Desmond Yiu Chown Leung and Others v. Chow Wai Lam William and and Another
Read the full judgment text of HCA 14713/1999 on BabelCite. This High Court CFI judgment was delivered on 14 July 2003.
1. These actions arise out of two loan transactions between the plaintiffs and one Chapol Ltd ("Chapol"). The first one, with which Action No.14173 of 1999 is concerned, was for $5,000,000.00 and the second, with which Action No.14712 of 1999 is concerned, was for $3,000,000.00. Both sums were lent for short terms at high interest on the security of units in a building in Aberdeen called Yan's Tower, which were said to be owned by Chapol. In the event of default the units were to be sold to the
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HCA14712/1999 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.14712 OF 1999 --------------------
-------------------- AND ACTION NO.14713 OF 1999 --------------------
-------------------- (HEARD TOGETHER) Coram: Deputy High Court Judge Muttrie in Court Dates of Hearing: 9-13 and 16-17 June 2003 Date of Judgment: 14 July 2003 ----------------------- J U D G M E N T ----------------------- 1.These actions arise out of two loan transactions between the plaintiffs and one Chapol Ltd ("Chapol"). The first one, with which Action No.14173 of 1999 is concerned, was for $5,000,000.00 and the second, with which Action No.14712 of 1999 is concerned, was for $3,000,000.00. Both sums were lent for short terms at high interest on the security of units in a building in Aberdeen called Yan's Tower, which were said to be owned by Chapol. In the event of default the units were to be sold to the lenders at a fixed price which was lower than the market price. Chapol defaulted, but the security turned out to be worthless, in that the units were encumbered by mortgages and were not solely owned by Chapol. The lenders lost their principal although they had been paid some of the agreed interest. They obtained judgments against Chapol and petitioned for its liquidation, but apparently recovered nothing. The measure of their damages is the unrecovered judgment sums. 2.The 1st and 2nd defendants are solicitors, and the 3rd defendant is their firm. The plaintiffs' case is that they relied on the 1st defendant, Mr William Chow Wai Lam ("Mr Chow") as their solicitor in advising them and in drawing up the loan agreements and, in the case of the first loan, two supplemental agreements. The claims are brought in both contract and tort. The plaintiffs' case is that in both instances, the liability in contract and tort co-existed, but in any event, even if there was no contract, Mr Chow had also assumed a duty of care to the plaintiffs and the defendants are liable in tort. 3.Mr Chow denies having advised the plaintiffs, or having drafted the agreements, which he says were merely brought to him so that he could witness the parties' signatures on them, as a favour to Chapol's representative, his friend Mr Yan Kwok Kei, Gay ("Mr Yan"). 4.Chapol was a company wholly owned by the Yan family who operate the business of Yan Chim Kee, a candy and ice cream supplier well known in Hong Kong. The key figure in the two cases is Mr Yan, a shareholder and director of Chapol, who unfortunately has not been called as a witness by either side. He went to the same secondary school as the 1st plaintiff, Mr Leung Yiu Chown, Desmond ("Mr Leung") and they renewed their acquaintance in the 1980s. Mr Yan and his siblings were all friends of Mr Chow; his father and their father were also friends. 5.The first loan came about because in late 1994, a mutual friend Mr Ngai told Mr Leung that the Yan family were constructing a building, Yan's Tower, in Aberdeen, and needed money for its completion. The loan was to be for a short term, at an attractive rate of interest. Mr Leung consulted his business partner, Mr Yip Sam Lo ("Mr Yip") and they agreed to put up the money. In fact Mr Leung put up $500,000.00 and Mr Yip and his wife Madam Tai Ruth Fung ("Madam Tai") put up $4,500,000.00. 6.The second loan came about because Mr Yan told Mr Leung that he needed another $3,000,000.00. This time, Mr Leung and his friend Mr Wong Wan Hay ("Mr Wong") put up the money; Mr Leung put up $2,500,000.00 and Mr Wong $500,000.00. They formed Goodresponse Investments Ltd ("Goodresponse"), a BVI company, to act as the lender. The Documents 7.It is necessary to describe these first, because one of the main issues is whether as the plaintiffs claim they were drafted by Mr Chan, and engrossed by his firm. 8.The first loan agreement was reduced into writing in the form of a written agreement dated 31 December 1994. The original was produced as Exhibit P1. The parties to the loan are Madam Tai as lender and Chapol as borrower. The loan is for a term of six months, at interest of 2.5% per month. By way of security it is agreed that in the event of default, the lender may purchase the 17th floor of Yan's Tower at a fixed price of $1,000 per square foot. The agreement was signed by Madam Tai and by Mr Yan on behalf of Chapol. Mr Chow witnessed their signatures, and his chop appears below his signature. The firm's chop appears on the back sheet, and the pages have been bound with ribbon which is sealed with wax bearing the firm's seal. 9.It is not in dispute that Madam Tai handed over a cheque for $5,000,000.00 to Mr Yan and in return received post-dated cheques for the principal sum, and the six monthly interest payments. The cheques for interest were presented and ultimately all but one were honoured. 10.The parties agreed to extend the period of the loan by three months, and to vary the price of the 17th floor to $1,400.00 per square foot. This was reduced into writing and there is produced as Exhibit P2 an original supplemental agreement ("the 1st supplemental agreement") dated 30 June 1995. Again it is signed by Madam Tai and Mr Yan, and the signatures are witnessed by Mr Chow whose chop appears below his signatures. This agreement bears no firm's chop on the backsheet and no ribbon and wax seal. Again it is not in dispute that Madam Tai received a number of cheques for the monthly interest but this time, it appears, only one of them was honoured. 