Chiu Che Kuen v. or Yue Ling

HCA005543/1990

1990, NO.A5543

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H E A D N O T E

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FIDUCIARY DUTY OF LEGAL EXECUTIVE - TRANSACTION WITH CLIENT - NEED FOR FULL DISCLOSURE - WHEN TRANSACTION TO BE SET ASIDE

TITLE - PROVISIONAL AGREEMENT - NOMINATION OF PURCHASER TO ENTER INTO FORMAL SALE AND PURCHASE AGREEMENT - WHETHER WRITING REQUIRED

1990, No.A5543

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: Hon Mrs Justice Le Pichon in Court

Dates of hearing: 27, 30, 31 October and 2 November 1995

Date of delivery of judgment : 15 November 1995

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J U D G M E N T

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1. The plaintiff Chiu Che Kuen is the registered owner of the 3rd Floor of Nos.52 and 54 Po Hing Fong, Hong Kong ("the premises") under two assignments both dated 2nd November 1989 ("the Assignments"). The defendant Or Yue Ling was the vendor of the premises. He remained in occupation notwithstanding completion on 2nd November 1989 and the plaintiff commenced this action for vacant possession in August 1990.

2. The defendant is a litigant in person who has no knowledge of the English language. The plaintiff is represented by counsel and, somewhat unusually, on the fourth and final day of the hearing, by both leading and junior counsel.

3. At the time of the Assignments in question, the plaintiff was a legal executive with the firm of Alick Au & Massie and had been working there for three years before then. He is currently a PCLL student. The plaintiff and his firm acted for the defendant. The original purchaser was one Fong Hon Ming ("Mr Fong") but the plaintiff became the end purchaser of the premises.

4. The defendant's case is that he had agreed to sell the property to Mr Fong and not the plaintiff. The plaintiff and his firm acted for the defendant in the sale and purchase and it was improper for the plaintiff to have become the end purchaser without the defendant's knowledge and consent. The defendant, through a counterclaim, seeks to set aside the assignments.

5. Discovery in this present action on the plaintiff's part was deficient and most unsatisfactory. Many important documents were only produced in the course of the trial at the request of the Court. The documents were in the possession of or otherwise obtainable by the plaintiff and should have been produced to the defendant at a much earlier stage.

The Facts

(a) The Provisional Agreement

6. Mr Fong is a conveyancing clerk of some twenty years standing and at the relevant time he was with the firm of Tsang, Chau and Suen. He had heard from a client of that firm that the premises were for sale. Mr Fong and the plaintiff went to view the premises one evening in September 1989 but no Agreement was reached at the time. Several days later, after various telephone conversations, Mr Fong and the defendant reached an agreement in principle. According to the witness statements of both the plaintiff and Mr Fong, after reaching the agreement in principle, the defendant asked Mr Fong to represent him. As Mr Fong refused, the defendant asked the plaintiff if the plaintiff's firm would act for him. The plaintiff agreed subject to the consent of his firm Alick Au & Massie. It was subsequent to this that a Provisional Agreement in Chinese ("the Provisional Agreement") was written out by Mr Fong. It bears the signatures of both Mr Fong and the defendant.

7. The defendant accepts that the Provisional Agreement set out the terms that he had agreed with Mr Fong but disagrees with the circumstances in which it came to be signed by him. According to the defendant, there was a meeting at which he and the defendant reached an agreement in principle and it was also agreed that they would sign a Provisional Agreement on 29th September. He was to meet Mr Fong and the plaintiff at a restaurant that day, but when he arrived only the plaintiff was present. The plaintiff produced the Provisional Agreement and said that it had already been signed by Mr Fong. He handed this together with a cheque for the initial deposit to the defendant who then signed the Provisional Agreement.

8. Although the parties disagree as to the circumstances in which the Provisional Agreement was signed, there is no dispute as to its terms. Under the Provisional Agreement, the defendant agreed to sell the premises to Mr Fong for $720,000. Under clause 5, an initial deposit of $10,000 was payable upon the signing of the Provisional Agreement and an additional deposit in the sum of $62,000 was to be paid "within ten days after the Formal Sale and Purchase Agreement" had been completed and signed at the solicitors. The Provisional Agreement also provided that completion should take place "within one month after the signing of the Formal Agreement for Sale and Purchase". Clause 7 of the Provisional Agreement provided that vacant possession of the property was to be delivered on completion but it went on to provide as follows :

"If the seller thinks necessary, the seller can extend the delivery of vacant possession of the property to the purchaser until Chinese Lunar New Year without need to pay rent to the purchaser. However, the seller must settle the charges for electricity, water, gas and management fee of the property until the day of delivery of vacant possession of the property."

9. At this point in time, the defendant was not the registered owner of the premises. These were registered in the name of his clansman Orr Ching Chi ("the original owner"). In their evidence in chief, both the plaintiff and Mr Fong gave the impression that this fact, which only emerged as a result of a land search, came as a surprise. However, I note that in their witness statements, they said that the defendant had told them that one of the flats belonged to the defendant's clansman. According to the defendant, he had previously explained to Mr Fong and the plaintiff that he was not the registered owner. In any event, how this fact emerged is of little consequence. The fact is that the original owner was willing to sell the premises to the defendant for $580,000.

