Ronia Ltd v. William Clarke
Read the full judgment text of HCA 3972/2000 on BabelCite. This High Court CFI judgment was delivered on 4 March 2005.
1. The plaintiff commenced this action in April 2000 claiming the following sums in the statement of claim:-
Cites 1 case
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HCA 3972/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 3972 OF 2000 ____________ BETWEEN
____________ Before: Hon Chung J in Court Dates of Hearing: 30 to 31 October and 3 to 4 November 2003 Date of Handing Down Judgment: 4 March 2005 _______________ J U D G M E N T _______________ Introduction 1.The plaintiff commenced this action in April 2000 claiming the following sums in the statement of claim:-
(The grand total for the above is HK$26,308,337.88 (mistakenly pleaded to be HK$26,558,337.88)). The plaintiff also asserts in the statement of claim its right to seek damages for its investment loss in the mainland as well as for its loss of customers there. 2.Apart from the pleaded relief, the defendant’s final submissions also helpfully refers to the following claims put forth in a letter dated 17 April 2000 from the plaintiff to the defendant:-
These items, together with those set out in para. 1(a) to 1(i) above, make up a total claim of HK$36,459,159.30. 3.In gist, the plaintiff’s pleaded case is that the defendant is liable for the above by reason that he wrongfully permitted his staff, Tsang, to cause loss to the plaintiff by failing to adequately supervise Tsang. 4.It is undisputed at the relevant time the defendant was a solicitor practising in Hong Kong under the name and style “Clarke & Liu” (“the defendant’s firm”). It is also undisputed Tsang was at the relevant time the chief clerk in the defendant’s firm. The Plaintiff’s Pleaded Case 5.Perhaps because the plaintiff has been acting in person (through Ng, its director), the plaintiff’s pleaded case is not precisely or indeed clearly set out. The defendant has again helpfully identified the 3 causes of action apparently relied upon by the plaintiff:-
6.According to the rules of pleading, causes of action must be pleaded in the statement of claim. And a plaintiff can only adduce evidence in support of a case properly pleaded. In this action, however, the defendant fairly accepts the plaintiff can also rely on the 2 additional causes of action set out in the reply (see sub-para. (2) and (3) above). The Defence 7.The defendant denies in his defence:-
8.Further, in the defendant’s final submissions, the defendant summarises his position regarding the above claims as follows:-
Background 9.The matters set out under this heading, while not directly related to the issue of liability, may be relevant to the issue of quantum of damages. Although they are set out under this heading, it should be noted some of the facts are not admitted by the defendant and need to be proved by the plaintiff. 10.The plaintiff has been a Hong Kong company with mainland investment. Its director, Ng, came to Hong Kong and has been living here since 1993. Ng came to know Law in early 1995 and they discussed about supplying beer-brewing equipment to manufacturers in the mainland. This resulted, at least at one stage in May 1995, in some kind of joint venture between the plaintiff and Law. Law introduced the plaintiff to a German supplier which was a German company called “JAUST KEL-Anlagen GmbH” (“the German supplier” or “Jaust”). 11.There was delay on the German supplier’s part to ship the equipment despite part payment having been made. Parts of the equipment were however delivered to Wuhan in early 1996. But the delivered equipment was defective and the plaintiff informed Law and the German supplier of this and sought compensation. 12.Further, the plaintiff alleges that the German supplier used forged documents and misrepresentations to induce it to enter into a sale and purchase agreement. 13.Discussions intended for settling the matter did not bear fruit. In December 1996, Ng asked Tsang to help resolve the matter through legal action. This led to the matters set out under the next heading below. The Plaintiff’s Case on Liability 14.Since July 1996, Ng started to enquire about the costs for commencing civil claims against Law and/or the German supplier. By December 1996, he found the defendant’s firm and brought the necessary materials to the defendant’s firm where he met Tsang and a trainee solicitor, one Ms. Chan. Tsang held himself out as a lawyer. On 22 December 1996, Ng paid HK$20,000 to Tsang as legal fee. From around that date to March 1999 (a period of more than 2 years), Tsang was paid an additional HK$640,000 by way of legal fees (on 10 different occasions). 15.Tsang forged court documents on the following occasions:-
16.The plaintiff contends that:-
