Robertson, Double and Boase (A Firm) v. Stephen Lee (A Male)

HCA008560/1984

Coram: Hon. Hunter, J. in Court

Dates of  hearing: 16th - 23rd January 1987

Date of delivery of  judgment: 23rd January 1987

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JUDGMENT

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1. This is a claim by a firm of solicitors for professional fees rendered between May and September 1984. It is not in issue that certain services were rendered, and there is no dispute as to the quantum of five of the seven bills. The issue which has been raised is whether in the course of purporting to render professional services to the defendant, the plaintiffs were guilty of  professional negligence particularly in four respects.

2. There had been some relationship between this firm and the defendant before this date; but for the purposes of this proceeding, it is necessary  to go back no further than may 1984. At that time a firm called "Long Silver Enterprises Limited" was owned by a man called Bernie Neumark. He was the owner or the controller of 100% of the shares in that company. I may say in the light of when I have heard of the persons who ran this company, it might just well have been called "Long John Silver Enterprises Limited". According to the defendant Bernie Neumark had milked the company during the course of his ownership. Certainly at that date $457,000 was owed to the company in part by Neumark himself and in part by Headgear Products Inc.,  a New York company which Neumark controlled. Neumark owed in round figures $157,000 and Headgear $300,000. Neumark ran the company from a distance, his particular function being selling hair care products around the world. He was having trouble with the management of the Hong Kong end of the business. That is where he first requested the defendant Mr Lee's help.

3. His proposal to Mr Lee was that Lee should take over the entire shareholding in "Long Silver" for a sum of $300,000 to be satisfied by the discharge of the Headgear Products debt in substantially the same sum. Now the defendant at this time had just emerged from a pretty unsuccessful financial venture in the manufacture of artificial flowers. I say unsuccessful because he was then exposed to liability on a personal guarantee to the Hong Kong Shanghai Banking Corporation in a sum which he then said was about $300,000 which hardened into a judgment of nearly over $500,000 later that summer. He was also being chased by credit company for something in excess of $160,000. There was no question of his being able to buy shares in this company for cash. But he wanted to acquire the shares under the cover of a nominee company and to run it. The idea of doing so without any money changing hands by a write-off of the Headgear/Neumark debt was attractive. That is what he agreed with Neumark. At the same time they agreed that Neumark was to continue to act as agent for the company on a world wide agency upon the basis that Neumark was to get the price from the customer and the company was to receive a certain figure for the F. O. B. price of the goods plus 7½%.

4. It was that proposal that was then put by Mr Lee to Mr Robertson, of the plaintiff firm, on about 14th May. There, I am faced with the stark issue of fact between Mr Robertson and Mr Lee. Mr Robertson tells me that when this proposition was put to him the first thing he said, was this is  impossible, it cannot be done this way. A company cannot buy its own shares nor can it give financial assistance direct or indirect to others in the purchase of its shares. That is what section 48 of the Companies Ordinance says. He therefore, drew the agreements in a way that they were not illegal. He did this by doing two things. First of all, he postponed the discharge of these debts for 12 months. The payment for the shares was postponed for a year as was the discharge of the Headgear debt. This was done deliberately to create, as I understand it, a breathing space for the generation of funds and possibly credit. Secondly, he, in the agreement, quite specifically provided for the discharge of the Headgear debt by a payment by Headgear to Long Silver on 16th May 1985, and equally for the payment of the shares by a payment by Belstair, that is Mr Lee's nominee, to Neumark for such shares, and without any reference to set-off at all. So that on the face of the agreements, save that the two events would happen on the same day, neither party had any right to set-off the one against the other. Thirdly, he says that he pointed out the problems to the parties that he was then seeing, his client, Mr Lee and the other party, Mr Neumark; explained why he had done the agreement in this way; and pointed out that when the moment came for the satisfaction of these debts there could be a circular payment but it was essential for there to be a genuine movement of cash when that happened.

5. Mr Lee's evidence is quite to the contrary. He says in answer to the first point; nothing was said about raising any legal difficulties at all about this. As far as the agreement is concerned of course he agreed that there was a 12 month postponement. But he said that not a word was said about that, either by explantion by Mr Robertson or by query from them. Secondly, as far as the actual terms of the agreement were concerned, although he claims to have read them carefully he did not notice there was no express set-off provision at all. As far as the third matter goes, so far from being told that there had to be some genuine movement of cash, come the 16th May 1983, Mr Robertson said in terms that nothing need move; they could simply be book entries.

