CHIU WAI LING v. CHAN YAU CHI AND ANOTHER

DCCJ 346/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 346 OF 2001

(Transferred from the High Court HCA. No. A2532 of 2000)

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JUDGMENT

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1. This action arose out of an aborted property transaction. By a provision sale and purchase agreement dated 3 January 2000 ("the Agreement"), the Defendants agreed to sell and the Plaintiff agreed to purchase the property known as Flat 3, 6th Floor, Block C (King Lam House) Hong Lam Court, Nos. 74-78 Siu Lek Yuen Road, Shatin, New Territories, Hong Kong ("the Property") at a price of $1,020,000. The Third Party was the estate agent acting for the said parties in the making of the Agreement.

2. After the conclusion of the Agreement, the solicitors for the Plaintiff raised 2 requisitions relating to the title of the Property: the first one related to a deed of gift dated 5 June 1998 registered in respect of the Property with the Memorial No. 1030847 ("the Deed of Gift"), and the second one related to a second charge of the Property made on 22 August 1996. After that, there was some correspondence between the Plaintiff's and the Defendants' then solicitors. In respect of the said first requisition, the Defendants' solicitors offered to stake-hold a certain amount of money in the case that the Plaintiff had to pay any estate duty arising from the transaction. On 21 February 2000, the Plaintiff's solicitors replied to the Defendants' solicitors, reaffirming their views that the title of the Property was defective by reason of, inter alia, the registration of the Deed of Gift. In such letter, the Plaintiff's solicitors also raised some new requisitions, to which the Defendants' solicitors made no reply. By a letter dated 2 March 2000, the Plaintiff accepted the Defendants' repudiatory breach of the Agreement. However, the Defendants refused to refund the deposits in the total sum of $102,000, being 10% of the purchase price, to the Plaintiff, and the latter therefore brought the present action against the Defendants to claim for, inter alia,:

(i) the return of the said deposits;

(ii) liquidated damages of $102,000 as provided in clause 7 of the Agreement; and

(iii) an order that the Defendants do indemnify the Plaintiff of the stamp duty paid for the transaction in issue.

3. In the beginning of the trial, Mr. Poon for the Defendants rightly conceded that his clients had not answered the requisitions of the Plaintiff in a satisfactory manner, and so the Defendants should return the deposits to the Plaintiff and to indemnify the latter of any stamp duty payment. However, Mr. Poon argues that the Plaintiff should not be entitled to any liquidated damages as clause 7 of the Agreement, so far as it relates to the recovery of a sum equivalent to the amount of the deposit as liquidated damages, is a penalty clause. Hence, this remains the only issue between the Plaintiff and the Defendants.

4. Now I turn to the Third Party Claim. It has all along been the Defendants' case that the title of the Property was defective. On 5 June 1998, the 1st Defendant assigned his interest in the Property to the 2nd Defendant and himself as joint-tenants by way of the Deed of Gift. By reason of this, the Property was subject to the payment of estate duty under s. 5 and s. 6 of the Estate Duty Ordinance, Cap. 111 ("the EDO"), and as a result the title of the Property was defective. In Chan Fung Lan v. Lai Wai Chuen [1997] 1 HKC 1, Cheung J., as he then was, held that such potential liability constituted a blot on the vendor's title and the purchaser was not bound to accept the offer of an indemnity by the vendor. In such circumstances, Mr. Poon argues that the Third Party, being a professional estate agent, should have been aware of the effect of the Deed of Gift on the title of the Property, and so the Third Party should have done the following to protect the interest of the Defendants:

(i) to consult the Third Party's in-house lawyers to ascertain the effect of the Deed of Gift on the title of the Property;

(ii) to take certain measures, such as inserting a "back-out" clause in the Agreement, to protect the interest of the Defendants; and

(iii) to warn the Plaintiff to seek independent legal advice.

As the Third Party failed to discharge such professional duty, the Defendants are entitled to ask the Third Party to indemnify them in respect of the Plaintiff's claim.

5. In opposition to the Third Party Claim, the Third Party relies on the following grounds of defence:

(i) the Third Party was not in breach of any duty owed to the Defendants;

(ii) the title of the Property was not rendered defective by the registration of the Deed of Gift, and so the Defendants could have completed the transaction with the Plaintiff without suffering any damages;

(iii) the Defendants' solicitors did not answer the other requisitions relating to the title of the Property, and so the Third Party's breach of duty, which is denied, was not the cause for the abortion of the transaction.

