Lou Siu Ping and Another v. Lam Tsz Man and Another

HCA 506/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 506 OF 2009

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J U D G M E N T

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Background

1.The plaintiffs are mother and daughter, who contracted with the 1st defendant ("Lam") for the purchase of the 2nd floor and the roof ("Property") of a "ding" house or small house known as No. 164 Shatin Tau Village erected on Lot 684 (“Lot”) of DD 184.  Two Chinese agreements in writing were signed between the first-named plaintiff ("Lou") and the second-named plaintiff ("Tam") on the one part, and Lam on the other part, respectively dated 11 February 2004 and 19 February 2004, for the purchase by Lou and Tam of the Property for the total purchase price of $800,000.

2.It is not disputed in these proceedings that Lam was an indigenous villager of the New Territories and held the Lot and the Property under New Grant No. 13164 dated 4 March 2002 ("Grant") issued by the government, the conditions of which include a restriction on the grantee disposing of the Lot or any part thereof, except after three years from the date of a certificate of compliance issued by the Government, with the Government's consent, and subject to payment of a premium in the event that the property is not assigned to a male indigenous villager.

3.The first agreement made between the plaintiffs and Lam was dated 11 February 2004 ("11 February Agreement"), and provided for $300,000 of the purchase price to be payable by the plaintiffs to Lam upon the signing of the 11 February Agreement, and the balance to be payable by 2 installments of $250,000 each, the first to be payable on “completion of the flooring of phase 1”, and the second installment to be payable upon delivery of the keys to the Property.

4.Clause 4 of the 11 February Agreement states that the Property is to be transferred to the plaintiffs after 3 years from the issue of the occupation permit for the Property, and that the plaintiffs are to be responsible for payment of the premium for the Property.  Clause 4c of the 11 February Agreement provides that if the Property cannot be formally transferred to the purchasers, the sum of $800,000 is to be repaid in full to the plaintiffs.

5.The terms of the second agreement dated 19 February 2004 ("19 February Agreement") are identical to those of the 11 February Agreement, save for amendments made to the manner of payment of the purchase price, and to clause 4.  Under the 19 February Agreement, $400,000 of the purchase price was to be payable upon signing of the agreement, instead of $300,000 as provided for in the 11 February Agreement.  The subsequent installments were hence reduced to 2 installments of $200,000 each.  Clause 4 of the 19 February Agreement was amended to provide that the premium payable by the plaintiffs in respect of the Property was limited to the amount of $500,000.  The mistake in the writing of Lou’s surname in the 11 February Agreement was corrected in the 19 February Agreement, as was the Lot description, from “648” to “684”.  It is common ground that save as aforesaid, the terms of the 19 February Agreement and the 11 February Agreement are identical.

6.The plaintiffs claim that the 19 February Agreement was signed by the plaintiffs and Lam on 19 February 2004 at the law offices of the 2^nd defendant, ("Woo"), for the purpose of effecting the sale and purchase of the Property from Lam to the plaintiffs.  This is denied by Woo, who claims that the plaintiffs and Lam attended his law firm on 17 February 2004 for Lam to sign a will and a power of attorney, whereby the plaintiffs were appointed to be Lam's joint attorneys in accordance with section 7 of the Power of Attorney Ordinance.

7.It is not disputed that the plaintiffs had paid the full purchase price of $800,000, were given the keys to the Property and had moved into the Property in July 2004 to reside there.

8.Without the knowledge of the plaintiffs, Lam mortgaged the Property to a third party in November 2004, and the Property was foreclosed under the mortgage which was registered at the Land Registry.  Lam defaulted in payment of sums due to the mortgagee, and in December 2006, the mortgagee obtained judgment against Lam in DCCJ 1479/2006 ("DCCJ 1479") for vacant possession of the Property to be delivered up.  The plaintiffs were consequently evicted from the Property.

9.These proceedings were commenced by the plaintiffs against Lam for fraud and for breach of contract.  The plaintiffs also claim that Woo, as their solicitor in the purchase of the Property from Lam, was negligent in failing (inter alia) to register the 19 February Agreement at the Land Registry, to safeguard the plaintiffs' beneficial interest in the Property, to warn them of their exposure to the risks of Lam dealing in the Property prior to completion of the sale to the plaintiffs, and to ensure that the sale and purchase of the Property would be duly completed with vesting of the proper legal title in the plaintiffs.

10.On 23 March 2009, judgment in default was obtained in these proceedings against Lam for his payment to the plaintiffs of the sum of $837,600, being refund of the purchase price of $800,000 paid by the plaintiffs, and their wasted costs and expenses of $37,600.  The plaintiffs claim that Woo should likewise pay this sum to them as damages for his negligence in the sale and purchase transaction.

Issues

11.The issues which arose from the pleadings and the evidence for determination at trial are:

(1)  What was the purpose of the plaintiffs' visit to Woo's office, on 19 February 2009 as they allege?

(2)  Did Woo prepare the 19 February Agreement?

