Feerni Development Ltd. v. Daniel Wong & Partners (A Firm)
Read the full judgment text of HCA 15803/1998 on BabelCite. This High Court CFI judgment was delivered on 21 November 2000.
1. The defendant is a firm of solicitors instructed by the plaintiff to act for it in the purchase of a ground floor shop in Tsuen Wan and in a subsequent sale of it. The purchase proceeded to completion uneventfully. It is the plaintiff's case that since then it has tried twice to sell it without success. On each occasion agreements were entered into but the purchasers discovered a defect in the title document and requisitioned for rectification. The plaintiff was unable to rectify resulting in
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HCA015803/1998 HCA 15803/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 15803 OF 1998 ____________
____________ Coram: Deputy High Court Judge Gill in Court Dates of Hearing: 16-21 October and 7-8 November 2000 Date of Judgment: 21 November 2000 _______________ J U D G M E N T _______________ 1. The defendant is a firm of solicitors instructed by the plaintiff to act for it in the purchase of a ground floor shop in Tsuen Wan and in a subsequent sale of it. The purchase proceeded to completion uneventfully. It is the plaintiff's case that since then it has tried twice to sell it without success. On each occasion agreements were entered into but the purchasers discovered a defect in the title document and requisitioned for rectification. The plaintiff was unable to rectify resulting in the cancellation of both sales. It is the plaintiff's complaint that when it purchased the shop the defendant did not alert it to the defect or raise the same requisition with which it, as subsequent vendor, was obliged to deal, or otherwise make proper enquiry, resulting in consequential loss. 2. By this action the plaintiff is suing the defendant for negligence in contract and tort to recover that loss. The defendant denies liability and quantum and otherwise puts the plaintiff to proof. History 3. Mr Chan Chi Hin (Chan) for a number of years prior to the period in question had engaged in the buying and selling of real estate, of which the shop in Tsuen Wan was a typical example, for profit. The plaintiff was one of a number of companies of which he was a shareholder and director incorporated by him for the express purpose. Much - perhaps most - of his conveyancing he entrusted to a conveyancing clerk called Mr David So Hon Shing (So). So began working in this field in 1972. In 1994 he became employed by the defendant. By the end of that year he had 22 years' experience. Although not legally qualified he was well-versed in the procedures involved in a transaction and unless something untoward happened was able to deal with a purchase and sale with minimal supervision. 4. The property market in Hong Kong is to say the least volatile. In 1994 there had been something of a slump in values and activity. 1995 saw a period of gradual recovery. In 1996 that accelerated and there was a marked increase in values and transactions which persisted through the first three quarters of 1997. Then, sparked by the South-East Asian economic crisis, there was a spectacular downturn in the final quarter of 1997. By 1998 many properties were worth only half their value of a year earlier. Hong Kong is gradually recovering from that but prices are still well below their peak of 1997. 5. During the period 1995 to 1997 the defendant comprised three partners. They were the founder, Mr Daniel Wong Kwok Tung (Daniel Wong), Mr Dennis Wong Wang How (Dennis Wong) and Mr Gordon Lee (Gordon Lee). The firm almost exclusively was engaged in conveyancing. It was so structured that each partner was responsible for those transactions that came to the firm from existing clients of that partner. Any new client without previous allegiance came to the founder Daniel Wong. Each partner was in charge of his own team of conveyancing clerks and support staff. In theory each transaction was overseen by the so-called team leader and the conveyancing clerk handling the same was required to have each conveyancing step vetted and approved before it was actioned. This included the examination of title documents, the drafting of new documents, the approval of letters of requisition and other correspondence. In practice the supervision process was less structured. The partners were sometimes busy or otherwise unavailable in which case the clerk would be directed to or of his own volition take the file to another partner or other qualified staff member. 