6. I will deal with these issues in turn.

Liquidated damages and clause 7 of the Agreement

7. As I have mentioned above, the only remaining issue between the Plaintiff and the Defendants is whether the former is entitled to claim for the liquidated damages as provided for in clause 7 of the Agreement, which reads as follows:

"Should the Vendor after receiving the deposit paid hereunder fail to complete the sale in the manner herein contained the Vendor shall immediately compensate the Purchaser with a sum equivalent to the amount of the deposit as liquidated damages together with the refund of the deposit and the Purchaser shall not take any further action to claim for damages or to enforce specific performance."

8. To establish such a claim, the first hurdle that the Plaintiff has to overcome is the so-called "rule in Bain v. Fothergill" (1874) LR 7 HL 158. As laid down in the said case, there has been a long established rule that when a vendor is unable to make good title, the purchaser can recover the deposit, interest thereon, and conveyancing expenses but nothing else if the defect in the title is "one of title". However, in the recent case of Grand Trade Development Ltd. v. Bonance International Ltd. [2001] 3 HKC 137, Le Pichon JA held that the rule in Bain v. Fothergill is no longer applicable in Hong Kong, and so in the same scenario mentioned above, the purchaser can claim for any common law damages suffered by him as a result of the breach of agreement, including any loss on the bargain he may have made. Hence, the Plaintiff has overcome such first hurdle, and the next question is therefore whether clause 7, so far as it relates to the recovery of a sum equivalent to the amount of the deposit as liquidated damages, is a liquidated damages clause or a penalty clause.

9. In support of the argument that the clause is not a penalty clause, Mr. Chong for the Plaintiff relies on the judgment of Yeung J. in Sung Kai Kiu & Anor. v. Wong Mei Yin HCA No. A3979/1994 (unreported, decision of Yeung J. on 17 January 1997). That case involved a sale and purchase agreement of a small house (丁屋) in the New Territories, and the deposit paid by the intended purchaser under such agreement amounted to 80% of the purchase price. The vendor was in breach of the agreement, and the purchaser sought to recover the deposit and an extra sum equivalent to the deposit as compensation under clause 16 of the agreement concerned. In ruling that the said clause was a penalty and that the purchaser was only entitled to the return of the deposit, Yeung J. said the following in page 21 of his judgment under the heading "The issue of compensation":

"The above provisions [the principle relating to penalty clause] are applied with a certain degree of flexibility in respect of the sale and purchase of building or premises. Regardless of actual loss, either contractual party is entitled to forfeit the deposit of the other party who is in breach of contract, or ask for compensation in the sum of double deposit, but the deposit concerned shall usually not exceed 10% of the purchase price of the premises. This flexibility is derived through long-term practice under the common law. Hong Kong has all along been following this practice. But where in the case of a breach of contract if the deposit exceeds 10% of the purchase price, the party which asks for forfeiture of deposit/compensation against the other party in breach of the contract must demonstrate that the deposit that exceeds 10% of the purchase price of the premises is reasonable due to certain special circumstances."

As the court has expressly acknowledged such long-term practice under the common law, Mr. Chong argues that the Plaintiff is entitled to an extra sum which is equivalent to 10% of the purchase price as liquidated damages.

10. However, it seems that Mr. Chong has overlooked what the Court of Appeal had said in relation to such issue. Whilst affirming the decision of Yeung J., Chan CJHC, as he then was, said the following in page 10 of the Court of Appeal's judgment of the same case (CACV 49/1997, unreported, decision delivered on 4 September 1997):

"The trial judge cited two cases, Workers Trust and Merchant Bank Ltd. v. Dojap Investments Ltd. [1993] 2 All ER 370, per Lord Brown-Wilkinson, and Liuggi Plantations Ltd. v. Jagatheesan [1992] MLJ 89, per Lord Hailsham LC. It was mentioned in both cases that a deposit of 10% of the contract price could be deemed as a reasonable compensation. We agree that according to common law practice, a forfeiture of deposit would not usually be regarded as a penalty. Therefore the court may order forfeiture of deposit in certain circumstances as it sees fit. We also agree that in the usual circumstances, the contractual parties' agreement in setting the deposit at 10% of the purchase price is a reasonable one. However, that does not mean that the court must order the party in breach of contract to pay 10% of the purchase price as compensation. Whether to order compensation or not is decided on the merits of the case. In fact the court in the two cases above did not make any order for the party in breach to pay 10% of the purchase price as compensation. The most important factor which requires consideration is whether the agreed deposit was truly regarded by the parties as a reasonable compensation for anticipated loss."