11.The parties agreed to extend the period of the loan for a further 10 months, to change the units which were to be regarded as security to three units on the 16th floor, and to vary the price back to $1,000.00 per square foot. This agreement was reduced into writing as a further supplemental agreement (the "2nd supplemental agreement"). An original copy is produced as Exhibit P3. It is signed by Madam Tai and Mr Yan, and by Mr Chow as witness. Again his solicitor's chop appears, but not the firm's chop and there is no ribbon and wax seal. 12.The agreements was reduced into writing and two copies of an original written agreement dated 4 November are produced as Exhibits P4A and P4B. Apparently one came from Mr Leung and the other was kept by Mr Ngai. It is in similar terms to Exhibit P1 save that the units charged are three units on the second floor of Yan's Tower and the price thereof is $800.00 per square foot. It is signed by Mr Wong on behalf of Goodresponse and Mr Yan on behalf of Chapol, and by Mr Chow as witness to both signatures. Again his solicitor's chop appears but there is no firm's chop, nor any ribbon and wax seal. 13.This loan was made by one cheque for $1,000,000.00 dated 19 October 1995 and one for $2,000,000.00 dated 2 November 1995 on which date the lenders acquired the BVI company. It is said that post-dated cheques for principal and monthly interest were handed to Mr Chow but they have not been produced. 14.Curiously enough, although copies of these various agreements had been disclosed on discovery, the plaintiffs only found the originals, and some un-presented cheques in respect of the first loan shortly before the trial. A further written agreement between Madam Tai and Mr Leung dated 7 January 1995, concerning their shares in the first loan was also found during the trial and has been produced as Exhibit P6. Apparently everyone had forgotten about this document, and it was not referred to in the pleadings. In any event, Mr Chow signed it and chopped it as witness to both the signatures. The firm's chop appears on the backsheet and the pages are bound together with ribbon and wax bearing the firm's seal. The Specific Averments 15.It is as well to look at the rather convoluted pleadings first to see what facts the plaintiffs aver and have to prove. I will leave out those facts which are not in dispute and in particular that none of the documents was ever registered in the Urban Land Registry, and that the defendants did not carry out any land searches in respect of the property to be charged by the loan agreements, nor did Mr Chow specifically advise the plaintiffs to do so, although there is a dispute over what he said to the plaintiffs in Action No.14713 of 1999 in this connection. 16.In Action No.14713 of 1999 they aver the following facts :
17.In Action No.14712 of 1999, the plaintiffs aver the following :
The Evidence 18.The person in the background of this case, and most conspicuous by his absence as a witness is Mr Yan. Mr Leung says that he knew Mr Yan at school, and they renewed their acquaintance about ten years before the incidents which gave rise to these claims. Mr Chow knew him even better; according to him, their fathers had been great friends, and he had known Mr Yan and his eight siblings all their lives. He was particularly friendly with Mr Yan's next older brother and since that brother was close to Mr Yan, he saw a lot of Mr Yan. He was always doing little favours for the Yans which included witnessing documents for them, and he would always give them and in particular Mr Yan some time if they wanted to see him in his office. But he did not act as their solicitor, apart from acting in connection with a patent application in Singapore, and dealing with a couple of leases some years later. 19.Mr Leung says that he was first approached by a mutual friend, Mr Ngai, who told him in December 1994 that Mr Yan wanted a short term loan at a good interest rate. Mr Leung asked Mr Yip, who was agreeable to putting up part of the loan, so long as the interest was reasonable and the loan was secure. He then had a meeting with Mr Yan, at which it appears that the basics of the agreement were reached though the use of the 17th floor as security was finalised at the meeting in Mr Chow's office. 20.With regard to that first meeting on 28 December 1994 Mr Leung says that Mr Yan arranged it. Messrs Leung, Yip, and Yan all attended, at Mr Chow's office. Mr Chow was told of the terms of the agreement and in answer to worries expressed by Mr Yip said that no moneylender licence was needed and the arrangement was a legal one. The lenders' interest would be well protected and that in case of default of repayment, they would definitely be able to buy the property. Mr Chow would draft the agreement and fax a draft to the lenders for their approval. 21.Mr Yip says that after he had agreed with Mr Leung to make the loan, the latter invited him to go to Mr Chow's office, to meet Mr Chow and Mr Yan. This they did. During the meeting, he himself asked Mr Chow if they could do it by charging high interest, and if it was lawful. Mr Chow said that it was all right and there would be no problems. He also said that he was not going to pay for legal charges, and that the loan would be in his wife's name. Mr Leung asked Mr Chow to prepare the necessary documentation and Mr Chow agreed; he said that he would fax a draft to the lenders. 22.According to both witnesses, some days later, Mr Chow faxed a draft of the agreement to Mr Leung's office. Mr Yip went through it and made some minor amendments about which he telephoned Mr Chow. They were told to go to Mr Chow's office on 31 December 1999 to execute the agreement. Mr Yip said that he could not now produce the fax, but that in any event it was on thermal paper and would not be legible by now. 23.Mr Chow's evidence is that Mr Yan telephoned him and told him that he wanted to borrow some money, and he wanted Mr Chow to talk to the lenders on two matters, namely whether the high interest that he had agreed on was legal, and whether they needed any kind of licence to lend the money. So he told Mr Yan to bring the lenders to see him, and Mr Yan brought Messrs Leung and Yip. It was a short meeting, and Mr Chow says his memory of it is hazy; but he remembers that they asked about the interest and the need for a licence and he told them that the interest was legal, and no licence was needed. He thought Mr Yan had a paper to which he referred, and he remembered being told that the loan was to be on the security of units in Yan's Tower, but he could not remember which ones. 24.Mr Chow says that he did not charge Mr Yan for this meeting and he did not cause a file to be opened, because he was simply doing a favour. The questions were easy, no preparation was needed, and no other work was to follow. He was not asked to draft, and did not draft any document as a result of the meeting. From cross-examination it appeared that he did not regard himself as giving advice as their solicitor either to the lenders or to Mr Yan on the money-lending question. He did not open a file or charge a fee; he was doing a favour to Mr Yan by sparing a little time to confirm the two matters. 