10. The defendant gave evidence to the effect that he moved into the premises in December 1988 with a view to purchasing them. With the knowledge and consent of the original owner, he was permitted to carry out renovation work in advance of his purchasing the premises which was to be some 6 months later. He expended $120,000 on the premises. With the June 1989 events and the economic downturn that ensued, the original owner agreed to the defendant's request to postpone completion of the purchase for half a year. The purchase price of $720,000 reached in the agreement with Mr Fong was the latter's suggestion after having been told of the expenditure incurred by the defendant in improving and redecorating the premises. The balance of $20,000 was an allowance for legal expenses. The original owner was represented by the firm of Sousae and Hoosen. The plaintiff and his firm dealt with formal agreements for the sale to the defendant and the assignments from the registered owner to the defendant.

(b) The Agreements

11. The next event of importance was the signing of two Formal Sale and Purchase Agreements ("the Agreements") relating to the sale of the premises. The plaintiff said that he personally prepared the two Agreements relating to the premises and used a standard form of agreement. Certain particulars had been inserted into the documents at the time they were sent over to Leong, Lam & Co., the solicitors acting for Mr Fong for approval. The names of the respective firms of solicitors acting for the vendor and the purchaser had been filled in, so had the name in English and address of the vendor but not his name in Chinese. Surprisingly, the name of the purchaser had been left blank.

12. Before coming to the circumstances concerning the execution of the Agreements, I will turn to some of the provisions. The Agreements are identical except that one related to No.52 and the other related to No.54. It is to be noted that (1) clause 3 made a specific reference to "the Purchaser (or his nominee(s) or sub-purchaser(s) )" whereas the Provisional Agreement made no such reference; (2) clause 20 provided for delivery of vacant possession upon completion but failed to contain the other provisions which are to be found in clause 7 of the Provisional Agreement. I will comment on these provisions later. Each of the Agreements also referred to $7,500 having been paid as the initial deposit and the sum of $58,000 as being the further deposit to be paid. Although these amounts differ from what was provided for in the Provisional Agreement, this was pursuant to the parties' subsequent agreement. In any event, there is no dispute regarding the payment of the initial and additional deposits as set out in the Agreements, amounting in the aggregate to $131,000.

13. I now turn to the events concerning the execution of the Agreements. The plaintiff's version is that he prepared the drafts which he forwarded to Leong, Lam & Co. for approval. The plaintiff gave no explanation as to why the name of the purchaser had been left blank by him when preparing the draft when, at that point of time, no one else but Mr Fong was to be the purchaser. The drafts were returned duly approved but without the name of the purchaser having been filled in. They bore a signature at the place for the purchaser's signature. This signature is totally indecipherable and there was nothing in the Agreements themselves that could have identified the purchaser.

14. The plaintiff's evidence was that he knew that the signature was not Mr Fong's. He said he also noticed at the time that the purchaser's signature had not been witnessed. Nor had the interpretation clause been signed. He said that he only noted these matters when the defendant came to his office that day to execute the Agreements. He called Mr Sze of Leong, Lam & Co. who was handling the matter for the purchaser to enquire who the purchaser was since it was not Mr Fong and why the purchaser's signature had not been witnessed. He was told by Mr Sze that Mr Fong had verbally nominated Lam She Ming ("Mr Lam") as the purchaser and that the signature was Mr Lam's.

15. The plaintiff appeared to suggest that the nomination of Mr Lam was permissible because of clause 3 of the Agreement referred to earlier. I would agree had Mr Fong himself first entered into the Agreement and then nominated Mr Lam as purchaser but this was not the sequence of events. Clause 3 could not, as it were, have retrospectively conferred power on Mr Lam to become the purchaser. There is the further point that if a power to nominate was vested in Mr Fong under the Provisional Agreement as an implied term, the exercise of such a power has to be evidenced in writing, just as any assignment of the rights and benefits of a contract for the sale of land. In the present case, the nomination of Mr Lam to be purchaser was never made in writing. This has ramifications on the validity of the Agreements. I will return to this question later.

16. Mr Sze allegedly also explained that Mr Lam's signature had not been witnessed because "he was in too much of a hurry" and had no time to put his signature down. Pausing here, I observe that Mr Sze's explanation is simply not credible. Yet it apparently did not cause the plaintiff to raise so much as an eyebrow. Had Mr Sze been called as a witness, the real reason might have emerged.

17. The plaintiff said that he explained all these matters to the defendant but the defendant said that as he did not know Mr Lam he was not going to sell to Mr Lam. The plaintiff then telephoned Mr Fong and asked him to talk directly to the defendant. All this the plaintiff said took place in his office. There allegedly followed a conversation between Mr Fong and the defendant and after that conversation the defendant allegedly said that "there was no problem". The plaintiff said that he thereafter explained the contents of the agreements to the defendant in Chinese. It did not emerge from the plaintiff's evidence what explanation he gave the defendant as to who the real purchaser was. The defendant then signed his name which was witnessed by the plaintiff. Thereafter the plaintiff had his signature verified by his principal. He said that as the defendant insisted on having a copy of these documents, he made copies and gave them to the defendant. These copies appear in the plaintiff's bundle as items 16 and 17 which in the course of the plaintiff's opening, I had observed were documents that on their face appeared to be "irregular".