(3)  Did Woo owe a duty of care to the plaintiffs in relation to their purchase of the Property?

(4)  Was Woo negligent in discharging his duties to the plaintiffs?

(5)  Are the damages claimed by the plaintiffs caused by Woo's negligence?

12.In deciding the factual disputes involved, my considerations include: (1) the inherent probability of the parties' assertions; (2) whether the parties' assertions are consistent with their conduct and the contemporaneous documents; and (3) the credibility and demeanor of witnesses.  When considering the testimony of the witnesses, I bear in mind that they are testifying as to events which took place in 2004.  This is nearly 8 years ago, which is not a short delay between events and trial.  The accuracy of the memory of witnesses has therefore to be approached with some caution. Comparison with contemporaneous documentation is always an aid to the reliability of oral testimony, unless there is reason to believe that the documentation is contrived or materially incomplete. 

What was the purpose of the plaintiffs' visit to Woo's office, on 19 February 2009 as they allege?

13.According to the plaintiffs, they came to know by early 2002 that Lam was constructing a three-storey "ding" or small house on the Lot, and that he was pressed for cash to pay for the construction costs.  The plaintiffs had known Lam since he was a boy, and they claim that Lam had approached Lou on a number of occasions for a loan to pay for the construction, but that Lou had refused.  Eventually, Lam offered to sell the second floor and roof of the small house on the Lot to the plaintiffs for $800,000, and agreement was reached between them in early February on the terms of the sale and purchase of the Property.

14.On the plaintiffs' case, Lam produced the 11 February Agreement at the plaintiffs' home in the evening of 11 February 2004.  Lam brought with him his friend and a co-villager Lam Kwok Ping ("Ping"). The 11 February Agreement was already typed up in Chinese, setting out the terms of the sale and purchase as had been orally agreed with the plaintiffs.  It was signed by Lam and the plaintiffs before Ping on 11 February 2004, at the plaintiffs' home.

15.The 11 February Agreement provided for $300,000 of the purchase price to be payable upon the signing of the Agreement.  According to the plaintiffs, they insisted on going to a lawyer's office to complete and formalize the transaction before making such payment.  Further, the 11 February Agreement contained errors in Lou's name and in the Lot number, and had to be revised.  No payment was made by the plaintiffs.

16.According to the plaintiffs, Lam came to their home again on 15 February and 16 February 2004.  It was agreed some time then that the plaintiffs would only be liable to pay the premium up to the sum of $500,000, but they agreed to revise the manner of payment of the purchase price such that $400,000 would be payable on the signing of the agreement for sale and purchase, instead of $300,000 as initially agreed.  Lam pressed for the payment to be made, but the plaintiffs again refused and insisted on attending to the formalities at a lawyer's office.  A receipt dated 16 February 2004 was prepared and signed by Lam for the first payment of $400,000 envisaged.  It bore a remark that the cheque for payment of the $400,000 would not be presented or cashed until a "formal agreement" was signed at a lawyer's office.  According to the plaintiffs, Lam was prepared to issue the receipt even before receiving the payment, although a cheque must have apparently been issued and produced to Lam when the receipt was prepared, as it recorded a cheque number for the sum.

17.It is clear from the evidence and I accept that the plaintiffs had insisted on not making any payment to Lam until they had attended a lawyer's office to sign the necessary papers and, in the plaintiffs' mind, to "formalize" the sale and purchase.  On the plaintiffs' case, Lam agreed to contact a solicitor and to make arrangements for the formalities to be dealt with at the solicitor's office.  According to the plaintiffs, Lou, Tam, Lam, Ping and Lou's husband (Tam's father) all went to Woo's law firm in Tai Po on 19 February 2004.  Woo and the plaintiffs do not dispute that a Mr Law ("Law") also accompanied Lam and the plaintiffs when they visited Woo's office.  According to the plaintiffs, Law was involved in the construction of the Property on the Lot to whom Lam owed money.  According to Woo, Law was in the construction business and was a client.  It was Law who had called Woo to set up the meeting with Lam and the plaintiffs.

18.Lou's evidence is that she, Tam, Lam and Ping were in Woo's conference room, when she expressly told Woo that the purpose of the visit was for her to purchase the Property for $800,000.  On the plaintiffs’ case, Woo presented a number of English and Chinese documents at the meeting, and these were signed by them, by Lam and by Ping in the conference room.  Tam's evidence is that she had put the date, 19 February, on the document after she had signed it.  The plaintiffs claim that Woo had not explained the contents of any of the documents to them, and that the only documents they were given at the end of the meeting at Woo's office were copies of Woo's bill for $17,600, and the receipt for their settlement of the bill.  They claim that the payment of $400,000 was made by them to Lam on the same day on 19 February 2004, but at a restaurant which they attended with Lam after their visit to Woo's office.