25.Mr Chow also said that when he does legal work of any sort, other than this kind of small thing which he does as a favour, he gets someone to open a file. The file is given a reference number, which is written in a cause book. The reference numbers used show which partner is in charge of the file, the kind of work and so on. I will come back to the reference number later, but would mention now that it came out in cross-examination that the cause books are in existence, though discovery of them was not given. Mr Chow says that they will not show any file reference in respect of this or indeed any of the matters complained of, precisely because no file was ever opened. 26.There was in fact no correspondence between Mr Chow's firm and any of the plaintiffs, and none of them was ever billed for any legal work. 27.As to the second meeting, when the loan agreement was signed, Messrs Leung and Yip and Madam Tai went together to Mr Chow's office. Mr Yan also attended, but no one can remember who got there first. According to Mr Leung, Mr Chow briefly introduced the terms and conditions in the agreement, which he had in front of him. Mr Yip asked whether the lenders' interest would well protected and whether they would be able to get the property in case of default. Mr Leung said that they were laymen and knew nothing and would rely on Mr Chow. The latter said in definite terms that there would be no problem and that in case of default they would get the property on the 17th floor. The agreement was then signed by both signatories and witnessed by Mr Chow. 28.According to Mr Yip, he wanted the terms and conditions repeated for his wife's benefit. Before Mr Chow did that, Mr Yip asked what would happen if Mr Yan did not repay the loan; and Mr Chow said that if he failed, they could take possession of the premises at the agreed price. He also said that it was all right and their interests would be protected. 29.Madam Tai's evidence was in much the same terms, that Mr Chow said that the lenders' interest was protected by the documents, and there were no problems with it. He roughly told them the contents. She had been told something of them earlier, by her husband, but she had not seen any draft. She and Yan both signed, and Mr Chow witnessed the signatures. She handed over a cheque for $5,000,000.00 and received in return post-dated cheques for the principal sum and the monthly interest payments. She could not remember how many copies of the agreement she signed but she received one copy which is Exhibit P1. 30.It appears from cross-examination that, although Madam Tai could remember that Mr Yip had asked what would happen if payment was not received, and Mr Chow had replied that they could get the premises, she was not clear whether she had heard it herself, or whether Mr Yip had told her about it. 31.It is in Madam Tai's evidence that Exhibit P6 first appears. It was in fact first brought to court on the morning of the day on which she gave her evidence. Neither Mr Leung nor Mr Yip had mentioned it; and indeed it was never part of the plaintiff's case. In any event, her evidence was that in the course of the meeting, she had, in the presence of the others and with the consent of Mr Leung, asked Mr Chow to prepare an agreement to cover the division of the loan between them. They had asked him what the cost would be, but Mr Yan had volunteered to pay for it as well as for preparation of the loan agreement. Mr Chow said that he would let them know when the document was ready. This he did, so Madam Tai went to his office to sign it. She could not remember if Mr Leung had signed on the same occasion, but she had been given a copy. Counsel had asked her, before the trial, to see if she could find the original loan agreement, and she had managed to find it and the supplemental agreements; but this document she had found, quite by chance, the day before she came to give evidence. 32.Mr Chow's evidence of this meeting is that he could not remember who arranged it, but thought it was Mr Yan. Nor could he remember how the document came to him, but he thought Mr Yan had brought it. In any event it was not his document. He had not drafted it; his function was merely to witness the signatures on it. 33.He said that he had looked through the document and discovered the nature of it. He had noticed Clause 10, which warrants that Chapol will not mortgage, sell or otherwise dispose of the property until the principal and interest had been paid. He thought that there might have been a building mortgage over the property, because the building was under construction; this is very common and it is easy to secure partial release, so that individual units in the building can be conveyed. If that were so and he had been drafting the document, he would have phrased it differently. So he had said that he had not himself done any search on the property; and he might have said, though he could not fully remember, that Madam Tai ought to have a search done. But no one seemed to be interested in this so he assumed that they either did not know of any prior mortgage or did not care about it. 34.He said that he did not volunteer any advice, or that he was looking after their interests or that they should not worry. He simply signed as witness to the two signatures, and, as was normal practice passed the document out for the secretary, who kept the chops outside, to put on his name chop. 35.Mr Chow had no idea how the firm's chop came to be on the backsheet, or how the wax seal came to be embossed with the firm's seal either. They would not normally use a wax seal except on a deed under seal; and this was not a document which required to be sealed. He could only speculate that because his office was particularly busy with a large conveyancing job, involving conveyances to many buyers, someone had put the chop and the seal on in the confusion. 36.In support of his evidence that this was not his document Mr Chow pointed to the fact that there was no file reference number on the backsheet. He said that he always insisted that whoever drafted a document should put such reference in. It went into the "footer" of the word processing. In fact, whoever drafted a document in his office would have it printed too rather than sent for typing by a typist. His office had a LAN computer system which was used for this and it had been introduced to save costs, especially for the salaries of typing staff. Mr Chow referred to a number of backsheets, which had been included in the document bundle, to show how the system worked. 