Yazhou Travel Investment Co Ltd v. David Geofrey Allan Bateson and Others

HCA006888/2000

HCA6888/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6888 OF 2000

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Coram: Deputy High Court Judge Muttrie in Court

Date of Trial: 11-14, 17-21, 24 & 25 November 2003

Date of Judgment: 28 January 2004

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J U D G M E N T

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1.On Connaught Road West, facing northwards over the waterfront there stands a 37-storey office building, which has on the top of it a rather striking architectural feature in the form of a large open box structure of reinforced concrete uprights and horizontals, with above that an open pyramidal structure of beams with a mast set in the apex. The building is known, not by any name intended to confer recognition or prestige, but by its street number, 118 Connaught Road West. I will refer to is as "No.118". Herein lies one of the problems which gave rise to this action; the plaintiff bought the right to name the building (the "Naming Right") from the developer, but now claims that it turned out to be worthless. The structure on the top looks as if it were built for a purpose such as that of supporting signboards, and indeed the plans of the building, at any rate the elevation plans, provide for signboards (the "Signboards") in the spaces between the horizontal beams on all four sides, and the architect's model had signboards there; but on the building, they were never built. This is the second problem. The plaintiff bought the Signboards from the developer but now says that it did not get a good title to them. For its losses, it seeks damages from the defendants who acted as solicitors for both vendor and purchaser.

2.No.118 was developed in the heady days of the buoyant property market in the 1990s. The Occupation Permit is dated 30 June 1994. The developer, Key Choice Ltd ("KCL"), instructed the defendants as one of its conveyancing solicitors for the sale of units in the building. The plaintiff, on behalf of its parent company, a mainland company which wished to speculate in the Hong Kong property market, entered into provisional agreements to buy six floors and some car parks in the building, together with the Naming Right and the Signboards, both of which were purportedly attached to the 40th floor. (Though the building has 37 floors, some "unlucky" floor numbers have been left out.) The plaintiff agreed a price for the 40th floor which included $48,088,500.00 for the Naming Right and $67,327,600.00 for the Signboards. Unfortunately, title problems later surfaced in respect of both the Naming Right and the Signboards. It is the plaintiff's case that these problems make the Naming Right and the Signboards worthless.

3.This action is a professional negligence and breach of duty claim by the plaintiffs against the defendants, arising out of its retainer of them as conveyancing solicitors. At the relevant time the 2nd and 3rd defendants were consultants to the 1st defendant firm. The plaintiff claims from them the sums paid for the Naming Right and the Signboards, plus stamp duty and mortgage interest, the return of fees paid and the cost of management fees in respect of the Signboards.

4.The plaintiff says that it brings the action as trustee and for the benefit of its parent company, the Southern Airlines Group ("SAG"), a state-owned enterprise in the PRC. It claims against the defendants for breach of retainer, negligence and breach of fiduciary duty. The particulars are extensive but in brief the case on the Naming Right is as follows.

5.It was an implied term of the sale and purchase agreement that the Naming Right assigned by the vendor was a proprietary right running with the land, and binding on and enforceable against all co-owners of No.118, whether or not they were original parties to the Deed of Mutual Conditions ("DMC"). But the Naming Right was not such a right. The defendants failed to advise the plaintiff of this, and in particular they failed to advise it of the effect of the decision of Deputy Judge Suttill in the case of Supreme Honour Development Ltd v. Lamaya Ltd [1990] 2 HKLR 294 and the decision of the Court of Appeal in the same case reported as Lamaya Ltd v. Supreme Honour Development Ltd [1991] 1 HKC 198 and that in the light of those decisions the Naming Right would be valueless because unenforceable against co-owners except KCL.

6.Further, says the plaintiff, the defendants failed to advise that there were no provisions in the sale and purchase agreements, the assignment or the DMC which would fulfill the implied term as to the Naming Right, or alternatively they failed to draft those instruments in such a way as to render the Naming Right enforceable against co-owners from time to time; and still further or alternatively, if the defendants tried to draft such provisions into those instruments, they failed to advise the plaintiffs on the efficacy or otherwise of such provisions and the risk that they would not achieve their purpose; and they failed to obtain counsel's advice on the efficacy of the provisions.

7.As regards the Signboards the plaintiff's case is that there was, in the sale and purchase agreement, an implied term that the Signboards could be exclusively used and enjoyed by the plaintiff and its successors without the necessity of obtaining any licence or permission from anyone. The defendants failed to investigate the title thereto properly and failed to advise the plaintiff that since the Signboards were not really signboards, but only air-spaces, they might not be or were not capable of constituting an estate in land. They failed to advise the plaintiff that the vendor might not have any title to the Signboards. They further failed to advise that since there were no actual signboards, the plaintiff, if it wanted to erect them would have to erect supporting frames and the attachment of such frames to the architectural feature or the main roof would require the approval of the Building Authority and the manager of the building or the co-owners, under the provisions of the DMC. They failed to advise that the Signboards were not mentioned in the Occupation Permit and therefore could not be used without infringing the terms of the DMC, and they further failed to advise that the use of the signboards was subject to clauses in the DMC which prohibited any owner from altering the external appearance of the building, or from putting up any sign without authority and therefore defeated the Signboard implied term; and they failed to draft the DMC in such a way as to fulfill the implied term.

8.So far as the breach of fiduciary duty goes the plaintiff says that the defendants, who acted for both vendor and purchaser, failed to act in its best interests as purchaser but rather acted in the best interests of the vendor.

9.The plaintiff says that if it had known of the problems with the Naming Right and the Signboards it would never have gone ahead with the purchases of them.

10.The defendants' case is as follows. In the first place, although the 2nd and 3rd defendants were the employees, servants or agents of the 1st defendant, they did not themselves owe the plaintiff any duty. The retainer and duty of care owed by the 1st defendant is limited in the sense that before the retainer commenced, the plaintiff had already entered into binding provisional agreements and that if the plaintiff did not then sign the formal agreements, the deposits it had paid would be forfeited. The defendant's services up to 28 December 1993 were limited to drafting and advising the plaintiff on the formal agreements, and after that date were limited to checking and advising on title and handling the completion.

11.So far as the Naming Right are concerned the defendants' admit that they did not advise the plaintiff of the effect of Lamaya, but claim that the Naming Right was enforceable and assignable. The 3rd defendant had drafted provisions into the DMC which made it so. As to the Signboards the defendants' case is that the plaintiff obtained good title to them. The defendants deny breach of fiduciary duty; they say that they were entitled to act for both vendor and purchaser by Rule 5C of the Solicitors' Practice Rules, Cap. 159. In any event the plaintiff was bound by the provisional agreements to purchase the Naming Right and the Signboards, even if the former was not a covenant which ran with the land, and irrespective of whether or not there was any breach of fiduciary duty.

12.As indicated the plaintiff's major claim is for the price paid by it for the Naming Right and the Signboards. The defendant says that the plaintiff in fact exercised its right to change the name of the building twice, once to another name and then back to the original; it has never been prevented from erecting signboards in the spaces between the beams, and if there was any defect in the title to the Signboards the plaintiff has failed to take any steps to rectify them. The plaintiff has resold various of the properties it bought, and the total earned profits, interest and deposits forfeited from those transactions was more than what it paid for the Naming Right or the Signboards. The plaintiff has failed to mitigate its loss or give credit for income and benefit derived from the properties. Finally there is a limitation point; the defendants' case is that the plaintiff's alleged cause of action accrued on or before 22 January 1994. The Writ was issued more than six years later so the action is statute-barred.

13.By way of Reply the plaintiff says that for various reasons pleaded, which basically boil down to an implied term as between purchaser and vendor that the plaintiff was entitled not to complete the purchase of the Naming Right and Signboards if there were problems with the title, if the defendants had not breached their duties the plaintiff would have been entitled to rescind the transaction on the purchase of the Naming Right and Signboards notwithstanding its execution of the provisional sale and purchase agreements. Notwithstanding the provisions of the Solicitors' Practice Rules, the defendants should have ceased to act for both vendor and purchaser once they found themselves in a position of conflict of interest. They did not fail to mitigate on the Signboards; there was no interest in their use, on the part of advertisers. They were unaware of the defect in title and in any event the alleged failure to mitigate is irrelevant to the plaintiff's claim. As to the resale of properties, some of them were not in fact properties belonging to SAG but to the plaintiff itself and the income and benefit of them is irrelevant to the plaintiff's claim. As to the limitation period the plaintiff says that it did not start to run until the date of completion, i.e. 15 July 1994, or alternatively the plaintiff did not have the knowledge required for bringing the action until 1999.

The defendants

14.Messrs Bateson and Starr were in December 1993 a two-partner firm of solicitors. They commenced business in about 1990 and had other partners at different times. The 2nd defendant is a solicitor, admitted in 1979. She had practised in various firms and as a sole practitioner, and in March 1991 was taken on as a consultant by the firm then consisting of Messrs Jewkes, Bateson, Harris and Starr, practising as Jewkes and Partners. She was to supervise the firm's conveyancing department and the terms of her employment provided for a salary as well as commission on a percentage varying from 30% to 60% of the gross fees of the business she brought in. It is her evidence that she was engaged primarily to bring in business as well as supervise the conveyancing department rather than to do hands-on conveyancing work herself. She was certainly in a position to bring in conveyancing business, being the sister of Mr Lo Yuk Shui, the head of the Paliburg Group.

15.The 3rd defendant is also a solicitor, admitted in 1981, though he spent some time out of practice and studying between 1986 and 1991. He was taken on by the firm Bateson Harris whose partners were then Messrs Bateson, Harris and Starr in November 1993. He worked in the conveyancing department under the 2nd defendant, who apparently brought him in, and it appears from their evidence that he had pretty much of a free hand to do the work although his correspondence was copied to her. In 1995, the 1st defendant firm closed its conveyancing department and the 2nd defendant went to work for the firm of Messrs Robin Bridge and John Liu ("Robin Bridge"). The 2nd defendant took the plaintiff's business with her.

The background

16.Yazhou Travel Services Ltd ("YTS") was the agent in Hong Kong for SAG. From about 1992, SAG became interested in investing in property in Hong Kong, and did so at first in the name of YTS. Later the plaintiff was formed to be the vehicle for SAG's real property investment. There was an investment agreement between SAG and the plaintiff, dated 11 November 1993. The relevant officers of the plaintiff and/or SAG and YTS, for the purposes of this matter, were Mr Mao Guoping, the general manager of YTS and the plaintiff, Mr Liu Fu, the deputy general manager of YTS, Mr Leung Yu Kwong, the deputy general manager of the plaintiff, and Ms Choi Sau Yuet, the deputy financial controller of YTS.

17.No.118 was a development under a non-consent scheme. The developer was KCL, which was a joint venture company between Paliburg International Holdings Ltd, China Oversea Property Ltd and Asean Resources Ltd. The agent for the sale of the property was Paliburg Estate Agents Ltd. The 1st defendant firm, Bateson Starr and the firm of Iu, Lai and Li were retained by the developer to handle the sales of units in No.118. There was a statutory declaration made by Mr Bateson and Mr Lai of the latter firm dated 13 November 1993, on the drawing up of the sale and purchase agreements and deed of mutual covenant.