19.On Woo's case, the parties attended his office on 17 February 2004, not 19 February 2004.  A few days before that, he had been contacted by Law and was told to advise on the title of the Lot.  According to Woo, he had a meeting with Lam, the plaintiffs and Ping in his conference room. Lam showed him the title deeds to the Lot, and he advised the parties that the Lot could not be sold within 3 years of the issue of the certificate of compliance or occupation permit, and that Lam could only sell the Property after 3 years and upon payment of a premium to the government.

20.Woo claims that after he had given such advice, the parties asked for time to discuss the matter on their own.  When Woo returned to the conference room after 20 minutes, Woo's case is that he was instructed by Lam, Lou and Tam to prepare a will, a power of attorney and a guarantee for Lam.  Under the will, Lam bequeathed the Property to Lou and Tam ("Will"). Under the power of attorney, Lam appointed Lou and Tam to be his general attorney pursuant to s 7 of the Power of Attorney Ordinance ("Power of Attorney").  Woo claims in his testimony in court that under the guarantee, Lam was to guarantee that he would not remove the title deeds without the plaintiffs' prior consent ("Guarantee").  Woo accordingly prepared these documents, and the Will and the Power of Attorney were signed by Lam in Woo's presence.  Lam changed his mind and did not sign the Guarantee.

21.It is not disputed that Lam's title deeds were left with Woo at the end of the meeting.  The plaintiffs claim that Woo had told them that the deeds would be left with him in order to protect the plaintiffs' interests.  According to Woo, Lam and the plaintiffs left the deeds with him "pending further instructions".

22.On Woo's case, he was not informed that Lou and Tam had agreed to purchase the Property from Lam, and had never been shown or given either the 11 February Agreement or the 19 February Agreement.  The only document which Lou and Tam had signed at his office was an acknowledgment in Chinese ("Acknowledgment"), firstly to acknowledge the advice he had given about the Lot (as summarized in paragraph 19 above), and further to acknowledge their instructions to Woo to prepare a Will, Power of Attorney and Guarantee for Lam.

23.Lou and Tam are unsophisticated women who had no experience in conveyancing or legal matters and documentation.  Their attendance at Woo's office was their first visit to a law firm.  Despite having signed the 11 February Agreement which provides for payment of $300,000 on signing, and despite Lam's visits to their home on 15 February and 16 February 2004 when he had asked for an initial payment, Lou and Tam had consistently refused to make any payment until the parties had attended a lawyer's office to formalize the purchase.  The documentary evidence supports this.  It was clearly their intention to sign documents at the lawyer's office to complete the sale and purchase of the Property.

24.Leaving aside for the present moment the question of whether the visit to Woo's office was made on 17 February 2004 or 19 February 2004, I find it hard to believe that Lou and Tam would be in a position to give specific instructions to Woo at the meeting, as he claims, to prepare a will, a power of attorney and a guarantee for Lam.  These had no immediate or direct relation to their purchase of the Property.  It is also not credible that they would be sophisticated or experienced enough to be able to instruct Woo to retain Lam's title deeds, pending their further, unspecified, instructions on the matter.

25.On the other hand, for an experienced lawyer like Woo (who had practised for over 11 years at least), I would expect him to know the material difference between his best recollection of events which had actually taken place, and his deduction of what may logically have taken place from his review of the records and the documents he had seen, and to state such distinction when it exists.  This is particularly so when the facts and the events in question are seriously in dispute, such as in the present case.

26.When Woo testified as to the meeting in the conference room, he gave evidence on the sequence of events which took place, the advice he gave to the plaintiffs and to Lam on the title deeds, and the documents they instructed him to prepare, including the Guarantee, in no uncertain terms.  Then, in the course of questions raised by the Court, he made a sudden about turn and stated that his evidence as to the facts was only a deduction of what might, or might not, have happened from his review of the documents for the purpose of the proceedings, and that the events he had related (and in particular in relation to the Guarantee and specifically its contents) might not have taken place at all.

27.Woo claims in this testimony in court that he had actually drafted the Guarantee which he had been instructed to prepare at the meeting.  Yet, no discovery has ever been made of the Guarantee, which on Woo's case had once existed, as no reference was made to it in Schedule 2 of Woo's lists of documents. 

28.Woo's evidence has driven me to the unfortunate but inevitable conclusion that he was quite indifferent as to the truth of the evidence given in his statements and in his testimony, and that he was simply making up and embellishing the evidence to best suit his case.  That makes him a totally unreliable witness.

29.Lou and Tam had initially made witness statements in these proceedings in November 2010, whereby they had denied putting their signature to the Acknowledgment.  This denial was retracted by them in April 2011.  Tam explained the initial denial on account of her mental condition and illness at the time when the first statement was made.

30.Despite their initial denial of having signed the Acknowledgment, and despite the inconsistencies in the plaintiffs' evidence as to the events around 19 February 2004, on which Counsel for Woo had put much emphasis to challenge the reliability of the plaintiffs' case, I consider that both plaintiffs have given truthful testimony in Court on the essential matters.  It is however clear from the evidence that the plaintiffs had not read the documents which they signed at Woo's office, that their recollection now of what they had signed is at best hazy, and that the evidence contained in their witness statements on what they had signed on 19 February 2004 is more a retrospective compilation of events from the documents which they obtained from Woo through the intervention of the Law Society in 2008.

