Legal Fiction and Risk Allocation in the Third Party Open Mortgage Conundrum —

Case Study of Lie Hendri Rusli v Wong Tan & Molly Lim (a firm) [2004] 4 SLR 594

This case-note examines the issues surrounding the determination of duty and standard of care of solicitors in the context of a third party open mortgage and the need generally for the legal fraternity to review and establish more satisfactory guidelines and rules of practice in conveyancing practice.

This case study examines the process of risk allocation in a negligence claim involving professional duty and standard of care in a retainer situation, more specifically in a solicitor-client relationship. The following observations are made in the context of conveyancing service rendered in the scenario of a third party open mortgage involving multiple party representation. The notions of ‘the reasonably competent solicitor’ and the ‘sophisticated businessman’ are deployed as a means to determining duty of skill and standard of care in the niche area of legal advice in negligence claims. How do these legal fictions figure in the equation for a realistic standard of care?

Admittedly, the law of negligence is far from having its final chapters written. The struggle to find a reasonably workable set of rules continues.

Facts in Brief

This case involved a third party mortgage where the plaintiff, Lie Hendri Rusli, was a surety for enhanced credit facilities extended to the borrower Alps Investment Pte Ltd (‘Alps’) secured on the further collateral provided by the plaintiff to enhance an existing security package already provided under the loan arrangements between Malayan Banking (‘MB’) and the borrower. The plaintiff had business arrangements with the borrower. The plaintiff mortgaged his residential property to the lender bank on terms set out in the standard mortgage of the bank, drafted by Tan Yah Piang (‘TYP’) a senior conveyancer of the defendant legal firm. At the plaintiff’s request MB subsequently executed and registered a Partial Discharge of Mortgage on a sum equivalent to the value of the property being partly settled by Alps and partly settled by the plaintiff leaving an outstanding balance nonetheless on Alp’s total indebtedness. The property was released from the mortgage by a Partial Discharge of Mortgage but not the personal covenant on the outstanding balance of the loan extended to Alps. MB later agreed to release the plaintiff from the personal covenant by a settlement of the sum of $500,000 from the plaintiff.

The plaintiff claims this sum from the defendants.

In this case the plaintiff raised several issues pertaining to TYP’s professional conduct and the adequacy of his advice in the discharge of his duty. Essentially these are:

(1) TYP’s conduct in discharging his responsibilities under his retainer;

(2) TYP’s failure to explain the mortgage documents;

(3) that TYP failed to advise the plaintiff that it was manifestly disadvantageous to sign the mortgage documents;

(4) that he was in a position of conflict of interest in acting for multiple parties;

(5) that he failed to advise the plaintiff to seek independent legal advice; and

(6) that he failed to keep proper notes in writing his advice.

Summary of Arguments and Decision

This case turned on the duty and standard of care of TYP as the conveyancer in the defendant firm who attended to the plaintiff.

The main thrust of the plaintiff’s arguments was that to his mind he would risk only his property which was to be mortgaged to the bank should the borrower default on the loan. He claimed that he was not adequately advised by TYP on his continuing personal liability as surety for the total loan extended to the borrower over and above the security offered by him to the bank by way of the third party open mortgage created over his residential property.

The learned VK Rajah JC, as he then was, found the plaintiff to be a shrewd and seasoned businessman and on that basis deemed him a ‘sophisticated’ businessman who had been alerted and advised by TYP on the ‘all moneys’ clause in the mortgage documentation. This conclusion was deduced from the evidence presented including the corroborative Memorandum of Understanding and Alps’ letter of confirmation to the plaintiff which referred to the ‘all moneys’ clause.

Overall, on the issue of the standard of care and advice rendered by TYP, the learned JC found on evidence that the plaintiff lacked credibility. On the claim of inadequate advice it was found inter alia that based on the notion of the ‘sophisticated businessman’ and the factual matrix of the case, the plaintiff had failed to give proper instructions and to ask for explanations despite claiming that he did not understand TYP’s advice on the mortgage. The court thus decided for the defendant.