6. I have to decide, overall, whether I prefer the evidence in this and other respects of Mr Robertson to Mr Lee or vice versa. In answer to that I have no hesitation in preferring the evidence of Mr Robertson. He gave his evidence on this and an other matters clearly and firmly. Later, particularly in his later dealings with this defendant, I think he showed a certain gullibility. I think he was much too trusting, and I think he showed a lack of commercial judgment. But it seemed to me overall that his evidence was honest and reliable. I regret to say that I cannot use either adjective in describing this defendant. He conducted his case in person. Therefore I had a particularly extensive opportunity of observing him. The first thing which seemed to me to be transparent was that he had an unbelievable capacity for self-deception and self-delusion. I learnt a good deal about his commercial adventures in the years 1983 to 1986, all of which seem to have been conducted with other people's money, and all of which resulted in a trail of unpaid creditors. But at every single step and every single difficulty arising out of every adventure, it was always the other man, Robertson, Neumark, Rosenberg, as the case may be, who was always at fault, who always let him down, who always gave him bad advice, who always deceived him. I do not think that I remember Mr Lee ever admitting at any stage of his evidence, that he was ever at any time at fault. Equally it seemed to me that he had an equal facility for adjusting his evidence to suit the occasion and to suit his case. This is one of those cases when I bitterly regret the lack of any shorthand writer, and lack of any transcript facilities. Because my manuscript record of the evidence will, in no way, do justice to the circumlocutions of so a may of this defendant's answers and to the flavour of his evidence. I can only say that I found most of his evidence quite unconvincing, and he is not a witness whose evidence I would accept on any matter in the absence of clear corroboration. That is my first reason.

7. My second reason is that in respect of this interview, I am quite satisfied that Mr Robertson is right and Mr Lee is wrong in relation to the identity of his client. Mr Robertson said that from start to finish he was instructed by Mr Lee, he acted for Mr Lee, and he billed Mr Lee. That is what the bill shows. Mr Lee sought to assert that Mr Robertson accepted at the very first interview that he was acting in this matter for both parties, both for Lee himself and Neumark. It so happened later that year, in fact on the 17th August, whilst Robertson was on leave, that Mr Double was looking after Mr Lee's affairs, and helping out with the affairs of Long Silver, shortly after Neumark had roturned to Hong Kong. Apparently Neumark or his solicitors had raised the question of whether it was right for the plaintiffs firm to continue to act in the matter because it was being suggested that it originally acted for both parties. So that Mr Double specifically asked Mr Lee this very question. I have an attendance note which records his firm and positive answer that is the plaintiff firm, had never acted for Neumark. The note goes on: Lee said "He was our client and not Neumark". Mr Double gave evidence to that effect in the witness box, and was not asked any question about it. When giving his own evidence the next day, Mr Gee said that his answer was not that. It was a rather careful negative which would have created a totally different impression upon Double. He added to that that after he took over Long Silver he gave instructions to Long Silver's bookkeeper to debit Mr Neumark in the books of the Company, with on half of the first bill. Those in my judgment were two typical pieces of embroidery manifested in this defendant's evidence.

8. The third reason for preferring Mr Robertson on this matter is that the documents seem to me wholly in his favour. It seems to be a simply question here; either Mr Robertson saw this point or he did not. If he saw the difficulties involved in the scheme as presented to him by his client, Mr Lee, it seems to me beyond the belief that he did not explain what those difficulties were. There are three things which seem to me to show clearly that he saw the difficulties. The first is this. If he has not seen the difficulties it would have been very easy indeed to draw the agreement to give effect to the oral agreement. In other words to provide for an immediate set-off; an immediate discharge of the Headgear debt to Long Silver; and an immediate transfer of the shares in consideration of that set--off. That is the one thing the documents most clearly do not do. Secondly, there is the postponement for the year which was plainly motivated by the desired to meet this difficulty. I cannot remotely accept that Mr Robertson gave no explanation for that and that neither of these parties asked for any explanation of this year's postponement.

9. Thirdly, there is the point that the absence of any express set-off in either of the agreements left the paying parties exposed to unqualified obligations when the due time came. In those circumstances to suggest that all this could have been done by an exchange of paper and not by a movement of cash, is to my mind quite beyong belief.