31.The plaintiffs were both understandably shocked and confused by these legal proceedings which have resulted from their first encounter with legal paperwork and what they had considered to be a major property transaction, which had unfortunately turned fruitless for them.  Lou is now over 83 years old.  Tam, aged over 61, suffered from a depressive disorder after the incident, from 2009.  Tam was in particular confused in her testimony with regard to the dates and the sequence of events which took place 8 years ago.  It was also apparent that she was unwell when she gave evidence in court in early January 2012.  I am, however, satisfied that on the whole, both Lou and Tam gave their evidence in court truthfully and to the best of their abilities and recollection.

32.I accept the plaintiffs' evidence that they had all along asked Lam to arrange for formal documents to be signed at a lawyer's office to evidence their agreement to purchase the Property at the price of $800,000, and to be responsible for $500,000 by way of payment of the premium to the government after 3 years from the issue of the occupation permit.  It was part of the agreement made between Lam and the plaintiffs that the plaintiffs would be able to move into the Property after signing the formal documents, as soon as the Property was completed.  I accept their evidence that they had made it known to Woo that they wanted and had agreed to purchase the Property from Lam at the purchase price of $800,000.  That was the retainer: to act for them in the acquisition of a beneficial interest in the Property.  I further accept their evidence that they had signed the documents produced and prepared by Woo on the understanding that they were for documenting the sale and purchase, or their immediate acquisition of a beneficial interest in the Property.

33.On the evidence, the plaintiffs did make payment of the purchase price after the meeting at Woo's office.  The payment was apparently made at the restaurant, after they had left Woo's office.  It may be that on their understanding, the documents they and Lam had signed at Woo's office, in Woo's presence, were adequate for the purchase and that payment of the purchase price could safely be made.

34.The issue of whether the 19 February Agreement was actually signed at Woo's office, and the date of the meeting at Woo's office, are dealt with under the next issue.

Did Woo prepare the 19 February Agreement?

35.It is the plaintiffs' pleaded case (paragraph 4 of their Statement of Claim) that a Chinese agreement for sale and purchase of the Property was prepared by Woo and presented to the parties for execution at Woo's office on 19 February 2004.

36.There is no doubt that the 11 February Agreement had already been prepared and was signed before the parties attended at Woo's office.  The terms and format of the 11 February Agreement and of the 19 February Agreement are nearly identical.  The evidence of Lou and Tam is not clear as to the exact documents which were presented by or to Woo, and which were signed at the only visit which they made to Woo's office.  They could only refer to several documents in English and in Chinese, which they, Lam and Ping allegedly signed in the conference room.  The Will and the Power of Attorney are in English, whereas the Acknowledgment and the 19 February Agreement are both in Chinese.  The plaintiffs' evidence is that Woo only indicated to them the spaces on the documents for their signature.

37.If Woo had prepared the 19 February Agreement for the parties to sign for the purpose of the sale and purchase of the Property, as the plaintiffs allege, it would have been natural for him to sign as a witness to the signatures of Lam and the plaintiffs.  However, it was Ping who signed as witness to the 19 February Agreement, as he had done at the plaintiffs' home when the parties signed the 11 February Agreement.  Further, even on the plaintiffs' evidence, the first payment of the purchase price was made at the restaurant, after the parties had left Woo's office.

38.Although I am satisfied that the plaintiffs had made it clear to Woo at their meeting in Woo's office that the meeting was for the purpose of the plaintiffs' purchase of the Property from Lam, I am not satisfied on a balance of probabilities that the plaintiffs had discharged the burden, which is on them, to prove that the 19 February Agreement had been prepared by Woo, or was presented to them at the meeting at Woo's office for their signature.

39.I have borne in mind the fact that the 19 February Agreement bears the date of 19 February 2004, as do the evidence of the plaintiffs' first installment payment of the purchase price to Lam, as well as the plaintiffs' payment of Woo's bill and Woo's receipt.  On the other hand, the Power of Attorney, the Will and the Acknowledgment all bear the date of 17 February 2004.  Counsel for Woo argued that the plaintiffs bear a higher standard of proof if it is alleged that Woo is guilty of any wrongdoing tantamount to forgery, fraud or misconduct in fabricating or altering the dates of instruments, and this is not disputed in principle by Counsel for the plaintiffs.  In this regard, I agree that the available evidence is insufficient to support any finding that Woo had in any way tampered with any of the documents signed by Lam and the plaintiffs, or deliberately put a wrong date on these documents.  Nor is there sufficient evidence to support the plaintiffs' claim that the Will, Power of Attorney, Guarantee and Acknowledgment are part of a standard set of documents prepared by Woo for use in transactions for sale and purchase or disposition of interests in small houses of indigenous villagers.  This is notwithstanding the evidence that the Acknowledgment contained apparent blank spaces where Lam's name, the Lot number and the Grant number were inserted by hand, or separately typed in.  According to Woo, these were the result of a series of unfortunate and coincidental mistakes.  It may simply be that the plaintiffs had made a genuine mistake in their recollection of the date of their visit to Woo's office for signing documents.  It is also possible that the 19 February Agreement was in fact signed after the date of the plaintiffs' visit to Woo.