Admittedly, the illuminating expose in Lie Hendri of the legal and factual matrix within which such duty is identified will be the platform upon which this study proceeds. In approaching duty of care, the learned JC was concerned that the high standards expected of solicitors should not be equated to impractical standards. He provided this pragmatic guideline:

The real issue, in any given case, is whether the court views the standards applied and skills discharged by the particular solicitor as consistent with the legal profession’s presumed responsibilities and obligations to its clients. This is not a fossilised concept and standards periodically evolve as well as vary in different factual matrices. It bears mentioning that adopting the practice of the entire profession does not by itself exonerate a solicitor from the acid test of reasonableness measured by adequate competence and skill: Edward Wong Finance Co Ltd v Johnson Stokes and Master [1984] AC 296. (para 44)

Conflict of Interest Situation

Rule 28 of the Legal Profession (Professional Conduct) Rules (the Rules) provides as follows:

When accepting instructions to act for more than one party in any commercial or conveyancing transaction where a diversity of interests exists between the parties, an advocate and solicitor shall advise each party of the potential conflict of interests and of the advocate and solicitor’s duty if such conflict arises.

Multiple representation by a solicitor in conveyancing transactions is not prohibited by law nor by practice except in the narrow area of conveyancing involving Housing Developers’ projects. Generally, however, on the contingency of a potential or an inherent conflict situation, the solicitor is to observe these pragmatic rules prescribed under the Rules: (a) obtain consent of the parties; (b) counsel them on their right to independent legal advice; and (c) provide full disclosures on all matters which will affect the interests of the parties involved (rules 25 and 30). It goes without saying that the solicitor is to act impartially to all parties and not succumb to any undue influence. A solicitor will choose to cease to act in the case of an actual or inherent conflict.

In Lie Hendri the claim is based on pure economic loss and on the standard of care applicable to the area of conveyancing — the third party open mortgage transaction, within the matrix of a potential or real conflict of interest situation. Whether the third party open mortgage in itself is an inherent conflict situation was not fully explored, as it does seem that a potential conflict is sufficient to bring on the duty of the solicitor to obtain the consent of all parties concerned and to provide counselling and disclosures.

Furthermore, the investigation in Lie Hendri was overwhelmed by the factual matrix and the other such dynamics at play which finally resulted in the dismissal of the plaintiff’s claim. The Lie Hendri case was substantially decided on evidence and not on any extended doctrines to the third party open mortgage conundrum beyond the application of the traditional concept of duty and causation and the notions of ‘the reasonably competent solicitor’ and ‘the sophisticated businessman’.

Legal Fiction and Dramatis Persona

The use of legal fiction generally establishes the licence to assume certain mean standards distilled from case-laws and practices established at common law. This approach is by no means without pitfalls as shifting dynamics in time, factual background and social values all impact in the way that these mean standards themselves may have to be evaluated for their objectiveness — the reality issue. These processes involving legal fiction are well illustrated and played out in the Lie Hendri judgment.

In this study we will view them in their deployment as calibration tools and how the process of assessing duty of care can with some fine-tuning seek out achievable and realistic standards in the conveyancing practice. That aside, practice rules and regulations embodied in the professional rule books remain relatively constant as the core standards presumed by the legal profession. Perhaps they cast a higher duty of care on solicitors with the assumption of ‘adequate’ advice which must be rendered. This assumption of such legal risks can be distinguished and is distinguishable from business or commercial risks; the comparison of these risks was dealt with in the decision of Lie Hendri. We will attempt to identify and re-examine the nature of these legal risks and the standard of care to be applied within the legal matrix of the case — the legal implications of the third party open mortgage in Singapore.

Objective test

The approach to and acknowledgement for the necessity to adopt the legal or objective test in determining the scope of the solicitor’s duty by reference to the ‘retainer’ as the basis for the contractual or solicitor-client relationship between the parties was not an issue (refer to the case of Yong & Co v Wee Hood Teck Development Corporation [1984] 2 MLJ 39 — (not cited in Lie Hendri).

More significant, however, is the way that the factual matrix and the dramatis persona of the parties to the transaction have collectively dominated and impacted on the eventual outcome of the decision. In Lie Hendri, risk allocation as a justification for assessing duty of care is approached by these routes:

•     the notion of the ‘retainer’ as the basis for the claim;

•     the notion of the ‘reasonably competent solicitor’; and

•     the notion of the ‘sophisticated businessman’.