11. In other words, the court would not blindly enforce a contractual term which requires the defaulting party to pay a sum which is equivalent to 10% of the purchase price as liquidated damages. Ultimately, that remains a question of fact in each individual case, and the court has to inquire whether such sum was a genuine pre-estimate of the loss agreed by the parties.

12. In the present case, the Agreement provides that the Plaintiff shall pay a sum of $100,000, which is equivalent to about 9.8% of the purchase price, as initial deposit, and then a further sum of $2,000, being about 0.2% of the purchase price, upon the signing of the formal agreement on or before 17 January 2000. According to the evidence of the Third Party which is not disputed by the Plaintiff, when intended vendor and purchaser sign a provisional agreement, it is customary to ask the purchaser to pay 1% to 3% of the purchase price as initial deposit. As a formal sale and purchase agreement would usually be signed by the parties 7 to 14 days after the date of the provisional agreement and the clause gives an option to the parties to back out of the agreement, the sum fixed as "liquidated damages" would only have been intended by the parties to cover any fluctuation in value of the property in this short period of time. In such circumstances, it is rather unusual to ask a purchaser to pay an initial deposit as high as 10% of the purchase price at that early stage.

13. In my judgment, it is very difficult for the Plaintiff, based on the evidence above, to argue that a sum, which is equivalent to about 10% of the purchase price, was a genuine pre-estimate of the loss at the time when the parties signed the provisional Agreement. Firstly, the evidence clearly shows that it is not customary to ask an intended purchaser to pay such a high deposit at that initial stage, and so there is no long term practice to back up the Plaintiff's contention in this regard. Secondly, there is no evidence to show that the parties had actually put their heads together to discuss such issue. In such circumstances, I do not accept that the sum fixed in clause 7 was a genuine pre-estimate of the loss agreed by the parties, and I therefore disallow the Plaintiff from relying on the same to claim for any liquidated damages.

14. In view of the falling property market, the Plaintiff has not probably suffered any damages for loss of bargain as a result of the breach of the Agreement, and so the Plaintiff has not pursued an alternative claim for common law damages. In the absence of such a plea and supporting evidence, it is not necessary for me to consider such issue.

15. Mr. Mak for the Third Party also advances another argument why he says that the Plaintiff should not be entitled to additional sum as liquidated damages. In Wong Lai Fan v. Lee Ha [1992] 1 HKLR 125, the Court of Appeal expressed the view that a clause which is similar to clause 7 provides for an option to the vendor to elect for an alternative mode of performance rather than completing the transaction. A claim under clause 7 is therefore, according to Mr. Mak, a claim for payment of an agreed sum, and not a claim for damages. In such circumstances, both the pleadings and the evidence do not support such a claim.

16. In the light of my reasoning above, it is not necessary for me to decide on such alternative argument. However, my preliminary view is that such argument is unsustainable. Although clause 7 gives an option to the Defendants not to perform their obligation under the Agreement, such clause, based on its literal interpretation, can also amount to a liquidated damages clause, provided that the sum fixed therein represents a genuine pre-estimate of the loss agreed by the parties. This was exactly how the Plaintiff had put forward her case in her pleadings, and so I do not accept Mr. Mak's rather technical submission in this regard.

Breach of duty as estate agent

17. That disposes of the only issue between the Plaintiff and the Defendants, and I now turn to the Third Party Claim. The main issue involved here is whether the Third Party was in breach of its duty as estate agent owed to the Defendants. In this regard, there is dispute between the parties as to what actually happened during the transaction, and so I have to set out their evidence in some details.

18. In the trial, the 2nd Defendant testified on behalf of both Defendants. According to him, the 1st Defendant, who is his father, assigned the interest of the Property by way of the Deed of Gift to both Defendants as joint-tenants on 5 June 1998. By that time, his solicitors who prepared the transfer documents, Messrs. Lo, Wong & Tsui, did not tell him that there would be any problem with the title. With a view to repay his debt, the 2nd Defendant put the Property in the market for sale in mid-1999, but no one was interested in purchasing the Property by that time. Later in late December 1999, the Plaintiff expressed an interest to purchase the Property at a price of $1,020,000. On 3 January 2000, the 2nd Defendant was still not satisfied with the price offered by the Plaintiff, but he nevertheless attended the office of the Third Party to discuss the proposed sale.

