Panel on Administration of Justice and Legal Services ( Minutes ) 23 Mar 99

Legislative Council

LC Paper No. CB(2)2824/98-99
(These minutes have been
seen by the Administration)

Ref : CB2/PL/AJLS

Legislative Council Panel on Administration of Justice and Legal Services

Minutes of meeting held on Tuesday, 23 March 1999 at 4:30 pm in Conference Room A of the Legislative Council Building

Members Present:

Hon Margaret NG (Chairman) Hon Jasper TSANG Yok-sing, JP (Deputy Chairman)
Hon Albert HO Chun-yan
Hon Martin LEE Chu-ming, SC, JP
Hon James TO Kun-sun
Hon Mrs Miriam LAU Kin-yee, JP
Hon Ambrose LAU Hon-chuen, JP
Hon Emily LAU Wai-hing, JP

Public Officers Attending :

Item III
Mr Llewellyn MUI: Senior Assistant Solicitor General (China Law) (Acting)
Ms Eva TO: Principal Assistant Secretary for Housing (1)
Item IV
Mr Andrew BRUCE, SC: Senior Assistant Director of Public Prosecutions
Mr CHEUNG Wai-sun: Senior Assistant Director of Public Prosecutions

Attendance By Invitation :

Item III
: Mr LEUNG Chiu-ming
Mr LEONG Mun-kwai
Ms YEUNG Sau-yuk
Mr CHEUNG Kam-shing
Miss PENG Li-hsing
Association of China-Appointed Attesting Officers Ltd: Mr YUNG Kar-chark
Mr FOO Tak-ching
Ms Mary KWOK
The Law Society of Hong Kong: Mr Anthony CHOW, President
Mr Patrick MOSS
Mr Peter SIT
Miss Garbo OY

Clerk in Attendance :

Mrs Percy MA: Chief Assistant Secretary (2) 3

Staff in Attendance :

Mr Jimmy MA, JP: Legal Adviser
Mr Paul WOO: Senior Assistant Secretary (2) 3

I. Confirmation of minutes of meeting
(LC Papers No. CB(2)1510/98-99 and 1508/98-99)

The minutes of the meetings held on 19 January 1999 and 4 February 1999 respectively were confirmed.

II. Items for discussion at the next and subsequent meetings
(LC Paper No. CB(2)1506/98-99(01))

2. Members agreed that the next regular meeting to be held on 20 April 1999 would discuss the following items -

Progress of Year 2000 (Y2K) compliance exercise in Government, Government-funded and Government-regulated organizations; and
"Leapfrog" appeals to the Court of Final Appeal.

Review of the applicability of the 17 Ordinances to "State" organs in the SAR

3. Members noted the paper (circulated to members vide LC Paper No. CB(2)1458/98-99(02) dated 10 March 1999) prepared by the Administration in response to the concerns raised at the Panel's meeting on 25 February 1999. According to the Administration, as the statutory provision of privacy in relation to personal data was relatively new in Hong Kong and given the complexity of the Personal Data (Privacy) Ordinance (PDPO), it would require more time for the SAR Government to discuss with the Central People's Government (CPG) on the applicability of the PDPO to the "State" organs stationed in the SAR.

4. Referring to paragraph 9 of the Chinese version of the Administration's paper, Ms Emily LAU said that the Administration should clarify the point that data users would need more time to assess whether and how a particular organization's operation would be affected by the PDPO. She considered that given the principle of equality, the Ordinance should apply equally to all data users.

5. Members agreed that the issue should be further examined at a future meeting. Meanwhile, the Administration should be asked to report the progress of discussion between the SAR Government and CPG on the matter and the expected timing for completion of the discussion.

Legal education

6. Mr Albert HO suggested and members agreed that the subject of "Legal education" should be discussed at a future meeting.

Information technology programme of the Judiciary

7. Mr Albert HO pointed out that while the Judiciary's Information Systems Strategy had a linkage with the Department of Justice, it did not seem to have any interface with the legal professional bodies. At his suggestion, members agreed that the item be included in the list of issues for consideration.