The ‘Retainer’ as the Basis for the Claim

The scope of a solicitor’s duty in any particular case depends on his retainer. The retainer is to be defined by reference to what the solicitor is instructed to do by the client and how he is expected to discharge his responsibilities in accordance with the notion of a reasonably competent solicitor. (para 45)

The learned VK Rajah JC referred to the ‘retainer’ as being defined by the instructions given by the client to his solicitor. This term of reference will also include ‘the legal profession’s presumed responsibilities and obligations to its clients’ by which a solicitor’s competency is measured. These presumed responsibilities and obligations are also referable to, inter alia, those pragmatic steps which solicitors are duty-bound to observe as embodied in the Legal Profession (Professional Conduct) Rules pertaining to conveyancers as above described. How closely need these rules be observed or are there extenuating circumstances which may be taken into consideration when solicitors fail to observe them?

On closer scrutiny, the basis of the plaintiff’s claim appears to be unclear as to whether it was a claim in tort or in contract. In this particular case, there was a presumption of professional responsibility said to be undertaken by the defendant, in the context where no contractual document is submitted to the court. No evidence was observed to be produced in the nature of any Letter of Appointment or a Warrant to Act between the plaintiff and the defendant although these are the steps commonly observed and taken by prudent solicitors and conveyancers. In these circumstances, the duty of care owed by the solicitor to the plaintiff could be also viewed to have arisen from their solicitor and client relationship, for negligence in tort.

In Lie Hendri, particular reference is made to the instructions which a solicitor receives from his client as well as the client’s expectation of the performance of the solicitor’s duties and discharge of responsibilities including his professional conduct.

As mentioned earlier, it is not unusual that a Warrant to Act or a Letter of Appointment be obtained from the client. This Warrant or Letter will place on record the scope and limitation of the solicitor’s undertaking and form the foundation of the contract. The absence of a Warrant or Letter notwithstanding, tortious liability could nonetheless arise from the solicitor-client relationship of the parties when the solicitor acts negligently, renders wrong advice or inadequate advice. Hence, there was heavy reliance by the plaintiff in Lie Hendri on the various legal issues premised on the conduct of the solicitor as well in the alleged conflict of interest situation.

Attendance and Contemporaneous Notes

Still on the retainer issue, the significance of keeping attendance and contemporaneous notes was emphasised as an observance which could have thwarted the claim in the first place. Solicitors are therefore alerted to these practical reminders towards managing and minimising risk in their practice:

(a) document the nature and scope of retainers with clients;

(b) maintain reliable minutes of discussion with clients; and

(c) carefully consider whether to document through correspondence significant advice rendered.

In reality these are steps or practices which prudent conveyancers routinely observe. Nonetheless the reminder by the learned JC in Lie Hendri for such practices to be observed should put the conveyancers back on track on the necessity to adhere to these practices. Evidence adduced reveal that such practices had not been observed by the solicitor in the Lie Hendri case. This notwithstanding, the omissions do not of themselves warrant assigning liability to the solicitors. It is said that they render the defendant ‘handicapped’ in the process of establishing evidence.

Notion of ‘The Reasonably Competent Solicitor’

Within the factual situation of the third party open mortgage, the Lie Hendri case proceeds on the general premise that the third party open mortgage which deployed standard documentation was a straightforward loan arrangement. The general observation made by the learned JC on the duty of care expected of the solicitor involved in such undertakings is noted below:

In dealing with standard banking documentation in straightforward loan arrangements, there will usually be no potential or actual conflict of interests provided that the solicitor clearly and adequately explains to the parties the ambit and purport of the documentation generating their responsibilities and liabilities. (para 52)

Within the above stated parameters, the stage was set for the duty of care to be examined on a lower degree of care than if the transaction was a complex one. It can be said that this represents the general or mean duty where the potential or real conflict of interest situation is not envisaged. On evidence adduced, it would seem that the act or omission of the plaintiff as a ‘sophisticated businessman’ would additionally impact and bear upon these general or mean standards to minimum duty [sic] where lapses in duty of skills may be considered from the point of view as to whether they sufficiently constitute a breach of duty of a reasonably competent solicitor in like circumstances.