18.SAG and the plaintiff decided to purchase some floors and car parks in No.118. According to the plaintiff's evidence the developer required it to purchase the Naming Right and the Signboards if it wanted to buy the high floors. On 14 December 1993, at the office of the Paliburg Group, the plaintiff as purchaser and KCL as vendor signed seven provisional sale and purchase agreements. One was for 18 car parking spaces; there was a separate one for each of the 35th, 36th, 37th, 38th and 39th floors; and finally there was one for the 40th floor together with the Naming Right and the Signboards.

19.It is the evidence of the plaintiff's Mr Liu Fu that when he was present signing the agreements, he saw a model of No.118, which had physical signboards in the spaces in the architectural feature on top. Photographs of the model have been exhibited.

20.An extra clause 13 was added to estate agent's standard form of provisional agreements which provided that the agreement was part of an agreement between the vendor and the purchaser for the sale and purchase of the 35th to 40th floors, a number of car parking spaces, and the Naming Right and Signboards. It went on :

"Notwithstanding the fact that the Purchaser and the Vendor have entered into separate provisional agreements and shall enter into separate formal agreements for sale and purchase for each of the Floors and the Naming Right and Signboards, and each of the Car Parking spaces, completion of the sale and purchase of the properties shall take place all together simultaneously on the date of completion herein specified and no partial completion of the sale and purchase shall be accepted by the Vendor."

21.An amended clause 4 was also included in these terms :

"The Vendor and the Purchaser hereby declares and warrants that this Provisional Agreement shall constitute a legally binding contract between the parties in respect of the premises. The Vendor further declares that upon receipt of any deposit or instalments of the purchase monies from the Purchaser the vendor has no right to cancel the sale of the said premises to the purchaser and rescind the provisional Agreement at any time before the signing of the Formal agreement for Sale and Purchase. Nothing hereinafter mentioned shall affect the right of the Purchaser to claim specific performance from the Vendor and other liquidated damages."

22.Then on 17 December 1993, at the office of the Paliburg Group the plaintiff as purchaser and KCL as vendor signed one provisional sale and purchase agreement for seven car parking spaces. It is the plaintiff's evidence that it bought the car parks for itself and not for the SAG. The amended clause 13 was not put into the agreement and the original clause 4 remained. This clause allowed the vendor to rescind the provisional agreement and repay the deposit at any time before the signing of the formal agreement.

23.Both forms of agreement contained the same clause 1 which required the purchaser to attend at the office of the 1st defendant, as the vendor's solicitors, to execute a formal agreement for sale and purchase in the form prescribed by the vendor.

24.It is not in dispute that the plaintiff retained the defendants to act for it in connection with the various purchases. It is not clear when the retainer commenced; no one can remember exactly, but the 2nd defendant remembers, from seeing a note, that she had a meeting with Mr Leung of the plaintiff on 20 December 1993 though she does not remember what was then discussed. In any event the retainer commenced some time before the formal sale and purchase agreements were signed and the defendant firm drafted those agreements.

25.Those agreements were signed on 22 January 1994. There was one for the 40th floor with the Naming Right; one for the Signboards; one for each of the 35th to the 39th floors, and one for each car parking space. The agreement for the 40th floor and the Naming Right provided for a purchase price of $160,907,500.00, though as I have indicated the price of the Naming Right was $48,088,500.00; and terms of payment were agreed which included the payment of deposits of $3,600,000.00 on signing the provisional agreement and $12,490,750.00 on signing the formal agreement. Terms of payment for the Signboards were similarly agreed in the formal agreement of the same date and included the payment of deposits of $3,600,000.00 on signing the provisional agreement and $6,052,7560.00 on signing the formal agreement.

26.The defendants attempted to register the formal agreement for sale and purchase of the 40th floor and the Naming Right but the Land Registry objected, on the ground that the Naming Right was not a covenant running with the land and citing Lamaya. There followed an exchange of correspondence between the defendants and the Land Registry up to June 1994 in which the 2nd defendant set out his views on the law on the matter. In any event the agreement was ultimately registered without the Naming Right. It is now not in dispute though it was on the pleadings that the defendants never advised the plaintiff of the problem with registration, or at any rate not until much later.

27.Then in June 1994, SAG instructed the plaintiff to sell the properties on, excluding six car parks which had been transferred to the plaintiff. It was also agreed that SAG's interest in the 38th floor would be transferred to the plaintiff. The net result was to be that the plaintiff would become the legal and beneficial owner of the 38th floor and 13 car park spaces, while SAG was to be the beneficial owner of the naming right, the Signboards, the other floors and 12 car park spaces. The plaintiff secured a buyer of the 38th floor, the Naming Right, and three car park spaces named Yat Chau Properties Management Ltd ("Yat Chau"). Because of this two supplemental agreements dated 15 July 1994 were executed in order to transfer the Naming Right to the 38th floor.

28.Completion took place on 15 July 1994. Before that the plaintiff took out a mortgage loan of $340,000,000.00 from the Bank of China. By a letter dated 12 July 1994 the mortgagee's solicitors raised a requisition on the Naming Right, referring to Lamaya and the defendants answered it by reference to the various conditions in the DMC. The mortgagee's solicitors apparently did not pursue the matter further.

29.In the meantime the 3rd defendant had amended the DMC. I will deal with his evidence on this below. The final version was dated 15 July 1994. The parties to it were KCL, referred to as the "First Owner", Hunton Holdings Ltd, referred to as the "Purchaser" and Paliburg Estate Management Ltd, referred to as the "Manager".

30.Completion took place on 15 July 1994 as agreed. The Naming Right was assigned with the 38th floor, and there was a separate assignment for the Signboards. A mortgage in favour of the Bank of China was also executed. It was an express term of each of these two assignments that they were subject to and with the benefit of the DMC and also that there was excepted and reserved to the vendor, inter alia, the Reserved Areas defined in the DMC.

31.The agreement for sale of the 38th floor and the Naming Right to Yat Chau provided for completion on 15 July 1995, though there were also provisions for interest and payment of premium for earlier completion. Yat Chau Holdings Ltd provided a guarantee of performance of the agreement by Yat Chau dated 18 July 1994. The solicitors acting for Yat Chau did not raise any requisition on title in respect of the Naming Right.

32.The agreement provided for Yat Chau to enter the premises as a licensee before completion, on conditions, and also provided for the plaintiff to change the name of No.118, at Yat Chau's expense, to "Yat Chau International Plaza". The defendants agreed with the purchaser's solicitors a notice of change of name, and on 6 October 1994 Paliburg Estate Management Ltd gave consent to the erection of signs including the building name and address subject to a number of conditions, including that the permission was personal to Yat Chau and could not be assigned.

33.The defendants sought to register a Memorandum of Change of Name dated 1 November 1994 with the Land Registry. Correspondence with the Land Registry ensued, with the defendants as before putting forward their view on its registrability. This series of correspondence seems to have ended inconclusively with the defendant's letter to the Land Registry dated 9 November 1995. It is the evidence of the 3rd defendant that the Registry made no reply to that letter. In any event the Memorandum was registered.

34.Yat Chau apparently could not complete the purchase on 15 July 1995 and so the plaintiff and Yat Chau entered into a supplemental agreement dated 11 July 1995 to extend the completion date until 15 January 1997 on certain conditions. The guarantee was also continued. But completion did not take place on the new date. By that time, the 2nd defendant was working in Robin Bridge and they continued to act for the plaintiff. By a letter of 15 January 1997 Robin Bridge demanded the return of possession of the 38th floor.

35.Further, by a letter from that firm to KCL notice was given that the name of the building would be changed back to the original name. This change was registered in the Land Registry by a Memorandum dated 24 May 1997. Messrs Bernard Wong & Co., on behalf of the owner of the 1st floor, queried this, although their letter has not been produced. Robin Bridge wrote to them referring to Lamaya and to clauses 3 and 4 of the DMC and asked if their client would challenge the express provisions of the DMC. Bernard Wong & Co. replied that their client would not object to the change of name. Some litigation followed between the plaintiff and Yat Chau, and the plaintiff recovered possession of the premises.

36.The problems with the Naming Right and the Signboards surfaced in this way. In 1997, SAG was required to take back the legal ownership of the properties which the plaintiff had bought and held on trust for it. This was to be done by a subsidiary of SAG called Perfect Lines (Hong Kong) Ltd ("Perfect Lines"), under its manager Mr Edward Lui Mount Hung. Perfect Lines instructed Messrs Lui and Carey and later Messrs Dibb Lupton Alsop, the plaintiff's solicitors in these proceedings to act for it. Lui and Carey began investigating the titles to the various properties and correspondence ensued between them and Robin Bridge.

37.On 10 October 1998 Lui and Carey, by reference to an allegation in an affirmation filed in the proceedings between the plaintiff and Yat Chau that the Naming Right never existed and was not an interest in land capable of passing by assignment, raised the question of what advice the plaintiff had received and what action they had taken with regard to that allegation. On 1 June 1999 Lui and Carey again wrote to Robin Bridge raising the question of the assignability of the Naming Right, by reference to Lamaya and the case of Incorporated Owners Of Nine Queen's Road Central and JLW Management Services Limited v. Minkind Development Ltd, HCMP No.3979 of 1996.

38.In the meantime, Mr Lui of Perfect Lines had been instructed to let out the Signboards. The plaintiff had entered into two agency agreements, one with Asia Pacific Advertising Productions Co. Ltd and one with Gain Key Ltd for the letting of the Signboards, and had obtained a quotation for the erection of four sets of neon signs in the spaces, at a cost of $2,975,000.00, but apparently there had been no demand for tenancy of the Signboards by any advertiser. Mr Lui contacted the advertising company Pearl and Dean Ltd but was advised by them that government approvals would be needed before the Signboards could be let out. According to Mr Lui, he was surprised because he and his colleagues had never thought approval would be necessary. So he referred the matter to the company's solicitors.

39.Correspondence followed between Dibb Lupton Alsop, with whom Lui and Carey merged and Robin Bridge about the Signboards. The former set out their views in detail on 14 January 2000 and inter alia raised, perhaps not surprisingly, the fact that there were no signboards at all but only empty air. Robin Bridge replied on 21 January 2000 to the effect inter alia that the distinction between "Signboards" and "Signboard Spaces" was merely academic. They also referred to the fact that Paliburg Estate Management Ltd had on 20 January confirmed that it would have no objection in principle to the plaintiff erecting "signs on the Signboards" subject to certain conditions.

40.The plaintiff was not satisfied with the answers it received, and after taking the advice of senior counsel and issuing letters before action, instituted these proceedings on 10 July 2000.

Evidence

41.There was little dispute on the facts and most of the trial was taken up with legal submissions rather than evidence. I will not attempt to set out the gist of the evidence here but will refer to it where necessary in dealing with the issues raised.