III. Role and conduct of Hong Kong solicitors and China appointed attesting officers in China property transactions
(LC Paper No. CB(2)1506/98-99(02) - information paper prepared by the LegCo Secretariat on relevant complaints handled by the Complaints Division;
LC Paper No. CB(2)1506/98-99(03) - submission from
LC Paper No.CB(2)1506/98-99(04) - submission from the Association of China-Appointed Attesting Officers Ltd;
LC Paper No. CB(2)1549/98-99(01) - submission from the Law Society of Hong Kong; and
LC Paper No. CB(2)1565/98-99(01) and (02) - additional information provided by the Association of China-Appointed Attesting Officers Ltd. and tabled at the meeting)

Opening remark

8. The Chairman welcomed the deputations to the meeting. She advised that rather than going into the details of the complaints lodged by concerning default cases of sales of uncompleted properties in the Mainland, the focus of the Panel's discussion should be on the policy aspects of the issue, i.e. the role and conduct of the solicitors acting as both the legal representatives of the local buyers and China appointed attesting officers in Mainland property transactions, and whether proper monitoring mechanisms were in place to deal with complaints which might arise.

9. The Chairman also reminded the deputations that when addressing the Panel, they were not covered by the Legislative Council (Powers and Privileges) Ordinance.

10. Mrs Miriam LAU and Mr Ambrose LAU declared interest as China-appointed attesting officers.

Association of China-Appointed Attesting Officers Ltd. (the Association)

11. At the invitation of the Chairman, Mr YUNG Kar-chark gave a presentation on the Association's submission, which provided details of the role of and services provided by China appointed attesting officers (CAAOs) in Mainland property transactions and how the Association would deal with any alleged breaches of professional conduct of its members. The saliant points made by Mr YUNG were as follows -

All CAAOs were appointed by the Ministry of Justice of the People's Republic of China (PRC). A CAAO must be a Hong Kong solicitor. However, the functions performed by a Hong Kong solicitor and a CAAO were different. In relation to Mainland property transactions involving local buyers, the duties of a CAAO were limited to the authentication of legal documents signed in Hong Kong for use in the Maninland as well as the verification of other relevant information. Their duties in this respect were more or less the same as attesting officers in the Mainland.
A total of 62 complaint cases had been received by the Association from 1992 to 15 March 1999, of which 39 were related to purchase of Mainland properties in Hong Kong and 14 were about uncompleted Mainland properties. Where it was suspected that a breach of professional conduct might have been committed, an ad hoc panel of the Association would be formed to look into the case and report its findings to the Association's Council to determine the appropriate action to be taken, including disciplinary sanctions if a breach of conduct was substantiated. The Association would also submit a report on the case to the Ministry of Justice of the PRC.
The Association found that some of the complaints arose because the complainants had confused the role of a CAAO with that of a solicitor. As CAAOs were not acting in the capacity as legal advisers, they were not responsible for interpreting the laws of the Mainland and advising on the risks that might be involved in a purchase of Mainland property, and they could not be held responsible in the event of a default or non-performance of a contract by either party. On the basis of the terms and conditions in a contract which had been duly signed by both parties and attested by a CAAO, an aggrieved party could institute proceedings in the Mainland against the other party in accordance with the laws of the PRC.

The Law Society of Hong Kong (the Law Society)

12. At the invitation of the Chairman, Mr Anthony CHOW briefed members on the Law Society's submission which focused on the role and conduct of Hong Kong solicitors in Mainland property transactions and the results of the Law Society's investigations into complaints against the conduct of solicitors acting in such transactions. He advised that after a Working Party was formed by the Law Society in August 1996 to look into complaints made against solicitors involved in Mainland property transactions, its Investigation Committees had completed the investigation of the 138 cases which the Law Society had received up to the end of 1998. Of these cases, 13 had been referred to the Association of CAAOs for follow-up action as the complaints were related to alleged breaches of duty on the part of CAAOs. 10 cases had been referred to the Disciplinary Tribunal for consideration of disciplinary proceedings against the accused solicitors concerned. Five cases which were lodged in 1999 were still under investigation. Mr CHOW referred members to the details of the complaints as contained in the Working Party's Interim Report attached to the Law Society's submission.

13. Mr Anthony CHOW said that apart from conducting investigation into the complaints received, the Law Society had also strengthened its publicity efforts to enhance public understanding of the problems involved in purchase of uncompleted Mainland properties. To this end, the Law Society had published an information leaflet highlighting the differences between Hong Kong's conveyancing system and that of the Mainland and drawing the public's attention to the various important points which had to be taken into consideration. A copy of the leaflet had been attached to the Law Society's submission. Mr CHOW added that as a positive endorsement of the efforts of the Working Party, the number of complaints received by the Law Society in recent years had declined substantially; there were 15 in 1998 and only five in 1999.