The Third Party Open Mortgage in Perspective

It is the general practice in Singapore for the terms of a third party open mortgage to be set out in the bank’s letter of offer. The standard basic terms of the bank or financing institution would already have been registered at the Singapore Land Registry via a Memorandum of Mortgage. Information on the legal nature of such transactions and the related implications of the responsibilities and liabilities of a surety will usually have to be carefully explained especially so in the context of a third party mortgage, or the open mortgage and where parties to the transactions are jointly represented. The legal implications of (1) a Partial Discharge of Mortgage, (2) continuing personal covenants, (3) consolidations of accounts, (4) all moneys clause, (5) the significance of negotiating for and obtaining the bank’s Letter of Release, and (6) cross-collateralisation clauses, are some of the matters over which an ordinary businessman may not be presumed to be fully knowledgeable. These are not basic information of a commercial or business nature though in some cases they overlap whence perhaps specialist consultation may be sought. The legal implications and ramifications of such issues involving and relating to priority calls, tacking, cross defaults, suretyship liability, including the nature and extent of personal liability are only some of the matters which may directly flow from a transaction such as the third party open mortgage structuring and arrangements. Currently, conveyancers undertaking such financing arrangements are expected by their clients to be knowledgeable in these matters sufficient to provide guidance to them and to make referrals where necessary.

On the other hand, such financing transactions are hybrid arrangements and clients should perhaps be made fully aware of the conveyancer’s scope of his undertaking when the retainer is assumed and if legal risks could perhaps be handled by specialists. The conveyancer would then merely facilitate the documentation and registration of the legal mortgage. Until a clear demarcation is understood and is established as an acceptable practice, conveyancers may in the meantime have to take the initiative at pointing out to the client the necessity of obtaining advice from the specialists. This will be an option open to the client.

The learned VK Rajah JC made reference to the need by clients to understand that solicitors should not be perceived as insurers — of business and commercial risks. In the passage quoted from the judgment, he also emphasised the point that expectations of the profession should be tied to reality. He said:

High standards, however, are not synonymous with impractical standards. Expectations of the profession must be tied to reality. A solicitor is not an underwriter for a client’s business or generally speaking the commercial wisdom of a transaction. Nor is legal advice equivalent to a warranty that a legal transaction will be free of risk and problems. (para 43)

One perspective would be to see if such advice given in the scenario of the third party open mortgage would warrant specialised consultation which would thus require the solicitor to alert the client to these issues for referral to specialist consultants. Whether the higher duty of care or a lower duty is imposed, solicitors may have to identify the legal risks inherent in any particular undertaking. The establishment of any actual legal risk is a delicate operation — a task which solicitors and conveyancers will have to evaluate and one which they can ill afford not to be over zealous. This observation may indeed be peculiar to legal services rendered — with advice generally forming part of the substance of the service.

For solicitors involved in the preparation of financing documents which deploy standard and boiler-plate clauses, it behoves them to be perhaps even more vigilant than if he were to have drafted and prepared the terms on a customised basis. The fact that banks and financial institutions do not usually accommodate any deviation from the clauses comprised in the standard documentation has never been an excuse for not explaining the terms and conditions of the mortgage to the borrower or the mortgagor. By the same token and theoretically speaking, the ‘sophisticated businessman’ is also legal fiction usually understood within a commercial context. He is entitled to the same attention and guidance from his solicitor as is the so-called shrewd businessman in transactions involving complex areas of legal knowledge and practices.

In the light of the above discussion, can this general notion of the ‘sophisticated businessman’ be suitably applied in all situations when reality checks will show that there is no standard transaction or documentation for all occasions?

An assumption by the solicitor as to the level and depth of his client’s knowledge and understanding of legal matters and his depth of understanding of the contents and implications of documents placed before him for execution may well turn out to be a miscalculation in hindsight. A direct approach to ascertaining a realistic standard of care could well by-pass the test of what a reasonably competent solicitor would do and the legal fiction that it stands for.

There was, however, a reality check carried out in Lie Hendri and there was implied in that case that the transaction was a straightforward transaction with standard documentation. That said, pragmatic solutions to ascertaining adequacy of the advice rendered were dealt with within those parameters. These are discussed below.

The adequacy issue

In the Lie Hendri case scenario the court was satisfied with the sufficiency or adequacy of the advice rendered by the defendants to the plaintiffs notwithstanding that the legal disadvantages of the open mortgage arrangement were not discussed with the plaintiffs. This was attributed to the understanding that advice of a commercial or financial nature are not strictly within the purview of the solicitor’s legal duty in a retainer for conveyancing services. Such advice may be sought on a consultancy basis in the various specialised areas that the case may present. In this circumstance the client should have asked for them.