40.Even though the plaintiffs have not established to my satisfaction that Lam had  produced either the 11 February Agreement or the 19 February Agreement to Woo at their meeting, and even if Woo was to be believed that after he had reviewed the title deeds to the Property and had advised the parties on the restriction against alienation of Lam's interests in the Property, he was instructed by Lam and the plaintiffs to prepare the Will, the Power of Attorney and the Guarantee as evidenced by the Acknowledgment, I consider that Woo knew, or should reasonably have known before the conclusion of the meeting, that Lam and the plaintiffs were signing the documents for the purpose of Lam's disposition of his interests in the Property to the plaintiffs.

41.In my judgment, whether the plaintiffs' meeting with Woo took place on 17 February 2004 (as Woo alleges), or on 19 February 2004 (as the plaintiffs allege) does not make any material difference to my findings as to the purpose of the meeting, or the existence of a duty of care owed by Woo to the plaintiffs.  I accept as credible the plaintiffs' evidence as to what they had made known to Woo, and as to the matters discussed at their meeting with Woo, and such acceptance leads to my findings on these two issues.

42.Woo's argument of there being only a conditional agreement between Lam and the plaintiffs can be dealt with quickly at this stage.  Counsel argued that the 19 February Agreement was only a conditional agreement for sale and purchase, such that it was "premature to say that Woo would have any duty in relation to the conveyancing" of the Property.  This argument wasbased on the provisions of clause 4 of the 19 February Agreement which, it was argued, confers an option on Lam not to a sign the Property to the plaintiffs by refunding the sum of $800,000 to the plaintiffs.  I do not accept this argument on the construction of clause 4, but since I make no finding that the 19 February Agreement was drafted by or presented to Woo at the meeting, I fail to see how this argument can assist Woo.  There is no evidence at all that Lam or the plaintiffs had informed Woo of the sale and purchase being conditional in any way, and I doubt that it is inherently probable or likely that Woo was so informed, when Woo himself claims that he had not seen and was not aware of the 19 February Agreement and the plaintiffs claim that there had been no discussion on the contents of any of the documents signed at the meeting.

Did Woo owe a duty of care to the plaintiffs in relation to their purchase of the Property?

43.I have found that the plaintiffs had informed Woo that they wished to purchase the Property from Lam for the purchase price of $800,000.  Further, Woo admits that when Law had called him to set up the meeting with the plaintiffs and with Lam, Law had told him that he was to advise on the title in the Lot.  I also consider that on the evidence, and even on Woo's case as to what transpired at the meeting, he knew or ought reasonably to have known that the plaintiffs were hoping to acquire an interest in the Property from Lam, whether under an agreement for sale and purchase, or in the guise or by virtue of the documents which Woo was instructed to prepare for the parties to sign.

44.It is not disputed that Woo was paid for his services, and he admits that the plaintiffs were his clients.

45.It is also clear that the plaintiffs relied on Woo's professional skills and advice.  They had made it clear to Lam from the initial stage that they had to formalize the sale and purchase at a lawyer's office, and they refrained from making payment of the purchase price until after they had consulted Woo.  Although the plaintiffs accepted in cross-examination that they were aware of the practice of indigenous villagers selling their small houses in the village during the period when the restriction against alienation of their interests operated, there is no evidence that the plaintiffs had knowledge or understanding what effect, if any, such sale had on the interest of the purchaser.

46.I reject without hesitation Woo's astonishing claim in evidence that he had not been asked by the plaintiffs to protect their interests in relation to the preparation of the Will.  It is Woo’s own case that it was not just Lam, but also the plaintiffs, who had instructed him to prepare the Will and other documents.  It is also indisputable that Woo was paid by the plaintiffs and by Lam for the work which he carried out, without any distinction as to the preparation of the Will and the advice on the title to the Property.  Having so been instructed and paid to render his professional advice and services, Woo had the duty to carry out his work with the care and skill which a normally competent legal practitioner would bring to it.  It goes without saying that he would have to take such steps as were reasonably necessary to protect his clients' interests, without the need for any express instruction from the clients to do so.  His clients included the plaintiffs.

47.In these circumstances, I consider that the relationship between Woo and the plaintiffs is so close that it is fair, just and reasonable to impose a duty of care on Woo in respect of the services which he carried out on behalf of the plaintiffs.  These services include not only the drafting of the Will and the Power of Attorney affecting the Property, but also his advising the plaintiffs on Lam's interests in and title to the Property, the extent of Lam's ability to dispose of his interests in the Property to the plaintiffs, and the validity or enforceability of any interests that may be vested in the plaintiffs by virtue of such disposition.

