Benefit Charter Ltd v. Kevin L. H. Kwong & Co, Solicitors (A Firm) and Another

HCA 4775/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4775 OF 2000

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BETWEEN

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Before: Deputy High Court Judge Mayo in Court

Dates of Hearing: 6-10 September 2004 and 13-16 September 2004

Date of Judgment: 6 October 2004

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J U D G M E N T

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1.The Plaintiff is suing that the Defendants for professional negligence.  The 1^st Defendant is a firm of solicitors and the 2^nd Defendant was an Assistant Solicitor who was employed by the 1^st Defendant.

2.The transaction which is the subject of this litigation was the purchase of a House known as 36 Windsor Park, Kau To Shan, Shan (the House) in June 1997.  The 1^st Defendant represented the Plaintiff on this purchase and the 2^nd Defendant was the solicitor who on the face of it was involved in the purchase.  Dr Chan who is a Medical Practitioner was the person in the Plaintiff company who gave instructions on behalf of the Plaintiff.  The purchase price of the House was $18.4 million.

3.It is common ground that when the Provisional Agreement was entered into on 14 March 1997 Dr Chan had been informed that unauthorised building work had been undertaken on the House and that this had come to the attention of the Building Authority.  Indeed the Authority had issued a Notice requiring the unauthorised structures to be demolished and for the building to be reinstated so as to comply with the authorised building plans.  The Building Authority had registered their Order at the Land Registry.  The Order was in this form:

“GOVERNMENT OF HONG KONG

BUILDING ORDINACE (CAP. 123)

Order by the Building Authority under  section 20(1)

Order No.: C 0441/95/NT
BD Ref.: BD 7/9004/82/D

To:	Mak Hon Fai Christropher and
	Lam Kwok Chu Mayo,
	House No. 36,
	Windsor Park,
	2-88 Ma Ling Path,
	Kau To,
	Shatin.

Owner(s) of House No. 36, Windsor Park, 2-88 Ma Ling Path, Kau To, Shatin (“the premises) on (Lot Number) S.T.T.L. 59 (21/1200 shares)

It has been brought to my attention that building works have been carried out in and at the premises without having first obtained from me the approval of building plans and consent for the commencement of such building works required by section 14 of the Buildings Ordinance.

2.         The said building works comprise a) a canopy structure attached to the car part; b) structures erected on the roof-top of the car part; and c) structures erected on the main roof-top of “the premises”.

3.         In exercise of the powers vested in me under section 24(1) of the Buildings Ordinance, I hereby order you to demolish and remove the said building works in paragraph 2 above and to reinstate that parts of the building so affected by the said building works in accordance with plans approved by the Building Authority.  Adequate measures to protect the public should be provided prior to and owing the removal and reinstatement works.

You are required to commence the works ordered by me in paragraph 3 above within thirty days and complete such works within sixty days of the date of this order, all to the satisfaction of the Building Authority.

	(Signed)
	(J.R. Dekking)
	Chief Building Surveyor/C/1 (Atg)
	for Building Authority”

4.A provision was accordingly inserted in the said Agreement which reads as follows:

“The vendor undertakes to discharge the illegal structure Building Order 3 weeks prior to the date of delivery of vacant possession i.e. 20 May 1997 or earlier.  Otherwise it would constitute a breach of contract.”

5.After the said Agreement was signed instructions were given to D2 to represent the Plaintiff on the purchase.

6.Shortly following this the vendors’ solicitors submitted a draft formal Sale and Purchase Agreement to the Defendants for their approval.  The document was approved and clause 34 was drafted to embody the stipulation relating to the unauthorised structures.  This read:

“The vendor undertakes to discharge the Order No. C0441/95 at his own costs and expense and provide documentary proof of such discharge to the Purchaser on or before the 20 May 1997.”

7.The formal Sale and Purchase Agreement was finalised and dated 9 April 1997 and completion of the sale and was fixed for 10 June 1997.

8.Steps were taken by the vendors to comply with the requirements laid down in clause 34.

9.Correspondence was exchanged with the Building Authority and a letter was sent to the first named vendor Mak Hon Fai Christopher dated 17 April 1997.  This letter was in these terms.

“Mak Hon Fai Christopher,
House No. 36, Windsor Park,
2-88 Ma Ling Path,
Kau To, Shatin,
New Territories

17 April 1997

Dear Sir/Madam,

House No. 36 Windsor Park, 2-88 Ma Ling Path,

Kau To, Shatin, New Territories

I refer to my Order No. C0441/95/NT which was served on you on 10 October 1995 in connection with unauthorised building works which had been carried out at the above premises.  I note that modifications have been carried out to the said building works, and having taken into consideration the circumstances, I am prepared to withhold further enforcement of my order for the time being.  However, I may consider issuing a new order for the complete removal of all unauthorized building works in future should changes in circumstances so require.

Order No. C0441/95/NT is hereby withdrawn.

	Yours faithfully,
	(signed)
	C.K. Cheung)
	Senior Building Surveys/C5
	for Building Authority”

(This letter is hereafter referred to as “the letter of 17 April 1997)

10.An attempt was made register this letter at the Land Registry so that the Order which had been registered by the Building Authority might be discharged.  This attempt however was not successful as the application to the Land Registry was rejected on the ground that the letter had incorrectly spelt the name of one of the owners.  Also it had not been addressed to the co-owner Madam Lam Kwok Chu Mayo.

11.For what it is worth this situation was subsequently rectified.

12.It was agreed by the parties that the completion date should be put back 2 days to the 12 June 1997 and completion took place on that date.

13.The Defendants also represented Orix International Finance Ltd who were advancing HK$12,800,000.00 to the Plaintiff to enable it to complete the purchase.

14.At the completion, an undertaking was obtained from S K Wong & Lee the Solicitors representing the vendors in these terms:

“5.  To send us the certified copy/original of the following title deeds and/or documents within seven days upon your receipt of the same from the Land Registry, but in any event shall not later than three months from the date hereof :-

a.Letter of Compliance dated 17/4/1997 duly registered by Memorial No. 948744.

As the undertaking follows strictly the draft form of undertaking approved by you and the amount sent exactly as per your letter, your undertaking will be deemed given.”

15.This undertaking was never implemented.

16.Shortly following the completion the Plaintiff entered into another Provisional Sale and Purchase Agreement with Hung Sui Kei and Kwok Wai Kin (the Purchasers) for the resale of the House for HK$21,100,000.00.

17.It was provided in this Agreement that completion should not take place until 16 June 1998.  In the meantime the Purchasers would be entitled to occupy the House for the purpose of decorating the premises and a licence fee of 0.5% above HSBC prime rate on the balance of the moneys outstanding.

18.At about the same time as completion of the purchase of the House by the Plaintiff Dr Chan had told D2 that he may be selling the House to another party and requested D2 to represent him in the sale.  D2 advised him that he was leaving the employment of D1 and joining a firm Terry Yeung & Lai (Terry Yeung).  Notwithstanding this Dr Chan wished Terry Yeung to represent him.