37.Mr Chow was cross-examined at length as indeed were all the witnesses. I have not and will not rehearse what they or he said at any length but will refer to such passages are necessary when I come to evaluate the evidence. I note at this stage however that Mr Chow said in cross-examination that he had never drafted an agreement like this one, involving a contingency; and in re-examination he said that if he had been asked to do it, he would not have known how, and would probably have referred the matter to counsel. 38.I turn to the 1st supplemental agreement. Mr Leung said that towards the end of the term of the loan, Mr Yan approached him, looking for a three months' extension and for a change in the agreed price of the units, to reflect a rise in the property market. They agreed the extension, and the change, after Mr Leung had discussed the matter with Mr Yip. Mr Leung informed Mr Yan of the agreement, and then telephoned Mr Chow, told him of the further agreement and asked what he should do. Mr Chow said that he would prepare a supplementary agreement; that there would be no problem and when he had completed it he would get the parties to come in and sign it. He did so. Mr Leung, Mr Yip and Madam Tai all went to Mr Chow's office; Mr Leung said that Mr Yan should have been there too. Mr Chow explained the terms, and Mr Yip again asked if the protection still existed and whether they would be able to buy the property in case of default. Mr Chow confirmed that, the parties signed and Mr Chow witnessed the signatures. Again Madam Tai kept a copy. 39.Mr Yip's evidence of this meeting was quite brief, as was Madam Tai's. He appeared to be saying, in evidence-in-chief, that he was surprised that there was no new agreement but only a supplemental one, when the 2nd supplemental agreement was signed; but under cross-examination it appears that this was intended to refer to the June meeting. He said that he raised this with Mr Chow who said that it would be all right. Mr Yip asked what would happen if they did not get the money and Mr Chow said that if Mr Yan failed to pay, they could still take possession of the premises. In fact it appears from cross-examination that Mr Yip asked the same question and got the same answer, when both the supplemental agreements were signed. 40.Madam Tai did not say much about this meeting, other than that she had signed the document. Neither she nor Mr Yip could remember if Mr Yan was there; but her copy was found with a compliments slip from Mr Chow's firm so it is probably that he signed it at some other time, and the firm sent it on to her. 41.Mr Chow could not specifically remember this meeting. He said that Mr Yan had told him that there would be another agreement coming in for execution before him. Mr Yan probably was not at the meeting, because the compliments slip indicated that Mr Yan would have asked him to send on the copy once he signed it. He said that he could not remember giving advice but that if he had been asked for it, he would have said that it was not his work, he was not really representing anyone in the matter and he should not give advice on it. Again his evidence was that neither he nor his firm drafted this agreement. 42.There is apparently a reference to this meeting in Mr Chow's witness statement. He said there that Messrs Leung and Yan had come to him and told him that the loan agreement had been varied, and had asked that his secretary type it up. Under cross-examination Mr Chow said that this was what he remembered, when he had given the statement. In fact it is not clear from the statement whether the document referred to is the 1st or the 2nd supplemental agreement. 43.It was noted that on Exhibit P1 someone had handwritten above Madam Tai's signature "Holder of Hong Kong Identity Card No.XXXXXXX(X)" and on Exhibit P2 someone had typewritten the same legend. This does not however appear on Exhibit P3 or Exhibit P6. Mr Chow could not assist; he said that it was his practice to check the identity card of a person signing a document, for the spelling of the name. He had not written down this information himself and presumably his secretary had done so. 44.I turn to the 2nd supplemental agreement. Mr Leung said that Mr Yan had approached him for a 12 months' extension, and also to change the property to be charged to three units on the 16th floor. Again he got Mr Yip's agreement, confirmed with Mr Yan and instructed Mr Chow to prepare another supplementary agreement for a 12 months' extension, with the change of security. Again, Mr Chow told them when it was ready and they went to the office to sign. In fact the agreement was for an 11 months' extension but apparently no one noticed this. Mr Yan should have been present; and cheques were received. Mr Yip's evidence was quite sketchy as was that of Madam Tai. 45.As to this agreement, Mr Chow said that he did not draft it or advise on it, and he could not remember whether or not Mr Yan was present along with the lenders. If he was not he could have sent his amah or his driver or any of his siblings to bring this agreement, and indeed the 1st supplemental agreement to the office. The only thing he could remember about this agreement was that had noticed that there was a change of the units charged, from one floor to another. He could not remember anything about the circumstances of the signing. 46.Madam Tai produced, again in the course of the trial, a bundle of cheques which she had received from Mr Yan. Mr Westbrook SC produced a helpful table to show what had happened to them. They were all drawn, not by Chapol Ltd, but by Yan Chim Kee Co. Ltd and the later ones were duplicated, being drawn on two different bank accounts, one of which was apparently closed. It appears that the first five interest cheques were presented, and ultimately honoured though in some cases after delay. The original principal cheque was presented in June, notwithstanding that there had been an agreement for extension, and dishonoured. One of the cheques for the first extension period was honoured but the other two were not. Cheques dated 31 July, 31 October, 30 November and 31 December 1995 were missing from the bundle; Madam Tai says that they have been lost rather than paid in, but there are no bank statements to assist on this. Later cheques were simply not presented. It appears from the evidence of the lenders that they were quite happy to go on extending the loans, even though the interest had dried up; they relied on the fact that Mr Yan was from a prestigious family so could ultimately be expected to make good and also on the security they thought they had over the floors in the building. 