Undisputed Facts 17.The following undisputed facts took place during the relevant period. 18.As stated above, Tsang was the chief clerk of the defendant’s firm. He was asked by the defendant to resign on 15 January 1999 due to poor performance. 19.The defendant’s firm accepted instructions to act for the plaintiff in June 1997. It opened a file in connection with the plaintiff’s claim on 14 June 1997. Tsang brought Ng to a conference with counsel on 6 June 1997 (a few days before the said file was opened). Counsel issued a fee note on 20 June 1997 for HK$12,000 for his work. 20.The plaintiff paid Tsang HK$20,000 cash; a receipt of the defendant’s firm was issued to the plaintiff on 18 June 1998. The defendant’s firm issued a cheque of HK$12,000 to settle counsel’s fee on 22 July 1998. 21.HCA 17330/1998 was commenced by the defendant’s firm for the plaintiff against Law and the German supplier on 14 October 1998. Credibility 22.The following witnesses testified at trial:-
Ng testified for the plaintiff while the others were defence witnesses. 23.I do not doubt Ng is a truthful witness. However, he appears to be prompt to jump to conclusions on slim (or even no) evidence in relation to many matters. For this reason, I have reservations regarding his reliability. This has been taken into account when I decide whether to accept Ng’s testimony as regards both liability and quantum. 24.On the other hand, the defendant testified in a calm and composed manner. His testimony is clear and organised. This, however, does not necessarily mean his testimony is truthful or reliable. 25.The most important matter over which the testimony of Ng and the defendant differs is whether the defendant adequately supervised Tsang. 26.Save as to the matter set out in the next paragraph, the testimony of Wong, Lee, Ms. Wong and Chan is generally of little importance. They all played little or no part in the dealings between Ng and Tsang/the defendant during the period from December 1996 to March 1999. Chan recalls having met Ng in mid-1997. Wong, Lee and Ms. Wong all said they met Ng in the defendant’s firm in February 1999 (twice in the case of Lee). Wong has also seen Ng in the office a few times before then. Ng told Chan he had paid about HK$600,000 to Tsang whereas Ng told Wong a few days earlier some HK$200,000 to 300,000 had been paid to Tsang. 27.The testimony of the above witnesses from the defendant’s firm is relevant to my consideration of the veracity and/or reliability of Ng’s testimony. There are variances between him and those witnesses regarding several matters. The first important matter is how often Ng has been to the office of the defendant’s firm. The second important matter is whether the plaintiff has paid any sum(s) to Tsang and, if so, how much has been paid to him. 28.Having considered all the materials before me, I make the following findings as regards the witnesses’ credibility and reliability. 29.I find Ng to be truthful and reliable in relation to his claim that it was reasonable to think that Tsang was a solicitor in the defendant’s firm. I accept Ng’s claim that Tsang was held out to be a solicitor by the other staff. Tsang was admitted by the defence to have a room to himself in the office. I also find Ng to be truthful and reliable in relation to:-
In relation to sub-para. (b) above, I prefer the testimony of Ng to that of Wong. Ng has given a statement to the police in March 1999. He already claimed the plaintiff had paid Tsang a total sum of around HK$600,000 then. But I do not accept his assertion that the defendant knew of Tsang’s fraud at the time. 30.The defendant has filed 2 witness statements. In the supplemental witness statement, he asserts in effect that he has properly supervised Tsang’s work in relation to the plaintiff’s claim. This, however, was not the impression given by a fair reading of his first witness statement. There is a glaring absence of anything about supervising Tsang’s work in that document. In any event, having considered the overall circumstance, I reject the defendant’s testimony in relation to any assertion that he has properly supervised Tsang at the relevant time. However, I accept that the defendant knew of Tsang’s misdeeds only after the event. Relevant Legal Principles regarding Liability 31.In this action, it is not part of the defence that Tsang’s deeds were lawful (or otherwise justifiable). This stance is indeed sensible in view that Tsang faced 9 charges in a criminal prosecution and pleaded guilty to 6 of them. Two of the charges concerned his having received from Ng 2 respective sums of HK$20,000 and 30,000. He denied, however, 3 charges of having deceived Ng 3 respective sums of HK$160,000, 240,000 and 110,000 (a total of HK$510,000). 32.The essence of the defence in relation to liability is this. The wrongful deeds of Tsang were his own “frolic”. Unless:-