19.What is perhaps of particular significance in this case is that in about October 1997 there was a marked deterioration in the property market and the value of almost all property was greatly diminished.  The consequence of this was to make it all the more important that the Purchasers of the House were kept to their bargain. 

20.It was not until 25 May 1998 that D1 sent the title deeds of the House to Terry Yeung and even then no memorial was sent concerning the withdrawal of the Building Order.

21.Terry Yeung sent the Deeds to Ho & Chan the Solicitors representing the Purchasers of the House on 27 May 1998.

22.On the 3^rd June, Ho & Chan wrote to Terry Yeung raising a requisition in respect of the Building Order.

23.This requisition was not satisfactorily dealt with and on 12 June 4 days before completion was due to be place Ho & Chan wrote to Terry Yeung expressing the view that the existence of unauthorised building on the property would render the title defective.

24.In addition to this they enclosed a copy of a letter they had received from an Architect who they had instructed to inspect the House and report upon the existence of unauthorised structures.  The letter which is dated 18 May 1998 reads as follows:

“18 May 1998
Our Ref. JW 98006
Ho & Chan
Solicitors and Notaries
12^th Floor, Fung House,
Nos 19-20 Connaught Rd C,
Hong Kong

Attn : Mr Joseph Chan

Dear Sir

Re : House 36, Windsor Park, Nos 2-88 Ma Ling Path, Kau To, Shatin

Further to your instruction, I inspected the above premises on 5^th May 1998 and it has come to my notice that substantial building works have been carried out, details of which are given below.

(A) At Ground Floor Level

1.        a store room is added within the carport,

2.        an additional toilet is provided adjacent to the above room,

3.        a staircase is constructed to provide access to the carport roof,

4.        the 1.5m wide side open space, the 3m wide open yard at rear and the terrace beside the kitchen are all covered up by canopies of aluminium sections and glass panels; and

5.        the main entrance door way has been extended towards the front garden with the side space decked over with a glass roof.

(B) At First Floor Level

1.        railings are provided at the perimeter of the carport roof.

(C) At Upper Roof Level

1.      a metal tank has  been added onto the roof of the staircase hood.

Sketch plans and photos showing al the above are enclosed for ease of reference.

Enquiry from the Buildings Department has confirmed that after the issue of the occupation permit, no alteration and addition proposal, involving any of the above mentioned building works at the captioned premises, has been submitted for approval under the Buildings Ordinance.

The additional store room and toilets, the decking over of the open spaces and the extension of the entrance doorway have increased the permitted gross floor area of the premises, thus contravening Building (Planning) Regulation 20 and 21.  The covering up of all the side and rear open space has also deprived (i) the premises of the required open space as stipulated in Building (Planning) Regulation 25, and (ii) the servant room, toilets, kitchen and dinning area the presciled windows for lighting and ventilation under Building (Planning) Regulations 30 or 36.

The canopies of aluminium sections and glazed panels, unprotected against fire, do not have the required fire resistance period as required under the Building (Construction) Regulations 30 or 36.

Yours faithfully
for and on behalf of
WONG & TAI ASSOCIATES LTD

(signed)

John Po Lung Wong
JPW/ktt”

25.It is pertinent to add that it is common ground that the defects referred to by these Architects did not relate to the illegal structures such as to render the title defective.

26.Completion did not take place on the 16 June.

27.There was an exchange of correspondence between the respective solicitors and Terry Yeung on Dr Chan’s instructions contended that the Purchasers were in breach of the terms of the contract dated 8 July 1997 which had been prepared pursuant to the Provisional Sale and Purchase Agreement previously referred to.  Consequently the Plaintiff forfeited the deposit of $2.11 million and reserved their rights.

28.In response to this the Purchasers issued a Vendor and Purchaser Originating Summons.

29.This application was set down for hearing before Yuen J.  She held that the Plaintiff had not made out a good title to the House and ordered the return of the deposit to the Purchasers.

30.It is pertinent to this case to consider in detail the learned Judge’s analysis of the situation and the reasons for her coming to the conclusion she did.  These appear at p. 10 of her judgment.  It will of course be appreciated that where she refers to the Plaintiffs she is referring to the Plaintiffs in that litigation and that it is the Defendant who is the Plaintiff in this litigation:

“No compliance with s. 24 Order

The first step in the analysis must be to see what was ordered by the Building Authority in the Order, and what were the implications of the Order in relation to the title of the property.

The Order was clear as to what the owner must do:- he must demolish the stated structures and reinstate the property according to approved plans within 60 days.

The implications on the title were also clear:- (i) the s. 24 Order was evidence that there existed at the property unauthorised building works as described in the Order, and (ii) it was a threat of enforcement from the Building Authority, being aware of the existence of those unauthorized building works, and that if the owner failed to complete the demolition and reinstatement works by the deadline given, the Building Authority could immediately enforce the order, e.g. by doing the works in his place and charging him for it.

I cannot comprehend how that Order could be “complied with” except by the owner doing what the Building Authority has ordered him to do:- demolish all the unauthorized building works and reinstate the property according to approved plans within the deadline.

Partial demolition or partial reinstatement, in circumstances where the Building Authority continues to regard the remaining works as unauthorised and to hold alive the threat of enforcement (albeit not immediate), cannot be said to be “compliance” with the Order.

Applying that analysis to the present case, I am of the view that the Plaintiffs’ Solicitors were right when they refused to accept the Building Authority’s letter as evidencing compliance with the s. 24 Order or as the “Letter of Compliance” which they were asking for.

What the letter showed was that the Order had been withdrawn.  It is in my view a complete misnomer to cal that letter a “Letter of Compliance”, i.e. to say that the Order had been complied with, which was what the Plaintiffs had been led to expect by the description of the document delivered for registration, and which the Defendant did nothing to correct.

It is clear from the rest of the letter that some unauthorized building works remained at the property, which the Building Authority knew about and could take enforce action against.  If all the unauthorized building works had been made good and the property reinstated, there would be no reason for the Building Authority to have exercised his discretion to only “withhold further enforcement of my order for the time being” and to leave a warning of “the complete removal of all unauthorized building works” (my emphasis).

Thus, where the Order had not been “complied” with, where the letter from the Building Authority showed that there remained on the property unauthorized building works which the Building Authority has not forgiven, for which the owner’s obligation of removal remains under threat of enforcement sometime in the future, it cannot be said that good title has been shown.

The purchasers were not late in requiring further evidence of compliance in their solicitors’ letter of 15 June 1998 – the point only came to light from the letter from the Building authority which their solicitors were only given sight of on the same day, the day before completion.

In holding that the requisitions were not satisfactorily answered and good title not given notwithstanding the withdrawal of the s. 24 Order here, I differ with great respect from the opinion of the late Mr Justice Jerome Chan in Ultra Eternal Ltd v Liu Tai Cheong [1997] 1 HKC 258, where he held that similar wording (less the express withdrawal) showed that “the risk of further enforcement without a new order being issued by the Building Authority would be negligible”.”

31.Subsequent to these proceedings, the Plaintiff lodged an appeal.  However before the appeal came on for hearing the parties compromised the appeal and entered into a Consent Order.  By this Order it was agreed that the Plaintiff should pay the Defendants $100,000 and be entitled to retain the balance of the deposit.

