urgency of the transaction.

66.The defendant submits there is every reason to accept Winnie’s evidence on this matter:

(1) Her evidence is corroborated by her contemporaneous Attendance Notes on her calls with May on 14 and 15 March 2016. As Winnie answered in her cross-examination, the Attendance Notes of 14 March 2016 were written when she was about to clock off on the day, whereas the 15 March attendance notes were written after the phone call in the morning of the day.

(2) Neither Peter nor Joel gave evidence (or was in a position to give evidence) on whether Winnie had communicated the advice to May. As for Lau, he expressly confirmed that he was not in a position to dispute what Winnie had written in her attendance notes.

(3) Insofar as the plaintiff is suggesting that May did not in fact advise on the Certificate because her police statement did not refer to the Certificate, the suggestion is untenable. As Winnie emphasised in her oral evidence, (a) she did not personally draft the police statement, (b) the purpose of her police statement was to assist the police in their attempt to arrest the suspects, and (c) her police statement was not meant to be a complete record of advice she had provided to the plaintiff.

(4) Winnie’s evidence is also in no way undermined by the contents of §§9-10 of the draft statement she prepared for May on 19 December 2017. As Winnie explained, she had had telephone conversations with May on 18 December 2017 prior to emailing May the draft statement. When Winnie relayed her version of the events to May, May said she did not remember whether Winnie had mentioned the Certificate on 14 March 2016 but said that she “seemed to remember” that Winnie had mentioned the Certificate on 15 March 2016. Since the draft statement was May’s statement and Winnie did not want to put words into the document which May did not say that she recalled, the wording in §§9-10 was adopted.

(5) Although it was surprising to Winnie that May subsequently said on 19 December 2017 that Winnie had in fact not mentioned the Certificate, it is a non-sequitur for the plaintiff to suggest that Winnie did not in fact speak to May on 18 December 2017. Winnie explained that May was very anxious at the time and had changed her version of what she remembered overnight.

(6) Besides, given that May did not testify at trial, May’s recollection that Winnie did not advise on the Certificate is strictly hearsay evidence. The defendant submits that little weight (if at all) ought to be placed on such hearsay evidence.

(a) The WhatsApp exchanges between Winnie and May on 19 December 2017 took place almost 2 years after the transaction. It was not contemporaneous evidence, and the significant lapse of time could well have affected May’s recollection of the events.

(b) It is plausible that May would have motives to conceal or misrepresent matters. As Winnie observed, May was worried about being blamed by her boss and about any personal legal liabilities. It should also be borne in mind that May was rewarded commission for the transaction through Global Hill, and so she had a vested interest to cause the plaintiff to swiftly proceed with the loan transaction.

(c) May’s recollection of the events is directly contradicted by Winnie’s contemporaneous Attendance Notes.

(7) Winnie’s reactions to May’s WhatsApp messages have been thoroughly explained in Winnie’s evidence. During cross-examination, the plaintiff accused Winnie, for the first time in these proceedings, that she was exerting unnecessary pressure on May not to say what she considered to be the truth. The accusation is baseless. As explained by Winnie, given that May had regarded the plaintiff’s solicitors as “the other side’s lawyer”, and since Winnie thought that May was helping the other side by not telling the truth, that was why Winnie made the suggestion to May not to help either side.

(8) Insofar as the plaintiff challenges the reliability of Winnie’s attendance notes by reference to alleged discrepancies between the notes and §5 of the Borrower’s Statutory Declaration, the attempt must fail.

(a) Winnie testified that although her Attendance Notes on 14 March 2016 recorded that “the Borrower discovered he lost his title deeds immediately after renovation”, the contents of §5 of the Statutory Declaration (as to the Borrower’s last attempt to search for the title deeds in March 2016) came from the Borrower’s own mouth when Winnie met with him in the afternoon of 15 March 2016.

(b) It makes no sense for the plaintiff to suggest that Winnie should have included the Borrower’s latest instructions in her 15 March 2016 Attendance Notes, as those notes had been prepared in the morning of the day. It is likewise unreal for the plaintiff to suggest that May should have made supplemental attendance notes to record the Borrower’s instructions in addition to recording them on the executed version of the Statutory Declaration. Notably, these allegations are all not part of the plaintiff’s pleaded case.