47.I turn to the second loan. This time, Mr Leung says that he was again approached by Mr Ngai who passed the word that Mr Yan was looking for another $3,000,000.00. This time it was to be for ten months, and secured by units on the 2nd floor of the same building, which were to be sold, in the event of default, at $800.00 per square foot. So he discussed the matter with Mr Wong, and they thought about setting up a BVI company to act as the lender. Once they had discussed that, they told Mr Yan that they would lend. 48.Because Mr Yan needed money urgently, a cheque for $1,000,000.00 was paid over on 18 October 1995. The other cheque was paid on 2 November 1995. It is Mr Leung's evidence that some time between those two dates, he telephoned Mr Yan and told him that there would be another loan to Chapol for $3,000,000.00 on similar terms and conditions to the earlier one. He asked if there would be any problem in using a BVI company as the lender; Mr Chow advised that there would not. He asked Mr Chow to draft the agreement; and Mr Chow agreed to do so. Mr Chow later asked them to go in and sign, which they did. On this occasion Mr Yan was not there. Mr Wong asked a couple of questions about whether their interest would be sufficiently protected and Mr Chow said that it would. 49.Mr Wong said that he did not take part in the negotiations for the loan but he did go to Mr Chow's office and there signed the agreement on behalf of the BVI company, Goodresponse. Mr Chow explained the terms and conditions. He only raised one matter with Mr Chow; he said that if the premises mentioned in the agreement were sold or put up for loan, the lenders must be notified and their consent obtained. Mr Chow replied that there would be no problem. Mr Chow gave Mr Wong a pile of cheques for interest. He had also received one copy of the loan agreement. 50.He later managed to get one of the cheques honoured, then Mr Yan telephoned him and said that he would replace the remaining ones because he had changed his bank account. He later received the replacement cheques from Mr Leung, but he was not able to get payment on them. In fact he had asked Mr Yan if he could present the first replacement cheque but Mr Yan had told him that it would not be met because of poor cash flow. They had dunned Mr Yan for payment after that, but had not got any. He had become frustrated and angry and had left everything to Mr Leung. 51.Mr Chow said that he had not drafted this agreement either. He could not remember Mr Leung having instructed him to draft it, but said that this was improbable, because it was always Mr Yan who called him. He would probably have charged Mr Leung, if instructions had come from him, and he would certainly have opened a file, if he had been asked to draft anything. He could not remember Mr Wong's having been in his office; indeed he had not recognised Mr Wong inside or outside the courtroom. Cross-examined, he said that he could not even remember being asked if there was any problem with the lenders use of a BVI company. All he could remember was that Mr Leung and some other person had come in so that he could witness their signatures, because Mr Yan wanted it. 52.Mr Chow said that he had first heard of the possibility of a lawsuit against him some time in 1999 when he had spoken to Mr Yan about something else; Mr Yan had told him that Mr Leung was thinking of suing him, and it would be no skin off his nose, because his insurer would pay. He had asked Mr Yan why they wanted to sue him; and Mr Yan had replied that to their way of thinking, if he lost, they could get the money out of his insurer. After that he heard nothing from anyone until the Writs were served on him. That was while he was out of Hong Kong. His partner had checked the files and found nothing; and he knew that there would be nothing in the cause books because no files would have been opened. Evaluation 53.This is a case which hinges on the credibility of the witnesses. Since there are no contemporaneous documents against which the evidence may be tested, save for the disputed documents themselves, one has to rely on the inherent probabilities of the situation. The impression which the witnesses make is also to be taken into account but I remind myself that demeanour is a matter on which it is easy to be mistaken, and inherent probability is usually a better guide. 54.It is unfortunate that we have no evidence from Mr Yan. Each side says, in effect, that the other should have called him. Both Mr Leung and Mr Chow say that they could not; he was contacted, but refused to give evidence. Mr Chow could perhaps have got his whereabouts more easily than could Mr Leung, given his friendship with the family; but in any event, we do not know what he might have said, and it is difficult to hold his absence against either side. What must be borne in mind is that it is for the plaintiffs to prove their case and not for the defendant to disprove it. 55.Mr Westbrook SC for the defendants points to the fact that the plaintiffs, having failed to get anything out of Chapol, have a very good reason to make up a story against Mr Chow. He must carry professional indemnity insurance, and if they can make a case they stand to recover the best part of their losses. He also refers to their delay in bringing the case, after they found out in 1997 that the properties were mortgaged as adding an element of suspicion. This is not a very powerful argument, as they would have had to exhaust their remedies against Chapol first. In fact they obtained judgments against Chapol in December 1998 and petitioned for winding-up in March 1999. At the same time it is difficult to see why no claim was intimated earlier. It must have been pretty obvious once they found out about the mortgages that their chances of getting their money back were low, and if Mr Chow drew up the documents as they say, they must have known that they might have some kind of claim against him. They are all educated men, working in the field of computers and there is no reason to think they are in any way unsophisticated. 