32.Dr Chan gave evidence concerning his involvement in these matters.  He emphasised on a number of occasions how he had placed complete reliance upon his legal advisors and in particular D2.  He said that Ms Chan of Centaline had introduced him in D2.  He said that D2 had not suggested to him that he should obtain advice from a surveyor concerning the discharge of the Building Order which was outstanding and registered against the property.  He had been concerned about the effect of the Order and that it was for this reason that he had insisted upon the Order being discharged some time prior to completion.  He claimed that he had dealt with D2 in D1’s firm at all times and that D2 had assured him that there had been compliance with the requirements of the Building Authority and that the title to the House was a good title.  The matter had accordingly proceeded to an uneventful completion.

33.Shortly before completion he had been approached by Estate Agents who inquired whether he was considering selling the House after completion.  Although it had been his original intention that he and his family would occupy the House he had come to the conclusion that if he was offered a good price, significantly more than he had paid for it, he was prepared to sell it.

34.He had been in negotiation with the Purchasers shortly before completion.  The sticking point in the discussions was the fact that there was a penalty imposed by Orix his mortgagee if the mortgage was redeemed within a year of its being entered into.  The penalty was calculated at 3 months payments of principal and interest under the mortgage.  He had been anxious to pass this financial problem on to the Purchasers.

35.Eventually the Estate Agent had suggested a formula which was designed to resolve this dilemma.  The proposal was that the Purchasers would be entitled to occupy the House for a period of a year before completion would take place.  During this period the Purchasers would pay a licence fee equivalent of the costs and interest the Plaintiff had to pay on the moneys he had borrowed to enable him to purchase the House.  Provisions along these lines had been embodied in the formal sale and purchase agreement which was concluded on 24 June 1997.

36.At about this time he had learnt from D2 that he was going to join another firm of solicitors.  As he had been satisfied with D2’s performance of his duties up to this time he had asked him if he would agree to represent him if he were to resell the House.

37.So far as the events surrounding the onward sale of the House was concerned he again emphasised that he had at all times followed the advice of D2.  It was only on 12 June 1998 that he had been informed by D2 that there was a possibility that the Purchasers may attempt to resile from their bargain on the pretext of alleged illegal structures.

38.Under able cross-examination by both Mr Merry for D1 and Mr Coleman for D2, Dr Chan was pressed to agree that he had taken an active part in the deliberations which took place as to what line should be adopted with the Purchasers’ solicitors.  He had at that time accepted the advice he had received from his legal advisors that there had been due compliance with the requirements for the discharge of the Building Order.

39.When the Purchasers had refused to complete he had been advised on the various choices open to him.  He did not accept that D2 had advised him to issue a Vendor and Purchaser Summons rather than forfeiting the deposit.  Each of the possibilities had been put to him as alternative options.

40.After forfeiting the deposit, the Purchasers had issued the Vendor and Purchaser Summons.  At this time he was still confident that the outcome would be successful.  He had been disappointed that an order had been made for him to return the deposit to the Purchasers.

41.He had on the advice of Terry Yeung lodged an appeal against Yuen J’s judgment.

42.He had been approached by the Purchasers on a number of occasions for the return of the moneys.  On occasions such approaches had been made at his clinic and this had been highly disruptive.  He had enlisted the assistance of one of his friends in keeping the Purchasers and their representatives at bay.

43.Notwithstanding this there were ongoing discussions for the settlement of the appeal.  Dr Chan was asked why he had been prepared to settle the appeal.  One of the reasons he gave was that by that time he was not very optimistic about his prospects of success in the appeal.  Perhaps even more important than this he was also concerned that even if the appeal was successful he would encounter difficulty in enforcing any order made in his favour as he had been told that the financial situation of the Purchasers was not good.  They had apparently been engaged in other speculative transactions and had suffered losses.

44.Be that as it may he had succeeded in obtaining a form of compromise which had been acceptable to him.  In effect this required him to pay $100,000 in full and final satisfaction of the claims being made and would be entitled to retain the deposit.

45.One of the questions put to him by Mr Coleman was why he had not decided to also sue Terry Yeung.  His answer to this question was that he did not consider that they had been negligent.  It might be thought from this that the main focus of the complaints being made by the Plaintiff are directed towards the purchase of the House rather than the sale a year later.

46.In general terms, I regarded Dr Chan as not being a very satisfactory witness.  It must be said that on a number of occasions it was apparent to me that he adopted a rather keep hazard attitude towards the contents of documents and tended to be somewhat evasive.  Where his testimony conflicts with that of D2, I was more prepared to accept D2’s version of what transpired.  It was my impression that D2 did keep him more closely in the picture than he was prepared to admit.

47.There is another aspect of Dr Chan’s evidence which requires comment.  At all times he denied any suggestion that he was a speculator.

48.I was not convinced of this.  I found it significant that he entered into a sale and purchase contract for the sale of the House only a matter of days after the purchase had been completed at an enhanced price.  It is also noteworthy to add that the resale agreement with the Purchasers had all the hall-marks of a speculative transaction.  The unusually long period for the completion is indicative that the Purchasers’ intention was to find a purchaser at an enhanced price and that Dr Chan would have been well aware of this.

49.The reason I refer to this mainly relates to the general credibility of Dr Chan’s evidence.

50.Dr Chan was the only witness to give testimony for the Plaintiff.

51.Mr Kevin Kwong a senior partner of D1 gave evidence.  He is a solicitor of almost 20 years experience.

52.The main thrust of his evidence was to outline the procedures adopted in his firm and the nature of the supervision of Assistant Solicitors.

53.He said that on a transaction of the size of the purchase in question either he or his partner Mr Jordan Sze would quite closely supervise a solicitor such as D2.  In the present case he was at something of a disadvantage as Mr Sze had left the firm and could not be traced.  It had mainly been Mr Sze who had supervised D2 in the present case.

54.He did however remember at the prompting of one of his clerks Ms Kitty Wong that there had been a meeting between himself, Mr Sze and D2 in relation to this purchase.

55.He recollected that everyone at the meeting had been in agreement that the letter of 17 April 1997 had satisfactorily withdrawn the Building Order which had been registered and that this had satisfied the requirements laid down in clause 34 of the Sale and Purchase Agreement.

56.In coming to this conclusion he had borne in mind the principle laid down by Jerome Chan J in Ultra Eternal Ltd v Lin Tai Cheong [1997] 4 HKC 258.

57.Mr Kwong referred to his extensive conveyancing experience and said that to his knowledge where there were letters such as the letter of 17 April 1997 it was invariably the practice of solicitors to accept that the effect of the letter was to withdraw the Building Order to which it related and that a good title was then obtained.

58.While he was unable to testify as to what had transpired between D2 and Dr Chan on this subject he was at the time entirely satisfied that there was no real risk of the title to the property being impugned.

59.He accepted that so far as the undertaking given by the vendors’ solicitors to register the withdrawal of the Order his firm had been rather remiss.   He did not however accept that his firm had been negligent.

