CHIU KWAI PING v. YIP, TSE & TSANG

HCA 2159/2016

[2018] HKCFI 1036

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2159 OF 2016

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DECISION

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The procedural background

1.  On 20 August 2016, the plaintiff (“Ms Chiu”) issued a writ indorsed with a claim of professional negligence against the defendants (“the solicitors”).  A statement of claim was filed on 1 September 2016.

2.  On 12 September 2016, a defence was filed by the solicitors.  On 15 September 2016, the solicitors sought further and better particulars.  On 28 September 2016, Ms Chiu filed a reply.  On 6 October 2016, Ms Chiu answered the request for further and better particulars.  On 24 October 2016, the solicitors filed a rejoinder. 

3.  On 27 October 2016, the solicitors filed a summons pursuant to Order 18, rule 19 of the Rules of the High Court (“RHC”), asking that the statement of claim be struck out and the action dismissed on the alternative grounds that the statement of claim disclosed no reasonable cause of action because the cause of action was time-barred, and the statement of claim was an abuse of process of the court.  On 10 November 2016, the Master adjourned that summons for argument, and gave leave for the filing of affidavits.  Ms Chiu filed an affidavit on 12 January 2017.  No affidavit was filed by the solicitors.

4.  The solicitors’ summons to strike out came before the Master on 17 May 2017.  After hearing Counsel, the Master made an order that unless Ms Chiu applied to amend the statement of claim before 5 pm on Wednesday, 14 June 2017, the statement of claim and the reply would be struck out.

5.  On 13 June 2017, before that time expired, Ms Chiu filed a summons seeking leave to amend the statement of claim and the reply.  An amended statement of claim (“ASoC”) and a reply was annexed to the summons.  A procedural order was made that the Ms Chiu’s summons to amend should be adjourned for argument and heard and disposed of before the court would hear the solicitors’ summons to strike out the proceedings as being time-barred. 

6.  The substantive hearing of the summons for leave to amend came before them Master on 4 December 2017.  The Master declined to allow the amendment to the statement of claim and struck the action out.  The solicitors’ summons to strike out the proceedings on the basis of limitation is yet to come before the court.

7.  Now, Ms Chiu appeals against of the Master’s decision. 

The factual circumstances

8.  The facts which I now state are not in dispute save where indicated. 

9.  On 13 December 1991, Ms Chiu was married to Mr So Wing Yu (“Mr So”).  Ms Chiu and Mr So were the joint owners of a property at Flat G, 3/F, Prime View Garden, Tuen Mun, New Territories, Hong Kong, (“the property”).

10.  In September 2007, Ms Chiu retained the solicitors as her solicitors to advise and represent her in respect of the breakdown of her marriage.  There is an issue between the parties as to whether solicitors were retained to simply advise upon the divorce, or whether the retainer covered both the divorce and ancillary relief matters.

11.  It is certainly open to Ms Chiu to contend that the retainer was in respect of both the divorce and ancillary relief matters. On 19 March 2008, at the same time as the decree nisi was made, a maintenance order was made in Ms Chiu’s favour in respect of a child of the marriage.  The extent of the retainer will be a matter for trial if the claim proceeds.

12.  A further order (“the Order”) was made requiring Mr So to transfer his interest in the property to Ms Chiu, subject to an existing mortgage.  The Order (which was in Chinese) is in the following terms:

“ [Mr So shall] transfer and assign all his rights, title and interest of and in [the property] to [Ms Chiu] at an early consideration and free from any other encumbrances except for the existing mortgage within 3 months from the date of granting the Decree Absolute. [Mr So] do execute all necessary documents in respect of the said transfer including Assignment, and [Ms Chiu] shall be responsible for all related stamp duty, expenses, and costs, failing which [Ms Chiu] can make an application to the Registrar of the High Court requesting that all documents in respect of the said transfer be executed by the Registrar on behalf of [Mr So].”

13.  The Order appears to have been prepared by the solicitors and sealed by them.  That fact, and the fact that the solicitors were representing Ms Chiu in the proceedings in which the order was made, and in which another ancillary relief orders was made, provides the foundation upon which Ms Chiu may contend that the retainer extended to ancillary relief matters.

14.  There is a dispute between the parties as to whether or not the solicitors advised Ms Chiu that the Order should be registered in the Land Registry.  The solicitors say that they gave advice to Ms Chiu that the Order should be registered and that registration would cost $1,000.  Ms Chiu says that no such advice was given.  Whether such advice was given will be a matter for trial.