56.At the same time, Mr Chow himself will obviously not want to have a judgment against him; his reputation could suffer and he will probably have to pay increased premiums in future. But his potential losses are nowhere near as large as the plaintiffs' potential gains. 57.I did not find either Mr Leung or Mr Yip particularly impressive as a witness. Mr Leung was quite evasive when asked about his education and experience; perhaps that means nothing much in itself, but one could see no point in his trying to play down the matters of his own legal knowledge and experience in dealing with lawyers and property purchases. Mr Yip's story about the thermal fax was also strange. Mr Westbrook takes it as common knowledge that by 1994 no one in business would be using a thermal fax machine; that I really do not know, but the point is that it was not necessary to go into whether or not the fax copy would still be legible; the straightforward answer would have been simply that it was not kept or could not be found; a matter of no surprise, with a draft. 58.Mr Leung's evidence of the first meeting was quite inconsistent with what he said in his statement. It was clear that he agreed pretty well everything with Mr Yan before they went near Mr Chow but the statement indicated in effect that the details of the loan agreement were first discussed at that meeting. There was really no satisfactory explanation for this. 59.There is also a discrepancy between Mr Leung's evidence that both Mr Yip and Mr Wong asked for and received the same advice from Mr Chow, that their interests were protected and the security was good, and his answers, in both actions, to the plaintiffs' request for further and better particulars, in which it was indicated, on his instructions, that no advice was given. 60.On this same point it is difficult to see why Mr Yip had to keep on asking this question. Mr Leung and Mr Yip were both clear that he did; but Madam Tai could not remember if she had heard it, or if Mr Yip had told her about it, at any rate at the third meeting. I expect that the witnesses would have discussed their recollections of the meetings; there would be nothing wrong in that; but in the circumstances the suspicion exists that this part of the evidence was made up to try and make sure of proving that advice was given. 61.The same applies to the fact that neither Mr Leung nor Mr Yip in evidence about the first meeting mentioned any discussion of how the principal and interest were to be paid. In fact, it was by post-dated cheques. One would have thought that the method of repayment would be important and something on which a solicitor, instructed to draft an agreement, would have to be instructed so that he could consider whether or not reference should be made to it in the agreement. If the statements were made independently one would have expected someone to refer to this. 62.Mr Leung in cross-examination about the second loan agreement insisted that he would not have lent without Mr Chow's advice, but this could not be right given that he had issued at least the cheque for $1,000,000.00, on his own evidence without speaking to Mr Chow at all and before the BVI company was acquired. 63.Mr Yip could not give any satisfactory explanation why, if he was concerned, as he says, that he should pay no costs in respect of the loan agreement or the sale in the event of default, that does not appear, in terms, in the body of the agreement, despite the fact that according to him he checked the draft and spoke to Mr Chow about it, before the agreement was engrossed. 64.It is also to be noted that neither of these witnesses mentioned anything about the agreement Exhibit P6. Mr Leung signed it; and Mr Yip must have been interested in it, because it dealt with money which had come from himself as well as his wife, and how that money was to be recovered as between the lenders. It is indeed strange that they should have forgotten about it. 65.There is also a discrepancy between Mr Leung and Mr Wong about the matters raised, or questions asked of Mr Chow when the second loan agreement was signed. Mr Wong's own evidence on that point seemed rather doubtful; when pressed he said that he could be mistaken or he could have forgotten. But this also calls into question the evidence that Mr Chow gave advice about the effectiveness of the security. 66.Mr Chow, for what it is worth, made a rather better impression on me than did either Mr Leung or Mr Yip. He seemed straightforward, rather than evasive. He is criticised for having a selective recall. Indeed his memory was patchy but I cannot see that, after such a lapse of time, it could be anything else; and that applies to other witnesses, particularly with regard to the agreement P6. But Mr Chow did not give the impression of being deliberately selective in what he could recall or not recall. If he were being selective it is difficult to see how he would have given evidence of having said something to Madam Tai about a search; that could only lay him open, at the very least, to cross-examination. The same applies to his evidence about the incident when Messrs Yan and Leung asked that the secretary alter one of the supplemental agreements. Only if that was the second one could that evidence make sense; but as Mr Chow said, that was what he remembered at the time of making the statement. 67.It is also suggested that as a litigation solicitor, he will be careful in answering questions but not necessarily trained to observe and recall. Preparing legal documents and giving advice on them is routine and not something that would make a deep impression on him, unlike the witnesses who would be very concerned about what was happening because their money was at stake. This is no doubt right but what is concerned here is not so much a question of whose memory is likely to be better, but who is telling the truth. 68.It is argued that it would have been natural, if Mr Yan had brought in the lenders for some advice about money lending and the like, for him to have instructed Mr Chow to draw up the necessary agreements. Further, if Mr Chow did not draw up the agreements, who did? Obviously they have been drawn up by a lawyer, or by a lawyer's clerk, or someone else who had access to document precedents. If Mr Yan had another lawyer who drew up the agreements, why would he not have taken the lenders to that lawyer, to get the agreements executed? 