60.This was because the system of registration of title deeds in Hong Kong was not a system of registration of title.  If the title to the property was a good title this could be considered in its own light.  The registration of a Deed or letter was not a matter which went to the root of the title.  In the present case any failure to register the letter could comparatively easily be rectified.

61.Mr Kwong was an excellent witness.  I accepted his evidence as being truthful and reliable.  Ms Kitty Wong was the other witness to give oral testimony for D1.  She is a conveyancing clerk with the firm.  She has 10 years experience in this field.

62.She had some recollection of the matter.  She had performed some of the clerical duties in relation to the transaction in question.  She was able to remember that Mr Sze had been the Partner supervising the matter.

63.She also was able to remember a number of details concerning the transaction.  In October 2002, she was asked by Mr Kwok to prepare a witness statement on the matter.  In her statement she had referred to her recollection that a meeting had taken place in about May 1997 when Mr Sze had gone to Mr Kwok’s office for a discussion and that this meeting had also been attended by D2.

64.She said that she had remembered completion taking place and that it had been one of her duties to check that the undertakings given by the vendors’ solicitor on completion were complied with.  She remembered that the undertaking to supply the original of the letter of 17 April 1997 and its registration had not been complied with.

65.She telephoned the persons dealing with the matter in Wong & Lee on numerous occasions but the matter had remained outstanding.  Accordingly she reported this failure to Mr Sze.  He took the matter up and asked her to keep ‘chasing’ the solicitors if there continued to be non-compliance.

66.It is perhaps relevant to add that the file and deeds had been passed to another Department in the firm which attended to the registration of documentation.

67.In May 1998, she received a telephone call from D2 informing her that the Plaintiff had sold the House and that it was necessary to discharge the mortgage outstanding in favour of Orix.  She wrote to Orix for the Deeds.  After the Deeds were received she passed them on Terry Yeung.  However she did notice that the Building Order had not been discharged and that the original of the letter of 17 April 1997 was not amongst the Deeds.

68.The next thing she was aware of was the problem which arose at completion.  Two letters were received from Terry Yeung at the last minute and she was aware that the matter had been referred to Wong & Lee and that a certified copy of the said letter had been supplied to Terry Yeung.

69.Ms Wong was cross-examined at some length by Mr Pirie.  It was definitely my impression that although she was only employed as a clerk her knowledge of conveyancing was quite considerable and that she had a surprisingly good recollection of what had transpired.  I was satisfied that she was an honest and reliable witness and I accepted her testimony.

70.D2 gave evidence.  He described in detail the nature of the duties be undertook when he was employed by D1.  He was adamant that he worked under the supervision of a Partner in the firm.  In the instant case that was Mr Sze.  It was a particular policy of the firm that where an Assistant Solicitor had introduced the work in question he or she would not undertake work of substance such as approving title or drafting important documents.  He had introduced the Plaintiff to the firm.

71.His main function would be to liaise with the client and to generally be “au fait” with the progress of the work and be available to witness the client’s signature when documents needed to be executed.

72.In the present case, the Estate Agents Centaline introduced him to Dr Chan.  Dr Chan was aware of the fact that there were illegal structures on the land.  He had already signed a Provisional Sale and Purchase Agreement.  The provision earlier referred to this judgment formed part of the Agreement.  To this extent the Plaintiff was already committed to an extent to proceed with the purchase.  Dr Chan had not sought advice from an Architect or Surveyor before proceeding and this appeared to be understandable having regard to the fact that the illegal structures referred to in the Building Order were of a relatively simple nature which did not appear to require any particular expertise to remove the structures and render the building back to its original authorised condition.

73.Be that as it may D2 did manage to get the terms of the contract refined and this was reflected in the form of clause 34 in the Sale and Purchase Agreement.

74.D2 was able to recollect that the letter of 17 April 1997 was received from the Building Authority and a copy of this was passed to D1.  He remembered that after its receipt by the firm there was a meeting of Mr Kwong and Mr Sze and himself when the terms of the letter were considered.  At the discussion and bearing in mind the current state of the law and in particular the judgment of Jerome Chan J in Ultra External it had unanimously been agreed that the terms contained in the said letter did have the effect of withdrawing the Building Order.  This being the case it was agreed that Dr Chan should be advised that the purchase should be proceeded with.

75.D2 was satisfied that he had discussed the matter within Dr Chan and had advised him that the title to the House was in order and that clause 34 had been complied with.

76.He himself had not drafted the relevant conveyancing documents nor had he investigated the title to the property.  This had been done by Mr Sze with the assistance of clerical staff working to him.

77.He had been aware also of the fact that Dr Chan had applied to Orix for funds to enable the Plaintiff to complete the purchase and that their interests would be protected by a mortgage secured on the property.  D1 was also instructed to represent Orix’s interests.

78.Shortly before completion had been due to take place he had had a meeting with Dr Chan and his wife when he had fully informed them of the outstanding situation and the relevant documentation was executed in his presence.

79.At this meeting Dr Chan had informed him of his intention to sell the House and had asked him if he would agree to represent him on the sale.  He had agreed to this.

80.The completion of the purchase went ahead without any problems being encountered.  The question of the outstanding registration of the 17 April letter was dealt with by D1 obtaining from Wong & Lee an undertaking that the registration and the registration of the original letter would be finalised within 3 months of the completion.

81.It was at this time that D2 left the employment of D1.  To be exact he left D1 on 8 July 1997 and joined Terry Yeung on 15 July.  However there was some overlap concerning outstanding matters.  D2 had informed Dr Chan of this change in employment and he had agreed to engage in services of Terry Yeung.

82.Dr Chan signed the Provisional Sale and Purchase Agreement earlier referred to on 17 June 1997 and the formal Sale and Purchase Agreement on 24 June.  It is perhaps significant to add that at the time of the completion neither D2 nor D1 was aware of the very unusual provision which had been incorporated into the agreement that the completion date was set to take place in a year’s time.

83.The preparation of the formal Sale and Purchase Agreement had not been undertaken by D2 and he was not present when the formal Sale and Purchase Agreement had been executed.

84.D2 gave evidence that at the time he had been unaware of the action (if any) which had been taken for the implementation of the said undertaking.  He was however aware of the existence of the 17 April letter and was of the opinion that the effect of this letter had been to remove the incumbrance on the title to the House occasioned by the Building Order.

85.Terry Yeung received the title deeds of the House on 25 May 1998.  D2 realised that the registration of the discharge of the order had not been completed and he instructed his Assistant Mr Choi to attend to this.  He was aware of the requisitions raised in Ho & Chan’s letter of 3 June.  He considered that they had been satisfactorily answered.

86.What however occasioned him particular concern was the letter which was received by Terry Yeung on 12 June.  Enclosed with this letter was the copy of the report which had been made on the instructions of the Purchasers in which it was alleged that there were numerous illegal structures on the premises.  It was clear from the circumstances surrounding the presentation of this letter 4 days before completion was due to take place that the Purchasers were doing everything possible to resile from the Sale and Purchase Agreement.