19. When they met in the Third Party's office, two of the Third Party's agents, Chong Yee Ming ("Chong") and Tang Kwok Cheong ("Tang"), were present. They showed the land search record of the Property to the 2nd Defendant, and they threatened that no bank would accept a mortgage on a property with the registration of a deed of gift. They therefore put pressure on the 2nd Defendant to sign the Agreement. At the same time, some other estate agent called the 2nd Defendant's mobile phone, indicating that there might be some clients who were interested in purchasing the Property at a higher price. After some discussion, the 2nd Defendant indicated that unless a higher offer was made later in the evening, he would sign the Agreement with the Plaintiff. Chong, Tang and the 2nd Defendant then waited for an hour or so. As no further offer was made, the 2nd Defendant signed the Agreement later that evening.

20. The Third Party has called the said two agents, Chong and Tang, to testify in the trial. In the transaction concerned, Chong mainly dealt with the Plaintiff whilst Tang was mainly responsible for dealing with the Defendants. According to Chong, when he was engaged in the negotiation of the sale of the Property, he noticed that there was the Deed of Gift in the land search record. From his fellow colleagues, he knew that the Deed of Gift might cause some problem to the title of the Property, and so he asked Tang to clarify the matter with the Defendants. Tang eventually talked with the 2nd Defendant over this issue. According to Tang, the 2nd Defendant told him that the Deed of Gift only involved "an addition of name". Hence, it was not actually a "deed of gift" as such and it would not cause any problem to the title of the Property. The 2nd Defendant also assured Tang that he had already consulted his own lawyer on this issue. After obtaining such assurance, Tang conveyed the message to Chong, who in turn relayed the same message to the Plaintiff.

21. In reply to the Third Party's evidence, the 2nd Defendant denied that Tang had ever consulted him on the title matter, and he had never given the assurance as alleged by Tang.

22. Having considered the evidence and observed the witnesses in testifying in the witness box, I prefer to accept the evidence of the Third Party as the truth of what actually happened. In my observation, both Chong and Tang could clearly recall the events leading up to the signing of the Agreement, and despite the observation of Mr. Poon that they wanted to protect the reputation of the Third Party, they frankly admitted that they initially had certain unease about the Deed of the Gift in the land search record. They had not evaded any questions put to them in cross-examination, and so I believe that they were telling the truth.

23. On other hand, I find that the evidence of the 2nd Defendant is unsatisfactory in a number of aspects. First, whilst the 2nd Defendant could recall most of the events in his examination-in-chief, he always lost his memory when he was cross-examined on areas outside the scope of his evidence-in-chief. He "remembered" specific phrases or points in certain conversation but forgot other parts of the same conversation. This "selective memory" certainly undermines the reliability of his evidence.

24. The following features of the 2nd Defendant's evidence also shows that his version could not be right. According to him, he first put the Property in the market for sale in mid-1999. Since then, agents from other estate agent companies had, on some occasions, brought up the topic of the Deed of Gift. However, the 2nd Defendant was unable to recollect the details of such conversations. In my judgment, this was extremely odd. If other agents had brought up such topic, one would expect the 2nd Defendant would have been alarmed by it. In such circumstances, the 2nd Defendant should have verified such matter with his lawyer, but he did not do so in the present case. Hence, unless the 2nd Defendant never cared about whether he could sell the Property, otherwise the truth can only be:

(i) his lawyer back in 1998 told him that the transfer only involved an "addition of names" and not "an assignment by deed of gift" and there was no problem with the title, and armed with such advice, the 2nd Defendant repeated this to every agent who asked him about the Deed of Gift; or

(ii) the 2nd Defendant had verified with his solicitors in 1999 and was given with such assurance.