the defendant should not be held liable: p. 10, defendant’s final submissions. 33.Lines of defence very similar to (if not the same as) that invoked by the defendant herein have been discussed in 3 relatively more recent authorities in Hong Kong. None of them have been referred to by the parties herein. 34.The first (in time) of the said 3 authorities was the court of appeal decision in Wong Wai Hing and another v. Hui Wei Lee [2001] 2 HKLRD 736. The plaintiff in that case sued the defendant for trespass (assault) and intimidation. The wrongful acts in issue were those of the agents (not employees) engaged by the defendant to recover a debt from the plaintiff. The trial judge found as facts that the defendant specifically instructed her agents only lawful means should be used to collect the debt and that many debt collectors operated lawfully in Hong Kong. The appeal court allowed the appeal and held the defendant liable nevertheless. 35.Some of the legal principles stated in the judgment in Wong Wai Hing are relevant to this action:-
36.The second authority was another court of appeal decision in Tullett & Tokyo International Ltd. v. APC Securities Ltd., CACV 201/2000 (21 March 2001). That decision was about a claim arising from two contracts for purchasing two lots of grey market shares. One defence raised was that the supposed defendant’s agent was in fact not an agent, but was merely acting for his own benefit. The defendant was held liable for the contracts. 37.In dealing with the defendant’s argument that the agent was acting on his own behalf and for his own benefit, the court of appeal in Tullett & Tokyo International Securities said:-
The court of appeal, after also referring to Koorangang, disagreed with the defence argument and rejected it. 38.The last authority was the court of final appeal’s decision in The Ming An Insurance Co. (HK) Ltd. v. The Ritz-Carlton Ltd. [2002] HKCFA 42. A hotel was held liable for the negligent driving of its staff who worked as a “car jockey”. At the time of the traffic accident, however, (as the trial court found as a fact) the staff was not driving as a “car jockey” but for collecting night snacks for consumption by other hotel staff. 39.In discussing an employer’s vicarious liability for his employee’s acts, the court of final appeal said:-
The court then referred to a new test adopted by the House of Lords in Lister v. Hesley Hall Ltd. [2002] 1 AC 215 (which the court called the “close connection” test):-
40.The court then expanded on the “close connection” test:-
The ambit of the application of the “close connection” test was also discussed by the court:-
41.Finally, the court observed that the “close connection” test is inherently just and fair for all cases of tort committed by an employee while engaged in an act not authorised by his employer:-
The court also gave the following caution:-
42.There was also discussion of the application of the “close connection” test in an employment context:-
43.The above legal principles, being pronounced by the higher courts, are of course binding. Findings relating to Liability 44.The improper conduct of Tsang relied upon by the plaintiff is as follows:-
The gist of the plaintiff’s case on liability has been set out (at para. 5(a) to (c) above) above; namely, the defendant is vicariously liable; alternatively, he has failed to properly supervise Tsang, giving Tsang an opportunity to commit the above wrongful acts. 45.There was a letter dated 24 November 1999 from the Law Society to the defendant. The relevant part of this letter reads:-
46.A finding by the investigation committee of lack of supervision is of course not binding on this court. It is in fact not even evidence of negligence, this being one of the ultimate questions which this court has to determine in this action. Indeed, the defendant denied lack of supervision in his firm’s letter dated 10 December 1999 to the Law Society. 47.However, what can assist the determination of liability in this action is (among other things) the letter dated 25 October 1999 (signed personally by the defendant) to the Law Society (“the defendant’s letter”). The defendant’s letter was written in response to the plaintiff’s complaint to the Law Society and can be summarised as follows. 48.It first refers to the plaintiff’s complaint and records that Tsang pleaded guilty to 6 charges and was sentenced to 2 years’ imprisonment. The response to the plaintiff’s complaint was then set out. The following are the parts relevant to this action:-
49.The undisputed facts show that Tsang in fact accepted the plaintiff as a client before this was known to the defendant; on 6 June 1997, he attended a conference with counsel and Ng. For some unknown reason, the file in connection with the plaintiff’s claim was only opened on 14 June 1997. 50.The defendant claims in his witness statement he was made aware of the conference by Tsang and he permitted Tsang to attend the conference:-