(c) Generally, as Winnie explained, her attendance notes were meant to contain only important points as an aide memoire. She was not obliged to record her decision to omit unnecessary details from the notes.

(9) For all the reasons above, the defendant invites the court to find that Winnie’s attendance notes are contemporaneous records of her telephone conversations with May on 14 and 15 March 2016.

67.Having carefully considered the rival contentions of the parties, and applying the test set out at paragraph 38 above, I accept the defendant’s submissions as quoted in paragraphs 62 to 66 above. Accordingly, I reject the plaintiff’s criticisms of Winnie’s evidence as set out in paragraphs 44 to 60 above. Whether taken individually or collectively, I am not satisfied that such criticisms would cause me to find that Winnie’s evidence cannot be believed or that she is an untruthful witness. In the premises, I make the finding of facts as set out in paragraph 64 above.

ISSUE 1: WHAT DUTIES WERE OWED BY THE DEFENDANT TO THE PLAINTIFF?

68.Where there is a retainer, the extent of a solicitor’s duties depends upon the terms and limits of the retainer and any duty of care to be implied must be related to what he is instructed to do. There is no such thing as a “general retainer”. The court must beware of imposing on solicitors duties which go beyond the scope of what they are requested or undertake to do. See Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 at 402G-H, 403A-B (Oliver J), adopted in part by this court in Yip Kin Kwan Kenneth v Rich Well Finance Ltd [2020] HKCFI 456 at §59.

69.The nature of a solicitor’s duty was helpfully summarised by Stock J (as he then was) in Foshan Hua Da Industrial Co v Johnson, Stokes & Master (a firm) [1999] 1 HKLRD 418 at 425A-426F. Relevantly:

(1) A retained solicitor owes a duty to his client, both in contract and tort. The duty of a solicitor is to exercise that reasonable degree of skill and care to be expected of a competent and reasonably experienced solicitor.

(2) Where a solicitor is asked to advise upon one matter then, as a general rule, he is not obliged to advise on different points though related, unless the connection is so close and reliance placed in the solicitor to advise generally so obvious, that advice on related points may be required.

(3) The duty of a solicitor might be affected by the experience or inexperience of the client, in the sense that a client inexperienced in the field in which he seeks advice is entitled to expect the solicitor to take a much broader view of the scope of his retainer and his duties than will be the case with an experienced client.

(4) A solicitor is not, in the absence of unequivocal instructions and acceptance by him to do so, expected to advise upon the commercial good sense of a business proposition, whether he should or should not, as a matter of commercial advantage, proceed with a transaction, whether a transaction is or is not good business or prudent, although where it is evident that a client relies on the solicitor for more than legal advice, the solicitor may be under a duty to refer the client to an appropriate source or sources of information.

(5) The solicitor has a duty to advise on the legal hazards of the transaction, but no more. It is the duty of the solicitor to inform and advise, ensuring that the information and advice was understood by the client. It is not part of his duty of care to force his advice on the client.

70.Whether a solicitor has agreed to undertake an unqualified obligation to perform a task depends on the construction of his retainer.

(1) The court should be cautious about holding that a professional has undertaken an unqualified obligation in the absence of clear words to that effect. See Platform Funding Ltd v Bank of Scotland plc (formerly Halifax plc) [2009] QB 426 at §30 (Moore-Bick LJ), 45-48 (Rix LJ).

(2) In Midland Bank plc v Cox McQueen [1999] PNLR 593, the solicitors were retained by a lending bank to obtain the signature of the customer and his wife on a charge, but her signature turned out to have been forged by an imposter. The bank sued the solicitors, contending that they had undertaken an absolute duty to obtain her signature. The English Court of Appeal rejected the bank’s argument and held that the solicitors were not liable. Lord Woolf MR (with whom the other members of the court agreed) said at 603A that clear terms would be required if commercial institutions such as banks wished to impose an absolute liability on members of a profession. At 604F-G, Mummery LJ said that professional services provided by the solicitors would not normally involve the guaranteeing of a result by them, such as verifying the identity of the signer, let alone providing the bank with what would amount to an insurance policy against the risk of fraud.