25. Further, the 2nd Defendant at one stage maintained that he was not aware of the title problem until after the Agreement was made. However, on the other hand, he mentioned that some other agents had brought up the issue of the Deed of Gift before, and that Chong and Tang had told him on 3 January 2000 that no bank would accept a mortgage on the Property. In such case, which version was right? Indeed, if what the 2nd Defendant said was correct and Chong and Tang did say something about the title of the Property on 3 January 2000, then one would expect the 2nd Defendant to have had a very strong reaction if he only learned about it the first time. He should have asked for solution to overcome such problem as he was eager to sell the Property to repay his debt. However, it seems that the 2nd Defendant did not have any reaction to such "revelation", and he simply waited for another hour to see whether other purchaser was prepared to make a higher offer. Apparently, he was only concerned about the price and not about the defect in title "revealed" by Chong and Tang. To me, this was extremely odd and contrary to common sense.

26. The 2nd Defendant's version is also illogical in another sense. If what he said was the truth, that means that the Third Party's agents put pressure on the parties to conclude the deal despite their knowledge about the defect of the title of the Property. However, such kind of willful neglect can only work against their interest. First, there bound to be complaints made by their clients, and even worse, there might be litigation involving the Third Party as it happened in the present case. They might not even get their commissions. In such case, why would they have pressurized the parties to sign the Agreement when the evidence clearly shows that there were a lot of similar flats available in the market? It was not the case that the Defendants' Property was unique, or the offer of the Plaintiff was exceptionally low, and so even if the Plaintiff preferred flats on lower floors, there would still be a lot of choices for the Plaintiff. In such circumstances, one would expect the Third Party's agents, if they had knowledge about the defect of the title, to have introduced the Plaintiff to other flats. Hence, there is certain degree of truth in the Third Party's evidence.

27. In his final submission, Mr. Poon for the Defendant argues that the Third Party's evidence was not the truth, as there is some inconsistency between Chong's and the Plaintiff's evidence as to who actually brought up the issue of the Deed of Gift. However, in my judgment, one might have made a genuine mistake in his or her recollection as to who actually brought up a particular topic for discussion, and I do not find that such immaterial inconsistency would affect the creditability of Chong's or Tang's evidence.

28. Based on the aforesaid analysis, I accept the Third Party's evidence as the truth, and I would therefore proceed to consider the duty of care issue based on such factual findings. As I understand it, the Defendants seek to argue that, even on such findings, Tang ought not to have accepted the 2nd Defendant's assurance and should have sought a second opinion to verify whether such assurance was correct. At the very least, the Third Party should have warned the Plaintiff to seek legal advice on the title matter. But in my judgment, I find that such duty is a too onerous an one to be imposed on estate agents.

29. In the unusually long written submission, Mr. Poon has referred me to a number of authorities, and he tries to equate the standard to be expected from estate agents in Hong Kong with that of other professionals such as solicitors or valuers in England. However, I am of the view that such kind of comparative exercise is not appropriate. I understand that estate agent is now a regulated profession, and every estate agent in Hong Kong has to obtain a licence from the Estate Agents Authority before he can practise in such field. However, unless it can be shown that an estate agent, in order to obtain the necessary licence, has to receive the same kind of training as those received by other professionals such as solicitors or valuers, one should not impose the same kind of standard in the present case.

30. In my judgment, the degree of skill and care expected from estate agents in Hong Kong, which forms the basis of any duty owed by the Third party to the Defendants, cannot be extended to some areas that the estate agents have received no training. Unless estate agents are expected to possess in-depth knowledge of conveyancing law, including the legal implications of the provisions of the EDO, and probably all the legal authorities mentioned in the latter part of this judgment, one should not impose a duty on them to question the accuracy of the 2nd Defendant's representation. In particular, the Third Party understood that the 2nd Defendant's assurance was given after consulting his lawyer. In such circumstances, unless the Defendants can show that an estate agent should have received training in this area, one should not expect Chong and Tang to take further steps to verify the legal opinion given by a solicitor on title matter. Indeed, solicitors should be in the best position to express such opinion, and I see nothing wrong that the Third Party simply relied on such representation given by the 2nd Defendant.