15.  Ms Chiu asserts in the ASoC that in August 2008, Mr So had threatened to her in a telephone conversation that he would mortgage the property in favour of finance companies.  She says that she then took the Order and related divorce documents to the solicitors to seek advice.  She describes advice that was given to her.  In their defence, the solicitors deny giving any advice to Ms Chiu.  That too will be a matter for trial.

16.  On 22 September 2010, without Ms Chiu’s knowledge, a second legal charge was registered against Mr So’s interest in the property to a company called Capital Dragon Credit Finance Limited.  That second legal charge was discharged on 26 January 2011.  Mr So then created a new second mortgage on 16 November 2012, in favour of Big Time Corporation Ltd (“Big Time”), a third mortgage on 18 December 2012, in favour of Capital Dragon Credit Finance (“Capital Dragon”) and a Loan Agreement on 3 June 2013 in favour of Top-Hill Credit Finance Limited (“Top-Hill”).  All of these credit arrangements were registered against the title to the property.

17.  Still outstanding under the second mortgage given to Big Time, as at 16 May 2017, is $1,317,919.48 plus legal costs of $3,800 to discharge the mortgage.  Interest continues to run on the principle and outstanding interest.

18.  Mr So had fully settled the principal and interest outstanding in respect of the third mortgage to Capital Dragon. Consequently no loss arises to Ms Chiu in that respect. 

19.  But Ms Chiu was required to pay $4,900 to register the discharge of the third mortgage on the title.  Mr So fully settled the loan agreement to Top-Hill, but again Ms Chiu has had to pay $3,000 to register the discharge of the loan agreement on the title.

20.  Ms Chiu’s claim against the solicitors is for the sum outstanding under the second mortgage together with costs that have been incurred in clearing the title.

The basis of the claim

21.  Ms Chiu now sues the solicitors in tort asserting that they were negligent in the conduct of her affairs by failing to register the order. 

22.  The ASoC pleads the retainer (§3), a duty of care (§6) and an act of negligence (§7), namely the failure to advise Ms Chiu of the legal consequences of registering the order to secure priority against future encumbrances, the costs of registering the order or registering the order.

23.  The ASoC then goes on to plead loss under four heads:

§8(1):	Mr So’s notice of severance cause the loss of Ms Chiu’s right of survivorship which was equivalent to half the market price of the property at the time the creation of the notice of severance;
§8(2) & (3):	the second mortgage diminished Ms Chiu’s interest in the property by the amount outstanding at the present time under the second mortgage, together with accrued interest (see §17 above);
§8(2) & (4):	the cost of discharging the third mortgage (see §18 above);
§8(2) & (5):	the cost of discharging the Loan Agreement (see §18 above).

24.  There is a further plea that in August 2008, Mr So threatened Ms Chiu in a telephone conversation that he would mortgage the property, and that Ms Chiu took the Order to the solicitors where she sought further advice.  Ms Chiu pleads that the failure to give appropriate advice at that time constitutes a further act of negligence.

When did severance take place

25.  It is quite clear as a matter of law that severance of the joint tenancy took place on the date the Order was made. Section 8 of the Conveyancing and Property Ordinance, Cap 219 (“CPO”) provides:

“ 8. Severance of joint tenancy

(1) a joint tenancy of an estate or interest in land may be severed only by—

(a) a notice served by a joint tenant on the other joint tenants; or

(b) an instrument.”

An “instrument” is defined in s 2 CPO as any document having legal effect except a will.  There can be no doubt that the Order constitutes an instrument.  Both counsel were in agreement, correctly in my view, that the severance of the joint tenancy occurred, at the latest, on the date on which the Order was made, namely 19 March 2008.  In reality, the notice of severance served by Mr So was meaningless, as the severance had already taken place.

26.  An example of the severance of a joint tenancy by an act of a joint tenants evidencing an intention contrary to the joint tenancy, may be seen in In Re Draper’s Conveyance [1969] 1 Ch 486, decided under similar but slightly different English legislation. 

Was loss suffered by the severance?

27.  As a result of the severance Ms Chiu has lost the right of survivorship.  That loss occurred at the time of severance.  Before the severance, on the death of Mr So his interest in the property would have passed to Ms Chiu by survivorship and the operation of the doctrine of jus accrescendi.  Normally, the right of survivorship would have value, and its loss would constitute a loss in money terms.

28.  But in terms of the Order Mr So was obliged to transfer his interest in the property to Ms Chiu.  If he died prior to executing a transfer, the Order would have been enforceable against his estate.  In simple terms, Ms Chiu’s right of survivorship was replaced with an equivalent right under the terms of the Order.  She plainly has not suffered any loss by virtue of the loss of the right of survivorship.