The issues

42.Counsel for the plaintiff in his written Opening helpfully set out the issues as follows :

(1)	Whether the plaintiff is a trustee of the SAG and if so whether the plaintiff can bring the action for its benefit. In fact, though the defendants did not admit this, there was no evidence to contradict it and I am satisfied that the plaintiff is a trustee and can bring the action.
(2)	Whether the 2nd and 3rd defendants personally owed duties to the plaintiff.
(3)	Whether the 1st defendant is vicariously liable for their act or default.
(4)	What is the scope of the defendants' retainer and the extent of the duty of care and in particular whether it was affected by the fact that the plaintiff only retained the 1st defendant firm after it had already entered into the provisional sale and purchase agreements.
(5)	Whether the defendants owed the plaintiff a fiduciary duty.
(6)	Whether the defendants had breached their contractual and fiduciary duties with reference to the Naming Right and the Signboards.
(7)	Whether the Naming Right is indeed not assignable in that it is not legally enforceable against all the co-owners.
(8)	Whether there was any title problem with the Signboards.
(9)	Whether there was any limitation on the right to their use.
(10)	Whether the claim is time-barred.
(11)	If the plaintiff succeeds, what is the correct measure of its loss and damage.

43.There are also, as it appears from argument during and at the end of the trial, other issues of causation. I will return to these later.

The personal liability of the 2nd and 3rd defendants

44.Originally the 2nd and 3rd defendants admitted that they owed a duty of care in tort parallel to and co-extensive with the duty owed pursuant to their retainer. By amendment of the Defence this admission was withdrawn.

45.As I have said there is no dispute that the 1st defendant owed the plaintiff a duty of care in contract and tort. The contractual duty would arise from the retainer. There was no retainer between the plaintiff and the 2nd and 3rd defendants. They would not be liable in contract because they were not parties to the retainer. But if either of them was negligent the 1st defendant would vicariously liable.

46.There is, it seems, little or no direct authority on the personal liability of an assistant or consultant solicitor to his employer's client. The learned author of Jackson and Powell on Professional Negligence at paragraph 10-041 say :

"Although it has been suggested in Australia that a person employed by a firm who undertakes work for a client will generally owe the client a duty of care in tort, that will not normally be the case in England"

47.In support they cite the Australian case of Shigaeva v. Schafer (1984) 5 NSWLR 502 and the English cases Williams v. Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) and Merrett v. Babb [2001] 3 WLR 1 (CA), neither of which concerned solicitors.

48.In Shigaeva the defendant was a solicitor's managing clerk who dealt directly with his employer's client. The court held that the circumstance that the clerk was an employee could not exclude the existence of a duty of care in the in the clerk. The judge referred to dicta of Lord Denning MR of Ministry of Housing and Local Government v. Sharp [1970] 2 QB 223, a case which dealt inter alia with a negligent search in local land charges registry by the employee of a local authority. The relevant passage is as follows :

"6. The Liability of the Clerk who made the Mistake

I have no doubt that the clerk is liable. He was under a duty at common law to use due care. That was a duty which he owed to any person - incumbrancer or purchaser - whom he knew, or ought to have known, might be injured if he made a mistake. The case comes four square within the principles which are stated in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, 179-185, and which were approved by the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465.

Mr. Hunter submitted to us, however, that the correct principle did not go to that length. He said that a duty to use due care (where there was no contract) only arose when there was a voluntary assumption of responsibility. I do not agree. He relied particularly on the words of Lord Reid in Hedley Byrne's case [1964] A.C. 465, 487, and of Lord Devlin at p.529. I think they used those words because of the special circumstances of that case (where the bank disclaimed responsibility). But they did not in any way mean to limit the general principle.

In my opinion the duty to use due care in a statement arises, not from any voluntary assumption of responsibility, but from the fact that the person making it knows, or ought to know, that others, being his neighbours in this regard, would act on the faith of the statement being accurate. That is enough to bring the duty into being. It is owed, of course, to the person to whom the certificate is issued and whom he knows is going to act on it, see the judgment of Cardozo J. in Glanzer v. Shepard (1922) 233 N.Y. 236. But it also is owed to any person whom he knows, or ought to know, will be injuriously affected by a mistake, such as the incumbrancer here."

49.Williams and Merrett come from a line of cases on the principle of assumption of responsibility liability for negligent statements, enunciated in Hedley Byrne and extended by Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145 to any assumption of responsibility for professional services. I was taken to many authorities, dealing with the responsibility of accountants, engineers, stockbrokers and surveyors.

50.Williams in fact deals with the liability of a company director to a franchisee of his company for advice contained in a brochure prepared by him. The director escaped liability. Lord Steyn held that to establish the personal liability of a director or employee there had to have been such an assumption of personal responsibility by him as to create a special relationship between himself and the plaintiff; and that in applying an objective test to decide that, the primary focus was on things done or said by the defendant or on his behalf. The question was whether the plaintiff could reasonably have relied and did rely on an assumption of personal responsibility by the defendant.

51.In Merrett v. Babb the plaintiff applied to a building society for a mortgage loan to buy a house. The building society instructed a firm of surveyors to survey it. The survey was done by a professionally qualified surveyor employed by the firm and the question was whether he owed the mortgagor a personal responsibility. He was found liable. The authors of Jackson and Powell take the view that this case is best explained as a decision on the special facts involved in cases such as Smith v. Eric S. Bush [1990] 1 AC 831 (HL); another case involving a surveyor.

52.The 2nd and 3rd defendants rely in particular on Williams v. Natural Life Health Food [1998] 1 WLR 831. I do not think there is any dispute that the principles enunciated therein apply here. I do not take Lord Steyn's reference to "exchanges of conduct crossing the line which could have conveyed to the plaintiffs that [the director] was willing to assume personal responsibility to them" (page 838C-D) can be taken to mean that there is any necessity for a specific representation that the director or employee undertakes responsibility or that he is willing to do so. The personal intention of the employee and direct communication of it is irrelevant in the situation where the question is whether, objectively, there was assumption of responsibility. In any event the defendants do not contend for that interpretation.

53.To establish personal responsibility of an employed solicitor to a client who retains his employer, then, it will be necessary to show that he has entered into a special relationship with the client and therefore assumes personal responsibility for the professional services performed for that client and that the client reasonably relies on that personal responsibility. This is a question of fact to be decided objectively.

54.I venture to suggest that in most cases, simply because of the personal nature of the solicitor-client relationship, there will be such a special relationship. The solicitor deals directly with the client, takes instructions from him and gives him advice. The client sees the solicitor as "my solicitor" and relies on him as such, whether he is a partner or an employee and indeed may continue to instruct that same solicitor if he moves to another firm, whether as partner or as employee. It is reasonable for him to rely on the solicitor with whom he deals. The solicitor sees the client as "my client" and knows that the client will suffer injury if he makes a mistake in his professional work. The position here is much like the situation referred to by Lord Denning MR, above; it is foreseeable that injury will follow if a mistake is made. Necessarily the solicitor assumes responsibility and even if he is an employee the special relationship comes into being. This is perhaps most obvious in the field of solicitor-advocacy in the lower courts but the same must apply in High Court civil litigation where the employed solicitor takes instructions, swears affidavits based on them, and appears for the client in interlocutory matters in court, and in conveyancing where he deals with the client directly.

55.This must also, I think, be seen in the light of the fact that a solicitor's firm cannot be a limited company, and all solicitors, including employed solicitors must carry professional indemnity insurance. That may not be the case with other employed professionals.

56.I do not seek to say that an employed solicitor will always be personally liable. There may obviously be no assumption of responsibility or reliance on it where for instance the client deals with a partner, and the partner delegates the work to an assistant whom the client never sees. The objective test must be carried out in reliance on the facts. But in the common case where the client deals with an employed solicitor directly there should be no difficulty in proving a relationship which gives rise to personal liability. The same applies to the corporate client where some director, manager or other agent of the company deals directly with and relies on the solicitor.

57.There is not much evidence from the plaintiff's side of how the retainer came into being or what the actual dealings were between its representatives and the defendants. The contact persons on the plaintiff's side were Miss Choi Sau Yuet, who has not given evidence and Mr Leung Yu Kwong whose statement is before me as a hearsay document. Mr Leung says simply that as far as he knows, the plaintiff retained Bateson Starr after the signing of the provisional agreements. He cannot remember meeting the 2nd defendant on 20 December 1993. He says that it was only the 2nd and 3rd defendants who handled the sale and purchase and contacted the plaintiff; but he does not give any details of specific contacts. He does not even remember what happened at the meeting when the formal agreements for sale and purchase were signed. He says that he was in and out of the room when the assignments were executed at the time of completion, so he does not really know whether or not the terms of them were explained. The best he can do, it appears, is to produce a photograph taken on that occasion and showing himself, Miss Choi, Messrs Mao and Lui with the 2nd and 3rd defendants.

58.None of this is particularly important. What is clear from the evidence that the 2nd and 3rd defendants were the lawyers, and the only lawyers, who acted for the plaintiff in connection with the property transactions relating to No.118. Both of them went to the plaintiff to explain the agreements for sale and purchase and both were there when the assignments were executed and witnessed the execution of the documents. When the 2nd defendant left Bateson Starr to work for Robin Bridge in 1995, the plaintiff's work went with her, though according to her it was another solicitor within that firm who actually handled it.

59.It is the evidence of the plaintiff's witnesses, Messrs Liu and Mao, that they relied on their lawyers, even if they did not recognise either of the defendants at trial, or have any particular dealings with them.

60.In the course of cross-examination it was put to the 2nd defendant and she accepted that she and the 3rd defendant were the only persons in the firm who were seen by anyone from the plaintiff, because no other solicitors in the firm touched these transactions.

61.Both 2nd and 3rd defendants were at the meeting when the formal sale and purchase agreements were signed. The 3rd defendant's function was to explain them in Putonghua which he did. The 2nd defendant's evidence is that she was only there to give face to the plaintiff's representatives, because she knew from experience that people from the Mainland like to deal with senior personnel and not to comply with this might involve loss of business. That may be so, but it seems obvious that whenever a senior person goes along in such circumstances he or she must be taken as going there to instill confidence in the client that some senior person is taking an interest in the client's business and has some responsibility towards it.

62.The 3rd defendant is the solicitor who actually handled the plaintiff's work, under the supervision of the 2nd defendant. I will come to her own part in that work later. According to him, she was authorised to sign the bills, and she was the one who was to contact the clients in the first instance; at that time he was not authorised to contact them directly. However, he did send out letters himself, subject to their being copied to the 2nd defendant.

63.He says that it was the 2nd defendant who passed on to him the purchaser's instruction that the Signboards were to be the subject of a separate formal sale and purchase agreement. It was she who told him that the plaintiff wanted to sign the agreements at its own office, and he set up the meeting and went to it with her. At the meeting, it was he who explained the sale and purchase agreements to the plaintiff's signatories in Mandarin.

64.It comes down to this. The 2nd and 3rd defendants and no other solicitor in the 1st defendant's firm provided the service to the plaintiff. The plaintiff's representatives were not dealing with a faceless company; they knew that the 2nd and 3rd defendants were the ones providing the service to them. Indeed letters to the plaintiff, referred to in the cross-examination, both at the beginning and later when the agreements were signed invited the plaintiff to contact either Ms Lo or Mr Kau. Though the 2nd defendant sought to argue that this was just a standard letter and did not mean anything so far as her own dealings with them were concerned, the fact is that the 2nd and 3rd defendants were the ones held out for the plaintiff to deal with. The plaintiff had no dealings with any partner, and the 2nd and 3rd defendants were in no way, so far as the plaintiff was concerned, faceless functionaries working in a back room.

65.I do not see that there can be any other conclusion than that the 2nd and 3rd defendants themselves assumed responsibility for the service provided and that the plaintiff could reasonably rely and did rely on that assumption of responsibility.