10. My conclusion therefore (and this is really not disputed) is that the agreement in its terms is, in no way, illegal. Equally, I reject the plaintiff's suggestion that there might have been some implied term to produce an illegality. The agreement might or might not have been implemented in the future in a way which would have contravened section 48. That is a wholly academic question in some respects because it was never implemented at all. It was discharged later in the year. What would have happened in May 1985, I know not. My strong suspicion is, that neither of those persons were remotely concerned with the warnings that Mr Robertson was giving them. Neither has shown any concern about the niceities of Company Law, in any part of this case that I have seen, where that interferes with their own desires. I have little doubt that they would, in fact, have completed the transaction in whatever way then suited them, probably by a series of book entries. But that is neither here nor there. So that there is, in my judgment, no substance in the first and fundamental allegation of negligent raised against Mr Robertson.

11. The second allegation is that he failed to ensure that the transfers were registered in the Companies Registry. This is simply just silly. Following the deal Mr Robertson wrote to Mr Lee telling him what to do in relation to the issue of the share certificate and the registration. It is a postscript to a letter of 22nd May. It is in these terms, "please send a copy of the agreement between Bernie Neumark and Belstair (the nominee company) for sale of the shares to the secretaries of the company. In addition they will need a copy of the bought and sold notes which I enclose. Once they have these, arrange for them to issue share certificates in favour of Belstair for the 2,998 shares and tell them to make sure it was dated 17th nay 1984".  Mr  Robertson made one mistake in writing that letter; it is premature. He realised having written it that the documents first had to be stamped. He then rang up and corrected that and this is made clear by the fact that Mr Lee himself had written at the foot of the postscript, "must be stamped first". Mr Lee provided the money for stamping. That stamping was duly done and the next document is a letter from Mr Robertson to Mr Lee of the 22nd June:-

"

I have got back the bought and sold note and the instruments of transfer from the Companies Registry. I enclose these along with your accounts . You should now arrange for the share certificates to be issued."

That letter seems to be totally clear, particularly when read with the earlier letter. It seems to be totally impossible to assert in the light of that, that this gentleman thought for one moment, that the firm was doing anything further about bringing about the issue of these share certificates. Mr Lee struggled to assert that there was some ambiguity in a letter when  no ambiguity exists. He was troubled to explain the fact that he did nothing about this beyond putting the bought and sold note and the instruments of transfer in a drawer of his desk. In my judgment, it did him no credit at all, that he insisted upon maintaining what I regard is a totally ridiculous complaint to the end. That is nothing in that either.

12. The third complaint is against Mr Boase, then the third partner in the firm, for his lack of service in securing this defendant's release on bail. In order to explain this it is necessary to give a little bit of background. It is perfectly obvious that having taken on Long Silver the defendant ran into difficulties, most of which of course he attributes to Neumark. One of them, may well have been that the 7½% reserved to him by the agency agreement was insufficient. He then decided to go into a garment deal with a man called Serge Rosenberg who was a designer. Mr Robertson was sufficiently impressed by his garments, also to participate in this and to make an investment, all of which he has subsequently lost. There were quite insufficient funds in Long Silver to maintain the business of Long Silver and to finance this new deal. So that Mr Lee  resorted to that well-known practice, normally described as "robbing Peter to pay Paul".

13. First of all, he stopped paying Neumark his commission. Somewhere between $45,000 and a hundred and something thousand dollars on the respective parties' estimates was owing to Neumark. Secondly he stopped paying suppliers. He told me that between 17th and 20th August he persuaded suppliers holding cheques which had already bounced not to present them again for another 14 days, and that the total of those cheques was between $250,000 and $280,000. Likewise in August he stopped paying the staff, a bill which ran to about £50,000 and £60,000. I am bound to say one of the lease attractive parts of this story, is that the staff were unpaid in August. They were unpaid in September, and he was praising their loyality, and he was, no doubt, stringing them along. They were unpaid in October, and it was they who out the company in liquidation having worked for three whole months without any reward from this company at all.

14. On 13th August, the Chartered Bank decided that Long Silver had totally insufficient capital, and that they were not going to extend their facilities any further beyond seeing out their original obligations. But notwithstanding those matters between about the 15th and 20th August, over $300,000 of a total of $370,000 was remitted by Long Silver to Paris in support of the Paris venture. It was small wonder that this was going to cause problems in Hong Kong. At the last moment Neumark who was here heard about one such thing and complained to the police, who promptly arrested Mr Lee at Kai Tak on 21st August when he was about to board a plane to London and then on his way to Paris. Mr Neumark, seems to me, to have had some grounds for suspecting that Mr Lee was about to do what is sometimes known as a "mid-night flit".