69.The other major argument against the defendant on inherent probabilities is the fact that Exhibit P1 has been tied up with ribbon and a wax seal, and has the firm's chop on the backsheet; and Exhibit P6 also has a wax seal (without the ribbon) though it has not the firm's chop on the backsheet. This must have been done by someone in the defendant's firm. The same applies to the identification of Madam Tai, in one case in handwriting and in the other in typescript, as the holder of a particular identity card number. 70.Mr Chow says that he cannot explain this except by the possibility that his staff have made mistakes. It is unfortunate that the secretary Rachel, who would probably have been the one to deal with the documents after they had been signed, has not been called. There is no evidence (as distinct from what is in one of Mr Chow's statements) that she cannot remember anything. That she has not been called is of course relied on as going against Mr Chow's credibility. 71.Mr Chan SC for the plaintiffs argues that the existence of Exhibit P6 really destroys the defendants' case. There was no reason for Mr Yan to have it prepared for the lenders, if he was using some other draftsman and if he did there was no reason for them to bring it to Mr Chow for witnessing. The latter had to admit that he could not think of any reason for that. This may be so but if Madam Tai really asked Mr Chow to prepare such an agreement it is difficult to see why she should have forgotten all about that until well into the trial, and the other signatory Mr Leung should also have forgotten it. 72.I found Mr Chow's evidence about his firm's system of typing the firm's name and address on the backsheet, and putting in the "footer" the file reference, entirely credible. It can be seen from documents coming into the court daily that solicitors often use this kind of system of putting in a file reference. It is particularly useful where fee earners use the computer "LAN" and the printer both to draft and engross documents, for identifying those documents. I do not find anything suspicious in the fact that Mr Chow has not called his partner to speak to what she found or did not find in the files, or that he has not discovered or produced his cause books. He knew perfectly well that there would be nothing in the cause books. He was quite straightforward in his offer to produce the same, if the plaintiff's side wanted that; but of course they did not. 73.I believe Mr Chow when he says that he did not open any file for these or any of these little favours he did for Mr Yan. There would be no reason for him to do so. His evidence of not opening files, and not charging for odd little bits of work might be unlikely in the context of a large firm where everyone is struggling to log the required number of billable hours into the computer but the defendant's was a small firm, a two-person partnership and it is not surprising if even in the mid-1990s they were operating a looser system. 74.Mr Chan SC argues that it would not be significant if no file was opened. If Mr Chow was not going to charge Mr Yan, it would not be surprising that no file was opened; even less so in the context of his having raised his partner's concern for not charging for some work. In this context I think it is necessary also to remember Mr Chow's evidence that if he had been asked to draft the first loan agreement, he would not have found it a simple job or something which would only need a little time. Indeed as he said in re-examination he would probably have instructed counsel. I do not find that incredible. He is a litigator; he has a conveyancing practice but he employs clerks to do that work. He probably is not used to drafting loan agreements as a matter of course; and since this loan agreement is out of the ordinary his clerks would probably not be able to do it either. 75.Because the agreement is something out of the ordinary, if Mr Chow had undertaken to draft it he would (even if he did not incur a fee to counsel, which would have to go through the books as a disbursement) have had to spend a lot of time on it, draft the agreement on his computer, engross it through the printer, and so on. It is not something he could hide. He was quite clear, in cross-examination, that he would open a file; and that would make sense. 76.There is, it seems to me, one more question of inherent probability or improbability which must weigh heavily in Mr Chow's favour. He was in 1994 a solicitor with over ten years' admission, (after his years as a practising civil engineer) and then as well as since he has had no claims made against him. If the plaintiffs' evidence is right, he acted for both parties to these loan transactions, but he never took the steps that he says, and which I accept as every lawyer must, are the most basic steps in dealing with any contract relating to land, namely to carry out a land search for encumbrances and, once the contract is executed, to provide for its registration. If the property is already encumbered the security is worthless. If the agreement is not registered it is invalid against a later registered encumbrance. A solicitor who gets this sort of thing wrong is unlikely to survive for ten years in the profession. 77.It is to my mind therefore inherently extremely improbable that, if Mr Chow had drafted these agreements, he would not have carried out a land search before, and arranged for registration afterwards. The only way he might not have done this is if he were a party to fraud on Mr Yan's part, in obtaining money against a worthless security. That is not suggested and I do not see it as being at all likely. It would follow that it is inherently improbable that Mr Chow drafted these agreements or did any more than witness their execution. If Mr Chow or his firm did not draw them up, it is also inherently extremely improbable that he would have made any representations about their effect. 78.Having seen and heard the witnesses and considered the inherent probabilities of their respective evidence I find that where there is a conflict, I prefer the evidence of Mr Chow to that of the plaintiffs. 