Submission from (the Joint Conference)

14. At the invitation of the Chairman, Mr LEUNG Chiu-ming presented the submission from the Joint Conference. The gist of the points made by Mr LEUNG was as follows -

The Joint Confernce could not accept the view of the Law Society that the crux of the problem leading to the vast majority of the complaints was that buyers of uncompleted properties in the Mainland did not understand the differences in role between solicitors and solicitors acting as CAAOs only, and the differences between the conveyancing systems in Hong Kong and the Mainland. In saying this, the Law Society was merely using the technicality to evade its responsibility to monitor the conduct of its members, and to "white-wash" the professional misconduct of some of those solicitors who acted as CAAOs in these transactions. In fact, many local buyers of the problematic properties in the Mainland were swindled by the solicitors or staff of the solicitors' firms that the agreements and other documents of the transactions were proper and in order, that the developers had fully complied with the conditions and requirements for pre-sale of the properties, and that the buyers would be protected by the laws of Hong Kong.
It was evident that some local solicitors played a multiplicity of roles in the transactions. In addition to being the attesting officers, they represented both the vendors and the buyers, and also acted as the developers' agents. Yet, the solicitors had failed to explain the different roles they played and what services they would offer to the purchasers. When developers defaulted in the performance of the contracts, such as delay in completing the projects or failure to complete the projects altogether, and when the aggrieved buyers turned to the solicitors for help, the solicitors refused to assist on the ground that they only acted as attesting officers and did not represent the buyers. In some cases, the solicitors even forced the buyers to complete the transactions, even though the titles were known to be defective and the projects had yet to be completed.
The Joint Conference was of the view that, in addition to professional negligence, some solicitors were exploiting the public trust in the credibility of the legal profession in order to obtain personal gains, by deliberately making false representations to the buyers. Therefore, these solicitors were a party to the frauds.

Discussion

15. In response to the Chairman, Mr Anthony CHOW stressed that the Law Society had taken a very serious view on allegations of misconduct of its members and had dealt with such complaints in a fair and expeditious manner. He dismissed the accusations made by Mr LEUNG Chiu-ming against members of the Law Society as groundless, and would like to put on record that the Law Society and its members reserved the right to take any action they considered necessary in this respect.

16. Mr Peter SIT said that the Law Society was very strict in ensuring compliance with the code of professional conduct applicable to solicitors, and severe sanctions had been imposed on the offending members. He cited a case in which the solicitor concerned, who was not a CAAO, had witnessed the signing of a sale and purchase agreement. The case was referred to the Disciplinary Tribunal, a statutory and independent body, for investigation. Although the solicitor was eventually found not to have deliberately misrepresented himself/herself as a CAAO, the solicitor had been fined $150,000.

17. Mr Albert HO enquired about how CAAOs discharged their duties in Mainland property transactions and whether there had been complaints against CAAOs for failure to carry out their duties properly. Mr YUNG Kar-chark and Mr FOO Tak-ching replied as follows -

A CAAO should abide by the same rules and procedures applicable to their Mainland counterparts. In notarizing documents, a CAAO should vet the legality of the documents concerned, including the developers' business licence, the land-use certificate, the permit for planning and construction and the permit for pre-sale to overseas buyers etc. However, CAAOs would not interpret the provisions of an agreement, nor would they advise buyers on the legal consequences of any such provisions or any possible risk involved in the transaction. The Association had advised all its members that in attesting the agreements for sale and purchase, they should make it clear to the buyers that they acted solely in the capacity as attesting officers and not as legal advisers.
Standard contracts were used for the transactions. In some cases, depending on the particular conditions of the properties in question, additional terms to supplement the main contract might be drawn up, usually by a Mainland solicitor engaged by the developer. The relevant documents, after being approved by the notary agencies in the Mainland, would then be chanelled to the CAAO in Hong Kong for attestation.
The 10 cases referred by the Law Society concerning complaints against CAAOs were being dealt with by the Association.

18. Mr James TO pointed out that as it was unlikely that ordinary people would have a good understanding about the different conveyancing systems in operation between Hong Kong and the Mainland, it would be desirable for solicitors acting as CAAOs to alert potential buyers of the risks which they might face in purchasing uncompleted properties in the Mainland. The Chairman suggested that some clear guidelines in this respect should be issued to the buyers before they proceeded to sign the sale and purchase agreements.

19. In response, Mr Peter SIT said that the Law Society working party had considered issuing practice guidelines/directions for the reference of their members. These guidelines would not be simple due to the complexity and different roles that a CAAO and solicitor might play in a transaction. He added that there had been concerns that if the guidelines were too rigid a situation might evolve where legal practitioners were reluctant to provide the relevant services to buyers of Mainland properties. At present there appeared no justification for the issue of such guidelines.