15. Having been arrested messages were transmitted first to Mr Double (Mr Robertson was still on leave). Mr Boase was then asked for help, he being the  partner of the firm who was most experienced to these matters. He first attended first at Wan Chai, and later Western Police Station at about 4 a.m.. After working quite hard during the rest of the day he succeeded in persuading Inspector Tam, as it then was,on the following evening to grant bail, he having initially refused to do so on two occasions. Later that following evening Mr Lee was duly released upon bail, $20,000 in cash, put up by Rosenberg who himself had been arrested and bailed earlier that day. The defendant's story in relation to this is this. He says that all he had to do to cause the cell door to open and for him to be released was for Mr Boase to produce the Sell and Purchase Agreement of the shares to show he was now a beneficial owner of the shares and he would be free; and that Boase admitted to him, in effect, the next night that it was in this way that he had obtained his release and, said Mr Lee, he should have done this very much earlier in the morning.

16. There is, in my judgment, no truth in that story and it is equally ill-founded in law. What is more significant is that the police were themselves aware of this fact. Because we have an attendance note of Mr Boase when he was with Mr Lee between 4 a.m. and 5:15 a.m. at Western Police Station. It records that Inspector Bidlan had said that the charge would be "theft" and that, he had been arrested for theft. This was denied by Mr Lee. Mr Lee said that he owned the company and could produce documents that his was the sole signature. To this Mr Bidlan is recorded as having said this "What makes you think you can do what you want with the money". To this there was no comment. I believe that Mr Boase deserves credit for having persuaded Inspector Tam to allow Mr Lee to be released on the bail that he did. I think probably Mr Robertson had something to do that. Because when his name was mentioned, so Mr Boase told me, to the inspector, together with the possibility of this was really a civil dispute, it was this that brought about the change in this inspector's attitude. I do not accept the account which Mr Lee has given me of the events of that day at all. But it is typical.  Here was a man who has spent long hours getting his release, who then is criticised and almost vilified in this court.

17. The last complaint arises out of the proceedings which followed and which were instituted by Neumark. Neumark was concerned that the police might not pursue their investigation or would allow Mr Lee to leave the country. At that stage  his bail involved the surrender of his passport. He therefore launched civil proceedings and succeeded ex-parte in obtaining Mareva Injunctions and a prohibition order. Frankly having regard to the figures that I have already given about the sums owing in Hong Kong, and the sums that were taken out of this jurisdiction to Paris, it was not surprising, in my judgment, that he was successful in that respect. Two affirmations were sworn to by Neumark. A draft was put in by Mr Lee. The interpartes hearing was due to take place on the 15th and 16th October. But on the 22nd and 23rd September a compromise agreement was concluded, and what is said by the defendant in that respect is that Mr Robertson was negligent in advising him to enter into this compromise.

18. I believe that allegetion amounts, in the circumstances of this case, to a monumental act of self-deception on the part of this defendant. It seems to me that one has to recite the basic facts to see that his position in that litigation was something not far removed from hopeless and that he had only one choice, and that was to settle it for the best terms he could get. First there was the Mareva Injunction. It was obvious that large sums of money had gone out of the jurisdiction for reasons which were not obviously on the company's business. There was no way in which he could offer any sort of security to any of the creditors in this jurisdiction. Therefore there was every prospect, as I see it, of the court declining to lift that Mareva Injunction.

19. Secondly, there the criminal proceedings,  and the fact that his passport was in the possession of police. Mr Lee confidently asserted that he was on no risk in respect of those criminal proceeding. I do not agree with his judgment, and I do not accept his evidence. Having heard his account of the amount of money that have gone out and the sum that he had to try to find  within 14 days to enable the supplier's cheques to be met, it seems to me that his risk in those proceedings was not slight but very real. It wns, by no means, beyond the bounds of possibility that the Hong Kong jury would have concluded that the story that I heard this morning was totally incredible, and that there was no prospect whatever of there being sufficient sums in his bank account to meet the very large cheques that were then in the hands of the suppliers.