79.It is clear that the first loan agreement was not made at the meeting on 28 December 1994 in Mr Chow's office. I accept that at that meeting, he was asked and answered questions about the Moneylenders' Ordinance and the legality of the interest rate but not that he gave any other advice. I am not satisfied that Mr Chow was instructed to draw up the first loan agreement, or that he agreed to do so, or that he or his firm drew it up. It must have come from Mr Yan; but who drew it up is not known. I accept that Mr Chow was not acting for Mr Yan in this matter except to the extent that he admits in evidence 80.I am not satisfied that at the meeting on 31 December 1994 Mr Chow, did any more than witness the parties' signatures on the agreement. I am satisfied that he told the plaintiff's that he had not carried out a land search and may have suggested that they do so. I accept his evidence that they did not seem interested in the point, which is why he did not pursue the matter. I am not satisfied that at that meeting Mr Chow was instructed to draw up the agreement P6 or that he did so, or did anything else in connection with it save to witness the parties' signatures. The same applies to the 1st and 2nd supplemental agreements. I am not satisfied that on the occasions when they were signed Mr Chow made the representations averred. 81.So far as the second loan agreement is concerned I am not satisfied that Mr Chow or his firm drew it up or that he did anything in connection with it save to witness the parties' signatures. Nor am I satisfied that he made the representations averred. 82.It follows that there was no contract, or series of contracts of retainer between the plaintiffs and Mr Chow and through his partner and the partnership. The question remains whether he can be found liable to the plaintiffs in tort in either case. 83.The plaintiffs' alternative case is that if there was no retainer and Mr Chow did not draw up the documents, he still owed them a duty to warn them that the loan agreements were not prepared by him or that they were prepared by Mr Yan, and that if they were prepared by Mr Yan, there was a conflict of interest in that he was the borrower of the loan and the author of the loan agreement. Further, his failure to warn or inform them amounted to a representation by conduct that he had drafted them, on which representation they relied. 84.The plaintiffs in support of this argument rely on a number of cases in which a solicitor acting for one party to a transaction was found to be liable in tort to the other party even though there was no implied retainer. The difference here is that Mr Chow was not acting for Chapol in the transactions. He was simply acting as a witness to the execution of documents. It seems to me that he did all that was required of him and indeed perhaps more in the case of the first loan agreement in that that he did raise the matter of the search, but dropped it again when he saw that no one seemed concerned by it. 85.The defendants rely on Law Wan Lan v. Well-Built Development Co. Ltd [1988] 2 HKLR 435 in which it was held that a solicitor who witnessed a party's signature to a confirmatory assignment was not bound to explain it to her or to correct any misstatement by the other party, a developer, or to advise her to seek legal advice. He was in a position no different from any other person witnessing someone's signature and it made no difference that he happened to be a solicitor. Fuad VP said at page 442 :
86.It seems to me that this must be the position here. Mr Chow was simply a witness to signatures. I do not see that the fact of his having advised the parties to the first loan about the legality of the interest rate, or those to the second loan (if indeed he did so; he cannot remember) about the legality of using a BVI company could have created a special relationship. I do not see how there could have been any voluntary assumption of responsibility. To say that he must have expected them to think he had drafted the documents and therefore had a duty to warn them that he had not, and also that they were at risk, would put his duty far too high; it would produce the sort of situation where no solicitor could undertake the most trivial or casual matter without being at risk himself. 87.I conclude that there is no liability on the part of the defendants in either of these cases, whether in contract or in tort. 88.It is not necessary to say much about quantum, but in case I am found to be wrong, I will do so. The plaintiffs' claims are respectively for $5,000,000.00 and $3,000,000.00 in the two actions. In the first action, they recovered six interest payments of $125,000.00 each and in the second, one payment of $75,000.00. They would not have received these but for the loan agreements, which on their case they would not have made if they had known the true position. So these sums must be brought into account. 89.In the first action, four interest cheques are not accounted for. Madam Tai does not have them. She has not produced any bank statements from which we might see whether or not they were honoured. The most probable explanation is that they were presented and met, which is of course why the cheques for those payments which were recovered have not been produced. So a further $600,000.00 must be brought into account. 90.As to the first loan payment of $1,000,000.00 for the second loan agreement it is clear that Mr Leung made that without any reference to Mr Chow. So even if Mr Chow were liable as claimed, that loss could not have been caused by him. 91.It would follow that if the defendants were liable the award in the first action would be reduced to $3,650,000.00 and in the second to $1,925,000.00. 92.It was argued for the defendants that even if they were liable in the first action the loss was not caused by them but by the plaintiff's failure to claim against Yan Chim Kee Co. Ltd on the dishonoured cheques for the principal sum and most of the interest payments. Mr Chan SC says that this is misconceived because Yan Chim Kee Co. Ltd was only an accommodating party and the question of consideration would come in. It is noted that Yan Chim Kee Co. Ltd is a 50% shareholder of Chapol, and must have an interest in Chapol's debts and obligations, but I am sure that any action on the cheques would inevitably have been met by a defence of lack of consideration. I do not think there is any point in my now considering what the likely outcome might have been, because I do not think the situation is clear. 93.The plaintiffs' claims in both actions are dismissed with costs to the defendants to be taxed if not agreed.
Representation: Mr Edward Chan, SC leading Mr M.C. Chiu, instructed by Messrs George Tung, Jimmy Ng & Valent Tse, for the 1st, 2nd and 3rd Plaintiffs Mr Simon Westbrook, SC, instructed by Messrs Herbert Smith, for the Defendants Remarks Appeal by the Plaintiffs to Court of Appeal. Appeal dismissed. Please refer to the appeal judgemnt of CACV223/2003. |
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