48.Clearly, it was reasonably foreseeable by Woo that the plaintiffs would rely on his advice, and would be affected and are likely to be injured by his acts or his lack of care in the carrying out of his services for the plaintiffs.

Was Woo negligent in discharging his duties to the plaintiffs?

49.The Acknowledgment was signed by the plaintiffs. They may not have read the document before signing it, but if they chose to be careless in signing a document before reading it, then they cannot complain that they should not be bound by it.  The non est factum defence was, sensibly, not pursued at trial.

50.The Acknowledgment sets out Woo's legal advice given to the plaintiffs: that Lam owned the Lot; that Lam had the right to build a three-storied small house on the Lot; that under the Grant, Lam had to apply for a certificate of compliance or occupation permit upon completion of construction, and could not assign or sell the Lot within 3 years of the issue of the certificate of compliance or occupation permit; and that Lam could pay a premium to the Government and assign or sell the Lot after 3 years from the issue of the certificate of compliance or occupation permit.  The Acknowledgment states that the plaintiffs had a copy of the conditions of the Grant for reference.  It further states that the plaintiffs instructed Woo to deal with Lam's Will, Power of Attorney and Guarantee.

51.In her court testimony, Tam candidly agreed that at the meeting, Woo had advised the plaintiff's on Lam's ownership of the Lot and the restriction on his rights to sell the Lot.  The plaintiffs only deny that it was their instructions to Woo to prepare the Will, Power of Attorney and the Guarantee.  They also maintain that Woo had indicated at the meeting that the title deeds would be retained by him to protect their interests in the Property.

52.The plaintiffs allege in the Statement of Claim that Woo was negligent or in breach of his contract with the plaintiffs in failing to register at the Land Registry the 19 February Agreement prepared by Woo.  It is claimed that if the 19 February Agreement had been registered, whether as a contract for sale and purchase with completion beyond 3 years, or as an encumbrance, the plaintiffs' interest in the Property would have been protected against the subsequent mortgagee.

53.As it has not been established to my satisfaction that the 19 February Agreement had been prepared by Woo for the plaintiffs and for Lam, or that the 19 February Agreement had been presented or made known to Woo, or signed before Woo at the meeting in February 2004, I am not satisfied that Woo was negligent in failing to take steps to register the 19 February Agreement.  The arguments raised by Woo's Counsel, that the 19 February Agreement is illegal or unenforceable, and should not be registrable or enforced by the Court, do not need to be addressed by virtue of my findings.  In any event, on the limited evidence available in this case, it would appear that there is nothing to support any finding that the 19 February Agreement is illegal, or contrary to public policy (Li Pui Wan v Wong Mei Yin [1998] 1HKLRD 84, Lau Kwai Kiu v Bian Xintian CACV 263/2010, 30 March 2012).

54.In the course of answering questions put to him in Court, Woo claims that he had advised the plaintiffs and Lam at the meeting that the execution of the documents he prepared did not amount to the sale and purchase or any gift of, or a charge on, the Property, and that this was understood by the plaintiffs.  If Woo had indeed given such advice and made this clear, I would have expected such important advice, which fundamentally affected the plaintiffs' rights, to have been included in the Acknowledgment which Woo claims he had drafted during the plaintiffs' visit for them to sign to record his advice.  The Acknowledgment does not refer to such advice having been given.

55.Woo also claims in his witness statement that he would not have agreed to handle any sale or purchase of the Property for Lam and the plaintiffs, by virtue of the restriction against alienation in the conditions of the Grant.  If it was indeed true that Woo was apprehensive of or had any concern as to acting in any sale and purchase which would constitute a breach of the conditions of the Grant, there was more reason for Woo to make it clear in the Acknowledgment that he had advised the plaintiffs and Lam that the documents which they signed did not constitute a sale and purchase of the Property.

56.Given that the Acknowledgment is silent as to these qualifications made by Woo with regard to the documents he prepared, and also bearing in mind the unsatisfactory evidence given by Woo and his inability to make distinctions between actual events and deductions, I consider it to be incredible, and that it is unreliable to rely on Woo's claim, that he had indeed advised the plaintiffs that the documents Lam had signed did not amount to their purchase or immediate acquisition of an interest in the Property.

57.Woo’s evidence is that he had not regarded it as exceptional or extraordinary that the plaintiffs and Lamshould instruct him to prepare the Will, Power of Attorney and Guarantee for Lam, after having been advised on Lam's title in the Lot and the restriction against alienation contained in the Grant.  When asked whether the he had raised queries with Lam and the plaintiffs as to the reason for having the documents prepared, Woo claims that he had, but that he was not given any real answer.  He had thought that the plaintiffs were Lam's neighbors.