According to the defendant, the next occasion on which he became aware of the plaintiff’s file was about half a year or more later: para. 19, defendant’s witness statement. Even then, according to him, he only:-
Thus, (implicitly at least) the defendant, through Tsang, accepted the plaintiff’s retainer. 51.The first time the defendant personally arranged Ng to be attended to (other than by Tsang) was probably in February 1999 (in any event, after Tsang has been asked to resign). It was from this, the defendant first became aware of Tsang’s dishonesty: para. 25, defendant’s witness statement. 52.In view of the above circumstances, and for the following reasons, I am satisfied that the defendant should be held liable for Tsang’s wrongful acts both under the “close connection” test and the traditional Salmond test. 53.First, Tsang has actual authority from the defendant to deal with the plaintiff. As the defendant stated in his witness statement, Tsang at least has authority to conduct “initial filtering interviews with clients”. However, Tsang in fact went further and opened a file on 14 June 1997 and continued representing the plaintiff in the legal action. When the defendant discovered that about half a year later, according to him, he “insisted … funds be obtained … to pay counsel’s fee”. 54.From these facts, and the fact that there was minimal supervision of Tsang (if any) in relation to the plaintiff’s file (until after Tsang’s resignation), I conclude that, at the time, Tsang was effectively authorised to represent the defendant in relation to the plaintiff’s litigation and all related matters, including demanding for legal fees. 55.Alternatively, even if there had not been actual authority, by virtue of the same factual circumstances, there has been a “holding out” by the defendant so that the plaintiff was entitled to consider Tsang’s deeds were acts representative of the defendant. Hence, it is just and fair the defendant be held liable for Tsang’s misdeeds. 56.Similarly, for the same reason, applying the “close connection” test, this is a case where Tsang’s wrongful acts were so closed connected to his employment that it is fair and just to hold the defendant vicariously liable. 57.In other words, I find the defendant liable on the grounds of vicarious liability and breach of contract: see para. 5(2) and 5(3) above. The nature and extent of his liability under these grounds is very probably the same. 58.In view of the above conclusion, it is unnecessary to consider the detailed heads of allegations put forth by the plaintiff (set out in para. 16 above) in support of his case in negligence. Insofar as it may be necessary to make any finding on this issue, I am satisfied that there has been negligence on the defendant’s part on the basis that his supervision over Tsang has fallen below what one can expect from a reasonably prudent solicitor. I so conclude taking into account, in particular, the lack of evidence on proper supervision by the defendant, for example, as regards the opening of client’s file and what work has been done and/or legal fees have been collected, in relation thereto, over a relatively lengthy time period (from about June 1997 to about February 1999). 59.In short, I also find against the defendant as regards his liability for negligence: see para. 5(1) above. Quantum of Loss 60.The relevant legal principles relating to quantum of damages can be summarised as follows. 61.In relation to damages recoverable for professional negligence, before considering questions of remoteness or causation, it is necessary to determine the scope of the duty which was breached: Jackson & Powell on Professional Negligence (2002) 5th Ed., para. 3-02. 62.A common feature of professional negligence litigation is that the court must determine what course events would have taken if the defendant had properly discharged his professional duty:-
In this respect, the following general principles have been set out in Jackson & Powell:-
(Jackson & Powell, para. 3-05 and 3-06 to 3-07). Heads of Claim 63.The plaintiff’s claim has been summed up in para. 1 (a) to 1(i) and 2(1) and 2(2) above. 64.The gist of its claim is as follows. The heads of loss set out in para. 1(b) to 1(d), 1(i) and 2(1) and 2(2) above are suffered because the plaintiff’s right to litigate has been delayed for 26 months (from 22 December 1996 to 2 March 1999). As a result:-
Consequently, the plaintiff is now prevented from successfully recovering its various losses from Law and/or the German supplier. 65.The heads of claim set out in para. 1(e) and 1(f) above relate to sums paid to Tsang earlier by way of legal fees should be repaid to the plaintiff because no services have been rendered by the defendant. 66.The loss summed up in para. 1(g) above (HK$220,000) is said to be expenses incurred for Ng’s 11 trips to Germany. 67.The plaintiff suffered the loss set out in para. 1(a) above because the defendant’s firm changed its name to Messrs. Clarke & Kong and another legal action has to be commenced naming the new firm as the defendant therein. 68.The above heads of claim will be discussed under separate sub-headings below. (a) The Plaintiff’s Commercial Loss 69.Included under this head are:-