18. The plaintiff returned the originals to Leong, Lam & Co. who had undertaken to "complete" and "supplement" the documents and to return them to the plaintiff. According to the plaintiff, the completed agreements were returned to him within a day or two. He said that he made copies of the completed agreements which the defendant collected from his secretary. The plaintiff appeared to consider the "completing" and "supplementing" of witness and interpretation clauses as standard practice in solicitors' firms. If this be true, for my part, I can only say that this practice must be deplored if professional standards are to be maintained. It is not conduct that should be tolerated, much less encouraged.

19. Mr Fong gave the following account regarding the events of 23rd October 1989. He said that Mr Lam was a good friend. They met at his previous firm Tsang, Chau & Suen where Mr Lam rose to the position of clerk after having been a messenger. Mr Fong left the firm of Tsang, Chau & Suen soon after the date of the Provisional Agreement. He therefore retained Leong, Lam & Co. to act for him in the transaction. He said that he was about to join the firm of Van Langenberg & Co. but as that firm had not yet begun business, he could not be represented by it.

20. As the premises were over 20 years old, he realised that the only bank willing to advance a loan against properties of this kind would be the HongKong Bank. He had previously had a current account with HongKong Bank but that account had been closed by the bank as a result of bounced cheques. He realised that he might possibly be blacklisted by the bank and it was for that reason that he approached his friend Mr Lam on or just before 23rd October to see if he would act as his nominee for the purchase in the hope of using Mr Lam's name to obtain a loan from the bank. However, Mr Fong's evidence regarding the sequence of events was not consistent. When I asked when he first had concerns about his not getting a loan from the bank, he answered "the twenty-something of October". When pressed for a more precise date, he said he could not remember exactly because he had made calls to the bank over several days. Then in response to the question whether it was before or after the Agreements were signed, he replied : "After that ." If so, this was plainly inconsistent with the explanation as to why he had nominated Mr Lam to be the purchaser.

21. Mr Lam was apparently willing to accommodate Mr Fong. So on 23rd October, Mr Fong, Mr Lam and Mr Fong's mother, one Lai Wai Ying, ("Madam Lai") went to the firm of Leong, Lam & Co. Mr Fong said that he had asked his mother to go along because he was hoping that she might be persuaded to be his nominee for the purchase of one of the flats. At that time he was already indebted to his mother for some $40,000, borrowed over a period of time. Although his mother accompanied him and Mr Lam to the solicitors' office, she would not sign any of the Agreements as she had not seen the premises. In the result, Mr Lam signed both Agreements as purchaser.

22. It is Mr Fong's evidence that notwithstanding the fact that the Agreements were signed by Mr Lam, he, Mr Fong, was the real purchaser. The additional deposit was provided by Mr Fong who also paid the fees of Leong, Lam & Co. According to Mr Fong, Mr Lam was merely "lending" his name to the transaction. I take this to mean that Mr Lam was willing to represent to the bank that he was the real purchaser when he was not, in order to obtain a loan which would be used to finance the purchase for Mr Fong. In other words, Mr Lam and Mr Fong were proposing to deceive the bank. Mr Fong said that a day or two after the Agreements had been signed, he spoke to the Kai Tak Branch of HongKong Bank on behalf of Mr Lam and provided them with information regarding the premises as well as Mr Lam's personal circumstances. As Mr Lam was not called to give evidence, what his understanding was will remain a mystery.

23. The defendant's account of the events of 23rd October is significantly different. He said that on 23rd October, he received a call from the plaintiff to go to the same restaurant saying that the Agreements would be signed that afternoon. Both Mr Fong and the plaintiff were at the restaurant. After lunch when they were leaving to go to the plaintiff's office, Mr Fong said that he was too busy and left. The defendant went with the plaintiff to the offices of Alick Au & Massie. The plaintiff produced two sets of documents saying that they were the Formal Sale and Purchase Agreements but never explained the contents to the defendant. He asked the defendant to sign them. After that the plaintiff had his signature verified by his principal. The defendant then asked for and was provided with copies of the two documents.

24. It is the defendant's evidence that there was a signature in English which he assumed to be Mr Fong's on the page of each of the Agreements that he signed. He said that the plaintiff had represented to him that the Agreements were Mr Fong's. He said he did not realise that the signature was not that of Mr Fong's and is adamant that he was not told that Mr Lam was going to be the purchaser. He also denied that he was ever provided with copies of the Agreements duly "completed" and "supplemented" by Leong, Lam & Co.