31. In his submission, Mr. Poon has also referred me to s. 36 of the Estate Agents Ordinance, Cap. 511 and the provisions in the Code of Ethics issued by the Estate Agents Authority ("the Code of Practice"). The former requires an estate agent to possess certain prescribed information relating to a property, whilst the latter require an agent to keep informed of any laws and Government regulation relating to his practice. However, it is clear that the Third Party was not in breach of the said section 36 as it possessed all the relevant prescribed information about the Property. For the provisions of the Code of Ethnics, putting the Defendants' case at the highest that such provisions have the same legal effect as legislations, I am of the view that the Third Party was not in breach of any such provisions. As I have mentioned above, such duty should not be extended to expect estate agent to have in-depth knowledge about conveyancing law and title matters. Indeed, there is an important provisio in the relevant provision of the Code of Ethnics, which requires estate agent to provide service based on "knowledge, training, qualifications and experience" in real estate business. Hence, unless the Third Party can show that a reasonable estate agent, with the necessary training and qualification, should have taken further steps to verify the assurance given by the 2nd Defendant, or to advise the Plaintiff to seek independent legal advice, the Third Party was not in breach of any duty owed to the Defendants.

32. It is common ground that the Third Party did employ some in-house lawyers to assist its practice. However, as there is no evidence that the Third Party had held itself out as an estate agent company who could give advice to its clients on title matters through its in-house lawyers, the degree of skill and care expected from the Third Party should not be higher than that of the other estate agents in Hong Kong.

33. There is also another flaw in the Defendants' argument. It is their case that the Third Party should have warned the Plaintiff to seek legal advice. In other words, the Defendants were asking the Third Party not to rely on their own statement in order to protect their interest. In my judgment, this cannot be right. The Defendants should bear the responsibility for the accuracy of their own statement. If the Third Party should have warned the Plaintiff to obtain legal advice, that was a duty owed to the Plaintiff and not to the Defendants, and the latter cannot rely on this to establish a claim against the Third Party.

34. In the premises, I find that the Third Party is not expected to be qualified or in the position to comment on an opinion which it understood to have been given by a solicitor as represented by the 2nd Defendant, and hence the Third Party was not in breach of any duty owed to the Defendants, and the Third Party Claim must therefore fail.

Defective title

35. The Third Party has also advanced another alternative argument. According to Mr. Mak, the title of the Property was not rendered defective by the registration of the Deed of Gift, and so the Defendants could have completed the transaction with the Plaintiff without suffering any damages. By reason of my ruling above in respect of the duty of care issue, it is not necessary for me to decide whether the title of the Property was indeed defective. However, as all counsel have made considerable submission on this issue, I think I owe them a duty to express my view on such matter.

36. It has all along been the Plaintiff's and the Defendant's case that the title of the Property was defective. On 5 June 1998, the 1st Defendant assigned the interest of the Property to the 2nd Defendant and himself as joint-tenants by way of the Deed of Gift. If the 1st Defendant happened to die within 3 years, the Property, by virtue of s. 5 and s. 6 of the EDO, would be deemed to be property passing on the 1st Defendant's death. By virtue of s. 18 of the EDO, the Commissioner of Estate Duty is then entitled to have a charge on the Property, and this constitutes a blot on the title. Hence, the Plaintiff and the Defendants say that the title of the Property was defective.

37. S. 5 of the EDO provides that estate duty shall be levied upon the principal value of all properties passing on the death of a deceased person. S. 6, which deems certain properties to be properties passing on death, reads as follows:

"(1) Property passing on death of the deceased shall be deemed to include the following:

.........

(c) property taken as a donatio mortis causa made by the deceased or taken under a deposition made by him, purporting to operate as an immediate gift inter vivos, whether by way of transfer, delivery, declaration of trust, or otherwise, which shall not have been bona fide made 3 years before the death or in the case of a gift inter vivos made or effected for such purposes as may be recognized by the Commissioner as public or charitable, one year before the death, or taken under any gift, whenever made, of which property bona fide possession and enjoyment shall not have been assumed by the donee immediately upon the gift and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise:

.........

[Second provisio] Provided also that where property taken under a disposition purporting to operate as an immediate gift inter vivos is deemed to be property passing on death of the deceased by reason only that the property was not, as from the date of the deposition, retained to the entire exclusion of the deceased or a person who had an estate or interest limited to cease on the death of the deceased, and of any benefit to him by contract or otherwise, the property shall not be deemed to pass on the death of the deceased if subsequently, by means of the surrender of the benefit reserved or otherwise, it is enjoyed to the entire exclusion of the deceased or such other person as aforesaid, and of any benefit to him by contract or otherwise, for a period of 3 years immediately preceding the death or in the case of such purposes as are recognized by the Commissioner as public or charitable, one year before the death;

........."