6. When So joined the defendant in 1994 he was put on Daniel Wong's team. Given his experience and seniority and level of activity he had an assistant, called Mr Joseph Lee Siu Hung (Joe Lee). 7. Daniel Wong was the busiest of the three partners. At some stage there were up to ten clerks in his team, while Dennis Wong had three and Gordon Lee two. Not only as founder member did he have most clients but he also held public office which occupied much of his time during a typical working day. And as work piled up he was to get even busier. 8. Against this background on 5 November 1994 the plaintiff through Chan entered into a provisional agreement to purchase the shop the subject of these proceedings, whose short address is Shop 2, No. 6, Shiu Wo Street, Tsuen Wan, from the owner as vendor called Empire Rich Development Limited (Empire Rich). As in the past Chan engaged the services of So; thus the provisional agreement came to him as employee of the defendant. In the usual way that was superseded by a formal agreement prepared by the solicitors for Empire Rich called Boris Lui & Co (Boris Lui) and the final draft was approved by the defendant before the parties signed. 9. The agreement was dated 5 December 1994. The price was $9.5m and the due date for completion 4 April 1995. In compliance with its terms and usual conveyancing practice Boris Lui by letter of 6 December 1994 sent what they described as all the relevant title deeds and documents to the defendant for perusal against the usual undertaking to hold the same returnable on demand. 10. By letter of 9 December 1994 over the signature of Daniel Wong the defendant raised a number of requisitions. This letter was to play an important part in these proceedings as I shall come to. The requisitions were answered satisfactorily or otherwise resolved. The sale came to be completed without incident on completion date. 11. The next development of consequence was the plaintiff's decision to sell the shop. By provisional agreement dated 20 August 1996 it agreed to sell it to a Mr Ng King Ming (Ng) for $11.4 m. Chan instructed the defendant to deal with the conveyancing. So opened a file. In the fullness of time the parties agreed the terms of the formal agreement and the same was signed and dated 3 September 1996. The due date for completion was 31 October 1996. Ng paid deposits totalling $1.14m. On 11 September the defendant sent to Ng's Solicitors, Messrs Siao Wen Leung (Siao Wen) the title documents for perusal. By letter of 18 September Siao Wen raised a number of requisitions, only one of which is relevant. I repeat it verbatim:-
12. The defendant did not immediately respond to this requisition and when they did it was not back to Siao Wen. By letter of 11 October they referred the requisition to S Y Chu & Co. Solicitors (S Y Chu) which firm had prepared the assignment in question. 13. I come now to the history of assignment 514441. 14. In 1987 the then registered owner of the shop was one Mr Kwok Hung. In July of that year he died intestate, survived by a wife and four children. One of these, called Mr Kwok Chun Wai (C W Kwok) applied for and was granted Letters of Administration on 26 February 1988. He was to deal with the shop shortly afterwards. In his capacity as personal representative of the estate he entered into an agreement for the sale of the shop to Empire Rich, the company that was to become the plaintiff's vendor. But this was not an arm's length transaction. C W Kwok was also at the material time one of two directors and a 50% shareholder of Empire Rich. In fact he signed the agreement and the subsequent assignment which was to become designated assignment 514441 as both vendor and for and on behalf of the purchaser. 15. Section 55 of the Probate and Administration Ordinance (PAO) states:-
16. It was C W Kwok's dual role and the risk that Section 55 PAO rendered assignment 514441 voidable as a consequence that was troubling Siao Wien. 17. S Y Chu replied by letter of 16 October the text of which was as follows:- "S. Y. CHU & CO.