‘Missed communication’

Furthermore, the ‘missed communication’ on the part of the plaintiffs in remaining silent and not raising questions or problems or voicing uncertainty at the relevant time was also considered relevant evidence that bear adversely on the plaintiff’s claims.

The plaintiff’s proffered perception of his limited understanding of TYP’s explanation was discounted. He had claimed that to his mind only the property mortgaged to the MB was at risk if the borrower was to default on the loan. Instead, the presumed qualities of what a ‘sophisticated businessman’ are to possess were applied to the plaintiff, despite his protestation of not actually understanding TYP’s advice. This ‘sophisticated businessman’ made one major mistake among his other mistakes: he had by his silence failed to obtain relevant information from his solicitor. From the judgment, it was clear that the court took the view that the burden of obtaining adequate and sufficient advice to be the plaintiff’s responsibility:

There is obviously an appreciable difference between the level of explanation and circumspection required in dealing with a sophisticated or shrewd businessman as compared with the proverbial layman. It might be said that an impoverished explanation to a client with an impoverished knowledge about worldly matters may in itself be evidence of negligence. This is to be contrasted with the situation of the sophisticated or shrewd businessman who can usually be assumed to have a measure of knowledge pertaining to the purpose and purport of legal documentation coupled with an innate ability to quickly size up and grasp the gist of his responsibilities. (para 55)

In this narrow field of legal advice, and to take this issue a step further, the question here is whether when obtaining service from a legal practitioner the latter should also ask relevant questions of the client to ascertain the actual or realistic extent of his knowledge in matters legal directly pertaining to the transaction? Is it sufficient that an assumption is made merely from his background that the client is a ‘sophisticated businessman’ within the commercial sense of the term usually presumed under commercial legislation?

In Lie Hendri, the court concludes from evidence adduced, that the plaintiff was responsible for the ‘missed communication’ and also for the miscalculation on his own risk management for which he should not expect legal recourse.

The burden placed on the sophisticated businessman to identify pitfalls and risk areas of a legal nature and to ask for clarification or explanation at the risk of having a ‘missed communication’ is another dimension to risk allocation which must be confined to the facts adduced in the Lie Hendri case. It may not stand the test of a general rule in view of the other dynamics at play, relating to the potentially unconventional and subjective nature of the third party open mortgage and the higher duty imputed to the solicitor in the potential or actual conflict of interest scenario. Further, passivity may be no proof of the plaintiff’s understanding or non-understanding of the legal issues and risks involved. In the context of a complex transaction it is not inconceivable that the ‘sophisticated businessman’ may not actually have sufficient insight into the legal complexities of the financing transaction. The test of the reasonably sophisticated businessman may yet be contemplated. The ‘sophisticated businessman’ is similarly entitled to a reality or objective test — on his subjectivity.

Unsought advice

The observations of the Privy Council in Clark Boyce v Mouat [1994] 1 AC 428 (at 437) on unsought advice was referred to in Lie Hendri. This common law position has relevance to Lie Hendri and tie in with the findings on the silence of the plaintiff and ‘missed communication’ earlier discussed.

When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction. To hold otherwise could impose intolerable burdens on solicitors. (para 66)

Recognising the rationale for the above notion of unsolicited advice, one query here is: would legal information and implication on the continuing personal covenant for the outstanding debt of the borrower in the context of a third party open mortgage transaction constitute material information such that the ‘sophisticated businessman’ would ordinarily be entitled to without his asking for it? This information might be relevant to his negotiation with the bank. This had in fact been the basis of a protest by the plaintiff when he compared the subsequent open mortgage he took in a re-financing arrangement with the United Overseas Bank to be one which he did as an informed mortgagor and with the benefit of hindsight.

The entitlement of the mortgagor to be alerted to the legal implications and ramifications of the open nature of the loan facilities which may be extended at the discretion of the bank, the implications of the personal covenants and tacking on subsequent loans are matters in which perhaps the ‘sophisticated businessman’ may not be reasonably expected to know. These are not necessarily matters in which some solicitors specialising in other fields of the practice are expected to be familiar with either - let alone the professional businessman. Perhaps these general observations may not apply to the plaintiff in Lie Hendri. The learned JC had the advantage of observing the plaintiff on a realistic basis and had made his assessment of the plaintiff’s understanding of the transaction accordingly.