87.Dr Chan was informed of the position and took part in reaching a decision that Counsel should be briefed to draft a reply to this letter which required the Purchasers to complete the transaction.

88.The Purchasers had not completed the purchase on the 16 of June 1998.

89.D2 says that he fully advised Dr Chan on the implications of this and upon the various courses of action open to the Plaintiff.  He advised Dr Chan to issue a Vendor and Purchaser Summons so that the court could make a ruling on the position.  Dr Chan rejected this advice and decided to forfeit the deposit which was payable under the contract.

90.Shortly after this was done the Purchasers issued a Vendor and Purchaser Summons which lead to the judgment of Yuen J.  Following this the Plaintiff instructed other solicitors.

91.In cross-examination Mr Pirie drew D2’s attention to several relatively minor inaccuracies in relation to his testimony.  One of them related to the 6 June being the date of one of the attendances when he had a telephone conversation with Dr Chan.

92.Dr Chan had produced his passport which seemed to indicate that he had been in Japan on that day.  When this was put to D2 he accepted that he may have been mistaken in recording the date as he had.

93.However my overall impression of D2 as a witness was favourable.  I am satisfied that he was a truthful and reliable witness.  Over and above this I was satisfied that his evidence as a whole came together in a convincing and consistent manner.  I believed him when he said that he was of the same opinion as Mr Kwong and Mr Sze that the letter of 17 April 1997 did have the legal effect of withdrawing the Building Order and that good title to the House had been adduced and that he had fully advised Dr Chan of this.

94.The final witness to give evidence was Mr Terry Yeung the Senior Partner of Terry Yeung.

95.He gave evidence that D2 had been employed by his firm since July 1997.  He said that D2 worked under the supervision of a Partner in the firm.  He described the work which had been performed by his firm and his evidence did not in any material way differ from D2’s evidence.

96.Perhaps the most significant aspect concerning his testimony was that before Mr Pirie put any questions to him in his cross-examination he assured him that his client was not alleging any negligence against him.  I certainly understood him to be saying that negligence was not being alleged against his firm.

97.I accept the validity of the submission made by Mr Merry that Bingham LJ’s formulation in County Personnel Ltd v Alan R Pulver & Co. [1987] 1 WLR 916 of what constitutes professional negligence is the correct test for this.  The test is what a reasonably competent solicitor would do having regard to the standards normally adopted in the profession.  This was adopted from the judgment of Oliver J in Midland Bank v Hett Stubbs & Kemp [1979] 1 Ch 384.  In addition to this I am satisfied that where a solicitor has given professional advice this has to be considered on the basis of the law as it existed at the time the advice was given.

98.Needless to say the mere fact that the advice may have subsequently proved to have been mistaken is by no means conclusive evidence that the advice was necessarily in any way negligent.

99.It is with this in mind that I will consider this case and the evidence which was given before me.

100.Chronologically the first complainant made by Mr Pirie on behalf of the Plaintiff was that insufficient advice was tendered to Dr Chan in relation to the illegal structures on the property.  In this connection he placed considerable reliance upon Law Society Circular 6/89.  This was issued by the Law Society for the assistance of Solicitors who represent clients where there is a possibility that difficulties may arise consequent upon the existence of unauthorised structures on land being purchased.

101.For the sake of convenience the circular reads:

“THE LAW SOCIETY OF HONG KONG

Circular No. 6/89

9^th January, 1989

UNAUTHORISED STRUCTURES

The Council’s attention has been drawn a recent judgment in Giant River Ltd c. Asia Marketing Ltd. (H.C.P. No. 2510/87) where it was held that the existence of unauthorised structures erected on a property rendered the title defective because the property was liable to be re-entered by the Crown for breach of conditions contained in the relevant Crown lease.  Consequent upon that judgment, the council wishes to draw members’ attention to the following points whenever there is reason to suspect that unauthorised structures exist :-

(1)     A purchaser should be advised to employ an authorised person to check the approved plans against the property, the subject matter of the sale and purchase, to see if there are unauthorised structures.  He should also be advised to obtain a surveyor’s report on the property to see if any breach of the provisions of the Crown lease or the Buildings Ordinance has occurred.

(2)     Where unauthorised structures are found to exist on a property, the purchaser should be strongly advised of the risks involved, e.g., the risks of the Crown exercising its right of re-entry, taking enforcement action or requiring payment of a penalty or premium to ‘regularize’ the unauthorised structures.

(3)     Where the purchaser insists on proceeding with the transaction despite the existence of unauthorised structures or the absence of a surveyor’s report, it would be advisable for his solicitor to obtain from him an acknowledgment in writing to the effect that the purchaser has been advised of the several matters referred to in (1) and (2) above and that notwithstanding such advice, the purchaser has decided to proceed with the transaction.

(4)     The purchaser should be strongly advised to seek independent legal advice and be separately represented if this is not already the case.

JOHN CROXEN
Secretary General”

102.The complaint made by Mr Pirie is that “the Defendants permitted the vendors’ solicitors to complete the transaction not by way of showing a discharge of the Order registered at the Land Registry but by obtaining an undertaking to obtain a “letter of compliance” which was to be registered in the Land Registry by memorial no. 948744”.  I am quoting here from the written opening Mr Pirie provided at the commencement of the trial.

103.A number of points need to be made concerning this.

104.The first concerns the nature of the circular.  It would appear to be designed to provide for a rather different situation to the present case.  It is intended to give guidance where it is suspected that there may be unauthorised structures on the land.  This was not the case here.  It was known that there were unauthorised structures as the Vendor’s Agent had specifically drawn Dr Chan’s attention to the Order which had been issued by the Building Authority.  It had been proposed that the structures would be removed prior to completion.

105.It seems to me that what the circular was mainly directed towards was the desirability of obtaining professional advice from an Architect or Surveyor so as to ensure that any requirements which the Building Authority had imposed may be complied with prior to contracts being exchanged.

106.If matters were not resolved in the manner recommended in the circular the solicitor should take adequate steps to ensure that his client would have no redress against him or her in the future.

107.In the present case Dr Chan had already committed the Plaintiff to purchasing the Land by virtue of entering into the provisional sale and purchase agreement and all that the Defendants were able to do was to take such steps as were possible to ensure that good title to the House could be obtained in the course.

108.In this connection it is evident from a perusal of the Building Order that the illegal structures were of a relatively simple nature and it may well have been wasteful and unnecessary to incur the expense of engaging the services of a Surveyor.

109.There was also the fact that Dr Chan did have a sufficient opportunity of himself physically inspecting the House and he would have been able to make his own assessment as to whether there had been due compliance with the Building Authorities requirements.

110.There was also the complaint that the Defendants failed to fully advise Dr Chan of the position or to keep him informed of developments as they occurred.

111.I am satisfied that this complaint is without foundation.  I accepted the evidence of D2 that he did advise Dr Chan of the position and kept him sufficiently informed as the matter proceeded.

112.In this connection I believe that rather than going through the text of the letter of 17 April he advised of the purport of the letter and of his understanding of its implications.  By this I mean that he told him that in his opinion the requirements laid down in clause 34 of the sale and purchase agreement had been complied with and that he was required to complete the purchase of the House.