29.  It is quite clear therefore that §8(1) of the ASoC cannot stand.

Is the loss arising from the existence of the mortgages compensable?

30.  The claim against the solicitors by Ms Chiu is a claim in the tort of negligence.  It is trite law that a cause of action in negligence comprises three elements, a duty of care, breach of the duty of care,and loss giving rise to damage.  It is equally trite law that where damage constitutes the cause of action or part of the cause of action the period of limitation runs from the date of the damage and not of the act which causes the damage: see Halsbury’s Laws of Hong Kong, 2^nd edn, Vol 37, §245.015.

31.  It is abundantly plain that the ASoC, containing the pleas set out in §§21-24 above, sufficientlys meet the criteria to establish an arguable  cause of action in negligence.

The opposition to the amendment

32.  In an argument which I confess I found difficult to understand, but which apparently found favour with the Master, Mr Shum relied upon five factors to say that the amendment of the statement of claim, and the filing of the ASoC should not be allowed.  The five factors were:

(i)   it was Ms Chiu who asked the solicitors to make the application for the Order, in other words Ms Chiu initiated the making of the order;

(ii)   Ms Chiu has not pleaded that she was illiterate or did not understand Chinese, consequently, she would be able to understand the order in Chinese;

(iii)   the Order stated that if Mr So failed to transfer his interest in the property to Ms Chiu the Registrar of the High Court could be asked to effect the transfer;

(iv)   Mr So served a notice of severance on Ms Chiu at the end of 2008; and

(v)   Mr So threatened Ms Chiu, (as Ms Chiu pleads), that he would mortgage the property.

33.  It was Mr Shum’s argument that when regard was had to those five factors, it could not be said that, even if there were negligence on the part of the solicitors, (which was denied), that negligence caused the loss suffered by Ms Chiu.  He described the argument as being one examining causation. 

34.  As to the five factors raised by Mr Shum I make the following comments.  It appears to me to be entirely irrelevant whether the Order was made on Ms Chiu’s request, or upon her instructions following the solicitors’ advice.  It simply does not matter who initiated the Order.  The relevant fact is that the Order was made. 

35.  Ms Chiu’s understanding of the order might well be a matter for trial.  The consequence of Ms Chiu’s ability to request the Registrar to effect the transfer in the event of Mr So’s failure, and her failure to do so, again might well be a matter for trial.  Read in its proper light, Ms Chiu’s plea thatMr So threatened Ms Chiu, is cast together with a further assertion that advice was sought from the solicitors, and negligent advice was received.

36.  I am quite satisfied that none of the matters raised by Mr Shum provide a basis upon which leave to amend should be refused. All of the matters are matters which might be raised in a defence, and ventilated at trial.  None of these matters detract in any way from the pleadings which establish an arguable cause of action.  That there might be a defence established trial but that is not a basis upon which leave should be refused to file the ASoC.

Conclusion

37.  For the foregoing reasons Ms Chiu will have leave to amend, save with the exception of §8(1) of the ASoC, in terms of paragraphs 1, 2 and 3 of the summons dated 13 June 2017.

The solicitors’ summons to strike out for limitation

38.  In terms of the procedural order made by the Master the solicitors’summons to strike out the claim as being time-barred now needs to be brought on for hearing.  That summons is not before me.  It appears that Mr Shum intends to raise a similar “causation” argument in that respect.  I have not heard argument from him as to how that argument might apply in the circumstances.  My preliminary view is that the causation argument could not possibly found a basis to strike out the proceedings either on the basis of limitation or abuse of process.

39.  Prima facie, the cause of action in negligence having arisen when the loss occurred (at the earliest on the registration of the second charge,16 November 2012), and the writ having been issued on 20 August 2016, well within the six year period, the claim is not statute barred.  Should the solicitors persist in proceeding with that summons the terms of this decision should be taken into account in considering the form of any costs order made on that summons.

Costs

40.  The summons for amendment provides that the costs of the amendment should go to the solicitors in any event.  That would have been the proper if the amendment summons had not been opposed, and had not needed to go to a full argument before the master. 

41.  Ms Chiu has succeeded in the appeal and should have succeeded below.  She has been put to the trouble of a full argument on the summons and an appeal, neither of which was justified. 

42.  There will be an order nisi to be made absolute in 14 days that the costs of the amendment summons be to Ms Chiu, in the cause, and the costs of the appeal be to Ms Chiu.  Ms Chiu’s own costs are to be taxed in accordance with Legal Aid Regulations.