Assumption of the straightforward loan transaction

It appears that the view taken that this was a straightforward loan transaction with standard documentation would imply a lower duty of care being expected of the solicitor. Arguments raised by the plaintiff and his solicitors on the critical difference between the mortgage to MB and the re-mortgage to UOB were discounted on the strength of TYP’s evidence that he had discharged his duty to explain to the plaintiff the ‘all moneys’ clause and the attendant personal covenant. Beyond the corroborative evidence in the form of the Memorandum of Understanding exchanged between MB and the plaintiff which referred to the ‘all moneys’ clause and the Letter of Confirmation from Alps to the plaintiff, the objective and substantive contents of the explanation actually rendered on the third party open mortgage practices were not brought up for discussion. The adequacy of whatever explanation that was said to be rendered was not raised as an issue by the plaintiff at the proceedings.

In the passage below, the plaintiff placed in contrast the mortgage and the re-mortgage created in favour of MB and United Overseas Bank Limited respectively, upon which the plaintiff claimed that advice on the personal covenant did in fact have an effect on the negotiation concluded on the re-mortgage:

The plaintiff however claims that in so far as the re-mortgage is concerned, PKWA had expressly advised him that by signing the mortgage he was ‘opening himself up to unlimited liability’. The plaintiff painstakingly points out that unlike the mortgage to MB, the re-mortgage to UOB was signed ‘with full knowledge of my actions and the implications arising from it’. Recognising the incongruity between his present claim and the re-mortgage to secure Prosperity’s facilities, he has strenuously emphasised that while he undertook personal liability in the re-mortgage, Prosperity had agreed not to augment their loan without his prior consent — a provision that had also been made amply clear to Prosperity’s banker. This he claims is a critical difference as contrasted with the earlier arrangement he had purportedly entered into with the Alps Group and MB. (para 20)

It will be noted here that the plaintiff’s claim is based on inadequate advice and not on omission to give advice. A bare reference to the ‘all moneys’ clause without any explanation as to the implications of the personal covenant on Alps’ liabilities would take some convincing that the plaintiff had been adequately advised, ‘the sophisticated businessman’s’ notional duty of care notwithstanding. This, TYP managed to do. The court also noted that the plaintiff had taken a ‘business view of his legal commitment and was conscious of all the attendant business risks.’ It observes that the plaintiff’s case against the defendants to be one of ‘happy oversight’.

Furthermore, looking at the legal position on lapses in skills generally, it is understood that the concern in such cases will be whether such lapses of skills are sufficient to constitute a breach of duty. Unless the defendant shows complete disregard of his duty, lapses in skills may not constitute a breach of duty of care.

TYP’s failure to counsel the plaintiff to seek independent advice in respect of the allegation of conflict of interest was discounted by the court to be a mere slip betwixt the cup and the lip and non-consequential.

That said, we continue with the notion of the ‘sophisticated’ businessman — the other legal fiction.

Notion of the ‘Sophisticated’ Businessman

The real Lie Hendri

The sophisticated businessman’s dramatis persona is perceived to be based on his business reputation, savvy and acumen which would in turn be reflected in his innate understanding or actual legal knowledge. Lie Hendri’s dramatis persona is drawn from his reputation as a seasoned businessman responsible for an established distribution business in electronics with an annual turnover of $10 million.

There is also the other persona of Lie Hendri — one who is observed to have frequent lapses in memory in the cross-examinations and one who acts on his ‘happy oversight’ rather than having a happy foresight. He is also a person who in this case is noted to be incapable of rendering consistent account of matters transpiring at the meeting with TYP.

The court also perceives and describes the real Lie Hendri’s conduct and activities as follows:

The plaintiff’s evidence was a mixture of dissemblance and feigned naïvety. He appeared to me to be a shrewd and canny businessman who was attempting to hide behind a smokescreen of purported linguistic difficulties. While he was clearly not comfortable with English, he had a basic knowledge of English, quite appropriately described by RT as ‘lower secondary’ school English. His weak command of English was upon closer scrutiny not a critical issue. In the final analysis, this was not a case about miscommunication or even lack of communication but all about ‘missed communication’. The plaintiff by his own admission concedes that TYP gave advice that he did not ‘understand’ or query. Assuming arguendo this was true, why did he not immediately inform TYP of this? He was not by any stretch of imagination green at the gills, testing business waters for the first time. He was and is at the helm of a multi-million dollar business distribution network in Indonesia. The cumulative effect of all the ‘mistakes’ he has made suggests a disquieting preference for dissemblance over candour and a cavalier indifference to the true facts. (para 40)