(c) 28th October

25. On 28th October 1989, Mr Lam signed a Deed of Nomination nominating Mr Fong's mother Madam Lai to be the purchaser of No.52. This deed was prepared by Leong, Lam & Co. and was produced for the very first time midway through the trial of this action, although it was obviously an important document in the chain of title. Mr Fong said that this Deed was prepared by Leong, Lam & Co. at his instructions. Mr Fong said that the reason for nominating his mother was that she should have the comfort of having one of the flats in her name as some sort of security for the money that he still owed her. He said it was not his intention to borrow money from her in order to complete the purchase. It is to be noted that in this respect, the plaintiff's evidence is different. He said that Mr Fong had told him that he had to borrow money from his mother to finance the purchase and that eventually she did lend some money to Mr Fong. It was his understanding that Mr Fong treated his mother as having a share in one of the flats for this reason.

26. On or about the 28th October 1989, Mr Fong heard from the bank that Mr Lam might not be able to obtain finance for the purchase because there was a problem regarding his income level. The bank also expressed the view that the premises were worth up to the amount stated in the agreements, that is to say $720,000.

27. According to Mr Fong, after he heard from the bank that Mr Lam's application for a mortgage was likely to run into problems, he approached the plaintiff to see if the latter was interested in buying the property. Mr Fong admitted that by this time he was under considerable pressure as completion was only a few days away and he had no likely or obvious source of finance. The plaintiff's evidence in this regard is a little different. He mentioned Mr Fong's inability to obtain a loan because of his problems with the bank some years before but nothing about the difficulties Mr Fong met in trying to obtain a loan for Mr Lam. This is a little surprising since Mr Fong and the plaintiff were close friends to the extent that Mr Fong was then indebted to the plaintiff in the sum of $80,000. It would appear from the transcript of taped conversations the defendant had with the plaintiff and Mr Fong, that this was used towards the deposit paid for the premises.

28. The plaintiff apparently expressed interest, subject to his being able to obtain a bank loan and to the price being a "reasonable" one. The plaintiff then applied to the HongKong Bank for a loan. No evidence was forthcoming as to when the application was submitted nor the amount of loan applied for although evidence could easily have been adduced by the plaintiff. All that was in evidence was the date of the bank's offer to extend a loan, which was 31st October. In his evidence in chief, Mr Fong said it was he who suggested the price of $900,000 to the plaintiff. However, in response to a later question from the court, he retracted this and admitted that the figure came from the plaintiff, after the latter had checked with the Bank.

(d) 1st November 1989

29. The next event took place on 1st November 1989. According to Mr Fong, the defendant telephoned him on or about the 1st November asking him to allow the defendant to delay delivering vacant possession until after the Lunar New Year. Mr Fong, the plaintiff and the defendant met on 1st November and according to Mr Fong and the plaintiff, it was at the defendant's request that the plaintiff wrote out the licence whereby Mr Fong, as owner, agreed to lend the premises to the defendant for temporary use until 28th February 1990. Both Mr Fong and the plaintiff said that although the defendant was told that Mr Lam was the nominated purchaser and ought to be the signatory, the defendant insisted that Mr Fong should sign because his relationship was with Mr Fong whom he trusted. This, of course, is inconsistent with Mr Fong's assertion that he was the real purchaser.

30. The plaintiff's stance is similarly equivocal. When asked by the court, he replied that he considered Mr Lam to be the purchaser and that Mr Fong ceased to have any interest after the Agreements were signed. Almost as an afterthought, he made some attempt to ascribe some continuing interest in Mr Fong, the precise nature of which the plaintiff was unable to articulate.

31. I note that both the plaintiff and Mr Fong were at pains to give the impression that the granting of the Licence to the defendant was an act of magnanimity. I do not see how that can be the case. The defendant was entitled to this as of right under the terms of clause 7 of the Provisional Agreement. Neither the plaintiff nor Mr Fong would have been allowed to take advantage of what I can only conclude as a deliberate attempt not to give effect to this part of clause 7 of the Provisional Agreement when the Agreements were drawn up. No doubt Mr Fong and the plaintiff were aware of the potential difficulties of obtaining a mortgage were vacant procession not to be delivered on completion.

32. The defendant's account was that this meeting was arranged by the plaintiff. The plaintiff produced the licence and said that it was for the benefit of both parties that the document should be signed and each should keep a copy to avoid future disputes. As it was written in the licence that Mr Fong was the owner, the defendant signed the licence.

33. The plaintiff said that sometime during the afternoon of 1st November, he was told by the bank that his mortgage application had been approved, that the premises were valued at $900,000 by the bank and that an aggregate sum of $680,000 would be available by way of bank loan to be secured on the premises. It is to be noted that the bank's offers made no reference to the value of the premises. It merely set out the amounts it was prepared to lend against each of the two units. During the evening of that same day, the plaintiff met Mr Fong and told him that he was willing to buy the property for $900,000. The plaintiff paid Mr Fong the equivalent amount of deposit that had been paid by Mr Fong except that the sum of $80,000 which was owing by Mr Fong to the plaintiff was deducted from the total deposit. The plaintiff apparently had the prescience to attend the meeting with Mr Fong well supplied with cash. He carried, on his person, over $50,000 in cash : Mr Fong's evidence was that payment (of some $51,000) was effected in cash. So by the end of the evening on 1st November, Mr Fong was in the happy position of having recovered the full amount of the deposit he had advanced for the property.