66.It is not in dispute that the 2nd and 3rd defendants were employees, servants and agents of the 1st defendant. There is a non-admission of vicarious liability in the Re-Amended Defence but the 1st defendant admits that owed duties in contract and tort to the plaintiff. A firm of solicitors is vicariously liable to its client for the act or default of its employees. It was not argued that there would be no vicarious liability.

The scope of a solicitor's duty

67.This was usefully described by Stock J, as he then was, in Foshan Hua Da Industrial Co. v. Johnson, Stokes & Master (A Firm) [1999] 1 HKLRD 418 at 425-426 :

68.The following principles of law are particularly germane :

(1)	A retained solicitor owes a duty to his client, both in contract and tort. There arises, when a solicitor is engaged for reward, a contractual duty to exercise skill and care on behalf of his client. A solicitor is not expected or bound to know all the law, nor is he to be judged according to the standard which might be demonstrated by "a particularly meticulous and conscientious practitioner". (See Midland Bank Trust Co. Ltd v. Hett, Stubbs & Kemp (a firm) [1979] Ch 384 at p.403.)
(2)	The duty of a solicitor is "to exercise that reasonable degree of skill and care to be expected of a competent and reasonably experienced solicitor" (Clerk and Lindsell on Torts (17th edn) para.8-81). "The test is what a reasonably competent practitioner would do having regard to the standard normally adopted in his profession." (See Midland Bank Trust Co. Ltd v. Hett, Stubbs & Kemp (a firm) [1979] Ch 384 at p.403.)
(3)	"If in the course of taking instructions a professional man like a solicitor learns of facts which reveal to him as a professional man the existence of obvious risks then he should do more than merely advise within the strict limits of his retainer. He should call attention to and advise upon the risks." (per Lawton LJ in Boyce v. Rendells [1983] EG 268 at p.272.)
(4)	Where a solicitor is asked to advise upon one matter then, as a general rule, he is not obliged to advise on different points though related, unless the connection is so close and reliance placed in the solicitor to advise generally so obvious, that advice on related points may be required. (Clerk and Lindsell on Torts (17th edn) para.8-89.)
(5)	The duty of a solicitor might be affected by the experience or inexperience of the client, in the sense that a client inexperienced in the field in which he seeks advice is "entitled to expect the solicitor to take a much broader view of the scope of his retainer and his duties than will be the case with an experienced client." (See Carradine Properties Ltd v. DJ Freeman & Co. (1985) 1 PN 41.)
(6)	"The standard of care to be expected of a professional man must be based on events as they occur in prospect and not in retrospect." Per Simon Brown LJ in Boston & Co. v. Roberts (unrep., The Times, 17 March 1995), who then cited Duchess of Argyll v. Beuselinck [1972] 2 Lloyd's Report 172 at p.185 :
	'In this world there are few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone of negligence.'
(7)	A solicitor is not, in the absence of unequivocal instructions and acceptance by him to do so, expected to advise upon the commercial good sense of a business proposition, whether he should or should not, as a matter of commercial advantage, proceed with a transaction, whether a transaction is or is not good business or prudent, although where it is evident that a client relies on the solicitor for more than legal advice, the solicitor may be under a duty to refer the client to an appropriate source or sources of information. (See Yager v. Fishman & Co. and Teff & Teff [1994] 1 All ER 552; Reeves v. Thrings & Long [1996] PNLR 265; Clark Boyce v. Mouat [1994] 1 AC 428). Indeed, "it is in general the client's privilege if he so wishes to mismanage his affairs. He is entitled to lend on insufficient security, or to enter an unwise bargain if he so chooses. The solicitor has a duty to advise on the legal hazards of the transaction, but no more :
	'It was the duty of the solicitor to inform and advise, ensuring that the information and advice was understood by the client. It was not part of his duty of care to force his advice on the client. If that advice is disregarded he must carry out the client's instructions or else determine the retainer'. (Jackson & Powell on Professional Negligence (4th edn) para.4-92, citing Dutfield v. Gilbert H Stephens & Sons [1988] Fam Law 474).
(8)	"The onus of proving professional negligence over and above errors of judgment is a heavy one." (See Rondel v. Worsley [1969] 1 AC 191.)

69.These are the duties owed by any solicitor. The scope of the duty does not vary as between partners and employed solicitors so far as tortuous liability is concerned, once is it established that there is a relationship with the client which will give rise to that duty.

Is the Naming Right legally enforceable against all the co-owners?

70.The effect of the decision at first instance and on appeal in Lamaya is that a naming right is not an interest in land and a covenant relating to a naming right is not a benefit which "touches or concerns" or benefits land. Such a covenant is not enforceable under section 41 of the Conveyancing and Property Ordinance (Cap. 219) ("the Ordinance"). At the level of the Court of First Instance the defendants accept this though they reserve the right to argue the point elsewhere if necessary.

71.In Lamaya at first instance, the arguments turned on proprietary rights, easements and covenants. Contract was also relied on. It was argued that the contract in the deed of mutual covenant was constituted in the same way as members of an unincorporated association were bound by contract to one another, even though the membership might fluctuate from time to time. Before the Court of Appeal counsel conceded that a naming right is not an interest in land capable of passing directly by the assignment but relied on deed of mutual covenant which, he argued, enabled the defendant to enforce the right against the plaintiff, either by virtue of section 41 of the Ordinance or as a direct contractual obligation which the plaintiff assumed when it accepted the assignment of its own shares "subject to and with the benefit of" the deed of mutual covenant. The Court of Appeal held that for section 41 to apply the covenant must benefit the land, which in that case it did not; and further on the facts of that case rejected the contractual approach.

72.The 3rd defendant's evidence in his written statement, which he adopted, was that he had reviewed the draft DMC and in particular clause 4.1(f) which was the clause dealing with the Naming Right. It was in similar terms to the clause that was the subject of the decision in Lamaya. He had reviewed the decisions and concluded that neither court had necessarily held that a naming right could not be made binding on all subsequent purchasers. He had then amended clauses 3 and 4 of the draft DMC and added clause 12 in Part B of both Part I and Part II of Schedule IV. In oral evidence he said this :

"I start with the fact that after the first assignment, the right to change the name of the building was jointly owned by the developer and the first purchaser, and so it would be a matter that they could arrange, to have that right, to be exercised by one of them; they could grant that right to one of them to exercise that right. I have approached this as a matter of a drafting problem, so I discovered this principle of benefit and burden and I feel that the principle of qualified right or conditional benefit would be applicable in the situation. Relying on that legal principle, I have drafted clauses 3.1 and 3.2 to make the grant -- being that qualification that would restrict every subsequent owner who would derive title from either the first purchaser or the vendor. I also put in clause 12 in part B of part I and part II of schedule IV, to give a negative covenant that no one is able to make any claim in respect of the change of name, and in view of the Supreme Honour case and the opinion expressed by the Court of Appeal, I also put in clause 3.6 and I think it is clause 4.3. Clauses 3.6 and 4.3 address the two matters that have been expressly considered by the Court of Appeal."

73.So the question is whether the 3rd defendant's attempt to tackle the problem was correct or not.

74.The relevant clauses of the DMC are as follows :

"3.2 Each Share allocated to the Commercial Premises and the full and exclusive right and privilege to hold use occupy and enjoy that part of the Commercial Premises to which such Share is allocated shall be held by the Owner thereof from time to time entitled thereto subject to and with the benefit of the easements, rights, privileges and obligations set out in Part II of Schedule 3 and subject to the rights of the First Owner and other rights and provisions more particularly set out in this Deed. The Owner of each Share allocated to the Commercial Premises shall at all times hereafter be bound by and shall observe and perform the covenants, provisions and restrictions contained herein and in Part II of Schedule 4.

3.4 Every owner shall have the full right and liberty without reference to any of the other owners or the Station Owner or any persons who may be interested in any other Shares in any way whatsoever and without the necessity of making any such other owners, the Station Owner or other persons a party to the transaction to sell, assign, mortgage, lease, license or otherwise dispose of or deal with its Shares together with the exclusive right and privilege to hold use occupy and enjoy the Unit(s) held therewith but any such sale, assignment, mortgage, lease, licence or disposal whatsoever shall be expressly made subject to and with the benefit of this Deed.

3.6 For the avoidance of doubt and without prejudice to the generality of any provisions contained in this Deed and to the intent as may be required by any rule of law and/or equity, the parties hereto agree that the provisions contained in Clause 4 of this Deed shall constitute binding contractual obligations of each and every Owner for the time being to the intent that the rights and obligations of the respective successors and assigns of the parties hereto under Clause 4 of this Deed shall be identical to those of the parties hereto under Clause 4 of this Deed as if each of them is an original party to this Deed.

4.1 The parties hereto hereby grant to the First Owner for the benefit of the First Owner, its successors and assigns, the following rights:

(A) .........

(B) For so long as the First Owner, its successors and assigns, shall remain the beneficial owner of the exclusive right to use the whole of the thirty-eighth (38th) floor of the Building and all the Shares allotted thereto, the sole and absolute right to name the Building and to change the name thereof at any time and from time to time upon giving three (3) months prior notice to the Station Owner and other owners without having any liability whatsoever to the station owner or any other owner, its servants, agents, tenants or licensees or any other person having an interest in the building or (as the case may be) any part thereof for any damage, claims, costs or expenses, suffered or incurred as a result of or in connection with any change of name pursuant to this clause 4.1(B)

4.3 For the sole purpose of ensuring that the provisions of this Clause 4 are enforceable against each and every Owner for the time being but not further or otherwise, the rights hereby granted to the First Owner shall be deemed to be (i) granted for the benefit of and (ii) touching and concerning such Share as the First Owner may at any time own and/or the Share(s) to which any of the rights relates or as herein expressly so stated and the same shall be conclusively presumed against each Owner in all courts of law having jurisdiction to determine that enforceability of the provisions of this Deed.

Schedule IV (Covenants provisions and restrictions referred to in Clause 3.1 of this Deed) Part B (Negative Covenants):

12. Not to make any claim whatsoever in respect of or in connection with any change of the name of the Building in accordance with the provisions in Clause 4.1(B) hereinbefore contained."

75.The defendants having accepted that a naming is neither an interest in land nor a covenant touching or concerning or benefiting land, argue that the scheme devised in the DMC was still operative to enable the to exercise the Naming Right free from objections from other co-owners of the building. They argue that the scheme was based on the "conditional right" principle discussed by Megarry VC in Tito v. Waddell (No.2) [1977] 1 Ch 106. At page 290, he said :

"(a) CONDITIONAL BENEFITS AND INDEPENDENT OBLIGATIONS. One of the most important distinctions is between what for brevity may be called conditional benefits, on the one hand, and on the other hand independent obligations. An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions shall be observed or certain burdens assumed, such as an obligation to make certain payments. Such restrictions or qualifications are an intrinsic part of the right: you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases it is not only the original grantee who is bound by the burden: his successors in title are unable to take the right without also assuming the burden. The benefit and the burden have been annexed to each other ab initio, and so the benefit is only a conditional benefit. In the other class of case the right and the burden, although arising under the same instrument, are independent of each other: X grants a right to Y and by the same instrument Y independently covenants with X to do some act. In such cases, although Y is of course bound by his covenant, questions may arise whether successors in title Y's right can take it free from the obligations of Y's covenant, or whether they are bound by them under what for want of a better name I shall call the pure principle of benefit and burden."