113.I do not think that it can validly be contended that the Defendants had failed to comply with the advice proffered in the circular.

114.The next matter which was raised by Mr Pirie in my view went to the heart of this litigation.  This is the question as to whether the Defendants were professionally negligent in advising Dr Chan that the letter of 17 April 1997 and the attempts to register it amounted to a sufficient discharge of the Building Order.  I have already given a brief outline of the history of the case relating to this.

115.It was Mr Pirie’s contention that it was not open to the Defendants to revisit the issues which had been before Yuen J on the Vendor and Purchaser Summons.  His argument was based on the principles of issue estoppel.

116.These principles were considered in some depth in case, Zeiss-Stiftung v Rayner & Keeler Ltd 1966 2 ATR 536.

117.Stated in simple terms it is not open to parties to relitigate issues which either have or should have been the subject of litigation previously.  Lord Reid had this to say at p. 549

“There is a vast amount of authority on estoppel per rem judicatam.

“The object of the rule of res judicata is always put upon two grounds – the one public policy, that it is in the interest of the state that there should be an end to litigation, and the other, the hardship on the individual, that he should be vexed twice for the same cause.”

(per LORD BLACKBURN in Lockyer v. Ferryman (16)).  The general principle is clear that the earlier judgment relied on must have been a final judgment, and that there must be identity of parties and of subject-matter in the former and in the present litigation; but each of these three requirements can give rise – and in the present case does give rise – to difficult questions.

Let me take first identity of parties.  In this preliminary or interlocutory matter the issue is whether the nominal plaintiff is before the court at all.  If it is decided in favour of the defendant, that establishes that the nominal plaintiff never was before the court.  So I do not see how the nominal plaintiff, here the Stiftung, can be a party to that issue; and it is admitted that the Stiftung was not a party to the German proceedings.  The respondents are of course parties for they raise the issue; but who is their opponent?  We are not told the precise implications of the requirement of German procedure as to “representation”, but I am content to assume that the Council of Gera was a party to the German proceedings: that council was ordered to pay the costs; but who is the appellant in this House?  Again, I think, not the Stiftung.  The issue is whether the solicitors are maintaining the action without authority and surely they must be parties – how else could they be made personally liable to the respondents in costs?  I can see no other party – no other appellant.  It was argued that the Council of Gera can be regarded as a party, but I can see no ground for that.  There may be a question when I come to deal with privity; but the Council of Gera has never sought to be a party and no one has sought to make them a party.

Again there is no doubt that the requirement of identity of parties is satisfied if there is privity between a party to the former litigation and a party to the present litigation.  The only way in which that could be satisfied in the case would be if there were privity between the Council of Gera and the solicitors.  We have a letter from the Council of Gera in its capacity of special board of the Stiftung authorising the raising of this action, but we do not know whether that council has taken any further part, whether it has given any further instructions, or whether it is using the funds of the Stiftung to finance this litigation.  The most that can be said is that the council is the “client” instructing the solicitors, though I doubt whether that is proved; the real question may be whether there is a “client” at all.  Does this make it a privy?  It has always been said that there must be privity of blood, title or interest: here it would have to be privity of interest.  That can arise in many ways, but it seems to me to be essential that the person now to be estopped from defending himself must have had some kind of interest in the previous litigation or its subject-matter.  I have found no English case to the contrary.  If that is right, then there can be no privity here, because these solicitors had no connexion with and certainly no interest in the German litigation.

118.What is clear from this passage is that it is essential that the parties be the same as the parties in the previous litigation.  The Dependants were not parties to the Vendor and Purchaser Summons.

119.Mr Pirie endeavoured to surmount this difficulty by suggesting that the involvement of the Defendants in the litigation was sufficient to justify a ruling being made that the Dependants be estopped from arguing the issues which lay before Yuen J.  In support of this submission he placed reliance upon a passage from the judgment of Drake J in NW Water Ltd v Binnie & Partners 1990 3 All ER 547 at p. 561.

“In the circumstances North P found it unnecessary to decide Craddocks’ submission that the fact that they were compelled to entrust the conduct of the earlier action to insurers meant that the parties were not identical, but he doubted whether this submission was valid, as also did Turner J.  That does not arise in the present case.

In this dissenting judgment McCarthy J preferred the broader approach and considered that the issues raised in the two actions under consideration were for all practical purposes the same.

In my judgment, this broader approach to a plea of issue estoppel is to be preferred.  I find it unreal to hold that the issues raised in two actions arising from identical facts are different solely because the parties are different or because the duty of care owed to different persons is in law different.  However, I at once stress my use of the word ‘solely’.  I think that great caution must be exercised before shutting out a party from putting forward his case on the grounds of issue estoppel or abuse of process.  Before doing so the court should be quite satisfied that there is no real or practical difference between the issues to be litigated in the new action and that already decided, and the evidence which may properly be called on those issues in the new action.”

120.The short answer to this as was pointed out by both Mr Merry and Mr Coleman was that both the relevant parties referred to had been parties to the previous litigation when they had been found guilty of negligence and what was involved was the apportionment of blame between the two of them.

121.All of this would seem to make obvious good sense.  The important question was whether the parties had indeed had an opportunity of ventilating their case on the issues in question.

122.This is of paramount importance in the present case.  It is apparent from an analysis of Yuen J’s judgment that the matter she was concerned with was whether the letter of 17April 1997 in fact amounted to compliance with the Building Order which had been issued.

123.On the basis of the material which was before her it was not in the least surprising that she reached the conclusion she did.

124.The problem however was that this was not in reality the issue which should have been before her.

125.It is manifest from the letter of 17 April 1997 that it was not a letter of compliance but a letter of withdrawal.

126.It would appear that the reason why the letter had been so described is that after the issuance of the letter by the Building Authority the clerk or other member of the staff of the vendors’ solicitors Wong & Lee, when completing the registration particulars on the memorial mistakenly referred to its being a letter of compliance.

127.Unfortunately no one appears to have picked this up and the letter was described as a letter of compliance in the Registry and in subsequent correspondence when the letter was referred to.

128.It has to be said immediately that the more label attached to the letter is not what is important.  What is important is the substance of the letter.

129.All of this is very relevant to the issues which lay before Yuen J.  While accepting that a letter of compliance is more desirable than a letter of withdrawal there is authority for the proposition that good title does not mean perfect title.  This can be found in the judgment of Litton PJ at p. 8 of Mexon Holdings Ltd v Silver Bay International Ltd 2000 2 HKC 1.

“First principles

A good title does not mean a perfect title, free from every possible blemish.  Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.  If the purchaser, in truth, had a real concern over the way the 33rd floor had been partitioned in 1992, it could have written a letter to the Building Authority expressing its concern, upon the assumption that the Building Authority would act in a fair and reasonable manner.  The purchaser's solicitors' letter of 6 November said they noticed that the architect's certificate did not specify that the partitioning did not "contravene the Fire Regulations".  They did not say when they first noticed this fact.  The director who later on made an affirmation in support of the purchaser's case did not in turn say when this matter had first come to his notice.  Assuming it was shortly before the letter of 6 November was written, (not necessarily a sound assumption), there was still ample time for the matter to be clarified with the Building Authority.  Instead, the purchaser chose to put forward a case based upon surmise and conjecture as to what the Building Authority might do because of the alleged "contravention of Regulation 41(1)".  These are hardly the circumstances under which equity would go to the aid of an allegedly aggrieved party.”