34. Pausing here, the plaintiff was obviously aware that the purchase price for the premises under the Provisional Agreement and the Agreements was $720,000 and that Mr Fong was under tremendous pressure and therefore at a considerable disadvantage from a negotiating standpoint. There is no explanation as to why, in those circumstances, the plaintiff could have thought the price of $900,000, representing an increase of 25% within the space of 9 days, reasonable. It is not immediately obvious why it should be so. The fact that the bank was prepared to make a loan based on that valuation does not of itself necessarily render that amount "reasonable". The reasonableness has to be gauged against the totality of the circumstances. That the objective was to maximize the loan that could be raised so that as much of the purchase price payable to the defendant should come from a bank loan is an inference amply warranted by the facts and derives support from the transcript of taped conversations between the plaintiff, Mr Fong and the defendant which has been admitted into evidence. Mr Fong was in such straights that an arm's length purchaser would not have had any difficulty purchasing from Mr Fong at $720,000. Therefore, whilst I accept that the loan was granted by the bank, based on a "purchase price" of $900,000, it does not follow, in the absence of satisfactory proof, that there was a genuine sub-sale at $900,000 or that the plaintiff actually paid $900,000 for the property. In other words, I do not believe he paid Mr Fong the difference of $180,000.

(e) The Assignments

35. The Assignments are dated 2nd November. The date of actual execution is hotly disputed. The plaintiff said that he was represented by Van Langenberg & Co. which is Mr Fong's firm. The plaintiff's evidence was that on 2nd November he went to Van Langenberg & Co. to execute the assignments. His signature was witnessed by Mr Fong. The balance of the purchase monies was allegedly paid over and after that he returned to his own firm. The Assignments were then sent over to Leong, Lam & Co. for execution by the confirmors who were Madam Lai and Mr Lam. The Assignments were then returned to Alick Au & Massie. It is to be noted that there is no documentary evidence of what was paid by the plaintiff. The defendant accepts that he received $720,000. Other than that, there is no evidence that the confirmors received any payment from the plaintiff, notwithstanding the standard receipt clauses in the Assignments and Mr Fong was categoric that they did not receive anything.

36. According to the plaintiff, the defendant attended the offices of Alick Au & Massie later that day to execute the assignments and cheques were handed over to him. The plaintiff said that he also issued a cheque to the defendant. He said that at the time the defendant was paid, he discovered that there was an error in the calculation but the plaintiff did not elaborate on the mistake. So he made out a cheque from the account of a company called Silver Hinge Development Limited of which he was shareholder and director to the defendant in the sum of $2,500. Surprisingly, the completion statement or final invoice was not adduced in evidence by the plaintiff.

37. The plaintiff's evidence was that prior to the defendant executing the Assignments, he told the defendant that he was the purchaser but that he would observe the terms of the Licence that had been granted to the defendant by Mr Fong; that he explained the contents of the Assignments to the defendant and asked if the defendant wanted separate representation as he, the plaintiff, was the purchaser. The defendant apparently said that as he had sold the property to Mr Fong, he did not mind how Mr Fong chose to deal with the property and that there was no need to look for another lawyer.

38. Mr Fong said that he witnessed the plaintiff's signature on the Assignments on 2nd November.

39. The defendant's account was that he executed the Assignments on 25th October and not 2nd November. He said that he received a call from the plaintiff on the 25th telling him that the assignments had to be executed that afternoon. They again met at the restaurant at lunch time and Mr Fong who was present at lunch then excused himself and left it to the plaintiff to handle matters. When the defendant reached the plaintiff's office, the plaintiff produced six documents for him to sign. Two of them were Sale and Purchase Agreements between the original owner and the defendant. Two related to the assignment of the premises from the original owner to the defendant and the other two assignments were between the defendant and Mr Fong.

40. When it came to the time for signing the Assignments, the defendant said that he saw a woman's name in Chinese on one of the documents. When he asked about that, the plaintiff explained that she was Mr Fong's mother-in-law. The plaintiff then placed a call to Mr Fong and after they had spoken, he handed the telephone to the defendant. Mr Fong confirmed to the plaintiff that Madam Lai was his mother-in-law and that he could bring her to see the defendant if he wished. Believing that it made no difference whether the mother-in-law's name or Mr Fong's name was on the document since they were the same family, he executed the Assignments.

41. The defendant's evidence is that not only did the plaintiff not interpret and explain the contents of the Assignments to him, he was not given the opportunity to see the documents in their entirety. He said that the only page of each of the Assignments he was allowed to see was the page on which he was to sign.

42. The defendant went on to explain that when he went to the plaintiff's office on 2nd November, the plaintiff produced a bill, telling him that the balance for the premises after deducting various items including monies due to the original owner was around $120,000. A cheque of Alick Au & Massie was issued to the defendant. The defendant said that after he had read the bill, he found that there was one item missing, namely a sum $2,500.