76.Mr Shieh SC says that he does not rely on the "pure principle of benefit and burden" though he reserves the right to argue it elsewhere if need be. He expresses the situation under the "conditional rights" principle, as he sees it, thus : clauses 3.1 and 3.2 of the DMC evince a clear intention that the shares were to be enjoyed subject to the rights of the first owner as set out in the DMC. Those rights included the Naming Right as defined in clause 4.1(B). Therefore as between the original parties to the DMC, conditional rights were created. The first purchaser (Hunton) agreed to take its shares subject to KCL's (and its successors-in-title's) right under the DMC including the Naming Right. KCL also retained the remaining shares in the building, the enjoyment of which were all made subject to the conditions set out in the DMC. When KCL began assigning away shares in the building to subsequent purchasers, it was assigning away shares which were already qualified in their enjoyment. If purchasers from KCL have acquired only a qualified right, they could only pass on a qualified right to a subsequent transferee. The same applies to Hunton and Hunton's successors in title. In this way, the "condition" attached to the shares by the DMC (namely that the owner of the 38th floor shall have the right to change the name of the building) was made enforceable against any person who took undivided shares in the building. It does not depend on whether the subsequent transferee was prepared to accept an assignment on terms that bind him to the Naming Right, for the shares (sought to be transferred to him) have had a condition attached to them from day one. Unless he is not prepared to enjoy the benefit of his shares, he must subject himself to the condition. There is no scope for "contracting out" - once a right is qualified, it is always qualified.

77.For the "conditional rights" doctrine to operate, says Mr Shieh, the condition attached to the right need not be one which runs with the land. In support of this he refers to Chamber Colliery Co. Ltd v. Twyerould (1893) [1915] 1 Ch 268n, where a personal covenant to make compensation to buildings affected by mining did not run with the land, but was held to be capable of being a qualification of a person's licence to work a coal mine.

78.It is to be noted that, as the 3rd defendant said, neither at first instance nor on appeal in Lamaya did the court necessarily hold that a naming right could not be made binding on all subsequent purchasers. At both levels the court rejected the arguments based on contract which were put before it, on the particular facts. The same applied in Nine Queen's Road, HCMP No.3979 of 1996, in which Barnett J having heard arguments on contract, including arguments based on the "pure principle of benefit and burden" distilled by Megarry VC, but not on the "conditional rights" principle (though he quoted both parts of the judgment of Megarry VC) held on the facts that the contractual scheme devised to make a naming right binding on all the co-owners in that case in fact failed. As Barnett J put it, for the naming right to be enforceable it must be brought home to every co-owner for the time being. That could be done by way of the scheme originally envisaged. However he found on the facts that it did not.

79.Mr Edward Chan SC, for the plaintiffs, argues that the "conditional rights" principle does not assist the defendants. In the first place, there is nothing to suggest that all assignments to subsequent owners were expressed to be conditional upon their accepting as a matter of contract the Naming Right of the plaintiff. Even if they were so expressed the plaintiff could not enforce them, because of the lack of privity of contract. Further, if the effect of the DMC was that the rights attaching to all the undivided shares in the land would be burdened by the Naming Right, this would in effect make it an interest in land, and we come back to the dictum of Lord Brougham in Keppell v. Bailey (1834) 2 My and K 517 at pp.535-536, which was relied on by Deputy Judge Suttill in Lamaya at first instance, that :

"There are certain known incidents to property and its enjoyment; among others, certain burthens wherewith it may be affected, or rights which may be created and enjoyed over it by parties other than the owner; all which incidents are recognised by the law. ... All these kinds of property, however, all these holdings, are well known to the law and familiarly dealt with by its principles. But it must not therefore be supposed that incidents of a novel kind can be devised and attached to property at the fancy or caprice of any owner. It is clearly inconvenient both to the science of the law and to the public weal that such a latitude should be given. There can be no harm in allowing the fullest latitude to men in binding themselves and for breach of their representatives, that is, their assets real and personal, to answer in damages for breach of their obligations. This tends to no mischief, and is a reasonable liberty to bestow; but great detriment would arise and much confusion of rights if parties were allowed to invent new modes of holding and enjoying real property, and to impress upon their lands and tenements a peculiar character, which should follow them into all hands, however remote..."

80.As Barnett J put it in Nine Queen's Road, for the naming right to be enforceable it must be brought home to every co-owner for the time being. In the case before him he was not satisfied that it had been. At the end of his judgment he said this :

"However unsatisfactory it may be, the law relating to the burden of covenants has been clear for a long time. I do not think that the present case is one which is suitable for overthrowing that certainty. Indeed, it seems doubtful to me whether, in the absence of clear and direct privity of contract, there will ever be such a case. Rather, it is a matter for the legislature."

81.The difficulty will always be that, whatever the parties to the DMC may agree and however they may intend to bind their assignees, if one of those assignees for one reason or another assigns his property in such a way as is ineffective to assign the burden of the naming right, his assignee will take the property without it. Precisely because the burden does not run with the land there can be no guarantee that it will be passed on down the line. A conditional right may be passed on to one assignee but it cannot be guaranteed to pass on to the next one. That will depend on the terms of the assignment.

82.It seems to me that the criticism that the scheme is in effect purporting to create an interest in land is fatal. It may be that the 3rd defendant in drafting clause 4.3 of the DMC, by which the parties agreed that the "rights granted to the First Owner shall be deemed to be (i) granted for the benefit of and (ii) touching and concerning such Share as the First Owner may at any time own" had an eye to the reasoning of Cons VP in Lamaya that, for purposes of section 41(c) of the Ordinance, the covenant had to be "expressed and intended to benefit the land of the covenantee" and that the court was "unable to accept that the right to name the building as a whole in any way benefits the exclusive occupation of any particular floor or the roof above it". Whether clause 4.3 could bring the Naming Right within section 41 can be argued elsewhere if need be. The Hong Kong system of title to multi-storey buildings and the use of the deed of mutual covenant to regulate the rights and duties of the common owners grew up in a situation vastly different from that which applied in England in the last century and it may be that there is still scope for extending the ambit of rights which run with the land. But as the law stands a naming right is not such a right and it cannot be made into one.

Was the 3rd defendant in breach of duty?

83.I do not think the 3rd defendant breached his duty to the plaintiff by drafting the DMC and the assignment as he did. A solicitor must exercise the reasonable degree of skill and care to be expected of a competent and reasonably experienced solicitor. He does not guarantee that his view of the law, or his interpretation of a contract or statute will be right, or that if he drafts a document to set up a particular scheme, that the scheme will be effective. This is particularly so where there is some uncertainty about the law. In this case there is uncertainty. The authorities have left open the possibility, albeit remote that some kind of scheme might be devised to make a naming right binding on co-owners from time to time.

84.However, the 3rd defendant knew, on his own admission, of the case of Lamaya. He must have known that any scheme he made to get round the problem would be open to question. If he did not know it before he certainly would have come to know it when the Lands Registry refused to register the Naming Right. It seems to me that a reasonably prudent solicitor would have had to advise his client of the position and before going ahead with drafting any scheme he would have had to seek counsel's opinion on it.

85.The defendants say that the extent of their duties would depend on the stage at which they began acting for the plaintiff. By the time the matter came into the defendants' hands, of course, the plaintiff had already contracted to buy the Naming Right. It is argued for the defendants that if what the plaintiff had bought was not a proprietary right but only a personal right, they cannot be held liable for not devising a scheme which would give the plaintiff something for which it had not contracted. In other words, even if the defendants had told the plaintiff that there was no way to make the Naming Right binding on other co-owners, the plaintiff would not have been entitled to withdraw from the transaction.

86.There is no express reference in either the provisional or the formal sale agreement that the Naming Right is proprietary. Therefore, the argument goes, the plaintiff has to rely on an implied term that it would be. But a term will not be implied unless it is reasonable and equitable to do so; and it would not be reasonable or equitable to imply a right which was not recognised by law. Therefore it does not matter that the 3rd defendant tried to draft a scheme which was thought to bind the co-owners because that was impossible; and it presumably does not matter that the plaintiff was not advised of the position, or that counsel was not instructed; the plaintiff had bought a personal right and was stuck with it.

87.It seems to me that it must be implied from the fact that the Naming Right was originally expressed to be sold along with the 40th floor, that the parties to the sale intended it to be a proprietary right attached to that floor. There is also the amount of money which the plaintiff agreed to pay over. The plaintiff was buying for investment purposes; that is the evidence of its representatives and can be seen also from the fact that it did go on to sell the other floors. It would surely never have paid the kind of money it did for something it would not be able to sell on.

88.I will need to return to the question of causation later but it seems to me that once the defendants knew of the problem it was their duty as prudent solicitors to advise their client of it, and to take counsel's advice before attempting to draft any scheme to get round the problem. So I find that the 3rd defendant was in breach of his duty to the plaintiff in failing to take these steps.

Was the 2nd defendant in breach of duty?

89.The evidence is that the 2nd defendant was in overall charge of the conveyancing department but that she left the actual conveyancing work to the 3rd defendant. He had a large degree of autonomy; he copied correspondence to her but otherwise he got on with the job. On this basis it is argued that since the 3rd defendant had some seven years' experience of conveyancing work, and there was nothing to suggest to the 2nd defendant that he was not competent, she was entitled to delegate the work to him and rely on him to do it.

90.It is accepted that professional may delegate his work or part of it to a suitably qualified and experienced person. See Jackson and Powell, paragraph 10-148. But it is necessary to look at the evidence as to the 2nd defendant's state of knowledge in order to decide whether such delegation would allow her to avoid liability in a situation where on my finding, as one of the lawyers dealing directly with the plaintiff she owed it a duty of care.

91.The 2nd defendant did not leave everything to the 3rd defendant. He says that she expected him to use her drafting precedents. She admits that she gave him an agreement for the sale of a naming right, for his reference. It appears that she did apply her mind to the Naming Right though in answer to questions as to whether or not she thought it was a proprietary right, she became evasive and indicated that the question should be one for the 3rd defendant. On her admission, she knew of the Court of Appeal decision in Lamaya although not in detail, and she knew what the result was, and that there were some discussions between herself and the 3rd defendant about the Naming Right, as a result of which she gave him the other agreement by which a naming right had been sold.

92.She admits that once she saw the Land Registry correspondence she knew that they took a different view from her firm as to the nature of the Naming Right. She was asked if she thought that this was something that should be looked into, and perhaps referred for counsel's advice. Her answer was that maybe they did talk about taking advice but the 3rd defendant said that they had done the prior transaction and if they told the vendor client that counsel's advice was needed, they would not agree because it would cost a lot. More importantly the 3rd defendant gave her the impression that it was all under control and she shared his opinion and judgment. Between them they had formed the opinion that they did not need to tell the plaintiff, for that reason.

93.When she saw the Land Registry correspondence if not before, the 2nd defendant knew, as well as did the 1st defendant, that there was a problem with the Naming Right. Once she knew that it was her duty to advise the client, or, as head of department, to make sure that the 3rd defendant did so. On my finding, the plaintiff was "her client" as much as the 3rd defendant's. I do not see that the 2nd defendant can escape personal liability for failure to advise the client by delegating the work.