70.This head of claim is in the nature of economic loss. Further, the plaintiff could have sought these sums from Law and/or the German supplier, based on the various allegations against them including breach of the sale contract and misrepresentation. 71.As stated above, the basis of this part of the plaintiff’s claim is that the defendant’s negligence (and/or Tsang’s wrongful acts) resulted in a delay in the commencement of its legal action against Law and/or the German supplier. The delay was allegedly about 26 months (up to March 1999). 72.The defendant argues that this loss was rather caused by the plaintiff’s unwise action or inaction in not pursuing its claim against Law and/or the German supplier to the end. With respect, I disagree with this argument. From the time when Law emigrated and Jaust became bankrupt, it would not be reasonable to expect the plaintiff to continue legal action against them. This is because, in all probabilities, such course would (at the most) only result in an empty judgment. 73.This loss is not based on the loss of an opportunity to bring legal proceedings as a matter of law (for instance, a failure to commence legal action within the limitation period). It is rather based on the disappearance of Law and the German supplier: Law emigrated in September 1997; the German supplier was declared bankrupt in December 1997. What the plaintiff is in effect asserting is, as a matter of practicality, it is impossible to recover the sums claimed herein from Law or the German supplier. 74.In relation to Law, the plaintiff contends that the period of delay should run from December 1996, when he first paid Tsang. Even if that contention be accepted, the period of delay was about 9 to 10 months up to Law’s emigration in September 1997. 75.No doubt it is within the defendant’s scope of duty to commence and pursue legal actions for the plaintiff in a timeous manner. However, in the factual context of this action, I cannot be satisfied that a delay of about 9 to 10 months was the effective cause of the plaintiff’s inability (as a matter of practicality) to seek damages from Law. Law would very probably still have emigrated in September 1997 even if the defendant had performed his professional duty to commence and continue the legal action. It is unlikely the litigation could be ended before then. 76.The same reasoning applies to the claim against the German supplier (although the bankruptcy of Jaust took place slightly later than Law’s emigration). In addition, I agree with the further argument that the plaintiff was (or, at least, should reasonably have been) aware that no legal action had been commenced in Hong Kong against Jaust by December 1997. It can be inferred that the plaintiff had no complaint against this at the time. In any event, the plaintiff could have taken (but did not take any) alternative courses of action; for example, engaging another solicitors firm to commence legal action either in Hong Kong or in Germany. 77.Quite some time has been spent by the defendant in cross-examination and final submissions on the strength of the plaintiff’s intended claim against Law and the German supplier. In short, the defendant contends that the plaintiff’s intended claim against them is unlikely to succeed. Because of the conclusion reached above, I do not find it necessary to deal with this aspect. 78.For the reasons set out above under this sub-heading, I am not satisfied that Tsang’s misdeeds and/or the defendant’s negligence was/were the effective cause of the plaintiff’s loss relating to the amount of loss allegedly suffered by its customers in Wuhan (HK$10,150,820.42): para. 2(2) above. The same comment applies to the plaintiff’s alleged investment loss and loss of customers in the Mainland. 79.The plaintiff’s claim set out in para. 1(b) to 1(d), the last sentence of para. 1 and 2(2) above are therefore dismissed. 80.In relation to the claim for nominal damages for the plaintiff’s loss of goodwill (para. 2(1) above), it is unclear if that loss is said to arise from Tsang’s misdeeds per se, or whether it is said to arise in the same way as that set out in para. 1(b) to 1(d) and 2(2) above. 81.Insofar as the loss set out in para. 2(1) above is said to arise in the same way as that set out in para. 1(b) to 1(d) and 2(2) above, it is dismissed for the same reasons set out under this sub-heading. 82.Insofar as that loss is said to arise from Tsang’s misdeeds per se, I agree with the defence that this is an untenable claim and it is dismissed for that reason. (b) Payments to Tsang on Account of Legal Fees 83.This head of claim includes:-