38. It is an old piece of legislation and so its wordings are by no means easy to understand. As I see it, this provision seems to apply to 3 types of cases, all defined after the words "taken". According to the Plaintiff and the Defendants, the present case falls within the second category, that is, property taken under a disposition by the donor purporting to operate as an immediate gift inter vivos, which shall not have been bona fide made 3 years before the death of the donor. In such case, whether the donor retains part of the interest in the property as he is one of the joint-tenants holding such property under the deed of gift, the property will still be caught by s. 6(1)(c) of the EDO.

39. The court has all along adopted such interpretation. In Lee Siu Man v. Chu Chi Wing [1992] 1 HKC 266, A and B were holding the property in issue as joint-tenants. On 5 August 1991, A and C acquired the property as joint-tenants from A and B by way of a deed of gift. A and C then purported to sell the property on 20 November 1991, with the donors of the property still surviving. Godfrey J., as he then was, held that the purchaser was entitled to object to the title as it disclosed a gift made within the period of 3 years last past. It is not clear from the judgment itself that the A and C acquired the property from A and B as joint-tenants, but the land search record conducted by the Defendants confirms that this was indeed the case.

40. In Chan Chi Hung v. Tse Ying Piu [1996] 4 HKC 763, the 1st defendant assigned the property in issue to his wife, the 2nd defendant, and himself by a deed of gift dated 15 October 1987. Both defendants then purported to sell the property by entering into a provisional agreement on 24 September 1994. When the purchaser challenged the title by reason of the deed of gift, the late Jerome Chan J. held that, firstly, such requisition was raised outside the time limit as provided for in the agreement, and secondly, as the 1st defendant was alive at the date of completion, the property could not have been subject to a latent charge according to s. 18 of the EDO. However, if the donor happened to die within 3 years from the date of the gift, the learned judge had the following observation:

"Though I accept the plaintiffs' construction of the relevant provisions in the Estate Duty Ordinance and the consequential view that as the 1st named defendants remained in joint possession of the property after making it as a gift there would be a possible liability for estate duty if he happens to die within three years of the assignment to the plaintiffs; ........."

In the present case, at the agreed completion date, the 1st Defendant might still have died within 3 years from the date of the Deed of Gift, and so the Property would be deemed to be property passing on death. In such circumstances, the title of the Property was defective at least at the agreed completion date.

41. However, Mr. Mak for the Third Party seeks to rely on 2 judgments of Pang J. in Shum Lap Chun v. Au Mee Lang [1996] 4 HKC 273 and Regent Fund Investment Ltd. V. Ng Shuk Kwan [1997] 2 HKC 105, and argues that s. 6(1)(c) would not be applicable to a case where the donor still retains interest in the gift, as he is one of the donees under the deed of gift holding such gift as joint-tenant with other donees. In these two cases, A assigned the interest of the subject property by way of a deed of gift to A and B as joint-tenants. After 5 to 6 years, A and B purported to sell the property to the purchaser, with A still surviving. In such circumstances, Pang J. held that:

(i) on completion of the sale, the premises could no longer belong to A or B as it was not "property passing upon death" within the meaning of s. 5 of the EDO, only the proceeds could become the subject matter of estate duty calculation and how the estate duty would be assessed was of no concern to the intended purchasers;

(ii) there was no potential risk of estate duty under s. 6(1)(d) of the EDO as once the property was sold, it would no longer be in the joint ownership of A and B and there was no question of A's interest on the property passing on to B by the doctrine of survivorship.

42. However, as I see it, there is one important difference in the facts between the said two cases and the present one. In both cases before Pang J., the donees of the gift purported to sell the properties more than 3 years after the date of the making of the gift. In such circumstances, the properties would not be caught as falling within the second category of cases under s. 6(1)(c). However, such properties may still fall within the third category, but Pang J. held that, under such circumstances, there is no potential risk for estate duty payment and any requisition of title raised in respect of such matter is misconceived.

43. In my judgment, the present case clearly falls within the second category of cases under s. 6(1)(c). The gift was perfected by the making of the Deed of Gift, and after that, the 2nd Defendant could sever the joint tenancy anytime by notice or instrument in law or any other methods in equity (see s. 8 of the Conveyancing and Property Ordinance, Cap. 219). As the Defendants purported to sell the Property within 3 years of the date of gift, and based on the Lee Siu Man case and the observation of the late Jerome Chan J. in the Chan Chi Hung case, the title of the Property was defective. However, as I have mentioned above, the Third Party was not in breach of its duty as estate agent to the Defendants, and hence my ruling on this matter has no bearing on the outcome of the Third Party Claim.