The Signboards : did the plaintiff get a good title, and what should the defendants have done?

94.The Signboards are the subject of a separate formal sale and purchase agreement, dated 22 January 1994 and an Assignment dated 15 July 1994. In the latter the property assigned is described in the Second Schedule as follows :

"ALL THOSE 200 equal undivided 5,674th parts or shares of and in (description of the land and building) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THOSE SIGNBOARDS A, B, C and D of the Building, which for identification purposes only are shown and coloured pink and respectively marked 'A', 'B', 'C' and 'D' on the External Elevation Plans attached hereto."

95.As I have indicated, there simply are no signboards. There is only empty air. At the risk of being criticised for being too simplistic I emphasise that a signboard is a physical object. It is not empty space. It cannot be a two-dimensional plane because that can only exist in the realm of mathematics and not in the physical world.

96.What was assigned was not the right to use and occupy the space where signboards might be put, or the right to attach signboards to beams and columns, but the right to use and occupy physical signboards. The provisional sale and purchase agreement referred to signboards and so did the formal sale and purchase agreement. Reference was made to the approach to construction adumbrated by Lord Hoffmann in Jumbo King Ltd v. Faithful Properties Ltd [1999] 3 HKLRD 757 at 773F, which I need not repeat in extenso. It emphasises the common sense approach to interpretation and that "the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean." To my mind, any reasonable person would interpret the contract as being for the sale and the Assignment as being for assignment of physical signboards.

97.Mr Chan in argument refers to the similarity between this situation and that where the purchaser is assigned some vacant land on which he could erect a house to his desire; he says that it is no answer to say that even if a house is erected and assigned, the assignee would soon pull it down. I think it goes further than that. The situation is the same as if a vendor sold some of the shares in plot of land to a purchaser together with the right to occupy a dwelling-house built on part of the plot, but did not build the house. It would be fruitless to argue that the purchaser had been assigned the right to occupy the space where the house was supposed to be.

98.The defendants' argument is that since the technical requirements of advertising signs are variable, it is proper for the Signboards to be sold and delivered as bare shells, to be fitted out by the buyer; as a floor can be sold as a bare shell. I do not accept this, precisely because what was conveyed was not, as I have said, the right to occupy space but the right to occupy signboards and a signboard is a physical object. It is also argued that because the plaintiff did not care about the physical state of the Signboards the object of the sale was not physical boards. Reference was made to the replies of Mr Liu, the plaintiff's witness, to cross-examination. With respect, the questions were slanted and the answers reluctant, and in any event what Mr Liu thought does not matter; what the plaintiff contracted for does. The vendor clearly offered physical signboards; there were physical signboards on the model which Mr Liu saw; and the plaintiff contracted to buy physical Signboards, just as it contracted for physical floors.

99.I do not think it necessary to go through all the arguments. Maybe it is possible to convey air space in fee simple; but on my interpretation that was not conveyed. No doubt it is possible to convey a shop as an empty space bounded by floor, walls and ceiling; the suggestion was made that by analogy what was conveyed was the beams and pillars and the space bounded by them. In fact the 3rd defendant in cross-examination said that it was "like a flat with sides and a very narrow roof" and he could not see how it could be otherwise. With respect, I cannot agree; a flat is a flat, and may be seen as a space bounded by floor, walls and roof; but a board is a physical object with length, breadth and height. In any event this argument falls because by definition in the DMC the beams and pillars, being architectural features, are taken as part of the external walls and as such belong to the Reserved Areas. While by clause 14.12 of the DMC the First Owner had the right to assign the Reserved Areas or any part of them, in fact it did not assign any part of them with the Signboards. It is argued that the demise of a space bounded in part by an outside wall prima facie includes both sides of the wall but I cannot see that this helps the defendants, given that what was being conveyed was not space but non-existent objects.

100.The plaintiff's first pleaded complaint is that the defendants failed to investigate the title thereto properly and failed to advise the plaintiff that since the Signboards were not really signboards, but only air-spaces, they might not be or were not capable of constituting an estate in land, and further failed to advise the plaintiff that the vendor might not have any title to the Signboards. Certainly if the defendants had investigated the title they would have found that in fact there were no physical signboards. In this connection the Occupation Permit is relevant. It may possible to convey air space in fee simple but as I have said, that is not what was conveyed; and I cannot see how anyone can have a title to something which simply does not exist. So these complaints are, in my view, made out.

101.It is also pleaded that the defendants failed to advise that since there were no actual signboards, the plaintiff, if it wanted to erect them would :

(1)	have to erect supporting frames and the attachment of such frames to the architectural features which were within the definition of "external walls" in the DMC and as such part of the "common areas" under the Building Management Ordinance;
(2)	anchor bolts into the columns and beams of the building base which are part of the Common Areas defined in the BMC or those in the Building Management Ordinance; and
(3)	may need to attach supporting frames to the Main Roof which is part of the Reserved Areas and/or some of the Common Facilities, so that all this would require the approval of the Building Authority and the manager of the building or the co-owners, under the provisions of the DMC.

102.There is some dispute over whether the beams and pillars come into the "Common Areas" defined in the DMC. The plaintiff relies on a plan, exhibit P3 which shows the "Common Areas" coloured red and this includes the beams and columns. The defendant relies on the plan exhibit D2, obtained from the management office in the building, where it is required to be kept in terms of the DMC, which shows no colouring on the beams and columns.

103.I do not think in any event that the "Common Areas" or even the "common parts" referred to in the Building Management Ordinance come into the picture here. The relevant definitions in the DMC are :

"Common Areas: Those parts of the Building not assigned to an Owner for this exclusive use and designed and/or intended by the First Owner for the common use and benefit of the Owners, their respective servants, agents, tenants and licensee and/or persons using or visiting the Building and including but not limited to the common entrances, halls, lobbies, arcades, staircases, driveways and ramps with the Lot and the Building, Provided that the First Owner shall prepare a plan showing the Common Areas....

Reserved Areas: those parts of the Building (not specifically assigned for the exclusive use of any Owner and not forming part of the Common Areas) including without limitation to the generality of the foregoing, the Main Roof, the flat roofs (as respectively shown on the Part Plans of the 3rd Floor Plan, the 26th Floor Plan and the Upper Roof Plan at Lev. +145.85 annexed hereto, the upper roofs (as respectively shown on the Upper Roof Plans annexed hereto) and the External Walls.

External Walls: the external walls of the building including the curtain walls, canopies, metal features and architectural features."

104.The Signboards are shown on their Assignment as being between the four upright columns and the beams at Level +145.85 and Level +154.85. There are two Upper Roof Plans attached to the DMC, one for each of those levels. Quite obviously the beams and columns with which we are concerned here are part of the Reserved Areas and not the Common Areas. They would not, in their nature, be intended for the use of the owners or their visitors. The main roof would be part of the Reserved Areas too; as, it appears, would the roofs of the such as the Machine Room, which are not coloured on the Level +145.85 on either exhibit. So I think there is force in this complaint too; because in any event, if the plaintiff were going to take the right to occupy non-existent Signboards, it would have to get permission to fix them to the beams and columns in the Reserved Areas and possibly by way of reinforcement to the roofs as well. All that would require consent. It is certainly something about which the plaintiff should have been advised.

105.The defendants advanced lengthy arguments to the effect that even if the beams and columns form part of the external walls the plaintiff would be entitled to attach frames to them, on the principle against derogation from grant. The plaintiff countered with the argument that the implied covenant not to derogate from grant is a negative covenant, and there would be no obligation on the grantor to grant more than what was granted in order to enable the grantee to enjoy the land granted. But on my finding that what was granted was not space, or the right to erect signboards in it, but rather the right to occupy signboards which should have existed but did not, I do not think it is necessary to consider these arguments. Suffice it to say that even if what was granted was space with a right to erect signboards in it, anyone buying that space and right would be buying a problem arising from the need to affix frames and the like. Ultimately, whatever the First Owner was obliged to do, litigation might have been required to get to that point; and a prudent solicitor would be required to advise his client of the problem and not simply carry on regardless.

106.The fact that the manager, in its letter of 20 January 2000 gave consent in principle subject to complying with regulations does not help the defendants either. So far as the approval of the Building Authority is concerned, again the arguments are all based on the premise that what was conveyed was space into which signboards would be put. If that were right it may not have been the defendants' duty to advise the plaintiff on the technical aspects of getting such permission; but it is not right.

107.The next complaint is of failure to advise that the Signboards were not mentioned in the Occupation Permit and therefore could not be used without infringing the terms of the DMC, specifically clause 14.1(b) that the Building and every part of it :

"shall only be used for the purpose for which it is designed, constructed and intended to be used in accordance with the Government Leases and the Occupation Permit issued therefor......."

108.The Occupation Permit makes no reference to Signboards. The defendants argue that this cannot mean that a part not mentioned cannot be used at all. For instance the Occupation Permit does not mention stairs and lifts. In any event the Signboards would be used for the purpose for which they were intended.

109.The Occupation Permit simply mentions the various floors and the roof and structures thereon such as the machine room and water tank as being for non-domestic use. Under the relevant Ordinance, "domestic" bears the connotation of intended for habitation. I think the point of clause 14.1 (b) is to prohibit use other than that specified, i.e. non-domestic use. I can find no other categories of use in the Buildings Ordinance. It is difficult to imagine that it would be necessary to specify that large advertising hoardings, which is what the Signboards would be if they existed, should be for non-domestic use; they cannot be used for habitation anyway. But there is another problem here to which I alluded above in passing. The Signboards have shares allocated to them. A right of occupation is conveyed. The plaintiffs bought before the building was completed under a non-consent scheme. I would have thought that the only way that they could know that they were getting the various parts of it such as the floors and car park spaces for which they had contracted, with the approval of the Building Authority as to their construction and occupation, would be from the Occupation Permit. The same should apply to the Signboards. Inability to confirm no breach of the Buildings Ordinance would be an encumbrance on the title; see Active Keen Industries Ltd v. Fok Chi Keung [1994] 1 HKLR 396. So if the Signboards are not mentioned, the prudent solicitor should surely ask why. If that had been done in this case no doubt the answer would have been found; the Signboards did not exist; there was nothing to occupy.

110.The next complaint is that the defendants failed to advise that the use of the signboards was subject to clauses in the DMC which defeated the Signboard implied term; and they failed to draft the DMC in such a way as to fulfil the implied term.

111.Specifically we are dealing with clause 15.1(a) which prohibits an owner from altering the external appearance of the building and clause 9 of Part II of Schedule IV of the DMC which prohibits and owner from erecting any structure which extends beyond the Building. There is also the complaint that the defendants failed to warn the plaintiff that the only rights relevant to the use of the Signboards were those of KCL reserved by clause 4.1A and the Station Owner to paint or display signs in the MTR premises.

112.The defendant argues that by providing for the Signboards the parties to the DMC must be taken to have expressly authorised the owner of the Signboards to put up signs. Clause 4.1(A) (a) which gives the First Owner the right so long as it remains the owner of any share, inter alia, to affix signboards and advertisements to the Reserved Areas. Those areas are for the exclusive use and enjoyment of the First Owner and its assigns. These rights, to the extent necessary for the use and enjoyment of the Signboards, must be taken to have been granted to the plaintiff.