18. The defendant did not get back to Siao Wen until 24 October following a second request to do so of the day before. So had left Hong Kong for a short holiday on 23 October and was not due back at work until 3 November, after the due date for completion. In his absence his assistant Joe Lee handled the file. He handed it and this response to Dennis Wong, who wrote to Siao Wen on 24 October as follows:-
19. This was not accepted by Siao Wen. They responded on 25 October as follows:- "SIAO, WEN AND LEUNG
20. Thus there was an impasse. 21. The upshot was that the parties agreed to postpone the completion date to 9 November and share the cost of a legal opinion from a barrister called Mr Paul Lam whom Siao Wen briefed. 22. In the meantime, notwithstanding the defendant's stance denying any defect in title, So had before going on leave on 23 October sought documentary evidence from S Y Chu that the Kwok estate beneficiaries had approved the sale to Empire Rich, and renewed his efforts upon his return on 3 November. But nothing was forthcoming by the deadline. 23. Mr Lam's advice of 1 November was that the sale was an indirect one to C W Kwok, and caught by Section 55 PAO. In his view the title could be defeated by a claim by a beneficiary of the late Mr Kwok's estate and thus the plaintiff had not shown good title. 24. The parties elected to cancel and executed a cancellation agreement. Ng received back his deposits. The circumstances surrounding Chan's election to cancel are disputed as I shall come to. 25. The next development was Chan's decision to rent the shop. Although on a single title the shop was in fact subdivided into two portions. Shop A was let first, for four years from 5 February 1997. So was engaged by the plaintiff to undertake the conveyancing and he did so, apparently under the supervision of Daniel Wong. 26. But after that the plaintiff's and Chan's relationships with the defendant came to an end. The plaintiff instructed another firm called Tang Wong & Cheung (Tang Wong) to write to the defendant alleging negligence in the performance of their duties when the plaintiff purchased the shop, threatening a suit if the plaintiff's consequent loss could not be settled. That letter was sent on 25 March 1998. The defendant responded by letter of 1 June 1998 emphatically denying negligence, and gave the reason for the cancellation which I repeat verbatim:-
27. Daniel Wong signed this letter. 28. The allegation was immediately denied by Chan and Tang Wong responded to that effect. There was more correspondence but no resolution. Tang Wong issued the writ on 16 September 1998. 29. But in the meantime Daniel Wong had made contact with C W Kwok, and Kwok told him that at the time of the sale to Empire Rich the family had all approved the same. He then produced a copy of an agreement handwritten in Chinese characters, dated 18 May 1988, purportedly signed by all five beneficiaries, with one, the widow, C W Kwok's mother, having signed by a mark. Daniel Wong prepared a declaration for C W Kwok to sign and he did so. The copy agreement was attached to it, and the defendant then registered the declaration on 2 June 1998. When it was returned by the Land Registry he forwarded the same to Tang Wong, "without prejudice and without any admission". 30. Next the plaintiff rented the second portion of the shop, shop B, for 34 months from 5 July 1998. 31. With the defect in title apparently made good, the plaintiff then put the shop back on the market, found a buyer and entered into a provisional agreement dated 5 November 1998 for completion on 19 July 1999. The price was $7.95m. 32. But this transaction was to go off also. 33. During the normal requisition process Tang Wong called for the original or in the alternative a certified true copy of the Chinese agreement. This was retrieved from S Y Chu. But it proved to be a different document from the copy exhibited to C W Kwok's declaration. In particular a crucial sentence was missing, translated to read "And agreed to sell the property to Empire Rich Development Limited", suggesting it may have been added subsequently. This discrepancy could not be satisfactorily answered so that agreement was cancelled also. 34. The last chapter in the history was written within the month preceding the date of trial. Daniel Wong prepared a document headed 'Confirmatory Assignment' to be executed by the Kwok family beneficiaries to rectify the assignment to Empire Rich, and then took it upon himself personally to trace the Kwok family members and have it signed. In fact he did manage to find all but the widow who had died. This document has now been signed and if not yet registered can be, and by all accounts now rectifies the title. Dispute of Fact 35. Crucial to the outcome of this case is how I resolve the dispute as to the circumstances leading to Chan agreeing on behalf of the plaintiff to a cancellation of the Ng sale. To deal with this I recount the evidence of the parties where the conflict seems to arise. 36. I return to 25 October 1996. 