58.I have already pointed out that I find it incredible that the plaintiffs would be in a position and able to give specific instructions to Woo to prepare a will, power of attorney and a guarantee.  Even if Lam or the plaintiffs had indeed given such instructions to Woo, after the plaintiffs' initial instructions that they wanted to purchase the Property, Woo should have explained to the plaintiffs the effect of the Will and the Power of Attorney, and the distinction between these and an agreement for the purchase of the Property, and the interests the plaintiffs may acquire thereunder, if any.

59.As explained in paragraph 43 of this Judgment, even if it was true that Lam and/or the plaintiffs had instructed Woo to prepare the Will, Power of Attorney and the Guarantee after having been advised on the conditions of the Grant, I consider it improbable and incredible that Woo would not have known that these documents were for the purpose of, or at least preliminary to, the intended sale of the Property by Lam to the plaintiffs.  The fact that the title deeds were left with and to be retained by Woo for an indefinite period after the meeting in February 2004 supports the understanding reached between Lam and the plaintiffs.  In my judgment, the fact that Woo accepted these title deeds for an indefinite period is also consistent with his understanding and knowledge that the arrangement agreed between Lam and the plaintiffs was, in effect, a sale and purchase or disposition of the Property, or the preliminary thereto.

60.Obviously, a solicitor cannot compel his clients to accept his legal advice, and Woo has no duty to prevent the plaintiffs from accepting the Will, the Power of Attorney and the Guarantee from Lam as the manner of completing their intended acquisition of any interests in the Property.  The plaintiffs acknowledged that they were aware of the practice of indigenous villagers disposing of their interests in small houses prior to the payment of premium to the government and before the expiration of the period of restriction against alienation of their interests in the small houses.  However, there is no evidence that the plaintiffs knew that the use of a will and power of attorney was the device used to effect the disposition of interests in small houses, that they knew the effect of such documents and their difference to a purchase, or the risks involved.  I accept that it was for the plaintiffs themselves to decide whether to take the commercial risk of proceeding with the transactions proposed by Lam.  Yet, they should have been properly advised on the inherent risks, before they could be expected to make the decision whether to proceed.

61.On the facts of the present case, it is for Woo as the plaintiffs' solicitor, having been told of the plaintiffs original intention of purchasing the Property, to advise them on the distinction between an immediate sale and assignment of the Property from Lam, and Lam executing a will under which the Property is bequeathed to the plaintiffs in the event of his death, coupled with a power of attorney.  Woo also has the duty in the circumstances of this case to advise the plaintiffs on the inherent risks of accepting the Will, Power of Attorney and Guarantee from Lam in the interim of the period of 3 years from the issue of the certificate of compliance or occupation permit, and (as paragraph 12 (3) of the Statement of Claim pleads) on their exposure pending completion to risks of double dealing by Lam, inconsistent with any beneficial rights which the plaintiffs may have in the Property.  To adopt the words of Arden LJ in his judgment in Queen Elizabeth's Grammar School Blackburn Ltd v Banks Wilson (A Firm) [2002] PNLR 14, it behoves a solicitor to urge caution and to point out risks to a lay client even if they would perhaps have been obvious to a fellow lawyer.

62.If, as Woo suggests in his Defence, there are questions of the agreement made between Lam and the plaintiffs for sale and purchase of the Property being illegal or unenforceable, then it is incumbent on Woo as the plaintiffs' solicitor to warn them of such risks.  There is no evidence, in the Acknowledgment or elsewhere, of Woo having done so.

63.As events transpired, Lam was able to mortgage the Lot without the title deeds (which remained in the custody of Woo throughout) and the mortgagee's interests in the Property took priority under the registered charge over the interests of the plaintiffs who had made full payment of the purchase price to Lam by April 2004, and had moved into the Property by July 2004.  The precise manner in which Lam could have disposed of the Property to defeat the plaintiffs' interest need not be foreseen or foreseeable by Woo, but it is reasonably foreseeable to a prudent solicitor in Woo's circumstances that there would be risks of the plaintiffs' interests in the Property being adversely affected before the completion of the sale and assignment of the Property to them.

64.The duty to advise and warn the client of any specific risks inherent in the transaction and the duty to explain any legal document fully and adequately to the client are all part of the specific duties which a lawyer owes to his client (para 10-133 to 10-136, Clerk and Lindsell on Torts, 20th edition).  There is no evidence of Woo explaining the nature and effect of Lam’s Will and the Power of Attorney to the plaintiffs.  Nor is there evidence of his giving any advice to the plaintiffs on the risks of their accepting the Will, Power of Attorney and Guarantee in lieu of an agreement for sale and purchase or an assignment, that such documents do not confer any immediate interests in the Property on the plaintiffs, and on the risks of further dealings made by Lam in the Property.  It is reasonably foreseeable that the plaintiffs would suffer damage as a result of their not being made aware of these inherent risks.

65.In gist, the plaintiffs instructed Woo that they wanted to purchase the Property.  This meant that they expected to acquire some immediate and enforceable interest in the Property.  They paid Woo for documents which he prepared for them.  Under the documents, the plaintiffs acquired no interest in the Property at all.  Lam was able to deal in the Property, and a third party, the mortgagee, was able to acquire the Property, such that the plaintiffs had to give up the Property to the mortgagee.  They paid the purchase price of the Property and Woo's fees for nothing in return, and further had to pay the mortgagee's legal costs as well.