113.I am not so concerned with clause 15. If there is a right to use and occupy signboards it should imply a right to put signs on them; though arguably the DMC should make that clear. There is a greater problem with clause 4.1 which reads :

"4.1 The parties hereto hereby grant to the First Owner for the benefit of the First Owner, its successors and assigns the following right:

(A) For as long as it shall remain the beneficial Owner of any share, the sole and absolute right to the exclusion of all other owners, in its absolute and unfettered discretion at any time or times and from time to time as it shall deem fit......

(a) To erect, construct, install, affix, exhibit or paint such chimney, mast, flag pole, lightning conductors, lighting, television/radio antennae, plumbing, mechanical and Mechanical Ventilation Air Condition (MVAC) equipments, signs, sign boards, advertisements (whether illuminated or otherwise) festive decorations (whether illuminated or otherwise)or other fixtures (hereinafter called 'Fixtures') of such size and design and at such positions on any part or parts of the Reserved Areas and to obtain electricity and other utility supplies therefore from the Building or the Unit closest thereto Provided ...(here follow various provisos concerning compliance with laws, indemnities and so on which need not concern us.)"

114.Let us assume for the moment that the Signboards existed, affixed to columns and beams which are part of the Reserved Areas. KCL, though it had assigned the use and occupation of the Signboards to the plaintiff nevertheless maintained through the DMC the absolute right to the exclusion of all other owners, in its absolute and unfettered discretion to affix other signboards, advertisements, or even festive decorations to the Reserved Areas. There is an obvious inconsistency here. Of course if, for instance, KCL hung a festive decoration across the front of the plaintiff's Signboard facing the harbour, it would no doubt be a derogation from grant, and the plaintiff would no doubt easily obtain an injunction but nevertheless the discrepancy is there in the documents. But the defendants had the drafting and re-drafting of the DMC. I think it must be accepted that the defendants should have advised the plaintiff of this discrepancy and/or drafted the DMC so as to remove it.

115.For these reasons I am satisfied that the plaintiff did not get a good title to the Signboards. It is argued that even if there was not a good title, it does not follow that the defendants were negligent. The plaintiff's arguments were intricate and the defects were not immediately apparent; a solicitor will not be negligent if he errs in construing a document so long as his construction was a tenable one. See Jackson and Powell on Professional Negligence, 5th Edition, 10-096. With respect I do not agree. I think the defendants were negligent for the reasons given above. The requirement to check the existence of the Signboards in particular is obvious and so is the discrepancy between clause 4.1(A) and the grant.

116.What I have said about the liability of the defendants generally, in connection with the Signboards, applies to the 3rd defendant in his capacity of owing a personal duty to the plaintiff. I think it must apply to the 2nd defendant as well. It is true that she has made no specific admissions about knowing of a problem in this connection; indeed neither of them seems to have realised there was a problem. But again, there was a problem; the 3rd defendant should have picked it up and advised the client on it; and in my view as long as the 2nd defendant was exercising a supervisory role and owed a personal duty to the plaintiff, so should she.

Fiduciary duty

117.The plaintiff says that the defendants, who acted for both vendor and purchaser, failed to act in its best interests as purchaser but rather acted in the best interests of the vendor. The particular breaches of the duty of care are also pleaded as breaches of fiduciary duty. In view of my findings on the breaches of duty of care, findings in respect of breaches of fiduciary duty will not add much.

118.It is perhaps as well to mention at this stage the fact that the defendants prepared a formal sale and purchase agreement for each of the 25 car parking spaces. It seems that this matter was brought out in the opening to suggest an intention on the defendants' part to make as much profit out of the plaintiff as possible. Presumably this was intended to be in support of a general contention that the defendants did not act in their client's best interests. I say general because I cannot find a specific pleading that the defendants were at fault on this. In any event, the evidence of the 2nd and 3rd defendants was that this was done on the instructions of the plaintiff. I found the 2nd defendant's views on why the plaintiff should have wanted this to be sensible enough. But in any event even if the defendants were out to maximize profits, I do not think it would add anything to the case against them.

119.Of course the defendants were entitled to act for vendor and purchaser under the provisions of Rule 5C of the Solicitors' Practice Rules. But I think it must be said that, once the 3rd defendant knew that there was a problem with the Naming Right, that would mean that they knew of a potential conflict of interest between the vendor and the purchaser and it would surely have been the defendants' duty to cease to act either for the vendor or the purchaser. If acting for the purchaser they would then have been in a proper position to make requisitions on title both in respect of the Naming Right and the Signboards.

Limitation

120.The plaintiff's argument in opening was that the defendants' duty continued up to the time of completion. The defendants' breach of duty lay in the failure to advise and the cause of action would not accrue until the latest date when they could properly have given it. The defendants did not pursue this point in closing submissions. In any event I think the plaintiff's argument must be correct.

Causation - what should the defendants have done?

121.So far as the Naming Right is concerned, the defendants should have informed the plaintiff of the problem as soon as the duty arose, i.e. once they had been retained. So far as the Signboards are concerned they should likewise have advised the plaintiff of the problem at an early stage. They could then have amended the DMC to remove the clauses inconsistent with the right to use the Signboards and they could have made requisitions as to whether or not signboards had been built into the signboard spaces. The problems could have been overcome before completion.

What would the plaintiff have done?

122.It is argued that even if the defendants had told the plaintiff of the title problem, since the 3rd defendant and indeed the 2nd defendant thought that it was curable by the contractual route the 3rd defendant would have so advised the plaintiff. The plaintiff would have gone on and completed the transaction; because Mr Liu in his evidence said that he trusted and relied on Hong Kong lawyers. Also the plaintiff wanted the properties. It was at its instance that the amended clause 4 was put into the provisional agreements; and it wanted to make money, for it knew, according to Mr Liu and Mr Mao that at that time, a property could be bought one day and sold the next, to make a profit. The plaintiff also knew about the "one agreement" provisions in the agreements (clause 13 of the provisional agreements, which had been followed by appropriate clauses in the formal ones) and it therefore could have expected KCL to insist on the purchases being treated as a single transaction. Further, it would have made a profit, by the date of completion, which it would not want to forego and it would have taken the chance on title problems if it thought it could sell the property on easily and at a profit.

123.In this connection, the evidence of Mr Liu is important. In his statement he said that if the plaintiff had been advised of the problems it would not have gone ahead with the purchase. He was cross-examined at length on this but maintained that even if he had been told that there was a problem but that the lawyers would be able to solve it, he would still have advised the SAG not to purchase the property. As he put it, "they could solve the problem at that time, but what if later on the problem cropped up again, therefore I would not purchase the property even though they said they could solve the problem".

124.He was asked in re-examination about his reasons for this stance. He replied that there were two reasons; the first being that if someone had told him of problems with the Naming Right and the Signboards, he would not have spent more than $100,000,000.00 on the property, and the second that he was representing SAG, for whom he worked; if his negligence or carelessness resulted in legal problems for Southern Airlines, this would be a very serious liability and "I myself might face some problems, and also Southern Airlines might be involved in some sort of litigation and for myself, I might have broken the law. I dare not do that because of these two very serious reasons, in that the liability was very great".

125.This seems to me to ring true. Mr Liu was the Hong Kong representative, dealing with and advising the people on the Mainland who were putting up the money. He would naturally be careful not to get into a position where he could be blamed, or even fixed with liability, if something went wrong. It is also to be noted that he said in his statement that the SAG and the plaintiff had other choices of investment, at the time, in Causeway Bay and Wanchai as well as on other floors of the same building.

126.I do not doubt, therefore, that if the plaintiff had been advised of the problems with the Naming Right or the Signboards it would have sought to extricate itself from the contracts. But that is not the end of the story; would it have been able to do so?

127.As noted the provisional agreements executed on 14 December 1993 contained a clause 13 which provided for simultaneous completion. No partial completion was to be accepted by the vendor. Each of the relevant formal sale and purchase agreements contained a clause in similar terms. By way of example I set out the relevant parts of clause 33 in the agreement for sale and purchase of the 40th floor with the Naming Right :

".....Notwithstanding the fact that the Purchaser and the Vendor have entered into separate agreements for sale and purchase... the Purchaser hereby warrants to and covenants with the Vendor that the completion of the sale and purchase of the Properties shall take place simultaneously on the date of completion herein specified and the Purchaser further agrees with the Vendor that the Vendor shall have no obligation to complete this agreement if the Purchaser shall fail and/or refuse to complete the purchase of any of the Properties or any part thereof and that any breach or non-compliance on the part of the Purchaser or any terms and/or Properties shall be deemed to be a breach of this Agreement and of each and every Agreement for Sale and purchaser of any of the Properties whereupon the Vendor shall be entitled to exercise such rights against the Purchaser as if the Purchaser is in breach of any of the terms or conditions of this Agreement."

128.The defendants argue that the effect of this and the similar clauses would be to permit KCL to insist on the entire set of agreements being accepted or rejected. It was KCL who put in the "one agreement" provision. According to the statement of Mr Leung, KCL's position was that if the plaintiff wanted the upper floors it had to take the Naming Right and the Signboards as well. Further the parties regarded the transaction as one, and aggregated the prices together.

129.The plaintiff argues that there was in any event an obligation on the part of the vendor to show and give a good title to the property sold. That would be implied, even in the case of the provisional agreements. If the defendants had properly advised the plaintiff of the defects in title, then because the defect in title to the Naming Right could not be put right, the plaintiff could have rescinded at least the provisional agreement covering the 40th floor, the Naming Right and the Signboards together, if not all of the provisional agreements. The plaintiff would have been able to recover damages representing the difference between the value of the properties with good title and the value without it. The same would apply under the formal agreements.

130.It is rather difficult to guess what might have happened. In the best scenario the defendants would have advised the plaintiff of the Naming Right problem soon after being retained. However, looking at the evidence of the 2nd and 3rd defendants it does not seem that the problem was then recognised, though no doubt it should have been. It would have been recognised once the correspondence with the Land Registry started after the formal agreement had been executed. I think I have to take it that by the time the plaintiff was told of the problem of the Naming Right and faced with the decision on whether or not to pull out, the formal agreement would have been executed. Of course the problems with the Signboards were curable so the question of rescission of that agreement would have been postponed until it was seen whether or not they would be cured.

131.Clause 33 or its equivalent in the other formal agreements is entirely in favour of the vendor and puts the onus on the purchaser to take all the properties together. It applies in all circumstances where the purchaser for any reason fails or refuses to complete the whole. There is no requirement of fault.

132.Notwithstanding the contractual requirement to show and give good title, the vendor, if it could or would not do so, was entitled to get out of each individual sale. Clause 7(b) of the various formal agreements provides that if the purchaser insists on any objection or requisition in respect of the title or otherwise which the vendor is unable (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove, the vendor may give 14 days' notice to annul the sale. If the purchaser does not withdraw the objection or requisition the sale is to be annulled and the deposit returned. If the defendants had properly advised the plaintiff and such requisitions had been made then KCL could have given notice to annul the sale of the 40th floor with Naming Right and the sale of the Signboards and proceed with the other sales.

133.If the plaintiff after such notice had not withdrawn the requisitions I cannot see that this would have enabled KCL rely on clause 33. Quite simply, the plaintiff's refusal or failure to complete would not be the result, not of its own choice, but of the KCL's failure to show and give a good title.