43. The defendant explained that he had agreed with the original owner to dispense with Sale and Purchase Agreements. However, subsequently, he was advised by the plaintiff that his principal John Massie required such agreements to be entered into between the original owner and the defendant. The defendant agreed to the agreements being prepared by Sousae and Hoosen and that he (the defendant) would pay $2,500 for them. The defendant insisted that the original owner should not be asked to pay for them. Mr Fong subsequently agreed with the defendant that he would pay this amount. As the defendant had already paid Sousae and Hoosen, he asked the plaintiff about it, believing that the plaintiff had received the money from Mr Fong. Although the plaintiff initially said that the defendant should ask the opposite party to pay, on being told of Mr Fong's agreement, the plaintiff wrote out the cheque which is exhibit P-9.

44. The defendant said that he asked for photocopies of the Assignments after he had signed them on 25th October, but he was told by the plaintiff that they had first to be delivered to the Land Registry for registration. He accepts that the reason given by the plaintiff was that the plaintiff wanted to give him copies with memorial numbers.

45. As the defendant was unable to obtain copies of the Assignments for some considerable time despite several visits to the plaintiff's office he went to the Land Registry and conducted a search in the early part of January 1990. It was then that he discovered that the Agreements had not been registered and when he received copies of the Assignments, he realised that Mr Fong was not the purchaser and that the end purchaser was the plaintiff.

46. Turning to the Assignments themselves, it is not immediately apparent when one looks at them that the plaintiff's signature appears three times on each of the Assignments : as witness and interpreter to the vendor (i.e. the defendant) and as purchaser. As witness, the plaintiff signed as "Johnny Chiu", the name appearing on the stamp beneath the signature being "Johnny C.K. Chiu Legal Executive of Alick Au & Massie". As interpreter, the plaintiff also signed as "Johnny Chiu". A similar though not identical stamp was used describing the plaintiff as "clerk" to that firm. As purchaser however, he signed as "Chiu Che Kuen". The style of signature is markedly different and bears little resemblance to that of "Johnny Chiu".

47. When asked about this, the plaintiff's explanation was that whenever he acted for his firm he would sign as "Johnny Chiu" but for personal documents such as cheques and credit cards, the other style of signature "Chiu Che Kuen" would be used. Whatever the reason, it is unlikely to strike anyone reading the Assignments that the two styles of signature belong to the same person.

48. The Assignment relating to No.52 requires further comment. It is expressed to be made between the defendant as "Vendor", Lai Wai Ying as "Confirmor" and the plaintiff as "Purchaser". Recital (1) referred to an Agreement for Sale and Purchase made between the Vendor and the Confirmor. This is interesting as the plaintiff who acted for the defendant as vendor in that transaction knew that the purchaser in the Agreement was Mr Lam and not Madam Lai. Mr Fong also knew this. In fact, he said he had to persuade Mr Lam to sign as his nominee because his mother Madam Lai refused to have anything to do with the Agreements. Moreover it was Mr Fong who caused the Deed of Nomination to be prepared and executed between Mr Lam and his mother on 28th October. So he was fully aware of the chain of events that occurred within the space of 9 days. His firm acted for the purchaser and he was the person handling the transactions. Whether the Assignments were prepared by Mr Fong's firm or the plaintiff's firm, the error of fact contained in the recital defies explanation.

The Plaintiff's submissions

49. On behalf of the plaintiff, Mr Mumford submitted that the defendant has no case because as the Provisional Agreement was specifically enforceable, the defendant could have been compelled to enter into the Agreements and to execute the Assignments. I see two problems with this submission. First, it assumes the validity of the Agreements. As noted above, the nomination of Mr Lam was not made in writing. Therefore as the Agreements derive their validity from the Provisional Agreement, which is the source of the rights and obligations, the absence of a written nomination is fatal because it broke the chain of title. Therefore, in the absence of a written nomination, I do not agree that the defendant could have been compelled to enter into the Agreements with Mr Lam. It was not argued and I do not think that in light of the evidence it could seriously be submitted that the chain of title did not stem from the Provisional Agreement but from the Agreements themselves. Second, quite apart from this difficulty, Mr Mumford's submission might be correct only if the purchaser was someone other than the plaintiff. Different considerations apply where the purchaser is a fiduciary.

The applicable legal principles

50. As the defendant is a litigant in person with no legal formation, he has not been able to fully articulate the principles of law that apply in circumstances such as the present. Surprisingly, these basic general principles appear to have eluded the plaintiff, despite his having been a legal executive for a considerable number of years and his current pursuit of a career in the law. Simply stated, they are as follows.