20. Thirdly, there was a string of creditors, Chartered, the suppliers and the staff all unpaid and his total funds were $50,000. It was a drop in the ocean as far as creditors were concerned. Equally there was no possible way in which he could have financed litigation. He was owing $200,000 to the plaintiffs' firm already. I totally disbelieve his confident assertions in evidence, that this was a matter which caused no concern whatever to Mr Robertson, and Mr Robertson and his partners were satisfied with his ability to meet these fees. It is quite beyond belief, having regard to his position.

21. The only way of his being able to get any money at all, he tells me, was to get to Paris. That meant lifting the Mareva. That meant getting the return of his passport from the police. And I strongly suspect the only way of doing both was to settle. If he had fought the Mareva successfully and had not settled with Neumark, I very much doubt that the police of their own initiative would have returned his passport. His chances of lifting the Mareva were, I think, very small for what I have seen over these last few days. May be I have seen a little more than the judge hearing that application would have heard. But I cannot remotely criticise Robertson's advice to him at the time, that this was a doubtful proposition as to whether he would succeed. Indeed, he does not criticise Mr Robertson for giving him that advice, and does not suggest it was negligent.Plainly it was nothing of the sort.

22. What he does try to say is that in advising in settlement at all, Robertson was admitting negligence in drawing the document; admitting that the original documents were illegal; and therefore, that he, Robertson was responsible for all ills that had followed. By this route all the consequences of the Long Silver's misfortunes could be laid at the door of Mr Robertson. There is, in my judgment, nothing in that at all. As I have already indicated his position was very difficult indeed. He simply could not finance any litigation. He had to get out of the country if he was going to get any money from anywhere. The only spay of doing that was to settle. His options were very limited indeed. Therefore, to suggest that there was negligence in Mr Robertson in relation to this seems to me to be beyond belief.

23. In fact the true story was much least creditable to this defendant than that. In the middle of this, in about the week in September, he had gone off to take advice from another firm of solicitors Wilkinson and Grist. He had given them his version of the drawing of the original documents and had been advised by them that he had a strong case in the illegality and they would be prepared to act for him in any negligence action against Mr Robertson. That no doubt explains why Mr Robertson always have a feeling that Lee felt that there was something in this illegality point and that he was not believing Mr Robertson's advice there was nothing in it, which advises, in my judgment, is totally well-founded. I need hardly add that that was done without any reference to Mr Robertson and the fact that he had taken advice elsewhere was never revealed to him.

24. With the benefit of that advice Mr Lee then goes off to talk to Neumark direct. At the third meeting with Neumark he arrives at terms which he felt were acceptable to him financially. It was not really surprising that they were acceptable to him because they were going to cost him $50,000 which is all he had. The terms were that he should pay $100,000 down. In order to achieve that he had to persuade Mr Robertson to lend him $50,000. The balance of the $350,000 that Neumark said that he was prepared to accept, was to be paid by six monthly instalments starting at the end of November, But and this was the sting, Neumark was insisting upon Robertson's guarantee of those sums. It is small wonder that with that minimum obligation upon him Mr Lee found those terms acceptable. He was able to persuade Mr Robertson to lend him $50,000 and to enter into that guarantee. I need hardly say that $50,000 has never been repaid and that is now sought to be set-off against the damages suffered by reason of the initial negligence. I have a very strong feeling that that was always this gentleman's intention. That he was in fact persuading him to lend him $50,000 which he always intending to set-off against his obligations, because that  was the advice that he thought he got on a full disclosure of the facts to Wilkinson and Grist. I do not find it a particularly attractive story at all.

25. In my judgment, this firm did its professional best to help this defendant out of difficulties entirely of his own  creation. For that they deserve, but have received no credit, no thanks and no payment. I cannot supply either of the first, but I can say that judgment should be entered for the total of the first five bills which is $32,369.79 and that the defendant must pay the sums allowed by the Taxing Master in respect to the last two bills which are $841,391. The defendant was also to pay interest on the first five bills at 1% over minimum lending rate from the day of bill of payment. I assume that the Taxing Master will deal with interest on the other bills in the course of the taxation, and I say nothing about that only for that reason. If there is any doubt about it, I will order interest on those two bills as well. I have an unfortunate feeling that this is a barren exercise and that the plaintiff's firm are going to be added to the long list of unpaid creditors associated with this gentleman's activities.

Representation:

Mrs Margaret Clough instructed by M/s Lovell, White & King for Plaintiff

Defendant in person