66.I consider that Woo was negligent in failing to exercise due skill and care in advising the plaintiffs on their intended purchase of the Property.  His failure also constitutes breach of the duties he owed to the plaintiffs under his contract to act on the plaintiffs' behalf in relation to the dealings and transactions in the Property.

Are the damages claimed by the plaintiffs caused by Woo's negligence?

67.Woo's Counsel has not argued that the damages claimed by the plaintiffs were not caused by any negligence on Woo's part.  On the facts of this case, Woo's breach of duty as I have found was the effective cause of the plaintiffs' damage, since the plaintiffs' loss as claimed was "within the reasonable scope of the dangers against which it was the duty of Woo as the plaintiffs' solicitor to provide protection" (per Glidewell J in British Racing Driver's Club Ltd v Hextall Erskine & Co [1996] 3 All ER 667 at 681).  The basis of the plaintiffs' claim is Woo's failure to protect them against the obvious and foreseeable risk of Lam dealing further in the Property after the documentation signed in February 2004.  The plaintiffs' loss of the Property, and the costs they incurred as a result, are within the risk created by Woo's negligence.

68.The only submissions made by Woo's Counsel by way of challenge to the plaintiffs' claim for damage relate to the legal costs of $36,400 which the plaintiffs became liable for in relation to DCCJ 1479.  It is claimed that the plaintiffs had no reasonable chance of success in resisting the mortgagee's claim, and that they had failed to mitigate their damage by taking part in those proceedings.

69.The rule on mitigation of damage imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps (para 27-087 Chitty on Contracts Vol 1).  The onus of proof is on the defendant, who must show that the claimant ought, as a reasonable man, to have taken certain steps to avoid his loss.  The standard of the "reasonable steps" required to be taken is said to be not a high one, since the defendant is a wrongdoer (para 27-088 Chitty on Contracts Vol 1).

70.According to the Decision of His Honour Judge Leung delivered in DCCJ 1479 on 21 November 2007, judgment had been entered against Lam in December 2006 for delivery of vacant possession of the Property to the mortgagee.  Lou and Tam applied to be joined in those proceedings, to set aside the judgment and to seek a stay of execution on the order for possession.  There was a hearing on 13 November 2007, and the judge allowed the joinder but dismissed the applications to set aside the judgment and for the stay of execution.  Lou and Tam were ordered to pay the costs of that application.

71.The plaintiffs acted in person in DCCJ 1479 and had only made one appearance in court to seek to be joined in the action in an attempt to set aside the judgment and to apply for a stay of execution.  I do not regard their actions and the costs incurred by them to be unreasonable. 

72.Bearing in mind the matters set out in paragraph 65 of this judgment, I consider that the plaintiffs' damage is the direct and foreseeable loss resulting from Woo's breach of contract, his failure to advise and his negligent advice and services.  The damages payable to the plaintiffs should include repayment of the fees paid to Woo (Heywood v Wellers [1976] QB 446), the purchase price of $800,000 paid and thrown away, and the costs which they had to pay to the mortgagee.

73.In relation to the costs paid to Woo in the sum of $17,600, the evidence is that half of it was borne by Lam.  The plaintiffs should accordingly be repaid $8,800.

74.At trial, I was not referred to any evidence in relation to the sum of $36,400 which the plaintiffs claim they had paid to the mortgagee.  Nor have they produced evidence of their out of pocket expenses of $20,000 claimed.  I will only make a separate order for the plaintiffs’ further damages to be assessed.  In view of the small amounts involved, Woo should be able to either agree on these amounts, or there can be a short hearing before the Master for assessment.

Conclusion

75.Judgment is to be entered in favor of the plaintiffs for the sum of $808,800, with interest at the prime rate from the date of the writ to the date of judgment, and thereafter interest on the judgment sum at the judgment rate until payment.  I will order that there be an assessment of the plaintiffs' further out of pocket expenses and costs incurred as a result of Woo's breach of contract and negligence.  I further make an order nisi that the costs of the action between the plaintiffs and Woo are to be paid by Woo to the plaintiffs, with certificate for counsel, to be taxed if not agreed.  However, the costs of the further assessment should be borne by the plaintiffs, as there is no justification why the evidence of their expenses and costs should not be produced at trial.  Unless application is made within 14 days for the costs order nisi to be varied, the order shall become absolute.  The plaintiffs’ own costs are to be taxed in accordance with the Legal Aid Regulations.

Mr Thomas Lai, instructed by Lo, Chan & Leung (assigned by Director of Legal Aid), for the plaintiffs

Mr Tommy Ho, instructed by Tse Yuen Ting Wong, for the 2nd defendant

Please refer to CACV134/2012 for the relevant appeal(s) to the Court of Appeal.