Causation

44. For the sake of completeness, I would also deal with the last alternative argument raised by Mr. Mak. According to his submission, the Defendants' solicitors did not reply to the new requisitions raised by the Plaintiff's solicitors in the letter dated 21 February 2000. It might be the case that the Defendants' solicitors could not answer those new requisitions in any event, and so the registration of the Deed of Gift was not a cause for the abortion of the transaction. As the Third Party's alleged breach of duty was related to the Deed of Gift issue, there was therefore no causal link between such breach of duty and the Defendants' loss.

45. However, in my judgment, the defective title was certainly one of the substantive causes for the abortion of the transaction. Assuming, for the purpose of argument, that the Defendants were not able to answer the new requisitions, the defective title was still one of the concurrent causes for the abortion of the transaction. It is trite law that when there are concurrent causes any one of which probably would have caused the damage, then each tortfeasor responsible for the respective causes will be liable for the full damage suffered (see Charlesworth & Percy on Negligence, 10 ed., paras 5-65 to 5-67). Hence I do not find in favour of the Third Party on this alternative argument.

46. However, it seems that the Third Party may have a better argument on the issue of causation. It is clear that the Defendants do not have a defence to the Plaintiff's claim for the return of the deposit and the indemnity for the stamp duty payment. If they conceded the Plaintiff's claim in this regard at the outset, they would not have to suffer any further damages arising from this action. Assuming that the Defendants are right and the Third Party should have warned the Plaintiff to seek legal advice, the likely outcome was that the Plaintiff would have not signed the Agreement in the first place, and, in such circumstances, the Defendants would not have been able to receive the deposit in any event. Hence, the return of the deposit was not actually a loss to the Defendants. If they have conceded the Plaintiff's claim in this regard from the outset, the Defendants would not have to suffer any damages, or at least the damages are limited to the indemnity for stamp duty payment, arising from this action. Hence, the Defendants' refusal to concede the Plaintiff's claim for the return of the deposit and the indemnity for stamp duty payment may amount to an intervening event which breaks the chain of causation of the Defendants' loss.

47. However, in the case that the Third Party intends to rely on the operation of an intervening event as a ground of defence, the particulars of such defence should have been pleaded. As the Third Party has not relied on such defence in its pleading, I decide not to base my decision on such observation.

48. Hence, I do not find in favour of the Third Party on its alternative argument. However, as I found that the Third Party was not in breach of its duty as estate agent to the Defendants, the issue of causation does not arise and the Third party Claim must fail in any event.

Conclusion

49. Based on the aforesaid, I allow the Plaintiff's claim but limited to the return of the deposits and the indemnity for stamp duty payment. I also dismiss the Defendants' Third Party Claim. In order to give a further opportunity to the parties to argue on the terms of the final order, I make an order nisi in the following terms:

(a) the Defendants do forthwith return to the Plaintiff the deposits in a total sum of $102,000 paid by the Plaintiff under the Agreement;

(b) the Defendants do indemnify the Plaintiff the stamp duty in a sum of $2,100 paid by the Plaintiff under the Agreement to the extent that the Plaintiff is not able to obtain a refund from the Controller of Stamp Revenue upon due efforts being made;

(c) the Defendants do pay to the Plaintiff interest on the amounts found due from the Defendants to the Plaintiff at the rate of 8.72% from the date of writ to the date hereof and thereafter at judgment rate;

(d) the Plaintiff is entitled to:

(i) a purchaser's lien on the Property for the return of the deposits together with interest and costs recovered by the Plaintiff in this action;

(ii) enforce the lien in the case of default of payment of the aforesaid sums by the Defendants.

(e) a declaration that by reason of the repudiation of the Agreement by the Defendants, the Plaintiff is relieved from all liability for further performance of her obligation thereunder;

(f) the Defendants' Third Party Claim be dismissed;

(g) the Defendants do pay the Plaintiff's costs of this action with certificate for counsel, to be taxed if not agreed; and

(h) save that there be no order as to costs of the hearing on 17 January 2002, the Defendants do pay the Third Party's costs of this action with certificate for counsel, to be taxed if not agreed.

The said order nisi is to be made absolute 14 days after the date of the handing down of this judgment.