130.It seems very likely that had the Defendants been afforded an opportunity of making submissions along these lines before Yuen J, she may have taken a different view of the matter.

131.This is particularly the case if consideration is given to the way in which Jerome Chan J expressed himself at p. 267 of Ultra Eternal Ltd v Liu Tai Cheong 1997 1 HKC 268.

“        By the order dated 12 June 1996, registered in the Land Registry by Memorial No 5492765, the Building Authority required the demolition of the cockloft, to remove a door opening into the staircase from the cockloft and to reinstate the affected walls in accordance with the approved building plans.  By a letter dated 26 May 1993, registered by Memorial No 5753979, one Mr Woods of the Building Authority stated:

I refer to my Order No C 0337/92/K which was served on 12 June 1992 in connection with unauthorised building works which had been carried out at the above premises.  I note that modifications have been carried out to the said building words, and having taken into consideration the circumstances, I am prepared to withhold further enforcement of my order for the time being.  However, I may consider issuing a new order for the complete removal of all unauthorised building words in further should changes in circumstances so require.

The plaintiff alleged in the second requisition that the unauthorised structures were illegal and liable to enforcement actions at any time should the Building Authority see fit.  It was alleged such a risk rendered the title of the defendant bad.  In answer, the defendant said ‘Order Memorial No 54927656 is being withdrawn by Letter Memorial No 5753979 and there is no new order issued in the said property.’  It was not wholly accurate for the defendant’s solicitors to allege that the demolition order had been ‘withdrawn’.  The Building Authority only indicated a withholding from further enforcement.  The promise was qualified by a statement that new order for complete removal of all unauthorised structure will be issued should changes in circumstances required.  As the basis for withholding was that modification work had been carried out to the satisfaction of the Building Authority, and the indication that a new order would be required for further action, such withholding was as good as a withdrawal.  I am satisfied that any risk of further enforcement without a new order being issued by the Building Authority would be negligible.  In the premise, in answering that no new order had been issued, the defendant had sufficiently dealt with the second requisition.”

132.The wording of the letter in that case is virtually identical with the wording in the present case save that the final sentence in this case was omitted.  This read “Order no 10441/95/NT is hereby withdrawn.”

133.The present case appears to be even stronger than Ultra Eternal and a compelling case can be made out that the title which was being offered by the Plaintiff was a sufficient title.

134.I have no doubt that the interests of justice require that I should be entitled to take cognisance of all of this and that there is no issue estoppel in this case.

135.That then brings one to the central issue in these proceedings which is whether the Defendants were guilty of professional negligence in advising Dr Chan that the effect of 17 April letter was to remove the incumbrance on title created by the Building Order.

136.Adopting the criteria referred to earlier in this judgment I have no doubt that the Defendants were not negligent in giving this advice.

137.D2,  Mr Kwong and Mr Sze all attended a meeting either late in May or early in June 1997 when they discussed this matter and considered the judgment of Jerome Chan J.  They came to the conclusion that the letter was sufficient for the required purpose.

138.Mr Kwong gave evidence that in his extensive experience as a conveyancing solicitor he had never heard of a solicitor not accepting a letter of withdrawal as a sufficient discharge of a Building Order.  This evidence was not challenged.

139.With respect it is my impression that Jerome Chan J’s judgment is cogent and convincing and I can see no reason why a solicitor advising his client should not accept the conclusion reached by the judge.

140.This then brings me to the final complaint made by the Plaintiff.  This is that it was negligent of the Defendants to accept the undertaking from Wong & Lee on completion in the circumstances which existed and more particularly that it was negligent not to take adequate measures to ensure that it was complied with.

141.This was the undertaking to ensure that the registration of the so called letter of compliance was duly completed and to send the original letter to D1 when it was received from the Land Registry or in any event within 3 months of the date of completion.

142.All of this related to the unhappy circumstances earlier described where due to a typographical mistake the Land Registry declined to register the Letter of 17 April 1997.

143.Evidence was given by Mr Kwong, D2 and Ms Wong concerning the efforts made to ensure the implementation of the undertaking.

144.I consider with the wisdom of hindsight that the Defendants could have done more than they did to bring about a resolution of this problem.

145.Indeed both Mr Kwong and D2 had the good grace to accept that more could have been done.  Mr Kwong however explained that it was not the practice generally for solicitors to report other solicitors to the Law Society if they failed to implement the terms of undertakings which had been given by their firms.  Everything depended upon the seriousness of the default and the consequences to their client occasioned by the default.

146.In the present case both Mr Kwong and D2 gave evidence that they did not consider the vendors’ solicitors default to be a very serious default as the failure to comply with a requirement to register a document did not render the title defective.  The vital matter in the present case was the existence of the letter and the fact that good title had been given.

147.The system of land registration is a system of registration of title deeds not registration of title.  See Ng Kam-hom v Vincent Sina Tradles (HK) Ltd 1987 HKLR 1193.

148.I am of the opinion that while it can be said that the Defendants were somewhat remiss in the way in which they dealt with the failure to timeously insist upon Wong & Lee implementing their undertaking this fell far short of amounting to professional negligence.

149.There is one further matter which requires consideration.  That is the question as to whether D2 should ever have been made a party to this litigation.

150.D2 was an employee of D1 until the 8 July 1997 and then an employee of Terry Yeung from 15 July 1997 onwards.  The position concerning the liability of employees was considered in some depth by Lord Steynin Williams v Natural Life Ltd 1998 1 WLR 830.  He had this to say at p. 835.

“The practical application of the extended Hedley Byrne principle

Not surprisingly, opposing counsel approached the application of the principle of assumption of risk from different perspectives.  Counsel for the respondents (the plaintiffs) concentrated in his argument on the pivotal role of Mr. Mistlin in the affairs of the company.  Counsel for Mr. Mistlin (the defendant) concentrated on the absence of direct dealings between the respondents and Mr. Mistlin.  The practical application of the extended Hedley Byrne principle was not agreed.  Before I turn to the facts of the present case it is therefore necessary to explore this aspect.  Two matters require consideration.  First, there is the approach to be adopted as to what may in law amount to an assumption of risk.  This point was elucidated in Henderson by Lord Goff of Chieveley.  He observed, at p. 181:

“especially in a context concerned with a liability which may arise under a contract or in a situation 'equivalent to contract,' it must be expected that an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff: …”

The touchstone of liability is not the state of mind of the defendant.  An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff.  Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene.  Subject to this qualification the primary focus must be on exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff.  Sometimes such an issue arises in a simple bilateral relationship.  In the present case a triangular position is under consideration: the prospective franchisees, the franchisor company, and the director.”