20. Echoing on Mr Peter SIT's point, Mr YUNG Kar-chark informed members that many solicitors who acted as CAAOs had prepared a checklist on their roles and duties in Mainland property transactions and would explain these in detail to the buyers. The buyers would also be advised to consult their own legal advisers on the purchase, particularly in relation to the interpretation of the terms and provisions in the agreements.

21. Mr Martin LEE expressed the view that the term might give people a false sense of security regarding the performance of a contract or the legality of a document attested by a CAAO. He opined that the functions and duties of CAAOs must be explained in no uncertain terms to potential buyers.

22. In response to the Chairman, Mr YUNG Kar-chark undertook to follow up with the Council of the Association on members' view on the preparation of guidelines on the status, roles and responsibilities of CAAOs.

23. Mrs Miriam LAU enquired about the channels for redress available to an aggrieved buyer if a CAAO had failed to verify the authenticity or legality of certain documents or other information in Mainland property transactions. Mr YUNG Kar-chark replied that it was within the authority of the Association to investigate complaints against its members and take appropriate action on substantiated cases of misconduct. He added that in accordance with the relevant PRC laws, an aggrieved party could seek compensation by instituting proceedings in a Mainland court.

24. Mr LEONG Mun-kwai of the Joint Conference asked whether the provisions of the Provisional Regulations of the People's Republic of China on Public Notarization would govern the conduct of CAAOs in PRC property transactions. In response to the Chairman, Mr YUNG Kar-chark said that the Regulations provided that, inter alia, attesting officers in the Mainland held certain powers similar to those exercised by public security officials, such as entering into and conducting searches in premises for the purposes of obtaining evidence. No similar investigative powers were available to CAAOs acting within the limits prescribed under the laws of the HKSAR. However, he added that in matters relating to Mainland property transactions, local CAAOs performed certain duties additional to those carried out by an ordinary notary public, eg. checking the developer's title documents and the current status of ownership of the properties etc.

Law Reform Commission (LRC)'s Report

25. In response to the Chairman, Principal Assistant Secretary for Housing (PAS/H) informed members that in September 1997, the LRC had published a Report on Sales Descriptions of Overseas Uncompleted Residential Properties, which dealt with the provision of sales information on overseas uncompleted residential flats on sale in Hong Kong for public consultation. While the LRC Report encompassed a wide range of issues identified, one of the major recommendations in the Report was the requirement for vendors of overseas uncompleted properties to engage licensed estate agents for the sale of their properties in Hong Kong. After the publishing of the Report, the Administration had consulted relevant parties, including estate agents, property developers, the relevant professional bodies and the Consumer Council on the LRC's recommendations. While the parties supported the spirit and the general objective of the recommendations, there had been divergent views on the scope of estate agents' responsibilities in the sales of overseas uncompleted properties in Hong Kong and the associated problems relating to the enforcement of the statutory requirements. The Administration in general agreed with the LRC that regulatory controls should be imposed on estate agents by legislative means so that potential buyers of uncompleted overseas properties could get accurate basic sales information on the properties from the sales brochure. Following enactment of the Estate Agents Ordinance in 1997, the Estate Agents Authority had been established for the licensing and regulation of estate agents. Concerning the role of estate agents and the scope of their responsibilities in the sales of overseas uncompleted properties, PAS/H advised that it would be a subject for further review by the Administration together with the Estate Agents Authority. The Administration would consult the LegCo Panel on Housing on the matters when it was in a position to do so.

26. PAS/H further pointed out that while the requirement for the provision of basic sales information relating to overseas uncompleted properties, if implemented, could improve the protection of prospective purchasers, it was unlikely to resolve all the problems which had surfaced. The reasons for delayed development or project failure were many folds, including, amongst others, financing problems of the developers and the lack of effective regulatory controls over property development in the places where the projects were carried out.

27. Commenting on the LRC's recommendations, representatives of the Law Society and the Association were of the view that estate agents held the first "fort" for the local purchasers. Very often, when a property transaction reached a stage which involved a CAAO, the purchaser had already made the initial deposit and signed the provisional agreement for sale and purchase.

Conclusion

28. The Chairman thanked the deputations for their views on the subject.

IV. Public interest defence in criminal law

29. As the meeting had over-run as a result of the discussion of agenda item III, members agreed that the above item be deferred to the next regular meeting on 20 April 1999.

V. Any other business

"Leapfrog" appeals to the Court of Final Appeal

30. In view of the new arrangement mentioned in paragraph 29 above, members agreed that the item on ""Leapfrog" appeals to the Court of Final Appeal" originally scheduled for the next meeting should be deferred to a future meeting.

31. The meeting ended at 6:45 pm.

Legislative Council Secretariat
4 August 1999