37. Completion was due six days hence and Siao Wen on that date had written insisting that there was a defect in title. So was on leave. According to Joe Lee's account Chan asked him to arrange a meeting with a solicitor to discuss the problem and he arranged that with Dennis Wong. At the meeting Wong told him that in his view there was no defect and if Ng refused to complete he could forfeit the deposits. On the other hand that might result in litigation with inherent risks. Chan said he would think about it. The meeting then ended. Dennis Wong in evidence confirmed that there was a meeting, and that was what was said and how it was left. 38. Next came a telephone call of 31 October from Siao Wen which Joe Lee received, proposing a nine day extension of the completion date and that the parties share the cost of counsel's opinion on the disputed point. He referred the suggestion to Chan who told him to accept. That was passed on to Siao Wen which gave rise to their letter of 31 October confirming the arrangement. 39. By the time the opinion reached the defendant's office on 6 November to the effect that the title was defective So had returned from leave and the file was back with him. His evidence is that he telephoned Chan and explained its contents and they met in his office. I revert to his witness statement as to what he said took place:-
40. The underlining is mine. 41. Chan has a different version of events. 42. I repeat verbatim that part of his witness statement which deals with the period:-
43. In the witness box he consistently denied that he had said the plaintiff was not eager to complete the sale because of the sharp rise in the property market. He said that this would have made no sense, because with the title apparently defective there would be no market for the shop at least not at market value. He said that shortly before the rescheduled completion date So took him to see Dennis Wong, who explained that the purchaser Ng was refusing to complete. Wong told him he could not forfeit the deposits because the title was defective. Wong proposed that the transaction be cancelled. He agreed because that was the only feasible option. In the months thereafter he persistently contacted So to get the title sorted. He wanted to sell but realised there would be no market unless this was done first. He resorted to letting the two parts of the shop when it seemed that this could not readily or quickly be dealt with. 44. Dennis Wong denied involvement in the file following So's return from leave; in particular he denied there was the meeting Chan referred to. But So confirmed that from November 1996 Chan did chase him along. 45. Though clearly there is a conflict as to who met whom in the run up to the completion date I do not propose to resolve that beyond the crucial aspect of whether Chan really did opt for cancellation with profit as the sole or primary motive. On this issue when he was under cross-examination So was much less forthright then in his witness statement. He admitted that after 10 years of looking after Chan's conveyancing it thereafter dried up. He said that was not surprising - "Mr Chan was more or less upset..........I knew Mr Chan well. In his eyes I had done something wrong..........I was the one who caused him trouble. So of course I would feel sorry." 46. And there was a telling exchange which I repeat verbatim:-
47. I come now to Chan's evidence under cross-examination. 48. When counsel was dealing with the proposition that he was motivated by a rise in the market to cancel he said:-
49. Only Chan and So gave evidence on this topic. Chan was forthright that he was not motivated to cancel to take advantage of a potential rise in profit. So appeared to concede that. There is no dispute that after cancellation Chan chased So to get the problem fixed. Common sense dictates that any perceived gain in value was dependent on the title being clear. 50. I am satisfied that Chan cancelled because, on advice or not, he was satisfied that he could not hold Ng to the bargain. He did not opt to insist on completion because his title was bad. There was, quite simply, no other choice. 51. I come now to the issues. The Issues (1) Did the defendant owe a duty of care in contract and tort to the plaintiff in the conveyancing when the shop was purchased, and thereafter? (2) Was the defendant negligent in the performance of those duties? (3) If so, is it liable in damages for loss suffered by the plaintiff? (4) If so, to what extent? Solicitor's Duty of Care 52. There is an implied term in any contract of service between a solicitor and his client that the solicitor should carry out the services with reasonable care and skill, a duty he owes his client in tort as well. 53. In the case of Foshan Hua Da Industrial Co. v. Johnson Stokes & Master [1999]1 HKLDR418 Stock J (as he then was) said at p. 425:-
54. In Hong Kong there is a statutory obligation implied in any contract for the supply of a service under Section 5 of the Supply of Services (Implied Terms) Ordinance Cap.457. That states:-
55. Where the contract of service is as a conveyancer acting for and on behalf of a purchaser client there is a duty to ensure that the vendor can show and give good title. 56. In Jackson & Powell on Professional Negligence, fourth edition, the authors quote from Graybiar Industries Limited v. Davis & Co (1992)46 BCLR 164 per Thackray J at p.181:-