and then at p. 836

“        That brings me to reliance by the plaintiff upon the assumption of personal responsibility.  If reliance is not proved, it is not established that the assumption of personal responsibility had causative effect.  In his Hamlyn Lecture Lord Cooke of Thorndon referred to two judgments of La Forest J. in the Canadian Supreme Court on the element of reliance.  In London Drugs Ltd. v. Kuehne & Nagel International Ltd. [1992] 3 S.C.R. 299, 387, La Forest J. emphasised in the context of an issue of personal liability of a company's employee the distinction between "mere reliance in fact and reasonable reliance on the employee's pocket-book."  The second case is Edgeworth Construction Ltd. v. M. D. Lea & Associates Ltd. [1993] 3 S.C.R. 206.  The plaintiff company had made a successful bid for a road building contract with a province.  The plaintiffs allegedly lost money as a result of errors in the specifications and drawings prepared for the province by an engineering company.  The Supreme Court held that the plaintiffs had a prima facie cause of action against the engineering company for negligent misrepresentation.  I do not pause to consider that part of the decision.  But the Supreme Court unanimously held that by affixing their seals to the drawing the individual engineers did not assume personal responsibility to the plaintiffs.  La Forest J. said, at p. 212:

“The situation of the individual engineers is quite different.  While they may, in one sense, have expected that persons in the position of the appellant would rely on their work, they would expect that the appellant would place reliance on their firm's pocketbook and not theirs for indemnification; see London Drugs, at pp. 386-387.  Looked at the other way, the appellant could not reasonably rely for indemnification on the individual engineers.  It would have to show that it was relying on the particular expertise of an individual engineer without regard to the corporate character of the engineering firm.  It would seem quite unrealistic, as my colleague observes, to hold that the mere presence of an individual engineer's seal was sufficient indication of personal reliance (or for that matter voluntary assumption of risk).”

This reasoning is instructive.  The test is not simply reliance in fact.  The test is whether the plaintiff could reasonably rely on an assumption of personal responsibility by the individual who performed the services on behalf of the company.  To that extent I regard what La Forest J. said in Edgeworth as consistent with English law.

The joint tortfeasor point

Counsel for the respondents tried to support the judgment of the Court of Appeal [1997] 1 B.C.L.C. 131 on the alternative ground that Mr. Mistlin had played a prominent part in the production of the negligent projections and had directed that the projections be supplied to the respondents.  Accordingly, he submitted, Mr. Mistlin was a joint tortfeasor with the company, the latter being liable to the respondents on the extended Hedley Byrne principle.

I am satisfied that this case was never pleaded as an independent cause of action.  Like Hirst L.J. in the Court of Appeal [1997] 1 B.C.L.C. 131 (with whom Waite L.J. agreed) I am satisfied reading Langley J.'s judgment [1996] 1 B.C.L.C. 288 as a whole (and see in particular at p. 303c) that he never intended to find that Mr. Mistlin was liable to the respondents as a joint tortfeasor.  The possibility of such a cause of action was raised in the Court of Appeal but expressly abandoned.  And it was not included in the Agreed Statement of Facts and Issues before the Appellate Committee.  In these circumstances the point is not open to the respondents.  In any event, the argument is unsustainable.  A moment's reflection will show that, if the argument were to be accepted in the present case, it would expose directors, officers and employees of companies carrying on business as providers of services to a plethora of new tort claims.  The fallacy in the argument is clear.  In the present case liability of the company is dependent on a special relationship with the respondents giving raise to an assumption of responsibility.  Mr. Mistlin was a stranger to that particular relationship.  He cannot therefore be liable as a joint tortfeasor with the company.  If he is to be held liable to the respondents, it could only be on the basis of a special relationship between himself and the respondents.  There was none.  I would therefore reject this alternative argument.”

151.I am satisfied that this is an accurate statement of the law and that for the purpose of the present case demonstrates:

1.               D2 must have established a special relationship with Dr Chan

2.               That an objective test must be adopted in determining this and

3.               Dr Chan must have relied upon this personal assumption of responsibility.

152.There is simply no evidence that D2 ever represented to Dr Chan that he was and assuming personal responsibility for the work he was undertaking.

153.The consequence of this is that in my view D2 should never have been made a party to this litigation.

154.For the reasons I have given the Plaintiff’s claims against both these Defendants must be dismissed.

155.It may be helpful for me to make some observations on the subject of damages in case this matter goes elsewhere and a different view prevails.

156.I am of the opinion that the Plaintiff has not proved that it has suffered any damage as a consequence of the alleged negligence of the Defendants or either of them.

157.There was abundant evidence that even if everything had been in perfect order the Purchasers would not have completed the purchase of the House on the 16 June 1998.

158.I am satisfied that the Purchasers were speculators and I accept Dr Chan’s evidence to the effect that their financial position was dubious to say the least.  They had apparently speculated unsuccessfully with other property with dire consequences.

159.It would seem to be inconceivable that they would have been able to raise the necessary finance to enable them to complete the purchase.  According to the agreed valuation the value of the House in June 1998 was only £12.26 million.  No Bank or Finance House would in such circumstances agree to advance the necessary money to enable the Purchasers to complete the purchase.

160.There then comes the question of the contract for sale and purchase dated the 24 June 1998.

161.It has to be said that Dr Chan took a grave risk when he agreed to completion taking place a year later.  The Hong Kong real estate market is notoriously volatile and prices of property had been increasing significantly over the proceeding months.  To get some idea of the extent of this the apparent value of the House had increased from March until June 1997 by something approaching £3 million.

162.In effect the Plaintiff was providing a window of opportunity to the Purchasers for a year to effect a resale of the House.  There was no assurance that the Purchases were substantial parties and all the security that the Plaintiff had was the Purchasers deposit.

163.In the not unforeseeable event of a sharp decline in the property market there was every prospect of disaster.

164.It may be the case that Dr Chan was lulled into a sense of false euphoria by virtue of the so called licence fees he would receive together with the provision that if the penalty clause in Orix’s mortgage was invoked the Purchasers would defray the cost for this.

165.Be that as it may the arrangements made by Dr Chan were a prescription for disaster.

166.At the time when the advice complained of was given and at completion the Defendant’s could not possibly have foreseen that the Plaintiff would have been so foolhardy as to enter into a sale and purchase agreement which would leave it almost entirely vulnerable for a year.  In my view all of the adverse consequences suffered by the Plaintiff can be traced to Dr Chan’s decision to enter into this arrangement.

167.It is my opinion that even if it were to be held that the Defendants had been negligent the damages which should be awarded should either be nominal or non existent.

168.As above stated I order that the Plaintiff’s claim be dismissed and judgment be entered for the 1^st and 2^nd Defendants.  I make an order nisi that the 1^st and 2^nd Defendants are to have the costs of the action.

Mr Nicholas Pirie, instructed by Messrs Knight & Ho, for the Plaintiff

Mr Malcolm Merry, instructed by Messrs Barlow Lyde & Gilbert, for the 1^st Defendant

Mr Russell Coleman, instructed by Messrs Deacons, for the 2^nd Defendant