(3) Cox McQueen was followed and applied in a number of solicitors’ negligence cases in Hong Kong that involved identity fraud. See eg Ying Ho Co Ltd v Man Kwok Leung [2000] 3 HKLRD 191 at 196G-197D (Leong JA, as he then was); Rich Well Finance Ltd, Supra, at §88.

71.The plaintiff contends that the defendant was under a duty to exercise reasonable skill and care, which required the defendant to (1) satisfy itself that the Borrower had good title to and/or sufficient interest in the Property; (2) verify the identity of the Borrower; (3) exercise greater vigilance in checking all other available documents which might tend to indicate the Borrower’s good title to the Property or otherwise; and (4) ensure that the plaintiff could obtain a good title under the Mortgage.[2]

72.The defendant submits that such a contention should be rejected.

73.The defendant was instructed by the plaintiff in the Instructions Email to investigate title and prepare the Mortgage and the Rental Assignment, after having received certified true copies of the title deeds from the plaintiff on 12 March 2016. The defendant submits that it had fully discharged its duties by checking whether the registered owner (Kuan) had good title to the Property and by preparing the Mortgage and the Rental Assignment.

74.While the defendant was under a duty to exercise reasonable skill and care, the defendant specifically denies that the duty extended to cover the matters pleaded in ASOC §13 and Reply §12. I have carefully considered and accept as correct the defendant’s stance as follows.

75.First, the defendant never assumed any absolute or unqualified obligations to ensure or warrant that the plaintiff could obtain a good title under the Mortgage. No words to that effect were included in the Instructions Email. In light of the principles identified at paragraph 70 above, the defendant’s duty to “investigate title” as instructed was merely a duty to exercise reasonable care and skill. There was no undertaking by the defendant to insure against any identity fraud. The precise scope of the defendant’s duties has to be considered against this basic light.

76.Second, the defendant was not under any duty to verify the identity of the Borrower or to satisfy itself that the Borrower was himself the registered owner of the Property.

77.There was no express term in the Instructions Email requiring the defendant to verify the Borrower’s identity or satisfy itself that the Borrower (as opposed to the registered owner of the Property) had good title to/sufficient interest in the Property:

(1) the defendant’s instruction to “investigate title” must be properly understood. There is a critical difference between an instruction to check that a registered owner has good title to the property, and an instruction to be satisfied that the person with whom the client is dealing has himself a good title to the property. The plaintiff must have been alive to this distinction. When cross-examined, Peter expressly agreed that, preparations of the Mortgage and the Rental Assignment aside, the defendant was only instructed to “check that the registered owner had good title to the Property”.

(2) In Rich Well Finance, Supra, the solicitors were expressly instructed to carry out “satisfactory title investigation” and to prepare a second mortgage in favour of the licensed moneylender. However, an imposter purporting to be the registered owner of a property signed the relevant documents required by the moneylender. After discovering the fraud, the moneylender claimed against the solicitors alleging that they owed duties to verify the identity of the signatory (§56(2)). This court dismissed the claim. I emphasised that (a) there were no specific instructions for the solicitors to take steps to verify the borrower’s identity (§§88(1), (7)); (b) it was up to the moneylender how to verify the information provided by the applicant (including his identity) (§88(3)); and (c) it was reasonable for the solicitors to assume that the moneylender had taken necessary and appropriate steps to itself verify the identity of the applicant (§88(9)).

(3) The plaintiff’s contention that the defendant was duty-bound to be satisfied that the Borrower was the registered owner of the Property or had good title to the Property would be tantamount to saying that the defendant had a duty to ensure that the Borrower was the registered owner of the Property or had good title to the Property. Such a contention is against the authorities cited in paragraph 70 above and is clearly wrong. See particularly Cox McQueen, Supra, at 604F-G (Mummery LJ), where his Lordship said that “Professional services provided by the solicitors would not normally involve guaranteeing of a result by them, such as verifying the identity of the [signer], let alone providing the bank with what would amount to an insurance policy against the risk of fraud occurring…” (Emphasis added).