57. Where a solicitor's client undertakes a course of conduct in reliance on the advice of the solicitor and thereby suffers loss, he may not recover that loss in damages just because the advice was wrong if based on an error of judgment and no more than that. 58. In Bannerman Brydone Folster & Co. v. Murray & another [1972] NZCR 411 North P said:-
59. The law is clear. The defendant did owe a duty of care to the plaintiff whilst it carried out the plaintiff's conveyancing, within the standards dictated by the authorities and statute. Was the Defendant Negligent? 60. I return again to November 1994 by which time the defendant had contracted to act for the plaintiff in the purchase of the shop. Assuming due compliance with the defendant's normal practice So carried out a preliminary search of the vendor's documents of title, before handing them to his supervising solicitor for a further check. The requisition letter was sent on 9 December 1994. I make this assumption because not surprisingly neither So nor Daniel Wong have any specific memory of this file, given the volume of conveyancing transactions passing through the office. But apart from So being in Daniel Wong's team the requisition letter in question was signed by Daniel Wong, which is a further pointer. 61. I have earlier mentioned this letter was a crucial one. It is Daniel Wong's evidence that he did not include in the list of requisitions reference to assignment 514441 (C W Kwok to Empire Rich) because it is his opinion now and would have been then that the transaction was not caught by Section 55 PAO. No requisition was made because none was necessary. 62. It has been argued on the defendant's behalf that this was a correct interpretation of Section 55 PAO, by virtue of the purchaser being a separate legal entity from the vendor. And the defendant could not be guilty of negligence if Daniel Wong was correctly applying the law. But even if Daniel Wong was wrong it was an error of judgment that a competent and careful solicitor could have made, falling well short of amounting to a breach of a duty to exhibit reasonable care and skill. 63. That is all well and good, but I do not accept Daniel Wong made this judgment call. The form in which assignment 514441 was presented cried out for an explanation. Although Section 55 PAO is not clearly drafted, a conveyancer of the experience of Daniel Wong would be well aware of the obligations the appointed administrator of an estate owes to the beneficiaries and the restrictions imposed on him while in office. 64. I quote from Williams Mortimer & Sunnuks on Executors Administrators and Probate, 17th edition at p. 703:-
In Re Boles [1902] 1 Ch 244, Buckley J said at p.244:-
65. The solicitor of experience would surely have raised a requisition, as solicitors for subsequent purchasers were to do. 66. Daniel Wong did not. 67. In the circumstances I am satisfied that Daniel Wong took no steps because neither So before him nor he spotted the potential defect. The letter of requisition was silent on assignment 514441 because the clerk and solicitor in the defendant responsible failed to inspect it and find that the person who signed as the vendor administrator and for and on behalf of the purchaser was one and the same. If any further pointers to this inevitable conclusion are necessary they include So's recognition he was blameworthy for the plaintiff's loss, and Daniel Wong's going to the expense and trouble of preparing and arranging execution of C W Kwok's declaration that exhibited the Chinese agreement and then the confirmatory assignment, so recently concluded. 68. What should have happened? 69. A solicitor possessing adequate skills and knowledge and the requisite experience would have in the conveyancing transaction of November 1994 noticed the irregularities revealed by assignment 514441 and related documents and raised a requisition. Whether or not the transaction would have proceeded would have depended upon the vendor's response. In the event that it might have chosen to reject the requisition there would in that case have been the need for careful analysis of the law, followed by advice to the client, whose instructions would then be called for in informed circumstances. 70. But of course none of this did happen. 71. Applying the tests I find that the plaintiff has satisfied the necessary burden of establishing that the defendant's Daniel Wong failed to exercise that reasonable degree of skill and care to be expected of a competent and reasonably experienced solicitor in acting for a client in the purchase of a shop and it was thereby guilty of negligence. 72. Before departing from the issue of liability I mention that the plaintiff has pleaded and it has been argued that the defendant was in further breach of its duty of care to the plaintiff because of its conduct in the aborted sales of August 1996 and November 1998. 73. With respect these are red herrings. The want of duty of care was in December 1994. The plaintiff's failure to pass good title in the subsequent transactions which caused the cancellation stemmed from that breach. The events that subsequently transpired go to the liability in damages I now come to. Is the Defendant Liable to the Plaintiff in Damages? 