51. The relationship between solicitor and client is a fiduciary one : per Cozens-Hardy, MR in Re Van Laun [1907]2 KB 23 at 29, CA. The fact that the plaintiff had not yet qualified as a solicitor but was a legal executive is a distinction without a difference since he was performing the functions of a solicitor, albeit under the supervision of his principal. In transactions between solicitor and client, the general principle is clear. Where a solicitor enters into a transaction with a client, he will not be able to uphold the transaction if it is called into question by the client, unless the solicitor can prove to the satisfaction of the court that all material facts within his knowledge were disclosed to the client, and this transaction was effected by the client of his own free will. Failure to make such disclosure may lead to the transaction being set aside : see Nocton v. Lord Ashburton [1914]AC 932 at 965; 44 Halsbury's Laws of England (4th Edn) para.118. In the context of purchases and sales, for practical purposes such a transaction will be upheld if the solicitor can prove (1) that he made full disclosure of all material information known to the solicitor; (2) the price was fair; and (3) the client was independently advised by a solicitor to whom all circumstances were disclosed : see 44 Halsbury's Laws of England at para.121.

52. The first hurdle the plaintiff has to overcome is whether or not at the time the defendant executed the Assignments, he knew that the plaintiff was the ultimate purchaser of the premises. In other words, on the evidence, had the plaintiff made a full and complete disclosure of the transaction to the defendant? The issue comes down to one of credibility : is the plaintiff or the defendant the more credible witness?

53. The plaintiff said in evidence that he explained and interpreted the contents of the Assignments to the defendant just as he had done when the defendant executed the Agreements. Further, the plaintiff said he even asked the defendant if he wanted to be represented by another solicitor.

54. I do not, for one moment, believe the plaintiff's evidence in this regard. First, had he explained the contents of the Assignments as he asserts, I cannot believe that he would not have noticed the glaring error in recital (1) of the Assignment relating to No.52.

55. Second, the plaintiff did not strike me as an honest witness. He said in his evidence in chief that he had supplied copies of the Agreements after they had been "completed" and "supplemented" by Leong, Lam & Co. and returned to the plaintiff. He also told the court that he retained copies of the completed Agreements. Yet all copies of the Agreements he has used in this action, including those in his bundle of documents (items 16 and 17) are the "incomplete" copies, with no means of identifying the purchaser. In fact, the original was only produced in court marked as exhibits P1 and P2 after I had remarked that the documents in the plaintiff's bundle appeared to be irregular or deficient.

56. There are inconsistencies in his evidence. A striking example is when he was asked whom he thought was the real purchaser after the Agreements had been executed. He gave an unqualified answer to the effect that it was Mr Lam. This answer was directly inconsistent with the statement in the Licence which he drew up on 1st November, namely that Mr Fong was the "owner". Further, why did he negotiate the sale with Mr Fong rather than the confirmors if he believed they were the real purchasers? He attempted to retract his unqualified answer on the somewhat flimsy basis that as Mr Fong had signed the Provisional Agreement, he must have retained an "interest". However, the plaintiff could not really articulate that interest. If so, what explanation could he have given the defendant regarding the contents of the Agreements?

57. A general lack of candour on the plaintiff's part has pervaded this action. For no valid reason, critical documents such as the duly "completed" Agreements of 23rd October, the Deed of Nomination dated 28th October, the Sale and Purchase Agreements between the original owner and the defendant dated 25th October and documents relating to the loans obtained from HongKong Bank were not produced until the hearing itself. In this connection, the plaintiff's written application to the Bank for a loan, which would have established the date of application, was never produced. Mr Fong's evidence was equally unsatisfactory. He prevaricated and gave inconsistent answers such as his answers as to who had suggested the price of $900,000. There were glaring discrepancies in his evidence with what was in his witness statement. In short, the evidence of both the plaintiff and Mr Fong filled me with a sense of unease.

58. The plaintiff has plainly not acted in the defendant's interest although he was the defendant's legal representative in the transaction. For example, the Agreements should have given effect to all the terms of the Provisional Agreement. They did not : the plaintiff admitted that the provision in clause 7 of the Provisional Agreement relating to the vendor's right, if he so elected, to live in the premises until after the Lunar New Year is nowhere to be found in the Agreements. Further, the Agreements were never registered at the Land Registry. Again, no valid reason was given. Rather, the plaintiff advanced some spurious explanation to the effect that prior to 1993, registration of such agreements were unnecessary. Then there are matters arising from the execution of the Agreements themselves that put the plaintiff's bona fides into question. The plaintiff did not endeavour to explain why the purchaser's name had been left blank in the draft Agreements which he sent to Leong, Lam & Co. for approval. At that point in time, if the plaintiff is to be believed, he had no inkling that Mr Fong would not be the purchaser. He said that he only learnt about it when he received the Agreements back from Leong, Lam & Co. with the purchaser's signature and noticed that it was not Mr Fong's. There was also the reason allegedly given by Peter Sze of Leong, Lam & Co. when the plaintiff asked why the purchaser's signature had not been witnessed which is simply not credible but Mr Sze was not called to give evidence. Nor did the plaintiff ever consider the need for Mr Lam's nomination to be in writing.

59. By way of contrast, I was struck by the straight forward and open manner of the defendant whose evidence has been remarkably consistent.