(4) As long as the identification documents produced by the Borrower are on their face genuine and without any apparent irregularities, it is unnecessary for the defendant to go and search for other independent documents to verify the Borrower’s identity. “If there were nothing irregular on the face of the document the lender’s solicitor would be entitled to accept it without question. He would not be required to inquire into the circumstances in which it was executed.”. See P&P Property Ltd v Owen White & Catlin Ltd [2019] Ch 273 at §46 (Patten LJ).

78.Further, the defendant was amply justified in taking the view that it was entirely up to the plaintiff to investigate and verify the Borrower’s actual identity.

(1) As mentioned at paragraph 69(3) above, the extent of the defendant’s duty of care must be considered against the experience of the client. The plaintiff is in the business of advancing secured loans. Winnie’s unchallenged evidence is that May was very familiar with secured loan transactions. Clearly then, the plaintiff would be in a much better position than the defendant to form a judgment as to the trustworthiness of the Borrower, who was the plaintiff’s client not that of the defendant: Rich Well Finance, Supra §§88(8)-(9).

(2) The Loan Agreement also expressly provided that the loan offer was made conditional on the Borrower’s production of “all necessary and requested information and documents to [the plaintiff’s] satisfaction and verification of the same by [the plaintiff] (including but not limited to the valuation/inspection of the Properties, title to the Properties, credit reference check and…income proof”.

(3) According to Peter, based on the documents provided by the Borrower, the plaintiff had already been satisfied as to the identity of the Borrower when the Loan Agreement was signed. This is also consistent with Winnie’s evidence that May had said to her on 14 March 2016 that the plaintiff had no doubt as to the identity of the Borrower. Further, when the Loan Agreement was signed, Peter had already approved the loan transaction. On Peter’s evidence, the process leading up to the signing of the Loan Agreement did not require any input from the defendant but was solely a matter for Peter and his team.

(4) The defendant was not engaged to undertake due diligence on the Borrower or to verify his identity, which were at all times the plaintiff’s own responsibility.

79.Third, there was also no express term in the Instructions Email requiring the defendant to check “all other available documents which might indicate the Borrower’s good title to the Property”, such as documents other than the title deeds or what had been supplied by May.

80.Fourth, the plaintiff has never pleaded that any duties are to be implied into the retainer. It is not open to the plaintiff to contend by submission that the defendant’s duties are to be “implied as a matter of law” as mentioned in the plaintiff’s Opening §13.

ISSUE 2: DID THE DEFENDANT BREACH ANY OF THE DUTIES?

(1) Failure to advise the plaintiff on the need to obtain the Certificate

81.I have already found as a fact that Winnie did advise May that a Certificate should be obtained from the Borrower to remove any doubt over his identity: see paragraphs 64 and 67 above. Accordingly, the plaintiff’s complaints in this regard must be rejected.

(2) Failure to properly check the purported tenancy

82.As submitted by the defendant, the short answer is that tenancy agreements and stamp certificates are not title documents. The plaintiff did not instruct the defendant to check them or their authenticity in the Instructions Email. Contrary to the plaintiff’s Opening §25, it is Winnie’s uncontroverted evidence that there would in general be no need for a solicitor to ask to see an original tenancy agreement in order to prepare a rental assignment, since only details such as the landlord’s name, the address and the name of the tenant would have to be put down in the rental assignment. The plaintiff’s complaints in this regard must likewise be rejected.

ISSUES 3 AND 4

83.Issue 3 does not arise at all since the plaintiff’s case falls at Issues 1 and 2. Where the defendant did not commit any breach of duties, no loss was caused to the plaintiff as a result of the defendant’s breach.

84.Similarly, Issue 4 does not arise at all since the plaintiff’s case falls at Issues 1 and 2.

CONCLUSION

85.For all the reasons set out above, I order that the plaintiff’s claims against the defendant in this action should be dismissed with costs to be paid by the plaintiff to the defendant (including all costs reserved, if any), with a certificate for two counsel.

86.The above order as to costs is nisi and shall become absolute in the absence of any application within 21 days to vary the same.

87.Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.

Mr Albert Yau and Mr Leo Wong, instructed by Messrs Hau, Lau, Li & Yeung, for the plaintiff

Mr Eugene Fung, SC, leading Mr John Leung, instructed by Messrs Reynolds Porter Chamberlain, for the defendant