74. I have found and stated earlier that the cancellation of the August 1996 sale to Ng was caused not by Chan's decision to hold out for a higher price, but because of the defect in the plaintiff's title gave it no option. The plaintiff's claim arises from the loss of profit that it would have won had the sale gone through. But is the defendant liable for this? 75. I have already found that the defendant was in breach of its duty of care when acting for the plaintiff in the purchase of the shop. Had it been otherwise the defect in title would have been discovered and a requisition letter been sent. Whether or not the vendor would have been able to make good the defect in time is a matter of speculation; given the difficulties subsequently encountered in tracing the Kwok family members it may well not have been. Chan in evidence said that he would not have completed at any price in such circumstances. So what would he have done? Would he have recovered the plaintiff's deposit and done nothing or have purchased an alternative shop of like value but with a good title? And would he have put it on the market in August 1996? All this is unknown. But I pay heed to Chan's field of endeavour and that of the plaintiff. He is an investor in real estate and the plaintiff was one of a number of companies incorporated by him for the purpose. This was what he did. And So said he undertook numerous conveyancing transactions on his behalf. 76. The burden is on the plaintiff to prove its loss. I quote from McGregor on Damages sixteenth edition at p.236:-
77. In the circumstances of this case and as a matter of fact I am satisfied that the plaintiff if forced to withdraw from the sale of the shop would have entered into a similar transaction with similar expectations of profit at the same time. According I find the defendant liable for the consequential loss suffered by the plaintiff when the August 1996 sale went off which is the profit it would have gained after the sale or a similar profit won on a like investment. 78. So, what would that amount to? The Assessment of Damages 79. The overriding rule in assessing damages is to ascertain the sum that would place the injured party in the same position as he would have been if he had not sustained the wrong. Accordingly, no basis for assessing damages for negligent advice would be applied automatically so as to defeat that rule and, in applying that rule, it is necessary to select a date that would reflect accurately the loss sustained which was usually but not necessarily the date of the breach of duty. 80. In County Personnel Ltd. v. Alan R. Pulver & Co. [1987]1 WLR 916 Bingham L.J. said at p.925:-
81. In McElroy Milne v. Commercial Electronics Ltd. [1993]1 NZLR 39 it was held that the negligent solicitor of the plaintiff vendor has to take the state of the market at the date when in fact it became possible for the plaintiff to offer the property for sale free from dispute. In this case where the respondent property developer (CEL) lost the opportunity to enjoy the benefit of a buoyant market which had collapsed by the time it was clear to sell because of negligence by its solicitors the appellant, Cooke P. said at p.44:-
82. In this case Daniel Wong rectified the title defect, but not until just before the trial date. 83. In all the circumstances of this case I propose to establish the plaintiff's loss that it may recover by taking the contract price in the Ng sale, less costs of sale, plus conveyancing costs thrown away, less net rentals earned meantime, less the present value of the shop, plus interest. The Measure of Damages 84. First it is necessary to establish the current worth of the shop. 85. In this respect I have had the benefit of their reports and live evidence from the two valuers employed by the parties for the purpose; Mr Raymond Hui for the plaintiff and Mr Ian Cullen for the defendant. Both are registered professional surveyors with the qualifications and expertise to undertake such reports and give evidence. 86. Mr Hui was put at something of a disadvantage because he was only briefed on 16 October 2000, the first day of trial. The plaintiff's advisers were in all respects prepared and ready for trial on time save that, curiously, no steps had been taken to value the shop. There was an early application for a spilt trial but the defendant opposed that course, and I declined the request. With no disrespect or criticism attaching to Mr Hui, for he had an onerous task which he completed in just three days, I prefer the methodology, calculations and comparables in Mr Cullen's report. He valued the shop at $7.5m. I discount that by a modest amount to recognize a discount in rent agreed after he had prepared his figures. I assess its current worth at $7.45m. The measure of damages is as follows:-
together with interest at prime rate plus 2% from 31 October 1996 to date of judgment. The Orders 87. There shall be judgment in favour of the plaintiff in the sum of $1,301,380 together with interest thereon at prime plus 2% from 31 October 1996 to this date and thereafter at judgment rate until payment. 88. Liberty to apply. 89. Costs shall be to the plaintiff taxed if not agreed. This order as to costs shall be nisi at first instance.
Representation: Mr Valentine Yim, instructed by Messrs Wong Packwood & Co., Solicitors for the plaintiff Mr Godfrey Lam, instructed by Messrs Baker & McKenzie, Solicitors for the defendant |
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