134.If KCL did not give notice to annul, then the plaintiff would have taken subject to the vendor's failure to show a good title. On completion of the agreements the plaintiff could have claimed damages from KCL in this respect.

135.I do not therefore see that clause 33 could be construed as requiring the purchaser to complete all the purchases irrespective of whether it was getting good title. That would be absurd. In my view KCL would not, even if had sought to do so, have been able to get out of the whole set of sales and purchases, if the plaintiff had been properly advised and had raised requisitions in respect of the title.

Quantum

136.It is common ground that the measure of damages is that required to put the plaintiff back in the position in which it would have been but for the defendant's breach of duties. That means the difference between the contract price of the property and its value at the date of completion, i.e. 15 July 1994.

137.The defendants sought to argue on the basis of the "one agreement" clause that any increase in value of all the properties taken together should be taken into account so as to offset the losses in respect of the Naming Right and the Signboards. In view of my finding on the effect of the "one agreement" clause this is not appropriate. The measure of damages is therefore the difference between the contract price of the Naming Right and the Signboards, and their value as at 15 July 1994. At most, since the Naming Right and the 38th floor were sold together, any increase in value of the 38th floor could be taken into account.

The Naming Right

138.The plaintiff's expert was Mr Paul Brown. His opinion as it appears in his report dated 10 August 2001 was that the price paid for the Naming Right represented a fair and reasonable figure for such a right in the absence of the decision in Lamaya. He noted, incidentally, that in the last few years, i.e. since that decision and the decision in Nine Queen's Road there has been a noticeable absence of any recognisable premia paid for the naming rights of a building. However, given the effect of Lamaya, in his view, the right has no commercial value.

139.In oral evidence, Mr Brown qualified his view to some extent. He said that although he considered that the Naming Right should be regarded as having no commercial value because it was not legally enforceable, he did not mean that no one would buy it. But if someone thought it was enforceable, in a hot market they might pay 10% of what the plaintiff paid, or about $5,000,000.00.

140.The defendant's expert, Mr Falkner put the value of what he called the "conditional naming right", i.e. the Naming Right assumed not to be enforceable against co-owners, at about 50% of what was paid for it, i.e. $24,000,000.00. He did not work out any possible change in value between the date of the original provisional agreements and the date of completion because he did not think a naming right would vary as much as the actual buildings would. In arriving at his figure of 50%, he took into account the risk to the buyer of a conditional right that other owners would object to the exercise of it and to the fact that the name had been changed twice in connection with the Yat Chau agreement. In cross-examination, he said that he had no information that the actual price paid would not be a proper price for a full or unconditional naming right.

141.Mr Brown in cross-examination was asked about Mr Falkner's valuation by reference to risk. He said that in assessing risk he would not take into consideration whether the other owners would make a fuss about the use of the right, but he thought that the risk was quite strong given the possible number of co-owners. His own experience was of leaving a building because the name had been changed.

142.Mr Brown was able to use only one comparable, the CNT Tower; in fact the one used by the 3rd defendant as a drafting precedent. Mr Falkner had no comparables and simply accepted that $48,000,000.00 would have been an appropriate price for the Naming Right if it had been enforceable. I will take it that it was.

143.So far as the value of the "conditional" right is concerned I am inclined to take Mr Falkner's view as more probably right, if only because it is based on rather closer consideration of risk than that of Mr Brown and includes consideration of what actually happened. Valuation is necessarily inexact; valuers often admit that in evidence, and when one is valuing something for which there are few comparables the exercise becomes more so. But I can imagine that, once a building has been named, most of the co-owners would accept the name, and even a change of name if it was not the name of a competitor, or something of that sort. So I will take the value of the Naming Right at the date of completion, i.e. what the plaintiff got, as $24,000,000.00 and the difference in values as $24,088,500.00.

144.As indicated, if the defendants had properly advised the plaintiff and as a result the purchase of the 38th floor and Naming Right had not been completed, because the Naming Right went with the 38th floor, it is necessary to compare the contract price of the 38th floor with its value at the date of completion. To the extent of any increase the loss on the Naming Right will be offset.

145.The contract price of the 38th floor was $98,199,200.00. Neither expert was originally asked to value it on its own as it went with the Naming Right. Mr Brown in his supplementary report dated 14 November 2003 says that it was overvalued. The plaintiffs paid for their floors, excluding the Naming Right and the Signboards, a figure some 24% above the typical range for a whole floor in the building. On that basis he says that the 38th floor should have been worth $79,740,000.00 in December 1993. On the basis of methodology set out in his earlier report to show increases in value over the period, he puts the value at 15 July 1994 at $96,449,890.00. I calculate this to be an increase of about 21%.

146.Mr Falkner, starting from the assumption that there was no overvalue in the contract prices, valued the floors except the 38th floor, at 15 July 1994 and counsel invites me to take a figure of $126,405,180.00, which is the mean between Mr Falkner's figures for the 37th and 39th floors. If that figure is right the value of the floor without the Naming Right would have increased by about 29%.

147.The Rating and Valuation Index showed an increase of 24.8% between December 1993 and July 1994 and an increase of 39.7% between December 1993 and August 1994. For the period January to July 1994, the JLL Index showed an increase of 39% and the FPD Index showed an increase of 29%. These indices relate specifically to office properties. Given these index values it seems that the 29% figure given by Mr Falkner is more likely to be correct. I also note that in Mr Brown's report of 16 August 2001 he had given a figure of 10% for the period December 1993 to December 1994. So overall I prefer Mr Falkner's figure for the percentage increase.

148.The real question is whether the plaintiff paid over the value for the 38th floor. The evidence of the two valuers, covering as it did the values of all the floors at various dates, was rather complicated. There were differences in the use of comparables between the two experts and much argument as to their methods. Leaving that aside I note first of all that Mr Brown's figures showing an overvalue came in at a very late stage. He wrote a report dated 16 August 2001 comparing open market values of accommodation in other buildings, namely the CNT Tower, Multifield Plaza and Railway Plaza at December 1993, December 1994 and May 1997. In that report he gave the open market value of the accommodation in No.118 at December 1993, excluding the consideration paid for signboards as $642,000,000.00. In his latest report he notes that the total figure actually paid for the six floors was $593,000,000.00 (excluding Naming Right, Signboards, and car park spaces). This is an obvious discrepancy between the content of the two reports.

149.According to counsel for the plaintiff the general evidence suggests reasons for a high price being paid, namely that the plaintiff was out for fast profit and paid a large sum of money which was not its own without any analysis on whether the asking price was the market price. Certainly Mr Leung's statement does not go into any great detail about whether there were any negotiations, but it is a hearsay statement, drafted no doubt by a solicitor and we do not know what Mr Leung might have said if he had given evidence. Given the rather cautious approach of Mr Liu in acting for his Mainland principal, I tend to doubt that the plaintiff would simply paid a high price without properly considering whether it was getting good value.

150.Given the discrepancies in what Mr Brown says, I tend to prefer the evidence of Mr Falkner. I am not satisfied that the plaintiff paid an over-value. I will take the price paid as the correct market price and Mr Falkner's valuation at the date of completion. This means that the plaintiff gained $28,205,980.00 and this will have to be set off against its losses.

The signboards

151.The plaintiff paid $67,327,600.00 for signboards. It got empty air. Its loss is therefore $67, 327,600.00.

Other losses

152.The legal fees thrown away (paragraph 13(e) of the Amended Statement of Claim are agreed at $214,241.75. The plaintiff paid $1,851,509.00 in respect of stamp duty on the assignment of the Signboards, which needs to be added in. It paid $4,022,912.00 on the assignment of the 38th floor the consideration for which is shown as $146,287,700.00 but of course this includes $48,088,500.00 for the Naming Right. On the basis that the Naming Right was only worth $24,000,000.00, the overpayment of stamp duty must be taken as $24,000,000.00 x 2.75% = $660,000.00 so the total figure for stamp duty will be $2,511,509.00.

153.In the Amended Statement of Claim dated 25 July 2001, the plaintiff claims loss of interest on the mortgage loan obtained for financing the purchase of the Naming Right and Signboards in the sum of $38,773,344.38 as calculated from 15 July 1994 to 15 July 2001 and continuing until the defendants pay the plaintiff the sums claimed in respect of the Naming Right and Signboards. The mortgage interest according to the facility letter dated 27 June 1993 is prime rate plus 1.5%. Their figure is of course calculated on the basis of their total claim for the Naming Right and Signboards which is $115,416,100.00 but falls to be adjusted to fit my award which amounts in total to $91,416,100.00. The interest for that period will therefore be $38,773,344.38 x $91,416,100/ $115,416,100.00 = $30,710,688.00.

154.There is also a claim for signboard management fees in the sum of $174,000,000.00 to August 2000 as well as an indemnity from the defendants for further payment of those fees beyond August 2000. The plaintiff has got undivided shares in the building but they have no signboards. There is nothing to manage. So they should be reimbursed. I do not know how long this will have to continue; presumably as long as the plaintiff holds the title to the shares. I will express the order as "until further order". If parties wish to be heard on this they will no doubt arrange for it.

Other matters

155.For the reasons given, I have not treated the other properties as to be included in the calculations. It is common cause that the measure of damages is the difference between the contract price and the value at the date of completion, so questions of later increase in value do not come into the equation and those claims were not maintained. Nor were arguments relating to mitigation of loss in respect of rental since the date of completion.

156.Mr Chan, in opening, raised the question whether if the plaintiff had not completed the deal with KCL it would have entered into an equivalent transaction to purchase equivalent properties with an equivalent expectation of profit. Reference was made to Feerni Development v. Daniel Wong & Partners [2001] 1 HKC 373. On my findings, I do not think this needs to be considered, even if it remained a live issue by the time of the closing submissions, which I do not think it did. In any event it would be practically impossible to work out what such profit might be and there is no evidence from which it could be worked out.

Conclusion

157.The plaintiff is entitled to the following :

Difference in value of Naming Right	$24,088,500.00
Difference in value of Signboards	$67,327,600.00
Stamp Duty	$2,511,509.00
Mortgage Interest 15/7/94 - 15/7/01	$30,710,688.00
Signboard Management Fees to August 2000	$174,000.00
Legal fees thrown away	$214,241.75
Subtotal	$125,026,538.75
Less increase of value of 38th Floor	-$28,205,980.00
Total	$96,820,558.75
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158.There will accordingly be judgment in favour of the plaintiff against the 1st, 2nd and 3rd defendants jointly and severally for $96,820,558.75.

159.There will be an order that the defendants do jointly and severally indemnify the plaintiff for the mortgage loan interest as paid by the plaintiff from 16 July 2001 until such time as the defendants pay the plaintiff the sum of $91,416,100.00, and for the signboard management fees as paid by the Plaintiff from September 2000 until further order.

160.Interest will be payable on the balance from the date of the Writ to the date of judgment at prime rate plus 1% and thereafter until payment at the judgment rate.

161.Costs (nisi) of the action be to the plaintiff, to be taxed if not agreed.

Representation:

Mr Edward Chan, SC and Mr C.Y. Li, instructed by Dibb Lupton Alsop, for the Plaintiff

Mr Paul Shieh, SC and Mr G. Lam, instructed by Messrs Richards Butler, for the Defendants