84.The defendant handed in a document headed “Position Statement of the Defendant” at the beginning of the trial (“the position statement”). He states therein that he accepts responsibility for repaying to the plaintiff payments actually made by the plaintiff to Tsang: para. 1 to 3 and 5 thereof. 85.The total sum which the plaintiff claims has been received by Tsang is HK$660,000. It is unclear from the position statement the precise extent of the defendant’s accepted responsibility. The defendant appears to accept responsibility for HK$20,000 (for which a receipt has been issued). He says in the position statement:-
But, in relation to the remaining HK$640,000, the position statement also states:-
86.It would therefore appear, out of the total claim of HK$660,000 under this heading, the defendant admits a total of HK$130,000 has been received by Tsang (and therefore his firm). I will treat the remaining HK$530,000 (660,000 – 130,000) to be a disputed claim. 87.As stated above, I accept Ng’s testimony is truthful and reliable in this respect. I am satisfied that the plaintiff has paid the sums claimed to Tsang, as the defendant’s agent. Even if the defendant had in fact only admitted liability to repay HK$20,000 (and no more), by virtue of the above finding of fact, I would still have found him liable for the whole sum claimed by the plaintiff. 88.In the defendant’s final submission, it is stated that:-
89.It is unclear if the defendant is asserting that, since the sums were properly incurred, the plaintiff is not entitled to recover them. By virtue of the position statement, I do not think he is making that assertion. In case he is, I find that the services rendered were valueless. The sums should be recoverable by the plaintiff. 90.Accordingly, judgment in the sum of HK$660,000 is entered against the defendant. (c) Ng’s Travelling Expenses 91.This head of claim is set out in para. 1(g) above (HK$220,000). This is said to be expenses for Ng’s 11 trips to Germany to pursue the plaintiff’s claim against Jaust. 92.I do not consider there is any valid basis for seeking this sum from the defendant. First, there is no causal link between the need to incur this sum and Tsang’s misdeeds and/or the defendant’s negligence. Moreover, in all probabilities, this sum will need to be incurred in any event. 93.The claim set out at para. 1(g) above is dismissed. (d) Mental Distress 94.This is the claim for HK$19,918,753.41: para. 1(i) above. I agree with the defence that the plaintiff, being a limited company, is incapable of suffering from mental distress. There is also no evidence to show that medically diagnosable mental distress has been suffered. 95.The claim set out in para. 1(i) above is consequently dismissed. (f) Legal Fee paid to Messrs. SY Chu & Co. 96.This is a claim for HK$30,000: para. 1(a) above. I agree with the defence that the wasted legal fee could not be attributed to the defendant. The defendant could decide the manner in which he should carry on his practice. There is no evidence that the change(s) in the firm name was/were intended to confuse or mislead the plaintiff. 97.It is therefore the plaintiff’s own fault in erroneously commencing HCA 1279/2000 against Messrs. Clarke & Kong. 98.This head of claim is dismissed. (g) Interest 99.It appears quite arguable interest on the judgment sum should run at least from the date of writ to the date of judgment at judgment rate. I will make an order to this effect if none of the parties applies within 14 days from the date of judgment for some other basis for calculating interest. Other Matters 100.Perhaps it is due to the plaintiff acting in person through Ng, a lot of matters which are irrelevant to the issues in this action have been raised in various documents and at trial. Although these matters have not been expressly referred to above, I have considered them. Some of these matters are contained in a Chinese document supplied by the plaintiff headed “Opening”. Further, some of the matters stated in that document have not been pleaded by the plaintiff. Objections have been raised by the defence as a result. The plaintiff very sensibly agreed at the beginning of the trial not to pursue the matters objected to by the defence. Costs Order Nisi 101.There is no apparent reason to depart from the usual rule that costs should follow the event. There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this action be paid by the defendant to the plaintiff to be taxed if not agreed.
Plaintiff acts in person and represented by Mr Ng Shi Man Mr Martin Liao, instructed by Messrs Herbert Smith, for the Defendant |
Cases cited in this judgment
Further hearings and rulings under HCA 3972/2000