60. The defendant is adamant that he was asked to sign six documents on 25th October : two agreements for sale and purchase between the original owner and the defendant and two assignments relating to that transaction as well as the Assignments in question. The plaintiff denies that any document was signed on the 25th October. On the third day of the hearing, I asked that the Agreement dated 25th October which appeared in the Schedule of title deeds sent to the bank (namely exhibit P8 which was only produced on the second day of the hearing) be obtained. This together with a corresponding Agreement for No. 54 were produced on the final day of the hearing and are Agreements between the original owner and the defendant dated 25th October. Prima facie, they lend credence to the defendant's account of events.

61. The plaintiff submitted that the Assignments themselves could not have been executed earlier than 2nd November since he only learnt of the positive response to the application in the afternoon of 1st November. I have to say that there is no independent support for the dates of the various applications (informal or otherwise) by Mr Fong and the plaintiff for bank loans. As noted earlier, the plaintiff's application was not put in evidence for reasons best known to him. But for present purposes, the date the Assignments were executed is not critical : even if the defendant had got the dates wrong, it would not follow that he was not telling the truth when he said that the plaintiff never explained the contents of the Assignments to him, that he was asked to sign the pages that were open in front of him and that he never had the chance of seeing the entirety of each of the Assignments.

62. For the reasons stated above, I find that the plaintiff and Mr Fong were not truthful and reliable witnesses. I accept the defendant's evidence that the plaintiff never made a full and frank disclosure to him that he was going to buy the property.

63. It was also urged that the court should take notice of the fact that the Law Society had previously investigated into the defendant's complaint against the plaintiff and his firm although the court is not bound by the Law Society's decision. I do not see how the conclusion reached by the Law Society's Professional Conduct Committee is of any assistance where there is no evidence as to the compliant made and the scope of the Law Society's investigation. More importantly, it is not known what evidence was before the Committee and considered by it. Rather, in view of the findings of fact that I have made after hearing evidence over a period of over 3 days, it would be highly desirable if the Law Society were to revisit this whole matter.

Legal implications

64. If, as I have found on the facts, the plaintiff never explained the contents of the Assignments to the defendant, there are significant consequences.

65. Taking it in stages, there is no evidence that Mr Lam and Madam Lai were in a position, financially, to complete the purchase. They did not give evidence themselves but left it to Mr Fong who maintained that notwithstanding the nominations, he remained the real purchaser. Mr Fong frankly admitted that he could not raise the finance. Thus, the position as of 1st November, prior to the plaintiff receiving notification from his bank, was that completion could not proceed. The consequence of that would be that the defendant could forfeit the deposit or sue for specific performance. The plaintiff never disclosed this fact to the defendant.

66. The plaintiff submitted that he never profited from the transaction because he paid $900,000 for the premises. First, profit is not a requisite McPherson v. Watt (1877)3 App Cas 254 at 264, 272, HL. Second, the defendant has been disadvantaged in this sense : he was deprived of the opportunity of forfeiting the deposit and taking advantage of being able to re-sell the property at a higher price. In effect, the plaintiff sought to divert the apparent increase in value of the property away from the defendant and to deprive the defendant of this "profit". I am not satisfied on the evidence that the plaintiff actually paid $900,000. Despite what the Assignments stated, the confirmors had no beneficial interest in the transaction. All that was a sham. Nor would they have had any entitlement because of the invalidity of the Agreements noted above. The facts are more consistent with the plaintiff taking over the purchase from Mr Fong, after having succeeded in obtaining a bank loan representing 94.4% of the price paid to the plaintiff, than with the plaintiff conferring a windfall on Mr Fong of $180,000 and I so find.

67. The plaintiff further submitted that the Assignments cannot be set aside because restitution to the original position is no longer possible. I accept the principle that rescission cannot be obtained unless restitution is possible but I do not accept that on the facts of the present case, restitution is not possible given the findings of fact that I have made. No objection can be raised based on the interest of the confirmors since the confirmors had no interest whether legally or beneficially. The legal estate went directly from the defendant to the plaintiff. As regards the mortgages in favour of the bank, according to statements of account from the bank, as at 30th June 1995 a little under $340,000 in the aggregate was outstanding. The mortgages can easily be discharged out of the purchase price to be repaid by the defendant to the plaintiff.

Order

68. The plaintiff's claim is dismissed with costs. On the defendant's counterclaim, I order that the Assignments be set aside upon payment of $720,000 together with interest by the defendant to the plaintiff.

69. As the defendant has had the use of both the purchase monies as well as the premises, restitution requires payment of interest to the plaintiff on the purchase price received by the defendant of $720,000 until repayment. The rate of interest is within the court's discretion. Having regard to the conduct of the parties and the circumstances of this case, the appropriate rate of interest is 4%. I order that simple interest be paid at the rate of 4% from 2nd November 1989 until payment.

70. Liberty to apply.

Representation:

Mr E.C. Mumford, Q.C. and Mr Peter Wong, inst'd by Ivan Tang & Co., for the Plaintiff (Mr Mumford only appeared on 2nd November 1995)

Defendant, Or Yue Ling, in person