He was shrewd enough to immediately appreciate what personal liability as a surety entailed. In any event, as he unwittingly conceded, he was not concerned about the amount due to MB from Alps. He was focused on solving his immediate financial problems and took a considered view that the financial likelihood of Alps defaulting was remote, if not non-existent. That his risk assessment has turned out to be inaccurate surely cannot afford him a springboard for legal recourse against the defendant.’ (para 69) [Emphasis added].

The court in Lie Hendri was able to base its findings on actual lapses in vigilance on the part of Lie Hendri — on his lack of care to give proper instructions and to ask the right question at the right time. These findings of fact are pertinent:

The plaintiff did not actively seek legal advice. The meeting with TYP was, as far as he was concerned, a ritual he had to accede to in order to secure the attractive new financial arrangements. That of course did not absolve TYP of his duty to explain the ambit and purport of the legal documentation; the scope of his retainer required this and TYP duly discharged his duty. When the plaintiff met TYP, he did not ‘hear’ what TYP advised; he only ‘heard’ what he wanted to hear and has conveniently ‘forgotten’ the gist of TYP’s advice. He took a business view of his legal commitment and was conscious of all the attendant risks. (para 69 )[Emphasis added]

The degree of incongruity of the purported or implied qualities of the sophisticated businessman and the evidence adduced was to finally lean against Lie Hendri’s disfavour — his evidence lacked credibility.

In his judgment, the learned JC voiced his concerns over the difficult and testing circumstances under which the dismissal was made:

All things considered, I have grave concerns about the veracity and reliability of the plaintiff’s evidence in connection with what had occurred during that eventful meeting. The plaintiff appeared in several instances to be prone to a rather slippery malleability in his testimony. (para 32)

The defendant has been exonerated in this case simply by dint of the plaintiff’s lack of credibility. Nonetheless, it has been unpleasantly subjected to and sorely tested by a montage of variegated claims, not to mention the embarrassment of adverse publicity. (para 70) [Emphasis added]

Overview

Because of the shifting conundrum — the moving factual matrix within which standard of care is assessed, the legal test (indexed to the reasonably competent solicitor’s standard and the stereotype perception assumed in the notion of the ‘sophisticated businessman’) appears to be far from being the ultimate formula in the alignment of contending expectations within the solicitor-client relationship. The route to ascertaining realistic standards still requires the practical guide of a good rule book.

For now, the wider ramifications of the decision as well as the microscopic observations of the factual matrix in Lie Hendri point to the fact that there are perceptions and expectations which will have to be constantly weighted in the context of prevailing legal practice and in the social and business culture. The perception of the stereotype ‘sophisticated businessman’ may have to be more closely re-examined in the specific context of his special relationship with legal service providers. There may also be a need to move on to the more realistic notion of the ‘reasonably sophisticated businessman’ in a departure from the perceptions prescribed under commercial legislation and to realistic qualities as understood from an objective test. All this may well mean that there may thus be a lowering of the burden of proof required of the businessman in matters legal over which he may be presumed to be relying on the professional guidance, advice and skills of the contemporary solicitor. On a general observation, it must also be said that the conveyancer also has a part to play in drawing the boundaries of his scope of work and communicating the limitations of his services to the client. These are the hazards of the times in this age of information overload when there is a tendency by contending parties to pitch their expectations of each other to optimum and sometimes unrealistic levels.

The judiciary’s heavy responsibility and difficult task at bringing together, after the event, a workable formula for allocating responsibilities and risks in this niche area of negligence is vividly borne out in the Lie Hendri judgment. All that remains to be said is that there is now a judicial message for the fraternity of solicitors to work on the rule book to deal with and pick up the slack and wrinkles of immediate concerns. Needless to say, the profession’s peripheral view should also take in any impending paradigm movements in this area of practice. Perhaps the introduction of some curbs on joint and multiple legal representation as a way to a more effective containment of the conflict situation in conveyancing practice may be a starting point for more pragmatic negligence management.

Hairani Saban Hardjoe

Chung Tan & Partners

E-mail: hsh17@singnet.com.sg